[Graphic] FEDERATED INVESTORS
FEDERATED LIMITED TERM FUND
6TH SEMI-ANNUAL REPORT
MAY 31, 1997
ESTABLISHED 1992
PRESIDENT'S MESSAGE
[Graphic]
Dear Shareholder:
I am pleased to present the 6th Semi-Annual Report for Federated
Limited Term Fund. This Report covers the six-month period from
December 1, 1996, through May 31, 1997.
Established in 1992, this short-term bond fund holds securities with
maturities between those of money market instruments, i.e., 40-60
days, and government issues, i.e., maturities of 1-3 years. As a
result, shareholders can generally expect higher income than money
market fund instruments and lower income than longer term government
bond funds.* At the end of the period, the fund's assets totaled $110
million.
This report begins with an interview with portfolio managers Randall
S. Bauer and Deborah A. Cunningham, both vice presidents of Federated
Advisers. Following the interview are 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 reporting period was marked by low inflation and higher short-term
rates, which makes for an attractive income environment for investors
in short-term securities. Although the fund's net asset value declined
slightly in this rising rate environment, it was impacted less than
bond funds with longer maturities. For the six-month period ended May
31, 1997, the fund's share performance and income distributions
follow.**
<TABLE>
<CAPTION>
NAV NAV NAV TOTAL RETURN
12/1/96 5/31/97 CHANGE INCOME BASED ON NAV
<S> <C> <C> <C> <C> <C>
Class A Shares $9.91 $9.81 -1% $0.30 2.04%
Class F Shares $9.91 $9.81 -1% $0.30 2.09%
</TABLE>
* Unlike the fund, money market funds seek to maintain a stable $1.00
share value.
** Performance quoted represents past performance and is not
indicative of future results. Investment return and principal value
will fluctuate, so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Total returns for the
period based on offering price for Class A Shares and Class F
Shares were 1.02% and 0.04%, respectively.
Thank you for choosing Federated Limited Term Fund as a conservative
way to pursue income through a diversified, high-quality portfolio of
short-term securities. Remember, reinvesting your earnings is a
convenient way to build your account -- and helps to build your
account through the benefit of compounding.
As always, we welcome your comments and suggestions.
Sincerely,
[Graphic]
Richard B. Fisher
President
July 15, 1997
INVESTMENT REVIEW
[Graphic]
Randall S. Bauer
Vice President
Federated Advisers
[Graphic]
Deborah A. Cunningham
Vice President
Federated Advisers
[Graphic]
DURING THE REPORTING PERIOD, THE BOND MARKET CONTINUED TO EXPERIENCE
VOLATILITY, AND THE FEDERAL RESERVE BOARD (THE "FED") FINALLY DELIVERED A
MUCH-ANTICIPATED RATE INCREASE. WHAT ARE YOUR COMMENTS ON THE MARKET'S
ACTIVITY OVER THIS SIX-MONTH REPORTING PERIOD?
The level of economic activity was clearly higher than originally
anticipated by the market. The most interesting thing about the
economy's continued strength was that it was not accompanied by an
attendant increase in inflation. Bond investors discounted this fact,
however, and continued to push yields higher. The 2-year Treasury
note, a representative security for the part of the yield curve in
which the fund invests, increased in yield by 62 basis points over the
period under review. This had the net effect of increasing the real
yield (i.e., inflation-adjusted yield) on fixed-income securities to
an even more attractive level. The fact that the Fed chose to increase
short-term interest rates in an effort to "stay ahead of the inflation
curve" makes fixed-income investments even more attractive for the
intermediate term, since higher short-term rates should eventually
translate into a lower overall level of economic activity, which
should be beneficial for bonds.
[Graphic]
HOW DID FEDERATED LIMITED TERM FUND'S PORTFOLIO OF 2- TO 3-YEAR
MATURITY SECURITIES WEATHER THE PERIOD IN TERMS OF TOTAL RETURN AND
INCOME?
The fund's performance was in line with that of its peer group, the
Lipper Short Investment Grade Debt Funds category, which recorded an
average return for the period of 2.05%.* While both share classes
experienced a $0.10 per share decrease in net asset value, the fund's
Class A Shares produced a total return of 2.04%, based on net asset
value, and monthly dividends totaling $0.30 per share.** Class F
Shares produced a total return of 2.09%, based on net asset value, and
paid monthly dividends totaling $0.30 per share.**
* Lipper figures represent the average of the total returns reported
by all of the mutual funds designated by Lipper Analytical
Services, Inc. as falling into the respective categories indicated.
Lipper figures do not reflect sales charges.
** Performance quoted represents past performance and is not
indicative of future results. Investment return and principal value
will fluctuate, so that an investor's shares, when redeemed, may be
worth more or less than their original cost. Total returns for the
period based on offering price for Class A Shares and Class F
Shares were 1.02% and 0.04%, respectively.
The 30-day current yield for Class A Shares and Class F Shares
increased from 5.96% and 6.06% to 6.09% and 6.19%, respectively, based
on net asset value, from the first day to last day of the period,
reflecting higher yields available on securities purchased into the
fund.+
[Graphic]
HOW WERE THE FUND'S NET ASSETS ALLOCATED AT THE END OF THE PERIOD
AMONG TYPES OF SECURITIES AND CREDIT QUALITY?
Traditionally, the fund's net assets are allocated across three major
security classes: traditional corporate securities, asset-backed
securities and mortgage-backed securities. Over the past six months,
the fund's largest allocation was in corporates, which has been the
best performing group of the three. On May 31, 1997, approximately 42%
of the fund's assets were in corporate securities, with 27% in
mortgage-backed securities and 23% in asset-backed issues. The
remaining 8% of assets were in cash.
With regard to credit quality, the fund continued to maintain a solid
investment-grade average quality profile. At the end of the period
under review, in addition to the 8% cash position (consisting of
repurchase agreements backed by U.S. government securities), 32% of
the securities in the fund were rated "AAA," 8% were rated "AA," 19%
were rated "A," 23% were rated "BBB," and 10% were rated below
investment grade.
[Graphic]
WITH ONE RATE INCREASE BEHIND US, WHAT IS YOUR OUTLOOK FOR RATES FOR THE
BALANCE OF 1997, AND DO YOU ANTICIPATE ANY PORTFOLIO ADJUSTMENTS IN
RESPONSE?
While fund management's intermediate outlook on the bond market
remains favorable as noted above, the short term will be clouded by
the potential for another Fed tightening. This concern is causing
management to keep the fund's interest rate exposure, as measured by
its effective modified duration, somewhat below neutral. If the Fed
were to again increase short-term rates, duration would be extended,
as any further interest rate increase by the Fed could be the last for
some time. In addition, any signs of significant economic slowdown
would also be met with an increase in duration, in order to take best
advantage of any potential decline in bond yields.
+ The 30-day current net yield is calculated by dividing the
investment income per share for the prior 30 days by the maximum
offering price per share on that date. The figure is compounded and
annualized. The 30-day current yield based on offering price for
Class A and Class F Shares was 6.09% and 6.19%, respectively.
TWO WAYS YOU MAY SEEK TO INVEST FOR SUCCESS IN
FEDERATED LIMITED TERM FUND
INITIAL INVESTMENT:
IF YOU HAD MADE AN INITIAL INVESTMENT OF $6,000 IN THE CLASS A SHARES
OF FEDERATED LIMITED TERM FUND ON 1/14/92, REINVESTED DIVIDENDS AND
CAPITAL GAINS, AND DIDN'T REDEEM ANY SHARES, YOUR ACCOUNT WOULD BE
WORTH $7,998 ON 5/31/97. YOU WOULD HAVE EARNED A 5.49%* 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, and you gain the benefit of compounding.
As of 6/30/97, the Class A Shares' average annual one-year, five-year
and since inception (1/14/92) total returns were 6.94%, 5.56%, and
5.63%, respectively. The Class F Shares' average annual one-year, and
since inception (9/1/93) total returns were 5.97% and 4.58%,
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, and the 1% sales
charge and 1% contingent deferred sales charge for Class F 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 SIX YEARS (REINVESTING ALL DIVIDENDS AND
CAPITAL GAINS) GREW TO $6,954.
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 $6,000, but your account would have reached a total value of
$6,954* by 5/31/97. You would have earned an average annual total
return of 5.19%.
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, 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 FUND
HYPOTHETICAL INVESTOR PROFILE: INVESTING FOR UNPLANNED EXPENSES
While most investors focus on planned financial goals, Phil and Kate
Porter also invest to help with life's unplanned expenses. On 1/14/92
they invested $10,000 in Federated Limited Term Fund to start an
emergency reserve account. By 5/31/97, their account had grown to
$13,658, achieving an average annual return of 5.49%.*
Over time, they may draw on the accumulated income to pay for
everything from major car repairs to household plumbing emergencies.
The fund helps them accumulate more than they could through a money
market fund, yet its short-term nature helps keep principal
fluctuation to a minimum. With Federated Limited Term Fund, they can
take comfort in the fact that they have a reserve to help with
whatever unforeseen expenses lie ahead.
["Graphic representation A3 omitted. See Appendix."]
* This hypothetical scenario is provided for illustrative purposes only and
does not represent the result obtained by any particular shareholder. Past
performance does not guarantee future results.
FEDERATED LIMITED TERM FUND
PORTFOLIO UPDATE
["Graphic representation A4 omitted. See Appendix."]
FEDERATED LIMITED TERM FUND
PORTFOLIO OF INVESTMENTS
MAY 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
ADJUSTABLE RATE MORTGAGES -- 2.3%
GOVERNMENT AGENCY -- 2.3%
$ 933,253 (a)Federal Home Loan Mortgage Corp., ARMs, 7.66%, 9/1/2019 $ 973,458
1,006,836 (a)Federal Home Loan Mortgage Corp., ARMs, 7.60%, 12/1/2018 1,050,694
338,749 (a)Federal National Mortgage Association, ARMs, 8.07%, 12/1/2020 358,400
120,502 (a)Federal National Mortgage Association, ARMs, 7.78%, 11/1/2017 127,358
TOTAL ADJUSTABLE RATE MORTGAGES (IDENTIFIED COST $2,445,766) 2,509,910
ASSET-BACKED SECURITIES -- 21.9%
AUTOMOBILE -- 8.8%
685,175 Daimler-Benz Auto Grantor Trust 1995-A, Class A, 5.85%, 5/15/2002 685,867
1,033,202 Navistar Financial Corp. Owner Trust 1994-B, 6.63%, 1/15/2000 1,039,556
1,392,268 Navistar Financial Corp. Owner Trust 1995-A, Class B, 6.85%, 11/20/2001 1,399,800
2,887,000 Premier Auto Trust 1995-3, Class B, 6.25%, 8/6/2001 2,875,712
1,950,000 Team Fleet Financing Corp. Series 1997-1 , Class B, 7.80%, 5/15/2003 1,969,188
1,850,000 Yamaha Motor Master Trust 1995-1, Class A, 6.20%, 5/15/2003 1,824,045
Total 9,794,168
CREDIT CARD -- 6.8%
1,850,000 Banco Nacional de Mexico S.A., Credit Card Merchant Voucher
Receivables Master Trust 1996-A, Class A1, 6.25%, 12/1/2003 1,802,807
3,000,000 Bridgestone/Firestone Master Trust 1996-1, Class B, 6.49%, 7/1/2003 2,950,830
750,000 Dayton Hudson Credit Card Master Trust 1995-1, Class A, 6.10%, 2/25/2002 751,553
2,000,000 Household Affinity Credit Card Master Trust 1993-1, Class B, 5.30%, 9/15/2000 1,959,800
Total 7,464,990
HOME EQUITY LOAN -- 4.5%
656,717 AFC Home Equity Loan Trust 1992-3, Class A, 7.05%, 8/15/2007 656,999
394,174 Advanta HEL Trust 1991-1, Class A, 9.00%, 2/25/2006 407,426
1,638,195 Merrill Lynch Home Equity Loan Trust 1993-1, Class B, 6.50%, 2/15/2003 1,649,826
</TABLE>
FEDERATED LIMITED TERM FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
ASSET-BACKED SECURITIES -- CONTINUED
HOME EQUITY LOAN -- CONTINUED
$ 1,000,000 Merrill Lynch Mortgage Investors, Inc. 1993-C, Series 1993-C, Class
A4, 6.50%, 3/15/2018 $ 1,011,250
457,348 The Money Store Home Equity Trust 1992-B, Class A, 6.90%, 7/15/2007 454,800
763,690 The Money Store Home Equity Trust 1992-A, Class A, 6.95%, 1/15/2007 762,422
Total 4,942,723
MARINE RECEIVABLES -- 1.8%
1,941,406 CBNJ Boat Loan Trust 1994-1, Class A, 6.89%, 5/18/2012 1,953,598
TOTAL ASSET-BACKED SECURITIES (IDENTIFIED COST $24,110,984) 24,155,479
COLLATERALIZED MORTGAGE OBLIGATIONS -- 20.0%
COMMERCIAL MORTGAGE -- 2.0%
4,000,000 First Union Lehman Brothers Commercial Mortgage Trust 1997-C1,
Series 1997C1, Class IO, 1.307%, 4/18/2029 315,000
1,900,000 (b)K Mart CMBS Financing, Inc. Series 1997-1, Series 1997-1, Class D,
6.475%, 3/1/2007 1,903,572
Total 2,218,572
GOVERNMENT AGENCY -- 0.5%
36,299,517 Vendee Mortgage Trust 1995-1C, Series 1995-1C, Class 3IO, .2925%,
2/15/2025 567,361
WHOLE LOAN -- 17.5%
2,771,641 (a)Citicorp. Mortgage Securities, Inc., Series 1992-18, Series 1992-18,
Class A-1, 7.26%, 11/25/2022 2,789,823
2,950,000 Prudential Home Mortgage Securities, Inc. 1992-32, Class A-6, 7.50%,
10/25/2022 2,952,626
4,941,822 (b)Prudential Home Mortgage Securities, Inc. 1995-G, Class B2, 7.9158%,
5/30/2024 4,421,399
3,786,982 Residential Accredit Loans, Inc. 1996-QS8, Class A3, 7.05%, 12/25/2026 3,753,846
2,100,000 Residential Accredit Loans, Inc. 1997-QS2, Class A3, 7.25%, 3/31/2027 2,097,375
</TABLE>
FEDERATED LIMITED TERM FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS -- CONTINUED
WHOLE LOAN -- CONTINUED
$ 3,270,000 Resolution Trust Corp. 1992-15, Series 1992-15, Class B3, 10.00%, 7/25/2027 $ 3,342,038
Total 19,357,107
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (IDENTIFIED COST $21,911,380) 22,143,040
CORPORATE BONDS -- 41.6%
AUTOMOBILE -- 0.7%
775,000 Chrysler Corp., Deb., 10.95%, 8/1/2017 825,453
BANKING -- 7.7%
3,000,000 (a)Chase Manhattan Corp., Sub. Note, 5.25%, 12/5/2009 2,938,020
2,000,000 (a)Citicorp, Sub. Note, 5.5375%, 10/25/2005 1,969,300
3,615,000 (a)Citicorp, Sub. Note, 6.00%, 6/28/2005 3,565,294
Total 8,472,614
CABLE TELEVISION -- 5.8%
1,900,000 Continental Cablevision, Sr. Sub. Note, 10.625%, 6/15/2002 2,009,820
2,000,000 EchoStar Satellite Broadcasting Corp., Sr. Disc. Note, 0/13.125%, 3/15/2004 1,360,000
2,800,000 TKR Cable, Inc., 10.50%, 10/30/2007 3,072,244
Total 6,442,064
ELECTRONICS -- 1.8%
2,000,000 Polaroid Corp., 6.75%, 1/15/2002 1,971,100
FINANCE - AUTOMOTIVE -- 2.7%
3,000,000 Ford Motor Credit Corp., Medium Term Note, 7.02%, 10/10/2000 3,022,800
FINANCIAL SERVICES -- 3.6%
3,750,000 AIM Management Group, 9.00%, 11/15/2003 4,024,275
FOOD & DRUG RETAILERS -- 0.7%
700,000 Kroger Co., Inc., Note, 9.25%, 1/1/2005 742,000
</TABLE>
FEDERATED LIMITED TERM FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS -- CONTINUED
HEALTHCARE -- 3.0%
$ 1,975,000 Healthsource, Inc., Conv. Bond, 5.00%, 3/1/2003 $ 1,971,129
1,325,000 (b)Healthsource, Inc., Conv. Bond, 5.00%, 3/1/2003 1,322,403
Total 3,293,532
HOTELS, MOTELS, INNS & CASINOS -- 2.8%
500,000 (b)Hyatt Equities, L.L.C., 6.80%, 5/15/2000 501,250
2,400,000 La Quinta Inns, Inc., Sr. Sub. Note, 9.25%, 5/15/2003 2,511,000
Total 3,012,250
INDUSTRIAL PRODUCTS & EQUIPMENT -- 1.5%
1,600,000 Figgie International Holdings, Inc., Sr. Note, 9.875%, 10/1/1999 1,666,000
INSURANCE -- 2.0%
2,000,000 GEICO Corp., Deb., 9.15%, 9/15/2021 2,193,960
RETAIL -- 1.3%
1,450,000 Shopko Stores, Inc., 8.50%, 3/15/2002 1,479,000
SERVICES -- 0.9%
1,000,000 Loewen Group Int'l, Sr. Note, 8.25%, 4/15/2003 1,023,340
TELECOMMUNICATIONS & CELLULAR -- 2.0%
2,000,000 British Telecommunication PLC, 9.625%, 2/15/2019 2,172,120
UTILITIES -- 5.1%
2,000,000 Boston Edison Co., Deb., 5.95%, 3/15/1998 1,998,840
1,400,000 Pennsylvania Power & Light Company, 9.25%, 10/1/2019 1,492,414
2,000,000 Union Electric Co., 1st Mtg. Bond, 8.75%, 12/1/2021 2,111,900
Total 5,603,154
TOTAL CORPORATE BONDS (IDENTIFIED COST $46,470,755) 45,943,662
GOVERNMENTS AGENCIES -- 3.7%
SOVEREIGN GOVERNMENT -- 0.9%
1,000,000 (b)United Mexican States, 7.6875%, 8/6/2001 1,009,499
</TABLE>
FEDERATED LIMITED TERM FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
GOVERNMENTS AGENCIES -- CONTINUED
STATE/PROVINCIAL -- 2.8%
$ 3,700,000 Ontario Hydro, 10.00%, 3/19/2001 $ 3,062,803
TOTAL GOVERNMENTS AGENCIES (IDENTIFIED COST $4,181,122) 4,072,302
MORTGAGE BACKED SECURITIES -- 3.8%
GOVERNMENT AGENCY -- 3.8%
1,831,633 Federal Home Loan Mortgage Corp., 6.00%, 4/1/2003 1,782,399
2,317,452 Government National Mortgage Association, 8.50%, 8/15/2026 2,400,741
TOTAL MORTGAGE BACKED SECURITIES (IDENTIFIED COST $4,170,740) 4,183,140
(C)REPURCHASE AGREEMENTS -- 7.8%
8,665,000 BT Securities Corporation, 5.56%, dated 5/30/1997, due 6/2/1997
(AT AMORTIZED COST) 8,665,000
TOTAL INVESTMENTS (IDENTIFIED COST $111,955,747)(D) $ 111,672,533
</TABLE>
(a) Denotes variable rate and floating rate obligations for which the
current rate is shown.
(b) Denotes a restricted security, which is subject to restrictions on
resale under Federal Securities Laws. At the end of the period,
these securities amounted to $9,158,123 which represents 8.3% 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
$111,955,747. The net unrealized depreciation of investments on a
federal tax basis amounts to $283,214 which is comprised of
$730,802 appreciation and $1,014,016 depreciation at May 31, 1997.
Note: The categories of investments are shown as a percentage of net assets
($110,425,915) at May 31, 1997.
The following acronym is used throughout this portfolio:
ARMs -- Adjustable Rate Mortgages
PLC -- Public Limited Company
(See Notes which are an integral part of the Financial Statements)
FEDERATED LIMITED TERM FUND
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $111,955,747) $111,672,533
Income receivable 1,182,819
Receivable for shares sold 2,534
Net receivable for foreign currency exchange contracts sold 8,640
Deferred expenses 20,923
Total assets 112,887,449
LIABILITIES:
Payable for investments purchased $1,560,900
Payable for shares redeemed 252,653
Income distribution payable 555,560
Payable to Bank 1,364
Accrued expenses 91,057
Total liabilities 2,461,534
NET ASSETS for 11,251,455 shares outstanding $110,425,915
NET ASSETS CONSIST OF:
Paid in capital $121,517,889
Net unrealized depreciation of investments and translation of assets and
liabilities in foreign currency (266,014)
Accumulated net realized loss on investments and foreign currency transactions (10,828,453)
Undistributed net investment income 2,493
Total Net Assets $110,425,915
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
CLASS A SHARES:
Net Asset Value Per Share ($101,481,308 / 10,340,070 shares outstanding) $9.81
Offering Price Per Share (100/99.00 of $9.81)* $9.91
Redemption Proceeds Per Share $9.81
CLASS F SHARES:
Net Asset Value Per Share ($8,944,607 / 911,385 shares outstanding) $9.81
Offering Price Per Share (100/99.00 of $9.81)* $9.91
Redemption Proceeds Per Share (99.00/100 of $9.81)** $9.71
</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
SIX MONTHS ENDED MAY 31, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 4,113,798
EXPENSES:
Investment advisory fee $ 231,700
Administrative personnel and services fee 77,288
Custodian fees 14,187
Transfer and dividend disbursing agent fees and expenses 88,024
Directors'/Trustees' fees 2,002
Auditing fees 7,462
Legal fees 2,003
Portfolio accounting fees 31,986
Distribution services fee -- Class A Shares 267,705
Distribution services fee -- Class F Shares 6,576
Shareholder services fee -- Class A Shares 133,852
Shareholder services fee -- Class F Shares 10,960
Share registration costs 10,920
Printing and postage 25,417
Insurance premiums 2,243
Taxes 12,437
Miscellaneous 19,959
Total expenses 944,721
Waivers --
Waiver of investment advisory fee $ (146,566)
Waiver of distribution services fee -- Class A Shares (160,623)
Waiver of distribution services fee -- Class F Shares (877)
Waiver of shareholder services fee -- Class F Shares (1,315)
Total waivers (309,381)
Net expenses 635,340
Net investment income 3,478,458
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY:
Net realized gain on investments and foreign currency 313,393
transactions
Net change in unrealized depreciation of investments and translation of assets
and liabilities
in foreign currency (1,401,560)
Net realized and unrealized loss on investments and foreign currency (1,088,167)
Change in net assets resulting from operations $ 2,390,291
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED LIMITED TERM FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
(UNAUDITED) NOVEMBER 30,
MAY 31, 1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 3,478,458 $ 7,793,407
Net realized gain (loss) on investments and foreign currency
transactions ($313,393 and ($97,950), respectively, as computed for
federal tax purposes) 313,393 (127,055)
Net change in unrealized appreciation/depreciation of investments
and translation of assets and liabilities in foreign currency (1,401,560) (986,773)
Change in net assets resulting from operations 2,390,291 6,679,579
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income
Class A Shares (3,258,300) (7,170,778)
Class F Shares (270,973) (585,285)
Change in net assets resulting from distributions to shareholders (3,529,273) (7,756,063)
SHARE TRANSACTIONS--
Proceeds from sale of shares 17,913,323 29,931,476
Net asset value of shares issued to shareholders in payment of
distributions declared 1,890,053 5,052,858
Cost of shares redeemed (33,351,176) (57,429,451)
Change in net assets resulting from share transactions (13,547,800) (22,445,117)
Change in net assets (14,686,782) (23,521,601)
NET ASSETS:
Beginning of period 125,112,697 148,634,298
End of period (including undistributed net investment income of
$2,493 and $53,308, respectively) $ 110,425,915 $ 125,112,697
</TABLE>
(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>
SIX MONTHS
ENDED
(UNAUDITED)
MAY 31, YEAR ENDED NOVEMBER 30,
1997 1996 1995 1994 1993 1992(A)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 9.91 $ 9.97 $ 9.48 $10.17 $10.00 $10.01
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.30 0.59 0.55 0.53 0.63 0.519
Net realized and unrealized
gain (loss) on investments and
foreign currency (0.10) (0.06) 0.49 (0.66) 0.19 (0.008)
Total from investment 0.20 0.53 1.04 (0.13) 0.82 0.511
operations
LESS DISTRIBUTIONS
Distributions from net
investment income (0.30) (0.59) (0.55) (0.53) (0.63) (0.519)
Distributions in excess of
net investment income -- -- -- (0.02) (0.02) (0.002)
Distributions from net
realized gain on investments and
foreign currency transactions -- -- -- (0.01) -- --
Total distributions (0.30) (0.59) (0.55) (0.56) (0.65) (0.521)
NET ASSET VALUE, END OF $ 9.81 $ 9.91 $ 9.97 $ 9.48 $10.17 $10.00
PERIOD
TOTAL RETURN(B) 2.04% 5.54% 11.29% (1.30%) 8.19% 5.21%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.10%* 1.10% 1.10% 1.10% 1.01% 0.67%*
Net investment income 6.00%* 6.04% 6.13% 5.52% 5.75% 6.17%*
Expense waiver(c) 0.55%* 0.56% 0.43% 0.39% 0.49% 1.06%*
SUPPLEMENTAL DATA
Net assets, end of period $101,481 $116,174 $138,451 $178,771 $248,876 $57,225
(000 omitted)
Portfolio turnover 28% 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) Based on net asset value, which does not reflect the sales charge
or contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense
and net investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED LIMITED TERM FUND
FINANCIAL HIGHLIGHTS -- CLASS F SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
MAY 31, YEAR ENDED NOVEMBER 30,
1997 1996 1995 1994 1993(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.91 $ 9.97 $ 9.48 $10.17 $10.24
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.30 0.66 0.61 0.55 0.15
Net realized and unrealized gain (loss) on
investments and foreign currency (0.10) (0.12) 0.44 (0.67) (0.07)
Total from investment operations 0.20 0.54 1.05 (0.12) 0.08
LESS DISTRIBUTIONS
Distributions from net investment income (0.30) (0.60) (0.56) (0.55) (0.15)
Distributions in excess of net investment
income(b) -- -- -- (0.01) --
Distributions from net realized gain on
investments and foreign currency
transactions -- -- -- (0.01) --
Total distributions (0.30) (0.60) (0.56) (0.57) (0.15)
NET ASSET VALUE, END OF PERIOD $ 9.81 $ 9.91 $ 9.97 $ 9.48 $10.17
TOTAL RETURN(C) 2.09% 5.64% 11.39% (1.20%) 0.78%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.01%* 1.00% 1.00% 0.99% 1.00%*
Net investment income 6.10%* 6.14% 6.22% 5.67% 7.10%*
Expense waiver(d) 0.30%* 0.31% 0.18% 0.13% 0.39%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $8,945 $8,938 $10,183 $13,415 $7,230
Portfolio turnover 28% 104% 63% 63% 38%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from August 31, 1993 (date of
initial public offering) to November 30, 1993.
(b) Distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting
principles. These distributions do not represent a return of
capital for federal income tax purposes.
(c) Based on net asset value, which does not reflect the sales charge
or contingent deferred sales charge, if applicable.
(d) This voluntary expense decrease is reflected in both the expense
and net investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED LIMITED TERM FUND
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1997 (UNAUDITED)
1. ORGANIZATION
Fixed Income Securities, Inc. (the "Corporation") is registered under
the Investment Company Act of 1940, as amended (the "Act") as an
open-end, management investment company. The Corporation consists of
three portfolios. The financial statements included herein are only
those of Federated Limited Term Fund (the "Fund"), a diversified
portfolio. The financial statements of the other portfolios are
presented separately. The assets of each portfolio are segregated and
a shareholder's interest is limited to the portfolio in which shares
are held. The Fund offers two classes of shares: Class A Shares and
Class F Shares. The 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 -- U.S. government securities, listed
corporate bonds, (other fixed income and asset-backed securities),
and unlisted securities and private placement securities are
generally valued at the mean of the latest bid and asked price as
furnished by an independent pricing service. Short-term securities
are valued at the prices provided by an independent pricing
service. 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. With respect to valuation of foreign securities, trading in
foreign cities may be completed at times which vary from the
closing of the New York Stock Exchange. Therefore, foreign
securities are valued at the latest closing price on the exchange
on which they are traded prior to the closing of the New York Stock
Exchange. Foreign securities quoted in foreign currencies are
translated into U.S. Dollars at the foreign exchange rate in effect
at noon, eastern time, on the day the value of the foreign security
is determined.
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.
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.
FOREIGN EXCHANGE CONTRACTS -- The Fund may enter into foreign
currency commitments for the delayed delivery of securities or
foreign currency exchange transactions. Purchased contracts are
used to acquire exposure to foreign currencies; whereas, contracts
to sell are used to hedge the Fund's securities against currency
fluctuations. Risks may arise upon entering these transactions from
the potential inability of counterparts 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 purpose as
unrealized until the settlement date.
At May 31, 1997, the Fund had outstanding foreign currency
commitments as set forth below:
<TABLE>
<CAPTION>
SETTLEMENT DATE CONTRACTS TO IN EXCHANGE CONTRACTS UNREALIZED
CONTRACTS SOLD DELIVER FOR AT VALUE APPRECIATION
<S> <C> <C> <C> <C>
8/27/97 4,457,872 $3,263,449 $3,254,809 $8,640
Canadian
Dollars
</TABLE>
FEDERATED LIMITED TERM FUND
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.
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 May 31,
1997 is as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
Healthsource, Inc. 3/27/1997 $1,308,833
Hyatt Equities, L.L.C. 5/15/1997 499,070
K Mart CMBS Financing, Inc. 2/27/1997 1,900,000
Prudential Home Mortgage
Securities, Inc. 6/13/1996 4,185,106
United Mexican States 7/29/1996 998,279
</TABLE>
USE OF ESTIMATES -- The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
amounts of assets, liabilities, expenses and revenues reported in
the financial statements. Actual results could differ from those
estimated.
OTHER -- Investment transactions are accounted for on the trade
date.
3. CAPITAL STOCK
At May 31, 1997, par value shares ($0.001 per share) authorized were
as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
PAR VALUE
CLASS NAME AUTHORIZED
<S> <C>
Class A 1,000,000,000
Class F 1,000,000,000
</TABLE>
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
MAY 31, 1997 NOVEMBER 30, 1996
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 1,700,295 $ 16,727,521 2,805,603 $ 27,464,259
Shares issued to shareholders in payment of
distributions declared 178,999 1,759,433 480,026 4,713,413
Shares redeemed (3,264,110) (32,124,482) (5,449,139) (53,449,243)
Net change resulting from Class A Share
transactions (1,384,816) $(13,637,528) (2,163,510) $ (21,271,571)
<CAPTION>
YEAR ENDED YEAR ENDED
MAY 31, 1997 NOVEMBER 30, 1996
CLASS F SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 120,649 $ 1,185,802 250,466 $ 2,467,217
Shares issued to shareholders in payment of
distributions declared 13,287 130,620 34,590 339,445
Shares redeemed (124,651) (1,226,694) (404,495) (3,980,208)
Net change resulting from Class F Share
transactions 9,285 $ 89,728 (119,439) $ (1,173,546)
Net change resulting from share
transactions (1,375,531) $(13,547,800) (2,282,949) $ (22,445,117)
</TABLE>
FEDERATED LIMITED TERM FUND
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE -- Federated Advisers, the Fund's
investment adviser (the "Adviser"), receives for its services an
annual investment advisory fee equal to 0.40% 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.
<TABLE>
<CAPTION>
PERCENTAGE OF
AVERAGE DAILY
SHARE CLASS NAME NET ASSETS OF CLASS
<S> <C>
Class A 0.50%
Class F 0.15%
</TABLE>
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.
GENERAL -- Certain of the Officers and Directors of the Corporation
are Officers and Directors or Trustees of the above companies.
FEDERATED LIMITED TERM FUND
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities,
for the period ended May 31, 1997, were as follows:
<TABLE>
<S> <C>
PURCHASES $31,092,937
SALES $47,160,925
</TABLE>
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
J. Crilley Kelly
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
risk, including possible loss of principal.
This report is authorized for distribution to prospective investors
only when preceded or accompanied by the fund's prospectuses which
contain facts concerning its objective and policies, management fees,
expenses and other information.
[Graphic]
Federated Investors
Federated Securities Corp., Distributor
Cusip 338319106
Cusip 338319304
3070201 (7/97)
[Graphic]
[Graphic] FEDERATED INVESTORS
FEDERATED
LIMITED TERM
MUNICIPAL
FUND
4TH SEMI-ANNUAL REPORT
MAY 31, 1997
ESTABLISHED 1993
PRESIDENT's MESSAGE
[Graphic]
Dear Shareholder:
The Federated Limited Term Municipal Fund was established in 1993, and
I am pleased to present the 4th Semi-Annual Report. This report covers
the six-month reporting period from December 1, 1996, through May 31,
1997.
First, you will find a discussion with Jeff Kozemchak, Vice President,
Federated Advisers, who co-manages the fund 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 fund's portfolio of short-term municipal bonds with a weighted
average duration of less than four years pursues attractive tax-free
income.* The fund's yield is between tax-free money market fund
instruments' rates and longer term municipal bonds.** As a result, it
can offer more income than money market instruments, but less income
than long-term, tax-free municipal bonds.
For the six-month period ended May 31, 1997, the fund's share
performance and income distributions follow.***
NAV NAV NAV TOTAL RETURN
12/1/96 5/31/97 CHANGE INCOME BASED ON NAV
Class A Shares $9.76 $9.71 -0.5% $0.2012 1.57%
Class F Shares $9.76 $9.71 -0.5% $0.2133 1.69%
During the reporting period, which was marked by rising rates, the
fund's total return performance was consistent with the 1.64% return
of the fund's benchmark, the Lipper Short Municipal Debt category.****
However, thanks to holdings in higher yielding sectors of the
municipal market, the fund's 30-day distribution rate of 4.17% for
Class A Shares+, based on net asset value, and 4.42% for Class F
Shares was above par, which equates to a tax-equivalent yield of
6.90%++ and 7.32%, respectively, for investors in the 39.60% tax
bracket. The 30-day SEC yields for Class A Shares, based on net asset
value, and Class F Shares were 4.11% and 4.36%, respectively.+++
* Income may be subject to the federal alternative minimum tax.
** Unlike the fund, money market funds seek to maintain a stable $1.00
share value.
*** Performance quoted represents past performance and is not
indicative of future results. Investment return and principal
value will fluctuate, so that an investor's shares, when redeemed,
may be worth more or less than their original cost. Total returns
for the period based on offering price for Class A Shares and
Class F Shares were 0.54% and 0.65%, respectively.
**** Lipper figures represent the average of the total returns
reported by all of the mutual funds designated by Lipper
Analytical Services, Inc. as falling into the respective
categories indicated. These figures do not reflect sales charges.
+ The 30-day distribution rate reflects actual distributions made to
shareholders. It is calculated by dividing the monthly annualized
dividend plus short-term capital gains, if any, by the average
30-day offering price. The 30-day distribution rate based on
offering price for Class A Shares was 4.13%.
++ The tax-equivalent yield based on offering price for Class A Shares
was 6.84%.
+++ The 30-day SEC yield is calculated by dividing the investment
income per share for the prior 30 days by the maximum offering
price per share on that date. The figure is compounded and
annualized. The 30-day SEC yield based on offering price for Class
A Shares was 4.07%.
At the end of the period, the fund's $82.8 million portfolio was
invested as follows: 45% A or better, 38% BBB, 17% non-rated.++++ The
fund owned 77 municipal securities. These included bonds issued for
hospitals, single-family housing authorities, electric revenue, and
resource recovery bonds -- with an average of 1.20% in each of the
above issues.
Thank you for choosing Federated Limited Term Municipal Fund as a
relatively conservative way to pursue tax-free income from short-term
municipal issues. Remember, reinvesting your earnings and adding to
your account on a regular basis are two convenient ways to gain the
benefit of compounding.+++++
As always, we welcome your comments and suggestions.
Sincerely,
[Graphic]
Richard B. Fisher
President
July 15, 1997
++++ Ratings are according to Standard & Poor's Ratings Group.
+++++ Systematic investing does not ensure a profit or protect against
loss in declining markets.
INVESTMENT REVIEW
[Graphic]
Jeff A. Kozemchak, CFA
Vice President
Federated Advisers
[Graphic]
Mary Jo Ochson
Senior Vice President
Federated Advisers
[Graphic]
HOW WOULD YOU CHARACTERIZE THE ECONOMY AND THE SHORT-TERM MUNICIPAL
BOND MARKET OVER THE SIX-MONTH REPORTING PERIOD?
Although it did not occur until near the middle of the fund's
reporting period, the Federal Reserve Board (the "Fed") brought about
the first change in monetary policy in over a year. On March 25, 1997,
the Fed voted to raise the Federal Funds Target Rate from 5.25% to
5.50%, in the face of stronger-than-expected demand. The move was
viewed as being preemptive against the threat of future inflationary
pressures possibly brought about by tight labor market conditions.
Until that point, movements in interest rates reflected shifting
market sentiment about the need for the Fed to move to a more
restrictive policy. Before the reporting period began, the economy had
been showing signs of slowing, thereby allaying the market's fears
about inflation. Then, in December, the market's uneasiness was once
more ignited as a string of economic statistics showed stronger
growth, and Chairman Greenspan made cautionary statements regarding
inflation and "irrational exuberance" in the equity market.
With inflation still appearing to be benign, the market tolerated a
steady pace of growth into early 1997. However, Chairman Greenspan's
testimony before Congress in late February marked a turning point for
the short-term municipal bond markets -- indeed the equity markets as
well -- as his relatively hawkish statements revealed fears at the Fed
that the transitory factors that had been keeping inflation under
control in the face of fairly robust growth may be coming to an end.
This statement by the Fed caused a sharp reversal in interest rate
movement and the market's perception about the future Fed policy. The
ensuing weeks brought continued evidence of persistent strength, and
culminated in the Fed's action at the Federal Open Market Committee in
late March. In early April, the financial markets continued to focus
on the likelihood of an additional tightening move later in May,
causing short-term bond interest rates to rise even further. However,
in late April and throughout May, interest rates reversed direction
and fell as a slowing in consumer demand, combined with continued
benign inflation numbers, influenced the Fed to leave the target rate
unchanged in late May.
Interest rates in the short-term, fixed-income markets reflected the
changes in both Fed monetary policy and market expectations. The yield
on 3-year, A-rated municipal bonds began the period at a low of 4.22%
in early December, but rose to 4.50% by late January. By mid-February,
they had fallen back to 4.25%, but then reversed direction and rose
steadily to a period high of 4.75% in late April. Yields then trended
lower to end the period at 4.55%.
[Graphic]
HOW DID FEDERATED LIMITED TERM MUNICIPAL FUND PERFORM IN THIS ENVIRONMENT?
The fund performed relatively well over the period, in view of the
rise in both short- and long-term interest rates during the period.
The fund is managed primarily for tax-exempt income with minimal
fluctuation of principal. Investors in the Class A Shares of the fund
received a six-month total return of 1.57%, based on net asset value.
For investors in the Class F Shares, total return was 1.69%, based on
net asset value.* Impacting the fund's total return was a slight
decrease in the net asset value per share of 0.51% (from $9.76 to
$9.71), and income and reinvestment returns, net of share expenses, of
2.08% and 2.20% for Class A Shares and Class F Shares, respectively.
These results are about on a par with the 1.64% average return for the
29 funds in its peer group, the Lipper Short Municipal Debt
category.**
For the one-year period ended May 31, 1997, the Class A Shares and
Class F Shares earned an annual total return of 3.59% and 3.85%,
respectively, based on net asset value.+
[Graphic]
INCOME IS AN IMPORTANT CONSIDERATION FOR SHAREHOLDERS. WHAT LEVEL OF INCOME
DID THE FUND PRODUCE?
For the six-month reporting period, the fund's income totaled $0.2012
per share for Class A Shares and $0.2133 per share for Class F Shares.
These income levels correspond to tax-exempt distribution rates of
4.14% and 4.39% for investors in the Class A Shares and Class F
Shares, respectively.
Also, as of May 31, 1997, the fund posted 30-day distribution rates of
4.17% for the Class A Shares and 4.42% for the Class F Shares. These
rates are equivalent to taxable rates of 6.90% (A Shares) and 7.32% (F
Shares), assuming a top marginal tax rate of 39.6%. The 30-day SEC
yields for Class A Shares and Class F Shares were 4.11% and 4.36%,
respectively.
* Performance quoted represents past performance and is not indicative
of future results. Investment return and principal value will
fluctuate, so that an investor's shares, when redeemed, may be worth
more or less than their original cost. Total returns for the
six-month reporting period based on offering price for Class A
Shares and Class F Shares were 0.54% and 0.65%, respectively.
** Lipper figures represent the average of the total returns reported
by all of the mutual funds designated by Lipper Analytical Services
as falling into the respective categories indicated. Lipper figures
do not reflect sales charges.
+ Total returns for the 12-month period ended 5/31/97 based on
offering price for Class A Shares and Class F Shares were 2.54% and
2.79%, respectively.
[Graphic]
WITH ONE RATE INCREASE BY THE FED BEHIND US, WHAT IS YOUR OUTLOOK FOR
RATES THROUGH 1997, AND DO YOU ANTICIPATE STRATEGY CHANGES IN
RESPONSE?
Our near-term outlook is still one of caution. We expect growth to
pick up in the third quarter after a weaker second quarter. Although
the Fed decided to hold short-term interest rates steady in the May
meeting, our expectations are that the Fed will eventually find cause
to tighten monetary policy further in 1997 -- perhaps as soon as in
September 1997. We also anticipate that any tightening cycle will not
be long in terms of magnitude or duration. The preemptive mode by the
Fed should help to preclude the need for more aggressive action down
the road by preventing the build-up of inflationary pressures. We
would look to see moderately higher short-term interest rates
throughout the course of the year, but not anywhere near the extent
evidenced in the last tightening cycle in 1994. As such, we will
likely continue in our modestly defensive stance for the fund, and
maintain lower effective average maturity and duration targets until
market conditions indicate otherwise.
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 BE WORTH $4,528 ON 5/31/97. YOU WOULD HAVE EARNED A
3.36%* AVERAGE ANNUAL TOTAL RETURN FOR THE 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, and you gain the benefit of compounding.
As of 6/30/97, the Class A Shares' average annual one-year and since
inception (9/1/93) total returns were 2.86%, and 3.44%, respectively.
Class F Shares' average annual one-year and since inception (9/1/93)
total returns were 3.11% and 3.65%, 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 and the 1% contingent deferred sales charge for Class
F 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 4 YEARS (REINVESTING ALL DIVIDENDS AND CAPITAL
GAINS) GREW TO $4,313.
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 $4,313 by 5/31/97. You would have earned an average annual
total return of 3.47%.*
A practical investment plan helps you pursue income by investing in
short-term municipal 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 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
PORTFOLIO UPDATE
["Graphic representation A7 omitted. See Appendix."]
FEDERATED LIMITED TERM MUNICIPAL FUND
PORTFOLIO OF INVESTMENTS
MAY 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <S> <C>
LONG-TERM MUNICIPAL SECURITIES -- 93.4%
ALABAMA -- 1.8%
$ 470,000 Mobile, AL, GO Warrants, 4.75%, 8/15/1998 NR $ 473,224
490,000 Mobile, AL, GO Warrants, 4.85%, 8/15/1999 NR 491,901
515,000 Mobile, AL, GO Warrants, 4.95%, 8/15/2000 NR 516,385
Total 1,481,510
CALIFORNIA -- 1.9%
1,500,000 California Statewide Communities Development Authority,
Certificates of Participation, 5.00% (Queen of Angels-
Hollywood Presbyterian Medical Center), 1/1/2001 A 1,504,005
COLORADO -- 4.4%
500,000 Colorado Student Obligation Bond Authority, Student Loan
Revenue Bonds, 5.20%, 9/1/1997 A 501,310
1,000,000 Colorado Student Obligation Bond Authority, Student Loan
Revenue Bonds, 5.40%, 9/1/1998 A 1,011,480
2,000,000 Denver, CO City & County Airport Authority, Airport System
Revenue Bonds (Series 1996C), 5.05%, 11/15/2000 BBB 2,007,820
Total 3,520,610
ILLINOIS -- 9.2%
750,000 Chicago, IL, Gas Supply Revenue Bonds, 7.50% (Peoples Gas
Light & Coke Company), 3/1/2015 AA- 811,478
1,000,000 Illinois Development Finance Authority, (Series 1995) Revenue
Bonds, 5.80% (Catholic Charities Housing Development
Corp.), 1/1/2007 NR 1,009,900
300,000 Illinois Development Finance Authority, Housing Revenue
Bonds, 5.25% (Catholic Charities Housing Development
Corp.)/(Achdiocese of Chicago GTD), 1/1/1999 NR 300,645
2,000,000 Illinois Development Finance Authority, Solid Waste Disposal
Revenue Bonds, 7.125% (WMX Technologies, Inc.), 1/1/2001 A 2,135,460
380,000 Illinois Educational Facilities Authority, Revenue Bonds, 5.05%
(Illinois Institute of Technology)/(Original Issue Yield: 5.15%),
12/1/1997 BBB- 381,402
</TABLE>
Federated Limited Term Municipal Fund
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <S> <C>
LONG-TERM MUNICIPAL SECURITIES -- CONTINUED
ILLINOIS -- CONTINUED
$ 400,000 Illinois Educational Facilities Authority, Revenue Bonds, 5.25%
(Illinois Institute of Technology)/(Original Issue Yield: 5.35%),
12/1/1998 BBB- $ 402,708
580,000 Illinois Health Facilities Authority, Refunding Revenue Bonds
(Series 1996B), 4.80% (Sarah Bush Lincoln Health Center),
2/15/1999 A- 581,676
505,000 Illinois Health Facilities Authority, Refunding Revenue Bonds
(Series 1996B), 5.00% (Sarah Bush Lincoln Health Center),
2/15/2000 A- 506,571
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- 614,545
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- 669,256
Total 7,413,641
INDIANA -- 5.1%
630,000 Indiana Health Facilty Financing Authority, Hospital
Refunding & Revenue Bonds (Series 1996), 5.625% (Hancock
Memorial Hospital and Health Services), 8/15/2000 BBB+ 638,429
685,000 Indiana Health Facilty Financing Authority, Hospital Refunding
& Revenue Bonds (Series 1996), 5.625% (Hancock Memorial
Hospital and Health Services), 8/15/2001 BBB+ 693,494
725,000 Indiana Health Facilty Financing Authority, Hospital
Refunding & Revenue Bonds (Series 1996), 5.625% (Hancock
Memorial Hospital and Health Services), 8/15/2002 BBB+ 733,236
885,000 LaPorte County, IN Hospital Authority, Refunding Revenue
Bonds, 5.60% (LaPorte Hospital, Inc., IN)/(Original Issue Yield:
5.747%), 3/1/1999 Baa1 892,655
935,000 LaPorte County, IN Hospital Authority, Refunding Revenue
Bonds, 5.80% (LaPorte Hospital, Inc., IN)/(Original Issue Yield:
5.898%), 3/1/2000 Baa1 946,977
</TABLE>
Federated Limited Term Municipal Fund
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
LONG-TERM MUNICIPAL SECURITIES -- CONTINUED
<C> <S> <S> <C>
INDIANA -- CONTINUED
$ 225,000 Marion County, IN Hospital Authority, Hospital Facility
Revenue Refunding Bonds, 6.50% (Methodist Hospital of
Indiana)/(Original Issue Yield: 7.374%), 9/1/2008 AA $ 241,693
Total 4,146,484
IOWA -- 1.8%
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 Aa 1,453,930
KENTUCKY -- 1.3%
1,000,000 Jefferson County, KY, UT GO Trust Certificates, 5.25%,
9/1/1999 A+ 1,016,100
LOUISIANA -- 1.9%
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 1,561,170
MASSACHUSETTS -- 2.9%
250,000 Greater New Bedford Regional Refuse Management District,
MA, GO Landfill Bonds, 4.90% (Original Issue Yield: 5.00%),
5/1/1998 Baa 251,105
750,000 Greater New Bedford Regional Refuse Management District,
MA, UT GO Bonds, 5.00% (Original Issue Yield: 5.10%),
5/1/1999 Baa 748,613
500,000 Greater New Bedford Regional Refuse Management District,
MA, UT GO Bonds, 5.10% (Original Issue Yield: 5.20%),
5/1/2000 Baa 497,280
2,000,000 Massachusetts IFA, Solid Waste Disposal Sr. Lien Revenue
Bonds (Series A), 8.00% (Massachusetts Recycling Association),
8/1/1999 NR 865,980
Total 2,362,978
</TABLE>
Federated Limited Term Municipal Fund
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
LONG-TERM MUNICIPAL SECURITIES -- CONTINUED
<C> <S> <S> <C>
MINNESOTA -- 3.7%
$ 1,500,000 Maplewood, MN, Health Care Facility Revenue Bonds (Series
1996), 5.95% (Healtheast, MN), 11/15/2006 BBB $ 1,522,410
1,465,000 Minneapolis, MN, Rental Housing Revenue Bonds (Series
1994A), 4.30% TOBs (Driftwood Apartments Project)/(First
Bank N.A., Minneapolis LOC), Mandatory Tender 11/1/1997 A+ 1,464,604
Total 2,987,014
MISSOURI -- 1.3%
1,000,000 Kansas City, MO IDA, PCR Bonds, 6.05% (General Motors
Corp.), 4/1/2006 A- 1,029,990
NEW MEXICO -- 1.3%
1,000,000 Las Cruces, NM, (Series 1995) Revenue Bonds, 6.00% (MBIA
INS), 12/1/2001 AAA 1,050,970
NEW YORK -- 8.7%
2,000,000 New York City, NY, UT GO Bonds (Series B), 5.30%, 8/15/2000 BBB+ 2,024,280
1,800,000 New York City, NY, UT GO Bonds (Series B), 7.50% (Original
Issue Yield: 7.60%), 2/1/2001 BBB+ 1,945,548
1,000,000 New York State Dormitory Authority, Mental Health Services
Facilities Improvement Revenue Bonds (Series A), 5.00%
(Original Issue Yield: 5.05%), 2/15/2002 BBB+ 999,510
500,000 New York State Dormitory Authority, Revenue Bonds, 5.10%
(Nyack Hospital), 7/1/1998 Baa 502,860
1,500,000 Port Authority of New York and New Jersey, Revenue Bonds
(Series SS), 4.90%, 9/1/1997 AA- 1,501,095
Total 6,973,293
NORTH CAROLINA -- 2.5%
1,000,000 North Carolina Eastern Municipal Power Agency, Power
System Refunding Revenue Bonds (Series 1996A), 5.10%,
1/1/2000 BBB 1,005,000
</TABLE>
Federated Limited Term Municipal Fund
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
LONG-TERM MUNICIPAL SECURITIES -- CONTINUED
<C> <S> <S> <C>
NORTH CAROLINA -- CONTINUED
$ 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 $ 1,012,450
Total 2,017,450
OHIO -- 7.3%
335,000 Bellefontaine, OH, Hospital Facilities Revenue & Refunding
Bonds, 5.00% (Mary Rutan Health Associates)/(Original Issue
Yield: 5.25%), 12/1/1997 BBB 334,588
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- 630,964
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+ 1,570,181
1,345,000 Ohio Enterprise Bond Fund, (Series 1995-3) State Economic
Development Revenue Bonds, 5.60% (Smith Steelite),
12/1/2003 A- 1,366,950
2,000,000 Youngstown City School District, OH, Revenue Anticipation
Note, 5.40%, 6/15/1998 NR 2,008,000
Total 5,910,683
PENNSYLVANIA -- 7.3%
1,000,000 Allegheny County, PA Higher Education, Revenue Bonds,
7.625% (La Roche College), 12/1/2006 NR 1,002,250
440,000 Allegheny County, PA Residential Finance Agency, Revenue
Refunding Bonds (Series W), 4.875% (GNMA COL), 11/1/2014 Aaa 425,784
955,000 Hazleton, PA Health Services Authority, Hospital Revenue
Bonds (Series 1996), 5.40% (Hazleton-St. Joseph Medical
Center), 7/1/2001 BBB+ 960,616
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+ 192,309
</TABLE>
Federated Limited Term Municipal Fund
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <S> <C>
LONG-TERM MUNICIPAL SECURITIES -- CONTINUED
PENNSYLVANIA -- CONTINUED
$ 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+ $ 152,963
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+ 216,726
595,000 Philadelphia, PA Hospitals & Higher Education Facilities
Authority, Hospital Revenue Bonds (Series 1997), 5.00%
(Jeanes Hospital, PA), 7/1/2000 BBB 592,626
620,000 Philadelphia, PA Hospitals & Higher Education Facilities
Authority, Hospital Revenue Bonds (Series 1997), 5.20%
(Jeanes Hospital, PA), 7/1/2001 BBB 618,171
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- 128,439
485,000 Scranton-Lackawanna, PA Health & Welfare Authority,
Revenue Bonds (Series 1994-A), 5.75% (Allied Services
Rehabilitation Hospitals, PA), 7/15/1997 BBB- 485,383
1,080,000 Scranton-Lackawanna, PA Health & Welfare Authority,
Revenue Bonds (Series A), 6.35% (Allied Services Rehabilitation
Hospitals, PA), 7/15/1999 BBB- 1,097,982
Total 5,873,249
PUERTO RICO -- 2.5%
2,000,000 Puerto Rico Municipal Finance Agency, Revenue Bonds
(Series A), 5.00% (Original Issue Yield: 5.10%), 7/1/1998 A- 2,022,900
RHODE ISLAND -- 5.1%
3,885,000 Rhode Island State Student Loan Authority, Student Loan
Revenue Refunding Bond, Series B, 6.75% (Original Issue Yield:
6.80%), 12/1/2001 A 4,127,191
</TABLE>
Federated Limited Term Municipal Fund
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
LONG-TERM MUNICIPAL SECURITIES -- CONTINUED
<C> <S> <S> <C>
SOUTH DAKOTA -- 4.4%
$ 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- $ 215,359
225,000 South Dakota State Health & Educational Authority, Revenue
Bonds, 6.00% (Huron Regional Medical Center, SD), 4/1/1999 BBB- 227,255
3,000,000 South Dakota Student Loan Finance Corp., (Series A) Student
Loan Revenue Bonds, 5.85%, 8/1/2000 A+ 3,081,330
Total 3,523,944
TENNESSEE -- 1.5%
1,200,000 Springfield, TN Health & Educational Facilities Board, Hospital
Revenue Bonds, 7.50% (NorthCrest Medical Center), 4/1/2000 NR 1,231,596
TEXAS -- 7.7%
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 1,888,632
1,500,000 Brazos, TX Higher Education Authority, Refunding Revenue
Bonds (Series C-1), 5.30%, 6/1/2000 Aaa 1,518,225
800,000 Greenville, TX Industrial Development Corp., Airport Revenue
Refunding Bonds, Series 1996, 4.75% (Raytheon/E-Systems,
Inc.), 8/1/1998 NR 803,552
1,000,000 Greenville, TX Industrial Development Corp., Airport Revenue
Refunding Bonds, Series 1996, 5.15% (Raytheon/E-Systems,
Inc.), 8/1/2000 NR 999,550
1,000,000 Northeast Hospital Authority, TX, Hospital Revenue Refunding
Bonds (Series 1997), 5.25% (Northeast Medical Center Hospital),
5/15/1999 BBB 1,010,150
Total 6,220,109
UTAH -- 1.2%
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+ 1,005,040
</TABLE>
Federated Limited Term Municipal Fund
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <S> <C>
LONG-TERM MUNICIPAL SECURITIES -- CONTINUED
VIRGINIA -- 8.6%
$ 2,000,000 Frederick County, VA IDA, (Series 1995) Lease Revenue Notes,
4.75%, 12/1/1997 NR $ 2,000,540
2,150,000 King George County, VA IDA, Lease Revenue Notes (Series
1995A), 4.875% (King George County Elementary School)/
(Original Issue Yield: 5.05%), 8/1/1998 NR 2,151,441
200,000 Prince William County, VA IDA, Hospital Revenue Bonds,
5.90% (Potomac Hospital Corp., VA), 10/1/1997 A 201,276
255,000 Prince William County, VA IDA, Hospital Revenue Bonds,
6.00% (Potomac Hospital Corp., VA), 10/1/1998 A 260,419
255,000 Prince William County, VA IDA, Hospital Revenue Bonds,
6.10% (Potomac Hospital Corp., VA), 10/1/1999 A 262,734
2,000,000 Virginia State Housing Development Authority,
Commonwealth Mortgage Revenue Bonds (Series G-2), 5.40%,
1/1/1998 AA+ 2,015,640
Total 6,892,050
TOTAL LONG-TERM MUNICIPAL SECURITIES
(IDENTIFIED COST $76,043,259) 75,325,907
SHORT-TERM MUNICIPAL SECURITIES -- 9.4%
ILLINOIS -- 3.2%
2,550,000 Rockford, IL, EDRB, 4.45% TOBs (Independence Village of
Rockford)/(Banque Paribas, Paris LOC), Optional Tender
12/1/1997 A 2,550,000
MINNESOTA -- 6.2%
5,000,000 Bass Brook, MN, PCR, 4.70% TOBs (Minnesota Power and
Light Co.), Optional Tender 6/2/1997 P-2 5,000,005
TOTAL SHORT-TERM MUNICIPAL SECURITIES (AT AMORTIZED COST) 7,550,005
TOTAL INVESTMENTS (IDENTIFIED COST $83,593,264)(A) $ 82,875,912
</TABLE>
(a)The cost of investments for federal tax purposes amounts to
$83,593,264. The net unrealized depreciation of investments on a
federal tax basis amounts to $717,352 which is comprised of
$403,960 appreciation and $1,121,312 depreciation at May 31, 1997.
* Please refer to the Appendix of the Statement of Additional
Information for an explanation of the credit ratings.
Federated Limited Term Municipal Fund
Note: The categories of investments are shown as a percentage of net assets
($80,628,234) at May 31, 1997.
The following acronyms are used throughout this portfolio:
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
(See Notes which are an integral part of the Financial Statements)
FEDERATED LIMITED TERM MUNICIPAL FUND
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $ 82,875,912
$83,593,264)
Income receivable 1,543,711
Receivable for shares sold 340,441
Deferred expenses 29,496
Total assets 84,789,560
LIABILITIES:
Payable for investments purchased $ 1,009,363
Payable for shares redeemed 270,775
Income distribution payable 314,140
Payable to Bank 2,532,878
Accrued expenses 34,170
Total liabilities 4,161,326
NET ASSETS for 8,305,126 shares outstanding $ 80,628,234
NET ASSETS CONSIST OF:
Paid in capital $ 83,814,165
Net unrealized depreciation of investments (717,352)
Accumulated net realized loss on investments (2,415,246)
Distributions in excess of net investment income (53,333)
Total Net Assets $ 80,628,234
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
CLASS A SHARES:
Net Asset Value and Redemption Proceeds Per Share
($57,526,539 / 5,925,521 shares outstanding) $9.71
Offering Price Per Share (100/99.00 of $9.71)* $9.81
CLASS F SHARES:
Net Asset Value and Offering Price Per Share
($23,101,695 / 2,379,605 shares outstanding) $9.71
Redemption Proceeds Per Share (99.00/100 of $9.71)** $9.61
</TABLE>
* See "What Shares Cost" in the Prospectus.
** See "Contingent Deferred Sales Charge" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
FEDERATED LIMITED TERM MUNICIPAL FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED MAY 31, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 2,381,482
EXPENSES:
Investment advisory fee $ 186,149
Administrative personnel and services fee 77,288
Custodian fees 7,807
Transfer and dividend disbursing agent fees and expenses 29,059
Directors'/Trustees' fees 2,459
Auditing fees 7,431
Legal fees 1,576
Portfolio accounting fees 27,534
Distribution services fee -- Class A Shares 83,992
Distribution services fee -- Class F Shares 19,417
Shareholder services fee -- Class A Shares 83,992
Shareholder services fee -- Class F Shares 32,361
Share registration costs 10,398
Printing and postage 24,291
Insurance premiums 1,456
Taxes 3,973
Miscellaneous 11,308
Total expenses 610,491
Waivers and reimbursements --
Waiver of investment advisory fee $ (186,149)
Waiver of distribution services fee -- Class F Shares (19,417)
Reimbursement of other operating expenses (22,817)
Total waivers and reimbursements (228,383)
Net expenses 382,108
Net investment income 1,999,374
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments (14,223)
Net change in unrealized depreciation of investments (575,068)
Net realized and unrealized loss on investments (589,291)
Change in net assets resulting from operations $ 1,410,083
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED LIMITED TERM MUNICIPAL FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
(UNAUDITED) ENDED
MAY 31, NOVEMBER 30,
1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 1,999,374 $ 4,024,297
Net realized gain (loss) on investments ($14,223 net loss and $25,072
net
gain, respectively, as computed for federal tax purposes) (14,223) 25,072
Net change in unrealized appreciation/depreciation (575,068) (809,590)
Change in net assets resulting from operations 1,410,083 3,239,779
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income
Class A Shares (1,418,447) (2,771,053)
Class F Shares (580,927) (1,253,244)
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 (1,999,374) (4,077,630)
SHARE TRANSACTIONS --
Proceeds from sale of shares 32,070,221 55,986,867
Net asset value of shares issued to shareholders in payment of
distributions declared 1,122,283 2,751,888
Cost of shares redeemed (51,845,367) (49,651,826)
Change in net assets resulting from share transactions (18,652,863) 9,086,929
Change in net assets (19,242,154) 8,249,078
NET ASSETS:
Beginning of period 99,870,388 91,621,310
End of period $ 80,628,234 $ 99,870,388
</TABLE>
(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>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
MAY 31, YEAR ENDED NOVEMBER 30,
1997 1996 1995 1994 1993(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.76 $ 9.85 $ 9.49 $10.02 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.20 0.40 0.46 0.43 0.10
Net realized and unrealized gain (loss)
on investments (0.05) (0.08) 0.36 (0.53) 0.02
Total from investment operations 0.15 0.32 0.82 (0.10) 0.12
LESS DISTRIBUTIONS
Distributions from net investment income (0.20) (0.40) (0.46) (0.43) (0.10)
Distributions in excess of net investment
income(b) -- (0.01) -- -- --
Total distributions (0.20) (0.41) (0.46) (0.43) (0.10)
NET ASSET VALUE, END OF PERIOD $ 9.71 $ 9.76 $ 9.85 $ 9.49 $10.02
TOTAL RETURN(C) 1.57% 3.34% 8.67% (0.95%) 1.20%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.89%* 0.81% 0.68% 0.63% 0.50%*
Net investment income 4.22%* 4.14% 4.72% 4.33% 4.30%*
Expense waiver/reimbursement(d) 0.45%* 0.54% 1.03% 0.94% 1.71%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $57,527 $73,570 $65,179 $32,644 $13,694
Portfolio turnover 20% 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>
SIX MONTHS
ENDED
(UNAUDITED)
MAY 31, YEAR ENDED NOVEMBER 30,
1997 1996 1995 1994 1993(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.76 $ 9.85 $ 9.49 $10.02 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.21 0.43 0.47 0.45 0.11
Net realized and unrealized gain (loss)
on investments (0.05) (0.08) 0.36 (0.53) 0.02
Total from investment operations 0.16 0.35 0.83 (0.08) 0.13
LESS DISTRIBUTIONS
Distributions from net investment income (0.21) (0.43) (0.47) (0.45) (0.11)
Distributions in excess of net investment
income(b) -- (0.01) -- -- --
Total distributions (0.21) (0.44) (0.47) (0.45) (0.11)
NET ASSET VALUE, END OF PERIOD $ 9.71 $ 9.76 $ 9.85 $ 9.49 $10.02
TOTAL RETURN(C) 1.69% 3.60% 8.86% (0.75%) 1.26%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.64%* 0.56% 0.49% 0.44% 0.25%*
Net investment income 4.49%* 4.40% 4.91% 4.57% 4.79%*
Expense waiver/reimbursement(d) 0.60%* 0.69% 1.12% 0.94% 1.86%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $23,102 $26,300 $26,442 $12,804 $3,307
Portfolio turnover 20% 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
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1997 (UNAUDITED)
1. ORGANIZATION
Federated 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 A
Shares and Class F 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
alternative minimum tax) consistent with the preservation of
principal.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. These policies are in conformity with generally accepted
accounting principles.
INVESTMENT VALUATIONS -- Municipal bonds are valued by an
independent pricing service, taking into consideration yield,
liquidity, risk, credit quality, coupon, maturity, type of issue,
and any other factors or market data the pricing service deems
relevant. Short-term securities are valued at the prices provided by
an independent pricing service. However, short-term securities with
remaining maturities of sixty days or less at the time of purchase
may be valued at amortized cost, which approximates fair market
value.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and
expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code,
as amended (the "Code"). Distributions to shareholders are recorded
on the ex-dividend date.
FEDERAL TAXES -- It is the Fund's policy to comply with the
provisions of the Code applicable to regulated investment companies
and to distribute to shareholders each year substantially all of its
income. Accordingly, no provisions for federal tax are necessary.
At November 30, 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
FEDERATED LIMITED TERM MUNICIPAL FUND
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 May 31, 1997, par value shares ($0.001 per share) authorized were
as follows:
NUMBER OF PAR VALUE
CLASS NAME CAPITAL STOCK AUTHORIZED
Class A Shares 1,000,000,000
Class F Shares 1,000,000,000
Total shares authorized 2,000,000,000
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1997 NOVEMBER 30, 1996
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 2,966,247 $ 28,827,641 4,903,674 $ 48,006,252
Shares issued to shareholders in
payment of
distributions declared 83,016 806,191 200,244 1,957,251
Shares redeemed (4,657,840) (45,250,390) (4,185,345) (41,018,299)
Net change resulting from
Class A Share transactions (1,608,577) $ (15,616,558) 918,573 $ 8,945,204
FEDERATED LIMITED TERM MUNICIPAL FUND
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1997 NOVEMBER 30, 1996
CLASS F SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 332,870 $ 3,242,580 812,884 $ 7,980,615
Shares issued to shareholders in
payment of
distributions declared 32,546 316,092 81,282 794,637
Shares redeemed (679,115) (6,594,977) (884,487) (8,633,527)
Net change resulting from
Class F Share transactions (313,699) $ (3,036,305) 9,679 $ 141,725
Net change resulting from share (1,922,276) $ (18,652,863) 928,252 $ 9,086,929
transactions
</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
Corporation's Class A Shares and Class F Shares. The Plan provides
that the Fund may incur distribution expenses according to the
following schedule annually, to compensate Federated Securities
Corp.
PERCENTAGE OF AVERAGE
SHARE CLASS NAME DAILY NET ASSETS OF CLASS
Class A Shares 0.25%
Class F Shares 0.15%
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.
FEDERATED LIMITED TERM MUNICIPAL FUND
SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder
Services Agreement with Federated Shareholder Services ("FSS"), the
Fund will pay FSS up to 0.25% of average daily net assets of the
Fund for the period. The fee paid to FSS is used to finance certain
services for shareholders and to maintain shareholder accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ,
through its subsidiary, Federated Shareholder Services Company
("FSSC") serves as transfer and dividend disbursing agent for the
Fund. The fee paid to FSSC is based on the size, type, and number of
accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES -- FServ maintains the Fund's accounting
records for which it receives a fee. The fee is based on the level
of the Fund's average daily net assets for the period, plus
out-of-pocket expenses.
ORGANIZATIONAL EXPENSES -- Organizational and/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 May 31, 1997, the Fund paid $14,056 pursuant to
this agreement.
INTERFUND TRANSACTIONS -- During the period ended May 31, 1997, 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 $13,900,000 and
$18,703,845, respectively.
GENERAL -- Certain of the Officers and Directors of the Corporation
are Officers and Directors or Trustees of the above companies.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities,
for the period ended May 31, 1997, were as follows:
PURCHASES $17,178,176
SALES $33,838,577
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
J. Crilley Kelly
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
risk, including possible loss of principal.
This report is authorized for distribution to prospective investors
only when preceded or accompanied by the fund's prospectuses which
contain facts concerning its objective and policies, management fees,
expenses and other information.
[Graphic] Federated Investors
Federated Securities Corp., Distributor
Cusip 338319502
Cusip 338319403
G00278-01 (7/97)
[Graphic]
[Graphic] FEDERATED INVESTORS
FEDERATED STRATEGIC INCOME FUND
3RD SEMI-ANNUAL REPORT
MAY 31, 1997
ESTABLISHED 1994
PRESIDENT'S MESSAGE
[Graphic]
Dear Shareholder:
I am pleased to present the 3rd Semi-Annual Report for Federated
Strategic Income Fund. This bond fund can create income from three
distinct bond markets -- domestic high-quality, U.S. high-yield
corporate bonds,+ and international corporate+ and government bonds.
The Report covers the six-month reporting period from December 1,
1996, through May 31, 1997.
This report begins with a discussion with the fund's 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.
This bond fund presents a strategic combination of bonds selected by a
team consisting of experts in three key market sectors. These bond
sectors historically have little correlation to one another, and
shareholders are diversified across a very large number of issues
around the world, including the U.S. markets.
While total return was impacted by continued bond market volatility
that caused a slight decline in share price, your fund produced a very
healthy level of income, as shown below by share class.* During the
six-month period, the fund's net assets continue to grow
substantially, reaching $266 million on May 31, 1997.
<TABLE>
<CAPTION>
NAV NAV NAV CAPITAL TOTAL RETURN
12/1/96 5/31/97 CHANGE INCOME GAINS BASED ON NAV
<S> <C> <C> <C> <C> <C> <C>
Class A Shares $10.47 $10.35 -1% $0.4344 $0.0299 3.38%
Class B Shares $10.47 $10.35 -1% $0.3941 $0.0299 2.98%
Class C Shares $10.47 $10.35 -1% $0.3951 $0.0299 2.99%
Class F Shares $10.47 $10.35 -1% $0.4344 $0.0299 3.38%
</TABLE>
+ Lower rated bonds involve a higher degree of risk than investment
grade bonds in return for higher yield potential. Foreign investing
involves special risks including currency risk, increased volatility
of foreign securities, and differences in auditing and other
financial standards.
* Performance quoted represents past performance and is not indicative
of future results. Investment return and principal value will
fluctuate, so that an investor's shares, when redeemed, may be worth
more or less than their original cost. Total returns for the period
based on offering price for Class A Shares, Class B Shares, Class C
Shares, and Class F Shares were -1.24%, -2.66%, 2.00%, and 1.32%,
respectively.
Thank you for participating in a diversified approach to income
through Federated Strategic Income Fund. Remember, reinvesting your
earnings and investing on a systematic basis are convenient ways 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
July 15, 1997
** Systematic investing does not ensure a profit or protect against
loss in declining markets.
INVESTMENT REVIEW
[Graphic]
Joseph M. Balestrino
Vice President
Federated Advisers
[Graphic]
THE MAJOR BOND MARKETS IN WHICH THE FUND INVESTS -- DOMESTIC
HIGH-QUALITY, U.S. HIGH-YIELD CORPORATE, AND INTERNATIONAL CORPORATE
AND GOVERNMENT ISSUES -- CONTINUED TO EXPERIENCE VOLATILITY DURING THE
SIX-MONTH REPORTING PERIOD.
WHAT IS THE FUND MANAGEMENT'S ANALYSIS?
Volatility has truly become commonplace within the various
fixed-income sectors, which plays into the design of the Federated
Strategic Income Fund. Investing in all three sectors can actually
serve to keep the overall fund price level more stable as opposed to
investing in any one sector exclusively. This is possible because the
three major sectors are not closely correlated: should one sector be
falling in price (as occurred in government bonds during 1996),
another is likely to be rising (high-yield bonds in 1996).
Over the past six-month reporting period ended May 31, 1997, global
economic activity has been biased toward growth. Thus, while fund
management does not attempt to significantly rotate sector allocation,
the fund has maintained very slight overweights in the two areas that
can most benefit from stronger growth--high-yield and international.
[Graphic]
HOW DID FEDERATED STRATEGIC INCOME FUND PERFORM COMPARED TO THE OVERALL BOND
MARKET?
The fund's Class A Shares posted a total return for the six-month
reporting period ended May 31, 1997 of 3.38% based on net asset value.
The income generated contributed to the fund's total return. The
fund's Class B Shares, Class C Shares, and Class F Shares achieved
total returns of 2.98%, 2.99%, and 3.38%, respectively, based on net
asset value.* These returns, which were all impacted by a $0.12
decline in net asset value, surpassed the 2.92% return of the Lipper
Multi-Sector Income Funds Average.**
* Performance quoted represents past performance and is not indicative
of future results. Investment return and principal value will
fluctuate, so that an investor's shares, when redeemed, may be worth
more or less than their original cost. Total returns for the period
based on offering price for Class A Shares, Class B Shares, Class C
Shares, and Class F Shares were -1.24%, -2.66%, 2.00%, and 1.32%,
respectively.
**Lipper figures represent the average of the total returns reported
by all of the mutual funds designated by Lipper Analytical Services
as falling into the respective categories indicated. Lipper returns
do not take sales charges into account.
[Graphic]
DID YOU MAKE ANY SIGNIFICANT CHANGES TO THE FUND'S ALLOCATIONS AMONG
DOMESTIC HIGH-QUALITY, U.S. CORPORATE HIGH-YIELD AND INTERNATIONAL BONDS?
HOW DID THE ALLOCATIONS STAND AS OF MAY 31, 1997?
We made no significant changes to sector allocation in recent months.
Rather, we remained focused on keeping the steady new cash flow fully
invested to provide shareholders with generous income. On May 31,
1997, the fund's sector allocation was 33% in domestic high-quality,
35% in domestic high-yield, and 32% in international bonds issues.
[Graphic]
AT MID-YEAR, WHAT IS MANAGEMENT'S OUTLOOK FOR THE FUND'S THREE SECTORS?
As we enter mid-year, the economy continues to exhibit mixed
characteristics of stronger-than-expected growth, but with
lower-than-anticipated inflation. Interest rates have risen from the
beginning of 1997, to May 31, 1997. We feel that it is unlikely that
the economic growth demonstrated early in 1997 will continue. As a
result, within the high-quality sector, more recent emphasis has been
placed on purchasing high-quality bonds that could be expected to
outperform should economic activity slow from its early 1997 pace. In
fact, the fund's high-quality corporate bond holdings are now about
equal to its U.S. mortgage securities holdings in the high-quality
segment of the fund. No significant changes are anticipated in either
the high-yield or international baskets.
TWO WAYS YOU MAY SEEK TO INVEST FOR SUCCESS IN
FEDERATED STRATEGIC INCOME FUND
INITIAL INVESTMENT
IF YOU HAD MADE AN INITIAL INVESTMENT OF $4,000 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 $5,199 ON 5/31/97. YOU WOULD HAVE EARNED A 8.91%* 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 6/30/97, the Class A Shares' average annual one-year and since
inception (5/4/94) total returns were 8.22% and 9.19%, respectively.
Class B Shares' one-year and since inception (7/27/95) total returns
were 6.53% and 9.27%, respectively. Class C Shares' average annual
one-year and since inception (5/2/94) total returns were 11.36% and
9.96%, respectively. Class F Shares' average annual one-year and since
inception (5/10/94) total returns were 11.09% and 9.87%,
respectively.*
["Graphic representation A8 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 4.50% sales charge applicable to an initial investment
in Class A Shares, the 5.50% contingent deferred sales charge for
Class B Shares, the 1.00% contingent deferred sales charge for Class
C Shares, and the 1.00% sales charge and 1.00% contingent deferred
sales charge for Class F 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
INVESTING ONE STEP AT A TIME:
$1,000 INVESTED EACH YEAR FOR 4 YEARS (REINVESTING ALL DIVIDENDS AND CAPITAL
GAINS) GREW TO $4,518.
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 $4,000, but your account would have reached a total
value of $4,518* by 5/31/97. You would have earned an average annual
total return of 8.07%.
A practical investment plan in the fund helps you pursue income through a
diversified portfolio invested in U.S. corporate securities, U.S. government
securities, and non-U.S. corporate securities. Through systematic investing,
you buy shares on a regular basis and reinvest all earnings. An investment
plan 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 A9 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
HYPOTHETICAL INVESTOR PROFILE: INVESTING FOR FUTURE INCOME
Jim and Leslie Weber are a two-income couple who, like many others,
want to be able to afford their present lifestyle and still have
something extra for those special times when they might need it.
They decided a diversified income fund was right for them. The fund's
exposure to U.S. government securities, high-yield U.S. corporate
securities, and international securities gives them a relatively
stable income stream. They invested $100,000 in the Class A Shares of
Federated Strategic Income Fund on May 4, 1994, and have allowed the
dividends and capital gains to reinvest.
By May 31, 1997, they were pleased to see that their original
investment had grown to $130,989 for an average annual total return of
9.18%.* Leslie is already looking forward to a special anniversary
cruise in a few years.
The couple is fictional, but the figures are real.
["Graphic representation A10 omitted. See Appendix."]
* This hypothetical scenario is provided for illustrative purposes only and
does not represent the results obtained by any particular shareholder. Past
performance does not guarantee future results.
FEDERATED STRATEGIC INCOME FUND
PORTFOLIO OF INVESTMENTS
MAY 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
VALUE
PRINCIPAL IN U.S.
AMOUNT DOLLARS
<C> <S> <C>
U.S. CORPORATE BONDS -- 45.0%
AEROSPACE & DEFENSE -- 0.1%
$ 375,000 Tracor, Inc., Sr. Sub. Note, 8.50%, $ 382,500
3/1/2007
AUTOMOTIVE -- 0.8%
225,000 Aftermarket Technology Co., Sr. Sub. Note, 250,875
12.00%, 8/1/2004
155,000 Aftermarket Technology Co., Sr. Sub. Note, 172,825
Series D, 12.00%, 8/1/2004
50,000 Blue Bird Body Co., Sr. Sub. Note, 10.75%, 53,625
11/15/2006
725,000 Collins & Aikman Products Co., Sr. Sub. 814,719
Note, 11.50%, 4/15/2006
325,000 Exide Corp., Sr. Note, 10.00%, 4/15/2005 339,625
200,000 Lear Corp., Sub. Note, 9.50%, 7/15/2006 211,250
100,000 Lear Seating Corp., Sr. Sub. Note, 11.25%, 101,000
7/15/2000
250,000 Lear Seating Corp., Sub. Note, 8.25%, 250,625
2/1/2002
Total 2,194,544
BANKING -- 0.7%
900,000 First Nationwide Escrow Corp., Sr. Sub. 981,000
Note, 10.625%, 10/1/2003
250,000 First Nationwide Holdings, Inc., Sr. Sub. 258,125
Note, 9.125%, 1/15/2003
500,000 FirstBank Puerto Rico, Sub. Note, 7.625%, 495,345
12/20/2005
Total 1,734,470
BEVERAGE & TOBACCO -- 0.7%
500,000 Dimon, Inc., Sr. Note, 8.875%, 6/1/2006 513,750
300,000 Dr. Pepper Bottling Holdings Co., Sr. 297,375
Disc. Note, 0/11.625%, 2/15/2003
1,000,000 Philip Morris Cos., Inc., Deb., 7.75%, 966,190
1/15/2027
Total 1,777,315
BROADCAST RADIO & TV -- 2.4%
38,000 Chancellor Radio Broadcasting Co., Sr. 44,650
Sub. Note, 12.50%, 10/1/2004
625,000 Chancellor Radio Broadcasting Co., Sr. 634,375
Sub. Note, 9.375%, 10/1/2004
1,050,000 Heritage Media Corp., Sr. Sub. Note, 1,088,063
8.75%, 2/15/2006
600,000 Lamar Advertising Co., Sr. Sub. Note, 615,000
9.625%, 12/1/2006
</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
$ 1,100,000 SCI Television, Inc., Sr. Secd. Note, $ 1,166,000
11.00%, 6/30/2005
500,000 SFX Broadcasting, Inc., Sr. Sub. Note, 541,250
10.75%, 5/15/2006
900,000 Sinclair Broadcast Group, Inc., Sr. Sub. 940,500
Note, 10.00%, 9/30/2005
500,000 Sullivan Broadcast Holdings Inc., Sr. Sub. 512,500
Note, 10.25%, 12/15/2005
300,000 Young Broadcasting, Inc., Sr. Sub. Note, 315,000
10.125%, 2/15/2005
550,000 Young Broadcasting, Inc., Sr. Sub. Note, 550,000
9.00%, 1/15/2006
Total 6,407,338
BUILDING & DEVELOPMENT -- 0.3%
400,000 (a)American Builders & Contractors Supply Co.,
Inc., Sr. Sub. Note,
10.625%, 5/15/2007 413,500
400,000 Building Materials Corp. of America, Sr. 401,000
Note, 8.625%, 12/15/2006
Total 814,500
BUSINESS EQUIPMENT & SERVICES -- 0.6%
350,000 (a)Electronic Retailing Systems International,
Inc., Unit, 0/13.25%,
2/1/2004 241,500
450,000 Knoll Inc., Sr. Sub. Note, 10.875%, 496,125
3/15/2006
400,000 (a)Outsourcing Solutions, Inc., Sr. Sub.
Note, 11.00%, 11/1/2006 428,500
475,000 United Stationers Supply Co., Sr. Sub. 531,406
Note, 12.75%, 5/1/2005
Total 1,697,531
CABLE TELEVISION -- 5.8%
200,000 Australis Holdings Pty Limited, Unit, 121,000
0/15.00%, 11/1/2002
275,000 Australis Media Limited, Unit, 0/14.00%, 170,500
5/15/2003
100,000 Bell Cablemedia PLC, Sr. Disc. Note, 82,750
0/11.875%, 9/15/2005
400,000 Bell Cablemedia PLC, Sr. Disc. Note, 358,000
0/11.95%, 7/15/2004
100,000 CF Cable TV, Inc., Sr. Secd. 2nd Priority 115,000
Note, 11.625%, 2/15/2005
400,000 Cablevision Systems Corp., Sr. Sub. Deb., 403,000
9.875%, 2/15/2013
825,000 Cablevision Systems Corp., Sr. Sub. Note, 833,250
9.25%, 11/1/2005
</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
$ 100,000 Cablevision Systems Corp., Sr. Sub. Note, $ 104,250
9.875%, 5/15/2006
500,000 Charter Communications Southeast, LP, Sr. 535,000
Note, 11.25%, 3/15/2006
1,000,000 (a)Comcast Corp., 8.50%, 5/1/2027 1,039,530
250,000 Comcast Corp., Sr. Sub. Deb., 10.625%, 285,625
7/15/2012
600,000 Comcast Corp., Sr. Sub. Deb., 9.375%, 625,500
5/15/2005
675,000 Comcast UK Cable, Deb., 0/11.20%, 502,031
11/15/2007
1,500,000 Continental Cablevision, Sr. Deb., 9.50%, 1,696,350
8/1/2013
1,425,000 (a)Diamond Cable Communications PLC, Sr.
Disc. Note, 0/10.75%,
2/15/2007 835,406
750,000 EchoStar Satellite Broadcasting Corp., Sr.
Disc. Note, 0/13.125%,
3/15/2004 510,000
1,325,000 International Cabletel, Inc., Sr. Defd. 909,281
Cpn. Note, 0/11.50%, 2/1/2006
100,000 International Cabletel, Inc., Sr. Disc. 75,250
Note, 0/12.75%, 4/15/2005
550,000 Le Groupe Videotron Ltee, Sr. Note, 613,250
10.625%, 2/15/2005
550,000 Lenfest Communications Inc., Sr. Note, 537,625
8.375%, 11/1/2005
300,000 Pegasus Media, Note, 12.50%, 7/1/2005 325,500
250,000 Rogers Cablesystems Ltd., Sr. Secd. 2nd
Priority Note, 10.00%,
12/1/2007 265,313
150,000 Rogers Cablesystems Ltd., Sr. Secd. 2nd
Priority Note, 10.00%,
3/15/2005 160,688
650,000 Rogers Cablesystems Ltd., Sr. Sub. GTD 695,500
Note, 11.00%, 12/1/2015
300,000 (a)TCI Satellite Entertainment, Inc., Sr.
Sub. Disc. Note, 0/12.25%,
2/15/2007 173,625
200,000 (a)TCI Satellite Entertainment, Inc., Sr.
Sub. Note, 10.875%, 2/15/2007 204,250
1,500,000 TKR Cable, Inc., 10.50%, 10/30/2007 1,645,845
1,475,000 TeleWest PLC, Sr. Disc. Deb., 0/11.00%, 1,032,500
10/1/2007
625,000 UIH Australia/Pacific, Sr. Disc. Note, 353,125
0/14.00%, 5/15/2006
50,000 Wireless One, Inc., Sr. Note, 13.00%, 32,000
10/15/2003
</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
$ 250,000 Wireless One, Inc., Unit, 0/13.50%, $ 61,250
8/1/2006
Total 15,302,194
CHEMICALS & PLASTICS -- 2.2%
500,000 Astor Corp., Sr. Sub. Note, 10.50%, 523,750
10/15/2006
250,000 Buckeye Cellulose Corp., Sr. Sub. Note, 246,250
8.50%, 12/15/2005
250,000 Buckeye Cellulose Corp., Sr. Sub. Note, 257,500
9.25%, 9/15/2008
200,000 Crain Industries, Inc., Sr. Sub. Note, 228,000
13.50%, 8/15/2005
350,000 Foamex LP, Sr. Sub. Deb., 11.875%, 378,875
10/1/2004
100,000 (a)Foamex LP, Sr. Sub. Note, 9.875%,
6/15/2007 102,375
700,000 Harris Chemical North America, Inc., Sr. 738,500
Note, 10.25%, 7/15/2001
500,000 ISP Holding, Inc., Sr. Note, 9.00%, 515,000
10/15/2003
42,000 ISP Holding, Inc., Sr. Note, 9.75%, 44,310
2/15/2002
500,000 Polymer Group, Inc., Sr. Note, 12.25%, 547,500
7/15/2002
500,000 RBX Corp., Sr. Sub. Note, Series B, 428,125
11.25%, 10/15/2005
1,250,000 (a)Reliance Industries Ltd., Bond, 8.25%,
1/15/2027 1,252,863
600,000 Sterling Chemicals Holdings, Inc., Sr. 394,500
Disc. Note, 0/13.50%, 8/15/2008
100,000 Uniroyal Technology Corp., Sr. Secd. Note, 100,000
11.75%, 6/1/2003
Total 5,757,548
CLOTHING & TEXTILES -- 1.0%
325,000 (a)Collins & Aikman Floorcoverings, Inc.,
Sr. Sub. Note, 10.00%, 1/15/2007 326,625
200,000 (a)GFSI, Inc., Sr. Sub. Note, 9.625%, 3/1/2007 201,250
300,000 (a)Glenoit Corp., Sr. Sub. Note, 11.00%,
4/15/2007 308,250
200,000 Pillowtex Corp., Sr. Sub. Note, 10.00%, 210,500
11/15/2006
1,600,000 WestPoint Stevens, Inc., Sr. Sub. Deb., 1,664,000
9.375%, 12/15/2005
Total 2,710,625
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
VALUE
PRINCIPAL IN U.S.
AMOUNT DOLLARS
<C> <S> <C>
U.S. CORPORATE BONDS -- CONTINUED
CONSUMER PRODUCTS -- 1.3%
$ 400,000 American Safety Razor Co., Sr. Note, $ 418,500
9.875%, 8/1/2005
50,000 Herff Jones, Inc., Sr. Sub. Note, 11.00%, 53,813
8/15/2005
50,000 Hosiery Corp. of America, Inc., Sr. Sub. 55,000
Note, 13.75%, 8/1/2002
350,000 ICON Fitness Corp., Sr. Disc. Note, 187,250
0/14.00%, 11/15/2006
100,000 ICON Health & Fitness, Inc., Sr. Sub. 112,625
Note, 13.00%, 7/15/2002
750,000 Playtex Family Products Corp., Sr. Sub. 757,500
Note, 9.00%, 12/15/2003
425,000 (a)Renaissance Cosmetics, Inc., Sr. Note,
11.75%, 2/15/2004 443,063
25,000 Revlon Consumer Products Corp., Note, 25,688
9.375%, 4/1/2001
600,000 Revlon Consumer Products Corp., Sr. Sub. 638,250
Note, 10.50%, 2/15/2003
400,000 Simmons Co., Sr. Sub. Note, 10.75%, 423,000
4/15/2006
300,000 Syratech Corp., Sr. Note, 11.00%, 320,625
4/15/2007
Total 3,435,314
CONTAINER & GLASS PRODUCTS -- 0.8%
350,000 Owens-Illinois, Inc., Note, 10.00%, 370,125
8/1/2002
200,000 Owens-Illinois, Inc., Sr. Sub. Note, 211,500
10.50%, 6/15/2002
650,000 Owens-Illinois, Inc., Sr. Sub. Note, 684,938
9.75%, 8/15/2004
350,000 Packaging Resources Inc., Sr. Note, 365,750
11.625%, 5/1/2003
450,000 (a)Plastic Containers, Inc., Sr. Secd.
Note, 10.00%, 12/15/2006 470,813
100,000 U.S. Can Corp., Sr. Sub. Note, 10.125%, 105,875
10/15/2006
Total 2,209,001
ECOLOGICAL SERVICES & EQUIPMENT -- 1.0%
650,000 (a)Allied Waste Industries, Inc., Sr. Disc.
Note, 0/11.30%, 6/1/2007 397,313
850,000 (a)Allied Waste North America, Inc.,
Sr. Sub. Note, 10.25%, 12/1/2006 907,375
150,000 ICF Kaiser International, Inc., Sr. Sub. 150,000
Note, 13.00%, 12/31/2003
50,000 Mid-American Waste Systems, Inc., Sr. Sub. 27,250
Note, 12.25%, 2/15/2003
1,000,000 WMX Technologies, Inc., Deb., 8.75%, 1,066,000
5/1/2018
Total 2,547,938
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
VALUE
PRINCIPAL IN U.S.
AMOUNT DOLLARS
<C> <S> <C>
U.S. CORPORATE BONDS -- CONTINUED
ELECTRONICS -- 0.8%
$ 400,000 Advanced Micro Devices, Inc., Sr. Secd. $ 446,500
Note, 11.00%, 8/1/2003
1,000,000 Anixter International, Inc., Company 1,011,030
Guarantee, 8.00%, 9/15/2003
500,000 (a)Fairchild Semiconductor Corp., Sr.
Sub. Note, 10.125%, 3/15/2007 517,500
100,000 (a)Therma-Wave, Inc., Sr. Note, 10.625%,
5/15/2004 105,000
Total 2,080,030
FINANCE -- 0.1%
375,000 ContiFinancial Corp., Sr. Note, 8.375%, 379,763
8/15/2003
FINANCIAL INTERMEDIARIES -- 1.6%
750,000 American General Corp., S.F. Deb., 9.625%, 799,313
2/1/2018
1,000,000 Green Tree Financial Corp., Sr. Sub. Note, 1,131,630
10.25%, 6/1/2002
1,000,000 Lehman Brothers Holdings, Inc., Note, 1,067,480
8.50%, 5/1/2007
1,000,000 Morgan Stanley Group, Inc., Deb., 9.25%, 1,024,860
3/1/1998
300,000 Olympic Financial Ltd., Unit, 11.50%, 299,625
3/15/2007
Total 4,322,908
FOOD & DRUG RETAILERS -- 0.7%
450,000 Carr-Gottstein Foods Co., Sr. Sub. Note, 500,063
12.00%, 11/15/2005
600,000 Ralph's Grocery Co., Sr. Note, 10.45%, 660,000
6/15/2004
400,000 Ralph's Grocery Co., Sr. Sub. Note, 442,000
11.00%, 6/15/2005
225,000 Smith's Food & Drug Centers, Inc., Sr. 264,375
Sub. Note, 11.25%, 5/15/2007
Total 1,866,438
FOOD PRODUCTS -- 0.7%
450,000 Curtice-Burns Foods, Inc., Sr. Sub. Note, 489,375
12.25%, 2/1/2005
700,000 International Home Foods, Inc., Sr. Sub. 726,250
Note, 10.375%, 11/1/2006
325,000 (a)MBW Foods Inc., Sr. Sub. Note, 9.875%,
2/15/2007 327,438
125,000 Specialty Foods Corp., Sr. Sub. Note, 114,375
11.25%, 8/15/2003
300,000 Van de Kamp's, Inc., Sr. Sub. Note, 333,000
12.00%, 9/15/2005
Total 1,990,438
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
VALUE
PRINCIPAL IN U.S.
AMOUNT DOLLARS
<C> <S> <C>
U.S. CORPORATE BONDS -- CONTINUED
FOREST PRODUCTS -- 1.8%
$ 200,000 Container Corp. of America, Sr. Note, $ 218,000
11.25%, 5/1/2004
1,250,000 Donohue Forest Products, 7.625%, 5/15/2007 1,258,988
550,000 Four M Corp., Sr. Note, 12.00%, 6/1/2006 558,250
250,000 Pope & Talbot, Inc., 8.375%, 6/1/2013 237,713
225,000 Repap New Brunswick, 2nd Priority Sr. 213,750
Secd. Note, 10.625%, 4/15/2005
425,000 Riverwood International Corp., Sr. Sub. 384,625
Note, 10.875%, 4/1/2008
400,000 S. D. Warren Co., Sr. Sub. Note, 12.00%, 446,500
12/15/2004
475,000 Stone Container Corp., Sr. Note, 11.50%, 501,125
10/1/2004
450,000 Stone Container Corp., Sr. Note, 12.58%, 482,063
8/1/2016
450,000 Uniforet Inc., Sr. Note, 11.125%, 411,750
10/15/2006
Total 4,712,764
HEALTHCARE -- 1.2%
800,000 Dade International, Inc., Sr. Sub. Note, 898,000
11.125%, 5/1/2006
500,000 Genesis Health Ventures, Inc., Sr. Sub. 520,000
Note, 9.75%, 6/15/2005
1,175,000 Tenet Healthcare Corp., Sr. Sub. Note, 1,283,688
10.125%, 3/1/2005
500,000 Tenet Healthcare Corp., Sr. Sub. Note, 506,875
8.625%, 1/15/2007
Total 3,208,563
HOTELS, MOTELS, INNS & CASINOS -- 0.2%
400,000 Courtyard by Marriott II LP, Sr. Note, 431,500
10.75%, 2/1/2008
INDUSTRIAL PRODUCTS & EQUIPMENT -- 2.9%
150,000 Amphenol Corp., Sr. Sub. Note, 9.875%, 154,875
5/15/2007
575,000 Cabot Safety Acquisition Corp., Sr. Sub. 635,375
Note, 12.50%, 7/15/2005
300,000 (a)Continental Global Group, Inc., Sr.
Note, 11.00%, 4/1/2007 313,875
525,000 Euramax International PLC, Sr. Sub. Note, 556,500
11.25%, 10/1/2006
1,250,000 Figgie International Holdings, Inc., Sr. 1,301,563
Note, 9.875%, 10/1/1999
325,000 Hawk Corp., Sr. Note, 10.25%, 12/1/2003 333,938
350,000 International Knife & Saw, Inc., Sr. Sub. 371,875
Note, 11.375%, 11/15/2006
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
VALUE
PRINCIPAL IN U.S.
AMOUNT DOLLARS
<C> <S> <C>
U.S. CORPORATE BONDS -- CONTINUED
INDUSTRIAL PRODUCTS & EQUIPMENT -- CONTINUED
$ 200,000 Johnstown America Industries, Inc., Sr. $ 205,000
Sub. Note, 11.75%, 8/15/2005
1,500,000 Joy Technologies, Inc., Sr. Note, 10.25%, 1,637,790
9/1/2003
575,000 (a)MMI Products, Inc., Sr. Sub. Note, 11.25%,
4/15/2007 609,500
850,000 Mettler-Toledo, Inc., Sr. Sub. Note, 896,750
9.75%, 10/1/2006
150,000 (a)Neenah Corp., Sr. Sub. Note, 11.125%,
5/1/2007 159,000
475,000 Unifrax Investment Corp., Sr. Note, 494,000
10.50%, 11/1/2003
Total 7,670,041
INSURANCE -- 2.0%
500,000 (a)Allmerica Financial Corp., Bond, 8.207%,
2/3/2027 501,965
1,000,000 Conseco, Inc., Sr. Note, 10.50%, 1,168,460
12/15/2004
550,000 Delphi Financial Group, Inc., 9.31%, 554,307
3/25/2027
700,000 Delphi Financial Group, Inc., Note, 8.00%, 704,235
10/1/2003
1,000,000 (a)Equitable Life, Note, 7.70%, 12/1/2015 979,140
500,000 USF&G Corp., Company Guarantee, 8.47%, 495,111
1/10/2027
1,000,000 (a)Union Central Life Insurance Co., Note,
8.20%, 11/1/2026 970,800
Total 5,374,018
LEISURE & ENTERTAINMENT -- 1.7%
1,250,000 AMF Group, Inc., Sr. Sub. Disc. Note, 878,125
0/12.25%, 3/15/2006
100,000 AMF Group, Inc., Sr. Sub. Note, 10.875%, 107,500
3/15/2006
200,000 Cobblestone Golf Group, Inc., Sr. Note, 210,250
11.50%, 6/1/2003
150,000 (a)KSL Recreation Group, Inc., Sr. Sub.
Note, 10.25%, 5/1/2007 156,188
100,000 Premier Parks, Inc., Sr. Note, 12.00%, 111,250
8/15/2003
1,175,000 Six Flags Theme Parks, Sr. Sub. Disc. 1,201,438
Note, 0/12.25%, 6/15/2005
1,825,000 Viacom, Inc., Sub. Deb., 8.00%, 7/7/2006 1,788,500
Total 4,453,251
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
VALUE
PRINCIPAL IN U.S.
AMOUNT DOLLARS
<C> <S> <C>
U.S. CORPORATE BONDS -- CONTINUED
MACHINERY & EQUIPMENT -- 0.7%
$ 575,000 Alvey Systems, Inc., Sr. Sub. Note, $ 593,688
11.375%, 1/31/2003
600,000 Clark Material Handling Corp., Sr. Note, 633,000
10.75%, 11/15/2006
133,000 Primeco Inc., Sr. Sub. Note, 12.75%, 152,285
3/1/2005
400,000 Tokheim Corp., Sr. Sub. Note, 11.50%, 434,000
8/1/2006
Total 1,812,973
METALS & MINING -- 0.7%
400,000 Echo Bay Mines Ltd., Jr. Sub. Deb., 407,500
11.00%, 4/1/2027
1,000,000 Inco Ltd., Note, 9.60%, 6/15/2022 1,090,630
500,000 Royal Oak Mines, Inc., Sr. Sub. Note, 492,500
11.00%, 8/15/2006
Total 1,990,630
MUNICIPAL SERVICES -- 0.4%
1,000,000 Minneapolis/St. Paul, MN Airport
Commission, UT GO Taxable
Revenue Bonds (Series 9), 8.95% Bonds
(Minneapolis/St. Paul, MN),
1/1/2022 1,077,210
OIL & GAS -- 1.7%
850,000 Abraxas Petroleum Corp., Sr. Note, 11.50%, 922,250
11/1/2004
100,000 Falcon Drilling Co., Inc., Sr. Note, 100,875
8.875%, 3/15/2003
50,000 Falcon Drilling Co., Inc., Sr. Note, 52,063
9.75%, 1/15/2001
800,000 Forcenergy Gas Exploration, Inc., Sr. Sub. 830,000
Note, 9.50%, 11/1/2006
250,000 Mesa Operating Company, Sr. Sub. Note, 282,500
10.625%, 7/1/2006
200,000 Pride Petroleum Services, Inc., Sr. Note, 210,000
9.375%, 5/1/2007
1,000,000 Sun Co., Inc., 9.00%, 11/1/2024 1,111,290
750,000 United Meridian Corp., Sr. Sub. Note, 811,875
10.375%, 10/15/2005
275,000 (a)XCL, Ltd., Unit, 13.50%, 5/1/2004 276,375
Total 4,597,228
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
VALUE
PRINCIPAL IN U.S.
AMOUNT DOLLARS
<C> <S> <C>
U.S. CORPORATE BONDS -- CONTINUED
PRINTING & PUBLISHING -- 1.3%
$ 750,000 Affiliated Newspaper Investments, Inc.,
Sr. Disc. Note, 0/13.25%,
7/1/2006 $ 663,750
250,000 Garden State Newspapers, Inc., Sr. Sub. 277,500
Note, 12.00%, 7/1/2004
300,000 Hollinger International Publishing, Inc., 304,500
Sr. Sub. Note, 9.25%, 2/1/2006
275,000 Hollinger International Publishing, Inc., 279,125
Sr. Sub. Note, 9.25%, 3/15/2007
350,000 K-III Communications Corp., Company
Guarantee, Series B, 8.50%,
2/1/2006 348,733
1,000,000 News America Holdings, Inc., Note, 8.15%, 963,630
10/17/2036
500,000 Petersen Publishing Co., LLC, Sr. Sub. 555,000
Note, 11.125%, 11/15/2006
75,000 (a)Von Hoffmann Press, Inc., Sr. Sub. Note,
10.375%, 5/15/2007 78,469
Total 3,470,707
REAL ESTATE -- 0.5%
700,000 Trizec Finance Ltd., Sr. Note, 10.875%, 778,750
10/15/2005
500,000 Storage USA, 8.20%, 6/1/2017 503,750
Total 1,282,500
RETAILERS -- 0.5%
375,000 Brylane Capital Corp., Sr. Sub. Note, 399,375
10.00%, 9/1/2003
1,000,000 Penney (J.C.) Co., Inc., Deb., 7.65%, 991,140
8/15/2016
Total 1,390,515
SERVICES -- 0.4%
100,000 Coinmach Corp., Sr. Note, 11.75%, 111,000
11/15/2005
400,000 Intertek Finance PLC, Sr. Sub. Note, 418,000
10.25%, 11/1/2006
450,000 KinderCare Learning Centers, Inc., Sr. 435,375
Sub. Note, 9.50%, 2/15/2009
125,000 Ryder TRS, Inc., Sr. Sub. Note, 10.00%, 128,438
12/1/2006
Total 1,092,813
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
VALUE
PRINCIPAL IN U.S.
AMOUNT DOLLARS
<C> <S> <C>
U.S. CORPORATE BONDS -- CONTINUED
STEEL -- 0.8%
$ 325,000 Acme Metals, Inc., Sr. Secd. Disc. Note, $ 360,750
0/13.50%, 8/1/2004
300,000 Bayou Steel Corp., 1st Mtg. Note, 10.25%, 300,000
3/1/2001
400,000 EnviroSource, Inc., Sr. Note, 9.75%, 390,000
6/15/2003
150,000 GS Technologies Operating Co., Inc., Sr. 161,625
Note, 12.00%, 9/1/2004
425,000 GS Technologies Operating Co., Inc., Sr. 465,375
Note, 12.25%, 10/1/2005
150,000 Republic Engineered Steel, Inc., 1st Mtg. 141,563
Note, 9.875%, 12/15/2001
300,000 Ryerson Tull, Inc., Sr. Note, 9.125%, 315,000
7/15/2006
Total 2,134,313
SURFACE TRANSPORTATION -- 1.7%
300,000 AmeriTruck Distribution Corp., Sr. Sub. 301,500
Note, 12.25%, 11/15/2005
700,000 Gearbulk Holding Limited, Sr. Note, 773,500
11.25%, 12/1/2004
650,000 Statia Terminals International N.V., 1st 695,500
Mtg. Note, 11.75%, 11/15/2003
600,000 Stena AB, Sr. Note, 10.50%, 12/15/2005 651,000
1,500,000 Trans Ocean Container Corp., Sr. Sub. 1,749,150
Note, 12.25%, 7/1/2004
450,000 Trism, Inc., Sr. Sub. Note, 10.75%, 393,750
12/15/2000
Total 4,564,400
TELECOMMUNICATIONS & CELLULAR -- 4.0%
200,000 American Communications Services Inc., Sr.
Disc. Note, 0/12.75%,
4/1/2006 98,000
550,000 Arch Communications Group, Inc., Sr. Disc. 291,500
Note, 0/10.875%, 3/15/2008
1,250,000 Brooks Fiber Properties, Inc., Sr. Disc. 853,125
Note, 0/10.875%, 3/1/2006
750,000 Cellular Communications International,
Inc., Sr. Disc. Note, 13.25%
accrual, 8/15/2000 552,188
500,000 (a)Cellular Communications of Puerto Rico,
Inc., Sr. Sub. Note, 10.00%, 2/1/2007 498,125
150,000 (a)Comcast Cellular Holdings, Inc., Sr.
Note, 9.50%, 5/1/2007 151,313
200,000 (a)Dobson Communications Corp., Sr. Note,
11.75%, 4/15/2007 194,500
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
VALUE
PRINCIPAL IN U.S.
AMOUNT DOLLARS
<C> <S> <C>
U.S. CORPORATE BONDS -- CONTINUED
TELECOMMUNICATIONS & CELLULAR -- CONTINUED
$ 1,600,000 Intermedia Communications of Florida,
Inc., Sr. Disc. Note, 0/12.50%,
5/15/2006 $ 1,104,000
750,000 (a)McLeod, Inc., Sr. Disc. Note, 0/10.50%,
3/1/2007 450,000
950,000 Millicom International Cellular S.A., Sr. 698,250
Disc. Note, 0/13.50%, 6/1/2006
50,000 NEXTEL Communications, Inc., Sr. Disc. 43,063
Note, 0/11.50%, 9/1/2003
950,000 NEXTEL Communications, Inc., Sr. Disc. 729,125
Note, 0/9.75%, 8/15/2004
200,000 Nextlink Communications, LLC, Sr. Note, 211,500
Series AI, 12.50%, 4/15/2006
550,000 Paging Network, Inc., Sr. Sub. Note, 519,750
10.00%, 10/15/2008
400,000 Paging Network, Inc., Sr. Sub. Note, 382,000
10.125%, 8/1/2007
125,000 PanAmSat, LP, Sr. Sub. Disc. Note, 121,406
0/11.375%, 8/1/2003
100,000 PhoneTel Technologies, Inc., Sr. Note, 100,500
12.00%, 12/15/2006
975,000 (a)Qwest Communications International, Inc.,
Sr. Note, 10.875%, 4/1/2007 1,048,101
550,000 Sygnet Wireless, Inc., Sr. Note, 11.50%, 550,688
10/1/2006
1,250,000 Teleport Communications Group, Inc., Sr.
Disc. Note, 0/11.125%,
7/1/2007 895,313
75,000 Teleport Communications Group, Inc., Sr. 79,594
Note, 9.875%, 7/1/2006
250,000 USA Mobile Communications, Inc., Sr. Note, 227,500
9.50%, 2/1/2004
725,000 Vanguard Cellular Systems, Inc., Deb., 732,250
9.375%, 4/15/2006
Total 10,531,791
UTILITIES -- 0.9%
250,000 CalEnergy Co., Inc., Sr. Note, 9.50%, 266,250
9/15/2006
1,300,000 California Energy Co., Inc., Sr. Note, 1,408,875
10.25%, 1/15/2004
700,000 El Paso Electric Co., 1st Mtg. Note, 759,227
9.40%, 5/1/2011
Total 2,434,352
TOTAL U.S. CORPORATE BONDS (IDENTIFIED 119,839,964
COST $115,235,167)
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
VALUE
PRINCIPAL IN U.S.
AMOUNT DOLLARS
<C> <S> <C>
INTERNATIONAL BONDS -- 33.9%
AUSTRALIAN DOLLAR -- 0.8%
PRINTING & PUBLISHING -- 0.0%
$ 150,000 News America Holdings, Inc., 8.625%, $ 107,933
2/7/2014
STATE/PROVINCIAL -- 0.8%
2,000,000 Queensland Treasury, Local Gov't. 1,575,710
Guarantee, 8.00%, 5/14/2003
550,000 Treasury Corp. of Victoria, Local Gov't. 493,760
Guarantee, 10.25%, 11/15/2006
Total 2,069,470
TOTAL AUSTRALIAN DOLLAR 2,177,403
CANADIAN DOLLAR -- 1.6%
BEVERAGE & TOBACCO -- 0.4%
1,100,000 Molson Breweries, Unsub., 9.10%, 3/11/2013 919,192
FOREST PRODUCTS -- 0.5%
1,650,000 Avenor, Inc., Deb., 10.85%, 11/30/2014 1,400,416
STATE/PROVINCIAL -- 0.3%
1,000,000 (a)Metro Toronto, Deb., 7.40%, 9/27/2006 759,245
TELECOMMUNICATIONS & CELLULAR -- 0.4%
500,000 Bell Canada, Deb., 8.80%, 8/17/2005 410,038
750,000 Rogers Cantel Mobile, Inc., Sr. Note, 615,166
10.50%, 6/1/2006
Total 1,025,204
TOTAL CANADIAN DOLLAR 4,104,057
CZECHOSLOVAKIA KRONA -- 0.2%
SUPRANATIONAL -- 0.2%
21,500,000 International Finance Corp., Sr. Unsub., 615,786
10.50%, 11/30/1998
DANISH KRONE -- 0.8%
FINANCIAL INTERMEDIARIES -- 0.5%
5,000,000 Nykredit, Mtg. Bond, 8.00%, 10/1/2026 788,487
3,491,000 Unikredit Realkredit, Mtg. Bond, 8.00%, 542,477
10/1/2029
Total 1,330,964
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
VALUE
PRINCIPAL IN U.S.
AMOUNT DOLLARS
<C> <S> <C>
INTERNATIONAL BONDS -- CONTINUED
DANISH KRONE -- CONTINUED
SOVEREIGN -- 0.3%
$ 6,000,000 Kingdom of Denmark, Bond, 7.00%, $ 880,924
11/10/2024
TOTAL DANISH KRONE 2,211,888
DEUTSCHE MARK -- 0.8%
SOVEREIGN -- 0.8%
3,800,000 Deutschland Republic, Deb., 6.25%, 2,090,211
1/4/2024
GREEK DRACHMA -- 1.2%
SOVEREIGN -- 1.2%
120,000,000 Hellenic Republic, 8/14/2003 460,997
200,000,000 Hellenic Republic, Bond, 12.60%, 761,004
12/31/2003
375,000,000 Hellenic Republic, Bond, 13.40%, 1,429,628
11/26/2003
120,000,000 Hellenic Republic, Bond, 14.00%, 458,360
10/23/2003
TOTAL GREEK DRACHMA 3,109,989
HUNGARIAN FORINT -- 0.6%
BANKING -- 0.3%
170,000,000 ING, Note, 21.60%, 7/9/1997 927,602
SOVEREIGN -- 0.3%
125,000,000 Hungary, Bond, 24.00%, 3/21/1998 699,839
TOTAL HUNGARIAN FORINT 1,627,441
INDONESIAN RUPIAH -- 0.3%
CONGLOMERATES -- 0.3%
2,000,000,000 Dharmala Intiutama, 11/21/1997 761,100
IRISH POUND -- 0.2%
BANKING -- 0.2%
300,000 Bank of Ireland, Sub., 9.75%, 3/21/2005 537,073
ITALIAN LIRA -- 0.3%
SOVEREIGN -- 0.3%
750,000,000 Buoni Poliennali Del Tes, 10.00%, 8/1/2003 502,065
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
VALUE
PRINCIPAL IN U.S.
AMOUNT DOLLARS
<C> <S> <C>
INTERNATIONAL BONDS -- CONTINUED
ITALIAN LIRA -- CONTINUED
SOVEREIGN -- CONTINUED
$650,000,000 Buoni Poliennali Del Tes, 7.75%, 11/1/2006 $ 394,154
TOTAL ITALIAN LIRA 896,219
MEXICCAN PESO -- 0.3%
SOVEREIGN -- 0.3%
600,000 Mexican Cetes, 11/6/1997 694,292
NEW ZEALAND DOLLAR -- 0.6%
FINANCIAL INTERMEDIARIES -- 0.2%
840,000 Brierley Investments Ltd., Bond, 9.00%, 582,497
3/15/2002
SOVEREIGN -- 0.4%
1,500,000 New Zealand, Government of, Deb., 8.00%, 1,071,372
11/15/2006
TOTAL NEW ZEALAND DOLLAR 1,653,869
NORWEGIAN KRONE -- 0.3%
SOVEREIGN -- 0.3%
3,000,000 Norwegian Government, Bond, 7.00%, 453,790
5/31/2001
2,300,000 Norwegian Government, Bond, 9.00%, 348,003
1/31/1999
TOTAL NORWEGIAN KRONE 801,793
POLISH ZLOTY -- 1.0%
SOVEREIGN -- 1.0%
4,000,000 Poland Govt Bond, 12.00%, 6/12/2002 988,679
1,500,000 Poland Govt Bond, 12.00%, 6/12/2001 379,363
500,000 Poland Govt Bond, 15.00%, 6/12/1999 141,128
4,100,000 Poland, Republic of, 17.00%, 2/12/1998 1,235,767
TOTAL POLISH ZLOTY 2,744,937
SLOVAKIAN KONUNA -- 0.1%
SUPRANATIONAL -- 0.1%
5,500,000 International Finance Corp., Note, 11.75%, 371,788
8/15/1999
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
VALUE
PRINCIPAL IN U.S.
AMOUNT DOLLARS
<C> <S> <C>
INTERNATIONAL BONDS -- CONTINUED
SOUTH AFRICAN RAND -- 1.5%
AGENCY -- 0.8%
$ 11,000,000 Trans Caledon Tunnel Authority, 13.00%, $ 2,147,358
9/15/2010
SOVEREIGN -- 0.7%
10,000,000 South Africa, Republic of, 12.00%, 1,947,123
2/28/2005
TOTAL SOUTH AFRICAN RAND 4,094,481
SPANISH PESETA -- 0.9%
SOVEREIGN -- 0.9%
80,000,000 Bonos Y Oblig. Del Estado, Deb., 8.20%, 612,230
2/28/2009
10,000,000 Spain (Government), 10.00%, 2/28/2005 83,699
36,000,000 Spain (Government), Bond, 10.15%, 306,433
1/31/2006
60,000,000 Spain (Government), Deb., 10.10%, 478,016
2/28/2001
126,000,000 Spain (Government), Foreign Gov't. 960,950
Guarantee, 8.00%, 5/30/2004
TOTAL SPANISH PESETA 2,441,328
SWEDISH KRONA -- 0.4%
BANKING -- 0.2%
3,000,000 AB Spintab, Unsub., 12.00%, 12/17/1997 401,725
SOVEREIGN -- 0.2%
3,500,000 Swedish Government, Bond, 8.00%, 8/15/2007 482,153
TOTAL SWEDISH KRONA 883,878
UNITED KINGDOM POUND -- 1.3%
INSURANCE -- 0.2%
300,000 Commercial Union PLC, Company Guarantee, 515,119
8.625%, 9/28/2005
SOVEREIGN -- 0.3%
375,000 UK Treasury, Deb., 10.00%, 2/26/2001 670,574
UTILITIES -- 0.8%
1,300,000 British Gas PLC, 8.875%, 7/8/2008 2,255,541
TOTAL UNITED KINGDOM POUND 3,441,234
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
VALUE
PRINCIPAL IN U.S.
AMOUNT DOLLARS
<C> <S> <C>
INTERNATIONAL BONDS -- CONTINUED
U.S. DOLLAR -- 20.7%
BANKING -- 0.5%
$ 200,000 Banco De Boston, Bank Guarantee, 9.5675%, $ 200,000
1/16/2002
1,000,000 Bancomext Trust, Bank Guarantee, 11.25%, 1,102,500
5/30/2006
Total 1,302,500
BEVERAGE & TOBACCO -- 0.9%
2,350,000 Empresas La Moderna, 11.375%, 1/25/1999 2,473,375
CONGLOMERATES -- 0.4%
1,000,000 Mechala Group Jamaica, Note, 12.75%, 1,045,000
12/30/1999
FINANCE -- 0.9%
2,250,000 Polysindo Intl Fin Co BV, Company 2,458,125
Guarantee, 11.375%, 6/15/2006
FOREST PRODUCTS -- 2.5%
2,500,000 Asian Pulp & Paper, Company Guarantee, 2,696,998
11.75%, 10/1/2005
1,000,000 Indah Kiat Intl. Finance, Company 1,097,670
Guarantee, 11.875%, 6/15/2002
1,300,000 Indah Kiat Intl. Finance, Company 1,452,750
Guarantee, 12.50%, 6/15/2006
600,000 Klabin Fabricadora Papel, Company 616,662
Guarantee, 12.125%, 12/28/2002
700,000 Klabin Fabricadora Papel, Company
Guarantee, Series REGS, 11.00%,
8/12/2004 726,250
Total 6,590,330
GOVERNMENT AGENCY -- 0.3%
800,000 National Bank of Romania, 9.75%, 6/25/1999 818,000
INDUSTRIAL PRODUCTS & EQUIPMENT -- 0.8%
2,000,000 Sophora Comercio, 11.50%, 11/10/1998 2,085,000
METALS & MINING -- 0.5%
1,250,000 Placer Dome, Inc., Bond, 8.50%, 12/31/2045 1,209,225
OIL & GAS -- 3.5%
2,500,000 Bariven S.A., Company Guarantee, 10.625%, 2,750,000
3/17/2002
625,494 Centragas, 10.65%, 12/1/2010 672,406
2,000,000 Invergas S.A., Note, 12.50%, 12/16/1999 2,205,000
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
VALUE
PRINCIPAL IN U.S.
AMOUNT DOLLARS
<C> <S> <C>
INTERNATIONAL BONDS -- CONTINUED
U.S. DOLLAR -- CONTINUED
OIL & GAS -- CONTINUED
$ 1,000,000 MetroGas S.A., Sr. Note, 12.00%, 8/15/2000 $ 1,105,000
2,000,000 Petroleo Brasileiro S.A., 10.0875%, 2,065,000
6/8/1998
500,000 Transportadora de Gas de Sur S.A., Sr. 538,125
Note, 10.25%, 4/25/2001
Total 9,335,531
SOVEREIGN -- 3.8%
1,000,000 Argentina Global, Bond, 11.375%, 1/30/2017 1,092,500
1,000,000 Bulgaria, 7/28/2011 677,860
2,500,000 Ecuador Discount, 6.50%, 2/28/2025 1,733,125
2,000,000 Ministry Finance Russia, Unsub., 9.25%, 1,983,750
11/27/2001
900,000 Nacional Financiera, SNC, Foreign Gov't.
Guarantee, 10.625%,
11/22/2001 969,444
242,500 Republic of Argentina, Deb., 6.625%, 225,646
3/31/2005
500,000 Swedish Export Credit, 9.875%, 3/15/2038 536,905
500,000 Trinidad and Tobago, Unsub., 11.75%, 597,500
10/3/2004
850,000 Turkey, 10.00%, 5/23/2002 869,125
950,000 United Mexican States, 7.625%, 8/6/2001 957,363
500,000 Venezuala Par, Foreign Gov't. Guarantee, 378,125
6.75%, 3/31/2020
Total 10,021,343
STEEL -- 1.9%
1,250,000 (a)Altos Hornos De Mexico, Series 144A,
11.875%, 4/30/2004 1,323,438
2,300,000 HYLSA S.A. de CV, Deb., 11.00%, 2/23/1998 2,369,000
1,125,000 Tubos de Acero de Mexico S.A., Unsub., 1,268,438
13.75%, 12/8/1999
Total 4,960,876
SURFACE TRANSPORTATION -- 0.6%
1,500,000 (a)Zhuhai Highway, Sub. Note, 11.50%,
7/1/2008 1,708,125
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
VALUE
PRINCIPAL IN U.S.
AMOUNT DOLLARS
<C> <S> <C>
INTERNATIONAL BONDS -- CONTINUED
U.S. DOLLAR -- CONTINUED
TELECOMMUNICATIONS & CELLULAR -- 2.9%
$ 1,750,000 CANTV Finance Limited, Company Guarantee, $ 1,776,250
9.25%, 2/1/2004
700,000 (a)Comtel Brasileir, Note, 10.75%,
9/26/2004 748,125
850,000 Philippine Long Distance Telephone Co., 951,847
Deb., 10.625%, 6/2/2004
1,050,000 Telecom Argentina S.A., Unsecd. Note, 1,215,375
12.00%, 11/15/2002
1,500,000 (a)Telecom Brazil, Collateral Trust,
Series EMTN, 11.30078%, 12/9/1999 1,573,125
1,250,000 Telefonica de Argentina S.A., Note, 1,482,813
11.875%, 11/1/2004
Total 7,747,535
UTILITIES -- 1.2%
1,600,000 Bridas Corp, Sr. Note, 12.50%, 11/15/1999 1,752,000
1,000,000 Cent Elet Brasil Elebra, Series REGS, 1,045,625
10.00%, 7/6/2004
500,000 (a)Tenaga Nasional Berhad, Deb., 7.50%,
1/15/2096 468,110
Total 3,265,735
TOTAL U.S. DOLLAR 55,020,700
TOTAL INTERNATIONAL BONDS (IDENTIFIED 90,279,467
COST $91,399,382)
U.S. GOVERNMENT/AGENCY -- 15.6%
LONG-TERM GOVERNMENT OBLIGATIONS -- 15.6%
504,850 Federal Home Loan Mortgage Corp., 8.50%, 523,469
9/1/2025
85,370 Federal Home Loan Mortgage Corp., 8.50%, 88,519
1/1/2026
2,327,212 Federal Home Loan Mortgage Corp., 8.00%, 2,375,060
6/1/2025
410,406 Federal Home Loan Mortgage Corp., 7.50%, 409,893
10/1/2025
1,009,408 Federal Home Loan Mortgage Corp., 7.00%, 984,990
12/1/2025
942,358 Federal Home Loan Mortgage Corp., 6.50%, 897,200
3/1/2026
1,925,314 Federal Home Loan Mortgage Corp., 7.50%, 1,922,908
5/1/2026
973,920 Federal Home Loan Mortgage Corp., 7.50%, 972,703
8/1/2026
1,459,326 Federal Home Loan Mortgage Corp., 6.50%, 1,427,352
7/1/2011
936,163 Federal Home Loan Mortgage Corp., 7.00%, 932,362
5/1/2011
1,994,418 Federal Home Loan Mortgage Corp., 7.00%, 1,986,321
5/1/2011
</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
$ 232,958 Federal Home Loan Mortgage Corp., 8.50%, $ 241,766
9/1/2025
1,031,456 Federal Home Loan Mortgage Corp., 6.00%, 1,003,731
6/1/2003
1,041,385 Federal National Mortgage Association, 1,022,088
6.50%, 2/1/2009
441,424 Federal National Mortgage Association, 432,043
7.00%, 5/1/2024
422,656 Federal National Mortgage Association, 420,674
7.00%, 12/1/2010
1,046,847 Federal National Mortgage Association, 994,725
6.50%, 12/1/2025
1,489,768 Federal National Mortgage Association, 1,427,496
6.00%, 4/1/2011
999,497 Federal National Mortgage Association, 983,255
6.50%, 9/1/2003
1,500,032 Federal National Mortgage Association, 1,459,711
7.00%, 9/1/2026
994,812 Federal National Mortgage Association, 1,011,605
8.00%, 10/1/2026
2,000,000 Federal National Mortgage Association, 1,991,880
7.50%, 5/1/2027
228,340 Government National Mortgage Association, 244,110
9.00%, 10/15/2016
417,222 Government National Mortgage Association, 417,615
7.50%, 3/15/2024
2,086,829 Government National Mortgage Association, 1,989,666
6.50%, 3/15/2024
1,938,282 Government National Mortgage Association, 1,933,804
7.50%, 3/15/2026
219,704 Government National Mortgage Association, 236,456
9.50%, 2/15/2025
700,805 Government National Mortgage Association, 699,186
7.50%, 1/15/2026
916,902 Government National Mortgage Association, 914,784
7.50%, 2/15/2026
2,444,978 Government National Mortgage Association, 2,379,722
7.00%, 5/15/2026
2,313,020 Government National Mortgage Association, 2,357,107
8.00%, 12/15/2025
459,965 Government National Mortgage Association, 468,731
8.00%, 6/15/2026
500,662 Government National Mortgage Association, 510,205
8.00%, 6/15/2026
398,880 Government National Mortgage Association, 406,483
8.00%, 8/15/2026
3,468,446 Government National Mortgage Association, 3,707,977
9.00%, 11/15/2017
1,552,265 Government National Mortgage Association, 1,739,996
11.00%, 9/15/2015
TOTAL U.S. GOVERNMENT/AGENCY (IDENTIFIED 41,515,593
COST $41,310,930)
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
SHARES OR VALUE
PRINCIPAL IN U.S.
AMOUNT DOLLARS
<C> <S> <C>
U.S. TREASURY OBLIGATIONS -- 0.5%
U.S. TREASURY BOND -- 0.5%
$ 1,000,000 United States Treasury Bond, 11.625%,
11/15/2004
(IDENTIFIED COST $1,301,250) $ 1,289,120
COMMON STOCKS -- 0.0%
MEXICO -- 0.0%
SOVEREIGN -- 0.0%
500,000 Mexico Par Value Recovery Rights, Warrants 12,500
NIGERIA -- 0.0%
SOVEREIGN -- 0.0%
250 Nigeria Par, Warrants 3
UNITED STATES -- 0.0%
CABLE TELEVISION -- 0.0%
200 Australis Holdings Pty Limited, Warrants 0
112 Pegasus Communications Corp. 1,162
150 Wireless One, Inc., Warrants 0
Total 1,162
CHEMICALS & PLASTICS -- 0.0%
400 Sterling Chemicals Holdings, Inc., 14,000
Warrants
1,000 Uniroyal Technology Corp., Warrants 1,625
Total 15,625
CONSUMER PRODUCTS -- 0.0%
100 (a)IHF Capital, Inc., Warrants 5,050
ECOLOGICAL SERVICES & EQUIPMENT -- 0.0%
480 ICF Kaiser International, Inc., Warrants 120
STEEL -- 0.0%
50 (a)Bar Technologies, Inc., Warrants 2,250
TELECOMMUNICATIONS & CELLULAR -- 0.0%
700 Cellular Communications International, 7,000
Inc., Warrants
TOTAL UNITED STATES 31,207
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
SHARES OR VALUE
PRINCIPAL IN U.S.
AMOUNT DOLLARS
<C> <S> <C>
COMMON STOCKS -- CONTINUED
VENEZUELA -- 0.0%
SOVEREIGN -- 0.0%
7,500 Venezuela Rep Oil Linked, Warrants $ 0
TOTAL COMMON STOCKS (IDENTIFIED COST 43,710
$17,729)
PREFERRED STOCKS -- 1.6%
BANKING -- 0.1%
12,000 California Federal Preferred Capital
Corp., REIT Perpetual Pfd. Stock,
Series A, $2.28 306,000
BROADCAST RADIO & TV -- 0.5%
6,082 (a)American Radio Systems Corp.,
Cumulative Exchangeable Pfd.
Stock, $11.38 647,733
2,000 (a)Chancellor Broadcasting Co.,
Exchangeable Pfd. Stock, $12.00 216,500
4,200 (a)Sinclair Broadcast Group, Inc.,
Pfd., Series A, $11.63 445,200
Total 1,309,433
CABLE TELEVISION -- 0.1%
300 Pegasus Communications Corp., Unit, Series 295,500
A, 12.75%
INDUSTRIAL PRODUCTS & EQUIPMENT -- 0.2%
500 (a)Fairfield Manufacturing Co., Inc.,
Exchangeable Pfd. Stock,
Series A, $11.25 500,000
PRINTING & PUBLISHING -- 0.2%
1,959 K-III Communications Corp., Cumulative PIK 213,776
Pfd., Series B, 11.625%
3,500 K-III Communications Corp., Pfd., Series 351,750
D, $10.00
Total 565,526
REAL ESTATE -- 0.4%
1,000 Highwoods Properties, Inc., REIT Perpetual 984,500
Pfd. Stock, Series A, $86.25
TELECOMMUNICATIONS & CELLULAR -- 0.1%
225 PanAmSat Corp., PIK Pfd., 12.75% 282,375
TOTAL PREFERRED STOCKS (IDENTIFIED COST 4,243,334
$4,089,415)
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
VALUE
PRINCIPAL IN U.S.
AMOUNT DOLLARS
<C> <S> <C>
(B)REPURCHASE AGREEMENT -- 2.0%
$ 5,245,000 BT Securities Corporation, 5.560%, dated
5/30/1997, due 6/2/1997
(AT AMORTIZED COST) $ 5,245,000
TOTAL INVESTMENTS (IDENTIFIED COST $ 262,456,188
$258,598,873)(C)
</TABLE>
(a) Denotes a restricted security which is subject to restrictions on
resale under Federal Securities laws. At May 31, 1997, these
securities amounted to $23,480,448 which represents 8.82% of total
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
$258,598,873. The net unrealized appreciation of investments on a
federal tax basis amounts to $3,857,315 which is comprised of
$5,665,439 appreciation and $1,808,124 depreciation at May 31,
1997.
Note: The categories of investments are shown as a percentage of net assets
($266,015,401) at May 31, 1997.
The following acronyms are used throughout this portfolio:
GO -- General Obligation
GTD -- Guaranty
LLC -- Limited Liability Corporation LP -- Limited Partnership PIK --
Payment in Kind PLC -- Public Limited Company REIT -- Real Estate
Investment Trust SA -- Support Agreement UT -- Unlimited Tax
FEDERATED STRATEGIC INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $258,598,873) $ 262,456,188
Cash 41,084
Income receivable 5,968,500
Receivable for shares sold 3,031,443
Deferred expenses 20,283
Total assets 271,517,498
LIABILITIES:
Payable for investments purchased $ 3,498,474
Payable for shares redeemed 124,830
Income distribution payable 1,670,328
Net payable for foreign currency exchange contracts purchased 4,572
Payable for taxes withheld 15,651
Accrued expenses 188,242
Total liabilities 5,502,097
NET ASSETS for 25,692,004 shares outstanding $ 266,015,401
NET ASSETS CONSIST OF:
Paid in capital $ 262,246,942
Net unrealized appreciation of investments and translation of assets and
liabilities 3,819,896
in foreign currency
Accumulated net realized gain on investments and foreign currency transactions 304,139
Distributions in excess of net investment income (355,576)
Total Net Assets $ 266,015,401
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
CLASS A SHARES:
Net Asset Value Per Share ($37,967,332 / 3,667,371 shares outstanding) $10.35
Offering Price Per Share (100/95.50 of $10.35)* $10.84
Redemption Proceeds Per Share $10.35
CLASS B SHARES:
Net Asset Value Per Share ($189,973,349 / 18,347,676 shares outstanding) $10.35
Offering Price Per Share $10.35
Redemption Proceeds Per Share (94.50/100 of $10.35)** $9.78
CLASS C SHARES:
Net Asset Value Per Share ($14,240,883 / 1,375,273 shares outstanding) $10.35
Offering Price Per Share $10.35
Redemption Proceeds Per Share (99.00/100 of $10.35)** $10.25
CLASS F SHARES:
Net Asset Value Per Share ($23,833,837 / 2,301,684 shares outstanding) $10.35
Offering Price Per Share (100/99.00 of $10.35)* $10.45
Redemption Proceeds Per Share (99.00/100 of $10.35)** $10.25
</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
SIX MONTHS ENDED MAY 31, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 49,112
Interest (net of foreign taxes withheld of $16,274) 10,106,770
Total income 10,155,882
EXPENSES:
Investment advisory fee $ 927,563
Administrative personnel and services fee 96,725
Custodian fees 29,421
Transfer and dividend disbursing agent fees and expenses 123,596
Directors'/Trustees' fees 1,169
Auditing fees 8,917
Legal fees 1,261
Portfolio accounting fees 57,064
Distribution services fee -- Class B Shares 575,022
Distribution services fee -- Class C Shares 45,783
Distribution services fee -- Class F Shares 50,876
Shareholder services fee -- Class A Shares 40,440
Shareholder services fee -- Class B Shares 191,674
Shareholder services fee -- Class C Shares 15,261
Shareholder services fee -- Class F Shares 25,438
Share registration costs 53,743
Printing and postage 23,110
Insurance premiums 3,124
Taxes 10,003
Miscellaneous 22,806
Total expenses 2,302,996
Waivers --
Waiver of investment advisory fee $ (426,136)
Waiver of distribution services fee -- Class F Shares (50,876)
Total Waivers (477,012)
Net expenses 1,825,984
Net investment income 8,329,898
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY:
Net realized gain on investments and foreign currency
transactions 128,050
Net change in unrealized appreciation of investments and
translation of assets and liabilities in (1,209,454)
foreign currency
Net realized and unrealized loss on investments and foreign (1,081,404)
currency
Change in net assets resulting from operations $ 7,248,494
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED STRATEGIC INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
(UNAUDITED) NOVEMBER 30,
MAY 31, 1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 8,329,898 $ 5,911,043
Net realized gain (loss) on investments and foreign currency transactions
($128,050 and $711,312, respectively, as computed for federal tax purposes) 128,050 688,404
Net change in unrealized appreciation/depreciation of investments and
translation of assets and liabilities in foreign currency (1,209,454) 4,697,703
Change in net assets resulting from operations 7,248,494 11,297,150
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Class A Shares (1,359,061) (924,874)
Class B Shares (5,849,532) (3,785,124)
Class C Shares (455,337) (435,543)
Class F Shares (940,798) (734,765)
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 (80,861) (41,612)
Class B Shares (365,467) (46,342)
Class C Shares (31,072) (18,841)
Class F Shares (51,079) (30,084)
Change in net assets resulting from distributions to shareholders (9,133,207) (6,094,947)
SHARE TRANSACTIONS--
Proceeds from sale of shares 103,860,441 160,543,684
Net asset value of shares issued to shareholders in payment of distributions 3,419,589 2,826,955
declared
Cost of shares redeemed (15,267,793) (8,980,231)
Change in net assets resulting from share transactions 92,012,237 154,390,408
Change in net assets 90,127,524 159,592,611
NET ASSETS:
Beginning of period 175,887,877 16,295,266
End of period $ 266,015,401 $ 175,887,877
</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>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
MAY 31, NOVEMBER 30,
1997 1996 1995 1994(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.47 $10.14 $ 9.54 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.43 0.91 0.82 0.45
Net realized and unrealized gain (loss) on investments
and foreign currency (0.09) 0.42 0.61 (0.45)
Total from investment operations 0.34 1.33 1.43 0.00
LESS DISTRIBUTIONS
Distributions from net investment income (0.43) (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 and
foreign currency transactions (0.03) (0.08) -- --
Total distributions (0.46) (1.00) (0.83) (0.46)
NET ASSET VALUE, END OF PERIOD $10.35 $10.47 $10.14 $ 9.54
TOTAL RETURN(C) 3.38% 13.89% 15.64% 0.05%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.10%* 1.05% 0.25% 0.25%*
Net investment income 8.19%* 8.54% 8.68% 8.38%*
Expense waiver/reimbursement(d) 0.39%* 0.98% 5.69%(e) 8.87%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $37,967 $28,021 $5,089 $2,366
Portfolio turnover 14% 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 the 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>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
MAY 31, NOVEMBER 30,
1997 1996 1995(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.47 $10.14 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.38 0.83 0.25
Net realized and unrealized gain (loss) on investments
and foreign currency (0.08) 0.42 0.13
Total from investment operations 0.30 1.25 0.38
LESS DISTRIBUTIONS
Distributions from net investment income (0.39) (0.83) (0.24)
Distributions in excess of net investment income(b) -- (0.01) --
Distributions from net realized gain on investments
and foreign currency transactions (0.03) (0.08) --
Total distributions (0.42) (0.92) (0.24)
NET ASSET VALUE, END OF PERIOD $10.35 $10.47 $10.14
TOTAL RETURN(C) 2.98% 13.03% 5.13%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.85%* 1.80% 1.00%*
Net investment income 7.46%* 7.80% 7.95%*
Expense waiver/reimbursement(d) 0.39%* 0.98% 5.69%*(e)
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $189,973 $120,020 $5,193
Portfolio turnover 14% 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 the 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>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
MAY 31, NOVEMBER 30,
1997 1996 1995 1994(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.47 $10.14 $ 9.54 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.41 0.82 0.74 0.40
Net realized and unrealized gain (loss) on investments
and foreign currency (0.10) 0.43 0.61 (0.44)
Total from investment operations 0.31 1.25 1.35 (0.04)
LESS DISTRIBUTIONS
Distributions from net investment income (0.40) (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 and
foreign currency transactions (0.03) (0.08) -- --
Total distributions (0.43) (0.92) (0.75) (0.42)
NET ASSET VALUE, END OF PERIOD $10.35 $10.47 $10.14 $ 9.54
TOTAL RETURN(C) 2.99% 13.05% 14.79% (0.41)%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.85%* 1.80% 1.00% 1.00%*
Net investment income 7.45%* 7.70% 7.93% 7.99%*
Expense waiver/reimbursement(d) 0.39%* 0.98% 5.69%(e) 8.87%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $14,241 $10,481 $2,323 $1,190
Portfolio turnover 14% 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 the 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>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
MAY 31, NOVEMBER 30,
1997 1996 1995 1994(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.47 $10.14 $ 9.54 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.38 0.95 0.77 0.41
Net realized and unrealized gain (loss) on investments
and foreign currency (0.04) 0.37 0.61 (0.44)
Total from investment operations 0.34 1.32 1.38 (0.03)
LESS DISTRIBUTIONS
Distributions from net investment income (0.43) (0.91) (0.78) (0.41)
Distributions in excess of net investment income(b) -- -- -- (0.02)
Distributions from net realized gain on investments
and foreign currency transactions (0.03) (0.08) -- --
Total distributions (0.46) (0.99) (0.78) (0.43)
NET ASSET VALUE, END OF PERIOD $10.35 $10.47 $10.14 $ 9.54
TOTAL RETURN(C) 3.38% 13.83% 15.07% (0.19)%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.10%* 1.07% 0.75% 0.75%*
Net investment income 8.20%* 8.48% 8.19% 8.34%*
Expense waiver/reimbursement(d) 0.89%* 1.46% 5.69%(e) 8.87%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $23,834 $17,367 $3,691 $2,326
Portfolio turnover 14% 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 the 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
MAY 31, 1997 (UNAUDITED)
1. ORGANIZATION
Fixed Income Securities, Inc. (the "Corporation") is registered under
the Investment Company Act of 1940, as amended (the "Act") as an
open-end, management investment company. The Corporation consists of
three portfolios. The financial statements included herein are only
those of Federated Strategic Income Fund (the "Fund"), a diversified
portfolio. The financial statements of the other portfolios are
presented separately. The assets of each portfolio are segregated and
a shareholder's interest is limited to the portfolio in which shares
are held. The Fund offers four classes of shares: Class A Shares,
Class B Shares, Class C Shares and Class F Shares. The investment
objective of the Fund is to seek a high level of current income.
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, and 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. With respect to valuation of foreign securities,
trading in foreign cities may be completed at times which vary from
the closing of the New York Stock Exchange. Therefore, foreign
securities are valued at the latest closing price on the exchange on
which they are traded prior to the closing of the New York Stock
Exchange. Foreign securities quoted in foreign currencies are
translated into U.S. Dollars at the foreign exchange rate in effect
at noon, eastern time, on the day the value of the foreign security
is determined.
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.
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 over a period not to exceed five years from the
Fund's commencement date.
FOREIGN EXCHANGE CONTRACTS -- The Fund may enter into foreign
currency commitments for the delayed delivery of securities or
foreign currency exchange transactions. Purchased contracts are used
to acquire exposure to foreign currencies; whereas, contracts to
sell are used to hedge the Fund's securities against currency
fluctuations. Risks may arise upon entering these transactions from
the potential inability of counterparts 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 purpose as
unrealized until the settlement date. At May 31, 1997, the Fund had
outstanding foreign currency commitments as set forth below:
<TABLE>
<CAPTION>
CONTRACTS SETTLEMENT CONTRACTS TO IN EXCHANGE CONTRACTS AT UNREALIZED
PURCHASED DATE DELIVER/RECEIVE FOR VALUE DEPRECIATION
<S> <C> <C> <C> <C> <C>
Danish 6/3/97 5,108,889 $789,432 $784,860 $4,572
Krone
</TABLE>
FOREIGN CURRENCY TRANSLATION -- The accounting records of the Fund
are maintained in U.S. dollars. All assets and liabilities
denominated in foreign currencies ("FC") are translated into U.S.
dollars based on the rate of exchange of such currencies against
U.S. dollars on the date of valuation. Purchases and sales of
securities, income and expenses are translated at the rate of
exchange quoted on the respective date that such transactions are
recorded. Differences between income and expense amounts recorded
and collected or paid are adjusted when reported by the custodian
bank. The Fund does not isolate that portion of the results of
operations resulting from changes in foreign exchange rates on
investments from the fluctuations arising from changes in market
prices of securities held. Such fluctuations are included with the
net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from
sales of portfolio securities, sales and maturities of short-term
securities, sales of FCs, currency gains or losses realized between
the trade and settlement dates on securities transactions, 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.
FEDERATED STRATEGIC INCOME FUND
Additional information on each restricted security held at May 31,
1997 is as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION
COST
<S> <C> <C>
Allied Waste Industries 5/1/1997 - 5/12/1997 $ 388,278
Allied Waste North America, Inc. 11/25/1996 - 877,563
4/21/1997
Allmerica Financial Corp. 1/29/1997 500,000
Altos Hornos De Mexico 4/30/1997 1,245,100
American Builders & Contractors 5/5/1997 - 5/16/1997 406,750
Supply Co.
American Radio System Corp. 1/27/1997 - 5/6/1997 601,752
Bar Technologies, Inc. 8/27/1996 2,794
Cellular Communications of Puerto 1/28/1997 - 2/3/1997 500,750
Rico, Inc.
Chancellor Broadcasting Co. 1/17/1997 200,000
Collins & Aikman Floorcoverings, 1/30/1997 - 752,000
Inc. 2/12/1997
Comcast Cellular Holdings, Inc. 5/5/1997 149,756
Comcast Corp. 4/25/1997 998,290
Comtel Brasileir 12/6/1996 721,000
Continental Global Group, Inc. 3/26/1997 300,000
Diamond Cable Communications 2/24/1997 - 857,735
4/22/1997
Dobson Communications Corp. 2/25/1997 200,000
Electronic Retailing System 1/21/1997 248,548
International, Inc.
Equitable Life 10/17/1996 993,550
Fairchild Semiconductor Corp. 3/6/1997 - 4/15/1997 503,750
Fairchild Manufacturing Co., Inc. 3/7/1997 500,000
Foamex 5/29/1997 100,000
GFSI, Inc. 2/21/1997 - 202,875
2/24/1997
Glenoit Corp. 3/26/1997 299,427
IHF Capital, Inc. 11/4/1994 494
KSL Recreation Group, Inc. 4/24/1997 150,000
MBW Foods Inc. 2/5/1997 - 3/11/1997 329,125
McLeod, Inc. 2/27/1997 - 444,101
4/23/1997
Metro Toronto 9/18/1996 723,341
MMI Products, Inc. 4/11/1997 - 586,750
5/27/1997
Neenah Corp. 4/24/1997 150,000
Outsourcing Solutions, Inc. 10/31/1996 - 413,750
3/20/1997
Plastic Containers, Inc. 12/11/1996 - 459,188
12/12/1996
Qwest Communications International, 3/25/1997 - 978,938
Inc. 4/18/1997
Reliance Industries 1/13/1997 1,250,000
Renaissance Cosmetic, Inc. 2/4/1997 425,000
Sinclair Broadcast Group, Inc. 3/5/1997 - 4/17/1997 416,400
TCI Satellite Entertainment, Inc. 2/14/1997 171,453
TCI Satellite Entertainment, Inc. 2/14/1997 200,000
Telecom Brazil 4/18/1996 - 1,543,125
5/30/1996
Tenaga Nasional Berhad 3/3/1997 474,925
Therma-Wave, Inc. 5/12/1997 101,063
Union Central Life Insurance Co. 10/31/1996 994,780
Von Hoffmann Press, Inc. 5/15/1997 75,000
XCL 5/13/1997 275,000
Zhuhai Highway 8/16/1996 - 1,545,938
9/17/1996
</TABLE>
FEDERATED STRATEGIC INCOME FUND
USE OF ESTIMATES -- The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those
estimated.
OTHER -- Investment transactions are accounted for on the trade
date.
3. CAPITAL STOCK
At May 31, 1997, 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 Shares 1,000,000,000
Class B Shares 1,000,000,000
Class C Shares 1,000,000,000
Class F Shares 1,000,000,000
Total shares authorized 4,000,000,000
</TABLE>
Transactions in capital stock were as follows:
<TABLE>
SIX MONTHS YEAR ENDED
ENDED NOVEMBER 30,
MAY 31, 1997 1996
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 1,230,508 $ 12,743,571 2,290,977 $ 23,397,580
Shares issued to shareholders in payment of
distributions declared 52,667 544,545 47,188 480,390
Shares redeemed (292,963) (3,026,306) (163,057) (1,660,810)
Net change resulting from Class A Share
transactions 990,212 $ 10,261,810 2,175,108 $ 22,217,160
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED NOVEMBER 30,
MAY 31, 1997 1996
CLASS B SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 7,504,805 $ 77,642,896 11,345,851 $ 115,125,074
Shares issued to shareholders in payment
of
distributions declared 224,312 2,317,757 170,336 1,739,077
Shares redeemed (847,422) (8,750,241) (562,289) (5,646,436)
Net change resulting from Class B Share
transactions 6,881,695 $ 71,210,412 10,953,898 $ 111,217,715
<CAPTION>
FEDERATED STRATEGIC INCOME FUND
SIX MONTHS YEAR ENDED
ENDED NOVEMBER 30,
MAY 31, 1997 1996
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 529,295 $ 5,476,306 824,314 $ 8,385,573
Shares issued to shareholders in payment of
distributions declared 22,021 227,656 27,616 280,927
Shares redeemed (177,010) (1,830,726) (80,120) (815,841)
Net change resulting from Class C Share
transactions 374,306 $ 3,873,236 771,810 $ 7,850,659
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED NOVEMBER 30,
MAY 31, 1997 1996
CLASS F SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 771,690 $ 7,997,668 1,347,566 $ 13,635,457
Shares issued to shareholders in payment
of
distributions declared 31,882 329,631 32,001 326,561
Shares redeemed (160,506) (1,660,520) (84,996) (857,144)
Net change resulting from Class F Share
transactions 643,066 $ 6,666,779 1,294,571 $ 13,104,874
Net change resulting from share
transactions 8,889,279 $ 92,012,237 15,195,387 $ 154,390,408
</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 0.85% 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.
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. The fee is paid by the Adviser out of its resources
and is not an incremental Fund expense.
FEDERATED STRATEGIC INCOME FUND
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.
PERCENTAGE OF AVERAGE DAILY
SHARE CLASS NAME NET ASSETS OF CLASS
Class B Shares 0.75%
Class C Shares 0.75%
Class F Shares 0.50%
The distributor may voluntarily choose to waive any portion of its
fee. The distributor can modify or terminate this voluntary waiver
at any time at its sole discretion.
SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder
Services Agreement with Federated Shareholder Services ("FSS"), the
Fund will pay FSS up to 0.25% of average daily net assets of the
Fund for the period. The fee paid to FSS is used to finance certain
services for shareholders and to maintain shareholder accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ,
through its subsidiary, Federated Shareholder Services Company
("FSSC") serves as transfer and dividend disbursing agent for the
Fund. The fee paid to 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
the Adviser. The Fund has agreed to reimburse the Adviser for the
organizational and start-up administrative expenses during the
five-year period following the effective date. For the period ended
May 31, 1997, the Fund paid $36,719 pursuant to this agreement.
GENERAL -- Certain of the Officers and Directors of the Corporation
are Officers and Directors or Trustees of the above companies.
FEDERATED STRATEGIC INCOME FUND
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities,
for the period ended May 31, 1997, were as follows:
PURCHASES $117,180,107
SALES $ 28,028,740
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.
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
J. Crilley Kelly
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
risk, including possible loss of principal.
This report is authorized for distribution to prospective investors
only when preceded or accompanied by the funds' prospectuses, which
contain facts concerning its objective and policies, management fees,
expenses and other information.
[Graphic] Federated Investors
Federated Securities Corp., Distributor
Cusip 338319700
Cusip 338319866
Cusip 338319809
Cusip 338319882
G00324-01 (7/97)
[Graphic]
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 5/31/97. The "y" axis is
measured in increments of $1,500 ranging from $0 to $9,000 and
indicates that the ending value of hypothetical initial investment of
$6,000 in the Federated Limited Term Fund's Class A Shares, assuming a
1% sales charge and the reinvestment of all capital gains and
dividends, would have grown to $7,998 on 5/31/97.
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 5/31/97. The "y" axis is
measured in increments of $1,250 ranging from $0 to $7,500 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 $6,954 on 5/31/97.
A3. 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 beneath it. The "x" axis
reflects computation periods 1/14/92 to 5/31/97. The "y" axis is
measured in increments of $3,000 ranging from $0 to $15,000 and
indicates that the ending value of a hypothetical initial investment
of $10,000 in the fund would have grown to $13,330 on 5/31/97.
A4. The Graphic presentation here displayed consists of a pie chart showing the
quality composition of the fund's portfolio as of 5/31/97. The breakdowns are
as follows: AA-8%, BB/B-10%, A-19%, BBB-23% and AAA-32%.
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 5/31/97. 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 Federated Limited Term Municipal Fund's Class A Shares,
assuming a 1% sales charge and the reinvestment of all capital gains
and dividends, would have grown to $4,528 on 5/31/97.
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 5/31/97. The "y" axis is
measured in increments of $1,125 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 $4,313 on 5/31/97.
A7. The Graphic presentation here displayed consists of a pie chart showing the
quality composition of the fund's portfolio as of 5/31/97. The breakdowns are
as follows: AAA-4%, AA-7%, NR-17%, A-34% and BBB-38%.
A8. 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 5/31/97. 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 Federated Strategic Income Fund's Class A Shares,
assuming a 4.50% sales charge and the reinvestment of all capital
gains and dividends, would have grown to $5,199 on 5/31/97.
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 5/31/97. The "y" axis is
measured in increments of $1,000 ranging from $0 to $5,000 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 $4,518 on 5/31/97.
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 beneath it. The "x" axis
reflects computation periods 5/4/94 to 5/31/97. The "y" axis is
measured in increments of $25,000 ranging from $0 to $150,000 and
indicates that the ending value of a hypothetical initial investment
of $100,000 in the fund's Class A Shares would have grown to $130,989
on 5/31/97.
