[Graphic]
Federated Limited Term Fund
6TH ANNUAL REPORT
NOVEMBER 30, 1997
ESTABLISHED 1992
[Graphic]
Dear Shareholder:
I am pleased to present the 6th Annual Report of Federated Limited Term Fund,
which was established in 1992. This report covers the reporting period from
December 1, 1996 through November 30, 1997. The fund's assets of $103.8 million
are invested in selected short-term bonds with average maturities of 2-3 years.
These issues have provided generous current income, and your fund has maintained
its 4-star rating by Morningstar out of 1371 taxable bond funds for the overall
period ended December 31, 1997.+
This report begins with a discussion with portfolio managers, Randall S. Bauer
and Robert K. Kinsey, both vice presidents of Federated Advisers. Following
their interviews are three additional items of shareholder interest: a series of
graphs showing investment performance, a complete listing of the fund's
holdings, and its financial statements.
The bond market improved considerably over the fund's fiscal year, as interest
rates rose, and investors moved toward quality in the wake of international
market volatility.
As outlined in the portfolio managers' discussion, shorter term bonds did not
share in the same price gains that occurred as the yields of longer term bonds
decreased. Nevertheless, Federated Limited Term Fund's diversified portfolio of
short-term bonds performed relatively well. The fund outperformed its peer
group, the Lipper Short Investment Grade Debt category, by more than a full
percentage point.*
+ Morningstar proprietary ratings reflect risk-adjusted performance through
December 31, 1997. The ratings are subject to change every month. Past
performance is not a guarantee of future results. Morningstar ratings are
calculated from the fund's 3-, 5-, and 10-year average annual returns in excess
of 90-day Treasury bill returns with appropriate fee adjustments, and a risk
factor that reflects fund performance below 90-day Treasury bill returns. The
fund received 4 stars for the 3- and 5-year periods and was rated among 1371 and
771 taxable bond funds. The top ten percent of the of the funds in the category
receive 5 stars, the next 22.5% receive 4 stars, and the next 35% receive 3
stars. Ratings quoted are for Class A Shares. Star ratings for other classes may
vary and are available only for classes with 3 years of performance history. The
rating shown does not reflect certain management fees which were waived during
the period. If reflected, they may have impacted the rating.
* 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 category indicated. Lipper figures do not reflect any sales charges.
On November 30, 1997, the 30-day current net yield, based on net asset value was
6.02% for Class A Shares and 6.12% for Class F Shares. Share class performance
for the 12-month period follows.**
INCOME NET ASSET VALUE
TOTAL RETURN DISTRIBUTIONS INCREASE
Class A Shares 6.52% $0.59 $9.91 to $9.95 = 0.4%
Class F Shares 6.63% $0.60 $9.91 to $9.95 = 0.4%
Thank you for participating in Federated Limited Term Fund as a way to earn a
competitive income stream through all types of bond market environments.
Remember, reinvesting your monthly dividend is a convenient way to build your
account and help your money grow through the benefit of compounding.
As always, we welcome your comments and suggestions.
Sincerely,
[Graphic]
Richard B. Fisher
President
January 15, 1998
** Performance quoted is based on net asset value, 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 and Class F Shares were 5.46% and 4.51%, respectively. The
30-day current net yields for Class A and Class F Shares, based on offering
price, were 5.96% and 6.06%, respectively.
[Graphic]
Randall S. Bauer
Vice President
Federated Advisers
[Graphic]
Robert K. Kinsey
Vice President
Federated Advisers
[Graphic]
DURING THE FUND'S FISCAL YEAR, THE BOND MARKET ENVIRONMENT IMPROVED, WHILE A
"FLIGHT TO QUALITY" OCCURRED IN THE WAKE OF VOLATILE INTERNATIONAL MARKETS. HOW
DID THE SHORTER MATURITY SIDE OF THE MARKET PERFORM OVER THIS 12-MONTH REPORTING
PERIOD?
While it is true that the longer end of the yield curve enjoyed reasonably good
performance over the period under review, the picture was not as rosy for the
short end. To illustrate, between November 30, 1996 and November 30, 1997, the
yield on the 30-year Treasury bond declined from 6.35% to 6.05%, while the yield
on the 2-year Treasury note actually increased from 5.58% to 5.74%. A fund like
Federated Limited Term Fund, which invests its assets at the short end of the
curve, had to battle this phenomenon.
The events that occurred in Asian markets late in the fiscal year coincided with
(and subsequently exacerbated) weakness in the U.S. corporate bond markets that
had begun during the summer months. As a result, corporates, which had been the
best-performing investment-grade fixed-income sector early in the year, began to
lose ground to Treasuries. While the fund managed to avoid any effects of the
"Asian flu," spread widening did have some, though fortunately not an egregious,
effect on performance. Spreads have now widened, in some cases substantially,
from the extremely tight levels during the spring of 1997, which may provide
opportunities in the coming year.
[Graphic]
HOW DID FEDERATED LIMITED TERM FUND'S PORTFOLIO OF 2- TO 3-YEAR MATURITY
SECURITIES PERFORM IN TERMS OF TOTAL RETURN AND INCOME?
Despite the aforementioned widening of corporate bonds and other "spread
product," i.e., asset-backed and mortgage-backed securities, against Treasuries,
the fund's total return was more than a full percentage point stronger than that
of its peer group, the Lipper Short Investment Grade Debt Funds category, which
recorded an average return for the period of 5.51%.* The fund's Class A Shares
produced a total return of 6.52%, and monthly dividends totaling $0.59 per
share. Class F Shares produced a total return of 6.63%, based on net asset
value, and paid monthly dividends totaling $0.60 per share. Improving the total
returns of both share classes was a modest net asset value increase of $0.04 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 category indicated. This figure does not reflect any sales charges.
The 30-day current yields for Class A and Class F Shares were 6.02% and 6.12%,
respectively, on November 30, 1997.+
[Graphic]
HOW WERE THE FUND'S ASSETS ALLOCATED AT THE END OF THE REPORTING PERIOD AMONG
TYPES OF SECURITIES AND CREDIT QUALITY?
Traditionally, the fund's assets are allocated across 3 major asset classes:
traditional corporate securities, asset-backed securities and mortgage-backed
securities. Over the past 12 months, the fund's largest allocation was in
corporates, which has been the best performing group of the 3. On November 30,
1997, approximately 48% of the fund's assets were in corporate securities, with
27% in mortgage-backed securities and 25% in asset-backed issues.
With regard to credit quality, the fund continued to maintain a solid
investment-grade average quality profile. At the end of the reporting period,
the quality breakdown of Federated Limited Term Fund's portfolio was:
AAA 43%
AA 6%
A 17%
BBB 21%
BB or lower 12%
NR 1%
** Performance quoted is based on net asset value, 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 and Class F Shares were 5.46% and 4.51%, respectively.
+ The 30-day current net yields for Class A and Class F Shares, based on
offering price were 5.96% and 6.06%, respectively.
[Graphic]
AS WE ENTER 1998, WITH A FAVORABLE YEAR FOR BONDS BEHIND US, WHAT IS
MANAGEMENT'S OUTLOOK?
The weakening of "spread product" has continued early in the new fiscal year.
Given this situation, our outlook for domestic spread product now appears
better, barring any considerable slowdown in the U.S. economy, which we do not
foresee at this point.
Another area of potential opportunity for 1998 is those Asian markets which have
had such a difficult time over the past few months. As the situation begins to
stabilize, fund management may seek to selectively pursue value opportunities in
certain foreign markets believed to be oversold.
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 1/13/92, REINVESTED YOUR DIVIDENDS AND CAPITAL
GAINS, AND DIDN'T REDEEM ANY SHARES, YOUR ACCOUNT WOULD BE WORTH $8,350 ON
11/30/97. YOU WOULD HAVE EARNED A 5.78%* AVERAGE ANNUAL TOTAL RETURN FOR THE
5-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,
gaining the benefit of compounding at the same time.
As of 12/31/97, the Class A Shares' average annual 1-year, 5-year, and since
inception (1/13/92) total returns were 5.98%, 5.66%, and 5.80%, respectively.
The Class F Shares' average annual 1-year, and since inception (8/31/93) total
returns were 5.03%, and 5.18%, 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 1.00% sales
charge applicable to an initial investment in Class A Shares.
Data quoted represents past performance and does not guarantee future results.
Investment return and principal value will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
** The total return stated takes into account the 1.00% sales charge for Class A
and Class F Shares, and the 1.00% contingent deferred sales charge for Class F
Shares.
FEDERATED LIMITED TERM FUND
ONE STEP AT A TIME:
$1,000 INVESTED EACH YEAR FOR 6 YEARS (REINVESTING ALL DIVIDENDS AND CAPITAL
GAINS) GREW TO $7,260.
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 1/13/92, 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 $7,260* by 11/30/97. You would have earned
an average annual total return of 5.73%.
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.]
* This chart assumes that the subsequent annual investments are made on the last
day of each anniversary month. No method of investing can guarantee a profit or
protect against loss in down markets. However, by investing regularly over time
and buying shares at various prices, investors can purchase more shares at lower
prices. All accumulated shares have the ability to pay income to the investor.
Because such a plan involves continuous investment, regardless of changing price
levels, the investor should consider whether or not to continue purchases
through periods of low price levels.
FEDERATED LIMITED TERM FUND
(CLASS A SHARES)
GROWTH OF $10,000 INVESTED IN FEDERATED LIMITED TERM FUND (CLASS A SHARES)
The graph below illustrates the hypothetical investment of $10,000* in the
Federated Limited Term Fund (Class A Shares) (the "Fund") from January 13, 1992
(start of performance) to November 30, 1997, compared to the Merrill Lynch 1-3
Year Short-Term Corporate Index (MLSTC)+ and the Lipper Short
Investment Grade Debt Funds Average (LSIGDFA).++
[Graphic representation A3 omitted. See Appendix.]
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF
OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 1.00% ($10,000 investment minus $100 sales charge =
$9,900). The Fund's performance assumes the reinvestment of all dividends and
distributions. The MLSTC and the LSIGDFA have been adjusted to reflect
reinvestment of dividends on securities in the index and average.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The MLSTC is not adjusted to reflect sales charges, expenses, or other
fees that the SEC requires to be reflected in the Fund's performance. This
index is unmanaged.
++ The LSIGDFA represents the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as falling into
the category, and is not adjusted to reflect any sales charges. However, these
total returns are reported net of expenses or other fees that the SEC requires
to be reflected in a fund's performance.
FEDERATED LIMITED TERM FUND
(CLASS F SHARES)
GROWTH OF $10,000 INVESTED IN FEDERATED LIMITED TERM FUND (CLASS F SHARES)
The graph below illustrates the hypothetical investment of $10,000* in the
Federated Limited Term Fund (Class F Shares) (the "Fund") from August 31, 1993
(start of performance) to November 30, 1997, compared to the Merrill Lynch 1-3
Year Short-Term Corporate Index (MLSTC)+ and the Lipper Short
Investment Grade Debt Funds Average (LSIGDFA).++
[Graphic representation A4 omitted. See Appendix.]
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF
OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 1.00% ($10,000 investment minus $100 sales charge =
$9,900). The ending value of the Fund reflects a contingent deferred sales
charge of 1.00% on any redemption less than 4 years from the purchase date. The
Fund's performance assumes the reinvestment of all dividends and distributions.
The MLSTC and the LSIGDFA have been adjusted to reflect reinvestment of
dividends on securities in the index and average.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The MLSTC is not adjusted to reflect sales charges, expenses, or other
fees that the SEC requires to be reflected in the Fund's performance. This
index is unmanaged.
++ The LSIGDFA represents the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as falling into
the category, and is not adjusted to reflect any sales charges. However, these
total returns are reported net of expenses or other fees that the SEC requires
to be reflected in a fund's performance.
FEDERATED LIMITED TERM FUND
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
ADJUSTABLE RATE MORTGAGES--2.2%
GOVERNMENT AGENCY--2.2%
$ 849,271 (a)Federal Home Loan Mortgage Corp., ARMs, 7.58%, 9/1/2019 $ 886,300
924,751 (a)Federal Home Loan Mortgage Corp., ARMs, 7.56, 12/1/2018 964,220
335,624 (a)Federal National Mortgage Association, ARMs, 8.07%, 12/1/2020 355,036
119,286 (a)Federal National Mortgage Association, ARMs, 7.725%, 125,904
11/1/2017
TOTAL ADJUSTABLE RATE MORTGAGES (IDENTIFIED COST $2,273,084) 2,331,460
ASSET-BACKED SECURITIES--25.3%
AUTOMOBILE--10.4%
1,715,770 AFG Receivables Trust 1997-B, Class C, 7.00%, 2/15/2003 1,727,814
469,919 Daimler-Benz Auto Grantor Trust 1995-A, Class A, 5.85%, 469,976
5/15/2002
624,065 Navistar Financial Corp. Owner Trust 1994-B, 6.625%, 1/15/2000 626,642
1,155,226 Navistar Financial Corp. Owner Trust 1995-A, Class B, 6.85%,
11/20/2001 1,167,136
2,887,000 Premier Auto Trust 1995-3, Class B, 6.25%, 8/6/2001 2,892,081
1,950,000 Team Fleet Financing Corp. Series 1997-1, Class B, 7.80%, 2,022,521
5/15/2003
1,850,000 Yamaha Motor Master Trust 1995-1, Class A, 6.20%, 5/15/2003 1,857,326
Total 10,763,496
CREDIT CARD--7.3%
1,850,000 Banco Nacional de Mexico S.A., Credit Card Merchant Voucher
Receivables Master Trust Series 1996-A, Class A1, 6.25%, 1,828,818
12/1/2003
3,000,000 Bridgestone/Firestone Master Trust 1996-1, Class B, 6.49%, 3,009,120
7/1/2003
750,000 Dayton Hudson Credit Card Master Trust 1995-1, Class A, 6.10%,
2/25/2002 750,960
2,000,000 Household Affinity Credit Card Master Trust 1993-1, Class B,
5.30%,
9/15/2000 1,986,720
Total 7,575,618
</TABLE>
FEDERATED LIMITED TERM FUND
<TABLE>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
ASSET-BACKED SECURITIES--CONTINUED
HOME EQUITY LOAN--3.4%
$ 551,745 AFC Home Equity Loan Trust 1992-3, Class A, 7.05%, 8/15/2007 $ 559,756
330,193 Advanta HEL Trust 1991-1, Class A, 9.00%, 2/25/2006 345,052
1,549,852 Merrill Lynch Home Equity Loan Trust 1993-1, Class B, 6.50%,
2/15/2003 1,569,489
653,903 The Money Store Home Equity Trust 1992-A, Class A, 6.95%,
1/15/2007 661,449
390,137 The Money Store Home Equity Trust 1992-B, Class A, 6.90%,
7/15/2007 393,064
Total 3,528,810
MARINE RECEIVABLES--1.6%
1,608,507 CBNJ Boat Loan Trust 1994-1, Class A, 6.89%, 5/18/2012 1,634,388
OTHER--2.6%
1,796,690 (b)Bosque Asset Corp., 7.66%, 6/5/2002 1,804,560
325,000 Centerior Energy Receivables Master Trust 1996-1, Class A,
7.20%, 4/15/2002 336,648
3,937,690 (b)FMAC Loan Receivables Trust 1997-A, Class A-X, 2.77%,
4/15/2019 616,485
Total 2,757,693
TOTAL ASSET-BACKED SECURITIES (IDENTIFIED COST $25,377,137) 26,260,005
COLLATERALIZED MORTGAGE OBLIGATIONS--20.3%
COMMERCIAL MORTGAGE--2.1%
3,980,825 First Union Lehman Brothers Commercial Mortgage Trust,
Series 1997C1, Class IO, 1.307%, 4/18/2027 312,853
1,900,000 (b)K Mart CMBS Financing, Inc., Series 1997-1, Class D,
6.475%, 3/1/2007 1,902,375
Total 2,215,228
GOVERNMENT AGENCY--0.5%
34,714,979 Vendee Mortgage Trust 1995-1C, Series 1995-1C, Class
3IO,.2925%, 2/15/2025 531,486
</TABLE>
FEDERATED LIMITED TERM FUND
<TABLE>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS--CONTINUED
HOME EQUITY LOAN--1.0%
$ 1,000,000 Merrill Lynch Mortgage Investors, Inc. 1993-C, Series, Class
A4,
6.50%, 3/15/2018 $ 1,016,250
WHOLE LOAN--16.7%
2,465,720 CMSI Series 1992-18, Class A-1, 7.26%, 11/25/2022 2,529,286
304,912 (b)GE Capital Mortgage Services, Inc., Series 1994-3, Class B4,
6.50%, 1/25/2024 218,775
361,085 (b)Greenwich Capital Acceptance, Inc. Subordinate Mortgage
Securities Trust, Series 1996-A, Class B, 7.5916%, 6/25/2019 349,578
2,000,000 Norwest Asset Securities Corp., Series 1996-4, Class A14,
7.20%, 9/25/2026 2,019,976
2,950,000 Prudential Home Mortgage Securities, Inc., Series 1992-32,
Class A-6, 7.50%, 10/25/2022 2,978,114
3,786,982 Residential Accredit Loans, Inc., Series 1996-QS8, Class A3,
7.05%, 12/25/2026 3,799,550
2,100,000 Residential Accredit Loans, Inc., Series 1997-QS2, Class A3,
7.25%, 3/25/2027 2,115,057
3,270,000 Resolution Trust Corp., Series 1992-15, Class B3, 10.00%,
7/25/2027 3,307,801
Total 17,318,137
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(IDENTIFIED COST $20,940,969) 21,081,101
CORPORATE BONDS--37.7%
AEROSPACE & DEFENSE--2.7%
1,800,000 Raytheon Co., Note, 6.45%, 8/15/2002 1,800,738
900,000 Rohr, Inc., Sr. Note, 11.625%, 5/15/2003 1,021,500
Total 2,822,238
AUTOMOBILE--1.7%
1,800,000 Arvin Industries, Inc., Note, 6.875%, 2/15/2001 1,803,834
</TABLE>
FEDERATED LIMITED TERM FUND
<TABLE>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS--CONTINUED
BANKING--5.7%
$ 3,000,000 (a)Chase Manhattan Corp., Sub. Note, 5.25%, 12/5/2009 $ 2,940,000
2,000,000 (a)Citicorp, Sub. Note, 5.5375%, 10/25/2005 1,968,600
1,000,000 Mercantile Bancorporation, Inc., 6.80%, 6/15/2001 1,014,770
Total 5,923,370
CABLE TELEVISION--4.6%
2,800,000 TKR Cable, Inc., 10.50%, 10/30/2007 3,115,840
1,900,000 Videotron Holdings PLC, Sr. Disc. Note, 0/11.00%, 8/15/2005 1,679,125
Total 4,794,965
FOOD & DRUG RETAILERS--0.7%
700,000 Kroger Co., Inc., Note, 9.25%, 1/1/2005 735,686
FOREST PRODUCTS--2.0%
1,000,000 Quno Corp., Sr. Note, 9.125%, 5/15/2005 1,077,500
900,000 Repap Wisconsin, Inc., 2nd Priority Sr. Secd. Note, 9.875%, 982,710
5/1/2006
Total 2,060,210
HOTELS, MOTELS, INNS & CASINOS--2.4%
2,400,000 La Quinta Inns, Inc., Sr. Sub. Note, 9.25%, 5/15/2003 2,508,000
INDUSTRIAL PRODUCTS & EQUIPMENT--1.6%
1,600,000 Figgie International Holdings, Inc., Sr. Note, 9.875%, 1,672,000
10/1/1999
INSURANCE--2.9%
2,000,000 GEICO Corp., Deb., 9.15%, 9/15/2021 2,245,560
750,000 (b)HSB Group, Inc., 6.66%, 7/15/2027 751,083
Total 2,996,643
LEISURE & ENTERTAINMENT--0.5%
500,000 All American Communications, Inc., Sr. Sub. Note, 10.875%,
10/15/2001 556,875
OIL & GAS--0.9%
925,000 Clark Refining & Marketing Inc., Sr. Note, 10.50%, 12/1/2001 953,906
</TABLE>
FEDERATED LIMITED TERM FUND
<TABLE>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS--CONTINUED
PRINTING & PUBLISHING--1.1%
$ 980,000 Valassis Communication, Inc., Sr. Note, 9.55%, 12/1/2003 $ 1,094,444
RETAILERS--2.4%
900,000 Brylane Capital Corp., Sr. Sub. Note, 10.00%, 9/1/2003 958,500
1,450,000 Shopko Stores, Inc., 8.50%, 3/15/2002 1,546,541
Total 2,505,041
SERVICES--1.0%
1,000,000 Loewen Group Int'l., Sr. Note, 8.25%, 4/15/2003 1,038,090
TELECOMMUNICATIONS & CELLULAR--2.1%
2,000,000 British Telecommunication PLC, 9.625%, 2/15/2019 2,159,240
UTILITIES--5.4%
2,000,000 Boston Edison Co., Deb., 5.95%, 3/15/1998 2,003,060
1,800,000 Long Island Lighting Co., Deb., 9.00%, 11/1/2022 2,004,354
1,400,000 Pennsylvania Power & Light Co., 9.25%, 10/1/2019 1,516,410
Total 5,523,824
TOTAL CORPORATE BONDS (IDENTIFIED COST $39,555,089) 39,148,366
GOVERNMENT AGENCIES--3.7%
SOVEREIGN GOVERNMENT--0.9%
981,250 Brazil IDU, Deb., 6.8125%, 1/1/2001 919,922
STATE/PROVINCIAL--2.8%
3,700,000 Ontario Hydro, 10.00%, 3/19/2001 2,960,052
TOTAL GOVERNMENTS AGENCIES (IDENTIFIED COST $4,030,840) 3,879,974
MORTGAGE BACKED SECURITIES--3.8%
GOVERNMENT AGENCY--3.8%
1,769,858 Federal Home Loan Mortgage Corp., 6.00%, 4/1/2003 1,752,160
2,133,258 Government National Mortgage Association, 8.50%, 8/15/2026 2,235,911
TOTAL MORTGAGE BACKED SECURITIES (IDENTIFIED COST $3,920,230) 3,988,071
</TABLE>
FEDERATED LIMITED TERM FUND
<TABLE>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
U.S. GOVERNMENT AGENCIES--0.5%
FEDERAL NATIONAL MORTGAGE ASSOCIATION--0.5%
$ 500,000 6.34%, 7/28/2000 $ 501,795
TOTAL U.S. GOVERNMENT AGENCIES (IDENTIFIED COST $499,720) 501,795
U.S. TREASURY OBLIGATIONS--5.8%
U.S. TREASURY NOTE--5.8%
6,000,000 5.875%, 9/30/2002 6,005,760
TOTAL U.S. TREASURY OBLIGATIONS (IDENTIFIED COST $6,005,187) 6,005,760
TOTAL INVESTMENTS (IDENTIFIED COST $102,602,256)(C) $ 103,196,532
</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 November 30, 1997, these securities amounted
to $5,642,856 which represents 5.4% of net assets.
(c) The cost of investments for federal tax purposes amounts to $102,609,444.
The net unrealized appreciation of investments on a federal tax basis amounts to
$587,088 which is comprised of $1,037,056 appreciation and $449,968 depreciation
at November 30, 1997.
Note: The categories of investments are shown as a percentage of net assets
($103,758,635) at November 30, 1997.
The following acronyms are used throughout this portfolio:
ARMs --Adjustable Rate Mortgages
HEL --Home Equity Loan
(See Notes which are an integral part of the Financial Statements)
FEDERATED LIMITED TERM FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1997
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified cost $ 103,196,532
$102,602,256 and tax cost $102,609,444)
Income receivable 1,067,036
Receivable for investments sold 449,680
Receivable for shares sold 2,427,947
Receivable for foreign currency exchange contracts sold 19,087
Deferred expenses 20,923
Total assets 107,181,205
LIABILITIES:
Payable for shares redeemed $ 633,815
Income distribution payable 176,698
Payable to Bank 2,548,688
Accrued expenses 63,369
Total liabilities 3,422,570
NET ASSETS for 10,428,876 shares outstanding $ 103,758,635
NET ASSETS CONSIST OF:
Paid in capital $ 113,367,331
Net unrealized appreciation of investments and translation of
assets and liabilities in foreign currency 613,363
Accumulated net realized loss on investments and foreign currency (10,476,823)
transactions
Undistributed net investment income 254,764
Total Net Assets $ 103,758,635
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
CLASS A SHARES:
Net Asset Value Per Share ($94,952,068 / 9,543,712 shares $9.95
outstanding)
Offering Price Per Share (100/99.00 of $9.95)* $10.05
Redemption Proceeds Per Share $9.95
CLASS F SHARES:
Net Asset Value Per Share ($8,806,567 / 885,164 shares $9.95
outstanding)
Offering Price Per Share (100/99.00 of $9.95)* $10.05
Redemption Proceeds Per Share (99.00/100 of $9.95)** $9.85
</TABLE>
* See "What Shares Cost" in the Prospectus.
** See "Contingent Deferred Sales Charge" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
FEDERATED LIMITED TERM FUND
STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1997
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 7,827,019
EXPENSES:
Investment advisory fee $ 446,254
Administrative personnel and services fee 155,001
Custodian fees 13,568
Transfer and dividend disbursing agent fees and expenses 138,845
Directors'/Trustees' fees 1,937
Auditing fees 14,755
Legal fees 3,600
Portfolio accounting fees 62,537
Distribution services fee--Class A Shares 513,507
Distribution services fee--Class F Shares 13,294
Shareholder services fee--Class A Shares 256,754
Shareholder services fee--Class F Shares 22,156
Share registration costs 28,448
Printing and postage 50,494
Insurance premiums 2,318
Taxes 13,153
Miscellaneous 12,282
Total expenses 1,748,903
Waivers --
Waiver of investment advisory fee $(214,584) Waiver of distribution
services fee--Class A Shares (308,105) Waiver of distribution services
fee--Class F Shares (1,772) Waiver of shareholder services fee--Class F
Shares (2,659)
Total waivers (527,120)
Net expenses 1,221,783
Net investment income 6,605,236
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY:
Net realized gain on investments and foreign currency 890,943
transactions
Net change in unrealized appreciation of investments and
translation of assets
and liabilities in foreign currency (522,183)
Net realized and unrealized gain on investments and 368,760
foreign currency
Change in net assets resulting from operations $ 6,973,996
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED LIMITED TERM FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 6,605,236 $ 7,793,407
Net realized gain (loss) on investments and foreign currency
transactions ($643,106 net gain and $97,950 net loss,
respectively,
as computed for federal tax purposes) 890,943 (127,055)
Net change in unrealized appreciation/depreciation of
investments and translation of assets and liabilities
in foreign currency (522,183) (986,773)
Change in net assets resulting from operations 6,973,996 6,679,579
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Class A Shares (6,096,126) (7,170,778)
Class F Shares (533,574) (585,285)
Change in net assets resulting from distributions to (6,629,700) (7,756,063)
shareholders
SHARE TRANSACTIONS--
Proceeds from sale of shares 48,134,214 29,931,476
Net asset value of shares issued to shareholders in payment
of
distributions declared 4,194,743 5,052,858
Cost of shares redeemed (74,027,315) (57,429,451)
Change in net assets resulting from share transactions (21,698,358) (22,445,117)
Change in net assets (21,354,062) (23,521,601)
NET ASSETS:
Beginning of period 125,112,697 148,634,298
End of period (including undistributed net investment income
of $254,764 and $53,308, respectively) $ 103,758,635 $ 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>
YEAR ENDED NOVEMBER 30,
1997 1996 1995 1994 1993 1992(A)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF $ 9.91 $ 9.97 $ 9.48 $10.17 $10.00 $10.01
PERIOD
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.59 0.59 0.55 0.53 0.63 0.519
Net realized and unrealized gain
(loss) on
investments and foreign currency 0.04 (0.06) 0.49 (0.66) 0.19 (0.008)
Total from investment operations 0.63 0.53 1.04 (0.13) 0.82 0.511
LESS DISTRIBUTIONS
Distributions from net (0.59) (0.59) (0.55) (0.53) (0.63) (0.519)
investment income
Distributions in excess of net
investment income(b) -- -- -- (0.02) (0.02) (0.002)
Distributions from net realized
gain
on investments -- -- -- (0.01) -- --
Total distributions (0.59) (0.59) (0.55) (0.56) (0.65) (0.521)
NET ASSET VALUE, END OF PERIOD $ 9.95 $ 9.91 $ 9.97 $ 9.48 $10.17 $10.00
TOTAL RETURN(C) 6.52% 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 5.90% 6.04% 6.13% 5.52% 5.75% 6.17%*
Expense waiver/reimbursement(d) 0.49% 0.56% 0.43% 0.39% 0.49% 1.06%*
SUPPLEMENTAL DATA
Net assets, end of period (000 $94,952 $116,174 $138,451 $178,771 $248,876 $57,225
omitted)
Portfolio turnover 62% 104% 63% 63% 38% 60%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from January 13, 1992 (date of initial
public investment) to November 30, 1992. For the period from the start of
business, December 5, 1991 to January 12, 1992, the net investment income was
distributed to the Fund's investment adviser.
(b) Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These distributions do
not represent a return of capital for federal income tax 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
FINANCIAL HIGHLIGHTS--CLASS F SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
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 0.60 0.66 0.61 0.55 0.15
Net realized and unrealized gain (loss)
on investments and foreign currency 0.04 (0.12) 0.44 (0.67) (0.07)
Total from investment operations 0.64 0.54 1.05 (0.12) 0.08
LESS DISTRIBUTIONS
Distributions from net investment income (0.60) (0.60) (0.56) (0.55) (0.15)
Distributions in excess of net investment -- -- -- (0.01) --
income(b)
Distributions from net realized gain on -- -- -- (0.01) --
investments
Total distributions (0.60) (0.60) (0.56) (0.57) (0.15)
NET ASSET VALUE, END OF PERIOD $ 9.95 $ 9.91 $ 9.97 $ 9.48 $10.17
TOTAL RETURN(C) 6.63% 5.64% 11.39% (1.20%) 0.78%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.00% 1.00% 1.00% 0.99% 1.00%*
Net investment income 6.00% 6.14% 6.22% 5.67% 7.10%*
Expense waiver/reimbursement(d) 0.24% 0.31% 0.18% 0.13% 0.39%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $8,807 $8,938 $10,183 $13,415 $7,230
Portfolio turnover 62% 104% 63% 63% 38%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from August 31, 1993 (date of initial
public investment) to November 30, 1993.
(b) Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These distributions do
not represent a return of capital for federal income tax purposes.
(c) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED LIMITED TERM FUND
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1997
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 F Shares and Class
A 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.
However, short-term securities with remaining maturities of sixty days or less
at the time of purchase may be valued at amortized cost, which approximates fair
market value.
REPURCHASE AGREEMENTS-- It is the policy of the Fund to require the custodian
bank to take possession, to have legally segregated in the Federal Reserve Book
Entry System, or to have segregated within the custodian bank's vault, all
securities held as collateral under repurchase agreement transactions.
Additionally, procedures have been established by the Fund to monitor, on a
daily basis, the market value of each repurchase agreement's collateral to
ensure that the value of collateral at least equals the repurchase price to be
paid under the repurchase agreement transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Directors (the "Directors").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less than
the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS-- Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized as
required by the Internal Revenue Code, as amended (the "Code"). Distributions to
shareholders are recorded on the ex-dividend date.
Income and capital gain distributions are determined in accordance with income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments for foreign currency
transactions. The following reclassifications have been made to the financial
statements.
INCREASE (DECREASE)
ACCUMULATED
NET REALIZED UNDISTRIBUTED NET
GAIN/LOSS INVESTMENT INCOME
($225,920) $225,920
Net investment income, net realized gains/losses, and net assets were not
affected by this reclassifications.
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, 1997, the Fund, for federal tax purposes, had a capital loss
carryforward of $10,469,634, 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 $8,964,278
2003 1,407,407
2004 97,949
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 counter-parts to meet the terms of their
commitments and from unanticipated movements in security prices or foreign
exchange rates. The foreign currency transactions are adjusted by the daily
exchange rate of the underlying currency and any gains or losses are recorded
for financial statement purpose as unrealized until the settlement date.
At November 30, 1997, the Fund had outstanding foreign currency commitments as
set forth below:
<TABLE>
<CAPTION>
FOREIGN UNREALIZED
SETTLEMENT CURRENCY IN EXCHANGE CONTRACTS AT APPRECIATION
DATE UNITS TO FOR VALUE (DEPRECIATION)
DELIVER
<S> <C> <C> <C> <C>
2/25/98 4,457,872 3,161,611 U.S. $3,142,524 $19,087
Canadian Dollars Dollars
</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 loses 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 Board of Directors.
The Fund will not incur any registration costs upon such resales. The Fund's
restricted securities are valued at the price provided by dealers in the
secondary market or, if no market prices are available, at the fair value as
determined by the Fund's pricing committee.
Additional information on each restricted security held at November 30, 1997, as
follows:
SECURITY ACQUISITION DATE ACQUISITION COST
Bosque Asset Corp. 6/19/1997 $1,803,428
FMAC Loan Receivables Trust 6/16/1997 599,741
KMart CMBS Financing, Inc. 2/27/1997 1,900,000
GE Capital Mortgage Services, Inc. 7/10/1997 213,439
Greenwich Capital Acceptance, Inc. 7/24/1997 349,153
HSB Group, Inc. 7/10/1997 742,272
USE OF ESTIMATES-- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts of assets, liabilities, expenses, and
revenues reported in the financial statements. Actual results could differ from
those estimated.
OTHER-- Investment transactions are accounted for on the trade date.
3. CAPITAL STOCK
At November 30, 1997, par value shares ($0.001 per share) authorized were as
follows:
PERCENTAGE 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>
YEAR ENDED NOVEMBER 30,
1997 1996
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 4,650,436 $ 46,093,000 2,805,603 $ 27,464,259
Shares issued to shareholders in
payment
of distributions declared 393,568 3,886,908 480,026 4,713,413
Shares redeemed (7,225,178) (71,507,487) (5,449,139) (53,449,243)
Net change resulting from Class A
Shares transactions (2,181,174) $ (21,527,579) (2,163,510) $ (21,271,571)
<CAPTION>
YEAR ENDED NOVEMBER 30,
1997 1996
CLASS F SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 206,849 $ 2,041,214 250,466 $ 2,467,217
Shares issued to shareholders in
payment
of distributions declared 31,156 307,835 34,590 339,445
Shares redeemed (254,941) (2,519,828) (404,495) (3,980,208)
Net change resulting from Class F
Shares transactions (16,936) $ (170,779) (119,439) $ (1,173,546)
Net change resulting from
share transactions (2,198,110) $ (21,698,358) (2,282,949) $ (22,445,117)
</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. ("FSC"), the principal
distributor, of the Fund to finance activities intended to result in the sale of
the Corporation's Class F Shares and Class A Shares. The Plan provides that the
Fund may incur distribution expenses according to the following schedule
annually, to compensate FSC.
PERCENTAGE OF AVERAGE DAILY
SHARE CLASS NAME NET ASSETS OF CLASS
Class A Shares 0.50%
Class F Shares 0.15%
FSC may voluntarily choose to waive any portion of its fee. FSC can modify or
terminate this voluntary waiver at any time at its sole discretion.
SHAREHOLDER SERVICES FEE-- Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services, ("FSS") the Fund will pay FSS up to 0.25%
of average daily net assets of the Fund shares for the period. The fee paid to
FSS is used to finance certain services for shareholders and to maintain
shareholder accounts. FSS may voluntarily choose to waive any portion of its
fee. FSS can modify or terminate this voluntary waiver at any time at its sole
discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES-- FServ, through its
subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer
and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the
size, type, and number of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES-- FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.
GENERAL-- Certain of the Officers and Directors of the Corporation are Officers
and Directors or Trustees of the above companies.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities for the year
ended November 30, 1997, were as follows:
PURCHASES $65,988,144
SALES $81,898,887
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of FIXED INCOME SECURITIES, INC.
and the Shareholders of FEDERATED LIMITED TERM FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Federated Limited Term Fund (a portfolio of
Fixed Income Securities, Inc.) as of November 30, 1997, the related statement of
operations for the year then ended, the statement of changes in net assets for
the years ended November 30, 1997 and 1996, and financial highlights for each of
the periods presented. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
November 30, 1997, by correspondence with the custodian and brokers; where
replies were not received, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights present
fairly, in all material respects, the financial position of Federated Limited
Term Fund as of November 30, 1997, the results of its operations, the changes in
its net assets, and the financial highlights for the respective stated periods
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
January 16, 1998
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
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 investment risk,
including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
[Graphic]
Federated Investors
Federated Securities Corp., Distributor
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Cusip 338319106
Cusip 338319304
G01176-01 (1/98)
[Graphic]
[Graphic]
Federated Limited Term Municipal Fund
4TH ANNUAL REPORT NOVEMBER 30, 1997
ESTABLISHED 1993
PRESIDENT'S MESSAGE
[Graphic]
Dear Shareholder:
The Federated Limited Term Municipal Fund was established in 1993 to provide a
conservative investment approach to tax-free income, and I am pleased to present
its fourth Annual Report. This report covers the 12-month fiscal year reporting
period from December 1, 1996 through November 30, 1997.
First, you will find a discussion with Jeff A. Kozemchak, Vice President,
Federated Advisers. Next are three additional items of shareholder interest:
a series of graphs showing investment performance, a complete list of the
fund's holdings, and its financial statements.
The fund's maturity places it between tax-free money market fund instruments and
longer term municipal bonds, i.e., it offers more income than money market
instruments, but less income than long-term tax-free municipal bonds.*
The bond market improved considerably over the fund's fiscal year as interest
rates rose, and investors moved toward quality in the wake of international
market volatility. In this environment, the total return of Federated Limited
Term Municipal Fund exceeded that of the fund's benchmark, the Lipper Short-Term
Municipal Debt category.** Share class performance for the 12-month reporting
period follows.+
TOTAL NET ASSET VALUE
RETURN INCOME INCREASE
Class A Shares 4.45% $0.41 $9.76 to $9.78 = 0.2%
Class F Shares 4.71% $0.43 $9.76 to $9.78 = 0.2%
* Unlike the fund, money market funds seek to maintain a stable $1.00 share
value.
** 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
category indicated. Lipper figures do not reflect sales charges.
+ Performance quoted is based on net asset value, 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 and Class F Shares were 3.39% and 3.65%, respectively.
At the end of the reporting period, the fund's assets of $73 million were
invested as follows: 29% A- or better; 28% BBB- to BBB+; 41% non-rated.++ The
fund's 68 securities included bonds issued for hospitals, single-family housing
authorities, electric revenue, and resource recovery bonds--with an average of
1.4% of the fund's portfolio in each of the above issues.
Thank you for choosing Federated Limited Term Municipal Fund to pursue tax-free
income from short-term municipal issues. Remember, reinvesting your monthly
dividends is a convenient way to build your account through the benefit of
compounding.
As always, we welcome your comments and suggestions.
Sincerely,
[Graphic]
Richard B. Fisher
President
January 15, 1998
++ Ratings are according to Standard & Poor's Ratings Group.
INVESTMENT REVIEW
[Graphic]
Jeff A. Kozemchak, CFA
Vice President
Federated Advisers
[Graphic]
WHAT ARE YOUR COMMENTS ON THE ECONOMY, THE IMPROVED ENVIRONMENT FOR BONDS,
AND THE SHORT-TERM MUNICIPAL BOND MARKET IN PARTICULAR, OVER THE FUND'S
FISCAL YEAR?
The short-term municipal bond market performed well over the one-year reporting
period ended November 30, 1997. The market continued to deliver an incremental
income advantage as compared to money market securities, while sustaining
relative price stability.
In early 1997, reacting to an economy that reflected strong growth and low
unemployment, the Federal Reserve Board (the "Fed") raised short-term interest
rates for the first time in two years. The Federal Funds Target Rate increased
from 5.25% to 5.50%. The Fed was concerned that the robust pace of economic
expansion, tight labor markets, and persistent strong demand could potentially
lead to a resurgence in inflation in the future. The Fed's action was considered
somewhat preemptive against the threat of future inflationary pressures and the
need for more vigorous action in the future. Because inflationary pressures
continued to remain mild, fears of a late spring or summer rate increase by the
Fed gradually receded and all but vanished by late June. As the year progressed,
the economy has continued to remain robust, posting strong growth and employment
with little indication of inflation.
The shape and direction (movement) of the short-end of the municipal yield curve
(5 years and less) are heavily influenced by the actions of the Fed as well as
market perceptions regarding future actions by the Fed. Yields on 3-year A-rated
municipal bonds began the period at 4.25%, but moved higher in December and
January to 4.50% swayed by stronger economic numbers, a nervous equity market,
and cautionary statements by the Fed. In February, yields fell once again to
4.25% as the market discounted the prospects for a strong economy and potential
for future inflation. However, a reversal in expectations occurred in
mid-February as municipal yields again reversed direction, and the Fed signaled
the possible need for future interest rate increases to slow the economy. In
late March, the Fed increased rates, but the market had already begun to "price
into the yield curve." Correspondingly, yields moved sharply higher through late
April, reaching a period high of 4.75%. However, in May, bonds began a sustained
summer rally on favorable news of slower demand, low inflation, and a steady Fed
policy.
Yields ended the period at 4.15%.
[Graphic]
HOW DID FEDERATED LIMITED TERM MUNICIPAL FUND PERFORM DURING THE PAST FISCAL
YEAR?
The fund performed very well over the 12-month reporting period on both a total
return and income basis. Investors in the Class A Shares of the fund received a
total return of 4.45% based on net asset value. For investors in the Class F
Shares, total return was 4.71% based on net asset value.* These results exceeded
the 4.24% average return for the funds in its peer group, the Lipper Short-Term
Municipal Debt category.** For investors in the highest federal tax bracket,
these total returns are equivalent to taxable returns of 7.25% for Class A
Shares and 7.67% for Class F Shares.
[Graphic]
WHAT LEVEL OF INCOME DID THE FUND PRODUCE?
For the 12-month reporting period, the fund's tax-exempt income totaled $0.41
per share for Class A Shares and $0.43 per share for Class F Shares. These
income levels correspond to 12-month tax-exempt distribution rates of 4.14% and
4.39% for investors in the Class A and F Shares, respectively. When considering
the relative price stability of the fund, these distributions are attractive
compared to municipal money market fund returns.
Also, as of November 30, 1997, the fund posted 30-day distribution rates of
4.14% for the Class A Shares and 4.43% for the Class F Shares. These rates are
equivalent to taxable rates of 6.92% (A Shares) and 7.18% (F Shares), assuming a
top marginal tax rate of 39.60%. The 30-day SEC yields for Class A and Class F
Shares were 3.79% and 4.08%, 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 12-month period based on offering price for Class A
and Class F Shares were 3.39% and 3.65%, 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
category indicated. Lipper figures do not reflect sales charges.
+ The 30-day SEC yield, or 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.
[Graphic]
WITH A RELATIVELY FAVORABLE YEAR BEHIND US, WHAT IS YOUR OUTLOOK FOR INTEREST
RATES AS WE ENTER 1998, AND DO YOU ANTICIPATE STRATEGY CHANGES AS A RESULT?
Going into 1998, our outlook continues to be optimistic. Interest rates have
fallen considerably over the past six months, with the difference between
short-term and long-term rates at their narrowest spread in years. In this
environment, the market is expecting the next Fed policy move to be an interest
rate cut. However, given the recent strength of employment activity and of wage
pressures, the Fed could find cause to increase interest rates by 25 basis
points early in 1998. Their decision will be swayed by Asian economic conditions
and any signs of a build-up in wage pressures. Any Fed move would likely be
viewed more as an insurance policy against the need for more aggressive action
in the future. By the second half of the year, we expect interest rates to begin
to move lower as growth moderates. As such, we will continue our
neutral-to-positive stance for the fund, and continue to search for attractive
investment opportunities in order to best serve our municipal investors.
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 $5,000 IN THE CLASS A SHARES OF
FEDERATED LIMITED TERM MUNICIPAL FUND ON 9/1/93, REINVESTED DIVIDENDS AND
CAPITAL GAINS, AND DIDN'T REDEEM ANY SHARES, YOUR ACCOUNT WOULD HAVE BEEN WORTH
$5,820 ON 11/30/97. YOU WOULD HAVE EARNED A 3.64%* AVERAGE ANNUAL TOTAL RETURN
FOR THIS INVESTMENT LIFE SPAN.
One key to investing wisely is to reinvest all distributions in fund shares.
This increases the number of shares on which you can earn future dividends, and
you gain the benefit of compounding.
As of 12/31/97, the Class A Shares' average annual 1-year and since inception
(9/1/93) total returns were 4.14%, and 3.75%, respectively. Class F Shares'
average annual 1-year and since inception (9/1/93) total returns were 4.40% and
4.22%, respectively.**
[Graphic representation A5 omitted. See Appendix.]
* Total return represents the change in the value of an investment after
reinvesting all income and capital gains, and takes into account the 1% sales
charge applicable to an initial investment in Class A Shares.
Data quoted represents past performance and does not guarantee future results.
Investment return and principal value will fluctuate so an investor's shares,
when redeemed, may be worth more or less than their original cost.
** The total return takes into account the 1% sales charge for Class A Shares
and 1% contingent deferred sales charge for Class F Shares.
FEDERATED LIMITED TERM MUNICIPAL FUND
ONE STEP AT A TIME:
$1,000 INVESTED EACH YEAR FOR 5 YEARS (REINVESTING ALL DIVIDENDS AND CAPITAL
GAINS) GREW TO $5,432.
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 $5,000 but your
account would have reached a total value of $5,432* by 11/30/97. You would have
earned an average annual total return of 3.80%.
A practical investment plan helps you pursue income by investing in short-term
municipal securities. Through systematic investing, you buy shares on a regular
basis and reinvest all earnings. An investment plan works for you when you
invest only $1,000 annually. You can take it one step at a time. Put time,
money, and compounding to work.
[Graphic representation A6 omitted. See Appendix.]
* This chart assumes that the subsequent annual investments are made on the last
day of each anniversary month. No method of investing can guarantee a profit or
protect against loss in down markets. However, by investing regularly over time
and buying shares at various prices, investors can purchase more shares at lower
prices, and all accumulated shares have the ability to pay income to the
investor.
Because such a plan involves continuous investment, regardless of changing price
levels, the investor should consider whether or not to continue purchases
through periods of low price levels.
FEDERATED LIMITED TERM MUNICIPAL FUND
(CLASS A SHARES)
GROWTH OF $10,000 INVESTED IN FEDERATED LIMITED TERM MUNICIPAL FUND (CLASS A
SHARES)
The graph below illustrates the hypothetical investment of $10,000* in the
Federated Limited Term Municipal Fund (Class A Shares) (the "Fund") from
September 1, 1993 (start of performance) to November 30, 1997, compared to the
Lehman Brothers Three-Year Municipal Bond Index (LB3YRMB).+
[Graphic representation A7 omitted. See Appendix.]
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF
OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 1.00% ($10,000 investment minus $100 sales charge =
$9,900). The Fund's performance assumes the reinvestment of all dividends and
distributions. The LB3YRMB has been adjusted to reflect reinvestment of
dividends on securities in the index.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The LB3YRMB is not adjusted to reflect sales charges, expenses, or other
fees that the SEC requires to be reflected in the Fund's performance. The
index is unmanaged.
FEDERATED LIMITED TERM MUNICIPAL FUND
(CLASS F SHARES)
GROWTH OF $10,000 INVESTED IN FEDERATED LIMITED TERM MUNICIPAL FUND (CLASS F
SHARES)
The graph below illustrates the hypothetical investment of $10,000* in the
Federated Limited Term Municipal Fund (Class F Shares) (the "Fund") from
September 1, 1993 (start of performance) to November 30, 1997, compared to the
Lehman Brothers Three-Year Municipal Bond Index (LB3YRMB).+
[Graphic representation A8 omitted. See Appendix.]
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF
OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* Represents a hypothetical investment of $9,900 in the Fund after deducting the
maximum sales charge of 1.00% ($10,000 investment minus $100 sales charge =
$9,900) that was in effect prior to July 17, 1995. As of July 17, 1995, the Fund
did not have a sales charge. The ending value of the Fund reflects a contingent
deferred sales charge of 1.00% on any redemption less than 4 years from the
purchase date. The Fund's performance assumes the reinvestment of all dividends
and distributions. The LB3YRMB has been adjusted to reflect reinvestment of
dividends on securities in the index.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The LB3YRMB is not adjusted to reflect sales charges, expenses, or other
fees that the SEC requires to be reflected in the Fund's performance. The
index is unmanaged.
FEDERATED LIMITED TERM MUNICIPAL FUND
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <S> <C>
LONG-TERM MUNICIPAL SECURITIES--93.7%
ALABAMA--1.4%
$ 490,000 Mobile, AL, GO Warrants, 4.85%, 8/15/1999 NR $ 495,101
515,000 Mobile, AL, GO Warrants, 4.95%, 8/15/2000 NR 522,663
Total 1,017,764
COLORADO--5.2%
700,000 Colorado HFA, Single Family Mortgage Revenue Bond,
Series C-1, 7.65% (FHA/VA Mtgs. LOC), 12/1/2025 NR 790,118
1,000,000 Colorado Student Obligation Bond Authority, Student Loan
Revenue Bonds, 5.40%, 9/1/1998 NR 1,009,700
2,000,000 Denver, CO City & County Airport Authority, Airport
System Revenue Bonds (Series 1996C), 5.05%, 11/15/2000 BBB 2,034,600
Total 3,834,418
FLORIDA--2.6%
1,815,000 Pinellas County, FL HFA, SFM Revenue Bonds, Series C,
6.45% (GNMA COL), 3/1/2029 NR 1,926,768
ILLINOIS--12.1%
1,080,000 Chicago, IL, Collateralized SFM Revenue Bonds
(Series 1997B), 5.10% (GNMA Collateralized Home
Mortgage Program COL), 9/1/2007 NR 1,089,839
750,000 Chicago, IL, Gas Supply Revenue Bonds, 7.50% (Peoples
Gas Light & Coke Company), 3/1/2015 AA- 811,800
1,000,000 Illinois Development Finance Authority, (Series 1995)
Revenue Bonds, 5.80% (Catholic Charities Housing
Development Corp.), 1/1/2007 NR 1,034,850
300,000 Illinois Development Finance Authority, Housing Revenue
Bonds, 5.25% (Catholic Charities Housing Development
Corp.)/(Archdiocese of Chicago GTD), 1/1/1999 NR 301,560
700,000 Illinois Development Finance Authority, Mortgage Revenue
Refunding Bonds, Series 1997A, 5.20% (MBIA INS)/
(FHA LOC), 7/1/2008 AAA 702,226
</TABLE>
FEDERATED LIMITED TERM MUNICIPAL FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <S> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
ILLINOIS--CONTINUED
$ 2,000,000 Illinois Development Finance Authority, Solid Waste
Disposal Revenue Bonds, 7.125% (WMX Technologies,
Inc.), 1/1/2001 A- $ 2,139,720
400,000 Illinois Educational Facilities Authority, Revenue Bonds,
5.25% (Illinois Institute of Technology)/(Original Issue
Yield: 5.35%), 12/1/1998 BBB- 403,648
580,000 Illinois Health Facilities Authority, Refunding Revenue
Bonds (Series 1996B), 4.80% (Sarah Bush Lincoln Health
Center), 2/15/1999 A- 584,848
505,000 Illinois Health Facilities Authority, Refunding Revenue
Bonds (Series 1996B), 5.00% (Sarah Bush Lincoln Health
Center), 2/15/2000 A- 511,504
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- 624,065
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- 683,547
Total 8,887,607
INDIANA--5.7%
630,000 Indiana Health Facility Financing Authority, Hospital
Refunding & Revenue Bonds (Series 1996), 5.625% (Hancock
Memorial Hospital and Health Services), 8/15/2000 BBB+ 648,031
685,000 Indiana Health Facility Financing Authority, Hospital
Refunding & Revenue Bonds (Series 1996), 5.625% (Hancock
Memorial Hospital and Health Services), 8/15/2001 BBB+ 708,434
725,000 Indiana Health Facility Financing Authority, Hospital
Refunding & Revenue Bonds (Series 1996), 5.625% (Hancock
Memorial Hospital and Health Services), 8/15/2002 BBB+ 753,007
885,000 LaPorte County, IN Hospital Authority, Refunding Revenue
Bonds, 5.60% (LaPorte Hospital, Inc., IN)/(Original Issue
Yield: 5.747%), 3/1/1999 NR 895,664
</TABLE>
FEDERATED LIMITED TERM MUNICIPAL FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <S> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
INDIANA--CONTINUED
$ 935,000 LaPorte County, IN Hospital Authority, Refunding
Revenue Bonds, 5.80% (LaPorte Hospital, Inc., IN)/
(Original Issue Yield: 5.898%), 3/1/2000 NR $ 955,205
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 AAA 248,319
Total 4,208,660
KANSAS--1.4%
1,000,000 Sedgwick & Shawnee Counties, KS, SFM Revenue Bonds
(Series 1997A-1), 5.10% (GNMA Collateralized Home
Mortgage Program COL), 12/1/2014 NR 1,013,650
KENTUCKY--1.4%
1,000,000 Jefferson County, KY, UT GO Trust Certificates, 5.25%,
9/1/1999 A+ 1,019,000
LOUISIANA--2.1%
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 1,571,865
MASSACHUSETTS--3.1%
250,000 Greater New Bedford Regional Refuse Management
District, MA, GO Landfill Bonds, 4.90% (Original Issue
Yield: 5.00%), 5/1/1998 NR 250,705
750,000 Greater New Bedford Regional Refuse Management
District, MA, UT GO Bonds, 5.00% (Original Issue
Yield: 5.10%), 5/1/1999 NR 754,680
500,000 Greater New Bedford Regional Refuse Management
District, MA, UT GO Bonds, 5.10% (Original Issue
Yield: 5.20%), 5/1/2000 NR 504,630
2,000,000 (b)Massachusetts IFA, Solid Waste Disposal Sr. Lien
Revenue Bonds (Series A), 8.00% (Massachusetts Recycling
Association), 8/1/1999 NR 760,000
Total 2,270,015
</TABLE>
FEDERATED LIMITED TERM MUNICIPAL FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <S> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
MINNESOTA--2.1%
$ 1,500,000 Maplewood, MN, Health Care Facility Revenue Bonds
(Series 1996), 5.95% (Healtheast, MN), 11/15/2006 BBB $ 1,567,170
MISSOURI--1.4%
1,000,000 Kansas City, MO IDA, PCR Bonds, 6.05% (General Motors
Corp.), 4/1/2006 A- 1,031,970
NEW YORK--7.6%
2,000,000 New York City, NY, UT GO Bonds (Series B), 5.30%,
8/15/2000 BBB+ 2,052,120
1,800,000 New York City, NY, UT GO Bonds (Series B), 7.50%
(Original Issue Yield: 7.60%), 2/1/2001 BBB+ 1,961,838
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 A- 1,022,590
500,000 New York State Dormitory Authority, Revenue Bonds,
5.10% (Nyack Hospital), 7/1/1998 NR 502,085
Total 5,538,633
NORTH CAROLINA--2.8%
1,000,000 North Carolina Eastern Municipal Power Agency, Power
System Refunding Revenue Bonds (Series 1996A), 5.10%,
1/1/2000 BBB 1,012,600
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 1,023,210
Total 2,035,810
OHIO--6.7%
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+ 1,586,286
1,235,000 Ohio Enterprise Bond Fund, (Series 1995-3) State Economic
Development Revenue Bonds, 5.60% (Smith Steelite),
12/1/2003 A- 1,292,588
</TABLE>
FEDERATED LIMITED TERM MUNICIPAL FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <S> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
OHIO--CONTINUED
$ 2,000,000 Youngstown City School District, OH, Revenue Anticipation
Note, 5.40%, 6/15/1998 NR $ 2,011,080
Total 4,889,954
PENNSYLVANIA--8.9%
1,000,000 Allegheny County, PA Higher Education, Revenue Bonds,
7.625% (La Roche College), 12/1/2006 NR 1,002,350
615,000 Clarion County, PA Hospital Authority, Revenue Refunding
Bonds, Series 1997, 4.75% (Clarion County Hospital)/
(Original Issue Yield: 4.85%), 7/1/2001 BBB- 613,868
850,000 Clarion County, PA Hospital Authority, Revenue Refunding
Bonds, Series 1997, 5.00% (Clarion County Hospital),
7/1/2002 BBB- 853,247
955,000 Hazleton, PA Health Services Authority, Hospital Revenue
Bonds (Series 1996), 5.40% (Hazleton-St. Joseph Medical
Center), 7/1/2001 BBB+ 971,005
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+ 195,388
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+ 155,787
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+ 221,368
595,000 Philadelphia, PA Hospitals & Higher Education Facilities
Authority, Hospital Revenue Bonds (Series 1997), 5.00%
(Jeanes Hospital, PA), 7/1/2000 BBB 602,539
620,000 Philadelphia, PA Hospitals & Higher Education Facilities
Authority, Hospital Revenue Bonds (Series 1997), 5.20%
(Jeanes Hospital, PA), 7/1/2001 BBB 630,621
</TABLE>
FEDERATED LIMITED TERM MUNICIPAL FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <S> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
PENNSYLVANIA--CONTINUED
$ 125,000 Philadelphia, PA Hospitals & Higher Education Facilities
Authority, Hospital Revenue Bonds (Series B), 6.60% (Children's
Seashore House, PA)/(Original Issue Yield:
6.80%), 8/15/1998 A- $ 127,256
1,080,000 Scranton-Lackawanna, PA Health & Welfare Authority,
Revenue Bonds (Series A), 6.35% (Allied Services
Rehabilitation Hospitals, PA), 7/15/1999 NR 1,100,585
Total 6,474,014
PUERTO RICO--2.8%
2,000,000 Puerto Rico Municipal Finance Agency, Revenue Bonds
(Series A), 5.00% (Original Issue Yield: 5.10%), 7/1/1998 A- 2,013,020
RHODE ISLAND--5.7%
3,885,000 Rhode Island State Student Loan Authority, Student Loan
Revenue Refunding Bond, Series B, 6.75% (Original Issue
Yield: 6.80%), 12/1/2001 NR 4,131,348
SOUTH DAKOTA--4.8%
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 215,381
225,000 South Dakota State Health & Educational Authority,
Revenue Bonds, 6.00% (Huron Regional Medical Center,
SD), 4/1/1999 BBB 227,689
3,000,000 South Dakota Student Loan Finance Corp., (Series A)
Student Loan Revenue Bonds, 5.85%, 8/1/2000 A+ 3,087,450
Total 3,530,520
TENNESSEE--1.7%
1,200,000 Springfield, TN Health & Educational Facilities Board,
Hospital Revenue Bonds, 7.50% (Jesse Holman Jones
Hospital Project), 4/1/2000 NR 1,235,712
</TABLE>
FEDERATED LIMITED TERM MUNICIPAL FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <S> <C>
LONG-TERM MUNICIPAL SECURITIES--CONTINUED
TEXAS--6.4%
$ 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- $ 1,864,062
800,000 Greenville, TX Industrial Development Corp., Airport
Revenue Refunding Bonds, Series 1996, 4.75% (Raytheon/
E-Systems, Inc.), 8/1/1998 NR 803,712
1,000,000 Greenville, TX Industrial Development Corp., Airport
Revenue Refunding Bonds, Series 1996, 5.15% (Raytheon/
E-Systems, Inc.), 8/1/2000 NR 1,016,400
1,000,000 Northeast Hospital Authority, TX, Hospital Revenue
Refunding Bonds (Series 1997), 5.25% (Northeast Medical
Center Hospital), 5/15/1999 BBB 1,014,170
Total 4,698,344
UTAH--1.4%
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+ 1,010,640
VIRGINIA--6.4%
2,150,000 King George County IDA, VA, Lease Revenue Notes
(Series 1995A), 4.875% (King George County Elementary
School)/(Original Issue Yield: 5.05%), 8/1/1998 NR 2,151,656
255,000 Prince William County, VA IDA, Hospital Revenue Bonds,
6.00% (Potomac Hospital Corp., VA), 10/1/1998 NR 259,062
255,000 Prince William County, VA IDA, Hospital Revenue Bonds,
6.10% (Potomac Hospital Corp., VA), 10/1/1999 NR 263,186
2,000,000 Virginia State Housing Development Authority,
Commonwealth Mortgage Revenue Bonds (Series G-2),
5.40%, 1/1/1998 AA+ 2,002,860
Total 4,676,764
TOTAL LONG-TERM MUNICIPALS (IDENTIFIED COST $68,739,393) 68,583,646
</TABLE>
FEDERATED LIMITED TERM MUNICIPAL FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <S> <C>
SHORT-TERM MUNICIPAL SECURITIES--4.5%
HAWAII--4.5%
$ 3,300,000 Hawaii St. Department of Budget & Finance, (Series 1988)
Weekly VRDNs (G. N. Wilcox Memorial Hospital)/
(Fuji Bank, Ltd., Tokyo LOC) (AT AMORTIZED COST) NR $ 3,300,000
TOTAL INVESTMENTS (IDENTIFIED COST $72,039,393)(A) $ 71,883,646
</TABLE>
(a) The cost of investments for federal tax purposes amounts to $72,199,393. The
net unrealized depreciation of investments on a federal tax basis amounts to
$315,747 which is comprised of $950,920 appreciation and $1,266,667 depreciation
at November 30, 1997.
(b) Non-income producing.
* Please refer to the Appendix of the Statement of Additional Information for an
explanation of the credit ratings. Current credit ratings are unaudited.
Note: The categories of investments are shown as a percentage of net assets
($73,219,723) at November 30, 1997.
The following acronyms are used throughout this portfolio:
COL --Collateralized
FHA --Federal Housing Administration
FHA/VA --Federal Housing Administration/Veterans Administration GNMA
- --Government National Mortgage Association GO --General Obligation GTD
- --Guaranty HFA --Housing Finance Authority IDA --Industrial Development
Authority IFA --Industrial Finance Authority INS --Insured LOC --Letter of
Credit MBIA --Municipal Bond Investors Assurance PCR --Pollution Control Revenue
SFM --Single Family Mortgage UT --Unlimited Tax VRDNs --Variable Rate Demand
Notes
MASSACHUSETTS IFA, SOLID WASTE DISPOSAL SR. LIEN REVENUE BONDS (SERIES A),
8.00% (MASSACHUSETTS RECYCLING ASSOCIATION), 8/1/99
There are $173 million face amount of these Senior Lien Revenue Bonds currently
outstanding. On August 12, 1997, the obligor filed a petition for relief under
Chapter 11 of the Federal Bankruptcy Code. On September 30, 1997, the Bankruptcy
Court approved the terms of a settlement under which a new owner would acquire
the facility subject to a portion of the Senior Lien Revenue Bonds. The new
owner entered into a 15-year lease guaranteed by the company that built the
facility on October 31, 1997. The settlement also anticipates that the Senior
Lien Revenue Bonds may be replaced with refunding bonds in the face amount of
$56.3 million by July 31, 1998. The Senior Lien Revenue Bonds will not produce
any income until exchanged for such refunding bonds.
(See Notes which are an integral part of the Financial Statements)
FEDERATED LIMITED TERM MUNICIPAL FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1997
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified cost
$72,039,393; and tax cost $72,199,393) $ 71,883,646
Cash 74,941
Income receivable 1,262,409
Receivable for investments sold 55,000
Receivable for shares sold 18,313
Deferred organizational costs 52,898
Deferred expenses 29,496
Total assets 73,376,703
LIABILITIES:
Payable for shares redeemed $28,860
Income distribution payable 88,287
Accrued expenses 39,833
Total liabilities 156,980
NET ASSETS for 7,483,164 shares outstanding $ 73,219,723
NET ASSETS CONSIST OF:
Paid in capital $ 75,790,018
Net unrealized depreciation of investments (155,747)
Accumulated net realized loss on investments (2,361,215)
Distributions in excess of net investment income (53,333)
Total Net Assets $ 73,219,723
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
CLASS F SHARES:
Net Asset Value Per Share ($20,298,281 / 2,074,562 shares outstanding) $9.78
Offering Price Per Share (100/100 of $9.78)* $9.78
Redemption Proceeds Per Share (99/100 of $9.78)** $9.68
CLASS A SHARES:
Net Asset Value Per Share ($52,921,442 / 5,408,602 shares outstanding) $9.78
Offering Price Per Share (100/99 of $9.78)* $9.88
Redemption Proceeds Per Share (100/100 of $9.78)** $9.78
</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
YEAR ENDED NOVEMBER 30, 1997
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 4,224,553
EXPENSES:
Investment advisory fee $ 333,392
Administrative personnel and services fee 155,000
Custodian fees 19,207
Transfer and dividend disbursing agent fees and expenses 49,168
Directors'/Trustees' fees 5,572
Auditing fees 14,794
Legal fees 4,167
Portfolio accounting fees 70,129
Distribution services fee--Class F Shares 35,943
Distribution services fee--Class A Shares 148,502
Shareholder services fee--Class F Shares 59,905
Shareholder services fee--Class A Shares 148,502
Share registration costs 17,591
Printing and postage 27,744
Insurance premiums 4,273
Taxes 4,447
Miscellaneous 24,523
Total expenses 1,122,859
Waivers and reimbursements--
Waiver of investment advisory fee $ (333,392)
Waiver of distribution services fee--Class F Shares (35,943)
Reimbursement of other operating expenses (67,616)
Total waivers and reimbursements (436,951)
Net expenses 685,908
Net investment income 3,538,645
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 39,808
Net change in unrealized depreciation of investments (13,463)
Net realized and unrealized gain (loss) on investments 26,345
Change in net assets resulting from operations $ 3,564,990
</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>
YEAR ENDED NOVEMBER 30,
1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 3,538,645 $ 4,024,297
Net realized gain on investments ($39,808 and $25,072,
respectively, as computed for federal tax purposes) 39,808 25,072
Net change in unrealized depreciation (13,463) (809,590)
Change in net assets resulting from operations 3,564,990 3,239,779
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Class F Shares (1,064,074) (1,253,244)
Class A Shares (2,474,571) (2,771,053)
Distributions in excess of net investment income
Class F Shares -- (15,956)
Class A Shares -- (37,377)
Change in net assets resulting from distributions to (3,538,645) (4,077,630)
shareholders
SHARE TRANSACTIONS--
Proceeds from sale of shares 48,505,545 55,986,867
Net asset value of shares issued to shareholders in payment
of distributions declared 2,377,856 2,751,888
Cost of shares redeemed (77,560,411) (49,651,826)
Change in net assets resulting from share transactions (26,677,010) 9,086,929
Change in net assets (26,650,665) 8,249,078
NET ASSETS:
Beginning of period 99,870,388 91,621,310
End of period $ 73,219,723 $ 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>
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
Net investment income 0.41 0.40 0.46 0.43 0.10
Net realized and unrealized gain (loss) on investments 0.02 (0.08) 0.36 (0.53) 0.02
Total from investment operations 0.43 0.32 0.82 (0.10) 0.12
LESS DISTRIBUTIONS
Distributions from net investment income (0.41) (0.40) (0.46) (0.43) (0.10)
Distributions in excess of net investment income -- (0.01)(b) -- -- --
Total distributions (0.41) (0.41) (0.46) (0.43) (0.10)
NET ASSET VALUE, END OF PERIOD $ 9.78 $ 9.76 $ 9.85 $ 9.49 $10.02
TOTAL RETURN(C) 4.45% 3.34% 8.67% (0.95%) 1.20%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.90% 0.81% 0.68% 0.63% 0.50%*
Net investment income 4.17% 4.14% 4.72% 4.33% 4.30%*
Expense waiver/reimbursement(d) 0.48% 0.54% 1.03% 0.94% 1.71%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $52,921 $73,570 $65,179 $32,644 $13,694
Portfolio turnover 33% 49% 47% 135% 0%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from September 1, 1993 (date of initial
public offering) to November 30, 1993.
(b) Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These distributions
did not represent a return of capital for federal income tax purposes.
(c) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED LIMITED TERM MUNICIPAL FUND
FINANCIAL HIGHLIGHTS--CLASS F SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
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
Net investment income 0.43 0.43 0.47 0.45 0.11
Net realized and unrealized gain (loss) on investments 0.02 (0.08) 0.36 (0.53) 0.02
Total from investment operations 0.45 0.35 0.83 (0.08) 0.13
LESS DISTRIBUTIONS
Distributions from net investment income (0.43) (0.43) (0.47) (0.45) (0.11)
Distributions in excess of net investment income -- (0.01)(b) -- -- --
Total distributions (0.43) (0.44) (0.47) (0.45) (0.11)
NET ASSET VALUE, END OF PERIOD $ 9.78 $ 9.76 $ 9.85 $ 9.49 $10.02
TOTAL RETURN(C) 4.71% 3.60% 8.86% (0.75%) 1.26%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.65% 0.56% 0.49% 0.44% 0.25%*
Net investment income 4.42% 4.40% 4.91% 4.57% 4.79%*
Expense waiver/reimbursement(d) 0.63% 0.69% 1.12% 0.94% 1.86%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $20,298 $26,300 $26,442 $12,804 $3,307
Portfolio turnover 33% 49% 47% 135% 0%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from September 1, 1993 (date of initial
public offering) to November 30, 1993.
(b) Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These distributions
did not represent a return of capital for federal income tax purposes.
(c) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED LIMITED TERM MUNICIPAL FUND
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1997
1. ORGANIZATION
Fixed Income Securities, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Corporation consists of three portfolios. The
financial statements included herein are only those of Federated Limited Term
Municipal Fund (the "Fund"), a diversified portfolio. The financial statements
of the other portfolios are presented separately. The assets of each portfolio
are segregated and a shareholder's interest is limited to the portfolio in which
shares are held. The Fund offers two classes of shares: Class F Shares and Class
A Shares. The investment objective of the fund is to provide a high level of
current income which is exempt from federal regular income tax (federal regular
income tax does not include the federal alternative minimum tax) consistent with
the preservation of principal.
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, 1997, the Fund, for federal tax purposes, had a capital loss
carryforward of $2,361,215, 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 $1,922,206
2003 439,009
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS-- The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the securities
purchased. Securities purchased on a when-issued or delayed delivery basis are
marked to market daily and begin earning interest on the settlement date.
DEFERRED EXPENSES-- The costs incurred by the Fund with respect to registration
of its shares in its first fiscal year, excluding the initial expense of
registering its shares, have been deferred and are being amortized over a period
not to exceed five years from the Fund's commencement date.
USE OF ESTIMATES-- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts of assets, liabilities, expenses, and
revenues reported in the financial statements. Actual results could differ from
those estimated.
OTHER-- Investment transactions are accounted for on the trade date.
3. CAPITAL STOCK
At November 30, 1997, par value shares ($0.001 per share) authorized were as
follows:
NUMBER OF PAR VALUE
CLASS NAME CAPITAL STOCK AUTHORIZED
Class A 1,000,000,000
Class F 1,000,000,000
Total shares authorized 2,000,000,000
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1997 1996
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 4,570,072 $ 44,472,437 4,903,674 $ 48,006,252
Shares issued to shareholders in
payment
of distributions declared 171,877 1,673,674 200,244 1,957,251
Shares redeemed (6,867,445) (66,808,856) (4,185,345) (41,018,299)
Net change resulting from Class
A Share transactions (2,125,496) $ (20,662,745) 918,573 $ 8,945,204
<CAPTION>
YEAR ENDED NOVEMBER 30,
1997 1996
CLASS F SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 413,737 $ 4,033,108 812,884 $ 7,980,615
Shares issued to shareholders in payment
of distributions declared 72,297 704,182 81,282 794,637
Shares redeemed (1,104,776) (10,751,555) (884,487) (8,633,527)
Net change resulting from Class F
Share transactions (618,742) $ (6,014,265) 9,679 $ 141,725
Net change resulting from
share transactions (2,744,238) $ (26,677,010) 928,252 $ 9,086,929
</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. ("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 F and Class A Shares. The Plan provides
that the Fund may incur distribution expenses according to the following
schedule annually, to compensate FSC.
PERCENTAGE OF AVERAGE DAILY
SHARE CLASS NAME NET ASSETS OF CLASS
Class A 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.
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.
ORGANIZATIONAL EXPENSES-- Organizational and start-up administrative service
expenses of $99,798 were borne initially by the Adviser. The Fund has reimbursed
the Adviser for these expenses. These expenses have been deferred and are being
amortized over the five-year period following the Fund's effective date. For the
year ended November 30, 1997, the Fund expensed $21,459 of organizational and
start-up administrative service expenses.
INTERFUND TRANSACTIONS-- During the year ended November 30, 1997, the Fund
engaged in purchase and sale transactions with funds that have a common
investment adviser (or affiliated investment advisers), common
Directors/Trustees, and/or common Officers. These purchase and sale transactions
were made at current market value pursuant to Rule 17a-7 under the Act amounting
to $30,652,315 and $35,054,684, 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 year
ended November 30, 1997, were as follows:
PURCHASES $25,656,053
SALES $49,426,722
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of FIXED INCOME SECURITIES, INC.
and the Shareholders of FEDERATED LIMITED TERM MUNICIPAL FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Federated Limited Term Municipal Fund (a
portfolio of Fixed Income Securities, Inc.) as of November 30, 1997, the related
statement of operations for the year then ended, the statement of changes in net
assets for the years ended November 30, 1997 and 1996 and the financial
highlights for each of the periods presented. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
November 30, 1997, by correspondence with the custodian and brokers; where
replies were not received, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Federated Limited
Term Municipal Fund as of November 30, 1997, the results of its operations, the
changes in its net assets and its financial highlights for the respective stated
periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
January 16, 1998
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
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 investment risk,
including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
[Graphic]
Federated Investors
Federated Securities Corp., Distributor
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Cusip 338319502
Cusip 338319403
G00278-02 (1/98)
[Graphic]
[Graphic]
Federated Strategic Income Fund
3RD ANNUAL REPORT
NOVEMBER 30, 1997
ESTABLISHED 1994
[Graphic]
President's Message
Dear Fellow Shareholder:
Federated Strategic Income Fund was established in 1994, and I am pleased to
present its third Annual Report, which covers the reporting period from December
1, 1996 through November 30, 1997. This fund offers shareholders income from
three bond markets--domestic high-yield corporates, international and U.S.
government securities. These three bond markets historically have little
correlation to one another.
This report begins with an interview with the fund's portfolio manager, Joseph
M. Balestrino, Senior Vice President, Federated Advisers. Following his
interview are three additional items of shareholder interest: a series of graphs
showing investment performance, a complete listing of the fund's holdings, and
its financial statements.
Federated Strategic Income Fund produces a generous monthly income through a
widely diversified portfolio of bonds. The fund's managers shift the composition
of the $423 million portfolio among key bond sectors. These sectors are not
correlated, which means the risks and rewards do not occur at the same time. The
bonds' price movements act, to some degree, independently, which has rewarded
shareholders with very good total returns from bonds. The fund's sector
allocation as of November 30, 1997 was 35% in U.S. high-quality bonds, 31% in
domestic high-yield bonds, and 34% in international bonds.
In a much-improved U.S. bond market environment, your fund's ability to
diversify among different market sectors resulted in a high level of income and
competitive total return performance, as shown below by share class.*
TOTAL INCOME CAPITAL GAIN NET ASSET VALUE
RETURN DISTRIBUTIONS DISTRIBUTIONS CHANGE
Class A Shares 8.33% $0.87 $0.03 $10.47 to $10.41 = (0.6%)
Class B Shares 7.53% $0.79 $0.03 $10.47 to $10.40 = (0.7%)
Class C Shares 7.53% $0.79 $0.03 $10.47 to $10.41 = (0.6%)
Class F Shares 8.33% $0.87 $0.03 $10.47 to $10.41 = (0.6%)
* Performance quoted is based on net asset value, 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, B, C, and F Shares were 3.49%, 1.64%, 6.50%, and 6.18%,
respectively.
Thank you for entrusting a portion of your wealth to this highly diversified
approach to bond investing. Remember, reinvesting your monthly dividends is a
convenient way to build your account and help your money grow through the
benefit of compounding.
As always, we welcome your comments and suggestions.
Sincerely,
[Graphic]
Richard B. Fisher
President
January 15, 1998
Investment Review
[Graphic]
Joseph M. Balestrino
Senior Vice President
Federated Advisers
[Shareholders' Note: This fund is co-managed by a team of portfolio
managers, in addition to lead manager Joseph Balestrino, who are experts in
key bond market sectors: U.S. government--Kathy Foody-Malus, Vice President,
Federated Advisers; high-yield corporate bonds--Mark E. Durbiano, Senior
Vice President, Federated Advisers; and international bonds--Robert Kowit,
Vice President, Federated Global Research.]
[Graphic]
THE FUND'S FISCAL YEAR SAW MUCH IMPROVEMENT AMONG THE MAJOR BOND MARKETS IN
WHICH THE FUND INVESTS--PARTICULARLY U.S. HIGH-QUALITY AND HIGH-YIELD
CORPORATE ISSUES. WHAT IS THE FUND MANAGEMENT'S REVIEW OF THE 12-MONTH
REPORTING PERIOD?
Overall, the environment for fixed-income securities was very positive over the
past 12 months. The U.S. economy continued to move forward with an inflationary
picture that surprised on the downside. As a result, a desirable combination of
lower interest rates for longer dated maturities (10-30 years) and fundamental
business improvement served to generate income and capital appreciation in the
domestic high-quality and high-yield corporate sectors.
In the international bond markets, the general scenario was also positive but
with considerable variability by region and currency. Both developed and
emerging markets generated solid returns for the 12-month reporting period;
however, significant disruptions occurred late in the fiscal year. During
October 1997, currency and stock market crises started in Southeast Asia and
quickly generated losses in Latin America. As the fiscal year came to a close,
large-scale international lending packages were being negotiated, particularly
in Korea.+
+ Foreign investing involves special risks, including currency risk, increased
volatility of foreign securities, and differences in auditing and other
financial standards.
[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 12-month reporting
period ended November 30, 1997 of 8.33%, based on net asset value. Income
generated by the fund contributed to the total return. The fund's Class B, C,
and F Shares achieved total returns of 7.53%, 7.53%, and 8.33%, respectively,
based on net asset value.* These returns, though slightly impacted by a modest
decline in net asset value of $0.06, $0.07, and $0.06, for Class A, B, and C
Shares, respectively, were competitive with the 8.11% return of the Lipper
Multi-Sector Income Funds Average.**
[Graphic]
DID YOU MAKE ANY SIGNIFICANT CHANGES TO THE FUND'S ALLOCATIONS AMONG
DOMESTIC HIGH-QUALITY, DOMESTIC HIGH-YIELD AND INTERNATIONAL BONDS? HOW DID
THE ALLOCATIONS STAND AS OF NOVEMBER 30, 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 November 30, 1997, the fund's sector
allocation was 35% in domestic high-quality, 31% in domestic high-yield, and 34%
in international bonds issues.
* 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, B, C,
and F Shares were 3.49%, 1.64%, 6.50%, and 6.18%, 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
category indicated. Lipper returns do not reflect any sales charges.
[Graphic]
AS WE LEAVE WHAT HAS BEEN A RELATIVELY GOOD YEAR FOR BONDS, WHAT IS MANAGEMENT'S
OUTLOOK FOR THE FUND'S THREE SECTORS?
As we look out into 1998, the risk/reward trade-off varies greatly between the
three sectors. U.S. high-quality bonds should continue to benefit from moderate
growth and inflation. In addition, any slowing effect on the U.S. economy due to
Asian economic problems should also serve U.S. government bond investors very
well. In the U.S. high-yield corporate market, the key is continuing economic
growth and the earnings outlook. A low growth/low inflation scenario is positive
for high-yield securities as long as the economy continues to move forward. In
the international sector, specific regional problems have had the effect of
relatively dragging down other healthy markets. Thus, some international bond
sectors appear undervalued at this point.
In summary, as the new fiscal year starts, the fund's managers have slightly
increased the fund's allocation to the international markets and decreased the
high-yield sector modestly. The fund, however, remains highly diversified and,
in combination, provides shareholders with a very attractive income stream
without being overly concentrated in any one sector.
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 $5,448 ON
11/30/97. YOU WOULD HAVE EARNED A 9.03%* AVERAGE ANNUAL TOTAL RETURN FOR THE
3-YEAR INVESTMENT LIFE SPAN.
One key to investing wisely is to reinvest all distri-butions in fund shares.
This increases the number of shares on which you can earn future dividends, and
you gain the benefit of compounding.
As of 12/31/97, the Class A Shares' average annual 1-year and since-inception
(5/4/94) total returns were 3.50% and 8.95%, respectively. Class B Shares'
average annual 1-year and since-inception (7/27/95) total returns were 1.75% and
9.05%, respectively. Class C Shares' average annual 1-year and since-inception
(5/2/94) total returns were 6.53% and 9.50%, respectively. Class F Shares'
average annual 1-year and since-inception (5/10/94) total returns were 6.31% and
9.56%, respectively.**
[Graphic representation A9 omitted. See Appendix.]
* Total returns represent the change in the value of an investment after
reinvesting all income and capital gains, and take into account the 4.5% sales
charge for Class A Shares. Data quoted represents past performance and does not
guarantee future results. Investment return and principal value will fluctuate,
so an investor's shares, when redeemed, may be worth more or less than their
original cost.
** The total returns stated take into account the 4.5% sales charge for Class A
Shares, the 5.5% contingent deferred sales charge for Class B Shares, the 1%
contingent deferred sales charge for Class C Shares, and the 1% sales charge and
1% contingent deferred sales charge for Class F Shares.
FEDERATED STRATEGIC INCOME FUND
ONE STEP AT A TIME:
$1,000 INVESTED EACH YEAR FOR 4 YEARS (REINVESTING ALL DIVIDENDS AND CAPITAL
GAINS) GREW TO $4,735.
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 $4,735* by 11/30/97. You would have earned
an average annual total return of 8.48%.
A practical investment plan helps you pursue a high level of income by investing
in high-quality debt securities invested in the United States and around the
world. Through systematic investing, you buy shares on a regular basis and
reinvest all earnings. An investment plan works for you when you invest only
$1,000 annually. You can take it one step at a time. Put time, money, and
compounding to work.
[Graphic representation A10 omitted. See Appendix.]
* This chart assumes that the subsequent annual investments are made on the last
day of each anniversary month. 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. The chart assumes that the subsequent
annual investments are made on the last day of each anniversary month.
FEDERATED STRATEGIC INCOME FUND
(CLASS A SHARES)
GROWTH OF $10,000 INVESTED IN FEDERATED STRATEGIC INCOME FUND (CLASS A
SHARES)
The graph below illustrates the hypothetical investment of $10,000* in the
Federated Strategic Income Fund (Class A Shares) (the "Fund") from May 4, 1994
(start of performance) to November 30, 1997, compared to the Lehman Brothers
Government/Corporate Bond Index (LBG/CBI)+ and the Lipper
Multi-Sector Income Funds Average (LMSIFA).++
[Graphic representation A11 omitted. See Appendix.]
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF
OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* Represents a hypothetical investment of $10,000 in the fund after deducting
the maximum sales charge of 4.50% ($10,000 investment minus $450 sales charge =
$9,550). The fund's performance assumes the reinvestment of all dividends and
distributions. The LBG/CBI and the LMSIFA have been adjusted to reflect
reinvestment of dividends on securities in the index and average.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The LBG/CBI is not adjusted to reflect sales charges, expenses, or other
fees that the SEC requires to be reflected in the fund's performance. This
index is unmanaged.
++ The LMSIFA represents the average of the total returns reported by all of the
mutual funds designated by Lipper Analytical Services, Inc. as falling into the
category, and is not adjusted to reflect any sales charges. However, these total
returns are reported net of expenses or other fees that the SEC requires to be
reflected in a fund's performance.
FEDERATED STRATEGIC INCOME FUND
(CLASS B SHARES)
GROWTH OF $10,000 INVESTED IN FEDERATED STRATEGIC INCOME FUND (CLASS B
SHARES)
The graph below illustrates the hypothetical investment of $10,000* in the
Federated Strategic Income Fund (Class B Shares) (the "Fund") from July 27, 1995
(start of performance) to November 30, 1997, compared to the Lehman Brothers
Government/Corporate Bond Index (LBG/CBI)+ and the Lipper
Multi-Sector Income Funds Average (LMSIFA).++
[Graphic representation A12 omitted. See Appendix.]
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF
OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* Represents a hypothetical investment of $10,000 in the fund. The ending value
of the fund reflects a 4.00% contingent deferred sales charge on any redemption
less than 3 years from the purchase date. The maximum contingent deferred sales
charge is 5.50% on any redemption less than 1 year from the purchase date. The
fund's performance assumes the reinvestment of all dividends and distributions.
The LBG/CBI and the LMSIFA have been adjusted to reflect reinvestment of
dividends on securities in the index and average.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The LBG/CBI is not adjusted to reflect sales charges, expenses, or other
fees that the SEC requires to be reflected in the fund's performance. This
index is unmanaged.
++ The LMSIFA represents the average of the total returns reported by all of the
mutual funds designated by Lipper Analytical Services, Inc. as falling into the
category, and is not adjusted to reflect any sales charges. However, these total
returns are reported net of expenses or other fees that the SEC requires to be
reflected in a fund's performance.
FEDERATED STRATEGIC INCOME FUND
(CLASS C SHARES)
GROWTH OF $10,000 INVESTED IN FEDERATED STRATEGIC INCOME FUND (CLASS C
SHARES)
The graph below illustrates the hypothetical investment of $10,000* in the
Federated Strategic Income Fund (Class C Shares) (the "Fund") from May 2, 1994
(start of performance) to November 30, 1997, compared to the Lehman Brothers
Government/ Corporate Bond Index (LBG/CBI)+ and the Lipper
Multi-Sector Income Funds Average (LMSIFA).++
[Graphic representation A13 omitted. See Appendix.]
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF
OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* Represents a hypothetical investment of $10,000 in the fund. A 1.00%
contingent deferred sales charge would be applied on any redemption less than 1
year from the purchase date. The fund's performance assumes the reinvestment of
all dividends and distributions. The LBG/CBI and the LMSIFA have been adjusted
to reflect reinvestment of dividends on securities in the index and average.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The LBG/CBI is not adjusted to reflect sales charges, expenses, or other
fees that the SEC requires to be reflected in the fund's performance. This
index is unmanaged.
++ The LMSIFA represents the average of the total returns reported by all of the
mutual funds designated by Lipper Analytical Services, Inc. as falling into the
category, and is not adjusted to reflect any sales charges. However, these total
returns are reported net of expenses or other fees that the SEC requires to be
reflected in a fund's performance.
FEDERATED STRATEGIC INCOME FUND
(CLASS F SHARES)
GROWTH OF $10,000 INVESTED IN FEDERATED STRATEGIC INCOME FUND (CLASS F
SHARES)
The graph below illustrates the hypothetical investment of $10,000* in the
Federated Strategic Income Fund (Class F Shares) (the "Fund") from May 10, 1994
(start of performance) to November 30, 1997, compared to the Lehman Brothers
Government/ Corporate Bond Index (LBG/CBI)+ and the Lipper
Multi-Sector Income Funds Average (LMSIFA).++
[Graphic representation A14 omitted. See Appendix.]
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF
OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* Represents a hypothetical investment of $10,000 in the fund after deducting
the maximum sales charge of 1.00% ($10,000 investment minus $100 sales charge =
$9,900). The ending value of the fund reflects a contingent deferred sales
charge of 1.00% on any redemption less than 4 years from the purchase date. The
fund's performance assumes the reinvestment of all dividends and distributions.
The LBG/CBI and the LMSIFA have been adjusted to reflect reinvestment of
dividends on securities in the index and average.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The LBG/CBI is not adjusted to reflect sales charges, expenses, or other
fees that the SEC requires to be reflected in the fund's performance. This
index is unmanaged.
++ The LMSIFA represents the average of the total returns reported by all of the
mutual funds designated by Lipper Analytical Services, Inc. as falling into the
category, and is not adjusted to reflect any sales charges. However, these total
returns are reported net of expenses or other fees that the SEC requires to be
reflected in a fund's performance.
FEDERATED STRATEGIC INCOME FUND
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
U.S. CORPORATE BONDS--40.2%
AEROSPACE & DEFENSE--0.1%
$ 375,000 Tracor, Inc., Sr. Sub. Note, 8.50%, 3/1/2007 $ 376,875
AUTOMOTIVE--0.7%
225,000 Aftermarket Technology Co., Sr. Sub. Note, Series B, 12.00%, 8/1/2004 250,875
155,000 Aftermarket Technology Co., Sr. Sub. Note, Series D, 12.00%,
8/1/2004 172,825
500,000 Arvin Industries, Inc., 9.50%, 2/1/2027 558,690
825,000 Collins & Aikman Products Co., Sr. Sub. Note, 11.50%, 4/15/2006 936,375
325,000 Exide Corp., Sr. Note, 10.00%, 4/15/2005 342,875
200,000 Lear Corp., Sub. Note, 9.50%, 7/15/2006 218,750
250,000 Lear Seating Corp., Sub. Note, 8.25%, 2/1/2002 253,750
250,000 Oxford Automotive, Inc., Sr. Sub. Note, 10.125%, 6/15/2007 261,875
Total 2,996,015
BANKING--0.7%
1,400,000 First Nationwide Holdings, Inc., Sr. Sub. Note, 10.625%, 10/1/2003 1,564,500
250,000 First Nationwide Holdings, Inc., Sr. Sub. Note, 9.125%, 1/15/2003 260,000
1,000,000 FirstBank Puerto Rico, Sub. Note, 7.625%, 12/20/2005 1,029,300
Total 2,853,800
BEVERAGE & TOBACCO--0.5%
500,000 Dimon, Inc., Sr. Note, 8.875%, 6/1/2006 531,250
300,000 Dr. Pepper Bottling Holdings Co., Sr. Disc. Note, 0/11.625%,
2/15/2003 309,360
1,000,000 Philip Morris Cos., Inc., Deb., 7.75%, 1/15/2027 1,060,970
Total 1,901,580
BROADCAST RADIO & TV--2.5%
700,000 (b)ACME Television, LLC, Sr. Disc. Note, 0/10.875%, 9/30/2004 514,500
350,000 Capstar Broadcasting Partners, Inc., Sr. Sub. Note, 9.25%, 7/1/2007 360,062
750,000 Chancellor Media Corp., Sr. Sub. Note, 9.375%, 10/1/2004 783,750
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
U.S. CORPORATE BONDS--CONTINUED
BROADCAST RADIO & TV--CONTINUED
$ 1,125,000 (b)Fox/Liberty Networks, LLC, Sr. Disc. Note, 0/9.75%, 8/15/2007 $ 705,938
375,000 (b)Fox/Liberty Networks, LLC, Sr. Note, 8.875%, 8/15/2007 372,188
1,050,000 Heritage Media Corp., Sr. Sub. Note, 8.75%, 2/15/2006 1,113,000
550,000 Katz Media Corp., Sr. Sub. Note, 10.50%, 1/15/2007 595,375
600,000 Lamar Advertising Co., Sr. Sub. Note, 9.625%, 12/1/2006 639,000
850,000 Outdoor Systems, Inc., Sr. Sub. Note, 8.875%, 6/15/2007 884,000
1,250,000 SCI Television, Inc., Sr. Secd. Note, 11.00%, 6/30/2005 1,302,238
500,000 SFX Broadcasting, Inc., Sr. Sub. Note, Series B, 10.75%, 5/15/2006 547,500
900,000 Sinclair Broadcast Group, Inc., Sr. Sub. Note, 10.00%, 9/30/2005 954,000
500,000 Sinclair Broadcast Group, Inc., Sr. Sub. Note, 9.00%, 7/15/2007 506,250
600,000 Sullivan Broadcast Holdings Inc., Sr. Sub. Note, 10.25%, 12/15/2005 642,000
550,000 Young Broadcasting, Inc., Sr. Sub. Note, Series B, 9.00%, 1/15/2006 547,250
Total 10,467,051
BUILDING & DEVELOPMENT--0.3%
400,000 American Builders & Contractors Supply Co., Inc., Sr. Sub. Note,
Series B, 10.625%, 5/15/2007 416,500
400,000 Building Materials Corp. of America, Sr. Note, Series B, 8.625%,
12/15/2006 404,000
325,000 Collins & Aikman Floorcoverings, Inc., Sr. Sub. Note, 10.00%,
1/15/2007 337,187
Total 1,157,687
BUSINESS EQUIPMENT & SERVICES--0.5%
650,000 (b)Dialog Corp. PLC, Sr. Sub. Note, 11.00%, 11/15/2007 664,625
350,000 (b)Electronic Retailing Systems International, Inc., Sr. Disc. Note,
0/13.25%, 2/1/2004 243,250
293,000 Knoll Inc., Sr. Sub. Note, 10.875%, 3/15/2006 328,160
500,000 Outsourcing Solutions, Inc., Sr. Sub. Note, 11.00%, 11/1/2006 560,000
400,000 United Stationers Supply Co., Sr. Sub. Note, 12.75%, 5/1/2005 457,000
Total 2,253,035
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
U.S. CORPORATE BONDS--CONTINUED
CABLE TELEVISION--4.5%
$ 275,000 Australis Media Ltd., Unit Senior Sec'd. Discount Note, 0/15.75%,
5/15/2003 $ 68,750
100,000 Bell Cablemedia PLC, Sr. Disc. Note, 0/11.875%, 9/15/2005 87,750
400,000 Bell Cablemedia PLC, Sr. Disc. Note, 0/11.95%, 7/15/2004 375,500
100,000 CF Cable TV, Inc., Sr. Secd. 2nd Priority Note, 11.625%, 2/15/2005 114,000
400,000 Cablevision Systems Corp., Sr. Sub. Deb., 9.875%, 2/15/2013 436,000
825,000 Cablevision Systems Corp., Sr. Sub. Note, 9.25%, 11/1/2005 872,437
100,000 Cablevision Systems Corp., Sr. Sub. Note, 9.875%, 5/15/2006 108,750
200,000 Charter Communications Holdings, Inc., Sr. Disc. Note, 0/14.00%,
3/15/2007 153,000
500,000 Charter Communications Southeast, L.P., Sr. Note, 11.25%,
3/15/2006 557,500
1,000,000 Comcast Corp., Note, 8.50%, 5/1/2027 1,157,070
250,000 Comcast Corp., Sr. Sub. Deb., 10.625%, 7/15/2012 310,625
600,000 Comcast Corp., Sr. Sub. Deb., 9.375%, 5/15/2005 646,500
675,000 Comcast UK Cable, Senior Discount Deb., 0/11.20%, 11/15/2007 540,000
1,500,000 Continental Cablevision, Sr. Deb., 9.50%, 8/1/2013 1,782,975
1,425,000 Diamond Cable Communications PLC, Sr. Disc. Note, 0/10.75%,
2/15/2007 947,625
350,000 Diamond Cable Communications PLC, Sr. Disc. Note, 0/11.75%,
12/15/2005 266,875
1,525,000 EchoStar Satellite Broadcasting Corp., Sr. Disc. Note, 0/13.125%,
3/15/2004 1,273,375
625,000 (b)FrontierVision Holdings, L.P., 0/11.875%, 9/15/2007 435,938
1,675,000 International Cabletel, Inc., Sr. Defd. Cpn. Note, Series B, 0/11.50%,
2/1/2006 1,285,563
100,000 International Cabletel, Inc., Sr. Defd. Cpn. Note, Series A, 0/12.75%,
4/15/2005 82,500
550,000 Le Groupe Videotron Ltee, Sr. Note, 10.625%, 2/15/2005 613,250
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
U.S. CORPORATE BONDS--CONTINUED
CABLE TELEVISION--CONTINUED
$ 650,000 Lenfest Communications Inc., Sr. Note, 8.375%, 11/1/2005 $ 655,688
300,000 (b)Pegasus Communications Corp., Sr. Note, 9.625%, 10/15/2005 301,500
300,000 Pegasus Media, Note, Series B, 12.50%, 7/1/2005 343,500
250,000 Rogers Cablesystems Ltd., Sr. Secd. 2nd Priority Note, 10.00%,
12/1/2007 273,750
500,000 Rogers Cablesystems Ltd., Sr. Secd. 2nd Priority Note, 10.00%,
3/15/2005 547,500
650,000 Rogers Cablesystems Ltd., Sr. Sub. Gtd. Note, 11.00%, 12/1/2015 731,250
1,500,000 TKR Cable, Inc., 10.50%, 10/30/2007 1,669,200
2,400,000 TeleWest PLC, Sr. Disc. Deb., 0/11.00%, 10/1/2007 1,842,000
975,000 UIH Australia/Pacific, Sr. Disc. Note, Series B, 0/14.00%, 5/15/2006 638,625
Total 19,118,996
CHEMICALS & PLASTICS--1.3%
450,000 Buckeye Cellulose Corp., Sr. Sub. Note, 8.50%, 12/15/2005 459,000
550,000 Buckeye Cellulose Corp., Sr. Sub. Note, 9.25%, 9/15/2008 583,000
200,000 Crain Industries, Inc., Sr. Sub. Note, 13.50%, 8/15/2005 227,000
700,000 Harris Chemical North America, Inc., Sr. Note, 10.25%, 7/15/2001 731,500
500,000 ISP Holding, Inc., Sr. Note, Series B, 9.00%, 10/15/2003 521,250
42,000 ISP Holding, Inc., Sr. Note, Series B, 9.75%, 2/15/2002 44,467
950,000 Polymer Group, Inc., Sr. Sub. Note, Series B, 9.00%, 7/1/2007 935,750
500,000 RBX Corp., Sr. Sub. Note, Series B, 11.25%, 10/15/2005 430,000
1,250,000 (b)Reliance Industries Ltd., Bond, 8.25%, 1/15/2027 1,153,950
675,000 Sterling Chemicals Holdings, Inc., Sr. Disc. Note, 0/13.50%,
8/15/2008 462,375
100,000 Uniroyal Technology Corp., Sr. Secd. Note, 11.75%, 6/1/2003 103,500
Total 5,651,792
CLOTHING & TEXTILES--0.9%
425,000 (b)Dyersburg Corp., Sr. Sub. Note, 9.75%, 9/1/2007 442,000
300,000 GFSI, Inc., Sr. Sub. Note, Series B, 9.625%, 3/1/2007 307,500
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
U.S. CORPORATE BONDS--CONTINUED
CLOTHING & TEXTILES--CONTINUED
$ 575,000 (b)Glenoit Corp., Sr. Sub. Note, 11.00%, 4/15/2007 $ 623,875
600,000 Pillowtex Corp., Sr. Sub. Note, 10.00%, 11/15/2006 639,000
1,600,000 WestPoint Stevens, Inc., Sr. Sub. Deb., 9.375%, 12/15/2005 1,684,000
Total 3,696,375
CONSUMER PRODUCTS--1.1%
500,000 American Safety Razor Co., Sr. Note, Series B, 9.875%, 8/1/2005 527,500
50,000 Herff Jones, Inc., Sr. Sub. Note, Series B, 11.00%, 8/15/2005 54,500
50,000 Hosiery Corp. of America, Inc., Sr. Sub. Note, 13.75%, 8/1/2002 54,250
350,000 ICON Fitness Corp., Sr. Disc. Note, Series B, 0/14.00%, 11/15/2006 204,750
100,000 ICON Health & Fitness, Inc., Sr. Sub. Note, Series B, 13.00%, 7/15/2002 112,500
850,000 (b)NBTY, Inc., Sr. Sub. Note, 8.625%, 9/15/2007 839,375
750,000 Playtex Family Products Corp., Sr. Sub. Note, 9.00%, 12/15/2003 755,625
250,000 Playtex Products, Inc., Sr. Note, Series B, 8.875%, 7/15/2004 251,875
425,000 Renaissance Cosmetics, Inc., Sr. Note, 11.75%, 2/15/2004 401,625
25,000 Revlon Consumer Products Corp., Note, 9.375%, 4/1/2001 25,844
600,000 Revlon Consumer Products Corp., Sr. Sub. Note, Series B, 10.50%,
2/15/2003 636,750
400,000 Simmons Co., Sr. Sub. Note, 10.75%, 4/15/2006 420,000
425,000 Syratech Corp., Sr. Note, 11.00%, 4/15/2007 399,500
Total 4,684,094
CONTAINER & GLASS PRODUCTS--0.1%
450,000 Plastic Containers, Inc., Sr. Secd. Note, 10.00%, Series B, 12/15/2006 479,250
ECOLOGICAL SERVICES & EQUIPMENT--0.6%
650,000 (b)Allied Waste Industries, Inc., Sr. Disc. Note, 0/11.30%, 6/1/2007 451,750
850,000 Allied Waste North America, Inc., Sr. Sub. Note, Company
Guarantee, 10.25%, 12/1/2006 930,750
150,000 ICF Kaiser International, Inc., Sr. Sub. Note, 13.00%, 12/31/2003 156,750
1,000,000 Waste Management, Inc., Deb., 8.75%, 5/1/2018 1,125,910
Total 2,665,160
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
U.S. CORPORATE BONDS--CONTINUED
EDUCATION--0.3%
$ 1,000,000 Boston University, Medium Term Note, Series A, 7.625%, 7/15/2097 $ 1,079,138
ELECTRONICS--0.7%
600,000 Advanced Micro Devices, Inc., Sr. Secd. Note, 11.00%, 8/1/2003 638,250
1,000,000 Anixter International, Inc., Company Guarantee, 8.00%, 9/15/2003 1,051,070
725,000 Fairchild Semiconductor Corp., Sr. Sub., 10.125%, 3/15/2007 768,500
500,000 (b)Viasystems, Inc., Sr. Sub. Note, 9.75%, 6/1/2007 518,750
Total 2,976,570
FINANCE--0.1%
375,000 ContiFinancial Corp., Sr. Note, 8.375%, 8/15/2003 389,512
FINANCIAL INTERMEDIARIES--1.0%
1,000,000 American General Corp., Deb., 9.625%, 2/1/2018 1,052,660
1,000,000 Green Tree Financial Corp., Sr. Sub. Note, 10.25%, 6/1/2002 1,148,550
1,000,000 Lehman Brothers Holdings, Inc., Note, 8.50%, 5/1/2007 1,110,680
1,000,000 Morgan Stanley Group, Inc., Deb., 9.25%, 3/1/1998 1,009,180
Total 4,321,070
FOOD & DRUG RETAILERS--0.8%
450,000 Carr-Gottstein Foods Co., Sr. Sub. Note, 12.00%, 11/15/2005 501,750
250,000 (b)Community Distributors, Inc., Sr. Note, 10.25%, 10/15/2004 256,250
600,000 DiGiorgio Corp., Sr. Note, Series B, 10.00%, 6/15/2007 591,000
350,000 (b)Jitney-Jungle Stores of America, Inc., Sr. Sub. Note, 10.375%,
9/15/2007 366,188
1,200,000 Ralph's Grocery Co., Sr. Note, Series B, 10.45%, 6/15/2004 1,353,000
200,000 Stater Brothers Holdings, Inc., Sr. Sub. Note, 9.00%, 7/1/2004 209,000
Total 3,277,188
FOOD PRODUCTS--0.6%
575,000 Aurora Foods, Inc., Sr. Sub. Note, Series B, 9.875%, 2/15/2007 606,625
450,000 Curtice-Burns Foods, Inc., Sr. Sub. Note, 12.25%, 2/1/2005 497,250
900,000 International Home Foods, Inc., Sr. Sub. Note, 10.375%, 11/1/2006 985,500
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
U.S. CORPORATE BONDS--CONTINUED
FOOD PRODUCTS--CONTINUED
$ 550,000 Van de Kamp's, Inc., Sr. Sub. Note, 12.00%, 9/15/2005 $ 613,250
Total 2,702,625
FOOD SERVICES--0.4%
450,000 (b)AmeriServe Food Distribution, Inc., Sr. Note, 8.875%, 10/15/2006 451,125
1,300,000 (b)AmeriServe Food Distribution, Inc., Sr. Sub. Note, 10.125%,
7/15/2007 1,352,000
Total 1,803,125
FOREST PRODUCTS--1.4%
200,000 Container Corp. of America, Sr. Note, Series A, 11.25%, 5/1/2004 220,500
1,250,000 Donohue Forest Products, 7.625%, 5/15/2007 1,324,362
550,000 Four M Corp., Sr. Note, Series B, 12.00%, 6/1/2006 588,500
250,000 Pope & Talbot, Inc., Deb. 8.375%, 6/1/2013 260,825
225,000 Repap New Brunswick, 2nd Priority Sr. Secd. Note, 10.625%,
4/15/2005 217,125
1,500,000 Repap Wisconsin, Inc., 2nd Priority Sr. Secd. Note, 9.875%, 5/1/2006 1,637,850
400,000 S. D. Warren Co., Sr. Sub. Note, Series B, 12.00%, 12/15/2004 448,000
475,000 Stone Container Corp., Sr. Note, 11.50%, 10/1/2004 520,125
450,000 Stone Container Corp., Sr. Note, 12.58%, 8/1/2016 497,250
Total 5,714,537
HEALTHCARE--1.0%
800,000 Dade International, Inc., Sr. Sub. Note, 11.125%, 5/1/2006 894,000
300,000 Genesis Health Ventures, Inc., Sr. Sub. Note, 9.25%, 10/1/2006 305,250
500,000 Genesis Health Ventures, Inc., Sr. Sub. Note, 9.75%, 6/15/2005 520,000
650,000 Tenet Healthcare Corp., Sr. Note, 8.00%, 1/15/2005 658,125
1,175,000 Tenet Healthcare Corp., Sr. Sub. Note, 10.125%, 3/1/2005 1,276,344
500,000 Tenet Healthcare Corp., Sr. Sub. Note, 8.625%, 1/15/2007 513,750
Total 4,167,469
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
U.S. CORPORATE BONDS--CONTINUED
HOME PRODUCTS & FURNISHINGS--0.2%
$ 300,000 Falcon Building Products, Inc., Sr. Sub. Disc. Note, 0/10.50%,
6/15/2007 $ 196,500
200,000 Falcon Building Products, Inc., Sr. Sub. Note, Series B, 9.50%,
6/15/2007 204,000
350,000 (b)Werner Enterprises, Inc., Sr. Sub. Note, 10.00%, 11/15/2007 358,750
Total 759,250
HOTELS, MOTELS, INNS, & CASINOS--0.2%
350,000 (b)CapStar Hotel Co., Sr. Sub. Note, 8.75%, 8/15/2007 359,187
400,000 Courtyard by Marriott II LP, Sr. Note, Series B, 10.75%, 2/1/2008 435,000
Total 794,187
INDUSTRIAL PRODUCTS & EQUIPMENT--2.0%
625,000 Amphenol Corp., Sr. Sub. Note, 9.875%, 5/15/2007 660,937
575,000 Cabot Safety Acquisition Corp., Sr. Sub. Note, 12.50%, 7/15/2005 646,875
700,000 Continental Global Group, Inc., Sr. Note, Series B, 11.00%, 4/1/2007 752,500
150,000 (b)Elgin National Industries, Inc., Sr. Note, 11.00%, 11/1/2007 154,125
525,000 Euramax International PLC, Sr. Sub. Note, 11.25%, 10/1/2006 570,937
1,250,000 Figgie International Holdings, Inc., Sr. Note, 9.875%, 10/1/1999 1,306,250
325,000 Hawk Corp., Sr. Note, 10.25%, Series B, 12/1/2003 346,125
350,000 International Knife & Saw, Inc., Sr. Sub. Note, 11.375%, 11/15/2006 376,250
275,000 (b)Johnstown America Industries, Inc., Sr. Sub. Note, Series B, 11.75%,
8/15/2005 301,813
325,000 Johnstown America Industries, Inc., Sr. Sub. Note, 11.75%, 8/15/2005 356,688
575,000 MMI Products, Inc., Sr. Sub. Note, Series B, 11.25%, 4/15/2007 621,000
500,000 Neenah Corp., Sr. Sub. Note, 11.125%, 5/1/2007 547,500
125,000 (b)Roller Bearing Co. of America, Inc., Sr. Sub. Note, Series B, 9.625%,
6/15/2007 126,563
1,000,000 Southdown, Inc., Sr. Sub. Note, Series B, 10.00%, 3/1/2006 1,112,500
475,000 Unifrax Investment Corp., Sr. Note, 10.50%, 11/1/2003 491,625
Total 8,371,688
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
U.S. CORPORATE BONDS--CONTINUED
INSURANCE--2.1%
$ 500,000 AFC Capital Trust, Bond, 8.207%, 2/3/2027 $ 541,320
1,000,000 Conseco, Inc., Sr. Note, 10.50%, 12/15/2004 1,200,780
750,000 Delphi Funding LLC, Inc., Series A, 9.31%, 3/25/2027 814,995
700,000 Delphi Financial Group, Inc., Note, 8.00%, 10/1/2003 735,378
1,000,000 (b)Equitable Life, Note, 7.70%, 12/1/2015 1,069,940
1,000,000 (b)Life Re Capital Trust I, 8.72%, 6/15/2027 1,056,080
1,150,000 SunAmerica, Inc., Sr. Note, 9.00%, 1/15/1999 1,187,939
500,000 (b)USF&G Corp., Series C, 8.312%, 7/1/2046 534,950
500,000 USF&G Corp., Series B, Company Guarantee, 8.47%, 1/10/2027 529,155
1,000,000 (b)Union Central Life Insurance Co., Note, 8.20%, 11/1/2026 1,075,470
Total 8,746,007
LEISURE & ENTERTAINMENT--1.5%
1,775,000 AMF Bowling Worldwide, Inc., Sr. Sub. Disc. Note, Series B,
0/12.25%, 3/15/2006 1,384,500
200,000 Cobblestone Golf Group, Inc., Sr. Note, Series B, 11.50%, 6/1/2003 217,000
150,000 KSL Recreation Group, Inc., Sr. Sub. Note, 10.25%, 5/1/2007 159,750
600,000 (b)Livent, Inc., Sr. Note, 9.375%, 10/15/2004 600,000
400,000 Premier Parks, Inc., Sr. Note, Series A, 12.00%, 8/15/2003 446,000
175,000 Premier Parks, Inc., Sr. Note, 9.75%, 1/15/2007 187,250
1,175,000 Six Flags Theme Parks, Sr. Sub. Disc. Note, Series A, 0/12.25%,
6/15/2005 1,245,500
2,025,000 Viacom, Inc., Sub. Deb., 8.00%, 7/7/2006 2,025,000
Total 6,265,000
MACHINERY & EQUIPMENT--0.5%
575,000 Alvey Systems, Inc., Sr. Sub. Note, 11.375%, 1/31/2003 612,375
750,000 Clark Material Handling Corp., Sr. Note, 10.75%, 11/15/2006 795,000
425,000 (b)National Equipment Services, Inc., Sr. Sub. Note, 10.00%, 11/30/2004 418,625
400,000 Tokheim Corp., Sr. Sub. Note, Series B, 11.50%, 8/1/2006 454,000
Total 2,280,000
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
U.S. CORPORATE BONDS--CONTINUED
METALS & MINING--0.5%
$ 350,000 (b)AEI Holding Co., Inc., Sr. Note, 10.00%, 11/15/2007 $ 357,875
150,000 (b)Anker Coal Group, Inc., Sr. Note, 9.75%, 10/1/2007 153,000
400,000 Echo Bay Mines Ltd., Jr. Sub. Deb., 11.00%, 4/1/2027 322,000
1,000,000 Inco Ltd., Note, 9.60%, 6/15/2022 1,142,480
400,000 Royal Oak Mines, Inc., Sr. Sub. Note, Series B, 11.00%, 8/15/2006 342,000
Total 2,317,355
MUNICIPAL SERVICES--0.5%
750,000 Atlanta & Fulton County, GA Recreation Authority, Taxable
Revenue Bonds, Series 1997, 7.00% Bonds (Downtown Arena
Project)/(FSA INS), 12/1/2028 743,430
250,000 McKeesport, PA, Taxable GO Series B 1997, 7.30% Bonds
(MBIA INS), 3/1/2020 254,253
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 1,116,700
Total 2,114,383
OIL & GAS--1.8%
975,000 Abraxas Petroleum Corp., Sr. Note, 11.50%, 11/1/2004 1,061,531
1,100,000 Clark Refining & Marketing Inc., Sr. Note, 10.50%, 12/1/2001 1,134,375
325,000 DI Industries, Inc., Sr. Note, 8.875%, 7/1/2007 336,375
325,000 (b)Dailey Petroleum Services Corp., Sr. Note, 9.75%, 8/15/2007 339,625
100,000 Falcon Drilling Co., Inc., Sr. Note, Series B, 8.875%, 3/15/2003 106,000
50,000 Falcon Drilling Co., Inc., Sr. Note, Series B, 9.75%, 1/15/2001 52,500
300,000 Forcenergy Gas Exploration, Inc., Sr. Sub. Note, 8.50%, 2/15/2007 303,000
800,000 Forcenergy Gas Exploration, Inc., Sr. Sub. Note, 9.50%, 11/1/2006 846,000
250,000 (b)Petsec Energy, Inc., Sr. Sub. Note, 9.50%, 6/15/2007 257,500
500,000 Pride Petroleum Services, Inc., Sr. Note, 9.375%, 5/1/2007 540,000
1,000,000 Sun Co., Inc., 9.00%, 11/1/2024 1,227,010
750,000 United Meridian Corp., Sr. Sub. Note, 10.375%, 10/15/2005 813,750
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
U.S. CORPORATE BONDS--CONTINUED
OIL & GAS--CONTINUED
$ 300,000 (b)United Refining Co., Sr. Note, 10.75%, 6/15/2007 $ 313,500
275,000 (b)XCL, Ltd., Sr. Sec'd. Disc. Note, 13.50%, 5/1/2004 358,875
Total 7,690,041
PRINTING & PUBLISHING--1.3%
750,000 Affiliated Newspaper Investments, Inc., Sr. Disc. Note, 0/13.25%,
7/1/2006 708,750
250,000 Garden State Newspapers, Inc., Sr. Sub. Note, 12.00%, 7/1/2004 281,250
625,000 (b)Garden State Newspapers, Inc., Sr. Sub. Note, 8.75%, 10/1/2009 615,625
300,000 Hollinger International Publishing, Inc., Sr. Sub. Note, 9.25%,
2/1/2006 312,000
275,000 Hollinger International Publishing, Inc., Sr. Sub. Note, 9.25%,
3/15/2007 286,000
350,000 K-III Communications Corp., Senior Note, Series B, 8.50%, 2/1/2006 362,485
1,000,000 News America Holdings, Inc., Deb., 8.15%, 10/17/2036 1,071,530
375,000 Petersen Publishing Co., L.L.C., Sr. Sub. Note, 11.125%, 11/15/2006 425,625
1,500,000 Valassis Inserts, Inc., Sr. Sub. Note, 9.375%, 3/15/1999 1,554,150
Total 5,617,415
REAL ESTATE--0.5%
1,000,000 Price REIT, Inc., Sr. Note, 7.50%, 11/5/2006 1,044,810
500,000 SUSA Partnership, L.P., 8.20%, 6/1/2017 548,090
469,000 Trizec Finance Ltd., Sr. Note, 10.875%, 10/15/2005 529,970
Total 2,122,870
RETAILERS--1.1%
500,000 Brylane Capital Corp., Sr. Sub. Note, 10.00%, 9/1/2003 532,500
1,000,000 Harcourt General, Inc., Sr. Deb., 7.20%, 8/1/2027 1,005,640
400,000 (b)Leslie's Poolmart, Inc., Sr. Note, 10.375%, 7/15/2004 413,000
1,000,000 Penney (J.C.) Co., Inc., Deb., 7.65%, 8/15/2016 1,084,500
1,500,000 Shopko Stores, Inc., 9.25%, 3/15/2022 1,773,615
Total 4,809,255
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
U.S. CORPORATE BONDS--CONTINUED
SERVICES--0.4%
$ 100,000 Coinmach Corp., Sr. Note, Series B, 11.75%, 11/15/2005 $ 111,000
500,000 (b)Coinmach Corp., Sr. Note, Series C, 11.75%, 11/15/2005 555,000
375,000 DecisionOne Corp., Sr. Sub. Note, 9.75%, 8/1/2007 386,250
400,000 Intertek Finance PLC, Sr. Sub. Note, Series B, 10.25%, 11/1/2006 422,000
125,000 Ryder TRS, Inc., Sr. Sub. Note, 10.00%, 12/1/2006 125,000
Total 1,599,250
STEEL--0.7%
325,000 Acme Metals, Inc., Sr. Secd. Disc. Note, 13.5%, 8/1/2004 379,132
300,000 Bayou Steel Corp., 1st Mtg. Note, 10.25%, 3/1/2001 308,250
400,000 EnviroSource, Inc., Sr. Note, 9.75%, 6/15/2003 407,000
150,000 GS Technologies Operating Co., Inc., Sr. Note, 12.00%, 9/1/2004 165,750
725,000 GS Technologies Operating Co., Inc., Sr. Note, 12.25%, 10/1/2005 815,625
600,000 Ryerson Tull, Inc., Sr. Note, 9.125%, 7/15/2006 651,000
Total 2,726,757
SURFACE TRANSPORTATION--1.5%
125,000 (b)Allied Holdings, Inc., Sr. Note, 8.625%, 10/1/2007 128,437
450,000 AmeriTruck Distribution Corp., Sr. Sub. Note, Series B, 12.25%,
11/15/2005 474,750
450,000 Chemical Leaman Corp., Sr. Note, 10.375%, 6/15/2005 470,250
700,000 Gearbulk Holding Limited, Sr. Note, 11.25%, 12/1/2004 770,875
650,000 Statia Terminals International N.V., 1st Mtg. Note, Series B, 11.75%,
11/15/2003 689,000
1,050,000 Stena AB, Sr. Note, 10.50%, 12/15/2005 1,148,438
300,000 Stena AB, Sr. Note, 8.75%, 6/15/2007 302,250
1,500,000 Trans Ocean Container Corp., Sr. Sub. Note, 12.25%, 7/1/2004 1,729,125
450,000 Trism, Inc., Sr. Sub. Note, 10.75%, 12/15/2000 446,625
Total 6,159,750
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
U.S. CORPORATE BONDS--CONTINUED
TELECOMMUNICATIONS & CELLULAR--4.5%
$ 725,000 American Communications Services, Inc., Sr. Disc. Note, 0/12.75%,
4/1/2006 $ 518,375
200,000 (b)American Communications Services, Inc., Sr. Note, 13.75%,
7/15/2007 229,000
550,000 Arch Communications Group, Inc., Sr. Disc. Note, 0/10.875%,
3/15/2008 361,625
1,250,000 Brooks Fiber Properties, Inc., Sr. Disc. Note, 0/10.875%, 3/1/2006 1,034,375
375,000 Brooks Fiber Properties, Inc., Sr. Disc. Note, 0/11.875%, 11/1/2006 299,062
725,000 Call-Net Enterprises, Inc., Sr. Disc. Note, 0/9.27%, 8/15/2007 489,375
750,000 Cellular Communications International, Inc., Sr. Disc. Note, 0%
8/15/2000 585,000
400,000 Cellular Communications of Puerto Rico, Inc., Company
Guarantee, 10.00%, 2/1/2007 397,000
900,000 Comcast Cellular Holdings, Inc., Sr. Note, Series B, 9.50%, 5/1/2007 940,500
625,000 (b)Hermes Europe Railtel B.V., Sr. Note, 11.50%, 8/15/2007 687,500
250,000 (b)HighwayMaster Communications, Inc., Sr. Note, 13.75%, 9/15/2005 248,750
1,600,000 Intermedia Communications of Florida, Inc., Sr. Disc. Note,
0/12.50%, 5/15/2006 1,248,000
300,000 (b)Intermedia Communications of Florida, Inc., Sr. Note, 8.875%,
11/1/2007 301,500
750,000 McLeod, Inc., Sr. Disc. Note, 0/10.50%, 3/1/2007 521,250
450,000 (b)McLeod, Inc., Sr. Note, 9.25%, 7/15/2007 459,000
750,000 (b)MetroNet Communications, Sr. Disc. Note, 0/10.75%, 11/1/2007 442,500
1,300,000 Millicom International Cellular S. A., Sr. Sub. Disc. Note, 0/13.50%,
6/1/2006 949,000
500,000 (b)NEXTEL Communications, Inc., Sr. Disc. Note, 0/10.65%,
9/15/2007 305,000
1,150,000 NEXTEL Communications, Inc., Sr. Disc. Note, 0/9.75%, 8/15/2004 997,625
1,025,000 Paging Network, Inc., Sr. Sub. Note, 10.00%, 10/15/2008 1,063,438
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
U.S. CORPORATE BONDS--CONTINUED
TELECOMMUNICATIONS & CELLULAR--CONTINUED
$ 239,000 PanAmSat Corp., Sr. Sub. Note, 12.75%, 4/15/2005 $ 293,970
125,000 PanAmSat, L.P., Sr. Sub. Disc. Note, 0/11.375%, 8/1/2003 126,315
200,000 (b)Qwest Communications International, Inc., Sr. Disc. Note, 0/9.47%,
10/15/2007 130,000
975,000 Qwest Communications International, Inc., Sr. Note, 10.875%,
4/1/2007 1,087,125
650,000 (b)RCN Corp., Sr. Disc. Note, 0/11.125%, 10/15/2007 380,250
225,000 (b)Source Media, Inc., Sr. Secd. Note, 12.00%, 11/1/2004 223,875
550,000 Sygnet Wireless, Inc., Sr. Note, 11.50%, 10/1/2006 596,750
1,800,000 Teleport Communications Group, Inc., Sr. Disc. Note, 0/11.125%,
7/1/2007 1,433,250
75,000 Teleport Communications Group, Inc., Sr. Note, 9.875%, 7/1/2006 82,875
450,000 (b)Telesystem International Wireless, Inc., Sr. Disc. Note, 0/10.50%,
11/1/2007 247,500
950,000 (b)Telesystem International Wireless, Inc., Sr. Disc. Note, 0/13.25%,
6/30/2007 586,625
625,000 (b)Teligent, Inc., Sr. Note, 11.50%, 12/1/2007 628,125
250,000 USA Mobile Communications, Inc., Sr. Note, 9.50%, 2/1/2004 246,250
725,000 Vanguard Cellular Systems, Inc., Sr. Deb., 9.375%, 4/15/2006 759,438
Total 18,900,223
UTILITIES--0.8%
900,000 Cajun Electric Power, 9.52%, 3/15/2019 952,452
250,000 CalEnergy Co., Inc., Sr. Note, 9.50%, 9/15/2006 273,750
1,250,000 California Energy Co., Inc., Sr. Note, 10.25%, 1/15/2004 1,356,250
700,000 El Paso Electric Co., 1st Mtg. Note, Series E, 9.40%, 5/1/2011 776,601
Total 3,359,053
TOTAL U.S. CORPORATE BONDS (IDENTIFIED COST $162,994,786) 169,365,428
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR FOREIGN
CURRENCY
PAR AMOUNT VALUE
<C> <S> <C>
INTERNATIONAL BONDS--36.3%
AUSTRALIAN DOLLAR--0.6%
PRINTING & PUBLISHING--0.0%
150,000 News America Holdings, Inc., 8.625%, 2/7/2014 $ 105,020
STATE/PROVINCIAL--0.6%
580,000 Queensland Treasury, Deb., 10.50%, 5/15/2003 474,749
2,000,000 Queensland Treasury, Local Gov't. Guarantee, 8.00%, 5/14/2003 1,498,856
550,000 Treasury Corp. of Victoria, Local Gov't. Guarantee, 10.25%,
11/15/2006 473,471
Total 2,447,076
TOTAL AUSTRALIAN DOLLAR 2,552,096
BRITISH POUND--0.9%
BANKING--0.1%
300,000 Bank of Ireland, Sub., 9.75%, 3/21/2005 567,154
INSURANCE--0.1%
300,000 Commercial Union PLC, Company Guarantee, 8.625%, 9/28/2005 543,404
SOVEREIGN GOVERNMENT--0.7%
1,300,000 United Kingdom Treasury, Foreign Gov't. Guarantee, 11.75%,
1/22/2007 2,656,641
TOTAL BRITISH POUND 3,767,199
CANADIAN DOLLAR--1.4%
BEVERAGE & TOBACCO--0.2%
1,100,000 Molson Breweries, Unsub., 9.10%, 3/11/2013 973,554
FOREST PRODUCTS--0.2%
1,150,000 Avenor, Inc., Deb., 10.85%, 11/30/2014 1,057,675
STATE/PROVINCIAL--0.2%
1,000,000 (b)Metro Toronto, Deb., 7.40%, 9/27/2006 779,780
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR FOREIGN
CURRENCY
PAR AMOUNT VALUE
<C> <S> <C>
INTERNATIONAL BONDS--CONTINUED
CANADIAN DOLLAR--CONTINUED
TELECOMMUNICATIONS & CELLULAR
500,000 Bell Canada, Deb., 8.80%, 8/17/2005 $ 412,700
5,280,000 Clearnet Communications, Sr. Disc. Note, 11.75%, 8/13/2007 2,250,121
1,500,000 (b)Microcell Telecommunications, Sr. Disc. Note, 0/11.125%, 10/15/2007 537,087
Total 3,199,908
TOTAL CANADIAN DOLLAR 6,010,917
CZECH KORUNA--0.3%
SUPRANATIONAL--0.3%
21,500,000 International Finance Corp., Sr. Unsub., 10.50%, 11/30/1998 585,887
17,500,000 International Bank of Reconstruction, Unsub., 13.75%, 9/18/1998 491,867
TOTAL CZECH KORUNA 1,077,754
DANISH KRONE--0.5%
FINANCIAL INTERMEDIARIES--0.3%
4,675,000 Nykredit, Mtg. Bond, 8.00%, 10/1/2026 725,376
3,246,000 Unikredit Realkredit, Mtg. Bond, 8.00%, 10/1/2029 500,266
Total 1,225,642
SOVEREIGN--0.2%
6,000,000 Kingdom of Denmark, Bond, 7.00%, 11/10/2024 956,886
TOTAL DANISH KRONE 2,182,528
DEUTSCHE MARK--1.4%
FINANCE--0.2%
1,500,000 (b)ITT Promedia, 9.125%, 9/15/2007 882,478
SOVEREIGN--0.8%
2,000,000 Bundesrepublic Deutschland, 6.00%, 7/4/2007 1,176,751
3,800,000 Deutschland Republic, Deb., 6.25%, 1/4/2024 2,216,649
Total 3,393,400
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR FOREIGN
CURRENCY
PAR AMOUNT VALUE
<C> <S> <C>
INTERNATIONAL BONDS--CONTINUED
DEUTSCHE MARK--CONTINUED
SOVEREIGN GOVERNMENT--0.4%
3,450,000 Romania, Bond, 7.75%, 6/17/2002 $ 1,887,865
TOTAL DEUTSCHE MARK 6,163,743
GREEK DRACHMA--0.8%
SOVEREIGN--0.8%
120,000,000 Hellenic Republic, 11.10%, 8/14/2003 412,940
120,000,000 Hellenic Republic, Bond, 11.00%, 10/23/2003 412,506
375,000,000 Hellenic Republic, 13.1% Bond, 11/26/2003 1,287,998
200,000,000 Hellenic Republic, Bond, 12.60%, 12/31/2003 679,558
150,000,000 Hellenic Republic, Bond, 9.80%, 3/21/2000 487,980
TOTAL GREEK DRACHMA 3,280,982
HUNGARY FORINT--0.8%
SOVEREIGN--0.8%
410,000,000 Hungary, Bond, 16.50%, 4/12/1999 2,002,959
300,000,000 Hungary, Bond, 24.00%, 3/21/1998 1,519,448
TOTAL HUNGARY FORINT 3,522,407
INDONESIAN RUPIAH--0.4%
CONGLOMERATES--0.2%
2,000,000,000 Dharmala Intiutama, 0%, 1/23/1998 274,160
2,000,000,000 Dharmala Intiutama, 16.00% accrual, 1/20/1998 274,160
637,916,667 Dharmala Intiutama, Promissory Note, 25.56%, 2/20/1998 87,446
450,000,000 Dharmala Intiutama, Promissory Note, 25.14%, 5/20/1998 61,686
475,555,556 Dharmala Intiutama, Promissory Note, 24.55%, 8/20/1998 65,189
Total 762,641
FINANCE--0.1%
1,000,000,000 Polysindo International Finance Co. BV, 17.60% accrual, 7/15/1998 228,510
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR FOREIGN
CURRENCY
PAR AMOUNT VALUE
<C> <S> <C>
INTERNATIONAL BONDS--CONTINUED
INDONESIAN RUPIAH--CONTINUED
PAPER PRODUCTS--0.1%
2,000,000,000 APP International Finance, 18.00% accrual, 3/11/1998 $ 508,200
TOTAL INDONESIAN RUPIAH 1,499,351
ITALIAN LIRA--0.4%
SOVEREIGN--0.4%
750,000,000 Buoni Poliennali Del Tes, 10.00%, 8/1/2003 524,482
650,000,000 Buoni Poliennali Del Tes, 7.75%, 11/1/2006 424,037
1,400,000,000 Buoni Poliennali Del Tes, Deb., 10.50%, 7/15/1998 832,029
TOTAL ITALIAN LIRA 1,780,548
MEXICAN PESO--1.0%
SOVEREIGN--1.0%
22,250,000 Mexican Cetes, 10/22/1998 2,266,041
18,000,000 Mexican Cetes, 9/24/1998 1,858,404
TOTAL MEXICAN PESO 4,124,445
NEW ZEALAND DOLLAR--0.5%
BANKING--0.3%
1,770,000 Australia & New Zealand Banking Group, Melbourne, 8.12%
accrual, 10/28/1998 1,020,475
FINANCIAL INTERMEDIARIES--0.1%
840,000 Brierley Investments Ltd., Bond, 9.00%, 3/15/2002 532,287
SOVEREIGN--0.1%
800,000 New Zealand, Government of, Deb., 8.00%, 11/15/2006 534,525
TOTAL NEW ZEALAND DOLLAR 2,087,287
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR FOREIGN
CURRENCY
PAR AMOUNT VALUE
<C> <S> <C>
INTERNATIONAL BONDS--CONTINUED
NORWEGIAN KRONE--0.2%
SOVEREIGN--0.2%
3,000,000 Norwegian Government, Bond, 7.00%, 5/31/2001 $ 443,655
2,300,000 Norwegian Government, Bond, 9.00%, 1/31/1999 336,074
TOTAL NORWEGIAN KRONE 779,729
POLISH ZLOTY--0.9%
SOVEREIGN--0.9%
4,500,000 Poland Gov't. Bond, 12.00%, 2/12/2003 908,270
4,000,000 Poland Gov't. Bond, 12.00%, 6/12/2002 819,904
2,000,000 Poland Gov't. Bond, 15.00%, 10/12/1999 487,701
1,500,000 Poland Gov't. Bond, 12.00%, 6/12/2001 314,673
500,000 Poland Gov't. Bond, 15.00%, 6/12/1999 127,933
4,100,000 Republic of Poland, 17.00%, 2/12/1998 1,134,252
TOTAL POLISH ZLOTY 3,792,733
SLOVAKIAN KORUNA--0.1%
SUPRANATIONAL--0.1%
15,500,000 International Finance Corp., Note, 11.75%, 8/15/1999 371,913
SOUTH AFRICIAN RAND--1.1%
AGENCY--0.5%
11,000,000 Trans Caledon Tunnel Authority, 13.00%, 9/15/2010 2,061,439
GOVERNMENT AGENCY--0.1%
2,500,000 South African 11.50%, 9/30/2005 437,223
SOVEREIGN--0.5%
2,500,000 Republic of South Africa, Bond, 12.50%, 1/15/2002 486,476
10,000,000 Republic of South Africa, 12.00%, 2/28/2005 1,852,529
Total 2,339,005
TOTAL SOUTH AFRICAN RAND 4,837,667
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR FOREIGN
CURRENCY
PAR AMOUNT VALUE
<C> <S> <C>
INTERNATIONAL BONDS--CONTINUED
SOUTH KOREAN WON--0.2%
SUPRANATIONAL--0.2%
900,000,000 European Bank for Reconstruction and Development, Bond,
10.00%, 5/2/2002 $ 659,897
SPANISH PESETA--0.6%
SOVEREIGN--0.4%
10,000,000 Spain (Government), 10.00%, 2/28/2005 84,451
36,000,000 Spain (Government), Bond, 10.15%, 1/31/2006 310,917
60,000,000 Spain (Government), Deb., 10.10%, 2/28/2001 462,605
126,000,000 Spain (Government), Foreign Gov't. Guarantee, 8.00%, 5/30/2004 960,569
Total 1,818,542
SOVEREIGN GOVERNMENT--0.2%
80,000,000 Bonos Y Oblig. Del Estado, Deb., 8.20%, 2/28/2009 638,320
TOTAL SPANISH PESETA 2,456,862
SWEDISH KRONA--0.4%
BANKING--0.1%
3,000,000 AB Spinrab, Unsub., 12.00%, 12/17/1997 389,606
SOVEREIGN--0.3%
3,500,000 Swedish Government, Bond, 8.00%, 8/15/2007 510,524
7,500,000 Swedish Government, Deb., 6.50%, 10/25/2006 991,265
Total 1,501,789
TOTAL SWEDISH KRONA 1,891,395
U.S. DOLLAR--23.5%
AGENCY--0.3%
$ 1,000,000 Quebec, Province of, Deb., 13.25%, 9/15/2014 1,160,010
BANKING--0.5%
1,000,000 Banco Nacional, Bank Guarantee, 11.25%, 5/30/2006 1,073,500
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR FOREIGN
CURRENCY
PAR AMOUNT VALUE
<C> <S> <C>
INTERNATIONAL BONDS--CONTINUED
U.S. DOLLAR--CONTINUED
BANKING--CONTINUED
$ 1,250,000 National Bank of Canada, Montreal, Sub. Note, 8.125%, 8/15/2004 $ 1,352,863
Total 2,426,363
BEVERAGE & TOBACCO--0.6%
2,850,000 Empresas La Moderna, 11.375%, 1/25/1999 2,892,750
BUILDING & DEVELOPMENT--0.6%
1,500,000 Cemex SA, Bond, 12.75%, 7/15/2006 1,762,500
1,000,000 (b)Road King Infrastructure, Series 144a, 9.50%, 7/15/2007 895,000
Total 2,657,500
CABLE TELEVISION--0.1%
2,436 Australis Media Ltd., Sr. Disc. Note, 15.75%, 5/15/2003 609
300,000 Rogers Communications, Inc., Sr. Note, 8.875%, 7/15/2007 300,000
Total 300,609
CONGLOMERATES--0.7%
1,000,000 (b)Hutchison Whampoa Finance, Company Guarantee, 7.50%, 8/1/2027 937,040
2,000,000 Mechala Group Jamaica, Note, 12.00%, 12/30/1999 1,940,000
Total 2,877,040
CONTAINER & GLASS PRODUCTS--0.4%
1,750,000 Vicap SA, Sr. Note, 11.375%, 5/15/2007 1,894,375
FINANCE--0.9%
1,000,000 (b)Pera Financial, 9.375%, 10/15/2002 905,000
2,250,000 Polysindo International Finance Co. BV, Company Guarantee,
11.375%, 6/15/2006 2,278,125
500,000 (b)Unexim Int'l. Finance, 9.875%, 8/1/2000 437,500
Total 3,620,625
FINANCIAL INTERMEDIARIES--0.2%
500,000 PIV Investment Finance, Company Guarantee, 4.50%, 12/1/2000 397,500
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR FOREIGN
CURRENCY
PAR AMOUNT VALUE
<C> <S> <C>
INTERNATIONAL BONDS--CONTINUED
U.S. DOLLAR--CONTINUED
FINANCIAL INTERMEDIARIES--CONTINUED
$ 500,000 Polytama International, Note, 11.25%, 6/15/2007 $ 457,500
Total 855,000
FOREST PRODUCTS--2.1%
1,000,000 Aracruz Cellulose, Deb., 10.375%, 1/31/2002 966,300
2,500,000 Asia Pulp & Paper Co. Ltd., Company Guarantee, 11.75%,
10/1/2005 2,525,000
1,700,000 Indah Kiat Int'l. Finance, Company Guarantee, 11.875%, 6/15/2002 1,746,750
1,800,000 Indah Kiat Int'l. Finance, Company Guarantee, 12.50%, 6/15/2006 1,890,000
1,300,000 Klabin Fabricadora Papel, Company Guarantee, Series REGS,
11.00%, 8/12/2004 1,278,875
250,000 Quno Corp., Sr. Note, 9.125%, 5/15/2005 269,375
Total 8,676,300
GOVERNMENT AGENCY--1.9%
250,000 (b)Government of Jamaica, Bond, 9.625%, 7/2/2002 237,500
1,800,000 National Bank of Romania, 9.75%, 6/25/1999 1,819,125
1,000,000 (b)Oblast Nizhniy Novgorod, 8.75%, 10/3/2002 847,500
5,000,000 Republic of Ecuador, 11.25%, 4/25/2002 5,150,000
Total 8,054,125
INDUSTRIAL PRODUCTS & EQUIPMENT--1.2%
1,500,000 (b)GS Superhighway, Sr. Note, 10.25%, 8/15/2007 1,380,000
1,300,000 Sampoerna International Finance Co., 8.375%, 6/15/2006 1,171,898
500,000 (b)Sharp Do Brazil, 9.625%, 10/30/2005 432,500
2,000,000 Sophora Comercio, 11.50%, 11/10/1998 2,040,000
Total 5,024,398
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR FOREIGN
CURRENCY
PAR AMOUNT VALUE
<C> <S> <C>
INTERNATIONAL BONDS--CONTINUED
U.S. DOLLAR--CONTINUED
METALS & MINING--0.6%
$ 1,000,000 Barrick Gold Corp., Deb., 7.50%, 5/1/2007 $ 1,054,340
1,250,000 Placer Dome, Inc., Bond, 8.50%, 12/31/2045 1,326,193
Total 2,380,533
OIL & GAS--2.5%
2,500,000 Bariven SA, Company Guarantee, 10.625%, 3/17/2002 2,672,500
625,494 Centragas, 10.65%, 12/1/2010 663,630
2,000,000 Invergas SA, Note, 12.50%, 12/16/1999 2,115,000
2,000,000 MetroGas S.A., Sr. Note, Series A, 12.00%, 8/15/2000 2,150,000
350,000 Pacalta Resources Ltd., Sr. Note, 10.75%, 6/15/2004 346,500
2,000,000 Petroleo Brasileiro SA, Series B, 10.40%, 6/8/1998 2,010,000
500,000 Transportadora de Gas de Sur S.A., Sr. Note, 10.25%, 4/25/2001 525,625
Total 10,483,255
SOVEREIGN--5.8%
1,000,000 Argentina Global, Bond, 11.375%, 1/30/2017 1,059,000
1,000,000 Bulgaria, 6.6875%, 7/28/2011 715,000
1,000,000 Republic of Pakistan, Bond, 9.86%, 5/30/2000 1,015,000
2,800,000 Republic of Pakistan, Deb., 11.50%, 12/22/1999 2,937,172
3,000,000 (b)Ministry Finance Russia, Unsub. 10.00%, 6/26/2007 2,662,500
1,000,000 (b)Ministry Finance Russia, Unsub. 9.25%, 11/27/2001 960,000
1,000,000 Ministry Finance Russia, Unsub., 9.25%, 11/27/2001 957,500
900,000 Nacional Financiera, SNC, Foreign Gov't. Guarantee, 10.625%,
11/22/2001 967,671
1,000,000 Panama, 7.875%, 2/13/2002 976,250
1,500,000 Swedish Export Credit, 9.875%, 3/15/2038 1,590,630
500,000 Trinidad and Tobago, Unsub., 11.75%, 10/3/2004 608,750
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR FOREIGN
CURRENCY
PAR AMOUNT VALUE
<C> <S> <C>
INTERNATIONAL BONDS--CONTINUED
U.S. DOLLAR--CONTINUED
SOVEREIGN--CONTINUED
$ 850,000 Turkey, 10.00%, 5/23/2002 $ 891,225
1,300,000 Turkey, 10.00%, 9/19/2007 1,275,599
1,000,000 Turkey, Deb., 11.50%, 4/27/1999 1,049,500
3,000,000 Mexican Global, Bond, 9.875%, 1/15/2007 3,102,030
3,750,000 (b)Venezuela, Sr. Unsub., 9.125%, 6/18/2007 3,543,750
Total 24,311,577
STEEL--1.1%
2,250,000 Altos Hornos De Mexico, Bond, 11.875%, 4/30/2004 2,379,375
610,000 Metalurgica Gerdau, Company Guarantee, 10.25%, 11/23/2001 624,030
400,000 Metalurgica Gerdau, Company Guarantee, 11.125%, 5/24/2004 391,840
1,125,000 Tubos de Acero de Mexico SA, Unsub., 13.75%, 12/8/1999 1,260,000
Total 4,655,245
SURFACE TRANSPORTATION--0.4%
1,500,000 (b)Zhuhai Highway, Sub. Note, 11.50%, 7/1/2008 1,620,000
TELECOMMUNICATIONS & CELLULAR--2.1%
1,750,000 CANTV Finance Ltd., Company Guarantee, 9.25%, 2/1/2004 1,736,875
700,000 (b)Comtel Brasileir, Ltd., Note, 10.75%, 9/26/2004 658,875
400,000 (b)MetroNet Communications, Senior Note, Class B, 12.00%, 8/15/2007 454,000
850,000 Philippine Long Distance Telephone Co., Deb., 10.625%, 6/2/2004 879,750
3,280,000 Telefonica de Argentina S.A., Note, 11.875%, 11/1/2004 3,714,600
1,500,000 (b)Telecom Brazil, Collateral Trust, Series EMTN, 11.4375%, 12/9/1999 1,485,000
Total 8,929,100
UTILITIES--1.5%
2,000,000 AES China Generating Co., Note, 10.125%, 12/15/2006 2,020,000
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR FOREIGN
CURRENCY
PAR AMOUNT VALUE
<C> <S> <C>
INTERNATIONAL BONDS--CONTINUED
U.S. DOLLAR--CONTINUED
UTILITIES--CONTINUED
$ 1,850,000 Bridas Corp., Sr. Note, 12.50%, 11/15/1999 $ 1,958,687
2,000,000 (b)CIA Saneamento Basico, Bond, 10.00%, 7/28/2005 1,845,000
500,000 (b)Tenaga Nasional Berhad, Deb., 7.50%, 1/15/2096 427,050
Total 6,250,737
TOTAL U.S. DOLLAR 99,069,542
VENEZUELAN BOLIVAR--0.3%
SOVEREIGN GOVERNMENT--0.3%
650,000,000 Venezuela, 20.78%, 1/8/1998 1,300,202
TOTAL INTERNATIONAL BONDS (IDENTIFIED COST $159,032,822) 153,209,197
U.S. GOVERNMENT/AGENCY--14.6%
LONG-TERM GOVERNMENT OBLIGATIONS--14.6%
209,405 Federal Home Loan Mortgage Corp., 8.50%, 9/1/2025 218,958
444,271 Federal Home Loan Mortgage Corp., 8.50%, 9/1/2025 464,125
76,161 Federal Home Loan Mortgage Corp., 8.50%, 1/1/2026 79,493
2,178,902 Federal Home Loan Mortgage Corp., 8.00%, 6/1/2025 2,257,473
407,142 Federal Home Loan Mortgage Corp., 7.50%, 10/1/2025 416,555
1,913,826 Federal Home Loan Mortgage Corp., 7.50%, 5/1/2026 1,956,294
962,449 Federal Home Loan Mortgage Corp., 7.50%, 8/1/2026 983,806
1,879,965 Federal Home Loan Mortgage Corp., 7.00%, 5/1/2011 1,901,697
880,955 Federal Home Loan Mortgage Corp., 7.00%, 5/1/2011 891,139
2,592,914 Federal Home Loan Mortgage Corp., 7.00%, 7/1/2025 2,613,165
945,072 Federal Home Loan Mortgage Corp., 7.00%, 12/1/2025 950,686
1,395,961 Federal Home Loan Mortgage Corp., 6.50%, 7/1/2011 1,392,471
896,664 Federal Home Loan Mortgage Corp., 6.50%, 3/1/2026 882,003
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
U.S. GOVERNMENT/AGENCY--CONTINUED
LONG-TERM GOVERNMENT OBLIGATIONS--CONTINUED
$ 1,024,453 Federal Home Loan Mortgage Corp., 6.00%, 6/1/2003 $ 1,014,208
3,500,000 (e)Federal National Mortgage Association, 8.00%, TBA 3,620,295
966,075 Federal National Mortgage Association, 8.00%, 10/1/2026 1,000,072
419,331 Federal National Mortgage Association, 7.00%, 5/1/2024 422,346
387,693 Federal National Mortgage Association, 7.00%, 12/1/2010 392,054
2,377,589 Federal National Mortgage Association, 7.00%, 2/1/2024 2,398,393
1,900,000 Federal National Mortgage Association, 7.00%, 2/1/2027 1,904,503
1,938,596 Federal National Mortgage Association, 7.00%, 3/1/2027 1,943,191
1,500,000 Federal National Mortgage Association, 7.00%, 12/1/2027 1,502,340
2,750,000 (e)Federal National Mortgage Association, 6.50%, TBA 2,740,547
883,842 Federal National Mortgage Association, 6.50%, 9/1/2003 884,673
956,556 Federal National Mortgage Association, 6.50%, 2/1/2009 956,260
1,017,374 Federal National Mortgage Association, 6.50%, 12/1/2025 1,001,900
1,584,001 Federal National Mortgage Association, 6.00%, 10/1/2004 1,560,732
1,401,546 Federal National Mortgage Association, 6.00%, 4/1/2011 1,374,945
1,365,314 Government National Mortgage Association, 11.00%, 9/15/2015 1,542,818
209,716 Government National Mortgage Association, 9.50%, 2/15/2025 227,083
184,368 Government National Mortgage Association, 9.00%, 10/15/2016 200,039
3,124,042 Government National Mortgage Association, 9.00%, 11/15/2017 3,389,586
886,061 Government National Mortgage Association, 8.50%, 10/15/2017 943,655
1,746,995 Government National Mortgage Association, 8.00%, 2/15/2010 1,815,233
450,673 Government National Mortgage Association, 8.00%, 6/15/2026 466,726
470,706 Government National Mortgage Association, 8.00%, 6/15/2026 487,472
381,580 Government National Mortgage Association, 8.00%, 8/15/2026 395,890
2,000,000 Government National Mortgage Association, 7.50%, TBA 2,041,880
1,948,224 Government National Mortgage Association, 7.50%, 11/15/2022 2,001,625
395,740 Government National Mortgage Association, 7.50%, 3/15/2024 405,505
675,659 Government National Mortgage Association, 7.50%, 1/15/2026 689,807
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR SHARES VALUE
<C> <S> <C>
U.S. GOVERNMENT/AGENCY--CONTINUED
LONG-TERM GOVERNMENT OBLIGATIONS--CONTINUED
$ 880,594 Government National Mortgage Association, 7.50%, 2/15/2026 $ 900,522
1,907,270 Government National Mortgage Association, 7.50%, 3/15/2026 1,950,431
2,227,502 Government National Mortgage Association, 7.50%, 10/15/2027 2,271,361
2,376,000 Government National Mortgage Association, 7.00%, 11/20/2027 2,369,323
1,996,886 Government National Mortgage Association, 6.50%, 3/15/2024 1,976,299
TOTAL U.S. GOVERNMENT/AGENCY (IDENTIFIED COST $60,913,644) 61,799,579
U.S. TREASURY OBLIGATIONS--3.1%
U.S. TREASURY BONDS--2.4%
2,000,000 United States Treasury Bond, 11.25%, 2/15/2015 3,100,260
5,250,000 United States Treasury Bond, 11.625%, 11/15/2004 6,940,553
Total 10,040,813
U.S. TREASURY NOTE--0.7%
3,000,000 United States Treasury Note, 9.125%, 5/15/1999 3,139,050
TOTAL U.S. TREASURY OBLIGATIONS (IDENTIFIED COST $12,999,297) 13,179,863
COMMON STOCKS--0.0%
NIGERIA--0.0%
SOVEREIGN--0.0%
250 (a)Nigeria Par, Warrants 3
UNITED STATES--0.0%
BUSINESS EQUIPMENT & SERVICES--0.0%
350 (a)(b)Electronic Retailing Systems International, Inc., Warrants,
2/1/2004 21,000
CABLE TELEVISION--0.0%
200 (a)Australis Holdings Property Ltd., Warrants 0
112 (a)Pegasus Communications Corp. 2,471
500 (a)Pegasus Communications Corp., Warrants, 1/1/2007 16,250
150 (a)Wireless One, Inc., Warrants, 10/19/2000 0
Total 18,721
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS--CONTINUED
UNITED STATES--CONTINUED
CHEMICALS & PLASTICS--0.0%
400 (a)Sterling Chemicals Holdings, Inc., Warrants $ 15,200
1,000 (a)Uniroyal Technology Corp., Warrants 3,625
Total 18,825
CONSUMER PRODUCTS--0.0%
100 (a)(b)IHF Capital, Inc., Warrants, 11/14/1999 5,050
ECOLOGICAL SERVICES & EQUIPMENT--0.0%
480 (a)ICF Kaiser International, Inc., Warrants, 12/31/1998 180
STEEL--0.0%
50 (a)(b)Bar Technologies, Inc., Warrants, 4/1/2001 3,000
TELECOMMUNICATIONS & CELLULAR--0.0%
700 (a)Cellular Communications International, Inc., Warrants, 8/15/2003 14,000
250 (a)HighwayMaster Communications, Inc., Warrants, 1/1/2049 0
1,200 (a)NEXTEL Communications, Inc., Class A 30,300
Total 44,300
TOTAL UNITED STATES 111,076
VENEZUELA--0.0%
SOVEREIGN--0.0%
7,500 (a)Venezuela Rep Oil Linked, Warrants, 8/4/2020 0
TOTAL COMMON STOCKS (IDENTIFIED COST $51,646) 111,079
PREFERRED STOCKS--1.7%
BANKING--0.1%
12,000 California Federal Preferred Capital Corp., REIT Perpetual Pfd.
Stock, Series A, 9.125%, 1/31/2097 319,500
BROADCAST RADIO & TV--0.7%
6,254 American Radio Systems Corp., PIK Pfd., 11.375%, 1/15/2009 737,962
4,250 Capstar Broadcasting Partners, Inc., Sr. Pfd., 12.00%, 7/1/2009 479,187
6,988 Chancellor Media Corp., Exchangeable Pfd. Stock, 12.00%, 1/15/2009 828,102
2,750 SFX Broadcasting, Inc., Exchangeable Pfd. Stock, Series E,
10/31/2006 323,125
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
PREFERRED STOCKS--CONTINUED
UNITED STATES--CONTINUED
BROADCAST RADIO & TV--CONTINUED
4,200 Sinclair Capital, Inc., Pfd., 11.63%, 3/15/2009 $ 464,100
Total 2,832,476
CABLE TELEVISION--0.2%
100 (b)Echostar Communications Corp., Sr. Red. Pfd. Stk., 12.13%, 7/1/2004 103,500
647 Pegasus Communications Corp., PIK Pfd., Series A, 12.75%, 1/1/2007 714,935
Total 818,435
INDUSTRIAL PRODUCTS & EQUIPMENT--0.1%
500 Fairfield Manufacturing Co., Inc., Exchangeable Pfd. Stock, 11.25%,
3/15/2009 532,500
PRINTING & PUBLISHING--0.2%
3,450 (b)Primedia, Inc., Series E, Pfd., 9.20%, 11/1/2009 345,863
1,959 Primedia, Inc., Pfd., Series B, 11.63%, 5/1/2005 209,613
3,500 Primedia, Inc., Pfd., Series D, 10.00%, 2/1/2008 363,125
Total 918,601
REAL ESTATE--0.3%
5,000 Crown American Realty Trust, Sr. Pfd., Series A, 11.00%, 7/31/2097 264,375
1,000 Highwoods Properties, Inc., REIT Perpetual Pfd. Stock, Series A,
8.625%, 12/31/2049 1,102,500
Total 1,366,875
TELECOMMUNICATIONS & CELLULAR--0.1%
206 (b)NEXTEL Communications, Inc., Pfd., Series D, 13%, 7/15/2009 229,764
TOTAL PREFERRED STOCKS (IDENTIFIED COST $6,422,435) 7,018,151
(C)REPURCHASE AGREEMENTS--4.4%
$ 6,915,000 BT Securities Corp., 5.73%, dated 11/28/1997, due 12/1/1997 6,915,000
2,000,000 (f)Credit Suisse First Boston, Inc., 5.55%, dated 11/10/1997,
due 12/17/1997 2,000,000
3,500,000 (f)Morgan Stanley Group, Inc., 5.55%, dated 11/10/1997,
due 12/11/1997 3,500,000
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(C)REPURCHASE AGREEMENTS--CONTINUED
$ 2,750,000 (f)Swiss Bank Capital Markets, 5.55%, dated 11/12/1997,
due 12/15/1997 $ 2,750,000
3,500,000 (f)(g)UBS Securities, Inc., 5.70%, dated 11/24/1997, due 1/14/1998 3,500,000
TOTAL REPURCHASE AGREEMENTS (AT AMORTIZED COST) 18,665,000
TOTAL INVESTMENTS (IDENTIFIED COST $421,079,630)(D) $ 423,348,297
</TABLE>
(a) Non-income producing security.
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At November 30, 1997, these securities amounted
to $46,746,504 which represents 11.1% of net assets.
(c) The repurchase agreements are fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investments in the repurchase agreements are through participation in joint
accounts with other Federated funds.
(d) The cost of investments for federal tax purposes amounts to $421,084,130.
The net unrealized appreciation of investments on a federal tax basis amounts to
$2,264,167 which is comprised of $10,613,316 appreciation and $8,349,149
depreciation at November 30, 1997.
(e) Security is subject to dollar roll transactions.
(f) Although final maturity falls beyond seven days, a liquidity feature is
included in each transaction to permit termination within seven days if the
creditworthiness of the issuer is downgraded.
(g) Represents a forward commitment for the delayed delivery of securities,
which will settle and be collateralized on December 11, 1997. The fair value of
the forward commitment approximates the contract amount at November 30, 1997.
Risks may arise upon entering these contracts from the potential inability of
counterparts to meet the terms of their contracts and from unanticipated
movements in security prices.
Note: The categories of investments are shown as a percentage of net assets
($422,045,263) at November 30, 1997.
The following acronyms are used throughout this portfolio:
BIG --Bond Investors Guaranty
FSA --Financial Security Assurance
GO --General Obligation
GTD --Guaranty
INS --Insured
LLC --Limited Liability Corporation
LP --Limited Partnership
MBIA --Municipal Bond Investors Assurance
PIK --Payment in Kind
PLC --Public Limited Company
REIT --Real Estate Investment Trust
SA --Support Agreement
TBA --To Be Announced
TRANs --Tax and Revenue Anticipation Notes
UT --Unlimited Tax
(See Notes which are an integral part of the Financial Statements)
FEDERATED STRATEGIC INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1997
<TABLE>
<S> <C> <C>
ASSETS:
Investments in securities, at value (identified cost $421,079,630, and tax cost $ 423,348,297
$421,084,130)
Cash 1,248
Cash denominated in foreign currencies (cost $168,776) 164,496
Income receivable 9,131,045
Receivable for investments sold 2,061,408
Receivable for shares sold 6,159,452
Deferred organizational costs 63,232
Deferred expenses 11,590
Total assets 440,940,768
LIABILITIES:
Payable for investments purchased $ 9,821,586
Payable for shares redeemed 927,242
Income distribution payable 1,386,255
Payable for dollar roll transactions 6,360,718
Accrued expenses 399,704
Total liabilities 18,895,505
NET ASSETS for 40,560,032 shares outstanding $ 422,045,263
NET ASSETS CONSIST OF:
Paid in capital $ 418,294,375
Net unrealized appreciation of investments and translation of assets and
liabilities 2,205,083
in foreign currency
Accumulated net realized gain on investments and foreign currency transactions 2,068,045
Distributions in excess of net investment income (522,240)
Total Net Assets $ 422,045,263
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
CLASS A SHARES:
Net Asset Value Per Share ($58,269,827 / 5,598,970 shares outstanding) $10.41
Offering Price Per Share (100/95.50 of $10.41)* $10.90
Redemption Proceeds Per Share $10.41
CLASS B SHARES:
Net Asset Value Per Share ($304,746,056 / 29,288,655 shares outstanding) $10.40
Offering Price Per Share $10.40
Redemption Proceeds Per Share (94.50/100 of $10.40)** $ 9.83
CLASS C SHARES:
Net Asset Value Per Share ($29,266,921 / 2,812,473 shares outstanding) $10.41
Offering Price Per Share $10.41
Redemption Proceeds Per Share (99.00/100 of $10.41)** $10.31
CLASS F SHARES:
Net Asset Value Per Share ($29,762,459 / 2,859,934 shares outstanding) $10.41
Offering Price Per Share (100/99.00 of $10.41)* $10.52
Redemption Proceeds Per Share (99.00/100 of $10.41)** $10.31
</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
YEAR ENDED NOVEMBER 30, 1997
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 324,888
Interest (net of dollar roll expense of $42,371) (net of 26,387,655
foreign taxes withheld of $20,101)
Total income 26,712,543
EXPENSES:
Investment advisory fee $2,385,950
Administrative personnel and services fee 214,990
Custodian fees 88,552
Transfer and dividend disbursing agent fees and expenses 290,043
Directors'/Trustees' fees 4,099
Auditing fees 14,794
Legal fees 5,201
Portfolio accounting fees 125,930
Distribution services fee--Class B Shares 1,496,166
Distribution services fee--Class C Shares 126,860
Distribution services fee--Class F Shares 118,741
Shareholder services fee--Class A Shares 101,371
Shareholder services fee--Class B Shares 498,722
Shareholder services fee--Class C Shares 42,286
Shareholder services fee--Class F Shares 59,371
Share registration costs 125,875
Printing and postage 81,338
Insurance premiums 6,165
Taxes 32,038
Miscellaneous 50,694
Total expenses 5,869,186
Waivers and reimbursements--
Waiver of investment advisory fee $ (1,027,369)
Waiver of distribution services fee--Class F Shares (118,741)
Total waivers (1,146,110)
Net expenses 4,723,076
Net investment income 21,989,467
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY:
Net realized gain on investments and foreign currency 1,227,157
transactions
Net change in unrealized appreciation of investments and
translation of assets and
liabilities in foreign currency (2,824,267)
Net realized and unrealized loss on investments and (1,597,110)
foreign currency
Change in net assets resulting from operations $ 20,392,357
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED STRATEGIC INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 21,989,467 $ 5,911,043
Net realized gain (loss) on investments and foreign currency
transactions ($1,918,221 and
$711,312, respectively, as computed for federal tax purposes) 1,227,157 688,404
Net change in unrealized appreciation/depreciation of investments
and translation of assets
and liabilities in foreign currency (2,824,267) 4,697,703
Change in net assets resulting from operations 20,392,357 11,297,150
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Class A Shares (3,371,345) (924,874)
Class B Shares (15,066,810) (3,785,124)
Class C Shares (1,268,365) (435,543)
Class F Shares (2,059,642) (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 (22,294,641) (6,094,947)
SHARE TRANSACTIONS--
Proceeds from sale of shares 274,742,668 160,543,684
Net asset value of shares issued to shareholders in payment of 10,438,073 2,826,955
distributions declared
Cost of shares redeemed (37,121,071) (8,980,231)
Change in net assets resulting from share transactions 248,059,670 154,390,408
Change in net assets 246,157,386 159,592,611
NET ASSETS:
Beginning of period 175,887,877 16,295,266
End of period $ 422,045,263 $ 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>
YEAR ENDED 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 0.87(f) 0.91 0.82 0.45
Net realized and unrealized gain (loss) on
investments and
foreign currency (0.03) 0.42 0.61 (0.45)
Total from investment operations 0.84 1.33 1.43 0.00
LESS DISTRIBUTIONS
Distributions from net investment income (0.87) (0.89) (0.83) (0.45)
Distributions in excess of net investment -- (0.03) -- (0.01)
income(b)
Distributions from net realized gain on
investments and
foreign currency transactions (0.03) (0.08) -- --
Total distributions (0.90) (1.00) (0.83) (0.46)
NET ASSET VALUE, END OF PERIOD $10.41 $10.47 $10.14 $ 9.54
TOTAL RETURN(C) 8.33% 13.89% 15.64% 0.05%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.10% 1.05% 0.25% 0.25%*
Net investment income 8.40% 8.54% 8.68% 8.38%*
Expense waiver/reimbursement(d) 0.36% 0.98% 5.69%(e) 8.87%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $58,270 $28,021 $5,089 $2,366
Portfolio turnover 40% 47% 158% 34%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from May 4, 1994 (date of initial public
investment) to November 30, 1994.
(b) Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These distributions do
not represent a return of capital for federal income tax purposes.
(c) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(e) The Adviser waived $80,712 of the investment advisory fee and reimbursed
other operating expenses of $221,544, which represents 0.85% and 2.33% of
average net assets, respectively, to comply with certain state expense
limitations. The remainder of the reimbursement was voluntary. This expense
decrease is reflected in both the expense and net investment income ratios shown
above.
(f) Per share information is based on average shares outstanding.
(See Notes which are an integral part of the Financial Statements)
FEDERATED STRATEGIC INCOME FUND
FINANCIAL HIGHLIGHTS--CLASS B SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
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 0.79(f) 0.83 0.25
Net realized and unrealized gain (loss) on investments and
foreign currency (0.04) 0.42 0.13
Total from investment operations 0.75 1.25 0.38
LESS DISTRIBUTIONS
Distributions from net investment income (0.79) (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 (0.82) (0.92) (0.24)
NET ASSET VALUE, END OF PERIOD $10.40 $10.47 $10.14
TOTAL RETURN(C) 7.53% 13.03% 5.13%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.85% 1.80% 1.00%*
Net investment income 7.67% 7.80% 7.95%*
Expense waiver/reimbursement(d) 0.37% 0.98% 5.69%(e)*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $304,746 $120,020 $5,193
Portfolio turnover 40% 47% 158%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from July 27, 1995 (date of initial
public investment) to November 30, 1995.
(b) Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These distributions do
not represent a return of capital for federal income tax purposes.
(c) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(e) The Adviser waived $80,712 of the investment advisory fee and reimbursed
other operating expenses of $221,544, which represents 0.85% and 2.33% of
average net assets, respectively, to comply with certain state expense
limitations. The remainder of the reimbursement was voluntary. This expense
decrease is reflected in both the expense and net investment income ratios shown
above.
(f) Per share information is based on average shares outstanding.
(See Notes which are an integral part of the Financial Statements)
FEDERATED STRATEGIC INCOME FUND
FINANCIAL HIGHLIGHTS--CLASS C SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
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 0.79(f) 0.82 0.74 0.40
Net realized and unrealized gain (loss) on
investments and
foreign currency (0.03) 0.43 0.61 (0.44)
Total from investment operations 0.76 1.25 1.35 (0.04)
LESS DISTRIBUTIONS
Distributions from net investment income (0.79) (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 (0.82) (0.92) (0.75) (0.42)
NET ASSET VALUE, END OF PERIOD $10.41 $10.47 $10.14 $ 9.54
TOTAL RETURN(C) 7.53% 13.05% 14.79% (0.41%)
RATIOS TO AVERAGE NET ASSETS
Expenses 1.86% 1.80% 1.00% 1.00%*
Net investment income 7.69% 7.70% 7.93% 7.99%*
Expense waiver/reimbursement(d) 0.37% 0.98% 5.69%(e) 8.87%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $29,267 $10,481 $2,323 $1,190
Portfolio turnover 40% 47% 158% 34%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from May 2, 1994 (date of initial public
investment) to November 30, 1994.
(b) Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These distributions do
not represent a return of capital for federal income tax purposes.
(c) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(e) The Adviser waived $80,712 of the investment advisory fee and reimbursed
other operating expenses of $221,544, which represents 0.85% and 2.33% of
average net assets, respectively, to comply with certain state expense
limitations. The remainder of the reimbursement was voluntary. This expense
decrease is reflected in both the expense and net investment income ratios shown
above.
(f) Per share information is based on average shares outstanding.
(See Notes which are an integral part of the Financial Statements)
FEDERATED STRATEGIC INCOME FUND
FINANCIAL HIGHLIGHTS--CLASS F SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
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 0.87(f) 0.95 0.77 0.41
Net realized and unrealized gain (loss) on
investments and
foreign currency (0.03) 0.37 0.61 (0.44)
Total from investment operations 0.84 1.32 1.38 (0.03)
LESS DISTRIBUTIONS
Distributions from net investment income (0.87) (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 (0.90) (0.99) (0.78) (0.43)
NET ASSET VALUE, END OF PERIOD $10.41 $10.47 $10.14 $ 9.54
TOTAL RETURN(C) 8.33% 13.83% 15.07% (0.19%)
RATIOS TO AVERAGE NET ASSETS
Expenses 1.10% 1.07% 0.75% 0.75%*
Net investment income 8.38% 8.48% 8.19% 8.34%*
Expense waiver/reimbursement(d) 0.86% 1.46% 5.69%(e) 8.87%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $29,762 $17,367 $3,691 $2,326
Portfolio turnover 40% 47% 158% 34%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from May 10, 1994 (date of initial public
investment) to November 30, 1994.
(b) Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These distributions do
not represent a return of capital for federal income tax purposes.
(c) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(e) The Adviser waived $80,712 of the investment advisory fee and reimbursed
other operating expenses of $221,544, which represents 0.85% and 2.33% of
average net assets, respectively, to comply with certain state expense
limitations. The remainder of the reimbursement was voluntary. This expense
decrease is reflected in both the expense and net investment income ratios shown
above.
(f) Per share information is based on average shares outstanding.
(See Notes which are an integral part of the Financial Statements)
FEDERATED STRATEGIC INCOME FUND
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1997
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 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.
Income and capital gain distributions are determined in accordance with income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments for foreign currency
transactions. The following reclassifications have been made to the financial
statements:
INCREASE (DECREASE)
ACCUMULATED ACCUMULATED
NET REALIZED DISTRIBUTIONS IN EXCESS OF
GAIN/LOSS NET INVESTMENT INCOME
$664,799 ($664,799)
Net investment income, net realized gains/losses, and net assets were not
affected by this reclassification.
FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
Withholding taxes on foreign 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.
FORWARD COMMITMENTS -- The Fund may enter into forward foreign exchange
contracts which are based upon financial indices at a fixed price and exchange
rate at a future date. Risks may arise upon entering these contracts from the
potential inability of counterparts to meet the terms of their contracts and
from unanticipated movements in security prices and foreign exchange rates. The
forward foreign currency exchange contracts are adjusted by the daily exchange
rate of the underlying currency and any gains or losses are recorded for
financial statement purposes as unrealized until the contract settlement date.
At November 30, 1997, the Fund had no outstanding forward commitments.
FOREIGN CURRENCY TRANSLATION -- The accounting records of the Fund are
maintained in U.S. dollars. All assets and liabilities denominated in foreign
currencies ("FC") are translated into U.S. dollars based on the rate of exchange
of such currencies against U.S. dollars on the date of valuation. Purchases and
sales of securities, income, and expenses are translated at the rate of exchange
quoted on the respective date that such transactions are recorded. Differences
between income and expense amounts recorded and collected or paid are adjusted
when reported by the custodian bank. The Fund does not isolate that portion of
the results of operations resulting from changes in foreign exchange rates on
investments from the fluctuations arising from changes in market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales of
FCs, currency gains or losses realized between the trade and settlement dates on
securities transactions, the difference between the amounts of dividends,
interest, and foreign withholding taxes recorded on the Fund's books, and the
U.S. dollar equivalent of the amounts actually received or paid. Net unrealized
foreign exchange gains and losses arise from changes in the value of assets and
liabilities other than investments in securities at fiscal year end, resulting
from changes in the exchange rate.
DOLLAR ROLL TRANSACTIONS -- The Fund enters into dollar roll transactions, with
respect to mortgage securities issued by GNMA, FNMA and FHLMC, in which the Fund
sells mortgage securities to financial institutions and simultaneously agrees to
accept substantially similar (same type, coupon and maturity) securities at a
later date at an agreed-upon price. Dollar roll transactions are short-term
financing arrangements which will not exceed twelve months. The Fund will use
the proceeds generated from the transactions to invest in short-term
investments, which may enhance the Fund's current yield and total return.
RESTRICTED SECURITIES -- Restricted securities are securities that may only be
resold upon registration under federal securities laws or in transactions exempt
from such registration. In some cases, the issuer of restricted securities has
agreed to register such securities for resale, at the issuer's expense either
upon demand by the Fund or in connection with another registered offering of the
securities. Many restricted securities may be resold in the secondary market in
transactions exempt from registration. Such restricted securities may be
determined to be liquid under criteria established by the Directors. The Fund
will not incur any registration costs upon such resales. The Fund's restricted
securities are valued at the price provided by dealers in the secondary market
or, if no market prices are available, at the fair value as determined by the
Fund's pricing committee.
Additional information on each restricted security held at November 30, 1997 is
as follows:
SECURITY ACQUISITION DATE ACQUISITION
COST
ACME Television, LLC 9/24/1997 $520,318
Fox/Liberty Networks, LLC 8/15/1997-10/3/1997 723,202
Fox/Liberty Networks, LLC 8/15/1997 375,000
Dialog Corp. PLC 11/10/1997 650,000
Electronic Retailing Systems
International, Inc. 1/21/1997 253,324
FrontierVision Holdings, L.P. 9/16/1997-10/20/1997 419,410
Pegasus Communications Corp. 10/16/1997 300,750
Reliance Industries Ltd. 1/10/1997 1,250,000
Dyersburg Corp. 9/3/1997-9/15/1997 430,313
Glenoit Corp. 3/26/1997-8/19/1997 590,615
NBTY, Inc. 9/17/1997-10/20/1997 845,438
Allied Waste Industries, Inc. 5/1/1997-5/12/1997 409,106
Viasystems, Inc. 6/2/1997-7/17/1997 507,313
Community Distributors, Inc. 10/10/1997 250,000
Jitney-Jungle Stores of America, 9/10/1997-9/15/1997 352,188
Inc.
AmeriServe Food Distribution, Inc. 10/8/1997 450,000
AmeriServe Food Distribution, Inc. 7/9/1997-10/16/1997 1,338,250
Werner Enterprises, Inc. 11/14/1997 350,000
CapStar Hotel Co. 8/14/1997 349,531
Elgin National Industries, Inc. 11/3/1997 150,000
Johnstown America Industries, Inc. 10/21/1996-8/6/1997 315,375
Roller Bearing Co. of America, Inc. 10/18/1997 125,000
Equitable Life 10/17/1996 993,550
Life Re Capital Trust I 6/6/1997 1,000,000
USF&G Corp. 7/3/1997 500,000
Union Central Life Insurance Co. 10/31/1996 994,780
Livent, Inc. 10/10/1997-11/4/1997 604,375
National Equipment Services, Inc. 11/20/1997 419,760
AEI Holding Co., Inc. 11/7/1997 353,500
Anker Coal Group, Inc. 9/22/1997 150,000
Dailey Petroleum Services Corp. 8/14/1997 328,411
Petsec Energy, Inc. 6/6/1997-7/30/1997 251,176
United Refining Co. 6/4/1997-7/7/1997 300,750
XCL, Ltd. 5/13/1997 275,000
Garden State Newspapers, Inc. 9/26/1997 621,344
Leslie's Poolmart, Inc. 6/6/1997-7/8/1997 409,531
Coinmach Corp. 10/1/1997 549,375
Allied Holdings, Inc. 9/19/1997 125,000
American Communications
Services, Inc. 7/18/1997 200,000
SECURITY ACQUISITION DATE ACQUISITION
COST
Hermes Europe Railtel B.V. 8/14/1997-10/27/1997 $ 652,406
HighwayMaster Communications, Inc. 9/18/1997 253,375
Intermedia Communications
of Florida, Inc. 5/8/1996-4/22/1997 1,113,616
McLeod, Inc. 7/15/1997 450,000
MetroNet Communications 10/23/1997-10/24/1997 457,400
NEXTEL Communications, Inc. 9/10/1997-11/5/1997 305,512
Qwest Communications
International, Inc. 10/9/1997 127,480
RCN Corp. 10/10/1997 383,409
Source Media, Inc. 10/24/1997 225,000
Telesystem International Wireless, 10/22/1997 272,666
Inc.
Telesystem International Wireless, 6/24/1997-7/7/1997 534,787
Inc.
Teligent, Inc. 11/21/1997 625,000
Metro Toronto 9/18/1996 723,341
Microcell Telecommunications 10/8/1997 644,357
ITT Promedia 9/19/1997 843,977
Road King Infrastructure 6/27/1997 994,230
Hutchison Whampoa Finance
Company Guarantee 8/1/1997 1,003,550
Pera Financial Services Co. 10/7/1997 1,000,000
Unexim Int'l. Finance B.V. 8/7/1997 501,900
Government of Jamaica 6/26/1997 249,465
Oblast Nizhniy Novgorod 9/19/1997 997,420
GS Superhighway 8/4/1997 1,490,235
Sharp Do Brazil SA Industrial 10/21/1997 499,040
Ministry Finance Russia 6/19/1997-10/20/1997 3,065,050
Ministry Finance Russia 10/2/1997 1,046,250
Venezuela 6/10/1997-11/24/1997 3,472,936
Zhuhai Highway Co. Ltd. 8/16/1996-9/17/1996 1,545,938
Comtel Brasileir Ltd. 12/6/1996 721,000
MetroNet Communications Corp. 7/18/1997-7/22/1997 412,500
Telecom Brazil FDG Corp. 4/18/1996-5/30/1996 1,543,125
CIA Saneamento Basico Companhia 7/23/1997-10/14/1997 2,007,500
Tenaga Nasional Berhad 3/3/1997 474,925
Electronic Retailing Systems
International 1/21/1997 253,324
IHF Capital, Inc. 11/4/1994 494
Bar Technologies, Inc. 8/27/1996 2,794
Echostar Communications Corp. 9/26/1997 100,000
Primedia, Inc. 9/22/1997-11/6/1997 346,488
NEXTEL Communications, Inc. 7/16/1997 200,000
USE OF ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts of assets, liabilities, expenses and
revenues reported in the financial statements. Actual results could differ from
those estimated.
OTHER -- Investment transactions are accounted for on the trade date.
3. CAPITAL STOCK
At November 30, 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 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
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1997 1996
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 3,554,270 $ 37,128,584 2,290,977 $ 23,397,580
Shares issued to shareholders in
payment of
distributions declared 161,170 1,680,439 47,188 480,390
Shares redeemed (793,629) (8,275,591) (163,057) (1,660,810)
Net change resulting from Class A
Share
transactions 2,921,811 $ 30,533,432 2,175,108 $ 22,217,160
<CAPTION>
YEAR ENDED NOVEMBER 30,
1997 1996
CLASS B SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 19,240,645 $ 200,824,425 11,345,851 $ 115,125,074
Shares issued to shareholders
in
payment of distributions 685,049 7,140,397 170,336 1,739,077
declared
Shares redeemed (2,103,020) (21,931,007) (562,289) (5,646,436)
Net change resulting from
Class B Share
transactions 17,822,674 $ 186,033,815 10,953,898 $ 111,217,715
<CAPTION>
YEAR ENDED NOVEMBER 30,
1997 1996
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 2,113,138 $ 22,111,893 824,314 $ 8,385,573
Shares issued to shareholders in
payment of distributions declared 70,259 732,691 27,616 280,927
Shares redeemed (371,891) (3,877,196) (80,120) (815,841)
Net change resulting from Class C
Share
transactions 1,811,506 $ 18,967,388 771,810 $ 7,850,659
<CAPTION>
YEAR ENDED NOVEMBER 30,
1997 1996
CLASS F SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 1,408,149 $ 14,677,766 1,347,566 $ 13,635,457
Shares issued to shareholders
in
payment of distributions 84,898 884,546 32,001 326,561
declared
Shares redeemed (291,731) (3,037,277) (84,996) (857,144)
Net change resulting from Class
F Share
transactions 1,201,316 12,525,035 1,294,571 $ 13,104,874
Net change resulting from
share
transactions 23,757,307 $ 248,059,670 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. This fee is paid by the Adviser out of its resources
and is not an incremental Fund expense.
ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of average
aggregate daily net assets of all funds advised by subsidiaries of Federated
Investors for the period. The administrative fee received during the period of
the Administrative Services Agreement shall be at least $125,000 per portfolio
and $30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE -- The Fund has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the
Fund will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended to
result in the sale of the Fund's Class B Shares, Class C Shares, and Class F
Shares. The Plan provides that the Fund may incur distribution expenses
according to the following schedule annually, to compensate FSC.
PERCENTAGE OF
AVERAGE DAILY NET
SHARE CLASS NAME 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 FSSC is based on the
size, type, and number of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES -- FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES -- Organizational expenses of $150,096 were borne
initially by the Adviser. The Fund has reimbursed the Adviser for these
expenses. These expenses have been deferred and are being amortized over the
five-year period following the Fund's effective date. For the year ended
November 30, 1997, the Fund expensed $36,719 of organizational expenses.
GENERAL -- Certain of the Officers and Directors of the Corporation are Officers
and Directors or Trustees of the above companies.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended November 30, 1997, were as follows:
PURCHASES $342,126,239
SALES $108,726,664
6. CONCENTRATION OF CREDIT RISK
The Fund invests in securities of non-U.S. issuers. Although the Fund maintains
a diversified investment portfolio, the political or economic developments
within a particular country or region may have an adverse effect on the ability
of domiciled issuers to meet their obligations. Additionally, political or
economic developments may have an effect on the liquidity and volatility of
portfolio securities and currency holdings.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of FIXED INCOME SECURITIES, INC.
and the Shareholders of FEDERATED STRATEGIC INCOME FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Federated Strategic Income Fund (a portfolio of
Fixed Income Securities, Inc.) as of November 30, 1997, the related statement of
operations for the year then ended, the statement of changes in net assets for
the years ended November 30, 1997 and 1996, and the financial highlights for
each of the periods presented. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
November 30, 1997, by correspondence with the custodian and brokers; where
replies were not received, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Federated Strategic
Income Fund as of November 30, 1997, the results of its operations, the changes
in its net assets and its financial highlights for the respective stated periods
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
January 16, 1998
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
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 investment risk,
including possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus, which contains facts
concerning its objective and policies, management fees, expenses, and other
information.
Federated Investors
Federated Securities Corp., Distributor
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Cusip 338319700
Cusip 338319866
Cusip 338319809
Cusip 338319882
G00324-02 (1/98)
[Graphic]
Appendix
A1. The graphic presentation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The color coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects computation periods from 1/13/92
to 11/30/97. The "y" axis is measured in increments of $2,000 ranging from $0 to
$10,000 and indicates that the ending value of hypothetical initial investment
of $6,000 in Federated Limited Term Fund's Class A Shares, assuming a 1.00%
sales charge and the reinvestment of all capital gains and dividends, would have
grown to $8,350 on 11/30/97.
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 1/13/92
to 11/30/97. The "y" axis is measured in increments of $2,000 ranging from $0 to
$8,000 and indicates that the ending value of hypothetical yearly investments of
$1,000 in Federated Limited Term Fund's Class A Shares, assuming the
reinvestment of all capital gains and dividends, would have grown to $7,260 on
11/30/97.
A3. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class A
Shares of Federated Limited Term Fund based on a 1.00% sales charge are
represented by a solid line. The Merrill Lynch 1-3 Year Short-Term Corporate
Index (the "MLSTC") is represented by a dotted line. The Lipper Short Investment
Grade Debt Funds Average (the "LSIGDFA") is represented by a broken line. The
line graph is a visual representation of a comparison of change in value of a
$10,000 hypothetical investment in the Class A Shares of the fund and the MLSTC
and the LSIGDFA. The "x" axis reflects computation periods from 1/13/92 to
11/30/97. The "y" axis reflects the cost of the investment. The right margin
reflects the ending value of the hypothetical investment in the fund's Class A
Shares based on a 1.00% sales charge, as compared to the MLSTC and the LSIGDFA;
the ending values were $13,916, $14,707, and $13,826, respectively. The legend
in the bottom quadrant of the graphic presentation indicates the fund's Class A
Shares Average Annual Total Returns for the period ended 11/30/97, beginning
with the inception date of the fund (1/13/92), and the one-year and five-year
periods thereafter, the Average Annual Total Returns were 5.78%, 5.46, and
5.75%, respectively.
A4. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class F
Shares of Federated Limited Term Fund based on a 1.00% sales charge and 1.00%
contingent deferred sales charge are represented by a solid line. The Merrill
Lynch 1-3 Year Short-Term Corporate Index (the "MLSTC") is represented by a
dotted line. The Lipper Short Investment Grade Debt Funds Average (the
"LSIGDFA") is represented by a broken line. The line graph is a visual
representation of a comparison of change in value of a $10,000 hypothetical
investment in the Class F Shares of the fund and the MLSTC and the LSIGDFA. The
"x" axis reflects computation periods from 8/31/93 to 11/30/97. The "y" axis
reflects the cost of the investment. The right margin reflects the ending value
of the hypothetical investment in the fund's Class F Shares based on a 1.00%
sales charge and a 1.00% contingent deferred sales charge, as compared to the
MLSTC and the LSIGDFA; the ending values were $12,369, $12,893, and $12,302,
respectively. The legend in the bottom quadrant of the graphic presentation
indicates the fund's Class F Shares Average Annual Total Returns for the period
ended 11/30/97, beginning with the inception date of the fund (8/31/93), and the
one-year period thereafter, the Average Annual Total Returns were 5.14%, and
4.51%, respectively.
A5. The graphic presentation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The color coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects computation periods from 9/1/93
to 11/30/97. The "y" axis is measured in increments of $2,500 ranging from $0 to
$7,500 and indicates that the ending value of hypothetical initial investment of
$5,000 in Federated Limited Term Municipal Fund's Class A Shares, assuming a
1.00% sales charge and the reinvestment of all capital gains and dividends,
would have grown to $5,820 on 11/30/97.
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 11/30/97. The "y" axis is measured in increments of $1,300 ranging from $0 to
$6,500 and indicates that the ending value of hypothetical yearly investments of
$1,000 in Federated Limited Term Municipal Fund's Class A Shares, assuming the
reinvestment of all capital gains and dividends, would have grown to $5,432 on
11/30/97.
A7. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class A
Shares of Federated Limited Term Municipal Fund based on a 1.00% sales charge
are represented by a solid line. The Lehman Brothers Three-Year Municipal Bond
Index (the "LB3YRMB") is represented by a dotted line. The line graph is a
visual representation of a comparison of change in value of a $10,000
hypothetical investment in the Class A Shares of the fund and the LB3YRMB. The
"x" axis reflects computation periods from 9/1/93 to 11/30/97. The "y" axis
reflects the cost of the investment. The right margin reflects the ending value
of the hypothetical investment in the fund's Class A Shares based on a 1.00%
sales charge, as compared to the LB3YRMB; the ending values were $11,641, and
$12,184, respectively. The legend in the bottom quadrant of the graphic
presentation indicates the fund's Class A Shares Average Annual Total Returns
for the period ended 11/30/97, beginning with the inception date of the fund
(9/1/93), and the one-year period thereafter, the Average Annual Total Returns
were 3.64%, and 3.39%, respectively.
A8. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class F
Shares of Federated Limited Term Municipal Fund based on a 1.00% sales charge
and 1.00% contingent deferred sales charge are represented by a solid line. The
Lehman Brothers Three-Year Municipal Bond Index (the "LB3YRMB") is represented
by a dotted line. The line graph is a visual representation of a comparison of
change in value of a $10,000 hypothetical investment in the Class F Shares of
the fund and the LB3YRMB. The "x" axis reflects computation periods from 9/1/93
to 11/30/97. The "y" axis reflects the cost of the investment. The right margin
reflects the ending value of the hypothetical investment in the fund's Class F
Shares based on a 1.00% sales charge and a 1.00% contingent deferred sales
charge, as compared to the LB3YRMB; the ending values were $11,750, and $12,184,
respectively. The legend in the bottom quadrant of the graphic presentation
indicates the fund's Class F Shares Average Annual Total Returns for the period
ended 11/30/97, beginning with the inception date of the fund (9/1/93), and the
one-year period thereafter, the Average Annual Total Returns were 4.11%, and
3.65%, respectively.
A9. The graphic presentation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The color coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects computation periods from 5/4/94
to 11/30/97. The "y" axis is measured in increments of $800 ranging from $0 to
$6,400 and indicates that the ending value of hypothetical initial investment of
$4,000 in 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 $5,448 on 11/30/97.
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 above it. The "x" axis reflects computation periods from 5/4/94
to 11/30/97. The "y" axis is measured in increments of $800 ranging from $0 to
$5,600 and indicates that the ending value of hypothetical yearly investments of
$1,000 in Federated Strategic Income Fund's Class A Shares, assuming the
reinvestment of all capital gains and dividends, would have grown to $4,735 on
11/30/97.
A11. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class A
Shares of Federated Strategic Income Fund based on a 4.50% sales charge are
represented by a solid line. The Lehman Brothers Government/Corpotate Bond Index
(the "LBG/CBI") is represented by a dotted line. The Lipper Multi-Sector Income
Funds Average (the "LMSIFA") is represented by a broken line. The line graph is
a visual representation of a comparison of change in value of a $10,000
hypothetical investment in the Class A Shares of the fund and the LBG/CBI and
the LMSIFA. The "x" axis reflects computation periods from 5/4/94 to 11/30/97.
The "y" axis reflects the cost of the investment. The right margin reflects the
ending value of the hypothetical investment in the fund's Class A Shares based
on a 4.50% sales charge, as compared to the LBG/CBI and the LMSIFA; the ending
values were $13,621, $13,390, and $13,827, respectively. The legend in the
bottom quadrant of the graphic presentation indicates the fund's Class A Shares
Average Annual Total Returns for the period ended 11/30/97, beginning with the
inception date of the fund (5/4/94), and the one-year period thereafter, the
Average Annual Total Returns were 9.03%, and 3.49%, respectively.
A12. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class B
Shares of Federated Strategic Income Fund based on a 4.00% contingent deferred
sales charge are represented by a solid line. The Lehman Brothers
Government/Corpotate Bond Index (the "LBG/CBI") is represented by a dotted line.
The Lipper Multi-Sector Income Funds Average (the "LMSIFA") is represented by a
broken line. The line graph is a visual representation of a comparison of change
in value of a $10,000 hypothetical investment in the Class B Shares of the fund
and the LBG/CBI and the LMSIFA. The "x" axis reflects computation periods from
7/27/95 to 11/30/97. The "y" axis reflects the cost of the investment. The right
margin reflects the ending value of the hypothetical investment in the fund's
Class B Shares based on a 4.00% contingent deferred sales charge, as compared to
the LBG/CBI and the LMSIFA; the ending values were $12,286, $11,970, and
$12,757, respectively. The legend in the bottom quadrant of the graphic
presentation indicates the fund's Class B Shares Average Annual Total Returns
for the period ended 11/30/97, beginning with the inception date of the fund
(7/27/95), and the one-year period thereafter, the Average Annual Total Returns
were 9.17%, and 1.64%, respectively.
A13. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class C
Shares of Federated Strategic Income Fund are represented by a solid line. The
Lehman Brothers Government/Corpotate Bond Index (the "LBG/CBI") is represented
by a dotted line. The Lipper Multi-Sector Income Funds Average (the "LMSIFA") is
represented by a broken line. The line graph is a visual representation of a
comparison of change in value of a $10,000 hypothetical investment in the Class
C Shares of the fund and the LBG/CBI and the LMSIFA. The "x" axis reflects
computation periods from 5/2/94 to 11/30/97. The "y" axis reflects the cost of
the investment. The right margin reflects the ending value of the hypothetical
investment in the fund's Class C Shares as compared to the LBG/CBI and the
LMSIFA; the ending values were $13,890, $13,390, and $13,827, respectively. The
legend in the bottom quadrant of the graphic presentation indicates the fund's
Class C Shares Average Annual Total Returns for the period ended 11/30/97,
beginning with the inception date of the fund (5/2/94), and the one-year period
thereafter, the Average Annual Total Returns were 9.61%, and 6.50%,
respectively.
A14. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class F
Shares of Federated Strategic Income Fund based on a 1.00% sales charge and a
1.00% contingent deferred sales charge are represented by a solid line. The
Lehman Brothers Government/Corpotate Bond Index (the "LBG/CBI") is represented
by a dotted line. The Lipper Multi-Sector Income Funds Average (the "LMSIFA") is
represented by a broken line. The line graph is a visual representation of a
comparison of change in value of a $10,000 hypothetical investment in the Class
F Shares of the fund and the LBG/CBI and the LMSIFA. The "x" axis reflects
computation periods from 5/10/94 to 11/30/97. The "y" axis reflects the cost of
the investment. The right margin reflects the ending value of the hypothetical
investment in the fund's Class F Shares based on a 1.00% sales charge and a
1.00% contingent deferred sales charge, as compared to the LBG/CBI and the
LMSIFA; the ending values were $13,870, $13,390, and $13,827, respectively. The
legend in the bottom quadrant of the graphic presentation indicates the fund's
Class F Shares Average Annual Total Returns for the period ended 11/30/97,
beginning with the inception date of the fund (5/10/94), and the one-year period
thereafter, the Average Annual Total Returns were 9.63%, and 6.18%,
respectively.
