[Graphic]
Federated Investors
Federated Limited Term Fund
7TH SEMI-ANNUAL REPORT MAY 31, 1998
ESTABLISHED 1992
Dear Shareholder:
Federated Limited Term Fund was created in 1992, and I am pleased to present its
seventh Semi-Annual Report. This report covers the first half of the fund's
fiscal year which is the six-month period from December 1, 1997 through May 31,
1998. It begins with a discussion with Randall S. Bauer, Vice President,
Federated Advisers who co-manages the fund with Robert K. Kinsey, Vice
President, Federated Advisers. Following their discussion are three additional
items of shareholder interest. First is a series of graphs showing the fund's
long-term investment performance. Second is a complete listing of the fund's
holdings, and third is the publication of the fund's financial statements.
This short-term bond fund holds securities with maturities between money
market funds (i.e., 40-60 days) and government issues (i.e., 1-3 years). The
fund's assets totaled $125 million on May 31, 1998.
The six-month reporting period was marked by a period of low inflation and
relatively little fluctuation in short-term rates, which made for an attractive
income environment for investors in short-term securities. On a total return
basis, the fund outperformed its peer group, the Lipper Short-Term Investment
Grade Debt Funds Average.* Individual share class total return performance,
including income distributions, follows.**
NET ASSET
TOTAL VALUE
RETURN INCOME INCREASE
Class A Shares 3.13% $0.30 $9.95 to $9.96 = 0.10%
Class F Shares 3.18% $0.30 $9.95 to $9.96 = 0.10%
* 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. These 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 F Shares were 2.11% and 1.13%,
respectively.
Thank you for choosing Federated Limited Term Fund as a conservative way to
pursue income through a diversified, high-quality portfolio of short-term
securities. Remember, reinvesting your earnings is a convenient way to build
your account -- and helps to build your account through the benefit of
compounding.+
As always, we welcome your comments and suggestions.
Sincerely,
Richard B. Fisher
President
July 15, 1998
+ Systematic investing does not ensure a profit or protect against loss in
declining markets.
[Graphic]
Randall S. Bauer
Vice President
Federated Advisers
[Graphic]
Robert K. Kinsey
Vice President
Federated Advisers
[Graphic]
WHAT IS YOUR REVIEW OF THE SHORT-TERM BOND MARKET DURING THE FIRST HALF OF THE
FUND'S FISCAL YEAR?
Short-term bond yields declined modestly over the past six months, though
performance lagged that of longer maturity securities. Short-term yields
remained the captive of Federal Reserve Board (the "Fed") policy, while longer
yields reflected the continued positive news on the inflation front as well as
concern over an economic slowdown caused by the current situation in Asia.
Because the labor market remained robust, the Fed continued to send warning
signals that an upward move in the federal funds target rate might be necessary,
which prevented any significant rally at the short end. Though events occurring
after the end of the reporting period would appear to have mitigated the threat
of an upward move in rates, it is probably still too early to talk about a
federal funds target rate decrease. The short end of the yield curve will likely
remain rangebound for the remainder of the fund's fiscal year.
[Graphic]
HOW DID FEDERATED LIMITED TERM FUND'S PORTFOLIO OF 2-YEAR TO 3-YEAR MATURITY
SECURITIES PERFORM IN TERMS OF TOTAL RETURN AND INCOME?
The fund continued to outperform its peer group, the Lipper Short-Term
Investment Grade Debt Funds Average, which produced an average return of 2.96%
for the six-month reporting period ended May 31, 1998. The fund's Class A Shares
produced a total return of 3.13%, based on net asset value, and monthly
dividends totaling $0.30 per share. The fund's Class F Shares produced a total
return of 3.18%, based on net asset value, and monthly dividends totaling $0.30
per share. Both share classes experienced a modest net asset value increase of
$0.01 per share.*
The 30-day SEC yields, based on net asset value, for Class A and F Shares were
5.96% and 6.06%, respectively, on May 31, 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 F Shares were 2.11% and 1.13%, respectively.
** The 30-day SEC yield is calculated by dividing the investment income per
share for the prior 30 days by the maximum offering price per share on that
date. The figure is compounded and annualized. The 30-day SEC yields based on
offering price for Class A and F Shares were 5.90% and 6.00%, respectively.
[Graphic]
HOW WERE THE FUND'S ASSETS ALLOCATED AT THE END OF THE REPORTING PERIOD
AMONG CORPORATE SECURITIES, ASSET-BACKED AND MORTGAGE-BACKED SECURITIES AS
WELL AS CREDIT QUALITY?
Over the six-month reporting period, the fund's largest allocation shifted from
corporate securities to asset-backed securities, given the significant spread
widening seen in that sector (particularly in the home equity and manufactured
housing areas) during the fourth quarter of 1997. On May 31, 1998, approximately
38% of the fund's assets were invested in asset-backed securities, with 32% in
corporate securities, 22% in mortgage-backed securities, and 6% in U.S. Treasury
and agency securities. The fund also maintained a 2% cash position.
The fund continued to maintain a solid investment-grade average quality profile.
As of May 31, 1998, the quality breakdown of the fund was:
PERCENTAGE OF
NET ASSETS
AAA 47%
AA 1%
A 12%
BBB 27%
BB or lower 13%
[Graphic]
WHAT WERE THE FUND'S TOP FIVE HOLDINGS AS OF MAY 31, 1998?
PERCENTAGE
NAME OF NET ASSETS
U.S. Treasury Note 3.2%
Residential Accredit Loans, Inc.
(mortgage-backed security) 3.0%
Green Tree Home Improvement Loan Trust
(asset backed security) 2.8%
TKR Cable, Inc. (corporate bond) 2.4%
Bridgestone/Firestone Credit Card Trust
(asset backed security) 2.4%
TOTAL PERCENTAGE OF NET ASSETS 13.8%
[Graphic]
HAVE ANY OVERSOLD INTERNATIONAL MARKETS PROVIDED THE FUND WITH BUYING
OPPORTUNITIES?
The fund in fact increased its exposure to non-U.S. markets during the reporting
period, though overall exposure remains at around 3% of fund assets. While
selected opportunities will always be pursued in foreign (including emerging)
markets, fund management endeavors to keep the fund's overall risk profile
consistent with its short duration, average investment grade orientation.
[Graphic]
HAS THE ASIAN FLU AFFECTED THE ASSET-BACKED SECURITIES MARKET?
As the asset-backed securities ("ABS") market is largely a domestic one, there
has been little effect. The U.S. ABS market generally reacts to the performance
of the U.S. economy. Even if the U.S. economy weakens (whether or not the
weakness stems from the current situation in Asia), fund management believes the
well-structured nature of the asset-backed securities held in the fund will
provide sufficient protection to shareholders.
The rather small Asian ABS market (to which the fund has no exposure) has dried
up for now. It would appear, however, that any restructuring of Asian financial
systems will likely involve a greater degree of securitization. Just as
securitization in the U.S. market made a quantum leap during the resolution of
difficulties encountered by the U.S. financial system during the early 1990s,
the late 1990s may offer a new opportunity for value in a revitalized Asian ABS
market.
[Graphic]
AT THE MID-POINT IN THE FUND'S FISCAL YEAR, WHAT IS YOUR OUTLOOK FOR THE REST OF
1998?
We believe the remainder of 1998 will be characterized by a trend of slowly
declining yield levels at the longer end of the yield curve. There will be
rallies and selloffs along the way, with the actual level of decline being
limited by the extent to which the Fed feels the need to maintain short-term
interest rates at current levels. If a trend toward slower economic activity
becomes more pronounced, however (and there appears to be at least some evidence
of this in current economic statistics), the Fed might actually move to lower
rates by year-end, which would send a clear bullish signal to longer term bond
investors and provide investors in the fund with attractive returns as well.
BOND INVESTING TERMS
ASSET-BACKED SECURITIES: Bonds secured by a pool of smaller retail loans such as
automobile loans, credit cards, home equity loans, and home mortgages. To help
protect the investor's principal, these securities have an inherent "safety
net," or enhancement, in that the amount of the bond issue is always smaller
than the amount of assets securing it. These asset-backed securities allow for
the repayment of principal of the bond even if the underlying assets default.
These securities can be backed by many other types of enhancements, such as
corporate guarantees, bank letters of credit and third-party insurance.
MATURITY: The amount of time in which a bond's principal becomes due.
COUPON: The interest rate on a bond that the issuer promises to pay until
the bond matures.
CURRENT YIELD: The amount of interest paid by a bond, expressed as a percentage
of its value. Yield may differ from the coupon because the bond's value may
change over time. As a bond's price falls, its yield rises, and vice versa.
DURATION: A measurement of a bond's price sensitivity relative to a change in
the general level of interest rates. Duration takes into account the size of the
coupon and the time to maturity. Generally, longer or higher durations have more
risk than shorter or lower durations.
INVESTMENT-GRADE BONDS: Corporate and municipal bonds rated within the top four
categories (Baa or higher by Moody's or BBB or higher by Standard & Poor's).
This rating is based on the bond issuer's ability to pay the interest and
principal. Bonds rated lower are more speculative. U.S. Treasury and government
agency bonds are not rated because the payment of principal and interest are
guaranteed directly by the U.S. government or the issuing agency. Asset-backed
securities are rated in the same fashion.
FEDERAL RESERVE BOARD: Under the direction of a Chairman (currently Alan
Greenspan), the Federal Reserve Board (the "Fed") consists of seven-members that
are appointed by the President. The Fed regulates the U.S. monetary and banking
system and sets economic policy, including the direction of short-term interest
rates. When the Fed is said to "tighten," it raises rates. When it "eases," it
lowers rates.
TWO WAYS YOU MAY SEEK TO INVEST FOR SUCCESS IN
FEDERATED LIMITED TERM FUND
INITIAL INVESTMENT:
IF YOU HAD MADE AN INITIAL INVESTMENT OF $7,000 IN THE CLASS A SHARES OF
FEDERATED LIMITED TERM FUND ON 1/13/92, REINVESTED YOUR DIVIDENDS AND CAPITAL
GAINS, AND DID NOT REDEEM ANY SHARES, YOUR ACCOUNT WOULD HAVE BEEN WORTH $10,052
ON 5/31/98. YOU WOULD HAVE EARNED A 5.84%* AVERAGE ANNUAL TOTAL RETURN FOR THE
INVESTMENT LIFE SPAN.
One key to investing wisely is to reinvest all distributions in fund shares.
This increases the number of shares on which you can earn future dividends, and
you gain the benefit of compounding.
As of 6/30/98, the Class A Shares' 1-year, 5-year, and since inception (1/13/92)
average annual total returns were 5.84%, 5.31%, and 5.83%, respectively. Class F
Shares' 1-year and since inception (9/1/93) average annual total returns were
4.88% and 5.29%, 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 returns stated take 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 INITIAL INVESTMENT AND SUBSEQUENT INVESTMENTS OF $1,000 EACH YEAR FOR SIX
YEARS (REINVESTING ALL DIVIDENDS AND CAPITAL GAINS) GREW TO $8,494.
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
did not redeem any shares, you would have invested only $7,000, but your account
would have reached a total value of $8,494* by 5/31/98. You would have earned an
average annual total return of 5.76%.
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. 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 "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
HYPOTHETICAL INVESTOR PROFILE: INVESTING FOR UNPLANNED EXPENSES
While most investors focus on planned financial goals, Phil and Kate Porter also
invest to help with life's unplanned expenses. On 1/13/92 they invested $10,000
in Federated Limited Term Fund to start an emergency reserve account. By
5/31/98, their account had grown to $14,360, achieving an average annual return
of 5.84%.
Over time, they may draw on the accumulated income to pay for everything from
major car repairs to household plumbing emergencies.
With Federated Limited Term Fund, they can take comfort in the fact that they
have a reserve to help with whatever unforeseen expenses lie ahead.
"Graphic representation "A3" omitted. See Appendix."
This hypothetical scenario is provided for illustrative purposes only and
does not represent the result obtained by any particular shareholder. Past
performance does not guarantee future results.
FEDERATED LIMITED TERM FUND
PORTFOLIO OF INVESTMENTS
MAY 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
ADJUSTABLE RATE MORTGAGES--1.8%
GOVERNMENT AGENCY--1.8%
$ 799,274 (a) Federal Home Loan Mortgage Corp., ARMs, 7.61%, $ 832,844
9/1/2019
873,080 (a) Federal Home Loan Mortgage Corp., ARMs, 7.73%, 905,445
12/1/2018
331,416 (a) Federal National Mortgage Association, ARMs, 349,153
7.84%, 12/1/2020
118,019 (a) Federal National Mortgage Association, ARMs, 124,237
7.80%, 11/1/2017
TOTAL ADJUSTABLE RATE MORTGAGES
(IDENTIFIED COST $2,164,412) 2,211,679
ASSET-BACKED SECURITIES--38%
AUTOMOBILE--10.3%
1,106,058 AFG Receivables Trust 1997-A, Class C, 7.20%, 1,123,202
10/15/2002
1,343,106 AFG Receivables Trust 1997-B, Class C, 7.00%, 1,360,042
2/15/2003
304,911 Daimler-Benz Auto Grantor Trust 1995-A, Class A, 305,105
5.85%, 5/15/2002
945,721 Navistar Financial Corp. Owner Trust 1995-A,
Class B, 6.85%, 11/20/2001 953,703
2,398,977 (b) Paragon Auto Receivables Owner Trust 1998-A,
Class B, 7.47%, 11/15/2004 2,398,977
2,887,000 Premier Auto Trust 1995-3, Class B, 6.25%, 2,900,309
8/6/2001
1,950,000 (b) Team Fleet Financing Corp. Series 1997-1, Class 2,023,125
B, 7.80%, 5/15/2003
1,850,000 Yamaha Motor Master Trust 1995-1, Class A, 1,865,290
6.20%, 5/15/2003
Total 12,929,753
CREDIT CARD--7.3%
1,850,000 (b) Banco Nacional de Mexico S.A., Credit Card
Merchant Voucher Receivables Master Trust
Series 1996-A, Class A1, 6.25%, 12/1/2003 1,854,200
3,000,000 Bridgestone/Firestone Master Trust 1996-1, Class 3,036,630
B, 6.49%, 7/1/2003
750,000 Dayton Hudson Credit Card Master Trust 1995-1,
Class A, 6.10%, 2/25/2002 751,485
2,000,000 Household Affinity Credit Card Master Trust
1993-1, Class B, 5.30%, 9/15/2000 1,995,840
1,400,000 Spiegel Master Trust 1994-B, Class A, 8.15%, 1,447,992
6/15/2004
Total 9,086,147
</TABLE>
FEDERATED LIMITED TERM FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
ASSET-BACKED SECURITIES--CONTINUED
HOME EQUITY LOAN--12.1%
$ 479,412 AFC Home Equity Loan Trust 1992-3, Class A, $ 485,184
7.05%, 8/15/2007
263,694 Advanta HEL Trust 1991-1, Class A, 9.00%, 271,713
2/25/2006
1,750,000 ContiMortgage Home Equity Loan Trust 1997-5,
Class B, 7.62%, 1/15/2029 1,754,375
2,500,000 Contimortgage Home Equity Loan Trust 1997-1,
Class B, 7.92%, 3/15/2028 2,555,375
3,500,000 Green Tree Home Improvement Loan Trust 1997-A,
Class HE6, 7.16%, 3/15/2028 3,590,125
2,000,000 Green Tree Home Improvement Loan Trust 1997-C,
Class B2, 7.59%, 8/15/2028 2,002,000
1,096,720 Independent National Mortgage Corp. Home Equity
1997-A, Class BF, 7.39%, 10/25/2028 1,077,527
640,824 (a) Merrill Lynch Home Equity Loan Trust 1993-1,
Class B, 6.69%, 2/15/2003 641,465
775,000 New Century Home Equity Loan Trust 1997-NC5,
Class B, 7.59%, 10/25/2028 766,281
1,250,000 (b) Saxon Asset Securities Trust 1998-1, Class BF2, 1,095,625
8.00%, 12/25/2027
570,647 The Money Store Home Equity Trust 1992-A, Class
A, 6.95%, 1/15/2007 580,423
318,986 The Money Store Home Equity Trust 1992-B, Class
A, 6.90%, 7/15/2007 320,386
Total 15,140,479
MANUFACTURED HOUSING--1.8%
1,250,000 Green Tree Financial Corp. 1996-2, Class B-1, 1,298,575
7.55%, 4/15/2027
957,397 Oakwood Mortgage Investors, Inc., 1995-B, Class
A2, 6.45%, 1/15/2021 963,467
Total 2,262,042
</TABLE>
FEDERATED LIMITED TERM FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
ASSET-BACKED SECURITIES--CONTINUED
MARINE RECEIVABLES--2.4%
$ 1,363,587 CBNJ Boat Loan Trust 1994-1, Class A, 6.89%, $ 1,391,759
5/18/2012
1,546,450 NationsCredit Grantor Trust 1997-1, Class A, 1,572,369
6.75%, 8/15/2013
Total 2,964,128
OTHER--3.1%
2,100,000 Advanta Equipment Receivables 1998-1, Class C, 2,097,375
6.49%, 12/15/2006
892,956 (b) Bosque Asset Corp., 7.66%, 6/5/2002 896,653
325,000 Centerior Energy Receivables Master Trust
1996-1, Class A, 7.20%, 4/15/2002 335,806
3,835,760 (a)(b) FMAC Loan Receivables Trust 1997-A, Class
A-X, 2.78%, 4/15/2019 577,167
Total 3,907,001
WHOLE LOAN--1.0%
1,416,085 (b) SMFC Trust, Series 1997-A, Class B1, 1/20/2035 1,289,529
TOTAL ASSET-BACKED SECURITIES
(IDENTIFIED COST $47,158,903) 47,579,079
COLLATERALIZED MORTGAGE OBLIGATIONS--17.6%
COMMERCIAL MORTGAGE--1.7%
3,974,196 First Union Lehman Brothers Commercial Mortgage
Trust, Series 1997-C1, Class IO, 1.307%, 4/18/2027 290,633
1,900,000 (a)(b) K Mart CMBS Financing, Inc., Series 1997-1, Class
D, 6.76%, 3/1/2007 1,902,375
Total 2,193,008
GOVERNMENT AGENCY--1.5%
1,392,193 Federal Home Loan Mortgage Corp., Series 1686,
Class PK, 5.00%, 4/15/2023 1,371,241
32,929,588 Vendee Mortgage, Series 1995-1C, Class 3IO, 447,513
.2925%, 2/15/2025
Total 1,818,754
HOME EQUITY LOAN--0.8%
1,000,000 (a) Merrill Lynch Mortgage Investors, Inc., Series
1993-C, Class A4, 6.69%, 3/15/2018 1,003,440
</TABLE>
FEDERATED LIMITED TERM FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS--CONTINUED
WHOLE LOAN--13.6%
$ 917,000 (b) Bayview Financial Acquisition Trust, Series
1998-1, Class MI3, 8.21%, 5/25/2029 $ 917,000
2,117,616 (a) CMSI, Series 1992-18, Class A-1, 7.15%, 2,177,841
11/25/2022
2,500,000 Countrywide Home Loans, Series 1997-5, Class 2,527,514
A-3, 7.50%, 9/25/2027
301,266 (b) GE Capital Mortgage Services, Inc., Series
1994-3, Class B4, 6.50%, 1/25/2024 219,171
315,214 (b) Greenwich Capital Acceptance, Inc., Subordinate
Mortgage Securities Trust, Series 1996-A,
Class B, 7.5916%, 6/15/2019 300,635
2,000,000 Norwest Asset Securities Corp., Series 1996-4,
Class A14, 7.20%, 9/25/2026 2,012,800
2,950,000 Prudential Home Mortgage Securities, Inc.,
Series 1992-32, Class A-6, 7.50%, 10/25/2022 2,972,774
3,786,982 Residential Accredit Loans, Inc., Series
1996-QS8, Class A3, 7.05%, 12/25/2026 3,805,784
2,100,000 Residential Accredit Loans, Inc., Series
1997-QS2, Class A3, 7.25%, 3/25/2027 2,111,304
Total 17,044,823
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(IDENTIFIED COST $21,892,011) 22,060,025
CORPORATE BONDS--32%
AEROSPACE & DEFENSE--1.5%
1,800,000 Raytheon Co., Note, 6.45%, 8/15/2002 1,826,640
AUTOMOBILE--1.5%
1,800,000 Arvin Industries, Inc., Note, 6.875%, 2/15/2001 1,831,392
BANKING--5.6%
3,000,000 (a) Chase Manhattan Corp., Sub. Note, 5.25%, 2,925,150
12/5/2009
2,000,000 (a) Citicorp, Sub. Note, 5.725%, 10/25/2005 1,981,500
</TABLE>
FEDERATED LIMITED TERM FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS--CONTINUED
BANKING--CONTINUED
$ 1,000,000 Mercantile Bancorporation, Inc., Sr. Note, $ 1,020,770
6.80%, 6/15/2001
1,100,000 Riggs National Corp., Sub. Note, 8.50%, 2/1/2006 1,164,867
Total 7,092,287
CABLE TELEVISION--2.5%
2,800,000 TKR Cable, Inc., 10.50%, 10/30/2007 3,104,164
FINANCE - RETAIL--1.1%
1,350,000 Advanta Corp., Medium Term Note, 6.90%, 8/4/1999 1,323,095
FOREST PRODUCTS--0.9%
1,000,000 Quno Corp., Sr. Note, 9.125%, 5/15/2005 1,091,640
HOTELS, MOTELS, INNS & CASINOS--2.0%
2,400,000 La Quinta Inns, Inc., Sr. Sub. Note, 9.25%, 2,490,000
5/15/2003
INDUSTRIAL PRODUCTS & EQUIPMENT--1.3%
1,600,000 Figgie International Holdings, Inc., Sr. Note, 1,674,000
9.875%, 10/1/1999
INSURANCE--2.6%
250,000 Conseco, Inc., Note, 6.40%, 2/10/2003 249,870
2,000,000 GEICO Corp., Deb., 9.15%, 9/15/2021 2,250,860
750,000 (a)(b) HSB Group, Inc., 6.57%, 7/15/2027 744,485
Total 3,245,215
OIL & GAS--1.0%
1,250,000 Occidental Petroleum Corp., Note, 8.50%, 1,289,525
9/15/2004
PRINTING & PUBLISHING--0.9%
980,000 Valassis Communication, Inc., Sr. Note, 9.55%, 1,100,520
12/1/2003
RETAILERS--2.0%
900,000 Brylane Capital Corp., Sr. Sub. Note, 10.00%, 954,000
9/1/2003
1,450,000 Shopko Stores, Inc., Sr. Note, 8.50%, 3/15/2002 1,552,210
Total 2,506,210
</TABLE>
FEDERATED LIMITED TERM FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
CORPORATE BONDS--CONTINUED
<C> <S> <C>
SERVICES--0.8%
$ 1,000,000 Loewen Group Int'l, Sr. Note, 8.25%, 4/15/2003 $ 1,063,380
SOVEREIGN--1.0%
1,350,000 Export-Import Bank Korea, Note, 7.10%, 3/15/2007 1,210,667
TELECOMMUNICATIONS & CELLULAR--2.5%
2,000,000 British Telecommunication PLC, 9.625%, 2/15/2019 2,136,900
1,000,000 (b) PanAmSat Corp., Note, 6.00%, 1/15/2003 992,450
Total 3,129,350
UTILITIES--4.8%
1,250,000 Camuzzi Gas, Note, 9.25%, 12/15/2001 1,271,875
1,300,000 (b) Hidroelectrica Alicura, Deb., 8.375%, 3/15/1999 1,303,250
1,800,000 Long Island Lighting Co., Deb., 9.00%, 11/1/2022 2,066,040
1,400,000 Pennsylvania Power & Light Co., 9.25%, 10/1/2019 1,495,130
Total 6,136,295
TOTAL CORPORATE BONDS (IDENTIFIED COST 40,114,380
$39,913,240)
MORTGAGE BACKED SECURITIES--2.6%
GOVERNMENT AGENCY--2.6%
1,400,091 Federal Home Loan Mortgage Corp., 6.00%, 1,395,275
4/1/2003
1,806,988 Government National Mortgage Association, 8.50%, 1,908,631
8/15/2026
TOTAL MORTGAGE BACKED SECURITIES
(IDENTIFIED COST $3,224,909) 3,303,906
U.S. GOVERNMENT AGENCIES--0.4%
500,000 Federal National Mortgage Association, 6.34%, 501,140
7/28/2000
TOTAL U.S. GOVERNMENT AGENCIES
(IDENTIFIED COST $499,770) 501,140
U.S. TREASURY OBLIGATIONS--5.3%
U.S. TREASURY NOTE--5.3%
500,000 5.50%, 3/31/2003 498,355
4,000,000 5.75%, 11/15/2000 4,018,840
</TABLE>
FEDERATED LIMITED TERM FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
U.S. TREASURY OBLIGATIONS--CONTINUED
$ 2,000,000 6.625%, 5/15/2007 $ 2,131,140
TOTAL U.S. TREASURY OBLIGATIONS
(IDENTIFIED COST $6,661,237) 6,648,335
(C)REPURCHASE AGREEMENT--1.5%
1,880,000 BT Securities Corporation, 5.57%, dated
5/29/1998, due 6/1/1998 (AT AMORTIZED COST) 1,880,000
TOTAL INVESTMENTS (IDENTIFIED COST $ 124,298,544
$123,394,482)(D)
</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 May 31, 1998, these securities amounted to
$16,514,642 which represents 13.19% of net assets.
(c) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
(d) The cost of investments for federal tax purposes amounts to $123,394,482.
The net unrealized appreciation of investments on a federal tax basis
amounts to $904,062 which is comprised of $1,273,420 appreciation and
$369,358 depreciation at May 31, 1998.
Note: The categories of investments are shown as a percentage of net assets
($125,176,845) at May 31, 1998.
The following acronyms are used throughout this portfolio:
ARMs --Adjustable Rate Mortgages
PLC --Public Limited Company
(See Notes which are an integral part of the Financial Statements)
FEDERATED LIMITED TERM FUND
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost
$123,394,482) $ 124,298,544
Income receivable 1,206,992
Receivable for shares sold 474,535
Total assets 125,980,071
LIABILITIES:
Payable for shares redeemed $ 70,226
Income distribution payable 624,226
Payable to Bank 45,462
Accrued expenses 63,312
Total liabilities 803,226
NET ASSETS for 12,562,251 shares outstanding $ 125,176,845
NET ASSETS CONSIST OF:
Paid in capital $ 134,689,482
Net unrealized appreciation of investments and translation
of assets and liabilities in foreign currency 904,062
Accumulated net realized loss on investments and foreign currency
transactions (10,674,013)
Undistributed net investment income 257,314
Total Net Assets $ 125,176,845
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
CLASS A SHARES:
Net Asset Value Per Share ($113,911,968 / 11,431,805 shares $9.96
outstanding)
Offering Price Per Share (100/99.00 of $9.96)* $10.06
Redemption Proceeds Per Share $9.96
CLASS F SHARES:
Net Asset Value Per Share ($11,264,877 / 1,130,446 shares $9.96
outstanding)
Offering Price Per Share (100/99.00 of $9.96)* $10.06
Redemption Proceeds Per Share (99.00/100 of $9.96)** $9.86
</TABLE>
* See "Investing in the Fund" in the Prospectus.
** See "Investing in the Fund" and "Contingent Deferred Sales Charge" in the
Prospectus.
(See Notes which are an integral part of the Financial Statements)
FEDERATED LIMITED TERM FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED MAY 31, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 4,056,579
EXPENSES:
Investment advisory fee $ 228,408
Administrative personnel and services fee 77,288
Custodian fees 6,452
Transfer and dividend disbursing agent fees and expenses 84,225
Directors'/Trustees' fees 910
Auditing fees 7,462
Legal fees 2,002
Portfolio accounting fees 31,349
Distribution services fee--Class A Shares 262,056
Distribution services fee--Class F Shares 7,036
Shareholder services fee--Class A Shares 131,028
Shareholder services fee--Class F Shares 11,727
Share registration costs 12,740
Printing and postage 24,934
Insurance premiums 1,274
Taxes 7,462
Miscellaneous 7,462
Total expenses 903,815
Waivers--
Waiver of investment advisory fee $ (116,831)
Waiver of distribution services fee--Class A Shares (157,233)
Waiver of distribution services fee--Class F Shares (938)
Waiver of shareholder services fee--Class F Shares (1,407)
Total waivers (276,409)
Net expenses 627,406
Net investment income 3,429,173
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:
Net realized loss on investments and foreign currency (197,192)
transactions
Net change in unrealized appreciation of investments and
translation of assets and liabilities in foreign currency 290,699
Net realized and unrealized gain on investments and 93,507
foreign currency
Change in net assets resulting from operations $ 3,522,680
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED LIMITED TERM FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
(UNAUDITED) NOVEMBER 30,
MAY 31, 1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 3,429,173 $ 6,605,236
Net realized gain (loss) on investments and foreign currency
transactions ($(197,192) and $643,106, respectively, as computed
for federal tax purposes) (197,192) 890,943
Net change in unrealized appreciation/depreciation of investments
and translation of assets and liabilities in foreign currency 290,699 (522,183)
Change in net assets resulting from operations 3,522,680 6,973,996
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Class A Shares (3,141,039) (6,096,126)
Class F Shares (285,579) (533,574)
Change in net assets resulting from distributions to shareholders (3,426,618) (6,629,700)
SHARE TRANSACTIONS--
Proceeds from sale of shares 64,604,412 48,134,214
Net asset value of shares issued to shareholders in payment of
distributions declared 1,885,797 4,194,743
Cost of shares redeemed (45,168,061) (74,027,315)
Change in net assets resulting from share transactions 21,322,148 (21,698,358)
Change in net assets 21,418,210 (21,354,062)
NET ASSETS:
Beginning of period 103,758,635 125,112,697
End of period (including undistributed net investment income of
$257,314 and $250,455, respectively) $ 125,176,845 $ 103,758,635
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED LIMITED TERM FUND
FINANCIAL HIGHLIGHTS -- CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
MAY 31, YEAR ENDED NOVEMBER 30,
1998 1997 1996 1995 1994 1993 1992(A)
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF $ 9.95 $ 9.91 $ 9.97 $ 9.48 $10.17 $10.00 $10.01
PERIOD
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.30 0.59 0.59 0.55 0.53 0.63 0.519
Net realized and unrealized
gain
(loss) on investments and
foreign
currency 0.01 0.04 (0.06) 0.49 (0.66) 0.19 (0.008)
Total from investment 0.31 0.63 0.53 1.04 (0.13) 0.82 0.511
operations
LESS DISTRIBUTIONS
Distributions from net
investment
income (0.30) (0.59) (0.59) (0.55) (0.53) (0.63) (0.519)
Distributions in excess of
net
investment income(b) -- -- -- -- (0.02) (0.02) (0.002)
Distributions from net
realized
gain on investments -- -- -- -- (0.01) -- --
Total distributions (0.30) (0.59) (0.59) (0.55) (0.56) (0.65) (0.521)
NET ASSET VALUE, END OF $ 9.96 $ 9.95 $ 9.91 $ 9.97 $ 9.48 $10.17 $10.00
PERIOD
TOTAL RETURN(C) 3.13% 6.52% 5.54% 11.29% (1.30%) 8.19% 5.21%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.11%* 1.10% 1.10% 1.10% 1.10% 1.01% 0.67%*
Net investment income 6.01%* 5.90% 6.04% 6.13% 5.52% 5.75% 6.17%*
Expense 0.50%* 0.49% 0.56% 0.43% 0.39% 0.49% 1.06%*
waiver/reimbursement(d)
SUPPLEMENTAL DATA
Net assets, end of period
(000 omitted) $113,912 $94,952 $116,174 $138,451 $178,771 $248,87 $57,225
Portfolio turnover 61% 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>
SIX MONTHS
ENDED
(UNAUDITED)
MAY 31, YEAR ENDED NOVEMBER 30,
1998 1997 1996 1995 1994 1993(A)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.95 $ 9.91 $ 9.97 $ 9.48 $10.17 $10.24
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.29 0.60 0.66 0.61 0.55 0.15
Net realized and unrealized gain
(loss) on
investments and foreign currency 0.02 0.04 (0.12) 0.44 (0.67) (0.07)
Total from investment operations 0.31 0.64 0.54 1.05 (0.12) 0.08
LESS DISTRIBUTIONS
Distributions from net investment (0.30) (0.60) (0.60) (0.56) (0.55) (0.15)
income
Distributions in excess of net
investment income(b) -- -- -- -- (0.01) --
Distributions from net realized gain
on investments -- -- -- -- (0.01) --
Total distributions (0.30) (0.60) (0.60) (0.56) (0.57) (0.15)
NET ASSET VALUE, END OF PERIOD $ 9.96 $ 9.95 $ 9.91 $ 9.97 $ 9.48 $10.17
TOTAL RETURN(C) 3.18% 6.63% 5.64% 11.39% (1.20%) 0.78%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.01%* 1.00% 1.00% 1.00% 0.99% 1.00%*
Net investment income 6.09%* 6.00% 6.14% 6.22% 5.67% 7.10%*
Expense waiver/reimbursement(d) 0.26%* 0.24% 0.31% 0.18% 0.13% 0.39%*
SUPPLEMENTAL DATA
Net assets, end of period (000 $11,265 $8,807 $8,938 $10,183 $13,145 $7,230
omitted)
Portfolio turnover 61% 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
MAY 31, 1998 (UNAUDITED)
1. ORGANIZATION
Fixed Income Securities, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Corporation consists of three portfolios. The
financial statements included herein are only those of Federated Limited Term
Fund (the "Fund"), a diversified portfolio. The financial statements of the
other portfolios are presented separately. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held. The Fund offers two classes of shares: Class A Shares and Class
F Shares. The investment objective of the Fund is to seek a high level of
current income consistent with minimum fluctuation in principal value through
compilation of a portfolio, the weighted average duration 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 independant 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.
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 May 31, 1998, 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 EXPIRATION
YEAR 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 counterparts to meet the terms of their
commitments and from unanticipated movements in security prices or foreign
exchange rates. The foreign currency transactions are adjusted by the daily
exchange rate of the underlying currency and any gains or losses are recorded
for financial statement purpose as unrealized until the settlement date.
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 exchanges 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 Trust's pricing committee.
Additional information on each restricted security held at May 31, 1998 is as
follows:
SECURITY ACQUISITION DATE ACQUISITION COST
Banco Nacional de Mexico 1/9/1997 $ 1,810,398
Bayview Financial Acquisition 5/14/1998 920,334
Trust
GE Capital Mortgage Services, 7/10/1997 213,439
Inc.
Greenwich Capital Acceptance, 7/24/1997 349,153
Inc.
Hidroelectra Alicura 2/17/1998 1,344,277
K Mart CMBS Financing, Inc. 2/27/1997 1,900,000
PanAm Sat Corp. 1/14/1998 999,360
Paragon Auto Receivables Owners 5/14/1998 2,048,777
Trust
Saxon Asset Securities Trust 3/5/1998 1,100,570
SMFC Trust 2/4/1998 273,067
2/5/1998 1,023,094
Team Fleet Financing 4/24/1997 1,946,344
USE OF ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts of assets, liabilities, expenses, and
revenues reported in the financial statements. Actual results could differ from
those estimated.
OTHER -- Investment transactions are accounted for on the trade date.
3. CAPITAL STOCK
At May 31, 1998, 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 2,000,000,000
Authorized
Shares
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED
MAY 31, 1998 NOVEMBER 30, 1997
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 6,163,779 $ 61,524,713 4,650,436 $ 46,093,000
Shares issued to
shareholders in payment
of distributions declared 175,664 1,751,573 393,568 3,886,908
Shares redeemed (4,451,350) (44,401,465) (7,225,178) (71,507,487)
Net change resulting
from Class A Share
transactions 1,888,093 $ 18,874,821 (2,181,174) $(21,527,579)
<CAPTION>
PERIOD ENDED YEAR ENDED
MAY 31, 1998 NOVEMBER 30, 1997
<S> <C> <C> <C> <C>
CLASS F SHARES SHARES AMOUNT SHARES AMOUNT
Shares sold 308,666 $ 3,079,699 206,849 $ 2,041,214
Shares issued to
shareholders in payment
of distributions declared 13,460 134,224 31,156 307,835
Shares redeemed (76,844) (766,596) (254,941) (2,519,828)
Net change resulting from
Class F Share
transactions 245,282 $ 2,447,327 (16,936) $ (170,779)
Net change resulting from
share transactions 2,133,375 $ 21,322,148 (2,198,110) $ (21,698,358)
</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, Inc. 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
NET ASSETS OF
SHARE CLASS NAME 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. YEAR 2000
Similar to other financial organizations, the Trust could be adversely affected
if the computer systems used by the Trust's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Trust's Adviser and Administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Trust's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Trust.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended May 31, 1998, were as follows:
PURCHASES $86,366,597
SALES $67,168,808
DIRECTORS
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
Nicholas P. Constantakis
William J. Copeland
James E. Dowd, Esq.
Lawrence D. Ellis, M.D.
Richard B. Fisher
Edward L. Flaherty, Jr., Esq.
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
Nicholas J. Seitanakis
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves risk, including possible
loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectuses which contain facts
concerning its objective and policies, management fees, expenses, and other
information.
[Graphic]
Federated Investors
Federated Securities Corp., Distributor
Federated Investors, Inc.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Cusip 338319106
Cusip 338319304
3070201 (7/98)
[Graphic]
[Graphic]
Federated Investors
Federated Limited Term Municipal Fund
5TH SEMI-ANNUAL REPORT
MAY 31, 1998
ESTABLISHED 1993
PRESIDENT'S MESSAGE
Dear Shareholder:
Federated Limited Term Municipal Fund was created in 1993, and I am pleased to
present its fifth Semi-Annual Report. This report covers the first half of the
fund's fiscal year which is the six-month period from December 1, 1997 through
May 31, 1998. It begins with a discussion with the fund's portfolio manager,
Jeff A. Kozemchak, Vice President of Federated Advisers. Following his
discussion are three additional items of shareholder interest. First is a series
of graphs showing the fund's long-term investment performance. Second is a
complete listing of the fund's holdings, and third is the publication of the
fund's financial statements.
The fund's portfolio of short-term municipal bonds with a weighted average
effective maturity of less than three years pursues attractive tax-free income
with minimal fluctuation of principal value.* The fund's average maturity is
targeted between tax-free money market funds and intermediate-term municipal
bonds.**
Individual share class total return performance, including income dividends
follows.***
<TABLE>
<CAPTION>
NET ASSET
TOTAL RETURN INCOME VALUE INCREASE
<S> <C> <C> <C>
Class A Shares 2.38% $0.2015 $9.78 to $9.81= 0.31%
Class F Shares 2.51% $0.2138 $9.78 to $9.81= 0.31%
</TABLE>
During the reporting period, which was marked by continued low inflation and
rates that fluctuated within a narrow range, the fund performed well. Income
distributions accounted for the majority of its total return performance, which
was greater than the 2.13% return of the fund's benchmark, the Lipper Short-Term
Municipal Debt Funds Average.+ As of May 31, 1998, the fund posted 30-day
distribution rates, based on net asset value, of 3.96% and 4.21% for Class A and
F Shares, respectively. These rates are equivalent to taxable rates of 6.56% and
6.97%, based on net asset value, for Class A and F Shares, respectively,
assuming a top marginal tax rate of 39.60%.++ The 30-day SEC yields, based on
net asset value, for Class A and F Shares were 3.60% and 3.85%, respectively.+++
* Income may be subject to the federal alternative minimum tax.
** Unlike the fund, money market funds seek to maintain a stable $1.00 share
value.
*** Performance quoted 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 F Shares were 1.35% and 1.47%, respectively.
As of May 31, 1998, the fund's $91 million broadly diversified portfolio owned
86 municipal securities, which included bonds issued for hospitals,
single-family housing authorities, electricity revenue, and resource recovery
bonds.
Thank you for choosing Federated Limited Term Municipal Fund as a relatively
conservative way to pursue tax-free income from short-term municipal issues.
Remember, reinvesting your earnings and adding to your account on a regular
basis are two convenient ways to gain the benefit of compounding.++++
As always, we welcome your comments and suggestions.
Sincerely,
[Graphic]
Richard B. Fisher
President
July 15, 1998
+ 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. These figures do not reflect sales charges.
++ The 30-day distribution rate reflects actual distributions made to
shareholders. It is calculated by dividing the monthly annualized dividend plus
short-term capital gains, if any, by the average 30-day offering price. The
30-day distribution rate based on offering price for Class A Shares was 3.92%.
The taxable rate for Class A Shares based on offering price was 6.49%.
+++ The 30-day SEC yield is calculated by dividing the investment income per
share for the prior 30 days by the maximum offering price per share on that
date. The figure is compounded and annualized. The 30-day SEC yield based on
offering price for Class A Shares was 3.56%.
++++ Systematic investing does not ensure a profit or protect against loss in
declining markets.
INVESTMENT REVIEW
[Graphic]
Jeff A. Kozemchak, CFA
Vice President
Federated Advisers
[Graphic]
PLEASE COMMENT ON THE SHORT-TERM MUNICIPAL MARKET AND ECONOMY OVER THE FIRST
HALF OF THE FUND'S FISCAL YEAR?
The short-term municipal bond market performed well over the six-month reporting
period ended May 31, 1998, as it continued to deliver an incremental income
advantage as compared to money market securities while sustaining relative price
stability.
During the reporting period, the Federal Reserve Board (the "Fed") kept monetary
policy unchanged despite robust economic growth. The economy posted a rate of
growth of over 3.00% in the last three quarters of 1997, and continued at an
above-trend pace of 4.80% in the first quarter of 1998. Prior to last December,
the continued benign inflation picture soothed a market that would otherwise
have been unsettled at such a vigorous pace of growth. Early in the fall of
1997, signs of tight labor markets began to build expectations of a need for a
tightening by the Fed as added insurance against inflation. However, dramatic
declines in the Asian equity markets in the fourth quarter curtailed this
expectation, and overseas developments dominated in December of 1997 and into
early 1998. In April and May of 1998, employment growth and tight labor markets
produced much anxiety in the market, as the market worried that inflation
pressures could build. In May of 1998, the market learned that the Fed had
adopted a "tightening bias" toward monetary policy last March, but declined to
raise short-term interest rates in May of 1998. Clearly the Fed has decided to
wait and see what effect the slumping Asian economies may have on domestic
growth and inflation.
Interest rates in the short-term municipal market reflected changing market
sentiment toward the Fed's interest rate policy. The yield on the 3-year,
A-rated general obligation municipal bond began the period at 4.25%, but
declined in December of 1997 and January of 1998 to a low of 3.90% by late
January of 1998. In February and March of 1998, yields rose and traded in a
range between 4.05% and 4.15% as economic growth continued. In April of 1998,
yields rose from 4.05% to 4.40% reflecting market concerns of an overheating
domestic economy. In May of 1998, yields once again fell to 4.10% as concerns
abated and Asia once again dominated the market spotlight.
[Graphic]
HOW DID FEDERATED LIMITED TERM MUNICIPAL FUND PERFORM DURING THE SIX-MONTH
REPORTING PERIOD ENDED MAY 31, 1998?
The fund continued to perform well over the six-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 2.38%, based on net asset value, for the six-month
reporting period ended May 31, 1998. For investors in Class F Shares, the fund
produced a total return of 2.51% based on net asset value for the same period.*
These results exceeded the 2.13% average return for the 29 funds in the fund's
peer group, the Lipper Short-Term Municipal Debt Funds Average. As expected, the
fund's total return consisted mostly of tax-exempt income, as principal
fluctuation was minimized due to the short-term effective average maturity of
the portfolio. The fund's net asset value per share rose 0.31% (from $9.78 to
$9.81) over the six-month reporting period.
[Graphic]
WHAT LEVEL OF INCOME DID THE FUND DELIVER TO ITS TAX- SENSITIVE SHAREHOLDERS?
For the six-month reporting period, the fund's tax-exempt income totaled
$0.2015/share for Class A Shares and $0.2138/share for Class F Shares. These
income levels corresponded to annualized tax-exempt distribution rates of 4.11%
and 4.36% 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 May 31, 1998, the fund posted 30-day distribution rates of 3.96% and
4.21% for Class A and F Shares, respectively. These rates are equivalent to
taxable rates of 6.56% and 6.97% for Class A and F Shares, respectively,
assuming a top marginal tax rate of 39.60%. The 30-day SEC yields for Class A
and F Shares were 3.60% and 3.85%, respectively.
* 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 F Shares were 1.35% and 1.47%, respectively.
[Graphic]
WITH NO FED ACTION TO DATE, WHAT DO YOU FORESEE FOR THE REST OF 1998? ARE
YOU MAINTAINING A "NEUTRAL" AVERAGE MATURITY POSITION FOR THE FUND?
We expect that growth will eventually moderate later in 1998, as Asia's effects
are felt in the United States and abroad. Over the near-term, the Fed will
likely remain on the sidelines. Given the negative impact of trade and
inventories, we expect growth to slow to around 2% for the rest of 1998, even
though domestic demand remains robust. With no inflationary "smoking gun" and
the deepening turmoil in Asia, the Fed is not likely to tighten anytime soon.
Given the low inflation rate, monetary policy already appears somewhat
restrictive. If slowing does occur, the Fed could find cause to ease later in
the year or in early 1999. Accordingly, we continue to position the fund with a
neutral-to-positive outlook on interest rates, and maintain moderately longer
effective average maturity and duration targets to take advantage of our
expectation of lower interest rates over the next six months. As always, we
continue to search for attractive investment opportunities in order to best
serve our municipal clients.
BOND INVESTING TERMS
MUNICIPAL BOND: A security issued by a state or local government entity to help
finance a wide range of projects for public benefit, such as industrial
development, highways, hospitals, and schools. The investment income on a
municipal bond is generally exempt from federal income tax and from income tax
imposed by the state in which the bond is issued. Municipal bonds are rated for
quality by national rating organizations (see "Investment-Grade Bonds" below).
MATURITY: The amount of time in which a bond's principal becomes due.
COUPON: The interest rate on a bond that the issuer promises to pay until
the bond matures.
CURRENT YIELD: The amount of interest paid by a bond, expressed as a percentage
of its value. Yield may differ from the coupon because the bond's value may
change over time. As a bond's price falls, its yield rises, and vice versa.
DURATION: A measurement of a bond's price sensitivity relative to a change in
the general level of interest rates. Duration takes into account the size of the
coupon and the time to maturity. Generally, longer or higher durations have more
risk than shorter or lower durations.
EQUIVALENT YIELD: The corresponding taxable yield of the tax-free yield based
upon an individual's income tax bracket (tax-exempt yield divided by
100%-person's tax bracket).
INVESTMENT-GRADE BONDS: Corporate and municipal bonds rated within the top four
categories (Baa or higher by Moody's or BBB or higher by Standard & Poor's).
This rating is based on the bond issuer's ability to pay the interest and
principal. Bonds rated lower are more speculative. U.S. Treasury and government
agency bonds are not rated because the payment of principal and interest are
guaranteed directly by the U.S. government or the issuing agency.
FEDERAL RESERVE BOARD: Under the direction of a Chairman (currently Alan
Greenspan), the Federal Reserve Board (the "Fed") consists of seven members that
are appointed by the President. The Fed regulates the U.S. monetary and banking
system and sets economic policy, including the direction of short-term interest
rates. When the Fed is said to "tighten," it raises rates. When it "eases," it
lowers rates.
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 YOUR DIVIDENDS AND
CAPITAL GAINS, AND DID NOT REDEEM ANY SHARES, YOUR ACCOUNT WOULD HAVE BEEN WORTH
$5,959 ON 5/31/98. YOU WOULD HAVE EARNED A 3.77%* AVERAGE ANNUAL TOTAL RETURN
FOR THE INVESTMENT LIFE SPAN.
One key to investing wisely is to reinvest all distributions in fund shares.
This increases the number of shares on which you can earn future dividends, and
you gain the benefit of compounding.
As of 6/30/98, the Class A Shares' 1-year and since inception (9/1/93) average
annual total returns were 3.98%, and 3.77%, respectively. Class F Shares' 1-year
and since inception (9/1/93) average annual total returns were 4.24% and 4.21%,
respectively.**
"Graphic representation "B1" 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 returns stated take into account the 1.00% sales charge for Class A
Shares and the 1.00% contingent deferred sales charge for Class F Shares.
FEDERATED LIMITED TERM MUNICIPAL FUND
ONE STEP AT A TIME:
$1,000 INITIAL INVESTMENT AND SUBSEQUENT INVESTMENTS OF $1,000 EACH YEAR FOR
FOUR YEARS (REINVESTING ALL DIVIDENDS AND CAPITAL GAINS) GREW TO $5,562.
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 did not redeem any shares, you would have invested only $5,000, but
your account would have reached a total value of $5,562* by 5/31/98. You would
have earned an average annual total return of 3.99%.
A practical investment plan helps you pursue income by investing in short-term
municipal bonds. Through systematic investing, you buy shares on a regular basis
and reinvest all earnings. 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 "B2" 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 MUNICIPAL FUND
PORTFOLIO OF INVESTMENTS
MAY 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
(A)LONG-TERM MUNICIPALS -- 97.4%
ALABAMA -- 1.1%
$ 490,000 Mobile, AL, GO Warrants, 4.85%, 8/15/1999 NR $ 495,282
515,000 Mobile, AL, GO Warrants, 4.95%, 8/15/2000 NR 523,915
Total 1,019,197
CALIFORNIA -- 6.8%
700,000 Delta Counties, CA Home Mortgage Finance Authority,
SFM Revenue Bonds (Series 1998A), 4.85% (GNMA
Collateralized Home Mortgage Program)/(MBIA INS),
12/1/2008 AAA 701,197
4,600,000 Monterrey Peninsula, CA Water Management District
Weekly VRDNs (Wastewater Reclaimation)/(Sumitomo
Bank Ltd., Osaka LOC) A- 4,600,000
1,000,000 Sacramento County, CA HDA, Multifamily Housing
Revenue Bonds (Series I), 4.80% TOBs (Rancho Natomas
Apartments)/(Dai-Ichi Kangyo Bank Ltd., Tokyo LOC),
Mandatory Tender 12/15/2000 A3 1,004,030
Total 6,305,227
COLORADO -- 5.1%
660,000 Colorado HFA, Single Family Mortgage Revenue Bond,
Series C-1, 7.65%, 12/1/2025 Aa2 742,698
1,000,000 Colorado HFA, Single Family Program Senior Bonds
(Series 1998A-3), 4.60%, 11/1/2016 Aa2 1,007,640
1,000,000 Colorado Student Obligation Bond Authority, Student
Loan Revenue Bonds, 5.40%, 9/1/1998 A 1,003,640
2,000,000 Denver, CO City & County Airport Authority, Airport
System Revenue Bonds (Series 1996C), 5.05%, Baa1 2,042,140
11/15/2000
Total 4,796,118
FLORIDA -- 2.1%
1,815,000 Pinellas County, FL HFA, SFM Revenue Bonds, Series C,
6.45% (GNMA COL), 3/1/2029 Aaa 1,941,215
</TABLE>
FEDERATED LIMITED TERM MUNICIPAL FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
(A)LONG-TERM MUNICIPALS -- CONTINUED
HAWAII -- 1.6%
$ 1,485,000 Hawaii State Department of Budget & Finance, Special
Purpose Revenue Bonds, 4.65% (G.N. Wilcox Memorial
Hospital), 7/1/2003 BBB+ $ 1,497,726
IDAHO -- 2.2%
2,000,000 Idaho Housing Agency, SFM Bonds, Series B-2, 4.65%,
7/1/2028 Aaa 2,006,500
ILLINOIS -- 11.0%
1,080,000 Chicago, IL, Collateralized SFM Revenue Bonds (Series
1997B), 5.10% (GNMA Collateralized Home Mortgage
Program), 9/1/2007 Aaa 1,100,671
1,655,000 Chicago, IL, Collateralized SFM Revenue Bonds, Series
A-1,
4.85% (GNMA COL), 3/1/2015 Aaa 1,665,344
750,000 Chicago, IL, Gas Supply Revenue Bonds, 7.50% (Peoples
Gas Light & Coke Company), 3/1/2015 AA- 805,208
925,000 Illinois Development Finance Authority, (Series 1995)
Revenue Bonds, 5.80% (Catholic Charities Housing
Development Corp.), 1/1/2007 NR 955,821
150,000 Illinois Development Finance Authority, Housing
Revenue
Bonds, 5.25% (Catholic Charities Housing Development
Corp.)/(Archdiocese of Chicago GTD), 1/1/1999 NR 150,584
650,000 Illinois Development Finance Authority, Mortgage
Revenue
Refunding Bonds, Series 1997A, 5.20% (MBIA INS)/(FHA
LOC), 7/1/2008 Aaa 665,347
2,000,000 Illinois Development Finance Authority, Solid Waste
Disposal Revenue Bonds, 7.125% (WMX Technologies,
Inc.), 1/1/2001 BBB 2,127,200
400,000 Illinois Educational Facilities Authority, Revenue
Bonds,
5.25% (Illinois Institute of Technology)/ (Original
Issue
Yield: 5.35%), 12/1/1998 Baa1 402,348
580,000 Illinois Health Facilities Authority, Refunding
Revenue
Bonds (Series 1996B), 4.80% (Sarah Bush Lincoln
Health
Center), 2/15/1999 A- 583,898
</TABLE>
FEDERATED LIMITED TERM MUNICIPAL FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
(A)LONG-TERM MUNICIPALS -- CONTINUED
ILLINOIS -- CONTINUED
$ 505,000 Illinois Health Facilities Authority, Refunding
Revenue
Bonds (Series 1996B), 5.00% (Sarah Bush Lincoln
Health
Center), 2/15/2000 A- $ 512,237
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- 626,734
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- 687,346
Total 10,282,738
INDIANA -- 4.5%
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+ 648,320
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+ 710,653
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+ 757,045
885,000 LaPorte County, IN Hospital Authority, Refunding
Revenue Bonds, 5.60% (LaPorte Hospital, Inc.,
IN)/(Original
Issue Yield: 5.747%), 3/1/1999 Baa1 893,540
935,000 LaPorte County, IN Hospital Authority, Refunding
Revenue
Bonds, 5.80% (LaPorte Hospital, Inc., IN)/(Original
Issue
Yield: 5.898%), 3/1/2000 Baa1 954,990
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 237,206
Total 4,201,754
</TABLE>
FEDERATED LIMITED TERM MUNICIPAL FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
(A)LONG-TERM MUNICIPALS -- CONTINUED
KANSAS -- 1.8%
$ 335,000 Newton, KS, Hospital Revenue Refunding Bonds, Series
1998, 4.65% (Newton Healthcare Corp.)/(Original Issue
Yield: 4.70%), 11/15/2001 BBB- $ 335,258
370,000 Newton, KS, Hospital Revenue Refunding Bonds, Series
1998, 4.80% (Newton Healthcare Corp.)/(Original Issue
Yield: 4.90%), 11/15/2003 BBB- 370,081
1,000,000 Sedgwick & Shawnee Counties, KS, SFM Revenue Bonds
(Series 1997A-1), 5.10% (GNMA Collateralized Home
Mortgage Program), 12/1/2014 Aaa 1,015,650
Total 1,720,989
KENTUCKY -- 1.1%
1,000,000 Jefferson County, KY, UT GO Trust Certificates,
5.25%,
9/1/1999 A+ 1,016,790
LOUISIANA -- 1.7%
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 1,575,885
MASSACHUSETTS -- 2.1%
750,000 Greater New Bedford Regional Refuse Management
District, MA, UT GO Bonds, 5.00% (Original Issue
Yield: 5.10%), 5/1/1999 NR 755,550
500,000 Greater New Bedford Regional Refuse Management
District, MA, UT GO Bonds, 5.10% (Original Issue
Yield: 5.20%), 5/1/2000 NR 506,180
2,000,000 Massachusetts IFA, Solid Waste Disposal Sr. Lien
Revenue
Bonds (Series A), 8.00% (Massachusetts Recycling
Association), 8/1/1999 NR 750,000
Total 2,011,730
MINNESOTA -- 1.7%
1,500,000 Maplewood, MN, Health Care Facility Revenue Bonds
(Series 1996), 5.95% (Healtheast, MN), 11/15/2006 BBB 1,580,820
</TABLE>
FEDERATED LIMITED TERM MUNICIPAL FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
(A)LONG-TERM MUNICIPALS -- CONTINUED
MISSISSIPPI -- 3.4%
$ 3,200,000 Jackson County, MS Port Facility Daily VRDNs (Chevron
U.S.A., Inc.) Aaa $ 3,200,000
MISSOURI -- 2.5%
1,000,000 Kansas City, MO IDA, PCR Bonds, 6.05% (General Motors
Corp.), 4/1/2006 A 1,027,350
450,000 West Plains, MO IDA, Hospital Revenue Bonds, 4.70%
(Ozarks Medical Center)/(Original Issue Yield:
4.80%),
11/15/2002 BBB- 449,546
440,000 West Plains, MO IDA, Hospital Revenue Bonds, 4.85%
(Ozarks Medical Center)/(Original Issue Yield:
4.95%),
11/15/2003 BBB- 440,933
425,000 West Plains, MO IDA, Hospital Revenue Bonds, 5.05%
(Ozarks Medical Center)/(Original Issue Yield:
5.125%),
11/15/2005 BBB- 427,219
Total 2,345,048
NEBRASKA -- 1.1%
999,195 (b)Energy America, NE, Gas Supply Revenue Bonds (Series
1998B), 5.10% (Nebraska Public Gas Agency), NR 996,647
10/15/2005
NEW YORK -- 7.0%
2,000,000 New York City, NY, UT GO Bonds (Series B), 5.30%,
8/15/2000 BBB+ 2,050,320
1,800,000 New York City, NY, UT GO Bonds (Series B), 7.50%
(Original Issue Yield: 7.60%), 2/1/2001 BBB+ 1,946,862
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- 1,024,400
500,000 New York State Dormitory Authority, Revenue Bonds,
5.10% (Nyack Hospital), 7/1/1998 Baa2 500,320
1,000,000 New York State Thruway Authority, Service Contract
Revenue Bonds, 5.25%, 4/1/2003 BBB+ 1,036,180
Total 6,558,082
</TABLE>
FEDERATED LIMITED TERM MUNICIPAL FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
(A)LONG-TERM MUNICIPALS -- CONTINUED
NORTH CAROLINA -- 3.6%
$ 1,000,000 North Carolina Eastern Municipal Power Agency, Power
System Refunding Revenue Bonds (Series 1996A), 5.10%,
1/1/2000 BBB $ 1,013,500
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 1,025,290
1,300,000 Person County, NC Industrial Facilities & Pollution
Control
Financing Authority Daily VRDNs (Carolina Power &
Light Co.)/(SunTrust Bank, Atlanta LOC) Aa 1,300,000
Total 3,338,790
NORTH DAKOTA -- 4.1%
2,795,000 North Dakota State HFA, Housing Finance Program Bonds
(Series 1997C), 4.70%, 1/1/2022 Aa3 2,812,860
1,000,000 North Dakota State HFA, Housing Finance Program Bonds
(Series 1998A), 4.60%, 1/1/2023 Aa3 990,800
Total 3,803,660
OHIO -- 7.6%
500,000 Franklin County, OH Health Care Facilities, Revenue
Refunding Bonds, 4.60% (Ohio Presbyterian Retirement
Services)/(Original Issue Yield: 4.70%), 7/1/2001 NR 500,910
315,000 Franklin County, OH Health Care Facilities, Revenue
Refunding Bonds, 4.80% (Ohio Presbyterian Retirement
Services)/(Original Issue Yield: 4.90%), 7/1/2003 NR 316,326
460,000 Franklin County, OH Health Care Facilities, Revenue
Refunding Bonds, 5.00% (Ohio Presbyterian Retirement
Services), 7/1/2004 NR 465,152
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+ 1,585,030
1,180,000 Ohio Enterprise Bond Fund, (Series 1995-3) State
Economic
Development Revenue Bonds, 5.60% (Smith Steelite),
12/1/2003 A- 1,246,210
</TABLE>
FEDERATED LIMITED TERM MUNICIPAL FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
(A)LONG-TERM MUNICIPALS -- CONTINUED
OHIO -- CONTINUED
$ 1,000,000 Ohio HFA, Residential Mortgage Revenue Bonds (Series
1998A-1), 4.90% (GNMA Collateralized Home Mortgage
Program COL), 9/1/2025 AAA $ 1,003,030
2,000,000 Youngstown City School District, OH, Revenue
Anticipation Note, 5.40%, 6/15/1998 NR 2,001,180
Total 7,117,838
PENNSYLVANIA -- 7.2%
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- 618,924
850,000 Clarion County, PA Hospital Authority, Revenue
Refunding Bonds, Series 1997, 5.00% (Clarion County
Hospital), 7/1/2002 BBB- 862,036
830,000 Grove City Area Hospital Authority, Hospital Revenue
Bonds, Series 1998, 4.50% (United Community
Hospital)/(Original Issue Yield: 4.60%), 7/1/2003 BBB 826,796
955,000 Hazleton, PA Health Services Authority, Hospital
Revenue Bonds (Series 1996), 5.40% (Hazleton-St.
Joseph
Medical Center), 7/1/2001 BBB+ 973,995
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+ 196,507
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+ 157,057
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%), BBB+ 224,651
11/1/2002
595,000 Philadelphia, PA Hospitals & Higher Education
Facilities
Authority, Hospital Revenue Bonds (Series 1997),
5.00%
(Jeanes Hospital, PA), 7/1/2000 BBB 603,509
</TABLE>
FEDERATED LIMITED TERM MUNICIPAL FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
(A)LONG-TERM MUNICIPALS -- CONTINUED
PENNSYLVANIA -- CONTINUED
$ 620,000 Philadelphia, PA Hospitals & Higher Education
Facilities
Authority, Hospital Revenue Bonds (Series 1997),
5.20% (Jeanes Hospital, PA), 7/1/2001 BBB $ 634,062
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- 125,683
435,000 Philadelphia, PA IDA, Revenue Bonds, 4.55% (Franklin
Institute), 6/15/2003 Baa2 435,378
1,080,000 Scranton-Lackawanna, PA Health & Welfare Authority,
Revenue Bonds (Series A), 6.35% (Allied Services
Rehabilitation Hospitals, PA), 7/15/1999 NR 1,096,578
Total 6,755,176
PUERTO RICO -- 2.1%
2,000,000 Puerto Rico Municipal Finance Agency, Revenue Bonds
(Series A), 5.00% (Original Issue Yield: 5.10%), A- 2,001,880
7/1/1998
RHODE ISLAND -- 4.5%
3,885,000 Rhode Island State Student Loan Authority, Student
Loan Revenue Refunding Bond, Series B, 6.75% (Original
Issue Yield: 6.80%), 12/1/2001 A 4,159,048
SOUTH DAKOTA -- 3.6%
225,000 South Dakota State Health & Educational Authority,
Revenue Bonds, 6.00% (Huron Regional Medical
Center, SD), 4/1/1999 BBB 227,036
3,000,000 South Dakota Student Loan Finance Corp., (Series A)
Student Loan Revenue Bonds, 5.85%, 8/1/2000 A+ 3,108,600
Total 3,335,636
TENNESSEE -- 0.9%
800,000 Springfield, TN Health & Educational Facilities
Board, Hospital Revenue Bonds, 7.50% (NorthCrest
Medical Center), 4/1/2000 NR 821,544
</TABLE>
FEDERATED LIMITED TERM MUNICIPAL FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
(A)LONG-TERM MUNICIPALS -- CONTINUED
TEXAS -- 3.0%
$ 800,000 (b)Greenville, TX Industrial Development Corp.,
Airport Revenue Refunding Bonds, Series 1996, 4.75%
(Raytheon/
E-Systems, Inc.), 8/1/1998 NR $ 801,048
1,000,000 (b) Greenville, TX Industrial Development Corp.,
Airport Revenue Refunding Bonds, Series 1996, 5.15%
(Raytheon/E-Systems, Inc.), 8/1/2000 NR 1,018,840
1,000,000 Northeast Hospital Authority, TX, Hospital Revenue
Refunding Bonds (Series 1997), 5.25% (Northeast
Medical Center Hospital), 5/15/1999 BBB 1,012,610
Total 2,832,498
UTAH -- 1.1%
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+ 1,009,490
VIRGINIA -- 2.9%
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 2,151,762
255,000 Prince William County, VA IDA, Hospital Revenue
Bonds,
6.00% (Potomac Hospital Corp., VA), 10/1/1998 A2 256,823
255,000 Prince William County, VA IDA, Hospital Revenue
Bonds, 6.10% (Potomac Hospital Corp., VA), 10/1/1999 A2 261,964
Total 2,670,549
TOTAL INVESTMENTS (IDENTIFIED COST $90,907,342)(C) $ 90,902,575
</TABLE>
* Please refer to the Appendix of the Statement of Additional Information for an
explanation of the credit ratings. Current credit ratings are unaudited.
(a) At May 29, 1998, 35.0% of the total investments at market value were subject
to alternative minimum tax.
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At May 29, 1998, these securities amounted to
$2,816,535 which represents 3.0% of net assets.
(c) The cost of investments for federal tax purposes amounts to $90,907,342. The
net unrealized depreciation of investments on a federal tax basis amounts to
$4,767 which is comprised of $1,176,981 appreciation and $1,181,748 depreciation
at May 31, 1998.
Note: The categories of investments are shown as a percentage of net assets
($93,288,674) at May 31, 1998.
The following acronyms are used throughout this portfolio:
COL -- Collateralized FHA -- Federal Housing Administration GNMA -- Government
National Mortgage Association GO -- General Obligation GTD -- Guaranty HDA --
Hospital Development Authority HFA -- Housing Finance Authority IDA --
Industrial Development Authority IFA -- Industrial Finance Authority INS --
Insured LOC -- Letter of Credit MBIA -- Municipal Bond Investors Assurance PCR
- -- Pollution Control Revenue SFM -- Single Family Mortgage TOBs -- Tender Option
Bonds UT -- Unlimited Tax VRDNs -- Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
FEDERATED LIMITED TERM MUNICIPAL FUND
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $ 90,902,575
$90,907,342)
Cash 210,517
Income receivable 1,362,553
Prepaid expenses 20,831
Receivable for investments sold 110,000
Receivable for shares sold 1,168,738
Total assets 93,775,214
LIABILITIES:
Payable for shares redeemed $ 197,179
Income distribution payable 289,361
Total liabilities 486,540
NET ASSETS for 9,509,323 shares outstanding $ 93,288,674
NET ASSETS CONSIST OF:
Paid in capital $ 95,652,825
Net unrealized depreciation of investments (4,767)
Accumulated net realized loss on investments (2,359,384)
Total net assets $ 93,288,674
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS PER SHARE:
CLASS A SHARES:
Net Asset Value Per Share ($71,142,309/7,252,010 shares outstanding) $9.81
Offering Price Per Share (100/99.00 of $9.81)* $9.91
Redemption Proceeds Per Share $9.81
CLASS F SHARES:
Net Asset Value Per Share ($22,146,365/2,257,313 shares outstanding) $9.81
Offering Price Per Share $9.81
Redemption Proceeds Per Share (99.00/100 of $9.81)** $9.71
</TABLE>
* See "Investing in the Fund" in the Prospectus.
** See "Investing in the Fund" and "Contingent Deferred Sales Charge" in the
Prospectus.
(See Notes which are an integral part of the Financial Statements)
FEDERATED LIMITED TERM MUNICIPAL FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED MAY 31, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $2,022,313
EXPENSES:
Investment advisory fee $ 157,625
Administrative personnel and services fee 77,288
Custodian fees 14,322
Transfer and dividend disbursing agent fees and 23,029
expenses
Directors'/Trustees' fees 2,732
Auditing fees 7,278
Legal fees 1,724
Portfolio accounting fees 37,891
Distribution services fee -- Class A Shares 73,476
Distribution services fee -- Class F Shares 14,986
Shareholder services fee -- Class A Shares 73,476
Shareholder services fee -- Class F Shares 24,976
Share registration costs 22,602
Printing and postage 10,404
Insurance premiums 2,554
Taxes 3,914
Miscellaneous 22,832
Total expenses 571,109
Waivers and reimbursements--
Waiver of investment advisory fee $ (157,625) Waiver of distribution
services fee -- Class F Shares (14,986) Reimbursement of other operating
expenses by Adviser (68,111)
Total waivers and reimbursements (240,722)
Net expenses 330,387
Net investment income 1,691,926
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 1,831
Net change in unrealized appreciation of investments 150,980
Net realized and unrealized gain on investments 152,811
Change in net assets resulting from operations $1,844,737
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED LIMITED TERM MUNICIPAL FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
(UNAUDITED) NOVEMBER 30,
MAY 31, 1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 1,691,926 $ 3,538,645
Net realized gain (loss) on investments ($1,831 and $39,808,
respectively, as computed for federal tax purposes) 1,831 39,808
Net change in unrealized appreciation (depreciation) 150,980 (13,463)
Change in net assets resulting from operations 1,844,737 3,564,990
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Class A Shares (1,205,605) (2,474,571)
Class F Shares (432,988) (1,064,074)
Change in net assets resulting from distributions to
shareholders (1,638,593) (3,538,645)
SHARE TRANSACTIONS --
Proceeds from sale of shares 39,406,365 48,505,545
Net asset value of shares issued to shareholders in payment of
distributions declared 917,880 2,377,856
Cost of shares redeemed (20,461,438) (77,560,411)
Change in net assets resulting from share transactions 19,862,807 (26,677,010)
Change in net assets 20,068,951 (26,650,665)
NET ASSETS:
Beginning of period 73,219,723 99,870,388
End of period $ 93,288,674 $ 73,219,723
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED LIMITED TERM MUNICIPAL FUND
FINANCIAL HIGHLIGHTS -- CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
MAY 31, NOVEMBER 30,
1998 1997 1996 1995 1994 1993(A)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 9.78 $ 9.76 $ 9.85 $ 9.49 $10.02 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.20 0.41 0.40 0.46 0.43 0.10
Net realized and unrealized
gain (loss) on investments 0.03 0.02 (0.08) 0.36 (0.53) 0.02
Total from investment operations 0.23 0.43 0.32 0.82 (0.10) 0.12
LESS DISTRIBUTIONS
Distributions from net
investment income (0.20) (0.41) (0.40) (0.46) (0.43) (0.10)
Distributions in excess of net
investment income -- -- (0.01)(b) -- -- --
Total distributions (0.20) (0.41) (0.41) (0.46) (0.43) (0.10)
NET ASSET VALUE, END OF PERIOD $ 9.81 $ 9.78 $ 9.76 $ 9.85 $ 9.49 $10.02
TOTAL RETURN(C) 2.38% 4.45% 3.34% 8.67% (0.95)% 1.20%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.90%* 0.90% 0.81% 0.68% 0.63% 0.50%*
Net investment income 4.10%* 4.17% 4.14% 4.72% 4.33% 4.30%*
Expense waiver/reimbursement(d) 0.57%* 0.48% 0.54% 1.03% 0.94% 1.71%*
SUPPLEMENTAL DATA
Net assets, end of period
(000 omitted) $71,142 $52,921 $73,570 $65,179 $32,644 $13,694
Portfolio turnover 8% 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>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
MAY 31, NOVEMBER 30,
1998 1997 1996 1995 1994 1993(A)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 9.78 $ 9.76 $ 9.85 $ 9.49 $10.02 $10.00
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.21 0.43 0.43 0.47 0.45 0.11
Net realized and unrealized
gain (loss) on investments 0.03 0.02 (0.08) 0.36 (0.53) 0.02
Total from investment operations 0.24 0.45 0.35 0.83 (0.08) 0.13
LESS DISTRIBUTIONS
Distributions from net
investment income (0.21) (0.43) (0.43) (0.47) (0.45) (0.11)
Distributions in excess of
net investment income -- -- (0.01)(b) -- -- --
Total distributions (0.21) (0.43) (0.44) (0.47) (0.45) (0.11)
NET ASSET VALUE, END OF PERIOD $ 9.81 $ 9.78 $ 9.76 $ 9.85 $ 9.49 $10.02
TOTAL RETURN(C) 2.51% 4.71% 3.60% 8.86% (0.75%) 1.26%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.65%* 0.65% 0.56% 0.49% 0.44% 0.25%*
Net investment income 4.32%* 4.42% 4.40% 4.91% 4.57% 4.79%*
Expense waiver/reimbursement(d) 0.72%* 0.63% 0.69% 1.12% 0.94% 1.86%*
SUPPLEMENTAL DATA
Net assets, end of period
(000 omitted) $22,146 $20,298 $26,300 $26,442 $12,804 $3,307
Portfolio turnover 8% 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
MAY 31, 1998 (UNAUDITED)
1. ORGANIZATION
Fixed Income Securities, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Corporation consists of three portfolios. The
financial statements included herein are only those of Federated Limited Term
Municipal Fund (the "Fund"). The financial statements of the other portfolios
are presented separately. The assets of each portfolio are segregated and a
shareholder's interest is limited to the portfolio in which shares are held. The
Fund offers two classes of shares: Class A Shares and Class F Shares. The
investment objective of the Fund is to provide a high level of current income
which is exempt from federal regular income tax (federal regular income tax does
not include the federal alternative minimum tax) consistent with 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:
<TABLE>
<CAPTION>
EXPIRATION EXPIRATION
YEAR AMOUNT
<S> <C>
2002 $ 1,922,206
2003 $ 439,009
</TABLE>
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the securities
purchased. Securities purchased on a when-issued or delayed delivery basis
are marked to market daily and begin earning interest on the settlement date.
RESTRICTED SECURITIES -- Restricted securities are securities that may only
be resold upon registration under federal securities laws or in transactions
exempt from such registration. In some cases, the issuer of restricted
securities has agreed to register such securities for resale, at the issuer's
expense either upon demand by the Fund or in connection with another
registered offering of the securities. Many restricted securities may be
resold in the secondary market in transactions exempt from registration. Such
restricted securities may be determined to be liquid under criteria
established by the Board of Directors. The Fund will not incur any
registration costs upon such resales. The Fund's restricted securities are
valued at the price provided by dealers in the secondary market or, if no
market prices are available, at the fair value as determined by the Fund's
pricing committee.
Additional information on each restricted security held at May 31, 1998, is
as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
Energy America, NE, 5.10% 3/25/1998 $ 999,195
Greenville, TX Industrial
Development Corp.
(Series 1996), 4.75% 8/28/1996 800,000
Greenville, TX Industrial
Development Corp.
(Series 1996), 5.15% 8/28/1996 1,000,000
</TABLE>
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses, and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER -- Investment transactions are accounted for on the trade date.
3. CAPITAL STOCK
At May 31, 1998, par value shares ($0.001 per share) authorized were as follows:
<TABLE>
<CAPTION>
SHARES OF PAR VALUE
CLASS NAME CAPITAL STOCK
AUTHORIZED
<S> <C>
Class A 1,000,000,000
Class F 1,000,000,000
Total shares 2,000,000,000
authorized
</TABLE>
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1998 NOVEMBER 30, 1997
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 3,617,638 $ 35,481,521 4,570,072 $ 44,472,437
Shares issued to
shareholders in payment
of distributions declared 67,913 666,047 171,877 1,673,674
Shares redeemed (1,842,143) (18,075,669) (6,867,445) (66,808,856)
Net change resulting
from Class A Share
transactions 1,843,408 $ 18,071,899 (2,125,496) $ (20,662,745)
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1998 NOVEMBER 30, 1997
CLASS F SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 400,318 $ 3,924,844 413,737 $ 4,033,108
Shares issued to
shareholders in
payment of distributions 25,670 251,833 72,297 704,182
declared
Shares redeemed (243,237) (2,385,769) (1,104,776) (10,751,555)
Net change resulting from
Class F Share
transactions 182,751 $ 1,790,908 (618,742) $ (6,014,265)
Net change resulting
from share transactions 2,026,159 $ 19,862,807 (2,744,238) $ (26,677,010)
</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, Inc. for the period. The administrative fee received
during the period of the Administrative Services Agreement shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE -- The Fund has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan,
the Fund will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended
to result in the sale of the Fund's Class A Shares and Class F Shares. The
Plan provides that the Fund may incur distribution expenses according to the
following schedule annually, to compensate FSC. <TABLE> <CAPTION>
PERCENTAGE OF
AVERAGE DAILY
SHARE NET ASSETS OF SHARE
CLASS CLASS
<S> <C>
Class A 0.25%
Class F 0.15%
</TABLE>
The distributor may voluntarily choose to waive any portion of its fee. The
distributor can modify or terminate this voluntary waiver at any time at its
sole discretion.
SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services ("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. FSS may voluntarily choose to waive any
portion of its fee. FSS can modify or terminate this voluntary waiver at any
time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ, through
its subsidiary, Federated Shareholder Services Company ("FSSC") serves as
transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is
based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES -- FServ maintains the Fund's accounting records
for which it receives a fee. The fee is based on the level of the Fund's
average daily net assets for the period, plus out-of-pocket expenses.
INTERFUND TRANSACTIONS -- During the period ended May 31, 1998, 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 $38,100,000 and $33,200,000, respectively.
GENERAL -- Certain of the Officers and Directors of the Corporation are
Officers and Directors or Trustees of the above companies.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended May 31, 1998, were as follows:
<TABLE>
<S> <C>
PURCHASES $ 19,211,161
SALES $ 6,075,111
</TABLE>
6. YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
DIRECTORS
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
Nicholas P. Constantakis
William J. Copeland
James E. Dowd, Esq.
Lawrence D. Ellis, M.D.
Richard B. Fisher
Edward L. Flaherty, Jr., Esq.
Peter E. Madden
John E. Murray, Jr., J.D., S.J.D.
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
Nicholas J. Seitanakis
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves risk, including possible
loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectuses which contains facts
concerning its objective and policies, management fees, expenses, and other
information.
[Graphic]
Federated Investors
Federated Investors
Federated Securities Corp., Distributor
Federated Investors, Inc.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Cusip 338319403
Cusip 338319502
G00278-01 (7/98)
[Graphic]
[Graphic]
Federated Investors
Federated Strategic Income Fund
4TH SEMI-ANNUAL REPORT MAY 31, 1998
ESTABLISHED 1994
PRESIDENT'S MESSAGE
[Graphic]
Dear Shareholder:
Federated Strategic Income Fund was created in 1994, and I am pleased to present
its fourth Semi-Annual Report. This bond fund pursues monthly income from three
distinct bond markets -- domestic high-quality bonds, U.S. high-yield corporate
bonds,+ and international corporate+ and government bonds.
This report covers the first half of the fund's fiscal year which is the
six-month period from December 1, 1997 through May 31, 1998. It begins with a
discussion with the fund's portfolio manager, Joseph M. Balestrino, Senior Vice
President of Federated Advisers. Following his discussion are three additional
items of shareholder interest. First is a series of graphs showing the fund's
long-term investment performance. Second is a complete listing of the fund's
bond selections, and third is the publication of the fund's financial
statements.
This bond fund presents a strategic combination of bonds selected by an
investment management team consisting of experts in three key market sectors.
These bond sectors historically have little correlation to one another, and the
fund's holdings are diversified across approximately 600 issues around the
world, including the U.S. markets.
For the past year, bond prices around the world have exhibited appreciation in
the U.S., offset by depreciation in the international markets. The fund's net
asset value has decreased slightly, primarily due to a weak international bond
market. However, the fund produced a healthy level of income.
+ Lower rated bonds involve a higher degree of risk than investment grade bonds
in return for higher yield potential. Foreign investing involves special risks
including currency risk, increased volatility of foreign securities, and
differences in auditing and other financial standards.
During the six-month reporting period, the fund's net assets continued to grow
substantially, reaching $677 million on May 31, 1998. Individual share class
total return performance, including capital gains and income dividends,
follows.*
TOTAL INCOME CAPITAL GAIN NET ASSET
RETURN DISTRIBUTIONS DISTRIBUTIONS VALUE CHANGE
Class A Shares 3.38% $0.44 $0.03 $10.41 to $10.28 = (1.2%)
Class B Shares 2.99% $0.40 $0.03 $10.40 to $10.28 = (1.2%)
Class C Shares 3.00% $0.40 $0.03 $10.41 to $10.28 = (1.2%)
Class F Shares 3.28% $0.44 $0.03 $10.41 to $10.27 = (1.3%)
Thank you for your support of this diversified approach to income generation.
Remember, reinvesting your monthly earnings and investing on a systematic basis
are convenient ways to build your account--and to help your money grow through
the benefit of compounding.**
As always, we welcome your comments and suggestions.
Sincerely,
[Graphic]
Richard B. Fisher
President
July 15, 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, B, C, and F Shares were (1.27%), (2.72%), 2.00%, and 1.20%,
respectively.
** Systematic investing does not ensure a profit or protect against loss in
declining markets.
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 Corp.]
[Graphic]
THE FIRST HALF OF THE FUND'S FISCAL YEAR SAW A CONTINUED, REASONABLY POSITIVE
ENVIRONMENT FOR 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 SIX-MONTH REPORTING PERIOD ENDED MAY 31, 1998?
The six-month reporting period ended May 31, 1998, was generally positive for
high-quality, fixed-income securities, in that the overall direction of interest
rates was down. Asia was the driving force early in the period (late in 1997),
as financial unrest abroad created a massive "flight to quality" into U.S.
Treasury bonds. Much of the movement in interest rates occurred at the longer
end of the maturity spectrum, with 10-30 year rates falling within a range of
24-30 basis points. Shorter maturity rates fell less as the overall shape of the
yield curve continued to flatten.
Over the early months of 1998, the high-quality, fixed-income market was engaged
in a virtual tug-of-war between a strong domestic economy somewhat offset by
anticipated Asian-induced impacts. Overall, U.S. corporate earnings continued to
expand but at a pace much slower than seen in recent years. As a result, general
interest rates remained within a relative trading range of approximately
5.75%-6.00% for the 30-year Treasury bond.
The U.S. high-yield corporate market performed well because of the attractive
yields available as well as a continued strong demand for these products.
The global bond markets put in a lackluster performance as continuing gains in
most bond markets throughout the world were largely offset by a stronger U.S.
dollar. There were substantial differences in performance among countries.
Continued low inflation in the major developed markets around the world should
continue to allow bond yields to remain low, and central banks should provide
the markets with ample liquidity.
[Graphic]
HOW DID FEDERATED STRATEGIC INCOME FUND PERFORM COMPARED TO THE OVERALL BOND
MARKET?
The fund's Class A Shares posted a total return for the six-month reporting
period ended May 31, 1998 of 3.38% 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 2.99%, 3.00%, and 3.28%, respectively, based on net
asset value.* These returns, though slightly impacted by a modest $0.13, $0.12,
$0.13, and $0.14 decline in net asset value, respectively, for Class A, B, C,
and F Shares, were competitive with the 3.80% return of the Lipper Multi-Sector
Income Funds Average.**
[Graphic]
OF COURSE, INCOME IS A PRIMARY CONSIDERATION FOR SHAREHOLDERS. WHAT WAS THE
FUND'S TOTAL INCOME PAID PER SHARE DURING THE SIX-MONTH REPORTING PERIOD?
The fund's monthly income dividends totaled $0.44/share for Class A Shares,
$0.40/share for Class B Shares, $0.40/share for Class C Shares, and $0.44/share
for Class F Shares.
[Graphic]
WHAT WAS THE FUND'S ASSET ALLOCATION MIX AS OF MAY 31, 1998?
The fund's sector allocation was: 37.68% in domestic high-quality bonds, 33.22%
in domestic high-yield bonds, and 29.10% in international bonds.
* 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 (1.27%), (2.72%), 2.00%, and 1.20%,
respectively.
** Lipper figures represent the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as falling into
the category indicated. These figures do not reflect sales charges.
[Graphic]
AS WE REACH THE MID-POINT OF THE YEAR, WHAT IS MANAGEMENT'S OUTLOOK FOR THE
FUND'S THREE SECTORS?
As we look out into 1998, the risk/reward trade-off varies greatly among 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 will be continuing economic
growth and the earnings outlook. The current low growth/low inflation scenario
is positive for high-yield securities as long as the economy continues to move
forward.
In the international bond 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 from a fundamental viewpoint.
The fund's managers have increased the fund's allocation to the high-quality
markets and decreased exposure to the international sector. The fund remains
highly diversified and seeks to provide shareholders with a very attractive
income stream.
TWO WAYS YOU MAY SEEK TO INVEST FOR SUCCESS IN
FEDERATED STRATEGIC INCOME FUND
INITIAL INVESTMENT
IF YOU HAD MADE AN INITIAL INVESTMENT OF $5,000 IN THE CLASS A SHARES OF
FEDERATED STRATEGIC INCOME FUND ON 5/4/94, REINVESTED DIVIDENDS AND CAPITAL
GAINS, AND DID NOT REDEEM ANY SHARES, YOUR ACCOUNT WOULD HAVE BEEN WORTH $7,040
ON 5/31/98. YOU WOULD HAVE EARNED A 8.77%* AVERAGE ANNUAL TOTAL RETURN FOR THE
INVESTMENT LIFE SPAN.
One key to investing wisely is to reinvest all distributions in fund shares.
This increases the number of shares on which you can earn future dividends, and
you gain the benefit of compounding.
As of 6/30/98, the Class A Shares' 1-year and since inception (5/4/94) average
annual total returns were 1.52% and 8.48%, respectively. Class B Shares' 1-year
and since inception (7/27/95) average annual total returns were (0.33%) and
8.17%, respectively. Class C Shares' 1-year and since inception (5/2/94) average
annual total returns were 4.45% and 8.87%, respectively. Class F Shares' 1-year
and since inception (5/10/94) average annual total returns were 6.15% and 9.52%,
respectively.**
"Graphic representation "C1" omitted. See Appendix."
* Total return represents the change in the value of an investment after
reinvesting all income and capital gains, and takes into account the 4.50% 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 returns stated take into account the 4.50% sales charge for Class A
Shares, the 5.50% contingent deferred sales charge for Class B Shares, the 1.00%
contingent deferred sales charge for Class C Shares, and the 1.00% sales charge
and 1.00% contingent deferred sales charge for Class F Shares.
FEDERATED STRATEGIC INCOME FUND
ONE STEP AT A TIME:
$1,000 INITIAL INVESTMENT AND SUBSEQUENT INVESTMENTS OF $1,000 EACH YEAR FOR
FOUR YEARS (REINVESTING ALL DIVIDENDS AND CAPITAL GAINS) GREW TO $5,850.
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
did not redeem any shares, you would have invested only $5,000, but your account
would have reached a total value of $5,850* by 5/31/98. You would have earned an
average annual total return of 7.79%.
A practical investment plan in the fund helps you pursue income through a highly
diversified portfolio invested in U.S. corporate securities, U.S. government
securities, and non-U.S. corporate securities. Through systematic investing, you
buy shares on a regular basis and reinvest all earnings. An investment plan
works for you when you invest only $1,000 annually. You can take it one step at
a time. Put time, money, and compounding to work.
"Graphic representation "C2" 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 STRATEGIC INCOME FUND
HYPOTHETICAL INVESTOR PROFILE: INVESTING FOR FUTURE INCOME
Jim and Leslie Weber are a two-income couple who, like many others, want to be
able to afford their present lifestyle and still have something extra for those
special times when they might need it.
They decided a diversified income fund was right for them. The fund's exposure
to U.S. government securities, high-yield U.S. corporate securities, and
international securities gives them a relatively stable income stream. They
invested $100,000 in the Class A Shares of Federated Strategic Income Fund on
May 4, 1994, and have allowed the dividends and capital gains to reinvest.
By May 31, 1998, they were pleased to see that their original investment had
grown to $141,907 for an average annual total return of 8.97%. Leslie is already
looking forward to a special anniversary cruise in a few years.
The couple is fictional, but the figures are real.
"Graphic representation "C3" omitted. See Appendix."
This hypothetical scenario is provided for illustrative purposes only and
does not represent the results obtained by any particular shareholder. Past
performance does not guarantee future results.
FEDERATED STRATEGIC INCOME FUND
PORTFOLIO OF INVESTMENTS
MAY 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
U.S. CORPORATE BONDS -- 11.5%
AUTOMOTIVE--0.6%
$ 500,000 Arvin Industries, Inc., 9.50%, 2/1/2027 $ 585,920
1,925,000 Arvin Industries, Inc., Note, 6.75%, 1,929,141
3/15/2008
1,400,000 Dana Corp., Note, 7.00%, 3/15/2028 1,430,702
Total 3,945,763
BANKING--0.5%
1,000,000 FirstBank Puerto Rico, Sub. Note, 7.625%, 1,035,190
12/20/2005
1,700,000 Goldman Sachs Group, LP, Bond, 6.25%, 996,609
7/17/2009
1,500,000 Republic New York Corp., Sub. Note, 7.75%, 1,664,940
5/15/2009
Total 3,696,739
BEVERAGE & TOBACCO--0.1%
1,000,000 Philip Morris Cos., Inc., Deb., 7.75%, 1,070,560
1/15/2027
BROADCAST RADIO & TV--0.2%
1,250,000 SCI Television, Inc., Sr. Secd. Note, 1,268,100
11.00%, 6/30/2005
CABLE TELEVISION--1.0%
1,500,000 CF Cable TV, Inc., Note, 9.125%, 7/15/2007 1,673,190
1,000,000 Comcast Corp., Note, 8.50%, 5/1/2027 1,188,450
1,500,000 Continental Cablevision, Sr. Deb., 9.50%, 1,775,520
8/1/2013
2,065,000 TKR Cable, Inc., 10.50%, 10/30/2007 2,289,321
Total 6,926,481
CHEMICALS & PLASTICS--0.2%
1,250,000 (a)Reliance Industries Ltd., Bond, 8.25%, 1,146,025
1/15/2027
ECOLOGICAL SERVICES & EQUIPMENT--0.4%
2,700,000 WMX Technologies, Inc., Deb., 8.75%, 3,075,678
5/1/2018
EDUCATION--0.2%
1,000,000 Boston University, 7.625%, 7/15/2097 1,155,273
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
U.S. CORPORATE BONDS -- CONTINUED
ELECTRONICS--0.2%
$ 1,000,000 Anixter International, Inc., Company $ 1,051,970
Guarantee, 8.00%, 9/15/2003
FINANCIAL INTERMEDIARIES--0.7%
1,250,000 Chrysler Financial Corp., Deb., 13.25%, 1,374,600
10/15/1999
2,000,000 Green Tree Financial Corp., Sr. Sub. Note, 2,226,220
10.25%, 6/1/2002
1,000,000 Lehman Brothers Holdings, Inc., Note, 8.50%, 1,136,560
5/1/2007
Total 4,737,380
FOREST PRODUCTS--0.2%
1,250,000 Donohue Forest Products, 7.625%, 5/15/2007 1,345,938
250,000 Pope & Talbot, Inc., 8.375%, 6/1/2013 248,520
Total 1,594,458
HEALTHCARE--0.2%
850,000 Tenet Healthcare Corp., Sr. Note, 8.00%, 877,277
1/15/2005
500,000 (a)Tenet Healthcare Corp., Sr. Sub., 8.125%, 501,250
12/1/2008
Total 1,378,527
INDUSTRIAL PRODUCTS & EQUIPMENT--0.6%
1,250,000 Figgie International Holdings, Inc., Sr. 1,307,813
Note, 9.875%, 10/1/1999
2,250,000 Southdown, Inc., Sr. Sub. Note, 10.00%, 2,520,000
3/1/2006
Total 3,827,813
INSURANCE -- 1.9%
500,000 Allmerica Financial Corp., Bond, 8.207%, 571,610
2/3/2027
1,500,000 CNA Financial Corp., Bond, 6.95%, 1/15/2018 1,504,350
500,000 Conseco, Inc., Note, 6.40%, 2/10/2003 499,740
1,000,000 Conseco, Inc., Sr. Note, 10.50%, 12/15/2004 1,203,420
420,000 Continental Corp., Note, 8.25%, 4/15/1999 428,387
750,000 Delphi Financial Group, Inc., 9.31%, 843,675
3/25/2027
700,000 Delphi Financial Group, Inc., Note, 8.00%, 742,091
10/1/2003
1,750,000 (a)Equitable Life, Note, 7.70%, 12/1/2015 1,916,880
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
U.S. CORPORATE BONDS -- CONTINUED
INSURANCE -- CONTINUED
$ 1,000,000 (a)Life Re Capital Trust I, 8.72%, 6/15/2027 $ 1,088,610
285,000 NAC Re Corp., Note, 8.00%, 6/15/1999 290,897
625,000 Provident Cos., Inc., Bond, 7.405%, 649,223
3/15/2038
1,150,000 SunAmerica, Inc., Sr. Note, 9.00%, 1/15/1999 1,172,287
500,000 (a)USF&G Corp., 8.312%, 7/1/2046 587,725
500,000 USF&G Corp., Company Guarantee, 8.47%, 567,995
1/10/2027
1,000,000 (a)Union Central Life Insurance Co., Note, 1,106,350
8.20%, 11/1/2026
Total 13,173,240
MACHINERY & EQUIPMENT--0.2%
1,250,000 Cummins Engine Co., Inc., Deb., 7.125%, 1,259,088
3/1/2028
METALS & MINING--0.5%
1,950,000 Inco Ltd., Note, 9.60%, 6/15/2022 2,181,738
1,125,000 Santa Fe Pacific Gold, Note, 8.375%, 1,221,491
7/1/2005
Total 3,403,229
MUNICIPAL SERVICES--0.3%
750,000 Atlanta & Fulton County, GA Recreation
Authority, Taxable Revenue
Bonds, Series 1997, 7.00% Bonds (Downtown
Arena Project)/
(FSA INS), 12/1/2028 756,480
250,000 McKeesport, PA, Taxable G.O. Series B 1997,
7.30% Bonds (MBIA INS),
3/1/2020 256,620
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 1,118,100
Total 2,131,200
OIL & GAS--0.4%
1,500,000 Occidental Petroleum Corp., Note, 8.50%, 1,547,430
9/15/2004
1,000,000 Sun Co., Inc., 9.00%, 11/1/2024 1,247,890
Total 2,795,320
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
U.S. CORPORATE BONDS -- CONTINUED
PRINTING & PUBLISHING--0.5%
$ 400,000 News America Holdings, Inc., Company
Guarantee, 8.00%,
10/17/2016 $ 436,988
1,000,000 News America Holdings, Inc., Note, 8.15%, 1,093,910
10/17/2036
1,500,000 Valassis Communication, Inc., Sr. Sub. Note, 1,544,595
9.375%, 3/15/1999
Total 3,075,493
REAL ESTATE--0.3%
1,000,000 Price REIT, Inc., Sr. Note, 7.50%, 11/5/2006 1,062,760
500,000 Storage USA, 8.20%, 6/1/2017 554,015
500,000 Storage USA, Deb., 7.50%, 12/1/2027 514,830
Total 2,131,605
RETAILERS--1.5%
1,900,000 Brylane Capital Corp., Sr. Sub. Note, 2,014,000
10.00%, 9/1/2003
1,000,000 Dayton-Hudson Corp., Deb., 10.00%, 12/1/2000 1,092,210
2,030,000 Harcourt General, Inc., Sr. Deb., 7.20%, 2,060,897
8/1/2027
1,179,704 K Mart Corp., Pass Thru Cert., 8.54%, 1,221,690
1/2/2015
1,000,000 Penney (J.C.) Co., Inc., Deb., 7.65%, 1,098,600
8/15/2016
2,300,000 Shopko Stores, Inc., 9.25%, 3/15/2022 2,836,866
Total 10,324,263
SURFACE TRANSPORTATION--0.3%
1,500,000 Trans Ocean Container Corp., Sr. Sub. Note, 1,693,395
12.25%, 7/1/2004
TRANSPORTATION--0.2%
1,272,000 Continental Airlines, Inc., Pass Thru Cert.,
Series 1997-4 B, 6.90%,
7/2/2019 1,318,873
UTILITIES--0.3%
900,000 Big Rivers Electric Corp., 9.52%, 3/15/2019 945,648
375,000 California Energy Co., Inc., Sr. Note, 404,063
10.25%, 1/15/2004
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR FOREIGN
CURRENCY
PAR
AMOUNT VALUE
<C> <S> <C>
U.S. CORPORATE BONDS -- CONTINUED
UTILITIES--CONTINUED
$ 500,000 Puget Sound Energy, Inc., Medium Term Note, $ 518,000
7.02%, 12/1/2027
Total 1,867,711
TOTAL U.S. CORPORATE BONDS (IDENTIFIED 78,048,184
COST $75,804,658)
INTERNATIONAL BONDS -- 31.3%
ARGENTINE PESO--2.7%
INDUSTRIAL PRODUCTS & EQUIPMENT--0.9%
2,000,000 (a)CIA International Telecommunications, Note, 1,820,865
10.375%, 8/1/2004
2,250,000 (a)Imasac, S.A., 11.00%, 5/2/2005 2,137,500
2,000,000 (a)Mastellone Hermanos SA, 11.75%, 4/1/2008 2,040,000
Total 5,998,365
OIL & GAS--0.6%
2,000,000 Invergas SA, Note, 12.50%, 12/16/1999 2,101,020
2,000,000 MetroGas S.A., Sr. Note, 12.00%, 8/15/2000 2,127,500
Total 4,228,520
SOVEREIGN--0.9%
4,000,000 Argentina Global, Bond, 11.375%, 1/30/2017 4,267,500
2,000,000 Republic of Argentina, Note, 11.75%, 1,950,927
2/12/2007
Total 6,218,427
UTILITIES--0.3%
1,850,000 Bridas Corp., Sr. Note, 12.50%, 11/15/1999 1,947,125
TOTAL ARGENTINE PESO 18,392,437
AUSTRALIAN DOLLAR--0.3%
PRINTING & PUBLISHING--0.0%
150,000 News America Holdings, Inc., 8.625%, 105,880
2/7/2014
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR FOREIGN
CURRENCY
PAR
AMOUNT VALUE
<C> <S> <C>
INTERNATIONAL BONDS -- CONTINUED
AUSTRALIAN DOLLAR--CONTINUED
STATE/PROVINCIAL--0.3%
580,000 Queensland Treasury, Deb., 10.50%, 5/15/2003 $ 443,498
2,000,000 Queensland Treasury, Local Gov't. Guarantee, 1,398,886
8.00%, 5/14/2003
550,000 Treasury Corp. of Victoria, Local Gov't. 436,533
Guarantee, 10.25%, 11/15/2006
Total 2,278,917
TOTAL AUSTRALIAN DOLLAR 2,384,797
BRITISH POUND--0.6%
SOVEREIGN--0.6%
300,000 Bank of Ireland, Sub., 9.75%, 3/21/2005 566,858
500,000 Denmark, Unsub., 11.625%, 1/23/2000 873,816
1,300,000 United Kingdom Treasury, Foreign Gov't.
Guarantee, 11.75%,
1/22/2007 2,608,994
TOTAL BRITISH POUND 4,049,668
CANADIAN DOLLAR--2.8%
AGENCY--0.4%
1,000,000 Quebec, Province of, Deb., 13.25%, 9/15/2014 1,132,730
1,500,000 Quebec, Province of, Deb., 9.125%, 8/22/2001 1,623,750
Total 2,756,480
BANKING--0.2%
1,250,000 National Bank of Canada, Montreal, Sub. 1,363,963
Note, 8.125%, 8/15/2004
BEVERAGE & TOBACCO--0.1%
1,100,000 Molson Breweries, Unsub., 9.10%, 3/11/2013 975,368
FOREST PRODUCTS--0.5%
1,150,000 Avenor, Inc., Deb., 10.85%, 11/30/2014 1,071,934
1,750,000 Quno Corp., Sr. Note, 9.125%, 5/15/2005 1,910,370
Total 2,982,304
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR FOREIGN
CURRENCY
PAR
AMOUNT VALUE
<C> <S> <C>
INTERNATIONAL BONDS -- CONTINUED
CANADIAN DOLLAR--CONTINUED
METALS & MINING--0.4%
1,000,000 Barrick Gold Corp., Deb., 7.50%, 5/1/2007 $ 1,064,100
1,250,000 Placer Dome, Inc., Bond, 8.50%, 12/31/2045 1,297,685
Total 2,361,785
OIL & GAS--0.2%
1,250,000 Husky Oil Ltd., Sr. Note, 7.125%, 11/15/2006 1,282,375
STATE/PROVINCIAL--0.1%
1,000,000 (a)Metro Toronto, Deb., 7.40%, 9/27/2006 770,252
SURFACE TRANSPORTATION--0.1%
1,200,000 Air Canada, 7.25%, 10/1/2007 844,588
TELECOMMUNICATIONS & CELLULAR--0.8%
500,000 Bell Canada, Deb., 8.80%, 8/17/2005 406,504
2,500,000 Clearnet Communications, Sr. Disc. Note, 1,027,353
0/10.40%, 5/15/2008
5,280,000 Clearnet Communications, Sr. Disc. Note, 2,410,049
8/13/2007
3,800,000 Microcell Telecommunications, Sr. Disc. 1,662,777
Note, 0/11.125%, 10/15/2007
Total 5,506,683
TOTAL CANADIAN DOLLAR 18,843,798
CZECH KORUNA--0.2%
SUPRANATIONAL--0.2%
21,500,000 International Finance Corp., Sr. Unsub., 630,795
10.50%, 11/30/1998
17,500,000 World Bank, Unsub., 13.75%, 9/18/1998 522,971
TOTAL CZECH KORUNA 1,153,766
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR FOREIGN
CURRENCY
PAR
AMOUNT VALUE
<C> <S> <C>
INTERNATIONAL BONDS -- CONTINUED
DANISH KRONE--0.3%
FINANCIAL INTERMEDIARIES--0.1%
3,460,000 Nykredit, Mtg. Bond, 8.00%, 10/1/2026 $ 523,232
769,000 Unikredit Realkredit, Mtg. Bond, 8.00%, 115,612
10/1/2029
Total 638,844
SOVEREIGN--0.2%
8,750,000 Kingdom of Denmark, Bond, 7.00%, 11/10/2024 1,543,951
TOTAL DANISH KRONE 2,182,795
DEUTSCHE MARK--0.7%
FINANCIAL INTERMEDIARIES--0.2%
1,750,000 Depfa-Bank, 5.75%, 3/4/2009 1,030,139
SOVEREIGN--0.5%
2,000,000 Bundesrepublic Deutschland, 6.00%, 7/4/2007 1,211,153
3,800,000 Deutschland Republic, Deb., 6.25%, 1/4/2024 2,371,260
Total 3,582,413
TOTAL DEUTSCHE MARK 4,612,552
GREEK DRACHMA--0.8%
SOVEREIGN--0.8%
120,000,000 Hellenic Republic, 11.10%, 8/14/2003 398,490
620,000,000 Hellenic Republic, 8.60%, 3/26/2008 2,145,330
120,000,000 Hellenic Republic, Bond, 11.00%, 10/23/2003 398,293
375,000,000 Hellenic Republic, Bond, 11/26/2003 1,242,206
200,000,000 Hellenic Republic, Bond, 12/31/2003 663,166
150,000,000 Hellenic Republic, Bond, 9.80%, 3/21/2000 488,022
TOTAL GREEK DRACHMA 5,335,507
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR FOREIGN
CURRENCY
PAR
AMOUNT VALUE
<C> <S> <C>
INTERNATIONAL BONDS -- CONTINUED
HUNGARY FORINT--0.7%
SOVEREIGN--0.7%
580,000,000 Hungary, Bond, 14.00%, 12/12/2002 $ 2,552,696
410,000,000 Hungary, Bond, 16.50%, 4/12/1999 1,891,851
TOTAL HUNGARY FORINT 4,444,547
INDONESIAN RUPIAH--0.0%
CLOTHING & TEXTILES--0.0%
1,000,000,000 Polysindo International Finance Co. BV, 17,690
17.60% accrual, 7/15/1998
CONGLOMERATES--0.0%
4,000,000,000 Dharmala Intiutama, 25.00%, 2/5/1999 35,360
475,555,556 Dharmala Intiutama, 8/20/1998 4,204
Total 39,564
TOTAL INDONESIAN RUPIAH 57,254
ITALIAN LIRA--0.5%
SOVEREIGN--0.5%
750,000,000 Buoni Poliennali Del Tes, 10.00%, 526,275
8/1/2003
650,000,000 Buoni Poliennali Del Tes, 7.75%, 437,359
11/1/2006
1,400,000,000 Buoni Poliennali Del Tes, Deb., 10.50%, 799,540
7/15/1998
3,000,000,000 Buoni Poliennali Del Tes, Deb., 12.00%, 1,728,810
9/18/1998
TOTAL ITALIAN LIRA 3,491,984
KENYAN SHILLING--0.4%
SOVEREIGN--0.4%
120,000,000 Central Bank Kenya, Foreign Gov't.
Guarantee, 26.95% accrual,
7/7/1998 1,859,593
67,100,000 Central Bank Kenya, Foreign Gov't. 1,010,107
Guarantee, 8/24/1998
TOTAL KENYAN SHILLING 2,869,700
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR FOREIGN
CURRENCY
PAR
AMOUNT VALUE
<C> <S> <C>
INTERNATIONAL BONDS -- CONTINUED
MEXICAN PESO--1.0%
SOVEREIGN -- 1.0%
1,000,000 Mexican Cetes, 1/14/1999 $ 1,000,567
2,225,000 Mexican Cetes, 10/22/1998 2,325,907
1,500,000 Mexican Cetes, 5/6/1999 1,403,741
1,800,000 Mexican Cetes, 9/24/1998 1,910,204
TOTAL MEXICAN PESO 6,640,419
NEW ZEALAND DOLLAR--0.3%
FINANCIAL INTERMEDIARIES--0.2%
1,770,000 Australia & New Zealand Banking Group,
Melbourne, 8.12% accrual,
10/28/1998 916,424
840,000 Brierley Investments Ltd., Bond, 9.00%, 455,590
3/15/2002
Total 1,372,014
SOVEREIGN--0.1%
800,000 New Zealand, Government of, Deb., 8.00%, 470,559
11/15/2006
TOTAL NEW ZEALAND DOLLAR 1,842,573
NORWEGIAN KRONE--0.2%
SOVEREIGN--0.2%
3,000,000 Norwegian Government, Bond, 7.00%, 5/31/2001 416,980
2,300,000 Norwegian Government, Bond, 9.00%, 1/31/1999 312,938
6,000,000 Norwegian Government, Bond, 9.50%, 921,950
10/31/2002
TOTAL NORWEGIAN KRONE 1,651,868
POLISH ZLOTY--1.1%
SOVEREIGN--1.1%
4,500,000 Poland Gov't. Bond, 12.00%, 2/12/2003 1,071,183
4,000,000 Poland Gov't. Bond, 12.00%, 6/12/2002 953,308
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR FOREIGN
CURRENCY
PAR
AMOUNT VALUE
<C> <S> <C>
INTERNATIONAL BONDS -- CONTINUED
POLISH ZLOTY--CONTINUED
SOVEREIGN--CONTINUED
2,000,000 Poland Gov't. Bond, 15.00%, 10/12/1999 $ 534,517
1,500,000 Poland Gov't. Bond, 12.00%, 6/12/2001 361,787
620,000 Poland, Republic of, Bond, 12.00%, 2/12/2002 147,852
18,000,000 Poland, Republic of, Bond, 12.00%, 6/12/2003 4,289,888
TOTAL POLISH ZLOTY 7,358,535
SLOVAKIAN KORUNA--0.1%
SUPRANATIONAL--0.1%
15,500,000 International Finance Corp., Note, 11.75%, 408,332
8/15/1999
SOUTH AFRICAN RAND -- 0.8%
SOVEREIGN--0.3%
2,500,000 Republic of South Africa, Bond, 12.50%, 465,444
1/15/2002
10,000,000 South Africa, Republic of, 12.00%, 2/28/2005 1,778,117
Total 2,243,561
SURFACE TRANSPORTATION--0.5%
11,000,000 Trans Caledon Tunnel Authority, 13.00%, 1,986,743
9/15/2010
7,250,000 Transnet Ltd., Foreign Gov't. Guarantee,
Series T016, 11.50%,
2/15/1999 1,380,452
Total 3,367,195
TOTAL SOUTH AFRICAN RAND 5,610,756
SOUTH KOREAN WON--0.1%
SUPRANATIONAL--0.1%
900,000,000 European Bank for Reconstruction and
Development, Bond, 10.00%,
5/2/2002 581,877
TOTAL SOUTH KOREAN WON 581,877
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR FOREIGN
CURRENCY
PAR
AMOUNT VALUE
<C> <S> <C>
INTERNATIONAL BONDS -- CONTINUED
SPANISH PESETA--0.4%
SOVEREIGN--0.3%
10,000,000 Spain (Government), 10.00%, 2/28/2005 $ 85,140
36,000,000 Spain (Government), Bond, 10.15%, 1/31/2006 315,104
60,000,000 Spain (Government), Deb., 10.10%, 2/28/2001 453,118
126,000,000 Spain (Government), Foreign Gov't. 968,882
Guarantee, 8.00%, 5/30/2004
Total 1,822,244
SOVEREIGN GOVERNMENT--0.1%
80,000,000 Bonos Y Oblig. Del Estado, Deb., 8.20%, 660,112
2/28/2009
TOTAL SPANISH PESETA 2,482,356
SWEDISH KRONA--0.7%
SOVEREIGN--0.7%
3,000,000 Sweden (Kingdom of), 10.25%, 5/5/2003 473,042
9,000,000 Sweden (Kingdom of), Deb., 9.00%, 4/20/2009 1,513,991
10,500,000 Swedish Government, Bond, 8.00%, 8/15/2007 1,625,582
7,500,000 Swedish Government, Deb., 6.50%, 10/25/2006 1,052,371
TOTAL SWEDISH KRONA 4,664,986
U.S. DOLLARS -- 16.6%
BEVERAGE & TOBACCO--0.4%
2,850,000 Empresas La Moderna, 11.375%, 1/25/1999 2,907,000
BUILDING & DEVELOPMENT--0.6%
2,500,000 Cemex SA, Bond, 12.75%, 7/15/2006 2,953,125
1,000,000 Corporacion GEO, S.A. de C.V., Note, 10.00%, 1,030,000
5/23/2002
Total 3,983,125
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR FOREIGN
CURRENCY
PAR
AMOUNT VALUE
<C> <S> <C>
INTERNATIONAL BONDS -- CONTINUED
U.S. DOLLARS -- CONTINUED
CONGLOMERATES--0.5%
$ 1,000,000 (a)Hutchison Whampoa Finance, Company $ 830,500
Guarantee, 7.50%, 8/1/2027
3,000,000 Mechala Group Jamaica, Note, 12.75%, 2,805,000
12/30/1999
Total 3,635,500
CONTAINER & GLASS PRODUCTS--0.3%
1,750,000 Vicap SA, Sr. Note, 11.375%, 5/15/2007 1,876,875
FINANCE--0.3%
1,000,000 (a)Pera Financial, 9.375%, 10/15/2002 935,000
1,250,000 Voto-Votorantim O/S Trad, Company Guarantee, 1,140,625
8.50%, 6/27/2005
Total 2,075,625
FINANCIAL INTERMEDIARIES -- 1.5%
1,000,000 Bancomext Trust, Bank Guarantee, 11.25%, 1,119,500
5/30/2006
2,000,000 Banco Nac De Desen Econo, Bond, 9.00%, 1,817,000
9/24/2007
1,500,000 Banco Santander, Sub. Note, 7.25%, 11/1/2015 1,563,285
1,000,000 (a)Den Danske Bank, Note, 7.40%, 6/15/2010 1,051,940
5,450,000 (a)Geberit International, Sr. Sub. Note, 3,489,772
10.125%, 4/15/2007
500,000 PIV Investment Finance, Company Guarantee, 50,000
4.50%, 12/1/2000
1,000,000 (a)Swedbank, Sub., 7.50%, 11/29/2049 1,030,930
Total 10,122,427
FOREST PRODUCTS--0.9%
1,000,000 Aracruz Cellulose, Deb., 10.375%, 1/31/2002 1,012,500
2,500,000 Asia Pulp & Paper Co. Ltd., Company 2,181,250
Guarantee, 11.75%, 10/1/2005
1,700,000 Indah Kiat Intl. Finance, Company Guarantee, 1,415,250
11.875%, 6/15/2002
1,800,000 Indah Kiat Intl. Finance, Company Guarantee, 1,498,500
12.50%, 6/15/2006
Total 6,107,500
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR FOREIGN
CURRENCY
PAR
AMOUNT VALUE
<C> <S> <C>
INTERNATIONAL BONDS -- CONTINUED
U.S. DOLLARS -- CONTINUED
GOVERNMENT AGENCY--0.8%
$ 250,000 (a)Government of Jamaica, Bond, 9.625%, $ 246,250
7/2/2002
5,000,000 Republic of Ecuador, 11.25%, 4/25/2002 5,037,500
Total 5,283,750
INDUSTRIAL PRODUCTS & EQUIPMENT--1.6%
2,000,000 Advance Agro Public Co., 13.00%, 11/15/2007 2,030,000
1,500,000 (a)Cathay International Ltd., 13.00%, 1,428,750
4/15/2008
500,000 (a)Disco S.A., Note, 9.875%, 5/15/2008 482,500
2,000,000 Globo Communicacoes Part, Sr. Note, 10.625%, 1,941,600
12/5/2008
1,500,000 Grupo Minero Mexico, 9.25%, 4/1/2028 1,443,750
2,000,000 Sophora Comercio, 11.50%, 11/10/1998 2,010,000
1,000,000 (a)TM Group Holdings, Sr. Note, 11.00%, 1,030,000
5/15/2008
1,250,000 (a)TV Bandeirantes, Note, 12.875%, 5/15/2006 1,214,875
Total 11,581,475
OIL & GAS--0.9%
2,500,000 Bariven SA, Company Guarantee, 10.625%, 2,650,000
3/17/2002
625,494 Centragas, 10.65%, 12/1/2010 638,004
1,000,000 (a)LG-Caltex Oil Co., Ltd, Note, 5.89813%, 985,000
3/31/2001
2,000,000 Petroleo Brasileiro SA, 10.525%, 6/8/1998 2,002,323
Total 6,275,327
SOVEREIGN -- 5.7%
5,900,000 Bulgaria, 6.6875%, 7/28/2011 4,454,500
2,000,000 Islamic Republic of Pakistan, Bond, 1,967,600
9.85625%, 5/30/2000
2,800,000 Islamic Republic of Pakistan, Deb., 11.50%, 2,801,400
12/22/1999
3,000,000 (a)Ministry Finance Russia, 10.00%, 6/26/2007 2,677,500
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR FOREIGN
CURRENCY
PAR
AMOUNT VALUE
<C> <S> <C>
INTERNATIONAL BONDS -- CONTINUED
U.S. DOLLARS -- CONTINUED
SOVEREIGN -- CONTINUED
$ 500,000 (a)Ministry Finance Russia, 9.25%, 11/27/2001 $ 471,250
3,500,000 (a)Ministry Finance Russia, 9.375%, 3/31/2005 1,837,824
1,000,000 Ministry Finance Russia, Unsub., 9.25%, 935,000
11/27/2001
900,000 Nacional Financiera, SNC, Foreign Gov't.
Guarantee, 10.625%,
11/22/2001 963,567
1,000,000 Panama, 7.875%, 2/13/2002 995,000
4,500,000 Russia, 10.00%, 6/26/2007 4,038,750
2,000,000 Russia, Deb., 3.359375%, 12/15/2020 1,127,600
920,000 South Africa, Republic of, Global Bond Deb., 957,370
9.625%, 12/15/1999
400,000 Turkey, 10.00%, 5/23/2002 418,800
700,000 Turkey, 10.00%, 9/19/2007 701,313
1,000,000 Turkey, Bond, 9.875%, 2/23/2005 992,500
1,000,000 Turkey, Deb., 11.50%, 4/27/1999 1,031,000
4,000,000 United Mexican States, 8.625%, 3/12/2008 3,948,000
3,000,000 United Mexican States, Bond, 9.875%, 3,146,250
1/15/2007
5,750,000 Venezuela, Bond, 9.25%, 9/15/2027 4,815,625
Total 38,280,849
STEEL--0.3%
610,000 Metalurgica Gerdau, Company Guarantee, 603,290
10.25%, 11/23/2001
400,000 Metalurgica Gerdau, Company Guarantee, 404,000
11.125%, 5/24/2004
1,125,000 Tubos de Acero de Mexico SA, Unsub., 13.75%, 1,223,438
12/8/1999
Total 2,230,728
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR FOREIGN
CURRENCY
PAR
AMOUNT VALUE
<C> <S> <C>
INTERNATIONAL BONDS -- CONTINUED
U.S. DOLLARS -- CONTINUED
SURFACE TRANSPORTATION--0.5%
$ 1,000,000 (a)Road King Infrastructure, Series 144a, $ 762,500
9.50%, 7/15/2007
1,000,000 Zhuhai Highway, 9.125%, 7/1/2006 880,040
1,750,000 (a)Zhuhai Highway, Sub. Note, 11.50%, 7/1/2008 1,548,750
Total 3,191,290
TELECOMMUNICATIONS & CELLULAR--1.3%
1,750,000 CANTV Finance Ltd., Company Guarantee, 1,732,500
9.25%, 2/1/2004
700,000 (a)Comtel Brasileir, Note, 10.75%, 9/26/2004 683,375
500,000 Comtel Brasileir, Note, Series REGS, 10.75%, 488,750
9/26/2004
2,350,000 Philippine Long Distance Telephone Co., 2,485,125
Deb., 10.625%, 6/2/2004
1,500,000 (a)Telecom Brazil, Collateral Trust, Series 1,526,250
EMTN, 11.4375%, 12/9/1999
2,000,000 Tricom SA, Sr. Note, 11.375%, 9/1/2004 1,960,000
Total 8,876,000
UTILITIES -- 1.0%
4,000,000 AES China Generating Co., Note, 10.125%, 3,660,000
12/15/2006
2,000,000 (a)CIA Saneamento Basico, Bond, 10.00%, 1,847,500
7/28/2005
550,000 (a)Israel Electric Corp. Ltd., Sr. Note, 575,141
7.875%, 12/15/2026
500,000 (a)Tenaga Nasional Berhad, Deb., 7.50%, 370,735
1/15/2096
Total 6,453,376
TOTAL U.S. DOLLAR 112,880,847
TOTAL INTERNATIONAL BONDS (IDENTIFIED 211,941,354
COST $221,227,914)
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
U.S. GOVERNMENT/AGENCY -- 14.4%
LONG-TERM GOVERNMENT OBLIGATIONS--14.4%
$ 306,469 Federal Home Loan Mortgage Corp., 8.00%, $ 316,717
11/1/2011
414,065 Federal Home Loan Mortgage Corp., 8.00%, 431,199
7/1/2024
256,232 Federal Home Loan Mortgage Corp., 8.00%, 266,624
5/1/2025
348,241 Federal Home Loan Mortgage Corp., 8.50%, 365,218
9/1/2025
72,812 Federal Home Loan Mortgage Corp., 8.50%, 76,293
1/1/2026
268,330 Federal Home Loan Mortgage Corp., 8.00%, 279,434
7/1/2024
233,289 Federal Home Loan Mortgage Corp., 8.00%, 242,751
5/1/2025
1,830,200 Federal Home Loan Mortgage Corp., 8.00%, 1,905,933
6/1/2025
306,388 Federal Home Loan Mortgage Corp., 8.00%, 319,505
8/1/2025
372,192 Federal Home Loan Mortgage Corp., 7.50%, 383,708
10/1/2025
1,754,528 Federal Home Loan Mortgage Corp., 7.50%, 1,808,813
5/1/2026
236,298 Federal Home Loan Mortgage Corp., 8.00%, 246,414
5/1/2024
781,167 Federal Home Loan Mortgage Corp., 7.50%, 803,625
8/1/2026
292,125 Federal Home Loan Mortgage Corp., 8.00%, 303,261
8/1/2027
274,254 Federal Home Loan Mortgage Corp., 8.00%, 285,603
1/1/2025
1,325,465 Federal Home Loan Mortgage Corp., 6.50%, 1,335,406
7/1/2011
821,838 Federal Home Loan Mortgage Corp., 7.00%, 838,529
5/1/2011
1,782,744 Federal Home Loan Mortgage Corp., 7.00%, 1,818,951
5/1/2011
1,925,794 Federal Home Loan Mortgage Corp., 6.50%, 1,939,640
11/1/2012
161,977 Federal Home Loan Mortgage Corp., 8.50%, 169,874
9/1/2025
266,459 Federal Home Loan Mortgage Corp., 8.00%, 276,835
2/1/2027
3,249,000 (e)Federal Home Loan Mortgage Corp., 7.00%, 3,302,414
TBA
871,046 Federal National Mortgage Association, 878,937
6.50%, 2/1/2009
1,847,097 Federal National Mortgage Association, 1,907,128
7.50%, 4/1/2024
393,116 Federal National Mortgage Association, 400,978
7.00%, 5/1/2024
344,843 Federal National Mortgage Association, 351,847
7.00%, 12/1/2010
3,430,074 Federal National Mortgage Association, 3,509,377
7.00%, 2/1/2024
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
U.S. GOVERNMENT/AGENCY -- CONTINUED
LONG-TERM GOVERNMENT OBLIGATIONS-- CONTINUED
$ 964,094 Federal National Mortgage Association, $ 961,684
6.50%, 12/1/2025
1,294,899 Federal National Mortgage Association, 1,285,395
6.00%, 4/1/2011
824,486 Federal National Mortgage Association, 857,102
8.00%, 10/1/2026
1,934,606 Federal National Mortgage Association, 1,922,515
6.50%, 12/1/2027
846,573 Federal National Mortgage Association, 841,282
6.50%, 2/1/2028
1,755,788 Federal National Mortgage Association, 1,766,218
6.50%, 4/1/2013
985,126 Federal National Mortgage Association, 990,977
6.50%, 4/1/2013
3,000,000 Federal National Mortgage Association, 3,126,000
8.00%, 8/1/2027
1,980,000 Federal National Mortgage Association, 1,991,761
6.50%, 5/1/2013
3,000,000 Federal National Mortgage Association, 2,964,360
6.00%, TBA
7,500,000 Federal National Mortgage Association, 7,453,125
6.50%, TBA
14,075,000 Federal National Mortgage Association, 14,277,258
7.00%, TBA
158,291 Government National Mortgage Association, 170,805
9.00%, 10/15/2016
1,750,788 Government National Mortgage Association, 1,809,334
7.50%, 11/15/2022
1,930,042 Government National Mortgage Association, 1,931,857
6.50%, 1/15/2024
366,340 Government National Mortgage Association, 378,359
7.50%, 3/15/2024
2,204,309 Government National Mortgage Association, 2,271,122
7.50%, 10/15/2027
481,259 Government National Mortgage Association, 495,846
7.50%, 12/15/2027
1,775,585 Government National Mortgage Association, 1,832,191
7.50%, 3/15/2026
2,888,557 Government National Mortgage Association, 2,977,929
7.50%, 2/15/2027
143,784 Government National Mortgage Association, 155,916
9.50%, 2/15/2025
620,869 Government National Mortgage Association, 640,079
7.50%, 1/15/2026
733,939 Government National Mortgage Association, 757,337
7.50%, 2/15/2026
844,435 Government National Mortgage Association, 878,474
8.00%, 1/15/2028
1,006,514 Government National Mortgage Association, 1,021,924
7.00%, 1/15/2028
1,942,834 Government National Mortgage Association, 2,001,721
7.50%, 11/15/2027
399,593 Government National Mortgage Association, 415,701
8.00%, 6/15/2026
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
U.S. GOVERNMENT/AGENCY -- CONTINUED
LONG-TERM GOVERNMENT OBLIGATIONS-- CONTINUED
$ 421,121 Government National Mortgage Association, $ 438,096
8.00%, 6/15/2026
337,372 Government National Mortgage Association, 351,393
8.00%, 8/15/2026
1,909,394 Government National Mortgage Association, 1,967,268
7.50%, 12/15/2027
1,351,348 Government National Mortgage Association, 1,372,038
7.00%, 3/15/2028
993,514 Government National Mortgage Association, 1,008,725
7.00%, 1/15/2028
4,920,173 Government National Mortgage Association, 5,069,303
7.50%, 4/15/2028
1,570,170 Government National Mortgage Association, 1,629,051
8.00%, 2/15/2010
2,679,566 Government National Mortgage Association, 2,896,450
9.00%, 11/15/2017
771,926 Government National Mortgage Association, 823,305
8.50%, 10/15/2017
1,162,525 Government National Mortgage Association, 1,312,561
11.00%, 9/15/2015
TOTAL U.S. GOVERNMENT/AGENCY (IDENTIFIED 97,809,476
COST $96,856,490)
U.S. TREASURY OBLIGATIONS -- 6.9%
U.S. TREASURY BONDS -- 4.8%
5,000,000 United States Treasury Bond, 10.75%, 6,486,150
8/15/2005
5,000,000 United States Treasury Bond, 11.25%, 7,889,250
2/15/2015
7,500,000 United States Treasury Bond, 11.625%, 9,901,500
11/15/2004
6,410,000 United States Treasury Bond, 12.375%, 8,570,939
5/15/2004
Total 32,847,839
U.S. TREASURY NOTES--2.1%
2,500,000 United States Treasury Note, 5.625%, 2,503,175
12/31/2002
8,000,000 United States Treasury Note, 7.75%, 8,251,760
11/30/1999
3,000,000 United States Treasury Note, 9.125%, 3,099,090
5/15/1999
Total 13,854,025
TOTAL U.S. TREASURY OBLIGATIONS 46,701,864
(IDENTIFIED COST $46,797,583)
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR SHARES VALUE
<C> <S> <C>
ASSET-BACKED SECURITIES--0.2%
$ 500,000 (a)SMFC Trust Asset-Backed Certificates,
Series 1997-A, Class 4,
1/28/2025 $ 455,315
1,000,000 New Century Home Equity Loan Trust 1997-NC5,
Class M2, 7.24%,
10/25/2028 1,007,660
TOTAL ASSET-BACKED SECURITIES 1,462,975
(IDENTIFIED COST $1,448,079)
COMMON STOCKS--0.0%
NIGERIA--0.0%
SOVEREIGN--0.0%
250 Nigeria Par, Warrants 3
VENEZUELA--0.0%
SOVEREIGN--0.0%
7,500 Venezuela Rep Oil Linked, Warrants 0
TOTAL COMMON STOCKS (IDENTIFIED COST $0) 3
PREFERRED STOCKS--0.6%
COMPUTER SERVICES--0.2%
17,680 Microsoft Corp., Cumulative Conv. Pfd., 1,650,870
Series A, $2.20
FINANCIAL--0.1%
9,900 Security Capital Industrial Trust, REIT
Perpetual Pfd. Stock,
Series C, $4.27 548,381
REAL ESTATE--0.3%
2,000 Highwoods Properties, Inc., REIT Perpetual 2,117,960
Pfd. Stock, Series A, $86.25
TOTAL PREFERRED STOCKS (IDENTIFIED COST 4,317,211
$4,202,422)
MUTUAL FUNDS--31.0%
21,217,344 (f)The High Yield Bond Portfolio (IDENTIFIED
210,263,883 COST $204,113,751)
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
<C> <S> <C>
(B)REPURCHASE AGREEMENTS--6.6%
$ 27,425,000 BT Securities Corp., 5.57%, dated 5/29/1998, $ 27,425,000
due 6/1/1998
3,249,000 (c)Goldman Sachs Group, LP, 5.48%, dated 3,249,000
4/17/1998, due 6/10/1998
9,000,000 (c)Goldman Sachs Group, LP, 5.49%, dated 9,000,000
5/6/1998, due 6/10/1998
5,075,000 (c)Morgan Stanley Group, Inc., 5.50%, dated 5,075,000
5/1/1998, due 6/10/1998
TOTAL REPURCHASE AGREEMENTS (AT 44,749,000
AMORTIZED COST)
TOTAL INVESTMENTS (IDENTIFIED COST $ 695,293,950
$695,199,897)(D)
</TABLE>
(a) Denotes a restricted security. At May 31, 1998, these securities amounted to
$38,597,114 which represents 5.7% of total net assets.
(b) 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.
(c) 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.
(d) The cost of investments for federal tax purposes amounts to $695,199,897.
The net unrealized appreciation of investments on a federal tax basis amounts to
$94,053 which is comprised of $11,991,483 appreciation and $11,897,430
depreciation at May 31, 1998.
(e) Security is subject to dollar roll transaction.
(f) Shareholders interested in learning more about this fund can obtain
additional information, including a prospectus, by calling (412) 288-1900.
Note: The categories of investments are shown as a percentage of net assets
($677,279,731) at May 31, 1998.
The following acronyms are used throughout this portfolio:
FSA --Financial Security Assurance GO --General Obligation INS --Insured LP
- --Limited Partnership MBIA --Municipal Bond Investors Assurance REIT --Real
Estate Investment Trust SA --Support Agreement TBA --To Be Announced UT
- --Unlimited Tax
(See Notes which are an integral part of the Financial Statements)
FEDERATED STRATEGIC INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $ 695,293,950
$695,199,897)
Income receivable 11,064,823
Receivable for investments sold 54,959
Receivable for shares sold 7,476,781
Prepaid expenses 571
Deferred organizational costs 39,934
Other assets 11,590
Total assets 713,942,608
LIABILITIES:
Payable for investments purchased $ 31,642,680
Payable for shares redeemed 445,720
Income distribution payable 441,742
Payable to Bank 272,990
Payable for dollar roll transactions 3,284,208
Payable for taxes withheld 33,358
Accrued expenses 542,179
Total liabilities 36,662,877
NET ASSETS for 65,906,953 shares outstanding $ 677,279,731
NET ASSETS CONSIST OF:
Paid in capital $ 681,084,555
Net unrealized appreciation of investments and translation of assets
and liabilities in foreign currency 83,660
Accumulated net realized loss on investments and foreign currency (1,528,643)
transactions
Distributions in excess of net investment income (2,359,841)
Total Net Assets $ 677,279,731
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS PER SHARE:
CLASS A SHARES:
Net Asset Value Per Share ($107,299,801 / 10,440,928 shares outstanding) $10.28
Offering Price Per Share (100/95.50 of $10.28)* $10.76
Redemption Proceeds Per Share $10.28
CLASS B SHARES:
Net Asset Value Per Share ($475,379,435 / 46,258,391 shares outstanding) $10.28
Offering Price Per Share $10.28
Redemption Proceeds Per Share (94.50/100 of $10.28)** $9.71
CLASS C SHARES:
Net Asset Value Per Share ($59,993,130 / 5,838,583 shares outstanding) $10.28
Offering Price Per Share $10.28
Redemption Proceeds Per Share (99.00/100 of $10.28)** $10.18
CLASS F SHARES:
Net Asset Value Per Share ($34,607,365 / 3,369,051 shares outstanding) $10.27
Offering Price Per Share (100/99.00 of $10.27)* $10.37
Redemption Proceeds Per Share (99.00/100 of $10.27)** $10.17
</TABLE>
* See "Investing in the Fund" in the Prospectus.
** See "Investing in the Fund" and "Contingent Deferred Sales Charge" in the
Prospectus.
(See Notes which are an integral part of the Financial Statements)
FEDERATED STRATEGIC INCOME FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED MAY 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 5,525,032
Interest (net of dollar roll expense of $129,845) (net of 18,568,136
foreign taxes withheld of $34,186)
Total income 24,093,168
EXPENSES:
Investment advisory fee $2,273,872
Administrative personnel and services fee 201,706
Custodian fees 63,103
Transfer and dividend disbursing agent fees and expenses 242,412
Directors'/Trustees' fees 1,384
Auditing fees 7,471
Legal fees 3,261
Portfolio accounting fees 88,881
Distribution services fee--Class B Shares 1,422,500
Distribution services fee--Class C Shares 155,412
Distribution services fee--Class F Shares 80,104
Shareholder services fee--Class A Shares 102,764
Shareholder services fee--Class B Shares 474,167
Shareholder services fee--Class C Shares 51,804
Shareholder services fee--Class F Shares 40,052
Share registration costs 50,162
Printing and postage 44,916
Insurance premiums 2,774
Taxes 1,511
Miscellaneous 28,574
Total expenses 5,336,830
Waivers --
Waiver of investment advisory fee $(724,194)
Waiver of distribution services fee--Class F Shares (80,104)
Total waivers (804,298)
Net expenses 4,532,532
Net investment income 19,560,636
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY:
Net realized loss on investments and foreign currency (2,163,227)
transactions
Net change in unrealized appreciation of investments and
translation of assets
and liabilities in foreign currency (2,121,423)
Net realized and unrealized loss on investments and (4,284,650)
foreign currency
Change in net assets resulting from operations $ 15,275,986
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED STRATEGIC INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
MAY 31, NOVEMBER 30,
1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 19,560,636 $ 21,989,467
Net realized gain (loss) on investments and foreign
currency transactions ($(2,163,227) and $1,918,221,
respectively,
as computed for federal tax purposes) (2,163,227) 1,227,157
Net change in unrealized appreciation/depreciation of
investments and translation of assets and liabilities (2,121,423) (2,824,267)
in foreign currency
Change in net assets resulting from operations 15,275,986 20,392,357
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Class A Shares (3,528,153) (3,371,345)
Class B Shares (14,838,617) (15,066,810)
Class C Shares (1,639,572) (1,268,365)
Class F Shares (1,391,895) (2,059,642)
Distributions from net realized gains on investments
and foreign currency transactions
Class A Shares (211,252) (80,861)
Class B Shares (1,028,520) (365,467)
Class C Shares (95,931) (31,072)
Class F Shares (97,758) (51,079)
Change in net assets resulting from distributions
to shareholders (22,831,698) (22,294,641)
SHARE TRANSACTIONS--
Proceeds from sale of shares 290,708,895 274,742,668
Net asset value of shares issued to shareholders in
payment of distributions declared 13,329,059 10,438,073
Cost of shares redeemed (41,247,774) (37,121,071)
Change in net assets resulting from share 262,790,180 248,059,670
transactions
Change in net assets 255,234,468 246,157,386
NET ASSETS:
Beginning of period 422,045,263 175,887,877
End of period $ 677,279,731 $ 422,045,263
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED STRATEGIC INCOME FUND
FINANCIAL HIGHLIGHTS -- CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
MAY 31, YEAR ENDED NOVEMBER 30,
1998 1997 1996 1995 1994(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.41 $10.47 $10.14 $9.54 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.42 0.87(f) 0.91 0.82 0.45
Net realized and unrealized gain (loss)
on
investments and foreign currency (0.08) (0.03) 0.42 0.61 (0.45)
Total from investment operations 0.34 0.84 1.33 1.43 0.00
LESS DISTRIBUTIONS
Distributions from net investment income (0.44) (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 (0.03) (0.03) (0.08) -- --
transactions
Total distributions (0.47) (0.90) (1.00) (0.83) (0.46)
NET ASSET VALUE, END OF PERIOD $10.28 $10.41 $10.47 $10.14 $ 9.54
TOTAL RETURN(C) 3.38% 8.33% 13.89% 15.64% 0.05%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.10%* 1.10% 1.05% 0.25% 0.25%*
Net investment income 7.86%* 8.40% 8.54% 8.68% 8.38%*
Expense waiver/reimbursement(d) 0.27%* 0.36% 0.98% 5.69%(e) 8.87%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $107,300 $58,270 $28,021 $5,089 $2,366
Portfolio turnover 68% 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>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
MAY 31, NOVEMBER 30,
1998 1997 1996 1995(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.40 $10.47 $10.14 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.38 0.79(f) 0.83 0.25
Net realized and unrealized gain (loss) on investments
and foreign currency (0.07) (0.04) 0.42 0.13
Total from investment operations 0.31 0.75 1.25 0.38
LESS DISTRIBUTIONS
Distributions from net investment income (0.40) (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) (0.03) (0.08) --
Total distributions (0.43) (0.82) (0.92) (0.24)
NET ASSET VALUE, END OF PERIOD $10.28 $10.40 $10.47 $10.14
TOTAL RETURN(C) 2.99% 7.53% 13.03% 5.13%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.85%* 1.85% 1.80% 1.00%*
Net investment income 7.13%* 7.67% 7.80% 7.95%*
Expense waiver/reimbursement(d) 0.27%* 0.37% 0.98% 5.69%(e)*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $475,379 $304,746 $120,020 $5,193
Portfolio turnover 68% 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>
SIX MONTHS
ENDED
(UNAUDITED)
MAY 31, YEAR ENDED NOVEMBER 30,
1998 1997 1996 1995 1994(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.41 $10.47 $10.14 $9.54 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.38 0.79(f) 0.82 0.74 0.40
Net realized and unrealized gain (loss) on
investments
and foreign currency (0.08) (0.03) 0.43 0.61 (0.44)
Total from investment operations 0.30 0.76 1.25 1.35 (0.04)
LESS DISTRIBUTIONS
Distributions from net investment (0.40) (0.79) (0.80) (0.75) (0.40)
income(b)
Distributions in excess of net investment -- -- (0.04) -- (0.02)
income
Distributions from net realized gain on
investments
and foreign currency transactions (0.03) (0.03) (0.08) -- --
Total distributions (0.43) (0.82) (0.92) (0.75) (0.42)
NET ASSET VALUE, END OF PERIOD $10.28 $10.41 $10.47 $10.14 $9.54
TOTAL RETURN(C) 3.00% 7.53% 13.05% 14.79% (0.41%)
RATIOS TO AVERAGE NET ASSETS
Expenses 1.85%* 1.86% 1.80% 1.00% 1.00%*
Net investment income 7.08%* 7.69% 7.70% 7.93% 7.99%*
Expense waiver/reimbursement(d) 0.27%* 0.37% 0.98% 5.69%(e) 8.87%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $59,993 $29,267 $10,481 $2,323 $1,190
Portfolio turnover 68% 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>
SIX MONTHS
ENDED
(UNAUDITED)
MAY 31, YEAR ENDED NOVEMBER 30,
1998 1997 1996 1995 1994(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.41 $10.47 $10.14 $ 9.54 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.41 0.87(f) 0.95 0.77 0.41
Net realized and unrealized gain (loss)
on investments
and foreign currency (0.08) (0.03) 0.37 0.61 (0.44)
Total from investment operations 0.33 0.84 1.32 1.38 (0.03)
LESS DISTRIBUTIONS
Distributions from net investment income (0.44) (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) (0.03) (0.08) -- --
Total distributions (0.47) (0.90) (0.99) (0.78) (0.43)
NET ASSET VALUE, END OF PERIOD $10.27 $10.41 $10.47 $10.14 $ 9.54
TOTAL RETURN(C) 3.28% 8.33% 13.83% 15.07% (0.19%)
RATIOS TO AVERAGE NET ASSETS
Expenses 1.10%* 1.10% 1.07% 0.75% 0.75%*
Net investment income 7.91%* 8.38% 8.48% 8.19% 8.34%*
Expense waiver/reimbursement(d) 0.77%* 0.86% 1.46% 5.69%(e) 8.87%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $34,607 $29,762 $17,367 $3,691 $2,326
Portfolio turnover 68% 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
MAY 31, 1998 (UNAUDITED)
1. ORGANIZATION
Fixed Income Securities, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Corporation consists of three portfolios. The
financial statements included herein are only those of Federated Strategic
Income Fund (the "Fund"), a diversified portfolio. The financial statements of
the other portfolios are presented separately. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held. The Fund offers four classes of shares: Class A Shares, Class B
Shares, Class C Shares, and Class F Shares. The investment objective of the Fund
is to seek a high level of current income.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS -- U.S. government securities, listed 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. Investments in other
open-end regulated investment companies are valued at net asset value. With
respect to valuation of foreign securities, trading in foreign cities may be
completed at times which vary from the closing of the New York Stock Exchange.
Therefore, foreign securities are valued at the latest closing price on the
exchange on which they are traded prior to the closing of the New York Stock
Exchange. Foreign securities quoted in foreign currencies are translated into
U.S. Dollars at the foreign exchange rate in effect at noon, eastern time, on
the day the value of the foreign security is determined.
REPURCHASE AGREEMENTS -- It is the policy of the Fund to require the custodian
bank to take possession, to have legally segregated in the Federal Reserve Book
Entry System, or to have segregated within the custodian bank's vault, all
securities held as collateral under repurchase agreement transactions.
Additionally, procedures have been established by the Fund to monitor, on a
daily basis, the market value of each repurchase agreement's collateral to
ensure that the value of collateral at least equals the repurchase price to be
paid under the repurchase agreement transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Directors (the "Directors").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less than
the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS -- Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized as
required by the Internal Revenue Code, as amended (the "Code"). Dividend income
and distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
Withholding taxes on foreign interest and dividends have been provided for in
accordance with the Fund's understanding of the applicable country's tax rules
and rates.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the securities
purchased. Securities purchased on a when-issued or delayed delivery basis are
marked to market daily and begin earning interest on the settlement date.
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 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 May 31, 1998, 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
involve "to be announced" securities and are treated as 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 May 31, 1998 is as
follows:
SECURITY ACQUISITION DATE ACQUISITION
COST
Reliance Industries Ltd. 1/10/1997 $1,250,000
Tenet Healthcare Corp. 5/8/1998 498,060
Equitable Life 10/17/1996 - 1,797,168
2/11/1998
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
CIA International
Telecommunications 2/19/1998 - 2/20/1998 1,840,184
Imasac SA 4/24/1998 - 4/28/1998 2,230,390
Mastellone Hermanos SA 4/22/1998 2,080,000
Metro Toronto 10/18/1996 723,341
Hutchison Whampoa Finance 8/1/1997 1,003,550
Pera Financial 10/7/1997 1,000,000
Den Danske Bank 1/7/1998 1,052,320
Geberit International 12/12/1997 - 3,449,974
4/22/1998
Swedbank 1/7/1998 1,044,370
Government of Jamaica 6/26/1997 249,465
Cathay International Ltd. 4/3/1998 1,515,000
Disco S.A. 5/5/1998 496,710
TM Group Holdings 5/7/1998 1,000,000
TV Bandeirantes 5/8/1998 1,242,338
LG-Caltex Oil Co. 3/24/1998 1,000,000
Ministry Finance Russia, 10.00% 6/19/1997 - 3,065,050
10/20/1997
Ministry Finance Russia, 9.25% 10/2/1997 523,125
Ministry Finance Russia, 9.375% 3/24/1998 1,909,662
Road King Infrastructure 6/27/1997 994,230
Zhuhai Highway 8/16/1996 - 12/4/1997 1,800,313
Comtel Brasilier 12/6/1996 721,000
Telecom Brazil 4/18/1996 - 5/30/1996 1,543,125
CIA Saneamento Basico 7/23/1997 - 2,007,500
10/14/1997
Israel Electric Corp. 12/16/1997 564,916
Tenaga Nasional Berhad 3/3/1997 474,925
SMFC Trust 2/4/1998 454,290
USE OF ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts of assets, liabilities, expenses, and
revenues reported in the financial statements. Actual results could differ from
those estimated.
OTHER -- Investment transactions are accounted for on the trade date.
3. CAPITAL STOCK
At May 31, 1998, 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 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>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1998 NOVEMBER 30, 1997
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 5,583,289 $ 57,916,767 3,554,270 $ 37,128,584
Shares issued to shareholders in payment of
distributions declared 230,452 2,348,381 161,170 1,680,439
Shares redeemed (971,783) (10,082,577) (793,629) (8,275,591)
Net change resulting from Class A
Share transactions 4,841,958 $ 50,182,571 2,921,811 $ 30,533,432
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1998 NOVEMBER 30, 1997
CLASS B SHARES SHARES AMOUNT SHARES AMOUNT
Shares sold 18,435,487 $ 191,153,843 19,240,644 $ 200,824,425
Shares issued to shareholders in payment of
distributions declared 880,296 9,104,265 685,049 7,140,397
Shares redeemed (2,346,047) (24,323,053) (2,103,020) (21,931,007)
Net change resulting from Class B
Share transactions 16,969,736 $ 175,935,055 17,822,673 $ 186,033,815
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1998 NOVEMBER 30, 1997
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
Shares sold 3,372,217 $ 34,964,460 2,113,138 $ 22,111,893
Shares issued to shareholders in payment of
distributions declared 105,169 1,087,369 70,259 732,691
Shares redeemed (451,276) (4,680,634) (371,891) (3,877,196)
Net change resulting from Class C
Share transactions 3,026,110 $ 31,371,195 1,811,506 $ 18,967,388
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1998 NOVEMBER 30, 1997
CLASS F SHARES SHARES AMOUNT SHARES AMOUNT
Shares sold 643,190 $ 6,673,825 1,408,149 $ 14,677,766
Shares issued to shareholders in payment of
distributions declared 74,298 789,044 84,898 884,546
Shares redeemed (208,371) (2,161,510) (291,731) (3,037,277)
Net change resulting from Class F
Share transactions 509,117 $ 5,301,359 1,201,316 $ 12,525,035
Net change resulting from
share transactions 25,346,921 $ 262,790,180 23,757,306 $ 248,059,670
</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 Advisor 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 Advisor 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, Inc. 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 Corporation'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 period ended May
31, 1998, the Fund expensed $23,298 of organizational expenses.
OTHER AFFILIATED PARTIES AND TRANSACTIONS -- Pursuant to an exemptive order
issued by the SEC, the Fund may invest in High Yield Bond Portfolio. As of May
31, 1998, the Fund owned 49.3% of the outstanding shares of High Yield Bond
Portfolio.
GENERAL -- Certain Officers and Directors of the Corporation are Officers and
Directors or Trustees of the above companies.
5. YEAR 2000
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and Administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended May 31, 1998, were as follows:
PURCHASES $561,741,582
SALES $313,349,504
7. CONCENTRATION OF CREDIT RISK
The Fund invests in securities of non-U.S. issuers. Although the Fund maintains
a diversified investment portfolio, the political or economic developments
within a particular country or region may have an adverse effect on the ability
of domiciled issuers to meet their obligations. Additionally, political or
economic developments may have an effect on the liquidity and volatility of
portfolio securities and currency holdings.
DIRECTORS
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
Nicholas P. Constantakis
William J. Copeland
James E. Dowd, Esq.
Lawrence D. Ellis, M.D.
Richard B. Fisher
Edward L. Flaherty, Jr., Esq.
Peter E. Madden
John E. Murray, Jr., J.D., S.J.D.
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
Nicholas J. Seitanakis
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves risk, including possible
loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectuses, which contain facts
concerning its objective and policies, management fees, expenses, and other
information.
[Graphic]
Federated Investors
Federated Securities Corp., Distributor
Federated Investors, Inc.
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
G00324-01 (7/98)
[Graphic]
A1. The graphic presentation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The color-coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects computation periods from 1/13/92
to 5/31/98. The "y" axis is measured in increments of $2,000 ranging from $0 to
$12,000 and indicates that the ending value of hypothetical initial investment
of $7,000 in the 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 $10,052 on 5/31/98.
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 5/31/98. The "y" axis is measured in increments of $2,000 ranging from $0 to
$10,000 and indicates that the ending value of hypothetical yearly investments
of $1,000 in the Federated Limited Term Fund's Class A Shares, assuming the
reinvestment of all capital gains and dividends, would have grown to $8,494 on
5/31/98.
A3. The graphic presentation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The color-coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects computation periods from 1/13/92
to 5/31/98. The "y" axis is measured in increments of $4,000 ranging from $0 to
$20,000 and indicates the ending value of a hypothetical initial investment of
$10,000 in the Federated Limited Term Fund's Class A Shares would have grown to
$14,360 on 5/31/98.
B1. The graphic presentation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The color-coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects computation periods from 9/1/93
to 5/31/98. The "y" axis is measured in increments of $1,000 ranging from $0 to
$8,000 and indicates that the ending value of hypothetical initial investment of
$5,000 in the 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 $5,959 on 5/31/98.
B2. The graphic presentation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The color-coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects computation periods from 9/1/93
to 5/31/98. The "y" axis is measured in increments of $1,000 ranging from $0 to
$8,000 and indicates that the ending value of hypothetical yearly investments of
$1,000 in the Federated Limited Term Municipal Fund's Class A Shares, assuming
the reinvestment of all capital gains and dividends, would have grown to $5,562
on 5/31/98.
C1. The graphic presentation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The color-coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects computation periods from 5/4/94
to 5/31/98. 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 $5,000 in the Federated Strategic Income Fund's Class A Shares, assuming a
4.50% sales charge and the reinvestment of all capital gains and dividends,
would have grown to $7,040 on 5/31/98.
C2. The graphic presentation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The color-coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects computation periods from 5/4/94
to 5/31/98. The "y" axis is measured in increments of $1,000 ranging from $0 to
$7,000 and indicates that the ending value of hypothetical yearly investments of
$1,000 in the Federated Strategic Income Fund's Class A Shares, assuming the
reinvestment of all capital gains and dividends, would have grown to $5,850 on
5/31/98.
C3. The graphic presentation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The color-coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects computation periods from 5/4/94
to 5/31/98. The "y" axis is measured in increments of $30,000 ranging from $0 to
$180,000 and indicates that the ending value of a hypothetical initial
investmnet of $100,00 in the Federated Strategic Income Fund's Class A Shares
would have grown to $141,907 on 5/31/98.
