[Graphic] Federated Investors
Federated Limited Term Fund
7th Annual Report
November 30, 1998
ESTABLISHED 1991
PRESIDENT'S MESSAGE
Dear Shareholder:
Federated Limited Term Fund was created in 1991, and I am pleased to
present its seventh Annual Report. This report covers the reporting
period from December 1, 1997 through November 30, 1998. It begins with
an interview with Randall S. Bauer, Vice President, who co-manages the
fund with Robert K. Kinsey, Vice President, both of 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. The fund's assets of $114.5 million are invested in select
short-term bonds with average maturities of 2-3 years that can provide
the potential for generous current income.
As outlined in the portfolio managers' discussion, the fund's short-
term corporate bonds and asset-backed securities holdings did not
share in the price gains that occurred in U.S. Treasuries, which
benefited from a massive "flight to quality" in the wake of the equity
market volatility. Nevertheless, the fund's diversified portfolio of
short-term bonds produced a positive total return resulting from a
strong income stream. On November 30, 1998, the 30-day SEC yields were
6.36%* for Class A Shares and 6.48%* for Class F Shares. Individual
share class annualized total return performance, including income
distributions, for the 12-month reporting period follows.**
TOTAL NET ASSET
RETURN INCOME VALUE CHANGE
Class A Shares 4.81% $0.600 $9.95 to $9.82 = (1.31%)
Class F Shares 4.91% $0.608 $9.95 to $9.82 = (1.31%)
* 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.
** 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 (i.e., less any
applicable sales charge), for Class A and F Shares were 3.77% and 2.89%,
respectively.
Thank you for participating in Federated Limited Term Fund as a way to
pursue a competitive income stream through all types of bond market
environments. Remember, reinvesting your monthly dividends is a
convenient way to build your account and help your money grow through
the benefit of compounding.
As always, we welcome your comments and suggestions.
Sincerely,
[Graphic]
Richard B. Fisher
President
January 15, 1999
INVESTMENT REVIEW
[Graphic]
Randall S. Bauer
Vice President
Federated Advisers
[Graphic]
Robert K. Kinsey
Vice President
Federated Advisers
[Graphic]
DURING THE FUND'S FISCAL YEAR, THE "FLIGHT TO QUALITY" IN BONDS
CONTINUED WHILE THE FEDERAL RESERVE BOARD (THE "FED") INSTITUTED A
SERIES OF INTEREST RATE CUTS LATER IN THE REPORTING PERIOD. HOW DID THE
SHORT-TERM BOND MARKET PERFORM IN THIS ENVIRONMENT?
Concerns over a global economic slowdown were heightened by the Russian
government's de facto default in August 1998. Investors decided that
they needed an unusual amount of safety in their portfolios, and
flocked to Treasury securities. This unprecedented level of demand
caused yields on both short-term and long-term Treasuries to decline
markedly. These declines were not mirrored by spread securities
(securities whose yields are based on a "spread" over U.S. Treasury
securities), however, because anything that was not a Treasury was
deemed "risky." The further away one moved from Treasuries in terms of
credit quality, the more of a risk premium investors required, thus the
smaller the positive effect of declining Treasury yields. In fact, many
spread securities, like emerging market bonds or high-yield
securities, actually declined in price as the additional risk premium
demanded more than outweighed the decline in Treasury market yields.
The Fed's interest rate cuts were made partly because there were signs
that the U.S. economy was slowing, but they were also clearly timed to
reduce the level of uncertainty which was permeating the market. The
moves had the desired effect, and a relative sense of calm has been
restored to the market at the time of this writing. Nonetheless, the
current Federal Funds Target Rate of 4.75% is still higher than the
yield on the 10-year Treasury note, which may portend further Fed
easing action in 1999.
[Graphic]
HOW DID FEDERATED LIMITED TERM FUND PERFORM IN TERMS OF TOTAL RETURN
AND INCOME?
For the fiscal year ended November 30, 1998, the fund's Class A Shares
produced a total return of 4.81%*, based on net asset value, and paid
monthly dividends totaling $0.600 per share. The fund's Class F Shares
produced a total return of 4.91%*, based on net asset value, and paid
monthly dividends totaling $0.608 per share. A slightly negative
impact on the total returns of both share classes was a modest net
asset value decline of $0.13 per share. The 30-day SEC yields for Class
A and F Shares were 6.36% and 6.48%, respectively, on November 30,
1998.**
The fund's returns did not match those of its peer group, the Lipper
Short Investment Grade Debt Funds Average, which produced a total
return of 6.00% for the 12-month reporting period ended November 30,
1998.+ Because the fund tends to buy "spread" securities, it suffered
in the face of the "flight to quality" phenomenon previously described.
The main component of underperformance related to asset-backed
securities, which on average received the largest allocation of fund
assets over the period under review. Asset-backed securities rated
below AAA, and those in the home equity subsector of the market (which
together comprised approximately 29% of the fund's assets on
November 30, 1998) were especially hard-hit. In addition, the virtual
absence of Treasury securities in the portfolio had a negative impact
on relative performance when Treasury yields declined precipitously
late in the reporting period.
* Performance quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate, so
that an investor's shares, when redeemed, may be worth more or less than
their original cost. Total returns for the period, based on offering
price (i.e., less any applicable sales charge), for Class A and F Shares
were 3.77% and 2.89%, 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.
+ Lipper figures represent the average of the total returns reported by all
of the mutual funds designated by Lipper Analytical Services, Inc. as
falling into the category indicated. Lipper figures do not take sales
charges into account.
[Graphic]
DID YOU MAKE ANY SIGNIFICANT CHANGES IN THE FUND'S ALLOCATION TO
DIFFERENT TYPES OF SECURITIES, AS WELL AS IN CREDIT QUALITY?
Over the 12-month reporting period, the fund's largest allocation
remained in asset-backed securities. Despite disappointing performance
in this sector, we will maintain, and in some cases even increase
exposure because of the compelling value currently represented. The
recent spread widening has made mortgage-backed securities more
attractive, and the allocation has been increased in this sector.
Corporate exposure has been selectively reduced relative to where it
was one year ago. Corporate bonds outperformed other spread sectors
during the reporting period. As the fund begins its new fiscal year,
corporate bonds still account for nearly a third of the fund's
exposure, partly because they should react well to downward movements
in interest rates, which we believe will continue to occur in 1999. The
allocation to government securities, which was 5.1% as of November 30,
1998, has been increasing to provide some protection in the event of a
re-emergence of global slowdown/market liquidity concerns. On
November 30, 1998, approximately 43.5% of the fund's assets were
invested in asset-backed issues, 30.3% were invested in corporate
bonds, 19% were invested in mortgage-backed securities, and 2.1% were
invested in non-U.S. government securities.
With regard to credit quality, the fund continued to maintain a
solid investment-grade average quality profile. As of November 30,
1998, the quality breakdown of Federated Limited Term Fund's
portfolio was:
PERCENTAGE OF
NET ASSETS
AAA 38%
AA 1%
A 13%
BBB 37%
BB or lower 11%
[Graphic]
WHAT IS YOUR OUTLOOK FOR THE SHORT-TERM BOND MARKET AND THE FUND AS WE
ENTER 1999?
The latter part of 1998 proved to be very difficult for all types of
spread products. The good news is that the fund's portfolio is
positioned to take advantage of a snapback in spreads, which we believe
will occur during the first half of 1999. It is anticipated that the
economy will indeed slow, but that there will be no large-scale
recession. The expected result of such a scenario is a continued
decline in interest rates, but without the type of dislocation in
credit spreads witnessed in the second half of 1998. There may be some
continued spread widening particularly in cyclical or lower quality
names, so the bias will be toward a higher quality portfolio having a
somewhat longer than average duration.
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 DIVIDENDS AND
CAPITAL GAINS, AND DID NOT REDEEM ANY SHARES, YOUR ACCOUNT WOULD HAVE
BEEN WORTH $10,210 ON 11/30/98. YOU WOULD HAVE EARNED A 5.64%* 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 gaining the benefit of compounding.
As of 12/31/98, the Class A Shares' annualized 1-year, 5-
year, and since inception (1/ 13/92) total returns were
3.69%, 5.15%, and 5.65%, respectively. Class F Shares'
annualized 1-year, 5-year, and since inception (8/31/93)
total returns were 2.81%, 5.25%, and 5.12%, respectively.**
[The graphic presentation displayed here consists of a boxed legend in the upper
left quadrant indicating the components of the corresponding mountain chart. The
color coded mountain chart is a visual representation of the narrative text
above it. The "x" axis reflects computation periods from 1/13/92 to 11/30/98.
The "y" axis is measured in increments of $3,000 ranging from $0 to $12,000 and
indicates that the ending value of hypothetical initial investment of $7,000 in
the fund's Class A Shares, assuming the reinvestment of capital gains and
dividends, would have grown to $10,210 on 11/30/98.]
* 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 an
investor's shares, when redeemed, may be worth more or less than their
original cost.
** The total return stated takes into account the 1.00% sales charge for
Class A and Class F Shares, and the 1.00% contingent deferred sales
charge for Class F Shares.
FEDERATED LIMITED TERM FUND
ONE STEP AT A TIME:
$1,000 INITIAL INVESTMENT AND SUBSEQUENT INVESTMENTS OF $1,000 EACH
YEAR FOR 6 YEARS (REINVESTING ALL DIVIDENDS AND CAPITAL GAINS) GREW TO $8,633.
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 $8,633* by 11/
30/98. You would have earned an average annual total return of 5.46%.
A practical investment plan helps you pursue income by
investing in short-term bonds. Through systematic investing,
you buy shares on a regular basis and reinvest all
earnings. An investment plan works for you even if you
invest only $1,000 annually. You can take it one step at a
time. Put time, money, and compounding to work.
[The graphic presentation displayed here consists of a boxed legend in the upper
left quadrant indicating the components of the corresponding mountain chart. The
color coded mountain chart is a visual representation of the narrative text
above it. The "x" axis reflects computation periods from 1/13/92 to 11/30/98.
The "y" axis is measured in increments of $2,000 ranging from $0 to $10,000 and
indicates that the ending value of a hypothetical $1,000 initial investment and
subsequent yearly investments of $1,000 in the fund's Class A Shares, assuming
the reinvestment of capital gains and dividends, would have grown to $8,633 on
11/30/98.]
* This chart assumes that the subsequent annual investments are made on the
last day of each anniversary month. No method of investing can guarantee
a profit or protect against loss in down markets. However, by investing
regularly over time and buying shares at various prices, investors can
purchase more shares at lower prices. All accumulated shares have the
ability to pay income to the investor.
Because such a plan involves continuous investment, regardless of
changing price levels, the investor should consider whether or not to
continue purchases through periods of low price levels.
FEDERATED LIMITED TERM FUND
CLASS A SHARES
GROWTH OF $10,000 INVESTED IN FEDERATED LIMITED TERM FUND (CLASS A
SHARES)
The graph below illustrates the hypothetical investment of $10,000* in
the Federated Limited Term Fund (Class A Shares) (the "Fund") from
January 13, 1992 (start of performance) to November 30, 1998, compared
to the Merrill Lynch 1-3 Year Short-Term Corporate Index (MLSTC)+ and
the Lipper Short Investment Grade Debt Funds Average (LSIGDFA).++
[The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class A
Shares of Federated Limited Term Fund, based on a 1.00% sales load is
represented by a solid line. The Merrill Lynch 1-3 Year Short-Term Corporate
Index ("MLSTC") is represented by a dotted line and the Lipper Short Investment
Grade Debt Funds Average ("LSIGDFA") is represented by a broken line. The line
graph is a visual representation of a comparison of change in value of a $10,000
hypothetical investment in the Class A Shares of the fund, the MLSTC and the
LSIGDFA. The "x" axis reflects computation periods from 1/13/92 (Class A Shares'
start of performance) to 11/30/98. The "y" axis reflects the cost of the
investment, beginning with $9,000 and going up to $17,000, in increments of
$2,000. The right margin reflects the ending value of the hypothetical
investment in the fund's Class A Shares, based on a 1.00% sales load, as
compared to the MLSTC and the LSIGDFA. The ending values were $14,586, $15,796,
and $14,645 respectively. The legend in the bottom quadrant of the graphic
presentation indicates the fund's Class A Shares Average Annual Total Returns
for the one-year and five year period ended 11/30/98, and from the Class A
Shares' start of performance (1/13/92) and ending 11/30/98. The total returns
were 3.77%, 5.09% and 5.64% respectively.]
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE
REDEEMED, THEY MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR GUARANTEED BY ANY BANK AND ARE
NOT FEDERALLY INSURED.
* Represents a hypothetical investment of $10,000 in the Fund after
deducting the maximum sales charge of 1.00% ($10,000 investment minus
$100 sales charge = $9,900). The Fund's performance assumes the
reinvestment of all dividends and distributions. The MLSTC and the
LSIGDFA have been adjusted to reflect reinvestment of dividends on
securities in the index and average.
** Total return quoted reflects all applicable sales charges.
+ The MLSTC is not adjusted to reflect sales charges, expenses, or other
fees that the SEC requires to be reflected in the Fund's performance.
This index is unmanaged.
++ The LSIGDFA represents the average of the total returns reported by all
of the mutual funds designated by Lipper Analytical Services, Inc. as
falling into the category indicated, and is not adjusted to reflect any
sales charges. However, these total returns are reported net of expenses
or other fees that the SEC requires to be reflected in a Fund's
performance.
FEDERATED LIMITED TERM FUND
CLASS F SHARES
GROWTH OF $10,000 INVESTED IN FEDERATED LIMITED TERM FUND (CLASS F
SHARES)
The graph below illustrates the hypothetical investment of $10,000* in
the Federated Limited Term Fund (Class F Shares) (the "Fund") from
August 31, 1993 (start of performance) to November 30, 1998, compared
to the Merrill Lynch 1-3 Year Short-Term Corporate Index (MLSTC)+ and
the Lipper Short Investment Grade Debt Funds Average (LSIGDFA).++
[The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class F
Shares of Federated Limited Term Fund, based on a 1.00% sales load is
represented by a solid line. The Merrill Lynch 1-3 Year Short-Term Corporate
Index ("MLSTC") is represented by a dotted line and the Lipper Short Investment
Grade Debt Funds Average ("LSIGDFA") is represented by a broken line. The line
graph is a visual representation of a comparison of change in value of a $10,000
hypothetical investment in the Class F Shares of the fund, the MLSTC and the
LSIGDFA. The "x" axis reflects computation periods from 8/31/93 (Class F Shares'
start of performance) to 11/30/98. The "y" axis reflects the cost of the
investment, beginning with $9,000 and going up to $15,000, in increments of
$2,000. The right margin reflects the ending value of the hypothetical
investment in the fund's Class F Shares, based on a 1.00% sales load, as
compared to the MLSTC and the LSIGDFA. The ending values were $12,976, $13,848,
and $13,031 respectively. The legend in the bottom quadrant of the graphic
presentation indicates the fund's Class F Shares Average Annual Total Returns
for the one-year and five year period ended 11/30/98 and from the Class F
Shares' start of performance (8/31/93) and ending 11/30/98. The total returns
were 2.89%, 5.19% and 5.10% respectively.]
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE
REDEEMED, THEY MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR GUARANTEED BY ANY BANK AND ARE
NOT FEDERALLY INSURED.
* Represents a hypothetical investment of $10,000 in the Fund after
deducting the maximum sales charge of 1.00% ($10,000 investment minus
$100 sales charge = $9,900). A 1.00% contingent deferred sales charge
would be imposed on any redemption less than 4 years from the purchase
date. The Fund's performance assumes the reinvestment of all dividends
and distributions. The MLSTC and the LSIGDFA have been adjusted to
reflect reinvestment of dividends on securities in the index and average.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The MLSTC is not adjusted to reflect sales charges, expenses, or other
fees that the SEC requires to be reflected in the Fund's performance.
This index is unmanaged.
++ The LSIGDFA represents the average of the total returns reported by all
of the mutual funds designated by Lipper Analytical Services, Inc. as
falling into the category indicated, and is not adjusted to reflect any
sales charges. However, these total returns are reported net of expenses
or other fees that the SEC requires to be reflected in a Fund's
performance.
FEDERATED LIMITED TERM FUND
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
ADJUSTABLE RATE MORTGAGES-1.5%
GOVERNMENT AGENCY-1.5%
$ 676,896 (a) Federal Home Loan Mortgage Corp., ARM, 7.29%, 9/1/2019 $ 688,543
747,326 (a) Federal Home Loan Mortgage Corp., ARM, 7.33%, 12/1/2018 753,282
239,906 (a) Federal National Mortgage Association, ARM, 7.46%, 12/1/2020 244,102
70,602 (a) Federal National Mortgage Association, ARM, 7.90%, 11/1/2017 72,089
TOTAL ADJUSTABLE RATE MORTGAGES (IDENTIFIED COST $1,767,586) 1,758,016
ASSET-BACKED SECURITIES-43.5%
AUTOMOBILE-11.6%
836,311 AFG Receivables Trust 1997-A, Class C, 7.20%, 10/15/2002 852,026
1,025,291 AFG Receivables Trust 1997-B, Class C, 7.00%, 2/15/2003 1,042,978
179,500 Daimler-Benz Auto Grantor Trust 1995-A, Class A, 5.85%, 5/15/2002 179,788
821,245 Navistar Financial Corp. Owner Trust 1995-A, Class B, 6.85%, 11/20/2001 824,415
1,965,694 (b) Paragon Auto Receivables Owner Trust 1998-A, Class B, 7.47%, 11/15/2004 1,965,477
1,595,621 (b) Paragon Auto Receivables Owner Trust 1998-B, Class B, 7.03%, 3/15/2005 1,590,180
2,887,000 Premier Auto Trust 1995-3, Class B, 6.25%, 8/6/2001 2,905,592
1,950,000 (b) Team Fleet Financing Corp. Series 1997-1, Class B, 7.80%, 5/ 15/2003 1,999,978
1,850,000 Yamaha Motor Master Trust 1995-1, Class A, 6.20%, 5/15/2003 1,882,828
Total 13,243,262
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 1,840,750
3,000,000 Bridgestone/Firestone Master Trust 1996-1, Class B, 6.49%, 7/1/2003 3,057,120
2,000,000 Household Affinity Credit Card Master Trust 1993-1, Class B, 5.30%, 9/15/2000 2,001,200
1,400,000 Spiegel Master Trust 1994-B, Class A, 8.15%, 6/15/2004 1,444,646
Total 8,343,716
</TABLE>
FEDERATED LIMITED TERM FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
ASSET-BACKED SECURITIES-CONTINUED
HOME EQUITY LOAN-14.0%
$ 393,602 AFC Home Equity Loan Trust 1992-3, Class A, 7.05%, 8/15/2007 $ 390,291
219,753 Advanta HEL Trust 1991-1, Class A, 9.00%, 2/25/2006 232,099
1,500,000 ContiMortgage Home Equity Loan Trust 1997-5, Class B, 7.62%, 1/15/2029 1,414,215
2,500,000 Contimortgage Home Equity Loan Trust 1997-1, Class B, 7.92%, 3/15/2028 2,519,150
2,000,000 Green Tree Home Improvement Loan Trust 1997-C, Class B2, 7.59%, 8/15/2028 1,956,700
3,500,000 Green Tree Home Improvement Loan Trust 1997-A, Class HE6, 7.16%, 3/15/2028 3,613,960
1,500,000 (b) 125 Home Loan Owner Trust 1998-1A, Class B-2, 12.16%, 2/15/2029 1,330,785
1,096,720 Independent National Mortgage Corp. Home Equity 1997-A, Class BF,
7.39%, 10/25/2028 1,066,560
1,000,000 (a) Merrill Lynch Mortgage Investors, Inc. 1993-C, Series 1993-C,
Class A4, 6.50%, 3/15/2018 997,660
775,000 New Century Home Equity Loan Trust 1997-NC5, Class B, 7.59%, 10/25/2028 736,738
1,250,000 (b) Saxon Asset Securities Trust 1998-1, Class BF2, 8.00%, 3/5/2028 1,024,937
447,370 The Money Store Home Equity Trust 1992-A, Class A, 6.95%, 1/15/2007 462,589
259,009 The Money Store Home Equity Trust 1992-B, Class A, 6.90%, 7/15/2007 258,621
Total 16,004,305
HOME IMPROVEMENT LOAN-2.8%
1,000,000 Green Tree Home Improvement Loan Trust 1995-C, Class B1, 7.20%, 7/15/2020 1,000,150
2,200,000 Green Tree Home Improvement Loan Trust 1996-F, Class HI2, 7.70%, 11/15/2027 2,218,370
Total 3,218,520
</TABLE>
FEDERATED LIMITED TERM FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
ASSET-BACKED SECURITIES-CONTINUED
MANUFACTURED HOUSING-2.4%
$ 750,000 Green Tree Financial Corp. 1995-3, Class B1, 7.85%, 8/15/2025 $ 765,930
1,250,000 Green Tree Financial Corp. 1996-2, Class B-1, 7.55%, 4/15/2027 1,273,475
744,465 Oakwood Mortgage Investors, Inc. 1995-B, Class A2, 6.45%, 1/15/2021 745,686
Total 2,785,091
MARINE RECEIVABLES-2.2%
1,119,793 CBNJ Boat Loan Trust 1994-1, Class A, 6.89%, 5/18/2012 1,149,892
1,326,410 NationsCredit Grantor Trust 1997-1, Class A, 6.75%, 8/15/2013 1,349,755
Total 2,499,647
OTHER-3.2%
2,100,000 Advanta Equipment Receivables 1998-1, Class C, 6.49%, 12/15/ 2006 2,093,490
723,820 (a) (b)Bosque Asset Corp., Class 1, 7.66%, 6/5/2002 723,820
325,000 Centerior Energy Receivables Master Trust 1996-1, Class A, 7.20%,
4/15/2002 336,450
3,738,362 (b) FMAC Loan Receivables Trust 1997-A, Class A-X, 2.77%, 4/15/2019 476,043
Total 3,629,803
TOTAL ASSET-BACKED SECURITIES (IDENTIFIED COST $49,834,517) 49,724,344
COLLATERALIZED MORTGAGE OBLIGATIONS-15.0%
COMMERCIAL MORTGAGE-1.9%
3,939,415 First Union Lehman Brothers Commercial Mortgage Trust, Series 1997C1,
Class IO, 1.307%, 6/18/2029 267,132
1,900,000 (a) (b)K Mart CMBS Financing, Inc., Series 1997-1, Class D, 6.32%, 3/1/2007 1,895,088
Total 2,162,220
GOVERNMENT AGENCY-1.1%
1,086,027 Federal Home Loan Mortgage Corp., Series 1686, Class PK, 5.00%, 4/15/2023 1,070,834
29,685,249 Vendee Mortgage Trust 1995-1C, Series 1995-1C, Class 3IO,.2925%, 2/15/2025 185,533
Total 1,256,367
</TABLE>
FEDERATED LIMITED TERM FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS-CONTINUED
WHOLE LOAN-12.0%
$ 906,305 (b) Bayview Financial Acquisition Trust 1998-1, Series 1998-1, Class MI3,
8.21%, 5/25/2029 $ 835,921
1,675,185 (a) CMSI Series 1992-18, Class A-1, 7.11%, 11/25/2022 1,718,640
2,500,000 Countrywide Home Loans, Series 1997-5, Class A-3, 7.50%, 9/25/2027 2,511,759
298,317 (b) GE Capital Mortgage Services, Inc., Series 1994-3, Class B4, 6.50%,
1/25/2024 222,246
1,200,197 GE Capital Mortgage Services, Inc., Series 1998-11, Class 1A1, 6.75%,
6/25/2028 1,203,822
255,448 (b) Greenwich Capital Acceptance, Inc. Subordinate Mortgage Securities Trust,
Series 1996-A, Class B, 7.5916%, 6/25/2019 240,440
1,737,223 Norwest Asset Securities Corp., Series 1996-4, Class A14, 7.20%, 9/25/2026 1,757,757
945,110 Prudential Home Mortgage Securities, Inc., Series 1992-32, Class A6, 7.50%,
10/25/2022 947,454
2,100,000 Residential Accredit Loans, Inc., Series 1997-QS2, Class A3, 7.25%,
3/25/2027 2,098,398
1,000,000 Residential Asset Securitization Trust, Series 1997-A7, Class A5,
7.50%, 9/25/2027 1,012,100
1,402,339 (a) (b)SMFC Trust, Series 1997-A, Class 4, 7.72%, 1/28/2025 1,238,448
Total 13,786,985
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (IDENTIFIED COST $17,561,143) 17,205,572
CORPORATE BONDS-30.3%
AEROSPACE & DEFENSE-1.6%
1,800,000 Raytheon Co., Note, 6.45%, 8/15/2002 1,855,512
AUTOMOBILE-1.6%
1,800,000 Arvin Industries, Inc., Note, 6.875%, 2/15/2001 1,832,076
</TABLE>
FEDERATED LIMITED TERM FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS-CONTINUED
BANKING-6.0%
$ 3,000,000 (a) Chase Manhattan Corp., Sub. Note, 5.625%, 12/5/2009 $ 2,801,850
2,000,000 (a) Citicorp, Sub. Note, 5.475%, 10/25/2005 1,940,140
1,000,000 Mercantile Bancorporation, Inc., 6.80%, 6/15/2001 1,025,870
1,100,000 Riggs National Corp., Sub. Note, 8.50%, 2/1/2006 1,154,901
Total 6,922,761
CABLE TELEVISION-2.7%
2,800,000 TKR Cable, Inc., 10.50%, 10/30/2007 3,077,676
FINANCE - RETAIL-1.2%
1,350,000 Advanta Corp., Medium Term Note, 6.90%, 8/4/1999 1,325,092
FOOD & DRUG RETAILERS-1.3%
1,500,000 Great Atlantic & Pacific Tea Co., Inc., Global Bond Deb., 7.70%,
1/15/2004 1,500,360
FOREST PRODUCTS-0.9%
1,000,000 Quno Corp., Sr. Note, 9.125%, 5/15/2005 1,081,080
INDUSTRIAL PRODUCTS & EQUIPMENT-1.4%
1,600,000 Figgie International Holdings, Inc., Sr. Note, 9.875%, 10/1/1999 1,637,248
INSURANCE-2.8%
250,000 Conseco, Inc., Note, 6.40%, 2/10/2003 238,555
2,000,000 GEICO Corp., Deb., 9.15%, 9/15/2021 2,272,080
750,000 (a) (b)HSB Group, Inc., Company, 6.656%, 7/15/2027 699,107
Total 3,209,742
METALS & MINING-1.1%
1,500,000 Inco Ltd., Conv. Bond, 5.75%, 7/1/2004 1,301,955
OIL & GAS-1.1%
1,250,000 Occidental Petroleum Corp., Note, 8.50%, 9/15/2004 1,273,263
PRINTING & PUBLISHING-1.0%
980,000 Valassis Communication, Inc., Sr. Note, 9.55%, 12/1/2003 1,128,176
RETAILERS-1.4%
1,450,000 Shopko Stores, Inc., 8.50%, 3/15/2002 1,545,018
</TABLE>
FEDERATED LIMITED TERM FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS-CONTINUED
TELECOMMUNICATIONS & CELLULAR-2.7%
$ 2,000,000 British Telecommunication PLC, 9.625%, 2/15/2019 $ 2,111,840
1,000,000 (b) PanAmSat Corp., Note, 6.00%, 1/15/2003 993,180
Total 3,105,020
UTILITIES-3.5%
1,250,000 Camuzzi Gas, Note, 9.25%, 12/15/2001 1,203,125
1,300,000 (b) Hidroelectrica Alicura, Deb., 8.375%, 3/15/1999 1,264,250
1,400,000 Pennsylvania Power & Light Co., 9.25%, 10/1/2019 1,496,194
Total 3,963,569
TOTAL CORPORATE BONDS (IDENTIFIED COST $34,978,898) 34,758,548
NON-U.S. GOVERNMENT/AGENCIES-2.1%
AGENCY-1.1%
1,350,000 Export-Import Bank Korea, 7.10%, 3/15/2007 1,220,387
SOVEREIGN GOVERNMENT-1.0%
1,230,000 Brazil IDU, Deb., 6.75%, 1/1/2001 1,150,050
TOTAL NON-U.S. GOVERNMENT/AGENCIES (IDENTIFIED COST $2,340,360) 2,370,437
MORTGAGE BACKED SECURITIES-2.5%
GOVERNMENT AGENCY-2.5%
1,376,196 Federal Home Loan Mortgage Corp., 6.00%, 4/1/2003 1,388,238
1,416,044 Government National Mortgage Association, 8.50%, 8/15/2026 1,502,338
TOTAL MORTGAGE BACKED SECURITIES (IDENTIFIED COST $2,796,824) 2,890,576
TOTAL INVESTMENTS (IDENTIFIED COST $109,279,328)(C) $ 108,707,493
</TABLE>
(a) Denotes variable rate and floating rate obligations for which the
current rate is shown.
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At November 30, 1998, these securities
amounted to $18,340,650 which represents 16.0% of net assets.
(c) The cost of investments for federal tax purposes amounts to
$109,289,759. The net unrealized depreciation of investments on a
federal tax basis amounts to $582,266 which is comprised of $1,179,869
appreciation and $1,762,135 depreciation at November 30, 1998.
Note: The categories of investments are shown as a percentage of net assets
($114,570,807) at November 30, 1998.
The following acronyms are used throughout this portfolio:
ARM -Adjustable Rate Mortgage
FHLMC -Federal Home Loan Mortgage Corporation
FNMA -Federal National Mortgage Association
HEL -Home Equity Loan
IO -Interest Only
PLC -Public Limited Company
(See Notes which are an integral part of the Financial Statements)
FEDERATED LIMITED TERM FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1998
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified cost
$109,279,328 and tax cost $109,289,759) $ 108,707,493
Cash 931,574
Income receivable 1,499,188
Receivable for shares sold 3,758,012
Total assets 114,896,267
LIABILITIES:
Payable for shares redeemed $ 75,598
Income distribution payable 170,726
Payable for taxes withheld 3,594
Accrued expenses 75,542
Total liabilities 325,460
NET ASSETS for 11,664,029 shares outstanding $ 114,570,807
NET ASSETS CONSIST OF:
Paid in capital $ 125,800,489
Net unrealized depreciation of investments and translation
of assets and liabilities in foreign currency (571,835)
Accumulated net realized loss on investments and foreign
currency transactions (10,741,374)
Undistributed net investment income 83,527
Total Net Assets $ 114,570,807
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
CLASS A SHARES:
Net Asset Value Per Share ($101,212,604 / 10,303,200 shares outstanding) $9.82
Offering Price Per Share (100/99.00 of $9.82)* $9.92
Redemption Proceeds Per Share $9.82
CLASS F SHARES:
Net Asset Value Per Share ($13,358,203 / 1,360,829 shares outstanding) $9.82
Offering Price Per Share (100/99.00 of $9.82)* $9.92
Redemption Proceeds Per Share (99.00/100 of $9.82)** $9.72
</TABLE>
* See "What Shares Cost" in the Prospectus.
** See "Contingent Deferred Sales Charge" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
FEDERATED LIMITED TERM FUND
STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1998
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest (net of foreign taxes withheld of $3,594) $ 8,405,330
EXPENSES:
Investment advisory fee $ 473,247
Administrative personnel and services fee 155,000
Custodian fees 10,231
Transfer and dividend disbursing agent fees and expenses 140,970
Directors'/Trustees' fees 2,434
Auditing fees 14,400
Legal fees 2,884
Portfolio accounting fees 59,912
Distribution services fee-Class A Shares 533,754
Distribution services fee-Class F Shares 16,545
Shareholder services fee-Class A Shares 266,877
Shareholder services fee-Class F Shares 27,575
Share registration costs 57,639
Printing and postage 36,000
Insurance premiums 3,257
Taxes 10,001
Miscellaneous 10,175
Total expenses 1,820,901
Waivers-
Waiver of investment advisory fee $ (200,457)
Waiver of distribution services fee-Class A Shares (320,252)
Waiver of distribution services fee-Class F Shares (2,206)
Waiver of shareholder services fee-Class F Shares (3,309)
Total waivers (526,224)
Net expenses 1,294,677
Net investment income 7,110,653
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:
Net realized loss on investments and foreign currency transactions (429,507)
Net change in unrealized appreciation (depreciation) of investments and translation of
assets and liabilities in foreign currency (1,185,198)
Net realized and unrealized loss on investments and foreign currency (1,614,705)
Change in net assets resulting from operations $ 5,495,948
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED LIMITED TERM FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS-
Net investment income $ 7,110,653 $ 6,605,236
Net realized gain (loss) on investments and foreign currency
transactions ($(261,311) and $(643,106), respectively, as
computed for federal tax purposes) (429,507) 890,943
Net change in unrealized appreciation/(depreciation) of
investments and translation of assets and liabilities in
foreign currency (1,185,198) (522,183)
Change in net assets resulting from operations 5,495,948 6,973,996
DISTRIBUTIONS TO SHAREHOLDERS-
Distributions from net investment income
Class A Shares (6,461,966) (6,096,126)
Class F Shares (675,733) (533,574)
Change in net assets resulting from distributions
to shareholders (7,137,699) (6,629,700)
SHARE TRANSACTIONS-
Proceeds from sale of shares 109,049,243 48,134,214
Net asset value of shares issued to shareholders in payment
of distributions declared 4,948,741 4,194,743
Cost of shares redeemed (101,544,061) (74,027,315)
Change in net assets resulting from share transactions 12,453,923 (21,698,358)
Change in net assets 10,812,172 (21,354,062)
NET ASSETS:
Beginning of period 103,758,635 125,112,697
End of period (including undistributed net investment income
of $83,527 and $254,764, respectively) $ 114,570,807 $ 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>
YEAR ENDED NOVEMBER 30,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 9.95 $ 9.91 $ 9.97 $ 9.48 $10.17
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.60 0.59 0.59 0.55 0.53
Net realized and unrealized
gain (loss) on investments and foreign currency (0.13) 0.04 (0.06) 0.49 (0.66)
Total from investment operations 0.47 0.63 0.53 1.04 (0.13)
LESS DISTRIBUTIONS
Distributions from net investment income (0.60) (0.59) (0.59) (0.55) (0.53)
Distributions in excess of net investment income(a) - - - - (0.02)
Distributions from net realized gain on investments - - - - (0.01)
Total distributions (0.60) (0.59) (0.59) (0.55) (0.56)
NET ASSET VALUE, END OF PERIOD $ 9.82 $ 9.95 $ 9.91 $ 9.97 $ 9.48
TOTAL RETURN(B) 4.81% 6.52% 5.54% 11.29% (1.30% )
RATIOS TO AVERAGE NET ASSETS
Expenses 1.10% 1.10% 1.10% 1.10% 1.10%
Net investment income 6.02% 5.90% 6.04% 6.13% 5.52%
Expense waiver/reimbursement(c) 0.47% 0.49% 0.56% 0.43% 0.39%
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $101,213 $94,952 $116,174 $138,451 $178,771
Portfolio turnover 93% 62% 104% 63% 63%
</TABLE>
(a) Distributions are determined in accordance with income tax regulations
which differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal income
tax purposes.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED LIMITED TERM FUND
FINANCIAL HIGHLIGHTS-CLASS F SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.95 $ 9.91 $ 9.97 $ 9.48 $10.17
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.61 0.60 0.66 0.61 0.55
Net realized and unrealized
gain (loss) on investments and foreign currency (0.13) 0.04 (0.12) 0.44 (0.67)
Total from investment operations 0.48 0.64 0.54 1.05 (0.12)
LESS DISTRIBUTIONS
Distributions from net investment income (0.61) (0.60) (0.60) (0.56) (0.55)
Distributions in excess of net investment income(a) - - - - (0.01)
Distributions from net realized gain on investments - - - - (0.01)
Total distributions (0.61) (0.60) (0.60) (0.56) (0.57)
NET ASSET VALUE, END OF PERIOD $ 9.82 $ 9.95 $ 9.91 $ 9.97 $ 9.48
TOTAL RETURN(B) 4.91% 6.63% 5.64% 11.39% (1.20% )
RATIOS TO AVERAGE NET ASSETS
Expenses 1.00% 1.00% 1.00% 1.00% 0.99%
Net investment income 6.09% 6.00% 6.14% 6.22% 5.67%
Expense waiver/reimbursement(c) 0.22% 0.24% 0.31% 0.18% 0.13%
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $13,358 $8,807 $ 8,938 $10,183 $13,415
Portfolio turnover 93% 62% 104% 63% 63%
</TABLE>
(a) Distributions are determined in accordance with income tax regulations
which differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal income
tax purposes.
(b) Based on net asset value, which does not reflect the sales charge
or contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense
and net investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED LIMITED TERM FUND
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1998
1. ORGANIZATION
Fixed Income Securities, Inc. (the "Corporation") is registered under
the Investment Company Act of 1940, as amended (the "Act") as an open-
end, management investment company. The Corporation consists of three
portfolios. The financial statements included herein are only those of
Federated Limited Term Fund (the "Fund"), a diversified portfolio. The
financial statements of the other portfolios are presented separately.
The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held. The Fund
offers two classes of shares: Class F Shares and Class A Shares. The
investment objective of the Fund is to seek a high level of current
income consistent with minimum fluctuation in principal value through
compilation of a portfolio, the weighted average duration which will at
all times be limited to three years or less.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. These policies are in conformity with generally accepted
accounting principles.
INVESTMENT VALUATIONS-U.S. government securities, listed corporate
bonds, (other fixed-income and asset backed securities), and unlisted
securities and private placement securities are generally valued at
the mean of the latest bid and asked price as furnished by an
independent pricing service. Short-term securities are valued at the
prices provided by an independent pricing service. However, short-term
securities with remaining maturities of sixty days or less at the time
of purchase may be valued at amortized cost, which approximates fair
market value.
REPURCHASE AGREEMENTS-It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral under
repurchase agreement transactions. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value
of each repurchase agreement's collateral to ensure that the value of
collateral at least equals the repurchase price to be paid under the
repurchase agreement transaction.
The Fund will only enter into repurchase agreements with banks and
other recognized financial institutions, such as broker/dealers, which
are deemed by the Fund's adviser to be creditworthy pursuant to the
guidelines and/or standards reviewed or established by the Board of
Directors (the "Directors"). Risks may arise from the potential
inability of counterparties to honor the terms of the repurchase
agreement. Accordingly, the Fund could receive less than the
repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS-Interest income and
expenses are accrued daily. Bond premium and discount, if applicable,
are amortized as required by the Internal Revenue Code, as amended (the
"Code"). Distributions to shareholders are recorded on the ex-dividend
date.
Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to
differing treatments for foreign currency transactions. The following
reclassifications have been made to the financial statements.
INCREASE (DECREASE)
ACCUMULATED NET UNDISTRIBUTED NET PAID IN
REALIZED GAIN/LOSS INVESTMENT INCOME CAPITAL
$164,956 $(144,191) $(20,765)
Net investment income, net realized gains/losses, and net assets were
not affected by this reclassifications.
FEDERAL TAXES-It is the Fund's policy to comply with the provisions
of the Code applicable to regulated investment companies and to
distribute to shareholders each year substantially all of its income.
Accordingly, no provisions for federal tax are necessary.
At November 30, 1998, the Fund, for federal tax purposes, had a capital
loss carryforward of $10,730,945, which will reduce the Fund's taxable
income arising from future net realized gain on investments, if any, to
the extent permitted by the Code, and thus will reduce the amount of
the distributions to shareholders which would otherwise be necessary
to relieve the Fund of any liability for federal tax. Pursuant to the
Code, such capital loss carryforward will expire as follows:
EXPIRATION YEAR EXPIRATION AMOUNT
2002 $ 97,949
2003 1,407,407
2004 8,964,278
2006 261,311
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS-The Fund may engage
in when-issued or delayed delivery transactions. The Fund records
when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make
payment for the securities purchased. Securities purchased on a when-
issued or delayed delivery basis are marked to market daily and begin
earning interest on the settlement date.
FOREIGN EXCHANGE CONTRACTS-The Fund may enter into foreign currency
commitments for the delayed delivery of securities or foreign currency
exchange transactions. Purchased contracts are used to acquire
exposure to foreign currencies; whereas, contracts to sell are used to
hedge the Fund's securities against currency fluctuations. Risks may
arise upon entering these transactions from the potential inability of
counterparts to meet the terms of their commitments and from
unanticipated movements in security prices or foreign exchange rates.
The foreign currency transactions are adjusted by the daily exchange
rate of the underlying currency and any gains or losses are recorded
for financial statement purpose as unrealized until the settlement
date. At November 30, 1998, the Fund did not have any outstanding
foreign currency committments.
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 Fund's pricing
committee.
Additional information on each restricted security held at
November 30, 1998 is as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
Banco Nacional de Mexico 1/9/1997 $1,814,574
Bayview Financial Acquisition Trust 5/14/1998 909,638
Bosque Asset Corp. 6/19/1997 742,385
FMAC Loan Receivables Trust 6/16/1997 552,814
GE Capital Mortgage Services, Inc. 7/10/1997 211,783
Greenwich Capital Acceptance, Inc. 7/24/1997 248,043
Hidroelectra Alicura 2/17/1998 1,344,277
125 Home Loan Owner Trust 7/30/1998 1,519,292
HSB Group, Inc. 7/10/1997 742,238
K Mart CMBS Financing, Inc. 2/27/1997 1,900,000
PanAmSat Corp. 8/19/1998 1,006,693
Paragon Auto Receivables Owners Trust 9/9/1998 1,598,405
Paragon Auto Receivables Owners Trust 5/14/1998 1,975,493
Saxon Asset Securities Trust 3/5/1998 1,100,570
SMFC Trust Asset-Backed Certificates 2/5/1998 1,284,808
Team Fleet Financing Corp. Series 4/24/1997 1,946,344
</TABLE>
USE OF ESTIMATES-The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts of
assets, liabilities, expenses and revenues reported in the financial
statements. Actual results could differ from those estimated.
OTHER-Investment transactions are accounted for on the trade date.
3. CAPITAL STOCK
At November 30, 1998, par value shares ($0.001 per share) authorized
were as follows:
NUMBER OF PAR
VALUE CAPITAL
CLASS NAME STOCK AUTHORIZED
Class A Shares 1,000,000,000
Class F Shares 1,000,000,000
Total 2,000,000,000
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1998 1997
<S> <C> <C> <C> <C>
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
Shares sold 10,264,365 $ 102,225,706 4,650,436 $ 46,093,000
Shares issued to shareholders
in payment of distributions declared 452,841 4,501,648 393,568 3,886,908
Shares redeemed (9,957,718) (99,008,742) (7,225,178) (71,507,487)
Net change resulting from
Class A Share transactions 759,488 $ 7,718,612 (2,181,174) $(21,527,579)
<CAPTION>
YEAR ENDED NOVEMBER 30,
1998 1997
<S> <C> <C> <C> <C>
CLASS F SHARES SHARES AMOUNT SHARES AMOUNT
Shares sold 684,999 $ 6,823,537 206,849 $ 2,041,214
Shares issued to shareholders
in payment of distributions declared 45,010 447,093 31,156 307,835
Shares redeemed (254,344) (2,535,319) (254,941) (2,519,828)
Net change resulting from
Class F Share transactions 475,665 $ 4,735,311 (16,936) $ (170,779)
Net change resulting
from Share transactions 1,235,153 $ 12,453,923 (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
SHARE CLASS NAME DAILY NET ASSETS OF CLASS
Class A Shares 0.50%
Class F Shares 0.15%
FSC may voluntarily choose to waive any portion of its fee. FSC can
modify or terminate this voluntary waiver at any time at its sole
discretion.
SHAREHOLDER SERVICES FEE-Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services Company ("FSSC"), the
Fund will pay FSSC up to 0.25% of average daily net assets of the Fund
shares for the period. The fee paid to FSSC is used to finance certain
services for shareholders and to maintain shareholder accounts. FSSC
may voluntarily choose to waive any portion of its fee. FSSC 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, FSSC, serves as transfer and dividend
disbursing agent for the Fund. The fee paid to FSSC is based on the
size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES-FServ maintains the Fund's accounting
records for which it receives a fee. The fee is based on the level of
the Fund's average daily net assets for the period, plus out-of-pocket
expenses.
GENERAL-Certain of the Officers and Directors of the Corporation are
Officers and Directors or Trustees of the above companies.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities
(and in-kind contributions), for the period ended November 30, 1998,
were as follows:
PURCHASES $113,740,018
SALES $106,397,960
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.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of FIXED INCOME SECURITIES, INC.
and the Shareholders of FEDERATED LIMITED TERM FUND:
We have audited the accompanying statement of assets and liabilities of
Federated Limited Term Fund (a portfolio of Fixed Income Securities,
Inc.), including the schedule of investments, as of November 30, 1998,
and the related statements of operations for the year then ended, the
statement of changes in net assets for each of the two years in the
period then ended, and the financial highlights for the period then
ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to
express an opinion of these financial statements and financial
highlights based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. Our procedures included
confirmation of the securities owned as of November 30, 1998, by
correspondence with the custodian and brokers; where replies were not
received from brokers, we performed other auditing procedures. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Federated Limited Term Fund as of November 30,
1998, the results of its operations, the changes in its net assets for
each of the two years in the period then ended, and the financial
highlights for the period then ended, in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
January 15, 1999
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 and Secretary
Richard J. Thomas
Treasurer
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
investment risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors
only when preceded or accompanied by the fund's prospectus which
contains facts concerning its objective and policies, management fees,
expenses, and other information.
[Graphic] Federated Investors
Federated Securities Corp., Distributor
Federated Investors, Inc.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Cusip 338319106
Cusip 338319304
G01176-01 (1/99)
[Graphic]
[Graphic]
Federated Investors
[Graphic]
Federated Limited Term Municipal Fund
5th Annual Report
November 30, 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 Annual Report. This report covers the
12-month reporting period from December 1, 1997 through November 30,
1998. It begins with an interview 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.
This fund was created to provide a conservative investment approach for
tax-free income.* Its maturity places it between tax-free money market
instruments and longer term municipal bonds, i.e., it offers more
income potential than money market instruments, but less income
potential than long-term, tax-free municipal bonds.**
The short-term municipal bond market performed well over the fiscal
year. In this environment, the total return of Federated Limited Term
Municipal Fund exceeded that of its benchmark, the Lipper Short Term
Municipal Debt Funds Average.*** Individual share class annualized
total return performance for the 12-month reporting period, including
income distributions, follows.+
<TABLE>
<CAPTION>
TOTAL NET ASSET
RETURN INCOME VALUE INCREASE
<S> <C> <C> <C>
Class A Shares 4.95% $0.396 $9.78 to $9.86 = 0.82%
Class F Shares 5.21% $0.420 $9.78 to $9.86 = 0.82%
</TABLE>
* Income may be subject to the federal alternative minimum tax and state
and local taxes.
** Unlike the fund, money market funds seek to maintain a stable $1.00
share value.
*** Lipper figures represent the average of the total returns reported by
all of the mutual funds designated by Lipper Analytical Services, Inc.
as falling into the category indicated. Lipper figures do not take sales
charges into account.
+ 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 (i.e., less any
applicable sales charge), for Class A and F Shares were 3.88% and 4.21%,
respectively.
At the end of the reporting period, the fund's assets were invested as
follows: 51% A- or better; 36% BBB- to BBB+; 11% non-rated. The fund's
97 securities included bonds issued for housing authorities (29% of net
assets), hospitals (29% of net assets), industrial development (20% of
net assets), resource recovery (13% of net assets), and student loans
(8% of net assets).
Thank you for choosing Federated Limited Term Municipal Fund to pursue
tax-free income from short-term municipal issues. Remember,
reinvesting your monthly dividends is a convenient way to build your
account through the benefit of compounding.
As always, we welcome your comments and suggestions.
Sincerely,
[Graphic]
Richard B. Fisher
President
January 15, 1999
INVESTMENT REVIEW
[Graphic]
Jeff A. Kozemchak, CFA
Vice President
Federated Advisers
[Graphic]
CAN YOU PLEASE COMMENT ON THE ECONOMY AND MARKET ENVIRONMENT OVER THE
FUND'S FISCAL YEAR?
The short-term municipal bond market performed well over the 12-month
reporting period ended November 30, 1998, as it continued to deliver a
significant incremental income advantage as compared to money market
securities, while providing modest price appreciation.
Early in the reporting period, economic fundamentals were still the
driving factor behind movements in short-term interest rates. With
economic growth still strong-albeit slowing from its torrid 5.50% pace
of growth in the first quarter of 1998 -market participants were
content with the idea that the Federal Reserve Board (the "Fed") would
remain on the sidelines. The anticipated drag on the U.S. economy
resulting from the economic crises in Asia became apparent-
particularly in the manufacturing sector-over the second quarter. This
slowdown lent comfort to investors that economic growth would not be so
robust as to ignite inflationary pressures.
By the third quarter of 1998, however, a dramatic shift in market
sentiment was evident. Uncertainty in world economies resulted in
vulnerability of our domestic equity market, and led to a substantial
"flight to quality" to U.S. Treasury securities across the yield
curve. Economic trouble spread to Russia and Latin America, and what
had been perceived to have been a fairly modest drag on the
U.S. economy as a result of the remote Asian crisis now became an
overpowering influence on the market and expectations regarding future
U.S. growth. Although economic fundamentals still remained fairly
positive in this environment, fear dominated market sentiment over
much of this period.
[Graphic]
HOW DID THIS ENVIRONMENT INFLUENCE THE FED'S POLICY ON INTEREST RATES?
Expectations regarding the direction of monetary policy did an abrupt
about-face over the reporting period. The Fed adopted a tightening bias
in March, a reflection of their underlying concern about inflationary
pressures. By August, the Fed had removed its tightening bias as Fed
officials perceived that the risks to the economy had become more
balanced. By late August, however, market expectations that the Fed
might eventually need to ease monetary policy to help the U.S. economy
along, as a result of the world economic struggles, had begun to grow.
This expectation intensified throughout September along with a need to
restore liquidity to various market sectors. In response, at the
September 29, 1998 Federal Open Market Committee meeting, the Fed
voted to ease monetary policy by a modest 25 basis points. The Fed
followed that move with another 25 basis point ease on October 15,
1998. This move had significant impact on both the fixed-income and
equity markets. On November 17, 1998, the Fed added additional
assurance with another 25 basis point cut-which brought the Federal
Funds Target Rate down to 4.75%.
Interest rates in the short-term municipal market reflected this
activity and declined significantly over the period. The yield on the
three-year, A-rated general obligation municipal bond began the period
at 4.25%, but declined in December and January to 3.90%. 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. Beginning in August, yields steadily declined as
expectations of the needed Fed interest rate cuts became embedded in
the market. By the end of the reporting period, yields were at 3.75%.
[Graphic]
HOW DID FEDERATED LIMITED TERM MUNICIPAL FUND PERFORM OVER THE 12-MONTH
REPORTING PERIOD?
The fund performed very well over the reporting period on both a total
return and income basis. For the fiscal year ended November 30, 1998,
investors in the Class A Shares of the fund received an average annual
total return of 4.95%,* based on net asset value. For the same period,
investors in the Class F Shares of the fund received an average annual
total return of 5.21%,* based on net asset value. These results
exceeded the 4.62% return of the Lipper Short Term Municipal Debt Funds
Average.
* Performance quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate, so
that an investor's shares, when redeemed, may be worth more or less than
their original cost. Total returns for the period, based on offering
price (i.e., less any applicable sales charge), for Class A and F Shares
were 3.88% and 4.21%, respectively.
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. With bond yields declining over the
period, the fund's net asset value per share rose 0.82% (from $9.78 to
$9.86) over the 12-month reporting period.
[Graphic]
WHAT LEVEL OF INCOME DID THE FUND PRODUCE DURING THE 12-MONTH REPORTING
PERIOD?
For the fiscal year ended November 30, 1998, the fund's tax-exempt
income totaled $0.396 per share for Class A Shares and $0.420 per share
for Class F Shares. These income levels correspond to 12-month, tax-
exempt distribution rates of 4.01% and 4.26% for investors in the Class
A and Class F Shares, respectively. When considering the relative
price stability of the fund, these distributions are attractive
compared to municipal money market fund returns.
Also, as of November 30, 1998, the fund posted 30-day distribution
rates of 4.05% for Class A Shares and 4.30% for Class F Shares. These
rates are equivalent to taxable rates of 6.71% for Class A Shares and
7.12% for Class F Shares, assuming a top marginal tax rate of 39.60%.
The 30-day SEC yields as of November 30, 1998, for Class A and Class F
Shares were 3.61% and 3.86%, respectively.+
[Graphic]
WITH ANOTHER GOOD YEAR FOR MUNICIPAL BOND INVESTORS BEHIND US, WHAT
IS YOUR OUTLOOK FOR THE FUND AS WE ENTER 1999?
Our outlook continues to be optimistic for 1999. Interest rates have
fallen moderately over the past 12 months, and if the economy slows in
1999, the Fed may be forced to once again cut short-term interest
rates. In this environment of steady-to-declining interest rates, we
believe that the fund should continue to provide a significant income
advantage relative to money market funds with the potential for
moderate price appreciation. As such, we plan to position the fund's
average maturity to take advantage of lower-to-steady interest rates
while searching for attractive tax-free income investment
opportunities in order to best serve our shareholders.
+ 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.
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 $6,000 IN THE CLASS A SHARES
OF FEDERATED LIMITED TERM MUNICIPAL FUND ON 9/1/93, REINVESTED
DIVIDENDS AND CAPITAL GAINS, AND DID NOT REDEEM ANY SHARES, YOUR
ACCOUNT WOULD HAVE BEEN WORTH $7,331 ON 11/30/98. YOU WOULD HAVE EARNED
A 3.90%* AVERAGE ANNUAL TOTAL RETURN FOR THIS INVESTMENT LIFE SPAN.
One key to investing wisely is to reinvest all distributions in fund
shares. This increases the number of shares on which you can earn future
dividends, and you gain the benefit of compounding.
As of 12/31/98, the Class A Shares' annualized 1-year, 5-year, and
since inception (9/1/93) total returns were 4.51%, 3.86%, and 4.09%,
respectively. Class F Shares' annualized 1-year, 5-year, and since
inception (9/1/93) total returns were 4.77%, 4.09%, and 4.32%,
respectively.**
[The graphic presentation displayed here consists of a boxed legend in the upper
left quadrant indicating the components of the corresponding mountain chart. The
color coded mountain chart is a visual representation of the narrative text
above it. The "x" axis reflects computation periods from 9/1/93 to 11/30/98. The
"y" axis is measured in increments of $3,000 ranging from $0 to $9,000 and
indicates that the ending value of hypothetical initial investment of $6,000 in
the fund's Class A Shares, assuming the reinvestment of capital gains and
dividends, would have grown to $7,331 on 11/30/98.]
* 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 an
investor's shares, when redeemed, may be worth more or less than their
original cost.
** The total return takes into account the 1.00% sales charge for Class A
Shares and 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 5 YEARS (REINVESTING ALL DIVIDENDS AND CAPITAL GAINS) GREW TO
$6,693.
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 $6,000 but your account would have reached a total
value of $6,693* by 11/30/98. You would have earned an average annual
total return of 4.07%.
A practical investment plan helps you pursue income by investing in
short-term municipal securities. Through systematic investing, you buy
shares on a regular basis and reinvest all earnings. An investment plan
works for you when you invest only $1,000 annually. You can take it one
step at a time. Put time, money, and compounding to work.
[The graphic presentation displayed here consists of a boxed legend in the upper
left quadrant indicating the components of the corresponding mountain chart. The
color coded mountain chart is a visual representation of the narrative text
above it. The "x" axis reflects computation periods from 9/1/93 to 11/30/98. The
"y" axis is measured in increments of $2,000 ranging from $0 to $8,000 and
indicates that the ending value of a hypothetical $1,000 initial investment and
subsequent yearly investments of $1,000 in the fund's Class A Shares, assuming
the reinvestment of capital gains and dividends, would have grown to $6,693 on
11/30/98.]
* 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
CLASS A SHARES
GROWTH OF $10,000 INVESTED IN FEDERATED LIMITED TERM MUNICIPAL FUND
(CLASS A SHARES)
The graph below illustrates the hypothetical investment of $10,000* in
the Federated Limited Term Municipal Fund (Class A Shares) (the "Fund")
from September 1, 1993 (start of performance) to November 30, 1998,
compared to the Lehman Brothers Three-Year Municipal Bond Index
(LB3YRMB).+
[The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class A
Shares of Federated Limited Term Municipal Fund, based on a 1.00% sales load is
represented by a solid line and the Lehman Brothers Three-Year Municipal Bond
Index ("LB3YRMB") is represented by a dotted line. The line graph is a visual
representation of a comparison of change in value of a $10,000 hypothetical
investment in the Class A Shares of the fund, and the LB3YRMB. The "x" axis
reflects computation periods from 9/1/93 (Class A Shares' start of performance)
to 11/30/98. The "y" axis reflects the cost of the investment, beginning with
$8,000 and going up to $14,000, in increments of $2,000. The right margin
reflects the ending value of the hypothetical investment in the fund's Class A
Shares, based on a 1.00% sales load and the LB3YRMB. The ending values were
$12,217 and $12,875 respectively. The legend in the bottom quadrant of the
graphic presentation indicates the fund's Class A Shares Average Annual Total
Returns for the one-year and five year periods ended 11/30/98, and from the
Class A Shares' start of performance (9/1/93) and ending 11/30/98. The total
returns were 3.88%, 3.84% and 3.89% respectively.]
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, SO WHEN SHARES
ARE REDEEMED, THEY MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR GUARANTEED BY ANY BANK AND ARE
NOT FEDERALLY INSURED.
* Represents a hypothetical investment of $10,000 in the Fund after
deducting the maximum sales charge of 1.00% ($10,000 investment minus
$100 sales charge = $9,900). The Fund's performance assumes the
reinvestment of all dividends and distributions. The LB3YRMB has been
adjusted to reflect reinvestment of dividends on securities in the index.
** Total return quoted reflects all applicable sales charges.
+ The LB3YRMB is not adjusted to reflect sales charges, expenses, or other
fees that the SEC requires to be reflected in the Fund's performance. The
index is unmanaged.
FEDERATED LIMITED TERM MUNICIPAL FUND
CLASS F SHARES
GROWTH OF $10,000 INVESTED IN FEDERATED LIMITED TERM MUNICIPAL FUND
(CLASS F SHARES)
The graph below illustrates the hypothetical investment of $10,000*
in the Federated Limited Term Municipal Fund (Class F Shares) (the
"Fund") from September 1, 1993 (start of performance) to November 30,
1998, compared to the Lehman Brothers Three-Year Municipal Bond Index
(LB3YRMB).+
[The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class F
Shares of Federated Limited Term Municipal Fund, based on a 1.00% sales load is
represented by a solid line and the Lehman Brothers Three-Year Municipal Bond
Index ("LB3YRMB") is represented by a dotted line. The line graph is a visual
representation of a comparison of change in value of a $10,000 hypothetical
investment in the Class F Shares of the fund and the LB3YRMB. The "x" axis
reflects computation periods from 9/31/93 (Class F Shares' start of performance)
to 11/30/98. The "y" axis reflects the cost of the investment, beginning with
$9,000 and going up to $13,000, in increments of $1,000. The right margin
reflects the ending value of the hypothetical investment in the fund's Class F
Shares, based on a 1.00% sales load and the LB3YRMB. The ending values were
$12,362 and 12,875 respectively. The legend in the bottom quadrant of the
graphic presentation indicates the fund's Class F Shares Average Annual Total
Returns for the one-year and five year period ended 11/30/98 and from the Class
F Shares' start of performance (9/1/93) and ending 11/30/98. The total returns
were 4.21%, 4.28% and 4.32% respectively.]
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, SO WHEN SHARES
ARE REDEEMED, THEY MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR GUARANTEED BY ANY BANK AND ARE
NOT FEDERALLY INSURED.
* Represents a hypothetical investment of $9,900 in the Fund after
deducting the maximum sales charge of 1.00% ($10,000 investment minus
$100 sales charge = $9,900) that was in effect prior to July 17, 1995. As
of July 17, 1995, the Fund did not have a sales charge. A contingent
deferred sales charge of 1.00% would be charged on any redemption. The
Fund's performance assumes the reinvestment of all dividends and
distributions. The LB3YRMB has been adjusted to reflect reinvestment of
dividends on securities in the index.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The LB3YRMB is not adjusted to reflect sales charges, expenses, or other
fees that the SEC requires to be reflected in the Fund's performance. The
index is unmanaged.
FEDERATED LIMITED TERM MUNICIPAL FUND
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
(A)LONG-TERM MUNICIPALS-98.3%
ALABAMA-0.5%
$ 515,000 Mobile, AL, GO Warrants, 4.95%, 8/15/2000 NR $ 525,815
ALASKA-2.3%
1,145,000 Alaska Industrial Development and Export Authority,
Power Revenue Bonds (First Series), 4.75% (Snettisham
Hydroelectric Project), 1/1/2002 BBB 1,171,163
1,145,000 Alaska Industrial Development and Export Authority,
Power Revenue Bonds (First Series), 4.75% (Snettisham
Hydroelectric Project), 1/1/2003 BBB 1,173,350
Total 2,344,513
CALIFORNIA-2.8%
700,000 Delta Counties, CA Home Mortgage Finance Authority,
SFM Revenue Bonds (Series 1998A), 4.85% (GNMA
Collateralized Home Mortgage Program COL)/
(MBIA INS), 12/1/2008 AAA 708,806
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 12/15/2007 A3 1,000,000
1,160,000 West Sacramento, CA, Limited Obligation Refunding
Improvement Bonds, 4.80% (West Sacramento Reassessment
District of 1998)/(Original Issue Yield: 4.90%), 9/2/2002 NR 1,162,088
Total 2,870,894
COLORADO-6.3%
570,000 Colorado HFA, SFM Revenue Bond, Series C-1, 7.65%
(FHA/VA Mtgs. LOC), 12/1/2025 Aa2 636,918
1,000,000 Colorado HFA, Single Family Program Senior Bonds (Series
1998A-3), 4.60%, 11/1/2016 Aa2 1,007,660
1,500,000 Colorado HFA, Single Family Program Senior Bonds (Series
1998C-1), 4.70%, 5/1/2020 Aa2 1,522,755
2,000,000 Denver, CO City & County Airport Authority, Airport
System Revenue Bonds (Series 1996C), 5.05%, 11/15/2000 Baa1 2,042,100
</TABLE>
FEDERATED LIMITED TERM MUNICIPAL FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
(A)LONG-TERM MUNICIPALS-CONTINUED
COLORADO-CONTINUED
$ 1,090,000 Denver, CO Health & Hospital Authority, Revenue Bonds,
5.00%, 12/1/2002 BBB $ 1,118,787
Total 6,328,220
DISTRICT OF COLUMBIA-2.5%
2,335,000 District of Columbia Housing Finance Agency, SFM
Revenue Bonds (Series 1998A), 6.25% (GNMA
Collateralized Home Mortgage Program COL), 12/1/2028 AAA 2,511,503
FLORIDA-1.9%
1,800,000 Pinellas County, FL HFA, SFM Revenue Bonds, Series C,
6.45% (GNMA COL), 3/1/2029 Aaa 1,894,824
HAWAII-1.5%
1,485,000 Hawaii State Department of Budget & Finance, Special
Purpose Revenue Bonds, 4.65% (G.N. Wilcox Memorial
Hospital), 7/1/2003 BBB+ 1,507,914
IDAHO-4.9%
1,600,000 Boise, ID Industrial Development Corp., Multi-Mode
Variable Rate Industrial Development Revenue Bonds
(Series 1998) Weekly VRDNs (Multiquip Inc. Project)/(Bank
of Tokyo-Mitsubishi Ltd. LOC) A- 1,600,000
390,000 Idaho Health Facilities Authority, Hospital Revenue Bonds
(Series 1998), 4.50% (Idaho Elks Rehabilitation Hospital)/
(Original Issue Yield: 4.55%), 7/15/2002 BBB 392,902
225,000 Idaho Health Facilities Authority, Hospital Revenue Bonds
(Series 1998), 4.70% (Idaho Elks Rehabilitation Hospital)/
(Original Issue Yield: 4.75%), 7/15/2004 BBB 227,705
750,000 Idaho Health Facilities Authority, Improvement &
Refunding Revenue Bonds, 4.40% (Bannock Regional
Medical Center)/(Original Issue Yield: 4.30%), 5/1/2002 BBB+ 753,960
2,000,000 Idaho Housing Agency, SFM Bonds, Series B, 4.65%,
7/1/2028 Aaa 2,012,160
Total 4,986,727
ILLINOIS-10.1%
1,025,000 Chicago, IL, Collateralized SFM Revenue Bonds
(Series 1997B), 5.10% (GNMA Collateralized Home
Mortgage Program COL), 9/1/2007 Aaa 1,058,302
</TABLE>
FEDERATED LIMITED TERM MUNICIPAL FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
(A)LONG-TERM MUNICIPALS-CONTINUED
ILLINOIS-CONTINUED
$ 1,655,000 Chicago, IL, Collateralized SFM Revenue Bonds,
Series A-1, 4.85% (GNMA COL), 3/1/2015 Aaa $ 1,682,308
750,000 Chicago, IL, Gas Supply Revenue Bonds, 7.50% (Peoples
Gas Light & Coke Company), 3/1/2015 AA- 797,070
925,000 Illinois Development Finance Authority, (Series 1995)
Revenue Bonds, 5.80% (Catholic Charities Housing
Development Corp.), 1/1/2007 NR 961,149
150,000 Illinois Development Finance Authority, Housing Revenue
Bonds, 5.25% (Catholic Charities Housing Development
Corp.)/(Archdiocese of Chicago GTD), 1/1/1999 NR 150,089
650,000 Illinois Development Finance Authority, Mortgage Revenue
Refunding Bonds, Series 1997A, 5.20% (MBIA INS)/(FHA
LOC), 7/1/2008 AAA 678,906
2,000,000 Illinois Development Finance Authority, Solid Waste
Disposal Revenue Bonds, 7.125% (WMX Technologies, Inc.),
1/1/2001 BBB+ 2,105,840
400,000 Illinois Educational Facilities Authority, Revenue Bonds,
5.25% (Illinois Institute of Technology)/(Original Issue
Yield: 5.35%), 12/1/1998 BBB- 400,020
580,000 Illinois Health Facilities Authority, Refunding Revenue
Bonds (Series 1996B), 4.80% (Sarah Bush Lincoln Health
Center), 2/15/1999 A- 581,960
505,000 Illinois Health Facilities Authority, Refunding Revenue
Bonds (Series 1996B), 5.00% (Sarah Bush Lincoln Health
Center), 2/15/2000 A- 513,292
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- 629,471
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- 691,628
Total 10,250,035
</TABLE>
FEDERATED LIMITED TERM MUNICIPAL FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
(A)LONG-TERM MUNICIPALS-CONTINUED
INDIANA-4.9%
$ 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+ $ 645,750
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+ 706,845
725,000 Indiana Health Facility Financing Authority, Hospital
Refunding & Revenue Bonds (Series 1996), 5.625% (Hancock
Memorial Hospital and Health Services), 8/15/2002 BBB+ 753,420
1,700,000 Indiana Health Facility Financing Authority, Hospital
Revenue Refunding Bonds, 4.50% (Floyd Memorial
Hospital, IN)/(Original Issue Yield: 4.53%), 2/15/2005 A 1,715,946
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 954,803
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 235,127
Total 5,011,891
KANSAS-2.7%
335,000 Newton, KS, Hospital Revenue Refunding Bonds,
Series 1998, 4.65% (Newton Healthcare Corp.)/(Original
Issue Yield: 4.70%), 11/15/2001 BBB- 338,451
370,000 Newton, KS, Hospital Revenue Refunding Bonds,
Series 1998, 4.80% (Newton Healthcare Corp.)/(Original
Issue Yield: 4.90%), 11/15/2003 BBB- 375,287
1,000,000 Sedgwick & Shawnee Counties, KS, SFM Revenue Bonds,
Mortgage-Backed Securities Program, Series 1998 A-1, 5.00%
(GNMA Collateralized Home Mortgage Program COL), 6/1/2013 Aaa 1,007,500
</TABLE>
FEDERATED LIMITED TERM MUNICIPAL FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
(A)LONG-TERM MUNICIPALS-CONTINUED
KANSAS-CONTINUED
$ 995,000 Sedgwick & Shawnee Counties, KS, SFM Revenue Bonds
(Series 1997A-1), 5.10% (GNMA Collateralized Home
Mortgage Program COL), 12/1/2014 Aaa $ 1,023,139
Total 2,744,377
LOUISIANA-1.6%
1,500,000 Louisiana State Offshore Term Authority, Deepwater Port
Refunding Revenue Bonds (First Stage Series 1992B), 6.00%
(Loop, Inc.), 9/1/2001 A 1,583,160
MASSACHUSETTS-4.0%
750,000 Greater New Bedford Regional Refuse Management
District, MA, UT GO Bonds, 5.00% (Original Issue
Yield: 5.10%), 5/1/1999 Baa 754,838
500,000 Greater New Bedford Regional Refuse Management
District, MA, UT GO Bonds, 5.10% (Original Issue
Yield: 5.20%), 5/1/2000 Baa 507,795
1,000,000 Massachusetts IFA, Resource Recovery Revenue Refunding
Bonds, Series 1998A, 4.60% (Ogden Haverhill), 12/1/2002 BBB 1,009,170
1,000,000 Massachusetts IFA, Resource Recovery Revenue Refunding
Bonds, Series 1998A, 4.70% (Ogden Haverhill), 12/1/2003 BBB 1,010,830
2,000,000 (b)Massachusetts IFA, Solid Waste Disposal Sr. Lien Revenue
Bonds (Series A), 8.00% (Massachusetts Recycling
Association), 8/1/1999 NR 750,000
Total 4,032,633
MINNESOTA-1.6%
1,500,000 Maplewood, MN, Health Care Facility Revenue Bonds
(Series 1996), 5.95% (Healtheast, MN), 11/15/2006 BBB 1,573,290
MISSOURI-5.6%
1,000,000 Kansas City, MO IDA, PCR Bonds, 6.05% (General Motors
Corp.), 4/1/2006 A- 1,019,040
3,000,000 Missouri State Housing Development Commission, SFM
Revenue Bonds (Series 1998D-2), 6.50% (GNMA
Collateralized Home Mortgage Program COL), 9/1/2029 AAA 3,334,920
</TABLE>
FEDERATED LIMITED TERM MUNICIPAL FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
(A)LONG-TERM MUNICIPALS-CONTINUED
MISSOURI-CONTINUED
$ 450,000 West Plains, MO IDA, Hospital Revenue Bonds, 4.70%
(Ozarks Medical Center)/(Original Issue Yield: 4.80%),
11/15/2002 BBB- $ 455,090
440,000 West Plains, MO IDA, Hospital Revenue Bonds, 4.85%
(Ozarks Medical Center)/(Original Issue Yield: 4.95%),
11/15/2003 BBB- 447,062
425,000 West Plains, MO IDA, Hospital Revenue Bonds, 5.05%
(Ozarks Medical Center)/(Original Issue Yield: 5.125%),
11/15/2005 BBB- 435,634
Total 5,691,746
NEBRASKA-1.0%
991,810 (c)Energy America, NE, Gas Supply Revenue Bonds (Series
1998B), 5.10% (Nebraska Public Gas Agency), 10/15/2005 NR 1,007,788
NEW JERSEY-1.0%
1,000,000 New Jersey Health Care Facilities Financing Authority,
Revenue Bonds, 5.00% (Capital Health System Group)/
(American Capital Access INS), 7/1/2005 A 1,037,420
NEW MEXICO-1.9%
1,750,000 New Mexico Mortgage Finance Authority, Single Family
Mortgage Program Bonds (Series 1998C), 6.00% (GNMA
Collateralized Home Mortgage Program COL), 7/1/2029 AAA 1,877,540
NEW YORK-8.3%
1,550,000 New York City, NY, GO UT Refunding Bonds (Series B),
5.30%, 8/15/2000 A- 1,593,400
450,000 New York City, NY, GO UT Refunding Bonds (Series B),
5.30%, 8/15/2000 A- 463,973
1,800,000 New York City, NY, UT GO Bonds (Series B), 7.50% (Original
Issue Yield: 7.60%), 2/1/2001 A- 1,935,162
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- 1,031,290
1,000,000 New York State Mortgage Agency, Homeowner Mortgage
Revenue Bonds, Series 71, 4.75%, 10/1/2021 Aa2 1,008,750
1,065,000 Niagara Falls, NY CSD, Certificates of Participation
(Series 1998), 5.50%, 6/15/2001 BBB- 1,100,678
</TABLE>
FEDERATED LIMITED TERM MUNICIPAL FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
(A)LONG-TERM MUNICIPALS-CONTINUED
NEW YORK-CONTINUED
$ 1,185,000 Niagara Falls, NY CSD, Certificates of Participation
(Series 1998), 5.625%, 6/15/2003 BBB- $ 1,246,632
Total 8,379,885
NORTH CAROLINA-1.0%
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 1,026,620
NORTH DAKOTA-3.8%
2,795,000 North Dakota State HFA, Housing Finance Program Bonds
(Series 1997C), 4.70%, 1/1/2022 Aa3 2,818,534
990,000 North Dakota State HFA, Housing Finance Program Bonds
(Series 1998A), 4.60%, 1/1/2023 Aa3 994,752
Total 3,813,286
OHIO-5.0%
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 503,655
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 318,840
460,000 Franklin County, OH Health Care Facilities, Revenue
Refunding Bonds, 5.00% (Ohio Presbyterian Retirement
Services), 7/1/2004 NR 468,910
1,550,000 Marion County, OH Hospital Authority, Hospital Refunding
& Improvement Revenue Bonds (Series 1996), 5.50%
(Community Hospital of Springfield), 5/15/2000 BBB+ 1,586,348
1,090,000 Ohio Enterprise Bond Fund, (Series 1995-3) State Economic
Development Revenue Bonds, 5.60% (Smith Steelite),
12/1/2003 A- 1,160,240
1,000,000 Ohio HFA, Residential Mortgage Revenue Bonds (Series
1998A-1), 4.90% (GNMA Collateralized Home Mortgage
Program COL), 9/1/2025 AAA 1,014,370
Total 5,052,363
</TABLE>
FEDERATED LIMITED TERM MUNICIPAL FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
(A)LONG-TERM MUNICIPALS-CONTINUED
PENNSYLVANIA-7.6%
$ 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- $ 623,561
850,000 Clarion County, PA Hospital Authority, Revenue Refunding
Bonds, Series 1997, 5.00% (Clarion County Hospital),
7/1/2002 BBB- 870,256
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 824,813
735,000 Hazleton, PA Health Services Authority, Hospital Revenue
Bonds (Series 1996), 5.40% (Hazleton-St. Joseph Medical
Center), 7/1/2001 BBB+ 749,347
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+ 197,746
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+ 158,258
220,000 Jeannette Health Services Authority, PA, Hospital Revenue
Bonds (Series A of 1996), 5.15% (Jeannette District Memorial
Hospital)/(Original Issue Yield: 5.30%), 11/1/2002 BBB+ 226,871
1,200,000 Pennsylvania EDFA, Resource Recovery Refunding
Revenue Bonds (Series B), 6.75% (Northampton
Generating), 1/1/2007 BBB- 1,309,284
595,000 Philadelphia, PA Hospitals & Higher Education Facilities
Authority, Hospital Revenue Bonds (Series 1997), 5.00%
(Jeanes Hospital, PA), 7/1/2000 BBB+ 602,812
620,000 Philadelphia, PA Hospitals & Higher Education Facilities
Authority, Hospital Revenue Bonds (Series 1997), 5.20%
(Jeanes Hospital, PA), 7/1/2001 BBB+ 632,022
435,000 Philadelphia, PA IDA, Revenue Bonds, 4.55% (Franklin
Institute), 6/15/2003 Baa2 440,259
</TABLE>
FEDERATED LIMITED TERM MUNICIPAL FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
(A)LONG-TERM MUNICIPALS-CONTINUED
PENNSYLVANIA-CONTINUED
$ 1,080,000 Scranton-Lackawanna, PA Health & Welfare Authority,
Revenue Bonds (Series A), 6.35% (Allied Services
Rehabilitation Hospitals, PA), 7/15/1999 NR $ 1,089,936
Total 7,725,165
RHODE ISLAND-4.1%
3,885,000 Rhode Island State Student Loan Authority, Student Loan
Revenue Refunding Bond, Series B, 6.75% (Original Issue
Yield: 6.80%), 12/1/2001 A 4,156,095
SOUTH DAKOTA-3.3%
225,000 South Dakota State Health & Educational Authority,
Revenue Bonds, 6.00% (Huron Regional Medical
Center, SD), 4/1/1999 BBB 225,884
3,000,000 South Dakota Student Loan Finance Corp., (Series A)
Student Loan Revenue Bonds, 5.85%, 8/1/2000 A+ 3,107,370
Total 3,333,254
TENNESSEE-3.0%
585,000 Montgomery County, TN HEFA Board, Hospital Revenue
Refunding Bonds, 4.50% (Clarksville Regional Hospital)/
(Original Issue Yield: 4.60%), 1/1/2003 BBB 588,188
915,000 Montgomery County, TN HEFA Board, Hospital Revenue
Refunding Bonds, 4.55% (Clarksville Regional Hospital)/
(Original Issue Yield: 4.65%), 1/1/2004 BBB 917,361
730,000 Montgomery County, TN HEFA Board, Hospital Revenue
Refunding Bonds, 4.65% (Clarksville Regional Hospital)/
(Original Issue Yield: 4.75%), 1/1/2005 BBB 732,431
800,000 Springfield, TN Health & Educational Facilities Board,
Hospital Revenue Bonds, 7.50% (NorthCrest Medical
Center), 4/1/2000 NR 831,608
Total 3,069,588
TEXAS-3.8%
500,000 Bell County, TX HFDC, Retirement Facility Revenue Bonds
(Series 1998A), 4.40% (Buckner Retirement Services, Inc.
Obligated Group Project)/(Original Issue Yield: 4.50%),
11/15/2002 A- 503,060
</TABLE>
FEDERATED LIMITED TERM MUNICIPAL FUND
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
<C> <S> <C> <C>
(A)LONG-TERM MUNICIPALS-CONTINUED
TEXAS-CONTINUED
$ 1,270,000 Bell County, TX HFDC, Retirement Facility Revenue Bonds
(Series 1998A), 5.00% (Buckner Retirement Services, Inc.
Obligated Group Project), 11/15/2004 A- $ 1,312,228
1,000,000 (c)Greenville, TX Industrial Development Corp., Airport
Revenue Refunding Bonds, Series 1996, 5.15% (Raytheon/
E-Systems, Inc.), 8/1/2000 NR 1,021,990
1,000,000 Northeast Hospital Authority, TX, Hospital Revenue
Refunding Bonds (Series 1997), 5.25% (Northeast Medical
Center Hospital), 5/15/1999 BBB 1,009,530
Total 3,846,808
UTAH-1.0%
1,000,000 Davis County, Utah Solid Waste Management & Energy
Recovery Special Service Dist., Refunding Revenue Bonds,
5.30% (Original Issue Yield: 5.40%), 6/15/1999 BBB+ 1,005,020
VIRGINIA-0.3%
255,000 Prince William County, VA IDA, Hospital Revenue Bonds,
6.10% (Potomac Hospital Corp., VA), 10/1/1999 A2 261,053
TOTAL INVESTMENTS (IDENTIFIED COST $98,957,942)(D) $ 99,449,427
</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 November 30, 1998, 46.2% of the total investments at market value
were subject to alternative minimum tax.
(b) Non-income producing security.
(c) Denotes a private placement security. At November 30, 1998, these
securities amounted to $2,029,778 which represents 2% of total net
assets.
(d) The cost of investments for federal tax purposes amounts to $98,957,942.
The net unrealized appreciation of investments on a federal tax basis
amounts to $491,485 which is comprised of $1,663,222 appreciation and
$1,171,737 depreciation at November 30, 1998.
Note: The categories of investments are shown as a percentage of net assets
($101,137,890) at November 30, 1998.
The following acronyms are used throughout this portfolio:
COL -Collateralized
CSD -Central School District
EDFA -Economic Development Financing Authority
FHA -Federal Housing Administration
GNMA -Government National Mortgage Association
GO -General Obligation
GTD -Guaranty
HDA -Hospital Development Authority
HEFA -Health and Education Facilities Authority
HFA -Housing Finance Authority
HFDC -Health Facility Development Corporation
IDA -Industrial Development Authority
IFA -Industrial Finance Authority
INS -Insured
LOC -Letter of Credit
MBIA -Municipal Bond Investors Assurance
PCR -Pollution Control Revenue
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
NOVEMBER 30, 1998
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value
(identified and tax cost $98,957,942) $ 99,449,427
Cash 57,825
Income receivable 1,720,335
Receivable for investments
sold 115,000
Receivable for shares sold 58,517
Total assets 101,401,104
LIABILITIES:
Payable for shares redeemed $ 140,000
Income distribution payable 61,181
Accrued expenses 62,033
Total liabilities 263,214
NET ASSETS for 10,260,919 shares outstanding $ 101,137,890
NET ASSETS CONSIST OF:
Paid in capital $ 102,982,479
Net unrealized appreciation of investments 491,485
Accumulated net realized loss on investments (2,309,407)
Distributions in excess of net investment income (26,667)
Total net assets $ 101,137,890
Net Asset Value, Offering Price, and Redemption Proceeds
Per Share:
CLASS F SHARES:
Net Asset Value Per Share
($28,964,052/2,938,620 shares outstanding) $9.86
Offering Price Per Share (100/100 of $9.86)* $9.86
Redemption Proceeds Per Share (99.00/100 of $9.86)** $9.76
CLASS A SHARES:
Net Asset Value Per Share
($72,173,838/7,322,299 shares outstanding) $9.86
Offering Price Per Share (100/99.00 of $9.86)* $9.96
Redemption Proceeds Per Share (100/100 of $9.86)** $9.86
</TABLE>
* See "What Shares Cost" in the Prospectus.
** See "Contingent Deferred Sales Charge" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
FEDERATED LIMITED TERM MUNICIPAL FUND
STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1998
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 4,571,838
EXPENSES:
Investment advisory fee $ 368,391
Administrative personnel and services fee 155,000
Custodian fees 5,089
Transfer and dividend disbursing agent fees
and expenses 52,526
Directors'/Trustees' fees 4,701
Auditing fees 14,691
Legal fees 2,440
Portfolio accounting fees 67,510
Distribution services fee-Class F Shares 36,497
Distribution services fee-Class A Shares 169,422
Shareholder services fee-Class F Shares 60,829
Shareholder services fee-Class A Shares 169,422
Share registration costs 79,815
Printing and postage 20,624
Insurance premiums 3,200
Taxes 7,125
Miscellaneous 54,514
Total expenses 1,271,796
Waivers and reimbursements-
Waiver of investment advisory fee $ (368,391)
Waiver of distribution services fee-Class F Shares (36,497)
Reimbursement of other operating expenses (98,890)
Total waivers and reimbursements (503,778)
Net expenses 768,018
Net investment income 3,803,820
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 51,809
Net change in unrealized appreciation (depreciation)
of investments 647,232
Net realized and unrealized gain on investments 699,041
Change in net assets resulting from operations $ 4,502,861
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED LIMITED TERM MUNICIPAL FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS-
Net investment income $ 3,803,820 $ 3,538,645
Net realized gain on investments
($51,808 and $39,808, respectively, as
computed for federal tax purposes) 51,809 39,808
Net change in unrealized appreciation/
depreciation 647,232 (13,463)
Change in net assets
resulting from operations 4,502,861 3,564,990
DISTRIBUTIONS TO SHAREHOLDERS-
Distributions from net
investment income
Class F Shares (1,033,307) (1,064,074)
Class A Shares (2,717,180) (2,474,571)
Change in net assets resulting from
distributions to shareholders (3,750,487) (3,538,645)
SHARE TRANSACTIONS-
Proceeds from sale of shares 74,092,164 48,505,545
Net asset value of shares issued to
shareholders in payment of distributions
declared 2,938,599 2,377,856
Cost of shares redeemed (49,864,970) (77,560,411)
Change in net assets resulting from share
transactions 27,165,793 (26,677,010)
Change in net assets 27,918,167 (26,650,665)
NET ASSETS:
Beginning of period 73,219,723 99,870,388
End of period $ 101,137,890 $ 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>
YEAR ENDED NOVEMBER 30,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 9.78 $ 9.76 $ 9.85 $ 9.49 $10.02
Net investment income 0.40 0.41 0.40 0.46 0.43
Net realized and unrealized
gain (loss) on investments 0.08 0.02 (0.08) 0.36 (0.53)
Total from investment
operations 0.48 0.43 0.32 0.82 (0.10)
LESS DISTRIBUTIONS
Distributions from net
investment income (0.40) (0.41) (0.40) (0.46) (0.43)
Distributions in excess of
net investment income - - (0.01)(a) - -
Total distributions (0.40) (0.41) (0.41) (0.46) (0.43)
NET ASSET VALUE, END OF PERIOD $ 9.86 $ 9.78 $ 9.76 $ 9.85 $ 9.49
TOTAL RETURN(B) 4.95% 4.45% 3.34% 8.67% (0.95%)
RATIOS TO AVERAGE NET ASSETS
Expenses 0.90% 0.90% 0.81% 0.68% 0.63%
Net investment income 4.08% 4.17% 4.14% 4.72% 4.33%
Expense waiver/
reimbursement(c) 0.50% 0.48% 0.54% 1.03% 0.94%
SUPPLEMENTAL DATA
Net assets, end of period
(000 omitted) $72,174 $52,921 $73,570 $65,179 $32,644
Portfolio turnover 25% 33% 49% 47% 135%
</TABLE>
(a) 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.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED LIMITED TERM MUNICIPAL FUND
FINANCIAL HIGHLIGHTS-CLASS F SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 9.78 $ 9.76 $ 9.85 $ 9.49 $10.02
Net investment income 0.42 0.43 0.43 0.47 0.45
Net realized and unrealized
gain (loss) on investments 0.08 0.02 (0.08) 0.36 (0.53)
Total from investment
operations 0.50 0.45 0.35 0.83 (0.08)
LESS DISTRIBUTIONS
Distributions from net
investment income (0.42) (0.43) (0.43) (0.47) (0.45)
Distributions in excess of
net investment income - - (0.01)(a) - -
Total distributions (0.42) (0.43) (0.44) (0.47) (0.45)
NET ASSET VALUE, END OF PERIOD $ 9.86 $ 9.78 $ 9.76 $ 9.85 $ 9.49
TOTAL RETURN(B) 5.21% 4.71% 3.60% 8.86% (0.75% )
RATIOS TO AVERAGE NET ASSETS
Expenses 0.65% 0.65% 0.56% 0.49% 0.44%
Net investment income 4.28% 4.42% 4.40% 4.91% 4.57%
Expense waiver/
reimbursement(c) 0.65% 0.63% 0.69% 1.12% 0.94%
SUPPLEMENTAL DATA
Net assets, end of period
(000 omitted) $28,964 $20,298 $26,300 $26,442 $12,804
Portfolio turnover 25% 33% 49% 47% 135%
</TABLE>
(a) 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.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and
net investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED LIMITED TERM MUNICIPAL FUND
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1998
1. ORGANIZATION
Fixed Income Securities, Inc. (the "Corporation") is registered under
the Investment Company Act of 1940, as amended (the "Act") as an open-
end management investment company. The Corporation consists of three
portfolios. The financial statements included herein are only those of
Federated Limited Term Municipal Fund (the "Fund"), a diversified
portfolio. The financial statements of the other portfolios are
presented separately. The assets of each portfolio are segregated and a
shareholder's interest is limited to the portfolio in which shares are
held. The Fund offers two classes of shares: Class F Shares and Class A
Shares. The investment objective of the fund is to provide a high level
of current income which is exempt from federal income tax (federal
regular income tax does not include the federal alternative minimum
tax) consistent with the preservation of principal.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. These policies are in conformity with generally accepted
accounting principles.
INVESTMENT VALUATIONS-Municipal bonds are valued by an independent
pricing service, taking into consideration yield, liquidity, risk,
credit quality, coupon, maturity, type of issue, and any other factors
or market data the pricing service deems relevant. Short-term
securities are valued at the prices provided by an independent pricing
service. However, short-term securities with remaining maturities of
sixty days or less at the time of purchase may be valued at amortized
cost, which approximates fair market value.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS-Interest income and
expenses are accrued daily. Bond premium and discount, if applicable,
are amortized as required by the Internal Revenue Code, as amended (the
"Code"). Distributions to shareholders are recorded on the ex-dividend
date.
FEDERAL TAXES-It is the Fund's policy to comply with the provisions
of the Code applicable to regulated investment companies and to
distribute to shareholders each year substantially all of its income.
Accordingly, no provisions for federal tax are necessary.
At November 30, 1998, the Fund, for federal tax purposes, had a capital
loss carryforward of $2,309,407, which will reduce the Fund's taxable
income arising from future net realized gain on investments, if any, to
the extent permitted by the Code, and thus will reduce the amount of
the distributions to shareholders which would otherwise be necessary
to relieve the Fund of any liability for federal tax. Pursuant to the
Code, such capital loss carryforward will expire as follows:
EXPIRATION YEAR EXPIRATION AMOUNT
2002 $1,870,398
2003 439,009
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS-The Fund may engage
in when-issued or delayed delivery transactions. The Fund records
when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make
payment for the securities purchased. Securities purchased on a when-
issued or delayed delivery basis are marked to market daily and begin
earning interest on the settlement date.
USE OF ESTIMATES-The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts of
assets, liabilities, expenses, and revenues reported in the financial
statements. Actual results could differ from those estimated.
OTHER-Investment transactions are accounted for on the trade date.
3. CAPITAL STOCK
At November 30, 1998, par value shares ($0.001 per share) authorized
were as follows:
NUMBER OF PAR VALUE
CLASS NAME CAPITAL STOCK AUTHORIZED
Class A Shares 1,000,000,000
Class F Shares 1,000,000,000
Total 2,000,000,000
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1998 1997
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 6,369,593 $ 62,557,215 4,570,072 $ 44,472,437
Shares issued to shareholders
in payment of distributions
declared 217,217 2,136,622 171,877 1,673,674
Shares redeemed (4,673,113) (46,010,794) (6,867,445) (66,808,856)
Net change resulting from
Class A Share transactions 1,913,697 $ 18,683,043 (2,125,496) $ (20,662,745)
<CAPTION>
YEAR ENDED NOVEMBER 30,
1998 1997
<S> <C> <C> <C> <C>
CLASS F SHARES SHARES AMOUNT SHARES AMOUNT
Shares sold 1,174,688 $ 11,534,949 413,737 $ 4,033,108
Shares issued to shareholders
in payment of distributions
declared 81,531 801,977 72,297 704,182
Shares redeemed (392,161) (3,854,176) (1,104,776) (10,751,555)
Net change resulting from
Class F Share transactions 864,058 $ 8,482,750 (618,742) $ (6,014,265)
Net change resulting from
share transactions 2,777,755 $ 27,165,793 (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 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 Corporation's Class F
and Class A Shares. The Plan provides that the Fund may incur
distribution expenses according to the following schedule annually, to
compensate FSC.
PERCENTAGE OF AVERAGE
SHARE CLASS NAME DAILY NET ASSETS OF CLASS
Class A Shares 0.25%
Class F Shares 0.15%
The distributor may voluntarily choose to waive any portion of its fee.
The distributor can modify or terminate this voluntary waiver at any
time at its sole discretion.
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 Funds' accounting
records for which it receives a fee. The fee is based on the level of
each Fund's average daily net assets for the period, plus out-of-pocket
expenses.
INTERFUND TRANSACTIONS-During the period ended November 30, 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 $57,126,124 and $70,191,974,
repectively.
GENERAL-Certain of the Officers and Directors of the Corporation are
Officers and Directors or Trustees of the above companies.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities
for the period ended November 30, 1998, were as follows:
PURCHASES $50,629,203
SALES $21,855,528
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.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of FIXED INCOME SECURITIES, INC.
and the Shareholders of FEDERATED LIMITED TERM MUNICIPAL FUND:
We have audited the accompanying statement of assets and liabilities of
Federated Limited Term Municipal Fund (a portfolio of Fixed Income
Securities, Inc.), including the schedule of investments, as of
November 30, 1998, and the related statements of operations for the
year then ended, the statement of changes in net assets for each of the
two years in the period then ended, and the financial highlights for
each of the years in the five-year period ended November 30, 1998.
These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial
highlights based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. Our procedures included
confirmation of the securities owned at November 30, 1998, by
correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, such financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Federated Limited Term Municipal Fund as of
November 30, 1998, the results of its operations, the changes in its
net assets for each of the two years in the period then ended, and the
financial highlights for the period then ended, in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
January 15, 1999
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 and Secretary
Richard J. Thomas
Treasurer
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
investment risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors
only when preceded or accompanied by the fund's prospectus which
contains facts concerning its objective and policies, management fees,
expenses, and other information.
[Graphic]
Federated Investors
Federated Securities Corp., Distributor
Federated Investors, Inc.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Cusip 338319502
Cusip 338319403
G00278-02 (1/99)
[Graphic]
[Graphic]
Federated Investors
[Graphic]
Federated Strategic Income Fund
4th Annual Report
November 30, 1998
ESTABLISHED 1994
PRESIDENT'S MESSAGE
[Graphic]
Dear Fellow Shareholder:
Federated Strategic Income Fund was created in 1994, and I am pleased to
present its fourth Annual Report. This report covers the 12-month
reporting period from December 1, 1997 through November 30, 1998. It
begins with an interview 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 holdings, and third is the
publication of the fund's financial statements.
Federated Strategic Income Fund produced generous monthly income
through a widely diversified portfolio of bonds. The fund's managers
shifted the composition of the $937 million portfolio among key bond
sectors. These sectors are not well correlated, which means that the
risks and potential rewards may not occur at the same time. The bonds'
price movements act, to some degree, independently, which has
historically rewarded shareholders with very good total returns. The
fund's sector allocations as of November 30, 1998 were 35% domestic
high-quality bonds, 36% domestic high-yield bonds, and 31%
international bonds.*
The bond market, particularly later in the period, was characterized
by a continued flight-to-quality, which benefited Treasuries and high-
quality corporate bonds. On the other hand, the environment was weak for
U.S. high-yield and international emerging market bonds. The fund's
ability to diversify among different market sectors resulted in a high
level of income that helped temper a decline in net asset value.
* 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.
Individual share class annualized total return performance for
the 12-month period, including realized gains and income
distributions, follows.**
TOTAL CAPITAL NET ASSET
RETURN INCOME GAINS VALUE CHANGE
Class A Shares 2.94% $0.879 $0.034 $10.41 to $9.79 = (6%)
Class B Shares 2.17% $0.803 $0.034 $10.40 to $9.79 = (6%)
Class C Shares 2.18% $0.804 $0.034 $10.41 to $9.79 = (6%)
Class F Shares 2.94% $0.879 $0.034 $10.41 to $9.79 = (6%)
Thank you for entrusting a portion of your wealth in this highly
diversified approach to bond investing. Remember, reinvesting your
monthly dividends is a convenient way to build your account and help
your money grow through the benefit of compounding.
As always, we welcome your comments and suggestions.
Sincerely,
[Graphic]
Richard B. Fisher
President
January 15, 1999
** 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 (i.e., less any
applicable sales charge), for Class A, B, C, and F Shares were (1.69%),
(3.00%), 1.24%, and 0.94%, respectively.
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 M. Balestrino, who are
experts in the following 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 FUND'S FISCAL YEAR SAW VERY DIFFERENT PERFORMANCES FROM THE MAJOR
BOND MARKETS IN WHICH THE FUND INVESTS. WHAT IS THE FUND MANAGEMENT'S
REVIEW OF THE 12-MONTH REPORTING PERIOD?
The fund invests in a combination of U.S. high-quality bonds, high-
yield corporate bonds and international bonds. Performance within the
various asset classes did vary widely over the past year. The general
theme was that higher quality outperformed lower quality and domestic
outperformed international. Taken as a whole, it was an atypical year,
in that the lowest yielding securities (U.S. government and high-
quality foreign government securities) were the strongest performers.
Specific to fund shareholders, domestic high-quality bonds generated
solid returns while the high-yield and emerging market segment of the
international portion generated flat-to-negative returns. The relative
underperformance in the latter two sectors essentially occurred in the
third calendar quarter of 1998, a direct result of the international
economic and currency crises which started in Asia and spread
virtually worldwide.
[Graphic]
HOW DID FEDERATED STRATEGIC INCOME FUND PERFORM COMPARED TO ITS
BENCHMARK OVER THE 12-MONTH REPORTING PERIOD?
For the fiscal year ended November 30, 1998, the fund's Class A Shares
posted an average annual total return of 2.94%, based on net asset
value.* The fund's Class B, C, and F Shares achieved average annual
total returns of 2.17%, 2.18%, and 2.94%, respectively, based on net
asset value.* The fund's returns exceeded the 2.10% return of the
Lipper Multi-Sector Income Funds Average.** A strong level of income
generated by the fund was the positive contributor to the total return,
offsetting a 6% decline in net asset value.
[Graphic]
WHAT WAS THE TOTAL INCOME PAID PER SHARE DURING THE
12-MONTH REPORTING PERIOD?
The fund's income dividends totaled $0.879 per share for Class A
Shares, $0.803 per share for Class B Shares, $0.804 per share for Class
C Shares, and $0.879 per share for Class F Shares. Each class of shares
paid a modest capital gain totaling $0.034 per share.
[Graphic]
DID YOU MAKE ANY SIGNIFICANT CHANGES TO THE FUND'S ALLOCATIONS AMONG
DOMESTIC HIGH-QUALITY, DOMESTIC HIGH-YIELD AND INTERNATIONAL BONDS?
HOW DID THE ALLOCATIONS STAND AS OF NOVEMBER 30, 1998?
The fund did make changes in asset allocation throughout the past year,
while consistently maintaining a very diversified portfolio aimed at
pursuing high monthly income. By the midpoint of the past year (Spring
of 1998), the fund had reduced its allocation to international bonds to
approximately 25% of assets within an operating range of 20%-40%. On
the opposite side, the domestic high-quality portion of
the portfolio was increased to close to the maximum
range of 40%. Thus the fund was in a more defensive position
when the disruptive events unfolded in the third quarter of 1998. Late
in the fiscal year, fund management concluded that both international
and high-yield bonds had become undervalued relative to economic
fundamentals and thus, increased allocation to both sectors. As of
November 30, 1998, the fund's allocations were approximately 35%
domestic high-quality bonds, 36% domestic high-yield bonds, and 31%
international bonds.
* Performance quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate, so
that an investor's shares, when redeemed, may be worth more or less than
their original cost. Total returns for the period, based on offering
price (i.e., less any applicable sales charge), for Class A, B, C, and F
Shares were (1.69%), (3.00%), 1.24%, and 0.94%, 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. Lipper figures do not take sales
charges into account.
[Graphic]
AS WE LEAVE WHAT HAS BEEN A RELATIVELY GOOD YEAR FOR THE FUND FROM AN
INCOME PERSPECTIVE, WHAT IS MANAGEMENT'S OUTLOOK FOR THE FUND'S THREE
SECTORS?
As we look out into 1999, the risk/reward potential trade-off varies
greatly between the three sectors. U.S. high-quality bonds should
continue to benefit from moderate growth and inflation. In addition,
any slowing effect on the U.S. economy due to worldwide economic
problems should also serve U.S. government bond investors very well.
In the U.S. high-yield corporate bond market, the key is continuing
economic growth and the earnings outlook. A low growth/low inflation
scenario should be positive for high-yield securities as long as the
economy continues to move forward. In the international sector,
specific regional problems have had the effect of dragging down other
healthy markets. Thus, some international bond sectors appear
undervalued at this point from a fundamental viewpoint and will play a
larger part in the fund's asset allocation.
We have decreased the fund's allocation to the domestic high-quality
markets, feeling that the largest drop in interest rates may have
already occurred in 1998. The fund has and will likely continue to
increase its allocation to both high-yield and emerging market
securities. The fund, however, remains highly diversified and has
provided shareholders with a very attractive income stream without
being overly concentrated in any one sector.
WHERE IN THE WORLD SHOULD
YOU INVEST?
[Graphic]
FEDERATED ASIA PACIFIC GROWTH FUND
[Graphic]
FEDERATED EMERGING MARKETS FUND
[Graphic]
FEDERATED EUROPEAN GROWTH FUND
[Graphic]
FEDERATED GLOBAL EQUITY INCOME FUND
[Graphic]
FEDERATED GLOBAL FINANCIAL SERVICES FUND
[Graphic]
FEDERATED INTERNATIONAL EQUITY FUND
[Graphic]
FEDERATED INTERNATIONAL GROWTH FUND
[Graphic]
FEDERATED INTERNATIONAL HIGH INCOME FUND
[Graphic]
FEDERATED INTERNATIONAL INCOME FUND
[Graphic]
FEDERATED INTERNATIONAL SMALL COMPANY FUND
[Graphic]
FEDERATED LATIN AMERICAN GROWTH FUND
[Graphic]
FEDERATED WORLD UTILITY FUND
Federated employs highly qualified, experienced managers in global
investing to select countries and companies outside the U.S. for long-
term growth potential.
Call your investment representative to buy shares of
10 international equity funds and 2 international income
funds from Federated Securities Corp.
FOR MORE COMPLETE INFORMATION ABOUT ANY OF THESE FUNDS, CALL
1-800-341-7400 TO ASK FOR A PROSPECTUS AND READ IT CAREFULLY BEFORE YOU
INVEST.
Foreign investing involves special risks including
currency risks, increased volatility of foreign
securities, and differences in auditing and other financial
standards.
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 $6,993 ON 11/30/98. YOU WOULD HAVE EARNED A 7.61%* 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 12/31/98, the Class A Shares' annualized 1-year and
since inception (5/4/94) total returns were (2.18%) and 7.51%,
respectively. Class B Shares' annualized 1-year and since
inception (7/27/95) total returns were (3.56%) and 7.33%,
respectively. Class C Shares' annualized 1-year and since
inception (5/2/94) total returns were 0.76% and 7.77%,
respectively. Class F Shares' annualized 1-year and since
inception (5/10/94) total returns were 0.45% and 8.19%,
respectively.**
[The graphic presentation here displayed consists of a boxed legend in the upper
left quadrant indicating the components of the corresponding mountain chart. The
color coded mountain chart is a visual representation of the narrative text
above it. The "x" axis reflects computation periods from 5/4/94 to 11/30/98. 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 fund's Class A Shares, assuming the reinvestment of capital gains and
dividends, would have grown to $6,993 on 11/30/98.]
* 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 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 4 YEARS (REINVESTING ALL DIVIDENDS AND CAPITAL GAINS) GREW TO
$5,822.
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 $5,822* by
11/30/98. You would have earned an average annual total return
of 6.08%.
A practical investment plan helps you pursue a high level
of income by investing in high-quality debt securities
invested in the United States and around the world. Through
systematic investing, you buy shares on a regular basis and
reinvest all earnings. An investment plan works for you
when you invest only $1,000 annually. You can take it one
step at a time. Put time, money, and compounding to work.
[The graphic presentation here displayed consists of a boxed legend in the upper
left quadrant indicating the components of the corresponding mountain chart. The
color coded mountain chart is a visual representation of the narrative text
above it. The "x" axis reflects computation periods from 5/4/94 to 11/30/98. The
"y" axis is measured in increments of $2,000 ranging from $0 to $8,000 and
indicates that the ending value of a hypothetical $1,000 initial investment and
subsequent yearly investments of $1,000 in the fund's Class A Shares, assuming
the reinvestment of capital gains and dividends, would have grown to $5,822 on
11/30/98.]
* 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
CLASS A SHARES
GROWTH OF $10,000 INVESTED IN FEDERATED STRATEGIC INCOME FUND (CLASS A
SHARES)
The graph below illustrates the hypothetical investment of
$10,000* in the Federated Strategic Income Fund (Class A
Shares) (the "Fund") from May 4, 1994 (start of
performance) to November 30, 1998, compared to the Lehman
Brothers Government/Corporate Bond Index (LBG/CBI)+ and the
Lipper Multi-Sector Income Funds Average (LMSIFA).++
[The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class A
Shares of Federated Strategic Income Fund, based on a 4.50% sales load are
represented by a solid line. The Lehman Brothers Government/Corporate Bond Index
("LBG/CBI") is represented by a dotted line and the Lipper Multi-Sector Income
Funds Average ("LMSIFA") is represented by a broken line. The line graph is a
visual representation of a comparison of change in value of a $10,000
hypothetical investment in the Class A Shares of the fund, the LBG/CBI and the
LMSIFA. The "x" axis reflects computation periods from 5/4/94 (Class A Shares'
start of performance) to 11/30/98. The "y" axis reflects the cost of the
investment, beginning with $9,000 and going up to $15,000, in increments of
$1,000. The right margin reflects the ending value of the hypothetical
investment in the fund's Class A Shares, based on a 4.50% sales load, as
compared to the LBG/CBI and the LMSIFA. The ending values were $14,021, $14,777,
and $14,153, respectively. The legend in the bottom quadrant of the graphic
presentation indicates the fund's Class A Shares Average Annual Total Returns
for the one-year period ended 11/30/98 and from the Class A Shares' start of
performance (5/4/94) and ending 11/30/98. The total returns were (1.69%) and
7.66%, respectively.]
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE,
SO WHEN SHARES ARE REDEEMED, THEY MAY BE WORTH
MORE OR LESS THAN THEIR ORIGINAL COST. MUTUAL FUNDS ARE NOT
OBLIGATIONS OF OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* Represents a hypothetical investment of $10,000 in the Fund
after deducting the maximum sales charge of 4.50% ($10,000
investment minus $450 sales charge = $9,550). The Fund's
performance assumes the reinvestment of all dividends and
distributions.
** Total return quoted reflects all applicable sales charges.
+ The LBG/CBI is not adjusted to reflect sales charges, expenses, or other
fees that the SEC requires to be reflected in the fund's performance. The
LBG/CBI has been adjusted to reflect reinvestment of dividends on
securities in the index. The index is unmanaged.
++ The LMSIFA represents the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as
falling into the category indicated, and is not adjusted to reflect any
sales charges. However, these total returns are reported net of expenses
or other fees that the SEC requires to be reflected in a fund's
performance. The LMSIFA has been adjusted to reflect reinvestment of
dividends on securities in the average.
FEDERATED STRATEGIC INCOME FUND
CLASS B SHARES
GROWTH OF $10,000 INVESTED IN FEDERATED STRATEGIC INCOME FUND (CLASS B
SHARES)
The graph below illustrates the hypothetical investment of $10,000* in
the Federated Strategic Income Fund (Class B Shares) (the "Fund") from
July 27, 1995 (start of performance) to November 30, 1998, compared to
the Lehman Brothers Government/Corporate Bond Index (LBG/CBI)+ and the
Lipper Multi-Sector Income Funds Average (LMSIFA).++
[The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class B
Shares of Federated Strategic Income Fund are represented by a solid line. The
Lehman Brothers Government/Coporate Bond Index ("LBG/CBI") is represented by a
dotted line and the Lipper Multi-Sector Income Funds Average ("LMSIFA") is
represented by a broken line. The line graph is a visual representation of a
comparison of change in value of a $10,000 hypothetical investment in the Class
B Shares of the fund, the LBG/CBI and the LMSIFA. The "x" axis reflects
computation periods from 7/27/95 (Class B Shares' start of performance) to
11/30/98. The "y" axis reflects the cost of the investment, beginning with
$10,000 and going up to $14,000, in increments of $1,000. The right margin
reflects the ending value of the hypothetical investment in the fund's Class B
Shares as compared to the LBG/CBI and the LMSIFA. The ending values were
$12,552, $13,210, and $13,058, respectively. The legend in the bottom quadrant
of the graphic presentation indicates the fund's Class B Shares Average Annual
Total Return for the one-year period ended 11/30/98 and from the Class B Shares'
start of performance (7/25/94) and ending 11/30/98. The total returns were
(3.00%) and 7.55%, respectively.]
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE,
SO WHEN SHARES ARE REDEEMED, THEY MAY BE WORTH
MORE OR LESS THAN THEIR ORIGINAL COST. MUTUAL FUNDS ARE NOT
OBLIGATIONS OF OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* Represents a hypothetical investment of $10,000 in the Fund. The ending
value of the Fund reflects a 3.00% contingent deferred sales charge on
any redemption less than 4 years from the purchase date. The maximum
contingent deferred sales charge is 5.50% on any redemption less than 1
year from the purchase date. The Fund's performance assumes the
reinvestment of all dividends and distributions.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The LBG/CBI is not adjusted to reflect sales charges, expenses, or other
fees that the SEC requires to be reflected in the fund's performance. The
LBG/CBI has been adjusted to reflect reinvestment of dividends on
securities in the index. This index is unmanaged.
++ The LMSIFA represents the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as
falling into the category indicated , and is not adjusted to reflect any
sales charges. However, these total returns are reported net of expenses
or other fees that the SEC requires to be reflected in a fund's
performance. The LMSIFA has been adjusted to reflect reinvestment of
dividends on securities in the average.
FEDERATED STRATEGIC INCOME FUND
CLASS C SHARES
GROWTH OF $10,000 INVESTED IN FEDERATED STRATEGIC INCOME FUND (CLASS C
SHARES)
The graph below illustrates the hypothetical investment of $10,000* in
the Federated Strategic Income Fund (Class C Shares) (the "Fund") from
May 2, 1994 (start of performance) to November 30, 1998, compared to
the Lehman Brothers Government/Corporate Bond Index (LBG/CBI)+ and the
Lipper Multi-Sector Income Funds Average (LMSIFA).++
[The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class C
Shares of Federated Strategic Income Fund are represented by a solid line. The
Lehman Brother Government/Coporate Bond Index ("LBG/CBI") is represented by a
dotted line and the Lipper Multi-Sector Income Funds Average ("LMSIFA") is
represented by a broken line. The line graph is a visual representation of a
comparison of change in value of a $10,000 hypothetical investment in the Class
C Shares of the fund, the LBG/CBI and the LMSIFA. The "x" axis reflects
computation periods from 5/2/94 (Class C Shares' start of performance) to
11/30/98. The "y" axis reflects the cost of the investment, beginning with
$9,000 and going up to $15,000, in increments of $2,000. The right margin
reflects the ending value of the hypothetical investment in the fund's Class C
Shares as compared to the LBG/CBI and the LMSIFA. The ending values were
$14,193, $14,177, and $14,153, respectively. The legend in the bottom quadrant
of the graphic presentation indicates the fund's Class C Shares Average Annual
Total Return for the one-year period ended 11/30/98 and from the Class C Shares'
start of performance (5/2/94) and ending 11/30/98. The total returns were 1.24%
and 7.94%, respectively.]
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE,
SO WHEN SHARES ARE REDEEMED, THEY MAY BE WORTH
MORE OR LESS THAN THEIR ORIGINAL COST. MUTUAL FUNDS ARE NOT
OBLIGATIONS OF OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* Represents a hypothetical investment of $10,000 in the Fund. A 1.00%
contingent deferred sales charge would be applied on any redemption less
than 1 year from the purchase date. The Fund's performance assumes the
reinvestment of all dividends and distributions.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The LBG/CBI is not adjusted to reflect sales charges, expenses, or other
fees that the SEC requires to be reflected in the fund's performance. The
LBG/CBI has been adjusted to reflect reinvestment of dividends on
securities in the index. This index is unmanaged.
++ The LMSIFA represents the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as
falling into the category indicated , and is not adjusted to reflect any
sales charges. However, these total returns are reported net of expenses
or other fees that the SEC requires to be reflected in a fund's
performance. The LMSIFA has been adjusted to reflect reinvestment of
dividends on securities in the average.
FEDERATED STRATEGIC INCOME FUND
CLASS F SHARES
GROWTH OF $10,000 INVESTED IN FEDERATED STRATEGIC INCOME FUND (CLASS F
SHARES)
The graph below illustrates the hypothetical investment of $10,000* in
the Federated Strategic Income Fund (Class F Shares) (the "Fund") from
May 10, 1994 (start of performance) to November 30, 1998, compared to
the Lehman Brothers Government/Corporate Bond Index (LBG/CBI)+ and the
Lipper Multi-Sector Income Funds Average (LMSIFA).++
[The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class F
Shares of Federated Strategic Income Fund, based on a 1.00% sales load are
represented by a solid line. The Lehman Brothers Government/Corporate Bond Index
("LBG/CBI") is represented by a dotted line and the Lipper Multi-Sector Income
Funds Average ("LMSIFA") is represented by a broken line. The line graph is a
visual representation of a comparison of change in value of a $10,000
hypothetical investment in the Class F Shares of the fund, the LBG/CBI and the
LMSIFA. The "x" axis reflects computation periods from 5/10/94 (Class F Shares'
start of performance) to 11/30/98. The "y" axis reflects the cost of the
investment, beginning with $9,000 and going up to $15,000, in increments of
$2,000. The right margin reflects the ending value of the hypothetical
investment in the fund's Class F Shares, based on a 1.00% sales load, as
compared to the LBG/CBI and the LMSIFA. The ending values were $14,278, $14,777,
and $14,153, respectively. The legend in the bottom quadrant of the graphic
presentation indicates the fund's Class F Shares Average Annual Total Returns
for the one-year period ended 11/30/98 and from the Class C Shares' start of
performance (5/10/94) and ending 11/30/98. The total returns were 0.94% and
8.35%, respectively.]
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE,
SO WHEN SHARES ARE REDEEMED, THEY MAY BE WORTH
MORE OR LESS THAN THEIR ORIGINAL COST. MUTUAL FUNDS ARE NOT
OBLIGATIONS OF OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* Represents a hypothetical investment of $10,000 in the Fund after
deducting the maximum sales charge of 1.00% ($10,000 investment minus
$100 sales charge = $9,900). A 1.00% contingent deferred sales charge
would be applied on any redemption less than 4 years from the purchase
date. The Fund's performance assumes the reinvestment of all dividends
and distributions.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The LBG/CBI is not adjusted to reflect sales charges, expenses, or other
fees that the SEC requires to be reflected in the fund's performance. The
LBG/CBI has been adjusted to reflect reinvestment of dividends on
securities in the index. This index is unmanaged.
++ The LMSIFA represents the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as
falling into the category indicated , and is not adjusted to reflect any
sales charges. However, these total returns are reported net of expenses
or other fees that the SEC requires to be reflected in a fund's
performance. The LMSIFA has been adjusted to reflect reinvestment of
dividends on securities in the average.
FEDERATED STRATEGIC INCOME FUND
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
U.S. CORPORATE BONDS-11.3%
AEROSPACE & DEFENSE-0.1%
$ 500,000 Raytheon Co., 6.15%, 11/1/2008 $ 514,885
500,000 Raytheon Co., 7.00%, 11/1/2028 537,510
Total 1,052,395
AUTOMOTIVE-0.7%
500,000 Arvin Industries, Inc., 9.50%, 2/1/2027 548,215
1,925,000 Arvin Industries, Inc., Note, 6.75%, 3/15/2008 1,899,146
1,400,000 Dana Corp., Note, 7.00%, 3/15/2028 1,451,674
1,000,000 Hertz Corp., Medium Term Note, 9.05%, 6/22/2000 1,055,140
1,800,000 Hertz Corp., Sr. Note, 7.00%, 1/15/2028 1,843,128
Total 6,797,303
BANKING-0.5%
2,000,000 Barclays North America, Deb., 9.75%, 5/15/2021 2,290,680
1,000,000 FirstBank Puerto Rico, Sub. Note, 7.625%, 12/20/2005 1,017,220
1,500,000 Republic New York Corp., Sub. Note, 7.75%, 5/15/2009 1,706,355
Total 5,014,255
BEVERAGE & TOBACCO-0.1%
1,000,000 Philip Morris Cos., Inc., Deb., 7.75%, 1/15/2027 1,144,540
CABLE TELEVISION-1.0%
2,500,000 CF Cable TV, Inc., Note, 9.125%, 7/15/2007 2,685,025
1,000,000 Comcast Corp., Note, 8.50%, 5/1/2027 1,234,210
1,800,000 Continental Cablevision, Sr. Deb., 9.50%, 8/1/2013 2,154,636
2,065,000 TKR Cable, Inc., Deb., 10.50%, 10/30/2007 2,269,785
Total 8,343,656
CHEMICALS & PLASTICS-0.1%
1,250,000 (a) Reliance Industries Ltd., Bond, 8.25%, 1/15/2027 976,275
ECOLOGICAL SERVICES & EQUIPMENT-0.3%
2,700,000 WMX Technologies, Inc., Deb., 8.75%, 5/1/2018 3,073,571
EDUCATION-0.1%
1,000,000 Boston University, 7.625%, 7/15/2097 1,110,780
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
U.S. CORPORATE BONDS-CONTINUED
ELECTRONICS-0.3%
$ 3,000,000 Anixter International, Inc., Company Guarantee, 8.00%, 9/15/2003 $ 3,189,420
FINANCE - AUTOMOTIVE-0.2%
1,620,000 General Motors Acceptance Corp., Note, 9.00%, 10/15/2002 1,823,229
FINANCIAL INTERMEDIARIES-0.7%
750,000 Associates Corp. of North America, Sr. Note, 9.125%, 4/1/2000 785,325
1,250,000 Chrysler Financial Co. L.L.C., Deb., 13.25%, 10/15/1999 1,338,987
2,000,000 Green Tree Financial Corp., Sr. Sub. Note, 10.25%, 6/1/2002 2,173,200
1,000,000 Lehman Brothers Holdings, Inc., Note, 8.50%, 5/1/2007 1,116,560
1,000,000 Lehman Brothers, Inc., Sr. Sub. Note, 7.375%, 1/15/2007 1,047,070
Total 6,461,142
FOREST PRODUCTS-0.2%
1,250,000 Donohue Forest Products, 7.625%, 5/15/2007 1,323,938
250,000 Pope & Talbot, Inc., 8.375%, 6/1/2013 240,988
Total 1,564,926
HEALTHCARE-0.2%
850,000 Tenet Healthcare Corp., Sr. Note, 8.00%, 1/15/2005 868,224
500,000 (a) Tenet Healthcare Corp., Sr. Sub., 8.125%, 12/1/2008 520,000
Total 1,388,224
INDUSTRIAL PRODUCTS & EQUIPMENT-0.8%
1,500,000 (a) Cathay International Ltd., 13.00%, 4/15/2008 525,000
4,575,000 Figgie International Holdings, Inc., Sr. Note, 9.875%, 10/1/1999 4,681,506
2,250,000 Southdown, Inc., Sr. Sub. Note, 10.00%, 3/1/2006 2,519,730
Total 7,726,236
INSURANCE-1.9%
500,000 Allmerica Financial Corp., Bond, 8.207%, 2/3/2027 573,030
1,500,000 CNA Financial Corp., Bond, 6.95%, 1/15/2018 1,430,925
1,000,000 Conseco Finance, Unsecd. Note, 8.796%, 4/1/2027 946,050
500,000 Conseco, Inc., Note, 6.40%, 2/10/2003 477,110
1,000,000 Conseco, Inc., Sr. Note, 10.50%, 12/15/2004 1,137,560
420,000 Continental Corp., Note, 8.25%, 4/15/1999 423,793
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
U.S. CORPORATE BONDS-CONTINUED
INSURANCE-CONTINUED
$ 750,000 Delphi Financial Group, Inc., 9.31%, 3/25/2027 $ 832,268
3,164,000 Delphi Financial Group, Inc., Note, 8.00%, 10/1/2003 3,327,895
1,750,000 (a) Equitable Life, Note, 7.70%, 12/1/2015 1,906,363
2,000,000 (a) Life Re Capital Trust I, Company Guarantee, 8.72%, 6/15/2027 2,270,100
285,000 NAC Re Corp., Note, 8.00%, 6/15/1999 288,628
625,000 Provident Cos., Inc., Bond, 7.405%, 3/15/2038 649,163
1,150,000 SunAmerica, Inc., Sr. Note, 9.00%, 1/15/1999 1,155,325
500,000 (a) USF&G Corp., 8.312%, 7/1/2046 589,105
500,000 USF&G Corp., Company Guarantee, 8.47%, 1/10/2027 565,500
1,000,000 (a) Union Central Life Insurance Co., Note, 8.20%, 11/1/2026 1,158,510
Total 17,731,325
METALS & MINING-0.6%
1,950,000 Inco Ltd., Note, 9.60%, 6/15/2022 2,152,878
2,300,000 (a) Normandy Finance Ltd., Company Guarantee, 7.50%, 7/15/2005 2,357,224
1,125,000 Santa Fe Pacific Gold, Note, 8.375%, 7/1/2005 1,263,769
Total 5,773,871
OIL & GAS-0.5%
1,250,000 Husky Oil Ltd., Sr. Note, 7.125%, 11/15/2006 1,282,763
2,450,000 Occidental Petroleum Corp., Note, 8.50%, 9/15/2004 2,495,595
1,000,000 Sun Co., Inc., 9.00%, 11/1/2024 1,209,790
Total 4,988,148
PRINTING & PUBLISHING-0.5%
880,000 News America Holdings, Inc., Company Guarantee, 8.00%, 10/17/2016 972,294
1,000,000 News America Holdings, Inc., Note, 8.15%, 10/17/2036 1,122,440
2,325,000 Valassis Communication, Inc., Sr. Sub. Note, 9.375%, 3/15/1999 2,354,481
Total 4,449,215
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
U.S. CORPORATE BONDS-CONTINUED
REAL ESTATE-0.3%
$ 1,000,000 Price REIT, Inc., Sr. Note, 7.50%, 11/5/2006 $ 1,008,020
500,000 Storage USA, 8.20%, 6/1/2017 493,555
1,600,000 Storage USA, Deb., 7.50%, 12/1/2027 1,430,176
Total 2,931,751
RETAILERS-1.2%
2,500,000 Dayton-Hudson Corp., Deb., 10.00%, 12/1/2000 2,719,500
2,030,000 Harcourt General, Inc., Sr. Deb., 7.20%, 8/1/2027 1,936,640
2,506,871 K Mart Corp., Pass Thru Cert., 8.54%, 1/2/2015 2,592,706
1,000,000 Penney (J.C.) Co., Inc., Deb., 7.65%, 8/15/2016 1,096,860
2,300,000 Shopko Stores, Inc., Sr. Note, 9.25%, 3/15/2022 2,862,005
Total 11,207,711
SURFACE TRANSPORTATION-0.2%
1,500,000 Trans Ocean Container Corp., Sr. Sub. Note, 12.25%, 7/1/2004 1,652,625
TELECOMMUNICATIONS & CELLULAR-0.6%
1,505,000 BellSouth Telecommunications, Inc., Deb., 7.00%, 12/1/2095 1,706,444
1,000,000 BellSouth Telecommunications, Inc., Deb., 7.625%, 5/15/2035 1,115,090
3,500,000 Tricom SA, Sr. Note, 11.375%, 9/1/2004 2,922,500
Total 5,744,034
TRANSPORTATION-0.1%
1,272,000 Continental Airlines, Inc., Pass Thru Cert., Series 1997-4 B,
6.90%, 1/2/2017 1,300,302
UTILITIES-0.1%
375,000 California Energy Co., Inc., Sr. Note, 10.25%, 1/15/2004 396,094
500,000 Puget Sound Energy, Inc., Medium Term Note, 7.02%, 12/1/2027 533,620
Total 929,714
TOTAL U.S. CORPORATE BONDS (IDENTIFIED COST $105,900,164) 106,374,648
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
FOREIGN
CURRENCY PAR
AMOUNT VALUE
<C> <S> <C>
INTERNATIONAL BONDS-31.0%
ARGENTINE PESO-0.4%
SOVEREIGN-0.3%
3,000,000 Republic of Argentina, Note, 11.75%, 2/12/2007 $ 2,595,363
TELECOMMUNICATIONS-0.1%
2,000,000 (a) CIA International Telecommunications, Note, 10.375%, 8/1/2004 1,500,210
TOTAL ARGENTINE PESO 4,095,573
AUSTRALIAN DOLLAR-0.2%
PRINTING & PUBLISHING-0.0%
150,000 News America Holdings, Inc., 8.625%, 2/7/2014 108,798
STATE/PROVINCIAL-0.2%
580,000 Queensland Treasury, Deb., 10.50%, 5/15/2003 442,069
2,000,000 Queensland Treasury, Local Gov't. Guarantee, 8.00%, 5/14/2003 1,399,561
550,000 Treasury Corp. of Victoria, Local Gov't. Guarantee, 10.25%, 11/15/2006 455,653
Total 2,297,283
TOTAL AUSTRALIAN DOLLAR 2,406,081
BRITISH POUND-0.6%
BANKING-0.1%
300,000 Bank of Ireland, Sub., 9.75%, 3/21/2005 584,355
SOVEREIGN-0.5%
500,000 Denmark, Unsub., 11.625%, 1/23/2000 870,274
700,000 UK Treasury, 7.00%, 11/6/2001 1,215,232
1,300,000 United Kingdom Treasury, Foreign Gov't. Guarantee, 11.75%, 1/22/2007 2,669,633
Total 4,755,139
TOTAL BRITISH POUND 5,339,494
CANADIAN DOLLAR-0.9%
AIR TRANSPORTATION-0.1%
1,200,000 Air Canada, 7.25%, 10/1/2007 778,682
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
FOREIGN
CURRENCY PAR
AMOUNT VALUE
<C> <S> <C>
INTERNATIONAL BONDS-CONTINUED
CANADIAN DOLLAR-CONTINUED
BEVERAGE & TOBACCO-0.1%
1,100,000 Molson Breweries, Unsub., 9.10%, 3/11/2013 $ 928,380
FOREST PRODUCTS-0.1%
1,150,000 Avenor, Inc., Deb., 10.85%, 11/30/2014 1,009,692
STATE/PROVINCIAL-0.1%
1,000,000 (a) Metro Toronto, Deb., 7.40%, 9/27/2006 745,353
TELECOMMUNICATIONS & CELLULAR-0.5%
500,000 Bell Canada, Deb., 8.80%, 8/17/2005 387,222
2,500,000 Clearnet Communications Inc., Sr. Disc. Note, 0/10.40%, 5/15/2008 877,337
5,280,000 Clearnet Communications Inc., Sr. Disc. Note, 8/13/2007 2,138,668
3,800,000 Microcell Telecommunications, Sr. Disc. Note, 0/11.125%, 10/15/2007 1,402,099
Total 4,805,326
TOTAL CANADIAN DOLLAR 8,267,433
CZECH KORUNA-0.4%
SOVEREIGN GOVERNMENT-0.4%
100,000,000 Czech Republic, Bond, 14.85%, 2/6/2003 3,951,467
DANISH KRONE-0.2%
FINANCIAL INTERMEDIARIES-0.0%
1,495,000 Nykredit, Mtg. Bond, 8.00%, 10/1/2026 238,658
263,000 Unikredit Realkredit, Mtg. Bond, 8.00%, 10/1/2029 41,801
Total 280,459
SOVEREIGN-0.2%
1,420,000 Kingdom of Denmark, Bond, 7.00%, 11/10/2024 277,174
7,000,000 Kingdom of Denmark, Bond, 9.00%, 11/15/2000 1,186,820
Total 1,463,994
TOTAL DANISH KRONE 1,744,453
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
FOREIGN
CURRENCY PAR
AMOUNT VALUE
<C> <S> <C>
INTERNATIONAL
BONDS-CONTINUED DEUTSCHE MARK-1.0%
BANKING-0.1%
1,700,000 Goldman Sachs Group, LP, Bond, 6.25%, 7/17/2009 $ 1,024,139
FINANCIAL INTERMEDIARIES-0.1%
1,750,000 Depfa-Bank, 5.75%, 3/4/2009 1,138,642
INDUSTRIAL PRODUCTS & EQUIPMENT-0.1%
1,500,000 Texon International PLC, Sr. Note, Series REG S, 10.00%, 2/1/2008 760,411
MACHINERY & EQUIPMENT-0.3%
4,250,000 (a) Sirona Dental System, 9.125%, 7/15/2008 2,542,810
SOVEREIGN-0.4%
3,800,000 Deutschland Republic, Deb., 6.25%, 1/4/2024 2,690,206
3,500,000 (a) Russian Federation, 9.375%, 3/31/2005 793,274
Total 3,483,480
TOTAL DEUTSCHE MARK 8,949,482
EGYPTIAN POUND-0.2%
SOVEREIGN-0.2%
7,000,000 Egypt Treasury Bill, 12/10/1998 2,050,965
EUROPEAN CURRENCY UNIT (ECU)-0.4%
BEVERAGE & TOBACCO-0.4%
1,250,000 (a) Remy Cointreau S.A., Series 144A, 10.00%, 7/30/2005 1,287,774
2,400,000 Remy Cointreau S.A., Sr. Note, Series REGS, 10.00%, 7/30/2005 2,472,526
TOTAL EUROPEAN CURRENCY UNIT 3,760,300
GREEK DRACHMA-0.8%
SOVEREIGN-0.8%
120,000,000 Hellenic Republic, 11.10%, 8/14/2003 426,524
620,000,000 Hellenic Republic, 8.60%, 3/26/2008 2,323,476
200,000,000 Hellenic Republic, Bond, 12.70%, 12/31/2003 706,659
120,000,000 Hellenic Republic, Bond, 13.10%, 10/23/2003 427,999
375,000,000 Hellenic Republic, Bond, 13.10%, 11/26/2003 1,328,279
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
FOREIGN
CURRENCY PAR
AMOUNT VALUE
<C> <S> <C>
INTERNATIONAL BONDS-CONTINUED
GREEK DRACHMA-CONTINUED
SOVEREIGN-CONTINUED
200,000,000 Hellenic Republic, Bond, 8.80%, 6/19/2007 $ 750,597
350,000,000 Hellenic Republic, Bond, 9.80%, 3/21/2000 1,216,985
TOTAL GREEK DRACHMA 7,180,519
HUNGARIAN FORINT-0.7%
SOVEREIGN-0.7%
450,000,000 Hungary, Bond, 13.00%, 7/24/2003 1,956,482
580,000,000 Hungary, Bond, 14.00%, 12/12/2002 2,556,396
410,000,000 Hungary, Bond, 16.50%, 4/12/1999 1,856,480
TOTAL HUNGARIAN FORINT 6,369,358
INDONESIAN RUPIAH-0.0%
CONGLOMERATE-0.0%
637,916,667 (a) Dharmala Inti Utama 8,591
4,000,000,000 Dharmala Intiutama, 25.00%, 2/5/1999 53,872
TOTAL INDONESIAN RUPIAH 62,463
IRISH POUND-0.5%
SOVEREIGN-0.5%
250,000 Irish Government, Deb., 8.75%, 9/30/2012 527,511
2,130,000 Irish Government, Deb., 9.00%, 9/1/2006 4,110,632
TOTAL IRISH POUND 4,638,143
ITALIAN LIRA-1.1%
SOVEREIGN-1.1%
750,000,000 Buoni Poliennali Del Tes, 10.00%, 8/1/2003 563,387
650,000,000 Buoni Poliennali Del Tes, 7.75%, 11/1/2006 479,486
9,100,000,000 Buoni Poliennali Del Tes, Bond, 10.50%, 9/1/2005 7,460,402
2,750,000,000 Buoni Poliennali Del Tes, Deb., 12.00%, 1/1/2003 2,140,243
TOTAL ITALIAN LIRA 10,643,518
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
FOREIGN
CURRENCY PAR
AMOUNT VALUE
<C> <S> <C>
INTERNATIONAL BONDS-CONTINUED
MEXICAN PESO-0.7%
SOVEREIGN-0.7%
1,000,000 Mexican Cetes, 1/14/1999 $ 961,057
1,500,000 Mexican Cetes, 5/6/1999 1,304,935
5,250,000 Mexican Cetes, 8/5/1999 4,255,501
TOTAL MEXICAN PESO 6,521,493
NETHERLANDS GUILDER-0.9%
SOVEREIGN-0.9%
3,000,000 Netherlands Government, Bond, 7.50%, 4/15/2010 2,030,535
1,500,000 Netherlands Government, Bond, 8.25%, 2/15/2007 1,009,385
2,750,000 Netherlands Government, Bond, 8.50%, 6/1/2006 1,851,259
6,500,000 Netherlands Government, Bond, 9.00%, 1/15/2001 3,782,646
TOTAL NETHERLANDS GUILDER 8,673,825
NEW ZEALAND DOLLAR-0.2%
FINANCIAL INTERMEDIARIES-0.0%
840,000 Brierley Investments Ltd., Bond, 9.00%, 3/15/2002 461,040
SOVEREIGN-0.2%
2,300,000 New Zealand, Government of, Deb., 8.00%, 11/15/2006 1,399,460
TOTAL NEW ZEALAND DOLLAR 1,860,500
NORWEGIAN KRONE-0.2%
SOVEREIGN-0.2%
3,000,000 Norwegian Government, Bond, 7.00%, 5/31/2001 412,848
2,300,000 Norwegian Government, Bond, 9.00%, 1/31/1999 307,391
6,000,000 Norwegian Government, Bond, 9.50%, 10/31/2002 913,523
TOTAL NORWEGIAN KRONE 1,633,762
POLISH ZLOTY-1.2%
SOVEREIGN-1.2%
2,000,000 Poland Gov't. Bond, 15.00%, 10/12/1999 577,130
17,750,000 Poland Gov't. Bond, 12.00%, 10/12/2003 5,249,444
4,500,000 Poland Gov't. Bond, 12.00%, 2/12/2003 1,306,295
</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
1,500,000 Poland Gov't. Bond, 12.00%, 6/12/2001 $ 428,325
6,000,000 Poland Gov't. Bond, 12.00%, 6/12/2002 1,727,945
7,870,000 Republic of Poland, Bond, 12.00%, 2/12/2002 2,266,488
TOTAL POLISH ZLOTY 11,555,627
SLOVAKIAN KORUNA-0.0%
SUPRANATIONAL-0.0%
15,500,000 International Finance Corp., Note, 11.75%, 8/15/1999 398,198
SOUTH AFRICAN RAND-0.5%
GOVERNMENT AGENCY-0.1%
10,000,000 Telkom SA Ltd., 10.00%, 3/31/2008 1,207,353
SOVEREIGN-0.2%
2,500,000 Republic of South Africa, Bond, 12.50%, 1/15/2002 398,849
10,000,000 Republic of South Africa, 12.00%, 2/28/2005 1,483,219
Total 1,882,068
SURFACE TRANSPORTATION-0.5%
11,000,000 Trans Caledon Tunnel Authority, Foreign Gov't. Guarantee,
13.00%, 9/15/2010 1,575,776
TOTAL SOUTH AFRICAN RAND 4,665,197
SOUTH KOREAN WON-0.1%
SUPRANATIONAL-0.1%
900,000,000 European Bank for Reconstruction and Development, Bond,
10.00%, 5/2/2002 693,419
SPANISH PESETA-0.5%
SOVEREIGN-0.5%
80,000,000 Bonos Y Oblig. Del Estado, Deb., 8.20%, 2/28/2009 724,605
10,000,000 Spain (Government), 10.00%, 2/28/2005 92,128
36,000,000 Spain (Government), Bond, 10.15%, 1/31/2006 341,919
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
FOREIGN
CURRENCY PAR
AMOUNT VALUE
<C> <S> <C>
INTERNATIONAL BONDS-CONTINUED
SPANISH PESETA-CONTINUED
SOVEREIGN-CONTINUED
310,000,000 Spain (Government), Deb., 10.10%, 2/28/2001 $ 2,453,005
126,000,000 Spain (Government), Foreign Gov't. Guarantee, 8.00%, 5/30/2004 1,050,884
TOTAL SPANISH PESETA 4,662,541
SWEDISH KRONA-0.5%
SOVEREIGN-0.5%
3,000,000 Sweden (Kingdom of), 10.25%, 5/5/2003 461,944
10,500,000 Swedish Government, Bond, 8.00%, 8/15/2007 1,632,958
7,500,000 Swedish Government, Deb., 6.50%, 10/25/2006 1,056,267
9,000,000 Swedish Government, Deb., 9.00%, 4/20/2009 1,526,605
TOTAL SWEDISH KRONA 4,677,774
U.S. DOLLAR-18.8%
AGENCY-0.5%
$ 1,500,000 Quebec, Province of, 11.00%, 6/15/2015 1,684,920
1,000,000 Quebec, Province of, Deb., 13.25%, 9/15/2014 1,103,290
1,500,000 Quebec, Province of, Deb., 9.125%, 8/22/2001 1,634,025
Total 4,422,235
BANKING-0.2%
1,250,000 National Bank of Canada, Montreal, Sub. Note, 8.125%, 8/15/2004 1,356,663
BEVERAGE & TOBACCO-0.1%
1,000,000 Empresas La Moderna, 11.375%, 1/25/1999 997,890
BROADCAST RADIO & TV-0.2%
2,000,000 (a) Globo Communicacoes Part, Sr. Note, 10.625%, 12/5/2008 1,480,000
1,250,000 (a) TV Bandeirantes, Note, 12.875%, 5/15/2006 712,500
Total 2,192,500
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
INTERNATIONAL BONDS-CONTINUED
U.S. DOLLAR-CONTINUED
BUILDING & DEVELOPMENT-0.4%
$ 2,500,000 Cemex SA, Bond, 12.75%, 7/15/2006 $ 2,818,750
1,000,000 Corporacion GEO, S.A. de C.V., Note, 10.00%, 5/23/2002 865,000
Total 3,683,750
CABLE & WIRELESS TELEVISION-0.3%
3,750,000 (a) Imasac, S.A., 11.00%, 5/2/2005 2,643,750
CONGLOMERATE-0.4%
1,000,000 Mechala Group Jamaica, Company Guarantee, Series REGs,
12.00%, 2/15/2002 705,000
2,000,000 Mechala Group Jamaica, Note, Series B, 12.75%, 12/30/1999 1,410,000
2,000,000 Perez Companc, Bond, Series REG S, 8.125%, 7/15/2007 1,760,000
Total 3,875,000
CONSUMER PRODUCTS-0.2%
2,500,000 (a) Mastellone Hermanos SA, Bond, 11.75%, 4/1/2008 2,025,000
CONTAINER & GLASS PRODUCTS-0.3%
2,750,000 Vicap SA, Sr. Note, 11.375%, 5/15/2007 2,495,625
FINANCE-0.2%
1,000,000 (a) Pera Financial, 9.375%, 10/15/2002 805,000
1,000,000 Pera Financial, Sec. Fac. Bond, Series REG S, 9.375%, 10/15/2002 794,500
Total 1,599,500
FINANCIAL INTERMEDIARIES-0.5%
1,500,000 Banco Santander SA, Sub. Note, 7.25%, 11/1/2015 1,521,360
1,000,000 Bancomext Trust, Bank Guarantee, 11.25%, 5/30/2006 1,056,500
1,000,000 (a) Den Danske Bank, Note, 7.40%, 6/15/2010 1,071,560
500,000 PIV Investment Finance, Company Guarantee, 4.50%, 12/1/2000 60,000
1,000,000 (a) Swedbank, Sub., 7.50%, 11/29/2049 989,950
Total 4,699,370
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
INTERNATIONAL BONDS-CONTINUED
U.S. DOLLAR-CONTINUED
FOREST PRODUCTS-0.9%
$ 1,000,000 (a) Advance Agro Public Co., Unsub., Series 144A, 13.00%, 11/15/2007 $ 855,000
1,000,000 Aracruz Cellulose, Deb., 10.375%, 1/31/2002 900,000
1,700,000 Indah Kiat Intl. Finance, Company Guarantee, 11.875%, 6/15/2002 1,270,750
1,800,000 Indah Kiat Intl. Finance, Company Guarantee, 12.50%, 6/15/2006 1,386,000
2,000,000 Klabin Fabricadora Papel, Company Guarantee, Series REGS,
11.00%, 8/12/2004 1,760,000
1,880,000 Quno Corp., Sr. Note, 9.125%, 5/15/2005 2,032,430
Total 8,204,180
GOVERNMENT AGENCY-0.0%
250,000 (a) Government of Jamaica, Bond, 9.625%, 7/2/2002 221,875
INDUSTRIAL PRODUCTS & EQUIPMENT-0.6%
2,000,000 Advance Agro Public Co., Unsub., 13.00%, 11/15/2007 1,640,000
2,000,000 Comp Nav Perez Companc, Series REGS, 9.00%, 1/30/2004 1,950,000
1,500,000 Grupo Minero Mexico, 9.25%, 4/1/2028 1,327,500
1,000,000 (a) TM Group Holdings, Sr. Note, 11.00%, 5/15/2008 1,025,000
Total 5,942,500
METALS & MINING-0.6%
1,000,000 Barrick Gold Corp., Deb., 7.50%, 5/1/2007 1,084,210
2,578,000 Companhia Vale Do Rio Doce, Note, 10.00%, 4/2/2004 2,500,660
2,250,000 Placer Dome, Inc., Bond, 8.50%, 12/31/2045 2,234,273
Total 5,819,143
OIL & GAS-0.4%
1,000,000 MetroGas S.A., Sr. Note, 12.00%, 8/15/2000 1,040,000
1,500,000 (a) Petroleos Mexicanos, Series 144A, 9.375%, 12/2/2008 1,500,000
1,000,000 Transportadora de Gas de Sur S.A., Sr. Note, 10.25%, 4/25/2001 1,012,500
Total 3,552,500
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
INTERNATIONAL BONDS-CONTINUED
U.S. DOLLAR-CONTINUED
SOVEREIGN-10.5%
$ 5,000,000 Argentina Global, Bond, 11.375%, 1/30/2017 $ 5,075,000
8,900,000 Bulgaria, Deb., 6.6875%, 7/28/2011 6,474,750
3,000,000 Ecuador Discount, 6.625%, 2/28/2025 1,815,000
2,000,000 Islamic Republic of Pakistan, Bond, 9.70%, 5/30/2000 900,000
2,800,000 Islamic Republic of Pakistan, Deb., 11.50%, 12/22/1999 1,344,000
2,000,000 Korea Development Bank, Deb., 9.60%, 12/1/2000 1,991,120
900,000 Nacional Financiera, SNC, Foreign Gov't. Guarantee, 10.625%,
11/22/2001 918,000
1,000,000 Nacional Financiera, SNC, Foreign Gov't. Guarantee, Series REGS,
9.375%, 7/15/2002 975,000
1,000,000 Panama, 7.875%, 2/13/2002 975,000
3,730,000 Panama, 8.25%, 4/22/2008 3,562,150
4,000,000 Panama, Bond, 8.875%, 9/30/2027 3,760,000
2,000,000 Philippines, 8.875%, 4/15/2008 1,961,260
2,000,000 Republic of Argentina, Bond, 11.00%, 12/4/2005 2,080,000
4,000,000 Republic of Argentina, Global Bond Deb., 9.75%, 9/19/2027 3,620,000
3,000,000 Republic of Argentina, Unsub., 11.00%, 10/9/2006 3,052,500
5,000,000 Republic of Brazil, 10.125%, 5/15/2027 3,792,200
9,500,000 Republic of Brazil, Bond, 9.375%, 4/7/2008 7,528,750
4,710,452 Republic of Brazil, C Bond, 5.00%, 4/15/2014 3,126,562
4,250,000 Republic of Ecuador, 11.25%, 4/25/2002 3,740,000
3,112,051 Republic of Ecuador, Deb., 6.625%, 2/27/2015 1,548,245
6,500,000 Republic of Korea, 8.875%, 4/15/2008 6,511,375
2,000,000 Republic of Korea, Global Bond Deb., 8.75%, 4/15/2003 2,021,140
4,500,000 Russia, 10.00%, 6/26/2007 1,265,625
2,000,000 Russia, Deb., 3.3125%, 12/15/2020 142,600
1,000,000 (a) Russian Federation, 10.00%, 6/26/2007 277,500
2,750,000 (a) Russian Federation, 11.75%, 6/10/2003 935,000
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
INTERNATIONAL BONDS-CONTINUED
U.S. DOLLAR-CONTINUED
SOVEREIGN-CONTINUED
$ 500,000 (a) Russian Federation, 9.25%, 11/27/2001 $ 163,750
920,000 South Africa, Republic of, Global Bond Deb., 9.625%, 12/15/1999 923,947
2,000,000 South Africa, Republic of, Note, 8.50%, 6/23/2017 1,509,440
400,000 Turkey, 10.00%, 5/23/2002 385,800
700,000 Turkey, 10.00%, 9/19/2007 654,500
3,000,000 Turkey, Bond, 9.875%, 2/23/2005 2,820,000
1,000,000 Turkey, Deb., 11.50%, 4/27/1999 1,002,500
4,000,000 United Mexican States, 11.375%, 9/15/2016 4,233,280
7,250,000 United Mexican States, 6.25%, 12/31/2019 5,429,670
4,000,000 United Mexican States, 8.625%, 3/12/2008 3,825,000
5,500,000 United Mexican States, Bond, 9.875%, 1/15/2007 5,555,000
5,750,000 Venezuela, Bond, 9.25%, 9/15/2027 3,205,625
Total 99,101,289
SOVEREIGN GOVERNMENT-1.1%
4,500,000 Colombia, Republic of, Unsub., 8.625%, 4/1/2008 3,937,500
2,500,000 Jamaica, Note, 10.875%, 6/10/2005 2,150,000
5,500,000 Kazakhstan, Note, 8.375%, 10/2/2002 4,482,500
Total 10,570,000
STEEL-0.1%
1,125,000 Tubos de Acero de Mexico SA, Unsub., 13.75%, 12/8/1999 1,149,750
SURFACE TRANSPORTATION-0.2%
2,500,000 Zhuhai Highway, 9.125%, 7/1/2006 1,650,000
250,000 (a) Zhuhai Highway, Sub. Note, 11.50%, 7/1/2008 135,000
Total 1,785,000
TELECOMMUNICATIONS & CELLULAR-0.5%
700,000 (a) Comtel Brasileir, Note, 10.75%, 9/26/2004 610,750
500,000 Comtel Brasileir, Note, Series REGS, 10.75%, 9/26/2004 423,500
1,000,000 Netia Holdings, Company Guarantee, 10.25%, 11/1/2007 760,000
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
INTERNATIONAL BONDS-CONTINUED
U.S. DOLLAR-CONTINUED
TELECOMMUNICATIONS & CELLULAR-CONTINUED
$ 1,500,000 Philippine Long Distance Telephone Co., Deb., 10.625%, 6/2/2004 $ 1,545,000
1,500,000 (a) Telecom Brazil, Collateral Trust, Series EMTN, 11.25%, 12/9/1999 1,428,750
Total 4,768,000
UTILITIES-0.6%
4,000,000 AES China Generating Co., Note, 10.125%, 12/15/2006 2,660,000
1,600,000 Comp Paranaense De Energ, 9.75%, 5/2/2005 1,424,000
550,000 (a) Israel Electric Corp. Ltd., Sr. Note, 7.875%, 12/15/2026 557,376
500,000 (a) CIA Saneamento Basico, Bond, 10.00%, 7/28/2005 397,500
500,000 (a) Tenaga Nasional Berhad, Deb., 7.50%, 1/15/2096 301,095
Total 5,339,971
TOTAL U.S. DOLLARS 176,445,491
TOTAL INTERNATIONAL BONDS (IDENTIFIED COST $316,963,726) 291,247,076
ASSET-BACKED SECURITIES-0.4%
STRUCTURED PRODUCT-0.4%
2,500,000 (a) 125 Home Loan Owner Trust 1998-1A, Class B1, 9.26%, 2/15/2029 2,240,625
1,000,000 New Century Home Equity Loan Trust 1997-NC5, Class M2, 7.24%,
10/25/2028 977,560
491,660 (a) SMFC Trust Asset-Backed Certificates, Series 1997-A, Class 4,
7.7191%, 1/28/2025 434,102
TOTAL ASSET-BACKED SECURITIES (IDENTIFIED COST $3,942,232) 3,652,287
U.S. GOVERNMENT/AGENCY-12.3%
LONG-TERM GOVERNMENT OBLIGATIONS-12.3%
4,500,000 Federal Home Loan Bank System, 5.905%, 7/22/2008 4,659,165
1,500,000 Federal Home Loan Bank System, Note, Series HH07, 6.90%, 2/7/2007 1,646,340
3,500,000 Federal Home Loan Bank System, Sr. Note, 5.80%, 9/2/2008 3,597,300
240,823 Federal Home Loan Mortgage Corp., 8.00%, 11/1/2011 247,296
321,241 Federal Home Loan Mortgage Corp., 8.00%, 7/1/2024 332,786
1,800,421 Federal Home Loan Mortgage Corp., 7.00%, 9/1/2028 1,837,546
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
U.S. GOVERNMENT/AGENCY-CONTINUED
LONG-TERM GOVERNMENT OBLIGATIONS-CONTINUED
$ 347,686 Federal Home Loan Mortgage Corp., 7.00%, 8/1/2028 $ 354,855
36,154 Federal Home Loan Mortgage Corp., 7.00%, 9/1/2028 36,899
988,133 Federal Home Loan Mortgage Corp., 6.50%, 9/1/2028 995,544
353,207 Federal Home Loan Mortgage Corp., 6.50%, 10/1/2028 355,856
2,017,746 Federal Home Loan Mortgage Corp., 6.50%, 10/1/2028 2,032,879
186,150 Federal Home Loan Mortgage Corp., 8.00%, 5/1/2025 192,665
266,406 Federal Home Loan Mortgage Corp., 8.50%, 9/1/2025 278,727
937,882 Federal Home Loan Mortgage Corp., 7.00%, 2/1/2026 957,521
45,930 Federal Home Loan Mortgage Corp., 8.50%, 1/1/2026 48,055
150,279 Federal Home Loan Mortgage Corp., 8.00%, 7/1/2024 155,773
156,157 Federal Home Loan Mortgage Corp., 8.00%, 5/1/2025 161,575
1,260,370 Federal Home Loan Mortgage Corp., 8.00%, 6/1/2025 1,305,667
226,841 Federal Home Loan Mortgage Corp., 8.00%, 8/1/2025 235,134
178,304 Federal Home Loan Mortgage Corp., 8.00%, 5/1/2024 184,712
237,596 Federal Home Loan Mortgage Corp., 8.00%, 8/1/2027 245,839
254,106 Federal Home Loan Mortgage Corp., 8.00%, 1/1/2025 263,000
1,185,886 Federal Home Loan Mortgage Corp., 6.50%, 7/1/2011 1,204,410
1,771,047 Federal Home Loan Mortgage Corp., 6.50%, 11/1/2012 1,798,161
1,864,570 Federal Home Loan Mortgage Corp., 6.00%, 7/1/2013 1,867,479
127,592 Federal Home Loan Mortgage Corp., 8.50%, 9/1/2025 133,533
213,315 Federal Home Loan Mortgage Corp., 8.00%, 2/1/2027 220,715
3,029,998 Federal Home Loan Mortgage Corp., 6.50%, 11/1/2028 3,052,723
771,794 Federal National Mortgage Association, 6.50%, 2/1/2009 784,575
1,611,159 Federal National Mortgage Association, 7.50%, 4/1/2024 1,657,479
354,655 Federal National Mortgage Association, 7.00%, 5/1/2024 362,302
3,059,324 Federal National Mortgage Association, 7.00%, 2/1/2024 3,125,283
909,917 Federal National Mortgage Association, 6.50%, 12/1/2025 916,459
704,575 Federal National Mortgage Association, 8.00%, 10/1/2026 729,672
1,906,972 Federal National Mortgage Association, 6.50%, 12/1/2027 1,920,683
971,164 Federal National Mortgage Association, 6.50%, 5/1/2028 977,845
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
U.S. GOVERNMENT/AGENCY-CONTINUED
LONG-TERM GOVERNMENT OBLIGATIONS-CONTINUED
$ 785,643 Federal National Mortgage Association, 6.50%, 2/1/2028 $ 791,292
446,575 Federal National Mortgage Association, 6.50%, 6/1/2028 449,647
1,971,782 Federal National Mortgage Association, 6.00%, 7/1/2028 1,946,523
1,689,913 Federal National Mortgage Association, 6.50%, 4/1/2013 1,714,738
1,850,818 Federal National Mortgage Association, 6.50%, 4/1/2028 1,863,551
874,885 Federal National Mortgage Association, 6.50%, 4/1/2013 887,737
2,186,613 Federal National Mortgage Association, 8.00%, 8/1/2027 2,265,199
1,927,864 Federal National Mortgage Association, 6.50%, 5/1/2013 1,956,184
3,910,617 Federal National Mortgage Association, 6.50%, 6/1/2028 3,937,522
2,909,858 Federal National Mortgage Association, 6.50%, 8/1/2028 2,929,878
437,568 Federal National Mortgage Association, 6.00%, 9/1/2028 431,962
177,839 Federal National Mortgage Association, 6.00%, 9/1/2028 175,561
2,002,805 Federal National Mortgage Association, 6.00%, 9/1/2028 1,977,149
4,100,000 Federal National Mortgage Association, 6.00%, 11/1/2013 4,103,854
14,075,000 (b) Federal National Mortgage Association, 7.00%, 12/1/2099 14,369,731
100,083 Government National Mortgage Association, 9.00%, 10/15/2016 107,495
1,518,251 Government National Mortgage Association, 7.50%, 11/15/2022 1,569,491
1,791,465 Government National Mortgage Association, 6.50%, 1/15/2024 1,811,619
339,169 Government National Mortgage Association, 7.50%, 3/15/2024 350,511
2,008,750 Government National Mortgage Association, 7.50%, 10/15/2027 2,075,280
1,522,054 Government National Mortgage Association, 7.50%, 3/15/2026 1,572,464
2,377,657 Government National Mortgage Association, 7.50%, 2/15/2027 2,456,405
116,215 Government National Mortgage Association, 9.50%, 2/15/2025 125,731
545,318 Government National Mortgage Association, 7.50%, 1/15/2026 563,379
593,269 Government National Mortgage Association, 7.50%, 2/15/2026 612,918
796,185 Government National Mortgage Association, 8.00%, 1/15/2028 828,526
2,971,205 Government National Mortgage Association, 7.00%, 3/15/2026 3,042,692
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
U.S. GOVERNMENT/AGENCY-CONTINUED
LONG-TERM GOVERNMENT OBLIGATIONS-CONTINUED
$ 967,772 Government National Mortgage Association, 7.00%, 1/15/2028 $ 991,057
1,751,708 Government National Mortgage Association, 7.50%, 11/15/2027 1,809,724
371,790 Government National Mortgage Association, 8.00%, 6/15/2026 386,892
322,159 Government National Mortgage Association, 8.00%, 6/15/2026 335,245
1,007,876 Government National Mortgage Association, 6.00%, 6/15/2028 999,057
335,270 Government National Mortgage Association, 8.00%, 8/15/2026 348,996
1,738,761 Government National Mortgage Association, 7.50%, 12/15/2027 1,796,349
1,343,333 Government National Mortgage Association, 7.00%, 3/15/2028 1,375,654
959,631 Government National Mortgage Association, 7.00%, 1/15/2028 982,720
4,478,680 Government National Mortgage Association, 7.50%, 4/15/2028 4,627,013
375,030 Government National Mortgage Association, 7.50%, 9/15/2028 387,451
1,397,395 Government National Mortgage Association, 6.00%, 8/15/2028 1,385,168
88,525 Government National Mortgage Association, 7.00%, 8/15/2028 90,655
1,312,138 Government National Mortgage Association, 8.00%, 2/15/2010 1,358,877
654,856 Government National Mortgage Association, 8.50%, 10/15/2017 701,717
982,483 Government National Mortgage Association, 11.00%, 9/15/2015 1,098,533
2,799,338 Government National Mortgage Association, 7.00%, 6/15/2027 2,866,690
TOTAL U.S GOVERNMENT/AGENCY (IDENTIFIED COST $114,007,351) 115,335,290
U.S. TREASURY OBLIGATIONS-8.2%
U.S. TREASURY BONDS-7.2%
6,500,000 United States Treasury Bond, 10.75%, 2/15/2003 7,981,740
9,500,000 United States Treasury Bond, 10.75%, 8/15/2005 12,704,350
10,550,000 United States Treasury Bond, 11.625%, 11/15/2004 14,252,628
10,910,000 United States Treasury Bond, 12.375%, 5/15/2004 14,851,674
1,500,000 United States Treasury Bond, 8.00%, 11/15/2021 2,023,320
1,500,000 United States Treasury Bond, 8.125%, 5/15/2021 2,040,015
9,750,000 United States Treasury Bond, 8.75%, 8/15/2020 13,990,275
Total 67,844,002
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
OR SHARES VALUE
<C> <S> <C>
U.S. TREASURY OBLIGATIONS-CONTINUED
U.S. TREASURY NOTES-1.0%
$ 2,000,000 United States Treasury Note, 5.625%, 5/15/2008 $ 2,128,640
4,000,000 United States Treasury Note, 7.75%, 11/30/1999 4,120,040
3,000,000 United States Treasury Note, 9.125%, 5/15/1999 3,060,150
Total 9,308,830
TOTAL U.S TREASURY OBLIGATIONS (IDENTIFIED COST $75,799,620) 77,152,832
MUNICIPALS-0.2%
MUNICIPAL SERVICES-0.2%
750,000 Atlanta & Fulton County, GA Recreation Authority, Taxable
Revenue Bonds, Series 1997, 7.00% Bonds (Downtown Arena
Project)/(FSA INS), 12/1/2028 776,175
250,000 McKeesport, PA, Taxable G.O. Series B 1997, 7.30% Bonds
(MBIA INS), 3/1/2020 260,533
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 1,122,400
TOTAL MUNICIPALS (IDENTIFIED COST $2,094,820) 2,159,108
MUTUAL FUNDS-34.0%
33,849,333 The High Yield Bond Portfolio (IDENTIFIED COST $330,993,862) 319,876,192
PREFERRED STOCKS-0.3%
REAL ESTATE-0.2%
2,000 Highwoods Properties, Inc., REIT Perpetual Pfd. Stock, Series A,
$86.25 1,866,203
9,900 Prologis Trust, Cumulative Pfd. 500,198
Total 2,366,401
TECHNOLOGY SERVICES-0.1%
8,532 Microsoft Corp., Cumulative Conv. Pfd., Series A, $2.20 830,804
TOTAL PREFERRED STOCKS (IDENTIFIED COST $3,383,114) 3,197,205
</TABLE>
FEDERATED STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
<C> <S> <C>
(C)REPURCHASE AGREEMENTS-1.9%
$ 14,075,000 (d) Morgan Stanley Group, Inc., 4.96%, dated 11/9/1998, due 12/10/1998 14,075,000
3,730,000 Westdeutsche Landesbank Girozentrale, 5.35%, dated 11/30/1998,
due 12/1/1998 3,730,000
TOTAL REPURCHASE AGREEMENTS (AT AMORTIZED COST) 17,805,000
TOTAL INVESTMENTS (IDENTIFIED COST $970,889,889)(E) $ 936,799,638
</TABLE>
(a) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At November 30, 1998, these securities
amounted to $37,991,672 which represents 4.0% of net assets.
(b) These securities are subject to dollar roll transactions.
(c) The repurchase agreements are fully collateralized by U.S. government
and/or agency obligations based on market prices at the date of the
portfolio. The investments in the repurchase agreements are through
participation in a joint accounts with other Federated funds.
(d) Although final maturity falls beyond seven days, a liquidity feature is
included in each transaction to permit termination of the repurchase
agreement within seven days.
(e) The cost of investments for federal tax purposes amounts to
$970,898,936. The net unrealized depreciation of investments on a
federal tax basis amounts to $34,099,298 which is comprised of
$12,858,158 appreciation and $46,957,456 depreciation at November 30,
1998.
Note: The categories of investments are shown as a percentage of net assets
($940,202,140) at November 30, 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
PLC -Public Limited Company
REIT -Real Estate Investment Trust
SA -Support Agreement
TBA -To Be Announced
TRANs -Tax and Revenue Anticipation Notes
UT -Unlimited Tax
(See Notes which are an integral part of the Financial Statements)
FEDERATED STRATEGIC INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified cost
$970,889,889 and tax cost $970,898,936) $ 936,799,638
Cash 2,534
Cash denominated in foreign currencies (cost $3,034,614) 3,035,248
Income receivable 16,040,613
Receivable for investments sold 1,308,632
Receivable for shares sold 7,958,217
Prepaid expenses 6,644
Deferred organizational costs 15,747
Total assets 965,167,273
LIABILITIES:
Payable for investments purchased $ 5,317,310
Payable for shares redeemed 1,118,929
Income distribution payable 3,314,089
Payable for dollar roll transactions 14,299,256
Payable for taxes withheld 70,439
Payable for foreign currency purchased 591
Accrued expenses 844,519
Total liabilities 24,965,133
NET ASSETS for 96,031,676 shares outstanding $ 940,202,140
NET ASSETS CONSIST OF:
Paid in capital $ 977,947,164
Net unrealized depreciation of investments and translation
of assets and liabilities in foreign currency (33,937,027)
Accumulated net realized gain on investments and foreign
currency transactions 2,601,385
Distributions in excess of net investment income (6,409,382)
Total net assets $ 940,202,140
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS PER
SHARE:
CLASS A SHARES:
Net Asset Value Per Share ($141,065,378 / 14,405,068 shares
outstanding) $9.79
Offering Price Per Share (100/95.50 of $9.79)* $10.25
Redemption Proceeds Per Share $9.79
CLASS B SHARES:
Net Asset Value Per Share ($689,686,871 / 70,444,518 shares
outstanding) $9.79
Offering Price Per Share $9.79
Redemption Proceeds Per Share(94.50/100 of $9.79)** $9.25
CLASS C SHARES:
Net Asset Value Per Share ($73,509,165 / 7,509,543 shares
outstanding) $9.79
Offering Price Per Share $9.79
Redemption Proceeds Per Share (99.00/100 of $9.79)** $9.69
CLASS F SHARES:
Net Asset Value Per Share ($35,940,726 / 3,672,547 shares
outstanding) $9.79
Offering Price Per Share (100/99.00 of $9.79)* $9.89
Redemption Proceeds Per Share (99.00/100 of $9.79)** $9.69
</TABLE>
* See "What Shares Cost" in the Prospectus.
** See "Contingent Deferred Sales Charge" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
FEDERATED STRATEGIC INCOME FUND
STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 18,304,098
Interest (net of dollar roll expense of $642,161) (net of foreign taxes
withheld of $65,402) 43,550,312
Total income 61,854,410
EXPENSES:
Investment advisory fee $ 5,669,076
Administrative personnel and services fee 502,880
Custodian fees 160,430
Transfer and dividend disbursing agent fees and expenses 565,266
Directors'/Trustees' fees 6,723
Auditing fees 17,000
Legal fees 4,469
Portfolio accounting fees 146,187
Distribution services fee-Class B Shares 3,563,189
Distribution services fee-Class C Shares 404,337
Distribution services fee-Class F Shares 167,702
Shareholder services fee-Class A Shares 261,016
Shareholder services fee-Class B Shares 1,187,730
Shareholder services fee-Class C Shares 134,779
Shareholder services fee-Class F Shares 83,851
Share registration costs 247,952
Printing and postage 93,955
Insurance premiums 4,850
Taxes 6,150
Miscellaneous 49,040
Total expenses 13,276,582
Waivers and reimbursements-
Waiver of investment advisory fee $ (1,597,771)
Waiver of distribution services fee-Class F Shares (167,702)
Total waivers (1,765,473)
Net expenses 11,511,109
Net investment income 50,343,301
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY:
Net realized gain on investments and foreign currency
transactions (net of foreign taxes withheld of $34,691) 549,421
Net change in unrealized appreciation (depreciation) of
investments and translation of assets and liabilities in
foreign currency (36,142,110)
Net realized and unrealized loss on investments and
foreign currency (35,592,689)
Change in net assets resulting from operations $ 14,750,612
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED STRATEGIC INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
1998 1997
<S> <C> <C>
Increase (Decrease) in Net Assets:
Operations-
Net investment income/operating loss $ 50,343,301 $ 21,989,467
Net realized gain (loss) on investments and foreign currency
transactions ($673,903 and $1,918,221, respectively, as
computed for federal tax purposes) 549,421 1,227,157
Net change in unrealized appreciation/depreciation of
investments and translation of assets and liabilities in
foreign currency (36,142,110) (2,824,267)
Change in net assets resulting from operations 14,750,612 20,392,357
Distributions to Shareholders-
Distributions from net investment income
Class A Shares (8,438,623) (3,371,345)
Class B Shares (35,196,240) (15,066,810)
Class C Shares (4,000,486) (1,268,365)
Class F Shares (2,707,952) (2,059,642)
Distributions from net realized gains on investments and
foreign currency transactions
Class A Shares (211,252) (80,861)
Class B Shares (1,028,524) (365,467)
Class C Shares (95,932) (31,072)
Class F Shares (97,754) (51,079)
Distributions in excess of net investment income
Class A Shares (754,101) -
Class B Shares (3,145,242) -
Class C Shares (357,494) -
Class F Shares (241,991) -
Change in net assets resulting from distributions to
shareholders (56,275,591) (22,294,641)
Share Transactions-
Proceeds from sale of shares 654,543,381 274,742,668
Net asset value of shares issued to shareholders in payment
of distributions declared 28,092,524 10,438,073
Cost of shares redeemed (122,954,049) (37,121,071)
Change in net assets resulting from share transactions 559,681,856 248,059,670
Change in net assets 518,156,877 246,157,386
Net Assets:
Beginning of period 422,045,263 175,887,877
End of period $ 940,202,140 $ 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>
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 0.83 0.87(b) 0.91 0.82 0.45
Net realized and unrealized gain (loss) on investments and
foreign currency (0.54) (0.03) 0.42 0.61 (0.45)
Total from investment operations 0.29 0.84 1.33 1.43 0.00
LESS DISTRIBUTIONS
Distributions from net investment income (0.81) (0.87) (0.89) (0.83) (0.45)
Distributions in excess of net investment income(c) (0.07) - (0.03) - (0.01)
Distributions from net realized gain on investments and
foreign currency transactions (0.03) (0.03) (0.08) -- --
Total distributions (0.91) (0.90) (1.00) (0.83) (0.46)
NET ASSET VALUE, END OF PERIOD $ 9.79 $10.41 $10.47 $10.14 $ 9.54
TOTAL RETURN(D) 2.94% 8.33% 13.89% 15.64% 0.05%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.13% 1.10% 1.05% 0.25% 0.25% *
Net investment income 8.12% 8.40% 8.54% 8.68% 8.38% *
Expense waiver/reimbursement(e) 0.24% 0.36% 0.98% 5.69% 8.87% *
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $141,065 $58,270 $28,021 $5,089 $2,366
Portfolio turnover 93% 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) Per Share information is based on average shares outstanding.
(c) 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.
(d) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(e) 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 STRATEGIC INCOME FUND
FINANCIAL HIGHLIGHTS-CLASS B SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED 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 0.75 0.79 (b) 0.83 0.25
Net realized and unrealized gain (loss) on investments and
foreign currency (0.53) (0.04) 0.42 0.13
Total from investment operations 0.22 0.75 1.25 0.38
LESS DISTRIBUTIONS
Distributions from net investment income (0.73) (0.79) (0.83) (0.24)
Distributions in excess of net investment income(c) (0.07) - (0.01) -
Distributions from net realized gain on investments and
foreign currency transactions (0.03) (0.03) (0.08) -
Total distributions (0.83) (0.82) (0.92) (0.24)
NET ASSET VALUE, END OF PERIOD $ 9.79 $10.40 $10.47 $10.14
TOTAL RETURN(D) 2.17% 7.53% 13.03% 5.13%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.88% 1.85% 1.80% 1.00% *
Net investment income 7.37% 7.67% 7.80% 7.95% *
Expense waiver/reimbursement(e) 0.24% 0.37% 0.98% 5.69% *
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $689,687 $304,746 $120,020 $5,193
Portfolio turnover 93% 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) Per Share information is based on average shares outstanding.
(c) 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.
(d) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(e) 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 STRATEGIC INCOME FUND
FINANCIAL HIGHLIGHTS-CLASS C SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
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 0.75 0.79(b) 0.82 0.74 0.40
Net realized and unrealized gain (loss) on investments and
foreign currency (0.54) (0.03) 0.43 0.61 (0.44)
Total from investment operations 0.21 0.76 1.25 1.35 (0.04)
LESS DISTRIBUTIONS
Distributions from net investment income (0.73) (0.79) (0.80) (0.75) (0.40)
Distributions in excess of net investment income(c) (0.07) - (0.04) - (0.02)
Distributions from net realized gain on investments and
foreign currency transactions (0.03) (0.03) (0.08) - -
Total distributions (0.83) (0.82) (0.92) (0.75) (0.42)
NET ASSET VALUE, END OF PERIOD $ 9.79 $10.41 $10.47 $10.14 $ 9.54
TOTAL RETURN(D) 2.18% 7.53% 13.05% 14.79% (0.41)%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.88% 1.86% 1.80% 1.00% 1.00% *
Net investment income 7.37% 7.69% 7.70% 7.93% 7.99% *
Expense waiver/reimbursement(e) 0.24% 0.37% 0.98% 5.69% 8.87% *
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $73,509 $29,267 $10,481 $2,323 $1,190
Portfolio turnover 93% 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) Per Share information is based on average shares outstanding.
(c) 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.
(d) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(e) 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 STRATEGIC INCOME FUND
FINANCIAL HIGHLIGHTS-CLASS F SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
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 0.82 0.87 (b) 0.95 0.77 0.41
Net realized and unrealized gain (loss) on investments and
foreign currency (0.53) (0.03) 0.37 0.61 (0.44)
Total from investment operations 0.29 0.84 1.32 1.38 (0.03)
LESS DISTRIBUTIONS
Distributions from net investment income (0.81) (0.87) (0.91) (0.78) (0.41)
Distributions in excess of net investment income(c) (0.07) - - - (0.02)
Distributions from net realized gain on investments and
foreign currency transactions (0.03) (0.03) (0.08) - -
Total distributions (0.91) (0.90) (0.99) (0.78) (0.43)
NET ASSET VALUE, END OF PERIOD $ 9.79 $10.41 $10.47 $10.14 $ 9.54
TOTAL RETURN(D) 2.94% 8.33% 13.83 15.07% (0.19)%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.13% 1.10% 1.07% 0.75% 0.75% *
Net investment income 8.12% 8.38% 8.48% 8.19% 8.34% *
Expense waiver/reimbursement(e) 0.74% 0.86% 1.46% 5.69% 8.87% *
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $35,941 $29,762 $17,367 $3,691 $2,326
Portfolio turnover 93% 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) Per Share information is based on average shares outstanding.
(c) 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.
(d) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(e) 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 STRATEGIC INCOME FUND
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1998
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.
Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to
differing treatments for foreign currency transactions. The following
reclassifications have been made to the financial statements.
INCREASE (DECREASE)
ACCUMULATED DISTRIBUTIONS
ACCUMULATED NET IN EXCESS OF
REALIZED GAIN/LOSS NET INVESTMENT INCOME PAID-IN CAPITAL
$1,417,381 $(1,388,314) $(29,067)
Net investment income, net realized gain/losses, and net assets were
not affected by this reclassification.
FEDERAL TAXES-It is the Fund's policy to comply with the provisions
of the Code applicable to regulated investment companies and to
distribute to shareholders each year substantially all of its income.
Accordingly, no provisions for federal tax are necessary.
Withholding taxes on foreign interest and dividends have been provided
for in accordance with the Fund's understanding of the applicable
country's tax rules and rates.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS-The Fund may engage
in when-issued or delayed delivery transactions. The Fund records
when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make
payment for the securities purchased. Securities purchased on a when-
issued or delayed delivery basis are marked to market daily and begin
earning interest on the settlement date.
FORWARD COMMITMENTS-The Fund may enter into forward commitments for
the delayed delivery of securities and forward foreign currency
exchange contracts which are based upon financial indices at a fixed
price and exchange rate at a future date. Risks may arise upon entering
these contracts from the potential inability of counterparts to meet
the terms of their contracts and from unanticipated movements in
security prices and foreign exchange rates. The forward foreign
currency exchange contracts are adjusted by the daily exchange rate of
the underlying currency and any gains or losses are recorded for
financial statement purposes as unrealized until the contract
settlement date. At November 30, 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 Board of
Directors. The Fund will not incur any registration costs upon such
resales. The Fund's restricted securities are valued at the price
provided by dealers in the secondary market or, if no market prices are
available, at the fair value as determined by the Fund's pricing
committee.
Additional information on each restricted security held at
November 30, 1998 is as follows:
<TABLE>
<CAPTION>
ACQUISITION ACQUISITION
SECURITY DATE COST
<S> <C> <C>
Advance Agro Public Co. 9/17/1997 $ 805,861
125 Home Loan Owner Trust 1998-1A 7/30/1998 2,523,907
Remy Cointreau S.A. Series 144A 7/23/1998 1,250,000
Normandy Finance Ltd. 7/2/1998-7/27/1998 2,303,557
TV Bandeirantes 5/8/1998 1,242,338
TM Group Holdings 5/7/1998 1,000,000
Tenet Healthcare Corp. 5/9/98 498,060
Cathay International Ltd. 4/3/1998 1,515,000
Russian Federation 3/24/1998 3,488,380
CIA International Telecommunications 3/19/1998 1,870,837
Pera Financial 10/7/1997 1,000,000
Dharmala Inti Utama 2/3/1998 243,705
Globo Communicacoes Part 5/6/1998-5/29/1998 5,026,708
Imasac, S.A. 4/24/1998-6/16/1998 3,678,001
Mastellone Hermanos SA 9/28/1998 2,725,243
Petroleos Mexicanos 11/19/1998 1,500,000
Swedbank 1/7/1998 1,059,162
Den Danske Bank 1/7/1998 1,057,870
Comtel Brasileir 12/6/1996 736,677
Russian Federation 12/19/1997-4/3/1998 558,809
CIA Saneamento Basico 10/14/1997 518,472
USF&G Corp. 7/3/1997 500,000
Government of Jamaica 6/26/1997 249,465
Russian Federation 10/20/1997 1,091,500
Life Re Capital Trust I 6/6/1997-7/16/1998 2,082,379
Israel Electric Corp., Ltd. 12/16/1997 565,397
Metro Toronto 9/18/1996 991,700
Tenaga Nasional Berhad 3/3/1997 960,475
Union Central Life Insurance Co. 10/31/1996 994,780
Equitable Life 10/17/1996-2/11/1998 1,838,715
Reliance Industries Ltd. 1/10/1997 1,250,286
Telecom Brazil 4/18/1996-5/30/1996 1,612,681
SMFC Trust 2/4/1998-1/1/1998 434,102
Zhuhai Highway 12/4/1997 266,993
Sirona Dental System 6/29/1998 4,250,000
Russian Federation 7/27/1998 2,272,378
</TABLE>
USE OF ESTIMATES-The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts of
assets, liabilities, expenses and revenues reported in the financial
statements. Actual results could differ from those estimated.
OTHER-Investment transactions are accounted for on the trade date.
3. CAPITAL STOCK
At November 30, 1998, par value shares ($0.001 per share) authorized
were as follows:
NUMBER OF PAR VALUE
CLASS NAME CAPITAL STOCK AUTHORIZED
Class A Shares 1,000,000,000
Class B Shares 1,000,000,000
Class C Shares 1,000,000,000
Class F Shares 1,000,000,000
Total 4,000,000,000
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1998 1997
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 11,737,306 $119,136,896 3,554,270 $ 37,128,584
Shares issued to shareholders in payment of
distributions declared 506,232 5,019,946 161,170 1,680,439
Shares redeemed (3,437,440) (34,148,973) (793,629) (8,275,591)
Net change resulting from Class A Share transactions 8,806,098 $ 90,007,869 2,921,811 $ 30,533,432
<CAPTION>
YEAR ENDED NOVEMBER 30,
1998 1997
CLASS B SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 46,244,607 $464,101,229 19,240,645 $200,824,425
Shares issued to shareholders in payment of
distributions declared 1,921,710 19,184,451 685,049 7,140,397
Shares redeemed (7,010,454) (69,841,483) (2,103,020) (21,931,007)
Net change resulting from Class B Share transactions 41,155,863 $413,444,197 17,822,674 $186,033,815
<CAPTION>
YEAR ENDED NOVEMBER 30,
1998 1997
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 5,833,387 $ 59,173,334 2,113,138 $ 22,111,893
Shares issued to shareholders in payment of
distributions declared 253,165 2,526,473 70,259 732,691
Shares redeemed (1,389,482) (13,812,502) (371,891) (3,877,196)
Net change resulting from Class C Share transactions 4,697,070 $47,887,305 1,811,506 $ 18,967,388
<CAPTION>
YEAR ENDED NOVEMBER 30,
1998 1997
CLASS F SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 1,194,426 $ 12,131,922 1,408,149 $ 14,677,766
Shares issued to shareholders in payment of
distributions declared 133,478 1,361,654 84,898 884,546
Shares redeemed (515,291) (5,151,091) (291,731) (3,037,277)
Net change resulting from Class F Share transactions 812,613 $ 8,342,485 1,201,316 $ 12,525,035
Net change resulting from share transactions 55,471,644 $ 559,681,856 23,757,307 $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 Adviser and the
Federated Global Research Corp., Federated Global Research Corp.,
receives an allocable portion of the Fund's advisory fee. Such
allocation is based on the amount of foreign securities which Federated
Global Research Corp., manages for the Fund. This fee is paid by the
Adviser out of its resources and is not an incremental Fund expense.
ADMINISTRATIVE FEE-Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with
administrative personnel and services. The fee paid to FServ is based
on the level of average aggregate daily net assets of all funds advised
by subsidiaries of Federated Investors, 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 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
SHARE CLASS NAME DAILY NET ASSETS OF CLASS
Class B Shares 0.75%
Class C Shares 0.75%
Class F Shares 0.50%
The distributor may voluntarily choose to waive any portion of its fee.
The distributor can modify or terminate this voluntary waiver at any
time at its sole discretion.
SHAREHOLDER SERVICES FEE-Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services Company ("FSSC"), the
Fund will pay FSSC up to 0.25% of average daily net assets of the Fund
shares for the period. The fee paid to FSSC is used to finance certain
services for shareholders and to maintain shareholder accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES-FServ,
through its subsidiary, Federated Shareholder Services Company
("FSSC") serves as transfer and dividend disbursing agent for the Fund.
The fee paid to FSSC is based on the size, type, and number of accounts
and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES-FServ maintains the Fund's accounting
records for which it receives a fee. The fee is based on the level of
the Fund's average daily net assets for the period, plus out-of-pocket
expenses.
ORGANIZATIONAL EXPENSES-Organizational and/or start-up
administrative service expenses of $150,096 were borne initially by
Federated Advisers. The Fund has agreed to reimburse Federated
Advisers for the organizational and/or start-up administrative
expenses during the five year period following effective date. For the
period ended November 30, 1998, the Fund paid $47,485 pursuant to this
agreement.
GENERAL-Certain of the Officers and Directors of the Corporation are
Officers and Directors or Trustees of the above companies.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities,
for the period ended November 30, 1998, were as follows:
PURCHASES $1,147,469,764
SALES $ 600,782,661
6. CONCENTRATION OF CREDIT RISK
The Fund invests in securities of non-U.S. issuers. Although the Fund
maintains a diversified investment portfolio, the political or
economic developments within a particular country or region may have an
adverse effect on the ability of domiciled issuers to meet their
obligations. Additionally, political or economic developments may have
an effect on the liquidity and volatility of portfolio securities and
currency holdings.
7. 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.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of FIXED INCOME SECURITIES, INC.
and Shareholders of FEDERATED STRATEGIC INCOME FUND:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments of Federated Strategic Income
Fund as of November 30, 1998, and the related statement of operations
for the year then ended, the statement of changes in net assets for the
years ended November 30, 1998 and 1997, and the financial highlights
for each of the years in the five-year period ended November 30, 1998.
These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. Our procedures included
confirmation of the securities owned at November 30, 1998, by
correspondence with the custodian and brokers; where replies were not
received, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
Federated Strategic Income Fund as of November 30, 1998, the results of
its operations, the changes in its net assets, and its financial
highlights for the respective stated periods in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
January 15, 1999
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 and Secretary
Richard J. Thomas
Treasurer
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
investment risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors
only when preceded or accompanied by the fund's prospectus which
contains facts concerning its objective and policies, management fees,
expenses, and other information.
[Graphic]
Federated Investors
Federated Securities Corp., Distributor
Federated Investors, 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
G00324-02 (1/99)
[Graphic]
