[Graphic]
Richard B. Fisher
President
Federated Limited Term Fund
President's Message
Dear Shareholder:
Federated Limited Term Fund was created in 1991, and I am pleased to present its
eighth Semi-Annual Report. The fund's assets totaled $163.3 million on May 31,
1999. This short-term bond fund holds securities with maturities between money
market funds (i.e., 40-60 days) and government issues (i.e., 1- 3 years). As a
result, shareholders can generally expect higher income than money market fund
instruments and lower income than longer term government bond funds. 1
This report covers the first half of the fund's fiscal year, which is the
six-month reporting period from December 1, 1998 through May 31, 1999. It begins
with an interview with the fund's portfolio manager, Randall S. Bauer, Vice
President of Federated Investment Management Company. 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.
For most of 1999, the bond markets have been aware that Federal Reserve Board
Chairman Alan Greenspan may take some action and raise interest rates. The
markets have anticipated this action, and all bond prices have declined. While
the fund's U.S. Treasury holdings had a negative impact on its share prices, on
a total return basis the fund outperformed its peer group, the Lipper Short-Term
Investment Grade Debt Funds Average. 2
1 Unlike the fund, money market funds seek to maintain a stable $1.00 share
value.
2 Lipper figures represent the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as fall ing into
the category indicated. These figures do not reflect sales charges.
Individual share class total return performance for the six-month reporting
period, including income distributions, follows. 3
<TABLE>
<CAPTION>
INCOME
TOTAL RETURN DISTRIBUTIONS NET ASSET VALUE CHANGE
<S> <C> <C> <C>
Class A Shares 1.90% $0.29 $9.82 to $9.71 = (1%)
Class F Shares 1.95% $0.30 $9.82 to $9.71 = (1%)
</TABLE>
Thank you for choosing Federated Limited Term Fund as a conservative way to
pursue income through a diversified, high-quality portfolio of short-term
securities. Remember, reinvesting your monthly dividends is a convenient way to
build your account-and helps to build your account through the benefit of
compounding. 4
As always, we welcome your comments and suggestions.
Sincerely,
[Graphic]
Richard B. Fisher
President
July 15, 1999
3 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
0.87% and (0.06%), respectively.
4 Systematic investing does not ensure a profit or protect against loss in
declining markets.
[Graphic]
Randall S. Bauer
Vice President
Federated Investment Management Company
Investment Review
WHAT IS YOUR REVIEW OF THE SHORT-TERM BOND MARKET DURING THE FIRST HALF OF THE
FUND'S FISCAL YEAR?
From a total return standpoint, the reporting period was a relatively diffi cult
one, with significantly higher U.S. Treasury yields more than offset ting a
friendlier environment for credit spread products. The reversal of the "panic
mentality," which had beset the market since the summer of 1998, actu ally began
to abate late in the fourth quarter of 1998. A noticeable tighten ing of
corporate, non-agency mortgage-backed and most asset-backed spreads occurred
from December through April of 1999, though since the beginning of May spreads
have once again begun to widen.
Despite the latest spate of renewed spread widening, for the six-month reporting
period, performance of short-term spread products showed signifi cant relative
outperformance versus their U.S. Treasury counterparts. For the six-month
reporting period ended May 31, 1999, the Merrill Lynch 1-3 Year Corporate Index
returned 1.95%, compared with a return on the Merrill Lynch 1-3 Year Treasury
Index of only 1.21%. 1 Mortgages performed even better, with the Merrill Lynch
0-3 Year Mortgage Index returning 2.89% and the Merrill Lynch 0-3 Year Asset
Backed Index returning 2.55%.1 All of the return differentials versus U.S.
Treasuries were above historical averages.
1 Merrill Lynch 1-3 Year Corporate Index is an unmanaged index tracking
short-term domestic investment-grade corporate bonds with maturities between 1
and 2.99 years. Merrill Lynch 1-3 Year Treasury Index is an unmanaged index
tracking short-term U.S. government securities with matu rities between 1 and
2.99 years. Merrill Lynch 0-3 Year Mortgage Index is an unmanaged index tracking
mortgage-backed securities with effective maturities between 0 and 2.99 years.
Merrill Lynch 0-3 Year Asset-Backed Index is an unmanaged index tracking fixed
rate U.S. asset-backed securi ties with maturities between 1 and 2.99 years.
Investments cannot be made in an index.
HOW DID FEDERATED LIMITED TERM FUND'S PORTFOLIO OF 2-3 YEAR MATURITY SECURI TIES
PERFORM IN TERMS OF TOTAL RETURN AND INCOME?
The fund outperformed its peer group, the Lipper Short-Term Investment Grade
Debt Funds Average, which produced an average return for the period of 1.41%.
The fund's Class A Shares delivered a total return of 1.90%, based on net asset
value, and monthly dividends totaling $0.29 per share. 2 The fund's Class F
Shares produced a total return of 1.95%, based on net asset value, and paid
monthly dividends totaling $0.30 per share.2 The net asset value of both share
classes decreased a modest $0.11 per share over the reporting period.
The 30-day SEC yields, based on net asset value, for Class A and F Shares were
6.00% and 6.10%, respectively, on May 31, 1999. 3
HAVE YOU MADE ANY CHANGES TO THE FUND'S ALLOCATION AMONG U.S. TREASURIES,
CORPORATE ISSUES, ASSET-BACKED AND MORTGAGE-BACKED SECURITIES?
Fund management expects 1999 to be a more difficult year for corporate earn ings
results, which may exert downward pressure on spread levels. Allocations across
sectors still show asset-backed securities to be the most heavily weighted
sector, followed by corporate issues. The level of mortgage-backed securities
has been increased, though this sector still represents the small est allocation
of fund assets, at around 20% of the total.
As of May 31, 1999, the quality breakdown of the fund was as follows:
<TABLE>
<CAPTION>
PERCENTAGE
OF NET ASSETS
<S> <C>
AAA 35%
AA 4%
A 9%
BBB 39%
BB or lower 13%
</TABLE>
WHAT WERE THE FUND'S TOP FIVE HOLDINGS AS OF MAY 31, 1999:
<TABLE>
<CAPTION>
PERCENTAGE OF
NAME/COUPON/MATURITY NET ASSETS
<S> <C>
PNC Mortgage Securities
Corp. 1997-2, Class B-1;
7.50%, due 03/25/2027 2.92%
U.S. Treasury Note; 5.75%
due 11/15/2000 2.46%
Merrill Lynch Mortgage
Investors, Inc. 1998-FF3,
Class BB;
5.50% due 11/20/2029 2.37%
Greentree Home Improvement
Loan Trust 1997-A, Class
HE-6; 7.16% due 03/15/2028 2.16%
Bridgestone/Firestone
Credit Card Master Trust
1996-1, Class B; 6.49%
due 07/01/2003 1.85%
TOTAL 11.76%
</TABLE>
2 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 Shares and F Shares
were 0.87% and (0.06%), respectively.
3 The 30-day SEC yields, based on offering price (i.e., less any applicable
sales charge), were 5.94% for Class A Shares and 6.03% for Class F Shares.
AT THE MIDPOINT IN THE FUND'S FISCAL YEAR, WHAT IS YOUR OUTLOOK FOR THE REST OF
1999?
At this writing, spreads on credit-sensitive bonds generally remain wider than
historical norms. Despite the recent round of spread widenings, we believe
credit risk will outperform higher quality for the year.
If one believes that the U.S. economy remains in good shape, a valid argument
can be made that spreads have room to move back in from current levels, which
could serve to tighten spreads from here. Even if spreads do not tighten much,
or even widen a bit more, the absolute level of yield being earned should still
translate into superior relative total return performance. Only if the economy
slows down markedly from here (the "deflation/recession" sce nario) would such a
strategy prove to be an inferior alternative. Fund man agement assigns a low
probability to such an outcome.
Finally, despite the modest increase in portfolio credit risk, the fund con
tinues to maintain a solid, investment-grade average credit quality.
Two Ways You May Seek to Invest for Success:
INITIAL INVESTMENT:
IF YOU HAD MADE AN INITIAL INVESTMENT OF $8,000 IN THE CLASS A SHARES OF FED
ERATED LIMITED TERM FUND ON 1/13/92, REINVESTED YOUR DIVIDENDS AND CAPITAL
GAINS, AND DID NOT REDEEM ANY SHARES, YOUR ACCOUNT WOULD HAVE BEEN WORTH $11,892
ON 5/31/99. YOU WOULD HAVE EARNED A 5.52% 1 AVERAGE ANNUAL TOTAL RETURN FOR THE
INVESTMENT LIFE SPAN.
One key to investing wisely is to reinvest all distributions in fund shares.
This increases the number of shares on which you can earn future dividends, and
you gain the benefit of compounding.
As of 6/30/99, the Class A Shares' 1-year, 5-year, and since inception (1/13/92)
average annual total returns were 2.21%, 5.78%, and 5.48%, respec tively. Class
F Shares' 1-year, 5-year, and since inception (9/1/93) average annual total
returns were 1.36%, 5.88%, and 4.96%, respectively. 2
[Graphic representation omitted; see Appendix A.]
1 Total return represents the change in the value of an investment after
reinvesting all income and capital gains, and takes into account the 1.00% sales
charge applicable to an initial investment in Class A Shares. Data quoted
represents past performance and does not guarantee future results. Investment
return and principal value will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
2 The total returns stated take into account all applicable sales charges. The
maximum sales charges and contingent deferred sales charges for the fund are as
follows: Class A Shares, 1.00% sales charge; Class F Shares, 1.00% contingent
deferred sales charge.
ONE STEP AT A TIME:
$1,000 initial investment and subsequent investments of $1,000 each year for
seven years (reinvesting all dividends and capital gains) grew to $9,795.
With this approach, the key is consistency.
If you had started investing $1,000 annually in the Class A Shares of Feder ated
Limited Term Fund on 1/13/92, reinvested your dividends and capital gains, and
did not redeem any shares, you would have invested only $8,000, but your account
would have reached a total value of $9,795 1 by 5/31/99. You would have earned
an average annual total return of 5.23%.
A practical investment plan helps you pursue income from short-term bonds.
Through systematic investing, you buy shares on a regular basis and reinvest all
earnings. An investment plan works for you when you invest only $1,000 annually.
You can take it one step at a time. Put time, money, and compound ing to work.
[Graphic representation omitted; see Appendix B.]
1 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.
Hypothetical Investor Profile: Investing for Unplanned Expenses
While most investors focus on planned financial goals, Phil and Kate Porter also
invest to help with life's unplanned expenses. On 1/13/92 they invested $10,000
in Federated Limited Term Fund to start an emergency reserve account. By
5/31/99, their account had grown to $14,865, achieving an average annual total
return of 5.52%.
Over time, they may draw on the accumulated income to pay for everything from
major car repairs to household plumbing emergencies.
With Federated Limited Term Fund, they can take comfort in the fact that they
have a reserve to help with whatever unforeseen expenses lie ahead.
[Graphic representation omitted; see Appendix C.]
This hypothetical scenario is provided for illustrative purposes only and
does not represent the result obtained by any particular shareholder. Past
performance does not guarantee future results.
Portfolio of Investments
MAY 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
ADJUSTABLE RATE MORTGAGES-
0.9%
GOVERNMENT AGENCY-0.9%
$ 595,213 1 Federal Home Loan Mortgage
Corp., ARMs, 7.01%,
9/1/2019 $ 608,790
633,294 1 Federal Home Loan Mortgage
Corp., ARMs, 7.23%,
12/1/2018 648,075
236,654 1 Federal National Mortgage
Association, ARMs, 7.08%,
12/1/2020 247,495
69,747 1 Federal National Mortgage
Association, ARMs, 7.02%,
11/1/2017 72,367
TOTAL ADJUSTABLE RATE
MORTGAGES (IDENTIFIED
COST $1,565,116) 1,576,727
ASSET-BACKED SECURITIES-45.8%
AUTOMOBILE-6.9%
604,224 AFG Receivables Trust
1997-A, Class C, 7.20%,
10/15/2002 610,834
762,067 AFG Receivables Trust
1997-B, Class C, 7.00%,
2/15/2003 771,014
1,583,198 2, 3 Paragon Auto Receivables
Owner Trust 1998-A, Class
B, 7.47%, 11/15/2004 1,573,256
1,305,958 2, 3 Paragon Auto Receivables
Owner Trust 1998-B, Class
B, 7.03%, 3/15/2005 1,287,897
944,242 Paragon Auto Receivables
Owner Trust 1999-A, Class
A, 5.95%, 11/15/2005 945,984
2,294,439 Premier Auto Trust 1995-3,
Class B, 6.25%, 8/6/2001 2,298,890
1,950,000 Team Fleet Financing Corp.
Series 1997-1, Class B,
7.80%, 5/15/2003 1,942,532
1,850,000 Yamaha Motor Master Trust
1995-1, Class A, 6.20%,
5/15/2003 1,859,944
TOTAL 11,290,351
CREDIT CARD-5.0%
1,716,892 Banco Nacional de Mexico
S.A., Credit Card Merchant
Voucher Receivables Master
Trust Series 1996-A, Class
A1, 6.25%, 12/1/2003 1,715,828
3,000,000 Bridgestone/Firestone
Master Trust 1996-1, Class
B, 6.49%, 7/1/2003 3,029,580
2,000,000 Fingerhut Master Trust
1998-2, Class A, 6.23%,
2/15/2007 1,997,400
1,400,000 Spiegel Master Trust 1994-
B, Class A, 8.15%, 6/15/2004 1,423,688
TOTAL 8,166,496
HOME EQUITY LOAN-23.1%
307,006 AFC Home Equity Loan Trust
1992-3, Class A, 7.05%,
8/15/2007 306,609
174,629 Advanta HEL Trust 1991-1,
Class A, 9.00%, 2/25/2006 174,174
1,000,000 Chase Funding Mortgage
Loan 1999-1, Class IIB,
7.69%, 6/25/2028 1,001,960
2,000,000 Cityscape Home Equity Loan
Trust 1997-1, Class M1,
7.58%, 3/25/2018 2,030,210
2,500,000 ContiMortgage Home Equity
Loan Trust 1997-1, Class B,
7.92%, 3/15/2028 2,545,225
1,500,000 ContiMortgage Home Equity
Loan Trust 1997-5, Class B,
7.62%, 1/15/2029 1,393,590
924,000 Countrywide Asset-Backed
Certificates 1999-1, Class
BF, 8.84%, 1/25/2029 926,361
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
ASSET-BACKED SECURITIES-
CONTINUED
HOME EQUITY LOAN-CONTINUED
$ 1,000,000 Countrywide Asset-Backed
Certificates 1999-1, Class
BV, 7.69%, 2/25/2029 $ 978,700
300,000 EQCC Home Equity Loan Trust
1995-4, Class A4, 6.95%,
3/15/2012 301,218
901,636 Green Tree Home Equity Loan
Trust 1999-A, Class B2A,
7.44%, 2/15/2029 901,636
3,500,000 Green Tree Home
Improvement Loan Trust
1997-A, Class HE6, 7.16%,
3/15/2028 3,520,545
2,000,000 Green Tree Home
Improvement Loan Trust
1997-C, Class B2, 7.59%,
8/15/2028 1,931,320
698,980 Headlands Home Equity Loan
Trust 1998-2, Class A3,
6.67%, 12/15/2024 690,243
1,500,000 2, 3 125 Home Loan Owner Trust
1998-1A, Class B-2,
12.16%, 2/15/2029 1,282,035
1,096,720 Independent National
Mortgage Corp. Home Equity
1997-A, Class BF,
7.39%, 10/25/2028 1,051,820
4,000,967 2, 3 Merrill Lynch Mortgage
Investors, Inc. 1998-FF3,
Class BB, 5.50%,
11/20/2029 3,865,934
1,000,000 Merrill Lynch Mortgage
Investors, Series 1993-C,
Class A4, 6.50%, 3/15/2018 1,005,300
964,645 NC Finance Trust 1999-1,
Class B, 8.75%, 2/1/2017 941,137
775,000 New Century Home Equity
Loan Trust 1997-NC5, Class
B, 7.59%, 10/25/2028 711,791
3,000,000 Salomon Brothers Mortgage
Sec. VII 1998-NC1, Class
M3, 6.16%, 3/30/2028 2,838,750
3,000,000 Salomon Brothers Mortgage
Sec., Series 1999-3, Class
M3, 8.15%, 5/25/2029 3,018,750
1,926,000 Salomon Brothers Mortgage
Sec., Series 1999-NC2,
Class M3, 8.16%, 4/25/2029 1,921,185
2,749,000 2, 3 Saxon Asset Securities
Trust 1998-1, Class BF2,
8.00%, 12/25/2027 2,450,898
1,000,000 Saxon Asset Securities
Trust 1999-1, Class BV1,
7.68%, 2/25/2029 1,002,460
852,000 Saxon Asset Securities
Trust 1999-2, Class BV1,
8.31%, 9/25/2001 869,355
204,554 The Money Store Home Equity
Trust 1992-B, Class A,
6.90%, 7/15/2007 204,287
TOTAL 37,865,493
MANUFACTURED HOUSING-6.3%
750,000 Green Tree Financial Corp.
1995-3, Class B1, 7.85%,
8/15/2025 751,762
1,250,000 Green Tree Financial Corp.
1996-2, Class B-1, 7.55%,
4/15/2027 1,245,363
2,250,000 Green Tree Financial Corp.
1997-3, Class B1, 7.51%,
7/15/2028 2,164,500
1,000,000 Green Tree Home
Improvement Loan Trust
1995-C, Class B1, 7.20%,
7/15/2020 998,830
2,200,000 Green Tree Home
Improvement Loan Trust
1996-F, Class HI2, 7.70%,
11/15/2027 2,114,838
2,000,000 Merit Securities Corp. 12,
Class 1, 7.98%, 7/28/2033 1,921,260
530,136 Oakwood Mortgage
Investors, Inc. 1995-B,
Class A2, 6.45%, 1/15/2021 532,580
500,000 Vanderbilt Mortgage
Finance 1999-A, Class 2B2,
7.5375%, 6/7/2016 500,600
TOTAL 10,229,733
MARINE RECEIVABLES-1.3%
930,814 CBNJ Boat Loan Trust 1994-
1, Class A, 6.89%,
5/18/2012 944,917
1,134,566 NationsCredit Grantor
Trust 1997-1, Class A,
6.75%, 8/15/2013 1,148,759
TOTAL 2,093,676
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
ASSET-BACKED SECURITIES-
CONTINUED
OTHER-3.2%
$ 1,715,517 Advanta Equipment
Receivables 1998-1, Class
C, 6.49%, 12/15/2006 $ 1,709,950
613,406 1, 2, 3 Bosque Asset Corp., Series
1, Class 1, 7.66%, 6/5/2002 613,406
1,944,928 Case Equipment Loan Trust
1999-A, Class B, 8/15/2005 1,922,629
325,000 Centerior Energy
Receivables Master Trust
1996-1, Class A, 7.20%,
4/15/2002 328,201
180,000 Copelco Capital Funding
Trust 1998-A, Class A3,
5.78%, 8/15/2001 180,339
3,620,817 2, 3 FMAC Loan Receivables
Trust 1997-A, Class A-X,
2.77%, 4/15/2019 418,675
TOTAL 5,173,200
TOTAL ASSET-BACKED
SECURITIES (IDENTIFIED
COST $75,858,824) 74,818,949
COLLATERALIZED MORTGAGE
OBLIGATIONS-18.7%
COMMERCIAL MORTGAGE-1.3%
3,911,755 First Union Lehman
Brothers Commercial
Mortgage Trust, Series
1997C1, Class IO, 1.31%,
4/18/2027 246,714
1,900,000 1, 2, 3 K Mart CMBS Financing,
Inc., Series 1997-1, Class
D, 6.00%, 3/1/2007 1,862,370
TOTAL 2,109,084
GOVERNMENT AGENCY-0.5%
812,556 Federal Home Loan Mortgage
Corp., Series 1686, Class
PK, 5.00%, 4/15/2023 805,560
WHOLE LOAN-16.9%
891,172 Bayview Financial
Acquisition Trust, Series
1998-1, Class MI3, 8.21%,
5/25/2029 782,003
971,247 Bear Stearns Mortgage
Securities, Series 1996-8,
Class B3, 8.00%,
11/25/2027 961,205
1,399,598 CMSI Series 1992-18, Class
A-1, 6.44%, 11/25/2022 1,423,828
677,728 Countrywide Home Loans,
Series 1997-5, Class A-3,
7.50%, 9/25/2027 677,382
295,673 2, 3 GE Capital Mortgage Services, Inc., Series 1994-3,
Class B4, 6.50%,
1/25/2024 210,667
687,484 GE Capital Mortgage
Services, Inc., Series
1998-11, Class 1A1, 6.75%,
6/25/2028 689,144
203,276 2, 3 Greenwich Capital
Acceptance, Inc.
Subordinate Mortgage
Securities Trust,
Series 1996-A, Class B,
7.59%, 6/15/2019 194,891
2,815,403 Headlands Mortgage
Securities Inc., Series
1997-3, Class B3, 7.75%,
3/25/2027 2,771,215
2,400,000 Homeside Mortgage
Securities, Inc., Series
1998-1, Class A2, 6.75%,
2/25/2028 2,349,300
1,535,000 Mellon Residential Funding
Corp., Series 1998-TBC1,
Class B3, 6.59%,
10/25/2028 1,445,064
535,000 2 Mellon Residential Funding
Corp., Series 1998TBC1,
Class B4, 6.59%,
10/25/2028 398,409
353,933 Norwest Asset Securities
Corp., Series 1996-4,
Class A14, 7.20%,
9/25/2026 354,163
984,201 Norwest Asset Securities
Corp., Series 1997-10,
Class A4, 7.00%, 8/25/2027 973,877
1,235,159 Norwest Asset Securities
Corp., Series 1998-6,
Class A9, 6.90%, 4/25/2028 1,221,704
4,783,714 PNC Mortgage Securities
Corp., Series 1997-2,
Class B1, 7.50%, 3/25/2027 4,767,928
1,393,131 Resecuritization Mortgage
Trust, Series 1998-A,
Class B3, 7.90%,
10/26/2023 1,182,420
2,000,000 Residential Accredit
Loans, Inc., Series 1997-
QS12, Class A6, 7.25%,
11/25/2027 2,012,220
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
COLLATERALIZED MORTGAGE
OBLIGATIONS-CONTINUED
WHOLE LOAN-CONTINUED
$ 1,000,000 Residential Asset
Securitization Trust,
Series 1997-A7, Class A5,
7.50%, 9/25/2027 $ 1,011,500
2,500,000 Residential Funding
Mortgage Securities Inc.,
Series 1996-S1, Class A11,
7.10%, 1/25/2026 2,519,375
489,463 Residential Funding
Mortgage Securities Inc.,
Series 1996-S25, Class M3,
7.75%, 12/25/2026 487,446
1,380,370 2 SMFC Trust Asset-Backed
Certificates, Series 1997-
A, Class 4, 7.72%,
1/28/2025 1,183,667
TOTAL 27,617,408
TOTAL COLLATERALIZED
MORTGAGE OBLIGATIONS
(IDENTIFIED COST $30,759,447) 30,532,052
CORPORATE BONDS-20.4%
AEROSPACE & DEFENSE-1.1%
1,800,000 Raytheon Co., Note, 6.45%,
8/15/2002 1,806,372
AUTOMOBILE-1.1%
1,800,000 Arvin Industries, Inc.,
Note, 6.875%, 2/15/2001 1,801,602
BANKING-3.1%
3,000,000 1 Chase Manhattan Corp.,
Sub. Note, 5.25%,
12/5/2009 2,850,921
1,000,000 Mercantile Bancorporation,
Inc., 6.80%, 6/15/2001 1,011,870
1,100,000 Riggs National Corp., Sub.
Note, 8.50%, 2/1/2006 1,132,450
TOTAL 4,995,241
CABLE TELEVISION-1.8%
2,800,000 TKR Cable, Inc., Deb.,
10.50%, 10/30/2007 3,013,052
FINANCE - RETAIL-0.8%
1,350,000 Advanta Corp., Medium Term
Note, 6.90%, 8/4/1999 1,347,813
FINANCIAL INTERMEDIARIES-1.8%
1,000,000 Donaldson, Lufkin and
Jenrette Securities Corp.,
Sr. Note, 5.875%, 4/1/2002 987,170
2,000,000 Lehman Brothers Holdings,
Inc., Medium Term Note,
6.375%, 3/15/2001 1,998,520
TOTAL 2,985,690
FINANCIAL SERVICES-0.7%
1,200,000 AT&T Capital Corp., Medium
Term Note, 6.16%, 12/3/1999 1,204,608
FOOD & DRUG RETAILERS-0.9%
1,500,000 Great Atlantic & Pacific
Tea Co., Inc., Global Bond
Deb., 7.70%, 1/15/2004 1,487,100
FOREST PRODUCTS-0.7%
1,000,000 Quno Corp., Sr. Note,
9.13%, 5/15/2005 1,061,470
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
CORPORATE BONDS-CONTINUED
INDUSTRIAL PRODUCTS &
EQUIPMENT-1.0%
$ 1,600,000 Figgie International
Holdings, Inc., Sr. Note,
9.88%, 10/1/1999 $ 1,617,584
INSURANCE-1.9%
250,000 Conseco, Inc., Note,
6.40%, 2/10/2003 241,540
2,000,000 GEICO Corp., Deb., 9.15%,
9/15/2021 2,203,700
750,000 HSB Group, Inc., Company
Guarantee, 5.91%, 7/15/2027 723,900
TOTAL 3,169,140
METALS & MINING-0.8%
1,500,000 Inco Ltd., Conv. Bond,
5.75%, 7/1/2004 1,359,375
OIL & GAS-0.8%
1,250,000 Occidental Petroleum
Corp., Note, 8.50%,
9/15/2004 1,261,025
PRINTING & PUBLISHING-0.7%
980,000 Valassis Communications,
Inc., Sr. Note, 9.55%,
12/1/2003 1,070,062
RETAILERS-0.9%
1,450,000 Shopko Stores, Inc.,
8.50%, 3/15/2002 1,508,740
TELECOMMUNICATIONS &
CELLULAR-0.6%
1,000,000 PanAmSat Corp., Note,
6.00%, 1/15/2003 962,150
UTILITIES-1.7%
1,250,000 2 Camuzzi Gas, Bond, 9.25%,
12/15/2001 1,215,625
1,400,000 Pennsylvania Power & Light
Co., 9.25%, 10/1/2019 1,474,676
TOTAL 2,690,301
TOTAL CORPORATE BONDS
(IDENTIFIED COST
$33,540,743) 33,341,325
MORTGAGE BACKED
SECURITIES-1.3%
GOVERNMENT AGENCY-1.3%
1,045,789 Federal Home Loan Mortgage
Corp., 6.00%, 4/1/2003 1,039,577
1,090,067 Government National
Mortgage Association,
8.50%, 8/15/2026 1,150,359
TOTAL MORTGAGE BACKED
SECURITIES (IDENTIFIED
COST $2,139,843) 2,189,936
FOREIGN GOVERNMENTS/AGENCI
ES-2.2%
2,460,000 Brazil, Government of,
IDU, 6.06%, 1/1/2001 2,309,325
1,350,000 Export-Import Bank Korea,
7.10%, 3/15/2007 1,285,767
TOTAL
FOREIGN GOVERNMENTS/AGENC
IES (IDENTIFIED COST
$3,517,566) 3,595,092
U.S. TREASURY OBLIGATIONS-6.1%
U.S. TREASURY NOTE-6.1%
1,000,000 5.25%, 5/15/2004 986,090
2,000,000 5.50%, 5/15/2009 1,982,180
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
U.S. TREASURY OBLIGATIONS-
CONTINUED
U.S. TREASURY NOTE-
CONTINUED
$ 4,000,000 5.75%, 11/15/2000 $ 4,023,280
2,800,000 7.50%, 11/15/2001 2,922,024
TOTAL U.S. TREASURY
OBLIGATIONS (IDENTIFIED
COST $10,022,216) 9,913,574
MUTUAL FUND-1.2%
210,735 The High Yield Bond
Portfolio (IDENTIFIED COST
$2,004,103) 1,947,195
REPURCHASE AGREEMENT-3.6% 4
5,830,000 Bear, Stearns and Co.,
4.93%, dated 5/28/1999,
due 6/1/1999
(AT AMORTIZED COST) 5,830,000
TOTAL INVESTMENTS
(IDENTIFIED COST
$165,237,858) 5 $ 163,744,850
</TABLE>
1 Denotes variable rate and floating rate obligations for which the current rate
is shown.
2 Denotes a restricted security which is subject to restrictions on resale under
federal securities laws. At May 31, 1999, these securities amounted to
$16,557,730 which represents 10.1% of net assets. Included in these amounts,
securities which have been deemed liquid amounted to $13,760,029 which
represents 8.4% of net assets.
3 Denotes a restricted security that has been deemed liquid by criteria approved
by the fund's board of directors.
4 The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated Funds.
5 The cost of investments for federal tax purposes amounts to $165,237,858. The
net unrealized depreciation of investments on a federal tax basis amounts to
($1,493,008) which is comprised of $648,116 appreciation and $2,141,124
depreciation at May 31, 1999.
Note: The categories of investments are shown as a percentage of net assets
($163,358,028) at May 31, 1999.
The following acronyms are used throughout this portfolio:
ARMs -Adjustable Rate Mortgages
IO -Interest Only
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
MAY 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in
securities, at value
(identified and tax cost
$165,237,858) $ 163,744,850
Cash 404,954
Income receivable 1,637,306
Receivable for shares sold 238,875
TOTAL ASSETS 166,025,985
LIABILITIES:
Payable for investments
purchased $ 1,334,443
Payable for shares
redeemed 488,071
Income distribution
payable 783,165
Accrued expenses 62,278
TOTAL LIABILITIES 2,667,957
Net assets for 16,824,548
shares outstanding $ 163,358,028
NET ASSETS CONSIST OF:
Paid in capital $ 176,252,541
Net unrealized
depreciation of
investments (1,493,008)
Accumulated net realized
loss on investments (11,274,754)
Distributions in excess of
net investment income (126,751)
TOTAL NET ASSETS $ 163,358,028
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PROCEEDS PER SHARE
CLASS A SHARES:
Net Asset Value Per Share
($149,156,753 / 15,361,856
shares outstanding) $9.71
Offering Price Per Share
(100/99.00 of $9.71) 1 $9.81
Redemption Proceeds Per
Share $9.71
CLASS F SHARES:
Net Asset Value Per Share
($14,201,275 / 1,462,692
shares outstanding) $9.71
Offering Price Per Share
(100/99.00 of $9.71) 1 $9.81
Redemption Proceeds Per
Share (99.00/100 of $9.71) 2 $9.61
</TABLE>
1 See "What Do Shares Cost?" in the Prospectus.
2 See "Contingent Deferred Sales Charge" in the Prospectus.
See Notes which are an integral part of the Financial Statements
Statement of Operations
SIX MONTHS ENDED MAY 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 20,039
Interest 4,574,438
TOTAL INCOME 4,594,477
EXPENSES:
Investment advisory fee $ 270,170
Administrative personnel
and services fee 77,288
Custodian fees 5,335
Transfer and dividend
disbursing agent fees and
expenses 59,303
Directors'/Trustees' fees 1,985
Auditing fees 7,355
Legal fees 1,476
Portfolio accounting fees 29,524
Distribution services fee-
Class A Shares 306,543
Distribution services fee-
Class F Shares 10,147
Shareholder services fee-
Class A Shares 153,241
Shareholder services fee-
Class F Shares 16,912
Share registration costs 25,244
Printing and postage 18,938
Insurance premiums 1,278
Taxes 4,694
Miscellaneous 5,472
TOTAL EXPENSES 994,905
WAIVERS:
Waiver of investment
advisory fee $ (66,064)
Waiver of distribution
services fee-Class A
Shares (183,926)
Waiver of distribution
services fee-Class F
Shares (1,353)
Waiver of shareholder
services fee-Class F
Shares (2,030)
TOTAL WAIVERS (253,373)
Net expenses 741,532
Net investment income 3,852,945
REALIZED AND UNREALIZED
LOSS ON INVESTMENTS:
Net realized loss on
investments (533,380)
Net change in unrealized
depreciation of
investments (921,173)
Net realized and
unrealized loss on
investments (1,454,553)
Change in net assets
resulting from operations $ 2,398,392
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
(unaudited) ENDED
MAY 31, NOVEMBER 30,
1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS:
Net investment income $ 3,852,945 $ 7,110,653
Net realized loss on investments and foreign currency transactions ($(533,380)
and $(261,311), respectively, as computed for federal tax
purposes) (533,380) (429,507)
Net change in unrealized
depreciation of
investments and
translation of assets and
liabilities in foreign
currency (921,173) (1,185,198)
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS 2,398,392 5,495,948
DISTRIBUTIONS TO
SHAREHOLDERS:
Distributions from net
investment income
Class A Shares (3,649,257) (6,461,966)
Class F Shares (413,966) (675,733)
CHANGE IN NET ASSETS
RESULTING FROM
DISTRIBUTIONS
TO SHAREHOLDERS (4,063,223) (7,137,699)
SHARE TRANSACTIONS:
Proceeds from sale of
shares 88,459,961 109,049,243
Net asset value of shares
issued to shareholders in
payment of
distributions declared 2,427,621 4,948,741
Cost of shares redeemed (40,435,530) (101,544,061)
CHANGE IN NET ASSETS
RESULTING FROM SHARE
TRANSACTIONS 50,452,052 12,453,923
Change in net assets 48,787,221 10,812,172
NET ASSETS:
Beginning of period 114,570,807 103,758,635
End of period (including
distributions in excess of
net investment income and
undistributed net
investment income of
$(126,751) and $83,527,
respectively) $ 163,358,028 $ 114,570,807
</TABLE>
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class A Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
MAY 31, YEAR ENDED NOVEMBER 30,
1999 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 9.82 $ 9.95 $ 9.91 $ 9.97 $ 9.48 $10.17
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income 0.27 0.60 0.59 0.59 0.55 0.53
Net realized and
unrealized gain (loss) on
investments and foreign
currency (0.09) (0.13) 0.04 (0.06) 0.49 (0.66)
TOTAL FROM
INVESTMENT OPERATIONS 0.18 0.47 0.63 0.53 1.04 (0.13)
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.29) (0.60) (0.59) (0.59) (0.55) (0.53)
Distributions in excess of
net investment income 1 - - - - - (0.02)
Distributions from net
realized gain
on investments - - - - - (0.01)
TOTAL DISTRIBUTIONS (0.29) (0.60) (0.59) (0.59) (0.55) (0.56)
NET ASSET VALUE, END OF
PERIOD $ 9.71 $ 9.82 $ 9.95 $ 9.91 $ 9.97 $ 9.48
TOTAL RETURN 2 1.90% 4.81% 6.52% 5.54% 11.29% (1.30%)
RATIOS TO AVERAGE NET
ASSETS:
Expenses 3 1.50% 4 1.57% 1.59% 1.66% 1.53% 1.49%
Net investment income 3 5.30% 4 5.55% 5.41% 5.48% 5.70% 5.13%
Expenses (after waivers) 1.10% 4 1.10% 1.10% 1.10% 1.10% 1.10%
Net investment income
(after waivers) 5.70% 4 6.02% 5.90% 6.04% 6.13% 5.52%
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $149,157 $101,213 $94,952 $116,174 $138,451 $178,771
Portfolio turnover 6% 93% 62% 104% 63% 63%
</TABLE>
1 Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These dis tributions
do not represent a return of capital for federal income tax pur poses.
2 Based on net asset value, which does not reflect the sales charge or con
tingent deferred sales charge, if applicable.
3 During the period, certain fees were voluntarily waived. If such waivers had
not occurred, the ratios would have been as indicated.
4 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class F Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
MAY 31, YEAR ENDED NOVEMBER 30,
1999 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 9.82 $ 9.95 $ 9.91 $ 9.97 $ 9.48 $10.17
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income 0.28 0.61 0.60 0.66 0.61 0.55
Net realized and
unrealized gain (loss) on
investments and foreign
currency (0.09) (0.13) 0.04 (0.12) 0.44 (0.67)
TOTAL FROM
INVESTMENT OPERATIONS 0.19 0.48 0.64 0.54 1.05 (0.12)
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.30) (0.61) (0.60) (0.60) (0.56) (0.55)
Distributions in excess of
net investment income 1 - - - - - (0.01)
Distributions from net
realized gain
on investments - - - - - (0.01)
TOTAL DISTRIBUTIONS (0.30) (0.61) (0.60) (0.60) (0.56) (0.57)
NET ASSET VALUE, END OF
PERIOD $ 9.71 $ 9.82 $ 9.95 $ 9.91 $ 9.97 $ 9.48
TOTAL RETURN 2 1.95% 4.91% 6.63% 5.64% 11.39% (1.20%)
RATIOS TO AVERAGE NET
ASSETS:
Expenses 3 1.15% 4 1.22% 1.24% 1.31% 1.18% 1.12%
Net investment income 3 5.64% 4 5.87% 5.76% 5.83% 6.04% 5.54%
Expenses (after waivers) 1.00% 4 1.00% 1.00% 1.00% 1.00% 0.99%
Net investment income
(after waivers) 5.79% 4 6.09% 6.00% 6.14% 6.22% 5.67%
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $14,201 $13,358 $8,807 $8,938 $10,183 $13,145
Portfolio turnover 6% 93% 62% 104% 63% 63%
</TABLE>
1 Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These dis tributions
do not represent a return of capital for federal income tax pur poses.
2 Based on net asset value, which does not reflect the sales charge or con
tingent deferred sales charge, if applicable.
3 During the period, certain fees were voluntarily waived. If such waivers had
not occurred, the ratios would have been as indicated.
4 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
MAY 31, 1999 (UNAUDITED)
ORGANIZATION
Fixed Income Securities, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end, man
agement investment company. The Corporation consists of three portfolios. The
financial statements included herein are only those of Federated Limited Term
Fund (the "Fund"), a diversified portfolio. The financial statements of the
other portfolios are presented separately. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held. The Fund offers two classes of shares: Class A Shares and Class
F Shares. The investment objective of the Fund is to seek a high level of
current income consistent with minimum fluctuation in principal value through
compilation of a portfolio, the weighted average duration which will at all
times be limited to three years.
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 60 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 posses sion,
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 repur chase agreement
transaction.
The Fund will only enter into repurchase agreements with banks and other rec
ognized financial institutions, such as broker/dealers, which are deemed by the
Fund's adviser to be creditworthy pursuant to the guidelines and/or stan dards
reviewed or established by the Board of Directors (the "Directors"). Risks may
arise from the potential inability of counterparties to honor the terms of the
repurchase agreement. Accordingly, the Fund could receive less than the
repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex- dividend
date.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary.
At 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 carryfor ward will expire
as follows:
<TABLE>
<CAPTION>
EXPIRATION YEAR EXPIRATION AMOUNT
<S> <C>
2002 $ 97,949
2003 1,407,407
2004 8,964,278
2006 261,311
</TABLE>
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security posi
tions 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 cur rency
and any gains or losses are recorded for financial statement purpose as
unrealized until the settlement date. At May 31, 1999, the Fund did not have any
outstanding foreign currency commitments.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. All assets
and liabilities denominated in foreign currencies ("FC") are translated into
U.S. dollars based on the rate of exchange of such currencies against U.S.
dollars on the date of valuation. Purchases and sales of securities, income and
expenses are translated at the rate of exchange quoted on the respective date
that such transactions are recorded. Differences between income and expense
amounts recorded and collected or paid are adjusted when reported by the
custodian bank. The Fund does not isolate that portion of the results of
operations resulting from changes in foreign exchange rates on investments from
the fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales of
FCs, currency gains or losses realized between the trade and settlement dates on
securities transactions, the difference between the amounts of div idends,
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 registra tion
under federal securities laws or in transactions exempt from such regis tration.
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 sec ondary market or, if no
market prices are available, at the fair value as determined by the Fund's
pricing committee.
Additional information on each restricted security held at May 31, 1999 is as
follows:
<TABLE>
<CAPTION>
ACQUISITION ACQUISITION
SECURITY DATE COST
<S> <C> <C>
Camuzzi Gas 3/24/1998 $1,290,515
Mellon Residential Funding Corp. 12/16/1998 412,702
SMFC Trust Asset-Backed Certificates 2/4/1998-2/5/1998 1,262,607
</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 rev enues reported in
the financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
CAPITAL STOCK
At May 31, 1999, par value shares ($0.001 per share) authorized were as fol
lows:
<TABLE>
<CAPTION>
NUMBER OF PAR
VALUE CAPITAL STOCK
CLASS NAME AUTHORIZED
<S> <C>
Class A Shares 1,000,000,000
Class F Shares 1,000,000,000
TOTAL 2,000,000,000
</TABLE>
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1999 NOVEMBER 30, 1998
CLASS A SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 8,884,713 $ 86,853,659 10,264,365 $ 102,225,706
Shares issued to
shareholders in payment of
distributions declared 222,426 2,174,311 452,841 4,501,648
Shares redeemed (4,048,483) (39,569,935) (9,957,718) (99,008,742)
NET CHANGE RESULTING FROM
CLASS A
SHARE TRANSACTIONS 5,058,656 $ 49,458,035 759,488 $ 7,718,612
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1999 NOVEMBER 30, 1998
CLASS F SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 164,446 $ 1,606,302 684,999 $ 6,823,537
Shares issued to
shareholders in payment of
distributions declared 25,905 253,310 45,010 447,093
Shares redeemed (88,488) (865,595) (254,344) (2,535,319)
NET CHANGE RESULTING FROM
CLASS F
SHARE TRANSACTIONS 101,863 $ 994,017 475,665 $ 4,735,311
NET CHANGE RESULTING FROM
SHARE TRANSACTIONS 5,160,519 $ 50,452,052 1,235,153 $ 12,453,923
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Investment Management Company, 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 Administra tive 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 Fed erated
Securities Corp. ("FSC"), the principal distributor, of the Fund to finance
activities intended to result in the sale of the Corporation's Class A Shares
and Class F Shares. The Plan provides that the Fund may incur dis tribution
expenses according to the following schedule annually, to compen sate FSC.
<TABLE>
<CAPTION>
PERCENTAGE OF
AVERAGE DAILY NET
SHARE CLASS NAME ASSETS OF CLASS
<S> <C>
Class A Shares 0.50%
Class F Shares 0.15%
</TABLE>
FSC may voluntarily choose to waive any portion of its fee. FSC can modify or
terminate this voluntary waiver at any time at its sole discretion.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Share holder
Services Company ("FSSC"), the Fund will pay FSSC up to 0.25% of aver age 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 share holder 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 disburs ing
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.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities (and in-kind
contributions), for the period ended May 31, 1999, were as follows:
<TABLE>
<CAPTION>
<S> <C>
Purchases $75,878,507
Sales $ 8,030,313
</TABLE>
YEAR 2000
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and Administrator are taking mea sures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
Directors
JOHN F. DONAHUE
THOMAS G. BIGLEY
JOHN T. CONROY, JR.
NICHOLAS P. CONSTANTAKIS
WILLIAM J. COPELAND
LAWRENCE D. ELLIS, M.D.
RICHARD B. FISHER
EDWARD L. FLAHERTY, JR., ESQ.
PETER E. MADDEN
CHARLES F. MANSFIELD, JR.
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
C. GRANT ANDERSON
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 gov
ernment agency. Investment in mutual funds involves investment risk, includ ing
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 con
cerning its objective and policies, management fees, expenses, and other
information.
[Graphic]
Federated
World-Class Investment Manager
SEMI-ANNUAL REPORT
AS OF MAY 31, 1999
Federated Limited Term Fund
Established 1991
8TH SEMI-ANNUAL REPORT
[Graphic]
Federated
Federated Limited Term Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Cusip 338319106
Cusip 338319304
3070201 (7/99)
[Graphic]
SEMI-ANNUAL REPORT
[Graphic]
RICHARD B. FISHER
President
Federated Limited Term Municipal Fund
President's Message
Dear Shareholder:
Federated Limited Term Municipal Fund was created in 1993, and I am pleased to
present its sixth Semi-Annual Report. As of May 31, 1999, the fund's assets
totaled $143 million and were invested in 95 tax-free issues. These tax-free
bonds have an average maturity of under 3.5 years and on average, hold an "A"
rating. 1
This report covers the first half of the fund's fiscal year, which is the
six-month reporting period from December 1, 1998 through May 31, 1999. It begins
with an interview with the fund's portfolio manager, Jeff A. Kozem chak, Senior
Vice President of Federated Investment Management Company. Fol lowing his
discussion are three additional items of shareholder interest. First is a series
of graphs showing the fund's long-term investment perfor mance. Second is a
complete listing of the fund's holdings, and third is the publication of the
fund's financial statements.
The fund pursues attractive tax-free income through a portfolio of short-term
municipal bonds, and the fund's yield is targeted between the rates of tax-free
money market fund instruments and longer term municipal bonds. As a result, it
can offer more income than money market instruments, but less income than
long-term, tax-free municipal bonds. 2
Individual share class total return performance for the six-month reporting
period, including income distributions, follows. 3
TOTAL INCOME NET ASSET
RETURN DISTRIBUTIONS VALUE CHANGE
Class A Shares 1.36% $0.19 $9.86 to $9.80 = (0.6%)
Class F Shares 1.49% $0.21 $9.86 to $9.80 = (0.6%)
1 Income may be subject to the federal alternative minimum tax and state and
local taxes.
2 Unlike the fund, money market funds seek to maintain a stable $1.00 share
value.
3 Performance quoted is based on net asset value, represents past perfor mance
and is not indicative of future results. Investment return and prin cipal 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
0.34% and 0.49%, respectively.
During the reporting period, which was marked by rising rates, the fund per
formed relatively well. Income distributions accounted for the fund's total
return performance, which was greater than the 1.21% return of the Lipper
Short-Term Municipal Debt Funds Average. 4
As of May 31, 1999, the fund's $143 million broadly diversified portfolio owned
106 municipal securities, which included bonds issued for hospitals,
single-family housing authorities, electricity revenue, and resource recov ery
bonds.
Thank you for choosing Federated Limited Term Municipal Fund as a relatively
conservative way to pursue tax-free income from short-term municipal issues.
Remember, reinvesting your monthly dividends and adding to your account on a
regular basis are two convenient ways to gain the benefit of compounding. 5
As always, we welcome your comments and suggestions.
Sincerely,
[Graphic]
Richard B. Fisher
President
July 15, 1999
4 Lipper figures represent the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as fall ing into
the category indicated. These figures do not take sales charges into account.
5 Systematic investing does not ensure a profit or protect against loss in
declining markets.
[Graphic]
JEFF A. KOZEMCHAK, CFA
Senior Vice President
Federated Investment Management Company
Investment Review
WHAT IS YOUR REVIEW OF THE SHORT-TERM MUNICIPAL BOND MARKET OVER THE FIRST HALF
OF THE FUND'S FISCAL YEAR?
The short-term municipal bond market performed well over the six-month reporting
period ended May 31, 1999. The short-term municipal bond market and the fund
continued to deliver an attractive income advantage, compared to money market
securities, while sustaining relative price protection ver sus intermediate-term
and long-term bond funds.
The U.S. economy remained robust over the reporting period, showing contin ued
strength in the fourth quarter of 1998 and in the first quarter of 1999. At the
same time, overall inflationary pressures remained mostly absent in spite of
impressive performance from the economy and historically low unem ployment.
However, sustained growth in aggregate demand continued to stretch the labor
markets, and the potential for future inflation clearly is a con cern of the
Federal Reserve Board (the "Fed"). Over most of the reporting period, the Fed
maintained a neutral policy stance toward the direction of short-term interest
rates (Federal Funds Target Rate). In May 1999, this bias changed, as April's
Consumer Price Index rate was much larger than expected, and the Fed adopted a
tightening bias, or bias for higher rates in the future. The Fed cited the
strong U.S. economy in conjunction with record employment levels, the
improvement in foreign economic prospects, and rebounding domestic financial
markets. Clearly, the Fed intends to be preemp tive in raising short-term
interest rates to slow demand and the potential for future inflation.
Interest rates in the short-term municipal bond market reflected the change in
the fixed-income market's bias. Over the reporting period, short-term municipal
bond yields rose 20 basis points (0.20%) for one-year securities and 25 basis
points (0.25%) for five-year securities. [Note: Interest rates continued to rise
in June 1999, as the Fed increased the Federal Funds Target Rate by 25 basis
points to 5.00%. The bond market now expects one or more additional tightenings
by year-end.]
HOW DID FEDERATED LIMITED TERM MUNICIPAL FUND PERFORM DURING THE SIX-MONTH
REPORTING PERIOD ENDED MAY 31, 1999?
The fund continued to perform well over the six-month reporting period on both a
total return and income basis. Investors in the fund's Class A Shares received a
total return of 1.36%, based on net asset value, and investors in the fund's
Class F Shares received a total return of 1.49%, based on net asset value. 1
These results exceeded the 1.21% average return for the 31 funds in its peer
group, the Lipper Short-Term Municipal Debt Funds Average.
WHAT LEVEL OF INCOME DID THE FUND DELIVER TO ITS TAX-SENSITIVE SHAREHOLDERS?
For the six-month reporting period, the fund's tax-exempt income totaled $0.19
per share for Class A Shares and $0.21 per share for Class F Shares. These
income levels correspond to annualized tax-exempt distribution rates of 3.94%
and 4.19% for investors in Class A and F Shares, respectively.
Also, as of May 31, 1999, the fund posted 30-day distribution rates, based on
net asset value, of 3.84% for Class A Shares and 4.09% for Class F Shares. These
rates are equivalent to taxable distribution rates of 6.35% for Class A Shares
and 6.77% for Class F Shares, assuming a top marginal tax rate of 39.60%. 2 The
30-day SEC yields, based on net asset value, for Class A and F Shares were 3.60%
and 3.84%, respectively.3
WHAT DO YOU FORESEE FOR THE REST OF 1999, AND HOW HAVE YOU STRUCTURED THE FUND'S
PORTFOLIO AS A RESULT?
In June 1999, the Fed clearly flashed the warning signals that the pace of
economic growth over the past three years is unsustainable without inevitably
leading to wage and price pressures in the future. If the Fed wishes to slow the
U.S. economy to a pace more in line with the growth in the labor force and in
productivity, then multiple tightenings may be necessary. With this in mind, we
continue to shorten the duration and average maturity of the fund relative to
our neutral benchmarks so as to minimize the impact of higher interest rates on
the net asset value of the fund.
We also continue to utilize new cash inflows into the fund to purchase
attractive seven-day floating rate paper that is responsive to interest rate
movements with coupon adjustments every seven days. As always, we will con tinue
to watch market developments with great interest, in order to best serve our
municipal investors.
1 Performance quoted is based on net asset value, represents past performance
and is not indicative of future results. Investment return and principal value
will fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost. Total returns for the report ing period, based on
offering price (i.e., less any applicable sales charge), for Class A and F
Shares were 0.39% and 0.49%, respectively.
2 The 30-day distribution rate reflects actual distributions made to share
holders. It is calculated by dividing the monthly annualized dividend plus
short-term capital gains, if any, by the average 30-day offering price. The
30-day distribution rate, based on offering price (i.e., less any applica ble
sales charge), for Class A Shares was 3.80%. The taxable distribution rate for
Class A Shares, based on offering price (i.e., less any applicable sales
charge), was 6.29%.
3 The 30-day SEC yield is calculated by dividing the net investment income per
share for the prior 30 days by the maximum offering price per share on that
date. The figure is compounded and annualized. The 30-day SEC yield, based on
offering price (i.e., less any applicable sales charge), for Class A Shares was
3.56%.
Bond Investing Terms
MUNICIPAL BOND. A security issued by a state or local government entity to help
finance a wide range of projects for public benefit, such as industrial
development, highways, hospitals, and schools. The investment income of a
municipal bond is generally exempt from federal income tax and from income tax
imposed by the state in which the bond is issued. Municipal bonds are rated for
quality by national rating organizations (see "Investment-Grade Bonds" below).
MATURITY. The amount of time in which a bond's principal becomes due.
COUPON. The interest rate on a bond that the issuer promises to pay until the
bond matures.
CURRENT YIELD. The amount of interest paid by a bond, expressed as a percent age
of its value. Yield may differ from the coupon because the bond's value may
change over time. As a bond's price falls, its yield rises, and vice versa.
DURATION. A measurement of a bond's price sensitivity relative to a change in
the general level of interest rates. Duration takes into account the size of the
coupon and the time to maturity. Generally, longer or higher durations have more
risk than shorter or lower durations.
EQUIVALENT YIELD. The corresponding taxable yield of the tax-free yield based
upon an individual's income tax bracket (tax-exempt yield divided by 100% less
person's tax bracket percent).
INVESTMENT-GRADE BONDS. Corporate and municipal bonds rated within the top four
categories (Baa or higher by Moody's or BBB or higher by Standard & Poor's).
This rating is based on the bond issuer's ability to pay the inter est and
principal. Bonds rated lower are more speculative. U.S. Treasury and government
agency bonds are not rated because the payment of principal and interest are
guaranteed directly by the U.S. government or the issuing agency.
FEDERAL RESERVE BOARD. Under the direction of a chairman (currently Alan
Greenspan), the Federal Reserve Board (the "Fed") consists of seven members that
are appointed by the President. The Fed regulates the U.S. monetary and banking
system and sets economic policy, including the direction of short-term interest
rates. When the Fed is said to "tighten," it raises rates. When it "eases," it
lowers rates.
Two Ways You May Seek to Invest for Success:
INITIAL INVESTMENT
IF YOU MADE AN INITIAL INVESTMENT OF $6,000 IN THE CLASS A SHARES OF FEDER ATED
LIMITED TERM MUNICIPAL FUND ON 9/1/93, REINVESTED YOUR DIVIDENDS AND CAPITAL
GAINS, AND DID NOT REDEEM ANY SHARES, YOUR ACCOUNT WOULD HAVE BEEN WORTH $7,431
ON 5/31/99. YOU WOULD HAVE EARNED A 3.78% 1 AVERAGE ANNUAL TOTAL RETURN FOR THE
INVESTMENT LIFE SPAN.
One key to investing wisely is to reinvest all distributions in fund shares.
This increases the number of shares on which you can earn future dividends, and
you gain the benefit of compounding.
As of 6/30/99, the Class A Shares' 1-year, 5-year, and since inception (9/1/93)
average annual total returns were 1.80%, 3.99%, and 3.61%, respec tively. Class
F Shares' 1-year, 5-year, and since inception (9/1/93) average annual total
returns were 2.11%, 4.44%, and 4.02%, respectively. 2
[Graphic representation omitted; see Appendix D.]
1 Total return represents the change in the value of an investment after
reinvesting all income and capital gains, and takes into account the 1.00% sales
charge applicable to an initial investment in Class A Shares. Data quoted
represents past performance and does not guarantee future results. Investment
return and principal value will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
2 The total returns stated take into account all applicable sales charges. The
maximum sales charges and contingent deferred sales charges for the fund are as
follows: Class A Shares, 1.00% sales charge; Class F Shares, 1.00% contingent
deferred sales charge.
ONE STEP AT A TIME
$1,000 INITIAL INVESTMENT AND SUBSEQUENT INVESTMENTS OF $1,000 EACH YEAR FOR
FIVE YEARS (REINVESTING ALL DIVIDENDS AND CAPITAL GAINS) GREW TO $6,783.
With this approach, the key is consistency.
If you had started investing $1,000 annually in the Class A Shares of Feder ated
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 $6,783 1 by 5/31/99. You would
have earned an average annual total return of 3.87%.
A practical investment plan helps you pursue income by investing in short-term
municipal bonds. Through systematic investing, you buy shares on a reg ular
basis and reinvest all earnings. An investment plan works for you when you
invest only $1,000 annually. You can take it one step at a time. Put time, money
and compounding to work.
[Graphic representation omitted; see Appendix E.]
1 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.
Portfolio of Investments
MAY 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS-98.4% 2
ALABAMA-0.4%
$ 515,000 Mobile, AL, GO Warrants,
4.95%, 8/15/2000 NR $ 523,925
ALASKA-1.6%
1,145,000 Alaska Industrial
Development and Export
Authority, Power Revenue
Bonds (First Series),
4.75% (Snettisham
Hydroelectric Project),
1/1/2002 BBB 1,163,503
1,145,000 Alaska Industrial
Development and Export
Authority, Power Revenue
Bonds (First Series),
4.75% (Snettisham
Hydroelectric Project),
1/1/2003 BBB 1,164,797
TOTAL 2,328,300
CALIFORNIA-2.0%
700,000 Delta Counties, CA Home
Mortgage Finance
Authority, SFM Revenue
Bonds (Series 1998A),
4.85% ( GNMA
Collateralized Home
Mortgage Progam COL)/(MBIA
INS), 12/1/2008 AAA/Aaa 708,351
1,000,000 Sacramento County, CA HDA,
Multifamily Housing
Revenue Bonds (Series I),
4.80% TOBs (Rancho Natomas
Apartments)/(Dai-Ichi
Kangyo Bank Ltd., Tokyo
LOC), Mandatory Tender
12/15/2000 A1 1,005,620
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 1,155,592
TOTAL 2,869,563
COLORADO-4.6%
475,000 Colorado HFA, SFM Revenue
Bond, Series C-1, 7.65%,
12/1/2025 Aa2 523,455
1,000,000 Colorado HFA, Single
Family Program Senior
Bonds
(Series 1998A-3), 4.60%,
11/1/2016 Aa2 1,010,250
1,445,000 Colorado HFA, Single
Family Program Senior
Bonds
(Series 1998C-1), 4.70%,
5/1/2020 Aa2 1,461,589
500,000 Colorado HFA, Single
Family Program Senior
Bonds
(Series 1999 A-3), 4.25%,
10/1/2005 Aa2 500,940
2,000,000 Denver, CO City & County
Airport Authority, Airport
System Revenue Bonds
(Series 1996C), 5.05%,
11/15/2000 BBB/Baa1 2,029,900
1,090,000 Denver, CO Health &
Hospital Authority,
Revenue Bonds,
5.00%, 12/1/2002 BBB/Baa2 1,113,958
TOTAL 6,640,092
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS-
continued 2
DISTRICT OF COLUMBIA-1.7%
$ 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 $ 2,486,285
FLORIDA-1.2%
1,695,000 Pinellas County, FL HFA, SFM Revenue Bonds, Series C, 6.45%
(GNMA COL),
3/1/2029 Aaa 1,763,224
HAWAII-1.0%
1,485,000 Hawaii State Department of
Budget & Finance, Special
Purpose Revenue Bonds,
4.65% (G.N. Wilcox
Memorial Hospital),
7/1/2003 BBB+ 1,493,286
IDAHO-7.6%
7,500,000 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- 7,500,000
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 393,245
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 226,948
750,000 Idaho Health Facilities
Authority, Improvement &
Refunding Revenue Bonds,
4.30% (Bannock Regional
Medical Center)/(Original
Issue Yield: 4.40%),
5/1/2002 BBB+/Baa1 753,540
2,000,000 Idaho Housing Agency, SFM
Bonds, Series B-2, 4.65%,
7/1/2028 Aaa 2,002,740
TOTAL 10,876,473
ILLINOIS-7.4%
1,730,000 Broadview, IL, Tax
Increment Financing
Revenue Bonds, 4.60%,
7/1/2004 NR 1,723,339
1,010,000 Chicago, IL Single Family
Mortgage, Collateralized
SFM Revenue Bonds (Series
1997B), 5.10% (GNMA
Collateralized Home
Mortgage Program COL),
9/1/2007 Aaa 1,046,340
1,655,000 Chicago, IL Single Family
Mortgage, Collateralized
SFM Revenue Bonds, Series
A-1, 4.85% (GNMA COL),
3/1/2015 Aaa 1,687,405
750,000 Chicago, IL, Gas Supply
Revenue Bonds, 7.50%
(Peoples Gas Light & Coke
Co.), 3/1/2015 AA-/Aa3 783,412
845,000 Illinois Development
Finance Authority, (Series
1995) Revenue Bonds, 5.80%
(Catholic Charities
Housing Development
Corp.), 1/1/2007 NR 863,083
595,000 Illinois Development
Finance Authority,
Mortgage Revenue Refunding
Bonds, Series 1997A, 5.20%
(MBIA INS), 7/1/2008 AAA/Aaa 621,704
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS-
continued 2
ILLINOIS-CONTINUED
$ 2,000,000 Illinois Development
Finance Authority, Solid
Waste Disposal Revenue
Bonds, 7.125% (WMX
Technology Management,
Inc.), 1/1/2001 BBB+ $ 2,082,000
505,000 Illinois Health Facilities
Authority, Refunding
Revenue Bonds (Series
1996B), 5.00% (Sarah Bush
Lincoln Health Center),
2/15/2000 A- 510,429
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- 625,209
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- 685,959
TOTAL 10,628,880
INDIANA-10.1%
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+ 641,964
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+ 704,591
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+ 751,752
1,590,000 Indiana Health Facility Financing Authority, Hospital Revenue
Refunding Bonds, 4.50% (Floyd Memorial Hospital, IN)/(Original
Issue Yield:
4.53%), 2/15/2005 A 1,579,236
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 948,249
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 231,851
1,000,000 Portage, IN, Revenue Bonds
(Series 1998B) Weekly
VRDNs (American Iron Oxide
Co. Project)/(Bank of
Tokyo-Mitsubishi Ltd. LOC) NR 1,000,000
8,600,000 Spencer County, IN, PCR
Revenue Bonds Weekly VRDNs
(American Iron Oxide Co.
Project)/(Bank of Tokyo-
Mitsubishi Ltd. LOC) A1 8,600,000
TOTAL 14,457,643
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS-
continued 2
KANSAS-1.8%
$ 335,000 Newton, KS, Hospital
Revenue Refunding Bonds,
Series 1998, 4.65% (Newton
Healthcare
Corp.)/(Original Issue
Yield: 4.70%), 11/15/2001 BBB- $ 338,873
370,000 Newton, KS, Hospital
Revenue Refunding Bonds,
Series 1998, 4.80% (Newton
Healthcare
Corp.)/(Original Issue
Yield: 4.90%), 11/15/2003 BBB- 374,677
875,000 Sedgwick & Shawnee
Counties, KS, SFM Revenue
Bonds (Series 1997A-1),
5.10% (GNMA Collateralized
Home Mortgage Program
COL), 12/1/2014 Aaa 893,944
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 1,001,790
TOTAL 2,609,284
LOUISIANA-2.8%
2,500,000 Louisiana Agricultural
Finance Authority, Revenue
Bonds (Series 1999B),
4.625% (Louisiana Pacific
Corporation Project)/
(Hibernia National Bank
LOC), 5/1/2004 BBB/A3 2,483,075
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/A3 1,564,785
TOTAL 4,047,860
MASSACHUSETTS-6.6%
4,000,000 Commonwealth of
Massachusetts, LT GO
Bonds, 5.00%, 2/1/2005 AA-/Aa3 4,165,000
500,000 Greater New Bedford
Regional Refuse Management
District, MA, UT GO Bonds,
5.10% (Original Issue
Yield: 5.20%), 5/1/2000 Baa3 505,305
2,000,000 Massachusetts HEFA,
Revenue Bonds (Series
1999A), 5.25% (Caritas
Christi Obligated Group),
7/1/2004 BBB/Baa2 2,046,840
667,890 Massachusetts IFA, 8.50%,
11/1/2012 NR 659,541
1,000,000 Massachusetts IFA,
Resource Recovery Revenue
Refunding Bonds, Series
1998A, 4.60% (Ogden
Haverhill), 12/1/2002 BBB 1,000,570
1,000,000 Massachusetts IFA,
Resource Recovery Revenue
Refunding Bonds, Series
1998A, 4.70% (Ogden
Haverhill), 12/1/2003 BBB 1,000,000
TOTAL 9,377,256
MINNESOTA-1.1%
1,500,000 Maplewood, MN, Health Care
Facility Revenue Bonds
(Series 1996), 5.95%
(Healtheast, MN),
11/15/2006 BBB 1,508,700
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS-
continued 2
MISSOURI-4.0%
$ 1,000,000 Kansas City, MO IDA, PCR
Bonds, 6.05% (General
Motors Corp.), 4/1/2006 A $ 1,011,240
3,000,000 Missouri State Housing
Development Commission,
Single Family Mortgage
Revenue Bonds (Series
1998D-2), 6.50% (GNMA
Collateralized Home
Mortgage Program COL),
9/1/2029 AAA 3,301,650
450,000 West Plains, MO IDA,
Hospital Revenue Bonds,
4.70% (Ozarks Medical
Center)/(Original Issue
Yield: 4.80%), 11/15/2002 BBB- 454,590
440,000 West Plains, MO IDA,
Hospital Revenue Bonds,
4.85% (Ozarks Medical
Center)/(Original Issue
Yield: 4.95%), 11/15/2003 BBB- 445,552
425,000 West Plains, MO IDA,
Hospital Revenue Bonds,
5.05% (Ozarks Medical
Center)/(Original Issue
Yield: 5.125%), 11/15/2005 BBB- 433,203
TOTAL 5,646,235
NEBRASKA-2.7%
3,000,000 American Public Energy
Agency, NE, Gas Supply
Revenue Bonds (Series
1999A), 4.00% (Nebraska
Public Gas Agency),
6/1/2000 AAA/Aaa 3,018,810
896,229 3 Energy America, NE, Gas
Supply Revenue Bonds
(Series 1998B), 5.10%
(Nebraska Public Gas
Agency), 10/15/2005 NR 901,561
TOTAL 3,920,371
NEW HAMPSHIRE-1.4%
2,000,000 New Hampshire Business
Finance Authority, PCR
Refunding Bonds, 4.55%
TOBs (United Illuminating
Co.), Mandatory
Tender 2/1/2004 BBB-/Baa3 1,997,880
NEW JERSEY-0.7%
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 1,025,000
NEW MEXICO-1.3%
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 1,867,093
NEW YORK-9.4%
450,000 New York City, NY, GO UT
Refunding Bonds (Series
B), 5.30%, 8/15/2000 A- 460,346
1,550,000 New York City, NY, GO UT
Refunding Bonds (Series
B), 5.30%, 8/15/2000 A- 1,585,108
1,800,000 New York City, NY, UT GO Bonds (Series B), 7.50% (Original Issue
Yield:
7.60%), 2/1/2001 A- 1,906,164
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS-
continued 2
NEW YORK-CONTINUED
$ 1,000,000 New York State Dormitory
Authority, Mental Health
Services Facilities
Improvement Revenue Bonds
(Series A), 5.00%
(Original Issue Yield:
5.05%), 2/15/2002 A- $ 1,024,510
1,000,000 New York State Mortgage
Agency, Homeowner Mortgage
Revenue Bonds, Series 71,
4.75%, 10/1/2021 Aa2 1,004,760
2,000,000 New York State Urban
Development Corp.,
Community Enhancement
Facilities Revenue Bonds,
4.50%, 4/1/2003 BBB+ 2,014,280
1,065,000 Niagara Falls, NY CSD,
Certificates of
Participation (Series
1998), 5.50%, 6/15/2001 BBB- 1,093,585
1,185,000 Niagara Falls, NY CSD,
Certificates of
Participation (Series
1998), 5.625%, 6/15/2003 BBB- 1,235,754
1,000,000 St. Lawrence County, NY
IDA, Civic Facility
Revenue Bonds
(Series 1990) Weekly VRDNs
(Clarkson
University)/(Sumitomo Bank
Ltd., Osaka LOC) A3 1,000,000
2,000,000 Triborough Bridge & Tunnel
Authority, NY, General
Purpose Revenue Bonds
(Series 1993B), 5.75%,
1/1/2005 A+/Aa3 2,153,380
TOTAL 13,477,887
NORTH CAROLINA-2.7%
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 1,014,330
2,780,000 North Carolina HFA, Single
Family Mortgage Revenue
Bonds (Series 1997TT),
4.90%, 9/1/2024 AA/Aa2 2,807,494
TOTAL 3,821,824
NORTH DAKOTA-2.6%
2,710,000 North Dakota State HFA,
Housing Finance Program
Bonds (Series 1997C),
4.70%, 1/1/2022 Aa3 2,723,875
990,000 North Dakota State HFA,
Housing Finance Program
Bonds (Series 1998A),
4.60%, 1/1/2023 Aa3 992,267
TOTAL 3,716,142
OHIO-5.5%
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 503,895
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 318,742
460,000 Franklin County, OH Health
Care Facilities, Revenue
Refunding Bonds, 5.00%
(Ohio Presbyterian
Retirement Services),
7/1/2004 NR 468,748
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS-
continued 2
OHIO-CONTINUED
$ 3,000,000 Hamilton County, OH, Local
Cooling Facilities Revenue
Bonds (Series 1998), 4.90%
TOBs (Trigen-Cinergy
Solutions of Cincinnati
LLC)/(Cinergy Corp. GTD),
Mandatory Tender 6/1/2004 BBB+/Baa2 $ 3,000,000
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+ 1,572,661
995,000 Ohio Enterprise Bond Fund,
(Series 1995-3) State
Economic Development
Revenue Bonds, 5.60%
(Smith Steelite),
12/1/2003 A- 1,046,451
1,000,000 Ohio HFA, Residential
Mortgage Revenue Bonds
(Series 1998A-1), 4.90%
(GNMA Collateralized Home
Mortgage Program COL),
9/1/2025 AAA 1,008,670
TOTAL 7,919,167
PENNSYLVANIA-5.4%
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- 619,170
850,000 Clarion County, PA
Hospital Authority,
Revenue Refunding Bonds,
Series 1997, 5.00%
(Clarion County Hospital),
7/1/2002 BBB- 862,002
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 827,576
735,000 Hazleton, PA Health
Services Authority,
Hospital Revenue Bonds
(Series 1996), 5.40%
(Hazleton-St. Joseph
Medical Center), 7/1/2001 BBB+ 750,905
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+ 197,235
155,000 Jeannette Health Services
Authority, PA, Hospital
Revenue Bonds (Series A of
1996), 5.05% (Jeannette
District Memorial
Hospital)/(Original Issue
Yield: 5.15%), 11/1/2001 BBB+ 157,816
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+ 225,038
1,200,000 Pennsylvania EDFA,
Resource Recovery
Refunding Revenue Bonds
(Series B), 6.75%
(Northampton Generating),
1/1/2007 BBB- 1,296,624
595,000 Philadelphia, PA Hospitals
& Higher Education
Facilities Authority,
Hospital Revenue Bonds
(Series 1997), 5.00%
(Jeanes Hospital, PA),
7/1/2000 BBB+ 600,361
620,000 Philadelphia, PA Hospitals
& Higher Education
Facilities Authority,
Hospital Revenue Bonds
(Series 1997), 5.20%
(Jeanes Hospital, PA),
7/1/2001 BBB+ 629,722
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS-
continued 2
PENNSYLVANIA-CONTINUED
$ 435,000 Philadelphia, PA IDA,
Revenue Bonds, 4.55%
(Franklin Institute),
6/15/2003 Baa2 $ 435,979
1,080,000 Scranton-Lackawanna, PA
Health & Welfare
Authority, Revenue Bonds
(Series A), 6.35% (Allied
Services Rehabilitation
Hospitals, PA), 7/15/1999 NR 1,082,160
TOTAL 7,684,588
RHODE ISLAND-2.9%
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 4,072,490
SOUTH DAKOTA-2.2%
3,000,000 South Dakota Student Loan
Finance Corp., (Series A)
Student Loan Revenue
Bonds, 5.85%, 8/1/2000 A+ 3,078,300
TENNESSEE-1.9%
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 588,779
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 917,187
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 733,687
400,000 Springfield, TN Health &
Educational Facilities
Board, Hospital Revenue
Bonds, 7.50% (NorthCrest
Medical Center), 4/1/2000 NR 407,016
TOTAL 2,646,669
TEXAS-4.9%
4,000,000 Alliance Airport Authority
Inc., TX, Special
Facilities Revenue Bonds,
7.50% (American
Airlines)/(Original Issue
Yield: 8.00%), 12/1/2029 BBB-/Baa1 4,255,760
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- 498,675
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- 1,293,660
1,000,000 3 Greenville, TX Industrial
Development Corp., Airport
Revenue Refunding Bonds,
Series 1996, 5.15%
(Raytheon/E-Systems,
Inc.), 8/1/2000 NR 1,016,220
TOTAL 7,064,315
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING 1 VALUE
<C> <S> <C> <C>
LONG-TERM MUNICIPALS-
continued 2
UTAH-0.7%
$ 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+ $ 1,000,890
VIRGINIA-0.2%
255,000 Prince William County, VA
IDA, Hospital Revenue
Bonds, 6.10% (Potomac
Hospital Corp., VA),
10/1/1999 A2 257,341
TOTAL INVESTMENTS
(IDENTIFIED COST
$139,902,424) 4 $ 140,806,963
</TABLE>
1 Please refer to the Appendix of the Statement of Additional Information for an
explanation of the credit ratings. Current credit ratings are unaudited.
2 At May 31, 1999, 45.4% of the total investments at market value were sub ject
to alternative minimum tax.
3 Denotes a restricted security which is subject to restrictions on resale under
federal securities laws. At May 31, 1999, these securities amounted to
$1,917,781 which represents 1.3% of net assets.
4 The cost of investments for federal tax purposes amounts to $139,902,424. The
net unrealized appreciation of investments on a federal tax basis amounts to
$904,539 which is comprised of $1,062,760 appreciation and $158,221 depreciation
at May 31, 1999.
Note: The categories of investments are shown as a percentage of net assets
($143,027,437) at May 31, 1999.
The following acronyms are used throughout this portfolio:
COL -Collateralized
CSD -Central School District
EDFA -Economic Development Financing Authority GNMA -Government National
Mortgage Association GO -General Obligation GTD -Guaranty HAD -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
LLC -Limited Liability Corporation LOC -Letter of Credit LT -Limited Tax 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
Statement of Assets and Liabilities
MAY 31, 1999 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in
securities, at value
(identified and tax cost
$139,902,424) $ 140,806,963
Cash 41,921
Income receivable 2,232,119
Receivable for investments
sold 140,000
Receivable for shares sold 410,956
TOTAL ASSETS 143,631,959
LIABILITIES:
Payable for shares
redeemed $ 112,034
Income distribution
payable 449,047
Accrued expenses 43,441
TOTAL LIABILITIES 604,522
Net assets for 14,597,044
shares outstanding $ 143,027,437
NET ASSETS CONSIST OF:
Paid in capital $ 145,623,310
Net unrealized
appreciation of
investments 904,539
Accumulated net realized
loss on investments (3,473,745)
Distributions in excess of
net investment income (26,667)
TOTAL NET ASSETS $ 143,027,437
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PROCEEDS PER SHARE
CLASS A SHARES:
Net Asset Value Per Share
($105,968,482 / 10,814,966
shares outstanding) $9.80
Offering Price Per Share
(100/99.00 of $9.80) 1 $9.90
Redemption Proceeds Per
Share $9.80
CLASS F SHARES:
Net Asset Value Per Share
($37,058,955 / 3,782,078
shares outstanding) $9.80
Offering Price Per Share $9.80
Redemption Proceeds Per
Share (99.00/100 of $9.80) 2 $9.70
</TABLE>
1 See "What Do Shares Cost?" in the Prospectus.
2 See "Contingent Deferred Sales Charge" in the Prospectus.
See Notes which are an integral part of the Financial Statements
Statement of Operations
SIX MONTHS ENDED MAY 31, 1999 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 2,899,531
EXPENSES:
Investment advisory fee $ 241,361
Administrative personnel
and services fee 77,288
Custodian fees 6,656
Transfer and dividend
disbursing agent fees and
expenses 24,983
Directors'/Trustees' fees 2,564
Auditing fees 7,388
Legal fees 1,512
Portfolio accounting fees 35,338
Distribution services fee-
Class A Shares 105,761
Distribution services fee-
Class F Shares 27,079
Shareholder services fee-
Class A Shares 105,761
Shareholder services fee-
Class F Shares 45,131
Share registration costs 19,410
Printing and postage 11,388
Insurance premiums 2,188
Taxes 4,166
Miscellaneous 2,020
TOTAL EXPENSES 719,994
WAIVERS:
Waiver of investment
advisory fee $ (194,901)
Waiver of distribution
services fee-Class F
Shares (27,079)
TOTAL WAIVERS (221,980)
Net expenses 498,014
Net investment income 2,401,517
REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS:
Net realized loss on
investments (1,164,338)
Net change in unrealized
appreciation of
investments 413,054
Net realized and
unrealized gain (loss) on
investments (751,284)
Change in net assets
resulting from operations $ 1,650,233
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited) YEAR ENDED
MAY 31, NOVEMBER 30,
1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS:
Net investment income $ 2,401,517 $ 3,803,820
Net realized gain (loss) on
investments ($(1,164,338)
and $51,808, respectively,
as computed for federal tax
purposes) (1,164,338) 51,809
Net change in unrealized
appreciation 413,054 647,232
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS 1,650,233 4,502,861
DISTRIBUTIONS TO
SHAREHOLDERS:
Distributions from net
investment income
Class A Shares (1,652,610) (2,717,180)
Class F Shares (748,907) (1,033,307)
CHANGE IN NET ASSETS
RESULTING FROM
DISTRIBUTIONS
TO SHAREHOLDERS (2,401,517) (3,750,487)
SHARE TRANSACTIONS:
Proceeds from sale of
shares 82,427,152 74,092,164
Net asset value of shares
issued to shareholders in
payment of
distributions declared 1,614,260 2,938,599
Cost of shares redeemed (41,400,581) (49,864,970)
CHANGE IN NET ASSETS
RESULTING FROM SHARE
TRANSACTIONS 42,640,831 27,165,793
Change in net assets 41,889,547 27,918,167
NET ASSETS:
Beginning of period 101,137,890 73,219,723
End of period $ 143,027,437 $ 101,137,890
</TABLE>
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class A Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
(unaudited)
ENDED
MAY 31, YEAR ENDED NOVEMBER 30,
1999 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 9.86 $ 9.78 $ 9.76 $ 9.85 $ 9.49 $10.02
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income 0.19 0.40 0.41 0.40 0.46 0.43
Net realized and
unrealized gain (loss) on
investment (0.06) 0.08 0.02 (0.08) 0.36 (0.53)
TOTAL FROM
INVESTMENT OPERATIONS (0.13) 0.48 0.43 0.32 0.82 (0.10)
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.19) (0.40) (0.41) (0.40) (0.46) (0.43)
Distributions in excess of
net investment income 1 - - - (0.01) - -
TOTAL DISTRIBUTIONS (0.19) (0.40) (0.41) (0.41) (0.46) (0.43)
NET ASSET VALUE, END OF
PERIOD $ 9.80 $ 9.86 $ 9.78 $ 9.76 $ 9.85 $ 9.49
TOTAL RETURN 2 1.36% 4.95% 4.45% 3.34% 8.67% (0.95% )
RATIOS TO AVERAGE NET
ASSETS:
Expenses 3 1.22% 4 1.40% 1.38% 1.35% 1.71% 1.57%
Net investment income 3 3.59% 4 3.58% 3.69% 3.60% 3.69% 3.39%
Expenses (after waivers) 0.90% 4 0.90% 0.90% 0.81% 0.68% 0.63%
Net investment income
(after waivers) 3.91% 4 4.08% 4.17% 4.14% 4.72% 4.33%
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $105,968 $72,174 $52,921 $73,570 $65,179 $32,644
Portfolio turnover 5% 25% 33% 49% 47% 135%
</TABLE>
1 Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These dis tributions
did not represent a return of capital for federal income tax purposes.
2 Based on net asset value, which does not reflect the sales charge or con
tingent deferred sales charge, if applicable.
3 During the period certain fees were voluntarily waived. If such waivers had
not occurred, the ratios would have been as indicated.
4 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class F Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
(unaudited)
ENDED
MAY 31, YEAR ENDED NOVEMBER 30,
1999 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 9.86 $ 9.78 $ 9.76 $ 9.85 $ 9.49 $10.02
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income 0.21 0.42 0.43 0.43 0.47 0.45
Net realized and
unrealized gain (loss) on
investment (0.06) 0.08 0.02 (0.08) 0.36 (0.53)
TOTAL FROM
INVESTMENT OPERATIONS 0.15 0.50 0.45 0.35 0.83 (0.08)
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.21) (0.42) (0.43) (0.43) (0.47) (0.45)
Distributions in excess of
net investment income 1 - - - (0.01) - -
TOTAL DISTRIBUTIONS FROM
NET INVESTMENT INCOME (0.21) (0.42) (0.43) (0.44) (0.47) (0.45)
NET ASSET VALUE, END OF
PERIOD $ 9.80 $ 9.86 $ 9.78 $ 9.76 $ 9.85 $ 9.49
TOTAL RETURN 2 1.49% 5.21% 4.71% 3.60% 8.86% (0.75%)
RATIOS TO AVERAGE NET
ASSETS:
Expenses 3 1.12% 4 1.30% 1.28% 1.25% 1.61% 1.38%
Net investment income 3 3.68% 4 3.63% 3.79% 3.71% 3.79% 3.63%
Expenses (after waivers) 0.65% 4 0.65% 0.65% 0.56% 0.49% 0.44%
Net investment income
(after waivers) 4.15% 4 4.28% 4.42% 4.40% 4.91% 4.57%
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $37,059 $28,964 $20,298 $26,300 $26,442 $12,804
Portfolio turnover 5% 25% 33% 49% 47% 135%
</TABLE>
1 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.
2 Based on net asset value, which does not reflect the sales charge or con
tingent deferred sales charge, if applicable.
3 During the period certain fees were voluntarily waived. If such waivers had
not occurred, the ratios would have been as indicated.
4 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
MAY 31, 1999 (UNAUDITED)
ORGANIZATION
Fixed Income Securities, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end manage
ment 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 state ments
of the other portfolios are presented separately. The assets of each portfolio
are segregated and a shareholder's interest is limited to the port folio in
which shares are held. The Fund offers two classes of shares: Class A Shares and
Class F Shares. The investment objective of the fund is to pro vide a high level
of current income which is exempt from federal regular income tax (federal
regular income tax does not include the federal alterna tive minimum tax)
consistent with the preservation of principal.
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 rel evant.
Short-term securities are valued at the prices provided by an indepen dent
pricing service. However, short-term securities with remaining maturities of 60
days or less at the time of purchase may be valued at amor tized 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 their 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 aris ing
from future net realized gain on investments, if any, to the extent per mitted
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 carryfor ward
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 Funds
record when-issued securities on the trade date and maintain security positions
such that sufficient liquid assets will be available to make pay ment for the
securities purchased. Securities purchased on a when-issued or delayed delivery
basis are marked to market daily and begin earning interest on the settlement
date.
RESTRICTED SECURITIES
Restricted securities are securities that may only be resold upon registra tion
under federal securities laws or in transactions exempt from such regis tration.
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 Funds
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 sec ondary market or, if no
market prices are available, at the fair value as determined by the Fund's
pricing committee.
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.
CAPITAL STOCK
At May 31, 1999, par value shares ($0.001 per share) authorized were as fol
lows:
SHARES OF
PAR VALUE
CAPITAL STOCK
SHARE CLASS NAME AUTHORIZED
Class A Shares 1,000,000,000
Class F Shares 1,000,000,000
TOTAL 2,000,000,000
Transactions in shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1999 NOVEMBER 30, 1998
CLASS A SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 6,492,191 $ 63,836,647 6,369,593 $ 62,557,215
Shares issued to
shareholders in payment of
distributions declared 113,473 1,116,624 217,217 2,136,622
Shares redeemed (3,112,997) (30,624,312) (4,673,113) (46,010,794)
NET CHANGE RESULTING FROM
CLASS A
SHARE TRANSACTIONS 3,492,667 $ 34,328,959 1,913,697 $ 18,683,043
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1999 NOVEMBER 30, 1998
CLASS F SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 1,887,369 $ 18,590,505 1,174,688 $ 11,534,949
Shares issued to
shareholders in payment of
distributions declared 50,575 497,636 81,531 801,977
Shares redeemed (1,094,486) (10,776,269) (392,161) (3,854,176)
NET CHANGE RESULTING FROM
CLASS F SHARE TRANSACTION 843,458 $8,311,872 864,058 $ 8,482,750
NET CHANGE RESULTING FROM
SHARE TRANSACTIONS 4,336,125 $ 42,640,831 2,777,755 $ 27,165,793
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Investment Management Company, 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 Funds 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 Adminis trative
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 Feder ated
Securities Corp. ("FSC"), the principal distributor, from the net assets of the
Fund to finance activities intended to result in the sale of the Cor poration's
Class A and Class F Shares. The Plan provides that the Fund may incur
distribution expenses according to the following schedule annually, to
compensate FSC.
PERCENTAGE OF
AVERAGE DAILY
NET ASSETS
SHARE CLASS NAME 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 Share holder
Services Company ("FSSC"), the Funds will pay FSSC 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.
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 disburs ing
agent for the Funds. 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-out-of-pocket expenses.
INTERFUND TRANSACTIONS
During the period ended May 31, 1999, 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 pursu ant to
Rule 17a-7 under the Act amounting to $76,700,000 and $56,900,000, respectively.
GENERAL
Certain of the Officers and Directors of the Corporation are Officers and
Directors or Trustees of the above companies.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities for the
period ended May 31,1999, were as follows:
Purchases $28,059,203
Sales $ 5,292,154
YEAR 2000
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and administrator are taking mea sures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
Directors
JOHN F. DONAHUE
THOMAS G. BIGLEY
JOHN T. CONROY, JR.
NICHOLAS P. CONSTANTAKIS
WILLIAM J. COPELAND
LAWRENCE D. ELLIS, M.D.
RICHARD B. FISHER
EDWARD L. FLAHERTY, JR., ESQ.
PETER E. MADDEN
CHARLES F. MANSFIELD, JR.
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
C. GRANT ANDERSON
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 gov
ernment agency. Investment in mutual funds involves investment risk, includ ing
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 con
cerning its objective and policies, management fees, expenses, and other
information.
[Graphic]
Federated
World-Class Investment Manager
SEMI-ANNUAL REPORT
AS OF MAY 31, 1999
Federated Limited Term Municipal Fund
Established 1993
6TH SEMI-ANNUAL REPORT
[Graphic]
Federated
Federated Limited Term Municipal Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Cusip 338319403
Cusip 338319502
G00278-01 (7/99)
[Graphic]
[Graphic]
Richard B. Fisher
President
Federated Strategic Income Fund
President's Message
Dear Shareholder:
Federated Strategic Income Fund was created in 1994, and I am pleased to present
its fifth Semi-Annual Report. This bond fund pursues generous monthly income
from three distinct bond markets-domestic high-yield bonds, U.S. corporate
bonds, and international corporate and government bonds. 1 The fund's assets
continued to grow and now exceed $1 billion. Fund managers have these assets
invested in over 300 issues in 44 countries around the world. The average
quality of these bond issues is "BBB" and they have an average effective
duration of 5.00 years.
This report covers the first half of the fund's fiscal year which is the
six-month reporting period from December 1, 1998 through May 31, 1999. It begins
with an interview with the fund's portfolio manager, Joseph M. Balestrino,
Senior Vice President of Federated Investment Management Company. Following his
discussion which presents his thoughts on these three distinctive bond markets,
the fund's weightings in various markets, and his outlook for income
opportunities for shareholders, are three additional items of shareholder
interest. First is a series of graphs showing the fund's long-term investment
performance. Second is a complete listing of the fund's bond selections, and
third is the publication of the fund's financial statements.
This multi-market bond fund presents a strategic combination of bonds selected
by an investment management team consisting of experts in three key market
sectors. These bond sectors historically have little correlation to one another.
The fund's holdings were diversified across more than 300 issues around the
world, including the U.S. markets.
On a total return basis, the bond markets remained flat during the reporting
period, with negative returns in the high quality sectors canceling out gains in
the high-yield and emerging market sectors. The domestic bond prices have been
affected by fears of an interest rate increase by the Federal Reserve Board (the
"Fed"), and so declined in price as the result of the rate increase. The rest of
the world had been influenced by improving news in Asia, Japan, and South
America. Bond investors continued to receive generous income from coupons, but
not much else. In this environment, the fund's net asset value decreased
slightly. However, the fund produced a very healthy level of income as shown by
share class.
1 Lower rated bonds involve a higher degree of risk than investment grade bonds
in return for higher yield potential. Foreign investing involves spe cial risks
including currency risk, increased volatility of foreign secu rities, and
differences in auditing and other financial standards.
Individual share class total return performance for the six-month report
ing period, including income distributions, follows. 2
<TABLE>
<CAPTION>
INCOME
TOTAL RETURN DISTRIBUTIONS NET ASSET VALUE CHANGE
<S> <C> <C> <C>
Class A Shares 0.79% $0.41 $9.79 to $9.46 = (3%)
Class B Shares 0.31% $0.37 $9.79 to $9.45 = (3%)
Class C Shares 0.31% $0.37 $9.79 to $9.45 = (3%)
Class F Shares 0.69% $0.41 $9.79 to $9.45 = (3%)
</TABLE>
Thank you for your support of this diversified approach to income generation. I
recommend that you add to your account on a regular basis to take advantage of
price fluctuations and to use the dollar-cost averaging method of invest ing. By
investing the same amount on a regular basis, you buy more fund shares when
prices are low-and fewer when prices are high. Adding to your account on a
regular basis and reinvesting your monthly dividends in addi tional shares is a
convenient way to "pay yourself first" and enjoy the ben efit of monthly
compounding. 3
I would also like to again point out that the domestic bond market's perfor
mance has been surpassed by bond market returns in many other nations. Now,
indeed, is an excellent time to consider a commitment to increasing the per
centage of your international bond holdings. In fact, throughout the world,
there have been over 150 rate reductions, which has had an opposite effect on
their economies and bond prices. Federated Strategic Income Fund, with 34.52% of
assets invested in bond issues outside the U.S., is an excellent way to increase
your international exposure.
As always, we welcome your comments and suggestions.
Sincerely,
[Graphic]
Richard B. Fisher
President
July 15, 1999
2 Performance quoted is based on net asset value, represents past perfor mance,
and is not indicative of future results. Investment return and prin cipal 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 (3.73%), (5.00%), (0.65%), and (1.29%), respectively.
3 Systematic investing does not ensure a profit or protect against loss in
declining markets. Because dollar-cost-averaging involves continuous investment
regardless of fluctuating price levels, investors should con sider their
financial ability to continue purchases during periods of low price levels.
[Graphic]
Joseph M. Balestrino
Senior Vice President
Federated Investment Management Company
Investment Review
[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 key bond
market sectors: U.S. government-Kathy Foody-Malus, Vice President, Federated
Investment Management Company; high-yield corporate bonds-Mark E. Durbiano,
Senior Vice President, Federated Investment Management Company; and interna
tional bonds-Robert Kowit, Vice President, Federated Global Investment Man
agement Corp.]
THE FIRST HALF OF THE FUND'S FISCAL YEAR SAW A REVERSAL OF THE "FLIGHT TO
QUALITY" AND IMPROVED PERFORMANCE BY HIGHER YIELDING AREAS OF THE BOND MAR KET.
WHAT IS THE FUND MANAGEMENT'S REVIEW OF THE SIX-MONTH REPORTING PERIOD?
The bond market completely reversed course over the six-month reporting period
ended May 31, 1999. The global financial crises from July to October 1998 had
indeed created a massive "flight to quality" as investors sought the safety of
U.S. Treasury securities, in an attempt to lessen the impact of falling stock
markets around the world. As a result, domestic interest rates fell to the
lowest levels seen in many years.
However, over the past six months, there was much improvement in global eco
nomic conditions and associated stock market levels, certainly in part due to
over 100 instances of central banks reducing interest rates and increasing
global liquidity. In this more recent environment, domestic interest rates rose
and the higher yielding bond sectors (emerging market bonds, corporate bonds and
mortgage-backed securities) outperformed pure U.S. Treasuries. In total,
performance in most high quality bond sectors was slightly positive as a portion
of the earned income was offset by price declines due to higher interest rates.
The high-yield sector generated significantly positive returns.
In the international debt arena, emerging market debt was the star performer
with Brazil-which was the cause of market turmoil in January 1999 when it
devalued-being responsible for most of the rally. The new head of the Brazil ian
Central Bank, Arminio Ivaga, did a magnificent job of convincing inves tors at
an international annual conference that Brazil would take all necessary steps to
solve its economic and financial problems. The presenta tion, along with the
rising oil prices, gave investors more confidence in the resource-oriented
emerging markets' economies.
The fund's total return reflected a positive environment in both the high-yield
and emerging markets that was somewhat offset by the negative total returns in
many high quality bond sectors.
HOW DID FEDERATED STRATEGIC INCOME FUND PERFORM IN TERMS OF TOTAL RETURN?
The fund's returns were flat, reflecting the general bond market environment.
Class A Shares posted a total return for the six-month reporting period ended
May 31, 1999 of 0.79%, based on net asset value. 1 Income generated by the fund
contributed to this total return. The fund's Class B, C, and F Shares achieved
total returns of 0.31%, 0.31%, and 0.69%, respectively, based on net asset
value.1 These returns were competitive with the 0.60% return of the Lipper
Multi-Sector Income Funds Average.2
OF COURSE, INCOME IS A PRIMARY CONSIDERATION FOR SHAREHOLDERS. WHAT WAS THE
TOTAL INCOME PAID PER SHARE DURING THE SIX-MONTH REPORTING PERIOD?
The fund's monthly income dividends totaled $0.41 per share for Class A Shares,
$0.37 per share for Class B Shares, $0.37 per share for Class C Shares, and
$0.41 per share for Class F Shares.
HOW WERE THE FUND'S ASSETS ALLOCATED AMONG DOMESTIC HIGH QUALITY, DOMESTIC
HIGH-YIELD AND INTERNATIONAL BONDS AS OF MAY 31, 1999?
The fund's sector allocation was as follows:
[Graphic representation omitted; see Appendix F.]
1 Performance quoted is based on net asset value, represents past perfor mance,
and is not indicative of future results. Investment return and prin cipal 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 (3.73%), (5.00%), (0.65%) and (1.29%), respectively.
2 Lipper figures represent the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as fall ing into
the category indicated. Lipper returns do not take sales charges into account.
AS WE REACH THE MIDPOINT OF THE YEAR, WHAT IS MANAGEMENT'S OUTLOOK FOR THE
FUND'S THREE SECTORS?
Without question, economic activity, not only in the U.S. but across the globe,
has surpassed most market expectations thus far in calendar year 1999. Fund
management made the decision back in the fourth quarter of 1998 to move a
considerable amount of assets back into the higher yielding sectors, which had
suffered the most in the global crises during the summer of 1998. In a strong
economic environment, the higher income sectors (high-yield corporate bonds and
the international emerging debt markets) should continue to benefit from
generally improved business conditions. As a result, the fund should be expected
to maintain its relative overweighted positions in these higher income sectors
that has been established over the past six months. Conse quently, the highest
quality and lowest yielding sector (U.S. government securities) will continue to
comprise a smaller allocation over the coming months, consistent with the
potential for higher domestic interest rates.
Two Ways You May Seek to Invest for Success:
INITIAL INVESTMENT
IF YOU HAD MADE AN INITIAL INVESTMENT OF $6,000 IN THE CLASS A SHARES OF FED
ERATED STRATEGIC INCOME FUND ON 5/4/94, REINVESTED DIVIDENDS AND CAPITAL GAINS,
AND DID NOT REDEEM ANY SHARES, YOUR ACCOUNT WOULD HAVE BEEN WORTH $8,480 ON
5/31/99. YOU WOULD HAVE EARNED A 7.06% 1 AVERAGE ANNUAL TOTAL RETURN FOR THE
INVESTMENT LIFE SPAN.
One key to investing wisely is to reinvest all distributions in fund shares.
This increases the number of shares on which you can earn future dividends, and
you gain the benefit of compounding.
As of 6/30/99, the Class A Shares' 1-year, 5-year, and since inception (5/4/94)
average annual total returns were (3.83%), 7.31%, and 6.93%, respec tively.
Class B Shares' 1-year and since inception (7/27/95) average annual total
returns were (5.11%) and 6.51%, respectively. Class C Shares' 1-year, 5- year,
and since inception (5/2/94) average annual total returns were (0.96%), 7.50%,
and 7.08%, respectively. Class F Shares' 1-year, 5-year, and since inception
(5/10/94) average annual total returns were (1.29%), 7.89%, and 7.51%,
respectively. 2
[Graphic representation omitted; see Appendix G.]
1 Total return represents the change in the value of an investment after
reinvesting all income and capital gains, and takes into account the 4.50% sales
charge applicable to an initial investment in Class A Shares. Data quoted
represents past performance and does not guarantee future results. Investment
return and principal value will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
2 The total returns stated take into account all applicable sales charges. The
maximum sales charges and contingent deferred sales charges for the fund are as
follows: Class A Shares, 4.50% sales charge; Class B Shares, 5.50% con tingent
deferred sales charge; Class C Shares, 1.00% contingent deferred sales charge;
Class F Shares, 1.00% sales charge and 1.00% contingent deferred sales charge.
ONE STEP AT A TIME
$1,000 INITIAL INVESTMENT AND SUBSEQUENT INVESTMENTS OF $1,000 EACH YEAR FOR
FIVE YEARS (REINVESTING ALL DIVIDENDS AND CAPITAL GAINS) GREW TO $6,826.
With this approach, the key is consistency.
If you had started investing $1,000 annually in the Class A Shares of Feder ated
Strategic Income Fund on 5/4/94, 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 $6,826 1 by 5/31/99. You would have earned
an average annual total return of 5.12%.
A practical investment plan in the fund helps you pursue income through a highly
diversified portfolio invested in U.S. corporate securities, U.S. government
securities, and non-U.S. corporate securities. Through systematic investing, you
buy shares on a regular basis and reinvest all earnings. An investment plan
works for you when you invest only $1,000 annually. You can take it one step at
a time. Put time, money, and compounding to work.
[Graphic representation omitted; see Appendix H.]
1 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.
Hypothetical Investor Profile-
Investing for Future Income
Jim and Leslie Weber are a two-income couple who, like many others, want to be
able to afford their present lifestyle and still have something extra for those
special times when they might need it.
They decided a diversified income fund was right for them. The fund's expo sure
to U.S. government securities, high-yield U.S. corporate securities, and
international securities gives them a relatively stable income stream. They
invested $100,000 in the Class A Shares of Federated Strategic Income Fund on
May 4, 1994, and have allowed the dividends and capital gains to reinvest.
By May 31, 1999, they were pleased to see that their original investment had
grown to $142,423 for an average annual total return of 7.22%. Leslie is already
looking forward to a special anniversary cruise in a few years.
The couple is fictional, but the figures are real.
[Graphic representation omitted; see Appendix I.]
This hypothetical scenario is provided for illustrative purposes only and
does not represent the results obtained by any particular shareholder. Past
performance does not guarantee future results.
Portfolio of Investments
MAY 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL VALUE IN
AMOUNT U.S. DOLLARS
<C> <S> <C>
U.S. CORPORATE BONDS-10.8%
AEROSPACE & DEFENSE-0.0%
$ 500,000 Raytheon Co., 6.15%,
11/1/2008 $ 479,830
AUTOMOTIVE-0.8%
2,820,000 Arvin Industries, Inc.,
9.50%, 2/1/2027 2,951,581
1,400,000 Dana Corp., Note, 7.00%,
3/15/2028 1,311,240
775,000 General Motors Corp.,
Note, 9.45%, 11/1/2011 933,976
1,000,000 Hertz Corp., Medium Term
Note, 9.05%, 6/22/2000 1,031,860
1,800,000 Hertz Corp., Sr. Note,
7.00%, 1/15/2028 1,712,268
TOTAL 7,940,925
BANKING-0.3%
2,000,000 Barclays North America,
Deb., 9.75%, 5/15/2021 2,211,700
1,000,000 FirstBank Puerto Rico,
Sub. Note, 7.625%,
12/20/2005 964,600
TOTAL 3,176,300
BEVERAGE & TOBACCO-0.1%
1,000,000 Philip Morris Cos., Inc.,
Deb., 7.75%, 1/15/2027 1,028,530
CABLE TELEVISION-1.0%
2,500,000 CF Cable TV, Inc., Note,
9.125%, 7/15/2007 2,647,175
3,000,000 Cablevision SA, Series
REGS, 13.75%, 5/1/2009 2,850,000
1,800,000 Continental Cablevision,
Sr. Deb., 9.50%, 8/1/2013 2,108,520
2,065,000 TKR Cable, Inc., Deb.,
10.50%, 10/30/2007 2,222,126
TOTAL 9,827,821
CHEMICALS & PLASTICS-0.2%
1,450,000 1, 2 Fertinitro Finance,
Company Guarantee, 8.29%,
4/1/2020 1,087,500
1,250,000 1, 2 Reliance Industries Ltd.,
Bond, 8.25%, 1/15/2027 1,124,525
TOTAL 2,212,025
COMPUTER SERVICES-0.3%
1,000,000 Dell Computer Corp., Deb.,
7.10%, 4/15/2028 966,480
2,025,000 National Semiconductor
Corp., Conv. Bond, 6.50%,
10/1/2002 1,838,336
TOTAL 2,804,816
ECOLOGICAL SERVICES &
EQUIPMENT-0.3%
2,700,000 WMX Technologies, Inc.,
Deb., 8.75%, 5/1/2018 2,885,301
<CAPTION>
PRINCIPAL VALUE IN
AMOUNT U.S. DOLLARS
<C> <S> <C>
U.S. CORPORATE BONDS-
continued
EDUCATION-0.2%
$ 2,000,000 Boston University, 7.625%,
7/15/2097 $ 2,034,340
ELECTRONICS-0.3%
3,000,000 Anixter International,
Inc., Company Guarantee,
8.00%, 9/15/2003 3,070,440
FINANCE - AUTOMOTIVE-0.2%
1,620,000 General Motors Acceptance
Corp., Note, 9.00%,
10/15/2002 1,750,702
FINANCIAL INTERMEDIARIES-
0.9%
750,000 Associates Corp. of North
America, Sr. Note, 9.125%,
4/1/2000 770,790
1,250,000 Chrysler Financial Co.
L.L.C., Deb., 13.25%,
10/15/1999 1,291,638
2,000,000 Green Tree Financial
Corp., Sr. Sub. Note,
10.25%, 6/1/2002 2,155,220
2,000,000 Green Tree Financial Corp.
1993-4, Class B2, 8.55%,
1/15/2019 1,964,120
784,475 Green Tree Home Equity Loan
Trust 1999-A, Class B2A,
7.44%, 2/15/2029 784,032
1,000,000 Lehman Brothers Holdings,
Inc., Note, 8.50%,
5/1/2007 1,067,870
1,000,000 Lehman Brothers, Inc., Sr.
Sub. Note, 7.375%,
1/15/2007 1,001,320
TOTAL 9,034,990
FOREST PRODUCTS-0.2%
1,250,000 Donohue Forest Products,
7.625%, 5/15/2007 1,282,375
250,000 Pope & Talbot, Inc.,
8.375%, 6/1/2013 229,328
TOTAL 1,511,703
HEALTHCARE-0.1%
850,000 Tenet Healthcare Corp.,
Sr. Note, 8.00%, 1/15/2005 837,250
500,000 1, 2 Tenet Healthcare Corp.,
Sr. Sub., 8.125%,
12/1/2008 483,750
TOTAL 1,321,000
HOME PRODUCTS &
FURNISHINGS-0.1%
600,000 Whirlpool Corp., Unsecd.
Note, 9.50%, 6/15/2000 621,822
INDUSTRIAL PRODUCTS &
EQUIPMENT-0.7%
4,575,000 Figgie International
Holdings, Inc., Sr. Note,
9.875%, 10/1/1999 4,625,279
2,250,000 Southdown, Inc., Sr. Sub.
Note, 10.00%, 3/1/2006 2,485,283
TOTAL 7,110,562
INSURANCE-1.4%
500,000 Allmerica Financial Corp.,
Bond, 8.207%, 2/3/2027 529,190
1,500,000 CNA Financial Corp., Bond,
6.95%, 1/15/2018 1,402,530
1,000,000 Conseco Finance, Unsecd.
Note, 8.796%, 4/1/2027 947,020
500,000 Conseco, Inc., Note,
6.40%, 2/10/2003 483,080
1,000,000 Conseco, Inc., Sr. Note,
10.50%, 12/15/2004 1,127,570
<CAPTION>
PRINCIPAL VALUE IN
AMOUNT U.S. DOLLARS
<C> <S> <C>
U.S. CORPORATE BONDS-
continued
INSURANCE-CONTINUED
$ 750,000 Delphi Financial Group,
Inc., 9.31%, 3/25/2027 $ 703,005
3,164,000 Delphi Financial Group,
Inc., Note, 8.00%,
10/1/2003 3,183,902
1,000,000 GEICO Corp., Deb., 9.15%,
9/15/2021 1,101,850
2,000,000 1, 2 Life Re Capital Trust I,
Company Guarantee, 8.72%,
6/15/2027 2,180,720
285,000 NAC Re Corp., Note, 8.00%,
6/15/1999 285,382
625,000 Provident Cos., Inc.,
Bond, 7.405%, 3/15/2038 590,388
500,000 1, 2 USF&G Corp., 8.312%,
7/1/2046 527,650
500,000 USF&G Corp., Company
Guarantee, 8.47%,
1/10/2027 513,980
1,000,000 1, 2 Union Central Life
Insurance Co., Note,
8.20%, 11/1/2026 1,055,140
TOTAL 14,631,407
LEISURE & ENTERTAINMENT-
0.2%
1,850,000 Paramount Communications,
Inc., Sr. Deb., 8.25%,
8/1/2022 1,920,504
175,000 Viacom, Inc., Sr. Sub.
Note, 10.25%, 9/15/2001 189,001
TOTAL 2,109,505
METALS & MINING-0.5%
1,950,000 Inco Ltd., Note, 9.60%,
6/15/2022 1,818,746
2,300,000 1, 2 Normandy Finance Ltd.,
Company Guarantee, 7.50%,
7/15/2005 2,221,248
1,125,000 Santa Fe Pacific Gold,
Note, 8.375%, 7/1/2005 1,132,459
TOTAL 5,172,453
OIL & GAS-0.5%
1,250,000 Husky Oil Ltd., Sr. Note,
7.125%, 11/15/2006 1,210,688
2,450,000 Occidental Petroleum
Corp., Note, 8.50%,
9/15/2004 2,471,609
1,750,000 Sun Co., Inc., 9.00%,
11/1/2024 1,961,033
TOTAL 5,643,330
PRINTING & PUBLISHING-0.2%
880,000 News America Holdings,
Inc., Company Guarantee,
8.00%, 10/17/2016 930,459
1,000,000 News America Holdings,
Inc., Note, 8.15%,
10/17/2036 1,054,260
TOTAL 1,984,719
REAL ESTATE-0.3%
1,000,000 Price REIT, Inc., Sr. Note,
7.50%, 11/5/2006 1,002,750
500,000 Storage USA, 8.20%,
6/1/2017 491,145
2,100,000 Storage USA, Deb., 7.50%,
12/1/2027 1,876,980
TOTAL 3,370,875
<CAPTION>
PRINCIPAL
AMOUNT OR
FOREIGN
CURRENCY VALUE IN
PAR AMOUNT U.S. DOLLARS
<C> <S> <C>
U.S. CORPORATE BONDS-
continued
RETAILERS-1.3%
$ 2,500,000 Dayton-Hudson Corp., Deb.,
10.00%, 12/1/2000 $ 2,648,175
2,030,000 Harcourt General, Inc.,
Sr. Deb., 7.20%, 8/1/2027 1,896,264
3,174,657 K Mart Corp., Pass Thru
Cert., 8.54%, 1/2/2015 3,292,563
1,000,000 Sears, Roebuck & Co.,
Medium Term Note, 10.00%,
2/3/2012 1,234,240
1,000,000 Shopko Stores, Inc.,
8.50%, 3/15/2002 1,040,510
2,300,000 Shopko Stores, Inc., Sr.
Note, 9.25%, 3/15/2022 2,641,573
TOTAL 12,753,325
SURFACE TRANSPORTATION-
0.2%
1,500,000 Trans Ocean Container
Corp., Sr. Sub. Note,
12.25%, 7/1/2004 1,606,695
TELECOMMUNICATIONS &
CELLULAR-0.3%
3,500,000 Tricom SA, Sr. Note,
11.375%, 9/1/2004 3,062,500
UTILITIES-0.2%
1,750,000 1, 2 Edison Mission Holding
Co., Sr. Secd. Note,
8.734%, 10/1/2026 1,740,533
500,000 Puget Sound Energy, Inc.,
Medium Term Note, 7.02%,
12/1/2027 487,225
TOTAL 2,227,758
TOTAL U.S CORPORATE BONDS
(IDENTIFIED COST
$105,376,367) 109,373,674
INTERNATIONAL BONDS-36.0%
ARGENTINE PESO-0.4%
SOVEREIGN-0.3%
3,000,000 Argentina, Government of,
Unsub., 8.75%, 7/10/2002 2,521,992
TELECOMMUNICATIONS-0.1%
2,000,000 1, 2 CIA International Telecommunications, Note,
10.375%, 8/1/2004 1,481,170
TOTAL ARGENTINE PESO 4,003,162
AUSTRALIAN DOLLAR-0.2%
PRINTING & PUBLISHING-0.0%
150,000 News America Holdings,
Inc., 8.625%, 2/7/2014 97,439
STATE/PROVINCIAL-0.2%
580,000 Queensland, State of,
Deb., 10.50%, 5/15/2003 439,238
2,000,000 Queensland, State of,
Local Gov't. Guarantee,
8.00%, 5/14/2003 1,398,866
550,000 Victoria, State of, Local
Gov't. Guarantee, 10.25%,
11/15/2006 445,064
TOTAL 2,283,168
TOTAL AUSTRALIAN DOLLAR 2,380,607
<CAPTION>
FOREIGN
CURRENCY VALUE IN
PAR AMOUNT U.S. DOLLARS
<C> <S> <C>
INTERNATIONAL BONDS-
continued
BRITISH POUND-0.5%
BANKING-0.1%
300,000 Bank of Ireland, Sub.,
9.75%, 3/21/2005 $ 557,105
SOVEREIGN-0.4%
500,000 Denmark, Government of,
Unsub., 11.625%, 1/23/2000 830,026
700,000 United Kingdom, Government
of, 7.00%, 11/6/2001 1,167,633
1,300,000 United Kingdom, Government
of, Foreign Gov't.
Guarantee, 11.75%,
1/22/2007 2,520,498
TOTAL 4,518,157
TOTAL BRITISH POUND 5,075,262
CANADIAN DOLLAR-1.0%
AIR TRANSPORTATION-0.1%
1,200,000 Air Canada, 7.25%,
10/1/2007 800,435
BEVERAGE & TOBACCO-0.1%
1,100,000 Molson Breweries, Unsub.,
9.10%, 3/11/2013 940,857
FOREST PRODUCTS-0.1%
1,150,000 Avenor, Inc., Deb.,
10.85%, 11/30/2014 996,318
STATE/PROVINCIAL-0.1%
1,000,000 1, 2 Metro Toronto, Deb.,
7.40%, 9/27/2006 742,184
TELECOMMUNICATIONS &
CELLULAR-0.6%
500,000 Bell Canada, Deb., 8.80%,
8/17/2005 390,478
2,500,000 Clearnet Communications,
Inc., Sr. Disc. Note,
0/10.40%, 5/15/2008 958,960
7,180,000 Clearnet Communications,
Inc., Sr. Disc. Note,
8/13/2007 3,095,353
3,800,000 Microcell
Telecommunications, Sr.
Disc. Note, 0/11.125%,
10/15/2007 1,573,713
TOTAL 6,018,504
TOTAL CANADIAN DOLLAR 9,498,298
CZECH KORUNA-0.7%
FINANCIAL INTERMEDIARIES-
0.2%
78,000,000 Baden Wurt L-Finance NV,
Sr. Note, Series EMTN,
13.50%, 6/22/2001 2,398,751
SOVEREIGN GOVERNMENT-0.5%
146,000,000 Czech, Government of,
Bond, 14.85%, 2/6/2003 4,955,539
TOTAL CZECH KORUNA 7,354,290
<CAPTION>
FOREIGN
CURRENCY VALUE IN
PAR AMOUNT U.S DOLLARS
<C> <S> <C>
INTERNATIONAL BONDS-
continued
DANISH KRONE-0.1%
FINANCIAL INTERMEDIARIES-
0.0%
929,000 Nykredit, Mtg. Bond,
8.00%, 10/1/2026 $ 137,890
97,000 Unikredit Realkredit, Mtg.
Bond, 8.00%, 10/1/2029 14,272
TOTAL 152,162
SOVEREIGN-0.1%
7,000,000 Denmark, Government of,
Bond, 9.00%, 11/15/2000 1,058,053
250,000 Denmark, Government of,
Bullet, 8.00%, 3/15/2006 42,771
TOTAL 1,100,824
TOTAL DANISH KRONE 1,252,986
DEUTSCHE MARK-0.6%
INDUSTRIAL PRODUCTS &
EQUIPMENT-0.1%
1,500,000 Texon International PLC,
Sr. Note, Series REG S,
10.00%, 2/1/2008 729,574
MACHINERY & EQUIPMENT-0.2%
4,250,000 1, 2 Sirona Dental System, Series REG S, 9.125%,
7/15/2008 2,275,537
SOVEREIGN-0.1%
3,500,000 1, 2 Russia, Government of,
9.375%, 3/31/2005 1,035,395
TELECOMMUNICATIONS &
CELLULAR-0.2%
4,200,000 Viatel, Inc., 11.15%,
4/15/2008 2,238,691
TOTAL DEUTSCHE MARK 6,279,197
EURO-4.8%
BANKING-0.3%
3,000,000 1, 2 Dresdner Funding Trust,
Series 144A, 5.79%,
6/30/2011 3,148,453
HOME PRODUCTS &
FURNISHINGS-0.5%
4,500,000 American Standard, Inc.,
Company Guarantee, 7.125%,
6/1/2006 4,705,556
SOVEREIGN-3.5%
2,250,000 Austria, Government of,
Bond, 5.625%, 7/15/2007 2,589,569
1,000,000 Austria, Government of,
Bond, 6.25%, 7/15/2027 1,204,087
1,200,000 France, Government of,
8.50%, 4/25/2023 1,838,969
3,476,784 Germany, Government of,
Deb., 6.25%, 1/4/2024 4,214,622
476,308 Ireland, Government of,
Deb., 4.00%, 4/18/2010 484,038
2,704,542 Ireland, Government of,
Deb., 9.00%, 9/1/2006 3,719,655
387,342 Italy, Government of,
10.00%, 8/1/2003 506,370
<CAPTION>
FOREIGN
CURRENCY VALUE IN
PAR AMOUNT U.S. DOLLARS
<C> <S> <C>
INTERNATIONAL BONDS-
continued
EURO-continued
SOVEREIGN-CONTINUED
335,696 Italy, Government of,
7.75%, 11/1/2006 $ 432,204
4,699,749 Italy, Government of,
Bond, 10.50%, 9/1/2005 6,705,927
1,420,254 Italy, Government of,
Deb., 12.00%, 1/1/2003 1,908,216
1,361,340 Netherlands, Government
of, Bond, 7.50%, 4/15/2010 1,803,799
680,670 Netherlands, Government
of, Bond, 8.25%, 2/15/2007 906,157
1,247,895 Netherlands, Government
of, Bond, 8.50%, 6/1/2006 1,667,142
2,949,571 Netherlands, Government
of, Bond, 9.00%, 1/15/2001 3,373,194
60,101 Spain, Government of,
10.00%, 2/28/2005 83,301
216,364 Spain, Government of,
Bond, 10.15%, 1/31/2006 306,986
1,863,137 Spain, Government of,
Deb., 10.10%, 2/28/2001 2,179,945
480,809 Spain, Government of,
Deb., 8.20%, 2/28/2009 649,913
757,275 Spain, Government of,
Foreign Gov't. Guarantee,
8.00%, 5/30/2004 955,940
TOTAL 35,530,034
TELECOMMUNICATIONS &
CELLULAR-0.5%
1,500,000 1 Jazztel PLC, Series UT1E,
14.00%, 4/1/2009 1,575,477
3,000,000 1, 2 KPN QWEST BV, 7.125%,
6/1/2009 3,096,224
TOTAL 4,671,701
TOTAL EURO 48,055,744
GREEK DRACHMA-1.0%
SOVEREIGN-1.0%
120,000,000 Greece, Government of,
11.10%, 8/14/2003 398,184
600,000,000 Greece, Government of,
14.70%, 9/30/2003 2,015,940
375,000,000 Greece, Government of,
Bond, 12.40%, 11/26/2003 1,246,729
200,000,000 Greece, Government of,
Bond, 12.70%, 12/31/2003 664,282
1,020,000,000 Greece, Government of,
Bond, 8.60%, 3/26/2008 3,837,689
350,000,000 Greece, Government of,
Bond, 9.80%, 3/21/2000 1,126,006
120,000,000 Greece, Government of,
Floating Rate Note,
13.10%, 10/23/2003 400,493
215,000,000 Greece, Government of,
Series, 12.40%, 11/26/2003 714,791
TOTAL GREEK DRACHMA 10,404,114
<CAPTION>
FOREIGN
CURRENCY VALUE IN
PAR AMOUNT U.S. DOLLARS
<C> <S> <C>
INTERNATIONAL BONDS-
continued
HUNGARIAN FORINT-0.4%
SOVEREIGN-0.4%
450,000,000 Hungary, Government of,
Bond, 13.00%, 7/24/2003 $ 1,889,807
580,000,000 Hungary, Government of,
Bond, 14.00%, 12/12/2002 2,490,282
TOTAL HUNGARIAN FORINT 4,380,089
INDONESIAN RUPIAH-0.0%
CONGLOMERATE-0.0%
637,916,667 Dharmala Intiutama 3,926
NEW ZEALAND DOLLAR-0.2%
FINANCIAL INTERMEDIARIES-
0.1%
840,000 Brierley Investments Ltd.,
Bond, 9.00%, 3/15/2002 464,559
SOVEREIGN-0.1%
2,300,000 New Zealand, Government
of, Deb., 8.00%,
11/15/2006 1,365,198
TOTAL NEW ZEALAND DOLLAR 1,829,757
NORWEGIAN KRONE-0.2%
SOVEREIGN-0.2%
3,000,000 Norway, Government of,
Bond, 7.00%, 5/31/2001 392,710
8,000,000 Norway, Government of,
Bond, 9.50%, 10/31/2002 1,147,224
TOTAL NORWEGIAN KRONE 1,539,934
POLISH ZLOTY-1.0%
SOVEREIGN-1.0%
2,000,000 Poland, Government of,
15.00%, 10/12/1999 502,636
17,750,000 Poland, Government of,
Bond, 12.00%, 10/12/2003 4,639,154
7,870,000 Poland, Government of,
Bond, 12.00%, 2/12/2002 2,008,500
4,500,000 Poland, Government of,
Bond, 12.00%, 2/12/2003 1,164,826
1,500,000 Poland, Government of,
Bond, 12.00%, 6/12/2001 378,672
6,000,000 Poland, Government of,
Bond, 12.00%, 6/12/2002 1,542,556
TOTAL POLISH ZLOTY 10,236,344
SLOVAKIAN KORUNA-0.0%
SUPRANATIONAL-0.0%
15,500,000 International Finance
Corp., Note, 11.75%,
8/15/1999 343,796
<CAPTION>
FOREIGN
CURRENCY
PAR AMOUNT OR
PRINCIPAL VALUE IN
AMOUNT U.S. DOLLARS
<C> <S> <C>
INTERNATIONAL BONDS-
continued
SOUTH AFRICAN RAND-0.4%
GOVERNMENT AGENCY-0.1%
10,000,000 Telkom SA Ltd., 10.00%,
3/31/2008 $ 1,153,204
SOVEREIGN-0.2%
10,000,000 South Africa, Government
of, 12.00%, 2/28/2005 1,413,851
2,500,000 South Africa, Government
of, Bond, 12.50%,
1/15/2002 380,869
TOTAL 1,794,720
SURFACE TRANSPORTATION-
0.1%
11,000,000 Lesotho Water Authority,
Foreign Gov't. Guarantee,
13.00%, 9/15/2010 1,504,685
TOTAL SOUTH AFRICAN RAND 4,452,609
SOUTH KOREAN WON-0.1%
SUPRANATIONAL-0.1%
900,000,000 European Bank for
Reconstruction and
Development, Bond, 10.00%,
5/2/2002 812,070
SWEDISH KRONA-0.3%
SOVEREIGN-0.3%
3,000,000 Sweden, Government of,
10.25%, 5/5/2003 429,782
10,500,000 Sweden, Government of,
Bond, 8.00%, 8/15/2007 1,531,252
7,500,000 Sweden, Government of,
Deb., 6.50%, 10/25/2006 989,687
TOTAL SWEDISH KRONA 2,950,721
TURKISH LIRA-0.6%
SOVEREIGN-0.6%
4,350,000,000,000 Turkey, Government of,
4/19/2000 5,646,735
U.S. DOLLAR-23.4%
AGENCY-0.5%
$ 2,000,000 Quebec, Province of,
11.00%, 6/15/2015 2,182,840
1,000,000 Quebec, Province of, Deb.,
13.25%, 9/15/2014 1,066,760
1,500,000 Quebec, Province of, Deb.,
9.125%, 8/22/2001 1,579,629
TOTAL 4,829,229
BANKING-0.1%
1,250,000 National Bank of Canada,
Montreal, Sub. Note,
8.125%, 8/15/2004 1,331,838
<CAPTION>
PRINCIPAL VALUE IN
AMOUNT U.S. DOLLARS
<C> <S> <C>
INTERNATIONAL BONDS-
continued
U.S. DOLLAR-continued
BROADCAST RADIO & TV-0.4%
$ 2,000,000 Globo Communicacoes Part,
Sr. Note, 10.625%,
12/5/2008 $ 1,385,000
2,950,000 1, 2 Grupo Televisa SA, Sr.
Disc. Note, 0/13.25%,
5/15/2008 2,315,750
TOTAL 3,700,750
BUILDING & DEVELOPMENT-
0.3%
2,500,000 Cemex SA, Bond, 12.75%,
7/15/2006 2,688,635
1,000,000 Corporacion GEO, SA de
C.V., Note, 10.00%,
5/23/2002 905,000
TOTAL 3,593,635
CABLE & WIRELESS
TELEVISION-0.2%
3,750,000 1, 2 Imasac, SA, 11.00%,
5/2/2005 2,400,000
CONGLOMERATE-0.2%
1,000,000 Mechala Group Jamaica,
Company Guarantee, Series
REGs, 12.00%, 2/15/2002 195,000
2,000,000 Mechala Group Jamaica,
Note, Series B, 12.75%,
12/30/1999 510,000
2,000,000 Perez Companc, Bond,
Series REG S, 8.125%,
7/15/2007 1,630,048
TOTAL 2,335,048
CONSUMER PRODUCTS-0.3%
4,500,000 Mastellone Hermanos SA,
Bond, 11.75%, 4/1/2008 3,442,500
CONTAINER & GLASS
PRODUCTS-0.3%
2,750,000 Vicap SA, Sr. Note, Series
EXCH, 11.375%, 5/15/2007 2,543,750
FINANCE-0.2%
1,000,000 1, 2 Pera Financial, 9.375%,
10/15/2002 865,000
1,000,000 Pera Financial, Sec. Fac.
Bond, Series REG S, 9.375%,
10/15/2002 892,000
TOTAL 1,757,000
FINANCIAL INTERMEDIARIES-
0.5%
3,000,000 Banco Nacional Trust, Bank
Guarantee, 11.25%,
5/30/2006 3,075,000
1,000,000 1, 2 Den Danske Bank Group,
Note, 7.40%, 6/15/2010 1,031,140
500,000 PIV Investment Finance,
Company Guarantee, 4.50%,
12/1/2000 122,500
1,000,000 1, 2 Swedbank, Sub., 7.50%,
11/29/2049 980,562
TOTAL 5,209,202
<CAPTION>
PRINCIPAL VALUE IN
AMOUNT U.S. DOLLARS
<C> <S> <C>
INTERNATIONAL BONDS-
continued
U.S. DOLLAR-continued
FOREST PRODUCTS-1.3%
$ 3,450,000 Advance Agro Public Co.,
Company Guarantee, 13.00%,
11/15/2007 $ 2,686,688
2,500,000 Grupo Industrial Durango
SA de C.V., 12.625%,
8/1/2003 2,375,000
1,700,000 Indah Kiat Intl. Finance,
Company Guarantee,
11.875%, 6/15/2002 1,309,000
1,800,000 Indah Kiat Intl. Finance,
Company Guarantee, 12.50%,
6/15/2006 1,332,000
2,000,000 Klabin Fabricadora Papel,
Company Guarantee, Series
REGS, 11.00%, 8/12/2004 1,552,000
3,380,000 Quno Corp., Sr. Note,
9.125%, 5/15/2005 3,587,769
TOTAL 12,842,457
INDUSTRIAL PRODUCTS &
EQUIPMENT-0.6%
2,250,000 Advance Agro Public Co.,
Unsub., 13.00%, 11/15/2007 1,752,188
1,500,000 Grupo Minero Mexico,
9.25%, 4/1/2028 1,170,000
2,000,000 Perez Companc, Series
REGS, 9.00%, 1/30/2004 1,851,000
1,000,000 1, 2 TM Group Holdings, Sr.
Note, 11.00%, 5/15/2008 1,015,000
TOTAL 5,788,188
METALS & MINING-0.6%
1,000,000 Barrick Gold Corp., Deb.,
7.50%, 5/1/2007 1,029,810
2,578,000 Companhia Vale Do Rio Doce,
Note, 10.00%, 4/2/2004 2,517,417
2,250,000 Placer Dome, Inc., Bond,
8.50%, 12/31/2045 2,195,523
TOTAL 5,742,750
OIL & GAS-0.3%
1,800,000 Perez Companc, Series
REGS, 9.00%, 5/1/2006 1,620,000
1,500,000 Petroleos Mexicanos,
Series 144A, 9.375%,
12/2/2008 1,496,250
TOTAL 3,116,250
SOVEREIGN-13.6%
2,500,000 Argentina, Government of,
11.75%, 4/7/2009 2,262,500
5,000,000 Argentina, Government of,
12.125%, 2/25/2019 4,550,000
5,000,000 Argentina, Government of,
Bond, 11.375%, 1/30/2017 4,385,000
8,000,000 Argentina, Government of,
Global Bond Deb., 9.75%,
9/19/2027 6,236,000
2,000,000 Argentina, Government of,
Note, 11.00%, 12/4/2005 1,810,000
3,000,000 Argentina, Government of,
Unsub., 11.00%, 10/9/2006 2,704,500
12,000,000 Brazil, Government of,
10.125%, 5/15/2027 8,742,000
5,000,000 Brazil, Government of,
11.625%, 4/15/2004 4,537,500
5,000,000 Brazil, Government of,
5.9375%, 4/15/2012 2,856,250
<CAPTION>
PRINCIPAL VALUE IN
AMOUNT U.S. DOLLARS
<C> <S> <C>
INTERNATIONAL BONDS-
continued
U.S. DOLLAR-continued
SOVEREIGN-CONTINUED
$ 9,500,000 Brazil, Government of,
Bond, 9.375%, 4/7/2008 $ 7,386,098
4,710,452 Brazil, Government of, C
Bond, 5.00%, 4/15/2014 2,955,808
4,250,000 Bulgaria, Government of,
5.875%, 7/28/2024 2,756,197
8,900,000 Bulgaria, Government of,
Deb., 5.875%, 7/28/2011 5,696,000
5,000,000 Ecuador, Government of,
6.00%, 2/28/2025 2,381,250
3,165,168 Ecuador, Government of,
Deb., 6.00%, 2/27/2015 1,186,938
1,250,000 Korea, Government of,
8.875%, 4/15/2008 1,323,725
2,000,000 Korea, Government of,
Global Bond Deb., 8.75%,
4/15/2003 2,086,940
4,000,000 Mexico, Government of,
11.375%, 9/15/2016 4,214,000
4,750,000 Mexico, Government of,
6.25%, 12/31/2019 3,398,207
4,000,000 Mexico, Government of,
8.625%, 3/12/2008 3,640,000
6,500,000 Mexico, Government of,
Bond, 11.50%, 5/15/2026 7,150,000
5,500,000 Mexico, Government of,
Bond, 9.875%, 1/15/2007 5,403,750
2,000,000 Morocco - R & C A, Foreign
Gov't. Guarantee, 1/1/2009 1,570,000
900,000 Nacional Financiera, SNC,
Foreign Gov't. Guarantee,
10.625%, 11/22/2001 925,227
3,000,000 1, 2 Nacional Financiera, SNC,
Series 144A, 9.75%,
3/12/2002 3,082,500
2,000,000 Pakistan, Government of,
Bond, 9.08125%, 5/30/2000 1,050,340
2,800,000 Pakistan, Government of,
Deb., 11.50%, 12/22/1999 2,117,657
1,000,000 Panama, Government of,
7.875%, 2/13/2002 952,843
3,730,000 Panama, Government of,
8.25%, 4/22/2008 3,357,000
4,000,000 Panama, Government of,
Bond, 8.875%, 9/30/2027 3,500,000
2,000,000 Philippines, Government
of, 8.875%, 4/15/2008 1,973,000
8,000,000 Philippines, Government
of, 9.875%, 1/15/2019 7,780,000
1,000,000 1, 2 Russia, Government of,
10.00%, 6/26/2007 430,000
4,500,000 Russia, Government of,
10.00%, 6/26/2007 1,968,750
2,750,000 Russia, Government of,
11.75%, 6/10/2003 1,333,750
500,000 1, 2 Russia, Government of,
9.25%, 11/27/2001 280,000
33,677 Russia, Government of,
IAN, 12/15/2015 3,199
2,000,000 Russia, Government of,
Principal Loan, 3.3125%,
12/15/2020 140,000
920,000 South Africa, Government
of, Global Bond Deb.,
9.625%, 12/15/1999 936,183
2,000,000 South Africa, Government
of, Note, 8.50%, 6/23/2017 1,680,000
<CAPTION>
PRINCIPAL VALUE IN
AMOUNT U.S. DOLLARS
<C> <S> <C>
INTERNATIONAL BONDS-
continued
U.S. DOLLAR-continued
SOVEREIGN-CONTINUED
$ 4,000,000 South Africa, Government
of, Sr. Unsub., 9.125%,
5/19/2009 $ 3,862,840
6,000,000 Turkey, Government of,
Note, 12.00%, 12/15/2008 5,940,000
10,000,000 Venezuela, Government of,
Bond, 9.25%, 9/15/2027 6,390,000
TOTAL 136,935,952
SOVEREIGN GOVERNMENT-1.7%
7,000,000 Colombia, Government of,
Bond, 10.875%, 3/9/2004 6,580,000
4,500,000 Colombia, Government of,
Unsub., 8.625%, 4/1/2008 3,465,000
1,327,665 Croatia, Government of,
Bond, 6.5625%, 7/31/2006 1,075,782
6,360,000 Kazakhstan, Government of,
Note, 8.375%, 10/2/2002 5,883,000
TOTAL 17,003,782
STEEL-0.1%
1,125,000 Tubos de Acero de Mexico
SA, Unsub., 13.75%,
12/8/1999 1,132,875
SURFACE TRANSPORTATION-
0.2%
2,500,000 Zhuhai Highway, 9.125%,
7/1/2006 1,412,538
250,000 1 Zhuhai Highway, Sub. Note,
11.50%, 7/1/2008 122,910
TOTAL 1,535,448
TELECOMMUNICATIONS &
CELLULAR-1.4%
2,000,000 1, 2 Alestra SA, Sr. Note,
12.625%, 5/15/2009 1,910,000
700,000 1, 2 Comtel Brasileir, Note,
10.75%, 9/26/2004 605,500
500,000 Comtel Brasileir, Note,
Series REGS, 10.75%,
9/26/2004 432,500
4,400,000 Netia Holdings, Company
Guarantee, 10.25%,
11/1/2007 4,092,000
1,500,000 Philippine Long Distance
Telephone Co., Deb.,
10.625%, 6/2/2004 1,504,286
2,500,000 Philippine Long Distance
Telephone Co., Sr. Note,
Series EMTN, 8.35%,
3/6/2017 1,950,000
3,895,000 SK Telecom Co. Ltd., 7.75%,
4/29/2004 3,775,735
TOTAL 14,270,021
UTILITIES-0.6%
3,000,000 AES China Generating Co.,
Note, 10.125%, 12/15/2006 1,815,000
1,600,000 Comp Paranaense De Energ,
9.75%, 5/2/2005 1,416,101
1,500,000 1, 2 Empresa Nacional
Electricidad SA, 8.50%,
4/1/2009 1,511,250
550,000 1, 2 Israel Electric Corp.
Ltd., Sr. Note, 7.875%,
12/15/2026 510,422
<CAPTION>
PRINCIPAL VALUE IN
AMOUNT U.S. DOLLARS
<C> <S> <C>
INTERNATIONAL BONDS-
continued
U.S. DOLLAR-continued
UTILITIES-CONTINUED
$ 600,000 1, 2 Israel Electric Corp.
Ltd., Sr. Secd. Note,
7.75%, 3/1/2009 $ 605,762
1,000,000 1, 2 Tenaga Nasional Berhad,
Deb., 7.50%, 1/15/2096 766,290
TOTAL 6,624,825
TOTAL U.S. DOLLARS 236,135,500
TOTAL INTERNATIONAL BONDS
(IDENTIFIED COST
$410,823,713) 362,635,141
ASSET-BACKED SECURITIES-
0.4%
STRUCTURED PRODUCT-0.4%
2,500,000 1, 2 125 Home Loan Owner Trust 1998-1A, Class B1,
9.26%,
2/15/2029 2,201,575
1,000,000 New Century Home Equity
Loan Trust 1997-NC5, Class
M2, 7.24%, 10/25/2028 939,380
484,726 1 SMFC Trust Asset-Backed
Certificates, Series 1997-
A, Class 4, 7.7191%,
1/28/2025 415,775
TOTAL ASSET-BACKED
SECURITIES (IDENTIFIED
COST $3,935,990) 3,556,730
U.S. GOVERNMENT/AGENCY-
0.1%
LONG-TERM GOVERNMENT
OBLIGATIONS-0.1%
837,024 Government National
Mortgage Association,
11.00%, 9/15/2015
(identified cost $940,606) 935,115
U.S. TREASURY OBLIGATIONS-
8.0%
U.S. TREASURY BONDS-8.0%
1,500,000 United States Treasury
Bond, 8.00%, 11/15/2021 1,839,390
1,500,000 United States Treasury
Bond, 8.125%, 5/15/2021 1,857,105
9,750,000 United States Treasury
Bond, 8.75%, 8/15/2020 12,744,225
6,500,000 United States Treasury
Bond, 10.75%, 2/15/2003 7,579,065
9,500,000 United States Treasury
Bond, 10.75%, 8/15/2005 11,916,040
10,550,000 United States Treasury
Bond, 11.625%, 11/15/2004 13,396,918
3,800,000 United States Treasury
Bond, 11.875%, 11/15/2003 4,703,488
10,910,000 United States Treasury
Bond, 12.375%, 5/15/2004 13,980,292
10,000,000 United States Treasury
Bond, 14.25%, 2/15/2002 12,159,000
TOTAL U.S. TREASURY
OBLIGATIONS (IDENTIFIED
COST $83,396,774) 80,175,523
<CAPTION>
PRINCIPAL
AMOUNT VALUE IN
OR SHARES U.S. DOLLARS
<C> <S> <C>
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 $ 737,768
250,000 McKeesport, PA, Taxable
G.O. Series B 1997, 7.30%
Bonds (MBIA INS), 3/1/2020 256,988
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 1,088,080
TOTAL MUNICIPALS
(IDENTIFIED COST
$2,094,855) 2,082,836
MUTUAL FUNDS-42.9%
5,445,793 Federated Mortgage Core
Portfolio 53,641,061
41,051,020 The High Yield Bond
Portfolio (Federated Core
TR) 379,311,425
TOTAL MUTUAL FUNDS
(IDENTIFIED COST
$453,331,184) 432,952,486
COMMON STOCKS-0.0%
SOVEREIGN-0.0%
2,000 Argentina, Government of,
Warrants 18,250
250 Nigeria, Government of,
Warrants 3
7,500 Venezuela, Government of,
Warrants 0
TOTAL COMMON STOCKS
(IDENTIFIED COST $0) 18,253
PREFERRED STOCKS-0.4%
REAL ESTATE-0.2%
2,000 Highwoods Properties,
Inc., REIT Perpetual Pfd.
Stock, Series A, $86.25 1,775,900
9,900 Prologis Trust, Cumulative
Pfd. 451,688
TOTAL 2,227,588
TELECOMMUNICATIONS &
CELLULAR-0.2%
63,800 AT&T Corp., Pfd., $2.50 1,742,538
TOTAL PREFERRED STOCKS
(IDENTIFIED COST
$4,241,941) 3,970,126
REPURCHASE AGREEMENT-0.0% 3
125,000 Bear, Stearns and Co.,
4.93%, dated 5/28/1999,
due 6/1/1999
(at amortized cost) 125,000
TOTAL INVESTMENTS
(IDENTIFIED COST
$1,064,266,430) 4 $ 995,824,884
</TABLE>
1 Denotes a restricted security which is subject to restrictions on resale under
federal securities laws. At May 31, 1999, these securities amounted to
$44,824,942 which represents 4.4% of net assets. Included in these amounts,
securities which have been deemed liquid amounted to $42,710,779 which
represents 4.2% of net assets.
2 Denotes a restricted security that has been deemed liquid by criteria approved
by the fund's board of directors.
3 The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investments in the repurchase agreements are through participation in joint
accounts with other Federated funds.
4 The cost of investments for federal tax purposes amounts to $1,064,266,430.
The net unrealized depreciation of investments on a federal tax basis amounts to
$68,441,546 which is comprised of $3,273,984 appreciation and $71,715,530
depreciation at May 31, 1999.
Note: The categories of investments are shown as a percentage of net assets
($1,008,294,740) at May 31, 1999.
The following acronyms are used throughout this portfolio:
FSA -Financial Security Assurance GO -General Obligation INS -Insured MBIA
- -Municipal Bond Investors Assurance PLC -Public Limited Company REIT -Real
Estate Investment Trust SA -Support Agreement TRANs -Tax and Revenue
Anticipation Notes UT -Unlimited Tax
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
MAY 31, 1999 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in
securities, at value
(identified and tax cost
$1,064,266,430) $ 995,824,884
Cash 2,622
Cash denominated in
foreign currencies (cost
$3,176,250) 3,127,499
Income receivable 18,537,386
Receivable for investments
sold 3,086,993
Receivable for shares sold 4,021,095
TOTAL ASSETS 1,024,600,479
LIABILITIES:
Payable for investments
purchased $ 10,963,816
Payable for shares
redeemed 1,009,491
Income distribution
payable 3,525,024
Payable for taxes withheld 31,934
Payable for foreign
currency purchased 49,312
Accrued expenses 726,162
TOTAL LIABILITIES 16,305,739
Net assets for 106,652,593
shares outstanding $ 1,008,294,740
NET ASSETS CONSIST OF:
Paid in capital $ 1,080,830,996
Net unrealized
depreciation of
investments and
translation of assets and
liabilities in foreign
currency (68,438,604)
Accumulated net realized
gain on investments and
foreign currency
transactions 1,169,726
Distributions in excess of
net investment income (5,267,378)
TOTAL NET ASSETS $ 1,008,294,740
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PROCEEDS PER SHARE
CLASS A SHARES:
Net Asset Value Per Share
($148,920,621 / 15,748,062
shares outstanding) $9.46
Offering Price Per Share
(100/95.50 of $9.46) 1 $9.91
Redemption Proceeds Per
Share $9.46
CLASS B SHARES:
Net Asset Value Per Share
($749,475,856 / 79,276,757
shares outstanding) $9.45
Offering Price Per Share $9.45
Redemption Proceeds Per
Share (94.50/100 of $9.45) 2 $8.93
CLASS C SHARES:
Net Asset Value Per Share
($74,386,120 / 7,869,756
shares outstanding) $9.45
Offering Price Per Share $9.45
Redemption Proceeds Per
Share (99.00/100 of $9.45) 2 $9.36
CLASS F SHARES:
Net Asset Value Per Share
($35,512,143 / 3,758,018
shares outstanding) $9.45
Offering Price Per Share
(100/99.00 of $9.45) 1 $9.55
Redemption Proceeds Per
Share (99.00/100 of $9.45) 2 $9.36
</TABLE>
1 See "What Do Shares Cost?" in the Prospectus.
2 See "Contingent Deferred Sales Charge" in the Prospectus.
See Notes which are an integral part of the Financial Statements
Statement of Operations
SIX MONTHS ENDED MAY 31, 1999 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 18,587,775
Interest (net of dollar
roll expense of $103,224) 29,985,343
TOTAL INCOME 48,573,118
EXPENSES:
Investment advisory fee $ 4,188,299
Administrative personnel
and services fee 371,527
Custodian fees 111,221
Transfer and dividend
disbursing agent fees and
expenses 381,171
Directors'/Trustees' fees 3,648
Auditing fees 9,027
Legal fees 1,963
Portfolio accounting fees 85,703
Distribution services fee-
Class B Shares 2,733,707
Distribution services fee-
Class C Shares 282,968
Distribution services fee-
Class F Shares 89,850
Shareholder services fee-
Class A Shares 181,370
Shareholder services fee-
Class B Shares 911,236
Shareholder services fee-
Class C Shares 94,323
Shareholder services fee-
Class F Shares 44,925
Share registration costs 128,288
Printing and postage 46,795
Insurance premiums 2,225
Taxes 39,376
Miscellaneous 30,132
TOTAL EXPENSES 9,737,754
WAIVERS:
Waiver of investment
advisory fee $ (943,027)
Waiver of distribution
services fee-Class F
Shares (89,850)
TOTAL WAIVERS (1,032,877)
Net expenses 8,704,877
Net investment income 39,868,241
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY:
Net realized loss on
investments and foreign
currency transactions (1,431,659)
Net change in unrealized
depreciation of
investments and
translation of assets and
liabilities in foreign
currency (34,501,577)
Net realized and
unrealized loss on
investments and foreign
currency (35,933,236)
Change in net assets
resulting from operations $ 3,935,005
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited) YEAR ENDED
MAY 31, NOVEMBER 30,
1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS:
Net investment income $ 39,868,241 $ 50,343,301
Net realized gain (loss) on
investments and foreign
currency transactions
($(1,431,659) and
$673,903, respectively, as
computed for federal tax
purposes) (1,431,659) 549,421
Net change in unrealized
appreciation/depreciation
of investments and
translation of assets and
liabilities in foreign
currency (34,501,577) (31,142,110)
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS 3,935,005 14,750,612
DISTRIBUTIONS TO
SHAREHOLDERS:
Distributions from net
investment income
Class A Shares (6,140,541) (8,483,623)
Class B Shares (28,158,033) (35,196,240)
Class C Shares (2,906,806) (4,000,486)
Class F Shares (1,520,857) (2,707,952)
Distributions from net
realized gains on
investments and foreign
currency transactions
Class A Shares - (211,252)
Class B Shares - (1,028,524)
Class C Shares - (95,932)
Class F Shares - (97,754)
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 (38,726,237) (56,275,591)
SHARE TRANSACTIONS:
Proceeds from sale of
shares 201,557,009 654,543,381
Net asset value of shares
issued to shareholders in
payment of distributions
declared 18,453,662 28,092,524
Cost of shares redeemed (117,126,839) (122,954,049)
CHANGE IN NET ASSETS
RESULTING FROM SHARE
TRANSACTIONS 102,883,832 559,681,856
Change in net assets 68,092,600 518,156,877
NET ASSETS:
Beginning of period 940,202,140 422,045,263
End of period $ 1,008,294,740 $ 940,202,140
</TABLE>
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class A Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED
(unaudited)
MAY 31, YEAR ENDED NOVEMBER 30,
1999 1998 1997 1996 1995 1994 1
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 9.79 $10.41 $10.47 $10.14 $ 9.54 $10.00
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income 0.42 0.83 0.87 2 0.91 0.82 0.45
Net realized and
unrealized gain (loss) on
investments and foreign
currency (0.34) (0.54) (0.03) 0.42 0.61 (0.45)
TOTAL FROM
INVESTMENT OPERATIONS 0.08 0.29 0.84 1.33 1.43 0.00
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.41) (0.81) (0.87) (0.89) (0.83) (0.45)
Distributions in excess of
net investment income 3 - (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 (0.41) (0.91) (0.90) (1.00) (0.83) (0.46)
NET ASSET VALUE, END OF
PERIOD $ 9.46 $ 9.79 $10.41 $10.47 $10.14 $ 9.54
TOTAL RETURN 4 0.79% 2.94% 8.33% 13.89% 15.64% 0.05%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 5 1.34% 6 1.37% 1.46% 2.03% 5.94% 9.12% 6
Net investment income 5 8.47% 6 7.88% 8.04% 7.65% 2.99% (0.49%) 6
Expenses (after waivers) 1.15% 6 1.13% 1.10% 1.05% 0.25% 0.25% 6
Net investment income
(after waivers) 8.66% 6 8.12% 8.40% 8.54% 8.68% 8.38% 6
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $148,921 $141,065 $58,270 $28,021 $5,089 $2,366
Portfolio turnover 37% 93% 40% 47% 158% 34%
</TABLE>
1 Reflects operations for the period from May 4, 1994 (date of initial public
investment) to November 30, 1994.
2 Per Share information is based on average shares outstanding.
3 Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These dis tributions
do not represent a return of capital for federal income tax pur poses.
4 Based on net asset value, which does not reflect the sales charge or con
tingent deferred sales charge, if applicable.
5 During the period, certain fees were voluntarily waived and reimbursed. If
such voluntarily waivers and reimbursements had not occurred, the ratios would
have been as indicated.
6 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class B Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED
(unaudited)
MAY 31, YEAR ENDED NOVEMBER 30,
1999 1998 1997 1996 1995 1
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 9.79 $10.40 $10.47 $10.14 $10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.38 0.75 0.79 2 0.83 0.25
Net realized and
unrealized gain (loss) on
investments and foreign
currency (0.35) (0.53) (0.04) 0.42 0.13
TOTAL FROM INVESTMENT
OPERATIONS 0.03 0.22 0.75 1.25 0.38
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.37) (0.73) (0.79) (0.83) (0.24)
Distributions in excess of
net investment income 3 - (0.07) - (0.01) -
Distributions from net
realized gain
on investments and foreign
currency transactions - (0.03) (0.03) (0.08) -
TOTAL DISTRIBUTIONS (0.37) (0.83) (0.82) (0.92) (0.24)
NET ASSET VALUE, END OF
PERIOD $ 9.45 $ 9.79 $10.40 $10.47 $10.14
TOTAL RETURN 4 0.31% 2.17% 7.53% 13.03% 5.13%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 5 2.09% 6 2.12% 2.22% 2.78% 6.69% 6
Net investment income 5 7.72% 6 7.13% 7.30% 6.82% 2.26% 6
Expenses (after waivers) 1.90% 6 1.88% 1.85% 1.80% 1.00% 6
Net investment income
(after waivers) 7.91% 6 7.37% 7.67% 7.80% 7.95% 6
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $749,476 $689,687 $304,746 $120,020 $5,193
Portfolio turnover 37% 93% 40% 47% 158%
</TABLE>
1 Reflects operations for the period from July 27, 1995 (date of initial pub lic
investment) to November 30, 1995.
2 Per Share information is based on average shares outstanding.
3 Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These dis tributions
do not represent a return of capital for federal income tax pur poses.
4 Based on net asset value, which does not reflect the sales charge or con
tingent deferred sales charge, if applicable.
5 During the period, certain fees were voluntarily waived and reimbursed. If
such voluntarily waivers and reimbursements had not occurred, the ratios would
have been as indicated.
6 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class C Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED
(unaudited)
MAY 31, YEAR ENDED NOVEMBER 30,
1999 1998 1997 1996 1995 1994 1
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 9.79 $10.41 $10.47 $10.14 $ 9.54 $10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.38 0.75 0.79 2 0.82 0.74 0.40
Net realized and
unrealized gain (loss) on
investments and foreign
currency (0.35) (0.54) (0.03) 0.43 0.61 (0.44)
TOTAL FROM
INVESTMENT OPERATIONS 0.03 0.21 0.76 1.25 1.35 (0.04)
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.37) (0.73) (0.79) (0.80) (0.75) (0.40)
Distributions in excess of
net investment income 3 - (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 (0.37) (0.83) (0.82) (0.92) (0.75) (0.42)
NET ASSET VALUE, END OF
PERIOD $ 9.45 $ 9.79 $10.41 $10.47 $10.14 $ 9.54
TOTAL RETURN 4 0.31% 2.18% 7.53% 13.05% 14.79% (0.41%)
RATIOS TO AVERAGE NET
ASSETS:
Expenses 5 2.09% 6 2.12% 2.23% 2.78% 6.69% 9.87% 6
Net investment income 5 7.71% 6 7.13% 7.32% 6.72% 2.24% (0.88%) 6
Expenses (after waivers) 1.90% 6 1.88% 1.86% 1.80% 1.00% 1.00% 6
Net investment income
(after waivers) 7.90% 6 7.37% 7.69% 7.70% 7.93% 7.99% 6
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $74,386 $73,509 $29,267 $10,481 $2,323 $1,190
Portfolio turnover 37% 93% 40% 47% 158% 34%
</TABLE>
1 Reflects operations for the period from May 2, 1994 (date of initial public
investment) to November 30, 1994.
2 Per Share information is based on average shares outstanding.
3 Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These dis tributions
do not represent a return of capital for federal income tax pur poses.
4 Based on net asset value, which does not reflect the sales charge or con
tingent deferred sales charge, if applicable.
5 During the period, certain fees were voluntarily waived and reimbursed. If
such voluntarily waivers and reimbursements had not occurred, the ratios would
have been as indicated.
6 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class F Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED
(unaudited)
MAY 31, YEAR ENDED NOVEMBER 30,
1999 1998 1997 1996 1995 1994 1
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 9.79 $10.41 $10.47 $10.14 $ 9.54 $10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.42 0.82 0.87 2 0.95 0.77 0.41
Net realized and
unrealized gain (loss) on
investments and foreign
currency (0.35) (0.53) (0.03) 0.37 0.61 (0.44)
TOTAL FROM
INVESTMENT OPERATIONS 0.07 0.29 0.84 1.32 1.38 (0.03)
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.41) (0.81) (0.87) (0.91) (0.78) (0.41)
Distributions in excess of
net investment income 3 - (0.07) - - - (0.02)
Distributions from net
realized gain
on investments and foreign
currency transactions - (0.03) (0.03) (0.08) - -
TOTAL DISTRIBUTIONS (0.41) (0.91) (0.90) (0.99) (0.78) (0.43)
NET ASSET VALUE, END OF
PERIOD $ 9.45 $ 9.79 $10.41 $10.47 $10.14 $ 9.54
TOTAL RETURN 4 0.69% 2.94% 8.33% 13.83% 15.07% (0.19%)
RATIOS TO AVERAGE NET
ASSETS:
Expenses 5 1.84% 6 1.87% 1.96% 2.53% 6.44% 9.62% 6
Net investment income 5 7.96% 6 7.38% 7.52% 7.02% 2.50% (0.53%) 6
Expenses (after waivers) 1.15% 6 1.13% 1.10% 1.07% 0.75% 0.75% 6
Net investment income
(after waivers) 8.65% 6 8.12% 8.38% 8.48% 8.19% 8.34% 6
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $35,512 $35,941 $29,762 $17,367 $3,691 $2,326
Portfolio turnover 37% 93% 40% 47% 158% 34%
</TABLE>
1 Reflects operations for the period from May 10, 1994 (date of initial pub lic
investment) to November 30, 1994.
2 Per Share information is based on average shares outstanding.
3 Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These dis tributions
do not represent a return of capital for federal income tax pur poses.
4 Based on net asset value, which does not reflect the sales charge or con
tingent deferred sales charge, if applicable.
5 During the period, certain fees were voluntarily waived and reimbursed. If
such voluntarily waivers and reimbursements had not occurred, the ratios would
have been as indicated.
6 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
MAY 31, 1999 (UNAUDITED)
ORGANIZATION
Fixed Income Securities, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end, man
agement investment company. The Corporation consists of three portfolios. The
financial statements included herein are only those of Federated Strate gic
Income Fund (the "Fund"), a diversified portfolio. The financial state ments of
the other portfolios are presented separately. The assets of each portfolio are
segregated and a shareholder's interest is limited to the port folio 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.
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 secu
rities 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 regu lated 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. There fore, 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 posses sion,
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 repur chase agreement
transaction.
The Fund will only enter into repurchase agreements with banks and other rec
ognized financial institutions, such as broker/dealers, which are deemed by the
Fund's adviser to be creditworthy pursuant to the guidelines and/or stan dards
reviewed or established by the Board of Directors (the "Directors"). Risks may
arise from the potential inability of counterparties to honor the terms of the
repurchase agreement. Accordingly, the Fund could receive less than the
repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Dividend income and distributions to shareholders are recorded on
the ex-dividend date.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary.
Withholding taxes on foreign interest and dividends have been provided for in
accordance with the Fund's understanding of the applicable country's tax rules
and rates.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security posi
tions 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 secu
rities 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 coun
terparts to meet the terms of their contracts and from unanticipated move ments
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 state ment purposes
as unrealized until the contract settlement date.
At May 31, 1999, the Fund had forward commitments outstanding as set forth
below:
<TABLE>
<CAPTION>
CONTRACTS TO NET UNREALIZED
SETTLEMENT DATE DELIVER/RECEIVE IN EXCHANGE FOR CONTRACTS AT VALUE DEPRECIATION
<S> <C> <C> <C> <C>
Contracts Purchased:
6/2/1999 2,977,830 Euro Currency $3,153,699 $3,104,387 $(49,312)
</TABLE>
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. All assets
and liabilities denominated in foreign currencies ("FC") are translated into
U.S. dollars based on the rate of exchange of such currencies against U.S.
dollars on the date of valuation. Purchases and sales of securities, income and
expenses are translated at the rate of exchange quoted on the respective date
that such transactions are recorded. Differences between income and expense
amounts recorded and collected or paid are adjusted when reported by the
custodian bank. The Fund does not isolate that portion of the results of
operations resulting from changes in foreign exchange rates on investments from
the fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales of
FCs, currency gains or losses realized between the trade and settlement dates on
securities transactions, the difference between the amounts of div idends,
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 secu
rities issued by GNMA, FNMA and FHLMC, in which the Fund sells mortgage secu
rities 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 12 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 registra tion
under federal securities laws or in transactions exempt from such regis tration.
In some cases, the issuer of restricted securities has agreed to register such
securities for resale, at the issuer's expense either upon demand by the Fund or
in connection with another registered offering of the securities. Many
restricted securities may be resold in the secondary market in transactions
exempt from registration. Such restricted securities may be determined to be
liquid under criteria established by the Directors. The Fund will not incur any
registration costs upon such resales. The Fund's restricted securities are
valued at the price provided by dealers in the sec ondary market or, if no
market prices are available, at the fair value as determined by the Fund's
pricing committee.
Additional information on each restricted security held at May 31, 1999 is as
follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
Zhuhai Highway 12/04/1997 $ 266,993
Jazztel PLC, Series UT1E 04/01/1999 1,500,000
SMFC Trust 02/04/1998 456,293
</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 rev enues reported in
the financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
CAPITAL STOCK
At May 31, 1999, par value shares ($0.001 per share) authorized were as fol
lows:
<TABLE>
<CAPTION>
NUMBER OF PAR VALUE
CLASS NAME CAPITAL STOCK AUTHORIZED
<S> <C> Class A Shares 1,000,000,000 Class B Shares 1,000,000,000 Class C Shares
1,000,000,000 Class F Shares 1,000,000,000 TOTAL 4,000,000,000
</TABLE>
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1999 NOVEMBER 30, 1998
CLASS A SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 3,219,852 $ 31,229,702 11,737,306 $ 119,136,896
Shares issued to
shareholders in payment of
distributions declared 327,093 3,159,875 506,232 5,019,946
Shares redeemed (2,203,952) (21,373,770) (3,437,440) (34,148,973)
NET CHANGE RESULTING FROM
CLASS A SHARE
TRANSACTIONS 1,342,994 $ 13,015,807 8,806,098 $ 90,007,869
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1999 NOVEMBER 30, 1998
CLASS B SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 15,668,498 $ 152,071,210 46,244,607 $ 464,101,229
Shares issued to
shareholders in payment of
distributions declared 1,357,280 13,118,835 1,921,710 19,184,451
Shares redeemed (8,213,539) (79,628,242) (7,010,454) (69,841,583)
NET CHANGE RESULTING FROM
CLASS B SHARE
TRANSACTIONS 8,812,239 $ 85,561,803 41,155,863 $ 413,444,197
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1999 NOVEMBER 30, 1998
CLASS C SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 1,501,234 $ 14,550,778 5,833,387 $ 59,173,334
Shares issued to
shareholders in payment of
distributions declared 162,317 1,569,229 253,165 2,526,473
Shares redeemed (1,303,338) (12,643,697) (1,389,482) (13,812,502)
NET CHANGE RESULTING FROM
CLASS C SHARE
TRANSACTIONS 360,213 $ 3,476,310 4,697,070 $ 47,887,305
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MAY 31, 1999 NOVEMBER 30, 1998
CLASS F SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 382,618 $ 3,705,319 1,194,426 $ 12,131,922
Shares issued to
shareholders in payment of
distributions declared 62,720 605,723 133,478 1,361,654
Shares redeemed (359,867) (3,481,130) (515,291) (5,151,091)
NET CHANGE RESULTING FROM
CLASS F SHARE
TRANSACTIONS 85,471 $ 829,912 812,613 $ 8,342,485
NET CHANGE RESULTING FROM
SHARE TRANSACTIONS 10,600,917 $ 102,883,832 55,471,644 $ 559,681,856
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Investment Management Company, 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 Fed
erated Global Investment Management Corp., Federated Global Investment Man
agement Corp. receives an allocable portion of the Fund's advisory fee. Such
allocation is based on the amount of foreign securities which Federated Glo bal
Investment Management 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 Administra tive 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 Feder ated
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 pro vides that the Fund may
incur distribution expenses according to the follow ing schedule annually, to
compensate FSC.
PERCENTAGE OF
AVERAGE DAILY NET
SHARE CLASS NAME ASSETS OF CLASS
Class B Shares 0.75%
Class C Shares 0.75%
Class F Shares 0.50%
The distributor may voluntarily choose to waive any portion of its fee. The
distributor can modify or terminate this voluntary waiver at any time at its
sole discretion.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Share holder
Services Company ("FSSC"), the Fund will pay FSSC up to 0.25% of aver age 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 share holder accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary FSSC, serves as transfer and dividend disburs ing
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.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended May 31, 1999, were as follows:
Purchases $471,072,949
Sales $354,437,699
CONCENTRATION OF CREDIT RISK
The Fund invests in securities of non-U.S. issuers. Although the Fund main tains
a diversified investment portfolio, the political or economic develop ments
within a particular country or region may have an adverse effect on the ability
of domiciled issuers to meet their obligations. Additionally, polit ical or
economic developments may have an effect on the liquidity and vola tility of
portfolio securities and currency holdings.
YEAR 2000
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and administrator are taking mea sures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
Directors
JOHN F. DONAHUE
THOMAS G. BIGLEY
JOHN T. CONROY, JR.
NICHOLAS P. CONSTANTAKIS
WILLIAM J. COPELAND
LAWRENCE D. ELLIS, M.D.
RICHARD B. FISHER
EDWARD L. FLAHERTY, JR., ESQ.
PETER E. MADDEN
CHARLES F. MANSFIELD, JR.
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
C. GRANT ANDERSON
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 gov
ernment agency. Investment in mutual funds involves investment risk, includ ing
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 con
cerning its objective and policies, management fees, expenses, and other
information.
[Graphic]
Federated
World-Class Investment Manager
SEMI-ANNUAL REPORT
AS OF MAY 31, 1999
Federated Strategic Income Fund
Established 1994
5TH SEMI-ANNUAL REPORT
[Graphic]
Federated
Federated Strategic Income Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Cusip 338319700
Cusip 338319866
Cusip 338319809
Cusip 338319882
G00324-01 (7/99)
[Graphic]
APPENDIX A. The graphic presentation here displayed consists of a boxed legend
in the upper left quadrant indicating the components of the corresponding
mountain chart. The color coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects computation periods from 1/13/92
to 5/31/99. The "y" axis is measured in increments of $2,250 ranging from $0 to
$13,500 and indicates that the ending value of a hypothetical initial investment
of $8,000 in the fund's Class A Shares, assuming the reinvestment of capital
gains and dividends, would have grown to $11,892 on 5/31/99.
APPENDIX B. The graphic presentation here displayed consists of a boxed legend
in the upper left quadrant indicating the components of the corresponding
mountain chart. The color coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects computation periods from 1/13/92
to 5/31/99. The "y" axis is measured in increments of $2,000 ranging from $0 to
$10,000 and indicates that the ending value of hypothetical yearly investments
of $1,000 in the fund's Class A Shares, assuming the reinvestment of capital
gains and dividends, would have grown to $9,795 on 5/31/99.
APPENDIX C. The graphic presentation here displayed consists of a boxed legend
in the upper left quadrant indicating the components of the corresponding
mountain chart. The color coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects computation periods from 1/13/92
to 5/31/99. The "y" axis is measured in increments of $4,000 ranging from $0 to
$16,000 and indicates that the ending value of a hypothetical initial investment
of $10,000 in the fund, assuming the reinvestment of capital gains and
dividends, would have grown to $14,865 on 5/31/99.
APPENDIX D. The graphic presentation here displayed consists of a boxed legend
in the upper left quadrant indicating the components of the corresponding
mountain chart. The color coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects computation periods from 9/1/93
to 5/31/99. The "y" axis is measured in increments of $1,000 ranging from $0 to
$9,000 and indicates that the ending value of a 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 $7,431 on 5/31/99.
APPENDIX E. The graphic presentation here displayed consists of a boxed legend
in the upper left quadrant indicating the components of the corresponding
mountain chart. The color coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects computation periods from 9/1/93
to 5/31/99. The "y" axis is measured in increments of $1,000 ranging from $0 to
$8,000 and indicates that the ending value of hypothetical yearly investments of
$1,000 in the fund's Class A Shares, assuming the reinvestment of capital gains
and dividends, would have grown to $6,783 on 5/31/99.
APPENDIX F. The graphic presentation here displayed consists of a pie chart
representing the sector allocation of the fund's assets as of May 31, 1999. Each
slice of the pie represents a percentage of the fund's assets invested in a
particular investment sector. The sectors and their percentages are: Domestic
High Yield Bonds - 37.63%; International Bonds - 34.52%; and Domestic High
Quality Bonds - 27.85%.
APPENDIX G. The graphic presentation here displayed consists of a boxed legend
in the upper left quadrant indicating the components of the corresponding
mountain chart. The color coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects computation periods from 5/4/94
to 5/31/99. 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 initial investment
of $6,000 in the fund's Class A Shares, assuming the reinvestment of capital
gains and dividends, would have grown to $8,480 on 5/31/99.
APPENDIX H. The graphic presentation here displayed consists of a boxed legend
in the upper left quadrant indicating the components of the corresponding
mountain chart. The color coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects computation periods from 5/4/94
to 5/31/99. The "y" axis is measured in increments of $1,000 ranging from $0 to
$8,000 and indicates that the ending value of hypothetical yearly investments of
$1,000 in the fund's Class A Shares, assuming the reinvestment of capital gains
and dividends, would have grown to $6,826 on 5/31/99.
APPENDIX I. The graphic presentation here displayed consists of a boxed legend
in the upper left quadrant indicating the components of the corresponding
mountain chart. The color coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects computation periods from 5/4/94
to 5/31/99. The "y" axis is measured in increments of $30,000 ranging from $0 to
$180,000 and indicates that the ending value of a hypothetical initial
investment of $100,000 in the fund's Class A Shares, assuming the reinvestment
of capital gains and dividends, would have grown to $142,423 on 5/31/99.
