[Logo of Federated]
[photo of Richard B. Fisher]
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 Annual Report. As of November 30, 1999, the fund's assets of $149 million
were invested in selected short-term bonds with average maturities of 2-3 years
that provide the potential for generous current income. 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 12-month reporting period from December 1, 1998 through
November 30, 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.
As outlined in Randy's discussion, from a total return perspective it was a
difficult period for bonds in general and short-term bonds in particular. As
yields rose, bond prices--and the net asset values of bond funds--fell.
Nevertheless, the fund's diversified, conservative portfolio of short-term bonds
still produced a positive total return, compared to the negative returns of
longer term bond funds. A strong income stream helped the fund weather a slight
decline in net asset value. On November 30, 1999, the fund's 30-day Securities
and Exchange Commission ("SEC") yields were 6.67% for Class A Shares and 6.77%
for Class F Shares./2/
/1/ Unlike the fund, money market funds seek to maintain a stable $1.00 share
value.
/2/ The 30-day SEC yields were 6.60% and 6.70% for Class A Shares and Class F
Shares, respectively, based on offering price.
Individual share class total return performance for the 12-month reporting
period, including income distributions, follows./3/
<TABLE>
<CAPTION>
Total Return Income Distributions Net
Asset Value Change
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A Shares 2.31% $0.59 $9.82
to $9.45 = (3.77%)
- -----------------------------------------------------------------------------------------------------------
Class F Shares 2.42% $0.60 $9.82
to $9.45 = (3.77%)
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Thank you for participating in Federated Limited Term Fund as a way to pursue a
competitive income stream through all types of bond market environments.
Remember, reinvesting your monthly dividends is a convenient way to build your
account and help your money grow through the benefit of compounding.
As always, we welcome your comments and suggestions.
Sincerely,
/s/ Richard B. Fisher
Richard B. Fisher
President
January 15, 2000
/3/ Performance quoted is based on net asset value, represents past performance
and is no guarantee 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 1.28% and 0.43%, respectively.
[Photo of Randall S. Bauer]
Randall S. Bauer
Vice President
Federated Investment Management Company
Investment Review
During the fund's fiscal year, interest rates trended higher, causing bond
prices to decline across the board. How did the short-term bond market perform
in this environment?
1999 has proven to be the worst year for the U.S. bond market since 1994, and
one of the five worst in the past 25 years. In terms of pure yield increases,
the part of the yield curve in which the fund typically invests fared the worst.
At the beginning of the reporting period, the yield on the two-year Treasury
note was 4.50%, having been as low as 3.82% on October 15, 1998. By November 30,
1999, the yield had risen to 6.02%, an increase of 34% from the beginning of the
fiscal year and 58% from the October 15, 1998 low.
Given such a difficult bond market, the fund's returns for the reporting
period did not exceed the yields of money market funds in general. The solidly
positive return in an extremely weak market, however, does serve to demonstrate
the lower risk nature of short-term bond investing (relative to longer term
strategies), and the validity of employing some of an investor's liquid assets
in a short-term bond vehicle as a complement to cash balances. Yields do not go
up all the time, and when they decline or remain the same, the return on an
investment vehicle like the fund should serve to enhance the return of such a
"blended" strategy.
How did Federated Limited Term Fund perform in terms of total return and income?
For the fiscal year ended November 30, 1999, the fund's Class A Shares produced
a total return of 2.31%, based on net asset value, and paid monthly dividends
totaling $0.59 per share./1/ The fund's Class F Shares produced a total return
of 2.42%, based on net asset value, and paid monthly dividends totaling $0.60
per share./1/ The 30-day SEC yields for Class A and F Shares were 6.67% and
6.77%, respectively, on November 30, 1999./2/
On a total return basis, the fund lagged its peer group, the Lipper Short-Term
Investment Grade Debt Funds Average, which produced a return for the 12-month
reporting period of 3.08%./3/
/1/ Performance quoted is based on net asset value, represents past performance
and is no guarantee 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 1.28% and 0.43%, respectively.
/2/ The 30-day SEC yields were 6.60% and 6.70% for Class A Shares and Class F
Shares, respectively, based on offering price.
/3/ Lipper figures represent the average of the total returns reported by all
of the mutual funds designated by Lipper Analytical Services, Inc. as
falling into the category indicated. Lipper figures do not take sales
charges into account.
What changes did you make in the fund's allocation among different types of
securities, and how was the portfolio allocated with respect to credit quality
as of November 30, 1999?
The only major change in fund asset allocation has been a movement from lower
investment-grade industrial names into more of a barbell between lower
investment-grade asset-backed securities ("ABS") and Treasuries. At the end of
the prior fiscal year, the Treasury market had rallied sharply and fund
management had reduced the fund's Treasury allocation to near zero. A modest
Treasury allocation (on the order of 5%) has been re-established to diversify
credit quality in light of much higher yields. The re-deployment out of
corporate bonds and into ABS was done to take advantage of a wide disparity in
yields between like-rated ABS and industrials. Moreover, corporate bonds had
outperformed so-called "subordinate ABS" over the course of the past fiscal
year, providing further basis for the move.
With regard to credit quality, the fund continued to maintain a solid
investment-grade average quality profile. As of November 30, 1999, the quality
breakdown of the fund's portfolio was:
<TABLE>
<CAPTION>
Percentage of
Net Assets
- -------------------------------------------------------------------
<S> <C>
AAA 39%
- -------------------------------------------------------------------
AA 5%
- -------------------------------------------------------------------
A 9%
- -------------------------------------------------------------------
BBB 37%
- -------------------------------------------------------------------
BB or lower 10%
- -------------------------------------------------------------------
</TABLE>
What were the fund's top five holdings as of November 30, 1999?
<TABLE>
<CAPTION>
Name/Coupon/Maturity Percentage of
Net Assets
- -----------------------------------------------------------------------------
<S> <C>
PNC Mortgage Securities Corp. 1997-2, Class B1; 3.08%
7.500%, due 03/25/2027
- -----------------------------------------------------------------------------
Green Tree Home Improvement Loan Trust 1997-A, Class 2.33%
HE6; 7.160% due 03/15/2028
- -----------------------------------------------------------------------------
Bridgestone/Firestone Master Trust 1996-1, Class B; 2.02%
6.490% due 07/01/2003
- -----------------------------------------------------------------------------
Salomon Brothers Mortgage Sec. VII, Inc. 1999-3, 1.95%
Class M3; 8.66% due 05/25/2029
- -----------------------------------------------------------------------------
Salomon Brothers Mortgage Sec. VII, Inc. 1998-NC1, 1.95%
Class M3; 6.84% due 03/30/2028
- -----------------------------------------------------------------------------
TOTAL 11.33%
- -----------------------------------------------------------------------------
</TABLE>
What is your outlook for the short-term bond market and the fund as we leave a
difficult year for bonds and enter the year 2000?
The outlook is essentially a "good news, bad news" scenario. The bad news is
that it is quite possible that short-term yields may continue to rise into the
first calendar quarter of 2000. The good news, however, is that any increase in
yields should be relatively minor compared to what has occurred during the past
year, and that the significant yield advantage offered by products like the fund
over money market funds should more than compensate for minor increases in
interest rates (on the order of up to 50 basis points).
Despite the current health of the U.S. economy and the fear of still higher
nominal interest rates, inflation-adjusted interest rates are already quite high
by historical standards. This fact, when coupled with the fact that inflation
remains relatively benign, would appear to indicate that any further interest
rate increases should be of a modest nature, and that we may in fact be
approaching a peak in rates.
Shareholder Meeting Results
A Special Meeting of Fund shareholders was held on November 30, 1999. On
September 8, 1999, the record date for shareholders voting at the meeting, there
were 15,723,665 total outstanding shares. The following items were considered by
shareholders and the results of their voting were as follows:
AGENDA ITEM 1
Vote on Directors:/1/
<TABLE>
<CAPTION>
For Withheld
Authority To
Vote
- -----------------------------------------------------------------------------
<S> <C> <C>
Thomas G. Bigley 7,945,046 175,883
- -----------------------------------------------------------------------------
Nicholas P. Constantakis 7,945,636 175,293
- -----------------------------------------------------------------------------
John F. Cunningham 7,956,655 164,274
- -----------------------------------------------------------------------------
J. Christopher Donahue 7,956,655 164,274
- -----------------------------------------------------------------------------
Charles F. Mansfield, Jr. 7,956,655 164,274
- -----------------------------------------------------------------------------
John E. Murray, Jr. 7,943,378 177,551
- -----------------------------------------------------------------------------
John S. Walsh 7,956,142 164,787
- -----------------------------------------------------------------------------
</TABLE>
/1/ The following Directors of the Fund continued their terms as Directors of
the Fund: John F. Donahue, John T. Conroy, Jr., Lawrence D. Ellis, M.D.,
Peter E. Madden, and Marjorie P. Smuts.
AGENDA ITEM 2
(a) To amend the Fund's fundamental investment policy regarding diversification.
<TABLE>
<CAPTION>
For Against Abstentions and
Broker Non-Votes
- -----------------------------------------------------------------------------
<S> <C> <C>
6,442,672 169,618 1,508,639
- -----------------------------------------------------------------------------
</TABLE>
(b) To amend the Fund's fundamental investment policy regarding borrowing money
and issuing senior securities.
<TABLE>
<CAPTION>
For Against Abstentions and
Broker Non-Votes
- -----------------------------------------------------------------------------
<S> <C> <C>
6,205,778 414,231 1,500,920
- -----------------------------------------------------------------------------
</TABLE>
(c) To amend the Fund's fundamental investment policy regarding investments in
real estate.
<TABLE>
<CAPTION>
For Against Abstentions and Broker
Non-Votes
- -----------------------------------------------------------------------------
<S> <C> <C>
6,421,616 190,775 1,508,538
- -----------------------------------------------------------------------------
</TABLE>
(d) To amend the Fund's fundamental investment policy regarding investments in
commodities.
<TABLE>
<CAPTION>
For Against Abstentions and Broker
Non-Votes
- -----------------------------------------------------------------------------
<S> <C> <C>
6,115,274 502,252 1,503,403
- -----------------------------------------------------------------------------
</TABLE>
(e) To amend the Fund's fundamental investment policy regarding underwriting
securities.
<TABLE>
<CAPTION>
Abstentions and Broker
For Against Non-Votes
- -----------------------------------------------------------------------------
<S> <C> <C>
6,394,918 213,116 1,512,895
- -----------------------------------------------------------------------------
</TABLE>
(f) To amend the Fund's fundamental investment policy regarding lending assets.
<TABLE>
<CAPTION>
Abstentions and Broker
For Against Non-Votes
- -----------------------------------------------------------------------------
<S> <C> <C>
5,924,094 688,234 1,508,601
- -----------------------------------------------------------------------------
</TABLE>
(g) To amend the Fund's fundamental investment policy regarding concentration of
the Fund's investments in the securities of companies in the same industry.
<TABLE>
<CAPTION>
Abstentions and Broker
For Against Non-Votes
- -----------------------------------------------------------------------------
<S> <C> <C>
6,075,946 342,136 1,702,847
- -----------------------------------------------------------------------------
</TABLE>
(h) To amend, and to make non-fundamental, the Fund's fundamental investment
policy regarding buying securities on margin.
<TABLE>
<CAPTION>
Abstentions and Broker
For Against Non-Votes
- -----------------------------------------------------------------------------
<S> <C> <C>
5,858,854 525,902 1,736,173
- -----------------------------------------------------------------------------
</TABLE>
(i) To amend, and to make non-fundamental, the Fund's fundamental investment
policy regarding pledging assets.
<TABLE>
<CAPTION>
Abstentions and Broker
For Against Non-Votes
- -----------------------------------------------------------------------------
<S> <C> <C>
5,876,891 505,729 1,738,309
- -----------------------------------------------------------------------------
</TABLE>
AGENDA ITEM 3
To eliminate the Fund's fundamental investment policy on selling securities
short.
<TABLE>
<CAPTION>
Abstentions and Broker
For Against Non-Votes
- -----------------------------------------------------------------------------
<S> <C> <C>
5,856,298 757,769 1,506,862
- -----------------------------------------------------------------------------
</TABLE>
AGENDA ITEM 4
(a) To permit the Board of Directors to liquidate the assets of a series or
class without seeking shareholder approval, to the extent permitted under
Maryland law.
<TABLE>
<CAPTION>
Abstentions and Broker
For Against Non-Votes
- -----------------------------------------------------------------------------
<S> <C> <C>
5,600,740 1,022,656 1,497,533
- -----------------------------------------------------------------------------
</TABLE>
(b) To permit the company to make name changes without shareholder approval.
<TABLE>
<CAPTION>
Abstentions and Broker
For Against Non-Votes
- -----------------------------------------------------------------------------
<S> <C> <C>
5,825,992 795,448 1,499,489
- -----------------------------------------------------------------------------
</TABLE>
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
Federated Limited Term Fund on 1/14/92, reinvested dividends and capital gains,
and did not redeem any shares, your account would have been worth $11,941 on
11/30/99. You would have earned a 5.22%/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 12/31/99, the Class A Shares' average annual 1-year, 5-year, and since
inception (1/14/92) total returns were 0.86%, 5.80% and 5.17%, respectively. As
of 12/31/99, Class F Shares' average annual 1-year, 5-year, and since inception
(9/1/93) total returns were 0.01%, 5.90%, and 4.62%, 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 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% 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 7
years (reinvesting all dividends and capital gains) grew to $9,835.
With this approach, the key is consistency.
If you had started investing $1,000 annually in the Class A Shares of
Federated Limited Term Fund on 1/14/92, reinvested your dividends and capital
gains and did not redeem any shares, you would have invested only $8,000 but
your account would have reached a total value of $9,835/1/ by 11/30/99. You
would have earned an average annual total return of 4.74%.
A practical investment plan helps you pursue income by investing in short-term
bonds. Through systematic investing, you buy shares on a regular basis and
reinvest all earnings. An investment plan can work for you when you invest only
$1,000 annually. You can take it on step at a time. Put time, money, and
compounding 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.
Federated Limited Term Fund-Class A Shares
GROWTH OF A $10,000 INVESTMENT
The graph below illustrates the hypothetical investment of $10,000/1/ in the
Federated Limited Term Fund (Class A Shares) (the "Fund") from January 14, 1992
(start of performance) to November 30, 1999 compared to the Merrill Lynch 1-3
Year Short-Term Corporate Index (MLSTC)/2/ and the Lipper Short-Term Investment
Grade Debt Funds Average (LSIGDFA)./3/
<TABLE>
<CAPTION>
Average Annual Total Returns/4/ for the Period Ended November 30, 1999
- --------------------------------------------------------------------------
<S> <C>
1 Year 1.28%
- --------------------------------------------------------------------------
5 Years 5.83%
- --------------------------------------------------------------------------
Start of Performance (1/14/92) 5.21%
- --------------------------------------------------------------------------
</TABLE>
[Graphic representation omitted; see Appendix C.]
Past performance is not predictive of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than their original cost. Mutual funds are not obligations of
or guaranteed by any bank and are not federally insured.
/1/ Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 1.00% ($10,000 investment minus $100 sales
charge = $9,900). The Fund's performance assumes the reinvestment of all
dividends and distributions. The MLSTC and the LSIGDFA have been adjusted
to reflect reinvestment of dividends on securities in the index and
average.
/2/ The MLSTC is not adjusted to reflect sales charges, expenses, or other fees
that the Securities and Exchange Commission requires to be reflected in the
Fund's performance. This index is unmanaged.
/3/ The LSIGDFA represents the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as falling
into the category indicated, and is not adjusted to reflect any sales
charges. However, these total returns are reported net of expenses or other
fees that the Securities and Exchange Commission requires to be reflected
in a fund's performance.
/4/ Total return quoted reflects all applicable sales charges.
Federated Limited Term Fund-Class F Shares
GROWTH OF A $10,000 INVESTMENT
The graph below illustrates the hypothetical investment of $10,000/1/ in the
Federated Limited Term Fund (Class F Shares) (the "Fund") from September 1, 1993
(start of performance) to November 30, 1999 compared to the Merrill Lynch 1-3
Year Short-Term Corporate Index (MLSTC)/2/ and the Lipper Short-Term Investment
Grade Debt Funds Average (LSIGDFA)./3/
<TABLE>
<CAPTION>
Average Annual Total Returns/4/ for the Period Ended November 30, 1999
- --------------------------------------------------------------------------
<S> <C>
1 Year 0.43%
- --------------------------------------------------------------------------
5 Years 5.93%
- --------------------------------------------------------------------------
Start of Performance (9/1/93) 4.66%
- --------------------------------------------------------------------------
</TABLE>
[Graphic representation omitted; see Appendix D.]
Past performance is not predictive of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than their original cost. Mutual funds are not obligations of
or guaranteed by any bank and are not federally insured.
/1/ Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 1.00% ($10,000 investment minus $100 sales
charge = $9,900). A contingent deferred sales charge of 1.00% would be
imposed on any redemption less than 4 years from the purchase date. The
Fund's performance assumes the reinvestment of all dividends and
distributions. The MLSTC and the LSIGDFA have been adjusted to reflect
reinvestment of dividends on securities in the index and average.
/2/ The MLSTC is not adjusted to reflect sales charges, expenses, or other fees
that the Securities and Exchange Commission requires to be reflected in the
Fund's performance. This index is unmanaged.
/3/ The LSIGDFA represents the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as falling
into the category indicated, and is not adjusted to reflect any sales
charges. However, these total returns are reported net of expenses or other
fees that the Securities and Exchange Commission requires to be reflected
in a fund's performance.
/4/ Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
Portfolio of Investments
NOVEMBER 30, 1999
<TABLE>
<CAPTION>
Principal
Amount
Value
- --------------------------------------------------------------------------------------------------------------------------------
<S>
<C>
<C>
ADJUSTABLE RATE MORTGAGES--0.9%
Government Agency--0.9%
$ 532,433 /1/FHLMC, ARM, 6.792%,
9/1/2019 $ 546,372
- --------------------------------------------------------------------------------------------------------------------------------
544,948 /1/FHLMC, ARM, 6.785%,
12/1/2018 559,362
- --------------------------------------------------------------------------------------------------------------------------------
158,701 /1/FNMA, ARM, 6.844%,
12/1/2020
163,794
- --------------------------------------------------------------------------------------------------------------------------------
68,815 /1/FNMA, ARM, 7.025%,
11/1/2017
71,308
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL ADJUSTABLE RATE MORTGAGES (IDENTIFIED COST
$1,329,276) 1,340,836
- --------------------------------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES--47.4%
Automobile--6.5%
417,604 AFG Receivables Trust 1997-A, Class C, 7.20%,
10/15/2002 418,552
- --------------------------------------------------------------------------------------------------------------------------------
540,047 AFG Receivables Trust 1997-B, Class C, 7.00%,
2/15/2003 540,306
- --------------------------------------------------------------------------------------------------------------------------------
2,000,000 BMW Vehicle Owner Trust 1999-A, Class A3, 6.41%,
4/25/2003 1,992,140
- --------------------------------------------------------------------------------------------------------------------------------
1,241,462 /2,3/Paragon Auto Receivables Owner Trust 1998-A, Class B,
7.47%, 1,214,447
11/15/2004
- --------------------------------------------------------------------------------------------------------------------------------
1,065,971 /2,3/Paragon Auto Receivables Owner Trust 1998-B, Class B,
7.03%, 1,034,320
3/15/2005
- --------------------------------------------------------------------------------------------------------------------------------
756,218 Paragon Auto Receivables Owner Trust 1999-A, Class A,
5.95%, 749,022
11/15/2005
- --------------------------------------------------------------------------------------------------------------------------------
1,950,000 /2,3/Team Fleet Financing Corp. Series 1997-1, Class B,
7.80%, 1,935,375
5/15/2003
- --------------------------------------------------------------------------------------------------------------------------------
1,850,000 Yamaha Motor Master Trust 1995-1, Class A, 6.20%,
5/15/2003 1,841,906
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL
9,726,068
- --------------------------------------------------------------------------------------------------------------------------------
Credit Card--7.1%
1,552,531 Banco Nacional de Mexico S.A., Credit Card Merchant
Voucher 1,518,569
Receivables Master Trust Series 1996-A, Class A1, 6.25%,
12/1/2003
- --------------------------------------------------------------------------------------------------------------------------------
3,000,000 Bridgestone/Firestone Master Trust 1996-1, Class B,
6.49%, 3,003,240
7/1/2003
- --------------------------------------------------------------------------------------------------------------------------------
2,000,000 Fingerhut Master Trust 1998-2, Class A, 6.23%,
2/15/2007 1,966,940
- --------------------------------------------------------------------------------------------------------------------------------
1,250,000 MBNA Master Credit Card Trust II 1997-F, Class A,
6.60%, 1,249,400
11/15/2004
- --------------------------------------------------------------------------------------------------------------------------------
2,000,000 Providian Master Trust 1999-2, Class A, 6.60%,
4/16/2007 1,993,500
- --------------------------------------------------------------------------------------------------------------------------------
816,667 Spiegel Master Trust 1994-B, Class A, 8.15%,
6/15/2004 822,685
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL
10,554,334
- --------------------------------------------------------------------------------------------------------------------------------
Home Equity Loan--21.3%
1,500,000 /2,3/125 Home Loan Owner Trust 1998-1A, Class B-2,
12.16%, 1,260,938
2/15/2029
- --------------------------------------------------------------------------------------------------------------------------------
263,082 AFC Home Equity Loan Trust 1992-3, Class A, 7.05%,
8/15/2007 262,586
- --------------------------------------------------------------------------------------------------------------------------------
1,000,000 Chase Funding Mortgage Loan 1999-1, Class IIB,
8.16%, 990,620
6/25/2028
- --------------------------------------------------------------------------------------------------------------------------------
2,000,000 Cityscape Home Equity Loan Trust 1997-1, Class M1,
7.00%, 1,970,410
3/25/2018
- --------------------------------------------------------------------------------------------------------------------------------
1,500,000 ContiMortgage Home Equity Loan Trust 1997-5, Class B,
7.62%, 1,265,625
1/15/2029
- --------------------------------------------------------------------------------------------------------------------------------
924,000 Countrywide Asset-Backed Certificates 1999-1, Class
BF, 898,391
8.84%, 1/25/2029
- --------------------------------------------------------------------------------------------------------------------------------
1,000,000 Countrywide Asset-Backed Certificates 1999-1, Class
BV, 1,010,930
8.16%, 2/25/2029
- --------------------------------------------------------------------------------------------------------------------------------
300,000 EQCC Home Equity Loan Trust 1995-4, Class A4,
6.95%, 299,163
3/15/2012
- --------------------------------------------------------------------------------------------------------------------------------
378,906 Green Tree Home Equity Loan Trust 1999-A, Class B2A,
7.44%, 380,153
2/15/2029
- --------------------------------------------------------------------------------------------------------------------------------
942,642 Green Tree Home Improvement Loan Trust 1995-C, Class
B1, 931,849
7.20%, 7/15/2020
- --------------------------------------------------------------------------------------------------------------------------------
2,200,000 Green Tree Home Improvement Loan Trust 1996-F, Class
HI2, 2,073,126
7.70%, 11/15/2027
- --------------------------------------------------------------------------------------------------------------------------------
3,500,000 Green Tree Home Improvement Loan Trust 1997-A, Class
HE6, 3,476,515
7.16%, 3/15/2028
- --------------------------------------------------------------------------------------------------------------------------------
2,000,000 Green Tree Home Improvement Loan Trust 1997-C, Class
B2, 1,751,874
7.59%, 8/15/2028
- --------------------------------------------------------------------------------------------------------------------------------
603,902 Headlands Home Equity Loan Trust 1998-2, Class A3,
6.67%, 589,182
12/15/2024
- --------------------------------------------------------------------------------------------------------------------------------
1,096,720 Independent National Mortgage Corp. Home Equity
1997-A, 1,052,337
Class BF, 7.39%, 10/25/2028
- --------------------------------------------------------------------------------------------------------------------------------
1,000,000 Merrill Lynch Mortgage Investors, Inc. 1993-C, Class
A4, 1,013,182
6.50%, 3/15/2018
- --------------------------------------------------------------------------------------------------------------------------------
2,907,269 /2,3/Merrill Lynch Mortgage Investors, Inc. 1998-FF3, Class
BB, 2,824,138
5.50%, 11/20/2029
- --------------------------------------------------------------------------------------------------------------------------------
701,047 NC Finance Trust 1999-1, Class D, 8.75%,
1/25/2029 676,511
- --------------------------------------------------------------------------------------------------------------------------------
3,000,000 Salomon Brothers Mortgage Sec. VII, Inc. 1999-3, Class
M3, 2,910,000
8.66%, 5/25/2029
- --------------------------------------------------------------------------------------------------------------------------------
1,926,000 Salomon Brothers Mortgage Sec. VII, Inc. 1999-NC2, Class
M3, 1,882,665
8.66%, 4/25/2029
- --------------------------------------------------------------------------------------------------------------------------------
2,749,000 /2,3/Saxon Asset Securities Trust 1998-1, Class BF2,
8.00%, 2,433,167
12/25/2027
- --------------------------------------------------------------------------------------------------------------------------------
1,000,000 Saxon Asset Securities Trust 1999-1, Class BV1,
8.16%, 1,008,130
2/25/2029
- --------------------------------------------------------------------------------------------------------------------------------
621,206 Saxon Asset Securities Trust 1999-2, Class BV1,
8.305%, 624,859
9/25/2001
- --------------------------------------------------------------------------------------------------------------------------------
167,321 The Money Store Home Equity Trust 1992-B, Class A,
6.90%, 166,704
7/15/2007
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL
31,753,055
- --------------------------------------------------------------------------------------------------------------------------------
Manufactured Housing--4.6%
750,000 Green Tree Financial Corp. 1995-3, Class B1, 7.85%,
8/15/2025 741,683
- --------------------------------------------------------------------------------------------------------------------------------
1,250,000 Green Tree Financial Corp. 1996-2, Class B-1,
7.55%, 1,229,350
4/15/2027
- --------------------------------------------------------------------------------------------------------------------------------
2,250,000 Green Tree Financial Corp. 1997-3, Class B1, 7.51%,
7/15/2028 2,116,643
- --------------------------------------------------------------------------------------------------------------------------------
2,000,000 Merit Securities Corp. Series 12, Class 1, 7.98%,
7/28/2033 1,856,874
- --------------------------------------------------------------------------------------------------------------------------------
377,724 Oakwood Mortgage Investors, Inc. 1995-B, Class A2,
6.45%, 375,227
1/15/2021
- --------------------------------------------------------------------------------------------------------------------------------
500,000 Vanderbilt Mortgage Finance, Inc. 1999-A, Class 2B2,
8.01%, 492,629
6/7/2016
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL
6,812,406
- --------------------------------------------------------------------------------------------------------------------------------
Marine Receivables--1.2%
735,492 CBNJ Boat Loan Trust 1994-1, Class A, 6.89%,
5/18/2012 738,448
- --------------------------------------------------------------------------------------------------------------------------------
973,937 NationsCredit Grantor Trust 1997-1, Class A, 6.75%,
8/15/2013 978,222
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL
1,716,670
- --------------------------------------------------------------------------------------------------------------------------------
Other--6.7%
1,170,987 Advanta Equipment Receivables 1998-1, Class C,
6.49%, 1,162,984
12/15/2006
- --------------------------------------------------------------------------------------------------------------------------------
475,908 /1,2,3/Bosque Asset Corp., Class 1, 7.66%,
6/5/2002 475,759
- --------------------------------------------------------------------------------------------------------------------------------
1,673,364 Case Equipment Loan Trust 1999-A, Class B, 5.96%,
8/15/2005 1,648,188
- --------------------------------------------------------------------------------------------------------------------------------
325,000 Centerior Energy Receivables Master Trust 1996-1, Class
A, 328,494
7.20%, 4/15/2002
- --------------------------------------------------------------------------------------------------------------------------------
180,000 Copelco Capital Funding Trust 1998-A, Class A3,
5.78%, 179,501
8/15/2001
- --------------------------------------------------------------------------------------------------------------------------------
3,522,805 /2,3/FMAC Loan Receivables Trust 1997-A, Class A-X,
2.77%, 387,509
4/15/2019
- --------------------------------------------------------------------------------------------------------------------------------
3,000,000 Salomon Brothers Mortgage Sec. VII 1998-NC1, Class
M3, 2,907,000
6.84%, 3/30/2028
- --------------------------------------------------------------------------------------------------------------------------------
3,000,000 Salomon Brothers Mortgage Sec. VII 1999-NC3, Class
M3, 2,895,000
8.69%, 7/25/2029
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL
9,984,435
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES (IDENTIFIED COST
$72,383,371) 70,546,968
- --------------------------------------------------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS--22.2%
Commercial Mortgage--1.4%
3,864,185 First Union Lehman Brothers Commercial Mortgage Trust
Series 226,886
1997C1, Class IO, 1.60%, 6/18/2029
- --------------------------------------------------------------------------------------------------------------------------------
1,900,000 /1,2,3/K Mart CMBS Financing, Inc. Series 1997-1, Class D,
6.51%, 1,887,755
3/1/2007
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL
2,114,641
- --------------------------------------------------------------------------------------------------------------------------------
Government Agency--1.6%
551,952 FHLMC, Series 1686, Class PK, 5.00%,
4/15/2023 545,329
- --------------------------------------------------------------------------------------------------------------------------------
2,000,000 FHLMC, 5.75%,
3/15/2009
1,858,260
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL
2,403,589
- --------------------------------------------------------------------------------------------------------------------------------
Whole Loan--19.2%
877,545 Bayview Financial Acquisition Trust Series 1998-1,
Class 727,402
MI3, 8.21%, 5/25/2029
- --------------------------------------------------------------------------------------------------------------------------------
964,925 Bear Stearns Mortgage Securities, Inc. 1996-8, Class
B3, 943,996
8.00%, 11/25/2027
- --------------------------------------------------------------------------------------------------------------------------------
1,233,820 CMSI 1992-18, Class A-1, 6.544%,
11/25/2022 1,261,000
- --------------------------------------------------------------------------------------------------------------------------------
33,835 Countrywide Home Loans 1997-5, Class A-3, 7.50%,
9/25/2027 33,689
- --------------------------------------------------------------------------------------------------------------------------------
292,588 /2,3/GE Capital Mortgage Services, Inc. Series 1994-3, Class
B4, 183,233
6.50%, 1/25/2024
- --------------------------------------------------------------------------------------------------------------------------------
654,000 GE Capital Mortgage Services, Inc. Series 1998-3, Class
A4, 632,333
6.25%, 1/25/2028
- --------------------------------------------------------------------------------------------------------------------------------
433,767 GE Capital Mortgage Services, Inc. 1998-11, Class
1A13, 432,668
6.75%, 6/25/2028
- --------------------------------------------------------------------------------------------------------------------------------
2,797,172 Headlands Mortgage Securities Inc. 1997-1, Class B3,
7.75%, 2,617,774
3/25/2027
- --------------------------------------------------------------------------------------------------------------------------------
2,400,000 Homeside Mortgage Securities, Inc. 1998-1, Class A2,
6.75%, 2,305,410
2/25/2028
- --------------------------------------------------------------------------------------------------------------------------------
1,535,000 Mellon Residential Funding Corp. 1998-TBC1, Class B3,
6.59%, 1,434,505
10/25/2028
- --------------------------------------------------------------------------------------------------------------------------------
535,000 /2/Mellon Residential Funding Corp. 1998-TBC1, Class B4,
6.59%, 397,404
10/25/2028
- --------------------------------------------------------------------------------------------------------------------------------
979,139 Norwest Asset Securities Corp. 1997-10, Class A4,
7.00%, 953,025
8/25/2027
- --------------------------------------------------------------------------------------------------------------------------------
1,073,733 Norwest Asset Securities Corp. 1998-6, Class A9,
6.90%, 1,011,667
4/25/2028
- --------------------------------------------------------------------------------------------------------------------------------
4,753,795 PNC Mortgage Securities Corp. 1997-2, Class B1,
7.50%, 4,590,930
3/25/2027
- --------------------------------------------------------------------------------------------------------------------------------
1,074,255 Resecuritization Mortgage Trust 1998-A, Class B3,
7.86%, 902,038
10/26/2023
- --------------------------------------------------------------------------------------------------------------------------------
2,000,000 Residential Accredit Loans, Inc. 1997-QS12, Class A6,
7.25%, 1,969,054
11/25/2027
- --------------------------------------------------------------------------------------------------------------------------------
1,000,000 Residential Asset Securitization Trust 1997-A7, Class
A5, 999,690
7.50%, 9/25/2027
- --------------------------------------------------------------------------------------------------------------------------------
2,500,000 Residential Funding Mortgage Securities I, Inc.
1996-S1, 2,479,650
Class A11, 7.10%, 1/25/2026
- --------------------------------------------------------------------------------------------------------------------------------
2,250,000 Residential Funding Mortgage Securities I, Inc.
1997-S17, 2,157,446
Class A14, 7.00%, 11/25/2027
- --------------------------------------------------------------------------------------------------------------------------------
486,110 Residential Funding Mortgage Securities I, Inc. I
1996-S25, 466,666
Class M3, 7.75%, 12/25/2026
- --------------------------------------------------------------------------------------------------------------------------------
1,349,115 /2/SMFC Trust Asset-Backed Certificates, Series 1997-A,
Class 1,140,845
B1, 7.15%, 1/28/2025
- --------------------------------------------------------------------------------------------------------------------------------
936,877 Structured Asset Securities Corp. 1999-ALS2, Class
A2, 913,029
6.75%, 7/25/2029
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL
28,553,454
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (IDENTIFIED
COST 33,071,684
$34,321,791)
- --------------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS--15.3%
Automobile--1.2%
1,800,000 Arvin Industries, Inc., Note, 6.875%,
2/15/2001 1,788,516
Banking--3.3%
- --------------------------------------------------------------------------------------------------------------------------------
3,000,000 Chase Manhattan Corp., Sub. Note, 5.25%,
12/5/2009 2,869,749
- --------------------------------------------------------------------------------------------------------------------------------
1,000,000 Mercantile Bancorporation, Inc., 6.80%,
6/15/2001 999,430
- --------------------------------------------------------------------------------------------------------------------------------
1,000,000 Wells Fargo and Co., Note, 6.50%,
9/3/2002 994,390
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL
4,863,569
- --------------------------------------------------------------------------------------------------------------------------------
Financial Intermediaries--2.0%
1,000,000 Donaldson, Lufkin and Jenrette Securities Corp., Sr.
Note, 974,220
5.875%, 4/1/2002
- --------------------------------------------------------------------------------------------------------------------------------
2,000,000 Lehman Brothers Holdings, Inc., MTN, 6.375%,
3/15/2001 1,983,620
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL
2,957,840
- --------------------------------------------------------------------------------------------------------------------------------
Financial Services--0.8%
1,200,000 AT&T Capital Corp., MTN, 6.16%,
12/3/1999 1,200,756
- --------------------------------------------------------------------------------------------------------------------------------
Food & Drug Retailers--1.0%
1,500,000 Great Atlantic & Pacific Tea Co., Inc., Global Bond
Deb., 1,451,115
7.70%, 1/15/2004
- --------------------------------------------------------------------------------------------------------------------------------
Forest Products--0.7%
1,000,000 Quno Corp., Sr. Note, 9.125%,
5/15/2005 1,053,280
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Principal
Amount
or
Shares
Value
- --------------------------------------------------------------------------------------------------------------------------------
<S>
<C>
<C>
Insurance--2.1%
250,000 Conseco, Inc., Note, 6.40%,
2/10/2003 236,308
- --------------------------------------------------------------------------------------------------------------------------------
2,000,000 GEICO Corp., Deb., 9.15%,
9/15/2021 2,158,880
- --------------------------------------------------------------------------------------------------------------------------------
750,000 HSB Group, Inc., Company Guarantee, 7.0875%,
7/15/2027 726,743
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL
3,121,931
- --------------------------------------------------------------------------------------------------------------------------------
Retailers--1.0%
1,450,000 Shopko Stores, Inc. 8.50%,
3/15/2002 1,486,149
- --------------------------------------------------------------------------------------------------------------------------------
Supranational--1.3%
2,000,000 Corp Andina De Fomento, Bond, 7.375%,
7/21/2000 2,008,860
- --------------------------------------------------------------------------------------------------------------------------------
Technology Services--1.1%
1,500,000 Unisys Corp., Sr. Note, 11.75%,
10/15/2004 1,661,250
- --------------------------------------------------------------------------------------------------------------------------------
Utilities--0.8%
1,250,000 /2/Camuzzi Gas, Bond, 9.25%,
12/15/2001 1,237,500
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS (IDENTIFIED COST
$23,147,103) 22,830,766
- --------------------------------------------------------------------------------------------------------------------------------
NON-U.S. GOVERNMENTS/AGENCIES--1.7%
Sovereign--1.7%
- --------------------------------------------------------------------------------------------------------------------------------
2,583,000 Brazil, Government of, IDU, 6.06%, 1/1/2001 (IDENTIFIED
COST 2,534,569
$2,427,285)
- --------------------------------------------------------------------------------------------------------------------------------
MORTGAGE BACKED SECURITIES--1.3%
Government Agency--1.3%
1,018,100 FHLMC, 6.00%,
4/1/2003
1,004,417
- --------------------------------------------------------------------------------------------------------------------------------
874,088 GNMA, 8.50%,
8/15/2026
903,318
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL MORTGAGE BACKED SECURITIES (IDENTIFIED COST
$1,889,345) 1,907,735
- --------------------------------------------------------------------------------------------------------------------------------
MUTUAL FUNDS--1.3%
223,658 The High Yield Bond Portfolio (IDENTIFIED COST
$2,119,282) 1,950,294
- --------------------------------------------------------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS--3.2%
U.S. Treasury Notes--3.2%
2,000,000 5.75%,
11/15/2000
1,999,080
- --------------------------------------------------------------------------------------------------------------------------------
2,000,000 6.00%,
8/15/2009
1,975,300
- --------------------------------------------------------------------------------------------------------------------------------
800,000 7.50%,
11/15/2001
821,840
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS (IDENTIFIED COST
$4,866,711) 4,796,220
- --------------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT--5.1%/4/
7,585,000 J.P. Morgan & Co., Inc., 5.71%, dated 11/30/1999,
due 7,585,000
12/1/1999 (AT AMORTIZED COST)
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (IDENTIFIED COST
$150,069,164)/5/ $ 146,564,072
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Denotes variable rate securities which show current rate and next demand
date.
/2/ Denotes a restricted security which is subject to restrictions on resale
under federal securities laws. At November 30, 1999, these securities
amounted to $16,412,390 which represents 11.0% of net assets. Included in
these amounts, securities which have been deemed liquid amounted to
$13,636,641 which represents 9.2% of net assets.
/3/ Denotes a restricted security that has been deemed liquid by criteria
approved by the funds 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 $150,069,164.
The net unrealized depreciation of investments on a federal tax basis
amounts to $3,505,092 which is comprised of $360,871 appreciation and
$3,865,963 depreciation at November 30, 1999.
Note: The categories of investments are shown as a percentage of net assets
($148,972,312) at November 30, 1999.
The following acronyms are used throughout this portfolio:
ARM --Adjustable Rate Mortgage
FHLMC --Federal Home Loan Mortgage Corporation
FNMA --Federal National Mortgage Association
IO --Interest Only
MTN --Medium Term Note
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
NOVEMBER 30, 1999
<TABLE>
<S>
<C> <C>
Assets:
- -------------------------------------------------------------------------------
Total investments in securities, at value (identified and tax
cost $ 146,564,072
$150,069,164)
- -------------------------------------------------------------------------------
Income
receivable
1,465,357
- -------------------------------------------------------------------------------
Receivable for shares
sold
1,574,103
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL
ASSETS
149,603,532
- ----------------------------------------------------------------------------------------------------------------------------
Liabilities:
- -------------------------------------------------------------------------------
Payable for shares
redeemed $ 398,886
- -------------------------------------------------------------------------------
Income distribution
payable 190,393
- -------------------------------------------------------------------------------
Accrued 12b-1
expense 23,517
- -------------------------------------------------------------------------------
Accrued
expenses
18,424
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL
LIABILITIES
631,220
- ----------------------------------------------------------------------------------------------------------------------------
Net Assets for 15,764,802 shares
outstanding $
148,972,312
- ----------------------------------------------------------------------------------------------------------------------------
Net Assets Consist of:
- -------------------------------------------------------------------------------
Paid in
capital
$ 166,251,885
- -------------------------------------------------------------------------------
Net unrealized depreciation of
investments
(3,505,892)
- -------------------------------------------------------------------------------
Accumulated net realized loss on
investments
(13,834,102)
- -------------------------------------------------------------------------------
Undistributed net investment
income
59,621
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL NET
ASSETS
$ 148,972,312
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Offering Price and Redemption Proceeds Per Share:
- -------------------------------------------------------------------------------
Class A Shares:
- -------------------------------------------------------------------------------
$139,452,441 / 14,757,352 shares
outstanding $
9.45
- ----------------------------------------------------------------------------------------------------------------------------
Offering Price Per Share (100/99.00 of
$9.45)/1/ $ 9.55
- ----------------------------------------------------------------------------------------------------------------------------
Redemption Proceeds Per
Share
$ 9.45
- ----------------------------------------------------------------------------------------------------------------------------
Class F Shares:
- -------------------------------------------------------------------------------
$9,519,871 / 1,007,450 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 "Sales Charge When You Redeem" in the Prospectus.
See Notes which are an integral part of the Financial Statements
Statement of Operations
YEAR ENDED NOVEMBER 30, 1999
<TABLE>
<S>
<C> <C> <C>
Investment Income:
- ----------------------------------------------------------------
Dividends
$ 119,282
- ----------------------------------------------------------------
Interest (net of foreign taxes withheld of
$3,594)
10,400,834
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL
INCOME
10,520,116
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses:
- ----------------------------------------------------------------
Investment adviser
fee $ 583,987
- ----------------------------------------------------------------
Administrative personnel and services
fee 155,000
- ----------------------------------------------------------------
Custodian
fees
10,854
- ----------------------------------------------------------------
Transfer and dividend disbursing agent fees and
expenses 113,113
- ----------------------------------------------------------------
Directors'/Trustees'
fees 6,268
- ----------------------------------------------------------------
Auditing
fees
14,535
- ----------------------------------------------------------------
Legal
fees
5,766
- ----------------------------------------------------------------
Portfolio accounting
fees 50,142
- ----------------------------------------------------------------
Distribution services fee--Class A
Shares 667,614
- ----------------------------------------------------------------
Distribution services fee--Class F
Shares 19,507
- ----------------------------------------------------------------
Shareholder services fee--Class A
Shares 333,777
- ----------------------------------------------------------------
Shareholder services fee--Class F
Shares 32,512
- ----------------------------------------------------------------
Share registration
costs 50,917
- ----------------------------------------------------------------
Printing and
postage
54,905
- ----------------------------------------------------------------
Taxes
8,250
- ----------------------------------------------------------------
Miscellaneous
4,374
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL
EXPENSES
2,111,521
- -----------------------------------------------------------------------------------------------------------------------------------
Waivers:
- ----------------------------------------------------------------
Waiver of investment advisory fee $ (102,708)
- ----------------------------------------------------------------
Waiver of distribution services fee--Class A Shares (400,568)
- ----------------------------------------------------------------
Waiver of distribution services fee--Class F Shares (2,601)
- ----------------------------------------------------------------
Waiver of shareholder services fee--Class F Shares (3,901)
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL
WAIVERS
(509,778)
- -----------------------------------------------------------------------------------------------------------------------------------
Net
expenses
1,601,743
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment
income
8,918,373
- -----------------------------------------------------------------------------------------------------------------------------------
Realized and Unrealized Loss on Investments:
- ----------------------------------------------------------------
Net realized loss on
investments
(3,085,078)
- ----------------------------------------------------------------
Net change in unrealized depreciation of
investments
(2,933,257)
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized loss on
investments
(6,018,335)
- -----------------------------------------------------------------------------------------------------------------------------------
Change in net assets resulting from
operations $
2,900,038
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended November 30
1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S>
<C> <C>
Increase (Decrease) in Net Assets
- -------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------
Net investment income $
8,918,373 $ 7,110,653
- -------------------------------------------------------------------------
Net realized loss on investments (($3,092,726) and ($261,311),
(3,085,078) (429,507)
respectively, as computed for federal tax purposes)
- -------------------------------------------------------------------------
Net change in unrealized depreciation
(2,935,257) (1,185,198)
- ----------------------------------------------------------------------------------------------------------------------------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS
2,900,038 5,495,948
- ----------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders:
- -------------------------------------------------------------------------
Distributions from net investment income
- -------------------------------------------------------------------------
Class A Shares
(8,142,077) (6,461,966)
- -------------------------------------------------------------------------
Class F Shares
(807,850) (675,733)
- ----------------------------------------------------------------------------------------------------------------------------
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS
(8,949,927) (7,137,699)
- ----------------------------------------------------------------------------------------------------------------------------
Share Transactions:
- -------------------------------------------------------------------------
Proceeds from sale of shares
163,459,402 109,049,243
- -------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
6,532,660 4,948,741
distributions declared
- -------------------------------------------------------------------------
Cost of shares redeemed
(129,540,668) (101,544,061)
- ----------------------------------------------------------------------------------------------------------------------------
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS
40,451,394 12,453,923
- ----------------------------------------------------------------------------------------------------------------------------
Change in net assets
34,401,505 10,812,172
- -------------------------------------------------------------------------
Net Assets:
- -------------------------------------------------------------------------
Beginning of period
114,570,807 103,758,635
- ----------------------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment income of $
148,972,312 $ 114,570,807
$59,621 and $83,527, respectively)
- ----------------------------------------------------------------------------------------------------------------------------
</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>
Year Ended November 30 1999 1998
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
<C> <C> <C>
Net Asset Value, Beginning of Period $ 9.82 $ 9.95 $
9.91 $ 9.97 $ 9.48
- -------------------------------------------
Income From Investment
Operations:
- -------------------------------------------
Net investment income 0.57 0.60
0.59 0.59 0.55
- -------------------------------------------
Net realized and unrealized gain (loss) (0.35) (0.13)
0.04 (0.06) 0.49
on
investments
- -----------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 0.22 0.47
0.63 0.53 1.04
- -----------------------------------------------------------------------------------------------------------------------
Less
Distributions:
- -------------------------------------------
Distributions from net investment income (0.59) (0.60)
(0.59) (0.59) (0.55)
- -----------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 9.45 $ 9.82 $
9.95 $ 9.91 $ 9.97
- -----------------------------------------------------------------------------------------------------------------------
Total Return/1/ 2.31% 4.81%
6.52% 5.54% 11.29%
Ratios to Average Net
Assets:
- -----------------------------------------------------------------------------------------------------------------------
Expenses 1.10% 1.10%
1.10% 1.10% 1.10%
- -----------------------------------------------------------------------------------------------------------------------
Net investment income 5.98% 6.02%
5.90% 6.04% 6.13%
- -----------------------------------------------------------------------------------------------------------------------
Expense waiver/reimbursement/2/ 0.37% 0.47%
0.49% 0.56% 0.43%
- -----------------------------------------------------------------------------------------------------------------------
Supplemental
Data:
- -----------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $139,452 $101,213
$94,952 $116,174 $138,451
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover 29% 93%
62% 104% 63%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
/2/ This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class F Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
Year Ended November 30 1999 1998
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
<C> <C> <C>
Net Asset Value, Beginning of Period $ 9.82 $ 9.95 $
9.91 $ 9.97 $ 9.48
- -------------------------------------------
Income From Investment
Operations:
- -------------------------------------------
Net investment income 0.57 0.61
0.60 0.66 0.61
- -------------------------------------------
Net realized and unrealized gain (loss) (0.34) (0.13)
0.04 (0.12) 0.44
on
investments
- -----------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 0.23 0.48
0.64 0.54 1.05
- -----------------------------------------------------------------------------------------------------------------------
Less
Distributions:
- -------------------------------------------
Distributions from net investment income (0.60) (0.61)
(0.60) (0.60) (0.56)
- -----------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 9.45 $ 9.82 $
9.95 $ 9.91 $ 9.97
- -----------------------------------------------------------------------------------------------------------------------
Total Return/1/ 2.42% 4.91%
6.63% 5.64% 11.39%
- -----------------------------------------------------------------------------------------------------------------------
Ratios to Average Net
Assets:
- -----------------------------------------------------------------------------------------------------------------------
Expenses 1.00% 1.00%
1.00% 1.00% 1.00%
- -----------------------------------------------------------------------------------------------------------------------
Net investment income 6.00% 6.09%
6.00% 6.14% 6.22%
- -----------------------------------------------------------------------------------------------------------------------
Expense waiver/reimbursement/2/ 0.12% 0.22%
0.24% 0.31% 0.18%
- -----------------------------------------------------------------------------------------------------------------------
Supplemental
Data:
- -----------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $9,520 $13,358
$8,807 $8,938 $10,183
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover 29% 93%
62% 104% 63%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
/2/ This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
NOVEMBER 30, 1999
ORGANIZATION
Fixed Income Securities, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Corporation consists of three portfolios. The
financial statements included herein are only those of Federated Limited Term
Fund (the "Fund"), a diversified portfolio. The financial statements of the
other portfolios are presented separately. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held. The Fund offers two classes of shares: Class A Shares and Class
F Shares. The investment objective of the Fund is to seek a high level of
current income consistent with minimum fluctuation in principal value through
compilation of a portfolio, the weighted average duration which will at all
times be limited to three years.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
Investment Valuations
U.S. government securities, listed corporate bonds, (other fixed-income and
asset backed securities), and unlisted securities and private placement
securities are generally valued at the mean of the latest bid and asked price as
furnished by an independent pricing service. Short-term securities are valued at
the prices provided by an independent pricing service. However, short-term
securities with remaining maturities of sixty days or less at the time of
purchase may be valued at amortized cost, which approximates fair market value.
Investments in other open-ended registered investment companies are valued at
net asset value.
Repurchase Agreements
It is the policy of the Fund to require the custodian bank to take possession,
to have legally segregated in the Federal Reserve Book Entry System, or to have
segregated within the custodian bank's vault, all securities held as collateral
under repurchase agreement transactions. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of each
repurchase agreement's collateral to ensure that the value of collateral at
least equals the repurchase price to be paid under the repurchase agreement.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Directors (the "Directors").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less than
the repurchase price on the sale of collateral securities. The Fund, along with
the other affiliated investment companies, may utilize a joint trading account
for the purpose of entering into one or more repurchase agreements.
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. Non-cash dividends included in dividend income, if any, are recorded at
fair value. The Fund offers multiple classes of shares, which differ in their
respective distribution and service fees. All shareholders bear the common
expenses of the Fund based on average daily net assets of each class, without
distinction between share classes. Dividends are declared separately for each
class. No class has preferential dividend rights; differences in per share
dividend rates are generally due to differences in separate class expenses.
Income and capital gain distributions are determined in accordance with income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments for mortgage-backed
securities and market discount. The following reclassifications have been made
to the financial statements.
<TABLE>
<CAPTION>
Increase (Decrease)
- ---------------------------------------------------------------------
Undistributed Net
Investment Income/
Accumulated
Accumulated Distributions in
Net Realized Excess of Net
Paid in Capital Gain/Loss Investment Income
- ---------------------------------------------------------------------
<S> <C> <C>
$2 ($7,650) $7,648
- ---------------------------------------------------------------------
</TABLE>
Net investment income, net realized gains/losses, and net assets were not
affected by this reclassifications.
Federal Taxes
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provision for federal tax is
necessary.
At November 30, 1999, the Fund, for federal tax purposes, had a capital loss
carryforward of $13,823,671, which will reduce the Fund's taxable income arising
from future net realized gain on investments, if any, to the extent permitted by
the Code, and thus will reduce the amount of the distributions to shareholders
which would otherwise be necessary to relieve the Fund of any liability for
federal tax. Pursuant to the Code, such capital loss carryforward will expire as
follows:
<TABLE>
<CAPTION>
Expiration Year Expiration Amount
- ----------------------------------------------------------
<S> <C>
2002 $ 8,964,278
- ----------------------------------------------------------
2003 1,407,407
- ----------------------------------------------------------
2004 97,949
- ----------------------------------------------------------
2005 261,311
- ----------------------------------------------------------
2007 3,092,726
- ----------------------------------------------------------
</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 security positions such
that sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when- issued or delayed delivery
basis are marked to market daily and begin earning interest on the settlement
date. Losses may occur on these transactions due to changes in market conditions
or the failure of counterparties to perform under the contact.
Restricted Securities
Restricted securities are securities that may only be resold upon registration
under federal securities laws or in transactions exempt from such registration.
In some cases, the issuer of restricted securities has agreed to register such
securities for resale, at the issuer's expense either upon demand by the Fund or
in connection with another registered offering of the securities. Many
restricted securities may be resold in the secondary market in transactions
exempt from registration. Such restricted securities may be determined to be
liquid under criteria established by the Board of Directors. The Fund will not
incur any registration costs upon such resales. The Fund's restricted securities
are valued at the price provided by dealers in the secondary market or, if no
market prices are available, at the fair value as determined by the Fund's
pricing committee.
Additional information on each restricted security held at November 30, 1999 is
as follows:
<TABLE>
<CAPTION>
Acquisition
Security Date Acquisition Cost
- --------------------------------------------------------------------
<S> <C> <C>
Mellon Residential 12/16/1998 $1,487,831
Funding Corp.
- --------------------------------------------------------------------
Camuzzi Gas, Bond 3/24/1998 1,306,888
- --------------------------------------------------------------------
SMFC Trust Asset-Backed 2/04/1998 259,630
Certificates
- --------------------------------------------------------------------
</TABLE>
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
Other
Investment transactions are accounted for on a trade date basis.
Capital Stock
At November 30, 1999, par value shares ($ 0.001 per share) authorized were as
follows:
<TABLE>
<CAPTION>
Number of Par Value
Class Name Capital Stock Authorized
- -----------------------------------------------------------
<S> <C>
Class A Shares 1,000,000,000
- -----------------------------------------------------------
Class F Shares 1,000,000,000
- -----------------------------------------------------------
TOTAL 2,000,000,000
- -----------------------------------------------------------
</TABLE>
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Year Ended November 30
1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
<C> <C> <C>
Class A Shares Shares
Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------------------------------
Shares sold 16,591,622 $
160,553,694 10,264,365 $102,225,706
- ------------------------------------------------------
Shares issued to shareholders in payment of 619,730
5,967,134 452,841 4,501,648
distributions
declared
- ------------------------------------------------------
Shares redeemed (12,757,200)
(122,750,761) (9,957,718) (99,008,742)
- ---------------------------------------------------------------------------------------------------------------------------------
NET CHANGE RESULTING FROM CLASS A SHARE TRANSACTIONS 4,454,152 $
43,770,067 759,488 $ 7,718,612
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Year Ended November 30
1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
<C> <C> <C>
Class F Shares Shares
Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------------------------------
Shares sold 300,562 $
2,905,708 684,999 $ 6,823,537
- ------------------------------------------------------
Shares issued to shareholders in payment of
58,565 565,526 45,010 447,093
distributions
declared
- ------------------------------------------------------
Shares redeemed (712,506)
(6,789,907) (254,344) (2,535,319)
NET CHANGE RESULTING FROM CLASS F SHARE TRANSACTIONS (353,379) $
(3,318,673) 475,665 $ 4,735,311
- ---------------------------------------------------------------------------------------------------------------------------------
NET CHANGE RESULTING FROM SHARE TRANSACTIONS 4,100,773 $
40,451,394 1,235,153 $ 12,453,923
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
INVESTMENT ADVISER FEE AND OTHER
TRANSACTIONS WITH AFFILIATES
Investment Adviser Fee
Federated Investment Management Company, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment adviser 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 a scale that ranges from 0.15% to 0.075% of the
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors, Inc., subject to a $125,000 minimum per portfolio and
$30,000 per additional class.
Distribution Services Fee
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Act. Under the terms of the Plan, the Fund will compensate Federated
Securities Corp. ("FSC"), the principal distributor, of the Fund to finance
activities intended to result in the sale of the Fund's Class A shares and Class
F shares. The Plan provides that the Fund may incur distribution expenses
according to the following schedule annually, to compensate FSC.
<TABLE>
<CAPTION>
Percentage of Average Daily
Share Class Name Net Assets of Class
- ---------------------------------------------------------------
<S> <C>
Class A Shares 0.50%
- ---------------------------------------------------------------
Class F Shares 0.15%
- ---------------------------------------------------------------
</TABLE>
The distributor may voluntarily choose to waive any portion of its fee. The
distributor can modify or terminate this voluntary waiver at any time at its
sole discretion.
Shareholder Services Fee
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services Company ("FSSC"), the Fund will pay FSSC up to 0.25% of average daily
net assets of the Fund shares for the period. The fee paid to FSSC is used to
finance certain services for shareholders and to maintain shareholder accounts.
FSSC may voluntarily choose to waive any portion of its fee. FSSC can modify or
terminate this voluntary waiver at any time at its sole discretion.
Transfer and Dividend Disbursing Agent Fees and Expenses
FServ, through its subsidiary, FSSC, serves as transfer and dividend disbursing
agent for the Fund. The fee paid to FSSC is based on the size, type, and number
of accounts and transactions made by shareholders.
Portfolio Accounting Fees
FServ maintains the Fund's accounting records for which it receive 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 November 30, 1999, were as follows:
<TABLE>
<S> <C>
- -----------------------------------------------------------------
Purchases $ 101,113,843
- -----------------------------------------------------------------
Sales $ 39,920,915
- -----------------------------------------------------------------
</TABLE>
Independent Auditors' Report
TO THE BOARD OF DIRECTORS OF FIXED INCOME SECURITIES, INC.
AND THE SHAREHOLDERS OF FEDERATED LIMITED TERM FUND:
We have audited the accompanying statement of assets and liabilities of
Federated Limited Term Fund (the "Fund") (a portfolio of Fixed Income
Securities, Inc.), including the portfolio of investments, as of November 30,
1999, and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the years in the two year period
then ended, and the financial highlights for each of the years in the five year
period then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion of these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
November 30, 1999, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Federated Limited Term Fund as of November 30, 1999, the results of its
operations, the changes in its net assets for each of the years in the two year
period then ended, and the financial highlights for each of the years in the
five year period then ended, in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Boston, Massachusetts
January 14, 2000
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
WILLIAM D. DAWSON III
Chief Investment Officer
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
government agency. Investment in mutual funds involves investment risk,
including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
Notes
Notes
Notes
ANNUAL REPORT
AS OF NOVEMBER 30, 1999
[LOGO OF FEDERATED INVESTORS]
Federated Limited Term Fund
Established 1991
8th annual report
[Logo of 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
G01176-01 (1/00)
Federated is a registered mark
of Federated Investors, Inc.
2000 /c/Federated Investors, Inc.
[recycled paper logo]
[FEDERATED LOGO]
WORLD-CLASS INVESTMENT MANAGER
[PHOTO OF RICHARD B. FISHER]
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 Annual Report. As of November 30, 1999, the fund's assets
totaled $126 million and were invested in 104 tax-free issues./1/ These tax-free
bonds have an average maturity of under 3 years and on average, hold an A
rating.
This report covers the 12-month reporting period from December 1, 1998 through
November 30, 1999. It begins with an interview with the fund's portfolio
manager, Jeff A. Kozemchak, Senior 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.
This fund was created to provide a conservative investment approach for tax-free
income. Its maturity places it between tax-free money market fund instruments
and longer term municipal bonds, i.e., it offers more income potential than
money market instruments, but less income potential than long-term tax-free
municipal bonds./2/
As outlined in Jeff's discussion, from a total return perspective, it was a
difficult period for bonds in general and short-term municipal bonds in
particular. As yields rose, bond prices--and the net asset values of bond funds-
- -fell. Nevertheless, the fund's diversified, conservative portfolio of short-
term municipal bonds produced a positive total return, compared to the negative
returns of longer term municipal bond funds. A strong income stream helped the
fund weather a slight decline in net asset value.
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.
Individual share class total return performance for the 12-month reporting
period, including income distributions, follows./3/
<TABLE>
<CAPTION>
Total Return Income Distributions
Net Asset Value Change
<S> <C> <C>
<C>
Class A Shares 1.29% $0.39
$9.86 to $9.60 = (2.64%)
Class F Shares 1.54% $0.41
$9.86 to $9.60 = (2.64%)
</TABLE>
As of November 30, 1999, approximately 92% of the fund's assets were invested in
investment grade securities (securities rated BBB or higher). The fund has over
100 securities invested in bonds issued for housing authorities (21% of net
assets), health care facilities (20% of net assets), utilities (10% of net
assets), education (6% of net assets), industrial development (6% of net
assets), and transportation (5% of net assets).
Thank you for choosing Federated Limited Term Municipal Fund to pursue tax-free
income from short-term municipal issues. Remember, reinvesting your monthly
dividends is a convenient way to build the value of your account through the
benefit of compounding.
As always, we welcome your comments and suggestions.
Sincerely,
/s/Richard B. Fisher
Richard B. Fisher
President
January 15, 2000
/3/ Performance quoted is based on net asset value, represents past performance
and is no guarantee 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 reporting
period, based on offering price (i.e., less any applicable sales charge),
for Class A and F Shares were 0.27% and 0.57%, respectively.
[PHOTO OF JEFF A. KOZEMCHAK]
Jeff A. Kozemchak, CFA
Senior Vice President
Federated Investment Management Company
Investment Review
What is your review of the economy and the short-term municipal bond market over
the fund's fiscal year?
Perhaps the biggest issues threatening the U.S. economy in the latter half of
1998 were alleviated by the second quarter of 1999. The improvements in
international economies, particularly in Asia, and calmer foreign markets laid
the foundation for the Federal Reserve Board (the "Fed") to focus on U.S.
economic releases and the rapid pace of growth. The Fed became increasingly
concerned with potential inflationary pressures from tighter labor markets and
rising equity wealth. For the most part, inflationary forces remained tame in
1999 with increases in some commodity prices, such as oil. Nevertheless, the Fed
began a series of three interest rate increases in part to reverse the effects
of the three rate cuts in the Fall of 1998. The Fed cited constrained labor
markets, strong domestic growth, and the need to be pre- emptive against rising
wage demands that were likely to materialize. The moves came in June, August and
November of 1999; each time, the Fed voted to raise the Fed Funds Target Rate by
a quarter point, bringing the rate to 5.50% at the end of the reporting period.
The short-term municipal bond market in 1999 had what can only be
characterized as a difficult year, the worst since 1994, as interest rates rose
close to 100 basis points on the short-term part of the yield curve. However,
despite the rise in interest rates and the decline in the fund's net asset
value, the fund's incremental income advantage over money market funds partially
offset the price decline, and the fund only marginally under-performed tax-free
and taxable money funds (pre-tax comparison) for the 12-month reporting period.
Interest rates in the short-term municipal market reflected the Fed's interest
rate moves to slow the economy. The yield on the 3-year, A-rated general
obligation municipal bond began the reporting period at 3.65%, but declined in
January and February of 1999 to 3.55%, before rising rapidly over the spring
months, reaching 4.40% in June 1999. Yields then remained range bound from 4.20%
to 4.40% until October, when another Fed increase began to be reflected into the
yield curve. Yields ended the reporting period at 4.50%.
How did the fund perform over the 12-month reporting period?
The fund performed as expected on both a total return and income basis given the
rise in interest rates. For the fiscal year ended November 30, 1999, investors
in the Class A Shares of the fund received a total return of 1.29%, based on net
asset value.1 For the same period, investors in the Class F Shares of the fund
received a total return of 1.54%, based on net asset value./1/ These results
slightly lagged the 2.05% return of the Lipper Short-Term Municipal Debt Funds
Average./2/
As expected, most of the fund's total return consisted of tax-exempt income.
The negative impact of rising rates caused a $0.26 decline in the fund's net
asset value due to the short-term effective average maturity of the portfolio.
What level of income did the fund produce during the 12-month reporting period?
For the fiscal year ended November 30, 1999, the fund's tax-exempt income
totaled $0.39 per share for Class A Shares and $0.41 per share for Class F
Shares. These income levels corresponded to 12-month tax-exempt distribution
rates of 4.02% and 4.27% for investors in the fund's Class A Shares and Class F
Shares, respectively. When considering the relative price stability of the fund,
these distributions are attractive compared to municipal money market fund
returns.
Also, as of November 30, 1999, the fund posted 30-day distribution rates of
4.12% for Class A Shares and 4.37% for Class F Shares. These rates are
equivalent to taxable rates of 6.82% for Class A Shares and 7.24% for Class F
Shares, assuming a top marginal tax rate of 39.60%./3/ The 30-day SEC yields as
of November 30, 1999 for Class A Shares and Class F Shares were 4.07% and 4.32%,
respectively./4/
1 Performance quoted is based on net asset value, represents past performance
and is no guarantee 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 reporting period,
based on offering price (i.e., less any applicable sales charge), for Class A
and F Shares were 0.27% and 0.57%, 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 falling
into the category indicated. Lipper figures do not take sales charges into
account.
3 The 30-day distribution rate reflects actual distributions made to
shareholders. It is calculated by dividing the monthly annualized dividend
plus short-term capital gains, if any, by the average 30-day offering price.
The 30-day distribution rate, based on offering price (i.e., less any
applicable sales charge), for Class A shares was 4.07%. The taxable
distribution rate for Class A Shares based on offering price was 6.74%.
4 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 4.02%.
How was the fund's portfolio allocated in terms of credit quality and sectors?
At the end of the reporting period, the fund's assets were invested as follows:
50.7% A or better; 39.9% BBB; 1.1% BB; 8.3% non-rated.
With respect to sectors, the fund's assets were allocated as follows:
<TABLE>
<CAPTION>
Percentage of
Sector Net Assets
<S> <C>
Housing Authorities 21.0%
Health Care Facilities 20.0%
Utilities 10.0%
Education 6.0%
Industrial Development 6.0%
Transportation 5.0%
</TABLE>
After a period of multiple tightenings by the Fed, what do you foresee for the
short-term municipal market as we enter the year 2000, and how have you
structured the portfolio as a result?
We continue to shorten the average maturity of the fund's portfolio to minimize
the negative impact of any further interest rate increases by the Fed. Interest
rates have risen significantly over the past year, and the Fed is well aware of
the six to twelve month lag effect of monetary policy changes (interest rate
increases) on the economy.
If the economy should begin to show signs of slowing early in the year,
further rate increases may be unnecessary. Nevertheless, it would not be
surprising for the Fed to "tap the brakes" one more time in the first quarter of
2000 as an insurance policy. Accordingly, we will continue to position the fund
for slightly higher interest rates while striving to improve the distribution
yield of the portfolio. We will continue to watch, with great interest, market
developments in order to best serve our tax- sensitive investors.
Shareholder Meeting Results
A Special Meeting of Fund shareholders was held on November 30, 1999. On
September 8, 1999, the record date for shareholders voting at the meeting, there
were 13,738,432 total outstanding shares. The following items were considered by
shareholders and the results of their voting were as follows:
Agenda Item 1
Vote on Directors./1/
<TABLE>
<CAPTION>
Withheld
Authority
For to Vote
<S> <C> <C>
Thomas G. Bigley 7,633,264 69,762
Nicholas P. Constantakis 7,633,264 69,762
John F. Cunningham 7,634,405 68,621
J. Christopher Donahue 7,633,264 69,762
Charles F. Mansfield, Jr. 7,634,523 68,503
John E. Murray, Jr. 7,634,523 68,503
John S. Walsh 7,633,264 69,762
</TABLE>
1 The following Directors of the Fund continued their terms as Directors of the
Fund: John F. Donahue, John T. Conroy, Jr., Lawrence D. Ellis, M.D., Peter E.
Madden, and Marjorie P. Smuts.
Agenda Item 2
(a) To amend the Fund's fundamental investment policy regarding diversification.
<TABLE>
<CAPTION>
Abstentions
and Broker
For Against Non-Votes
<S> <C> <C>
6,677,573 28,526 996,928
</TABLE>
(b) To amend the Fund's fundamental investment policy regarding borrowing money
and issuing senior securities.
<TABLE>
<CAPTION>
Abstentions and
For Against Broker Non-Votes
<S> <C> <C>
6,577,528 175,729 949,770
</TABLE>
(c) To amend the Fund's fundamental investment policy regarding investments in
real estate.
<TABLE>
<CAPTION>
Abstentions
and Broker
For Against Non-Votes
<S> <C> <C>
6,627,165 146,522 929,340
</TABLE>
(d) To amend the Fund's fundamental investment policy regarding investments in
commodities.
<TABLE>
<CAPTION>
Abstentions and
For Against Broker Non-Votes
<S> <C> <C>
6,527,125 211,881 964,021
</TABLE>
(e) To amend the Fund's fundamental investment policy underwriting securities.
<TABLE>
<CAPTION>
Abstentions and
For Against Broker Non-Votes
<S> <C> <C>
6,648,538 105,260 949,229
</TABLE>
(g) To amend the Fund's fundamental investment policy regarding concentration of
the Fund's investments in the securities of companies in the same industry.
<TABLE>
<CAPTION>
Abstentions and
For Against Broker Non-Votes
<S> <C> <C>
6,596,197 90,372 1,016,458
</TABLE>
(h) To amend, and to make non-fundamental, the Fund's fundamental investment
policy regarding buying securities on margin.
<TABLE>
<CAPTION>
Abstentions and
For Against Broker Non-Votes
<S> <C> <C>
6,588,180 122,545 992,301
</TABLE>
(i) To amend, and to make non-fundamental, the Fund's fundamental investment
policy regarding pledging assets.
<TABLE>
<CAPTION>
Abstentions and
For Against Broker Non-Votes
<S> <C> <C>
6,663,101 100,270 939,656
</TABLE>
Agenda Item 4
(a) To permit the Board of Directors to liquidate the assets of a series or
class without seeking shareholder approval to the extent permitted under
Maryland law.
<TABLE>
<CAPTION>
Abstentions
and Broker
For Against Non-Votes
<S> <C> <C>
6,826,424 161,004 715,599
</TABLE>
(b) To permit the company to make name changes without shareholder approval.
<TABLE>
<CAPTION>
Abstentions and
For Against Broker Non-Votes
<S> <C> <C>
6,735,025 237,368 730,634
</TABLE>
Two Ways You May Seek to Invest for Success:
INITIAL INVESTMENT
If you had made an initial investment of $7,000 in the Class A Shares of
Federated Limited Term Municipal Fund on 9/1/93, reinvested dividends and
capital gains, and did not redeem any shares, your account would have been worth
$8,663 on 11/30/99. You would have earned a 3.47%/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 12/31/99, the Class A Shares' 1-year, 5-year, and since inception
(9/1/93) average annual total returns were (0.13%), 4.20%, and 3.41%,
respectively. As of 12/31/99, Class F Shares' annualized 1-year, 5-year, and
since inception (9/1/93) average annual total returns were 0.16%, 4.66%, and
3.81%, respectively./2/
[Graphic representation omitted; see Appendix E.]
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 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 6
years (reinvesting all dividends and capital gains) grew to $7,771.
With this approach, the key is consistency.
If you had started investing $1,000 annually in the Class A Shares of
Federated Limited Term Municipal Fund on 9/1/93, reinvested your dividends and
capital gains and did not redeem any shares, you would have invested only $7,000
but your account would have reached a total value of $7,771/1/ by 11/30/99. You
would have earned an average annual total return of 3.28%.
A practical investment plan helps you pursue income by investing in short-term
municipal securities. Through systematic investing, you buy shares on a regular
basis and reinvest all earnings. An investment plan can work 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 F.]
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.
Federated Limited Term Municipal Fund-
Class A Shares
Growth of A $10,000 Investment
The graph below illustrates the hypothetical investment of $10,000/1/ in the
Federated Limited Term Municipal Fund (Class A Shares) (the "Fund") from
September 1, 1993 (start of performance) to November 30, 1999 compared to the
Lehman Brothers Three-Year Municipal Bond Index (LB3YRMB)./2/
<TABLE>
<CAPTION>
Average Annual Total Returns/3/ for the Period Ended
November 30, 1999
<S> <C>
1 Year 0.27%
5 Years 4.29%
Start of Performance (9/1/93) 3.47%
</TABLE>
[Graphic representation omitted; see Appendix G.]
Past performance is not predictive of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than their original cost. Mutual funds are not obligations of
or guaranteed by any bank and are not federally insured.
1 Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 1.00% ($10,000 investment minus $100 sales
charge = $9,900). The Fund's performance assumes the reinvestment of all
dividends and distributions. The LB3YRMB has been adjusted to reflect
reinvestment of dividends on securities in the index.
2 The LB3YRMB is not adjusted to reflect sales charges, expenses, or other
fees that the Securities and Exchange Commission requires to be reflected
in the Fund's performance. The index is unmanaged.
3 Total return quoted reflects all applicable sales charges.
Federated Limited Term Municipal Fund-
Class F Shares
Growth of a $10,000 Investment
The graph below illustrates the hypothetical investment of $10,000/1/ in the
Federated Limited Term Municipal Fund (Class F Shares) (the "Fund") from
September 1, 1993 (start of performance) to November 30, 1999 compared to the
Lehman Brothers Three-Year Municipal Bond Index (LB3YRMB)./2/
<TABLE>
<CAPTION>
Average Annual Total Returns/3/ for the Period Ended
November 30, 1999
<S> <C>
1 Year 0.57%
5 Years 4.76%
Start of Performance (9/1/93) 3.87%
</TABLE>
[Graphic representation omitted; see Appendix H.]
Past performance is not predictive of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than their original cost. Mutual funds are not obligations of
or guaranteed by any bank and are not federally insured.
1 Represents a hypothetical investment of $9,900 in the Fund after deducting
the maximum sales charge of 1.00% ($10,000 investment minus $100 sales charge
= $9,900) that was in effect prior to July 17, 1995. As of July 17, 1995, the
Fund did not have a sales charge. The fund currently has a contingent
deferred sales charge of 1.00% on any redemption less than 4 years from the
purchase date. The Fund's performance assumes the reinvestment of all
dividends and distributions. The LB3YRMB has been adjusted to reflect
reinvestment of dividends on securities in the index.
2 The LB3YRMB is not adjusted to reflect sales charges, expenses, or other fees
that the Securities and Exchange Commission requires to be reflected in the
Fund's performance. The index is unmanaged.
3 Total return quoted reflects all applicable contingent deferred sales
charges.
PORTFOLIO OF INVESTMENTS
November 30, 1999
<TABLE>
<CAPTION>
Principal
Credit
Amount
Rating/1/ Value
<S> <C>
<C> <C>
LONG-TERM MUNICIPALS--95.9%/2/
Alabama--4.1%
$ 1,236,722/3/Birmingham, AL, Fire Equipment Lease Obligation No. 1, 5.60%,
11/5/2004 NR $
1,235,559
1,500,000 Hoover, AL Board of Education, Warrant Anticipation Notes (Series
1999-B), 4.25%,
2/1/2001 NR 1,498,905
515,000 Mobile, AL, GO Warrants, 4.95%,
8/15/2000 NR 518,327
1,900,000 Selma, AL IDB, Annual Tender PCR Refunding Bonds (1993 Series B),
4.30% TOBs (International Paper Co.), Optional Tender
7/15/2000 BBB+ 1,898,765
Total
5,151,556
Alaska--1.8%
1,145,000 Alaska Industrial Development and Export Authority, Power Revenue
Bonds (First Series), 4.75% (Snettisham Hydroelectric Project),
1/1/2002 BBB
1,147,324
1,145,000 Alaska Industrial Development and Export Authority, Power Revenue
Bonds (First Series), 4.75% (Snettisham Hydroelectric Project),
1/1/2003 BBB
1,144,141
Total
2,291,465
California--2.2%
675,000 Delta Counties, CA Home Mortgage Finance Authority, SFM Revenue
Bonds (Series 1998A), 4.85% (MBIA INS),
12/1/2008 AAA 665,280
1,000,000 Sacramento County, CA HDA, Multifamily Housing Revenue Bonds (Series
I), 4.80% TOBs (Rancho Natomas Apartments)/(Dai-Ichi Kangyo Bank
Ltd., Tokyo LOC), Mandatory Tender
12/15/2007 A1 1,003,210
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 1,137,229
Total
2,805,719
Colorado--4.9%
420,000 Colorado HFA, SFM Revenue Bonds, (Series C-1), 7.65%,
12/1/2025 Aa2 450,727
735,000 Colorado HFA, Single Family Program Senior Bonds (Series 1998A-3),
4.60%,11/1/2016
Aa2 735,213
1,385,000 Colorado HFA, Single Family Program Senior Bonds (Series 1998C-1),
4.70%,5/1/2020 Aa2
1,383,504
500,000 Colorado HFA, Single Family Program Senior Bonds (Series 1999 A-3),
4.25%,10/1/2005
Aa2 492,640
2,000,000 Denver, CO City & County Airport Authority, Airport System Revenue
Bonds (Series 1996C), 5.05%,
11/15/2000 BBB 2,012,860
LONG-TERM MUNICIPALS--continued/2/
Colorado--continued
$ 1,090,000 Denver, CO Health & Hospital Authority, Revenue Bonds, 5.00%,
12/1/2002 BBB $
1,089,913
Total
6,164,857
District of Columbia--1.9%
2,310,000 District of Columbia HFA, SFM Revenue Bonds (Series 1998A), 6.25%
(GNMA Collateralized Home Mortgage Program COL),
12/1/2028 AAA 2,415,821
Florida--4.3%
1,525,000 Pinellas County, FL HFA, SFM Revenue Bonds (Series C), 6.45%
(GNMACOL),3/1/2029 Aaa
1,568,539
3,800,000 Pinellas County, FL Health Facility Authority Daily VRDNs (Chase
Manhattan Bank N.A., New York
LOC) AA- 3,800,000
Total
5,368,539
Hawaii--1.2%
1,485,000 Hawaii State Department of Budget & Finance, Special Purpose Revenue
Bonds, 4.65% (G.N. Wilcox Memorial Hospital),
7/1/2003 BBB+ 1,462,190
Idaho--3.8%
1,500,000 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- 1,500,000
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 385,889
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 220,108
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+ 740,407
2,000,000 Idaho Housing Agency, SFM Bonds, Series B-2, 4.65%,
7/1/2028 Aaa 1,955,040
Total
4,801,444
Illinois--8.1%
1,730,000 Broadview, IL, Tax Increment Financing Revenue Bonds, 4.60%,
7/1/2004 NR 1,680,851
920,000 Chicago, IL, Collateralized SFM Revenue Bonds (Series 1997B), 5.10%
(GNMA Collateralized Home Mortgage Program COL),
9/1/2007 Aaa 924,959
1,655,000 Chicago, IL, Collateralized SFM Revenue Bonds, Series A-1, 4.85%
(GNMACOL),
3/1/2015 Aaa 1,640,800
750,000 Chicago, IL, Gas Supply Revenue Bonds, 7.50% (Peoples Gas Light &
Coke
Co.),3/1/2015 AA-
769,815
845,000 Illinois Development Finance Authority, Revenue Bonds (Series 1995),
5.80% (Catholic Charities Housing Development Corp.),
1/1/2007 NR 823,630
LONG-TERM MUNICIPALS--continued/2/
Illinois--continued
$ 490,000 Illinois Development Finance Authority, Mortgage Revenue Refunding
Bonds, (Series 1997A), 5.20% (MBIA INS),
7/1/2008 AAA $ 489,976
2,000,000 Illinois Development Finance Authority, Solid Waste Disposal Revenue
Bonds, 7.125% (Waste Management, Inc.),
1/1/2001 BBB 2,017,240
505,000 Illinois Health Facilities Authority, Refunding Revenue Bonds
(Series 1996B), 5.00% (Sarah Bush Lincoln Health Center),
2/15/2000 A- 505,682
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- 616,599
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- 672,238
Total
10,141,790
Indiana--4.6%
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+
633,956
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+
691,994
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+
734,621
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 1,530,900
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 937,730
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 230,272
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
Total
5,759,473
Kansas--2.0%
335,000 Newton, KS, Hospital Revenue Refunding Bonds, Series 1998, 4.65%
(NewtonHealthcare Corp.)/(Original Issue Yield: 4.70%),
11/15/2001 BBB- 333,379
370,000 Newton, KS, Hospital Revenue Refunding Bonds, Series 1998, 4.80%
(NewtonHealthcare Corp.)/(Original Issue Yield: 4.90%),
11/15/2003 BBB- 365,342
855,000 Sedgwick & Shawnee Counties, KS, SFM Revenue Bonds (Series 1997A-1),
5.10% (GNMA Collateralized Home Mortgage Program COL),
12/1/2014 Aaa 856,599
LONG-TERM MUNICIPALS--continued/2/
Kansas--continued
$ 965,000 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 $ 946,076
Total
2,501,396
Louisiana--5.5%
2,500,000 Louisiana Agricultural Finance Authority, Revenue Bonds (Series
1999B), 4.625% (Louisiana Pacific Corporation Project)/ (Hibernia
National Bank
LOC),5/1/2004 A3 2,425,100
1,500,000 Louisiana State Offshore Term Authority, Deepwater Port Refunding
Revenue Bonds (First Stage Series 1992B), 6.00% (Loop, Inc.),
9/1/2001 A
1,534,470
1,000,000 St. Charles Parish, LA, PCR Refunding Bonds (Series 1999-C), 5.35%
TOBs (Entergy Louisiana, Inc.), Mandatory Tender
10/1/2003 BBB- 994,800
2,000,000 St. Charles Parish, LA, PCR Refunding Revenue Bonds (Series 1999A),
4.85% TOBs (Entergy Louisiana, Inc.), Mandatory Tender
6/1/2002 BBB- 1,981,460
Total
6,935,830
Massachusetts--3.6%
500,000 Greater New Bedford Regional Refuse Management District, MA, UT GO
Bonds, 5.10% (Original Issue Yield: 5.20%),
5/1/2000 Baa3 501,100
2,000,000 Massachusetts HEFA, Revenue Bonds (Series 1999A), 5.25% (Caritas
Christi Obligated Group),
7/1/2004 BBB 1,988,020
1,000,000 Massachusetts IFA, Resource Recovery Revenue Refunding Bonds,
(Series1998A), 4.60% (Ogden Haverhill),
12/1/2002 BBB 991,140
1,000,000 Massachusetts IFA, Resource Recovery Revenue Refunding Bonds,
(Series1998A), 4.70% (Ogden Haverhill),
12/1/2003 BBB 987,560
Total
4,467,820
Minnesota--1.2%
1,500,000 Maplewood, MN, Health Care Facility Revenue Bonds (Series 1996),
5.95% (Healtheast, MN),
11/15/2006 BBB- 1,456,800
Missouri--4.3%
1,000,000 Kansas City, MO IDA, PCR Bonds, 6.05% (General Motors Corp.),
4/1/2006 A
1,010,490
2,945,000 Missouri State Housing Development Commission, SFM Revenue Bonds
(Series1998D-2), 6.50% (GNMA Collateralized Home Mortgage Program
COL),9/1/2029 AAA
3,146,821
450,000 West Plains, MO IDA, Hospital Revenue Bonds, 4.70% (Ozarks Medical
Center)/(Original Issue Yield: 4.80%),
11/15/2002 BB+ 440,055
440,000 West Plains, MO IDA, Hospital Revenue Bonds, 4.85% (Ozarks Medical
Center)/(Original Issue Yield: 4.95%),
11/15/2003 BB+ 427,583
LONG-TERM MUNICIPALS--continued/2/
Missouri--continued
$ 425,000 West Plains, MO IDA, Hospital Revenue Bonds, 5.05% (Ozarks Medical
Center)/(Original Issue Yield: 5.125%),
11/15/2005 BB+ $ 406,852
Total
5,431,801
Nebraska--0.7%
884,210/3/Energy America, NE, Gas Supply Revenue Bonds (Series 1998B), 5.10%
(Nebraska Public Gas Agency),
10/15/2005 NR 862,751
New Hampshire--1.5%
2,000,000 New Hampshire Business Finance Authority, PCR Refunding Bonds, 4.55%
TOBs (United Illuminating Co.), Mandatory Tender
2/1/2004 BBB+ 1,925,600
New Mexico--1.4%
1,750,000 New Mexico Mortgage Finance Authority, SFM Program Bonds (Series
1998C), 6.00% (GNMA Collateralized Home Mortgage Program COL),
7/1/2029 AAA
1,782,288
New York--6.6%
450,000 New York City, NY, GO UT Refunding Bonds (Series B), 5.30%,
8/15/2000 A- 454,311
1,550,000 New York City, NY, GO UT Refunding Bonds (Series B), 5.30%,
8/15/2000 A- 1,563,237
1,800,000 New York City, NY, UT GO Bonds (Series B), 7.50% (Original Issue
Yield:
7.60%),2/1/2001 A-
1,862,262
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- 1,007,820
995,000 New York State Mortgage Agency, Homeowner Mortgage Revenue Bonds,
(Series 71), 4.75%,
10/1/2021 Aa2 984,135
1,065,000 Niagara Falls, NY CSD, Certificates of Participation (Series 1998),
5.50%,6/15/2001 BBB-
1,077,972
1,185,000 Niagara Falls, NY CSD, Certificates of Participation (Series 1998),
5.625%,6/15/2003 BBB-
1,209,127
100,000 St. Lawrence County, NY IDA, Civic Facility Revenue Bonds (Series
1990) Weekly VRDNs (Clarkson University)/(Sumitomo Bank Ltd., Osaka
LOC)
A3 100,000
Total
8,258,864
North Carolina--2.9%
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 1,003,760
2,600,000 North Carolina HFA, SFM Revenue Bonds (Series 1997TT), 4.90%,
9/1/2024 AA
2,572,232
Total
3,575,992
North Dakota--2.7%
2,570,000 North Dakota State HFA, Housing Finance Program Bonds (Series
1997C), 4.70%,
1/1/2022 Aa3 2,514,925
LONG-TERM MUNICIPALS--continued/2/
North Dakota--continued
$ 940,000 North Dakota State HFA, Housing Finance Program Bonds (Series
1998A), 4.60%,
1/1/2023 Aa3 $ 925,374
Total
3,440,299
Ohio--6.1%
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 496,380
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 309,872
460,000 Franklin County, OH Health Care Facilities, Revenue Refunding Bonds,
5.00% (Ohio Presbyterian Retirement Services),
7/1/2004 NR 451,715
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+ 2,916,270
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+ 1,556,278
895,000 Ohio Enterprise Bond Fund, (Series 1995-3) State Economic
Development Revenue Bonds, 5.60% (Smith Steelite),
12/1/2003 A- 916,802
1,000,000 Ohio HFA, Residential Mortgage Revenue Bonds (Series 1998A-1), 4.90%
(GNMA Collateralized Home Mortgage Program COL),
9/1/2025 AAA 989,390
Total
7,636,707
Pennsylvania--6.5%
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- 611,937
850,000 Clarion County, PA Hospital Authority, Revenue Refunding Bonds,
(Series 1997), 5.00% (Clarion County Hospital),
7/1/2002 BBB- 846,362
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 811,101
505,000 Hazleton, PA Health Services Authority, Hospital Revenue Bonds
(Series 1996), 5.40% (Hazleton-St. Joseph Medical Center),
7/1/2001 BBB+ 508,186
195,000 Jeannette Health Services Authority, PA, Hospital Revenue Bonds
(Series A of1996), 4.85% (Jeannette District Memorial
Hospital)/(Original Issue Yield: 4.95%),
11/1/2000 BBB+ 195,320
155,000 Jeannette Health Services Authority, PA, Hospital Revenue Bonds
(Series A of1996), 5.05% (Jeannette District Memorial
Hospital)/(Original Issue Yield: 5.15%),
11/1/2001 BBB+ 155,251
220,000 Jeannette Health Services Authority, PA, Hospital Revenue Bonds
(Series A of1996), 5.15% (Jeannette District Memorial
Hospital)/(Original Issue Yield: 5.30%),
11/1/2002 BBB+ 220,497
2,000,000 Montgomery County, PA IDA, PCR Refunding Bonds (Series 1999B), 5.30%
TOBs (Peco Energy Co.), Mandatory Tender
10/1/2004 BBB+ 1,987,240
LONG-TERM MUNICIPALS--continued/2/
Pennsylvania--continued
$ 1,200,000 Pennsylvania EDFA, Resource Recovery Refunding Revenue Bonds (Series
B), 6.75% (Northampton Generating),
1/1/2007 BBB- $ 1,245,648
595,000 Philadelphia, PA Hospitals & Higher Education Facilities Authority,
Hospital Revenue Bonds (Series 1997), 5.00% (Jeanes Hospital, PA),
7/1/2000
BBB+ 595,672
620,000 Philadelphia, PA Hospitals & Higher Education Facilities Authority,
Hospital Revenue Bonds (Series 1997), 5.20% (Jeanes Hospital, PA),
7/1/2001
BBB+ 621,110
435,000 Philadelphia, PA IDA, Revenue Bonds, 4.55% (Franklin Institute),
6/15/2003
Baa2 428,183
Total
8,226,507
Rhode Island--3.2%
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
4,002,599
South Dakota--2.4%
3,000,000 South Dakota Student Loan Finance Corp., (Series A) Student Loan
Revenue Bonds, 5.85%,
8/1/2000 A+ 3,033,570
Tennessee--2.1%
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 576,986
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 894,531
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 708,867
400,000 Springfield, TN Health & Educational Facilities Board, Hospital
Revenue Bonds, 7.50% (NorthCrest Medical Center),
4/1/2000 Aaa 404,708
Total
2,585,092
Texas--6.3%
4,000,000 Alliance Airport Authority Inc., TX, Special Facilities Revenue
Bonds, 7.50% (American Airlines Inc.)/(Original Issue Yield: 8.00%),
12/1/2029 BBB-
4,163,360
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- 490,975
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- 1,262,278
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
1,005,340
LONG-TERM MUNICIPALS--continued/2/
Texas--continued
$ 1,000,000 Matagorda County, TX Navigation District Number One,
Revenue Refunding Bonds (Series 1999C), 5.20% TOBs (Reliant
Energy, Inc.),
Mandatory Tender11/1/2002
BBB+ $ 998,620
Total
7,920,573
Total Investments (identified cost
$121,513,786)/4/ $ 120,407,343
</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 November 30, 1999, 47.9% of the total investments at market value were
subject to alternative minimum tax.
3 Denotes a restricted security which is subject to restrictions on resale
under federal securities laws. At November 30, 1999, these securities
amounted to $3,103,650 which represents 2.5% of net assets.
4 The cost of investments for federal tax purposes amounts to $121,513,786. The
net unrealized depreciation of investments on a federal tax basis amounts to
$1,106,443 which is comprised of $177,235 appreciation and $1,283,678
depreciation at November 30, 1999.
Note: The categories of investments are shown as a percentage of net assets
($125,618,431) at November 30, 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 --Guaranteed
HDA --Hospital Development Authority
HEFA --Health and Education Facilities Authority
HFA --Housing Finance Authority
HFDC --Health Facility Development Corporation
IDA --Industrial Development Authority
IDB --Industrial Development Bonds
IFA --Industrial Finance Authority
INS --Insured
LLC --Limited Liability Corporation
LOC --Letter of Credit
MBIA --Municipal Bond Investors Assurance
PCR --Pollution Control Revenue
SFM --Single Family Mortgage
TOBs --Tender Option Bonds
UT --Unlimited Tax
VRDNs --Variable Rate Demand Notes
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
NOVEMBER 30, 1999
<TABLE>
<CAPTION>
Assets:
<S>
<C> <C>
Total investments in securities, at value (identified and tax cost
$121,513,786) $ 120,407,343
Cash
38,085
Income
receivable
2,055,578
Receivable for investments
sold
380,194
Receivable for shares
sold
3,027,741
TOTAL
ASSETS
125,908,941
Liabilities:
Payable for shares
redeemed $
154,469
Income distribution
payable
82,252
Accrued
expenses
53,789
TOTAL
LIABILITIES
290,510
Net Assets for 13,082,261 shares
outstanding $
125,618,431
Net Assets Consist
of:
Paid in
capital
$ 130,959,198
Net unrealized depreciation of
investments
(1,106,443)
Accumulated net realized loss on
investments
(4,314,324)
Undistributed net investment
income
80,000
TOTAL NET
ASSETS
$ 125,618,431
Net Asset Value, Offering Price and Redemption Proceeds Per
Share:
Class A
Shares:
Net Asset Value Per Share ($97,612,483 / 10,165,697 shares
outstanding) $ 9.60
Offering Price Per Share (100/99.00 of
$9.60)/1/
$ 9.70
Redemption Proceeds Per Share (100/100.00 of
$9.60)/2/ $ 9.60
Class F
Shares:
Net Asset Value Per Share ($28,005,948 / 2,916,564 shares
outstanding) $ 9.60
Offering Price Per Share (100/100.00 of
$9.60)/1/ $
9.60
Redemption Proceeds Per Share (99.00/100 of
$9.60)/2/ $ 9.50
</TABLE>
1 See "What Do Shares Cost" in the Prospectus.
2 See "Sales Charge When You Redeem" in the Prospectus.
See Notes which are an integral part of the Financial Statements.
Statement of Operations
NOVEMBER 30, 1999
<TABLE>
<CAPTION>
Investment Income:
<S>
<C> <C> <C>
Interest
$ 6,257,837
Expenses:
Investment adviser
fee $
517,415
Administrative personnel and services
fee 155,002
Custodian
fees
16,198
Transfer and dividend disbursing agent fees and
expenses 35,414
Directors'/Trustees'
fees
4,786
Auditing
fees
14,609
Legal
fees
5,012
Portfolio accounting
fees
72,321
Distribution services fee--Class A
Shares 240,981
Distribution services fee--Class F
Shares 49,466
Shareholder services fee--Class A
Shares 240,981
Shareholder services fee--Class F
Shares 82,444
Share registration
costs
47,095
Printing and
postage
37,785
Taxes
5,826
Miscellaneous
1,936
TOTAL
EXPENSES
1,527,271
Waivers:
Waiver of investment adviser fee $
(396,784)
Waiver of distribution services fee--Class F Shares
(49,466)
TOTAL
WAIVERS
(446,250)
Net
expenses
1,081,021
Net investment
income
5,176,816
Realized and Unrealized Loss on
Investments:
Net realized loss on
investments
(2,004,917)
Net change in unrealized depreciation of
investments
(1,597,928)
Net realized and unrealized loss on
investments
(3,602,845)
Change in net assets resulting from
operations $
1,573,971
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended November
30
1999 1998
Increase (Decrease) in Net
Assets
Operations:
<S>
<C> <C>
Net investment
income $
5,176,816 $ 3,803,820
Net realized gain (loss) on investments (($2,004,917) and $51,808 respectively,
as (2,004,917) 51,809
computed for federal tax
purposes)
Net change in unrealized
appreciation/(depreciation)
(1,597,928) 647,232
CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS 1,573,971
4,502,861
Distributions to
Shareholders:
Distributions from net investment
income
Class A
Shares
(3,798,878) (2,717,180)
Class F
Shares
(1,377,938) (1,033,307)
CHANGE IN NET ASSETS RESULTING FROM
DISTRIBUTIONSTOSHAREHOLDERS (5,176,816)
(3,750,487)
Share
Transactions:
Proceeds from sale of
shares
121,512,143 74,092,164
Net asset value of shares issued to shareholders in payment of distributions
declared 4,242,585 2,938,599
Cost of shares
redeemed
(97,671,342) (49,864,970)
CHANGE IN NET ASSETS RESULTING FROM SHARE
TRANSACTIONS 28,083,386 27,165,793
Change in net
assets
24,480,541 27,918,167
Net
Assets:
Beginning of
period
101,137,890 73,219,723
End of
period
$ 125,618,431 $ 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>
Year Ended November 30 1999 1998
1997 1996 1995
<S> <C> <C>
<C> <C> <C>
Net Asset Value, Beginning of Period $ 9.86 $ 9.78
$ 9.76 $ 9.85 $ 9.49
Net investment income 0.39
0.40 0.41 0.40 0.46
Net realized and unrealized gain (loss) (0.26)
0.08 0.02 (0.08) 0.36
on
investments
TOTAL FROM INVESTMENT OPERATIONS 0.13
0.48 0.43 0.32 0.82
Less
Distributions:
Distributions from net investment income (0.39) (0.40)
(0.41) (0.40) (0.46)
Distributions in excess of net investment income --
- -- -- (0.01)/1/ --
TOTAL DISTRIBUTIONS (0.39) (0.40)
(0.41) (0.41) (0.46)
Net Asset Value, End of Period $ 9.60 $ 9.86
$ 9.78 $ 9.76 $ 9.85
Total Return/2/ 1.29%
4.95% 4.45% 3.34% 8.67%
Ratios to Average Net
Assets:
Expenses 0.90%
0.90% 0.90% 0.81% 0.68%
Net investment income 3.94%
4.08% 4.17% 4.14% 4.72%
Expense waiver/reimbursement/3/ 0.31%
0.50% 0.48% 0.54% 1.03%
Supplemental
Data:
Net assets, end of period (000 omitted) $97,612 $72,174
$52,921 $73,570 $65,179
Portfolio turnover 25%
25% 33% 49% 47%
</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
contingent deferred sales charge, if applicable.
3 This voluntary expense decrease is reflected in both the expense and the net
investment income ratios shown above.
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>
Year Ended November 30 1999 1998
1997 1996 1995
<S> <C> <C>
<C> <C> <C>
Net Asset Value, Beginning of Period $ 9.86 $ 9.78 $
9.76 $ 9.85 $ 9.49
Net investment income 0.41 0.42
0.43 0.43 0.47
Net realized and unrealized gain (loss) (0.26) 0.08
0.02 (0.08) 0.36
on
investments
TOTAL FROM INVESTMENT OPERATIONS 0.15 0.50
0.45 0.35 0.83
Less
Distributions:
Distributions from net investment income (0.41) (0.42)
(0.43) (0.43) (0.47)
Distributions in excess of net investmentincome --
- -- -- (0.01)/1/ --
TOTAL DISTRIBUTIONS (0.41) (0.42)
(0.43) (0.44) (0.47)
Net Asset Value, End of Period $ 9.60 $ 9.86 $
9.78 $ 9.76 $ 9.85
Total Return/2/ 1.54% 5.21%
4.71% 3.60% 8.86%
Ratios to Average Net
Assets:
Expenses 0.65% 0.65%
0.65% 0.56% 0.49%
Net investment income 4.18% 4.28%
4.42% 4.40% 4.91%
Expense waiver/reimbursement/3/ 0.46% 0.65%
0.63% 0.69% 1.12%
Supplemental
Data:
Net assets, end of period (000 omitted) $28,006 $28,964
$20,298 $26,300 $26,442
Portfolio turnover 25%
25% 33% 49% 47%
</TABLE>
1 Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These distributions
do not represent a return of capital for federal income tax purposes.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 This voluntary expense decrease is reflected in both the expense and the net
investment income ratios shown above.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
NOVEMBER 30, 1999
ORGANIZATION
Fixed Income Securities, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end management
investment company. The Corporation consists of three portfolios. The financial
statements included herein are only those of Federated Limited Term Municipal
Fund (the "Fund"), a diversified portfolio. The financial statements of the
other portfolios are presented separately. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held. The Fund offers two classes of shares: Class A Shares and Class
F Shares. The investment objective of the fund is to provide a high level of
current income which is exempt from federal income tax (federal regular income
tax does not include the federal alternative 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 relevant.
Short-term securities are valued at the prices provided by an independent
pricing service. However, short- term securities with remaining maturities of
sixty days or less at the time of purchase may be valued at amortized cost,
which approximates fair market value.
Investment Income, Expenses and Distributions
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex-dividend
date. Non-cash dividends included in dividend income, if any, are recorded at
fair value. The Fund offers multiple classes of shares, which differ in their
respective distribution and service fees. All shareholders bear the common
expenses of the Fund based on average daily net assets of each class, without
distinction between share classes. Dividends are declared separately for each
class. No class has preferential dividend rights; differences in per share
dividend rates are generally due to differences in separate class expenses.
Income and capital gain distributions are determined in accordance with income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatment for mortgage-backed
securities. The following reclassifications have been made to the financial
statements.
<TABLE>
<CAPTION>
Increase (Decrease)
Undistributed
Net Investment
Income/Accumulated
Paid in Distributions in Excess of
Capital Net Investment Income
<S> <C>
($106,667) $106,667
</TABLE>
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 provision for federal tax is
necessary.
At November 30, 1999, the Fund, for federal tax purposes, had a capital loss
carryforward of $4,314,324, which will reduce the Fund's taxable income arising
from future net realized gain on investments, if any, to the extent permitted by
the Code, and thus will reduce the amount of the distributions to shareholders
which would otherwise be necessary to relieve the Fund of any liability for
federal tax. Pursuant to the Code, such capital loss carryforward will expire as
follows:
<TABLE>
<CAPTION>
Expiration Years Expiration Amount
<S> <C>
2002 $1,870,398
2003 439,009
2007 2,004,917
</TABLE>
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 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. Losses may occur on these transactions due to changes in market conditions
or the failure of counterparties to perform under the contract.
Restricted Securities
Restricted securities are securities that may only be resold upon registration
under federal securities laws or in transactions exempt from such registration.
In some cases, the issuer of restricted securities has agreed to register such
securities for resale, at the issuer's expense either upon demand by the Fund or
in connection with another registered offering of the securities. Many
restricted securities may be resold in the secondary market in transactions
exempt from registration. Such restricted securities may be determined to be
liquid under criteria established by the Board of Directors. The Fund will not
incur any registration costs upon such resales. The Fund's restricted securities
are valued at the price provided by dealers in the secondary market or, if no
market prices are available, at the fair value as determined by the Fund's
pricing committee.
Additional information on each restricted security held at November 30, 1999 is
as follows:
<TABLE>
<CAPTION>
Acquisition Acquisition
Security Date Cost
<S> <C> <C>
Birmingham, AL, 5.60% 11/09/1999 $1,236,722
Energy America, NE, 5.10% 3/18/1998 884,210
Greenville, TX Industrial 8/08/1996 1,000,000
Development Corp. 5.15%
</TABLE>
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses, and revenues reported in
the financial statements. Actual results could differ from those estimated.
Other
Investment transactions are accounted for on a trade date basis.
CAPITAL STOCK
At November 30, 1999, par value shares ($0.001 per share) authorized were as
follows:
<TABLE>
<CAPTION>
Shares 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 shares were as follows:
<TABLE>
<CAPTION>
Year Ended November 30
1999 1998
Class A Shares Shares
Amount Shares Amount
<S> <C>
<C> <C> <C>
Shares sold 10,438,881 $
102,014,792 6,369,593 $ 62,557,215
Shares issued to shareholders in payment of 322,441
3,137,186 217,217 2,136,622
distributions
declared
Shares redeemed (7,917,855)
(76,977,707) (4,673,113) (46,010,794)
NET CHANGE RESULTING FROM CLASSASHARE TRANSACTIONS 2,843,398 $
28,174,271 1,913,697 $ 18,683,043
</TABLE>
<TABLE>
<CAPTION>
Year Ended November 30
1999 1998
Class F Shares Shares
Amount Shares Amount
<S> <C>
<C> <C> <C>
Shares sold 1,981,302 $
19,497,351 1,174,688 $ 11,534,949
Shares issued to shareholders in payment of 113,371
1,105,399 81,531 801,977
distributions
declared
Shares redeemed (2,116,729)
(20,693,635) (392,161) (3,854,176)
NET CHANGE RESULTING FROM CLASSFSHARE TRANSACTIONS (22,056) $
(90,885) 864,058 $ 8,482,750
NET CHANGE RESULTING FROM SHARETRANSACTIONS 2,821,342 $
28,083,386 2,777,755 $ 27,165,793
</TABLE>
INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Adviser Fee
Federated Investment Management Company, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment adviser 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 a scale that ranges from 0.15% to 0.075% of the
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors, Inc., subject to a $125,000 minimum per portfolio and
$30,000 per each additional class.
Distribution Services Fee
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Act. Under the terms of the Plan, the Fund will compensate Federated
Securities Corp. ("FSC"), the principal distributor, from the net assets of the
Fund to finance activities intended to result in the sale of the Fund's Class A
and Class F shares. The Plan provides that the Fund may incur distribution
expenses according to the following schedule annually, to compensate FSC.
<TABLE>
<CAPTION>
Percentage of
Average Daily Net
Share Class Name Assets of Class
<S> <C>
Class A Shares 0.25%
Class F Shares 0.15%
</TABLE>
The distributor may voluntarily choose to waive any portion of its fee. The
distributor can modify or terminate this voluntary waiver at any time at its
sole discretion.
Shareholder Services Fee
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services Company ("FSSC"), the Fund will pay FSSC up to 0.25% of average daily
net assets of the Fund shares for the period. The fee paid to FSSC is used to
finance certain services for shareholders and to maintain shareholder accounts.
FSSC may voluntarily choose to waive any portion of its fee. FSSC can modify or
terminate this voluntary waiver at any time at its sole discretion.
Transfer and Dividend Disbursing Agent Fees and Expenses
FServ, through its subsidiary FSSC, serves as transfer and dividend disbursing
agent for the 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-of-pocket expenses.
Interfund Transactions
During the period ended November 30, 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 complied with Rule 17a-7 under the Act and
amounted to $119,250,000 and $106,840,000, 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 (and in-kind
contributions) for the period ended November 30, 1999, were as follows:
<TABLE>
<S> <C>
Purchases $46,904,115
Sales $26,231,433
</TABLE>
Independent Auditors' Report
TO THE BOARD OF DIRECTORS OF FIXED INCOME SECURITIES, INC.
AND THE SHAREHOLDERS OF FEDERATED LIMITED TERM MUNICIPAL FUND:
We have audited the accompanying statement of assets and liabilities of
Federated Limited Term Municipal Fund (the Fund) (a portfolio of Fixed Income
Securities, Inc.), including the portfolio of investments, as of November 30,
1999, and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years then ended, and the
financial highlights for each of the years in the five year period then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to provide
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
November 30, 1999, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Federated Limited Term Municipal Fund as of November 30, 1999, the results of
its operations, the changes in its net assets for each of the years in the
period then ended, and the financial highlights for each of the years in the
five year period then ended, in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Boston, Massachusetts
January 14, 2000
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
William D. Dawson III
Chief Investment Officer
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
government agency. Investment in mutual funds involves investment risk,
including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectuses which contains facts
concerning its objective and policies, management fees, expenses, and other
information.
ANNUAL REPORT
AS OF NOVEMBER 30, 1999
[FEDERATED LOGO]
WORLD-CLASS INVESTMENT MANAGER
Federated Limited Term Municipal Fund
Established 1993
6TH Annual Report
[FEDERATED LOGO]
Federated Limited Term Municipal Fund
Federated Investors Funds
5800 Corporate Drive
1-800-341-7400
www.federatedinvestors.com
Federated Securities Corp., Distributor
Cusip 338319502
Cusip 338319403
G00278-02 (1/00)
Federated is a registered mark of Federated Investors, Inc.
2000 (C)Federated Investors, Inc. [RECYCLED LOGO]
[LOGO OF FEDERATED INVESTORS]
World-Class Investment Manager(R)
[PHOTO OF RICHARD B. FISHER]
Richard B. Fisher
President
Federated Strategic Income Fund President's Message
Dear Fellow Shareholder:
Federated Strategic Income Fund was created in 1994, and I am pleased to present
its fifth Annual Report. This bond fund produced generous monthly income from
three distinct bond markets--domestic high-yield bonds, U.S. corporate bonds,
and international corporate and government bonds./1/ During the reporting
period, the fund's managers shifted the composition of the $975 million
portfolio to emphasize opportunities in the high-yield U.S. and international
sectors. These sectors are not correlated, which means that the risks and
rewards for the fund do not occur at the same time. The fund's sector allocation
as of November 30, 1999 was 40.82% in domestic high-yield bonds, 35.72% in
international bonds, and 23.46% domestic high-quality bonds.
This report covers the 12-month reporting period from December 1, 1998 through
November 30, 1999. It begins with an interview with the fund's lead portfolio
manager, Joseph M. Balestrino, Senior 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.
During the fund's fiscal year, the U.S. bond market experienced a rising rate
environment, which caused a decline in overall bond prices. On the international
side, bonds in the emerging markets were strong, but developed country bonds
were weak. Your fund's ability to diversify among different market sectors
resulted in a high level of income that helped temper a 6% decline in net asset
value.
1 Lower rated bonds involve a higher degree of risk than investment grade bonds
in return for higher yield potential. Foreign investing involves special
risks including currency risk, increased volatility of foreign securities,
and differences in auditing and other financial standards.
Individual share class total return performance for the 12-month reporting
period, including income distributions, follows./2/
<TABLE>
<CAPTION>
Income
Total Return Distributions Net
Asset Value Change
<S> <C> <C> <C>
Class A Shares 2.30% $0.82 $9.79
to $9.19=(6.13%)
Class B Shares 1.54% $0.75 $9.79
to $9.19=(6.13%)
Class C Shares 1.54% $0.75 $9.79
to $9.19=(6.13%)
Class F Shares 2.20% $0.82 $9.79
to $9.18=(6.23%)
</TABLE>
Thank you for entrusting a portion of your wealth to this highly diversified
approach to bond investing. 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 investing. By employing this investment approach, 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
additional shares is a convenient way to "pay yourself first" and enjoy the
benefit of compounding./3/
As always, we welcome your comments and suggestions.
Sincerely,
/s/ Richard B. Fisher
Richard B. Fisher
President
January 15, 2000
2 Performance quoted is based on net asset value, represents past performance
and is no guarantee of future results. Investment return and principal value
will fluctuate so that an investor's shares, when redeemed, may be worth more
or less than their original cost. Total returns for the period, based on
offering price (i.e., less any applicable sales charge), for Class A, B, C,
and F Shares were (2.29%), (3.62%), 0.60%, and 0.23%, respectively.
3 Systematic investing does not assure a profit or protect against loss in
declining markets. Because dollar-cost averaging involves continuous
investing regardless of fluctuating price levels, investors should consider
their financial ability to continue purchases during periods of low price
levels.
[PHOTO OF JOSEPH M. BALESTRINO]
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 the following
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
international bonds--Robert Kowit, Vice President, Federated Global Investment
Management Corp.]
The fund's fiscal year saw interest rates rise significantly--and bond prices
decline--in response to the worldwide economic rebound. What is your review of
the 12-month reporting period?
The past 12-month reporting period demonstrated a dramatic reversal of the
economic and market conditions from the summer and fall of 1998. You may recall
that the preceding period had displayed worldwide economic and currency turmoil,
which resulted in a significant rush to the safety and liquidity of U.S.
Treasury securities, and thus a substantial interest rate decline. Over the past
12 months, worldwide economic conditions responded very positively to the long
series of interest rate reductions from central banks around the globe. Given
the much improved economic landscape, domestic interest rates began rising late
in 1998 and continued to rise throughout all of calendar year 1999. The result
of the stronger economic conditions was three interest rate hikes by the Federal
Reserve Board (the "Fed") during the latter half of 1999.
How did Federated Strategic Income Fund perform compared to its benchmark over
the 12-month reporting period?
For the 12-month reporting period ended November 30, 1999, the fund's Class A
Shares posted a total return of 2.30%, based on net asset value.1 The fund's
Class B, C, and F Shares achieved total returns of 1.54%, 1.54%, and 2.20%,
respectively, based on net asset value.1 The fund's returns exceeded the 1.24%
return of the fund's benchmark, the Lipper Multi-Sector Income Funds Average.2 A
strong level of income generated by the fund was the positive contributor to the
total return, offsetting a 6% decline in net asset value.
Of course, income is a primary consideration for shareholders. What was the
total income paid per share during the 12-month reporting period?
The fund's monthly income dividends totaled $0.82 per share for Class A Shares,
$0.75 per share for Class B Shares, $0.75 per share for Class C Shares, and
$0.82 per share for Class F Shares.
Did you make any significant changes to the fund's allocations among its three
bond sectors? How did the allocations stand as of November 30, 1999?
As the following chart shows, sector allocation in the fund was very
significantly adjusted over the fiscal year period. During the global financial
crisis, the fund held its largest overweighted position in the domestic high-
quality bond sector, with a significant underweighted position in the
international bond sector. Over the past year, we reversed the sector allocation
to more heavily emphasize the higher yielding sectors (high-yield and
international bonds) and moved to a significant underweighted position in the
lower yielding, high-quality sector. With a much stronger worldwide economic
condition, fund shareholders should benefit by this overweighting of the higher
yielding sectors. At November 30, 1999, the fund's sector allocation was 23.46%
domestic high-quality bonds, 40.82% in domestic high-yield bonds and 35.72% in
international bond issues.
The following chart shows the fund's sector allocation as of November 30, 1999
as compared to twelve months ago:
<TABLE>
<CAPTION>
As of As of
Sector 11/30/99 11/30/98
<S> <C> <C>
U.S. high-quality bonds 23% 35%
U.S. high-yield bonds 41% 34%
International bonds 36% 31%
</TABLE>
1 Performance quoted is based on net asset value, represents past performance
and is no guarantee of future results. Investment return and principal value
will fluctuate, so that an investor's shares, when redeemed, may be worth
more or less than their original cost. Total returns for the period, based on
offering price (i.e., less any applicable sales charge), for Class A, B, C,
and F Shares were (2.29%), (3.62%), 0.60%, and 0.23%, 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 falling
into the category indicated. Lipper returns do not take sales charges into
account.
What were the fund's top ten holdings as of November 30, 1999?
<TABLE>
<CAPTION>
Percentage of
Name/Coupon/Maturity Net Assets
<S> <C>
Government of Brazil, 14.500% due 1.46%
10/15/2009
U.S. Treasury Bond, 12.375% due 05/15/2004 1.36%
U.S. Treasury Bond, 11.625% due 11/15/2004 1.31%
U.S. Treasury Bond, 14.250% due 02/15/2002 1.18%
U.S. Treasury Bond, 10.750% due 08/15/2005 1.16%
Government of Turkey, 12.000% due 1.06%
12/15/2008
Government of Turkey, 12.375% due 1.06%
06/15/2009
Government of Brazil, 10.125% due 0.97%
05/15/2027
Government of Philippines, 9.875% due 0.93%
01/15/2019
Government of Colombia, 10.875% due 0.88%
03/09/2004
TOTAL 11.37%
</TABLE>
As we leave a difficult year for bond prices, what is management's outlook for
the three key sectors as we approach the year 2000?
Current economic growth is expected to continue on track over the initial part
of the year 2000. The concern is for too much strength as opposed to weakness.
Thus, the fund will continue to overweight the high-yield and international bond
sectors, which may benefit from stronger activity. On the flip side, it is
likely that the Fed may again see the need to raise domestic interest rates to
offset potentially mounting inflation fears. As a result, the fund will also
maintain its underweighted position in domestic high-quality bonds.
Shareholder Meeting Results
A Special Meeting of Fund shareholders was held on December 30, 1999. On
September 8, 1999, the record date for shareholders voting at the meeting, there
were 108,857,160 total outstanding shares. The following items were considered
by shareholders and the results of their voting were as follows:
AGENDA ITEM 1
Vote on Directors/1/
<TABLE>
<CAPTION>
Withheld
Authority
For To Vote
<S> <C> <C>
Thomas G. Bigley 73,016,143 3,114,488
Nicholas P. Constantakis 73,025,973 3,104,658
John F. Cunningham 72,998,217 3,132,414
J. Christopher Donahue 72,993,493 3,137,138
Charles F. Mansfield, Jr. 73,016,625 3,114,006
John E. Murray, Jr. 73,003,860 3,126,771
John S. Walsh 72,997,606 3,133,025
</TABLE>
1 The following Directors of the Fund continued their terms as Directors of the
Fund: John F. Donahue, John T. Conroy, Jr., Lawrence D. Ellis, M.D., Peter E.
Madden, and Marjorie P. Smuts.
AGENDA ITEM 2A
To amend the Fund's fundamental investment policy regarding diversification.
<TABLE>
<CAPTION>
Abstentions and
For Against Broker Non-votes
<S> <C> <C>
57,234,107 1,425,397 17,471,127
</TABLE>
AGENDA ITEM 2B
To amend the Fund's fundamental investment policy regarding borrowing money and
issuing senior securities.
<TABLE>
<CAPTION>
Abstentions and
For Against Broker Non-votes
<S> <C> <C>
55,863,189 2,654,479 17,612,963
</TABLE>
AGENDA ITEM 2C
To amend the Fund's fundamental investment policy regarding investments in real
estate.
<TABLE>
<CAPTION>
Abstentions and
For Against Broker Non-votes
<S> <C> <C>
56,700,004 1,838,422 17,592,105
</TABLE>
AGENDA ITEM 2D
To amend the Fund's fundamental investment policy regarding investments in
commodities.
<TABLE>
<CAPTION>
Abstentions and
For Against Broker Non-votes
<S> <C> <C>
56,277,380 2,272,627 17,580,624
</TABLE>
AGENDA ITEM 2E
To amend the Fund's fundamental investment policy regarding underwriting
securities.
<TABLE>
<CAPTION>
Abstentions and
For Against Broker Non-votes
<S> <C> <C>
56,644,487 1,800,872 17,685,272
</TABLE>
AGENDA ITEM 2F
To amend the Fund's fundamental investment policy regarding lending assets.
<TABLE>
<CAPTION>
Abstentions and
For Against Broker Non-votes
<S> <C> <C>
55,760,249 2,662,904 17,707,478
</TABLE>
AGENDA ITEM 2G
To amend the Fund's fundamental investment policy regarding concentration of the
Fund's investments in the securities of companies in the same industry.
<TABLE>
<CAPTION>
Abstentions and
For Against Broker Non-votes
<S> <C> <C>
56,763,288 1,698,454 17,668,889
</TABLE>
AGENDA ITEM 2H
To amend, and to make non-fundamental, the Fund's fundamental investment policy
regarding buying securities on margin.
<TABLE>
<CAPTION>
Abstentions and
For Against Broker Non-votes
<S> <C> <C>
55,842,735 2,551,695 17,736,201
</TABLE>
AGENDA ITEM 2I
To amend, and to make non-fundamental, the Fund's fundamental investment policy
regarding pledging assets.
<TABLE>
<CAPTION>
Abstentions and
For Against Broker Non-votes
<S> <C> <C>
56,165,276 2,288,623 17,676,732
</TABLE>
AGENDA ITEM 3
To eliminate the Fund's fundamental investment policy on selling securities
short.
<TABLE>
<CAPTION>
Abstentions and
For Against Broker Non-votes
<S> <C> <C>
56,016,622 2,559,068 17,554,941
</TABLE>
AGENDA ITEM 4A
To permit the Board of Directors to liquidate the assets of a series or class
without seeking shareholder approval to the extent permitted under Maryland law.
<TABLE>
<CAPTION>
Abstentions and
For Against Broker Non-votes
<S> <C> <C>
55,522,979 3,255,457 17,352,195
</TABLE>
AGENDA ITEM 4B
To permit the company to make name changes without shareholder approval.
<TABLE>
<CAPTION>
Abstentions and
For Against Broker Non-votes
<S> <C> <C>
55,103,560 3,775,974 17,251,097
</TABLE>
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
Federated Strategic Income Fund on 5/4/94, reinvested dividends and capital
gains, and did not redeem any shares, your account would have been worth $8,607
on 11/30/99. You would have earned a 6.69%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 12/31/99, the Class A Shares' average annual 1-year, 5-year and since
inception (5/4/94) total returns were (1.16%), 7.88%, and 6.80%, respectively.
Class B Shares' average annual 1-year and since inception (7/27/95) total
returns were (2.48%) and 6.49%, respectively. Class C Shares' average annual 1-
year, 5-year and since inception (5/2/94) total returns were 1.80%, 8.07%, and
6.87%, respectively. Class F Shares' average annual 1- year, 5-year and since
inception (5/10/94) total returns were 1.42%, 8.51%, and 7.33%, respectively.2
[Graphic representation omitted; see Appendix I.]
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 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%
contingent 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 5
years (reinvesting all dividends and capital gains) grew to $6,929.
With this approach, the key is consistency.
If you had started investing $1,000 annually in the Class A Shares of
Federated Strategic Income Fund on 5/4/94, reinvested your dividends and capital
gains and did not redeem any shares, you would have invested only $6,000, but
your account would have reached a total value of $6,929/1/ by 11/30/99. You
would have earned an average annual total return of 4.78%.
A practical investment plan helps you pursue a high level of income by
investing in debt securities invested in the United States and around the world.
Through systematic investing, you buy shares on a regular basis and reinvest all
earnings. An investment plan can work 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 J.]
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.
Federated Strategic Income Fund-Class A Shares
GROWTH OF A $10,000 INVESTMENT
The graph below illustrates the hypothetical investment of $10,000/1/ in the
Federated Strategic Income Fund (Class A Shares) (the "Fund") from May 4, 1994
(start of performance) to November 30, 1999 compared to the Lehman Brothers
Government/Corporate Bond Index (LBG/CBI)/2/ and the Lipper Multi-Sector Income
Funds Average (LMSIFA)./3/
<TABLE>
<CAPTION>
Average Annual Total Returns/4/ for the Period Ended
November 30, 1999
<S> <C>
1 Year (2.29%)
5 Years 7.49%
Start of Performance (5/4/94) 6.68%
</TABLE>
[Graphic representation omitted; see Appendix K.]
Past performance is not predictive of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than their original cost. Mutual funds are not obligations of
or guaranteed by any bank and are not federally insured.
1 Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 4.50% ($10,000 investment minus $450 sales charge
= $9,550). The Fund's performance assumes the reinvestment of all dividends
and distributions. The LBG/CBI and the LMSIFA have been adjusted to reflect
reinvestment of dividends on securities in the index and average.
2 The LBG/CBI is not adjusted to reflect sales charges, expenses, or other fees
that the Securities and Exchange Commission requires to be reflected in the
Fund's performance.
3 The LMSIFA represents the average of the total returns reported by all of the
mutual funds designated by Lipper Analytical Services, Inc. as falling into
the category indicated, and is not adjusted to reflect any sales charges.
However, these total returns are reported net of expenses or other fees that
the Securities and Exchange Commission requires to be reflected in a fund's
performance.
4 Total return quoted reflects all applicable sales charges.
Federated Strategic Income Fund-Class B Shares
GROWTH OF A $10,000 INVESTMENT
The graph below illustrates the hypothetical investment of $10,000/1/ in the
Federated Strategic Income Fund (Class B Shares) (the "Fund") from July 27, 1995
(start of performance) to November 30, 1999, compared to the Lehman Brothers
Government/Corporate Bond Index (LBG/CBI)/2/ and the Lipper Multi-Sector Income
Funds Average (LMSIFA)./3/
<TABLE>
<CAPTION>
Average Annual Total Returns/4/ for the Period Ended
November 30, 1999
<S> <C>
1 Year (3.62%)
Start of Performance (7/27/95) 6.35%
</TABLE>
[Graphic representation omitted; see Appendix L.]
Past performance is not predictive of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than their original cost. Mutual funds are not obligations of
or guaranteed by any bank and are not federally insured.
1 Represents a hypothetical investment of $10,000 in the Fund. The ending value
of the Fund reflects a 2.00% contingent deferred sales charge on any
redemption less than 5 years from the purchase date. The maximum contingent
deferred sales charge is 5.50% on any redemption less than 1 year from the
purchase date. The Fund's performance assumes the reinvestment of all
dividends and distributions. The LBG/CBI and the LMSIFA have been adjusted to
reflect reinvestment of dividends on securities in the index and average.
2 The LBG/CBI is not adjusted to reflect sales charges, expenses, or other fees
that the Securities and Exchange Commisision requires to be reflected in the
Fund's performance.
3 The LMSIFA represents the average of the total returns reported by all of the
mutual funds designated by Lipper Analytical Services, Inc. as falling into
the category indicated, and is not adjusted to reflect any sales charges.
However, these total returns are reported net of expenses or other fees that
the Securities and Exchange Commisision requires to be reflected in a fund's
performance.
4 Total return quoted reflects all applicable contingent deferred sales
charges.
Federated Strategic Income Fund-Class C Shares
GROWTH OF A $10,000 INVESTMENT
The graph below illustrates the hypothetical investment of $10,000/1/ in the
Federated Strategic Income Fund (Class C Shares) (the "Fund") from May 2, 1994
(start of performance) to November 30, 1999 compared to the Lehman Brothers
Government/Corporate Bond Index (LBG/CBI)/2/ and the Lipper Multi-Sector Income
Funds Average (LMSIFA)./3/
<TABLE>
<CAPTION>
Average Annual Total Returns/4/ for the Period Ended
November 30, 1999
<S> <C>
1 Year 0.60%
5 Years 7.68%
Start of Performance (5/2/94) 6.76%
</TABLE>
[Graphic representation omitted; see Appendix M.]
Past performance is not predictive of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than their original cost. Mutual funds are not obligations of
or guaranteed by any bank and are not federally insured.
1 Represents a hypothetical investment of $10,000 in the Fund. A 1.00%
contingent deferred sales charge would be applied on any redemption less than
1 year from the purchase date. The Fund's performance assumes the
reinvestment of all dividends and distributions. The LBG/CBI and the LMSIFA
have been adjusted to reflect reinvestment of dividends on securities in the
index and average.
2 The LBG/CBI is not adjusted to reflect sales charges, expenses, or other fees
that the Securities and Exchange Commission requires to be reflected in the
Fund's performance.
3 The LMSIFA represents the average of the total returns reported by all of the
mutual funds designated by Lipper Analytical Services, Inc. as falling into
the category indicated, and is not adjusted to reflect any sales charges.
However, these total returns are reported net of expenses or other fees that
the Securities and Exchange Commission requires to be reflected in a fund's
performance.
4 Total return quoted reflects all applicable contingent deferred sales
charges.
Federated Strategic Income Fund-Class F Shares
GROWTH OF A $10,000 INVESTMENT
The graph below illustrates the hypothetical investment of $10,0001 in the
Federated Strategic Income Fund (Class F Shares) (the "Fund") from May 10, 1994
(start of performance) to November 30, 1999 compared to the Lehman Brothers
Government/Corporate Bond Index (LBG/CBI)2 and the Lipper Multi-Sector Income
Funds Average (LMSIFA)./3/
<TABLE>
<CAPTION>
Average Annual Total Return/4/ for the Period Ended
November 30, 1999
<S> <C>
1 Year 0.23%
5 Years 8.12%
Start of Performance (5/10/94) 7.22%
</TABLE>
[Graphic representation omitted; see Appendix N.]
Past performance is not predictive of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than their original cost. Mutual funds are not obligations of
or guaranteed by any bank and are not federally insured.
1 Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 1.00% ($10,000 investment minus $100 sales charge
= $9,900). A 1.00% contingent deferred sales charge would be applied on any
redemption less than 4 years from the purchase date. The Fund's performance
assumes the reinvestment of all dividends and distributions. The LBG/CBI and
the LMSIFA have been adjusted to reflect reinvestment of dividends on
securities in the index and average.
2 The LBG/CBI is not adjusted to reflect sales charges, expenses, or other fees
that the Securities and Exchange Commission requires to be reflected in the
Fund's performance.
3 The LMSIFA represents the average of the total returns reported by all of the
mutual funds designated by Lipper Analytical Services, Inc. as falling into
the category indicated, and is not adjusted to reflect any sales charges.
However, these total returns are reported net of expenses or other fees that
the Securities and Exchange Commission requires to be reflected in a fund's
performance.
4 Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
Portfolio of Investments
NOVEMBER 30, 1999
<TABLE>
<CAPTION>
Principal
Value in
Amount
U.S. Dollars
<S>
<C> <C>
U.S. CORPORATE BONDS--10.0%
Automotive--0.8%
$ 2,820,000 Arvin Industries, 9.50%,
2/1/2027 $ 2,701,786
1,400,000 Dana Corp., Note, 7.00%,
3/15/2028 1,246,994
775,000 General Motors Corp., Note, 9.45%,
11/01/2011 892,986
1,000,000 Hertz Corp., MTN, 9.05%,
6/22/2000 1,015,010
1,800,000 Hertz Corp., Sr. Note, 7.00%,
1/15/2028 1,609,146
Total 7,465,922
Banking--0.3%
2,000,000 Barclays North America, Deb., 9.75%,
5/15/2021 2,160,740
1,000,000 FirstBank Puerto Rico, Sub. Note, 7.625%,
12/20/2005 941,980
Total 3,102,720
Cable Television--0.5%
2,500,000 CF Cable TV, Inc., Note, 9.125%,
7/15/2007 2,647,150
2,000,000 Continental Cablevision, Sr. Deb., 9.50%,
8/1/2013 2,235,840
Total 4,882,990
Chemicals & Plastics--0.2%
1,450,000 /1/,/2/Fertinitro Finance, Company Guarantee, 8.29%,
4/01/2020 840,759
1,250,000 /1/,/2/Reliance Industries Ltd., Bond, 8.25%,
1/15/2027 1,171,875
Total 2,012,634
Consumer Products--0.1%
1,000,000 /1/,/2/International Speedway Corp, 7.875%,
10/15/2004 995,870
Ecological Services & Equipment--0.2%
2,700,000 WMX Technologies, Inc., Deb., 8.75%,
5/1/2018 2,433,618
Education--0.2%
2,000,000 Boston University, 7.625%,
7/15/2097 1,852,780
Electronics--0.3%
3,000,000 Anixter International, Inc., Company Guarantee, 8.00%,
9/15/2003 2,948,460
Finance - Automotive--0.2%
1,620,000 General Motors Acceptance Corp., Note, 9.00%,
10/15/2002 1,707,480
Financial Intermediaries--0.6%
750,000 Associates Corp. of North America, Sr. Note, 9.125%,
4/01/2000 757,170
1,500,000 Capital One Financial Corp, Note, 7.125%,
8/01/2008 1,381,110
2,000,000 Green Tree Financial Corp. 1993-4, Class B2, 8.55%,
01/15/2019 1,838,000
330,370 Green Tree Home Equity Loan Trust 1999-A, Class B2A,
7.44%, 2/15/2029 331,457
1,000,000 Lehman Brothers Holdings, Inc., Note, 8.50%,
5/1/2007 1,047,180
1,000,000 Lehman Brothers, Inc., Sr. Sub. Note, 7.375%,
1/15/2007 984,970
Total 6,339,887
Forest Products--0.2%
1,250,000 Donohue Forest Products, 7.625%,
5/15/2007 1,241,987
250,000 Pope & Talbot, Inc., 8.375%,
6/1/2013 224,485
Total 1,466,472
Health Care--0.1%
850,000 Tenet Healthcare Corp., Sr. Note, 8.00%,
1/15/2005 822,375
500,000 Tenet Healthcare Corp., Sr. Sub. Note, 8.125%,
12/01/2008 465,000
Total 1,287,375
Home Products & Furnishings--0.1%
600,000 Whirlpool Corp., Unsecd. Note, 9.50%,
6/15/2000 610,410
Industrial Products & Equipment0.2%
2,250,000 Southdown, Inc., Sr. Sub. Note, 10.00%,
3/1/2006 2,432,925
Insurance--1.3%
500,000 AFC Capital Trust I, Bond, 8.207%,
2/3/2027 496,050
1,500,000 CNA Financial Corp, Bond, 6.95%,
1/15/2018 1,315,215
1,000,000 Conseco Finance, Unsecd. Note, 8.796%,
4/01/2027 891,290
2,000,000 Conseco, Inc., Sr. Sub. Note, 10.25%,
6/01/2002 2,071,968
750,000 Delphi Financial Group, Inc., 9.31%,
3/25/2027 715,267
3,164,000 Delphi Financial Group, Inc., Note, 8.00%,
10/1/2003 3,137,676
2,000,000 /1/,/2/Life Re Capital Trust I, Company Guarantee, 8.72%,
6/15/2027 2,029,620
625,000 Provident Cos., Inc., Bond, 7.405%,
3/15/2038 533,862
500,000 /1/,/2/USF&G Corp., 8.312%,
7/1/2046 498,850
500,000 USF&G Corp., Company Guarantee, 8.47%,
1/10/2027 489,160
1,000,000 /1/,/2/Union Central Life Insurance Co., Note, 8.2%,
11/1/2026 986,170
Total 13,165,128
Leisure & Entertainment--0.3%
2,850,000 Paramount Communication, Inc., Sr. Deb., 8.25%,
8/1/2022 2,834,325
175,000 Viacom, Inc., Sr. Sub. Note, 10.25%,
9/15/2001 184,852
Total 3,019,177
Metals & Mining--0.5%
1,950,000 Inco Ltd., Note, 9.60%,
6/15/2022 1,906,846
2,300,000 /1/,/2/Normandy Finance Ltd., Company Guarantee, 7.50%,
7/15/2005 2,178,721
1,125,000 Santa Fe Pacific Gold, Note, 8.375%,
7/01/2005 1,086,311
TOTAL 5,171,878
Oil & Gas--0.7%
1,250,000 Husky Oil Ltd., Sr. Note, 7.125%,
11/15/2006 1,171,700
1,250,000 Occidental Petroleum Corp, Sr. Note, 10.125%,
11/15/2001 1,336,025
1,750,000 Sun Co, Inc, 9.00%,
11/1/2024 1,864,818
2,530,000 Veritas DGC, Inc., 9.75%,
10/15/2003 2,593,250
Total 6,965,793
Printing & Publishing--0.2%
880,000 News America Holdings, Inc., Company Guarantee, 8.00%,
10/17/2016 869,422
1,000,000 News America Holdings, Inc., Note, 8.15%,
10/17/2036 967,350
Total 1,836,772
Real Estate--0.3%
1,000,000 Price REIT, Inc., Sr. Note, 7.50%,
11/5/2006 973,740
500,000 Storage USA, 8.20%,
6/1/2017 458,700
2,100,000 Storage USA, Deb., 7.50%,
12/1/2027 1,759,716
Total 3,192,156
Retailers--1.6%
3,500,000 Dayton-Hudson Corp., Deb., 10.00%,
12/01/2000 3,615,465
2,030,000 Harcourt General, Sr. Deb., 7.20%,
8/1/2027 1,786,380
3,174,657 K Mart Corp, Pass Thru Cert., 8.54%,
1/2/2015 3,048,083
2,000,000 May Department Stores Co., Deb., 9.875%,
6/15/2021 2,147,280
1,100,000 Sears, Roebuck & Co., MTN, 10.00%,
2/03/2012 1,246,509
1,000,000 Shopko Stores, Inc., 8.50%,
3/15/2002 1,024,930
2,300,000 Shopko Stores, Inc., Sr. Note, 9.25%,
3/15/2022 2,465,301
Total 15,333,948
Technology Services--0.4%
1,000,000 Dell Computer Corp., Deb., 7.10%,
4/15/2028 931,190
2,900,000 Unisys Corp, Sr. Note, 11.75%,
10/15/2004 3,211,750
Total 4,142,940
Principal
Amount
or
Foreign
Currency
Value in
Par
Amount
U.S. Dollars
Telecommunications & Cellular--0.4%
1,000,000 LCI International, Inc., Sr. Note, 7.25%,
6/15/2007 977,170
625,000 MetroNet Escrow Corp., Sr. Note, 10.625%,
11/01/2008 716,406
4,200,000 Viatel, Inc., 11.15%,
4/15/2008 2,142,428
Total 3,836,004
Utilities--0.3%
1,750,000 /1/,/2/Edison Mission Holding Co., Sr. Secd. Note, 8.734%,
10/01/2026 1,666,822
600,000 /1/,/2/Israel Electric Corp. Ltd, Sr. Secd. Note, 7.75%,
3/01/2009 584,810
500,000 Puget Sound Energy, Inc., MTN, 7.02%,
12/1/2027 452,360
Total 2,703,992
Total U.S. Corporate Bonds (identified cost
$101,098,150) 98,907,331
INTERNATIONAL BONDS--37.2%
ARGENTINA PESO--0.2%
Telecommunications & Cellular--0.2%
2,000,000 /1/,/2/CIA International Telecommunications, Note, 10.375%,
8/01/2004 1,600,240
AUSTRALIAN DOLLAR--0.2%
Printing & Publishing--0.0%
150,000 News America Holdings, 8.625%,
2/7/2014 91,959
State/Provincial0.2%
580,000 Queensland, State of, Deb., 10.50%,
5/15/2003 413,101
2,000,000 Queensland, State of, Local Gov't. Guarantee, 8.00%,
5/14/2003 1,333,502
550,000 Victoria, State of, Local Gov't. Guarantee, 10.25%,
11/15/2006 413,964
Total 2,160,567
Total Australian
Dollar 2,252,526
BRITISH POUND--0.5%
Banking--0.0%
300,000 Bank of Ireland, Sub., 9.75%,
3/21/2005 528,635
Sovereign--0.4%
700,000 United Kingdom, Government of, 7.00%,
11/06/2001 1,131,101
United Kingdom, Government of, Foreign Gov't. Guarantee,
11.75%,
1,300,000
1/22/2007
2,380,892
Total 3,511,993
Telecommunications & Cellular--0.1%
1,000,000 Esat Telecom Group PLC, 11.875%,
11/01/2009 1,066,182
Total British
Pound 5,106,810
CANADIAN DOLLAR--1.2%
Air Transportation--0.1%
1,200,000 Air Canada, 7.25%,
10/1/2007 758,307
Beverage & Tobacco--0.1%
1,100,000 Molson Breweries, Unsub., 9.10%,
3/11/2013 882,534
Forest Products--0.1%
1,150,000 Avenor, Inc, Deb., 10.85%,
11/30/2014 929,791
State/Provincial--0.1%
1,000,000 /1/,/2/Metro Toronto, Deb., 7.40%,
9/27/2006 714,120
Telecommunications & Cellular--0.8%
500,000 Bell Canada, Deb., 8.80%,
8/17/2005 374,224
2,500,000 Clearnet Communications, Inc., Sr. Disc. Note, 10.40%,
5/15/2008 1,078,684
7,180,000 Clearnet Communications, Inc., Sr. Disc. Note, 0/11.75%,
8/13/2007 3,476,082
6,800,000 Microcell Telecommunications, Sr. Disc. Note, 11.75%,
10/15/2007 3,049,535
Total 7,978,525
Total Canadian
Dollar 11,263,277
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 2,390,972
Sovereign Government--0.5%
146,000,000 Czech, Government of, Bond, 14.85%,
2/06/2003 4,978,337
Total Czech
Koruna 7,369,309
DANISH KRONE--0.3%
Financial Intermediaries--0.0%
670,000 Nykredit, Mtg. Bond, 8.00%,
10/1/2026 94,197
73,000 Unikredit Realkredit, Mtg. Bond, 8.00%,
10/1/2029 10,108
Total 104,305
Sovereign--0.3%
12,000,000 Denmark, Government of, 5.75%,
7/28/2005 1,456,682
7,000,000 Denmark, Government of, Bond, 9.00%,
11/15/2000 990,600
5,250,000 Denmark, Government of, Bond, 8.00%,
3/15/2006 809,153
Total 3,256,435
Total Danish
Krone 3,360,740
EURO--3.9%
Banking--0.3%
3,000,000 /1/,/2/Dresdner Funding Trust, 5.79%,
6/30/2011 2,761,738
Home Products & Furnishings--0.4%
4,000,000 American Standard, Inc., Company Guarantee, 7.125%,
6/01/2006 3,976,580
Sovereign--3.2%
1,000,000 Austria, Government of, Bond, 6.25%,
7/15/2027 1,039,998
2,250,000 Austria, Government of, Bond, 5.625%,
7/15/2007 2,312,785
1,200,000 France, Government of, 8.50%,
4/25/2023 1,595,066
3,476,784 Germany, Government of, Deb., 6.25%,
1/04/2024 3,666,651
476,308 Ireland, Government of, Deb., 4.00%,
4/18/2010 425,423
2,704,542 Ireland, Government of, Deb., 9.00%,
9/01/2006 3,325,526
387,342 Italy, Government of, 10.00%,
8/01/2003 458,185
335,696 Italy, Government of, 7.75%,
11/01/2006 388,704
4,699,749 Italy, Government of, Bond, 10.50%,
9/01/2005 5,995,044
1,420,254 Italy, Government of, Deb., 12.00%,
1/01/2003 1,723,524
1,247,895 Netherlands, Government of, Bond, 8.500%,
6/01/2006 1,490,215
1,361,340 Netherlands, Government of, Bond, 7.50%,
4/15/2010 1,600,995
2,949,571 Netherlands, Government of, Bond, 9.00%,
1/15/2001 3,137,399
680,670 Netherlands, Government of, Bond, 8.25%,
2/15/2007 810,787
60,101 Spain, Government of, 10.00%,
2/28/2005 74,386
216,364 Spain, Government of, Bond, 10.15%,
1/31/2006 275,617
1,863,137 Spain, Government of, Deb., 10.10%,
2/28/2001 2,015,675
480,809 Spain, Government of, Deb., 8.20%,
2/28/2009 585,689
757,275 Spain, Government of, Foreign Gov't. Guarantee, 8.00%,
5/30/2004 860,265
Total 31,781,934
Total
Euro 38,520,252
GREEK DRACHMA--0.9%
Sovereign--0.9%
120,000,000 Greece, Government of, 11.10%,
8/14/2003 375,098
600,000,000 Greece, Government of, 14.70%,
9/30/2003 1,887,446
200,000,000 Greece, Government of, Bond, 12.60%,
12/31/2003 629,455
1,020,000,000 Greece, Government of, Bond, 8.60%,
3/26/2008 3,505,194
120,000,000 Greece, Government of, FRN, 10.24%,
10/23/2003 376,937
590,000,000 Greece, Government of, Series, 12.40%,
11/26/2003 1,854,180
Total Greek
Drachma 8,628,310
HUNGARIAN FORINT--0.6%
Sovereign--0.4%
580,000,000 Hungary, Government of, Bond, 14.00%,
12/12/2002 2,420,964
450,000,000 Hungary, Government of, Bond, Series, 13.00%,
7/24/2003 1,865,475
Total 4,286,439
Supranational--0.2%
400,000,000 European Investment Bank, Series 3, 11.75%,
6/25/2004 1,642,007
Total Hungarian
Forint 5,928,446
INDONESIAN RUPIAH--0.0%
Sovereign--0.0%
5,725,166,378 /5/Dharmala
Intiutama 23,473
Financial Intermediaries--0.0%
1,000,000,000
/5/Polysindo
16,400
total indonesian
rupiah 39,873
NEW ZEALAND DOLLAR--0.2%
Financial Intermediaries--0.0%
840,000 Brierley Investment Ltd., Bond, 9.00%,
3/15/2002 426,959
Sovereign--0.2%
2,300,000 New Zealand, Government of, Deb., 8.00%,
11/15/2006 1,235,896
Total New Zealand
Dollar 1,662,855
NORWEGIAN KRONE--0.1%
Sovereign--0.1%
3,000,000 Norway, Government of, Bond, 7.00%,
5/31/2001 378,182
8,000,000 Norway, Government of, Bond, 9.50%,
10/31/2002 1,088,094
Total Norwegian
Krone 1,466,276
POLISH ZLOTY--0.9%
Sovereign--0.9%
4,500,000 Poland, Government of, 10.00%,
6/12/2004 974,745
17,750,000 Poland, Government of, Bond, 12.00%,
10/12/2003 4,036,650
7,870,000 Poland, Government of, Bond, 12.00%,
2/12/2002 1,778,677
4,500,000 Poland, Government of, Bond, 12.00%,
2/12/2003 1,012,804
1,500,000 Poland, Government of, Bond, 12.00%,
6/12/2001 336,544
6,000,000 Poland, Government of, Bond, 12.00%,
6/12/2002 1,349,700
Total Polish
Zloty 9,489,120
SOUTH AFRICAN RAND--1.3%
Government Agency--0.1%
10,000,000 Telkom SA Ltd., 10.00%,
3/31/2008 1,250,048
Sovereign--1.0%
10,000,000 South Africa, Government of, 12.00%,
2/28/2005 1,509,527
6,500,000 South Africa, Government of, 13.50%,
9/15/2015 998,061
2,500,000 South Africa, Government of, Bond, 12.50%,
1/15/2002 400,741
920,000 South Africa, Government of, Global Bond Deb., 9.625%,
12/15/1999 921,693
2,000,000 South Africa, Government of, Note, 8.50%,
6/23/2017 1,740,000
4,000,000 South Africa, Government, Sr. Unsub., 9.125%,
5/19/2009 4,090,000
Total 9,660,022
Surface Transportion--0.2%
11,000,000 Lesotho Water Authority, Foreign Gov't. Guarantee, 13.00%,
9/15/2010 1,592,539
Total South African
Rand 12,502,609
SOUTH KOREAN WON--0.5%
Supranational--l0.1%
European Bank for Reconstruction and Development, Bond,
10.00%,
900,000,000
5/2/2002
812,853
Technology Services--0.4%
3,500,000 Samsung Electron America, Series REGS, 9.75%,
5/01/2003 3,626,875
Total South Korean
Won 4,439,728
SWEDISH KRONA--0.3%
Sovereign--0.3%
3,000,000 Sweden, Government of, 10.25%,
5/05/2003 407,591
10,500,000 Sweden, Government of, Bond, 8.00%,
8/15/2007 1,415,215
7,500,000 Sweden, Government of, Deb., 6.50%,
10/25/2006 929,610
Total Swedish
Krona 2,752,416
U.S. DOLLAR--25.4%
Agency--0.4%
2,000,000 Quebec, Province of, 11.00%,
6/15/2015 2,128,640
1,500,000 Quebec, Province of, Deb., 9.125%,
8/22/2001 1,550,500
Total 3,679,140
Banking--0.4%
3,000,000 China Development Bank, 8.25%,
5/15/2009 3,011,463
1,250,000 National Bank of Canada, Montreal, Sub. Note, 8.125%,
8/15/2004 1,286,738
total 4,298,201
Broadcast Radio & TV--0.4%
2,000,000 Globo Communicacoes Part, Sr. Note, 10.625%,
12/05/2008 1,561,280
2,950,000 /1/,/2/Grupo Televisa, Sr. Disc. Note, 13.25%,
5/15/2008 2,647,625
Total 4,208,905
Building & Development--0.7%
3,500,000 /1/,/2/Cemex SA, 9.625%,
10/01/2009 3,526,250
2,500,000 Cemex SA, Bond, 12.75%,
7/15/2006 2,761,310
1,000,000 Corporacion GEO, SA de CV, Note, 10.00%,
5/23/2002 890,000
Total 7,177,560
Cable & Wireless Television--0.2%
3,750,000 /1/,/2/Imasac, SA, 11.00%,
5/02/2005 2,175,000
Conglomerates--0.1%
Mechala Group Jamaica, Company Guarantee, Series REGS,
12.00%,
1,000,000
2/15/2002
375,000
2,000,000 Mechala Group Jamaica, Note, Series B, 12.75%,
12/30/1999 790,000
Total 1,165,000
Consumer Products--0.1%
1,500,000 Mastellone Hermanos SA, Bond, 11.75%,
4/01/2008 1,215,000
Container & Glass Products--0.2%
2,750,000 Vicap SA, Sr. Note, Series EXCH, 11.375%,
5/15/2007 2,464,027
Finance--0.1%
1,000,000 Pera Financial, Sec. Fac. Bond, Series REG S, 9.375%,
10/15/2002 928,500
Financial Intermediaries--0.8%
3,000,000 Banco Nacional Trust, Bank Guarantee, 11.25%,
5/30/2006 3,157,500
1,000,000 /1/,/2/Den Danske Bank, Note, 7.40%
6/15/2010 982,980
2,500,000 /1/,/2/PTC International Finance, Company Guarantee, 11.25%,
12/01/2009 2,519,374
1,000,000 /1/,/2/Swedbank, Sub., 7.50%,
11/29/2049 951,614
Total 7,611,468
Food & Drug Retailers--0.4%
3,500,000 /1/,/2/Premier Intl Foods PLC, 12%,
9/01/2009 3,517,500
Forest Products--0.9%
2,500,000 Grupo Industrial Durango SA de C.V., 12.625%,
8/1/2003 2,459,500
1,700,000 Indah Kiat International Finance, Company Guarantee,
11.875%, 6/15/2002 1,496,000
1,800,000 Indah Kiat International Finance, Company Guarantee,
12.50%, 6/15/2006 1,458,000
3,380,000 Quno Corp., Sr. Note, 9.125%,
5/15/2005 3,560,086
Total 8,973,586
Industrial Products & Equipment--0.5%
5,700,000 Advance Agro Public Co., Unsub., 13.00%,
11/15/2007 3,819,000
1,000,000 TM Group Holdings, Sr. Note, 11.00%,
5/15/2008 985,000
Total 4,804,000
Metals & Mining--0.6%
1,000,000 Barrick Gold Corp., Deb., 7.50%,
5/1/2007 1,002,620
2,000,000 /1/Codelco, Inc, Unsecd. Note, 7.375%,
5/01/2009 1,887,520
3,000,000 Placer Dome, Inc., Bond, 8.50%,
12/31/2045 2,653,578
Total 5,543,718
Oil & Gas--0.5%
3,800,000 Perez Companc, Series REGS, 9.00%,
5/01/2006 3,429,500
1,500,000 Petroleos Mexicanos, 9.375%,
12/02/2008 1,541,250
Total 4,970,750
Sovereign--14.5%
5,000,000 Argentina, Government of, 12.125%,
2/25/2019 5,062,500
5,000,000 Argentina, Government of, 11.375%,
1/30/2017 4,700,000
8,000,000 Argentina, Government of, Global Bond Deb., 9.75%,
9/19/2027 6,660,000
3,000,000 Argentina, Government of, Unsub, 11.00%,
12/04/2005 2,846,250
2,000,000 Australia, Government of, 8.75%,
8/15/2008 1,449,183
5,000,000 Brazil, Government of, C Bond, 7.00%,
4/15/2012 3,393,750
12,180,628 Brazil, Government of, C Bond, 8.00%,
4/15/2014 8,374,182
12,000,000 Brazil, Government of, 10.125%,
5/15/2027 9,600,000
5,000,000 Brazil, Government of, 11.625%,
4/15/2004 4,775,000
13,751,762 Brazil, Government of, 14.50%,
10/15/2009 14,356,840
8,900,000 Bulgaria, Government of, Series REGS, 5.875%,
7/28/2011 6,953,125
3,750,000 Jordan, Government of,
12/23/2023 2,508,000
3,100,000 Mexico, Government of, 10.375%,
2/17/2009 3,227,100
7,000,000 Mexico, Government of, 11.375%,
9/15/2016 7,717,500
3,000,000 Mexico, Government of, 8.625%,
3/12/2008 2,887,500
6,500,000 Mexico, Government of, Bond, 9.875%,
1/15/2007 6,630,000
4,250,000 Morocco R & C A, Foreign Govt. Guarantee, 5.9625%
1/1/2009 3,761,250
3,730,000 Panama, Government of, 8.25%,
4/22/2008 3,301,050
4,000,000 Panama, Government of, Bond, 8.875%,
9/30/2027 3,375,000
1,000,000 Philippines, Government of, 8.875%,
4/15/2008 979,400
9,000,000 Philippines, Government of, 9.875%,
1/15/2019 9,157,500
4,000,000 Qatar, Government of, Series REGS, 9.50%,
5/21/2009 4,185,120
10,000,000 Turkey, Government of, Note, 12.00%,
12/15/2008 10,400,000
10,000,000 Turkey, Government of, Sr. Unsub., 12.375%,
6/15/2009 10,400,000
10,000,000 Venezuela, Government of, Bond, 9.25%,
9/15/2027 6,412,500
Total 143,112,750
Sovereign Government--2.3%
8,750,000 Colombia, Government of, Bond, 10.875%,
3/09/2004 8,662,500
4,500,000 Colombia, Government of, Unsub., 8.625%,
4/01/2008 3,712,500
3,245,403 Croatia, Government of, Bond, 6.5625%,
7/31/2006 2,855,955
7,000,000 Kazakhstan, Government of, Note, 13.625%,
10/18/2004 7,157,500
Total 22,388,455
Telecommunications & Cellular--1.7%
2,000,000 /1/,/2/Alestra SA, Sr. Note, 12.625%,
5/15/2009 1,985,000
3,000,000 Alestra SA, Sr. Note, Series REGS, 12.625%,
5/15/2009 2,984,340
4,400,000 Netia Holdings, Company Guarantee, 10.25%,
11/01/2007 3,720,266
1,500,000 Philippine Long Distance Co., Deb., 10.625%,
6/2/2004 1,532,211
3,500,000 Tricom, SA, Sr. Note, 11.375%,
9/1/2004 3,255,000
3,000,000 United Pan-Europe Communications, 10.875%,
8/01/2009 3,084,627
Total 16,561,444
Utilities--0.6%
4,500,000 Empresa Nacional Electricidad SA, Bond, 8.50%,
4/01/2009 4,532,220
550,000 /1/,/2/Israel Electric Corp. Ltd, Sr. Note, 7.875%,
12/15/2026 504,295
1,000,000 /1/,/2/Tenaga Nasional Berhad, 7.50%,
1/15/2096 780,640
Total 5,817,155
Total U.S.
Dollar 250,612,159
Total International Bonds (identified cost
$395,970,201) 366,994,946
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 2,127,342
New Century Home Equity Loan Trust 1997-NC5, Class M2,
7.24%,
1,000,000
10/25/2028
927,187
/1/SMFC Trust Asset-Backed Certificates, Series 1997-A, Class
4, 7.7191%,
474,651
1/28/2025
401,376
Total Asset-Backed Securities (identified cost
$3,926,774) 3,455,905
U.S. GOVERNMENT AGENCIES--0.1%
Long-Term Government Obligations--0.1%
Government National Mortgage Association, 11.00%,
9/15/2015
704,335
(IDENTIFIEDCOST$791,497)
772,789
U.S. TREASURY OBLIGATIONS--7.1%
U.S. Treasury Bonds--7.1%
500,000 United States Treasury Bond, 8.00%,
11/15/2021 580,705
1,500,000 United States Treasury Bond, 8.125%,
5/15/2021 1,759,545
4,750,000 United States Treasury Bond, 8.75%,
8/15/2020 5,879,455
6,500,000 United States Treasury Bond, 10.75%,
2/15/2003 7,350,850
9,500,000 United States Treasury Bond, 10.75%,
8/15/2005 11,491,295
10,550,000 United States Treasury Bond, 11.625%,
11/15/2004 12,912,673
3,800,000 United States Treasury Bond, 11.875%,
11/15/2003 4,536,858
10,910,000 United States Treasury Bond, 12.375%,
5/15/2004 13,458,685
10,000,000 United States Treasury Bond, 14.25%,
2/15/2002 11,679,000
Total U.S. Treasury Obligations (identified cost
$75,195,134) 69,649,066
Principal
Amount
or
Value in
Shares
U.S. Dollars
MUNICIPALS--0.2%
Municipal Services--0.2%
Atlanta & Fulton County, GA Recreation Authority, Taxable
Revenue 670,065
Bonds, Series 1997, 7.00%, Bonds (Downtown Arena
Project)/(FSA INS),
750,000
12/01/2028
McKeesport, PA, Taxable GO, Series B 1997, 7.30%, Bonds
(MBIA INS),
250,000
3/01/2020
237,883
Minneapolis/St. Paul, MN Airport Commission, UT GO Taxable
Revenue
1,000,000 Bonds (Series9), 8.950%, Bonds (Minneapolis/St. Paul, MN),
1/01/2022 1,059,990
Total Municipals (identified cost
$2,094,891) 1,967,938
MUTUAL FUNDS--43.3%
3,960,933 Federated Mortgage Core
Portfolio 38,183,395
44,598,640 The High Yield Bond Portfolio (Federated Core
Trust) 388,900,119
Total Mutual Funds (identified cost
$470,317,172) 427,083,514
COMMON STOCKS--0.0%
ARGENTINA--0.0%
Sovereign--0.0%
2,000 Argentina, Government of,
Warrants 270
250 Nigeria, Government of,
Warrants 3
Total Common Stocks (identified cost
$0) 273
PREFERRED STOCKS--0.5%
Financial Intermediaries--0.1%
40,000 Lehman Brothers Holdings, Pfd.
5.67% 1,581,875
Real Estate--0.2%
2,000 Highwoods Properties, Inc., REIT Perpetual Pfd. Stock,
Series A, $86.25 1,342,600
9,900 Prologis Trust, Cumulative
Pfd. 428,175
Total 1,770,775
Telecommunications & Cellular--0.2%
63,800 TCI Communications., Pfd.,
$2.50 1,682,725
Total Preferred Stock (identified cost
$5,857,461) 5,035,375
Repurchase Agreement--0.1%/3/
J.P. Morgan & Co., Inc., 5.710%, dated 11/30/1999, due
12/1/1999
1,195,000
(ATAMORTIZEDCOST)
1,195,000
Total Investments (identified cost
$1,056,446,280)/4/ $975,062,137
</TABLE>
1 Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At November 30, 1999, these securities
amounted to $40,035,111 which represents 4.1% of net assets. Included in
these amounts, securities which have been deemed liquid amounted to
$37,746,215 which represents 3.8% 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 agreement is through participation in joint
account with other Federated funds.
4 The cost of investments for federal tax purposes amounts to $1,056,598,838.
The net unrealized depreciation of investments on a federal tax basis amounts
to $81,536,701 which is comprised of $6,175,449 appreciation and $87,712,150
depreciation at November 30, 1999.
5 Non-income producing security.
Note: The categories of investments are shown as a percentage of net assets
($986,438,708) at November 30, 1999.
The following acronyms are used throughout this portfolio:
FRN --Floating Rate Note FSA --Financial Security Assurance GO --General
Obligation INS --Insured MBIA--Municipal Bond Investors Assurance MTN --Medium
Term Note PLC --Public Limited Company REIT--Real Estate Investment Trust SA
- --Support Agreement UT --Unlimited Tax
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
NOVEMBER 30, 1999
<TABLE>
<S>
<C> <C>
Assets:
Total investments in securities, at value (identified cost $1,056,446,280 and tax
cost $ 975,062,137
$1,056,598,838)
Cash
171
Cash denominated in foreign currencies (identified cost
$291,758) 289,897
Income
receivable
14,825,728
Receivable for investments
sold
773,461
Receivable for shares
sold
2,388,563
TOTAL
ASSETS
993,339,957
Liabilities:
Payable for investments
purchased $
1,048,938
Payable for shares
redeemed
1,603,839
Income distribution
payable
3,290,546
Payable for taxes
withheld
55,528
Accrued
expenses
902,398
TOTAL
LIABILITIES
6,901,249
Net Assets for 107,377,729 shares
outstanding $
986,438,708
Net Assets Consist
of:
Paid in
capital
$ 1,087,941,903
Net unrealized depreciation of investments and translation of assets and liabilities
in foreign (80,744,206)
currency
Accumulated net realized loss on investments and foreign currency
transactions (16,884,075)
Distributions in excess of net investment
income
(3,874,914)
TOTAL NET
ASSETS
$ 986,438,708
Net Asset Value, Offering Price and Redemption Proceeds Per
Share:
Class A
Shares:
Net Asset Value Per Share ($148,365,267 / 16,146,320 shares
outstanding) $ 9.19
Offering Price Per Share (100/95.50 of
$9.19)/1/ $
9.62
Redemption Proceeds Per
Share
$ 9.19
Class B
Shares:
Net Asset Value Per Share ($733,507,885 / 79,846,322 shares
outstanding) $ 9.19
Offering Price Per
Share
$ 9.19
Redemption Proceeds Per Share (94.50/100 of
$9.19)/2/ $ 8.68
Class C
Shares:
Net Asset Value Per Share ($70,531,251 / 7,678,823 shares
outstanding) $ 9.19
Offering Price Per
Share
$ 9.19
Redemption Proceeds Per Share (99.00/100 of
$9.19)/2/ $ 9.10
Class F
Shares:
Net Asset Value Per Share ($34,034,305 / 3,706,264 shares
outstanding) $ 9.18
Offering Price Per Share (100/99.00 of
$9.18)/1/ $
9.27
Redemption Proceeds Per Share (99.00/100 of
$9.18)/2/ $ 9.09
</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
YEAR ENDED NOVEMBER 30, 1999
<TABLE>
<S>
<C> <C> <C>
Investment Income:
Dividends
$ 39,920,446
Interest (net of dollar roll expense of $103,224) (net of foreign taxes
withheld 60,501,745
of
$2,308)
TOTAL
INCOME
100,422,191
Expenses:
Investment adviser
fee $
8,466,909
Administrative personnel and services
fee 751,064
Custodian
fees
246,454
Transfer and dividend disbursing agent fees and
expenses 950,548
Directors'/Trustees'
fees
9,809
Auditing
fees
18,858
Legal
fees
9,374
Portfolio accounting
fees
196,025
Distribution services feeClass B
Shares 5,542,819
Distribution services feeClass C
Shares 553,011
Distribution services feeClass F
Shares 176,478
Shareholder services feeClass A
Shares 370,085
Shareholder services feeClass B
Shares 1,847,606
Shareholder services feeClass C
Shares 184,337
Shareholder services feeClass F
Shares 88,239
Share registration
costs
127,177
Printing and
postage
213,847
Insurance
premiums
2,883
Taxes
88,879
Miscellaneous
43,578
TOTAL
EXPENSES
19,887,980
Waivers:
Waiver of investment adviser fee $
(2,108,385)
Waiver of distribution services feeClass F Shares
(176,478)
TOTAL
WAIVERS
(2,284,863)
Net
expenses
17,603,117
Net investment
income
82,819,074
Realized and Unrealized Loss on Investments and Foreign
Currency:
Net realized loss on investments and foreign currency
transactions (20,108,590)
Net change in unrealized depreciation of investments and translation
of (46,807,179)
assets and liabilities in foreign
currency
Net realized and unrealized loss on investments and foreign
currency (66,915,769)
Change in net assets resulting from
operations $
15,903,305
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended November
30
1999 1998
<S>
<C> <C>
Increase (Decrease) in Net
Assets
Operations:
Net investment
income $
82,819,074 $ 50,343,301
Net realized gain (loss) on investments and foreign currency
transactions (20,108,590) 549,421
($(17,152,593) and $673,903, respectively, as computed for federal tax
purposes)
Net change in unrealized depreciation of investments and translation of assets
and (46,807,179) (36,142,110)
liabilities in foreign
currency
CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS 15,903,305
14,750,612
Distributions to
Shareholders:
Distributions from net investment
income
Class A
Shares
(12,758,527) (8,438,623)
Class B
Shares
(58,087,441) (35,196,240)
Class C
Shares
(5,781,200) (4,000,486)
Class F
Shares
(3,034,312) (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 realized gains on investments and foreign
currency
transactions
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 (79,661,480) (56,275,591)
Share
Transactions:
Proceeds from sale of
shares
334,730,494 654,543,381
Net asset value of shares issued to shareholders in payment of distributions
declared 38,367,991 28,092,524
Cost of shares
redeemed
(263,103,742) (122,954,049)
CHANGE IN NET ASSETS RESULTING FROM SHARE
TRANSACTIONS 109,994,743 559,681,856
Change in net
assets
46,236,568 518,156,877
Net
Assets:
Beginning of
period
940,202,140 422,045,263
End of
period $
986,438,708 $ 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>
Year Ended November 30 1999
1998 1997 1996 1995
<S> <C>
<C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 9.79 $
10.41 $ 10.47 $ 10.14 $ 9.54
Income From Investment
Operations:
Net investment income 0.87
0.83 0.87/1/ 0.91 0.82
Net realized and unrealized gain (loss) on (0.65)
(0.54) (0.03) 0.42 0.61
investments and foreign
currency
TOTAL FROM INVESTMENT OPERATIONS 0.22
0.29 0.84 1.33 1.43
Less
Distributions:
Distributions from net investment income (0.82)
(0.81) (0.87) (0.89) (0.83)
Distributions in excess of net
(0.07) (0.03)
investment
income/2/
Distributions from net realized gain on
(0.03) (0.03) (0.08)
investments and foreign currency
transactions
TOTAL DISTRIBUTIONS (0.82)
(0.91) (0.90) (1.00) (0.83)
Net Asset Value, End of Period $ 9.19 $
9.79 $ 10.41 $ 10.47 $10.14
Total Return/3/ 2.30%
2.94% 8.33% 13.89% 15.64%
Ratios to Average Net
Assets:
Expenses 1.16%
1.13% 1.10% 1.05% 0.25%
Net investment income 8.93%
8.12% 8.40% 8.54% 8.68%
Expense waiver/reimbursement/4/ 0.21%
0.24% 0.36% 0.98% 5.69%
Supplemental
Data:
Net assets, end of period (000 omitted) $148,365
$141,065 $58,270 $28,021 $5,089
Portfolio turnover 51%
93% 40% 47% 158%
</TABLE>
1 Per share information is based on average shares outstanding.
2 Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These distributions
do not represent a return of capital for federal income tax purposes.
3 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
4 This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class B Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
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 0.80
0.75 0.79/2/ 0.83 0.25
Net realized and unrealized gain (loss) (0.65)
(0.53) (0.04) 0.42 0.13
on investments and foreign
currency
TOTAL FROM INVESTMENTOPERATIONS 0.15
0.22 0.75 1.25 0.38
Less
Distributions:
Distributions from net investment income (0.75)
(0.73) (0.79) (0.83) (0.24)
Distributions in excess of net
(0.07) (0.01)
investmentincome/3/
Distributions from net realized gain
(0.03) (0.03) (0.08)
oninvestments and
foreign
currencytransactions
TOTAL DISTRIBUTIONS (0.75)
(0.83) (0.82) (0.92) (0.24)
Net Asset Value, End of Period $ 9.19 $ 9.79
$ 10.40 $ 10.47 $10.14
Total Return/4/ 1.54%
2.17% 7.53% 13.03% 5.13%
Ratios to Average Net
Assets:
Expenses 1.91%
1.88% 1.85% 1.80% 1.00%/5/
Net investment income 8.18%
7.37% 7.67% 7.80% 7.95%/5/
Expense waiver/reimbursement/6/ 0.21%
0.24% 0.37% 0.98% 5.69%/5/
Supplemental
Data:
Net assets, end of period (000 omitted) $733,508 $689,687
$304,746 $120,020 $5,193
Portfolio turnover 51%
93% 40% 47% 158%
</TABLE>
1 Reflects operations for the period from July 27, 1995 (date of initial public
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 distributions
do not represent a return of capital for federal income tax purposes.
4 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
5 Computed on an annualized basis.
6 This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class C Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
Year Ended November 30 1999
1998 1997 1996 1995
<S> <C>
<C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 9.79 $
10.41 $ 10.47 $ 10.14 $ 9.54
Income From Investment
Operations:
Net investment income 0.80
0.75 0.79/1/ 0.82 0.74
Net realized and unrealized gain (loss) on (0.65)
(0.54) (0.03) 0.43 0.61
investments and
foreigncurrency
TOTAL FROM INVESTMENTOPERATIONS 0.15
0.21 0.76 1.25 1.35
Less
Distributions:
Distributions from net investment income (0.75)
(0.73) (0.79) (0.80) (0.75)
Distributions in excess of net investment income/2/
(0.07) (0.04)
Distributions from net realized gain on
(0.03) (0.03) (0.08)
investments and foreign
currencytransactions
TOTAL DISTRIBUTIONS (0.75)
(0.83) (0.82) (0.92) (0.75)
Net Asset Value, End of Period $ 9.19 $
9.79 $ 10.41 $ 10.47 $10.14
Total Return/3/ 1.54%
2.18% 7.53% 13.05% 14.79%
Ratios to Average
NetAssets:
Expenses 1.91%
1.88% 1.86% 1.80% 1.00%
Net investment income 8.18%
7.37% 7.69% 7.70% 7.93%
Expense waiver/reimbursement/4/ 0.21%
0.24% 0.37% 0.98% 5.69%
Supplemental
Data:
Net assets, end of period (000omitted) $70,531
$73,509 $29,267 $10,481 $2,323
Portfolio turnover 51%
93% 40% 47% 158%
</TABLE>
1 Per share information is based on average shares outstanding.
2 Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These distributions
do not represent a return of capital for federal income tax purposes.
3 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
4 This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class F Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
Year Ended November 30 1999
1998 1997 1996 1995
<S> <C> <C>
<C> <C> <C>
Net Asset Value, Beginning ofPeriod $ 9.79 $ 10.41
$ 10.47 $ 10.14 $ 9.54
Income From
InvestmentOperations:
Net investment income 0.87
0.82 0.87/1/ 0.95 0.77
Net realized and unrealized gain (loss) on (0.66)
(0.53) (0.03) 0.37 0.61
investments and
foreigncurrency
TOTAL FROM INVESTMENTOPERATIONS 0.21
0.29 0.84 1.32 1.38
Less
Distributions:
Distributions from net investmentincome (0.82)
(0.81) (0.87) (0.91) (0.78)
Distributions in excess of net investment income/2/
(0.07)
Distributions from net realized gain on
(0.03) (0.03) (0.08)
investments and foreign
currencytransactions
TOTAL DISTRIBUTIONS (0.82)
(0.91) (0.90) (0.99) (0.78)
Net Asset Value, End ofPeriod $ 9.18 $ 9.79
$ 10.41 $ 10.47 $10.14
Total Return/3/ 2.20%
2.94% 8.33% 13.83% 15.07%
Ratios to Average
NetAssets:
Expenses 1.16%
1.13% 1.10% 1.07% 0.75%
Net investment income 8.92%
8.12% 8.38% 8.48% 8.19%
Expense waiver/reimbursement/4/ 0.71%
0.74% 0.86% 1.46% 5.69%
Supplemental
Data:
Net assets, end of period (000omitted) $34,034 $35,941
$29,762 $17,367 $3,691
Portfolio turnover 51%
93% 40% 47% 158%
</TABLE>
1 Per share information is based on average shares outstanding.
2 Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These distributions
do not represent a return of capital for federal income tax purposes.
3 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
4 This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
NOVEMBER 30, 1999
ORGANIZATION
Fixed Income Securities, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Corporation consists of three portfolios. The
financial statements included herein are only those of Federated Strategic
Income Fund (the "Fund"), a diversified portfolio. The financial statements of
the other portfolios are presented separately. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held. The Fund offers four classes of shares: Class A Shares, Class B
Shares, Class C Shares, and Class F Shares. The investment objective of the Fund
is to seek a high level of current income.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
Investment Valuations
U.S. government securities, listed corporate bonds, other fixed income and
asset-backed securities, and unlisted securities and private placement
securities are generally valued at the mean of the latest bid and asked price as
furnished by an independent pricing service. Listed equity securities are valued
at the last sale price reported on a national securities exchange. Short-term
securities are valued at the prices provided by an independent pricing service.
However, short-term securities with remaining maturities of sixty days or less
at the time of purchase may be valued at amortized cost, which approximates fair
market value. Investments in other open-end regulated investment companies are
valued at net asset value. With respect to valuation of foreign securities,
trading in foreign cities may be completed at times which vary from the closing
of the New York Stock Exchange. Therefore, foreign securities are valued at the
latest closing price on the exchange on which they are traded prior to the
closing of the New York Stock Exchange. Foreign securities quoted in foreign
currencies are translated into U.S. Dollars at the foreign exchange rate in
effect at noon, eastern time, on the day the value of the foreign security is
determined. Investments in other open-end registered investment companies are
valued at net asset value.
Pursuant to an Exemptive Order issued by the Securities and Exchange
Commissions, the Fund may invest in Federated Core Trust, (the "Core Trust")
which is managed by Federated Investment Management Company, the Fund's Adviser
(or an affiliate of the Fund's Adviser). The Core Trust is an open-end
management company, registered under the Investment Company Act of 1940,
available to only registered investment companies and other institutional
investors. The investment objective of High Income Bond Portfolio, a series of
Core Trust, is to seek high current income by investing primarily in a
diversified portfolio of lower rated fixed income securities. The investment
objective of Federated Mortgage Core Portfolio, a series of Core Trust, is to
seek total return by investing in a diversified portfolio of mortgage-backed
fixed income securities. Federated receives no advisory or administrative fees
on behalf of Core Trust. Income distributions from the Core Trust are declared
daily and paid monthly, and are recorded by the Fund as dividend income. Capital
gain distributions, if any, from the Core Trust are declared and paid annually,
and are recorded by the fund as capital gains received. Additional information
regarding High Income Bond Portfolio and/or Federated Mortgage Core Portfolio is
available upon request.
Repurchase Agreements
It is the policy of the Fund to require the custodian bank to take possession,
to have legally segregated in the Federal Reserve Book Entry System, or to have
segregated within the custodian bank's vault, all securities held as collateral
under repurchase agreement transactions. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of each
repurchase agreement's collateral to ensure that the value of collateral at
least equals the repurchase price to be paid under the repurchase agreement.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Directors (the "Directors").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less than
the repurchase price on the sale of collateral securities. The Fund, along with
other affiliated investment companies, may utilize a joint trading account for
the purpose of entering into one or more repurchase agreements.
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. Non-cash dividends included in dividend income, if any,
are recorded at fair value. The Fund offers multiple classes of shares, which
differ in their respective distribution and service fees. All shareholders bear
the common expenses of the Fund based on average daily net assets of each class,
without distinction between share classes. Dividends are declared separately for
each class. No class has preferential dividend rights; differences in per share
dividend rates are generally due to differences in separate class expenses. At
November 30, 1999, the Fund, for federal tax purposes, had a capital loss
carryforward of $17,152,593 which will reduce the Fund's taxable income arising
from future net realized gain on investments, if any, to the extent permitted by
the Code, and thus will reduce the amount of the distributions to shareholders
which would otherwise be necessary to relieve the Fund of any liability for
federal tax. Pursuant to the Code, such capital loss carryforward will expire in
2007.
Income and capital gain distributions are determined in accordance with income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatment for foreign currency
transactions. The following reclassifications have been made to the financial
statements.
<TABLE>
<CAPTION>
Increase (Decrease)
Undistributed Net
Investment
Accumulated Income/Accumulated
Paid in Net Realized Distributions in Excess of
Capital Gain/Loss Net Investment Income
<S> <C> <C>
$(4) $623,130 $(623,126)
</TABLE>
Net investment income, net realized gains/losses, and net assets were not
affected by these reclassifications.
Federal Taxes
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provision for federal tax is
necessary.
Withholding taxes on foreign interest and dividends have been provided for in
accordance with the Fund's applicable country's tax rules and rates.
When-Issued and Delayed Delivery Transactions
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date. Losses may occur on these transactions due to changes in market
conditions or the failure of counterparties to perform under the contract.
Forward Commitments
The Fund may enter into forward commitments which are based upon financial
indices at a fixed price at a future date. Risks may arise upon entering these
contracts from the potential inability of counterparts to meet the terms of
their contracts and from unanticipated movements in security prices and foreign
exchange rates. The forward foreign currency exchange contracts are adjusted by
the daily exchange rate of the underlying currency and any gains or losses are
recorded for financial statement purposes as unrealized until the contract
settlement date. At November 30, 1999, the Fund had no outstanding forward
commitments.
Foreign Currency Translation
The accounting records of the Fund are maintained in U.S. dollars. All assets
and liabilities denominated in foreign currencies ("FC") are translated into
U.S. dollars based on the rate of exchange of such currencies against U.S.
dollars on the date of valuation. Purchases and sales of securities, income and
expenses are translated at the rate of exchange quoted on the respective date
that such transactions are recorded. The Fund does not isolate that portion of
the results of operations resulting from changes in foreign exchange rates on
investments from the fluctuations arising from changes in market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales of
FCs, currency gains or losses realized between the trade and settlement dates on
securities transactions, the difference between the amounts of dividends,
interest, and foreign withholding taxes recorded on the Fund's books, and the
U.S. dollar equivalent of the amounts actually received or paid. Net unrealized
foreign exchange gains and losses arise from changes in the value of assets and
liabilities other than investments in securities at fiscal year end, resulting
from changes in the exchange rate.
Dollar Roll Transactions
The Fund enters into dollar roll transactions, with respect to mortgage
securities issued by GNMA, FNMA and FHLMC, in which the Fund sells mortgage
securities to financial institutions and simultaneously agrees to accept
substantially similar (same type, coupon and maturity) securities at a later
date at an agreed upon price. Dollar roll transactions involve "to be announced"
securities and are treated as short-term financing arrangements which will not
exceed twelve months. The Fund will use the proceeds generated from the
transactions to invest in short- term investments, which may enhance the Fund's
current yield and total return.
Restricted Securities
Restricted securities are securities that may only be resold upon registration
under federal securities laws or in transactions exempt from such registration.
In some cases, the issuer of restricted securities has agreed to register such
securities for resale, at the issuer's expense either upon demand by the Fund or
in connection with another registered offering of the securities. Many
restricted securities may be resold in the secondary market in transactions
exempt from registration. Such restricted securities may be determined to be
liquid under criteria established by the Board of Directors. The Fund will not
incur any registration costs upon such resales. The Fund's restricted securities
are valued at the price provided by dealers in the secondary market or, if no
market prices are available, at the fair value as determined by the Fund's
pricing committee.
Additional information on each restricted security held at November 30, 1999 is
as follows:
<TABLE>
<CAPTION>
Acquisition Acquisition Cost
Security Date
<S> <C> <C>
Codelco, Inc. 7/15/1999 $1,899,200
SMFC Trust 4/07/1998 $ 433,580
</TABLE>
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
Other
Investment transactions are accounted for on a trade date basis.
CAPITAL STOCK
At November 30, 1999, par value shares ($ 0.001 per share) authorized were as
follows:
<TABLE>
<CAPTION>
Number of Par Value
Class Name Capital Stock Authorized
<S> <C>
Class A Shares 1,000,000,000
Class B Shares 1,000,000,000
Class C Shares 1,000,000,000
Class F Shares 1,000,000,000
TOTAL 4,000,000,000
</TABLE>
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Year Ended November 30
1999 1998
<S> <C>
<C> <C> <C>
Class A Shares: Shares
Amount Shares Amount
Shares sold 6,047,374 $
57,593,290 11,737,306 $ 119,136,896
Shares issued to shareholders in payment of 724,163
6,834,586 506,232 5,019,946
distributionsdeclared
Shares redeemed (5,030,285)
(47,586,193) (3,437,440) (34,148,973)
NET CHANGE RESULTING FROM CLASS A SHARETRANSACTIONS 1,741,252 $
16,841,683 8,806,098 $ 90,007,869
Year Ended November 30
1999 1998
Class B Shares: Shares
Amount Shares Amount
Shares sold 25,824,756 $
246,170,127 46,244,607 $ 464,101,229
Shares issued to shareholders in payment of 2,866,192
27,083,802 1,921,710 19,184,451
distributionsdeclared
Shares redeemed (19,289,144)
(182,145,967) (7,010,454) (69,841,483)
NET CHANGE RESULTING FROM CLASS B SHARETRANSACTIONS 9,401,804 $
91,107,962 41,155,863 $ 413,444,197
Year Ended November 30
1999 1998
Class C Shares: Shares
Amount Shares Amount
Shares sold 2,667,898 $
25,361,983 5,833,387 $ 59,173,334
Shares issued to shareholders in payment of 341,241
3,225,106 253,165 2,526,473
distributionsdeclared
Shares redeemed (2,839,859)
(26,893,430) (1,389,482) (13,812,502)
NET CHANGE RESULTING FROM CLASS C SHARETRANSACTIONS 169,280 $
1,693,659 4,697,070 $ 47,887,305
Year Ended November 30
1999 1998
Class F Shares: Shares
Amount Shares Amount
Shares sold 587,348 $
5,605,094 1,194,426 $ 12,131,922
Shares issued to shareholders in payment of 129,305
1,224,497 133,478 1,361,654
distributionsdeclared
Shares redeemed (682,936)
(6,478,152) (515,291) (5,151,091)
NET CHANGE RESULTING FROM CLASSFSHARETRANSACTIONS 33,717
$ 351,439 812,613 8,342,485
NET CHANGE RESULTING FROM SHARETRANSACTIONS 11,346,053 $
109,994,743 55,471,644 $ 559,681,856
</TABLE>
INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Adviser Fee
Federated Investment Management Company, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment adviser 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 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.
Under the terms of a sub-adviser agreement between the Adviser and the Federated
Global Investment Management Corp., Federated Global Investment Management Corp.
receives an allocable portion of the Fund's adviser fee. Such allocation is
based on the amount of foreign securities which Federated Global 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 on a scale that ranges from 0.15% to 0.075% of the
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors, Inc., subject to a $125,000 minimum per portfolio and
$30,000 per additional class.
Distribution Services Fee
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Act. Under the terms of the Plan, the Fund will compensate Federated
Securities Corp., ("FSC"), the principal distributor, from the net assets of the
Fund to finance activities intended to result in the sale of the Fund's Class B
Shares, Class C Shares, and Class F Shares. The Plan provides that the Fund may
incur distribution expenses according to the following schedule annually, to
compensate FSC.
<TABLE>
<CAPTION>
Percentage of Average Daily
Share Class Name Net Assets of Class
<S> <C>
Class B Shares 0.75%
Class C Shares 0.75%
Class F Shares 0.50%
</TABLE>
The distributor may voluntarily choose to waive any portion of its fee. The
distributor can modify or terminate this voluntary waiver at any time at its
sole discretion.
Shareholder Services Fee
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services Company ("FSSC"), the Fund will pay FSSC up to 0.25% of average daily
net assets of the Fund shares for the period. The fee paid to FSSC is used to
finance certain services for shareholders and to maintain shareholder accounts.
FSSC may 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, Federated Shareholder Services Company ("FSSC")
serves as transfer and dividend disbursing agent for the Fund. The fee paid to
FSSC is based on the size, type, and number of accounts and transactions made by
shareholders.
Portfolio Accounting Fees
Federated Services Company maintains the Fund's accounting records for which it
receives a fee. The fee is based on the level of the Fund's average daily net
assets for the period, plus out-of-pocket expenses.
Interfund Transactions
During the period ended November 30, 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 complied with Rule 17a-7 under the Act and
amounted to $209,176,006 and $174,857,037 respectively.
Organizational Expenses
Organizational and/or start-up administrative service expenses of $150,096 were
borne initially by Federated Advisers (now known as Federated Investment
Management Company).
The Fund has agreed to reimburse Federated Advisers for the organizational
and/or start-up administrative expenses during the five year period following
effective date. For the period ended November 30, 1999, the Fund paid $15,747
pursuant to this agreement.
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 November 30, 1999, were as follows:
<TABLE>
<S> <C>
Purchases $613,481,626
Sales $478,906,003
</TABLE>
CONCENTRATION OF CREDIT RISK
The Fund invests in securities of non-U.S. issuers. Although the Fund maintains
a diversified investment portfolio, the political or economic developments
within a particular country or region may have an adverse effect on the ability
of domiciled issuers to meet their obligations. Additionally, political or
economic developments may have an effect on the liquidity and volatility of
portfolio securities and currency holdings.
Independent Auditors' Report
TO THE BOARD OF DIRECTORS OF FIXED INCOME SECURITIES, INC.,
AND SHAREHOLDERS OF FEDERATED STRATEGIC INCOME FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Federated Strategic Income Fund (the "Fund") as
of November 30, 1999, and the related statement of operations for the year then
ended, the statement of changes in net assets for the years ended November 30,
1999 and 1998 and the financial highlights for the periods presented. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
provide reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of the securities
owned at November 30, 1999, by correspondence with the custodian and brokers;
where replies were not received from brokers, we performed other auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Federated Strategic
Income Fund as of November 30, 1999, the results of its operations, the changes
in its net assets and its financial highlights for the respective stated periods
in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
January 14, 2000
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
WILLIAM D. DAWSON III
Chief Investment Officer
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
government agency. Investment in mutual funds involves investment risk,
including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
A N N U A L R E P O R T AS OF NOVEMBER 30, 1999
[LOGO OF FEDERATED INVESTORS]
World-Class Investment Manager(R)
Federated
Strategic
Income Fund
Established 1994
5TH ANNUAL REPORT
[LOGO OF FEDERATED INVESTORS]
Federated Strategic Income Fund
Federated Investors, Inc.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
- --------------------------
Federated Securities Corp., Distributor
Cusip 338319700
Cusip 338319866
Cusip 338319809
Cusip 338319882
G00324-02 (1/00)
Federated is a registered mark
of Federated Investors, Inc.
2000 (C)Federated Investors, Inc.
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 1/14/92
to 11/30/99. 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 $8,000 in Federated Limited Term Fund's Class A Shares, assuming the
reinvestment of capital gains and dividends, would have grown to $11,941 on
11/30/99.
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 1/14/92
to 11/30/99. 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 Federated Limited Term Fund's Class A Shares, assuming the
reinvestment of capital gains and dividends, would have grown to $9,835 on
11/30/99.
Appendix C. The graphic presentation here displayed consists of a line graph.
The corresponding components of the line graph are listed in the upper left
corner. The Class A Shares of Federated Limited Term Fund, based on a 1.00%
sales charge, are represented by a solid line. The Merrill Lynch 1-3 Year
Short-Term Corporate Index ("MLSTC") is represented by a dotted line and the
Lipper Short-Term Investment Grade Debt Funds Average ("LSIGDFA") is represented
by a broken line. The line graph is a visual representation of a comparison of
change in value of a $10,000 hypothetical investment in the Class A Shares of
the fund, the MLSTC and the LSIGDFA. The "x" axis reflects computation periods
from 1/14/92 to 11/30/99. The "y" axis reflects the cost of the investment in
increments of $5,000, ranging from $5,000 to $20,000. The right margin reflects
the ending value of the hypothetical investment in the fund's Class A Shares,
based on a 1.00% sales charge, as compared to the MLSTC and the LSIGDFA. The
ending values were $14,922, $16,344 and $14,586. The legend located above the
graphic presentation indicates the fund's Class A Shares Average Annual Total
Returns for the one-year and five-year periods ended 11/30/99 and from the Class
A Shares' start of performance (1/14/92) to 11/30/99. The total returns were
1.28%, 5.83% and 5.21%, respectively.
Appendix D. The graphic presentation here displayed consists of a line graph.
The corresponding components of the line graph are listed in the upper left
corner. The Class F Shares of Federated Limited Term Fund, based on a 1.00%
sales charge, are represented by a solid line. The Merrill Lynch 1-3 Year
Short-Term Corporate Index ("MLSTC") is represented by a dotted line and the
Lipper Short-Term Investment Grade Debt Funds Average ("LSIGDFA") is represented
by a broken line. The line graph is a visual representation of a comparison of
change in value of a $10,000 hypothetical investment in the Class F Shares of
the fund, the MLSTC and the LSIGDFA. The "x" axis reflects computation periods
from 9/1/93 to 11/30/99. The "y" axis reflects the cost of the investment in
increments of $3,000, ranging from $9,000 to $15,000. The right margin reflects
the ending value of the hypothetical investment in the fund's Class F Shares,
based on a 1.00% sales charge, as compared to the MLSTC and the LSIGDFA. The
ending values were $13,290, $14,329 and $12,976. The legend located above the
graphic presentation indicates the fund's Class F Shares Average Annual Total
Returns for the one-year and five-year periods ended 11/30/99 and from the Class
F Shares' start of performance (9/1/93) to 11/30/99. The total returns were
0.43%, 5.93% and 4.66%, respectively.
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 11/30/99. 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 $7,000 in Federated Limited Term Municipal Fund's Class A Shares, assuming
the reinvestment of capital gains and dividends, would have grown to $8,663 on
11/30/99.
Appendix F. The graphic presentation here displayed consists of a boxed legend
in the upper left quadrant indicating the components of the corresponding
mountain chart. The color coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects computation periods from 9/1/93
to 11/30/99. 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 Federated Limited Term Municipal Fund's Class A Shares, assuming the
reinvestment of capital gains and dividends, would have grown to $7,771 on
11/30/99.
Appendix G. The graphic presentation here displayed consists of a line graph.
The corresponding components of the line graph are listed in the upper left
corner. The Class A Shares of Federated Limited Term Municipal Fund, based on a
1.00% sales charge, are represented by a solid line. The Lehman Brothers
Three-Year Municipal Bond Index ("LB3YRMB") is represented by a dotted line. The
line graph is a visual representation of a comparison of change in value of a
$10,000 hypothetical investment in the Class A Shares of the fund and the
LB3YRMB. The "x" axis reflects computation periods from 9/1/93 to 11/30/99. The
"y" axis reflects the cost of the investment in increments of $2,000, ranging
from $9,000 to $15,000. The right margin reflects the ending value of the
hypothetical investment in the fund's Class A Shares, based on a 1.00% sales
charge, as compared to the LB3YRMB. The ending values were $12,374 and $13,181.
The legend located above the graphic presentation indicates the fund's Class A
Shares Average Annual Total Returns for the one-year and five-year periods ended
11/30/99 and from the Class A Shares' start of performance (9/1/93) to 11/30/99.
The total returns were 0.27%, 4.29% and 3.47%, respectively.
Appendix H. The graphic presentation here displayed consists of a line graph.
The corresponding components of the line graph are listed in the upper left
corner. The Class F Shares of Federated Limited Term Municipal Fund are
represented by a solid line. The Lehman Brothers Three-Year Municipal Bond Index
("LB3YRMB") is represented by a dotted line. The line graph is a visual
representation of a comparison of change in value of a $10,000 hypothetical
investment in the Class F Shares of the fund and the LB3YRMB. The "x" axis
reflects computation periods from 9/1/93 to 11/30/99. The "y" axis reflects the
cost of the investment in increments of $2,000, ranging from $9,000 to $15,000.
The right margin reflects the ending value of the hypothetical investment in the
fund's Class F Shares as compared to the LB3YRMB. The ending values were $12,552
and $13,181. The legend located above the graphic presentation indicates the
fund's Class F Shares Average Annual Total Returns for the one-year and
five-year periods ended 11/30/99 and from the Class F Shares' start of
performance (9/1/93) to 11/30/99. The total returns were 0.57%, 4.76% and 3.87%,
respectively.
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 11/30/99. 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 Federated Strategic Income Fund's Class A Shares, assuming the
reinvestment of capital gains and dividends, would have grown to $8,607 on
11/30/99.
Appendix J. The graphic presentation here displayed consists of a boxed legend
in the upper left quadrant indicating the components of the corresponding
mountain chart. The color coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects computation periods from 5/4/94
to 11/30/99. The "y" axis is measured in increments of $2,000 ranging from $0 to
$8,000 and indicates that the ending value of hypothetical yearly investments of
$1,000 in Federated Strategic Income Fund's Class A Shares, assuming the
reinvestment of capital gains and dividends, would have grown to $6,929 on
11/30/99.
Appendix K. The graphic presentation here displayed consists of a line graph.
The corresponding components of the line graph are listed in the upper left
corner. The Class A Shares of Federated Strategic Income Fund, based on a 4.50%
sales charge, are represented by a solid line. The Lehman Brothers
Government/Corporate Bond Index ("LBG/CBI") is represented by a dotted line and
the Lipper Multi-Sector Income Funds Average ("LMSIFA") is represented by a
broken line. The line graph is a visual representation of a comparison of change
in value of a $10,000 hypothetical investment in the Class A Shares of the fund,
the LBG/CBI and the LMSIFA. The "x" axis reflects computation periods from
5/4/94 to 11/30/99. The "y" axis reflects the cost of the investment in
increments of $1,000, ranging from $9,000 to $15,000. The right margin reflects
the ending value of the hypothetical investment in the fund's Class A Shares,
based on a 4.50% sales charge, as compared to the LBG/CBI and the LMSIFA. The
ending values were $14,343, $14,584 and $14,328. The legend located above the
graphic presentation indicates the fund's Class A Shares Average Annual Total
Returns for the one-year and five-year periods ended 11/30/99 and from the Class
A Shares' start of performance (5/4/94) to 11/30/99. The total returns were
(2.29)%, 7.49% and 6.68%, respectively.
Appendix L. The graphic presentation here displayed consists of a line graph.
The corresponding components of the line graph are listed in the upper left
corner. The Class B Shares of Federated Strategic Income Fund are represented by
a solid line. The Lehman Brothers Government/Corporate Bond Index ("LBG/CBI") is
represented by a dotted line and the Lipper Multi-Sector Income Funds Average
("LMSIFA") is represented by a broken line. The line graph is a visual
representation of a comparison of change in value of a $10,000 hypothetical
investment in the Class B Shares of the fund, the LBG/CBI and the LMSIFA. The
"x" axis reflects computation periods from 7/27/95 to 11/30/99. The "y" axis
reflects the cost of the investment in increments of $1,000, ranging from $9,000
to $15,000. The right margin reflects the ending value of the hypothetical
investment in the fund's Class B Shares as compared to the LBG/CBI and the
LMSIFA. The ending values were $13,070, $13,037 and $12,913. The legend located
above the graphic presentation indicates the fund's Class B Shares Average
Annual Total Returns for the one-year period ended 11/30/99 and from the Class B
Shares' start of performance (7/27/95) to 11/30/99. The total returns were
(3.62)% and 6.35%, respectively.
Appendix M. The graphic presentation here displayed consists of a line graph.
The corresponding components of the line graph are listed in the upper left
corner. The Class C Shares of Federated Strategic Income Fund are represented by
a solid line. The Lehman Brothers Government/Corporate Bond Index ("LBG/CBI") is
represented by a dotted line and the Lipper Multi-Sector Income Funds Average
("LMSIFA") is represented by a broken line. The line graph is a visual
representation of a comparison of change in value of a $10,000 hypothetical
investment in the Class C Shares of the fund, the LBG/CBI and the LMSIFA. The
"x" axis reflects computation periods from 5/2/94 to 11/30/99. The "y" axis
reflects the cost of the investment in increments of $1,000, ranging from $9,000
to $15,000. The right margin reflects the ending value of the hypothetical
investment in the fund's Class C Shares as compared to the LBG/CBI and the
LMSIFA. The ending values were $14,411, $14,583 and $14,328. The legend located
above the graphic presentation indicates the fund's Class C Shares Average
Annual Total Returns for the one-year and five-year periods ended 11/30/99 and
from the Class A Shares' start of performance (5/2/94) to 11/30/99. The total
returns were 0.60%, 7.68% and 6.76%, respectively.
Appendix N. The graphic presentation here displayed consists of a line graph.
The corresponding components of the line graph are listed in the upper left
corner. The Class F Shares of Federated Strategic Income Fund, based on a 1.00%
sales charge, are represented by a solid line. The Lehman Brothers
Government/Corporate Bond Index ("LBG/CBI") is represented by a dotted line and
the Lipper Multi-Sector Income Funds Average ("LMSIFA") is represented by a
broken line. The line graph is a visual representation of a comparison of change
in value of a $10,000 hypothetical investment in the Class F Shares of the fund,
the LBG/CBI and the LMSIFA. The "x" axis reflects computation periods from
5/10/94 to 11/30/99. The "y" axis reflects the cost of the investment in
increments of $1,000, ranging from $9,000 to $15,000. The right margin reflects
the ending value of the hypothetical investment in the fund's Class A Shares,
based on a 1.00% sales charge, as compared to the LBG/CBI and the LMSIFA. The
ending values were $14,733, $14,583 and $14,594. The legend located above the
graphic presentation indicates the fund's Class F Shares Average Annual Total
Returns for the one-year and five-year periods ended 11/30/99 and from the Class
F Shares' start of performance (5/10/94) to 11/30/99. The total returns were
0.23%, 8.12% and 7.22%, respectively.
