[LOGO] FEDERATED INVESTORS
Fortress Bond Fund
8th Semi-Annual Report
April 30, 1995
Established 1987
FIXED INCOME
President's Message
Dear Shareholder:
I am pleased to present the eighth Semi-Annual Report for Fortress Bond Fund.
This Report covers the six-month period ended April 30, 1995. It opens with an
interview with Joseph Balestrino, Assistant Vice President, Federated Advisers,
which details both the corporate market and recent activity in the fund's
portfolio. Also included are a series of performance charts, a complete listing
of the fund's holdings, comprehensive financial statements and the fund's
financial highlights.
After rising for most of 1994, it appears that interest rates have peaked. This
development has helped stabilize the bond market, and has contributed to the
fund's positive performance over the past six months. At the end of the
reporting period, total fund assets had increased to $163.7 million. The fund
paid more than $6 million in dividends to shareholders, or $0.38 per share. The
fund's share value has increased from $9.08 on 10/31/94 to $9.35 on 4/30/95.
As mentioned in the interview with Mr. Balestrino, at least 65% of fund assets
are in investment-grade bonds rated BBB/Baa or higher, and 30% of fund assets
are invested in high-yield bonds rated BB and B. Diversifying assets over
different types of securities has helped the fund reduce the overall level of
investment risk while maintaining a very competitive dividend flow.
The fund is invested in more than 125 issues representing more than 35
different industries. Many of its holdings are well-known companies like
Chrysler, Revlon, General Motors, and Dr. Pepper/7-Up.
We appreciate your ongoing confidence in Fortress Bond Fund. I encourage you to
add to your fund investment by reinvesting your dividends, or by making
additional share purchases.
As always, we welcome your comments, questions and suggestions.
Sincerely,
J. Christopher Donahue
President
June 15, 1995
Investment Review
Joseph Balestrino
Assistant Vice President,
Federated Advisers
Q. The economic and interest rate environment has been very volatile since the
Federal Reserve started raising rates in early 1994. Could you discuss the
impact of interest rate activity over the most recent six-month period and its
effect on high quality fixed-income investors?
A. After rising for most of 1994, interest rates appear to have peaked in
November 1994 with the 30-year Treasury bond over 8% in yield. The six-month
period ending April 30, 1995, was a very positive environment for high-quality
fixed-income investors. Even though the economic expansion continued to move
forward, the pace of growth clearly slowed, and without any significant uptick
in realized inflation, interest rates fell through April 1995. During the same
period, corporate earnings continued to provide surprises to the upside; thus,
corporate bond investors were afforded the combined benefits of falling
interest rates and credit quality improvement. As a result, Fortress Bond Fund
generated a steady monthly income plus capital appreciation in a falling
interest rate environment.
Q. Last year, the fund ranked well compared to other funds in Lipper's
BBB-rated corporate bond category. Has it continued to rank well for the year
ending April 30, 1995 and year to date?
A. Calendar year 1994 was a very difficult environment for all fixed-income
investors. Rates rose significantly, creating one of the worst bear markets of
all time. In this negative market, Fortress Bond Fund had a -3.36% total return
based on NAV, which compared very favorably with the -4.46% for the Lipper
BBB-rated category average. The fund continues to perform very well in its
category now that the market has turned decidedly positive. For the one-year
period ending April 30, 1995, Fortress Bond Fund provided shareholders with a
8.40%* total return based on NAV compared to 6.39% for the Lipper BBB
average.**
* Performance quoted represents past performance. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost. The fund's total return based
on offering price was 6.34% for the one-year period ended April 30, 1995,
- -5.27% for calendar year 1994, and 5.16% for the 4 months ended April 30, 1995.
** Lipper averages do not include the effect of sales loads or charges.
Since the beginning of 1995, the issues in the fund's portfolio were selected
with a bias toward higher average quality. The economic expansion is now in its
fifth year with signs of much slower growth. At this point, we are more
comfortable investing in much higher quality securities, particularly if the
economy starts to slow down. On a year-to-date basis (January-April 1995),
Fortress Bond Fund has a 7.25%* return compared to 6.40% for the Lipper BBB
average.**
Q. There are many different performance publications and rating services in the
mutual fund industry. One which has gained popularity in recent years is the
Morningstar rating service. Can you comment on how Morningstar rates mutual
funds and how Fortress Bond Fund stacks up?
A. Morningstar has indeed gained popularity in recent years. One of the
perceived benefits of the Morningstar star rating system is that it is a
completely unbiased mathematical calculation system. Generally speaking, the
star rating is compiled by equally ranking both total return and risk factors
based solely on a fund's performance figures relative to a universe of
comparable funds. Fortunately for shareholders, Fortress Bond Fund has been
awarded Morningstar's highest rating of 5-stars (on a scale of 1 to 5), placing
it among the top 10% of all comparable funds.***
Q. During the last report period, the fund's holdings rated BB and lower
performed extremely well. What percentage of assets are now invested in BB and
lower bonds, and how have these holdings performed?
A. The fund will invest at least 65% of its assets in the investment grade
categories-those rated BBB/Baa or higher. By definition, this implies that we
can invest up to 35% of assets in lower rated, high-yield corporate securities
rated BB and B. These securities typically offer higher yields in return for a
greater degree of risk. At this time, we continue to view these categories as
attractive, with the economy continuing to grow, even if growing at a slower
rate, and thus hold approximately 30% of the fund in them.
* Performance quoted represents past performance. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost. The fund's total return based
on offering price was 6.34% for the one-year period ended April 30, 1995,
- -5.27% for calendar year 1994, and 5.16% for the 4 months ended April 30, 1995.
** Lipper averages do not include the effect of sales loads or charges.
***Morningstar, Inc. is an independent fund rating service, which uses a
five-star system to measure risk-adjusted total return. Five stars means the
fund rated in the top 10% of all investment companies. Ratings are based on
past performance and subject to change every two weeks
It is the fund's 30% allocation to high yield bonds over the past six months
that has allowed it to maintain such a high relative ranking and a competitive
monthly dividend flow.
Q. What performance do you foresee for Fortress Bond Fund based on your outlook
for interest rates?
A. Fortress Bond Fund represents an average investment grade portfolio on the
intermediate part of the maturity curve. Its future performance will largely be
dictated by the direction of interest rates. However, the fund has the
flexibility to adjust both average maturity and quality depending on our view
of the economy, and we have been making adjustments recently.
With the economy exhibiting much slower growth than most of 1994, we are
upgrading the average quality and gradually moving to a longer average
maturity. Should the economy slow, we would expect interest rates to fall along
with corporate earnings; thus we would prefer a longer maturity to take
advantage of falling rates and securities of a higher quality should earnings
deteriorate.
Two Ways You May Seek to Invest for Success in
Fortress Bond Fund
Initial Investment:
If you had made an initial investment of $8,000 in Fortress Bond Fund* on
5/20/87, reinvested dividends and capital gains, and didn't redeem any shares,
your account would have been worth $16,639 on 4/30/95. You would have earned a
9.65%** average annual total return for the 8-year investment life span.
One key to investing wisely is to reinvest all distributions in fund shares.
This increases the number of shares on which you can earn future dividends, and
you gain the benefit of compounding.
As of 3/31/95, the fund's average annual one-year, five-year, and since
inception (5/20/87) total returns were 3.10%, 12.98%, and 9.50%, respectively.
SEE GRAPHICAL APPENDIX A-1
* On June 15, 1992, at a Special Meeting of Shareholders, the shareholders
approved a change to the name of the fund from High Income Securities Fund to
Fortress Bond Fund, and a change to the fund's fundamental investment objective
to pursue as high a level of current income as is consistent with the
preservation of capital. This resulted in shifting the fund's focus from
investing not less than 65% of its assets in high yield, low quality securities
to 65% of its assets in investment grade securities.
** Total return represents the change in the value of an investment after
reinvesting all income and capital gains, and takes into account the 1% sales
load and 1% contingent deferred sales charge prior to 48 months.
Data quoted represent past performance and do not guarantee future results.
Investment return and principal value will fluctuate so an investor's shares,
when redeemed, my be worth more or less than their original cost.
Fortress Bond Fund
One Step at a Time:
$1,000 invested each year for 8 years (reinvesting all dividends and capital
gains) grew to $12,664.
With this approach, the key is consistency.
If you had started investing $1,000 annually in Fortress Bond Fund* on 5/20/87,
reinvested your dividends and capital gains and didn't redeem any shares, you
would have invested only $8,000, but your account would have reached a total
value of $12,664 by 4/30/95. You would have earned an average annual total
return of 10.26%.**
A practical investment plan helps you pursue a high level of income through
corporate bonds. Through systematic investing, you buy shares on a regular
basis and reinvest all earnings. An investment plan works for you when you
invest only $1,000 annually. You can take it one step at a time. Put time and
compounding to work!
SEE GRAPHICAL APPENDIX A-2
* On June 15, 1992, at a Special Meeting of Shareholders, the shareholders
approved a change to the name of the Fund from High Income Securities Fund to
Fortress Bond Fund, and a change to the Fund's fundamental investment objective
to pursue as high a level of current income as is consistent with the
preservation of capital. This resulted in shifting the Fund's focus from
investing not less than 65% of its assets in high yield, low quality securities
to 65% of its assets in investment grade securities.
** No method of investing can guarantee a profit or protect against loss in
down markets. However, by investing regularly over time and buying shares at
various prices, investors can purchase more shares at lower prices, and all
accumulated shares have the ability to pay income to the investor.
Because such a plan involves continuous investment, regardless of changing
price levels, the investor should consider whether or not to continue purchases
through periods of low price levels.
Fortress Bond Fund
Hypothetical Investor Profile: Investing for High Monthly Income
John and Joan Wicker are a fictional couple who, like many other shareholders,
look for high monthly income opportunities.
John is an attorney in his late forties with an established client base. On May
20, 1987, the Wickers invested $20,000 in Fortress Bond Fund.
As this chart shows, over eight years their original investment has grown to
$41,599. This represents a 9.65% average annual total return. For John and
Joan, that means extra money to supplement their daughter's college tuition.
SEE GRAPHICAL APPENDIX A-3
This hypothetical scenario is provided for illustrative purposes only and does
not represent the result obtained by any particular shareholder. Past
performance does not guarantee future results.
Fortress Bond Fund
Portfolio of Investments
- --------------------------------------------------------------------------------
April 30, 1995 (unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------ ----------------------------------------------------------------------------------- --------------
CORPORATE BONDS--92.0%
- -------------------------------------------------------------------------------------------------
AIR TRANSPORTATION--0.3%
-----------------------------------------------------------------------------------
$ 500,000 USAir, Inc., Pass Thru Cert., Series 1993-A2, 9.625%, 9/1/2003 $ 460,000
----------------------------------------------------------------------------------- --------------
AUTOMOTIVE--4.0%
-----------------------------------------------------------------------------------
500,000 Aftermarket Technology Co., Sr. Sub. Note, 12.00%, 8/1/2004 532,500
-----------------------------------------------------------------------------------
2,000,000 Chrysler Corp., Deb., 12.00%, 5/1/2020 2,770,940
-----------------------------------------------------------------------------------
250,000 Exide Corp., Sr. Note, 10.00%, 4/15/2005 254,062
-----------------------------------------------------------------------------------
2,000,000 General Motors Corp., Deb., 9.125%, 7/15/2001 2,134,000
-----------------------------------------------------------------------------------
500,000 Lear Seating Corp., Sub. Note, 8.25%, 2/1/2002 467,500
-----------------------------------------------------------------------------------
500,000 Motor Wheel Corp., Sr. Note, 11.50%, 3/1/2000 400,000
----------------------------------------------------------------------------------- --------------
Total 6,559,002
----------------------------------------------------------------------------------- --------------
BANKING--5.1%
-----------------------------------------------------------------------------------
2,000,000 Banco Santander, Bank Guarantee, 7.875%, 4/15/2005 1,996,060
-----------------------------------------------------------------------------------
2,000,000 Bank of Montreal, Sub. Note, 7.80%, 4/1/2007 1,994,600
-----------------------------------------------------------------------------------
1,750,000 Crestar Financial Corp., Sub. Note, 8.75%, 11/15/2004 1,854,142
-----------------------------------------------------------------------------------
500,000 First Nationwide Holdings, Inc., Sr. Note, 12.25%, 5/15/2001 522,500
-----------------------------------------------------------------------------------
2,000,000 National Bank of Canada, Montreal, Sub. Note, 8.125%, 8/15/2004 2,025,120
----------------------------------------------------------------------------------- --------------
Total 8,392,422
----------------------------------------------------------------------------------- --------------
BEVERAGE & TOBACCO--6.0%
-----------------------------------------------------------------------------------
3,000,000 Dr. Pepper/7-Up Cos., Sr. Sub. Disc. Note, 11.50%, 11/1/2002 2,625,000
-----------------------------------------------------------------------------------
2,750,000 Philip Morris Cos., Inc., Deb., 6.00%, 7/15/2001 2,526,343
-----------------------------------------------------------------------------------
2,000,000 R.J.R. Nabisco, Inc., Sr. Note, 6.80%, 9/2/1997 1,975,480
-----------------------------------------------------------------------------------
2,750,000 R.J.R. Nabisco, Note, 9.25%, 8/5/2013 2,704,708
----------------------------------------------------------------------------------- --------------
Total 9,831,531
----------------------------------------------------------------------------------- --------------
BROADCAST RADIO & TV--1.6%
-----------------------------------------------------------------------------------
500,000 Allbritton Communication Co., Sr. Sub. Note, 11.50%, 8/15/2004 517,500
-----------------------------------------------------------------------------------
500,000 Chancellor Broadcasting Co., Sr. Sub. Note, 12.50%, 10/1/2004 502,500
-----------------------------------------------------------------------------------
</TABLE>
Fortress Bond Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------ ----------------------------------------------------------------------------------- --------------
CORPORATE BONDS--CONTINUED
- -------------------------------------------------------------------------------------------------
BROADCAST RADIO & TV--CONTINUED
-----------------------------------------------------------------------------------
$ 1,000,000 SCI Television, Inc., Sr. Secd. Note, 11.00% 6/30/2005 $ 1,048,750
-----------------------------------------------------------------------------------
500,000 Sinclair Broadcast Group, Sr. Sub. Note, 10.00%, 12/15/2003 497,500
----------------------------------------------------------------------------------- --------------
Total 2,566,250
----------------------------------------------------------------------------------- --------------
BUSINESS EQUIPMENT & SERVICES--0.2%
-----------------------------------------------------------------------------------
250,000 United Stationers Supply Co., Sr. Sub. Note, 12.75%, 5/1/2005 253,125
----------------------------------------------------------------------------------- --------------
CABLE TELEVISION--2.1%
-----------------------------------------------------------------------------------
500,000 Cablevision Systems Co., Sr. Sub. Deb., 9.875%, 2/15/2013 496,250
-----------------------------------------------------------------------------------
1,000,000 Continental Cablevision, Sr. Deb., 9.50%, 8/1/2013 998,750
-----------------------------------------------------------------------------------
1,000,000 International Cabletel, Inc., Sr. Defd. Note, 10.875%, 10/15/2003 625,000
-----------------------------------------------------------------------------------
250,000 Le Groupe Videotron Ltee, Sr. Note, 10.625%, 2/15/2005 260,625
-----------------------------------------------------------------------------------
750,000 Marcus Cable Operating Co., Sr. Disc. Note, 13.50%, 8/1/2004 450,000
-----------------------------------------------------------------------------------
1,000,000 Rogers Cablesystems Ltd., Sr. Secd. Note, 9.65%, 1/15/2014 623,299
----------------------------------------------------------------------------------- --------------
Total 3,453,924
----------------------------------------------------------------------------------- --------------
CHEMICALS & PLASTICS--3.3%
-----------------------------------------------------------------------------------
750,000 Arcadian Partners L.P., Sr. Note, Series B, 10.75%, 5/1/2005 772,500
-----------------------------------------------------------------------------------
500,000 Foamex L.P., Sr. Sub. Deb., 11.875%, 10/1/2004 492,500
-----------------------------------------------------------------------------------
1,500,000 G-I Holdings, Inc., Sr. Disc. Note, 11.375% accrual, 10/1/1998 1,027,500
-----------------------------------------------------------------------------------
875,000 Harris Chemical North America, Inc., Sr. Secd. Disc. Note, 10.25%,
7/15/2001 796,250
-----------------------------------------------------------------------------------
500,000 LaRoche Industries, Inc., Sr. Sub. Note, 13.00%, 8/15/2004 510,000
-----------------------------------------------------------------------------------
500,000 Polymer Group, Inc., Sr. Note, 12.75%, 7/15/2002 497,500
-----------------------------------------------------------------------------------
1,000,000 UCC Investors Holdings, Inc., Sr. Sub. Note, 11.00%, 5/1/2003 1,027,500
-----------------------------------------------------------------------------------
375,000 Uniroyal Technology Corp., Sr. Secd. Note, 11.75%, 6/1/2003 328,125
----------------------------------------------------------------------------------- --------------
Total 5,451,875
----------------------------------------------------------------------------------- --------------
CLOTHING & TEXTILES--1.7%
-----------------------------------------------------------------------------------
1,800,000 Reebok International Ltd., Deb., 9.75%, 9/15/1998 1,820,898
-----------------------------------------------------------------------------------
$ 1,000,000 WestPoint Stevens, Inc., Sr. Sub. Deb., 9.375%, 12/15/2005 $ 965,000
----------------------------------------------------------------------------------- --------------
Total 2,785,898
----------------------------------------------------------------------------------- --------------
</TABLE>
Fortress Bond Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------ ----------------------------------------------------------------------------------- --------------
CORPORATE BONDS--CONTINUED
- -------------------------------------------------------------------------------------------------
CONGLOMERATES--3.1%
-----------------------------------------------------------------------------------
3,750,000 Leucadia National Corp., Sr. Sub., 10.375%, 6/15/2002 4,031,250
-----------------------------------------------------------------------------------
1,000,000 Sherritt Gordon Ltd., Sr. Note, 9.75%, 4/1/2003 1,005,000
----------------------------------------------------------------------------------- --------------
Total 5,036,250
----------------------------------------------------------------------------------- --------------
CONTAINER & GLASS PRODUCTS--1.9%
-----------------------------------------------------------------------------------
1,000,000 Owens-Corning Fiberglass Corp., Deb., 9.375%, 6/1/2012 1,078,710
-----------------------------------------------------------------------------------
1,000,000 Owens-Illinois, Inc., Sr. Sub. Note, 9.75%, 8/15/2004 1,002,500
-----------------------------------------------------------------------------------
1,000,000 U.S. Can Co., Sr. Sub. Note, 13.50%, 1/15/2002 1,107,500
----------------------------------------------------------------------------------- --------------
Total 3,188,710
----------------------------------------------------------------------------------- --------------
COSMETICS & TOILETRIES--0.6%
-----------------------------------------------------------------------------------
1,500,000 Revlon Worldwide Corp., Sr. Secd. Note, Series B, 12.00% accrual,
3/15/1998 956,250
----------------------------------------------------------------------------------- --------------
ECOLOGICAL SERVICES & EQUIPMENT--1.2%
-----------------------------------------------------------------------------------
500,000 Allied Waste Industries, Inc., Sr. Sub. Note, 12.00%, 2/1/2004 512,500
-----------------------------------------------------------------------------------
1,000,000 ICF Kaiser International, Inc., Sr. Sub. Note, 12.00%, 12/31/2003 930,000
-----------------------------------------------------------------------------------
500,000 Mid-American Waste Systems, Inc., Sr. Sub. Note, 12.25%, 2/15/2003 512,500
----------------------------------------------------------------------------------- --------------
Total 1,955,000
----------------------------------------------------------------------------------- --------------
FINANCE--AUTOMOTIVE--1.8%
-----------------------------------------------------------------------------------
1,000,000 Ford Capital BV, Deb., 9.00%, 8/15/1998 1,048,450
-----------------------------------------------------------------------------------
2,000,000 Ford Motor Credit Co., Medium Term Note, 5.32%, 9/15/1998 1,884,380
----------------------------------------------------------------------------------- --------------
Total 2,932,830
----------------------------------------------------------------------------------- --------------
FINANCIAL INTERMEDIARIES--6.9%
-----------------------------------------------------------------------------------
2,775,000 Delaware Management Holding, Sr. Note, 10.25%, 3/15/2004 3,124,705
-----------------------------------------------------------------------------------
1,500,000 Equitable Cos., Inc., Sr. Note, 9.00%, 12/15/2004 1,578,555
-----------------------------------------------------------------------------------
2,000,000 Green Tree Financial Corp., Sr. Sub. Note, 10.25%, 6/1/2002 2,255,400
-----------------------------------------------------------------------------------
$ 2,400,000 Lehman Brothers Holdings, Inc., Note, 5.04%, 12/15/1996 $ 2,315,376
-----------------------------------------------------------------------------------
2,000,000 Merrill Lynch & Co., Inc., Medium Term Note, 7.25%, 6/14/2004 1,989,700
----------------------------------------------------------------------------------- --------------
Total 11,263,736
----------------------------------------------------------------------------------- --------------
</TABLE>
Fortress Bond Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------ ----------------------------------------------------------------------------------- --------------
CORPORATE BONDS--CONTINUED
- -------------------------------------------------------------------------------------------------
FOOD & DRUG RETAILERS--3.4%
-----------------------------------------------------------------------------------
1,000,000 Grand Union Co., Sr. Sub. Note, 12.25% 7/15/2002 340,000
-----------------------------------------------------------------------------------
4,075,000 Hook-Superx, Inc., Sr. Note, 10.125%, 6/1/2002 4,324,594
-----------------------------------------------------------------------------------
1,000,000 Pathmark Stores, Inc., Sr. Sub. Note, 9.625%, 5/1/2003 965,000
----------------------------------------------------------------------------------- --------------
Total 5,629,594
----------------------------------------------------------------------------------- --------------
FOOD PRODUCTS--2.0%
-----------------------------------------------------------------------------------
500,000 Curtice-Burns Foods, Inc., Sr. Sub. Note, 12.25%, 2/1/2005 527,500
-----------------------------------------------------------------------------------
500,000 Doskocil Cos., Inc., Sr. Sub. Note, 9.75%, 7/15/2000 465,000
-----------------------------------------------------------------------------------
500,000 Grand Metropolitan Investment Corp., 8.131% accrual, 1/6/2004 257,210
-----------------------------------------------------------------------------------
1,000,000 PMI Acquisition Corp., Sr. Sub. Note, 10.25%, 9/1/2003 1,012,500
-----------------------------------------------------------------------------------
2,000,000 Specialty Foods Acquisition Corp., Sr. Secd. Disc. Deb., 13.00%,
8/15/2005 1,070,000
----------------------------------------------------------------------------------- --------------
Total 3,332,210
----------------------------------------------------------------------------------- --------------
FOOD SERVICES--0.6%
-----------------------------------------------------------------------------------
250,000 Flagstar Corp., Sr. Note, 10.75%, 9/15/2001 236,250
-----------------------------------------------------------------------------------
500,000 Flagstar Corp., Sr. Note, 10.875%, 12/1/2002 472,500
-----------------------------------------------------------------------------------
250,000 Flagstar Corp., Sr. Sub. Deb., 11.25%, 11/1/2004 205,313
----------------------------------------------------------------------------------- --------------
Total 914,063
----------------------------------------------------------------------------------- --------------
FOREST PRODUCTS--1.8%
-----------------------------------------------------------------------------------
500,000 Domtar, Inc., Deb., 11.25%, 9/15/2017 531,250
-----------------------------------------------------------------------------------
500,000 Domtar, Inc., Note, 12.00%, 4/15/2001 568,750
-----------------------------------------------------------------------------------
275,000 Repap New Brunswick, 1st Priority Sr. Secd. Note, 9.875%, 7/15/2000 278,781
-----------------------------------------------------------------------------------
500,000 Riverwood International Corp., Sr. Sub. Note, 11.25%, 6/15/2002 538,750
-----------------------------------------------------------------------------------
500,000 Stone Container Corp., Sr. Note, 11.50%, 10/1/2004 537,500
-----------------------------------------------------------------------------------
$ 500,000 Stone Container Corp., Sr. Note, 9.875%, 2/1/2001 $ 499,375
----------------------------------------------------------------------------------- --------------
Total 2,954,406
----------------------------------------------------------------------------------- --------------
</TABLE>
Fortress Bond Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------ ----------------------------------------------------------------------------------- --------------
CORPORATE BONDS--CONTINUED
- -------------------------------------------------------------------------------------------------
GOVERNMENT AGENCY--2.8%
-----------------------------------------------------------------------------------
2,750,000 Student Loan Marketing Association, Medium Term Note, 7.66%,
3/16/1998 2,761,963
-----------------------------------------------------------------------------------
2,000,000 Tennessee Valley Authority, Deb., 7.85%, 6/15/2044 1,909,620
----------------------------------------------------------------------------------- --------------
Total 4,671,583
----------------------------------------------------------------------------------- --------------
HEALTH SERVICES--1.3%
-----------------------------------------------------------------------------------
2,000,000 Columbia/HCA Healthcare Corp., Medium Term Note, 8.70%,
2/10/2010 2,123,820
----------------------------------------------------------------------------------- --------------
HEALTHCARE--1.1%
-----------------------------------------------------------------------------------
1,173,679 AmeriSource Corp., Sr. PIK Deb., 11.25%, 7/15/2005 1,296,915
-----------------------------------------------------------------------------------
500,000 National Medical Enterprises, Inc., Sr. Sub. Note, 10.125%, 3/1/2005 523,750
----------------------------------------------------------------------------------- --------------
Total 1,820,665
----------------------------------------------------------------------------------- --------------
HOME PRODUCTS & FURNISHINGS--0.8%
-----------------------------------------------------------------------------------
1,000,000 American Standard, Inc., Sr. Sub. Disc. Deb., 0/10.50%, 6/1/2005 740,000
-----------------------------------------------------------------------------------
500,000 Triangle Pacific Corp., Sr. Note, 10.50%, 8/1/2003 505,000
----------------------------------------------------------------------------------- --------------
Total 1,245,000
----------------------------------------------------------------------------------- --------------
HOTELS, MOTELS, INNS, & CASINOS--0.3%
-----------------------------------------------------------------------------------
500,000 Motels of America, Inc., Sr. Sub. Note, 12.00%, 4/15/2004 500,625
----------------------------------------------------------------------------------- --------------
INDUSTRIAL PRODUCTS & EQUIPMENT--3.4%
-----------------------------------------------------------------------------------
350,000 Fairfield Manufacturing Co., Inc., Sr. Sub. Note, 11.375%, 7/1/2001 330,750
-----------------------------------------------------------------------------------
500,000 Truck Components, Inc., Sr. Note, 12.25%, 6/30/2001 528,750
-----------------------------------------------------------------------------------
4,435,000 Varity Corp., Sr. Note, 11.375%, 11/15/1998 4,683,626
----------------------------------------------------------------------------------- --------------
Total 5,543,126
----------------------------------------------------------------------------------- --------------
INSURANCE--5.1%
-----------------------------------------------------------------------------------
3,500,000 CNA Financial Corp., Deb., 7.25%, 11/15/2023 2,919,455
-----------------------------------------------------------------------------------
$ 3,000,000 Delphi Financial Group, Inc., Note, 8.00%, 10/1/2003 $ 2,635,770
-----------------------------------------------------------------------------------
3,000,000 Sunamerica, Inc., Deb., 8.125%, 4/28/2023 2,817,960
----------------------------------------------------------------------------------- --------------
Total 8,373,185
----------------------------------------------------------------------------------- --------------
</TABLE>
Fortress Bond Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------ ----------------------------------------------------------------------------------- --------------
CORPORATE BONDS--CONTINUED
- -------------------------------------------------------------------------------------------------
LEISURE & ENTERTAINMENT--0.6%
-----------------------------------------------------------------------------------
1,000,000 Paramount Communications, Inc., Sr. Deb., 8.25%, 8/1/2022 902,290
----------------------------------------------------------------------------------- --------------
METALS & MINING--1.7%
-----------------------------------------------------------------------------------
2,500,000 Magma Copper Co., Sr. Sub. Note, 12.00%, 12/15/2001 2,750,000
----------------------------------------------------------------------------------- --------------
MUNICIPAL SERVICES--1.3%
-----------------------------------------------------------------------------------
2,000,000 Pittsburgh, PA Urban Redevelopment Authority, 9.07%, 9/1/2014 2,147,680
----------------------------------------------------------------------------------- --------------
OIL & GAS--9.1%
-----------------------------------------------------------------------------------
2,710,000 Ashland, Inc., Deb., 11.125%, 10/15/2017 3,056,907
-----------------------------------------------------------------------------------
750,000 Falcon Drilling Co., Inc., Sr. Note, 9.75%, 1/15/2001 716,250
-----------------------------------------------------------------------------------
1,000,000 Giant Industries, Inc., Sr. Sub. Note, 9.75%, 11/15/2003 940,000
-----------------------------------------------------------------------------------
1,000,000 H.S. Resources, Inc., Sr. Sub. Note, 9.875%, 12/1/2003 970,000
-----------------------------------------------------------------------------------
1,250,000 Occidental Petroleum Corp., Sr. Deb., 11.125%, 6/1/2019 1,431,175
-----------------------------------------------------------------------------------
2,375,000 Occidental Petroleum Corp., Sr. Note, 11.75%, 3/15/2011 2,583,691
-----------------------------------------------------------------------------------
1,300,000 Tosco Corp., 1st Mtg. Bond, 9.00%, 3/15/1997 1,340,209
-----------------------------------------------------------------------------------
1,000,000 Triton Energy Corp., Sr. Sub. Disc. Note, 9.75%, 12/15/2000 840,000
-----------------------------------------------------------------------------------
3,000,000 USX Corp., Deb., 9.125%, 1/15/2013 3,058,890
----------------------------------------------------------------------------------- --------------
Total 14,937,122
----------------------------------------------------------------------------------- --------------
PRINTING & PUBLISHING--2.0%
-----------------------------------------------------------------------------------
500,000 Affiliated Newspaper, Sr. Disc. Note, 13.25%, 7/1/2006 277,500
-----------------------------------------------------------------------------------
250,000 Garden State Newspapers, Inc., Sr. Sub. Note, 12.00%, 7/1/2004 251,250
-----------------------------------------------------------------------------------
3,000,000 News America Holdings, Inc., Deb., 7.75%, 1/20/2024 2,693,730
----------------------------------------------------------------------------------- --------------
Total 3,222,480
----------------------------------------------------------------------------------- --------------
RETAILERS--1.5%
-----------------------------------------------------------------------------------
1,000,000 Brylane Capital Corp., Sr. Sub. Note, 10.00%, 9/1/2003 970,000
-----------------------------------------------------------------------------------
$ 400,000 ICON Health & Fitness, Inc., Unit, 13.00%, 7/15/2002 $ 430,000
-----------------------------------------------------------------------------------
1,000,000 Penney (J.C.) Co., Inc., S.F. Deb., 9.75%, 6/15/2021 1,123,260
----------------------------------------------------------------------------------- --------------
Total 2,523,260
----------------------------------------------------------------------------------- --------------
</TABLE>
Fortress Bond Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------ ----------------------------------------------------------------------------------- --------------
CORPORATE BONDS--CONTINUED
- -------------------------------------------------------------------------------------------------
SOVEREIGN GOVERNMENT--8.4%
-----------------------------------------------------------------------------------
2,500,000 Freeport Terminal (Malta) Ltd., Gtd. Global Note, 7.50%, 3/29/2004 2,380,800
-----------------------------------------------------------------------------------
1,400,000 New Zealand Government, Deb., 10.50%, 7/16/2000 1,511,938
-----------------------------------------------------------------------------------
1,525,000 Province of Ontario, Local Gov't. Guarantee, 17.00%, 11/5/2011 1,838,128
-----------------------------------------------------------------------------------
1,500,000 Province of Quebec, Deb., 13.25%, 9/15/2014 1,865,625
-----------------------------------------------------------------------------------
2,000,000 Republic of Colombia, Note, 8.75%, 10/6/1999 1,964,880
-----------------------------------------------------------------------------------
1,700,000 Republic of South Africa, Global Bond Deb., 9.625%, 12/15/1999 1,672,290
-----------------------------------------------------------------------------------
2,500,000 Victoria Public Authority, Local Gov't. Guarantee, 8.25%, 1/15/2002 2,585,938
----------------------------------------------------------------------------------- --------------
Total 13,819,599
----------------------------------------------------------------------------------- --------------
STEEL--1.9%
-----------------------------------------------------------------------------------
500,000 Armco, Inc., Sr. Note, 9.375%, 11/1/2000 472,500
-----------------------------------------------------------------------------------
1,000,000 Carbide/Graphite Group, Sr. Note, 11.50%, 9/1/2003 1,060,000
-----------------------------------------------------------------------------------
1,250,000 EnviroSource, Inc., Sr. Note, 9.75%, 6/15/2003 1,121,875
-----------------------------------------------------------------------------------
500,000 Geneva Steel Co., Sr. Note, 11.125%, 3/15/2001 477,500
----------------------------------------------------------------------------------- --------------
Total 3,131,875
----------------------------------------------------------------------------------- --------------
SURFACE TRANSPORTATION--1.5%
-----------------------------------------------------------------------------------
1,000,000 Sea Containers Ltd., Sr. Note, 9.50%, 7/1/2003 947,500
-----------------------------------------------------------------------------------
500,000 Trans Ocean Container Corp., Sr. Sub. Note, 12.25%, 7/1/2004 492,500
-----------------------------------------------------------------------------------
1,000,000 Trism, Inc., Sr. Sub. Note, 10.75%, 12/15/2000 980,000
----------------------------------------------------------------------------------- --------------
Total 2,420,000
----------------------------------------------------------------------------------- --------------
TELECOMMUNICATIONS & CELLULAR--1.2%
-----------------------------------------------------------------------------------
1,000,000 Allnet Communicatios, Sr. Sub. Note, 9.00%, 5/15/2003 1,052,500
-----------------------------------------------------------------------------------
1,000,000 PanAmSat, L.P., Sr. Sub. Disc. Note, 11.375%, 8/1/2003 695,000
-----------------------------------------------------------------------------------
$ 250,000 USA Mobile Communications, Inc., Sr. Note, 9.50%, 2/1/2004 $ 221,250
----------------------------------------------------------------------------------- --------------
Total 1,968,750
----------------------------------------------------------------------------------- --------------
UTILITIES--0.4%
-----------------------------------------------------------------------------------
750,000 California Energy Co., Inc., Sr. Disc. Note, 10.25%, 1/15/2004 592,500
----------------------------------------------------------------------------------- --------------
TOTAL CORPORATE BONDS (IDENTIFIED COST $152,318,446) 150,610,636
----------------------------------------------------------------------------------- --------------
</TABLE>
Fortress Bond Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR SHARES VALUE
<C> <S> <C>
- ------------ ----------------------------------------------------------------------------------- --------------
COMMON STOCKS--0.0%
- -------------------------------------------------------------------------------------------------
CHEMICALS & PLASTICS--0.0%
-----------------------------------------------------------------------------------
3,750 Uniroyal Technology Corp., Warrants 8,906
----------------------------------------------------------------------------------- --------------
ECOLOGICAL SERVICES & EQUIPMENT--0.0%
-----------------------------------------------------------------------------------
4,800 (a)ICF Kaiser International, Inc., Warrants 4,800
----------------------------------------------------------------------------------- --------------
PRINTING & PUBLISHING--0.0%
-----------------------------------------------------------------------------------
500 (a)Affiliated Newspaper 12,500
----------------------------------------------------------------------------------- --------------
TOTAL COMMON STOCKS (IDENTIFIED COST $22,456) 26,206
----------------------------------------------------------------------------------- --------------
ASSET-BACKED SECURITIES--4.8%
- -------------------------------------------------------------------------------------------------
STRUCTURED PRODUCT--4.8%
-----------------------------------------------------------------------------------
1,000,000 Discover Card Trust 1991-B, Class B, 8.85%, 8/16/1996 1,028,380
-----------------------------------------------------------------------------------
1,000,000 GE Capital Home Equity Loan 1991-1, Class B, 8.70%, 5/23/1997 1,013,650
-----------------------------------------------------------------------------------
1,000,000 Green Tree Financial Corp. 1992-2, Class B, 9.15%, 11/27/2000 1,021,650
-----------------------------------------------------------------------------------
1,000,000 Merrill Lynch Mortgage Investment, Inc. 1988-H, Class B, 9.70%,
4/17/1999 1,025,938
-----------------------------------------------------------------------------------
3,000,000 Prudential Home Mort. 1992-32, Class A6, 7.50%, 10/25/2022 2,878,125
-----------------------------------------------------------------------------------
1,000,000 Residential Funding Corp. 1993-S26, Class A10, 7.50%, 7/25/2023 899,480
----------------------------------------------------------------------------------- --------------
TOTAL ASSET-BACKED SECURITIES (IDENTIFIED COST $8,062,813) 7,867,223
----------------------------------------------------------------------------------- --------------
MORTGAGE-BACKED SECURITIES--2.4%
- -------------------------------------------------------------------------------------------------
GOVERNMENT AGENCY--2.4%
-----------------------------------------------------------------------------------
$ 1,956,647 Government National Mortgage Association, Pool 369457, 8.00%,
9/15/2024 $ 1,956,627
-----------------------------------------------------------------------------------
1,921,196 Government National Mortgage Association, Pool 405403, 9.50%,
1/15/2025 2,022,040
----------------------------------------------------------------------------------- --------------
TOTAL MORTGAGE-BACKED SECURITIES (IDENTIFIED COST $3,926,082) 3,978,667
----------------------------------------------------------------------------------- --------------
(B)REPURCHASE AGREEMENT--0.3%
- -------------------------------------------------------------------------------------------------
505,000 J.P. Morgan Securities, Inc., 5.97%, dated 4/28/1995, due 5/1/1995 505,000
----------------------------------------------------------------------------------- --------------
TOTAL INVESTMENTS (IDENTIFIED COST $164,834,797)(C) $ 162,987,732
----------------------------------------------------------------------------------- --------------
</TABLE>
Fortress Bond Fund
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------ ----------------------------------------------------------------------------------- --------------
</TABLE>
(a) Non-income producing security.
(b) The repurchase agreement is fully collateralized by U.S. government
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.
(c) The cost of investments for federal tax purposes amounts to $164,834,797.
The unrealized depreciation of investments on a federal tax basis amounts to
$1,847,065 which is comprised of $2,024,953 appreciation and $3,872,018
depreciation at April 30, 1995.
Note: The categories of investments are shown as a percentage of net assets
($163,720,623) at April 30, 1995.
The following abbreviation(s) are used throughout this portfolio:
PIK--Payment in Kind
(See Notes which are an integral part of the Financial Statements.)
Fortress Bond Fund
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
April 30, 1995 (unaudited)
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost and tax cost $164,834,797) $ 162,987,732
- -------------------------------------------------------------------------------------------------
Cash 3,514
- -------------------------------------------------------------------------------------------------
Income receivable 3,864,823
- -------------------------------------------------------------------------------------------------
Receivable for investments sold 5,309,165
- -------------------------------------------------------------------------------------------------
Receivable for shares sold 611,640
- ------------------------------------------------------------------------------------------------- --------------
Total assets 172,776,874
- -------------------------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------------------------
Payable for investments purchased $ 5,753,322
- -----------------------------------------------------------------------------------
Payable for shares redeemed 2,542,027
- -----------------------------------------------------------------------------------
Income distribution payable 687,052
- -----------------------------------------------------------------------------------
Accrued expenses 73,850
- ----------------------------------------------------------------------------------- ------------
Total liabilities 9,056,251
- ------------------------------------------------------------------------------------------------- --------------
NET ASSETS for 17,512,461 shares outstanding $ 163,720,623
- ------------------------------------------------------------------------------------------------- --------------
NET ASSETS CONSISTS OF:
- -------------------------------------------------------------------------------------------------
Paid-in capital $ 170,177,781
- -------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (1,847,065)
- -------------------------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments (5,020,404)
- -------------------------------------------------------------------------------------------------
Undistributed net investment income 410,311
- ------------------------------------------------------------------------------------------------- --------------
Total Net Assets $ 163,720,623
- ------------------------------------------------------------------------------------------------- --------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- -------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($163,720,623 / 17,512,461 shares outstanding) $9.35
- ------------------------------------------------------------------------------------------------- --------------
Offering Price Per Share (100/99.00 of $9.35)* $9.44
- ------------------------------------------------------------------------------------------------- --------------
Redemption Proceeds Per Share (99.00/100 of $9.35)* $9.26
- ------------------------------------------------------------------------------------------------- --------------
</TABLE>
*See "What Shares Cost" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
Fortress Bond Fund
Statement of Operations
- --------------------------------------------------------------------------------
Six Months Ended April 30, 1995 (unaudited)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------------------------
Interest $ 7,020,126
- ----------------------------------------------------------------------------------------------------
Dividends 76,063
- ---------------------------------------------------------------------------------------------------- ------------
Total income 7,096,189
- ----------------------------------------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------------------------------------------
Investment advisory fee $ 555,146
- -----------------------------------------------------------------------------------------
Administrative personnel and services fees 61,987
- -----------------------------------------------------------------------------------------
Custodian fees 19,445
- -----------------------------------------------------------------------------------------
Transfer agent and dividend disbursing agent fees and expenses 62,176
- -----------------------------------------------------------------------------------------
Directors'/Trustees' fees 2,715
- -----------------------------------------------------------------------------------------
Auditing fees 6,697
- -----------------------------------------------------------------------------------------
Legal fees 4,887
- -----------------------------------------------------------------------------------------
Portfolio accounting fees 18,505
- -----------------------------------------------------------------------------------------
Shareholder services fee 152,889
- -----------------------------------------------------------------------------------------
Share registration costs 14,661
- -----------------------------------------------------------------------------------------
Printing and postage 21,720
- -----------------------------------------------------------------------------------------
Insurance premiums 3,439
- -----------------------------------------------------------------------------------------
Taxes 22,806
- -----------------------------------------------------------------------------------------
Miscellaneous 3,239
- ----------------------------------------------------------------------------------------- ---------
Total expenses 950,312
- -----------------------------------------------------------------------------------------
Deduct--Waiver of investment advisory fee 205,268
- ----------------------------------------------------------------------------------------- ---------
Net expenses 745,044
- ---------------------------------------------------------------------------------------------------- ------------
Net investment income 6,351,145
- ---------------------------------------------------------------------------------------------------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ----------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (1,684,535)
- ----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments 6,011,785
- ---------------------------------------------------------------------------------------------------- ------------
Net realized and unrealized gain (loss) on investments 4,327,250
- ---------------------------------------------------------------------------------------------------- ------------
Change in net assets resulting from operations $ 10,678,395
- ---------------------------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Fortress Bond Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
APRIL 30, YEAR ENDED
1995 OCTOBER 31,
(UNAUDITED) 1994
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ---------------------------------------------------------------------------------
OPERATIONS--
- ---------------------------------------------------------------------------------
Net investment income $ 6,351,145 $ 11,411,758
- ---------------------------------------------------------------------------------
Net realized gain/(loss) on investments ($1,684,535 net loss and $3,359,826 net
loss, respectively, as computed for federal income
tax purposes) (1,684,535) (3,358,420)
- ---------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) 6,011,785 (13,277,162)
- --------------------------------------------------------------------------------- -------------- --------------
Change in assets resulting from operations 10,678,395 (5,223,824)
- --------------------------------------------------------------------------------- -------------- --------------
NET EQUALIZATION CREDITS (DEBITS) 66,874 81,055
- --------------------------------------------------------------------------------- -------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ---------------------------------------------------------------------------------
Distributions from net investment income (6,212,096) (11,262,574)
- ---------------------------------------------------------------------------------
Distributions from net realized gains -- (1,863,673)
- --------------------------------------------------------------------------------- -------------- --------------
Change in net assets resulting from distributions to shareholders (6,212,096) (13,126,247)
- --------------------------------------------------------------------------------- -------------- --------------
SHARE TRANSACTIONS--
(Exclusive of amounts allocated to net investment income)--
- ---------------------------------------------------------------------------------
Proceeds from sale of Shares 31,833,605 84,985,424
- ---------------------------------------------------------------------------------
Net asset value of Shares issued to shareholders in
payment of distributions declared 2,319,565 4,135,607
- ---------------------------------------------------------------------------------
Cost of Shares redeemed (21,235,775) (50,343,919)
- --------------------------------------------------------------------------------- -------------- --------------
Change in net assets resulting from Share transactions 12,917,395 38,777,112
- --------------------------------------------------------------------------------- -------------- --------------
Change in net assets 17,450,568 20,508,096
- ---------------------------------------------------------------------------------
NET ASSETS:
- ---------------------------------------------------------------------------------
Beginning of period 146,270,055 125,761,959
- --------------------------------------------------------------------------------- -------------- --------------
End of period (including undistributed net investment income of $410,311 and
$204,388, respectively) $ 163,720,623 $ 146,270,055
- --------------------------------------------------------------------------------- -------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Fortress Bond Fund
Financial Highlights
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
APRIL 30,
1995 YEAR ENDED OCTOBER 31, YEAR ENDED DECEMBER 31,
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) 1994 1993 1992(B) 1991 1990 1989
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.08 $ 10.30 $ 9.23 $ 8.81 $ 6.89 $ 8.79 $ 9.86
- --------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------
Net investment income 0.39 0.76 0.77 0.59 1.01 1.08 1.23
- --------------------------------------
Net realized and unrealized gain
(loss) on investments 0.26 (1.09) 1.07 0.43 1.92 (1.84) (1.07)
- -------------------------------------- ------ --------- --------- ----------- --------- --------- ---------
Total from investment operations 0.65 (0.33) 1.84 1.02 2.93 (0.76) 0.16
- --------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------
Distributions from net investment
income (0.38) (0.75) (0.77) (0.60) (1.01) (1.14) (1.23)
- --------------------------------------
Distributions from net realized gain
on investment transactions 0.00 (0.14) 0.00 0.00 0.00 0.00 0.00
- -------------------------------------- ------ --------- --------- ----------- --------- --------- ---------
Total distributions (0.38) (0.89) (0.77) (0.60) (1.01) (1.14) (1.23)
- -------------------------------------- ------ --------- --------- ----------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 9.35 $ 9.08 $ 10.30 $ 9.23 $ 8.81 $ 6.89 $ 8.79
- -------------------------------------- ------ --------- --------- ----------- --------- --------- ---------
TOTAL RETURN (C) 7.32% (3.41%) 20.61% 11.79% 44.62% (9.59%) 1.32%
- --------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------
Expenses 1.01%(d) 1.05% 1.04% 0.49%(d) 1.00% 1.01% 1.14%
- --------------------------------------
Net investment income 8.63%(d) 7.92% 7.69% 8.05%(d) 12.17% 13.43% 12.81%
- --------------------------------------
Expense waiver/reimbursement (e) 0.28%(d) 0.33% 0.61% 2.01%(d) 1.50% 1.49% 1.36%
- --------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------
Net assets, end of period (000
omitted) $163,721 $146,270 $125,762 $54,886 $6,068 $7,484 $4,734
- --------------------------------------
Portfolio turnover 59 % 74% 51% 49 % 33% 28% 38%
- --------------------------------------
<CAPTION>
<S> <C>
1988(A)
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.06
- --------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------
Net investment income 0.61
- --------------------------------------
Net realized and unrealized gain
(loss) on investments (0.16)
- -------------------------------------- -----------
Total from investment operations 0.45
- --------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------
Distributions from net investment
income (0.65)
- --------------------------------------
Distributions from net realized gain
on investment transactions 0.00
- -------------------------------------- -----------
Total distributions (0.65)
- -------------------------------------- -----------
NET ASSET VALUE, END OF PERIOD $ 9.86
- -------------------------------------- -----------
TOTAL RETURN (C) 4.62%
- --------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------
Expenses 1.00%(d)
- --------------------------------------
Net investment income 12.58%(d)
- --------------------------------------
Expense waiver/reimbursement (e) 1.00%(d)
- --------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------
Net assets, end of period (000
omitted) $4,968
- --------------------------------------
Portfolio turnover 31 %
- --------------------------------------
</TABLE>
(a) Reflects operations for the period from July 8, 1988 (date of initial
public investment) to December 31, 1988.
(b) During the ten month period, the Fund changed its fiscal year-end from
December 31 to October 31.
(c) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(d) Computed on an annualized basis.
(e) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Fortress Bond Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
April 30, 1995 (unaudited)
(1) ORGANIZATION
Investment Series Funds, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as an open-end,
diversified management investment company. The Corporation consists of two
portfolios. The financial statements presented herein present only those of
Fortress Bond Fund (the "Fund"). The financial statements of the other portfolio
is presented separately. The assets of each portfolio are segregated and a
shareholder's interest is limited to the portfolio in which shares are held.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--Listed corporate bonds and other fixed income and
asset-backed securities are valued at the last sale price reported on
national securities exchanges. Unlisted bonds and securities and short-term
obligations are valued at prices provided by an independent pricing
service. Short-term securities with remaining maturities of sixty days or
less may be stated at amortized cost, which approximates value. Listed
equity securities are valued at the last sale price reported on national
securities exchanges. Unlisted securities and short-term obligations and
private placement securities are generally valued at the prices provided by
an independent pricing service.
During the year ended October 31, 1994, the Fund changed its method of
accounting for costing securities and calculating gains and losses for
financial reporting purposes from the average cost method to the specific
identification method. This accounting change resulted only in
reclassification between unrealized and realized gains and losses, and
therefore had no effect on the net results from operations, net assets, or
net asset value per share. The specific identification method is the
preferred method used in the industry and it more closely agrees with the
costing method for federal tax purposes.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS--It is the policy of the Fund
to require the custodian bank or broker 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 in
support of repurchase and reverse repurchase agreement investments.
Additionally, procedures have been established by the Fund to monitor, on a
daily basis, the market value of each repurchase agreement's collateral to
ensure that the value of collateral at least equals the repurchase price to
be paid under the repurchase agreement transaction.
The Fund is also permitted to enter into reverse repurchase agreements in
which the Fund sells U.S. government securities to financial institutions
and agrees to repurchase the securities at an agreed upon price and date.
The Fund will only enter into repurchase and reverse 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 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 these agreements.
Accordingly, the Fund could receive less than the repurchase price on the
sale of collateral securities.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS--Dividend income and
distributions to shareholders are recorded on the ex-dividend date.
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").
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 taxable income.
Accordingly, no provisions for federal tax are necessary. At October 31,
1994, the Fund, for federal tax purposes, had a capital loss carryforward
of $3,359,826, 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 2002 ($3,359,826).
EQUALIZATION--The Fund follows the accounting practice known as
equalization by which a portion of the proceeds from sales and costs of
redemptions of Fund shares equivalent, on a per share basis, to the amount
of undistributed net investment income on the date of the transaction, is
credited or charged to undistributed net investment income. As a result,
undistributed net investment income per share is unaffected by sales or
redemptions of Fund shares.
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.
OTHER--Investment transactions are accounted for on the trade date.
(3) CAPITAL STOCK
At April 30, 1995, there were 1,000,000,000 shares ($0.0001 par value per share)
of capital stock of the Fund authorized. Transactions in capital stock were as
follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1995 OCTOBER 31, 1994
<S> <C> <C>
Shares sold 3,492,797 8,746,756
- -------------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 255,356 436,461
- -------------------------------------------------------------------------
Shares redeemed (2,346,069) (5,284,540)
- ------------------------------------------------------------------------- ---------------- --------------------
Net change resulting from share transactions 1,402,084 3,898,677
- ------------------------------------------------------------------------- ---------------- --------------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Advisers, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
..75 of 1% of the Fund's average daily net assets. The Adviser may voluntarily
choose to waive any portion of its fee. The Adviser can modify or terminate this
voluntary waiver at any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The FAS fee is based on the level of average aggregate
daily net assets of all funds advised by subsidiaries of Federated Investors for
the period. The administrative fee received during the period of the
Administrative Services Agreement shall be at least $125,000 per portfolio and
$30,000 per each additional class of shares.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to .25 of
1% of average daily net assets of the Fund for the period. This fee is to obtain
certain services for shareholders and to maintain shareholder accounts.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated
Services Company ("FServ") serves as transfer agent and dividend disbursing
agent for the Fund. The fee 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. 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 Fund are Officers and
Directors or Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the six
months ended April 30, 1995, were as follows:
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------------
PURCHASES $ 85,439,090
- --------------------------------------------------------------------------------------------------- -------------
SALES $ 70,160,542
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
Directors Officers
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
John F. Donahue John F. Donahue
John T. Conroy, Jr. Chairman
William J. Copeland J. Christopher Donahue
J. Christopher Donahue President
James E. Dowd Richard B. Fisher
Lawrence D. Ellis, M.D. Vice President
Edward L. Flaherty, Jr. Edward C. Gonzales
Peter E. Madden Vice President and Treasurer
Gregor F. Meyer John W. McGonigle
John E. Murray, Jr. Vice President and Secretary
Wesley W. Posvar David M. Taylor
Marjorie P. Smuts Assistant Treasurer
Robert C. Rosselot
Assistant Secretary
</TABLE>
Mutual funds are not bank deposits or obligations, are not guaranteed
by any bank, and are not insured or guaranteed by the U.S. government, the
Federal Deposit
Insurance Corporation, the Federal Reserve Board, or any other government
agency.
Investment in mutual funds involves investment risk, including possible loss of
principal.
This report is authorized for distribution to prospective investors only when
preceded
or accompanied by the Fund's prospectus, which contains facts concerning its
objective and policies, management fees, expenses and other information.
[LOGO] FEDERATED SECURITIES CORP.
-----------------------------------------------------------
Distributor
A subsidiary of Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
461444309
2072302 (6/95)
[PHOTO]
PRESIDENT'S MESSAGE
Dear Shareholder:
I am pleased to present the Semi-Annual Report to Shareholders for Capital
Growth Fund for the six-month period ended April 30, 1995. Included in this
report is our Investment Review, followed by a complete listing of the fund's
holdings, Financial Statements and Highlights.
Capital Growth Fund is managed to pursue long-term growth through a highly
diversified portfolio. The fund's portfolio includes common stocks and
convertible securities from 62 issuers representing 16 key business sectors.
Among the fund's holdings are many familiar names such as Citicorp, Intel
Corp., Johnson & Johnson, Philip Morris, and Reebok International Ltd.
At the end of the period, the fund's net assets stood at $10.9 million. The
fund's net asset value per share increased from $11.31 to $12.13 per share
for Class A Shares and $11.31 to $12.12 per share for Class C Shares between
during the period. Thank you for your continued confidence in Capital Growth
Fund. As always, we welcome your comments and suggestions.
Sincerely,
/s/ J. CHRISTOPHER DONAHUE
J. Christopher Donahue
President
June 15, 1995
[PHOTO]
INVESTMENT REVIEW
JIM GREFENSTETTE,
PORTFOLIO MANAGER
Q. WHAT IS THE STATUS OF THE MARKET FOR GROWTH STOCKS?
A. The growth style of equity investing modestly outperformed the value style
in the first quarter of 1995. The Russell 1000 Growth Index's total return
was up 9.52% versus the Russell 1000 Value Index, which was up 9.51%*. As more
investors began to project a slower growing economy through 1995 and into
1996, they began to seek out growth stocks, which are stocks that are
expected to provide higher relative earnings growth during periods of weaker
economic growth. The market, as measured by the relative performance of the
Russell 1000 Growth and Value indices, began to prefer growth to value in the
third quarter of 1994.
Q. HOW DID CAPITAL GROWTH FUND PERFORM OVER THE LAST SIX MONTHS?
A. Most of the fund's strong performance is attributed to its three largest
absolute and relative sector exposures--electronic technology, finance and
health technology. The fund was also aided by its position in the
transportation sector, the strongest performing sector in our universe, which
was only 3% of the fund but a large position relative to the S&P 500.
The fund suffered from poor performance in consumer durables and relative
underperformance in its utility sector. The average cash position of
approximately 8% cost the fund about 60 basis points in performance for the
quarter.
But the fund definitely benefited from its increase in the average and median
market capitalization of its holdings, which went from approximately $4
billion and $1 billion this time last year to approximately $9 billion and $3
billion, respectively, at present. Larger cap stocks generally outperformed
small stocks in the first quarter, with the total return of the S&P 500 up
9.73%, the S&P Mid-Cap up 7.80% and the S&P Small Index up 4.73%*.
* THESE INDICES ARE UNMANAGED
2
Q. WILL YOU REITERATE THE FUND'S INVESTMENT PHILOSOPHY?
A. Capital Growth Fund is managed for investors seeking growth of their
original investment over time by strategically investing in stocks with price
and earnings momentum, that is, how a stock's price and earnings have been
behaving in relation to other similar stocks.
Q. WILL YOU DESCRIBE THE OUTLOOK FOR GROWTH STOCKS?
A. We expect growth to continue to outperform for the next several quarters.
We believe growth will be strong until either the market sees evidence that
the economy can continue to reaccelerate or until there is an economic
capitulation of weakness and the market begins to focus on the next cyclical
rebound.
Q. HOW WILL THAT AFFECT YOUR FUTURE PLANS FOR THE FUND?
A. Capital Growth Fund will probably maintain relative overweights in
exposures to health care and technology--two sectors we believe will
demonstrate relative strong earnings growth and maintain relative
underweights in exposures to cyclically sensitive sectors, such as consumer
non-durables, process industries and producer manufacturing.
3
CAPITAL GROWTH FUND
PORTFOLIO OF INVESTMENTS
APRIL 30, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- ------------------------------------------------------------------- -----------
<C> <S> <C>
COMMON STOCKS--78.2%
- ---------------------------------------------------------------------------------
COMMERCIAL SERVICES--1.2%
-------------------------------------------------------------------
4,000 Olsten Corp. $ 136,500
------------------------------------------------------------------- -----------
CONSUMER DURABLES--1.5%
-------------------------------------------------------------------
7,500 Brunswick Corp. 160,312
------------------------------------------------------------------- -----------
CONSUMER NON-DURABLES--8.8%
-------------------------------------------------------------------
1,600 Gillette Co. 131,200
-------------------------------------------------------------------
5,000 (b) Gymboree Corp. 117,500
-------------------------------------------------------------------
4,500 IBP, Inc. 166,500
-------------------------------------------------------------------
4,500 PepsiCo, Inc. 187,313
-------------------------------------------------------------------
3,500 Philip Morris Cos., Inc. 237,125
-------------------------------------------------------------------
4,100 Reebok International Ltd. 128,125
------------------------------------------------------------------- -----------
Total 967,763
------------------------------------------------------------------- -----------
CONSUMER SERVICES--2.3%
-------------------------------------------------------------------
1,700 Capital Cities/ABC, Inc. 143,650
-------------------------------------------------------------------
4,000 Service Corp. International 113,000
------------------------------------------------------------------- -----------
Total 256,650
------------------------------------------------------------------- -----------
ELECTRONIC TECHNOLOGY--13.6%
-------------------------------------------------------------------
1,500 Advanced Micro Devices, Inc. 54,000
-------------------------------------------------------------------
2,500 (b) Cisco Systems, Inc. 99,688
-------------------------------------------------------------------
6,000 (b) EMC Corp. 118,800
-------------------------------------------------------------------
3,700 General Motors Corp., Class H 144,762
-------------------------------------------------------------------
6,100 (b) Integrated Device Technology, Inc. 232,563
-------------------------------------------------------------------
2,800 Intel Corp. 286,650
-------------------------------------------------------------------
5,800 Loral Corp. 272,600
-------------------------------------------------------------------
2,100 Micron Technology, Inc. 172,725
-------------------------------------------------------------------
1,800 Motorola, Inc. 102,375
------------------------------------------------------------------- -----------
Total 1,484,163
------------------------------------------------------------------- -----------
</TABLE>
4
CAPITAL GROWTH FUND
- ---------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- ------------------------------------------------------------------- -----------
<C> <S> <C>
COMMON STOCKS--CONTINUED
- ---------------------------------------------------------------------------------
ENERGY MINERALS--3.1%
-------------------------------------------------------------------
6,400 Ashland, Inc. $ 236,800
-------------------------------------------------------------------
1,200 British Petroleum Co., PLC, ADR 103,350
------------------------------------------------------------------- -----------
Total 340,150
------------------------------------------------------------------- -----------
FINANCE--7.0%
-------------------------------------------------------------------
4,000 Bank of New York Co., Inc. 131,500
-------------------------------------------------------------------
4,000 Citicorp 185,500
-------------------------------------------------------------------
6,700 MBNA Corp. 202,675
-------------------------------------------------------------------
2,600 NationsBank Corp. 130,000
-------------------------------------------------------------------
7,500 USF&G Corp. 110,625
------------------------------------------------------------------- -----------
Total 760,300
------------------------------------------------------------------- -----------
HEALTH SERVICES--3.6%
-------------------------------------------------------------------
4,000 (b) Foundation Health Corp. 111,000
-------------------------------------------------------------------
2,000 Genentech, Inc. 100,750
-------------------------------------------------------------------
5,700 (b) Ornda Health Corp. 99,750
-------------------------------------------------------------------
3,300 (b) Sun Healthcare Group, Inc. 79,612
------------------------------------------------------------------- -----------
Total 391,112
------------------------------------------------------------------- -----------
HEALTH TECHNOLOGY--9.1%
-------------------------------------------------------------------
2,000 American Home Products Corp. 154,250
-------------------------------------------------------------------
2,300 (b) Amgen, Inc. 167,181
-------------------------------------------------------------------
3,200 Genzyme Corp. 136,800
-------------------------------------------------------------------
2,000 Johnson & Johnson 130,000
-------------------------------------------------------------------
1,500 Lilly (Eli) & Co. 112,125
-------------------------------------------------------------------
4,100 Merck & Co., Inc. 175,788
-------------------------------------------------------------------
4,000 Mylan Laboratories, Inc. 123,000
------------------------------------------------------------------- -----------
Total 999,144
------------------------------------------------------------------- -----------
</TABLE>
5
CAPITAL GROWTH FUND
- ---------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- ------------------------------------------------------------------- -----------
<C> <S> <C>
COMMON STOCKS--CONTINUED
- ---------------------------------------------------------------------------------
INDUSTRIAL SERVICES--6.9%
-------------------------------------------------------------------
59,700 (b) Chambers Development, Inc., Class A $ 335,812
-------------------------------------------------------------------
2,500 (b) Coflexip, ADR 75,430
-------------------------------------------------------------------
17,400 (b) Kenetech Corp. 187,050
-------------------------------------------------------------------
3,500 (b) Western Atlas, Inc. 157,500
------------------------------------------------------------------- -----------
Total 755,792
------------------------------------------------------------------- -----------
NON-ENERGY MINERALS--3.0%
-------------------------------------------------------------------
6,000 (b) AK Steel Holding Corp. 161,250
-------------------------------------------------------------------
10,000 (b) Magma Copper Co. 167,500
------------------------------------------------------------------- -----------
Total 328,750
------------------------------------------------------------------- -----------
PROCESS INDUSTRIES--2.4%
-------------------------------------------------------------------
2,000 Champion International Corp. 88,000
-------------------------------------------------------------------
7,200 Praxair, Inc. 171,000
------------------------------------------------------------------- -----------
Total 259,000
------------------------------------------------------------------- -----------
PRODUCER MANUFACTURING--4.9%
-------------------------------------------------------------------
1,700 Dover Corp. 110,500
-------------------------------------------------------------------
7,000 Greenfield Industries, Inc. 206,500
-------------------------------------------------------------------
2,900 Magna International, Inc., Class A 100,412
-------------------------------------------------------------------
2,200 (b) Thermo Electron Corp. 118,525
------------------------------------------------------------------- -----------
Total 535,937
------------------------------------------------------------------- -----------
RETAIL TRADE--5.0%
-------------------------------------------------------------------
4,500 Premark International, Inc. 217,125
-------------------------------------------------------------------
5,500 (b) Safeway, Inc. 206,250
-------------------------------------------------------------------
</TABLE>
6
CAPITAL GROWTH FUND
- ---------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
SHARES VALUE
- ----------- ------------------------------------------------------------------- -----------
COMMON STOCKS--CONTINUED
<C> <S> <C>
- ---------------------------------------------------------------------------------
RETAIL TRADE--CONTINUED
-------------------------------------------------------------------
5,000 Wal-Mart Stores, Inc. $ 118,750
------------------------------------------------------------------- -----------
Total 542,125
------------------------------------------------------------------- -----------
TRANSPORTATION--2.6%
-------------------------------------------------------------------
2,800 AMR Corp. 188,650
-------------------------------------------------------------------
3,100 KLM Royal Dutch Airlines, ADR 94,550
------------------------------------------------------------------- -----------
Total 283,200
------------------------------------------------------------------- -----------
UTILITIES--3.2%
-------------------------------------------------------------------
5,000 MCI Communications Corp. 108,750
-------------------------------------------------------------------
8,000 Sonat, Inc. 243,000
------------------------------------------------------------------- -----------
Total 351,750
------------------------------------------------------------------- -----------
TOTAL COMMON STOCKS (IDENTIFIED COST $7,742,845) 8,552,648
------------------------------------------------------------------- -----------
CONVERTIBLE SECURITIES--10.6%
- ---------------------------------------------------------------------------------
ELECTRONIC TECHNOLOGY--1.0%
-------------------------------------------------------------------
$ 70,000 General Instrument Corp., Conv. Jr. Sub. Note, 5.00%, 6/15/2000 104,431
------------------------------------------------------------------- -----------
FINANCE--3.8%
-------------------------------------------------------------------
5,000 First USA, Inc., PRIDES, $1.99 193,125
-------------------------------------------------------------------
5,000 Sunamerica, Inc., Conv. Pfd., Series D, $2.78 223,125
------------------------------------------------------------------- -----------
Total 416,250
------------------------------------------------------------------- -----------
HEALTH TECHNOLOGY--1.7%
-------------------------------------------------------------------
$500,000 (a) Roche Holdings, Inc., Conv. LYON, 4/20/2010 188,125
------------------------------------------------------------------- -----------
INDUSTRIAL SERVICES--1.5%
-------------------------------------------------------------------
$150,000 Laidlaw, Inc., Conv. Deb., 6.00%, 1/15/1999 164,346
------------------------------------------------------------------- -----------
NON-ENERGY MINERALS--2.6%
-------------------------------------------------------------------
$290,000 Medusa Corp., Conv. Sub. Note, 6.00%, 11/15/2003 281,300
------------------------------------------------------------------- -----------
TOTAL CONVERTIBLE SECURITIES (IDENTIFIED COST $1,076,953) 1,154,452
------------------------------------------------------------------- -----------
</TABLE>
7
CAPITAL GROWTH FUND
- ---------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------------------------------------------------------------- -----------
<C> <S> <C>
*REPURCHASE AGREEMENT--7.0%
- ---------------------------------------------------------------------------------
$765,000 J.P. Morgan Securities, Inc., 5.97%, dated 4/28/1995, due 5/1/1995
(at amortized cost) $ 765,000
------------------------------------------------------------------- -----------
TOTAL INVESTMENTS (IDENTIFIED COST $9,584,798)(C) $10,472,100
------------------------------------------------------------------- -----------
-----------
<FN>
* 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.
(a) Denotes a restricted security which is subject to resale under Federal
Securities laws. These securities have been determined to be liquid under
the criteria established by the Board of Trustees.
(b) Non-income producing.
(c) The cost of investments for federal tax purposes amounts to $9,584,798.
The net unrealized appreciation on a federal tax cost basis amounts to
$887,302, and is comprised of $1,080,205 appreciation and $192,903
depreciation at April 30, 1995.
Note: The categories of investments are shown as a percentage of net assets
($10,932,577) at April 30, 1995.
</TABLE>
The following abbreviations are used in this portfolio:
<TABLE>
<S> <C>
ADR --American Depository Receipts
LYON --Liquid Yield Option Note
PLC --Public Limited Company
PRIDES --Preferred Redeemable Increased Dividend Equity Securities
</TABLE>
(See Notes which are an integral part of the Financial Statements)
8
CAPITAL GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ------------------------------------------------------------------
Investments in securities, at value (identified and tax
cost $9,584,798) $10,472,100
- ------------------------------------------------------------------
Cash 23,645
- ------------------------------------------------------------------
Income Receivable 18,966
- ------------------------------------------------------------------
Receivable for investments sold 593,747
- ------------------------------------------------------------------
Receivable for shares sold 3,608
- ------------------------------------------------------------------ -----------
Total assets 11,112,066
- ------------------------------------------------------------------
LIABILITIES:
- ------------------------------------------------------------------
Payable for investments purchased $118,800
- -------------------------------------------------------
Payable for shares redeemed 20,335
- -------------------------------------------------------
Accrued expenses 40,354
- ------------------------------------------------------- --------
Total liabilities 179,489
- ------------------------------------------------------------------ -----------
NET ASSETS for 901,139 shares outstanding $10,932,577
- ------------------------------------------------------------------ -----------
-----------
NET ASSETS CONSIST OF:
- ------------------------------------------------------------------
Paid-in capital $ 9,429,127
- ------------------------------------------------------------------
Net unrealized appreciation (depreciation) of
investments 887,302
- ------------------------------------------------------------------
Accumulated net realized gain (loss) on investments 613,619
- ------------------------------------------------------------------
Undistributed net investment income 2,529
- ------------------------------------------------------------------ -----------
Total Net Assets $10,932,577
- ------------------------------------------------------------------ -----------
-----------
NET ASSET VALUE:
- ------------------------------------------------------------------
Class A Shares ($9,766,478 DIVIDED BY 804,941 shares
outstanding) $ 12.13
- ------------------------------------------------------------------ -----------
-----------
Class C Shares ($1,166,099 DIVIDED BY 96,198 shares
outstanding) $ 12.12
- ------------------------------------------------------------------ -----------
-----------
COMPUTATION OF OFFERING PRICE:
- ------------------------------------------------------------------
Class A Shares (100/94.50 of $12.13)* $ 12.84
- ------------------------------------------------------------------ -----------
-----------
Class C Shares $ 12.12
- ------------------------------------------------------------------ -----------
-----------
COMPUTATION OF PROCEEDS ON REDEMPTION:
- ------------------------------------------------------------------
Class A Shares $ 12.13
- ------------------------------------------------------------------ -----------
-----------
Class C Shares (99/100 of $12.12)** $ 12.00
- ------------------------------------------------------------------ -----------
-----------
<FN>
* See "What Shares Cost" in the prospectus.
** See "Redeeming Shares" in the prospectus.
</TABLE>
(See Notes which are an integral part of the Financial Statements)
9
CAPITAL GROWTH FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------
Interest $ 90,606
- ---------------------------------------------------------------------
Dividends 63,222
- --------------------------------------------------------------------- --------
Total income 153,828
- ---------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------
Investment advisory fee $ 34,024
- ----------------------------------------------------------
Directors'/Trustees' fees 2,071
- ----------------------------------------------------------
Administrative personnel and services fees 79,657
- ----------------------------------------------------------
Custodian and portfolio accounting fees 31,797
- ----------------------------------------------------------
Shareholder services fees--Class A Shares 10,770
- ----------------------------------------------------------
Shareholder services fees--Class C Shares 1,346
- ----------------------------------------------------------
Distribution services fees--Class A Shares 11,718
- ----------------------------------------------------------
Distribution services fees--Class C Shares 4,039
- ----------------------------------------------------------
Transfer agent and dividend disbursing agent
fees and expenses 32,412
- ----------------------------------------------------------
Share registration costs 14,269
- ----------------------------------------------------------
Auditing fees 5,955
- ----------------------------------------------------------
Legal fees 4,798
- ----------------------------------------------------------
Printing and postage 34,508
- ----------------------------------------------------------
Insurance premiums 2,798
- ----------------------------------------------------------
Taxes 1,721
- ----------------------------------------------------------
Miscellaneous 4,851
- ---------------------------------------------------------- --------
Total expenses 276,734
- ----------------------------------------------------------
Deduct--
- ----------------------------------------------------------
Waiver of investment advisory fees $ 34,024
- -----------------------------------------------
Waiver of distribution services fees--Class A
Shares 9,379
- -----------------------------------------------
Waiver of shareholder services fee--Class A
Shares 1,391
- -----------------------------------------------
Waiver of shareholder services fee--Class C
Shares 249
- -----------------------------------------------
Reimbursement of other operating expenses 162,576 207,619
- ----------------------------------------------- -------- --------
Net expenses 69,115
- --------------------------------------------------------------------- --------
Net investment income 84,713
- --------------------------------------------------------------------- --------
--------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
- ---------------------------------------------------------------------
Net realized gain (loss) on investment 603,712
- ---------------------------------------------------------------------
Net change in unrealized appreciation
(depreciation) on investments 134,264
- --------------------------------------------------------------------- --------
Net realized and unrealized gain (loss) on
investments 737,976
- --------------------------------------------------------------------- --------
Change in net assets resulting from
operations $822,689
- --------------------------------------------------------------------- --------
--------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
10
CAPITAL GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
APRIL 30, YEAR ENDED
1995 OCTOBER 31,
(UNAUDITED) 1994
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ---------------------------------------------------------------------------
OPERATIONS--
- ---------------------------------------------------------------------------
Net investment income $ 84,713 $ 227,207
- ---------------------------------------------------------------------------
Net realized gain (loss) on investment ($603,712 net gain and $1,150,835
net gain, respectively, as computed for federal income tax purposes) 603,712 1,057,990
- ---------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments 134,264 (3,347,016)
- --------------------------------------------------------------------------- ------------ ------------
Change in net assets resulting from operations 822,689 (2,061,819)
- --------------------------------------------------------------------------- ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ---------------------------------------------------------------------------
Distributions from net investment income:
- ---------------------------------------------------------------------------
Investment Shares -- (127,805)
- ---------------------------------------------------------------------------
Class A Shares (81,008) (103,720)
- ---------------------------------------------------------------------------
Class C Shares (5,407) (2,570)
- ---------------------------------------------------------------------------
Distributions from net realized gains:
- ---------------------------------------------------------------------------
Investment Shares -- (705,563)
- ---------------------------------------------------------------------------
Class A Shares (1,288) (686,918)
- ---------------------------------------------------------------------------
Class C Shares (141) (60,511)
- --------------------------------------------------------------------------- ------------ ------------
Change in net assets resulting from distributions to shareholders (87,844) (1,687,087)
- --------------------------------------------------------------------------- ------------ ------------
SHARE TRANSACTIONS--
- ---------------------------------------------------------------------------
Proceeds from sale of Shares 808,536 6,385,862
- ---------------------------------------------------------------------------
Net asset value of Shares issued to shareholders in payment of
distributions declared 73,756 1,544,956
- ---------------------------------------------------------------------------
Cost of Shares redeemed (1,628,064) (19,997,291)
- --------------------------------------------------------------------------- ------------ ------------
Change in net assets resulting from Share transactions (745,772) (12,066,473)
- --------------------------------------------------------------------------- ------------ ------------
Change in net assets (10,927) (15,815,379)
- ---------------------------------------------------------------------------
NET ASSETS:
- ---------------------------------------------------------------------------
Beginning of period 10,943,504 26,758,883
- --------------------------------------------------------------------------- ------------ ------------
End of period (including undistributed net investment income of $2,529 and
$4,230, respectively) $10,932,577 $10,943,504
- --------------------------------------------------------------------------- ------------ ------------
------------ ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
11
CAPITAL GROWTH FUND
FINANCIAL HIGHLIGHTS--CLASS A SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
SIX MONTHS ENDED OCTOBER 31,
APRIL 30, 1995 ------------------------------------------------------
(UNAUDITED) 1994 1993 1992(a)
---------------- -------- -------- ----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.31 $13.38 $ 11.84 $12.00
- ----------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------
Net investment income 0.10 0.12 0.09 0.11
- ----------------------------------------
Net realized and unrealized gain
(loss) on investments 0.82 (1.25) 1.71 (0.18)
- ---------------------------------------- ------ ------ ------ ------
Total from investment operations 0.92 (1.13) 1.80 (0.07)
- ---------------------------------------- ------ ------ ------ ------
LESS DISTRIBUTIONS
- ----------------------------------------
Distributions from net investment
income (0.10) (0.12) (0.10) (0.09)
- ----------------------------------------
Distributions from net realized gain
on investment transactions (0.00) (0.82) (0.16) --
- ---------------------------------------- ------ ------ ------ ------
Total distributions (0.10) (0.94) (0.26) (0.09)
- ---------------------------------------- ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $12.13 $11.31 $ 13.38 $11.84
- ---------------------------------------- ------ ------ ------ ------
------ ------ ------ ------
Total Return (b) 8.22% (8.43%) 15.34% (0.61%)
- ----------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------
Expenses 1.25%(c) 1.25% 1.25% 1.17%(c)
- ----------------------------------------
Net investment income 1.69%(c) 1.00% 0.73% 1.19%(c)
- ----------------------------------------
Expense waiver/reimbursement (d) 3.99%(c) 2.79% 2.37% 1.33%(c)
- ----------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------
Net assets, end of period (000
omitted) $9,766 $9,880 $11,609 $6,540
- ----------------------------------------
Portfolio turnover 78% 86% 74% 29%
- ----------------------------------------
<FN>
(a) Reflects operations for the period from January 16, 1992 (date of inital
public investment) to October 31, 1992.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) Computed on an annualized basis.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
</TABLE>
(See Notes which are an integral part of the Financial Statements)
12
CAPITAL GROWTH FUND
FINANCIAL HIGHLIGHTS--CLASS C SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
SIX MONTHS ENDED OCTOBER 31,
APRIL 30, 1995 -----------------------------------
(UNAUDITED) 1994 1993(a)
---------------- -------- ----------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.31 $13.36 $12.39
- ----------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------
Net investment income 0.05 0.04 (0.01)
- ----------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.82 (1.23) 0.98
- ---------------------------------------------------------------------- ------ ------ ------
Total from investment operations 0.87 (1.19) 0.97
- ---------------------------------------------------------------------- ------ ------ ------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------
Distributions from net investment income (0.06) (0.04) --
- ----------------------------------------------------------------------
Distributions from net realized gain on investment transactions (0.00) (0.82) --
- ---------------------------------------------------------------------- ------ ------ ------
Total distributions (0.06) (0.86) --
- ---------------------------------------------------------------------- ------ ------ ------
NET ASSET VALUE, END OF PERIOD $12.12 $11.31 $13.36
- ---------------------------------------------------------------------- ------ ------ ------
------ ------ ------
Total Return (b) 7.75% (8.90%) 7.83%
- ----------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------
Expenses 1.95%(c) 2.00% 2.00%(c)
- ----------------------------------------------------------------------
Net investment income 0.97%(c) 0.35% (0.18%)(c)
- ----------------------------------------------------------------------
Expense waiver/reimbursement (d) 3.81%(c) 2.73% 2.37%(c)
- ----------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------
Net assets, end of period (000 omitted) $1,166 $1,049 $314
- ----------------------------------------------------------------------
Portfolio Turnover 78% 86% 74%
- ----------------------------------------------------------------------
<FN>
(a) Reflects operations for the period from April 13, 1993 (date of inital
public investment) to October 31, 1993.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) Computed on an annualized basis.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
</TABLE>
(See Notes which are an integral part of the Financial Statements)
13
CAPITAL GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Investment Series Funds, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as an open-end,
diversified management investment company. The Corporation consists of two
portfolios. The financial statements included herein present only those of
Capital Growth Fund (the "Fund"). The financial statements of the other
portfolio 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.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principals.
INVESTMENT VALUATIONS--Listed corporate bonds (and other fixed income and
asset-backed securities), unlisted securities, and short-term obligations
and private placement securities are generally valued at the prices provided
by an independent pricing service. Listed equity securities are valued at
the last sale price reported on national securities exchanges. Short-term
securities with remaining maturities of sixty days or less at the time of
purchase may be stated at amortized cost, which approximates value.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS--It is the policy of the Fund
to require the custodian bank or broker 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 and reverse repurchase agreement investments. Additionally,
procedures have been established by the Fund to monitor, on a daily basis,
the market value of each repurchase agreement's collateral to ensure that
the value of collateral at least equals the repurchase price to be paid
under the repurchase agreement transaction.
The Fund is also permitted to enter into reverse repurchase agreements, in
which the Fund sells U.S. government securities to financial institutions
and agrees to repurchase the securities at an agreed upon price and date.
The Fund will only enter into repurchase and reverse 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 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 these agreements. Accordingly, the
Fund could receive less than the repurchase price on the sale of collateral
securities.
14
CAPITAL GROWTH FUND
- ---------------------------------------------------------
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS--Dividend income and
distributions to shareholders are recorded on the ex-dividend date. 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").
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
RESTRICTED SECURITIES--Restricted securities are securities that may only be
resold upon registration under federal securities laws or in transactions
exempt from such registration. In some cases, the issuer of restricted
securities has agreed to register such securities for resale, at the
issuer's expense either upon demand by the Fund or in connection with
another registered offering of the securities. Many restricted securities
may be resold in the secondary market in transactions exempt from
registration. Such restricted securities may be determined to be liquid
under criteria established by the 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 April 30, 1995 is as follows:
<TABLE>
<CAPTION>
ACQUISITION ACQUISITION
SECURITY DATE COST
---------------------- ----------- -----------
<S> <C> <C>
Roche Holdings, Inc. 4/12/95 $ 178,140
</TABLE>
OTHER--Investment transactions are accounted for on the trade date.
15
CAPITAL GROWTH FUND
- ---------------------------------------------------------
(3) CAPITAL STOCK
At April 30, 1995, there were 1,000,000,000 shares ($0.0001 par value per share)
of capital stock authorized. Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED
DECEMBER 9, 1994 OCTOBER 31, 1994
------------------------ ------------------------
SHARES DOLLARS SHARES DOLLARS
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
INVESTMENT SHARES
- ---------------------------------------------
Shares sold -- $-- 225,412 $ 2,857,810
- ---------------------------------------------
Shares issued to shareholders in payment of
distributions declared -- -- 71,899 833,031
- ---------------------------------------------
Shares redeemed (1,315) (14,630) (1,404,546) (16,634,524)
- --------------------------------------------- ---------- ------------ ---------- ------------
Net change resulting from Investment Shares
transactions (1,315) ($14,630) (1,107,235) ($12,943,683)
- --------------------------------------------- ---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1995 OCTOBER 31, 1994
------------------------ ------------------------
SHARES DOLLARS SHARES DOLLARS
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
CLASS A SHARES
- ---------------------------------------------
Shares sold 2,668,411 $668,700 202,913 $ 2,577,402
- ---------------------------------------------
Shares issued to shareholders in payment of
distributions declared 6,402 69,231 57,557 660,838
- ---------------------------------------------
Shares redeemed (2,743,395) (1,504,906) (254,546) (3,225,286)
- --------------------------------------------- ---------- ------------ ---------- ------------
Net change resulting from Class A Shares
transactions (68,582) ($766,975) 5,924 $ 12,954
- --------------------------------------------- ---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1995 OCTOBER 31, 1994
------------------------ ------------------------
SHARES DOLLARS SHARES DOLLARS
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
CLASS C SHARES
- ---------------------------------------------
Shares sold 13,208 $149,732 75,971 $ 950,649
- ---------------------------------------------
Shares issued to shareholders in payment of
distributions declared 421 4,524 4,583 51,087
- ---------------------------------------------
Shares redeemed (10,191) (118,424) (11,270) (137,481)
- --------------------------------------------- ---------- ------------ ---------- ------------
Net change resulting from Class C Shares
transactions 3,438 $ 35,832 69,284 $ 864,255
- --------------------------------------------- ---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
Net change resulting from share
transactions (66,459) ($745,773) (1,032,027) ($12,066,474)
- --------------------------------------------- ---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
</TABLE>
16
CAPITAL GROWTH FUND
- ---------------------------------------------------------
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Advisers, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal
to: (a) a maximum of 0.55 of 1% of the average daily net assets of the Fund, and
(b) 4.5% of the gross income of the Fund, excluding capital gains or losses. The
Adviser may voluntarily choose to waive a portion of its fee and to reimburse
certain operating expenses of the Fund. The Adviser can modify or terminate this
voluntary waiver and reimbursement at any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The FAS fee is based on the level of average aggregate
daily net assets of all funds advised by subsidiaries of Federated Investors for
the period. The administrative fee received during the period of the
Administrative Services Agreement shall be at least $125,000 per portfolio and
$30,000 per each additional class of shares.
DISTRIBUTION AND SHAREHOLDER SERVICES FEE--The Fund has adopted a Distribution
Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the
Plan, the Fund will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended to
result in the sale of the Fund's Class A Shares and Class C Shares. The Plan
provides that the Fund may incur distribution expenses up to .25 of 1% and .75
of 1% of the average daily net assets of the Class A Shares and Class C Shares,
respectively, annually, to compensate FSC.
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services ("FSS"), the Fund will pay FSS up to .25 of 1% of average daily net
assets of the Fund for the period. This fee is incurred to obtain certain
services for shareholders and to maintain shareholder accounts.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated
Services Company serves as transfer and dividend disbursing agent for the Fund.
The fee is based on the size, type, and number of accounts and transactions made
by shareholders.
Certain of the Officers and Directors of the Fund are Officers and Directors or
Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the six
months ended April 30, 1995, were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
<S> <C>
PURCHASES $7,493,711
- ---------------------------------------------------------------------- ----------
SALES $8,832,372
- ---------------------------------------------------------------------- ----------
</TABLE>
17
<TABLE>
<CAPTION>
DIRECTORS OFFICERS
- ---------------------------------------------------------
<S> <C>
John F. Donahue John F. Donahue
John T. Conroy, Jr. CHAIRMAN
William J. Copeland J. Christopher Donahue
J. Christopher Donahue PRESIDENT
James E. Dowd Richard B. Fisher
Lawrence D. Ellis, M.D. VICE PRESIDENT
Edward L. Flaherty, Jr. Edward C. Gonzales
Peter E. Madden VICE PRESIDENT AND TREASURER
Gregor F. Meyer John W. McGonigle
John E. Murray, Jr. VICE PRESIDENT AND SECRETARY
Wesley W. Posvar David M. Taylor
Marjorie P. Smuts ASSISTANT TREASURER
Robert C. Rosselot
ASSISTANT SECRETARY
</TABLE>
Mutual funds are not bank deposits or obligations, are not
guaranteed by any bank, and are not insured or guaranteed by the
U.S. government, the Federal Deposit Insurance Corporation, the
Federal Reserve Board, or any other government agency. Investment
in mutual funds involves investment risk, including possible loss
of principal.
This report is authorized for distribution to prospective
investors only when preceded or accompanied by the Fund's
prospectus which contains facts concerning its objective and
policies, management fees, expenses and other information.
18
- --------------------------------------------------------------------------------
CAPITAL
- --------------------------------------------------------------------------------
GROWTH
- --------------------------------------------------------------------------------
FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
APRIL 30, 1995
[LOGO] ----------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS -----------------------------------
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779 ---------------------------------------------
[LOGO]
RECYCLED
PAPER
0072503 (6/95) ------------------------------
A1. The graphic presentation here displayed consists of a boxed legend
in the upper left quadrant indicating the components of the
corresponding mountain chart. The color coded mountain chart is a visual
representation of the narrative text above it. The "x" axis reflects
computation periods from 5/20/87 to 4/30/95. The "y" axis is measured in
increments of $5,000 ranging from $0 to $20,000 and indicates that the
ending value of hypothetical initial investment of $8,000 in the Fund,
assuming the reinvestment of capital gains and dividends,would have
grown to $16,639 on 4/30/95.
A2. The graphic presentation here displayed consists of a boxed legend
in the upper left quadrant indicating the components of the
corresponding mountain chart. The color coded mountain chart is a
visual representation of the narrative text above it. The "x" axis
reflects computation periods from 5/20/87 to 4/30/95. The "y" axis is
measured in increments of $2,500 ranging from $0 to $15,000 and
indicates that the ending value of hypothetical yearly investments of
$1,000 in the Fund, assuming the reinvestment of capital gains and
dividends,would have grown to $12,664 on 4/30/95.
A3. The graphic presentation here displayed consists of a boxed legend
in the upper left quadrant indicating the components of the
corresponding mountain chart. The color-coded mountain chart is a
visual representation of the narrative text beneath it. The "x" axis
reflects computation periods from 3/31/80 to 3/31/95. The "y" axis is
measured in increments of $5,000 ranging from $0 to $50,000 and
indicates that the ending value of a hypothetical initial investment of
$20,000 on 5/20/87 would have grown to $41,599 on 4/30/95.
