Federated
Bond
Fund
[Graphic]
9TH SEMI-ANNUAL REPORT
APRIL 30, 1996
ESTABLISHED 1987
INCOME
President's Message
Dear Shareholder:
I am pleased to present the ninth Semi-Annual Report for Federated
Bond Fund, which covers the six-month period from November 1, 1995,
through April 30, 1996. The report contains an interview with Joseph
Balestrino, Vice President, Federated Advisers. Joe details both the
corporate market and recent activity in the fund's portfolio. Also
included are a series of investment performance charts, and a complete
listing of the fund's holdings. The fund's comprehensive financial
statements and the fund's Financial Highlights are also published.
The year 1995 is history. The good performance that lower interest
rates gave all bond holders and bond managers is just a memory. In
1996, we have experienced rising interest rates and quickly enacted a
reminder that holding bonds and managing a bond fund is not easy. It
is hard work quite like we experienced in 1994.
Federated Bond Fund is managed for as high a level of current income
as is consistent with preservation of capital. Fund managers seek to
outperform the bond market in both favorable and unfavorable economic
climates. The performance of the fund's share classes during the
period ended April 30, 1996 - which, like all bonds, was impacted by a
very negative first quarter of 1996 - is shown below.*
<TABLE>
<CAPTION>
TOTAL RETURN INCOME
BASED ON NAV DISTRIBUTIONS
<S> <C> <C>
Class A Shares 0.80% $0.36
Class B Shares 0.52% $0.33
Class C Shares 0.51% $0.32
Class F Shares 0.78% $0.36
</TABLE>
The fund's portfolio of corporate bonds reflects an emphasis on
diversification and quality issues. Holdings are extremely well
diversified across more than 240 bonds. More than 80% of the holdings
are investment-grade bonds, while the remaining assets are invested in
high-yield bonds. Many of the fund's corporate holdings are well-known
companies like Chrysler, Dr. Pepper, Owens-Illinois, Harvard
University, Merrill Lynch, Pathmark, AMF, and J. C. Penney. At this
particular time in the business cycle, we like these quality issues
for the long term.
* Performance quoted reflects 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. Total
returns for the six-month period ended April 30, 1996 based on
offering price for Class A Shares, Class B Shares, Class C Shares, and
Class F Shares were -3.74%, -4.99%, -0.44%, and -1.19%, respectively.
You will be pleased to know that as of April 30, 1996, the fund
continued to maintain a five-star rating from Morningstar, an
independent mutual fund rating service.** This rating was based on a
comparison against 844 funds in the fixed-income category. Since that
time, the bond market ranged from a very strong 1995 to, most
recently, a negative first quarter of 1996 - the worst quarter for
bonds since the third quarter of 1987.
Thank you for your continued confidence in Federated Bond Fund. I
encourage you to reinvest your dividends automatically. It's a
convenient way to increase your opportunity to participate in an
exceptionally well diversified, professionally managed bond
investment.
As always, we welcome your comments, questions and suggestions.
Sincerely,
J. Christopher Donahue
President
June 17, 1996
** Morningstar is an independent fund rating service which uses a
five-star system to measure risk adjusted total return. Five stars,
which is the highest ranking, means the fund rated in the top 10% of
all investment companies. Ratings are based on past performance and
are subject to change every two weeks. For the five-year period ended
April 30, 1996, the fund received a five-star rating; there are 448
funds in this category. For the three-year period ended April 30,
1996, the fund received a four-star rating; there are 844 funds in
this category.
Investment Review
Joseph M. Balestrino
Vice President
Federated Advisers
JOE, PLEASE COMMENT ON THE BOND MARKET DURING THE SIX-MONTH PERIOD
ENDED APRIL 30, 1996.
For the six-month period ended April 30, 1996, the bond market
experienced a complete reversal in investor psychology versus calendar
year-end 1995, when interest rates were falling as the economy
appeared to be in a slowdown mode. The first quarter of 1996 generated
stronger-than-expected economic growth; as a result, interest rates
reversed course and rose significantly across the yield curve. For the
six months in total, interest rates increased within a general range
of 40-65 basis points depending on the specific maturity.
HOW DID FEDERATED BOND FUND PERFORM DURING THIS PERIOD? HOW HAS THE
FUND BEEN PERFORMING COMPARED TO ALL BBB RATED BOND FUNDS TRACKED BY
LIPPER ANALYTICAL SERVICES?
Consistent with bond market volatility, the fund's Class A Shares
produced a total return of 0.80% based on net asset value.* For the
year-to-date (ending April 30, 1996), the fund's Class A Shares total
return was -2.45% compared to -3.34% for the Lipper Corporate BBB
Rated Bond Funds category.**
THE FUND'S INCOME DISTRIBUTIONS ARE AN IMPORTANT SOURCE OF CASH FLOW
TO MANY SHAREHOLDERS. WHAT WERE THE FUND'S YIELDS BASED ON NET ASSET
VALUE ON THE LAST DAY OF THE REPORTING PERIOD?
As of April 30, 1996, the fund's daily distribution yield was 7.47%
(Class A Shares) compared to the 10-year Treasury rate which was 6.67%
on that same day. The fund's distribution yields for Class B Shares,
Class C Shares, and Class F Shares were 6.58%, 6.58%, and 7.34%,
respectively. The fund's SEC 30-day yields for Class A Shares, Class B
Shares, Class C Shares, and Class F Shares were 7.53%, 6.70%, 6.70%,
and 7.50%, respectively.
* Performance quoted reflects 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. Total
return for the six-month period ended April 30, 1996, based on
offering price for Class A Shares was -3.74%. Total returns based on
net asset value and offering price for Class B Shares, Class C Shares,
and Class F Shares were 0.52% and -4.99%, 0.51% and -0.44%, and 0.78%
and -1.19%, respectively.
** Lipper averages do not include the effect of sales charges.
IN THE FUND'S PREVIOUS REPORT, YOU DISCUSSED AN EXTENSION OF THE
FUND'S AVERAGE MATURITY AND EMPHASIZED PORTFOLIO QUALITY AS KEY
STRATEGIES FOR A SLOWER ECONOMIC GROWTH ENVIRONMENT. ARE THESE
STRATEGIES STILL IN PLACE?
Throughout most of 1995, the fund extended its average maturity and
overall quality characteristics. The economy is currently in its sixth
consecutive year of expansion. While corporate earnings grew in the
first quarter of 1996, the rate of growth was much less robust than
over the past several years. With the more recent economic statistical
releases, it appears as though the economy is exhibiting pockets of
both strength and weakness. In this environment, the fund has
maintained its higher quality position. With respect to average
maturity, a slower economic environment would argue for a slightly
longer maturity position. Thus, the fund has modestly lengthened to
approximately 11.8 years average effective maturity on April 30, 1996.
WHILE THE FUND FOCUSES ON INVESTMENT GRADE BONDS, WHAT IS YOUR
ALLOCATION BETWEEN INVESTMENT GRADE AND HIGH-YIELD BONDS BASED ON YOUR
OUTLOOK FOR THE ECONOMY?
Consistent with the answer to the previous question, we view the
economy as currently sending mixed economic signals. The fund
deliberately upgraded overall quality during 1995, starting the year
with nearly 35% of assets in lower quality high yield bonds, and
ending on April 30, 1996, with approximately 21% in high yield bonds.
The fund's average quality upgrading largely took place during
calendar year 1995 and maintained in the low 20% area over the initial
four months of 1996. Generally speaking, 80% of fund assets are in the
high-quality investment grade categories; we do not anticipate
significant near-term changes to portfolio quality. We like quality
issues for the short and long term.
TWO WAYS YOU MAY SEEK TO INVEST FOR SUCCESS IN
FEDERATED BOND FUND
INITIAL INVESTMENT:
IF YOU HAD MADE AN INITIAL INVESTMENT OF $9,000 IN THE CLASS F SHARES
OF FEDERATED BOND FUND* ON 5/20/87, REINVESTED DIVIDENDS AND CAPITAL
GAINS, AND DID NOT REDEEM ANY SHARES, YOUR ACCOUNT WOULD BE WORTH
$20,482 ON 4/30/96. YOU WOULD HAVE EARNED A 9.62%** AVERAGE ANNUAL
TOTAL RETURN FOR THE 9-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 4/30/96, the Class A Shares' total return since inception on
6/28/95 was 0.72%. Class B Shares' total return since inception on
6/28/95 was (0.89)%. Class C Shares' total return since inception on
6/28/95 was 3.79%. Class F Shares' average annual one-year, five-year
and since inception on 5/20/87 total returns were 10.05%, 12.74% and
9.80%, respectively.***
See 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 not less than
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 1.00% sales charge and 1.00% contingent deferred sales charge.
*** The total returns stated take into account the 4.50% sales charge for
Class A Shares, the 5.50% contingent deferred sales charge for Class B
Shares, the 1.00% contingent deferred sales charge for Class C Shares,
the 1.00% sales charge and 1.00% contingent deferred sales charge for
Class F Shares.
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, may be worth more or less than their
original costs.
FEDERATED BOND FUND
ONE STEP AT A TIME:
$1,000 INVESTED EACH YEAR FOR 9 YEARS (REINVESTING ALL DIVIDENDS AND
CAPITAL GAINS) GREW TO $14,911.
With this approach, the key is consistency.
If you had started investing $1,000 annually in the Class F Shares of
Federated Bond Fund on 5/20/87, reinvested your dividends and capital
gains, and did not redeem any shares, you would have invested only
$9,000, but your account would have reached a total value of $14,911
by 4/30/96. You would have earned an average annual total return of
10.06%.*
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 Appendix A.2
* 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.
FEDERATED 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. Joan is a school teacher. On May 20, 1987, the Wickers invested
$20,000 in Class F Shares in Federated Bond Fund.
As this chart shows, over nine years their original investment in
Class F Shares has grown to $45,516. This represents a 9.62% average
annual total return.* For John and Joan, that means extra money to
supplement their daughter's college tuition.
See 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.
FEDERATED BOND FUND
PORTFOLIO OF INVESTMENTS
APRIL 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS - 82.7%
AEROSPACE & DEFENSE - 0.8%
$ 2,250,000 McDonnell-Douglas Corp., Note, 9.40%, 10/15/2001 $ 2,423,385
500,000 Tracor, Inc., Sr. Sub. Note, 10.875%, 8/15/2001 527,500
Total 2,950,885
AUTOMOTIVE - 2.1%
500,000 Aftermarket Technology Co., Sr. Sub. Note, 12.00%, 8/1/2004 535,000
4,050,000 Chrysler Corp., Deb., 12.00%, 5/1/2020 5,850,792
250,000 Exide Corp., Sr. Note, 10.00%, 4/15/2005 256,250
500,000 Lear Seating Corp., Sub. Note, 8.25%, 2/1/2002 480,625
500,000 Motor Wheel Corp., Sr. Note, 11.50%, 3/1/2000 531,250
Total 7,653,917
BANKING - 7.5%
2,000,000 African Development Bank, Note, 6.875%, 10/15/2015 1,872,520
3,000,000 Banco Santander, Bank Guarantee, 7.875%, 4/15/2005 3,100,620
3,000,000 Bank of Montreal, Sub. Note, 7.80%, 4/1/2007 3,103,830
4,700,000 Bayerische Landesbank-NY, Note, 6.20%, 2/9/2006 4,373,021
2,750,000 Crestar Financial Corp., Sub. Note, 8.75%, 11/15/2004 2,998,737
5,250,000 Export-Import Bank Korea, Sr. Unsub., 6.375%, 2/15/2006 4,893,068
500,000 First Nationwide Holdings, Inc., Sr. Note, 12.25%, 5/15/2001 546,250
475,000 (a) First Nationwide Holdings, Inc., Sr. Note, 12.50%, 4/15/2003 486,875
3,000,000 FirstBank Puerto Rico, Sub. Note, 7.625%, 12/20/2005 2,910,000
2,250,000 National Bank of Canada, Montreal, Sub. Note, 8.125%, 8/15/2004 2,351,070
Total 26,635,991
BEVERAGE & TOBACCO - 0.6%
575,000 Dr. Pepper Bottling Holdings Co., Sr. Disc. Note, 0/11.625%,
2/15/2003 488,750
1,750,000 RJR Nabisco, Inc., Note, 9.25%, 8/15/2013 1,730,663
Total 2,219,413
</TABLE>
FEDERATED BOND FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS - CONTINUED
BROADCAST RADIO & TV - 1.7%
$ 500,000 Allbritton Communication Co., Sr. Sub. Note, 11.50%, 8/15/2004 $ 522,500
500,000 Argyle Television, Inc., Sr. Sub. Note, 9.75%, 11/1/2005 485,000
375,000 Chancellor Broadcasting Co., Sr. Sub. Note, 12.50%, 10/1/2004 412,500
500,000 Granite Broadcasting Corp., Sr. Sub. Note, 10.375%, 5/15/2005 501,250
100,000 (a) Granite Broadcasting Corp., Sr. Sub. Note, 9.375%, 12/1/2005 94,125
625,000 Heritage Media Corp., Sr. Sub. Note, 8.75%, 2/15/2006 596,875
250,000 Pegasus Media, Note, 12.50%, 7/1/2005 266,250
1,000,000 SCI Television, Inc., Sr. Secd. Note, 11.00%, 6/30/2005 1,051,250
500,000 Sinclair Broadcast Group, Sr. Sub. Note, 10.00%, 12/15/2003 488,750
250,000 Sinclair Broadcast Group, Sr. Sub. Note, 10.00%, 9/30/2005 244,375
100,000 Sullivan Broadcast Holdings, Inc., Deb., 13.25%, 12/15/2006 95,500
600,000 Sullivan Broadcast Holdings, Inc., Sr. Sub. Note, 10.25%,
12/15/2005 580,500
500,000 Young Broadcasting, Inc., Sr. Sub. Note, 10.125%, 2/15/2005 501,250
250,000 (a) Young Broadcasting, Inc., Sr. Sub. Note, 9.00%, 1/15/2006 232,500
Total 6,072,625
BUSINESS EQUIPMENT & SERVICES - 0.4%
500,000 (a) Knoll, Inc., Sr. Sub. Note, 10.875%, 3/15/2006 515,000
350,000 Monarch Acquisition Corp., Sr. Note, 12.50%, 7/1/2003 376,250
500,000 United Stationers Supply Co., Sr. Sub. Note, 12.75%, 5/1/2005 551,250
Total 1,442,500
CABLE TELEVISION - 4.6%
250,000 Australis Media Limited, Unit, 0/14.00%, 5/15/2003 171,250
250,000 Bell Cablemedia PLC, Sr. Disc. Note, 0/11.95%, 7/15/2004 183,750
500,000 Cablevision Systems Corp., Sr. Sub. Deb., 9.875%, 2/15/2013 508,750
250,000 Cablevision Systems Corp., Sr. Sub. Note, 9.25%, 11/1/2005 247,500
</TABLE>
FEDERATED BOND FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS - CONTINUED
CABLE TELEVISION - CONTINUED
$ 475,000 CAI Wireless Systems, Inc., Sr. Note, 12.25%, 9/15/2002 $ 498,750
4,000,000 CF Cable TV, Inc., Note, 9.125%, 7/15/2007 4,020,000
250,000 CF Cable TV, Inc., Sr. Secd. 2nd Priority Note, 11.625%, 2/15/2005 271,250
600,000 (a) Charter Communications Southeast, L.P., Sr. Note, 11.25%,
3/15/2006 606,750
500,000 Continental Cablevision, Sr. Deb., 9.50%, 8/1/2013 555,000
500,000 Diamond Cable Co., Sr. Disc. Note, 0/11.75%, 12/15/2005 303,125
750,000 Diamond Cable Co., Sr. Disc. Note, 0/13.25%, 9/30/2004 547,500
500,000 (a) EchoStar Satellite Broadcasting Corp., Sr. Secd. Disc. Note,
0/13.125%, 3/15/2004 312,500
500,000 Insight Communication Co., Sr. Sub. Note, 11.25%, 3/1/2000 510,000
1,000,000 International Cabletel, Inc., Sr. Defd. Cpn. Note, 0/10.875%,
10/15/2003 740,000
450,000 (a) International Cabletel, Inc., Sr. Defd. Cpn. Note, 0/11.50%,
2/1/2006 264,375
250,000 Le Groupe Videotron Ltee, Sr. Note, 10.625%, 2/15/2005 262,500
300,000 Rogers Cablesystems Ltd., Sr. Secd. 2nd Priority Note, 10.00%,
12/1/2007 305,250
500,000 Rogers Cablesystems Ltd., Sr. Sub. Gtd. Note, 11.00%, 12/1/2015 528,750
900,000 TeleWest PLC, Sr. Disc. Deb., 0/11.00%, 10/1/2007 555,750
4,450,000 TKR Cable, Inc., Sr. Note, 10.50%, 10/30/2007 4,939,545
250,000 Wireless One, Inc., Sr. Note, 13.00%, 10/15/2003 263,750
Total 16,596,045
CHEMICALS & PLASTICS - 2.5%
550,000 Arcadian Partners L.P., Sr. Note, Series B, 10.75%, 5/1/2005 594,000
1,700,000 (a) Bayer Corp., Deb., 6.50%, 10/1/2002 1,670,097
2,000,000 (a) Bayer Corp., Deb., 7.125%, 10/1/2015 1,929,680
300,000 Crain Industries, Inc., Sr. Sub. Note, 13.50%, 8/15/2005 313,500
600,000 Foamex L.P., Sr. Sub. Deb., 11.875%, 10/1/2004 600,000
</TABLE>
FEDERATED BOND FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS - CONTINUED
CHEMICALS & PLASTICS - CONTINUED
$ 569,000 G-I Holdings, Inc., Sr. Disc. Note, 11.375% accrual, 10/1/1998 $ 453,777
541,000 (a) G-I Holdings, Inc., Sr. Note, 10.00%, 2/15/2006 541,000
500,000 Harris Chemical North America, Inc., Sr. Secd. Disc. Note, 9.625%,
7/15/2001 500,000
200,000 LaRoche Industries, Inc., Sr. Sub. Note, 13.00%, 8/15/2004 217,000
500,000 Polymer Group, Inc., Sr. Note, 12.25%, 7/15/2002 547,500
350,000 (a) RBX Corp., Sr. Sub. Note, 11.25%, 10/15/2005 337,750
375,000 Uniroyal Technology Corp., Sr. Secd. Note, 11.75%, 6/1/2003 353,438
1,000,000 Viridian, Inc., Note, 9.75%, 4/1/2003 1,037,500
Total 9,095,242
CLOTHING & TEXTILES - 0.4%
400,000 Dan River, Inc., Sr. Sub. Note, 10.125%, 12/15/2003 383,000
1,000,000 WestPoint Stevens, Inc., Sr. Sub. Deb., 9.375%, 12/15/2005 975,000
Total 1,358,000
CONGLOMERATES - 1.1%
950,000 Leucadia National Corp., Sr. Sub. Note, 8.25%, 6/15/2005 955,415
2,750,000 Leucadia National Corp., Sr. Sub., 10.375%, 6/15/2002 2,970,000
Total 3,925,415
CONSUMER PRODUCTS - 0.8%
250,000 American Safety Razor Co., Sr. Note, 9.875%, 8/1/2005 256,250
650,000 Herff Jones, Inc., Sr. Sub. Note, 11.00%, 8/15/2005 692,250
300,000 Hosiery Corp. of America, Inc., Sr. Sub. Note, 13.75%, 8/1/2002 324,000
400,000 ICON Health & Fitness, Inc., Sr. Sub. Note, 13.00%, 7/15/2002 446,000
</TABLE>
FEDERATED BOND FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS - CONTINUED
CONSUMER PRODUCTS - CONTINUED
$ 500,000 Playtex Family Products Corp., Sr. Sub. Note, 9.00%, 12/15/2003 $ 463,750
550,000 (a) Simmons Co., Sr. Sub. Note, 10.75%, 4/15/2006 556,875
Total 2,739,125
CONTAINER & GLASS PRODUCTS - 0.5%
750,000 Owens-Illinois, Inc., Sr. Sub. Note, 9.75%, 8/15/2004 762,187
200,000 Plastic Containers, Inc., Sr. Secd. Note, 10.75%, 4/1/2001 202,000
350,000 Portola Packaging, Inc., Sr. Note, 10.75%, 10/1/2005 363,125
500,000 U.S. Can Co., Sr. Sub. Note, 13.50%, 1/15/2002 533,750
Total 1,861,062
ECOLOGICAL SERVICES & EQUIPMENT - 1.6%
500,000 Allied Waste Industries, Inc., Sr. Sub. Note, 12.00%, 2/1/2004 543,750
1,000,000 ICF Kaiser International, Inc., Sr. Sub. Note, 13.00%,
12/31/2003 955,000
650,000 Mid-American Waste Systems, Inc., Sr. Sub. Note, 12.25%, 2/15/2003 429,000
3,400,000 WMX Technologies, Inc., Deb., 8.75%, 5/1/2018 3,680,840
Total 5,608,590
EDUCATION - 0.9%
3,000,000 Harvard University, Revenue Bonds, 8.125% Bonds, 4/15/2007 3,234,660
ELECTRONICS - 1.1%
3,465,000 Harris Corp., Deb., 10.375%, 12/1/2018 3,882,082
INDUSTRIAL PRODUCTS & EQUIPMENT - 0.1%
250,000 Spreckels Industries, Inc., Sr. Secd. Note, 11.50%, 9/1/2000 253,750
FINANCIAL INTERMEDIARIES - 5.3%
6,500,000 American General Corp., S.F. Deb., 9.625%, 2/1/2018 7,078,695
4,150,000 Donaldson, Lufkin and Jenrette Securities Corp., Note, 6.875%,
11/1/2005 3,979,186
</TABLE>
FEDERATED BOND FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS - CONTINUED
FINANCIAL INTERMEDIARIES - CONTINUED
$ 3,420,000 Green Tree Financial Corp., Sr. Sub. Note, 10.25%, 6/1/2002 $ 3,934,094
2,000,000 Legg Mason, Inc., Note, 6.50%, 2/15/2006 1,861,640
2,000,000 Merrill Lynch & Co., Inc., Medium Term Note, 7.25%, 6/14/2004 2,020,320
Total 18,873,935
FOOD & DRUG RETAILERS - 2.6%
300,000 Carr-Gottstein Foods Co., Sr. Sub. Note, 12.00%, 11/15/2005 310,500
7,231,000 Hook-Superx, Inc., Sr. Note, 10.125%, 6/1/2002 7,769,131
375,000 Pathmark Stores, Inc., Sr. Sub. Note, 9.625%, 5/1/2003 360,938
500,000 Ralph's Grocery Co., Sr. Note, 10.45%, 6/15/2004 492,500
500,000 Ralph's Grocery Co., Sr. Sub. Note, 11.00%, 6/15/2005 467,500
Total 9,400,569
FOOD PRODUCTS - 1.0%
650,000 Curtice-Burns Foods, Inc., Sr. Sub. Note, 12.25%, 2/1/2005 635,375
375,000 Doskocil Cos., Inc., Sr. Sub. Note, 9.75%, 7/15/2000 390,937
500,000 Grand Metropolitan Investment Corp., 8.131% accrual, 1/6/2004 288,010
1,000,000 PMI Acquisition Corp., Sr. Sub. Note, 10.25%, 9/1/2003 997,500
2,000,000 Specialty Foods Acquisition Corp., Sr. Secd. Disc. Deb.,
0/13.00%, 8/15/2005 892,500
275,000 Van de Kamp's, Inc., Sr. Sub. Note, 12.00%, 9/15/2005 294,250
Total 3,498,572
FOOD SERVICES - 1.3%
225,000 Americold Corp., Sr. Sub. Note, 12.875%, 5/1/2008 227,250
250,000 Flagstar Corp., Sr. Note, 10.75%, 9/15/2001 223,750
500,000 Flagstar Corp., Sr. Note, 10.875%, 12/1/2002 447,500
200,000 Flagstar Corp., Sr. Sub. Deb., 11.25%, 11/1/2004 141,000
</TABLE>
FEDERATED BOND FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS - CONTINUED
FOOD SERVICES - CONTINUED
$ 3,250,000 Super Rite Foods Holdings Corp., Sr. Sub. Note, 10.625%,
4/1/2002 $ 3,550,625
Total 4,590,125
FOREST PRODUCTS - 2.2%
500,000 Domtar, Inc., Deb., 11.25%, 9/15/2017 527,500
275,000 Repap New Brunswick, 2nd Priority Sr. Secd. Note, 10.625%,
4/15/2005 261,594
175,000 Riverwood International Corp., Sr. Note, 10.25%, 4/1/2006 175,875
450,000 Riverwood International Corp., Sr. Sub. Note, 10.875%, 4/1/2008 450,000
450,000 S. D. Warren Co., Sr. Sub. Note, 12.00%, 12/15/2004 472,500
2,500,000 Smurfit Capital, Deb., 7.50%, 11/20/2025 2,325,000
3,500,000 Smurfit Capital, Note, 6.75%, 11/20/2005 3,329,550
500,000 Stone Container Corp., Sr. Note, 11.50%, 10/1/2004 505,000
Total 8,047,019
HEALTH SERVICES - 1.3%
2,500,000 Columbia/HCA Healthcare Corp., Deb., 7.50%, 11/15/2095 2,320,492
2,000,000 Columbia/HCA Healthcare Corp., Note, 9.00%, 12/15/2014 2,250,660
Total 4,571,152
HEALTHCARE - 0.5%
586,839 AmeriSource Health Corp., Sr. Deb., 11.25%, 7/15/2005 651,391
150,000 (a) Dade International, Inc., Sr. Sub. Note, 11.125%, 5/1/2006 150,000
1,000,000 Tenet Healthcare Corp., Sr. Sub. Note, 10.125%, 3/1/2005 1,072,500
Total 1,873,891
HOTELS, MOTELS, INNS & CASINOS - 0.3%
500,000 (a) Courtyard by Marriott II LP, Sr. Secd. Note, 10.75%, 2/1/2008 487,500
500,000 Motels of America, Inc., Sr. Sub. Note, 12.00%, 4/15/2004 495,000
Total 982,500
</TABLE>
FEDERATED BOND FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS - CONTINUED
INDUSTRIAL PRODUCTS & EQUIPMENT - 3.1%
$ 500,000 Cabot Safety Acquisition Corp., Sr. Sub. Note, 12.50%,
7/15/2005 $ 557,500
100,000 (a) Clark-Schwebel, Inc., Sr. Note, 10.50%, 4/15/2006 102,250
5,400,000 Joy Technologies, Inc., Sr. Note, 10.25%, 9/1/2003 5,983,092
250,000 Pace Industries, Inc., Sr. Note, 10.625%, 12/1/2002 237,500
4,235,000 Varity Corp., Sr. Note, 11.375%, 11/15/1998 4,355,147
Total 11,235,489
INSURANCE - 10.6%
3,000,000 Allmerica Financial Corp., Sr. Note, 7.625%, 10/15/2025 2,847,690
3,500,000 CNA Financial Corp., Deb., 7.25%, 11/15/2023 3,185,420
1,250,000 Continental Corp., Note, 8.25%, 4/15/1999 1,297,912
2,000,000 Continental Corp., Note, 8.375%, 8/15/2012 2,065,140
5,000,000 Delphi Financial Group, Inc., Note, 8.00%, 10/1/2003 4,788,500
4,000,000 GE Global Insurance, Note, 7.00%, 2/15/2026 3,724,600
3,460,000 GEICO Corp., Deb., 9.15%, 9/15/2021 3,774,618
4,000,000 (a) Minnesota Mutual Life, Note, 8.25%, 9/15/2025 4,041,680
3,000,000 (a) Principal Mutual Life Insurance Co., Note, 8.00%, 3/1/2044 2,849,190
5,500,000 (a) Reinsurance Group of America, Sr. Note, 7.25%, 4/1/2006 5,390,000
3,000,000 Sunamerica, Inc., Deb., 8.125%, 4/28/2023 2,976,060
1,000,000 Sunamerica, Inc., Medium Term Note, 7.34%, 8/30/2005 996,659
Total 37,937,469
LEISURE & ENTERTAINMENT - 1.6%
250,000 Affinity Group, Inc., Sr. Sub. Note, 11.50%, 10/15/2003 256,250
800,000 (a) AMF Group, Inc., Sr. Sub. Disc. Note, 0/12.25%, 3/15/2006 443,000
250,000 (a) AMF Group, Inc., Sr. Sub. Note, 10.875%, 3/15/2006 248,750
</TABLE>
FEDERATED BOND FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS - CONTINUED
LEISURE & ENTERTAINMENT - CONTINUED
$ 3,500,000 Paramount Communications, Inc., Sr. Deb., 8.25%, 8/1/2022 $ 3,246,775
400,000 Premier Parks, Inc., Sr. Note, 12.00%, 8/15/2003 432,000
1,150,000 Six Flags Theme Parks, Sr. Sub. Disc. Note, 0/12.25%, 6/15/2005 971,750
Total 5,598,525
MACHINERY & EQUIPMENT - 0.2%
600,000 (a) Alvey Systems, Inc., Sr. Sub. Note, 11.375%, 1/31/2003 624,000
250,000 Primeco, Inc., Sr. Sub. Note, 12.75%, 3/1/2005 262,500
Total 886,500
METALS & MINING - 1.9%
2,500,000 Magma Copper Co., Sr. Sub. Note, 12.00%, 12/15/2001 2,734,375
4,000,000 Santa Fe Pacific Gold, Note, 8.375%, 7/1/2005 3,955,000
Total 6,689,375
OIL & GAS - 3.5%
2,710,000 Ashland, Inc., Deb., 11.125%, 10/15/2017 3,021,704
650,000 Clark USA, Inc., Sr. Note, Series B, 10.875%, 12/1/2005 674,375
500,000 (a) Coda Energy, Inc., Sr. Sub. Note, 10.50%, 4/1/2006 506,250
750,000 Falcon Drilling Co., Inc., Sr. Note, 9.75%, 1/15/2001 778,125
500,000 Giant Industries, Inc., Sr. Sub. Note, 9.75%, 11/15/2003 501,250
500,000 HS Resources, Inc., Sr. Sub. Note, 9.875%, 12/1/2003 487,500
2,500,000 Sun Co., Inc., Deb., 9.375%, 6/1/2016 2,803,675
1,500,000 Tosco Corp., 1st Mtg. Bond, 8.25%, 5/15/2003 1,570,590
1,300,000 Tosco Corp., 1st Mtg. Bond, 9.00%, 3/15/1997 1,332,968
750,000 United Meridian Corp., Sr. Sub. Note, 10.375%, 10/15/2005 783,750
Total 12,460,187
</TABLE>
FEDERATED BOND FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS - CONTINUED
PRINTING & PUBLISHING - 2.8%
$ 400,000 (a) Adams Outdoor Advertising L.P., Sr. Note, 10.75%,
3/15/2006 $ 407,000
500,000 Affiliated Newspaper, Sr. Disc. Note, 0/13.25%, 7/1/2006 341,250
350,000 Garden State Newspapers, Inc., Sr. Sub. Note, 12.00%, 7/1/2004 364,000
275,000 Hollinger International Publishing, Inc., Sr. Sub. Note, 9.25%,
2/1/2006 261,938
4,000,000 News America Holdings, Inc., Deb., 7.90%, 12/1/2095 3,555,000
5,000,000 Valassis Communication, Inc., Sr. Sub. Note, 9.375%, 3/15/1999 5,091,900
Total 10,021,088
REAL ESTATE - 0.2%
650,000 Trizec Finance Ltd., Sr. Note, 10.875%, 10/15/2005 660,563
RETAILERS - 1.9%
1,000,000 Brylane Capital Corp., Sr. Sub. Note, 10.00%, 9/1/2003 946,250
125,000 (a) Hills Stores Co., Sr. Note, 12.50%, 7/1/2003 128,281
3,000,000 May Department Stores Co., Deb., 8.125%, 8/15/2035 2,979,510
2,500,000 Penney (J.C.) Co., Inc., S.F. Deb., 9.75%, 6/15/2021 2,791,175
Total 6,845,216
SERVICES - 1.6%
600,000 Coinmach Corp., Sr. Note, 11.75%, 11/15/2005 615,000
5,000,000 (a) Loewen Group Int'l, Sr. Note, 8.25%, 4/15/2003 5,000,000
Total 5,615,000
SOVEREIGN GOVERNMENT - 8.8%
3,000,000 Canada- Govt. of, Deb., 6.375%, 7/21/2005 2,889,375
4,500,000 (a) Freeport Terminal (Malta) Ltd., Gtd. Global Note, 7.50%,
3/29/2009 4,457,070
</TABLE>
FEDERATED BOND FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS - CONTINUED
SOVEREIGN GOVERNMENT - CONTINUED
$ 3,500,000 Kingdom of Sweden, Deb., 10.25%, 11/1/2015 $ 4,367,370
1,400,000 New Zealand Government, Deb., 10.50%, 7/16/2000 1,484,875
1,525,000 Ontario, Province of, Local Gov't. Guarantee, 17.00%, 11/5/2011 1,710,913
1,500,000 Quebec, Province of, Deb., 13.25%, 9/15/2014 1,842,480
5,000,000 Quebec, Province of, Deb., 7.50%, 7/15/2023 4,777,450
2,600,000 Republic of Colombia, Note, 7.25%, 2/15/2003 2,475,928
2,000,000 Republic of Colombia, Note, 8.75%, 10/6/1999 2,073,980
2,600,000 Republic of South Africa, Global Bond Deb., 9.625%, 12/15/1999 2,746,250
2,500,000 Victoria Public Authority, Local Gov't. Guarantee, 8.25%,
1/15/2002 2,654,688
Total 31,480,379
STEEL - 0.7%
400,000 Acme Metals, Inc., Sr. Secd. Disc. Note, 0/13.50%, 8/1/2004 358,000
250,000 Armco, Inc., Sr. Note, 9.375%, 11/1/2000 249,687
150,000 (a) Bar Technologies, Inc., Unit, 13.50%, 4/1/2001 149,250
250,000 Bayou Steel Corp., 1st Mtg. Note, 10.25%, 3/1/2001 229,375
750,000 EnviroSource, Inc., Sr. Note, 9.75%, 6/15/2003 678,750
600,000 GS Technologies Operating Co., Inc., Sr. Note, 12.00%, 9/1/2004 619,500
300,000 Geneva Steel Co., Sr. Note, 11.125%, 3/15/2001 258,750
Total 2,543,312
SURFACE TRANSPORTATION - 1.0%
500,000 Gearbulk Holding Limited, Sr. Note, 11.25%, 12/1/2004 525,000
400,000 Great Dane Holdings, Inc., Sr. Sub. Deb., 12.75%, 8/1/2001 380,000
150,000 OMI Corp., Sr. Note, 10.25%, 11/1/2003 141,750
1,000,000 Sea Containers Ltd., Sr. Note, 9.50%, 7/1/2003 987,500
500,000 Stena AB, Sr. Note, 10.50%, 12/15/2005 502,500
</TABLE>
FEDERATED BOND FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS - CONTINUED
SURFACE TRANSPORTATION - CONTINUED
$ 250,000 Trans Ocean Container Corp., Sr. Sub. Note, 12.25%, 7/1/2004 $ 260,000
750,000 Trism, Inc., Sr. Sub. Note, 10.75%, 12/15/2000 720,938
Total 3,517,688
TELECOMMUNICATIONS & CELLULAR - 1.4%
600,000 (a) American Communications Services Inc., Sr. Disc. Note, 3.50%,
4/1/2006 310,500
500,000 (a) Brooks Fiber Properties, Inc., Sr. Disc. Note, 6.00%,
3/1/2006 276,250
500,000 Cellular Communications International, Inc., Unit, 13.25% accrual,
8/15/2000 315,000
100,000 Fonorola, Inc., Sr. Secd. Note, 12.50%, 8/15/2002 107,500
250,000 MobileMedia Communications, Inc., Sr. Sub. Note, 9.375%, 11/1/2007 240,625
550,000 NEXTEL Communications, Inc., Sr. Disc. Note, 0/11.50%, 9/1/2003 364,375
625,000 (a) NEXTLINK Communications, L.L.C., Sr. Note, 12.50%, 4/15/2006 634,375
500,000 Paging Network, Inc., Sr. Sub. Note, 10.125%, 8/1/2007 515,625
500,000 PanAmSat, L.P., Sr. Sub. Disc. Note, 0/11.375%, 8/1/2003 430,000
750,000 ProNet, Inc., Sr. Sub. Note, 11.875%, 6/15/2005 806,250
750,000 USA Mobile Communications, Inc., Sr. Note, 9.50%, 2/1/2004 727,500
400,000 Vanguard Cellular System, Inc., Deb., 9.375%, 4/15/2006 400,000
Total 5,128,000
UTILITIES - 2.2%
1,000,000 California Energy Co., Inc., Sr. Disc. Note, 0/10.25%, 1/15/2004 962,500
500,000 El Paso Electric Co., 1st Mtg. Note, 9.40%, 5/1/2011 494,745
1,500,000 Kansas Electric Power Co-op, Collateral Trust, 9.73%, 12/15/2017 1,629,390
</TABLE>
FEDERATED BOND FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR SHARES VALUE
<C> <S> <C>
CORPORATE BONDS - CONTINUED
UTILITIES - CONTINUED
$ 5,250,000 (a) Tenaga Nasional Berhad, Deb., 7.50%, 11/1/2025 $ 4,926,233
Total 8,012,868
TOTAL CORPORATE BONDS (IDENTIFIED COST $301,131,414) 295,998,724
PREFERRED STOCKS - 0.1%
PRINTING & PUBLISHING - 0.1%
2,725 K-III Communications Corp., Cumulative PIK Pfd., Series B, 11.625% 279,351
TOTAL PREFERRED STOCKS (IDENTIFIED COST $244,438) 279,351
COMMON STOCKS - 0.0%
BROADCAST RADIO & TV - 0.0%
25 (a) Pegasus Media, Class B 8,125
1,600 Sullivan Broadcast Holdings, Inc., Class B 16,000
Total 24,125
CABLE TELEVISION - 0.0%
750 Wireless One, Inc., Warrants 4,500
CHEMICALS & PLASTICS - 0.0%
3,750 Uniroyal Technology Corp., Warrants 7,266
CONSUMER PRODUCTS - 0.0%
50 Hosiery Corp. of America, Inc. 250
400 (a) IHF Capital, Inc., Warrants 10,000
Total 10,250
ECOLOGICAL SERVICES & EQUIPMENT - 0.0%
4,800 ICF Kaiser International, Inc., Warrants 2,400
FOOD & DRUG RETAILERS - 0.0%
17,674 Grand Union Co. 110,462
</TABLE>
FEDERATED BOND FUND
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
COMMON STOCKS - CONTINUED
PRINTING & PUBLISHING - 0.0%
500 (b) Affiliated Newspaper $ 12,500
TOTAL COMMON STOCKS (IDENTIFIED COST $1,075,408) 171,503
ASSET-BACKED SECURITIES - 2.5%
STRUCTURED PRODUCT - 2.5%
$ 2,000,000 Discover Card Trust 1991- B, Class B, 8.85%, 7/16/1998 2,007,160
1,000,000 GE Capital Home Equity Loan 1991-1, Class B, 8.70%, 9/15/2011 1,009,790
1,000,000 Green Tree Financial Corp. 1992-2, Class B, 9.15%, 1/15/2018 1,023,960
1,000,000 Merrill Lynch Mortgage Investment, Inc. 1988-H, Class B, 9.70%,
4/17/1999 1,048,440
3,000,000 Prudential Home Mortgage Security 1993-32, Series 1992-32,
Class A-6, 7.50%, 10/25/2022 2,940,360
1,000,000 Residential Funding Corp. 1993-S26, Class A10, 7.50%, 7/25/2023 935,620
TOTAL ASSET-BACKED SECURITIES (IDENTIFIED COST $9,079,375) 8,965,330
MORTGAGE BACKED SECURITIES - 3.5%
GOVERNMENT AGENCY - 3.5%
1,972,138 Federal Home Loan Mortgage Corp., Pool C00426, 7.00%, 10/1/2025 1,903,705
1,709,875 Federal Home Loan Mortgage Corp., Pool D63898, 8.00%, 9/1/2025 1,729,077
2,348,634 Federal National Mortgage Association, Pool 250412, 7.00%,
12/1/2010 2,322,916
3,669,532 Federal National Mortgage Association, Pool 328610, 7.50%,
11/1/2025 3,625,902
2,922,263 Government National Mortgage Association, Pool 418781, 7.00%,
9/15/2025 2,813,555
TOTAL MORTGAGE-BACKED SECURITIES (IDENTIFIED COST $12,708,589) 12,395,155
MUNICIPAL SECURITIES - 4.6%
1,000,000 Allegheny County Redevelopment Authority, 7.61% Bonds
(AMBAC LOC), 9/1/2015 978,110
</TABLE>
FEDERATED BOND FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
MUNICIPAL SECURITIES - CONTINUED
$ 6,050,000 Kansas City, MO Redevelopment Authority, 7.65% Bonds (FSA
LOC), 11/1/2018 $ 5,812,356
3,000,000 Miami Florida Revenue Pension Obligation, 7.20% Bonds
(AMBAC LOC), 12/1/2025 2,704,320
2,390,000 Pittsburgh, PA Urban Redevelopment Authority, 9.07% Bonds
(CGIC GTD), 9/1/2014 2,645,276
2,000,000 SEPTA, Series B, 8.75% Bonds (FGIC GTD), 3/1/2020 2,156,060
2,080,000 Tampa Florida Sports Authority, 8.02% Bonds (MBIA GTD),
10/1/2026 2,065,709
TOTAL MUNICIPAL SECURITIES (IDENTIFIED COST $16,773,694) 16,361,831
GOVERNMENT AGENCY - 1.8%
4,500,000 Federal National Mortgage Association, 0/8.62%, 3/9/2022 3,953,565
2,500,000 Overseas Private Investment, U.S. Gov't. Guarantee, 6.08%,
8/15/2004 2,410,650
TOTAL GOVERNMENT AGENCY (IDENTIFIED COST $6,415,930) 6,364,215
U.S. TREASURY - 1.1%
4,000,000 United States Treasury Bond, 6.875%, 8/15/2025
(IDENTIFIED COST $3,978,750) 3,952,520
(C)REPURCHASE AGREEMENT - 1.6%
5,660,000 BT Securities Corporation, 5.35%, dated 4/30/1996, due 5/1/1996
(AT AMORTIZED COST) 5,660,000
TOTAL INVESTMENTS (IDENTIFIED COST $357,067,598)(D) $ 350,148,629
</TABLE>
(a) Denotes a restricted security which is subject to restrictions on
resale under Federal Securities laws. At April 30, 1996, these
securities amounted to $38,697,231 which represents 10.82% of net
assets.
(b) Non-income producing security.
(c) 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.
(d) The cost of investments for federal tax purposes amounts to
$357,067,598. The net unrealized depreciation of investments on a
federal tax basis amounts to $6,918,969 which is comprised of
$3,067,022 appreciation and $9,985,991 depreciation at April 30, 1996.
Note: The categories of investments are shown as a percentage of net
assets ($357,673,748) at April 30, 1996.
FEDERATED BOND FUND
The following acronyms are used throughout this portfolio:
AMBAC - American Municipal Bond Assurance Corporation
CGIC - Capital Guaranty Insurance Corporation
FGIC - Financial Guaranty Insurance Company
FSA - Financial Security Assurance
GTD - Guaranty
LOC - Letter of Credit
LP - Limited Partnership
MBIA - Municipal Bond Investors Assurance
PIK - Payment in Kind
PLC - Public Limited Company
(See Notes which are an integral part of the Financial Statements)
FEDERATED BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost
$357,067,598) $ 350,148,629
Cash 3,537
Income receivable 7,261,555
Receivable for shares sold 2,121,606
Total assets 359,535,327
LIABILITIES:
Income distribution payable $ 1,040,192
Payable for investments purchased 509,656
Payable for shares redeemed 178,116
Accrued expenses 133,615
Total liabilities 1,861,579
Net Assets for 37,712,138 shares outstanding $ 357,673,748
NET ASSETS CONSIST OF:
Paid in capital $ 366,596,593
Net unrealized depreciation of investments (6,919,303)
Accumulated net realized loss on investments (2,506,970)
Undistributed net investment income 503,428
Total Net Assets $ 357,673,748
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
CLASS A SHARES:
Net Asset Value Per Share ($24,447,896 / 2,577,624 shares outstanding)
Offering Price Per Share (100/95.50 of $9.48)* $9.93
Redemption Proceeds Per Share (99.50/100 of $9.48)** $9.43
CLASS B SHARES:
Net Asset Value Per Share ($85,644,949 / 9,029,504 shares outstanding) $9.49
Offering Price Per Share $9.49
Redemption Proceeds Per Share (94.50/100 of $9.49)** $8.97
CLASS C SHARES:
Net Asset Value Per Share ($13,100,432 / 1,380,871 shares outstanding) $9.49
Offering Price Per Share $9.49
Redemption Proceeds Per Share (99.00/100 of $9.49)** $9.40
CLASS F SHARES:
Net Asset Value Per Share ($234,480,471 / 24,724,139 shares outstanding) $9.48
Offering Price Per Share (100/99.00 of $9.48)* $9.58
Redemption Proceeds Per Share (99.00/100 of $9.48)** $9.39
</TABLE>
* See "Investing in Class A Shares" and "Investing in Fortress Shares"
in the Prospectus.
** See "Contingent Deferred Sales Charge" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
FEDERATED BOND FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 12,641,030
EXPENSES:
Investment advisory fee $ 1,133,104
Administrative personnel and services fee 114,239
Custodian fees 26,265
Transfer and dividend disbursing agent fees and expenses 123,855
Directors'/Trustees' fees 2,064
Auditing fees 6,552
Legal fees 2,184
Portfolio accounting fees 67,016
Distribution services fee - Class B Shares 223,437
Distribution services fee - Class C Shares 36,056
Shareholder services fee - Class A Shares 19,810
Shareholder services fee - Class B Shares 74,479
Shareholder services fee - Class C Shares 12,019
Shareholder services fee - Class F Shares 271,394
Share registration costs 64,437
Printing and postage 21,845
Insurance premiums 3,458
Taxes 10,986
Miscellaneous 2,184
Total expenses 2,215,384
Waivers -
Waiver of investment advisory fee $ (287,356)
Waiver of shareholder services fee - Class A Shares (3,962)
Waiver of shareholder services fee - Class F Shares (21,711)
Total waivers (313,029)
Net expenses 1,902,355
Net investment income 10,738,675
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 938,436
Net change in unrealized depreciation of investments (11,289,118)
Net realized and unrealized loss on investments (10,350,682)
Change in net assets resulting from operations $ 387,993
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
APRIL 30, OCTOBER 31,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS -
Net investment income $ 10,738,675 $ 13,868,500
Net realized gain (loss) on investments ($938,436 net gain and
$101,014 net loss, respectively, as computed for federal tax purposes) 938,436 (109,537)
Net change in unrealized appreciation (depreciation) of investments (11,289,118) 12,228,666
Change in net assets resulting from operations 387,993 25,987,629
NET EQUALIZATION CREDITS (DEBITS) - 379,102 226,707
DISTRIBUTIONS TO SHAREHOLDERS -
Distributions from net investment income
Class A Shares (638,562) (53,960)
Class B Shares (2,108,878) (282,414)
Class C Shares (335,154) (60,261)
Class F Shares (8,116,948) (13,317,767)
Change in net assets resulting from distributions to shareholders (11,199,542) (13,714,402)
SHARE TRANSACTIONS (EXCLUSIVE OF AMOUNTS ALLOCATED TO NET
INVESTMENT INCOME) -
Proceeds from sale of shares 167,689,290 105,072,745
Net asset value of shares issued to shareholders in payment of
distributions declared 5,621,662 5,532,356
Cost of shares redeemed (39,052,306) (35,527,541)
Change in net assets resulting from share transactions 134,258,646 75,077,560
Change in net assets 123,826,199 87,577,494
NET ASSETS:
Beginning of period 233,847,549 146,270,055
End of period (including undistributed net investment income of
$503,428 and $585,193, respectively) $ 357,673,748 $ 233,847,549
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED BOND FUND
FINANCIAL HIGHLIGHTS - CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
(UNAUDITED) ENDED
APRIL 30, OCTOBER 31,
1996 1995(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.76 $ 9.64
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.35 0.26
Net realized and unrealized gain (loss) on investments (0.27) 0.11
Total from investment operations 0.08 0.37
LESS DISTRIBUTIONS
Distributions from net investment income (0.36) (0.25)
NET ASSET VALUE, END OF PERIOD $ 9.48 $ 9.76
TOTAL RETURN(B) 0.80% 3.92%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.06%* 1.02%*
Net investment income 7.37%* 8.22%*
Expense waiver/reimbursement(c) 0.24%* 0.35%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $24,448 $5,070
Portfolio turnover 25% 77%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from June 28, 1995 (date of
initial public offering) to October 31, 1995.
(b) Based on net asset value, which does not reflect the sales charge
or contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense
and net investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED BOND FUND
FINANCIAL HIGHLIGHTS - CLASS B SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
(UNAUDITED) ENDED
APRIL 30, OCTOBER 31,
1996 1995(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.76 $ 9.64
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.32 0.24
Net realized and unrealized gain (loss) on investments (0.26) 0.11
Total from investment operations 0.06 0.35
LESS DISTRIBUTIONS
Distributions from net investment income (0.33) (0.23)
NET ASSET VALUE, END OF PERIOD $ 9.49 $ 9.76
TOTAL RETURN(B) 0.52% 3.72%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.86%* 1.81%*
Net investment income 6.56%* 7.36%*
Expense waiver/reimbursement(c) 0.19%* 0.30%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $85,645 $27,768
Portfolio turnover 25% 77%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from June 28, 1995 (date of
initial public offering) to October 31, 1995.
(b) Based on net asset value, which does not reflect the sales charge
or contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense
and net investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED BOND FUND
FINANCIAL HIGHLIGHTS - CLASS C SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
(UNAUDITED) ENDED
APRIL 30, OCTOBER 31,
1996 1995(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.76 $ 9.64
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.32 0.24
Net realized and unrealized gain (loss) on investments (0.27) 0.11
Total from investment operations 0.05 0.35
LESS DISTRIBUTIONS
Distributions from net investment income (0.32) (0.23)
NET ASSET VALUE, END OF PERIOD $ 9.49 $ 9.76
TOTAL RETURN(B) 0.51% 3.72%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.86%* 1.81%*
Net investment income 6.64%* 7.31%*
Expense waiver/reimbursement(c) 0.19%* 0.30%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $13,100 $5,508
Portfolio turnover 25% 77%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from June 28, 1995 (date of
initial public offering) to October 31, 1995.
(b) Based on net asset value, which does not reflect the sales charge
or contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense
and net investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED BOND FUND
FINANCIAL HIGHLIGHTS - CLASS F SHARES
(FORMERLY, FORTRESS SHARES)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED
(UNAUDITED) YEAR ENDED YEAR ENDED
APRIL 30, OCTOBER 31, DECEMBER 31,
1996 1995 1994 1993 1992(A) 1991 1990 1989 1988(B)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.76 $ 9.08 $10.30 $ 9.23 $ 8.81 $ 6.89 $ 8.79 $ 9.86 $10.06
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.35 0.79 0.76 0.77 0.59 1.01 1.08 1.23 0.61
Net realized and unrealized gain
(loss) on investments (0.27) 0.65 (1.09) 1.07 0.43 1.92 (1.84) (1.07) (0.16)
Total from investment operations 0.08 1.44 (0.33) 1.84 1.02 2.93 (0.76) 0.16 0.45
LESS DISTRIBUTIONS
Distributions from net
investment income (0.36) (0.76) (0.75) (0.77) (0.60) (1.01) (1.14) (1.23) (0.65)
Distributions from net realized
gain on investment transactions -- -- (0.14) -- -- -- -- -- --
Total distributions (0.36) (0.76) (0.89) (0.77) (0.60) (1.01) (1.14) (1.23) (0.65)
NET ASSET VALUE, END OF PERIOD $ 9.48 $ 9.76 $ 9.08 $ 10.30 $ 9.23 $ 8.81 $ 6.89 $ 8.79 $ 9.86
TOTAL RETURN(C) 0.78% 16.51% (3.41%) 20.61% 11.79% 44.62% (9.59%) 1.32% 4.62%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.08%* 1.03% 1.05% 1.04% 0.49%* 1.00% 1.01% 1.14% 1.00%*
Net investment income 7.26%* 8.20% 7.92% 7.69% 8.05%* 12.17% 13.43% 12.81% 12.58%*
Expense waiver/reimbursement(d) 0.21%* 0.31% 0.33% 0.61% 2.01%* 1.50% 1.49% 1.36% 1.00%*
SUPPLEMENTAL DATA
Net assets, end of period
(000 omitted) $234,480 $195,502 $146,270 $125,762 $54,886 $6,068 $7,484 $4,734 $4,968
Portfolio Turnover 25% 77% 74% 51% 49% 33% 28% 38% 31%
</TABLE>
* Computed on an annualized basis.
(a) During the ten month period, the Fund changed its fiscal year-end
from December 31 to October 31.
(b) Reflects operations for the period from July 8, 1988 (date of
initial public investment) to December 31, 1988.
(c) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(d) This voluntary expense decrease is reflected in both the expense and
net investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED BOND FUND
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1996 (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, management investment company. The Corporation consists of
two portfolios. The financial statements included herein are only
those of Federated Bond Fund (the "Fund"), a diversified portfolio.
The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a
shareholder's interest is limited to the portfolio in which shares are
held.
Effective March 31, 1996, the shareholders approved a change in the
name of Fortress Shares to Class F Shares.
The Fund offers four classes of shares: Class A Shares, Class B
Shares, Class C Shares and Class F Shares.
The Investment objective of the Fund is to provide as high level of
current income as is consistent with the preservation of capital.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. These policies are in conformity with generally accepted
accounting principles.
INVESTMENT VALUATIONS - Municipal bonds are valued by an independent
pricing service, taking into consideration yield, liquidity, risk,
credit quality, coupon, maturity, type of issue, and any other factors
or market data the pricing service deems relevant. U.S. government
securities, listed corporate bonds, and (other fixed income and
asset-backed securities) are generally valued at the mean of the
latest bid and asked price as furnished by an independent pricing
service. Listed equity securities are valued at the last sale price
reported on a national securities exchange. Short-term securities are
valued at the prices provided by an independent pricing service.
However, short-term securities with remaining maturities of sixty days
or less at the time of purchase may be valued at amortized cost, which
approximates fair market value.
REPURCHASE AGREEMENTS - It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral under
repurchase agreement transactions. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value
of each repurchase agreement's collateral to ensure that the value of
collateral at least equals the repurchase price to be paid under the
repurchase agreement transaction.
FEDERATED BOND FUND
The Fund will only enter into repurchase agreements with banks and
other recognized financial institutions, such as broker/dealers, which
are deemed by the Fund's adviser to be creditworthy pursuant to the
guidelines and/or standards reviewed or established by the Board of
Directors (the "Directors"). Risks may arise from the potential
inability of counterparties to honor the terms of the repurchase
agreement. Accordingly, the Fund could receive less than the
repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS - Interest income and
expenses are accrued daily. Bond premium and discount, if applicable,
are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Dividend income and distributions to shareholders are
recorded on the ex-dividend date.
FEDERAL TAXES - It is the Fund's policy to comply with the provisions
of the Code applicable to regulated investment companies and to
distribute to shareholders each year substantially all of its income.
Accordingly, no provisions for federal tax are necessary.
At October 31, 1995, the Fund, for federal tax purposes, had a capital
loss carryforward of $3,460,840, which will reduce the Fund's taxable
income arising from future net realized gain on investments, if any,
to the extent permitted by the Code, and thus will reduce the amount
of the distributions to shareholders which would otherwise be
necessary to relieve the Fund of any liability for federal tax.
Pursuant to the Code, such capital loss carryforward will expire as
follows:
<TABLE>
<CAPTION>
EXPIRATION YEAR EXPIRATION AMOUNT
<C> <C>
2002 $ 3,359,826
2003 $ 101,014
</TABLE>
EQUALIZATION - The Fund follows the accounting practice known as
equalization. With equalization, 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.
FEDERATED BOND FUND
RESTRICTED SECURITIES - Restricted securities are securities that may
only be resold upon registration under federal securities laws or in
transactions exempt from such registration. In some cases, the issuer
of restricted securities has agreed to register such securities for
resale, at the issuer's expense either upon demand by the Fund or in
connection with another registered offering of the securities. Many
restricted securities may be resold in the secondary market in
transactions exempt from registration. Such restricted securities may
be determined to be liquid under criteria established by the Board of
Directors. The Fund will not incur any registration costs upon such
resales. The Fund's restricted securities are valued at the price
provided by dealers in the secondary market or, if no market prices
are available, at the fair value as determined by the Fund's pricing
committee.
Additional information on each restricted security held at April 30,
1996 is as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
First Nationwide Holdings, Inc. 7/20/1994 $ 500,000
Bayer Corp. 6/9/1995-9/11/1995 1,992,050
Bayer Corp. 3/21/1996-4/17/1996 1,687,443
G-I Holdings, Inc. 4/15/1994 435,863
RBX Corp. 6/10/1995 350,000
Simmons Co. 4/15/1996-4/19/1996 554,813
Granite Broadcasting Corp. 4/23/1996 94,500
Young Broadcasting, Inc. 4/25/1996 233,125
Knoll, Inc. 2/22/1996-3/26/1996 512,750
Charter Communications Southeast, L.P. 3/22/1996-4/23/1996 600,938
EchoStar Satellite Broadcasting Corp. 3/19/1996 305,994
International Cabletel, Inc. 1/25/1996 264,814
Dade International, Inc. 4/30/1996 150,000
Courtyard by Marriott II L.P. 1/12/1996-1/18/1996 502,438
Clark-Schwebel, Inc. 4/12/1996 100,000
Minnesota Mutual Life 2/28/1996 4,221,840
Principal Mutual Life Insurance Co. 8/28/1995 2,847,450
Reinsurance Group of America 3/19/1996 5,483,170
AMF Group, Inc. 3/7/1996 448,732
AMF Group, Inc. 3/7/1996 250,000
Alvey Systems, Inc. 1/19/1996 607,500
Coda Energy, Inc. 3/12/1996-4/23/1996 501,250
Adams Outdoor Advertising L.P. 3/5/1996-4/22/1996 401,688
Hills Stores Co. 4/17/1996 125,000
Loewen Group Int'l 3/13/1996-3/20/1996 4,995,400
Freeport Terminal (Malta) Ltd. 3/17/1994-12/7/1995 4,551,806
Bar Technologies, Inc. 3/28/1996 147,496
American Communications Services Inc. 3/21/1996 327,138
Brooks Fiber Properties, Inc. 2/16/1996 303,460
NEXTLINK Communications, L.L.C. 4/18/1996 625,000
Tenaga Nasional Berhad 2/16/1996-4/3/1996 5,252,790
Pegasus Media 10/31/1995 --
IHF Capital, Inc. 11/4/1994 3,952
</TABLE>
FEDERATED BOND FUND
USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those
estimated.
OTHER - Investment transactions are accounted for on the trade date.
3. CAPITAL STOCK
At April 30, 1996, par value shares ($ 0.001 per share) authorized
were as follows:
<TABLE>
<CAPTION>
# OF PAR VALUE CAPITAL
CLASS NAME STOCK AUTHORIZED
<S> <C>
Class A Shares 25,000,000
Class B Shares 25,000,000
Class C Shares 25,000,000
Class F Shares 25,000,000
Unclassified 400,000,000
Total 500,000,000
</TABLE>
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
APRIL 30, 1996 OCTOBER 31, 1995(A)
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 2,302,934 $ 22,613,376 525,834 $ 5,078,460
Shares issued to shareholders in payment of
distributions declared 54,573 529,954 4,406 42,695
Shares redeemed (299,184) (2,921,519) (10,939) (105,289)
Net change resulting from Class A share
transactions 2,058,323 $ 20,221,811 519,301 $ 5,015,866
</TABLE>
FEDERATED BOND FUND
<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
APRIL 30, 1996 OCTOBER 31, 1995(A)
CLASS B SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 7,601,743 $ 74,409,620 2,842,775 $ 27,454,188
Shares issued to shareholders in payment of
distributions declared 125,440 1,219,767 17,428 168,835
Shares redeemed (1,543,223) (15,264,542) (14,659) (141,896)
Net change resulting from Class B share
transactions 6,183,960 $ 60,364,845 2,845,544 $ 27,481,127
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
APRIL 30, 1996 OCTOBER 31, 1995(A)
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 945,508 $ 9,229,892 559,632 $ 5,403,663
Shares issued to shareholders in payment of
distributions declared 24,743 240,566 5,231 50,591
Shares redeemed (153,510) (1,483,152) (733) (7,139)
Net change resulting from Class C share
transactions 816,741 $ 7,987,306 564,130 $ 5,447,115
<Caption >
SIX MONTHS YEAR
ENDED ENDED
APRIL 30, 1996 OCTOBER 31, 1995
CLASS F SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 6,309,734 $ 61,436,402 7,165,637 $ 67,136,434
Shares issued to shareholders in payment of
distributions declared 373,130 3,631,375 562,573 5,270,235
Shares redeemed (1,986,698) (19,383,093) (3,810,614) (35,273,217)
Net change resulting from Class F Shares
share transactions 4,696,166 $ 45,684,684 3,917,596 $ 37,133,452
Net change resulting from Fund share
transactions 13,755,190 $ 134,258,646 7,846,571 75,077,560
</TABLE>
(a) For the period from June 28, 1995 (date of initial public
investment) to October 31, 1995.
FEDERATED BOND 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 0.75% 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 Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with
administrative personnel and services. The fee paid to FServ is based
on the level of average aggregate daily net assets of all funds
advised by subsidiaries of Federated Investors for the period. The
administrative fee received during the period of the Administrative
Services Agreement shall be at least $125,000 per portfolio and
$30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE - The Fund has adopted a Distribution Plan
(the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of
the Plan, the Fund will compensate Federated Securities Corp. ("FSC"),
the principal distributor, from the net assets of the Fund to finance
activities intended to result in the sale of the Fund's Class A
Shares, Class B Shares, and Class C Shares. The Plan provides that the
Fund may incur distribution expenses according to the following
schedule annually, to compensate FSC.
<TABLE>
<CAPTION>
% OF AVG. DAILY NET
SHARE CLASS NAME ASSETS OF CLASS
<S> <C>
Class A Shares .25%
Class B Shares .75%
Class C Shares .75%
</TABLE>
For the period ended April 30, 1996, Class A Shares did not incur a
distribution services fee.
SHAREHOLDER SERVICES FEE - Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services ("FSS"), the Fund will
pay FSS up to 0.25% of daily average net assets of the Fund shares for
the period. The fee paid to FSS is used to finance certain services
for shareholders and to maintain shareholder accounts. Federated
Shareholder Services may voluntarily choose to waive any portion of
its fee. Federated Shareholder Services can modify or terminate this
voluntary waiver at any time at its sole discretion.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES - FServ, through its
subsidiary, Federated Shareholder Services Company serves as transfer
and dividend disbursing agent for the Fund. The fee paid to FServ is
based on the size, type, and number of accounts and transactions made
by shareholders.
FEDERATED BOND FUND
PORTFOLIO ACCOUNTING FEES - FServ maintains the Fund's accounting
records for which it receives a fee. The fee is based on the level of
the Fund's average daily net assets for the period, plus out-of-pocket
expenses.
GENERAL - Certain of the Officers and Directors of the Corporation are
Officers and Directors or Trustees of the above companies.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities,
for the period ended April 30, 1996, were as follows:
<TABLE>
<S> <C>
PURCHASES $ 202,507,484
SALES $ 72,012,637
</TABLE>
DIRECTORS
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
William J. Copeland
J. Christopher Donahue
James E. Dowd
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr.
Peter E. Madden
Gregor F. Meyer
John E. Murray, Jr.
Wesley W. Posvar
Marjorie P. Smuts
OFFICERS
John F. Donahue
Chairman
J. Christopher Donahue
President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President, Treasurer and Secretary
Richard B. Fisher
Vice President
Douglas L. Hein
Assistant Treasurer
S. Elliott Cohan
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed
by any bank, and are not insured or guaranteed by the U.S. government,
the Federal Deposit Insurance Corporation, the Federal Reserve Board,
or any other government agency. Investment in mutual funds involves
investment risk, including possible loss of principal.
This report is authorized for distribution to prospective investors
only when preceded or accompanied by the fund's prospectus, which
contains facts concerning its objective and policies, management fees,
expenses and other information.
[Graphic]
Cusip 461444507
Cusip 461444606
Cusip 461444705
Cusip 461444309
2072302 (6/96)
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the Semi-Annual Report for Capital Growth Fund which
covers the six-month period from November 1, 1995, through April 30, 1996.
This report begins with an interview with portfolio manager Jim Grefenstette,
Assistant Vice President, Federated Research Corp. Next are two additional items
of shareholder interest: a complete listing of the fund's stock holdings and the
fund's financial statements.
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 representing key business sectors with many familiar
names that you will recognize immediately.
This diversified portfolio performed very well in the highly favorable stock
market environment during the six-month period. The fund's Class A Shares
achieved a total return of 19.10% through dividend income of $0.01 per share,
capital gains of $1.67, and a 5% increase in net asset value. The fund's Class C
Shares achieved a total return of 18.74% through capital gains of $1.67 and a 5%
increase in net asset value.*
Thank you for participating in the growth potential of American companies
through Capital Growth Fund. We trust you were pleased with the positive
performance of your investment.
Sincerely,
J. Christopher Donahue
President
June 17, 1996
* Performance quoted is based on net asset value and reflects past performance.
Past performance is not indicative of future results. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than their original cost. Total returns for the
period based on offering price for Class A Shares and Class C Shares were
12.56% and 17.63%, respectively.
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
A Discussion with Jim Grefenstette, Assistant Vice President, Federated Research
Corp.
Q While 1995 overall proved to be one of the most pleasantly memorable years
for stock investors, the first quarter of 1996 introduced a degree of
volatility. Do the positive signals still appear to outweigh the negatives?
A While the story has definitely become more complicated over the last couple
of quarters, we do believe that, the positives still outweigh the
negatives. In addition to the pickup in volatility, which is still below
long-term averages, interest rates have gone up measurably over the last six
months. On the other hand, however, the economy has continued to surprise us by
growing much faster than the experts anticipated. This has led to a good number
of companies reporting higher-than-expected earnings and should lead to
analysts' earnings projections being revised upward over the coming months. In
addition, the cash flow being put into stocks by individual investors is very
strong and is continuing to set new records. This bodes well for maintaining a
strong bid in the market for at least the near future.
Q How did Capital Growth Fund perform over the six-month reporting period
compared to the Lipper Growth Fund Average?
A The fund produced very strong total returns. For example, the Class A
Shares return was 19.10% based on net asset value, which includes capital
appreciation of the shares and adding income dividends and realized capital
gain to the fund's net asset value.* The return for Lipper Growth Fund Average
was 13.10%.**
Q Technology, Health Care, and Finance have been the fund's strongest
performing sectors. Do these sectors continue to offer high growth
potential?
A Technology has done well for us, and we think that it will be our strongest
sector for some time to come. Technology, as a whole, may not be an ultra
high growth sector every year, but, over the long run, it definitely is the
sector that offers the highest growth potential. Similarly, Health Care has done
well for us and we still like it. You may not see the big drug companies grow at
20% to 25% a year, as they did in the late 1980s, but we feel they will continue
to deliver earning growth at rates that are above the market averages. Finance
stocks tend to trade in the opposite direction of
*Performance quoted reflects 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. Total return for the period based on
offering price for Class A Shares was 12.56%. Total return based on net asset
value and offering price for Class C Shares were 18.74% and 17.63%,
respectively.
**Lipper averages do not include the effect of sales charges.
- --------------------------------------------------------------------------------
interest rates. With rates drifting up, these stocks have been modest laggards.
We believe that rates will resume their longer term downward trend, and that
this will enhance the growth prospects and the stock prices in the finance
sector.
Q Can you list some of your current holdings, and provide a brief commentary
on each?
A CORRECTIONS CORP. OF AMERICA owns, operates and manages prisons for
governments. Private management saves governments 10-20% over their own
costs while providing a higher-quality facility. Fiscal responsibility is
in vogue with governments, so increased outsourcing of prisons is anticipated.
Currently the penetration of the private sector is low with only 3% market share
of prison beds. A public outcry against crime has led to the Crime Bill which
calls for 120,000 more prison beds and 100,000 more police officers. Corrections
Corp. of America is the market leader with 45-50% market share.
VETERINARY CENTERS OF AMERICA is the leader in the highly fragmented veterinary
hospital market. It will dwarf its private competitors upon the purchase of Pet
Practice (Pound2 in market and the only competitor). Veterinary Centers of
America is also the largest independent player in the niche vet lab business.
After this recent acquisition, Vet Centers will own 160 hospitals, 7 labs, and a
50.5% interest in the Vet's Choice (high-quality pet foods) joint venture with
H.J. Heinz. After buying Pet Practice, Vet Centers will still have less than 2%
of the market in revenues. This is a growth story that should last for years.
TRANS WORLD AIRLINES is the last of the airline-turnarounds. Prior management
saddled the company with debt and did not invest in technology, resulting in 2
bankruptcies and a significant operating disadvantage versus its competitors.
New management has been in place since 1994 (20 of 21 managers are new). Having
emerged out of the prepackaged bankruptcy in August 1995, Trans World Airlines
is now poised for a strong comeback.
QUINTILES TRANSNATIONAL is the largest outside provider of drug development
services to pharmaceutical and biotech companies. They help take new drugs from
pre-clinical trials all the way through to Food and Drug Administration
approval. Quintiles Transnational offers big and small drug companies access to
broader patient sample bases and expertise across more disease states than any
one company could manage alone. They are also at the forefront of
pharmacoeconomic consulting, which performs economic evaluations of drugs, a
crucial element in the determination of future drug pricing. This is one of the
fastest growing mid- to large-cap health care services companies around, with
earnings per share expected to grow at least 35%-40% annually for the next three
years.
SOLECTRON is the second-largest company in the electronic manufacturing services
sector. It specializes in the assembly of printed circuit boards, and provides a
full range of manufacturing services, including materials procurement, systems
integration, testing, and assistance in board design.
- --------------------------------------------------------------------------------
Larger customers include, Apple, AT&T, Bay Networks, Hewlett-Packard, Cisco,
Intel, IBM and Sun. With manufacturing capabilities in the U.S., Europe and the
Far East, Solectron is in good shape to meet the growing, global outsourcing
needs of these original equipment manufacturing.
ELECTRONIC DATA SYSTEMS is the dominant provider of systems integration, which
is the design and installation of new management information systems including
both the computer and telecommunications aspects. Electronic Data Systems also
specializes in facilities management, where they take on overall responsibility
for most of a client's data processing and managment information systems
operations. These are both high-growth, high-value-added businesses.
Q What is your outlook for growth stocks at this point in 1996?
A Growth stocks have tended to underperform relative to value stocks, when
economic growth was expected to increase. With the last two quarters of
economic growth coming in above expectations, growth stocks have traded
about in line with value stocks so far this year. We believe that the market
will begin to anticipate an economic "cooling off" towards year end and that
this will bode well for growth stocks for the second half of 1996 and into 1997.
CAPITAL GROWTH FUND
PORTFOLIO OF INVESTMENTS
APRIL 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ----------- ------------------------------------------------------------------------------------ -------------
COMMON STOCKS--95.7%
- -------------------------------------------------------------------------------------------------
BASIC INDUSTRY--6.3%
------------------------------------------------------------------------------------
5,800 Barrick Gold Corp. $ 177,625
------------------------------------------------------------------------------------
1,300 Monsanto Co. 196,950
------------------------------------------------------------------------------------
4,700 Potash Corporation of Saskatchewan, Inc. 331,350
------------------------------------------------------------------------------------
4,600 Praxair, Inc. 177,675
------------------------------------------------------------------------------------
6,900 (a)UCAR International, Inc. 282,900
------------------------------------------------------------------------------------ -------------
Total 1,166,500
------------------------------------------------------------------------------------ -------------
CONSUMER DURABLES--4.2%
------------------------------------------------------------------------------------
4,800 Anthony Industries, Inc. 136,800
------------------------------------------------------------------------------------
4,060 General Motors Corp., Class E 228,882
------------------------------------------------------------------------------------
3,500 Harley Davidson, Inc. 154,437
------------------------------------------------------------------------------------
5,600 (a)Oakley, Inc. 257,600
------------------------------------------------------------------------------------ -------------
Total 777,719
------------------------------------------------------------------------------------ -------------
CONSUMER NON-DURABLES--5.8%
------------------------------------------------------------------------------------
3,000 Campbell Soup Co. 187,500
------------------------------------------------------------------------------------
1,100 Coca-Cola Co. 89,650
------------------------------------------------------------------------------------
7,500 (a)Mossimo, Inc. 285,000
------------------------------------------------------------------------------------
3,500 Nike, Inc., Class B 306,250
------------------------------------------------------------------------------------
2,400 Philip Morris Cos., Inc. 216,300
------------------------------------------------------------------------------------ -------------
Total 1,084,700
------------------------------------------------------------------------------------ -------------
ENERGY MINERALS--6.6%
------------------------------------------------------------------------------------
2,000 British Petroleum Co. PLC, ADR 218,500
------------------------------------------------------------------------------------
18,500 (a)Global Marine, Inc. 210,437
------------------------------------------------------------------------------------
6,200 (a)Petroleum Geo-Services, ADR 196,075
------------------------------------------------------------------------------------
10,700 (a)Reading & Bates Corp. 262,150
------------------------------------------------------------------------------------
2,100 (a)Western Atlas, Inc. 126,000
------------------------------------------------------------------------------------
</TABLE>
CAPITAL GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ----------- ------------------------------------------------------------------------------------ -------------
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
ENERGY MINERALS--CONTINUED
------------------------------------------------------------------------------------
10,000 YPF Sociedad Anonima, ADR $ 218,750
------------------------------------------------------------------------------------ -------------
Total 1,231,912
------------------------------------------------------------------------------------ -------------
FINANCE--10.9%
------------------------------------------------------------------------------------
5,100 Aflac, Inc. 158,100
------------------------------------------------------------------------------------
9,800 (a)Amerin Corp. 221,725
------------------------------------------------------------------------------------
2,600 Citicorp 204,750
------------------------------------------------------------------------------------
9,350 MBNA Corp. 265,306
------------------------------------------------------------------------------------
3,200 Mellon Bank Corp. 172,000
------------------------------------------------------------------------------------
8,400 Schwab (Charles) Corp. 205,800
------------------------------------------------------------------------------------
5,600 Sunamerica, Inc. 305,200
------------------------------------------------------------------------------------
6,200 TCF Financial Corp. 219,325
------------------------------------------------------------------------------------
4,300 Travelers Group, Inc. 264,450
------------------------------------------------------------------------------------ -------------
Total 2,016,656
------------------------------------------------------------------------------------ -------------
HEALTH CARE--15.0%
------------------------------------------------------------------------------------
3,800 (a)Amgen, Inc. 218,500
------------------------------------------------------------------------------------
4,000 Foundation Health Corp. 156,500
------------------------------------------------------------------------------------
2,000 (a)Geltex Pharmaceuticals, Inc. 47,000
------------------------------------------------------------------------------------
3,700 (a)Genzyme Corp. 208,125
------------------------------------------------------------------------------------
1,900 Johnson & Johnson 175,750
------------------------------------------------------------------------------------
2,600 (a)KeraVision, Inc. 41,275
------------------------------------------------------------------------------------
3,900 Lilly (Eli) & Co. 230,100
------------------------------------------------------------------------------------
3,400 Medtronic, Inc. 180,625
------------------------------------------------------------------------------------
3,600 Merck & Co., Inc. 217,800
------------------------------------------------------------------------------------
7,000 Mylan Laboratories, Inc. 136,500
------------------------------------------------------------------------------------
10,400 (a)Ornda Healthcorp 286,000
------------------------------------------------------------------------------------
3,300 Pfizer, Inc. 227,287
------------------------------------------------------------------------------------
1,900 (a)Quintiles Transnational Corp. 139,175
------------------------------------------------------------------------------------
</TABLE>
CAPITAL GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ----------- ------------------------------------------------------------------------------------ -------------
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
HEALTH CARE--CONTINUED
------------------------------------------------------------------------------------
4,000 Teva Pharmaceutical Industries, Ltd., ADR $ 179,500
------------------------------------------------------------------------------------
6,500 (a)Thermedics, Inc. 196,625
------------------------------------------------------------------------------------
4,700 (a)Veterinary Centers of America 143,350
------------------------------------------------------------------------------------ -------------
Total 2,784,112
------------------------------------------------------------------------------------ -------------
PRODUCER MANUFACTURING--5.2%
------------------------------------------------------------------------------------
5,400 (a)American Standard Cos. 152,550
------------------------------------------------------------------------------------
5,100 (a)Cable Design Technologies, Class A 168,300
------------------------------------------------------------------------------------
5,400 Greenfield Industries, Inc. 205,200
------------------------------------------------------------------------------------
3,200 Magna International, Inc., Class A 148,400
------------------------------------------------------------------------------------
3,900 (a)Thermo Electron Corp. 240,337
------------------------------------------------------------------------------------
2,900 Thermo Sentron, Inc. 45,675
------------------------------------------------------------------------------------ -------------
Total 960,462
------------------------------------------------------------------------------------ -------------
RETAIL TRADE--5.5%
------------------------------------------------------------------------------------
9,000 (a)General Nutrition Cos., Inc. 175,500
------------------------------------------------------------------------------------
4,600 (a)Kohl's Corp. 158,125
------------------------------------------------------------------------------------
6,600 (a)MSC Industrial Direct Co. 240,075
------------------------------------------------------------------------------------
8,900 (a)Safeway, Inc. 300,375
------------------------------------------------------------------------------------
5,100 TJX Cos., Inc. 150,450
------------------------------------------------------------------------------------ -------------
Total 1,024,525
------------------------------------------------------------------------------------ -------------
SERVICES--7.2%
------------------------------------------------------------------------------------
8,000 (a)Calenergy, Inc. 208,000
------------------------------------------------------------------------------------
2,400 (a)Corrections Corp. America 153,000
------------------------------------------------------------------------------------
3,300 (a)HFS, Inc. 169,537
------------------------------------------------------------------------------------
5,850 Olsten Corp. 177,694
------------------------------------------------------------------------------------
4,000 Reynolds & Reynolds Co., Class A 185,000
------------------------------------------------------------------------------------
4,400 Service Corp. International 233,750
------------------------------------------------------------------------------------
</TABLE>
CAPITAL GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
- ----------- ------------------------------------------------------------------------------------ -------------
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
SERVICES--CONTINUED
------------------------------------------------------------------------------------
8,400 (a)USA Waste Services, Inc. $ 218,400
------------------------------------------------------------------------------------ -------------
Total 1,345,381
------------------------------------------------------------------------------------ -------------
TECHNOLOGY--19.2%
------------------------------------------------------------------------------------
3,300 (a)Altera Corp. 174,075
------------------------------------------------------------------------------------
2,900 (a)Atmel Corp. 116,000
------------------------------------------------------------------------------------
700 (a)Cascade Communications Corp. 70,175
------------------------------------------------------------------------------------
7,400 (a)Cheyenne Software, Inc. 168,350
------------------------------------------------------------------------------------
4,200 (a)Cisco Systems, Inc. 217,875
------------------------------------------------------------------------------------
2,300 (a)Digital Equipment Corp. 137,425
------------------------------------------------------------------------------------
5,400 (a)DST Systems, Inc. 198,450
------------------------------------------------------------------------------------
8,500 Ericsson LM 173,188
------------------------------------------------------------------------------------
4,800 (a)ESS Technology, Inc. 108,600
------------------------------------------------------------------------------------
1,900 First Data Corp., Class 144,400
------------------------------------------------------------------------------------
2,500 (a)FORE Systems, Inc. 197,500
------------------------------------------------------------------------------------
2,600 (a)HNC Software 96,850
------------------------------------------------------------------------------------
3,000 (a)Informix Corp. 79,125
------------------------------------------------------------------------------------
3,300 Intel Corp. 223,575
------------------------------------------------------------------------------------
6,900 Lucent Technologies, Inc. 242,363
------------------------------------------------------------------------------------
4,050 (a)MEMC Electronic Materials 201,994
------------------------------------------------------------------------------------
1,600 Micron Technology, Inc. 58,200
------------------------------------------------------------------------------------
1,800 (a)Microsoft Corp. 204,075
------------------------------------------------------------------------------------
2,700 (a)Oracle Corp. 91,125
------------------------------------------------------------------------------------
3,500 (a)Solectron Corp. 155,750
------------------------------------------------------------------------------------
4,200 (a)StorMedia, Inc. 178,500
------------------------------------------------------------------------------------
3,500 (a)Sun Microsystems, Inc. 189,875
------------------------------------------------------------------------------------
2,600 Varian Association, Inc. 148,525
------------------------------------------------------------------------------------ -------------
Total 3,575,995
------------------------------------------------------------------------------------ -------------
</TABLE>
CAPITAL GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ----------- ------------------------------------------------------------------------------------ -------------
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
TRANSPORTATION--1.3%
------------------------------------------------------------------------------------
2,100 (a)Continental Airlines, Inc., Class B $ 119,175
------------------------------------------------------------------------------------
7,000 (a)Trans World Airlines, Inc. 125,125
------------------------------------------------------------------------------------ -------------
Total 244,300
------------------------------------------------------------------------------------ -------------
UTILITIES--8.5%
------------------------------------------------------------------------------------
6,900 CMS Energy Corp. 200,963
------------------------------------------------------------------------------------
2,000 FPL Group, Inc. 86,250
------------------------------------------------------------------------------------
6,100 MCI Communications Corp. 179,569
------------------------------------------------------------------------------------
7,900 (a)Paging Network, Inc. 185,650
------------------------------------------------------------------------------------
9,000 (a)PanAmSat Corp. 299,250
------------------------------------------------------------------------------------
6,100 Sonat, Inc. 266,113
------------------------------------------------------------------------------------
5,500 Vodafone Group PLC, ADR 220,688
------------------------------------------------------------------------------------
2,700 Williams Cos., Inc. (The) 138,038
------------------------------------------------------------------------------------ -------------
Total 1,576,521
------------------------------------------------------------------------------------ -------------
TOTAL COMMON STOCKS (IDENTIFIED COST $14,012,106) 17,788,783
------------------------------------------------------------------------------------ -------------
CONVERTIBLE SECURITIES--2.0%
- -------------------------------------------------------------------------------------------------
CONSUMER SERVICES--0.7%
------------------------------------------------------------------------------------
$ 470,000 Boston Chicken, Inc., Conv. LYON, .08% accrual, 6/1/2015 138,650
------------------------------------------------------------------------------------ -------------
FINANCE--1.3%
------------------------------------------------------------------------------------
4,900 First USA, Inc., Cumulative PRIDES 238,875
------------------------------------------------------------------------------------ -------------
TOTAL CONVERTIBLE SECURITIES (IDENTIFIED COST $274,703 ) 377,525
------------------------------------------------------------------------------------ -------------
</TABLE>
CAPITAL GROWTH FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ----------- ------------------------------------------------------------------------------------ -------------
(B) REPURCHASE AGREEMENT--2.8%
- -------------------------------------------------------------------------------------------------
$ 510,000 BT Securities Corporation, 5.35%, dated 4/30/1996, due 5/1/1996
(AT AMORTIZED COST) $ 510,000
------------------------------------------------------------------------------------ -------------
TOTAL INVESTMENTS (IDENTIFIED COST $14,796,809) (C) $ 18,676,308
------------------------------------------------------------------------------------ -------------
</TABLE>
(a) Non-income producing security.
(b) 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.
(c) The cost of investments for federal tax purposes amounts to $14,801,761.
The net unrealized appreciation of investments on a federal tax basis
amounts to $3,874,547 which is comprised of $4,002,806 appreciation and
$128,259 depreciation at April 30, 1996.
Note: The categories of investments are shown as a percentage of net assets
($18,579,388) at April 30, 1996.
The following acronyms are used throughout this portfolio:
ADR--American Depository Receipt
LTD--Limited
LYON--Liquid Yield Option Note
PLC--Public Limited Company
PRIDES--Preferred Redeemable Increased Dividend Equity Securities
(See Notes which are an integral part of the Financial Statements)
CAPITAL GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ----------------------------------------------------------------------------------------------------
Total investments in securities, at value (identified cost $14,796,809, and tax cost $14,801,761) $ 18,676,308
- ----------------------------------------------------------------------------------------------------
Cash 4,367
- ----------------------------------------------------------------------------------------------------
Income receivable 10,300
- ----------------------------------------------------------------------------------------------------
Receivable for shares sold 14,635
- ---------------------------------------------------------------------------------------------------- ------------
Total assets 18,705,610
- ----------------------------------------------------------------------------------------------------
LIABILITIES:
- ----------------------------------------------------------------------------------------------------
Payable for investments purchased $ 122,770
- -----------------------------------------------------------------------------------------
Payable for shares redeemed 342
- -----------------------------------------------------------------------------------------
Payable for taxes withheld 254
- -----------------------------------------------------------------------------------------
Accrued expenses 2,856
- ----------------------------------------------------------------------------------------- ---------
Total liabilities 126,222
- ---------------------------------------------------------------------------------------------------- ------------
NET ASSETS for 1,231,517 shares outstanding $ 18,579,388
- ---------------------------------------------------------------------------------------------------- ------------
NET ASSETS CONSIST OF:
- ----------------------------------------------------------------------------------------------------
Paid in capital $ 13,921,511
- ----------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 3,879,499
- ----------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments 789,938
- ----------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (11,560)
- ---------------------------------------------------------------------------------------------------- ------------
Total Net Assets $ 18,579,388
- ---------------------------------------------------------------------------------------------------- ------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- ----------------------------------------------------------------------------------------------------
CLASS A SHARES:
- ----------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($16,616,396 / 1,100,962 shares outstanding) $15.09
- ---------------------------------------------------------------------------------------------------- ------------
Offering Price Per Share (100/94.50 of $15.09)* $15.97
- ---------------------------------------------------------------------------------------------------- ------------
Redemption Proceeds Per Share $15.09
- ---------------------------------------------------------------------------------------------------- ------------
CLASS C SHARES:
- ----------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($1,962,992 / 130,555 shares outstanding) $15.04
- ---------------------------------------------------------------------------------------------------- ------------
Offering Price Per Share $15.04
- ---------------------------------------------------------------------------------------------------- ------------
Redemption Proceeds Per Share (99.00/100 of $15.04)** $14.89
- ---------------------------------------------------------------------------------------------------- ------------
</TABLE>
* See "Investing in Class A Shares" in the Prospectus.
** See "Contingent Deferred Sales Charge" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
CAPITAL GROWTH FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -------------------------------------------------------------------------------------------------------
Dividends $ 80,354
- -------------------------------------------------------------------------------------------------------
Interest 35,147
- ------------------------------------------------------------------------------------------------------- ---------
Total income 115,501
- -------------------------------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------------------------------------
Investment advisory fee $ 52,060
- --------------------------------------------------------------------------------------------
Administrative personnel and services fee 77,077
- --------------------------------------------------------------------------------------------
Custodian fees 18,078
- --------------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 25,315
- --------------------------------------------------------------------------------------------
Directors'/Trustees' fees 2,730
- --------------------------------------------------------------------------------------------
Auditing fees 6,697
- --------------------------------------------------------------------------------------------
Legal fees 1,456
- --------------------------------------------------------------------------------------------
Portfolio accounting fees 29,614
- --------------------------------------------------------------------------------------------
Distribution services fee--Class A Shares 18,380
- --------------------------------------------------------------------------------------------
Distribution services fee--Class C Shares 6,008
- --------------------------------------------------------------------------------------------
Shareholder services fee--Class A Shares 18,380
- --------------------------------------------------------------------------------------------
Shareholder services fee--Class C Shares 2,003
- --------------------------------------------------------------------------------------------
Share registration costs 12,005
- --------------------------------------------------------------------------------------------
Printing and postage 14,985
- --------------------------------------------------------------------------------------------
Insurance premiums 1,237
- --------------------------------------------------------------------------------------------
Taxes 1,456
- --------------------------------------------------------------------------------------------
Miscellaneous 1,404
- -------------------------------------------------------------------------------------------- ---------
Total expenses 288,885
- --------------------------------------------------------------------------------------------
Waivers and reimbursements--
- --------------------------------------------------------------------------------------------
Waiver of investment advisory fee $ (52,060)
- ---------------------------------------------------------------------------------
Waiver of distribution services fee--Class A Shares (13,969)
- ---------------------------------------------------------------------------------
Waiver of shareholder services fee--Class A Shares (4,411)
- ---------------------------------------------------------------------------------
Waiver of shareholder services fee--Class C Shares (561)
- ---------------------------------------------------------------------------------
Reimbursement of other operating expenses (110,161)
- --------------------------------------------------------------------------------- ---------
Total waivers and reimbursements (181,162)
- -------------------------------------------------------------------------------------------- ---------
Net expenses 107,723
- ------------------------------------------------------------------------------------------------------- ---------
Net investment income 7,778
- ------------------------------------------------------------------------------------------------------- ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- -------------------------------------------------------------------------------------------------------
Net realized gain on investments 785,117
- -------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments 2,122,248
- ------------------------------------------------------------------------------------------------------- ---------
Net realized and unrealized gain on investments 2,907,365
- ------------------------------------------------------------------------------------------------------- ---------
Change in net assets resulting from operations $2,915,143
- ------------------------------------------------------------------------------------------------------- ---------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
CAPITAL GROWTH FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
(UNAUDITED) YEAR ENDED
APRIL 30, 1996 OCTOBER 31, 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ------------------------------------------------------------------------
OPERATIONS--
- ------------------------------------------------------------------------
Net investment income $ 7,778 $ 116,568
- ------------------------------------------------------------------------
Net realized gain (loss) on investments ($785,117 and $1,735,236 net
gains, respectively, as computed for federal tax purposes) 785,117 1,823,129
- ------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) 2,122,248 911,369
- ------------------------------------------------------------------------ -------------------- ------------------
Change in net assets resulting from operations 2,915,143 2,851,066
- ------------------------------------------------------------------------ -------------------- ------------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ------------------------------------------------------------------------
Distributions from net investment income
- ------------------------------------------------------------------------
Class A Shares (12,221) (112,008)
- ------------------------------------------------------------------------
Class C Shares -- (4,517)
- ------------------------------------------------------------------------
Distributions in excess of net investment income
- ------------------------------------------------------------------------
Class A Shares (6,743)(a) (11,509)(a)
- ------------------------------------------------------------------------
Class C Shares -- (1,835)(a)
- ------------------------------------------------------------------------
Distributions from net realized gains on investments
- ------------------------------------------------------------------------
Class A Shares (1,575,750) (1,288)
- ------------------------------------------------------------------------
Class C Shares (159,624) (141)
- ------------------------------------------------------------------------ -------------------- ------------------
Change in net assets resulting from distributions to shareholders (1,754,338) (131,298)
- ------------------------------------------------------------------------ -------------------- ------------------
SHARE TRANSACTIONS--
- ------------------------------------------------------------------------
Proceeds from sale of shares 4,585,287 4,399,945
- ------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
distributions declared 1,504,719 112,400
- ------------------------------------------------------------------------
Cost of shares redeemed (3,095,086) (3,751,954)
- ------------------------------------------------------------------------ -------------------- ------------------
Change in net assets resulting from share transactions 2,994,920 760,391
- ------------------------------------------------------------------------ -------------------- ------------------
Change in net assets 4,155,725 3,480,159
- ------------------------------------------------------------------------
NET ASSETS:
- ------------------------------------------------------------------------
Beginning of period 14,423,663 10,943,504
- ------------------------------------------------------------------------ -------------------- ------------------
End of period $ 18,579,388 $ 14,423,663
- ------------------------------------------------------------------------ -------------------- ------------------
</TABLE>
(a) Distributions in excess of net investment income were a result of certain
book and tax timing differences. These distributions do not represent a
return of capital for federal income tax purposes.
(See Notes which are an integral part of the Financial Statements)
CAPITAL GROWTH FUND
FINANCIAL HIGHLIGHTS--INVESTMENT SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, YEAR ENDED MARCH 31,
<S> <C> <C> <C> <C> <C> <C>
1995(C) 1994 1993 1992(B) 1991 1990
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.31 $ 13.38 $ 11.84 $ 12.00 $ 9.11 $ 9.97
- -----------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------
Net investment income 0.07 0.15 0.13 0.12 0.31 0.32
- -----------------------------------------------------
Net realized and unrealized gain (loss) on
investments (.67) (1.25) 1.71 (0.18) 2.91 (0.86)
- ----------------------------------------------------- --------- --------- --------- ----------- --------- ---------
Total from investment operations (0.60) (1.10) 1.84 (0.06) 3.22 (0.54)
- ----------------------------------------------------- --------- --------- --------- ----------- --------- ---------
LESS DISTRIBUTIONS
- -----------------------------------------------------
Distributions from net investment income (0.07) (0.15) (0.14) (0.10) (0.30) (0.32)
- -----------------------------------------------------
Distributions in excess of net investment income -- -- -- -- (0.01) --
- -----------------------------------------------------
Distributions from net realized gain on investment
transactions -- (0.82) (0.16) -- (0.02) --
- ----------------------------------------------------- --------- --------- --------- ----------- --------- ---------
Total distributions (0.07) (0.97) (0.30) (0.10) (0.33) (0.32)
- ----------------------------------------------------- --------- --------- --------- ----------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 10.64 $ 11.31 $ 13.38 $ 11.84 $ 12.00 $ 9.11
- ----------------------------------------------------- --------- --------- --------- ----------- --------- ---------
TOTAL RETURN (D) (5.28%) (8.20%) 15.70% (0.53%) 35.68% (5.43%)
- -----------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------
Expenses 1.08%* 1.03% 1.00% 1.00%* 1.00% 1.00%
- -----------------------------------------------------
Net investment income 3.77%* 1.17% 0.98% 1.28%* 2.73% 3.54%
- -----------------------------------------------------
Expense waiver/reimbursement (e) 4.99 (f) 2.37% 2.37% 1.50%* 1.50% 1.50%
- -----------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------
Net assets, end of period (000 omitted) $0 $14 $14,836 $18,161 $13,513 $7,484
- -----------------------------------------------------
Portfolio turnover 160% 86% 74% 29 % 57% 83%
- -----------------------------------------------------
<CAPTION>
<S> <C>
1989(A)
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
- -----------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------
Net investment income 0.03
- -----------------------------------------------------
Net realized and unrealized gain (loss) on
investments (0.04)
- ----------------------------------------------------- -----------
Total from investment operations (0.01)
- ----------------------------------------------------- -----------
LESS DISTRIBUTIONS
- -----------------------------------------------------
Distributions from net investment income (0.02)
- -----------------------------------------------------
Distributions in excess of net investment income --
- -----------------------------------------------------
Distributions from net realized gain on investment
transactions --
- ----------------------------------------------------- -----------
Total distributions (0.02)
- ----------------------------------------------------- -----------
NET ASSET VALUE, END OF PERIOD $ 9.97
- ----------------------------------------------------- -----------
TOTAL RETURN (D) (0.02%)
- -----------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------
Expenses 1.19%*
- -----------------------------------------------------
Net investment income 4.21%*
- -----------------------------------------------------
Expense waiver/reimbursement (e) 0.78%*
- -----------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------
Net assets, end of period (000 omitted) $5,525
- -----------------------------------------------------
Portfolio turnover 0 %
- -----------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from November 30, 1989 (date of initial
public investment) to December 31, 1989.
(b) During the ten month period, the Fund changed its fiscal year-end from
December 31 to October 31.
(c) As of December 20, 1994, Investment shares of Capital Growth Fund had no
shareholders and were no longer offered for public investments.
(d) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(e) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(f) The Adviser waived all of the investment advisory fee and reimbursed
$103,023 of certain operating expenses of the Fund, which represents 0.65%
and 0.88% of average net assets, respectively, to comply with certain state
expense limitations. The remainder of the reimbursement was voluntary.
(See Notes which are an integral part of the Financial Statements)
CAPITAL GROWTH FUND
FINANCIAL HIGHLIGHTS--CLASS A SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
APRIL 30, YEAR ENDED OCTOBER 31,
<S> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992(A)
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.27 $ 11.31 $ 13.38 $ 11.84 $ 12.00
- ------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------
Net investment income 0.01 0.15 0.12 0.09 0.11
- ------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 2.50 2.96 (1.25) 1.71 (0.18)
- ------------------------------------------------------------------ ------ --------- --------- --------- -----------
Total from investment operations 2.51 3.11 (1.13) 1.80 (0.07)
- ------------------------------------------------------------------ ------ --------- --------- --------- -----------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------
Distributions from net investment income (0.01) (0.14) (0.12) (0.10) (0.09)
- ------------------------------------------------------------------
Distributions in excess of net investment income (0.01) (0.01) -- -- --
- ------------------------------------------------------------------
Distributions from net realized gain on investment transactions (1.67) (0.001) (0.82) (0.16) --
- ------------------------------------------------------------------ ------ --------- --------- --------- -----------
Total distributions (1.69) (0.15) (0.94) (0.26) (0.09)
- ------------------------------------------------------------------ ------ --------- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 15.09 $ 14.27 $ 11.31 $ 13.38 $ 11.84
- ------------------------------------------------------------------ ------ --------- --------- --------- -----------
TOTAL RETURN (B) 19.10% 27.79% (8.43%) 15.34% (0.61%)
- ------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------
expenses 1.25%* 1.25% 1.25% 1.25% 1.17%*
- ------------------------------------------------------------------
Net investment income 0.17%* 1.06% 1.00% 0.73% 1.19%*
- ------------------------------------------------------------------
Expense waiver/reimbursement (c) 2.24%* 3.29 (d) 2.79% 2.37% 1.33%*
- ------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------
Net assets, end of period (000 omitted) $16,616 $13,069 $9,880 $11,609 $6,540
- ------------------------------------------------------------------
Average commission rate paid $0.0549 -- -- -- --
- ------------------------------------------------------------------
Portfolio turnover 58 % 160% 86% 74% 29 %
- ------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from January 16, 1992 (date of initial
public investment) to October 31, 1992.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(d) The Adviser waived all of the investment advisory fee and reimbursed
$103,023 of certain operating expenses of the Fund, which represents 0.65%
and 0.88% of average net assets, respectively, to comply with certain state
expense limitations. The remainder of the reimbursement was voluntary.
(See Notes which are an integral part of the Financial Statements)
CAPITAL GROWTH FUND
FINANCIAL HIGHLIGHTS--CLASS C SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
APRIL 30, YEAR ENDED OCTOBER 31,
<S> <C> <C> <C> <C>
1996 1995 1994 1993(A)
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.25 $ 11.31 $ 13.36 $ 12.39
- --------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------
Net investment income (0.03) 0.05 0.04 (0.01)
- --------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 2.49 2.96 (1.23) 0.98
- -------------------------------------------------------------------------- ------ --------- --------- -----------
Total from investment operations 2.46 3.01 (1.19) 0.97
- -------------------------------------------------------------------------- ------ --------- --------- -----------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------------
Distributions from net investment income -- (0.05) (0.04) --
- --------------------------------------------------------------------------
Distributions in excess of net investment income -- (0.02) -- --
- --------------------------------------------------------------------------
Distributions from net realized gain on investment transactions (1.67) (0.001) (0.82) --
- -------------------------------------------------------------------------- ------ --------- --------- -----------
Total distributions (1.67) (0.07) (0.86) --
- -------------------------------------------------------------------------- ------ --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 15.04 $ 14.25 $ 11.31 $ 13.36
- -------------------------------------------------------------------------- ------ --------- --------- -----------
TOTAL RETURN (B) 18.74% 26.78% (8.90%) 7.83%
- --------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------------
Expenses 1.95%* 1.94% 2.00% 2.00%*
- --------------------------------------------------------------------------
Net investment income (0.55%)* 0.38% 0.35% (0.18%)*
- --------------------------------------------------------------------------
Expense waiver/reimbursement (c) 2.05%* 3.10 (d) 2.73% 2.37%*
- --------------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------
Net assets, end of period (000 omitted) $ 1,963 $ 1,354 $ 1,049 $ 314
- --------------------------------------------------------------------------
Average commission rate paid $0.0549 -- -- --
- --------------------------------------------------------------------------
Portfolio turnover 58 % 160% 86% 74 %
- --------------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from April 13, 1993 (date of initial
public investment) to October 31, 1993.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(d) The Adviser waived all of the investment advisory fee and reimbursed
$103,023 of certain operating expenses of the Fund, which represents 0.65%
and 0.88% of average net assets, respectively, to comply with certain state
expense limitations. The remainder of the reimbursement was voluntary.
(See Notes which are an integral part of the Financial Statements)
CAPITAL GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1996 (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,
management investment company. The Corporation consists of two portfolios. The
financial statements included herein are only those of Capital Growth Fund (the
"Fund"), a diversified portfolio. 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. The investment objective of the Fund is appreciation of capital.
The Fund offers two classes of shares: Class A Shares and Class C Shares.
Previously , the Fund provided three classes of shares ("Investment Shares",
"Class A Shares" and "Class C Shares"). As of December 20, 1994, "Investment
Shares" had no shareholders and therefore shares were no longer offered.
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 equity securities are valued at the last sale
price reported on a national securities exchange. Short-term securities are
valued at the prices provided by an independent pricing service. However,
short-term securities with remaining maturities of sixty days or less at
the time of purchase may be valued at amortized cost, which approximates
fair market value.
REPURCHASE AGREEMENTS--It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral under repurchase
agreement transactions. Additionally, procedures have been established by
the Fund to monitor, on a daily basis, the market value of each repurchase
agreement's collateral to ensure that the value of collateral at least
equals the repurchase price to be paid under the repurchase agreement
transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Directors (the
"Directors"). Risks may arise from the potential inability of
counterparties to honor the terms of the repurchase agreement. Accordingly,
the Fund could receive less than the repurchase price on the sale of
collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code"). Dividend
income and distributions to shareholders are recorded on the ex-dividend
date.
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses, and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER--Investment transactions are accounted for on the trade date.
3. CAPITAL STOCK
At April 30, 1996, there were 1,000,000,000 shares ($.0001 par value per share)
of capital stock authorized. Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1996 OCTOBER 31, 1995
<S> <C> <C> <C> <C>
INVESTMENT SHARES SHARES AMOUNT SHARES AMOUNT
Shares sold -- -- -- --
- ------------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared -- -- -- --
- ------------------------------------------------------------
Shares redeemed -- -- (1,315) (14,628)
- ------------------------------------------------------------ --------- ------------- --------- -------------
Net change resulting from Investment share transactions -- -- (1,315) $ (14,628)
- ------------------------------------------------------------ --------- ------------- --------- -------------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1996 OCTOBER 31, 1995
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 287,733 $ 4,059,111 308,913 $ 4,074,979
- ------------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 103,665 1,382,895 9,233 107,117
- ------------------------------------------------------------
Shares redeemed (206,208) (2,933,521) (275,897) (3,429,575)
- ------------------------------------------------------------ --------- ------------- --------- -------------
Net change resulting from Class A share transactions 185,190 $ 2,508,485 42,249 $ 752,521
- ------------------------------------------------------------ --------- ------------- --------- -------------
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1996 OCTOBER 31, 1995
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 38,121 $ 526,176 26,099 $ 324,966
- ------------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 9,146 121,824 482 5,283
- ------------------------------------------------------------
Shares redeemed (11,715) (161,565) (24,336) (307,751)
- ------------------------------------------------------------ --------- ------------- --------- -------------
Net change resulting from Investment share transactions 35,552 $ 486,435 2,245 $ 22,498
- ------------------------------------------------------------ --------- ------------- --------- -------------
Net change resulting from share transactions 220,742 $ 2,994,920 43,179 $ 760,391
- ------------------------------------------------------------ --------- ------------- --------- -------------
</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 (a) a maximum of .55% of the average daily net assets of the
Fund, and (b) 4.50% of the gross income of the Fund, excluding capital
gains or losses. The Adviser may voluntarily choose to waive any portion of
its fee and 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 Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received during
the period of the Administrative Services Agreement shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan,
the Fund will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended
to result in the sale of the Fund's Class A Shares and Class C Shares. The
Plan provides that the Fund may incur distribution expenses according to
the following schedule annually, to compensate FSC.
<TABLE>
<CAPTION>
% OF AVG. DAILY NET
SHARE CLASS NAME ASSETS OF CLASS
<S> <C>
Class A 0.25%
Class C 0.75%
</TABLE>
The distributor may voluntarily choose to waive any portion of its fee. The
distributor can modify or terminate this voluntary waiver at any time at
its sole discretion.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services ("FSS"), the Fund will pay
FSS up to 0.25% of average daily net assets of the Fund for the period. The
fee paid to FSS is used to finance certain services for shareholders and to
maintain shareholder accounts. FSS may voluntarily choose to waive any
portion of its fee. FSS can modify or terminate this voluntary waiver at
any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--FServ, through
its subsidiary, Federated Shareholder Services Company serves as transfer
and dividend disbursing agent for the Fund. The fee paid to FServ is based
on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records
for which it receives a fee. The fee is based on the level of the Fund's
average daily net assets for the period, plus out-of-pocket expenses.
GENERAL--Certain of the Officers and Directors of the Corporation are
Officers and Directors or Trustees of the above companies.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended April 30, 1996, were as follows:
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------------
PURCHASES $ 10,873,263
- --------------------------------------------------------------------------------------------------- -------------
SALES $ 9,094,777
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
6. SUBSEQUENT EVENT
The Fund's Board of Directors has distributed a proxy statement to shareholders
requesting approval of a plan of reorganization between the Fund and Federated
Equity Funds. Under the terms of the proposed plan of reorganization, the Fund's
assets would be acquired in a tax free exchange for shares outstanding of
Federated Growth Strategies Fund (a portfolio of Federated Equity Funds). A
special meeting of the Fund's shareholders to consider this proposal has been
scheduled for June 24, 1996.
TRUSTEES OFFICERS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
John F. Donahue John F. Donahue
Thomas G. Bigley Chairman
John T. Conroy, Jr. J. Christopher Donahue
William J. Copeland President
J. Christopher Donahue Edward C. Gonzales
James E. Dowd Executive Vice President
Lawrence D. Ellis, M.D. John W. McGonigle
Edward L. Flaherty, Jr. Executive Vice President, Treasurer and Secretary
Peter E. Madden Richard B. Fisher
Gregor F. Meyer Vice President
John E. Murray, Jr. Douglas L. Hein
Wesley W. Posvar Assistant Treasurer
Marjorie P. Smuts S. Elliott Cohan
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.
CAPITAL
GROWTH
FUND
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
APRIL 30, 1996
[LOGO] FEDERATED INVESTORS
Since 1955
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
Cusip 461444200
Cusip 461444408
0072503 (6/96)
Appendix for Federated Bond Fund
A.1 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 lighter shaded
portion represents the value of reinvested income for the fund. The
dark shaded portion reflects the principal value of a $9,000
investment in the fund (889 shares). The "x" axis reflects
computation periods from 5/20/87 to 4/30/96. The "y" axis is measured
in increments of $3,500 ranging from $0 to $21,000 and indicates that
the ending value of hypothetical investment of $9,000 in the fund's
Class F Shares, assuming the reinvestment of capital gains and
dividends,would have grown to $20,482 (2,147 shares) on 4/30/96.
A.2 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 lighter shaded
portion represents the value of reinvested income for the fund. The
dark shaded portion reflects the principal value of a $1,000 annual
investments in the fund for nine years. The "x" axis reflects
computation periods from 5/20/87 to 4/30/96. The "y" axis is measured
in increments of $4,000 ranging from $0 to $16,000 and indicates that
the ending value of hypothetical annual investments of $1,000 in the
fund's Class F Shares, assuming the reinvestment of capital gains and
dividends,would have grown to $14,482 (1,563 shares) on 4/30/96.
A.3 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 lighter shaded
portion represents the value of reinvested income for the fund. The
dark shaded portion reflects the principal value of a $20,000
investment in the fund. The "x" axis reflects computation periods from
5/20/87 to 4/30/96. The "y" axis is measured in increments of $6,000
ranging from $0 to $48,000 and indicates that the ending value of
hypothetical annual investment of $20,000 in the fund's Class F Shares
would have grown to $44,516 (4,772 shares) on 4/30/96.
