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Federated Bond Fund
[Graphic]
11th Annual Report October 31, 1997
Established 1987
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President's Message
[Photo Appears here]
Dear Shareholder:
Federated Bond Fund was created in 1987, and I am pleased to present its 11th
annual report. This report covers the 12-month fiscal year from November 1, 1996
through October 31, 1997, and opens with a discussion with Joseph Balestrino,
Vice President, Federated Advisers. Following his discussion, detailing both the
corporate market and recent activity in the fund's portfolio, are a series of
performance charts, a complete list of the fund's holdings, and the fund's
financial statements.
Amid a much improved interest rate environment, as well as a general flight to
quality by investors in the wake of volatile international markets, Federated
Bond Fund delivered a strong total return that outperformed that of its peer
group, the Lipper Corporate Debt Funds BBB Rated Average. Contributing to the
total return were a strong monthly income stream and an increase in net asset
value. The performance of the fund's share classes during the 12-month reporting
period is shown below.*
<TABLE>
<CAPTION>
Total Income Net Asset
Return Distribution Value Increase
<S> <C> <C> <C>
Class A Shares 10.73% $0.70 $9.72 to $10.02=3%
Class B Shares 9.86% $0.62 $9.72 to $10.02=3%
Class C Shares 9.86% $0.62 $9.72 to $10.02=3%
Class F Shares 10.70% $0.70 $9.72 to $10.02=3%
</TABLE>
The fund's portfolio of corporate bonds reflects an emphasis on diversification
and quality. On October 31, 1997, the $668 million portfolio held more than 310
bonds-approximately 72% of them rated investment grade-with the remaining assets
invested in high-yield bonds.**
* Performance quoted is based on net asset value and 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 period based on offering price for Class A, B, C, and F
Shares were 5.73%, 4.05%, 8.76%, and 8.48%, respectively.
** Lower rated bonds involve a higher degree of risk than investment grade bonds
in return for higher yield potential.
Thank you for being a Federated Bond Fund shareholder. Remember, it's easy to
increase your participation in the performance potential of a diversified bond
portfolio by reinvesting your earnings automatically in additional fund shares.
As always, we welcome your comments, questions and suggestions.
Sincerely,
J. Christopher Donahue
President
December 15, 1997
Investment Review
[Photo Appears here]
Joseph Balestrino
Vice President
Federated Advisers
Q. What are your comments on the high-quality fixed-income market environment
during the past 12 months?
A. The fund's fiscal year witnessed an overall positive but changing environment
for high-quality, fixed-income securities. The initial six months saw interest
rates increase for all maturity points in response to stronger-than-anticipated
economic activity in the early part of 1997. In a growing economic environment,
business conditions improved for high-quality corporate issuers, and thus
corporate securities outperformed comparable maturity Treasury securities.
During the past six months, the scenario completely reversed. Interest rates
fell in response to slower-than-expected growth, and corporate securities were
underperforming Treasuries as the fiscal year drew to a close. For the entire
12- month reporting period ending October 31, 1997, the high-quality,
fixed-income market delivered solid returns as interest rates generally fell,
ranging from 0.1% for shorter maturities to 0.5% for longer maturities. This was
largely due to very modest inflation figures that have continued to surprise the
market on the downside. Thus, shareholders received dividends plus capital
appreciation.
October of 1997 delivered approximately one-half of the total period's decline
in interest rates. The foreign currency and stock market crisis that started in
Southeast Asia and spread to Latin America created an immense "flight to
quality." In short, U.S. Treasury securities became the most attractive
investment class in the entire world as investors, at least temporarily, shunned
the domestic and foreign stock markets along with the foreign bond markets.
Q. Federated Bond Fund performed relatively well during the 12-month reporting
period ending October 31, 1997. How did the fund measure against all BBB-rated
bond funds as tracked by Lipper Analytical Services, Inc.?
A. The fund's A, B, C, and F Share classes produced total returns of 10.73%,
9.86%, 9.86%, and 10.70%, respectively, based on net asset value. These returns
compared favorably to the total return of 9.57% for the average corporate bond
fund as measured by the Lipper Corporate Debt Funds BBB Rated category.
Q. Did you make any adjustments to the fund's duration andquality?
A. Not materially. The portfolio's average maturity position was modestly
shorter at the end of the fiscal year, relative to the beginning, just shy of a
neutral position. Thus, performance incorporated the higher income of corporate
securities slightly offset by the maturity target.
Concerning quality, we continued to maintain approximately 25% of total fund
assets in high-yield corporate securities. This minor, but still significant,
position has helped generate not only an above-average income distribution for
shareholders, but has also enhanced price appreciation as high-yield bonds
outperformed higher quality bonds over the past year.
Q. The fund's income distributions remain an important source of cash flow to
many shareholders. What were the fund's yields on October 31, 1997?
A. On October 31, 1997, the fund's daily distribution rate+ based on net asset
value was 7.07% for Class A Shares compared to the 10-year Treasury rate, which
was 5.83% on that same day. The fund's distribution rates based on net asset
value for Class B, C, and F Shares were 6.23%, 6.23%, and 7.07%, respectively.
The fund's 30-day current net yields based on net asset value for ClassA, B, C,
and F Shares were 6.92%, 6.11%, 6.11%, and 6.89%, respectively.++
Q. How were the fund's assets allocated according to bond quality, and what were
the fund's top ten holdings at the end of the reporting period?
A. The fund's allocation by quality was:
AAA 10.88%
AA 4.85%
A 23.01%
BBB 33.46%
BB 11.95%
B 15.85%
+ The 30-day distribution rate reflects actual distributions made to
shareholders. It is calculated by dividing the monthly annualized dividend
plus short-term capital gains, if any, by the average 30-day offering price.
The daily distribution rates based on offering price for Class A Shares and
Class F Shares were 6.75% and 7.00%, respectively.
++ The 30-day current net yield is calculated by dividing the investment income
per share for the prior 30 days by the maximum offering price per share on
that date. The figure is compounded and annualized. The 30-day current net
yields for Class A Shares and Class F Shares based on offering price were
6.61% and 6.82%, respectively.
As of October 31, 1997, the top 10 holdings consisted of:
Percentage
Name of Portfolio
Trans Ocean Container Corp., 12.250%, 7/1/04 1.95%
Repap Wisconsin, Inc., 9.875%, 5/1/06 1.91%
Continental Cablevision, 9.500%, 8/1/13 1.64%
Valassis Communication, Inc., 9.375%, 3/15/99 1.47%
Figgie International, Inc., 9.875%, 10/1/99 1.45%
TKR Cable, Inc., 10.500%, 10/30/07 1.40%
SCI Television, Inc., 11.000%, 6/30/05 1.36%
Highwoods Properties, Inc., 8.625%, 12/31/49 1.33%
Price REIT, Inc., 7.500%, 11/5/96 1.31%
Conseco, Inc., 10.500%, 12/15/04 1.29%
-----
Total Percent of Portfolio 15.11%
Q. On balance, the fund's fiscal year was a relatively favorable period for bond
investors. As we prepare to leave 1997, what do you see ahead?
As the fiscal year came to a close, inflation remained very low in the U.S. as
well as in most industrialized countries. In addition, domestic economic
activity continues to move forward but at a slower rate of growth than in
previous years. Thus, the backdrop of low inflation and moderate growth would
seem to present an environment well suited to the high-quality, fixed-income
investor.
The worldwide events of October 1997 also heightened the attractiveness of
high-quality U.S. bonds. While most economists, along with Federal Reserve
Chairman Alan Greenspan, are not expecting a dramatic economic slowdown as a
result of Southeast Asian disruptions, all parties anticipate the U.S. economy
will grow at a slower rate than would have been expected prior to these events.
In summary, the domestic and worldwide environment appears very favorable for
bond investors, who prefer slower growth to stronger growth, as we start the new
fiscal year.
Two Ways You May Seek to Invest for Success in
Federated Bond Fund
Initial Investment:
If you had made an initial investment of $11,000 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 $29,466 on 10/31/97. You
would have earned a 9.89%* average annual total return for the 10-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 10/31/97, the Class A Shares' one-year and since-inception (6/28/95) total
returns were 5.73% and 7.28%, respectively. Class B Shares' one-year and since-
inception (6/28/95) total returns were 4.05% and 6.74%, respectively. Class C
Shares' one-year and since-inception (6/28/95) total returns were 8.76% and
8.57%, respectively. Class F Shares' average annual one-year, five-year and
ten-year total returns were 8.48%, 9.79%, and 10.05%, respectively.**
[Graphic] - SEE APPENDIX (A.)
* 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 the 1.00% contingent deferred sales charge for Class F
Shares.
Data quoted represents past performance and does not guarantee future results.
Investment return and principal value will fluctuate so an investor's shares,
when redeemed, may be worth more or less than their original cost.
** The total returns stated take into account the 4.50% sales charge for Class A
Shares, the 5.50% contingent deferred sales charge for Class B Shares, the
1.00% contingent deferred sales charge for Class C Shares, and the 1.00%
sales charge and 1.00% contingent deferred sales charge for Class F Shares.
Federated Bond Fund
One Step at a Time:
$1,000 Invested each year for 11 years (reinvesting all dividends and capital
gains) grew to $19,748.
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 $11,000, but your account would
have reached a total value of $19,748* by 10/31/97. You would have earned an
average annual total return of 10.41%.
A practical investment plan helps you pursue a high level of income through
high-quality 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,
money and compounding to work.
[Graphic] - SEE APPENDIX (B.)
* This chart assumes that the subsequent annual investments are made on the last
day of each anniversary month. No method of investing can guarantee a profit
or protect against loss in down markets. However, by investing regularly over
time and buying shares at various prices, investors can purchase more shares
at lower prices, 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 the Class F
Shares of Federated Bond Fund.
As this chart shows, over ten years their original investment in Class F Shares
has grown to $53,573. This represents a 9.89% average annual total return.* For
John and Joan, that means extramoney to supplement their daughter's college
tuition.
[Graphic] - SEE APPENDIX (C.)
* This hypothetical scenario is provided for illustrative purposes only and does
not represent the results obtained by any particular shareholder. Past
performance does not guarantee future results.
Federated Bond Fund
(Class A Shares)
Growth of $10,000 Invested in Federated Bond Fund (Class A Shares)
The graph below illustrates the hypothetical investment of $10,000* in the
Federated Bond Fund (Class A Shares) (the "Fund") from June 28, 1995 (start of
performance), to October 31, 1997, compared to the Lehman Brothers Corporate
Bond Index (LBCBI)+ and the Lipper Corporate Debt Funds BBB Rated Average
(LCDBBB).++
[Graphic] - SEE APPENDIX (D.)
Past performance is not predictive of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than their original cost. Mutual funds are not obligations of
or guaranteed by any bank and are not federally insured.
* Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 4.50% ($10,000 investment minus $450 sales charge
= $9,550). The Fund's performance assumes the reinvestment of all dividends
and distributions. The LBCBI and the LCDBBB have been adjusted to reflect
reinvestment of dividends on securities in the index and average.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The LBCBI is not adjusted to reflect sales charges, expenses, or other fees
that the Securities and Exchange Commission requires to be reflected in the
Fund's performance. This index is unmanaged.
++ The LCDBBB represents the average of the total returns reported by all of the
mutual funds designated by Lipper Analytical Services, Inc. as falling into
the category, and is not adjusted to reflect any sales charges. However,
these total returns are reported net of expenses or other fees that the
Securities and Exchange Commission requires to be reflected in a fund's
performance.
Federated Bond Fund
(Class B Shares)
Growth of $10,000 Invested in Federated Bond Fund (Class B Shares)
The graph below illustrates the hypothetical investment of $10,000* in the
Federated Bond Fund (Class B Shares) (the "Fund") from June 28, 1995 (start of
performance), to October 31, 1997, compared to the Lehman Brothers Corporate
Bond Index (LBCBI)+ and the Lipper Corporate Debt Funds BBB Rated Average
(LCDBBB).++
[Graphic] - SEE APPENDIX (E.)
Past performance is not predictive of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than their original cost. Mutual funds are not obligations of
or guaranteed by any bank and are not federally insured.
* Represents a hypothetical investment of $10,000 in the Fund. The ending value
of the Fund reflects a 4.00% contingent deferred sales charge on any
redemption less than 3 years from the purchase date. The maximum contingent
deferred sales charge is 5.50% on any redemption less than 1 year from the
purchase date. The Fund's performance assumes the reinvestment of all
dividends and distributions. The LBCBI and the LCDBBB have been adjusted to
reflect reinvestment of dividends on securities in the index and average.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The LBCBI is not adjusted to reflect sales charges, expenses, or other fees
that the Securities and Exchange Commission requires to be reflected in the
Fund's performance. This index is unmanaged.
++ The LCDBBB represents the average of the total returns reported by all of the
mutual funds designated by Lipper Analytical Services, Inc. as falling into
the category, and is not adjusted to reflect any sales charges. However,
these total returns are reported net of expenses or other fees that the
Securities and Exchange Commission requires to be reflected in a fund's
performance.
Federated Bond Fund
(Class C Shares)
Growth of $10,000 Invested in Federated Bond Fund (Class C Shares)
The graph below illustrates the hypothetical investment of $10,000* in the
Federated Bond Fund (Class C Shares) (the "Fund") from June 28, 1995 (start of
performance), to October 31, 1997, compared to the Lehman Brothers Corporate
Bond Index (LBCBI)+ and the Lipper Corporate Debt Funds BBB Rated Average
(LCDBBB).++
[Graphic] - SEE APPENDIX (F.)
Past performance is not predictive of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than their original cost. MUTUAL FUNDS ARE NOT OBLIGATIONS OF
OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* Represents a hypothetical investment of $10,000 in the Fund. The ending value
of the Fund reflects a contingent deferred sales charge of 1.00% on any
redemption less than 1 year from the purchase date. The Fund's performance
assumes the reinvestment of all dividends and distributions. The LBCBI and the
LCDBBB have been adjusted to reflect reinvestment of dividends on securities
in the index and average.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The LBCBI is not adjusted to reflect sales charges, expenses, or other fees
that the Securities and Exchange Commission requires to be reflected in the
Fund's performance. This index is unmanaged.
++ The LCDBBB represents the average of the total returns reported by all of the
mutual funds designated by Lipper Analytical Services, Inc. as falling into
the category, and is not adjusted to reflect any sales charges. However,
these total returns are reported net of expenses or other fees that the
Securities and Exchange Commission requires to be reflected in a fund's
performance.
Federated Bond Fund
(Class F Shares)
Growth of $10,000 Invested in Federated Bond Fund (Class F Shares)
The graph below illustrates the hypothetical investment of $10,000* in the
Federated Bond Fund (Class F Shares) (the "Fund") from October 31, 1987 to
October 31, 1997 compared to the Lehman Brothers Corporate Bond Index (LBCBI)+
and the Lipper Corporate Debt Funds BBB Rated Average (LCDBBB).++
[Graphic] - SEE APPENDIX (G.)
Past performance is not predictive of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than their original cost. MUTUAL FUNDS ARE NOT OBLIGATIONS OF
OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 1.00% ($10,000 investment minus $100 sales charge
= $9,900). The Fund's performance assumes the reinvestment of all dividends
and distributions. The LBCBI and the LCDBBB have been adjusted to reflect
reinvestment of dividends on securities in the index and average.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The LBCBI is not adjusted to reflect sales charges, expenses, or other fees
that the Securities and Exchange Commission requires to be reflected in the
Fund's performance. This index is unmanaged.
++ The LCDBBB represents the average of the total returns reported by all of the
mutual funds designated by Lipper Analytical Services, Inc. as falling into
the category, and is not adjusted to reflect any sales charges. However,
these total returns are reported net of expenses or other fees that the
Securities and Exchange Commission requires to be reflected in a fund's
performance.
Federated Bond Fund
Portfolio of Investments
October 31, 1997
<TABLE>
<CAPTION>
Principal
Amount Value
- ----------- -------------------------------------------------------------- -------------
<S> <C> <C>
Corporate Bonds--86.4%
Aerospace & Defense--0.4%
$ 2,250,000 McDonnell-Douglas Corp., Note, 9.40%, 10/15/2001 $ 2,399,468
500,000 Tracor, Inc., Sr. Sub. Note, 8.50%, 3/1/2007 505,000
-----------
Total 2,904,468
-----------
Air Transportation--0.4%
2,250,000 Southwest Airlines Co., Deb., 7.375%, 3/1/2027 2,337,660
-----------
Automobile--1.4%
600,000 Aftermarket Technology Co., Sr. Sub. Note, 12.00%, 8/1/2004 669,000
5,300,000 Arvin Capital, 9.50%, 2/1/2027 5,820,990
900,000 Collins & Aikman Products Co., Sr. Sub. Note, 11.50%, 4/15/2006 1,023,750
550,000 Exide Corp., Sr. Note, 10.00%, 4/15/2005 580,250
250,000 Lear Corp., Sub. Note, 9.50%, 7/15/2006 273,750
500,000 Lear Seating Corp., Sub. Note, 8.25%, 2/1/2002 508,750
325,000 (a)Oxford Automotive, Inc., Sr. Sub. Note, 10.125%, 6/15/2007 339,625
-----------
Total 9,216,115
-----------
Banking--4.6%
4,750,000 ABN-AMRO Bank NV, Chicago, Sub. Deb., 7.30%, 12/1/2026 4,743,065
6,000,000 African Development Bank, Note, 6.875%, 10/15/2015 6,133,980
5,250,000 Santander Financial Issuances, Bank Guarantee, 7.875%, 4/15/2005 5,615,978
2,750,000 Crestar Financial Corp., Sub. Note, 8.75%, 11/15/2004 3,100,515
1,525,000 First Nationwide Escrow Corp., Sr. Sub. Note, 10.625%, 10/1/2003 1,700,375
5,740,000 FirstBank Puerto Rico, Sub. Note, 7.625%, 12/20/2005 5,932,129
3,250,000 National Bank of Canada, Montreal, Sub. Note, 8.125%, 8/15/2004 3,528,688
-----------
Total 30,754,730
-----------
Beverage & Tobacco--1.4%
800,000 Dimon, Inc., Sr. Note, 8.875%, 6/1/2006 858,000
8,000,000 Philip Morris Cos., Inc., Deb., 7.75%, 1/15/2027 8,276,240
-----------
Total 9,134,240
-----------
Broadcast Radio & TV--2.7%
700,000 (a)ACME Television, LLC, Sr. Disc. Note, 0/10.875%, 9/30/2004 519,750
400,000 Capstar Broadcasting Partners, Inc., Sr. Sub. Note, 9.25%, 7/1/2007 413,000
375,000 (a)Chancellor Media Corp., Sr. Sub. Note, 8.75%, 6/15/2007 377,812
400,000 Chancellor Media Corp., Sr. Sub. Note, 9.375%, 10/1/2004 414,000
1,075,000 (a)Fox/Liberty Networks, LLC, Sr. Disc. Note, 0/9.75%, 8/15/2007 682,625
375,000 (a)Fox/Liberty Networks, LLC, Sr. Note, 8.875%, 8/15/2007 377,812
875,000 Heritage Media Corp., Sr. Sub. Note, 8.75%, 2/15/2006 927,500
600,000 Lamar Advertising Co., Sr. Sub. Note, 9.625%, 12/1/2006 642,000
850,000 Outdoor Systems, Inc., Sr. Sub. Note, 8.875%, 6/15/2007 879,750
8,575,000 SCI Television, Inc., Sr. Secd. Note, 11.00%, 6/30/2005 8,971,765
700,000 SFX Broadcasting, Inc., Sr. Sub. Note, 10.75%, 5/15/2006 763,000
500,000 Sinclair Broadcast Group, Inc., Sr. Sub. Note, 10.00%, 12/15/2003 526,250
400,000 Sinclair Broadcast Group, Inc., Sr. Sub. Note, 10.00%, 9/30/2005 421,000
500,000 (a)Sinclair Broadcast Group, Inc., Sr. Sub. Note, 9.00%, 7/15/2007 502,500
100,000 Sullivan Broadcast Holdings Inc., Deb., 13.25%, 12/15/2006 105,250
850,000 Sullivan Broadcast Holdings Inc., Sr. Sub. Note, 10.25%, 12/15/2005 903,125
500,000 Young Broadcasting, Inc., Sr. Sub. Note, 9.00%, 1/15/2006 496,250
-----------
Total 17,923,389
-----------
Building & Development--0.1%
300,000 American Builders & Contractors Supply Co., Inc., Sr. Sub. Note,
10.625%, 5/15/2007 313,500
350,000 Building Materials Corp. of America, Sr. Note, 8.625%, 12/15/2006 357,000
-----------
Total 670,500
-----------
Business Equipment & Services--0.3%
400,000 Electronic Retailing Systems International, Inc., Sr. Disc. Note,
0/13.25%, 2/1/2004 278,000
325,000 Knoll Inc., Sr. Sub. Note, 10.875%, 3/15/2006 362,375
500,000 Outsourcing Solutions, Inc., Sr. Sub. Note, 11.00%, 11/1/2006 555,000
600,000 United Stationers Supply Co., Sr. Sub. Note, 12.75%, 5/1/2005 679,500
-----------
Total 1,874,875
-----------
Cable Television--6.7%
400,000 Australis Holdings Property Ltd., Unit, 0/15.00%, 11/1/2002 306,000
2,214 Australis Media Ltd., Sr. Disc. Note, 0/15.75%, 5/15/2003 1,694
250,000 Australis Media Ltd., Unit, 0/14.00%, 5/15/2003 191,250
350,000 Bell Cablemedia PLC, Sr. Disc. Note, 0/11.875%, 9/15/2005 289,625
550,000 Bell Cablemedia PLC, Sr. Disc. Note, 0/11.95%, 7/15/2004 496,375
4,000,000 CF Cable TV, Inc., Note, 9.125%, 7/15/2007 4,340,000
250,000 CF Cable TV, Inc., Sr. Secd. 2nd Priority Note, 11.625%, 2/15/2005 285,000
950,000 Cablevision Systems Corp., Sr. Sub. Deb., 9.875%, 2/15/2013 1,018,875
500,000 Cablevision Systems Corp., Sr. Sub. Note, 9.25%, 11/1/2005 522,500
300,000 Charter Communications Holdings, Inc., Sr. Disc. Note,
0/14.00%, 3/15/2007 223,500
700,000 Charter Communications Southeast, LP, Sr. Note, 11.25%, 3/15/2006 766,500
4,500,000 Comcast Cablevision, Note, 8.50%, 5/1/2027 5,156,640
550,000 Comcast Corp., Sr. Sub. Deb., 9.375%, 5/15/2005 585,750
9,090,000 Continental Cablevision, Sr. Deb., 9.50%, 8/1/2013 10,770,741
2,375,000 Diamond Cable Communications PLC, Sr. Disc. Note,
0/10.75%, 2/15/2007 1,549,687
1,450,000 EchoStar Satellite Broadcasting Corp., Sr. Disc. Note,
0/13.125%, 3/15/2004 1,167,250
500,000 (a)FrontierVision Holdings, LP, Sr. Disc. Note, 0/11.875%, 9/15/2007 342,500
1,000,000 International Cabletel, Inc., Sr. Defd. Cpn. Note, 0/10.875%, 10/15/2003 936,250
875,000 International Cabletel, Inc., Sr. Defd. Cpn. Note, 0/11.50%, 2/1/2006 651,875
250,000 Le Groupe Videotron Ltee, Sr. Note, 10.625%, 2/15/2005 280,000
600,000 Lenfest Communications Inc., Sr. Note, 8.375%, 11/1/2005 600,000
300,000 (a)Pegasus Communications Corp., Sr. Note, 9.625%, 10/15/2005 302,250
350,000 Pegasus Media, Note, 12.50%, 7/1/2005 400,750
300,000 Rogers Cablesystems Ltd., Sr. Secd. 2nd Priority Note,
10.00%, 12/1/2007 324,000
300,000 Rogers Cablesystems Ltd., Sr. Secd. 2nd Priority Note,
10.00%, 3/15/2005 327,000
750,000 Rogers Cablesystems Ltd., Sr. Sub. Gtd. Note, 11.00%, 12/1/2015 847,500
300,000 Rogers Communications, Inc., Sr. Note, 8.875%, 7/15/2007 301,500
8,220,000 TKR Cable, Inc., 10.50%, 10/30/2007 9,186,425
2,775,000 TeleWest PLC, Sr. Disc. Deb., 0/11.00%, 10/1/2007 2,095,125
1,100,000 UIH Australia/Pacific, Sr. Disc. Note, 0/14.00%, 5/15/2006 781,000
-----------
Total 45,047,562
-----------
Chemicals & Plastics--0.7%
750,000 Buckeye Cellulose Corp., Sr. Sub. Note, 9.25%, 9/15/2008 768,750
200,000 Crain Industries, Inc., Sr. Sub. Note, 13.50%, 8/15/2005 229,000
625,000 Harris Chemical North America, Inc., Sr. Note, 10.25%, 7/15/2001 656,250
541,000 ISP Holding, Inc., Sr. Note, 9.75%, 2/15/2002 574,812
650,000 Polymer Group, Inc., Sr. Sub. Note, 9.00%, 7/1/2007 653,250
500,000 RBX Corp., Sr. Sub. Note, Series B, 11.25%, 10/15/2005 440,000
1,150,000 Sterling Chemicals Holdings, Inc., Sr. Disc. Note, 0/13.50%, 8/15/2008 833,750
375,000 Uniroyal Technology Corp., Sr. Secd. Note, 11.75%, 6/1/2003 386,250
-----------
Total 4,542,062
-----------
Clothing & Textiles--0.6%
325,000 Collins & Aikman Floorcoverings, Inc., Sr. Sub. Note,
10.00%, 1/15/2007 337,187
250,000 (a)Dyersburg Corp., Sr. Sub. Note, 9.75%, 9/1/2007 258,750
300,000 GFSI, Inc., Sr. Sub. Note, 9.625%, 3/1/2007 306,000
550,000 (a)Glenoit Corp., Sr. Sub. Note, 11.00%, 4/15/2007 591,250
675,000 Pillowtex Corp., Sr. Sub. Note, 10.00%, 11/15/2006 713,813
1,600,000 WestPoint Stevens, Inc., Sr. Sub. Deb., 9.375%, 12/15/2005 1,680,000
-----------
Total 3,887,000
-----------
Conglomerates--0.7%
5,250,000 (a)Hutchison Whampoa Finance, Company Guarantee, 7.50%, 8/1/2027 4,734,082
Consumer Products--0.7%
500,000 American Safety Razor Co., Sr. Note, 9.875%, 8/1/2005 527,500
650,000 Herff Jones, Inc., Sr. Sub. Note, 11.00%, 8/15/2005 703,625
300,000 Hosiery Corp. of America, Inc., Sr. Sub. Note, 13.75%, 8/1/2002 322,500
250,000 ICON Health & Fitness, Inc., Sr. Sub. Note, 13.00%, 7/15/2002 281,250
750,000 Playtex Family Products Corp., Sr. Sub. Note, 9.00%, 12/15/2003 753,750
525,000 Renaissance Cosmetics, Inc., Sr. Note, 11.75%, 2/15/2004 521,063
600,000 Revlon Consumer Products Corp., Sr. Sub. Note, 10.50%, 2/15/2003 636,000
550,000 Simmons Co., Sr. Sub. Note, 10.75%, 4/15/2006 569,250
500,000 Syratech Corp., Sr. Note, 11.00%, 4/15/2007 485,000
-----------
Total 4,799,938
-----------
Container & Glass Products--0.1%
450,000 Plastic Containers, Inc., Sr. Secd. Note, 10.00%, 12/15/2006 475,875
Ecological Services & Equipment--2.7%
1,325,000 (a)Allied Waste Industries, Inc., Sr. Disc. Note, 0/11.30%, 6/1/2007 907,625
975,000 Allied Waste North America, Inc., Company Guarantee,
10.25%, 12/1/2006 1,062,760
200,000 ICF Kaiser International, Inc., Sr. Sub. Note, 13.00%, 12/31/2003 207,000
7,750,000 USA Waste Services, Inc., Sr. Note, 7.125%, 10/1/2007 8,046,360
6,710,000 WMX Technologies, Inc., Deb., 8.75%, 5/1/2018 7,615,045
-----------
Total 17,838,790
-----------
Education--1.4%
5,600,000 Boston University, 7.625%, 7/15/2097 5,966,699
3,000,000 Harvard University, Revenue Bonds, 8.125% Bonds, 4/15/2007 3,398,220
-----------
Total 9,364,919
-----------
Electronics--1.8%
650,000 Advanced Micro Devices, Inc., Sr. Secd. Note, 11.00%, 8/1/2003 704,437
5,500,000 Anixter International, Inc., Company Guarantee, 8.00%, 9/15/2003 5,808,165
775,000 Fairchild Semiconductor Corp., Sr. Sub., 10.125%, 3/15/2007 821,500
4,165,000 Harris Corp., Deb., 10.375%, 12/1/2018 4,553,511
450,000 (a)Viasystems, Inc., Sr. Sub. Note, 9.75%, 6/1/2007 463,500
-----------
Total 12,351,113
-----------
Financial Intermediaries--2.5%
600,000 ContiFinancial Corp., Sr. Note, 8.375%, 8/15/2003 621,000
5,150,000 Donaldson, Lufkin and Jenrette Securities Corp., Note,
6.875%, 11/1/2005 5,206,598
6,210,000 Green Tree Financial Corp., Sr. Sub. Note, 10.25%, 6/1/2002 7,173,792
3,718,004 (a)World Financial, Pass Thru Cert., Series 96 WFP-B, 6.91%, 9/1/2013 3,803,927
-----------
Total 16,805,317
-----------
Food & Drug Retailers--0.5%
500,000 Carr-Gottstein Foods Co., Sr. Sub. Note, 12.00%, 11/15/2005 552,500
275,000 (a)Community Distributors, Inc., Sr. Note, 10.25%, 10/15/2004 276,375
450,000 DiGiorgio Corp., Sr. Note, 10.00%, 6/15/2007 451,125
575,000 (a)Jitney-Jungle Stores of America, Inc., Sr. Sub. Note, 10.375%, 9/15/2007 600,875
1,325,000 Ralph's Grocery Co., Sr. Note, 10.45%, 6/15/2004 1,464,125
225,000 (a)Stater Brothers Holdings, Inc., Sr. Sub. Note, 9.00%, 7/1/2004 230,063
-----------
Total 3,575,063
-----------
Food Products--0.4%
600,000 Aurora Foods, Inc., Sr. Sub. Note, 9.875%, 2/15/2007 621,000
400,000 Curtice-Burns Foods, Inc., Sr. Sub. Note, 12.25%, 2/1/2005 442,000
650,000 International Home Foods, Inc., Sr. Sub. Note, 10.375%, 11/1/2006 692,250
500,000 PMI Acquisition Corp., Sr. Sub. Note, 10.25%, 9/1/2003 531,250
425,000 Van de Kamp's, Inc., Sr. Sub. Note, 12.00%, 9/15/2005 471,750
-----------
Total 2,758,250
-----------
Food Services--0.3%
650,000 (a)AmeriServe Food Distribution, Inc., Sr. Note, 8.875%, 10/15/2006 653,250
1,100,000 (a)AmeriServe Food Distribution, Inc., Sr. Sub. Note,
10.125%, 7/15/2007 1,149,500
-----------
Total 1,802,750
-----------
Forest Products--4.1%
400,000 Container Corp. of America, Sr. Note, 11.25%, 5/1/2004 441,500
5,750,000 Donohue Forest Products, 7.625%, 5/15/2007 6,107,420
600,000 Four M Corp., Sr. Note, 12.00%, 6/1/2006 636,000
3,225,000 Pope & Talbot, Inc., 8.375%, 6/1/2013 3,362,321
425,000 Repap New Brunswick, 2nd Priority Sr. Secd. Note,
10.625%, 4/15/2005 427,125
2,000,000 Repap Wisconsin, Inc., 1st Priority Sr. Secd. Note, 9.25%, 2/1/2002 2,115,000
11,600,000 Repap Wisconsin, Inc., 2nd Priority Sr. Secd. Note, 9.875%, 5/1/2006 12,557,000
450,000 S. D. Warren Co., Sr. Sub. Note, 12.00%, 12/15/2004 508,500
500,000 Stone Container Corp., Sr. Note, 11.50%, 10/1/2004 542,500
550,000 Stone Container Corp., Sr. Note, 12.58%, 8/1/2016 602,250
-----------
Total 27,299,616
-----------
Healthcare--1.3%
2,000,000 Columbia/HCA Healthcare Corp., Note, 9.00%, 12/15/2014 2,182,060
1,000,000 Dade International, Inc., Sr. Sub. Note, 11.125%, 5/1/2006 1,115,000
750,000 Genesis Health Ventures, Inc., Sr. Sub. Note, 9.25%, 10/1/2006 770,625
2,600,000 Tenet Healthcare Corp., Sr. Note, 8.00%, 1/15/2005 2,639,000
1,250,000 Tenet Healthcare Corp., Sr. Sub. Note, 10.125%, 3/1/2005 1,359,375
700,000 Tenet Healthcare Corp., Sr. Sub. Note, 8.625%, 1/15/2007 719,250
-----------
Total 8,785,310
-----------
Home Products & Furnishings--0.1%
375,000 Falcon Building Products, Inc., Sr. Sub. Disc. Note,
0/10.50%, 6/15/2007 241,875
175,000 Falcon Building Products, Inc., Sr. Sub. Note, 9.50%, 6/15/2007 179,375
-----------
Total 421,250
-----------
Hotels, Motels, Inns & Casinos--0.1%
350,000 (a)CapStar Hotel Co., Sr. Sub. Note, 8.75%, 8/15/2007 353,937
500,000 Courtyard by Marriott II LP, Sr. Note, 10.75%, 2/1/2008 542,500
-----------
Total 896,437
-----------
Industrial Products & Equipment--2.9%
600,000 Amphenol Corp., Sr. Sub. Note, 9.875%, 5/15/2007 633,000
700,000 Cabot Safety Acquisition Corp., Sr. Sub. Note, 12.50%, 7/15/2005 763,000
500,000 Continental Global Group, Inc., Sr. Note, 11.00%, 4/1/2007 531,250
650,000 Euramax International PLC, Sr. Sub. Note, 11.25%, 10/1/2006 705,250
9,118,000 Figgie International Holdings, Inc., Sr. Note, 9.875%, 10/1/1999 9,562,502
375,000 Hawk Corp., Sr. Note, 10.25%, 12/1/2003 393,750
350,000 International Knife & Saw, Inc., Sr. Sub. Note, 11.375%, 11/15/2006 379,750
250,000 (a)Johnstown America Industries, Inc., Sr. Sub. Note, 11.75%, 8/15/2005 268,750
325,000 Johnstown America Industries, Inc., Sr. Sub. Note, 11.75%, 8/15/2005 349,375
550,000 MMI Products, Inc., Sr. Sub. Note, 11.25%, 4/15/2007 602,250
375,000 Mettler-Toledo, Inc., Sr. Sub. Note, 9.75%, 10/1/2006 422,812
375,000 Neenah Corp., Sr. Sub. Note, 11.125%, 5/1/2007 401,250
125,000 (a)Roller Bearing Co. of America, Inc., Sr. Sub. Note, 9.625%, 6/15/2007 126,250
3,325,000 Southdown, Inc., Sr. Sub. Note, 10.00%, 3/1/2006 3,699,063
575,000 Unifrax Investment Corp., Sr. Note, 10.50%, 11/1/2003 598,000
-----------
Total 19,436,252
-----------
Insurance--11.2%
6,000,000 Allmerica Financial Corp., Sr. Note, 7.625%, 10/15/2025 6,299,400
7,140,000 American General Corp., S.F. Deb., 9.625%, 2/1/2018 7,535,199
7,025,000 Conseco, Inc., Sr. Note, 10.50%, 12/15/2004 8,472,572
2,110,000 Continental Corp., Note, 8.25%, 4/15/1999 2,178,258
2,500,000 Delphi Funding Group, Inc., 9.31%, 3/25/2027 2,747,700
8,000,000 Delphi Financial Group, Inc., Note, 8.00%, 10/1/2003 8,439,920
3,000,000 (a)Equitable Life, Note, 7.70%, 12/1/2015 3,180,330
3,460,000 GEICO Corp., Deb., 9.15%, 9/15/2021 3,896,479
4,800,000 (a)Life Re Capital Trust I, 8.72%, 6/15/2027 5,044,704
6,500,000 (a)Reinsurance Group of America, Sr. Note, 7.25%, 4/1/2006 6,768,645
3,000,000 SunAmerica, Inc., Deb., 8.125%, 4/28/2023 3,281,850
1,000,000 SunAmerica, Inc., Medium Term Note, 7.34%, 8/30/2005 1,041,982
4,575,000 SunAmerica, Inc., Sr. Note, 9.00%, 1/15/1999 4,743,589
1,000,000 (a)USF&G Corp., 8.312%, 7/1/2046 1,051,030
5,750,000 USF&G Corp., Company Guarantee, 8.47%, 1/10/2027 5,972,433
4,000,000 (a)Union Central Life Insurance Co., Note, 8.20%, 11/1/2026 4,256,520
-----------
Total 74,910,611
-----------
Leisure & Entertainment--1.9%
1,575,000 AMF Group, Inc., Sr. Sub. Disc. Note, 0/12.25%, 3/15/2006 1,189,125
325,000 Cobblestone Golf Group, Inc., Sr. Note, 11.50%, 6/1/2003 352,625
500,000 (a)Livent, Inc., Sr. Note, 9.375%, 10/15/2004 501,250
6,350,000 Paramount Communications, Inc., Sr. Deb., 8.25%, 8/1/2022 6,329,363
400,000 Premier Parks, Inc., Sr. Note, 12.00%, 8/15/2003 446,000
1,450,000 Six Flags Theme Parks, Sr. Sub. Disc. Note, 0/12.25%, 6/15/2005 1,537,000
2,475,000 Viacom, Inc., Sub. Deb., 8.00%, 7/7/2006 2,450,250
-----------
Total 12,805,613
-----------
Machinery & Equipment--1.2%
725,000 Alvey Systems, Inc., Sr. Sub. Note, 11.375%, 1/31/2003 763,062
775,000 Clark Material Handling Corp., Sr. Note, 10.75%, 11/15/2006 817,625
5,500,000 Continental Airlines, Inc., Pass Thru Cert., Series 1997-4 B,
6.90%, 7/2/2018 5,590,090
475,000 Tokheim Corp., Sr. Sub. Note, 11.50%, 8/1/2006 537,938
-----------
Total 7,708,715
-----------
Metals & Mining--4.1%
7,600,000 Barrick Gold Corp., Deb., 7.50%, 5/1/2007 8,088,148
500,000 Echo Bay Mines Ltd., Jr. Sub. Deb., 11.00%, 4/1/2027 472,500
5,000,000 Inco Ltd., Note, 9.60%, 6/15/2022 5,722,650
7,000,000 Placer Dome, Inc., Bond, 8.50%, 12/31/2045 7,301,679
600,000 Royal Oak Mines, Inc., Sr. Sub. Note, 11.00%, 8/15/2006 531,000
4,550,000 Santa Fe Pacific Gold, Note, 8.375%, 7/1/2005 5,011,689
-----------
Total 27,127,666
-----------
Oil & Gas--5.0%
875,000 Abraxas Petroleum Corp., Sr. Note, 11.50%, 11/1/2004 962,500
7,150,000 Clark Refining & Marketing Inc., Sr. Note, 10.50%, 12/1/2001 7,382,375
350,000 DI Industries, Inc., Sr. Note, 8.875%, 7/1/2007 358,750
325,000 (a)Dailey Petroleum Services Corp., Sr. Note, 9.75%, 8/15/2007 339,625
750,000 Falcon Drilling Co., Inc., Sr. Note, 9.75%, 1/15/2001 789,375
650,000 Forcenergy Gas Exploration, Inc., Sr. Sub. Note, 8.50%, 2/15/2007 646,750
600,000 Forcenergy Gas Exploration, Inc., Sr. Sub. Note, 9.50%, 11/1/2006 633,000
175,000 Giant Industries, Inc., Sr. Sub. Note, 9.75%, 11/15/2003 181,125
8,150,000 Husky Oil Ltd., Sr. Note, 7.125%, 11/15/2006 8,388,143
450,000 Pacalta Resources Ltd., Sr. Note, 10.75%, 6/15/2004 452,250
175,000 (a)Petsec Energy, Inc., Sr. Sub. Note, 9.50%, 6/15/2007 180,688
200,000 Pride Petroleum Services, Inc., Sr. Note, 9.375%, 5/1/2007 213,000
6,500,000 Sun Co., Inc., 9.00%, 11/1/2024 7,892,950
2,500,000 Sun Co., Inc., Deb., 9.375%, 6/1/2016 2,964,425
1,000,000 United Meridian Corp., Sr. Sub. Note, 10.375%, 10/15/2005 1,095,000
300,000 (a)United Refining Co., Sr. Note, 10.75%, 6/15/2007 307,500
275,000 (a)XCL, Ltd., Unit, 13.50%, 5/1/2004 358,875
-----------
Total 33,146,331
-----------
Printing & Publishing--2.8%
600,000 Affiliated Newspaper Investments, Inc., Sr. Disc. Note,
0/13.25%, 7/1/2006 558,000
350,000 Garden State Newspapers, Inc., Sr. Sub. Note, 12.00%, 7/1/2004 396,375
550,000 (a)Garden State Newspapers, Inc., Sr. Sub. Note, 8.75%, 10/1/2009 547,250
375,000 Hollinger International Publishing, Inc., Sr. Sub. Note,
9.25%, 2/1/2006 385,312
375,000 Hollinger International Publishing, Inc., Sr. Sub. Note,
9.25%, 3/15/2007 388,125
300,000 K-III Communications Corp., Company Guarantee, Series B,
8.50%, 2/1/2006 306,000
1,500,000 News America Holdings, Inc., 10.125%, 10/15/2012 1,747,545
4,000,000 News America Holdings, Inc., Deb., 7.90%, 12/1/2095 4,025,084
300,000 Petersen Publishing Co., LLC, Sr. Sub. Note, 11.125%, 11/15/2006 340,500
9,278,000 Valassis Communication, Inc., Sr. Sub. Note, 9.375%, 3/15/1999 9,647,357
100,000 (a)Von Hoffmann Press, Inc., Sr. Sub. Note, 10.375%, 5/15/2007 106,500
-----------
Total 18,448,048
-----------
Real Estate--1.9%
8,250,000 Price REIT, Inc., Sr. Note, 7.50%, 11/5/2006 8,640,638
3,250,000 Storage USA, 8.20%, 6/1/2017 3,529,500
603,000 Trizec Finance Ltd., Sr. Note, 10.875%, 10/15/2005 689,681
-----------
Total 12,859,819
-----------
Retailers--4.4%
4,225,000 Brylane Capital Corp., Sr. Sub. Note, 10.00%, 9/1/2003 4,489,062
5,000,000 Harcourt General, Inc., Sr. Deb., 7.20%, 8/1/2027 5,081,350
475,000 Leslie's Poolmart, Inc., Sr. Note, 10.375%, 7/15/2004 494,000
5,600,000 May Department Stores Co., Deb., 8.125%, 8/15/2035 6,180,272
6,000,000 Penney (J.C.) Co., Inc., Deb., 7.65%, 8/15/2016 6,393,900
5,547,000 Shopko Stores, Inc., 9.25%, 3/15/2022 6,612,690
-----------
Total 29,251,274
-----------
Services--0.9%
600,000 Coinmach Corp., Sr. Note, 11.75%, 11/15/2005 669,000
275,000 DecisionOne Corp., Sr. Sub. Note, 9.75%, 8/1/2007 284,625
5,000,000 Loewen Group Int'l, Sr. Note, 8.25%, 4/15/2003 5,214,000
175,000 Ryder TRS, Inc., Sr. Sub. Note, 10.00%, 12/1/2006 175,000
-----------
Total 6,342,625
-----------
Sovereign Government--4.4%
4,565,000 Colombia, Republic of, Note, 7.25%, 2/15/2003 4,441,928
4,500,000 (a)Freeport Terminal(Malta) Ltd, Gtd. Global Note, 7.50%, 3/29/2009 4,740,705
3,500,000 Quebec, Province of, Deb., 13.25%, 9/15/2014 4,085,585
2,000,000 Quebec, Province of, Deb., 7.50%, 7/15/2023 2,096,840
4,100,000 South Africa, Republic of, Global Bond Deb., 9.625%, 12/15/1999 4,305,000
3,500,000 Sweden, Kingdom of, Deb., 10.25%, 11/1/2015 4,673,795
5,125,000 Swedish Export Credit, 9.875%, 3/15/2038 5,448,234
-----------
Total 29,792,087
-----------
Steel--0.4%
500,000 Acme Metals, Inc., Sr. Secd. Disc. Note, 0/13.50%, 8/1/2004 562,500
325,000 Bayou Steel Corp., 1st Mtg. Note, 10.25%, 3/1/2001 334,750
600,000 EnviroSource, Inc., Sr. Note, 9.75%, 6/15/2003 612,000
600,000 GS Technologies Operating Co., Inc., Sr. Note, 12.00%, 9/1/2004 655,500
750,000 Ryerson Tull, Inc., Sr. Note, 9.125%, 7/15/2006 808,125
-----------
Total 2,972,875
-----------
Surface Transportation--2.6%
125,000 (a)Allied Holdings, Inc., Sr. Note, 9.125%, 10/1/2007 128,125
300,000 AmeriTruck Distribution Corp., Sr. Sub. Note, 12.25%, 11/15/2005 318,000
500,000 (a)Chemical Leaman Corp., Sr. Note, 10.375%, 6/15/2005 520,000
750,000 Gearbulk Holding Limited, Sr. Note, 11.25%, 12/1/2004 826,875
700,000 Statia Terminals International N.V., 1st Mtg. Note, 11.75%, 11/15/2003 749,000
1,000,000 Stena AB, Sr. Note, 10.50%, 12/15/2005 1,092,500
250,000 Stena AB, Sr. Note, 8.75%, 6/15/2007 251,875
11,050,000 Trans Ocean Container Corp., Sr. Sub. Note, 12.25%, 7/1/2004 12,808,055
750,000 Trism, Inc., Sr. Sub. Note, 10.75%, 12/15/2000 744,375
-----------
Total 17,438,805
-----------
Telecommunications & Cellular--2.9%
775,000 American Communications Services, Inc., Sr. Disc. Note,
0/12.75%, 4/1/2006 550,250
150,000 (a)American Communications Services, Inc., Sr. Note, 13.75%, 7/15/2007 173,250
1,700,000 Brooks Fiber Properties, Inc., Sr. Disc. Note, 0/10.875%, 3/1/2006 1,385,500
750,000 Call-Net Enterprises, Inc., Sr. Disc. Note, 0/9.27%, 8/15/2007 506,250
750,000 Cellular Communications International, Inc., Sr. Disc. Note,
13.25% accrual, 8/15/2000 586,875
475,000 Cellular Communications of Puerto Rico, Inc., Company
Guarantee, 10.00%, 2/1/2007 477,375
900,000 Comcast Cellular Holdings, Inc., Sr. Note, 9.50%, 5/1/2007 936,000
675,000 (a)Hermes Europe Railtel B.V., Sr. Note, 11.50%, 8/15/2007 739,125
250,000 (a)HighwayMaster Communications, Inc., Unit, 13.75%, 9/15/2005 248,750
300,000 Intermedia Communications of Florida, Inc., Sr. Disc. Note,
0/11.25%, 7/15/2007 198,000
1,625,000 Intermedia Communications of Florida, Inc., Sr. Disc. Note,
0/12.50%, 5/15/2006 1,226,875
275,000 (a)Intermedia Communications of Florida, Inc., Sr. Note,
8.875%, 11/1/2007 270,187
900,000 McLeod, Inc., Sr. Disc. Note, 0/10.50%, 3/1/2007 625,500
500,000 (a)McLeod, Inc., Sr. Note, 9.25%, 7/15/2007 512,500
450,000 (a)MetroNet Communications, Sr. Disc. Note, 0/10.75%, 11/1/2007 267,750
375,000 (a)MetroNet Communications, Unit, 12.00%, 8/15/2007 419,063
1,100,000 Millicom International Cellular S. A., Sr. Disc. Note,
0/13.50%, 6/1/2006 830,500
200,000 (a)NEXTEL Communications, Inc., Sr. Disc. Note, 0/10.65%, 9/15/2007 114,500
1,325,000 NEXTEL Communications, Inc., Sr. Disc. Note, 0/9.75%, 8/15/2004 1,139,500
1,125,000 Paging Network, Inc., Sr. Sub. Note, 10.00%, 10/15/2008 1,153,125
500,000 PanAmSat, LP, Sr. Sub. Disc. Note, 0/11.375%, 8/1/2003 496,875
275,000 (a)Qwest Communications International, Inc., Sr. Disc. Note,
0/9.47%, 10/15/2007 177,375
1,000,000 Qwest Communications International, Inc., Sr. Note,
10.875%, 4/1/2007 1,125,000
675,000 (a)RCN Corp., Sr. Disc. Note, 0/11.125%, 10/15/2007 391,500
500,000 (a)Source Media, Inc., Sr. Secd. Note, 12.00%, 11/1/2004 502,500
2,000,000 Teleport Communications Group, Inc., Sr. Disc. Note,
0/11.125%, 7/1/2007 1,580,000
125,000 Teleport Communications Group, Inc., Sr. Note, 9.875%, 7/1/2006 138,125
1,025,000 (a)Telesystem International Wireless, Inc., Sr. Disc. Note,
0/13.25%, 6/30/2007 620,125
750,000 USA Mobile Communications, Inc., Sr. Note, 9.50%, 2/1/2004 738,750
950,000 Vanguard Cellular Systems, Inc., Deb., 9.375%, 4/15/2006 973,750
-----------
Total 19,104,875
-----------
Utilities--3.8%
100,000 CalEnergy Co., Inc., Sr. Note, 9.50%, 9/15/2006 108,875
5,725,000 California Energy Co., Inc., Sr. Note, 10.25%, 1/15/2004 6,247,406
750,000 El Paso Electric Co., 1st Mtg. Note, 9.40%, 5/1/2011 851,100
5,150,000 Enersis S.A., Note, 7.40%, 12/1/2016 5,020,683
5,500,000 (a)Israel Electric Corp. Ltd., Sr. Note, 7.875%, 12/15/2026 5,908,485
1,500,000 Kansas Electric Power Cooperative, Collateral Trust, 9.73%, 12/15/2017 1,580,010
6,500,000 (a)Tenaga Nasional Berhad, Deb., 7.50%, 1/15/2096 5,583,110
-----------
Total 25,299,669
-----------
Total Corporate Bonds (identified cost $557,867,690) 576,846,576
-----------
Government Agencies--1.6%
7,035,000 Federal National Mortgage Association, Note, 0/8.62%, 3/9/2022 6,911,043
3,861,222 Federal National Mortgage Association, Pool 267905, 7.00%, 2/1/2024 3,901,031
2,418 Government National Mortgage Association, Pool 080011,
6.00%, 11/20/2026 2,453
1,727 Government National Mortgage Association, Pool 080022,
6.00%, 12/20/2026 1,751
-----------
Total Government Agencies (identified cost $10,517,894) 10,816,278
-----------
Municipal Securities--4.8%
6,050,000 Kansas City, MO Redevelopment Authority, 7.65% Bonds
(FSA LOC), 11/1/2018 6,422,620
3,000,000 Miami Florida Revenue Pension Obligation, 7.20% Bonds
(AMBAC LOC), 12/1/2025 3,022,500
4,940,000 Minneapolis/St. Paul, MN Airport Commission, UT GO Taxable
Revenue Bonds (Series 9), 8.95% Bonds
(Minneapolis/St. Paul, MN), 1/1/2022 5,449,067
4,675,000 Pittsburgh, PA Urban Redevelopment Authority, 8.01% Bonds
(Aluminum Co. of America), 6/1/2015 5,064,755
2,635,000 Pittsburgh, PA Urban Redevelopment Authority, 9.07% Bonds
(CGIC GTD), 9/1/2014 3,027,905
2,200,000 Southeastern, PA Transportation Authority, (Series B), 8.75% Bonds
(FGIC GTD), 3/1/2020 2,460,348
4,200,000 St. Johns County, FL Convention Center, Taxable Municipal
Revenue Bonds, 8.00% Bonds (FSA INS), 1/1/2026 4,575,480
2,080,000 Tampa Florida Sports Authority, 8.02% Bonds (MBIA GTD),
10/1/2026 2,313,480
-----------
Total Municipal Securities (identified cost $30,529,888) 32,336,155
-----------
Preferred Stocks--2.9%
Banking--0.1%
15,000 California Federal Preferred Capital Corp., REIT Perpetual Pfd.
Stock, Series A, $2.28 398,437
Broadcast Radio & TV--0.5%
6,884 American Radio Systems Corp., PIK Pfd., 11.375% 795,102
4,500 Capstar Broadcasting Partners, Inc., Sr. Pfd., $12.00 496,125
8,576 Chancellor Media Corp., Exchangeable Pfd. Stock, $12.00 1,005,536
6,000 Sinclair Broadcast Group, Inc., Pfd., $11.63 661,500
-----------
Total 2,958,263
-----------
Cable Television--0.1%
100 (a)Echostar Communications Corp., Sr. Red. Pfd. Stk., $12.13 103,500
646 Pegasus Communications Corp., PIK Pfd., Series A, 12.75% 710,600
-----------
Total 814,100
-----------
Industrial Products & Equipment--0.1%
500 Fairfield Manufacturing Co., Inc., Exchangeable Pfd. Stock 527,500
Printing & Publishing--0.1%
1,750 (a)K-III Communications Corp., Exchangeable Pfd. Stock, Series E, $9.20 172,375
6,386 (b)K-III Communications Corp., Pfd., Series B, $11.63 670,530
-----------
Total 842,905
-----------
Real Estate--2.0%
6,000 Crown American Realty Trust, Sr. Pfd., Series A, $1.38 325,500
Shares Value
8,000 Highwoods Properties, Inc., REIT Perpetual Pfd. Stock,
Series A, $86.25 8,782,000
80,000 Security Capital Industrial Trust, REIT Perpetual Pfd. Stock,
Series C, $4.27 4,417,680
-----------
Total 13,525,180
-----------
Telecommunications & Cellular--0.0%
200 (a)NEXTEL Communications, Inc., Pfd., 13.00% 222,000
-----------
Total Preferred Stocks (identified cost $17,500,594) 19,288,385
-----------
Common Stocks--0.0%
Broadcast Radio & TV--0.0%
1,600 (b)Sullivan Broadcast Holdings Inc., Class B 16,000
Business Equipment & Services--0.0%
400 (a)Electronic Retailing Systems International, Inc., Warrants 20,000
Cable Television--0.0%
400 Australis Holdings Property Ltd., Warrants 0
564 (b)Pegasus Communications Corp. 11,844
500 Pegasus Communications Corp., Warrants 7,750
750 Wireless One, Inc., Warrants 0
-----------
Total 19,594
-----------
Chemicals & Plastics--0.0%
400 Sterling Chemicals Holdings, Inc., Warrants 15,200
3,750 Uniroyal Technology Corp., Warrants 12,188
-----------
Total 27,388
-----------
Consumer Products--0.0%
50 (b)Hosiery Corp. of America, Inc. 350
400 (a)IHF Capital, Inc., Warrants 19,800
-----------
Total 20,150
-----------
Principal
Amount Value
- ----------- -------------------------------------------------------------- -------------
Ecological Services & Equipment--0.0%
4,800 ICF Kaiser International, Inc., Warrants 1,200
Printing & Publishing--0.0%
500 (b)Affiliated Newspaper Investments, Inc. 50,250
Steel--0.0%
150 (a)Bar Technologies, Inc., Warrants 9,000
Telecommunications & Cellular--0.0%
750 Cellular Communications International, Inc., Warrants 15,000
1,007 (b)NEXTEL Communications, Inc., Class A 26,434
-----------
Total 41,434
-----------
Total Common Stocks (identified cost $77,920) 205,016
-----------
Asset-Backed Securities--0.5%
Financial Intermediaries--0.2%
$1,000,000 Green Tree Financial Corp. 1992-2, Class B, 9.15%, 1/15/2018 1,079,890
Structured Product (abs)--0.3%
885,997 Merrill Lynch Mortgage Investment, Inc. 1988-H, Class B,
9.70%, 6/15/2008 919,223
1,000,000 Residential Funding Corp. 1993-S26, Class A10, 7.50%, 7/25/2023 1,005,280
-----------
Total 1,924,503
-----------
Total Asset-Backed Securities (identified cost $2,937,551) 3,004,393
-----------
U.S. Treasury Obligations--1.2%
4,000,000 United States Treasury Bond, 11.625%, 11/15/2004 5,313,360
3,000,000 United States Treasury Bond, 6.00%, 2/15/2026 2,921,550
-----------
Total U.S. Treasury Obligations (identified cost $8,121,091) 8,234,910
-----------
(c) Repurchase Agreement--1.1%
7,575,000 BT Securities Corporation, 5.71%, dated 10/31/1997,
due 11/3/1997 (at amortized cost) 7,575,000
-----------
Total Investments (identified cost $635,127,628)(d) $ 658,306,713
-----------
</TABLE>
(a) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At October 31, 1997, these securities amounted to
$62,369,651 which represents 9.3% of total net assets.
(b) Non-income producing security.
(c) 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.
(d) The cost of investments for federal tax purposes amounts to $635,425,492.
The net unrealized appreciation of investments on a federal tax basis amounts to
$22,881,221 which is comprised of $25,984,910 appreciation and $3,103,689
depreciation at October 31, 1997.
Note: The categories of investments are shown as a percentage of net assets
($667,905,384) at October 31, 1997.
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 GO--General Obligation GTD--Guaranty INS--Insured
LLC--Limited Liability Corporation LOC--Letter of Credit LP--Limited Partnership
MBIA--Municipal Bond Investors Assurance PIK--Payment in Kind PLC--Public
Limited Company REIT--Real Estate Investment Trust UT--Unlimited Tax
(See Notes which are an integral part of the Financial Statements)
Federated Bond Fund
Statement of Assets and Liabilities
OCTOBER 31, 1997
<TABLE>
<S> <C> <S>
Assets:
Total investments in securities, at value (identified cost $635,127,628, and tax cost $635,425,492) $ 658,306,713
Income receivable 13,534,732
Receivable for investments sold 1,564,937
Receivable for shares sold 2,997,843
Other receivables 263,250
--------------
Total assets 676,667,475
Liabilities:
Payable for investments purchased $ 5,424,378
Payable for shares redeemed 1,036,000
Income distribution payable 1,820,105
Payable to Bank 69,020
Accrued expenses 412,588
------------
Total liabilities 8,762,091
--------------
Net Assets for 66,685,100 shares outstanding $ 667,905,384
--------------
Net Assets Consist of:
Paid in capital $ 648,694,405
Net unrealized appreciation of investments 23,179,085
Accumulated net realized loss on investments (4,209,593)
Undistributed net investment income 241,487
--------------
Total Net Assets $ 667,905,384
--------------
Net Asset Value, Offering Price and Redemption Proceeds Per Share:
Class A Shares:
Net Asset Value Per Share ($111,376,629 / 11,120,243 shares outstanding) $10.02
Offering Price Per Share (100/95.50 of $10.02)* $10.49
Redemption Proceeds Per Share $10.02
Class B Shares:
Net Asset Value Per Share ($191,600,451 / 19,129,508 shares outstanding) $10.02
Offering Price Per Share $10.02
Redemption Proceeds Per Share (94.50/100 of $10.02)* $9.47
Class C Shares:
Net Asset Value Per Share ($39,397,745 / 3,932,517 shares outstanding) $10.02
Offering Price Per Share $10.02
Redemption Proceeds Per Share (99.00/100 of $10.02)* $9.92
Class F Shares:
Net Asset Value Per Share ($325,530,559 / 32,502,832 shares outstanding) $10.02
Offering Price Per Share (100/99.00 of $10.02)* $10.12
Redemption Proceeds Per Share (99.00/100 of $10.02)* $9.92
* See "Investing in the Fund" in the Prospectuses.
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Federated Bond Fund
Statement of Operations
Year Ended October 31, 1997
<TABLE>
<S> <C> <C> <C>
Investment Income:
Dividends $ 930,716
Interest 45,049,254
---------------
Total income 45,979,970
Expenses:
Investment advisory fee $ 4,127,217
Administrative personnel and services fee 415,495
Custodian fees 43,701
Transfer and dividend disbursing agent fees and expenses 440,994
Directors'/Trustees' fees 18,105
Auditing fees 22,356
Legal fees 14,563
Portfolio accounting fees 156,438
Distribution services fee-Class B Shares 1,176,910
Distribution services fee-Class C Shares 226,139
Shareholder services fee-Class A Shares 166,913
Shareholder services fee-Class B Shares 392,303
Shareholder services fee-Class C Shares 75,380
Shareholder services fee-Class F Shares 741,143
Share registration costs 141,630
Printing and postage 118,331
Insurance premiums 7,419
Taxes 33,217
Miscellaneous 4,722
-------------
Total expenses 8,322,976
Waivers-
Waiver of investment advisory fee $ (842,462)
Waiver of shareholder services fee-Class A Shares (33,383)
Waiver of shareholder services fee-Class F Shares (59,291)
----------
Total waivers (935,136)
-------------
Net expenses 7,387,840
---------------
Net investment income 38,592,130
---------------
Realized and Unrealized Gain (Loss) on Investments:
Net realized loss on investments (623,390)
Net change in unrealized appreciation of investments 18,491,945
---------------
Net realized and unrealized gain on investments 17,868,555
---------------
Change in net assets resulting from operations $ 56,460,685
---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Federated Bond Fund
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended October 31,
1997 1996
--------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS-
Net investment income $ 38,592,130 $ 25,420,514
Net realized loss on investments ($434,628 net loss and $129,446
net loss, respectively, as computed for federal tax purposes) (623,390) (149,872)
Net change in unrealized appreciation/depreciation 18,491,945 317,325
------------- --------------
Change in net assets resulting from operations 56,460,685 25,587,967
------------- --------------
NET EQUALIZATION CREDITS (DEBITS)-- 438,191 620,232
------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS-
Distributions from net investment income
Class A Shares (4,848,032) (1,762,704)
Class B Shares (10,064,393) (5,584,736)
Class C Shares (1,938,250) (916,585)
Class F Shares (21,220,844) (17,390,922)
------------- --------------
Change in net assets resulting from distributions to shareholders (38,071,519) (25,654,947)
------------- --------------
SHARE TRANSACTIONS (EXCLUSIVE OF AMOUNTS ALLOCATED TO NET INVESTMENT INCOME)--
Proceeds from sale of shares 307,933,652 287,180,090
Proceeds from shares issued in connection with the acquisition 25,651,929 --
Net asset value of shares issued to shareholders in payment of
distributions declared 19,566,083 12,940,331
Cost of shares redeemed (157,355,117) (81,239,742)
------------- --------------
Change in net assets resulting from share transactions 195,796,547 218,880,679
------------- --------------
Change in net assets 214,623,904 219,433,931
NET ASSETS:
Beginning of period 453,281,480 233,847,549
------------- --------------
End of period (including undistributed net investment income of
$241,487 and $0, respectively) $ 667,905,384 $ 453,281,480
------------- --------------
</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>
YEAR ENDED OCTOBER 31,
1997 1996 1995(A)
--------- -------- ----------
<S> <C> <C> <C>
Net asset value, beginning of period $ 9.72 $ 9.76 9.64
Income from investment operations
Net investment income 0.74 0.71 0.26
Net realized and unrealized gain (loss) on investments 0.26 (0.04) 0.11
------- -------- ------
Total from investment operations 1.00 0.67 0.37
Less distributions
Distributions from net investment income (0.70) (0.71) (0.25)
------- -------- ------
Net asset value, end of period $10.02 $ 9.72 $ 9.76
------- -------- ------
Total return(b) 10.73% 7.21% 3.92%
Ratios to average net assets
Expenses 1.05% 1.05% 1.02%*
Net investment income 7.30% 7.46% 8.22%*
Expense waiver/reimbursement(c) 0.20% 0.25% 0.35%*
Supplemental data
Net assets, end of period (000 omitted) $111,377 $37,045 $5,070
Portfolio turnover 55% 49% 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>
YEAR ENDED OCTOBER 31,
1997 1996 1995(A)
--------- -------- ----------
<S> <C> <C> <C>
Net asset value, beginning of period $ 9.72 $ 9.76 $ 9.64
Income from investment operations
Net investment income 0.64 0.64 0.24
Net realized and unrealized gain (loss) on investments 0.28 (0.04) 0.11
--------- -------- -------
Total from investment operations 0.92 0.60 0.35
Less distributions
Distributions from net investment income (0.62) (0.64) (0.23)
--------- -------- -------
Net asset value, end of period $10.02 $ 9.72 $ 9.76
--------- -------- -------
Total return(b) 9.86% 6.40% 3.72%
Ratios to average net assets
Expenses 1.85% 1.85% 1.81%*
Net investment income 6.50% 6.66% 7.36%*
Expense waiver/reimbursement(c) 0.15% 0.20% 0.30%*
Supplemental data
Net assets, end of period (000 omitted) $191,600 $125,620 $27,768
Portfolio turnover 55% 49% 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>
YEAR ENDED OCTOBER 31,
1997 1996 1995(A)
--------- -------- ----------
<S> <C> <C> <C>
Net asset value, beginning of period $ 9.72 $ 9.76 $ 9.64
Income from investment operations
Net investment income 0.64 0.64 0.24
Net realized and unrealized gain (loss) on investments 0.28 (0.04) 0.11
--------- -------- -------
Total from investment operations 0.92 0.60 0.35
Less distributions
Distributions from net investment income (0.62) (0.64) (0.23)
--------- -------- -------
Net asset value, end of period $ 10.02 $ 9.72 $ 9.76
--------- -------- -------
Total return(b) 9.86% 6.40% 3.72%
Ratios to average net assets
Expenses 1.85% 1.85% 1.81%*
Net investment income 6.50% 6.70% 7.31%*
Expense waiver/reimbursement(c) 0.15% 0.20% 0.30%*
Supplemental data
Net assets, end of period (000 omitted) $39,398 $22,897 $5,508
Portfolio turnover 55% 49% 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
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
1997 1996 1995(A) 1994 1993
------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $9.72 $9.76 $9.08 $10.30 $9.23
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.72 0.71 0.79 0.76 0.77
Net realized and unrealized gain (loss) on investments 0.28 (0.04) 0.65 (1.09) 1.07
------- ------ ------ ------ ------
Total from investment operations 1.00 0.67 1.44 (0.33) 1.84
------- ------ ------ ------ ------
LESS DISTRIBUTIONS
Distributions from net investment income (0.70) (0.71) (0.76) (0.75) (0.77)
Distributions from net realized gain
on investment transactions -- -- -- (0.14) --
------- ------ ------ ------ ------
Total distributions (0.70) (0.71) (0.76) (0.89) (0.77)
------- ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $10.02 $9.72 $9.76 $9.08 $10.30
------- ------ ------ ------ ------
TOTAL RETURN(A) 10.70% 7.18% 16.51% (3.41%) 20.61%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.08% 1.08% 1.03% 1.05% 1.04%
Net investment income 7.27% 7.38% 8.20% 7.92% 7.69%
Expense waiver/reimbursement(b) 0.17% 0.22% 0.31% 0.33% 0.61%
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $325,531 $267,720 $195,502 $146,270 $125,762
Portfolio Turnover 55% 49% 77% 74% 51%
</TABLE>
(a) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(b) 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
October 31, 1997
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 one portfolio. The
financial statements included herein are only those of Federated Bond Fund (the
"Fund"), a diversified portfolio. 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 a level of current income as is
consistent with the preservation of capital.
On May 31, 1997, the Fund acquired all the net assets of William Penn Quality
Income Fund, Inc. ("Acquired Fund") pursuant to a plan of reorganization
approved by the Acquired Fund's shareholders. The acquisition was accomplished
by a tax-free exchange of 2,658,231 shares of the Fund (valued at $25,651,929)
for the 2,462,847 shares of the Acquired Fund outstanding on May 31, 1997. The
Acquired Fund's net assets of $25,539,727, which consisted of $26,332,996 of
Paid in Capital and $58,168 of Unrealized Appreciation, at that date were
combined with those of the Fund. The aggregate net assets of the Fund and the
Acquired Fund immediately before the acquisition were $540,329,353 and
$25,539,727, respectively.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
Investment Valuations-U.S. government securities, listed corporate bonds,
other fixed income, asset-backed securities, and unlisted securities and
private placement securities are generally valued at the mean of the latest
bid and asked price as furnished by an independent pricing service. Listed
equity securities are valued at the last sale price reported on a national
securities exchange. Short-term securities are valued at the prices
provided by an independent pricing service. However, short-term securities
with remaining maturities of sixty days or less at the time of purchase may
be valued at amortized cost, which approximates fair market value.
Repurchase Agreements-It is the policy of the Fund to require the custodian
bank to take possession, to have legally segregated in the Federal Reserve
Book Entry System, or to have segregated within the custodian bank's vault,
all securities held as collateral under repurchase agreement transactions.
Additionally, procedures have been established by the Fund to monitor, on a
daily basis, the market value of each repurchase agreement's collateral to
ensure that the value of collateral at least equals the repurchase price to
be paid under the repurchase agreement transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Directors (the
"Directors"). Risks may arise from the potential inability of
counterparties to honor the terms of the repurchase agreement. Accordingly,
the Fund could receive less than the repurchase price on the sale of
collateral securities.
Investment Income, Expenses and Distributions-Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code"). Dividend
income and distributions to shareholders are recorded on the ex-dividend
date.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
accumulated equalization. The following reclassifications have been made to
the financial statements.
<TABLE>
<CAPTION>
Increase (Decrease)
-----------------------------------
Undistributed Net
Paid-In Capital Investment Income
--------------- -----------------
<S> <C>
$438,191 ($438,191)
</TABLE>
Net investment income, net realized gains/losses, and net assets were not
affected by this reclassification.
Federal Taxes-It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
At October 31, 1997, the Fund, for federal tax purposes, had a capital
loss carryforward of $4,754,389 which will reduce the Fund's taxable
income arising from future net realized gain on investments, if any, to
the extent permitted by the Code, and thus will reduce the amount of the
distributions to shareholders which would otherwise be necessary to
relieve the Fund of any liability for federal tax. Pursuant to the Code,
such capital loss carryforward will expire as follows:
<TABLE>
<CAPTION>
Expiration Year Expiration Amount
<S> <C>
2002 $ 3,781,824
2003 $ 430,964
2004 $ 99,709
2005 $ 441,892
</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.
Restricted Securities-Restricted securities are securities that may only
be resold upon registration under federal securities laws or in
transactions exempt from such registration. In some cases, the issuer of
restricted securities has agreed to register such securities for resale,
at the issuer's expense, either upon demand by the Fund or in connection
with another registered offering of the securities. Many restricted
securities may be resold in the secondary market in transactions exempt
from registration. Such restricted securities may be determined to be
liquid under criteria established by the Directors. The Fund will not
incur any registration costs upon such resales. The Fund's restricted
securities are valued at the price provided by dealers in the secondary
market or, if no market prices are available, at the fair value as
determined by the Fund's pricing committee.
Additional information on each restricted security held at October 31,
1997 is as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
ACME Television, LLC Sr. Disc. Note 4/10/96 - 5/28/97 $ 515,930
Allied Holdings, Inc., Sr. Note 9/19/97 125,000
Allied Waste Industries, Inc., Sr. Disc., Note 5/1/97 - 10/23/97 854,489
AmeriServe Food Distribution, Inc., Sr. Note 10/8/97 650,000
AmeriServe Food Distribution, Inc., Sr. Sub. Note 7/9/97 - 10/16/97 1,126,250
American Communications Services, Inc., Sr. Disc. Note 7/18/97 500,798
Bar Technologies, Inc., Warrants 8/27/96 0
CapStar Hotel Co., Sr. Sub. Note 8/14/97 349,531
Chancellor Media Corp., Sr. Sub. Note 6/18/97 370,826
Chemical Leaman Corp., Sr. Note 6/8/97 - 6/10/97 509,500
Community Distributors, Inc., Sr. Note 10/10/97 275,000
Dailey Petroleum Services Corp., Sr. Note 8/14/97 328,411
Dyersburg Corp., Sr. Sub. Note 9/3/97 253,125
Echostar Communications Corp., Sr. Red. Pfd. Stk. 9/26/97 100,000
Electronic Retailing Systems International, Inc., Warrants 1/21/97 13,876
Equitable Life, Note 10/17/96 2,980,650
Fox/Liberty Networks, LLC, Sr. Disc. Note 8/15/97 - 10/3/97 684,949
Fox/Liberty Networks, LLC, Sr. Note 8/15/97 375,000
Freeport Terminal (Malta) Ltd, Gtd. Global Note 3/17/94 - 12/7/95 4,551,806
FrontierVision Holdings, LP, Sr. Disc. Note 9/16/97 327,447
Garden State Newspapers, Inc., Sr. Sub. Note 9/26/97 546,783
Glenoit Corp., Sr. Sub. Note 3/26/97 - 6/18/97 560,082
Hermes Europe Railtel B.V., Sr. Note 8/14/97 - 10/27/97 707,031
HighwayMaster Communications, Inc., Unit 9/18/97 253,375
Hutchison Whampoa Finance, Company Guarantee 7/25/97 - 8/1/97 5,254,170
IHF Capital, Inc., Warrants 11/4/94 3,952
Intermedia Communications of Florida, Inc., Sr. Note 10/24/97 275,000
Israel Electric Corp. Ltd., Sr. Note 1/28/97 5,489,165
Jitney-Jungle Stores of America, Inc., Sr. Sub. Note 9/10/97 - 9/15/97 580,000
Johnstown America Industries, Inc., Sr. Sub. Note 8/6/97 261,250
K-III Communications Corp., Company Guarantee 9/22/97 175,000
Life Re Capital Trust I 6/6/97 - 7/31/97 4,832,176
Livent, Inc., Sr. Sub. Note 10/10/97 - 10/14/97 503,375
McLeod, Inc., Sr. Sub. Note 7/15/97 500,000
MetroNet Communications, Sr. Disc. Note 10/24/97 274,092
MetroNet Communications, Unit 7/18/97 - 8/14/97 392,125
NEXTEL Communications, Inc., Pfd. 7/16/97 200,000
NEXTEL Communications, Inc., Sr. Disc. Note 9/10/97 120,679
Oxford Automotive, Inc., Sr. Sub. Note 6/19/97 326,239
Pegasus Communications Corp., Sr. Note 10/16/97 300,750
Petsec Energy, Inc., Sr. Sub. Note 6/6/97 174,330
Qwest Communications International, Inc., Sr. Disc. Note 10/9/97 173,909
RCN Corp., Sr. Disc. Note 10/10/97 394,863
Reinsurance Group of America, Sr. Note 3/19/96 - 6/2/97 6,471,460
Roller Bearing Co. of America, Sr. Sub. Note 6/18/97 125,000
Sinclair Broadcast Group, Inc., Sr. Sub. Note 6/25/97 489,375
Source Media, Inc., Sr. Secd. Note 10/30/97 500,000
Stater Brothers Holdings, Inc., Sr. Sub. Note 7/21/97 - 10/24/97 228,250
Telesystem International Wireless, Inc., Sr. Disc. Note 6/24/97 - 7/7/97 574,566
Tenaga Nasional Berhad, Deb. 1/9/97 - 3/3/97 6,162,725
USF&G Corp., Company Guarantee 7/3/97 1,000,000
Union Central Life Insurance Co., Note 10/31/96 3,979,120
United Refining Co., Sr. Note 6/4/97 - 7/7/97 301,188
Viasystems, Inc., Sr. Sub. Note 6/2/97 - 7/7/97 454,500
Von Hoffman Press, Inc., Sr. Sub. Note 5/15/97 100,000
World Financial, Pass Thru Cert., Series 96 WFP-B 11/18/96 3,718,004
XCL, Ltd., Unit 5/13/97 275,000
</TABLE>
Use of Estimates-The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
Other-Investment transactions are accounted for on the trade date.
3. Capital Stock
At October 31, 1997, par value shares ($0.001 per share) authorized were
as follows:
<TABLE>
<CAPTION>
NUMBER OF PAR VALUE
CLASS NAME CAPITAL STOCK AUTHORIZED
<S> <C>
Class A Shares 25,000,000
Class B Shares 25,000,000
Class C Shares 25,000,000
Class F Shares 525,000,000
Unclassified 400,000,000
-------------
Total 1,000,000,000
-------------
</TABLE>
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------------------------------
1997 1996
------------------------ ------------------------
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Shares sold 9,865,488 $ 96,447,985 3,691,576 $ 35,793,135
Shares issued in connection with the acquisition 2,594,627 25,038,147 -- --
Shares issued to shareholders in payment of distributions declared 352,776 3,459,765 150,861 1,442,578
Shares redeemed (5,504,316) (53,647,073) (550,070) (5,293,729)
----------- ------------ ---------- ------------
Net change resulting from Class A Share transactions 7,308,575 $ 71,298,824 3,292,367 $ 31,941,984
----------- ------------ ---------- ------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------------------------------
1997 1996
------------------------ ------------------------
CLASS B SHARES SHARES AMOUNT SHARES AMOUNT
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Shares sold 8,000,100 $ 78,164,460 12,011,129 $116,306,127
Shares issued to shareholders in payment of
distributions declared 605,869 5,924,046 336,941 3,224,612
Shares redeemed (2,402,641) (23,448,472) (2,267,434) (22,140,487)
----------- ------------ ---------- ------------
Net change resulting from Class B Share
transactions 6,203,328 $ 60,640,034 10,080,636 $ 97,390,252
----------- ------------ ---------- ------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------------------------------
1997 1996
------------------------ ------------------------
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Shares sold 2,352,599 $ 22,978,928 2,109,387 $ 20,275,115
Shares issued to shareholders in payment of
distributions declared 141,632 1,384,761 68,973 660,034
Shares redeemed (917,732) (8,965,336) (386,472) (3,688,591)
----------- ------------ ---------- ------------
Net change resulting from Class C Share
transactions 1,576,499 $ 15,398,353 1,791,888 $ 17,246,558
----------- ------------ ---------- ------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------------------------------
1997 1996
------------------------ ------------------------
CLASS F SHARES SHARES AMOUNT SHARES AMOUNT
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Shares sold 11,316,055 $110,342,279 11,961,299 $114,805,713
Shares issued in connection with the acquisition 63,604 613,782 -- --
Shares issued to shareholders in payment of
istributions declared 901,508 8,797,511 793,767 7,613,107
Shares redeemed (7,327,458) (71,294,236) (5,233,916) (50,116,935)
----------- ------------ ---------- ------------
Net change resulting from Class F Share
transactions 4,953,709 $ 48,459,336 7,521,150 $ 72,301,885
----------- ------------ ---------- ------------
Net change resulting from share transactions 20,042,111 $195,796,547 22,686,041 $218,880,679
----------- ------------ ---------- ------------
</TABLE>
4. Investment Advisory Fee and Other Transactions with Affiliates
Investment Advisory Fee--Federated Advisers, the Fund's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to 0.75% 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>
PERCENTAGE OF
AVERAGE DAILY
SHARE CLASS NAME NET ASSETS OF CLASS
- --------------------- -------------------
<S> <C>
Class A Shares 0.25%
Class B Shares 0.75%
Class C Shares 0.75%
</TABLE>
For the year ended October 31, 1997, 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 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 ("FSSC") serves as
transfer and dividend disbursing agent for the Fund. The fee paid to FSSC
is based on the size, type, and number of accounts and transactions made by
shareholders.
Portfolio Accounting Fees--FServ maintains the Fund's accounting records
for which it receives a fee. The fee is based on the level of the Fund's
average daily net assets for the period, plus out-of-pocket expenses.
General--Certain 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 October 31, 1997, were as follows:
<TABLE>
<S> <C>
PURCHASES $477,639,964
------------
SALES $292,949,697
------------
</TABLE>
Report of Ernst & Young LLP, Independent Auditors
TO THE DIRECTORS AND SHAREHOLDERS OF
INVESTMENT SERIES FUNDS, INC.
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Federated Bond Fund, (a portfolio of Investment
Series Funds, Inc.) as of October 31, 1997, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended and the financial highlights for
each of the periods presented therein. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1997, by correspondence with the custodian and brokers or other
appropriate auditing procedures where replies from brokers were not received. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Federated Bond Fund at October 31, 1997, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and its financial highlights for each of the periods
presented therein, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
December 12, 1997
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
Matthew S. Hardin
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 prospectuses, which contain facts
concerning its objective and policies, management fees, expenses and other
information.
[LOGO]
Federated Securities Corp., Distributor
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Cusip 461444507
Cusip 461444606
Cusip 461444705
Cusip 461444309
G01452-02 (12/97)
APPENDIX
A. The graphic representation here displayed entitled "Initial Investment of
$11,000," consists of a boxed legend in the upper left quadrant indicating the
components of the corresponding mountain chart. The lighter-shaded portion
represents the value of Reinvested Income for the Class F Shares of Federated
Bond Fund (the "Fund"). The darker-shaded portion reflects the Principal Value
of a $11,000/1,086 Shares investment in the Fund. The color-coded mountain chart
is a visual representation of the narrative text above it, which shows that an
initial investment of $11,000 in the Fund on 5/20/87, would have a reinvested
total worth of $29,466 on 10/31/97. The "x" axis reflects computation periods
from 5/20/87 to 10/31/97. The right margin of the chart reflects the ending
values of a hypothetical investment of $11,000 in the Fund measured in
increments of $5,000 ranging from $0 to $30,000.
B. The graphic representation here displayed, entitled "Yearly Investments of
$1,000," consists of a boxed legend in the upper left quadrant indicating the
components of the corresponding mountain chart. The lighter-shaded portion
represents the value of Reinvested Income for the Class F Shares of Federated
Bond Fund (the "Fund"). The darker-shaded portion reflects the Principal Value
of a $1,000/98 Shares investment in the Fund (totaling $11,000 by 10/31/97). The
color-coded mountain chart is a visual representation of the narrative text
above it, which shows that $1,000 annual investments in the Class F Shares of
Federated Bond Fund beginning on 5/20/87 would have a reinvested total value of
$19,748/1,971 shares on 10/31/97. The "x" axis reflects computation periods from
5/20/87 to 10/31/97. The right margin of the chart reflects the ending values of
a hypothetical annual investment of $1,000 in the Fund measured in increments of
$4,000 ranging from $0 to $20,000.
C. The graphic representation here displayed, entitled "Growth Over Time,"
consists of a boxed legend in the upper left quadrant indicating the components
of the corresponding mountain chart. The lighter-shaded portion represents the
value of Reinvested Income for the Class F Shares of Federated Bond Fund (the
"Fund"). The darker-shaded portion represents the Principal Value of a
hypothetical investment of $20,000 on 5/20/87. The color-coded mountain is a
visual representation of the narrative text above it, which shows the original
$20,000/1,976 Shares investment in the Fund would have grown to a reinvested
total value of $53,573/5,347 Shares on 10/31/97. The "x" axis reflects
computation periods from 5/20/87 to 10/31/97. The right margin of the chart
reflects the ending values of a hypothetical original investment of $20,000 in
the Fund measured in increments of $8,000 ranging from $0 to $56,000.
D. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class A
Shares of Federated Bond Fund, based on a 4.50% sales load are represented by a
solid line. The Lehman Brothers Corporate Bond Index (the "LBCBI") is
represented by a broken line and the Lipper Corporate Debt Funds BBB Rated
Average (the "LCDBBB") is represented by a dotted line. The line graph is a
visual representation of a comparison of change in value of a $10,000
hypothetical investment in the Class A Shares of the fund, the LBCBI and the
LCDBBB. The "x" axis reflects computation periods from 6/28/95 to 10/31/97. The
"y" axis reflects the cost of the investment. The right margin reflects the
ending value of the hypothetical investment in the fund's Class A Shares, based
on a 4.50% sales load, as compared to the LBCBI and the LCDBBB. The ending
values were $11,782, $12,033, and $11,964, respectively. The legend in the
bottom quadrant of the graphic presentation indicates the fund's Class A Shares
Average Annual Total Returns for the one-year period ended 10/31/97 and from the
fund's start of performance (6/28/95) to 10/31/97. The total returns were 5.73%
and 7.28%, respectively.
E. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class B
Shares of Federated Bond Fund are represented by a solid line. The LBCBI is
represented by a broken line and the LCDBBB is represented by a dotted line. The
line graph is a visual representation of a comparison of change in value of a
$10,000 hypothetical investment in the Class B Shares of the fund, the LBCBI and
the LCDBBB. The "x" axis reflects computation periods from 6/28/95 to 10/31/97.
The "y" axis reflects the cost of the investment. The right margin reflects the
ending value of the hypothetical investment in the fund's Class B Shares as
compared to the LBCBI and the LCDBBB. The ending values were $11,653, $12,033,
and $11,964, respectively. The legend in the bottom quadrant of the graphic
presentation indicates the fund's Class B Shares Average Annual Total Return for
the one-year period ended 10/31/97 and from the start of performance of Class B
Shares (6/28/95) to 10/31/97. The total returns were 4.05% and 6.74%,
respectively.
F. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class C
Shares of Federated Bond Fund are represented by a solid line. The LBCBI is
represented by a broken line and the LCDBBB is represented by a dotted line. The
line graph is a visual representation of a comparison of change in value of a
$10,000 hypothetical investment in the Class C Shares of the fund, the LBCBI and
the LCDBBB. The "x" axis reflects computation periods from 6/28/95 to 10/31/97.
The "y" axis reflects the cost of the investment. The right margin reflects the
ending value of the hypothetical investment in the fund's Class C Shares as
compared to the LBCBI and the LCDBBB. The ending values were $12,124, $12,033,
and $11,964, respectively. The legend in the bottom quadrant of the graphic
presentation indicates the fund's Class C Shares Average Annual Total Returns
for the one-year period ended 10/31/97 and from the start of performance of
Class C Shares (6/28/95) to 10/31/97. The total returns were 8.76% and 8.57%,
respectively.
G. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class F
Shares of Federated Bond Fund are represented by a solid line. The LBCBI is
represented by a broken line and the LCDBBB is represented by a dotted line. The
line graph is a visual representation of a comparison of change in value of a
$10,000 hypothetical investment in the Class F Shares of the fund, the LBCBI and
the LCDBBB. The "x" axis reflects computation periods from 10/31/87 to 10/31/97.
The "y" axis reflects the cost of the investment. The right margin reflects the
ending value of the hypothetical investment in the fund's Class F Shares as
compared to the LBCBI and the LCDBBB. The ending values were $26,041, $26,108,
and $23,918, respectively. The legend in the bottom quadrant of the graphic
presentation indicates the fund's Class F Shares Average Annual Total Returns
for the one-year, five-year, and ten-year periods ended 10/31/97 and from the
start of performance of Class F Shares (5/20/87) to 10/31/97. The total returns
were 8.48%, 9.79%, 10.05%, and 9.89%, respectively.
