[Graphic]
Federated Bond Fund
11TH SEMI-ANNUAL REPORT
APRIL 30, 1998
ESTABLISHED 1987
[Graphic]
Dear Shareholder:
Federated Bond Fund was created in 1987, and I am pleased to present its 11th
Semi-Annual Report. This report covers the first half of the fund's fiscal year,
which is the six-month period from November 1, 1997 through April 30, 1998. It
begins with a discussion with the fund's portfolio manager, Joseph Balestrino,
Senior Vice President of Federated Advisers. Following his discussion, detailing
both the U.S. bond market and recent activity in the fund's portfolio, are three
additional items of shareholder interest. First is a series of graphs showing
the fund's long-term investment performance. Second is a complete listing of the
fund's holdings. Third is the publication of the fund's financial statements.
In a highly volatile interest rate environment, Federated Bond Fund continued to
produce a strong income stream while outperforming its peer group, the Lipper
Corporate BBB-Rated Bond Funds Average.* Individual share class total return
performance, including income dividends follows.**
TOTAL RETURN INCOME NET ASSET VALUE INCREASE
Class A Shares 4.01% $0.36 $10.02 to $10.06 = 0.04%
Class B Shares 3.60% $0.32 $10.02 to $10.06 = 0.04%
Class C Shares 3.71% $0.32 $10.02 to $10.07 = 0.05%
Class F Shares 4.09% $0.35 $10.02 to $10.07 = 0.05%
The fund's portfolio of corporate bonds reflects an emphasis on broad
diversification and quality. On April 30, 1998, the $829 million portfolio
comprised more than 149 individual bond issues. The majority of the fund's
assets were invested in investment-grade bonds. Approximately 25% of the fund's
assets were invested in high-yield bonds, which have provided above-average
income distribution for shareholders and enhanced price appreciation in this
favorable economic climate.+
* Lipper figures represent the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as falling
into the category indicated. These figures do not reflect sales charges.
** Performance quoted is based on net asset value, reflects past performance and
is not indicative of future results. Investment return and principal value
will fluctuate so that an investor's shares, when redeemed, may be worth more
or less than their original cost. Total returns for the period based on
offering price for Class A, B, C, and F Shares were (0.65%), (2.06%), 2.68%,
and 2.03%, respectively.
+ Lower rated bonds involve a higher degree of risk than investment grade bonds
in return for higher yield potential.
The fund's average maturity is 11.1 years, and the average duration is 5.7
years. In carefully selecting issues, fund managers have emphasized those with
slightly longer maturities, expecting that long-term rates will benefit the
fund's share price.
Thank you for participating in Federated Bond Fund. Remember, it is easy to
increase your participation in the performance potential of a diversified bond
portfolio by reinvesting your monthly dividends automatically in additional fund
shares.
As always, we welcome your comments, questions and suggestions.
Sincerely,
[Graphic]
J. Christopher Donahue
President
June 15, 1998
INVESTMENT REVIEW
[Graphic]
Joseph Balestrino
Senior Vice President
Federated Advisers
[Graphic]
WHAT ARE YOUR COMMENTS ON THE HIGH-QUALITY FIXED-INCOME MARKET ENVIRONMENT
DURING THE FIRST HALF OF THE FUND'S FISCAL YEAR?
The six-month reporting period ended April 30, 1998 was generally positive for
high-quality fixed-income securities, in that the overall direction of interest
rates was down. Asia was the driving force early in the period (late in 1997),
as financial unrest abroad created a massive "flight to quality" into U.S.
Treasury bonds. Much of the movement in interest rates occurred at the longer
end of the maturity spectrum with 10-30 year rates falling within a range of
16-20 basis points. Shorter maturity rates moved less than 80 basis points, thus
the overall shape of the yield curve continued to flatten.
Over the early months of 1998, the high-quality, fixed-income market has been
engaged in a virtual tug-of-war between a strong domestic economy somewhat
offset by anticipated Asian-induced impacts. Overall, corporate earnings
continued to expand but at a pace much slower than seen in recent years. As a
result, general interest rates have remained within a relative trading range of
approximately 5.75% - 6.00% for the 30-year Treasury bond.
[Graphic]
HOW DID THE CORPORATE BOND MARKET PERFORM OVER THIS PERIOD?
Given a relatively narrow interest rate trading range and supportive corporate
fundamentals, corporate bonds outperformed comparable maturity Treasury
securities largely due to the incremental income advantage. Though lower down
the quality scale, high-yield corporate bonds significantly outperformed as the
demand for this sector continued to surge. Thus, the fund's partial allocation
to high-yield securities served shareholders well over the past six months.
[Graphic]
DURING THE FUND'S REPORTING PERIOD, HOW DID THE FUND'S TOTAL RETURN MEASURE
UP AGAINST ALL BBB-RATED BOND FUNDS AS TRACKED BY LIPPER ANALYTICAL
SERVICES, INC.?
The fund's Class A, B, C, and F Shares produced total returns of 4.01%, 3.60%,
3.71%, and 4.09%, respectively, based on net asset value.* These returns all
outperformed the 3.59% total return of the average corporate bond fund as
measured by the Lipper Corporate BBB-Rated Bond Funds Average.
* Performance quoted is based on net asset value, reflects past performance and
is not indicative of future results. Investment return and principal value
will fluctuate so that an investor's shares, when redeemed, may be worth more
or less than their original cost. Total returns for the period based on
offering price for Class A, B, C, and F Shares were (0.65%), (2.06%), 2.68%,
and 2.03%, respectively.
[Graphic]
DID YOU MAKE ANY ADJUSTMENTS TO THE DURATION AND QUALITY OF THE FUND'S
PORTFOLIO?
For the entire six-month reporting period, duration positioning did not
represent a meaningful part of relative performance. However, a slightly long
position placed the portfolio in a posture to benefit from a potential slowdown
in corporate earnings.
We also continued to maintain approximately 25% of total fund assets in
high-yield corporate securities. This minor, but still significant, position has
helped to generate not only an above-average income distribution for
shareholders, but has also enhanced price appreciation as high-yield bonds
outperformed higher quality bonds in this favorable economic environment.
[Graphic]
THE FUND'S INCOME DISTRIBUTIONS REMAIN AN IMPORTANT SOURCE OF CASH FLOW TO
MANY SHAREHOLDERS. WHAT WERE THE FUND'S YIELDS ON APRIL 30, 1998?
On April 30, 1998, the fund's daily distribution rate,+ based on net asset
value, was 6.92% for Class A Shares (6.61% based on offering price) compared to
the 10-year Treasury rate, which was 5.67% on that same day. The fund's daily
distribution rates for Class B, C, and F Shares were 6.20%, 6.08%, and 6.79%,
respectively, based on net asset value. The fund's 30-day SEC yields on April
30, 1998, for Class A, B, C, and F Shares were 6.58%, 5.77%, 5.76%, and 6.55%,
respectively.++
+ 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 6.61% and 6.73%, respectively.
++ The 30-day SEC 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 fund's 30-day SEC yields
for Class A Shares and Class F Shares were 6.28% and 6.48%, respectively,
based on offering price.
[Graphic]
WHAT WERE THE FUND'S TOP TEN HOLDINGS AS OF APRIL 30, 1998 AND HOW WERE THE
FUND'S ASSETS ALLOCATED ACCORDING TO BOND QUALITY?
PERCENTAGE OF
NAME NET ASSETS
Shopko Stores, 9.25% due 3/15/2022 1.50%
Trans Ocean Container Corp., 12.25% due 7/1/2004 1.50%
Inco Ltd., 9.60% due 6/15/2022 1.50%
TKR Cable Inc., 10.50%, due 10/30/2007 1.50%
Valassis Inserts Inc., 9.375% due 3/15/1999 1.40%
Continental Cablevision, 9.50% due 8/1/2013 1.30%
Husky Oil Ltd., 7.125% due 11/15/2006 1.30%
Figgie International Inc., 9.875% due 10/1/1999 1.20%
Green Tree Financial Corp., 9.15% due 1/15/2018 1.10%
Waste Management, 8.750 due 1/5/2018 1.10%
TOTAL 12.30%
PERCENTAGE OF
NET ASSETS
AAA 8.90%
AA 4.00%
A 23.13%
BBB 31.35%
BB 13.21%
B 16.32%
[Graphic]
AS WE REACH THE MID-POINT OF 1998, WHAT IS YOUR OUTLOOK FOR THE BOND MARKET?
Over the coming months, we would expect that the effects of the Asian crises
will become more apparent. It appears that the Federal Reserve Board will be
maintaining a constant approach with no near-term interest rate hikes or
decreases. We will continue to closely monitor the pattern of corporate earnings
releases, recognizing that Wall Street's consensus of earnings expectations have
been reduced considerably over the past six months. In summation, we are
neutral-to-positive on the direction of interest rates, feeling that the
"trading range" could be broken with rates moving out on the lower yielding side
of the range.
SHAREHOLDER MEETING RESULTS
A Special Meeting of the Shareholders of Federated Bond Fund, a portfolio of
Investment Series Funds, Inc. was held on April 28, 1998. On February 26, 1998,
the record date for shareholders voting at the meeting, there were 77,338,763
total outstanding shares. The following items were considered by shareholders
and the results of their voting were as follows:
ABSTENTIONS WITHHELD
AND BROKER AUTHORITY
AGENDA ITEM FOR AGAINST NON-VOTES TO VOTE
1.To elect three directors.
Thomas G. Bigley 57,759,312 0 0 1,379,208
John E. Murray, Jr. 57,775,710 0 0 1,362,810
Nicholas P. Constantakis 57,779,639 0 0 1,358,881
2. To approve or disapprove an amendment in the fund's fundamental investment
policy on diversification of its investments.
41,009,366 802,954 17,326,200 0
3. To approve or disapprove changing from fundamental to an operating policy the
fund's policy on investing in illiquid securities.
40,852,136 1,424,342 16,862,042 0
4. To approve or disapprove amending and changing from fundamental to an
operating policy the fund's ability to invest in restricted securities.
40,715,766 1,645,896 16,776,858 0
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 YOUR DIVIDENDS AND CAPITAL GAINS, AND
DID NOT REDEEM ANY SHARES, YOUR ACCOUNT WOULD HAVE BEEN WORTH $30,669 ON
4/30/98. YOU WOULD HAVE EARNED A 9.82%* AVERAGE ANNUAL TOTAL RETURN FOR THE
INVESTMENT LIFE SPAN.
One key to investing wisely is to reinvest all distributions in fund shares.
This increases the number of shares on which you can earn future dividends, and
you gain the benefit of compounding.
As of 3/31/98, Class A Shares' 1-year and since inception (6/28/95) total
returns were 8.46% and 7.44%, respectively. Class B Shares' 1-year and since
inception (6/28/95) total returns were 6.86% and 6.87%, respectively. Class C
Shares' 1-year and since inception (6/28/95) total returns were 11.69% and
8.45%, respectively. Class F Shares' 1-year, 5-year, and 10-year total returns
were 11.37%, 8.26%, and 10.12%, respectively.**
[Graphic A1 omitted. See Appendix]
* 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 that 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 INITIAL INVESTMENT AND SUBSEQUENT INVESTMENTS OF $1,000 EACH YEAR FOR 10
YEARS (REINVESTING ALL DIVIDENDS AND CAPITAL GAINS) GREW TO $20,554.
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 $20,554* by 4/30/98. You would have earned an
average annual total return of 10.25%.
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, money, and
compounding to work.
[Graphic A2 omitted. See Appendix]
* 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. 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, their original $20,000 investment has grown to $55,763.
This represents a 9.82% average annual total return. For John and Joan, that
means extra money to supplement their daughter's college tuition.
[Graphic A3 omitted. See Appendix]
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, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS--65.6%
AEROSPACE & DEFENSE--0.3%
$ 2,250,000 McDonnell-Douglas Corp., Note, 9.40%, 10/15/2001 $ 2,342,812
AIR TRANSPORTATION--0.7%
5,450,000 Southwest Airlines Co., Deb., 7.375%, 3/1/2027 5,804,850
AUTOMOBILE--1.9%
5,300,000 Arvin Industries, Inc., 9.50%, 2/1/2027 6,113,444
2,975,000 Arvin Industries, Inc., Note, 6.75%, 3/15/2008 2,955,056
7,000,000 Dana Corp., Note, 7.00%, 3/15/2028 7,058,730
Total 16,127,230
BANKING--5.7%
4,750,000 ABN-AMRO Bank NV, Chicago, Sub. Deb., 7.30%, 4,757,410
12/1/2026
5,250,000 Banco Santander, Bank Guarantee, 7.875%, 4/15/2005 5,667,743
2,500,000 Banco Santander, Sub. Note, 7.25%, 11/1/2015 2,598,950
2,200,000 City National Bank, Sub. Note, 6.375%, 1/15/2008 2,169,310
2,750,000 Crestar Financial Corp., Sub. Note, 8.75%, 3,097,710
11/15/2004
3,800,000 (a)Den Danske Bank, Note, 7.40%, 6/15/2010 3,967,314
5,740,000 FirstBank Puerto Rico, Sub. Note, 7.625%, 5,846,781
12/20/2005
6,000,000 National Australia Bank, Ltd., Melbourne, Sub.
Note, Series B, 6.60%, 12/10/2007 6,075,960
8,150,000 National Bank of Canada, Montreal, Sub. Note, 8,852,285
8.125%, 8/15/2004
3,800,000 (a)Swedbank, Sub., 7.50%, 11/29/2049 3,888,692
Total 46,922,155
BEVERAGE & TOBACCO--1.1%
650,000 Anheuser-Busch Cos., Inc., Sr. Note, 7.10%, 676,436
6/15/2007
8,250,000 Philip Morris Cos., Inc., Deb., 7.75%, 1/15/2027 8,762,407
Total 9,438,843
</TABLE>
FEDERATED BOND FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS--CONTINUED
BROADCAST RADIO & TV--1.1%
$ 8,575,000 SCI Television, Inc., Sr. Secd. Note, 11.00%, $ 8,768,452
6/30/2005
CABLE TELEVISION--4.0%
4,500,000 CF Cable TV, Inc., Note, 9.125%, 7/15/2007 4,991,580
4,500,000 Comcast Corp., Note, 8.50%, 5/1/2027 5,329,530
9,090,000 Continental Cablevision, Sr. Deb., 9.50%, 8/1/2013 10,691,385
10,835,000 TKR Cable, Inc., 10.50%, 10/30/2007 12,014,281
Total 33,026,776
CONGLOMERATES--0.6%
5,250,000 (a)Hutchison Whampoa Finance, Company Guarantee, 4,697,595
7.50%, 8/1/2027
ECOLOGICAL SERVICES & EQUIPMENT--2.1%
7,750,000 USA Waste Services, Inc., Sr. Note, 7.125%, 8,035,665
10/1/2007
8,210,000 WMX Technologies, Inc., Deb., 8.75%, 5/1/2018 9,219,666
Total 17,255,331
EDUCATION--1.2%
5,600,000 Boston University, 7.625%, 7/15/2097 6,327,698
3,000,000 Harvard University, Revenue Bonds, 8.125%, 3,432,030
4/15/2007
Total 9,759,728
ELECTRONICS--1.2%
5,500,000 Anixter International, Inc., Company Guarantee, 5,764,825
8.00%, 9/15/2003
4,165,000 Harris Corp., Deb., 10.375%, 12/1/2018 4,474,168
Total 10,238,993
FINANCE - AUTOMOTIVE--0.2%
385,000 Ford Motor Credit Corp., Note, 7.00%, 9/25/2001 395,722
300,000 Ford Motor Credit Corp., Note, 7.57%, 5/16/2005 307,032
700,000 General Motors Acceptance Corp., Note, 6.75%, 714,525
6/10/2002
Total 1,417,279
</TABLE>
FEDERATED BOND FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS--CONTINUED
FINANCIAL INTERMEDIARIES--3.0%
$ 6,000,000 (a)Amvescap PLC, Sr. Note, 6.60%, 5/15/2005 $ 5,990,880
5,150,000 Donaldson, Lufkin and Jenrette Securities Corp.,
Note, 6.875%,
11/1/2005 5,260,159
8,296,000 Green Tree Financial Corp., Sr. Sub. Note, 10.25%, 9,223,327
6/1/2002
425,000 Merrill Lynch & Co., Inc., Sr. Note, 7.15%, 434,227
7/30/2012
3,702,770 (a)World Financial, Pass Thru Cert., Series 96 3,877,577
WFP-B, 6.91%, 9/1/2013
Total 24,786,170
FOOD & DRUG RETAILERS--0.1%
25,000 McDonald's Corp., Note, 6.75%, 2/15/2003 25,319
550,000 McDonald's Corp., Note, 7.375%, 7/15/2002 558,300
Total 583,619
FOREST PRODUCTS--1.7%
6,000,000 Donohue Forest Products, 7.625%, 5/15/2007 6,412,620
2,850,000 Pope & Talbot, Inc., 8.375%, 6/1/2013 2,821,671
4,600,000 Quno Corp., Sr. Note, 9.125%, 5/15/2005 5,023,568
Total 14,257,859
HEALTHCARE--0.4%
300,000 Columbia/HCA Healthcare Corp., Note, 6.87%, 292,734
9/15/2003
3,200,000 Tenet Healthcare Corp., Sr. Note, 8.00%, 1/15/2005 3,291,520
Total 3,584,254
INDUSTRIAL PRODUCTS & EQUIPMENT--2.1%
9,118,000 Figgie International Holdings, Inc., Sr. Note, 9,539,707
9.875%, 10/1/1999
7,095,000 Southdown, Inc., Sr. Sub. Note, 10.00%, 3/1/2006 7,955,269
Total 17,494,976
INSURANCE--10.4%
6,000,000 Allmerica Financial Corp., Sr. Note, 7.625%, 6,361,260
10/15/2025
450,000 American General Corp., Note, 7.75%, 4/1/2005 482,072
8,000,000 CNA Financial Corp., Bond, 6.95%, 1/15/2018 7,899,200
</TABLE>
FEDERATED BOND FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS--CONTINUED
INSURANCE--CONTINUED
$ 5,800,000 Conseco, Inc., Note, 6.40%, 2/10/2003 $ 5,773,668
7,025,000 Conseco, Inc., Sr. Note, 10.50%, 12/15/2004 8,419,322
2,110,000 Continental Corp., Note, 8.25%, 4/15/1999 2,156,040
2,950,000 Delphi Financial Group, Inc., 9.31%, 3/25/2027 3,267,125
8,000,000 Delphi Financial Group, Inc., Note, 8.00%, 8,450,640
10/1/2003
3,460,000 GEICO Corp., Deb., 9.15%, 9/15/2021 3,890,805
4,800,000 (a)Life Re Capital Trust I, 8.72%, 6/15/2027 5,141,136
25,000 Progressive Corp., OH, Unsecd. Note, 7.30%, 26,307
6/1/2006
3,300,000 Provident Cos., Inc., Bond, 7.405%, 3/15/2038 3,361,634
6,500,000 (a)Reinsurance Group of America, Sr. Note, 7.25%, 6,797,050
4/1/2006
925,000 SAFECO Corp., Note, 7.875%, 4/1/2005 980,648
3,000,000 SunAmerica, Inc., Deb., 8.125%, 4/28/2023 3,289,170
1,000,000 SunAmerica, Inc., Medium Term Note, 7.34%, 1,060,145
8/30/2005
1,500,000 SunAmerica, Inc., Sr. Note, 6.20%, 10/31/1999 1,503,840
4,575,000 SunAmerica, Inc., Sr. Note, 9.00%, 1/15/1999 4,675,696
525,000 Transamerica Corp., Note, 6.75%, 11/15/2006 533,206
1,000,000 (a)USF&G Corp., 8.312%, 7/1/2046 1,152,610
5,750,000 USF&G Corp., Company Guarantee, 8.47%, 1/10/2027 6,422,693
4,000,000 (a)Union Central Life Insurance Co., Note, 8.20%, 4,351,440
11/1/2026
Total 85,995,707
LEISURE & ENTERTAINMENT--0.8%
6,350,000 Paramount Communications, Inc., Sr. Deb., 8.25%, 6,603,428
8/1/2022
MACHINERY & EQUIPMENT--1.5%
7,500,000 Continental Airlines, Inc., Pass Thru Cert.,
Series 1997-4 B, 6.90%, 7/2/2019 7,705,725
4,700,000 Cummins Engine Co., Inc., Deb., 7.125%, 3/1/2028 4,650,133
Total 12,355,858
</TABLE>
FEDERATED BOND FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS--CONTINUED
METALS & MINING--4.3%
$ 7,600,000 Barrick Gold Corp., Deb., 7.50%, 5/1/2007 $ 8,031,908
11,000,000 Inco Ltd., Note, 9.60%, 6/15/2022 12,254,550
7,000,000 Placer Dome, Inc., Bond, 8.50%, 12/31/2045 7,517,174
7,375,000 Santa Fe Pacific Gold, Note, 8.375%, 7/1/2005 7,960,575
Total 35,764,207
OIL & GAS--3.1%
125,000 Chevron Capital USA, Inc., Unsecd. Note, 7.45%, 130,153
8/15/2004
10,250,000 Husky Oil Ltd., Sr. Note, 7.125%, 11/15/2006 10,437,267
3,957,000 Occidental Petroleum Corp., Note, 8.50%, 9/15/2004 4,088,372
6,500,000 Sun Co., Inc., 9.00%, 11/1/2024 7,978,815
2,500,000 Sun Co., Inc., Deb., 9.375%, 6/1/2016 2,946,250
Total 25,580,857
PHARMACEUTICAL--0.0%
50,000 Smithkline Beecham Corp., Unsecd. Note, Series A, 50,457
7.50%, 5/1/2002
PRINTING & PUBLISHING--2.5%
1,500,000 News America Holdings, Inc., 10.125%, 10/15/2012 1,746,540
2,000,000 News America Holdings, Inc., Company Guarantee,
8.00%,
10/17/2016 2,177,500
4,850,000 News America Holdings, Inc., Deb., 7.90%, 5,163,053
12/1/2095
11,303,000 Valassis Communication, Inc., Sr. Sub. Note, 11,654,975
9.375%, 3/15/1999
Total 20,742,068
REAL ESTATE--2.0%
8,250,000 Price REIT, Inc., Sr. Note, 7.50%, 11/5/2006 8,672,977
3,250,000 Storage USA, 8.20%, 6/1/2017 3,549,195
4,000,000 Storage USA, Deb., 7.50%, 12/1/2027 4,047,040
Total 16,269,212
</TABLE>
FEDERATED BOND FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS--CONTINUED
RETAILERS--5.7%
$ 6,225,000 Brylane Capital Corp., Sr. Sub. Note, 10.00%, $ 6,629,625
9/1/2003
8,370,000 Harcourt General, Inc., Sr. Deb., 7.20%, 8/1/2027 8,398,039
6,881,607 K Mart Corp., Pass Thru Cert., 8.54%, 1/2/2015 7,119,848
5,600,000 May Department Stores Co., Deb., 8.125%, 8/15/2035 6,190,744
6,000,000 Penney (J.C.) Co., Inc., Deb., 7.65%, 8/15/2016 6,463,140
10,497,000 Shopko Stores, Inc., 9.25%, 3/15/2022 12,747,137
Total 47,548,533
SERVICES--0.6%
5,000,000 Loewen Group Int'l, Sr. Note, 8.25%, 4/15/2003 5,315,450
SOVEREIGN GOVERNMENT--2.8%
4,565,000 Colombia, Republic of, Note, 7.25%, 2/15/2003 4,411,570
3,500,000 Quebec, Province of, Deb., 13.25%, 9/15/2014 3,980,375
2,000,000 Quebec, Province of, Deb., 7.50%, 7/15/2023 2,179,560
3,390,000 Quebec, Province of, Deb., 9.125%, 8/22/2001 3,661,200
4,300,000 South Africa, Republic of, Global Bond Deb., 4,480,428
9.625%, 12/15/1999
3,500,000 Sweden, Kingdom of, Deb., 10.25%, 11/1/2015 4,698,050
Total 23,411,183
SURFACE TRANSPORTATION--1.5%
11,050,000 Trans Ocean Container Corp., Sr. Sub. Note, 12,522,634
12.25%, 7/1/2004
TELECOMMUNICATIONS & CELLULAR--0.1%
700,000 AT&T Corp., Unsecd. Note, Series A, 8.20%, 724,262
2/15/2005
UTILITIES--2.9%
75,000 Alabama Power Co., 1st Mtg. Bond, 7.00%, 1/1/2003 76,169
55,000 Baltimore Gas & Electric Co., 1st Ref. Mtg., 59,593
7.50%, 1/15/2007
25,000 Bell Atlantic Corp., Deb., 7.375%, 10/15/2007 25,271
4,400,000 California Energy Co., Inc., Sr. Note, 10.25%, 4,752,000
1/15/2004
5,150,000 Enersis S.A., Note, 7.40%, 12/1/2016 5,135,734
</TABLE>
FEDERATED BOND FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS--CONTINUED
UTILITIES--CONTINUED
$ 5,500,000 (a)Israel Electric Corp. Ltd., Sr. Note, 7.875%, $ 5,654,605
12/15/2026
3,750,000 Puget Sound Energy, Inc., Medium Term Note, 7.02%, 3,814,425
12/1/2027
6,500,000 (a)Tenaga Nasional Berhad, Deb., 7.50%, 1/15/2096 4,923,945
Total 24,441,742
TOTAL CORPORATE BONDS (IDENTIFIED COST 543,832,520
$530,475,349)
GOVERNMENT AGENCIES--0.4%
175,000 Federal National Mortgage Association, Note, 179,158
6.87%, 10/2/2001
900,000 Federal National Mortgage Association, 7.65%, 984,267
3/10/2005
700,000 Federal National Mortgage Association, Note, 731,591
7.50%, 4/16/2007
340,000 Financial Assistance Corp., Bond, 9.45%, 347,218
11/21/2003
805,000 Financial Assistance Corp., 9.20%, 9/27/2005 863,185
TOTAL GOVERNMENT AGENCIES (IDENTIFIED COST 3,105,419
$3,103,891)
MUNICIPAL SECURITIES--5.0%
5,630,000 Atlanta & Fulton County, GA Recreation Authority,
Taxable Revenue Bonds, Series 1997, 7.00% Bonds
(Downtown Arena Project)/(FSA INS), 12/1/2028 5,638,389
6,050,000 Kansas City, MO Redevelopment Authority, 7.65%
Bonds (FSA LOC), 11/1/2018 6,541,260
3,090,000 McKeesport, PA, Taxable G.O. Series B 1997, 7.30%
Bonds (MBIA INS), 3/1/2020 3,158,660
3,000,000 Miami Florida Revenue Pension Obligation, 7.20%
Bonds (AMBAC LOC), 12/1/2025 3,064,320
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 5,521,932
4,675,000 Pittsburgh, PA Urban Redevelopment Authority,
8.01% Bonds (Aluminum Co. of America), 6/1/2015 5,079,808
2,635,000 Pittsburgh, PA Urban Redevelopment Authority,
9.07% Bonds (CGIC GTD), 9/1/2014 3,024,374
</TABLE>
FEDERATED BOND FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR SHARES VALUE
<C> <S> <C>
MUNICIPAL SECURITIES--CONTINUED
$ 2,200,000 Southeastern, PA Transportation Authority, (Series
B), 8.75% Bonds (FGIC GTD), 3/1/2020 $ 2,457,818
4,200,000 St. Johns County, FL Convention Center, Taxable
Municipal Revenue Bonds, 8.00% Bonds (FSA INS),
1/1/2026 4,625,460
2,080,000 Tampa Florida Sports Authority, 8.02% Bonds (MBIA
GTD), 10/1/2026 2,365,459
TOTAL MUNICIPAL SECURITIES (IDENTIFIED COST 41,477,480
$39,188,728)
PREFERRED STOCKS--2.6%
REAL ESTATE--1.5%
8,000 Highwoods Properties, Inc., REIT Perpetual Pfd.
Stock, Series A, $86.25 8,415,280
80,000 Security Capital Industrial Trust, REIT Perpetual
Pfd. Stock, Series C, $4.27 4,338,800
Total 12,754,080
TECHNOLOGY SERVICES--1.1%
95,600 Microsoft Corp., Cumulative Conv. Pfd., Series A, 8,902,750
$2.20
TOTAL PREFERRED STOCKS (IDENTIFIED COST 21,656,830
$20,572,890)
ASSET-BACKED SECURITIES--0.6%
FINANCIAL INTERMEDIARIES--0.1%
1,000,000 Green Tree Financial Corp. 1992-2, Class B, 9.15%, 1,050,370
1/15/2018
STRUCTURED PRODUCT (ABS)--0.2%
764,774 Merrill Lynch Mortgage Investment, Inc. 1988-H,
Class B, 9.70%, 6/15/2008 777,439
1,000,000 Residential Funding Corp. 1993-S26, Class A10, 1,033,810
7.50%, 7/25/2023
Total 1,811,249
WHOLE LOAN--0.3%
2,487,807 (a)SMFC Trust Asset-Backed Certificates, Series
1997-A, Class 4, 1/28/2025 2,267,785
TOTAL ASSET-BACKED SECURITIES (IDENTIFIED COST 5,129,404
$5,090,997)
</TABLE>
FEDERATED BOND FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
U.S. TREASURY OBLIGATIONS--3.1%
U.S. TREASURY BONDS--2.3%
$ 3,000,000 United States Treasury Bond, 6.00%, 2/15/2026 $ 2,992,200
4,000,000 United States Treasury Bond, 6.125%, 11/15/2027 4,096,840
2,000,000 United States Treasury Bond, 6.375%, 8/15/2027 2,109,640
400,000 United States Treasury Bond, 7.50%, 11/15/2016 465,440
610,000 United States Treasury Bond, 8.25%, 5/15/2005 642,068
6,750,000 United States Treasury Bond, 11.625%, 11/15/2004 8,890,628
Total 19,196,816
U.S. TREASURY NOTES--0.8%
150,000 United States Treasury Note, 5.50%, 12/31/2000 149,529
75,000 United States Treasury Note, 5.625%, 11/30/1998 75,074
100,000 United States Treasury Note, 5.75%, 8/15/2003 100,289
1,275,000 United States Treasury Note, 6.125%, 12/31/2001 1,293,755
325,000 United States Treasury Note, 6.25%, 3/31/1999 327,291
875,000 United States Treasury Note, 6.375%, 4/30/1999 882,621
125,000 United States Treasury Note, 6.625%, 3/31/2002 129,073
550,000 United States Treasury Note, 6.875%, 5/15/2006 588,632
460,000 United States Treasury Note, 7.25%, 8/15/2004 497,145
350,000 United States Treasury Note, 7.50%, 11/15/2001 370,353
325,000 United States Treasury Note, 7.50%, 2/15/2005 357,009
1,240,000 United States Treasury Note, 7.75%, 11/30/1999 1,281,193
285,000 United States Treasury Note, 7.875%, 8/15/2001 303,659
325,000 United States Treasury Note, 8.00%, 8/15/1999 334,965
50,000 United States Treasury Note, 9.25%, 8/15/1998 50,560
Total 6,741,148
TOTAL U.S. TREASURY OBLIGATIONS (IDENTIFIED COST 25,937,964
$25,863,263)
</TABLE>
FEDERATED BOND FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR SHARES VALUE
<C> <S> <C>
MUTUAL FUND--21.3%
17,751,022 The High Yield Bond Portfolio (IDENTIFIED COST $ 176,622,666
$168,470,724)
(B)REPURCHASE AGREEMENT--0.6%
$ 4,990,000 BT Securities Corp., 5.53%, dated 4/30/1998, due
5/1/1998 (AT AMORTIZED COST) 4,990,000
TOTAL INVESTMENTS (IDENTIFIED COST $ 822,752,283
$797,755,842)(C)
</TABLE>
(a) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At April 30, 1998, these securities amounted
to $52,710,629 which represents 6.4% of net assets.
(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 $797,755,842.
The net unrealized appreciation of investments on a federal tax basis
amounts to $24,996,441 which is comprised of $29,582,655 appreciation and
$4,586,214 depreciation at April 30, 1998.
Note: The categories of investments are shown as a percentage of net assets
($828,805,988) at April 30, 1998.
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 LOC --Letter of Credit MBIA --Municipal Bond Investors Assurance 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
APRIL 30, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $822,752,283
$797,755,842)
Cash 551,001
Income receivable 15,677,547
Receivable for investments sold 2,278,953
Receivable for shares sold 2,893,102
Total assets 844,152,886
LIABILITIES:
Payable for investments purchased $ 12,002,386
Payable for shares redeemed 861,066
Income distribution payable 2,098,810
Accrued expenses 384,636
Total liabilities 15,346,898
NET ASSETS for 82,352,305 shares outstanding $828,805,988
NET ASSETS CONSIST OF:
Paid in capital $806,251,470
Net unrealized appreciation of investments 24,996,441
Accumulated net realized loss on investments (2,805,905)
Undistributed net investment income 363,982
Total Net Assets $828,805,988
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
CLASS A SHARES:
Net Asset Value Per Share ($160,947,944 / 15,998,736 shares outstanding) $10.06
Offering Price Per Share (100/95.50 of $10.06)* $10.53
Redemption Proceeds Per Share $10.06
CLASS B SHARES:
Net Asset Value Per Share ($233,155,320 / 23,168,012 shares outstanding) $10.06
Offering Price Per Share $10.06
Redemption Proceeds Per Share (94.50/100 of $10.06)* $9.51
CLASS C SHARES:
Net Asset Value Per Share ($56,038,764 / 5,567,198 shares outstanding) $10.07
Offering Price Per Share $10.07
Redemption Proceeds Per Share (99.00/100 of $10.07)* $9.97
CLASS F SHARES:
Net Asset Value Per Share ($378,663,960 / 37,618,359 shares outstanding) $10.07
Offering Price Per Share (100/99.00 of $10.07)* $10.17
Redemption Proceeds Per Share (99.00/100 of $10.07)* $9.97
</TABLE>
* See "Investing in the Fund" in the Prospectuses.
(See Notes which are an integral part of the Financial Statements)
FEDERATED BOND FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 4,507,954
Interest 25,911,607
Total income 30,419,561
EXPENSES:
Investment advisory fee $2,797,893
Administrative personnel and services fee 281,337
Custodian fees 24,116
Transfer and dividend disbursing agent fees and 225,000
expenses
Directors'/Trustees' fees 9,412
Auditing fees 11,403
Legal fees 7,421
Portfolio accounting fees 82,186
Distribution services fee--Class B Shares 790,714
Distribution services fee--Class C Shares 174,740
Shareholder services fee--Class A Shares 171,051
Shareholder services fee--Class B Shares 263,571
Shareholder services fee--Class C Shares 58,247
Shareholder services fee--Class F Shares 439,762
Share registration costs 68,961
Printing and postage 61,902
Insurance premiums 3,982
Taxes 18,281
Miscellaneous 2,896
Total expenses 5,492,875
Waivers and reimbursements--
Waiver of investment advisory fee $(407,429) Waiver of shareholder services
fee--Class A Shares (34,210) Waiver of shareholder services fee--Class F
Shares (35,181)
Total waivers (476,820)
Net expenses 5,016,055
Net investment income 25,403,506
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 1,403,688
Net change in unrealized appreciation of investments 1,817,356
Net realized and unrealized gain on investments 3,221,044
Change in net assets resulting from operations $28,624,550
</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,
1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 25,403,506 $ 38,592,130
Net realized gain (loss) on investments ($1,403,688 net
gain and $434,628 net loss, respectively, as computed
for federal tax purposes) 1,403,688 (623,390)
Net change in unrealized appreciation/depreciation 1,817,356 18,491,945
Change in net assets resulting from operations 28,624,550 56,460,685
NET EQUALIZATION CREDITS (DEBITS)-- 324,195 438,191
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Class A Shares (4,925,030) (4,848,032)
Class B Shares (6,731,450) (10,064,393)
Class C Shares (1,500,528) (1,938,250)
Class F Shares (12,448,198) (21,220,844)
Change in net assets resulting from distributions to (25,605,206) (38,071,519)
shareholders
SHARE TRANSACTIONS (EXCLUSIVE OF AMOUNTS ALLOCATED TO NET
INVESTMENT INCOME)--
Proceeds from sale of shares 239,764,293 307,933,652
Proceeds from shares issued in connection with the -- 25,651,929
acquisition
Net asset value of shares issued to shareholders in
payment of distributions declared 13,518,116 19,566,083
Cost of shares redeemed (95,725,344) (157,355,117)
Change in net assets resulting from share transactions 157,557,065 195,796,547
Change in net assets 160,900,604 214,623,904
NET ASSETS:
Beginning of period 667,905,384 453,281,480
End of period (including undistributed net investment
income of $363,982 and $241,487, respectively) $ 828,805,988 $ 667,905,384
</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
(UNAUDITED)
APRIL 30, YEAR ENDED OCTOBER 31,
1998 1997 1996 1995(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.02 $ 9.72 $ 9.76 $ 9.64
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.36 0.74 0.71 0.26
Net realized and unrealized gain (loss)
on investments 0.04 0.26 (0.04) 0.11
Total from investment operations 0.40 1.00 0.67 0.37
LESS DISTRIBUTIONS
Distributions from net investment income (0.36) (0.70) (0.71) (0.25)
NET ASSET VALUE, END OF PERIOD $10.06 $10.02 $ 9.72 $ 9.76
TOTAL RETURN(B) 4.01% 10.73% 7.21% 3.92%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.06%* 1.05% 1.05% 1.02%*
Net investment income 7.10%* 7.30% 7.46% 8.22%*
Expense waiver/reimbursement(c) 0.16%* 0.20% 0.25% 0.35%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $160,948 $111,377 $37,045 $5,070
Portfolio turnover 34% 55% 49% 77%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from June 28, 1995 (date of initial
public investment) 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
(UNAUDITED)
APRIL 30, YEAR ENDED OCTOBER 31,
1998 1997 1996 1995(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.02 $ 9.72 $ 9.76 $ 9.64
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.32 0.64 0.64 0.24
Net realized and unrealized gain (loss)
on investments 0.04 0.28 (0.04) 0.11
Total from investment operations 0.36 0.92 (0.60) 0.35
LESS DISTRIBUTIONS
Distributions from net investment income (0.32) (0.62) (0.64) (0.23)
NET ASSET VALUE, END OF PERIOD $10.06 $10.02 $ 9.72 $ 9.76
TOTAL RETURN(B) 3.60% 9.86% 6.40% 3.72%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.85%* 1.85% 1.85% 1.81%*
Net investment income 6.30%* 6.50% 6.66% 7.36%*
Expense waiver/reimbursement(c) 0.11%* 0.15% 0.20% 0.30%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $233,155 $191,600 $125,620 $27,768
Portfolio turnover 34% 55% 49% 77%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from June 28, 1995 (date of initial
public investment) 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
(UNAUDITED)
APRIL 30, YEAR ENDED OCTOBER 31,
1998 1997 1996 1995(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.02 $ 9.72 $ 9.76 $ 9.64
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.32 0.64 0.64 0.24
Net realized and unrealized gain (loss)
on investments 0.05 0.28 (0.04) 0.11
Total from investment operations 0.37 0.92 0.60 0.35
LESS DISTRIBUTIONS
Distributions from net investment income (0.32) (0.62) (0.64) (0.23)
NET ASSET VALUE, END OF PERIOD $10.07 $10.02 $ 9.72 $ 9.76
TOTAL RETURN(B) 3.71% 9.86% 6.40% 3.72%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.86%* 1.85% 1.85% 1.81%*
Net investment income 6.30%* 6.50% 6.70% 7.31%*
Expense waiver/reimbursement(c) 0.11%* 0.15% 0.20% 0.30%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $56,039 $39,398 $22,897 $5,508
Portfolio turnover 34% 55% 49% 77%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from June 28, 1995 (date of initial
public investment) 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>
SIX MONTHS
ENDED
(UNAUDITED)
APRIL 30, YEAR ENDED OCTOBER 31,
1998 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF $10.02 $ 9.72 $ 9.76 $ 9.08 $10.30 $ 9.23
PERIOD
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.35 0.72 0.71 0.79 0.76 0.77
Net realized and unrealized gain
(loss) on investments 0.05 0.28 (0.04) 0.65 (1.09) 1.07
Total from investment operations 0.40 1.00 0.67 1.44 (0.33) 1.84
LESS DISTRIBUTIONS
Distributions from net
investment income (0.35) (0.70) (0.71) (0.76) (0.75) (0.77)
Distributions from net realized
gain on investment transactions -- -- -- -- (0.14) --
Total distributions (0.35) (0.70) (0.71) (0.76) (0.89) (0.77)
NET ASSET VALUE, END OF PERIOD $10.07 $10.02 $ 9.72 $ 9.76 $ 9.08 $10.30
TOTAL RETURN(A) 4.09% 10.70% 7.18% 16.51% (3.41%) 20.61%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.08%* 1.08% 1.08% 1.03% 1.05% 1.04%
Net investment income 7.07%* 7.27% 7.38% 8.20% 7.92% 7.69%
Expense waiver/reimbursement(b) 0.13%* 0.17% 0.22% 0.31% 0.33% 0.61%
SUPPLEMENTAL DATA
Net assets, end of period
(000 omitted) $378,664 $325,531 $267,720 $195,502 $146,270 $125,762
Portfolio turnover 34% 55% 49% 77% 74% 51%
</TABLE>
* Computed on an annualized basis.
(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
APRIL 30, 1998 (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 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. Investments in other
open-end investment companies are valued at net asset value.
REPURCHASE AGREEMENTS --It is the policy of the Fund to require the custodian
bank to take possession, to have legally segregated in the Federal Reserve Book
Entry System, or to have segregated within the custodian bank's vault, all
securities held as collateral under repurchase agreement transactions.
Additionally, procedures have been established by the Fund to monitor, on a
daily basis, the market value of each repurchase agreement's collateral to
ensure that the value of collateral at least equals the repurchase price to be
paid under the repurchase agreement 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"). 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, 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:
EXPIRATION YEAR EXPIRATION AMOUNT
2002 $3,781,824
2003 430,964
2004 99,709
2005 441,892
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 April 30, 1998, is as
follows:
SECURITY ACQUISITION DATE ACQUISITION
COST
Amvescap PLC 4/30/1998 $5,990,880
Den Danske Bank 1/7/1998 3,998,816
Hutchison Whampoa Finance 7/25/1997 - 8/1/1997 5,254,170
Israel Electric Corp. Ltd. 1/28/1997 5,489,165
Life Re Capital Trust I 1/6/1997 - 1/31/1997 4,832,176
Reinsurance Group of America 3/19/1996 - 6/2/1997 6,500,000
SMFC Trust Asset-Backed 2/4/1998 2,275,565
Certificates
Swedbank 1/7/1998 3,968,606
Tenaga Nasional Berhad 1/9/1997 - 3/3/1997 6,162,725
Union Central Life Insurance 10/31/1996 3,979,120
Co.
USF & G Corp. 7/3/1997 1,000,000
World Financial 11/18/1996 3,696,552
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, 1998, par value shares ($0.001 per share) authorized were as
follows:
NUMBER OF PAR VALUE
CLASS NAME CAPITAL STOCK
AUTHORIZED
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
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1998 OCTOBER 31, 1997
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 8,579,414 $ 86,321,763 9,865,488 $ 96,447,985
Shares issued in connection with
the acquistion -- -- 2,594,627 25,038,147
Shares issued to shareholders in
payment of distributions 347,620 3,495,602 352,776 3,459,765
declared
Shares redeemed (4,048,541) (40,708,186) (5,504,316) (53,647,073)
Net change resulting from
Class A Shares transactions 4,878,493 $ 49,109,179 7,308,575 $ 71,298,824
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1998 OCTOBER 31, 1997
CLASS B SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 5,182,483 $ 52,224,021 8,000,100 $ 78,164,460
Shares issued to shareholders in
payment of distributions declared 391,434 3,938,523 605,869 5,924,046
Shares redeemed (1,535,413) (15,471,978) (2,402,641) (23,448,472)
Net change resulting from
Class B Shares transactions 4,038,504 $ 40,690,566 6,203,328 $ 60,640,034
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1998 OCTOBER 31, 1997
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 1,884,644 $ 18,993,495 2,352,599 $ 22,978,928
Shares issued to shareholders in
payment of distributions declared 102,601 1,032,865 141,632 1,384,761
Shares redeemed (352,564) (3,548,521) (917,732) (8,965,336)
Net change resulting from
Class C Shares transactions 1,634,681 $ 16,477,839 1,576,499 $ 15,398,353
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 1998 OCTOBER 31, 1997
CLASS F SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 8,191,802 $ 82,225,014 11,316,055 $ 110,342,279
Shares issued in connections with
the acquisition -- -- 63,604 613,782
Shares issued to shareholders in
payment of distributions declared 502,162 5,051,126 901,508 8,797,511
Shares redeemed (3,578,437) (35,996,659) (7,327,458) (71,294,236)
Net change resulting from
Class F Shares transactions 5,115,527 $ 51,279,481 4,953,709 $ 48,459,336
Net change resulting from
Shares transactions 15,667,205 $ 157,557,065 20,042,111 $ 195,796,547
</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, Inc. 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.
PERCENTAGE OF
AVERAGE DAILY
SHARE CLASS NAME NET ASSETS OF CLASS
Class A Shares 0.25%
Class B Shares 0.75%
Class C Shares 0.75%
For the six months ended April 30, 1998, 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 of the Officers and Directors of the Corporation are Officers
and Directors or Trustees of the above companies.
5. YEAR 2000
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and Adminstrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurance that
comparable steps being taken by each of the Fund's other service providers. At
this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended April 30, 1998, were as follows:
PURCHASES $415,758,385
SALES $253,139,113
DIRECTORS
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
Nicholas P. Constantakis
William J. Copeland
J. Christopher Donahue
James E. Dowd
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr.
Peter E. Madden
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 the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus, which contains facts
concerning its objective and policies, management fees, expenses, and other
information.
[Graphic]Federated Investors
Federated Securities Corp., Distributor
Federated Investors, Inc.
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
2072302 (6/98)
[Graphic]
A1. The graphic presentation here displayed consists of a boxed legend in the
upper left quadrant indicating the component of the corresponding mountain
chart. The color coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects computation periods from 5/20/87
to 4/30/98. The "y" axis is measured in increments of $5,000 ranging from $0 to
$35,000 and indicates that the ending value of a hypothetical initial investment
of $11,00 in the fund's Class F Shares assuming the reinvestment of dividends
and capital gains, would have grown to $30,669 on 4/30/98.
A2. The graphic presentation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The color coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects computation periods from 5/20/87
to 4/30/98. The "y" axis is measured in increments of $5,000 ranging from $0 to
$24,000 and indicates that the ending value of a hypothetical yearly initial
investment of $1,000 in the fund's Class F Shares, assuming the reinvestment of
dividends and capital gains, would have grown to $20,554 on 4/30/96.
A3. The graphic presentation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The color coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects computation periods from 5/20/87
to 4/30/98. The "y" axis is measured in increments of $10,000 ranging from $0 to
$50,000 and indicates that the ending value of a hypothetical initial investment
of $20,000 in the fund's Class F Shares would have grown to $55,763 on 4/30/98
