[Graphic]
[Graphic] Federated Investors
Federated Bond Fund
12th Annual Report
October 31, 1998
ESTABLISHED 1987
PRESIDENT'S MESSAGE
Dear Valued Shareholder:
Federated Bond Fund was created in 1987, and I am pleased to present its 12th
Annual Report. This report covers the 12-month period from November 1, 1997
through October 31, 1998. It begins with an interview 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, and third is
the publication of the fund's financial statements.
Amid a positive, yet volatile, environment for investment-grade corporate bonds,
Federated Bond Fund delivered a competitive total return. Contributing to the
total return was a strong monthly income stream, though the net asset value
declined slightly. Individual share class total return performance for the
12-month period, including income distributions, follows.*
INCOME
TOTAL RETURN DISTRIBUTIONS NET ASSET VALUE CHANGE
Class A Shares 5.14% $0.71 $10.02 to $9.82 = (1%)
Class B Shares 4.34% $0.62 $10.02 to $9.83 = (1%)
Class C Shares 4.35% $0.62 $10.02 to $9.83 = (1%)
Class F Shares 5.12% $0.70 $10.02 to $9.83 = (1%)
The majority of the fund's $983 million in assets continues to be invested in
investment-grade bonds, and the fund's average duration range is four to eight
years.
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 earnings automatically in additional fund
shares.
As always, we welcome your comments, questions and suggestions.
Sincerely,
[Graphic]
J. Christopher Donahue
President
December 15, 1998
* 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 (i.e., less any applicable sales charge), for Class A, B, C, and
F Shares were 0.43%, (1.06%), 3.36%, and 3.11%, respectively.
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 PAST 12 MONTHS?
The fund's fiscal year ended October 31, 1998 was positive for most fixed-income
investors, particularly those in the highest quality debt sectors. Interest rate
levels declined significantly over the period for all points along the U.S.
Treasury maturity spectrum. The largest interest rate decrease occurred in the
two-year Treasury maturity, which fell approximately 150 basis points in yield.
There were two predominant reasons for the interest rate decline: 1) a slower
growth economic environment; and 2) dramatic economic/financial marketplace
volatility in non-U.S. markets.
Throughout much of calendar year 1998, corporate earnings have been considerably
below initial Wall Street analysts' expectations. The corresponding concern over
the future growth potential of the U.S. economy, in combination with sustained
low inflation, caused U.S. Treasury yields to fall. Additionally, the global
financial marketplace became far more unstable over the fiscal year. Problems
emanating out of Asia in the second half of 1997 quickly spread to Russia and
Latin America during the first three quarters of 1998. The result was a
worldwide "flight to quality" into U.S. Treasury securities. As the fiscal year
was coming to a close, the Federal Reserve Board reversed monetary policy and
twice decreased the Fed Funds Target Rate, creating a further rally in
high-quality bonds.
In terms of relative performance within the various fixed-income sectors, the
general rule over the past year was that higher quality bonds outperformed lower
quality bonds, and domestic bonds outperformed international bonds. The star
performers were U.S. Treasuries, perceived to be the highest quality investment
worldwide. All other investment-grade sectors (corporate bonds, mortgage-backed
securities, asset-backed securities) produced positive rates of return, but fell
short of U.S. Treasuries. As one moved into below investment-grade and
international emerging market debt securities, the returns were modestly
positive to negative over the fiscal year.
[Graphic]
HOW DID FEDERATED BOND FUND PERFORM OVER THE 12-MONTH REPORTING PERIOD?
For the fiscal year ended October 31, 1998, the fund's Class A, B, C, and F
Shares produced total returns of 5.14%, 4.34%, 4.35%, and 5.12%, respectively,
based on net asset value.* These returns were generally comparable to the 5.66%
total return of the average corporate bond fund as measured by the Lipper
Corporate BBB-Rated Bond Funds Average.**
[Graphic]
HAVE YOU MADE ANY ADJUSTMENTS TO THE FUND'S DURATION AND QUALITY?
The fund's portfolio composition was purposefully and consistently adjusted
toward a longer duration and higher quality average over the fiscal year. Fund
management held a macro-economic view that the rate of corporate earnings growth
would meaningfully slow, and inflation would not become a significant threat. In
this environment, which essentially played out over the past year, interest
rates tend to fall, and higher quality bonds tend to outperform lower quality
bonds. Thus, the portfolio's duration was approximately six months longer than
the target of a year ago, and the percentage of assets in high-yield+ corporate
securities was reduced from levels of a year ago.
* 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 0.43%, (1.06%), 3.36%, and
3.11%, respectively.
** Lipper figures represent the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as falling into
the category indicated. Lipper returns do not take sales charges into account.
+ Lower rated bonds involve a higher degree of risk than investment grade bonds
in return for higher yield potential.
[Graphic]
THE FUND'S INCOME DISTRIBUTIONS REMAIN AN IMPORTANT SOURCE OF CASH FLOW
TO MANY SHAREHOLDERS. WHAT WERE THE FUND'S YIELDS ON OCTOBER 31, 1998?
On October 31, 1998, the 30-day SEC yields for Class A, B, C, and F Shares were
6.11% (5.84% based on offering price), 5.30%, 5.31%, and 6.09% (6.03% based on
offering price), respectively, compared to the 10-year Treasury rate, which was
4.61% on that same day.+
[Graphic]
HOW WERE THE FUND'S ASSETS ALLOCATED ACCORDING TO BOND QUALITY AND TYPE AS OF
OCTOBER 31, 1998?
PERCENTAGE OF
BOND QUALITY NET ASSETS
AAA 17.95%
AA 3.85%
A 22.39%
BBB 29.33%
BB 10.70%
B 9.83%
CCC 0.52%
+ 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.
PERCENTAGE OF
SECTOR NET ASSETS
Corporate Bonds 61.1%
Mutual Funds 15.1%
U.S. Treasury Obligations 8.3%
Municipal Securities 4.4%
Government Agencies 3.7%
Repurchase Agreement 2.4%
Preferred Stock 1.8%
Asset-Backed Securities 1.3%
[Graphic]
WHAT WERE THE FUND'S TOP 10 HOLDINGS AS OF OCTOBER 31, 1998?
PERCENTAGE OF
NAME NET ASSETS
Federal Home Loan Bank, 5.800% due 9/02/2008 2.01%
U.S. Treasury Bond, 8.000% due 11/15/2021 1.91%
U.S. Treasury Bond, 11.625% due 11/15/2004 1.77%
Figgie International, 9.875% due 10/1/99 1.76%
U.S. Treasury Note, 5.625% due 5/15/2008 1.64%
INCO Ltd., 9.600% due 6/15/2022 1.31%
Shopco Stores, 9.250% due 3/15/2022 1.29%
U.S. Treasury Bond, 6.375% due 8/15/2027 1.27%
Trans Ocean Container Corp., 12.250%
due 7/01/2004 1.25%
TKR Cable, Inc., 10.500% due 10/30/2007 1.22%
TOTAL 15.43%
[Graphic]
AS WE LEAVE 1998, WHAT IS YOUR OUTLOOK FOR THE BOND MARKET?
Our basic bond market outlook remains largely unchanged. Over the coming year,
it appears reasonable to expect continued moderation in economic activity and
corporate earnings growth. The domestic economic fundamentals point to a
conclusion that the United States may be in the latter stages of the business
cycle. Given this outlook, our expectation is for a favorable year ahead in the
bond market. Having said that, the bond market may have already experienced the
major "flight to quality" technical move upward in price, and we expect that
economic fundamentals will dominate the bond market going forward.
TWO WAYS YOU MAY SEEK TO INVEST FOR SUCCESS IN
FEDERATED BOND FUND
INITIAL INVESTMENT:
IF YOU HAD MADE AN INITIAL INVESTMENT OF $12,000 IN THE CLASS F SHARES OF
FEDERATED BOND FUND ON 5/31/87, REINVESTED DIVIDENDS AND CAPITAL GAINS, AND DID
NOT REDEEM ANY SHARES, YOUR ACCOUNT WOULD HAVE BEEN WORTH $33,820 ON 10/31/98.
YOU WOULD HAVE EARNED A 9.46%* 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 9/30/98, the Class A Shares' 1-year and since-
inception (6/28/95) total returns were 3.49% and 7.47%,
respectively. Class B Shares' 1-year and since-inception (6/28/95)
total returns were 1.66% and 7.21%, respectively. Class C Shares'
1-year and since-inception (6/28/95) total returns were 6.47% and 8.17%,
respectively. Class F Shares' average annual 1-year, 5-year, and 10-year total
returns were 6.21%, 7.58%, and 9.98%, respectively.**
Please see Appendix A.1.
* Total return represents the change in the value of an investment after
reinvesting all income and capital gains, and takes into account the 1.00% sales
charge 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 INITIAL INVESTMENT AND SUBSEQUENT INVESTMENTS OF $1,000 EACH
YEAR FOR 11 YEARS (REINVESTING ALL DIVIDENDS AND CAPITAL GAINS) GREW TO
$21,762.
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 5/31/87, reinvested your dividends and capital gains, and did not
redeem any shares, you would have invested only $12,000, but your account would
have reached a total value of $21,762* by 10/31/98. You would have earned an
average annual total return of 9.65%.
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.
Please see Appendix A.2.
* 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 COLLEGE EDUCATION
John and Joan Wicker are a fictional couple who, like many 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. Eleven years ago, on October 31, 1987, the Wickers invested
$20,000 in the Class F Shares of Federated Bond Fund.
As this chart shows, over 11 years their original investment in Class F Shares
has grown to $54,798. This represents a 9.60% average annual total return. For
John and Joan, that means extra money to supplement their daughter's college
tuition.
Please see Appendix A.3.
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, 1998, compared to the Lehman Brothers Corporate Bond
Index (LBCBI)+ and the Lipper Corporate Debt Funds BBB Rated Average (LCDBBB).++
Please see Appendix A.4.
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.
+ The LBCBI is not adjusted to reflect sales charges, expenses, or other fees
that the SEC 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 indicated, and is not adjusted to reflect any sales charges.
However, these total returns are reported net of expenses or other fees that the
SEC 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, 1998, compared to the Lehman Brothers Corporate Bond
Index (LBCBI)+ and the Lipper Corporate Debt Funds BBB Rated Average (LCDBBB).++
Please see Appendix A.5.
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 3.00% contingent deferred sales charge on any redemption
less than four years from the purchase date. The maximum contingent deferred
sales charge is 5.50% on any redemption less than one 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 SEC 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 indicated, and is not adjusted to reflect any sales charges.
However, these total returns are reported net of expenses or other fees that the
SEC 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, 1998, compared to the Lehman Brothers Corporate Bond
Index (LBCBI)+ and the Lipper Corporate Debt Funds BBB Rated Average (LCDBBB).++
Please see Appendix A.6.
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. A 1.00%
contingent deferred sales charge would be applied on any redemption less than
one 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 SEC 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 indicated, and is not adjusted to reflect any sales charges.
However, these total returns are reported net of expenses or other fees that the
SEC 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, 1988 to
October 31, 1998, compared to the Lehman Brothers Corporate Bond Index (LBCBI)+
and the Lipper Corporate Debt Funds BBB Rated Average (LCDBBB).++
Please see Appendix A.7.
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 SEC 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 indicated, and is not adjusted to reflect any sales charges.
However, these total returns are reported net of expenses or other fees that the
SEC requires to be reflected in a fund's performance.
FEDERATED BOND FUND
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
VALUE
<C>
<S> <C>
CORPORATE BONDS-61.1%
AEROSPACE &
DEFENSE-0.2%
$ 2,250,000 McDonnell-Douglas Corp., Note, 9.40%,
10/15/2001 $ 2,331,562
AIR
TRANSPORTATION-0.6%
5,450,000 Southwest Airlines Co., Deb., 7.375%,
3/1/2027 5,654,811
AUTOMOBILE-2.3%
5,300,000 Arvin Industries, Inc., 9.50%,
2/1/2027 5,747,797
2,975,000 Arvin Industries, Inc., Note, 6.75%,
3/15/2008 2,978,986
7,000,000 Dana Corp., Note, 7.00%,
3/15/2028 7,073,360
7,000,000 Hertz Corp., Sr. Note, 7.00%,
1/15/2028 6,776,420
Total 22,576,563
BANKING-5.5%
4,750,000 ABN-AMRO Bank NV, Chicago, Sub. Deb., 7.30%,
12/1/2026 4,768,810
5,250,000 Banco Santander, Bank Guarantee, 7.875%,
4/15/2005 5,610,623
2,500,000 Banco Santander, Sub. Note, 7.25%,
11/1/2015 2,304,400
2,200,000 City National Bank, Sub. Note, 6.375%,
1/15/2008 2,255,858
2,750,000 Crestar Financial Corp., Sub. Note, 8.75%,
11/15/2004 3,168,082
3,800,000 (a)Den Danske Bank, Note, 7.40%,
6/15/2010 4,012,914
5,740,000 FirstBank Puerto Rico, Sub. Note, 7.625%,
12/20/2005 5,873,857
6,000,000 National Australia Bank, Ltd., Melbourne, Sub. Note, Series
B, 6.60%,
12/10/2007 6,082,500
8,150,000 National Bank of Canada, Montreal, Sub. Note, 8.125%, 8/15/
2004 9,375,026
6,000,000 Republic New York Corp., Sub. Note, 7.75%,
5/15/2009 6,810,600
3,800,000 (a)Swedbank, Sub., 7.50%,
11/29/2049 3,689,306
Total 53,951,976
BEVERAGE &
TOBACCO-1.0%
650,000 Anheuser-Busch Cos., Inc., Sr. Note, 7.10%,
6/15/2007 701,200
8,250,000 Philip Morris Cos., Inc., Deb., 7.75%,
1/15/2027 9,020,715
Total 9,721,915
CABLE
TELEVISION-3.4%
4,500,000 CF Cable TV, Inc., Note, 9.125%,
7/15/2007 4,900,770
4,500,000 Comcast Corp., Note, 8.50%,
5/1/2027 5,405,985
</TABLE>
Federated Bond Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
VALUE
<C>
<S> <C>
CORPORATE BONDS-CONTINUED
CABLE
TELEVISION-CONTINUED
$ 9,090,000 Continental Cablevision, Sr. Deb., 9.50%,
8/1/2013 $ 10,967,903
10,835,000 TKR Cable, Inc., Deb., 10.50%,
10/30/2007 11,988,711
Total 33,263,369
ECOLOGICAL SERVICES &
EQUIPMENT-1.8%
7,750,000 USA Waste Services, Inc., Sr. Note, 7.125%,
10/1/2007 8,057,753
8,210,000 WMX Technologies, Inc., Deb., 8.75%,
5/1/2018 9,188,139
Total 17,245,892
EDUCATION-1.0%
5,600,000 Boston University, 7.625%,
7/15/2097 6,082,216
3,000,000 Harvard University, Revenue Bonds, 8.125% Bonds,
4/15/2007 3,552,690
Total 9,634,906
ELECTRONICS-1.4%
9,200,000 Anixter International, Inc., Company Guarantee, 8.00%, 9/15/
2003 9,692,568
4,165,000 Harris Corp., Deb., 10.375%,
12/1/2018 4,402,988
Total 14,095,556
FINANCE -
AUTOMOTIVE-0.1%
385,000 Ford Motor Credit Corp., Note, 7.00%,
9/25/2001 402,329
300,000 Ford Motor Credit Corp., Note, 7.57%,
5/16/2005 310,290
700,000 General Motors Acceptance Corp., Note, 6.75%,
6/10/2002 728,735
Total 1,441,354
FINANCIAL
INTERMEDIARIES-3.5%
6,000,000 (a)Amvescap PLC, Sr. Note, 6.60%,
5/15/2005 6,124,020
7,150,000 Donaldson, Lufkin and Jenrette Securities Corp., Note,
6.875%,
11/1/2005 7,314,021
8,296,000 Green Tree Financial Corp., Sr. Sub. Note, 10.25%,
6/1/2002 9,218,183
7,325,000 Lehman Brothers, Inc., Sr. Sub. Note, 7.375%,
1/15/2007 7,415,976
425,000 Merrill Lynch & Co., Inc., Sr. Note, 7.15%,
7/30/2012 435,468
3,673,900 (a)World Financial, Pass Thru Cert., Series 96 WFP-B, 6.91%, 9/
1/2013 3,745,173
Total 34,252,841
</TABLE>
Federated Bond Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
VALUE
<C>
<S> <C>
CORPORATE BONDS-CONTINUED
FOOD & DRUG
RETAILERS-0.1%
$ 25,000 McDonald's Corp., Note, 6.75%,
2/15/2003 $ 25,616
550,000 McDonald's Corp., Note, 7.375%,
7/15/2002 559,433
Total 585,049
FOREST
PRODUCTS-1.4%
6,000,000 Donohue Forest Products, 7.625%,
5/15/2007 6,404,940
2,850,000 Pope & Talbot, Inc., 8.375%,
6/1/2013 2,643,119
4,600,000 Quno Corp., Sr. Note, 9.125%,
5/15/2005 5,029,916
Total 14,077,975
HEALTHCARE-0.7%
300,000 Columbia/HCA Healthcare Corp., Note, 6.87%,
9/15/2003 291,588
3,200,000 Tenet Healthcare Corp., Sr. Note, 8.00%,
1/15/2005 3,255,808
3,000,000 (a)Tenet Healthcare Corp., Sr. Sub., 8.125%,
12/1/2008 3,075,000
Total 6,622,396
INDUSTRIAL PRODUCTS &
EQUIPMENT-2.6%
16,722,000 Figgie International Holdings, Inc., Sr. Note, 9.875%, 10/1/
1999 17,258,442
7,095,000 Southdown, Inc., Sr. Sub. Note, 10.00%,
3/1/2006 7,999,613
Total 25,258,055
INSURANCE-9.3%
6,000,000 Allmerica Financial Corp., Sr. Note, 7.625%,
10/15/2025 6,217,740
450,000 American General Corp., Note, 7.75%,
4/1/2005 497,713
8,000,000 CNA Financial Corp., Bond, 6.95%,
1/15/2018 7,509,360
5,800,000 Conseco, Inc., Note, 6.40%,
2/10/2003 5,671,530
7,025,000 Conseco, Inc., Sr. Note, 10.50%,
12/15/2004 8,233,581
2,110,000 Continental Corp., Note, 8.25%,
4/15/1999 2,134,033
2,950,000 Delphi Financial Group, Inc., 9.31%,
3/25/2027 3,220,279
10,350,000 Delphi Financial Group, Inc., Note, 8.00%,
10/1/2003 11,004,120
3,460,000 GEICO Corp., Deb., 9.15%,
9/15/2021 3,922,740
7,800,000 (a)Life Re Capital Trust I, 8.72%,
6/15/2027 8,649,732
25,000 Progressive Corp., OH, Unsecd. Note, 7.30%,
6/1/2006 26,571
3,300,000 Provident Cos., Inc., Bond, 7.405%,
3/15/2038 3,193,707
6,500,000 (a)Reinsurance Group of America, Sr. Note, 7.25%,
4/1/2006 7,089,160
</TABLE>
Federated Bond Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
VALUE
<C>
<S> <C>
CORPORATE BONDS-CONTINUED
INSURANCE-CONTINUED
$ 925,000 SAFECO Corp., Note, 7.875%,
4/1/2005 $ 1,012,366
3,000,000 SunAmerica, Inc., Deb., 8.125%,
4/28/2023 3,524,460
1,000,000 SunAmerica, Inc., Medium Term Note, 7.34%,
8/30/2005 1,106,890
1,500,000 SunAmerica, Inc., Sr. Note, 6.20%,
10/31/1999 1,513,935
4,575,000 SunAmerica, Inc., Sr. Note, 9.00%,
1/15/1999 4,610,868
525,000 Transamerica Corp., Note, 6.75%,
11/15/2006 543,176
1,000,000 (a)USF&G Corp., 8.312%,
7/1/2046 1,161,450
5,750,000 USF&G Corp., Company Guarantee, 8.47%,
1/10/2027 6,424,590
4,000,000 (a)Union Central Life Insurance Co., Note, 8.20%,
11/1/2026 4,576,680
Total 91,844,681
LEISURE &
ENTERTAINMENT-0.7%
6,350,000 Paramount Communications, Inc., Sr. Deb., 8.25%,
8/1/2022 6,805,613
MACHINERY &
EQUIPMENT-1.2%
7,500,000 Continental Airlines, Inc., Pass Thru Cert., Series 1997-4 B,
6.90%,
7/2/2019 7,909,725
4,700,000 Cummins Engine Co., Inc., Deb., 7.125%,
3/1/2028 4,360,848
Total 12,270,573
METALS &
MINING-4.8%
7,600,000 Barrick Gold Corp., Deb., 7.50%,
5/1/2007 8,364,788
11,000,000 Inco Ltd., Note, 9.60%,
6/15/2022 12,846,900
8,850,000 (a)Normandy Finance Ltd., Company Guarantee, 7.50%,
7/15/2005 9,049,479
9,000,000 Placer Dome, Inc., Bond, 8.50%,
12/31/2045 8,745,660
7,375,000 Santa Fe Pacific Gold, Note, 8.375%,
7/1/2005 8,386,850
Total 47,393,677
OIL &
GAS-2.6%
125,000 Chevron Capital USA, Inc., Unsecd. Note, 7.45%,
8/15/2004 132,990
10,250,000 Husky Oil Ltd., Sr. Note, 7.125%,
11/15/2006 10,596,757
3,957,000 Occidental Petroleum Corp., Note, 8.50%,
9/15/2004 4,049,515
6,500,000 Sun Co., Inc., 9.00%,
11/1/2024 7,729,865
2,500,000 Sun Co., Inc., Deb., 9.375%,
6/1/2016 2,912,775
Total 25,421,902
</TABLE>
Federated Bond Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
VALUE
<C>
<S> <C>
CORPORATE BONDS-CONTINUED
PRINTING &
PUBLISHING-2.2%
$ 1,500,000 News America Holdings, Inc., 10.125%,
10/15/2012 $ 1,772,535
3,000,000 News America Holdings, Inc., Company Guarantee, 8.00%,
10/17/2016 3,156,180
4,850,000 News America Holdings, Inc., Deb., 7.90%,
12/1/2095 4,939,288
11,303,000 Valassis Communication, Inc., Sr. Sub. Note, 9.375%, 3/15/
1999 11,490,856
Total 21,358,859
REAL
ESTATE-2.3%
8,250,000 Price REIT, Inc., Sr. Note, 7.50%,
11/5/2006 8,376,225
3,250,000 Storage USA, 8.20%,
6/1/2017 3,132,123
4,000,000 Storage USA, Deb., 7.50%,
12/1/2027 3,477,520
7,400,000 Sun Communities, Inc., Medium Term Note, 6.77%,
5/16/2005 7,539,120
Total 22,524,988
RETAILERS-5.1%
5,000,000 Dayton-Hudson Corp., Deb., 10.00%,
12/1/2000 5,481,150
10,870,000 Harcourt General, Inc., Sr. Deb., 7.20%,
8/1/2027 10,301,390
8,602,009 K Mart Corp., Pass Thru Cert., 8.54%,
1/2/2015 8,437,022
5,600,000 May Department Stores Co., Deb., 8.125%,
8/15/2035 6,537,944
6,000,000 Penney (J.C.) Co., Inc., Deb., 7.65%,
8/15/2016 6,322,560
10,497,000 Shopko Stores, Inc., 9.25%,
3/15/2022 12,712,077
Total 49,792,143
SERVICES-0.4%
5,000,000 Loewen Group Int'l. Sr. Note, 8.25%,
4/15/2003 3,875,000
SOVEREIGN
GOVERNMENT-2.1%
4,565,000 Colombia, Republic of, Note, 7.25%,
2/15/2003 3,695,870
3,500,000 Quebec, Province of, Deb., 13.25%,
9/15/2014 3,904,250
3,390,000 Quebec, Province of, Deb., 9.125%,
8/22/2001 3,772,019
4,300,000 South Africa, Republic of, Global Bond Deb., 9.625%, 12/15/
1999 4,335,604
3,500,000 Sweden, Kingdom of, Deb., 10.25%,
11/1/2015 5,004,195
Total 20,711,938
</TABLE>
Federated Bond Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
VALUE
<C>
<S> <C>
CORPORATE BONDS-CONTINUED
SURFACE
TRANSPORTATION-1.2%
$ 11,050,000 Trans Ocean Container Corp., Sr. Sub. Note, 12.25%,
7/1/2004 $ 12,250,914
TELECOMMUNICATIONS &
CELLULAR-1.3%
700,000 AT&T Corp., Unsecd. Note, Series A, 8.20%,
2/15/2005 727,475
7,750,000 BellSouth Telecommunications, Inc., Deb., 7.00%,
12/1/2095 8,438,045
3,450,000 BellSouth Telecommunications, Inc., Deb., 7.625%,
5/15/2035 3,744,526
Total 12,910,046
UTILITIES-2.3%
75,000 Alabama Power Co., 1st Mtg. Bond, 7.00%,
1/1/2003 75,838
55,000 Baltimore Gas & Electric Co., 1st Ref. Mtg., 7.50%, 1/15/
2007 61,036
25,000 Bell Atlantic Corp., Deb., 7.375%,
10/15/2007 25,306
4,400,000 California Energy Co., Inc., Sr. Note, 10.25%,
1/15/2004 4,647,500
5,150,000 Enersis S.A., Note, 7.40%,
12/1/2016 4,022,716
5,500,000 (a)Israel Electric Corp. Ltd., Sr. Note, 7.875%,
12/15/2026 5,476,020
5,795,000 Puget Sound Energy, Inc., Medium Term Note, 7.02%,
12/1/2027 6,025,641
6,500,000 (a)Tenaga Nasional Berhad, Deb., 7.50%,
1/15/2096 2,706,340
Total 23,040,397
TOTAL CORPORATE BONDS (IDENTIFIED COST
$593,907,853) 600,914,951
GOVERNMENT AGENCIES-3.7%
7,500,000 Federal Farm Credit System, Medium Term Note, 5.93%, 8/7/
2008 7,827,150
5,000,000 Federal Home Loan Bank System, 5.905%,
7/22/2008 5,204,200
19,000,000 Federal Home Loan Bank System, Sr. Note, 5.80%,
9/2/2008 19,779,190
900,000 Federal National Mortgage Association, 7.65%,
3/10/2005 1,024,119
175,000 Federal National Mortgage Association, Note, 6.87%, 10/2/
2001 183,243
700,000 Federal National Mortgage Association, Note, 7.50%, 4/16/
2007 748,545
340,000 Financial Assistance Corp., Bond, 9.45%,
11/21/2003 340,921
805,000 Financial Assistance Corp., 9.20%,
9/27/2005 868,249
TOTAL GOVERNMENT AGENCIES (IDENTIFIED COST
$35,082,171) 35,975,617
</TABLE>
Federated Bond Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR
SHARES
VALUE
<C>
<S> <C>
MUNICIPAL SECURITIES-4.4%
$ 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 $ 6,005,465
6,050,000 Kansas City, MO Redevelopment Authority, 7.65% Bonds (FSA
LOC),
11/1/2018 6,968,995
3,090,000 McKeesport, PA, Taxable G.O. Series B 1997, 7.30% Bonds
(MBIA INS),
3/1/2020 3,262,824
3,000,000 Miami Florida Revenue Pension Obligation, 7.20% Bonds
(AMBAC LOC),
12/1/2025 3,117,300
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 5,671,120
4,675,000 Pittsburgh, PA Urban Redevelopment Authority, 8.01% Bonds
(Aluminum Co. of America),
6/1/2015 5,255,168
2,635,000 Pittsburgh, PA Urban Redevelopment Authority, 9.07% Bonds
(CGIC GTD),
9/1/2014 3,279,521
2,200,000 Southeastern, PA Transportation Authority, (Series B), 8.75%
Bonds (FGIC GTD),
3/1/2020 2,572,900
4,200,000 St. Johns County, FL Convention Center, Taxable Municipal
Revenue Bonds, 8.00% Bonds (FSA INS),
1/1/2026 4,768,218
2,080,000 Tampa Florida Sports Authority, 8.02% Bonds (MBIA GTD),
10/1/2026 2,429,232
TOTAL MUNICIPAL SECURITIES (IDENTIFIED COST
$39,191,438) 43,330,743
PREFERRED STOCKS-1.8%
REAL
ESTATE-1.1%
8,000 Highwoods Properties, Inc., REIT Perpetual Pfd. Stock,
Series A,
$86.25 7,167,840
80,000 Prologis Trust, Cumulative Pfd. 3,758,480
Total 10,926,320
TECHNOLOGY
SERVICES-0.7%
67,460 Microsoft Corp., Cumulative Conv. Pfd., Series A,
$2.20 6,594,215
TOTAL PREFERRED STOCKS (IDENTIFIED COST
$18,188,782) 17,520,535
</TABLE>
Federated Bond Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
VALUE
<C>
<S> <C>
ASSET-BACKED SECURITIES-1.3%
FINANCIAL
INTERMEDIARIES-0.1%
$ 1,000,000 Green Tree Financial Corp. 1992-2, Class B, 9.15%,
1/15/2018 $ 996,890
STRUCTURED PRODUCT
(ABS)-1.0%
9,000,000 (a)125 Home Loan Owner Trust 1998-1A, Class B1, 9.26%, 2/15/
2029 8,026,920
658,526 Merrill Lynch Mortgage Investment, Inc. 1988-H, Class B,
9.70%,
6/15/2008 684,044
1,000,000 Residential Funding Corp. 1993-S26, Class A10, 7.50%, 7/25/
2023 1,004,750
Total 9,715,714
WHOLE
LOAN-0.2%
2,463,437 (a)SMFC Trust Asset-Backed Certificates, Series 1997-A, Class
4,
7.7191%,
1/28/2025 2,222,488
TOTAL ASSET-BACKED SECURITIES (IDENTIFIED COST
$13,958,497) 12,935,092
U.S. TREASURY OBLIGATIONS-8.3%
U.S. TREASURY
BONDS-6.6%
4,000,000 United States Treasury Bond, 6.125%,
11/15/2027 4,497,040
10,800,000 United States Treasury Bond, 6.375%,
8/15/2027 12,444,408
400,000 United States Treasury Bond, 7.50%,
11/15/2016 498,292
14,000,000 United States Treasury Bond, 8.00%,
11/15/2021 18,745,860
8,000,000 United States Treasury Bond, 8.125%,
5/15/2021 10,817,760
610,000 United States Treasury Bond, 8.25%,
5/15/2005 643,032
12,750,000 United States Treasury Bond, 11.625%,
11/15/2004 17,437,538
Total 65,083,930
U.S. TREASURY
NOTES-1.7%
15,000,000 United States Treasury Note, 5.625%,
5/15/2008 16,162,500
325,000 United States Treasury Note, 8.00%,
8/15/1999 333,869
Total 16,496,369
TOTAL U.S. TREASURY (IDENTIFIED COST
$79,931,073) 81,580,299
</TABLE>
Federated Bond Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR
SHARES
VALUE
<C>
<S> <C>
MUTUAL FUND-15.1%
16,568,869 The High Yield Bond Portfolio (IDENTIFIED COST $158,221,024) $
148,622,755 (B)REPURCHASE AGREEMENT-2.4% $ 23,305,000 Westdeutsche Landesbank
Girozentrale, 5.42%, dated 10/30/1998,
due 11/2/1998 (AT AMORTIZED
COST) 23,305,000
TOTAL INVESTMENTS (IDENTIFIED COST
$961,785,838)(C) $ 964,184,992
</TABLE>
(a) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At October 31, 1998, these securities amounted to
$69,604,682 which represents 7.1% of total 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 $961,785,838.
The net unrealized appreciation of investments on a federal tax basis amounts to
$2,399,154 which is comprised of $27,215,128 appreciation and $24,815,974
depreciation at October 31, 1998.
Note: The categories of investments are shown as a percentage of net assets
($983,328,421) at October 31, 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
OCTOBER 31, 1998
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and
tax cost $961,785,838) $
964,184,992
Cash
5,166
Income
receivable
18,692,792
Receivable for investments
sold 768,566
Receivable for shares
sold 6,253,437
Prepaid
expenses
7,424
Total assets
989,912,377
LIABILITIES:
Payable for investments purchased $
2,632,036
Payable for shares redeemed
1,122,711
Income distribution payable
2,354,561
Accrued expenses
474,648
Total
liabilities
6,583,956
NET ASSETS for 100,067,344 shares outstanding $
983,328,421
NET ASSETS CONSIST OF:
Paid in capital $
985,062,406
Net unrealized appreciation of
investments 2,399,154
Accumulated net realized loss on
investments (3,614,114)
Distributions in excess of net investment
income (519,025)
Total Net Assets $
983,328,421
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
CLASS A SHARES:
Net Asset Value Per Share ($210,768,330 / 21,470,168 shares
outstanding)
$9.82
Offering Price Per Share (100/95.50 of
$9.82)* $10.28
Redemption Proceeds Per
Share $9.82
CLASS B SHARES:
Net Asset Value Per Share ($302,010,247 / 30,731,921 shares
outstanding)
$9.83
Offering Price Per
Share $9.83
Redemption Proceeds Per Share (94.50/100 of
$9.83)* $9.29
CLASS C SHARES:
Net Asset Value Per Share ($76,644,593 / 7,796,769 shares
outstanding)
$9.83
Offering Price Per
Share $9.83
Redemption Proceeds Per Share (99.00/100 of
$9.83)* $9.73
CLASS F SHARES:
Net Asset Value Per Share ($393,905,251 / 40,068,486 shares
outstanding)
$9.83
Offering Price Per Share (100/99.00 of
$9.83)* $9.93
Redemption Proceeds Per Share (99.00/100 of
$9.83)* $9.73
</TABLE>
* See "Investing in the Fund" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
FEDERATED BOND FUND
STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 1998
<TABLE>
<S> <C>
<C> <C>
INVESTMENT INCOME:
Dividends
$ 13,115,405
Interest
52,463,419
Total
income
65,578,824
EXPENSES:
Investment advisory fee $
6,185,961
Administrative personnel and services fee
621,951
Custodian
fees
42,914
Transfer and dividend disbursing agent fees and expenses
452,698
Directors'/Trustees'
fees
14,550
Auditing
fees
13,375
Portfolio accounting fees
156,095
Distribution services fee-Class B Shares
1,778,450
Distribution services fee-Class C Shares
425,963
Shareholder services fee-Class A Shares
401,977
Shareholder services fee-Class B Shares
592,816
Shareholder services fee-Class C Shares
141,988
Shareholder services fee-Class F Shares
925,206
Share registration costs
140,141
Printing and postage
194,599
Insurance
premiums
8,000
Taxes
48,562
Miscellaneous
23,724
Total expenses
12,168,970
Waivers -
Waiver of investment advisory fee $ (855,524)
Waiver of shareholder services fee-Class A Shares (80,396)
Waiver of shareholder services fee-Class F Shares (74,016)
Total waivers
(1,009,936)
Net
expenses
11,159,034
Net investment
income
54,419,790
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on
investments
1,191,985
Net change in unrealized appreciation of
investments (20,779,931)
Net realized and unrealized loss on
investments (19,587,946)
Change in net assets resulting from
operations $ 34,831,844
</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,
1998 1997
<S>
<C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS-
Net investment income $
54,419,790 $ 38,592,130
Net realized gain (loss) on investments ($1,140,275 net gain
and $434,628 net loss, respectively, as computed for federal
tax purposes)
1,191,985 (623,390)
Net change in unrealized appreciation/depreciation
(20,779,931) 18,491,945
Change in net assets resulting from operations
34,831,844 56,460,685
NET EQUALIZATION CREDITS (DEBITS)-
- - 438,191
DISTRIBUTIONS TO SHAREHOLDERS-
Distributions from net investment
income
Class A Shares
(11,400,747) (4,848,032)
Class B Shares
(14,716,321) (10,064,393)
Class C Shares
(3,536,230) (1,938,250)
Class F Shares
(25,598,671) (21,220,844)
Change in net assets resulting from distributions
to shareholders
(55,251,969) (38,071,519)
SHARE TRANSACTIONS (Exclusive of amounts allocated to
net
investment income)-
Proceeds from sale of shares
552,685,388 307,933,652
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
30,105,726 19,566,083
Cost of shares redeemed
(246,947,952) (157,355,117)
Change in net assets resulting from share transactions
335,843,162 195,796,547
Change in net assets
315,423,037 214,623,904
NET ASSETS:
Beginning of period
667,905,384 453,281,480
End of period (including undistributed net investment income
of $241,487 for the period ended October 31, 1997) $
983,328,421 $ 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>
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 0.70
0.74 0.71 0.26
Net realized and unrealized gain (loss) on investments (0.19)
0.26 (0.04) 0.11
Total from investment operations 0.51
1.00 0.67 0.37
LESS
DISTRIBUTIONS
Distributions from net investment income (0.71)
(0.70) (0.71) (0.25)
NET ASSET VALUE, END OF PERIOD $ 9.82
$10.02 $ 9.72 $ 9.76
TOTAL RETURN(B) 5.14%
10.73% 7.21% 3.92%
RATIOS TO AVERAGE NET
ASSETS
Expenses 1.05%
1.05% 1.05% 1.02%*
Net investment income 6.89%
7.30% 7.46% 8.22%*
Expense waiver/reimbursement(c) 0.15%
0.20% 0.25% 0.35%*
SUPPLEMENTAL
DATA
Net assets, end of period (000 omitted) $210,768
$111,377 $37,045 $5,070
Portfolio turnover 20%
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>
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 0.61
0.64 0.64 0.24
Net realized and unrealized gain (loss) on investments (0.18)
0.28 (0.04) 0.11
Total from investment operations 0.43
0.92 0.60 0.35
LESS
DISTRIBUTIONS
Distributions from net investment income (0.62)
(0.62) (0.64) (0.23)
NET ASSET VALUE, END OF PERIOD $ 9.83
$10.02 $ 9.72 $ 9.76
TOTAL RETURN(B) 4.34%
9.86% 6.40% 3.72%
RATIOS TO AVERAGE NET
ASSETS
Expenses 1.85%
1.85% 1.85% 1.81%*
Net investment income 6.09%
6.50% 6.66% 7.36%*
Expense waiver/reimbursement(c) 0.10%
0.15% 0.20% 0.30%*
SUPPLEMENTAL
DATA
Net assets, end of period (000 omitted) $302,010
$191,600 $125,620 $27,768
Portfolio turnover 20%
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>
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 0.61
0.64 0.64 0.24
Net realized and unrealized gain (loss) on investments (0.18)
0.28 (0.04) 0.11
Total from investment operations 0.43
0.92 0.60 0.35
LESS
DISTRIBUTIONS
Distributions from net investment income (0.62)
(0.62) (0.64) (0.23)
NET ASSET VALUE, END OF PERIOD $ 9.83
$10.02 $ 9.72 $ 9.76
TOTAL RETURN(B) 4.35%
9.86% 6.40% 3.72%
RATIOS TO AVERAGE NET
ASSETS
Expenses 1.85%
1.85% 1.85% 1.81%*
Net investment income 6.09%
6.50% 6.70% 7.31%*
Expense waiver/reimbursement(c) 0.10%
0.15% 0.20% 0.30%*
SUPPLEMENTAL
DATA
Net assets, end of period (000 omitted) $76,645
$39,398 $22,897 $5,508
Portfolio turnover 20%
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>
YEAR ENDED OCTOBER
31,
1998
1997 1996 1995 1994
<S> <C> <C>
<C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $10.02 $
9.72 $ 9.76 $ 9.08 $10.30
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.69
0.72 0.71 0.79 0.76
Net realized and unrealized gain (loss) on investments (0.18)
0.28 (0.04) 0.65 (1.09)
Total from investment operations 0.51
1.00 0.67 1.44 (0.33)
LESS
DISTRIBUTIONS
Distributions from net investment income (0.70)
(0.70) (0.71) (0.76) (0.75)
Distributions from net realized gain on investment
transactions -
- - - - (0.14)
Total distributions (0.70)
(0.70) (0.71) (0.76) (0.89)
NET ASSET VALUE,
END OF PERIOD $ 9.83
$10.02 $ 9.72 $ 9.76 $ 9.08
TOTAL RETURN(A) 5.12%
10.70% 7.18% 16.51% (3.41%)
RATIOS TO AVERAGE NET
ASSETS
Expenses 1.08%
1.08% 1.08% 1.03% 1.05%
Net investment income 6.86%
7.27% 7.38% 8.20% 7.92%
Expense waiver/reimbursement(b) 0.12%
0.17% 0.22% 0.31% 0.33%
SUPPLEMENTAL
DATA
Net assets, end of period (000 omitted) $393,905
$325,531 $267,720 $195,502 $146,270
Portfolio turnover 20%
55% 49% 77% 74%
</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, 1998
1. ORGANIZATION
Investment Series Fund, 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 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.
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 paydowns and
market discount reclasses. The following reclassifications have been made to the
financial statements.
INCREASE (DECREASE)
ACCUMULATED
UNDISTRIBUTED NET NET REALIZED
PAID-IN CAPITAL INVESTMENT INCOME GAIN (LOSS)
$524,839 $80,985 ($605,824)
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, 1998, the Fund, for federal tax purposes, had a capital loss
carryforward of $3,614,114, 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 $2,219,551
2003 523,012
2004 429,659
2005 441,892
EQUALIZATION-Effective November 1, 1998, the Fund discontinued its use of
equalization. Equalization is an accounting practice whereby a portion of the
proceeds of 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, 1998 is
as follows:
ACQUISITION
ACQUISITION
SECURITY DATE
COST
Amvescap PLC 4/30/1998
$5,990,880
Den Danske Bank 1/7/1998
3,998,816
125 Home Loan Owner Trust 1998-1A, Class B1 7/30/1998
8,995,781
Israel Electric Corp. Ltd. 1/28/1997
5,489,165
Life Re Capital Trust I 6/6/1997 - 7/16/1998
8,050,246
Normandy Finance Ltd. 7/2/1998 - 7/27/1998
8,846,384
Reinsurance Group of America 3/19/1996 - 6/2/1997
6,471,460
SMFC Trust Asset-Backed Certificates 2/4/1998
2,253,275
Swedbank 1/7/1998
3,968,606
Tenaga Nasional Berhad 1/9/1997 - 3/3/1997
6,162,725
Tenet Healthcare Corp. 5/8/1997
2,988,360
Union Central Life Insurance Co. 10/31/1996
3,979,120
USF&G Corp. 7/3/1997
1,000,000
World Financial 11/18/1996
3,673,900
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, 1998, par value shares ($0.001 per share) authorized were as
follows:
NUMBER OF PAR
VALUE CAPITAL
CLASS NAME 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>
YEAR ENDED OCTOBER 31,
1998 1997
<S> <C>
<C> <C> <C>
CLASS A SHARES
SHARES AMOUNT SHARES AMOUNT
Shares sold 19,595,096
$ 197,221,690 9,865,488 $ 96,447,985
Shares issued in connection with the
acquisition 2,594,627
25,038,147
Shares issued to shareholders in payment of distributions
declared
776,367 7,782,888 352,776 3,459,765
Shares redeemed (10,021,537)
(100,802,326) (5,504,316) (53,647,073)
Net change resulting from Class A Shares transactions 10,349,926
$ 104,202,252 7,308,575 $ 71,298,824
<CAPTION>
YEAR ENDED OCTOBER 31,
1998 1997
CLASS B SHARES
SHARES AMOUNT SHARES AMOUNT
<S> <C>
<C> <C> <C>
Shares sold 14,243,376
$ 143,240,209 8,000,100 $ 78,164,460
Shares issued to shareholders in payment of distributions
declared
877,230 8,800,059 605,869 5,924,046
Shares redeemed
(3,518,193) (35,411,250) (2,402,641) (23,448,472)
Net change resulting from Class B Shares transactions 11,602,413
$ 116,629,018 6,203,328 $ 60,640,034
<CAPTION>
YEAR ENDED OCTOBER 31,
1998 1997
CLASS C SHARES
SHARES AMOUNT SHARES AMOUNT
<S> <C>
<C> <C> <C>
Shares sold 4,651,816
$ 46,838,466 2,352,599 $ 22,978,928
Shares issued to shareholders in payment of distributions
declared
239,280 2,400,749 141,632 1,384,761
Shares redeemed
(1,026,844) (10,323,405) (917,732) (8,965,336)
Net change resulting from Class C Shares transactions 3,864,252
$ 38,915,810 1,576,499 $ 15,398,353
<CAPTION>
YEAR ENDED OCTOBER 31,
1998 1997
CLASS F SHARES
SHARES AMOUNT SHARES AMOUNT
<S> <C>
<C> <C> <C>
Shares sold 16,425,062
$ 165,385,023 11,316,055 $ 110,342,279
Shares issued in connection with the
acquisition
63,604 613,782
Shares issued to shareholders in payment of distributions
declared
1,108,796 11,122,031 901,508 8,797,511
Shares redeemed (9,968,205)
(100,410,972) (7,327,458) (71,294,236)
Net change resulting from Class F Shares transactions 7,565,653
$ 76,096,082 4,953,709 $ 48,459,336
Net change resulting from shares transactions 33,382,244
$ 335,843,162 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
NET ASSETS
SHARE CLASS NAME OF CLASS
Class A Shares 0.25%
Class B Shares 0.75%
Class C Shares 0.75%
For the year ended October 31, 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 Company ("FSSC"), the Fund will pay FSSC up
to 0.25% of average daily net assets of the Fund for the period. The fee paid to
FSSC is used to finance certain services for shareholders and to maintain
shareholder accounts. FSSC may voluntarily choose to waive any portion of its
fee. FSSC can modify or terminate this voluntary waiver at any time at its sole
discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES-FServ, through its
subsidiary, FSSC serves as transfer and dividend disbursing agent for the Fund.
The fee paid to FSSC is based on the size, type, and number of accounts and
transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES-FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.
GENERAL-Certain of the Officers and Directors of the Corporation are Officers
and Directors or Trustees of the above companies.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended October 31, 1998, were as follows:
PURCHASES $449,844,134
SALES $163,868,026
6. YEAR 2000 (UNAUDITED)
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 Administrator 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 assurances that
comparable steps are 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.
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 the Federated Bond Fund (a portfolio of
Investment Series Funds, Inc.) as of October 31, 1998, the related statement of
operations for the year then ended, the statements 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 the securities owned as of
October 31, 1998, 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 the
Federated Bond Fund at October 31, 1998, 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 the financial highlights for each of the periods
presented therein, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Boston, Massachusetts
December 21, 1998
DIRECTORS
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
Nicholas P. Constantakis
William J. Copeland
J. Christopher Donahue
James E. Dowd, Esq.
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr., Esq.
Peter E. Madden
John E. Murray, Jr., J.D., S.J.D.
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.
[Graphic] Federated Investors
Federated Securities Corp.
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
G01452-02 (12/98)
[Graphic]
A1. The graphic presentation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The color coded mountain chart is a visual representation of the
narrative text above it. The x axis reflects computation periods from 5/31/87 to
10/31/98. The y axis is measured in increments of $8,000 ranging from $0 to
$40,000 and indicates that the ending value of hypothetical initial investment
of $12,000 in the fund's Class F Shares, assuming the reinvestment of capital
gains and dividends, would have grown to $33,820 on 10/31/98.
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 5/31/87
to 10/31/98. The "y" axis is measured in increments of $5,000 ranging from $0 to
$25,000 and indicates that the ending value of an initial investment of $1,000
and subsequent yearly investments of $1,000 in the fund's Class F Shares,
assuming the reinvestment of capital gains and dividends, would have grown to
$21,214 on 10/31/98.
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 10/31/87
to 10/31/98. The "y" axis is measured in increments of $10,000 ranging from $0
to $60,000 and indicates that the ending value of hypothetical initial
investment of $20,000 in the fund's Class F Shares, assuming the reinvestment of
capital gains and dividends, would have grown to $54,798 on 10/31/98.
A4. 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 charge) are represented by
a solid line. The Lehman Brothers Corporate Bond Index (the "LBCBI") is
represented by a dotted line and the Lipper Corporate Debt Funds BBB Rated
Average (the "LCDBBB") is represented by a broken line. The line graph is a
visual representation of a comparison of change in value of a $10,000
hypothetical investment in the Class A Shares of the fund, the LBCBI and the
LCDBBB. The "x" axis reflects computation periods from 6/28/95 to 10/31/98. 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 charge, as compared to the LBCBI and the LCDBBB. The ending
values were $12,387, $12,981, and $12,641, 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 10/31/98 and from the
fund's start of performance (6/28/95) to 10/31/98. The total returns were 0.43%,
and 6.62%, respectively.
A5. 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 (based on a 3.00% contingent deferred sales
charge) are represented by a solid line. The Lehman Brothers Corporate Bond
Index (the "LBCBI") is represented by a dotted line and the Lipper Corporate
Debt Funds BBB Rated Average (the "LCDBBB") is represented by a broken line. The
line graph is a visual representation of a comparison of change in value of a
$10,000 hypothetical investment in the Class B Shares of the fund, the LBCBI and
the LCDBBB. The "x" axis reflects computation periods from 6/28/95 to 10/31/98.
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 3.00% contingent deferred sales charge, as compared to the LBCBI and the
LCDBBB. The ending values were $11,858, $12,981, and $12,641, respectively. The
legend in the bottom quadrant of the graphic presentation indicates the fund's
Class B Shares Average Annual Total Returns for the one-year period ended
10/31/98 and from the fund's start of performance (6/28/95) to 10/31/98. The
total returns were (1.06%), and 6.51%, respectively.
A6. 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 Lehman
Brothers Corporate Bond Index (the "LBCBI") is represented by a dotted line and
the Lipper Corporate Debt Funds BBB Rated Average (the "LCDBBB") is represented
by a broken line. The line graph is a visual representation of a comparison of
change in value of a $10,000 hypothetical investment in the Class C Shares of
the fund, the LBCBI and the LCDBBB. The "x" axis reflects computation periods
from 6/28/95 to 10/31/98. 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 $12,651, $12,981, and $12,641, 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 10/31/98 and from the
fund's start of performance (6/28/95) to 10/31/98. The total returns were 3.36%,
and 7.28%, respectively.
A7. 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 Lehman
Brothers Corporate Bond Index (the "LBCBI") is represented by a dotted line and
the Lipper Corporate Debt Funds BBB Rated Average (the "LCDBBB") is represented
by a broken line. The line graph is a visual representation of a comparison of
change in value of a $10,000 hypothetical investment in the Class C Shares of
the fund, the LBCBI and the LCDBBB. The "x" axis reflects computation periods
from 10/31/88 to 10/31/98. 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 $25,124, $24,867, and $22,585, respectively. The legend in the
bottom quadrant of the graphic presentation indicates the fund's Class F Shares
Average Annual Total Returns for the for the one-year, five-year and 10-year
periods ended 10/31/98 and from the fund's start of performance (5/20/87) to
10/31/98. The total returns were 3.11%, 6.81%, 9.65%, and 9.46%, respectively.
