[LOGO OF FEDERATED]
World-Class Investment Manager
[PHOTO OF J. CHRISTOPHER DONAHUE]
J. Christopher Donahue
President
Federated Bond Fund
President's Message
Dear Valued Shareholder:
Federated Bond Fund was created in 1987, and I am pleased to present its 13th
Annual Report. As of October 31, 1999, this $1.1 billion fund held 135 corporate
bonds and over 33% of these issues were rated A or better. The fund is
attractive to investors desiring generous monthly income.
This report covers the 12-month reporting period from November 1, 1998 through
October 31, 1999. It begins with an interview with the fund's portfolio manager,
Joseph M. Balestrino, Senior Vice President of Federated Investment Management
Company. Following his discussion, which details 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.
The fund's $1.1 billion in total net assets are invested in a combination of
corporate and government bonds. On October 31, 1999, 63% of the portfolio was
invested in corporate bonds for their yield advantage. In the past 12 months,
the fund paid a total of over $73 million in dividends to shareholders, and the
average duration of the fund's bond holdings was approximately 6 years.
Over the fund's 12 years of operation, fund managers have had to cope with many
periods of widely fluctuating interest rates. In the current market environment,
rates have risen and negatively affected all bond prices. The experience is not
new, and it is not enjoyable. Fears of inflation in the strong U.S. economy seem
to be well-addressed by Federal Reserve Board ("the Fed") Chairman Alan
Greenspan, as his words do impact interest rates and bond prices.
In this difficult environment for bond prices, Federated Bond Fund delivered a
flat total return, consistent with that of the market overall. A strong monthly
income stream tempered the decline in net asset value. Individual share class
total return performance for the 12-month reporting period, including income
distributions, follows./1/
<TABLE>
<CAPTION>
Total Return Income Net Asset Value Change
<S> <C> <C> <C>
Class A Shares (0.35%) $0.68 $9.82 to $9.11= (7%)
Class B Shares (1.11%) $0.61 $9.83 to $9.12= (7%)
Class C Shares (1.11%) $0.61 $9.83 to $9.12= (7%)
Class F Shares (0.35%) $0.68 $9.83 to $9.12= (7%)
</TABLE>
Thank you for participating in the diversified income opportunities of 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,
/s/ J. Christopher Donahue
J. Christopher Donahue
President
December 15, 1999
/1/ Performance quoted is based on net asset value, reflects past performance
and is no guarantee 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 (4.81%), (6.21%), (2.04%), and (2.28%), respectively.
[PHOTO OF JOSEPH M. BALESTRINO]
Joseph M. Balestrino
Senior Vice President
Federated Investment Management Company
Investment Review
What are your comments on the high-quality, fixed-income market environment
during the past 12 months?
The bond market completely reversed course in the first half of the reporting
period as the interest rate trend turned upward. The global financial crises
from July to October 1998 had indeed created a massive "flight to quality," as
investors sought the safety of U.S. Treasury securities in an attempt to lessen
the impact of falling stock markets around the world. As a result, domestic
interest rates fell to the lowest levels in many years. From November 1998
through April 1999, there was much improvement in global economic conditions and
associated stock market levels, in part due to over 100 instances of central
banks reducing interest rates and increasing global liquidity. In this
environment, domestic interest rates rose, and the higher yielding bond sectors
(emerging markets, corporates and mortgages) outperformed pure U.S. Treasuries.
The second half of the 12-month reporting period, which began in May 1999, saw a
continuation of a robust U.S. economy and a higher interest rate pattern.
Corporate earnings announcements for the first quarter, that were released early
in the second quarter, showed significant increases relative to levels of a year
ago, both in terms of sales volumes and profit margin/productivity measures.
Overall domestic consumer demand indicators pointed toward an economic
environment which would continue in a growth mode. Additionally, the
manufacturing sector was a surprise on the upside, as evidenced by the monthly
National Association of Purchasing Managers Index, which consistently exceeded
expectations.
The latter part of the year was a period of moderation relative to the first six
months of 1999, both in terms of economic releases and the resulting impact on
interest rate movements. Recall that the Fed had increased the Fed Funds Target
Rate by 25 basis points at the end of the second quarter of 1999. An identical
increase occurred midway through the third quarter of 1999. Given the overall
magnitude of interest rate increases from January to June, along with the widely
anticipated official rate hikes, the market reaction to the Fed's moves was
largely nonexistent. Additionally, while the U.S. economy continued to exhibit
widespread growth characteristics, the rate of growth was at a much slower pace,
with increases in negative corporate earnings announcements. For the third
quarter of 1999, the level of interest rates rose modestly for all maturity
points from 1 year to 30 years.
Taking the entire 12-month fiscal year period as a whole, interest rates rose
significantly given the worldwide economic rebound. Thus, price declines
occurred in the majority of the bond sectors.
How did the corporate bond market perform over this period?
As noted above, the past year represented a difficult environment for most
fixed-income investors. The corporate bond market, in particular, did manage to
relatively outperform comparable maturity U.S. Treasury securities, as the yield
advantage of corporates versus Treasuries narrowed over the past year. However,
price declines were experienced in virtually all corporate bond sectors--from
the highest quality to the lower rated, high-yield corporate securities. In
short, investors fared better in corporate bonds relative to U.S. Treasuries;
however, absolute returns were slightly positive to slightly negative depending
on specific portfolio composition.
How did Federated Bond Fund perform over the 12-month reporting period?
For the fiscal year ended October 31, 1999, the fund's Class A, B, C, and F
Shares produced total returns of (0.35%), (1.11%), (1.11%), and (0.35%),
respectively, based on net asset value./1/ These returns were generally
comparable to the flat 0.21% total return of the average corporate bond fund as
measured by the Lipper Corporate Debt Funds BBB Rated Average./2/
What adjustments did you make to the fund's duration and quality?
In terms of portfolio composition adjustments, the fund's management has focused
less on duration and more on quality composition. The interest rate exposure of
the fund has remained relatively constant, with a duration very near 6 years
over the entire fiscal year period. On the average quality of portfolio
composition, the fund has significantly shifted toward a higher yielding
posture. As the financial crisis unfolded in the summer of 1998, the fund had
already increased overall quality to the point that the lower rated, high-yield
sector was in the 15%-20% range by October 1998. By October 31, 1999, the
high-yield sector had been gradually increased to 27% of total fund assets./3/
With stronger economic growth and earnings expansion, the fund has continued
adding to those lower rated, higher yielding areas, which may be in a position
to benefit, with less emphasis placed on pure U.S. government securities.
The fund's income distributions remain an important source of cash flow to many
shareholders. What were the fund's yields on October 31, 1999?
On October 31, 1999, the fund's distribution rate,/4/ based on net asset value,
was 7.52% for Class A Shares (7.18% based on offering price) compared to the
10-year Treasury rate, which was 6.02% on that same day. The fund's distribution
rates for Class B, C, and F Shares were 6.73%, 6.72%, and 7.51% (7.44% based on
offering price for Class F Shares), respectively, based on net asset value. The
fund's 30- day SEC yields on October 31, 1999 for Class A, B, C, and F Shares
were 7.45% (7.11% based on offering price), 6.63%, 6.64%, and 7.42% (7.35% based
on offering price), respectively./5/
/1/ Performance quoted is based on net asset value, reflects past performance
and is no guarantee 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 (4.81%), (6.21%), (2.04%), and (2.28%), respectively.
/2/ 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.
/3/ Lower rated bonds involve a higher degree of risk than investment grade
bonds in return for higher yield potential.
/4/ 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.
/5/ The 30-day Securities and Exchange Commission (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.
How were the fund's assets allocated according to bond quality and bond type as
of October 31, 1999?
<TABLE>
<CAPTION>
Percentage
of
Net Assets
<S> <C>
AAA 10.2%
AA 5.0%
A 20.5%
BBB 31.1%
BB 6.9%
B 0.6%
NR 23.5%
</TABLE>
<TABLE>
<CAPTION>
Percentage
of
Net Assets
<S> <C>
Corporate Bonds 63.1%
U.S. Treasury Obligations 5.2%
Municipal Securities 3.7%
Asset-Backed Securities 1.5%
U.S. Government Agencies 1.2%
Mutual Fund 22.1%
Preferred Stocks 1.0%
</TABLE>
What were the fund's top 10 holdings as of October 31, 1999?
<TABLE>
<CAPTION>
Name/Coupon/Maturity Percentage of
Net Assets
<S> <C>
U.S. Treasury Bond, 11.625% due 11/15/2004 1.48%
U.S. Treasury Bond, 8.00% due 11/15/2021 1.33%
U.S. Treasury Bond, 8.50% due 02/15/2020 1.27%
FMR Corp., Deb, 7.57% due 06/15/2029 1.20%
Continental Cablevision, Sr. Deb, 9.50% 1.19%
due 08/01/2013
Anixter International, Inc., Company 1.12%
Guarantee 8.00% due 09/15/2023
International Speedway, 7.875% due 1.09%
10/15/2004
Shopko Stores, Sr. Note 9.25% due 1.07%
03/15/2022
Inco, Ltd., Note 9.60% due 06/15/2022 1.00%
Province of Quebec, Deb, Series NN,7.125% 1.00%
due 02/09/2024
TOTAL 11.75%
</TABLE>
As we leave a difficult year for bonds, what is your outlook as we approach the
year 2000?
Both domestic and foreign economies will enter the year 2000 on much stronger
footing than 1999. This argues for a cautious outlook in the fixed-income
markets. On the other hand, domestic interest rates have now risen steadily for
over one year, providing comfort that a more stable environment may be in store
for the year 2000. Additionally, consumer demand indicators, which fueled the
economy over the first half of 1999, are clearly pointing to a slower growth
environment. Included in such indicators are such visible signs as falling
consumer confidence, auto sales and general retail sales activity. In summary,
the fund's management maintains a neutral position on the direction of interest
rates, feeling that the vast majority of rate increases may now be concluded.
The fund will continue to emphasize the higher yielding bond sectors, where
particular value may have yet to be realized.
Shareholder Meeting Results
A Special Meeting of Fund shareholders was held on November 30, 1999. On
September 21, 1999, the record date for shareholders voting at the meeting,
there were 116,042,714 total outstanding shares. The following items were
considered by shareholders and the results of their voting were as follows:
1. Vote on Directors*
<TABLE>
<CAPTION>
Withheld
Abstentions and Authority
For Against Broker Non-Votes To Vote
<S> <C> <C> <C> <C>
John F. Cunningham 59,274,445 1,248,414
Charles F. 59,271,960 1,250,899
Mansfield, Jr.
John S. Walsh 59,295,390 1,227,469
</TABLE>
* The following Directors of the Fund continued their terms as Directors of the
Fund: John F. Donahue, Thomas G. Bigley, John T. Conroy, Jr., Nicholas P.
Constantakis, Lawrence D. Ellis, M.D., Peter E. Madden, John E. Murray, Jr.,
J.D., S.J.D., Marjorie P. Smuts, and J. Christopher Donahue.
2A. To amend the Fund's fundamental investment policy regarding borrowing money
and issuing senior securities.
<TABLE>
<CAPTION>
Withheld
Abstentions and Authority
For Against Broker Non-Votes To Vote
<S> <C> <C> <C>
46,321,556 1,685,958 12,515,346
</TABLE>
2B. To amend the Fund's fundamental investment policy regarding investments in
real estate.
<TABLE>
<CAPTION>
Withheld
Abstentions and Authority
For Against Broker Non-Votes To Vote
<S> <C> <C> <C>
45,993,662 2,064,066 12,465,132
</TABLE>
2C. To amend the Fund's fundamental investment policy regarding investments in
commodities.
<TABLE>
<CAPTION>
Withheld
Abstentions and Authority
For Against Broker Non-Votes To Vote
<S> <C> <C> <C>
45,087,424 2,916,815 12,518,621
</TABLE>
2D. To amend the Fund's fundamental investment policy regarding underwriting
securities.
<TABLE>
<CAPTION>
Withheld
Abstentions and Authority
For Against Broker Non-Votes To Vote
<S> <C> <C> <C>
46,053,051 1,917,472 12,552,337
</TABLE>
2E. To amend the Fund's fundamental investment policy regarding lending assets.
<TABLE>
<CAPTION>
Withheld
Abstentions and Authority
For Against Broker Non-Votes To Vote
<S> <C> <C> <C>
45,711,303 2,256,788 12,554,769
</TABLE>
2F. To amend the Fund's fundamental investment policy regarding concentration of
the Fund's investments.
<TABLE>
<CAPTION>
Withheld
Abstentions and Authority
For Against Broker Non-Votes To Vote
<S> <C> <C> <C>
46,398,227 1,604,174 12,520,459
</TABLE>
2G. To amend, and to make non-fundamental, the Fund's fundamental investment
policy regarding buying securities on margin.
<TABLE>
<CAPTION>
Withheld
Abstentions and Authority
For Against Broker Non-Votes To Vote
<S> <C> <C> <C>
44,650,509 3,145,359 12,726,992
</TABLE>
2H. To amend, and to make non-fundamental, the Fund's fundamental investment
policy regarding pledging assets.
<TABLE>
<CAPTION>
Withheld
Abstentions and Authority
For Against Broker Non-Votes To Vote
<S> <C> <C> <C>
44,941,499 2,995,635 12,585,726
</TABLE>
3. To eliminate the Fund's fundamental investment policy on selling securities
short.
<TABLE>
<CAPTION>
Withheld
Abstentions and Authority
For Against Broker Non-Votes To Vote
<S> <C> <C> <C>
44,942,649 2,961,326 12,618,885
</TABLE>
4A. To require the approval of a "1940 Act" majority of shareholders in the
event of the sale or conveyance of the assets of the corporation to another
corporation or trust, to the extent permitted under Maryland law.
<TABLE>
<CAPTION>
Withheld
Abstentions and Authority
For Against Broker Non-Votes To Vote
<S> <C> <C> <C>
45,824,222 2,324,222 12,374,216
</TABLE>
4B. To permit the Board of Directors to liquidate the assets of the corporation,
or of a series or class, and distribute the proceeds of such assets to the
holders of such shares representing such interests, without seeking shareholder
approval, to the extent permitted under Maryland law.
<TABLE>
<CAPTION>
Withheld
Abstentions and Authority
For Against Broker Non-Votes To Vote
<S> <C> <C> <C>
43,312,551 4,848,974 12,361,335
</TABLE>
Two Ways You May Seek to Invest for Success:
Initial Investment
If you had made an initial investment of $13,000 in the Class F Shares of
Federated Bond Fund on 5/20/87, reinvested dividends and capital gains, and did
not redeem any shares, your account would have been worth $36,482 on 10/31/99.
You would have earned an 8.64%/1/ 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 9/30/99, the Class A Shares' 1-year
and since-inception (6/28/95) total returns were (6.68%) and 5.08%,
respectively. Class B Shares' 1-year and since-inception (6/28/95) total returns
were (8.07%) and 5.04%, respectively. Class C Shares' 1-year and since-inception
(6/28/95) total returns were (3.87%) and 5.45%, respectively. Class F Shares'
average annual 1-year, 5-year, and 10-year total returns were (4.09%), 7.51%,
and 8.82%, respectively./2/
[Graphic representation omitted; 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.
/2/ The total returns stated take into account all applicable sales charges. The
maximum sales charges and contingent deferred sales charges for the fund are as
follows: Class A Shares, 4.50% sales charge; Class B Shares, 5.50% contingent
deferred sales charge; Class C Shares, 1.00% contingent deferred sales charge.;
Class F Shares, 1.00% sales charge and 1.00% contingent deferred sales charge.
One Step At a Time
$1,000 initial investment and subsequent investments of $1,000 each year for 12
years (reinvesting all dividends and capital gains) grew to $22,653.
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 $13,000 but your account would have reached a total
value of $22,6531 by 10/31/99. You would have earned an average annual total
return of 8.29%.
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 can work 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 representation omitted; see Appendix B.]
/1/ 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.
Hypothetical Investor Profile--
Investing for High Monthly Income
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. Ten years ago, on
October 31, 1989, the Wickers invested $20,000 in the Class F Shares of
Federated Bond Fund.
As this chart shows, over 10 years, their original investment has grown to
$48,119. This represents a 9.18%1 average annual total return. For John and
Joan, that means extra money to supplement their savings towards their
daughter's college tuition.
[Graphic representation omitted; see Appendix C.]
/1/ 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 A $10,000 Investment
The graph below illustrates the hypothetical investment of $10,000/1/ in the
Federated Bond Fund (Class A Shares) (the "Fund") from June 28, 1995 (start of
performance) to October 31, 1999, compared to the Lehman Brothers Corporate Bond
Index (LBCBI)/2/ and the Lipper Corporate Debt Funds BBB Rated Average
(LCDBBB)./3/
<TABLE>
<CAPTION>
Average Annual Total Return/4/ for the Period Ended
October 31, 1999
<S> <C>
1 Year (4.81%)
Start of Performance (6/28/95) 4.98%
</TABLE>
[Graphic representation omitted; see Appendix D.]
Past performance is no guarantee 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.
/1/ 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.
/2/ 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.
/3/ 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.
/4/ Total return quoted reflects all applicable sales charges.
Federated Bond Fund-Class B Shares
Growth of A $10,000 Investment
The graph below illustrates the hypothetical investment of $10,000/1/ in the
Federated Bond Fund (Class B Shares) (the "Fund") from June 28, 1995 (start of
performance) to October 31, 1999, compared to the Lehman Brothers Corporate Bond
Index (LBCBI)/2/ and the Lipper Corporate Debt Funds BBB Rated Average
(LCDBBB)./3/
<TABLE>
<CAPTION>
Average Annual Total Return4 for the Period Ended
October 31, 1999
<S> <C>
1 Year (6.21%)
Start of Performance (6/28/95) 4.92%
</TABLE>
[Graphic representation omitted; see Appendix E.]
Past performance is no guarantee 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.
/1/ Represents a hypothetical investment of $10,000 in the Fund. The ending
value of the Fund reflects a 2.00% contingent deferred sales charge on any
redemption less than five 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.
/2/ 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.
/3/ 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.
/4/ Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
Federated Bond Fund-Class C Shares
Growth of A $10,000 Investment
The graph below illustrates the hypothetical investment of $10,000/1/ in the
Federated Bond Fund (Class C Shares) (the "Fund") from June 28, 1995 (start of
performance) to October 31, 1999, compared to the Lehman Brothers Corporate Bond
Index (LBCBI)/2/ and the Lipper Corporate Debt Funds BBB Rated Average
(LCDBBB)./3/
<TABLE>
<CAPTION>
Average Annual Total Return4 for the Period Ended
October 31, 1999
<S> <C>
1 Year (2.04%)
Start of Performance (6/28/95) 5.29%
</TABLE>
[Graphic representation omitted; see Appendix F.]
Past performance is no guarantee 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.
/1/ 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.
/2/ 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.
/3/ 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.
/4/ Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
Federated Bond Fund-Class F Shares
Growth of A $10,000 Investment
The graph below illustrates the hypothetical investment of $10,000/1/ in the
Federated Bond Fund (Class F Shares) (the "Fund") from October 31, 1989 to
October 31, 1999 compared to the Lehman Brothers Corporate Bond Index (LBCBI)/2/
and the Lipper Corporate Debt Funds BBB Rated Average (LCDBBB)./3/
<TABLE>
<CAPTION>
Average Annual Total Return4 for the Period Ended
October 31, 1999
<S> <C>
1 Year (2.28%)
5 Year 7.47%
10 Year 9.18%
Start of Performance (5/20/87) 8.64%
</TABLE>
[Graphic representation omitted; see Appendix G.]
Past performance is no guarantee 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.
/1/ 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). A 1.00% contingent deferred sales charge would be applied
on any redemption less than four years 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.
/2/ 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.
/3/ 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.
/4/ Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
Portfolio of Investments
OCTOBER 31, 1999
<TABLE>
<CAPTION>
Principal
Amount
Value
<S> <C>
<C>
CORPORATE BONDS--63.1%
Aerospace & Defense--0.4%
$ 2,250,000 McDonnell-Douglas Corp., Note, 9.40%, 10/15/2001
$ 2,250,000
1,000,000 Raytheon Co., 6.15%,
11/1/2008 905,410
1,300,000 Raytheon Co., 7.00%,
11/1/2028 1,160,484
- ---------------
TOTAL 4,315,894
- ---------------
Air Transportation--0.9%
475,000 Continental Airlines, Inc., Pass Thru Cert., Series 1992-2C1, 7.73%,
3/15/2011 454,466
7,418,444 Continental Airlines, Inc., Pass Thru Cert., Series 1997-4B, 6.90%,
1/2/2017 6,854,568
1,995,000 Southwest Airlines Co., Deb., 7.375%,
3/1/2027 1,935,110
- ---------------
TOTAL 9,244,144
- ---------------
Automotive--2.8%
8,275,000 Arvin Industries, Inc., 9.50%,
2/1/2027 7,996,629
6,850,000 Dana Corp., Note, 7.00%,
3/15/2028 6,165,891
2,000,000 General Motors Corp., Medium Term Note, 9.45%,
11/1/2011 2,333,600
7,250,000 Hertz Corp., Sr. Note, 7.00%,
1/15/2028 6,526,885
8,000,000 Meritor Automotive, Inc., Note, 6.80%,
2/15/2009 7,437,912
- ---------------
TOTAL 30,460,917
- ---------------
Banking--6.0%
4,750,000 ABN-AMRO Bank NV, Chicago, Sub. Deb., 7.30%,
12/1/2026 4,432,319
5,250,000 Banco Santander SA, Bank Guarantee, 7.875%,
4/15/2005 5,339,933
6,000,000 Barclays North America, Deb., 9.75%,
5/15/2021 6,517,860
5,675,000 City National Bank, Sub. Note, 6.375%,
1/15/2008 5,304,829
2,750,000 Crestar Financial Corp., Sub. Note, 8.75%,
11/15/2004 2,944,287
3,800,000 /1, 2/Den Danske Bank Group, Note, 7.40%, 6/15/2010 3,747,331
1,400,000 /1, 2/Den Danske Bank Group, Sub. Note, 7.25%,
6/15/2005 1,390,521
5,740,000 FirstBank Puerto Rico, Sub. Note, 7.625%,
12/20/2005 5,417,297
10,000,000 Merita Bank PLC, Sub. Note, 6.50%,
4/1/2009 9,311,910
8,600,000 National Bank of Canada, Montreal, Sub. Note, 8.125%,
8/15/2004 9,012,972
6,300,000 Republic New York Corp., Sub. Note, 7.75%,
5/15/2009 6,381,837
3,800,000 /1, 2/Swedbank, Sub. Note, 7.50%,
11/29/2049 3,602,084
- ---------------
TOTAL 63,403,180
- ---------------
Beverage & Tobacco--0.8%
650,000 Anheuser-Busch Cos., Inc., Note, 7.10%,
6/15/2007 640,887
8,250,000 Philip Morris Cos., Inc., Deb., 7.75%,
1/15/2027 7,609,140
- ---------------
TOTAL 8,250,027
- ---------------
Cable Television--2.1%
4,500,000 CF Cable TV, Inc., Sr. Note, 9.125%,
7/15/2007 4,791,600
4,500,000 Comcast Corp., Note, 8.50%,
5/1/2027 4,866,390
11,290,000 Continental Cablevision, Sr. Deb., 9.50%,
8/1/2013 12,670,880
- ---------------
TOTAL 22,328,870
- ---------------
Chemicals & Plastics--0.4%
6,250,000 /1, 2/Fertinitro Finance, Company Guarantee, 8.29%,
4/1/2020 4,284,975
Ecological Services & Equipment1.3%
7,750,000 USA Waste Services, Inc., Sr. Note, 7.125%,
10/1/2007 6,602,380
8,210,000 WMX Technologies, Inc., Deb., 8.75%,
5/1/2018 7,438,096
- ---------------
TOTAL 14,040,476
- ---------------
Education--1.2%
10,100,000 Boston University, 7.625%,
7/15/2097 9,520,361
3,000,000 Harvard University, Revenue Bonds Deb., 8.125%,
4/15/2007 3,207,780
- ---------------
TOTAL 12,728,141
- ---------------
Electronics--1.1%
11,950,000 Anixter International, Inc., Company Guarantee, 8.00%,
9/15/2003 11,892,282
Finance - Automotive0.4%
385,000 Ford Motor Credit Corp., Note, 7.00%,
9/25/2001 387,830
2,500,000 Ford Motor Credit Corp., Note, 7.375%,
10/28/2009 2,527,725
300,000 Ford Motor Credit Corp., Note, 7.57%,
5/16/2005 300,237
700,000 General Motors Acceptance Corp., Medium Term Note, 6.75%,
6/10/2002 700,105
- ---------------
TOTAL 3,915,897
- ---------------
Financial Intermediaries--6.0%
8,500,000 Amvescap PLC, Sr. Note, 6.60%,
5/15/2005 8,127,105
1,000,000 Capital One Financial Corp., Note, 7.125%,
8/1/2008 926,570
2,950,000 Donaldson, Lufkin and Jenrette Securities Corp., Sr. Note, 6.875%,
11/1/2005 2,874,125
12,800,000 /1, 2/FMRCorp Deb., 7.57%,
6/15/2029 12,733,568
8,296,000 Green Tree Financial Corp., Sr. Sub. Note, 10.25%,
6/1/2002 8,691,056
6,000,000 Lehman Brothers Holdings, Inc., Note, 6.625%,
2/5/2006 5,732,640
2,425,000 Lehman Brothers Holdings, Inc., Note, 7.000%,
5/15/2003 2,405,842
7,325,000 Lehman Brothers, Inc., Sr. Sub. Note, 7.375%,
1/15/2007 7,237,465
7,000,000 Marsh & McLennan Cos., Inc., Sr. Note, 7.125%,
6/15/2009 6,941,690
425,000 Merrill Lynch & Co., Inc., Sr. Note, 7.15%,
7/30/2012 408,030
4,250,000 Merrill Lynch & Co., Inc., Sr. Unsub., 6.00%,
2/17/2009 3,891,172
3,549,296 /1, 2/World Financial, Pass Thru Cert., Series 96 WFP-B, 6.91%,
9/1/2013 3,412,310
- ---------------
TOTAL 63,381,573
- ---------------
Food & Drug Retailers--0.0%
25,000 McDonald's Corp., Note, 6.75%,
2/15/2003 25,014
Forest Products2.2%
6,000,000 Donohue Forest Products, 7.625%,
5/15/2007 6,015,239
1,270,000 Fort James Corp., Deb., 8.375%,
11/15/2001 1,303,552
3,800,000 Fort James Corp., Sr. Note, 6.234%,
3/15/2001 3,789,891
2,850,000 Pope & Talbot, Inc., 8.375%,
6/1/2013 2,559,841
8,850,000 Quno Corp., Sr. Note, 9.125%,
5/15/2005 9,333,829
- ---------------
TOTAL 23,002,352
- ---------------
Health Care--0.6%
300,000 Columbia/HCA Healthcare Corp., Note, 6.87%,
9/15/2003 280,377
3,000,000 Tenet Healthcare Corp., Sr. Sub. Note, 8.125%,
12/1/2008 2,730,000
3,200,000 Tenet Healthcare Corp., Sr. Note, 8.00%,
1/15/2005 3,008,000
- ---------------
TOTAL 6,018,377
- ---------------
Industrial Products & Equipment0.7%
7,095,000 Southdown, Inc., Sr. Sub. Note, 10.00%,
3/1/2006 7,703,680
Insurance7.5%
6,000,000 Allmerica Financial Corp., Sr. Note, 7.625%,
10/15/2025 5,732,820
450,000 American General Corp., Note, 7.75%,
4/1/2005 461,795
8,000,000 CNA Financial Corp., Bond, 6.95%,
1/15/2018 7,041,120
5,800,000 Conseco, Inc., Note, 6.40%,
2/10/2003 5,476,128
7,025,000 Conseco, Inc., Sr. Note, 10.50%,
12/15/2004 7,562,272
10,350,000 Delphi Financial Group, Inc., Sr. Note, 8.00%,
10/1/2003 10,305,599
2,950,000 Delphi Financial Group, Inc., Series A, 9.31%,
3/25/2027 2,838,372
3,980,000 GEICO Corp., Deb., 9.15%,
9/15/2021 4,316,708
7,800,000 /1, 2/Life Re Capital Trust I, Company Guarantee, 8.72%,
6/15/2027 7,992,036
25,000 Progressive Corp., OH, Unsecured. Note, 7.30%,
6/1/2006 24,868
3,300,000 Provident Financial, Inc., Company Guarantee, 7.405%,
3/15/2038 2,964,423
6,500,000 /1, 2/Reinsurance Group of America, Sr. Note, 7.25%,
4/1/2006 6,374,973
3,000,000 SunAmerica, Inc., Deb., 8.125%,
4/28/2023 3,171,780
1,000,000 SunAmerica, Inc., Medium Term Note, 7.34%,
8/30/2005 1,008,750
525,000 Transamerica Corp., Note, 6.75%,
11/15/2006 504,042
1,000,000 /1, 2/USF&G Corp., 8.312%,
7/1/2046 1,008,550
5,750,000 USF&G Corp., Company Guarantee, 8.47%,
1/10/2027 5,679,505
6,950,000 /1, 2/Union Central Life Insurance Co., Note, 8.20%,
11/1/2026 6,960,286
- ---------------
TOTAL 79,424,027
- ---------------
Leisure & Entertainment--1.2%
2,606,000 Paramount Communications, Inc., Sr. Note, 7.50%,
1/15/2002 2,632,060
10,250,000 Paramount Communications, Inc., Deb., 8.25%,
8/1/2022 10,237,393
- ---------------
TOTAL 12,869,453
- ---------------
Metals & Mining--4.2%
9,600,000 Barrick Gold Corp., Deb., 7.50%,
5/1/2007 9,523,680
11,000,000 Inco Ltd., Note, 9.60%,
6/15/2022 10,652,180
8,850,000 /1, 2/Normandy Finance Ltd., Company Guarantee, 7.50%,
7/15/2005 8,423,784
9,750,000 Placer Dome, Inc., Bond, 8.50%,
12/31/2045 9,224,768
7,375,000 Santa Fe Pacific Gold, Sr. Deb., 8.375%,
7/1/2005 7,155,963
- ---------------
TOTAL 44,980,375
- ---------------
Oil & Gas--2.6%
5,250,000 Baker Hughes, Inc., 6.25%,
1/15/2009 4,913,265
125,000 Chevron Capital USA, Inc., Unsecd. Note, 7.45%,
8/15/2004 126,798
10,250,000 Husky Oil Ltd., Sr. Note, 7.125%,
11/15/2006 9,485,453
8,750,000 Sun Co., Inc., 9.00%,
11/1/2024 9,463,563
2,500,000 Sun Co., Inc., Deb., 9.375%,
6/1/2016 2,705,350
1,250,000 Veritas DGC, Inc., Sr. Note, 9.75%,
10/15/2003 1,268,750
- ---------------
TOTAL 27,963,179
- ---------------
Printing & Publishing--0.8%
1,500,000 News America Holdings, Inc., 10.125%,
10/15/2012 1,649,265
3,000,000 News America Holdings, Inc., Company Guarantee, 8.00%,
10/17/2016 2,967,570
4,850,000 News America Holdings, Inc., Deb., 7.90%,
12/1/2095 4,468,160
- ---------------
TOTAL 9,084,995
- ---------------
Racetrack--1.1%
11,550,000 /1, 2/International Speedway Corp., Note, Series 144A, 7.875%,
10/15/2004 11,534,177
Rail Industry0.3%
3,200,000 Burlington Northern Santa Fe Mtg., Pass Thru Cert., 7.57%,
1/2/2021 3,205,792
Real Estate--2.8%
2,750,000 New Plan Excel Realty Trust, Medium Term Note, 7.40%,
9/15/2009 2,641,210
8,250,000 Price REIT, Inc., Sr. Note, 7.50%,
11/5/2006 8,101,088
5,400,000 Simon Property Group, Inc., Note, 7.125%,
2/9/2009 5,003,478
5,300,000 Storage USA, Deb., 7.50%,
12/1/2027 4,369,214
3,250,000 Storage USA, 8.20%,
6/1/2017 2,952,723
7,400,000 Sun Communities, Inc., Medium Term Note, 6.77%,
5/16/2005 6,765,376
- ---------------
TOTAL 29,833,089
- ---------------
Retailers--4.8%
1,650,000 Dayton-Hudson Corp., Deb., 8.50%,
12/1/2022 1,720,736
6,750,000 Dayton-Hudson Corp., Deb., 10.00%,
12/1/2000 7,001,978
10,870,000 Harcourt General, Inc., Sr. Deb., 7.20%,
8/1/2027 9,609,189
8,547,148 K Mart Corp., Pass Thru Cert., 8.54%,
1/2/2015 8,468,514
5,600,000 May Department Stores Co., Deb., 8.125%,
8/15/2035 5,756,072
5,065,000 Sears, Roebuck & Co., Medium Term Note, 10.00%,
2/3/2012 5,896,724
1,650,000 Shopko Stores, Inc., 8.50%,
3/15/2002 1,697,999
10,497,000 Shopko Stores, Inc., Sr. Note, 9.25%,
3/15/2022 11,408,769
- ---------------
TOTAL 51,559,981
- ---------------
Sovereign Government--2.8%
4,565,000 Colombia, Republic of, Note, 7.25%,
2/15/2003 4,131,325
11,000,000 Quebec, Province of, Deb., Series NN, 7.125%,
2/9/2024 10,639,860
3,390,000 Quebec, Province of, Deb., 9.125%,
8/22/2001 3,516,881
2,310,000 Quebec, Province of, 11.00%,
6/15/2015 2,469,783
4,300,000 South Africa, Government of, Global Bond Note, 9.625%,
12/15/1999 4,317,372
3,500,000 Sweden, Kingdom of, Deb., 10.25%,
11/1/2015 4,259,465
- ---------------
TOTAL 29,334,686
- ---------------
Supranational--0.4%
4,250,000 Corp Andina De Fomento, Note, 7.25%,
3/1/2007 4,066,103
Technology Services--1.7%
11,237,000 Dell Computer Corp., Deb., 7.10%,
4/15/2028 10,373,212
6,650,000 Unisys Corp., Sr. Note, 11.75%,
10/15/2004 7,381,500
- ---------------
TOTAL 17,754,712
- ---------------
Telecommunications & Cellular--2.3%
700,000 AT&T Corp., Unsecd. Note, Series A, 8.20%,
2/15/2005 704,347
750,000 BellSouth Telecommunications, Inc., Note, 6.00%,
6/15/2002 739,845
1,350,000 LCI International, Inc., Sr. Note, 7.25%,
6/15/2007 1,331,640
3,050,000 Lucent Technologies, Inc., Global Bond, 6.45%,
3/15/2029 2,772,755
6,500,000 MetroNet Escrow Corp., Sr. Note, 10.625%,
11/1/2008 7,410,000
5,200,000 Qwest Communications International, Inc., Sr. Note, Series B, 7.50%,
11/1/2008 5,122,000
6,650,000 /1, 2/Telecom de Puerto Rico, Sr. Note, 6.65%, 5/15/2006 6,430,291
- ---------------
TOTAL 24,510,878
- ---------------
Utilities--3.7%
55,000 Baltimore Gas & Electric Co., 1st Ref. Mtg., 7.50%,
1/15/2007 55,950
7,650,000 /1, 2/Edison Mission Holding Co., Note, 8.734%,
10/1/2026 7,391,048
5,150,000 Enersis S.A., Note, 7.40%,
12/1/2016 4,310,241
3,400,000 /1, 2/Israel Electric Corp. Ltd., Sr. Secd. Note, 7.75%,
3/1/2009 3,347,341
5,500,000 /1, 2/Israel Electric Corp. Ltd., Sr. Note, 7.875%,
12/15/2026 4,985,860
900,000 National Rural Utilities Cooperative Finance Corp., Collateral Trust, 5.50%,
1/15/2005 850,778
8,500,000 National Rural Utilities Cooperative Finance Corp., Medium Term Note, 5.75%,
12/1/2008 7,797,815
5,795,000 Puget Sound Energy, Inc., Medium Term Note, 7.02%,
12/1/2027 5,298,484
7,500,000 /1, 2/Tenaga Nasional Berhad, Deb., 7.50%,
1/15/2096 5,404,500
- ---------------
TOTAL 39,442,017
- ---------------
TOTAL CORPORATE BONDS (IDENTIFIED COST
$706,881,332) 670,559,263
===============
GOVERNMENT AGENCIES--1.2%
7,500,000 Federal Farm Credit Bank, Medium Term Note, 5.93%,
8/7/2008 7,071,675
3,000,000 Federal Home Loan Mortgage Corp., Deb., 8.29%,
9/30/2009 3,061,170
900,000 Federal National Mortgage Association, 7.65%,
3/10/2005 946,494
175,000 Federal National Mortgage Association, Note, 6.87%,
10/2/2001 175,732
700,000 Federal National Mortgage Association, Note, 7.50%,
4/16/2007 703,556
805,000 Financial Assistance Corp., 9.20%,
9/27/2005 826,035
- ---------------
TOTAL GOVERNMENT AGENCIES (IDENTIFIED COST
$13,440,717) 12,784,662
===============
MUNICIPAL SECURITIES--3.6%
5,630,000 Atlanta & Fulton County, GA Recreation Authority, Taxable Revenue Bonds,
(Series 5,280,602
1997), 7.00% (Downtown Arena Project)/(FSA INS), 12/1/2028
6,050,000 Kansas City, MO Redevelopment Authority, 7.65% Bonds (FSA INS),
11/1/2018 6,015,273
3,090,000 McKeesport, PA, Taxable GO (Series 1997 B), 7.30% Bonds (MBIA INS),
3/1/2020 2,981,788
3,000,000 Miami FL Revenue Pension Obligation, 7.20% Bonds (AMBAC INS),
12/1/2025 2,848,470
4,940,000 Minneapolis/St. Paul, MN Airport Commission, UT GO Taxable Revenue Bonds (Series
9) 5,240,895
8.95% Bonds (Minneapolis/St. Paul, MN), 1/1/2022
4,675,000 Pittsburgh, PA Urban Redevelopment Authority, 8.01% Bonds (Alcoa, Inc.),
6/1/2015 4,752,605
2,635,000 Pittsburgh, PA Urban Redevelopment Authority, 9.07% Bonds (CGIC INS),
9/1/2014 2,793,943
2,200,000 Southeastern, PA Transportation Authority (Series B) 8.75% Bonds (FGIC INS),
3/1/2020 2,286,064
4,200,000 St. Johns County, FL Convention Center, Taxable Municipal Revenue Bonds, 8.00%
(FSA 4,194,876
INS), 1/1/2026
2,080,000 Tampa, FL Sports Authority, 8.02% Bonds (MBIA INS),
10/1/2026 2,180,859
- ---------------
TOTAL MUNICIPAL SECURITIES (IDENTIFIED COST
$39,193,042) 38,575,375
===============
PREFERRED STOCKS--1.0%
Real Estate--0.9%
8,000 Highwoods Properties, Inc., REIT Perpetual Pfd. Stock, Series A,
8.625% 5,880,960
80,000 Prologis Trust, Cumulative
Pfd. 3,465,000
- ---------------
TOTAL 9,345,960
- ---------------
Telecommunications & Cellular--0.1%
23,658 TCI Communications,
$9.72 623,980
3,872 TCI Communications,
Pfd. 97,768
- ---------------
TOTAL 721,748
- ---------------
TOTAL PREFERRED STOCKS (IDENTIFIED COST
$12,664,611) 10,067,708
===============
ASSET-BACKED SECURITIES--1.5%
Financial Intermediaries--0.1%
1,000,000 Green Tree Financial Corp. 1992-2, Class B, 9.15%,
1/15/2018 950,850
Structured Product (Abs)1.2%
9,000,000 /1, 2/125 Home Loan Owner Trust 1998-1A, Class B1, 9.26%,
2/15/2029 7,697,790
1,615,644 Green Tree Home Equity Loan Trust 1999-A, Class B2A, 7.44%,
2/15/2029 1,612,623
2,633,232 /1, 2/Merrill Lynch Mortgage Investors, Inc. 1998-FF3, Class BB, 5.50%,
11/20/2029 2,528,719
475,697 Merrill Lynch Mortgage Investment, Inc. 1988-H, Class B, 9.70%,
6/15/2008 466,331
1,000,000 Residential Funding Corp. 1993-S26, Class A10, 7.50%,
7/25/2023 977,510
- ---------------
TOTAL 13,282,973
- ---------------
Whole Loan--0.2%
2,400,490 /1/SMFC Trust Asset-Backed Certificates, Series 1997-A, Class 4,
7.7191%, 1/28/2025 2,031,414
- ---------------
TOTAL ASSET-BACKED SECURITIES (IDENTIFIED COST
$17,879,615) 16,265,237
===============
U.S. TREASURY OBLIGATIONS--5.2%
U.S. Treasury Bonds--5.2%
12,000,000 United States Treasury Bond, 8.00%,
11/15/2021 14,100,480
<CAPTION>
Principal
Value
Amount or
Shares
<S> <C> <C>
$ 8,000,000 United States Treasury Bond, 8.125%,
5/15/2021 9,497,600
11,000,000 United States Treasury Bond, 8.50%,
2/15/2020 13,457,950
2,000,000 United States Treasury Bond, 9.875%,
11/15/2015 2,669,540
12,750,000 United States Treasury Bond, 11.625%,
11/15/2004 15,733,373
TOTAL U.S. TREASURY OBLIGATIONS (IDENTIFIED COST
$61,546,660) 55,458,943
MUTUAL FUND22.1%/3/
27,148,846 The High Yield Bond Portfolio (IDENTIFIED COST
$256,403,774) 234,837,521
- --------------
TOTAL INVESTMENTS (IDENTIFIED COST $1,108,009,751)/4/
$1,038,548,709
==============
</TABLE>
/1/ Denotes a restricted security which is subject to restrictions on resale
under federal securities laws. At October 31, 1999, these securities
amounted to $111,281, 558 which represents 10.5% of net assets. Included in
these amounts, securities which have been deemed liquid amounted to
$109,250,144 which represents 10.3% of net assets.
/2/ Denotes a restricted security that has been deemed liquid by criteria
approved by the fund's board of directors.
/3/ Pursuant to an Exemptive Order, the fund may invest in Federated Core Trust
(the "Trust") which is also managed by Federated Investment Management
Company, the Fund's adviser. The Trust is an open-end management investment
company under the Investment Company Act of 1940 available only to
registered investment companies and other institutional investors. High
Yield Bond Portfolio and Federated Mortgage Core Portfolio (the
"Portfolios") are two series of the Trust. Federated receives no fees on
behalf of the Portfolios. Income distributions from the Portfolios are
declared daily and paid monthly. Income distributions earned by the fund are
recorded as dividend income in the accompanying financial statements.
/4/ The cost of investments for federal tax purposes amounts to $1,108, 101,
964. The net unrealized depreciation of investments on a federal tax basis
amounts to $69, 553, 255 which is comprised of $1,429,421 appreciation and
$70, 982, 676 depreciation at October 31, 1999.
Note: The categories of investments are shown as a percentage of net assets
($1,062,867,564) at October 31, 1999.
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
INS Insured
MBIA Municipal Bond Investors Assurance
REIT Real Estate Investment Trust
UT Unlimited Tax
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
OCTOBER 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
Assets:
Total investments in securities, at value (identified cost $1,108,009,751 and tax
$ 1,038,548,709
cost$1,108,101,964)
Income
receivable
21,769,427
Receivable for investments
sold 12,131,176
Receivable for shares
sold 1,770,403
- ------------------
TOTAL
ASSETS
1,074,219,715
- ------------------
Liabilities:
Payable for investments purchased $ 5,730,655
Payable for shares redeemed 1,937,810
Income distribution payable 2,227,351
Payable to Bank 950,156
Accrued expenses 506,179
- ------------------
TOTAL
LIABILITIES
11,352,151
- ------------------
Net Assets for 116,568,317 shares outstanding
$ 1,062,867,564
Net Assets Consist of:
Paid in capital
$ 1,146,590,459
Net unrealized depreciation of
investments (69,461,042)
Accumulated net realized loss on
investments (12,367,379)
Distributions in excess of net investment
income (1,894,474)
- ------------------
TOTAL NET ASSETS
$ 1,062,867,564
- ------------------
Net Asset Value, Offering Price and Redemption Proceeds Per Share:
Class A Shares:
Net Asset Value Per Share ($249,055,926 / 27,351,895 shares
outstanding) $ 9.11
Offering Price Per Share (100/95.50 of
$9.11)/1/ $ 9.54
Redemption Proceeds Per
Share $ 9.11
Class B Shares:
Net Asset Value Per Share ($345,034,373 / 37,821,513 shares
outstanding) $ 9.12
Offering Price Per
Share $ 9.12
Redemption Proceeds Per Share (94.50/100 of
$9.12)/1/ $ 8.62
Class C Shares:
Net Asset Value Per Share ($92,875,035 / 10,188,945 shares
outstanding) $ 9.12
Offering Price Per
Share $ 9.12
Redemption Proceeds Per Share (99/100 of
$9.12)/1/ $ 9.03
Class F Shares:
Net Asset Value Per Share ($375,902,230 / 41,205,964 shares
outstanding) $ 9.12
Offering Price Per Share (100/99 of
$9.12)/1/ $ 9.21
Redemption Proceeds Per Share (99/100 of
$9.12)/1/ $ 9.03
</TABLE>
/1/ See "What do Shares Cost?" in the Prospectus.
See Notes which are an integral part of the Financial Statements
Statement of Operations
YEAR ENDED OCTOBER 31, 1999
<TABLE>
<S> <C> <C> <C>
Investment Income:
Dividends
$ 22,451,890
Interest
64,670,596
- --------------
TOTAL
INCOME
87,122,486
- --------------
Expenses:
Investment advisory fee $ 8,043,846
Administrative personnel and services fee 808,675
Custodian fees 61,117
Transfer and dividend disbursing agent fees and expenses 946,879
Directors'/Trustees' fees 20,697
Auditing fees 15,629
Legal fees 11,135
Portfolio accounting fees 176,764
Distribution services feeClass B Shares 2,563,851
Distribution services feeClass C Shares 685,661
Shareholder services feeClass A Shares 604,957
Shareholder services feeClass B Shares 854,617
Shareholder services feeClass C Shares 228,554
Shareholder services feeClass F Shares 993,155
Share registration costs 101,627
Printing and postage 151,326
Insurance premiums 3,253
Taxes 85,710
Miscellaneous 20,934
--------------
TOTAL EXPENSES 16,378,387
--------------
Waivers:
Waiver of investment advisory fee $ (1,188,200)
Waiver of shareholder services feeClass A Shares (120,991)
Waiver of shareholder services feeClass F Shares (79,452)
--------------
TOTAL WAIVERS (1,388,643)
--------------
Net
expenses
14,989,744
Net investment
income 72,132,742
Realized and Unrealized Gain (Loss) on Investments:
Net realized loss on
investments (8,623,837)
Net change in unrealized appreciation of
investments (71,860,196)
Net realized and unrealized loss on
investments (80,484,033)
Change in net assets resulting from operations
$ (8,351,291)
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended October 31
1999 1998
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 72,132,742
$ 54,419,790
Net realized gain (loss) on investments ($(8,704,395) and $1,140,275,
(8,623,837) 1,191,985
respectively,as computed for federal tax purposes)
Net change in unrealized appreciation/depreciation
(71,860,196) (20,779,931)
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS
(8,351,291) 34,831,844
Distributions to Shareholders:
Distributions from net investment income
Class A Shares
(17,472,755) (11,400,747)
Class B Shares
(21,902,578) (14,716,321)
Class C Shares
(5,864,574) (3,536,230)
Class F Shares
(28,254,560) (25,598,671)
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TOSHAREHOLDERS
(73,494,467) (55,251,969)
Share Transactions:
Proceeds from sale of shares
404,417,917 552,685,388
Net asset value of shares issued to shareholders in payment of
43,524,135 30,105,726
distributionsdeclared
Cost of shares redeemed
(286,557,151) (246,947,952)
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS
161,384,901 335,843,162
Change in net assets
79,539,143 315,423,037
Net Assets:
Beginning of period
983,328,421 667,905,384
End of period $ 1,062,867,564
$ 983,328,421
</TABLE>
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class A Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
Year Ended October 31 1999/1/ 1998 1997
1996 1995/2/
<S> <C> <C> <C>
<C> <C>
Net Asset Value, Beginning of Period $ 9.82 $ 10.02 $ 9.72 $
9.76 $ 9.64
Income From Investment
Operations:
Net investment income 0.67 0.70 0.74
0.71 0.26
Net realized and unrealized gain (loss) on (0.70) (0.19) 0.26
(0.04) 0.11
investments
-------- -------- --------
- ------- ------
TOTAL FROM INVESTMENT OPERATIONS (0.03) 0.51 1.00
0.67 0.37
-------- -------- --------
- ------- ------
Less
Distributions:
Distributions from net investment income (0.68) (0.71) (0.70)
(0.71) (0.25)
Net Asset Value, End of Period $ 9.11 $ 9.82 $ 10.02 $
9.72 $ 9.76
Total Return/3/ (0.35%) 5.14% 10.73%
7.21% 3.92%
Ratios to Average Net
Assets:
Expenses/4/ 1.22% 1.20% 1.25%
1.30% 1.37%/5/
Net investment income/4/ 6.91% 6.74% 7.10%
7.21% 7.87%/5/
Expenses (after waivers) 1.06% 1.05% 1.05%
1.05% 1.02%/5/
Net investment income (after waivers) 7.07% 6.89% 7.30%
7.46% 8.22%/5/
Supplemental
Data:
Net assets, end of period (000 omitted) $249,056 $210,768 $111,377
$37,045 $5,070
Portfolio turnover 30% 20% 55%
49% 77%
</TABLE>
/1/ For the year ended October 31, 1999, the Fund was audited by Deloitte &
Touche LLP. Each of the previous years was audited by other auditors.
/2/ Reflects operations for the period from June 28, 1995 (date of initial
public investment) to October 31, 1995.
/3/ Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
/4/ During the period, certain fees were voluntarily waived. If such voluntary
waivers had not occurred, the ratios would have been as indicated.
/5/ Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class B Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
Year Ended October 31 1999/1/ 1998 1997
1996 1995/2/
<S> <C> <C> <C>
<C> <C>
Net Asset Value, Beginning of Period $ 9.83 $ 10.02 $ 9.72 $
9.76 $ 9.64
Income From Investment Operations:
Net investment income 0.60 0.61 0.64
0.64 0.24
Net realized and unrealized gain (loss) (0.70) (0.18) 0.28
(0.04) 0.11
on investments
------- ------- -------
- ------- ------
TOTAL FROM INVESTMENT OPERATIONS (0.10) 0.43 0.92
0.60 0.35
------- ------- -------
- ------- ------
Less Distributions:
Distributions from net investment income (0.61) (0.62) (0.62)
(0.64) (0.23)
Net Asset Value, End of Period $ 9.12 $ 9.83 $ 10.02 $
9.72 $ 9.76
Total Return/3/ (1.11%) 4.34% 9.86%
6.40% 3.72%
Ratios to Average Net Assets:
Expenses/4/ 1.97% 1.95% 2.00%
2.05% 2.11%/5/
Net investment income/4/ 6.16% 5.99% 6.35%
6.46% 7.06%/5/
Expenses (after waivers) 1.86% 1.85% 1.85%
1.85% 1.81%/5/
Net investment income (after waivers) 6.27% 6.09% 6.50%
6.66% 7.36%/5/
Supplemental Data:
Net assets, end of period (000 omitted) $345,034 $302,010 $191,600
$125,620 $27,768
Portfolio turnover 30% 20% 55%
49% 77%
</TABLE>
/1/ For the year ended October 31, 1999, the Fund was audited by Deloitte &
Touche LLP. Each of the previous years was audited by other auditors.
/2/ Reflects operations for the period from June 28, 1995 (date of initial
public investment) to October 31, 1995.
/3/ Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
/4/ During the period, certain fees were voluntarily waived. If such voluntary
waivers had not occurred, the ratios would have been as indicated.
/5/ Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class C Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
Year Ended October 31 1999/1/ 1998 1997
1996 1995/2/
<S> <C> <C> <C> <C>
<C>
Net Asset Value, Beginning of Period $ 9.83 $ 10.02 $ 9.72 $
9.76 $ 9.64
Income From Investment Operations:
Net investment income 0.60 0.61 0.64
0.64 0.24
Net realized and unrealized gain (loss) on (0.70) (0.18) 0.28
(0.04) 0.11
investments
------- ------- -------
- ------- ------
TOTAL FROM INVESTMENT OPERATIONS (0.10) 0.43 0.92
0.60 0.35
------- ------- -------
- ------- ------
Less Distributions:
Distributions from net investment income (0.61) (0.62) (0.62)
(0.64) (0.23)
Net Asset Value, End of Period $ 9.12 $ 9.83 $ 10.02 $
9.72 $ 9.76
Total Return/3/ (1.11%) 4.35% 9.86%
6.40% 3.72%
Ratios to Average Net Assets:
Expenses/4/ 1.97% 1.95% 2.00%
2.05% 2.11%/5/
Net investment income/4/ 6.16% 5.99% 6.35%
6.50% 7.01%/5/
Expenses (after waivers) 1.86% 1.85% 1.85%
1.85% 1.81%/5/
Net investment income (after waivers) 6.27% 6.09% 6.50%
6.70% 7.31%/5/
Supplemental Data:
Net assets, end of period (000 omitted) $92,875 $76,645 $39,398
$22,897 $5,508
Portfolio turnover 30% 20% 55%
49% 77%
</TABLE>
/1/ For the year ended October 31, 1999, the Fund was audited by Deloitte &
Touche LLP. Each of the previous years was audited by other auditors.
/2/ Reflects operations for the period from June 28, 1995 (date of initial
public investment) to October 31, 1995.
/3/ Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
/4/ During the period, certain fees were voluntarily waived. If such voluntary
waivers had not occurred, the ratios would have been as indicated.
/5/ Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class F Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
Year Ended October 31 1999/1/ 1998 1997
1996 1995
<S> <C> <C> <C>
<C> <C>
Net Asset Value, Beginning of Period $ 9.83 $ 10.02 $ 9.72 $
9.76 $ 9.08
Income From Investment Operations:
Net investment income 0.67 0.69 0.72
0.71 0.79
Net realized and unrealized gain (loss) (0.70) (0.18) 0.28
(0.04) 0.65
on investments
-------- -------- --------
- -------- --------
TOTAL FROM INVESTMENT OPERATIONS (0.03) 0.51 1.00
0.67 1.44
-------- -------- --------
- -------- --------
Less Distributions:
Distributions from net investment income (0.68) (0.70) (0.70)
(0.71) (0.76)
Net Asset Value, End of Period $ 9.12 $ 9.83 $ 10.02 $
9.72 $ 9.76
Total Return/2/ (0.35%) 5.12% 10.70%
7.18% 16.51%
Ratios to Average Net Assets:
Expenses/3/ 1.22% 1.20% 1.25%
1.30% 1.34%
Net investment income/3/ 6.89% 6.74% 7.10%
7.16% 7.89%
Expenses (after waivers) 1.09% 1.08% 1.08%
1.08% 1.03%
Net investment income (after waivers) 7.02% 6.86% 7.27%
7.38% 8.20%
Supplemental Data:
Net assets, end of period (000 omitted) $375,902 $393,905 $325,531
$267,720 $195,502
Portfolio turnover 30% 20% 55%
49% 77%
</TABLE>
/1/ For the year ended October 31, 1999, the Fund was audited by Deloitte &
Touche LLP. Each of the previous years was audited by other auditors.
/2/ Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
/3/ During the period, certain fees were voluntarily waived. If such voluntary
waivers had not occurred, the ratios would have been as indicated.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
OCTOBER 31, 1999
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.
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 60 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 litigation
income. The following reclassifications have been made to the financial
statements.
<TABLE>
<CAPTION>
Increase (Decrease)
Accumulated Undistributed
Net Realized Net Investment
Paid-In Capital Gain (Loss) Income
<S> <C> <C>
$143,152 $(129,428) $(13,724)
</TABLE>
Net investment income, net realized gains/losses, and net assets were not
affected by this reclassification.
Federal Taxes
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provision for federal tax is
necessary.
At October 31, 1999, the Fund, for federal tax purposes, had a capital loss
carryforward of $12, 318,
509, which will reduce the Fund's taxable income arising from future net
realized gain on investments, if any, to the extent permitted by the Code, and
thus will reduce the amount of the distributions to shareholders which would
otherwise be necessary to relieve the Fund of any liability for federal tax.
Pursuant to the Code, such capital loss carryforward will expire as follows:
<TABLE>
<CAPTION>
Expiration Year Expiration Amount
<S> <C>
2002 $2,641,549
2003 430,964
2004 106,973
2005 434,628
2007 8,704,395
</TABLE>
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 the restricted security held at October 31, 1999 is as
follows:
<TABLE>
<CAPTION>
Security Acquisition Acquisition
Date Cost
<S> <C> <C>
SMFC Trust Asset-Backed 2/4/98 $2,163,580
Certificates
</TABLE>
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
Other
Investment transactions are accounted for on the trade date.
Capital Stock
At October 31, 1999, par value shares ($ 0.001 per share) authorized were as
follows:
<TABLE>
<CAPTION>
Class Name Number of Par
Value Capital
Stock
Authorized
<S> <C>
Class A Shares 25,000,000
Class B Shares 25,000,000
Class C Shares 25,000,000
Class F Shares 525,000,000
Unclassified 400,000,000
-------------
TOTAL 1,000,000,000
-------------
</TABLE>
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Year Ended October 31 1999 1998
Class A Shares Shares Amount
Shares Amount
<S> <C> <C> <C> <C>
Shares sold 13,182,591 $ 126,880,404 19,595,096
$ 197,221,690
Shares issued to shareholders in payment of 1,325,379 12,622,148
776,367 7,782,888
distributions declared
Shares redeemed (8,626,243) (82,332,308) (10,021,537)
(100,802,326)
NET CHANGE RESULTING FROM CLASS A SHARE 5,881,727 $ 57,170,244 10,349,926
$ 104,202,252
TRANSACTIONS
<CAPTION>
Year Ended October 31 1999 1998
Class B Shares Shares Amount
Shares Amount
<S> <C> <C> <C> <C>
Shares sold 13,265,666 $ 128,293,705 14,243,376
$ 143,240,209
Shares issued to shareholders in payment of 1,384,268 13,197,680
877,230 8,800,059
distributions declared
Share redeemed (7,560,342) (72,115,989)
(3,518,193) (35,411,250)
NET CHANGE RESULTING FROM CLASS B SHARE 7,089,592 $ 69,375,396 11,602,413
$ 116,629,018
TRANSACTIONS
<CAPTION>
Year Ended October 31 1999 1998
Class C Shares Shares Amount Shares
Amount
<S> <C> <C> <C> <C>
Shares sold 4,743,310 $ 45,903,470 4,651,816
$ 46,838,466
Shares issued to shareholders in payment of 414,127 3,945,605
239,280 2,400,749
distributions declared
Shares redeemed (2,765,261) (26,366,033)
(1,026,844) (10,323,405)
NET CHANGE RESULTING FROM CLASS C SHARE 2,392,176 $ 23,483,042 3,864,252
$ 38,915,810
TRANSACTIONS
<CAPTION>
Year Ended October 31 1999 1998
Class F Shares Shares Amount Shares
Amount
<S> <C> <C> <C> <C>
Shares sold 10,710,348 $ 103,340,338 16,425,062
$ 165,385,023
Shares issued to shareholders in payment of 1,441,386 13,758,702
1,108,796 11,122,031
distributions declared
Shares redeemed (11,014,256) (105,742,821) (9,968,205)
(100,410,972)
NET CHANGE RESULTING FROM CLASS F SHARE 1,137,478 $ 11,356,219 7,565,653
$ 76,096,082
TRANSACTIONS
NET CHANGE RESULTING FROM SHARE TRANSACTIONS 16,500,973 $ 161,384,901 33,382,244
$ 335,843,162
</TABLE>
Investment Advisory Fee and Other Transactions with Affiliates
Investment Advisory Fee
Federated Investment Management Company (the "Adviser"), the Fund's investment
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.
<TABLE>
<CAPTION>
Share Class Name Percentage of Average Daily
Net Assets of Class
<S> <C>
Class A Shares 0.25%
Class B Shares 0.75%
Class C Shares 0.75%
</TABLE>
For the year ended October 31, 1999, 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.
Interfund Transactions
For the year ended October 31, 1999, the Fund engaged in purchase and sale
transactions with funds that have a common investment adviser (or affilited
investment advisers), common Directors/Trustees, and/or common Officers. These
purchase and sale transactions were made at current market value pursuant to
Rule 17a-7 under the Act and amounted to $145,450,895 and $34,188,826,
respectively.
General
Certain of the Officers and Directors of the Corporation are Officers and
Directors or Trustees of the above companies.
Investment Transactions
Purchases and sales of investments, excluding short-term securities, for the
year ended October 31, 1999, were as follows:
<TABLE>
<S> <C>
Purchases $497,699,422
Sales $318,537,335
</TABLE>
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.
Change of Independent Auditors (unaudited)
On May 19, 1999, the Fund's Directors, upon the recommendation of its Audit
Committee, requested and subsequently accepted the resignation of Ernst & Young
LLP ("E&Y") as the Fund's independent auditors. E&Y's reports on the Fund's
financial statements for the fiscal years ended October 31, 1997 and October 31,
1998 contained no adverse opinion or disclaimer of opinion, nor were they
qualified or modified as to uncertainty, audit scope or accounting principles.
During the Fund's fiscal years ended October 31, 1997 and October 31, 1998, (i)
there were no disagreements with E&Y on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of E&Y, would have caused it
to make reference to the subject matter of the disagreements in connection with
its reports on the financial statements for such years; and (ii) there were no
reportable events of the kind described in Item 304(a)(1)(v) of Regulation S-K
under the Securities Exchange Act of 1934, as amended.
The Fund, by action of its Directors, upon the recommendation of the Audit
Committee, has engaged Deloitte & Touche LLP ("D&T") as the independent auditors
to audit the Fund's financial statements for the fiscal year ended October 31,
1999. During the Fund's fiscal years ended October 31, 1997 and October 31,
1998, neither the Fund nor anyone on its behalf has consulted D&T on items which
(i) concerned the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion that
might be rendered on the Fund's financial statements, or (ii) concerned the
subject of a disagreement (as defined in paragraph (a)(1)(iv) of Item 304 of
Regulation S-K) of reportable events (as described in paragraph (a)(1)(v) of
said Item 304).
Independent Auditors' Report
TO THE DIRECTORS OF INVESTMENT SERIES FUND, INC.
AND THE SHAREHOLDERS OF FEDERATED BOND FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Federated Bond Fund (the "Fund") as of October
31, 1999, and the related statement of operations, statement of changes in net
assets and the financial highlights for the year then ended. 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 audit. The statement of changes
in net assets for the year ended October 31, 1998, and the financial highlights
for each of the four years in the period ended October 31, 1998 were audited by
other auditors whose report dated December 21, 1998, expressed an unqualified
opinion on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to provide 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 at October 31, 1999, by
correspondence with the custodian and brokers; where replies were not received
from brokers, we performed other auditing procedures. 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 our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Federated Bond Fund
as of October 31, 1999, the results of its operations, the changes in its net
assets and its financial highlights for the year then ended in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
December 17, 1999
Directors
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
Nicholas P. Constantakis
John F. Cunningham
J. Christopher Donahue
Lawrence D. Ellis, M.D.
Peter E. Madden
Charles F. Mansfield, Jr.
John E. Murray, Jr., J.D., S.J.D.
Marjorie P. Smuts
John S. Walsh
Officers
John F. Donahue
Chairman
J. Christopher Donahue
President
William D. Dawson III
Chief Investment Officer
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President and Secretary
Richard B. Fisher
Vice President
Richard J. Thomas
Treasurer
C. Grant Anderson
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 prospectuses which contains facts
concerning its objective and policies, management fees, expenses, and other
information.
ANNUAL REPORT (AS OF OCTOBER 31, 1999)
[LOGO OF FEDERATED]
World-Class Investment Manager(SM)
Federated Bond Fund
Established 1987
13th ANNUAL REPORT
[LOGO OF FEDERATED]
Federated Bond Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
www.federatedinvestors.com
Federated Securities Corp., Distributor
Cusip 461444507
Cusip 461444606
Cusip 461444705
Cusip 461444309
G01452-02 (12/99)
Federated is a registered mark
of Federated Investors, Inc.
1999 (C)Federated Investors, Inc.
Appendix A. 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 10/31/99. The "y" axis is measured in increments of $8,000 ranging from $0 to
$40,000 and indicates that the ending value of a hypothetical initial investment
of $13,000 in the fund's Class F Shares, assuming the reinvestment of capital
gains and dividends, would have grown to $36,482 on 10/31/99.
Appendix B. 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 10/31/99. The "y" axis is measured in increments of $6,250 ranging from $0 to
$25,000 and indicates that the ending value of a hypothetical initial investment
of $1,000 and subsequent yearly investments of $1,000 over 12 years in the
fund's Class F Shares, assuming the reinvestment of capital gains and dividends,
would have grown to $22,653 on 10/31/99.
Appendix C. 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 10/31/89
to 10/31/99. The "y" axis is measured in increments of $12,500 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, assuming the reinvestment of
capital gains and dividends, would have grown to $48,119 on 10/31/99.
Appendix D. The graphic presentation here displayed consists of a line graph.
The corresponding components of the line graph are listed above it. The Class A
Shares of the 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 10/31/99. The "y" axis reflects the cost of
the investment in increments of $1,000 ranging from $9,000 to $14,000. 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 $12,344, $13,060 and $12,668, respectively. The
legend in the narrative above the graphic presentation indicates the fund's
Class A Shares Average Annual Total Returns for the one-year period ended
10/31/99 and from the fund's start of performance (6/28/95) to 10/31/99. The
total returns were (4.81%) and 4.98%, respectively.
Appendix E. The graphic presentation here displayed consists of a line graph.
The corresponding components of the line graph are listed above it. The Class B
Shares of the 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 B Shares of the fund,
the LBCBI and the LCDBBB. The "x" axis reflects computation periods from 6/28/95
to 10/31/99. The "y" axis reflects the cost of the investment in increments of
$1,000 ranging from $9,000 to $14,000. The right margin reflects the ending
value of the hypothetical investment in the fund's Class B Shares as compared to
the LBCBI and the LCDBBB. The ending values were $12,310, $13,060 and $12,668,
respectively. The legend in the narrative above the graphic presentation
indicates the fund's Class B Shares Average Annual Total Returns for the
one-year period ended 10/31/99 and from the fund's start of performance
(6/28/95) to 10/31/99. The total returns were (6.21%) and 4.92%, respectively.
Appendix F. The graphic presentation here displayed consists of a line graph.
The corresponding components of the line graph are listed above it. The Class C
Shares of the 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 10/31/99. The "y" axis reflects the cost of the investment in increments of
$1,000 ranging from $9,000 to $14,000. 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 $12,511, $13,060 and $12,668,
respectively. The legend in the narrative above the graphic presentation
indicates the fund's Class C Shares Average Annual Total Returns for the
one-year period ended 10/31/99 and from the fund's start of performance
(6/28/95) to 10/31/99. The total returns were (2.04%) and 5.29%, respectively.
Appendix G. The graphic presentation here displayed consists of a line graph.
The corresponding components of the line graph are listed above it. The Class F
Shares of the fund, based on a 1.00% 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
F Shares of the fund, the LBCBI and the LCDBBB. The "x" axis reflects
computation periods from 10/31/89 to 10/31/99. The "y" axis reflects the cost of
the investment in increments of $6,000 ranging from $8,000 to $26,000. The right
margin reflects the ending value of the hypothetical investment in the fund's
Class F Shares, based on a 1.00% sales charge, as compared to the LBCBI and the
LCDBBB. The ending values were $24,054, $22,259 and $20,680, respectively. The
legend in the narrative above the graphic presentation indicates the fund's
Class F Shares Average Annual Total Returns for the one-year, five-year and
ten-year periods ended 10/31/99 and from the fund's start of performance
(5/20/87) to 10/31/99. The total returns were (2.28%), 7.47%, 9.18% and 8.64%,
respectively.
