[Graphic]
J. Christopher Donahue
President
Federated Bond Fund
President's Message
Dear Shareholder:
Federated Bond Fund was created in 1987, and I am pleased to present its 12th
Semi-Annual Report. As of April 30, 1999, this $1.1 billion fund held 130
corporate bonds and over 50% of these issues were rated A or better. The fund is
attractive to investors desiring generous monthly income. The fund's asset
growth is evidence of investors acceptance of the long-term performance and
income records. Since the fund's inception in 1987, the fund's net asset value
has been relatively stable and dividend income has been generous.
This report covers the first half of the fund's fiscal year which is the
six-month period from November 1, 1998 through April 30, 1999. It begins with an
interview with the fund's portfolio manager, Joseph Balestrino, Senior Vice
President of Federated Investment Management Company. Following his discus sion,
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.
In a highly volatile interest rate environment, Federated Bond Fund continued to
produce a strong income stream and competitive total return performance as
compared to its peer group, the Lipper Corporate BBB-Rated Bond Funds Aver age.
1 Individual share class total return performance for the six-month reporting
period, including capital appreciation and income distributions, follows.2
<TABLE>
<CAPTION>
TOTAL RETURN INCOME NET ASSET VALUE CHANGE <S> <C> <C> <C>
Class A Shares 2.27% $0.34 $9.82 to $9.70 = (1%) Class B Shares 1.78% $0.31
$9.83 to $9.70 = (1%) Class C Shares 1.89% $0.31 $9.83 to $9.71 = (1%) Class F
Shares 2.27% $0.34 $9.83 to $9.71 = (1%)
</TABLE>
1 Lipper figures represent the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as fall ing into
the category indicated. Lipper returns do not take sales charges into account.
2 Performance quoted is based on net asset value, represents 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 (2.30%), (3.65%), 0.90%, and 0.26%, respec tively.
The fund's portfolio of corporate bonds reflected an emphasis on diversifica
tion and quality. On April 30, 1999, the fund's $1.1 billion portfolio was
comprised of more than 170 individual bond issues. The majority of the fund's
assets were invested in investment-grade bonds. Approximately 24% of the fund's
assets were invested in high-yield bonds, which, as Joseph notes, pro vided
above-average income distributions for shareholders and enhanced price
appreciation in this favorable economic climate. 3 The fund's average dura tion
was 6.1 years as of April 30, 1999.
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 addi tional fund
shares.
As always, we welcome your comments, questions and suggestions.
Sincerely,
[Graphic]
J. Christopher Donahue
President
June 15, 1999
3 Lower rated bonds involve a higher degree of risk than investment-grade bonds
in return for higher yield potential.
[Graphic]
Joseph Balestrino
Senior Vice President
Federated Investment Management Company
Investment Review
WHAT ARE YOUR COMMENTS ON THE BOND MARKET DURING THE FIRST HALF OF THE FUND'S
FISCAL YEAR, WHICH SAW RATES RISE AS INVESTORS' "FLIGHT TO QUALITY" SUBSIDED?
The bond market completely reversed course over the six-month period ended April
30, 1999. The global financial crises from July 1998 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
seen in many years.
Over the past six months, however, there was much improvement in global eco
nomic conditions and associated stock market levels, certainly due in part to
over 100 instances of central banks reducing interest rates and increasing
global liquidity. In this more recent environment, domestic interest rates rose,
and the higher yielding bond sectors (emerging markets, corporate bonds and
mortgage-backed securities) outperformed pure U.S. Treasuries. Total returns in
most high-quality bond sectors were slightly positive as a portion of the earned
income was offset by price declines due to higher interest rates.
HOW DID THE CORPORATE BOND MARKETS, HIGH-QUALITY AS WELL AS HIGH-YIELD, PER FORM
OVER THE SIX-MONTH REPORTING PERIOD?
The answer ranges from relatively well for high-quality corporate bonds ver sus
Treasuries to exceedingly well for the lower quality high-yield market. The
high-quality corporate bond market generated returns in excess of Trea sury
securities as investor confidence returned to the global marketplace. However,
the return was muted due to the higher interest rate impact creating price
declines. The high-yield bond market, on the other hand, delivered strong
positive returns due to a closer correlation with both gen eral economic
activity and stock market trends. Thus, high-quality corporate bonds experienced
income along with smaller price declines, while high-yield corporate bonds
experienced higher income flow and price appreciation.
DURING THE SIX-MONTH REPORTING PERIOD, HOW DID THE FUND'S TOTAL RETURNS MEA SURE
UP AGAINST ITS PEERS?
For the six-month reporting period ended April 30, 1999, the fund's Class A, B,
C, and F Shares produced total returns of 2.27%, 1.78%, 1.89%, and 2.27%,
respectively, based on net asset value. 1 These returns were competitive with
the 2.13% total return of the average corporate bond fund as measured by the
Lipper Corporate BBB- Rated Bond Funds Average.
DID YOU MAKE ANY ADJUSTMENTS TO THE FUND'S PORTFOLIO IN TERMS OF DURATION AND
QUALITY?
During the six-month reporting period, the overall portfolio maintained its
duration target but has continually increased its allocation to the high-yield
bond market since the third quarter of 1998. Federated Bond Fund's average
duration as of April 30, 1999 was 6.1 years. Fund management had con cluded that
global financial crises took high-yield bond levels below the point of
fundamental value, and thus, we have been adding to this sector steadily. As a
result, fund shareholders were able to participate more directly in the
appreciation of the high-yield bond market, while still own ing an overall
higher quality bond portfolio. On April 30, 1999, 23.8% of the fund's total
assets were invested in high-yield securities, as opposed to 20.5% six months
earlier.
INCOME IS AN IMPORTANT CONSIDERATION TO MANY SHAREHOLDERS. WHAT WERE THE
FUND'S YIELDS ON APRIL 30, 1999?
On April 30, 1999, the fund's daily distribution rate, 2 based on net asset
value, was 7.05% for Class A Shares compared to the 10-year Treasury rate, which
was 5.34% on that same day. The fund's daily distribution rates for Class B, C,
and F Shares were 6.31%, 6.30%, and 7.04%, respectively, based on net asset
value. The fund's 30-day SEC yields on April 30, 1999 for Class A, B, C, and F
Shares were 6.82%, 6.01%, 6.00%, and 6.79%, respectively.3
1 Performance quoted is based on net asset value, represents 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 charges), for Class A, B, C, and F Shares
were (2.30%), (3.65%), 0.90%, and 0.26%, respectively.
2 The 30-day distribution rate reflects actual distributions made to share
holders. It is calculated by dividing the monthly annualized dividend plus
short-term capital gains, if any, by the average 30-day offering price. The
daily distribution rates based on offering price (i.e., less any applicable
sales charges), for Class A Shares and Class F Shares were 6.73% and 6.97%,
respectively.
3 The 30-day SEC yield is calculated by dividing the investment income per share
for the prior 30 days by the maximum offering price per share on that date. The
figure is compounded and annualized. The fund's 30-day SEC yields for Class A
Shares and Class F Shares were 6.82% and 6.79%, respectively.
WHAT WERE THE FUND'S TOP TEN HOLDINGS AS OF APRIL 30, 1999, AND HOW WERE THE
FUND'S ASSETS ALLOCATED ACCORDING TO BOND QUALITY?
<TABLE>
<CAPTION>
PERCENTAGE OF
NAME/COUPON/MATURITY NET ASSETS
<S> <C>
U.S. Treasury Bond, 8.00%
due 11/15/2021 1.59%
Figgie International
Holdings Inc., Sr. Note,
9.875% due 10/01/1999 1.54%
U.S. Treasury Bond,
11.625% due 11/15/2004 1.50%
U.S. Treasury Bond, 8.50%
due 02/15/2020 1.30%
Anixter International,
Inc., 8.00% due 09/15/2003 1.13%
Shopko Stores, Sr. Note,
9.25% due 3/15/2022 1.11%
Trans Ocean Container
Corp., Sr. Sub. Note,
12.25% due 7/1/2004 1.08%
TKR Cable Inc., Deb.,
10.50% due 10/30/2007 1.06%
Dell Computer Corp., Deb.,
7.10% due 04/15/2028 1.02%
Continental Cablevision,
Sr. Deb., 9.50% due
8/1/2013 0.98%
TOTAL 12.31%
<CAPTION>
PERCENTAGE OF
NET ASSETS
<S> <C>
AAA 17.34%
AA 4.40%
A 22.86%
BBB 29.97%
BB 9.59%
B 15.84%
</TABLE>
AS WE REACH THE MID-POINT OF 1999, WHAT IS YOUR OUTLOOK FOR THE BOND MARKET?
Over the past year, the bond market has been subject to relatively large val
uation changes, as the global economic marketplace has swung from regional
recessions and currency disruptions to activity rebounds and stock market
appreciation. Domestic interest rates have increased thus far in calendar year
1999, as the domestic economy has surpassed most market expectations. The
combination of a stronger economy fueled by continued consumer spending and
higher rates now seems more in balance. Thus, a neutral position on the bond
market seems appropriate given that neither a recession nor an infla tionary
boom appears likely over the near term. As such, the fund's portfolio will look
to add incremental value through security and sector selection, as opposed to
interest rate anticipation strategies.
Two Ways You May Seek to Invest for Success:
INITIAL INVESTMENT:
IF YOU HAD MADE AN INITIAL INVESTMENT OF $12,000 IN THE CLASS F SHARES OF
FEDERATED BOND FUND ON 5/20/87, REINVESTED YOUR DIVIDENDS AND CAPITAL GAINS, AND
DID NOT REDEEM ANY SHARES, YOUR ACCOUNT WOULD HAVE BEEN WORTH $34,563 ON
4/30/99. YOU WOULD HAVE EARNED A 9.26% 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 3/31/99, Class A Shares' 1-year and since inception (6/28/95) average
annual total returns were (1.34%) and 6.31%, respectively. Class B Shares' 1-
year and since inception (6/28/95) average annual total returns were (2.81%) and
6.13%, respectively. Class C Shares' 1-year and since inception (6/28/95)
average annual total returns were 1.53% and 6.83%, respectively. Class F Shares'
1-year, 5-year, and 10-year average annual total returns were 1.30%, 7.86%, and
9.48%, respectively. 2
[Graphic A1 omitted. See Appendix]
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 that 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;
1.00% sales charge and 1.00% contingent deferred sales charge for Class F
Shares.
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 $22,247.
With this approach, the key is consistency.
If you had started investing $1,000 annually in the Class F Shares of Feder ated
Bond Fund on 5/20/87, 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 $22,247 1 by 4/30/99. You would have earned an
average annual total return of 9.30%.
A practical investment plan helps you pursue a high level of income through
corporate bonds. Through systematic investing, you buy shares on a regular basis
and reinvest all earnings. An investment plan works for you when you invest only
$1,000 annually. You can take it one step at a time. Put time, money, and
compounding to work.
[Graphic A2 omitted. See Appendix]
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 other sharehold ers,
look for high monthly income opportunities.
John is an attorney in his late forties with an established client base. Joan is
a school teacher. On April 30, 1989, the Wickers invested $20,000 in the Class F
Shares of Federated Bond Fund.
As this chart shows, their original $20,000 investment has grown to $50,050.
This represents a 9.61% average annual total return. For John and Joan, that
means extra money to supplement their daughter's college tuition.
[Graphic A3 omitted. See Appendix]
This hypothetical scenario is provided for illustrative purposes only and
does not represent the result obtained by any particular shareholder. Past
performance does not guarantee future results.
Portfolio of Investments
APRIL 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS-61.6%
AEROSPACE & DEFENSE-0.8%
$ 2,250,000 McDonnell-Douglas Corp.,
Note, 9.40%, 10/15/2001 $ 2,287,800
5,750,000 Raytheon Co., 6.15%,
11/1/2008 5,645,120
1,300,000 Raytheon Co., 7.00%,
11/1/2028 1,304,407
TOTAL 9,237,327
AIR TRANSPORTATION-0.2%
1,995,000 Southwest Airlines Co.,
Deb., 7.375%, 3/1/2027 2,055,349
AUTOMOBILE-2.0%
8,275,000 Arvin Industries, Inc.,
9.50%, 2/1/2027 8,784,243
7,000,000 Dana Corp., Note, 7.00%,
3/15/2028 6,754,860
7,000,000 Hertz Corp., Sr. Note,
7.00%, 1/15/2028 6,820,520
TOTAL 22,359,623
AUTOMOTIVE-1.5%
4,200,000 Dana Corp., Note, 6.25%,
3/1/2004 4,205,418
2,000,000 Dana Corp., Note, 7.00%,
3/1/2029 1,929,220
2,000,000 General Motors Corp.,
Note, 9.45%, 11/1/2011 2,491,500
8,000,000 Meritor Automotive, Inc.,
Note, 6.80%, 2/15/2009 7,931,816
TOTAL 16,557,954
BANKING-6.7%
4,750,000 ABN-AMRO Bank NV, Chicago,
Sub. Deb., 7.30%,
12/1/2026 4,556,675
5,250,000 Banco Santander SA, Bank
Guarantee, 7.875%,
4/15/2005 5,602,380
2,500,000 Banco Santander SA, Sub.
Note, 7.25%, 11/1/2015 2,519,900
6,000,000 Barclays North America,
Deb., 9.75%, 5/15/2021 6,693,540
5,675,000 City National Bank, Sub.
Note, 6.375%, 1/15/2008 5,572,509
2,750,000 Crestar Financial Corp.,
Sub. Note, 8.75%,
11/15/2004 3,086,270
3,800,000 1, 2 Den Danske Bank Group,
Note, 7.40%, 6/15/2010 3,937,826
1,400,000 1, 2 Den Danske Bank Group, Sub.
Note, 7.25%, 6/15/2005 1,459,654
5,740,000 FirstBank Puerto Rico,
Sub. Note, 7.625%,
12/20/2005 5,649,021
10,000,000 Merita Bank PLC, Sub. Note,
6.50%, 4/1/2009 9,899,850
6,000,000 National Australia Bank,
Ltd., Melbourne, Sub.
Note, Series B, 6.60%,
12/10/2007 6,039,960
8,150,000 National Bank of Canada,
Montreal, Sub. Note,
8.125%, 8/15/2004 8,583,743
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS-continued
BANKING-CONTINUED
$ 6,300,000 Republic New York Corp.,
Sub. Note, 7.75%,
5/15/2009 $ 6,853,518
3,800,000 1, 2 Swedbank, Sub., 7.50%,
11/29/2049 3,778,329
TOTAL 74,233,175
BEVERAGE & TOBACCO-0.9%
650,000 Anheuser-Busch Cos., Inc.,
Sr. Note, 7.10%, 6/15/2007 674,394
8,250,000 Philip Morris Cos., Inc.,
Deb., 7.75%, 1/15/2027 8,745,990
TOTAL 9,420,384
CABLE TELEVISION-3.0%
4,500,000 CF Cable TV, Inc., Note,
9.125%, 7/15/2007 4,840,335
4,500,000 Comcast Corp., Note,
8.50%, 5/1/2027 5,345,055
9,090,000 Continental Cablevision,
Sr. Deb., 9.50%, 8/1/2013 10,837,189
10,835,000 TKR Cable, Inc., Deb.,
10.50%, 10/30/2007 11,705,376
TOTAL 32,727,955
ECOLOGICAL SERVICES &
EQUIPMENT-1.5%
7,750,000 USA Waste Services, Inc.,
Sr. Note, 7.125%,
10/1/2007 8,060,620
8,210,000 WMX Technologies, Inc.,
Deb., 8.75%, 5/1/2018 9,012,938
TOTAL 17,073,558
EDUCATION-1.3%
10,100,000 Boston University, 7.625%,
7/15/2097 10,583,285
3,000,000 Harvard University,
Revenue Bonds, 8.125%,
4/15/2007 3,370,350
TOTAL 13,953,635
ELECTRONICS-1.5%
11,950,000 Anixter International,
Inc., Company Guarantee,
8.00%, 9/15/2003 12,415,333
4,165,000 Harris Corp., Deb.,
10.375%, 12/1/2018 4,400,281
TOTAL 16,815,614
FINANCE - AUTOMOTIVE-0.1%
385,000 Ford Motor Credit Corp.,
Note, 7.00%, 9/25/2001 396,003
300,000 Ford Motor Credit Corp.,
Note, 7.57%, 5/16/2005 305,385
700,000 General Motors Acceptance
Corp., Note, 6.75%,
6/10/2002 716,821
TOTAL 1,418,209
FINANCIAL INTERMEDIARIES-4.0%
6,000,000 1, 2 Amvescap PLC, Sr. Note,
6.60%, 5/15/2005 5,917,740
7,150,000 Donaldson, Lufkin and
Jenrette Securities Corp.,
Note, 6.875%, 11/1/2005 7,301,723
8,296,000 Green Tree Financial
Corp., Sr. Sub. Note,
10.25%, 6/1/2002 8,879,458
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS-continued
FINANCIAL INTERMEDIARIES-
CONTINUED
$ 6,000,000 Lehman Brothers Holdings,
Inc., Note, 6.625%,
2/5/2006 $ 5,949,240
7,325,000 Lehman Brothers, Inc., Sr.
Sub. Note, 7.375%,
1/15/2007 7,509,443
425,000 Merrill Lynch & Co., Inc.,
Sr. Note, 7.15%, 7/30/2012 425,633
4,250,000 Merrill Lynch & Co., Inc.,
Sr. Unsub., 6.00%,
2/17/2009 4,104,097
3,612,672 1, 2 World Financial, Pass Thru
Cert., Series 96 WFP-B,
6.91%, 9/1/2013 3,632,343
TOTAL 43,719,677
FOOD & DRUG RETAILERS-0.0%
25,000 McDonald's Corp., Note,
6.75%, 2/15/2003 25,286
550,000 McDonald's Corp., Note,
7.375%, 7/15/2002 552,810
TOTAL 578,096
FOREST PRODUCTS-2.0%
6,000,000 Donohue Forest Products,
7.625%, 5/15/2007 6,273,720
3,800,000 Fort James Corp., Sr. Note,
6.234%, 3/15/2001 3,826,220
2,850,000 Pope & Talbot, Inc.,
8.375%, 6/1/2013 2,624,935
8,850,000 Quno Corp., Sr. Note,
9.125%, 5/15/2005 9,438,613
TOTAL 22,163,488
HEALTHCARE-0.6%
300,000 Columbia/HCA Healthcare
Corp., Note, 6.87%,
9/15/2003 285,756
3,200,000 Tenet Healthcare Corp.,
Sr. Note, 8.00%, 1/15/2005 3,240,000
3,000,000 1, 2 Tenet Healthcare Corp.,
Sr. Sub., 8.125%,
12/1/2008 2,985,000
TOTAL 6,510,756
INDUSTRIAL PRODUCTS &
EQUIPMENT-2.2%
16,722,000 Figgie International
Holdings, Inc., Sr. Note,
9.875%, 10/1/1999 16,955,272
7,095,000 Southdown, Inc., Sr. Sub.
Note, 10.00%, 3/1/2006 7,900,282
TOTAL 24,855,554
INSURANCE-7.7%
6,000,000 Allmerica Financial Corp.,
Sr. Note, 7.625%,
10/15/2025 6,210,960
450,000 American General Corp.,
Note, 7.75%, 4/1/2005 482,989
8,000,000 CNA Financial Corp., Bond,
6.95%, 1/15/2018 7,547,600
5,800,000 Conseco, Inc., Note,
6.40%, 2/10/2003 5,666,020
7,025,000 Conseco, Inc., Sr. Note,
10.50%, 12/15/2004 8,017,703
2,950,000 Delphi Financial Group,
Inc., 9.31%, 3/25/2027 2,802,146
10,350,000 Delphi Financial Group,
Inc., Note, 8.00%,
10/1/2003 10,562,278
3,460,000 GEICO Corp., Deb., 9.15%,
9/15/2021 3,846,586
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS-continued
INSURANCE-CONTINUED
$ 7,800,000 1, 2 Life Re Capital Trust I,
Company Guarantee, 8.72%,
6/15/2027 $ 8,403,564
25,000 Progressive Corp., OH,
Unsecured Note, 7.30%,
6/1/2006 26,186
3,300,000 Provident Cos., Inc.,
Bond, 7.405%, 3/15/2038 3,171,333
6,500,000 1, 2 Reinsurance Group of
America, Sr. Note, 7.25%,
4/1/2006 6,800,274
925,000 SAFECO Corp., Note,
7.875%, 4/1/2005 972,610
3,000,000 SunAmerica, Inc., Deb.,
8.125%, 4/28/2023 3,453,840
1,000,000 SunAmerica, Inc., Medium
Term Note, 7.34%,
8/30/2005 1,066,540
1,500,000 SunAmerica, Inc., Sr.
Note, 6.20%, 10/31/1999 1,507,260
525,000 Transamerica Corp., Note,
6.75%, 11/15/2006 532,875
1,000,000 1, 2 USF&G Corp., 8.312%,
7/1/2046 1,073,800
5,750,000 USF&G Corp., Company
Guarantee, 8.47%,
1/10/2027 6,001,448
6,000,000 1, 2 Union Central Life
Insurance Co., Note,
8.20%, 11/1/2026 6,432,840
TOTAL 84,578,852
LEISURE & ENTERTAINMENT-0.9%
9,150,000 Paramount Communications,
Inc., Sr. Deb., 8.25%,
8/1/2022 9,639,891
MACHINERY & EQUIPMENT-0.7%
7,500,000 Continental Airlines,
Inc., Pass Thru Cert.,
Series 1997-4 B, 6.90%,
1/2/2017 7,536,825
METALS & MINING-4.2%
9,600,000 Barrick Gold Corp., Deb.,
7.50%, 5/1/2007 10,071,744
11,000,000 Inco Ltd., Note, 9.60%,
6/15/2022 10,762,180
8,850,000 1, 2 Normandy Finance Ltd.,
Company Guarantee, 7.50%,
7/15/2005 8,712,825
9,000,000 Placer Dome, Inc., Bond,
8.50%, 12/31/2045 8,988,984
7,375,000 Santa Fe Pacific Gold,
Note, 8.375%, 7/1/2005 7,446,759
TOTAL 45,982,492
OIL & GAS-2.9% 5,250,000 1, 2 Baker Hughes, Inc., Sr.
Note, 6.25%, 1/15/2009 5,167,575
125,000 Chevron Capital USA, Inc.,
Unsecd. Note, 7.45%,
8/15/2004 129,505
10,250,000 Husky Oil Ltd., Sr. Note,
7.125%, 11/15/2006 9,991,188
3,957,000 Occidental Petroleum
Corp., Note, 8.50%,
9/15/2004 3,997,084
8,750,000 Sun Co., Inc., 9.00%,
11/1/2024 9,998,450
2,500,000 Sun Co., Inc., Deb.,
9.375%, 6/1/2016 2,847,250
TOTAL 32,131,052
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS-continued
PRINTING & PUBLISHING-0.9%
$ 1,500,000 News America Holdings,
Inc., 10.125%, 10/15/2012 $ 1,732,815
3,000,000 News America Holdings,
Inc., Company Guarantee,
8.00%, 10/17/2016 3,227,880
4,850,000 News America Holdings,
Inc., Deb., 7.90%,
12/1/2095 5,044,000
TOTAL 10,004,695
REAL ESTATE-2.6%
8,250,000 Price REIT, Inc., Sr. Note,
7.50%, 11/5/2006 8,347,020
5,400,000 Simon Property Group,
Inc., Note, 7.125%,
2/9/2009 5,323,374
3,250,000 Storage USA, 8.20%,
6/1/2017 3,204,078
5,300,000 Storage USA, Deb., 7.50%,
12/1/2027 4,757,333
7,400,000 Sun Communities, Inc.,
Medium Term Note, 6.77%,
5/16/2005 7,098,080
TOTAL 28,729,885
RETAILERS-4.4%
5,000,000 Dayton-Hudson Corp., Deb.,
10.00%, 12/1/2000 5,331,800
10,870,000 Harcourt General, Inc.,
Sr. Deb., 7.20%, 8/1/2027 10,475,963
8,547,148 K Mart Corp., Pass Thru
Cert., 8.54%, 1/2/2015 8,958,778
5,600,000 May Department Stores Co.,
Deb., 8.125%, 8/15/2035 6,052,704
4,250,000 Safeway, Inc., Bond,
6.50%, 11/15/2008 4,264,833
1,650,000 Shopko Stores, Inc.,
8.50%, 3/15/2002 1,735,008
10,497,000 Shopko Stores, Inc., Sr.
Note, 9.25%, 3/15/2022 12,294,821
TOTAL 49,113,907
SOVEREIGN GOVERNMENT-2.1%
4,565,000 Colombia, Republic of,
Note, 7.25%, 2/15/2003 4,216,919
3,390,000 Quebec, Province of, Deb.,
9.125%, 8/22/2001 3,606,116
2,310,000 Quebec, Province of,
11.00%, 6/15/2015 2,538,182
3,500,000 Quebec, Province of, Deb.,
13.25%, 9/15/2014 3,757,005
4,300,000 South Africa, Government
of, Global Bond Deb.,
9.625%, 12/15/1999 4,349,794
3,500,000 Sweden, Kingdom of, Deb.,
10.25%, 11/1/2015 4,519,900
TOTAL 22,987,916
SURFACE TRANSPORTATION-1.1%
11,050,000 Trans Ocean Container
Corp., Sr. Sub. Note,
12.25%, 7/1/2004 11,889,358
TECHNOLOGY SERVICES-1.7%
2,030,000 Adaptec, Inc., Conv. Bond,
4.75%, 2/1/2004 1,707,352
11,237,000 Dell Computer Corp., Deb.,
7.10%, 4/15/2028 11,219,920
6,900,000 National Semiconductor
Corp., Conv. Bond, 6.50%,
10/1/2002 5,861,757
TOTAL 18,789,029
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS-continued
TELECOMMUNICATIONS &
CELLULAR-1.0%
$ 700,000 AT&T Corp., Unsecd. Note,
Series A, 8.20%, 2/15/2005 $ 713,454
3,450,000 BellSouth
Telecommunications, Inc.,
Deb., 7.625%, 5/15/2035 3,541,356
750,000 BellSouth
Telecommunications, Inc.,
Note, 6.00%, 6/15/2002 756,525
6,050,000 Lucent Technologies, Inc.,
Global Bond, 6.45%,
3/15/2029 5,845,510
TOTAL 10,856,845
UTILITIES-3.1%
55,000 Baltimore Gas & Electric
Co., 1st Ref. Mtg., 7.50%,
1/15/2007 59,331
25,000 Bell Atlantic Corp., Deb.,
7.375%, 10/15/2007 25,147
5,150,000 Enersis S.A., Note, 7.40%,
12/1/2016 4,830,906
5,500,000 1, 2 Israel Electric Corp.
Ltd., Sr. Note, 7.875%,
12/15/2026 5,236,880
3,400,000 1, 2 Israel Electric Corp.
Ltd., Sr. Secd. Note,
7.75%, 3/1/2009 3,491,276
900,000 National Rural Utilities
Cooperative Finance Corp.,
Collateral Trust, 5.50%,
1/15/2005 880,208
8,500,000 National Rural Utilities
Cooperative Finance Corp.,
Medium Term Note, 5.75%,
12/1/2008 8,221,965
5,795,000 Puget Sound Energy, Inc.,
Medium Term Note, 7.02%,
12/1/2027 5,821,251
6,500,000 1, 2 Tenaga Nasional Berhad,
Deb., 7.50%, 1/15/2096 5,213,390
TOTAL 33,780,354
TOTAL CORPORATE BONDS
(IDENTIFIED COST
$675,424,570) 679,701,455
GOVERNMENT AGENCIES-1.6%
7,500,000 Federal Farm Credit
System, Medium Term Note,
5.93%, 8/7/2008 7,462,950
5,000,000 Federal Home Loan Bank
System, Sr. Note, 5.80%,
9/2/2008 4,946,850
3,000,000 Federal Home Loan Mortgage
Corp., Deb., 8.29%,
9/30/2009 3,160,980
900,000 Federal National Mortgage
Association, 7.65%,
3/10/2005 983,970
175,000 Federal National Mortgage
Association, Note, 6.87%,
10/2/2001 178,766
700,000 Federal National Mortgage
Association, Note, 7.50%,
4/16/2007 728,280
805,000 Financial Assistance
Corp., 9.20%, 9/27/2005 845,073
TOTAL GOVERNMENT AGENCIES
(IDENTIFIED COST $18,617,318) 18,306,869
MUNICIPAL SECURITIES-3.7%
5,630,000 Atlanta & Fulton County, GA
Recreation Authority,
Taxable Revenue Bonds,
Series 1997, 7.00% Bonds
(Downtown Arena
Project)/(FSA INS),
12/1/2028 5,622,794
6,050,000 Kansas City, MO Redevelopment Authority, 7.65% Bonds (FSA
LOC),
11/1/2018 6,339,432
3,090,000 McKeesport, PA, Taxable GO
Series B 1997, 7.30% Bonds
(MBIA INS), 3/1/2020 3,117,532
<CAPTION>
PRINCIPAL
AMOUNT
OR SHARES VALUE
<C> <S> <C>
MUNICIPAL SECURITIES-continued
$ 3,000,000 Miami Florida Revenue
Pension Obligation, 7.20%
Bonds (AMBAC LOC),
12/1/2025 $ 2,978,970
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 5,425,306
4,675,000 Pittsburgh, PA Urban
Redevelopment Authority,
8.01% Bonds (Alcoa, Inc.),
6/1/2015 5,035,770
2,635,000 Pittsburgh, PA Urban
Redevelopment Authority,
9.07% Bonds (CGIC GTD),
9/1/2014 2,988,960
2,200,000 Southeastern, PA
Transportation Authority,
(Series B), 8.75% Bonds
(FGIC GTD), 3/1/2020 2,448,292
4,200,000 St. Johns County, FL
Convention Center, Taxable
Municipal Revenue Bonds,
8.00% Bonds (FSA INS),
1/1/2026 4,375,266
2,080,000 Tampa Florida Sports
Authority, 8.02% Bonds
(MBIA GTD), 10/1/2026 2,313,896
TOTAL MUNICIPAL
SECURITIES (IDENTIFIED
COST $39,192,223) 40,646,218
PREFERRED STOCKS-1.7%
REAL ESTATE-1.0%
8,000 Highwoods Properties,
Inc., REIT Perpetual Pfd.
Stock, Series A, $86.25 7,096,800
80,000 Prologis Trust, Cumulative
Pfd. 3,680,000
TOTAL 10,776,800
TECHNOLOGY SERVICES-0.7%
74,960 Microsoft Corp.,
Cumulative Conv. Pfd.,
Series A, $2.20 7,449,150
TELECOMMUNICATIONS &
CELLULAR-0.0%
23,658 AT&T Corp., Cumulative
Pfd., $2.43 652,074
3,872 AT&T Corp., Pfd. 101,156
TOTAL 753,230
TOTAL PREFERRED STOCKS
(IDENTIFIED COST
$19,682,906) 18,979,180
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 997,070
STRUCTURED PRODUCT (ABS)-1.2%
9,000,000 1, 2 125 Home Loan Owner Trust
1998-1A, Class B1, 9.26%,
2/15/2029 8,040,960
3,514,063 Green Tree Home Equity Loan
Trust 1999-A, Class B2A,
7.44%, 2/15/2029 3,514,063
562,948 Merrill Lynch Mortgage
Investment, Inc. 1988-H,
Class B, 9.70%, 6/15/2008 560,837
1,000,000 Residential Funding Corp.
1993-S26, Series 1993-S26,
Class A10, 7.50%,
7/25/2023 1,014,380
TOTAL 13,130,240
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
ASSET-BACKED SECURITIES-
continued
WHOLE LOAN-0.2%
$ 2,429,658 1 SMFC Trust Asset-Backed
Certificates, Series 1997-
A, Class 4, 7.7191%,
1/28/2025 $ 2,090,993
TOTAL ASSET-BACKED
SECURITIES (IDENTIFIED
COST $17,544,916) 16,218,303
U.S. TREASURY OBLIGATIONS-7.3%
U.S TREASURY BONDS-7.2%
4,900,000 United States Treasury
Bond, 5.25%, 2/15/2029 4,599,483
6,615,000 United States Treasury
Bond, 6.125%, 11/15/2027 6,835,015
8,100,000 United States Treasury
Bond, 6.375%, 8/15/2027 8,635,329
400,000 United States Treasury
Bond, 7.50%, 11/15/2016 468,912
14,000,000 United States Treasury
Bond, 8.00%, 11/15/2021 17,557,680
8,000,000 United States Treasury
Bond, 8.125%, 5/15/2021 10,131,440
610,000 United States Treasury
Bond, 8.25%, 5/15/2005 629,002
11,000,000 United States Treasury
Bond, 8.50%, 2/15/2020 14,338,170
12,750,000 United States Treasury
Bond, 11.625%, 11/15/2004 16,519,155
TOTAL 79,714,186
U.S. TREASURY NOTES-0.1%
325,000 United States Treasury
Note, 8.00%, 8/15/1999 328,104
TOTAL U.S. TREASURY
OBLIGATIONS (IDENTIFIED
COST $92,946,488) 80,042,290
MUTUAL FUNDS-21.0%
209,529 Federated Mortgage Core
Portfolio 2,089,000
24,085,169 The High Yield Bond
Portfolio 229,531,660
TOTAL MUTUAL FUNDS
(IDENTIFIED COST
$230,555,292) 231,620,660
TOTAL INVESTMENTS
(IDENTIFIED COST
$1,093,763,713) 3 $ 1,085,514,975
</TABLE>
1 Denotes a restricted security which is subject to restrictions on resale under
federal securities laws. At April 30, 1999, these securities amounted to
$82,375,269 which represents 7.5% of net assets. Included in these amounts,
securities which have been deemed liquid amounted to $80,284,276 which
represents 7.3% of net assets.
2 Denotes a restricted security that has been deemed liquid by criteria approved
by the fund's board of directors.
3 The cost of investments for federal tax purposes amounts to $1,093,763,713.
The net unrealized depreciation of investments on a federal tax basis amounts to
$8,248,738 which is comprised of $12,154,513 appreciation and $20,403,251
depreciation at April 30, 1999.
Note: The categories of investments are shown as a percentage of net assets
($1,102,920,818) at April 30, 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 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
Statement of Assets and Liabilities
APRIL 30, 1999 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in
securities, at value
(identified and tax cost
$1,093,763,713) $ 1,085,514,975
Income receivable 20,764,490
Receivable for investments
sold 4,219,184
Receivable for shares sold 181,265
TOTAL ASSETS 1,110,679,914
LIABILITIES:
Payable for investments
purchased $ 4,170,311
Payable for shares
redeemed 791,107
Income distribution
payable 2,500,762
Accrued expenses 296,916
TOTAL LIABILITIES 7,759,096
Net assets for 113,662,375
shares outstanding $ 1,102,920,818
NET ASSETS CONSIST OF:
Paid in capital $ 1,118,980,627
Net unrealized
depreciation of
investments (8,248,738)
Accumulated net realized
loss on investments (6,152,272)
Distributions in excess of
net investment income (1,658,799)
TOTAL NET ASSETS $ 1,102,920,818
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PROCEEDS PER SHARE:
CLASS A SHARES:
Net Asset Value Per Share
($252,586,172 / 26,052,344
shares outstanding) $9.70
Offering Price Per Share
(100/95.50 of $9.70) 1 $10.16
Redemption Proceeds Per
Share $9.70
CLASS B SHARES:
Net Asset Value Per Share
($353,649,657 / 36,444,465
shares outstanding) $9.70
Offering Price Per Share $9.70
Redemption Proceeds Per
Share (94.50/100 of $9.70) 1 $9.17
CLASS C SHARES:
Net Asset Value Per Share
($95,876,368 / 9,877,391
shares outstanding) $9.71
Offering Price Per Share $9.71
Redemption Proceeds Per
Share (99.00/100 of $9.71)
1 $9.61
CLASS F SHARES:
Net Asset Value Per Share
($400,808,621 / 41,288,175
shares outstanding) $9.71
Offering Price Per Share
(100/99.00 of $9.71) 1 $9.81
Redemption Proceeds Per
Share (99.00/100 of $9.71) $9.61
</TABLE>
1 See "Investing in the Fund" in the Prospectus.
See Notes which are an integral part of the Financial Statements
Statement of Operations
SIX MONTHS ENDED APRIL 30, 1999 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 10,146,747
Interest 31,638,692
TOTAL INCOME 41,785,439
EXPENSES:
Investment advisory fee $ 3,958,712
Administrative personnel
and services fee 397,983
Custodian fees 24,403
Transfer and dividend
disbursing agent fees and
expenses 321,831
Directors'/Trustees' fees 7,881
Auditing fees 7,675
Legal fees 5,296
Portfolio accounting fees 81,146
Distribution services fee-
Class B Shares 1,238,783
Distribution services fee-
Class C Shares 325,880
Shareholder services fee-
Class A Shares 292,209
Shareholder services fee-
Class B Shares 412,928
Shareholder services fee-
Class C Shares 108,627
Shareholder services fee-
Class F Shares 505,807
Share registration costs 92,524
Printing and postage 96,693
Insurance premiums 3,391
Taxes 41,820
Miscellaneous 10,471
TOTAL EXPENSES 7,934,060
WAIVERS AND
REIMBURSEMENTS:
Waiver of investment
advisory fee $ (543,246)
Waiver of shareholder
services fee-Class A
Shares (58,442)
Waiver of shareholder
services fee-Class F
Shares (40,465)
TOTAL WAIVERS (642,153)
Net expenses 7,291,907
Net investment income 34,493,532
REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS:
Net realized loss on
investments (2,538,158)
Net change in unrealized
depreciation of
investments (10,647,892)
Net realized and
unrealized loss on
investments (13,186,050)
Change in net assets
resulting from operations $ 21,307,482
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
(unaudited) ENDED
APRIL 30, OCTOBER 31,
1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS:
Net investment income $ 34,493,532 $ 54,419,790
Net realized gain (loss) on
investments ($2,538,158
net loss and $1,140,275 net
gain, respectively, as
computed for federal tax
purposes) (2,538,158) 1,191,985
Net change in unrealized
depreciation of
investments (10,647,892) (20,779,931)
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS 21,307,482 34,831,844
DISTRIBUTIONS TO
SHAREHOLDERS:
Distributions from net
investment income
Class A Shares (8,278,366) (11,400,747)
Class B Shares (10,410,370) (14,716,321)
Class C Shares (2,747,628) (3,536,230)
Class F Shares (14,196,942) (25,598,671)
CHANGE IN NET ASSETS
RESULTING FROM
DISTRIBUTIONS
TO SHAREHOLDERS (35,633,306) (55,251,969)
SHARE TRANSACTIONS:
Proceeds from sale of
shares 249,827,757 552,685,388
Net asset value of shares
issued to shareholders in
payment of
distributions declared 21,004,883 30,105,726
Cost of shares redeemed (136,914,419) (246,947,952)
CHANGE IN NET ASSETS
RESULTING FROM SHARE
TRANSACTIONS 133,918,221 335,843,162
Change in net assets 119,592,397 315,423,037
NET ASSETS:
Beginning of period 983,328,421 667,905,384
End of period $ 1,102,920,818 $ 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>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
APRIL 30, YEAR ENDED OCTOBER 31,
1999 1998 1997 1996 1995 1
<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 0.33 0.70 0.74 0.71 0.26
Net realized and
unrealized gain (loss)
on investments (0.11) (0.19) 0.26 (0.04) 0.11
TOTAL FROM INVESTMENT
OPERATIONS 0.22 0.51 1.00 0.67 0.37
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.34) (0.71) (0.70) (0.71) (0.25)
NET ASSET VALUE, END OF
PERIOD $ 9.70 $ 9.82 $10.02 $ 9.72 $ 9.76
TOTAL RETURN 2 2.27% 5.14% 10.73% 7.21% 3.92%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 3 1.20% 4 1.20% 1.25% 1.30% 1.37% 4
Net investment income 3 6.72% 4 6.74% 7.10% 7.21% 7.87% 4
Expenses (after waivers) 1.05% 4 1.05% 1.05% 1.05% 1.02% 4
Net investment income
(after waivers) 6.87% 4 6.89% 7.30% 7.46% 8.22% 4
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $252,586 $210,768 $111,377 $37,045 $5,070
Portfolio turnover 14% 20% 55% 49% 77%
</TABLE>
1 Reflects operations for the period from June 28, 1995 (date of initial pub lic
investment) to October 31, 1995.
2 Based on net asset value, which does not reflect the sales charge or con
tingent 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.
4 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>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
APRIL 30, YEAR ENDED OCTOBER 31,
1999 1998 1997 1996 1995 1
<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 0.30 0.61 0.64 0.64 0.24
Net realized and
unrealized gain (loss)
on investments (0.12) (0.18) 0.28 (0.04) 0.11
TOTAL FROM
INVESTMENT OPERATIONS 0.18 0.43 0.92 0.60 0.35
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.31) (0.62) (0.62) (0.64) (0.23)
NET ASSET VALUE, END OF
PERIOD $ 9.70 $ 9.83 $10.02 $ 9.72 $ 9.76
TOTAL RETURN 2 1.78% 4.34% 9.86% 6.40% 3.72%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 3 1.95% 4 1.95% 2.00% 2.05% 2.11% 4
Net investment income 3 5.97% 4 5.99% 6.35% 6.46% 7.06% 4
Expenses (after waivers) 1.85% 4 1.85% 1.85% 1.85% 1.81% 4
Net investment income
(after waivers) 6.07% 4 6.09% 6.50% 6.66% 7.36% 4
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $353,650 $302,010 $191,600 $125,620 $27,768
Portfolio turnover 14% 20% 55% 49% 77%
</TABLE>
1 Reflects operations for the period from June 28, 1995 (date of initial pub lic
investment) to October 31, 1995.
2 Based on net asset value, which does not reflect the sales charge or con
tingent 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.
4 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>
SIX MONTHS
ENDED
(unaudited)
APRIL 30, YEAR ENDED OCTOBER 31,
1999 1998 1997 1996 1995 1
<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 0.30 0.61 0.64 0.64 0.24
Net realized and
unrealized gain (loss)
on investments (0.11) (0.18) 0.28 (0.04) 0.11
TOTAL FROM INVESTMENT
OPERATIONS 0.19 0.43 0.92 0.60 0.35
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.31) (0.62) (0.62) (0.64) (0.23)
NET ASSET VALUE, END OF
PERIOD $ 9.71 $ 9.83 $10.02 $ 9.72 $ 9.76
TOTAL RETURN 2 1.89% 4.35% 9.86% 6.40% 3.72%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 3 1.95% 4 1.95% 2.00% 2.05% 2.11% 4
Net investment income 3 5.97% 4 5.99% 6.35% 6.50% 7.01% 4
Expenses (after waivers) 1.85% 4 1.85% 1.85% 1.85% 1.81% 4
Net investment income
(after waivers) 6.07% 4 6.09% 6.50% 6.70% 7.31% 4
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $95,876 $76,645 $39,398 $22,897 $5,508
Portfolio turnover 14% 20% 55% 49% 77%
</TABLE>
1 Reflects operations for the period from June 28, 1995 (date of initial pub lic
investment) to October 31, 1995.
2 Based on net asset value, which does not reflect the sales charge or con
tingent 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.
4 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>
SIX MONTHS
ENDED
(unaudited)
APRIL 30, YEAR ENDED OCTOBER 31,
1999 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 9.83 $10.02 $ 9.72 $ 9.76 $ 9.08 $10.30
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income 0.33 0.69 0.72 0.71 0.79 0.76
Net realized and
unrealized gain (loss) on
investments (0.11) (0.18) 0.28 (0.04) 0.65 (1.09)
TOTAL FROM INVESTMENT
OPERATIONS 0.22 0.51 1.00 0.67 1.44 (0.33)
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.34) (0.70) (0.70) (0.71) (0.76) (0.75)
Distributions from net
realized gain on
investment transactions - - - - - (0.14)
TOTAL DISTRIBUTIONS (0.34) (0.70) (0.70) (0.71) (0.76) (0.89)
NET ASSET VALUE,
END OF PERIOD $ 9.71 $ 9.83 $10.02 $ 9.72 $ 9.76 $ 9.08
TOTAL RETURN 1 2.27% 5.12% 10.70% 7.18% 16.51% (3.41%)
RATIOS TO AVERAGE
NET ASSETS:
Expenses 2 1.20% 3 1.20% 1.25% 1.30% 1.34% 1.38%
Net investment income 2 6.72% 3 6.74% 7.10% 7.16% 7.89% 7.59%
Expenses (after waivers) 1.08% 3 1.08% 1.08% 1.08% 1.03% 1.05%
Net investment income
(after waivers) 6.84% 3 6.86% 7.27% 7.38% 8.20% 7.92%
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $400,809 $393,905 $325,531 $267,720 $195,502 $146,270
Portfolio turnover 14% 20% 55% 49% 77% 74%
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or con
tingent deferred sales charge, if applicable.
2 During the period, certain fees were voluntarily waived. If such voluntary
waivers had not occurred, the ratios would have been as indicated.
3 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
APRIL 30, 1999 (UNAUDITED)
ORGANIZATION
Investment Series Fund, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end, man
agement 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 secu
rities 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 invest ment companies are valued at
net asset value.
REPURCHASE AGREEMENTS
It is the policy of the Fund to require the custodian bank to take posses sion,
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 repur chase agreement
transaction.
The Fund will only enter into repurchase agreements with banks and other rec
ognized financial institutions, such as broker/dealers, which are deemed by the
Fund's adviser to be creditworthy pursuant to the guidelines and/or stan dards
reviewed or established by the Board of Directors (the "Directors"). Risks may
arise from the potential inability of counterparties to honor the terms of the
repurchase agreement. Accordingly, the Fund could receive less than the
repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex- dividend
date.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary.
At April 30, 1999, the Fund, for federal tax purposes, had a capital loss
carryforward of $3,614,114, which will reduce the Fund's taxable income aris ing
from future net realized gain on investments, if any, to the extent per mitted
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 carryfor ward
will expire as follows:
EXPIRATION YEAR EXPIRATION AMOUNT
2002 $2,219,551
2003 523,012
2004 429,659
2005 441,892
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 posi
tions 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 registra tion
under federal securities laws or in transactions exempt from such regis tration.
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 sec ondary market or, if no
market prices are available, at the fair value as determined by the Fund's
pricing committee.
Additional information on each restricted security held at April 30, 1999 is as
follows:
ACQUISITION ACQUISITION
SECURITY DATE COST
SMFC Trust
Asset-Backed Certificates 2/4/1998 2,253,275
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 rev enues 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 April 30, 1999, par value shares ($0.001 per share) authorized were as
follows:
NUMBER OF PAR VALUE
CLASS NAME CAPITAL STOCK AUTHORIZED
Class A Shares 25,000,000
Class B Shares 25,000,000
Class C Shares 25,000,000
Class F Shares 525,000,000
Unclassified 400,000,000
TOTAL 1,000,000,000
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
(unaudited) YEAR ENDED
APRIL 30, 1999 OCTOBER 31, 1998
CLASS A SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 7,489,421 $ 73,675,398 19,595,096 $ 197,221,690
Shares issued to
shareholders in payment of
distributions declared 609,548 5,975,639 776,367 7,782,888
Shares redeemed (3,516,793) (34,555,105) (10,021,537) (100,802,326)
NET CHANGE RESULTING FROM
CLASS A SHARES
TRANSACTIONS 4,582,176 $ 45,095,932 10,349,926 $ 104,202,252
<CAPTION>
SIX MONTHS ENDED
(unaudited) YEAR ENDED
APRIL 30, 1999 OCTOBER 31, 1998
CLASS B SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 8,368,130 $ 82,403,288 14,243,376 $ 143,240,209
Shares issued to
shareholders in payment of
distributions declared 647,179 6,354,628 877,230 8,800,059
Shares redeemed (3,302,765) (32,472,490) (3,518,193) (35,411,250)
NET CHANGE RESULTING FROM
CLASS B SHARES
TRANSACTIONS 5,712,544 $ 56,285,426 11,602,413 $ 116,629,018
<CAPTION>
SIX MONTHS ENDED
(unaudited) YEAR ENDED
APRIL 30, 1999 OCTOBER 31, 1998
CLASS C SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 3,005,544 $ 29,582,488 4,651,816 $ 46,838,466
Shares issued to
shareholders in payment of
distributions declared 186,937 1,835,287 239,280 2,400,749
Shares redeemed (1,111,859) (10,953,108) (1,026,844) (10,323,405)
NET CHANGE RESULTING FROM
CLASS C SHARES
TRANSACTIONS 2,080,622 $ 20,464,667 3,864,252 $ 38,915,810
<CAPTION>
SIX MONTHS ENDED
(unaudited) YEAR ENDED
APRIL 30, 1999 OCTOBER 31, 1998
CLASS F SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 6,516,579 $ 64,166,583 16,425,062 $ 165,385,023
Shares issued to
shareholders in payment of
distributions declared 696,352 6,839,329 1,108,796 11,122,031
Shares redeemed (5,993,242) (58,933,716) (9,968,205) (100,410,972)
NET CHANGE RESULTING FROM
CLASS F SHARES
TRANSACTIONS 1,219,689 $ 12,072,196 7,565,653 $ 76,096,082
NET CHANGE RESULTING FROM
SHARES TRANSACTIONS 13,595,031 $ 133,918,221 33,382,244 $ 335,843,162
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Investment Mangement Company, 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 Administra tive 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 Feder ated
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
SHARE CLASS NAME DAILY NET ASSETS OF CLASS
Class A Shares 0.25%
Class B Shares 0.75%
Class C Shares 0.75%
For the period ended April 30, 1999, Class A Shares did not incur a distribu
tion services fee.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Share holder
Services Company ("FSSC"), the Fund will pay FSSC up to 0.25% of aver age 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 discre tion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary, FSSC serves as transfer and dividend disburs ing
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.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended April 30, 1999, were as follows:
Purchases $301,964,339
Sales $143,344,671
YEAR 2000
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and administrator are taking mea sures 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.
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
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 gov
ernment agency. Investment in mutual funds involves investment risk, includ ing
the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts con
cerning its objective and policies, management fees, expenses, and other
information.
[Graphic]
Federated
World-Class Investment Manager
SEMI-ANNUAL REPORT
AS OF APRIL 30, 1999
Federated Bond Fund
Established 1987
12TH SEMI-ANNUAL REPORT
[Graphic]
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
2072302 (6/99)
[Graphic]
APPENDIX
A1. The graphic presentation here displayed consists of a legend in the upper
left quadrant indicating the components of the corresponding mountain chart. The
color coded mountain chart is a visual representation of the narrative text
above it. The "x" axis reflects computation periods from 5/20/87 to 4/30/99. The
"y" axis is measured in increments of $5,000 ranging from $0 to $35,000 and
indicates that the ending value of a hypothetical initial investment of $12,000
in the Fund's Class F Shares assuming the reinvestment of all dividends and
capital gains, would have grown to $34,563 on 4/30/99.
A2. The graphic presentation here displayed consists of a legend in the upper
left quadrant indication the components of the corresponding mountain chart. The
color coded mountain chart is a visual representation of the narrative text
above it. The "x" axis reflects computation periods from 5/20/87 to 4/30/99. The
"y" axis is measured in increments of $5,000 ranging from $0 to $25,000 and
indicates that the ending value of a hypothetical yearly initial investment of
$1,000 in the fund's Class F Shares, assuming the reinvestment of all dividends
and capital gains, would have grown to $22,247 on 4/30/99.
A3. The graphic presentation here displayed consists of a 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 4/30/89 to 4/30/99. The
"y" axis is measured in increments of $10,000 ranging from $0 to $60,000 and
indicates that the ending value of a hypothetical initial investment of $20,000
in the fund's Class F Shares would have grown to $50,050.
