EQUITY
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GROWTH
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AND INCOME
- --------------------------------------------------------------------------------
FUND
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ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1995
Insurance Management Series
[LOGO] FEDERATED SECURITIES CORP. --------------------------------
DISTRIBUTOR
--------------------------------
A subsidiary of FEDERATED INVESTORS
--------------------------------
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779 --------------------------------
Cusip 458043502
G00843-01 (2/96) [RECYCLED LOGO]
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Investor:
I am pleased to present the Annual Report to Shareholders for Equity Growth and
Income Fund, a portfolio of Insurance Management Series, for the twelve-month
period ended December 31, 1995. The report begins with the management discussion
and analysis by the fund's portfolio manager. Following the management
discussion and analysis is a complete listing of the fund's holdings and its
financial statements.
Equity Growth and Income Fund helps your money earn income and grow in value by
investing in a portfolio of high-quality stocks. Many of these stocks are issued
by companies whose names you will recognize. At the end of the period, the
fund's portfolio included Du Pont, Mattel, Avon, Philip Morris, RJR Nabisco,
Reebok, Chevron, Texaco, American Express, Bristol-Myers Squib, General
Electric, Sears, Hewlett-Packard, and AT&T to name a few.
Consistent with a highly favorable environment for stocks during 1995, the fund
delivered a total return of 33.71%* during the twelve-month period ended
December 31, 1995. The fund's net asset value increased significantly, from
$9.74 at the beginning of the period to $12.80 at the period's end. Dividends
totaled $0.20 per share, while net realized and unrealized gains totaled $3.06
per share during the period. At the end of the twelve-month report period, total
assets grew to reach $48.5 million.
Thank you for participating in the growth and income opportunities of U.S.
stocks through Equity Growth and Income Fund. We look forward to keeping you
informed about your investment's progress.
Sincerely,
J. Christopher Donahue
President
February 15, 1996
* Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when redeemed,
may be worth more or less than their original cost.
EQUITY GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
MANAGEMENT DISCUSSION AND ANALYSIS
In the fiscal year ended December 31, 1995, the U.S. stock market advanced
strongly, with the Standard & Poor's 500 Index* ("S&P 500") recording a total
return of 37.6%. This compares to a modest 1.3% total return for the twelve
months ended December 31, 1994. Total return for Equity Growth and Income Fund
for the fiscal year ended December 31, 1995, was 33.71%** versus 30.8% for the
average Lipper Growth and Income Fund.
Recent market strength was concentrated in large-capitalization stocks which
substantially influence the performance of the S&P 500. In contrast, the
Standard & Poor's 600 Small Cap Index*, a popular benchmark for
small-capitalization stocks, had a total return of only 29.9% for the year ended
December 31, 1995.
Market strength over the past year has been largely due to declining interest
rates and continuing strong growth in corporate profits. The 30-year U.S.
Treasury bond yield has declined from 8.1% to roughly 6.2%. Aggregate corporate
earnings for U.S. companies have shown 12%-15% gains in the past three quarters
versus 1994. The consensus forecast at this time is for a rather benign
inflation and interest rate environment and moderate real growth in U.S.
economic activity, perhaps at the 2.0%-2.5% level (annual rate). This backdrop
and the substantial rise in the stock market over the past year dictates
increased selectivity in stock selection at this time.
The best performing sector over the past year has been Technology, although many
stocks in this area have experienced corrections over the past few months. We
reduced our weighting in Technology a few months ago, but remain modestly
overweight relative to the S&P 500, given the excellent long-term outlook. The
Finance sector has also performed well over the past year and the fund continues
to have a significant exposure to this group.
As part of our portfolio management process in determining relative sector
weightings, we also attempt to identify underlying investment themes. Some
companies fit more than one theme. At this time, the major themes in the fund's
portfolio are as follows:
(1) Beneficiaries of corporate "restructuring" such as AT&T, ITT, and CIGNA;
(2) Industry consolidation--Lockheed Martin in the Aerospace/defense industry
and First Interstate in banking are examples;
(3) Companies which generate significant excess cash flow such as Philip Morris
and FMC;
* The Standard & Poor's Daily Stock Price Index of 500 Common Stocks, a
composite index of common stocks in industry, transportation, and financial
and public utility companies, can be used to compare to the total returns of
funds whose portfolios are invested primarily in common stocks. The Standard
& Poor's 600 Small Cap Index is an unmanaged index of 600 smaller
capitalization stocks. These indices are unmanaged and actual investments
cannot be made in indices.
** Performance quoted represents past performance. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than their original cost.
(4) Dominant companies with superior management such as General Electric,
Citicorp and Philip Morris; and
(5) The Technology revolution--major "plays" include Hewlett Packard, IBM, and
General Motors, Class "E" (EDS).
While some market observers express concern with overvaluation in the current
market, we believe good long-term values can be identified by our disciplined
process and careful fundamental research. An important part of our process is
our emphasis on controlling risk through diversification and attention to
valuation of individual stocks.
EQUITY GROWTH AND INCOME FUND
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GROWTH OF $10,000 INVESTED IN EQUITY GROWTH AND INCOME FUND
The graph below illustrates the hypothetical investment of $10,000 in the
Equity Growth and Income Fund (the "Fund") from February 10, 1994 (start of
performance), to December 31, 1995, compared to the Standard & Poor's 500 Index
(S&P 500)+, and the Lipper Growth and Income Funds Average (LGIFA).+
GRAPHIC REPRESENTATION A1 OMITTED. SEE APPENDIX.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
*The Fund's performance assumes the reinvestment of all dividends and
distributions. The S&P 500 and the LGIFA have been adjusted to reflect
reinvestment of dividends on securities in the index and average.
The S&P 500 is not adjusted to reflect sales charges, expenses, or other fees
that the SEC requires to be reflected in the Fund's performance. The index is
unmanaged.
+The LGIFA represents the average of the total returns reported by all of the
mutual funds designated by Lipper Analytical Services, Inc. as falling into the
category, and is not adjusted to reflect any sales charges. However, these
total returns are reported net of expenses or other fees that the SEC requires
to be reflected in a fund's performance.
EQUITY GROWTH AND INCOME FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<S> <S> <C>
STOCKS--88.6% -------------------------------------------------------------------------------------
BASIC INDUSTRY--8.3%
-------------------------------------------------------------------------------------
38,800 Allegheny Ludlum Corp. $ 717,800
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17,100 Aluminum Co. of America 904,162
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16,000 Du Pont (E.I.) de Nemours & Co. 1,118,000
-------------------------------------------------------------------------------------
4,500 Eastman Chemical Co. 281,812
-------------------------------------------------------------------------------------
13,300 International Paper Co. 503,737
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15,000 Praxair, Inc. 504,375
------------------------------------------------------------------------------------- -------------
Total 4,029,886
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CONSUMER DURABLES--2.7%
-------------------------------------------------------------------------------------
25,000 Mattel, Inc. 768,750
-------------------------------------------------------------------------------------
25,400 Volvo, ADR 523,081
------------------------------------------------------------------------------------- -------------
Total 1,291,831
------------------------------------------------------------------------------------- -------------
CONSUMER NON-DURABLES--7.5%
-------------------------------------------------------------------------------------
10,400 Avon Products, Inc. 783,900
-------------------------------------------------------------------------------------
15,300 IBP, Inc. 772,650
-------------------------------------------------------------------------------------
16,500 Philip Morris Cos., Inc. 1,493,250
-------------------------------------------------------------------------------------
5,100 RJR Nabisco Holdings Corp. 157,463
-------------------------------------------------------------------------------------
15,500 Reebok International Ltd. 437,875
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Total 3,645,138
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ENERGY MINERALS--6.1%
-------------------------------------------------------------------------------------
15,800 Chevron Corp. 829,500
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1,800 Mobil Corp. 201,600
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20,500 Occidental Petroleum Corp. 438,188
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11,200 Texaco, Inc. 879,200
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32,000 USX Marathon Group 624,000
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Total 2,972,488
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</TABLE>
EQUITY GROWTH AND INCOME FUND
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<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS--CONTINUED
- ---------------------------------------------------------------------------------------------------
FINANCE--15.5%
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20,408 Allstate Corp. $ 839,279
-------------------------------------------------------------------------------------
10,400 American Express Co. 430,300
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9,700 Bank of Boston Corp. 448,625
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9,400 CIGNA Corp. 970,550
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10,700 Chemical Banking Corp. 628,625
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17,157 Citicorp 1,153,808
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13,400 Dean Witter, Discover & Co. 629,800
-------------------------------------------------------------------------------------
19,100 Mellon Bank Corp. 1,026,625
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12,500 Providian Corp. 509,375
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13,550 Travelers Group, Inc. 851,956
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Total 7,488,943
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HEALTH CARE--9.2%
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8,700 American Home Products Corp. 843,900
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14,400 Becton, Dickinson & Co. 1,080,000
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14,900 Bristol-Myers Squibb Co. 1,279,537
-------------------------------------------------------------------------------------
11,900 Merck & Co., Inc. 782,425
-------------------------------------------------------------------------------------
8,900 Smithkline Beecham Corp., ADR 493,950
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Total 4,479,812
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PRODUCER MANUFACTURING--8.9%
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9,200 (a)FMC Corp. 622,150
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16,300 General Electric Co. 1,173,600
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12,000 Loews Corp. 940,500
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10,500 Philips Electronics N.V., ADR 376,688
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13,700 Textron, Inc. 924,750
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18,200 Westinghouse Electric Corp. 300,300
------------------------------------------------------------------------------------- -------------
Total 4,337,988
------------------------------------------------------------------------------------- -------------
</TABLE>
EQUITY GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS--CONTINUED
- ---------------------------------------------------------------------------------------------------
RETAIL TRADE--2.8%
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17,800 American Stores Co. $ 476,150
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22,000 Sears, Roebuck & Co. 858,000
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Total 1,334,150
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SERVICES--2.7%
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18,500 Baker Hughes, Inc. 450,938
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6,300 Gannett Co., Inc. 386,662
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9,200 (a)Western Atlas, Inc. 464,600
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Total 1,302,200
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TECHNOLOGY--16.0%
-------------------------------------------------------------------------------------
5,000 (a)DST Systems, Inc. 142,500
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23,200 General Motors Corp., Class E 1,206,400
-------------------------------------------------------------------------------------
10,800 Hewlett-Packard Co. 904,500
-------------------------------------------------------------------------------------
14,100 Intel Corp. 800,175
-------------------------------------------------------------------------------------
13,500 International Business Machines Corp. 1,238,625
-------------------------------------------------------------------------------------
10,500 (a)Litton Industries, Inc. 467,250
-------------------------------------------------------------------------------------
19,300 Lockheed Martin Corp. 1,524,700
-------------------------------------------------------------------------------------
10,300 Raytheon Co. 486,675
-------------------------------------------------------------------------------------
18,700 Rockwell International Corp. 988,763
------------------------------------------------------------------------------------- -------------
Total 7,759,588
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TRANSPORTATION--1.5%
-------------------------------------------------------------------------------------
10,200 Conrail, Inc. 714,000
------------------------------------------------------------------------------------- -------------
UTILITIES--7.4%
-------------------------------------------------------------------------------------
18,400 AT&T Corp. 1,191,400
-------------------------------------------------------------------------------------
10,900 CMS Energy Corp. 325,637
-------------------------------------------------------------------------------------
9,600 (a)Columbia Gas System, Inc. 421,200
-------------------------------------------------------------------------------------
19,000 Enron Corp. 724,375
-------------------------------------------------------------------------------------
6,000 FPL Group, Inc. 278,250
-------------------------------------------------------------------------------------
</TABLE>
EQUITY GROWTH AND INCOME FUND
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<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
COMMON STOCKS--CONTINUED
- ---------------------------------------------------------------------------------------------------
UTILITIES--CONTINUED
-------------------------------------------------------------------------------------
25,500 MCI Communications Corp. $ 666,188
------------------------------------------------------------------------------------- -------------
Total 3,607,050
------------------------------------------------------------------------------------- -------------
TOTAL COMMON STOCKS (IDENTIFIED COST $38,914,802) 42,963,074
------------------------------------------------------------------------------------- -------------
PREFERRED STOCKS--4.3%
- ---------------------------------------------------------------------------------------------------
CONSUMER NON-DURABLES--0.9%
-------------------------------------------------------------------------------------
71,700 RJR Nabisco Holdings Corp., Conv. Pfd., Series C, $.60 457,088
------------------------------------------------------------------------------------- -------------
FINANCE--2.0%
-------------------------------------------------------------------------------------
9,300 Merrill Lynch & Co., Inc., STRYPES, Series MGIC, $3.12 481,275
-------------------------------------------------------------------------------------
7,400 Sunamerica, Inc., Conv. Pfd., Series E, $3.10 484,700
------------------------------------------------------------------------------------- -------------
Total 965,975
------------------------------------------------------------------------------------- -------------
PRODUCER MANUFACTURING--1.4%
-------------------------------------------------------------------------------------
41,700 Westinghouse Electric Corp., PEPS, Series C, $1.30 667,617
------------------------------------------------------------------------------------- -------------
TOTAL PREFERRED STOCKS (IDENTIFIED COST $2,018,173) 2,090,680
------------------------------------------------------------------------------------- -------------
CORPORATE BOND--0.4%
- ---------------------------------------------------------------------------------------------------
TECHNOLOGY--0.4%
-------------------------------------------------------------------------------------
$ 165,000 Analog Devices, Inc., Conv. Bond, 3.50%, 12/1/2000 172,631
------------------------------------------------------------------------------------- -------------
TOTAL CORPORATE BONDS (IDENTIFIED COST $165,000) 172,631
------------------------------------------------------------------------------------- -------------
(B) REPURCHASE AGREEMENT--13.5%
- ---------------------------------------------------------------------------------------------------
6,560,000 J.P. Morgan Securities, Inc., 5.85%, dated 12/29/1995, due 1/2/1996 (at amortized
cost) 6,560,000
------------------------------------------------------------------------------------- -------------
TOTAL INVESTMENTS (IDENTIFIED COST $47,657,975)(C) $ 51,786,385
------------------------------------------------------------------------------------- -------------
</TABLE>
(a) Non-income producing.
(b) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
(c) The cost of investments for federal tax purposes amounts to $47,702,372.
The net unrealized appreciation of investments on a federal tax cost basis
amounts to $4,084,013, and is comprised of $4,491,513 appreciation and
$407,500 depreciation at December 31, 1995.
EQUITY GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
The following acronyms are used throughout this portfolio:
ADR--American Depository Receipt
PEPS--Participating Equity Preferred Stock
STRYPES--Structured Yield Product Exchangeable for Stock
Note: The categories of investments are shown as a percentage of net assets
($48,513,534) at
December 31, 1995.
(See Notes which are an integral part of the Financial Statements)
EQUITY GROWTH AND INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------------------------
Investments in repurchase agreements $ 6,560,000
- -----------------------------------------------------------------------------------
Investments in securities 45,226,385
- ----------------------------------------------------------------------------------- -------------
Total investments in securities, at value
(identified cost, $47,657,975 and tax cost, $47,702,372) $ 51,786,385
- --------------------------------------------------------------------------------------------------
Cash 507
- --------------------------------------------------------------------------------------------------
Receivable for shares sold 270,500
- --------------------------------------------------------------------------------------------------
Income receivable 89,416
- --------------------------------------------------------------------------------------------------
Prepaid expenses 365
- -------------------------------------------------------------------------------------------------- -------------
Total assets 52,147,173
- --------------------------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------------------------
Payable for investments purchased 3,601,406
- -----------------------------------------------------------------------------------
Payable for shares redeemed 1,855
- -----------------------------------------------------------------------------------
Accrued expenses 30,378
- ----------------------------------------------------------------------------------- -------------
Total liabilities 3,633,639
- -------------------------------------------------------------------------------------------------- -------------
NET ASSETS for 3,790,198 shares outstanding $ 48,513,534
- -------------------------------------------------------------------------------------------------- -------------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------------------------
Paid in capital $ 43,990,489
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 4,128,410
- --------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments 404,645
- --------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (10,010)
- -------------------------------------------------------------------------------------------------- -------------
Total Net Assets $ 48,513,534
- -------------------------------------------------------------------------------------------------- -------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- --------------------------------------------------------------------------------------------------
$48,513,534 / 3,790,198 shares outstanding $12.80
- -------------------------------------------------------------------------------------------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
EQUITY GROWTH AND INCOME FUND
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------------------------
Dividends $ 416,256
- ----------------------------------------------------------------------------------------------------
Interest 131,596
- ---------------------------------------------------------------------------------------------------- ------------
Total income 547,852
- ----------------------------------------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------------------------------------------
Investment advisory fee $ 142,579
- ---------------------------------------------------------------------------------------
Administrative personnel and services fee 125,000
- ---------------------------------------------------------------------------------------
Custodian fees 43,505
- ---------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 14,286
- ---------------------------------------------------------------------------------------
Directors'/Trustees' fees 1,440
- ---------------------------------------------------------------------------------------
Auditing fees 8,738
- ---------------------------------------------------------------------------------------
Legal fees 2,016
- ---------------------------------------------------------------------------------------
Portfolio accounting fees 33,828
- ---------------------------------------------------------------------------------------
Share registration costs 15,619
- ---------------------------------------------------------------------------------------
Printing and postage 21,456
- ---------------------------------------------------------------------------------------
Insurance premiums 3,572
- ---------------------------------------------------------------------------------------
Miscellaneous 8,628
- --------------------------------------------------------------------------------------- -----------
Total expenses 420,667
- ---------------------------------------------------------------------------------------
Waiver and reimbursements--
- ---------------------------------------------------------------------------------------
Waiver of investment advisory fee ($ 142,579)
- --------------------------------------------------------------------------
Reimbursement of other operating expenses (115,765)
- -------------------------------------------------------------------------- -----------
Total waiver and reimbursements (258,344)
- --------------------------------------------------------------------------------------- -----------
Net expenses 162,323
- ---------------------------------------------------------------------------------------------------- ------------
Net investment income 385,529
- ---------------------------------------------------------------------------------------------------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ----------------------------------------------------------------------------------------------------
Net realized gain on investments 418,832
- ----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments 4,129,761
- ---------------------------------------------------------------------------------------------------- ------------
Net realized and unrealized gain on investments 4,548,593
- ---------------------------------------------------------------------------------------------------- ------------
Change in net assets resulting from operations $ 4,934,122
- ---------------------------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
EQUITY GROWTH AND INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995 1994(A)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------------------------------------------------------
OPERATIONS--
- -------------------------------------------------------------------------------------
Net investment income $ 385,529 $ 15,142
- -------------------------------------------------------------------------------------
Net realized gain (loss) on investments ($460,510 net gain and ($11,469) net loss,
respectively, as computed for federal tax purposes) 418,832 (14,187)
- -------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) 4,129,761 (1,351)
- ------------------------------------------------------------------------------------- ------------- ------------
Change in net assets resulting from operations 4,934,122 (396)
- ------------------------------------------------------------------------------------- ------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -------------------------------------------------------------------------------------
Distributions from net investment income (386,024) (14,647)
- -------------------------------------------------------------------------------------
Distributions in excess of net investment income (10,010) --
- ------------------------------------------------------------------------------------- ------------- ------------
Change in net assets resulting from distributions to shareholders (396,034) (14,647)
- ------------------------------------------------------------------------------------- ------------- ------------
SHARE TRANSACTIONS--
- -------------------------------------------------------------------------------------
Proceeds from sale of shares 45,176,314 3,287,097
- -------------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of distributions declared 396,398 7,346
- -------------------------------------------------------------------------------------
Cost of shares redeemed (3,997,296) (879,370)
- ------------------------------------------------------------------------------------- ------------- ------------
Change in net assets resulting from share transactions 41,575,416 2,415,073
- ------------------------------------------------------------------------------------- ------------- ------------
Change in net assets 46,113,504 2,400,030
- -------------------------------------------------------------------------------------
NET ASSETS:
- -------------------------------------------------------------------------------------
Beginning of period 2,400,030 --
- ------------------------------------------------------------------------------------- ------------- ------------
End of period (including undistributed net investment income of $0 and $495,
respectively) $ 48,513,534 $ 2,400,030
- ------------------------------------------------------------------------------------- ------------- ------------
</TABLE>
(a) For the period from December 9, 1993 (start of business) to December 31,
1994.
(See Notes which are an integral part of the Financial Statements)
EQUITY GROWTH AND INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995 1994(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.74 $ 10.00
- ----------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------------
Net investment income 0.20 0.19
- ----------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 3.06 (0.26)
- ---------------------------------------------------------------------------------------------- --------- -----------
Total from investment operations 3.26 (0.07)
- ----------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------------------------------
Distributions from net investment income (0.19) (0.19)
- ----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (b) (0.01) --
- ---------------------------------------------------------------------------------------------- --------- -----------
Total distributions from net investment income (0.20) (0.19)
- ---------------------------------------------------------------------------------------------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 12.80 $ 9.74
- ---------------------------------------------------------------------------------------------- --------- -----------
TOTAL RETURN (C) 33.71% (0.70%)
- ----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------------------
Expenses 0.85% 0.54%*
- ----------------------------------------------------------------------------------------------
Net investment income 2.03% 2.58%*
- ----------------------------------------------------------------------------------------------
Expense waiver/ reimbursement (d) 1.36% 25.42%*
- ----------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $48,514 $2,400
- ----------------------------------------------------------------------------------------------
Portfolio turnover 43% 32 %
- ----------------------------------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from February 10, 1994 (date of initial
public investment) to December 31, 1994. For the period from December 9,
1993 (start of business) to January 31, 1994, the Fund had no investment
activity.
(b) Distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal income tax
purposes.
(c) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
EQUITY GROWTH AND INCOME FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
1. ORGANIZATION
Insurance Management Series (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as an open-end, management
investment company. The Trust consists of seven portfolios. The financial
statements included herein are only those of Equity Growth and Income Fund (the
"Fund"), a diversified portfolio. The financial statements of the other
portfolios are presented separately. The assets of each portfolio are segregated
and a shareholder's interest is limited to the portfolio in which shares are
held.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--Short-term securities with remaining maturities of
sixty days or less at the time of purchase may be valued at amortized cost,
which approximates fair market value. All other securities are valued at
prices provided by an independent pricing service.
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 Trustees (the
"Trustees"). Risks may arise from the potential inability of counterparties
to honor the terms of the repurchase agreement. Accordingly, the Fund could
receive less than the repurchase price on the sale of collateral
securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code"). Dividend
income and distributions to shareholders are recorded on the ex-dividend
date.
EQUITY GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
Distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal income tax
purposes.
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.
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.
OTHER--Investment transactions are accounted for on the trade date.
3. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995 1994(A)
<S> <C> <C>
Shares sold 3,870,639 334,265
- ------------------------------------------------------------------------------------------
Shares issued to shareholders in payment
of distributions declared 32,670 752
- ------------------------------------------------------------------------------------------
Shares redeemed (359,502) (88,626)
- ------------------------------------------------------------------------------------------ ---------- ---------
Net change resulting from share transactions 3,543,807 246,391
- ------------------------------------------------------------------------------------------ ---------- ---------
</TABLE>
(a) For the period from December 9, 1993 (start of business) to December 31,
1994.
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Advisers, the Fund's investment adviser, (the
"Adviser"), receives for its services an annual investment advisory fee equal to
.75 of 1% of the Fund's average daily net assets.
The Adviser may voluntarily choose to waive any portion of its fee and/or
reimburse certain operating expenses of the Fund. The Adviser can modify or
terminate this voluntary waiver and/or reimbursement at any time at its sole
discretion.
ADMINISTRATIVE FEE--Federated Administrative Services, under the Administrative
Services Agreement, provides the Fund with administrative personnel and
services. This fee is based on the
EQUITY GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
level of average aggregate daily net assets of all funds advised by subsidiaries
of Federated Investors for the period. The administrative fee received during
the period of the Administrative Services Agreement shall be at least $125,000
per portfolio and $30,000 per each additional class of shares.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated Services
Company ("FServ") serves as transfer and dividend disbursing agent for the Fund.
This fee 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.
ORGANIZATIONAL EXPENSES--Organizational expenses of $16,348 and start-up
administrative service expenses of $31,507 were borne initially by the Adviser.
The Fund has agreed to reimburse the Adviser for the organizational and start-up
administrative expenses during the five year period following effective date.
For the period ended December 31, 1995, the Fund paid $2,180 and $4,201,
respectively, pursuant to this agreement.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended December 31, 1995, were as follows:
<TABLE>
<S> <C>
PURCHASES $ 46,464,211
- --------------------------------------------------------------------------------------------------- -------------
SALES $ 7,752,424
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Board of Trustees of the Insurance Management Series
and the Shareholders of EQUITY GROWTH AND INCOME FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Equity Growth and Income Fund (a portfolio of
the Insurance Management Series) as of December 31, 1995, the related statement
of operations for the year then ended and the statement of changes in net assets
and financial highlights for the periods presented. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995 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 that our audits provide 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 Equity Growth and
Income Fund as of December 31, 1995, the results of its operations, the changes
in its net assets and its financial highlights for the respective stated periods
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
February 7, 1996
TRUSTEES OFFICERS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
John F. Donahue John F. Donahue
Thomas G. Bigley Chairman
John T. Conroy, Jr. J. Christopher Donahue
William J. Copeland President
J. Christopher Donahue Edward C. Gonzales
James E. Dowd Executive Vice President
Lawrence D. Ellis, M.D. John W. McGonigle
Edward L. Flaherty, Jr. Executive Vice President and Secretary
Peter E. Madden Richard B. Fisher
Gregor F. Meyer Vice President
John E. Murray, Jr. David M. Taylor
Wesley W. Posvar Treasurer
Marjorie P. Smuts S. Elliott Cohan
Assistant Secretary
</TABLE>
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded
or accompanied by the fund's prospectus which contains facts concerning its
objective and policies, management fees, expenses and other information.
- --------------------------------------------------------------------------------
UTILITY
- --------------------------------------------------------------------------------
FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1995
Insurance Management Series
[LOGO] FEDERATED SECURITIES CORP. --------------------------------
DISTRIBUTOR
--------------------------------
A subsidiary of FEDERATED INVESTORS
--------------------------------
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779 --------------------------------
Cusip 458043205
G00845-01 (2/96) [RECYCLED LOGO]
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Investor:
I am pleased to present the Annual Report to Shareholders for Utility Fund, a
portfolio of Insurance Management Series, for the twelve-month period ended
December 31, 1995. The report begins with the management discussion and analysis
by your fund's portfolio manager. Following the management discussion and
analysis is a complete listing of the fund's holdings and its financial
statements.
Utility Fund puts your money to work in a portfolio of common and preferred
stocks issued by companies that provide essential services. Consistent with a
very favorable economic environment during 1995, your fund delivered a total
return of 24.18%* for the period ended December 31, 1995. The fund's net asset
value increased from $9.29 at the beginning of the period to $11.03 at the
period's end. Dividends paid to shareholders over the twelve-month report period
totaled $0.45 per share. At the end of the twelve-month report period, total
assets stood at $29.7 million.
Thank you for participating in the investment opportunities of utility companies
through Utility Fund. We look forward to keeping you informed about your
investment's progress.
Sincerely,
J. Christopher Donahue
President
February 15, 1996
* Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when redeemed,
may be worth more or less than their original cost.
UTILITY FUND
- --------------------------------------------------------------------------------
MANAGEMENT DISCUSSION AND ANALYSIS
During 1995, utilities rose from the ashes of 1994 like a phoenix. In 1994,
utilities were hurt primarily by rapidly rising interest rates and also by fears
of restructuring. The predominantly electric utility-weighted Dow Jones ("DJ")
Utility Index* lost 15.81% on a total return basis in 1994, while the Standard &
Poors ("S&P") Utility Index* (comprised 53% by the Regional Bell Operating
companies and GTE) fell 8.31%. In 1995 rapidly falling interest rates, subsiding
restructuring fears and strong earnings growth, led to a handsome 32.37% gain in
the DJ Utility Index and a stunning gain of 42.11% in the S&P Utility Index,
which even outpaced the 37.58% return of the S&P 500 Index*. There have only
been six other years since 1929 in which the S&P Utility Index posted returns
exceeding 40%. The average annual return in subsequent years was a quite
respectable 13.55%.
The key variable determining utility stocks' 1996 performance will continue to
be earnings and interest rates. The yield on long-term Treasuries fell by 192
basis points in 1995, giving utilities their initial thrust. It is difficult to
foresee a similar decline in 1996, but with an accommodative Federal Reserve
Board, an election, and a slowing economy, it is equally difficult to expect
much upside risk to interest rates. Earnings growth was a pleasant surprise in
1995 as companies benefited from increased efficiencies in the face of a slower
than expected industry restructuring, particularly for telephone and electric
utilities. We expect this positive trend to continue in 1996. While we do not
expect a repeat of 1995 for utility stocks, we do believe that most investors
will be pleased with 1996's performance.
While the Utility Fund posted a very respectable total return of 24.18%** in
1995, it lagged the peer group average return of 27.7% (average utility fund
performance as calculated by Lipper Analytical Services). This relative
underperformance was due in part to the conservative structure of our fund,
which holds certain convertible securities that outperform in rising interest
rate environments in order to cushion the interest-rate sensitivity of utility
stocks. This strategy has allowed the fund to perform well above average versus
its peer group in weak utility markets, and to perform well over long periods of
time. Another significant reason for the fund's underperformance in 1995 was its
relative underweighting in the Baby Bells, which as a group advanced 50.8% in
1995. While we believe that the coming of long distance, cellular, and cable
competition will lead to lower profit margins for the Baby Bells, it now appears
that true competition is years away. In the meantime, the telephone companies
are enjoying strong minute and subscriber growth while cost cutting efforts
*DJ Utility Index is comprised of fifteen utility stocks that track changes in
price daily and over a six month period. The S&P Utility Index is comprised of
forty different utilities that track daily changes in the price of stocks. The
S&P 500 Daily Stock Price Index of 500 Common Stocks, a composite index of
common stocks in industry, transportation, and financial and public utility
companies, can be used to compare the total returns of funds whose portfolios
are invested primarily in common stocks. These indices are unmanaged and
actual investments can not be made in indices.
**Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when redeemed,
may be worth more or less than their original cost.
are also enhancing earnings. Therefore, we have increased our portfolio
weighting in the U.S. telecom sector from 9% to over 20%.
We currently have 37% of the portfolio in domestic electric utilities. Because
of this group's relative underperformance in 1995, we believe it is poised to
perform well in 1996. Additionally, the reform movement to bring down
competitive barriers is proceeding much more slowly than expected, while
companies continue to cut costs. The natural gas stocks which comprise 10% of
our portfolio are reacting to an excellent start to the winter.
We participated in many very positive stock performances in 1995. These included
Williams Cos. which rose 75% on a total return basis, GTE which rose 72%, DQE,
Inc. which rose 53%, Pinnacle West which rose 45%, PNC Financial which rose 42%,
and AT&T Corp. which rose 29%. Our focus in 1996 will be to seek companies with
competitive managements who excel in their regulated environment while
successfully growing diversified non-regulated operations, and which have
accelerating earnings and above-average dividend growth potential.
We also believe that the weakness in international markets over the last two
years has led to some attractive valuations. Consequently, we have initiated
positions in Compania Telecomunicacion Chile and Telebras. The international
utility markets offer superior growth and some of the best relative valuations
in years.
Overall, we are optimistic as we enter 1996. Each of the utility sectors is
enjoying relatively positive fundamentals, and the defensive nature of this
asset class will provide a strong measure of protection from a bear market.
UTILITY FUND
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN THE UTILITY FUND
The graph below illustrates the hypothetical investment of $10,000 in the
Utility Fund (the "Fund") from February 10, 1994 (start of performance) to
December 31, 1995, compared to the Standard and Poor's 500 Index (S&P 500)+, and
the Standard and Poor's Utility Index (SPUX)+.
["Graphic representation A2 omitted. See Appendix."]
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE, SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK, AND ARE NOT FEDERALLY INSURED.
*The Fund's performance assumes the reinvestment of all dividends and
distributions. The S&P 500 and the SPUX have been adjusted to
reflect reinvestment of dividends on securities in the indices.
+The S&P 500 and the SPUX are not adjusted to reflect sales charges,
expenses, or other fees that the SEC requires to be reflected in the
Fund's performance. The indices are unmanaged.
UTILITY FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS--77.1% -----------------------------------------------------------------------------------
CONSUMER NON-DURABLES--1.0%
--------------------------------------------------------------------------------
3,200 Philip Morris Cos., Inc. $ 289,600
-------------------------------------------------------------------------------- ---------------
ELECTRIC UTILITIES: CENTRAL--14.6%
--------------------------------------------------------------------------------
12,600 Cinergy Corp. 385,875
--------------------------------------------------------------------------------
25,000 CMS Energy Corp. 746,875
--------------------------------------------------------------------------------
28,000 DPL, Inc. 693,000
--------------------------------------------------------------------------------
22,300 Illinova Corp. 669,000
--------------------------------------------------------------------------------
15,700 NIPSCO Industries, Inc. 600,525
--------------------------------------------------------------------------------
7,400 Ohio Edison Co. 173,900
--------------------------------------------------------------------------------
4,900 Unicom Corp. 160,475
--------------------------------------------------------------------------------
16,600 Utilicorp United, Inc. 487,625
--------------------------------------------------------------------------------
12,800 Western Resources, Inc. 427,200
-------------------------------------------------------------------------------- ---------------
Total 4,344,475
-------------------------------------------------------------------------------- ---------------
ELECTRIC UTILITIES: EAST--6.3%
--------------------------------------------------------------------------------
12,000 Baltimore Gas & Electric Co. 342,000
--------------------------------------------------------------------------------
21,400 DQE, Inc. 658,050
--------------------------------------------------------------------------------
13,200 General Public Utilities 448,800
--------------------------------------------------------------------------------
14,300 Peco Energy Co. 430,788
-------------------------------------------------------------------------------- ---------------
Total 1,879,638
-------------------------------------------------------------------------------- ---------------
ELECTRIC UTILITIES: SOUTH--12.7%
--------------------------------------------------------------------------------
22,200 Duke Power Co. 1,051,725
--------------------------------------------------------------------------------
12,100 Florida Progress Corp. 428,037
--------------------------------------------------------------------------------
23,500 FPL Group, Inc. 1,089,812
--------------------------------------------------------------------------------
22,000 Southern Co. 541,750
--------------------------------------------------------------------------------
16,400 Texas Utilities Co. 674,450
-------------------------------------------------------------------------------- ---------------
Total 3,785,774
-------------------------------------------------------------------------------- ---------------
</TABLE>
UTILITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<S> <S> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES: WEST--3.8%
--------------------------------------------------------------------------------
20,300 Pacificorp $ 431,375
--------------------------------------------------------------------------------
23,800 Pinnacle West Capital Corp. 684,250
-------------------------------------------------------------------------------- ---------------
Total 1,115,625
-------------------------------------------------------------------------------- ---------------
ENERGY MINERALS--1.3%
--------------------------------------------------------------------------------
4,800 Exxon Corp. 384,600
-------------------------------------------------------------------------------- ---------------
FINANCE--2.2%
--------------------------------------------------------------------------------
16,300 Meditrust, REIT 568,463
--------------------------------------------------------------------------------
2,900 PNC Financial Corp. 93,525
-------------------------------------------------------------------------------- ---------------
Total 661,988
-------------------------------------------------------------------------------- ---------------
MAJOR U.S. TELECOMMUNICATIONS--21.2%
--------------------------------------------------------------------------------
14,600 Ameritech Corp. 861,400
--------------------------------------------------------------------------------
16,700 AT&T Corp. 1,081,325
--------------------------------------------------------------------------------
24,700 BellSouth Corp. 1,074,450
--------------------------------------------------------------------------------
25,600 GTE Corp. 1,126,400
--------------------------------------------------------------------------------
45,500 MCI Communications Corp. 1,188,688
--------------------------------------------------------------------------------
16,800 SBC Communications, Inc. 966,000
-------------------------------------------------------------------------------- ---------------
Total 6,298,263
-------------------------------------------------------------------------------- ---------------
NATURAL GAS DISTRIBUTION--3.7%
--------------------------------------------------------------------------------
22,800 MCN Corp. 530,100
--------------------------------------------------------------------------------
19,700 Pacific Enterprises 556,525
-------------------------------------------------------------------------------- ---------------
Total 1,086,625
-------------------------------------------------------------------------------- ---------------
NON-U.S. UTILITIES--2.5%
--------------------------------------------------------------------------------
18,800 National Power Co. PLC, ADR 173,900
--------------------------------------------------------------------------------
3,500 Telecomunicacoes Brasileras, ADR 165,813
--------------------------------------------------------------------------------
6,000 Telefonica de Espana, ADR 251,250
--------------------------------------------------------------------------------
</TABLE>
UTILITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<S> <S> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
NON-U.S. UTILITIES--CONTINUED
--------------------------------------------------------------------------------
10,100 Westcoast Energy, Inc. $ 147,713
-------------------------------------------------------------------------------- ---------------
Total 738,676
-------------------------------------------------------------------------------- ---------------
OIL/GAS TRANSMISSION--6.1%
--------------------------------------------------------------------------------
14,700 Enron Corp. 560,437
--------------------------------------------------------------------------------
8,200 Enron Global Power & Pipelines, L.L.C. 203,975
--------------------------------------------------------------------------------
5,800 Panhandle Eastern Corp. 161,675
--------------------------------------------------------------------------------
15,400 Sonat, Inc. 548,625
--------------------------------------------------------------------------------
7,400 Williams Companies, Inc. (The) 324,675
-------------------------------------------------------------------------------- ---------------
Total 1,799,387
-------------------------------------------------------------------------------- ---------------
OTHER TELEPHONE/COMMUNICATIONS--0.8%
--------------------------------------------------------------------------------
2,700 Cable & Wireless, ADR 57,037
--------------------------------------------------------------------------------
2,100 Compania Telecomunicacion Chile, ADR 174,037
-------------------------------------------------------------------------------- ---------------
Total 231,074
-------------------------------------------------------------------------------- ---------------
TECHNOLOGY--0.9%
--------------------------------------------------------------------------------
7,200 Nokia (AB), ADR 279,900
-------------------------------------------------------------------------------- ---------------
TOTAL COMMON STOCKS (IDENTIFIED COST $20,751,220) 22,895,625
-------------------------------------------------------------------------------- ---------------
PREFERRED STOCKS--14.7%
- -------------------------------------------------------------------------------------------------
BASIC INDUSTRY--2.8%
--------------------------------------------------------------------------------
3,000 (a)International Paper Co., Cumulative Conv. Pfd., Series 144A, $2.63 137,025
--------------------------------------------------------------------------------
11,900 James River Corp. of Virginia, Cumulative DECS, Series P, $1.55 278,162
--------------------------------------------------------------------------------
8,300 Reynolds Metals Co., PRIDES, $3.30 412,925
-------------------------------------------------------------------------------- ---------------
Total 828,112
-------------------------------------------------------------------------------- ---------------
CONSUMER DURABLES--0.5%
--------------------------------------------------------------------------------
10,800 Kaufman & Broad Homes Corp., Conv. Pfd., Series B, $1.52 160,650
-------------------------------------------------------------------------------- ---------------
CONSUMER NON-DURABLES--4.0%
--------------------------------------------------------------------------------
187,900 RJR Nabisco Holdings Corp., Conv. Pfd., Series C, $.60 1,197,863
-------------------------------------------------------------------------------- ---------------
</TABLE>
UTILITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<S> <S> <C>
PREFERRED STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
FINANCE--3.9%
--------------------------------------------------------------------------------
1,400 First USA, Inc., Cumulative PRIDES, $1.99 $ 55,300
--------------------------------------------------------------------------------
7,600 Merrill Lynch & Co., Inc., STRYPES, Series MGIC, $3.12 393,300
--------------------------------------------------------------------------------
9,900 Sunamerica, Inc., Conv. Pfd., Series D, $2.78 473,963
--------------------------------------------------------------------------------
3,600 Sunamerica, Inc., Conv. Pfd., Series E, $3.10 235,800
-------------------------------------------------------------------------------- ---------------
Total 1,158,363
-------------------------------------------------------------------------------- ---------------
NON-U.S. UTILITIES--1.7%
--------------------------------------------------------------------------------
8,700 (a)Cointel, Telefonica de Argentina SA, PRIDES, $5.04 493,725
-------------------------------------------------------------------------------- ---------------
OIL/GAS TRANSMISSION--0.8%
--------------------------------------------------------------------------------
3,100 Williams Companies, Inc. (The), Conv. Pfd., $7.00 229,400
-------------------------------------------------------------------------------- ---------------
TECHNOLOGY--1.0%
--------------------------------------------------------------------------------
3,900 General Motors Corp., Cumulative Conv. Pfd., Series C (GME), $3.25 285,675
-------------------------------------------------------------------------------- ---------------
TOTAL PREFERRED STOCKS (IDENTIFIED COST $4,209,060) 4,353,788
-------------------------------------------------------------------------------- ---------------
PRINCIPAL OR
FOREIGN
PAR AMOUNT
CORPORATE BONDS--3.6%
- -------------------------------------------------------------------------------------------------
BASIC INDUSTRY--0.3%
--------------------------------------------------------------------------------
$ 90,000 Analog Devices, Inc., Conv. Bond, 3.50%, 12/1/2000 94,162
-------------------------------------------------------------------------------- ---------------
FINANCE--0.9%
--------------------------------------------------------------------------------
250,000 Equitable Cos., Inc., Conv. Sub. Deb., 6.125%, 12/15/2024 282,907
-------------------------------------------------------------------------------- ---------------
NON-U.S. UTILITIES--1.3%
--------------------------------------------------------------------------------
525,000,000 Softe SA, Conv. Bond, 4.25%, 7/30/1998 382,645
-------------------------------------------------------------------------------- ---------------
RETAIL TRADE--0.3%
--------------------------------------------------------------------------------
80,000 Federated Department Stores, Inc., Conv. Bond, 5.00%, 10/1/2003 80,408
-------------------------------------------------------------------------------- ---------------
TECHNOLOGY--0.8%
--------------------------------------------------------------------------------
85,000 (a)3Com Corp., Conv. Bond, 10.25%, 11/1/2001 130,050
--------------------------------------------------------------------------------
</TABLE>
UTILITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL VALUE IN
AMOUNT U.S. DOLLARS
<S> <S> <C>
CORPORATE BONDS--CONTINUED
- -------------------------------------------------------------------------------------------------
TECHNOLOGY--CONTINUED
--------------------------------------------------------------------------------
$ 60,000 (a)National Semiconductor Corp., Conv. Bond, 6.50%, 10/1/2002 $ 56,475
--------------------------------------------------------------------------------
60,000 VLSI Technology, Inc., Conv. Bond, 8.25%, 10/1/2005 55,385
-------------------------------------------------------------------------------- ---------------
Total 241,910
-------------------------------------------------------------------------------- ---------------
TOTAL CORPORATE BONDS (IDENTIFIED COST $1,097,790) 1,082,032
-------------------------------------------------------------------------------- ---------------
(B) REPURCHASE AGREEMENT--3.9%
- -------------------------------------------------------------------------------------------------
1,165,000 J.P. Morgan Securities, Inc., 5.85%, dated 12/29/1995, due 1/2/1996
(AT AMORTIZED COST) 1,165,000
-------------------------------------------------------------------------------- ---------------
TOTAL INVESTMENTS (IDENTIFIED COST $27,223,070)(C) $ 29,496,445
-------------------------------------------------------------------------------- ---------------
</TABLE>
(a) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. These securities have been determined to be
liquid under criteria established by the Board of Trustees. At the end of
the period, these securities amounted to $817,275 which represents 2.8% of
net assets.
(b) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
(c) The cost for federal tax purposes amounts to $27,232,529. The net
unrealized appreciation on a federal tax cost basis amounts to $2,263,916,
which is comprised of $2,489,511 appreciation and $225,595 depreciation at
December 31, 1995.
Note: The categories of investments are shown as a percentage of net assets
($29,679,406) at December 31, 1995.
The following acronyms are used throughout this portfolio:
ADR--American Depository Receipt
DECS--Dividend Enhanced Convertible Stock
LLC--Limited Liability Company
PLC--Public Limited Company
PRIDES--Preferred Redeemable Increased Dividend Equity Securities
REIT--Real Estate Investment Trust
STRYPES--Structured Yield Product Exchangeable for Stock
(See Notes which are an integral part of the Financial Statements)
UTILITY FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value (identified cost $27,223,070 and
tax cost $27,232,529) $ 29,496,445
- ---------------------------------------------------------------------------------------------------
Cash 2,219
- ---------------------------------------------------------------------------------------------------
Income receivable 102,025
- ---------------------------------------------------------------------------------------------------
Receivable for investments sold 27,338
- ---------------------------------------------------------------------------------------------------
Receivable for shares sold 73,914
- --------------------------------------------------------------------------------------------------- -------------
Total assets 29,701,941
- ---------------------------------------------------------------------------------------------------
LIABILITIES:
- ---------------------------------------------------------------------------------------------------
Payable for taxes withheld $ 1,354
- ----------------------------------------------------------------------------------------
Accrued expenses 21,181
- ---------------------------------------------------------------------------------------- ---------
Total liabilities 22,535
- --------------------------------------------------------------------------------------------------- -------------
Net Assets for 2,691,470 shares outstanding $ 29,679,406
- --------------------------------------------------------------------------------------------------- -------------
NET ASSETS CONSIST OF:
- ---------------------------------------------------------------------------------------------------
Paid in capital $ 27,216,105
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and translation of assets and liabilities in foreign
currency 2,273,428
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and foreign
currency transactions 184,237
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income 5,636
- --------------------------------------------------------------------------------------------------- -------------
Total Net Assets $ 29,679,406
- --------------------------------------------------------------------------------------------------- -------------
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS PER SHARE:
$29,679,406 / 2,691,470 shares outstanding $11.03
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
UTILITY FUND
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------------------------
Dividends (net of foreign taxes withheld of $3,213) $ 548,785
- ----------------------------------------------------------------------------------------------------
Interest 106,379
- ---------------------------------------------------------------------------------------------------- ------------
Total income 655,164
- ----------------------------------------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------------------------------------------
Investment advisory fee $ 89,752
- ---------------------------------------------------------------------------------------
Administrative personnel and services fee 125,000
- ---------------------------------------------------------------------------------------
Custodian fees 48,162
- ---------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 13,856
- ---------------------------------------------------------------------------------------
Directors'/Trustees' fees 1,893
- ---------------------------------------------------------------------------------------
Auditing fees 7,675
- ---------------------------------------------------------------------------------------
Legal fees 2,014
- ---------------------------------------------------------------------------------------
Portfolio accounting fees 34,776
- ---------------------------------------------------------------------------------------
Share registration costs 9,857
- ---------------------------------------------------------------------------------------
Printing and postage 27,381
- ---------------------------------------------------------------------------------------
Insurance premiums 3,515
- ---------------------------------------------------------------------------------------
Miscellaneous 5,884
- --------------------------------------------------------------------------------------- -----------
Total expenses 369,765
- ---------------------------------------------------------------------------------------
Waiver and reimbursements--
- ---------------------------------------------------------------------------------------
Waiver of investment advisory fee ($ 89,752)
- --------------------------------------------------------------------------
Reimbursement of other operating expenses (177,842)
- -------------------------------------------------------------------------- -----------
Total waivers and reimbursements (267,594)
- --------------------------------------------------------------------------------------- -----------
Net expenses 102,171
- ---------------------------------------------------------------------------------------------------- ------------
Net investment income 552,993
- ---------------------------------------------------------------------------------------------------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:
- ----------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign currency transactions 192,681
- ----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments and translation of assets and liabilities in
foreign currency 2,281,446
- ---------------------------------------------------------------------------------------------------- ------------
Net realized and unrealized gain on investments and foreign currency 2,474,127
- ---------------------------------------------------------------------------------------------------- ------------
Change in net assets resulting from operations $ 3,027,120
- ---------------------------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
UTILITY FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995 1994(A)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------------------------------
OPERATIONS--
- -----------------------------------------------------------------------------------
Net investment income $ 552,993 $ 13,207
- -----------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign currency transactions ($202,587
net gain and $9,887 net loss, respectively, as computed for federal tax purposes) 192,681 (10,881)
- -----------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments and translation
of assets and liabilities in foreign currency 2,281,446 (8,018)
- ----------------------------------------------------------------------------------- ------------- ------------
Change in net assets resulting from operations 3,027,120 (5,692)
- ----------------------------------------------------------------------------------- ------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -----------------------------------------------------------------------------------
Distributions from net investment income (545,930) (13,191)
- ----------------------------------------------------------------------------------- ------------- ------------
SHARE TRANSACTIONS--
- -----------------------------------------------------------------------------------
Proceeds from sale of shares 27,140,255 1,195,580
- -----------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
distributions declared 542,617 9,439
- -----------------------------------------------------------------------------------
Cost of shares redeemed (1,458,826) (211,966)
- ----------------------------------------------------------------------------------- ------------- ------------
Change in net assets resulting from share
transactions 26,224,046 993,053
- ----------------------------------------------------------------------------------- ------------- ------------
Change in net assets 28,705,236 974,170
- -----------------------------------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------------------------------
Beginning of period 974,170 --
- ----------------------------------------------------------------------------------- ------------- ------------
End of period (including undistributed net investment income of $5,636 and $16,
respectively) $ 29,679,406 $ 974,170
- ----------------------------------------------------------------------------------- ------------- ------------
</TABLE>
(a) For the period from December 9, 1993 (start of business), to December 31,
1994.
(See Notes which are an integral part of the Financial Statements)
UTILITY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995 1994(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.29 $ 9.48
- --------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------
Net investment income 0.45 0.34
- --------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and foreign currency transactions 1.74 (0.19)
- -------------------------------------------------------------------------------------------- --------- -----------
Total from investment operations 2.19 0.15
- --------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------------------------------
Distributions from net investment income (0.45) (0.34)
- -------------------------------------------------------------------------------------------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 11.03 $ 9.29
- -------------------------------------------------------------------------------------------- --------- -----------
TOTAL RETURN (B) 24.18% 1.12%
- --------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------------------------------
Expenses 0.85% 0.60%*
- --------------------------------------------------------------------------------------------
Net investment income 4.62% 4.77%*
- --------------------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 2.24% 54.83%*
- --------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $29,679 $974
- --------------------------------------------------------------------------------------------
Portfolio turnover 62% 73 %
- --------------------------------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from April 14, 1994 (date of initial
public investment) to December 31, 1994. For the period from December 9,
1993 (the start of business) to April 13, 1994, the net investment income
was distributed to the Fund's adviser.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
UTILITY FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Insurance Management Series (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as an open-end, management
investment company. The Trust consists of seven portfolios. The financial
statements included herein are only those of the Utility Fund (the "Fund"), a
diversified portfolio. The financial statements of the other portfolios are
presented separately. The assets of each portfolio are segregated and a
shareholder's interest is limited to the portfolio in which shares are held.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--Short-term securities with remaining maturities of
sixty days or less at the time of purchase may be valued at amortized cost,
which approximates fair market value. Equity securities are valued at the
last sale price reported on national security exchanges. Unlisted equity
securities are valued at prices provided by independent pricing services.
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
foreign currency transactions. Amounts as of December 31, 1995 have been
reclassified to reflect the following:
<TABLE>
<CAPTION>
INCREASE (DECREASE)
ACCUMULATED NET REALIZED
PAID-IN CAPITAL GAIN/LOSS UNDISTRIBUTED NET INVESTMENT INCOME
<S> <C> <C>
$(994) $2,437 $(1,443)
</TABLE>
Net investment income, net realized gains/losses, and net assets were not
affected by this change.
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.
UTILITY FUND
- --------------------------------------------------------------------------------
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Directors (the
"Directors"). Risks may arise from the potential inability of
counterparties to honor the terms of the repurchase agreement. Accordingly,
the Fund could receive less than the repurchase price on the sale of
collateral securities.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS--Interest income and
expenses are accrued daily. Bond premium and discount, if applicable, are
amortized as required by the Internal Revenue Code, as amended (the
"Code"). Dividend income and distributions to shareholders are recorded on
the ex-dividend date.
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.
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.
CONCENTRATION OF CREDIT RISK--The Fund invests in securities of non-U.S.
issuers. Although the Fund maintains a diversified investment portfolio,
the political or economic developments within a particular country or
region may have an adverse effect on the ability of domiciled issuers to
meet their obligations. Additionally, political or economic developments
may have an effect on the liquidity and volatility of portfolio securities
and currency holdings.
At December 31, 1995, the portfolio was diversified with the following
countries:
<TABLE>
<CAPTION>
COUNTRY % OF NET ASSETS
<S> <C>
Argentina 1.6
Brazil 0.6
Canada 0.5
Chile 0.6
Finland 0.9
Great Britain 0.8
Italy 1.3
Spain 0.9
</TABLE>
FOREIGN CURRENCY TRANSLATION--The accounting records of the Fund are
maintained in U.S. dollars. All assets and liabilities denominated in
foreign currencies ("FC") are translated into U.S. dollars based on the
rate of exchange of such currencies against U.S. dollars on the date of
valuation. Purchases and sales of securities, income and expenses are
translated at the rate of
UTILITY FUND
- --------------------------------------------------------------------------------
exchange quoted on the respective date that such transactions are recorded.
Differences between income and expense amounts recorded and collected or
paid are adjusted when reported by the custodian bank. The Fund does not
isolate that portion of the results of operations resulting from changes in
foreign exchange rates on investments from the fluctuations arising from
changes in market prices of securities held. Such fluctuations are included
with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales
of FCs, currency gains or losses realized between the trade and settlement
dates on securities transactions, the difference between the amounts of
dividends, interest, and foreign withholding taxes recorded on the Fund's
books, and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes
in the value of assets and liabilities other than investments in securities
at fiscal year end, resulting from changes in the exchange rate.
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 Board of Trustees. The Fund will not
incur any registration costs upon such resales. The Fund's restricted
securities are valued at the price provided by dealers in the secondary
market or, if no market prices are available, at the fair value as
determined by the Fund's pricing committee.
Additional information on each restricted security held at December 31,
1995 is as follows:
<TABLE>
<CAPTION>
ACQUISITION ACQUISITION
SECURITY DATES COST
<S> <C> <C>
International Paper Co. Cum. Conv. Pref 12/4/95-12/7/95 $ 135,750
Cointel, Telefonica de Argentina SA, 5/3/94-10/16/95 $ 445,081
3Com Corp., Conv. Bond 11/30/95-12/1/95 $ 135,011
National Semiconductor Corp., Conv. Bond 10/12/95-10/16/95 $ 58,214
</TABLE>
OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
UTILITY FUND
- --------------------------------------------------------------------------------
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994(A)
<S> <C> <C>
Shares sold 2,677,407 126,510
- ---------------------------------------------------------------
Shares issued to shareholders in payment of
distributions declared 52,774 1,007
- ---------------------------------------------------------------
Shares redeemed (143,617) (22,611)
- --------------------------------------------------------------- ------------ ----------
Net change resulting from share transactions 2,586,564 104,906
- --------------------------------------------------------------- ------------ ----------
</TABLE>
(a) For the period from December 9, 1993 (start of business), to December 31,
1994.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Advisers, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
.75 of 1% of the Fund's average daily net assets. The Adviser may voluntarily
choose to waive any portion of its fee and/or reimburse certain operating
expenses of the Fund. The Adviser can modify or terminate this voluntary waiver
and/or reimbursement at any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. This fee is based on the level of average aggregate
daily net assets of all funds advised by subsidiaries of Federated Investors for
the period. The administrative fee received during the period of the
Administrative Services Agreement shall be at least $125,000 per portfolio and
$30,000 per each additional class of shares.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated Services
Company ("FServ") serves as transfer and dividend disbursing agent for the Fund.
This fee is based on the size, type, and number of accounts and transactions
made by shareholders.
PORTFOLIO ACCOUNTING FEES--FServ also 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.
ORGANIZATIONAL EXPENSES--Organizational expenses of $17,759 and start-up
administrative service expenses of $31,507 were borne initially by the Adviser.
The Fund has agreed to reimburse the Adviser for the organizational and start-up
administrative expenses during the five year period following effective date.
For the period ended December 31, 1995, the Fund paid $2,368 and $4,201,
respectively, pursuant to this agreement.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
UTILITY FUND
- --------------------------------------------------------------------------------
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended December 31, 1995, were as follows:
<TABLE>
<S> <C>
PURCHASES $ 32,182,273
- --------------------------------------------------------------------------------------------------- -------------
SALES $ 7,096,446
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Board of Trustees of the Insurance Management Series
and the Shareholders of UTILITY FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Utility Fund (a portfolio of the Insurance
Management Series) as of December 31, 1995, the related statement of operations
for the year then ended and the statement of changes in net assets and financial
highlights for the periods presented. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
December 31, 1995 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 that our audits provide 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 Utility Fund as of
December 31, 1995, the results of its operations, the changes in its net assets
and its financial highlights for the respective stated periods ended in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
February 7, 1996
TRUSTEES OFFICERS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
John F. Donahue John F. Donahue
Thomas G. Bigley Chairman
John T. Conroy, Jr. J. Christopher Donahue
William J. Copeland President
J. Christopher Donahue Edward C. Gonzales
James E. Dowd Executive Vice President
Lawrence D. Ellis, M.D. John W. McGonigle
Edward L. Flaherty, Jr. Executive Vice President and Secretary
Peter E. Madden Richard B. Fisher
Gregor F. Meyer Vice President
John E. Murray, Jr. David M. Taylor
Wesley W. Posvar Treasurer
Marjorie P. Smuts S. Elliott Cohan
Assistant Secretary
</TABLE>
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded
or accompanied by the fund's prospectus which contains facts concerning its
objective and policies, management fees, expenses and other information.
- --------------------------------------------------------------------------------
U.S.
- --------------------------------------------------------------------------------
GOVERNMENT
- --------------------------------------------------------------------------------
BOND
- --------------------------------------------------------------------------------
FUND
- --------------------------------------------------------------------------------
ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1995
Insurance Management Series
[LOGO] FEDERATED SECURITIES CORP. --------------------------------
DISTRIBUTOR
--------------------------------
A subsidiary of FEDERATED INVESTORS
--------------------------------
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779 --------------------------------
Cusip 458043304
G00846-01 (2/96) [RECYCLED LOGO]
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Investor:
I am pleased to present the Annual Report to Shareholders for U.S. Government
Bond Fund, a portfolio of Insurance Management Series, for the twelve-month
period ended December 31, 1995. The report begins with the management discussion
and analysis by your fund's portfolio manager. Following the management
discussion and analysis is a complete listing of the fund's holdings and its
financial statements.
As a shareholder in U.S. Government Bond Fund, you are pursuing current income
and a degree of capital appreciation through a portfolio of U.S. government
mortgage-backed securities. While the Fund itself is not guaranteed, the payment
of principal and interest on all these securities are issued or guaranteed by
agencies of the U.S. government.
During the period ended December 31, 1995, your fund achieved a total return of
8.77%.* The net asset value increased from $9.99 at the beginning of the period
to $10.29 at the period's end. Dividends paid to shareholders over the
twelve-month report period totaled $0.54 per share. At the end of the
twelve-month report period, total assets stood at $12.3 million.
Thank you for participating in the income opportunities of U.S. Government Bond
Fund. We look forward to keeping you informed about your investment's progress.
Sincerely,
J. Christopher Donahue
President
February 15, 1996
*Performance quoted represents past performance. Investment return and principal
value will fluctuate, so that an investor's shares, when redeemed, may be worth
more or less than their original cost.
U.S. GOVERNMENT BOND FUND
- --------------------------------------------------------------------------------
MANAGEMENT DISCUSSION AND ANALYSIS
In 1995, the U.S. bond market experienced its best year in over a decade. As
yields declined, bond prices rose, fueled by a series of data indicating that
the U.S. economy was slowing and growing anticipation that the Federal Reserve
Board (the "Fed") would reverse its monetary policy.
During the first six months of 1995, yields of bonds with between two- and
five-year maturities declined by nearly 2%. The difference in spread between
short-term (two-year) and long-term (30-year) bonds increased from .18% to .82%
over the course of 1995.
The second half of 1995 saw a shift in market expectations about the Fed's
monetary policy. Investors struggled with the realization that the Fed was
transitioning toward "easing," or lowering, interest rates, at a slower pace
than expected. With the view by investors that inflation was well under control,
long-term U.S. Treasury securities became the star performers.
The dominant trend in the mortgage market during 1995 was the market directional
mortgage/ Treasury basis trade. Throughout 1995, mortgage to Treasury yield
spreads widened in market rallies and narrowed in market sell-offs. The first
and third quarters were rewarding time periods for mortgage investors, while the
second quarter was painful and the fourth quarter was uneventful. For the year,
the mortgage market did outperform the U.S. Treasury market on a
duration-adjusted basis.
U.S. Government Bond Fund invests in securities with average maturities ranging
from three to seven years. At the end of 1995, nearly 60% of the fund's assets
were invested in mortgage-backed securities, with the remainder invested in U.S.
Treasury obligations, including a repurchase agreement backed by U.S. government
obligations.
This focus on the mortgage-backed market is expected to continue, as decreased
volatility in interest rates, concerns about potential downgrades in corporate
bonds, and an increase in demand by financial institutions should result in
relatively strong performance by mortgage-backed securities in 1996.
U.S. GOVERNMENT BOND FUND
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN U.S. GOVERNMENT BOND FUND
The graph below illustrates the hypothetical investment of $10,000 in U.S.
Government Bond Fund (the "Fund") from March 28, 1994 (start of performance), to
December 31, 1995, compared to the Lehman Brothers 5 Year Treasury Bellwether
Index (LB5TB)+ and the Lipper U.S. Mortgage Funds Average (LUSMFA)++.
[Graphic representation A3 omitted. See Appendix."]
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
*The Fund's performance assumes the reinvestment of all dividends and
distributions. The LB5TB and the LUSMFA have been adjusted to reflect
reinvestment of dividends on securities in the index and average.
+The LB5TB is not adjusted to reflect sales charges, expenses, or other fees
that the SEC requires to be reflected in the Fund's performance. The index
is unmanaged.
++The LUSMFA represents the average of the total returns reported by all of the
mutual funds designated by Lipper Analytical Services, Inc. as falling into the
category, and is not adjusted to reflect any sales charges. However, these
total returns are reported net of expenses or other fees that the SEC requires
to be reflected in a fund's performance.
U.S. GOVERNMENT BOND FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------ ------------------------------------------------------------------------------------- -------------
LONG-TERM U.S. GOVERNMENT OBLIGATIONS--57.6%
- ---------------------------------------------------------------------------------------------------
$ 2,345,316 Federal Home Loan PC, 7.50% - 8.00%, 10/1/2010 - 7/1/2025 $ 2,413,239
-------------------------------------------------------------------------------------
2,397,319 Federal National Mortgage Association, 7.00% - 8.00%, 10/1/2010 -
8/1/2025 2,433,523
-------------------------------------------------------------------------------------
2,073,755 Government National Mortgage Association, 8.00% - 9.50%, 11/15/2016 - 10/15/2024 2,216,146
------------------------------------------------------------------------------------- -------------
TOTAL LONG-TERM U.S. GOVERNMENT OBLIGATIONS 7,062,908
------------------------------------------------------------------------------------- -------------
U.S. TREASURY OBLIGATIONS--28.7%
- ---------------------------------------------------------------------------------------------------
3,485,000 U.S. Treasury Notes, 5.625%, 11/30/2000 3,519,362
------------------------------------------------------------------------------------- -------------
(A) REPURCHASE AGREEMENT--12.2%
- ---------------------------------------------------------------------------------------------------
1,500,000 J.P. Morgan Securities, Inc., 5.85%, dated 12/29/1995, due 1/2/1996 (AT AMORTIZED
COST) 1,500,000
------------------------------------------------------------------------------------- -------------
TOTAL INVESTMENTS (IDENTIFIED COST $11,905,595)(B) $ 12,082,270
------------------------------------------------------------------------------------- -------------
</TABLE>
(a) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investments in the repurchase agreement is through participation in a joint
account with other Federated funds.
(b) The cost of investments for federal tax purposes amounts to $11,905,595. The
net unrealized appreciation of investments on a federal tax cost basis
amounts to $176,675, and is comprised of $176,675 appreciation and $0
depreciation at December 31, 1995.
Note: The categories of investments are shown as a percentage of net assets
($12,264,229) at December 31, 1995.
The following acronym is used throughout this portfolio:
PC--Participation Certificate
(See Notes which are an integral part of the Financial Statements)
U.S. GOVERNMENT BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------------------------
Investments in repurchase agreement $ 1,500,000
- -----------------------------------------------------------------------------------
Investments in securities 10,582,270
- ----------------------------------------------------------------------------------- -------------
Total investments in securities, at value
(identified and tax cost $11,905,595) $ 12,082,270
- --------------------------------------------------------------------------------------------------
Cash 7,398
- --------------------------------------------------------------------------------------------------
Income receivable 65,114
- --------------------------------------------------------------------------------------------------
Receivable for shares sold 124,058
- -------------------------------------------------------------------------------------------------- -------------
Total assets 12,278,840
- --------------------------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------------------------
Payable for shares redeemed 1,038
- -----------------------------------------------------------------------------------
Income distribution payable 327
- -----------------------------------------------------------------------------------
Accrued expenses 13,246
- ----------------------------------------------------------------------------------- -------------
Total liabilities 14,611
- -------------------------------------------------------------------------------------------------- -------------
NET ASSETS for 1,191,893 shares outstanding $ 12,264,229
- -------------------------------------------------------------------------------------------------- -------------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------------------------
Paid in capital $ 12,016,048
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 176,675
- --------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments 68,239
- --------------------------------------------------------------------------------------------------
Undistributed net investment income 3,267
- -------------------------------------------------------------------------------------------------- -------------
Total Net Assets $ 12,264,229
- -------------------------------------------------------------------------------------------------- -------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- --------------------------------------------------------------------------------------------------
$12,264,229 / 1,191,893 shares outstanding $10.29
- -------------------------------------------------------------------------------------------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
U.S. GOVERNMENT BOND FUND
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ------------------------------------------------------------------------------------------------------
Interest $ 345,164
- ------------------------------------------------------------------------------------------------------
EXPENSES:
- ------------------------------------------------------------------------------------------------------
Investment advisory fee $ 30,456
- -------------------------------------------------------------------------------------------
Administrative personnel and services fee 125,000
- -------------------------------------------------------------------------------------------
Custodian fees 28,952
- -------------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 18,763
- -------------------------------------------------------------------------------------------
Directors'/Trustees' fees 1,543
- -------------------------------------------------------------------------------------------
Auditing fees 4,800
- -------------------------------------------------------------------------------------------
Legal fees 2,056
- -------------------------------------------------------------------------------------------
Portfolio accounting fees 32,688
- -------------------------------------------------------------------------------------------
Share registration costs 4,726
- -------------------------------------------------------------------------------------------
Printing and postage 24,263
- -------------------------------------------------------------------------------------------
Insurance premiums 3,455
- -------------------------------------------------------------------------------------------
Miscellaneous 8,112
- ------------------------------------------------------------------------------------------- ---------
Total expenses 284,814
- -------------------------------------------------------------------------------------------
Waiver and reimbursements--
- -------------------------------------------------------------------------------------------
Waiver of investment advisory fee ($ 30,456)
- --------------------------------------------------------------------------------
Reimbursement of other operating expenses (213,565)
- -------------------------------------------------------------------------------- ---------
Total waiver and reimbursements (244,021)
- ------------------------------------------------------------------------------------------- ---------
Net expenses 40,793
- ------------------------------------------------------------------------------------------------------ ---------
Net investment income 304,371
- ------------------------------------------------------------------------------------------------------ ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ------------------------------------------------------------------------------------------------------
Net realized gain on investments 68,245
- ------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments 176,675
- ------------------------------------------------------------------------------------------------------ ---------
Net realized and unrealized gain on investments 244,920
- ------------------------------------------------------------------------------------------------------ ---------
Change in net assets resulting from operations $ 549,291
- ------------------------------------------------------------------------------------------------------ ---------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
U.S. GOVERNMENT BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995 1994(A)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------------------------------------------------------
OPERATIONS--
- -------------------------------------------------------------------------------------
Net investment income $ 304,371 $ 18,762
- -------------------------------------------------------------------------------------
Net realized gain (loss) on investments ($68,245 net gain and, $6 net loss),
respectively, as computed for federal tax purposes) 68,245 (6)
- -------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) 176,675 --
- ------------------------------------------------------------------------------------- ------------- ------------
Change in net assets resulting from operations 549,291 18,756
- ------------------------------------------------------------------------------------- ------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -------------------------------------------------------------------------------------
Distributions from net investment income (301,104) (18,762)
- ------------------------------------------------------------------------------------- ------------- ------------
SHARE TRANSACTIONS--
- -------------------------------------------------------------------------------------
Proceeds from sale of shares 13,444,158 1,519,262
- -------------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of distributions declared 292,129 11,969
- -------------------------------------------------------------------------------------
Cost of shares redeemed (2,964,009) (387,461)
- ------------------------------------------------------------------------------------- ------------- ------------
Change in net assets resulting from share transactions 10,772,278 1,143,770
- ------------------------------------------------------------------------------------- ------------- ------------
Change in net assets 11,020,465 1,143,764
- -------------------------------------------------------------------------------------
NET ASSETS:
- -------------------------------------------------------------------------------------
Beginning of period 1,243,764 100,000
- ------------------------------------------------------------------------------------- ------------- ------------
End of period (including undistributed net investment income of $3,267 and $0,
respectively) $ 12,264,229 $ 1,243,764
- ------------------------------------------------------------------------------------- ------------- ------------
</TABLE>
(a) For the period from December 8, 1993 (start of business) to December 31,
1994.
(See Notes which are an integral part of the Financial Statements)
U.S. GOVERNMENT BOND FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995 1994(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.99 $ 9.99
- --------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------
Net investment income 0.54 0.27
- --------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.30 --
- -------------------------------------------------------------------------------------------- --------- -----------
TOTAL FROM INVESTMENT OPERATIONS 0.84 0.27
- -------------------------------------------------------------------------------------------- --------- -----------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------------------------------
Distributions from net investment income (0.54) (0.27)
- -------------------------------------------------------------------------------------------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 10.29 $ 9.99
- -------------------------------------------------------------------------------------------- --------- -----------
TOTAL RETURN (B) 8.77% 2.62%
- --------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------------------------------
Expenses 0.80% 0.48%*
- --------------------------------------------------------------------------------------------
Net investment income 6.00% 3.99%*
- --------------------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 4.81% 32.83%*
- --------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $12,264 $1,244
- --------------------------------------------------------------------------------------------
Portfolio turnover 65% 0 %
- --------------------------------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from March 29, 1994 (date of initial
public investment), to December 31, 1994. For the period from December 8,
1993 (start of business), to March 28, 1994, net investment income was
distributed to the Fund's adviser.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
U.S. GOVERNMENT BOND FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Insurance Management Series (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as an open-end, management
investment company. The Trust consists of seven portfolios. The financial
statements included herein are only those of U.S. Government Bond Fund (the
"Fund"), a diversified portfolio. The financial statements of the other
portfolios are presented separately. The assets of each portfolio are segregated
and a shareholder's interest is limited to the portfolio in which shares are
held.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--Short-term securities with remaining maturities of
sixty days or less at the time of purchase may be valued at amortized cost,
which approximates fair market value. All other securities are valued at
prices provided by an independent pricing service.
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 Trustees (the
"Trustees"). 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.
U.S. GOVERNMENT BOND FUND
- --------------------------------------------------------------------------------
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.
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.
OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transaction in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995 1994(A)
<S> <C> <C>
Shares sold 1,332,658 152,142
- ------------------------------------------------------------------------------------------
Shares issued to shareholders in payment of
distributions declared 28,952 1,200
- ------------------------------------------------------------------------------------------
Shares redeemed (294,269) (38,790)
- ------------------------------------------------------------------------------------------ ---------- ---------
Net change resulting from Fund share
transactions 1,067,341 114,552
- ------------------------------------------------------------------------------------------ ---------- ---------
</TABLE>
(a) For the period from December 8, 1993, (start of business) to December 31,
1994.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Advisers, the Fund's investment adviser, (the
"Adviser"), receives for its services an annual investment advisory fee equal to
.60 of 1% of the Fund's average daily net assets. The Adviser may voluntarily
choose to waive any portion of its fee and/or reimburse certain operating
expenses of the Fund. The Adviser can modify or terminate this voluntary waiver
and/or reimbursement at any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services, under the Administrative
Services Agreement, provides the Fund with administrative personnel and
services. This fee is based on the level of average aggregate daily net assets
of all funds advised by subsidiaries of Federated Investors for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
U.S. GOVERNMENT BOND FUND
- --------------------------------------------------------------------------------
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated Services
Company ("FServ") serves as transfer and dividend disbursing agent for the Fund.
This fee 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.
ORGANIZATIONAL EXPENSES--Organizational expenses of ($20,065) and start-up
administrative service expenses of ($31,057) were borne initially by Adviser.
The Fund has agreed to reimburse Adviser for the organizational and start-up
administrative expenses during the five year period following effective date.
For the period ended December 31, 1995, the Fund paid $2,675 and $8,402
respectively to this agreement.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended
December 31, 1995, were as follows:
<TABLE>
<S> <C>
PURCHASES $ 15,400,668
- --------------------------------------------------------------------------------------------------- -------------
SALES $ 5,065,042
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Board of Trustees of the Insurance Management Series
and the Shareholders of U.S. GOVERNMENT BOND FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of U.S. Government Bond Fund (a portfolio of the
Insurance Management Series) as of December 31, 1995, the related statement of
operations for the year then ended and the statement of changes in net assets
and financial highlights for the periods presented. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, 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 that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights present
fairly, in all material respects, the financial position of U.S. Government Bond
Fund as of December 31, 1995, the results of its operations, the changes in its
net assets and its financial highlights for the respective stated periods ended
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
February 7, 1996
TRUSTEES OFFICERS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
John F. Donahue John F. Donahue
Thomas G. Bigley Chairman
John T. Conroy, Jr. J. Christopher Donahue
William J. Copeland President
J. Christopher Donahue Edward C. Gonzales
James E. Dowd Executive Vice President
Lawrence D. Ellis, M.D. John W. McGonigle
Edward L. Flaherty, Jr. Executive Vice President and Secretary
Peter E. Madden Richard B. Fisher
Gregor F. Meyer Vice President
John E. Murray, Jr. David M. Taylor
Wesley W. Posvar Treasurer
Marjorie P. Smuts S. Elliott Cohan
Assistant Secretary
</TABLE>
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not
insured or guaranteed by the U.S. government, the Federal Deposit Insurance
Corporation,
the Federal Reserve Board, or any other government agency. Investment in mutual
funds involves investment risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded
or accompanied by the fund's prospectus which contains facts concerning its
objective and policies, management fees, expenses and other information.
- --------------------------------------------------------------------------------
CORPORATE
- --------------------------------------------------------------------------------
BOND
- --------------------------------------------------------------------------------
FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1995
Insurance Management Series
[LOGO] FEDERATED SECURITIES CORP. --------------------------------
DISTRIBUTOR
--------------------------------
A subsidiary of FEDERATED INVESTORS
--------------------------------
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779 --------------------------------
Cusip 458043403
G00844-01 (2/96) [RECYCLED LOGO]
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Investor:
I am pleased to present the Annual Report to Shareholders for Corporate Bond
Fund, a portfolio of Insurance Management Series, for the twelve-month period
ended December 31, 1995. The report begins with the management discussion and
analysis by your fund's portfolio manager. Following the management discussion
and analysis is a complete listing of the fund's holdings and its financial
statements.
As a shareholder in Corporate Bond Fund, you are pursuing a high level of
current income and growth through a carefully researched portfolio of
lower-rated corporate bonds.
Consistent with a very favorable environment for bonds during the period, your
fund achieved a total return of 20.38%* for the period ended December 31, 1995.
The net asset value increased from $8.87 at the beginning of the period to $9.79
at the period's end. Dividends paid to shareholders over the twelve-month report
period totaled $0.82 per share. At the end of the twelve-month report period,
total assets stood at $20.2 million.
Thank you for participating in the income and growth opportunities of Corporate
Bond Fund. We look forward to keeping you informed about your investment's
progress.
Sincerely,
J. Christopher Donahue
President
February 15, 1996
* Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when redeemed,
may be worth more or less than their original cost.
CORPORATE BOND FUND
- --------------------------------------------------------------------------------
MANAGEMENT DISCUSSION AND ANALYSIS
The Corporate Bond Fund invests in lower quality corporate bonds to pursue high
current income and capital appreciation. Two major factors impacted the
performance of high-yield bonds during 1995. First, interest rates fell
substantially, positively impacting all fixed-income securities including
high-yield bonds. For example, the yield on 10-year Treasuries declined
approximately 2.25%. However, the yield difference between high-yield securities
and Treasuries increased as investors became more concerned with the credit
outlook for high-yield bonds as the economy slowed from its rapid pace of 1994.
Default rates also increased in 1995, impacting investors' perception of the
risk associated with owning high-yield bonds. The overall impact of these two
factors resulted in high-yield corporate bonds delivering attractive absolute
returns, although these returns trailed the returns of high-quality corporate
bonds.
The fund outperformed both the Lipper High Current Yield Funds Average and the
Lehman Brothers Single B Index* during 1995. Several factors were responsible
for this performance. First, the fund experienced no defaults during the year
and avoided the majority of near-default situations such as Color Tile, which
had substantial price declines while not officially defaulting. Second, the fund
maintained a higher quality portfolio profile than normal. This has been the
case since the fourth quarter of 1994. Higher quality high-yield bonds turned in
strong performance during the quarter as they were impacted less by the spread
widening, which impacted the overall market. Third, several industries that the
fund has recently focused on have performed well to include cable TV,
telecommunications and broadcasting. Finally, various portfolio holdings
performed well due to issuer specific fundamentals including Australis Media,
Cellular Communications International, People's Choice TV, IXC Communications,
and Affiliated Newspapers.
The fund's management expects the economy to be characterized by slow growth and
low inflation over the next few quarters. This should be a rewarding environment
for carefully selected portfolios of high-yield bonds. Selectivity will continue
to be important as financial performance across high-yield issuers will vary
widely. Given this environment, the Corporate Bond Fund continues to emphasize
companies with superior operating profiles, companies with the potential to grow
unit volume above the rate of growth of the overall economy, and companies with
highly predictable financial performance. These areas of emphasis have not
changed significantly over the past several quarters. However, given the spread
widening that has occurred, fund management is attempting to identify selected
lower quality issuers that we believe are attractive on a risk return basis.
These lower quality issuers may be superior performers in a stronger growth
environment which we believe may occur in the second half of 1996.
* The Lehman Brothers Single B Index measures the performance of bonds rated
Single B which have at least $100 million outstanding and have at least 1 year
until maturity. This index is unmanaged and actual investments cannot be made
in an index.
CORPORATE BOND FUND
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN THE CORPORATE BOND FUND
The graph below illustrates the hypothetical investment of $10,000 in the
Corporate Bond Fund (the "Fund") from March 1, 1994 (start of performance), to
December 31, 1995, compared to the Lehman Brothers Single B Rated Index
(LBSBRI)+ and the Lipper High Current Yields Fund Average (LHCYFA).++
["Graphic representation A4 omitted. See Appendix."]
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
*The Fund's performance assumes the reinvestment of all dividends and
distributions. The LBSBRI and the LHCYFA have been adjusted to reflect
reinvestment of dividends on securities in the index and average.
+The LBSBRI is not adjusted to reflect sales charges, expenses, or other
fees that the SEC requires to be reflected in the Fund's performance.
The index is unmanaged.
++The LHCYFA represents the average of the total returns reported by all of the
mutual funds designated by Lipper Analytical Services, Inc. as falling into
the category, and is not adjusted to reflect any sales charges. However, these
total returns are reported net of expenses or other fees that the SEC requires
to be reflected in a fund's performance.
CORPORATE BOND FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------ ------------------------------------------------------------------------------------ -------------
CORPORATE BONDS--88.7%
- --------------------------------------------------------------------------------------------------
AEROSPACE & DEFENSE--0.9%
------------------------------------------------------------------------------------
$ 25,000 (a)Howmet Corp., Sr. Sub. Note, 10.00%, 12/1/2003 $ 26,063
------------------------------------------------------------------------------------
150,000 Tracor, Inc., Sr. Sub. Note, 10.875%, 8/15/2001 156,563
------------------------------------------------------------------------------------ -------------
Total 182,626
------------------------------------------------------------------------------------ -------------
AUTOMOTIVE--2.3%
------------------------------------------------------------------------------------
200,000 Aftermarket Technology Co., Sr. Sub. Note, 12.00%, 8/1/2004 212,000
------------------------------------------------------------------------------------
150,000 Exide Corp., Sr. Note, 10.00%, 4/15/2005 163,125
------------------------------------------------------------------------------------
100,000 Lear Seating Corp., Sub. Note, 8.25%, 2/1/2002 98,625
------------------------------------------------------------------------------------ -------------
Total 473,750
------------------------------------------------------------------------------------ -------------
BANKING--0.8%
------------------------------------------------------------------------------------
150,000 First Nationwide Holdings, Inc., Sr. Note, 12.25%, 5/15/2001 168,750
------------------------------------------------------------------------------------ -------------
BEVERAGE & TOBACCO--1.1%
------------------------------------------------------------------------------------
100,000 Cott Corp., Sr. Note, 9.375%, 7/1/2005 100,000
------------------------------------------------------------------------------------
150,000 Dr Pepper Bottling Holdings Co., Sr. Disc. Note, 0/11.625%, 2/15/2003 123,000
------------------------------------------------------------------------------------ -------------
Total 223,000
------------------------------------------------------------------------------------ -------------
BROADCAST RADIO & TV--7.0%
------------------------------------------------------------------------------------
50,000 A-3 Holdings, Inc., Unit, 13.25%, 12/15/2006 51,000
------------------------------------------------------------------------------------
200,000 Act III Broadcasting, Inc., Sr. Sub. Note, 10.25%, 12/15/2005 205,000
------------------------------------------------------------------------------------
100,000 Allbritton Communication Co., Sr. Sub. Note, 11.50%, 8/15/2004 106,000
------------------------------------------------------------------------------------
200,000 Argyle Television, Inc., Sr. Sub., 9.75%, 11/1/2005 200,250
------------------------------------------------------------------------------------
120,000 Chancellor Broadcasting Co., Sr. Sub. Note, 12.50%, 10/1/2004 129,000
------------------------------------------------------------------------------------
200,000 NWCG Holding Corp., Sr. Disc. Note, 13.50% accrual, 6/15/1999 139,000
------------------------------------------------------------------------------------
100,000 (a)Pegasus Media, Note, 12.50%, 7/1/2005 100,000
------------------------------------------------------------------------------------
150,000 SCI Television, Inc., Sr. Secd. Note, 11.00%, 6/30/2005 160,125
------------------------------------------------------------------------------------
50,000 Sinclair Broadcast Group, Sr. Sub. Note, 10.00%, 12/15/2003 51,375
------------------------------------------------------------------------------------
</TABLE>
CORPORATE BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------ ------------------------------------------------------------------------------------ -------------
CORPORATE BONDS--CONTINUED
- --------------------------------------------------------------------------------------------------
BROADCAST RADIO & TV--CONTINUED
------------------------------------------------------------------------------------
$ 150,000 Sinclair Broadcast Group, Sr. Sub. Note, 10.00%, 9/30/2005 $ 154,125
------------------------------------------------------------------------------------
100,000 Young Broadcasting, Inc., Sr. Sub. Note, 10.125%, 2/15/2005 105,875
------------------------------------------------------------------------------------ -------------
Total 1,401,750
------------------------------------------------------------------------------------ -------------
BUSINESS EQUIPMENT & SERVICES--1.1%
------------------------------------------------------------------------------------
100,000 Monarch Acqusition Corp., Sr. Note, 12.50%, 7/1/2003 106,000
------------------------------------------------------------------------------------
100,000 United Stationers Supply Co., Sr. Sub. Note, 12.75%, 5/1/2005 109,750
------------------------------------------------------------------------------------ -------------
Total 215,750
------------------------------------------------------------------------------------ -------------
CABLE TELEVISION--10.8%
------------------------------------------------------------------------------------
50,000 Australis Media Limited, Unit, 0/14.00%, 5/15/2003 36,375
------------------------------------------------------------------------------------
50,000 Bell Cablemedia PLC, Sr. Disc. Note, 0/11.95%, 7/15/2004 35,625
------------------------------------------------------------------------------------
100,000 Cablevision Systems Co., Sr. Sub. Note, 9.25%, 11/1/2005 104,125
------------------------------------------------------------------------------------
75,000 CAI Wireless Systems, Inc., Sr. Note, 12.25%, 9/15/2002 80,437
------------------------------------------------------------------------------------
100,000 CF Cable TV, Inc., Sr. Secd. 2nd Priority Note, 11.625%, 2/15/2005 110,250
------------------------------------------------------------------------------------
300,000 Continental Cablevision, Sr. Deb., 9.50%, 8/1/2013 318,750
------------------------------------------------------------------------------------
250,000 Diamond Cable Co., Sr. Disc. Note, 0/11.75%, 12/15/2005 147,812
------------------------------------------------------------------------------------
200,000 Insight Communication Co., Sr. Sub. Note, 8.25%, 3/1/2000 203,500
------------------------------------------------------------------------------------
200,000 International Cabletel, Inc., Sr. Note, 0/12.75%, 4/15/2005 127,500
------------------------------------------------------------------------------------
150,000 Le Groupe Videotron Ltee, Sr. Note, 10.625%, 2/15/2005 161,625
------------------------------------------------------------------------------------
250,000 Peoples Choice TV Corp., Unit, 0/13.125%, 6/1/2004 146,875
------------------------------------------------------------------------------------
100,000 Rogers Cablesystems Ltd., Sr. Secd. 2nd Priority Note, 10.00%,
3/15/2005 107,875
------------------------------------------------------------------------------------
150,000 Rogers Cablesystems Ltd., Sr. Sub. GTD Note, 11.00%, 12/1/2015 161,625
------------------------------------------------------------------------------------
575,000 TeleWest PLC, Sr. Disc. Deb., 0/11.00%, 10/1/2007 348,594
------------------------------------------------------------------------------------
75,000 Wireless One, Inc., Unit, 13.00%, 10/15/2003 79,500
------------------------------------------------------------------------------------ -------------
Total 2,170,468
------------------------------------------------------------------------------------ -------------
</TABLE>
CORPORATE BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------ ------------------------------------------------------------------------------------ -------------
CORPORATE BONDS--CONTINUED
- --------------------------------------------------------------------------------------------------
CHEMICALS & PLASTICS--6.4%
------------------------------------------------------------------------------------
$ 175,000 Arcadian Partners L.P., Sr. Note, Series B, 10.75%, 5/1/2005 $ 193,375
------------------------------------------------------------------------------------
150,000 (a)Crain Industries, Inc., Sr. Sub. Note, 13.50%, 8/15/2005 152,250
------------------------------------------------------------------------------------
50,000 Foamex L.P., Sr. Note, 11.25%, 10/1/2002 49,250
------------------------------------------------------------------------------------
100,000 Foamex L.P., Sr. Sub. Deb., 11.875%, 10/1/2004 98,500
------------------------------------------------------------------------------------
325,000 G-I Holdings, Inc., Sr. Disc. Note, 11.375% accrual, 10/1/1998 251,062
------------------------------------------------------------------------------------
150,000 Harris Chemical North America, Inc., Sr. Secd. Disc. Note, 0/10.25%,
7/15/2001 146,250
------------------------------------------------------------------------------------
100,000 Polymer Group, Inc., Sr. Note, 12.25%, 7/15/2002 103,500
------------------------------------------------------------------------------------
100,000 (a)RBX Corp., Sr. Sub. Note, 11.25%, 10/15/2005 98,500
------------------------------------------------------------------------------------
50,000 UCC Investors Holdings, Inc., Sr. Sub. Note, 11.00%, 5/1/2003 51,250
------------------------------------------------------------------------------------
150,000 Uniroyal Technology Corp., Sr. Secd. Note, 11.75%, 6/1/2003 144,750
------------------------------------------------------------------------------------ -------------
Total 1,288,687
------------------------------------------------------------------------------------ -------------
CLOTHING & TEXTILES--2.2%
------------------------------------------------------------------------------------
150,000 Dan River, Inc., Sr. Sub. Note, 10.125%, 12/15/2003 139,125
------------------------------------------------------------------------------------
300,000 WestPoint Stevens, Inc., Sr. Sub. Deb., 9.375%, 12/15/2005 297,750
------------------------------------------------------------------------------------ -------------
Total 436,875
------------------------------------------------------------------------------------ -------------
CONGLOMERATES--2.1%
------------------------------------------------------------------------------------
100,000 Fairchild Industries, Inc., Sr. Secd. Note, 12.25%, 2/1/1999 107,750
------------------------------------------------------------------------------------
300,000 Sherritt Gordon Ltd., Sr. Note, 9.75%, 4/1/2003 319,500
------------------------------------------------------------------------------------ -------------
Total 427,250
------------------------------------------------------------------------------------ -------------
CONSUMER PRODUCTS--3.8%
------------------------------------------------------------------------------------
150,000 American Safety Razor Co., Sr. Note, 9.875%, 8/1/2005 153,000
------------------------------------------------------------------------------------
150,000 Herff Jones, Inc., Sr. Sub. Note, 11.00%, 8/15/2005 161,250
------------------------------------------------------------------------------------
100,000 Hosiery Corp. of America, Inc., Sr. Sub. Note, 13.75%, 8/1/2002 108,250
------------------------------------------------------------------------------------
150,000 ICON Health & Fitness, Inc., Sr. Sub. Note, 13.00%, 7/15/2002 162,750
------------------------------------------------------------------------------------
200,000 Playtex Family Products Corp., Sr. Sub. Note, 9.00%, 12/15/2003 178,000
------------------------------------------------------------------------------------ -------------
Total 763,250
------------------------------------------------------------------------------------ -------------
</TABLE>
CORPORATE BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------ ------------------------------------------------------------------------------------ -------------
CORPORATE BONDS--CONTINUED
- --------------------------------------------------------------------------------------------------
CONTAINER & GLASS PRODUCTS--3.7%
------------------------------------------------------------------------------------
$ 50,000 Owens-Illinois, Inc., Sr. Amort. Deb., 11.00%, 12/1/2003 $ 56,750
------------------------------------------------------------------------------------
100,000 Owens-Illinois, Inc., Sr. Sub. Note, 9.75%, 8/15/2004 105,125
------------------------------------------------------------------------------------
350,000 Owens-Illinois, Inc., Sr. Sub. Note, 9.95%, 10/15/2004 372,750
------------------------------------------------------------------------------------
150,000 Portola Packaging, Inc., Sr. Note, 10.75%, 10/1/2005 154,875
------------------------------------------------------------------------------------
50,000 Silgan Corp., Sr. Sub. Note, 11.75%, 6/15/2002 53,750
------------------------------------------------------------------------------------ -------------
Total 743,250
------------------------------------------------------------------------------------ -------------
COSMETICS & TOILETRIES--0.6%
------------------------------------------------------------------------------------
50,000 Revlon Consumer Products Corp., Note, 9.375%, 4/1/2001 50,750
------------------------------------------------------------------------------------
75,000 Revlon Consumer Products Corp., Sr. Sub. Note, 10.50%, 2/15/2003 76,875
------------------------------------------------------------------------------------ -------------
Total 127,625
------------------------------------------------------------------------------------ -------------
ECOLOGICAL SERVICES & EQUIPMENT--1.6%
------------------------------------------------------------------------------------
50,000 Allied Waste Industries, Inc., Sr. Sub. Note, 12.00%, 2/1/2004 54,375
------------------------------------------------------------------------------------
100,000 ICF Kaiser International, Inc., Sr. Sub. Note, 12.00%, 12/31/2003 94,500
------------------------------------------------------------------------------------
200,000 Mid-American Waste Systems, Inc., Sr. Sub. Note, 12.25%, 2/15/2003 182,000
------------------------------------------------------------------------------------ -------------
Total 330,875
------------------------------------------------------------------------------------ -------------
FARMING & AGRICULTURE--0.5%
------------------------------------------------------------------------------------
100,000 Spreckels Industries, Inc., Sr. Secd. Note, 11.50%, 9/1/2000 99,000
------------------------------------------------------------------------------------ -------------
FOOD & DRUG RETAILERS--2.4%
------------------------------------------------------------------------------------
100,000 (a)Carr-Gottstein Foods Co., Sr. Sub. Note, 12.00%, 11/15/2005 101,000
------------------------------------------------------------------------------------
125,000 Pathmark Stores, Inc., Sr. Sub. Note, 9.625%, 5/1/2003 121,875
------------------------------------------------------------------------------------
200,000 Ralph's Grocery Co., Sr. Note, 10.45%, 6/15/2004 203,500
------------------------------------------------------------------------------------
50,000 Ralph's Grocery Co., Sr. Sub. Note, 11.00%, 6/15/2005 49,625
------------------------------------------------------------------------------------ -------------
Total 476,000
------------------------------------------------------------------------------------ -------------
</TABLE>
CORPORATE BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------ ------------------------------------------------------------------------------------ -------------
CORPORATE BONDS--CONTINUED
- --------------------------------------------------------------------------------------------------
FOOD PRODUCTS--3.7%
------------------------------------------------------------------------------------
$ 200,000 Curtice-Burns Foods, Inc., Sr. Sub. Note, 12.25%, 2/1/2005 $ 207,000
------------------------------------------------------------------------------------
100,000 Doskocil Cos., Inc., Sr. Sub. Note, 9.75%, 7/15/2000 96,000
------------------------------------------------------------------------------------
100,000 PMI Acquisition Corp., Sr. Sub. Note, 10.25%, 9/1/2003 103,000
------------------------------------------------------------------------------------
200,000 Specialty Foods Corp., Sr. Note, 11.125%, 10/1/2002 191,000
------------------------------------------------------------------------------------
50,000 Specialty Foods Corp., Sr. Sub. Note, 11.25%, 8/15/2003 44,750
------------------------------------------------------------------------------------
100,000 Van de Kamp's, Inc., Sr. Sub. Note, 12.00%, 9/15/2005 104,000
------------------------------------------------------------------------------------ -------------
Total 745,750
------------------------------------------------------------------------------------ -------------
FOOD SERVICES--0.9%
------------------------------------------------------------------------------------
200,000 Flagstar Corp., Sr. Note, 10.875%, 12/1/2002 182,000
------------------------------------------------------------------------------------ -------------
FOREST PRODUCTS--2.8%
------------------------------------------------------------------------------------
50,000 Container Corp. of America, Sr. Note, 11.25%, 5/1/2004 51,625
------------------------------------------------------------------------------------
100,000 Container Corp. of America, Sr. Note, 9.75%, 4/1/2003 97,750
------------------------------------------------------------------------------------
50,000 Repap New Brunswick, 1st Priority Sr. Secd. Note, 9.875%, 7/15/2000 50,500
------------------------------------------------------------------------------------
100,000 Repap New Brunswick, 2nd Priority Sr. Secd. Note, 10.625%, 4/15/2005 98,000
------------------------------------------------------------------------------------
50,000 Riverwood International Corp., Sr. Sub. Note, 11.25%, 6/15/2002 54,500
------------------------------------------------------------------------------------
100,000 S. D. Warren Co., Sr. Sub. Note, 12.00%, 12/15/2004 110,000
------------------------------------------------------------------------------------
100,000 Stone Container Corp., Sr. Note, 9.875%, 2/1/2001 97,500
------------------------------------------------------------------------------------ -------------
Total 559,875
------------------------------------------------------------------------------------ -------------
HEALTHCARE--2.7%
------------------------------------------------------------------------------------
100,000 AmeriSource Health Corp., Sr. Deb., 11.25%, 7/15/2005 110,500
------------------------------------------------------------------------------------
100,000 Genesis Health Ventures, Inc., Sr. Sub. Note, 9.75%, 6/15/2005 106,000
------------------------------------------------------------------------------------
300,000 Tenet Healthcare Corp., Sr. Sub. Note, 10.125%, 3/1/2005 333,750
------------------------------------------------------------------------------------ -------------
Total 550,250
------------------------------------------------------------------------------------ -------------
HOME PRODUCTS & FURNISHINGS--1.4%
------------------------------------------------------------------------------------
150,000 American Standard, Inc., Sr. Sub. Disc. Deb., 0/10.50%, 6/1/2005 129,375
------------------------------------------------------------------------------------
150,000 Triangle Pacific Corp., Sr. Note, 10.50%, 8/1/2003 159,750
------------------------------------------------------------------------------------ -------------
Total 289,125
------------------------------------------------------------------------------------ -------------
</TABLE>
CORPORATE BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------ ------------------------------------------------------------------------------------ -------------
CORPORATE BONDS--CONTINUED
- --------------------------------------------------------------------------------------------------
HOTELS, MOTELS, INNS & CASINOS--0.5%
------------------------------------------------------------------------------------
$ 100,000 Motels of America, Inc., Sr. Sub. Note, 12.00%, 4/15/2004 $ 99,625
------------------------------------------------------------------------------------ -------------
INDUSTRIAL PRODUCTS & EQUIPMENT--2.0%
------------------------------------------------------------------------------------
200,000 Cabot Safety Acquisition Corp., Sr. Sub. Note, 12.50%, 7/15/2005 214,000
------------------------------------------------------------------------------------
100,000 Fairfield Manufacturing Co., Inc., Sr. Sub. Note, 11.375%, 7/1/2001 98,250
------------------------------------------------------------------------------------
100,000 Pace Industries, Inc., Sr. Note, 10.625%, 12/1/2002 88,500
------------------------------------------------------------------------------------ -------------
Total 400,750
------------------------------------------------------------------------------------ -------------
LEISURE & ENTERTAINMENT--3.3%
------------------------------------------------------------------------------------
100,000 Affinity Group, Inc., Sr. Sub. Note, 11.50%, 10/15/2003 102,000
------------------------------------------------------------------------------------
100,000 Alliance Entertainment Corp., Sr. Sub. Note, 11.25%, 7/15/2005 101,000
------------------------------------------------------------------------------------
150,000 Premier Parks, Inc., Sr. Note, 12.00%, 8/15/2003 154,875
------------------------------------------------------------------------------------
400,000 Six Flags Theme Parks, Sr. Sub. Disc. Note, 0/12.25%, 6/15/2005 314,500
------------------------------------------------------------------------------------ -------------
Total 672,375
------------------------------------------------------------------------------------ -------------
MACHINERY & EQUIPMENT--1.1%
------------------------------------------------------------------------------------
100,000 Primeco, Inc., Sr. Sub. Note, 12.75%, 3/1/2005 105,000
------------------------------------------------------------------------------------
100,000 Waters Corp., Sr. Sub. Note, 12.75%, 9/30/2004 113,000
------------------------------------------------------------------------------------ -------------
Total 218,000
------------------------------------------------------------------------------------ -------------
OIL & GAS--3.7%
------------------------------------------------------------------------------------
200,000 (a)Clark USA, Inc., Sr. Note, 10.875%, 12/1/2005 208,750
------------------------------------------------------------------------------------
150,000 Falcon Drilling Co., Inc., Sr. Note, 9.75%, 1/15/2001 153,750
------------------------------------------------------------------------------------
50,000 Falcon Drilling Co., Inc., Sr. Sub. Note, 12.50%, 3/15/2005 55,000
------------------------------------------------------------------------------------
100,000 Giant Industries, Inc., Sr. Sub. Note, 9.75%, 11/15/2003 101,625
------------------------------------------------------------------------------------
50,000 H.S. Resources, Inc., Sr. Sub. Note, 9.875%, 12/1/2003 49,313
------------------------------------------------------------------------------------
175,000 United Meridian Corp., Sr. Sub. Note, 10.375%, 10/15/2005 185,063
------------------------------------------------------------------------------------ -------------
Total 753,501
------------------------------------------------------------------------------------ -------------
PRINTING & PUBLISHING--1.5%
------------------------------------------------------------------------------------
150,000 Affiliated Newspaper, Sr. Disc. Note, 0/13.25%, 7/1/2006 94,875
------------------------------------------------------------------------------------
100,000 Garden State Newspapers, Inc., Sr. Sub. Note, 12.00%, 7/1/2004 102,000
------------------------------------------------------------------------------------
</TABLE>
CORPORATE BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------ ------------------------------------------------------------------------------------ -------------
CORPORATE BONDS--CONTINUED
- --------------------------------------------------------------------------------------------------
PRINTING & PUBLISHING--CONTINUED
------------------------------------------------------------------------------------
$ 100,000 Webcraft Technologies, Inc., Sr. Sub. Note, 9.375%, 2/15/2002 $ 98,000
------------------------------------------------------------------------------------ -------------
Total 294,875
------------------------------------------------------------------------------------ -------------
REAL ESTATE--0.8%
------------------------------------------------------------------------------------
150,000 Trizec Finance Ltd., Sr. Note, 10.875%, 10/15/2005 155,625
------------------------------------------------------------------------------------ -------------
RETAILERS--0.7%
------------------------------------------------------------------------------------
150,000 Brylane Capital Corp., Sr. Sub. Note, 10.00%, 9/1/2003 133,500
------------------------------------------------------------------------------------ -------------
SERVICES--1.0%
------------------------------------------------------------------------------------
200,000 (a)Coinmach Corp., Sr. Note, 11.75%, 11/15/2005 203,500
------------------------------------------------------------------------------------ -------------
STEEL--2.9%
------------------------------------------------------------------------------------
100,000 Acme Metals, Inc., Sr. Secd. Disc. Note, 0/13.50%, 8/1/2004 80,625
------------------------------------------------------------------------------------
100,000 Bayou Steel Corp., 1st Mtg. Note, 10.25%, 3/1/2001 89,000
------------------------------------------------------------------------------------
200,000 EnviroSource, Inc., Sr. Note, 9.75%, 6/15/2003 176,000
------------------------------------------------------------------------------------
200,000 GS Technologies Operating Co., Inc., Sr. Note, 12.00%, 9/1/2004 199,000
------------------------------------------------------------------------------------
50,000 Northwestern Steel & Wire Co., Sr. Note, 9.50%, 6/15/2001 49,250
------------------------------------------------------------------------------------ -------------
Total 593,875
------------------------------------------------------------------------------------ -------------
SURFACE TRANSPORTATION--4.7%
------------------------------------------------------------------------------------
125,000 (a)AmeriTruck Distribution Corp., Sr. Sub. Note, 12.25%, 11/15/2005 124,062
------------------------------------------------------------------------------------
200,000 Gearbulk Holding Limited, Sr. Note, 11.25%, 12/1/2004 216,000
------------------------------------------------------------------------------------
100,000 Great Dane Holdings, Inc., Sr. Sub. Deb., 12.75%, 8/1/2001 91,750
------------------------------------------------------------------------------------
100,000 Sea Containers Ltd., Sr. Note, 9.50%, 7/1/2003 99,500
------------------------------------------------------------------------------------
200,000 Stena AB, Sr. Note, 10.50%, 12/15/2005 206,500
------------------------------------------------------------------------------------
100,000 Trans Ocean Container Corp., Sr. Sub. Note, 12.25%, 7/1/2004 104,500
------------------------------------------------------------------------------------
100,000 Trism, Inc., Sr. Sub. Note, 10.75%, 12/15/2000 98,000
------------------------------------------------------------------------------------ -------------
Total 940,312
------------------------------------------------------------------------------------ -------------
TELECOMMUNICATIONS & CELLULAR--6.4%
------------------------------------------------------------------------------------
150,000 Cellular Communications International, Inc., Unit, 13.25% accrual,
8/15/2000 93,000
------------------------------------------------------------------------------------
</TABLE>
CORPORATE BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------ ------------------------------------------------------------------------------------ -------------
CORPORATE BONDS--CONTINUED
- --------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS & CELLULAR--CONTINUED
------------------------------------------------------------------------------------
$ 50,000 Fonorola, Inc., Sr. Secd. Note, 12.50%, 8/15/2002 $ 52,750
------------------------------------------------------------------------------------
200,000 (a)IXC Communications, Inc., Sr. Note, 13.00%, 10/1/2005 214,500
------------------------------------------------------------------------------------
50,000 MobileMedia Communications, Inc., Sr. Sub. Note, 9.375%, 11/1/2007 51,500
------------------------------------------------------------------------------------
150,000 NEXTEL Communications, Inc., Sr. Disc. Note, 0/11.50%, 9/1/2003 94,500
------------------------------------------------------------------------------------
50,000 NEXTEL Communications, Inc., Sr. Disc. Note, 0/9.75%, 8/15/2004 27,500
------------------------------------------------------------------------------------
250,000 Paging Network, Inc., Sr. Sub. Note, 10.125%, 8/1/2007 273,125
------------------------------------------------------------------------------------
300,000 PanAmSat, Corp., Sr. Sub. Disc. Note, 0/11.375%, 8/1/2003 246,000
------------------------------------------------------------------------------------
50,000 Peoples Telephone Co., Sr. Note, 12.25%, 7/15/2002 40,500
------------------------------------------------------------------------------------
50,000 ProNet, Inc., Sr. Sub. Note, 11.875%, 6/15/2005 55,313
------------------------------------------------------------------------------------
150,000 USA Mobile Communications, Inc., Sr. Note, 9.50%, 2/1/2004 149,250
------------------------------------------------------------------------------------ -------------
Total 1,297,938
------------------------------------------------------------------------------------ -------------
UTILITIES--1.3%
------------------------------------------------------------------------------------
225,000 California Energy Co., Inc., Sr. Disc. Note, 0/10.25%, 1/15/2004 212,625
------------------------------------------------------------------------------------
50,000 California Energy Co., Inc., Sr. Secd. Note, 9.875%, 6/30/2003 52,375
------------------------------------------------------------------------------------ -------------
Total 265,000
------------------------------------------------------------------------------------ -------------
TOTAL CORPORATE BONDS (IDENTIFIED COST $17,515,643) 17,884,782
------------------------------------------------------------------------------------ -------------
PREFERRED STOCKS--0.3%
- --------------------------------------------------------------------------------------------------
PRINTING & PUBLISHING--0.3%
------------------------------------------------------------------------------------
515 K-III Communications Corp., Cumulative PIK Pfd., Series B, 11.625% 51,453
------------------------------------------------------------------------------------ -------------
TOTAL PREFERRED STOCKS (IDENTIFIED COST $48,888) 51,453
------------------------------------------------------------------------------------ -------------
COMMON STOCKS--0.0%
- --------------------------------------------------------------------------------------------------
BROADCAST RADIO & TV--0.0%
------------------------------------------------------------------------------------
10 (a)Pegasus Media, Class B 3,000
------------------------------------------------------------------------------------ -------------
FOOD & DRUG RETAILERS--0.0%
------------------------------------------------------------------------------------
883 Grand Union Co. 6,622
------------------------------------------------------------------------------------ -------------
</TABLE>
CORPORATE BOND FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------ ------------------------------------------------------------------------------------ -------------
COMMON STOCKS--CONTINUED
- --------------------------------------------------------------------------------------------------
PRINTING & PUBLISHING--0.0%
------------------------------------------------------------------------------------
50 Affiliated Newspaper $ 1,250
------------------------------------------------------------------------------------ -------------
TOTAL COMMON STOCKS (IDENTIFIED COST $54,625) 10,872
------------------------------------------------------------------------------------ -------------
(B) REPURCHASE AGREEMENT--11.6%
- --------------------------------------------------------------------------------------------------
$ 2,335,000 J.P. Morgan Securities, Inc., 5.85%, dated 12/29/1995, due 1/2/1996
(at amortized cost) $ 2,335,000
------------------------------------------------------------------------------------ -------------
TOTAL INVESTMENTS (IDENTIFIED COST $19,954,156) (C) $ 20,282,107
------------------------------------------------------------------------------------ -------------
</TABLE>
(a) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At the end of the period, these securities
amounted to $1,231,625 which represents 6.1% of net assets.
(b) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
(c) The cost of investments for federal tax purposes amounts to $19,956,406.
The unrealized appreciation on a federal tax cost basis amounts to
$325,701, which is comprised of $499,312 appreciation and $173,611
depreciation at December 31, 1995.
Note: The categories of investments are shown as a percentage of net assets
($20,165,015) at December 31, 1995.
The following acronyms are used throughout this portfolio:
GTD--Guarantee
PIK--Payment in Kind
PLC--Public Limited Company
(See Notes which are an integral part of the Financial Statements)
CORPORATE BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -----------------------------------------------------------------------------------
Investment in repurchase agreement $ 2,335,000
- -----------------------------------------------------------------------------------
Investments in securities 17,947,107
- ----------------------------------------------------------------------------------- -------------
Total investments in securities, at value (identified cost $19,954,156, and
tax cost $19,956,406) $ 20,282,107
- --------------------------------------------------------------------------------------------------
Cash 480
- --------------------------------------------------------------------------------------------------
Income receivable 426,146
- --------------------------------------------------------------------------------------------------
Receivable for investments sold 52,764
- --------------------------------------------------------------------------------------------------
Receivable for shares sold 50,510
- -------------------------------------------------------------------------------------------------- -------------
Total assets 20,812,007
- --------------------------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------------------------
Payable for investments purchased 633,610
- -----------------------------------------------------------------------------------
Payable for shares redeemed 355
- -----------------------------------------------------------------------------------
Accrued expenses 13,027
- ----------------------------------------------------------------------------------- -------------
Total liabilities 646,992
- -------------------------------------------------------------------------------------------------- -------------
Net Assets for 2,058,766 shares outstanding $ 20,165,015
- -------------------------------------------------------------------------------------------------- -------------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------------------------
Paid in capital $ 19,816,165
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 327,951
- --------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (6,564)
- --------------------------------------------------------------------------------------------------
Undistributed net investment income 27,463
- -------------------------------------------------------------------------------------------------- -------------
Total Net Assets $ 20,165,015
- -------------------------------------------------------------------------------------------------- -------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
$20,165,015 / 2,058,766 shares outstanding $9.79
- -------------------------------------------------------------------------------------------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
CORPORATE BOND FUND
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------------------------
Dividends $ 1,388
- ----------------------------------------------------------------------------------------------------
Interest 777,957
- ---------------------------------------------------------------------------------------------------- ------------
Total income 779,345
- ----------------------------------------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------------------------------------------
Investment advisory fee $ 46,425
- ---------------------------------------------------------------------------------------
Administrative personnel and services fee 125,000
- ---------------------------------------------------------------------------------------
Custodian fees 32,179
- ---------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 14,343
- ---------------------------------------------------------------------------------------
Directors'/Trustees' fees 2,107
- ---------------------------------------------------------------------------------------
Auditing fees 8,238
- ---------------------------------------------------------------------------------------
Legal fees 2,828
- ---------------------------------------------------------------------------------------
Portfolio accounting fees 41,428
- ---------------------------------------------------------------------------------------
Share registration costs 7,109
- ---------------------------------------------------------------------------------------
Printing and postage 34,900
- ---------------------------------------------------------------------------------------
Insurance premiums 3,464
- ---------------------------------------------------------------------------------------
Miscellaneous 7,166
- --------------------------------------------------------------------------------------- -----------
Total expenses 325,187
- ---------------------------------------------------------------------------------------
Waiver and reimbursements--
- ---------------------------------------------------------------------------------------
]Waiver of investment advisory fee ($46,425)
- --------------------------------------------------------------------------
Reimbursement of other operating expenses (216,562)
- -------------------------------------------------------------------------- -----------
Total waiver and reimbursements (262,987)
- --------------------------------------------------------------------------------------- -----------
Net expenses 62,200
- ---------------------------------------------------------------------------------------------------- ------------
Net investment income 717,145
- ---------------------------------------------------------------------------------------------------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ----------------------------------------------------------------------------------------------------
Net realized gain on investments 5,784
- ----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments 493,099
- ---------------------------------------------------------------------------------------------------- ------------
Net realized and unrealized gain on investments 498,883
- ---------------------------------------------------------------------------------------------------- ------------
Change in net assets resulting from operations $ 1,216,028
- ---------------------------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
CORPORATE BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
<S> <C> <C>
1995 1994(A)
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------------------------------------------------------
OPERATIONS--
- -------------------------------------------------------------------------------------
Net investment income $ 717,145 $ 121,011
- -------------------------------------------------------------------------------------
Net realized gain (loss) on investments ($8,035 net gain and $12,348 net loss,
respectively, as computed for federal tax purposes) 5,784 (12,348)
- -------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) 493,099 (165,148)
- ------------------------------------------------------------------------------------- ------------- ------------
Change in assets resulting from operations 1,216,028 (56,485)
- ------------------------------------------------------------------------------------- ------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -------------------------------------------------------------------------------------
Distributions from net investment income (687,618) (121,011)
- -------------------------------------------------------------------------------------
Distributions in excess of net investment income -- (2,064)
- ------------------------------------------------------------------------------------- ------------- ------------
Change in net assets resulting from distributions to shareholders (687,618) (123,075)
- ------------------------------------------------------------------------------------- ------------- ------------
SHARE TRANSACTIONS--
- -------------------------------------------------------------------------------------
Proceeds from sale of shares 21,185,904 2,484,492
- -------------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
distributions declared 686,601 20,705
- -------------------------------------------------------------------------------------
Cost of shares redeemed (3,692,843) (868,694)
- ------------------------------------------------------------------------------------- ------------- ------------
Change in net assets resulting from share
transactions 18,179,662 1,636,503
- ------------------------------------------------------------------------------------- ------------- ------------
Change in net assets 18,708,072 1,456,943
- -------------------------------------------------------------------------------------
NET ASSETS:
- -------------------------------------------------------------------------------------
Beginning of period 1,456,943 --
- ------------------------------------------------------------------------------------- ------------- ------------
End of period (including undistributed net investment income of $27,463 and $0,
respectively) $ 20,165,015 $ 1,456,943
- ------------------------------------------------------------------------------------- ------------- ------------
</TABLE>
(a) For the period from December 9, 1993 (start of business) to December 31,
1994.
(See Notes which are an integral part of the Financial Statements)
CORPORATE BOND FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995 1994(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.87 $ 10.00
- --------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------
Net investment income 0.85 0.75
- --------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.89 (1.12)
- -------------------------------------------------------------------------------------------- --------- -----------
Total from investment operations 1.74 (0.37)
- --------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------------------------------
Distributions from net investment income (0.82) (0.75)
- --------------------------------------------------------------------------------------------
Distributions in excess of net investment income (d) -- (0.01)
- -------------------------------------------------------------------------------------------- --------- -----------
Total distributions (0.82) (0.76)
- -------------------------------------------------------------------------------------------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 9.79 $ 8.87
- -------------------------------------------------------------------------------------------- --------- -----------
TOTAL RETURN (B) 20.38% (3.73%)
- --------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------------------------------
Expenses 0.80% 0.41%*
- --------------------------------------------------------------------------------------------
Net investment income 9.27% 9.11%*
- --------------------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 3.40% 10.01%*
- --------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $20,165 $1,457
- --------------------------------------------------------------------------------------------
Portfolio turnover 48% 18%
- --------------------------------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from February 2, 1994 (date of initial
public investment) to December 31, 1994. For the period from December 9,
1993 (the start of business) to February 1, 1994, the Fund had no public
investment.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(d) Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal income tax
purposes.
(See Notes which are an integral part of the Financial Statements)
CORPORATE BOND FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
1. ORGANIZATION
Insurance Management Series (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as an open-end, management
investment company. The Trust consists of seven portfolios. The financial
statements included herein are only those of Corporate Bond Fund (the "Fund"), a
diversified portfolio. The financial statements of the other portfolios are
presented separately. The assets of each portfolio are segregated and a
shareholder's interest is limited to the portfolio in which shares are held.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--Short-term securities with remaining maturities of
sixty days or less at the time of purchase may be valued at amortized cost,
which approximates fair market value. All other securities are valued at
prices provided by an independent pricing service.
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 Trustees (the
"Trustees"). Risks may arise from the potential inability of counterparties
to honor the terms of the repurchase agreement. Accordingly, the Fund could
receive less than the repurchase price on the sale of collateral
securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code"). Dividend
income and distributions to shareholders are recorded on the ex-dividend
date. Distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
These distributions do not represent a return of capital for federal income
tax purposes.
CORPORATE BOND FUND
- --------------------------------------------------------------------------------
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 December 31, 1995, the Fund,
for federal tax purposes, had a capital loss carryforward of $4,313, 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 $4,313
</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 Board of Trustees. The Fund will not
incur any registration costs upon such resales. The Fund's restricted
securities are valued at the price provided by dealers in the secondary
market or, if no market prices are available, at the fair value as
determined by the Fund's pricing committee.
Additional information on each restricted security held at December 31,
1995 is as follows:
<TABLE>
<CAPTION>
FUND
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
AmeriTruck Distribution Corp. 11/1/95-12/21/95 $ 123,696
Carr-Gottstein Foods Co. 11/9/95 $ 100,000
Clark USA, Inc. 12/8/95 $ 206,500
Coinmach Corp. 11/14/95-12/28/95 $ 200,938
Crain Industries, Inc. 8/22/95-12/14/95 $ 150,375
Howmet Corp. 11/22/95 $ 25,000
IXC Communications, Inc. 9/25/95-10/31/95 $ 199,528
Pegasus Media 6/30/95-11/17/95 $ 101,000
RBX Corp. 10/6/95 $ 100,000
</TABLE>
CORPORATE BOND FUND
- --------------------------------------------------------------------------------
INVESTMENT RISKS--Although the Fund has a diversified portfolio, the Fund
has 100% of its portfolio invested in lower rated and comparable quality
unrated high yield securities. Investments in higher yield securities are
accomplished by a greater degree of credit risk and the risk tends to be
more sensitive to economic conditions than higher rated securities. The
risk of loss due to default by the issuer may be significantly greater for
the holders of high yielding securities because such securities are
generally unsecured and are often subordinated to other creditors of the
isser. The Fund held no defaulted securities at December 31, 1995.
OTHER--Investment transactions are accounted for on the trade date.
3. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995 1994(A)
<S> <C> <C>
Shares sold 2,211,100 257,641
- ------------------------------------------------------------------------------------------
Shares issued to shareholders in payment of
distributions declared 71,640 2,295
- ------------------------------------------------------------------------------------------
Shares redeemed (388,244) (95,666)
- ------------------------------------------------------------------------------------------ ---------- ---------
Net change resulting from share transactions 1,894,496 164,270
- ------------------------------------------------------------------------------------------ ---------- ---------
</TABLE>
(a) For the period from December 9, 1993 (start of business) to December 31,
1994.
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Advisers, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
.60 of 1% of the Fund's average daily net assets. The Adviser may voluntarily
choose to waive any portion of its fee and/or reimburse certain operating
expenses of the Fund. The Adviser can modify or terminate this voluntary waiver
and/or reimbursement at any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services, under the Administrative
Services Agreement, provides the Fund with administrative personnel and
services. This fee is based on the level of average aggregate daily net assets
of all funds advised by subsidiaries of Federated Investors for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
CORPORATE BOND FUND
- --------------------------------------------------------------------------------
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated Services
Company ("FServ") serves as transfer and dividend disbursing agent for the Fund.
This fee is based on the size, type, and number of accounts and transactions
made by shareholders.
PORTFOLIO ACCOUNTING FEES--FServ also 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.
ORGANIZATIONAL EXPENSES--Organizational expenses ($16,313) and start-up
administrative service expenses ($31,507) were borne initially by the Adviser.
The Fund has agreed to reimburse the Adviser for the organizational expenses and
start-up administrative expenses during the five year period following December
15, 1993 (date the Fund became effective). For the period ended December 31,
1995, the Fund paid $2,175 and $4,201, respectively, pursuant to this agreement.
GENERAL--Certain of the Officers and Trustees of the Fund are Officers and
Directors or Trustees of the above companies.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended December 31, 1995, were as follows:
<TABLE>
<S> <C>
PURCHASES $ 19,507,549
- --------------------------------------------------------------------------------------------------- -------------
SALES $ 3,541,470
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Board of Trustees of the Insurance Management Series
and the Shareholders of CORPORATE BOND FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Corporate Bond Fund (a portfolio of the
Insurance Management Series) as of December 31, 1995, the related statement of
operations for the year then ended and the statement of changes in net assets
and financial highlights for the periods presented. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, 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 that our audits provide 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 Corporate Bond Fund
as of December 31, 1995, the results of its operations, the changes in its net
assets and its financial highlights for the respective stated periods ended in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
February 7, 1996
TRUSTEES OFFICERS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
John F. Donahue John F. Donahue
Thomas G. Bigley Chairman
John T. Conroy, Jr. J. Christopher Donahue
William J. Copeland President
J. Christopher Donahue Edward C. Gonzales
James E. Dowd Executive Vice President
Lawrence D. Ellis, M.D. John W. McGonigle
Edward L. Flaherty, Jr. Executive Vice President and Secretary
Peter E. Madden Richard B. Fisher
Gregor F. Meyer Vice President
John E. Murray, Jr. David M. Taylor
Wesley W. Posvar Treasurer
Marjorie P. Smuts S. Elliott Cohan
Assistant Secretary
</TABLE>
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded
or accompanied by the fund's prospectus which contains facts concerning its
objective and policies, management fees, expenses and other information.
- --------------------------------------------------------------------------------
PRIME
- --------------------------------------------------------------------------------
MONEY
- --------------------------------------------------------------------------------
FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1995
Insurance Management Series
[LOGO] FEDERATED SECURITIES CORP. --------------------------------
DISTRIBUTOR
--------------------------------
A subsidiary of FEDERATED INVESTORS
--------------------------------
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779 --------------------------------
Cusip 458043106
G00842-01 (2/96) [RECYCLED LOGO]
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Investor:
I am pleased to present the Annual Report to Shareholders of Prime Money Fund, a
portfolio of Insurance Management Series, for the twelve-month period ended
December 31, 1995. This report includes an investment review by the fund's
portfolio manager, a listing of your fund's investments, and complete financial
information.
During the report period, the fund's portfolio of high-quality money market
securities provided shareholders with dividends of $0.05 per share. Of course,
the fund also maintained a stable share value of $1.00.* The fund's net assets
reached $17.8 million on the last day of the report period.
Thank you for using Prime Money Fund as a way to pursue daily income on your
ready cash. We look forward to keeping you informed about your investment's
progress.
Sincerely,
J. Christopher Donahue
President
February 15, 1996
* Money market funds seek to maintain a stable net asset value of $1.00 per
share. There is no assurance that they will be able to do so. An investment in
the fund is neither insured nor guaranteed by the U.S. government.
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
During the reporting period, short-term interest rates held steady for the first
quarter of 1995 despite a hike in the Federal Funds target rate from 5.50% to
6.00% on February 1, 1995. From the end of April however, short-term rates began
to decline with the biggest drop of 25 basis points coming on July 6, 1995,
following a rate cut. At that time, the Federal Reserve Board (the "Fed")
lowered the Federal Funds target rate from 6.00% to 5.75%. Rates then held
steady for the third quarter of 1995 before continuing to decline modestly in
the last several months of the year. The Fed took action one more time on
December 19, 1995, and lowered the Federal Funds target rate from 5.75% to
5.50%, precisely the same level at which 1995 began.
In response to this rate environment, the fund's average maturity target range
was lengthened from 30-40 days to 40-50 days. This reflects management's bias
towards a neutral to modestly easing Fed through early 1996. In addition,
management continues to invest the fund in a barbelled style with 25%-30% of
fund investments in variable rate demand notes, 10%-15% in overnight securities
and the remainder of the portfolio laddered out to the six-month to twelve-month
area of the yield curve. Management's outlook is for a modestly easing to
neutral Fed for the beginning of 1996. The structure of a barbell should allow
the fund to pursue the higher yields of longer-dated securities. In addition,
the longer average maturity should also be beneficial in a declining rate
environment.
Given the market conditions, the fund has performed as follows: during the
twelve-months ended December 31, 1995, the net assets of the fund increased from
$0.6 to $17.8 million, while the
7-day net yield increased from 4.16% to 4.95%.* The effective average maturity
of the fund on
December 29, 1995, was 42 days.
* Performance quoted represents past performance and is not indicative of future
results. Yield will vary. Performance information does not reflect the charges
and expenses of a variable annuity or variable life insurance contract.
PRIME MONEY FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ----------- -------------------------------------------------------------------------------------- -------------
BANK NOTES--2.8%
- ---------------------------------------------------------------------------------------------------
BANKING--2.8%
--------------------------------------------------------------------------------------
$ 500,000 Bank of New York, New York, 5.570%, 5/30/1996 $ 499,899
-------------------------------------------------------------------------------------- -------------
BANKERS ACCEPTANCE--0.8%
- ---------------------------------------------------------------------------------------------------
BANKING--0.8%
--------------------------------------------------------------------------------------
146,839 Citibank NA, New York, 5.897%, 4/12/1996 144,447
-------------------------------------------------------------------------------------- -------------
TIME DEPOSIT--1.1%
- ---------------------------------------------------------------------------------------------------
BANKING--1.1%
--------------------------------------------------------------------------------------
200,000 Bank of Nova Scotia, Toronto, 7.000%, 1/2/1996 200,000
-------------------------------------------------------------------------------------- -------------
(A) COMMERCIAL PAPER--38.3%
- ---------------------------------------------------------------------------------------------------
BANKING--11.4%
--------------------------------------------------------------------------------------
750,000 ABN AMRO N.A., Finance, Inc., (Guaranteed by ABN AMRO Bank N.V., Amsterdam), 5.640% -
5.860%, 2/16/1996 - 4/25/1996 739,398
--------------------------------------------------------------------------------------
600,000 Abbey National N.A. Corp., (Guaranteed by Abbey National Bank PLC, London), 5.697% -
5.709%, 1/8/1996 - 1/22/1996 598,918
--------------------------------------------------------------------------------------
200,000 J.P. Morgan & Co., Inc., 5.756%, 1/22/1996 199,348
--------------------------------------------------------------------------------------
500,000 Svenska Handelsbanken, Inc., (Guaranteed by Svenska Handelsbanken, Stockholm), 5.811%,
3/29/1996 493,094
-------------------------------------------------------------------------------------- -------------
Total 2,030,758
-------------------------------------------------------------------------------------- -------------
FINANCE - AUTOMOTIVE--0.5%
--------------------------------------------------------------------------------------
100,000 Ford Motor Credit Co., 5.771%, 2/5/1996 99,447
-------------------------------------------------------------------------------------- -------------
FINANCE - COMMERCIAL--20.3%
--------------------------------------------------------------------------------------
650,000 Asset Securitization Cooperative Corp., 5.738% - 5.824%,
1/19/1996 - 2/15/1996 646,756
--------------------------------------------------------------------------------------
900,000 Beta Finance, Inc., 5.611% - 5.768%, 2/5/1996 - 5/17/1996 890,818
--------------------------------------------------------------------------------------
300,000 CIT Group Holdings, Inc., 5.696% - 5.802%, 1/29/1996 - 3/22/1996 297,850
--------------------------------------------------------------------------------------
300,000 Falcon Asset Securitization Corp., 5.701%, 5/3/1996 294,321
--------------------------------------------------------------------------------------
$ 400,000 General Electric Capital Corp., 5.772%, 2/5/1996 $ 397,787
</TABLE>
PRIME MONEY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ----------- -------------------------------------------------------------------------------------- -------------
(A) COMMERCIAL PAPER--CONTINUED
- ---------------------------------------------------------------------------------------------------
FINANCE - COMMERCIAL--CONTINUED
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
800,000 Greenwich Funding Corp., 5.749%, 2/15/1996 794,330
--------------------------------------------------------------------------------------
300,000 PREFCO, 5.671%, 3/25/1996 296,094
-------------------------------------------------------------------------------------- -------------
Total 3,617,956
-------------------------------------------------------------------------------------- -------------
FINANCE - RETAIL--6.1%
--------------------------------------------------------------------------------------
600,000 American Express Credit Corp., 5.653% - 5.758%, 3/8/1996 - 6/4/1996 588,075
--------------------------------------------------------------------------------------
500,000 Associates Corp. of North America, 5.550% - 5.780%, 1/18/1996 - 6/5/1996 494,514
-------------------------------------------------------------------------------------- -------------
Total 1,082,589
-------------------------------------------------------------------------------------- -------------
TOTAL COMMERCIAL PAPER 6,830,750
-------------------------------------------------------------------------------------- -------------
CORPORATE NOTES--3.9%
- ---------------------------------------------------------------------------------------------------
FINANCE - EQUIPMENT--3.9%
--------------------------------------------------------------------------------------
137,768 Case Equipment Loan Trust 1995-B Class A-1, 5.825%, 9/15/1996 137,768
--------------------------------------------------------------------------------------
565,640 Navistar Financial 1995-A Owner Trust, 5.750%, 11/15/1996 565,632
-------------------------------------------------------------------------------------- -------------
TOTAL CORPORATE NOTES 703,400
-------------------------------------------------------------------------------------- -------------
(B) NOTES - VARIABLE--11.7%
- ---------------------------------------------------------------------------------------------------
BANKING--11.7%
--------------------------------------------------------------------------------------
200,000 Capital One Funding Corp., Series 1995-A, (Bank One, Indianapolis, IN LOC), 5.869%,
1/4/1996 200,000
--------------------------------------------------------------------------------------
200,000 Denver Urban Renewal Authority, Series 1992-B, (Banque Paribas, Paris LOC), 6.150%,
1/4/1996 200,000
--------------------------------------------------------------------------------------
200,000 Franklin, OH County of, (Huntington National Bank, Columbus, OH LOC), 5.994%, 1/4/1996 200,000
--------------------------------------------------------------------------------------
300,000 KBL Capital Fund, (Old Kent Bank & Trust Co., Grand Rapids LOC), 5.850%, 1/4/1996 300,000
--------------------------------------------------------------------------------------
800,000 PNC Bank, N.A., 5.580%, 1/2/1996 799,360
--------------------------------------------------------------------------------------
190,000 Southeast Regional Holdings, LLC Series 1995-A, (Columbus Bank and Trust Co., GA LOC),
6.069%, 1/4/1996 190,000
--------------------------------------------------------------------------------------
</TABLE>
PRIME MONEY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ----------- -------------------------------------------------------------------------------------- -------------
(B) NOTES - VARIABLE--CONTINUED
- ---------------------------------------------------------------------------------------------------
BANKING--CONTINUED
--------------------------------------------------------------------------------------
$ 200,000 Alabama State IDA, TRB Wellborn Cabinet, Inc., (Amsouth Bank N.A., Birmingham LOC),
5.930%, 1/3/1996 $ 200,000
-------------------------------------------------------------------------------------- -------------
TOTAL NOTES - VARIABLE 2,089,360
-------------------------------------------------------------------------------------- -------------
(A) GOVERNMENT AGENCY OBLIGATIONS--33.6%
- ---------------------------------------------------------------------------------------------------
FEDERAL HOME LOAN BANK, DISCOUNT NOTES--16.8%
--------------------------------------------------------------------------------------
3,000,000 5.700%, 1/2/1996 2,999,525
-------------------------------------------------------------------------------------- -------------
FEDERAL HOME LOAN MORTGAGE ASSOCIATION, DISCOUNT NOTES--16.8%
--------------------------------------------------------------------------------------
3,000,000 5.750%, 1/2/1996 2,999,521
-------------------------------------------------------------------------------------- -------------
TOTAL GOVERNMENT AGENCY OBLIGATIONS 5,999,046
-------------------------------------------------------------------------------------- -------------
(C) REPURCHASE AGREEMENTS--7.6%
- ---------------------------------------------------------------------------------------------------
353,000 First Chicago Capital Markets, Inc., 5.900%, dated 12/29/1995, due
1/2/1996 353,000
--------------------------------------------------------------------------------------
294,000 Goldman, Sachs & Co., 5.900%, dated 12/29/1995, due 1/2/1996 294,000
--------------------------------------------------------------------------------------
700,000 PaineWebber, Inc., 5.930%, dated 12/29/1995, due 1/2/1996 700,000
-------------------------------------------------------------------------------------- -------------
TOTAL REPURCHASE AGREEMENTS 1,347,000
-------------------------------------------------------------------------------------- -------------
TOTAL INVESTMENTS (AT AMORTIZED COST) (D) $ 17,813,902
-------------------------------------------------------------------------------------- -------------
</TABLE>
(a) Each issue shows the rate of discount at time of purchase for discount
issues.
(b) Current rate and next reset date shown.
(c) The repurchase agreements are fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investments in the repurchase agreements are through participation in joint
accounts with other Federated funds.
(d) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($17,837,904) at December 31, 1995.
The following acronyms are used throughout this portfolio:
IDA--Industrial Development Authority
LOC--Letter of Credit
LLC--Limited Liability Corporation
PLC--Public Limited Company
PREFCO--Preferred Receivables Funding Company
TRB--Taxable Revenue Bond
(See Notes which are an integral part of the Financial Statements)
PRIME MONEY FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ---------------------------------------------------------------------------------------------------
Total investments in securities, at amortized cost and value $ 17,813,902
- ---------------------------------------------------------------------------------------------------
Income receivable 24,136
- ---------------------------------------------------------------------------------------------------
Receivable for shares sold 95,020
- --------------------------------------------------------------------------------------------------- -------------
Total assets 17,933,058
- ---------------------------------------------------------------------------------------------------
LIABILITIES:
- ---------------------------------------------------------------------------------------------------
Payable for shares redeemed $ 71,317
- ----------------------------------------------------------------------------------------
Payable to Bank 975
- ----------------------------------------------------------------------------------------
Accrued expenses 22,862
- ---------------------------------------------------------------------------------------- ---------
Total liabilities 95,154
- --------------------------------------------------------------------------------------------------- -------------
NET ASSETS for 17,837,904 shares outstanding $ 17,837,904
- --------------------------------------------------------------------------------------------------- -------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- ---------------------------------------------------------------------------------------------------
$17,837,904 / 17,837,904 shares outstanding $1.00
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
PRIME MONEY FUND
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ------------------------------------------------------------------------------------------------------
Interest $ 480,779
- ------------------------------------------------------------------------------------------------------
EXPENSES:
- ------------------------------------------------------------------------------------------------------
Investment advisory fee $ 40,601
- -----------------------------------------------------------------------------------------
Administrative personnel and services fee 125,000
- -----------------------------------------------------------------------------------------
Custodian fees 31,687
- -----------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 14,133
- -----------------------------------------------------------------------------------------
Directors'/Trustees' fees 1,394
- -----------------------------------------------------------------------------------------
Auditing fees 3,675
- -----------------------------------------------------------------------------------------
Legal fees 1,746
- -----------------------------------------------------------------------------------------
Portfolio accounting fees 32,519
- -----------------------------------------------------------------------------------------
Share registration costs 6,341
- -----------------------------------------------------------------------------------------
Printing and postage 19,469
- -----------------------------------------------------------------------------------------
Insurance premiums 3,483
- -----------------------------------------------------------------------------------------
Miscellaneous 3,609
- ----------------------------------------------------------------------------------------- -----------
Total expenses 283,657
- -----------------------------------------------------------------------------------------
Waivers and reimbursements--
- -----------------------------------------------------------------------------------------
Waiver of investment advisory fee ($40,601)
- ----------------------------------------------------------------------------
Reimbursement of other operating expenses (177,807)
- ---------------------------------------------------------------------------- -----------
Total waivers and reimbursements (218,408)
- ----------------------------------------------------------------------------------------- -----------
Net expenses 65,249
- ------------------------------------------------------------------------------------------------------ ----------
Net investment income $ 415,530
- ------------------------------------------------------------------------------------------------------ ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
PRIME MONEY FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994(A)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- --------------------------------------------------------------
OPERATIONS--
- --------------------------------------------------------------
Net investment income $ 415,530 $ 2,449
- -------------------------------------------------------------- ---------------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS--
- --------------------------------------------------------------
Distributions from net investment income (415,530) (2,449)
- -------------------------------------------------------------- ---------------------- ------------
SHARE TRANSACTIONS--
- --------------------------------------------------------------
Proceeds from sale of shares 39,232,023 1,276,510
- --------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
distributions declared 414,549 2,491
- --------------------------------------------------------------
Cost of shares redeemed (22,360,936) (726,733)
- -------------------------------------------------------------- ---------------------- ------------
Change in net assets resulting from share
transactions 17,285,636 552,268
- -------------------------------------------------------------- ---------------------- ------------
Change in net assets 17,285,636 552,268
- --------------------------------------------------------------
NET ASSETS:
- --------------------------------------------------------------
Beginning of period 552,268 --
- -------------------------------------------------------------- ---------------------- ------------
End of period $ 17,837,904 $ 552,268
- -------------------------------------------------------------- ---------------------- ------------
</TABLE>
(a) For the period from December 10, 1993 (start of business), to December 31,
1994.
(See Notes which are an integral part of the Financial Statements)
PRIME MONEY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00
- ---------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------
Net investment income 0.05 0.01
- ---------------------------------------------------------------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------
Distributions from net investment income (0.05) (0.01)
- --------------------------------------------------------------- ------- ------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00
- --------------------------------------------------------------- ------- ------
TOTAL RETURN (B) 5.20% 0.50%
- ---------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------
Expenses 0.80% 0.80%*
- ---------------------------------------------------------------
Net investment income 5.12% 4.26%*
- ---------------------------------------------------------------
Expense waiver/reimbursement (c) 2.69% 71.84%*
- ---------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------
Net assets, end of period (000 omitted) $17,838 $552
- ---------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from November 18, 1994, (date of initial
public investment) to December 31, 1994. For the period from December 10,
1993, (start of business) to November 17, 1994, the Fund had no public
investment.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
PRIME MONEY FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Insurance Management Series (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of seven portfolios. The financial
statements included herein are only those of Prime Money Fund (the "Fund"), a
diversified portfolio. The financial statements of the other portfolios are
presented separately. The assets of each portfolio are segregated and a
shareholder's interest is limited to the portfolio in which shares are held.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--The Fund uses the amortized cost method to value its
portfolio securities in accordance with Rule 2a-7 under the Act.
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 Trustees (the
"Trustees"). 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.
PRIME MONEY FUND
- --------------------------------------------------------------------------------
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.
OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value). At
December 31, 1995, capital paid-in aggregated $17,837,904. Transactions in
shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994(A)
<S> <C> <C>
Shares sold 39,232,023 1,276,510
- ---------------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 414,549 2,491
- ---------------------------------------------------------------
Shares redeemed (22,360,936) (726,733)
- --------------------------------------------------------------- ---------------------- ------------
Net change resulting from share transactions 17,285,636 552,268
- --------------------------------------------------------------- ---------------------- ------------
</TABLE>
(a) For the period from December 10, 1993, (start of business) to December 31,
1994.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Advisers, the Fund's investment adviser, (the
"Adviser"), receives for its services an annual investment advisory fee equal to
.50 of 1% of the Fund's average daily net assets.
The Adviser may voluntarily choose to waive any portion of its fee and/or
reimburse certain operating expenses of the Fund. The Adviser can modify or
terminate this voluntary waiver and/or reimbursement at any time at its sole
discretion.
ADMINISTRATIVE FEE--Federated Administrative Services, under the Administrative
Services Agreement, provides the Fund with administrative personnel and
services. This fee is based on the level of average aggregate daily net assets
of all funds advised by subsidiaries of Federated Investors for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated Services
Company ("FServ") serves as transfer and dividend disbursing agent for the Fund.
This fee is based on the size, type, and number of accounts and transactions
made by shareholders.
PRIME MONEY FUND
- --------------------------------------------------------------------------------
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.
ORGANIZATIONAL EXPENSES--Organizational expenses of ($22,431) were borne
initially by Adviser. The Fund has agreed to reimburse Adviser for the
organizational expenses during the five year period following effective date.
For the year ended December 31, 1995, the Fund paid $2,991 pursuant to this
agreement.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Board of Trustees of the Insurance Management Series
and the Shareholders of PRIME MONEY FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Prime Money Fund (a portfolio of the Insurance
Management Series) as of December 31, 1995, the related statement of operations
for the year then ended, the statement of changes in net assets and financial
highlights for the periods presented. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995 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 that our audits provide 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 Prime Money Fund as
of December 31, 1995, the results of its operations, the changes in its net
assets and its financial highlights for the respective stated periods ended in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
February 7, 1996
TRUSTEES OFFICERS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
John F. Donahue John F. Donahue
Thomas G. Bigley Chairman
John T. Conroy, Jr. J. Christopher Donahue
William J. Copeland President
J. Christopher Donahue Edward C. Gonzales
James E. Dowd Executive Vice President
Lawrence D. Ellis, M.D. John W. McGonigle
Edward L. Flaherty, Jr. Executive Vice President and Secretary
Peter E. Madden Richard B. Fisher
Gregor F. Meyer Vice President
John E. Murray, Jr. David M. Taylor
Wesley W. Posvar Treasurer
Marjorie P. Smuts S. Elliott Cohan
Assistant Secretary
</TABLE>
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. Althogh
money market funds
seek to maintain a stable net asset value of $1.00 per share, there is no
assurance they will be
able to do so.
This report is authorized for distribution to prospective investors only when
preceded
or accompanied by the fund's prospectus which contains facts concerning its
objective and policies, management fees, expenses and other information.
- --------------------------------------------------------------------------------
INTERNATIONAL
- --------------------------------------------------------------------------------
STOCK
- --------------------------------------------------------------------------------
FUND
- --------------------------------------------------------------------------------
ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1995
Insurance Management Series
[LOGO] FEDERATED SECURITIES CORP. --------------------------------
DISTRIBUTOR
--------------------------------
A subsidiary of FEDERATED INVESTORS
--------------------------------
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779 --------------------------------
Cusip 458043601
G01077-01 (2/96) [RECYCLED LOGO]
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Investor:
I am pleased to present the Annual Report to Shareholders for International
Stock Fund, a portfolio of Insurance Management Series. This report covers the
period from May 5, 1995, when the fund first began operations, through December
31, 1995. The report begins with the management discussion and analysis by the
fund's portfolio manager. As the fund's portfolio manager discusses in the
management discussion and analysis, there appears to be reason for optimism for
the international stock markets as we enter 1996. Following the management
discussion and analysis is a complete listing of the fund's international
holdings and its financial statements.
International Stock Fund brings you long-term growth opportunities through a
broadly diversified portfolio of stocks issued by companies throughout the
world. As you pursue your long-term financial goals, international stocks can be
a wise complement to U.S. stocks. Because international stocks respond to
different influences than U.S. stocks, adding international stocks to U.S. stock
holdings may enhance the overall performance of your stock investments by
smoothing out periodic ups and downs in the U.S. market.
International stocks and U.S. stocks can perform well at different times, as was
true in the extreme during 1995. While U.S. stocks soared, international stocks
recorded only very weak gains. Consistent with the overall international market,
the fund achieved a total return of 3.50% for the period ended December 31,
1995.* The fund's net asset value increased from $10.00 at the beginning of the
period to $10.35 at the period's end. At the end of the report period, total
assets stood at $4.8 million.
Thank you for participating in the long-term growth opportunities of
international stocks through International Stock Fund. We look forward to
keeping you informed about your investment's progress.
Sincerely,
J. Christopher Donahue
President
February 15, 1996
* Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when redeemed,
may be worth more or less than their original cost.
INTERNATIONAL STOCK FUND
- --------------------------------------------------------------------------------
MANAGEMENT DISCUSSION AND ANALYSIS
We are starting 1996 on a very positive note for the international equity
markets, and the International Stock Fund is exceptionally well positioned to
take advantage of the developments now emerging. Our investment approach is to
make significant market bets only when both our quantitative and qualitative
analysis reinforces our conviction that a particular market is undervalued or
overvalued. Having raised the fund's exposure to Japan to just over 36.8% at the
end of 1995, we are very encouraged by the strong move in that market on the
first trading day of 1996 (the Tokyo Stock Price Index* rose 3.4% on January 4).
All of the elements appear to be in place for a recovery in that market.
Valuations in Japan, especially looking at price to book value and price to
cashflow, are reasonable, liquidity growth is strongly positive, and earnings
momentum is strong.
Other Asian markets are exhibiting some of the same characteristics, which lead
us to expect strong earnings growth and attractive valuations. Our remaining
Asian investments are concentrated in Singapore (2.2%), Malaysia (2.1%), and
Indonesia (1.1%). Singapore, whose gross domestic product ("GDP") grew by 8.3%
for the first three quarters of 1995, continues to exhibit low inflation and a
dynamic economy. In Malaysia, while there are concerns about the economy being
too strong (GDP rose at around 9% through September), we believe the fears of a
slowdown are already priced into the market. In Indonesia, strong economic
growth of over 7% has been accompanied by inflation rates approaching the
government's policy limit of 10%, and fiscal policy is likely to tighten.
Nonetheless, with healthy earnings growth expected for the market in 1996, we
have been able to find some very interesting companies to include in the
portfolio. The story for Thailand is similar to the rest of the region, with
strong economic growth accompanied by generally controlled inflation and high
earnings growth.
Turning to Europe, economic growth expectations are being adjusted downward
along with earnings expectations for many of the companies in the market. At the
same time, interest rates have the potential to decrease further, which should
tend to support equity values. The fund's exposure to this part of the world was
38.0% of net assets at year-end.
In Latin America, the markets are beginning to rally after a generally dismal
1995. Events such as the continuing financial problems in Mexico and the
Venezuelan devaluation have served to remind investors of the potential pitfalls
of investing in that region. Going forward, we expect to be adding to our
positions.
* The Tokyo Stock Price Index is a broad market-capitalization weighted index
for the Tokyo stock exchange. This index is unmanaged and actual investments
cannot be made in an index.
Concerning the last quarter of 1995, the fund showed a return of 1.97%** versus
a return of 4.05% for the Europe, Australia, and Far East Index ("EAFE").***
This performance was negatively impacted by our exposure (as small as it was) to
Latin America as well as some disappointing results being reported by some of
the companies held in the European portion of the portfolio. With regard to
Latin America, as mentioned earlier, the outlook is improving, and we see the
markets in Europe as having overreacted by selling off companies with good
long-term prospects for temporary reasons.
New stocks purchased during the quarter included Royal PTT Nederland, the
recently privatized Dutch telecommunications services provider. Currently valued
at less than six times cashflow and showing earnings growth in the double
digits, this is one of the cheapest telecom plays in Europe. We also bought
shares in Yamanouchi Pharmaceutical in Japan, which is now selling at less than
18-times prospective earnings, and is very attractively valued in the Japanese
context. We also bought into Nomura Securities, which gives the fund exposure to
what we believe is the premier brokerage and financial services company in
Japan. One of the long-term growth stories for Nomura is likely to be its
emergence as one of the leaders in Japan's underdeveloped corporate bond market.
** Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when redeemed,
may be worth more or less than their original cost.
*** The Morgan Stanley Europe, Australia, and Far East Index is a market
capitalization weighted foreign securities index, which is widely used to
measure the performance of European, Australian, New Zealand and Far Eastern
stock markets. This index is unmanaged and actual investments cannot be made
in an index.
INTERNATIONAL STOCK FUND
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN INTERNATIONAL STOCK FUND
The graph below illustrates the hypothetical investment of $10,000 in
International Stock Fund (the "Fund") from May 8, 1995 (start of performance),
to December 31, 1995, compared to the Morgan Stanley Capital International
Europe Australia Far East Index (EAFE).+
GRAPHIC REPRESENTATION A5 OMITTED. SEE APPENDIX.
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
*The Fund's performance assumes the reinvestment of all dividends and
distributions. The EAFE has been adjusted to reflect reinvestment of dividends
on securities in the index.
+The EAFE is not adjusted to reflect sales charges, expenses, or other fees that
the SEC requires to be reflected in the Fund's performance. The index is
unmanaged.
INTERNATIONAL STOCK FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS--84.3%
- -------------------------------------------------------------------------------------------------
EQUITY--84.3% ----------------------------------------------------------------------
ARGENTINA--0.4%
------------------------------------------------------------------------------------
BANKING--0.1%
------------------------------------------------------------------------------------
230 Banco Frances del Rio de la Plata S.A., ADR $ 6,181
------------------------------------------------------------------------------------ ---------------
ENERGY SOURCES--0.1%
------------------------------------------------------------------------------------
200 YPF Sociedad Anonima, ADR 4,325
------------------------------------------------------------------------------------ ---------------
MULTI-INDUSTRY--0.1%
------------------------------------------------------------------------------------
900 Compania Naviera Perez Companc SA, Class B 4,768
------------------------------------------------------------------------------------ ---------------
REAL ESTATE--0.1%
------------------------------------------------------------------------------------
202 (a)IRSA Inversiones Y Representaciones S.A., GDR 5,151
------------------------------------------------------------------------------------ ---------------
TOTAL ARGENTINA 20,425
------------------------------------------------------------------------------------ ---------------
AUSTRALIA--1.6%
------------------------------------------------------------------------------------
BROADCASTING & PUBLISHING--0.5%
------------------------------------------------------------------------------------
4,500 News Corp., Ltd. 24,015
------------------------------------------------------------------------------------ ---------------
ENERGY SOURCES--0.6%
------------------------------------------------------------------------------------
5,000 Woodside Petroleum, Ltd. 25,569
------------------------------------------------------------------------------------ ---------------
MERCHANDISING--0.5%
------------------------------------------------------------------------------------
10,000 Woolworth's, Ltd. 24,082
------------------------------------------------------------------------------------ ---------------
TOTAL AUSTRALIA 73,666
------------------------------------------------------------------------------------ ---------------
FRANCE--4.6%
------------------------------------------------------------------------------------
BANKING--0.5%
------------------------------------------------------------------------------------
400 Compagnie Financiere de Paribas, Class A 21,932
------------------------------------------------------------------------------------ ---------------
BEVERAGE & TOBACCO--0.7%
------------------------------------------------------------------------------------
165 LVMH (Moet-Hennessy) 34,368
------------------------------------------------------------------------------------ ---------------
</TABLE>
INTERNATIONAL STOCK FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
FOREIGN EQUITY--CONTINUED
------------------------------------------------------------------------------------
FRANCE--CONTINUED
------------------------------------------------------------------------------------
BUILDING MATERIALS & COMPONENTS--0.6%
------------------------------------------------------------------------------------
460 Lafarge-Coppee $ 29,637
------------------------------------------------------------------------------------ ---------------
HEALTH & PERSONAL CARE--0.5%
------------------------------------------------------------------------------------
228 Clarins 21,697
------------------------------------------------------------------------------------ ---------------
INSURANCE--0.8%
------------------------------------------------------------------------------------
350 AXA 23,586
------------------------------------------------------------------------------------
500 Assurances Generales de France 16,745
------------------------------------------------------------------------------------ ---------------
Total 40,331
------------------------------------------------------------------------------------ ---------------
LEISURE & TOURISM--0.4%
------------------------------------------------------------------------------------
150 Accor SA 19,420
------------------------------------------------------------------------------------ ---------------
MULTI-INDUSTRY--1.1%
------------------------------------------------------------------------------------
1,400 Lagardere Groupe 25,730
------------------------------------------------------------------------------------
270 Lyonnaise Des Eaux SA 25,997
------------------------------------------------------------------------------------ ---------------
Total 51,727
------------------------------------------------------------------------------------ ---------------
TOTAL FRANCE 219,112
------------------------------------------------------------------------------------ ---------------
GERMANY--3.8%
------------------------------------------------------------------------------------
BANKING--1.2%
------------------------------------------------------------------------------------
115 Commerzbank AG, Frankfurt 27,177
------------------------------------------------------------------------------------
660 Deutsche Bank, AG 31,272
------------------------------------------------------------------------------------ ---------------
Total 58,449
------------------------------------------------------------------------------------ ---------------
CHEMICALS--0.3%
------------------------------------------------------------------------------------
65 BASF AG 14,477
------------------------------------------------------------------------------------ ---------------
CONSTRUCTION & HOUSING--0.4%
------------------------------------------------------------------------------------
50 Hochtief AG 21,332
------------------------------------------------------------------------------------ ---------------
ELECTRICAL & ELECTRONICS--0.6%
------------------------------------------------------------------------------------
50 Siemens AG 27,362
------------------------------------------------------------------------------------ ---------------
</TABLE>
INTERNATIONAL STOCK FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
FOREIGN EQUITY--CONTINUED
------------------------------------------------------------------------------------
GERMANY--CONTINUED
------------------------------------------------------------------------------------
MACHINERY & ENGINEERING--1.0%
------------------------------------------------------------------------------------
30 Linde AG $ 17,504
------------------------------------------------------------------------------------
90 Mannesmann AG 28,653
------------------------------------------------------------------------------------ ---------------
Total 46,157
------------------------------------------------------------------------------------ ---------------
MERCHANDISING--0.3%
------------------------------------------------------------------------------------
40 Kaufhof Holding AG 12,185
------------------------------------------------------------------------------------ ---------------
TOTAL GERMANY 179,962
------------------------------------------------------------------------------------ ---------------
HONG KONG--2.7%
------------------------------------------------------------------------------------
BANKING--0.3%
------------------------------------------------------------------------------------
1,000 HSBC Holdings 15,131
------------------------------------------------------------------------------------ ---------------
BROADCASTING & PUBLISHING--0.5%
------------------------------------------------------------------------------------
6,000 Television Broadcasting 21,377
------------------------------------------------------------------------------------ ---------------
FINANCIAL SERVICES--0.4%
------------------------------------------------------------------------------------
48,000 Manhattan Card Co., Ltd. 20,485
------------------------------------------------------------------------------------ ---------------
REAL ESTATE--1.0%
------------------------------------------------------------------------------------
23,000 Amoy Properties, Ltd. 22,903
------------------------------------------------------------------------------------
3,000 Sun Hung Kai Properties 24,539
------------------------------------------------------------------------------------ ---------------
Total 47,442
------------------------------------------------------------------------------------ ---------------
TELECOMMUNICATIONS--0.5%
------------------------------------------------------------------------------------
13,200 Hong Kong Telecom 23,558
------------------------------------------------------------------------------------ ---------------
TOTAL HONG KONG 127,993
------------------------------------------------------------------------------------ ---------------
INDONESIA--1.1%
------------------------------------------------------------------------------------
AUTOMOBILE--0.6%
------------------------------------------------------------------------------------
8,000 PT Astra International 16,619
------------------------------------------------------------------------------------
5,000 PT United Tractors 9,403
------------------------------------------------------------------------------------ ---------------
Total 26,022
------------------------------------------------------------------------------------ ---------------
</TABLE>
INTERNATIONAL STOCK FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
FOREIGN EQUITY--CONTINUED
------------------------------------------------------------------------------------
INDONESIA--CONTINUED
------------------------------------------------------------------------------------
BANKING--0.1%
------------------------------------------------------------------------------------
4,000 Lippo Bank $ 6,167
------------------------------------------------------------------------------------ ---------------
BUILDING MATERIALS & COMPONENTS--0.2%
------------------------------------------------------------------------------------
3,000 PT Indocement 10,070
------------------------------------------------------------------------------------ ---------------
MERCHANDISING--0.2%
------------------------------------------------------------------------------------
5,000 PT Hero Supermarket 10,715
------------------------------------------------------------------------------------ ---------------
TOTAL INDONESIA 52,974
------------------------------------------------------------------------------------ ---------------
ITALY--1.4%
------------------------------------------------------------------------------------
MERCHANDISING--0.8%
------------------------------------------------------------------------------------
5,700 La Rinascente S.P.A. 34,492
------------------------------------------------------------------------------------ ---------------
TELECOMMUNICATIONS--0.6%
------------------------------------------------------------------------------------
17,150 (a)Telecom Italia Mobile 30,183
------------------------------------------------------------------------------------ ---------------
TOTAL ITALY 64,675
------------------------------------------------------------------------------------ ---------------
JAPAN--36.8%
------------------------------------------------------------------------------------
BANKING--0.8%
------------------------------------------------------------------------------------
3,000 Sakura Bank Ltd., Tokyo 38,063
------------------------------------------------------------------------------------ ---------------
BUILDING MATERIALS & COMPONENTS--2.1%
------------------------------------------------------------------------------------
5,000 Nihon Cement Co., Ltd. 33,414
------------------------------------------------------------------------------------
2,000 Tostem Corp. 66,441
------------------------------------------------------------------------------------ ---------------
Total 99,855
------------------------------------------------------------------------------------ ---------------
BUSINESS & PUBLIC SERVICES--3.5%
------------------------------------------------------------------------------------
3,000 Dai Nippon Printing Co., Ltd. 50,848
------------------------------------------------------------------------------------
2,000 Kokuyo Co. 46,489
------------------------------------------------------------------------------------
1,000 Secom Co. 69,540
------------------------------------------------------------------------------------ ---------------
Total 166,877
------------------------------------------------------------------------------------ ---------------
</TABLE>
INTERNATIONAL STOCK FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
FOREIGN EQUITY--CONTINUED
------------------------------------------------------------------------------------
JAPAN--CONTINUED
------------------------------------------------------------------------------------
CHEMICALS--3.1%
------------------------------------------------------------------------------------
5,000 Asahi Chemical Industry Co. Ltd. $ 38,257
------------------------------------------------------------------------------------
10,000 Dainippon Ink and Chemical, Inc. 46,586
------------------------------------------------------------------------------------
3,000 Kuraray Co., Ltd. 32,833
------------------------------------------------------------------------------------
6,000 Sumitomo Chemical Co. 29,927
------------------------------------------------------------------------------------ ---------------
Total 147,603
------------------------------------------------------------------------------------ ---------------
CONSTRUCTION & HOUSING--3.5%
------------------------------------------------------------------------------------
3,000 Kandenko Co., Ltd. 37,482
------------------------------------------------------------------------------------
5,000 Nichiei Construction 56,659
------------------------------------------------------------------------------------
3,000 Nishimatsu Construction 35,157
------------------------------------------------------------------------------------
3,000 Sekisui House, Ltd. 38,354
------------------------------------------------------------------------------------ ---------------
Total 167,652
------------------------------------------------------------------------------------ ---------------
DATA PROCESSING & REPRODUCTION--0.4%
------------------------------------------------------------------------------------
1,000 Canon, Inc. 18,111
------------------------------------------------------------------------------------ ---------------
ELECTRICAL & ELECTRONICS--0.5%
------------------------------------------------------------------------------------
2,000 NEC Corp. 24,407
------------------------------------------------------------------------------------ ---------------
FINANCIAL SERVICES--2.6%
------------------------------------------------------------------------------------
5,000 Jaccs 51,816
------------------------------------------------------------------------------------
2,000 Nomura Securities Co., Ltd. 43,584
------------------------------------------------------------------------------------
3,000 Wako Securities Co., Ltd. 26,673
------------------------------------------------------------------------------------ ---------------
Total 122,073
------------------------------------------------------------------------------------ ---------------
HEALTH & PERSONAL CARE--2.0%
------------------------------------------------------------------------------------
4,000 Kyowa Hakko Kogyo Co. 37,734
------------------------------------------------------------------------------------
1,000 Takeda Chemical Industries 16,465
------------------------------------------------------------------------------------
2,000 Yamanouchi Pharmaceutical 43,002
------------------------------------------------------------------------------------ ---------------
Total 97,201
------------------------------------------------------------------------------------ ---------------
</TABLE>
INTERNATIONAL STOCK FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
FOREIGN EQUITY--CONTINUED
------------------------------------------------------------------------------------
JAPAN--CONTINUED
------------------------------------------------------------------------------------
INDUSTRIAL COMPONENTS--3.3%
------------------------------------------------------------------------------------
3,000 Bridgestone Corp. $ 47,651
------------------------------------------------------------------------------------
6,000 Minebea Co. 50,324
------------------------------------------------------------------------------------
2,000 NGK Insulators 19,952
------------------------------------------------------------------------------------
2,000 Nippon Electric Glass Co., Ltd. 37,966
------------------------------------------------------------------------------------ ---------------
Total 155,893
------------------------------------------------------------------------------------ ---------------
INSURANCE--1.7%
------------------------------------------------------------------------------------
6,000 Mitsui Marine & Fire Insurance Co. 42,770
------------------------------------------------------------------------------------
3,000 Tokio Marine and Fire 39,225
------------------------------------------------------------------------------------ ---------------
Total 81,995
------------------------------------------------------------------------------------ ---------------
MACHINERY & ENGINEERING--3.0%
------------------------------------------------------------------------------------
7,000 Kawasaki Heavy Industries 32,203
------------------------------------------------------------------------------------
7,000 Kubota Corp. 45,085
------------------------------------------------------------------------------------
4,000 Mitsubishi Heavy Industries 31,884
------------------------------------------------------------------------------------
10,000 Sumitomo Heavy Industries 35,932
------------------------------------------------------------------------------------ ---------------
Total 145,104
------------------------------------------------------------------------------------ ---------------
MERCHANDISING--1.2%
------------------------------------------------------------------------------------
6,000 Daimaru, Inc. 46,489
------------------------------------------------------------------------------------
1,000 Matsuzakaya Co., Ltd. 12,688
------------------------------------------------------------------------------------ ---------------
Total 59,177
------------------------------------------------------------------------------------ ---------------
METALS-STEEL--1.4%
------------------------------------------------------------------------------------
9,000 Kawasaki Steel 31,380
------------------------------------------------------------------------------------
14,000 (a)NKK Corp. 37,695
------------------------------------------------------------------------------------ ---------------
Total 69,075
------------------------------------------------------------------------------------ ---------------
MISCELLANEOUS MATERIALS & COMMODITIES--0.5%
------------------------------------------------------------------------------------
5,000 Nippon Sheet Glass Co. 21,743
------------------------------------------------------------------------------------ ---------------
</TABLE>
INTERNATIONAL STOCK FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
FOREIGN EQUITY--CONTINUED
------------------------------------------------------------------------------------
JAPAN--CONTINUED
------------------------------------------------------------------------------------
REAL ESTATE--0.9%
------------------------------------------------------------------------------------
9,000 Tokyo Tatemono Co., Ltd. $ 42,712
------------------------------------------------------------------------------------ ---------------
RECREATION, OTHER CONSUMER GOODS--2.3%
------------------------------------------------------------------------------------
1,000 Sega Enterprises 55,206
------------------------------------------------------------------------------------
1,000 Sony Music Entertainment, Inc. 52,300
------------------------------------------------------------------------------------ ---------------
Total 107,506
------------------------------------------------------------------------------------ ---------------
TELECOMMUNICATIONS--1.0%
------------------------------------------------------------------------------------
6 DDI Corp. 46,489
------------------------------------------------------------------------------------ ---------------
TRANSPORTATION--AIRLINES--0.7%
------------------------------------------------------------------------------------
5,000 (a)Japan Airlines Co. 33,172
------------------------------------------------------------------------------------ ---------------
TRANSPORTATION--AUTOMOTIVE--0.4%
------------------------------------------------------------------------------------
2,000 Toyoda Machine Works 19,274
------------------------------------------------------------------------------------ ---------------
TRANSPORTATION-ROAD & RAIL--1.9%
------------------------------------------------------------------------------------
8,000 Nagoya Railroad Co., Ltd. 40,291
------------------------------------------------------------------------------------
5,000 Nippon Express Co., Ltd. 48,136
------------------------------------------------------------------------------------ ---------------
Total 88,427
------------------------------------------------------------------------------------ ---------------
TOTAL JAPAN 1,752,409
------------------------------------------------------------------------------------ ---------------
MALAYSIA--2.1%
------------------------------------------------------------------------------------
BANKING--0.4%
------------------------------------------------------------------------------------
2,000 Malayan Banking Berhad 16,852
------------------------------------------------------------------------------------ ---------------
FINANCIAL SERVICES--0.4%
------------------------------------------------------------------------------------
4,000 Hong Leong Credit Berhad 19,845
------------------------------------------------------------------------------------ ---------------
MACHINERY & ENGINEERING--0.4%
------------------------------------------------------------------------------------
7,000 UMW Holdings Bhd 18,742
------------------------------------------------------------------------------------ ---------------
METALS-STEEL--0.3%
------------------------------------------------------------------------------------
10,000 Malayawata Steel Berhad 16,301
------------------------------------------------------------------------------------ ---------------
</TABLE>
INTERNATIONAL STOCK FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
FOREIGN EQUITY--CONTINUED
------------------------------------------------------------------------------------
MALAYSIA--CONTINUED
------------------------------------------------------------------------------------
MULTI-INDUSTRY--0.2%
------------------------------------------------------------------------------------
12,000 Malayan United Industries Bhd $ 9,733
------------------------------------------------------------------------------------ ---------------
UTILITIES-ELECTRICAL & GAS--0.4%
------------------------------------------------------------------------------------
5,000 Tenaga Nasional Berhad 19,687
------------------------------------------------------------------------------------ ---------------
TOTAL MALAYSIA 101,160
------------------------------------------------------------------------------------ ---------------
MEXICO--0.6%
------------------------------------------------------------------------------------
BANKING--0.1%
------------------------------------------------------------------------------------
900 (a)Grupo Financiero Bancomer, S.A. de C.V., Class B, ADR 5,063
------------------------------------------------------------------------------------ ---------------
BEVERAGE & TOBACCO--0.1%
------------------------------------------------------------------------------------
200 Pan American Beverage, Class A 6,400
------------------------------------------------------------------------------------ ---------------
BUILDING MATERIALS & COMPONENTS--0.1%
------------------------------------------------------------------------------------
800 Cemex S.A., Class B, ADR 5,625
------------------------------------------------------------------------------------ ---------------
CONSTRUCTION & HOUSING--0.1%
------------------------------------------------------------------------------------
600 Empresas ICA Sociedad Controladora S.A., ADR 6,150
------------------------------------------------------------------------------------ ---------------
TRANSPORTATION--SHIPPING--0.2%
------------------------------------------------------------------------------------
800 (a)Transportacion Maritima Mexicana S.A., Class L, ADR 6,700
------------------------------------------------------------------------------------ ---------------
TOTAL MEXICO 29,938
------------------------------------------------------------------------------------ ---------------
NETHERLANDS--3.0%
------------------------------------------------------------------------------------
BROADCASTING & PUBLISHING--1.0%
------------------------------------------------------------------------------------
3,800 Elsevier NV 50,676
------------------------------------------------------------------------------------ ---------------
RECREATION, OTHER CONSUMER GOODS--1.0%
------------------------------------------------------------------------------------
870 Polygram 46,192
------------------------------------------------------------------------------------ ---------------
TELECOMMUNICATIONS--1.0%
------------------------------------------------------------------------------------
1,285 Royal PTT Nederland NV 46,685
------------------------------------------------------------------------------------ ---------------
TOTAL NETHERLANDS 143,553
------------------------------------------------------------------------------------ ---------------
</TABLE>
INTERNATIONAL STOCK FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
FOREIGN EQUITY--CONTINUED
------------------------------------------------------------------------------------
SINGAPORE--2.2%
------------------------------------------------------------------------------------
BANKING--0.4%
------------------------------------------------------------------------------------
2,000 United Overseas Bank, Ltd. $ 19,229
------------------------------------------------------------------------------------ ---------------
BEVERAGE & TOBACCO--0.2%
------------------------------------------------------------------------------------
1,000 Fraser and Neave Ltd. 12,725
------------------------------------------------------------------------------------ ---------------
BROADCASTING & PUBLISHING--0.4%
------------------------------------------------------------------------------------
1,000 Singapore Press Holdings, Ltd. 17,674
------------------------------------------------------------------------------------ ---------------
REAL ESTATE--0.8%
------------------------------------------------------------------------------------
6,000 First Capital Corp., Ltd. 16,628
------------------------------------------------------------------------------------
6,000 (a)Straits Steamship Land, Ltd. 20,276
------------------------------------------------------------------------------------ ---------------
Total 36,904
------------------------------------------------------------------------------------ ---------------
TRANSPORTATION-AIRLINES--0.4%
------------------------------------------------------------------------------------
2,000 Singapore Airlines Ltd. 18,664
------------------------------------------------------------------------------------ ---------------
TOTAL SINGAPORE 105,196
------------------------------------------------------------------------------------ ---------------
SPAIN--1.4%
------------------------------------------------------------------------------------
ENERGY SOURCES--0.2%
------------------------------------------------------------------------------------
350 Repsol SA 11,469
------------------------------------------------------------------------------------ ---------------
MACHINERY & ENGINEERING--0.8%
------------------------------------------------------------------------------------
350 Zardoya-Otis SA 38,232
------------------------------------------------------------------------------------ ---------------
MERCHANDISING--0.2%
------------------------------------------------------------------------------------
400 Centros Comerciales Pryca, SA 8,392
------------------------------------------------------------------------------------ ---------------
METALS-STEEL--0.2%
------------------------------------------------------------------------------------
100 Acerinox SA 10,115
------------------------------------------------------------------------------------ ---------------
TOTAL SPAIN 68,208
------------------------------------------------------------------------------------ ---------------
SWEDEN--1.6%
------------------------------------------------------------------------------------
FOREST PRODUCTS & PAPER--0.5%
------------------------------------------------------------------------------------
2,100 Stora Kopparbergs, Class A 24,670
------------------------------------------------------------------------------------ ---------------
</TABLE>
INTERNATIONAL STOCK FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
FOREIGN EQUITY--CONTINUED
------------------------------------------------------------------------------------
SWEDEN--CONTINUED
------------------------------------------------------------------------------------
INDUSTRIAL COMPONENTS--0.6%
------------------------------------------------------------------------------------
450 Autoliv AB $ 26,296
------------------------------------------------------------------------------------ ---------------
MACHINERY & ENGINEERING--0.5%
------------------------------------------------------------------------------------
1,000 Svedala Industri 25,754
------------------------------------------------------------------------------------ ---------------
TOTAL SWEDEN 76,720
------------------------------------------------------------------------------------ ---------------
SWITZERLAND--4.9%
------------------------------------------------------------------------------------
BANKING--0.7%
------------------------------------------------------------------------------------
300 CS Holding 30,754
------------------------------------------------------------------------------------ ---------------
CHEMICALS--0.7%
------------------------------------------------------------------------------------
40 Ciba-Giegy AG-R 35,197
------------------------------------------------------------------------------------ ---------------
ELECTRICAL & ELECTRONICS--0.6%
------------------------------------------------------------------------------------
25 BBC Brown Boveri 29,042
------------------------------------------------------------------------------------ ---------------
FOOD & HOUSEHOLD PRODUCTS--1.2%
------------------------------------------------------------------------------------
51 Nestle SA 56,416
------------------------------------------------------------------------------------ ---------------
HEALTH & PERSONAL CARE--0.5%
------------------------------------------------------------------------------------
3 Roche Holding AG 23,732
------------------------------------------------------------------------------------ ---------------
INSURANCE--0.7%
------------------------------------------------------------------------------------
105 Zurich Versicherungsgesellschaft 31,404
------------------------------------------------------------------------------------ ---------------
MACHINERY & ENGINEERING--0.5%
------------------------------------------------------------------------------------
45 Sulzer AG 25,748
------------------------------------------------------------------------------------ ---------------
TOTAL SWITZERLAND 232,293
------------------------------------------------------------------------------------ ---------------
UNITED KINGDOM--16.1%
------------------------------------------------------------------------------------
BEVERAGE & TOBACCO--0.8%
------------------------------------------------------------------------------------
4,650 Allied Domecq PLC 37,841
------------------------------------------------------------------------------------ ---------------
BUILDING MATERIALS & COMPONENTS--0.7%
------------------------------------------------------------------------------------
18,500 Rugby Group PLC 31,604
------------------------------------------------------------------------------------ ---------------
</TABLE>
INTERNATIONAL STOCK FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
FOREIGN EQUITY--CONTINUED
------------------------------------------------------------------------------------
UNITED KINGDOM--CONTINUED
------------------------------------------------------------------------------------
BUSINESS & PUBLIC SERVICES--1.3%
------------------------------------------------------------------------------------
4,000 Associated British Ports Holdings PLC $ 17,953
------------------------------------------------------------------------------------
3,600 Chubb Security 17,807
------------------------------------------------------------------------------------
3,300 Thames Water PLC 28,777
------------------------------------------------------------------------------------ ---------------
Total 64,537
------------------------------------------------------------------------------------ ---------------
CHEMICALS--0.3%
------------------------------------------------------------------------------------
1,200 Imperial Chemical Industries 14,210
------------------------------------------------------------------------------------ ---------------
FOOD & HOUSEHOLD PRODUCTS--2.2%
------------------------------------------------------------------------------------
2,500 Cadbury Schweppes 20,636
------------------------------------------------------------------------------------
6,800 Grand Metropolitan PLC 48,949
------------------------------------------------------------------------------------
3,300 Reckitt & Colman PLC 36,516
------------------------------------------------------------------------------------ ---------------
Total 106,101
------------------------------------------------------------------------------------ ---------------
INSURANCE--0.4%
------------------------------------------------------------------------------------
10,200 Sedgwick Group PLC 19,168
------------------------------------------------------------------------------------ ---------------
LEISURE & TOURISM--1.7%
------------------------------------------------------------------------------------
5,500 Compass Group 41,854
------------------------------------------------------------------------------------
5,400 Rank Organisation PLC 39,081
------------------------------------------------------------------------------------ ---------------
Total 80,935
------------------------------------------------------------------------------------ ---------------
MERCHANDISING--2.6%
------------------------------------------------------------------------------------
3,800 Boots Co. PLC 34,406
------------------------------------------------------------------------------------
4,800 Marks & Spencer PLC 33,546
------------------------------------------------------------------------------------
8,600 Smith, W.H. Group PLC 56,630
------------------------------------------------------------------------------------ ---------------
Total 124,582
------------------------------------------------------------------------------------ ---------------
METALS-NON FERROUS--0.4%
------------------------------------------------------------------------------------
1,300 RTZ Corp. PLC 18,897
------------------------------------------------------------------------------------ ---------------
</TABLE>
INTERNATIONAL STOCK FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<C> <S> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
FOREIGN EQUITY--CONTINUED
------------------------------------------------------------------------------------
UNITED KINGDOM--CONTINUED
------------------------------------------------------------------------------------
METALS-STEEL--0.4%
------------------------------------------------------------------------------------
6,700 British Steel PLC $ 16,935
------------------------------------------------------------------------------------ ---------------
MISCELLANEOUS MATERIALS & COMMODITIES--0.3%
------------------------------------------------------------------------------------
4,600 Caradon PLC 13,967
------------------------------------------------------------------------------------ ---------------
MULTI-INDUSTRY--1.6%
------------------------------------------------------------------------------------
7,600 BTR PLC 38,714
------------------------------------------------------------------------------------
8,300 Tomkins PLC 36,286
------------------------------------------------------------------------------------ ---------------
Total 75,000
------------------------------------------------------------------------------------ ---------------
TELECOMMUNICATIONS--1.6%
------------------------------------------------------------------------------------
5,400 Cable & Wireless 38,661
------------------------------------------------------------------------------------
10,000 Vodafone Group PLC 35,875
------------------------------------------------------------------------------------ ---------------
Total 74,536
------------------------------------------------------------------------------------ ---------------
UTILITIES--ELECTRICAL & GAS--1.8%
------------------------------------------------------------------------------------
4,700 British Gas PLC 18,540
------------------------------------------------------------------------------------
4,500 National Power Co. PLC 31,414
------------------------------------------------------------------------------------
6,600 Scottish Power PLC 37,925
------------------------------------------------------------------------------------ ---------------
Total 87,879
------------------------------------------------------------------------------------ ---------------
TOTAL UNITED KINGDOM 766,192
------------------------------------------------------------------------------------ ---------------
TOTAL FOREIGN EQUITY (IDENTIFIED COST $3,892,911) 4,014,476
------------------------------------------------------------------------------------ ---------------
PREFERRED STOCKS--1.2%
- -------------------------------------------------------------------------------------------------
GERMANY--1.2%
------------------------------------------------------------------------------------
FOOD & HOUSEHOLD PRODUCTS--0.3%
------------------------------------------------------------------------------------
38 Henkel KGaA--Vorzug, Pfd. 14,291
------------------------------------------------------------------------------------ ---------------
HEALTH & PERSONAL CARE--0.3%
------------------------------------------------------------------------------------
30 Wella AG, Pfd. 16,145
------------------------------------------------------------------------------------ ---------------
</TABLE>
INTERNATIONAL STOCK FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE IN
SHARES U.S. DOLLARS
<S> <S> <C>
PREFERRED STOCKS--CONTINUED
- -------------------------------------------------------------------------------------------------
MACHINERY & ENGINEERING--0.6%
------------------------------------------------------------------------------------
90 Gea AG, Pfd. $ 27,605
------------------------------------------------------------------------------------ ---------------
TOTAL GERMANY 58,041
------------------------------------------------------------------------------------ ---------------
TOTAL PREFERRED STOCKS (IDENTIFIED COST $65,328) 58,041
------------------------------------------------------------------------------------ ---------------
PRINCIPAL
AMOUNT
(B) REPURCHASE AGREEMENT--14.5%
- -------------------------------------------------------------------------------------------------
$ 690,000 J.P. Morgan Securities, Inc., 5.85%, dated 12/29/1995, due 1/2/1996
(at amortized cost) 690,000
------------------------------------------------------------------------------------ ---------------
TOTAL INVESTMENTS (IDENTIFIED COST $4,648,239) (C) $ 4,762,517
------------------------------------------------------------------------------------ ---------------
</TABLE>
(a) Non-income producing.
(b) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
(c) The cost for federal income tax purposes amounts to $4,652,535. The net
unrealized appreciation on a federal tax basis amounts to $109,982, which
is comprised of $183,935 appreciation and $73,953 depreciation at December
31, 1995.
Note: The categories of investments are shown as a percentage of net assets
($4,759,559) at
December 31, 1995.
The following acronyms are used throughout this portfolio:
ADR--American Depository Receipt
GDR--Global Depository Receipts
PLC--Public Limited Company
(See Notes which are an integral part of the Financial Statements)
INTERNATIONAL STOCK FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ----------------------------------------------------------------------------------------------------
Investments in repurchase agreements $ 690,000
- --------------------------------------------------------------------------------------
Investments in securities 4,072,517
- -------------------------------------------------------------------------------------- ------------
Total investments in securities, at value
(identified cost $4,648,239 and tax cost $4,652,535) $ 4,762,517
- ----------------------------------------------------------------------------------------------------
Cash denominated in foreign currencies (identified cost $1,661) 1,661
- ----------------------------------------------------------------------------------------------------
Cash 2,330
- ----------------------------------------------------------------------------------------------------
Income receivable 3,930
- ----------------------------------------------------------------------------------------------------
Receivable for shares sold 13,292
- ---------------------------------------------------------------------------------------------------- ------------
Total assets 4,783,730
- ----------------------------------------------------------------------------------------------------
LIABILITIES:
- ----------------------------------------------------------------------------------------------------
Payable for shares redeemed 181
- --------------------------------------------------------------------------------------
Payable for taxes withheld 482
- --------------------------------------------------------------------------------------
Accrued expenses 23,508
- -------------------------------------------------------------------------------------- ------------
Total liabilities 24,171
- ---------------------------------------------------------------------------------------------------- ------------
NET ASSETS for 459,652 shares outstanding $ 4,759,559
- ---------------------------------------------------------------------------------------------------- ------------
NET ASSETS CONSIST OF:
- ----------------------------------------------------------------------------------------------------
Paid in capital $ 4,632,634
- ----------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and translation of assets and liabilities in foreign
currency 114,269
- ----------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign currency transactions (18,741)
- ----------------------------------------------------------------------------------------------------
Undistributed net investment income 31,397
- ---------------------------------------------------------------------------------------------------- ------------
Total Net Assets $ 4,759,559
- ---------------------------------------------------------------------------------------------------- ------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- ----------------------------------------------------------------------------------------------------
$4,759,559 / 459,652 shares outstanding $10.35
- ---------------------------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
INTERNATIONAL STOCK FUND
STATEMENT OF OPERATIONS
PERIOD ENDED DECEMBER 31, 1995(A)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ------------------------------------------------------------------------------------------------------
Dividends (net of foreign taxes withheld of $1,148) $ 8,482
- ------------------------------------------------------------------------------------------------------
Interest 26,991
- ------------------------------------------------------------------------------------------------------ ----------
Total income 35,473
- ------------------------------------------------------------------------------------------------------
EXPENSES:
- ------------------------------------------------------------------------------------------------------
Investment advisory fee $ 12,476
- -----------------------------------------------------------------------------------------
Administrative personnel and services fee 81,165
- -----------------------------------------------------------------------------------------
Custodian fees 24,779
- -----------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 4,619
- -----------------------------------------------------------------------------------------
Legal fees 250
- -----------------------------------------------------------------------------------------
Portfolio accounting fees 27,110
- -----------------------------------------------------------------------------------------
Share registration costs 1,918
- -----------------------------------------------------------------------------------------
Printing and postage 1,116
- -----------------------------------------------------------------------------------------
Insurance premiums 3,394
- -----------------------------------------------------------------------------------------
Taxes 35
- -----------------------------------------------------------------------------------------
Miscellaneous 805
- ----------------------------------------------------------------------------------------- -----------
Total expenses 157,667
- -----------------------------------------------------------------------------------------
Waiver and reimbursements--
- -----------------------------------------------------------------------------------------
Waiver of investment advisory fee ($ 12,476)
- ----------------------------------------------------------------------------
Reimbursement of other operating expenses (130,021)
- ---------------------------------------------------------------------------- -----------
Total waiver and reimbursements (142,497)
- ----------------------------------------------------------------------------------------- -----------
Net expenses 15,170
- ------------------------------------------------------------------------------------------------------ ----------
Net investment income 20,303
- ------------------------------------------------------------------------------------------------------ ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:
- ------------------------------------------------------------------------------------------------------
Net realized loss on investments and foreign currency transactions (10,299)
- ------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments and translation of assets and liabilities in
foreign currency 114,269
- ------------------------------------------------------------------------------------------------------ ----------
Net realized and unrealized gain on investments and foreign currency 103,970
- ------------------------------------------------------------------------------------------------------ ----------
Change in net assets resulting from operations $ 124,273
- ------------------------------------------------------------------------------------------------------ ----------
</TABLE>
(a) For the period from May 5, 1995 (date of initial public investment) to
December 31, 1995.
(See Notes which are an integral part of the Financial Statements)
INTERNATIONAL STOCK FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31, 1995(A)
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ---------------------------------------------------------------------------------------
OPERATIONS--
- ---------------------------------------------------------------------------------------
Net investment income $ 20,303
- ---------------------------------------------------------------------------------------
Net realized loss on investments and foreign currency transactions ($17,096 net loss,
as computed for federal tax purposes) (10,299)
- ---------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments and translation of assets and
liabilities in foreign currency 114,269
- --------------------------------------------------------------------------------------- -------------
Change in net assets resulting from operations 124,273
- --------------------------------------------------------------------------------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ---------------------------------------------------------------------------------------
Distributions from net investment income --
- --------------------------------------------------------------------------------------- -------------
SHARE TRANSACTIONS--
- ---------------------------------------------------------------------------------------
Proceeds from sale of shares 4,707,043
- ---------------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment
of distributions declared --
- ---------------------------------------------------------------------------------------
Cost of shares redeemed (71,757)
- --------------------------------------------------------------------------------------- -------------
Change in net assets resulting from share transactions 4,635,286
- --------------------------------------------------------------------------------------- -------------
Change in net assets 4,759,559
- ---------------------------------------------------------------------------------------
NET ASSETS:
- ---------------------------------------------------------------------------------------
Beginning of period --
- --------------------------------------------------------------------------------------- -------------
End of period (including undistributed net investment income of $31,397) $ 4,759,559
- --------------------------------------------------------------------------------------- -------------
</TABLE>
(a) For the period from May 5, 1995 (date of initial public investment) to
December 31, 1995.
(See Notes which are an integral part of the Financial Statements)
INTERNATIONAL STOCK FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31, 1995(A)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
- ---------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------
Net investment income 0.07
- ---------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.28
- --------------------------------------------------------------------------------------- -------
Total from investment operations 0.35
- --------------------------------------------------------------------------------------- -------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------------------------------
Distributions from net investment income --
- --------------------------------------------------------------------------------------- -------
NET ASSET VALUE, END OF PERIOD $ 10.35
- --------------------------------------------------------------------------------------- -------
TOTAL RETURN (B) 3.50%
- ---------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------------
Expenses 1.22%*
- ---------------------------------------------------------------------------------------
Net investment income 1.63%*
- ---------------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 11.42%*
- ---------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $4,760
- ---------------------------------------------------------------------------------------
Portfolio turnover 34 %
- ---------------------------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from May 5, 1995 (date of initial public
investment) to December 31, 1995.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
INTERNATIONAL STOCK FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
1. ORGANIZATION
Insurance Management Series (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of seven portfolios. The financial
statements included herein are only those of International Stock Fund (the
"Fund"), a diversified portfolio. The financial statements of the other
portfolios are presented separately. The assets of each portfolio are segregated
and a shareholder's interest is limited to the portfolio in which shares are
held.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--Short-term securities with remaining maturities of
sixty days or less at the time of purchase may be valued at amortized cost,
which approximates fair market value. Listed equity securities are valued
at the last sale price reported on national security exchanges. All other
securities are valued at prices provided by an independent pricing service.
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 Trustees (the
"Trustees"). Risks may arise from the potential inability of counterparties
to honor the terms of the repurchase agreement. Accordingly, the Fund could
receive less than the repurchase price on the sale of collateral
securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code"). Dividend
income and distributions to shareholders are recorded on the ex-dividend
date.
INTERNATIONAL STOCK FUND
- --------------------------------------------------------------------------------
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. However, federal taxes may be
imposed on the Fund upon the disposition of certain investments in passive
foreign investment companies. Withholding taxes on foreign interest and
dividends have been provided for in accordance with the Fund's
understanding of the applicable country's tax rules and rates. At December
31, 1995, the Fund, for federal tax purposes, had a capital loss
carryforward of $17,096, 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>
2003 $17,096
</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.
FOREIGN CURRENCY TRANSLATION--The accounting records of the Fund are
maintained in U.S. dollars. All assets and liabilities denominated in
foreign currencies ("FC") are translated into U.S. dollars based on the
rate of exchange of such currencies against U.S. dollars on the date of
valuation. Purchases and sales of securities, income and expenses are
translated at the rate of exchange quoted on the respective date that such
transactions are recorded. Differences between income and expense amounts
recorded and collected or paid are adjusted when reported by the custodian
bank. The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, sales of FCs, currency gains or losses
realized between the trade and settlement dates on securities transactions,
the difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books, and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in the value of assets and
liabilities other than investments in securities at fiscal year end,
resulting from changes in the exchange rate.
OTHER--Investment transactions are accounted for on the trade date.
INTERNATIONAL STOCK FUND
- --------------------------------------------------------------------------------
3. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in shares were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31, 1995(A)
<S> <C>
Shares sold 466,748
- ---------------------------------------------------------------------------------------
Shares issued to shareholders in payment
of distributions declared --
- ---------------------------------------------------------------------------------------
Shares redeemed (7,096)
- --------------------------------------------------------------------------------------- ----------
Net change resulting from share transactions 459,652
- --------------------------------------------------------------------------------------- ----------
</TABLE>
(a) For the period from May 5, 1995 (date of initial public investment) to
December 31, 1995.
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Global Research Corp., the Fund's investment
adviser, (the "Adviser"), receives for its services an annual investment
advisory fee equal to 1.00% of the Fund's average daily net assets. The Adviser
may voluntarily choose to waive any portion of its fee and/or reimburse certain
operating expenses of the Fund. The Adviser can modify or terminate this
voluntary waiver and/or reimbursement at any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services under the Administrative
Services Agreement, provides the Fund with administrative personnel and
services. This fee is based on the level of average aggregate daily net assets
of all funds advised by subsidiaries of Federated Investors for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated Services
Company ("FServ") serves as transfer and dividend disbursing agent for the Fund.
This fee 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.
ORGANIZATIONAL EXPENSES--Organizational expenses of $15,465 were borne initially
by the Adviser. The Fund has agreed to reimburse the Adviser for the
organizational expenses during the five year period following the effective
date. For the period ended December 31, 1995, the Fund paid $773 pursuant to
this agreement.
INTERNATIONAL STOCK FUND
- --------------------------------------------------------------------------------
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended December 31, 1995, were as follows:
<TABLE>
<S> <C>
PURCHASES $ 4,494,929
- ---------------------------------------------------------------------------------------------------- ------------
SALES $ 517,949
- ---------------------------------------------------------------------------------------------------- ------------
</TABLE>
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Board of Trustees of the Insurance Management Series
and the Shareholders of INTERNATIONAL STOCK FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of International Stock Fund (a portfolio of the
Insurance Management Series) as of December 31, 1995, the related statement of
operations, the statement of changes in net assets and financial highlights for
the period. 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.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1995 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 that 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 International Stock
Fund as of December 31, 1995, the results of its operations, the changes in its
net assets and its financial highlights for the period ended December 31, 1995
in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
February 7, 1996
TRUSTEES OFFICERS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
John F. Donahue John F. Donahue
Thomas G. Bigley Chairman
John T. Conroy, Jr. J. Christopher Donahue
William J. Copeland President
J. Christopher Donahue Edward C. Gonzales
James E. Dowd Executive Vice President
Lawrence D. Ellis, M.D. John W. McGonigle
Edward L. Flaherty, Jr. Executive Vice President and Secretary
Peter E. Madden Richard B. Fisher
Gregor F. Meyer Vice President
John E. Murray, Jr. David M. Taylor
Wesley W. Posvar Treasurer
Marjorie P. Smuts S. Elliott Cohan
Assistant Secretary
</TABLE>
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded
or accompanied by the fund's prospectus which contains facts concerning its
objective and policies, management fees, expenses and other information.
- --------------------------------------------------------------------------------
GROWTH
- --------------------------------------------------------------------------------
STOCK
- --------------------------------------------------------------------------------
FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ANNUAL REPORT
TO SHAREHOLDERS
DECEMBER 31, 1995
Insurance Management Series
[LOGO] FEDERATED SECURITIES CORP. --------------------------------
DISTRIBUTOR
--------------------------------
A subsidiary of FEDERATED INVESTORS
--------------------------------
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779 --------------------------------
Cusip 458043700
G00433-07 (2/96) [RECYCLED LOGO]
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Investor:
I am pleased to present the Annual Report to Shareholders for Growth Stock Fund,
a portfolio of Insurance Management Series. This report covers the period
between November 9, 1995, when the fund first began operation, through December
31, 1995. The report begins with the management discussion and analysis by your
fund's portfolio manager. Following the management discussion and analysis is a
complete listing of the fund's holdings and its financial statements.
Growth Stock Fund is managed to help your money grow over the long-term. The
fund's portfolio consists of U.S. stocks selected for their potential to grow in
value. Many of these stocks are issued by well-known companies. At the end of
the period, the fund's portfolio included stocks issued by Brunswick, Coca-Cola,
Nike, Philip Morris, Viacom, Wendy's, Digital Equipment, Intel, Citicorp,
Travelers Group, Johnson & Johnson, Lilly, Merck, Pfizer, Westinghouse Electric,
Safeway, and AT&T, to name a few.
Thank you for participating in the growth opportunities of U.S. stocks through
Growth Stock Fund. We look forward to keeping you informed about your
investment's progress.
Sincerely,
J. Christopher Donahue
President
February 15, 1996
GROWTH STOCK FUND
- --------------------------------------------------------------------------------
MANAGEMENT DISCUSSION AND ANALYSIS
The fourth quarter of 1995, the first quarter of Growth Stock Fund's existence,
was marked by major changes in leadership among the various sectors within our
investable universe. Most notably, after leading the market for the first three
quarters of 1995, Technology was the worst performing sector in the fourth
quarter. Health Care stocks, in a close second place through September 30, 1995,
maintained their strength and led performance in the fourth quarter. Energy
stocks were a big surprise as they were one of the worst performers through the
first three quarters and yet were the second strongest during the last quarter.
Various smaller, more cyclically sensitive sectors, which lagged through
September, similarly did well to end the year. Finance stocks, also very strong
through the third quarter of 1995, maintained strength and modestly outperformed
the overall market. Retail stocks stayed weak.
The year also ended with markedly different performance between different sized
stocks, as measured by the appropriate Standard & Poor's ("S&P") indexes: the
S&P 500 Index* outperformed the S&P 400 Midcap Index* by 4.6%, which, in turn,
outperformed the S&P 600 Smallcap Index* by almost 1.0%. This was in sharp
contrast to the first three quarters of 1995, when the three S&P indexes traded
basically in-line and had similar total returns at the end of October 1995.
The fund's technology exposure was a net drag on performance in the fourth
quarter of 1995. The sector's negative effect on the fund was, however, somewhat
muted (especially versus our peers in the universe of growth funds) thanks to a
bias within our sector exposure toward defense technology and software, both of
which held in fairly well. The fund benefited from having its second largest
exposures in Health Care and Finance, which, as mentioned above, outperformed
the overall market. The fund failed to benefit, at least on a relative basis,
from the strong performance in Energy stocks and other more cyclically sensitive
sectors, as the fund was initiated modestly underweighted in most of those
areas.
Fund management is presently content with the way its exposures are allocated
across sectors, as our heavier weightings are in sectors that we expect will
experience the fastest earnings growth. We believe that the fund is properly
situated with regard to the average market capitalization of its holdings.
Despite the recent rally in the large-cap stocks, which does not appear to be
the start of a longer-term trend, the mid-cap area offers the most attractive
combination of growth potential, fair pricing and liquidity. We like the size
and potential of stocks in the mid-cap range and do not foresee a major
portfolio shift for the fund in the immediate future.
In the fourth quarter, value stocks modestly outperformed growth stocks, mildly
bucking the trend of growth outperformance which had been in place since about
July 1994. The trend paused in the
* The S&P 500 Daily Stock Price Index of 500 Common Stocks, a composite index of
common stocks in industry, transportation, and financial and public utility
companies, can be used to compare the total returns of funds whose portfolios
are invested primarily in common stocks. The S&P 400 Midcap Index is an
unmanaged index of 400 middle capitalization stocks. The S&P 600 Smallcap
Index is an unmanaged index of 600 smaller capitalization stocks. These
indices are unmanaged and actual investments cannot be made in indices.
first quarter of 1995, as both styles traded up in tandem, but resumed in the
second and third quarters with strong quarters for growth. In the face of more
macro-economic printing about a slowing in the growth rate of the domestic
economy, the market appears to be willing to bid up secular growth stocks more
aggressively. Management believes the trend of growth outperformance will not be
reversed, but will continue as the slowdown begins to be reflected in the
earnings and fundamental reports from more cyclical companies. These reports
could occur as we move through the next several quarters earnings announcements;
consequently, the trend of growth doing better than value should continue into
1996.
GROWTH STOCK FUND
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN GROWTH STOCK FUND
The graph below illustrates the hypothetical investment of $10,000 in the
Growth Stock Fund (the "Fund") from November 9, 1995 (start of performance) to
December 31, 1995, compared to the Standard and Poor's 500 Index (S&P 500)+ and
the Lipper Growth Fund Index (LGFI)++.
[Graphic representation A6 omitted. See Appendix."]
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
*The Fund's performance assumes the reinvestment of all dividends and
distributions. The S&P 500 and the LGFI have been adjusted to reflect
reinvestment of dividends on securities in the indices.
+The S&P 500 is not adjusted to reflect sales charges, expenses, or other fees
that the SEC requires to be reflected in the Fund's performance. The index is
unmanaged.
++The LGFI 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. The index is unmanaged.
GROWTH STOCK FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<S> <S> <C>
COMMON STOCKS--90.5% -------------------------------------------------------------------------------------
COMMERCIAL SERVICES--3.2%
-------------------------------------------------------------------------------------
100 Corrections Corp. America $ 3,712
-------------------------------------------------------------------------------------
100 Olsten Corp. 3,950
-------------------------------------------------------------------------------------
100 Reynolds & Reynolds Co., Class A 3,888
------------------------------------------------------------------------------------- -------------
Total 11,550
------------------------------------------------------------------------------------- -------------
CONSUMER DURABLES--0.6%
-------------------------------------------------------------------------------------
100 Brunswick Corp. 2,400
------------------------------------------------------------------------------------- -------------
CONSUMER NON-DURABLES--7.9%
-------------------------------------------------------------------------------------
100 Coca-Cola Co. 7,425
-------------------------------------------------------------------------------------
100 Gymboree Corp. 2,062
-------------------------------------------------------------------------------------
100 Nike, Inc., Class B 6,963
-------------------------------------------------------------------------------------
100 Oakley, Inc. 3,400
-------------------------------------------------------------------------------------
100 Philip Morris Cos., Inc. 9,050
------------------------------------------------------------------------------------- -------------
Total 28,900
------------------------------------------------------------------------------------- -------------
CONSUMER SERVICES--3.1%
-------------------------------------------------------------------------------------
100 Service Corp. International 4,400
-------------------------------------------------------------------------------------
100 Viacom, Inc., Class B 4,738
-------------------------------------------------------------------------------------
100 Wendy's International, Inc. 2,125
------------------------------------------------------------------------------------- -------------
Total 11,263
------------------------------------------------------------------------------------- -------------
ELECTRONIC TECHNOLOGY--12.7%
-------------------------------------------------------------------------------------
100 Applied Materials, Inc. 3,937
-------------------------------------------------------------------------------------
100 Cisco Systems, Inc. 7,462
-------------------------------------------------------------------------------------
100 Digital Equipment Corp. 6,412
-------------------------------------------------------------------------------------
100 Ericsson LM 1,950
-------------------------------------------------------------------------------------
100 Intel Corp. 5,675
-------------------------------------------------------------------------------------
100 LSI Logic Corp. 3,275
-------------------------------------------------------------------------------------
</TABLE>
GROWTH STOCK FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<S> <S> <C>
COMMON STOCKS--CONTINUED
- ---------------------------------------------------------------------------------------------------
ELECTRONIC TECHNOLOGY--CONTINUED
-------------------------------------------------------------------------------------
100 Loral Corp. $ 3,537
-------------------------------------------------------------------------------------
100 Nokia (AB), ADR 3,888
-------------------------------------------------------------------------------------
100 Pairgain Technologies, Inc. 5,475
-------------------------------------------------------------------------------------
100 Texas Instruments, Inc. 5,175
------------------------------------------------------------------------------------- -------------
Total 46,786
------------------------------------------------------------------------------------- -------------
ENERGY MINERALS--3.4%
-------------------------------------------------------------------------------------
100 British Petroleum, Ltd., ADR 10,212
-------------------------------------------------------------------------------------
100 YPF Sociedad Anonima, ADR 2,163
------------------------------------------------------------------------------------- -------------
Total 12,375
------------------------------------------------------------------------------------- -------------
FINANCE--15.4%
-------------------------------------------------------------------------------------
100 Aflac, Inc. 4,337
-------------------------------------------------------------------------------------
100 Amerin Corp. 2,675
-------------------------------------------------------------------------------------
100 Bank of New York Co., Inc. 4,875
-------------------------------------------------------------------------------------
100 Citicorp 6,725
-------------------------------------------------------------------------------------
100 MBNA Corp. 3,687
-------------------------------------------------------------------------------------
100 MGIC Investment Corp. 5,425
-------------------------------------------------------------------------------------
100 Mellon Bank Corp. 5,375
-------------------------------------------------------------------------------------
100 NationsBank Corp. 6,963
-------------------------------------------------------------------------------------
100 Schwab (Charles) Corp. 2,013
-------------------------------------------------------------------------------------
100 Sunamerica, Inc. 4,750
-------------------------------------------------------------------------------------
100 TCF Financial Corp. 3,313
-------------------------------------------------------------------------------------
100 Travelers Group, Inc. 6,288
------------------------------------------------------------------------------------- -------------
Total 56,426
------------------------------------------------------------------------------------- -------------
HEALTH SERVICES--1.8%
-------------------------------------------------------------------------------------
100 Foundation Health Corp 4,300
-------------------------------------------------------------------------------------
100 Ornda Healthcorp 2,325
------------------------------------------------------------------------------------- -------------
Total 6,625
------------------------------------------------------------------------------------- -------------
</TABLE>
GROWTH STOCK FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<S> <S> <C>
COMMON STOCKS--CONTINUED
- ---------------------------------------------------------------------------------------------------
HEALTH TECHNOLOGY--15.6%
-------------------------------------------------------------------------------------
100 Amgen, Inc. $ 5,937
-------------------------------------------------------------------------------------
100 Genzyme Corp. 6,237
-------------------------------------------------------------------------------------
100 Johnson & Johnson 8,562
-------------------------------------------------------------------------------------
200 Lilly (Eli) & Co. 11,250
-------------------------------------------------------------------------------------
100 Medtronic, Inc. 5,587
-------------------------------------------------------------------------------------
100 Merck & Co., Inc. 6,575
-------------------------------------------------------------------------------------
100 Mylan Laboratories, Inc. 2,350
-------------------------------------------------------------------------------------
100 Pfizer, Inc. 6,300
-------------------------------------------------------------------------------------
100 Teva Pharmaceutical Industries, Ltd., ADR 4,638
------------------------------------------------------------------------------------- -------------
Total 57,436
------------------------------------------------------------------------------------- -------------
INDUSTRIAL SERVICES--2.6%
-------------------------------------------------------------------------------------
100 Coflexip, ADR 1,887
-------------------------------------------------------------------------------------
100 Global Marine, Inc. 875
-------------------------------------------------------------------------------------
100 USA Waste Services, Inc. 1,888
-------------------------------------------------------------------------------------
100 Western Atlas, Inc. 5,050
------------------------------------------------------------------------------------- -------------
Total 9,700
------------------------------------------------------------------------------------- -------------
NON-ENERGY MINERALS--2.8%
-------------------------------------------------------------------------------------
100 Potash Corporation of Saskatchewan, Inc. 7,088
-------------------------------------------------------------------------------------
100 UCAR Global Enterprises, Inc. 3,375
------------------------------------------------------------------------------------- -------------
Total 10,463
------------------------------------------------------------------------------------- -------------
PROCESS INDUSTRIES--0.9%
-------------------------------------------------------------------------------------
100 Praxair, Inc. 3,363
------------------------------------------------------------------------------------- -------------
PRODUCER MANUFACTURING--4.5%
-------------------------------------------------------------------------------------
100 American Standard Cos. 2,800
-------------------------------------------------------------------------------------
100 Greenfield Industries, Inc. 3,125
-------------------------------------------------------------------------------------
100 Magna International, Inc., Class A 4,325
-------------------------------------------------------------------------------------
100 Thermo Electron Corp. 5,200
-------------------------------------------------------------------------------------
</TABLE>
GROWTH STOCK FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<S> <S> <C>
COMMON STOCKS--CONTINUED
- ---------------------------------------------------------------------------------------------------
PRODUCER MANUFACTURING--CONTINUED
-------------------------------------------------------------------------------------
100 Westinghouse Air Brake Co. $ 1,063
------------------------------------------------------------------------------------- -------------
Total 16,513
------------------------------------------------------------------------------------- -------------
RETAIL TRADE--2.8%
-------------------------------------------------------------------------------------
100 Premark International, Inc. 5,063
-------------------------------------------------------------------------------------
100 Safeway, Inc. 5,150
------------------------------------------------------------------------------------- -------------
Total 10,213
------------------------------------------------------------------------------------- -------------
TECHNOLOGY SERVICES--2.7%
-------------------------------------------------------------------------------------
100 (a)DST Systems, Inc. 2,850
-------------------------------------------------------------------------------------
100 FTP Software, Inc. 2,900
-------------------------------------------------------------------------------------
100 Oracle Corp. 4,238
------------------------------------------------------------------------------------- -------------
Total 9,988
------------------------------------------------------------------------------------- -------------
TRANSPORTATION--2.0%
-------------------------------------------------------------------------------------
100 Delta Air Lines, Inc. 7,387
------------------------------------------------------------------------------------- -------------
UNASSIGNED--0.7%
-------------------------------------------------------------------------------------
100 MSC Industrial Direct Co. 2,750
------------------------------------------------------------------------------------- -------------
UTILITIES--7.8%
-------------------------------------------------------------------------------------
100 AT&T Corp. 6,475
-------------------------------------------------------------------------------------
100 CMS Energy Corp. 2,987
-------------------------------------------------------------------------------------
100 FPL Group, Inc. 4,637
-------------------------------------------------------------------------------------
200 MCI Communications Corp. 5,225
-------------------------------------------------------------------------------------
100 PanAmSat Corp. 2,206
-------------------------------------------------------------------------------------
100 Sonat, Inc. 3,563
-------------------------------------------------------------------------------------
100 Vodafone Group PLC, ADR 3,526
------------------------------------------------------------------------------------- -------------
Total 28,619
------------------------------------------------------------------------------------- -------------
TOTAL COMMON STOCKS (IDENTIFIED COST $325,141) 332,757
------------------------------------------------------------------------------------- -------------
</TABLE>
GROWTH STOCK FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
<S> <S> <C>
PREFERRED STOCK--1.1%
- ---------------------------------------------------------------------------------------------------
FINANCE--1.1%
-------------------------------------------------------------------------------------
100 First USA, Inc., Cumulative PRIDES, $1.99 (identified cost $3,994) $ 3,950
------------------------------------------------------------------------------------- -------------
TOTAL INVESTMENTS (IDENTIFIED COST $329,135)(B) $ 336,707
------------------------------------------------------------------------------------- -------------
</TABLE>
(a) Non-income producing.
(b) The cost of investments for federal tax purposes amounts to $329,135. The
net unrealized appreciation on a federal tax cost basis amounts to $7,572,
and is comprised of $13,451 appreciation and $5,879 depreciation at December
31, 1995.
Note: The categories of investments are shown as a percentage of net assets
($367,532) at
December 31, 1995.
The following acronyms are used throughout this portfolio:
ADR--American Depositary Receipt
PLC--Public Limited Company
PRIDES--Preferred Redeemable Increased Dividend Equity Securities
(See Notes which are an integral part of the Financial Statements)
GROWTH STOCK FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ------------------------------------------------------------------------------------------------------
Total investments in securities, at value (identified and tax cost $329,135) $ 336,707
- ------------------------------------------------------------------------------------------------------
Cash 56,898
- ------------------------------------------------------------------------------------------------------
Income receivable 283
- ------------------------------------------------------------------------------------------------------
Receivable for investments sold 5,767
- ------------------------------------------------------------------------------------------------------
Receivable for shares sold 12,480
- ------------------------------------------------------------------------------------------------------ ----------
Total assets 412,135
- ------------------------------------------------------------------------------------------------------
LIABILITIES:
- ------------------------------------------------------------------------------------------------------
Payable for investments purchased $ 39,343
- -------------------------------------------------------------------------------------------
Accrued expenses 5,260
- ------------------------------------------------------------------------------------------- ---------
Total liabilities 44,603
- ------------------------------------------------------------------------------------------------------ ----------
NET ASSETS for 35,686 shares outstanding $ 367,532
- ------------------------------------------------------------------------------------------------------ ----------
NET ASSETS CONSIST OF:
- ------------------------------------------------------------------------------------------------------
Paid in capital $ 359,233
- ------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 7,572
- ------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (368)
- ------------------------------------------------------------------------------------------------------
Undistributed net investment income 1,095
- ------------------------------------------------------------------------------------------------------ ----------
Total Net Assets $ 367,532
- ------------------------------------------------------------------------------------------------------ ----------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- ------------------------------------------------------------------------------------------------------
$367,532 / 35,686 shares outstanding $10.30
- ------------------------------------------------------------------------------------------------------ ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
GROWTH STOCK FUND
STATEMENT OF OPERATIONS
PERIOD ENDED DECEMBER 31, 1995*
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -------------------------------------------------------------------------------------------------------
Dividends (net of foreign taxes withheld of $9) $ 382
- -------------------------------------------------------------------------------------------------------
Interest 470
- ------------------------------------------------------------------------------------------------------- ---------
Total income 852
- -------------------------------------------------------------------------------------------------------
EXPENSES:
- -------------------------------------------------------------------------------------------------------
Investment advisory fee $ 231
- --------------------------------------------------------------------------------------------
Administrative personnel and services fee 17,808
- --------------------------------------------------------------------------------------------
Custodian fees 2,821
- --------------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 114
- --------------------------------------------------------------------------------------------
Portfolio accounting fees 2,000
- --------------------------------------------------------------------------------------------
Share registration costs 480
- --------------------------------------------------------------------------------------------
Printing and postage 521
- -------------------------------------------------------------------------------------------- ---------
Total expenses 23,975
- --------------------------------------------------------------------------------------------
Waivers and reimbursements--
- --------------------------------------------------------------------------------------------
Waiver of investment advisory fee ($231)
- ---------------------------------------------------------------------------------
Reimbursement of other operating expenses (23,481)
- --------------------------------------------------------------------------------- ---------
Total waivers and reimbursements (23,712)
- -------------------------------------------------------------------------------------------- ---------
Net expenses 263
- ------------------------------------------------------------------------------------------------------- ---------
Net investment income 589
- ------------------------------------------------------------------------------------------------------- ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- -------------------------------------------------------------------------------------------------------
Net realized loss on investments (368)
- -------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments 7,572
- ------------------------------------------------------------------------------------------------------- ---------
Net realized and unrealized gain on investments 7,204
- ------------------------------------------------------------------------------------------------------- ---------
Change in net assets resulting from operations $ 7,793
- ------------------------------------------------------------------------------------------------------- ---------
</TABLE>
* For the period from November 9, 1995 (date of initial public investment) to
December 31, 1995.
(See Notes which are an integral part of the Financial Statements)
GROWTH STOCK FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31, 1995(A)
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ---------------------------------------------------------------------------------------
OPERATIONS--
- ---------------------------------------------------------------------------------------
Net investment income $ 589
- ---------------------------------------------------------------------------------------
Net realized gain (loss) on investments ($368 net loss as computed for federal tax
purposes) (368)
- ---------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) 7,572
- --------------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations 7,793
- --------------------------------------------------------------------------------------- -----------
NET EQUALIZATION CREDITS (DEBITS) -- 506
- --------------------------------------------------------------------------------------- -----------
SHARE TRANSACTIONS (EXCLUSIVE OF AMOUNTS ALLOCATED TO NET INVESTMENT INCOME) --
- ---------------------------------------------------------------------------------------
Proceeds from sale of shares 365,048
- ---------------------------------------------------------------------------------------
Cost of shares redeemed (5,815)
- --------------------------------------------------------------------------------------- -----------
Change in net assets resulting from share transactions 359,233
- --------------------------------------------------------------------------------------- -----------
Change in net assets 367,532
- ---------------------------------------------------------------------------------------
NET ASSETS:
- ---------------------------------------------------------------------------------------
Beginning of period 0
- --------------------------------------------------------------------------------------- -----------
End of period (including undistributed net investment income of $1,095) $ 367,532
- --------------------------------------------------------------------------------------- -----------
</TABLE>
(a) For the period from November 9, 1995 (date of initial public investment) to
December 31, 1995.
(See Notes which are an integral part of the Financial Statements)
GROWTH STOCK FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31, 1995(A)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
- ---------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------
Net investment income 0.03
- ---------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.27
- --------------------------------------------------------------------------------------- -------
Total from investment operations 0.30
- ---------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.30
- --------------------------------------------------------------------------------------- -------
TOTAL RETURN (B) 3.00%
- ---------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------------
Expenses 0.85%*
- ---------------------------------------------------------------------------------------
Net investment income 1.91%*
- ---------------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 76.95%*
- ---------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------
Net assets, end of period
(000 omitted) $368
- ---------------------------------------------------------------------------------------
Portfolio turnover 4%
- ---------------------------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from November 9, 1995 (date of initial
public investment) to December 31, 1995.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GROWTH STOCK FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Insurance Management Series (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as an open-end, management
investment company. The Trust consists of seven portfolios. The financial
statements included herein are only those of Growth Stock Fund (the "Fund"), a
diversified portfolio. The financial statements of the other portfolios are
presented separately. The assets of each portfolio are segregated and a
shareholder's interest is limited to the portfolio in which shares are held.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--Short-term securities with remaining maturities of
sixty days or less at the time of purchase may be valued at amortized cost,
which approximates fair market value. Listed equity securities are valued
at the last sale price reported on national security exchanges. All other
securities are valued at prices provided by an independent pricing service.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code"). Dividend
income and distributions to shareholders are recorded on the ex-dividend
date.
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 December 31, 1995, the Fund, for federal tax purposes, had a capital
loss carryforward of $368, 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>
2003 $368
</TABLE>
Withholding taxes on foreign interest and dividends have been provided for
in accordance with the Fund's understanding of the applicable country's tax
rules and rates.
GROWTH STOCK FUND
- --------------------------------------------------------------------------------
EQUALIZATION--The Fund follows the accounting practice known as
equalization. With equalization, a portion of the proceeds from sales and
costs of redemptions of fund shares (equivalent, on a per share basis, to
the amount of undistributed net investment income on the date of the
transaction) is credited or charged to undistributed net investment income.
As a result, undistributed net investment income per share is unaffected by
sales or redemptions of fund shares.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
CONCENTRATION OF CREDIT RISK--The Fund invests in securities of non-U.S.
issuers. Although the Fund maintains a diversified investment portfolio,
the political or economic developments within a particular country or
region may have an adverse effect on the ability of domiciled issuers to
meet their obligatioins. Additionally, political or economic developments
may have an effect on the liquidity and volatility of portfolio securities
and currency holdings.
At December 31, 1995, the portfolio was diversified with the following
countries:
<TABLE>
<CAPTION>
COUNTRY % OF NET ASSETS
<S> <C>
Argentina 1.3
Canada 1.9
Finland 1.1
France 0.5
Great Britain 3.7
Israel 1.3
Sweden 0.5
</TABLE>
FOREIGN CURRENCY TRANSLATION--The accounting records of the Fund are
maintained in U.S. dollars. All assets and liabilities denominated in
foreign currencies ("FC") are translated into U.S. dollars based on the
rate of exchange of such currencies against U.S. dollars on the date of
valuation. Purchases and sales of securities, income and expenses are
translated at the rate of exchange quoted on the respective date that such
transactions are recorded. Differences between income and expense amounts
recorded and collected or paid are adjusted when reported by the custodian
bank. The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales
of FCs, currency gains or losses realized
GROWTH STOCK FUND
- --------------------------------------------------------------------------------
between the trade and settlement dates on securities transactions, the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books, and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in the value of assets and
liabilities other than investments in securities at fiscal year end,
resulting from changes in the exchange rate.
OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in shares were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31, 1995 (A)
<S> <C>
Shares sold 36,267
- --------------------------------------------------------------------------------------
Shares redeemed (581)
- -------------------------------------------------------------------------------------- -------
Net change resulting from share transactions 35,686
- -------------------------------------------------------------------------------------- -------
</TABLE>
(a) For the period from November 9, 1995 (date of initial public investment) to
December 31, 1995.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Advisers, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
.75 of 1% of the Fund's average daily net assets.
The Adviser may voluntarily choose to waive any portion of its fee and/or
reimburse certain operating expenses of the Fund. The Adviser can modify or
terminate this voluntary waiver and/or reimbursement at any time at its sole
discretion.
ADMINISTRATIVE FEE--Federated Administrative Services, under the Administrative
Services Agreement, provides the Fund with administrative personnel and
services. This fee is based on the level of average aggregate daily net assets
of all funds advised by subsidiaries of Federated Investors for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated Services
Company ("FServ") serves as transfer and dividend disbursing agent for the Fund.
This fee is based on the size, type, and number of accounts and transactions
made by shareholders.
GROWTH STOCK FUND
- --------------------------------------------------------------------------------
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 Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended December 31, 1995, were as follows:
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------------
PURCHASES $ 338,891
- ------------------------------------------------------------------------------------------------------ ----------
SALES $ 9,389
- ------------------------------------------------------------------------------------------------------ ----------
</TABLE>
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Board of Trustees of the Insurance Management Series
and the Shareholders of GROWTH STOCK FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Growth Stock Fund (a portfolio of the Insurance
Management Series) as of December 31, 1995, the related statement of operations,
the statement of changes in net assets and financial highlights for the period
ended December 31, 1995. 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.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of the securities owned as of December 31, 1995
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 that 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 Growth Stock Fund as
of December 31, 1995, the results of its operations, the changes in its net
assets and its financial highlights for the period ended Decem-
ber 31, 1995 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
February 7, 1996
TRUSTEES OFFICERS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
John F. Donahue John F. Donahue
Thomas G. Bigley Chairman
John T. Conroy, Jr. J. Christopher Donahue
William J. Copeland President
J. Christopher Donahue Edward C. Gonzales
James E. Dowd Executive Vice President
Lawrence D. Ellis, M.D. John W. McGonigle
Edward L. Flaherty, Jr. Executive Vice President and Secretary
Peter E. Madden Richard B. Fisher
Gregor F. Meyer Vice President
John E. Murray, Jr. David M. Taylor
Wesley W. Posvar Treasurer
Marjorie P. Smuts S. Elliott Cohan
Assistant Secretary
</TABLE>
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including the possible loss of principal. This report is authorized for
distribution to prospective investors only when preceded or accompanied by the
fund's prospectus which contains facts concerning its objective and policies,
management fees, expenses and other information.
APPENDIX
A1. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Equity
Growth and Income Fund ( the "Fund") is represented by a solid line. The
Standard & Poor's 500 Index (the "S&P 500") is represented by a broken solid
line and the Lipper Growth and Income Funds Average ("LGIFA") is represented by
a dotted line. The line graph is a visual representation of a comparison of
change in value of a $10,000 hypothetical investment in the Fund and the S&P
500 and the LGIFA. The "x" axis reflects computation periods from 2/10/94 to
12/31/95. The "y" axis reflects the cost of the investment. The right margin
reflects the ending value of the hypothetical investment in the Fund as
compared to the S&P 500 and the LGIFA; the ending values were $13,227, $13,824,
and $12,778, respectively. The legend in the bottom quadrant of the graphic
presentation indicates the Fund's Average Annual Total Returns for the period
ended 12/31/95; beginning with the start of performance date of the Fund
(2/10/94), and the one-year period thereafter; the Average Annual Total Returns
were 16.19% and 33.71%, respectively.
A2. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Utility
Fund ( the "Fund") is represented by a solid line. The Standard & Poor's 500
Index (the "S&P 500") is represented by a broken solid line and the Standard &
Poor's Utility Index ("SPUX") is represented by a dotted line. The line graph
is a visual representation of a comparison of change in value of a $10,000
hypothetical investment in the Fund and the S&P 500 and the SPUX. The "x" axis
reflects computation periods from 2/10/94 to 12/31/95. The "y" axis reflects
the cost of the investment. The right margin reflects the ending value of the
hypothetical investment in the Fund as compared to the S&P 500 and the SPUX;
the ending values were $12,002, $13,824, and $13,053, respectively. The legend
in the bottom quadrant of the graphic presentation indicates the Fund's Average
Annual Total Returns for the period ended 12/31/95; beginning with the start of
performance date of the Fund (2/10/94), and the one-year period thereafter; the
Average Annual Total Returns were 10.14% and 24.18%, respectively.
A3. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The U.S.
Goverment Bond Fund ( the "Fund") is represented by a solid line. The Lipper
U.S. Mortgage Funds Average (the "LUSMFA") is represented by a broken solid
line and Lehman Brothers 5 Year Treasury Bellwether Index (the "LB5TB") is
represented by a dotted line. The line graph is a visual representation of a
comparison of change in value of a $10,000 hypothetical investment in the Fund
and the LUSMFA and the LB5TB. The "x" axis reflects computation periods from
3/28/94 to 12/31/95. The "y" axis reflects the cost of the investment. The
right margin reflects the ending value of the hypothetical investment in the
Fund as compared to the LUSMFA and the LB5TB; the ending values were $11,162,
$11,458, and $11,561, respectively. The legend in the bottom quadrant of the
graphic presentation indicates the Fund's Average Annual Total Returns for the
period ended 12/31/95; beginning with the start of performance date of the Fund
(3/28/94), and the one-year period thereafter; the Average Annual Total Returns
were 6.44% and 8.77%, respectively.
A4. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Corporate
Bond Fund ( the "Fund") is represented by a solid line. The Lehman Brothers
Single B Rated Index (the "LBSBRI") is represented by a broken solid line and
the Lipper High Yields Fund Average (the "LHCYFA") is represented by a dotted
line. The line graph is a visual representation of a comparison of change in
value of a $10,000 hypothetical investment in the Fund and the LBSBRI and the
LHCYFA. The "x" axis reflects computation periods from 3/1/94 to 12/31/95. The
"y" axis reflects the cost of the investment. The right margin reflects the
ending value of the hypothetical investment in the Fund as compared to the
LBSBRI and the LHCYFA; the ending values were $11,603, $11,442, and $10,954,
respectively. The legend in the bottom quadrant of the graphic presentation
indicates the Fund's Average Annual Total Returns for the period ended
12/31/95; beginning with the start of performance date of the Fund (3/1/94),
and the one-year period thereafter; the Average Annual Total Returns were 8.45%
and 20.38%, respectively.
A5. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The
International Stock Fund ( the "Fund") is represented by a solid line. The
Morgan Stanley Capital International Europe Austrailia Far East Index (the
"EAFE") is represented by a broken solid line. The line graph is a visual
representation of a comparison of change in value of a $10,000 hypothetical
investment in the Fund and the EAFE. The "x" axis reflects computation periods
from 5/8/95 to 12/31/95. The "y" axis reflects the cost of the investment. The
right margin reflects the ending value of the hypothetical investment in the
Fund as compared to the EAFE; the ending values were $10,350 and $10,522,
respectively. The legend in the bottom quadrant of the graphic presentation
indicates the Fund's Average Annual Total Return (cumulative) for the period
from 5/8/95 (start of performance) to 12/31/95; the Average Annual Total Return
was 3.50%.
A6. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Growth
Stock Fund ( the "Fund") is represented by a solid line. The Lipper Growth Fund
Index (the "LGFI") is represented by a broken solid line and the The Standard &
Poor's 500 Index (the "S&P 500") is represented by a dotted line. The line
graph is a visual representation of a comparison of change in value of a
$10,000 hypothetical investment in the Fund and the LGFI and the S&P 500. The
"x" axis reflects computation periods from 11/9/95 to 12/31/95. The "y" axis
reflects the cost of the investment. The right margin reflects the ending value
of the hypothetical investment in the Fund as compared to the LGFI and the S&P
500; the ending values were $10,300, $10,291, and $10,640, respectively. The
legend in the bottom quadrant of the graphic presentation indicates the Fund's
Average Annual Total Return (cumulative) for the period from 11/9/95 (start of
