-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VbGmVk4rzrnYzB92CALUSScfSguExh7+XdFXKLTWHQNMrVox96bGa5QLwWQ5DYFt bmxJXZqpHcuQqPybUeRmaA== 0001056288-02-000521.txt : 20020829 0001056288-02-000521.hdr.sgml : 20020829 20020829115413 ACCESSION NUMBER: 0001056288-02-000521 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020829 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FEDERATED CORE TRUST/PA CENTRAL INDEX KEY: 0001034106 IRS NUMBER: 232934777 STATE OF INCORPORATION: MA FISCAL YEAR END: 1212 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-08519 FILM NUMBER: 02752183 BUSINESS ADDRESS: STREET 1: FEDERATED INVESTORS TOWER CITY: PITTSBURGH STATE: PA ZIP: 15222-3779 BUSINESS PHONE: 8003417400 MAIL ADDRESS: STREET 1: FEDERATED INVESTORS TOWER CITY: PITTSBURGH STATE: PA ZIP: 15222-3779 N-30D 1 form.txt Principal Amount - ---------- Or Shares Value - --------------------------------------------------------------------------- HIGH YIELD BOND PORTFOLIO PORTFOLIO OF INVESTMENTS June 30, 2002 (unaudited) Principal Amount Value Corporate Bonds--91.6% Aerospace & Defense--0.5% $ 2,100,000 Alliant Techsystems, Inc., Sr. Sub. Note, 8.50%, 5/15/2011 $ 2,205,000 1,387,000 Anteon Corp., Sr. Sub. Note, 12.00%, 5/15/2009 1,546,505 500,000(1(3)Condor Systems, Inc., Sr. Sub. Note, (Series B), 11.875%, 5/1/2009 112,500 Total 3,864,005 Automotive--4.3% 950,000 Accuride Corp., Sr. Sub. Note, (Series B), 9.25%, 2/1/2008 669,750 5,750,000 American Axle & Manufacturing, Inc., Company Guarantee, 9.75%, 3/1/2009 6,123,750 1,625,000 Arvin Industries, Inc., Note, 6.75%, 3/15/2008 1,598,464 1,650,000 Arvin Industries, Inc., Note, 7.125%, 3/15/2009 1,632,543 1,000,000 ArvinMeritor Inc., Note, 8.750%, 3/01/2012 1,066,500 2,525,000(1(2)Collins & Aikman Products Co., Sr. Note, 10.75%, 12/31/2011 2,537,625 2,050,000 Collins & Aikman Products Co., Sr. Sub. Note, 11.50%, 4/15/2006 1,968,000 2,550,000 Dana Corp., Note, 9.00%, 8/15/2011 2,511,750 3,300,000 Lear Corp., Company Guarantee, 7.96%, 5/15/2005 3,374,250 10,825,000 Lear Corp., Company Guarantee, 8.11%, 5/15/2009 11,149,750 3,275,000(1(2)Stoneridge, Inc., Sr. Note, 11.50%, 5/1/2012 3,348,688 Total 35,981,070 Banking--1.2% 9,100,000 GS Escrow Corp., Sr. Note, 7.125%, 8/1/2005 9,706,151 Beverage & Tobacco--1.1% 2,300,000 Constellation Brands, Inc., Company Guarantee, (Series B), 8.00%, 2/15/2008 2,369,000 1,000,000 Constellation Brands, Inc., Sr. Sub. Note, 8.125%, 1/15/2012 1,040,000 3,525,000 Cott Beverages, Inc., Company Guarantee, 8.00%, 12/15/2011 3,595,500 1,575,000 Dimon, Inc., Sr. Note, (Series B), 9.625%, 10/15/2011 1,665,562 Total 8,670,062 Broadcast Radio & TV--5.8% 3,250,000 ACME Television, LLC, Sr. Disc. Note, 10.875%, 9/30/2004 3,298,750 500,000 Ackerley Group, Inc. (The), Sr. Sub. Note, (Series B), 9.00%, 1/15/2009 547,500 9,300,000 Chancellor Media Corp., Company Guarantee, 8.00% , 11/1/2008 9,276,750 5,050,000 Chancellor Media Corp., Sr. Sub. Note, 8.125%, 12/15/2007 4,923,750 8,800,000(4Fox/Liberty Networks, LLC, Sr. Disc. Note, 0/9.75%, 8/15/2007 9,009,000 2,325,000 Fox/Liberty Networks, LLC, Sr. Note, 8.875%, 8/15/2007 2,438,344 3,800,000 Liberty Media Corp., Sr. Note, 7.75%, 7/15/2009 3,866,234 2,150,000 Lin Television Corp., Company Guarantee, 8.00%, 1/15/2008 2,160,750 2,363,000 Loral Cyberstar, Inc., Company Guarantee, 10.00%, 7/15/2006 1,583,210 4,500,000(1(2)PanAmSat Corp., Sr. Note, 8.50%, 2/1/2012 4,197,285 1,450,000 Sinclair Broadcast Group, Inc., Company Guarantee, 8.75%, 12/15/2011 1,464,500 4,125,000 Sinclair Broadcast Group, Inc., Sr. Sub. Note, 8.75%, 12/15/2007 4,145,625 1,500,000 XM Satellite Radio, Inc., Sr. Note, 14.00%, 3/15/2010 862,500 Total 47,774,198 Building & Development--2.3% 1,375,000 American Builders & Contractors Supply Co. Inc., Sr. Sub. Note, 10.625%, 5/15/2007 1,430,000 2,700,000(1(2)Associated Materials, Inc., Sr. Sub. Note, 9.75%, 4/15/2012 2,794,500 2,425,000(1(2)Collins & Aikman Floorcoverings, Inc., Sr. Sub. Note, 9.75%, 2/15/2010 2,485,625 1,200,000(1(2)K. Hovnanian Enterprises, Inc., Sr. Note, 8.00%, 4/1/2012 1,182,000 3,650,000 NCI Building System, Inc., Sr. Sub. Note, (Series B), 9.25%, 5/1/2009 3,723,000 2,050,000 Nortek, Inc., Sr. Note, 9.125%, 9/1/2007 2,091,000 1,000,000 WCI Communities, Inc., Company Guarantee, 9.125%, 5/1/2012 995,000 3,925,000 WCI Communities, Inc., Sr. Sub. Note, 10.625%, 2/15/2011 4,140,875 Total 18,842,000 Business Equipment & Services--1.5% 4,500,000 Buhrmann US, Inc., Company Guarantee, 12.25%, 11/1/2009 4,747,500 56,246(1Electronic Retailing Systems International, Inc., Sr. Disc. Note, 8.00%, 8/1/2004 12,121 1,900,000 Global Imaging Systems, Inc., Sr. Sub. Note, 10.75%, 2/15/2007 1,919,000 6,525,000(1(2)Xerox Corp., Sr. Note, 9.75%, 1/15/2009 5,383,125 Total 12,061,746 Cable Television--6.4% 1,910,000 CSC Holdings, Inc., Sr. Note, 7.875%, 12/15/2007 1,556,650 6,375,000 CSC Holdings, Inc., Sr. Note, 8.125%, 7/15/2009 5,195,625 3,350,000 CSC Holdings, Inc., Sr. Sub. Deb., 9.875%, 2/15/2013 2,629,750 5,400,000(4Charter Communications Holdings Capital Corp., Discount Bond, 0/11.75%, 5/15/2011 1,917,000 9,000,000(1(2)(4)Charter Communications Holdings Capital Corp., Sr. Disc. Note, 0/12.125%, 1/15/2012 2,925,000 11,675,000(4Charter Communications Holdings Capital Corp., Sr. Disc. Note, 0/13.50%, 1/15/2011 4,436,500 11,125,000(4Charter Communications Holdings Capital Corp., Sr. Disc. Note, 0/9.92%, 4/1/2011 5,395,625 1,700,000 Charter Communications Holdings Capital Corp., Sr. Note, 8.625%, 4/1/2009 1,130,500 4,675,000(3(4)Diamond Cable Communications PLC, Sr. Disc. Note, 0/10.75%, 2/15/2007 1,332,375 2,300,000 Echostar Broadband Corp., Sr. Note, 10.375%, 10/1/2007 2,196,500 6,875,000 Echostar DBS Corp., Sr. Note, 9.375%, 2/1/2009 6,428,125 3,450,000(3(4)International Cabletel, Inc., Sr. Defd. Cpn. Note, 0/11.50%, 2/1/2006 1,017,750 2,350,000 Lenfest Communications, Inc., Sr. Sub. Note, 8.25%, 2/15/2008 2,285,117 3,850,000(3(4)NTL, Inc., Sr. Disc. Note, 0/12.375%, 10/1/2008 981,750 5,000,000(3(4)NTL, Inc., Sr. Note, 0/9.75%, 4/1/2008 1,375,000 5,075,000(3NTL, Inc., Sr. Note, 11.50%, 10/1/2008 1,497,125 2,100,000(4Pegasus Satellite Communications Corp., Sr. Disc. Note, 0/13.50%, 3/1/2007 619,500 2,300,000(4Quebecor Media Inc., Sr. Disc. Note, 0/13.75%, 7/15/2011 1,345,500 2,950,000 Quebecor Media Inc., Sr. Note, 11.125%, 7/15/2011 2,935,250 1,400,000 Rogers Cablesystems Ltd., Sr. Company Guarantee, 11.00%, 12/1/2015 1,547,000 5,350,000 TeleWest PLC, Sr. Disc. Deb., 11.00%, 10/1/2007 2,113,250 1,000,000(4TeleWest PLC, Sr. Disc. Note, 0/9.25%, 4/15/2009 335,000 750,000 TeleWest PLC, Sr. Note, 11.25%, 11/1/2008 296,250 2,700,000(3(4)UIH Australia/Pacific, Sr. Disc. Note, 0/14.00%, 5/15/2006 141,750 7,364,000(3(4)United Pan-Europe Communications NV, Sr. Disc. Note, (Series B), 0/12.50%, 8/1/2009 828,450 4,000,000(3(4)United Pan-Europe Communications NV, Sr. Disc. Note, (Series B), 0/13.375%, 11/1/2009 450,000 Total 52,912,342 Chemicals & Plastics--3.0% 1,675,000 Airgas, Inc., Company Guarantee, 9.125%, 10/1/2011 1,775,500 2,425,000 Compass Minerals Group, Inc., Sr. Sub. Note, 10.00%, 8/15/2011 2,558,375 4,200,000 Equistar Chemicals LP, Sr. Note, 10.125%, 9/1/2008 4,032,000 1,600,000(1(2)Foamex LP, Sr. Secd. Note, 10.75%, 4/1/2009 1,640,000 1,850,000 Foamex LP, Sr. Sub. Note, 13.50%, 8/15/2005 1,877,750 2,400,000 Foamex LP, Sr. Sub. Note, 9.875%, 6/15/2007 2,148,000 1,200,000 General Chemical Industrial Products, Inc., Sr. Sub. Note, 10.625%, 5/1/2009 1,002,000 2,850,000 Huntsman ICI Chemicals LLC, Sr. Sub. Note, 10.125%, 7/1/2009 2,522,250 300,000 Lyondell Chemical Co., Sr. Secd. Note, 9.50%, 12/15/2008 280,500 1,000,000 Lyondell Chemical Co., Sr. Secd. Note, (Series B), 9.875%, 5/1/2007 960,000 4,675,000 Lyondell Chemical Co., Sr. Sub. Note, 10.875%, 5/1/2009 4,090,625 2,500,000 Texas Petrochemicals Corp., Sr. Sub. Note, 11.125%, 7/1/2006 2,037,500 Total 24,924,500 Clothing & Textiles--1.2% 675,000(1(3)Dyersburg Corp., Sr. Sub. Note, 9.75%, 9/1/2007 4,050 2,900,000 GFSI, Inc., Sr. Sub. Note, 9.625%, 3/1/2007 2,537,500 1,625,000(1(3)Glenoit Corp., Sr. Sub. Note, 11.00%, 4/15/2007 16 1,875,000(1(3)Pillowtex Corp., Sr. Sub. Note, 10.00%, 11/15/2006 23,437 2,150,000(1(3)Pillowtex Corp., Sr. Sub. Note, 9.00%, 12/15/2007 26,875 2,925,000(1(2)Russell Corp., Sr. Note, 9.25%, 5/1/2010 3,020,062 3,575,000 William Carter Co., Sr. Sub. Note, (Series B), 10.875%, 8/15/2011 3,914,625 Total 9,526,565 Conglomerates--0.5% 5,025,000 Eagle Picher Industries, Inc., Sr. Sub. Note, 9.375%, 3/1/2008 4,246,125 Consumer Products--6.0% 3,350,000 Albecca, Inc., Company Guarantee, 10.75%, 8/15/2008 3,659,875 1,775,000(1(2)Alltrista Corp., Sr. Sub. Note, 9.75%, 5/1/2012 1,704,000 3,500,000 American Achievement Corp., Sr. Note, (Series W.I.), 11.625%, 1/1/2007 3,622,500 2,575,000 American Greetings Corp., Sr. Sub. Note, 11.75%, 7/15/2008 2,819,625 600,000 American Safety Razor Co., Sr. Note, (Series B), 9.875%, 8/1/2005 513,000 2,350,000 Amscan Holdings, Inc., Sr. Sub. Note, 9.875%, 12/15/2007 2,126,750 3,350,000 Armkel Finance, Inc., Sr. Sub. Note, 9.50%, 8/15/2009 3,467,250 800,000 Boyds Collection (The), Ltd., Sr. Sub. Note, (Series B), 9.00%, 5/15/2008 800,000 3,200,000 Chattem, Inc., Sr. Sub. Note, 8.875%, 4/1/2008 3,264,000 325,000(3Diamond Brands Operating Corp., Sr. Sub. Note, 10.125%, 4/15/2008 11,375 925,000(3(4)Diamond Brands, Inc., Sr. Disc. Deb., 0/12.875%, 4/15/2009 32,375 1,700,000(1(2)ICON Health & Fitness, Inc., Sr. Sub. Note, 11.25%, 4/1/2012 1,683,000 2,475,000 Jostens, Inc., Sr. Sub. Note, 12.75%, 5/1/2010 2,685,375 3,525,000 Levi Strauss & Co., Sr. Note, 11.625%, 1/15/2008 3,419,250 1,600,000 NBTY, Inc., Sr. Sub. Note, 8.625%, 9/15/2007 1,600,000 1,725,000(1(2)PCA International, Inc., Sr. Note, 11.875%, 8/1/2009 1,716,375 3,950,000 Playtex Products, Inc., Company Guarantee, 9.375%, 6/1/2011 4,226,500 4,650,000 Revlon Consumer Products Corp., Sr. Sub. Note, 8.625%, 2/1/2008 2,301,750 925,000 Sealy Mattress Co., Sr. Sub. Note, 9.875%, 12/15/2007 938,875 950,000(1(3)Sleepmaster L.L.C., Company Guarantee, (Series B), 11.00%, 5/15/2009 204,250 2,970,000 True Temper Sports, Inc., Sr. Sub. Note, (Series B), 10.875%, 12/1/2008 3,133,350 3,275,000 United Industries Corp., Sr. Sub. Note, (Series B), 9.875%, 4/1/2009 3,340,500 2,100,000 Volume Services America, Inc., Sr. Sub. Note, 11.25%, 3/1/2009 2,026,500 Total 49,296,475 Container & Glass Products--3.5% 1,200,000 Graham Packaging Co., Company Guarantee, (Series B), 8.75%, 1/15/2008 1,146,000 1,875,000 Graham Packaging Co., Company Guarantee, (Series B), 5.552%, 1/15/2008 1,659,375 1,700,000(1(2)Owens-Brockway Glass Container, Inc., Sr. Secd. Note, 8.875%, 2/15/2009 1,708,500 2,550,000 Owens-Illinois, Inc., Sr. Note, 7.15%, 5/15/2005 2,333,250 4,000,000 Owens-Illinois, Inc., Sr. Note, 7.35%, 5/15/2008 3,580,000 2,675,000 Owens-Illinois, Inc., Sr. Note, 8.10%, 5/15/2007 2,501,125 3,075,000 Plastipak Holdings, Company Guarantee, 10.75%, 9/1/2011 3,321,000 3,900,000 Pliant Corp., Company Guarantee, 13.00%, 6/1/2010 4,095,000 2,075,000 Pliant Corp., Sr. Sub. Note, 13.00%, 6/1/2010 2,178,750 398,672(1(2)Russell Stanley Holdings, Inc., Sr. Sub. Note, 9.00%, 11/30/2008 300,001 4,825,000 Tekni-Plex, Inc., Company Guarantee, (Series B), 12.75%, 6/15/2010 5,018,000 825,000(1(2)Tekni-Plex, Inc., Sr. Sub. Note, 12.75%, 6/15/2010 858,000 Total 28,699,001 Ecological Services & Equipment--2.7% 10,500,000 Allied Waste North America, Inc., Company 0,106,250 Guarantee, 7.875%, 1/1/2009 1 1,900,000 Allied Waste North America, Inc., Company Guarantee, (Series B), 8.50%, 12/1/2008 1,876,250 8,200,000 Allied Waste North America, Inc., Sr. Sub. Note, 10.00%, 8/1/2009 8,138,500 2,475,000(1(2)Synagro Technologies, Inc., Sr. Sub. Note, 9.50%, 4/1/2009 2,549,250 Total 22,670,250 Electronics--1.3% 4,125,000 Fairchild Semiconductor Corp., Sr. Sub. Note, 10.375%, 10/1/2007 4,269,375 2,575,000 Ingram Micro, Inc., Sr. Sub. Note, 9.875%, 8/15/2008 2,745,594 2,800,000(1(2)Seagate Technology HDD Holdings, Sr. Note, 8.00%, 5/15/2009 2,814,000 6,000,000 Telecommunications Techniques Co., LLC, Sr. Sub. Note, 9.75%, 5/15/2008 1,230,000 Total 11,058,969 Food & Drug Retailers--0.0% 425,000 Community Distributors, Inc., Sr. Note, 10.25%, 10/15/2004 278,375 Food Products--3.8% 4,575,000 Agrilink Foods, Inc., Company Guarantee, 11.875%, 11/1/2008 4,826,625 3,375,000(1(2)American Seafoods Group LLC, Sr. Sub. Note, 10.125%, 4/15/2010 3,425,625 1,725,000(1(2)B&G Foods, Inc., Sr. Sub. Note, 9.625%, 8/1/2007 1,785,375 4,025,000 Del Monte Corp., Company Guarantee, (Series B), 9.25%, 5/15/2011 4,165,875 2,550,000 Eagle Family Foods, Inc., Sr. Sub. Note, 8.75%, 1/15/2008 1,950,750 4,275,000(1(2)Land O'Lakes, Inc., Sr. Note, 8.75%, 11/15/2011 4,039,875 2,600,000 Michael Foods, Inc., Sr. Sub. Note, (Series B), 11.75%, 4/1/2011 2,847,000 2,675,000 New World Pasta Co., Sr. Sub. Note, 9.25%, 2/15/2009 2,608,125 2,250,000 Pilgrim's Pride Corp., Sr. Note, 9.625%, 9/15/2011 2,351,250 3,200,000 Smithfield Foods, Inc., Sr. Note, (Series B), 8.00%, 10/15/2009 3,240,000 Total 31,240,500 Food Services--1.2% 1,750,000 Advantica Restaurant Group, Sr. Note, 11.25%, 1/15/2008 1,373,750 1,700,000(1(2)Buffets, Inc., Sr. Sub. Note, 11.25%, 7/15/2010 1,695,750 3,900,000 Carrols Corp., Company Guarantee, 9.50%, 12/1/2008 3,841,500 2,900,000 Domino's, Inc., Company Guarantee, 10.375%, 1/15/2009 3,161,000 Total 10,072,000 Forest Products--3.0% 3,225,000 Georgia-Pacific Corp., Note, 7.50%, 5/15/2006 3,100,031 10,375,000 Georgia-Pacific Corp., Sr. Note, 8.125%, 5/15/2011 9,882,188 4,925,000 Riverwood International Corp., Company Guarantee, 10.625%, 8/1/2007 5,208,187 2,025,000 Riverwood International Corp., Sr. Sub. Note, 10.875%, 4/1/2008 2,121,187 4,275,000(1(2)Stone Container Corp., Sr. Note, 9.75%, 2/1/2011 4,584,938 Total 24,896,531 Gaming--5.2% 825,000 Boyd Gaming Corp., Company Guarantee, 9.25%, 8/1/2009 870,375 2,050,000(1(2)Boyd Gaming Corp., Sr. Sub. Note, 8.75%, 4/15/2012 2,060,250 2,125,000 Coast Hotels & Casinos, Inc., Company Guarantee, 9.50%, 4/1/2009 2,241,875 1,750,000(1(2)Isle of Capri Casinos, Inc., Sr. Sub. Note, 9.00%, 3/15/2012 1,776,250 5,100,000 MGM Grand, Inc., Sr. Note, 8.50%, 9/15/2010 5,327,562 5,400,000 MGM Grand, Inc., Sr. Sub. Note, 9.75%, 6/1/2007 5,697,000 1,750,000 Mandalay Resort Group, Sr. Note, 9.50%, 8/1/2008 1,859,375 6,350,000 Mandalay Resort Group, Sr. Sub. Note, 10.25%, 8/1/2007 6,667,500 250,000 Mandalay Resort Group, Sr. Sub. Note, 9.375%, 2/15/2010 261,250 4,100,000(1(2)Park Place Entertainment Corp., Sr. Sub. Note, 7.875%, 3/15/2010 4,089,750 5,000,000 Park Place Entertainment Corp., Sr. Sub. Note, 8.125%, 5/15/2011 5,000,000 500,000 Park Place Entertainment Corp., Sr. Sub. Note, 9.375%, 2/15/2007 525,000 2,025,000 Penn National Gaming, Inc., Company Guarantee, 11.125%, 3/1/2008 2,187,000 1,775,000(1(2)Sun International Hotels Ltd., Sr. Sub. Note, 8.875%, 8/15/2011 1,814,938 2,900,000(1(2)Venetian Casino/LV Sands, Mtg. Note, 11.00%, 6/15/2010 2,936,250 Total 43,314,375 Health Care--7.8% 2,900,000(1(2)Advanced Medical Optics, Inc., Sr. Sub. Note, 9.25%, 7/15/2010 2,892,750 925,000 Alaris Medical Systems, Company Guarantee, 9.75%, 12/1/2006 922,688 2,250,000 Alaris Medical Systems, Sr. Secd. Note, (Series B), 11.625%, 12/1/2006 2,508,750 4,525,000 Alliance Imaging, Inc., Sr. Sub. Note, 10.375%, 4/15/2011 4,887,000 1,950,000 AmerisourceBergen Corp., Sr. Note, 8.125%, 9/1/2008 2,018,250 4,300,000 CONMED Corp., Sr. Sub. Note, 9.00%, 3/15/2008 4,461,250 2,700,000 Columbia/HCA Healthcare Corp., Sr. Note, 6.91%, 6/15/2005 2,793,717 2,700,000(1(2)Extendicare Health Services, Inc., Sr. Note, 9.50%, 7/1/2010 2,733,750 3,875,000 Fisher Scientific International, Inc., Sr. Sub. Note, 9.00%, 2/1/2008 4,010,625 2,125,000 Fisher Scientific International, Inc., Sr. Sub. Note, 9.00%, 2/1/2008 2,199,375 5,000,000 HCA - The Healthcare Corp., Note, 8.75%, 9/1/2010 5,607,450 5,000,000 HCA - The Healthcare Corp., Sr. Note, 7.875%, 2/1/2011 5,333,050 1,850,000 Hanger Orthopedic Group, Inc., Company Guarantee, 10.375%, 2/15/2009 1,947,125 4,050,000 Hanger Orthopedic Group, Inc., Sr. Sub. Note, 11.25%, 6/15/2009 4,151,250 1,350,000 Hudson Respiratory Care, Inc., Sr. Sub. Note, 9.125%, 4/15/2008 681,750 850,000 Insight Health Services, Company Guarantee, 9.875%, 11/1/2011 858,500 4,450,000 Kinetic Concepts, Inc., Company Guarantee, 9.625%, 11/1/2007 4,450,000 2,400,000(1(2)Magellan Health Services, Inc., Sr. Note, 9.375%, 11/15/2007 1,860,000 1,975,000 Magellan Health Services, Inc., Sr. Sub. Note, 9.00%, 2/15/2008 720,875 1,050,000 Manor Care, Inc., Sr. Note, 8.00%, 3/1/2008 1,093,218 2,125,000(1(2)Sybron Dental Specialties, Inc., Sr. Sub. Note, 8.125%, 6/15/2012 2,135,625 1,250,000 Triad Hospitals, Inc., Company Guarantee, (Series B), 8.75%, 5/1/2009 1,306,250 2,000,000 US Oncology, Inc., Company Guarantee, 9.625%, 2/1/2012 1,960,000 1,475,000 Vanguard Health Systems, Company Guarantee, 9.75%, 8/1/2011 1,541,375 1,725,000(1(2)Ventas Realty LP, Sr. Note, 9.00%, 5/1/2012 1,768,125 Total 64,842,748 Hotels, Motels & Inns--4.8% 1,625,000 Courtyard by Marriott II LP, Sr. Note, 10.75%, 2/1/2008 1,665,625 2,350,000 Felcor Lodging LP, Company Guarantee, 8.50%, 6/1/2011 2,303,000 1,700,000 Felcor Lodging LP, Company Guarantee, 9.50%, 9/15/2008 1,717,000 3,125,000 Florida Panthers Holdings, Inc., Company Guarantee, 9.875%, 4/15/2009 3,250,000 5,050,000 HMH Properties, Inc., Sr. Note, (Series B), 7.875%, 8/1/2008 4,860,625 3,175,000 HMH Properties, Inc., Sr. Note, (Series C), 8.45%, 12/1/2008 3,127,375 2,700,000 Hilton Hotels Corp., Note, 7.625%, 5/15/2008 2,747,169 1,600,000 Hilton Hotels Corp., Sr. Note, 8.25%, 2/15/2011 1,659,280 5,200,000 ITT Corp., Unsecd. Note, 6.75%, 11/15/2005 5,140,356 875,000 MeriStar Hospitality Corp., Company Guarantee, 9.00%, 1/15/2008 853,125 1,950,000 MeriStar Hospitality Corp., Company Guarantee, 9.125%, 1/15/2011 1,901,250 1,050,000(1(2)MeriStar Hospitality Corp., Sr. Note, 10.50%, 6/15/2009 1,071,000 1,775,000 RFS Partnership LP, Company Guarantee, 9.75%, 3/1/2012 1,792,750 2,200,000(1(2)Starwood Hotels & Resorts Worldwide, Inc., Note, 7.375%, 5/1/2007 2,193,070 4,200,000(1(2)Starwood Hotels & Resorts Worldwide, Inc., Note, 7.875%, 5/1/2012 4,162,452 1,150,000 Vail Resorts, Inc., Company Guarantee, 8.75%, 5/15/2009 1,167,250 Total 39,611,327 Industrial Products & Equipment--3.0% 1,305,000 Amphenol Corp., Sr. Sub. Note, 9.875%, 5/15/2007 1,363,725 1,600,000 Cabot Safety Acquisition Corp., Sr. Sub. Note, 12.50%, 7/15/2005 1,656,000 825,000 Continental Global Group, Inc., Sr. Note, 11.00%, 4/1/2007 420,750 3,225,000 Euramax International Plc, Sr. Sub. Note, 11.25%, 10/1/2006 3,241,125 2,100,000 Hexcel Corp., Sr. Sub. Note, (Series B), 9.75%, 1/15/2009 1,606,500 563,000 Hexcel Corp., Sub. Note, 7.00%, 8/1/2003 441,955 3,600,000 ISG Resources, Inc., Sr. Sub. Note, 10.00%, 4/15/2008 3,402,000 3,750,000 MMI Products, Inc., Sr. Sub. Note, 11.25%, 4/15/2007 3,862,500 3,475,000 Neenah Corp., Company Guarantee, 11.125%, 5/1/2007 2,015,500 650,000 Neenah Corp., Sr. Sub. Note, 11.125%, 5/1/2007 377,000 2,250,000 Unifrax Investment Corp., Sr. Note, 10.50%, 11/1/2003 2,272,500 1,700,000 WESCO Distribution, Inc., Company Guarantee, 9.125%, 6/1/2008 1,666,000 2,250,000 WESCO Distribution, Inc., Sr. Sub. Note, 9.125%, 6/1/2008 2,205,000 Total 24,530,555 Leisure & Entertainment--2.1% 2,650,000(1(2)AMF Bowling Worldwide, Inc., Sr. Sub. Note, 13.00%, 2/28/2008 2,875,250 8,975,000(4Premier Parks, Inc., Sr. Disc. Note, 0/10.00%, 4/1/2008 8,660,875 2,000,000 Premier Parks, Inc., Sr. Note, 9.75%, 6/15/2007 2,070,000 3,375,000(1(2)Regal Cinemas, Inc., Company Guarantee, 9.375%, 2/1/2012 3,526,875 Total 17,133,000 Machinery & Equipment--2.4% 3,800,000 AGCO Corp., Sr. Note, 9.50%, 5/1/2008 4,047,000 2,200,000 Briggs & Stratton Corp., Company Guarantee, 8.875%, 3/15/2011 2,321,000 1,775,000(1(3)Clark Material Handling Corp., Sr. Note, 10.75%, 11/15/2006 177 3,675,000 Columbus McKinnon Corp., Sr. Sub. Note, 8.50%, 4/1/2008 3,362,625 2,700,000(1(3)Simonds Industries, Inc., Sr. Sub. Note, 10.25%, 7/1/2008 823,500 6,025,000 United Rentals, Inc., Company Guarantee, (Series B), 10.75%, 4/15/2008 6,446,750 2,825,000 United Rentals North America, Inc., Company Guarantee, (Series B), 9.00%, 4/1/2009 2,740,250 Total 19,741,302 Metals & Mining--0.0% 500,000 Murrin Murrin Holdings Property Ltd., Sr. Secd. Note, 9.375%, 8/31/2007 127,500 Oil & Gas--4.2% 800,000 AmeriGas Partners LP, Sr. Note, 8.875%, 5/20/2011 836,000 1,700,000 BRL Universal Equipment, Sr. Secd. Note, 8.875%, 2/15/2008 1,725,500 1,950,000(1(2)Compton Petroleum Corp., Sr. Note, 9.90%, 5/15/2009 2,006,726 675,000 Comstock Resources, Inc., Sr. Note, 11.25%, 5/1/2007 702,000 4,000,000 Continental Resources, Inc., Sr. Sub. Note, 10.25%, 8/1/2009 3,620,000 1,650,000 DI Industries, Inc., Sr. Note, 8.875%, 7/1/2007 1,707,750 4,400,000 Dresser, Inc., Company Guarantee, 9.375%, 4/15/2011 4,510,000 2,725,000 Forest Oil Corp., Sr. Sub. Note, 10.50%, 1/15/2006 2,902,125 4,100,000(1(2)Hanover Equipment Trust, Sr. Secd. Note, (Series 01 B), 8.75%, 9/1/2011 3,874,500 2,475,000 Lone Star Technologies, Inc., Company Guarantee, (Series B), 9.00%, 6/1/2011 2,376,000 1,550,000(1(2)Magnum Hunter Resources, Inc., Sr. Note, 9.60%, 3/15/2012 1,596,500 1,250,000(1(2)Petroleum Helicopters, Inc., Sr. Note, 9.375%, 5/1/2009 1,287,500 2,400,000 Pogo Producing Co., Sr. Sub. Note, (Series B), 10.375%, 2/15/2009 2,592,000 1,400,000 Swift Energy Co., Sr. Sub. Note, 9.375%, 5/1/2012 1,337,000 4,350,000 Tesoro Petroleum Corp., Company Guarantee, (Series B), 9.625%, 11/1/2008 4,067,250 Total 35,140,851 Printing & Publishing--2.8% 3,050,000 Advanstar Communications, Company Guarantee, (Series B), 12.00%, 2/15/2011 2,485,750 1,000,000(4Advanstar, Inc., Company Guarantee, (Series B), 0/15.00%, 10/15/2011 427,500 3,250,000 American Media Operations, Inc., Company Guarantee, (Series B), 10.25%, 5/1/2009 3,428,750 2,725,000 Belo (A.H.) Corp., Note, 8.00%, 11/1/2008 2,835,254 1,300,000(1(2)Block Communications, Inc., Sr. Sub. Note, 9.25%, 4/15/2009 1,300,000 900,000 Hollinger International Publishing, Inc., Sr. Sub. Note, 9.25%, 3/15/2007 933,750 900,000 K-III Communications Corp., Company Guarantee, (Series B), 8.50%, 2/1/2006 715,500 1,350,000(1(2)Primedia, Inc., Sr. Note, 8.875%, 5/15/2011 978,750 3,175,000(1(2)Vertis, Inc., Sr. Note, 10.875%, 6/15/2009 3,159,125 1,625,000(1(2)Von Hoffmann Corp., Sr. Note, 10.25%, 3/15/2009 1,673,750 4,125,000(4Yell Finance BV, Sr. Disc. Note, 0/13.50%, 8/1/2011 2,887,500 2,100,000 Yell Finance BV, Sr. Note, 10.75%, 8/1/2011 2,320,500 900,000 Ziff Davis Media, Inc., Company Guarantee, (Series B), 12.00%, 7/15/2010 229,500 Total 23,375,629 Retailers--1.3% 1,200,000 Advance Stores Co., Inc., Company Guarantee, 10.25%, 4/15/2008 1,266,000 2,225,000 Michaels Stores, Inc., Sr. Note, 9.25%, 7/1/2009 2,380,750 2,625,000 Penney (J.C.) Co., Inc., Note, 7.375%, 6/15/2004 2,628,281 3,450,000 Penney (J.C.) Co., Inc., Note, 7.60%, 4/1/2007 3,411,187 1,100,000(1(2)United Auto Group, Inc., Sr. Sub. Note, 9.625%, 3/15/2012 1,122,000 Total 10,808,218 Services--0.6% 1,375,000 American Tower Systems Corp., Sr. Note, 9.375%, 2/1/2009 756,250 1,700,000(1(2)Coinmach Corp., Sr. Note, 9.00%, 2/1/2010 1,708,500 2,750,000 SITEL Corp., Sr. Sub. Note, 9.25%, 3/15/2006 2,571,250 Total 5,036,000 Steel--0.4% 650,000 California Steel Industries, Inc., Sr. Note, (Series B), 8.50%, 4/1/2009 659,750 2,000,000(3Republic Technologies International, Inc., Company Guarantee, 13.75%, 7/15/2009 135,000 2,675,000 Ryerson Tull, Inc., Sr. Note, 9.125%, 7/15/2006 2,634,875 Total 3,429,625 Surface Transportation--0.9% 2,600,000 Allied Holdings, Inc., Sr. Note, 8.625%, 10/1/2007 2,041,000 1,025,000(1(3)AmeriTruck Distribution Corp., Sr. Sub. Note, 12.25%, 11/15/2005 0 3,575,000 Stena AB, Sr. Note, 10.50%, 12/15/2005 3,682,250 1,675,000 Stena AB, Sr. Note, 8.75%, 6/15/2007 1,649,875 1,050,000(1(3)The Holt Group, Inc., Company Guarantee, 9.75%, 1/15/2006 36,750 Total 7,409,875 Telecommunications & Cellular--3.3% 4,825,000(4AirGate PCS, Inc., Sr. Sub. Note, 0/13.50%, 10/1/2009 989,125 7,575,000(4Alamosa PCS Holdings, Inc., Sr. Disc. Note, 0/12.875%, 2/15/2010 1,174,125 2,441,516(1(2)Call-Net Enterprises, Inc., Company Guarantee, 10.625%, 12/31/2008 720,247 3,500,000(3(4)Dolphin Telecom PLC, Sr. Disc. Note, 0/14.00%, 5/15/2009 17,850 5,275,000(3Global Crossing Holdings Ltd., Company Guarantee, 9.50%, 11/15/2009 65,937 2,350,000(1(2)Horizon PCS, Inc., Sr. Note, 13.75%, 6/15/2011 787,250 1,275,000(4Level 3 Communications, Inc., Sr. Disc. Note, 0/10.50%, 12/1/2008 248,625 4,650,000 Millicom International Cellular S. A., Sr. Disc. Note, 13.50%, 6/1/2006 1,650,750 6,925,000(4NEXTEL Communications, Inc., Sr. Disc. Note, 0/10.65%, 9/15/2007 3,808,750 7,775,000(4NEXTEL Communications, Inc., Sr. Disc. Note, 0/9.95%, 2/15/2008 3,615,375 10,125,000 NEXTEL Communications, Inc., Sr. Note, 9.375%, 11/15/2009 5,189,062 1,121,000(4Nextel Partners, Inc., Sr. Disc. Note, 0/14.00%, 2/1/2009 297,065 1,450,000 Nextel Partners, Inc., Sr. Note, 12.50%, 11/15/2009 616,250 3,525,000 Rogers Cantel Mobile, Inc., Sr. Sub. Note, 8.80%, 10/1/2007 2,626,125 3,700,000(3(4)Teligent, Inc., Sr. Disc. Note, 0/11.50%, 3/1/2008 18,500 1,479,000 (4)Tritel PCS, Inc., Company Guarantee, 0/12.75%, 5/15/2009 1,186,898 2,700,000 (4)Triton PCS, Inc., Sr. Disc. Note, 0/11.00%, 5/1/2008 1,660,500 4,100,000(3(4)Viatel, Inc., Unit, 0/12.50%, 4/15/2008 14,350 700,000(3Viatel, Inc., Unit, 11.25%, 4/15/2008 2,450 3,900,000(4VoiceStream Wireless Corp., Sr. Disc. Note, 0/11.875%, 11/15/2009 2,544,750 Total 27,233,984 Utilities--3.5% 2,350,000 CMS Energy Corp., Sr. Note, 7.50%, 1/15/2009 1,938,750 4,750,000 CMS Energy Corp., Sr. Note, 8.50%, 4/15/2011 3,705,000 2,000,000 CMS Energy Corp., Sr. Note, 8.90%, 7/15/2008 1,570,000 4,224,968 Caithness Coso Funding Corp., Sr. Secd. Note, (Series B), 9.05%, 12/15/2009 4,330,592 7,250,000 Calpine Canada Energy Finance Corp., Company Guarantee, 8.50%, 5/1/2008 4,893,750 13,050,000 Calpine Corp., Note, 8.50%, 2/15/2011 8,678,250 1,700,000 El Paso Electric Co., 1st Mtg. Note, 9.40%, 5/1/2011 1,867,603 2,200,000 (4)Niagara Mohawk Power Corp., Sr. Disc. Note, (Series H), 0/8.50%, 7/1/2010 2,160,972 Total 29,144,917 Total Corporate Bonds (identified cost 57,600,771 $883,065,841) 7 COMMON STOCKS--0.3% Business Equipment & Services--0.0% 11,025(3Systems Holdings, Inc. 110 Container & Glass Products--0.0% 57,000(1(2)(3)Russell Stanley Holdings, Inc. 17,100 Leisure & Entertainment--0.0% 4,320(3AMF Bowling Worldwide, Inc. 114,480 Metals & Mining--0.3% 245,417(3Horizon Natural Resources Co. 2,638,233 57,533(1(3)Royal Oak Mines, Inc. 518 Total 2,638,751 Printing & Publishing--0.0% 500(3Medianews Group, Inc. 46,313 Telecommunications & Cellular--0.0% 117,335(3Call-Net Enterprises, Inc., Class B 40,774 Total COMMON STOCKS (identified cost $11,711,279) 2,857,528 Preferred Stocks--0.8% Broadcast Radio & TV--0.4% 30,300 Sinclair Broadcast Group, Inc., Cumulative Pfd., $11.63 3,098,175 Business Equipment & Services--0.0% 392(1Electronic Retailing Systems International, Inc., Conv. Pfd. 196 Health Care--0.0% 5,486 River Holding Corp., Sr. Exchangeable PIK 74,061 Printing & Publishing--0.3% 22,750 Primedia, Inc., Cumulative Pfd., (Series D), $10.00 688,187 39,650 Primedia, Inc., Exchangeable Pfd. Stock, (Series H), $2.16 1,199,412 17,450 Primedia, Inc., Pfd., $9.20 527,862 Total 2,415,461 Telecommunications & Cellular--0.1% 30,751 McLeodUSA, Inc., Conv. Pfd., (Series A) 115,316 723 NEXTEL Communications, Inc., Cumulative PIK Pfd., (Series D), 13.00% 213,285 1,151 NEXTEL Communications, Inc., Exchangeable Pfd. Stock, (Series E), 11.25% 247,465 Total 576,066 Total Preferred Stocks (identified cost $19,867,395) 6,163,959 Warrants--0.0% Broadcast Radio & TV--0.0% 23,310(3Loral Space & Communications Ltd., Warrants 26,224 1,800(3)XM Satellite Radio, Inc., Warrants 10,800 Total 37,024 Cable Television--0.0% 2,400(3UIH Australia/Pacific, Warrants 24 Consumer Products--0.0% 2,000(3Jostens, Inc., Warrants 20,500 Container & Glass Products--0.0% 1,000(3Pliant Corp., Warrants 10,250 Leisure & Entertainment--0.0% 10,165(3AMF Bowling Worldwide, Inc., Warrants 60,990 9,931(3AMF Bowling Worldwide, Inc., Warrants, Class B 49,655 Total 110,645 Printing & Publishing--0.0% 1,000(3Advanstar, Inc., Warrants 10 Steel--0.0% 2,000(3Republic Technologies International, Inc., Warrants 20 Telecommunications & Cellular--0.0% 68,141(3McLeodUSA, Inc., Warrants 8,518 Total WARRANTS (identified cost $1,078,174) 186,991 Repurchase Agreement (5)--5.8% 47,550,000 Warburg Dillon Reed LLC, 1.97%, dated 6/28/2002, 7,550,000 due 7/1/2002 (at amortized cost) 4 Total Investments (identified cost $963,272,689)(6) $814,359,249 =========================================================================== (1) Denotes a restricted security which is subject to restrictions on resale under federal securities laws. At June 30, 2002, these securities amounted to $117,751,272 which represents 14.2% of net assets. Included in these amounts, securities which have been deemed liquid amounted to $116,506,882 which represents 14.1% of net assets. (2) Denotes a restricted security that has been deemed liquid by criteria approved by the fund's Board of Trustees. (3) Non-income producing security. (4) Denotes a Zero Coupon bond with effective rate at time of purchase. (5) 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. (6) The cost of investments for generally accepted accounting principles ("GAAP") is $963,272,689. Cost for federal tax purposes is $962,021,154. The difference between cost for GAAP and cost on a tax basis is related to amortization/accretion elections on fixed income securities. The net unrealized depreciation of investments on a federal tax basis is $147,661,905 which is comprised of $19,771,958 appreciation and $167,433,863 depreciation at June 30, 2002. Note: The categories of investments are shown as a percentage of net assets ($827,007,580) at June 30, 2002. The following acronyms are used throughout this portfolio: PIK --Payment in Kind See Notes which are an integral part of the Financial Statements HIGH YIELD BOND PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES June 30, 2002 (unaudited) Assets: Total investments in securities, at value (identified cost $963,272,689) 814,359,249 Cash 983 Income receivable 17,796,534 Receivable for investments sold 1,783,150 Total assets 833,939,916 Liabilities: Income distribution payable 6,906,439 Accrued expenses 25,897 Total liabilities 6,932,336 Net assets for 134,135,131 shares outstanding 827,007,580 Net Assets Consist of: Paid in capital 1,111,120,915 Net unrealized depreciation of investments (148,913,440 ) Accumulated net realized loss on investments (131,460,227 ) Distributions in excess of net investment income (3,739,668 ) Total Net Assets 827,007,580 Net Asset Value, Offering Price and Redemption Proceeds Per Share $827,007,580 / 134,135,131 shares outstanding $6.17 - ---------------------------------------------------------------------------- - --------------------------------------------------------------------------- See Notes which are an integral part of the Financial Statements HIGH YIELD BOND PORTFOLIO STATEMENT OF OPERATIONS Six Months Ended June 30, 2002 (unaudited) Investment Income: Dividends 693,555 Interest (including income on securities loaned of $1,322) 38,040,341 Total income 38,733,896 Expenses: Administrative personnel and services fee 297,460 Custodian fees 10,495 Transfer and dividend disbursing agent fees and expenses 7,861 Directors'/Trustees' fees 1,187 Auditing fees 7,676 Legal fees 2,494 Portfolio accounting fees 69,949 Share registration costs 420 Insurance premiums 395 Miscellaneous 185 Total expenseS 398,122 Waiver of administrative personnel and services fee (297,460) Net expenses 100,662 Net investment income 38,633,234 Realized and Unrealized Gain (Loss) on Investments: Net realized loss on investments (39,448,774 ) Net change in unrealized depreciation of investments (6,383,709 ) Net realized and unrealized loss on investments (45,832,483 ) Change in net assets resulting from operations (7,199,249 ) See Notes which are an integral part of the Financial Statements =========================================================================== HIGH YIELD BOND PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS Six Months ---------------- Ended (unaudited) Year Ended 6/30/2002 12/31/2001 Increase (Decrease) in Net Assets Operations: Net investment income 38,633,234 67,831,727 Net realized loss on investments (39,448,774 ) (71,740,382 ) Net change in unrealized appreciation (depreciation) of investments (6,383,709 ) 14,173,897 Change in net assets resulting from operations (7,199,249 ) 10,265,242 Distributions to Shareholders: Distributions from net investment income (39,867,281 ) (69,279,073 ) Share Transactions: Proceeds from sale of shares 220,108,230 291,362,313 Net asset value of shares issued to shareholders in payment of distributions declared 32,960,842 69,259,001 Cost of shares redeemed (44,741,523 ) (168,681,080 ) Change in net assets resulting from share transactions 208,327,549 191,940,234 Change in net assets 161,261,019 132,926,403 Net Assets: Beginning of period 665,746,561 532,820,158 End of period 827,007,580 665,746,561 =========================================================================== See Notes which are an integral part of the Financial Statements HIGH YIELD BOND PORTFOLIO FINANCIAL HIGHLIGHTS (For a Share Outstanding Throughout Each Period) Six Months Year Ended December 31, Ended --------- (unaudited June 30, ) 2002 2001 2000 1999 1998 1 Net Asset Value, Beginning of Period $6.51 $7.14 $8.72 $9.30 $10.00 Income From Investment Operations: Net investment income 0.32 0.77 2 0.91 0.91 0.84 Net realized and unrealized loss on investments (0.33) (0.61 )2 (1.57 ) (0.56 ) (0.65 ) Total from investment operations (0.01) 0.16 (0.66 ) 0.35 0.19 Less Distributions: Distributions from net investment income (0.33) (0.79 ) (0.92 ) (0.91 ) (0.84 ) Distributions from net realized gain on investments --- --- --- (0.02 ) (0.05 ) TOTAL DISTRIBUTIONS (0.33) (0.79 ) (0.92 ) (0.93 ) (0.89 ) Net Asset Value, End of Period $6.17 $6.51 $7.14 $8.72 $9.30 Total Return3 (0.35)% 2.16 % (8.04 )% 3.83 % 1.96 % Ratios to Average Net Assets: Expenses 0.03%4 0.04 % 0.04 % 0.03 % 0.04 %4 Net investment income 9.77%4 11.13 %2 11.38 % 10.07 % 9.60 %4 Expense waiver/reimbursement5 0.08%4 0.08 % 0.08 % 0.08 % 0.08 %4 Supplemental Data: Net assets, end of period (000 omitted) $827,008 $665,747 $532,820 $699,088 $561,806 Portfolio turnover 17% 33 % 16 % 49 % 55 % - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------- 1 Reflects operations for the period from February 2, 1998 (date of initial investment) to December 31, 1998. 2 As required effective April 1, 2001, the Fund adopted the provisions of the American Institute of Certified Public Accountants ("AICPA") Audit and Accounting Guide for Investment Companies and began amortizing premium and discount on debt securities. For the year ended December 31, 2001, this change had no effect on the net investment income per share or net realized loss per share, but increased the ratio of net investment income to average net assets from 10.98% to 11.13%. Per share, ratios and supplemental data for the periods prior to December 31, 2001, have not been restated to reflect this change in presentation. 3 Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. 4 Computed on an annualized basis. 5 This voluntary expense decrease is reflected in both the expense and the net investment income ratios shown above. See Notes which are an integral part of the Financial Statements High Yield Bond Portfolio Notes to Financial Statements June 30, 2002 (unaudited) - --------------------------------------------------------------------------- Organization Federated Core Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act"), as a diversified, open-end management investment company. The Trust consists of two diversifeid portfolios, the High Yield Bond Portfolio (the "Fund") and the Federated Mortgage Core Portfolio. The financial statements included herein are only those of the Fund. The financial statements of the other portfolio are presented separately. The Fund's investment objective is to seek high current income by investing primarily in a professionally managed, diversified portfolio of fixed income securities. The Fund's portfolio of investments consists primarily of lower rated corporate debt obligations. These lower rated debt obligations may be more susceptible to real or perceived adverse economic conditions than investment grade bonds. These lower rated debt obligations are regarded as predominantly speculative with respect to each issuer's continuing ability to make interest and principal payments (i.e., the obligations are subject to the risk of default). Currently, the Fund is only available for purchase by other Federated Funds and their affiliates. 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 GAAP. Investment Valuation Listed corporate bonds, other fixed income and asset-backed securities, and unlisted securities and private placement securities are generally valued at the mean of the latest bid and asked price as furnished by an independent pricing service. Short-term securities are valued at the prices provided by an independent pricing service. However, short-term securities with remaining maturities of 60 days or less at the time of purchase may be valued at amortized cost, which approximates fair market value. Investments in other open-ended regulated investment companies are valued at net asset value. Securities for which no quotations are readily available are valued at fair value as determined in good faith using methods approved by the Board of Trustees (the "Trustees"). 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. 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 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. The Fund, along with other affiliated investment companies, may utilize a joint trading account for the purpose of entering into one or more repurchase agreements. Investment Income, Expenses and Distributions Interest income and expenses are accrued daily. All discounts/premiums are accreted/amortized for financial reporting purposes as required. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Non-cash dividends included in dividend income, if any, are recorded at fair value. Change in Accounting Principle Effective January 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing long-term discounts and premiums on debt securities. Prior to January 1, 2001, the Fund did not amortize long-term premiums or discounts on debt securities. The cumulative effect of this accounting change had no impact on the total net assets of the Fund, but resulted in a $145,613 increase in cost of securities and a corresponding $145,613 increase in net unrealized depreciation, and an increase to undistributed net investment income of $145,613 based on securities held by the Fund at January 1, 2001. The effect of this change for the year ended December 31, 2001 was to increase net investment income by $947,762, increase net realized losses by $14,792 and increase net unrealized depreciation by $932,970. The Statement of Changes in Net Assets and Financial Highlights for prior periods have not been restated to reflect this change in presentation. Federal Taxes It is the Fund's policy to comply with the provisions of the Internal Revenue Code, as amended, (the "Code") applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provision for federal tax is necessary. At December 31, 2001, the Fund, for federal tax purposes, had a capital loss carryforward of $77,193,341, which will reduce the Fund's taxable income arising from future net realized gain on investments, if any, to the extent permitted by the Code, and thus will reduce the amount of the distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal tax. Pursuant to the Code, such capital loss carryforward will expire as follows: Expiration Year Expiration Amount - ------------------------------------------------------------------------- - ------------------------------------------------------------------------- 2007 $1,148,442 - ------------------------------------------------------------------------- - ------------------------------------------------------------------------- 2008 $14,429,102 - ------------------------------------------------------------------------- - ------------------------------------------------------------------------- 2009 $61,615,797 - ------------------------------------------------------------------------- Additionally, the Fund's net capital losses of $16,038,847 attributable to security transactions incurred after October 31, 2001, were treated as arising on January 1, 2002, the first day of the Fund's next taxable year. 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. Losses may occur on these transactions due to changes in market conditions or the failure of counterparties to perform under the contract. 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 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 in good faith using methods approved by the Trustees. Additional information on each restricted security held at June 30, 2002 is as follows: Security Acquisition Date Acquisition Cost - ------------------------------------------------------------------------- AmeriTruck Distribution 11/10/1995-10/22/1997 $1,054,078 Corp. - ------------------------------------------------------------------------- - ------------------------------------------------------------------------- Clark Material Handling 11/22/1996-11/12/1997 1,843,830 Corp. - ------------------------------------------------------------------------- - ------------------------------------------------------------------------- Condor Systems, Inc. 4/8/1999 500,000 - ------------------------------------------------------------------------- Dyersburg Corp. 9/3/1997-9/15/1997 683,438 - ------------------------------------------------------------------------- Electronic Retailing 1/21/1997 321,004 Systems International, Inc. - ------------------------------------------------------------------------- - ------------------------------------------------------------------------- Glenoit Corp. 3/26/1997-5/20/1998 1,676,091 - ------------------------------------------------------------------------- - ------------------------------------------------------------------------- Pillowtex Corp. 11/6/1996-7/8/1999 4,155,788 - ------------------------------------------------------------------------- - ------------------------------------------------------------------------- Royal Oak Mines, Inc. 2/24/1999 6,392 - ------------------------------------------------------------------------- - ------------------------------------------------------------------------- Simonds Industries, Inc. 6/15/2000-9/25/2001 1,692,000 - ------------------------------------------------------------------------- - ------------------------------------------------------------------------- Sleepmaster LLC 5/12/1999-12/13/1999 958,125 - ------------------------------------------------------------------------- - ------------------------------------------------------------------------- The Holt Group, Inc. 1/14/1998-3/13/1998 1,067,313 - ------------------------------------------------------------------------- Securities Lending The Fund participates in a securities lending program providing for the lending of corporate bonds, equity and government securities to qualified brokers. Collateral for securities loaned must be in cash or government securities. Collateral is maintained at a minimum level of 102% of the market value on investments loaned, plus interest, if applicable. In accordance with the Fund's securities lending agreement, the market value of securities on loan is delivered to the Fund on the next business day. Earnings on collateral are allocated between the custodian, as a fee for its services under the program, and the Fund, according to agreed-upon rates. As of June 30, 2002, the Fund had no securities on loan. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimated. Other Investment transactions are accounted for on a trade date basis. 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: Six Months Ended Year Ended 06/30/2002 12/31/2001 - -------------------------------------------------------------------------- - -------------------------------------------------------------------------- Shares sold 33,684,187 42,102,998 - -------------------------------- - -------------------------------- Shares issued to shareholders in payment of distributions 5,051,737 10,027,844 declared - -------------------------------- - -------------------------------- Shares redeemed (6,831,360) (24,522,124) - -------------------------------------------------------------------------- - -------------------------------------------------------------------------- NET CHANGE RESULTING FROM SHARE TRANSACTIONS 31,904,564 27,608,718 - -------------------------------------------------------------------------- Investment Adviser Fee and Other Transactions with Affiliates Investment Adviser Fee Federated Investment Management Co., is the Fund's investment adviser (the "Adviser") subject to direction of the Trustees. The adviser provides investment adviser services at no fee. Administrative Fee Federated Services Company ("FServ"), a subsidiary of Federated Investors, Inc., provides Administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund. FServ provides these services at an annual rate that ranges from 0.150% to 0.075% of the average aggregate daily net assets of all funds advised by affiliates of Federated Investors, Inc. Transfer and Dividend Disbursing Agent Fees and Expenses FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the size, type, and number of accounts and transactions made by shareholders. Portfolio Accounting Fees FServ maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. General Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. Investment Transactions Purchases and sales of investments, excluding short-term securities (and in-kind contributions), for the period ended June 30, 2002, were as follows: - --------------------------------------------------------------------------- Purchases $321,159,694 - -------------------------------------------------------------------------- ------------------- Sales $123,895,354 - -------------------------------------------------------------------------- FEDERATED MORTGAGE CORE PORTFOLIO PORTFOLIO OF INVESTMENTS June 30, 2002 (unaudited) Principal Value Amount Mortgage Backed Securities--99.7% Federal Home Loan Mortgage Corporation--13.4% $ 9,285,721 6.000%, 5/1/2014 - 2/1/2032 $ 9,327,255 18,541,889 6.500%, 7/1/2014 - 3/1/2031 19,122,812 10,683,723 7.000%, 12/1/2011 - 4/1/2032 11,084,826 12,157,891 7.500%, 12/1/2022 - 7/1/2031 12,781,666 7,642,574 8.000%, 5/1/2006 - 3/1/2031 8,114,249 119,473 8.500%, 9/1/2025 - 1/1/2026 128,853 212,441 9.000%, 5/1/2017 232,291 18,742 9.500%, 4/1/2021 20,569 Total 60,812,521 Federal National Mortgage Association--65.7% 15,531,175 5.500%, 1/1/2009 - 1/1/2032 15,351,167 84,184,720(1)6.000%, 7/1/2006 - 8/1/2029 85,008,547 142,993,56(1)6.500%, 5/1/2006 - 6/1/2032 118,480,409 52,759,132(1)7.000%, 2/1/2008 - 6/1/2032 54,775,072 18,468,881 7.500%, 6/1/2011 - 1/1/2032 19,425,873 3,975,161 8.000%, 7/1/2023 - 3/1/2031 4,241,926 50,320 8.500%, 3/1/2030 53,921 165,323 9.000%, 11/1/2021 - 6/1/2025 180,083 Total 297,516,998 Government National Mortgage Association--20.6% 8,196,942 6.000%, 10/15/2028 - 12/15/2031 8,206,984 28,624,815 6.500%, 10/15/2028 - 2/15/2032 29,270,515 24,769,375 7.000%, 11/15/2027 - 1/15/2032 25,779,211 13,680,076 7.500%, 6/20/2007 - 1/15/2031 14,444,885 9,495,808 8.000%, 2/15/2010 - 11/15/2030 10,120,448 3,542,922 8.500%, 11/15/2021 - 11/15/2030 3,796,037 113,191 9.000%, 10/15/2016 - 6/15/2025 123,131 101,785 9.500%, 10/15/2020 - 12/15/2025 111,539 1,097,217 12.000%, 4/15/2015 - 6/15/2015 1,262,509 TOTAL 93,115,259 Total Mortgage Backed Securities (identified 51,444,778 cost $438,210,078) 4 - --------------------------------------------------------------------------- Repurchase Agreements (2)--25.0% 50,000,000(3(4) Credit Suisse First Boston Corp., 1.770%, 0,000,000 dated 6/11/2002, due 7/15/2002 5 40,000,000(3(4) Goldman Sachs & Co., 1.760%, dated 6/11/2002, 0,000,000 due 7/15/2002 4 15,000,000(3(4) Goldman Sachs & Co., 1.770%, dated 6/12/2002, 5,000,000 due 7/18/2002 1 8,335,000 Warburg Dillon Reed LLC, 1.970%, dated 6/28/2002, due 7/1/2002 8,335,000 Total Repurchase Agreements (at amortized cost) 113,335,000 Total Investments (identified cost $551,545,078)(5) $564,779,778 =========================================================================== (1) All or a portion of these securities may be subject to dollar roll transactions. (2) 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. (3) Although final maturity falls beyond seven days, a liquidity feature is included in each transaction to permit termination of the repurchase agreement within seven days if the creditworthiness of the issuer is downgraded. (4) Security held as collateral for dollar roll transactions. (5) The cost of investments for federal tax purposes amounts to $551,545,078. The net unrealized appreciation of investments on a federal tax basis amounts to $13,234,700 which is comprised of $13,277,927 appreciation and $43,227 depreciation at June 30, 2002. Note: The categories of investments are shown as a percentage of net assets ($452,777,958) at June 30, 2002. See Notes which are an integral part of the Financial Statements FEDERATED MORTGAGE CORE PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES June 30, 2002 (unaudited) Assets: Investments in repurchase agreements 113,335,000 Investments in securities 451,444,778 Total investments in securities, at value (identified cost $551,545,078) 564,779,778 Cash 172 Income receivable 1,951,302 Total assets 566,731,252 Liabilities: Payable for investments purchased 2,589,482 Income distribution payable 2,380,744 Payable for dollar roll transactions 108,968,260 Accrued expenses 14,808 Total liabilities 113,953,294 Net assets for 44,397,787 shares outstanding 452,777,958 Net Assets Consist of: Paid in capital 438,846,492 Net unrealized appreciation of investments 13,234,700 Accumulated net realized gain on investments 358,764 Undistributed net investment income 338,002 Total Net Assets 452,777,958 Net Asset Value, Offering Price and Redemption Proceeds Per Share $452,777,958 / 44,397,787 shares outstanding $10.20 - --------------------------------------------------------------------------- See Notes which are an integral part of the Financial Statements FEDERATED MORTGAGE CORE PORTFOLIO STATEMENT OF OPERATIONS Six Months Ended June 30, 2002 (unaudited) Investment Income: Interest (net of dollar roll expense of $800,990) 14,840,934 Expenses: Administrative personnel and services fee 177,155 Custodian fees 17,571 Transfer and dividend disbursing agent fees and expenses 8,026 Directors'/Trustees' fees 3,777 Auditing fees 6,490 Legal fees 2,242 Portfolio accounting fees 50,210 Insurance premiums 593 Miscellaneous 2,470 Total expenseS 268,534 Waiver of administrative personnel and services fee (177,155) Net expenses 91,379 Net investment income 14,749,555 Realized and Unrealized Gain on Investments: Net realized gain on investments 469,006 Net change in unrealized appreciation of investments 6,262,199 Net realized and unrealized gain on investments 6,731,205 Change in net assets resulting from operations 21,480,760 See Notes which are an integral part of the Financial Statements =========================================================================== FEDERATED MORTGAGE CORE PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS Six Months ---------------- Ended (unaudited) Year Ended 6/30/2002 12/31/2001 Increase (Decrease) in Net Assets Operations: Net investment income 14,749,555 26,941,129 Net realized gain on investments 469,006 6,414,834 Net change in unrealized appreciation 6,262,199 (1,039,982 ) Change in net assets resulting from operations 21,480,760 32,315,981 Distributions to Shareholders: Distributions from net investment income (14,465,908 ) (26,888,712 ) Share Transactions: Proceeds from sale of shares 66,040,412 147,962,500 Net asset value of shares issued to shareholders in payment of distributions declared 12,085,164 26,888,712 Cost of shares redeemed (86,146,250 ) (98,153,700 ) Change in net assets resulting from share transactions (8,020,674 ) 76,697,512 Change in net assets (1,005,822 ) 82,124,781 Net Assets: Beginning of period 453,783,780 371,658,999 End of period (including undistributed net investment income of $338,002 and $54,355, respectively) 452,777,958 453,783,780 =========================================================================== See Notes which are an integral part of the Financial Statements FEDERATED MORTGAGE CORE PORTFOLIO STATEMENT OF CASH FLOWS Six Months Ended June 30, 2002 (unaudited) Increase (Decrease) in Cash - --------------------------------------------------------------------------- Cash Flows From Operating Activities: - ----------------------------------------------------------- Net increase or decrease in net assets from operations $21,480,760 - ----------------------------------------------------------- ------------------ Adjustments to reconcile change in net assets resulting from operations to net cash used in operating activities: - ----------------------------------------------------------- Purchases of investment securities (903,244,703) - ----------------------------------------------------------- ------------------ - ----------------------------------------------------------- ------------------ Paydown on investment securities 53,325,462 - ----------------------------------------------------------- ------------------ - ----------------------------------------------------------- ------------------ Realized gain or loss on paydowns 190,166 - ----------------------------------------------------------- ------------------ - ----------------------------------------------------------- ------------------ Proceeds from sale of investment securities 852,860,756 - ----------------------------------------------------------- ------------------ - ----------------------------------------------------------- ------------------ Net purchases or sales of short-term investment securities (23,015,000) - ----------------------------------------------------------- ------------------ - ----------------------------------------------------------- ------------------ Decrease in income receivable 180,044 - ----------------------------------------------------------- ------------------ - ----------------------------------------------------------- ------------------ Decrease in accrued expenses (10,470) - ----------------------------------------------------------- ------------------ - ----------------------------------------------------------- ------------------ Decrease in payable for investments purchased (3,475,466) - ----------------------------------------------------------- ------------------ - ----------------------------------------------------------- ------------------ Net realized gain on investments (469,006) - ----------------------------------------------------------- ------------------ - ----------------------------------------------------------- ------------------ Net unrealized appreciation on investments (6,262,199) - ----------------------------------------------------------- ------------------ - ----------------------------------------------------------- ------------------ NET CASH USED IN OPERATING ACTIVITIES (8,439,656) - ----------------------------------------------------------- ------------------ - ----------------------------------------------------------- ------------------ Cash Flows from Financing Activities: - ----------------------------------------------------------- - ----------------------------------------------------------- Cash received from dollar roll transactions, net 29,281,084 - ----------------------------------------------------------- ------------------ - ----------------------------------------------------------- ------------------ Proceeds from sale of shares 66,040,412 - ----------------------------------------------------------- ------------------ - ----------------------------------------------------------- ------------------ Payment for shares redeemed (86,886,250) - ----------------------------------------------------------- ------------------ - ----------------------------------------------------------- ------------------ NET CASH PROVIDED BY FINANCING ACTIVITIES 8,435,246 - ----------------------------------------------------------- ------------------ - ----------------------------------------------------------- ------------------ NET DECREASE IN CASH (4,410) - ----------------------------------------------------------- ------------------ - ----------------------------------------------------------- ------------------ Cash: - ----------------------------------------------------------- - ----------------------------------------------------------- Beginning of the period $4,582 - ----------------------------------------------------------- ------------------ - ----------------------------------------------------------- ------------------ End of the period $172 - ----------------------------------------------------------- ------------------ FEDERATED MORTGAGE CORE PORTFOLIO FINANCIAL HIGHLIGHTS (For a Share Outstanding Throughout Each Period) Six Months Period Ended Ended (unaudited) Year Ended December December - --------------------------- June 30, 2002 31, 31, 19991 2001 2000 Net Asset Value, Beginning of Period $10.04 $9.89 $9.55 $10.00 Income From Investment Operations: Net investment income 0.31 0.66 0.68 0.55 Net realized and unrealized gain (loss) on investment 0.16 0.15 0.34 (0.45 ) TOTAL FROM INVESTMENT OPERATIONS 0.47 0.81 1.02 0.10 Less Distributions: Distributions from net investment income (0.31 ) (0.66 ) (0.68) (0.55) Net Asset Value, End of Period $10.20 $10.04 $9.89 $9.55 Total Return2 4.72 % 8.37 % 11.15 % 1.07 % Ratios to Average Net Assets: Expenses 0.04 %3 0.04 % 0.05 % 0.05 %3 Net investment income 6.26 %3 6.56 % 7.09 % 6.66 %3 Expense waiver/reimbursement4 0.08 %3 0.08 % 0.08 % 0.08 %3 Supplemental Data: Net assets, end of period (000 omitted) $452,778 $453,784 $371,659 $258,304 Portfolio turnover 58 % 93 % 81 % 153 % - -------------------------------------------------------------------------- - --------------------------------------------------------------------------- 1 Reflects operations for the period from February 22, 1999 (date of initial investment) to December 31, 1999. 2 Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. 3 Computed on an annualized basis. 4 This voluntary expense decrease is reflected in both the expense and the net investment income ratios shown above. See Notes which are an integral part of the Financial Statements Federated Mortgage Core Portfolio Notes to Financial Statements June 30, 2002 (unaudited) - --------------------------------------------------------------------------- ORGANIZATION Federated Core Trust (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 two diversified portfolios, the Federated Mortgage Core Portfolio (the "Fund") and the High Yield Bond Portfolio. The financial statements included herein are only for the Fund. The financial statements of the other portfolio are presented separately. The Fund's investment objective is to provide total return by investing in U.S. Treasury Bills, Notes, Bonds, Discount Notes and Mortgage Backed Securities issued or guaranteed by the U.S. government. The Fund is an investment vehicle used by other Federated Funds that invest some portion of their assets in mortgage backed securities. Currently, the Fund is only available for purchase by other Federated Funds and their affiliates. 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 ("GAAP"). Investment Valuation Listed corporate bonds, other fixed income and asset-backed securities, and unlisted securities and private placement securities are generally valued at the mean of the latest bid and asked price as furnished by an independent pricing service. Short-term securities are valued at the prices provided by an independent pricing service. However, short-term securities with remaining maturities of 60 days or less at the time of purchase may be valued at amortized cost, which approximates fair market value. Investments in other open-end regulated investment companies are valued at net asset value. Securities for which no quotations are readily available are valued at fair value as determined in good faith using methods approved by the Board of Trustees (the "Trustees"). 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. 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 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. The Fund, along with other affiliated investment companies, may utilize a joint trading account for the purpose of entering into one or more repurchase agreements. Investment Income, Expenses and Distributions Interest income and expenses are accrued daily. All discounts/premiums are accreted/amortized for financial reporting purposes as required. 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 Internal Revenue Code, as amended, (the "Code") applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provision for federal tax is necessary. At December 31, 2001, the Fund for federal tax purposes, had a capital loss carryforward of $72,744, which will reduce 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 in 2008. 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. Losses may occur on these transactions due to changes in market conditions or the failure of counterparties to perform under the contract. Dollar Roll Transactions The Fund may engage in dollar roll transactions, with respect to mortgage securities issued by GNMA, FNMA, and FHLMC, in which the Fund sells the mortgage securities to financial institutions and simultaneously agrees to accept substantially similar (same type, coupon and maturity) securities at a later date at an agreed upon price. Dollar roll transactions involve "to be announced" securities and are treated as short-term financing arrangements which will not exceed twelve months. The Fund will use the proceeds generated from the transactions to invest in short-term investments, which may enhance the Fund's current yield and total return. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimated. Other Investment transactions are accounted for on a trade date basis. 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: Six Months Ended Year Ended 6/30/2002 12/31/2001 - -------------------------------------------------------------------------- - -------------------------------------------------------------------------- Shares sold 6,545,051 14,765,272 - ----------------------------------- - ----------------------------------- Shares issued to shareholders in payment of distributions declared 1,195,430 2,677,775 - ----------------------------------- - ----------------------------------- Shares redeemed (8,554,887) (9,802,507) - -------------------------------------------------------------------------- - -------------------------------------------------------------------------- NET CHANGE RESULTING FROM SHARE TRANSACTIONS (814,406) 7,640,540 - -------------------------------------------------------------------------- INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES Investment Adviser Fee Federated Investment Management Company is the Fund's investment adviser (the "Adviser"), subject to direction of the Trustees. The Adviser provides investment adviser services at no fee. Administrative Fee Federated Services Company ("FServ"), a subsidiary of Federated Investors, Inc., provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund. FServ provides these services at an annual rate that ranges from 0.150% to 0.075% of the average aggregate daily net assets of all funds advised by affiliates of Federated Investors, Inc. Transfer and Dividend Disbursing Agent Fees and Expenses FServ, through its subsidiary Federated Shareholder Services Company ("FSSC"), serves as transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the size, type and number of accounts and transactions made by shareholders. Portfolio Accounting Fees FServ maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. General Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. INVESTMENT TRANSACTIONS Purchases and sales of investments in long-term U.S. government securities, for the six months ended June 30, 2002, were as follows: - ------------------------------------------------------------------------------ Purchases $273,869,617 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ Sales $276,809,807 - ------------------------------------------------------------------------------ -----END PRIVACY-ENHANCED MESSAGE-----