N-30D 1 form.htm

Federated Investors
World-Class Investment Manager

Federated Limited Term Fund

A Portfolio of Federated Fixed Income Securities, Inc.

 

11TH SEMI-ANNUAL REPORT

May 31, 2002

Established 1991

NOT FDIC INSURED * MAY LOSE VALUE * NO BANK GUARANTEE

Richard B. Fisher

President

Federated Limited Term Fund

President's Message

Dear Shareholder:

Federated Limited Term Fund was created in 1991, and I am pleased to present its 11th Semi-Annual Report. The fund's assets totaled $386.8 million on May 31, 2002. This short-term bond fund holds securities with maturities between money market funds (i.e., 40-60 days) and longer term bond issues. As a result, shareholders can generally expect a higher level of income than money market fund instruments,1 and a lower level of income than longer term bond funds.

This report covers the first half of the fund's fiscal year, which is the six-month period from December 1, 2001 through May 31, 2002. It begins with an interview with the fund's portfolio manager, Randall S. Bauer, who co-manages the fund with Robert E. Cauley, both Vice Presidents of Federated Investment Management Company. Following their discussion are three additional items of shareholder interest. First is a complete listing of the fund's holdings, and second is the publication of the fund's financial statements.

In a market where generous income from short-term instruments is very appealing, this high-quality, short-term bond fund delivered competitive performance versus its peers and has outperformed cash investment alternatives. Individual share class total return performance for the reporting period, including income distributions, follows.2

  

Total Return

  

Income
Distributions

  

Net Asset Value Change

Class A Shares

 

0.94%

 

$0.219

 

$9.51 to $9.38 = (1.37)%

Class F Shares

 

0.99%

 

$0.224

 

$9.51 to $9.38 = (1.37)%

1 Unlike money market funds which seek to maintain a stable $1.00 share value, this fund's shares will fluctuate in value.

2 Performance quoted is based on net asset value, represents past performance and is no guarantee of future results. Investment return and principal value will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Total returns for the period, based on offering price (i.e., less any applicable sales charge), for Class A and F Shares were (0.11)% and (1.03)%, respectively. Current performance information is available at our website www.federatedinvestors.com or by calling 1-800-341-7400.

Thank you for choosing Federated Limited Term Fund as a conservative way to pursue income through a diversified, high-quality portfolio of short-term securities. Remember, reinvesting your monthly dividends is a convenient way to build your account through the benefit of compounding.

As always, we welcome your comments and suggestions.

Sincerely,

Richard B. Fisher

Richard B. Fisher
President
July 15, 2002

Randall S. Bauer

Vice President

Federated Investment Management Company

Robert E. Cauley

Vice President

Federated Investment Management Company

Investment Review

What is your review of the short-term bond market during the first half of the fund's fiscal year?

During the reporting period, the downward trend in short-term interest rates, which characterized 2001, bottomed and began to reverse. After 11 reductions in the federal funds target rate to a level not seen in over 40 years (1.75%), the Federal Reserve Board (the "Fed") appears to have finished providing monetary stimulus to a weak U.S. economy. A look at recent economic data appears to indicate that the Fed has succeeded in its task, and that recovery has begun.

On the other hand, there appears to be limited concern for a quick increase in rates over the next few months. Price inflation continues to be well under control, which means that the Fed may still have the latitude to refrain from tightening monetary policy until later this year, if at all. Because of this, money market yields may remain low for some time even though short-term bond yields have been trending upward.

How did the fund perform in terms of total return and income?

Given the solid performance at the short end of the yield curve for high-quality debt securities, the fund was able to outperform the returns provided by cash alternatives for the reporting period. The fund slightly underperformed its peer group, the Lipper Short Investment Grade Debt Funds Average, which produced an average return for the period of 1.25%.1

The fund's Class A Shares delivered a total return of 0.94%, based on net asset value, and monthly dividends totaling $0.219 per share. The fund's Class F Shares produced a total return of 0.99%, based on net asset value, and paid monthly dividends totaling $0.224 per share.

The 30-day SEC yields for Class A and F Shares were 5.00% and 5.10%, respectively, on May 31, 2002.2

1 Lipper figures represent the average of the total returns reported by all of the mutual funds designated by Lipper, Inc. as falling into the category indicated. Lipper figures do not take sales charges into account.

2 The 30-day SEC net yield is calculated by dividing the investment income per share for the prior 30 days by the maximum offering price per share on that date. The figure is compounded and annualized.

Have you made any changes to the fund's allocation to various types of securities?

There have been no major changes to portfolio composition during the reporting period. Some minor adjustments have been made; most notably the decisions to reduce duration and mildly increase credit exposure in anticipation of an economic expansion.3 Fund duration now stands at 1.4 years versus 1.7 years at the fund's November 30, 2001 fiscal year end. Moreover, high-yield exposure remained unchanged at 7%, and BBB-rated securities are now 22% of the portfolio versus 23%. Finally, corporate bonds account for 19% of the portfolio now versus 17% at November 30, 2001, as it is believed these securities will do better than like-rated asset-backed securities in the early stages of economic recovery.

What is the fund's quality composition and its top five holdings?

As of May 31, 2002, the quality breakdown of the fund was as follows:

  

Percentage of
Net Assets

AAA

 

63%

AA

 

3%

A

 

6%

BBB

 

22%

BB or lower

 

7%

The top five holdings were:

Description/Coupon/Maturity

  

Percentage of
Net Assets

Washington Mutual 2001-AR4, Class A2, 3.96%,
Due 12/25/2031

 

1.7%

Residential Accredit Loans, Inc. 2001-QS3, Class NB1, 7.25%,
Due 3/25/2031

 

1.4%

Peco Energy Transition Trust 1999-A, Class A4, 5.80%,
Due 3/1/2007

 

1.3%

Fingerhut Master Trust 1998-2, Class A, 6.23%,
Due 2/15/2007

 

1.3%

Nissan Auto Receivables Owner Trust 2001-C, Class A3, 4.31%,
Due 5/16/2005

 

1.3%

TOTAL

   

7.0%

3 Duration is a measure of a security's price sensitivity to changes in interest rates. Securities with longer durations are more sensitive to changes than securities of shorter duration.

What is your outlook for the rest of 2002?

We expect short-term bond yields to be higher a year from now than they are today. This fact does not necessarily mean, however, that the short end of the yield curve will not be a reasonable place to invest over the next several months. The key for the short end of the yield curve from here is whether the substantial current yield differential offered by 1-3 year bond products will still outweigh the effect of these expected higher yields on net asset value, thus generating a better total return than one could obtain in a money market fund or similar alternative.4

We also believe the mild pace of the country's economic recovery may allow products like Federated Limited Term Fund to continue to provide an attractive haven between the extremely low yields available on cash alternatives (such as money market funds and short-term CDs) and the volatile world of higher risk investments like equities.5

4 Unlike money market mutual funds, which seek to maintain a $1.00 share price, the net asset value of this fund will fluctuate.

5 While stocks are more volatile than bonds, historically stocks have outperformed bonds over the long run.

Portfolio of Investments

May 31, 2002 (unaudited)

Principal
Amount

  

  

Value

 

 

 

ADJUSTABLE RATE MORTGAGES--0.2%

 

 

 

Government Agency--0.2%

$

291,932

1

FHLMC, ARM 6.236%, 9/1/2019

   

$

302,620

   

284,416

1

FHLMC, ARM 6.346%, 12/1/2018

   

   

292,997

   

133,335

1

FNMA, ARM 6.373%, 12/1/2020

   

   

135,071

   

64,021

1

FNMA, ARM 7.400%, 11/1/2017

   

   

66,251

   

   

   

TOTAL ADJUSTABLE RATE MORTGAGES (IDENTIFIED COST $790,367)

   

   

796,939

   

   

   

ASSET-BACKED SECURITIES--51.3%

   

   

   

   

   

   

Automobile--17.7%

   

   

   

   

5,000,000

   

ANRC Auto Owner Trust 2001-A, Class A3, 3.76%, 10/17/2005

   

   

5,050,000

   

1,526,170

   

AmSouth Auto Trust 2000-1, Class A3, 6.67%, 7/15/2004

   

   

1,560,067

   

3,000,000

   

Americredit Automobile Receivables Trust 2001-B, Class A4, 5.37%, 6/12/2008

   

   

3,091,827

   

2,500,000

   

Chase Manhattan Auto Owner Trust 2001-A, Class A3, 4.55%, 8/15/2005

   

   

2,552,875

   

3,000,000

1

Chase Manhattan Auto Owner Trust 2001-B, Class A3, 3.09%, 11/15/2005

   

   

2,998,830

   

2,000,000

   

Chase Manhattan Auto Owner Trust 2002-B, Class A3, 3.58%, 5/15/2006

   

   

2,000,000

   

3,000,000

   

Daimler Chrysler Auto Trust 2000-E, Class A3, 6.11%, 11/8/2004

   

   

3,095,940

   

5,000,000

   

Daimler Chrysler Auto Trust 2001-C, Class A3, 4.21%, 7/6/2005

   

   

5,075,650

   

2,000,000

   

Daimler Chrysler Master Owner Trust 2002-A, Class A, 1.90%, 5/15/2007

   

   

2,000,000

   

2,000,000

1

Honda Auto Receivables Owner Trust 2002-2, Class A3, 3.83%, 2/15/2006

   

   

2,012,968

   

4,000,000

   

Household Automotive Trust 2001-3, Class A3, 3.68%, 4/17/2006

   

   

4,005,440

   

5,000,000

2,3

Hyundai Auto Receivables Trust 2001-A, Class A3, 4.47%, 3/15/2006

   

   

5,078,500

   

2,000,000

   

Isuzu Auto Owner Trust 2001-1, Class A3, 4.88%, 11/22/2004

   

   

2,038,520

   

3,000,000

2,3

Long Beach Auto Receivables Trust 2001-A, Class A3, 5.198%, 3/13/2006

   

   

3,060,000

   

4,500,000

   

M&I Auto Loan Trust 2001-1, Class B, 5.88%, 6/20/2008

   

   

4,643,685

   

2,669,500

   

MMCA Automobile Trust 2000-2, Class B, 7.42%, 8/15/2005

   

   

2,850,254

   

2,472,561

   

MMCA Automobile Trust 2001-2, Class B, 5.75%, 6/15/2007

   

   

2,535,720

   

366,850

   

Mellon Auto Grantor Trust 2000-1, Class B, 7.43%, 10/15/2006

   

   

381,348

   

2,767,330

   

Mellon Auto Grantor Trust 2000-2, Class B, 6.67%, 7/15/2007

   

   

2,883,807

   

5,000,000

   

Nissan Auto Receivables Owner Trust 2001-C, Class A3, 4.31%, 5/16/2005

   

   

5,080,100

   

227,836

2

Paragon Auto Receivables Owner Trust 1998-A, Class B, 7.47%, 11/15/2004

   

   

229,090

   

234,042

2

Paragon Auto Receivables Owner Trust 1998-B, Class B, 7.03%, 3/15/2005

   

   

234,768

Principal
Amount

  

  

Value

 

 

 

ASSET-BACKED SECURITIES--continued

 

 

 

Automobile--continued

$ 

173,634

   

Paragon Auto Receivables Owner Trust 1999-A, Class A, 5.95%, 11/15/2005

   

$ 

177,258

   

3,000,000

   

Toyota Auto Receivables Owner Trust 2002-B, Class A3, 3.76%, 6/15/2006

   

   

3,009,420

   

3,000,000

   

World Omni Automobile Receivables Trust 2001-B, Class A3, 3.79%, 11/21/2005

   

   

3,025,928

   

   

   

TOTAL

   

   

68,671,995

   

   

   

Credit Card--6.9%

   

   

   

   

649,297

2

Credit Card Merchant Voucher Receivables Master Trust 1996-A, Class A1, 6.25%, 12/1/2003

   

   

651,278

   

5,000,000

   

Fingerhut Master Trust 1998-2, Class A, 6.23%, 2/15/2007

   

   

5,107,800

   

2,500,000

1

First Consumers Master Trust 2001-A, Class B, 2.94%, 9/15/2008

   

   

2,514,200

   

2,150,000

   

Fleet Credit Card Master Trust II 2001-C, Class A, 3.86%, 3/15/2007

   

   

2,144,517

   

3,000,000

   

J.C. Penney Master Credit Card Trust E, Class A, 5.50%, 6/15/2007

   

   

3,086,610

   

3,000,000

   

John Deere Owner Trust 2001-A, Class A3, 3.26%, 10/17/2005

   

   

3,002,220

   

4,000,000

2,3

MBNA Master Credit Card Trust 1999-M, Class C, 7.45%, 4/16/2007

   

   

4,218,440

   

1,250,000

   

MBNA Master Credit Card Trust II 1997-F, Class A, 6.60%, 11/15/2004

   

   

1,252,425

   

1,000,000

   

MBNA Master Credit Card Trust II 2000-A, Class A, 7.35%, 7/16/2007

   

   

1,079,150

   

1,500,000

   

Prime Credit Card Master Trust 2000-1, Class A, 6.70%, 10/15/2009

   

   

1,594,395

   

2,000,000

   

Providian Master Trust 1999-2, Class A, 6.60%, 4/16/2007

   

   

2,022,280

   

   

   

TOTAL

   

   

26,673,315

   

   

   

Home Equity Loan--16.1%

   

   

   

   

40,000,000

   

ACE Securities Corp. 2001-HE1, Class AIO, 6.00%, 8/20/2004

   

   

3,340,800

   

1,774,346

1

Ameriquest Mortgage Securities I 2001-2, Class NIM, 9.00%, 10/25/2031

   

   

1,759,442

   

2,815,296

1

Ameriquest Mortgage Securities I 2002-1, Class NIM, 9.50%, 6/25/2032

   

   

2,803,866

   

3,000,000

   

Asset Backed Funding Certificate 2001-AQ1, Class A3, 5.745%, 4/20/2027

   

   

3,036,960

   

80,000,000

   

Centex Home Equity 2002-B, Class AIO, 6.00%, 11/25/2003

   

   

3,912,800

   

512,958

1

Chase Funding Mortgage Loan 1999-1, Class IIB, 4.59%, 6/25/2028

   

   

515,112

   

20,000,000

   

Chase Funding Mortgage Loan Asset-Backed Certificates 2001-3, Class 1AIO, 6.00%, 9/25/2002

   

   

284,400

   

72,500,000

   

Chase Funding Mortgage Loan Asset-Backed Certificates 2001-3, Class 2AIO, 6.00%, 9/25/2002

   

   

1,030,950

   

389,424

   

Cityscape Home Equity Loan Trust 1997-4, Class B, 7.94%, 10/25/2018

   

   

397,794

   

3,055,000

   

Conseco Finance 2001-B, Class 1A3, 5.808%, 6/15/2032

   

   

3,134,018

   

48,500,000

   

Conseco Finance 2001-D, Class AIO, 8.80%, 11/15/2032

   

   

4,577,430

Principal
Amount

  

  

Value

 

 

 

ASSET-BACKED SECURITIES--continued

 

 

 

Home Equity Loan--continued

$ 

3,583,698

   

Ditech Home Loan Owner Trust 1997-1, Class A4, 7.36%, 1/15/2024

   

$ 

3,731,096

   

162,154

   

EQCC Home Equity Loan Trust 1995-4, Class A4, 6.95%, 3/15/2012

   

   

165,288

   

26,000,000

   

Equity One ABS, Inc. 2001-3, Class AIO, 5.00%, 11/25/2003

   

   

2,730,000

   

2,245,638

2

First Franklin NIM Trust 2001-FF2, 8.35%, 11/25/2031

   

   

2,215,457

   

1,324,694

1,2

First Plus Home Loan Trust 1997-3, Class B2, 8.50%, 11/10/2023

   

   

1,318,812

   

3,927,202

   

First Plus Home Loan Trust 1997-4, Class M1, 7.14%, 9/11/2023

   

   

4,070,702

   

478,013

   

Green Tree Home Improvement Loan Trust 1995-C, Class B1, 7.20%, 7/15/2020

   

   

474,815

   

2,200,000

   

Green Tree Home Improvement Loan Trust 1996-F, Class HIB2, 7.70%, 11/15/2027

   

   

1,621,150

   

2,000,000

   

Green Tree Home Improvement Loan Trust 1997-C, Class HEB2, 7.59%, 8/15/2028

   

   

1,297,040

   

158,433

   

Headlands Home Equity Loan Trust 1998-2, Class A3, 6.67%, 12/15/2024

   

   

162,953

   

470,478

   

Independent National Mortgage Corp. Home Equity 1997-A, Class BF, 7.39%, 10/25/2028

   

   

478,829

   

2,669,920

1

Indymac Home Equity Loan Asset-Backed Trust 1998-A, Class AF4, 6.31%, 10/25/2029

   

   

2,736,801

   

1,300,000

1

Indymac Home Equity Loan Asset-Backed Trust 2001-A, Class AF6, 6.537%, 11/25/2030

   

   

1,349,569

   

18,038,000

   

Irwin Home Equity 2001-2, Class AIO, 10.00%, 3/25/2004

   

   

2,990,340

   

3,500,000

   

Lehman ABS Manufactured Housing Contract 2001-B, Class A2, 3.70%, 11/15/2010

   

   

3,499,294

   

2,095,478

2

Long Beach Asset Holdings Corp. 2001-3, 7.87%, 9/25/2031

   

   

2,072,553

   

1,481,208

   

Mellon Bank Home Equity Installment Loan 1997-1, Class A4, 6.84%, 7/25/2012

   

   

1,544,500

   

1,243,428

2

Merrill Lynch Mortgage Investors, Inc. 1998-FF3, Class BB, 5.50%, 11/20/2029

   

   

1,119,085

   

324,481

2,3

New Century Finance Trust 1999-1, Class D, 8.75%, 1/25/2029

   

   

302,783

   

69,193

2

Option One Mortgage Securities Corp. 1999-4, Class CTF, 9.67%, 12/26/2029

   

   

69,193

   

1,258,403

2

Option One Mortgage Securities Corp. 2001-3, Class CTFS, 9.66%, 9/26/2031

   

   

1,259,340

   

1,646,754

2

Saxon Asset Securities Trust 1998-1, Class BF2, 8.00%, 12/25/2027

   

   

1,566,376

   

139

1

Saxon Asset Securities Trust 1999-2, Class BV1A, 8.305%, 9/25/2020

   

   

139

   

395,632

1

Saxon Asset Securities Trust 2000-2, Class AV1, 2.10%, 7/25/2030

   

   

397,274

   

117,904

   

Sovereign Bank Home Equity Loan Trust 2000-1, Class A2, 6.96%, 2/25/2015

   

   

117,809

   

56,984

   

The Money Store Home Equity Trust 1992-B, Class A, 6.90%, 7/15/2007

   

   

56,939

   

   

   

TOTAL

   

   

62,141,709

Principal
Amount

  

  

Value

 

 

 

ASSET-BACKED SECURITIES--continued

 

 

 

   

   

   

Manufactured Housing--3.4%

   

   

   

$ 

158,519

   

Green Tree Financial Corp. 1993-3, Class A6, 6.10%, 10/15/2018

   

$ 

159,098

   

750,000

   

Green Tree Financial Corp. 1995-3, Class B1, 7.85%, 8/15/2025

   

   

651,367

   

1,250,000

   

Green Tree Financial Corp. 1996-2, Class B1, 7.55%, 4/15/2027

   

   

1,007,284

   

2,631,916

   

Green Tree Financial Corp. 1997-1, Class A5, 6.86%, 3/15/2028

   

   

2,726,270

   

2,250,000

   

Green Tree Financial Corp. 1997-3, Class B1, 7.51%, 7/15/2028

   

   

2,091,532

   

826,833

   

Green Tree Financial Corp. 1998-2, Class A5, 6.24%, 11/1/2016

   

   

850,183

   

4,000,000

   

Green Tree Financial Corp. 1999-5, Class B1, 9.20%, 4/1/2031

   

   

3,106,487

   

2,000,000

2

Merit Securities Corp. 12-1, Class 1B, 7.98%, 7/28/2033

   

   

1,942,180

   

500,000

1

Vanderbilt Mortgage Finance 1999-A, Class 2B2, 4.44%, 6/7/2016

   

   

496,661

   

   

   

TOTAL

   

   

13,031,062

   

   

   

Marine Receivable--0.2%

   

   

   

   

955,793

   

CIT Marine Trust 1999-A, Class A2, 5.80%, 4/15/2010

   

   

959,320

   

   

   

Other--4.9%

   

   

   

   

127,318

2

Bosque Asset Corp., Class 1, 7.66%, 6/5/2002

   

   

82,757

   

5,000,000

   

CIT Equipment Collateral 2001-A, Class A3, 4.32%, 5/20/2005

   

   

5,071,575

   

321,368

   

Case Equipment Loan Trust 1999-A, Class B, 5.96%, 8/15/2005

   

   

326,234

   

3,050,000

   

Caterpillar Financial Asset Trust 2001-A, Class A3, 4.85%, 4/25/2007

   

   

3,118,447

   

35,644,709

   

Conseco Recreational Enthusiast Consumer Trust 2001-A, Class APIO, 5.00%, 8/15/2025

   

   

2,738,583

   

1,000,000

1,2

Embarcadero Aircraft Securitization Trust 2000-A, Class A1, 2.32%, 8/15/2025

   

   

820,000

   

2,765,929

2

FMAC Loan Receivables Trust 1997-A, Class AX, 2.56%, 4/15/2019

   

   

152,126

   

2,830,123

2

Great America Leasing Receivables 2002-1, Class C, 4.91%, 7/15/2007

   

   

2,859,528

   

2,500,000

1

Navistar Financial Corp. Owner Trust 2001-A, Class A3, 4.99%, 8/15/2005

   

   

2,545,825

   

1,050,000

   

Tobacco Settlement Revenue Management Authority, 2001-A, Class A, 7.666%, 5/15/2016

   

   

1,094,982

   

   

   

TOTAL

   

   

18,810,057

   

   

   

Utilities--2.1%

   

   

   

   

1,300,000

   

California Infrastructure & Economic Development Bank Special Purpose Trust SDG&E-1 1997-1, Class A5, 6.19%, 9/25/2005

   

   

1,329,432

   

1,000,000

   

California Infrastructure SDG&E-1 1997-1, Class A6, 6.31%, 9/25/2008

   

   

1,055,000

   

408,200

   

Peco Energy Transition Trust 1999-A, Class A2, 5.63%, 3/1/2005

   

   

415,298

   

5,000,000

   

Peco Energy Transition Trust 1999-A, Class A4, 5.80%, 3/1/2007

   

   

5,209,400

   

   

   

TOTAL

   

   

8,009,130

   

   

   

TOTAL ASSET-BACKED SECURITIES (IDENTIFIED COST $199,290,506)

   

   

198,296,588

Principal
Amount

  

  

Value

   

   

   

COLLATERALIZED MORTGAGE OBLIGATIONS--11.2%

   

   

   

   

   

   

Commercial Mortgage--0.0%

   

   

   

$ 

3,399,814

   

First Union-Lehman Brothers Commercial Mortgage Trust 1997-C1, Class IO, 1.17%, 4/18/2029

   

$ 

154,437

   

   

   

Government Agency--1.7%

   

   

   

   

16,655,097

   

FHLMC (Series 2416), Class PI, 6.00%, 8/15/2012

   

   

1,678,008

   

4,048,919

   

FNMA (Series 302), Class 2, 6.00%, 6/1/2029

   

   

1,021,056

   

3,676,367

   

FNMA (Series 1998-73), Class A, 6.50%, 1/25/2029

   

   

3,719,160

   

   

   

TOTAL

   

   

6,418,224

   

   

   

Whole Loan--9.5%

   

   

   

   

811,610

2

Bayview Financial Acquisition Trust 1998-1, Class MI3, 8.21%, 5/25/2029

   

   

695,452

   

828,766

   

Bear Stearns Mortgage Securities, Inc. 1996-8, Class B3, 8.00%, 11/25/2027

   

   

826,806

   

586,875

1

Citicorp Mortgage Securities, Inc. 1992-18, Class A1, 5.778%, 11/25/2022

   

   

594,900

   

277,299

2

GE Capital Mortgage Services, Inc. 1994-3, Class B4, 6.50%, 1/25/2024

   

   

214,274

   

3,000,000

1,2,3

Harwood Street Funding I, LLC, 2001-1A, 3.70%, 9/20/2004

   

   

2,993,430

   

2,471,795

   

Headlands Mortgage Securities, Inc. 1997-1, Class B3, 7.75%, 3/25/2027

   

   

2,500,060

   

1,620,234

   

Homeside Mortgage Securities, Inc. 1998-1, Class A2, 6.75%, 2/25/2028

   

   

1,641,419

   

1,535,000

1

Mellon Residential Funding Corp. 1998-TBC1, Class B3, 6.59771%, 10/25/2028

   

   

1,529,965

   

535,000

1,2

Mellon Residential Funding Corp. 1998-TBC1, Class B4, 6.59771%, 10/25/2028

   

   

431,927

   

409,136

   

Norwest Asset Securities Corp. 1997-10, Class A4, 7.00%, 8/25/2027

   

   

416,435

   

4,229,552

   

PNC Mortgage Securities Corp. 1997-2, Class B1, 7.50%, 3/25/2027

   

   

4,400,045

   

989,695

   

PNC Mortgage Securities Corp. 1999-9, Class 3A1, 7.22%, 10/25/2029

   

   

1,004,802

   

502,042

1,2

Resecuritization Mortgage Trust 1998-A, Class B3, 7.785454%, 10/26/2023

   

   

398,341

   

5,108,492

   

Residential Accredit Loans, Inc. 2001-QS3, Class NB1, 7.25%, 3/25/2031

   

   

5,234,110

   

1,571,636

   

Residential Funding Mortgage Securities I, Inc. 1996-S1, Class A11, 7.10%, 1/25/2026

   

   

1,609,874

   

427,455

   

Residential Funding Mortgage Securities I, Inc. 1996-S25, Class M3, 7.75%, 12/25/2026

   

   

441,745

   

1,881,022

   

Residential Funding Mortgage Securities I, Inc. 1997-S17, Class A14, 7.00%, 11/25/2027

   

   

1,934,678

   

643,547

1,2

SMFC Trust Asset-Backed Certificates 1997-A, Class B1-4, 5.3323%, 1/28/2025

   

   

501,568

   

394,483

   

Structured Asset Securities Corp. 1999-ALS2, Class A2, 6.75%, 7/25/2029

   

   

404,146

   

2,500,000

   

Washington Mutual 2001-AR2, Class A2, 4.52%, 11/25/2031

   

   

2,515,750

   

6,400,000

   

Washington Mutual 2001-AR4, Class A2, 3.96%, 12/25/2031

   

   

6,410,459

   

   

   

TOTAL

   

   

36,700,186

   

   

   

TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (IDENTIFIED COST $43,351,636)

   

   

43,272,847

Principal
Amount

  

  

Value

   

   

   

CORPORATE BONDS--18.8%

   

   

   

   

   

   

Aerospace & Defense--0.5%

   

   

   

$ 

2,000,000

   

Raytheon Co., Note, 6.30%, 3/15/2005

   

$ 

2,061,180

   

   

   

Automotive--0.6%

   

   

   

   

1,000,000

2,3

Dana Credit Corp., Note, 7.25%, 12/16/2002

   

   

995,000

   

1,500,000

   

Hertz Corp., Jr. Sub. Note, 7.00%, 7/15/2003

   

   

1,528,800

   

   

   

TOTAL

   

   

2,523,800

   

   

   

Banking--1.6%

   

   

   

   

3,000,000

1

J.P. Morgan Chase & Co., Sub. Note, 5.25%, 12/5/2009

   

   

2,967,243

   

2,175,000

   

Security Capital Group, Inc., Note, 6.95%, 6/15/2005

   

   

2,277,529

   

1,000,000

   

Wells Fargo & Co., Note, 6.50%, 9/3/2002

   

   

1,010,590

   

   

   

TOTAL

   

   

6,255,362

   

   

   

Beverage & Tobacco--0.3%

   

   

   

   

1,000,000

   

Philip Morris Cos., Inc., Deb., 8.25%, 10/15/2003

   

   

1,065,430

   

   

   

Broadcast Radio & TV--1.5%

   

   

   

   

3,650,000

   

Clear Channel Communications, Inc., 7.25%, 9/15/2003

   

   

3,756,069

   

1,809,740

1

Fox Family Worldwide, Inc., Sr. Disc. Note, 10.25%, 11/1/2007

   

   

1,949,995

   

   

   

TOTAL

   

   

5,706,064

   

   

   

Building & Development--0.8%

   

   

   

   

3,000,000

1

Centex Corp., Senior Note, 3.698%, 10/22/2002

   

   

3,003,960

   

   

   

Consumer Products--0.3%

   

   

   

   

1,000,000

   

Albecca, Inc., Company Guarantee, 10.75%, 8/15/2008

   

   

1,115,000

   

   

   

Ecological Services & Equipment--0.5%

   

   

   

   

2,000,000

   

Waste Management, Inc., Note, 6.625%, 7/15/2002

   

   

2,009,640

   

   

   

Finance - Automotive--1.1%

   

   

   

   

2,000,000

   

Ford Motor Credit Co., Note, 6.625%, 6/30/2003

   

   

2,047,400

   

2,000,000

   

General Motors Acceptance Corp., Note, 5.80%, 3/12/2003

   

   

2,032,760

   

   

   

TOTAL

   

   

4,080,160

   

   

   

Financial Intermediaries--0.7%

   

   

   

   

2,500,000

   

Salomon Smith Barney Holdings, Inc., Note, 7.00%, 3/15/2004

   

   

2,642,625

   

   

   

Food & Drug Retailers--2.2%

   

   

   

   

2,000,000

   

Albertsons, Inc., Sr. Note, 6.55%, 8/1/2004

   

   

2,103,260

   

4,000,000

   

Meyer (Fred), Inc., Company Guarantee, 7.375%, 3/1/2005

   

   

4,290,600

   

1,975,000

   

Safeway, Inc., 6.15%, 3/1/2006

   

   

2,045,231

   

   

   

TOTAL

   

   

8,439,091

Principal
Amount

  

  

Value

 

 

 

CORPORATE BONDS--continued

 

 

 

   

   

   

Forest Products--1.3%

   

   

   

$ 

2,000,000

4

Fort James Corp., Note, 6.70%, 11/15/2003

   

$ 

1,962,500

   

1,000,000

   

Quno Corp., Sr. Note, 9.125%, 5/15/2005

   

   

1,022,980

   

2,000,000

1,2

Weyerhaeuser Co., Note, 5.50%, 3/15/2005

   

   

2,035,260

   

   

   

TOTAL

   

   

5,020,740

   

   

   

Insurance--0.2%

   

   

   

   

750,000

1

HSB Capital I, Company Guarantee, 2.89%, 7/15/2027

   

   

706,815

   

   

   

Oil & Gas--1.5%

   

   

   

   

3,000,000

   

Conoco, Funding Co., 5.45%, 10/15/2006

   

   

3,057,390

   

3,000,000

2,3

WCG Note Trust, Secd. Note, 8.25%, 3/15/2004

   

   

2,889,210

   

   

   

TOTAL

   

   

5,946,600

   

   

   

Real Estate--0.8%

   

   

   

   

3,000,000

   

EOP Operating LP, 7.375%, 11/15/2003

   

   

3,126,060

   

   

   

Retailers--0.5%

   

   

   

   

2,000,000

4

Wal-Mart Stores, Inc., Note, 4.15%, 6/15/2005

   

   

2,011,160

   

   

   

Telecommunications & Cellular--3.1%

   

   

   

   

2,000,000

   

Citizens Utilities Co., Deb., 6.80%, 8/15/2026

   

   

2,048,660

   

3,000,000

   

Intermedia Communications, Inc., Sr. Sub. Note, Series B, 12.25%, 3/1/2009

   

   

1,365,000

   

4,860,000

4

Sprint Capital Corp., 5.875% - 7.625%, 6/10/2002 - 5/1/2004

   

   

4,741,757

   

2,000,000

   

U.S. West Communications, Inc., Note, 7.20%, 11/1/2004

   

   

1,912,500

   

2,000,000

1,2

Verizon Wireless, Inc., Note, 2.39%, 12/17/2003

   

   

2,001,060

   

   

   

TOTAL

   

   

12,068,977

   

   

   

Utilities--1.3%

   

   

   

   

2,000,000

1

Indiana Michigan Power Co., 2.523%, 9/3/2002

   

   

2,002,240

   

3,000,000

   

Fideicomoso Petacalco Topolo, Note, 8.125%, 12/15/2003

   

   

3,185,253

   

   

   

TOTAL

   

   

5,187,493

   

   

   

TOTAL CORPORATE BONDS (IDENTIFIED COST $74,367,452)

   

   

72,970,157

   

   

   

MORTGAGE BACKED SECURITIES--1.2%

   

   

   

   

   

   

Government Agency--1.2%

   

   

   

   

194,909

   

FHLMC, 6.00%, 4/1/2003

   

   

195,852

   

4,000,000

   

FNMA, 5.125%, 2/13/2004

   

   

4,125,680

   

313,397

   

GNMA, 8.50%, 8/15/2026

   

   

337,294

   

   

   

TOTAL MORTGAGE BACKED SECURITIES (IDENTIFIED COST $4,527,445)

   

   

4,658,826

Principal
Amount

  

  

Value

   

   

   

U.S. TREASURY NOTES--2.1%

   

   

   

$ 

3,000,000

4

3.50%, 11/15/2006

   

$ 

2,911,770

   

3,000,000

   

4.75%, 1/31/2003

   

   

3,054,480

   

2,000,000

4

5.75%, 11/15/2005

   

   

2,119,280

   

   

   

TOTAL U.S. TREASURY NOTES (IDENTIFIED COST $8,012,269)

   

   

8,085,530

   

   

   

MUTUAL FUNDS--16.1%

   

   

   

   

3,965,118

   

High Yield Bond Portfolio

   

   

25,812,920

   

36,487,937

   

Prime Value Obligations Fund, IS Shares

   

   

36,487,937

   

   

   

TOTAL MUTUAL FUNDS (IDENTIFIED COST $63,924,769)

   

   

62,300,857

   

   

   

TOTAL INVESTMENTS (IDENTIFIED COST $394,264,444)5

   

$

390,381,744

1 Denotes variable rate securities, which shows current rate and final maturity date.

2 Denotes a restricted security which is subject to restrictions on resale under federal securities laws. At May 31, 2002, these securities amount to $42,407,788 which represents 11.0% of net assets. Included in these amounts, securities which have been deemed liquid amounted to $19,537,363 which represents 5.1% of net assets.

3 Denotes a restricted security that has been deemed liquid by criteria approved by the Fund's Board of Directors.

4 Certain principle amounts are temporarily on loan to unaffiliated broker/dealers.

5 The cost of investments for generally accepted accounting principles ("GAAP") is $394,264,444. Cost for federal tax purposes is $394,506,122. The difference between cost for GAAP and cost on a tax basis is related to amortization/accretion tax elections on fixed income securities. The net unrealized depreciation of investments on a federal tax basis amounts to $4,124,378 which is comprised of $4,350,971 appreciation and $8,475,349 depreciation at May 31, 2002.

Note: The categories of investments are shown as a percentage of net assets ($386,807,395) at May 31, 2002.

The following acronyms are used throughout this portfolio:

ARM

--Adjustable Rate Mortgage

FHLMC

--Federal Home Loan Mortgage Corporation

FNMA

--Federal National Mortgage Association

GNMA

--Government National Mortgage Association

See Notes which are an integral part of the Financial Statements

Statement of Assets and Liabilities

May 31, 2002 (unaudited)

Assets:

  

   

   

  

   

   

   

Total investments in securities, at value (identified cost $394,264,444)

   

   

   

   

$

390,381,744

   

Income receivable

   

   

   

   

   

2,208,545

   

Receivable for investments sold

   

   

   

   

   

569,728

   

Receivable for shares sold

   

   

   

   

   

900,261

   

Cash held as collateral for securities lending

   

   

   

   

   

7,335,723

   

Receivable for daily variation margin

   

   

   

   

   

119,623

   

TOTAL ASSETS

   

   

   

   

   

401,515,624

   

Liabilities:

   

   

   

   

   

   

   

Payable for investments purchased

   

$

3,999,799

   

   

   

   

Payable for shares redeemed

   

   

1,594,761

   

   

   

   

Income distribution payable

   

   

1,580,759

   

   

   

   

Payable on collateral due to broker

   

   

7,335,723

   

   

   

   

Accrued expenses

   

   

197,187

   

   

   

   

TOTAL LIABILITIES

   

   

   

   

   

14,708,229

   

Net assets for 41,240,145 shares outstanding

   

   

   

   

$

386,807,395

   

Net Assets Consist of:

   

   

   

   

   

   

   

Paid in capital

   

   

   

   

$

409,025,369

   

Net unrealized depreciation of investments and futures contracts

   

   

   

   

   

(3,877,427

)

Accumulated net realized loss on investments and futures contracts

   

   

   

   

   

(18,182,983

)

Distributions in excess of net investment income

   

   

   

   

   

(157,564

)

TOTAL NET ASSETS

   

   

   

   

$

386,807,395

   

Net Asset Value, Offering Price and Redemption Proceeds Per Share

   

   

   

   

   

   

   

Class A Shares:

   

   

   

   

   

   

   

Net asset value per share ($376,246,196 ÷ 40,114,146 shares outstanding)

   

   

   

   

   

$9.38

   

Offering price per share (100/99.00 of $9.38)1

   

   

   

   

   

$9.47

   

Redemption proceeds per share

   

   

   

   

   

$9.38

   

Class F Shares:

   

   

   

   

   

   

   

Net asset value per share ($10,561,199 ÷ 1,125,999 shares outstanding)

   

   

   

   

   

$9.38

   

Offering price per share (100/99.00 of $9.38)1

   

   

   

   

   

$9.47

   

Redemption proceeds per share (99.00/100 of $9.38)1

   

   

   

   

   

$9.29

   

1 See "What Do Shares Cost?" in the Prospectus.

See Notes which are an integral part of the Financial Statements

Statement of Operations

Six Months Ended May 31, 2002 (unaudited)

Investment Income:

  

   

   

   

  

   

   

   

  

   

   

   

Dividends

   

   

   

   

   

   

   

   

   

$

1,170,694

   

Interest (including income on securities loaned of $684)

   

   

   

   

   

   

   

   

   

   

10,228,207

   

TOTAL INCOME

   

   

   

   

   

   

   

   

   

   

11,398,901

   

Expenses:

   

   

   

   

   

   

   

   

   

   

   

   

Investment adviser fee

   

   

   

   

   

$

787,489

   

   

   

   

   

Administrative personnel and services fee

   

   

   

   

   

   

148,048

   

   

   

   

   

Custodian fees

   

   

   

   

   

   

12,497

   

   

   

   

   

Transfer and dividend disbursing agent fees and expenses

   

   

   

   

   

   

86,204

   

   

   

   

   

Directors'/Trustees' fees

   

   

   

   

   

   

1,644

   

   

   

   

   

Auditing fees

   

   

   

   

   

   

6,576

   

   

   

   

   

Legal fees

   

   

   

   

   

   

3,033

   

   

   

   

   

Portfolio accounting fees

   

   

   

   

   

   

50,286

   

   

   

   

   

Distribution services fee--Class A Shares

   

   

   

   

   

   

957,188

   

   

   

   

   

Distribution services fee--Class F Shares

   

   

   

   

   

   

8,152

   

   

   

   

   

Shareholder services fee--Class A Shares

   

   

   

   

   

   

478,594

   

   

   

   

   

Shareholder services fee--Class F Shares

   

   

   

   

   

   

13,587

   

   

   

   

   

Share registration costs

   

   

   

   

   

   

25,404

   

   

   

   

   

Printing and postage

   

   

   

   

   

   

15,066

   

   

   

   

   

Insurance premiums

   

   

   

   

   

   

591

   

   

   

   

   

Taxes

   

   

   

   

   

   

13,314

   

   

   

   

   

Miscellaneous

   

   

   

   

   

   

59

   

   

   

   

   

TOTAL EXPENSES

   

   

   

   

   

   

2,607,732

   

   

   

   

   

Waivers and Reimbursement:

   

   

   

   

   

   

   

   

   

   

   

   

Waiver of distribution services fee--Class A Shares

   

$

(547,432

)

   

   

   

   

   

   

   

   

Waiver of distribution services fee--Class F Shares

   

   

(1,960

)

   

   

   

   

   

   

   

   

Reimbursement of investment adviser fee

   

   

(924

)

   

   

   

   

   

   

   

   

TOTAL WAIVERS AND REIMBURSEMENT

   

   

   

   

   

   

(550,316

)

   

   

   

   

Net expenses

   

   

   

   

   

   

   

   

   

   

2,057,416

   

Net investment income

   

   

   

   

   

   

   

   

   

   

9,341,485

   

Realized and Unrealized Gain (Loss) on Investments and Futures Contracts:

   

   

   

   

   

   

   

   

   

   

   

   

Net realized loss on investments

   

   

   

   

   

   

   

   

   

   

(515,091

)

Net realized loss on futures contracts

   

   

   

   

   

   

   

   

   

   

(109,486

)

Net change in unrealized depreciation of investments and futures contracts

   

   

   

   

   

   

   

   

   

   

(5,047,426

)

Net realized and unrealized loss on investments and futures contracts

   

   

   

   

   

   

   

   

   

   

(5,672,003

)

Change in net assets resulting from operations

   

   

   

   

   

   

   

   

   

$

3,669,482

   

See Notes which are an integral part of the Financial Statements

Statement of Changes in Net Assets

 

  

Six Months
Ended
(unaudited)
5/31/2002

   

  

Year Ended
11/30/2001

   

Increase (Decrease) in Net Assets

   

   

   

   

   

   

   

   

Operations:

   

   

   

   

   

   

   

   

Net investment income

   

$

9,341,485

   

   

$

11,516,204

   

Net realized loss on investments and futures contracts

   

   

(624,577

)

   

   

(2,002,341

)

Net change in unrealized appreciation/depreciation of investments and futures contracts

   

   

(5,047,426

)

   

   

4,744,821

   

CHANGE IN NET ASSETS RESULTING FROM OPERATIONS

   

   

3,669,482

   

   

   

14,258,684

   

Distributions to Shareholders:

   

   

   

   

   

   

   

   

Distributions from net investment income

   

   

   

   

   

   

   

   

Class A Shares

   

   

(8,878,647

)

   

   

(11,160,095

)

Class F Shares

   

   

(257,015

)

   

   

(520,892

)

CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS

   

   

(9,135,662

)

   

   

(11,680,987

)

Share Transactions:

   

   

   

   

   

   

   

   

Proceeds from sale of shares

   

   

214,201,362

   

   

   

523,656,789

   

Net asset value of shares issued to shareholders in payment of distributions declared

   

   

5,322,454

   

   

   

9,346,572

   

Cost of shares redeemed

   

   

(272,397,699

)

   

   

(212,530,175

)

CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS

   

   

(52,873,883

)

   

   

320,473,186

   

Change in net assets

   

   

(58,340,063

)

   

   

323,050,883

   

Net Assets:

   

   

   

   

   

   

   

   

Beginning of period

   

   

445,147,458

   

   

   

122,096,575

   

End of period

   

$

386,807,395

   

   

$

445,147,458

   

See Notes which are an integral part of the Financial Statements

Financial Highlights -- Class A Shares

(For a Share Outstanding Throughout Each Period)

   

   

Six Months
Ended
(unaudited)

   

   

Year Ended November 30,

  

5/31/2002

   

  

2001

   

  

2000

   

  

1999

   

  

1998

   

  

1997

   

Net Asset Value, Beginning of Period

   

$9.51

   

   

$9.30

   

   

$9.45

   

   

$9.82

   

   

$9.95

   

   

$9.91

   

Income From Investment Operations:

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Net investment income

   

0.22

1

   

0.54

   

   

0.63

   

   

0.57

   

   

0.60

   

   

0.59

   

Net realized and unrealized gain (loss) on investments and futures contracts

   

(0.13

)1

   

0.20

   

   

(0.14

)

   

(0.35

)

   

(0.13

)

   

0.04

   

TOTAL FROM INVESTMENT OPERATIONS

   

0.09

   

   

0.74

   

   

0.49

   

   

0.22

   

   

0.47

   

   

0.63

   

Less Distributions:

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Distributions from net investment income

   

(0.22

)

   

(0.53

)

   

(0.64

)

   

(0.59

)

   

(0.60

)

   

(0.59

)

Net Asset Value, End of Period

   

$9.38

   

   

$9.51

   

   

$9.30

   

   

$9.45

   

   

$9.82

   

   

$9.95

   

Total Return2

   

0.94

%

   

8.18

%

   

5.42

%

   

2.31

%

   

4.81

%

   

6.52

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios to Average Net Assets:

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Expenses

   

1.05

%3

   

1.18

%

   

1.17

%

   

1.10

%

   

1.10

%

   

1.10

%

Net investment income

   

4.74

%1,3

   

5.25

%

   

6.68

%

   

5.98

%

   

6.02

%

   

5.90

%

Expense waiver/reimbursement4

   

0.28

%3

   

0.24

%

   

0.40

%

   

0.37

%

   

0.47

%

   

0.49

%

Supplemental Data:

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Net assets, end of period (000 omitted)

   

$376,246

   

$432,539

   

$114,137

   

$139,452

   

$101,213

   

$94,952

   

Portfolio turnover

   

12

%

   

24

%

   

30

%

   

29

%

   

93

%

   

62

%

1 Effective December 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 accreting/ amortizing market discounts and premiums on long-term debt securities. The effect of this change for the six months ended May 31, 2002 was to decrease the net investment income per share by $0.01, increase net realized gain/loss per share by $0.01 and decrease the ratio of net investment income to average net assets from 4.84% to 4.74%. Per share, ratios and supplemental data for the periods prior to December 1, 2001 have not been restated to reflect this change in presentation.

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

Financial Highlights -- Class F Shares

(For a Share Outstanding Throughout Each Period)

   

   

Six Months
Ended
(unaudited)

   

   

Year Ended November 30,

  

5/31/2002

   

  

2001

   

  

2000

   

  

1999

   

  

1998

   

  

1997

   

Net Asset Value, Beginning of Period

   

$9.51

   

   

$9.30

   

   

$9.45

   

   

$9.82

   

   

$9.95

   

   

$9.91

   

Income From Investment Operations:

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Net investment income

   

0.22

1

   

0.51

   

   

0.64

   

   

0.57

   

   

0.61

   

   

0.60

   

Net realized and unrealized gain (loss) on investments and futures contracts

   

(0.13

)1

   

0.25

   

   

(0.14

)

   

(0.34

)

   

(0.13

)

   

0.04

   

TOTAL FROM INVESTMENT OPERATIONS

   

0.09

   

   

0.76

   

   

0.50

   

   

0.23

   

   

0.48

   

   

0.64

   

Less Distributions:

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Distributions from net investment income

   

(0.22

)

   

(0.55

)

   

(0.65

)

   

(0.60

)

   

(0.61

)

   

(0.60

)

Net Asset Value, End of Period

   

$9.38

   

   

$9.51

   

   

$9.30

   

   

$9.45

   

   

$9.82

   

   

$9.95

   

Total Return2

   

0.99

%

   

8.32

%

   

5.52

%

   

2.42

%

   

4.91

%

   

6.63

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios to Average Net Assets:

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Expenses

   

0.95

%3

   

1.02

%

   

1.07

%

   

1.00

%

   

1.00

%

   

1.00

%

Net investment income

   

4.84

%1,3

   

5.59

%

   

6.78

%

   

6.00

%

   

6.09

%

   

6.00

%

Expense waiver/reimbursement4

   

0.03

%3

   

0.05

%

   

0.15

%

   

0.12

%

   

0.22

%

   

0.24

%

Supplemental Data:

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Net assets, end of period (000 omitted)

   

$10,561

   

$12,609

   

$7,960

   

$9,520

   

$13,358

   

$8,807

   

Portfolio turnover

   

12

%

   

24

%

   

30

%

   

29

%

   

93

%

   

62

%

1 Effective December 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting/amortizing market discounts and premiums on long-term debt securities. The effect of this change for the six months ended May 31, 2002 was to decrease the net investment income per share by $0.01, increase net realized gain/loss per share by $0.01 and decrease the ratio of net investment income to average net assets from 4.94% to 4.84%. Per share, ratios and supplemental data for the periods prior to December 1, 2001 have not been restated to reflect this change in presentation.

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

Notes to Financial Statements

May 31, 2002 (unaudited)

ORGANIZATION

Federated Fixed Income Securities, Inc. (the "Corporation") is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end, management investment company. The Corporation consists of four portfolios. The financial statements included herein are only those of Federated Limited Term 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. The Fund offers two classes of shares: Class A Shares and Class F Shares. The investment objective of the Fund is to seek a high level of current income consistent with minimum fluctuation in principal value through compilation of a portfolio, the weighted-average duration of which will at all times be limited to three years or less.

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

United States government securities, 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 registered 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 Directors (the "Directors").

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 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. 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. The Fund offers multiple classes of shares, which differ in their respective distribution and service fees. All shareholders bear the common expenses of the Fund based on average daily net assets of each class, without distinction between share classes. Dividends are declared separately for each class. No class has preferential dividend rights; differences in per share dividend rates are generally due to differences in separate class expenses.

Effective December 1, 2001, the Fund has adopted the provisions of the American Institute of Certified Public Accountants (AICPA) Audit and Accounting Guide for Investment Companies and began accreting discount/amortizing premium on long-term debt securities. The cumulative effect of this accounting change had no impact on the total net assets of the Fund, but resulted in adjustments to the financial statements as follows:

  

As of 12/1/2001

  

For the Six Months Ended
5/31/2002

  

Cost of
Investments

  

Undistributed Net
Investment Income

  

Net
Investment
Income

  

Net Unrealized
Appreciation/
Depreciation

  

Net Realized
Gain/Loss

Increase (Decrease)

   

$(43,396)

   

$(43,396)

   

$(201,782)

   

$198,282

   

$3,500

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 November 30, 2001, the Fund, for federal tax purposes, had a capital loss carryforward of $17,543,370, which will reduce the Fund's taxable income arising from future net realized gain on investments, if any, to the extent permitted by the Code, and thus will reduce the amount of the distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal tax. Pursuant to the Code, such capital loss carryforward will expire as follows:

Expiration Year

  

Expiration Amount

2002

   

$8,964,278

2003

   

1,407,407

2004

   

97,949

2006

   

261,311

2007

   

3,092,726

2008

   

1,717,623

2009

   

2,002,076

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.

Futures Contracts

The Fund purchases bond futures contracts to manage cash flows, enhance yield and to potentially reduce transaction costs. Upon entering into a bond futures contract with a broker, the Fund is required to deposit in a segregated account a specified amount of cash or U.S. government securities. Futures contracts are valued daily and unrealized gains or losses are recorded in a "variation margin" account. The Fund receives from or pays to the broker a specified amount of cash based upon changes in the variation margin account. When a contract is closed, the Fund recognizes a realized gain or loss. For the six months ended May 31, 2002, the Fund had realized losses of $109,486 for futures contracts.

Futures contracts have market risks, including the risk that the change in the value of the contract may not correlate with changes in the value of the underlying securities.

At May 31, 2002, the Fund had outstanding futures contracts as set forth below:

Expiration Date

  

Contracts to
Deliver

  

Position

  

Unrealized
Appreciation

September 2002

 

75 U.S. Treasury 10 Yr.

 

Short

   

$5,273

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. 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 May 31, 2002, securities subject to this type of arrangement and related collateral were as follows:

Market Value of
Securities Loaned

  

Market Value
of Collateral

$7,189,050

   

$7,335,723

Restricted Securities

Restricted securities are securities that may only be resold upon registration under federal securities laws or in transactions exempt from such registration. In some cases, the issuer of restricted securities has agreed to register such securities for resale, at the issuer's expense either upon demand by the Fund or in connection with another registered offering of the securities. Many restricted securities may be resold in the secondary market in transactions exempt from registration. Such restricted securities may be determined to be liquid under criteria established by the Directors. The Fund will not incur any registration costs upon such resales. The Fund's restricted securities are valued at the price provided by dealers in the secondary market or, if no market prices are available, at the fair value as determined in good faith using methods approved by the Directors.

Additional information on each restricted security held at May 31, 2002 is as follows:

Security

  

Acquisition Date

  

Acquisition Cost

Bayview Financial Acquisition Trust 1998-1

 

05/14/1998

   

$  811,229

Bosque Asset Corp.

 

06/19/1997

   

127,795

Credit Card Merchant Voucher Receivables Master Trust 1996-A

 

01/09/1997

   

635,398

Embarcadero Aircraft Securitization Trust 2000-A

 

08/17/2000

   

1,000,000

First Franklin NIM Trust 2001-FF2

 

11/14/2001

   

2,245,638

First Plus Home Loan Trust 1997-3

 

09/27/2001

   

1,314,759

FMAC Loan Receivables Trust 1997-A

 

06/16/1997

   

400,147

GE Capital Mortgage Services, Inc. 1994-3

 

07/10/1997

   

188,138

Great America Leasing Receivables 2002-1

 

03/22/2002

   

2,829,814

Long Beach Asset Holdings Corp. 2001-3

 

10/02/2001

   

2,095,151

Mellon Residential Funding Corp. 1998-TBC1

 

12/16/1998

   

524,431

Merit Securities Corp. 12-1

 

05/18/1999

   

1,976,607

Merrill Lynch Mortgage Investors, Inc. 1998-FF3

 

05/11/1999

   

1,202,433

Option One Mortgage Securities Corp. 1999-4

 

04/11/2001

   

70,058

Option One Mortgage Securities Corp. 2001-3

 

08/15/2001

   

1,258,291

Paragon Auto Receivables Owner Trust 1998-A

 

05/14/1998

   

227,822

Paragon Auto Receivables Owner Trust 1998-B

 

09/09/1998

   

234,013

Resecuritization Mortgage Trust 1998-A

 

02/12/1999

   

432,541

Saxon Asset Securities Trust 1998-1

 

03/05/1998

   

1,579,047

SMFC Trust Asset-Backed Certificates 1997-A

 

02/04/1998

   

588,645

Verizon Wireless, Inc.

 

12/12/2001

   

2,000,000

Weyerhaeuser Co.

 

03/06/2002

   

1,997,447

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.

CAPITAL STOCK

At May 31, 2002, par value shares ($0.001 per share) authorized were as follows:

Share Class Name

  

Number of Par Value
Capital Stock Authorized

Class A Shares

 

1,000,000,000

Class F Shares

 

1,000,000,000

TOTAL

   

2,000,000,000

Transactions in capital stock were as follows:

Six Months Ended
5/31/2002

Year Ended
11/30/2001

Class A Shares:

  

Shares

  

Amount

  

Shares

  

Amount

Shares sold

   

22,489,625

   

   

$

212,165,340

   

   

54,427,939

   

   

$

517,284,562

   

Shares issued to shareholders in payment of distributions declared

   

549,788

   

   

   

5,189,375

   

   

953,555

   

   

   

9,039,713

   

Shares redeemed

   

(28,415,921

)

   

   

(268,331,257

)

   

(22,165,569

)

   

   

(210,332,487

)

NET CHANGE RESULTING FROM CLASS A SHARE TRANSACTIONS

   

(5,376,508

)

   

$

(50,976,542

)

   

33,215,925

   

   

$

315,991,788

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended
5/31/2002

Year Ended
11/30/2001

Class F Shares:

Shares

Amount

Shares

Amount

Shares sold

   

215,888

   

   

$

2,036,022

   

   

669,831

   

   

$

6,372,227

   

Shares issued to shareholders in payment of distributions declared

   

14,100

   

   

   

133,079

   

   

32,402

   

   

   

306,859

   

Shares redeemed

   

(430,325

)

   

   

(4,066,442

)

   

(232,098

)

   

   

(2,197,688

)

NET CHANGE RESULTING FROM CLASS F SHARE TRANSACTIONS

   

(200,337

)

   

$

(1,897,341

)

   

470,135

   

   

$

4,481,398

   

NET CHANGE RESULTING FROM SHARE TRANSACTIONS

   

(5,576,845

)

   

$

(52,873,883

)

   

33,686,060

   

   

$

320,473,186

   

INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES

Investment Adviser Fee

Federated Investment Management Company, the Fund's investment adviser (the "Adviser"), receives for its services an annual investment adviser fee equal to 0.40% of the Fund's average daily net assets.

Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the Fund may invest in Prime Value Obligations Fund and High Yield Bond Portfolio, both of which are managed by the Adviser. The Adviser has agreed to reimburse certain investment adviser fees as a result of these transactions.

Administrative Fee

Federated Services Company ("FServ"), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FServ is based on a scale that ranges from 0.150% to 0.075% of the average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors, Inc., subject to a $125,000 minimum per portfolio and $30,000 per each additional class.

Distribution Services Fee

The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp. ("FSC"), the principal distributor, from the net assets of the Fund to finance activities intended to result in the sale of the Fund's Class A Shares and Class F Shares. The Plan provides that the Fund may incur distribution expenses according to the following schedule annually, to compensate FSC.

Share Class Name

  

Percentage of Average Daily
Net Assets of Class

Class A Shares

 

0.50%

Class F Shares

 

0.15%

FSC may voluntarily choose to waive any portion of its fee. FSC can modify or terminate this voluntary waiver at any time at its sole discretion.

Shareholder Services Fee

Under the terms of a Shareholder Services Agreement with Federated Shareholder Services Company ("FSSC"), the Fund will pay FSSC up to 0.25% of the average daily net assets of the Fund for the period. The fee paid to FSSC is used to finance certain services for shareholders and to maintain shareholder accounts.

Transfer and Dividend Disbursing Agent Fees and Expenses

FServ, through its subsidiary FSSC, serves as transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the size, type and number of accounts and transactions made by shareholders.

Portfolio Accounting Fees

FServ maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses.

General

Certain of the Officers and Directors of the Corporation are Officers and Directors or Trustees of the above companies.

Investment Transactions

Purchases and sales of investments, excluding long-term U.S. government securities and short-term securities, (and in-kind contributions), for the six months ended May 31, 2002, were as follows:

Purchases

  

$

42,235,971

Sales

   

$

58,199,924

Purchases and sales of long-term U.S. government securities for the six months ended May 31, 2002, were as follows:

Purchases

  

$

1,774,809

Sales

   

$

27,173,201

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 prospectus, which contains facts concerning its objective and policies, management fees, expenses and other information.

IMPORTANT NOTICE ABOUT FUND DOCUMENT DELIVERY

In an effort to reduce costs and avoid duplicate mailings, the Fund(s) intend to deliver a single copy of certain documents to each household in which more than one shareholder of the Fund(s) resides (so-called "householding"), as permitted by applicable rules. The Fund's "householding" program covers its/their Prospectus and Statement of Additional Information, and supplements to each, as well as Semi-Annual and Annual Reports and any Proxies or information statements. Shareholders must give their written consent to participate in the householding program. The Fund is also permitted to treat a shareholder as having given consent ("implied consent") if (i) shareholders with the same last name, or believed to be members of the same family, reside at the same street address or receive mail at the same post office box, (ii) the Fund gives notice of its intent to "household" at least sixty (60) days before it begins "householding" and (iii) none of the shareholders in the household have notified the Fund(s) or their agent of the desire to "opt out" of householding. Shareholders who have granted written consent, or have been deemed to have granted implied consent, can revoke that consent and opt out of householding at any time by calling 1-800-341-7400.

Federated
World-Class Investment Manager
Federated Limited Term Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
www.federatedinvestors.com
Contact us at 1-800-341-7400 or
www.federatedinvestors.com/contact
Federated Securities Corp., Distributor

Cusip 31417P106
Cusip 31417P205

Federated is a registered mark of Federated Investors, Inc. 2002 ©Federated Investors, Inc.

 

3070201 (7/02)

 

Federated Investors
World-Class Investment Manager

Federated Limited Term Municipal Fund

A Portfolio of Federated Fixed Income Securities, Inc.

 

9TH SEMI-ANNUAL REPORT

May 31, 2002

Established 1993

NOT FDIC INSURED * MAY LOSE VALUE * NO BANK GUARANTEE

Richard B. Fisher

President

Federated Limited Term Municipal Fund

President's Message

Dear Shareholder:

Federated Limited Term Municipal Fund was created in 1993 and I am pleased to present its ninth Semi-Annual Report. The fund's total net assets are $173.1 million and are invested in 146 tax-free issues. The fund's holdings are short-term municipal securities that pay tax-free income. These bonds are classified as revenue, refunding or general obligation bonds. The fund has a weighted average maturity of about two years, and its issues, on average, hold an "A" quality rating.

This report covers the first half of the fund's fiscal year, which is the six-month reporting period from December 1, 2001 through May 31, 2002. It begins with an interview with the fund's portfolio manager, Jeff A. Kozemchak, Senior Vice President of Federated Investment Management Company. Following his discussion are two additional items of shareholder interest. First is a complete listing of the fund's holdings, and second is the publication of the fund's financial statements.

The fund pursues attractive tax-free income1 through a portfolio of short-term municipal bonds, and the fund's yield is targeted between the rates of tax-free money market fund instruments and longer term municipal bonds. As a result, it has the potential to offer more income than money market instruments, but less income than long-term, tax-free municipal bonds.2

During the reporting period, the fund delivered competitive performance in terms of income and total return. The fund's returns on both of its share classes exceeded the 1.62% average return for funds in its peer group, the Lipper Short-Term Municipal Debt Funds Average.3

1 Income may be subject to the federal alternative minimum tax and state and local taxes.

2 Unlike the fund whose share price fluctuates, money market funds seek to maintain a stable $1.00 share value.

3 Lipper figures represent the average of the total returns reported by all of the mutual funds designated by Lipper, Inc. as falling into the category indicated. These figures do not take sales charges into account.

Individual share class total return performance for the six-month reporting period, including income distributions, follows.4

  

Total Return

  

Income
Distributions

  

Net Asset Value Increase

Class A Shares

 

1.68%

 

$0.132

 

$9.74 to $9.77 = 0.31%

Class F Shares

 

1.81%

 

$0.145

 

$9.74 to $9.77 = 0.31%

Thank you for choosing Federated Limited Term Municipal Fund as a relatively conservative way to pursue tax-free income from short-term municipal issues. Remember, reinvesting your monthly dividends and adding to your account on a regular basis are two convenient ways to gain the benefit of compounding.5

As always, we welcome your comments and suggestions.

Sincerely,

Richard B. Fisher

Richard B. Fisher
President
July 15, 2002

4 Performance quoted is based on net asset value, represents past performance and is no guarantee of future results. Investment return and principal value will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Total returns for the period, based on offering price (i.e., less any applicable sales charge), for Class A and F Shares were 0.65% and 0.81%, respectively. Current performance information is available at our website www.federatedinvestors.com or by calling 1-800-341-7400.

5 Systematic investing does not ensure a profit or protect against loss in declining markets. Because dollar-cost averaging involves continuous investment regardless of fluctuating price levels, investors should consider their financial ability to continue purchases during periods of low price levels.

Jeff A. Kozemchak, CFA

Senior Vice President

Federated Investment Management Company

Investment Review

What is your review of the economy and the interest rate environment over the six-month reporting period ended May 31, 2002?

The U.S. economy continued to struggle early in the period, and the Federal Reserve Board (the "Fed") responded in December 2001 by lowering the federal funds target rate for the tenth time to 1.75%. The reporting period was characterized by interest rate volatility, as the market weighed the notion that the economy was recovering and the Fed might raise the federal funds target rate significantly by year-end, starting as early as summer. The economic environment appeared strong in March, and short-term interest rates rose rapidly. In March, the Fed changed its economic assessment bias from "weakness" to "neutral," reflecting the improvement in the economic data. However, signs of a recovery were dashed in April and May as further weakness in economic growth and fundamentals in the stock market and the value of the U.S. dollar became more apparent. Interest rates abruptly reversed course and fell during these two months.

Short-term municipal interest rates ended the reporting period relatively unchanged but slightly lower, although they exhibited significant yield movement. High-grade two-year municipal bond yields fell from 2.42% to 2.30% over the reporting period. Because of the slight yield decline, the fund's net asset value appreciated over the reporting period.

The short-term municipal bond market continued to attract solid interest from investors, as short-term bonds funds offered significant income advantages versus cash alternatives (such as money funds1) and direct securities. The municipal market continued to benefit from generally strong demand, and new issue supply was well received by both retail and institutional investors. Money market funds and short-term bond funds are generally viewed as lower risk investments during a volatile market environment.

1 Unlike money market mutual funds, which seek to maintain a $1.00 share price, the net asset value of this fund will fluctuate.

How did the fund perform during the six-month reporting period?

Total returns were competitive, as investors in the fund's Class A Shares received a return of 1.68% and investors in the fund's Class F Shares received a return of 1.81% based on net asset value. These results exceeded the 1.62% average return for the funds in its peer group, the Lipper Short-Term Municipal Debt category.2 On a taxable equivalent basis, the six-month total returns for the Class A Shares and Class F Shares were 2.54% and 2.75%, respectively, for investors in the highest federal tax bracket.

What level of income did the fund deliver to its tax-sensitive shareholders?

For the six-month reporting period, the fund's tax-exempt income totaled $0.132 per share for the Class A Shares and $0.145 per share for the Class F Shares. These income levels correspond to annualized tax-exempt distribution rates of 2.73% and 2.96% for investors in the Class A Shares and Class F Shares, respectively.

Also, as of May 31, 2002, the fund posted 30-day SEC yields (at offering price) of 2.43% for the Class A Shares and 2.71% for the Class F Shares.3 The yield on Class A Shares has taxable equivalents of 4.02%, 3.74% and 3.47% (the yield on Class F Shares has taxable equivalents of 4.49%, 4.17% and 3.87%) for shareholders in the 39.6%, 35.0% and 30.0% federal income tax brackets, respectively.4

What adjustments did you make in portfolio duration and quality during the reporting period?

With the U.S. economy still struggling, but poised for a breakout in growth in the next six months, we expect that the Fed's next move will be to push short-term interest rates higher. With this in mind, we shortened the duration of the fund from 2.10 years to 1.80 years over the reporting period.5 Because higher coupon, lower duration and credit spread products tend to perform best during economic recoveries, new purchases have concentrated on those attributes. We continued to emphasize quality and liquidity in many of our purchase decisions. We continue to find good yield value in the electric utility and healthcare markets, adding to these sectors as well as to insured bonds.

2 Lipper figures represent the average of the total returns reported by all of the mutual funds designated by Lipper, Inc. as falling into the category indicated. These figures do not take sales charges into account.

3 The 30-day SEC yield is calculated by dividing the net investment income per share for the prior 30 days by the maximum offering price per share on that date. The figure is compounded and annualized.

4 The tax-equivalent yield is calculated similarly to the yield but is adjusted to reflect the taxable yield that the fund would have to earn to equal its actual yield.

5 Duration is a measure of a security's price sensitivity to changes in interest rates. Securities with longer durations are more sensitive to changes in interest rates than securities of shorter duration.

What do you foresee for the rest of 2002?

The combination of slow growth and subdued inflation reinforces a growing view among economists that the U.S. recovery is weak enough to keep central bankers from raising interest rates until possibly very late in 2002 or early 2003. With short-term interest rates at historic lows, we expect that any signs of an economic recovery will exert upward pressure on interest rates, even before the Fed makes a move. Accordingly, we have positioned the fund's duration toward a neutral stance, with an eye toward further shortening as the economy recovers.

Portfolio of Investments

May 31, 2002 (unaudited)

Principal
Amount

  

  

Credit
Rating

1

Value

 

 

 

LONG-TERM MUNICIPALS--88.2%2

 

 

  

 

 

Alabama--2.4%

$

652,021

3

Birmingham, AL, Fire Equipment Lease Obligation No. 1, 5.60%, 11/5/2004

   

NR

   

$

676,576

   

405,000

   

Huntsville, AL, Health Care Authority, Revenue Bonds, (Series 2002A), 5.25% (Huntsville Hospital System), 6/1/2005

   

NR/A2

   

   

423,513

   

945,000

   

Huntsville, AL, Health Care Authority, Revenue Bonds, (Series 2002A), 5.25% (Huntsville Hospital System), 6/1/2006

   

NR/A2

   

   

992,004

   

2,000,000

   

Mobile, AL, IDB, (Series 1994A), 3.75% TOBs (International Paper Co.), Mandatory Tender 6/1/2002

   

BBB/Baa2

   

   

2,015,920

   

   

   

TOTAL

   

   

   

   

4,108,013

   

   

   

Alaska--2.1%

   

   

   

   

   

   

75,000

   

Alaska Industrial Development and Export Authority, Power Revenue Bonds, (First Series), 4.75% (Snettisham Hydroelectric Project), 1/1/2003

   

AAA/NR

   

   

76,231

   

2,500,000

   

Valdez, AK, Marine Terminal, (Series 1994B), 3.10% TOBs (Arco Transportation Alaska, Inc.), Optional Tender 1/1/2003

   

BBB+/A3

   

   

2,502,750

   

1,000,000

   

Valdez, AK, Marine Terminal, (Series 1994C), 2.90% TOBs (Phillips Transportation Alaska, Inc.)/(Phillips Petroleum Co. GTD), Optional Tender 1/1/2003

   

BBB+/A3

   

   

996,660

   

   

   

TOTAL

   

   

   

   

3,575,641

   

   

   

Arizona--2.9%

   

   

   

   

   

   

2,000,000

   

Maricopa County, AZ, Pollution Control Corp., Refunding Revenue Bonds, (Series 1994B), 3.30% TOBs (Arizona Public Service Co.), Mandatory Tender 11/1/2002

   

BBB/NR

   

   

1,992,200

   

500,000

   

Maricopa County, AZ, Pollution Control Corp., Refunding Revenue Bonds, (Series 1994E), 3.75% TOBs (Arizona Public Service Co.), Mandatory Tender 4/8/2003

   

BBB/P-1

   

   

500,150

   

2,500,000

   

Salt River Project, AZ, Agricultural Improvement & Power District, Electric System Refunding Revenue Bonds, (Series 2001A), 5.00%, 1/1/2004

   

AA/Aa2

   

   

2,609,300

   

   

   

TOTAL

   

   

   

   

5,101,650

   

   

   

Arkansas--0.3%

   

   

   

   

   

   

500,000

   

Arkansas Development Finance Authority, Exempt Facilities Revenue Bonds, 3.50% TOBs (Waste Management, Inc.), Mandatory Tender 8/1/2002

   

BBB/NR

   

   

499,800

Principal
Amount

  

  

Credit
Rating

1

Value

 

 

 

LONG-TERM MUNICIPALS--continued2

 

 

  

 

 

   

   

   

California--0.8%

   

   

   

   

   

$ 

1,000,000

   

California Statewide Communities Development Authority, Solid Waste Facilities Disposal Revenue Bonds, 4.95% TOBs (Waste Management, Inc.), Mandatory Tender 4/1/2004

   

BBB/NR

   

$ 

1,013,660

   

315,000

   

Delta Counties, CA, Home Mortgage Finance Authority, SFM Revenue Bonds, (Series 1998A), 4.85% (MBIA INS), 12/1/2008

   

AAA/Aaa

   

   

324,015

   

   

   

TOTAL

   

   

   

   

1,337,675

   

   

   

Colorado--1.7%

   

   

   

   

   

   

785,000

   

Colorado HFA, SFM Program Senior Bonds, (Series 1998C-1), 4.70%, 5/1/2020

   

NR/Aa2

   

   

793,093

   

190,000

   

Colorado HFA, SFM Revenue Bonds, (Series C-1), 7.65%, 12/1/2025

   

NR/Aa2

   

   

199,171

   

1,000,000

   

Colorado HFA, Revenue Bonds, 4.00% (Catholic Health Initiatives), 9/1/2004

   

AA-/Aa3

   

   

1,026,350

   

215,000

   

Denver, CO, Health & Hospital Authority, Healthcare Revenue Bonds, (Series 2001A), 5.00%, 12/1/2004

   

BBB+/Baa2

   

   

220,556

   

305,000

   

Denver, CO, Health & Hospital Authority, Healthcare Revenue Bonds, (Series 2001A), 5.25%, 12/1/2005

   

BBB+/Baa2

   

   

316,157

   

140,000

   

Denver, CO, Health & Hospital Authority, Healthcare Revenue Bonds, (Series 2001A), 5.25%, 12/1/2006

   

BBB+/Baa2

   

   

145,593

   

200,000

   

Denver, CO, Health & Hospital Authority, Healthcare Revenue Bonds, (Series 2001A), 5.25%, 12/1/2007

   

BBB+/Baa2

   

   

206,892

   

   

   

TOTAL

   

   

   

   

2,907,812

   

   

   

Florida--4.9%

   

   

   

   

   

   

4,420,000

   

Florida State Board of Education Lottery, Revenue Bonds, (Series 2002A), 5.50% (FGIC INS), 7/1/2004

   

AAA/Aaa

   

   

4,709,289

   

1,000,000

   

Lee County, FL, School Board Refunding Certificate of Participation, (Series 1996A), 4.60% (Original Issue Yield: 4.65%), 8/1/2004

   

AAA/Aaa

   

   

1,048,100

   

500,000

   

Miami Beach, FL, Health Facilities Authority, Hospital Revenue Bonds, (Series 2001B), 5.50% TOBs (Mt. Sinai Medical Center, FL) 5/15/2005

   

BB/Ba3

   

   

468,265

   

1,680,000

   

Palm Beach County, FL, Health Facilities Authority, Hospital Refunding Revenue Bonds, (Series 2001), 5.00% (Bacon Ration Community Hospital, Inc.), 12/1/2005

   

A+/NR

   

   

1,772,702

   

420,000

   

Pinellas County, FL, HFA, SFM Revenue Bonds, (Series C), 6.45% (GNMA COL), 3/1/2029

   

NR/Aaa

   

   

424,402

   

   

   

TOTAL

   

   

   

   

8,422,758

Principal
Amount

  

  

Credit
Rating

1

Value

 

 

 

LONG-TERM MUNICIPALS--continued2

 

 

  

 

 

   

   

   

Georgia--1.8%

   

   

   

   

   

$ 

1,300,000

   

Atlanta, GA, GO UT Bonds, (Series 2001A/B), 4.50%, (MBIA INS), 12/1/2004

   

AAA/Aaa

   

$ 

1,369,810

   

1,700,000

   

Decatur County-Bainbridge, GA IDA, Revenue Bonds, 4.00% TOBs (John B. Sanifilippo & Son)/(Lasalle Bank, N.A. LOC), Mandatory Tender 6/1/2002

   

AA-/NR

   

   

1,704,658

   

   

   

TOTAL

   

   

   

   

3,074,468

   

   

   

Hawaii--0.6%

   

   

   

   

   

   

1,025,000

   

Hawaii State Department of Budget & Finance, Special Purpose Revenue Bonds, 4.65% (G.N. Wilcox Memorial Hospital), 7/1/2003

   

BBB+/Baa1

   

   

1,039,524

   

   

   

Idaho--1.1%

   

   

   

   

   

   

390,000

   

Idaho Health Facilities Authority, Hospital Revenue Bonds, (Series 1998), 4.50% (Idaho Elks Rehabilitation Hospital)/(Original Issue Yield: 4.55%), 7/15/2002

   

BBB/NR

   

   

390,640

   

225,000

   

Idaho Health Facilities Authority, Hospital Revenue Bonds, (Series 1998), 4.70% (Idaho Elks Rehabilitation Hospital)/(Original Issue Yield: 4.75%), 7/15/2004

   

BBB/NR

   

   

229,248

   

1,295,000

   

Idaho Housing Agency, SFM Bonds, (Series B-2), 4.65%, 7/1/2028

   

NR/Aaa

   

   

1,318,401

   

   

   

TOTAL

   

   

   

   

1,938,289

   

   

   

Illinois--3.1%

   

   

   

   

   

   

1,730,000

   

Broadview, IL, Tax Increment Financing Revenue Bonds, 4.60%, 7/1/2004

   

NR

   

   

1,763,372

   

465,000

   

Chicago, IL, SFM Revenue Bonds, (Series 1997B), 5.10% (GNMA COL), 9/1/2007

   

NR/Aaa

   

   

478,983

   

70,000

   

Chicago, IL, SFM Revenue Bonds, (Series A-1), 4.85% (GNMA COL), 3/1/2015

   

NR/Aaa

   

   

71,758

   

295,000

   

Illinois Development Finance Authority, Mortgage Refunding Revenue Bonds, (Series 1997A), 5.20% (MBIA INS), 7/1/2008

   

NR/Aaa

   

   

311,007

   

575,000

   

Illinois Development Finance Authority, (Series 1995), Revenue Bonds, 5.80% (Catholic Charities Housing Development Corp.), 1/1/2007

   

NR

   

   

570,756

   

2,000,000

   

Illinois Health Facilities Authority, Revenue Bonds, 5.25% (Advocate Health Care Network)/(Original Issue Yield: 5.33%), 11/15/2006

   

AA/A1

   

   

2,120,580

   

   

   

TOTAL

   

   

   

   

5,316,456

Principal
Amount

  

  

Credit
Rating

1

Value

 

 

 

LONG-TERM MUNICIPALS--continued2

 

 

  

 

 

   

   

   

Indiana--4.3%

   

   

   

   

   

$ 

2,000,000

   

Huntington County, IN, Community School Corp., 3.00% TANs, 12/27/2002

   

NR

   

$ 

2,005,860

   

1,000,000

   

Indiana Development Finance Authority, PCR Refunding Revenue Bonds, (Series 1998A), 4.75% TOBs (Southern Indiana Gas & Electric Co.), Optional Tender 3/1/2006

   

BBB+/A2

   

   

1,001,620

   

500,000

   

Indiana Development Finance Authority, Solid Waste Disposal Revenue Bonds, 3.50% TOBs (Waste Management, Inc.), Mandatory Tender 10/1/2002

   

BBB/NR

   

   

499,695

   

1,260,000

   

Indiana Health Facility Financing Authority, Health System Revenue Bonds, (Series 2001), 5.00% (Sisters of St. Francis Health Services, Inc.), 11/1/2005

   

NR/Aa3

   

   

1,326,604

   

725,000

   

Indiana Health Facility Financing Authority, Hospital Refunding Revenue Bonds, (Series 1996), 5.625% (Hancock Memorial Hospital and Health Services), 8/15/2002

   

BBB+/NR

   

   

728,292

   

845,000

   

Indiana Health Facility Financing Authority, Hospital Refunding Revenue Bonds, 4.50% (Floyd Memorial Hospital, IN)/(Original Issue Yield: 4.53%), 2/15/2005

   

A/NR

   

   

859,593

   

725,000

   

Indiana Health Facility Financing Authority, Hospital Revenue Bonds, (Series 2001A), 5.50% (Community Foundation of Northwest Indiana), 8/1/2005

   

BBB-/NR

   

   

746,496

   

225,000

   

Marion County, IN, Hospital Authority, Hospital Facility Refunding Revenue Bonds, 6.50% (Methodist Hospital of Indiana)/(Original Issue Yield: 7.374%), 9/1/2008

   

AAA/Aa3

   

   

229,732

   

   

   

TOTAL

   

   

   

   

7,397,892

   

   

   

Iowa--1.1%

   

   

   

   

   

   

1,815,000

   

Iowa Finance Authority, Iowa State Revolving Fund, (Series 2001A), 4.75%, 2/1/2005

   

AAA/Aaa

   

   

1,907,746

   

   

   

Kansas--4.1%

   

   

   

   

   

   

1,000,000

   

Burlington, KS, (Series B), 3.25% TOBs (Kansas City Power And Light Co.), Optional Tender 8/30/2002

   

BBB/A2

   

   

1,001,690

   

2,465,000

   

Johnson County, KS, Unified School District No. 233, Refunding GO UT, 5.00%, 3/1/2005

   

AAA/Aaa

   

   

2,610,706

   

1,155,000

   

Kansas Development Finance Authority, Revenue Bonds, 5.50% (Sisters of Charity, Leavenworth)/ (MBIA INS), 12/1/2005

   

AAA/Aaa

   

   

1,251,858

   

1,000,000

   

La Cygne, KS, Environmental Improvement Refunding Revenue Bonds, 3.90% TOBs (Kansas City Power And Light Co.), Mandatory Tender 9/1/2004

   

BBB/A1

   

   

1,010,920

Principal
Amount

  

  

Credit
Rating

1

Value

 

 

 

LONG-TERM MUNICIPALS--continued2

 

 

  

 

 

Kansas--continued

$ 

370,000

   

Newton, KS, Hospital Refunding Revenue Bonds, (Series 1998), 4.80% (Newton Healthcare Corp.)/(Original Issue Yield: 4.90%), 11/15/2003

   

BBB-/NR

   

$ 

374,259

   

825,000

   

Sedgwick & Shawnee Counties, KS, SFM Revenue Bonds, Mortgage-Backed Securities Program, (Series 1998 A-1), 5.00% (GNMA COL), 6/1/2013

   

NR/Aaa

   

   

853,157

   

   

   

TOTAL

   

   

   

   

7,102,590

   

   

   

Kentucky--0.5%

   

   

   

   

   

   

875,000

   

Kentucky EDFA, Revenue Bonds, 4.00% (Catholic Health Initiatives), 9/1/2004

   

AA-/Aa3

   

   

898,826

   

   

   

Louisiana--2.9%

   

   

   

   

   

   

1,000,000

   

Calcasieu Parish, LA, PCR Refunding Revenue Bonds, (Series 2001), 4.80% (Occidental Petroleum Corp.), 12/1/2006

   

BBB/Baa2

   

   

1,030,610

   

1,000,000

   

St. Charles Parish, LA, PCR Refunding Revenue Bonds, (Series 1999C), 5.35% TOBs (Entergy Louisiana, Inc.), Mandatory Tender 10/1/2003

   

BBB-/Baa3

   

   

1,014,700

   

3,000,000

   

St. Charles Parish, LA, PCR Refunding Revenue Bonds, (Series 1999A), 4.85% TOBs (Entergy Louisiana, Inc.), Mandatory Tender 10/1/2003

   

BBB-/Baa3

   

   

3,002,490

   

   

   

TOTAL

   

   

   

   

5,047,800

   

   

   

Maryland--0.5%

   

   

   

   

   

   

850,000

   

Prince Georges County, MD, IDRB, (Series 1993), 4.25% TOBs (International Paper Co.), Optional Tender 7/15/2002

   

BBB/Baa2

   

   

850,110

   

   

   

Massachusetts--3.1%

   

   

   

   

   

   

2,000,000

   

Massachusetts HEFA, Revenue Bonds, (Series 1999A), 5.25% (Caritas Christi Obligated Group), 7/1/2004

   

BBB/Baa2

   

   

2,053,460

   

1,115,000

   

Massachusetts HEFA, Revenue Bonds, (Series C), 5.00% (Milton Hospital, Inc.), 7/1/2005

   

BBB+/NR

   

   

1,161,629

   

1,090,000

   

Massachusetts Municipal Wholesale Electric Co., Power Supply Project Revenue Bonds, Nuclear Project 5-A, 5.00% (MBIA INS), 7/1/2004

   

AAA/Aaa

   

   

1,148,032

   

1,000,000

   

Massachusetts Municipal Wholesale Electric Co., Power Supply Project Revenue Bonds, Stony Brook Intermediate Project, 5.00% (MBIA INS), 7/1/2004

   

AAA/Aaa

   

   

1,053,240

   

   

   

TOTAL

   

   

   

   

5,416,361

Principal
Amount

  

  

Credit
Rating

1

Value

 

 

 

LONG-TERM MUNICIPALS--continued2

 

 

  

 

 

   

   

   

Michigan--1.0%

   

   

   

   

   

$ 

250,000

   

Michigan State Hospital Finance Authority, Hospital Refunding Revenue Bonds, 5.00% (Edward W. Sparrow Hospital), 11/15/2003

   

A/A1

   

$ 

258,305

   

500,000

   

Michigan State Hospital Finance Authority, Hospital Refunding Revenue Bonds, 5.00% (Edward W. Sparrow Hospital), 11/15/2004

   

A/A1

   

   

523,955

   

1,000,000

   

Michigan Strategic Fund, Exempt Facilities, Revenue Bonds, 4.20% TOBs (Waste Management, Inc.), Mandatory Tender 8/1/2004

   

BBB/NR

   

   

1,000,530

   

   

   

TOTAL

   

   

   

   

1,782,790

   

   

   

Minnesota--0.8%

   

   

   

   

   

   

1,500,000

   

Maplewood, MN, Health Care Facility Revenue Bonds, (Series 1996), 5.95% (Healtheast, MN), 11/15/2006

   

BB-/Ba2

   

   

1,399,815

   

   

   

Missouri--0.8%

   

   

   

   

   

   

115,000

   

Kansas City, MO, IDA, PCR Bonds, 6.05% (General Motors Corp.), 4/1/2006

   

A/A3

   

   

115,079

   

450,000

   

West Plains, MO, IDA, Hospital Revenue Bonds, 4.70% (Ozarks Medical Center)/(Original Issue Yield: 4.80%), 11/15/2002

   

BB+/NR

   

   

450,409

   

440,000

   

West Plains, MO, IDA, Hospital Revenue Bonds, 4.85% (Ozarks Medical Center)/(Original Issue Yield: 4.95%), 11/15/2003

   

BB+/NR

   

   

441,047

   

425,000

   

West Plains, MO, IDA, Hospital Revenue Bonds, 5.05% (Ozarks Medical Center)/(Original Issue Yield: 5.125%), 11/15/2005

   

BB+/NR

   

   

420,750

   

   

   

TOTAL

   

   

   

   

1,427,285

   

   

   

Nebraska--0.3%

   

   

   

   

   

   

555,217

3,4

Energy America, NE, Gas Supply Revenue Bonds, (Series 1998B), 5.10% (Nebraska Public Gas Agency), 10/15/2005

   

NR

   

   

543,958

   

   

   

New Hampshire--1.2%

   

   

   

   

   

   

2,000,000

   

New Hampshire State Business Finance Authority, PCR Refunding Bonds, 4.55% TOBs (United Illuminating Co.), Mandatory Tender 2/1/2004

   

NR/A3

   

   

2,022,300

   

   

   

New York--5.9%

   

   

   

   

   

   

1,000,000

   

New York City, NY, GO UT, (Series D), 5.00%, 8/1/2006

   

A/A2

   

   

1,057,360

   

1,000,000

   

New York City, NY, GO UT, (Series E), 5.00%, 8/1/2007

   

A/A2

   

   

1,054,470

   

1,000,000

   

New York City, NY, GO UT, (Series F), 5.00%, 8/1/2007

   

A/A2

   

   

1,054,470

   

1,000,000

   

New York City, NY, GO UT, (Series F), 5.00%, 8/1/2008

   

A/A2

   

   

1,047,380

Principal
Amount

  

  

Credit
Rating

1

Value

 

 

 

LONG-TERM MUNICIPALS--continued2

 

 

  

 

 

New York--continued

$ 

5,000,000

   

New York State Dormitory Authority, Revenue Bonds, 5.25% (State University of New York), 5/15/2004

   

AA-/A3

   

$ 

5,281,400

   

785,000

   

New York State Mortgage Agency, Homeowner Mortgage Revenue Bonds, (Series 71), 4.75%, 10/1/2021

   

NR/Aa1

   

   

803,440

   

   

   

TOTAL

   

   

   

   

10,298,520

   

   

   

North Carolina--2.1%

   

   

   

   

   

   

1,000,000

   

North Carolina Eastern Municipal Power Agency, Refunding Revenue Bonds, (Series C), 5.125% (Original Issue Yield: 5.25%), 1/1/2003

   

BBB/Baa3

   

   

1,015,320

   

1,500,000

   

North Carolina Eastern Municipal Power Agency, Refunding Revenue Bonds, (Series C), 5.25% (Original Issue Yield: 5.40%), 1/1/2004

   

BBB/Baa3

   

   

1,548,480

   

1,130,000

   

North Carolina HFA, SFM Revenue Bonds, (Series 1997TT), 4.90%, 9/1/2024

   

AA/Aa2

   

   

1,145,266

   

   

   

TOTAL

   

   

   

   

3,709,066

   

   

   

North Dakota--1.1%

   

   

   

   

   

   

1,220,000

   

North Dakota State HFA, Housing Finance Program Bonds, (Series 1997C), 4.70%, 1/1/2022

   

NR/Aa3

   

   

1,245,461

   

570,000

   

North Dakota State HFA, Housing Finance Program Bonds, (Series 1998A), 4.60%, 1/1/2023

   

NR/Aa3

   

   

581,799

   

   

   

TOTAL

   

   

   

   

1,827,260

   

   

   

Ohio--5.9%

   

   

   

   

   

   

315,000

   

Franklin County, OH, Health Care Facilities, Refunding Revenue Bonds, 4.80% (Ohio Presbyterian Retirement Services)/(Original Issue Yield: 4.90%), 7/1/2003

   

NR

   

   

317,003

   

460,000

   

Franklin County, OH, Health Care Facilities, Refunding Revenue Bonds, 5.00% (Ohio Presbyterian Retirement Services), 7/1/2004

   

NR

   

   

464,963

   

3,000,000

   

Hamilton County, OH, Local Cooling Facilities Revenue Bonds, (Series 1998), 4.90% TOBs (Trigen-Cinergy Solutions of Cincinnati LLC)/(Cinergy Corp. GTD), Mandatory Tender 6/1/2004

   

BBB+/Baa2

   

   

3,031,860

   

1,000,000

   

Minerva, OH, Local School District, 2.94% BANs, 8/22/2002

   

NR

   

   

1,001,520

   

365,000

   

Ohio Enterprise Bond Fund, (Series 1995-3), State EDRB, 5.60% (Smith Steelite), 12/1/2003

   

A-/NR

   

   

379,549

   

920,000

   

Ohio HFA, Residential Mortgage Revenue Bonds, (Series 1998A-1), 4.90% (GNMA COL), 9/1/2025

   

AAA/Aaa

   

   

943,856

Principal
Amount

  

  

Credit
Rating

1

Value

 

 

 

LONG-TERM MUNICIPALS--continued2

 

 

  

 

 

Ohio--continued

$ 

2,000,000

   

Ohio State Revenue, Major New State Infrastructure Revenue Bonds, 5.00%, 6/15/2006

   

AA/Aa3

   

$ 

2,142,960

   

1,000,000

   

Ohio State Water Development Authority Pollution Control Facilities, Refunding Revenue Bonds (Series B), 4.40% TOBs (Ohio Edison Co.), Mandatory Tender 12/1/2003

   

BBB-/Baa2

   

   

1,001,440

   

1,000,000

   

Ohio State Water Development Authority, Refunding Facility PCR Bonds, (Series A), 4.30% TOBs (Ohio Edison Co.), Mandatory Tender 6/1/2003

   

BBB-/Baa2

   

   

1,001,070

   

   

   

TOTAL

   

   

   

   

10,284,221

   

   

   

Oklahoma--1.2%

   

   

   

   

   

   

1,000,000

   

Tulsa County, OK, International Airport, General Revenue Bonds, 5.00% (FGIC INS), 6/1/2003

   

AAA/Aaa

   

   

1,027,900

   

1,000,000

   

Tulsa County, OK, International Airport, General Revenue Bonds, 5.00% (FGIC INS), 6/1/2004

   

AAA/Aaa

   

   

1,044,790

   

   

   

TOTAL

   

   

   

   

2,072,690

   

   

   

Oregon--0.6%

   

   

   

   

   

   

1,000,000

   

Clackamas County, OR, Hospital Facilities Authority, Refunding Revenue Bonds, (Series 2001), 5.00% (Legacy Health System), 5/1/2006

   

AA/Aa3

   

   

1,057,990

   

   

   

Pennsylvania--8.9%

   

   

   

   

   

   

850,000

   

Clarion County, PA, Hospital Authority, Refunding Revenue Bonds, (Series 1997), 5.00% (Clarion County Hospital), 7/1/2002

   

BBB-/NR

   

   

850,603

   

1,020,000

   

Commonwealth of Pennsylvania, GO UT, (Second Series), 5.25%, 10/15/2006

   

AA/Aa2

   

   

1,108,679

   

1,420,000

   

Erie County, PA, GO UT, 5.25% (AMBAC INS), 9/1/2004

   

AAA/Aaa

   

   

1,512,612

   

830,000

   

Grove City Area Hospital Authority, Hospital Revenue Bonds, (Series 1998), 4.50% (United Community Hospital)/(Original Issue Yield: 4.60%), 7/1/2003

   

BBB/NR

   

   

832,017

   

220,000

   

Jeannette Health Services Authority, PA, Hospital Revenue Bonds, (Series 1996A), 5.15% (Jeannette District Memorial Hospital)/(Original Issue Yield: 5.30%), 11/1/2002

   

BBB+/NR

   

   

221,045

   

1,000,000

   

Montgomery County, PA, IDA, PCR Refunding Bonds, (Series 1999A), 5.20% TOBs (Peco Energy Co.), Mandatory Tender 10/1/2004

   

BBB+/A3

   

   

1,026,650

   

2,000,000

   

Montgomery County, PA, IDA, PCR Refunding Bonds, (Series 1999B), 5.30% TOBs (Peco Energy Co.), Mandatory Tender 10/1/2004

   

BBB+/A3

   

   

2,057,700

Principal
Amount

  

  

Credit
Rating

1

Value

 

 

 

LONG-TERM MUNICIPALS--continued2

 

 

  

 

 

Pennsylvania--continued

$ 

315,000

   

Pennsylvania EDFA, Exempt Facilities Revenue Bonds, (Series 2001A), 6.00% (Amtrak), 11/1/2005

   

BBB/A3

   

$ 

333,220

   

1,200,000

   

Pennsylvania EDFA, Resource Recovery Refunding Revenue Bonds, (Series B), 6.75% (Northampton Generating), 1/1/2007

   

BBB-/NR

   

   

1,233,492

   

2,000,000

   

Pennsylvania State Higher Education Assistance Agency, (Series 2002A), 2.35% TOBs (FSA INS)/(Bayerische Landesbank Girozentrale, Lloyds TSB Bank PLC, London, State Street Bank and Trust Co. and Westdeutsche Landesbank Girozentrale LIQ), Optional Tender 7/1/2003

   

AAA/Aaa

   

   

2,009,580

   

1,005,000

   

Pennsylvania State Higher Education Facilities Authority, Revenue Bonds, (Series 2001A), 5.75% (UPMC Health System), 1/15/2008

   

A+/NR

   

   

1,069,039

   

435,000

   

Philadelphia, PA, IDA, Revenue Bonds, 4.55% (Franklin Institute), 6/15/2003

   

NR/Baa2

   

   

442,773

   

785,000

   

Sayre, PA, Health Care Facilities Authority, Revenue Bonds, (Series 2002A), 4.50% (Guthrie Healthcare System, PA), 12/1/2003

   

A-/NR

   

   

805,551

   

1,400,000

   

Sayre, PA, Health Care Facilities Authority, Revenue Bonds, (Series 2002A), 5.50% (Guthrie Healthcare System, PA), 12/1/2004

   

A-/NR

   

   

1,481,102

   

415,000

   

Scranton-Lackawanna, PA, Health & Welfare Authority, Revenue Bonds, (Series A), 7.125% (Allied Services Rehabilitation Hospitals, PA), 7/15/2005

   

NR

   

   

434,410

   

   

   

TOTAL

   

   

   

   

15,418,473

   

   

   

Rhode Island--0.6%

   

   

   

   

   

   

1,000,000

   

Cranston, RI, 3.75% BANs, 11/14/2002

   

NR

   

   

1,002,460

   

   

   

South Carolina--1.8%

   

   

   

   

   

   

2,000,000

   

Piedmont Municipal Power Agency, SC, Refunding Electric Revenue Bonds, (Series 2002A), 5.00%, 1/1/2005

   

AAA/Aaa

   

   

2,105,040

   

1,000,000

   

South Carolina Jobs EDA, Hospital Facilities Improvement Revenue Bonds, (Series 2000A), 7.00% (Palmetto Health Alliance), 12/15/2004

   

BBB/Baa2

   

   

1,049,560

   

   

   

TOTAL

   

   

   

   

3,154,600

   

   

   

South Dakota--0.7%

   

   

   

   

   

   

1,255,000

   

South Dakota State Health & Educational Authority, Revenue Bonds, 4.50% (AMBAC INS)/(Avera Mckennan), 7/1/2005

   

AAA/Aaa

   

   

1,309,078

Principal
Amount

  

  

Credit
Rating

1

Value

 

 

 

LONG-TERM MUNICIPALS--continued2

 

 

  

 

 

   

   

   

Tennessee--2.0%

   

   

   

   

   

$ 

300,000

   

Clarksville, TN, Natural Gas Acquisition Corp., Gas Refunding Revenue Bonds, 4.00% (Dominion Resources, Inc.), 11/1/2002

   

BBB+/NR

   

$ 

301,458

   

400,000

   

Clarksville, TN, Natural Gas Acquisition Corp., Gas Refunding Revenue Bonds, 4.50% (Dominion Resources, Inc.), 5/1/2003

   

BBB+/NR

   

   

405,520

   

400,000

   

Clarksville, TN, Natural Gas Acquisition Corp., Gas Refunding Revenue Bonds, 5.00% (Dominion Resources, Inc.), 11/1/2003

   

BBB+/NR

   

   

409,424

   

585,000

   

Montgomery County, TN, HEFA Board, Hospital Refunding Revenue Bonds, 4.50% (Clarksville Regional Hospital)/ (Original Issue Yield: 4.60%), 1/1/2003

   

BBB/Baa2

   

   

588,317

   

915,000

   

Montgomery County, TN, HEFA Board, Hospital Refunding Revenue Bonds, 4.55% (Clarksville Regional Hospital)/ (Original Issue Yield: 4.65%), 1/1/2004

   

BBB/Baa2

   

   

928,451

   

730,000

   

Montgomery County, TN, HEFA Board, Hospital Refunding Revenue Bonds, 4.65% (Clarksville Regional Hospital)/ (Original Issue Yield: 4.75%), 1/1/2005

   

BBB/Baa2

   

   

743,936

   

   

   

TOTAL

   

   

   

   

3,377,106

   

   

   

Texas--7.6%

   

   

   

   

   

   

2,000,000

   

Brazos River Authority, TX, Refunding Revenue Bonds, (Series A), 4.95% TOBs (Texas Utilities Electric Co.), Mandatory Tender 4/1/2004

   

BBB/Baa1

   

   

2,027,860

   

1,000,000

   

Dallas-Fort Worth, TX, International Airport Facility Improvement Corp., Refunding Revenue Bonds, (Series 2000B), 6.05% TOBs (American Airlines, Inc.), Mandatory Tender 11/1/2005

   

BB/B1

   

   

946,560

   

1,000,000

   

Gulf Coast, TX, Waste Disposal Authority, Environmental Facilities Refunding Revenue Bonds, 4.20% (Occidental Petroleum Corp.), 11/1/2006

   

BBB/Baa2

   

   

992,610

   

3,000,000

   

Matagorda County, TX, Navigation District No. 1, PCR Refunding Bonds, (Series 1999A), 3.75% TOBs (Central Power & Light Co.), Mandatory Tender 11/1/2003

   

BBB+/Baa1

   

   

2,993,790

   

750,000

   

Sabine River Authority, TX, PCR Refunding Revenue Bonds, (Series 2001C), 4.00% TOBs (Texas Utilities Electric Co.), Mandatory Tender 11/1/2003

   

BBB+/Baa2

   

   

753,060

   

2,000,000

   

San Antonio, TX Electric & Gas, Refunding Revenue Bonds, 5.00%, 2/1/2004

   

AA/Aa1

   

   

2,089,680

   

1,675,000

   

Texas State Public Finance Authority, Revenue Financing System Bonds, (Series 2002), 4.50% (MBIA INS)/(Texas Southern University), 11/1/2005

   

NR/Aaa

   

   

1,764,612

   

1,500,000

   

Texas Water Development Board, State Revolving Fund Revenue Bonds, (Series B), 5.50%, 7/15/2007

   

AAA/Aaa

   

   

1,645,695

   

   

   

TOTAL

   

   

   

   

13,213,867

Principal
Amount

  

  

Credit
Rating

1

Value

 

 

 

LONG-TERM MUNICIPALS--continued2

 

 

  

 

 

   

   

   

Utah--0.5%

   

   

   

   

   

$ 

735,000

   

Intermountain Power Agency, UT, Power Supply Refunding Revenue Bonds, (Series B), 6.00% (MBIA INS), 7/1/2006

   

AAA/Aaa

   

$ 

813,910

   

   

   

Virginia--1.1%

   

   

   

   

   

   

1,000,000

   

Louisa, VA, IDA, Solid Waste & Sewage Disposal Revenue Bonds, (Series 2000A), 3.15% TOBs (Virginia Electric & Power Co.), Mandatory Tender 4/1/2003

   

A-/A3

   

   

1,000,540

   

1,000,000

   

Louisa, VA, IDA, Solid Waste & Sewage Disposal Revenue Bonds, (Series 2001A), 3.40% TOBs (Virginia Electric & Power Co.), Mandatory Tender 3/1/2004

   

NR/A3

   

   

994,250

   

   

   

TOTAL

   

   

   

   

1,994,790

   

   

   

Washington--2.5%

   

   

   

   

   

   

2,035,000

   

Washington State, Refunding GO UT, (Series R-2000A), 5.00%, 1/1/2005

   

AA+/Aa1

   

   

2,146,030

   

2,000,000

   

Washington State, Refunding GO UT, 5.25%, 9/1/2005

   

AA+/Aa1

   

   

2,148,220

   

   

   

TOTAL

   

   

   

   

4,294,250

   

   

   

Wisconsin--2.5%

   

   

   

   

   

   

1,900,000

   

Douglas County, WI, GO UT Bonds, 2.75% BANs, 12/1/2002

   

NR

   

   

1,905,605

   

1,030,000

   

Green Bay, WI, Area Public School District, Refunding GO UT, 5.10%, 4/1/2007

   

NR/Aa2

   

   

1,092,573

   

1,245,000

   

Wisconsin State HEFA, Refunding Revenue Bonds, 5.00% (Wheaton Franciscan Services), 8/15/2005

   

A/A2

   

   

1,304,685

   

   

   

TOTAL

   

   

   

   

4,302,863

   

   

   

Wyoming--0.9%

   

   

   

   

   

   

1,500,000

   

Albany County, WY, PCR Bonds, 3.30% TOBs (Union Pacific Railroad Co.), 12/1/2015

   

BBB/NR

   

   

1,517,070

   

   

   

TOTAL LONG-TERM MUNICIPALS (IDENTIFIED COST $151,468,335)

   

   

   

   

152,767,773

   

   

   

SHORT-TERM MUNICIPALS--12.1%

   

   

   

   

   

   

   

   

Arizona--2.5%

   

   

   

   

   

   

2,000,000

   

Maricopa County, AZ, IDA, 2.15% CP (American Water Capital Corp.), Mandatory Tender 6/3/2002

   

BBB+/Baa1

   

   

2,000,000

   

1,200,000

   

Prescott, AZ, IDA, (Series A), Monthly VRDNs (Prescott Convention Center, Inc.)/(Household Finance Corp. GTD)

   

A-1/NR

   

   

1,200,000

   

1,200,000

   

Prescott, AZ, IDA, (Series B), Monthly VRDNs (Prescott Convention Center, Inc.)/(Household Finance Corp. GTD)

   

A-1/NR

   

   

1,200,000

   

   

   

TOTAL

   

   

   

   

4,400,000

Principal
Amount

  

  

Credit
Rating

1

Value

 

 

 

SHORT-TERM MUNICIPALS--continued

 

 

  

 

 

   

   

   

California--1.7%

   

   

   

   

   

$ 

3,000,000

   

California State, Trust Receipts, (2000 FR/RI-L15), Weekly VRDNs (Lehman Brothers, Inc. LIQ)

   

NR/VMIG1

   

$ 

3,000,000

   

   

   

Idaho--2.9%

   

   

   

   

   

   

5,000,000

   

Boise, ID, Industrial Development Corp., Multi-Mode IDRB, (Series 1998), Weekly VRDNs (Multiquip Inc.)/(Bank of Tokyo-Mitsubishi Ltd. LOC)

   

A-2/NR

   

   

5,000,000

   

   

   

Indiana--0.5%

   

   

   

   

   

   

750,000

   

Indiana Health Facility Financing Authority, (Series 2000B), Daily VRDNs (Clarian Health Partners, Inc.)/(J.P. Morgan Chase Bank LIQ)

   

A-1+/VMIG1

   

   

750,000

   

   

   

North Carolina--1.0%

   

   

   

   

   

   

1,700,000

   

Martin County, NC, IFA, (Series 1993), Weekly VRDNs (Weyerhaeuser Co.)

   

A-2/NR

   

   

1,700,000

   

   

   

Pennsylvania--1.2%

   

   

   

   

   

   

2,000,000

   

Northampton County, PA, IDA, 2.10% CP (American Water Capital Corp.), Mandatory Tender 7/24/2002

   

BBB+/Baa1

   

   

2,000,000

   

   

   

Texas--0.6%

   

   

   

   

   

   

1,100,000

   

Harris County, TX, HFDC, (Series 1994), Daily VRDNs (Methodist Hospital, Harris County, TX)

   

A-1+/NR

   

   

1,100,000

   

   

   

Tennessee--1.7%

   

   

   

   

   

   

3,000,000

   

Carter County, TN, IDB, (Series 1983), Monthly VRDNs (Inland Container Corp.)

   

NR

   

   

3,000,000

   

   

   

TOTAL SHORT-TERM MUNICIPALS (AT AMORTIZED COST)

   

   

   

   

20,950,000

   

   

   

TOTAL INVESTMENTS (IDENTIFIED COST $172,418,335)5

   

   

   

$

173,717,773

1 Please refer to the appendix of the Statement of Additional Information for an explanation of the credit ratings. Current credit ratings are unaudited.

2 At May 31, 2002, 24.8% of the total investments at market value were subject to alternative minimum tax.

3 Denotes a restricted security which is subject to restrictions on resale under federal securities laws. At May 31, 2002, these securities amounted to $1,220,534 which represents 0.7% of net assets. Included in these amounts, a security which has been deemed liquid amounted to $543,958 which represents 0.3% of net assets.

4 Denotes a restricted security that has been deemed liquid by criteria approved by the Fund's Board of Directors.

5 The cost of investments for federal tax purposes amounts to $172,418,335. The net unrealized appreciation of investments on a federal tax basis amounts to $1,299,438, which is comprised of $1,595,968 appreciation and $296,530 depreciation at May 31, 2002.

Note: The categories of investments are shown as a percentage of net assets ($173,088,371) at May 31, 2002.

The following acronyms are used throughout this portfolio:

AMBAC

--American Municipal Bond Assurance Corporation

BANs

--Bond Anticipation Notes

COL

--Collateralized

CP

--Commercial Paper

EDA

--Economic Development Authority

EDFA

--Economic Development Financing Authority

EDRB

--Economic Development Revenue Bond

FGIC

--Financial Guaranty Insurance Company

FSA

--Financial Security Assurance

GNMA

--Government National Mortgage Association

GO

--General Obligation

GTD

--Guaranteed

HEFA

--Health and Education Facilities Authority

HFA

--Housing Finance Authority

HFDC

--Health Facility Development Corporation

IDA

--Industrial Development Authority

IDB

--Industrial Development Bond

IDRB

--Industrial Development Revenue Bond

IFA

--Industrial Finance Authority

INS

--Insured

LIQ

--Liquidity Agreement

LOC

--Letter of Credit

MBIA

--Municipal Bond Investors Assurance

PCR

--Pollution Control Revenue

SFM

--Single Family Mortgage

TANs

--Tax Anticipation Notes

TOBs

--Tender Option Bonds

UT

--Unlimited Tax

VRDNs

--Variable Rate Demand Notes

See Notes which are an integral part of the Financial Statements

Statement of Assets and Liabilities

May 31, 2002 (unaudited)

Assets:

  

   

   

  

   

   

   

Total investments in securities, at value (identified cost $172,418,335)

   

   

   

   

$

173,717,773

   

Cash

   

   

   

   

   

93,836

   

Income receivable

   

   

   

   

   

2,166,924

   

Receivable for investments sold

   

   

   

   

   

1,445,000

   

Receivable for shares sold

   

   

   

   

   

1,050,175

   

TOTAL ASSETS

   

   

   

   

   

178,473,708

   

Liabilities:

   

   

   

   

   

   

   

Payable for investments purchased

   

$

4,701,103

   

   

   

   

Payable for shares redeemed

   

   

243,017

   

   

   

   

Income distribution payable

   

   

381,121

   

   

   

   

Accrued expenses

   

   

60,096

   

   

   

   

TOTAL LIABILITIES

   

   

   

   

   

5,385,337

   

Net assets for 17,718,128 shares outstanding

   

   

   

   

$

173,088,371

   

Net Assets Consist of:

   

   

   

   

   

   

   

Paid in capital

   

   

   

   

$

177,477,981

   

Net unrealized appreciation of investments

   

   

   

   

   

1,299,438

   

Accumulated net realized loss on investments

   

   

   

   

   

(5,770,046

)

Undistributed net investment income

   

   

   

   

   

80,998

   

TOTAL NET ASSETS

   

   

   

   

$

173,088,371

   

Net Asset Value, Offering Price and Redemption Proceeds Per Share

   

   

   

   

   

   

   

Class A Shares:

   

   

   

   

   

   

   

Net asset value per share ($155,933,105 ÷ 15,961,968 shares outstanding)

   

   

   

   

   

$9.77

   

Offering price per share (100/99.00 of $9.77)1

   

   

   

   

   

$9.87

   

Redemption proceeds per share

   

   

   

   

   

$9.77

   

Class F Shares:

   

   

   

   

   

   

   

Net asset value per share ($17,155,266 ÷ 1,756,160 shares outstanding)

   

   

   

   

   

$9.77

   

Offering price per share

   

   

   

   

   

$9.77

   

Redemption proceeds per share (99.00/100 of $9.77)1

   

   

   

   

   

$9.67

   

1 See "What Do Shares Cost?" in the Prospectus.

See Notes which are an integral part of the Financial Statements

Statement of Operations

Six Months Ended May 31, 2002 (unaudited)

Investment Income:

  

   

   

   

  

   

   

   

  

   

   

   

Interest

   

   

   

   

   

   

   

   

   

$

3,076,186

   

Expenses:

   

   

   

   

   

   

   

   

   

   

   

   

Investment adviser fee

   

   

   

   

   

$

332,860

   

   

   

   

   

Administrative personnel and services fee

   

   

   

   

   

   

77,287

   

   

   

   

   

Custodian fees

   

   

   

   

   

   

5,709

   

   

   

   

   

Transfer and dividend disbursing agent fees and expenses

   

   

   

   

   

   

26,571

   

   

   

   

   

Directors'/Trustees' fees

   

   

   

   

   

   

1,455

   

   

   

   

   

Auditing fees

   

   

   

   

   

   

10,457

   

   

   

   

   

Legal fees

   

   

   

   

   

   

2,873

   

   

   

   

   

Portfolio accounting fees

   

   

   

   

   

   

35,659

   

   

   

   

   

Distribution services fee--Class A Shares

   

   

   

   

   

   

184,908

   

   

   

   

   

Distribution services fee--Class F Shares

   

   

   

   

   

   

13,878

   

   

   

   

   

Shareholder services fee--Class A Shares

   

   

   

   

   

   

184,908

   

   

   

   

   

Shareholder services fee--Class F Shares

   

   

   

   

   

   

23,130

   

   

   

   

   

Share registration costs

   

   

   

   

   

   

21,202

   

   

   

   

   

Printing and postage

   

   

   

   

   

   

15,348

   

   

   

   

   

Insurance premiums

   

   

   

   

   

   

1,013

   

   

   

   

   

Taxes

   

   

   

   

   

   

7,030

   

   

   

   

   

Miscellaneous

   

   

   

   

   

   

832

   

   

   

   

   

TOTAL EXPENSES

   

   

   

   

   

   

945,120

   

   

   

   

   

Waivers:

   

   

   

   

   

   

   

   

   

   

   

   

Waiver of investment adviser fee

   

$

(133,560

)

   

   

   

   

   

   

   

   

Waiver of transfer and dividend disbursing agent fees and expenses

   

   

(1,227

)

   

   

   

   

   

   

   

   

Waiver of distribution services fee--Class F Shares

   

   

(13,878

)

   

   

   

   

   

   

   

   

TOTAL WAIVERS

   

   

   

   

   

   

(148,665

)

   

   

   

   

Net expenses

   

   

   

   

   

   

   

   

   

   

796,455

   

Net investment income

   

   

   

   

   

   

   

   

   

   

2,279,731

   

Realized and Unrealized Gain (Loss) on Investments:

   

   

   

   

   

   

   

   

   

   

   

   

Net realized loss on investments

   

   

   

   

   

   

   

   

   

   

(354,053

)

Net change in unrealized appreciation of investments

   

   

   

   

   

   

   

   

   

   

683,300

   

Net realized and unrealized gain on investments

   

   

   

   

   

   

   

   

   

   

329,247

   

Change in net assets resulting from operations

   

   

   

   

   

   

   

   

   

$

2,608,978

   

See Notes which are an integral part of the Financial Statements

Statement of Changes in Net Assets

 

  

Six Months
Ended
(unaudited)
5/31/2002

   

  

Year Ended
11/30/2001

   

Increase (Decrease) in Net Assets

   

   

   

   

   

   

   

   

Operations:

   

   

   

   

   

   

   

   

Net investment income

   

$

2,279,731

   

   

$

3,793,930

   

Net realized loss on investments

   

   

(354,053

)

   

   

(162,953

)

Net change in unrealized appreciation/depreciation of investments

   

   

683,300

   

   

   

1,514,621

   

CHANGE IN NET ASSETS RESULTING FROM OPERATIONS

   

   

2,608,978

   

   

   

5,145,598

   

Distributions to Shareholders:

   

   

   

   

   

   

   

   

Distributions from net investment income

   

   

   

   

   

   

   

   

Class A Shares

   

   

(2,005,612

)

   

   

(3,176,694

)

Class F Shares

   

   

(273,984

)

   

   

(617,236

)

CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS

   

   

(2,279,596

)

   

   

(3,793,930

)

Share Transactions:

   

   

   

   

   

   

   

   

Proceeds from sale of shares

   

   

110,105,537

   

   

   

242,914,294

   

Net asset value of shares issued to shareholders in payment of distributions declared

   

   

1,297,300

   

   

   

2,352,568

   

Cost of shares redeemed

   

   

(106,512,246

)

   

   

(148,908,658

)

CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS

   

   

4,890,591

   

   

   

96,358,204

   

Change in net assets

   

   

5,219,973

   

   

   

97,709,872

   

Net Assets:

   

   

   

   

   

   

   

   

Beginning of period

   

   

167,868,398

   

   

   

70,158,526

   

End of period (including undistributed net investment income of $80,998 and $80,000, respectively)

   

$

173,088,371

   

   

$

167,868,398

   

See Notes which are an integral part of the Financial Statements

Financial Highlights -- Class A Shares

(For a Share Outstanding Throughout Each Period)

   

   

Six Months
Ended
(unaudited)

   

   

Year Ended November 30,

  

5/31/2002

   

  

2001

   

  

2000

   

  

1999

   

  

1998

   

  

1997

   

Net Asset Value, Beginning of Period

   

$9.74

   

   

$9.56

   

   

$9.60

   

   

$9.86

   

   

$9.78

   

   

$9.76

   

Income From Investment Operations:

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Net investment income

   

0.13

1

   

0.34

   

   

0.39

   

   

0.39

   

   

0.40

   

   

0.41

   

Net realized and unrealized gain (loss) on investments and futures contracts

   

0.03

1

   

0.18

   

   

(0.04

)

   

(0.26

)

   

0.08

   

   

0.02

   

TOTAL FROM INVESTMENT OPERATIONS

   

0.16

   

   

0.52

   

   

0.35

   

   

0.13

   

   

0.48

   

   

0.43

   

Less Distributions:

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Distributions from net investment income

   

(0.13

)

   

(0.34

)

   

(0.39

)

   

(0.39

)

   

(0.40

)

   

(0.41

)

Net Asset Value, End of Period

   

$9.77

   

   

$9.74

   

   

$9.56

   

   

$9.60

   

   

$9.86

   

   

$9.78

   

Total Return2

   

1.68

%

   

5.53

%

   

3.75

%

   

1.29

%

   

4.95

%

   

4.45

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios to Average Net Assets:

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Expenses

   

0.98

%3

   

0.98

%

   

0.95

%

   

0.90

%

   

0.90

%

   

0.90

%

Net investment income

   

2.71

%1,3

   

3.42

%

   

4.12

%

   

3.94

%

   

4.08

%

   

4.17

%

Expense waiver/reimbursement4

   

0.16

%3

   

0.28

%

   

0.40

%

   

0.31

%

   

0.50

%

   

0.48

%

Supplemental Data:

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Net assets, end of period (000 omitted)

   

$155,933

   

$148,914

   

$54,995

   

$97,612

   

$72,174

   

$52,921

   

Portfolio turnover

   

33

%

   

39

%

   

6

%

   

25

%

   

25

%

   

33

%

1 Effective December 1, 2001, the Fund has adopted the provisions of the American Institute of Certified Public Accountants (AICPA) Audit and Accounting Guide for Investment Companies and began accreting discount/amortizing premiums on long-term debt securities. For the six months ended May 31, 2002, this effect had no change on the net investment income per share, net realized and unrealized gain (loss) on investments per share, or the ratio of net investment income to average net assets. Per share, ratios and supplemental data for the periods prior to December 1, 2001 have not been restated to reflect this change in presentation.

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

Financial Highlights -- Class F Shares

(For a Share Outstanding Throughout Each Period)

   

   

Six Months
Ended
(unaudited)

   

   

Year Ended November 30,

  

5/31/2002

  

  

2001

   

  

2000

   

  

1999

   

  

1998

   

  

1997

   

Net Asset Value, Beginning of Period

   

$9.74

   

   

$9.56

   

   

$9.60

   

   

$9.86

   

   

$9.78

   

   

$9.76

   

Income From Investment Operations:

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Net investment income

   

0.14

1

   

0.37

   

   

0.42

   

   

0.41

   

   

0.42

   

   

0.43

   

Net realized and unrealized gain (loss) on investments and futures contracts

   

0.03

1

   

0.18

   

   

(0.04

)

   

(0.26

)

   

0.08

   

   

0.02

   

TOTAL FROM INVESTMENT OPERATIONS

   

0.17

   

   

0.55

   

   

0.38

   

   

0.15

   

   

0.50

   

   

0.45

   

Less Distributions:

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Distributions from net investment income

   

(0.14

)

   

(0.37

)

   

(0.42

)

   

(0.41

)

   

(0.42

)

   

(0.43

)

Net Asset Value, End of Period

   

$9.77

   

   

$9.74

   

   

$9.56

   

   

$9.60

   

   

$9.86

   

   

$9.78

   

Total Return2

   

1.81

%

   

5.80

%

   

4.01

%

   

1.54

%

   

5.21

%

   

4.71

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios to Average Net Assets:

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Expenses

   

0.73

%3

   

0.73

%

   

0.70

%

   

0.65

%

   

0.65

%

   

0.65

%

Net investment income

   

2.96

%1,3

   

3.72

%

   

4.37

%

   

4.18

%

   

4.28

%

   

4.42

%

Expense waiver/reimbursement4

   

0.31

%3

   

0.43

%

   

0.55

%

   

0.46

%

   

0.65

%

   

0.63

%

Supplemental Data:

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Net assets, end of period (000 omitted)

   

$17,155

   

$18,955

   

$15,164

   

$28,006

   

$28,964

   

$20,298

   

Portfolio turnover

   

33

%

   

39

%

   

6

%

   

25

%

   

25

%

   

33

%

1 Effective December 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting discount/amortizing premiums on long-term debt securities. For the six months ended May 31, 2002, this effect had no change on the net investment income per share, net realized and unrealized gain (loss) on investments per share, or the ratio of net investment income to average net assets. Per share, ratios and supplemental data for the periods prior to December 1, 2001 have not been restated to reflect this change in presentation.

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

Notes to Financial Statements

May 31, 2002 (unaudited)

ORGANIZATION

Federated Fixed Income Securities, Inc. (the "Corporation") is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end, management investment company. The Corporation consists of four portfolios. The financial statements included herein are only those of Federated Limited Term Municipal 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. The Fund offers two classes of shares: Class A and Class F Shares. The investment objective of the Fund is to provide a high level of current income which is exempt from federal regular income tax consistent with the preservation of principal.

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

Municipal bonds are valued by an independent pricing service, taking into consideration yield, liquidity, risk, credit quality, coupon, maturity, type of issue and any other factors or market data the pricing service deems relevant. 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. 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 Directors (the "Directors").

Investment Income, Expenses and Distributions

Interest income and expenses are accrued daily. All discount/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. The Fund offers multiple classes of shares, which differ in their respective distribution and service fees. All shareholders bear the common expenses of the Fund based on average daily net assets of each class, without distinction between share classes. Dividends are declared separately for each class. No class has preferential dividend rights; differences in per share dividend rates are generally due to differences in separate class expenses.

Effective December 1, 2001, Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting discounts/amortizing premium on long-term debt securities. The cumulative effect of this accounting change had no impact on the total net assets of the Fund, but resulted in adjustments to the financial statements as follows:

As of
12/1/2002

For the Six Months Ended
5/31/2002

  

Cost of
Investments

  

Undistributed Net
Investment Income

  

Net
Investment
Income

  

Net Unrealized
Appreciation/
Depreciation

  

Net Realized
Loss

Increase (Decrease)

   

$863

   

$863

   

$122

   

$863

   

$(985)

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 November 30, 2001, the Fund, for federal tax purposes, had a capital loss carryforward of $5,415,994, which will reduce the Fund's taxable income arising from future net realized gain on investments, if any, to the extent permitted by the Code, and thus will reduce the amount of the distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal tax. Pursuant to the Code, such capital loss carryforward will expire as follows:

Expiration Year

  

Expiration Amount

2002

   

$1,870,398

2003

   

439,009

2007

   

2,004,917

2008

   

938,717

2009

   

162,953

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.

Futures Contracts

The Fund purchases bond futures contracts to manage cash flows, enhance yield, and to potentially reduce transaction costs. Upon entering into a bond futures contract with a broker, the Fund is required to deposit in a segregated account a specified amount of cash or U.S. government securities. Futures contracts are valued daily and unrealized gains or losses are recorded in a "variation margin" account. Daily, the Fund receives from or pays to the broker a specified amount of cash based upon changes in the variation margin account. When a contract is closed, the Fund recognizes a realized gain or loss. For the six months ended May 31, 2002, the Fund had no realized gain (loss) on futures contracts.

Futures contracts have market risks, including the risk that the change in the value of the contract may not correlate with changes in the value of the underlying securities.

At May 31, 2002, the Fund had no outstanding futures contracts.

Restricted Securities

Restricted securities are securities that may only be resold upon registration under federal securities laws or in transactions exempt from such registration. In some cases, the issuer of restricted securities has agreed to register such securities for resale, at the issuer's expense either upon demand by the Fund or in connection with another registered offering of the securities. Many restricted securities may be resold in the secondary market in transactions exempt from registration. Such restricted securities may be determined to be liquid under criteria established by the Directors. The Fund will not incur any registration costs upon such resales. The Fund's restricted securities are valued at the price provided by dealers in the secondary market or, if no market prices are available, at the fair value as determined in good faith using methods approved by the Directors.

Additional information on each restricted security held at May 31, 2002 is as follows:

Security

  

Acquisition Date

  

Acquisition Cost

Birmingham, AL, Fire Equipment Lease Obligation No. 1, 5.60%, 11/5/2004

 

11/9/1999

   

$652,021

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.

CAPITAL STOCK

At May 31, 2002, par value shares ($0.001 per share) authorized were as follows:

Share Class Name

  

Shares of Par Value
Capital Stock Authorized

Class A Shares

 

1,000,000,000

Class F Shares

 

1,000,000,000

TOTAL

 

2,000,000,000

Transactions in capital stock were as follows:

Six Months Ended
5/31/2002

Year Ended
11/30/2001

Class A Shares:

  

Shares

  

Amount

  

Shares

  

Amount

Shares sold

   

11,069,610

   

   

$

107,851,966

   

   

24,222,526

   

   

$

235,686,563

   

Shares issued to shareholders in payment of distributions declared

   

122,631

   

   

   

1,194,341

   

   

213,816

   

   

   

2,075,453

   

Shares redeemed

   

(10,518,585

)

   

   

(102,313,553

)

   

(14,902,104

)

   

   

(144,903,059

)

NET CHANGE RESULTING FROM CLASS A SHARE TRANSACTIONS

   

673,656

   

   

$

6,732,754

   

   

9,534,238

   

   

$

92,858,957

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended
5/31/2002

Year Ended
11/30/2001

Class F Shares:

Shares

Amount

Shares

Amount

Shares sold

   

231,323

   

   

$

2,253,571

   

   

745,379

   

   

$

7,227,731

   

Shares issued to shareholders in payment of distributions declared

   

10,572

   

   

   

102,959

   

   

28,569

   

   

   

277,115

   

Shares redeemed

   

(431,611

)

   

   

(4,198,693

)

   

(414,628

)

   

   

(4,005,599

)

NET CHANGE RESULTING FROM CLASS F SHARE TRANSACTIONS

   

(189,716

)

   

$

(1,842,163

)

   

359,320

   

   

$

3,499,247

   

NET CHANGE RESULTING FROM SHARE TRANSACTIONS

   

483,940

   

   

$

4,890,591

   

   

9,893,558

   

   

$

96,358,204

   

INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES

Investment Adviser Fee

Federated Investment Management Company, the Fund's investment adviser (the "Adviser"), receives for its services an annual investment adviser fee equal to 0.40% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion.

Administrative Fee

Federated Services Company ("FServ"), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FServ is based on a scale that ranges from 0.150% to 0.075% of the average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors, Inc., subject to a $125,000 minimum per portfolio and $30,000 per each additional class.

Distribution Services Fee

The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp. ("FSC"), the principal distributor, from the net assets of the Fund to finance activities intended to result in the sale of the Fund's Class A and Class F Shares. The Plan provides that the Fund may incur distribution expenses according to the following schedule annually, to compensate FSC.

Share Class Name

  

Percentage of Average Daily
Net Assets of Class

Class A Shares

 

0.25%

Class F Shares

 

0.15%

FSC may voluntarily choose to waive any portion of its fee. FSC can modify or terminate this voluntary waiver at any time at its sole discretion.

Shareholder Services Fee

Under the terms of a Shareholder Services Agreement with Federated Shareholder Services Company ("FSSC"), the Fund will pay FSSC up to 0.25% of average daily net assets of the Fund for the period. The fee paid to FSSC is used to finance certain services for shareholders and to maintain shareholder accounts.

Transfer and Dividend Disbursing Agent Fees and Expenses

FServ, through its subsidiary FSSC, serves as transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the size, type and number of accounts and transactions made by shareholders. FSSC may voluntarily choose to waive any portion of its fee. FSSC can modify or terminate this voluntary waiver at any time at its sole discretion.

Portfolio Accounting Fees

FServ maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses.

Interfund Transactions

During the six months ended May 31, 2002, the Fund engaged in purchase and sale transactions with funds that have a common investment adviser (or affiliated investment advisers), common Directors/Trustees, and/or common Officers. These purchase and sale transactions complied with Rule 17a-7 under the Act and amounted to $85,553,800 and $123,326,299, respectively.

General

Certain of the Officers and Directors of the Corporation are Officers and Directors or Trustees of the above companies.

INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding short-term securities (and in-kind contributions), for the six months ended May 31, 2002, were as follows:

Purchases

  

$

68,593,173

Sales

   

$

46,061,733

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 prospectus, which contains facts concerning its objective and policies, management fees, expenses and other information.

IMPORTANT NOTICE ABOUT FUND DOCUMENT DELIVERY

In an effort to reduce costs and avoid duplicate mailings, the Fund(s) intend to deliver a single copy of certain documents to each household in which more than one shareholder of the Fund(s) resides (so-called "householding"), as permitted by applicable rules. The Fund's "householding" program covers its/their Prospectus and Statement of Additional Information, and supplements to each, as well as Semi-Annual and Annual Reports and any Proxies or information statements. Shareholders must give their written consent to participate in the householding program. The Fund is also permitted to treat a shareholder as having given consent ("implied consent") if (i) shareholders with the same last name, or believed to be members of the same family, reside at the same street address or receive mail at the same post office box, (ii) the Fund gives notice of its intent to "household" at least sixty (60) days before it begins "householding" and (iii) none of the shareholders in the household have notified the Fund(s) or their agent of the desire to "opt out" of householding. Shareholders who have granted written consent, or have been deemed to have granted implied consent, can revoke that consent and opt out of householding at any time by calling 1-800-341-7400.

Federated
World-Class Investment Manager
Federated Limited Term Municipal Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
www.federatedinvestors.com
Contact us at 1-800-341-7400 or
www.federatedinvestors.com/contact
Federated Securities Corp., Distributor

Cusip 31417P304
Cusip 31417P403

Federated is a registered mark of Federated Investors, Inc. 2002 ©Federated Investors, Inc.

 

G00278-01 (7/02)

 

Federated Investors
World-Class Investment Manager

Federated Strategic Income Fund

A Portfolio of Federated Fixed Income Securities, Inc.

 

8TH SEMI-ANNUAL REPORT

May 31, 2002

Established 1994

NOT FDIC INSURED * MAY LOSE VALUE * NO BANK GUARANTEE

Richard B. Fisher

President

Federated Strategic Income Fund

President's Message

Dear Shareholder:

Federated Strategic Income Fund was created in 1994, and I am pleased to present its eighth Semi-Annual Report. This $826 million bond fund seeks generous monthly income from three distinct bond markets--domestic high-yield bonds, U.S. corporate and government bonds, and international corporate and government bonds.1

This report covers the first half of the fund's fiscal year which is the six-month period from December 1, 2001 through May 31, 2002. The fund's portfolio manager, Joseph M. Balestrino, Senior Vice President of Federated Investment Management Company, presents his thoughts on the bond markets, the fund's weightings, and outlook for income opportunities for shareholders. Following his discussion are two additional items of shareholder interest. First is a complete listing of the fund's bond selections, and second is the publication of the fund's financial statements.

This income fund holds a strategic combination of hundreds of bonds selected by an investment management team consisting of experts in three key bond market sectors. These bond sectors historically have little correlation with one another, and shareholders are diversified in holdings around the world, including the U.S. markets. This has been a good fund to be in, particularly at a time of gradual economic improvement and when you want diversification across key bond asset classes.

Those bond sectors which are more positively correlated to the economy, notably high-yield and emerging markets, experienced positive returns as investor confidence moved forward over the six-month reporting period. Given that the fund invests in both high-yield and emerging debt markets, as well as high-quality U.S. bond markets, the reporting period proved profitable for shareholders.

1 Securities rated below investment grade generally entail greater market, credit and liquidity risk than investment-grade securities. International investing involves special risks including currency risk, increased volatility of foreign securities, and differences in auditing and other financial standards.

Individual share class total return performance for the six-month reporting period of the fund follows.2

  

Total Return

  

Income

  

Net Asset Value Increase

Class A Shares

 

4.85%

 

$0.362

 

$8.00 to $8.02 = 0.25%

Class B Shares

 

4.46%

 

$0.332

 

$8.00 to $8.02 = 0.25%

Class C Shares

 

4.46%

 

$0.332

 

$8.00 to $8.02 = 0.25%

Class F Shares

 

4.73%

 

$0.362

 

$7.99 to $8.00 = 0.13%

Thank you for your support of this diversified approach to income generation. Remember, reinvesting your monthly dividends and investing on a regular basis are a convenient ways to build your account--and to help your money grow through the benefit of compounding.3

As always, we welcome your comments and suggestions.

Sincerely,

Richard B. Fisher

Richard B. Fisher
President
July 15, 2002

2 Performance quoted is based on net asset value, represents past performance, and is no guarantee of future results. Investment return and principal value will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Total returns for the period, based on offering price (i.e., less any applicable sale charge), for Class A, B, C and F shares were 0.10%, (1.04%), 3.46%, and 2.70%, respectively. Current performance information is available at our website www.federatedinvestors.com or by calling 1-800-341-7400.

3 Systematic investing does not assure a profit or protect against loss in declining markets.

Joseph M. Balestrino

Senior Vice President

Federated Investment Management Corp.

Investment Review

 

Shareholders' Note: This fund is co-managed by a team of portfolio managers, in addition to lead manager Joseph Balestrino, who are experts in key bond market sectors: U.S. government--Kathy Foody-Malus, Vice President, Federated Investment Management Corp.; high-yield corporate bonds--Mark E. Durbiano, Senior Vice President, Federated Investment Management Corp.; and international bonds--Robert Kowit, Senior Vice President, Federated Global Investment Management Corp.

What is the fund management's review of the six-month reporting period?

The majority of economic indicators pointed to a global recovery, although the recovery has slowed in recent months. Interest rates were generally higher for most developed bond markets. On the other hand, those bond sectors that are more positively correlated to the economy, notably high-yield and emerging markets, did experience more positive returns as investor confidence grew. Given that the fund invests in both high-yield and emerging debt markets, as well as high-quality U.S. bond markets, the six-month reporting period proved profitable for shareholders.

How did the fund perform in terms of total return and relative to its peer group?

The fund's returns were solid, reflecting a generally strong bond market environment domestically and internationally. Class A Shares posted a total return for the six-month reporting period ended May 31, 2002 of 4.85% based on net asset value. Income generated by the fund contributed to the total return. The fund's Class B, C and F shares had total returns of 4.46%, 4.46%, and 4.73%, respectively, based on net asset value.

The fund significantly outperformed the 2.54% return of its peers in the Lipper Multi-Sector Funds Category.1

Of course, income is a primary consideration for shareholders. What was the total income paid per share during the six-month reporting period?

The fund's six monthly income dividends totaled $0.362 per share for Class A Shares, $0.332 for Class B Shares, $0.332 per share for Class C Shares and $0.362 per share for Class F Shares.

What were the 30-day SEC yields for each of the fund's share classes?

The yields at the end of the reporting period were very attractive. As of May 31, 2002, the fund's 30-day SEC yields, based on net asset value, for Class A, B, C and F shares were 7.98%, 7.21%, 7.21% and 7.98%, respectively.2

1 Lipper figures represent the average of the total returns reported by all the mutual funds designated by Lipper Inc. as falling into the category indicated. Lipper figures do not reflect sales charges.

2 The 30-day SEC yields were 7.61%, 7.21%, 7.21% and 7.90% for Class A, B, C and F shares, respectively, based on offering price.

What are the fund's top ten holdings as of May 31, 2002?

Name/Coupon/Maturity

  

Percentage of
Net Assets

Russian Federation, Government of, 12.750% due 6/24/2008

 

2.9%

U.S. Treasury Bond, 12.00% due 5/15/2005

 

1.6%

Brazil, Government of, 12.000% due 4/15/2010

 

1.6%

U.S. Treasury Bond, 12.375% due 5/15/2004

 

1.5%

U.S. Treasury Bond, 11.625% due 11/15/2004

 

1.5%

U.S. Treasury Bond, 13.750% due 8/15/2004

 

1.3%

Ecuador, Government of, 12.000% due 11/15/2012

 

1.1%

Innova S De R.L., 12.857% due 4/1/2007

 

1.0%

Russian Federation, Government of, 8.250% due 3/31/2010

 

1.0%

Grupo Elektra SA de CV, 12.000% due 4/1/2008

 

0.9%

TOTAL

14.4%

How were the fund's assets allocated among domestic high-quality, domestic high-yield and international bonds as of May 31, 2002?

Given an economic environment that may have already bottomed, the fund is positioned in anticipation of stronger growth in the latter half of 2002 and beyond. As a result, the fund is most overweight in the domestic high-yield bond sector with 51.04% of assets, followed by the international domestic sector at 33.84% and, lastly, an underweight position of 15.12% in domestic high-quality securities.

As we begin the second half of the year, what is your outlook for the fund's three sectors?

With the backdrop of worldwide economic improvement, we believe fixed- income investors may be rewarded in the higher yielding bond sectors--namely international and domestic high-yield securities. Additionally, it is possible that interest rates may start to move higher over the coming quarters, which would hurt the highest quality bond sectors the most; thus, the fund maintains an underweighted position in the highest quality securities.

Portfolio of Investments

May 31, 2002 (unaudited)

Principal
Amount

  

  

Value in
U.S. Dollars

   

   

   

U.S. CORPORATE BONDS--9.9%

   

   

   

   

   

   

Aerospace & Defense--0.3%

   

   

   

$

2,000,000

   

Raytheon Co., 8.200%, 3/1/2006

   

$

2,177,080

   

   

   

Automotive--0.1%

   

   

   

   

775,000

   

General Motors Corp., MTN, 9.450%, 11/1/2011

   

   

906,409

   

   

   

Banking--0.5%

   

   

   

   

1,000,000

   

FirstBank Puerto Rico, Sub. Note, 7.625%, 12/20/2005

   

   

1,025,620

   

2,235,051

1,2

Regional Diversified Funding, Sr. Note, 9.250%, 3/15/2030

   

   

2,366,201

   

1,000,000

1,2

Swedbank, Sub. Note, 7.500%, 11/29/2049

   

   

1,067,020

   

   

   

TOTAL

   

   

4,458,841

   

   

   

Broadcast Radio & Television--0.2%

   

   

   

   

2,000,000

   

AOL Time Warner, Inc., 5.625%, 5/1/2005

   

   

2,000,420

   

   

   

Cable Television--0.6%

   

   

   

   

2,500,000

   

CF Cable TV, Inc., Sr. Note, 9.125%, 7/15/2007

   

   

2,777,250

   

2,000,000

   

Continental Cablevision, Sr. Deb., 9.500%, 8/1/2013

   

   

2,072,940

   

   

   

TOTAL

   

   

4,850,190

   

   

   

Chemicals & Plastics--0.3%

   

   

   

   

1,450,000

1,2

Fertinitro Finance, Company Guarantee, 8.290%, 4/1/2020

   

   

995,651

   

1,250,000

1,2

Reliance Industries Ltd., Note, 8.250%, 1/15/2027

   

   

1,294,888

   

   

   

TOTAL

   

   

2,290,539

   

   

   

Consumer Products--0.5%

   

   

   

   

4,000,000

   

Albecca, Inc., Company Guarantee, 10.750%, 8/15/2008

   

   

4,460,000

   

   

   

Ecological Services & Equipment--0.4%

   

   

   

   

2,700,000

3

Waste Management, Inc., Deb., 8.750%, 5/1/2018

   

   

2,934,792

   

   

   

Finance - Automotive--0.2%

   

   

   

   

1,620,000

   

General Motors Acceptance Corp., Note, 9.000%, 10/15/2002

   

   

1,652,789

   

   

   

Finance - Retail--0.3%

   

   

   

   

2,000,000

   

Household Finance Corp., 7.000%, 5/15/2012

   

   

2,029,840

Principal
Amount

  

  

Value in
U.S. Dollars

   

   

   

U.S. CORPORATE BONDS--continued

   

   

   

   

   

   

Financial Intermediaries--0.2%

   

   

   

$ 

1,500,000

   

Capital One Financial, Note, 7.125%, 8/1/2008

   

$ 

1,432,500

   

   

   

Forest Products--0.4%

   

   

   

   

250,000

   

Pope & Talbot, Inc., Deb., 8.375%, 6/1/2013

   

   

235,000

   

3,380,000

   

Quno Corp., Sr. Note, 9.125%, 5/15/2005

   

   

3,457,672

   

   

   

TOTAL

   

   

3,692,672

   

   

   

Insurance--1.1%

   

   

   

   

500,000

   

AFC Capital Trust I, Bond, 8.207%, 2/3/2027

   

   

486,955

   

1,500,000

   

CNA Financial Corp., Bond, 6.950%, 1/15/2018

   

   

1,273,125

   

1,000,000

3

Conseco Finance Corp., Unsecd. Note, 8.796%, 4/1/2027

   

   

285,000

   

3,164,000

   

Delphi Financial Group, Note, 8.000%, 10/1/2003

   

   

3,263,571

   

750,000

   

Delphi Funding LLC, 9.310%, 3/25/2027

   

   

562,913

   

2,000,000

1,2

Life Re Capital Trust I, Company Guarantee, 8.720%, 6/15/2027

   

   

2,051,080

   

500,000

1,2

USF&G Capital, Company Guarantee, 8.312%, 7/1/2046

   

   

496,330

   

500,000

   

USF&G Capital II, Company Guarantee, 8.470%, 1/10/2027

   

   

492,270

   

500,000

1,2

Union Central Life Insurance Co., Note, 8.200%, 11/1/2026

   

   

499,305

   

   

   

TOTAL

   

   

9,410,549

   

   

   

Leisure & Entertainment--0.5%

   

   

   

   

1,000,000

   

International Speedway Corp., 7.875%, 10/15/2004

   

   

1,042,780

   

2,850,000

   

Paramount Communications, Inc., Deb., 8.250%, 8/1/2022

   

   

2,956,248

   

   

   

TOTAL

   

   

3,999,028

   

   

   

Metals & Mining--1.1%

   

   

   

   

1,000,000

3

Barrick Gold Corp., Deb., 7.500%, 5/1/2007

   

   

1,068,410

   

1,950,000

   

Inco Ltd., Note, 9.600%, 6/15/2022

   

   

2,073,162

   

2,300,000

1,2

Normandy Finance Ltd., Company Guarantee, 7.500%, 7/15/2005

   

   

2,359,342

   

3,000,000

   

Placer Dome, Inc., Bond, 8.500%, 12/31/2045

   

   

2,567,517

   

1,125,000

   

Santa Fe Pacific Gold, Note, 8.375%, 7/1/2005

   

   

1,167,874

   

   

   

TOTAL

   

   

9,236,305

Principal
Amount

  

  

Value in
U.S. Dollars

   

   

   

U.S. CORPORATE BONDS--continued

   

   

   

   

   

   

Oil & Gas--1.2%

   

   

   

$ 

1,000,000

1,2

EOG Company of Canada, Company Guarantee, 7.000%, 12/1/2011

   

$ 

1,019,310

   

1,000,000

   

Enterprise Oil PLC, Sr. Note, 7.000%, 5/1/2018

   

   

1,061,350

   

1,250,000

   

Husky Oil Ltd., Sr. Note, 7.125%, 11/15/2006

   

   

1,293,038

   

650,000

3

Pemex Project Funding Master Trust, Company Guarantee, 9.125%, 10/13/2010

   

   

717,620

   

1,750,000

   

Sun Co. Inc., Deb., 9.000%, 11/1/2024

   

   

1,944,023

   

1,000,000

   

Valero Energy Corp., 7.500%, 4/15/2032

   

   

1,020,930

   

2,530,000

   

Veritas DGC, Inc., Sr. Note, 9.750%, 10/15/2003

   

   

2,555,300

   

   

   

TOTAL

   

   

9,611,571

   

   

   

Printing & Publishing--0.2%

   

   

   

   

880,000

   

News America Holdings, Inc., Company Guarantee, 8.000%, 10/17/2016

   

   

926,455

   

1,000,000

   

News America Holdings, Inc., Note, 8.150%, 10/17/2036

   

   

998,330

   

   

   

TOTAL

   

   

1,924,785

   

   

   

Real Estate--0.3%

   

   

   

   

2,100,000

   

SUSA Partnership LP, Deb., 7.500%, 12/1/2027

   

   

2,126,376

   

500,000

   

SUSA Partnership LP, Note, 8.200%, 6/1/2017

   

   

569,290

   

   

   

TOTAL

   

   

2,695,666

   

   

   

Retailers--0.5%

   

   

   

   

2,000,000

   

Federated Department Stores, Inc., Sr. Note, 8.125%, 10/15/2002

   

   

2,047,540

   

2,300,000

   

Shopko Stores, Inc., Sr. Note, 9.250%, 3/15/2022

   

   

1,863,000

   

   

   

TOTAL

   

   

3,910,540

   

   

   

Technology Services--0.2%

   

   

   

   

1,650,000

   

Unisys Corp., Sr. Note, 8.125%, 6/1/2006

   

   

1,687,125

   

   

   

Telecommunications & Cellular--0.4%

   

   

   

   

1,000,000

   

LCI International, Inc., Sr. Note, 7.250%, 6/15/2007

   

   

778,750

   

1,750,000

   

MetroNet Communications Corp., Sr. Note, 12.000%, 8/15/2007

   

   

288,750

   

625,000

   

MetroNet Communications Corp., Sr. Note, 10.625%, 11/1/2008

   

   

90,625

   

1,000,000

   

Qwest Capital Funding, Company Guarantee, 7.750%, 2/15/2031

   

   

695,000

   

1,137,000

   

Tritel PCS, Inc., Sr. Sub. Note, 10.375%, 1/15/2011

   

   

1,219,433

   

   

   

TOTAL

   

   

3,072,558

Principal
Amount or Foreign
Currency
Par Amount

  

  

Value in
U.S. Dollars

   

   

   

U.S. CORPORATE BONDS--continued

   

   

   

   

   

   

Utilities--0.4%

   

   

   

$ 

1,750,000

   

Homer City Funding LLC, Sr. Secd. Note, 8.734%, 10/1/2026

   

$ 

1,664,222

   

500,000

1,2

Israel Electric Corp. Ltd., Sr. Secd. Note, 7.750%, 3/1/2009

   

   

511,100

   

550,000

1,2

Israel Electric Corp. Ltd., Sr. Note, 7.875%, 12/15/2026

   

   

482,482

   

1,000,000

1,2

Tenaga Nasional, Deb., 7.500%, 1/15/2096

   

   

783,580

   

   

   

TOTAL

   

   

3,441,384

   

   

   

TOTAL U.S CORPORATE BONDS (IDENTIFIED COST $77,141,060)

   

   

81,875,583

   

   

   

INTERNATIONAL BONDS--30.6%

   

   

   

   

   

   

AUSTRALIAN DOLLAR--0.2%

   

   

   

   

   

   

Sovereign--0.2%

   

   

   

   

2,000,000

   

Australia, Government of, 8.750%, 8/15/2008

   

   

1,283,383

   

   

   

State/Provincial--0.0%

   

   

   

   

550,000

   

Victoria, State of, Local Government Guarantee, 10.250%, 11/15/2006

   

   

357,122

   

   

   

TOTAL AUSTRALIAN DOLLAR

   

   

1,640,505

   

   

   

BRITISH POUND--0.2%

   

   

   

   

   

   

Sovereign--0.2%

   

   

   

   

1,300,000

   

United Kingdom, Government of, Foreign Government Guarantee, 11.750%, 1/22/2007

   

   

1,983,336

   

   

   

CANADIAN DOLLAR--0.4%

   

   

   

   

   

   

Forest Products--0.3%

   

   

   

   

3,750,000

   

Avenor Inc., Deb., 10.850%, 11/30/2014

   

   

2,863,297

   

   

   

Telecommunications & Cellular--0.1%

   

   

   

   

6,800,000

   

Microcell Telecommunications, Sr. Disc. Note, 11.125%, 10/15/2007

   

   

612,151

   

   

   

TOTAL CANADIAN DOLLAR

   

   

3,475,448

   

   

   

CZECH KORUNA--0.6%

   

   

   

   

   

   

Sovereign--0.6%

   

   

   

   

146,000,000

   

Czech Republic, Government of, Bond, 14.850%, 2/6/2003

   

   

4,793,722

   

   

   

DANISH KRONE--0.1%

   

   

   

   

   

   

Sovereign--0.1%

   

   

   

   

5,250,000

   

Denmark, Government of, Bond, 8.000%, 3/15/2006

   

   

726,265

Foreign
Currency
Par Amount

  

  

Value in
U.S. Dollars

   

   

   

INTERNATIONAL BONDS--continued

   

   

   

   

   

   

EURO--4.6%

   

   

   

   

   

   

Oil & Gas--0.5%

   

   

   

$ 

4,750,000

1,2

Petroplus Funding BV, Bond, 10.500%, 10/15/2010

   

$ 

3,992,849

   

   

   

Sovereign--3.7%

   

   

   

   

2,250,000

   

Austria, Government of, Bond, 5.625%, 7/15/2007

   

   

2,150,521

   

1,000,000

   

Austria, Government of, Bond, 6.250%, 7/15/2027

   

   

1,002,416

   

1,200,000

   

France, Government of, Bond, 8.500%, 4/25/2023

   

   

1,527,423

   

3,476,784

   

Germany, Government of, Deb., 6.250%, 1/4/2024

   

   

3,542,497

   

2,993,396

   

Greece, Government of, Bond, 8.600%, 3/26/2008

   

   

3,280,916

   

352,164

   

Greece, Government of, Floating Rate Note, 8/14/2003

   

   

329,480

   

1,760,821

   

Greece, Government of, Floating Rate Note, 9/30/2003

   

   

1,672,400

   

352,164

   

Greece, Government of, Floating Rate Note, 10/23/2003

   

   

328,296

   

1,731,474

   

Greece, Government of, Floating Rate Note, 11/26/2003

   

   

1,602,803

   

586,940

   

Greece, Government of, Floating Rate Note, 12/31/2003

   

   

556,754

   

476,308

   

Ireland, Government of, Deb., 4.000%, 4/18/2010

   

   

406,862

   

2,704,542

   

Ireland, Government of, Deb., 9.000%, 9/1/2006

   

   

2,926,687

   

335,696

   

Italy, Government of, 7.750%, 11/1/2006

   

   

349,597

   

387,342

   

Italy, Government of, 10.000%, 8/1/2003

   

   

385,944

   

4,699,749

   

Italy, Government of, Bond, 10.500%, 9/1/2005

   

   

5,159,055

   

1,420,254

   

Italy, Government of, Deb., 12.000%, 1/1/2003

   

   

1,383,822

   

1,361,340

   

Netherlands, Government of, Bond, 7.500%, 4/15/2010

   

   

1,467,301

   

680,670

   

Netherlands, Government of, Bond, 8.250%, 2/15/2007

   

   

722,203

   

1,247,895

   

Netherlands, Government of, Bond, 8.500%, 6/1/2006

   

   

1,322,881

   

757,275

   

Spain, Government of, Foreign Government Guarantee, 8.000%, 5/30/2004

   

   

755,452

   

   

   

TOTAL

   

   

30,873,310

   

   

   

Telecommunications & Cellular--0.4%

   

   

   

   

2,500,000

   

Jazztel PLC, Sr. Note, 13.250%, 12/15/2009

   

   

326,900

   

3,500,000

   

Jazztel PLC, Sr. Note (Series XW1), 14.000%, 7/15/2010

   

   

326,900

   

2,500,000

   

PTC International Finance, Company Guarantee, 11.250%, 12/1/2009

   

   

2,475,100

   

   

   

TOTAL

   

   

3,128,900

   

   

   

TOTAL EURO

   

   

37,995,059

Foreign
Currency
Par Amount

  

  

Value in
U.S. Dollars

   

   

   

INTERNATIONAL BONDS--continued

   

   

   

   

   

   

HUNGARIAN FORINT--0.4%

   

   

   

   

   

   

Sovereign--0.2%

   

   

   

$ 

450,000,000

   

Hungary, Government of, Bond (Series 03/I), 13.000%, 7/24/2003

   

$ 

1,803,794

   

   

   

Supranational--0.2%

   

   

   

   

400,000,000

   

European Investment Bank (Series 3), 11.750%, 6/25/2004

   

   

1,623,830

   

   

   

TOTAL HUNGARIAN FORINT

   

   

3,427,624

   

   

   

NEW ZEALAND DOLLAR--0.4%

   

   

   

   

   

   

Sovereign--0.4%

   

   

   

   

3,520,000

   

New Zealand, Government of, Bond, 5.500%, 4/15/2003

   

   

1,676,298

   

2,300,000

   

New Zealand, Government of, Deb., 8.000%, 11/15/2006

   

   

1,156,323

   

   

   

TOTAL NEW ZEALAND DOLLAR

   

   

2,832,621

   

   

   

POLISH ZLOTY--0.7%

   

   

   

   

   

   

Sovereign--0.7%

   

   

   

   

17,750,000

   

Poland, Government of, Bond, 12.000%, 10/12/2003

   

   

4,554,835

   

4,500,000

   

Poland, Government of, Bond, (Series 0203), 12.000%, 2/12/2003

   

   

1,136,058

   

   

   

TOTAL POLISH ZLOTY

   

   

5,690,893

   

   

   

SOUTH AFRICAN RAND--0.6%

   

   

   

   

   

   

Government Agency--0.3%

   

   

   

   

11,000,000

   

Lesotho Highlands Water Authority, Foreign Government Guarantee, 13.000%, 9/15/2010

   

   

1,170,901

   

10,000,000

1

Telkom SA Ltd., Foreign Government Guarantee (Series TK01), 10.000%, 3/31/2008

   

   

935,091

   

   

   

TOTAL

   

   

2,105,992

   

   

   

Sovereign--0.3%

   

   

   

   

10,000,000

   

South Africa, Government of, Bond, 12.000%, 2/28/2005

   

   

1,029,101

   

15,000,000

   

South Africa, Government of (Series 157), 13.500%, 9/15/2015

   

   

1,728,537

   

   

   

TOTAL

   

   

2,757,638

   

   

   

TOTAL SOUTH AFRICAN RAND

   

   

4,863,630

   

   

   

SWEDISH KRONA--0.3%

   

   

   

   

   

   

Sovereign--0.3%

   

   

   

   

10,500,000

   

Sweden, Government of, Bond, 8.000%, 8/15/2007

   

   

1,200,099

   

7,500,000

   

Sweden, Government of, Deb. (Series 1038), 6.500%, 10/25/2006

   

   

801,160

   

3,000,000

   

Sweden, Government of (Series 1033), 10.250%, 5/5/2003

   

   

322,310

   

   

   

TOTAL SWEDISH KRONA

   

   

2,323,569

Principal
Amount

  

  

Value in
U.S. Dollars

   

   

   

INTERNATIONAL BONDS--continued

   

   

   

   

   

   

U.S. DOLLAR--22.1%

   

   

   

   

   

   

Cable & Wireless Television--1.7%

   

   

   

$

9,000,000

   

Innova S De R.L., Sr. Note, 12.875%, 4/1/2007

   

$ 

8,550,432

   

8,000,000

   

Satelites Mexicanos SA, Sr. Note (Series B), 10.125%, 11/1/2004

   

   

5,240,000

   

   

   

TOTAL

   

   

13,790,432

   

   

   

Consumer Products--0.1%

   

   

   

   

1,000,000

   

TM Group Holdings PLC, Sr. Note, 11.000%, 5/15/2008

   

   

1,045,000

   

   

   

Industrial Products & Equipment--0.9%

   

   

   

   

7,200,000

1,2

Bluewater Finance Ltd., Sr. Note (Series 144A), 10.250%, 2/15/2012

   

   

7,416,000

   

   

   

Oil & Gas--1.5%

   

   

   

   

4,200,000

   

CIA Petrolifera Marlim, Sec. Bond (Series REGS), 12.250%, 9/26/2008

   

   

4,200,000

   

4,200,000

1,2

CIA Petrolifera Marlim, Sec. Bond, 12.250%, 9/26/2008

   

   

4,210,500

   

3,900,000

   

Petrobras International Finance, Sr. Note, 9.750%, 7/6/2011

   

   

3,753,750

   

   

   

TOTAL

   

   

12,164,250

   

   

   

Retailers--0.9%

   

   

   

   

7,600,000

3

Grupo Elektra SA de CV, Sr. Note, 12.000%, 4/1/2008

   

   

7,752,000

   

   

   

Sovereign--14.2%

   

   

   

   

6,000,000

   

Brazil, Government of, 8.875%, 4/15/2024

   

   

3,776,100

   

3,700,000

   

Brazil, Government of, 10.125%, 5/15/2027

   

   

2,547,450

   

5,100,000

   

Brazil, Government of, Bond, 11.500%, 3/12/2008

   

   

4,564,500

   

8,250,000

3

Brazil, Government of, Bond, 12.250%, 3/6/2030

   

   

6,785,625

   

9,112,434

3

Brazil, Government of, C Bond, 4.000%, 4/15/2014

   

   

6,829,769

   

15,100,000

   

Brazil, Government of, Note, 12.000%, 4/15/2010

   

   

13,363,500

   

4,000,000

   

Brazil, Government of, Unsub., 11.000%, 8/17/2040

   

   

2,956,000

   

2,221,000

1,2

Bulgaria, Government of, Bond (Series 144A), 8.250%, 1/15/2015

   

   

2,182,133

   

5,700,000

   

Colombia, Government of, Bond, 11.750%, 2/25/2020

   

   

5,657,250

   

12,575,000

1

Ecuador, Government of, Bond (Series REGS), 12.000%, 11/15/2012

   

   

9,437,538

   

5,500,000

   

Philippines, Government of, Note, 8.375%, 3/12/2009

   

   

5,732,045

   

2,750,000

   

Philippines, Government of, Note, 10.625%, 3/16/2025

   

   

3,018,125

   

8,200,000

   

Russian Federation, Government of, Unsub. Bond (Series REGS), 8.250%, 3/31/2010

   

   

8,133,580

   

6,500,000

   

Russian Federation, Government of, Unsub. Bond (Series REGS), 10.000%, 6/26/2007

   

   

6,990,100

Principal
Amount

  

  

Value in
U.S. Dollars

   

   

   

INTERNATIONAL BONDS--continued

   

   

   

   

   

   

U.S. DOLLAR--continued

   

   

   

   

   

   

Sovereign--continued

   

   

   

$ 

19,450,000

   

Russian Federation, Government of, Unsub. Bond (Series REGS), 12.750%, 6/24/2028

   

$ 

23,923,500

   

1,500,000

   

South Africa, Government of, Note, 7.375%, 4/25/2012

   

   

1,509,630

   

2,000,000

   

Turkey, Government of, Note, 11.500%, 1/23/2012

   

   

2,047,000

   

5,100,000

   

Turkey, Government of, Sr. Unsub., 11.875%, 1/15/2030

   

   

5,138,250

   

4,300,000

   

Venezuela, Government of, Bond, 9.250%, 9/15/2027

   

   

2,956,250

   

   

   

TOTAL

   

   

117,548,345

   

   

   

Telecommunications & Cellular--2.8%

   

   

   

   

5,000,000

1,2

Mobile Telesystems (Series 144A), 10.95%, 12/21/2004

   

   

5,123,250

   

5,000,000

   

Netia Holdings BV, Company Guarantee, 10.250%, 11/1/2007

   

   

825,000

   

8,600,000

   

Netia Holdings BV (Series B), 11.250%, 11/1/2007

   

   

1,419,000

   

6,300,000

   

Nuevo Grupo Iusacell SA de CV (Series REGS), 14.250%, 12/1/2006

   

   

6,016,500

   

3,250,000

   

PTC Intl Finance BV, 10.750%, 7/1/2007

   

   

3,290,625

   

6,500,000

   

Partner Communications, Sr. Sub. Note, 13.000%, 8/15/2010

   

   

6,337,500

   

   

   

TOTAL

   

   

23,011,875

   

   

   

TOTAL U.S. DOLLAR

   

   

182,727,902

   

   

   

TOTAL INTERNATIONAL BONDS (IDENTIFIED COST $275,392,508)

   

   

252,480,574

   

   

   

ASSET-BACKED SECURITIES--0.6%

   

   

   

   

   

   

Financial Intermediaries--0.2%

   

   

   

   

2,000,000

   

Green Tree Financial Corp., Sub Bond (1993-4, Class B2), 8.550%, 1/15/2019

   

   

1,932,438

   

   

   

Structured Product--0.4%

   

   

   

   

1,855,207

1,2

125 Home Loan Owner Trust (Series 1998-1A, Class B1), 9.260%, 2/15/2029

   

   

1,912,310

   

673,067

   

New Century Home Equity Loan Trust (Series 1997-NC5, Class M2), 7.240%, 10/25/2028

   

   

701,114

   

419,467

1,2

Option One Mortgage Securities Corp. (Series 2001-3, Class CTFS), 9.660%, 9/26/2031

   

   

419,780

   

225,965

1

SMFC Trust Asset-Backed Certificates (Series 1997-A 4), 6.037%, 1/20/2035

   

   

176,112

   

   

   

TOTAL

   

   

3,209,316

   

   

   

TOTAL ASSET-BACKED SECURITIES (IDENTIFIED COST $5,167,779)

   

   

5,141,754

   

   

   

U.S. GOVERNMENT AGENCIES--0.0%

   

   

   

   

   

   

Long-Term Government Obligations--0.0%

   

   

   

   

361,954

   

Government National Mortgage Association, 11.000%, 9/15/2015 (IDENTIFIED COST $406,746)

   

   

404,824

Principal
Amount or Shares

  

  

Value in
U.S. Dollars

   

   

   

U.S. TREASURY OBLIGATIONS--8.8%

   

   

   

   

   

   

U.S. Treasury Bonds--8.6%

   

   

   

$ 

6,500,000

3

United States Treasury Bond, 10.750%, 2/15/2003

   

$ 

6,892,730

   

5,500,000

   

United States Treasury Bond, 10.750%, 8/15/2005

   

   

6,642,405

   

10,550,000

   

United States Treasury Bond, 11.625%, 11/15/2004

   

   

12,556,399

   

6,800,000

   

United States Treasury Bond, 11.875%, 11/15/2003

   

   

7,675,908

   

11,000,000

3

United States Treasury Bond, 12.000%, 5/15/2005

   

   

13,541,770

   

10,910,000

   

United States Treasury Bond, 12.375%, 5/15/2004

   

   

12,794,593

   

9,000,000

   

United States Treasury Bond, 13.750%, 8/15/2004

   

   

10,981,350

   

   

   

TOTAL

   

   

71,085,155

   

   

   

U.S. Treasury Note--0.2%

   

   

   

   

1,340,000

   

United States Treasury Note, 4.875%, 2/15/2012

   

   

1,322,808

   

   

   

TOTAL U.S. TREASURY OBLIGATIONS (IDENTIFIED COST $78,155,213)

   

   

72,407,963

   

   

   

MUNICIPALS--0.2%

   

   

   

   

   

   

Municipal Services--0.1%

   

   

   

   

750,000

   

Atlanta & Fulton County, GA, Recreation Authority, (Downtown Arena Project), Taxable Revenue Bonds (Series 1997), 7.000%, 12/1/2028

   

   

777,608

   

250,000

   

McKeesport, PA, Taxable GO UT (Series B), 1997, 7.300%, 03/1/2020

   

   

257,985

   

   

   

TOTAL

   

   

1,035,593

   

   

   

Real Estate--0.1%

   

   

   

   

900,000

   

North Central, TX, Housing Finance Corp., (Tiffany Square Apartments), Housing Revenue Bonds (Series 1999-B), 9.100%, 12/1/2014

   

   

988,011

   

   

   

TOTAL MUNICIPALS (IDENTIFIED COST $1,892,355)

   

   

2,023,604

   

   

   

MUTUAL FUNDS--48.6%

   

   

   

   

1,119,615

   

Federated Mortgage Core Portfolio

   

   

11,375,289

   

54,298,627

   

High Yield Bond Portfolio

   

   

353,484,060

   

2,814,134

   

International High Income Core Fund

   

   

30,593,401

   

5,490,932

   

Prime Value Obligations Fund, Series IS

   

   

5,490,932

   

   

   

TOTAL MUTUAL FUNDS (IDENTIFIED COST $538,652,211)

   

   

400,943,682

   

   

   

PREFERRED STOCKS--0.3%

   

   

   

   

   

   

Financial Intermediaries--0.2%

   

   

   

   

40,000

   

Lehman Brothers Holdings, Pfd. 5.67%

   

   

1,672,500

   

   

   

Real Estate--0.1%

   

   

   

   

9,900

   

Prologis Trust, Cumulative Pfd. (Series C), 4.27%

   

   

492,525

   

   

   

TOTAL PREFERRED STOCKS (IDENTIFIED COST $2,146,407)

   

   

2,165,025

Shares

  

  

Value in
U.S. Dollars

   

   

   

WARRANTS--0.0%

   

   

   

   

   

   

EURO--0.0%

   

   

   

   

   

   

Telecommunications & Cellular--0.0%

   

   

   

   

3,000

1,2,4

Enitel ASA

   

$ 

28

   

3,500

4

Jazztel PLC, Warrants, 7/15/2010

   

   

0

   

   

   

TOTAL

   

   

28

   

   

   

U.S. DOLLAR--0.0%

   

   

   

   

   

   

Insurance--0.0%

   

   

   

   

2,013

4

Arcadia Financial Ltd., Warrants, 3/15/2007

   

   

20

   

   

   

Sovereign--0.0%

   

   

   

   

250

4

Nigeria, Government of, Warrants, 11/15/2020

   

   

0

   

   

   

TOTAL WARRANTS

   

   

48

   

   

   

TOTAL INVESTMENTS (IDENTIFIED COST $978,954,279)5

   

$

817,443,057

1 Denotes a restricted security which is subject to restrictions on resale under federal securities laws. At May 31, 2002, these securities amounted to $49,731,880 which represents 6.0% of net assets. Included in these amounts, securities which have been deemed liquid amounted to $39,183,139 which represents 4.7% of net assets.

2 Denotes a restricted security that has been deemed liquid by criteria approved by the Fund's Board of Directors.

3 Certain shares are temporarily on loan to unaffiliated broker/dealers.

4 Non-income producing security.

5 The cost of investments for generally accepted accounting principles ("GAAP") is $978,954,279. Cost for federal income tax purposes is $989,160,300. The difference between cost for GAAP and cost on a tax basis is related to amortization/accretion tax elections on fixed income securities. The net unrealized depreciation of investments on a federal tax basis amounts to $171,717,243 which is comprised of $15,386,697 appreciation and $187,103,940 depreciation at May 31, 2002.

Note: The categories of investments are shown as a percentage of net assets ($825,780,230) at May 31, 2002.

The following acronyms are used throughout this portfolio:

GO

--General Obligation

MTN

--Medium Term Note

SA

--Support Agreement

UT

--Unlimited Tax

See Notes which are an integral part of the Financial Statements

Statement of Assets and Liabilities

May 31, 2002 (unaudited)

Assets:

  

   

   

  

   

   

   

Total investments in securities, at value (identified cost $978,954,279)

   

   

   

   

$

817,443,057

   

Cash denominated in foreign currency (identified cost $72,710)

   

   

   

   

   

72,932

   

Cash held as collateral for securities lending

   

   

   

   

   

32,203,946

   

Income receivable

   

   

   

   

   

11,073,667

   

Receivable for shares sold

   

   

   

   

   

1,683,652

   

TOTAL ASSETS

   

   

   

   

   

862,477,254

   

Liabilities:

   

   

   

   

   

   

   

Payable for shares redeemed

   

$

994,060

   

   

   

   

Income distribution payable

   

   

2,741,443

   

   

   

   

Payable for collateral due to broker

   

   

32,203,946

   

   

   

   

Accrued expenses

   

   

757,575

   

   

   

   

TOTAL LIABILITIES

   

   

   

   

   

36,697,024

   

Net assets for 103,020,213 shares outstanding

   

   

   

   

$

825,780,230

   

Net Assets Consist of:

   

   

   

   

   

   

   

Paid in capital

   

   

   

   

$

1,044,185,028

   

Net unrealized depreciation of investments and translation of assets and liabilities in foreign currency

   


   

   

   


(162,358,458

)

Accumulated net realized loss on investments and foreign currency transactions

   

   

   

   

   

(35,949,592

)

Distributions in excess of net investment income

   

   

   

   

   

(20,096,748

)

TOTAL NET ASSETS

   

   

   

   

$

825,780,230

   

Net Asset Value, Offering Price and Redemption Proceeds Per Share

   

   

   

   

   

   

   

Class A Shares:

   

   

   

   

   

   

   

Net asset value per share ($149,682,807 ÷ 18,668,943 shares outstanding)

   

   

   

   

   

$8.02

   

Offering price per share (100/95.50 of $8.02)1

   

   

   

   

   

$8.40

   

Redemption proceeds per share

   

   

   

   

   

$8.02

   

Class B Shares:

   

   

   

   

   

   

   

Net asset value per share ($601,902,457 ÷ 75,092,317 shares outstanding)

   

   

   

   

   

$8.02

   

Offering price per share

   

   

   

   

   

$8.02

   

Redemption proceeds per share (94.50/100 of $8.02)2

   

   

   

   

   

$7.58

   

Class C Shares:

   

   

   

   

   

   

   

Net asset value per share ($51,541,569 ÷ 6,427,561 shares outstanding)

   

   

   

   

   

$8.02

   

Offering price per share

   

   

   

   

   

$8.02

   

Redemption proceeds per share (99.00/100 of $8.02)2

   

   

   

   

   

$7.94

   

Class F Shares:

   

   

   

   

   

   

   

Net asset value per share ($22,653,397 ÷ 2,831,392 shares outstanding)

   

   

   

   

   

$8.00

   

Offering price per share (100/99.00 of $8.00)1

   

   

   

   

   

$8.08

   

Redemption proceeds per share (99.00/100 of $8.00)2

   

   

   

   

   

$7.92

   

1 See "What Do Shares Cost?" in the Prospectus.

2 See "Contingent Deferred Sales Charge" in the Prospectus.

See Notes which are an integral part of the Financial Statements

Statement of Operations

Six Months Ended May 31, 2002 (unaudited)

Investment Income:

  

   

   

   

  

   

   

   

  

   

   

   

Dividends

   

   

   

   

   

   

   

   

   

$

17,563,188

   

Interest (net of foreign taxes withheld of $6,254)

   

   

   

   

   

   

   

   

   

   

21,870,844

   

Income allocated from partnership

   

   

   

   

   

   

   

   

   

   

1,648,553

   

TOTAL INCOME

   

   

   

   

   

   

   

   

   

   

41,082,585

   

Expenses:

   

   

   

   

   

   

   

   

   

   

   

   

Investment adviser fee

   

   

   

   

   

$

3,499,918

   

   

   

   

   

Administrative personnel and services fee

   

   

   

   

   

   

309,640

   

   

   

   

   

Custodian fees

   

   

   

   

   

   

90,150

   

   

   

   

   

Transfer and dividend disbursing agent fees and expenses

   

   

   

   

   

   

341,528

   

   

   

   

   

Directors'/Trustees' fees

   

   

   

   

   

   

3,706

   

   

   

   

   

Auditing fees

   

   

   

   

   

   

9,711

   

   

   

   

   

Legal fees

   

   

   

   

   

   

4,699

   

   

   

   

   

Portfolio accounting fees

   

   

   

   

   

   

80,442

   

   

   

   

   

Distribution services fee--Class B Shares

   

   

   

   

   

   

2,238,434

   

   

   

   

   

Distribution services fee--Class C Shares

   

   

   

   

   

   

198,869

   

   

   

   

   

Distribution services fee--Class F Shares

   

   

   

   

   

   

61,488

   

   

   

   

   

Shareholder services fee--Class A Shares

   

   

   

   

   

   

186,209

   

   

   

   

   

Shareholder services fee--Class B Shares

   

   

   

   

   

   

746,145

   

   

   

   

   

Shareholder services fee--Class C Shares

   

   

   

   

   

   

66,290

   

   

   

   

   

Shareholder services fee--Class F Shares

   

   

   

   

   

   

30,744

   

   

   

   

   

Share registration costs

   

   

   

   

   

   

35,640

   

   

   

   

   

Printing and postage

   

   

   

   

   

   

50,173

   

   

   

   

   

Insurance premiums

   

   

   

   

   

   

993

   

   

   

   

   

Taxes

   

   

   

   

   

   

27,812

   

   

   

   

   

Miscellaneous

   

   

   

   

   

   

4,529

   

   

   

   

   

EXPENSES BEFORE ALLOCATION

   

   

   

   

   

   

7,987,120

   

   

   

   

   

Expenses allocated from partnership

   

   

   

   

   

   

8,994

   

   

   

   

   

TOTAL EXPENSES

   

   

   

   

   

   

7,996,114

   

   

   

   

   

Waivers and Reimbursement:

   

   

   

   

   

   

   

   

   

   

   

   

Waiver of investment adviser fee

   

$

(275,962

)

   

   

   

   

   

   

   

   

Waiver of transfer and dividend disbursing agent fees and expenses

   

   

(4,077

)

   

   

   

   

   

   

   

   

Waiver of distribution services fee--Class F Shares

   

   

(61,488

)

   

   

   

   

   

   

   

   

Reimbursement of investment adviser fee

   

   

(802

)

   

   

   

   

   

   

   

   

TOTAL WAIVERS AND REIMBURSEMENT

   

   

   

   

   

   

(342,329

)

   

   

   

   

Net expenses

   

   

   

   

   

   

   

   

   

   

7,653,785

   

Net investment income

   

   

   

   

   

   

   

   

   

   

33,428,800

   

Realized and Unrealized Gain (Loss) on Investments and Foreign Currency Transactions:

   

   

   

   

   

   

   

   

   

   

   

   

Net realized gain on investments and foreign currency transactions

   

   

   

   

   

   

   

   

   

   

2,940,745

   

Net realized gain allocated from partnership

   

   

   

   

   

   

   

   

   

   

1,694,022

   

Net change in unrealized appreciation (depreciation) of investments and translation of assets and liabilities in foreign currency

   

   

   

   

   

   

   

   

   

   

(1,970,880

)

Net realized and unrealized gain (loss) on investments and foreign currency transactions

   

   

   

   

   

   

   

   

   

   

2,663,887

   

Change in net assets resulting from operations

   

   

   

   

   

   

   

   

   

$

36,092,687

   

See Notes which are an integral part of the Financial Statements

Statement of Changes in Net Assets

 

   

  

   

Six Months
Ended
(unaudited)
5/31/2002

   

  

   

Year Ended
11/30/2001

   

Increase (Decrease) in Net Assets

   

   

   

   

   

   

   

   

Operations:

   

   

   

   

   

   

   

   

Net investment income

   

$

33,428,800

   

   

$

75,738,779

   

Net realized gain (loss) on investments and foreign currency transactions including allocation from partnership

   

   

4,634,767

   

   

   

(18,431,116

)

Net change in unrealized appreciation/depreciation of investments and translation of assets and liabilities in foreign currency

   

   

(1,970,880

)

   

   

5,098,581

   

CHANGE IN NET ASSETS RESULTING FROM OPERATIONS

   

   

36,092,687

   

   

   

62,406,244

   

Distributions to Shareholders:

   

   

   

   

   

   

   

   

Distributions from net investment income

   

   

   

   

   

   

   

   

Class A Shares

   

   

(6,638,795

)

   

   

(12,139,585

)

Class B Shares

   

   

(24,631,640

)

   

   

(51,708,278

)

Class C Shares

   

   

(2,150,797

)

   

   

(4,617,581

)

Class F Shares

   

   

(1,102,116

)

   

   

(2,477,516

)

Distributions from paid in capital

   

   

   

   

   

   

   

   

Class A Shares

   

   

--

   

   

   

(422,298

)

Class B Shares

   

   

--

   

   

   

(1,806,875

)

Class C Shares

   

   

--

   

   

   

(161,132

)

Class F Shares

   

   

--

   

   

   

(85,502

)

CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS

   

   

(34,523,348

)

   

   

(73,418,767

)

Share Transactions:

   

   

   

   

   

   

   

   

Proceeds from sale of shares

   

   

128,813,797

   

   

   

205,620,573

   

Net asset value of shares issued to shareholders in payment of distributions declared

   

   

16,781,364

   

   

   

37,249,196

   

Cost of shares redeemed

   

   

(129,274,535

)

   

   

(212,697,861

)

CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS

   

   

16,320,626

   

   

   

30,171,908

   

Change in net assets

   

   

17,889,965

   

   

   

19,159,385

   

Net Assets:

   

   

   

   

   

   

   

   

Beginning of period

   

   

807,890,265

   

   

   

788,730,880

   

End of period

   

$

825,780,230

   

   

$

807,890,265

   

See Notes which are an integral part of the Financial Statements

Financial Highlights--Class A Shares

(For a Share Outstanding Throughout Each Period)

   

   

Six Months
Ended
(unaudited)

   

   

Year Ended November 30,

   

  

5/31/2002

   

  

2001

   

  

2000

   

  

1999

   

  

1998

   

  

1997

   

Net Asset Value, Beginning of Period

   

$ 8.00

   

   

$ 8.10

   

   

$ 9.19

   

   

$ 9.79

   

   

$10.41

   

   

$10.47

   

Income From Investment Operations:

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Net investment income

   

0.37

1

   

0.81

   

   

0.84

   

   

0.87

   

   

0.83

   

   

0.87

2

Net realized and unrealized gain (loss) on investments and foreign currency transactions

   

0.01

1

   

(0.12

)

   

(1.12

)

   

(0.65

)

   

(0.54

)

   

(0.03

)

TOTAL FROM INVESTMENT OPERATIONS

   

0.38

   

   

0.69

   

   

(0.28

)

   

0.22

   

   

0.29

   

   

0.84

   

Less Distributions:

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Distributions from net investment income

   

(0.36

)

   

(0.76

)

   

(0.81

)

   

(0.82

)

   

(0.81

)

   

(0.87

)

Distributions in excess of net investment income3

   

--

   

   

--

   

   

--

   

   

--

   

   

(0.07

)

   

--

   

Distributions from paid in capital4

   

--

   

   

(0.03

)

   

--

   

   

--

   

   

--

   

   

--

   

Distributions from net realized gain on investments and foreign currency transactions

   

--

   

   

--

   

   

--

   

   

--

   

   

(0.03

)

   

(0.03

)

TOTAL DISTRIBUTIONS

   

(0.36

)

   

(0.79

)

   

(0.81

)

   

(0.82

)

   

(0.91

)

   

(0.90

)

Net Asset Value, End of Period

$ 8.02

   

   

$ 8.00

   

   

$ 8.10

   

   

$ 9.19

   

   

$ 9.79

   

   

$10.41

   

Total Return5

   

4.85

%

   

8.77

%

   

(3.37

)%

   

2.30

%

   

2.94

%

   

8.33

%

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Ratios to Average Net Assets:

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Expenses

   

1.26

%6

   

1.23

%

   

1.19

%

   

1.16

%

   

1.13

%

   

1.10

%

Net investment income

   

8.71

%1,6

   

9.93

%

   

9.44

%

   

8.93

%

   

8.12

%

   

8.40

%

Expense waiver/reimbursement7

   

0.07

%6

   

0.13

%

   

0.19

%

   

0.21

%

   

0.24

%

   

0.36

%

Supplemental Data:

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Net assets, end of period (000 omitted)

   

$149,683

   

$138,295

   

$127,397

   

$148,365

   

$141,065

   

$58,270

   

Portfolio turnover

   

26

%

   

58

%

   

60

%

   

51

%

   

93

%

   

40

%

1 Effective December 1, 2001, the Fund has adopted the provisions of the American Institute of Certified Public Accountants (AICPA) Audit and Accounting Guide for Investment Companies and began accreting discount and amortizing premium on long-term debt securities. The effect of this change for the six months ended May 31, 2002 was to decrease net investment income per share by $(0.02), increase net realized gain/loss per share by $0.02, and decrease the ratio of net investment income to average net assets from 9.27% to 8.71%. Per share, ratios and supplemental data for periods to May 31, 2002 have not been restated to reflect this change in presentation.

2 Per share information is based on average shares outstanding.

3 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 purpose.

4 Represents a return of capital for federal income tax purposes.

5 Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable.

6 Computed on an annualized basis.

7 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

Financial Highlights--Class B Shares

(For a Share Outstanding Throughout Each Period)

   

   

Six Months
Ended
(unaudited)

   

   

Year Ended November 30,

   

  

5/31/2002

   

  

2001

   

  

2000

   

  

1999

   

  

1998

   

  

1997

   

Net Asset Value, Beginning of Period

   

$ 8.00

   

   

$ 8.10

   

   

$ 9.19

   

   

$ 9.79

   

   

$10.40

   

   

$10.47

   

Income From Investment Operations:

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Net investment income

   

0.34

1

   

0.76

   

   

0.77

   

   

0.80

   

   

0.75

   

   

0.79

2

Net realized and unrealized gain (loss) on investments and foreign currency transactions

   

0.01

1

   

(0.13

)

   

(1.12

)

   

(0.65

)

   

(0.53

)

   

(0.04

)

TOTAL FROM INVESTMENT OPERATIONS

   

0.35

   

   

0.63

   

   

(0.35

)

   

0.15

   

   

0.22

   

   

0.75

   

Less Distributions:

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Distributions from net investment income

(0.33

)

   

(0.71

)

   

(0.74

)

   

(0.75

)

   

(0.73

)

   

(0.79

)

Distributions in excess of net investment income3

   

--

   

   

--

   

   

--

   

   

--

   

   

(0.07

)

   

--

   

Distributions from paid in capital4

   

--

   

   

(0.02

)

   

--

   

   

--

   

   

--

   

   

--

   

Distributions from net realized gain on investments and foreign currency transactions

   

--

   

   

--

   

   

--

   

   

--

   

   

(0.03

)

   

(0.03

)

TOTAL DISTRIBUTIONS

   

(0.33

)

   

(0.73

)

   

(0.74

)

   

(0.75

)

   

(0.83

)

   

(0.82

)

Net Asset Value, End of Period

   

$ 8.02

   

   

$ 8.00

   

   

$ 8.10

   

   

$ 9.19

   

   

$ 9.79

   

   

$10.40

   

Total Return5

   

4.46

%

   

7.97

%

   

(4.10

)%

   

1.54

%

   

2.17

%

   

7.53

%

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Ratios to Average Net Assets:

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Expenses

   

2.01

%6

   

1.98

%

   

1.94

%

   

1.91

%

   

1.88

%

   

1.85

%

Net investment income

   

7.96

%1,6

   

9.18

%

   

8.70

%

   

8.18

%

   

7.37

%

   

7.67

%

Expense waiver/reimbursement7

   

0.07

%6

   

0.13

%

   

0.19

%

   

0.21

%

   

0.24

%

   

0.37

%

Supplemental Data:

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Net assets, end of period (000 omitted)

   

$601,902

   

$592,565

   

$581,077

   

$733,507

   

$689,687

   

$304,746

   

Portfolio turnover

   

26

%

   

58

%

   

60

%

   

51

%

   

93

%

   

40

%

1 Effective December 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting discount and amortizing premium on long-term debt securities. The effect of this change for the six months ended May 31, 2002 was to decrease net investment income per share by $(0.02), increase net realized gain/loss per share by $0.02, and decrease the ratio of net investment income to average net assets from 8.52% to 7.96%. Per share, ratios and supplemental data for periods to May 31, 2002 have not been restated to reflect this change in presentation.

2 Per share information is based on average shares outstanding.

3 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 purpose.

4 Represents a return of capital for federal income tax purposes.

5 Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable.

6 Computed on an annualized basis.

7 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

Financial Highlights--Class C Shares

(For a Share Outstanding Throughout Each Period)

   

   

Six Months
Ended
(unaudited)

   

   

Year Ended November 30,

   

  

5/31/2002

   

  

2001

   

  

2000

   

  

1999

   

  

1998

   

  

1997

   

Net Asset Value, Beginning of Period

   

$ 8.00

   

   

$ 8.10

   

   

$ 9.19

   

   

$ 9.79

   

   

$10.41

   

   

$10.47

   

Income From Investment Operations:

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Net investment income

   

0.35

1

   

0.76

   

   

0.77

   

   

0.80

   

   

0.75

   

   

0.79

3

Net realized and unrealized gain (loss) on investments and foreign currency transactions

   

0.00

1,2

   

(0.13

)

   

(1.12

)

   

(0.65

)

   

(0.54

)

   

(0.03

)

TOTAL FROM INVESTMENT OPERATIONS

   

0.35

   

   

0.63

   

   

(0.35

)

   

0.15

   

   

0.21

   

   

0.76

   

Less Distributions:

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Distributions from net investment income

   

(0.33

)

   

(0.71

)

   

(0.74

)

   

(0.75

)

   

(0.73

)

   

(0.79

)

Distributions in excess of net investment income4

   

--

   

   

--

   

   

--

   

   

--

   

   

(0.07

)

   

--

   

Distributions from paid in capital5

   

--

   

   

(0.02

)

   

--

   

   

--

   

   

--

   

   

--

   

Distributions from net realized gain on investments and foreign currency transactions

   

--

   

   

--

   

   

--

   

   

--

   

   

(0.03

)

   

(0.03

)

TOTAL DISTRIBUTIONS

   

(0.33

)

   

(0.73

)

   

(0.74

)

   

(0.75

)

   

(0.83

)

   

(0.82

)

Net Asset Value, End of Period

   

$ 8.02

   

   

$ 8.00

   

   

$ 8.10

   

   

$ 9.19

   

   

$ 9.79

   

   

$10.41

   

Total Return6

   

4.46

%

   

7.97

%

   

(4.10

)%

   

1.54

%

   

2.18

%

   

7.53

%

 

   

   

   

 

   

   

 

 

 

 

 

 

 

 

 

 

 

 

Ratios to Average Net Assets

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Expenses

   

2.01

%7

   

1.98

%

   

1.94

%

   

1.91

%

   

1.88

%

   

1.86

%

Net investment income

   

7.96

%1,7

   

9.18

%

   

8.66

%

   

8.18

%

   

7.37

%

   

7.69

%

Expense waiver/reimbursement8

   

0.07

%7

   

0.13

%

   

0.19

%

   

0.21

%

   

0.24

%

   

0.37

%

Supplemental Data

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Net assets, end of period (000 omitted)

$51,542

   

$52,146

   

$52,697

   

$70,531

   

$73,509

   

$29,267

   

Portfolio turnover

   

26

%

   

58

%

   

60

%

   

51

%

   

93

%

   

40

%

1 Effective December 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting discount and amortizing premium on long-term debt securities. The effect of this change for the six months ended May 31, 2002 was to decrease net investment income per share by $(0.02), increase net realized gain/loss per share by $0.02, and decrease the ratio of net investment income to average net assets from 8.52% to 7.96%. Per share, ratios and supplemental data for periods to May 31, 2002 have not been restated to reflect this change in presentation.

2 Per share information does not round to $0.01.

3 Per share information is based on average shares outstanding.

4 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 purpose.

5 Represents a return of capital for federal income tax purposes.

6 Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable.

7 Computed on an annualized basis.

8 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

Financial Highlights--Class F Shares

(For a Share Outstanding Throughout Each Period)

   

   

Six Months
Ended
(unaudited)

   

   

Year Ended November 30,

   

  

5/31/2002

   

  

2001

   

  

2000

   

  

1999

   

  

1998

   

  

1997

   

Net Asset Value, Beginning of Period:

   

$ 7.99

   

   

$ 8.09

   

   

$ 9.18

   

   

$ 9.79

   

   

$10.41

   

   

$10.47

   

Income From Investment Operations:

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Net investment income

   

0.37

1

   

0.82

   

   

0.84

   

   

0.87

   

   

0.82

   

   

0.87

3

Net realized and unrealized gain (loss) on investments and foreign currency transactions

   

0.00

1,2

   

(0.13

)

   

(1.12

)

   

(0.66

)

   

(0.53

)

   

(0.03

)

TOTAL FROM INVESTMENT OPERATIONS

   

0.37

   

   

0.69

   

   

(0.28

)

   

0.21

   

   

0.29

   

   

0.84

   

Less Distributions:

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Distributions from net investment income

   

(0.36

)

   

(0.76

)

   

(0.81

)

   

(0.82

)

   

(0.81

)

   

(0.87

)

Distributions in excess of net investment income4

   

--

   

   

--

   

   

--

   

   

--

   

   

(0.07

)

   

--

   

Distributions from paid in capital5

   

--

   

   

(0.03

)

   

--

   

   

--

   

   

--

   

   

--

   

Distributions from net realized gain on investments and foreign currency transactions

   

--

   

   

--

   

   

--

   

   

--

   

   

(0.03

)

   

(0.03

)

TOTAL DISTRIBUTIONS

   

(0.36

)

   

(0.79

)

   

(0.81

)

   

(0.82

)

   

(0.91

)

   

(0.90

)

Net Asset Value, End of Period

   

$ 8.00

   

   

$ 7.99

   

   

$ 8.09

   

   

$ 9.18

   

   

$ 9.79

   

   

$10.41

   

Total Return6

   

4.73

%

   

8.78

%

   

(3.38

)%

   

2.20

%

   

2.94

%

   

8.33

%

 

   

   

   

 

   

   

 

 

 

 

 

 

 

 

 

 

 

 

Ratios to Average Net Assets:

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Expenses

   

1.26

%7

   

1.23

%

   

1.19

%

   

1.16

%

   

1.13

%

   

1.10

%

Net investment income

   

8.71

%1,7

   

9.93

%

   

9.42

%

   

8.92

%

   

8.12

%

   

8.38

%

Expense waiver/reimbursement8

   

0.57

%7

   

0.63

%

   

0.69

%

   

0.71

%

   

0.74

%

   

0.86

%

Supplemental Data:

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Net assets, end of period (000 omitted)

   

$22,653

   

$24,885

   

$27,560

   

$34,034

   

$35,941

   

$29,762

   

Portfolio turnover

   

26

%

   

58

%

   

60

%

   

51

%

   

93

%

   

40

%

1 Effective December 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting discount and amortizing premium on long-term debt securities. The effect of this change for the six months ended May 31, 2002 was to decrease net investment income per share by $(0.02), increase net realized gain/loss per share by $0.02, and decrease the ratio of net investment income to average net assets from 9.27% to 8.71%. Per share, ratios and supplemental data for periods to May 31, 2002 have not been restated to reflect this change in presentation.

2 Per share information does not round to $0.01.

3 Per share information is based on average shares outstanding.

4 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 purpose.

5 Represents a return of capital for federal income tax purposes.

6 Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable.

7 Computed on an annualized basis.

8 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

Notes to Financial Statements

May 31, 2002 (unaudited)

ORGANIZATION

Federated Fixed Income Securities, Inc. (the "Corporation") is registered under the Investment Company Act of 1940, as amended (the "Act") as an open-end, management investment company. The Corporation consists of four portfolios. The financial statements included herein are only those of Federated Strategic 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. The Fund offers four classes of shares: Class A Shares, Class B Shares, Class C Shares and Class F Shares. The investment objective of the Fund is to seek a high level of current income.

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

U.S. government securities, 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. Listed equity securities are valued at the last sale price reported on a national securities exchange. Short-term securities are valued at the prices provided by an independent pricing service. However, short-term securities with remaining maturities of 60 days or less at the time of purchase may be valued at amortized cost, which approximates fair market value. Investments in other open-end regulated investment companies are valued at net asset value. With respect to valuation of foreign securities, trading in foreign cities may be completed at times which vary from the closing of the New York Stock Exchange. Therefore, foreign securities are valued at the latest closing price on the exchange on which they are traded prior to the closing of the New York Stock Exchange. Foreign securities quoted in foreign currencies are translated into U.S. dollars at the foreign exchange rate in effect at noon, Eastern time, on the day the value of the foreign security is determined. Securities for which no quotations are readily available are valued at their fair value as determined in good faith using methods approved by the Board of Directors (the "Directors").

Pursuant to an Exemptive Order issued by the Securities and Exchange Commission ("SEC"), the Fund may invest in Federated Core Trust (the "Core Trust") which is independently managed by Federated Investment Management Company, the Fund's Adviser. The Core Trust is an open-end management company, registered under the Act, available only to registered investment companies and other institutional investors. The investment objective of High Yield Bond Portfolio, a series of Core Trust, is to seek high current income by investing primarily in a diversified portfolio of lower rated fixed income securities. The investment objective of Federated Mortgage Core Portfolio, a series of Core Trust, is to seek total return by investing in a diversified portfolio of mortgage-backed fixed income securities. Federated receives no advisory or administrative fees on behalf of Core Trust. Income distributions from the Core Trust are declared daily and paid monthly, and are recorded by the Fund as dividend income. Capital gain distributions, if any, from Core Trust are declared annually, and are recorded by the Fund as capital gains received. Additional information regarding High Yield Bond Portfolio and/or Federated Mortgage Core Portfolio is available upon request.

The Fund may also invest in Federated Core Trust II, L.P. (the "Core Trust II"), pursuant to a separate Exemptive Order issued by the SEC. The Trust is managed independently by Federated Investment Management Company, the Fund's Adviser. The Core Trust II is a limited partnership established under the laws of the State of Delaware, on November 13, 2000, registered under the Act, and offered only to registered investment companies and other accredited investors. The Fund may invest in emerging market fixed income securities primarily by investing in the International High Income Core Fund, a portfolio of Core Trust II. The investment objective of the International High Income Core Fund is to achieve total return on assets and high levels of income. The Fund records daily its proportionate share of income, expenses, unrealized gains and losses and realized gains and losses from International High Income Core Fund. The financial statements of International High Income Core Fund are included within this report and should be read in conjunction with the Fund's financial statements. The valuation of securities held by International High Income Core Fund is discussed in the notes to its financial statements.

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 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. 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 purpose 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. The Fund offers multiple classes of shares, which differ in their respective distribution and service fees. All shareholders bear the common expenses of the Fund based on average daily net assets of each class, without distinction between share classes. Dividends are declared separately for each class. No class has preferential dividend rights; differences in per share dividend rates are generally due to differences in separate class expenses.

Effective December 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting discount and amortizing premium on long-term debt securities. The cumulative effect of this accounting change had no impact on the total net assets of the Fund, but resulted in adjustments to the financial statements as follows:

   

As of 12/1/2001

   

For the Six Months Ended
5/31/2002

   

   

Cost of
Investments

   

Accumulated
Net
Realized
Loss

   

   

Undistributed
Net Investment
Income

   

   

Net
Investment
Income

   

   

Net
Unrealized
Appreciation/
Depreciation

   

Net
Realized
Loss

   

Increase (Decrease)

  

$11,048,231

  

$(12,545

)

  

$(11,035,686

)

  

$(2,300,827

)

  

$3,143,037

  

$(842,210

)

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.

Withholding taxes on foreign interest and dividends have been provided for in accordance with the applicable country's tax rules and rates.

At November 30, 2001, the Fund, for federal tax purposes, had a capital loss carryforward of $39,689,257 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

 

$16,617,166

2008

 

7,257,665

2009

 

15,814,426

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 to perform under the contract.

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 100% of the market value on investments loaned, plus interest, if applicable. 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 May 31, 2002, securities subject to this type of arrangement and related collateral were as follows:

Market Value of Securities Loaned

  

Market Value of Collateral

$29,269,098

   

$32,203,946

Foreign Exchange Contracts

The Fund may enter into foreign currency commitments for the delayed delivery of securities or foreign currency exchange transactions. The Fund may enter into foreign currency contract transactions to protect assets against adverse changes in foreign currency exchange rates or exchange control regulations. Purchased contracts are used to acquire exposure to foreign currencies; whereas, contracts to sell are used to hedge the securities against currency fluctuations. Risks may arise upon entering these transactions from the potential inability of counterparties to meet the terms of their commitments and from unanticipated movements in security prices or foreign exchange rates. The foreign currency transactions are adjusted by the daily exchange rate of the underlying currency and any gains or losses are recorded for financial statement purpose as unrealized until the settlement date.

For the six months ended May 31, 2002, the Fund had no outstanding foreign currency exchange contracts.

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. 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.

Dollar Roll Transactions

The Fund enters into dollar roll transactions, with respect to mortgage securities issued by GNMA, FNMA and FHLMC, in which the Fund sells 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 12 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. For the six months ended May 31, 2002, the Fund had no outstanding dollar roll transactions.

Restricted Securities

Restricted securities are securities that may only be resold upon registration under federal securities laws or in transactions exempt from such registration. In some cases, the issuer of restricted securities has agreed to register such securities for resale, at the issuer's expense either upon demand by the Fund or in connection with another registered offering of the securities. Many restricted securities may be resold in the secondary market in transactions exempt from registration. Such restricted securities may be determined to be liquid under criteria established by the Directors. The Fund will not incur any registration costs upon such resales. The Fund's restricted securities are valued at the price provided by dealers in the secondary market or, if no market prices are available, at the fair value as determined in good faith using methods approved by the Directors.

Additional information on each restricted security held at May 31, 2002 is as follows:

Security

  

Acquisition Date

  

Acquisition Cost

SMFC Trust Asset-Backed Certificates

 

2/4/1998

 

$  303,867

Telkom SA Ltd.

 

6/10/1998

 

1,494,766

Government of Ecuador

 

1/17/2001

 

8,492,137

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 a trade date basis.

CAPITAL STOCK

At May 31, 2002, par value shares ($0.001 per share) authorized were as follows:

Class Name

  

Number of Par Value
Capital Stock Authorized

Class A Shares

 

1,000,000,000

Class B Shares

 

2,000,000,000

Class C Shares

 

1,000,000,000

Class F Shares

 

1,000,000,000

TOTAL

 

5,000,000,000

Transactions in capital stock were as follows:

Six Months Ended
5/31/2002

Year Ended
11/30/2001

Class A Shares:

  

Shares

   

  

   

Amount

   

  

Shares

   

  

   

Amount

   

Shares sold

   

6,543,162

   

   

$

52,828,706

   

   

7,975,190

   

   

$

65,651,783

   

Shares issued to shareholders in payment of distributions declared

   

511,792

   

   

   

4,112,234

   

   

991,947

   

   

   

8,120,396

   

Shares redeemed

   

(5,671,299

)

   

   

(45,778,062

)

   

(7,409,040

)

   

   

(61,201,056

)

NET CHANGE RESULTING FROM CLASS A SHARE TRANSACTIONS

   

1,383,655

   

   

$

11,162,878

   

   

1,558,097

   

   

$

12,571,123

   

 

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Six Months Ended
5/31/2002

Year Ended
11/30/2001

Class B Shares:

   

Shares

   

   

   

Amount

   

   

Shares

   

   

   

Amount

   

Shares sold

   

7,058,932

   

   

$

56,917,455

   

   

13,762,113

   

   

$

113,695,007

   

Shares issued to shareholders in payment of distributions declared

   

1,362,580

   

   

   

10,955,166

   

   

3,056,614

   

   

   

25,025,118

   

Shares redeemed

   

(7,413,180

)

   

   

(59,714,441

)

   

(14,492,510

)

   

   

(118,865,476

)

NET CHANGE RESULTING FROM CLASS B SHARE TRANSACTIONS

   

1,008,332

   

   

$

8,158,180

   

   

2,326,217

   

   

$

19,854,649

   

 

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Six Months Ended
5/31/2002

Year Ended
11/30/2001

Class C Shares:

   

Shares

   

   

   

Amount

   

   

Shares

   

   

   

Amount

   

Shares sold

   

2,297,185

   

   

$

18,520,922

   

   

3,071,619

   

   

$

25,184,070

   

Shares issued to shareholders in payment of distributions declared

   

162,557

   

   

   

1,307,758

   

   

376,293

   

   

   

3,096,120

   

Shares redeemed

   

(2,549,517

)

   

   

(20,546,426

)

   

(3,439,354

)

   

   

(28,127,142

)

NET CHANGE RESULTING FROM CLASS C SHARE TRANSACTIONS

   

(89,775

)

   

$

(717,746

)

   

8,558

   

   

$

153,048

   

 

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Six Months Ended
5/31/2002

Year Ended
11/30/2001

Class F Shares:

   

Shares

   

   

   

Amount

   

   

Shares

   

   

   

Amount

   

Shares sold

   

68,063

   

   

$

546,714

   

   

131,594

   

   

$

1,089,713

   

Shares issued to shareholders in payment of distributions declared

   

50,612

   

   

   

406,206

   

   

125,181

   

   

   

1,007,562

   

Shares redeemed

   

(402,177

)

   

   

(3,235,606

)

   

(547,086

)

   

   

(4,504,187

)

NET CHANGE RESULTING FROM CLASS F SHARE TRANSACTIONS

   

(283,502

)

   

$

(2,282,686

)

   

(290,311

)

   

$

(2,406,912

)

NET CHANGE RESULTING FROM SHARE TRANSACTIONS

   

2,018,710

   

   

$

16,320,626

   

   

3,602,561

   

   

$

30,171,908

   

INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES

Investment Adviser Fee

Federated Investment Management Company, the Fund's investment adviser (the "Adviser"), receives for its services an annual investment adviser fee equal to 0.85% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion.

Under the terms of a sub-adviser agreement between the Adviser and the Federated Global Investment Management Corp. ("FGIMC"), FGIMC receives an allocable portion of the Fund's investment adviser fee. Such allocation is based on the amount of foreign securities which FGIMC manages for the Fund. This fee is paid by the Adviser out of its resources and is not an incremental Fund expense.

Pursuant to an Exemptive Order issued by the SEC the Fund may invest in Prime Value Obligations Fund, which is managed by the Fund's Adviser. The Adviser has agreed to reimburse certain investment adviser fees as a result of these transactions.

Administrative Fee

Federated Services Company ("FServ"), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FServ is based on a scale that ranges from 0.150% to 0.075% of the average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors, Inc., subject to a $125,000 minimum per portfolio and $30,000 per additional class.

Distribution Services Fee

The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp. ("FSC"), the principal distributor, from the net assets of the Fund to finance activities intended to result in the sale of the Fund's Class B Shares, Class C Shares and Class F Shares. The Plan provides that the Fund may incur distribution expenses according to the following schedule annually, to compensate FSC.

Share Class Name

  

Percentage of Average
Daily Net Assets of Class

Class B Shares

 

0.75%

Class C Shares

 

0.75%

Class F Shares

 

0.50%

FSC may voluntarily choose to waive any portion of its fee. FSC can modify or terminate this voluntary waiver at any time at its sole discretion.

Shareholder Services Fee

Under the terms of a Shareholder Services Agreement with Federated Shareholder Services Company ("FSSC"), the Fund will pay FSSC up to 0.25% of average daily net assets of the Fund for the period. The fee paid to FSSC is used to finance certain services for shareholders and to maintain shareholder accounts. FSSC may voluntarily choose to waive any portion of its fee. FSSC can modify or terminate this voluntary waiver at any time at its sole discretion.

Transfer and Dividend Disbursing Agent Fees and Expenses

FServ, through its subsidiary FSSC, serves as transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the size, type and number of accounts and transactions made by shareholders. FSSC may voluntarily choose to waive any portion of its fee. FSSC can modify or terminate this voluntary waiver at any time at its sole discretion.

Portfolio Accounting Fees

FServ maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses.

General

Certain of the Officers and Directors of the Corporation are Officers and Directors or Trustees of the above companies.

INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding long-term U.S. government and short-term securities (and in-kind contributions), for the six months ended May 31, 2002, were as follows:

Purchases

  

$243,236,226

Sales

 

$196,421,449

Purchases and sales of long-term U.S. government securities for the six months ended May 31, 2002 were as follows:

Purchases

  

$26,255,763

Sales

 

$10,000,000

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.

Portfolio of Investments--Federated International High Income Core Fund

May 31, 2002 (unaudited)

Principal
Amount
or Foreign
Currency
Par Amount

  

  

Value in
U.S. Dollars

   

   

   

CORPORATE BONDS--9.2%

   

   

   

   

   

   

Broadcast Radio & TV--2.6%

   

   

   

$

1,250,000

   

TV Azteca SA de CV, Sr. Note, Series B, 10.50%, 2/15/2007

   

$

1,287,131

   

   

   

Container & Glass Products--1.9%

   

   

   

   

1,000,000

   

Vicap SA, Sr. Note, 11.375%, 5/15/2007

   

   

977,500

   

   

   

Oil & Gas--2.7%

   

   

   

   

1,400,000

   

Petrobras International Finance, Sr. Note, 9.75%, 7/6/2011

   

   

1,347,500

   

   

   

Telecommunications & Cellular--2.0%

   

   

   

   

1,000,000

1,2

Philippine Long Distance Telephone Co., Sr. Unsub., 11.375%, 5/15/2012

   

   

1,030,210

   

   

   

TOTAL CORPORATE BONDS (IDENTIFIED COST $4,462,125)

   

   

4,642,341

   

   

   

GOVERNMENT AGENCY--1.2%

   

   

   

   

600,000

   

Banque Centrale de Tunisie, Unsub., 7.375%, 4/25/2012 (IDENTIFIED COST $592,182)

   

   

596,382

   

   

   

SOVEREIGN GOVERNMENTS--85.6%

   

   

   

   

1,250,000

   

Brazil, Government of, Note, 11.50%, 3/12/2008

   

   

1,118,750

   

2,500,000

   

Brazil, Government of, Bond, 12.25%, 3/6/2030

   

   

2,056,250

   

1,354,551

   

Brazil, Government of, Brady Bond C, 8.00%, 4/15/2014

   

   

1,015,236

   

1,300,000

   

Brazil, Government of, Note, 12.00%, 4/15/2010

   

   

1,150,500

   

5,250,000

   

Brazil, Government of, Unsub., 11.00%, 8/17/2040

   

   

3,879,750

   

1,100,000

1,2

Bulgaria, Government of, Bond, 8.25%, 1/15/2015

   

   

1,080,750

   

600,000

   

Colombia, Government of, Bond, 11.75%, 2/25/2020

   

   

595,500

   

600,000

   

Dominican Republic, Government of, Bond, 9.50%, 9/27/2006

   

   

639,767

   

2,500,000

1

Ecuador, Government of, Bond, 12.00%, 11/15/2012

   

   

1,876,250

   

600,000

1,2

El Salvador, Government of, Bond, 8.25%, 4/10/2032

   

   

614,544

   

5,200,000

   

Mexico, Government of, Note, 7.50%, 1/14/2012

   

   

5,275,400

   

4,300,000

   

Mexico, Government of, Note, 8.375%, 1/14/2011

   

   

4,578,425

   

1,000,000

   

Panama, Government of, Bond, 8.875%, 9/30/2027

   

   

955,000

   

600,000

1,2

Peru, Government of, Note, 9.125%, 2/21/2012

   

   

572,400

   

2,625,000

   

Philippines, Government of, Note, 10.625%, 3/16/2025

   

   

2,880,938

Foreign
Currency
Par Amount or Principal
Amount

  

  

Value in
U.S. Dollars

   

   

   

SOVEREIGN GOVERNMENTS--continued

   

   

   

$ 

2,100,000

   

Russia, Government of, Bond, 10.00%, 6/26/2007

   

$ 

2,258,340

   

1,900,000

   

Russia, Government of, Bond, 8.25%, 3/31/2010

   

   

1,884,610

   

2,500,000

   

Russia, Government of, Unsub., 12.75%, 6/24/2028

   

   

3,075,000

   

2,000,000

1

Russia, Government of, Unsub., 5.00%, 3/31/2030

   

   

1,437,000

   

1,500,000

   

South Africa, Government of, Note, 8.50%, 6/23/2017

   

   

1,560,000

   

2,000,000

   

Turkey, Government of, Sr. Unsub., 11.875%, 1/15/2030

   

   

2,015,000

   

3,700,000

   

Venezuela, Government of, Bond, 9.25%, 9/15/2027

   

   

2,543,750

   

   

   

TOTAL SOVEREIGN GOVERNMENTS (IDENTIFIED COST $43,145,567)

   

   

43,063,160

   

   

   

REPURCHASE AGREEMENT--1.2%

   

   

   

   

592,000

   

Bank of America LLC, 1.83%, dated 5/31/2002, due 6/3/2002 (at amortized cost)

   

   

592,000

   

   

   

TOTAL INVESTMENTS (IDENTIFIED COST $48,791,874)3

   

$

48,893,883

1 Denotes a restricted security which is subject to restrictions on resale under federal securities laws. At May 31, 2002, these securities amounted to $6,611,154 which represents 13.1% of net assets. Included in this amount, securities which have been deemed liquid. These securities amounted to $3,297,904 which represents 6.6% of net assets.

2 Denotes a restricted security that has been deemed liquid by criteria approved by the Fund's Board of Trustees.

3 The cost of investments for federal tax purposes amounts to $48,791,874. The net unrealized appreciation of investments on a federal tax basis amounts to $102,009 which is comprised of $1,122,087 appreciation and $1,020,078 depreciation at May 31, 2002.

Note: The categories of investments are shown as a percentage of net assets ($50,298,925) at May 31, 2002.

See Notes which are an integral part of the Financial Statements

Statement of Assets and Liabilities--Federated International High Income Core Fund

May 31, 2002 (unaudited)

Assets:

  

   

   

Total investments in securities, at value (identified cost $48,791,874)

   

$

48,893,883

Cash

   

   

904

Income receivable

   

   

1,335,949

Prepaid expenses

   

   

68,189

Net assets for 4,626,747 shares outstanding

   

$

50,298,925

Net Assets Consist of:

   

   

   

Paid in capital

   

$

44,855,559

Net unrealized appreciation of investments

   

   

102,009

Accumulated net realized gain on investments

   

   

2,761,227

Undistributed net investment income

   

   

2,580,130

TOTAL NET ASSETS

   

$

50,298,925

Net Asset Value, Offering Price and Redemption Proceeds Per Share

   

   

   

$50,298,925 ÷ 4,626,747 shares outstanding

   

   

$10.87

See Notes which are an integral part of the Financial Statements

Statement of Operations--Federated International High Income Core Fund

Period Ended May 31, 2002 (unaudited)

Investment Income:

  

  

   

   

   

  

   

   

Interest

   

   

   

   

   

   

$

2,594,297

Expenses:

   

   

   

   

   

   

   

   

Custodian fees

   

   

$

19,216

   

   

   

   

Transfer and dividend disbursing agent fees and expenses

   

   

   

6,386

   

   

   

   

Directors'/Trustees' fees

   

   

   

117

   

   

   

   

Auditing fees

   

   

   

7,602

   

   

   

   

Legal fees

   

   

   

62,462

   

   

   

   

Portfolio accounting fees

   

   

   

20,968

   

   

   

   

Insurance premiums

   

   

   

695

   

   

   

   

Taxes

   

   

   

12,290

   

   

   

   

Miscellaneous

   

   

   

1,965

   

   

   

   

TOTAL EXPENSES

   

   

   

131,701

   

   

   

   

Reimbursement:

   

   

   

   

   

   

   

   

Reimbursement of other operating expenses

   

   

   

(117,534

)

   

   

   

Net expenses

   

   

   

   

   

   

   

14,167

Net investment income

   

   

   

   

   

   

   

2,580,130

Realized and Unrealized Gain (Loss) on Investments:

   

   

   

   

   

   

   

   

Net realized gain on investments

   

   

   

   

   

   

   

2,761,227

Net change in unrealized appreciation of investments

   

   

   

   

   

   

   

102,009

Net realized and unrealized gain on investments

   

   

   

   

   

   

   

2,863,236

Change in net assets resulting from operations

   

   

   

   

   

   

$

5,443,366

See Notes which are an integral part of the Financial Statements

Statement of Changes in Net Assets -- Federated International High Income Core Fund

 

  

Period Ended
5/31/2002

1

Increase (Decrease) in Net Assets

   

   

   

   

Operations:

   

   

   

   

Net investment income

   

$

2,580,130

   

Net realized gain on investments

   

   

2,761,227

   

Net change in unrealized appreciation of investments

   

   

102,009

   

CHANGE IN NET ASSETS RESULTING FROM OPERATIONS

   

   

5,443,366

   

Share Transactions:

   

   

   

   

Proceeds from contributions

   

   

103,222,580

   

Fair value of withdrawals

   

   

(58,367,021

)

CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS

   

   

44,855,559

   

Change in net assets

   

   

50,298,925

   

Net Assets:

   

   

   

   

Beginning of period

   

   

--

   

End of period

   

$

50,298,925

   

1 For the period from January 14, 2002 (date of initial public investment) to May 31, 2002.

See Notes which are an integral part of the Financial Statements

Financial Highlights -- Federated International High Income Core Fund

(For a Share Outstanding Throughout the Period)

  

Period Ended
5/31/2002

1

Net Asset Value, Beginning of Period

   

$  9.97

   

Income From Investment Operations:

   

   

   

Net investment income

   

0.56

   

Net realized and unrealized gain on investments

   

0.34

   

TOTAL FROM INVESTMENT OPERATIONS

   

0.90

   

Net Asset Value, End of Period

   

$10.87

   

Total Return2

   

8.70

%

 

 

 

 

Ratios to Average Net Assets:

   

   

   

Expenses

   

0.06

%3

Net investment income

   

10.05

%3

Expense waiver/reimbursement4

   

0.46

%3

Supplemental Data:

   

   

   

Net assets, end of period (000 omitted)

   

$50,299

   

Portfolio turnover

   

85

%

1 Reflects operations for the period from January 14, 2002 (date of initial public investment) to May 31, 2002.

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

Notes to Financial Statements -- Federated International High Income Core Fund

May 31, 2002 (unaudited)

ORGANIZATION

International High Income Core Fund (the "Fund") is a non-diversified portfolio of Federated Core Trust II, L.P. (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended (the "Act"). The Trust is a limited partnership that was established under the laws of the State of Delaware on November 13, 2000 and offered only to registered investment companies and other accredited investors.

The Fund's investment objective is to achieve total return on assets and a high level of income, by investing in an unhedged portfolio of foreign, high-yield, fixed-income 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 and Tax

Interest income and expenses are accrued daily. All net income and gain/loss (realized and unrealized) will be allocated daily to the shareholders based on their capital contributions to the Fund. The Fund does not currently intend to declare and pay distributions.

Federal Taxes

As a partnership, the Fund is not subject to U.S. federal income tax. Instead, each investor reports separately on its own federal income tax return its allocated portion of the Fund's income, gains, losses, deductions and credits (including foreign tax credits for creditable foreign taxes imposed on the 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. 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 12 months. The Fund will use the proceeds generated from the transactions to invest in short-term investments, which may enhance the current yield and total return.

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 May 31, 2002 is as follows:

Security

  

Acquisition Date

  

Acquisition Cost

Ecuador, Government of, 12.00%, 11/15/2012

 

1/14/2002

   

$1,912,500

Russia, Government of, Unsub., 5.00%, 3/31/2030

 

1/14/2002

   

1,356,160

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.

Contributions/Withdrawals

Contribution and Withdrawal transactions were as follows:

  

For the
Period Ended
5/31/2002

   

Proceeds from contributions

   

$103,222,580

   

Fair value of withdrawals

   

(58,367,021

)

TOTAL CHANGE RESULTING FROM CONTRIBUTIONS/WITHDRAWALS

   

$  44,855,559

   

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.

The Adviser may voluntarily choose to reimburse certain operating expenses of the Fund. The Adviser can modify or terminate this reimbursement at anytime at its sole discretion.

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 no fee.

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 May 31, 2002, were as follows:

Purchases

  

$

56,194,617

Sales

   

$

85,911,444

CONCENTRATION OF CREDIT RISK

Compared to diversified mutual funds, the Fund, may invest a higher percentage of its assets among fewer issuers of portfolio securities. This increases the Fund's risk by magnifying the impact (positively or negatively) that any one issuer has on the Fund's Share price and performance.

The Fund invests in securities of non-U.S. issuers. 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 or volatility of portfolio securities and currency holdings.

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.

IMPORTANT NOTICE ABOUT FUND DOCUMENT DELIVERY

In an effort to reduce costs and avoid duplicate mailings, the Fund(s) intend to deliver a single copy of certain documents to each household in which more than one shareholder of the Fund(s) resides (so-called "householding"), as permitted by applicable rules. The Fund's "householding" program covers its/their Prospectus and Statement of Additional Information, and supplements to each, as well as Semi-Annual and Annual Reports and any Proxies or information statements. Shareholders must give their written consent to participate in the householding program. The Fund is also permitted to treat a shareholder as having given consent ("implied consent") if (i) shareholders with the same last name, or believed to be members of the same family, reside at the same street address or receive mail at the same post office box, (ii) the Fund gives notice of its intent to "household" at least sixty (60) days before it begins "householding" and (iii) none of the shareholders in the household have notified the Fund(s) or their agent of the desire to "opt out" of householding. Shareholders who have granted written consent, or have been deemed to have granted implied consent, can revoke that consent and opt out of householding at any time by calling 1-800-341-7400.

Federated
World-Class Investment Manager
Federated Strategic Income Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
www.federatedinvestors.com
Contact us at 1-800-341-7400 or
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Federated Securities Corp., Distributor

Cusip 31417P502
Cusip 31417P601
Cusip 31417P700
Cusip 31417P809

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G00324-01 (7/02)