Federated Adjustable Rate Securities Fund

Transcription

1 August 31, 2017 Share Class Ticker Institutional FEUGX Service FASSX Federated Adjustable Rate Securities Fund Not FDIC Insured May Lose Value No Bank Guarantee

2 CONTENTS Management s Discussion of Fund Performance... 1 Portfolio of Investments Summary Table... 5 Portfolio of Investments... 6 Financial Highlights Statement of Assets and Liabilities Statement of Operations Statement of Changes in Net Assets Notes to Financial Statements Report of Independent Registered Public Accounting Firm Shareholder Expense Example In Memoriam Board of Trustees and Fund Officers Evaluation and Approval of Advisory Contract Voting Proxies on Fund Portfolio Securities Quarterly Portfolio Schedule... 43

3 Management s Discussion of Fund Performance (unaudited) The total return of Federated Adjustable Rate Securities Fund (the Fund ), based on net asset value for the 12-month reporting period ended August 31, 2017, was 0.63% for the Institutional Shares and 0.40% for the Service Shares. The 0.63% total return of the Institutional Shares consisted of 0.84% in taxable dividends and -0.21% of price depreciation in the net asset value of the shares. The BofA Merrill Lynch 1-Year US Treasury Note Index (BAML1T), 1 the Fund s broad-based securities market index, returned 0.65% for the same period. The Fund s total return for the most recently completed fiscal year reflected actual cash flows, transaction costs and other expenses, which were not reflected in the total return of the BAML1T. During the reporting period, the Fund s investment strategy focused on sector allocation among agency adjustable- and fixed-rate, pass-through securities. This was the most significant factor affecting the Fund s performance relative to the BAML1T. The following discussion will focus on the performance of the Fund s Institutional Shares. MARKET OVERVIEW Economic growth was deemed sufficiently strong to support the Federal Reserve s (the Fed ) tightening of monetary policy. Consumer spending continued to expand, supported by strong job growth, record equity market indexes and rising consumer wealth. Bond yields increased as the Fed continued down a path of interest rate normalization, moving away from historically extreme levels of accommodative monetary policy. The federal funds rate was increased 25 basis points on three separate occasions to a range of 1% to 1.25%. Household spending continued to support growth and business fixed investment showed improvement. Nonfarm payroll growth averaged 175,000 jobs per month, and the unemployment rate declined 0.5% to 4.4%, a level last seen in While the consumer price index (CPI) increased during the period, it remained below the Fed s 2% inflation target. Gains in employment and consumer confidence boosted existing home sales to an annual rate of approximately 5.5 million units. Consumer confidence, along with consumer wealth, reached multi-year highs, boosted by home price appreciation and record equity markets. The employment gains and consumer spending buoyed investor confidence, propelling the S&P 500 Index to record levels. With moderate economic growth and tighter monetary policy, interest rates increased across the maturity spectrum. Mortgage rates increased with the rise in Treasury yields. The average 30-year mortgage rate spiked 40 basis points to 3.90%. The 2-year and 10-year Treasury yields increased 52 and 54 basis points to yield 1.33% and 2.12%, respectively. 2 1

4 SECTOR ALLOCATION By prospectus, at least 80% of portfolio assets must be invested in adjustable-rate securities, including adjustable-rate mortgage (ARM) pass-throughs and monthly adjustable collateralized mortgage obligations. 3 Treasury to mortgage yield spreads increased for ARM pass-throughs, placing downward pressure on security prices. However, monthly adjustable floating rate securities experienced spread tightening during the period, aided by strong investor demand for shortduration assets responsive to changes in short-term interest rates. Overall, sector allocation positively impacted Fund performance. 1 Please see the footnotes to the line graphs under Fund Performance and Growth of a $10,000 Investment below for the definition of, and more information about, the BAML1T. 2 Bond prices are sensitive to changes in interest rates, and a rise in interest rates can cause a decline in their prices. 3 The value of some mortgage-backed securities may be particularly sensitive to changes in prevailing interest rates, and although the securities are generally supported by some form of government or private insurance, there is no assurance that private guarantors or insurers will meet their obligations. 2

5 FUND PERFORMANCE AND GROWTH OF A $10,000 INVESTMENT The graph below illustrates the hypothetical investment of $10,000 1 in the Federated Adjustable Rate Securities Fund (the Fund ) from August 31, 2007 to August 31, 2017, compared to the BofA Merrill Lynch 1-Year U.S. Treasury Note Index (BAML1T). 2 The Average Annual Total Return table below shows returns for each class averaged over the stated periods. GROWTH OF A $10,000 INVESTMENT Growth of $10,000 as of August 31, 2017 Federated Adjustable Rate Securities Fund - Institutional Shares Federated Adjustable Rate Securities Fund - Service Shares BAML1T $12,000 $11,000 $11,633 $11,367 $11,162 $10,000 $9,000 8/31/07 8/08 8/09 8/10 8/11 8/12 8/13 8/14 8/15 8/16 8/31/17 The Fund offers multiple share classes whose performance may be greater than or less than its other share class(es) due to differences in sales charges and expenses. Average Annual Total Returns for the Periods Ended 8/31/ Year 5 Years 10 Years Institutional Shares 0.63% 0.14% 1.52% Service Shares 0.40% -0.09% 1.29% BAML1T 0.65% 0.39% 1.11% 3

6 Performance data quoted represents past performance which 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. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance and after-tax returns, visit FederatedInvestors.com or call Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Mutual funds are not obligations of or guaranteed by any bank and are not federally insured. 1 The Fund s performance assumes the reinvestment of all dividends and distributions. The BAML1T has been adjusted to reflect reinvestment of dividends on securities in the index. 2 The BAML1T is an index tracking one-year U.S. government securities and is not adjusted to reflect expenses or other fees that the Securities and Exchange Commission requires to be reflected in the Fund s performance. The index is unmanaged and, unlike the Fund, is not affected by cash flows. It is not possible to invest directly in an index. 4

7 Portfolio of Investments Summary Table (unaudited) At August 31, 2017, the Fund s portfolio composition 1 wasasfollows: Percentage of Type of Investment Total Net Assets U.S. Government Agency Adjustable Rate Mortgage Securities 54.7% U.S. Government Agency Mortgage-Backed Securities 33.4% U.S. Government Agency Commercial Mortgage-Backed Securities 2.4% Asset-Backed Securities 3.5% Non-Agency Commercial Mortgage-Backed Securities 1.3% Non-Agency Mortgage-Backed Securities 1.2% Cash Equivalents 2 2.8% Other Assets and Liabilities Net 3 0.7% TOTAL 100.0% 1 See the Fund s Prospectus and Statement of Additional Information for a description of the types of securities in which the Fund invests. 2 Cash Equivalents include any investments in money market mutual funds and/or overnight repurchase agreements. 3 Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities. 5

8 Portfolio of Investments August 31, 2017 Principal Amount Value ADJUSTABLE RATE MORTGAGES 54.7% Federal Home Loan Mortgage Corporation ARM 15.8% 1 $ 2, %, 9/1/2020 $ 2,957 1,993, %, 11/1/2034 2,114,624 5,515, %, 7/1/2034 5,656,335 2,276, %, 8/1/2035 2,417,165 3,606, %, 11/1/2036 3,775,857 1,906, %, 4/1/2034 2,004,181 1,119, %, 2/1/2036 1,161,063 3,263, %, 2/1/2035 3,447,738 2,396, %, 7/1/2038 2,465,652 3,051, %, 7/1/2036 3,162,518 2,969, %, 10/1/2033 3,112,228 2,081, %, 12/1/2034 2,184,265 2,015, %, 4/1/2037 2,093,220 3,130, %, 7/1/2035 3,318,369 1,984, %, 5/1/2035 2,057,715 TOTAL 38,973,887 Federal National Mortgage Association ARM 38.7% 1 2,783, %, 3/1/2044 2,804,784 1,638, %, 7/1/2042 1,652, , %, 7/1/ ,585 2,081, %, 10/1/2034 2,152, , %, 10/1/ ,385 88, %, 10/1/ ,337 1,332, %, 12/1/2034 1,392,297 2,756, %, 5/1/2039 2,861, , %, 5/1/ , , %, 11/1/ ,691 2,968, %, 10/1/2037 3,088, , %, 1/1/ ,580 1,097, %, 10/1/2035 1,160, , %, 9/1/ ,712 24, %, 2/1/ ,736 4, %, 2/1/2020 4,251 1,239, %, 10/1/2033 1,275, , %, 12/1/ ,228 6

9 Principal Amount Value ADJUSTABLE RATE MORTGAGES continued Federal National Mortgage Association ARM continued 1 $3,418, %, 8/1/2034 $ 3,531, , %, 6/1/ ,178 1,826, %, 2/1/2033 1,919,079 1,855, %, 8/1/2034 1,919,433 4,154, %, 1/1/2039 4,357,595 1,625, %, 6/1/2034 1,683, , %, 12/1/ ,159 3,594, %, 1/1/2044 3,737,300 4,502, %, 5/1/2035 4,754,639 16, %, 5/1/ ,386 1,728, %, 7/1/2035 1,825,412 2,985, %, 5/1/2036 3,127,658 1,683, %, 10/1/2035 1,781, , %, 5/1/ ,081 1,650, %, 1/1/2036 1,752,350 1,559, %, 7/1/2035 1,646,610 3,142, %, 7/1/2034 3,320, , %, 12/1/ ,895 5,079, %, 8/1/2039 5,315, , %, 6/1/ ,702 2,108, %, 12/1/2039 2,225, , %, 1/1/ , , %, 5/1/2035 1,041, , %, 7/1/ , , %, 7/1/ , , %, 11/1/ , , %, 12/1/ , , %, 2/1/ ,400 99, %, 4/1/ ,455 2,370, %, 1/1/2040 2,470,641 1,963, %, 2/1/2042 2,045, , %, 7/1/ , , %, 2/1/ , , %, 11/1/2039 1,032,412 1,095, %, 5/1/2035 1,156,961 1,021, %, 7/1/2035 1,059,408 1,211, %, 10/1/2037 1,262,375 2,645, %, 7/1/2035 2,799,967 7

10 Principal Amount Value ADJUSTABLE RATE MORTGAGES continued Federal National Mortgage Association ARM continued 1 $1,115, %, 6/1/2034 $ 1,175,339 8,759, %, 8/1/2035 9,277, , %, 5/1/ ,080 83, %, 7/1/ ,623 TOTAL 95,490,566 Government National Mortgage Association ARM 0.2% 1 58, %, 7/20/ ,105 65, %, 9/20/ ,400 49, %, 10/20/ ,459 54, %, 11/20/ ,666 95, %, 1/20/ ,271 81, %, 2/20/ ,990 89, %, 3/20/ ,930 17, %, 1/20/ ,067 40, %, 5/20/ ,449 TOTAL 561,337 TOTAL ADJUSTABLE RATE MORTGAGES (IDENTIFIED COST $134,290,299) 135,025,790 ASSET-BACKED SECURITIES 3.5% Credit Card 2.3% 1 5,718,000 Capital One Multi-Asset Execution Trust 2004-B3, Class B3, 1.957%, (1-month USLIBOR %), 1/18/2022 5,741,999 Other 1.2% 1 785,489 SMB Private Education Loan Trust 2016-B, Class A1, 1.877%, (1-month USLIBOR %), 11/15/ ,911 1,951,006 Sofi Professional Loan Program LLC, Class A1, 2.984%, (1-month USLIBOR %), 8/25/2036 2,006,560 TOTAL 2,793,471 TOTAL ASSET-BACKED SECURITIES (IDENTIFIED COST $8,445,410) 8,535,470 COLLATERALIZED MORTGAGE OBLIGATIONS 33.6% Federal Home Loan Mortgage Corporation 8.8% 1 323,511 REMIC 2380 FL, 1.827% (1-month USLIBOR %), 11/15/ , ,893 REMIC 2434 FA, 2.227% (1-month USLIBOR %), 3/15/ , ,787 REMIC 2448 FA, 2.227% (1-month USLIBOR %), 1/15/ , ,565 REMIC 2452 FC, 2.227% (1-month USLIBOR %), 1/15/ , ,438 REMIC 2459 FP, 2.227% (1-month USLIBOR %), 6/15/ ,999 92,367 REMIC 2470 EF, 2.227% (1-month USLIBOR %), 3/15/ , ,397 REMIC 2475 F, 2.227% (1-month USLIBOR %), 2/15/ ,315 8

11 Principal Amount Value COLLATERALIZED MORTGAGE OBLIGATIONS continued Federal Home Loan Mortgage Corporation continued 1 $ 343,823 REMIC 2475 FD, 1.777% (1-month USLIBOR %), 6/15/2031 $ 346, ,120 REMIC 2480 NF, 2.227% (1-month USLIBOR %), 1/15/ ,408 90,950 REMIC 2498 AF, 2.227% (1-month USLIBOR %), 3/15/ , ,061 REMIC 2819 F, 1.627% (1-month USLIBOR %), 6/15/ , ,111 REMIC 3085 UF, 1.677% (1-month USLIBOR %), 12/15/ , ,264 REMIC 3155 PF, 1.577% (1-month USLIBOR %), 5/15/ , ,804 REMIC 3156 HF, 1.712% (1-month USLIBOR %), 8/15/ , ,410 REMIC 3174 FL, 1.577% (1-month USLIBOR %), 6/15/ , ,060 REMIC 3179 FP, 1.607% (1-month USLIBOR %), 7/15/ , ,730 REMIC 3213 GF, 1.657% (1-month USLIBOR %), 9/15/ , ,756 REMIC 3221 FW, 1.647% (1-month USLIBOR %), 9/15/ ,690 1,527,390 REMIC 3284 AF, 1.537% (1-month USLIBOR %), 3/15/2037 1,526,164 7,111,003 REMIC 3284 BF, 1.527% (1-month USLIBOR %), 3/15/2037 7,132, ,071 REMIC 3380 FP, 1.577% (1-month USLIBOR %), 11/15/ , ,551 REMIC 3550 GF, 1.977% (1-month USLIBOR %), 7/15/ ,686 1,249,412 REMIC 3556 FA, 2.137% (1-month USLIBOR %), 7/15/2037 1,270, ,278 REMIC 3593 CF, 1.827% (1-month USLIBOR %), 2/15/ ,083 3,319,881 REMIC 4149 F, 1.477% (1-month USLIBOR %), 1/15/2033 3,305,700 TOTAL 21,775,024 Federal National Mortgage Association 19.7% 1 77,416 REMIC B, 2.496%, 2/25/ , ,047 REMIC FA, 1.784% (1-month USLIBOR %), 7/25/ , ,378 REMIC FA, 1.684% (1-month USLIBOR %), 6/25/ , ,463 REMIC FC, 1.884% (1-month USLIBOR %), 11/25/ , ,045 REMIC FS, 1.834% (1-month USLIBOR %), 11/25/ , ,467 REMIC FG, 1.734% (1-month USLIBOR %), 9/25/ , ,116 REMIC FG, 2.234% (1-month USLIBOR %), 8/25/ , ,306 REMIC FH, 2.234% (1-month USLIBOR %), 8/25/ , ,205 REMIC FG, 2.134% (1-month USLIBOR %), 1/25/ , ,396 REMIC FA, 2.228% (1-month USLIBOR %), 12/18/ , ,015 REMIC FG, 1.778% (1-month USLIBOR %), 12/18/ , ,430 REMIC FA, 1.978% (1-month USLIBOR %), 3/18/ ,754 1,760,062 REMIC PF, 1.634% (1-month USLIBOR %), 3/25/2034 1,763, ,009 REMIC FM, 1.584% (1-month USLIBOR %), 8/25/ ,229 1,470,539 REMIC FB, 1.634% (1-month USLIBOR %), 10/25/2036 1,481,054 9

12 Principal Amount Value COLLATERALIZED MORTGAGE OBLIGATIONS continued Federal National Mortgage Association continued 1 $ 395,223 REMIC FB, 1.534% (1-month USLIBOR %), 3/25/2036 $ 395, ,100 REMIC PF, 1.554% (1-month USLIBOR %), 11/25/ ,267 2,327,618 REMIC PF, 1.484% (1-month USLIBOR %), 4/25/2036 2,320,850 1,391,019 REMIC DF, 1.584% (1-month USLIBOR %), 7/25/2036 1,392, ,758 REMIC QF, 1.634% (1-month USLIBOR %), 8/25/ , ,650 REMIC NF, 1.604% (1-month USLIBOR %), 3/25/ , ,593 REMIC FA, 1.584% (1-month USLIBOR %), 9/25/ ,971 4,803,459 REMIC 2006-W1 2AF1, 1.454% (1-month USLIBOR %), 2/25/2046 4,759, ,125 REMIC FA, 1.804% (1-month USLIBOR %), 11/25/ , ,361 REMIC PF, 1.424% (1-month USLIBOR %), 3/25/ , ,975 REMIC F, 1.494% (1-month USLIBOR %), 3/25/ , ,327 REMIC FB, 1.554% (1-month USLIBOR %), 7/25/ ,998 3,219,091 REMIC WF, 1.684% (1-month USLIBOR %), 7/25/2037 3,234, ,605 REMIC FN, 1.734% (1-month USLIBOR %), 8/25/ , ,075 REMIC FW, 1.784% (1-month USLIBOR %), 9/25/ , ,224 REMIC FY, 1.694% (1-month USLIBOR %), 9/25/ ,203 1,745,900 REMIC FD, 1.584% (1-month USLIBOR %), 6/25/2036 1,745, ,102 REMIC FB, 2.234% (1-month USLIBOR %), 6/25/ , ,541 REMIC DF, 2.484% (1-month USLIBOR %), 9/25/ ,089 3,345,392 REMIC FN, 1.984% (1-month USLIBOR %), 1/25/2040 3,400,969 1,174,661 REMIC UF, 2.004% (1-month USLIBOR %), 10/25/2039 1,195,924 2,157,789 REMIC FX, 1.984% (1-month USLIBOR %), 11/25/2039 2,192,201 2,512,472 REMIC HF, 2.084% (1-month USLIBOR %), 11/25/2039 2,563,582 1,107,349 REMIC EF, 1.754% (1-month USLIBOR %), 6/25/2037 1,115,080 5,186,386 REMIC PF, 1.784% (1-month USLIBOR %), 2/25/2041 5,231,392 5,391,731 REMIC DF, 1.634% (1-month USLIBOR %), 12/25/2042 5,373, ,252 REMIC FB, 1.614% (1-month USLIBOR %), 9/25/ ,705 TOTAL 48,739,474 Government National Mortgage Association 3.9% 1 5,719,667 REMIC 2012-H24 FC, 1.624% (1-month USLIBOR %), 10/20/2062 5,691,028 3,876,418 REMIC 2013-H15 FA, 1.764% (1-month USLIBOR %), 6/20/2063 3,882,513 TOTAL 9,573,541 10

13 Principal Amount Value COLLATERALIZED MORTGAGE OBLIGATIONS continued Non-Agency Mortgage-Backed Securities 1.2% 1 $2,972,400 Sequoia Mortgage Trust , Class 1A1, 1.450%, 2/25/2043 $ 2,888,280 TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (IDENTIFIED COST $82,392,752) 82,976,319 COMMERCIAL MORTGAGE-BACKED SECURITIES 3.7% Agency Commercial Mortgage-Backed Securities 2.4% 1 5,058,874 FHLMC REMIC KS02 A, 1.612% (1-month USLIBOR %), 8/25/2023 5,060, ,770 FHLMC REMIC KF03 A, 1.572% (1-month USLIBOR %), 1/25/ ,482 TOTAL 5,964,894 Non-Agency Commercial Mortgage-Backed Securities 1.3% 1 3,140,000 Cosmopolitan Hotel Trust 2016-CSMO, Class A, 2.627%, (1-month USLIBOR %), 11/15/2033 3,156,489 TOTAL COMMERCIAL MORTGAGE-BACKED SECURITIES (IDENTIFIED COST $9,103,644) 9,121,383 MORTGAGE-BACKED SECURITIES 1.0% Federal National Mortgage Association 1.0% 2,201, %, 8/1/2023 2,275, , %, 1/1/ ,536 TOTAL MORTGAGE-BACKED SECURITIES (IDENTIFIED COST $2,549,305) 2,559,100 INVESTMENT COMPANY 2.8% 7,022,442 2 Federated Government Obligations Fund, Premier Shares, 0.91% 3 (AT NET ASSET VALUE) 7,022,442 TOTAL INVESTMENT IN SECURITIES 99.3% (IDENTIFIED COST $243,803,852) 4 245,240,504 OTHER ASSETS AND LIABILITIES - NET 0.7% 5 1,772,354 TOTAL NET ASSETS 100% $247,012,858 1 Floating/adjustable note with current rate and current maturity or next reset date shown. Adjustable rate mortgage security coupons are based on the weighted average note rates of the underlying mortgages less the guarantee and servicing fees. These securities do not indicate an index and spread in their description above. 2 Affiliated holding. 11

14 Transactions involving the affiliated holding during the period ended August 31, 2017, were as follows: Federated Government Obligations Fund, Premier Shares Balance of Shares Held 8/31/2016 Purchases/ Additions 111,193,802 Sales/Reductions (104,171,360) Balance of Shares Held 8/31/2017 7,022,442 Value $ 7,022,442 Change in Unrealized Appreciation/Depreciation $ Net Realized Gain/Loss $ Dividend Income $ 32, day net yield. 4 The cost of investments for federal tax purposes amounts to $243,803, Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities. Note: The categories of investments are shown as a percentage of total net assets at August 31, Various inputs are used in determining the value of the Fund s investments. These inputs are summarized in the three broad levels listed below: Level 1 quoted prices in active markets for identical securities. Level 2 other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). Also includes securities valued at amortized cost. Level 3 significant unobservable inputs (including the Fund s own assumptions in determining the fair value of investments). The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities. 12

15 The following is a summary of the inputs used, as of August 31, 2017, in valuing the Fund s assets carried at fair value: Valuation Inputs Level 1 Quoted Prices Level 2 Other Significant Observable Inputs Level 3 Significant Unobservable Inputs Total Debt Securities: Adjustable Rate Mortgages $ $135,025,790 $ $135,025,790 Asset-Backed Securities 8,535,470 8,535,470 Collateralized Mortgage Obligations 82,976,319 82,976,319 Commercial Mortgage-Backed Securities 9,121,383 9,121,383 Mortgage-Backed Securities 2,559,100 2,559,100 Investment Company 7,022,442 7,022,442 TOTAL SECURITIES $7,022,442 $238,218,062 $ $245,240,504 The following acronyms are used throughout this portfolio: ARM Adjustable Rate Mortgage FHLMC Federal Home Loan Mortgage Corporation LIBOR London Interbank Offered Rate REMIC Real Estate Mortgage Investment Conduit See Notes which are an integral part of the Financial Statements 13

16 Financial Highlights Institutional Shares (For a Share Outstanding Throughout Each Period) Year Ended August Net Asset Value, Beginning of Period $9.69 $9.78 $9.81 $9.78 $9.90 Income From Investment Operations: Net investment income Net realized and unrealized gain (loss) on investments (0.02) (0.09) (0.03) 0.03 (0.12) TOTAL FROM INVESTMENT OPERATIONS 0.06 (0.03) (0.06) Less Distributions: Distributions from net investment income (0.08) (0.06) (0.05) (0.05) (0.06) Distributions from net realized gain on investments (0.00) 1 TOTAL DISTRIBUTIONS (0.08) (0.06) (0.05) (0.05) (0.06) Net Asset Value, End of Period $9.67 $9.69 $9.78 $9.81 $9.78 Total Return % (0.35)% 0.16% 0.83% (0.57)% Ratios to Average Net Assets: Net expenses 0.65% 0.64% 0.64% 0.64% 0.64% Net investment income 0.82% 0.58% 0.47% 0.52% 0.62% Expense waiver/reimbursement % 0.25% 0.24% 0.24% 0.22% Supplemental Data: Net assets, end of period (000 omitted) $226,904 $357,065 $555,017 $674,103 $806,715 Portfolio turnover 1% 19% 27% 12% 30% Portfolio turnover (excluding purchases and sales from dollar-roll transactions) 1% 19% 27% 12% 30% 1 Represents less than $ Based on net asset value. 3 This expense decrease is reflected in both the net expense and the net investment income ratios shown above. See Notes which are an integral part of the Financial Statements 14

17 Financial Highlights Service Shares (For a Share Outstanding Throughout Each Period) Year Ended August Net Asset Value, Beginning of Period $9.69 $9.78 $9.81 $9.78 $9.90 Income From Investment Operations: Net investment income Net realized and unrealized gain (loss) on investments (0.02) (0.09) (0.03) 0.03 (0.12) TOTAL FROM INVESTMENT OPERATIONS 0.04 (0.05) (0.01) 0.06 (0.08) Less Distributions: Distributions from net investment income (0.06) (0.04) (0.02) (0.03) (0.04) Distributions from net realized gain on investments (0.00) 1 TOTAL DISTRIBUTIONS (0.06) (0.04) (0.02) (0.03) (0.04) Net Asset Value, End of Period $9.67 $9.69 $9.78 $9.81 $9.78 Total Return % (0.55)% (0.07)% 0.60% (0.80)% Ratios to Average Net Assets: Net expenses 0.88% 0.85% 0.88% 0.88% 0.88% Net investment income 0.60% 0.39% 0.23% 0.28% 0.38% Expense waiver/reimbursement % 0.14% 0.12% 0.12% 0.11% Supplemental Data: Net assets, end of period (000 omitted) $20,109 $30,134 $38,078 $42,755 $72,193 Portfolio turnover 1% 19% 27% 12% 30% Portfolio turnover (excluding purchases and sales from dollar-roll transactions) 1% 19% 27% 12% 30% 1 Represents less than $ Based on net asset value. 3 This expense decrease is reflected in both the net expense and the net investment income ratios shown above. See Notes which are an integral part of the Financial Statements 15

18 Statement of Assets and Liabilities August 31, 2017 Assets: Investment in securities, at value including $7,022,442 of investment in an affiliated holding (identified cost $243,803,852) $245,240,504 Income receivable 2,063,415 Receivable for shares sold 27,790 Prepaid expenses 2,888 TOTAL ASSETS 247,334,597 Liabilities: Payable for shares redeemed $141,748 Income distribution payable 64,667 Payable to adviser (Note 5) 4,561 Payable for administrative fee (Note 5) 533 Payable for transfer agent fee 19,633 Payable for portfolio accounting fees 47,500 Payable for other service fees (Notes 2 and 5) 23,548 Payable for share registration costs 19,549 TOTAL LIABILITIES 321,739 Net assets for 25,532,871 shares outstanding $247,012,858 Net Assets Consist of: Paid-in capital $247,323,620 Net unrealized appreciation of investments 1,436,652 Accumulated net realized loss on investments (1,793,568) Undistributed net investment income 46,154 TOTAL NET ASSETS $247,012,858 Net Asset Value, Offering Price and Redemption Proceeds Per Share Institutional Shares: Net asset value per share ($226,903,829 23,453,902 shares outstanding), no par value, unlimited shares authorized $9.67 Service Shares: Net asset value per share ($20,109,029 2,078,969 shares outstanding), no par value, unlimited shares authorized $9.67 See Notes which are an integral part of the Financial Statements 16

19 Statement of Operations Year Ended August 31, 2017 Investment Income: Interest $4,569,236 Dividends received from an affiliated holding 32,160 TOTAL INCOME 4,601,396 Expenses: Investment adviser fee (Note 5) $1,872,916 Administrative fee (Note 5) 244,977 Custodian fees 23,990 Transfer agent fee 125,153 Directors /Trustees fees (Note 5) 11,190 Auditing fees 31,150 Legal fees 10,279 Portfolio accounting fees 140,252 Other service fees (Notes 2 and 5) 382,284 Share registration costs 60,160 Printing and postage 29,014 Miscellaneous (Note 5) 46,945 TOTAL EXPENSES 2,978,310 Waiver and Reimbursements: Waiver/reimbursement of investment adviser fee (Note 5) $(568,844) Reimbursement of other operating expenses (Notes 2 and 5) (330,150) TOTAL WAIVER AND REIMBURSEMENTS (898,994) Net expenses 2,079,316 Net investment income 2,522,080 Realized and Unrealized Gain (Loss) on Investments: Net realized loss on investments (150,682) Net change in unrealized appreciation of investments (496,768) Net realized and unrealized loss on investments (647,450) Change in net assets resulting from operations $1,874,630 See Notes which are an integral part of the Financial Statements 17

20 Statement of Changes in Net Assets Year Ended August Increase (Decrease) in Net Assets Operations: Net investment income $ 2,522,080 $ 2,684,032 Net realized loss on investments (150,682) (104,161) Net change in unrealized appreciation/depreciation of investments (496,768) (4,606,159) CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 1,874,630 (2,026,288) Distributions to Shareholders: Distributions from net investment income Institutional Shares (2,401,848) (2,517,852) Service Shares (134,449) (127,391) CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS (2,536,297) (2,645,243) Share Transactions: Proceeds from sale of shares 44,186, ,760,708 Net asset value of shares issued to shareholders in payment of distributions declared 1,579,094 1,604,613 Cost of shares redeemed (185,289,891) (316,589,523) CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS (139,523,880) (201,224,202) Change in net assets (140,185,547) (205,895,733) Net Assets: Beginning of period 387,198, ,094,138 End of period (including undistributed net investment income of $46,154 and $60,368, respectively) $ 247,012,858 $ 387,198,405 See Notes which are an integral part of the Financial Statements 18

21 Notes to Financial Statements August 31, ORGANIZATION Federated Adjustable Rate Securities Fund (the Fund ) is registered under the Investment Company Act of 1940, as amended (the Act ), as a diversified, open-end management investment company. The Fund offers two classes of shares: Institutional Shares and Service Shares. All shares of the Fund have equal rights with respect to voting, except on classspecific matters. The investment objective of the Fund is to provide current income consistent with minimal volatility of principal. 2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with U.S. generally accepted accounting principles (GAAP). Investment Valuation In calculating its net asset value (NAV), the Fund generally values investments as follows: Fixed-income securities are fair valued using price evaluations provided by a pricing service approved by the Trustees. Shares of other mutual funds or non-exchange-traded investment companies are valued based upon their reported NAVs. For securities that are fair valued in accordance with procedures established by and under the general supervision of the Trustees, certain factors may be considered such as: the last traded or purchase price of the security, information obtained by contacting the issuer or dealers, analysis of the issuer s financial statements or other available documents, fundamental analytical data, the nature and duration of restrictions on disposition, the movement of the market in which the security is normally traded, public trading in similar securities or derivative contracts of the issuer or comparable issuers, movement of a relevant index, or other factors including but not limited to industry changes and relevant government actions. If any price, quotation, price evaluation or other pricing source is not readily available when the NAV is calculated, if the Fund cannot obtain price evaluations from a pricing service or from more than one dealer for an investment within a reasonable period of time as set forth in the Fund s valuation policies and procedures, or if information furnished by a pricing service, in the opinion of the valuation committee ( Valuation Committee ), is deemed not representative of the fair value of such security, the Fund uses the fair value of the investment determined in accordance with the procedures described below. There can be no assurance that the Fund could obtain the fair value assigned to an investment if it sold the investment at approximately the time at which the Fund determines its NAV per share. Fair Valuation Procedures The Trustees have ultimate responsibility for determining the fair value of investments for which market quotations are not readily available. The Trustees have appointed a Valuation Committee comprised of officers of the Fund, Federated Investment Management Company ( Adviser ) and certain of the Adviser s affiliated companies to assist in determining fair value and in overseeing the calculation of the NAV. The Trustees have also authorized the use of pricing services recommended by the Valuation Committee to provide fair value evaluations of the current value of certain investments for purposes of calculating the NAV. The Valuation 19

22 Committee employs various methods for reviewing third-party pricing-service evaluations including periodic reviews of third-party pricing services policies, procedures and valuation methods (including key inputs, methods, models and assumptions), transactional back-testing, comparisons of evaluations of different pricing services, and review of price challenges by the Adviser based on recent market activity. In the event that market quotations and price evaluations are not available for an investment, the Valuation Committee determines the fair value of the investment in accordance with procedures adopted by the Trustees. The Trustees periodically review and approve the fair valuations made by the Valuation Committee and any changes made to the procedures. Factors considered by pricing services in evaluating an investment include the yields or prices of investments of comparable quality, coupon, maturity, call rights and other potential prepayments, terms and type, reported transactions, indications as to values from dealers and general market conditions. Some pricing services provide a single price evaluation reflecting the bid-side of the market for an investment (a bid evaluation). Other pricing services offer both bid evaluations and price evaluations indicative of a price between the prices bid and asked for the investment (a mid evaluation). The Fund normally uses bid evaluations for any U.S. Treasury and Agency securities, mortgage-backed securities and municipal securities. The Fund normally uses mid evaluations for any other types of fixed-income securities and any OTC derivative contracts. In the event that market quotations and price evaluations are not available for an investment, the fair value of the investment is determined in accordance with procedures adopted by the Trustees. Repurchase Agreements The Fund may invest in repurchase agreements for short-term liquidity purposes. It is the policy of the Fund to require the other party to a repurchase agreement to transfer to the Fund s custodian or sub-custodian eligible securities or cash with a market value (after transaction costs) at least equal to the repurchase price to be paid under the repurchase agreement. The eligible securities are transferred to accounts with the custodian or subcustodian in which the Fund holds a securities entitlement and exercises control as those terms are defined in the Uniform Commercial Code. The Fund has established procedures for monitoring the market value of the transferred securities and requiring the transfer of additional eligible securities if necessary to equal at least the repurchase price. These procedures also allow the other party to require securities to be transferred from the account to the extent that their market value exceeds the repurchase price or in exchange for other eligible securities of equivalent market value. The insolvency of the other party or other failure to repurchase the securities may delay the disposition of the underlying securities or cause the Fund to receive less than the full repurchase price. Under the terms of the repurchase agreement, any amounts received by the Fund in excess of the repurchase price and related transaction costs must be remitted to the other party. The Fund may enter into repurchase agreements in which eligible securities are transferred into joint trading accounts maintained by the custodian or sub-custodian for investment companies and other clients advised by the Fund s Adviser and its affiliates. The Fund will participate on a pro rata basis with the other investment companies and clients in its share of the securities transferred under such repurchase agreements and in its share of proceeds from any repurchase or other disposition of such securities. 20

23 Investment Income, Gains and Losses, Expenses and Distributions Investment transactions are accounted for on a trade-date basis. Realized gains and losses from investment transactions are recorded on an identified-cost basis. Interest income and expenses are accrued daily. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Distributions of net investment income, if any, are declared daily and paid monthly. Amortization/accretion of premium and discount is included in investment income. Gains and losses realized on principal payment of mortgage backed securities (paydown gains and losses) are classified as part of investment income. Investment income, realized and unrealized gains and losses, and certain fund-level expenses are allocated to each class based on relative average daily net assets, except that Institutional Shares and Service Shares may bear distribution services fees and other service fees unique to those classes. The detail of the total fund expense waiver and reimbursements of $898,994 is disclosed in various locations in this Note 2 and Note 5. 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. Other Service Fees The Fund may pay other service fees up to 0.25% of the average daily net assets of the Fund s Institutional Shares and Service Shares to unaffiliated financial intermediaries or to Federated Shareholder Services Company (FSSC) for providing services to shareholders and maintaining shareholder accounts. Subject to the terms described in the Expense Limitation note, FSSC may voluntarily reimburse the Fund for other service fees. For the year ended August 31, 2017, other service fees for the Fund were as follows: Other Service Fees Incurred Other Service Fees Reimbursed Institutional Shares $330,150 $(330,150) Service Shares 52,134 TOTAL $382,284 $(330,150) Federal Taxes It is the Fund s policy to comply with the Subchapter M provision of the Internal Revenue Code (the Code ) and to distribute to shareholders each year substantially all of its income. Accordingly, no provision for federal income tax is necessary. As of and during the year ended August 31, 2017, the Fund did not have a liability for any uncertain tax positions. The Fund recognizes interest and penalties, if any, related to tax liabilities as income tax expense in the Statement of Operations. As of August 31, 2017, tax years 2014 through 2017 remain subject to examination by the Fund s major tax jurisdictions, which include the United States of America and the Commonwealth of Massachusetts. 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. 21

24 Dollar-Roll Transactions The Fund engages in dollar-roll transactions in which the Fund sells mortgage-backed securities with a commitment to buy similar (same type, coupon and maturity), but not identical mortgage-backed securities on a future date. Both securities involved are TBA mortgage-backed securities. The Fund treats dollar-roll transactions as purchases and sales. Dollar-rolls are subject to interest rate risks and credit risks. Restricted Securities The Fund may purchase securities which are considered restricted. Restricted securities are securities that either: (a) cannot be offered for public sale without first being registered, or being able to take advantage of an exemption from registration, under the Securities Act of 1933; or (b) are subject to contractual restrictions on public sales. In some cases, when a security cannot be offered for public sale without first being registered, the issuer of the restricted security 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 such restricted securities may be resold in the secondary market in transactions exempt from registration. 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, like other securities, are priced in accordance with procedures established by and under the general supervision of the Trustees. Other 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. The Fund applies investment company accounting and reporting guidance. 3. SHARES OF BENEFICIAL INTEREST The following tables summarize share activity: Year Ended 8/31/2017 Year Ended 8/31/2016 Institutional Shares: Shares Amount Shares Amount Shares sold 4,533,490 $ 43,888,314 11,591,124 $ 112,653,815 Shares issued to shareholders in payment of distributions declared 150,185 1,454, ,421 1,509,556 Shares redeemed (18,068,046) (174,881,593) (31,671,375) (307,766,143) NET CHANGE RESULTING FROM INSTITUTIONAL SHARE TRANSACTIONS (13,384,371) $(129,539,197) (19,924,830) $(193,602,772) 22

25 Year Ended 8/31/2017 Year Ended 8/31/2016 Service Shares: Shares Amount Shares Amount Shares sold 30,830 $ 298, ,741 $ 1,106,893 Shares issued to shareholders in payment of distributions declared 12, ,012 9,791 95,057 Shares redeemed (1,073,935) (10,408,298) (908,777) (8,823,380) NET CHANGE RESULTING FROM SERVICE SHARE TRANSACTIONS (1,030,191) $ (9,984,683) (785,245) $ (7,621,430) NET CHANGE RESULTING FROM TOTAL FUND SHARE TRANSACTIONS (14,414,562) $(139,523,880) (20,710,075) $(201,224,202) 4. FEDERAL TAX INFORMATION The timing and character of income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP. These differences are due to differing treatments for dollar roll adjustments. For the year ended August 31, 2017, permanent differences identified and reclassified among the components of net assets were as follows: Undistributed Net Investment Income (Loss) Increase (Decrease) Accumulated Net Realized Gain (Loss) $3 $(3) Net investment income (loss), net realized gains (losses), and net assets were not affected by this reclassification. The tax character of distributions as reported on the Statement of Changes in Net Assets for the years ended August 31, 2017 and 2016, was as follows: Ordinary income $2,536,297 $2,645,243 As of August 31, 2017, the components of distributable earnings on a tax-basis were as follows: Undistributed ordinary income $ 46,154 Net unrealized depreciation $ 1,436,664 Capital loss carryforwards $(1,793,580) The difference between book-basis and tax-basis net unrealized appreciation/depreciation is attributable to differing treatments for dollar roll transactions. At August 31, 2017, the cost of investments for federal tax purposes was $243,803,840. The net unrealized appreciation of investments for federal tax purposes was $1,436,664. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $2,216,156 and net unrealized depreciation from investments for those securities having an excess of cost over value of $779,

26 At August 31, 2017, the Fund had a capital loss carryforward of $1,793,580 which will reduce the Fund s taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Code, thereby reducing the amount of distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal income tax. Pursuant to the Code, a net capital loss incurred in taxable years beginning on or before December 22, 2010, is characterized as short-term and may be carried forward for a maximum of eight tax years ( Carryforward Limit ), whereas a net capital loss incurred in taxable years beginning after December 22, 2010, retains its character as either short-term or long-term, does not expire and is required to be utilized prior to the losses which have a Carryforward Limit. The following schedule summarizes the Fund s capital loss carryforwards and expiration years: Expiration Year Short-Term Long-Term Total No Expiration $1,104,929 $686,085 $1,791, ,566 2, INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES Investment Adviser Fee The advisory agreement between the Fund and the Adviser provides for an annual fee equal to 0.60% of the Fund s average daily net assets. Subject to the terms described in the Expense Limitation note, the Adviser may voluntarily choose to waive any portion of its fee. For the year ended August 31, 2017, the Adviser voluntarily waived $565,574 of its fee. The Adviser has agreed to reimburse the Fund for certain investment adviser fees as a result of transactions in other affiliated investment companies. For the year ended August 31, 2017, the Adviser reimbursed $3,270. Administrative Fee Federated Administrative Services (FAS), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. For purposes of determining the appropriate rate breakpoint, Investment Complex is defined as all of the Federated Funds subject to a fee under the Administrative Services Agreement. The fee paid to FAS is based on the average daily net assets of the Investment Complex as specified below, plus certain out-of-pocket expenses: Average Daily Net Assets Administrative Fee of the Investment Complex 0.150% on the first $5 billion 0.125% on the next $5 billion 0.100% on the next $10 billion 0.075% on assets in excess of $20 billion Subject to the terms described in the Expense Limitation note, FAS may voluntarily choose to waive any portion of its fee. For the year ended August 31, 2017, the annualized fee paid to FAS was 0.078% of average daily net assets of the Fund. 24

27 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 daily net assets of the Fund s Service Shares to finance activities intended to result in the sale of these shares. The Plan provides that the Fund may incur distribution expenses at 0.05% of average daily net assets, annually, to compensate FSC. Subject to the terms described in the Expense Limitation note, FSC may voluntarily choose to waive any portion of its fee. When FSC receives fees, it may pay some or all of them to financial intermediaries whose customers purchase shares. For the year ended August 31, 2017, the Fund s Service Shares did not incur a distribution services fee; however, it may begin to incur this fee upon approval of the Trustees. Other Service Fees For the year ended August 31, 2017, FSSC received $557 and reimbursed $330,150 of the other service fees disclosed in Note 2. Expense Limitation The Adviser and certain of its affiliates (which may include FSC, FAS and FSSC) on their own initiative have agreed to waive certain amounts of their respective fees and/or reimburse expenses. Total annual fund operating expenses (as shown in the financial highlights, excluding interest expense, line of credit expenses, extraordinary expenses and proxy-related expenses paid by the Fund, if any) paid by the Fund s Institutional Shares and Service Shares (after the voluntary waivers and/or reimbursements) will not exceed 0.64% and 0.89% (the Fee Limit ), respectively, up to but not including the later of (the Termination Date ): (a) November 1, 2018; or (b) the date of the Fund s next effective Prospectus. While the Adviser and its applicable affiliates currently do not anticipate terminating or increasing these arrangements prior to the Termination Date, these arrangements may only be terminated or the Fee Limit increased prior to the Termination Date with the agreement of the Trustees. General Certain Officers and Trustees of the Fund are Officers and Directors or Trustees of certain of the above companies. To efficiently facilitate payment, Directors /Trustees fees and certain expenses related to conducting meetings of the Directors/Trustees and other miscellaneous expenses are paid by an affiliate of the Adviser which in due course are reimbursed by the Fund. These expenses related to conducting meetings of the Directors/Trustees and other miscellaneous expenses may be included in Accrued and Miscellaneous Expenses on the Statement of Assets and Liabilities and Statement of Operations, respectively. 6. INVESTMENT TRANSACTIONS Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations, for the year ended August 31, 2017, were as follows: Purchases $ 3,140,000 Sales $75,645,217 25

28 7. LINE OF CREDIT The Fund participates with certain other Federated Funds, on a several basis, in an up to $500,000,000 unsecured, 364-day, committed, revolving line of credit (LOC) agreement. The LOC was made available to finance temporarily the repurchase or redemption of shares of the Fund, failed trades, payment of dividends, settlement of trades and for other short-term, temporary or emergency general business purposes. The Fund cannot borrow under the LOC if an inter-fund loan is outstanding. The Fund s ability to borrow under the LOC also is subject to the limitations of the Act and various conditions precedent that must be satisfied before the Fund can borrow. Loans under the LOC are charged interest at a fluctuating rate per annum equal to the highest, on any day, of (a) (i) the federal funds effective rate, (ii) the one month London Interbank Offered Rate (LIBOR), and (iii) 0.0%, plus (b) a margin. The LOC also requires the Fund to pay, quarterly in arrears and at maturity, its pro rata share of a commitment fee based on the amount of the lenders commitment that has not been utilized. As of August 31, 2017, the Fund had no outstanding loans. During the year ended August 31, 2017, the Fund did not utilize the LOC. 8. INTERFUND LENDING Pursuant to an Exemptive Order issued by the Securities and Exchange Commission (SEC), the Fund, along with other funds advised by subsidiaries of Federated Investors, Inc., may participate in an interfund lending program. This program provides an alternative credit facility allowing the Fund to borrow from other participating affiliated funds. As of August 31, 2017, there were no outstanding loans. During the year ended August 31, 2017, the program was not utilized. 9. SUBSEQUENT EVENT Effective September 1, 2017, the breakpoints of Administrative Fees paid to FAS described above changed to: Administrative Services Fee Rate Average Daily Net Assets of the Investment Complex of 1% on assets up to $50 billion of 1% on assets over $50 billion 26

29 Report of Independent Registered Public Accounting Firm TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF FEDERATED ADJUSTABLE RATE SECURITIES FUND: We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of Federated Adjustable Rate Securities Fund (the Fund ), as of August 31, 2017, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of August 31, 2017, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Federated Adjustable Rate Securities Fund as of August 31, 2017, and the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles. Boston, Massachusetts October 23,