United States
Securities and Exchange Commission
Washington, D.C. 20549
Form N-CSR
Certified Shareholder Report of Registered Management Investment Companies
811-1
(Investment Company Act File Number)
Federated Asset Allocation Fund
_______________________________________________________________
(Exact Name of Registrant as Specified in Charter)
Federated Investors Funds
4000 Ericsson Drive
Warrendale, Pennsylvania 15086-7561
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
(Notices should be sent to the Agent for Service)
Date of Fiscal Year End: 11/30/2011
Date of Reporting Period: 11/30/2011
Item 1. Reports to Stockholders
|
Annual Shareholder Report | |
| November 30, 2011 | ||
| Share Class | Ticker |
| A | FSTBX |
| B | FSBBX |
| C | FSBCX |
| R* | FSBKX |
| Institutional | SBFIX |
*formerly, Class K Shares
Federated Asset Allocation Fund
(formerly, Federated Stock and Bond Fund)
Fund Established 1934
Dear Valued Shareholder,
I am pleased to present the Annual Shareholder Report for your fund covering the period from December 1, 2010 through November 30, 2011. This report includes Management's Discussion of Fund Performance, a complete listing of your fund's holdings, performance information and financial statements along with other important fund information.
In addition, our website, FederatedInvestors.com, offers easy access to Federated resources that include timely fund updates, economic and market insights from our investment strategists, and financial planning tools. We invite you to register to take full advantage of its capabilities.
Thank you for investing with Federated. I hope you find this information useful and look forward to keeping you informed.
Sincerely,
J. Christopher Donahue, President
May Lose Value
No Bank GuaranteeCONTENTS
Management's Discussion of Fund Performance (unaudited)
For the fiscal year ended November 30, 2011, the Fund's Class A Shares, Class B Shares, Class C Shares, Class R Shares and Institutional Shares produced total returns of 1.62%, 0.80%, 0.90%, 1.23% and 1.99%, respectively, based on net asset value. That compares with a 5.38% return for the Fund's Blended Index and 3.62% for Morningstar's Moderate Allocation Funds Category Average.1 The Fund's Blended Index is composed of 50% of the return of the Russell 3000 Index,2 10% of the return of the MSCI All Country World ex U.S. Index3 and 40% of the return of the Barclays Capital U.S. Universal Index,4 which had total returns of 7.00%, -5.90% and 5.22%, respectively, during the reporting period. The Fund's total return for the fiscal year reflected actual cash flows, transaction costs and other expenses, which were not reflected in the total return data of the indices.
The following discussion will focus on the performance of the Fund's Institutional Shares.
MARKET OVERVIEW
Domestic Equities
Domestic equities experienced another year of substantial volatility. As markets entered 2011, equity markets responded well to improving economic data and a bipartisan deal on the extension of the Bush tax cuts. This strength was maintained until the second quarter, when a series of external shocks, including surging commodity prices and inventory disruptions due to the Japanese tsunami/earthquake/nuclear disaster began to hit the manufacturing sector. This loss of momentum was compounded by renewed fears regarding European sovereign debt and a damaging showdown over the debt ceiling in the United States, which eventually led to a downgrade of U.S. sovereign debt by Standard & Poor's. The negative sentiment caused by these headlines eventually filtered down into the real economy in the third quarter, as economic data began to soften, renewing fears of a double-dip recession. As the summer turned to fall, however, more decisive action out of European policy makers, the announcement of “Operation Twist” by the Federal Reserve and continued stabilization of hard economic data in the United States helped markets to recover, finishing the period with a total return of 7.38%, as measured by the Russell 1000 Index5 (Russell 1000). Nine out of ten sectors in the Russell 1000 Index posted positive returns. The three best performing sectors were: Utilities, up 19.1%; Consumer Staples, up 16.0%; and Energy, up 14.6%. The three worst sectors were Financials, down 8.3%; Materials, up 2.4%; and Industrials, up 5.2%.
Annual Shareholder Report
International EquitiesWhile world markets generally followed a similar pattern as the United States, the severity of the mid-year downturn was much sharper outside the United States. Serious concerns over sovereign debt in Europe, the natural disaster in Japan and a slowing Chinese economy all weighed on international markets. For the reporting period, the MSCI All Country World ex U.S. Index returned -5.90%, representing significant underperformance relative to the United States.
Within the international markets, performance varied significantly between emerging and developed countries.6 Emerging markets, as measured by the MSCI Emerging Markets Index,7 were hardest hit, falling 11.54% for the reporting period. International developed markets, as measured by the MSCI EAFE Index,8 fared better, but were also down 4.12%.
On the currency front, the U.S. dollar fell 7.3% against the yen, 3.4% against the euro and 1.0% against the pound sterling.
Interest Rates
Interest rates moved lower over the 12-month reporting period. Long-term maturity yields fell the most, 70-110 basis points, while the short and intermediate maturities fell 15-50 basis points. As a result, the yield curve flattened considerably over the reporting period. The Euro debt and banking crisis that started over the summer and persisted over the remainder of the year sparked a huge flight to quality in the United States as investors became concerned that the contagion could spread to the U.S. economy. Another major influence that caused long-term Treasury rates to fall precipitously was the announcement in September of a new Federal Reserve program to lower long-term interest rates, called “Operation Twist.”
The 5-year Treasury yield fell 0.51% over the 12 months and finished the reporting period at 0.96%. The “yield to worst,” a measure of the option adjusted portfolio yield, of the Barclays Capital Aggregate Bond Index9 (BCAB) stood at 2.40% on November 30, 2011, compared to 2.68% twelve months earlier.
Fund Performance
Asset Allocation Strategy Performance
For the year ended November 30, 2011, the main positive contributors to relative performance were the Fund's U.S. industry group strategy, the foreign versus domestic allocation and an allocation to U.S. homebuilders. Conversely, the Fund was negatively affected by the stock versus bond allocation, the emerging versus developed allocation and the Fund's bottom-up U.S. stock selection strategy. During the reporting period, the Fund invested in currency forward and index future contracts for hedging and investment purposes.
Annual Shareholder Report
Domestic Equities PerformanceWithin domestic equities, the Fund's industry group strategy was the strongest contributor to relative performance, with outperformance being driven by both stock selection and industry group allocation decisions. The Fund benefited most from allocation decisions in Diversified Financials and Food, Beverage & Tobacco, as well as from stock selection in Capital Goods and Retailing. The Fund was negatively impacted from allocation decisions in Automobiles & Components and Consumer Services, as well as from stock selection in Technology Hardware & Equipment and Energy.
Conversely, the Fund's bottom-up stock selection strategy was a drag on relative performance. While the Fund benefited from stock selection in Industrials and an underweight allocation in Financials, these were more than offset by stock selection in Energy and Consumer Staples.
The Fund utilized S&P 500 and Russell 2000 futures in order to help achieve the desired exposure to the U.S. large-cap and U.S. small-cap asset classes.10 The Fund's stock versus bond and small-cap versus large-cap allocation decisions were both net detractors from relative performance, and thus, the use of the aforementioned derivatives to implement those allocation decisions contributed to the underperformance.
International Equities Performance
The Fund utilized various foreign index futures in order to help achieve the desired exposure to various international markets as part of the Fund's developed country selection model. These allocation decisions were a modest net drag on relative performance.
During the reporting period, the Fund also invested in currency options as a hedge against some international market exposures. The hedge added to relative performance, thus offsetting some of the negative impact from the international index futures positions.
The Fund's emerging versus developed allocation was also a drag on relative performance. The Fund employed both overweight and underweight allocations to emerging markets at various times throughout the reporting period.
Annual Shareholder Report
Fixed-Income Performance11The bond portion of the Fund outperformed the BCAB by a slight amount during the 12-month reporting period. Fortunately, large positives outweighed large negatives. Yield curve management and security selection were significant positive contributors to performance, while currency management also added modestly to performance. Duration and sector management, on the other hand, were large detractors to performance, as the Fund was shorter than the BCAB's interest rate sensitivity in a period of declining interest rates.12 In addition, the portfolio was overweight in spread sectors such as corporates, emerging markets and commercial mortgage-backed securities (CMBS), which deteriorated during the summer on weak economic statistics. Security selection improved over the prior reporting period particularly in high yield, investment-grade corporates and CMBS. Security selection in mortgage-backed securities negatively affected the Fund's performance.
Security selection was notably positive in some insurance and bank names. Securities that added to performance included Union Central Life Insurance, Regional Diversified (a small-bank Trust Preferred structured security), Pacific Life, Mass Mutual, Wachovia and HSBC Finance. There were only a few issuers that performed poorly over the reporting period, which included Goldman Sachs, Morgan Stanley, Jefferies Group, Bank of America, Barclays Bank and AXA-Equitable Life. During the reporting period, the Fund used credit default swaps to add exposure to investment-grade corporate debt and utilized Treasury futures to manage the Fund's duration and yield curve risk. Both of these derivatives added to performance.
Annual Shareholder Report
| 1 | Morningstar's Moderate Allocation Funds Category Average is the category of funds which seek to provide both capital appreciation and income by investing in stocks, bonds and cash. These funds typically invest between 50% to 70% of assets in equities and the remainder in fixed income and cash. The average is unmanaged, and it is not possible to invest directly in an average. |
| 2 | The Russell 3000 Index measures the performance of the largest 3,000 U.S. companies representing approximately 98% of the investable U.S. equity market. The Russell 3000 Index is constructed to provide a comprehensive, unbiased and stable barometer of the broad market and is completely reconstituted annually to ensure new and growing equities are reflected. The index is unmanaged, and it is not possible to invest directly in an index. |
| 3 | The MSCI ACWI (All Country World Index) ex U.S. Index is a free float-adjusted, market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. As of May 2011 the MSCI ACWI ex-U.S. Index consisted of 44 country indices comprising 23 developed and 21 emerging market country indices. The index is unmanaged, and it is not possible to invest directly in an index. |
| 4 | The Barclays Capital U.S. Universal Index represents the union of the U.S. Aggregate Index, U.S. Corporate High Yield, Investment Grade 144A Index, Eurodollar Index, U.S. Emerging Markets Index and the non-ERISA eligible portion of the CMBS Index. The index covers USD-denominated, taxable bonds that are rated either investment-grade or below investment-grade. The index is unmanaged, and it is not possible to invest directly in an index. |
| 5 | The Russell 1000 Index measures the performance of the large-cap segment of the U.S. equity universe. It is a subset of the Russell 3000® Index and includes approximately 1000 of the largest securities based on a combination of their market cap and current index membership. The Russell 1000 represents approximately 92% of the U.S. market. The index is unmanaged, and it is not possible to invest directly in an index. |
| 6 | International investing involves special risks including currency risk, increased volatility, political risks and differences in auditing and other financial standards. Prices of emerging markets securities can be significantly more volatile than the prices of securities in developed countries and currency risk and political risks are accentuated in emerging markets. |
| 7 | The MSCI Emerging Markets Index is a free float-adjusted, market capitalization index that is designed to measure equity market performance of emerging markets. The index is unmanaged, and it is not possible to invest directly in an index. |
| 8 | The MSCI EAFE Index (Europe, Australasia and Far East) is a free float-adjusted, market capitalization index that is designed to measure the equity market performance of developed markets, excluding the United States & Canada. The index is unmanaged, and it is not possible to invest directly in an index. |
| 9 | The Barclays Capital Aggregate Bond Index (BCAB) is a broad-based benchmark that measures the investment-grade, U.S. dollar-denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS and CMBS. The index is unmanaged, and it is not possible to invest directly in an index. |
| 10 | Small Company stocks may be less liquid and subject to greater price volatility than large company stocks. |
| 11 | Bond prices are sensitive to changes in interest rates and a rise in interest rates can cause a decline in their prices. |
| 12 | 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 durations. |
FUND PERFORMANCE AND GROWTH OF A $10,000 INVESTMENT
The Average Annual Total Return table below shows returns for each class averaged over the stated periods. The graphs below illustrate the hypothetical investment of $10,0001 in the Federated Asset Allocation Fund (the “Fund”) from October 31, 2001 to November 30, 2011, compared to a blend of indexes comprised of 50% of the Russell 3000 Index (RU3000),2 10% of the MSCI All Country World ex U.S. Index (MSCI ACWI ex U.S.)2 and 40% of the Barclays Capital U.S. Universal Index (BCUSU)2 (the “Blended Index”),2 the Standard and Poor's 500 Index (S&P 500),2 the Barclays Capital Aggregate Bond Index (BCAB)2 and the Lipper Balanced Funds Average (LBFA).3
Average Annual Total Returns for the Period Ended 11/30/2011
(returns reflect all applicable sales charges and contingent deferred sales charges as specified below in footnote #1)
| Share Class | 1 Year | 5 Years | 10 Years |
| Class A Shares | -3.96% | 0.69% | 2.98% |
| Class B Shares | -4.70% | 0.71% | 2.91% |
| Class C Shares | -0.10% | 1.04% | 2.77% |
| Class R Shares4 | 1.23% | 1.37% | 3.10% |
| Institutional Shares4 | 1.99% | 1.84% | 3.47% |
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 1-800-341-7400. 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.
Annual Shareholder Report
Growth of a $10,000 Investment – class A SHARES
- Total returns shown include the maximum sales charge of 5.50% ($10,000 investment minus $550 sales charge = $9,450).
Growth of a $10,000 Investment – class B shares
- Total returns shown include the maximum contingent deferred sales charge of 5.50%, as applicable.
Annual Shareholder Report
Growth of a $10,000 Investment – class c shares
- Total returns shown include the maximum contingent deferred sales charge of 1.00%, as applicable.
Growth of a $10,000 Investment – class r shares4
Annual Shareholder Report
Growth of a $10,000 Investment – institutional shares4
Annual Shareholder Report
| 1 | Represents a hypothetical investment of $10,000 in the Fund after deducting applicable sales charges: For Class A Shares, the maximum sales charge of 5.50% ($10,000 investment minus $550 sales charge = $9,450); for Class B Shares, the maximum contingent deferred sales charge is 5.50% on any redemption of shares held up to one year from the purchase date; for Class C Shares, the maximum contingent deferred sales charge is 1.00% on any redemption less than one year from the purchase date. The Fund's performance assumes the reinvestment of all dividends and distributions. The Blended Index, S&P 500, BCAB and LBFA have been adjusted to reflect reinvestment of dividends on securities in the indexes and the average. |
| 2 | The Blended Index is a custom blended index comprised of 50% of the RU3000, 10% of the MSCI ACWI ex U.S. and 40% of the BCUSU. The RU300 measures the performance of the largest 3,000 U.S. companies representing approximately 98% of the investable U.S. equity market. The Russell 3000 Index is constructed to provide a comprehensive, unbiased and stable barometer of the broad market and is completely reconstituted annually to ensure new and growing equities are reflected. The MSCI ACWI ex U.S. (All Country World ex U.S.) Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. As of May 27, 2010, the MSCI ACWI ex U.S. consisted of 45 country indices comprising 24 developed and 21 emerging market country indices. The developed market country indices included are: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom and the United States. The emerging market country indices included are: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand and Turkey. The BCUSU represents the union of the U.S. Aggregate Index, U.S. Corporate High-Yield, Investment Grade 144A Index, Eurodollar Index, U.S. Emerging Markets Index and the non-ERISA eligible portion of the CMBS Index. The index covers USD-denominated, taxable bonds that are rated either investment grade or below investment grade. The S&P 500 is an unmanaged, capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The BCAB is an unmanaged index composed of securities from the Barclay's Capital Government/Corporate Bond Index, Mortgage-Backed Securities Index and the Asset-Backed Securities Index. The RU300, MSCI ACWI ex U.S., BCUSU, S&P 500 and BCAB are not adjusted to reflect sales charges, expenses or other fees that the Securities and Exchange Commission (SEC) requires to be reflected in the Fund's performance. The indexes are unmanaged and, unlike the Fund, are not affected by cash flows. It is not possible to invest directly in an index. |
| 3 | The LBFA represents the average of the total returns reported by all of the mutual funds designated by Lipper, Inc. as falling into the category indicated, and is not adjusted to reflect any sales charges. However, these total returns are reported net of expenses or other fees that the SEC requires to be reflected in the Fund's performance. |
| 4 | The Fund's Class R Shares commenced operations on April 8, 2003. The Fund's Institutional Shares commenced operation on June 12, 2009. The Fund offers three other classes of shares: Class A Shares, Class B Shares and Class C Shares. For the period prior to the commencement of operations of Class R Shares and Institutional Shares, the performance information shown is for the Fund's Class A Shares. In relation to Class R Shares, the performance of Class A Shares has been adjusted to reflect expenses applicable to Class R Shares. In relation to the Institutional Shares, the performance of Class A Shares has not been adjusted to reflect the expenses of Institutional Shares since Institutional Shares have a lower expense ratio than the expense ratio of the Class A Shares. The performance of Class A Shares has been adjusted to remove any voluntary waiver of Fund expenses related to the Class A Shares that may have occurred during the period prior to the commencement of operations of Institutional Shares. Additionally, for both the Class R Shares and Institutional Shares, the performance information shown below has been adjusted to reflect the absence of sales charges applicable to Class A Shares. |
Portfolio of Investments Summary Tables (unaudited)
At November 30, 2011, the Fund's portfolio composition1 was as follows:
| Portfolio Composition |
Percentage of Total Net Assets2 |
| Domestic Equity Securities | 55.0% |
| U.S. Treasury and Agency Securities | 9.0% |
| Mortgage-Backed Securities3 | 8.8% |
| Corporate Debt Securities | 7.2% |
| International Equity Securities | 5.4% |
| Asset-Backed Securities | 2.3% |
| Trade Finance Agreements | 1.3% |
| Foreign Debt Securities | 0.4% |
| Municipal Security4 | 0.0% |
| Derivative Contracts5 | 0.3% |
| Cash Equivalents6 | 11.4% |
| Other Assets and Liabilities — Net7 | (1.1)% |
| TOTAL | 100.0% |
| 1 | See the Fund's Prospectus and Statement of Additional Information for a description of these security types. |
| 2 | As of the date specified above, the Fund owned shares of one or more affiliated investment companies. For purposes of this table, the affiliated investment company (other than an affiliated money market mutual fund) is not treated as a single portfolio security, but rather the Fund is treated as owning a pro rata portion of each security and each other asset and liability owned by the affiliated investment company. Accordingly, the percentages of total net assets shown in the table will differ from those presented on the Portfolio of Investments. |
| 3 | For purposes of this table, Mortgage-Backed Securities include mortgage-backed securities guaranteed by Government Sponsored Entities and adjustable rate mortgage-backed securities. |
| 4 | Represents less than 0.1%. |
| 5 | Based upon net unrealized appreciation (depreciation) or value of the derivative contracts as applicable. Derivative contracts may consist of futures, forwards, options and swaps. The impact of a derivative contract on the Fund's performance may be larger than its unrealized appreciation (depreciation) or value may indicate. In many cases, the notional value or amount of a derivative contract may provide a better indication of the contract's significance to the portfolio. More complete information regarding the Fund's direct investments in derivative contracts, including unrealized appreciation (depreciation), value and notional values or amounts of such contracts, can be found in the table at the end of the Portfolio of Investments included in this Report. |
| 6 | Cash Equivalents include any investments in money market mutual funds and/or overnight repurchase agreements. |
| 7 | Assets, other than investments in securities and derivative contracts, less liabilities. See Statement of Assets and Liabilities. |
Annual Shareholder Report
At November 30, 2011, the Fund's sector composition8 of the Fund's equity holdings was as follows:|
Sector Composition of Equity Holdings |
Percentage of Equity Securities |
| Information Technology | 22.4% |
| Financials | 16.0% |
| Consumer Discretionary | 14.3% |
| Energy | 10.8% |
| Industrials | 10.5% |
| Health Care | 9.8% |
| Consumer Staples | 8.9% |
| Materials | 5.3% |
| Utilities | 2.0% |
| Telecommunication Services4 | 0.0% |
| TOTAL | 100.0% |
| 8 | Sector classifications are based upon, and individual portfolio securities are assigned to, the classifications of the Global Industry Classification Standard (GICS) except that the Adviser assigns a classification to securities not classified by the GICS and to securities for which the Adviser does not have access to the classification made by the GICS. |
November 30, 2011
|
Shares or Principal Amount |
Value in U.S. Dollars |
| COMMON STOCKS – 45.7% |
| Consumer Discretionary – 6.5% |
| 700 | 1 | AutoZone, Inc. | 229,866 |
| 5,200 | 1 | Bed Bath & Beyond, Inc. | 314,652 |
| 8,800 | Best Buy Co., Inc. | 238,392 |
| 7,300 | 1 | BorgWarner, Inc. | 481,216 |
| 23,500 | CBS Corp., Class B | 611,940 |
| 5,441 | 1 | Charter Communications, Inc. | 287,666 |
| 5,200 | Coach, Inc. | 325,468 |
| 13,490 | 1 | DIRECTV, Class A | 636,998 |
| 3,800 | 1 | Dollar Tree, Inc. | 309,662 |
| 148 | 1 | Federal-Mogul Corp., Class A | 2,161 |
| 3,500 | Foot Locker, Inc. | 82,565 |
| 139,000 | 1 | Ford Motor Co. | 1,473,400 |
| 21,200 | Gannett Co., Inc. | 230,232 |
| 10,500 | 1 | General Motors Co. | 223,545 |
| 19,400 | 1 | Goodyear Tire & Rubber Co. | 271,406 |
| 33,400 | 1 | Las Vegas Sand Corp. | 1,560,114 |
| 88,100 | Lennar Corp., Class A | 1,621,921 |
| 3,700 | Macy's, Inc. | 119,621 |
| 1,400 | Marriott International, Inc., Class A | 42,868 |
| 140 | 1 | Marriott Vacations Worldwide Corp. | 2,237 |
| 5,500 | McGraw-Hill Cos., Inc. | 234,850 |
| 300 | News Corp., Inc., Class A | 5,232 |
| 1,500 | Nike, Inc., Class B | 144,270 |
| 68,800 | Nordstrom, Inc. | 3,115,264 |
| 7,500 | PetSmart, Inc. | 361,875 |
| 100 | Ralph Lauren Corp. | 14,186 |
| 7,100 | Ross Stores, Inc. | 632,539 |
| 13,100 | 1 | Sirius XM Radio, Inc. | 23,580 |
| 65,100 | TJX Cos., Inc. | 4,016,670 |
| 5,900 | 1 | TRW Automotive Holdings Corp. | 192,694 |
| 42,400 | Target Corp. | 2,234,480 |
| 16,453 | Time Warner Cable, Inc. | 995,077 |
| 900 | Tractor Supply Co. | 65,007 |
| 2,900 | V.F. Corp. | 402,201 |
|
Shares or Principal Amount |
Value in U.S. Dollars |
| 100 | Viacom, Inc., Class B — New | 4,476 |
| 38,700 | Walt Disney Co. | 1,387,395 |
| TOTAL | 22,895,726 |
| Consumer Staples – 4.1% |
| 35,300 | Altria Group, Inc. | 1,012,757 |
| 76,500 | CVS Corp. | 2,971,260 |
| 34,557 | Coca-Cola Enterprises, Inc. | 902,629 |
| 18,200 | Dr. Pepper Snapple Group, Inc. | 664,846 |
| 700 | Herbalife Ltd. | 38,710 |
| 100 | Hormel Foods Corp. | 3,011 |
| 81,637 | Kraft Foods, Inc., Class A | 2,951,178 |
| 3,200 | Mead Johnson Nutrition Co. | 241,152 |
| 9,315 | PepsiCo, Inc. | 596,160 |
| 27,150 | Philip Morris International, Inc. | 2,069,916 |
| 2,500 | Reynolds American, Inc. | 104,650 |
| 30,998 | The Coca-Cola Co. | 2,083,995 |
| 31,300 | Tyson Foods, Inc., Class A | 630,382 |
| TOTAL | 14,270,646 |
| Energy – 4.9% |
| 18,700 | Chevron Corp. | 1,922,734 |
| 74,628 | ConocoPhillips | 5,322,469 |
| 4,000 | Devon Energy Corp. | 261,840 |
| 79,600 | 1 | Energy XXI Ltd. | 2,502,624 |
| 31,100 | Exxon Mobil Corp. | 2,501,684 |
| 4,300 | Halliburton Co. | 158,240 |
| 6,800 | Helmerich & Payne, Inc. | 387,328 |
| 8,700 | Murphy Oil Corp. | 486,504 |
| 27 | 1 | NRG Energy, Inc. | 531 |
| 28,500 | National-Oilwell, Inc. | 2,043,450 |
| 11,930 | Occidental Petroleum Corp. | 1,179,877 |
| 3,000 | Oceaneering International, Inc. | 142,680 |
| 2,600 | Peabody Energy Corp. | 101,998 |
| 3,800 | Sunoco, Inc. | 147,478 |
| 6,400 | Valero Energy Corp. | 142,528 |
| TOTAL | 17,301,965 |
| Financials – 7.3% |
| 61,200 | Aflac, Inc. | 2,658,528 |
|
Shares or Principal Amount |
Value in U.S. Dollars |
| 15,400 | American Campus Communities, Inc. | 605,836 |
| 7,516 | American Capital Agency Corp. | 215,634 |
| 14,867 | American Express Co. | 714,211 |
| 20,900 | Annaly Capital Management, Inc. | 335,863 |
| 6,500 | Assured Guaranty Ltd. | 63,050 |
| 18,820 | 1 | Berkshire Hathaway, Inc., Class B | 1,482,263 |
| 6,300 | Boston Properties, Inc. | 600,894 |
| 95,800 | Capital One Financial Corp. | 4,278,428 |
| 13,700 | CapitalSource, Inc. | 88,365 |
| 7,600 | Chubb Corp. | 512,544 |
| 13,125 | Commerce Bancshares, Inc. | 488,644 |
| 5,700 | Digital Realty Trust, Inc. | 361,950 |
| 2,900 | Endurance Specialty Holdings Ltd. | 104,893 |
| 22,700 | 1 | Genworth Financial, Inc., Class A | 149,593 |
| 4,800 | Hartford Financial Services Group, Inc. | 85,248 |
| 11,651 | Interactive Brokers Group, Inc., Class A | 173,250 |
| 89,300 | JPMorgan Chase & Co. | 2,765,621 |
| 44,300 | Lincoln National Corp. | 893,974 |
| 5,000 | M & T Bank Corp. | 364,900 |
| 18,500 | 1 | MBIA, Inc. | 179,450 |
| 14,600 | PNC Financial Services Group | 791,466 |
| 52,300 | People's United Financial, Inc. | 651,135 |
| 29,000 | Principal Financial Group | 699,770 |
| 13,700 | Progressive Corp. Ohio | 258,382 |
| 6,800 | Protective Life Corp. | 150,892 |
| 6,900 | Prudential Financial | 349,416 |
| 115,400 | Regions Financial Corp. | 474,294 |
| 12,937 | Reinsurance Group of America, Inc. | 666,255 |
| 6,300 | Simon Property Group, Inc. | 783,342 |
| 40,200 | 1 | Strategic Hotels & Resorts, Inc. | 201,804 |
| 23,600 | Tanger Factory Outlet Centers, Inc. | 669,060 |
| 3,900 | The Travelers Cos, Inc. | 219,375 |
| 22,400 | Torchmark Corp. | 954,016 |
| 18,200 | U.S. Bancorp | 471,744 |
| 18,700 | UDR, Inc. | 439,450 |
| 25,400 | Wells Fargo & Co. | 656,844 |
| TOTAL | 25,560,384 |
|
Shares or Principal Amount |
Value in U.S. Dollars |
| Health Care – 4.5% |
| 23,600 | Aetna, Inc. | 986,952 |
| 18,000 | AmerisourceBergen Corp. | 668,700 |
| 13,400 | Baxter International, Inc. | 692,244 |
| 2,900 | 1 | Brookdale Senior Living, Inc. | 45,095 |
| 21,900 | CIGNA Corp. | 968,637 |
| 19,493 | Cardinal Health, Inc. | 827,673 |
| 35 | 1 | CareFusion Corporation | 867 |
| 4,000 | 1 | Cerner Corp. | 243,920 |
| 1,400 | Cooper Cos., Inc. | 85,764 |
| 3,589 | Covidien PLC | 163,479 |
| 4,800 | 1 | Express Scripts, Inc., Class A | 219,120 |
| 86,400 | 1 | Gilead Sciences, Inc. | 3,443,040 |
| 43,200 | 1 | Health Management Association, Class A | 355,104 |
| 11,500 | Humana, Inc. | 1,019,820 |
| 13,208 | McKesson Corp. | 1,073,942 |
| 1,400 | 1 | Medco Health Solutions, Inc. | 79,338 |
| 2,022 | Pfizer, Inc. | 40,582 |
| 26,535 | UnitedHealth Group, Inc. | 1,294,112 |
| 50,400 | 1 | Watson Pharmaceuticals, Inc. | 3,256,848 |
| 4,000 | Wellpoint, Inc. | 282,200 |
| TOTAL | 15,747,437 |
| Industrials – 4.8% |
| 55 | 3M Co. | 4,457 |
| 1,600 | 1 | AGCO Corp. | 73,200 |
| 30,300 | Caterpillar, Inc. | 2,965,764 |
| 2,100 | Chicago Bridge & Iron Co., NV | 86,835 |
| 2,200 | 1 | Copart, Inc. | 98,846 |
| 2,800 | 1 | Corrections Corp. of America | 58,800 |
| 2,000 | Danaher Corp. | 96,760 |
| 11,500 | Donaldson Co., Inc. | 786,025 |
| 3,100 | Dover Corp. | 170,407 |
| 1,200 | Emerson Electric Co. | 62,700 |
| 33,600 | FedEx Corp. | 2,791,488 |
| 1,600 | Fluor Corp. | 87,712 |
| 1,200 | Gardner Denver, Inc. | 102,864 |
| 3,900 | General Dynamics Corp. | 257,634 |
| 59,435 | General Electric Co. | 945,611 |
|
Shares or Principal Amount |
Value in U.S. Dollars |
| 4,600 | 1 | Hertz Global Holdings, Inc. | 52,026 |
| 5,100 | Lockheed Martin Corp. | 398,565 |
| 6,700 | Northrop Grumman Corp. | 382,369 |
| 10,000 | Pall Corp. | 544,900 |
| 8,300 | Parker-Hannifin Corp. | 687,074 |
| 23,700 | Precision Castparts Corp. | 3,904,575 |
| 1,200 | Rockwell Automation, Inc. | 90,036 |
| 800 | Tyco International Ltd. | 38,368 |
| 800 | 1 | URS Corp. | 28,912 |
| 11,600 | United Technologies Corp. | 888,560 |
| 5,300 | 1 | Verisk Analytics, Inc. | 208,184 |
| 5,300 | W. W. Grainger, Inc. | 990,570 |
| 2,800 | Waste Connections, Inc. | 91,756 |
| TOTAL | 16,894,998 |
| Information Technology – 10.3% |
| 14,200 | AVX Corp. | 183,748 |
| 20,481 | Accenture PLC | 1,186,464 |
| 200 | 1 | Advanced Micro Devices, Inc. | 1,138 |
| 100 | 1 | Agilent Technologies, Inc. | 3,750 |
| 2,000 | 1 | Alliance Data Systems Corp. | 204,820 |
| 20,597 | 1 | Apple, Inc. | 7,872,173 |
| 39,400 | Applied Materials, Inc. | 424,732 |
| 4,300 | 1 | Atmel Corp. | 38,141 |
| 6,300 | 1 | Autodesk, Inc. | 214,641 |
| 23,400 | Avago Technologies Ltd. | 700,128 |
| 12,700 | CA, Inc. | 269,240 |
| 20,500 | Cisco Systems, Inc. | 382,120 |
| 41,900 | 1 | Cognizant Technology Solutions Corp. | 2,821,965 |
| 3,200 | DST Systems, Inc. | 152,096 |
| 400 | 1 | Dell, Inc. | 6,304 |
| 1,600 | 1 | Dolby Laboratories, Class A | 52,672 |
| 19,400 | 1 | EMC Corp. Mass | 446,394 |
| 15,100 | 1 | Fiserv, Inc. | 870,666 |
| 600 | 1 | F5 Networks, Inc. | 67,818 |
| 2,800 | FactSet Research Systems | 261,044 |
| 4,400 | 1 | Gartner Group, Inc., Class A | 166,452 |
| 6,000 | 1 | Google, Inc. | 3,596,340 |
|
Shares or Principal Amount |
Value in U.S. Dollars |
| 1,700 | 1 | Informatica Corp. | 76,424 |
| 12,400 | Intel Corp. | 308,884 |
| 10,592 | International Business Machines Corp. | 1,991,296 |
| 11,782 | Intuit, Inc. | 627,274 |
| 115,600 | Jabil Circuit, Inc. | 2,343,212 |
| 49,500 | KLA-Tencor Corp. | 2,281,950 |
| 6,300 | 1 | LSI Logic Corp. | 35,406 |
| 10,900 | Lexmark International Group, Class A | 364,714 |
| 104,318 | Microsoft Corp. | 2,668,454 |
| 12,168 | Motorola Solutions, Inc. | 567,881 |
| 13,500 | 1 | NetApp, Inc. | 497,205 |
| 20,420 | Oracle Corp. | 640,167 |
| 6,600 | 1 | Polycom, Inc. | 111,540 |
| 15,700 | 1 | Qlogic Corp. | 234,244 |
| 9,700 | Qualcomm, Inc. | 531,560 |
| 66,600 | 1 | SAIC, Inc. | 802,530 |
| 4,600 | Solera Holdings, Inc. | 217,672 |
| 27,980 | 1 | Symantec Corp. | 457,473 |
| 3,105 | 1 | Teradata Corporation | 168,384 |
| 14,500 | Texas Instruments, Inc. | 436,450 |
| 700 | 1 | VMware, Inc., Class A | 67,676 |
| 2,100 | Visa, Inc., Class A Shares | 203,637 |
| 205 | 1 | VistaPrint NV | 6,706 |
| 11,600 | 1 | Western Digital Corp. | 337,212 |
| TOTAL | 35,900,797 |
| Materials – 2.4% |
| 8,200 | Ball Corp. | 287,902 |
| 18,400 | CF Industries Holdings, Inc. | 2,572,320 |
| 2,201 | Domtar Corp. | 172,844 |
| 3,005 | Du Pont (E.I.) de Nemours & Co. | 143,399 |
| 3,000 | Eastman Chemical Co. | 118,860 |
| 13,700 | Freeport-McMoRan Copper & Gold, Inc. | 542,520 |
| 2,485 | 1 | Molycorp, Inc. | 84,117 |
| 6,700 | Monsanto Co. | 492,115 |
| 1,063 | Mosaic Co./The | 56,084 |
| 5,000 | Newmont Mining Corp. | 344,400 |
|
Shares or Principal Amount |
Value in U.S. Dollars |
| 41,500 | PPG Industries, Inc. | 3,641,625 |
| TOTAL | 8,456,186 |
| Telecommunication Services – 0.0% |
| 1,000 | 1 | NII Holdings, Inc. | 23,010 |
| Utilities – 0.9% |
| 16,200 | American Water Works Co., Inc. | 503,334 |
| 600 | Entergy Corp. | 42,216 |
| 9,600 | ITC Holdings Corp. | 709,632 |
| 54,987 | NV Energy, Inc. | 843,501 |
| 2,000 | ONEOK, Inc. | 166,320 |
| 45,300 | Questar Corp. | 874,290 |
| TOTAL | 3,139,293 |
|
TOTAL COMMON STOCKS (IDENTIFIED COST $153,160,044) |
160,190,442 |
| Asset-Backed Securities – 1.2% |
| $5,653 | 2,3 | 125 Home Loan Owner Trust 1998-1A B1, 9.760%, 2/15/2029 | 4,677 |
| 500,000 | Ally Master Owner Trust 2011-1 A1, Series 2011-1, 1.119%, 01/15/2016 | 501,213 |
| 250,000 | Banc of America Commercial Mortgage, Inc. 2007-4 A4, 5.916%, 2/10/2051 | 268,519 |
| 800,000 | Citigroup/Deutsche Bank Commercial Mortgage 2007-CD5, 5.886%, 11/15/2044 | 867,304 |
| 500,000 | Ford Credit Floorplan Master Owner Trust 2011-1, Series 2011-1, 0.849%, 02/15/2016 | 501,546 |
| 100,000 | Merrill Lynch Mortgage Trust 2008-C1 AM, 6.459%, 2/12/2051 | 88,153 |
| 400,000 | Merrill Lynch/Countrywide Commercial Mortgage 2007-6, 5.485%, 03/12/2051 | 411,455 |
| 315,000 | Morgan Stanley Capital I 2006-IQ12 A4, 5.332%, 12/15/2043 | 344,014 |
| 44,118 | 2,3 | SMART Series 2011-1US Trust, Series 2011-1USA, 0.998%, 4/14/2013 | 44,121 |
| 1,000,000 | 2,3 | SMART Series 2011-2US Trust, Series 2011-2USA, 0.998%, 11/14/2013 | 1,000,177 |
|
TOTAL ASSET-BACKED SECURITIES (IDENTIFIED COST $3,920,357) |
4,031,179 |
| Collateralized Mortgage Obligations – 1.1% |
| 800,000 | Citigroup/Deutsche Bank Commercial Mortgage 2007-CD4 A3, 5.293%, 12/11/2049 | 832,373 |
| 489,411 | 2,3 | Commercial Mortgage Pass-Through Certificates 2010-C1 A1, 3.156%, 7/10/2046 | 502,026 |
| 1,500,000 | Government National Mortgage Association REMIC 2003-11 QC, 5.500%, 2/20/2033 | 1,720,223 |
|
Shares or Principal Amount |
Value in U.S. Dollars |
| $582,388 | 2,3 | JP Morgan Chase Commercial Mortgage Securities, 2010-C1 A1, 3.853%, 6/15/2043 | 608,608 |
| 100,000 | 2,3 | Morgan Stanley Capital I 2011-C1 B, 5.422%, 9/15/2047 | 93,746 |
| 4,147 | 2 | SMFC Trust Asset-Backed Certificates, 1997-A B1-4, 1.000%, 1/28/2027 | 3,318 |
| 200,000 | WFRBS Commercial Mortgage Trust 2011-C5 B, 5.637%, 11/15/2044 | 190,787 |
|
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (IDENTIFIED COST $3,645,867) |
3,951,081 |
| Corporate Bonds – 4.2% |
| Basic Industry - Chemicals – 0.1% |
| 95,000 | Dow Chemical Co., Note, 8.550%, 05/15/2019 | 119,570 |
| 100,000 | FMC Corp., Sr. Unsecd. Note, 3.950%, 02/01/2022 | 100,305 |
| 50,000 | RPM International, Inc., 6.500%, 02/15/2018 | 56,052 |
| 15,000 | RPM International, Inc., Sr. Unsecd. Note, 6.125%, 10/15/2019 | 16,232 |
| 35,000 | Rohm & Haas Co., 6.000%, 09/15/2017 | 39,803 |
| TOTAL | 331,962 |
| Basic Industry - Metals & Mining – 0.1% |
| 80,000 | Alcan, Inc., 5.000%, 06/01/2015 | 87,094 |
| 70,000 | Alcoa, Inc., Note, 5.550%, 02/01/2017 | 74,133 |
| 90,000 | Allegheny Technologies, Inc., Sr. Note, 9.375%, 06/01/2019 | 112,712 |
| 120,000 | Newmont Mining Corp., Company Guarantee, 5.875%, 04/01/2035 | 131,861 |
| TOTAL | 405,800 |
| Basic Industry - Paper – 0.0% |
| 30,000 | International Paper Co., Sr. Unsecd. Note, 7.500%, 08/15/2021 | 36,054 |
| 150,000 | 4 | Pope & Talbot, Inc., 8.375%, 06/01/2013 | 0 |
| 100,000 | Weyerhaeuser Co., Deb., 7.375%, 03/15/2032 | 100,581 |
| TOTAL | 136,635 |
| Capital Goods - Aerospace & Defense – 0.0% |
| 50,000 | 2,3 | BAE Systems Holdings, Inc, Series 144A, 5.200%, 8/15/2015 | 54,127 |
| Capital Goods - Diversified Manufacturing – 0.1% |
| 20,000 | Dover Corp., Note, 5.450%, 03/15/2018 | 23,505 |
| 70,000 | Emerson Electric Co., 4.875%, 10/15/2019 | 80,427 |
| 68,000 | 2,3 | Hutchison Whampoa International, Series 144A, 6.500%, 2/13/2013 | 71,429 |
| 100,000 | Roper Industries, Inc., Sr. Unsecd. Note, 6.250%, 09/01/2019 | 117,717 |
| 90,000 | 2,3 | Textron Financial Corp., Jr. Sub. Note, Series 144A, 6.000%, 2/15/2067 | 66,150 |
| TOTAL | 359,228 |
| Capital Goods - Environmental – 0.1% |
| 110,000 | Republic Services, Inc., Company Guarantee, Series WI, 5.500%, 09/15/2019 | 125,079 |
|
Shares or Principal Amount |
Value in U.S. Dollars |
| $25,000 | Waste Management, Inc., 7.375%, 03/11/2019 | 31,035 |
| TOTAL | 156,114 |
| Communications - Media & Cable – 0.1% |
| 27,000 | Comcast Cable Communications Holdings, Company Guarantee, 8.375%, 03/15/2013 | 29,517 |
| 100,000 | Comcast Corp., 7.050%, 03/15/2033 | 120,827 |
| 100,000 | Comcast Corp., Company Guarantee, 6.500%, 01/15/2017 | 117,892 |
| 120,000 | Time Warner Cable, Inc., Company Guarantee, 6.750%, 06/15/2039 | 138,425 |
| 20,000 | Time Warner Cable, Inc., Company Guarantee, 8.250%, 04/01/2019 | 24,799 |
| TOTAL | 431,460 |
| Communications - Media Noncable – 0.0% |
| 90,000 | News America, Inc., Company Guarantee, 5.650%, 08/15/2020 | 98,486 |
| Communications - Telecom Wireless – 0.1% |
| 130,000 | AT&T Wireless Services, Inc., 8.750%, 03/01/2031 | 187,814 |
| 90,000 | America Movil S.A.B. de C.V., Note, 5.750%, 01/15/2015 | 99,487 |
| 20,000 | Vodafone Group PLC, 5.350%, 02/27/2012 | 20,210 |
| 90,000 | Vodafone Group PLC, Note, 5.625%, 02/27/2017 | 103,730 |
| TOTAL | 411,241 |
| Communications - Telecom Wirelines – 0.1% |
| 15,000 | CenturyLink, Inc., Sr. Note, Series Q, 6.150%, 9/15/2019 | 14,456 |
| 150,000 | Deutsche Telekom International Finance BV, 4.875%, 07/08/2014 | 161,215 |
| 45,000 | France Telecom SA, Sr. Unsecd. Note, 5.375%, 07/08/2019 | 48,729 |
| 100,000 | Telefonica SA, Sr. Note, 5.855%, 02/04/2013 | 100,719 |
| 50,000 | Verizon Communications, Inc., Sr. Unsecd. Note, 6.350%, 04/01/2019 | 59,693 |
| TOTAL | 384,812 |
| Consumer Cyclical - Automotive – 0.0% |
| 70,000 | DaimlerChrysler North America Holding Corp., 6.500%, 11/15/2013 | 76,304 |
| 50,000 | 2,3 | RCI Banque SA, Sr. Unsecd. Note, Series 144A, 4.600%, 04/12/2016 | 47,551 |
| TOTAL | 123,855 |
| Consumer Cyclical - Entertainment – 0.1% |
| 280,000 | Time Warner, Inc., Company Guarantee, 6.875%, 05/01/2012 | 286,751 |
| Consumer Cyclical - Lodging – 0.0% |
| 50,000 | Wyndham Worldwide Corp., Sr. Unsecd. Note, 6.000%, 12/01/2016 | 54,385 |
| Consumer Cyclical - Retailers – 0.1% |
| 163,530 | 2,3 | CVS Corp., Pass Thru Cert., Series 144A, 5.298%, 1/11/2027 | 165,519 |
| 20,000 | JC Penney Corp., Inc., Sr. Unsecd. Note, 5.750%, 02/15/2018 | 19,750 |
|
Shares or Principal Amount |
Value in U.S. Dollars |
| $40,000 | Wal-Mart Stores, Inc., Sr. Unsecd. Note, 6.200%, 04/15/2038 | 49,164 |
| TOTAL | 234,433 |
| Consumer Non-Cyclical - Food/Beverage – 0.2% |
| 90,000 | 2,3 | Bacardi Ltd., Sr. Note, Series 144A, 7.450%, 4/01/2014 | 101,741 |
| 70,000 | Bottling Group LLC, Note, 5.500%, 04/01/2016 | 81,173 |
| 30,000 | 2,3 | Coca-Cola Co., Sr. Note, Series 144A, 1.800%, 9/01/2016 | 30,262 |
| 80,000 | Diageo Capital PLC, Company Guarantee, 7.375%, 01/15/2014 | 90,669 |
| 60,000 | General Mills, Inc., Note, 5.700%, 02/15/2017 | 70,530 |
| 125,000 | Kraft Foods, Inc., Note, 5.250%, 10/01/2013 | 133,408 |
| 100,000 | Kraft Foods, Inc., Sr. Unsecd. Note, 6.125%, 02/01/2018 | 115,586 |
| 50,000 | PepsiCo, Inc., 4.650%, 02/15/2013 | 52,400 |
| 30,000 | Ralcorp Holdings, Inc., Sr. Secd. Note, 6.625%, 08/15/2039 | 30,290 |
| 15,000 | Sysco Corp., Sr. Note, 5.375%, 03/17/2019 | 17,753 |
| TOTAL | 723,812 |
| Consumer Non-Cyclical - Health Care – 0.1% |
| 50,000 | Boston Scientific Corp., 4.500%, 01/15/2015 | 52,300 |
| 50,000 | Boston Scientific Corp., 6.000%, 01/15/2020 | 54,674 |
| 20,000 | Express Scripts, Inc., Sr. Unsecd. Note, 7.250%, 06/15/2019 | 23,436 |
| 75,000 | Quest Diagnostics, Inc., Sr. Unsecd. Note, 6.400%, 07/01/2017 | 88,349 |
| TOTAL | 218,759 |
| Consumer Non-Cyclical - Pharmaceuticals – 0.1% |
| 100,000 | Genentech, Inc., Note, 4.750%, 07/15/2015 | 111,162 |
| 80,000 | Pfizer, Inc., Sr. Unsecd. Note, 6.200%, 03/15/2019 | 97,716 |
| TOTAL | 208,878 |
| Consumer Non-Cyclical - Supermarkets – 0.0% |
| 25,000 | Kroger Co., Bond, 6.900%, 04/15/2038 | 31,281 |
| Consumer Non-Cyclical - Tobacco – 0.0% |
| 70,000 | Altria Group, Inc., 9.250%, 08/06/2019 | 90,598 |
| Energy - Independent – 0.1% |
| 120,000 | Canadian Natural Resources Ltd., 4.900%, 12/01/2014 | 131,982 |
| 30,000 | EOG Resources, Inc., Note, 5.625%, 06/01/2019 | 35,131 |
| 25,000 | Pemex Project Funding Master, 5.750%, 12/15/2015 | 27,797 |
| 100,000 | 2,3 | Petroleos Mexicanos, Company Guarantee, Series 144A, 6.500%, 6/02/2041 | 109,025 |
| 80,000 | Petroleos Mexicanos, Company Guarantee, Series WI, 4.875%, 03/15/2015 | 84,488 |
|
Shares or Principal Amount |
Value in U.S. Dollars |
| $20,000 | XTO Energy, Inc., 6.750%, 08/01/2037 | 29,771 |
| TOTAL | 418,194 |
| Energy - Integrated – 0.1% |
| 60,000 | Conoco, Inc., Sr. Unsecd. Note, 6.950%, 04/15/2029 | 80,252 |
| 100,000 | ConocoPhillips Australia Funding Co., 5.500%, 04/15/2013 | 106,541 |
| 35,000 | Petro-Canada, Deb., 7.000%, 11/15/2028 | 42,467 |
| 100,000 | 2,3 | StatoilHydro ASA, Series 144A, 5.125%, 4/30/2014 | 109,514 |
| TOTAL | 338,774 |
| Energy - Oil Field Services – 0.0% |
| 50,000 | Noble Drilling Corp., Sr. Note, 7.500%, 03/15/2019 | 63,695 |
| 25,000 | Weatherford International Ltd., 6.000%, 03/15/2018 | 27,503 |
| 20,000 | Weatherford International Ltd., 7.000%, 03/15/2038 | 21,948 |
| TOTAL | 113,146 |
| Energy - Refining – 0.0% |
| 25,000 | Valero Energy Corp., 9.375%, 03/15/2019 | 30,843 |
| Financial Institution - Banking – 0.5% |
| 50,000 | Bank of America Corp., Sr. Note, 5.375%, 06/15/2014 | 49,375 |
| 120,000 | Bank of America Corp., Sr. Note, 7.375%, 05/15/2014 | 121,822 |
| 100,000 | 2,3 | Barclays Bank PLC, Series 144A, 5.926%, 9/29/2049 | 71,969 |
| 70,000 | Capital One Financial Corp., Sr. Note, 7.375%, 05/23/2014 | 77,031 |
| 80,000 | Citigroup, Inc., Note, 5.125%, 05/05/2014 | 81,869 |
| 60,000 | 2,3 | Commonwealth Bank of Australia, Sr. Unsecd. Note, Series 144A, 3.750%, 10/15/2014 | 62,501 |
| 50,000 | Goldman Sachs Group, Inc., 6.125%, 02/15/2033 | 45,515 |
| 320,000 | Goldman Sachs Group, Inc., Sr. Unsecd. Note, 5.125%, 01/15/2015 | 326,579 |
| 100,000 | HSBC Finance Capital Trust IX, Note, 5.911%, 11/30/2035 | 80,000 |
| 75,000 | Household Finance Corp., Unsecd. Note, 4.750%, 07/15/2013 | 76,846 |
| 90,000 | M & T Bank Corp., 5.375%, 05/24/2012 | 91,901 |
| 100,000 | Morgan Stanley Group, Inc., 5.300%, 03/01/2013 | 99,807 |
| 100,000 | Morgan Stanley, Sr. Unsecd. Note, Series MTN, 6.625%, 4/01/2018 | 94,251 |
| 30,000 | Northern Trust Corp., 4.625%, 05/01/2014 | 32,316 |
| 15,000 | PNC Funding Corp., Sub. Note, 5.625%, 02/01/2017 | 16,342 |
| 336,658 | 2,3 | Regional Diversified Funding, Series 144A, 9.250%, 3/15/2030 | 231,126 |
| 100,000 | U.S. Bank, N.A., Series BKNT, 6.300%, 2/04/2014 | 109,827 |
| 140,000 | Wachovia Corp., 5.750%, 02/01/2018 | 156,891 |
| 40,000 | Wilmington Trust Corp., Sub. Note, 8.500%, 04/02/2018 | 47,340 |
| TOTAL | 1,873,308 |
|
Shares or Principal Amount |
Value in U.S. Dollars |
| Financial Institution - Brokerage – 0.2% |
| $220,000 | BlackRock, Inc., 6.250%, 09/15/2017 | 255,398 |
| 50,000 | Charles Schwab Corp., Sr. Unsecd. Note, 4.950%, 06/01/2014 | 53,927 |
| 40,000 | Eaton Vance Corp., 6.500%, 10/02/2017 | 45,690 |
| 100,000 | 2,3 | FMR LLC, Series 144A, 4.750%, 3/01/2013 | 103,523 |
| 30,000 | Janus Capital Group, Inc., Sr. Note, 6.700%, 06/15/2017 | 31,563 |
| 95,000 | Jefferies Group, Inc., Sr. Unsecd. Note, 8.500%, 07/15/2019 | 89,300 |
| 30,000 | Nuveen Investments, 5.500%, 09/15/2015 | 25,275 |
| 75,000 | Raymond James Financial, Inc., 8.600%, 08/15/2019 | 88,588 |
| TOTAL | 693,264 |
| Financial Institution - Finance Noncaptive – 0.2% |
| 160,000 | American Express Co., Sr. Unsecd. Note, 8.125%, 05/20/2019 | 202,828 |
| 60,000 | American Express Credit Corp., Sr. Unsecd. Note, 5.125%, 08/25/2014 | 64,272 |
| 120,000 | Berkshire Hathaway, Inc., Company Guarantee, 5.000%, 08/15/2013 | 127,891 |
| 120,000 | Capital One Capital IV, 6.745%, 02/17/2037 | 118,050 |
| 20,000 | Capital One Capital V, 10.250%, 08/15/2039 | 20,875 |
| 30,000 | General Electric Capital, Note, Series MTNA, 6.750%, 3/15/2032 | 32,316 |
| 110,000 | HSBC Finance Corp., Sr. Sub. Note, 6.676%, 01/15/2021 | 108,899 |
| TOTAL | 675,131 |
| Financial Institution - Insurance - Health – 0.0% |
| 50,000 | UnitedHealth Group, Inc., Sr. Unsecd. Note, 6.000%, 02/15/2018 | 58,415 |
| 50,000 | Wellpoint, Inc., 5.850%, 01/15/2036 | 56,598 |
| TOTAL | 115,013 |
| Financial Institution - Insurance - Life – 0.5% |
| 100,000 | AXA-UAP, Sub. Note, 8.600%, 12/15/2030 | 99,458 |
| 100,000 | 2,3 | Massachusetts Mutual Life Insurance Co., Sub. Note, Series 144A, 8.875%, 6/01/2039 | 146,680 |
| 90,000 | MetLife, Inc., 6.750%, 06/01/2016 | 102,657 |
| 10,000 | MetLife, Inc., Jr. Sub. Note, 10.750%, 8/01/2039 | 12,850 |
| 80,000 | 2,3 | New York Life Insurance Co, Sub. Note, Series 144A, 6.750%, 11/15/2039 | 100,046 |
| 300,000 | 2,3 | Pacific LifeCorp., Bond, Series 144A, 6.600%, 9/15/2033 | 332,806 |
| 50,000 | Prudential Financial, Inc., Series MTN, 5.150%, 1/15/2013 | 51,991 |
| 40,000 | Prudential Financial, Inc., Series MTN, 6.625%, 12/01/2037 | 41,838 |
| 10,000 | Prudential Financial, Inc., Sr. Note, Series MTND, 7.375%, 6/15/2019 | 11,479 |
| 100,000 | Prudential Financial, Inc., Sr. Unsecd. Note, Series MTN, 4.750%, 9/17/2015 | 105,367 |
|
Shares or Principal Amount |
Value in U.S. Dollars |
| $750,000 | 2 | Union Central Life Insurance Co., Note, Series 144A, 8.200%, 11/01/2026 | 855,453 |
| TOTAL | 1,860,625 |
| Financial Institution - Insurance - P&C – 0.1% |
| 80,000 | CNA Financial Corp., 6.500%, 08/15/2016 | 85,819 |
| 15,000 | Chubb Corp., Sr. Note, 5.750%, 05/15/2018 | 17,770 |
| 50,000 | Horace Mann Educators Corp., Sr. Note, 6.850%, 04/15/2016 | 55,549 |
| 100,000 | 2,3 | Liberty Mutual Group, Inc, Unsecd. Note, Series 144A, 5.750%, 3/15/2014 | 103,112 |
| 30,000 | 2,3 | Nationwide Mutual Insurance Co., Sub. Note, Series 144A, 9.375%, 08/15/2039 | 34,369 |
| 10,000 | The Travelers Cos., Inc., Sr. Unsecd. Note, 5.500%, 12/01/2015 | 11,227 |
| TOTAL | 307,846 |
| Financial Institution - REITs – 0.1% |
| 45,000 | Avalonbay Communities, Inc., Sr. Unsecd. Note, Series MTN, 5.700%, 03/15/2017 | 50,277 |
| 75,000 | Boston Properties LP, Sr. Unsecd. Note, 5.875%, 10/15/2019 | 82,692 |
| 40,000 | Equity One, Inc., Bond, 6.000%, 09/15/2017 | 40,873 |
| 40,000 | Liberty Property LP, 6.625%, 10/01/2017 | 45,197 |
| 20,000 | ProLogis, Inc., Sr. Unsecd. Note, Series WI, 7.625%, 08/15/2014 | 22,037 |
| 120,000 | ProLogis, Sr. Unsecd. Note, 5.500%, 04/01/2012 | 120,708 |
| 40,000 | Simon Property Group LP, 6.750%, 05/15/2014 | 44,164 |
| 50,000 | Simon Property Group, Inc., 6.350%, 08/28/2012 | 51,600 |
| TOTAL | 457,548 |
| Foreign-Local-Government – 0.0% |
| 50,000 | Quebec, Province of, Note, Series MTNA, 7.035%, 03/10/2026 | 68,821 |
| Municipal Services – 0.1% |
| 140,000 | 2,3 | Army Hawaii Family Housing, Series 144A, 5.524%, 6/15/2050 | 139,100 |
| 100,000 | 2,3 | Camp Pendleton & Quantico Housing LLC, Series 144A, 5.572%, 10/01/2050 | 101,265 |
| TOTAL | 240,365 |
| Technology – 0.2% |
| 20,000 | Cisco Systems, Inc., Sr. Unsecd. Note, 5.500%, 02/22/2016 | 23,125 |
| 40,000 | Dell Computer Corp., Deb., 7.100%, 04/15/2028 | 50,194 |
| 105,000 | Fiserv, Inc., Sr. Note, 6.800%, 11/20/2017 | 122,927 |
| 60,000 | Hewlett-Packard Co., Note, 5.400%, 03/01/2017 | 67,915 |
| 200,000 | IBM Corp., Sr. Note, 5.700%, 09/14/2017 | 239,708 |
| TOTAL | 503,869 |
|
Shares or Principal Amount |
Value in U.S. Dollars |
| Transportation - Railroads – 0.1% |
| $100,000 | Burlington Northern Santa Fe Corp., 4.875%, 01/15/2015 | 109,059 |
| 45,000 | Union Pacific Corp., Bond, 6.625%, 02/01/2029 | 57,024 |
| TOTAL | 166,083 |
| Transportation - Services – 0.1% |
| 75,000 | 2,3 | Enterprise Rent-A-Car USA, Series 144A, 6.375%, 10/15/2017 | 86,296 |
| 100,000 | Ryder System, Inc., Sr. Unsecd. Note, Series MTN, 3.150%, 3/02/2015 | 102,477 |
| TOTAL | 188,773 |
| Utility - Electric – 0.4% |
| 60,000 | Appalachian Power Co., Sr. Unsecd. Note, 7.950%, 01/15/2020 | 78,549 |
| 50,000 | Cleveland Electric Illuminating Co., Sr. Unsecd. Note, 5.950%, 12/15/2036 | 52,215 |
| 50,000 | Commonwealth Edison Co., 1st Mtg. Bond, 5.800%, 03/15/2018 | 58,970 |
| 10,000 | Consolidated Edison Co., Sr. Unsecd. Note, 6.650%, 04/01/2019 | 12,610 |
| 40,000 | Consolidated Edison Co., Sr. Unsecd. Note, Series 2006-C, 5.500%, 9/15/2016 | 46,798 |
| 60,000 | 2,3 | Electricite De France SA, Series 144A, 5.500%, 1/26/2014 | 63,699 |
| 90,000 | FirstEnergy Solutions Corp., Company Guarantee, 4.800%, 02/15/2015 | 96,283 |
| 50,000 | FirstEnergy Solutions Corp., Company Guarantee, 6.050%, 08/15/2021 | 54,816 |
| 60,246 | 2,3 | Great River Energy, 1st Mtg. Note, Series 144A, 5.829%, 7/01/2017 | 66,341 |
| 120,000 | MidAmerican Energy Co., 4.650%, 10/01/2014 | 131,843 |
| 100,000 | National Rural Utilities Cooperative Finance Corp., Sr. Unsecd. Note, 10.375%, 11/01/2018 | 142,667 |
| 30,000 | Northern States Power Co., MN, 1st Mtg. Bond, 5.250%, 03/01/2018 | 35,563 |
| 60,000 | PPL Energy Supply LLC, Sr. Unsecd. Note, 6.000%, 12/15/2036 | 70,309 |
| 40,000 | Progress Energy, Inc., 7.050%, 03/15/2019 | 49,092 |
| 100,000 | Union Electric Co., 6.000%, 04/01/2018 | 118,764 |
| 120,000 | Virginia Electric & Power Co., Sr. Unsecd. Note, 5.000%, 06/30/2019 | 136,787 |
| 80,000 | Virginia Electric & Power Co., Sr. Unsecd. Note, 5.100%, 11/30/2012 | 83,367 |
| TOTAL | 1,298,673 |
| Utility - Natural Gas Distributor – 0.1% |
| 120,000 | Atmos Energy Corp., 5.125%, 01/15/2013 | 125,519 |
| 15,000 | Atmos Energy Corp., 8.500%, 03/15/2019 | 19,694 |
| 75,000 | National Fuel Gas Co., Sr. Unsecd. Note, 4.900%, 12/01/2021 | 75,279 |
| 60,000 | Sempra Energy, Sr. Unsecd. Note, 6.500%, 06/01/2016 | 70,073 |
| TOTAL | 290,565 |
| Utility - Natural Gas Pipelines – 0.1% |
| 100,000 | Duke Capital Corp., Sr. Note, 6.250%, 02/15/2013 | 105,370 |
| 70,000 | Enbridge, Inc., Sr. Note, 5.600%, 04/01/2017 | 80,349 |
|
Shares or Principal Amount |
Value in U.S. Dollars |
| $110,000 | Enterprise Products Operating LLC, Company Guarantee, Series O, 9.750%, 01/31/2014 | 127,279 |
| 100,000 | Kinder Morgan Energy Partners LP, Sr. Unsecd. Note, 5.800%, 03/15/2035 | 102,646 |
| TOTAL | 415,644 |
|
TOTAL CORPORATE BONDS (IDENTIFIED COST $13,849,413) |
14,799,102 |
| Governments/Agencies – 0.1% |
| Sovereign – 0.1% |
| 75,000 | United Mexican States, 6.625%, 03/03/2015 | 84,938 |
| 30,000 | United Mexican States, Series MTNA, 6.750%, 09/27/2034 | 38,250 |
|
TOTAL GOVERNMENTS/AGENCIES (IDENTIFIED COST $106,214) |
123,188 |
| Mortgage-Backed Securities – 0.2% |
| 6,478 | Federal Home Loan Mortgage Corp. Pool C00592, 7.000%, 3/1/2028 | 7,247 |
| 4,828 | Federal Home Loan Mortgage Corp. Pool C00896, 7.500%, 12/1/2029 | 5,542 |
| 12,583 | Federal Home Loan Mortgage Corp. Pool C17281, 6.500%, 11/1/2028 | 14,087 |
| 10,454 | Federal Home Loan Mortgage Corp. Pool C19588, 6.500%, 12/1/2028 | 11,722 |
| 3,743 | Federal Home Loan Mortgage Corp. Pool C25621, 6.500%, 5/1/2029 | 4,180 |
| 13,436 | Federal Home Loan Mortgage Corp. Pool C76361, 6.000%, 2/1/2033 | 14,943 |
| 37,183 | Federal Home Loan Mortgage Corp. Pool E01545, 5.000%, 15 Year, 1/1/2019 | 40,025 |
| 625 | Federal Home Loan Mortgage Corp. Pool E77591, 6.500%, 7/1/2014 | 654 |
| 8,950 | Federal Home Loan Mortgage Corp. Pool E99510, 5.500%, 9/1/2018 | 9,676 |
| 12,383 | Federal Home Loan Mortgage Corp. Pool G01444, 6.500%, 8/1/2032 | 13,750 |
| 8,545 | Federal National Mortgage Association Pool 251697, 6.500%, 30 Year, 5/1/2028 | 9,530 |
| 23,570 | Federal National Mortgage Association Pool 252334, 6.500%, 30 Year, 2/1/2029 | 26,468 |
| 39,517 | Federal National Mortgage Association Pool 254720, 4.500%, 5/1/2018 | 42,015 |
| 40,418 | Federal National Mortgage Association Pool 254802, 4.500%, 7/1/2018 | 42,973 |
| 22,415 | Federal National Mortgage Association Pool 254905, 6.000%, 10/1/2033 | 25,009 |
| 41,466 | Federal National Mortgage Association Pool 255075, 5.500%, 2/1/2024 | 45,278 |
| 47,171 | Federal National Mortgage Association Pool 255079, 5.000%, 2/1/2019 | 50,776 |
| 2,366 | Federal National Mortgage Association Pool 303168, 9.500%, 30 Year, 2/1/2025 | 2,849 |
| 1,258 | Federal National Mortgage Association Pool 323159, 7.500%, 4/1/2028 | 1,438 |
| 10,063 | Federal National Mortgage Association Pool 323640, 7.500%, 4/1/2029 | 11,426 |
|
Shares or Principal Amount |
Value in U.S. Dollars |
| $257 | Federal National Mortgage Association Pool 323970, 7.000%, 15 Year, 10/1/2014 | 270 |
| 17,382 | Federal National Mortgage Association Pool 428865, 7.000%, 6/1/2028 | 19,161 |
| 1,581 | Federal National Mortgage Association Pool 443215, 6.000%, 10/1/2028 | 1,747 |
| 214 | Federal National Mortgage Association Pool 514184, 7.500%, 9/1/2029 | 246 |
| 38,207 | Federal National Mortgage Association Pool 545993, 6.000%, 11/1/2032 | 42,578 |
| 15,581 | Federal National Mortgage Association Pool 555272, 6.000%, 3/1/2033 | 17,361 |
| 25,751 | Federal National Mortgage Association Pool 713974, 5.500%, 7/1/2033 | 28,028 |
| 44,083 | Federal National Mortgage Association Pool 721502, 5.000%, 7/1/2033 | 47,359 |
| 20,695 | Government National Mortgage Association Pool 2796, 7.000%, 8/20/2029 | 23,547 |
| 11,560 | Government National Mortgage Association Pool 3040, 7.000%, 2/20/2031 | 13,181 |
| 24,362 | Government National Mortgage Association Pool 3188, 6.500%, 1/20/2032 | 27,685 |
| 42,799 | Government National Mortgage Association Pool 3239, 6.500%, 5/20/2032 | 48,667 |
| 1,176 | Government National Mortgage Association Pool 352214, 7.000%, 4/15/2023 | 1,318 |
| 4,033 | Government National Mortgage Association Pool 451522, 7.500%, 30 Year, 10/15/2027 | 4,655 |
| 7,254 | Government National Mortgage Association Pool 462556, 6.500%, 2/15/2028 | 8,240 |
| 458 | Government National Mortgage Association Pool 462739, 7.500%, 5/15/2028 | 529 |
| 459 | Government National Mortgage Association Pool 464835, 6.500%, 9/15/2028 | 521 |
| 10,141 | Government National Mortgage Association Pool 469699, 7.000%, 11/15/2028 | 11,491 |
| 8,859 | Government National Mortgage Association Pool 486760, 6.500%, 12/15/2028 | 10,063 |
| 1,659 | Government National Mortgage Association Pool 780339, 8.000%, 30 Year, 12/15/2023 | 1,910 |
| 10,715 | Government National Mortgage Association Pool 780453, 7.500%, 30 Year, 12/15/2025 | 12,310 |
| 10,098 | Government National Mortgage Association Pool 780584, 7.000%, 30 Year, 6/15/2027 | 11,394 |
|
TOTAL MORTGAGE-BACKED SECURITIES (IDENTIFIED COST $651,165) |
711,849 |
|
Shares or Principal Amount |
Value in U.S. Dollars |
| MUNICIPAL – 0.0% |
| Illinois – 0.0% |
| $90,000 |
Chicago, IL Metropolitan Water Reclamation District, Direct Payment Taxable Limited GO Build America Bonds, 5.720%, 12/01/2038 (IDENTIFIED COST $90,000) |
108,180 |
| U.S. Treasury – 9.0% |
| 3,108,030 | 5 | U.S. Treasury Inflation-Protected Bond, 2.125%, 2/15/2041 | 4,174,473 |
| 1,761,603 | U.S. Treasury Inflation-Protected Note, 0.625%, 7/15/2021 | 1,867,849 |
| 3,700,000 | 5,6 | United States Treasury Bill, 0.010%, 2/16/2012 | 3,700,039 |
| 800,000 | 5,6 | United States Treasury Bill, 0.015%, 2/23/2012 | 800,019 |
| 300,000 | 5,6 | United States Treasury Bill, 0.030%, 3/22/2012 | 299,986 |
| 1,150,000 | 5,6 | United States Treasury Bill, 0.050%, 3/15/2012 | 1,149,966 |
| 1,750,000 | United States Treasury Bond, 3.750%, 8/15/2041 | 1,990,762 |
| 17,500,000 | United States Treasury Note, 1.000%, 9/30/2016 | 17,565,214 |
|
TOTAL U.S. TREASURY (IDENTIFIED COST $31,063,792) |
31,548,308 |
| EXCHANGE-TRADED FUNDS – 10.3% |
| 115,451 | iShares Barclays Aggregate Bond Fund | 12,628,031 |
| 500,837 | iShares MSCI Emerging Market Index Fund | 20,053,514 |
| 31,545 | iShares MSCI Mexico Index Fund | 1,735,921 |
| 31,323 | iShares MSCI South Korea Index Fund | 1,755,967 |
|
TOTAL EXCHANGE-TRADED FUNDS (IDENTIFIED COST $36,322,932) |
36,173,433 |
| MUTUAL FUNDS – 27.6%7 |
| 46,964 | Emerging Markets Fixed Income Core Fund | 1,374,545 |
| 359,943 | Federated InterContinental Fund, Institutional Shares | 15,477,556 |
| 2,963,092 | Federated Mortgage Core Portfolio | 30,105,014 |
| 34,678,095 | 8 | Federated Prime Value Obligations Fund, Institutional Shares, 0.20% | 34,678,095 |
| 477,108 | Federated Project and Trade Finance Core Fund | 4,751,998 |
| 1,660,062 | High Yield Bond Portfolio | 10,358,785 |
|
TOTAL MUTUAL FUNDS (IDENTIFIED COST $94,291,919) |
96,745,993 |
|
TOTAL INVESTMENTS — 99.4% (IDENTIFIED COST $337,101,703)9 |
348,382,755 |
| OTHER ASSETS AND LIABILITIES - NET — 0.6%10 | 2,055,881 |
| TOTAL NET ASSETS — 100% | $350,438,636 |
Annual Shareholder Report
At November 30, 2011, the Fund had the following outstanding futures contracts:| Description |
Number of Contracts |
Notional Value |
Expiration Date |
Unrealized Appreciation/ (Depreciation) |
| 1 AEX Index Short Futures | 22 | $1,320,000 | December 2011 | $(38,799) |
| 1 IBEX 35 Index Short Futures | 12 | $1,014,060 | December 2011 | $(40,190) |
| 1 United States Treasury Bonds 30-Year Short Futures | 20 | $2,827,500 | March 2012 | $23,863 |
| 1 United States Treasury Notes 2-Year Short Futures | 55 | $12,127,500 | March 2012 | $(11,811) |
| 1 ASX SPI 200 Index Long Futures | 18 | $1,851,300 | December 2011 | $(76,427) |
| 1 DAX Index Long Futures | 39 | $5,930,438 | December 2011 | $17,236 |
| 1 FTSE 100 Index Long Futures | 31 | $1,702,830 | December 2011 | $15,584 |
| 1 Russell 2000 Mini Index Long Futures | 489 | $36,024,630 | December 2011 | $657,596 |
| 1 SGX MSCI Singapore Index Long Futures | 47 | $2,873,580 | December 2011 | $(9,764) |
| 1 S&P 500 Index Long Futures | 28 | $8,722,000 | December 2011 | $580,038 |
| 1 S&P/TSE 60 Index Long Futures | 17 | $2,361,300 | December 2011 | $30,456 |
| 1 TOPIX Index Long Futures | 17 | $123,675,000 | December 2011 | $(80,244) |
| 1 United States Treasury Notes 5-Year Long Futures | 33 | $4,047,141 | March 2012 | $1,217 |
| NET UNREALIZED APPRECIATION ON FUTURES CONTRACTS | $1,068,755 | ||
Net Unrealized Appreciation on Futures Contracts is included in “Other Assets and Liabilities — Net.”
| 1 | Non-income producing security. |
| 2 | Denotes a restricted security 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) is subject to a contractual restriction on public sales. At November 30, 2011, these restricted securities amounted to $5,510,277, which represented 1.6% of total net assets. |
| 3 | Denotes a restricted security that may be resold without restriction to “qualified institutional buyers” as defined in Rule 144A under the Securities Act of 1933 and that the Fund has determined to be liquid under criteria established by the Fund's Board of Trustees (the “Trustees”). At November 30, 2011, these liquid restricted securities amounted to $4,651,506, which represented 1.3% of total net assets. |
| 4 | Market quotations and price evaluations are not available. Fair value determined in accordance with procedures established by and under the general supervision of the Trustees. |
| 5 | Pledged as collateral to ensure the Fund is able to satisfy the obligations of its outstanding futures contracts. |
| 6 | Discount rate at time of purchase. |
| 7 | Affiliated holdings. |
| 8 | 7-Day net yield. |
| 9 | The cost of investments for federal tax purposes amounts to $339,765,154. |
| 10 | 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 November 30, 2011.
Annual Shareholder Report
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, including investment companies with daily net asset values, if applicable.
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.
The following is a summary of the inputs used, as of November 30, 2011, in valuing the Fund's assets carried at fair value:
| Valuation Inputs | ||||
|
Level 1 — Quoted Prices and Investments in Mutual Funds1 |
Level 2 — Other Significant Observable Inputs |
Level 3 — Significant Unobservable Inputs |
Total | |
| Equity Securities: | ||||
| Common Stock | ||||
| Domestic | $156,485,650 | $ — | $ — | $156,485,650 |
| International | 3,704,792 | — | — | 3,704,792 |
| Debt Securities: | ||||
| Assets-Backed Securities | — | 4,031,179 | — | 4,031,179 |
| Collateralized Mortgage Obligations | — | 3,951,081 | — | 3,951,081 |
| Corporate Bonds | — | 14,799,102 | 02 | 14,799,102 |
| Governments/Agencies | — | 123,188 | — | 123,188 |
| Mortgage-Backed Securities | — | 711,849 | — | 711,849 |
| Municipal | — | 108,180 | — | 108,180 |
| U.S. Treasury | — | 31,548,308 | — | 31,548,308 |
| Exchange-Traded Funds | 36,173,433 | — | — | 36,173,433 |
| Mutual Funds | 91,993,995 | 4,751,998 | — | 96,745,993 |
| TOTAL SECURITIES | $288,357,870 | $60,024,885 | $0 | $348,382,755 |
| OTHER FINANCIAL INSTRUMENTS3 | $1,068,755 | $ — | $ — | $1,068,755 |
| 1 | Emerging Markets Fixed Income Core Fund, Federated Mortgage Core Portfolio and High Yield Bond Portfolio are affiliated holdings offered only to registered investment companies and other accredited investors. |
| 2 | Includes $15 of a security transferred from Level 2 to Level 3 because fair value was determined using valuation techniques utilizing unobservable market data due to observable market data being unavailable. Transfer shown represents the value of the security at the beginning of the period. |
| 3 | Other financial instruments include futures contracts. |
Annual Shareholder Report
Following is a reconciliation of assets in which significant unobservable inputs (Level 3) were used in determining fair value:|
Investments in Corporate Bonds |
| Balance as of December 1, 2010 | $0 |
| Accrued discounts/premiums | 1,360 |
| Change in unrealized appreciation (depreciation) | (1,375) |
| Transfers into Level 3 | 151 |
| Balance as of November 30, 2011 | $0 |
| The total change in unrealized appreciation (depreciation) included in the Statement of Operations attributable to investments still held at November 30, 2011. | $(1,375) |
| 1 | Transferred from Level 2 to Level 3 because fair value was determined using valuation techniques utilizing unobservable market data due to observable market data being unavailable. Transfer shown represents the value of the security at the beginning of the period. |
The following acronyms are used throughout this portfolio:
| MTN | — Medium Term Note |
| REITs | — Real Estate Investment Trusts |
| REMIC | — Real Estate Mortgage Investment Conduit |
See Notes which are an integral part of the Financial Statements
Annual Shareholder ReportFinancial Highlights – Class A Shares
(For a Share Outstanding Throughout Each Period)
| Year Ended November 30 | 2011 | 2010 | 2009 | 2008 | 2007 |
| Net Asset Value, Beginning of Period | $16.87 | $15.65 | $13.11 | $19.99 | $20.55 |
| Income From Investment Operations: |
| Net investment income | 0.201 | 0.191 | 0.29 | 0.40 | 0.41 |
| Net realized and unrealized gain (loss) on investments, futures contracts, swap contracts and foreign currency transactions | 0.08 | 1.05 | 2.52 | (4.91) | 1.42 |
| TOTAL FROM INVESTMENT OPERATIONS | 0.28 | 1.24 | 2.81 | (4.51) | 1.83 |
| Less Distributions: |
| Distributions from net investment income | (0.17) | (0.02) | (0.27) | (0.42) | (0.40) |
| Distributions from net realized gain on investments, futures contracts, swap contracts and foreign currency transactions | — | — | — | (1.95) | (1.99) |
| TOTAL DISTRIBUTIONS | (0.17) | (0.02) | (0.27) | (2.37) | (2.39) |
| Net Asset Value, End of Period | $16.98 | $16.87 | $15.65 | $13.11 | $19.99 |
| Total Return2 | 1.62% | 7.91% | 21.84% | (25.39)% | 9.88% |
| Ratios to Average Net Assets: |
| Net expenses | 1.25%3 | 1.25%3 | 1.25%3 | 1.25%3 | 1.25%3 |
| Net investment income | 1.14% | 1.20% | 2.00% | 2.48% | 2.07% |
| Expense waiver/reimbursement4 | 0.10% | 0.21% | 0.26% | 0.19% | 0.10% |
| Supplemental Data: |
| Net assets, end of period (000 omitted) | $178,971 | $135,002 | $149,696 | $125,373 | $195,687 |
| Portfolio turnover | 215% | 184% | 254% | 190% | 135% |
| 1 | Per share numbers have been calculated using the average shares method. |
| 2 | Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable. |
| 3 | The net expense ratio is calculated without reduction for expense offset arrangements. The net expense ratios are 1.25%, 1.24%, 1.24%, 1.25% and 1.24% for the years ended November 30, 2011, 2010, 2009, 2008 and 2007, respectively, after taking into account these expense reductions. |
| 4 | 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
Annual Shareholder ReportFinancial Highlights – Class B Shares
(For a Share Outstanding Throughout Each Period)
| Year Ended November 30 | 2011 | 2010 | 2009 | 2008 | 2007 |
| Net Asset Value, Beginning of Period | $16.69 | $15.61 | $13.09 | $19.96 | $20.52 |
| Income From Investment Operations: |
| Net investment income | 0.061 | 0.071 | 0.15 | 0.26 | 0.25 |
| Net realized and unrealized gain (loss) on investments, futures contracts, swap contracts and foreign currency transactions | 0.08 | 1.03 | 2.55 | (4.89) | 1.43 |
| TOTAL FROM INVESTMENT OPERATIONS | 0.14 | 1.10 | 2.70 | (4.63) | 1.68 |
| Less Distributions: |
| Distributions from net investment income | (0.05) | (0.02) | (0.18) | (0.29) | (0.25) |
| Distributions from net realized gain on investments, futures contracts, swap contracts and foreign currency transactions | — | — | — | (1.95) | (1.99) |
| TOTAL DISTRIBUTIONS | (0.05) | (0.02) | (0.18) | (2.24) | (2.24) |
| Net Asset Value, End of Period | $16.78 | $16.69 | $15.61 | $13.09 | $19.96 |
| Total Return2 | 0.80% | 7.03% | 20.86% | (25.97)% | 9.05% |
| Ratios to Average Net Assets: |
| Net expenses | 2.05%3 | 2.05%3 | 2.05%3 | 2.05%3 | 2.03%3 |
| Net investment income | 0.33% | 0.42% | 1.23% | 1.72% | 1.31% |
| Expense waiver/reimbursement4 | 0.12% | 0.21% | 0.26% | 0.17% | 0.10% |
| Supplemental Data: |
| Net assets, end of period (000 omitted) | $30,424 | $14,541 | $20,151 | $21,637 | $41,365 |
| Portfolio turnover | 215% | 184% | 254% | 190% | 135% |
| 1 | Per share numbers have been calculated using the average shares method. |
| 2 | Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable. |
| 3 | The net expense ratio is calculated without reduction for expense offset arrangements. The net expense ratios are 2.05%, 2.04%, 2.04%, 2.05% and 2.03% for the years ended November 30, 2011, 2010, 2009, 2008 and 2007, respectively, after taking into account these expense reductions. |
| 4 | 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
Annual Shareholder ReportFinancial Highlights – Class C Shares
(For a Share Outstanding Throughout Each Period)
| Year Ended November 30 | 2011 | 2010 | 2009 | 2008 | 2007 |
| Net Asset Value, Beginning of Period | $16.62 | $15.55 | $13.04 | $19.90 | $20.47 |
| Income From Investment Operations: |
| Net investment income | 0.061 | 0.061 | 0.18 | 0.26 | 0.26 |
| Net realized and unrealized gain (loss) on investments, futures contracts, swap contracts and foreign currency transactions | 0.09 | 1.03 | 2.51 | (4.87) | 1.42 |
| TOTAL FROM INVESTMENT OPERATIONS | 0.15 | 1.09 | 2.69 | (4.61) | 1.68 |
| Less Distributions: |
| Distributions from net investment income | (0.05) | (0.02) | (0.18) | (0.30) | (0.26) |
| Distributions from net realized gain on investments, futures contracts, swap contracts and foreign currency transactions | — | — | — | (1.95) | (1.99) |
| TOTAL DISTRIBUTIONS | (0.05) | (0.02) | (0.18) | (2.25) | (2.25) |
| Net Asset Value, End of Period | $16.72 | $16.62 | $15.55 | $13.04 | $19.90 |
| Total Return2 | 0.90% | 6.99% | 20.86% | (25.98)% | 9.05% |
| Ratios to Average Net Assets: |
| Net expenses | 2.02%3 | 2.05%3 | 2.05%3 | 2.05%3 | 2.00%3 |
| Net investment income | 0.36% | 0.40% | 1.18% | 1.66% | 1.30% |
| Expense waiver/reimbursement4 | 0.10% | 0.17% | 0.21% | 0.16% | 0.10% |
| Supplemental Data: |
| Net assets, end of period (000 omitted) | $52,187 | $36,415 | $28,278 | $20,603 | $26,572 |
| Portfolio turnover | 215% | 184% | 254% | 190% | 135% |
| 1 | Per share numbers have been calculated using the average shares method. |
| 2 | Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable. |
| 3 | The net expense ratio is calculated without reduction for expense offset arrangements. The net expense ratios are 2.02%, 2.04%, 2.04%, 2.05% and 2.00% for the years ended November 30, 2011, 2010, 2009, 2008 and 2007, respectively, after taking into account these expense reductions. |
| 4 | 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
Annual Shareholder ReportFinancial Highlights – Class R Shares
(For a Share Outstanding Throughout Each Period)
| Year Ended November 30 | 2011 | 2010 | 2009 | 2008 | 2007 |
| Net Asset Value, Beginning of Period | $16.81 | $15.68 | $13.13 | $20.02 | $20.57 |
| Income From Investment Operations: |
| Net investment income | 0.121 | 0.111 | 0.26 | 0.30 | 0.33 |
| Net realized and unrealized gain (loss) on investments, futures contracts, swap contracts and foreign currency transactions | 0.09 | 1.04 | 2.50 | (4.90) | 1.43 |
| TOTAL FROM INVESTMENT OPERATIONS | 0.21 | 1.15 | 2.76 | (4.60) | 1.76 |
| Less Distributions: |
| Distributions from net investment income | (0.10) | (0.02) | (0.21) | (0.34) | (0.32) |
| Distributions from net realized gain on investments, futures contracts, swap contracts and foreign currency transactions | — | — | — | (1.95) | (1.99) |
| TOTAL DISTRIBUTIONS | (0.10) | (0.02) | (0.21) | (2.29) | (2.31) |
| Net Asset Value, End of Period | $16.92 | $16.81 | $15.68 | $13.13 | $20.02 |
| Total Return2 | 1.23% | 7.32% | 21.30% | (25.76)% | 9.44% |
| Ratios to Average Net Assets: |
| Net expenses | 1.68%3 | 1.74%3 | 1.75%3 | 1.75%3 | 1.70%3 |
| Net investment income | 0.71% | 0.71% | 1.41% | 1.93% | 1.55% |
| Expense waiver/reimbursement4 | 0.10% | 0.14% | 0.18% | 0.14% | 0.10% |
| Supplemental Data: |
| Net assets, end of period (000 omitted) | $54,878 | $53,749 | $47,254 | $18,947 | $16,070 |
| Portfolio turnover | 215% | 184% | 254% | 190% | 135% |
| 1 | Per share numbers have been calculated using the average shares method. |
| 2 | Based on net asset value. |
| 3 | The net expense ratio is calculated without reduction for expense offset arrangements. The net expense ratios are 1.68%, 1.73%, 1.74%, 1.75% and 1.70% for the years ended November 30, 2011, 2010, 2009, 2008 and 2007, respectively, after taking into account these expense reductions. |
| 4 | 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
Annual Shareholder ReportFinancial Highlights – Institutional Shares
(For a Share Outstanding Throughout Each Period)
|
Year Ended November 30, |
Period Ended 11/30/20091 |
|
| 2011 | 2010 | |
| Net Asset Value, Beginning of Period | $16.91 | $15.65 | $14.06 |
| Income From Investment Operations: | ||
| Net investment income | 0.242 | 0.232 | 0.13 |
| Net realized and unrealized gain on investments, futures contracts, swap contracts and foreign currency transactions | 0.10 | 1.05 | 1.56 |
| TOTAL FROM INVESTMENT OPERATIONS | 0.34 | 1.28 | 1.69 |
| Less Distributions: | ||
| Distributions from net investment income | (0.21) | (0.02) | (0.10) |
| Net Asset Value, End of Period | $17.04 | $16.91 | $15.65 |
| Total Return3 | 1.99% | 8.16% | 12.07% |
| Ratios to Average Net Assets: | ||
| Net expenses | 0.95%4 | 1.00%4 | 1.00%4,5 |
| Net investment income | 1.40% | 1.47% | 1.91%5 |
| Expense waiver/reimbursement6 | 0.10% | 0.19% | 0.13%5 |
| Supplemental Data: | ||
| Net assets, end of period (000 omitted) | $33,979 | $12,421 | $2,776 |
| Portfolio turnover | 215% | 184% | 254%7 |
| 1 | Reflects operations for the period from June 12, 2009 (date of initial investment) to November 30, 2009. |
| 2 | Per share numbers have been calculated using the average shares method. |
| 3 | Based on net asset value. Total returns for periods of less than one year are not annualized. |
| 4 | The net expense ratio is calculated without reduction for expense offset arrangements. The net expense ratios are 0.95%, 0.99% and 1.00% for the years ended November 30, 2011 and 2010 and for the period ended November 30, 2009, respectively, after taking into account these expense reductions. |
| 5 | Computed on an annualized basis. |
| 6 | This expense decrease is reflected in both the net expense and the net investment income ratios shown above. |
| 7 | Portfolio turnover is calculated at the Fund level. Percentage indicated was calculated for the year ended November 30, 2009. |
See Notes which are an integral part of the Financial Statements
Annual Shareholder ReportStatement of Assets and Liabilities
| Assets: |
| Total investments in securities, at value including $96,745,993 of investments in affiliated holdings (Note 5) (identified cost $337,101,703) | $348,382,755 |
| Cash | 590 |
| Income receivable | 634,547 |
| Receivable for investments sold | 12,301,479 |
| Receivable for shares sold | 512,562 |
| Receivable for daily variation margin | 2,734,294 |
| Other receivables | 7,499 |
| TOTAL ASSETS | 364,573,726 |
| Liabilities: |
| Payable for investments purchased | $13,449,989 |
| Payable for shares redeemed | 412,442 |
| Payable for Directors'/Trustees' fees | 934 |
| Payable for distribution services fee (Note 5) | 61,813 |
| Payable for shareholder services fee (Note 5) | 48,422 |
| Accrued expenses | 161,490 |
| TOTAL LIABILITIES | 14,135,090 |
| Net assets for 20,708,755 shares outstanding | $350,438,636 |
| Net Assets Consist of: |
| Paid-in capital | $358,484,125 |
| Net unrealized appreciation of investments, futures contracts, swap contracts and translation of assets and liabilities in foreign currency | 12,354,307 |
| Accumulated net realized loss on investments, futures contracts, swap contracts and foreign currency transactions | (20,934,312) |
| Undistributed net investment income | 534,516 |
| TOTAL NET ASSETS | $350,438,636 |
| Net Asset Value, Offering Price and Redemption Proceeds Per Share |
| Class A Shares: |
| Net asset value per share ($178,970,510 ÷ 10,537,876 shares outstanding), no par value, unlimited shares authorized | $16.98 |
| Offering price per share (100/94.50 of $16.98) | $17.97 |
| Redemption proceeds per share | $16.98 |
| Class B Shares: |
| Net asset value per share ($30,424,473 ÷ 1,812,599 shares outstanding), no par value, unlimited shares authorized | $16.78 |
| Offering price per share | $16.78 |
| Redemption proceeds per share (94.50/100 of $16.78) | $15.86 |
| Class C Shares: |
| Net asset value per share ($52,187,499 ÷ 3,120,787 shares outstanding), no par value, unlimited shares authorized | $16.72 |
| Offering price per share | $16.72 |
| Redemption proceeds per share (99.00/100 of $16.72) | $16.55 |
| Class R Shares: |
| Net asset value per share ($54,877,570 ÷ 3,243,628 shares outstanding), no par value, unlimited shares authorized | $16.92 |
| Offering price per share | $16.92 |
| Redemption proceeds per share | $16.92 |
| Institutional Shares: |
| Net asset value per share ($33,978,584 ÷ 1,993,865 shares outstanding), no par value, unlimited shares authorized | $17.04 |
| Offering price per share | $17.04 |
| Redemption proceeds per share | $17.04 |
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report| Investment Income: |
| Dividends (including $2,807,600 received from affiliated holdings (Note 5) and net of foreign taxes withheld of $503) | $5,110,047 |
| Interest | 1,400,249 |
| Investment income allocated from affiliated partnership (Note 5) | 334,617 |
| TOTAL INCOME | 6,844,913 |
| Expenses: |
| Investment adviser fee (Note 5) | $1,891,512 |
| Administrative fee (Note 5) | 310,000 |
| Custodian fees | 45,941 |
| Transfer and dividend disbursing agent fees and expenses (Note 2) | 643,783 |
| Directors'/Trustees' fees | 12,307 |
| Auditing fees | 26,798 |
| Legal fees | 6,641 |
| Portfolio accounting fees | 164,801 |
| Distribution services fee (Note 5) | 712,529 |
| Shareholder services fee (Note 5) | 510,174 |
| Account administration fee (Note 2) | 1,873 |
| Share registration costs | 75,573 |
| Printing and postage | 81,958 |
| Insurance premiums | 4,500 |
| Miscellaneous | 13,273 |
| TOTAL EXPENSES | 4,501,663 |
| Waivers, Reimbursements and Reduction: |
| Waiver/reimbursement of investment adviser fee (Note 5) | $(226,828) |
| Waiver of administrative fee (Note 5) | (62,132) |
| Reimbursement of transfer and dividend disbursing agent fees and expenses (Note 2) and (Note 5) | (3,077) |
| Fees paid indirectly from directed brokerage arrangements (Note 6) | (1,381) |
| TOTAL WAIVERS, REIMBURSEMENTS AND REDUCTION | $(293,418) |
| Net expenses | $4,208,245 |
| Net investment income | 2,636,668 |
| Realized and Unrealized Gain (Loss) on Investments, Futures Contracts, Swap Contracts and Foreign Currency Transactions: |
| Net realized gain on investments and foreign currency transactions (including realized gain of $2,704,559 on sales of investments in affiliated holdings) (Note 5) | 17,691,685 |
| Net realized loss on futures contracts | (3,949,482) |
| Net realized loss on swap contracts | (30,182) |
| Net realized gain/loss allocated from affiliated partnership (Note 5) | 19,376 |
| Realized gain distribution from affiliated investment company shares (Note 5) | 3,387 |
| Net change in unrealized appreciation of investments and translation of assets and liabilities in foreign currency | (15,314,213) |
| Net change in unrealized appreciation of futures contracts | (273,904) |
| Net change in unrealized appreciation of swap contracts | (20,815) |
| Net realized and unrealized gain on investments, futures contracts, swap contracts and foreign currency transactions | (1,874,148) |
| Change in net assets resulting from operations | $762,520 |
See Notes which are an integral part of the Financial Statements
Annual Shareholder ReportStatement of Changes in Net Assets
| Year Ended November 30 | 2011 | 2010 |
| Increase (Decrease) in Net Assets |
| Operations: |
| Net investment income | $2,636,668 | $2,349,778 |
| Net realized gain on investments including allocation from affiliated partnership, futures contracts, swap contracts and foreign currency transactions | 13,734,784 | 13,571,566 |
| Net change in unrealized appreciation/depreciation of investments, futures contracts, swap contracts and translation of assets and liabilities in foreign currency | (15,608,932) | 2,048,902 |
| CHANGE IN NET ASSETS RESULTING FROM OPERATIONS | 762,520 | 17,970,246 |
| Distributions to Shareholders: |
| Distributions from net investment income |
| Class A Shares | (1,428,758) | (158,051) |
| Class B Shares | (37,916) | (21,313) |
| Class C Shares | (119,915) | (30,767) |
| Class R Shares | (320,921) | (50,986) |
| Institutional Shares | (296,237) | (2,951) |
| CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS | (2,203,747) | (264,068) |
| Share Transactions: |
| Proceeds from sale of shares | 93,989,914 | 81,404,043 |
| Proceeds from shares issued in connection with the tax-free transfer of assets from EquiTrust Series Fund, Inc. – Managed Portfolio | 38,811,344 | — |
| Proceeds from shares issued in connection with the tax-free transfer of assets from Federated Balanced Allocation Fund | 47,084,636 | — |
| Net asset value of shares issued to shareholders in payment of distributions declared | 2,058,339 | 249,752 |
| Cost of shares redeemed | (82,191,116) | (95,388,857) |
| CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS | 99,753,117 | (13,735,062) |
| Change in net assets | 98,311,890 | 3,971,116 |
| Net Assets: |
| Beginning of period | 252,126,746 | 248,155,630 |
| End of period (including undistributed net investment income of $534,516 and $100,423, respectively) | $350,438,636 | $252,126,746 |
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report1. ORGANIZATION
Federated Asset Allocation Fund (formerly, Federated Stock and Bond 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 five classes of shares: Class A Shares, Class B Shares, Class C Shares, Class R Shares and Institutional Shares. All shares of the Fund have equal rights with respect to voting, except on class-specific matters. The primary investment objective of the Fund is to provide relative safety of capital with the possibility of long-term growth of capital and income. Consideration is also given to current income.
On July 15, 2011, the Fund acquired all of the net assets of EquiTrust Series Fund, Inc. – Managed Portfolio (the “Managed Portfolio”), an open-end investment company in a tax-free reorganization in exchange for shares of the Fund, pursuant to a plan of reorganization approved by the Managed Portfolio's shareholders on July 15, 2011. The purpose of the transaction was to combine two portfolios with comparable investment objectives and strategies. For financial reporting purposes, assets received and shares issued by the Fund were recorded at fair value; however, the cost basis of the investments received from the Managed Portfolio was carried forward to align ongoing reporting of the Fund's realized and unrealized gains and losses with amounts distributable to shareholders for tax purposes.
Assuming the acquisition had been completed on December 1, 2010, the beginning of the annual reporting period of the Fund, the Fund's pro forma results of operations for the year ended November 30, 2011, are as follows:
| Net investment income* | $2,944,550 |
| Net realized and unrealized gain on investments | $892,424 |
| Net increase in net assets resulting from operations | $3,836,974 |
| * | Net investment income includes $28,844 of pro forma eliminated expenses. |
Because the combined investment portfolios have been managed as a single integrated portfolio since the acquisition was completed, it is not practicable to separate the amounts of revenue and earnings from Managed Portfolio that has been included in the Fund's Statement of Operations as of November 30, 2011.
For every one share of EquiTrust Series Fund, Inc. – Managed Portfolio Class A Shares exchanged, a shareholder received 0.830 shares of Federated Asset Allocation Fund Class A Shares.
For every one share of EquiTrust Series Fund, Inc. – Managed Portfolio Class B Shares exchanged, a shareholder received 0.829 shares of Federated Asset Allocation Fund Class A Shares..
For every one share of EquiTrust Series Fund, Inc. – Managed Portfolio Class I Shares exchanged, a shareholder received 0.832 shares of Federated Asset Allocation Fund Institutional Shares.
Annual Shareholder Report
The Fund received net assets from the Managed Portfolio as the result of the tax-free reorganization as follows:|
Shares of the Fund Issued |
EquiTrust Series Fund, Inc. – Managed Portfolio Net Assets Received |
Unrealized Appreciation1 |
Net Assets of the Fund Immediately Prior to Combination |
Net Assets of the Fund Immediately After Combination |
| 2,115,649 | $38,811,344 | $5,446,437 | $287,321,994 | $326,133,338 |
| 1 | Unrealized Appreciation is included in the EquiTrust Series Fund, Inc. – Managed Portfolio Net Assets Received amount shown above. |
On November 18, 2011, the Fund acquired all of the net assets of Federated Balanced Allocation Fund (“Balanced Allocation Fund”), an open-end investment company in a tax-free reorganization in exchange for shares of the Fund, pursuant to a plan of reorganization approved by Balanced Allocation Fund's shareholders on November 18, 2011. The purpose of the transaction was to combine two portfolios with comparable investment objectives and strategies. For financial reporting purposes, assets received and shares issued by the Fund were recorded at fair value; however, the cost basis of the investments received from Balanced Allocation Fund was carried forward to align ongoing reporting of the Fund's realized and unrealized gains and losses with amounts distributable to shareholders for tax purposes.
Assuming the acquisition had been completed on December 1, 2010, the beginning of the annual reporting period of the Fund, the Fund's pro forma results of operations for the year ended November 30, 2011, are as follows:
| Net investment income* | $3,210,730 |
| Net realized and unrealized loss on investments | $(4,447,108) |
| Net decrease in net assets resulting from operations | $(1,236,378) |
| * | Net investment income includes $33,061 of pro forma additional expenses. |
Because the combined investment portfolios have been managed as a single integrated portfolio since the acquisition was completed, it is not practicable to separate the amounts of revenue and earnings from the Balanced Allocation Fund that has been included in the Fund's Statement of Operations as of November 30, 2011.
For every one share of Federated Balanced Allocation Fund Class A Shares exchanged, a shareholder received 0.458 shares of Federated Asset Allocation Fund Class A Shares.
For every one share of Federated Balanced Allocation Fund Class B Shares exchanged, a shareholder received 0.463 shares of Federated Asset Allocation Fund Class B Shares.
For every one share of Federated Balanced Allocation Fund Class C Shares exchanged, a shareholder received 0.464 shares of Federated Asset Allocation Fund Class C Shares.
Annual Shareholder Report
The Fund received net assets from the Acquired Fund as the result of the tax-free reorganization as follows:|
Shares of the Fund Issued |
Federated Balanced Allocation Fund Net Assets Received |
Unrealized Depreciation1 |
Net Assets of the Fund Immediately Prior to Combination |
Net Assets of the Fund Immediately After Combination |
| 2,837,329 | $47,084,636 | $(940,849) | $299,478,224 | $346,562,860 |
| 1 | Unrealized Depreciation is included in the Federated Balanced Allocation Fund Net Assets Received amount shown above. |
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:
- Equity securities listed on an exchange or traded through a regulated market system are valued at their last reported sale price or official closing price in their principal exchange or market.
- Fixed-income securities acquired with remaining maturities greater than 60 days are fair valued using price evaluations provided by a pricing service approved by the Trustees.
- Fixed-income securities acquired with remaining maturities of 60 days or less are valued at their cost (adjusted for the accretion of any discount or amortization of any premium), which approximates market value.
- Shares of other mutual funds are valued based upon their reported NAVs.
- Derivative contracts listed on exchanges are valued at their reported settlement or closing price.
- Over-the-counter (OTC) derivative contracts are fair valued using price evaluations provided by a pricing service approved by the Trustees.
- 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 purchase price of the security, information obtained by contacting the issuer, 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 and public trading in similar securities of the issuer or comparable issuers.
If the Fund cannot obtain a price or price evaluation from a pricing service for an investment, the Fund may attempt to value the investment based upon the mean of bid and asked quotations or fair value the investment based on price evaluations, from one or more dealers. If any price, quotation, price evaluation or other pricing source is not readily available when the NAV is calculated, 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 purchase or sell an investment at the price used to calculate the Fund's NAV.
Annual Shareholder Report
Fair Valuation and Significant Events ProceduresThe Trustees have authorized the use of pricing services to provide evaluations of the current fair value of certain investments for purposes of calculating the NAV. 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 U.S. Treasury and Agency securities, mortgage-backed securities and municipal securities. The Fund normally uses mid evaluations for other types of fixed-income securities and 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.
The Trustees also have adopted procedures requiring an investment to be priced at its fair value whenever the Adviser determines that a significant event affecting the value of the investment has occurred between the time as of which the price of the investment would otherwise be determined and the time as of which the NAV is computed. An event is considered significant if there is both an affirmative expectation that the investment's value will change in response to the event and a reasonable basis for quantifying the resulting change in value. Examples of significant events that may occur after the close of the principal market on which a security is traded, or after the time of a price evaluation provided by a pricing service or a dealer, include:
- With respect to securities traded in foreign markets, significant trends in U.S. equity markets or in the trading of foreign securities index futures or options contracts;
- With respect to price evaluations of fixed-income securities determined before the close of regular trading on the NYSE, actions by the Federal Reserve Open Market Committee and other significant trends in U.S. fixed-income markets;
- Political or other developments affecting the economy or markets in which an issuer conducts its operations or its securities are traded; and
- Announcements concerning matters such as acquisitions, recapitalizations, litigation developments, a natural disaster affecting the issuer's operations or regulatory changes or market developments affecting the issuer's industry.
The Trustees have approved the use of a pricing service to determine the fair value of equity securities traded principally in foreign markets when the Adviser determines that there has been a significant trend in the U.S. equity markets or in index futures trading. For other significant events, the Fund may seek to obtain more current quotations or price evaluations from alternative pricing sources. If a reliable alternative pricing source is not available, the Fund will determine the fair value of the investment using another method approved 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 sub-custodian in which the Fund holds a “securities entitlement” and exercises “control” as those Annual Shareholder Report
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.
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. Foreign dividends are recorded on the ex-dividend date or when the Fund is informed of the ex-dividend date. Positive or negative inflation adjustments on Treasury Inflation-Protected Securities (TIPS) are included in interest income. Distributions of net investment income are declared and paid quarterly. Non-cash dividends included in dividend income, if any, are recorded at fair value. 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 Class A Shares, Class B Shares, Class C Shares, Class R Shares and Institutional Shares may bear distribution services fees, shareholder services fees, account administration fees and certain transfer and dividend disbursing agent fees unique to those classes. For the year ended November 30, 2011, transfer and dividend disbursing agent fees and account administration fees for the Fund were as follows:
|
Transfer and Dividend Disbursing Agent Fees Incurred |
Transfer and Dividend Disbursing Agent Fees Reimbursed |
Account Administration Fees Incurred |
| Class A Shares | $278,088 | $(268) | $1,873 |
| Class B Shares | 37,561 | (2,809) | — |
| Class C Shares | 88,820 | — | — |
| Class R Shares | 205,416 | — | — |
| Institutional Shares | 33,898 | — | — |
| TOTAL | $643,783 | $(3,077) | $1,873 |
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.
Annual Shareholder Report
Premium and Discount Amortization/ Paydown Gains and LossesAll premiums and discounts on fixed-income securities are amortized/accreted using the effective interest rate method. Gains and losses realized on principal payment of mortgage-backed securities (paydown gains and losses) are classified as part of investment income.
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 November 30, 2011, 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 September 5, 2008, the Fund's domicile and form of organization changed from a Maryland corporation to a Massachusetts business trust. As of November 30, 2011, tax years 2008 through 2011 remain subject to examination by the Fund's major tax jurisdictions, which include the United States of America, the state of Maryland, the Commonwealth of Massachusetts and the Commonwealth of Pennsylvania.
The Fund may be subject to taxes imposed by governments of countries in which it invests. Such taxes are generally based on either income or gains earned or repatriated. The Fund accrues and applies such taxes to net investment income, net realized gains and net unrealized gains as income and/or gains are earned.
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.
Swap Contracts
Swap contracts involve two parties that agree to exchange the returns (or the differential in rates of return) earned or realized on particular predetermined investments, instruments, indices or other measures. The gross returns to be exchanged or “swapped” between parties are generally calculated with respect to a “notional amount” for a predetermined period of time. The Fund enters into interest rate, total return, credit default, currency and other swap agreements. Risks may arise upon entering into swap agreements from the potential inability of the counterparties to meet the terms of their contract from unanticipated changes in the value of the swap agreement. The Fund uses credit default swaps to manage exposure to a given issuer or sector by either selling protection to increase exposure, or buying protection to reduce exposure. The “buyer” in a credit default swap is obligated to pay the “seller” a periodic stream of payments over the term of the contract provided that no event of default on an underlying reference obligation has occurred. If an event of default occurs, the seller must pay the buyer the full notional value, or the “par value,” of the reference obligation in exchange for the reference obligation. In connection with these agreements, securities may be identified as collateral in accordance with the terms of the respective swap agreements to provide assets of value and recourse in the event of default or bankruptcy/insolvency. Recovery values are assumed by market makers considering either industry standard recovery rates or entity specific factors and considerations until a credit event occurs. If a credit event has occurred, the recovery value is typically determined by a facilitated auction whereby a minimum number Annual Shareholder Report
of allowable broker bids, together with a specific valuation method, are used to calculate the settlement value. The Fund's maximum risk of loss from counterparty credit risk, either as the protection buyer or as the protection seller, is the fair value of the contract. This risk is mitigated by having a master netting arrangement between the Fund and the counterparty and by the posting of collateral by the counterparty to the Fund to cover the Fund's exposure to the counterparty.Upfront payments received or paid by the Fund will be reflected as an asset or liability on the Statement of Assets and Liabilities. Changes in the value of swap contracts are included in Swaps, at value on the Statement of Assets and Liabilities and periodic payments are reported as Net realized gain (loss) on swap contracts in the Statement of Operations.
At November 30, 2011, the Fund had no outstanding swap contracts.
The average notional amount of credit default swap contracts held by the Fund throughout the period was $5,769,231. This is based on amounts held as of each month-end throughout the fiscal period.
Futures Contracts
The Fund purchases and sells financial futures contracts to manage cash flows, enhance yield and to potentially reduce transaction costs. Upon entering into a financial 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. Futures contracts have market risks, including the risk that the change in the value of the contract may not correlate with the changes in the value of the underlying securities. There is minimal counterparty risk to the Fund since futures are exchange traded and the exchange's clearing house, as counterparty to all exchange traded futures, guarantees the futures against default.
Futures contracts outstanding at period end are listed after the Fund's Portfolio of Investments.
The average notional value of long and short futures contracts held by the Fund throughout the period was $954,915,014 and $51,371,700, respectively. This is based on amounts held as of each month-end throughout the fiscal period.
Foreign Exchange Contracts
The Fund enters into foreign exchange contracts for the delayed delivery of securities or foreign currency exchange transactions. The Fund enters into foreign exchange contracts 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 Fund's securities against currency fluctuations. Risks may arise upon entering into 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 exchange contracts are adjusted by the daily exchange rate of the underlying currency and any gains or losses are recorded for financial statement purposes as unrealized until the settlement date.
At November 30, 2011, the Fund had no outstanding foreign exchange contracts.
Annual Shareholder Report
The average value at settlement date payable and receivable of foreign exchange contracts purchased and sold by the Fund throughout the period was $524,396 and $616,228, respectively. This is based on the contracts held as of each month-end throughout the fiscal period.Foreign Currency Translation
The accounting records of the Fund are maintained in U.S. dollars. All assets and liabilities denominated in foreign currencies (FCs) are translated into U.S. dollars based on the rates 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.
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 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 accordance with procedures established by and under the general supervision of the Trustees.
Additional information on restricted securities, excluding securities purchased under Rule 144A, if applicable, that have been deemed liquid by the Trustees, held at November 30, 2011, is as follows:
| Security | Acquisition Date | Cost | Market Value |
| SMFC Trust Asset-Backed Certificates, 1997-A B1-4, 1.000%, 1/28/2027 | 2/4/1998 | $10,638 | $3,318 |
| Union Central Life Ins. Co., Note, Series 144A, 8.200%, 11/1/2026 | 3/31/1999 | $790,785 | $855,453 |
Additional Disclosure Related to Derivative Instruments
| Fair Value of Derivative Instruments | ||
| Asset | ||
|
Statement of Assets and Liabilities Location |
Fair Value |
|
|
Derivatives not accounted for as hedging instruments under ASC Topic 815 |
||
|
Interest rate contracts |
Receivable for daily variation margin |
$13,269 |
|
Equity contracts |
Receivable for daily variation margin |
1,055,486 |
|
Total derivatives not accounted for as hedging instruments under ASC Topic 815 |
$1,068,755* | |
| * | Includes cumulative appreciation/depreciation of futures contracts as reported in the footnotes to the Portfolio of Investments. Only the current day's variation margin is reported within the Statement of Assets and Liabilities. |
The Effect of Derivative Instruments on the Statement of Operations for the Year Ended November 30, 2011
| Amount of Realized Gain or (Loss) on Derivatives Recognized in Income | ||||
|
Credit Default Swaps |
Futures |
Forward Currency Contracts |
Total | |
| Interest rate contracts | $ — | $(258,582) | $ — | $(258,582) |
| Equity contracts | — | (3,690,900) | — | (3,690,900) |
| Foreign exchange contracts | — | — | 25,267 | 25,267 |
| Credit contracts | (30,182) | — | — | (30,182) |
| TOTAL | $(30,182) | $(3,949,482) | $25,267 | $(3,954,397) |
| Change in Unrealized Appreciation or (Depreciation) on Derivatives Recognized in Income | ||||
|
Credit Default Swaps |
Futures |
Forward Currency Contracts |
Total | |
| Interest rate contracts | $ — | $24,547 | $ — | $24,547 |
| Equity contracts | — | (298,451) | — | (298,451) |
| Foreign exchange contracts | — | — | 121,872 | 121,872 |
| Credit contracts | (20,815) | — | — | (20,815) |
| TOTAL | $(20,815) | $(273,904) | $121,872 | $(172,847) |
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.
Annual Shareholder Report
3. SHARES OF BENEFICIAL INTERESTThe following tables summarize share activity:
| Year Ended November 30 | 2011 | 2010 | |
| Class A Shares: | Shares | Amount | Shares | Amount |
| Shares sold | 1,337,660 | $23,774,223 | 1,596,436 | $25,454,229 |
| Proceeds from shares issued in connection with the tax-free transfer of assets from EquiTrust Series Fund, Inc. – Managed Portfolio | 1,577,835 | 28,921,182 | — | — |
| Proceeds from shares issued in connection with the tax-free transfer of assets from Federated Balanced Allocation Fund | 1,350,455 | 22,566,209 | — | — |
| Shares issued to shareholders in payment of distributions declared | 73,944 | 1,308,770 | 9,189 | 147,485 |
| Shares redeemed | (1,806,457) | (31,813,375) | (3,164,818) | (50,212,436) |
|
NET CHANGE RESULTING FROM CLASS A SHARE TRANSACTIONS |
2,533,437 | $44,757,009 | (1,559,193) | $(24,610,722) |
| Year Ended November 30 | 2011 | 2010 | |
| Class B Shares: | Shares | Amount | Shares | Amount |
| Shares sold | 247,806 | $4,331,709 | 169,159 | $2,692,461 |
| Proceeds from shares issued in connection with the tax-free transfer of assets from Federated Balanced Allocation Fund | 1,033,347 | 17,052,529 | — | — |
| Shares issued to shareholders in payment of distributions declared | 1,959 | 34,229 | 1,269 | 20,305 |
| Shares redeemed | (341,857) | (5,977,413) | (589,834) | (9,303,277) |
|
NET CHANGE RESULTING FROM CLASS B SHARE TRANSACTIONS |
941,255 | $15,441,054 | (419,406) | $(6,590,511) |
| Year Ended November 30 | 2011 | 2010 | |
| Class C Shares: | Shares | Amount | Shares | Amount |
| Shares sold | 1,520,024 | $26,471,042 | 1,210,690 | $19,095,474 |
| Proceeds from shares issued in connection with the tax-free transfer of assets from Federated Balanced Allocation Fund | 453,527 | 7,465,898 | — | — |
| Shares issued to shareholders in payment of distributions declared | 6,437 | 111,954 | 1,789 | 28,514 |
| Shares redeemed | (1,049,773) | (18,257,084) | (840,318) | (13,222,025) |
|
NET CHANGE RESULTING FROM CLASS C SHARE TRANSACTIONS |
930,215 | $15,791,810 | 372,161 | $5,901,963 |
| Year Ended November 30 | 2011 | 2010 | |
| Class R Shares: | Shares | Amount | Shares | Amount |
| Shares sold | 1,300,655 | $22,905,244 | 1,528,082 | $24,410,879 |
| Shares issued to shareholders in payment of distributions declared | 17,893 | 315,875 | 3,172 | 50,979 |
| Shares redeemed | (1,272,576) | (22,471,555) | (1,348,117) | (21,519,233) |
|
NET CHANGE RESULTING FROM CLASS R SHARE TRANSACTIONS |
45,972 | $749,564 | 183,137 | $2,942,625 |
| Year Ended November 30 | 2011 | 2010 | |
| Institutional Shares: | Shares | Amount | Shares | Amount |
| Shares sold | 922,359 | $16,507,696 | 628,146 | $9,751,000 |
| Proceeds from shares issued in connection with the tax-free transfer of assets from EquiTrust Series Fund, Inc. – Managed Portfolio | 537,814 | 9,890,162 | — | — |
| Shares issued to shareholders in payment of distributions declared | 16,302 | 287,511 | 154 | 2,469 |
| Shares redeemed | (217,024) | (3,671,689) | (71,264) | (1,131,886) |
|
NET CHANGE RESULTING FROM INSTITUTIONAL SHARE TRANSACTIONS |
1,259,451 | $23,013,680 | 557,036 | $8,621,583 |
|
NET CHANGE RESULTING FROM TOTAL FUND SHARE TRANSACTIONS |
5,710,330 | $99,753,117 | (866,265) | $(13,735,062) |
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 in part to differing treatments for foreign currency transactions, partnership income reclassifications, swap income reclassifications, discount accretion/premium amortization on debt securities, capital loss carryforwards and wash sales adjustments resulting from fund mergers.
For the year ended November 30, 2011, permanent differences identified and reclassified among the components of net assets were as follows:
| Increase (Decrease) | ||
| Paid-In Capital |
Undistributed Net Investment Income (Loss) |
Accumulated Net Realized Gain (Loss) |
| $11,778,600 | $1,172 | $(11,779,772) |
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 November 30, 2011 and 2010, was as follows:
| 2011 | 2010 |
| Ordinary income | $2,203,747 | $264,068 |
As of November 30, 2011, the components of distributable earnings on a tax basis were as follows:
| Undistributed ordinary income | $529,727 |
| Net unrealized appreciation | $8,401,493 |
| Capital loss carryforwards | $(16,976,709) |
The difference between book-basis and tax-basis net unrealized appreciation/depreciation is attributable in part to differing treatments for the deferral of losses on wash sales, partnership adjustments, defaulted bond interest and discount accretion/premium amortization on debt securities.
At November 30, 2011, the cost of investments for federal tax purposes was $339,765,154. The net unrealized appreciation of investments for federal tax purposes excluding any unrealized appreciation/depreciation resulting from changes in foreign currency exchange rates, outstanding foreign currency commitments and futures contracts was $8,617,601. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $13,734,295 and net unrealized depreciation from investments for those securities having an excess of cost over value of $5,116,694.
At November 30, 2011, the Fund had a capital loss carryforward of $16,976,709 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 and thus will reduce 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, such capital loss carryforward will expire as follows:
| Expiration Year | Expiration Amount |
| 2015 | $4,604,942 |
| 2016 | $3,858,203 |
| 2017 | $4,305,770 |
| 2018 | $4,207,794 |
Under the recently enacted Regulated Investment Company Modernization Act of 2010, the Fund will be permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010, for an unlimited period. However, any losses incurred during those future years will be required to be utilized prior to the losses incurred in pre-enactment tax years. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law.
The Fund used capital loss carryforwards of $14,014,342 to offset taxable capital gains realized during the year ended November 30, 2011.
As a result of the tax-free transfer of assets from Federated Target ETF Fund 2015, Federated Target ETF Fund 2025, Federated Target ETF Fund 2035, EquiTrust Series, Inc. – Managed Portfolio and Federated Balanced Allocation Fund, certain capital loss carryforwards listed above may be limited.
Annual Shareholder Report
5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATESInvestment Adviser Fee
Federated Global Investment Management Corp. is the Fund's investment adviser (the “Adviser”). The advisory agreement between the Fund and the Adviser provides for an annual fee equal to: (a) a maximum of 0.55% of the average daily net assets of the Fund; and (b) 4.50% of the gross income of the Fund, excluding gains or losses. 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 November 30, 2011, the Adviser voluntarily waived $67 of its fee. In addition, for the year ended November 30, 2011, an affiliate of the adviser reimbursed $3,077 of transfer and dividend disbursing agent fees and expenses.
Certain of the Fund's assets are managed by Federated Investment Management Company (FIMCO) (the “Sub-Adviser”). Prior to April 1, 2011, certain of the Fund's assets were managed by Federated Equity Management Company of Pennsylvania (FEMCOPA). Under the terms of a sub-advisory agreement between the Adviser and the Sub-Adviser, the Sub-Adviser receives an allocable portion of the Fund's adviser fee. The fee is paid by the Adviser out of its resources and is not an incremental Fund expense. For the year ended November 30, 2011, FIMCO and FEMCOPA earned fees of $327,977 and $242,559, respectively.
Administrative Fee
Federated Administrative Services (FAS), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FAS is based on the average aggregate daily net assets of certain Federated funds as specified below:
| Administrative Fee |
Average Aggregate Daily Net Assets of the Federated Funds |
| 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 |
The administrative fee received during any fiscal year shall be at least $150,000 per portfolio and $40,000 per each additional class of Shares. 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 November 30, 2011, the net fee paid to FAS was 0.086% of average daily net assets of the Fund. FAS waived $62,132 of its fee.
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 Class B Shares, Class C Shares and Class R Shares to finance activities intended to result in the sale of these shares. The Plan provides that the Fund may incur distribution expenses at the following percentages of average daily net assets annually, to compensate FSC.
Annual Shareholder Report| Share Class Name |
Percentage of Average Daily Net Assets of Class |
| Class B Shares | 0.75% |
| Class C Shares | 0.75% |
| Class R Shares | 0.50% |
Subject to the terms described in the Expense Limitation note, FSC may voluntarily choose to waive any portion of its fee. For the year ended November 30, 2011, distribution services fees for the Fund were as follows:
|
Distribution Services Fees Incurred |
| Class B Shares | $110,296 |
| Class C Shares | 322,786 |
| Class R Shares | 279,447 |
| TOTAL | $712,529 |
When FSC receives fees, it may pay some or all of them to financial intermediaries whose customers purchase shares. For the year ended November 30, 2011, FSC retained $43,940 of fees paid by the Fund.
Sales Charges
Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expenses of the Fund. They are deducted from the proceeds of sales of Fund shares prior to investment or from redemption proceeds prior to remittance, as applicable. For the year ended November 30, 2011, FSC retained $18,799 in sales charges from the sale of Class A Shares. FSC also retained $8,788 of CDSC relating to redemptions of Class B Shares and $578 relating to redemptions of Class C Shares.
Shareholder Services Fee
The Fund may pay fees (“Service Fees”) up to 0.25% of the average daily net assets of the Fund's Class A Shares, Class B Shares, Class C Shares and Institutional Shares to financial intermediaries or to Federated Shareholder Services Company (FSSC) for providing services to shareholders and maintaining shareholder accounts. Financial intermediaries may include a company affiliated with management of Federated Investors, Inc. A financial intermediary affiliated with management of Federated Investors, Inc. received $1,828 of Service Fees for the year ended November 30, 2011. Subject to the terms described in the Expense Limitation note, FSSC may voluntarily reimburse the Fund for Service Fees. For the year ended November 30, 2011, Service Fees for the Fund were as follows:
|
Service Fees Incurred |
| Class A Shares | $366,296 |
| Class B Shares | 36,765 |
| Class C Shares | 107,113 |
| TOTAL | $510,174 |
For the year ended November 30, 2011, FSSC received $23,530 of fees paid by the Fund. For the year ended November 30, 2011, the Institutional Shares did not incur a Service Fee.
Expense Limitation
The Adviser and its affiliates (which may include FSC, FAS and FSSC) have voluntarily agreed to waive their fees and/or reimburse expenses so that the total annual fund operating expenses (as shown in the financial highlights, but excluding expenses allocated from affiliated partnerships) paid by the Fund's Class A Shares, Class B Shares, Class C Shares, Class R Shares and Institutional Shares (after the voluntary waivers and reimbursements) will not exceed 1.25%, 2.05%, 2.05%, 1.75% and 1.00% (the “Fee Limit”), respectively, up to but not including the later of (the “Termination Date”): (a) February 1, 2013; or (b) the date of the Fund's next effective Prospectus. While the Adviser and its 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.
Interfund Transactions
During the year ended November 30, 2011, 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 $281,423,998 and $287,422,221, respectively.
General
Certain Officers and Trustees of the Fund are Officers and Directors or Trustees of the above companies
Transactions Involving Affiliated Holdings
Affiliated holdings are mutual funds which are managed by the Adviser or an affiliate of the Adviser. The Adviser has agreed to reimburse the Fund for certain investment adviser fees as a result of transactions in other affiliated mutual funds. For the year ended November 30, 2011, the Adviser reimbursed $226,761. Transactions involving the affiliated holdings during the year ended November 30, 2011, were as follows:
|
Emerging Markets Fixed Income Core Fund |
Federated InterContinental Fund, Institutional Shares |
Federated Mid Cap Growth Strategies Fund, Institutional Shares |
Federated Mortgage Core Portfolio |
| Balance of Shares Held 11/30/2010 | 189,860 | 276,859 | 401,648 | 923,667 |
| Purchases/Additions | 47,411 | 83,084 | — | 2,535,612 |
| Sales/Reductions | 190,307 | — | 401,648 | 496,187 |
| Balance of Shares Held 11/30/2011 | 46,964 | 359,943 | — | 2,963,092 |
| Value | $1,374,545 | $15,477,556 | $ — | $30,105,014 |
|
Dividend Income/Allocated Investment Income |
$334,617 | $115,423 | $ — | $759,708 |
|
Capital Gain Distributions/ Allocated Net Realized Gain |
$19,376 | — | — | — |
|
Federated Prime Value Obligations Fund, Institutional Shares |
Federated Project and Trade Finance Core Fund |
High Yield Bond Portfolio |
Total of Affiliated Transactions |
| Balance of Shares Held 11/30/2010 | 33,132,233 | 305,951 | 2,802,841 | 38,033,059 |
| Purchases/Additions | 233,135,404 | 171,157 | 3,216,886 | 239,189,554 |
| Sales/Reductions | 231,589,542 | — | 4,359,665 | 237,037,349 |
| Balance of Shares Held 11/30/2011 | 34,678,095 | 477,108 | 1,660,062 | 40,185,264 |
| Value | $34,678,095 | $4,751,998 | $10,358,785 | $96,745,993 |
|
Dividend Income/Allocated Investment Income |
$103,448 | $180,239 | $1,648,782 | $3,142,217 |
|
Capital Gain Distributions/ Allocated Net Realized Gain |
— | $3,387 | — | $22,763 |
6. EXPENSE Reduction
The Fund directs portfolio trades to a broker that in turn pays a portion of the Fund's operating expenses. For the year ended November 30, 2011, the Fund's expenses were reduced by $1,381 under these arrangements.
7. Investment TRANSACTIONS
Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations, for the year ended November 30, 2011, were as follows:
| Purchases | $455,833,965 |
| Sales | $468,433,844 |
8. LINE OF CREDIT
The Fund participates in a $100,000,000 unsecured, uncommitted revolving line of credit (LOC) agreement with PNC Bank. The LOC was made available for extraordinary or emergency purposes, primarily for financing redemption payments. Borrowings are charged interest at a rate offered to the Fund by PNC Bank at the time of the borrowing. As of November 30, 2011, there were no outstanding loans. During the year ended November 30, 2011, the Fund did not utilize the LOC.
9. INTERFUND LENDING
Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, 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 November 30, 2011, there were no outstanding loans. During the year ended November 30, 2011, the program was not utilized.
Annual Shareholder Report
10. RECENT ACCOUNTING PRONOUNCEMENTSIn April 2011, the Financial Accounting Standards Board (FASB) released Accounting Standards Update (ASU) No. 2011-03, “Reconsideration of Effective Control for Repurchase Agreements.” This ASU amends FASB Accounting Standards Codification (ASC) Topic 860, “Transfers and Servicing”; specifically the criteria required to determine whether a repurchase agreement and similar agreements should be accounted for as sales of financial assets or secured borrowings with commitments. This ASU is effective for fiscal years and interim periods beginning after December 15, 2011. Management has concluded that the adoption of ASU No. 2011-03 is not expected to have a material impact on the Fund's financial statements and the accompanying notes, net assets or results of operations.
In addition, in May 2011, FASB released ASU No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” This ASU amends FASB ASC Topic 820, “Fair Value Measurement,” to establish common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with GAAP. This ASU is effective for fiscal years and interim periods beginning after December 15, 2011. Management has concluded that the adoption of ASU No. 2011-04 is not expected to have a material impact on the Fund's financial statements and the accompanying notes.
11. FEDERAL TAX INFORMATION (UNAUDITED)
For the fiscal year ended November 30, 2011, 70.2% of total income distributions made by the Fund are qualifying dividends which may be subject to a maximum tax rate of 15%, as provided for by the Jobs and Growth Tax Relief Act of 2003. Complete information is reported in conjunction with the reporting of your distributions on Form 1099-DIV.
Of the ordinary income distributions made by the Fund during the year ended November 30, 2011, 63.4% qualify for the dividend received deduction available to corporate shareholders.
Annual Shareholder ReportReport of Independent Registered Public Accounting Firm
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF Federated Asset Allocation fund:
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the Federated Asset Allocation Fund (the “Fund”) (formerly, Federated Stock and Bond Fund), as of November 30, 2011, 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 or periods 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 November 30, 2011, by correspondence with the custodian, transfer agent and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Federated Asset Allocation Fund as of November 30, 2011, 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 or periods in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
January 23, 2012
Shareholder Expense Example (unaudited)
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase or redemption payments; and (2) ongoing costs, including management fees and to the extent applicable, distribution (12b-1) fees and/or shareholder services fees and other Fund expenses. This Example is intended to help you to understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. It is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from June 1, 2011 to November 30, 2011.
ACTUAL EXPENSES
The first section of the table below provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you incurred over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled “Expenses Paid During Period” to estimate the expenses attributable to your investment during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. Thus, you should not use the hypothetical account values and expenses to estimate the actual ending account balance or your expenses for the period. Rather, these figures are required to be provided to enable you to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Annual Shareholder Report
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) on purchase or redemption payments. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.|
Beginning Account Value 6/1/2011 |
Ending Account Value 11/30/2011 |
Expenses Paid During Period1 |
| Actual: |
| Class A Shares | $1,000 | $918.10 | $6.01 |
| Class B Shares | $1,000 | $914.30 | $9.84 |
| Class C Shares | $1,000 | $914.60 | $9.79 |
| Class R Shares | $1,000 | $916.70 | $8.12 |
| Institutional Shares | $1,000 | $919.90 | $4.57 |
|
Hypothetical (assuming a 5% return before expenses): |
| Class A Shares | $1,000 | $1,018.80 | $6.33 |
| Class B Shares | $1,000 | $1,014.79 | $10.35 |
| Class C Shares | $1,000 | $1,014.84 | $10.30 |
| Class R Shares | $1,000 | $1,016.60 | $8.54 |
| Institutional Shares | $1,000 | $1,020.31 | $4.81 |
| 1 | Expenses are equal to the Fund's annualized net expense ratios, multiplied by the average account value over the period, multiplied by 183/365 (to reflect the one-half-year period). The annualized net expense ratios are as follows: |
| Class A Shares | 1.25% |
| Class B Shares | 2.05% |
| Class C Shares | 2.04% |
| Class R Shares | 1.69% |
| Institutional Shares | 0.95% |
Board of Trustees and Trust Officers
The Board of Trustees is responsible for managing the Trust's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. The following tables give information about each Trustee and the senior officers of the Fund. Where required, the tables separately list Trustees who are “interested persons” of the Fund (i.e., “Interested” Trustees) and those who are not (i.e., “Independent” Trustees). Unless otherwise noted, the address of each person listed is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222. The address of all Independent Trustees listed is 4000 Ericsson Drive, Warrendale, PA 15086-7561; Attention: Mutual Fund Board. As of December 31, 2011, the Trust comprised one portfolio(s), and the Federated Fund Family consisted of 43 investment companies (comprising 134 portfolios). Unless otherwise noted, each Officer is elected annually. Unless otherwise noted, each Trustee oversees all portfolios in the Federated Fund Family and serves for an indefinite term. The Fund's Statement of Additional Information includes additional information about Trust Trustees and is available, without charge and upon request, by calling 1-800-341-7400.
Interested Trustees Background
|
Name Birth Date Positions Held with Trust Date Service Began |
Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
|
John F. Donahue* Birth Date: July 28, 1924 Trustee Began serving: December 1956 |
Principal Occupations: Director or Trustee of the Federated Fund Family; Chairman and Director, Federated Investors, Inc.; Chairman of the Federated Fund Family's Executive Committee. Previous Positions: Chairman of the Federated Fund Family; Trustee, Federated Investment Management Company; Chairman and Director, Federated Investment Counseling. |
|
J. Christopher Donahue* Birth Date: April 11, 1949 President and Trustee Began serving: November 1998 |
Principal Occupations: Principal Executive Officer and President of the Federated Fund Family; Director or Trustee of some of the Funds in the Federated Fund Family; President, Chief Executive Officer and Director, Federated
Investors, Inc.; Chairman and Trustee, Federated Investment Management Company; Trustee, Federated Investment Counseling; Chairman and Director, Federated Global Investment Management Corp.; Chairman, Federated Equity Management Company of
Pennsylvania and Passport Research, Ltd. (investment advisory subsidiary of Federated); Trustee, Federated Shareholder Services Company; Director, Federated Services Company. Previous Positions: President, Federated Investment Counseling; President and Chief Executive Officer, Federated Investment Management Company, Federated Global Investment Management Corp. and Passport Research, Ltd. |
| * | Family relationships and reasons for “interested” status: John F. Donahue is the father of J. Christopher Donahue; both are “interested” due to their beneficial ownership of shares of Federated Investors, Inc. and the positions they hold with Federated and its subsidiaries. |
INDEPENDENT Trustees Background
|
Name Birth Date Positions Held with Trust Date Service Began |
Principal Occupation(s) for Past Five Years, Other Directorships Held, Previous Position(s) and Qualifications |
|
Nicholas P. Constantakis, CPA Birth Date: September 3, 1939 Trustee Began serving: November 1998 |
Principal Occupation: Director or Trustee of the Federated Fund Family. Other Directorship Held: Director, Chairman of the Audit Committee, and member of the Compensation Committee, Michael Baker Corporation (architecture, engineering and construction services). Previous Position: Partner, Andersen Worldwide SC. Qualifications: Public accounting and director experience. |
|
John F. Cunningham Birth Date: March 5, 1943 Trustee Began serving: November 1998 |
Principal Occupation: Director or Trustee of the Federated Fund Family. Other Directorships Held: Chairman, President and Chief Executive Officer, Cunningham & Co., Inc. (strategic business consulting); Trustee Associate, Boston College. Previous Positions: Director, Redgate Communications and EMC Corporation (computer storage systems); Chairman of the Board and Chief Executive Officer, Computer Consoles, Inc.; President and Chief Operating Officer, Wang Laboratories; Director, First National Bank of Boston; Director, Apollo Computer, Inc. Qualifications: Business management and director experience. |
|
Maureen Lally-Green Birth Date: July 5, 1949 Trustee Began serving: August 2009 |
Principal Occupations: Director or Trustee of the Federated Fund Family; Director, Office of Church Relations, Diocese of Pittsburgh; Adjunct Professor of Law, Duquesne University School of Law. Other Directorships Held: Director, Auberle; Trustee, St. Francis University; Director, Ireland Institute of Pittsburgh; Director, UPMC Mercy Hospital; Regent, St. Vincent Seminary; Director, Epilepsy Foundation of Western and Central Pennsylvania; Director, Saint Thomas More Society, Allegheny County. Previous Position: Pennsylvania Superior Court Judge. Qualifications: Legal and director experience. |
|
Peter E. Madden Birth Date: March 16, 1942 Trustee Began serving: August 1991 |
Principal Occupation: Director or Trustee, and Chairman of the Board of Directors or Trustees, of the Federated Fund Family. Previous Positions: Representative, Commonwealth of Massachusetts General Court; President, Chief Operating Officer and Director, State Street Bank and Trust Company and State Street Corporation (retired); Director, VISA USA and VISA International; Chairman and Director, Massachusetts Bankers Association; Director, Depository Trust Corporation; Director, The Boston Stock Exchange. Qualifications: Business management, mutual fund services and director experience. |
|
Name Birth Date Positions Held with Trust Date Service Began |
Principal Occupation(s) for Past Five Years, Other Directorships Held, Previous Position(s) and Qualifications |
|
Charles F. Mansfield, Jr. Birth Date: April 10, 1945 Trustee Began serving: November 1998 |
Principal Occupations: Director or Trustee of the Federated Fund Family; Management Consultant. Previous Positions: Chief Executive Officer, PBTC International Bank; Partner, Arthur Young & Company (now Ernst & Young LLP); Chief Financial Officer of Retail Banking Sector, Chase Manhattan Bank; Senior Vice President, HSBC Bank USA (formerly Marine Midland Bank); Vice President, Citibank; Assistant Professor of Banking and Finance, Frank G. Zarb School of Business, Hofstra University; Executive Vice President, DVC Group, Inc. (marketing, communications and technology). Qualifications: Banking, business management, education and director experience. |
|
Thomas M. O'Neill Birth Date: June 14, 1951 Trustee Began serving: October 2006 |
Principal Occupations: Director or Trustee, Vice Chairman of the Audit Committee of the Federated Fund Family; Sole Proprietor, Navigator Management Company (investment and strategic consulting). Other Directorships Held: Board of Overseers, Children's Hospital of Boston; Visiting Committee on Athletics, Harvard College; Board of Directors, Medicines for Humanity; Board of Directors, The Golisano Children's Museum of Naples, Florida. Previous Positions: Chief Executive Officer and President, Managing Director and Chief Investment Officer, Fleet Investment Advisors; President and Chief Executive Officer, Aeltus Investment Management, Inc.; General Partner, Hellman, Jordan Management Co., Boston, MA; Chief Investment Officer, The Putnam Companies, Boston, MA; Credit Analyst and Lending Officer, Fleet Bank; Director and Consultant, EZE Castle Software (investment order management software); Director, Midway Pacific (lumber). Qualifications: Business management, mutual fund, director and investment experience. |
|
John S. Walsh Birth Date: November 28, 1957 Trustee Began serving: November 1998 |
Principal Occupations: Director or Trustee, Chairman of the Audit Committee of the Federated Fund Family; President and Director, Heat Wagon, Inc. (manufacturer of construction temporary heaters); President and Director,
Manufacturers Products, Inc. (distributor of portable construction heaters); President, Portable Heater Parts, a division of Manufacturers Products, Inc. Previous Position: Vice President, Walsh & Kelly, Inc. Qualifications: Business management and director experience. |
OFFICERS
|
Name Birth Date Address Positions Held with Trust Date Service Began |
Principal Occupation(s) for Past Five Years and Previous Position(s) |
|
John W. McGonigle Birth Date: October 26, 1938 EXECUTIVE VICE PRESIDENT AND SECRETARY Began serving: September 1969 |
Principal Occupations: Executive Vice President and Secretary of the Federated Fund Family; Vice Chairman, Executive Vice President, Secretary and Director, Federated Investors, Inc. Previous Positions: Trustee, Federated Investment Management Company and Federated Investment Counseling; Director, Federated Global Investment Management Corp., Federated Services Company and Federated Securities Corp. |
|
Richard A. Novak Birth Date: December 25, 1963 TREASURER Began serving: January 2006 |
Principal Occupations: Principal Financial Officer and Treasurer of the Federated Fund Family; Senior Vice President, Federated Administrative Services; Financial and Operations Principal for Federated Securities Corp., Edgewood
Services, Inc. and Southpointe Distribution Services, Inc. Previous Positions: Controller of Federated Investors, Inc.; Vice President, Finance of Federated Services Company; held various financial management positions within The Mercy Hospital of Pittsburgh; Auditor, Arthur Andersen & Co. |
|
Richard B. Fisher Birth Date: May 17, 1923 VICE PRESIDENT Began serving: May 1976 |
Principal Occupations: Vice Chairman or Vice President of some of the Funds in the Federated Fund Family; Vice Chairman, Federated Investors, Inc.; Chairman, Federated Securities Corp. Previous Positions: President and Director or Trustee of some of the Funds in the Federated Fund Family; Executive Vice President, Federated Investors, Inc.; Director and Chief Executive Officer, Federated Securities Corp. |
|
Brian P. Bouda Birth Date: February 28, 1947 CHIEF COMPLIANCE OFFICER AND SENIOR VICE PRESIDENT Began serving: August 2004 |
Principal Occupations: Senior Vice President and Chief Compliance Officer of the Federated Fund Family; Vice President and Chief Compliance Officer of Federated Investors, Inc. and Chief Compliance Officer of its subsidiaries. Mr. Bouda joined Federated in 1999 and is a member of the American Bar Association and the State Bar Association of Wisconsin. |
|
Stephen F. Auth Birth Date: September 3, 1956 450 Lexington Avenue Suite 3700 New York, NY 10017-3943 CHIEF INVESTMENT OFFICER Began serving: November 2002 |
Principal Occupations: Mr. Auth is Chief Investment Officer of this Fund and various other Funds in the Federated Fund Family; Executive Vice President, Federated Investment Counseling, Federated Global Investment Management Corp.
and Federated Equity Management Company of Pennsylvania. Previous Positions: Executive Vice President, Federated Investment Management Company, and Passport Research, Ltd. (investment advisory subsidiary of Federated); Senior Vice President, Global Portfolio Management Services Division; Senior Vice President, Federated Investment Management Company and Passport Research, Ltd.; Senior Managing Director and Portfolio Manager, Prudential Investments. |
Evaluation and Approval of Advisory Contract – May 2011
federated asset allocation fund (the “Fund”)
(formerly, Federated Stock and Bond Fund)
The Fund's Board reviewed the Fund's investment advisory and subadvisory contracts at meetings held in May 2011. The Board's decision regarding these contracts reflects the exercise of its business judgment on whether to continue the existing arrangements.
In this connection, the Federated Funds' Board had previously appointed a Senior Officer, whose duties include specified responsibilities relating to the process by which advisory fees are to be charged to a Federated fund. The Senior Officer has the authority to retain consultants, experts, or staff as may be reasonably necessary to assist in the performance of his duties, reports directly to the Board, and may be terminated only with the approval of a majority of the independent members of the Board. The Senior Officer prepared and furnished to the Board an independent, written evaluation that covered topics discussed below (the “Evaluation”). The Board considered that Evaluation, along with other information, in deciding to approve the advisory and subadvisory contracts.
During its review of these contracts, the Board considered compensation and benefits received by the Adviser and subadviser. This included the fees received for services provided to the Fund by other entities in the Federated organization and research services (if any) received by the Adviser from brokers that execute Federated fund trades, as well as advisory fees. The Board is also familiar with and considered judicial decisions concerning allegedly excessive investment advisory fees, which have indicated that the following factors may be relevant to an Adviser's fiduciary duty with respect to its receipt of compensation from a fund: the nature and quality of the services provided by the Adviser, including the performance of the fund; the Adviser's cost of providing the services; the extent to which the Adviser may realize “economies of scale” as a fund grows larger; any indirect benefits that may accrue to the Adviser and its affiliates as a result of the Adviser's relationship with a fund; performance and expenses of comparable funds; and the extent to which the independent Board members are fully informed about all facts the Board deems relevant bearing on the Adviser's services and fees. The Board further considered management fees (including any components thereof) charged to institutional and other clients of the Adviser and subadviser for what might be viewed as like services, and the cost to the Adviser and its affiliates of supplying services pursuant to the management fee agreements, excluding any intra-corporate profit and profit margins of the Annual Shareholder Report
Adviser and its affiliates for supplying such services. The Board was aware of these factors and was guided by them in its review of the Fund's advisory and subadvisory contracts to the extent it considered them to be appropriate and relevant, as discussed further below.The Board considered and weighed these circumstances in light of its substantial accumulated experience in governing the Fund and working with Federated on matters relating to the Federated funds, and was assisted in its deliberations by independent legal counsel. Throughout the year, the Board has requested and received substantial and detailed information about the Fund and the Federated organization that was in addition to the extensive materials that comprise and accompany the Senior Officer's Evaluation. Federated provided much of this information at each regular meeting of the Board, and furnished additional information in connection with the particular meeting at which the Board's formal review of the advisory and subadvisory contracts occurred. Between regularly scheduled meetings, the Board also received information on particular matters as the need arose. Thus, the Board's consideration of the advisory and subadvisory contracts included review of the Senior Officer's Evaluation, accompanying data and additional information covering such matters as: the Adviser's and subadviser's investment philosophy, revenue, profitability, personnel and processes; investment and operating strategies; the Fund's short- and long-term performance (in absolute terms, both on a gross basis and net of expenses, as well as in relationship to its particular investment program and certain competitor or “peer group” funds and/or other benchmarks, as appropriate), and comments on the reasons for performance; the Fund's investment objectives; the Fund's expenses (including the advisory fee itself and the overall expense structure of the Fund, both in absolute terms and relative to similar and/or competing funds, with due regard for contractual or voluntary expense limitations); the use and allocation of brokerage commissions derived from trading the Fund's portfolio securities (if any); and the nature, quality and extent of the advisory and other services provided to the Fund by the Adviser and its affiliates. The Board also considered the preferences and expectations of Fund shareholders and their relative sophistication; the continuing state of competition in the mutual fund industry and market practices; the range of comparable fees for similar funds in the mutual fund industry; the Fund's relationship to the Federated family of funds which include a comprehensive array of funds with different investment objectives, policies and strategies which are available for exchange without the incurrence of additional sales charges; compliance and audit reports concerning the Federated funds and the Federated companies that service them (including communications from regulatory agencies), as well as Federated's responses to any issues raised therein; and relevant developments in the mutual fund industry and how the Federated Annual Shareholder Report
funds and/or Federated are responding to them. The Board's evaluation process is evolutionary. The criteria considered and the emphasis placed on relevant criteria change in recognition of changing circumstances in the mutual fund marketplace.With respect to the Fund's performance and expenses in particular, the Board has found the use of comparisons to other mutual funds with comparable investment programs to be relevant, given the high degree of competition in the mutual fund business. The Board focused on comparisons with other similar mutual funds more heavily than non-mutual fund products or services because it is believed that they are more relevant. For example, other mutual funds are the products most like the Fund, they are readily available to Fund shareholders as alternative investment vehicles, and they are the type of investment vehicle in fact chosen and maintained by the Fund's investors. The range of their fees and expenses therefore appears to be a generally reliable indication of what consumers have found to be reasonable in the precise marketplace in which the Fund competes. The Fund's ability to deliver competitive performance when compared to its peer group was a useful indicator of how the Adviser is executing the Fund's investment program, which in turn assisted the Board in reaching a conclusion that the nature, extent, and quality of the Adviser's investment management services were such as to warrant continuation of the advisory contract. In this regard, the Senior Officer has reviewed Federated's fees for providing advisory services to products outside the Federated family of funds (e.g., institutional and separate accounts). He concluded that mutual funds and institutional accounts are inherently different products. Those differences include, but are not limited to, different types of targeted investors; being subject to different laws and regulations; different legal structures; different average account sizes; different associated costs; different portfolio management techniques made necessary by different cash flows; and portfolio manager time spent in review of securities pricing. The Senior Officer did not consider these fee schedules to be determinative in judging the appropriateness of mutual fund advisory contracts.
The Senior Officer reviewed information compiled by Federated, using data supplied by independent fund ranking organizations, regarding the performance of, and fees charged by, other mutual funds, noting his view that comparisons to fund peer groups are relevant in judging the reasonableness of proposed fees.
For the periods covered by the Evaluation, the Fund's performance for the three and five-year periods was above the median of the relevant peer group, and the Fund's performance fell below the median of the relevant peer group for the one-year period. The Board discussed the Fund's performance with the Adviser and recognized the efforts being undertaken by the Adviser. The Board will continue to monitor these efforts and the performance of the Fund.
Annual Shareholder Report
The Board also received financial information about Federated, including information regarding the compensation and benefits Federated derived from its relationships with the Federated funds. This information covered not only the fees under the advisory contracts, but also fees received by Federated's subsidiaries for providing other services to the Federated funds under separate contracts (e.g., for serving as the Federated funds' administrator). The information also detailed any indirect benefit Federated may derive from its receipt of research services from brokers who execute Federated fund trades. In addition, the Board considered the fact that, in order for a fund to be competitive in the marketplace, Federated and its affiliates frequently waived fees and/or reimbursed expenses and have disclosed to fund investors and/or indicated to the Board their intention to do so in the future, where appropriate. Moreover, the Board receives regular reporting as to the institution or elimination of these voluntary waivers.Federated furnished information, requested by the Senior Officer, that reported revenues on a fund-by-fund basis and made estimates of the allocation of expenses on a fund-by-fund basis, using allocation methodologies specified by the Senior Officer. The Senior Officer noted that, although they may apply consistent allocation processes, the inherent difficulties in allocating costs (and the unavoidable arbitrary aspects of that exercise) and the lack of consensus on how to allocate those costs may render such allocation information unreliable. The allocation information was considered in the analysis by the Board but was determined to be of limited use.
The Board and the Senior Officer also reviewed information compiled by Federated comparing profitability information for Federated to other publicly held fund management companies. In this regard, the Senior Officer noted the limited availability of such information, but nonetheless concluded that Federated's profit margins did not appear to be excessive and the Board agreed.
The Senior Officer's Evaluation also discussed the notion of possible realization of “economies of scale” as a fund grows larger. The Board considered in this regard that the Adviser has made significant and long-term investments in areas that support all of the Federated funds, such as personnel and processes for the portfolio management, compliance, internal audit, and risk management functions; and systems technology; and that the benefits of these efforts (as well as any economies, should they exist) were likely to be enjoyed by the fund complex as a whole. Finally, the Board also noted the absence of any applicable regulatory or industry guidelines on this subject, which (as discussed in the Senior Officer's Evaluation) is compounded by the lack of any common industry practice or general pattern with respect to structuring fund advisory fees with “breakpoints” that serve to reduce the fee as the fund attains a certain size. The Senior Officer did not recommend institution of breakpoints in pricing Federated's fund advisory services at this time.
Annual Shareholder Report
It was noted in the materials for the Board meeting that for the period covered by the Evaluation, the Fund's investment advisory fee, after waivers and expense reimbursements, if any, was above the median of the relevant peer group. The Board reviewed the fees and other expenses of the Fund with the Adviser and was satisfied that the overall expense structure of the Fund remained competitive. The Board will continue to monitor advisory fees and other expenses borne by the Fund.The Senior Officer noted that, considering the totality of the circumstances, and all of the factors referenced within his Evaluation, he had concluded that, subject to comments and recommendations made within his Evaluation, his observations and the information accompanying the Evaluation supported a finding by the Board that the management fees for each of the funds are reasonable and that Federated appeared to provide appropriate administrative services to the Fund for the fees paid. Under these circumstances, no changes were recommended to, and no objection was raised to, the continuation of the Fund's advisory and subadvisory contracts. The Board concluded that the nature, quality and scope of services provided the Fund by the Adviser and its affiliates were satisfactory.
In its decision to continue an existing investment advisory contract, the Board was mindful of the potential disruptions of the Fund's operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew an advisory contract. In particular, the Board recognized that many shareholders have invested in the Fund on the strength of the Adviser's industry standing and reputation and with the expectation that the Adviser will have a continuing role in providing advisory services to the Fund. Thus, the Board's approval of the advisory contract reflected the fact that it is the shareholders who have effectively selected the Adviser by virtue of having invested in the Fund.
The Board based its decision to approve the advisory and subadvisory contracts on the totality of the circumstances and relevant factors and with a view to past and future long-term considerations. Not all of the factors and considerations identified above were necessarily relevant to the Fund, nor did the Board consider any one of them to be determinative. With respect to the factors that were relevant, the Board's decision to approve the contract reflects its determination that Federated's performance and actions provided a satisfactory basis to support the decision to continue the existing arrangements.
Annual Shareholder ReportVoting Proxies on Fund Portfolio Securities
A description of the policies and procedures that the Fund uses to determine how to vote proxies, if any, relating to securities held in the Fund's portfolio is available, without charge and upon request, by calling 1-800-341-7400. A report on “Form N-PX” of how the Fund voted any such proxies during the most recent 12-month period ended June 30 is available from Federated's website at FederatedInvestors.com. To access this information from the home page, select “All” under “Asset Classes.” Select a fund name and share class, if applicable, to go to the Fund Overview page. On the Fund Overview page, select the “Documents” tab. At the bottom of that page, select “Proxy Voting Record Report (Form N-PX).” Form N-PX filings are also available at the SEC's website at www.sec.gov.
The Fund files with the SEC a complete schedule of its portfolio holdings, as of the close of the first and third quarters of its fiscal year, on “Form N-Q.” These filings are available on the SEC's website at www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. (Call 1-800-SEC-0330 for information on the operation of the Public Reference Room.) You may also access this information from the “Products” section of Federated's website at FederatedInvestors.com. From the home page, select “All” under “Asset Classes.” Select a fund name and share class, if applicable, to go to the Fund Overview page. On the Fund Overview page, select the “Documents” tab. At the bottom of that page, select “Form N-Q.”
Annual Shareholder ReportMutual 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.
Federated Asset Allocation Fund
Federated Investors Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561
Contact us at FederatedInvestors.com
or call 1-800-341-7400.
Federated Securities Corp., Distributor
Cusip 31422C108
Cusip 31422C207
Cusip 31422C306
Cusip 31422C405
Cusip 31422C504
G01454-01 (1/12)
Federated is a registered trademark of Federated Investors, Inc.
2012 ©
Federated Investors, Inc.
Item 2. Code of Ethics
(a) As of the end of the period covered by this report, the registrant has adopted a code of ethics (the "Section 406 Standards for Investment Companies - Ethical Standards for Principal Executive and Financial Officers") that applies to the registrant's Principal Executive Officer and Principal Financial Officer; the registrant's Principal Financial Officer also serves as the Principal Accounting Officer.
(c) Not Applicable
(d) Not Applicable
(e) Not Applicable
(f)(3) The registrant hereby undertakes to provide any person, without charge, upon request, a copy of the code of ethics. To request a copy of the code of ethics, contact the registrant at 1-800-341-7400, and ask for a copy of the Section 406 Standards for Investment Companies - Ethical Standards for Principal Executive and Financial Officers.
Item 3. Audit Committee Financial Expert
The registrant's Board has determined that each of the following members of the Board's Audit Committee is an “audit committee financial expert,” and is "independent," for purposes of this Item: Nicholas P. Constantakis, Charles F. Mansfield, Jr., Thomas M. O'Neill and John S. Walsh.
Item 4. Principal Accountant Fees and Services
(a) Audit Fees billed to the registrant for the two most recent fiscal years:
Fiscal year ended 2011 - $27,000
Fiscal year ended 2010 - $26,250
(b) Audit-Related Fees billed to the registrant for the two most recent fiscal years:
Fiscal year ended 2011 - $0
Fiscal year ended 2010 - $48
Travel to Audit Committee Meeting.
Amount requiring approval of the registrant’s audit committee pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X, $4,855 and $0 respectively. Fiscal year ended 2011 - Audit consent fees for N-14 merger documents.
(c) Tax Fees billed to the registrant for the two most recent fiscal years:
Fiscal year ended 2011 - $0
Fiscal year ended 2010 - $0
Amount requiring approval of the registrant’s audit committee pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X, $0 and $0 respectively.
(d) All Other Fees billed to the registrant for the two most recent fiscal years:
Fiscal year ended 2011 - $0
Fiscal year ended 2010 - $0
Amount requiring approval of the registrant’s audit committee pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X, $0 and $0 respectively.
(e)(1) Audit Committee Policies regarding Pre-approval of Services.
The Audit Committee is required to pre-approve audit and non-audit services performed by the independent auditor in order to assure that the provision of such services do not impair the auditor’s independence. Unless a type of service to be provided by the independent auditor has received general pre-approval, it will require specific pre-approval by the Audit Committee. Any proposed services exceeding pre-approved cost levels will require specific pre-approval by the Audit Committee.
Certain services have the general pre-approval of the Audit Committee. The term of the general pre-approval is 12 months from the date of pre-approval, unless the Audit Committee specifically provides for a different period. The Audit Committee will annually review the services that may be provided by the independent auditor without obtaining specific pre-approval from the Audit Committee and may grant general pre-approval for such services. The Audit Committee will revise the list of general pre-approved services from time to time, based on subsequent determinations. The Audit Committee will not delegate its responsibilities to pre-approve services performed by the independent auditor to management.
The Audit Committee has delegated pre-approval authority to its Chairman. The Chairman will report any pre-approval decisions to the Audit Committee at its next scheduled meeting. The Committee will designate another member with such pre-approval authority when the Chairman is unavailable.
AUDIT SERVICES
The annual Audit services engagement terms and fees will be subject to the specific pre-approval of the Audit Committee. The Audit Committee must approve any changes in terms, conditions and fees resulting from changes in audit scope, registered investment company (RIC) structure or other matters.
In addition to the annual Audit services engagement specifically approved by the Audit Committee, the Audit Committee may grant general pre-approval for other Audit Services, which are those services that only the independent auditor reasonably can provide. The Audit Committee has pre-approved certain Audit services, all other Audit services must be specifically pre-approved by the Audit Committee.
AUDIT-RELATED SERVICES
Audit-related services are assurance and related services that are reasonably related to the performance of the audit or review of the Company’s financial statements or that are traditionally performed by the independent auditor. The Audit Committee believes that the provision of Audit-related services does not impair the independence of the auditor, and has pre-approved certain Audit-related services, all other Audit-related services must be specifically pre-approved by the Audit Committee.
TAX SERVICES
The Audit Committee believes that the independent auditor can provide Tax services to the Company such as tax compliance, tax planning and tax advice without impairing the auditor’s independence. However, the Audit Committee will not permit the retention of the independent auditor in connection with a transaction initially recommended by the independent auditor, the purpose of which may be tax avoidance and the tax treatment of which may not be supported in the Internal Revenue Code and related regulations. The Audit Committee has pre-approved certain Tax services, all Tax services involving large and complex transactions must be specifically pre-approved by the Audit Committee.
ALL OTHER SERVICES
With respect to the provision of services other than audit, review or attest services the pre-approval requirement is waived if:
(1) The aggregate amount of all such services provided constitutes no more than five percent of the total amount of revenues paid by the registrant, the registrant’s adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant to its accountant during the fiscal year in which the services are provided;
(2) Such services were not recognized by the registrant, the registrant’s adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant at the time of the engagement to be non-audit services; and
(3) Such services are promptly brought to the attention of the Audit Committee of the issuer and approved prior to the completion of the audit by the Audit Committee or by one or more members of the Audit Committee who are members of the board of directors to whom authority to grant such approvals has been delegated by the Audit Committee.
The Audit Committee may grant general pre-approval to those permissible non-audit services classified as All Other services that it believes are routine and recurring services, and would not impair the independence of the auditor.
The SEC’s rules and relevant guidance should be consulted to determine the precise definitions of prohibited non-audit services and the applicability of exceptions to certain of the prohibitions.
PRE-APPROVAL FEE LEVELS
Pre-approval fee levels for all services to be provided by the independent auditor will be established annually by the Audit Committee. Any proposed services exceeding these levels will require specific pre-approval by the Audit Committee.
PROCEDURES
Requests or applications to provide services that require specific approval by the Audit Committee will be submitted to the Audit Committee by both the independent auditor and the Principal Accounting Officer and/or Internal Auditor, and must include a joint statement as to whether, in their view, the request or application is consistent with the SEC’s rules on auditor independence.
(e)(2) Percentage of services identified in items 4(b) through 4(d) that were approved by the registrants audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X:
4(b)
Fiscal year ended 2011– 0%
Fiscal year ended 2010- 0%
Percentage of services provided to the registrants investment adviser and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were approved by the registrants audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X, 0% and 0% respectively.
4(c)
Fiscal year ended 2011– 0%
Fiscal year ended 2010– 0%
Percentage of services provided to the registrants investment adviser and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were approved by the registrants audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X, 0% and 0% respectively.
4(d)
Fiscal year ended 2011– 0%
Fiscal year ended 2010– 0%
Percentage of services provided to the registrants investment adviser and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were approved by the registrants audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X, 0% and 0% respectively.
(f) NA
(g) Non-Audit Fees billed to the registrant, the registrant’s investment adviser, and certain entities controlling, controlled by or under common control with the investment adviser:
Fiscal year ended 2011- $10,327
Fiscal year ended 2010- $37,133
(h) The registrant’s Audit Committee has considered that the provision of non-audit services that were rendered to the registrant’s adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant’s independence.
Item 5. Audit Committee of Listed Registrants
Not Applicable
Item 6. Schedule of Investments
(a) The registrant’s Schedule of Investments is included as part of the Report to Stockholders filed under Item 1 of this form.
(b) Not Applicable; Fund had no divestments during the reporting period covered since the previous Form N-CSR filing.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies
Not Applicable
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Not Applicable
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers
Not Applicable
Item 10. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 11. Controls and Procedures
(a) The registrant’s President and Treasurer have concluded that the
registrant’s disclosure controls and procedures (as defined in rule 30a-3(c) under the Act) are effective in design and operation and are sufficient to form the basis of the certifications required by Rule 30a-(2) under the Act, based on their evaluation of these disclosure controls and procedures within 90 days of the filing date of this report on Form N-CSR.
(b) There were no changes in the registrant’s internal control over financial reporting (as defined in rule 30a-3(d) under the Act) during the second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.
Item 12. Exhibits
(a)(1) Code of Ethics- Not Applicable to this Annual Report.
(a)(2) Certifications of Principal Executive Officer and Principal Financial Officer.
(a)(3) Not Applicable.
(b) Certifications pursuant to 18 U.S.C. Section 1350.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Registrant Federated Asset Allocation Fund
By /S/ Richard A. Novak
Richard A. Novak, Principal Financial Officer
Date January 23, 2012
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By /S/ J. Christopher Donahue
J. Christopher Donahue, Principal Executive Officer
Date January 23, 2012
By /S/ Richard A. Novak
Richard A. Novak, Principal Financial Officer
Date January 23, 2012