FEDERATED
SHORT-TERM
INCOME
FUND
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
OCTOBER 31, 1994
[LOGO] FEDERATED SECURITIES CORP.
--------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
31420C209
31420C308
8112901 (12/94)
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Investor:
I am pleased to present the Semi-Annual Report to Shareholders for Federated
Short-Term Income Fund (the "Fund"), a portfolio of Federated Income Securities
Trust (the "Trust"), for the six-month period ended October 31, 1994. The report
begins with our Investment Review, in which the Fund's portfolio manager
comments on the corporate bond, asset-backed securities, and mortgage-backed
securities markets. Following the Investment Review, you will find Financial
Statements containing the Fund's Portfolio of Investments. In addition,
Financial Highlights tables have been included for Institutional Shares and
Institutional Service Shares.
On behalf of investors, the Fund pursues current income through a diversified
portfolio consisting primarily of short and medium-term, high-quality debt
securities. At the end of the reporting period, 60.1% of the Fund's assets were
invested in corporate bonds and asset-backed securities, and 37.8% of its assets
were invested in mortgage-backed securities. The remainder of the Fund's assets
were invested in a repurchase agreement and a government agency security.
During the six-month reporting period, dividends paid to shareholders totaled
$10.2 million. At the end of the period, net assets stood at $291 million.
Thank you for your confidence in Federated Short-Term Income Fund. As always, I
welcome your questions, comments, or suggestions.
Sincerely,
Glen R. Johnson
President
December 15, 1994
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
The investment objective of the Fund is to seek to provide current income.
The Fund invests its assets primarily in a broad range of high-grade securities
rated A or better. These include fixed and floating rate corporate bonds,
asset-backed securities, and U.S. government-backed securities, which are
guaranteed as to the timely payment of principal and interest by the U.S.
government, its agencies, or its instrumentalities.
The economy has continued to show resounding strength over the past six months
despite the attempts by the Federal Reserve Board (the "Fed") to restrain
growth. Overall, both 2nd and 3rd quarter Gross Domestic Product levels were
higher than previous estimates, registering at 4.10% and 3.40%, respectively.
Strength came both from the consumer side of the economy as well as the
industrial side. Capacity utilization in particular is at its peak in the
recovery, hitting 84.9% in October.
During the past six months, yields increased about 100 basis points in the 2-3
year sector of the investment-grade bond market. The Fed increased the Federal
Funds target twice from 3 3/4% to 4-1/ 4% in May and then from 4-1/4% to 4 3/4%
in August. Simultaneously, the Fed raised the discount rate both times by 50
basis points.
The 2-Year Treasury note began the period with a yield of 5.81% and increased to
6.84% at the end of October. Modest yield curve flattening occurred with the
spread over the 1-Year Treasury bill decreasing from 69 to 66 basis points.
Given the continued extreme steepness of the yield curve between one and two
years, and to a lesser extent, between two and three years, target durations
have remained in the 1.5-2 year area for the Fund. In meeting this target, the
Fund has maintained a 35-40% position in floating rate securities, thus
responding quickly to the rising rate environment.
The average annual total return for the Institutional Shares for the six-month
period ended October 31, 1994 was 0.42%, and the average annual total return for
the Institutional Services Shares was 0.30%.* The net asset value of both the
Institutional Shares and the Institutional Service Shares decreased from $8.85
to $8.63 over the period. The net assets of the Fund decreased from $392.8
million to $291.1 million, while the 30-day net distribution yield for the
Institutional Shares increased from 5.52% to 6.20%. For the same period, the
30-day net distribution yield for the Institutional Service Shares increased
from 5.27% to 5.95%. The effective modified duration of the Fund on October 31,
was 1.8 years and will be maintained between 1.5 and 2 years.
*Performance quoted represents past performance. Investment return and principal
value will fluctuate, so that an investor's shares, when redeemed, may be worth
more or less than their original cost.
FEDERATED SHORT-TERM INCOME FUND
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- ---------------------------------------------------------------------------------- --------------
CORPORATE BONDS/ASSET-BACKED SECURITIES--60.1%
- -------------------------------------------------------------------------------------------------
AUTOMOTIVE--8.2%
----------------------------------------------------------------------------------
$ 2,412,137 Capital Auto Receivables Asset Trust 1992-1, Class B, 6.20%,
12/15/97 $ 2,401,211
----------------------------------------------------------------------------------
1,319,532 Capital Auto Receivables Asset Trust 1993-1, Class B, 5.85%,
2/17/98 1,289,843
----------------------------------------------------------------------------------
8,000,000 Ford Credit Auto Loan Master Trust 1992-1, 6.875%, 1/15/99 7,912,720
----------------------------------------------------------------------------------
1,130,162 John Deere Owner Trust 1992-A, Class E, 6.25%+, 12/29/99 1,136,513
----------------------------------------------------------------------------------
3,450,000 Navistar Financial Dealer Note Trust 1990, Class A-3, 5.90%+,
1/25/2003 3,485,570
----------------------------------------------------------------------------------
2,280,047 Navistar Financial Owner Trust 1994-B, Class B, 6.63%, 1/15/2000 2,259,029
----------------------------------------------------------------------------------
2,879,505 Orix Credit Alliance Owner Trust, Series 1994-A, Class B,
6.35%, 6/15/99 2,840,812
----------------------------------------------------------------------------------
1,732,702 Premier Auto Trust 1993-1, Class B, 5.60%, 10/15/98 1,687,600
----------------------------------------------------------------------------------
866,242 Volvo Auto Trust 1991-A, 5.65%, 12/15/98 861,340
---------------------------------------------------------------------------------- --------------
Total 23,874,638
---------------------------------------------------------------------------------- --------------
BANKING--10.3%
----------------------------------------------------------------------------------
3,000,000 Bankamerica Corp., FRN 5.50%+, 6/25/2003 2,778,750
----------------------------------------------------------------------------------
5,000,000 Chemical Bank, FRN 5.75%+, 7/29/2003 4,878,125
----------------------------------------------------------------------------------
4,000,000 Colonial Credit Card Trust 1991-B, Class B, 7.95%, 1/15/98 4,033,800
----------------------------------------------------------------------------------
4,000,000 First USA Credit Card Master Trust 1994-3, Class B, 5.53%, 12/15/99 3,995,600
----------------------------------------------------------------------------------
1,000,000 J.P. Morgan and Co., Inc., FRN 5.00%+, 8/19/2002 937,500
----------------------------------------------------------------------------------
7,500,000 MBNA Master Credit Card Trust 1991-1, Class A, 7.75%, 10/15/98 7,546,050
----------------------------------------------------------------------------------
2,000,000 Standard Credit Card Master Trust 1991-1, Class A, 8.50%, 8/7/97 2,034,040
----------------------------------------------------------------------------------
4,000,000 Toronto Dominion Bank Sub. Note, 7.875%, 8/15/2004 3,801,520
---------------------------------------------------------------------------------- --------------
Total 30,005,385
---------------------------------------------------------------------------------- --------------
FINANCE-AUTOMOTIVE--1.0%
----------------------------------------------------------------------------------
$ 3,000,000 Ford Motor Credit Co., 6.55%, 2/3/98 $ 2,879,370
---------------------------------------------------------------------------------- --------------
FINANCE-RETAIL--16.4%
----------------------------------------------------------------------------------
5,000,000 Discover Credit Card Trust 1991-B, Class A, 8.625%, 7/16/98 5,083,300
----------------------------------------------------------------------------------
2,500,000 Discover Credit Card Trust 1991-B, Class B, 8.85%, 7/15/98 2,559,525
----------------------------------------------------------------------------------
7,000,000 Discover Credit Card Trust 1991-E, Class A, 7.30%, 5/21/99 6,942,040
----------------------------------------------------------------------------------
10,000,000 Discover Credit Card Trust 1991-F, Class A, 7.85%, 11/21/2000 9,873,400
----------------------------------------------------------------------------------
3,000,000 (a)Encyclopedia Britannica Dom. Funding Corp., Series 1994-1,
6.76%, 3/15/2002 2,884,227
----------------------------------------------------------------------------------
4,000,000 Household Credit Card Trust 1991-1, Class B, 8.125%, 10/15/97 4,019,320
----------------------------------------------------------------------------------
6,000,000 Household Credit Card Trust 1992-1, Class B, 6.25%, 12/15/97 5,943,780
----------------------------------------------------------------------------------
10,000,000 Sears Credit Account Trust 1991, Class D, 7.75%, 9/15/98 10,373,100
---------------------------------------------------------------------------------- --------------
Total 47,678,692
---------------------------------------------------------------------------------- --------------
HOME EQUITY RECEIVABLES--16.0%
----------------------------------------------------------------------------------
876,668 Advanta Home Equity Loan Trust 1991-1, Class A, 9.00%, 2/25/2006 889,626
----------------------------------------------------------------------------------
3,410,127 Advanta Home Equity Loan Trust 1992-1, Class A, 7.875%, 9/25/2008 3,380,971
----------------------------------------------------------------------------------
2,246,384 Advanta Home Equity Loan Trust 1992-4, Class A-2, 7.15%,
12/25/2008 2,198,199
----------------------------------------------------------------------------------
1,000,000 Capital Home Equity Loan Trust 1991-1, Class B, 5.60%+, 11/14/2011 999,720
----------------------------------------------------------------------------------
7,437,096 (a)Conti Mortgage Home Equity Loan Trust 1993-3, Class A-2, 5.54%,
7/15/2020 6,959,114
----------------------------------------------------------------------------------
2,000,000 (a)Conti Mortgage Home Equity Loan Trust 1994-1, Class A-3, 6.07%, 11/15/2013 1,889,600
----------------------------------------------------------------------------------
4,609,586 (a)Conti Mortgage Home Equity Loan Trust 1994-1, Class A-5, 6.12%,
1/15/2024 4,398,472
----------------------------------------------------------------------------------
797,889 Fleet Finance Home Equity Trust 1991-2, Class A, 6.70%, 10/16/2006 787,509
----------------------------------------------------------------------------------
1,500,000 GE Capital Home Equity Loan, 1991-1, Class B, 8.70%, 8/30/2011 1,482,495
----------------------------------------------------------------------------------
5,387,012 Merrill Lynch Home Equity Loan Trust 1993-1, Class B, 5.9375%+,
2/15/2003 5,443,199
----------------------------------------------------------------------------------
$ 1,123,943 TMS Home Equity Loan Trust 1992-A, Class A, 6.95%, 12/15/2007 $ 1,087,325
----------------------------------------------------------------------------------
960,060 TMS Home Equity Loan Trust 1992-B, Class A, 6.90%, 7/15/2007 927,745
----------------------------------------------------------------------------------
12,293,920 TMS Home Equity Loan Trust 1992-D, Class A-3, 7.55%, 1/15/2018 12,013,742
----------------------------------------------------------------------------------
4,263,082 TMS Home Equity Loan Trust 1993-C, Class A-3, 5.75%, 10/15/2022 4,038,503
---------------------------------------------------------------------------------- --------------
Total 46,496,220
---------------------------------------------------------------------------------- --------------
LEASING--0.2%
----------------------------------------------------------------------------------
727,547 (a)Concord Leasing Grantor Trust 1992-C, Class A-1, 5.31%, 1/20/99 717,877
---------------------------------------------------------------------------------- --------------
MANUFACTURED HOUSING RECEIVABLES--4.4%
----------------------------------------------------------------------------------
7,282,822 Greentree Manufactured Housing 1992-1, Class A-5, 6.50%,
10/15/2017 6,780,744
----------------------------------------------------------------------------------
5,634,421 Merrill Lynch Mortgage Investments, Inc. 1991-I Class A, 7.65%,
1/15/2012 5,531,762
----------------------------------------------------------------------------------
568,853 Merrill Lynch Mortgage Investments, Inc. 1992, Class B,
Manufactured, 8.50%, 4/15/2012 570,543
---------------------------------------------------------------------------------- --------------
Total 12,883,049
---------------------------------------------------------------------------------- --------------
MARINE RECEIVABLES--1.4%
----------------------------------------------------------------------------------
3,957,872 (a)CFC-14 Grantor Trust, Class A, 7.15%, 11/15/2006 3,967,767
---------------------------------------------------------------------------------- --------------
RECREATIONAL VEHICLE RECEIVABLES--2.2%
----------------------------------------------------------------------------------
6,445,036 Fleetwood Credit 1993-A, Class A, 6.00%, 1/15/2008 6,358,801
---------------------------------------------------------------------------------- --------------
TOTAL CORPORATE BONDS/ASSET-BACKED SECURITIES (IDENTIFIED COST
$183,608,313) 174,861,799
---------------------------------------------------------------------------------- --------------
GOVERNMENT AGENCIES--0.3%
- -------------------------------------------------------------------------------------------------
1,000,000 Student Loan Marketing Association, FRN, Series AD, 5.25%+, 5/8/95 1,002,500
---------------------------------------------------------------------------------- --------------
TOTAL GOVERNMENT AGENCIES (IDENTIFIED COST $1,000,000) 1,002,500
---------------------------------------------------------------------------------- --------------
MORTGAGE-BACKED SECURITIES--37.8%
- -------------------------------------------------------------------------------------------------
GOVERNMENT AGENCY-MORTGAGE-BACKED SECURITIES--1.1%
----------------------------------------------------------------------------------
1,308,955 Federal Home Loan Mortgage Corp., Pound606116, 5.72%+, 9/01/2019 1,323,366
----------------------------------------------------------------------------------
1,493,030 Federal Home Loan Mortgage Corp., Pound785167, 6.40%+, 12/01/2018 1,516,873
----------------------------------------------------------------------------------
$ 354,803 Federal Home Loan Mortgage Corp., Series 1132, Class G, 8.00%,
1/15/2005 $ 355,484
---------------------------------------------------------------------------------- --------------
Total 3,195,723
---------------------------------------------------------------------------------- --------------
NON-GOVERNMENT AGENCY-MORTGAGE-BACKED SECURITIES--36.7%
----------------------------------------------------------------------------------
2,060,000 Chemical Mortgage Securities, Inc., 1993-1, Class A-4, 7.45%,
7/25/2020 1,988,642
----------------------------------------------------------------------------------
3,223,210 Citicorp Mortgage Securities, Inc., Series 1992-18, Class A-1, 6.01%+, 10/25/2022 3,251,413
----------------------------------------------------------------------------------
438,629 Citicorp Mortgage Securities, Inc., Series 1992-5, Class A-1, 8.00%,
9/25/2021 438,247
----------------------------------------------------------------------------------
10,200,000 Citicorp Mortgage Securities, Inc., Series 1993-12, Class A-2, 6.50%,
6/25/2021 8,610,330
----------------------------------------------------------------------------------
6,162,337 DLJ Mortgage Acceptance Corp., 1993-Q15, Class A-1, 5.61%+,
11/25/2023 6,093,010
----------------------------------------------------------------------------------
7,773,291 DLJ Mortgage Acceptance Corp., 1993-Q3, Class A-2, 6.50%+,
4/25/2023 7,744,141
----------------------------------------------------------------------------------
2,371,072 GCA 1993-AF1, Class B-1, 6.94%+, 9/25/2023 2,362,180
----------------------------------------------------------------------------------
5,668,582 GCA 1993-LB2, Class A-1, 6.24%+, 8/25/2023 5,707,581
----------------------------------------------------------------------------------
5,796,405 GCA 1993-LB3, Class A-1, 6.16%+, 1/25/2024 5,836,283
----------------------------------------------------------------------------------
8,930,000 GCA Long Beach Bank Mortgage PTC, Series 1992-LB5, Class A-2, 6.20%+, 7/25/2022 8,924,463
----------------------------------------------------------------------------------
2,451,894 (a)GCA REMIC PTC, 1991-4, Class B-1A, 8.53%, 7/1/2019 2,439,635
----------------------------------------------------------------------------------
3,942,574 GCA REMIC Trust V 1993-5, Class B, 5.27%+, 5/1/2020 3,696,163
----------------------------------------------------------------------------------
9,256,543 GE Capital Mortgage Services, Inc., 1993-12, Class A, 6.50%,
11/25/2023 8,151,867
----------------------------------------------------------------------------------
4,460,355 GE Capital Mortgage Services, Inc., 1993-9, Class A-1, 6.00%,
8/25/2008 4,019,939
----------------------------------------------------------------------------------
$ 2,319,908 Glendale Federal Bank, Series 1988-1 Class A, 5.87%+, 11/25/2027 $ 2,311,209
----------------------------------------------------------------------------------
1,725,388 GMBS, Inc., 1990-5, Class A, 6.62%+, 12/26/2020 1,688,723
----------------------------------------------------------------------------------
1,150,124 (a)Long Beach Bank Mortgage Series 1992-3, Class A, 9.60%, 7/15/2022 1,171,689
----------------------------------------------------------------------------------
2,847,852 (a)Prudential Home Mortgage 1992-A, Class B1-1, 7.20%, 11/25/2022 2,727,103
----------------------------------------------------------------------------------
3,965,105 Residential Funding Mortgage Securities, Inc., 1993-S38, Class A, 6.70%+,
8/25/2023 3,986,199
----------------------------------------------------------------------------------
2,000,000 Resolution Trust Corp. 1992-12, Class B-3, 6.41%+, 12/25/2025 2,007,500
----------------------------------------------------------------------------------
2,000,125 Resolution Trust Corp. 1992-7, Class B-2B, 8.35%, 6/29/2029 2,031,387
----------------------------------------------------------------------------------
6,449,572 Salomon Brothers Mortgage Securities VII, Inc. 1993-9, Class A-1, 7.24%, 1/25/2024 6,223,837
----------------------------------------------------------------------------------
3,594,825 Salomon Brothers Mortgage Securities VII, Inc. 1992-6, Class A-1, 6.19%+,
11/25/2022 3,634,817
----------------------------------------------------------------------------------
12,000,000 Salomon Brothers Mortgage Securities VII, Inc. 1993-5, Class A-3C, 7.44%,
10/25/2023 11,732,520
---------------------------------------------------------------------------------- --------------
Total 106,778,878
---------------------------------------------------------------------------------- --------------
TOTAL MORTGAGE-BACKED SECURITIES (IDENTIFIED COST $116,581,463) 109,974,601
---------------------------------------------------------------------------------- --------------
*REPURCHASE AGREEMENT--1.2%
- -------------------------------------------------------------------------------------------------
3,423,000 J.P. Morgan Securities, Inc., 4.82%, dated 10/31/94, due 11/1/94 3,423,000
---------------------------------------------------------------------------------- --------------
TOTAL REPURCHASE AGREEMENTS (AT AMORTIZED COST) 3,423,000
---------------------------------------------------------------------------------- --------------
TOTAL INVESTMENTS (IDENTIFIED COST $304,612,776) $ 289,261,900+
---------------------------------------------------------------------------------- --------------
</TABLE>
* The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations. The investment in the repurchase agreement is through
participation in a joint account with other Federated funds.
+ Denotes variable rate and floating rate obligations for which the current
yield is shown.
++ The cost of investments for federal tax purposes amounts to $304,612,776.
The net unrealized depreciation on a federal tax cost basis amounts to
$15,350,876 and is comprised of $36,727 appreciation and $15,387,603
depreciation at October 31, 1994.
(a) Denotes restricted securities which are subject to resale under Federal
Securities laws. These securities have been determined to be liquid under
criteria established by the Board of Trustees.
The following abbreviations are used in this portfolio:
FRN--Floating Rate Note
PTC--Pass Through Certificate
REMIC--Real Estate Mortgage Investment Conduit
Note: The categories of investments are shown as a percentage of net assets
($291,106,900) at October 31, 1994.
(See Notes which are an integral part of the Financial Statements)
FEDERATED SHORT-TERM INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------------------------
Investments in securities, at value (identified and tax cost: $304,612,776) $ 289,261,900
- -------------------------------------------------------------------------------------------------
Cash 205,538
- -------------------------------------------------------------------------------------------------
Receivable for investments sold 6,972,634
- -------------------------------------------------------------------------------------------------
Interest receivable 2,361,752
- -------------------------------------------------------------------------------------------------
Receivable for Fund shares sold 110,760
- ------------------------------------------------------------------------------------------------- --------------
Total assets 298,912,584
- ------------------------------------------------------------------------------------------------- --------------
LIABILITIES:
- -------------------------------------------------------------------------------------------------
Payable for investments purchased $ 4,882,360
- -----------------------------------------------------------------------------------
Payable for Fund shares redeemed 1,666,612
- -----------------------------------------------------------------------------------
Dividends payable 1,231,267
- -----------------------------------------------------------------------------------
Accrued expenses 25,445
- ----------------------------------------------------------------------------------- ------------
Total liabilities 7,805,684
- ------------------------------------------------------------------------------------------------- --------------
NET ASSETS for 33,732,074 shares of beneficial interest outstanding $ 291,106,900
- ------------------------------------------------------------------------------------------------- --------------
NET ASSETS CONSIST OF:
- -------------------------------------------------------------------------------------------------
Paid-in capital $ 322,275,181
- -------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (15,350,876)
- -------------------------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments (15,817,405)
- ------------------------------------------------------------------------------------------------- --------------
Total Net Assets $ 291,106,900
- ------------------------------------------------------------------------------------------------- --------------
NET ASSET VALUE, Offering Price, and Redemption Proceeds Per Share:
Institutional Shares ($266,890,593 / 30,926,030 shares of beneficial interest outstanding) $8.63
- ------------------------------------------------------------------------------------------------- --------------
Institutional Service Shares ($24,216,307 / 2,806,044 shares of beneficial interest outstanding) $8.63
- ------------------------------------------------------------------------------------------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED SHORT-TERM INCOME FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED OCTOBER 31, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------------------------------
Interest income $ 11,211,402
- --------------------------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------------------------------------------
Investment advisory fee $ 703,815
- ------------------------------------------------------------------------------------
Trustees' fees 5,717
- ------------------------------------------------------------------------------------
Administrative personnel and services 133,199
- ------------------------------------------------------------------------------------
Custodian and portfolio accounting fees 86,294
- ------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 8,805
- ------------------------------------------------------------------------------------
Distribution services fee 39,035
- ------------------------------------------------------------------------------------
Shareholder services fees--Institutional Service Shares 22,383
- ------------------------------------------------------------------------------------
Fund share registration costs 34,267
- ------------------------------------------------------------------------------------
Auditing fees 9,835
- ------------------------------------------------------------------------------------
Legal fees 7,592
- ------------------------------------------------------------------------------------
Printing and postage 16,426
- ------------------------------------------------------------------------------------
Insurance premiums 3,980
- ------------------------------------------------------------------------------------
Taxes 1,967
- ------------------------------------------------------------------------------------
Miscellaneous 3,480
- ------------------------------------------------------------------------------------ ------------
Total expenses 1,076,795
- ------------------------------------------------------------------------------------
Deduct--Waiver of investment advisory fee $ 30,034
- ------------------------------------------------------------------------
Waiver of distribution services fee 22,367 52,401
- ------------------------------------------------------------------------ ---------- ------------
Net expenses 1,024,394
- -------------------------------------------------------------------------------------------------- --------------
Net investment income 10,187,008
- -------------------------------------------------------------------------------------------------- --------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- --------------------------------------------------------------------------------------------------
Net realized gain (loss) on investment transactions (identified cost basis) (3,738,118)
- --------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments (5,070,417)
- -------------------------------------------------------------------------------------------------- --------------
Net realized and unrealized gain (loss) on investments (8,808,535)
- -------------------------------------------------------------------------------------------------- --------------
Change in net assets resulting from operations $ 1,378,473
- -------------------------------------------------------------------------------------------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED SHORT-TERM INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
--------------------------------
1995* 1994
- ------------------------------------------------------------------------------- --------------- ---------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------------------------------------------------
OPERATIONS--
- -------------------------------------------------------------------------------
Net investment income $ 10,187,008 $ 17,557,868
- -------------------------------------------------------------------------------
Net realized gain (loss) on investment transactions ($3,738,118 net loss and
$669,532 net loss, respectively, as computed for federal tax purposes) (3,738,118) (2,324,205)
- -------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) of investments (5,070,417) (11,254,546)
- ------------------------------------------------------------------------------- --------------- ---------------
Change in net assets resulting from operations 1,378,473 3,979,117
- ------------------------------------------------------------------------------- --------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -------------------------------------------------------------------------------
Dividends to shareholders from net investment income:
- -------------------------------------------------------------------------------
Institutional Shares (9,321,957) (16,047,919)
- -------------------------------------------------------------------------------
Institutional Service Shares (865,051) (1,509,949)
- ------------------------------------------------------------------------------- --------------- ---------------
Change in net assets from distributions to shareholders (10,187,008) (17,557,868)
- ------------------------------------------------------------------------------- --------------- ---------------
FUND SHARE (PRINCIPAL) TRANSACTIONS--
- -------------------------------------------------------------------------------
Proceeds from sale of shares 37,748,764 513,518,367
- -------------------------------------------------------------------------------
Net asset value of shares issued to shareholders
in payment of dividends declared 1,934,465 3,669,215
- -------------------------------------------------------------------------------
Cost of shares redeemed (132,523,380) (270,654,913)
- ------------------------------------------------------------------------------- --------------- ---------------
Change in net assets from Fund share transactions (92,840,151) 246,532,669
- ------------------------------------------------------------------------------- --------------- ---------------
Change in net assets (101,648,686) 232,953,918
- -------------------------------------------------------------------------------
NET ASSETS:
- -------------------------------------------------------------------------------
Beginning of period 392,755,586 159,801,668
- ------------------------------------------------------------------------------- --------------- ---------------
End of period $ 291,106,900 $ 392,755,586
- ------------------------------------------------------------------------------- --------------- ---------------
</TABLE>
* Six months ended October 31, 1994 (unaudited).
(See Notes which are an integral part of the Financial Statements)
FEDERATED SHORT-TERM INCOME FUND
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995*** 1994 1993 1992** 1991 1990 1989 1988
- --------------------------------------- ----------- --------- --------- ----------- --------- --------- --------- ---------
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.85 $ 9.17 $ 8.98 $ 9.07 $ 9.16 $ 9.41 $ 9.56 $ 9.98
- ---------------------------------------
INCOME FROM INVESTMENT
OPERATIONS
- ---------------------------------------
Net investment income 0.26 0.51 0.58 0.60 0.83 0.93 0.94 0.94
- ---------------------------------------
Net realized and
unrealized gain (loss)
on investments (0.22) (0.32) 0.16 (0.07) (0.08) (0.25) (0.15) (0.42)
- --------------------------------------- ----------- --------- --------- ----------- --------- --------- --------- ---------
Total from investment
operations 0.04 0.19 0.74 0.53 0.75 0.68 0.79 0.52
- ---------------------------------------
LESS DISTRIBUTIONS
- ---------------------------------------
Dividends to shareholders
from net investment
income (0.26) (0.51) (0.55) (0.60) (0.83) (0.93) (0.94) (0.94)
- ---------------------------------------
Distributions in excess of net
investment income (c) -- -- -- (0.02) (0.01) -- -- --
- --------------------------------------- ----------- --------- --------- ----------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS (0.26) (0.51) (0.55) (0.62) (0.84) (0.93) (0.94) (0.94)
- --------------------------------------- ----------- --------- --------- ----------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 8.63 $ 8.85 $ 9.17 $ 8.98 $ 9.07 $ 9.16 $ 9.41 $ 9.56
- --------------------------------------- ----------- --------- --------- ----------- --------- --------- --------- ---------
TOTAL RETURN**** 0.42% 2.04% 8.39% 5.94% 8.80% 7.52% 8.69% 5.43%
- ---------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------
Expenses 0.56% 0.56% 0.51% 0.53% 0.52% 0.52% 0.51% 0.50%
- ---------------------------------------
Net investment income 5.81% 5.55% 6.07% 6.71% 9.95% 9.33% 9.90% 9.59%
- ---------------------------------------
Expense waiver/
reimbursement (b) 0.02% 0.08% 0.45% 0.98% 0.75% 0.92% 0.76% 0.59%
- ---------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------
Net assets, end of period (000
omitted) $266,891 $353,106 $144,129 $36,047 $47,223 $65,429 $69,904 $90,581
- ---------------------------------------
Portfolio turnover rate 7% 44% 62% 114% 23% 34% 38% 77%
- ---------------------------------------
<CAPTION>
<S> <C>
1987*
- --------------------------------------- ---------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
- ---------------------------------------
INCOME FROM INVESTMENT
OPERATIONS
- ---------------------------------------
Net investment income 0.74
- ---------------------------------------
Net realized and
unrealized gain (loss)
on investments (0.02)
- --------------------------------------- ---------
Total from investment
operations 0.72
- ---------------------------------------
LESS DISTRIBUTIONS
- ---------------------------------------
Dividends to shareholders
from net investment
income (0.74)
- ---------------------------------------
Distributions in excess of net
investment income (c) --
- --------------------------------------- ---------
TOTAL DISTRIBUTIONS (0.74)
- --------------------------------------- ---------
NET ASSET VALUE, END OF PERIOD $ 9.98
- --------------------------------------- ---------
TOTAL RETURN**** 7.40%
- ---------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------
Expenses 0.50%(a)
- ---------------------------------------
Net investment income 9.58%(a)
- ---------------------------------------
Expense waiver/
reimbursement (b) 0.60%(a)
- ---------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------
Net assets, end of period (000
omitted) $80,073
- ---------------------------------------
Portfolio turnover rate 82%
- ---------------------------------------
</TABLE>
* Reflects operations for the period from July 1, 1986 (date of initial
public investment) to April 30, 1987.
** On December 31, 1991, the shareholders approved a change in the fundamental
investment policies which state that the Fund will be invested in
high-grade as opposed to lower-rated debt securities, and as a result,
investment income per share is lower.
*** Six months ended October 31, 1994 (unaudited).
**** Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(c) These distributions do not represent a return of capital for federal tax
purposes.
(See Notes which are an integral part of the Financial Statements)
FEDERATED SHORT-TERM INCOME FUND
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
<S> <C> <C> <C> <C>
1995** 1994 1993 1992*
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.85 $ 9.17 $ 8.98 $ 9.08
- -----------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------
Net investment income 0.25 0.48 0.52 0.15
- -----------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.22) (0.32) 0.19 (0.10)
- ----------------------------------------------------------------------- ----------- --------- --------- ---------
Total from investment operations 0.03 0.16 0.71 0.05
- -----------------------------------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------
Dividends to shareholders from net investment income (0.25) (0.48) (0.52) (0.15)
- ----------------------------------------------------------------------- ----------- --------- --------- ---------
Total distributions (0.25) (0.48) (0.52) (0.15)
- ----------------------------------------------------------------------- ----------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 8.63 $ 8.85 $ 9.17 $ 8.98
- ----------------------------------------------------------------------- ----------- --------- --------- ---------
TOTAL RETURN*** 0.30% 1.78% 8.12% 0.69%
- -----------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------
Expenses 0.81% 0.81% 0.76% 0.78%(a)
- -----------------------------------------------------------------------
Net investment income 5.54% 5.30% 5.82% 6.37%(a)
- -----------------------------------------------------------------------
Expense waiver/reimbursement (b) 0.16% 0.13% 0.45% 0.98%(a)
- -----------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------
Net assets, end of period (000 omitted) $24,216 $39,649 $15,673 $778
- -----------------------------------------------------------------------
Portfolio turnover rate 7% 44% 62% 114%
- -----------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from January 21, 1992 (date of initial
public investment) to April 30, 1992.
** Six months ended October 31, 1994 (unaudited).
*** Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED SHORT-TERM INCOME FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Federated Income Securities Trust (the "Trust") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as an open-end,
management investment company. The Trust consists of two diversified portfolios.
The financial statements included herein present only those of Federated
Short-Term Income Fund (the "Fund"). The financial statements of the other
portfolio are presented separately. The assets of each portfolio are segregated
and a shareholder's interest is limited to the portfolio in which shares are
held. The Fund offers two classes of shares: Institutional Shares and
Institutional Service Shares.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--U.S. government obligations are generally valued at
the mean between the over-the-counter bid and asked prices as furnished by
an independent pricing service. Corporate bonds and other fixed income
securities and asset backed securities are valued at the last sale price
reported on national securities exchanges on that day, if available.
Otherwise, corporate bonds and other fixed income and asset backed
securities and short-term obligations are valued at the prices provided by
an independent pricing service. Short-term securities with remaining
maturities of sixty days or less may be stated at amortized cost, which
approximates value.
B. REPURCHASE AGREEMENTS--It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral in support of
repurchase agreement investments. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of
each repurchase agreement's underlying collateral to ensure that the value
of collateral at least equals the principal amount of the repurchase
agreement, including accrued interest.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to guidelines established
by the Board of Trustees (the "Trustees"). Risks may arise from the
potential inability of counterparties to honor the terms of the repurchase
agreement. Accordingly, the Fund could receive less than the repurchase
price on the sale of collateral securities.
C. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
D. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its taxable income.
Accordingly, no provisions for federal tax are necessary.
At April 30, 1994, the Fund, for federal tax purposes, had a capital loss
carryforward of $10,249,866 which will reduce the Fund's taxable income
arising from future net realized gain on investments, if any, to the extent
permitted by the Code, and thus will reduce the amount of the distributions
to shareholders which would otherwise be necessary to relieve the Fund of
any liability for federal tax. Pursuant to the Code, such capital loss
carryforward will expire in 1995 ($156,476), 1996 ($791,359), 1997
($3,077,752), 1998 ($316,627), 1999 ($1,132,354), 2000 ($4,105,766) and
2002 ($669,532).
Additionally, net capital losses of $1,829,377 attributable to security
transactions incurred after October 31, 1993, are treated as arising on May
1, 1994, the first day of the Fund's next taxable year.
E. 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.
F. RESTRICTED SECURITIES--Restricted securities are securities that may only
be resold upon registration under Federal securities laws or in
transactions exempt from such registration. In some cases, the issuer of
restricted securities has agreed to register such securities for resale, at
the issuer's expense either upon demand by the Fund or in connection with
another registered offering of the securities. Many restricted securities
may be resold in the secondary market in transactions exempt from
registration.
Such restricted securities may be determined to be liquid under criteria
established by the Board of Trustees. The Fund will not incur any
registration costs upon such resales. The Fund's restricted securities are
valued at the price provided by dealers in the secondary market or, if no
market prices are available, at the fair value as determined by the Fund's
pricing committee. Additional information on each restricted security held
at October 31, 1994 is as follows:
<TABLE>
<CAPTION>
Acquisition Acquisition
Security Date Cost
<S> <C> <C>
Encyclopedia Britannica Dom. Funding Corp. 3/28/94 $ 3,000,000
Conti Mortgage Home Equity Loan Trust 1993-3, Class A-2 9/29/93 7,436,394
Conti Mortgage Home Equity Loan Trust 1994-1, Class A-3 2/25/94 1,999,719
Conti Mortgage Home Equity Loan Trust 1994-1, Class A-5 2/25/94 4,608,597
Concord Leasing Grantor Trust 1992-C, Class A-1 9/8/92 724,156
CFC-14 Grantor Trust, Class A 8/5/92-2/9/93 4,075,467
GCA REMIC PTC, 1991-4, Class B1-A 1/14/93 2,467,985
Long Beach Bank Mortgage Series 1992-3, Class A 6/30/92 1,218,413
Prudential Home Mortgage 1992-A, Class B1-1 11/24/92 2,832,722
</TABLE>
G. OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
--------------------------------------------------------------
1995* 1994
INSTITUTIONAL SHARES SHARES DOLLARS SHARES DOLLARS
- ------------------------------------------------- ------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Shares sold 3,890,396 $ 34,045,531 50,506,612 $ 459,763,632
- -------------------------------------------------
Shares issued to shareholders in
payment of dividends declared 176,384 1,537,321 307,713 2,782,792
- -------------------------------------------------
Shares redeemed (13,044,071) (113,781,065) (26,635,056) (241,204,503)
- ------------------------------------------------- ------------- --------------- ------------- ---------------
Net change resulting from
Institutional share transactions (8,977,291) ($ 78,198,213) 24,179,269 $ 221,341,921
- ------------------------------------------------- ------------- --------------- ------------- ---------------
</TABLE>
* Six months ended October 31, 1994.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
------------------------------------------------------------
1995* 1994
INSTITUTIONAL SERVICE SHARES SHARES DOLLARS SHARES DOLLARS
- --------------------------------------------------- ------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Shares sold 423,774 $ 3,703,233 5,927,113 $ 53,754,735
- ---------------------------------------------------
Shares issued to shareholders in payment of
dividends declared 45,573 397,144 97,795 886,423
- ---------------------------------------------------
Shares redeemed (2,144,357) (18,742,315) (3,253,210) (29,450,410)
- --------------------------------------------------- ------------- -------------- ------------- --------------
Net change resulting from Institutional
Service share transactions (1,675,010) ($ 14,641,938) 2,771,698 $ 25,190,748
- --------------------------------------------------- ------------- -------------- ------------- --------------
Net change resulting from Fund share
transactions (10,652,301) ($ 92,840,151) 26,950,967 $ 246,532,669
- --------------------------------------------------- ------------- -------------- ------------- --------------
</TABLE>
* Six months ended October 31, 1994.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser
(the 'Adviser'), receives for its services an annual investment advisory fee
equal to .40 of 1% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive a portion of its fee and reimburse certain operating
expenses of the Fund. The Adviser can modify or terminate this voluntary waiver
and reimbursement at any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ('FAS') provides the Fund
with administrative personnel and services. The FAS fee is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received during any
fiscal year shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
DISTRIBUTION AND SHAREHOLDER SERVICES FEE--The Fund has adopted a Distribution
Plan (the 'Plan') pursuant to Rule 12b-1 under the Act. Under the terms of the
Plan, the Fund will compensate Federated Securities Corp. ('FSC'), the principal
distributor, from the net assets of the Fund to finance activities intended to
result in the sale of the Fund's Institutional Service Shares. The Plan provides
that the Fund may incur distribution expenses up to .25 of 1% of the average
daily net assets of the Institutional Service Shares, annually, to compensate
FSC.
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services ('FSS'), the Fund will pay FSS up to .25 of 1% of average daily net
assets for each class of shares for the period. This fee is to obtain certain
personal services for shareholders and to maintain the shareholder accounts. For
the six months ended October 31, 1994, Institutional Shares did not incur a
shareholder services fee.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES--Federated Services Company
('FServ') serves as transfer and dividend disbursing agent for the Fund. The
FServ fee is based on the size, type, and number of accounts and transactions
made by shareholders.
Certain of the Officers and Trustees of the Fund are Officers and Directors or
Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the six
months ended October 31, 1994 were as follows:
<TABLE>
<S> <C>
PURCHASES-- $ 23,745,803
- -------------------------------------------------------------------------------------------------- --------------
SALES-- $ 115,610,573
- -------------------------------------------------------------------------------------------------- --------------
</TABLE>
Trustees Officers
- -----------------------------------------------------------------------
<TABLE>
<S> <C>
John F. Donahue John F. Donahue
John T. Conroy, Jr. Chairman
William J. Copeland Glen R. Johnson
James E. Dowd President
Lawrence D. Ellis, M.D. J. Christopher Donahue
Edward L. Flaherty, Jr. Vice President
Peter E. Madden Richard B. Fisher
Gregor F. Meyer Vice President
Wesley W. Posvar Edward C. Gonzales
Marjorie P. Smuts Vice President and Treasurer
John W. McGonigle
Vice President and Secretary
David M. Taylor
Assistant Treasurer
Victor R. Siclari
Assistant Secretary
</TABLE>
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including 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.
INTERMEDIATE
INCOME
FUND
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
OCTOBER 31, 1994
[LOGO] FEDERATED SECURITIES CORP.
--------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
31420C407
31420C506
G00715-01 (12/94)
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Investor:
I am pleased to present the Semi-Annual Report to Shareholders for Intermediate
Income Fund (the "Fund"), a portfolio of Federated Income Securities Trust (the
"Trust"), for the six-month period ended October 31, 1994. The report begins
with our Investment Review, in which the Fund's portfolio manager comments on
the corporate bond, asset-backed securities, and mortgage-backed securities
markets. Following the Investment Review, you will find Financial Statements
containing the Fund's Portfolio of Investments. In addition, Financial
Highlights tables have been included for Institutional Shares and Institutional
Service Shares.
On behalf of investors, the Fund pursues current income through a diversified
portfolio consisting primarily of intermediate-term, high-quality debt
securities. At the end of the reporting period, 75.9% of the Fund's net assets
were invested in corporate bonds, and 12.9% of its net assets were invested in
asset-backed securities. The remainder of the Fund's net assets were invested in
a repurchase agreement and a government agency security.
During the six-month reporting period, dividends paid to shareholders totaled
$840,553. At the end of the period, net assets stood at $26.3 million.
Thank you for your confidence in Intermediate Income Fund. As always, we welcome
your questions, comments, or suggestions.
Sincerely,
Glen R. Johnson
President
December 15, 1994
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
Intermediate Income Fund invests primarily in high-quality corporate debt
securities rated in one of the three highest categories (A or better) by a
nationally recognized statistical rating organization. The Fund may also invest
in other high-quality government and asset-backed securities. The Fund's
duration is managed within a range of three to seven years.
Domestic economic growth continued to provide surprises with larger than
anticipated increases in both the second and third calendar quarters of 1994.
The Federal Reserve Board has stated, repeatedly and clearly, that it intends to
vigorously fight potentially mounting inflationary pressures by raising
short-term interest rates. As a result, all U.S. Treasury securities along the
yield curve experienced higher rates over the six-month period ended October 31,
1994. The short end, as is to be expected, demonstrated the highest degree of
absolute increases with the 2-year and 5-year Treasuries rising 110 basis points
and 85 basis points, respectively. At the very long end, the 30-year Treasury
rose a more modest 67 basis points in yield.
In this increasing rate environment, the Fund maintained a defensive interest
rate posture. Duration was generally maintained at 4.5-4.75 years, short of the
5.0 midpoint of the Fund's policy range. From a credit perspective, the Fund has
concentrated on solid A rated securities which have outperformed comparable
Treasuries over this time frame. Thus, even though rates rose significantly over
the past six months, the Institutional Shares generated a modest but positive
0.05% average annual total return*, while the Lehman Government/Corporate Index+
generated a -0.04% return. In addition, the Institutional Services Shares
generated an average annual total return of (0.08%).*
In recognition of the fact that the domestic economic recovery is now over 3-1/2
years in length, Fund management will be closely monitoring economic
developments for signs of potentially slowing growth characteristics (i.e.
housing, auto sales, etc.). Should it become apparent that the growth cycle is
peaking, the Fund will move to a more neutral-to-positive position by gradually
lengthening the overall duration by purchasing longer dated, high-quality
securities.
* Performance quoted represents past performace. 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.
+ This index is unmanaged.
INTERMEDIATE INCOME FUND
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------ ------------------------------------------------------------------------------------- -------------
ASSET-BACKED SECURITIES--12.9%
- ---------------------------------------------------------------------------------------------------
BANKING/CREDIT CARD--4.9%
-------------------------------------------------------------------------------------
$ 300,000 American Express Master Trust, 1993-1, Class A, 5.375%, 7/15/2001 $ 258,234
-------------------------------------------------------------------------------------
200,000 First Chicago Master Trust, 1990-A, Class A, 9.25%, 12/15/96 203,812
-------------------------------------------------------------------------------------
150,000 First Chicago Master Trust, 1991-D, Class A, 8.40%, 6/15/98 152,209
-------------------------------------------------------------------------------------
350,000 Signet Credit Card Trust, 1993-1, Class B, 5.40%, 2/15/2002 314,965
-------------------------------------------------------------------------------------
400,000 Standard Credit Card Master Trust, 1993-1, Class B, 5.50%, 9/7/98 374,392
------------------------------------------------------------------------------------- -------------
Total 1,303,612
------------------------------------------------------------------------------------- -------------
HOME EQUITY RECEIVABLES--0.9%
-------------------------------------------------------------------------------------
240,015 TMS Home Equity Loan Trust, 1992-B, Class A, 6.90%, 7/15/2007 231,936
------------------------------------------------------------------------------------- -------------
MISCELLANEOUS--3.1%
-------------------------------------------------------------------------------------
352,511 Midlantic Auto Grantor Trust, 1992-1, Class B, 5.15%, 9/15/97 351,101
-------------------------------------------------------------------------------------
461,333 Premier Auto Trust, 1992-3, Class B, 6.25%, 11/15/97 459,982
------------------------------------------------------------------------------------- -------------
Total 811,083
------------------------------------------------------------------------------------- -------------
NON-GOVERNMENT AGENCY--MORTGAGE-BACKED SECURITIES--4.0%
-------------------------------------------------------------------------------------
400,000 Prudential Bache CMO, Series 8, Class F, 7.965%, 3/1/2019 394,116
-------------------------------------------------------------------------------------
500,000 Residential Funding Mortgage Securities, Inc., Series 1993-S26,
Class A-10, 7.50%, 7/25/2023 421,560
-------------------------------------------------------------------------------------
300,000 Residential Funding Mortgage Securities, Inc., Series 1993-S31,
Class A-7, 7.00%, 9/25/2023 244,547
------------------------------------------------------------------------------------- -------------
Total 1,060,223
------------------------------------------------------------------------------------- -------------
TOTAL ASSET-BACKED SECURITIES (IDENTIFIED COST $3,688,633) 3,406,854
------------------------------------------------------------------------------------- -------------
CORPORATE BONDS--75.9%
- ---------------------------------------------------------------------------------------------------
AIR TRANSPORTATION--3.6%
-------------------------------------------------------------------------------------
900,000 Southwest Airlines Co., 9.40%, 7/1/2001 948,501
------------------------------------------------------------------------------------- -------------
AUTOMOTIVE--2.5%
-------------------------------------------------------------------------------------
$ 500,000 Chrysler Auburn Hills Trust Certificates, 12.375%, 5/1/2020 $ 657,465
------------------------------------------------------------------------------------- -------------
BANKING--9.6%
-------------------------------------------------------------------------------------
900,000 Bank of Montreal, Note, 6.10%, 9/15/2005 752,364
-------------------------------------------------------------------------------------
500,000 Bank One, Milwaukee, Note, 6.625%, 4/15/2003 449,125
-------------------------------------------------------------------------------------
1,000,000 National Bank of Canada, 8.125%, 8/15/2004 967,190
-------------------------------------------------------------------------------------
400,000 PNC Funding Corp., Note, 6.875%, 3/1/2003 364,408
------------------------------------------------------------------------------------- -------------
Total 2,533,087
------------------------------------------------------------------------------------- -------------
ECOLOGICAL SERVICES & EQUIPMENT--3.7%
-------------------------------------------------------------------------------------
1,000,000 Waste Management, Inc., 6.375%, 7/1/97 977,220
------------------------------------------------------------------------------------- -------------
FINANCE--AUTOMOTIVE--8.4%
-------------------------------------------------------------------------------------
1,000,000 Ford Capital Bv, Note, 9.00%, 8/15/98 1,032,440
-------------------------------------------------------------------------------------
200,000 General Motors Acceptance Corp., 9.40%, 5/18/95 203,420
-------------------------------------------------------------------------------------
1,000,000 General Motors Acceptance Corp., 7.50%, 5/18/98 990,370
------------------------------------------------------------------------------------- -------------
Total 2,226,230
------------------------------------------------------------------------------------- -------------
FINANCE--RETAIL--0.6%
-------------------------------------------------------------------------------------
140,000 Household Finance Corp., Note, 8.95%, 9/15/99 145,285
------------------------------------------------------------------------------------- -------------
FINANCIAL INTERMEDIARIES--3.7%
-------------------------------------------------------------------------------------
1,000,000 Merrill Lynch & Co., Inc., 7.25%, 6/14/2004 983,410
------------------------------------------------------------------------------------- -------------
FOOD PRODUCTS--3.7%
-------------------------------------------------------------------------------------
1,000,000 Grand Metropolitan Investment, 7.00%, 6/15/99 965,270
------------------------------------------------------------------------------------- -------------
HEALTH SERVICES--3.6%
-------------------------------------------------------------------------------------
1,000,000 Columbia/HCA Healthcare Corp., 8.05%, 8/25/2006 952,000
------------------------------------------------------------------------------------- -------------
INSURANCE--1.7%
-------------------------------------------------------------------------------------
500,000 Sunamerica, Inc., 6.58%, 1/15/2002 448,865
------------------------------------------------------------------------------------- -------------
OIL & GAS--4.0%
-------------------------------------------------------------------------------------
1,075,000 Burlington Resources, Inc., Note, 7.15%, 5/1/99 1,046,190
------------------------------------------------------------------------------------- -------------
RAIL INDUSTRY--1.0%
-------------------------------------------------------------------------------------
$ 250,000 CSX Corp., Note, 9.50%, 11/15/95 $ 257,288
------------------------------------------------------------------------------------- -------------
RETAILERS--4.3%
-------------------------------------------------------------------------------------
1,070,000 Penney J.C., Inc., Note, 9.45%, 7/15/2002 1,133,408
------------------------------------------------------------------------------------- -------------
SOVEREIGN GOVERNMENT--18.7%
-------------------------------------------------------------------------------------
1,000,000 Freeport Terminal Republic of Malta, 7.50%, 3/29/2009 912,590
-------------------------------------------------------------------------------------
1,000,000 Province of New Brunswick, 9.75%, 5/15/2020 1,091,100
-------------------------------------------------------------------------------------
1,000,000 Province of Ontario, 7.625%, 6/22/2004 952,180
-------------------------------------------------------------------------------------
1,000,000 Quebec Hydro, 8.05%, 7/7/2024 964,800
-------------------------------------------------------------------------------------
1,000,000 Victoria Public Authority, 8.25%, 1/15/2002 993,750
------------------------------------------------------------------------------------- -------------
Total 4,914,420
------------------------------------------------------------------------------------- -------------
TELECOMMUNICATIONS & CELLULAR--3.1%
-------------------------------------------------------------------------------------
800,000 New England Telephone & Telegraph Co., 8.625%, 8/1/2001 825,224
------------------------------------------------------------------------------------- -------------
UTILITIES--3.7%
-------------------------------------------------------------------------------------
400,000 Duke Power Co., 5.78%, 7/8/99 366,744
-------------------------------------------------------------------------------------
180,000 Minnesota Power & Light Co., 7.75%, 6/1/2007 169,409
-------------------------------------------------------------------------------------
500,000 Wisconsin Telephone Co., 6.25%, 8/1/2004 436,335
------------------------------------------------------------------------------------- -------------
Total 972,488
------------------------------------------------------------------------------------- -------------
TOTAL CORPORATE BONDS (IDENTIFIED COST $20,843,279) 19,986,351
------------------------------------------------------------------------------------- -------------
FEDERAL HOME LOAN MORTGAGE CORP.--3.6%
- ---------------------------------------------------------------------------------------------------
1,000,000 7.61%, 9/1/2004 (IDENTIFIED COST $943,060) 943,060
------------------------------------------------------------------------------------- -------------
*REPURCHASE AGREEMENT--9.8%
- ---------------------------------------------------------------------------------------------------
$ 2,581,000 J.P. Morgan Securities, Inc., 4.82%, dated 10/31/94, due 11/1/94
(AT AMORTIZED COST) $ 2,581,000
------------------------------------------------------------------------------------- -------------
TOTAL INVESTMENTS (IDENTIFIED COST $28,055,972) $ 26,917,265+
------------------------------------------------------------------------------------- -------------
</TABLE>
* The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations. The investment in the repurchase agreement is thorough
participation in a joint account with other Federated Funds.
+ The cost of investments for federal tax purposes amounts to $28,055,972. The
net unrealized depreciation on a federal tax cost basis amounts to $1,138,707,
which is comprised of $353 appreciation and $1,139,060 depreciation at October
31, 1994.
The following abbreviation is used in this portfolio:
CMO--Collateralized Mortgage Obligation
Note: The categories of investments are shown as a percentage of net assets
($26,349,270) at October 31, 1994.
(See Notes which are an integral part of the Financial Statements)
INTERMEDIATE INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------------------------
Investments in repurchase agreements $ 2,581,000
- -----------------------------------------------------------------------------------
Investments in other securities 24,336,265
- ----------------------------------------------------------------------------------- -------------
Total investments, at value (identified and tax cost, $28,055,972) $ 26,917,265
- --------------------------------------------------------------------------------------------------
Cash 190
- --------------------------------------------------------------------------------------------------
Interest receivable 547,711
- --------------------------------------------------------------------------------------------------
Receivable for Fund shares sold 23,624
- --------------------------------------------------------------------------------------------------
Deferred expenses 8,416
- -------------------------------------------------------------------------------------------------- -------------
Total assets 27,497,206
- --------------------------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------------------------
Payable for investments purchased 957,012
- -----------------------------------------------------------------------------------
Dividends payable 139,531
- -----------------------------------------------------------------------------------
Payable for Fund shares redeemed 1,000
- -----------------------------------------------------------------------------------
Accrued expenses 50,393
- ----------------------------------------------------------------------------------- -------------
Total liabilities 1,147,936
- -------------------------------------------------------------------------------------------------- -------------
NET ASSETS for 2,860,191 shares of beneficial interest outstanding $ 26,349,270
- -------------------------------------------------------------------------------------------------- -------------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------------------------
Paid-in capital $ 27,868,795
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (1,138,707)
- --------------------------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments (380,818)
- -------------------------------------------------------------------------------------------------- -------------
Total Net Assets $ 26,349,270
- -------------------------------------------------------------------------------------------------- -------------
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS PER SHARE:
- --------------------------------------------------------------------------------------------------
Institutional Shares ($26,103,674 / 2,833,530 shares of beneficial interest outstanding) $9.21
- -------------------------------------------------------------------------------------------------- -------------
Institutional Service Shares ($245,596 / 26,661 shares of beneficial interest outstanding) $9.21
- -------------------------------------------------------------------------------------------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
INTERMEDIATE INCOME FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED OCTOBER 31, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -----------------------------------------------------------------------------------------------------
Interest income $ 887,605
- -----------------------------------------------------------------------------------------------------
EXPENSES:
- -----------------------------------------------------------------------------------------------------
Investment advisory fee $ 60,769
- -----------------------------------------------------------------------------------------
Administrative personnel and services 64,973
- -----------------------------------------------------------------------------------------
Custodian and portfolio accounting fees 45,698
- -----------------------------------------------------------------------------------------
Transfer and dividend distributing agent fees and expenses 12,518
- -----------------------------------------------------------------------------------------
Fund share registration costs 4,346
- -----------------------------------------------------------------------------------------
Legal fees 2,834
- -----------------------------------------------------------------------------------------
Trustees' fees 136
- -----------------------------------------------------------------------------------------
Auditing fees 7,241
- -----------------------------------------------------------------------------------------
Insurance premiums 2,834
- -----------------------------------------------------------------------------------------
Printing and postage 5,756
- -----------------------------------------------------------------------------------------
Shareholder services fee--Institutional Service Shares 265
- -----------------------------------------------------------------------------------------
Miscellaneous 2,264
- ----------------------------------------------------------------------------------------- ----------
Total expenses 209,634
- -----------------------------------------------------------------------------------------
Deduct--
- -----------------------------------------------------------------------------------------
Waiver of investment advisory fee $ 60,769
- -----------------------------------------------------------------------------
Reimbursement of other operating expenses 101,813 162,582
- ----------------------------------------------------------------------------- ---------- ----------
Net expenses 47,052
- ----------------------------------------------------------------------------------------------------- -----------
Net investment income 840,553
- ----------------------------------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- -----------------------------------------------------------------------------------------------------
Net realized gain (loss) on investment transactions (identified cost basis) (372,964)
- -----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (451,917)
- ----------------------------------------------------------------------------------------------------- -----------
Net realized and unrealized gain (loss) on investments (824,881)
- ----------------------------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $ 15,672
- ----------------------------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
INTERMEDIATE INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
1995** 1994*
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------------------------------
OPERATIONS--
- -----------------------------------------------------------------------------------
Net investment income $ 840,553 $ 279,816
- -----------------------------------------------------------------------------------
Net realized gain (loss) on investment transactions
($372,964 net loss and $0, respectively, as computed for
federal tax purposes) (372,964) (7,854)
- -----------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) on investments (451,917) (686,790)
- ----------------------------------------------------------------------------------- ------------- -------------
Change in net assets resulting from operations 15,672 (414,828)
- ----------------------------------------------------------------------------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -----------------------------------------------------------------------------------
Dividends to shareholders from net investment income:
- -----------------------------------------------------------------------------------
Institutional Shares (833,499) (276,248)
- -----------------------------------------------------------------------------------
Institutional Service Shares (7,054) (3,568)
- ----------------------------------------------------------------------------------- ------------- -------------
Change in net assets from distributions to shareholders (840,553) (279,816)
- ----------------------------------------------------------------------------------- ------------- -------------
FUND SHARE (PRINCIPAL) TRANSACTIONS--
- -----------------------------------------------------------------------------------
Proceeds from sale of shares 11,574,988 25,769,938
- -----------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of dividends declared 75,161 11,515
- -----------------------------------------------------------------------------------
Cost of shares redeemed (2,403,248) (7,159,559)
- ----------------------------------------------------------------------------------- ------------- -------------
Change in net assets from Fund share transactions 9,246,901 18,621,894
- ----------------------------------------------------------------------------------- ------------- -------------
Change in net assets 8,422,020 17,927,250
- -----------------------------------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------------------------------
Beginning of period 17,927,250 --
- ----------------------------------------------------------------------------------- ------------- -------------
End of period $ 26,349,270 $ 17,927,250
- ----------------------------------------------------------------------------------- ------------- -------------
</TABLE>
* For the period from December 15, 1993 (date of initial public offering) to
April 30, 1994.
** Six months ended October 31, 1994 (unaudited).
(See Notes which are an integral part of the Financial Statements)
INTERMEDIATE INCOME FUND
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
1995** 1994*
- ----------------------------------------------------------------------------------- ----------- ---------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.53 $ 10.00
- -----------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------
Net investment income 0.33 0.23
- -----------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.32) (0.47)
- ----------------------------------------------------------------------------------- ---------- ---------
Total from investment operations 0.01 (0.24)
- ----------------------------------------------------------------------------------- ---------- ---------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.33) (0.23)
- ----------------------------------------------------------------------------------- ---------- ---------
NET ASSET VALUE, END OF PERIOD $ 9.21 $ 9.53
- ----------------------------------------------------------------------------------- ---------- ---------
TOTAL RETURN*** 0.05% (2.48%)
- -----------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------
Expenses 0.39(a) 0.00%(a)
- -----------------------------------------------------------------------------------
Net investment income 6.92(a) 6.36%(a)
- -----------------------------------------------------------------------------------
Expense waiver/reimbursement (b) 1.33(a) 1.40%(a)
- -----------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $26,104 $17,702
- -----------------------------------------------------------------------------------
Portfolio turnover rate 51% 0%
- -----------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from December 15, 1993 (date of initial
public offering) to April 30, 1994.
** Six months ended October 31, 1994 (unaudited).
*** Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
INTERMEDIATE INCOME FUND
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
1995** 1994*
- ----------------------------------------------------------------------------------- ----------- ---------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.53 $ 10.00
- -----------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------
Net investment income 0.31 0.22
- -----------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.32) (0.47)
- ----------------------------------------------------------------------------------- ---------- ---------
Total from investment operations (0.01) (0.25)
- ----------------------------------------------------------------------------------- ---------- ---------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.31) (0.22)
- ----------------------------------------------------------------------------------- ---------- ---------
NET ASSET VALUE, END OF PERIOD $ 9.21 $ 9.53
- ----------------------------------------------------------------------------------- ---------- ---------
TOTAL RETURN*** (0.08%) (2.57%)
- -----------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------
Expenses 0.62(a) 0.25%(a)
- -----------------------------------------------------------------------------------
Net investment income 6.65(a) 6.12%(a)
- -----------------------------------------------------------------------------------
Expense waiver/reimbursement (b) 1.33(a) 1.40%(a)
- -----------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $246 $225
- -----------------------------------------------------------------------------------
Portfolio turnover rate 51% 0%
- -----------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from December 15, 1993 (date of initial
public offering) to April 30, 1994.
** Six months ended October 31, 1994 (unaudited).
*** Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
INTERMEDIATE INCOME FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Federated Income Securities Trust (the "Trust") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as an open-end,
management investment company. The Trust consists of two diversified portfolios.
The financial statements included herein present only those of Intermediate
Income Fund (the "Fund"). The financial statements of the other portfolio are
presented separately. The assets of each portfolio are segregated and a
shareholder's interest is limited to the portfolio in which shares are held. The
Fund offers two classes of shares: Institutional Shares and Institutional
Service Shares.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--U.S. government obligations are generally valued at
the mean between the over-the-counter bid and asked prices as furnished by
an independent pricing service. Corporate bonds and other fixed income and
asset backed securities are valued at the last sale price reported on
national securities exchanges on that day, if available. Otherwise,
corporate bonds and other fixed income and asset backed securities and
short-term obligations are valued at the prices provided by an independent
pricing service. Short-term securities with remaining maturities of sixty
days or less may be stated at amortized cost, which approximates value.
B. REPURCHASE AGREEMENTS--It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral in support of
repurchase agreement investments. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of
each repurchase agreement's underlying collateral to ensure that the value
of collateral at least equals the principal amount of the repurchase
agreement, including accrued interest.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to guidelines established
by the Board of Trustees (the "Trustees"). Risks may arise from the
potential inability of counterparties to honor the terms of the repurchase
agreement. Accordingly, the Fund could receive less than the repurchase
price on the sale of collateral securities.
C. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
D. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its taxable income.
Accordingly, no provisions for federal tax are necessary. Additionally, net
capital losses of $7,854 attributable to security transactions incurred
after October 31, 1993, are treated as arising on May 1, 1994, the first
day of the Fund's next taxable year.
E. 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.
F. DEFERRED EXPENSES--The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering its shares, have been deferred and are being
amortized using the straight-line method not to exceed a period of five
years from the Fund's commencement date.
G. OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
1995** 1994*
INSTITUTIONAL SHARES SHARES DOLLARS SHARES DOLLARS
<S> <C> <C> <C> <C>
- --------------------------------------------------------- ---------- ------------- ---------- -------------
Shares sold 1,215,293 $ 11,475,484 2,565,565 $ 25,464,130
- ---------------------------------------------------------
Shares issued to shareholders in payment of dividends
declared 7,988 74,821 1,194 11,509
- ---------------------------------------------------------
Shares redeemed (247,929) (2,330,928) (708,581) (7,091,038)
- --------------------------------------------------------- ---------- ------------- ---------- -------------
Net change resulting from Institutional Share
transactions 975,352 $ 9,219,377 1,858,178 $ 18,384,601
- --------------------------------------------------------- ---------- ------------- ---------- -------------
</TABLE>
*For the period from December 15, 1993 (date of initial public offering) to
April 30, 1994.
**Six months ended October 31, 1994.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
1995** 1994*
INSTITUTIONAL SERVICE SHARES SHARES DOLLARS SHARES DOLLARS
<S> <C> <C> <C> <C>
- ------------------------------------------------------------- --------- ------------ ---------- -------------
Shares sold 10,667 $ 99,504 30,700 $ 305,815
- -------------------------------------------------------------
Shares issued to shareholders in payment of dividends
declared 37 340 -- --
- -------------------------------------------------------------
Shares redeemed (7,660) (72,320) (7,082) (68,522)
- ------------------------------------------------------------- --------- ------------ ---------- -------------
Net change resulting from Institutional Service Share
transactions 3,044 $ 27,524 23,618 $ 237,293
- ------------------------------------------------------------- --------- ------------ ---------- -------------
Net change resulting from Fund share transactions 978,396 $ 9,246,901 1,881,796 $ 18,621,894
- ------------------------------------------------------------- --------- ------------ ---------- -------------
</TABLE>
*For the period from December 15, 1993 (date of initial public offering) to
April 30, 1994.
**Six months ended October 31, 1994.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to .50 of 1% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive its fee and reimburse certain operating expenses of
the Fund. The Adviser can modify or terminate this voluntary waiver and
reimbursement at any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
with administrative personnel and services. The FAS fee is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received during the
period of the Administrative Services Agreement shall be at least $125,000 per
portfolio and $30,000 per each additional class of shares.
DISTRIBUTION AND SHAREHOLDER SERVICES FEE--The Fund has adopted a Distribution
Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the
Plan, the Fund will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended to
result in the sale of the Institutional Service Shares. The Plan provides that
the Fund may incur distribution expenses up to .25 of 1% of the average daily
net assets of the Institutional Service Shares, annually, to compensate FSC. For
the six months ended October 31, 1994, Institutional Service Shares did not
incur a distribution services fee.
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services ("FSS"), the Fund will pay FSS up to .25 of 1% of average daily net
assets for each class of shares for the period. This fee is to obtain certain
personal services for shareholders and to maintain the shareholder accounts. For
the six months ended October 31, 1994, Institutional Shares did not incur a
shareholder services fee.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES--Federated Services Company
("FServ") serves as transfer and dividend disbursing agent for the Fund. The
FServ fee is based on the size, type, and number of accounts and transactions
made by shareholders.
ORGANIZATIONAL EXPENSES--Organizational expenses ($47,948) and start-up
administrative service expenses ($38,751) were borne initially by Adviser. The
Fund has agreed to reimburse the Adviser for the organizational expenses and
start-up administrative expenses during the five year period following December
15, 1993 (date the Fund's portfolio first became effective). For the period
ended October 31, 1994, the Fund paid $4,528 and $3,660, respectively pursuant
to this agreement.
Certain of the Officers and Trustees of the Fund are Officers and Directors or
Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the six
months ended October 31, 1994 were as follows:
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------------
PURCHASES-- $ 23,888,267
- --------------------------------------------------------------------------------------------------- -------------
SALES-- $ 11,214,596
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
Trustees Officers
- -----------------------------------------------------------------------
<TABLE>
<S> <C>
John F. Donahue John F. Donahue
John T. Conroy, Jr. Chairman
William J. Copeland Glen R. Johnson
James E. Dowd President
Lawrence D. Ellis, M.D. J. Christopher Donahue
Edward L. Flaherty, Jr. Vice President
Peter E. Madden Richard B. Fisher
Gregor F. Meyer Vice President
Wesley W. Posvar Edward C. Gonzales
Marjorie P. Smuts Vice President and Treasurer
John W. McGonigle
Vice President and Secretary
David M. Taylor
Assistant Treasurer
Victor R. Siclari
Assistant Secretary
</TABLE>
Mutual funds are not bank deposits or obligations, are not guaranteed
by any bank, and are not insured or guaranteed by the U.S. government, the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including 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.
