PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Investor:
I am pleased to present the Semi-Annual Report to Shareholders for Federated
Short-Term Income Fund, a portfolio of Federated Income Securities Trust. The
Report covers the six-month period ended October 31, 1995. It begins with a
review of the bond market by the fund's portfolio manager, which is followed by
a complete list of fund holdings and its financial statements.
On behalf of investors, the fund pursues income through a diversified portfolio
consisting primarily of short-term, high-quality debt securities. At the end of
the reporting period, 65.4% of the fund's assets were invested in corporate
bonds and asset-backed securities, and 25.2% of its assets were invested in
mortgage-backed securities. The remainder of the fund's assets were invested in
a repurchase agreement and government agency securities.
During the six-month reporting period, Institutional Shares paid dividends
totaling $0.29 per share, and achieved a total return of 5.59%.* Institutional
Service Shares paid dividends of $0.28 per share, and delivered a total return
of 5.46%.* At the end of the period, total net assets in the fund stood at $219
million.
Thank you for selecting Federated Short-Term Income Fund as a high-quality
income investment. As always, we welcome your questions, comments, or
suggestions.
Sincerely,
LOGO
Glen R. Johnson
President
December 15, 1995
* 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.
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
The goal of the fund is to seek a high level of current income consistent with
minimum fluctuation in principal value through a portfolio with an effective
modified duration of two years or less.
The fund invests its assets primarily in a broad range of investment grade
securities rated A or better. These include fixed and floating rate corporate
bonds, asset-backed securities, and U.S. government securities which are
guaranteed as to the timely payment of principal and interest by the U.S.
government, its agencies or its instrumentalities. Shares of the fund, however,
are not insured or guaranteed by the U.S. government.
Overall Gross Domestic Product during the second and third quarters was somewhat
erratic. The second quarter pace of 1.3% reflected the beginning of an economic
growth slowdown commonly termed a soft landing. The third quarter rate, however,
of 4.2% reflected a strong consumer segment and called into question the
slowdown. Most recent October statistics, however, seem to reflect a retraction
as retail sales declined 0.2% with industrial production falling 0.3%.
Throughout the period, inflation remained tame. As measured by the Consumer
Price Index, it rose at an annualized 2.4% pace while Producer Price Index was
even more subdued.
During the past six months, yields declined about 100 basis points in the 2-3
year sector of the investment-grade bond market. The Federal Reserve (the "Fed")
lowered the Fed Funds once from 6.00% to 5.75% on July 6, 1995. As evidenced by
the steep decline in bond yields with very little action from the Fed,
anticipation of continued Fed rate easing is the story of the day.
The 2-Year Treasury Note began the period with a yield of 6.62% and decreased
steadily to end the period at 5.61% on October 31, 1995. Drastic yield curve
flattening occurred with the spread over the 1-Year Treasury bill decreasing
from 30 to 5 basis points. Given this flattening, the target duration for
Federated Short-Term Income Fund has increased slightly to the 1.5-2 year area.
In meeting this target the fund continues to hold a 20-25% position in floating
rate securities.
The total return for the six-month period ended October 31, 1995, was 5.59% for
Institutional Shares and 5.46% for Institutional Service Shares.* The net asset
value of the Fund increased from $8.61 to $8.80 over the period. The net assets
of Federated Short-Term Income Fund decreased from $236.7 to $219.5 million
while the 30-day net distribution rate decreased from 6.77% to 6.45% for
Institutional Shares and decreased from 6.52% to 6.20% for Institutional Service
Shares. The average 30-day net yield, as calculated under SEC guidelines,
increased from 6.59% to 6.72% for Institutional Shares and increased from 6.33%
to 6.47% for Institutional Service Shares. The effective modified duration of
the fund on October 31, 1995 was 1.7 years and will be maintained between 1.5
and 2.0 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, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ -------------------------------------------------------------- ------------
<C> <C> <S> <C>
CORPORATE BONDS/ASSET-BACKED SECURITIES--65.4%
- ----------------------------------------------------------------------------------
AUTOMOTIVE--11.3%
--------------------------------------------------------------
$ 3,263,687 Capital Auto Receivables Asset Trust 1992-1, Class B, 6.20%,
12/15/1997 $ 3,272,270
--------------------------------------------------------------
967,848 Capital Auto Receivables Asset Trust 1993-1, Class B, 5.85%,
2/17/1998 966,687
--------------------------------------------------------------
5,192,481 Chevy Chase Auto Trust 1995-1, Class A, 6.00%, 12/15/2001 5,205,462
--------------------------------------------------------------
5,000,000 Ford Credit Auto Loan Master Trust 1992-2, 7.38%, 4/15/1999 5,140,750
--------------------------------------------------------------
1,000,000 General Motors Acceptance Corp., MTN, 7.63%, 3/9/1998 1,035,410
--------------------------------------------------------------
3,450,000 + Navistar Financial Dealer Note 1990, Class A-3, 6.78%,
1/25/2003 3,510,375
--------------------------------------------------------------
2,730,000 Navistar Financial Owner Trust 1995-1, Class B, 6.85%,
11/20/2001 2,760,713
--------------------------------------------------------------
3,000,000 Premier Auto Trust 1995-3, Class B, 6.25%, 8/6/2001 3,007,500
-------------------------------------------------------------- ------------
Total 24,899,167
-------------------------------------------------------------- ------------
BANKING--16.1%
--------------------------------------------------------------
5,000,000 Banc One Credit Card Master Trust 1995-A, Class B, 6.30%,
7/15/2002 5,004,490
--------------------------------------------------------------
3,000,000 + Bankamerica Corp., FRN 5.75%, 6/25/2003 2,932,500
--------------------------------------------------------------
3,000,000 Chase Manhattan Credit Card Master Trust 1991-1, Class A,
8.75%, 8/15/1999 3,043,920
--------------------------------------------------------------
5,000,000 Chase Manhattan Credit Card Master Trust 1992-1, Class A,
7.40%, 5/15/2000 5,160,500
--------------------------------------------------------------
5,000,000 + Chemical Bank, FRN, 6.00%, 7/29/2003 4,881,000
--------------------------------------------------------------
4,000,000 Colonial Credit Card Trust 1991-B, Class B, 7.95%, 1/15/1998 4,019,480
--------------------------------------------------------------
4,000,000 + First USA Credit Card Master Trust, Class B, 6.28%, 12/15/1999 4,008,800
--------------------------------------------------------------
1,000,000 + J.P. Morgan and Co., Inc., FRN 5.82%, 8/19/2002 987,500
--------------------------------------------------------------
1,000,000 PNC Bank Corp., Sub. Note, 7.875%, 4/15/2005 1,073,700
--------------------------------------------------------------
4,000,000 Toronto-Dominion Bank, Sub. Note, 7.875%, 8/15/2004 4,194,560
-------------------------------------------------------------- ------------
Total 35,306,450
-------------------------------------------------------------- ------------
FINANCE-RETAIL--16.1%
--------------------------------------------------------------
5,000,000 Discover Credit Card Trust 1991-B, Class A, 8.63%, 7/15/1998 5,121,350
--------------------------------------------------------------
</TABLE>
FEDERATED SHORT-TERM INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ -------------------------------------------------------------- ------------
<C> <C> <S> <C>
CORPORATE BONDS/ASSET-BACKED SECURITIES--CONTINUED
- ----------------------------------------------------------------------------------
FINANCE-RETAIL--CONTINUED
--------------------------------------------------------------
$ 2,500,000 Discover Credit Card Trust 1991-B, Class B, 8.85%, 7/15/1998 $ 2,562,150
--------------------------------------------------------------
5,000,000 Discover Credit Card Trust 1992-B, Class 1, 6.80%, 6/16/2000 5,092,650
--------------------------------------------------------------
2,218,826 (a) Encyclopedia Britannica Dom. Funding Corp., (Series 1994-1),
6.76%, 3/15/2002 2,237,198
--------------------------------------------------------------
4,000,000 Household Credit Card Trust 1991-1, Class B, 8.13%, 10/15/1997 4,087,200
--------------------------------------------------------------
6,000,000 Household Credit Card Trust 1992-1, Class B, 6.25%, 12/15/1997 5,992,740
--------------------------------------------------------------
2,000,000 Household Private Label Credit Card 1994-1, Class B, 7.55%,
6/20/2001 2,040,625
--------------------------------------------------------------
8,000,000 Sears Credit Account Trust 1991-D, 7.75%, 9/15/1998 8,187,920
-------------------------------------------------------------- ------------
Total 35,321,833
-------------------------------------------------------------- ------------
HOME EQUITY RECEIVABLES--11.3%
--------------------------------------------------------------
2,600,904 AFC Home Equity Loan Trust 1992-3, Class A, 7.05%, 8/15/2007 2,626,757
--------------------------------------------------------------
4,703,569 Advanta Home Equity Loan Trust 1992-1, Class A, 7.88%,
9/25/2008 4,816,408
--------------------------------------------------------------
2,000,000 (a) Conti Mortgage Home Equity Loan Trust 1994-1, Class A-3,
6.07%, 11/15/2013 1,930,800
--------------------------------------------------------------
3,812,582 (a) Conti Mortgage Home Equity Loan Trust 1994-1, Class A-5,
6.12%, 1/15/2024 3,678,685
--------------------------------------------------------------
1,265,355 GE Capital Home Equity Loan, 1991-1, Class A, 7.20%, 9/15/2011 1,267,494
--------------------------------------------------------------
4,000,000 GE Capital Home Equity Loan, 1991-1, Class B, 8.70%, 9/15/2011 4,121,000
--------------------------------------------------------------
2,261,418 HFC Home Equity Loan Trust 1992-2, Class A, 6.65%, 11/20/2012 2,245,316
--------------------------------------------------------------
4,086,714 + Merrill Lynch Home Equity Loan Trust 1993-1, Class B, 6.94%,
2/15/2003 4,118,427
-------------------------------------------------------------- ------------
Total 24,804,887
-------------------------------------------------------------- ------------
INSURANCE--1.8%
--------------------------------------------------------------
4,000,000 CNA Financial Corp., Note, 6.25%, 11/15/2003 3,857,960
-------------------------------------------------------------- ------------
LEASING--0.1%
--------------------------------------------------------------
317,540 (a) Concord Leasing Grantor Trust 1992-C, Class A-1, 5.31%,
1/20/1999 314,437
-------------------------------------------------------------- ------------
MANUFACTURED HOUSING RECEIVABLES--8.7%
--------------------------------------------------------------
1,488,850 Fleetwood Credit Corp. 1992-1, Class A, 7.10%, 2/15/2007 1,499,584
--------------------------------------------------------------
</TABLE>
FEDERATED SHORT-TERM INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ -------------------------------------------------------------- ------------
<C> <C> <S> <C>
CORPORATE BONDS/ASSET-BACKED SECURITIES--CONTINUED
- ----------------------------------------------------------------------------------
MANUFACTURED HOUSING RECEIVABLES--CONTINUED
--------------------------------------------------------------
$ 6,018,924 Greentree Manufactured Housing 1992-1, Class A-5, 6.50%,
10/15/2017 $ 5,838,597
--------------------------------------------------------------
6,563,004 (a) Merrill Lynch Mortgage Investments, Inc., 1991-A, Class B,
9.25%, 5/15/2011 6,778,352
--------------------------------------------------------------
4,317,339 Merrill Lynch Mortgage Investments, Inc., 1991-I, Class A,
7.65%, 1/15/2012 4,396,475
--------------------------------------------------------------
474,753 Merrill Lynch Mortgage Investments, Inc., 1992-B, Mfd. 8.50%,
4/15/2012 485,880
-------------------------------------------------------------- ------------
Total 18,998,888
-------------------------------------------------------------- ------------
TOTAL CORPORATE BONDS/ASSET-BACKED SECURITIES (IDENTIFIED COST
$143,050,515) 143,503,622
-------------------------------------------------------------- ------------
GOVERNMENT AGENCIES--3.4%
- ----------------------------------------------------------------------------------
2,500,000 Federal Farm Credit Bank, 6.96%, 6/6/2000 2,509,775
--------------------------------------------------------------
5,000,000 Federal Home Loan Mortgage Corp., Note, 7.84%, 4/26/2000 5,045,600
-------------------------------------------------------------- ------------
TOTAL GOVERNMENT AGENCIES (IDENTIFIED COST $7,542,970) 7,555,375
-------------------------------------------------------------- ------------
MORTGAGE-BACKED SECURITIES--25.2%
- ----------------------------------------------------------------------------------
NON-GOVERNMENT AGENCY-MORTGAGE-BACKED SECURITIES--25.2%
--------------------------------------------------------------
206,291 Citicorp Mortgage Securities, Inc., (Series 1992-5), Class
A-1, 8.00%, 9/25/2021 206,276
--------------------------------------------------------------
2,358,143 GCA 1993-AF1, Class B-1, 7.82%, 9/25/2023 2,282,989
--------------------------------------------------------------
5,824,397 GCA 1993-LB2, Class A-1, 7.92%, 8/25/2023 5,864,469
--------------------------------------------------------------
3,266,645 GCA 1993-LB3, Class A-1, 7.68%, 1/25/2024 3,289,119
--------------------------------------------------------------
2,400,061 (a) GCA REMIC PTC, 1991-4, Class B-1A, 8.53%, 7/1/2019 2,365,572
--------------------------------------------------------------
3,942,574 + GCA REMIC Trust V, Class B, 5.96%, 5/1/2020 3,659,221
--------------------------------------------------------------
7,932,082 (a)+ GCA Sub. Mortgage Securities Trust 1994-B, Class A, 7.72%,
1/25/2018 7,837,929
--------------------------------------------------------------
2,012,934 + Glendale Federal Bank 1988-1A, 7.35%, 11/25/2027 2,019,225
--------------------------------------------------------------
809,256 (a) Long Beach Bank Mortgage (Series 1992-3), Class A, 9.60%,
7/15/2022 822,916
--------------------------------------------------------------
6,000,000 Prudential Home Mortgage 1992-5, Class A-6, 7.50%, 4/25/2007 6,070,680
--------------------------------------------------------------
</TABLE>
FEDERATED SHORT-TERM INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ -------------------------------------------------------------- ------------
<C> <C> <S> <C>
MORTGAGE-BACKED SECURITIES--CONTINUED
- ----------------------------------------------------------------------------------
NON-GOVERNMENT AGENCY-MORTGAGE-BACKED SECURITIES--CONTINUED
--------------------------------------------------------------
$ 4,000,000 Residential Accredit Insurance, Inc., Mortgage Certificate
(Series 1995-QS1), Class A-2, 6.90%, 1/25/2020 $ 4,006,250
--------------------------------------------------------------
522,714 Residential Funding Mortgage Securities, Inc., 1993-S18, Class
A-2, 7.50%, 5/25/2023 526,504
--------------------------------------------------------------
894,696 Residential Funding Mortgage Security 1992-S43, Class A-4,
8.00%, 12/25/2022 901,326
--------------------------------------------------------------
2,000,018 Resolution Trust Corp. 1992-12, Class B-3, 7.81%, 12/25/2025 1,983,768
--------------------------------------------------------------
1,512,406 Resolution Trust Corp. 1992-7, Class B-2B, 8.35%, 6/29/2029 1,511,461
--------------------------------------------------------------
12,000,000 Salomon Brothers Mortgage Securities VII, Inc., 1993-5, Class
A-3C, 7.44%, 10/25/2023 12,030,000
-------------------------------------------------------------- ------------
TOTAL MORTGAGE-BACKED SECURITIES (IDENTIFIED COST $56,357,654) 55,377,705
-------------------------------------------------------------- ------------
(B) REPURCHASE AGREEMENT--5.8%
- ----------------------------------------------------------------------------------
12,680,000 J.P. Morgan Securities, Inc., 5.90%, dated 10/31/1995, due
11/1/1995 (AT AMORTIZED COST) 12,680,000
-------------------------------------------------------------- ------------
TOTAL INVESTMENTS (IDENTIFIED COST $219,631,139)(C) $219,116,702
-------------------------------------------------------------- ------------
</TABLE>
(a) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. These securities have been determined to be
liquid under criteria established by the Board of Trustees. At the end of
the period, these Securities amounted to $25,965,889 which represents 11.8%
of net assets.
(b) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
(c) The cost of investments for federal tax purposes amounts to $219,631,139.
The net unrealized depreciation on a federal tax cost basis amounts to
$514,437 and is comprised of $2,421,563 appreciation and $2,936,000
depreciation at October 31, 1995.
+ Denotes variable rate and floating rate obligations for which the current
yield is shown.
Note: The categories of investments are shown as a percentage of net assets
($219,467,038) at October 31, 1995.
FEDERATED SHORT-TERM INCOME FUND
- --------------------------------------------------------------------------------
The following acronyms are used throughout this portfolio:
<TABLE>
<S> <C>
FRN -- Floating Rate Note
MTN -- Medium Term Note
PTC -- Put - Conditional
REMIC -- Real Estate Mortgage Investment Conduit
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED SHORT-TERM INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Total investments in securities, at value (identified and tax cost $219,631,139) $219,116,702
- --------------------------------------------------------------------------------
Income receivable 1,593,664
- --------------------------------------------------------------------------------
Receivable for shares sold 112,692
- -------------------------------------------------------------------------------- ------------
Total assets 220,823,058
- --------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------
Income distribution payable $1,154,839
- -------------------------------------------------------------------
Payable to Bank 135,173
- -------------------------------------------------------------------
Accrued expenses 66,008
- ------------------------------------------------------------------- ----------
Total liabilities 1,356,020
- -------------------------------------------------------------------------------- ------------
Net Assets for 24,942,299 shares outstanding $219,467,038
- -------------------------------------------------------------------------------- ------------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Paid in capital $246,432,351
- --------------------------------------------------------------------------------
Net unrealized depreciation of investments (514,437)
- --------------------------------------------------------------------------------
Accumulated net realized loss on investments (26,450,876)
- -------------------------------------------------------------------------------- ------------
Total Net Assets $219,467,038
- -------------------------------------------------------------------------------- ------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- --------------------------------------------------------------------------------
INSTITUTIONAL SHARES:
- --------------------------------------------------------------------------------
$196,727,598 / 22,357,870 shares outstanding $8.80
- -------------------------------------------------------------------------------- ------------
INSTITUTIONAL SERVICE SHARES:
- --------------------------------------------------------------------------------
$22,739,440 / 2,584,429 shares outstanding $8.80
- -------------------------------------------------------------------------------- ------------
</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, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------------
Interest $ 8,055,429
- ----------------------------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------------------------------
Investment advisory fee $ 466,978
- --------------------------------------------------------------------------
Administrative personnel and services fee 88,376
- --------------------------------------------------------------------------
Custodian fees 23,526
- --------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 37,865
- --------------------------------------------------------------------------
Directors'/Trustees' fees 3,496
- --------------------------------------------------------------------------
Auditing fees 10,120
- --------------------------------------------------------------------------
Legal fees 5,152
- --------------------------------------------------------------------------
Portfolio accounting fees 43,196
- --------------------------------------------------------------------------
Distribution services fee--Institutional Service Shares 27,129
- --------------------------------------------------------------------------
Shareholder services fee--Institutional Shares 264,732
- --------------------------------------------------------------------------
Shareholder services fee--Institutional Service Shares 27,129
- --------------------------------------------------------------------------
Share registration costs 11,960
- --------------------------------------------------------------------------
Printing and postage 16,560
- --------------------------------------------------------------------------
Insurance premiums 5,152
- --------------------------------------------------------------------------
Taxes 2,208
- --------------------------------------------------------------------------
Miscellaneous 3,680
- -------------------------------------------------------------------------- ----------
Total expenses 1,037,259
- --------------------------------------------------------------------------
Waivers--
- --------------------------------------------------------------------------
Waiver of investment advisory fee $ (60,237)
- --------------------------------------------------------------
Waiver of distribution services fee--Institutional Service
Shares (26,044)
- --------------------------------------------------------------
Waiver of shareholder services fee--Institutional Shares (264,732)
- --------------------------------------------------------------
Waiver of shareholder services fee--Institutional Service
Shares (1,085)
- -------------------------------------------------------------- ---------
Total waivers (352,098)
- -------------------------------------------------------------------------- ----------
Net expenses 685,161
- ---------------------------------------------------------------------------------------- -----------
Net investment income 7,370,268
- ---------------------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ----------------------------------------------------------------------------------------
Net realized loss on investments (666,885)
- ----------------------------------------------------------------------------------------
Net change in unrealized depreciation of investments 5,641,953
- ---------------------------------------------------------------------------------------- -----------
Net realized and unrealized gain on investments 4,975,068
- ---------------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $12,345,336
- ---------------------------------------------------------------------------------------- -----------
</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>
SIX MONTHS ENDED
(UNAUDITED) YEAR ENDED
OCTOBER 31, 1995 APRIL 30, 1995
------------------ ---------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- --------------------------------------------------------
OPERATIONS--
- --------------------------------------------------------
Net investment income $ 7,370,268 $ 18,781,177
- --------------------------------------------------------
Net realized gain (loss) on investments ($666,885 and
$5,572,713 net losses, respectively, as computed for
federal tax purposes) (666,885) (13,861,223)
- --------------------------------------------------------
Net change in unrealized appreciation (depreciation) of
investments 5,641,953 4,124,069
- -------------------------------------------------------- ---------------- --------------
Change in net assets resulting from operations 12,345,336 9,044,023
- -------------------------------------------------------- ---------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS--
- --------------------------------------------------------
Distributions from net investment income
- --------------------------------------------------------
Institutional Shares (6,706,335) (17,312,790)
- --------------------------------------------------------
Institutional Service Shares (663,933) (1,468,387)
- -------------------------------------------------------- ---------------- --------------
Change in net assets resulting from distributions
to shareholders (7,370,268) (18,781,177)
- -------------------------------------------------------- ---------------- --------------
SHARE TRANSACTIONS--
- --------------------------------------------------------
Proceeds from sale of shares 40,237,097 62,830,948
- --------------------------------------------------------
Net asset value of shares issued to shareholders in
payment of distributions declared 1,048,023 3,515,879
- --------------------------------------------------------
Cost of shares redeemed (63,532,936) (212,625,473)
- -------------------------------------------------------- ---------------- --------------
Change in net assets resulting from share
transactions (22,247,816) (146,278,646)
- -------------------------------------------------------- ---------------- --------------
Change in net assets (17,272,748) (156,015,800)
- --------------------------------------------------------
NET ASSETS:
- --------------------------------------------------------
Beginning of period 236,739,786 392,755,586
- -------------------------------------------------------- ---------------- --------------
End of period $219,467,038 $ 236,739,786
- -------------------------------------------------------- ---------------- --------------
</TABLE>
(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>
SIX MONTHS
ENDED
(UNAUDITED)
OCTOBER YEAR ENDED APRIL 30,
31, ---------------------------------------------------------------------------------------------------
1995 1995 1994 1993 1992(A) 1991 1990 1989 1988 1987(B)
---- ---- ---- ---- ------- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET
VALUE,
BEGINNING OF
PERIOD $8.61 $8.85 $9.17 $8.98 $9.07 $9.16 $9.41 $9.56 $9.98 $10.00
- ---------------
INCOME FROM
INVESTMENT
OPERATIONS
- ---------------
Net investment
income 0.29 0.54 0.51 0.58 0.60 0.83 0.93 0.94 0.94 0.74
- ---------------
Net realized
and unrealized
gain (loss) on
investments 0.19 (0.24) (0.32) 0.16 (0.07) (0.08) (0.25) (0.15) (0.42) (0.02)
- ---------------
Total from
investment
operations 0.48 0.30 0.19 0.74 0.53 0.75 0.68 0.79 0.52 0.72
- ---------------
LESS
DISTRIBUTIONS
- ---------------
Distributions
from net
investment
income (0.29) (0.54) (0.51) (0.55) (0.60) (0.83) (0.93) (0.94) (0.94) (0.74)
- ---------------
Distributions
in excess of
net investment
income -- -- -- -- (0.02) (0.01) -- -- -- --
- --------------- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total
distributions (0.29) (0.54) (0.51) (0.55) (0.62) (0.84) (0.93) (0.94) (0.94) (0.74)
- --------------- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
NET ASSET
VALUE, END OF
PERIOD $8.80 $8.61 $8.85 $9.17 $8.98 $9.07 $9.16 $9.41 $9.56 $9.98
- --------------- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
TOTAL RETURN(D) 5.59% 3.55% 2.04% 8.39% 5.94% 8.80% 7.52% 8.69% 5.43% 7.40%
- ---------------
RATIOS TO
AVERAGE NET
ASSETS
- ---------------
Expenses 0.56* 0.56% 0.56% 0.51% 0.53% 0.52% 0.52% 0.51% 0.50% 0.50%*
- ---------------
Net investment
income 6.32* 6.22% 5.55% 6.07% 6.71% 9.33% 9.95% 9.90% 9.59% 9.58%*
- ---------------
Expense
waiver/
reimbursement(e) 0.30* 0.03% 0.08% 0.45% 0.98% 0.92% 0.75% 0.76% 0.59% 0.60%*
- ---------------
SUPPLEMENTAL
DATA
- ---------------
Net assets,
end of period
(000 omitted) $196,728 $219,649 $353,106 $144,129 $36,047 $47,223 $65,429 $69,904 $90,581 $80,073
- ---------------
Portfolio
turnover 17% 38% 44% 62% 114 % 23% 34% 38% 77%
82 %
- ---------------
</TABLE>
* Computed on an annualized basis.
(a) 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.
(b) Reflects operations for the period from July 1, 1986 (date of initial public
investment) to April 30, 1987.
(c) Distributions in excess of net investment income for the years ended April
30, 1992 and 1991, were a result of certain book and tax timing differences.
These distributions did not represent a return of capital for federal income
tax purposes for the year ended April 30, 1992 and 1991.
(d) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(e) 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
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED APRIL 30,
OCTOBER 31, ----------------------------------------------
1995 1995 1994 1993 1992(A)
------------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.61 $ 8.85 $ 9.17 $ 8.98 $ 9.08
- --------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------
Net investment income 0.28 0.52 0.48 0.52 0.15
- --------------------------------------
Net realized and unrealized gain
(loss) on investments 0.19 (0.24) (0.32) 0.19 (0.10)
- -------------------------------------- ------ ------ ------ ------ ------
Total from investment operations 0.47 0.28 0.16 0.71 0.05
- --------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------
Distributions from net investment
income (0.28) (0.52) (0.48) (0.52) (0.15)
- -------------------------------------- ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 8.80 $ 8.61 $ 8.85 $ 9.17 $ 8.98
- -------------------------------------- ------ ------ ------ ------ ------
TOTAL RETURN(B) 5.46% 3.29% 1.78% 8.12% 0.69%
- --------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------
Expenses 0.81%* 0.81% 0.81% 0.76% 0.78%*
- --------------------------------------
Net investment income 6.10%* 5.90% 5.30% 5.82% 6.37%*
- --------------------------------------
Expense waiver/reimbursement (c) 0.30%* 0.27% 0.13% 0.45% 0.98%*
- --------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------
Net assets, end of period
(000 omitted) $22,739 $17,091 $39,649 $15,673 $778
- --------------------------------------
Portfolio turnover 17% 38% 44% 62% 114%
- --------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from January 21, 1992, (date of initial
public investment) to April 30, 1992.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) 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, 1995 (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 are only those of Federated
Short-Term Income Fund (the "Fund"). The financial statements of the other
portfolios are presented separately. The assets of each portfolio are segregated
and a shareholder's interest is limited to the portfolio in which shares are
held. The Fund offers two classes of shares: 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.
INVESTMENT VALUATIONS--Short-term securities with remaining maturities of
sixty days or less at the time of purchase may be valued at amortized cost,
which approximates fair market value. All other securities are valued at
the prices provided by an independent pricing service.
REPURCHASE AGREEMENTS--It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral under repurchase
agreement transactions. Additionally, procedures have been established by
the Fund to monitor, on a daily basis, the market value of each repurchase
agreement's collateral to ensure that the value of collateral at least
equals the repurchase price to be paid under the repurchase agreement
transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the 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.
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.
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 income. Accordingly, no
provisions for federal tax are necessary.
FEDERATED SHORT-TERM INCOME FUND
- --------------------------------------------------------------------------------
At April 30, 1995, the Fund, for federal tax purposes, had a capital loss
carryforward of $15,666,103, which will reduce the Fund's taxable income
arising from future net realized gain on investments, if any, to the extent
permitted by the Code, and thus will reduce the amount of the distributions
to shareholders which would otherwise be necessary to relieve the Fund of
any liability for federal tax. Pursuant to the Code, such capital loss
carryforward will expire as follows:
<TABLE>
<CAPTION>
EXPIRATION YEAR EXPIRATION AMOUNT
----------------- ------------------
<S> <C>
1996 $ 791,359
1997 3,077,752
1998 316,627
1999 1,132,354
2000 4,105,766
2002 669,532
2003 5,572,713
</TABLE>
Additionally, net capital losses of $10,117,888 attributable to security
transactions incurred after October 31, 1994 are treated as arising on the
first day of the Fund's next taxable year.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
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, 1995 is as follows:
FEDERATED SHORT-TERM INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FUND
SECURITY ACQUISITION DATE ACQUISITION COST
-------------------------------------------------- ----------------- -----------------
<S> <C> <C>
Encyclopedia Britannica Dom. Funding Corp.
Series 1994-1 3/21/94 $2,218,826
Conti Mortgage Home Equity Loan Trust 1994-1,
Class A-3 2/18/94 1,999,719
Conti Mortgage Home Equity Loan Trust 1994-1,
Class A-5 2/18/94 4,244,717
Concord Leasing Grantor Trust 1992-C, Class A-1 8/14/92 481,696
Merrill Lynch Mortgage Investments, Inc., 1991-A,
Class B 11/23/94 6,983,920
GCA 1994-B, Class A 12/13/94 7,887,678
GCA REMIC PTC, 1991-4, Class B-1A 1/7/93 2,457,343
Long Beach Bank Mortgage Series 1992-3, Class A 6/29/92 1,033,066
</TABLE>
RECLASSIFICATION--During the year ended April 30, 1995, the Fund adopted
Statement of Position 93-2 Determination, Disclosure, and Financial
Statement Presentation of Income, Capital Gain, and Return of Capital, by
Investment Companies ("SOP 93-2"). Accordingly, permanent book tax
differences have been reclassified to paid-in capital. These differences
are primarily due to differing treatments for expiring capital loss
carryforwards. Amounts as of April 30, 1995, have been reclassified to
reflect a decrease in accumulated net realized loss of $156,518. Net
investment income, net realized gains, and net assets were not affected by
this change.
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.
FEDERATED SHORT-TERM INCOME FUND
- --------------------------------------------------------------------------------
Transactions in shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
OCTOBER 31, 1995 YEAR ENDED APRIL 30, 1994
--------------------------- -----------------------------
INSTITUTIONAL SHARES SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Shares sold 3,247,951 $ 28,406,291 6,446,211 $ 55,884,659
- ----------------------------------------
Shares issued to shareholders in payment
of distributions declared 86,820 759,324 317,004 2,739,906
- ----------------------------------------
Shares redeemed (6,481,534) (56,668,469) (21,161,903) (183,228,360)
- ---------------------------------------- ---------- ------------ ----------- -------------
Net change resulting from
Institutional share transactions (3,146,763) $(27,502,854) (14,398,688) $(124,603,795)
- ---------------------------------------- ---------- ------------ ----------- -------------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
OCTOBER 31, 1995 YEAR ENDED APRIL 30, 1994
--------------------------- -----------------------------
INSTITUTIONAL SERVICE SHARES SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Shares sold 1,351,222 $ 11,830,806 801,654 $ 6,946,289
- ----------------------------------------
Shares issued to shareholders in payment
of distributions declared 33,013 288,699 89,844 775,973
- ----------------------------------------
Shares redeemed (784,310) (6,864,467) (3,388,048) (29,397,113)
- ---------------------------------------- ---------- ------------ ----------- -------------
Net change resulting from
Institutional Service share
transactions 599,925 $ 5,255,038 (2,496,550) $ (21,674,851)
- ---------------------------------------- ---------- ------------ ----------- -------------
Net change resulting from share
transactions (2,546,838) $(22,247,816) (16,895,238) $(146,278,646)
- ---------------------------------------- ---------- ------------ ----------- -------------
</TABLE>
(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 any portion of its fee and/or reimburse certain
operating expenses of the Fund. The Adviser can modify or terminate this
voluntary waiver and/or reimbursement at any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Service, under the Administrative
Services Agreement, provides the Fund with administrative personnel and
services. This 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.
DISTRIBUTIONS 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 principle
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 average daily
net assets of the Institutional Service Shares,
FEDERATED SHORT-TERM INCOME FUND
- --------------------------------------------------------------------------------
annually, to compensate FSC. The distributor may voluntarily choose to waive a
portion of its fee. The distributor can modify or terminate this voluntary
waiver at any time at its sole discretion.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to .25 of
1% of average daily net assets of the Fund's Institutional and Institutional
Service Shares for the period. This fee is to obtain certain services for
shareholders and to maintain shareholder accounts. FSS may voluntarily choose to
waive a portion of its fee. FSS can modify or terminate this voluntary waiver at
any time at its sole discretion. For the six months ended October 31, 1995,
Institutional Shares waived its shareholder service fee.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated Services
Company ("FServ") serves as transfer and dividend disbursing agent for the Fund.
This fee is based on the size, type, and number of accounts and transactions
made by shareholders.
PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended October 31, 1995, were as follows:
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------
PURCHASES $38,766,814
- ------------------------------------------------------------------------------- -----------
SALES $51,125,347
- ------------------------------------------------------------------------------- -----------
</TABLE>
<TABLE>
<S> <C>
TRUSTEES OFFICERS
- -------------------------------------------------------------------------------
John F. Donahue John F. Donahue
Thomas G. Bigley Chairman
John T. Conroy, Jr. Glen R. Johnson
William J. Copeland President
James E. Dowd J. Christopher Donahue
Lawrence D. Ellis, M.D. Executive Vice President
Edward L. Flaherty, Jr. Edward C. Gonzales
Peter E. Madden Executive Vice President
Gregor F. Meyer John W. McGonigle
Wesley W. Posvar Executive Vice President and Secretary
John E. Murray, Jr. Richard B. Fisher
Marjorie P. Smuts Vice President
David M. Taylor
Treasurer
Charles H. Field
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 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.
- --------------------------------------------------------------------------------
FEDERATED
- --------------------------------------------------------------------------------
SHORT-TERM
- --------------------------------------------------------------------------------
INCOME
- --------------------------------------------------------------------------------
FUND
- --------------------------------------------------------------------------------
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
OCTOBER 31, 1995
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
31420C209
31220C308
8112901 (12/95)
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Investor:
I am pleased to present the Semi-Annual Report to Shareholders for Intermediate
Income Fund, a portfolio of Federated Income Securities Trust. The Report covers
the six-month period ended October 31, 1995. It begins with a review of the bond
market by the fund's portfolio manager, which is followed by a complete list of
fund holdings and its financial statements.
On behalf of investors, the fund pursues income through a diversified portfolio
consisting primarily of intermediate-term, high-quality debt securities. At the
end of the reporting period, the fund's assets were invested as follows: 66.1%
in corporate bonds, 10.8% in a repurchase agreement, 10.2% in mortgage-backed
securities, 6.4% in U.S. Treasury securities, 4.6% in asset-backed securities,
and 3.0% in government agency securities.
During the six-month reporting period, Institutional Shares paid dividends
totaling $0.33 per share, and achieved a total return of 8.87%.* Institutional
Service Shares paid dividends of $0.32 per share, and delivered a total return
of 8.74%.* At the end of the period, total net assets in the fund stood at $58.8
million.
Thank you for selecting Intermediate Income Fund as a high-quality income
investment. As always, we welcome your questions, comments, or suggestions.
Sincerely,
LOGO
Glen R. Johnson
President
December 15, 1995
* 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.
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 duration
is managed within a range of three to seven years.
The six month period ended October 31, 1995, was very positive for high quality
fixed income securities. The majority of economic releases seemed to point
toward a slowing of growth activity; as a result, yield levels decreased
significantly across the entire maturity spectrum. At the short end of the
curve, the 2-year Treasury declined by 98 basis points while, at the long end,
the 30-year Treasury declined by 101 basis points in yield.
Relative to sector allocations, high quality corporate securities outperformed
comparable maturity government securities. While the yield spread advantage of
corporates over Treasuries was volatile during the past six-month period, the
general trend was for a narrower spread advantage, which equated to corporates
outperforming Treasuries.
The fund was in a position to benefit from both the falling interest rate
environment and the strong relative performance in the corporate sector. Fund
duration was maintained neutral to the Lehman Brothers Government/Corporate
Index* at just over five years. In addition, the majority of assets were
positioned in corporate bonds, relative to Treasuries and mortgage securities.
For the six months ended October 31, 1995, Institutional Shares provided an
8.87% total return compared to 8.61% for the Lehman Brothers
Government/Corporate Index, while Institutional Service Shares provided an 8.74%
total return for the same period.**
In recognition of the fact that the economic recovery is now over 4 1/2 years in
length with increasing signs of slower growth, the fund has and will continue
moving toward an overall higher average quality. With this goal, the fund is
adding to its government securities allocation as well as upgrading the average
quality in its majority corporate bond position.
* This index is comprised of approximately 5,000 issues which include
non-convertible bonds publicly issued by the U.S. government or its agencies;
corporate bonds guaranteed by the U.S. government and quasi-federal
corporations; and publicly issued, fixed rate, non-convertible domestic bonds
of companies in industry, public utilities, and finance. This index is
unmanaged, and investments cannot be made in an index.
** 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.
INTERMEDIATE INCOME FUND
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1995 (UNAUDITED)
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- ----------------------------------------------------------------- -----------
<C> <C> <S> <C>
ASSET BACKED SECURITIES--4.6%
- -----------------------------------------------------------------------------------
AUTO LOAN RECEIVABLES--0.6%
-----------------------------------------------------------------
$ 128,407 Midlantic Auto Grantor Trust 1992-1, Class B, 5.15%, 9/15/1997 $ 127,900
-----------------------------------------------------------------
214,559 Premier Auto Trust 1992-3, Class B, 6.25%, 11/15/1997 214,827
----------------------------------------------------------------- -----------
Total 342,727
----------------------------------------------------------------- -----------
HOME EQUITY RECEIVABLES--0.3%
-----------------------------------------------------------------
186,407 TMS Home Equity Loan Trust 1992-B, Class A, 6.90%, 7/15/2007 186,331
----------------------------------------------------------------- -----------
NON-GOVERNMENT AGENCY-MORTGAGE-BACKED SECURITIES--3.7%
-----------------------------------------------------------------
400,000 Prudential Bache, Series 8, Class F, 7.965%, 3/1/2019 422,084
-----------------------------------------------------------------
1,000,000 Prudential Home Mortgage Security 1993-32, Series 199232, Class
A-6, 7.50%, 10/25/2022 996,950
-----------------------------------------------------------------
500,000 Residential Funding Corp. 1993-S26, Class A10, 7.50%, 7/25/2023 498,070
-----------------------------------------------------------------
300,000 Residential Funding Corp. 1993-S31, Class A7, 7.00%, 9/25/2023 276,576
----------------------------------------------------------------- -----------
Total 2,193,680
----------------------------------------------------------------- -----------
TOTAL ASSET-BACKED SECURITIES (IDENTIFIED COST $2,712,022) 2,722,738
----------------------------------------------------------------- -----------
CORPORATE BONDS--66.1%
- -----------------------------------------------------------------------------------
AUTOMOTIVE--1.8%
-----------------------------------------------------------------
700,000 Chrysler Corp., Deb., 12.00%, 5/1/2020 1,053,339
----------------------------------------------------------------- -----------
BANKING--7.1%
-----------------------------------------------------------------
1,000,000 Banco Santander, Bank Guarantee, 7.875%, 4/15/2005 1,070,110
-----------------------------------------------------------------
1,000,000 Bank of Montreal, Sub. Note, 7.80%, 4/1/2007 1,073,500
-----------------------------------------------------------------
920,000 Chase Manhattan Corp., Sub. Note, 8.00%, 5/1/2005 939,440
-----------------------------------------------------------------
1,000,000 National Bank of Canada, Montreal, Sub. Note, 8.125%, 8/15/2004 1,080,310
----------------------------------------------------------------- -----------
Total 4,163,360
----------------------------------------------------------------- -----------
CONGLOMERATES--1.7%
-----------------------------------------------------------------
1,000,000 Bayer Corp, Deb., 7.125%, 10/1/2015 1,018,600
----------------------------------------------------------------- -----------
ECOLOGICAL SERVICES & EQUIPMENT--2.9%
-----------------------------------------------------------------
1,500,000 Waste Management, Inc., Deb., 8.75%, 5/1/2018 1,714,800
----------------------------------------------------------------- -----------
</TABLE>
INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- ----------------------------------------------------------------- -----------
<C> <C> <S> <C>
CORPORATE BONDS--CONTINUED
- -----------------------------------------------------------------------------------
EDUCATION--3.6%
-----------------------------------------------------------------
$1,000,000 Columbia University, Medium Term Note, 8.62%, 2/21/2001 $ 1,104,800
-----------------------------------------------------------------
890,000 Harvard University, Deb., 8.125%, 4/15/2007 1,002,745
----------------------------------------------------------------- -----------
Total 2,107,545
----------------------------------------------------------------- -----------
FINANCE--AUTOMOTIVE--1.7%
-----------------------------------------------------------------
1,000,000 Ford Motor Credit Co., Note, 6.85%, 8/15/2000 1,021,140
----------------------------------------------------------------- -----------
FINANCE--RETAIL--2.0%
-----------------------------------------------------------------
140,000 Household Finance Corp., Deb., 8.95%, 9/15/1999 152,852
-----------------------------------------------------------------
1,000,000 Norwest Financial, Inc., Note, 6.23%, 9/1/1998 1,006,490
----------------------------------------------------------------- -----------
Total 1,159,342
----------------------------------------------------------------- -----------
FINANCIAL INTERMEDIARIES--8.1%
-----------------------------------------------------------------
1,000,000 African Development Bank, Note, 6.875%, 10/15/2015 986,320
-----------------------------------------------------------------
1,000,000 American General Corp., S.F. Deb., 9.625%, 2/1/2018 1,099,910
-----------------------------------------------------------------
500,000 Donaldson, Lufkin and Jenrette Securities Corp., Note, 6.875%,
11/1/2005 497,195
-----------------------------------------------------------------
1,000,000 Equitable Cos., Inc., Sr. Note, 9.00%, 12/15/2004 1,145,020
-----------------------------------------------------------------
1,000,000 Merrill Lynch & Co., Inc., Medium Term Note, 7.25%, 6/14/2004 1,014,930
----------------------------------------------------------------- -----------
Total 4,743,375
----------------------------------------------------------------- -----------
FOOD PRODUCTS--3.5%
-----------------------------------------------------------------
1,100,000 Dr. Pepper/Seven-Up Cos., Inc., Sr. Sub. Disc. Note, 0/11.50%,
11/1/2002 1,012,935
-----------------------------------------------------------------
1,000,000 Grand Metropolitan Investment Corp., Company Guarantee, 7.00%,
6/15/1999 1,024,840
----------------------------------------------------------------- -----------
Total 2,037,775
----------------------------------------------------------------- -----------
GOVERNMENT AGENCY--3.0%
-----------------------------------------------------------------
1,000,000 Federal Home Loan Mortgage Corp., Note, 7.61%, 9/1/2004 1,014,500
-----------------------------------------------------------------
750,000 Federal National Mortgage Association, Note, 7.43%, 8/4/2005 762,750
----------------------------------------------------------------- -----------
Total 1,777,250
----------------------------------------------------------------- -----------
HEALTH SERVICES--2.0%
-----------------------------------------------------------------
1,000,000 Columbia/HCA Healthcare Corp., Note, 9.00%, 12/15/2014 1,193,430
----------------------------------------------------------------- -----------
</TABLE>
INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- ----------------------------------------------------------------- -----------
<C> <C> <S> <C>
CORPORATE BONDS--CONTINUED
- -----------------------------------------------------------------------------------
INSURANCE--6.8%
-----------------------------------------------------------------
$1,500,000 Allmerica Financial Corp., Sr. Note, 7.625%, 10/15/2025 $ 1,522,140
-----------------------------------------------------------------
1,000,000 CNA Financial Corp., Deb., 7.25%, 11/15/2023 949,840
-----------------------------------------------------------------
1,500,000 Sunamerica, Inc., Medium Term Note, 7.34%, 8/30/2005 1,546,400
----------------------------------------------------------------- -----------
Total 4,018,380
----------------------------------------------------------------- -----------
METALS & MINING--1.8%
-----------------------------------------------------------------
1,000,000 Alcan Aluminum Ltd., Deb., 9.20%, 3/15/2001 1,061,260
----------------------------------------------------------------- -----------
MUNICIPAL SERVICES--2.0%
-----------------------------------------------------------------
1,000,000 Pittsburgh, PA Urban Redevelopment Authority, 9.07% Bonds (CGIC
GTD), 9/1/2014 1,151,500
----------------------------------------------------------------- -----------
RAIL INDUSTRY--0.4%
-----------------------------------------------------------------
250,000 CSX Corp., Deb., 9.50%, 11/15/1995 250,428
----------------------------------------------------------------- -----------
RETAILERS--3.9%
-----------------------------------------------------------------
1,000,000 May Department Stores Co., Deb., 8.125%, 8/15/2035 1,087,850
-----------------------------------------------------------------
1,070,000 Penney (J.C.) Co., Inc., Deb., 9.45%, 7/15/2002 1,204,595
----------------------------------------------------------------- -----------
Total 2,292,445
----------------------------------------------------------------- -----------
SOVEREIGN GOVERNMENT--7.6%
-----------------------------------------------------------------
1,000,000 Freeport Terminal (Malta) Ltd., Gtd. Global Note, 7.50%,
3/29/2004 1,048,940
-----------------------------------------------------------------
1,000,000 Kingdom of Sweden, Deb., 10.25%, 11/1/2015 1,304,421
-----------------------------------------------------------------
1,000,000 Province of Quebec, Deb., 7.50%, 7/15/2023 1,006,880
-----------------------------------------------------------------
1,000,000 Victoria Public Authority, Local Gov't. Guarantee, 8.25%,
1/15/2002 1,089,375
----------------------------------------------------------------- -----------
Total 4,449,616
----------------------------------------------------------------- -----------
TELECOMMUNICATIONS & CELLULAR--3.6%
-----------------------------------------------------------------
1,200,000 Cox Communications, Inc., Note, 6.375%, 6/15/2000 1,200,096
-----------------------------------------------------------------
800,000 New England Telephone & Telegraph, Deb., 8.625%, 8/1/2001 891,024
----------------------------------------------------------------- -----------
Total 2,091,120
----------------------------------------------------------------- -----------
</TABLE>
INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- ----------------------------------------------------------------- -----------
<C> <C> <S> <C>
CORPORATE BONDS--CONTINUED
- -----------------------------------------------------------------------------------
UTILITIES--2.6%
-----------------------------------------------------------------
$ 180,000 Minnesota Power And Light Co., 1st Mtg. Bond, 7.75%, 6/1/2007 $ 193,837
-----------------------------------------------------------------
750,000 Pedernales Electric Coop, 10.875% Bonds (MBIA Insurance
Corporation INS), 9/1/2017 843,473
-----------------------------------------------------------------
500,000 Wisconsin Tel Co., Deb., 6.25%, 8/1/2004 489,680
----------------------------------------------------------------- -----------
Total 1,526,990
----------------------------------------------------------------- -----------
TOTAL CORPORATE BONDS (IDENTIFIED COST $37,251,511) 38,831,695
----------------------------------------------------------------- -----------
MORTGAGE-BACKED SECURITIES--10.2%
- -----------------------------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORP.--4.9%
-----------------------------------------------------------------
904,840 8.50%, 6/1/1996-6/1/1997 911,896
-----------------------------------------------------------------
2,000,000 Pool C00426, 7.00%, 10/1/2025 1,985,600
----------------------------------------------------------------- -----------
Total 2,897,496
----------------------------------------------------------------- -----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION--1.7%
-----------------------------------------------------------------
1,014,326 Pool 317255, 7.00%, 7/1/2025 1,006,070
----------------------------------------------------------------- -----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--3.6%
-----------------------------------------------------------------
1,138,887 Pool 379983, 7.50%, 2/15/2024 1,154,535
-----------------------------------------------------------------
969,699 Pool 780204, 7.00%, 7/15/2025 964,540
----------------------------------------------------------------- -----------
Total 2,119,075
----------------------------------------------------------------- -----------
TOTAL MORTGAGE-BACKED SECURITIES (IDENTIFIED COST $5,877,979) 6,022,641
----------------------------------------------------------------- -----------
TREASURY SECURITIES--6.4%
- -----------------------------------------------------------------------------------
U.S. TREASURY BOND--2.0%
-----------------------------------------------------------------
1,000,000 7.625%, 2/15/2025 1,161,180
----------------------------------------------------------------- -----------
U.S. TREASURY NOTE--4.4%
-----------------------------------------------------------------
2,500,000 6.875%, 3/31/2000 2,604,075
----------------------------------------------------------------- -----------
TOTAL TREASURY SECURITIES (IDENTIFIED COST $3,682,741) 3,765,255
----------------------------------------------------------------- -----------
</TABLE>
INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- ----------------------------------------------------------------- -----------
<C> <C> <S> <C>
(A) REPURCHASE AGREEMENT--10.8%
- -----------------------------------------------------------------------------------
$6,360,000 J.P. Morgan & Co., Inc., 5.90%, dated 10/31/1995, due 11/1/1995
(AT AMORTIZED COST) $ 6,360,000
----------------------------------------------------------------- -----------
TOTAL INVESTMENTS (IDENTIFIED COST $55,884,253)(B) $57,702,329
----------------------------------------------------------------- -----------
</TABLE>
(a) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
accounts with other Federated funds.
(b) The cost of investments for federal tax purposes amounts to $55,884,253. The
net unrealized appreciation of investments on a federal tax basis amounts to
$1,818,076 which is comprised of $1,892,632 appreciation and $74,556
depreciation at October 31, 1995.
Note: The categories of investments are shown as a percentage of net assets
($58,758,295) at October 31, 1995.
The following acronyms are used throughout this portfolio:
<TABLE>
<S> <C>
CGIC -- Capital Guaranty Insurance Corporation
GTD -- Guaranty
INS -- Insured
MBIA -- Municipal Bond Investors Assurance
</TABLE>
(See Notes which are an integral part of the Financial Statements)
INTERMEDIATE INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ---------------------------------------------------------------------------------
Investments in repurchase agreements $ 6,360,000
- -------------------------------------------------------------------
Investments in securities 51,342,329
- ------------------------------------------------------------------- -----------
Total investments in securities, at amortized cost and value
(identified and tax cost $55,884,253) $57,702,329
- ---------------------------------------------------------------------------------
Cash 2,101,400
- ---------------------------------------------------------------------------------
Income receivable 967,285
- ---------------------------------------------------------------------------------
Receivable for shares sold 296,424
- ---------------------------------------------------------------------------------
Deferred expenses 23,185
- --------------------------------------------------------------------------------- -----------
Total assets 61,090,623
- ---------------------------------------------------------------------------------
LIABILITIES:
- ---------------------------------------------------------------------------------
Payable for investments purchased 1,988,646
- -------------------------------------------------------------------
Income distribution payable 324,895
- -------------------------------------------------------------------
Accrued expenses 18,787
- ------------------------------------------------------------------- -----------
Total liabilities 2,332,328
- --------------------------------------------------------------------------------- -----------
Net Assets for 5,841,699 shares outstanding $58,758,295
- --------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- ---------------------------------------------------------------------------------
Paid in capital $57,048,869
- ---------------------------------------------------------------------------------
Net unrealized appreciation of investments 1,818,076
- ---------------------------------------------------------------------------------
Accumulated net realized loss on investments (108,650)
- --------------------------------------------------------------------------------- -----------
Total Net Assets $58,758,295
- --------------------------------------------------------------------------------- -----------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- ---------------------------------------------------------------------------------
INSTITUTIONAL SHARES:
- ---------------------------------------------------------------------------------
$58,374,548 / 5,803,567 shares outstanding $10.06
- --------------------------------------------------------------------------------- -----------
INSTITUTIONAL SERVICE SHARES:
- ---------------------------------------------------------------------------------
$383,747 / 38,132 shares outstanding $10.06
- --------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
INTERMEDIATE INCOME FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED OCTOBER 31, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------------
Interest $1,506,746
- ----------------------------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------------------------------
Investment advisory fee $ 103,063
- ---------------------------------------------------------------------------
Administrative personnel and services fee 77,924
- ---------------------------------------------------------------------------
Custodian fees 5,864
- ---------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 17,522
- ---------------------------------------------------------------------------
Directors'/Trustees' fees 1,840
- ---------------------------------------------------------------------------
Auditing fees 7,728
- ---------------------------------------------------------------------------
Legal fees 920
- ---------------------------------------------------------------------------
Portfolio accounting fees 29,384
- ---------------------------------------------------------------------------
Distribution services fee--Institutional Service Shares 397
- ---------------------------------------------------------------------------
Shareholder services fee--Institutional Shares 51,134
- ---------------------------------------------------------------------------
Shareholder services fee--Institutional Service Shares 397
- ---------------------------------------------------------------------------
Share registration costs 13,312
- ---------------------------------------------------------------------------
Printing and postage 11,592
- ---------------------------------------------------------------------------
Insurance premiums 2,944
- ---------------------------------------------------------------------------
Miscellaneous 3,520
- --------------------------------------------------------------------------- ---------
Total expenses 327,541
- ---------------------------------------------------------------------------
Waivers and reimbursements--
- ---------------------------------------------------------------------------
Waiver of investment advisory fee $(103,063)
- ---------------------------------------------------------------
Waiver of distribution services fee--Institutional Service
Shares (80)
- ---------------------------------------------------------------
Waiver of shareholder services fee--Institutional Shares (51,134)
- ---------------------------------------------------------------
Waiver of shareholder services fee--Institutional Service
Shares (318)
- ---------------------------------------------------------------
Reimbursement of other operating expenses (58,398)
- --------------------------------------------------------------- ---------
Total waivers and reimbursements (212,993)
- --------------------------------------------------------------------------- ---------
Net expenses 114,548
- ---------------------------------------------------------------------------------------- ----------
Net investment income 1,392,198
- ---------------------------------------------------------------------------------------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ----------------------------------------------------------------------------------------
Net realized gain on investments 426,257
- ----------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments 1,656,776
- ---------------------------------------------------------------------------------------- ----------
Net realized and unrealized gain on investments 2,083,033
- ---------------------------------------------------------------------------------------- ----------
Change in net assets resulting from operations $3,475,231
- ---------------------------------------------------------------------------------------- ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
INTERMEDIATE INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
(UNAUDITED) YEAR ENDED
OCTOBER 31, 1995 APRIL 30, 1995
------------------ ---------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- --------------------------------------------------------
OPERATIONS--
- --------------------------------------------------------
Net investment income $ 1,392,198 $ 1,919,206
- --------------------------------------------------------
Net realized gain (loss) on investments ($426,257 net
gain and $380,818 net loss, respectively, as computed
for federal tax purposes) 426,257 (527,053)
- --------------------------------------------------------
Net change in unrealized appreciation (depreciation) of
investments 1,656,776 848,090
- -------------------------------------------------------- --------------- --------------
Change in net assets resulting from operations 3,475,231 2,240,243
- -------------------------------------------------------- --------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS--
- --------------------------------------------------------
Distributions from net investment income
- --------------------------------------------------------
Institutional Shares (1,381,786) (1,903,482)
- --------------------------------------------------------
Institutional Service Shares (10,412) (15,724)
- -------------------------------------------------------- --------------- --------------
Change in net assets resulting from distributions
to shareholders (1,392,198) (1,919,206)
- -------------------------------------------------------- --------------- --------------
SHARE TRANSACTIONS--
- --------------------------------------------------------
Proceeds from sale of shares 30,475,992 21,784,834
- --------------------------------------------------------
Net asset value of shares issued to shareholders in
payment of distributions declared 165,610 238,460
- --------------------------------------------------------
Cost of shares redeemed (6,750,488) (7,487,433)
- -------------------------------------------------------- --------------- --------------
Change in net assets resulting from share
transactions 23,891,114 14,535,861
- -------------------------------------------------------- --------------- --------------
Change in net assets 25,974,147 14,856,898
- --------------------------------------------------------
NET ASSETS:
- --------------------------------------------------------
Beginning of period 32,784,148 17,927,250
- -------------------------------------------------------- --------------- --------------
End of period $ 58,758,295 $32,784,148
- -------------------------------------------------------- --------------- --------------
</TABLE>
(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>
SIX MONTHS
ENDED YEAR ENDED APRIL
(UNAUDITED) 30,
OCTOBER 31, ------------------
1995 1995 1994(A)
------------ ------ -------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.55 $ 9.53 $10.00
- -------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------------
Net investment income 0.33 0.66 0.23
- -------------------------------------------------------
Net realized and unrealized gain (loss) on
investments 0.51 0.02 (0.47)
- ------------------------------------------------------- --------- ------ -------
Total from investment operations 0.84 0.68 (0.24)
- ------------------------------------------------------- --------- ------ -------
LESS DISTRIBUTIONS
- -------------------------------------------------------
Distributions from net investment income (0.33) (0.66) (0.23)
- ------------------------------------------------------- --------- ------ -------
NET ASSET VALUE, END OF PERIOD $10.06 $ 9.55 $ 9.53
- ------------------------------------------------------- --------- ------ -------
TOTAL RETURN (B) 8.87% 7.53% (2.48%)
- -------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------
Expenses 0.55%* 0.48% 0.00%*
- -------------------------------------------------------
Net investment income 6.74%* 7.12% 6.36%*
- -------------------------------------------------------
Expense waiver/reimbursement (c) 1.03%* 1.22% 1.40%*
- -------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------
Net assets, end of period (000 omitted) $58,375 $32,508 $17,702
- -------------------------------------------------------
Portfolio turnover 40% 88% 0%
- -------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from December 15, 1993 (date of initial
public investment) to April 30, 1994.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) 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>
SIX MONTHS
ENDED YEAR ENDED APRIL
(UNAUDITED) 30,
OCTOBER 31, ------------------
1995 1995 1994(A)
------------ ------ -------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.55 $ 9.53 $10.00
- -------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------------
Net investment income 0.32 0.64 0.22
- -------------------------------------------------------
Net realized and unrealized gain (loss) on
investments 0.51 0.02 (0.47)
- ------------------------------------------------------- --------- ------ -------
Total from investment operations 0.83 0.66 (0.25)
- ------------------------------------------------------- --------- ------ -------
LESS DISTRIBUTIONS
- -------------------------------------------------------
Distributions from net investment income (0.32) (0.64) (0.22)
- ------------------------------------------------------- --------- ------ -------
NET ASSET VALUE, END OF PERIOD $10.06 $ 9.55 $ 9.53
- ------------------------------------------------------- --------- ------ -------
TOTAL RETURN (B) 8.74% 7.27% (2.57%)
- -------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------
Expenses 0.80%* 0.72% 0.25%*
- -------------------------------------------------------
Net investment income 6.52%* 6.85% 6.12%*
- -------------------------------------------------------
Expense waiver/reimbursement (c) 1.03%* 1.22% 1.40%*
- -------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------
Net assets, end of period (000 omitted) $ 384 $ 276 $ 225
- -------------------------------------------------------
Portfolio turnover 40% 88% 0%
- -------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from December 15, 1993 (date of initial
public offering) to
April 30, 1994.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) 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, 1995 (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 are only those of Intermediate Income
Fund (the "Fund"). The financial statements of the other portfolios are
presented separately. The assets of each portfolio are segregated and a
shareholder's interest is limited to the portfolio in which shares are held. The
Fund offers two classes of shares: 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.
INVESTMENT VALUATIONS--Short-term securities with remaining maturities of
sixty days or less at the time of purchase may be valued at amortized cost,
which approximates fair market value. All other securities are valued at
prices provided by an independent pricing service.
REPURCHASE AGREEMENTS--It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral under repurchase
agreement transactions. Additionally, procedures have been established by
the Fund to monitor, on a daily basis, the market value of each repurchase
agreement's collateral to ensure that the value of collateral at least
equals the repurchase price to be paid under the repurchase agreement
transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the 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.
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.
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 income. Accordingly, no
provisions for federal tax are necessary. At April 30, 1995, the Fund, for
federal tax purposes, had a capital loss carryforward of $380,818, which
will reduce the Fund's
INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
taxable income arising from future net realized gain on investments, if
any, to the extent permitted by the Code, and thus will reduce the amount
of the distributions to shareholders which would otherwise be necessary to
relieve the Fund of any liability for federal tax. Pursuant to the Code,
such capital loss carryforward will expire as follows:
<TABLE>
<CAPTION>
EXPIRATION YEAR EXPIRATION AMOUNT
----------------- -------------------
<S> <C>
2,003 $380,818
</TABLE>
Additionally, net capital losses of $154,089 attributable to security
transactions incurred after October 31, 1994 are treated as arising on the
first day of the Fund's next taxable year.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
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 over a period of five years from
the Fund's commencement date.
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 shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
OCTOBER 31, 1995 APRIL 30, 1995
------------------------ ------------------------
INSTITUTIONAL SHARES SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Shares sold 3,066,757 $30,359,690 2,305,891 $21,616,701
- -------------------------------------------------
Shares issued to shareholders in payment of
distributions declared 16,351 161,925 25,256 236,376
- -------------------------------------------------
Shares redeemed (683,358) (6,721,891) (785,508) (7,366,801)
- ------------------------------------------------- --------- ----------- --------- -----------
Net change resulting from Institutional share
transactions 2,399,750 $23,799,724 1,545,639 $14,486,276
- ------------------------------------------------- --------- ----------- --------- -----------
</TABLE>
INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
OCTOBER 31, 1995 APRIL 30, 1995
------------------------ ------------------------
INSTITUTIONAL SERVICE SHARES SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Shares sold 12,265 $ 116,302 17,937 $ 168,133
- -------------------------------------------------
Shares issued to shareholders in payment of
distributions declared 372 3,685 223 2,084
- -------------------------------------------------
Shares redeemed (3,453) (28,597) (12,830) (120,632)
- ------------------------------------------------- --------- ----------- --------- -----------
Net change resulting from Institutional Service
share transactions 9,184 $ 91,390 5,330 $ 49,585
- ------------------------------------------------- --------- ----------- --------- -----------
Net change resulting from share transactions 2,408,934 $23,891,114 1,550,969 $14,535,861
- ------------------------------------------------- --------- ----------- --------- -----------
</TABLE>
(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 any portion of its fee and/or reimburse certain
operating expenses of the Fund. The Adviser can modify or terminate this
voluntary waiver and/or reimbursement at any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services, under the Administrative
Services Agreement, provides the Fund with administrative personnel and
services. This 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 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. The distributor
may voluntarily choose to waive a portion of its fee. The distributor can modify
or terminate this voluntarily waiver at any time at its sole discretion.
SHAREHOLDER 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 of the Fund for the period. This fee is to obtain
certain services for shareholders and to maintain shareholder accounts. FSS may
voluntarily choose to waive a portion of its fee. FSS can modify or terminate
this voluntarily waiver at any time at its sole discretion. For the six months
ended October 31, 1995, Institutional Shares fully waived its shareholder
services fee.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated Services
Company ("FServ") serves as transfer and dividend disbursing agent for the Fund.
This fee is based on the size, type, and number of accounts and transactions
made by shareholders.
INTERMEDIATE INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses of $47,948 and start-up
administrative service expenses of $38,751 were borne initially by the Adviser.
The Fund has agreed to reimburse the Adviser for the organizational and start-up
administrative expenses during the five year period following December 15, 1993
(date the Fund first became effective). For the period ended October 31, 1995,
the Fund paid $4,528 and $3,660, respectively, pursuant to this agreement.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended October 31, 1995, were as follows:
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------
PURCHASES $35,042,804
- ------------------------------------------------------------------------------- -----------
SALES $15,699,429
- ------------------------------------------------------------------------------- -----------
</TABLE>
<TABLE>
<S> <C>
TRUSTEES OFFICERS
- ---------------------------------------------------------------------------------------------
John F. Donahue John F. Donahue
Thomas G. Bigley Chairman
John T. Conroy, Jr. Glen R. Johnson
William J. Copeland President
James E. Dowd J. Christopher Donahue
Lawrence D. Ellis, M.D. Executive Vice President
Edward L. Flaherty, Jr. Edward C. Gonzales
Peter E. Madden Executive Vice President
Gregor F. Meyer John W. McGonigle
John E. Murray, Jr. Executive Vice President and Secretary
Wesley W. Posvar Richard B. Fisher
Marjorie P. Smuts Vice President
David M. Taylor
Treasurer
Charles H. Field
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, 1995
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
CUSIP 31420C407
CUSIP 31420C506
G00715-01 (12/95)
-----------------------------------
-----------------------------------
-----------------------------------
