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, 1996. 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.
During the six-month reporting period, Institutional Shares paid dividends
totaling $0.28 per share, and delivered a total return of 4.02%.* The net
asset value for this share class increased slightly from $8.68 on the first
day of the period to $8.74 on the last day of the period.
During the six-month reporting period, Institutional Service Shares paid
dividends of $0.27 per share, and delivered a total return of 3.89%.* The
net asset value for this share class also increased slightly from $8.68 on
the first day of the period to $8.74 on the last day of the period.
Total net assets in the fund reached $244.2 million at the period's end.
Thank you for selecting Federated Short-Term Income Fund as a high-quality,
short-term income investment. As always, we welcome your questions,
comments, or suggestions.
Sincerely,
[Graphic]
Glen R. Johnson
President
December 16, 1996
* Performance quoted reflects past performance and is not indicative of
future results. Investment return and principal value will fluctuate, so
that an investor's shares, when redeemed, may be worth more or less than
their original cost.
INVESTMENT REVIEW
The investment goal of the Fund is to seek 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 by a nationally recognized statistical rating
organization. These include fixed and floating rate corporate bonds,
asset-backed securities, and U.S. government-backed securities which are
guaranteed as to the timely payment of principal and interest by the U.S.
government, its agencies or instrumentalities.*
The better part of the period under review was beset by concern over the
strength of the U.S. economy. Interest rates generally rose as investors
required greater compensation for what they believed to be a trend toward
higher inflation which would erode the value of debt securities. Only in the
last month of the period, after a consistent string of reports showing
inflation in check, did this concern abate sufficiently to allow yields to
decline below where they began the period.
The total return for the six-month period ended October 31, 1996, was 4.02%
for Institutional Shares and 3.89% for Institutional Service Shares. The net
asset value of both classes of shares of the fund increased from $8.68 to
$8.74 over the period. The net assets of the fund increased from $233.0
million to $244.2 million, while the 30-day net distribution rate decreased
from 6.63% to 6.34% for Institutional Shares and decreased from 6.38% to 6.11%
for Institutional Service Shares. The 30-day SEC yield as of October 31, 1996,
for Institutional Shares and Institutional Service Shares is 6.53% and
6.28%, respectively. The effective modified duration of the fund at October
31, 1996, was 1.6 years, slightly to the positive side of the fund's 1.0 to
2.0-year duration range.
The positive bias with regard to duration reflects fund management's
currently constructive view on the fixed income market. Mildly declining
yield levels are expected going forward, in conjunction with a slow,
sustainable growth of the economy. This outcome depends on a continuance of
low inflationary pressures (which management believes to be the case) and a
recognition by investors that the inflation premium currently received on
bonds (i.e., the real, or inflation-adjusted yield), which is currently high
relative to historical standards, should decline in the face of consistently
lower inflation. This means that bond yields could continue to fall somewhat
even without a move by the Federal Reserve Board (the "Fed") to lower
short-term interest rates. Given that the economy is not faltering, such a
move would not appear to be in the cards for at least the next several
months. Nonetheless, year-over-year inflation comparisons will become more
favorable in 1997 relative to 1996 which, coupled with any slowdown in
economic growth (below the 2.2% year-over-year figure recorded in the third
quarter of 1996), could conceivably lead to a Fed easing later in 1997. Such
an outcome would only enhance the case for bonds.
* Fund shares are not guaranteed.
FEDERATED SHORT-TERM INCOME FUND
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS/ASSET-BACKED SECURITIES -- 67.4%
AUTOMOTIVE -- 17.5%
$ 3,044,444 Chevy Chase Auto Trust 1995-1, Class A, 6.00%, 12/15/2001 $ 3,090,112
1,300,000 Chrysler Corp., 10.95%, 8/1/2017 1,418,482
1,847,947 Daimler-Benz Auto Grantor Trust 1995-A, Class A, 5.85%, 5/15/2002 1,852,731
5,000,000 Ford Credit Auto Loan Master Trust 1992-2, Class A, 7.38%, 4/15/1999 5,045,300
5,230,845 Honda Auto Receivables Grantor Trust 1995-A, Class A, 6.20%,
12/15/2000 5,267,042
6,000,000 Navistar Dealer Note Trust 1990-A, Class A-3, Floating Rate Pass
Thru Certificate, 6.47%, 1/25/2003 6,103,140
646,271 Navistar Financial Corp. 1995-B, Class A-2, 5.94%, 10/15/1998 647,892
2,322,353 Navistar Financial Owner Trust 1995-A, Class B, 6.85%, 11/20/2001 2,344,926
6,208,124 Olympic Auto Receivables Trust 1995-B, Class A-2, 10/15/2001 6,315,959
5,000,000 Olympic Auto Receivables Trust 1996-C, Class A-5, 10/15/2001 5,118,550
3,000,000 Premier Auto Trust 1995-3, Class B, 6.25%, 8/6/2001 3,003,480
2,500,000 (a)World Omni Auto Lease, Class A-1, 6.30%, 6/25/2002 2,507,500
Total 42,715,114
BANKING -- 17.0%
3,000,000 ABN AMRO Bank, Chicago, 6.625%, 10/31/2001 3,019,080
3,000,000 (a)BankAmerica Corp., FRN, 5.648%, 6/25/2003 2,932,500
500,000 Chase Manhattan Credit Card Master Trust 1991-1, Class A, 8.75%,
8/15/1999 500,435
4,583,333 Chase Manhattan Credit Card Master Trust 1992-1, Class A, 7.40%,
5/15/2000 4,616,379
2,000,000 Chemical Master Credit Card Trust 1995-3, Class A, 6.23%, 4/15/2005 1,982,878
4,000,000 Chemical Master Credit Card Trust 1996-1, Class A, 5.55%, 9/15/2003 3,900,436
2,000,000 Citibank Credit Card Master Trust 1996-2, Class A, 5.625%, 3/7/2003 1,934,060
5,000,000 (a)Citicorp Sub, FRN, 5.60%, 10/25/2005 4,937,500
</TABLE>
FEDERATED SHORT-TERM INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS/ASSET-BACKED SECURITIES -- CONTINUED
BANKING -- CONTINUED
$ 2,500,000 Dayton Hudson Credit Card Master Trust 1995, Class 1-A, 6.10%,
2/25/2002 $ 2,511,450
4,000,000 (a)First USA Credit Card Master Trust, 1994-3, Class B, 5.84%,
12/15/1999 4,006,240
1,000,000 (a)J.P. Morgan & Co., Inc., FRN, 5.375%, 8/19/2002 978,750
2,800,000 Spiegel Master Trust 1994-B, Class A, 8.15%, 6/15/2004 2,945,908
3,000,000 Standard Credit Card Master Trust 1994-4, Class A, 8.25%, 11/7/2003 3,215,310
4,000,000 Toronto Dominion Bank, Sub. Note, 7.88%, 8/15/2004 4,121,280
Total 41,602,206
FINANCE - AUTOMOTIVE -- 1.2%
3,000,000 Ford Motor Credit Corp., MTN, 5.83%, 6/29/1998 2,992,137
FINANCE - RETAIL -- 7.0%
5,000,000 Discover Credit Card Trust 1992-B, Class 1, 6.80%, 6/16/2000 5,056,500
979,668 (b)Encyclopedia Britannica Domestic Funding Corp. 1994-1, 6.76%,
3/15/2000 979,060
4,000,000 Household Affinity Credit Card Master Trust 1993-1, Class B, 5.30%,
9/15/2000 3,921,080
7,000,000 Household Private Label Credit Card 1994-1, Class B, 7.55%,
6/20/2001 7,065,240
Total 17,021,880
GAS & ELECTRIC UTILITIES -- 1.7%
1,000,000 Big Rivers Electric Corp., Trust Certificate, 10.70%, 9/15/2017 1,094,260
1,750,000 Kansas Electric Power Cooperative, Trust Certificate, 9.73%,
12/15/2017 1,904,577
1,000,000 Soyland Power Cooperative, 9.70%, 3/20/1997 1,072,440
Total 4,071,277
GOVERNMENT AGENCY -- 3.9%
5,586,000 Province of Manitoba, 9.50%, 9/15/1998 5,933,449
3,380,000 Swedish Export Credit Corp., 9.875%, 3/15/2038 3,693,833
Total 9,627,282
</TABLE>
FEDERATED SHORT-TERM INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS/ASSET-BACKED SECURITIES -- CONTINUED
HOME EQUITY RECEIVABLES -- 6.2%
$ 3,370,551 Advanta Home Equity Loan Trust 1992-1, Class A, 7.88%, 9/25/2008 $ 3,427,311
1,881,173 AFC Home Equity Loan Trust 1992-3, Class A, 7.05%, 8/15/2007 1,908,491
1,845,760 (b)Conti Mortgage Home Equity Loan Trust 1994-1, Class A-3, 6.07%,
11/15/2013 1,804,230
816,880 GE Capital Home Equity Loan, 1991-1, Class A, 7.20%, 9/15/2011 819,723
3,738,773 (a)Merrill Lynch Home Equity Loan Trust 1991-2, Class B, 6.375%,
4/15/2000 3,743,447
3,401,847 (a)Merrill Lynch Home Equity Loan Trust 1993-1, Class B, 6.69%,
2/15/2003 3,417,428
Total 15,120,630
INSURANCE -- 3.2%
4,000,000 American General Corp., 9.625%, 2/1/2018 4,331,800
3,346,000 American Reinsurance Corp., 10.88%, 9/15/2004 3,639,043
Total 7,970,843
MANUFACTURED HOUSING RECEIVABLES -- 5.6%
4,000,000 Associates Manufactured Housing Trust 1996-1, Class A-2, 6.70%,
3/15/2027 4,041,880
3,047,821 Merrill Lynch Mortgage Investments, Inc., 1991-I, Class A, 7.65%,
1/15/2012 3,087,504
402,406 Merrill Lynch Mortgage Investments, Inc., 1992-B, Class B, 8.50%,
4/15/2012 411,714
5,992,341 (b)Merrill Lynch Mortgage Investments, Inc., 1991-A, Class B, 9.25%,
5/15/2011 6,095,349
Total 13,636,447
RECREATIONAL VEHICLE RECEIVABLES -- 0.5%
1,102,140 Fleetwood Credit Corp. 1992-A, Class A, 7.10%, 2/15/2007 1,108,125
TELECOMMUNICATIONS -- 2.2%
2,000,000 British Telecom Finance, 9.625%, 2/15/2019 2,202,860
3,000,000 Southwestern Bell Capital Corp., MTN, 8.81%, 12/16/2004 3,236,730
Total 5,439,590
</TABLE>
FEDERATED SHORT-TERM INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS/ASSET-BACKED SECURITIES -- CONTINUED
UTILITIES -- 1.4%
$ 2,000,000 Duke Power Co. Mortgage, 8.63%, 3/1/2022 $ 2,114,520
1,300,000 Philadelphia Electric Co. Mortgage, 8.63%, 6/1/2022 1,358,630
Total 3,473,150
TOTAL CORPORATE BONDS/ASSET-BACKED SECURITIES
(IDENTIFIED COST $176,584,549) 164,778,681
GOVERNMENT AGENCIES -- 8.2%
2,000,000 Federal Home Loan Bank, 7.25%, 3/4/2011 1,936,880
10,000,000 United States Treasury Note, 5.875%, 3/31/1999 10,016,200
8,000,000 United States Treasury Note, 6.375%, 9/30/2001 8,094,160
TOTAL GOVERNMENT AGENCIES (IDENTIFIED COST $20,076,196) 20,047,240
MORTGAGE-BACKED SECURITIES -- 24.6%
GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES -- 5.8%
2,747,052 GNMA Pool 354754, 7.50%, 2/15/2024 2,757,298
10,116,339 GNMA Pool 780360, 11.00%, 9/15/2015 11,383,916
Total 14,141,214
NON-GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES -- 18.8%
1,637,482 (a)Glendale Federal Bank 1988-1, Class A, 7.38%, 11/25/2027 1,638,513
2,334,638 (a)(b)Greenwich Capital Acceptance 1991-4, Class B-1A, 8.47%,
7/1/2019 2,357,984
2,348,897 (a)Greenwich Capital Acceptance 1993-AFC1, Class B-1, 7.551%,
9/25/2023 2,323,952
2,719,289 (a)Greenwich Capital Acceptance 1993-LB2, Class A-1, 7.92%, 8/25/2023 3,749,527
2,014,496 (a)Greenwich Capital Acceptance 1993-LB3, Class A-1, 7.68%, 1/25/2024 2,030,874
7,781,752 (a)Greenwich Capital Acceptance 1994-B, Class A, 7.72%, 7/1/2018 7,859,569
550,271 (b)Long Beach Bank Mortgage 1992-3, Class A, 9.60%, 7/15/2022 566,779
5,731,384 Prudential Home Mortgage 1992-5, Class A-6, 7.50%, 4/25/2007 5,758,780
1,000,000 Prudential Home Mortgage 1992-32, Class A-6, 7.50%, 10/25/2022 1,013,500
4,000,000 Residential Accredit Loans, Inc. 1995-QS1, Class A-2, 6.90%,
1/25/2020 3,994,080
</TABLE>
FEDERATED SHORT-TERM INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
MORTGAGE-BACKED SECURITIES -- CONTINUED
NON-GOVERNMENT AGENCY - MORTGAGE-BACKED SECURITIES -- CONTINUED
$ 312,457 Residential Funding Mortgage Securities, Inc. 1993-S18, Class A-2,
7.50%, 5/25/2023 $ 312,223
2,000,018 (a)Resolution Trust Corp. 1992-12, Class B-3, 7.85%, 1/25/2025 1,974,398
380,052 Resolution Trust Corp. 1992-7, Class B-2B, 8.35%, 6/29/2029 378,509
12,000,000 Salomon Brothers Mortgage Securities VII, Inc. 1993-5, Class A-3C,
7.37%, 10/25/2023 11,904,000
Total 45,862,688
TOTAL MORTGAGE-BACKED SECURITIES (IDENTIFIED COST $60,168,012) 60,003,902
(C)REPURCHASE AGREEMENT -- 4.9%
11,900,000 BT Securities Corporation, 5.55%, dated 10/31/1996, due
11/1/1996 (AT AMORTIZED COST) 11,900,000
TOTAL INVESTMENTS (IDENTIFIED COST $256,828,757)(D) $ 256,729,823
(a) Denotes variable rate and floating rate obligations for which the
current rate is shown.
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At October 31, 1996, these securities
amounted to $9,445,418 which represents 3.9% of net assets.
(c) 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.
(d) The cost of investments for federal tax purposes amounts to
$256,828,757. The net unrealized depreciation of investments on a federal
tax basis amounts to $98,934 which is comprised of $1,620,910 appreciation
and $1,719,844 depreciation at October 31, 1996.
Note: The categories of investments are shown as a percentage of net assets
($244,229,052) at October 31, 1996.
The following acronyms are used throughout this portfolio:
FRN -- Floating Rate Note
GNMA -- Government National Mortgage Association
MTN -- Medium Term Note
(See Notes which are an integral part of the Financial Statements)
FEDERATED SHORT-TERM INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1996 (UNAUDITED)
</TABLE>
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $256,828,757) $ 256,729,823
Income receivable 1,984,914
Receivable for shares sold 736,458
Total assets 259,451,195
LIABILITIES:
Payable for investments purchased $13,258,342
Income distribution payable 1,105,583
Payable to Bank 828,580
Accrued expenses 29,638
Total liabilities 15,222,143
Net Assets for 27,942,701 shares outstanding $ 244,229,052
NET ASSETS CONSIST OF:
Paid in capital $ 271,831,315
Net unrealized depreciation of investments (98,934)
Accumulated net realized loss on investments (27,503,329)
Total net assets $ 244,229,052
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$225,898,524 / 25,845,469 shares outstanding $8.74
INSTITUTIONAL SERVICE SHARES:
$18,330,528 / 2,097,232 shares outstanding $8.74
</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, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 8,150,287
EXPENSES:
Investment advisory fee $ 475,675
Administrative personnel and services fee 89,903
Custodian fees 22,456
Transfer and dividend disbursing agent fees and expenses 31,896
Directors'/Trustees' fees 2,882
Auditing fees 9,141
Legal fees 1,717
Portfolio accounting fees 42,556
Distribution services fee -- Institutional Service Shares 19,615
Shareholder services fee -- Institutional Shares 277,675
Shareholder services fee -- Institutional Service Shares 19,615
Share registration costs 12,754
Printing and postage 9,446
Insurance premiums 3,496
Taxes 2,563
Miscellaneous 983
Total expenses $1,022,373
Waivers --
Waiver of investment advisory fee $ (34,289)
Waiver of distribution services fee -- Institutional Service Shares (18,830)
Waiver of shareholder services fee -- Institutional Shares (277,675)
Waiver of shareholder services fee -- Institutional Service Shares (785)
Total waivers (331,579)
Net expenses 690,794
Net investment income 7,459,493
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments (448,911)
Net change in unrealized depreciation of investments 2,011,958
Net realized and unrealized gain on investments 1,563,047
Change in net assets resulting from operations $ 9,022,540
</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 YEAR
(UNAUDITED) ENDED
OCTOBER 31, APRIL 30,
1996 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 7,459,493 $ 14,529,558
Net realized (loss) on investments ($448,911 net loss and
$10,784,773 net loss, respectively, as computed for federal tax
purposes) (448,911) (2,061,785)
Net change in unrealized appreciation (depreciation) 2,011,958 4,045,498
Change in net assets resulting from operations 9,022,540 16,513,271
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income
Institutional Shares (6,984,155) (13,302,550)
Institutional Service Shares (475,338) (1,227,008)
Change in net assets resulting from distributions to
shareholders (7,459,493) (14,529,558)
SHARE TRANSACTIONS --
Proceeds from sale of shares 74,194,451 109,565,191
Net asset value of shares issued to shareholders in payment of
distributions declared 1,624,499 2,706,717
Cost of shares redeemed (66,173,769) (117,974,583)
Change in net assets resulting from share transactions 9,645,181 (5,702,675)
Change in net assets 11,208,228 (3,718,962)
NET ASSETS:
Beginning of period 233,020,824 236,739,786
End of period $ 244,229,052 $ 233,020,824
</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 31, YEAR ENDED APRIL 30,
1996 1996 1995 1994 1993 1992(A) 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD $ 8.68 $ 8.61 $ 8.85 $ 9.17 $ 8.98 $ 9.07 $ 9.16 $ 9.41 $ 9.56 $ 9.98
INCOME FROM
INVESTMENT
OPERATIONS
Net investment income 0.28 0.57 0.54 0.51 0.58 0.60 0.83 0.93 0.94 0.94
Net realized and
unrealized gain
(loss) on investments 0.06 0.07 (0.24) (0.32) 0.16 (0.07) (0.08) (0.25) (0.15) (0.42)
Total from invest-
ment operations 0.34 0.64 0.30 0.19 0.74 0.53 0.75 0.68 0.79 0.52
LESS DISTRIBUTIONS
Distributions from net
investment income (0.28) (0.57) (0.54) (0.51) (0.55) (0.60) (0.83) (0.93) (0.94) (0.94)
Distributions in
excess of net
investment income(b) -- -- -- -- -- (0.02) (0.01) -- -- --
Total distributions (0.28) (0.57) (0.54) (0.51) (0.55) (0.62) (0.84) (0.93) (0.94) (0.94)
NET ASSET
VALUE, END
OF PERIOD $ 8.74 $ 8.68 $ 8.61 $ 8.85 $ 9.17 $ 8.98 $ 9.07 $ 9.16 $ 9.41 $ 9.56
TOTAL RETURN(C) 4.02% 7.51% 3.55% 2.04% 8.39% 5.94% 8.80% 7.52% 8.69% 5.43%
RATIOS TO AVERAGE
NET ASSETS
Expenses 0.57%* 0.56% 0.56% 0.56% 0.51% 0.53% 0.52% 0.52% 0.51% 0.50%
Net investment income 6.32%* 6.43% 6.22% 5.55% 6.07% 6.71% 9.33% 9.95% 9.90% 9.59%
Expense waiver/
reimbursement(d) 0.28%* 0.29% 0.03% 0.08% 0.45% 0.98% 0.92% 0.75% 0.76% 0.59%
SUPPLEMENTAL DATA
Net assets, end of
period (000 omitted) $225,899 $216,675 $219,649 $353,106 $144,129 $36,047 $47,223 $65,429 $69,904 $90,581
Portfolio turnover 10% 77% 38% 44% 62% 114% 23% 34% 38% 77%
</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) 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.
(c) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(d) 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)
OCTOBER 31, YEAR ENDED APRIL 30,
1996 1996 1995 1994 1993 1992(A)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 8.68 $ 8.61 $ 8.85 $ 9.17 $ 8.98 $ 9.08
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.27 0.54 0.52 0.48 0.52 0.15
Net realized and unrealized gain
(loss) on investments 0.06 0.07 (0.24) (0.32) 0.19 (0.10)
Total from investment operations 0.33 0.61 0.28 0.16 0.71 0.05
LESS DISTRIBUTIONS
Distributions from net
investment income (0.27) (0.54) (0.52) (0.48) (0.52) (0.15)
NET ASSET VALUE, END OF PERIOD $ 8.74 $ 8.68 $ 8.61 $ 8.85 $ 9.17 $ 8.98
TOTAL RETURN(B) 3.89% 7.25% 3.29% 1.78% 8.12% 0.69%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.82%* 0.81% 0.81% 0.81% 0.76% 0.78%*
Net investment income 6.09%* 6.17% 5.90% 5.30% 5.82% 6.37%*
Expense waiver/
reimbursement(c) 0.28%* 0.29% 0.27% 0.13% 0.45% 0.98%*
SUPPLEMENTAL DATA
Net assets, end of period
(000 omitted) $18,331 $16,346 $17,091 $39,649 $15,673 $778
Portfolio turnover 10% 77% 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, 1996 (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 portfolios. The
financial statements included herein are only those of Federated Short-Term
Income Fund (the "Fund"), a diversified portfolio. The financial statements
of the other portfolio are presented separately. The assets of each
portfolio are segregated and a shareholder's interest is limited to the
portfolio in which shares are held.
The Fund offers two classes of shares: Institutional Shares and
Institutional Service Shares.
The investment objective of the Fund is to seek to provide current income.
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 -- U.S. government securities, listed corporate bonds,
other fixed income and asset-backed securities, and unlisted securities and
private placement securities are generally valued at the mean of the latest
bid and asked price as furnished by an independent pricing service.
Short-term securities are valued at the prices provided by an independent
pricing service. However, 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.
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.
FEDERATED SHORT-TERM INCOME FUND
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, 1996, the Fund, for federal tax purposes, had a capital loss
carryforward of $25,659,517, 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
<C> <C>
1997 $ 3,077,752
1998 $ 316,627
1999 $ 1,132,354
2000 $ 4,105,766
2002 $ 669,532
2003 $ 5,572,713
2004 $10,784,773
</TABLE>
Additionally, net capital losses of $1,394,901 attributable to security
transactions incurred after October 31, 1995 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.
FEDERATED SHORT-TERM INCOME FUND
Additional information on each restricted security held at October 31, 1996
is as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
Encyclopedia Britannica Domestic Funding Corp. 3/21/1994 $ 1,635,000
Conti Mortgage Home Equity Loan Trust 1994-1,
Class A-3 2/18/1994 1,999,719
Merrill Lynch Mortgage Investment , Inc. 1991-A,
Class B 11/23/1994 6,364,159
Greenwich Capital Associates REMIC PTC, 1991-4,
Class B-1A 1/7/1993 2,392,735
Long Beach Mortgage Series 1992-3, Class A 6/29/1992 717,099
</TABLE>
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER -- Investment transactions are accounted for on 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, 1996 APRIL 30, 1996
INSTITUTIONAL SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 8,008,190 $69,538,529 10,873,366 $95,413,085
Shares issued to shareholders in
payment of distributions declared 164,257 1,422,961 238,773 2,094,178
Shares redeemed (7,278,062) (63,196,863) (11,665,688) (102,282,720)
Net change resulting from
Institutuional Share transactions 894,385 $ 7,764,627 (553,549) $ (4,775,457)
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
OCTOBER 31, 1996 APRIL 30, 1996
<S> <C> <C> <C> <C>
INSTITUTIONAL SERVICE SHARES SHARES AMOUNT SHARES AMOUNT
Shares sold 535,028 $ 4,655,922 1,615,112 $14,152,106
Shares issued to shareholders in
payment of distributions declared 23,353 201,538 69,892 612,539
Shares redeemed (343,494) (2,976,906) (1,787,163) (15,691,863)
Net change resulting from
Institutuional Service Share 214,887 $ 1,880,554 (102,159) $ (927,218)
transactions
Net change resulting from
share transactions 1,109,272 $ 9,645,181 (655,708) $(5,702,675)
</TABLE>
FEDERATED SHORT-TERM INCOME FUND
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 0.40% of the Fund's average daily net assets. The
Adviser may voluntarily choose to waive any portion of its fee. The Adviser
can modify or terminate this voluntary waiver at any time at its sole
discretion.
ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on 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 0.25% of the
average daily net assets of Institutional Services Shares annually, to
compensate FSC. The distributor may voluntarily choose to waive any 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 0.25% of average daily net assets of the Fund shares for the period.
The fee paid to FSS is used to finance certain services for shareholders and
to maintain shareholder accounts. FSS may voluntarily choose to waive any
portion of its fee. FSS can modify or terminate this voluntary waiver at any
time at its sole discretion.
FEDERATED SHORT-TERM INCOME FUND
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ, through
its subsidiary, Federated Shareholder Services Company ("FSSC") serves as
transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is
based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES -- FServ maintains the Fund's accounting records
for which it receives a fee. The fee is based on the level of the Fund's
average daily net assets for the period, plus out-of-pocket expenses.
GENERAL -- Certain of the Officers and Trustees of the Fund are Officers and
Directors or Trustees of the above companies.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended October 31, 1996, were as follows:
<TABLE>
<S> <C>
PURCHASES $63,932,972
SALES $22,504,979
</TABLE>
Trustees
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
William J. Copeland
James E. Dowd
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr.
Peter E. Madden
Gregor F. Meyer
Wesley W. Posvar
John E. Murray, Jr.
Marjorie P. Smuts
Officers
John F. Donahue
Chairman
Glen R. Johnson
President
J. Christopher Donahue
Executive Vice President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President, Treasurer, and Secretary
Richard B. Fisher
Vice President
S. Elliott Cohan
Assistant Secretary
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 prospectuses which contain facts
concerning its objective and policies, management fees, expenses and other
information.
FEDERATED
SHORT-TERM
INCOME
FUND
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
OCTOBER 31, 1996
Federated Investors
[Graphic]
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
[Graphic]
Cusip 31420C209
Cusip 31420C308
8112901 (12/96)
PRESIDENT'S MESSAGE
Dear Investor:
I am pleased to present the Semi-Annual Report to Shareholders for Federated
Intermediate Income Fund, a portfolio of Federated Income Securities Trust.
The Report covers the six-month period ended October 31, 1996. 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. During the six-month reporting period, Institutional Shares paid
dividends totaling $0.31 per share and capital gains of $0.01 per share. Net
asset value increased by $0.21 from the first day to the last day of the
period. As a result, the total return for Institutional Shares was 5.62%.*
Institutional Service Shares paid dividends of $0.30 per share, and capital
gains of $0.01 per share and delivered a total return of 5.49%.* Net asset
value increased by $0.22 from the first day to the last day of the period.
Total net assets in the fund reached $110.3 million at the period's end.
Thank you for selecting Federated Intermediate Income Fund as a high-quality
income investment. As always, we welcome your questions, comments, or
suggestions.
Sincerely,
[Graphic]
Glen R. Johnson
President
December 16, 1996
* Performance quoted reflects past performance and is not indicative of
future results. Investment return and principal value will fluctuate, so
that an investor's shares, when redeemed, may be worth more or less than
their original cost.
INVESTMENT REVIEW
Federated 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 investment environment for high quality fixed income securities during
the six-month period ended October 31, 1996, was generally positive, but
with considerable volatility along the way. For most of the spring and
mid-summer months (i.e., May through August) economic data releases were
biased toward stronger growth, resulting in rate increases. The final two
months of the semi-annual reporting period demonstrated a general slowdown
particularly in the most sensitive employment and housing statistics which
led to significant price appreciation in September and October. For the
entire six months from beginning to end, interest rates fell across the
treasury yield curve, declining within a range of 30-35 basis points in the
maturity range from the 2-year to the 10-year Treasury.
From the perspective of sector allocation, high quality corporate securities
generally outperformed comparable maturity government securities. Since the
economy continued to exhibit growth characteristics, albeit at a slower
rate, corporate fundamentals improved and yield spreads narrowed closer to
Treasuries.
Fund duration was maintained within striking distance of the Lehman
Government/Corporate Index.* For much of the period, duration was held just
short of the index; early in September, duration was extended to slightly
longer than the index to capture the increased real rate of return implied
by market levels at the time. Thus, the fund was in a position to benefit
from both falling rates late in the period as well as corporates
outperforming Treasury securities. For the six-month period ended October
31, 1996, the Institutional Shares of the fund provided a 5.62% total return
compared to a 5.35% total return for the Lehman Government/Corporate Index.
* Lehman Brothers Government/Corporate Bond Index is an unmanaged index
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. Investments cannot be made in an
index.
FEDERATED INTERMEDIATE INCOME FUND
(FORMERLY, INTERMEDIATE INCOME FUND)
PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
ASSET-BACKED SECURITIES -- 1.2%
HOME EQUITY RECEIVABLES -- 0.1%
$ 134,865 TMS Home Equity Loan Trust 1992-B, Class A, 6.90%, 7/15/2007 $ 135,485
NON-GOVERNMENT AGENCY-MORTGAGE-BACKED SECURITIES -- 1.1%
400,000 Prudential Bache, Series 8, Class F, 7.97%, 3/1/2019 416,056
500,000 Residential Funding Corp. 1993-S26, Class A10, 7.50%, 7/25/2023 483,440
300,000 Residential Funding Corp. 1993-S31, Class A7, 7.00%, 9/25/2023 274,662
Total 1,174,158
TOTAL ASSET-BACKED SECURITIES (IDENTIFIED COST $ 1,359,214) 1,309,643
CORPORATE BONDS -- 70.4%
BANKING -- 10.5%
2,000,000 African Development Bank, Note, 6.88%, 10/15/2015 1,942,200
2,000,000 Banco Santander, Bank Guarantee, 7.88%, 4/15/2005 2,109,200
2,000,000 Bank of Montreal, Sub. Note, 7.80%, 4/1/2007 2,118,880
2,000,000 Bayerische Landesbank - NY, Note, 6.20%, 2/9/2006 1,912,200
920,000 Chase Manhattan Corp., Sub. Note, 8.00%, 5/1/2005 942,080
1,000,000 National Bank of Canada, Montreal, Sub. Note, 8.13%, 8/15/2004 1,071,560
1,500,000 UBS - NY, Sub. Note, 7.25%, 7/15/2006 1,542,615
Total 11,638,735
CHEMICALS & PLASTICS -- 2.3%
2,500,000 (a)Bayer Corp., Deb., 6.50%, 10/1/2002 2,506,275
ECOLOGICAL SERVICES & EQUIPMENT -- 1.5%
1,500,000 WMX Technologies, Inc., Deb., 8.75%, 5/1/2018 1,662,195
EDUCATION -- 2.0%
1,000,000 Columbia University, Medium Term Note, 8.62%, 2/21/2001 1,088,520
1,000,000 Harvard University, Revenue Bonds, 8.13% Bonds, 4/15/2007 1,105,900
Total 2,194,420
</TABLE>
FEDERATED INTERMEDIATE INCOME FUND
(FORMERLY, INTERMEDIATE INCOME FUND)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS -- CONTINUED
ELECTRONICS -- 2.3%
$ 2,250,000 Harris Corp., Deb., 10.38%, 12/1/2018 $ 2,524,613
FINANCE - AUTOMOTIVE -- 2.0%
2,000,000 Ford Capital BV, Note, 9.38%, 5/15/2001 2,223,540
FINANCE - RETAIL -- 0.9%
1,000,000 Norwest Financial, Inc., Note, 6.23%, 9/1/1998 1,004,440
FINANCIAL INTERMEDIARIES -- 9.7%
2,000,000 American General Corp., S.F. Deb., 9.63%, 2/1/2018 2,165,900
2,000,000 Associates Corp. of North America, 6.68%, 9/17/1999 2,023,600
1,500,000 Donaldson, Lufkin and Jenrette Securities Corp., Note, 6.88%, 11/1/2005 1,474,800
2,000,000 Lehman Brothers, Inc., Sr. Sub. Note, 6.13%, 2/1/2001 1,956,160
1,000,000 Merrill Lynch & Co., Inc., Medium Term Note, 7.25%, 6/14/2004 1,008,760
2,000,000 Morgan Stanley Group, Inc., Deb., 9.25%, 3/1/1998 2,085,360
Total 10,714,580
FOOD PRODUCTS -- 0.9%
1,000,000 Grand Metropolitan Investment Corp., Company Guarantee, 7.00%,
6/15/1999 1,019,380
FOREST PRODUCTS -- 1.1%
1,250,000 Smurfit Capital, Note, 6.75%, 11/20/2005 1,226,700
HEALTH SERVICES -- 3.2%
2,000,000 Aetna Services Inc., Company Guarantee, 6.75%, 8/15/2001 2,022,280
1,500,000 Columbia/HCA Healthcare Corp., Deb., 7.19%, 11/15/2015 1,484,745
Total 3,507,025
INSURANCE -- 8.2%
1,500,000 Allmerica Financial Corp., Sr. Note, 7.63%, 10/15/2025 1,509,060
2,000,000 CNA Financial Corp., Deb., 7.25%, 11/15/2023 1,924,200
1,500,000 GE Global Insurance, Note, 7.00%, 2/15/2026 1,451,295
1,000,000 GEICO Corp., Deb., 9.15%, 9/15/2021 1,115,900
</TABLE>
FEDERATED INTERMEDIATE INCOME FUND
(FORMERLY, INTERMEDIATE INCOME FUND)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS -- CONTINUED
INSURANCE -- CONTINUED
$ 1,500,000 (a)Reinsurance Group of America, Sr. Note, 7.25%, 4/1/2006 $ 1,508,850
1,500,000 SunAmerica, Inc., Medium Term Note, 7.34%, 8/30/2005 1,531,995
Total 9,041,300
LEISURE & ENTERTAINMENT -- 0.9%
1,000,000 Disney (Walt) Co., Bond, 6.38%, 3/30/2001 998,798
METALS & MINING -- 0.9%
1,000,000 Alcan Aluminum Ltd., Deb., 9.20%, 3/15/2001 1,042,140
MUNICIPAL SERVICES -- 6.4%
1,325,000 Kansas City, MO Redevelopment Authority, 7.65% Bonds (FSA LOC),
11/1/2018 1,334,977
1,000,000 Miami Florida Revenue Pension Obligation, 7.20% Bonds
(AMBAC LOC), 12/1/2025 952,170
1,250,000 Minneapolis/St. Paul, MN Airport Commission, UT GO Taxable
Revenue Bonds (Series 9), 8.95% Bonds (Minneapolis/St. Paul, MN),
1/1/2022 1,380,875
1,000,000 Pittsburgh, PA Urban Redevelopment Authority, 9.07% Bonds
(CGIC GTD), 9/1/2014 1,122,800
1,000,000 St. Johns, FL, Convention Center, Taxable Municipal Revenue Bonds,
8.00% (FSA INS), 1/1/2026 1,041,720
1,250,000 West Valley City, UT Municipal Building Authority, Taxable Lease
Revenue Bonds, Series 1996A, 7.63% Bonds (West Valley Event Center
Project)/(AMBAC INS), 5/1/2022 1,246,513
Total 7,079,055
RAIL INDUSTRY -- 0.9%
1,000,000 Atchison Topeka & Sante Fe RR, Equip. Trust, 6.55%, 1/6/2013 967,380
RETAILERS -- 4.0%
2,000,000 May Department Stores Co., Deb., 8.13%, 8/15/2035 2,102,960
2,250,000 Penney (J.C.) Co., Inc., Deb., 7.65%, 8/15/2016 2,305,215
Total 4,408,175
</TABLE>
FEDERATED INTERMEDIATE INCOME FUND
(FORMERLY, INTERMEDIATE INCOME FUND)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS -- CONTINUED
SOVEREIGN GOVERNMENT -- 6.5%
$ 1,000,000 (a)Freeport Terminal (Malta) Ltd, Gtd. Global Note, 7.50%, 3/29/2009 $ 1,022,180
1,000,000 Quebec, Province of, Deb., 7.50%, 7/15/2023 999,590
1,000,000 Sweden, Kingdom of, Deb., 10.25%, 11/1/2015 1,282,500
2,500,000 Swedish Export Credit, Deb., 9.88%, 3/15/2038 2,732,125
1,000,000 Victoria Public Authority, Local Gov't. Guarantee, 8.25%, 1/15/2002 1,075,000
Total 7,111,395
TELECOMMUNICATIONS & CELLULAR -- 0.8%
800,000 New England Telephone & Telegraph, Deb., 8.63%, 8/1/2001 870,960
UTILITIES -- 5.4%
850,000 Hydro Quebec, Deb., 7.38%, 2/1/2003 880,490
1,000,000 Kansas Electric Power Co-Op, Collateral Trust, 9.73%, 12/15/2017 1,088,330
180,000 Minnesota Power and Light Co., 1st Mtg. Bond, 7.75%, 6/1/2007 187,587
975,000 Pedernales Electric Co-Op, 10.88% Bonds (MBIA INS), 9/1/2017 1,064,651
2,250,000 (a)Tenaga Nasional Berhad, Deb., 7.50%, 11/1/2025 2,195,516
500,000 Wisconsin Telephone Co., Deb., 6.25%, 8/1/2004 486,560
Total 5,903,134
TOTAL CORPORATE BONDS (IDENTIFIED COST $76,470,542) 77,644,240
GOVERNMENT AGENCIES -- 5.8%
1,000,000 Federal Home Loan Mortgage Corp., Note, 7.61%, 9/1/2004 1,009,670
500,000 Federal National Mortgage Association, Medium Term Note, 8.59%,
2/3/2005 515,060
750,000 Federal National Mortgage Association, Medium Term Note, 7.43%,
8/4/2005 755,902
4,500,000 Federal National Mortgage Association, 0/8.62%, 3/9/2022 4,162,140
TOTAL GOVERNMENT AGENCIES (IDENTIFIED COST $6,237,015) 6,442,772
</TABLE>
FEDERATED INTERMEDIATE INCOME FUND
(FORMERLY, INTERMEDIATE INCOME FUND)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
MORTGAGE BACKED SECURITIES -- 12.8%
FEDERAL HOME LOAN MORTGAGE CORPORATION -- 4.5%
$ 4,847 Pool G50218, 8.50%, 12/1/1996 $ 4,851
507 Pool M19098, 8.50%, 6/1/1997 513
1,930,326 Pool C00426, 7.00%, 10/1/2025 1,901,352
3,018,816 Pool D64184, 8.00%, 10/1/2025 3,086,709
Total 4,993,425
FEDERAL NATIONAL MORTGAGE ASSOCIATION -- 6.6%
2,958,202 Pool 347571, 7.00%, 5/1/2003 2,981,276
1,992,817 Pool 354370, 6.50%, 8/1/2003 1,980,322
1,347,086 Pool 250412, 7.00%, 12/1/2010 1,348,325
982,356 Pool 317255, 7.00%, 7/1/2025 965,155
Total 7,275,078
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION -- 1.7%
987,912 Pool 379983, 7.50%, 2/15/2024 991,597
899,496 Pool 780204, 7.00%, 7/15/2025 887,677
Total 1,879,274
TOTAL MORTGAGE BACKED SECURITIES (IDENTIFIED COST $14,041,758)
14,147,777
TREASURY SECURITIES -- 6.6%
U.S. TREASURY NOTES -- 6.6%
1,000,000 5.00%, 1/31/1998 992,950
2,000,000 5.00%, 2/15/1999 1,966,520
2,000,000 7.88%, 11/15/2004 2,195,940
2,000,000 6.88%, 5/15/2006 2,072,040
TOTAL TREASURY SECURITIES (IDENTIFIED COST $7,122,819) 7,227,450
(B)REPURCHASE AGREEMENT -- 1.9%
2,150,000 BT Securities Corporation, 5.55%, dated 10/31/1996, due 11/1/1996
(AT AMORTIZED COST) 2,150,000
TOTAL INVESTMENTS (IDENTIFIED COST $107,381,348)(C) $108,921,882
</TABLE>
(a) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At October 31, 1996, these securities
amounted to $7,232,821 which represents 6.56% 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
$107,381,348. The net unrealized appreciation of investments on a federal
tax basis amounts to $1,540,534 which is comprised of $1,943,852
appreciation and $403,318 depreciation at October 31, 1996.
Note: The categories of investments are shown as a percentage of net assets
($110,329,129) at October 31, 1996.
The following acronyms are used throughout this portfolio:
AMBAC -- American Municipal Bond Assurance Corporation
CGIC -- Capital Guaranty Insurance Corporation
FSA -- Financial Security Assurance
GO -- General Obligation
GTD -- Guaranty
INS -- Insured
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance
UT -- Unlimited Tax
(See Notes which are an integral part of the Financial Statements)
FEDERATED INTERMEDIATE INCOME FUND
(FORMERLY, INTERMEDIATE INCOME FUND)
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $107,381,348) $ 108,921,882
Income receivable 1,883,183
Receivable for shares sold 165,926
Deferred expenses 23,185
Total assets 110,994,176
LIABILITIES:
Income distribution payable $ 571,783
Payable to Bank 69,287
Accrued expenses 23,977
Total liabilities 665,047
Net Assets for 11,052,254 shares outstanding $ 110,329,129
NET ASSETS CONSIST OF:
Paid in capital $ 109,056,835
Net unrealized appreciation of investments 1,540,534
Accumulated net realized loss on investments (268,240)
Total Net Assets $ 110,329,129
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$109,619,912 / 10,981,209 shares outstanding $9.98
INSTITUTIONAL SERVICE SHARES:
$709,217 / 71,045 shares outstanding $9.98
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED INTERMEDIATE INCOME FUND
(FORMERLY, INTERMEDIATE INCOME FUND)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED OCTOBER 31, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 3,360,800
EXPENSES:
Investment advisory fee $ 241,306
Administrative personnel and services fee 78,137
Custodian fees 11,990
Transfer and dividend disbursing agent fees and expenses 16,355
Directors'/Trustees' fees 2,024
Auditing fees 9,079
Legal fees 2,760
Portfolio accounting fees 32,623
Distribution services fee -- Institutional Service Shares 862
Shareholder services fee -- Institutional Shares 119,791
Shareholder services fee -- Institutional Service Shares 862
Share registration costs 14,107
Printing and postage 13,616
Insurance premiums 2,208
Taxes 1,284
Miscellaneous 12,508
Total expenses 559,512
Waivers --
Waiver of investment advisory fee $ (170,438)
Waiver of distribution services fee -- Institutional Service Shares (312)
Waiver of shareholder services fee -- Institutional Shares (119,791)
Waiver of shareholder services fee -- Institutional Service Shares (550)
Total waivers (291,091)
Net expenses 268,421
Net investment income 3,092,379
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments (268,793)
Net change in unrealized appreciation of investments 2,596,129
Net realized and unrealized gain on investments 2,327,336
Change in net assets resulting from operations $ 5,419,715
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED INTERMEDIATE INCOME FUND
(FORMERLY, INTERMEDIATE INCOME FUND)
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
OCTOBER 31, APRIL 30,
1996 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 3,092,379 $ 3,704,305
Net realized gain (loss) on investments ($268,793 net loss and $57,997 net
gain, respectively, as computed for federal tax purposes) (268,793) 592,904
Net change in unrealized appreciation (depreciation) 2,596,129 (1,216,895)
Change in net assets resulting from operations 5,419,715 3,080,314
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income
Institutional Shares (3,071,199) (3,680,651)
Institutional Service Shares (21,180) (23,654)
Distributions from net realized gains
Institutional Shares (56,910) --
Institutional Service Shares (534) --
Change in net assets resulting from distributions to shareholders (3,149,823) (3,704,305)
SHARE TRANSACTIONS --
Proceeds from sale of shares 33,162,020 73,115,997
Net asset value of shares issued to shareholders in payment of
distributions declared 459,053 566,067
Cost of shares redeemed (13,563,082) (17,840,975)
Change in net assets resulting from share transactions 20,057,991 55,841,089
Change in net assets 22,327,883 55,217,098
NET ASSETS:
Beginning of period 88,001,246 32,784,148
End of period $ 110,329,129 $ 88,001,246
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED INTERMEDIATE INCOME FUND
(FORMERLY, INTERMEDIATE INCOME FUND)
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
OCTOBER 31, APRIL 30,
1996 1996 1995 1994(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.77 $ 9.55 $ 9.53 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.31 0.66 0.66 0.23
Net realized and unrealized gain (loss) on investments 0.22 0.22 0.02 (0.47)
Total from investment operations 0.53 0.88 0.68 (0.24)
LESS DISTRIBUTIONS
Distributions from net investment income (0.31) (0.66) (0.66) (0.23)
Distributions from net realized gain on investments (0.01) -- -- --
Total distributions (0.32) (0.66) (0.66) (0.23)
NET ASSET VALUE, END OF PERIOD $ 9.98 $ 9.77 $ 9.55 $ 9.53
TOTAL RETURN(B) 5.62% 9.13% 7.53% (2.48%)
RATIOS TO AVERAGE NET ASSETS
Expenses 0.55%* 0.55% 0.48% --
Net investment income 6.41%* 6.52% 7.12% 6.36%*
Expense waiver/reimbursement(c) 0.60%* 0.85% 1.22% 1.40%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $109,620 $87,493 $32,508 $17,702
Portfolio turnover 27% 66% 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)
FEDERATED INTERMEDIATE INCOME FUND
(FORMERLY, INTERMEDIATE INCOME FUND)
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
OCTOBER 31, APRIL 30,
1996 1996 1995 1994(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.76 $ 9.55 $ 9.53 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.30 0.63 0.64 0.22
Net realized and unrealized gain (loss) on investments 0.23 0.21 0.02 (0.47)
Total from investment operations 0.53 0.84 0.66 (0.25)
LESS DISTRIBUTIONS
Distributions from net investment income (0.30) (0.63) (0.64) (0.22)
Distributions from net realized gain on investments (0.01) -- -- --
Total distributions (0.31) (0.63) (0.64) (0.22)
NET ASSET VALUE, END OF PERIOD $ 9.98 $ 9.76 $ 9.55 $ 9.53
TOTAL RETURN(B) 5.49% 8.86% 7.27% (2.57%)
RATIOS TO AVERAGE NET ASSETS
Expenses 0.80%* 0.80% 0.72% 0.25%*
Net investment income 6.14%* 6.31% 6.85% 6.12%*
Expense waiver/reimbursement(c) 0.60%* 0.85% 1.22% 1.40%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $709 $508 $276 $225
Portfolio turnover 27% 66% 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)
FEDERATED INTERMEDIATE INCOME FUND
(FORMERLY, INTERMEDIATE INCOME FUND)
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1996 (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 portfolios. The
financial statements included herein are only those of Federated
Intermediate Income Fund (the "Fund"), a diversified portfolio. The
financial statements of the other portfolios are presented separately. The
assets of each portfolio are segregated and a shareholder's interest is
limited to the portfolio in which shares are held.
The Fund offers two classes of shares: Institutional Shares and
Institutional Service Shares.
The investment objective of the Fund is to provide current income.
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 -- U.S. government securities, listed corporate bonds,
(other fixed income and asset-backed securities), and unlisted securities
and private placement securities are generally valued at the mean of the
latest bid and asked price as furnished by an independent pricing service.
Short-term securities are valued at the prices provided by an independent
pricing service. However, 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.
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.
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 over a period not to exceed five years from the Fund's
commencement 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 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, 1996
is as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
Bayer Corp., Deb 3/21/1996 $2,492,198
Reinsurance Group of
America, Sr. Note 3/19/1996 1,495,410
Freeport Terminal (Malta) Ltd.,
Gtd. Global Note 3/17/1994-7/19/1994 972,965
Tenaga Nasional Berhad, Deb. 2/16/1996-4/3/1996 1,750,907
</TABLE>
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER -- Investment transactions are accounted for on 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, 1996 APRIL 30, 1996
INSTITUTIONAL SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 3,340,457 $ 32,729,494 7,294,867 $ 72,842,163
Shares issued to shareholders in
payment of distributions declared 45,908 447,128 55,479 553,522
Shares redeemed (1,365,030) (13,302,366) (1,794,289) (17,784,858)
Net change resulting from Institutional
Share transactions 2,021,335 $ 19,874,256 5,556,057 $ 55,610,827
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
OCTOBER 31, 1996 APRIL 30, 1996
INSTITUTIONAL SERVICE SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 44,515 $ 432,526 28,008 $ 273,834
Shares issued to shareholders in
payment of distributions declared 1,225 11,925 1,255 12,545
Shares redeemed (26,706) (260,716) (6,200) (56,117)
Net change resulting from Institutional
Service Share transactions 19,034 $ 183,735 23,063 $ 230,262
Net change resulting from share transactions 2,040,369 $ 20,057,991 5,579,120 $ 55,841,089
</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 0.50% of the Fund's average daily net assets. The
Adviser may voluntarily choose to waive any portion of its fee. The Adviser
can modify or terminate this voluntary waiver at any time at its sole
discretion.
ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on 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 0.25% of the
average daily net assets of Institutional Services Shares annually, to
compensate FSC. The distributor may voluntarily choose to waive any 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 0.25% of average daily net assets of the Fund for the period. The fee
paid to FSS is used to finance certain services for shareholders and to
maintain shareholder accounts. FSS may voluntarily choose to waive any
portion of its fee. FSS can modify or terminate this voluntary waiver at any
time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ, through
its subsidiary, Federated Shareholder Services Company ("FSSC") serves as
transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is
based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES -- FServ maintains the Fund's accounting records
for which it receives a fee. The fee is based on the level of the Fund's
average daily net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES -- Organizational and/or start-up administrative
service expenses of $86,699 were borne initially by Adviser. The Fund has
agreed to reimburse the Adviser for the organizational and/or start-up
administrative expenses during the five-year period following effective
date. For the period ended October 31, 1996, the Fund paid $19,748 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, 1996, were as follows:
<TABLE>
<S> <C>
PURCHASES $46,580,087
SALES $24,869,823
</TABLE>
<TABLE>
<S> <S>
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, Treasurer,
Wesley W. Posvar and Secretary
Marjorie P. Smuts Richard B. Fisher
Vice President
S. Elliott Cohan
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 prospectuses which contain facts
concerning its objective and policies, management fees, expenses, and other
information.
FEDERATED INTERMEDIATE INCOME FUND
(formerly, Intermediate Income Fund)
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
OCTOBER 31, 1996
[Graphic]
Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
[Graphic]
Cusip 31420C407
Cusip 31420C506
G00715-01 (12/96)
