Federated Intermediate Income Fund
(formerly, Intermediate Income Fund)
ANNUAL REPORT FISCAL YEAR ENDED APRIL 30, 1996
MANAGEMENT DISCUSSION AND ANALYSIS
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 fiscal year ended April 30, 1996, was generally a positive period for
high-quality fixed income securities in that interest rates ended the
reporting period lower across the entire maturity curve. The fiscal year,
however, was far from consistent in terms of economic activity or its
resulting effect on interest rate movements.
The first half of the fiscal year saw significantly lower interest rates in
response to an apparent slowdown in economic activity. During the latter half
of the fiscal year (early in calendar year 1996), most economic releases
brought surprises to the upside along with the potential for heightened
inflation. As such, interest rates rose strongly from February through April
1996, the end of the fiscal year.
Relative to sector allocation, high quality corporate securities generally
outperformed comparable maturity government securities. While the yield
spread advantage of corporates over Treasuries was volatile during the 12-
month reporting 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
Total 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 12-month reporting period ended April 30, 1996, the
fund's Institutional Shares provided a 9.13% total return** compared to
8.65% for the Lehman Brothers Government/Corporate Total Index and 7.67%
for the Lipper Intermediate-Term Investment Grade Debt Funds Average.
In recognition of the fact that the economic recovery is now over five years
in length with potential signs of slower growth, the fund has and will
continue moving toward an overall higher average quality. With this
objective, the fund is adding to its government securities allocation as well
as upgrading the average quality in its majority corporate bond position.
* Lehman Brothers Government/Corporate Total 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. The average
maturity of these bonds approximates nine years. Tracked by Lehman
Brothers, Inc., the index calculates total returns for one-month, three-
month, twelve-month, and ten-year periods and year-to-date.
** Performance quoted represents 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. Total return for Institutional Service Shares for
the 12-month reporting period ended April 30, 1996 was 8.86%.
Federated Intermediate Income Fund
(formerly, Intermediate Income Fund)
(Institutional Service Shares)
GROWTH OF $25,000 INVESTED IN FEDERATED INTERMEDIATE INCOME FUND
(INSTITUTIONAL SERVICE SHARES)
The graph below illustrates the hypothetical investment of $25,000 in the
Federated Intermediate Income Fund (Institutional Service Shares) (the
`Fund'') from December 20, 1993 (start of performance) to April 30, 1996
compared to the Lehman Brothers Government/Corporate Total Index (LBGCTI)+
and the Lipper Intermediate-Term Investment Grade Debt Funds Average
(LIIGDFA)++.
[Graphic-see appendix]
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY
MAY BE WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT
OBLIGATIONS OF OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
THIS REPORT MUST BE PRECEDED OR ACCOMPANIED BY THE FUND'S PROSPECTUS DATED
JUNE 30, 1996, AND, TOGETHER WITH FINANCIAL STATEMENTS CONTAINED THEREIN,
CONSTITUTES THE FUND'S ANNUAL REPORT.
* The Fund's performance assumes the reinvestment of all dividends and
distributions. The LBGCTI and the LIIGDFA have been adjusted to reflect
reinvestment of dividends on securities in the index and average.
+ The LBGCTI is not adjusted to reflect sales charges, expenses, or other
fees that the SEC requires to be reflected in the Fund's performance.
This index is unmanaged.
++ The LIIGDFA represents the average of the total returns reported by all
of the mutual funds designated by Lipper Analytical Services, Inc. as
falling into the category, and is not adjusted to reflect any sales
charges. However, these total returns are reported net of expenses or
other fees that the SEC requires to be reflected in a fund's performance.
Federated Intermediate Income Fund
(formerly, Intermediate Income Fund)
(Institutional Shares)
GROWTH OF $25,000 INVESTED IN FEDERATED INTERMEDIATE INCOME FUND
(INSTITUTIONAL SHARES)
The graph below illustrates the hypothetical investment of $25,000 in the
Federated Intermediate Income Fund (Institutional Shares) (the `Fund'') from
December 20, 1993 (start of performance) to April 30, 1996 compared to the
Lehman Brothers Government/Corporate Total Index (LBGCTI)+ and the Lipper
Intermediate-Term Investment Grade Debt Funds Average (LIIGDFA)++.
[Graphic-see appendix]
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY
MAY BE WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT
OBLIGATIONS OF OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
THIS REPORT MUST BE PRECEDED OR ACCOMPANIED BY THE FUND'S PROSPECTUS DATED
JUNE 30, 1996, AND, TOGETHER WITH FINANCIAL STATEMENTS CONTAINED THEREIN,
CONSTITUTES THE FUND'S ANNUAL REPORT.
* The Fund's performance assumes the reinvestment of all dividends and
distributions. The LBGCTI, the LIIGDFA have been adjusted to reflect
reinvestment of dividends on securities in the index and average.
+ The LBGCTI is not adjusted to reflect sales charges, expenses, or other
fees that the SEC requires to be reflected in the Fund's performance.
This index is unmanaged.
++ The LIIGDFA represents the average of the total returns reported by all
of the mutual funds designated by Lipper Analytical Services, Inc. as
falling into the category, and is not adjusted to reflect any sales
charges. However, these total returns are reported net of expenses or
other fees that the SEC requires to be reflected in a fund's performance.
[Graphic]
Cusip 31420C407
Cusip 31420C506
3090804ARS (6/96)
APPENDIX
FEDERATED SHORT-TERM INCOME FUND
A. The graphic presentation here displayed consists of a legend in the
upper left quadrant indicating the components of the corresponding line
graph. The line graph represents the hypothetical investment of $25,000 in
the Institutional Service Shares of Federated Short-Term Income Fund (the
`Fund''), the Merrill Lynch Total Return Investment Grade Corporate Index
(Short-Term 1-2.99 Years) (MLTRIGCI) and the Lipper Short Investment Grade
Debt Funds Average (LSIGDFA). The `x'' axis reflects computation periods
from 1/24/92 to 4/30/96. The `y'' axis is measured in increments of $5,000
ranging from $25,000 to $35,000 and indicates that the ending values of the
hypothetical initial investment of $25,000 are $30,687, $32,832 and
$31,127, respectively. The average annual total returns for the Fund's
Institutional Service Shares for the one year period ended April 30, 1996
and from start of performance (1/24/92) to April 30, 1996 are listed
directly below the line graph. The total returns are 7.25% and 4.91%,
respectively.
B. The graphic presentation here displayed consists of a legend in the
upper left quadrant indicating the components of the corresponding line
graph. The line graph represents the hypothetical investment of $25,000 in
the Institutional Shares of Federated Short-Term Income Fund (the
`Fund''), the Merrill Lynch Total Return Investment Grade Corporate Index
(Short-Term 1-2.99 Years) (MLTRIGCI) and the Lipper Short Investment Grade
Debt Funds Average (LSIGDFA). The `x'' axis reflects computation periods
from 7/1/86 to 4/30/96. The `y'' axis is measured in increments of $10,000
ranging from $20,000 to $60,000 and indicates that the ending values of the
hypothetical initial investment of $25,000 are $46,950, $54,231 and
$48,007, respectively. The average annual total returns for the Fund's
Institutional Shares for the one year and five year periods ended April 30,
1996 and from start of performance (7/1/86) to April 30, 1996 are listed
directly below the line graph. The total returns are 7.51%, 5.46% and
6.62%, respectively.
FEDERATED INTERMEDIATE INCOME FUND
A. The graphic presentation here displayed consists of a legend in the
upper left-hand corner indicating the components of the corresponding line
graph. Federated Intermediate Income Fund (Institutional Service Shares)
(the Fund) is represented by a solid black line. Lehman Brothers
Government/Corporate Total Index (LBGCTI) is represented by a series of
dots. Lipper Intermediate-Term Investment Grade Debt Funds Average
(LIIGDFA) is represented by a broken line. The line graph is a visual
representation of a comparison of change in value of a hypothetical $25,000
investment in the Fund, and in LBGCTI and LIIGDFA. The `x'' axis reflects
computation periods form 12/20/93 (Start of Performance) to 4/30/96. The
`y'' axis reflects the cost of the investment in $2,250 increments ranging
from $20,000 to $30,000. The right margin reflects the ending values of the
hypothetical investment in the Fund as compared to the LBGCTI and LIIGDFA;
the ending values are $28,443, $27,898, and $27,514, respectively. Below
the line graph is the Average Annual Total Return for the period ended
April 30, 1996. The 1 Year and Start of Performance (12/20/96) total
returns are 8.86% and 5.61%, respectively.
B. The graphic presentation here displayed consists of a legend in the
upper left-hand corner indicating the components of the corresponding line
graph. Federated Intermediate Income Fund (Institutional Shares) (the Fund)
is represented by a solid black line. Lehman Brothers Government/Corporate
Total Index (LBGCTI) is represented by a series of dots. Lipper
Intermediate-Term Investment Grade Debt Funds Average (LIIGDFA) is
represented by a broken line. The line graph is a visual representation of
a comparison of change in value of a hypothetical $25,000 investment in the
Fund, and in LBGCTI and LIIGDFA. The `x'' axis reflects computation
periods form 12/20/93 (Start of Performance) to 4/30/96. The `y'' axis
reflects the cost of the investment in $2,250 increments ranging from
$20,000 to $30,000. The right margin reflects the ending values of the
hypothetical investment in the Fund as compared to the LBGCTI and LIIGDFA;
the ending values are $28,609, $27,898, and $27,514, respectively. Below
the line graph is the Average Annual Total Return for the period ended
April 30, 1996. The 1 Year and Start of Performance (12/20/96) total
returns are 9.13% and 5.87%, respectively.
