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, 1997. It begins with a
review of the bond market by the fund's portfolio manager, which is followed by
a complete listing of fund holdings and its financial statements.
On behalf of its investors, the fund pursues income through a diversified
portfolio consisting primarily of intermediate-term, high-quality debt
securities. As of October 31, 1997, the fund's portfolio was invested primarily
in corporate bonds (72.4%), followed by mortgage-backed securities (10.8%),
government agency securities (8.9%), U.S. Treasury securities (5.6%),
asset-backed securities (0.9%), and a repurchase agreement (1.4%).
During the six-month reporting period, the fund's Institutional Shares produced
a total return of 6.72% through dividends totaling $0.32 per share and a net
asset value increase of 3.00%.* The fund's Institutional Service Shares produced
a total return of 6.59% through dividends of $0.31 per share and a net asset
value increase of 3.00%.*
Total net assets in the fund reached $142.3 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 15, 1997
* 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 also invests in
other high-quality government and asset-backed securities. The fund's duration
is managed within a range of three to seven years.
The investment environment for high-quality, fixed-income securities over the
six-month reporting period ended October 31, 1997 was very positive. Over the
summer months, the bond investment community began pricing in lower inflationary
expectations, given consistently moderate readings for both the Consumer Price
Index and Producer Price Index monthly releases. Just as importantly, the final
month of the reporting period, October 1997, saw a massive "flight to quality"
as investors worldwide flocked to U.S. Treasury securities in response to
currency and financial market disruptions abroad. As a result, interest rates
fell across all maturity points for the six-month period with the 2-year
Treasury and 30-year Treasury securities declining 0.67% and 0.80%,
respectively.
Relative to sector performance, the highest returns coincided with the highest
quality securities as "spread product" (i.e., corporates, mortgages, and
asset-backed securities) generated solid positive returns but underperformed
comparable maturity Treasury securities. This scenario played out aggressively
during the month of October 1997, which proved to be the worst relative
performance month for investment grade corporate bonds in many years.
Fund duration was maintained within a small range, short of a neutral position.
Given that the fund is designed to provide investors with exposure to the
high-quality, corporate-bond market, both the sector emphasis and duration
targets served to deliver a very positive total return but short of the Lehman
Brothers Government/Corporate Index,* which is primarily comprised of U.S.
government securities. For the six-month reporting period ended October 31,
1997, the fund's Institutional Shares and Institutional Service Shares generated
a return of 6.72% and 6.59%, respectively, versus a total return of 7.42% for
the 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. goverment and quasi-federal coporations, and
publicly issued, fixed-rate, non-convertible domestic bonds of companies in
industry, public utilities, and finance. Investments cannot be made in an index.
** 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.
PORTFOLIO OF INVESTMENTS
FEDERATED INTERMEDIATE INCOME FUND
OCTOBER 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
ASSET-BACKED SECURITIES--0.9%
HOME EQUITY RECEIVABLES--0.1%
$ 99,630 TMS Home Equity Trust 1992-B, Class A, 6.90%, 7/15/2007 $ 100,658
NON-GOVERNMENT AGENCY-MORTGAGE-BACKED SECURITIES--0.8%
400,000 Prudential Bache CMO Trust Series 8, Class F, 7.965%, 3/1/2019 409,884
500,000 Residential Funding Corp. 1993-S26, Class A10, 7.50%, 502,640
7/25/2023
300,000 Residential Funding Corp. 1993-S31, Class A7, 7.00%, 9/25/2023 287,808
TOTAL 1,200,332
TOTAL ASSET-BACKED SECURITIES 1,300,990
(IDENTIFIED COST $1,323,072)
CORPORATE BONDS--72.4%
AEROSPACE & DEFENSE--1.3%
300,000 Boeing Co., Unsecured Note, 6.35%, 6/15/2003 302,490
1,500,000 (a)British Aerospace Finance, Inc., 7.50%, 7/1/2027 1,567,881
TOTAL 1,870,371
AIR TRANSPORTATION--0.7%
1,000,000 Southwest Airlines Co., Deb., 7.375%, 3/1/2027 1,038,960
BANKING--7.4%
1,250,000 ABN-AMRO Bank NV, Chicago, Sub. Deb., 7.30%, 12/1/2026 1,248,175
1,500,000 African Development Bank, Note, 6.875%, 10/15/2015 1,533,495
2,000,000 Banco Santander, Bank Guarantee, 7.875%, 4/15/2005 2,139,420
1,000,000 Barclays North America, Deb., 9.75%, 5/15/2021 1,144,580
920,000 Chase Manhattan Corp., Sub. Note, 8.00%, 5/1/2005 930,074
1,500,000 Export-Import Bank Korea, 7.10%, 3/15/2007 1,432,395
250,000 First Chicago NBD Corp., Sub. Note, 8.10%, 3/1/2002 267,010
1,000,000 National Bank of Canada, Montreal, Sub. Note, 8.125%, 1,085,750
8/15/2004
300,000 Northern Trust Corp., Sub. Note, 9.00%, 5/15/1998 305,319
430,000 PNC Funding Corp., Sub. Note, 6.875%, 7/15/2007 437,430
TOTAL 10,523,648
BEVERAGE & TOBACCO--1.9%
350,000 American Brands, Inc., Medium Term Note, 8.87%, 8/10/1998 358,669
2,000,000 Philip Morris Cos., Inc., Deb., 7.75%, 1/15/2027 2,069,060
250,000 Philip Morris Cos., Inc., Deb., 9.25%, 12/1/1997 250,785
TOTAL 2,678,514
</TABLE>
FEDERATED INTERMEDIATE INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS--CONTINUED
CHEMICALS & PLASTICS--1.1%
$ 1,500,000 (a)Bayer Corp., Deb., 6.50%, 10/1/2002 $ 1,522,185
CONGLOMERATES--0.8%
1,250,000 (a)Hutchison Whampoa Finance, Company Guarantee, 7.50%, 1,127,163
8/1/2027
COSMETICS & TOILETRIES--0.2%
225,000 Gillette Co., Note, 6.25%, 8/15/2003 226,343
ECOLOGICAL SERVICES & EQUIPMENT--1.6%
2,000,000 WMX Technologies, Inc., Deb., 8.75%, 5/1/2018 2,269,760
EDUCATION--3.1%
1,975,000 Boston University, 7.625%, 7/15/2097 2,104,327
1,150,000 Columbia University, Medium Term Note, 8.62%, 2/21/2001 1,240,769
1,000,000 Harvard University, Revenue Bonds, 8.125% Bonds, 4/15/2007 1,132,740
TOTAL 4,477,836
ELECTRONICS--1.9%
300,000 Emerson Electric Co., Note, 6.30%, 11/1/2005 300,834
2,250,000 Harris Corp., Deb., 10.375%, 12/1/2018 2,459,880
TOTAL 2,760,714
FINANCE - AUTOMOTIVE--1.5%
2,000,000 Ford Capital BV, Note, 9.375%, 5/15/2001 2,202,160
FINANCIAL INTERMEDIARIES--6.6%
1,500,000 Donaldson, Lufkin and Jenrette Securities Corp., Note, 6.875%, 1,516,485
11/1/2005
1,700,000 Green Tree Financial Corp., Medium Term Note, 6.50%, 9/26/2002 1,701,948
2,000,000 Lehman Brothers, Inc., Sr. Sub. Note, 7.375%, 1/15/2007 2,084,600
2,000,000 Morgan Stanley Group, Inc., Deb., 9.25%, 3/1/1998 2,024,460
1,050,000 Norwest Financial, Inc., Note, 6.23%, 9/1/1998 1,055,366
991,463 (a)World Financial, Pass Thru Cert., Series 96 WFP-B, 6.91%, 1,014,376
9/1/2013
TOTAL 9,397,235
FINANCIAL SERVICES--1.6%
250,000 American Express Credit Corp., Deb., 8.50%, 6/15/1999 260,222
2,000,000 Associates Corp. of North America, Sr. Note, 6.68%, 9/17/1999 2,026,760
TOTAL 2,286,982
FOOD PRODUCTS--0.2%
300,000 Kraft General Foods, Inc., Deb., 6.00%, 6/15/2001 297,687
</TABLE>
FEDERATED INTERMEDIATE INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS--CONTINUED
HEALTH SERVICES--1.7%
$ 1,000,000 Aetna Services, Inc., Company Guarantee, 6.75%, 8/15/2001 $ 1,017,220
1,500,000 Columbia/HCA Healthcare Corp., Deb., 7.19%, 11/15/2015 1,390,455
TOTAL 2,407,675
INDUSTRIAL PRODUCTS & EQUIPMENT--0.2%
300,000 Illinois Tool Works, Inc., Note, 5.875%, 3/1/2000 299,835
INSURANCE--10.5%
2,500,000 Allmerica Financial Corp., Sr. Note, 7.625%, 10/15/2025 2,624,750
3,175,000 American General Corp., S.F. Deb., 9.625%, 2/1/2018 3,350,736
2,000,000 CNA Financial Corp., Deb., 7.25%, 11/15/2023 1,994,000
300,000 Chubb Capital Corp., Note, 6.00%, 2/1/1998 300,486
1,000,000 GEICO Corp., Deb., 9.15%, 9/15/2021 1,126,150
250,000 MBIA, Deb., 9.00%, 2/15/2001 271,690
2,000,000 (a) Reinsurance Group of America, Sr. Note, 7.25%, 4/1/2006 2,082,660
1,500,000 SunAmerica, Inc., Medium Term Note, 7.34%, 8/30/2005 1,562,973
1,000,000 SunAmerica, Inc., Note, 6.20%, 10/31/1999 1,004,810
500,000 SunAmerica, Inc., Sr. Note, 9.00%, 1/15/1999 518,425
TOTAL 14,836,680
MACHINERY & EQUIPMENT--0.7%
1,000,000 Continental Airlines, Inc., Pass Thru Cert., Series 1997-4 B, 1,016,380
6.90%, 7/2/2019
METALS & MINING--2.6%
1,000,000 Alcan Aluminum, Ltd., Deb., 9.20%, 3/15/2001 1,012,610
2,500,000 Barrick Gold Corp., Deb., 7.50%, 5/1/2007 2,660,575
TOTAL 3,673,185
MUNICIPAL SERVICES--4.2%
1,325,000 Kansas City, MO Redevelopment Authority, 7.65% Bonds (FSA 1,406,607
LOC), 11/1/2018
1,000,000 Miami, Florida Revenue Pension Obligation, 7.20% Bonds (AMBAC 1,007,500
LOC), 12/1/2025
1,250,000 Minneapolis/St. Paul, MN Airport Commission, UT GO Taxable 1,378,813
Revenue Bonds (Series 9), 8.95% (Minneapolis/St. Paul, MN),
1/1/2022
1,000,000 Pittsburgh, PA Urban Redevelopment Authority, 9.07% Bonds 1,149,110
(CGIC GTD), 9/1/2014
1,000,000 St. Johns County, FL Convention Center, Taxable Municipal 1,089,400
Revenue Bonds, 8.00% Bonds (FSA INS), 1/1/2026
TOTAL 6,031,430
OIL & GAS--0.2%
250,000 Shell Oil Co., Deb., 6.95%, 12/15/1998 253,583
</TABLE>
FEDERATED INTERMEDIATE INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS--CONTINUED
PHARMACEUTICAL--0.2%
$ 250,000 American Home Products Corp., Note, 7.90%, 2/15/2005 $ 273,595
RAIL INDUSTRY--0.7%
1,000,000 Atchison Topeka & SF RR, Equip. Trust, 6.55%, 1/6/2013 998,200
RETAILERS--4.9%
1,874,000 Eckerd Corp., Sr. Sub. Note, 9.25%, 2/15/2004 2,026,469
2,000,000 May Department Stores Co., Deb., 8.125%, 8/15/2035 2,207,240
2,250,000 Penney (J.C.) Co., Inc., Deb., 7.65%, 8/15/2016 2,397,713
300,000 Sears, Roebuck & Co., Deb., 8.45%, 11/1/1998 308,088
TOTAL 6,939,510
SOVEREIGN GOVERNMENT--6.3%
1,000,000 (a)Freeport Terminal (Malta) Ltd., Gtd. Global Note, 7.50%, 1,053,490
3/29/2009
1,000,000 Quebec, Province of, Deb., 13.25%, 9/15/2014 1,167,310
1,500,000 Quebec, Province of, Deb., 7.50%, 7/15/2023 1,572,630
1,000,000 Sweden, Kingdom of, Deb., 10.25%, 11/1/2015 1,335,370
2,500,000 Swedish Export Credit, 9.875%, 3/15/2038 2,657,675
1,000,000 Victoria Public Authority, Local Gov't. Guarantee, 8.25%, 1,074,375
1/15/2002
TOTAL 8,860,850
SURFACE TRANSPORTATION--2.4%
3,000,000 Trans Ocean Container Corp., Sr. Sub. Note, 12.25%, 7/1/2004 3,477,300
TELECOMMUNICATIONS & CELLULAR--1.7%
1,500,000 Cox Communications, Inc., Medium Term Note, 6.69%, 9/20/2004 1,512,135
800,000 New England Telephone & Telegraph, Deb., 8.625%, 8/1/2001 868,792
TOTAL 2,380,927
UTILITIES--6.2%
2,000,000 Cajun Electric Power, 9.52%, 3/15/2019 2,122,820
250,000 Central Illinois Public, 1st Mtg. Bond, 6.00%, 4/1/2000 250,232
250,000 Consolidated Edison Co., Deb., 6.25%, 4/1/1998 250,840
250,000 Consolidated Edison Co., Deb., Series 92B, 7.625%, 3/1/2004 268,207
1,250,000 Enersis S.A., Note, 7.40%, 12/1/2016 1,218,612
1,500,000 (a)Israel Electric Corp. Ltd., Sr. Note, 7.875%, 12/15/2026 1,611,405
1,000,000 Kansas Electric Power Cooperative, Collateral Trust, 9.73%, 1,053,340
12/15/2017
300,000 Midwest Power Systems, Inc., Mtg. Bond, 6.75%, 2/1/2000 304,815
180,000 Minnesota Power and Light Co., 1st Mtg. Bond, 7.75%, 6/1/2007 191,290
</TABLE>
FEDERATED INTERMEDIATE INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS--CONTINUED
UTILITIES--CONTINUED
$ 250,000 Pennsylvania Power & Light Co., Mtg. Bond, 5.50%, 4/1/1998 $ 250,020
500,000 (a)Tenaga Nasional Berhad, Deb., 7.50%, 1/15/2096 429,470
400,000 Virginia Electric Power Co., Mtg. Bond, Series A, 9.375%, 408,128
6/1/1998
500,000 Wisconsin Tel Co., Deb., 6.25%, 8/1/2004 495,830
TOTAL 8,855,009
TOTAL CORPORATE BONDS (IDENTIFIED COST $100,314,896) 102,983,717
GOVERNMENT AGENCIES--8.9%
200,000 Federal Home Loan Bank, 6.59%, 10/30/2000 200,000
250,000 Federal Home Loan Bank, 6.18%, 1/10/2001 250,353
550,000 Federal Home Loan Mortgage Corp., 5.94%, 3/8/1999 550,506
300,000 Federal Home Loan Mortgage Corp., 6.28%, 7/15/2003 298,275
500,000 Federal National Mortgage Association, 8.25%, 12/18/2000 533,490
750,000 Federal National Mortgage Association, Medium Term Note, 757,830
7.43%, 8/4/2005
500,000 Federal National Mortgage Association, 8.59%, 2/3/2005 503,555
4,500,000 Federal National Mortgage Association, 0/8.62%, 3/9/2022 4,420,710
300,000 Tennessee Valley Authority, 6.88%, 1/15/2002 306,006
1,800,000 Tennessee Valley Authority, 0/8.63%, 11/15/2029 1,693,296
3,305,000 Tennessee Valley Authority, 0/8.63%, 11/15/2029 3,096,686
TOTAL GOVERNMENT AGENCIES (IDENTIFIED COST $12,334,648) 12,610,707
MORTGAGE BACKED SECURITIES--10.8%
FEDERAL HOME LOAN MORTGAGE CORPORATION--3.9%
2,667,618 Pool 347571, 7.00%, 5/1/2003 2,699,309
973,633 Pool E66857, 6.50%, 5/1/2012 973,029
1,816,715 Pool C00426, 7.00%, 10/1/2025 1,830,340
TOTAL 5,502,678
FEDERAL NATIONAL MORTGAGE ASSOCIATION--2.8%
1,902,733 Pool 354370, 6.50%, 8/1/2003 1,908,670
1,177,955 Pool 250412, 7.00%, 12/1/2010 1,195,989
965,127 Pool 267905, 7.00%, 2/1/2024 975,078
TOTAL 4,079,737
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--4.1%
1,227,491 Pool 312595, 8.00%, 1/15/2022 1,280,813
2,672,057 Pool 780359, 7.50%, 12/15/2023 2,748,879
</TABLE>
FEDERATED INTERMEDIATE INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
MORTGAGE BACKED SECURITIES--CONTINUED
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--CONTINUED
$ 925,371 Pool 379983, 7.50%, 2/15/2024 $ 951,976
819,361 Pool 780204, 7.00%, 7/15/2025 826,785
TOTAL 5,808,453
TOTAL MORTGAGE BACKED SECURITIES (IDENTIFIED
COST $15,044,051) 15,390,868
TREASURY SECURITIES--5.6%
U.S. TREASURY BONDS--5.6%
3,800,000 6.00%, 2/15/2026 3,700,630
2,000,000 6.63%, 2/15/2027 2,120,940
2,000,000 7.00%, 7/15/2006 2,147,960
TOTAL TREASURY SECURITIES (IDENTIFIED COST $7,898,667) 7,969,530
(B)REPURCHASE AGREEMENT--1.4%
1,955,000 BT Securities Corp., 5.71%, dated 10/31/1997, due 11/3/1997 1,955,000
(at amortized cost)
TOTAL INVESTMENTS (IDENTIFIED COST $138,870,334)(C) $ 142,210,812
</TABLE>
(a) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At October 31, 1997, these securities amounted to
$10,408,630 which represents 7.31% 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 $138,870,334.
The net unrealized appreciation of investments on a federal tax basis amounts to
$3,340,478 which is comprised of $3,878,599 appreciation and $538,121
depreciation at October 31, 1997.
Note: The categories of investments are shown as a percentage of net assets
($142,326,334) at October 31, 1997.
The following acronyms are used throughout this portfolio:
AMBAC --American Municipal Bond Assurance Corporation CGIC --Capital Guaranty
Insurance Corporation CMO --Collateralized Mortgage Obligation 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)
STATEMENT OF ASSETS AND LIABILITIES
FEDERATED INTERMEDIATE INCOME FUND
OCTOBER 31, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $ 142,210,812
$138,870,334)
Income receivable 2,520,576
Receivable for investments sold 3,876,312
Receivable for shares sold 322,012
Deferred organizational costs 16,858
Deferred expenses 3,440
Total assets 148,950,010
LIABILITIES:
Payable for investments purchased $ 5,430,600
Income distribution payable 705,934
Payable to Bank 487,142
Total liabilities 6,623,676
Net Assets for 14,057,150 shares outstanding $ 142,326,334
NET ASSETS CONSIST OF:
Paid in capital $ 139,085,868
Net unrealized appreciation of investments 3,340,478
Accumulated net realized loss on investments (112,098)
Undistributed net investment income 12,086
Total Net Assets $ 142,326,334
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$140,278,274 / 13,854,871 shares outstanding $10.12
INSTITUTIONAL SERVICE SHARES:
$2,048,060 / 202,279 shares outstanding $10.12
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
FEDERATED INTERMEDIATE INCOME FUND
SIX MONTHS ENDED OCTOBER 31, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 4,575,801
EXPENSES:
Investment advisory fee $ 331,324
Administrative personnel and services fee 78,137
Custodian fees 5,063
Transfer and dividend disbursing agent fees and expenses 20,199
Directors'/Trustees' fees 1,380
Auditing fees 8,832
Legal fees 2,024
Portfolio accounting fees 32,771
Shareholder services fee--Institutional Shares 164,362
Shareholder services fee--Institutional Service Shares 2,602
Share registration costs 19,872
Printing and postage 10,604
Insurance premiums 2,024
Taxes 2,024
Miscellaneous 16,927
Total expenses 698,145
Waivers --
Waiver of investment advisory fee $ (163,810)
Waiver of shareholder services fee--Institutional Shares (164,362)
Waiver of shareholder services fee--Institutional 1,300
Service Shares
Total waivers (329,472)
Net expenses 368,673
Net investment income 4,207,128
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 268,203
Net change in unrealized appreciation of investments 4,039,435
Net realized and unrealized gain on investments 4,307,638
Change in net assets resulting from operations $ 8,514,766
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
FEDERATED INTERMEDIATE INCOME FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
OCTOBER 31, APRIL 30,
1997 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 4,207,128 $ 6,998,262
Net realized gain (loss) on investments ($268,203 net gain and 268,203 (380,854)
$268,793 net loss, respectively, as computed for federal tax
purposes)
Net change in unrealized appreciation of investments 4,039,435 356,638
Change in net assets resulting from operations 8,514,766 6,974,046
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Institutional Shares (4,175,248) (6,940,716)
Institutional Service Shares (31,880) (45,460)
Distributions from net realized gains on investments
Institutional Shares -- (56,910)
Institutional Service Shares -- (534)
Change in net assets resulting from distributions to (4,207,128) (7,043,620)
shareholders
SHARE TRANSACTIONS--
Proceeds from sale of shares 30,726,002 70,364,497
Net asset value of shares issued to shareholders in payment of 580,498 1,225,640
distributions declared
Cost of shares redeemed (15,384,771) (37,424,842)
Change in net assets resulting from share transactions 15,921,729 34,165,295
Change in net assets 20,229,367 34,095,721
NET ASSETS:
Beginning of period 122,096,967 88,001,246
End of period (including undistributed net investment income of $ 142,326,334 $ 122,096,967
$12,086 and $12,086, respectively)
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
OCTOBER 31, YEAR ENDED APRIL 30,
1997 1997 1996 1995 1994(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $9.79 $9.77 $9.55 $9.53 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.32 0.63 0.66 0.66 0.23
Net realized and unrealized gain (loss) on investments 0.33 0.03 0.22 0.02 (0.47)
Total from investment operations 0.65 0.66 0.88 0.68 (0.24)
LESS DISTRIBUTIONS
Distributions from net investment income (0.32) (0.63) (0.66) (0.66) (0.23)
Distributions from net realized gain on investments -- (0.01) -- -- --
Total distributions (0.32) (0.64) (0.66) (0.66) (0.23)
NET ASSET VALUE, END OF PERIOD $10.12 $9.79 $9.77 $9.55 $9.53
TOTAL RETURN(B) 6.72% 7.00% 9.13% 7.53% (2.48%)
RATIOS TO AVERAGE NET ASSETS
Expenses 0.55%* 0.55% 0.55% 0.48% 0.00%*
Net investment income 6.36%* 6.48% 6.52% 7.12% 6.36%*
Expense waiver/reimbursement(c) 0.50%* 0.57% 0.85% 1.22% 1.40%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $140,278 $121,307 $87,493 $32,508 $17,702
Portfolio turnover 17% 55% 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)
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
OCTOBER 31, YEAR ENDED APRIL 30,
1997 1997 1996 1995 1994(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $9.79 $9.76 $9.55 $9.53 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.31 0.61 0.63 0.64 0.22
Net realized and unrealized gain (loss) on investments 0.33 0.04 0.21 0.02 (0.47)
Total from investment operations 0.64 0.65 0.84 0.66 (0.25)
LESS DISTRIBUTIONS
Distributions from net investment income (0.31) (0.61) (0.63)(0.64) (0.22)
Distributions from net realized gain on investments -- (0.01) -- -- --
Total distributions (0.31) (0.62) (0.63)(0.64) (0.22)
NET ASSET VALUE, END OF PERIOD $10.12 $9.79 $9.76 $9.55 $9.53
TOTAL RETURN(B) 6.59% 6.73% 8.86% 7.27% (2.57%)
RATIOS TO AVERAGE NET ASSETS
Expenses 0.80%* 0.80% 0.80% 0.72% 0.25%*
Net investment income 6.11%* 6.21% 6.31% 6.85% 6.12%*
Expense waiver/reimbursement(c) 0.50%* 0.57% 0.85% 1.22% 1.40%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $2,048 $790 $508 $276 $225
Portfolio turnover 17% 55% 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)
NOTES TO FINANCIAL STATEMENTS
FEDERATED INTERMEDIATE INCOME FUND
OCTOBER 31, 1997 (UNAUDITED)
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 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 provide
current income.
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.
At April 30, 1997, the Fund, for federal tax purposes, had a capital loss
carryforward of $268,793, which will reduce the Fund's taxable income arising
from future net realized gain on investments, if any, to the extent permitted by
the Code, and thus will reduce the amount of the distributions to shareholders
which would otherwise be necessary to relieve the Fund of any liability for
federal tax. Pursuant to the Code, such capital loss carryforward will expire in
2005.
Additionally, net capital losses of $112,061 attributable to security
transactions incurred after October 31, 1996 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 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, 1997 is
as follows:
SECURITY ACQUISITION DATE ACQUISITION COST
British Aerospace Finance, 6/26/1997 $ 1,488,898
Inc.
Bayer Corp., Deb. 3/21/1996 1,496,309
Hutchison Whampoa Finance 7/25/1997 1,241,178
World Financial, Pass Thru 11/18/1996 989,852
Cert. Series 96
Reinsurance Group of 3/19/1996 - 1,989,798
America, Sr. Note 7/2/1997
Freeport Terminal (Malta) 3/17/1994 - 972,965
Ltd., Gtd. Global Note 7/19/1994
Israel Electric Corp. Ltd., 1/28/1997 1,497,067
Sr. Note
Tenaga Nasional Berhad, Deb. 3/3/1997 474,926
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.
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, 1997 April 30, 1997
Institutional Shares Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 2,943,341 $ 29,406,208 7,046,674 $ 69,424,049
Shares issued to shareholders in payment of 56,736 566,529 121,307 1,193,759
distributions declared
Shares redeemed (1,531,517) (15,278,091) (3,741,544) (36,732,127)
Net change resulting from Institutional
Share transactions 1,468,560 $ 14,694,646 3,426,437 $ 33,885,681
<CAPTION>
Six Months Ended Year Ended
October 31, 1997 April 30, 1997
Institutional Service Shares Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 130,861 $ 1,319,794 95,657 $ 940,448
Shares issued to shareholders in payment of 1,398 13,969 3,236 31,881
distributions declared
Shares redeemed (10,668) (106,680) (70,216) (692,715)
Net change resulting from Institutional 121,591 $ 1,227,083 28,677 $ 279,614
Service Share transactions
Net change resulting from share transactions 1,590,151 $ 15,921,729 3,455,114 $ 34,165,295
</TABLE>
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 average daily net assets of the
Institutional Service 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 expenses of $86,699 were borne initially by the Adviser. The Fund
has reimbursed the Adviser for these expenses. These expenses have been deferred
and are being amortized over the five-year period following the Fund's effective
date. For the period ended October 31, 1997, the Fund expensed $3,440 of
organizational expenses.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended October 31, 1997, were as follows:
PURCHASES $40,511,140 SALES $21,781,340
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
John E. Murray, Jr.
Wesley W. Posvar
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
Anthony R. Bosch
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 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.
[Graphic]
Federated Investors
Federated Intermediate Income Fund
SEMI-ANNUAL REPORT TO SHAREHOLDERS
OCTOBER 31, 1997
[Federated Securities Logo]
Federated Securities Corp., Distributor
Federated Investors Tower
1001 Libery Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Cusip 31420C407
Cusip 31420C506
G00715-01 (12/97)
[Graphic]
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, 1997. It begins with a
review of the bond market by the fund's portfolio manager, which is followed by
a complete listing of fund holdings and its financial statements.
On behalf of its investors, the fund pursues income through a diversified
portfolio consisting primarily of short-term, high-quality debt securities. As
of October 31, 1997, the fund's portfolio was invested primarily in corporate
bonds (23.6%), asset-backed securities (41.6%), followed by mortgage-backed
securities (28.3%), and U.S. Treasury notes (5.6%).
During the six-month reporting period, the fund's Institutional Shares produced
a total return of 4.05% through dividends totaling $0.27 per share and a net
asset value increase of $0.08 per share.* The fund's Institutional Service
Shares produced a total return of 3.93% through dividends totaling $0.26 per
share and a net asset value increase of $0.08 per share.*
Total net assets in the fund reached $217 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, Glen R. Johnson
President
December 15, 1997
* 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 Short-Term Income Fund represents a high-quality, fixed-income
portfolio combining various fixed-income asset classes. The fund primarily
invests in U.S. Treasury, government agency, and high-quality corporate debt
securities. The investment objective of the fund is to seek to provide current
income. To the extent consistent with this objective, the fund will strive to
minimize fluctuation in principal value through a portfolio with an effective
average maturity of no greater than three years, but generally having an
effective modified duration of no greater than two years.
While the fixed-income markets exhibited significant directional volatility from
month to month, the past six months were positive from the perspective of
high-quality, total-return, fixed-income investors. For the six-month period
ended October 31, 1997, interest rates fell across the entire maturity spectrum.
Although the economic expansion continued to move forward, market participants
appeared to have lowered inflationary expectations. These lowered expectations
provided much of the impetus for the fixed-income rally that occurred through
the summer.
With regard to sector performance, investors were compensated for exposure to
the "spread" products. Mortgage-backed, asset-backed, and investment-grade
corporate bonds all outperformed comparable maturity Treasury securities. During
the reporting period, the fund generally maintained its largest exposure in
asset-backed securities, attempting within that sector to obtain outperformance
on a security specific basis. Significant allocations were also made to
mortgage-backed and corporate securities in order to derive the aforementioned
benefit of spread product. Conventional Treasury and agency securities, though
utilized in the portfolio, received the lowest allocation. The fund's duration
posture over the reporting period was maintained either at or slightly below the
midpoint of its range of one to two years.
For the six months ended October 31, 1997, the fund's Institutional Service
Shares provided a total return of 3.93%.* For the six months ended October 31,
1997, the fund's Institutional Shares produced a 4.05% total return,* compared
to a 4.13% total return for the Merrill Lynch 1-3 Year Treasury Bond Index** and
a 4.39% total return for the Merrill Lynch 1-3 Year Corporate Bond Index.** The
durations of these indices (1.65 years and 1.84 years, respectively, as of
October 31, 1997) are longer than that of the fund's duration midpoint (1.5
years), which explains the performance of the fund versus these indices. In
addition, the fund's inability to purchase securities rated below single-A
quality affected its performance relative to the Corporate Bond Index, as
credit-sensitive securities performed well during the reporting period. No
significant strategy changes are anticipated in the near term aside from a
general portfolio upgrading should the current seven-year economic expansion
show signs of waning.
* 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.
** The Merrill Lynch 1-3 Year Treasury is an unmanaged index tracking short-term
U.S. government securities between 1 and 2.99 years. The Merrill Lynch 1-3
year Corporate Index is an unmanaged index trading short-term domestic
investment-grade corporate bonds with maturities between 1 and 2.99 years.
Investments cannot be made in an index.
PORTFOLIO OF INVESTMENTS
FEDERATED SHORT-TERM INCOME FUND
OCTOBER 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
ASSET-BACKED SECURITIES--41.6%
AUTOMOBILE--14.1%
$ 2,948,443 AFG Receivables Trust 1997-B, Class B, 6.40%, 2/15/2003 $ 2,947,971
1,518,904 Chevy Chase Auto Trust 1995-1, Class A, 6.00%, 12/15/2001 1,523,430
936,024 Daimler-Benz Auto Grantor Trust 1995-A, Class A, 5.85%, 937,840
5/15/2002
793,064 Fleetwood Credit Corp. 1992-A, Class A, 7.10%, 2/15/2007 798,647
2,556,573 Honda Auto Receivables Grantor Trust 1995-A, Class A, 6.20%, 2,557,596
12/15/2000
6,000,000 Navistar Financial Dealer Note Trust 1990-A, Class A-3, 6,035,340
6.548%, 1/25/2003
1,636,445 Navistar Financial Corp. Owner Trust 1995-A, Class B, 6.85%, 1,656,803
11/20/2001
3,698,307 Olympic Automobile Receivables Trust 1995-B, Class A2, 7.35%, 3,758,256
10/15/2001
5,000,000 Olympic Automobile Receivables Trust 1996-C, Class A5, 7.00%, 5,162,150
3/15/2004
3,000,000 Premier Auto Trust 1995-3, Class B, 6.25%, 8/6/2001
3,015,030 2,218,266 (a)World Omni Auto Lease Securitization Trust
1996-A, Class 2,220,218
A-1, 6.30%, 6/25/2002
&NBSP;&NBSP;&NBSP;&NBSP;TOTAL 30,613,281
CREDIT CARD--12.9%
3,000,000 American Express Credit Account Master Trust 1997-1, Class A, 3,047,010
6.40%, 4/15/2005
3,000,000 (b)Banco Nacional de Mexico S.A., Credit Card Merchant 2,987,820
Voucher Receivables Master Trust Series 1996-A, Class A1,
6.25%, 12/1/2003
5,000,000 Bridgestone/Firestone Master Trust 1996-1, Class B, 6.49%, 5,048,350
7/1/2003
2,000,000 Chemical Master Credit Card Trust I 1995-3, Class A, 6.23%, 2,021,260
4/15/2005
230,000 Circuit City Credit Card Master Trust 1995-1, Class A, 231,980
6.375%, 8/15/2005
2,500,000 Dayton Hudson Credit Card Master Trust 1995-1, Class A, 2,510,900
6.10%, 2/25/2002
3,333,333 Discover Credit Card Trust 1992-B, Class A, 6.80%, 6/16/2000 3,341,100
4,050,000 Household Affinity Credit Card Master Trust 1993-1, Class B, 4,015,575
5.30%, 9/15/2000
2,800,000 Spiegel Master Trust 1994-B, Class A, 8.15%, 6/15/2004 2,927,792
1,000,000 Standard Credit Card Master Trust 1994-4, Class A, 8.25%, 1,076,010
11/7/2003
680,000 Standard Credit Card Master Trust 1995-8, Class A, 6.70%, 691,703
9/7/2002
TOTAL 27,899,500
HOME EQUITY LOAN--5.2%
1,330,618 AFC Home Equity Loan Trust 1992-3, Class A, 7.05%,
8/15/2007 1,353,292 2,529,398 Advanta Home Equity Loan Trust 1992-1,
Class A, 7.88%, 2,605,432
9/25/2008
3,668,275 CWABS Asset Backed Certificates 1996-1, Class A-2, 6.525%, 3,707,122
2/25/2014
472,950 GE Capital Home Equity Loan Trust 1991-1, Class A, 7.20%, 476,743
9/15/2011
</TABLE>
Federated Short-Term Income Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
ASSET-BACKED SECURITIES--CONTINUED
HOME EQUITY LOAN--CONTINUED
$ 3,132,668 (a)Merrill Lynch Home Equity Loan Trust 1993-1, Class B, $ 3,176,902
6.50%, 2/15/2003
TOTAL 11,319,491
MANUFACTURED HOUSING--4.2%
3,000,000 Associates Manufactured Housing Certificates 1996-2, Class 3,017,460
A-2, 6.05%, 6/15/2027
3,750,000 Associates Manufactured Housing Certificates 1996-2, Class 3,803,662
A-2, 6.70%, 3/15/2027
1,991,802 Merrill Lynch Mortgage Investors, Inc. 1991-I, Class A, 2,044,764
7.65%, 1/15/2012
348,751 Merrill Lynch Mortgage Investors, Inc. 1992-B, Class B, 353,061
8.50%, 4/15/2012
TOTAL 9,218,947
OTHER ASSET BACKED--5.2%
2,739,683 (b)Bosque Asset Corp., 7.66%, 6/5/2002 2,759,382
260,000 Copelco Capital Funding Corp. X 1997-A, Class A4, 6.47%, 263,645
4/20/2005
5,000,000 CSXT Trade Receivables Master Trust 1993-1, Class A, 5.05%, 4,977,650
9/25/1999
8,779,918 (b)FMAC Loan Receivables Trust 1997-A, Class A-X, 2.77%, 1,373,267
4/15/2019
1,789,796 Nations Credit Grantor Trust 1997-1, Class A, 6.75%, 1,820,491
8/15/2013
TOTAL 11,194,435
TOTAL ASSET-BACKED SECURITIES (IDENTIFIED COST $89,580,003) 90,245,654
CORPORATE BONDS--23.6%
BANKING--8.3%
3,000,000 (a)BankAmerica Corp., Sub. Note, 5.50%, 6/25/2003 2,962,200
5,000,000 (a)Citicorp, Sub. Note, 5.538%, 10/25/2005 4,922,750
1,000,000 (a)J.P. Morgan & Co., Inc., Sub. Note, 5.379%, 8/19/2002 987,700
3,000,000 (b)KeyCorp, Series A, 6.625%, 6/15/2029 3,029,070
2,000,000 Mercantile Bancorporation, Inc., 6.80%, 6/15/2001 2,040,440
4,000,000 Toronto-Dominion Bank, Sub. Note, 7.875%, 8/15/2004 4,112,960
TOTAL 18,055,120
BEVERAGE & TOBACCO--1.4%
3,000,000 Philip Morris Cos., Inc., Deb., 6.00%, 11/15/1999 2,980,410
FINANCE - AUTOMOTIVE--1.4%
3,000,000 Ford Motor Credit Corp., Note, 5.83%, 6/29/1998 3,001,521
FINANCIAL INTERMEDIARIES--0.9%
2,000,000 Lehman Brothers Holdings, Inc., Series E, 6.30%, 8/11/1999 2,007,700
GOVERNMENT AGENCY--1.7%
3,380,000 Swedish Export Credit, 9.875%, 3/15/2038 3,593,177
</TABLE>
Federated Short-Term Income Fund
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS--CONTINUED
INSURANCE--1.9%
$ 4,000,000 American General Corp., S.F. Deb., 9.625%, 2/1/2018 $ 4,221,400
STATE/PROVINCIAL--2.5%
5,000,000 Province of Manitoba, 9.50%, 10/1/2000 5,458,600
TELECOMMUNICATIONS & CELLULAR--2.5%
2,000,000 British Telecommunication PLC, 9.625%, 2/15/2019 2,166,840
3,000,000 Southwestern Bell Capital Corp., Note, 8.81%, 12/16/2004 3,212,550
TOTAL 5,379,390
UTILITIES--3.0%
1,000,000 Big Rivers Electric Corp., U.S. Gov't. Guarantee, 10.70%, 1,057,380
9/15/2017
1,750,000 Kansas Electric Power Cooperative, Collateral Trust, 9.73%, 1,843,345
12/15/2017
2,000,000 Pennsylvania Power & Light Co., 9.25%, 10/1/2019 2,184,960
1,300,000 Philadelphia Electric Co., 8.625%, 6/1/2022 1,378,858
TOTAL 6,464,543
TOTAL CORPORATE BONDS (IDENTIFIED COST $51,445,943) 51,161,861
MORTGAGE-BACKED SECURITIES--28.3%
COMMERCIAL MORTGAGE-BACKED SECURITIES--2.1%
8,971,182 First Union Lehman Brothers Commercial Mortgage Trust, Series 714,913
1997-C1, Class IO, 1.307%, 4/18/2029
4,000,000 (b)K Mart CMBS Financing, Inc., Series 1997-1, Class C, 4,003,760
6.075%, 2/1/2007
TOTAL 4,718,673
GOVERNMENT AGENCY-MORTGAGE-BACKED SECURITIES--6.4%
1,000,000 FNMA, 6.34%, 7/28/2000 1,005,590
2,446,489 GNMA Pool 354754, 7.50%, 2/15/2024 2,504,593
8,400,946 GNMA Pool 780360, 11.00%, 9/15/2015 9,503,553
48,111,958 Vendee Mortgage Trust 1995-1C, Class 3IO, .2925%, 2/15/2025 781,819
TOTAL 13,795,555
NON-GOVERNMENT AGENCY-MORTGAGE-BACKED SECURITIES--19.8%
5,556,211 (b)C-BASS ABS, LLC Series 1997-1, Class A-1, 7.17%, 2/1/2017 5,583,992
2,627,755 GE Capital Mortgage Services, Inc. 1995-7, Class A-1, 7.50%, 2,652,324
9/25/2025
1,454,272 (a)Glendale Federal Bank 1988-1, Class A, 7.402%,
11/25/2027 1,471,084 2,281,009 (a)(b)Greenwich Capital Acceptance
1991-4, 8.478%, 7/1/2019 2,306,671 2,333,957 (a)Greenwich Capital
Acceptance 1993-AFCI, Class B-1, 7.618%, 2,366,772
9/25/2023
2,883,240 (a)Greenwich Capital Acceptance 1993-LB2, Class A-1, 7.92%, 2,916,570
8/25/2023
1,474,042 Greenwich Capital Acceptance 1993-LB3, Class A-1, 7.68%, 1,490,625
1/25/2024
</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
$ 7,604,048 (a)Greenwich Capital Acceptance 1994-B, Class A, 7.72%, $ 7,741,910
7/1/2018
390,408 (b)Long Beach Federal Savings Bank 1992-3, Class A, 9.60%, 397,240
6/15/2022
4,314,729 Prudential Home Mortgage Securities, Inc. 1992-5, Class A-6, 4,394,767
7.50%, 4/25/2007
2,500,000 Prudential Home Mortgage Securities, Inc. 1992-32, Class A-6, 2,532,850
7.50%, 10/25/2022
4,039,443 Residential Accredit Loans, Inc. 1996-QS8, Class A-3, 7.05%, 4,075,988
12/25/2026
2,850,000 Residential Accredit Loans, Inc. 1997-QS2, Class A-3, 7.25%, 2,884,371
3/31/2027
101,363 Residential Funding Mortgage Securities, Inc. 1993-S18, Class 101,132
A-2, 7.50%, 5/25/2023
2,000,018 (a)Resolution Trust Corp. 1992-12, Class B-3, 7.851%, 2,010,018
1/25/2025
TOTAL 42,926,314
TOTAL MORTGAGE-BACKED SECURITIES (IDENTIFIED COST $60,655,767) 61,440,542
U.S. TREASURY NOTES--5.6%
8,000,000 5.875%, 9/30/2002 8,048,880
4,000,000 6.375%, 5/15/2000 4,065,040
TOTAL U.S. TREASURY NOTES (IDENTIFIED COST $12,045,017) 12,113,920
TOTAL INVESTMENTS (IDENTIFIED COST $213,726,730)(C) $ 214,961,977
</TABLE>
(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, 1997, these securities
amounted to $22,441,202 which represents 10.3% of net assets.
(c) The cost of investments for federal tax purposes amounts to $213,726,730.
The net unrealized appreciation of investments on a federal tax basis
amounts to $1,235,247 which is comprised of $2,076,510 appreciation and
$841,263 depreciation at October 31, 1997.
Note: The categories of investments are shown as a percentage of net assets
($217,014,523) at October 31, 1997.
The following acronyms are used throughout this portfolio:
FNMA --Federal National Mortgage Association
GNMA --Government National Mortgage Association
IO --Interest Only
PLC --Public Limited Company
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF ASSETS AND LIABILITIES
FEDERATED SHORT-TERM INCOME FUND
OCTOBER 31, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $ 214,961,977
$213,726,730)
Income receivable 2,142,655
Receivable for investments sold 4,418,338
Receivable for shares sold 1,052,767
Total assets 222,575,737
LIABILITIES:
Payable for investments purchased $ 3,068,020
Income distribution payable 1,058,635
Payable to bank 1,422,246
Accrued expenses 12,313
Total liabilities 5,561,214
Net Assets for 24,777,267 shares outstanding $ 217,014,523
NET ASSETS CONSIST OF:
Paid in capital $ 241,132,375
Net unrealized appreciation of investments 1,235,247
Accumulated net realized loss on investments (24,847,207)
Distributions in excess of net investment income (505,892)
Total Net Assets $ 217,014,523
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS PER
SHARE:
INSTITUTIONAL SHARES:
$200,698,573 / 22,914,397 shares outstanding $8.76
INSTITUTIONAL SERVICE SHARES:
$16,315,950 / 1,862,870 shares outstanding $8.76
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
FEDERATED SHORT-TERM INCOME FUND
SIX MONTHS ENDED OCTOBER 31, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 7,117,052
EXPENSES:
Investment advisory fee $ 445,013
Administrative personnel and services fee 83,996
Custodian fees 9,295
Transfer and dividend disbursing agent fees and expenses 39,499
Directors'/Trustees' fees 4,048
Auditing fees 8,832
Legal fees 2,024
Portfolio accounting fees 39,060
Shareholder services fee--Institutional Shares 256,680
Shareholder services fee--Institutional Service Shares 42,906
Share registration costs 14,285
Printing and postage 11,592
Insurance premiums 2,484
Taxes 2,208
Miscellaneous 3,771
Total expenses 965,693
Waivers --
Waiver of investment advisory fee $ (38,170)
Waiver of shareholder services fee--Institutional Shares (256,680)
Waiver of shareholder services fee--Institutional (21,453)
Service Shares
Total waivers (316,303)
Net expenses 649,390
Net investment income 6,467,662
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments (241,324)
Net change in unrealized appreciation of investments 2,417,184
Net realized and unrealized gain on investments 2,175,860
Change in net assets resulting from operations $ 8,643,522
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
FEDERATED SHORT-TERM INCOME FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
OCTOBER 31, 1997 APRIL 30, 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 6,467,662 $ 14,812,810
Net realized gain (loss) on investments ($241,324 net loss and (241,324) (629,217)
$1,566,031 net loss, respectively, as computed for federal tax
purposes)
Net change in unrealized appreciation/depreciation 2,417,184 928,955
Change in net assets resulting from operations 8,643,522 15,112,548
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Institutional Shares (6,242,487) (13,841,711)
Institutional Service Shares (501,938) (971,099)
Distributions in excess of net investment income
Institutional Shares -- (229,129)
Change in net assets resulting from distributions to (6,744,425) (15,041,939)
shareholders
SHARE TRANSACTIONS--
Proceeds from sale of shares 49,010,497 139,918,706
Net asset value of shares issued to shareholders in payment of 1,680,967 3,262,307
distributions declared
Cost of shares redeemed (67,599,615) (144,248,869)
Change in net assets resulting from share transactions (16,908,151) (1,067,856)
Change in net assets (15,009,054) (997,247)
NET ASSETS:
Beginning of period 232,023,577 233,020,824
End of period (including undistributed net investment income of $ 217,014,523 $ 232,023,577
$(505,892) and $(229,129), respectively)
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FINANCIAL HIGHLIGHTS - INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
OCTOBER 31, YEAR ENDED APRIL 30,
1997 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.68 $ 8.68 $ 8.61 $ 8.85 $ 9.17 $ 8.98
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.26 0.54 0.57 0.54 0.51 0.58
Net realized and unrealized gain (loss) on investments 0.09 0.01 0.07 (0.24) (0.32) 0.16
Total from investment operations 0.35 0.55 0.64 0.30 0.19 0.74
LESS DISTRIBUTIONS
Distributions from net investment income (0.27) (0.54) (0.57) (0.54) (0.51) (0.55)
Distributions in excess of net investment income(a) -- (0.01) -- -- -- --
Total distributions (0.27) (0.55) (0.57) (0.54) (0.51) (0.55)
NET ASSET VALUE, END OF PERIOD $ 8.76 $ 8.68 $ 8.68 $ 8.61 $ 8.85 $ 9.17
TOTAL RETURN(B) 4.05% 6.53% 7.51% 3.55% 2.04% 8.39%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.56%* 0.56% 0.56% 0.56% 0.56% 0.51%
Net investment income 5.83%* 6.21% 6.43% 6.22% 5.55% 6.07%
Expense waiver/reimbursement(c) 0.28%* 0.28% 0.29% 0.03% 0.08% 0.45%
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $200,699 $214,438 $216,675 $219,649 $353,106 $144,129
Portfolio turnover 26% 55% 77% 38% 44% 62%
</TABLE>
* Computed on an annualized basis.
(a) Distributions in excess of net investment income for the year ended April
30, 1997, 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, 1997.
(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)
FINANCIAL HIGHLIGHTS - INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
OCTOBER 31, YEAR ENDED APRIL 30,
1997 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.68 $ 8.68 $ 8.61 $ 8.85 $ 9.17 $ 8.98
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.25 0.53 0.54 0.52 0.48 0.52
Net realized and unrealized gain (loss) on investments 0.09 -- 0.07 (0.24) (0.32) 0.19
Total from investment operations 0.34 0.53 0.61 0.28 0.16 0.71
LESS DISTRIBUTIONS
Distributions from net investment income (0.26) (0.53) (0.54) (0.52) (0.48) (0.52)
NET ASSET VALUE, END OF PERIOD $ 8.76 $ 8.68 $ 8.68 $ 8.61 $ 8.85 $ 9.17
TOTAL RETURN(A) 3.93% 6.27% 7.25% 3.29% 1.78% 8.12%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.81%* 0.81% 0.81% 0.81% 0.81% 0.76%
Net investment income 5.62%* 5.96% 6.17% 5.90% 5.30% 5.82%
Expense waiver/reimbursement(b) 0.29%* 0.28% 0.29% 0.27% 0.13% 0.45%
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $16,316 $17,586 $16,346 $17,091 $39,649 $15,673
Portfolio turnover 26% 55% 77 38% 44% 62%
</TABLE>
* Computed on an annualized basis.
(a) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
NOTES TO FINANCIAL STATEMENTS
FEDERATED SHORT-TERM INCOME FUND
OCTOBER 31, 1997 (UNAUDITED)
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.
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, 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.
At April 30, 1997, the Fund, for federal tax purposes, had a capital loss
carryforward of $24,147,796, 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:
EXPIRATION YEAR EXPIRATION AMOUNT
1998 $ 316,627
1999 1,132,354
2000 4,105,766
2002 669,532
2003 5,572,713
2004 10,784,773
2005 1,566,031
Additionally, net capital losses of $458,087 attributable to security
transactions incurred after October 31, 1996, 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 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, 1997, is
as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
Banco Nacional de Mexico, 1996-A 1/9/1997 $2,935,781
Bosque Asset Corp. 6/19/1997 2,749,957
FMAC Loan Receivables Trust 1997-A 6/16/1997 1,341,928
KeyCorp., Series A 5/27/1997 2,997,210
K Mart CMBS Financing, Inc., Series 1997-1 2/27/1997 4,000,000
C-BASS ABS, LLC Series 1997-1 2/25/1997 5,578,783
Greenwich Capital Acceptance 1991-4 1/7/1993 2,292,082
Long Beach Federal Savings Bank 1992-3, Class A 6/29/1992 413,589
</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.
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, 1997 April 30, 1997
Institutional Shares Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 5,019,185 $ 43,825,401 15,252,983 $ 132,739,529
Shares issued to shareholders in payment of distributions declared 169,021 1,473,823 321,221 2,792,262
Shares redeemed (6,966,768) (60,792,254) (15,832,329) (137,838,962)
Net change resulting from Institutional Share transactions (1,778,562) $(15,493,030) (258,125) $ (2,307,171)
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Year Ended
October 31, 1997 April 30, 1997
Institutional Service Shares Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 593,704 $ 5,185,096 825,563 $ 7,179,177
Shares issued to shareholders in payment of distributions declared 23,740 207,144 54,067 470,045
Shares redeemed (779,591) (6,807,361) (736,958) (6,409,907)
Net change resulting from Institutional Service Share transactions (162,147) $ (1,415,121) 142,672 $ 1,239,315
Net change resulting from share transactions (1,940,709) $(16,908,151) (115,453) $ (1,067,856)
</TABLE>
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 Service 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.
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 Trust are Officers and Directors or
Trustees of the above companies.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities for the
period ended October 31, 1997, were as follows:
PURCHASES $55,020,336
SALES $58,414,410
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
John E. Murray, Jr.
Wesley W. Posvar
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
Anthony R. Bosch
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 prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
NOTES
NOTES
[Federated Securities Logo]
Federated Short-Term Income Fund
Semi-Annual Report
to Shareholders
October 31, 1997
Federated Securities Corp., Distributor
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvetors.com
Cusip 31420C209
Cusip 31420C308
8112901 (12/97)
[recycled paper logo]
