PRESIDENT'S MESSAGE
Dear Shareholder:
I am pleased to present the Annual Report for Federated Intermediate Income
Fund, a portfolio of Federated Income Securities Trust. The report covers the
twelve-month period from May 1, 1996, through April 30, 1997. It begins with an
investment review by the fund's portfolio manager, followed by a complete
listing of the fund's high-quality bond holdings, and the financial statements.
In addition, financial highlights tables are included for Institutional Shares
and Institutional Service Shares.
During the reporting period, the fund's Institutional Shares delivered an
average annual total return of 7.00% through dividend income totaling $0.63 per
share, a capital gain distribution of $0.01 per share, and a $0.02 per share
increase in net asset value.* The Institutional Service Shares also produced a
competitive average annual total return of 6.73% through dividend income
totaling $0.61 per share, a capital gains distribution of $0.01 per share, and a
$0.03 per share increase in net asset value.* The fund's net assets stood at
$122 million at the end of the reporting period.
Thank you for participating in the income potential of high-quality bonds
through Federated Intermediate Income Fund.
As always, we welcome your comments, questions and suggestions.
Sincerely,
[Graphic]
Glen R. Johnson
President
June 15, 1997
* 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.
FEDERATED INTERMEDIATE INCOME FUND
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 also invests 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
one-year reporting period ended April 30, 1997 was somewhat volatile but within
a relative trading range. Interest rates rose slightly across the entire
maturity curve, generally from 0.15% to 0.30% from the five-year point inward
and 0% to 0.05% from the ten-year point outward. As a result, the fund's
performance largely reflected its coupon income flow plus some relative price
appreciation.
A general constant over the past year was a sustained economic growth
environment as the economy entered its seventh consecutive year of expansion in
March 1997. With higher earnings, corporate credit fundamentals continued to
improve, and thus, high quality corporate bonds outperformed comparable maturity
Treasuries over the twelve-month period. Fund duration was basically maintained
at a neutral position to the Lehman Brothers Government/Corporate Total Index
(the "Index")* for most of the reporting period. Thus, with no designed interest
rate anticipation bias, the fund's relative performance was attributed to its
overweight in corporate securities relative to the Index. For the one-year
period ended April 30, 1997, the fund's Institutional Shares provided a 7.00%**
average annual total return compared to a 6.72% average annual total return for
the Index.
As the fund's fiscal year came to a close, corporate bond spreads were at
relatively tight levels to government securities based on historical
relationships. Thus, fund management may look to upgrade the portfolio into more
government securities over the coming months.
* Lehman Brothers Government/Corporate Total Index is an unmanaged index
comprised of approximately 5,000 issues which include nonconvertible 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 Shearson Lehman Brothers, Inc. the index
calculated total returns for one-month, three-month, twelve-month, and
ten-year periods and year-to-date. 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
investors' shares, when redeemed, may be worth more or less than their
original cost. Total return for Institutional Service Shares for the one-year
period ended April 30, 1997 was 6.73%.
FEDERATED 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, 1997 compared to the
Lehman Brothers Government/Corporate Total Index ("LBGCTI")+ and the Lipper
Intermediate-Term Investment Grade Debt Funds Average ("LIIGDFA").++
Intermediate-Term Investment Grade Debt Funds Average ("LIIGDFA").++
[Graphic representation "A" omitted. 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.
* 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 Securities and Exchange Commission 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
Securities and Exchange Commission requires to be reflected in a fund's
performance.
FEDERATED 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, 1997 compared to the
Lehman Brothers Government/Corporate Total Index ("LBGCTI")+ and the Lipper
Intermediate-Term Investment Grade Debt Funds Average
("LIIGDFA").++
[Graphic representation "B" omitted. 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.
* 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 Securities and Exchange Commission 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
Securities and Exchange Commission requires to be reflected in a fund's
performance.
FEDERATED INTERMEDIATE INCOME FUND
PORTFOLIO OF INVESTMENTS
APRIL 30, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
ASSET-BACKED SECURITIES -- 1.0%
<C> <S> <C>
HOME EQUITY RECEIVABLES -- 0.1%
$ 118,337 TMS Home Equity Trust 1992-B, Class A, 6.90%, 7/15/2007 $ 117,542
NON-GOVERNMENT AGENCY-MORTGAGE-BACKED SECURITIES -- 0.9%
400,000 Prudential Bache, Series 8, Class F, 7.965%, 3/1/2019 409,120
500,000 Residential Funding Corp. 1993-S26, Class A10, 7.50%, 7/25/2023 474,400
300,000 Residential Funding Corp. 1993-S31, Class A7, 7.00%, 9/25/2023 269,355
Total 1,152,875
TOTAL ASSET BACKED SECURITIES (IDENTIFIED COST $1,342,315) 1,270,417
CORPORATE BONDS -- 75.1%
AEROSPACE & DEFENSE -- 0.2%
300,000 Boeing Co., Unsecd. Note, 6.35%, 6/15/2003 291,465
AIR TRANSPORTATION -- 0.8%
1,000,000 Southwest Airlines Co., Deb., 7.375%, 3/1/2027 957,100
BANKING -- 11.3%
1,250,000 ABN-AMRO Bank NV, Chicago, Sub. Deb., 7.30%, 12/1/2026 1,155,375
2,000,000 African Development Bank, Note, 6.88%, 10/15/2015 1,889,960
2,000,000 Banco Santander, Bank Guarantee, 7.88%, 4/15/2005 2,061,900
2,000,000 Bank of Montreal, Sub. Note, 7.80%, 4/1/2007 2,060,980
1,000,000 Barclays North America, Deb., 9.75%, 5/15/2021 1,102,950
920,000 Chase Manhattan Corp., Sub. Note, 8.00%, 5/1/2005 934,324
1,500,000 Export-Import Bank Korea, 7.10%, 3/15/2007 1,505,565
250,000 First Chicago NBD Corp., Sub. Note, 8.10%, 3/1/2002 260,900
1,000,000 National Bank of Canada, Montreal, Sub. Note, 8.13%, 8/15/2004 1,046,160
300,000 Northern Trust Corp., Sub. Note, 9.00%, 5/15/1998 308,271
1,500,000 UBS - NY, Sub. Note, 7.25%, 7/15/2006 1,496,085
Total 13,822,470
</TABLE>
FEDERATED INTERMEDIATE INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS -- CONTINUED
BEVERAGE & TOBACCO -- 2.1%
$ 350,000 American Brands, Inc., Medium Term Note, 8.87%, 8/10/1998 $ 361,431
2,000,000 Philip Morris Cos., Inc., Deb., 7.75%, 1/15/2027 1,916,340
250,000 Philip Morris Cos., Inc., Deb., 9.25%, 12/1/1997 254,490
Total 2,532,261
CHEMICALS & PLASTICS -- 1.5%
1,500,000 (a)Bayer Corp., Deb., 6.50%, 10/1/2002 1,471,770
350,000 Monsanto Co., Deb., 8.80%, 7/15/1997 352,429
Total 1,824,199
COSMETICS & TOILETRIES -- 0.2%
225,000 Gillette Co., Note, 6.25%, 8/15/2003 217,550
ECOLOGICAL SERVICES & EQUIPMENT -- 1.7%
2,000,000 WMX Technologies, Inc., Deb., 8.75%, 5/1/2018 2,119,300
EDUCATION -- 1.8%
1,000,000 Columbia University, Medium Term Note, 8.62%, 2/21/2001 1,063,320
1,000,000 Harvard University, Revenue Bonds, 8.13% Bonds, 4/15/2007 1,075,610
Total 2,138,930
ELECTRONICS -- 2.3%
300,000 Emerson Electric Co., Note, 6.30%, 11/1/2005 286,989
2,250,000 Harris Corp., Deb., 10.38%, 12/1/2018 2,475,473
Total 2,762,462
FINANCE - AUTOMOTIVE -- 1.8%
2,000,000 Ford Capital BV, Note, 9.38%, 5/15/2001 2,166,260
FINANCIAL INTERMEDIARIES -- 8.8%
250,000 American Express Credit Corp., Deb., 8.50%, 6/15/1999 259,408
2,000,000 Associates Corp. of North America, Note, 6.68%, 9/17/1999 2,003,680
1,500,000 Donaldson, Lufkin and Jenrette Securities Corp., Note, 6.88%, 11/1/2005 1,441,950
2,000,000 Lehman Brothers, Inc., Sr. Sub. Note, 7.38%, 1/15/2007 1,968,100
1,000,000 Merrill Lynch & Co., Inc., Medium Term Note, 7.25%, 6/14/2004 1,002,630
</TABLE>
FEDERATED INTERMEDIATE INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS -- CONTINUED
FINANCIAL INTERMEDIARIES -- CONTINUED
$ 2,000,000 Morgan Stanley Group, Inc., Deb., 9.25%, 3/1/1998 $ 2,052,200
1,050,000 Norwest Financial, Inc., Note, 6.23%, 9/1/1998 1,049,874
996,187 (a)World Financial, Pass Thru Cert., Series 96 WFP-B, 6.91%, 9/1/2013 968,483
Total 10,746,325
FOOD PRODUCTS -- 0.2%
300,000 Kraft General Foods, Inc., Deb., 6.00%, 6/15/2001 290,586
FOREST PRODUCTS -- 1.0%
1,250,000 Smurfit Capital, Note, 6.75%, 11/20/2005 1,197,650
HEALTH SERVICES -- 2.0%
1,000,000 Aetna Services Inc., Company Guarantee, 6.75%, 8/15/2001 993,910
1,500,000 Columbia/HCA Healthcare Corp., Deb., 7.19%, 11/15/2015 1,423,680
Total 2,417,590
INDUSTRIAL PRODUCTS & EQUIPMENT -- 0.2%
300,000 Illinois Tool Works, Inc., Note, 5.88%, 3/1/2000 294,480
INSURANCE -- 11.4%
2,500,000 Allmerica Financial Corp., Sr. Note, 7.63%, 10/15/2025 2,402,375
2,485,000 American General Corp., S.F. Deb., 9.63%, 2/1/2018 2,696,300
2,000,000 CNA Financial Corp., Deb., 7.25%, 11/15/2023 1,831,340
300,000 Chubb Capital Corp., Note, 6.00%, 2/1/1998 300,267
1,500,000 GE Global Insurance, Note, 7.00%, 2/15/2026 1,390,365
1,000,000 GEICO Corp., Deb., 9.15%, 9/15/2021 1,095,320
250,000 MBIA Corporation, Deb., 9.00%, 2/15/2001 267,593
1,500,000 (a)Reinsurance Group of America, Sr. Note, 7.25%, 4/1/2006 1,480,560
1,500,000 SunAmerica, Inc., Medium Term Note, 7.34%, 8/30/2005 1,493,150
1,000,000 SunAmerica, Inc., Note, 6.20%, 10/31/1999 989,850
Total 13,947,120
</TABLE>
FEDERATED INTERMEDIATE INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS -- CONTINUED
METALS & MINING -- 2.1%
$ 1,000,000 Alcan Aluminum, Ltd., Deb., 9.20%, 3/15/2001 $ 1,024,950
1,500,000 Barrick Gold Corp., Deb., 7.50%, 5/1/2007 1,514,655
Total 2,539,605
MUNICIPAL SERVICES -- 4.6%
1,325,000 Kansas City, MO Redevelopment Authority, 7.65% Bonds (FSA LOC),
11/1/2018 1,289,662
1,000,000 Miami Florida Revenue Pension Obligation, 7.20% Bonds (AMBAC
LOC), 12/1/2025 919,910
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 1,343,450
1,000,000 Pittsburgh, PA Urban Redevelopment Authority, 9.07% Bonds (CGIC
GTD), 9/1/2014 1,093,610
1,000,000 St. Johns County, FL Convention Center, Taxable Municipal Revenue
Bonds, 8.00% Bonds (FSA INS), 1/1/2026 1,011,160
Total 5,657,792
OIL & GAS -- 0.2%
250,000 Shell Oil Co., Deb., 6.95%, 12/15/1998 252,503
PHARMACEUTICAL -- 0.2%
250,000 American Home Products Corp., Note, 7.90%, 2/15/2005 262,280
RAIL INDUSTRY -- 1.1%
1,000,000 Atchison Topeka & Santa Fe RR, Equip. Trust, 6.55%, 1/6/2013 944,380
350,000 Norfolk Southern Corp., Equip. Trust, 7.75%, 8/15/1999 357,217
Total 1,301,597
RETAILERS -- 3.7%
2,000,000 May Department Stores Co., Deb., 8.13%, 8/15/2035 2,029,860
2,250,000 Penney (J.C.) Co., Inc., Deb., 7.65%, 8/15/2016 2,211,615
300,000 Sears, Roebuck & Co., Deb., 8.45%, 11/1/1998 308,640
Total 4,550,115
</TABLE>
FEDERATED INTERMEDIATE INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS -- CONTINUED
SOVEREIGN GOVERNMENT -- 6.8%
$ 1,000,000 (a)Freeport Terminal (Malta) Ltd., Gtd. Global Note, 7.50%, 3/29/2009 $ 1,008,020
850,000 Quebec, Province of, Deb., 7.00%, 1/30/2007 830,680
1,500,000 Quebec, Province of, Deb., 7.50%, 7/15/2023 1,444,440
1,000,000 Sweden, Kingdom of, Deb., 10.25%, 11/1/2015 1,251,740
2,500,000 Swedish Export Credit, 9.88%, 3/15/2038 2,686,625
1,000,000 Victoria Public Authority, Local Gov't. Guarantee, 8.25%, 1/15/2002 1,048,125
Total 8,269,630
SURFACE TRANSPORTATION -- 2.2%
2,250,000 Trans Ocean Container Corp., Sr. Sub. Note, 12.25%, 7/1/2004 2,627,910
TELECOMMUNICATIONS & CELLULAR -- 0.7%
800,000 New England Telephone & Telegraph, Deb., 8.63%, 8/1/2001 850,384
UTILITIES -- 6.2%
250,000 Central Illinois Public, 1st Mtg. Bond, 6.00%, 4/1/2000 245,720
250,000 Consolidated Edison Co., Deb., 6.25%, 4/1/1998 250,378
250,000 Consolidated Edison Co., Deb., Series 92B, 7.63%, 3/1/2004 256,590
1,250,000 Enersis S.A., Note, 7.40%, 12/1/2016 1,188,100
1,500,000 (a)Israel Electric Corp. Ltd., Sr. Note, 7.88%, 12/15/2026 1,473,000
1,000,000 Kansas Electric Power Cooperative, Collateral Trust, 9.73%, 12/15/2017 1,069,890
300,000 Midwest Power Systems, Inc., Mtg. Bond, 6.75%, 2/1/2000 300,078
180,000 Minnesota Power and Light Co., 1st Mtg. Bond, 7.75%, 6/1/2007 182,194
975,000 Pedernales Electric Coop, 10.88% Bonds (MBIA INS), 9/1/2017 1,043,045
250,000 Pennsylvania Power & Light Company, Mtg. Bond, 5.50%, 4/1/1998 248,667
500,000 (a)Tenaga Nasional Berhad, Deb., 7.50%, 1/15/2096 465,760
400,000 Virginia Electric Power Co., Mtg. Bond, Series A, 9.38%, 6/1/1998 413,004
500,000 Wisconsin Telephone Co., Deb., 6.25%, 8/1/2004 477,595
Total 7,614,021
TOTAL CORPORATE BONDS (IDENTIFIED COST $92,352,531) 91,651,585
</TABLE>
FEDERATED INTERMEDIATE INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
GOVERNMENT AGENCIES -- 7.3%
$ 200,000 Federal Home Loan Bank, 6.59%, 10/30/2000 $ 198,546
250,000 Federal Home Loan Bank, Deb., 6.18%, 1/10/2001 245,455
550,000 Federal Home Loan Mortgage Corp., Deb. Note, 5.94%, 3/8/1999 545,507
1,000,000 Federal Home Loan Mortgage Corp., Deb. Note, 7.61%, 9/1/2004 998,170
300,000 Federal Home Loan Mortgage Corp., Deb., 6.28%, 7/15/2003 288,552
4,500,000 Federal National Mortgage Association, 0/8.62%, 3/9/2022 4,272,615
500,000 Federal National Mortgage Association, 8.25%, 12/18/2000 527,070
750,000 Federal National Mortgage Association, Medium Term Note, 7.43%,
8/4/2005 744,960
250,000 Federal National Mortgage Association, Medium Term Note, 7.77%,
7/18/2001 251,245
500,000 Federal National Mortgage Association, Medium Term Note, 8.59%,
2/3/2005 508,070
300,000 Tennessee Valley Authority, Deb., 6.875%, 1/15/2002 299,010
TOTAL GOVERNMENT AGENCIES (IDENTIFIED COST $8,728,608) 8,879,200
MORTGAGE-BACKED SECURITIES -- 12.6%
FEDERAL HOME LOAN MORTGAGE CORPORATION -- 3.9%
95 Pool M19098, 8.50%, 6/1/1997 95
2,906,273 Pool D64184, 8.00%, 10/1/2025 2,951,320
1,877,151 Pool C00426, 7.00%, 10/1/2025 1,825,285
Total 4,776,700
FEDERAL NATIONAL MORTGAGE ASSOCIATION -- 4.9%
2,863,208 Pool 347571, 7.00%, 5/1/2003 2,857,825
1,947,028 Pool 354370, 6.50%, 8/1/2003 1,912,351
1,267,464 Pool 250412, 7.00%, 12/1/2010 1,258,744
Total 6,028,920
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION -- 3.8%
2,857,030 Pool 780359, 7.50%, 12/15/2023 2,850,773
951,612 Pool 379983, 7.50%, 2/15/2024 950,127
</TABLE>
FEDERATED INTERMEDIATE INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
MORTGAGE BACKED SECURITIES -- CONTINUED
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION -- CONTINUED
$ 866,442 Pool 780204, 7.00%, 7/15/2025 $ 843,152
Total 4,644,052
TOTAL MORTGAGE-BACKED SECURITIES (IDENTIFIED COST $15,515,490)
15,449,672
TREASURY SECURITIES -- 0.5%
U.S. TREASURY NOTES -- 0.5%
300,000 8.50%, 2/15/2000 315,873
300,000 7.50%, 11/15/2001 311,028
TOTAL TREASURY SECURITIES (IDENTIFIED COST $637,788) 626,901
(B)REPURCHASE AGREEMENT -- 2.3%
2,770,000 BT Securities Corporation, 5.43%, dated 4/30/1997, due 5/1/1997
(AT AMORTIZED COST) 2,770,000
TOTAL INVESTMENTS (IDENTIFIED COST $121,346,732)(C) $120,647,775
</TABLE>
(a) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At April 30, 1997, these securities amounted
to $6,867,593 which represents 5.62% 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 $121,346,732.
The net unrealized depreciation of investments on a federal tax basis
amounts to $698,957 which comprised of $900,254 appreciation and $1,599,211
depreciation at April 30, 1997.
Note: The categories of investments are shown as a percentage of net assets
($122,096,967) at April 30, 1997.
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
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $121,346,732) $120,647,775
Income receivable 2,108,263
Receivable for shares sold 254,000
Deferred expenses 16,603
Total assets 123,026,641
LIABILITIES:
Payable for shares redeemed $ 272,321
Income distribution payable 556,383
Payable to Bank 66,719
Accrued expenses 34,251
Total liabilities 929,674
NET ASSETS for 12,466,999 shares outstanding $122,096,967
NET ASSETS CONSIST OF:
Paid in capital $123,164,139
Net unrealized depreciation of investments (698,957)
Accumulated net realized loss on investments (380,301)
Undistributed net investment income 12,086
Total Net Assets $122,096,967
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$121,306,743 / 12,386,311 shares outstanding $9.79
INSTITUTIONAL SERVICE SHARES:
$790,224 / 80,688 shares outstanding $9.79
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED INTERMEDIATE INCOME FUND
STATEMENT OF OPERATIONS
YEAR ENDED APRIL 30, 1997
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $7,598,796
EXPENSES:
Investment advisory fee $ 539,952
Administrative personnel and services fee 155,001
Custodian fees 22,478
Transfer and dividend disbursing agent fees and expenses 46,349
Directors'/Trustees' fees 2,680
Auditing fees 17,478
Legal fees 3,295
Portfolio accounting fees 67,480
Distribution services fee -- Institutional Service Shares 1,835
Shareholder services fee -- Institutional Shares 268,141
Shareholder services fee -- Institutional Service Shares 1,835
Share registration costs 29,672
Printing and postage 22,613
Insurance premiums 3,804
Taxes 5,428
Miscellaneous 27,158
Total expenses 1,215,199
Waivers --
Waiver of investment advisory fee $(344,689) Waiver of distribution services
fee -- Institutional Service Shares (662) Waiver of shareholder services fee
-- Institutional Shares (268,141) Waiver of shareholder services fee --
Institutional Service Shares (1,173)
Total waivers (614,665)
Net expenses 600,534
Net investment income 6,998,262
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments (380,854)
Net change in unrealized depreciation of investments 356,638
Net realized and unrealized loss on investments (24,216)
Change in net assets resulting from operations $6,974,046
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED INTERMEDIATE INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 6,998,262 $ 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) (380,854) 592,904
Net change in unrealized appreciation/depreciation 356,638 (1,216,895)
Change in net assets resulting from operations 6,974,046 3,080,314
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income
Institutional Shares (6,940,716) (3,680,651)
Institutional Service Shares (45,460) (23,654)
Distributions from net realized gains
Institutional Shares (56,910) --
Institutional Service Shares (534) --
Change in net assets resulting from distributions to shareholders (7,043,620) (3,704,305)
SHARE TRANSACTIONS --
Proceeds from sale of shares 70,364,497 73,115,997
Net asset value of shares issued to shareholders in payment of
distributions declared 1,225,640 566,067
Cost of shares redeemed (37,424,842) (17,840,975)
Change in net assets resulting from share transactions 34,165,295 55,841,089
Change in net assets 34,095,721 55,217,098
NET ASSETS:
Beginning of period 88,001,246 32,784,148
End of period (including undistributed net investment income
of $12,086 and $0, respectively) $122,096,967 $88,001,246
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED INTERMEDIATE INCOME FUND
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
1997 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 0.63 0.66 0.66 0.23
Net realized and unrealized gain (loss) on investments 0.03 0.22 0.02 (0.47)
Total from investment operations 0.66 0.88 0.68 (0.24)
LESS DISTRIBUTIONS
Distributions from net investment income (0.63) (0.66) (0.66) (0.23)
Distributions from net realized gain on investments (0.01) -- -- --
Total distributions (0.64) (0.66) (0.66) (0.23)
NET ASSET VALUE, END OF PERIOD $ 9.79 $ 9.77 $ 9.55 $ 9.53
TOTAL RETURN(B) 7.00% 9.13% 7.53% (2.48%)
RATIOS TO AVERAGE NET ASSETS
Expenses 0.55% 0.55% 0.48% 0.00%*
Net investment income 6.48% 6.52% 7.12% 6.36%*
Expense waiver/reimbursement(c) 0.57% 0.85% 1.22% 1.40%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $121,307 $87,493 $32,508 $17,702
Portfolio turnover 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)
FEDERATED INTERMEDIATE INCOME FUND
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
1997 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 0.61 0.63 0.64 0.22
Net realized and unrealized gain (loss) on investments 0.04 0.21 0.02 (0.47)
Total from investment operations 0.65 0.84 0.66 (0.25)
LESS DISTRIBUTIONS
Distributions from net investment income (0.61) (0.63) (0.64) (0.22)
Distributions from net realized gain on investments (0.01) -- -- --
Total distributions (0.62) (0.63) (0.64) (0.22)
NET ASSET VALUE, END OF PERIOD $ 9.79 $ 9.76 $ 9.55 $ 9.53
TOTAL RETURN(B) 6.73% 8.86% 7.27% (2.57%)
RATIOS TO AVERAGE NET ASSETS
Expenses 0.80% 0.80% 0.72% 0.25%*
Net investment income 6.21% 6.31% 6.85% 6.12%*
Expense waiver/reimbursement(c) 0.57% 0.85% 1.22% 1.40%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $790 $508 $276 $225
Portfolio turnover 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)
FEDERATED INTERMEDIATE INCOME FUND
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1997
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 investment objective of
the Fund is to provide current income. The financial statements of the other
portfolio are presented separately. The assets of each portfolio are segregated
and a shareholder's interest is limited to the portfolio in which shares are
held.
The Fund offers two classes of shares: Institutional Shares and
Institutional Service Shares.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS -- U.S. government securities, listed corporate bonds,
other fixed income and asset-backed 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. Many restricted securities may be resold in
the secondary market in transactions exempt from registration. In some cases,
the restricted securities may be resold without registration upon exercise of
a demand feature. 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. Restricted securities are valued at the
price provided by dealers in 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 April 30, 1997 is
as follows:
<TABLE>
<S> <C> <C>
SECURITY ACQUISITION DATE ACQUISITION COST
Bayer Corp., Deb. 3/21/96 $1,495,927
Reinsurance Group of America, Sr. Note 3/19/96 1,495,410
Tenaga Nasional Berhad, Deb. 3/3/97 474,925
Word Financial, Pass Thru Cert. Series 96 11/18/96 996,187
Freeport Terminal (Malta) Ltd., Gtd. Global Note 3/17/94-7/19/94 972,965
Israel Electric Corp. Ltd., Sr. Note 1/28/97 1,497,051
</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>
YEAR ENDED APRIL 30,
1997 1996
<S> <C> <C> <C> <C>
INSTITUTIONAL SHARES SHARES AMOUNT SHARES AMOUNT
Shares sold 7,046,674 $ 69,424,049 7,294,867 $ 72,842,163
Shares issued to shareholders in payment
of distributions declared 121,307 1,193,759 55,479 553,522
Shares redeemed (3,741,544) (36,732,127) (1,794,289) (17,784,858)
Net change resulting from Institutional
Share transactions 3,426,437 $ 33,885,681 5,556,057 $ 55,610,827
<CAPTION>
YEAR ENDED APRIL 30,
1997 1996
<S> <C> <C> <C> <C>
INSTITUTIONAL SERVICE SHARES SHARES AMOUNT SHARES AMOUNT
Shares sold 95,657 $ 940,448 28,008 $ 273,834
Shares issued to shareholders in payment
of distributions declared 3,236 31,881 1,255 12,545
Shares redeemed (70,216) (692,715) (6,200) (56,117)
Net change resulting from Institutional
Service Share transactions 28,677 $ 279,614 23,063 $ 230,262
Net change resulting from Fund share
transactions 3,455,114 $ 34,165,295 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 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 AGENT AND DIVIDEND DISBURSING AGENT FEES -- 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 Adviser. The Fund has agreed to reimburse Adviser for the
organizational expenses during the five-year period following effective date.
For the period ended April 30, 1997, 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 April 30, 1997, were as follows:
<TABLE>
<S> <C>
PURCHASES $91,351,372
SALES $56,639,326
</TABLE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Trustees and Shareholders of
FEDERATED INTERMEDIATE INCOME FUND (a portfolio of Federated Income Securities
Trust):
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Federated Intermediate Income Fund (one of the
portfolios comprising Federated Income Securities Trust), as of April 30, 1997,
and the related statement of operations for the year then ended, the statements
of changes in net assets for each of the two years in the period then ended and
the financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of April
30, 1997, by correspondence with the custodian and a broker. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Federated Intermediate Income Fund, a portfolio of Federated Income Securities
Trust, at April 30, 1997, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then
ended, and financial highlights for each of the periods presented, in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
June 13, 1997
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
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 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.
FEDERATED
INTERMEDIATE
INCOME
FUND
ANNUAL REPORT
TO SHAREHOLDERS
APRIL 30, 1997
[Graphic]
Federated Investors
Federated Securities Corp., Distributor
Cusip 31420C407
Cusip 31420C506
G00715-02 (6/97)
[Graphic]
Appendix
A. The graphic presentation here displayed consists of a legend in the
upper left quadrant indicating the components of the corresponding line graph.
Federated Intermediate Income Fund (Institutional Shares) (the "Fund") is
represented by a solid line. The Lehman Brothers Government/Corporate Total
Index ("LBGCTI") is represented by a broken line. The Lipper Intermediate-Term
Investment Grade Debt Funds Average ("LIIGDFA") is represented by a dashed line.
The line graph is a visual representation of a comparison of change in value of
a hypothetical $25,000 investment in the Fund, LBGCTI, and LIIGDFA. The "y" axis
reflects the cost of the investment. The "x" axis reflects annual computation
periods from the Fund's start of business, December 20, 1993, through April 30,
1997. The right margin reflects the ending value of the hypothetical investment
in the Fund as compared to LBGCTI and LIIGDFA; the ending values are $30,612,
$29,772, and $29,291, respectively. There is also a legend in the bottom center
of the graphic presentation which indicates the Average Annual Total Return for
the period ended April 30, 1997, beginning with the one-year period, and the
inception date; the Average Annual Total Returns are 7.00%, and 6.20%,
respectively.
B. The graphic presentation here displayed consists of a legend in the
upper left quadrant indicating the components of the corresponding line graph.
Federated Intermediate Income Fund (Institutional Service Shares) (the "Fund")
is represented by a solid line. The Lehman Brothers Government/Corporate Total
Index ("LBGCTI") is represented by a broken line. The Lipper Intermediate-Term
Investment Grade Debt Funds Average ("LIIGDFA") is represented by a dashed line.
The line graph is a visual representation of a comparison of change in value of
a hypothetical $25,000 investment in the Fund, LBGCTI, and LIIGDFA. The "y" axis
reflects the cost of the investment. The "x" axis reflects annual computation
periods from the Fund's start of business, December 20, 1993, through April 30,
1997. The right margin reflects the ending value of the hypothetical investment
in the Fund as compared to LBGCTI and LIIGDFA; the ending values are $30,357,
$29,772, and $29,291, respectively. There is also a legend in the bottom center
of the graphic presentation which indicates the Average Annual Total Return for
the period ended April 30, 1997, beginning with the one-year period, and the
inception date; the Average Annual Total Returns are 6.73%, and 5.94%,
respectively.
