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 ending October 31, 1998. It begins
with a review of the bond market by the fund's portfolio manager, which is
followed by a complete list of fund holdings and its financial statements.
On behalf of income-oriented investors, the fund invests in a diversified
portfolio consisting primarily of intermediate-term, high-quality debt
securities. At the end of the reporting period, the fund's portfolio was
invested primarily in corporate bonds (60.2%), followed by mortgage-backed
securities (11.4%), U.S. Treasury securities (11.4%), government agency
securities (8.2%), a repurchase agreement (3.9%), asset-backed securities
(3.5%), preferred stocks (1.0%), and a collateralized mortgage obligation
(0.2%).
During the reporting period, Institutional Shares produced a total return of
4.51%* through dividends totaling $0.30 per share and a net asset value
increase of $0.15 per share. Institutional Service Shares produced a total
return of 4.38%* through dividends of $0.29 per share and a net asset value
increase of $0.15 per share.
Total net assets in the fund reached $197.1 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, 1998
* 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.
Investment Review
Federated Intermediate Income Fund invests primarily in high quality corporate
debt securities rated in one of the four highest categories (A or better) by a
nationally recognized statistical rating organization. The fund may also
invest in other high quality government and asset-backed securities. The fund
duration is managed within a range of three to seven years.
The six-month period ended October 31, 1998, was very positive for most fixed
income investors, particularly those in the highest quality debt sectors.
Interest rate levels declined significantly over the reporting period for all
points along the U.S. Treasury maturity spectrum. The largest rate decrease
occurred in the two year treasury maturity, which fell approximately 145
basis points in yield. There were two predominant reasons for the interest
rate decline: 1) a slower growth economic environment, and 2) dramatic
economic/financial marketplace volatility in non-U.S. markets.
Throughout much of calendar year 1998, corporate earnings have been
considerably below initial Wall Street analyst expectations. The
corresponding concern over the future growth potential of the U.S. economy,
in combination with sustained low inflation, caused U.S. Treasury yields to
fall. Additionally, the global financial marketplace became far more unstable
over the reporting period. Problems emanating out of Asia in the second half
of 1997 quickly spread to Russia and Latin America during the first three
quarters of 1998. The result was a worldwide "flight to quality" into U.S.
Treasury securities. As the reporting period was coming to a close, the
Federal Reserve Board reversed monetary policy and twice decreased the
federal rate, creating a further rally in high quality bonds.
In terms of relative performance within the various fixed income sectors, the
general rule over the past year was that higher quality outperformed lower
quality bonds and domestic outperformed international bonds. The star
performers were U.S. Treasuries, perceived to be the highest quality
investment worldwide. All other investment grade sectors (corporate,
mortgages, asset-backs) produced positive rates of return, but fell short of
U.S. Treasuries. As one moved into below investment grade and international
emerging market debt securities, the returns were modestly positive or
negative over the fiscal year period.
Fund duration was maintained within a relatively tight range over the
reporting period at just over five years. The portfolio composition was
slightly upgraded in quality with incremental cash flows moving into the
U.S. government sector. For the six-month period ended October 31, 1998, the
fund's Institutional Shares and Institutional Service Shares generated a
total return of 4.51%* and 4.38%,* respectively, reflecting income plus the
capital appreciation caused by falling interest rates, but partially offset
by corporate bonds underperforming U.S. Treasury securities.
* 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.
Portfolio of Investments
Federated Intermediate Income Fund
October 31, 1998 (unaudited)
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
Asset-Backed Securities--3.5%
Home Equity Loan--1.0%
$2,000,000 New Century Home Equity Loan Trust 1997-NC5, Class M2, 7.24%, 10/25/2028 $ 1,974,380
Structured Product (ABS)--1.5%
2,000,000 (a)125 Home Loan Owner Trust 1998-1A, Class M2, 7.75%, 2/15/2029 1,930,000
500,000 Residential Funding Corp. 1993-S26, Class A10, 7.50%, 7/25/2023 502,375
300,000 Residential Funding Corp. 1993-S31, Class A7, 7.00%, 9/25/2023 287,823
66,897 The Money Store Home Equity Trust 1992-B, Class A, 6.90%, 7/15/2007 69,486
Total 2,789,684
Utilities--1.0%
2,000,000 California Infrastructure & Economic Development Bank Special Purpose Trust PG&E-1,
Class A8, 6.48%, 12/26/2009 2,035,700
Total Asset-Backed Securities (identified cost $6,851,675) 6,799,764
Collateralized Mortgage Obligations--0.2%
Structured Product (ABS)--0.2%
316,479 Prudential Bache CMO Trust Series 8, Class F, 7.965%, 3/1/2019 (identified cost $334,379)
323,387
Corporate Bonds--60.2%
Aerospace & Defense--1.6%
600,000 Boeing Co., Unsecured Note, 6.35%, 6/15/2003 630,132
1,500,000 (a) British Aerospace Finance, Inc., 7.50%, 7/1/2027 1,670,444
800,000 McDonnell Douglas Finance Corp., Medium Term Note, 6.375%, 7/15/1999 805,880
Total 3,106,456
Air Transportation--0.6%
1,150,000 Southwest Airlines Co., Deb., 7.375%, 3/1/2027 1,193,217
Automobile--1.7%
2,000,000 Dana Corp., Note, 7.00%, 3/15/2028 2,020,960
1,400,000 Hertz Corp., Sr. Note, 7.00%, 1/15/2028 1,355,284
Total 3,376,244
Banking--9.2%
1,250,000 ABN-AMRO Bank NV, Chicago, Sub. Deb., 7.30%, 12/1/2026 1,254,950
40,000 Banc One Corp., Sub. Note, 7.25%, 8/1/2002 42,716
2,000,000 Banco Santander SA, Bank Guarantee, 7.875%, 4/15/2005 2,137,380
</TABLE>
Federated Intermediate Income Fund
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
Corporate Bonds--continued
Banking--continued
$ 250,000 Bank One Corp., Sub. Note, 8.10%, 3/1/2002 $ 270,038
200,000 BankAmerica Corp., Sub. Note, 7.75%, 7/15/2002 213,618
1,000,000 Barclays North America, Deb., 9.75%, 5/15/2021 1,159,970
10,000 Boatmen's Bancshares, Inc., Sub. Note, 9.25%, 11/1/2001 11,139
2,100,000 (a) CIBC Capital Funding LP, Bank Guarantee, 6.40%, 12/17/2004 2,167,956
30,000 Central Fidelity Banks, Inc., Sub. Note, 8.15%, 11/15/2002 32,929
40,000 Corestates Capital Corp., Sub. Note, 5.875%, 10/15/2003 40,311
1,000,000 (a) Den Danske Bank, Note, 7.40%, 6/15/2010 1,056,030
30,000 First Union Corp., Sub. Note, 8.00%, 11/15/2002 32,768
2,000,000 National Australia Bank, Ltd., Melbourne, Sub. Note, Series B, 6.60%, 12/10/2007 2,027,500
3,000,000 National Bank of Canada, Montreal, Sub. Note, 8.125%, 8/15/2004 3,450,930
15,000 NationsBank Corp., Sub. Note, 7.625%, 4/15/2005 16,369
430,000 PNC Funding Corp., Sub. Note, 6.875%, 7/15/2007 458,230
2,000,000 Republic New York Corp., Sub. Note, 7.75%, 5/15/2009 2,270,200
30,000 Republic New York Corp., Sub. Note, 8.25%, 11/1/2001 32,227
10,000 Sovran Financial, Deb., 9.75%, 6/15/1999 10,258
200,000 SunTrust Bank, Central Florida, Sub. Note, 6.90%, 7/1/2007 212,179
255,000 SunTrust Banks, Inc., Note, 7.375%, 7/1/2002 274,311
15,000 SunTrust Banks, Inc., Sub. Note, 6.125%, 2/15/2004 15,540
1,000,000 (a) Swedbank, Sub., 7.50%, 11/1/2006 970,870
Total 18,158,419
Chemicals & Plastics--0.8%
1,500,000 (a) Bayer Corp., Deb., 6.50%, 10/1/2002 1,566,120
40,000 Du Pont (E.I.) de Nemours & Co., Note, 8.125%, 3/15/2004 45,630
30,000 PPG Industries, Inc., Note, 6.50%, 11/1/2007 31,801
Total 1,643,551
Ecological Services & Equipment--1.1%
2,000,000 WMX Technologies, Inc., Deb., 8.75%, 5/1/2018 2,238,280
</TABLE>
Federated Intermediate Income Fund
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
Corporate Bonds--continued
Education--2.4%
$ 1,975,000 Boston University, 7.625%, 7/15/2097 $ 2,145,067
1,150,000 Columbia University, Medium Term Note, 8.62%, 2/21/2001 1,238,746
1,100,000 Harvard University, Revenue Bonds, 8.125% Bonds, 4/15/2007 1,302,653
Total 4,686,466
Electronics--2.4%
1,500,000 General Electric Financial Services, Inc., Medium Term Note, 9.18%, 12/30/2008 1,918,350
2,590,000 Harris Corp., Deb., 10.375%, 12/1/2018 2,737,993
15,000 Rockwell International Corp., Unsecured Note, 6.625%, 6/1/2005 16,034
Total 4,672,377
Finance - Automotive--3.0%
1,750,000 Chrysler Financial Corp., Deb., 13.25%, 10/15/1999 1,882,457
2,000,000 Ford Capital BV, Note, 9.375%, 5/15/2001 2,180,240
35,000 Ford Motor Credit Corp., Note, 7.75%, 3/15/2005 38,895
20,000 Ford Motor Credit Corp., Unsecured Note, 7.75%, 10/1/1999 20,426
1,000,000 Ford Motor Credit Corp., Unsub., 6.875%, 6/5/2001 1,036,810
485,000 General Motors Acceptance Corp., Medium Term Note, 7.50%, 5/25/2000 501,456
45,000 General Motors Acceptance Corp., Note, 6.25%, 1/11/2000 45,528
155,000 General Motors Acceptance Corp., Note, 7.00%, 9/15/2002 163,138
100,000 General Motors Acceptance Corp., Unsecured Note, 7.75%, 1/15/1999 100,514
Total 5,969,464
Finance - Retail--0.2%
50,000 Commercial Credit Co., Note, 5.55%, 2/15/2001 50,167
15,000 Commercial Credit Co., Note, 6.70%, 8/1/1999 15,162
395,000 Sears Roebuck Acceptance Corp., Medium Term Note, 6.56%, 9/5/2000 403,338
Total 468,667
Financial Intermediaries--4.6%
2,000,000 (a)Amvescap PLC, Sr. Note, 6.60%, 5/15/2005 2,041,340
40,000 CIT Group Holdings, Inc., Sr. Note, 6.375%, 5/21/1999 40,224
1,500,000 Donaldson, Lufkin and Jenrette Securities Corp., Note, 6.875%, 11/1/2005 1,534,410
15,000 Equitable Cos., Inc., Sr. Note, 6.75%, 12/1/2000 15,421
625,000 Lehman Brothers Holdings, Inc., Note, 6.90%, 1/29/2001 627,656
2,000,000 Lehman Brothers, Inc., Sr. Sub. Note, 7.375%, 1/15/2007 2,024,840
</TABLE>
Federated Intermediate Income Fund
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
Corporate Bonds--continued
Financial Intermediaries--continued
$ 500,000 Merrill Lynch & Co., Inc., Note, 6.875%, 3/1/2003 $ 521,080
15,000 Merrill Lynch & Co., Inc., Note, 7.375%, 5/15/2006 16,052
100,000 Merrill Lynch & Co., Inc., Note, 8.30%, 11/1/2002 108,843
65,000 Merrill Lynch & Co., Inc., Note, 8.375%, 2/9/2000 67,308
920,000 Morgan Stanley Group, Inc., Deb., 9.375%, 6/15/2001 1,004,014
30,000 Norwest Corp., Note, 5.75%, 2/1/2003 30,158
5,000 Salomon, Inc., Note, 6.375%, 10/1/2004 5,091
10,000 Salomon, Inc., Note, 6.625%, 11/15/2003 10,293
979,702 (a) World Financial, Pass Thru Cert., Series 96 WFP-B, 6.91%, 9/1/2013 998,708
Total 9,045,438
Financial Services--1.3%
250,000 American Express Credit Corp., Deb., 8.50%, 6/15/1999 255,420
20,000 Associates Corp. of North America, Sr. Note, 6.00%, 6/15/2000 20,221
2,000,000 Associates Corp. of North America, Sr. Note, 6.68%, 9/17/1999 2,022,720
35,000 Associates Corp. of North America, Sr. Note, 6.75%, 10/15/1999 35,457
50,000 Avco Financial Services, Inc., Sr. Note, 8.50%, 10/15/1999 51,514
50,000 Caterpillar Financial Services Corp., Note, 6.77%, 3/15/1999 50,363
30,000 John Deere Capital Corp., Sr. Note, 6.50%, 9/20/1999 30,343
15,000 John Deere Capital Corp., Sr. Note, 7.52%, 3/6/2000 15,398
10,000 Paccar Financial Corp., Sr. Note, 6.18%, 2/15/2001 10,208
Total 2,491,644
Food Products--0.2%
5,000 Grand Metropolitan Investment Corp., 9.00%, 8/15/2011 6,355
5,000 Grand Metropolitan Investment Corp., Unsecured Note, 6.50%, 9/15/1999 5,067
300,000 Kraft General Foods, Inc., Deb., 6.00%, 6/15/2001 300,444
25,000 Union Camp Corp., Note, 6.50%, 11/15/2007 26,218
Total 338,084
Forest Products--0.0%
25,000 Weyerhaeuser Co., Deb., 9.05%, 2/1/2003 28,027
Health Services--0.5%
1,000,000 Aetna Services, Inc., Company Guarantee, 6.75%, 8/15/2001 1,021,380
</TABLE>
Federated Intermediate Income Fund
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
Corporate Bonds--continued
Industrial Products & Equipment--0.2%
$ 10,000 Air Products & Chemicals, Inc., Note, 7.375%, 5/1/2005 $ 10,951
30,000 Dresser Industries, Inc., Note, 6.25%, 6/1/2000 30,740
300,000 Illinois Tool Works, Inc., Note, 5.875%, 3/1/2000 305,046
25,000 Ingersoll-Rand Co., Note, 6.51%, 12/1/2004 26,542
10,000 Ingersoll-Rand Co., Note, 6.60%, 8/1/2000 10,247
Total 383,526
Insurance--7.5%
2,500,000 Allmerica Financial Corp., Sr. Note, 7.625%, 10/15/2025 2,590,725
2,000,000 CNA Financial Corp., Deb., 7.25%, 11/15/2023 1,919,520
2,000,000 (a)Equitable Life, Note, 7.70%, 12/1/2015 2,156,560
1,000,000 GEICO Corp., Deb., 9.15%, 9/15/2021 1,133,740
25,000 ITT Hartford Group, Inc., Note, 8.30%, 12/1/2001 27,032
15,000 Lincoln National Corp., Note, 7.625%, 7/15/2002 15,987
250,000 MBIA INS, Deb., 9.00%, 2/15/2001 270,430
900,000 Provident Cos., Inc., Bond, 7.405%, 3/15/2038 871,011
2,000,000 (a) Reinsurance Group of America, Sr. Note, 7.25%, 4/1/2006 2,181,280
1,500,000 SunAmerica, Inc., Medium Term Note, 7.34%, 8/30/2005 1,660,335
1,000,000 SunAmerica, Inc., Note, Series 2, 6.20%, 10/31/1999 1,011,680
400,000 SunAmerica, Inc., Sr. Note, 6.20%, 10/31/1999 403,716
500,000 SunAmerica, Inc., Sr. Note, 9.00%, 1/15/1999 503,920
Total 14,745,936
Leisure & Entertainment--0.0%
40,000 Disney (Walt) Co., Bond, 6.375%, 3/30/2001 41,388
Machinery & Equipment--0.9%
1,600,000 Continental Airlines, Inc., Pass Thru Cert., Series 1997-4 B, 6.90%, 1/2/2017 1,687,408
Metals & Mining--1.4%
2,500,000 Barrick Gold Corp., Deb., 7.50%, 5/1/2007 2,751,575
Municipal Services--5.0%
1,250,000 Atlanta & Fulton County, GA Recreation Authority, Taxable Revenue Bonds, Series 1997,
7.00% Bonds (Downtown Arena Project)/(FSA INS), 12/1/2028 1,333,363
1,325,000 Kansas City, MO Redevelopment Authority, 7.65% Bonds (FSA LOC), 11/1/2018 1,526,268
2,000,000 McKeesport, PA, Taxable G.O. Series B 1997, 7.30% Bonds (MBIA INS), 3/1/2020 2,111,860
</TABLE>
Federated Intermediate Income Fund
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
Corporate Bonds--continued
Municipal Services--continued
$ 1,000,000 Miami Florida Revenue Pension Obligation, 7.20% Bonds (AMBAC LOC), 12/1/2025 $ 1,039,100
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 1,435,000
1,000,000 Pittsburgh, PA Urban Redevelopment Authority, 9.07% Bonds (CGIC GTD), 9/1/2014 1,244,600
1,000,000 St. Johns County, FL Convention Center, Taxable Municipal Revenue Bonds, 8.00% Bonds
(FSA INS), 1/1/2026 1,135,290
Total 9,825,481
Oil & Gas--1.1%
10,000 Atlantic Richfield Co., Deb., 9.125%, 3/1/2011 12,804
1,750,000 Phillips Petroleum Co., Deb., 9.18%, 9/15/2021 1,981,420
250,000 Shell Oil Co., Deb., 6.95%, 12/15/1998 250,618
Total 2,244,842
Pharmaceutical--0.4%
500,000 American Home Products Corp., Note, 7.70%, 2/15/2000 517,320
250,000 American Home Products Corp., Note, 7.90%, 2/15/2005 283,125
Total 800,445
Rail Industry--0.5%
1,000,000 Atchison Topeka & SF RR, Equip. Trust, 6.55%, 1/6/2013 1,049,200
Retailers--4.5%
1,000,000 Dayton-Hudson Corp., Deb., 10.00%, 12/1/2000 1,096,230
15,000 Dillard Investment, Deb., 9.25%, 2/1/2001 16,198
1,874,000 Eckerd Corp., Sr. Sub. Note, 9.25%, 2/15/2004 1,981,605
2,000,000 May Department Stores Co., Deb., 8.125%, 8/15/2035 2,334,980
2,250,000 Penney (J.C.) Co., Inc., Deb., 7.65%, 8/15/2016 2,370,960
300,000 Sears, Roebuck & Co., Deb., 8.45%, 11/1/1998 300,144
500,000 Sears, Roebuck & Co., Medium Term Note, 7.32%, 4/24/2000 518,630
Total 8,618,747
Sovereign Government--2.4%
1,000,000 Quebec, Province of, Deb., 9.125%, 8/22/2001 1,112,690
1,000,000 Quebec, Province of, Deb., 13.25%, 9/15/2014 1,115,500
1,000,000 Sweden, Kingdom of, Deb., 10.25%, 11/1/2015 1,429,770
1,000,000 Victoria Public Authority, Local Gov't. Guarantee, 8.25%, 1/15/2002 1,107,970
Total 4,765,930
</TABLE>
Federated Intermediate Income Fund
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
Corporate Bonds--continued
Surface Transportation--1.7%
$ 3,000,000 Trans Ocean Container Corp., Sr. Sub. Note, 12.25%, 7/1/2004 $ 3,326,040
Technology Services--0.0%
35,000 Lucent Technologies, Inc., Note, 6.90%, 7/15/2001 36,681
Telecommunications & Cellular--2.2%
1,750,000 BellSouth Telecommunications, Inc., Deb., 7.00%, 12/1/2095 1,905,365
1,500,000 Cox Communications, Inc., Medium Term Note, 6.69%, 9/20/2004 1,581,060
800,000 New England Telephone & Telegraph, Deb., 8.625%, 8/1/2001 870,512
Total 4,356,937
Utilities--2.8%
250,000 Central Illinois Public, 1st Mtg. Bond, 6.00%, 4/1/2000 254,323
250,000 Consolidated Edison Co., Deb., Series 92B, 7.625%, 3/1/2004 276,797
60,000 Duke Energy Corp., 1st Ref. Mtg., 6.25%, 8/12/1999 60,711
1,250,000 Enersis S.A., Note, 7.40%, 12/1/2016 976,388
1,500,000 (a)Israel Electric Corp. Ltd., Sr. Note, 7.875%, 12/15/2026 1,493,460
30,000 Michigan Consolidated Gas, 1st Mtg. Bond, 6.80%, 6/15/2003 32,574
300,000 Midwest Power Systems, Inc., Mtg. Bond, 6.75%, 2/1/2000 306,324
180,000 Minnesota Power And Light Co., 1st Mtg. Bond, 7.75%, 6/1/2007 199,933
1,200,000 Puget Sound Energy, Inc., Medium Term Note, 7.02%, 12/1/2027 1,247,760
5,000 Sonat, Inc., Note, 6.875%, 6/1/2005 5,286
500,000 (a) Tenaga Nasional Berhad, Deb., 7.50%, 1/15/2096 208,180
500,000 Wisconsin Tel Co., Deb., 6.25%, 8/1/2004 501,569
Total 5,563,305
Total Corporate Bonds (identified cost $114,277,538) 118,635,155
Government Agencies--8.2%
1,250,000 Federal Farm Credit System, Medium Term Note, 5.93%, 8/7/2008 1,304,525
1,500,000 Federal Home Loan Bank System, 5.905%, 7/22/2008 1,561,260
1,500,000 Federal Home Loan Bank System, Note, Series HH07, 6.90%, 2/7/2007 1,670,100
3,500,000 Federal Home Loan Bank System, Sr. Note, 5.80%, 9/2/2008 3,643,535
50,000 Federal Home Loan Mortgage Corp., Note, 6.93%, 3/17/2004 50,404
500,000 Federal National Mortgage Association, 8.25%, 12/18/2000 536,095
1,650,000 Federal National Mortgage Association, Medium Term Note, 6.71%, 7/24/2001 1,735,272
100,000 Federal National Mortgage Association, Note, 7.17%, 1/20/2004 100,518
</TABLE>
Federated Intermediate Income Fund
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
Government Agencies--continued
$ 3,305,000 Tennessee Valley Authority, 8.625%, 11/15/2029 $ 3,339,240
1,800,000 Tennessee Valley Authority, 8.625%, 11/15/2029 1,788,102
500,000 Tennessee Valley Authority, 6.125%, 7/15/2003 511,555
Total Government Agencies (identified cost $15,842,874) 16,240,606
Mortgage Backed Securities--11.4%
Federal Home Loan Mortgage Corporation--3.6%
655,703 Pool C00622, 7.00%, 6/1/2028 668,817
942,344 Pool C11040, 7.00%, 6/1/2028 961,191
841,177 Pool E66857, 6.50%, 5/1/2012 853,533
3,502,524 Pool E70007, 6.00%, 4/1/2013 3,517,865
1,000,000 Pool TBA, 6.50%, 11/1/2099 1,008,130
Total 7,009,536
Federal National Mortgage Association--3.0%
814,194 Pool 267905, 7.00%, 2/1/2024 832,514
1,352,817 Pool 354370, 6.50%, 8/1/2003 1,371,418
1,795,897 Pool 421090, 6.50%, 4/1/2028 1,809,923
1,956,124 Pool 421590, 6.50%, 4/1/2028 1,972,008
Total 5,985,863
Government National Mortgage Association--4.8%
47,145 Pool 1851, 7.50%, 6/20/2007 48,619
921,422 Pool 312595, 8.00%, 1/15/2022 955,975
807,527 Pool 379983, 7.50%, 2/15/2024 832,763
1,479,943 Pool 447986, 7.00%, 6/15/2028 1,514,633
1,949,172 Pool 468686, 7.50%, 2/15/2028 2,008,856
720,735 Pool 780204, 7.00%, 7/15/2025 737,852
2,164,715 Pool 780359, 7.50%, 12/15/2023 2,232,362
1,000,000 Pool TBA, 7.00%, 11/1/2099 1,023,440
Total 9,354,500
Total Mortgage-Backed Securities (identified cost $21,875,854) 22,349,899
Preferred Stocks--1.0%
Technology Services--1.0%
21,103 Microsoft Corp., Cumulative Conv. Pfd., Series A, $2.20 (identified cost $1,866,641) 2,062,818
</TABLE>
Federated Intermediate Income Fund
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
Treasury Securities--11.4%
U.S. Treasury Bonds--6.8%
$ 1,500,000 Bond, 10.75%, 8/15/2005 $ 2,028,840
1,500,000 Bond, 11.625%, 11/15/2004 2,051,475
75,000 Bond, 12.00%, 8/15/2013 115,823
3,800,000 Bond, 6.00%, 2/15/2026 4,145,382
1,200,000 Bond, 6.125%, 11/15/2027 1,349,112
2,500,000 Bond, 6.375%, 8/15/2027 2,880,650
255,000 Bond, 7.125%, 2/15/2023 314,476
140,000 Bond, 7.875%, 2/15/2021 184,348
265,000 Bond, 9.875%, 11/15/2015 401,136
Total 13,471,242
U.S. Treasury Notes--4.6%
3,300,000 Note, 5.625%, 5/15/2008 3,555,750
5,000 Note, 5.75%, 8/15/2003 5,299
50,000 Note, 6.375%, 7/15/1999 50,663
20,000 Note, 6.50%, 4/30/1999 20,202
1,860,000 Note, 6.50%, 8/15/2005 2,076,671
3,240,000 Note, 7.75%, 11/30/1999 3,352,558
25,000 Note, 7.875%, 11/15/1999 25,872
Total 9,087,015
Total Treasury Securities (identified cost $21,217,681) $22,558,257
(b)Repurchase Agreements--3.9%
7,705,000 Westdeutsche Landesbank Girozentrale, 5.42%, dated 10/30/1998, due 11/2/1998
(at amortized cost) 7,705,000
Total Investments (identified cost $189,971,642)(c) $196,674,886
</TABLE>
(a) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At October 31, 1998, these securities
amounted to $18,440,948 which represents 9.36% 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 $189,971,642.
The net unrealized appreciation of investments on a federal tax basis
amounts to $6,703,244 which is comprised of $7,601,611 appreciation and
$898,367 depreciation at October 31, 1998.
Note: The categories of investments are shown as a percentage of net assets
($197,097,589) at October 31, 1998.
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
LP --Limited Partnership
MBIA --Municipal Bond Investors Assurance
PLC --Public Limited Company
SA --Support Agreement
TBA --To Be Announced
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, 1998 (unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Assets:
Total investments in securities, at value (identified cost and tax cost $189,971,642) $196,674,886
Income receivable 3,492,993
Receivable for shares sold 314,786
Total assets 200,482,665
Liabilities:
Payable for investments purchased $2,037,635
Payable for shares redeemed 62,440
Income distribution payable 940,511
Payable to Bank 341,260
Accrued expenses 3,230
Total liabilities 3,385,076
Net Assets for 19,101,630 shares outstanding $197,097,589
Net Assets Consist of:
Paid in capital $190,372,445
Net unrealized appreciation of investments 6,703,244
Accumulated net realized loss on investments (26,651)
Undistributed net investment income 48,551
Total net assets $197,097,589
Net Asset Value, Offering Price, and Redemption Proceeds Per Share:
Institutional Shares:
$187,906,574 /18,210,881 shares outstanding $10.32
Institutional Service Shares:
$9,191,015 / 890,749 shares outstanding $10.32
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Statement of Operations
Federated Intermediate Income Fund
Six Months Ended October 31, 1998 (unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Investment Income:
Dividends $ 35,191
Interest (net of dollar roll expense of $16,692) 6,063,240
Total income 6,098,431
Expenses:
Investment advisory fee $ 473,831
Administrative personnel and services fee 78,137
Custodian fees 5,626
Transfer and dividend disbursing agent fees and expenses 30,704
Directors'/Trustees' fees 3,532
Auditing fees 9,311
Legal fees 2,090
Portfolio accounting fees 42,660
Distribution services fee--Institutional Service Shares 8,257
Shareholder services fee--Institutional Shares 228,659
Shareholder services fee--Institutional Service Shares 8,257
Share registration costs 17,881
Printing and postage 13,630
Insurance premiums 2,547
Miscellaneous 16,275
Total expenses 941,397
Waivers--
Waiver of investment advisory fee $(170,842)
Waiver of distribution services fee--Institutional Service
Shares (2,972)
Waiver of shareholder services fee--Institutional Shares (228,659)
Waiver of shareholder services fee--Institutional Service Shares (5,284)
Total waivers (407,757)
Net expenses 533,640
Net investment income 5,564,791
Realized and Unrealized Gain (Loss) on Investments:
Net realized loss on investments (114,400)
Net change in unrealized appreciation of investments 2,790,845
Net realized and unrealized gain (loss) on investments 2,676,445
Change in net assets resulting from operations $8,241,236
</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
October 31, 1998 Year Ended
(unaudited) APRIL, 30 1998
<S> <C> <C>
Increase (Decrease) in Net Assets:
Operations--
Net investment income $ 5,564,791 $ 9,264,881
Net realized gain (loss) on investments $(114,400) and $356,180, respectively, as
computed for federal tax purposes) (114,400) 468,050
Net change in unrealized appreciation 2,790,845 4,611,356
Change in net assets resulting from operations 8,241,236 14,344,287
Distributions to Shareholders--
Distributions from net investment income
Institutional Shares (5,373,887) (9,121,587)
Institutional Service Shares (186,269) (111,464)
Change in net assets resulting from distributions to shareholders (5,560,156) (9,233,051)
Share Transactions--
Proceeds from sale of shares 43,264,559 87,933,934
Net asset value of shares issued to shareholders in payment of distributions declared 1,072,302 1,772,639
Cost of shares redeemed (31,154,645) (35,680,483)
Change in net assets resulting from share transactions 13,182,216 54,026,090
Change in net assets 15,863,296 59,137,326
Net Assets:
Beginning of period 181,234,293 122,096,967
End of period (including undistributed net investment income of $48,551 and
$43,916, respectively) $197,097,589 $181,234,293
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Financial Highlights--Institutional Shares
Federated Intermediate Income Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months
Ended
October 31, 1998 Year Ended April 30,
(unaudited) 1998 1997 1996 1995 1994(a)
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.17 $ 9.79 $ 9.77 $ 9.55 $ 9.53 $10.00
Income from investment operations
Net investment income 0.30 0.63 0.63 0.66 0.66 0.23
Net realized and unrealized gain (loss)
on investments 0.15 0.38 0.03 0.22 0.02 (0.47)
Total from investment operations 0.45 1.01 0.66 0.88 0.68 (0.24)
Less distributions
Distributions from net investment income (0.30) (0.63) (0.63) (0.66) (0.66) (0.23)
Distributions from net realized gain
on investments -- -- (0.01) -- -- --
Total distributions (0.30 ) (0.63) (0.64) (0.66) (0.66) (0.23)
Net asset value, end of period $10.32 $10.17 $ 9.79 $ 9.77 $ 9.55 $ 9.53
Total return(b) 4.51 % 10.58% 7.00% 9.13% 7.53% (2.48%)
Ratios to average net assets
Expenses 0.55%* 0.55% 0.55% 0.55% 0.48% 0.00%*
Net investment income 5.88%* 6.30% 6.48% 6.52% 7.12% 6.36%*
Expense waiver/reimbursement(c) 0.43%* 0.47% 0.57% 0.85% 1.22% 1.40%*
Supplemental data
Net assets, end of period (000 omitted) $187,907 $176,712 $121,307 $87,493 $32,508 $17,702
Portfolio turnover 10 % 44% 55% 66% 88% 0 %
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from December 15, 1993 (date of initial
public investment) to April 30, 1994.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Financial Highlights--Institutional Service Shares
Federated Intermediate Income Fund
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months
Ended
October 31, 1998 Year Ended April 30,
(unaudited) 1998 1997 1996 1995 1994(a)
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.17 $ 9.79 $ 9.76 $ 9.55 $ 9.53 $10.00
Income from investment operations
Net investment income 0.29 0.61 0.61 0.63 0.64 0.22
Net realized and unrealized gain (loss)
on investments 0.15 0.38 0.04 0.21 0.02 (0.47)
Total from investment operations 0.44 0.99 0.65 0.84 0.66 (0.25)
Less distributions
Distributions from net investment income (0.29) (0.61) (0.61) (0.63) (0.64) (0.22)
Distributions from net realized gain
on investments -- -- (0.01) -- -- --
Total distributions (0.29) (0.61) (0.62) (0.63) (0.64) (0.22)
Net asset value, end of period $10.32 $10.17 $ 9.79 $ 9.76 $ 9.55 $ 9.53
Total return(b) 4.38% 10.31% 6.73% 8.86% 7.27% (2.57%)
Ratios to average net assets
Expenses 0.80%* 0.80% 0.80% 0.80% 0.72% 0.25%*
Net investment income 5.64%* 6.03% 6.21% 6.31% 6.85% 6.12%*
Expense waiver/reimbursement(c) 0.43%* 0.47% 0.57% 0.85% 1.22% 1.40%*
Supplemental data
Net assets, end of period (000 omitted) $9,191 $4,522 $790 $508 $276 $255
Portfolio turnover 10% 44% 55% 66% 88% 0%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from December 15, 1993 (date of initial
public investment) to April 30, 1994.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Notes to Financial Statements
Federated Intermediate Income Fund
October 31, 1998 (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"). The investment objective of the Fund
is to provide current income. The financial statements of the other
portfolios are presented separately. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held.
The Fund offers two classes of shares: Institutional Shares and Institutional
Service Shares.
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. Listed equity securities are valued at the last
sale price reported on a national securities exchange. Short-term securities
are valued at the prices provided by an independent pricing service. However,
short-term securities with remaining maturities of sixty days or less at the
time of purchase may be valued at amortized cost, which approximates fair
market value.
Repurchase Agreements
It is the policy of the Fund to require the custodian bank to take
possession, to have legally segregated in the Federal Reserve Book Entry
System, or to have segregated within the custodian bank's vault, all
securities held as collateral under repurchase agreement transactions.
Additionally, procedures have been established by the Fund to monitor, on a
daily basis, the market value of each repurchase agreement's collateral to
ensure that the value of collateral at least equals the repurchase price to
be paid under the repurchase agreement transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the "Trustees").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less
than the repurchase price on the sale of collateral securities.
Investment Income, Expenses, and Distributions
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as
amended (the "Code"). Distributions to shareholders are recorded on the ex-
dividend date.
Federal Taxes
It is the Fund's policy to comply with the provisions of the Code applicable
to regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax
are necessary.
When-Issued and Delayed Delivery Transactions
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make
payment for the securities purchased. Securities purchased on a when-issued
or delayed delivery basis are marked to market daily and begin earning
interest on the settlement date.
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, 1998,
is as follows:
<TABLE>
<CAPTION>
Security Acquisition Date Acquisition Cost
<S> <C> <C>
125 Home Loan Owner Trust 1998-1A 7/30/1998 $1,999,063
Amvescap PLC, Sr. Note 4/30/1998 1,996,960
Bayer Corp., Deb. 3/21/1996-4/14/1997 1,496,918
British Aerospace Finance, Inc. 6/26/1997 1,488,995
CIBC Capital Funding LP 12/11/1997 2,098,417
Den Danske Bank, Note 1/7/1998 1,050,080
Equitable Life, Note 12/17/1997-2/11/1998 2,135,419
Israel Electric Corp., Ltd., Sr. Note 1/28/1997 1,497,092
Reinsurance Group of America, Sr. Note 3/19/1996-6/2/1997 1,990,257
Swedbank, Sub. 1/7/1998 1,044,301
Tenaga Nasional Berhad, Deb. 3/3/1997 474,927
World Financial, Pass Thru Cert., Series 96 11/18/1996-10/1/1998 979,702
</TABLE>
Dollar Roll Transactions
The Fund enters into dollar roll transactions, with respect to mortgage
securities issued by GNMA, FNMA, and FHLMC, in which the Fund sells mortgage
securities to financial institutions and simultaneously agrees to accept
substantially similar (same type, coupon, and maturity) securities at a later
date at an agreed upon price. Dollar roll transactions involve "to be
announced" securities and are treated as short-term financing arrangements
which will not exceed twelve months. The Fund will use the proceeds generated
from the transactions to invest in short-term investments, which may enhance
the Fund's current yield and total return.
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 amount 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, 1998 April 30, 1998
<S> <C> <C> <C> <C>
Institutional Shares SHARES AMOUNT SHARES AMOUNT
Shares sold 3,711,429 $ 38,182,831 8,315,206 $ 83,824,071
Shares issued to shareholders in payment of
distributions declared 93,253 960,706 167,124 1,687,992
Shares redeemed (2,972,401) (30,585,177) (3,490,041) (35,185,913)
Net change resulting from Institutional Share transactions 832,281 $ 8,558,360 4,992,289 $ 50,326,150
<CAPTION>
Six Months Ended Year Ended
October 31, 1998 April 30, 1998
<S> <C> <C> <C> <C>
Institutional Service Shares SHARES AMOUNT SHARES AMOUNT
Shares sold 490,493 $ 5,081,728 404,462 $ 4,109,863
Shares issued to shareholders in payment of
distributions declared 10,829 111,596 8,355 84,647
Shares redeemed (55,274) (569,468) (48,804) (494,570)
Net change resulting from Institutional Service Share transactions 446,048 $ 4,623,856 364,013 $ 3,699,940
Net change resulting from share transactions 1,278,329 $ 13,182,216 5,356,302 $ 54,026,090
</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, Inc. 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.
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, 1998, were as follows:
Purchases $32,125,196
Sales $18,212,447
Year 2000
Similar to other financial organizations, the Fund could be adversely
affected if the computer systems used by the Fund's service providers do not
properly process and calculate date-related information and data from and
after January 1, 2000. The Fund's Adviser and Administrator are taking
measures that they believe are reasonably designed to address the Year 2000
issue with respect to computer systems that they use and to obtain reasonable
assurances that comparable steps are being taken by each of the Fund's other
service providers. At this time, however, there can be no assurance that
these steps will be sufficient to avoid any adverse impact to the Fund.
Trustees
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
Nicholas P. Constantakis
William J. Copeland
James E. Dowd, Esq.
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr., Esq.
Peter E. Madden
John E. Murray, Jr., J.D., S.J.D.
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, 1998
Federated Securities Corp., Distributor
Federated Investors, Inc.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Cusip 31420C407
Cusip 31420C506
G00715-01 (12/98)
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, 1998. It begins with a
review of the bond market by the fund's portfolio manager, which is followed
by a complete list of fund holdings and its financial statements.
On behalf of conservative, income-oriented investors, the fund invests in a
diversified portfolio consisting primarily of short-term, high-quality debt
securities. At the end of the reporting period, the fund's portfolio was
invested primarily in corporate bonds/asset-backed securities (58.0%),
followed by mortgage-backed securities (34.9%), U.S. Treasury notes (6.2%),
and a repurchase agreement (1.0%).
During the reporting period, Institutional Shares produced a total return of
3.29%* through dividends totaling $0.26 per share and a net asset value
increase of $0.02 per share. Institutional Service Shares produced a total
return of 3.16%* through dividends totaling $0.25 per share and a net asset
value increase of $0.02 per share.
Net assets in the fund totaled $211.3 million at the reporting period's end.
Thank you for selecting Federated Short-Term Income Fund as a high-quality,
short-term income investment. As always, we welcome your questions,
comments, or suggestions.
Sincerely,
[Graphic]
Glen R. Johnson
President
December 15, 1998
* 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.
INVESTMENT REVIEW
Federated Short Term Income Fund represents a high quality, fixed income
portfolio combining various fixed income asset classes. Investments are
concentrated 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 life of no greater than three years, but generally
having a portfolio duration of no greater than two years.
The fund's reporting period was characterized by two distinctly different
three-month periods. The first period was a "steady-as-she-goes" period where
the fund performed in line with historical precedent, in other words, as
expected. The second period, which began in July, was characterized by
extreme volatility triggered by global economic and credit concerns. This
period featured unprecedented spread widening in all sectors, even off-the-
run treasury securities. While as of this writing the market has stabilized
somewhat, the negative effects of the current economic environment continue
to be felt on the portfolio.
As the fund invests primarily in spread securities (i.e., securities whose
yields are based on some premium over, or "spread" off of, treasury yields),
the spread widening resulting from the global "flight to quality" mentioned
above caused the fund to underperform its index benchmarks. The significant
percentage of the fund allocated to mortgage-backed and asset-backed
securities (approximately two-thirds at the end of the reporting period under
review) had a further negative effect, as some of these latter securities
combine both credit and prepayment risk and experienced "the worst of both
worlds" (prepayment risk is the tendency of amortizing securities to pay off
more quickly when interest rates decline and more slowly when they rise). The
fund's duration posture over the period was maintained either at or slightly
above the midpoint of its range of one to two years and is expected to remain
there going forward. This positioning produced a slightly positive effect on
performance during the period under review.
For the six months ended October 31, 1998, Institutional Shares produced a
3.29%* total return, and Institutional Service Shares produced a 3.16%* total
return, compared to a 4.67% total return for the Merrill Lynch 1-3 Year
Treasury Bond Index** and a 4.07% total return for the Merrill Lynch 1-3 Year
Corporate Bond Index.** The durations of these indices (1.65 years and 1.82
years, respectively, as of 10/31/98) are both longer than that of the fund's
own duration midpoint (1.5 years). Thus the fund underperformed these indices,
given the significant decline in treasury yields during the reporting period
and as a result of the spread-widening effect mentioned above. Despite a
difficult six months, fund management believes the underlying credit quality
of its portfolio to be excellent and its positioning with regard to interest
rate risk to be prudent. Individual opportunities to add value by accepting
reasonable levels of credit and convexity risk will continue to be sought,
with a general bias toward credit upgrading in light of a slowly decelerating
economy.
* 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.
** The Merrill Lynch 1-3 Year Treasury Bond Index is an unmanaged index
tracking short-term U.S. government securities between 1 and 2.99 years.
The Merrill Lynch 1-3 Year Corporate Bond Index is an unmanaged index
trading maturities between 1 and 2.99 years. Investments cannot be made in
an index.
PORTFOLIO OF INVESTMENTS
FEDERATED SHORT-TERM INCOME FUND
OCTOBER 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
CORPORATE BONDS/ASSET-BACKED SECURITIES--58.0%
<C> <S> <C>
AUTOMOBILE--11.1%
$ 1,870,608 AFG Receivables Trust 1997-B, Class B, 6.40%, 2/15/2003 $ 1,895,038
576,890 Chevy Chase Auto Trust 1995-1, Class A, 6.00%, 12/15/2001 579,342
365,044 Daimler-Benz Auto Grantor Trust 1995-A, Class A, 5.85%, 5/15/2002 365,981
547,054 Fleetwood Credit Corp. 1992-A, Class A, 7.10%, 2/15/2007 547,218
1,150,591 Navistar Financial Corp. Owner Trust 1995-A, Class B, 6.85%, 11/20/2001 1,162,994
6,000,000 Navistar Financial Dealer Note Trust 1990-A, Class A-3, 6.57188%, 1/25/2003 6,006,120
2,028,448 Olympic Automobile Receivables Trust 1995-B, Class A2, 7.35%, 10/15/2001 2,041,957
5,000,000 Olympic Automobile Receivables Trust 1996-C, Class A5, 7.00%, 3/15/2004 5,177,357
3,000,000 Premier Auto Trust 1995-3, Class B, 6.25%, 8/6/2001 3,028,200
1,560,367 The CIT Group Securitization Corp. II, Class B, 6.45%, 6/15/2018 1,586,207
670,903 (a)World Omni Automobile Lease Securitization Trust 1996-A, Class A1, 6.30%, 6/25/2002 671,298
418,783 World Omni Automobile Lease Securitization Trust 1997-A, Class A3, 6.85%, 6/25/2003 432,431
Total 23,494,143
BANKING--9.5%
3,000,000 (a)BankAmerica Corp., Sub. Note, 5.625%, 6/25/2003 2,964,900
5,000,000 (a)Citicorp, Sub. Note, 5.725%, 10/25/2005 4,925,850
1,000,000 (a)J.P. Morgan & Co., Inc., Sub. Note, 5.5625%, 8/19/2002 991,200
3,000,000 (b)KeyCorp, Series A, 6.625%, 6/15/2029 3,003,369
2,000,000 Mercantile Bancorporation, Inc., 6.80%, 6/15/2001 2,064,580
2,000,000 National Australia Bank, Ltd., Melbourne, Sub. Note, Series A, 6.40%, 12/10/2007 2,034,348
4,000,000 Toronto-Dominion Bank, Sub. Note, 7.875%, 8/15/2004 4,088,960
Total 20,073,207
BEVERAGE & TOBACCO--1.4%
3,000,000 Philip Morris Cos., Inc., Deb., 6.00%, 11/15/1999 3,025,980
CREDIT CARD--12.4%
3,000,000 American Express Credit Account Master Trust 1997-1, Class A, 6.40%, 4/15/2005 3,136,860
3,000,000 Banco Nacional de Mexico S.A., Credit Card Merchant Voucher Receivables Master Trust
Series 1996-A, Class A1, 6.25%, 12/1/2003 2,985,000
5,000,000 Bridgestone/Firestone Master Trust 1996-1, Class B, 6.49%, 7/1/2003 5,100,700
2,000,000 Chemical Master Credit Card Trust I 1995-3, Class A, 6.23%, 4/15/2005 2,073,596
</TABLE>
FEDERATED SHORT-TERM INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
CORPORATE BONDS/ASSET-BACKED SECURITIES--CONTINUED
<C> <S> <C>
CREDIT CARD--CONTINUED
$ 230,000 Circuit City Credit Card Master Trust 1995-1, Class A, 6.375%, 8/15/2005 $ 235,099
4,050,000 Household Affinity Credit Card Master Trust 1993-1, Class B, 5.30%, 9/15/2000 4,047,894
1,590,000 Household Affinity Credit Card Master Trust I 1993-2, Class A, 5.60%, 5/15/2002 1,605,503
3,000,000 Providian Master Trust 1997-4, Class B, 6.45%, 6/15/2007 3,115,601
2,800,000 Spiegel Master Trust 1994-B, Class A, 8.15%, 6/15/2004 2,884,028
1,000,000 Standard Credit Card Master Trust 1994-4, Class A, 8.25%, 11/7/2003 1,084,090
Total 26,268,371
FINANCIAL INTERMEDIARIES--2.1%
2,400,000 Lehman Brothers Holdings, Inc., Note, 6.125%, 7/15/2003 2,333,832
2,000,000 Merrill Lynch & Co., Inc., Note, 6.00%, 2/12/2003 2,028,080
Total 4,361,912
HOME EQUITY LOAN--5.5%
2,000,000 (b)125 Home Loan Owner Trust 1998-1A, Class M2, 7.75%, 2/15/2029 1,930,000
863,817 AFC Home Equity Loan Trust 1992-3, Class A, 7.05%, 8/15/2007 862,513
1,668,233 Advanta Home Equity Loan Trust 1992-1, Class A, 7.875%, 9/25/2008 1,719,945
1,361,558 CWABS Asset Backed Certificates 1996-1, Class A-2, 6.525%, 2/25/2014 1,379,517
3,320,000 ContiMortgage Home Equity Loan Trust 1997-3, Class A5, 7.01%, 8/15/2013 3,361,002
135,223 GE Capital Home Equity Loan Trust 1991-1, Class A, 7.20%, 9/15/2011 137,179
2,363,000 New Century Home Equity Loan Trust 1997-NC5, Class M2, 7.24%, 10/25/2028 2,332,730
Total 11,722,886
MANUFACTURED HOUSING--5.0%
2,164,560 Associates Manufactured Housing Certificates 1996-2, Class A-2, 6.05%, 6/15/2027 2,175,945
2,629,750 Associates Manufactured Housing Certificates 1996-1, Class A2, 6.70%, 3/15/2027 2,648,040
4,000,000 Green Tree Financial Corp. 1993-2, Class A4, 6.90%, 7/15/2018 4,179,760
1,115,980 Merrill Lynch Mortgage Investors, Inc. 1991-I, Class A, 7.65%, 1/15/2012 1,181,633
310,480 Merrill Lynch Mortgage Investors, Inc. 1992-B, Class B, 8.50%, 4/15/2012 315,023
Total 10,500,401
OTHER-ASSET BACKED--2.9%
1,102,077 (b)Bosque Asset Corp., 7.66%, 6/5/2002 1,103,278
3,000,000 California Infrastructure & Economic Development Bank Special Purpose Trust SCE-1,
Class A-3, 6.17%, 3/25/2003 3,043,830
260,000 Copelco Capital Funding Corp. X 1997-A, Class A4, 6.47%, 4/20/2005 265,344
8,331,400 (b)FMAC Loan Receivables Trust 1997-A, Class A-X, 2.77%, 4/15/2019 1,059,671
</TABLE>
FEDERATED SHORT-TERM INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
CORPORATE BONDS/ASSET-BACKED SECURITIES--CONTINUED
<C> <S> <C>
OTHER-ASSET BACKED--CONTINUED
$ 678,784 NationsCredit Grantor Trust 1997-1, Class A, 6.75%, 8/15/2013 $ 694,606
Total 6,166,729
STATE/PROVINCIAL--2.6%
5,000,000 Province of Manitoba, 9.50%, 10/1/2000 5,419,550
SUPRANATIONAL--0.8%
1,700,000 Corp Andina De Fomento, Bond, 7.10%, 2/1/2003 1,655,426
TELECOMMUNICATIONS & CELLULAR--3.0%
2,000,000 British Telecommunication PLC, 9.625%, 2/15/2019 2,119,020
1,000,000 (b)PanAmSat Corp., Note, 6.00%, 1/15/2003 1,004,760
3,000,000 Southwestern Bell Capital Corp., Note, 8.81%, 12/16/2004 3,177,210
Total 6,300,990
UTILITIES--1.7%
2,000,000 Pennsylvania Power & Light Co., 9.25%, 10/1/2019 2,148,480
1,300,000 Philadelphia Electric Co., 8.625%, 6/1/2022 1,375,049
Total 3,523,529
TOTAL CORPORATE BONDS/ ASSET-BACKED SECURITIES (IDENTIFIED COST $121,620,729) 122,513,124
MORTGAGE-BACKED SECURITIES --34.9%
COMMERCIAL MORTGAGE-BACKED SECURITIES--2.6%
8,871,578 First Union Lehman Brothers Commercial Mortgage Trust 1997-C1, Series 1997C1,
Class IO, 1.307%, 4/18/2027 598,831
4,000,000 (b)K Mart CMBS Financing, Inc Series 1997-1, Class C, 3/1/2007 3,995,780
1,000,000 (b)Nomura Depositor Trust Commercial Mortgage Pass-Thru 1998-ST I, Series 1998-STI,
Class A-3, 6.17766%, 2/15/2034 958,750
Total 5,553,361
NON-GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES--26.9%
748,457 (b)Bayview Financial Acquisition Trust 1998-1, Series 1998-1, Class MF2, 6.49844%,
6/25/2028 719,806
3,000,000 Countrywide Home Loans 1997-5, Series 1997-5, Class A-3, 7.50%, 9/25/2027 3,021,446
3,625,000 Countrywide Home Loans 1997-6, Series 1997-6, Class A1, 6.75%, 11/25/2027 3,686,299
1,548 GE Capital Mortgage Services, Inc. 1995-7, Class A-1, 7.50%, 9/25/2025 1,548
4,392,635 GE Capital Mortgage Services, Inc. 1996-3, Series 1996-3, Class A1, 7.00%, 3/25/2026 4,442,931
894,342 GE Capital Mortgage Services, Inc. 1997-6, Series 1998-11, Class 1A1, 6.75%, 6/25/2028 898,697
4,656,578 (b)C-BASS ABS, LLC Series 1997-1, Class A-1, 2/1/2017 4,679,861
</TABLE>
FEDERATED SHORT-TERM INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
MORTGAGE-BACKED SECURITIES --CONTINUED
<C> <S> <C>
NON-GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES--CONTINUED
$ 970,368 (a)Glendale Federal Bank 1988-1, Series 1988-1, Class A, 7.24856%, 11/25/2027 $ 968,073
7,406,947 (a)Greenwich Capital Acceptance 1994-B, Series 1994-B, 7.72%, 7/1/2018 7,427,760
2,211,542 (a)Greenwich Capital Acceptance 1991-4, Series 1991-4, 8.4782%, 7/1/2019 2,212,935
2,288,607 (a)Greenwich Capital Acceptance 1993-AFCI, Series 1993-AF1, Class B1,
7.6177%, 8/25/2023 2,295,038
1,747,726 (a)Greenwich Capital Acceptance 1993-LB2, Series 1993-LB2, Class A1, 7.92%, 8/25/2023 1,759,750
900,570 Greenwich Capital Acceptance 1993-LB3, Series 1993-LB3, Class A1, 7.68%, 1/25/2024 902,821
281,961 Long Beach Federal Savings Bank 1992-3, Series 1992-3, Class A, 9.60%, 6/15/2022 283,901
2,241,930 Prudential Home Mortgage Securities 1992-5, Series 1992-5, Class A-6, 7.50%, 4/25/2007 2,309,098
1,003,882 Prudential Home Mortgage Securities, Inc. 1992-32, Class A-6, 7.50%, 10/25/2022 1,007,817
5,638,465 Residential Accredit Loans, Inc. 1996-QS8, Series 1996-QS8, Class A3, 7.05%,
12/25/2026 5,655,352
2,850,000 Residential Accredit Loans, Inc. 1997-QS2, Class A3, 7.25%, 3/25/2027 2,852,497
3,859,214 Residential Asset Securitization Trust 1997-A2, Series 1997-A2, Class A3, 9.00%,
4/25/2027 4,001,735
7,500,000 Residential Asset Securitization Trust 1997-A7, Series 1997-A7, Class A5, 7.50%,
9/25/2027 7,600,725
Total 56,728,090
GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES--5.4%
2,000,000 FHLBS, Sr. Note, 5.80%, 9/2/2008 2,082,020
2,079,479 GNMA, Pool 354754, 7.50%, 2/15/2024 2,143,152
6,052,421 GNMA, Pool 780360, 11.00%, 9/15/2015 6,774,959
41,433,791 Vendee Mortgage Trust 1995-1C, Series 1995-1C, Class 3IO, .2925%, 2/15/2025 194,324
Total 11,194,455
TOTAL MORTGAGE-BACKED SECURITIES (IDENTIFIED COST $73,633,280) 73,475,906
U.S. TREASURY NOTES--6.2%
2,000,000 5.375%, 6/30/2003 2,089,540
500,000 5.625%, 5/15/2008 538,750
6,000,000 5.75%, 11/15/2000 6,167,940
1,000,000 5.875%, 9/30/2002 1,052,720
2,935,000 6.625%, 5/15/2007 3,330,198
TOTAL U.S. TREASURY NOTES (IDENTIFIED COST $12,852,728) 13,179,148
</TABLE>
FEDERATED SHORT-TERM INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
(C)REPURCHASE AGREEMENT--1.0%
<C> <S> <C>
$ 2,055,000 Westdeutsche Landesbank Girozentrale, 5.42%, dated 10/30/1998, due 11/2/1998
(AT AMORTIZED COST) $ 2,055,000
TOTAL INVESTMENTS (IDENTIFIED COST $210,161,737)(D) $ 211,223,178
</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, 1998, these securities
amounted to $18,455,275 which represents 8.73% of net assets.
(c) The repurchase agreement is fully collateralized by U.S. government and/
or agency obligations based on market prices at the date of the portfolio.
The investment in the repurchase agreement is through participation in a
joint account with other Federated funds.
(d) The cost of investments for federal tax purposes amounts to $210,161,737.
The net unrealized appreciation/depreciation of investments on a federal
tax basis amounts to $1,061,441 which is comprised of $2,559,191
appreciation and $1,497,750 depreciation at October 31, 1998.
Note: The categories of investments are shown as a percentage of net assets
($211,301,307) at October 31, 1998.
The following acronyms are used throughout this portfolio:
IO --Interest Only
LLC--Limited Liability Corporation
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, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $210,161,737) $211,223,178
Income Receivable 3,755,457
Receivable for investments sold 118,827
Receivable for shares sold 137,023
Total assets 215,234,485
LIABILITIES:
Payable for investments purchased $ 892,972
Payable for shares redeemed 67,740
Income distribution payable 1,042,341
Payable to Bank 1,907,682
Accrued expenses 22,443
Total liabilities 3,933,178
NET ASSETS for 24,133,987 shares outstanding $211,301,307
NET ASSETS CONSIST OF:
Paid in capital $235,209,574
Net unrealized appreciation of investments 1,061,441
Accumulated net realized loss on investments (24,687,678)
Distributions in excess of net investment income (282,030)
Total net assets $211,301,307
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$191,929,845 / 21,921,525 shares outstanding $8.76
INSTITUTIONAL SERVICE SHARES:
$19,371,462 / 2,212,462 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, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $7,029,129
EXPENSES:
Investment advisory fee $ 430,962
Administrative personnel and services fee 81,236
Custodian fees 7,229
Transfer and dividend disbursing agent fees and expenses 32,643
Directors'/Trustees' fees 2,169
Auditing fees 8,830
Legal fees 2,268
Portfolio accounting fees 38,899
Distribution services fee--Institutional Service Shares 20,707
Shareholder services fee--Institutional Shares 248,645
Shareholder services fee--Institutional Service Shares 20,707
Share registration costs 16,399
Printing and postage 12,432
Insurance premiums 2,018
Miscellaneous 5,880
Total expenses 931,024
Waivers--
Waiver of investment advisory fee $ (32,879)
Waiver of distribution services fee--Institutional Service
Shares (19,879)
Waiver of shareholder services fee--Institutional Shares (248,645)
Waiver of shareholder services fee--Institutional Service Shares (828)
Total waivers (302,231)
Net expenses 628,793
Net investment income 6,400,336
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 49,186
Net change in unrealized appreciation of investments 265,989
Net realized and unrealized gain on investments 315,175
Change in net assets resulting from operations $6,715,511
</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
OCTOBER 31, YEAR ENDED
1998 APRIL 30,
(UNAUDITED) 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 6,400,336 $ 12,944,733
Net realized gain (loss) on investments ($49,186 and $696,886, respectively, as
computed for federal tax purposes) 49,186 (447,608)
Net change in unrealized appreciation 265,989 1,977,389
Change in net assets resulting from operations 6,715,511 14,474,514
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Institutional Shares (5,948,060) (12,014,535)
Institutional Service Shares (474,865) (960,510)
Change in net assets resulting from distributions to shareholders (6,422,925) (12,975,045)
SHARE TRANSACTIONS--
Proceeds from sale of shares 62,765,013 86,943,198
Net asset value of shares issued to shareholders in payment of distributions declared 1,712,950 3,931,188
Cost of shares redeemed (65,861,664) (112,005,010)
Change in net assets resulting from share transactions (1,383,701) (21,130,624)
Change in net assets (1,091,115) (19,631,155)
NET ASSETS:
Beginning of period 212,392,422 232,023,577
End of period $211,301,307 $ 212,392,422
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
FEDERATED SHORT-TERM INCOME FUND
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
OCTOBER 31,
1998 YEAR ENDED APRIL 30,
(UNAUDITED) 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.74 $ 8.68 $ 8.68 $ 8.61 $ 8.85 $ 9.17
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.26 0.52 0.54 0.57 0.54 0.51
Net realized and unrealized gain (loss) on investments 0.02 0.06 0.01 0.07 (0.24) (0.32)
Total from investment operations 0.28 0.58 0.55 0.64 0.30 0.19
LESS DISTRIBUTIONS
Distributions from net investment income (0.26) (0.52) (0.54) (0.57) (0.54) (0.51)
Distributions in excess of net investment income(a) -- -- (0.01) -- -- --
Total distributions (0.26) (0.52) (0.55) (0.57) (0.54) (0.51)
NET ASSET VALUE, END OF PERIOD $ 8.76 $ 8.74 $ 8.68 $ 8.68 $ 8.61 $ 8.85
TOTAL RETURN(B) 3.29% 6.88% 6.53% 7.51% 3.55% 2.04%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.56%* 0.56% 0.56% 0.56% 0.56% 0.56%
Net investment income 5.96%* 5.96% 6.21% 6.43% 6.22% 5.55%
Expense waiver/reimbursement(c) 0.28%* 0.28% 0.28% 0.29% 0.03% 0.08%
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $191,930 $197,610 $214,438 $216,675 $219,649 $353,106
Portfolio turnover 26% 49% 55% 77% 38% 44%
</TABLE>
* Computed on an annualized basis.
(a) Distributions in excess of net investment income for the years ended
April 30, 1997, 1992, and 1991, were a result of certain book and tax
timing services. These distributions did not represent a return of capital
for federal income tax purposes for the years ended April 30, 1997, 1992,
and 1991.
(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
FEDERATED SHORT-TERM INCOME FUND
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
OCTOBER 31,
1998 YEAR ENDED APRIL 30,
(UNAUDITED) 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.74 $ 8.68 $ 8.68 $ 8.61 $ 8.85 $ 9.17
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.25 0.50 0.53 0.54 0.52 0.48
Net realized and unrealized gain (loss)
on investments 0.02 0.06 -- 0.07 (0.24) (0.32)
Total from investment operations 0.27 0.56 0.53 0.61 0.28 0.16
LESS DISTRIBUTIONS
Distributions from net investment income (0.25) (0.50) (0.53) (0.54) (0.52) (0.48)
NET ASSET VALUE, END OF PERIOD $ 8.76 $ 8.74 $ 8.68 $ 8.68 $ 8.61 $ 8.85
TOTAL RETURN(A) 3.16% 6.61% 6.27% 7.25% 3.29% 1.78%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.81%* 0.81% 0.81% 0.81% 0.81% 0.81%
Net investment income 5.71%* 5.73% 5.96% 6.17% 5.90% 5.30%
Expense waiver/reimbursement(b) 0.28%* 0.28% 0.28% 0.29% 0.27% 0.13%
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $19,371 $14,783 $17,586 $16,346 $17,091 $39,649
Portfolio turnover 26% 49% 55% 77% 38% 44%
</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, 1998 (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"). The financial statements of the other portfolios
are presented separately. The assets of each portfolio are segregated and a
shareholder's interest is limited to the portfolio in which shares are held.
The investment objective of the Fund is to seek to provide current income.
The Fund offers two classes of shares: Institutional Shares and Institutional
Service Shares.
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, 1998, the Fund, for federal tax purposes, had a capital loss
carryforward, as noted below, 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
1999 $ 1,132,354
2000 4,105,766
2002 669,532
2003 5,572,713
2004 10,784,773
2005 1,566,031
2006 696,886
Additionally, net capital losses of $208,810 attributable to security
transactions incurred after October 31, 1997, are treated as arising on the
first day of the Fund's next taxable year.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make
payment for the securities purchased. Securities purchased on a when-issued
or delayed delivery basis are marked to market daily and begin earning
interest on the settlement date.
RESTRICTED SECURITIES
Restricted securities are securities that may only be resold upon
registration under federal securities laws or in transactions exempt from
such registration. In some cases, the issuer of restricted securities has
agreed to register such securities for resale, at the issuer's expense either
upon demand by the Fund or in connection with another registered offering of
the securities. Many restricted securities may be resold in the secondary
market in transactions exempt from registration. Such restricted securities
may be determined to be liquid under criteria established by the Board of
Trustees. The Fund will not incur any registration costs upon such resales.
The Fund's restricted securities are valued at the price provided by dealers
in the secondary market or, if no market prices are available, at the fair
value as determined by the Fund's pricing committee.
Additional information on each restricted security held at October 31, 1998
is as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
125 Home Loan Owner Trust 1998-1A 7/30/1998 $1,999,062
Bayview Financial Acquisition Trust 5/14/1998-10/25/1998 748,457
Bosque Asset Corp. 6/19/1997-10/5/1998 1,106,210
C-BASS ABS, LLC Series 1997-1 2/25/1997-10/28/1998 4,675,495
FMAC Loan Receivables Trust 1997-A 6/16/1997-10/30/1998 1,227,367
KeyCorp, Series A 5/27/1997 2,997,248
K Mart CMBS Financing, Inc., Series 1997-1 2/27/1997 4,000,000
Nomura Depositor Trust 2/3/1998 1,000,000
PanAmSat Corp. 8/19/1998 999,386
</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, 1998 APRIL 30, 1998
INSTITUTIONAL SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 5,913,133 $ 51,856,969 8,961,823 $ 78,330,489
Shares issued to shareholders in payment of distributions declared 173,025 1,515,725 396,037 3,459,922
Shares redeemed (6,769,670) (59,324,479) (11,445,782) (100,001,871)
Net change resulting from Institutional Share transactions (683,512) $ (5,951,785) (2,087,922) $ (18,211,460)
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
OCTOBER 31, 1998 APRIL 30, 1998
INSTITUTIONAL SERVICE SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 1,245,783 $ 10,908,044 985,377 $ 8,612,709
Shares issued to shareholders in payment of distributions declared 22,498 197,225 53,929 471,266
Shares redeemed (746,900) (6,537,185) (1,373,242) (12,003,139)
Net change resulting from Institutional Service Share transactions 521,381 $ 4,568,084 (333,936) $ (2,919,164)
Net change resulting from Share transactions (162,131) $ (1,383,701) (2,421,858) $ (21,130,624)
</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, Inc. 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 Fund 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, 1998, were as follows:
PURCHASES $58,881,336
SALES $53,160,905
YEAR 2000
Similar to other financial organizations, the Fund could be adversely
affected if the computer systems used by the Fund's service providers do not
properly process and calculate date-related information and data from and
after January 1, 2000. The Fund's Adviser and Administrator are taking
measures that they believe are reasonably designed to address the Year 2000
issue with respect to computer systems that they use and to obtain reasonable
assurances that comparable steps are being taken by each of the Fund's other
service providers. At this time, however, there can be no assurance that
these steps will be sufficient to avoid any adverse impact to the Fund.
TRUSTEES
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
Nicholas P. Constantakis
William J. Copeland
James E. Dowd, Esq.
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr., Esq.
Peter E. Madden
John E. Murray, Jr., J.D., S.J.D.
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 Short-Term Income Fund
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
OCTOBER 31, 1998
[GRAPHIC]
Federated Securites Corp., Distributor
Federated Investors, Inc.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Cusip 31420C209
Cusip 31420C308
8112901 (12/98)
