FEDERATED INCOME SECURITIES TRUST, 485APOS, 1998-06-29

FEDERATED INCOME SECURITIES TRUST
485APOS, 1998-06-29

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1933 Act File No. 33-3164
1940 Act File No. 811-4577

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X

Pre-Effective Amendment No. .....................

Post-Effective Amendment No. 30 .................... X

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X

Amendment No. 23 ................................... X

FEDERATED INCOME SECURITIES TRUST

(Exact Name of Registrant as Specified in Charter)

Federated Investors Funds
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7000
(Address of Principal Executive Offices)

(412) 288-1900
(Registrant's Telephone Number)

John W. McGonigle, Esquire,
Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)

It is proposed that this filing will become effective:

immediately upon filing pursuant to paragraph (b).
__ on _________________ pursuant to paragraph (b).
60 days after filing pursuant to paragraph (a)(i).
x on August 28, 1998 pursuant to paragraph (a)(i).
75 days after filing pursuant to paragraph (a)(ii).
on _________________ pursuant to paragraph (a)(ii) of Rule 485.

If appropriate, check the following box:

This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

Copies To:

Matthew G. Maloney, Esquire
Dickstein Shapiro Morin & Oshinsky LLP
2101 L Street, N.W.
Washington, D.C. 20037

<PAGE>

CROSS-REFERENCE SHEET

This Amendment to the Registration Statement of FEDERATED INCOME
SECURITIES TRUST, which is comprised of two portfolios: (1) Federated Short-Term
Income Fund, (a) Institutional Shares and (b) Institutional Service Shares; and
(2) Federated Intermediate Income Fund, (a) Institutional Shares and (b)
Institutional Service Shares, is comprised of the following:

PART A. INFORMATION REQUIRED IN A PROSPECTUS.

Prospectus Heading
(Rule 404(c) Cross Reference)

Item 1. Cover Page....................(1-2) Cover Page.

Item 2. Synopsis (1(a)-2(a)) Summary of Fund Expenses-
Institutional Shares; (1(b)-2(b))
Summary of Fund Expenses -
Institutional Service Shares

Item 3. Condensed Financial
Information (1(a), 2(a)) Financial Highlights--
Institutional Shares; (1(b), 2(b))
Financial Highlights--Institutional
Service Shares; (1-2) Performance
Information.

Item 4. General Description of
Registrant (1-2) General Information; (1-2) Year
2000 Statement.
(1-2) Investment Information;
(1-2) Investment Objective;
(1-2) Investment Policies;
(1-2) Special Considerations;(1)
Portofolio Turnover; (2) Weighted
Average Portfolio Duration; (1-2)
Investment Limitations;

Item 5. Management of the Fund (1-2) Trust Information;
(1-2) Management of the Trust;
(1(a), 2(a)) Distribution of
Institutional Shares;
(1(b), 2(b)) Distribution of
Institutional Service Shares;
(1-2) Administration of the Fund;

Item 6. Capital Stock and Other
Securities (1-2) Account Activity; (1-2)
Dividends; (1-2) Capital Gains;
(1-2) Shareholder Information;
(1-2) Voting Rights; (1-2) Tax
Information; (1-2) Federal Income Tax;
(1-2) State and Local Taxes; (1-2)
Other Classes of Shares.

<PAGE>

Item 7. Purchase of Securities Being
Offered (1-2) Net Asset Value;
(1(a), 2(a)) Investing in
Institutional Shares;
(1(b), 2(b)) Investing in
Institutional Service Shares;
(1-2) Share Purchases;
(1-2) Minimum Investment Required;
(1-2) What Shares Cost; (2) Exchange
Privilege.

Item 8. Redemption or Repurchase (1(a),
2(a)) Redeeming Institutional Shares;
(1(b), 2(b)) Redeeming Institutional
Service Shares; (1-2) Telephone
Redemption; (1-2) Redeeming Shares By
Mail; (1-2) Accounts with Low
Balances.

Item 9. Pending Legal Proceedings None.

<PAGE>

PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.

Item 10. Cover Page (1-2) Cover Page.

Item 11. Table of Contents (1-2) Table of Contents.

Item 12. General Information and
History (1-2) General Information About the
Fund; (1-2) About Federated
Investors, Inc.

Item 13. Investment Objectives and
Policies (1-2) Investment Objective and Policies.

Item 14. Management of the Fund (1-2)
Federated Income Securities Trust
Management; (1-2) Trustee
Compensation; (1-2) Massachusetts
Partnership Law; (1-2) Trustee
Liability.

Item 15. Control Persons and Principal
Holders of Securities (1-2) Trust Ownership.

Item 16. Investment Advisory and Other
Services (1-2) Investment Advisory Services;
(1-2) Other Services.

Item 17. Brokerage Allocation (1-2) Brokerage Transactions.

Item 18. Capital Stock and Other
Securities Not applicable.

Item 19. Purchase, Redemption and
Pricing of Securities
Being Offered (1-2) Purchasing Shares;
(1-2) Determining Net Asset Value;
(1-2) Redeeming Shares.

Item 20. Tax Status (1-2) Tax Status.

Item 21. Underwriters Not applicable
Item 22. Calculation of Performance
Data (1-2) Total Return; (1-2) Yield;
(1-2) Performance Comparisons.

Item 23 Financial Statements (1-2) Financial Statements are
incorporated by reference to the
Annual Report of Registrant dated
April 30, 1998; File Nos. 33-3164 and
811-4577).

Federated Short-Term Income Fund

(A Portfolio of Federated Income Securities Trust)

Institutional Shares

PROSPECTUS

The Institutional Shares of Federated Short-Term Income Fund (the "Fund")
offered by this prospectus represent interests in a diversified portfolio of
securities which is an investment portfolio in Federated Income Securities Trust
(the "Trust"), an open-end, management investment company (a mutual fund).

The investment objective of the Fund is to seek to provide current income.

THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS NOR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED NOR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.

This prospectus contains the information you should read and know before you
invest in Institutional Shares of the Fund. Keep this prospectus for future
reference. The Fund has also filed a Statement of Additional Information for
Institutional Shares and Institutional Service Shares dated June 30, 1998, with
the Securities and Exchange Commission ("SEC"). The information contained in the
Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Statement of Additional Information,
or a paper copy of this prospectus, if you have received your prospectus
electronically, free of charge by calling 1-800-341-7400. To obtain other
information, or make inquiries about the Fund, contact the Fund at the address
listed in the back of this prospectus. The Statement of Additional Information,
material incorporated by reference into this document, and other information
regarding the Fund is maintained electronically with the SEC at Internet Web
site (http://www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated June
30, 1998 TABLE OF CONTENTS
Summary of Fund Expenses 1
Financial Highlights -- Institutional Shares 2
General Information 3
Year 2000 Statement 3
Investment Information 3
Investment Objective 3
Investment Policies 3
Special Considerations 11
Portfolio Turnover 11
Investment Limitations 12
Trust Information 12
Management of the Trust 12
Distribution of Institutional Shares 13
Administration of the Fund 13
Net Asset Value 14
Investing in Institutional Shares 14
Share Purchases 14
Minimum Investment Required 14
What Shares Cost 14
Account Activity 15
Dividends 15
Capital Gains 15
Redeeming Institutional Shares 15
Telephone Redemption 15
Redeeming Shares by Mail 15
Accounts with Low Balances 15
Shareholder Information 16
Voting Rights 16
Tax Information 16
Federal Income Tax 16
State and Local Taxes 16
Performance Information 16
Other Classes of Shares 17
Financial Highlights -- Institutional Service Shares 18

SUMMARY OF FUND EXPENSES

<TABLE>
<CAPTION>
INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES

<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering None
price)
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of None
offering price)
Contingent Deferred Sales Charge (as a percentage of original purchase price None
or redemption proceeds, as applicable)(1)
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
</TABLE>
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSE
(As a percentage of average net assets)
<S> <C> <C
Management Fee 0.37
12b-1 Fee None
Total Other Expenses 0.19%
Shareholder Services Fee 0.00%
Total Operating Expenses 0.56%
</TABLE>

(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary waiver
at any time at its sole discretion. The maximum management fee is 0.40%.

(2) The shareholder services fee has been reduced to reflect the voluntary
waiver of the shareholder services fee. The shareholder service provider can
terminate this voluntary waiver at any time at its sole discretion. The maximum
shareholder services fee is 0.25%.

(3) The total operating expenses would have been 0.84% absent the voluntary
waivers of a portion of the management fee and the shareholder services fee.

The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of Institutional Shares of the Fund will
bear, either directly or indirectly. For more complete descriptions of the
various costs and expenses, see "Trust Information" and "Investing in
Institutional Shares." Wire-transferred redemptions of less than $5,000 may be
subject to additional fees. <TABLE> <CAPTION> EXAMPLE You would pay the
following expenses on a $1,000 investment, assuming (1) 5% annual return, (2)
redemption at the end of each time. <S> <C> 1 Year $ 6 3 Years $18 5 Years $31
10 Years $70 </TABLE> THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN.

FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Ernst & Young LLP, the Fund's
independent auditors. Their report dated June 19, 1998, on the Fund's financial
statements for the period ended April 30, 1998, and on the following table for
the period presented, is included in the Annual Report, which is incorporated by
reference. This table should be read in conjunction with the Fund's financial
statements and notes thereto, which may be obtained free of charge.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
1998 1997 1996 1995 1994 1993 1992(A) 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, $ 8.68 $ 8.68 $ 8.61 $ 8.85 $ 9.17 $ 8.98 $ 9.07 $ 9.16 $ 9.41 $ 9.56
BEGINNING OF
PERIOD
INCOME FROM
INVESTMENT
OPERATIONS
Net investment 0.52 0.54 0.57 0.54 0.51 0.58 0.60 0.83 0.93 0.94
income
Net realized 0.06 0.01 0.07 (0.24) (0.32) 0.16 (0.07) (0.08) (0.25) (0.15)
and unrealized
gain (loss) on
investments
Total from 0.58 0.55 0.64 0.30 0.19 0.74 0.53 0.75 0.68 0.79
investment
operations
LESS
DISTRIBUTIONS
Distributions (0.52) (0.54) (0.57) (0.54) (0.51) (0.55) (0.60) (0.83) (0.93) (0.94)
from net
investment income
Distributions -- (0.01) -- -- -- -- (0.02) (0.01) -- --
in excess of net
investment
income(b)
Total (0.52) (0.55) (0.57) (0.54) (0.51) (0.55) (0.62) (0.84) (0.93) (0.94)
distributions
NET ASSET VALUE, $ 8.74 $ 8.68 $ 8.68 $ 8.61 $ 8.85 $ 9.17 $ 8.98 $ 9.07 $ 9.16 $ 9.41
END OF PERIOD
TOTAL RETURN(C) 6.88% 6.53% 7.51% 3.55% 2.04% 8.39% 5.94% 8.80% 7.52% 8.69%
RATIOS TO AVERAGE
NET ASSETS
Expenses 0.56% 0.56% 0.56% 0.56% 0.56% 0.51% 0.53% 0.52% 0.52% 0.51%
Net investment 5.96% 6.21% 6.43% 6.22% 5.55% 6.07% 6.71% 9.33% 9.95% 9.90%
income
Expense waiver/ 0.28% 0.28% 0.29% 0.03% 0.08% 0.45% 0.98% 0.92% 0.75% 0.76%
reimbursement(d)
SUPPLEMENTAL DATA
Net assets, end $197,610 $214,438 $216,675 $219,649 $353,106 $144,129 $36,047 $47,223 $65,429 $69,904
of period (000
omitted)
Portfolio 49% 55% 77% 38% 44% 62% 114% 23% 34% 38%
turnover
</TABLE>
(a) On December 31, 1991, the shareholders approved a change in the fundamental
investment policies which state that the Fund will be invested in high-grade as
opposed to lower-rated debt securities, and as a result, investment income per
share is lower.

(b) Distributions in excess of net investment income for the years ended April
30, 1997, 1992, and 1991, were a result of certain book and tax timing
differences. These distrubutions did not represent a return of capital for
federal income tax purposes for the years ended April 30, 1997, 1992, and 1991.

(c) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.

FURTHER INFORMATION ABOUT THE FUND'S PERFORMANCE IS CONTAINED IN THE FUND'S
ANNUAL REPORT DATED APRIL 30, 1998, WHICH CAN BE OBTAINED FREE OF CHARGE.

GENERAL INFORMATION

The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated January 24, 1986. On December 31, 1991, the shareholders voted to
permit the Trust to offer separate series of shares of beneficial interest
representing interests in separate portfolios of securities. The shares in any
one portfolio may be offered in separate classes. With respect to this Fund, as
of the date of this prospectus the Board of Trustees ("Trustees") has
established two classes of shares, Institutional Shares and Institutional
Service Shares. This prospectus relates only to Institutional Shares of the
Fund.

Institutional Shares ("Shares") are sold primarily to accounts for which
financial institutions act in a fiduciary or agency capacity, or other accounts
where the financial institution maintains master accounts with an aggregate
investment of at least $400 million in certain funds which are advised or
distributed by affiliates of Federated Investors, Inc. Shares are also made
available to financial intermediaries, and public and private organizations. An
investment in the Fund serves as a convenient means of accumulating an interest
in a professionally managed, diversified portfolio of U.S. government, corporate
asset-backed securities. A minimum initial investment of $25,000 over a 90-day
period is required.

Shares are currently sold and redeemed at net asset value ("NAV") without a
sales charge imposed by the Fund.

YEAR 2000 STATEMENT

Like other mutual funds and business organizations worldwide, the Fund's service
providers (among them, the adviser, distributor, administrator, and transfer
agent) must ensure that their computer systems are adjusted to properly process
and calculate date-related information from and after January 1, 2000. Many
software programs and, to a lesser extent, the computer hardware in use today
cannot distinguish the year 2000 from the year 1900. Such a design flaw could
have a negative impact in the handling of securities trades, pricing, and
accounting services. The Fund and its service providers are actively working on
necessary changes to computer systems to deal with the year 2000 issue and
believe that systems will be year 2000 compliant when required. Analysis
continues regarding the financial impact of instituting a year 2000 compliant
program on the Fund's operations. INVESTMENT INFORMATION

INVESTMENT OBJECTIVE

The investment objective of the Fund is to seek to provide current income. This
investment objective cannot be changed without the approval of the Fund's
shareholders. While there is no assurance that the Fund will achieve its
investment objective, it endeavors to do so by following the investment policies
described in this prospectus.

INVESTMENT POLICIES

The Fund will invest primarily in a diversified portfolio of short and
medium-term high grade debt securities. The Fund may also invest in long-term
high grade debt securities to the extent consistent with its policies regarding
the Fund's average dollar-weighted portfolio maturity and duration. This
investment policy may not be changed without the prior approval of the Fund's
shareholders. Unless indicated otherwise, the other investment policies
described in this prospectus may be changed by the Trustees without the approval
of the Fund's shareholders. Shareholders will be notified before any material
changes in these policies become effective.

ACCEPTABLE INVESTMENTS

The high grade debt securities in which the Fund invests include medium- and
long-term instruments rated by one or more nationally recognized statistical
rating organizations ("NRSROs") in one of their three highest rating categories
(e.g., AAA, AA, or A by Standard & Poor's ("S&P") or Fitch IBCA, Inc. ("Fitch"),
or Aaa, Aa, or A by Moody's Investors Service, Inc. ("Moody's")) and short-term
instruments rated by one or more NRSROs in one of their two highest categories
(e.g., A-1 or A-2 by S&P, Prime-1 or Prime-2 by Moody's, or F-1 or F-2 by
Fitch). The Fund may also invest up to 35% of its assets in other investment
grade debt securities (for example, securities rated Aaa, Aa, A, or Baa by
Moody's or, AAA, AA, A, or BBB by S&P, Fitch, or Duff & Phelps Rating Service
("Duff & Phelps"). The Fund may invest in unrated debt securities that are
determined by the Fund's investment adviser to be of comparable quality to
instruments having such ratings. Downgraded securities will be evaluated on a
case by case basis by the adviser. The adviser will determine whether or not the
security continues to be an acceptable investment. If not, the security will be
sold.

Acceptable investments currently include the following:

* corporate debt obligations, including medium-term notes and variable
rate demand notes;
* asset-backed securities;
* commercial paper (including Canadian Commercial Paper ("CCP") and
Europaper);
* certificates of deposit, demand and time deposits, bankers' acceptances,
deposit notes and other instruments of domestic and foreign banks and other
deposit institutions ("Bank Instruments");
* interest rate swaps, caps, and floors;
* medium- and short-term credit facilities, including demand notes and
participations in revolving credit facilities;
* auction rate securities (see below);
* obligations issued or guaranteed as to payment of principal and
interest by the U.S. government or one of its agencies or
instrumentalities ("Government Securities"); and
* other money market instruments.

The Fund invests only in instruments denominated and payable in U.S.
dollars.

VARIABLE RATE DEMAND NOTES

ASSET-BACKED SECURITIES

Asset-backed securities are created by the grouping of certain governmental,
government-related, private loans, receivables or other lender assets into
pools. Interests in these pools are sold as individual securities. Payments from
the asset pools may be divided into several different tranches of debt
securities, with some tranches entitled to receive regular installments of
principal and interest, other tranches entitled to receive regular installments
of interest, with principal payable at maturity or upon specified call dates,
and other tranches only entitled to receive payments of principal and accrued
interest at maturity or upon specified call dates. Different tranches of
securities will bear different interest rates, which may be fixed or floating.

Because the loans held in the asset pool often may be prepaid without penalty or
premium, asset-backed securities are generally subject to higher prepayment
risks than most other types of debt instruments. Prepayment risks on
mortgage-backed securities tend to increase during periods of declining mortgage
interest rates, because many borrowers refinance their mortgages to take
advantage of the more favorable rates. Prepayments on mortgage-backed securities
are also affected by other factors, such as the frequency with which people sell
their homes or elect to make unscheduled payments on their mortgages. All
asset-backed securities are subject to similar prepayment risks, although they
may be more or less sensitive to certain factors. Depending upon market
conditions, the yield that the Fund receives from the reinvestment of such
prepayments, or any scheduled principal payments, may be lower than the yield on
the original asset-backed security. As a consequence, mortgage securities may be
a less effective means of "locking in" interest rates than other types of debt
securities having the same stated maturity and may also have less potential for
capital appreciation. For certain types of asset pools, such as collateralized
mortgage obligations, prepayments may be allocated to one tranche of securities
ahead of other tranches, in order to reduce the risk of prepayment for the other
tranches.

Prepayments may result in a capital loss to the Fund to the extent that the
prepaid asset-backed securities were purchased at a market premium over their
stated principal amount. Conversely, the prepayment of asset-backed securities
purchased at a market discount from their stated principal amount will
accelerate the recognition of interest income by the Fund, which would be taxed
as ordinary income when distributed to the shareholders.

The credit characteristics of asset-backed securities also differ in a number of
respects from those of traditional debt securities. The credit quality of most
asset-backed securities depends primarily upon the credit quality of the assets
underlying such securities, how well the entity issuing the securities is
insulated from the credit risk of the originator or any other affiliated
entities, and the amount and quality of any credit enhancement to such
securities.

MORTGAGE-RELATED ASSET-BACKED SECURITIES

The Fund may also invest in various mortgage-related asset-backed securities.
These types of investments may include adjustable rate mortgage securities
("ARMS"), collateralized mortgage obligations ("CMOs"), real estate mortgage
investment conduits ("REMICs"), or other securities collateralized by or
representing an interest in real estate mortgages (collectively, "mortgage
securities"). Mortgage securities are: (i) issued or guaranteed by the U.S.
government or one of its agencies or instrumentalities, such as the Government
National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC");
(ii) those issued by private issuers that represent an interest in or are
collateralized by mortgage-backed securities issued or guaranteed by the U.S.
government or one of its agencies or instrumentalities; (iii) those issued by
private issuers that represent an interest in or are collateralized by whole
loans or mortgage-backed securities without a government guarantee but usually
having some form of private credit enhancement; and (iv) privately issued
securities which are collateralized by pools of mortgages in which each mortgage
is guaranteed as to payment of principal and interest by an agency or
instrumentality of the U.S. government.

The privately issued mortgage-related securities provide for a periodic payment
consisting of both interest and/or principal. The interest portion of these
payments will be distributed by the Fund as income, and the capital portion will
be reinvested.

ADJUSTABLE RATE MORTGAGE SECURITIES

ARMS are pass-through mortgage securities representing interests in adjustable
rather than fixed interest rate mortgages. Typically, the ARMS in which the Fund
invests are issued by GNMA, FNMA, and FHLMC and are actively traded. ARMS may be
collateralized by whole loans or private pass-through securities. The underlying
mortgages which collateralize ARMS issued by GNMA are fully guaranteed by the
Federal Housing Administration or Veterans Administration, while those
collateralizing ARMS issued by FHLMC or FNMA are typically conventional
residential mortgages conforming to strict underwriting size and maturity
constraints.

Unlike conventional bonds, ARMS pay back principal over the life of the ARMS
rather than at maturity. Thus, a holder of the ARMS, such as the Fund, would
receive monthly scheduled payments of principal and/or interest and may receive
unscheduled principal payments representing payments on the underlying
mortgages. At the time that a holder of the ARMS reinvests the payments and any
unscheduled prepayments of principal that it receives, the holder may receive a
rate of interest which is actually lower than the rate of interest paid on the
existing ARMS. As a consequence, ARMS may be a less effective means of "locking
in" long-term interest rates than other types of fixed-income securities.

Like other fixed-income securities, the market value of ARMS will generally vary
inversely with changes in market interest rates. Thus, the market value of ARMS
generally declines when interest rates rise and generally rises when interest
rates decline.

While ARMS generally entail less risk of a decline during periods of rapidly
rising rates, ARMS may also have less potential for capital appreciation than
other similar investments (e.g., investments with comparable maturities)
because, as interest rates decline, the likelihood increases that mortgages will
be prepaid. Furthermore, if ARMS are purchased at a premium, mortgage
foreclosures and unscheduled principal payments may result in some loss of a
holder's principal investment to the extent of the premium paid. Conversely, if
ARMS are purchased at a discount, both a scheduled payment of principal and an
unscheduled prepayment of principal would increase current and total returns and
would accelerate the recognition of income, which would be taxed as ordinary
income when distributed to shareholders.

COLLATERALIZED MORTGAGE OBLIGATIONS

CMOs are debt obligations collateralized by mortgage loans or mortgage
pass-through securities. Typically, CMOs are collateralized by GNMA, FNMA, or
FHLMC Certificates, but may be collateralized by whole loans or private
pass-through securities.

The CMOs in which the Fund may invest may be: (a) collateralized by pools of
mortgages in which each mortgage is guaranteed as to payment of principal and
interest by an agency or instrumentality of the U.S. government; (b)
collateralized by pools of mortgages in which payment of principal and interest
is guaranteed by the issuer and such guarantee is collateralized by U.S.
Government Securities; or (c) collateralized by pools of mortgages without a
government guarantee as to payment of principal and interest, but which have
some form of credit enhancement.

The following example illustrates how mortgage cash flows are prioritized in the
case of CMOs. Most of the CMOs in which the Fund invests use the same basic
structure.

(1) Several classes of securities are issued against a pool of mortgage
collateral. The most common structure contains four tranches of securities: The
first three (A, B, and C bonds) pay interest at their stated rates beginning
with the issue date; the final tranche (Z bond) typically receives any excess
income from the underlying investments after payments are made to the other
tranches and receives no principal or interest payments until the shorter
maturity tranches have been retired, but then receives all remaining principal
and interest payments.

(2) The cash flows from the underlying mortgages are applied first to pay
interest and then to retire securities.

(3) The tranches of securities are retired sequentially. All principal payments
are directed first to the shortest-maturity tranche (or A bonds). When those
securities are completely retired, all principal payments are then directed to
the next-shortest-maturity security tranche (or B bond.) This process continues
until all of the tranches have been completely retired.

Because the cash flow is distributed sequentially instead of pro rata, as with
pass-through securities, the cash flows and average lives of CMOs are more
predictable, and there is a period of time during which the investors in the
longer-maturity classes receive no principal paydowns. One or more of the
tranches often bear interest at an adjustable rate. The interest portion of
these payments is distributed by the Fund as income, and the principal portion
is reinvested.

REAL ESTATE MORTGAGE INVESTMENT CONDUITS

REMICs in which the Fund may invest are offerings of multiple class real estate
mortgage-backed securities which qualify and elect treatment as such under
provisions of the Internal Revenue Code, as amended. Issuers of REMICs may take
several forms, such as trusts, partnerships, corporations, associations, or
segregated pools of mortgages. Once REMIC status is elected and obtained, the
entity is not subject to federal income taxation. Instead, income is passed
through the entity and is taxed to the person or persons who hold interests in
the REMIC. A REMIC interest must consist of one or more classes of "regular
interests," some of which may offer adjustable rates of interest, and a single
class of "residual interests." To qualify as a REMIC, substantially all the
assets of the entity must be in assets directly or indirectly secured
principally by real property.

RESETS OF INTEREST

The interest rates paid on some of the ARMS, CMOs, and REMICs in which the Fund
may invest will be readjusted at intervals of one year or less to an increment
over some predetermined interest rate index. There are two main categories of
indices: those based on U.S. Treasury securities and those derived from a
calculated measure, such as a cost of funds index or a moving average of
mortgage rates. Commonly utilized indices include the one-year and five-year
constant maturity Treasury Note rates, the three-month Treasury Bill rate, the
180-day Treasury Bill rate, rates on longer-term Treasury securities, the
National Median Cost of Funds, the one-month or three-month London Interbank
Offered Rate ("LIBOR"), the prime rate of a specific bank, or commercial paper
rates. Some indices, such as the one-year constant maturity Treasury Note rate,
closely mirror changes in market interest rate levels. Others tend to lag
changes in market rate levels and tend to have somewhat less volatile interest
rates. To the extent that the adjusted interest rate on the mortgage
security reflects current market rates, the market value of an adjustable rate
mortgage security will tend to be less sensitive to interest rate changes than a
fixed rate debt security of the same stated maturity. Hence, ARMS which use
indices that lag changes in market rates should experience greater price
volatility than ARMS that closely mirror the market. Certain residual interest
tranches of CMOs may have adjustable interest rates that deviate significantly
from prevailing market rates, even after the interest rate is reset, and are
subject to correspondingly increased price volatility. In the event that the
Fund purchases such residual interest mortgage securities, it will factor in the
increased interest and price volatility of such securities when determining its
dollar-weighted average portfolio maturity and duration. CAPS AND FLOORS

The underlying mortgages which collateralize the ARMS, CMOs, and REMICs in which
the Fund may invest will frequently have caps and floors which limit the maximum
amount by which the loan rate to the residential borrower may change up or down:
(1) per reset or adjustment interval; and (2) over the life of the loan. Some
residential mortgage loans restrict periodic adjustments by limiting changes in
the borrower's monthly principal and interest payments rather than limiting
interest rate changes. These payment caps may result in negative amortization.

The value of mortgage securities in which the Fund may invest may be affected if
market interest rates rise or fall faster and farther than the allowable caps or
floors on the underlying residential mortgage loans. Additionally, even though
the interest rates on the underlying residential mortgages are adjustable,
amortization and prepayments may occur, thereby causing the effective maturities
of the mortgage securities in which the Fund invests to be shorter than the
maturities stated in the underlying mortgages.

NON-MORTGAGE-RELATED ASSET-BACKED SECURITIES

The Fund may invest in non-mortgage-related asset-backed securities, including
interests in pools of receivables, such as credit card and accounts receivable
and motor vehicle and other installment purchase obligations and leases. These
securities may be in the form of pass-through instruments or asset-backed
obligations. The securities are structured similarly to CMOs and mortgage
pass-through securities, which are described above. Also, these securities may
be issued either by non-governmental entities and carry no direct or indirect
governmental guarantees, or by governmental entities (i.e., Small Business
Administration) and carry varying degrees of governmental support.

Non-mortgage-related asset-backed securities have structural characteristics
similar to mortgage-related asset-backed securities but have underlying assets
that are not mortgage loans or interests in mortgage loans. The Fund may invest
in non-mortgage-related asset-backed securities including, but not limited to,
interests in pools of receivables, such as motor vehicle installment purchase
obligations and credit card receivables. These securities may be in the form of
pass-through instruments or asset-backed bonds. The securities are issued by
non-governmental entities and carry no direct or indirect government guarantee.

Mortgage-backed and asset-backed securities generally pay back principal and
interest over the life of the security. At the time the Fund reinvests the
payments and any unscheduled prepayments of principal received, the Fund may
receive a rate of interest which is actually lower than the rate of interest
paid on these securities ("prepayment risks"). Although non-mortgage-related
asset-backed securities generally are less likely to experience substantial
prepayments than are mortgage-related asset-backed securities, certain of the
factors that affect the rate of prepayments on mortgage-related asset-backed
securities also affect the rate of prepayments on non-mortgage-related
asset-backed securities.

Non-mortgage-related asset-backed securities present certain risks that are not
presented by mortgage-related asset-backed securities. Primarily, these
securities do not have the benefit of the same security interest in the related
collateral. Credit card receivables are generally unsecured and the debtors are
entitled to the protection of a number of state and federal consumer credit
laws, many of which give such debtors the right to set off certain amounts owed
on the credit cards, thereby reducing the balance due. Most issuers of
asset-backed securities backed by motor vehicle installment purchase obligations
permit the servicer of such receivables to retain possession of the underlying
obligations. If the servicer sells these obligations to another party, there is
a risk that the purchaser would acquire an interest superior to that of the
holders of the related asset-backed securities. Further, if a vehicle is
registered in one state and is then reregistered because the owner and obligor
moves to another state, such reregistration could defeat the original security
interest in the vehicle in certain cases. In addition, because of the large
number of vehicles involved in a typical issuance and technical requirements
under state laws, the trustee for the holders of asset-backed securities backed
by automobile receivables may not have a proper security interest in all of the
obligations backing such receivables. Therefore, there is the possibility that
recoveries on repossessed collateral may not, in some cases, be available to
support payments on these securities.

BANK INSTRUMENTS

The Fund only invests in Bank Instruments either issued by an institution having
capital, surplus, and undivided profits over $100 million or insured by the Bank
Insurance Fund ("BIF") or the Savings Association Insurance Fund ("SAIF"). Bank
Instruments may include Eurodollar Certificates of Deposit ("ECDs"), Yankee
Certificates of Deposit ("Yankee CDs") and Eurodollar Time Deposits ("ETDs").
FOREIGN INVESTMENTS

ECDs, ETDs, Yankee CDs, CCP, and Europaper are subject to somewhat different
risks than domestic obligations of domestic issuers. Examples of these risks
include international, economic, and political developments, foreign
governmental restrictions that may adversely affect the payment of principal or
interest, foreign withholdings or other taxes on interest income, difficulties
in obtaining or enforcing a judgment against the issuing bank, and the possible
impact of interruptions in the flow of international currency transactions.
Different risks may also exist for ECDs, ETDs, and Yankee CDs because the banks
issuing these instruments, or their domestic or foreign branches, are not
necessarily subject to the same regulatory requirements that apply to domestic
banks, such as reserve requirements, loan limitations, examinations, accounting,
auditing, and recordkeeping, and the public availability of information. These
factors will be carefully considered by the Fund's adviser in selecting
investments for the Fund.

CREDIT FACILITIES

Demand notes are borrowing arrangements between a corporation and an
institutional lender (such as the Fund) payable upon demand by either party. The
notice period for demand typically ranges from one to seven days, and the party
may demand full or partial payment. Revolving credit facilities are borrowing
arrangements in which the lender agrees to make loans up to a maximum amount
upon demand by the borrower during a specified term. As the borrower repays the
loan, an amount equal to the repayment may be borrowed again during the term of
the facility. The Fund generally acquires a participation interest in a
revolving credit facility from a bank or other financial institution. The terms
of the participation require the Fund to make a pro rata share of all loans
extended to the borrower and entitles the Fund to a pro rata share of all
payments made by the borrower. Demand notes and revolving facilities usually
provide for floating or variable rates of interest.

INTEREST RATE SWAPS, CAPS AND FLOORS

The Fund may enter into interest rate swaps and may purchase or sell (i.e.,
write) interest rate caps and floors. Interest rate swaps involve the exchange
by the Fund with another party of their respective commitments to pay or receive
interest (e.g., an exchange of floating rate payments for fixed rate payments)
on a notional principal amount. The principal amount of an interest rate swap is
notional in that it only provides the basis for determining the amount of
interest payments under the swap agreement, and does not represent an actual
loan. For example, a $10 million LIBOR swap would require one party to pay the
equivalent of the LIBOR on $10 million principal amount in exchange for the
right to receive the equivalent of a fixed rate of interest on $10 million
principal amount. Neither party to the swap would actually advance $10 million
to the other.

The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
the amount of excess interest on a notional principal amount from the party
selling the interest rate cap. The purchase of an interest rate floor entitles
the purchaser, to the extent that a specified index falls below a predetermined
interest rate, to receive payments of the amount of the interest shortfall on a
notional principal amount from the party selling the interest rate floor.

The Fund expects to enter into interest rate transactions primarily to hedge
against changes in the price of other portfolio securities. For example, the
Fund may hedge against changes in the market value of a fixed rate note by
entering into a concurrent swap that requires the Fund to pay the same or a
lower fixed rate of interest on a notional principal amount equal to the
principal amount of the note in exchange for a variable rate of interest based
on a market index. Interest accrued on the hedged note would then equal or
exceed the Fund's obligations under the swap, while changes in the market value
of the swap would largely offset any changes in the market value of the note.
The Fund may also enter into swaps and caps to preserve or enhance a return or
spread on a portfolio security. The Fund does not intend to use these
transactions in a speculative manner.

The Fund will usually enter into interest rate swaps on a net basis (i.e., the
two payment streams are netted out), with the Fund receiving or paying, as the
case may be, only the net amount of the two payments. The net amount of the
excess, if any, of the Fund's obligations over its entitlements with respect to
each interest rate swap will be accrued on a daily basis, and the Fund will
segregate liquid assets in an aggregate NAV at least equal to the accrued
excess, if any, on each business day. If the Fund enters into an interest rate
swap on other than a net basis, the Fund will segregate liquid assets in the
full amount accrued on a daily basis of the Fund's obligations with respect to
the swap. If there is a default by the other party to such a transaction, the
Fund will have contractual remedies pursuant to the agreements related to the
transaction.

The swap market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and agents
utilizing standardized swap documentation. The Fund's investment adviser has
determined that, as a result, the swap market has become relatively liquid. Caps
and floors are more recent innovations for which standardized documentation has
not yet been developed and, accordingly, they are less liquid than swaps. To the
extent interest rate swaps, caps or floors are determined by the investment
adviser to be illiquid, they will be included in the Fund's limitation on
investments in illiquid securities. To the extent the Fund sells caps and
floors, it will maintain in a segregated account cash and/or U.S. Government
Securities having an aggregate NAV at least equal to the full amount, accrued on
a daily basis, of the Fund's obligations with respect to the caps or floors.

The use of interest rate swaps is a highly specialized activity which involves
investment techniques and risks different from those associated with ordinary
portfolio securities transactions. If the Fund's investment adviser is incorrect
in its forecasts of market values, interest rates, and other applicable factors,
the investment performance of the Fund would diminish compared with what it
would have been if these investment techniques were not utilized. Moreover, even
if the Fund's investment adviser is correct in its forecasts, there is a risk
that the swap position may correlate imperfectly with the price of the portfolio
security being hedged.

There is no limit on the amount of interest rate swap transactions that may be
entered into by the Fund. These transactions do not involve the delivery of
securities or other underlying assets or principal. Accordingly, the risk of
loss with respect to a default on an interest rate swap is limited to the NAV of
the swap together with the net amount of interest payments owed to the Fund by
the defaulting party. A default on a portfolio security hedged by an interest
rate swap would also expose the Fund to the risk of having to cover its net
obligations under the swap with income from other portfolio securities. The Fund
may purchase and sell caps and floors without limitation, subject to the
segregated account requirement described above.

AUCTION RATE SECURITIES

The Fund may invest in auction rate municipal securities and auction rate
preferred securities, (collectively, "auction rate securities"). Provided that
the auction mechanism is successful, auction rate securities usually permit the
holder to sell the securities in an auction at par value at specified intervals.
The interest rate or dividend is reset by "Dutch" auction in which bids are made
by broker/dealers and other institutions for a certain amount of securities at a
specified minimum yield. The interest rate or dividend rate set by the auction
is the lowest interest or dividend rate that covers all securities offered for
sale. While this process is designed to permit auction rate securities to be
traded at par value, there is some risk that an auction will fail due to
insufficient demand for the securities. If so, the securities may become
illiquid and subject to the Fund's 15% limitation on illiquid securities.

AVERAGE PORTFOLIO MATURITY AND DURATION

Although the Fund will not maintain a stable NAV, the adviser will seek to
limit, to the extent consistent with the Fund's investment objective of current
income, the magnitude of fluctuations in the Fund's NAV by limiting the
dollar-weighted average maturity and duration of the Fund's portfolio.
Securities with shorter maturities and durations generally have less volatile
prices than securities of comparable quality with longer maturities or
durations. The Fund should be expected to maintain a higher average maturity and
duration during periods of lower expected market volatility, and a lower average
maturity and duration during periods of higher expected market volatility. In
any event, the Fund's dollar-weighted average maturity will not exceed three
years, and its dollar-weighted average duration will not exceed three years.

CREDIT ENHANCEMENT

Certain of the Fund's acceptable investments may have been credit enhanced by a
guaranty, letter of credit, or insurance. The Fund typically evaluates the
credit quality and ratings of credit enhanced securities based upon the
financial condition and ratings of the party providing the credit enhancement
(the "credit enhancer"), rather than the issuer. Generally, the Fund will not
treat credit enhanced securities as having been issued by the credit enhancer
for diversification purposes. However, under certain circumstances applicable
regulations may require the Fund to treat the securities as having been issued
by both the issuer and the credit enhancer. The bankruptcy, receivership or
default of the credit enhancer will adversely affect the quality and
marketability of the underlying security.

DEMAND FEATURES

The Fund may acquire securities that are subject to puts and standby commitments
("demand features") to purchase the securities at their principal amount
(usually with accrued interest) within a fixed period following a demand by the
Fund. The demand feature may be issued by the issuer of the underlying
securities, a dealer in the securities, or by another third party, and may not
be transferred separately from the underlying security. The Fund uses these
arrangements to provide the Fund with liquidity and not to protect against
changes in the market value of the underlying securities. The bankruptcy,
receivership, or default by the issuer of the demand feature, or a default on
the underlying security or other event that terminates the demand feature before
its exercise, will adversely affect the liquidity of the underlying security.
Demand features that are exercisable even after a payment default on the
underlying security are treated as a form of credit enhancement.

RESTRICTED AND ILLIQUID SECURITIES

The Fund intends to invest in restricted and illiquid securities. Restricted
securities are any securities in which the Fund may otherwise invest pursuant to
its investment objective and policies, but which are subject to restriction on
resale under federal securities law. The Fund will limit investments in illiquid
securities, including certain restricted securities not determined by the
Trustees to be liquid, non-negotiable time deposits, and repurchase agreements
providing for settlement in more than seven days after notice, to 15% of its net
assets.

The Fund may invest in commercial paper issued in reliance on the exemption from
registration afforded by Section 4(2) of the Securities Act of 1933. Section
4(2) commercial paper is restricted as to disposition under federal securities
law and is generally sold to institutional investors, such as the Fund, who
agree that they are purchasing the paper for investment purposes and not with a
view to public distribution. Any resale by the purchaser must be in an exempt
transaction. Section 4(2) commercial paper is normally resold to other
institutional investors like the Fund through or with the assistance of the
issuer or investment dealers who make a market in Section 4(2) commercial paper,
thus providing liquidity. The Fund believes that Section 4(2) commercial paper
and possibly certain other restricted securities which meet the criteria for
liquidity established by the Trustees are quite liquid. The Fund intends,
therefore, to treat the restricted securities which meet the criteria for
liquidity established by the Trustees, including Section 4(2) commercial paper,
as determined by the Fund's investment adviser, as liquid and not subject to the
investment limitation applicable to illiquid securities. In addition, because
Section 4(2) commercial paper is liquid, the Fund intends to not subject such
paper to the limitation applicable to restricted securities.

REPURCHASE AGREEMENTS

Certain securities in which the Fund invests may be purchased pursuant to
repurchase agreements. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell U.S. Government
Securities or other securities in which the Fund may invest to the Fund and
agree at the time of sale to repurchase them at a mutually agreed upon time and
price.

REVERSE REPURCHASE AGREEMENTS

The Fund may also enter into reverse repurchase agreements. This transaction is
similar to borrowing cash. In a reverse repurchase agreement the Fund transfers
possession of a portfolio instrument to another person, such as a financial
institution, broker, or dealer, in return for a percentage of the instrument's
market value in cash, and agrees that on a stipulated date in the future the
Fund will repurchase the portfolio instrument by remitting the original
consideration plus interest at an agreed upon rate.

When effecting reverse repurchase agreements, liquid assets of the Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market daily
and maintained until the transaction is settled.

During the period any reverse repurchase agreements are outstanding, but only to
the extent necessary to assure completion of the reverse repurchase agreements,
the Fund will restrict the purchase of portfolio instruments to money market
instruments maturing on or before the expiration date of the reverse repurchase
agreements. This policy may not be changed without the approval of the Fund's
shareholders.

LENDING OF PORTFOLIO SECURITIES

In order to generate additional income, the Fund may lend portfolio securities
on a short-term or long-term basis, or both, up to one-third of the value of its
total assets to broker/dealers, banks, or other institutional borrowers of
securities. The Fund will limit the amount of portfolio securities it may lend
to not more than one-third of its total assets. The Fund will only enter into
loan arrangements with broker/dealers, banks, or other institutions which the
investment adviser has determined are creditworthy under guidelines established
by the Trustees and will receive collateral equal to at least 100% of the value
of the securities loaned. This policy may not be changed without the approval of
the Fund's shareholders.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Fund to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices. The Fund will limit its purchase of
securities on a when-issued or delayed delivery basis to no more than 20% of the
value of its total assets. This policy may not be changed without the approval
of the Fund's shareholders.

The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securites at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments. INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

The Fund may invest its assets in securities of other investment companies as an
efficient means of carrying out its investment policies. It should be noted that
investment companies incur certain expenses, such as management fees, and,
therefore, any investment by the Fund in shares of other investment companies
may be subject to such duplicate expenses.

SPECIAL CONSIDERATIONS

In the debt market, prices move inversely to interest rates. A decline in market
interest rates results in a rise in the market prices of outstanding debt
obligations. Conversely, an increase in market interest rates results in a
decline in market prices of outstanding debt obligations. In either case, the
amount of change in market prices of debt obligations in response to changes in
market interest rates generally depends on the maturity of the debt obligations:
the debt obligations with the longest maturities will experience the greatest
market price changes. In addition, the price of a debt obligation is affected by
the credit quality of the issuer. Investment grade debt obligations include
medium and high grade securities. Debt obligations rated in the lowest
investment grade category may have speculative characteristics and may be more
sensitive to economic changes and to changes in the financial condition of the
issuer.

The market value of debt obligations, and therefore the Fund's NAV, will
fluctuate due to changes in economic conditions and other market factors such as
interest rates which are beyond the control of the Fund's investment adviser.
The Fund's investment adviser could be incorrect in its expectations about the
direction or extent of these market factors. Although debt obligations with
longer maturities offer potentially greater returns, they have greater exposure
to market price fluctuation. Consequently, to the extent the Fund is
significantly invested in debt obligations with longer maturities, there is a
greater possibility of fluctuation in the Fund's NAV.

Corporate issuers have introduced several variations in the way principal and
interest payments are made. Certain corporate debt securities may enable the
corporate issuer to defer interest payments for a specified period of time.
These types of corporate debt securities may be affected to a greater extent by
changes in interest rates. Other corporate debt securities include mandatory put
and call provisions, which generally shorten the security's effective maturity.
PORTFOLIO TURNOVER

While the Fund does not intend to engage in substantial short-term trading, from
time to time it may sell portfolio securities for investment reasons without
considering how long they have been held. For example, the Fund would do this:

* to take advantage of short-term differentials in yields or market
values;
* to take advantage of new investment opportunities; * to respond to changes
in the creditworthiness of an issuer; or * to try to preserve gains or limit
losses.

Any such trading would increase the Fund's portfolio turnover and its
transaction costs. However, the Fund will not attempt to set or meet any
arbitrary turnover rate since turnover is incidental to transactions considered
necessary to achieve the Fund's investment objective.

INVESTMENT LIMITATIONS

The Fund will not:

* borrow money directly or through reverse repurchase agreements or pledge
securities except, under certain circumstances, the Fund may borrow up to
one-third of the value of its total assets and pledge up to 10% of the
value of its total assets to secure such borrowings;
* lend any of its assets except portfolio securities up to one-third of
the value of its total assets;
* sell securities short except, under strict limitations, the Fund may
maintain open short positions so long as not more than 10% of the value of
its net assets is held as collateral for those positions;
* invest more than 5% of its total assets in securities of issuers that have
records of less than three years of continuous operations; or
* with respect to 75% of its assets, invest more than 5% of the value of its
total assets in securities of one issuer (except U.S. government
obligations), or purchase more than 10% of the outstanding voting
securities of any one issuer. For these purposes the Fund takes all common
stock and all preferred stock of an issuer each as a single class,
regardless of priorities, series, designations, or other differences.

The above investment limitations cannot be changed without shareholder approval.
The following limitation however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in this limitation becomes effective.

The Fund will not:

* invest more than 15% of the value of its net assets in illiquid securities,
including repurchase agreements providing for settlement more than seven
days after notice, non-negotiable time deposits, certain interest rate
swaps, caps and floors determined by the investment adviser to be illiquid,
and certain restricted securities not determined by the Trustees to be
liquid.

TRUST INFORMATION

MANAGEMENT OF THE TRUST

BOARD OF TRUSTEES

The Trust is managed by a Board of Trustees. The Trustees are responsible for
managing the Trust's business affairs and for exercising all the Trust's powers
except those reserved for the shareholders. The Executive Committee of the Board
of Trustees handles the Board's responsibilities between meetings of the Board.

INVESTMENT ADVISER

Pursuant to an investment advisory contract with the Trust, investment decisions
for the Fund are made by Federated Management, the Fund's investment adviser
(the "Adviser"), subject to direction by the Trustees. The Adviser continually
conducts investment research and supervision for the Fund and is responsible for
the purchase or sale of portfolio instruments, for which it receives an annual
fee from the Fund.

ADVISORY FEES

The Fund's Adviser receives an annual investment advisory fee equal to 0.40% of
the Fund's average daily net assets. Under the investment advisory contract, the
Adviser may voluntarily reimburse some of the operating expenses of the Fund.
The Adviser can terminate this voluntary reimbursement of expenses at any time
at its sole discretion.

ADVISER'S BACKGROUND

Federated Management, a Delaware business trust organized on April 11, 1989, is
a registered investment adviser under the Investment Advisers Act of 1940. It is
a subsidiary of Federated Investors, Inc. All of the Class A (voting) shares of
Federated Investors, Inc. are owned by a trust, the trustees of which are John
F. Donahue, Chairman and Director of Federated Investors, Inc., Mr. Donahue's
wife, and Mr. Donahue's son, J. Christopher Donahue, who is President and
Director of Federated Investors, Inc.

Federated Management and other subsidiaries of Federated Investors, Inc. serve
as investment advisers to a number of investment companies and private accounts.
Certain other subsidiaries also provide administrative services to a number of
investment companies. With over $120 billion invested across more than 300 funds
under management and/or administration by its subsidiaries, as of December 31,
1997, Federated Investors, Inc. is one of the largest mutual fund investment
managers in the United States. With more than 2,000 employees, Federated
continues to be led by the management who founded the company in 1955. Federated
funds are presently at work in and through approximately 4,000 financial
institutions nationwide.

Randall S. Bauer has been the Fund's portfolio manager since October 1995.
Mr. Bauer joined Federated Investors, Inc. or its predecessor in 1989 and
has been a Vice President of the Fund's investment adviser since 1994. Mr.
Bauer was an Assistant Vice President of the Fund's investment adviser from
1989 to 1993. Mr. Bauer is a Chartered Financial Analyst and received his
M.B.A. in Finance from The Pennsylvania State University.

Robert K. Kinsey has been the Fund's portfolio manager since July 1997. Mr.
Kinsey joined Federated Investors, Inc. or its predecessor in 1995 as a Vice
President of a Federated advisory subsidiary. He has been a Vice President
of the Fund's adviser since March 1997. From 1992 to 1995, he served as a
Portfolio Manager for Harris Investment Management Co., Inc. Mr. Kinsey
received his M.B.A. in Finance from U.C.L.A.

Both the Trust and the Adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Fund and its portfolio securities. These
codes recognize that such persons owe a fiduciary duty to the Fund's
shareholders and must place the interests of shareholders ahead of the
employees' own interest. Among other things, the codes: require preclearance and
periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Trustees, and could
result in severe penalties.

DISTRIBUTION OF INSTITUTIONAL SHARES

Federated Securities Corp. is the principal distributor for Shares of the
Fund. It is a Pennsylvania corporation organized on November 14, 1969, and
is the principal distributor for a number of investment companies. Federated
Securities Corp. is a subsidiary of Federated Investors, Inc.

ADMINISTRATION OF THE FUND

ADMINISTRATIVE SERVICES

Federated Services Company, a subsidiary of Federated Investors, Inc., provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund. Federated Services Company
provides these at an annual rate which relates to the average aggregate daily
net assets of all funds advised by affiliates of Federated Investors, Inc. as
specified below:

MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million

The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.

SHAREHOLDER SERVICES

The Trust has entered into a Shareholder Services Agreement with Federated
Shareholder Services, a subsidiary of Federated Investors, Inc., under which the
Trust may make payments up to 0.25% of the average daily NAV of Shares, computed
at an annual rate, to obtain certain personal services for shareholders and to
maintain shareholder accounts. From time to time and for such periods as deemed
appropriate, the amount stated above may be reduced voluntarily. Under the
Shareholder Services Agreement, Federated Shareholder Services will either
perform shareholder services directly or will select financial institutions to
perform shareholder services. Financial institutions will receive fees based
upon Shares owned by their clients or customers. The schedules of such fees and
the basis upon which such fees will be paid will be determined from time to time
by the Trust and Federated Shareholder Services. SUPPLEMENTAL PAYMENTS TO
FINANCIAL INSTITUTIONS

In addition to payments made pursuant to the Shareholder Services Agreement,
Federated Securities Corp. and Federated Shareholder Services, from their own
assets, may pay financial institutions supplemental fees for the performance of
substantial sales services, distribution-related support services, or
shareholder services. The support may include sponsoring sales, educational and
training seminars for their employees, providing sales literature, and
engineering computer software programs that emphasize the attributes of the
Fund. Such assistance will be predicated upon the amount of Shares the financial
institution sells or may sell, and/or upon the type and nature of sales or
marketing support furnished by the financial institution. Any payments made by
the distributor may be reimbursed by the Fund's Adviser or its affiliates.

NET ASSET VALUE

The Fund's NAV per Share fluctuates. The NAV for Shares is determined by adding
the interest of the Shares in the market value of all securities and other
assets of the Fund, subtracting the interest of the Shares in the liabilities of
the Fund and those attributable to Shares, and dividing the remainder by the
total number of Shares outstanding. The NAV for Institutional Shares may exceed
that of Institutional Service Shares due to the variance in daily net income
realized by each class. Such variance will reflect only accrued net income to
which the shareholders of a particular class are entitled. INVESTING IN
INSTITUTIONAL SHARES

SHARE PURCHASES

Shares are sold on days on which the New York Stock Exchange is open. Shares may
be purchased either by wire or by mail.

To purchase Shares of the Fund, open an account by calling Federated Securities
Corp. Information needed to establish the account will be taken over the
telephone. The Fund reserves the right to reject any purchase request.

BY WIRE

To purchase Shares of the Fund by Federal Reserve wire, call the Fund before
4:00 p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern
time) on the next business day following the order. Federal funds should be
wired as follows: Federated Shareholder Services Company, c/o State Street Bank
and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Federated
Short-Term Income Fund--Institutional Shares; Fund Number (this number can be
found on the account statement or by contacting the Fund); Group Number or Order
Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be
purchased by wire on holidays when wire transfers are restricted. Questions on
wire purchases should be directed to your shareholder services representative at
the telephone number listed on your account statement.

BY MAIL

To purchase Shares of the Fund by mail, send a check made payable to Federated
Short-Term Income Fund--Institutional Shares to: Federated Shareholder Services
Company, c/o State Street Bank and Trust Company, P.O. Box 8600, Boston, MA
02266-8600. Orders by mail are considered received after payment by check is
converted by the transfer agent's bank, State Street Bank and Trust Company
("State Street Bank"), into federal funds. This is normally the next business
day after State Street Bank receives the check.

MINIMUM INVESTMENT REQUIRED

The minimum initial investment in the Fund is $25,000 plus any financial
intermediary's fee. However, an account may be opened with a smaller amount as
long as the $25,000 minimum is reached within 90 days. An institutional
investor's minimum investment will be calculated by combining all accounts it
maintains with the Fund. Accounts established through a financial intermediary
may be subject to a smaller minimum investment.

WHAT SHARES COST

The NAV is determined as of the close of trading (normally 4:00 p.m. Eastern
time) on the New York Stock Exchange, Monday through Friday, except on: (i) days
on which there are not sufficient changes in the value of the Fund's portfolio
securities that its NAV might be materially affected; (ii) days during which no
Shares are tendered for redemption and no orders to purchase Shares are
received; and (iii) the following holidays: New Year's Day, Martin Luther King
Jr., Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day.

ACCOUNT ACTIVITY

Shareholders will receive periodic statements reporting all account
activity, including dividends paid. The Fund will not issue share
certificates.

DIVIDENDS

Dividends are declared daily and paid monthly. Dividends are declared just prior
to determining NAV. If an order for Shares is placed on the preceding business
day, Shares purchased by wire begin earning dividends on the business day wire
payment is received by State Street Bank. If the order for Shares and payment by
wire are received on the same day, Shares begin earning dividends on the next
business day. Shares purchased by check begin earning dividends on the business
day after the check is converted, upon instruction of the transfer agent, into
federal funds. Dividends are automatically reinvested on payment dates in
additional Shares of the Fund unless cash payments are requested by contacting
the Fund.

CAPITAL GAINS

Capital gains realized by the Fund, if any, will be distributed at least once
every 12 months.

REDEEMING INSTITUTIONAL SHARES

The Fund redeems Shares at their NAV next determined after the Fund receives the
redemption request. Investors who redeem Shares through a financial intermediary
may be charged a service fee by that financial intermediary. Redemptions will be
made on days on which the Fund computes its NAV. Redemption requests must be
received in proper form and can be made by telephone request or by written
request.

TELEPHONE REDEMPTION

Shareholders may redeem their Shares by telephoning the Fund before 4:00 p.m.
(Eastern time). The proceeds will normally be wired the following business day,
but in no event more than seven days, to the shareholder's account at a domestic
commercial bank that is a member of the Federal Reserve System. If at any time
the Fund shall determine it is necessary to terminate or modify this method of
redemption, shareholders would be promptly notified. Proceeds from redemption
requests received on holidays when wire transfers are restricted will be wired
the following business day. Questions about telephone redemptions on days when
wire transfers are restricted should be directed to your shareholder services
representative at the telephone number listed on your account statement.

An authorization form permitting the Fund to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from Federated Securities Corp. Telephone redemption instructions may
be recorded. If reasonable procedures are not followed by the Fund, it may be
liable for losses due to unauthorized or fraudulent telephone instructions. In
the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as "Redeeming Shares By Mail," should be considered.

REDEEMING SHARES BY MAIL

The written request should state: the Fund name and Share class name; the
account name as registered with the Fund; the account number; and the number of
Shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the Shares are registered. Normally, a check
for the proceeds is mailed within one business day, but in no event more than
seven days, after the receipt of a proper written redemption request. Dividends
are paid up to and including the day that a redemption request is processed.

Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a commercial
or savings bank, trust company, or savings association whose deposits are
insured by an organization which is administered by the Federal Deposit
Insurance Corporation; a member firm of a domestic stock exchange; or any other
"eligible guarantor institution," as defined in the Securities Exchange Act of
1934. The Fund does not accept signatures guaranteed by a notary public.

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $25,000 due to
shareholder redemptions. This requirement does not apply, however, if the
balance falls below $25,000 because of changes in the Fund's NAV.

Before Shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional Shares to meet the minimum
requirement.

SHAREHOLDER INFORMATION

VOTING RIGHTS

Each Share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders of the Trust for vote. All shares of
each portfolio in the Trust have equal voting rights, except that, in matters
affecting only a particular fund or class, only shares of that particular fund
or class are entitled to vote. As of June 5, 1998, Trust Company of St. Joseph,
St. Joseph, MO, owned 38.47% of the voting securities of the Fund's
Institutional Service Shares, and, therefore, may, for certain purposes, be
deemed to control the Fund and be able to affect the outcome of certain matters
presented for a vote of shareholders.

As a Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust's or the Fund's operation and for the election of Trustees
under certain circumstances.

Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting shall be called by the Trustees upon the written request of
shareholders owning at least 10% of the Trust's outstanding shares of all
portfolios entitled to vote.

TAX INFORMATION

FEDERAL INCOME TAX

The Fund will pay no federal income tax because the Fund expects to meet
requirements of the Internal Revenue Code, as amended, applicable to regulated
investment companies and to receive the special tax treatment afforded to such
companies.

The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Trust's other portfolios, if any, will not be combined for tax purposes with
those realized by the Fund.

Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions received. This applies whether dividends
and distributions are received in cash or as additional Shares. Information on
the tax status of dividends and distributions is provided annually.

STATE AND LOCAL TAXES

Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local laws.

PERFORMANCE INFORMATION

From time to time, the Fund advertises its total return and yield for Shares.

Total return represents the change, over a specified period of time, in the
value of an investment in Shares after reinvesting all income and capital gains
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.

The yield of Shares is calculated by dividing the net investment income per
Share (as defined by the SEC) earned by Shares over a thirty-day period by the
NAV per Share of Shares on the last day of the period. This number is then
annualized using semi-annual compounding. The yield does not necessarily reflect
income actually earned by Shares and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.

The Shares are sold without any sales charge or other similar non-recurring
charges.

Total return and yield will be calculated separately for Shares and
Institutional Service Shares.

From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.

OTHER CLASSES OF SHARES

The Fund also offers another class of shares called Institutional Service
Shares.

Institutional Service Shares are sold primarily to banks and other institutions
that hold assets in an agency capacity. Institutional Service Shares are sold at
NAV and are subject to a minimum initial investment of $25,000.

Shares and Institutional Service Shares are subject to certain of the same
expenses; however, Institutional Service Shares are distributed under a 12b-1
Plan adopted by the Trust. Expense differences, between Shares and Institutional
Service Shares may affect the performance of each class.

To obtain more information and a prospectus for Institutional Service Shares,
investors may call 1-800-341-7400.

FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Ernst & Young LLP, the Fund's
independent auditors. Their report dated June 19, 1998, on the Fund's financial
statements for the period ended April 30, 1998, and on the following table for
the period presented, is included in the Annual Report, which is incorporated by
reference. This table should be read in conjunction with the Fund's financial
statements and notes thereto, which may be obtained free of charge.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
1998 1997 1996 1995 1994 1993 1992(A)
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.68 $ 8.68 $ 8.61 $ 8.85 $ 9.17 $ 8.98 $ 9.08
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.50 0.53 0.54 0.52 0.48 0.52 0.15
Net realized and unrealized gain (loss) on 0.06 0.07 (0.24) (0.32) 0.19 (0.10)
investments
Total from investment operations 0.56 0.53 0.61 0.28 0.16 0.71 0.05
LESS DISTRIBUTIONS
Distributions from net investment income (0.50) (0.53) (0.54) (0.52) (0.48) (0.52) (0.15)
NET ASSET VALUE, END OF PERIOD $ 8.74 $ 8.68 $ 8.68 $ 8.61 $ 8.85 $ 9.17 $ 8.98
TOTAL RETURN(B) 6.61% 6.27% 7.25% 3.29% 1.78% 8.12% 0.69%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.81% 0.81% 0.81% 0.81% 0.81% 0.76% 0.78%*
Net investment income 5.73% 5.96% 6.17% 5.90% 5.30% 5.82% 6.37%*
Expense waiver/reimbursement(c) 0.28% 0.28% 0.29% 0.27% 0.13% 0.45% 0.98%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $14,783 $17,586 $16,346 $17,091 $39,649 $15,673 $778
Portfolio turnover 49% 55% 77% 38% 44% 62% 114%
</TABLE>
* Computed on an annualized basis.

(a) Reflects operations for the period from January 21, 1992 (date of initial
public investment) to April 30, 1992.

(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

FURTHER INFORMATION ABOUT THE FUND'S PERFORMANCE IS CONTAINED IN THE FUND'S
ANNUAL REPORT DATED APRIL 30, 1998, WHICH CAN BE OBTAINED FREE OF CHARGE.

[Graphic]
Federated Investors

Federated Short-Term Income Fund

(A Portfolio of Federated Income Securities Trust)

Institutional Shares

PROSPECTUS

JUNE 30, 1998

A Diversified Portfolio of Federated Income Securities Trust, an Open-End,
Management Investment Company

FEDERATED SHORT-TERM
INCOME FUND
INSTITUTIONAL SHARES
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000

DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

INVESTMENT ADVISER
Federated Management
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

CUSTODIAN
State Street Bank and
Trust Company
P.O. Box 8600
Boston, MA 02266-8600

TRANSFER AGENT
AND DIVIDEND
DISBURSING AGENT
Federated Shareholder
Services Company
P.O. Box 8600
Boston, MA 02266-8600

INDEPENDENT AUDITORS
Ernst & Young LLP
One Oxford Centre
Pittsburgh, PA 15219

Federated Securities Corp., Distributor
1-800-341-7400
www.federatedinvestors.com

Cusip 31420C209
1111903A-IS (6/98)

[Graphic]

Federated Short-Term Income Fund

(A Portfolio of Federated Income Securities Trust)

Institutional Service Shares

PROSPECTUS

The Institutional Service Shares of Federated Short-Term Income Fund (the
"Fund") offered by this prospectus represent interests in a diversified
portfolio of securities which is an investment portfolio in Federated Income
Securities Trust (the "Trust"), an open-end, management investment company (a
mutual fund).

The investment objective of the Fund is to seek to provide current income.

This prospectus contains the information you should read and know before you
invest in Institutional Service Shares of the Fund. Keep this prospectus for
future reference. The Fund has also filed a Statement of Additional
Information for Institutional Shares and Institutional Service Shares dated June
30, 1998, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information, or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-341-7400. To
obtain other information, or make inquiries about the Fund, contact the Fund at
the address listed in the back of this prospectus. The Statement of Additional
Information, material incorporated by reference into this document, and other
information regarding the Fund is maintained electronically with the SEC at
Internet Web site (http://www.sec.gov). THESE SECURITIES HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated June 30, 1998 TABLE OF CONTENTS

Summary of Fund Expenses 1 Financial Highlights -- Institutional Service Shares
2 General Information 3 Year 2000 Statement 3 Investment Information 3
Investment Objective 3 Investment Policies 3 Special Considerations 11
Portfolio Turnover 12 Investment Limitations 12 Trust Information 12 Management
of the Trust 12 Distribution of Institutional Service Shares 13 Distribution
Plan and Shareholder Services 13 Supplemental Payments to Financial
Institutions 14 Administration of the Fund 14 Net Asset Value 14 Investing in
Institutional Service Shares 14 Share Purchases 14 Exchange Privilege 15
Minimum Investment Required 15 What Shares Cost 15 Account Activity 15
Dividends 15 Capital Gains 15 Redeeming Institutional Service Shares 15
Telephone Redemption 15 Redeeming Shares by Mail 16 Accounts with Low Balances
16 Shareholder Information 16 Voting Rights 16 Tax Information 16 Federal
Income Tax 16 State and Local Taxes 16 Performance Information 17 Other Classes
of Shares 17 Financial Highlights -- Institutional Shares 18

SUMMARY OF FUND EXPENSES

INSTITUTIONAL SERVICE SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price) None Contingent Deferred Sales Charge (as a
percentage of original purchase price or redemption proceeds, as applicable)
None Redemption Fee ( as a percentage of amount redeemed, if applicable) None
Exchange Fee None
</TABLE>
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C> <C>
Management Fee (after waiver)(1) 0.37%
12b-1 Fee (after waiver)(2) 0.01%
Total Other Expenses 0.43%
Shareholder Services Fee (after waiver)(3) 0.24%
Total Operating Expenses(4) 0.81%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary waiver
at any time at its sole discretion. The maximum management fee is 0.40%.

(2) The 12b-1 fee has been reduced to reflect the voluntary waiver of a portion
of the 12b-1 fee. The distributor can terminate the voluntary waiver at any time
at its sole discretion. The maximum 12b-1 fee is 0.25%.

(3) The shareholder services fee has been reduced to reflect the voluntary
waiver of a portion of the shareholder services fee. The shareholder service
provider can terminate this voluntary waiver at any time at its sole discretion.
The maximum shareholder services fee is 0.25%.

(4) The total operating expenses would have been 1.09% absent the voluntary
waivers of portions of the management fee, the 12b-1 fee and the shareholder
services fee. The purpose of this table is to assist an investor in
understanding the various costs and expenses that a shareholder of Institutional
Service Shares of the Fund will bear, either directly or indirectly. For more
complete descriptions of the various costs and expenses, see "Federated Income
Securities Trust Information" and "Investing in Institutional Service Shares."
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.

LONG-TERM SHAREHOLDERS MAY PAY MORE THAN THE ECONOMIC EQUIVALENT OF THE
MAXIMUM FRONT-END SALES CHARGES PERMITTED UNDER THE RULES OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC.

EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period.

<TABLE>
<S> <C>
1 Year $ 8
3 Years $ 26
5 Years $ 45
10 Years $100
</TABLE>

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
1998 1997 1996 1995 1994 1993 1992(A)
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.68 $ 8.68 $ 8.61 $ 8.85 $ 9.17 $ 8.98 $ 9.08
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.50 0.53 0.54 0.52 0.48 0.52 0.15
Net realized and unrealized gain (loss) 0.06 0.07 (0.24) (0.32) 0.19 (0.10)
on investments
Total from investment operations 0.56 0.53 0.61 0.28 0.16 0.71 0.05
LESS DISTRIBUTIONS
Distributions from net investment income (0.50) (0.53) (0.54) (0.52) (0.48) (0.52) (0.15)
NET ASSET VALUE, END OF PERIOD $ 8.74 $ 8.68 $ 8.68 $ 8.61 $ 8.85 $ 9.17 $ 8.98
TOTAL RETURN(B) 6.61% 6.27% 7.25% 3.29% 1.78% 8.12% 0.69%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.81% 0.81% 0.81% 0.81% 0.81% 0.76% 0.78%*
Net investment income 5.73% 5.96% 6.17% 5.90% 5.30% 5.82% 6.37%*
Expense waiver/reimbursement(c) 0.28% 0.28% 0.29% 0.27% 0.13% 0.45% 0.98%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $14,783 $17,586 $16,346 $17,091 $39,649 $15,673 $778
Portfolio turnover 49% 55% 77% 38% 44% 62% 114%
</TABLE>
* Computed on an annualized basis.

(a) Reflects operations for the period from January 21, 1992 (date of initial
public investment) to April 30, 1992.

(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

FURTHER INFORMATION ABOUT THE FUND'S PERFORMANCE IS CONTAINED IN THE FUND'S
ANNUAL REPORT DATED APRIL 30, 1998, WHICH CAN BE OBTAINED FREE OF CHARGE.

GENERAL INFORMATION

The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated January 24, 1986. On December 31, 1991, the shareholders voted to
permit the Trust to offer separate series of shares of beneficial interest
representing interests in separate portfolios of securities. The shares in any
one portfolio may be offered in separate classes. With respect to this Fund, as
of the date of this prospectus the Board of Trustees ("Trustees") has
established two classes of shares, Institutional Service Shares and
Institutional Shares. This prospectus relates only to Institutional Service
Shares of the Fund.

Institutional Service Shares ("Shares") are designed primarily for retail and
private banking customers of financial institutions as a convenient means of
accumulating an interest in a professionally managed, diversified portfolio of
U.S. government securities. A minimum initial investment of $25,000 over a
90-day period is required.

Shares are currently sold and redeemed at net asset value ("NAV") without a
sales charge imposed by the Fund.

YEAR 2000 STATEMENT

INVESTMENT OBJECTIVE

INVESTMENT POLICIES

The Fund will invest primarily in a diversified portfolio of short- and
medium-term high grade debt securities. The Fund may also invest in long-term
high grade debt securities to the extent consistent with its policies regarding
the Fund's average dollar-weighted portfolio maturity and duration. This
investment policy may not be changed without the prior approval of the Fund's
shareholders. Unless indicated otherwise, the other investment policies
described in this prospectus may be changed by the Trustees without the approval
of the Fund's shareholders. Shareholders will be notified before any material
changes in these policies become effective.

ACCEPTABLE INVESTMENTS

The high grade debt securities in which the Fund invests include medium and
long-term instruments rated by one or more nationally recognized statistical
rating organizations ("NRSROs") in one of their three highest rating categories
(e.g., AAA, AA, or A by Standard & Poor's ("S&P") or Fitch IBCA, Inc. ("Fitch"),
or Aaa, Aa, or A by Moody's Investors Service, Inc. ("Moody's")) and short-term
instruments rated by one or more NRSROs in one of their two highest categories
(e.g., A-1 or A-2 by S&P, Prime-1 or Prime-2 by Moody's, or F-1 or F-2 by
Fitch). The Fund may also invest up to 35% of its assets in other investment
grade debt securities (for example, securities rated Aaa, Aa, A or Baa by
Moody's or AAA, AA, A or BBB by S&P, Fitch or Duff & Phelps Rating Service
("Duff & Phelps"). The Fund may invest in unrated debt securities that are
determined by the Fund's investment adviser to be of comparable quality to
instruments having such ratings. Downgraded securities will be evaluated on a
case by case basis by the adviser. The adviser will determine whether or not the
security continues to be an acceptable investment. If not, the security will be
sold. Acceptable investments currently include the following:
* corporate debt obligations, including medium-term notes and variable
rate demand notes;
* asset-backed securities;
* commercial paper (including Canadian Commercial Paper ("CCP") and
Europaper);
* certificates of deposit, demand and time deposits, bankers' acceptances,
deposit notes, and other instruments of domestic and foreign banks and
other deposit institutions ("Bank Instruments");
* medium and short-term credit facilities, including demand notes and
participations in revolving credit facilities;
* interest rate swaps, caps, and floors;
* auction rate securities (see below);
* obligations issued or guaranteed as to payment of principal and
interest by the U.S. government or one of its agencies or
instrumentalities ("Government Securities"); and
* other money market instruments.

The Fund invests only in instruments denominated and payable in U.S.
dollars.

VARIABLE RATE DEMAND NOTES

ASSET-BACKED SECURITIES

Asset-backed securities are created by the grouping of certain governmental,
government-related, private loans, receivables, or other lender assets into
pools. Interests in these pools are sold as individual securities. Payments from
the asset pools may be divided into several different tranches of debt
securities, with some tranches entitled to receive regular installments of
principal and interest, other tranches entitled to receive regular installments
of interest, with principal payable at maturity or upon specified call dates,
and other tranches only entitled to receive payments of principal and accrued
interest at maturity or upon specified call dates. Different tranches of
securities will bear different interest rates, which may be fixed or floating.

MORTGAGE-RELATED ASSET-BACKED SECURITIES

The Fund may also invest in various mortgage-related asset-backed securities.
These types of investments may include adjustable rate mortgage securities
("ARMS"), collateralized mortgage obligations ("CMOs"), real estate mortgage
investment conduits ("REMICs"), or other securities collateralized by or
representing an interest in real estate mortgages (collectively, "mortgage
securities"). Mortgage securities are: (i) issued or guaranteed by the U.S.
government or one of its agencies or instrumentalities, such as the Government
National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA"), and the Federal Home Loan Mortgage Corporation ("FHLMC");
(ii) those issued by private issuers that represent an interest in or are
collateralized by mortgage-backed securities issued or guaranteed by the U.S.
government or one of its agencies or instrumentalities; (iii) those issued by
private issuers that represent an interest in or are collateralized by whole
loans or mortgage-backed securities without a government guarantee but usually
having some form of private credit enhancement; and (iv) privately issued
securities which are collateralized by pools of mortgages in which each mortgage
is guaranteed as to payment of principal and interest by an agency or
instrumentality of the U.S. government.

The privately issued mortgage-related securities provide for a periodic payment
consisting of both interest and principal. The interest portion of these
payments will be distributed by the Fund as income, and the capital portion will
be reinvested.

ADJUSTABLE RATE MORTGAGE SECURITIES

COLLATERALIZED MORTGAGE OBLIGATIONS

The following example illustrates how mortgage cash flows are prioritized in the
case of CMOs. Most of the CMOs in which the Fund invests use the same basic
structure.

(2) The cash flows from the underlying mortgages are applied first to pay
interest and then to retire securities.

(3) The tranches of securities are retired sequentially. All principal payments
are directed first to the shortest-maturity tranche (or A bonds). When those
securities are completely retired, all principal payments are then directed to
the next-shortest-maturity security tranche (or B bond). This process continues
until all of the tranches have been completely retired.

REAL ESTATE MORTGAGE INVESTMENT CONDUITS

RESETS OF INTEREST

To the extent that the adjusted interest rate on the mortgage security reflects
current market rates, the market value of an adjustable rate mortgage security
will tend to be less sensitive to interest rate changes than a fixed rate debt
security of the same stated maturity. Hence, ARMS which use indices that lag
changes in market rates should experience greater price volatility than ARMS
that closely mirror the market. Certain residual interest tranches of CMOs may
have adjustable interest rates that deviate significantly from prevailing market
rates, even after the interest rate is reset, and are subject to correspondingly
increased price volatility. In the event that the Fund purchases such residual
interest mortgage securities, it will factor in the increased interest and price
volatility of such securities when determining its dollar-weighted average
portfolio maturity and duration.

CAPS AND FLOORS

The underlying mortgages which collateralize the ARMS, CMOs, and REMICs in which
the Fund invests will frequently have caps and floors which limit the maximum
amount by which the loan rate to the residential borrower may change up or down:
(1) per reset or adjustment interval and (2) over the life of the loan. Some
residential mortgage loans restrict periodic adjustments by limiting changes in
the borrower's monthly principal and interest payments rather than limiting
interest rate changes. These payment caps may result in negative amortization.

NON-MORTGAGE-RELATED ASSET-BACKED SECURITIES

The Fund may invest in non-mortgage-related asset-backed securities, including
interests in pools of receivables, such as credit card and accounts receivable
and motor vehicle and other installment purchase obligations and leases. These
securities may be in the form of pass-through instruments or asset-backed
obligations. The securities are structured similarly to CMOs and mortgage
pass-through securities, which are described above. Also, these securities may
be issued either by nongovernmental entities and carry no direct or indirect
governmental guarantees, or by governmental entities (i.e., Small Business
Administration) and carry varying degrees of governmental support.

Non-mortgage-related asset-backed securities present certain risks that are not
presented by mortgage-related asset-backed securities. Primarily, these
securities do not have the benefit of the same security interest in the related
collateral. Credit card receivables are generally unsecured and the debtors are
entitled to the protection of a number of state and federal consumer credit
laws, many of which give such debtors the right to set off certain amounts owed
on the credit cards, thereby reducing the balance due. Most issuers of
asset-backed securities backed by motor vehicle installment purchase obligations
permit the servicer of such receivables to retain the possession of the
underlying obligations. If the servicer sells these obligations to another
party, there is a risk that the purchaser would acquire an interest superior to
that of the holders of the related asset-backed securities. Further, if a
vehicle is registered in one state and is then reregistered because the owner
and obligor moves to another state, such registration could defeat the original
security interest in the vehicle in certain cases. In addition, because of the
large number of vehicles involved in a typical issuance and technical
requirements under state laws, the trustee for the holders of asset-backed
securities backed by automobile receivables may not have a proper security
interest in all of the obligations backing such receivables. Therefore, there is
the possibility that recoveries on repossessed collateral may not, in some
cases, be available to support payments on these securities.

BANK INSTRUMENTS

The Fund only invests in Bank Instruments either issued by an institution having
capital, surplus, and undivided profits over $100 million or insured by the Bank
Insurance Fund ("BIF") or the Savings Association Insurance Fund ("SAIF"). Bank
Instruments may include Eurodollar Certificates of Deposit ("ECDs"), Yankee
Certificates of Deposit ("Yankee CDs"), and Eurodollar Time Deposits ("ETDs").
FOREIGN INVESTMENTS

CREDIT FACILITIES

INTEREST RATE SWAPS, CAPS AND FLOORS

AUCTION RATE SECURITIES

The Fund may invest in auction rate municipal securities and auction rate
preferred securities (collectively, "auction rate securities"). Provided that
the auction mechanism is successful, auction rate securities usually permit the
holder to sell the securities in an auction at par value at specified intervals.
The interest rate or dividend is reset by "Dutch" auction in which bids are made
by broker/dealers and other institutions for a certain amount of securities at a
specified minimum yield. The interest rate or dividend rate set by the auction
is the lowest interest or dividend rate that covers all securities offered for
sale. While this process is designed to permit auction rate securities to be
traded at par value, there is some risk that an auction will fail due to
insufficient demand for the securities. If so, the securities may become
illiquid and subject to the Fund's 15% limitation on illiquid securities.

AVERAGE PORTFOLIO MATURITY AND DURATION

CREDIT ENHANCEMENT

DEMAND FEATURES

The Fund may acquire securities that are subject to puts and standby commitments
("demand features") to purchase the securities at their principal amount
(usually with accrued interest) within a fixed period following a demand by the
Fund. The demand feature may be issued by the issuer of the underlying
securities, a dealer in the securities or by another third party, and may not be
transferred separately from the underlying security. The Fund uses these
arrangements to provide the Fund with liquidity and not to protect against
changes in the market value of the underlying securities. The bankruptcy,
receivership, or default by the issuer of the demand feature, or a default on
the underlying security or other event that terminates the demand feature before
its exercise, will adversely affect the liquidity of the underlying security.
Demand features that are exercisable even after a payment default on the
underlying security are treated as a form of credit enhancement.

RESTRICTED AND ILLIQUID SECURITIES

REPURCHASE AGREEMENTS

REVERSE REPURCHASE AGREEMENTS

LENDING OF PORTFOLIO SECURITIES

In order to generate additional income, the Fund may lend portfolio securities
on a short-term or long-term basis, or both, up to one-third of the value of its
total assets, to broker/dealers, banks, or other institutional borrowers of
securities. The Fund will limit the amount of portfolio securities it may lend
to not more than one-third of its total assets. The Fund will only enter into
loan arrangements with broker/dealers, banks, or other institutions which the
investment adviser has determined are creditworthy under guidelines established
by the Trustees and will receive collateral equal to at least 100% of the value
of the securities loaned. This policy may not be changed without the approval of
the Fund's shareholders.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments. INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

SPECIAL CONSIDERATIONS

INVESTMENT LIMITATIONS

The Fund will not:

TRUST INFORMATION

MANAGEMENT OF THE TRUST

BOARD OF TRUSTEES

INVESTMENT ADVISER

ADVISORY FEES

ADVISER'S BACKGROUND

Randall S. Bauer has been the Fund's portfolio manager since October 1995.
Mr. Bauer joined Federated Investors, Inc., or its predecessor, in 1989 and
has been a Vice President of the Fund's investment adviser since 1994. Mr.
Bauer was an Assistant Vice President of the Fund's investment adviser from
1989 to 1993. Mr. Bauer is a Chartered Financial Analyst and received his
M.B.A. in Finance from The Pennsylvania State University.

Robert K. Kinsey has been the Fund's portfolio manager since July 1997. Mr.
Kinsey joined Federated Investors, Inc., or its predecessor, in 1995 as a
Vice President of a Federated advisory subsidiary. He has been a Vice
President of the Fund's adviser since March 1997. From 1992 to 1995, he
served as a Portfolio Manager for Harris Investment Management Co., Inc. Mr.
Kinsey received his M.B.A. in Finance from U.C.L.A.

DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES

DISTRIBUTION PLAN AND SHAREHOLDER SERVICES

Under a distribution plan adopted in accordance with Rule 12b-1 under the
Investment Company Act of 1940, (the "Plan") the distributor may be paid a fee
by the Fund in an amount, computed at an annual rate of 0.25% of the average
daily net assets of the Shares. The distributor may select financial
institutions such as banks, fiduciaries, custodians for public funds, investment
advisers, and broker/dealers to provide sales services or distribution-related
support services as agents for their clients or customers.

The Plan is a compensation-type plan. As such, the Fund makes no payments to the
distributor except as described above. Therefore, the Fund does not pay for
unreimbursed expenses of the distributor, including amounts expended by the
distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amount or may earn a profit from future payments made by the Fund
under the Plan. In addition, the Trust has entered into a Shareholder
Services Agreement with Federated Shareholder Services, a subsidiary of
Federated Investors, Inc., under which the Fund may make payments up to 0.25% of
the average daily NAV of Shares, computed at an annual rate, to obtain certain
personal services for shareholders and to maintain shareholder accounts. From
time to time and for such periods as deemed appropriate, the amount stated above
may be reduced voluntarily. Under the Shareholder Services Agreement, Federated
Shareholder Services will either perform shareholder services directly or will
select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon Shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Trust and Federated Shareholder
Services. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS

In addition to payments made pursuant to the Distribution Plan and Shareholder
Services Agreement, Federated Securities Corp. and Federated Shareholder
Services, from their own assets, may pay financial institutions supplemental
fees for the performance of substantial sales services, distribution-related
support services, or shareholder services. The support may include sponsoring
sales, educational and training seminars for their employees, providing sales
literature, and engineering computer software programs that emphasize the
attributes of the Fund. Such assistance will be predicated upon the amount of
Shares the financial institution sells or may sell, and/or upon the type and
nature of sales or marketing support furnished by the financial institution. Any
payments made by the distributor may be reimbursed by the Fund's Adviser or its
affiliates.

ADMINISTRATION OF THE FUND

ADMINISTRATIVE SERVICES

MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million

NET ASSET VALUE

The Fund's NAV per Share fluctuates. The NAV for Shares is determined by adding
the interest of the Shares in the market value of all securities and other
assets of the Fund, subtracting the interest of the Shares in the liabilities of
the Fund and those attributable to Shares, and dividing the remainder by the
total number of Shares outstanding. The NAV for Institutional Shares may
exceed that of Institutional Service Shares due to the variance in daily net
income realized by each class. Such variance will reflect only accrued net
income to which the shareholders of a particular class are entitled.
INVESTING IN INSTITUTIONAL SERVICE SHARES

SHARE PURCHASES

Shares are sold on days on which the New York Stock Exchange is open. Shares may
be purchased either by wire or by mail.

BY WIRE

To purchase Shares of the Fund by Federal Reserve wire, call the Fund before
4:00 p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern
time) on the next business day following the order. Federal funds should be
wired as follows: Federated Shareholder Services Company, c/o State Street Bank
and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Federated
Short-Term Income FundInstitutional Service Shares; Fund Number (this number can
be found on the account statement or by contacting the Fund); Group Number or
Wire Order Number; Nominee or Institution Name; and ABA Number 011000028. Shares
cannot be purchased by wire on holidays when wire transfers are restricted.
Questions on wire purchases should be directed to your shareholder services
representative at the telephone number listed on your account statement.

BY MAIL

To purchase Shares of the Fund by mail, send a check made payable to Federated
Short-Term Income FundInstitutional Service Shares to: Federated Shareholder
Services Company, c/o State Street Bank and Trust Company, P.O. Box 8600,
Boston, MA 02266-8600. Orders by mail are considered received after payment by
check is converted by the transfer agent's bank, State Street Bank and Trust
Company ("State Street Bank"), into federal funds. This is normally the next
business day after State Street Bank receives the check.

EXCHANGE PRIVILEGE

Financial institutions that maintain master accounts with an aggregate
investment of at least $400 million in certain funds which are advised or
distributed by affiliates of Federated Investors, Inc. may exchange their Shares
for Institutional Shares of the Trust. MINIMUM INVESTMENT REQUIRED The
minimum initial investment in the Fund is $25,000 plus any financial
intermediary's fee, if applicable. However, an account may be opened with a
smaller amount as long as the $25,000 minimum is reached within 90 days. An
institutional investor's minimum investment will be calculated by combining all
accounts it maintains with the Fund. Accounts established through a financial
intermediary may be subject to a smaller minimum investment. WHAT SHARES
COST Shares are sold at their NAV next determined after an order is
received. There is no sales charge imposed by the Fund. Investors who purchase
Shares through a financial intermediary may be charged an additional service fee
by that financial intermediary.

The NAV is determined as of the close of trading (normally 4:00 p.m. Eastern
time) on the New York Stock Exchange, Monday through Friday, except on: (i) days
on which there are not sufficient changes in the value of the Fund's portfolio
securities that its NAV might be materially affected; (ii) days during which no
Shares are tendered for redemption and no orders to purchase Shares are
received; and (iii) the following holidays: New Year's Day, Martin Luther King,
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day.

ACCOUNT ACTIVITY

Shareholders will receive periodic statements reporting all account
activity, including dividends paid. The Fund will not issue share
certificates.

DIVIDENDS

Dividends are declared daily and paid monthly. Dividends are declared just prior
to determining NAV. If an order for Shares is placed on the preceding business
day, Shares purchased by wire begin earning dividends on the business day wire
payment is received by State Street Bank. If the order for Shares and payment by
wire are received on the same day, Shares begin earning dividends on the next
business day. Shares purchased by check begin earning dividends on the business
day after the check is converted upon instruction of the transfer agent into
federal funds. Dividends are automatically reinvested on payment dates in
additional Shares of the Fund unless cash payments are requested by contacting
the Fund.

CAPITAL GAINS

Capital gains realized by the Fund, if any, will be distributed at least once
every 12 months.

REDEEMING INSTITUTIONAL SERVICE SHARES

REDEEMING SHARES BY MAIL

Shares may redeemed in any amount by mailing a written request to: Federated
Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share
certificates have been issued, they should be sent unendorsed with the written
request by registered or certified mail to the address noted above.

The written request should state: the Fund name and the Share class name; the
account name as registered with the Fund; the account number; and the number of
Shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the Shares are registered. Normally, a check
for the proceeds is mailed within one business day, but in no event more than
seven days, after the receipt of a proper written redemption request. Dividends
are paid up to and including the day that a redemption request is processed.

Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund, or a redemption payable other than to
the shareholder of record must have signatures on written redemption requests
guaranteed by a commercial or savings bank, trust company, or savings
association whose deposits are insured by an organization which is administered
by the Federal Deposit Insurance Corporation; a member firm of a domestic stock
exchange; or any other "eligible guarantor institution," as defined in the
Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed
by a notary public.

ACCOUNTS WITH LOW BALANCES

Before Shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional Shares to meet the minimum
requirement.

SHAREHOLDER INFORMATION

VOTING RIGHTS

TAX INFORMATION

FEDERAL INCOME TAX

STATE AND LOCAL TAXES

Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local laws.

PERFORMANCE INFORMATION

From time to time, the Fund advertises its total return and yield for Shares.

The yield of Shares is calculated by dividing the net investment income per
Share (as defined by the SEC) earned by Shares over a thirty-day period by the
maximum offering price per Share of Shares on the last day of the period. This
number is then annualized using semi-annual compounding. The yield does not
necessarily reflect income actually earned by Shares and, therefore, may not
correlate to the dividends or other distributions paid to shareholders.

The Shares are sold without any sales charge or other similar non-recurring
charges other than a Rule 12b-1 fee.

Total return and yield will be calculated separately for Shares and
Institutional Shares.

From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.

OTHER CLASSES OF SHARES

The Fund also offers another class of shares called Institutional Shares.

Institutional Shares are sold to banks and other institutions that hold assets
as principals or in a fiduciary capacity for individuals, trusts, estates, or
partnerships and are subject to a minimum initial investment of $25,000.
Institutional Shares are sold at NAV and are distributed without a Rule 12b-1
Plan.

Shares and Institutional Shares are subject to certain of the same expenses.
Expense differences, however, between Shares and Institutional Shares may affect
the performance of each class.

To obtain more information and a prospectus for Institutional Shares, investors
may call 1-800-341-7400.

FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Ernst & Young LLP, the Fund's
independent auditors. Their report dated June 19, 1998, on the Fund's financial
statements for the period ended April 30, 1998, and on the following table for
the period presented, is included in the Annual Report, which is incorporated by
reference. This table should be read in conjunction with the Fund's financial
statements and notes thereto, which may be obtained free of charge.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
1998 1997 1996 1995 1994 1993 1992(A) 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, $ 8.68 $ 8.68 $ 8.61 $ 8.85 $ 9.17 $ 8.98 $ 9.07 $ 9.16 $ 9.41 $ 9.56
BEGINNING OF
PERIOD
INCOME FROM
INVESTMENT
OPERATIONS
Net investment 0.52 0.54 0.57 0.54 0.51 0.58 0.60 0.83 0.93 0.94
income
Net realized 0.06 0.01 0.07 (0.24) (0.32) 0.16 (0.07) (0.08) (0.25) (0.15)
and unrealized
gain (loss) on
investments
Total from 0.58 0.55 0.64 0.30 0.19 0.74 0.53 0.75 0.68 0.79
investment
operations
LESS
DISTRIBUTIONS
Distributions (0.52) (0.54) (0.57) (0.54) (0.51) (0.55) (0.60) (0.83) (0.93) (0.94)
from net
investment
income
Distributions -- (0.01) -- -- -- -- (0.02) (0.01) -- --
in excess of
net investment
income(b)
Total (0.52) (0.55) (0.57) (0.54) (0.51) (0.55) (0.62) (0.84) (0.93) (0.94)
distributions
NET ASSET VALUE, $ 8.74 $ 8.68 $ 8.68 $ 8.61 $ 8.85 $ 9.17 $ 8.98 $ 9.07 $ 9.16 $ 9.41
END OF PERIOD
TOTAL RETURN(C) 6.88% 6.53% 7.51% 3.55% 2.04% 8.39% 5.94% 8.80% 7.52% 8.69%
RATIOS TO AVERAGE
NET ASSETS
Expenses 0.56% 0.56% 0.56% 0.56% 0.56% 0.51% 0.53% 0.52% 0.52% 0.51%
Net investment 5.96% 6.21% 6.43% 6.22% 5.55% 6.07% 6.71% 9.33% 9.95% 9.90%
income
Expense waiver/ 0.28% 0.28% 0.29% 0.03% 0.08% 0.45% 0.98% 0.92% 0.75% 0.76%
reimbursement(d)
SUPPLEMENTAL DATA
Net assets, end $197,610 $214,438 $216,675 $219,649 $353,106 $144,129 $36,047 $47,223 $65,429 $69,904
of period (000
omitted)
Portfolio 49% 55% 77% 38% 44% 62% 114% 23% 34% 38%
turnover
</TABLE>
(a) On December 31, 1991, the shareholders approved a change in the fundamental
investment policies which state that the Fund will be invested in high-grade as
opposed to lower-rated debt securities, and as a result, investment income per
share is lower.

(b) Distributions in excess of net investment income for the years ended April
30, 1997, 1992, and 1991, were a result of certain book and tax timing
differences. These distributions did not represent a return of capital for
federal income tax purposes for the years ended April 30, 1997, 1992, and 1991.

(c) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.

FURTHER INFORMATION ABOUT THE FUND'S PERFORMANCE IS CONTAINED IN THE FUND'S
ANNUAL REPORT DATED APRIL 30, 1998, WHICH CAN BE OBTAINED FREE OF CHARGE.

[Graphic]
Federated Investors

Federated Short-Term Income Fund

(A Portfolio of Federated Income Securities Trust)

Institutional Service Shares

PROSPECTUS

JUNE 30, 1998

A Diversified Portfolio of Federated Income Securities Trust, an Open-End,
Management Investment Company

FEDERATED SHORT-TERM INCOME FUND
INSTITUTIONAL SERVICE SHARES

Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000

DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

INVESTMENT ADVISER
Federated Management
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

CUSTODIAN
State Street Bank
and Trust Company
P.O. Box 8600
Boston, MA 02266-8600

TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Federated Shareholder
Services Company
P.O. Box 8600
Boston, MA 02266-8600

INDEPENDENT AUDITORS
Ernst & Young LLP
One Oxford Centre
Pittsburgh, PA 15219

Federated Securities Corp., Distributor
1-800-341-7400
www.federatedinvestors.com

Cusip 31420C308
1111903A-SS (6/98)

[Graphic]

Federated Short-Term Income Fund
Institutional Shares
Institutional Service Shares
(A Portfolio of Federated Income Securities Trust)

STATEMENT OF ADDITIONAL INFORMATION

This Statement of Additional Information should be read with the
prospectuses of Federated Short-Term Income Fund (the "Fund"), a portfolio of
Federated Income Securities Trust (the "Trust") dated June 30, 1998. This
Statement is not a prospectus. You may request a copy of a prospectus or a paper
copy of this Statement, if you have received it electronically, free of charge
by calling 1-800-341-7400.

Federated Short-Term Income Fund
Federated Investors Funds

5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7000

Statement dated June 30, 1998

[GRAPHIC OMITTED]

Cusip 31420C209
Cusip 31420C308
1111903B (6/98)

<PAGE>

Table of Contents

General Information About the Fund 1

Investment Objective and Policies 1
U.S. Government Securities 1
Weighted Average Portfolio Maturity 1
Weighted Average Portfolio Duration 2
When-Issued and Delayed Delivery Transactions 2
Repurchase Agreements 2
Lending of Portfolio Securities 3
Restricted and Illiquid Securities 3
Reverse Repurchase Agreements 3
Privately Issued Mortgage-Related Securities 3
Investing in Securities of Other Investment 3
Companies
Portfolio Turnover 3
Investment Limitations 3

Federated Income Securities Trust Management 6
Fund Ownership 10
Trustees Compensation 11
Trustee Liability 11

Investment Advisory Services 12
Adviser to the Fund 12

Brokerage Transactions 12

Other Services 12
Fund Administration 12
Custodian and Portfolio Accountant 13
Transfer Agent 13
Independent Auditors 13

Purchasing Shares 13
Distribution Plan (Institutional Service Shares
only) and Shareholder Services 13
Conversion to Federal Funds 13

Determining Net Asset Value 13
Determining Value of Securities 13

Redeeming Shares 14
Redemption in Kind 14

Tax Status 14
The Fund's Tax Status 14
Shareholders' Tax Status 14

Total Return 15

Yield 15

Performance Comparisons 15

Economic and Market Information 16

About Federated Investors, Inc 16
Mutual Fund Market 16
Institutional Clients 17
Bank Marketing 17
Broker/Dealers and Bank Broker/Dealer 17
Subsidiaries

Financial Statements 17

Appendix 18

<PAGE>

103

<PAGE>

General Information About the Fund
The Fund is a portfolio of Federated Income Securities Trust, which was
established as a Massachusetts business trust under a Declaration of Trust dated
January 24, 1986. On December 31, 1991, the shareholders voted to permit the
Trust to offer one or more separate series and classes of shares. Shares of the
Fund are offered in two classes, Institutional Shares and Institutional Service
Shares (individually and collectively referred to as "Shares"). This Statement
of Additional Information relates to both classes of Shares of the Fund.

Investment Objective and Policies
The Fund's investment objective is to seek to provide current income. The Fund
will pursue this objective by investing primarily in a diversified portfolio of
short and medium-term high grade debt securities. The foregoing investment
objective and policy may not be changed without the prior approval of the Fund's
shareholders.

U.S. Government Securities

The types of U.S. government obligations in which the Fund may invest
generally include direct obligations of the U.S. Treasury (such as U.S. Treasury
bills, notes, and bonds) and obligations issued or guaranteed by U.S. government
agencies or instrumentalities. These securities may be backed by:

o the full faith and credit of the U.S. Treasury;

o the issuer's right to borrow from the U.S. Treasury;

o the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or

o the credit of the agency or instrumentality issuing the obligations.

Examples of agencies and instrumentalities which may not always receive
financial support from the U.S. government are:

o Farm Credit System, including the National Bank for Cooperatives, Farm
Credit Banks and Banks for Cooperatives;

o Federal Home Loan Banks;

o The Student Loan Marketing Association;

o Federal Home Loan Mortgage Corporation; and

o Federal National Mortgage Association.

Weighted Average Portfolio Maturity

The Fund will determine its dollar-weighted average portfolio maturity by
assigning a "weight" to each portfolio security based upon the pro rata market
value of such portfolio security in comparison to the market value of the entire
portfolio. The remaining maturity of each portfolio security is then multiplied
by its weight, and the results are added together to determine the weighted
average maturity of the portfolio. For purposes of calculating its
dollar-weighted average portfolio maturity, the Fund will treat (a) asset-
backed securities as having a maturity equal to their estimated weighted-average
maturity and (b) variable and floating rate instruments as having a remaining
maturity commensurate with the period remaining until the next scheduled
adjustment to the instrument's interest rate. The average maturity of
asset-backed securities will be calculated based upon assumptions established by
the investment adviser as to the probable amount of the principal prepayments
weighted by the period until such prepayments are expected to be received.

Fixed rate securities hedged with interest rate swaps or caps will be treated as
floating or variable rate securities based upon the interest rate index of the
swap or cap; floating and variable rate securities hedged with interest rate
swaps or floors will be treated as having a maturity equal to the term of the
swap or floor. In the event that the Fund holds an interest rate swap, cap or
floor that is not hedging another portfolio security, the swap, cap or floor
will be treated as having a maturity equal to its term and a weight equal to its
notional principal amount for such term.

Weighted Average Portfolio Duration

Duration is a commonly used measure of the potential volatility of the price of
a debt security, or the aggregate market value of a portfolio of debt
securities, prior to maturity. Duration measures the magnitude of the change in
the price of a debt security relative to a given change in the market rate of
interest. The duration of a debt security depends upon three primary variables:
the security's coupon rate, maturity date and the level of market interest rates
for similar debt securities. Generally, debt securities with lower coupons or
longer maturities will have a longer duration than securities with higher
coupons or shorter maturities. For purposes of calculating its dollar-weighted
average portfolio duration, the Fund will treat variable and floating rate
instruments as having a remaining duration commensurate with the period
remaining until the next scheduled adjustment to the instrument's interest rate.

Duration is calculated by dividing the sum of the time-weighted values of cash
flows of a security or portfolio of securities, including principal and interest
payments, by the sum of the present values of the cash flows.

The duration of interest rate agreements, such as interest rates swaps, caps and
floors, is calculated in the same manner as other securities. However, certain
interest rate agreements have negative durations, which the Fund may use to
reduce its weighted average portfolio duration.

Mathematically, duration is measured as follows:

Duration = PVCF1(1) + PVCF2(2) + PVCF3(3) +............. + PVCFn(n)
PVTCF PVTCF PVCTF PVCTF

where

PVCFt = the present value of the cash flow in period t discounted at the
prevailing yield-to-maturity

t = the period when the cash flow is received

n = remaining number of periods until maturity

PVTCF = total present value of the cash flow from the bond where the present
value is determined using the prevailing yield-to-maturity

Certain debt securities, such as mortgage-backed and asset-backed securities,
may be subject to prepayment at irregular intervals. The duration of these
instruments will be calculated based upon assumptions established by the
investment adviser as to the probable amount and sequence of principal
prepayments. Duration calculated in this manner, commonly referred to as
"effective duration," allows for changing prepayment rates as interest rates
change and expected future cash flows are affected. The calculation of effective
duration will depend upon the investment adviser's assumed prepayment rate.

When-Issued and Delayed Delivery Transactions

The Fund engages in when-issued and delayed delivery transactions only for the
purpose of acquiring portfolio securities consistent with the Fund's investment
objective and policies, not for investment leverage. These transactions are made
to secure what is considered to be an advantageous price or yield for the Fund.
No fees or other expenses, other than normal transaction costs, are incurred.
However, liquid assets of the Fund sufficient to make payment for the securities
to be purchased are segregated on the Fund's records at the trade date. These
assets are marked to market daily and are maintained until the transaction has
been settled. The Fund does not intend to engage in when-issued and delayed
delivery transactions to an extent that would cause the segregation of more than
20% of the total value of its assets.

Repurchase Agreements

The Fund or its custodian will take possession of the securities subject to
repurchase agreements, and these securities will be marked to market daily. To
the extent that the original seller does not repurchase the securities from the
Fund, the Fund could receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be delayed
pending court action. The Fund believes that under the regular procedures
normally in effect for custody of the Fund's portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor of
the Fund and allow retention or disposition of such securities. 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 guidelines established by the Board of Trustees
("Trustees").

Lending of Portfolio Securities

The collateral received when the Fund lends portfolio securities must be valued
daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination at the option
of the Fund or the borrower. The Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or equivalent collateral to the borrower or placing
broker.

Restricted and Illiquid Securities

The ability of the Trustees to determine the liquidity of certain restricted
securities is permitted under the Securities and Exchange Commission staff
position set forth in the adopting release for Rule 144A under the Securities
Act of 1933. The Trustees consider the following criteria in determining the
liquidity of certain restricted securities:

o the frequency of trades and quotes for the security;

o the number of dealers willing to purchase or sell the security and the
number of other potential buyers;

o dealer undertakings to make a market in the security; and

o the nature of the security and the nature of the marketplace trades.

Reverse Repurchase Agreements

The use of reverse repurchase agreements may enable the Fund to avoid selling
portfolio instruments at a time when a sale may be deemed to be disadvantageous,
but the ability to enter into reverse repurchase agreements does not ensure that
the Fund will be able to avoid selling portfolio instruments at a
disadvantageous time.

Privately Issued Mortgage-Related Securities

Privately issued mortgage-related securities generally represent an ownership
interest in federal agency mortgage pass-through securities such as those issued
by Government National Mortgage Association as well as those issued by
non-government related entities. The terms and characteristics of the mortgage
instruments may vary among pass-through mortgage loan pools. The market for such
mortgage-related securities has expanded considerably since its inception. The
size of the primary issuance market and the active participation in the
secondary market by securities dealers and other investors makes
government-related and non-government related pools highly liquid.

Investing in Securities of Other Investment Companies

The Fund may invest in the securities of affiliated money market funds as an
efficient means of managing the Fund's uninvested cash.

Portfolio Turnover

For the fiscal years ended April 30, 1998, and 1997, the portfolio turnover
rates were 49% and 55%, respectively.

Investment Limitations

CONCENTRATION OF INVESTMENTS

The Fund will not purchase securities if as a result of such purchase 25%
or more of the value of its total assets would be invested in any one
industry.

INVESTING IN COMMODITIES

The Fund will not purchase or sell commodities or commodity contracts,
including futures contracts.

INVESTING IN REAL ESTATE

The Fund will not purchase or sell real estate including limited
partnership interests in real estate, although it may invest in the
securities of companies whose business involves the purchase or sale of
real estate or in securities which are secured by real estate or interests
in real estate.

BUYING ON MARGIN

The Fund will not purchase any securities on margin but may obtain such
short-term credits as are necessary for the clearance of transactions.

SELLING SHORT

The Fund will not sell securities short unless: during the time the short
position is open, it owns an equal amount of the securities sold or
securities readily and freely convertible into or exchangeable, without
payment of additional consideration, for securities of the same issue as,
and equal in amount to, the securities sold short; and not more than 10%
of the Fund's net assets (taken at current value) is held as collateral
for such sales at any one time.

ISSUING SENIOR SECURITIES AND BORROWING MONEY

The Fund will not issue senior securities, except that the Fund may borrow
money and engage in reverse repurchase agreements in amounts up to
one-third of the value of its total assets, including the amounts
borrowed.

The Fund will not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary, extraordinary, or
emergency measure to facilitate management of the portfolio by enabling
the Fund to meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. The Fund will
not purchase any securities while any borrowings, other than reverse
repurchase agreements, are outstanding. During the period any reverse
repurchase agreements are outstanding, but only to the extent necessary to
assure completion of the reverse repurchase agreements, the Fund will
restrict the purchase of portfolio instruments to money market instruments
maturing on or before the expiration date of the reverse repurchase
agreements.

PLEDGING ASSETS

LENDING CASH OR SECURITIES

The Fund will not lend any of its assets except portfolio securities up to
one-third of the value of its total assets. This shall not prevent the
purchase or holding of corporate bonds, debentures, notes, certificates of
indebtedness or other debt securities of an issuer, repurchase agreements
or other transactions which are permitted by the Fund's investment
objective and policies or Declaration of Trust. The Fund will only enter
into loan arrangements with broker/dealers, banks, or other institutions
which investment adviser has determined are creditworthy under guidelines
established by the Trustees and will receive collateral equal to at least
100% of the value of the securities loaned.

UNDERWRITING

The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in connection
with the sale of restricted securities which the Fund may purchase
pursuant to its investment objective, policies, and limitations.

INVESTING IN MINERALS

The Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs, or leases, although it may purchase
the securities of issuers which invest in or sponsor such programs.

INVESTING IN NEW ISSUERS

The Fund will not invest more than 5% of the value of its total assets in
securities of companies, including their predecessors, that have been in
operation for less than three years.

INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF
THE TRUST

The Fund will not purchase or retain the securities of any issuer if
the officers and Trustees of the Fund or its investment adviser owning
individually more than 0.5% of the issuer's securities together own more
than 5% of the issuer's securities.

DIVERSIFICATION OF INVESTMENTS

The Fund will not purchase the securities of any one issuer (other than
the U.S. government, its agencies, or instrumentalities or instruments
secured by the securities of such issuers, such as repurchase agreements)
if, as a result, more than 5% of the value of its assets would be invested
in the securities of such issuer with respect to 75% of its total assets,
or acquire more than 10% of any class of voting securities of any issuer.
For these purposes the Fund takes all common stock and all preferred stock
of an issuer each as a single class, regardless of priorities, series,
designations, or other differences.

ACQUIRING SECURITIES

The Fund will not purchase securities of a company for the purpose of
exercising control or management.

The above investment limitations cannot be changed without shareholder approval.
The following limitations, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in this limitation becomes effective.

INVESTING IN RESTRICTED AND ILLIQUID SECURITIES

The Fund will not invest more than 15% of the value of its net assets in
illiquid securities including repurchase agreements providing for
settlement in more than seven days after notice, non-negotiable time
deposits and certain restricted securities not determined to be liquid
under criteria established by the Trustees.

During the fiscal year ended April 30, 1998, the Fund did not borrow money,
invest in reverse repurchase agreements or sell securities short in excess of 5%
of the value of its net assets. The Fund does not intend to borrow money, invest
in reverse repurchase agreements, or sell securities short in excess of 5% of
the value of its net assets during the coming year.

For purposes of its policies and limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association having capital surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items."

<PAGE>

Federated Income Securities Trust Management
Officers and Trustees are listed with their addresses, birthdates, present
positions with Federated Income Securities Trust, and principal occupations.

John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924

Chairman and Trustee

Chief Executive Officer and Director or Trustee of the Funds; Chairman and
Director, Federated Investors, Inc.; Chairman and Trustee, Federated Advisers,
Federated Management, and Federated Research; Chairman and Director, Federated
Research Corp. and Federated Global Research Corp.; Chairman, Passport Research,
Ltd.; Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President of the Company.

Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934

Trustee

Director or Trustee of the Funds; Director, Member of Executive Committee,
Children's Hospital of Pittsburgh; formerly, Senior Partner, Ernst & Young LLP;
Director, MED 3000 Group, Inc.; Director, Member of Executive Committee,
University of Pittsburgh.

John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937

Trustee

Director or Trustee of the Funds; President, Investment Properties
Corporation; Senior Vice-President, John R. Wood and Associates, Inc., Realtors;
Partner or Trustee in private real estate ventures in Southwest Florida;
formerly, President, Naples Property Management, Inc. and Northgate Village
Development Corporation.

Nicholas P. Constantakis
175 Woodshire Drive
Pittsburgh, PA
Birthdate: September 3, 1939

Trustee

Director or Trustee of the Funds; Formerly, Partner, Andersen Worldwide SC.

William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918

Trustee

Director or Trustee of the Funds; Director and Member of the Executive
Committee, Michael Baker, Inc.; formerly, Vice Chairman and Director, PNC Bank,
N.A., and PNC Bank Corp.; Director, Ryan Homes, Inc.; Director, United Refinery;
Chairman, Pittsburgh Foundation; Director, Forbes Fund; Chairman, Pittsburgh
Civic Light Opera.

James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922

Trustee

Director or Trustee of the Funds; Attorney-at-law; Director, The Emerging
Germany Fund, Inc.; formerly, President, Boston Stock Exchange, Inc.; Regional
Administrator, United States Securities and Exchange Commission.

Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932

Trustee

Director or Trustee of the Funds; Professor of Medicine, University of
Pittsburgh; Medical Director, University of Pittsburgh Medical Center -
Downtown; formerly, Hematologist, Oncologist, and Internist, Presbyterian and
Montefiore Hospitals; formerly, Member, National Board of Trustees, Leukemia
Society of America.

Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924

Trustee

Director or Trustee of the Funds; Attorney Of Counsel, Miller, Ament, Henny &
Kochuba; Director, Eat'N Park Restaurants, Inc.; formerly, Counsel, Horizon
Financial, F.A., Western Region; Partner, Meyer and Flaherty.

Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942

Trustee

Director or Trustee of the Funds; Representative, Commonwealth of Massachusetts
General Court; President, State Street Bank and Trust Company and State Street
Corporation; Director, VISA USA and VISA International; Chairman and Director,
Massachusetts Banker Association; Director, Depository Trust Corporation.

John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932

Trustee

Director or Trustee of the Funds; President, Law Professor, Duquesne University;
Consulting Partner, Mollica & Murray; formerly, Dean and Professor of Law,
University of Pittsburgh School of Law; Dean and Professor of Law, Villanova
University School of Law.

Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925

Trustee

Director or Trustee of the Funds; President, World Society for Ekistics,
Athens;Professor, International Politics; Management Consultant; Trustee,
Carnegie Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., National Defense University and U.S. Space Foundation;
President Emeritus, University of Pittsburgh; Founding Chairman, National
Advisory Council for Environmental Policy and Technology, Federal Emergency
Management Advisory Board and Czech Management Center, Prague; formerly,
Professor, United States Military Academy; Professor, United States Air Force
Academy.

Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935

Trustee

Director or Trustee of the Funds; Public relations/Marketing/Conference
Planning; formerly, National Spokesperson, Aluminum Company of America; business
owner.

Glen R. Johnson
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929

President

President and/or Trustee of some of the Funds; staff member, Federated
Securities Corp.

J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949

Executive Vice President

President or Executive Vice President of the Funds; President and Director,
Federated Investors, Inc.; President and Trustee, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated Research
Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.;
Trustee, Federated Shareholder Services Company, and Federated Shareholder
Services; Director, Federated Services Company; Director or Trustee of some of
the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and Trustee of
the Company.

Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930

Executive Vice President

Trustee or Director of some of the Funds; President, Executive Vice President
and Treasurer of some of the Funds; Vice Chairman, Federated Investors, Inc.;
Vice President, Federated Advisers, Federated Management, Federated Research,
Federated Research Corp., Federated Global Research Corp. and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company;

John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938

Executive Vice President , Secretary and Treasurer

Executive Vice President and Secretary of the Funds; Treasurer of some of the
Funds; Executive Vice President, Secretary, and Director, Federated Investors,
Inc.; Trustee, Federated Advisers, Federated Management, and Federated Research;
Director, Federated Research Corp. and Federated Global Research Corp.; Trustee,
Federated Shareholder Services Company; Director, Federated Services Company;
President and Trustee, Federated Shareholder Services; Director, Federated
Securities Corp.;

Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923

Vice President

President or Vice President of some of the Funds; Director or Trustee of some of
the Funds; Executive Vice President, Federated Investors, Inc.; Chairman and
Director, Federated Securities Corp..

* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.

@ Member of the Executive Committee. The Executive Committee of the Board
of Trustees handles the responsibilities of the Board between meetings
of the Board.

<PAGE>

As used in the table above, "The Funds" and "Funds" mean the following
investment companies: 111 Corcoran Funds; Automated Government Money Trust;
Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust Series II;
Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily
Passport Cash Trust; Federated Adjustable Rate U.S. Government Fund, Inc.;
Federated American Leaders Fund, Inc.; Federated ARMs Fund; Federated Core
Trust; Federated Equity Funds; Federated Equity Income Fund, Inc.; Federated
Fund for U.S. Government Securities, Inc.; Federated GNMA Trust; Federated
Government Income Securities, Inc.; Federated Government Trust; Federated High
Income Bond Fund, Inc.; Federated High Yield Trust; Federated Income Securities
Trust; Federated Income Trust; Federated Index Trust; Federated Institutional
Trust; Federated Insurance Series; Federated Investment Portfolios; Federated
Investment Trust; Federated Master Trust; Federated Municipal Opportunities
Fund, Inc.; Federated Municipal Securities Fund, Inc.; Federated Municipal
Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S.
Government Trust; Federated Stock and Bond Fund, Inc.; Federated Stock Trust;
Federated Tax-Free Trust; Federated Total Return Series, Inc.; Federated U.S.
Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years;
Federated U.S. Government Securities Fund: 2-5 Years; Federated U.S. Government
Securities Fund: 5-10 Years; Federated Utility Fund, Inc.; Fixed Income
Securities, Inc.; High Yield Cash Trust; Intermediate Municipal Trust;
International Series, Inc.; Investment Series Funds, Inc.; Investment Series
Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S. Government Money Market
Trust; Liquid Cash Trust; Managed Series Trust; Money Market Management, Inc.;
Money Market Obligations Trust; Money Market Obligations Trust II; Money Market
Trust; Municipal Securities Income Trust; Newpoint Funds; Regions Funds; RIMCO
Monument Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The
Planters Funds; The Virtus Funds; Trust for Financial Institutions; Trust for
Government Cash Reserves; Trust for Short-Term U.S. Government Securities; Trust
for U.S. Treasury Obligations; WesMark Funds; WCT Funds; and World Investment
Series, Inc.

Fund Ownership

Officers and Trustees own less than 1% of the Fund's outstanding Shares.

As of June 5, 1998, the following shareholders of record owned 5% or more of the
outstanding Institutional Shares of the Fund: Charles Schwab & Co., Inc., San
Francisco, California, owned approximately 2,886,237 shares (13.09%). As of June
5, 1998, the following shareholders of record owned 5% or more of the
outstanding Institutional Service Shares of the Fund: Brelco / Sunflower Bank,
Salina, Kansas, owned approximately 104,367 shares (6.22%); Robertson Stephens &
Co LLC F/B/O its clients, San Francisco, California, owned approximately 171,926
shares (10.25%); Charles Schwab & Co., Inc., San Francisco, California, owned
approximately 97,944 shares (5.84%); Moce & Co., Mattoon, Illinois, owned
approximately 177,477 shares (10.58%); and Trust Company of St.
Joseph, St. Joseph, Missouri, owned approximately 645,409 shares (38.47%).

<PAGE>

Trustee Compensation

AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST FROM FUND COMPLEX +
<S> <C> <C>

John F. Donahue, $ 0 $ 0 for the Trust and
Chairman and Trustee 56 other investment companies in the Fund Complex

Thomas G. Bigley, $680.76 $111,222 for the Trust and
Trustee 56 other investment companies in the Fund Complex

John T. Conroy, Jr., $748.94 $122,362 for the Trust and
Trustee 56 other investment companies in the Fund Complex

Nicholas P. Constantakis,++ $171.17 $ 0 for the Trust and
Trustee 36 other investment companies in the Fund Complex

William J. Copeland, $748.94 $122,362 for the Trust and
Trustee 56 other investment companies in the Fund Complex

James E. Dowd, $748.94 $122,362 for the Trust and
Trustee 56 other investment companies in the Fund Complex

Lawrence D. Ellis, M.D., $680.76 $111,222 for the Trust and
Trustee 56 other investment companies in the Fund Complex

Edward L. Flaherty, Jr., $748.94 $122,362 for the Trust and
Trustee 56 other investment companies in the Fund Complex

Peter E. Madden, $680.76 $111,222 for Trust and
Trustee 56 other investment companies in the Fund Complex

John E. Murray, Jr., $680.76 $111,222 for the Trust and
Trustee 56 other investment companies in the Fund Complex

Wesley W. Posvar, $680.76 $111,222 for the Trust and
Trustee 56 other investment companies in the Fund Complex

Marjorie P. Smuts, $680.76 $111,222 for the Trust and
Trustee 56 other investment companies in the Fund Complex

</TABLE>

*Information is furnished for the fiscal year ended April 30, 1998.

#The aggregate compensation is provided for the Trust which is comprised of
two portfolios.

+The information is provided for the last calendar year.

++Mr. Constantakis became a member of the Board of Trustees on February 23,
1998. He did not earn any fees for serving the Fund Complex since these fees are
reported as of the end of the last calendar year.

Trustee Liability

The Trust's Declaration of Trust provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.

Investment Advisory Services
Adviser to the Fund

The Adviser shall not be liable to the Trust, the Fund, or any shareholder of
the Fund for any losses that may be sustained in the purchase, holding, or sale
of any security, or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.

ADVISORY FEES

For its advisory services, the Adviser receives an annual investment
advisory fee as described in each prospectus. During the fiscal years
ended April 30, 1998, 1997, and 1996, the Fund's Adviser earned $871,326,
$957,140, and $907,666, respectively. Fees of $73,876, $72,703, and
$82,939, respectively for 1998, 1997 and 1996, were waived because of
undertakings to limit the Fund's expenses.

Brokerage Transactions
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The Adviser may select
brokers and dealers who offer brokerage and research services. These services
may be furnished directly to the Fund or to the Adviser and may include: advice
as to the advisability of investing in securities; security analysis and
reports; economic studies; industry studies; receipt of quotations for portfolio
evaluations; and similar services. Research services provided by brokers and
dealers may be used by the Adviser or by affiliates of Federated Investors, Inc.
in advising Federated Funds and other accounts. To the extent that receipt of
these services may supplant services for which the Adviser or its affiliates
might otherwise have paid, it would tend to reduce their expenses. The Adviser
and its affiliates exercise reasonable business judgment in selecting brokers
who offer brokerage and research services to execute securities transactions.
They determine in good faith that commissions charged by such persons are
reasonable in relationship to the value of the brokerage and research services
provided. During the fiscal years ended April 30, 1998, 1997, and 1996, no
brokerage commissions were paid by the Fund.

Although investment decisions for the Fund are made independently from those of
the other accounts managed by the Adviser, investments of the type the Fund may
make may also be made by those other accounts. When the Fund and one or more
other accounts managed by the Adviser are prepared to invest in, or desire to
dispose of, the same security, available investments or opportunities for sales
will be allocated in a manner believed by the Adviser to be equitable to each.
In some cases, this procedure may adversely affect the price paid or received by
the Fund or the size of the position obtained or disposed of by the Fund. In
other cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.

Other Services
Fund Administration

Federated Services Company, a subsidiary of Federated Investors, Inc., provides
administrative personnel and services to the Fund for a fee as described in each
prospectus. From March 1, 1994 to March 1, 1996, Federated Administrative
Services, a subsidiary of Federated Investors, served as the Fund's
Administrator. For purposes of this Statement of Additional Information,
Federated Services Company and Federated Administrative Services may hereinafter
collectively be referred to as the "Administrators." For the fiscal years ended
April 30, 1998, 1997, and 1996, the Administrators earned $164,374, $180,791,
and $171,686, respectively.

Custodian and Portfolio Accountant

State Street Bank and Trust Company ("State Street Bank"), Boston, MA, is
custodian for the securities and cash of the Trust. Federated Services Company,
Pittsburgh, PA, provides certain accounting and recordkeeping services with
respect to the Trust's portfolio investments. The fee paid for this service is
based upon the level of the Trust's average net assets for the period plus
out-of-pocket expenses.

Transfer Agent

Federated Services Company, through its registered transfer agent, Federated
Shareholder Services Company, maintains all necessary shareholder records. For
its services, the transfer agent receives a fee based upon the level of the
Trust's average net assets for the period plus out-of-pocket expenses.

Independent Auditors

The independent auditors for the Trust are Ernst and Young LLP, Pittsburgh, PA.

Purchasing Shares
Shares are sold at their net asset value ("NAV") without a sales charge on days
on which the New York Stock Exchange is open for business. The procedure for
purchasing Shares of the Fund is explained in the respective prospectus under
"Investing in Institutional Shares" and "Investing in Institutional Service
Shares."

Distribution Plan (Institutional Service Shares only) and Shareholder Services

These arrangements permit the payment of fees to financial institutions, the
distributor, and Federated Shareholder Services, to stimulate distribution
activities and to cause services to be provided to shareholders by a
representative who has knowledge of the shareholder's particular circumstances
and goals. These activities and services may include, but are not limited to,
marketing efforts; providing office space, equipment, telephone facilities, and
various clerical, supervisory, computer, and other personnel as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries; and assisting
clients in changing dividend options, account designations, and addresses.

By adopting the Plan (Institutional Service Shares only), the Trustees expect
that the Fund will be able to achieve a more predictable flow of cash for
investment purposes and to meet redemptions. This will facilitate more efficient
portfolio management and assist the Fund in pursuing its investment objectives.
By identifying potential investors whose needs are served by the Fund's
objectives, and properly servicing these accounts, it may be possible to curb
sharp fluctuations in rates of redemptions and sales.

Other benefits, which may be realized under either arrangement, may include: (1)
providing personal services to shareholders; (2) investing shareholder assets
with a minimum of delay and administrative detail; (3) enhancing shareholder
recordkeeping systems; and (4) responding promptly to shareholders' requests and
inquiries concerning their accounts.

For the fiscal year ended April 30, 1998, payments in the amount of $41,885
were made pursuant to the Distribution Plan (Institutional Service Shares only),
all of which was paid to financial institutions. In addition, for this period,
the Trust paid shareholder service fees in the amount of $502,694 (Institutional
Shares) and $41,885 (Institutional Service Shares) of which $502,694
(Institutional Shares) and $1,675 (Institutional Service Shares) were waived.

Conversion to Federal Funds

It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds. Federated Services Company
acts as the shareholder's agent in depositing checks and converting them to
federal funds.

Determining Net Asset Value
NAV generally changes each day. The days on which the NAV is calculated by the
Fund are described in the prospectus.

Determining Value of Securities

The values of the Fund's portfolio securities are determined as follows:

o according to prices provided by independent pricing services, which may be
determined without exclusive reliance on quoted prices from dealers but
which use market prices when most representative, and which may take into
account appropriate factors such as yield, quality, coupon rate, maturity,
type of issue, trading characteristics, and other market data employed in
determining valuations for such securities; or

o for short-term obligations with remaining maturities of 60 days or less at
the time of purchase, at amortized cost unless the Trustees determine that
particular circumstances of the security indicate otherwise.

Redeeming Shares
The Fund redeems Shares at the next computed NAV after the Fund receives the
redemption request. Redemption procedures are explained in the respective
prospectuses under "Redeeming Institutional Shares" and "Redeeming Institutional
Service Shares." Although State Street Bank does not charge for telephone
redemptions, it reserves the right to charge a fee for the cost of
wire-transferred redemptions of less than $5,000.

Redemption in Kind

Although the Fund intends to redeem shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the Fund's portfolio. To the extent available,
such securities will be readily marketable.

Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur transaction costs.

Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission ("SEC") rules, taking such securities at the same value
employed in determining NAV and selecting the securities in a manner the
Trustees determine to be fair and equitable.

The Trust has elected to be governed by Rule 18f-1 under the Investment Company
Act of 1940, which obligates the Fund to redeem Shares for any one shareholder
in cash only up to the lesser of $250,000 or 1% of the respective class' NAV
during any 90-day period.

Tax Status
The Fund's Tax Status

The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code, as amended,
applicable to regulated investment companies and to receive the special tax
treatment afforded to such companies. To qualify for this treatment, the Fund
must, among other requirements:

o derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;

o invest in securities within certain statutory limits; and

o distribute to its shareholders at least 90% of its net income earned
during the year.

Shareholders' Tax Status

Shareholders are subject to federal income tax on dividends and capital gains
received as cash or additional Shares. No portion of any income dividend paid by
the Fund is expected to be eligible for the dividends received deduction
available to corporations. These dividends, and any short-term capital gains,
are taxable as ordinary income.

CAPITAL GAINS

Fixed income securities offering the current income sought by the Fund are
often purchased at a discount from par value. Because the total yield on
such securities when held to maturity and retired may include an element
of capital gain, the Fund may achieve capital gains. However, the Fund
will not hold securities to maturity for the purpose of realizing capital
gains unless current yields on those securities remain attractive.

Capital gains or losses may also be realized on the sale of securities.
Sales would generally be made because of:

o the availability of higher relative yields;

o differentials in market values;

o new investment opportunities;

o changes in creditworthiness of an issuer; or

o an attempt to preserve gains or limit losses.

Distributions of long-term capital gains are taxed as such, whether they
are taken in cash or reinvested, and regardless of the length of time the
shareholder has owned the Shares.

Total Return

The Fund's average annual total returns for the one-year, five year, and ten
year periods ended April 30, 1998 were 6.88%, 5.28%, and6.56%, respectively, for
Institutional Shares. The Fund's average annual total returns for the one-year
and five-year periods ended April 30, 1998, and for the period from January 24,
1992 (start of performance) to April 30, 1998, were 6.61%, 5.02% and 5.40%,
respectively, for Institutional Service Shares.

The average annual total return for both classes of Shares of the Fund is the
average compounded rate of return for a given period that would equate a $1,000
initial investment to the ending redeemable value of that investment. The ending
redeemable value is computed by multiplying the number of Shares owned at the
end of the period by the NAV per Share at the end of the period. The number of
Shares owned at the end of the period is based on the number of Shares purchased
at the beginning of the period with $1,000, adjusted over the period by any
additional Shares, assuming the monthly reinvestment of all dividends and
distributions.

Yield
The Fund's yield for the thirty-day period ended April 30, 1998, was 6.19% and
5.94% for Institutional Shares and Institutional Service Shares, respectively.
The yield for both classes of Shares of the Fund is determined by dividing the
net investment income per Share (as defined by the SEC) earned by either class
of Shares over a thirty-day period by the maximum offering price per Share of
either class of Shares on the last day of the period. This value is then
annualized using semi-annual compounding. This means that the amount of income
generated during the thirty-day period is assumed to be generated each month
over a twelve-month period and is reinvested every six months. The yield does
not necessarily reflect income actually earned by the Fund because of certain
adjustments required by the SEC and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.

To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in either
class of Shares, performance will be reduced for those shareholders paying those
fees.

Performance Comparisons
The performance of both classes of shares depends upon such variables as:

o portfolio quality;

o average portfolio maturity;

o type of instruments in which the portfolio is invested;

o changes in interest rates and market value of portfolio securities;

o changes in the Fund's or either class of Share's expenses; and

o various other factors.

Either class of Shares performance fluctuates on a daily basis largely because
net earnings and the maximum offering price per Share fluctuate daily. Both net
earnings and offering price per Share are factors in the computation of yield
and total return.

Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:

o Lipper Analytical Services, Inc., ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and
takes into account any change in NAV over a specific period of time. From
time to time, the Fund will quote its Lipper ranking in the "short-term
investment grade debt funds" category in advertising and sales literature.

o Merrill Lynch Total Return Investment Grade Corporate Index (Short- Term
1-2.99 Years) is comprised of over 400 issues of investment grade corporate
debt securities with remaining maturities from 1 to 2.99 years.

o Morningstar, Inc., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for two
weeks.

Advertisements and other sales literature for both classes of Shares may quote
total returns which are calculated on non-standardized base periods. These total
returns also represent the historic change in the value of an investment in the
either class of Shares based on monthly reinvestment of dividends over a
specified period of time.

Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in which it
invests, to a variety of other investments, such as bank savings accounts,
certificates of deposit, and Treasury bills.

Economic and Market Information

Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by Fund portfolio managers and their views and analysis on how such
developments could affect the Fund. In addition, advertising and sales
literature may quote statistics and give general information about the mutual
fund industry, including the growth of the industry, from sources such as the
Investment Company Institute.

About Federated Investors, Inc.
Federated Investors, Inc. is dedicated to meeting investor needs which is
reflected in its investment decision making - structured, straightforward, and
consistent. This has resulted in a history of competitive performance with a
range of competitive investment products that have gained the confidence of
thousands of clients and their customers.

The company's disciplined security selection process is firmly rooted in sound
methodologies backed by fundamental and technical research. Investment decisions
are made and executed by teams of portfolio managers, analysts, and traders
dedicated to specific market sectors. These traders handle trillions of dollars
in annual trading volume.

In the corporate bond sector, as of December 31, 1997, Federated Investors, Inc.
managed 11 money market funds, and 16 bond funds with assets approximating $17.1
billion, and $5.6 billion, respectively. Federated's corporate bond decision
making--based on intensive, diligent credit analysis--is backed by over 22 years
of experience in the corporate bond sector. In 1972, Federated introduced one of
the first high-yield bond funds in the industry. In 1983, Federated was one of
the first fund managers to participate in the asset-backed securities market, a
market totaling more than $200 billion.

J. Thomas Madden, Executive Vice President, oversees Federated's equity and high
yield corporate bond management while William D. Dawson, Executive Vice
President, oversees Federated's domestic fixed income management. Henry A.
Frantzen, Executive Vice President, oversees the management of Federated's
international and global portfolios.

Mutual Fund Market

Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $4.4 trillion to the more than 6,700 funds available.*

Federated Investors, Inc., through its subsidiaries, distributes mutual funds
for a variety of investment applications. Specific markets include:

Institutional Clients

Federated Investors, Inc. meets the needs of approximately 900 institutional
clients nationwide by managing and servicing separate accounts and mutual funds
for a variety of applications, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax-exempt entities,
foundations/endowments, insurance companies, and investment and financial
advisors. The marketing effort to these institutional clients is headed by John
B. Fisher, President, Institutional Sales Division.

Bank Marketing

Other institutional clients include close relationships with more than 1,600
banks and trust organizations. Virtually all of the trust divisions of the top
100 bank holding companies use Federated funds in their clients' portfolios. The
marketing effort to trust clients is headed by Timothy C. Pillon, Senior Vice
President, Bank Marketing & Sales.

Broker/Dealers and Bank Broker/Dealer Subsidiaries

Federated funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Federated Securities Corp.

Financial Statements
The Financial Statements for the fiscal year ended April 30, 1998, are
incorporated herein by reference to the Annual Report of the Fund dated April
30, 1998 (File Nos. 33-3164 and 811-4577). A copy of the Report may be obtained
without charge by contacting the Fund.

* source: Investment Company Institute.

<PAGE>

Appendix

Standard & Poor's ("S&P") Long Term Debt Rating Definitions

AAA--Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.

AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.

A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.

BBB--Debt rated "BBB" is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.

NR--Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.

Plus (+) or minus (-): The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.

Moody's Investors Service, Inc. Corporate Bond Rating Definitions

Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.

Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.

A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.

Baa--Bonds which are rated Baa are considered as medium grade obligations (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

NR--Not rated by Moody's.

Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate or municipal bond rating
system. The modifier 1 indicates that the security ranks in the higher end of
its generic rating category; the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.

Fitch IBCA, Inc. Long-Term Debt Ratings

AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.

AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.

A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.

BBB--Bonds considered to be investment grade and of satisfactory credit quality.

NR--NR indicates that Fitch does not rate the specific issue.

Plus (+) or Minus (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the "AAA" category.

Moody's Investors Service, Inc. Commercial Paper Ratings

P-1--Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics:

o Leading market positions in well established industries.

o High rates of return on funds employed.

o Conservative capitalization structure with moderate reliance on debt and
ample asset protection.

o Broad margins in earning coverage of fixed financial charges and high
internal cash generation.

o Well-established access to a range of financial markets and assured sources
of alternate liquidity.

P-2--Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

Standard & Poor's Commercial Paper Ratings

A-1--This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus (+) sign designation.

A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.

Fitch IBCA, Inc. Commercial Paper Ratings Definitions

F-1--(Very Strong Credit Quality) Issues assigned this rating reflect an
assurance for timely payment only slightly less in degree than issues rated
F-1+.

F-2--(Good Credit Quality) Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as great
as for issues assigned F-1+ and F-1 ratings. Moody's Investors Service, Inc.
Commercial Paper Ratings

Duff & Phelps Rating Service (Duff &Phelps) Long-Term Debt Ratings

AAA--Highest credit quality. The risk factors are negligible, being only
slightly more than for U.S. Treasury debt.

AA--High credit quality. Protection factors are strong. Risk is modest but may
vary slightly from time to time because of economic conditions.

A--Protection factors are average but adequate. However, risk factors are more
variable and greater in periods of economic stress.

BBB--Below-average protection factors but still considered sufficient for
prudent investment. Considerable variability in risk during economic cycles.

PLUS (+) OR MINUS (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category.

Federated Intermediate Income Fund
(A Portfolio of Federated Income Securities Trust)
Institutional Shares

PROSPECTUS

The Institutional Shares of Federated Intermediate Income Fund (the "Fund")
offered by this prospectus represent interests in a diversified portfolio of
securities which is an investment portfolio in Federated Income Securities Trust
(the "Trust"), an open-end, management investment company (a mutual fund).

The investment objective of the Fund is to provide current income.

THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.

Summary of Fund Expenses 1
Financial Highlights--Institutional Shares 2
General Information 3
Year 2000 Statement 3
Investment Information 3
Investment Objective 3
Investment Policies 3
Special Considerations 11
Weighted Average Portfolio Duration 12
Investment Limitations 12
Trust Information 12
Management of the Trust 12
Distribution of Institutional Shares 13
Administration of the Fund 13
Administrative Services 13
Net Asset Value 14
Investing in Institutional Shares 14
Share Purchases 14
Minimum Investment Required 14
What Shares Cost 14
Exchange Privilege 15
Account Activity 15
Dividends 15
Capital Gains 15
Redeeming Institutional Shares 15
Telephone Redemption 15
Redeeming Shares by Mail 15
Accounts with Low Balances 16
Shareholder Information 16
Voting Rights 16
Tax Information 16
Federal Income Tax 16
State and Local Taxes 16
Performance Information 17
Other Classes of Shares 17
Financial Highlights--Institutional Service Shares 18

SUMMARY OF FUND EXPENSES

INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES

<TABLE>
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering
price) None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage
of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, if applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
</TABLE>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)

<TABLE>
<S> <C> <C>
Management Fee (after waiver)(1) 0.28%
12b-1 Fee None
Total Other Expenses 0.27%
Shareholder Services Fee (after waiver)(2) 0.00%
Total Operating Expenses(3) 0.55%
</TABLE>

(3) The total operating expenses would have been 1.02% absent the voluntary
waivers of a portion of the management fee and the shareholder services fee.

The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of Institutional Shares of the Trust will
bear, either directly or indirectly. For more complete descriptions of the
various costs and expenses, see "Trust Information" and "Investing in
Institutional Shares." Wire-transferred redemptions of less than $5,000 may be
subject to additional fees.

EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period.
<TABLE>
<S> <C>
1 Year $ 6
3 Years $18
5 Years $31
10 Years $69
</TABLE>

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
1998 1997 1996 1995 1994(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.79 $ 9.77 $ 9.55 $ 9.53 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.63 0.63 0.66 0.66 0.23
Net realized and unrealized gain (loss) on investments 0.38 0.03 0.22 0.02 (0.47)
Total from investment operations 1.01 0.66 0.88 0.68 (0.24)
LESS DISTRIBUTIONS
Distributions from net investment income (0.63) (0.63) (0.66) (0.66) (0.23)
Distributions from net realized gain on investments -- (0.01) -- -- --
Total distributions (0.63) (0.64) (0.66) (0.66) (0.23)
NET ASSET VALUE, END OF PERIOD $10.17 $ 9.79 $ 9.77 $ 9.55 $ 9.53
TOTAL RETURN(B) 10.58% 7.00% 9.13% 7.53% (2.48%)
RATIOS TO AVERAGE NET ASSETS
Expenses 0.55% 0.55% 0.55% 0.48% 0.00%*
Net investment income 6.30% 6.48% 6.52% 7.12% 6.36%*
Expense waiver/reimbursement(c) 0.47% 0.57% 0.85% 1.22% 1.40%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $176,712 $121,307 $87,493 $32,508 $17,702
Portfolio turnover 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.

FURTHER INFORMATION ABOUT THE FUND'S PERFORMANCE IS CONTAINED IN THE FUND'S
ANNUAL REPORT DATED APRIL 30, 1998, WHICH CAN BE OBTAINED FREE OF CHARGE.

GENERAL INFORMATION

The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated January 24, 1986. The Trust may offer separate series of shares
of beneficial interest representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
As of the date of this prospectus the Board of Trustees ("Trustees") has
established two classes of shares of Federated Intermediate Income Fund:
Institutional Shares and Institutional Service Shares. This prospectus relates
only to Institutional Shares of the Fund.

Institutional Shares ("Shares") are sold primarily to accounts for which
financial institutions act in a fiduciary or agency capacity, or other accounts
where the financial institution maintains master accounts with an aggregate
investment of at least $400 million in certain funds which are advised or
distributed by affiliates of Federated Investors, Inc. Shares are also made
available to financial intermediaries, and public and private organizations. An
investment in the Fund serves as a convenient means of accumulating an interest
in a professionally managed, diversified portfolio of U.S. government, corporate
and asset-backed securities. A minimum initial investment of $25,000 over a
90-day period is required.

Shares are currently sold and redeemed at net asset value ("NAV") without a
sales charge imposed by the Fund.

YEAR 2000 STATEMENT

Like other mutual funds and business organizations worldwide, the Fund's service
provider's (among them, the adviser, distributor, administrator, and transfer
agent) must ensure that their computer systems are adjusted to properly process
and calculate date-related information from and after January 1, 2000. Many
software programs and, to a lesser extent, the computer hardware in use today
cannot distinguish the year 2000 from the year 1900. Such a design flaw could
have a negative impact in the handling of securities trades, pricing, and
accounting services. The Fund and its service providers are actively working on
necessary changes to computer systems to deal with the year 2000 issue and
believe that systems will be year 2000 compliant when required. Analysis
continues regarding the financial impact of instituting a year 2000 compliant
program on the Fund's operations. INVESTMENT INFORMATION

INVESTMENT OBJECTIVE

The investment objective of the Fund is to provide current income. This
investment objective cannot be changed without approval of shareholders. While
there is no assurance that the Fund will achieve its investment objective, it
endeavors to do so by following the investment policies described in this
prospectus.

INVESTMENT POLICIES

The Fund pursues its investment objective by investing in a diversified
portfolio of investment grade securities, which are securities rated in one of
the four highest categories by a nationally recognized statistical rating
organization ("NRSRO") (for example, rated Aaa, Aa, A, or Baa by Moody's
Investors Service, Inc. ("Moody's") or AAA, AA, A, or BBB by Standard & Poor's
("S&P"), Fitch IBCA, Inc. ("Fitch") or Duff & Phelps Rating Service ("Duff &
Phelps") or if unrated, of comparable quality as determined by the Fund's
adviser. If a security is subsequently downgraded, the adviser will determine
whether it continues to be an acceptable investment; if not, the security will
be sold. A description of the rating categories is contained in the Appendix to
the Statement of Additional Information. Under normal market conditions, the
dollar-weighted average portfolio maturity of the Fund will be between three and
ten years, and the Fund's average-weighted duration will be between three and
seven years.

Unless indicated otherwise, the investment policies may be changed by the
Trustees without the approval of shareholders. Shareholders will be notified
before any material change in these investment policies becomes effective.

ACCEPTABLE INVESTMENTS

The Fund invests primarily in a professionally managed, diversified portfolio
consisting of U.S. government obligations, corporate obligations, and
asset-backed securities. The Fund may also invest in derivative instruments of
such securities, including instruments with demand features or credit
enhancement, as well as money market instruments.

The securities in which the Fund invests include:

* obligations issued or guaranteed as to payment of principal and
interest by the U.S. government, its agencies and instrumentalities
including bills, notes, bonds, and discount notes of the U.S. Treasury
and of U.S. government agencies or instrumentalities;
* domestic and foreign issues of corporate and sovereign obligations
(including Eurobonds, Medium Term Notes and Deposit Notes) having
floating or fixed rates of interest;
* asset-backed securities, including mortgage-related securities; *
commercial paper (including Europaper and Canadian Commercial Paper
("CCP"));
* municipal securities;
* foreign currency transactions (including spot, futures, options and
swaps);
* convertible securities;
* preferred securities (such as trust preferred capital securities and
step up perpetual subordinated securities);
* surplus notes (or surplus debentures or certificates of contribution); *
time and savings deposits and deposit notes and bankers acceptances
(including certificates of deposit) in commercial or savings banks whose
accounts are insured by the Bank Insurance Fund ("BIF") or the Savings
Association Insurance Fund ("SAIF"), both of which are administered by the
Federal Deposit Insurance Corporation ("FDIC"), including certificates of
deposit issued by and other time deposits in foreign branches of FDIC
insured banks or who have at least $100,000,000 in capital; and
* repurchase agreements collateralized by eligible investments.

U.S. GOVERNMENT OBLIGATIONS

The types of U.S. government obligations in which the Fund may invest
generally include direct obligations of the U.S. Treasury (such as U.S.
Treasury Bills, notes, and bonds) and obligations issued or guaranteed by
U.S. government agencies or instrumentalities. These securities may be
backed by:

* the full faith and credit of the U.S. Treasury;
* the issuer's right to borrow from the U.S. Treasury;
* the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
* the credit of the agency or instrumentality issuing the obligations.

CORPORATE OBLIGATIONS

The Fund invests in corporate obligations, including corporate bonds, notes, and
debentures, which may have floating or fixed rates of interest. Certain of the
corporate obligations in which the fund invests may involve both debt and equity
characteristics including, but not limited to convertible securities, preferred
securities (such as trust preferred or capital securities and step up
subordinated securities), and surplus notes.

FLOATING RATE CORPORATE OBLIGATIONS

The Fund may invest in floating rate corporate obligations, including increasing
rate securities. Floating rate securities are generally offered at an initial
interest rate which is at or above prevailing market rates. The interest rate
paid on these securities is then reset periodically (commonly every 90 days) to
an increment over some predetermined interest rate index. Commonly utilized
indices include the three-month Treasury Bill rate, the 180-day Treasury Bill
rate, the one-month or three-month London Interbank Offered Rate ("LIBOR"), the
prime rate of a bank, the commercial paper rates, or the longer-term rates on
U.S. Treasury securities.

Some of the floating rate corporate obligations in which the Fund may invest
include floating rate corporate securities issued by savings associations and
collateralized by adjustable rate mortgage loans, also known as collateralized
thrift notes. Many of these collateralized thrift notes have received AAA
ratings from recognized rating agencies. Collateralized thrift notes differ from
traditional "pass through" certificates in which payments made are linked to
monthly payments made by individual borrowers net of any fees paid to the issuer
or guarantor of such securities. Collateralized thrift notes pay a floating
interest rate which is tied to a predetermined index, such as the 180-day
Treasury Bill rate. Floating rate corporate obligations also include securities
issued to fund commercial real estate construction.

Increasing rate securities, which currently do not make up a significant share
of the market in corporate debt securities, are generally offered at an initial
interest rate which is at or above prevailing market rates. Interest rates are
reset periodically (most commonly every 90 days) at different levels on a
predetermined scale. These levels of interest are ordinarily set at
progressively higher increments over time. Some increasing rate securities may,
by agreement, revert to a fixed rate status. These securities may also contain
features which allow the issuer the option to convert the increasing rate of
interest to a fixed rate under such terms, conditions, and limitations as are
described in each issue's prospectus.

FIXED RATE CORPORATE OBLIGATIONS

The Fund may also invest in fixed rate securities, including fixed rate
securities with short-term characteristics. Fixed rate securities with
short-term characteristics are long-term debt obligations but are treated in the
market as having short maturities because call features of the securities may
make them callable within a short period of time. A fixed rate security with
short-term characteristics would include a fixed income security priced close to
call or redemption price or a fixed income security approaching maturity, where
the expectation of call or redemption is high.

Fixed rate securities tend to exhibit more price volatility during times of
rising or falling interest rates than securities with floating rates of
interest. This is because floating rate securities, as described above, behave
like short-term instruments in that the rate of interest they pay is subject to
periodic adjustments based on a designated interest rate index. Fixed rate
securities pay a fixed rate of interest and are more sensitive to fluctuating
interest rates. In periods of rising interest rates the value of a fixed rate
security is likely to fall. Fixed rate securities with short-term
characteristics are not subject to the same price volatility as fixed rate
securities without such characteristics. Therefore, they behave more like
floating rate securities with respect to price volatility.

VARIABLE RATE DEMAND NOTES

CREDIT FACILITIES

Demand notes are borrowing arrangements between a corporation and an
institutional lender (such as the Fund) payable upon demand by either party.
The notice period for demand typically ranges from one to seven days, and the
party may demand full or partial payment. Revolving credit facilities are
borrowing arrangements in which the lender agrees to make loans up to a
maximum amount upon demand by the borrower during a specified term. As the
borrower repays the loan, an amount equal to the repayment may be borrowed
again during the term of the facility. The Fund generally acquires a
participation interest in a revolving credit facility from a bank or other
financial institution. The terms of the participation require the Fund to
make a pro rata share of all loans extended to the borrower and entitles the
Fund to a pro rata share of all payments made by the borrower. Demand notes
and revolving facilities usually provide for floating or variable rates of
interest.

ASSET-BACKED SECURITIES

Asset-backed securities are created by the grouping of certain governmental,
government related and private loans, receivables and other lender assets into
pools. Interests in these pools are sold as individual securities. Payments from
the asset pools may be divided into several different tranches of debt
securities, with some tranches entitled to receive regular installments of
principal and interest, other tranches entitled to receive regular installments
of interest, with principal payable at maturity or upon specified call dates,
and other tranches only entitled to receive payments of principal and accrued
interest at maturity or upon specified call dates. Different tranches of
securities will bear different interest rates, which may be fixed or floating.

Because the loans held in the asset pool often may be prepaid without penalty or
premium, asset-backed securities are generally subject to higher prepayment
risks than most other types of debt instruments. Prepayment risks on mortgage
securities tend to increase during periods of declining mortgage interest rates,
because many borrowers refinance their mortgages to take advantage of the more
favorable rates. Payments on mortgage-backed securities are also affected by
other factors, such as the frequency with which people sell their homes or elect
to make unscheduled payments on their mortgages. All asset-backed securities are
subject to similar prepayment risks, although they may be more or less sensitive
to certain factors. Depending upon market conditions, the yield that the Fund
receives from the reinvestment of such prepayments, or any scheduled principal
payments, may be lower than the yield on the original mortgage security. As a
consequence, mortgage securities may be a less effective means of "locking in"
interest rates than other types of debt securities having the same stated
maturity and may also have less potential for capital appreciation. For certain
types of asset pools, such as collateralized mortgage obligations, prepayments
may be allocated to one tranche of securities ahead of other tranches, in order
to reduce the risk of prepayment for the other tranches.

Prepayments may result in a capital loss to the Fund to the extent that the
prepaid mortgage securities were purchased at a market premium over their stated
amount. Conversely, the prepayment of mortgage securities purchased at a market
discount from their stated principal amount will accelerate the recognition of
interest income by the Fund, which would be taxed as ordinary income when
distributed to the shareholders.

MORTGAGE-RELATED ASSET-BACKED SECURITIES

The Fund may also invest in various mortgage-related asset-backed securities.
These types of investments may include adjustable rate mortgage securities
("ARMS"), collateralized mortgage obligations ("CMOs"), real estate mortgage
investment conduits ("REMICs"), or other securities collateralized by or
representing an interest in real estate mortgages (collectively, "mortgage
securities"). Mortgage securities are: (i) issued or guaranteed by the U.S.
government or one of its agencies or instrumentalities, such as the
Government National Mortgage Association ("GNMA"), the Federal National
Mortgage Association ("FNMA") and the Federal Home Loan Mortgage Corporation
("FHLMC"); (ii) those issued by private issuers that represent an interest in
or are collateralized by mortgage-backed securities issued or guaranteed by
the U.S. government or one of its agencies or instrumentalities; (iii) those
issued by private issuers that represent an interest in or are collateralized
by whole loans or mortgage-backed securities without a government guarantee
but usually having some form of private credit enhancement; and (iv)
privately issued securities which are collateralized by pools of mortgages in
which each mortgage is guaranteed as to payment of principal and interest by
an agency or instrumentality of the U.S. government.

The privately issued mortgage-related securities provide for a periodic
payment consisting of both interest and principal. The interest portion of
these payments will be distributed by the Fund as income, and the capital
portion will be reinvested.

ADJUSTABLE RATE MORTGAGE SECURITIES

ARMS are pass-through mortgage securities representing interests in
adjustable rather than fixed interest rate mortgages. Typically, the ARMS in
which the Fund may invest are issued by GNMA, FNMA, and FHLMC and are
actively traded. ARMS may be collateralized by whole loans or private
pass-through securities. The underlying mortgages which collateralize ARMS
issued by GNMA are fully guaranteed by the Federal Housing Administration or
Veterans Administration, while those collateralizing ARMS issued by FHLMC or
FNMA are typically conventional residential mortgages conforming to strict
underwriting size and maturity constraints.

Unlike conventional bonds, ARMS pay back principal over the life of the ARMS
rather than at maturity. Thus, a holder of the ARMS, such as the Fund, would
receive monthly scheduled payments of principal and/or interest and may
receive unscheduled principal payments representing payments on the
underlying mortgages. At the time that a holder of the ARMS reinvests the
payments and any unscheduled prepayments of principal that it receives, the
holder may receive a rate of interest which is actually lower than the rate
of interest paid on the existing ARMS. As a consequence, ARMS may be a less
effective means of "locking in" long-term interest rates than other types of
fixed-income securities.

While ARMS generally entail less risk of a decline during periods of rapidly
rising rates, ARMS may also have less potential for capital appreciation than
other similar investments (e.g., investments with comparable maturities)
because, as interest rates decline, the likelihood increases that mortgages
will be prepaid. Furthermore, if ARMS are purchased at a premium, mortgage
foreclosures and unscheduled principal payments may result in some loss of a
holder's principal investment to the extent of the premium paid. Conversely,
if ARMS are purchased at a discount, both a scheduled payment of principal
and an unscheduled prepayment of principal would increase current and total
returns and would accelerate the recognition of income, which would be taxed
as ordinary income when distributed to shareholders.

COLLATERALIZED MORTGAGE OBLIGATIONS

CMOs are debt obligations collateralized by mortgage loans or mortgage
pass-through securities. Typically, CMOs are collateralized by GNMA, FNMA or
FHLMC Certificates, but may be collateralized by whole loans or private
pass-through securities.

The CMOs in which the Fund may invest may be: (a) collateralized by pools of
mortgages in which each mortgage is guaranteed as to payment of principal and
interest by an agency or instrumentality of the U.S. government; (b)
collateralized by pools of mortgages in which payment of principal and
interest is guaranteed by the issuer and such guarantee is collateralized by
U.S. government securities; or (c) collateralized by pools of mortgages
without a government guarantee as to payment of principal and interest, but
which have some form of credit enhancement.

REAL ESTATE MORTGAGE INVESTMENT CONDUITS

REMICs in which the Fund may invest are offerings of multiple class real
estate mortgage-backed securities which qualify and elect treatment as such
under provisions of the Internal Revenue Code, as amended. Issuers of REMICs
may take several forms, such as trusts, partnerships, corporations,
associations, or segregated pools of mortgages. Once REMIC status is elected
and obtained, the entity is not subject to federal income taxation. Instead,
income is passed through the entity and is taxed to the person or persons who
hold interests in the REMIC. A REMIC interest must consist of one or more
classes of "regular interests," some of which may offer adjustable rates of
interest, and a single class of "residual interests." To qualify as a REMIC,
substantially all the assets of the entity must be in assets directly or
indirectly secured principally by real property.

RESETS OF INTEREST

To the extent that the adjusted interest rate on the mortgage security
reflects current market rates, the market value of an adjustable rate
mortgage security will tend to be less sensitive to interest rate changes
than a fixed rate debt security of the same stated maturity. Hence, ARMS
which use indices that lag changes in market rates should experience greater
price volatility than ARMS that closely mirror the market. Certain residual
interest tranches of CMOs may have adjustable interest rates that deviate
significantly from prevailing market rates, even after the interest rate is
reset, and are subject to correspondingly increased price volatility. In the
event that the Fund purchases such residual interest mortgage securities, it
will factor in the increased interest and price volatility of such securities
when determining its dollar-weighted average portfolio maturity and duration.

CAPS AND FLOORS

The underlying mortgages which collateralize the ARMS, CMOs, and REMICs in
which the Fund may invest will frequently have caps and floors which limit
the maximum amount by which the loan rate to the residential borrower may
change up or down: (1) per reset or adjustment interval and (2) over the life
of the loan. Some residential mortgage loans restrict periodic adjustments by
limiting changes in the borrower's monthly principal and interest payments
rather than limiting interest rate changes. These payment caps may result in
negative amortization.

The value of mortgage securities in which the Fund may invest may be affected
if market interest rates rise or fall faster and farther than the allowable
caps or floors on the underlying residential mortgage loans. Additionally,
even though the interest rates on the underlying residential mortgages are
adjustable, amortization and prepayments may occur, thereby causing the
effective maturities of the mortgage securities in which the Fund invests to
be shorter than the maturities stated in the underlying mortgages.

NON-MORTGAGE RELATED ASSET-BACKED SECURITIES

The Fund may invest in non-mortgage related asset-backed securities,
including interests in pools of receivables, such as credit card and accounts
receivable and motor vehicle and other installment purchase obligations and
leases. These securities may be in the form of pass-through instruments or
asset-backed obligations. The securities are structured similarly to CMOs and
mortgage pass-through securities, which are described above. Also, these
securities may be issued either by non-governmental entities and carry no
direct or indirect governmental guarantees, or by governmental entities
(i.e., Small Business Administration) and carry varying degrees of
governmental support.

Non-mortgage related asset-backed securities have structural characteristics
similar to mortgage-related asset-backed securities but have underlying
assets that are not mortgage loans or interests in mortgage loans. The Fund
may invest in non-mortgage related asset-backed securities including, but not
limited to, interests in pools of receivables, such as motor vehicle
installment purchase obligations and credit card receivables. These
securities may be in the form of pass-through instruments or asset-backed
bonds. The securities are issued by non-governmental entities and carry no
direct or indirect government guarantee.

Mortgage-backed and asset-backed securities generally pay back principal and
interest over the life of the security. At the time the Fund reinvests the
payments and any unscheduled prepayments of principal received, the Fund may
receive a rate of interest which is actually lower than the rate of interest
paid on these securities ("prepayment risks"). Although non-mortgage related
asset-backed securities generally are less likely to experience substantial
prepayments than are mortgage-related asset-backed securities, certain of the
factors that affect the rate of prepayments on mortgage-related asset-backed
securities also affect the rate of prepayments on non-mortgage related
asset-backed securities.

Non-mortgage related asset-backed securities present certain risks that are
not presented by mortgage-related asset-backed securities. Primarily, these
securities do not have the benefit of the same security interest in the
related collateral. Credit card receivables are generally unsecured and the
debtors are entitled to the protection of a number of state and federal
consumer credit laws, many of which give such debtors the right to set off
certain amounts owed on the credit cards, thereby reducing the balance due.
Most issuers of asset-backed securities backed by motor vehicle installment
purchase obligations permit the servicer of such receivables to retain the
possession of the underlying obligations. If the servicer sells these
obligations to another party, there is a risk that the purchaser would
acquire an interest superior to that of the holders of the related
asset-backed securities. Further, if a vehicle is registered in one state and
is then reregistered because the owner and obligor moves to another state,
such registration could defeat the original security interest in the vehicle
in certain cases. In addition, because of the large number of vehicles
involved in a typical issuance and technical requirements under state laws,
the trustee for the holders of asset-backed securities backed by automobile
receivables may not have a proper security interest in all of the obligations
backing such receivables. Therefore, there is the possibility that recoveries
on repossessed collateral may not, in some cases, be available to support
payments on these securities.

BANK INSTRUMENTS

The Fund only invests in bank instruments either issued by an institution having
capital, surplus and undivided profits over $100 million or insured by BIF or
SAIF. Bank instruments may include Eurodollar Certificates of Deposit ("ECDs"),
Yankee Certificates of Deposit ("Yankee CDs"), and
Eurodollar Time Deposits ("ETDs").

FOREIGN SECURITIES

ECDs, ETDs, Yankee CDs, CCP, Eurobonds and Europaper are subject to somewhat
different risks than domestic obligations of domestic issuers. Examples of these
risks include international, economic and political developments, foreign
governmental restrictions that may adversely affect the payment of principal or
interest, foreign withholdings or other taxes on interest income, difficulties
in obtaining or enforcing a judgment against the issuing bank, and the possible
impact of interruptions of the flow of international currency transactions.
Different risks may also exist for ECDs, ETDs, and Yankee CDs because the banks
issuing these instruments, or their domestic or foreign branches, are not
necessarily subject to the same regulatory requirements that apply to domestic
banks, such as reserve requirements, loan requirements, loan limitations,
examinations, accounting, auditing, and record keeping and the public
availability of information. These factors will be carefully considered by the
Fund's adviser in selecting investments for the Fund.

INTEREST RATE SWAPS, CAPS AND FLOORS

The Fund may enter into interest rate swaps and may purchase or sell (i.e.,
write) interest rate caps and floors. Interest rate swaps involve the exchange
by the Fund with another party of their respective commitments to pay or receive
interest (e.g., an exchange of floating rate payments for fixed-rate payments)
on a notional principal amount. The principal amount of an interest rate swap is
notional in that it only provides the basis for determining the amount of
interest payments under the swap agreement, and does not represent an actual
loan. For example, a $10 million LIBOR swap would require one party to pay the
equivalent of the LIBOR on $10 million principal amount in exchange for the
right to receive the equivalent of a fixed rate of interest on $10 million
principal amount. Neither party to the swap would actually advance $10 million
to the other.

The swap market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and agents
utilizing standardized swap documentation. The Fund's investment adviser has
determined that, as a result, the swap market has become relatively liquid. Caps
and floors are more recent innovations for which standardized documentation has
not yet been developed and, accordingly, they are less liquid than swaps. To the
extent interest rate swaps, caps or floors are determined by the investment
adviser to be illiquid, they will be included in the Fund's limitation on
investments in illiquid securities. To the extent the Fund sells caps and
floors, it will maintain in a segregated account cash and/or U.S. government
securities having an aggregate NAV at least equal to the full amount, accrued on
a daily basis, of the Fund's obligations with respect to the caps or floors.

The use of interest rate swaps is a highly specialized activity which involves
investment techniques and risks different from those associated with ordinary
portfolio securities transactions. If the Fund's investment adviser is incorrect
in its forecasts of market values, interest rates and other applicable factors,
the investment performance of the Fund would diminish compared with what it
would have been if these investment techniques were not utilized. Moreover, even
if the Fund's investment adviser is correct in its forecasts, there is a risk
that the swap position may correlate imperfectly with the price of the portfolio
security being hedged.

CREDIT ENHANCEMENT

Certain of the Fund's acceptable investments may have been credit enhanced by a
guaranty, letter of credit or insurance. The Fund typically evaluates the credit
quality and ratings of credit enhanced securities based upon the financial
condition and ratings of the party providing the credit enhancement (the "credit
enhancer"), rather than the issuer. Generally, the Fund will not treat credit
enhanced securities as having been issued by the credit enhancer for
diversification purposes. However, under certain circumstances applicable
regulations may require the Fund to treat the securities as having been issued
by both the issuer and the credit enhancer. The bankruptcy, receivership or
default of the credit enhancer will adversely affect the quality and
marketability of the underlying security.

DEMAND FEATURES

The Fund may acquire securities that are subject to puts and standby commitments
("demand features") to purchase the securities at their principal amount
(usually with accrued interest) within a fixed period following a demand by the
Fund. The demand feature may be issued by the issuer of the underlying
securities, a dealer in the securities or by another third party, and may not be
transferred separately from the underlying security. The Fund uses these
arrangements to provide the Fund with liquidity and not to protect against
changes in the market value of the underlying securities. The bankruptcy,
receivership or default by the issuer of the demand feature, or a default on the
underlying security or other event that terminates the demand feature before its
exercise, will adversely affect the liquidity of the underlying security. Demand
features that are exercisable even after a payment default on the underlying
security are treated as a form of credit enhancement.

DERIVATIVE CONTRACTS AND SECURITIES

The term "derivative" has traditionally been applied to certain contracts
(including futures, forward, option and swap contracts) that "derive" their
value from changes in the value of an underlying security, currency, commodity
or index. Certain types of securities that incorporate the performance
characteristics of these contracts are also referred to as "derivatives." The
term has also been applied to securities "derived" from cash flows from
underlying securities, mortgages or other obligations.

Derivative contracts and securities can be used to reduce or increase the
volatility of an investment portfolio's total performance. While the response of
certain derivative contracts and securities to market changes may differ from
traditional investments, such as stocks and bonds, derivatives do not
necessarily present greater market risks than traditional investments. The Fund
will only use derivative contracts for the purposes disclosed in the applicable
prospectus sections above. To the extent that the Fund invests in securities
that could be characterized as derivatives, such as asset-backed securities and
mortgage-backed securities, including CMOs, it will only do so in a manner
consistent with its investment objectives, policies and limitations.

REPURCHASE AGREEMENTS

Certain of the securities in which the Fund invests may be purchased pursuant to
repurchase agreements. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell U.S. government
securities or other securities to the Fund and agree at the time of sale to
repurchase them at a mutually agreed upon time and price. The Fund or its
custodian will take possession of the securities subject to repurchase
agreements and these securities will be marked to market daily. RESTRICTED
AND ILLIQUID SECURITIES The Fund may invest in restricted securities.
Restricted securities are any securities in which the Fund may otherwise invest
pursuant to its investment objective and policies, but which are subject to
restriction on resale under federal securities law. The Fund will limit
investments in illiquid securities, including certain restricted securities not
determined by the Trustees to be liquid, non-negotiable time deposits, certain
interest rate swaps, caps and floors determined by the Fund's investment adviser
to be illiquid, and repurchase agreements providing for settlement in more than
seven days after notice, to 15% of the value of its net assets.

LENDING OF PORTFOLIO SECURITIES

In order to generate additional income, the Fund may lend portfolio securities
on a short-term or a long-term basis, or both, up to one-third of the value of
its total assets to broker/dealers, banks, or other institutional borrowers of
securities. The Fund will only enter into loan arrangements with broker/dealers,
banks, or other institutions which the investment adviser has determined are
creditworthy under guidelines established by the Trustees. In these loan
arrangements, the Fund will receive collateral in the form of cash or U.S.
government securities equal to at least 100% of the value of the securities
loaned.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments. INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

SPECIAL CONSIDERATIONS

Corporate issuers have introduced several variations in the way principal and
interest payments are made. Certain corporate obligations may enable the
corporate issuer to defer interest payments for a specified period of time.
These types of corporate debt securities may be affected to a greater extent by
changes in interest rates. Other corporate obligations have mandatory put and
call provisions, which generally shorten an obligation's effective maturity.
WEIGHTED AVERAGE PORTFOLIO DURATION

Duration is a commonly used measure of the potential volatility of the price of
a debt security, or the aggregate market value of a portfolio of debt
securities, prior to maturity. Duration measures the magnitude of the change in
the price of a debt security relative to a given change in the market rate of
interest. The duration of a debt security depends upon three primary variables:
the security's coupon rate, maturity date, and the level of market interest
rates for similar debt securities. Generally, debt securities with lower coupons
or longer maturities will have a longer duration than securities with higher
coupons or shorter maturities. For purposes of calculating its dollar-weighted
average portfolio duration, the Fund will treat variable and floating rate
instruments as having a remaining duration commensurate with the period
remaining until the next scheduled adjustment to the instrument's interest rate.

INVESTMENT LIMITATIONS

The Fund will not:

TRUST INFORMATION

MANAGEMENT OF THE TRUST

BOARD OF TRUSTEES

INVESTMENT ADVISER

ADVISORY FEES

The Fund's Adviser receives an annual investment advisory fee equal to 0.50%
of the Fund's average daily net assets. Under the investment advisory
contract, the Adviser may voluntarily reimburse some of the operating
expenses of the Fund. The Adviser can terminate this voluntary reimbursement
of expenses at any time in its sole discretion.

ADVISER'S BACKGROUND

Federated Management, a Delaware business trust organized on April 11, 1989,
is a registered investment adviser under the Investment Advisers Act of 1940.
It is a subsidiary of Federated Investors, Inc. All of the Class A (voting)
shares of Federated Investors, Inc. are owned by a trust, the trustees of
which are John F. Donahue, Chairman and Director of Federated Investors,
Inc., Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who
is President and Director of Federated Investors, Inc.

Federated Management and other subsidiaries of Federated Investors, Inc.
serve as investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services to
a number of investment companies. With over $120 billion invested across more
than 300 funds under management and/or administration by its subsidiaries, as
of December 31, 1997, Federated Investors, Inc. is one of the largest mutual
fund investment managers in the United States. With more than 2,000
employees, Federated continues to be led by the management who founded the
company in 1955. Federated funds are presently at work in and through
approximately 4,000 financial institutions nationwide.

Joseph M. Balestrino has been the Fund's portfolio manager since January
1994. Mr. Balestrino joined Federated Investors, Inc. or its predecessor in
1986 and has been a Vice President of the Fund's investment adviser since
1995. Mr. Balestrino served as an Assistant Vice President of the investment
adviser from 1991 to 1995. Mr. Balestrino is a Chartered Financial Analyst
and received his Master's Degree in Urban and Regional Planning from the
University of Pittsburgh.

John T. Gentry has been the Fund's portfolio manager since August 1997. Mr.
Gentry joined Federated Investors, Inc. or its predecessor in 1995 as an
Investment Analyst and has been an Assistant Vice President of the Fund's
adviser since April 1997. Mr. Gentry served as a Senior Treasury Analyst at
Sun Company, Inc. from 1991 to 1995. Mr. Gentry is a Chartered Financial
Analyst and earned his M.B.A., with concentrations in Finance and
Accounting, from Cornell University.

Susan M. Nason has been the Fund's portfolio manager since the Fund's
inception in December 1993. Ms. Nason joined Federated Investors, Inc. or
its precedessor in 1987 and has been a Senior Vice President of the Fund's
investment adviser since April 1997. Ms. Nason served as a Vice President of
the investment adviser from 1993 to 1997, and as an Assistant Vice President
from 1990 until 1992. Ms. Nason is a Chartered Financial Analyst and
received her M.S.I.A., concentrating in Finance from Carnegie Mellon
University.

DISTRIBUTION OF INSTITUTIONAL SHARES

ADMINISTRATION OF THE FUND

ADMINISTRATIVE SERVICES

MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS

0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million

SHAREHOLDER SERVICES

NET ASSET VALUE

The Fund's NAV per share fluctuates. The NAV for Shares is determined by adding
the interest of the Shares in the market value of all securities and other
assets of the Fund, subtracting the interest of the Shares in the liabilities of
the Fund and those attributable to Shares, and dividing the remainder by the
total number of Shares outstanding. The NAV for Institutional Shares may exceed
that of Institutional Service Shares due to the variance in daily net income
realized by each class. Such variance will reflect only accrued net income to
which the shareholders of a particular class are entitled. INVESTING IN
INSTITUTIONAL SHARES

SHARE PURCHASES

Shares are sold on days on which the New York Stock Exchange is open for
business. Shares may be purchased either by wire or by mail.

BY WIRE

To purchase Shares of the Fund by Federal Reserve wire, call the Fund before
4:00 p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern
time) on the next business day following the order. Federal funds should be
wired as follows: Federated Shareholder Services Company, c/o State Street Bank
and Trust Company, Boston, Massachusetts; Attention: EDGEWIRE; For Credit to:
Federated Intermediate Income Fund--Institutional Shares; Fund Number (this
number can be found on the account statement or by contacting the Fund); Group
Number or Order Number; Nominee or Institution Name; ABA Number 011000028.
Shares cannot be purchased by wire on holidays when wire transfers are
restricted. Questions on wire purchases should be directed to your shareholder
services representative at the telephone number listed on your account
statement.

BY MAIL

To purchase Shares of the Fund by mail, send a check made payable to Federated
Intermediate Income Fund--Institutional Shares to: Federated Shareholder
Services Company, c/o State Street Bank and Trust Company, P.O. Box 8600,
Boston, Massachusetts 02266-8600. Orders by mail are considered received after
payment by check is converted by the transfer agent's bank, State Street Bank
and Trust Company ("State Street Bank"), into federal funds. This is normally
the next business day after State Street Bank receives the check. MINIMUM
INVESTMENT REQUIRED

WHAT SHARES COST

Shares are sold at their NAV next determined after an order is received. There
is no sales charge imposed by the Fund. Investors who purchase Shares through a
financial intermediary may be charged a service fee by that financial
intermediary. The NAV is determined as of the close of trading (normally
4:00 p.m. Eastern time) on the New York Stock Exchange, Monday through Friday,
except on: (i) days on which there are not sufficient changes in the value of
the Fund's portfolio securities that its NAV might be materially affected; (ii)
days during which no Shares are tendered for redemption and no orders to
purchase Shares are received; and (iii) the following holidays: New Year's Day,
Martin Luther King Jr., Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.

EXCHANGE PRIVILEGE

Shares in certain Federated funds which are advised by subsidiaries or
affiliates of Federated Investors, Inc. may be exchanged for Shares of the Fund
at NAV (plus a sales charge, if applicable). The exchange is subject to any
initial or subsequent investment amounts of the fund being acquired. Prior to
any exchange, the shareholder must receive a copy of the current prospectus of
the fund or class thereof into which an exchange is to be effected. A
shareholder may obtain further information on the exchange privilege by calling
Federated Securities Corp. or the shareholder's financial institution.

ACCOUNT ACTIVITY

Shareholders will receive periodic statements reporting all account activity,
including dividends paid. The Fund will not issue share certificates.

DIVIDENDS

Dividends are declared daily and paid monthly. Dividends are declared just prior
to determining NAV. If an order for Shares is placed on the preceding business
day, Shares purchased by wire begin earning dividends on the business day wire
payment is received by State Street Bank. If the order for Shares and payment by
wire are received on the same day, Shares begin earning dividends on the next
business day. Shares purchased by check begin earning dividends on the business
day after the check is converted upon instruction of the transfer agent into
federal funds. Dividends are automatically reinvested on payment dates in
additional Shares of the Fund unless cash payments are requested by contacting
the Fund.

CAPITAL GAINS

Capital gains realized by the Fund, if any, will be distributed at least once
every 12 months.

REDEEMING INSTITUTIONAL SHARES

TELEPHONE REDEMPTION

REDEEMING SHARES BY MAIL

The written request should state: the Fund name and the Share class designation
the account name as registered with the Fund; the account number; and the number
of Shares to be redeemed or the dollar amount requested. All owners of the
account must sign the request exactly as the Shares are registered. Normally, a
check for the proceeds is mailed within one business day, but in no event more
than seven days, after the receipt of a proper written redemption request.
Dividends are paid up to and including the day that a redemption request is
processed.

Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a commercial
or savings bank, trust company or savings association whose deposits are insured
by an organization which is administered by the FDIC; a member firm of a
domestic stock exchange; or any other "eligible guarantor institution," as
defined in the Securities Exchange Act of 1934. The Fund does not accept
signatures guaranteed by a notary public.

ACCOUNTS WITH LOW BALANCES

Before Shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional Shares to meet the minimum
requirement.

SHAREHOLDER INFORMATION

VOTING RIGHTS

Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of shareholders shall be called by the Trustees upon the
written request of shareholders owning at least 10% of the Trust's outstanding
shares of all portfolios entitled to vote.

TAX INFORMATION

FEDERAL INCOME TAX

There are tax uncertainties with respect to whether increasing rate securities
will be treated as having an original issue discount. If it is determined that
the increasing rate securities have original issue discount, a holder will be
required to include as income in each taxable year, in addition to interest paid
on the security for that year, an amount equal to the sum of the daily portions
of original issue discount for each day during the taxable year that such holder
holds the security. There may also be tax uncertainties with respect to whether
an extension of maturity on an increasing rate note will be treated as a taxable
exchange. In the event it is determined that an extension of maturity is a
taxable exchange, a holder will recognize a taxable gain or loss, which will be
a short-term capital gain or loss if he holds the security as a capital asset,
to the extent that the value of the security with an extended maturity differs
from the adjusted basis of the security deemed exchanged therefor.

STATE AND LOCAL TAXES

Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local laws.

PERFORMANCE INFORMATION

From time to time, the Fund advertises its total return and yield for Shares.

Total return and yield will be calculated separately for Shares and
Institutional Service Shares.

From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.

OTHER CLASSES OF SHARES

The Fund also offers another class of shares called Institutional Service
Shares.

Shares and Institutional Service Shares are subject to certain of the same
expenses. Expense differences, however, between Shares and Institutional Service
Shares may affect the performance of each class.

To obtain more information and a prospectus for Institutional Service Shares,
investors may call 1-800-341-7400 or contact their financial institution.

FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
1998 1997 1996 1995 1994(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.79 $ 9.76 $ 9.55 $ 9.53 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.61 0.61 0.63 0.64 0.22
Net realized and unrealized gain (loss) on investments 0.38 0.04 0.21 0.02 (0.47)
Total from investment operations 0.99 0.65 0.84 0.66 (0.25)
LESS DISTRIBUTIONS
Distributions from net investment income (0.61) (0.61) (0.63) (0.64) (0.22)
Distributions from net realized gain on investments -- (0.01) -- -- --
Total distributions (0.61) (0.62) (0.63) (0.64) (0.22)
NET ASSET VALUE, END OF PERIOD $10.17 $ 9.79 $ 9.76 $ 9.55 $ 9.53
TOTAL RETURN(B) 10.31% 6.73% 8.86% 7.27% (2.57%)
RATIOS TO AVERAGE NET ASSETS
Expenses 0.80% 0.80% 0.80% 0.72% 0.25%*
Net investment income 6.03% 6.21% 6.31% 6.85% 6.12%*
Expense waiver/reimbursement(c) 0.47% 0.57% 0.85% 1.22% 1.40%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $4,522 $790 $508 $276 $225
Portfolio turnover 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.

FURTHER INFORMATION ABOUT THE FUND'S PERFORMANCE IS CONTAINED IN THE FUND'S
ANNUAL REPORT DATED APRIL 30, 1998, WHICH CAN BE OBTAINED FREE OF CHARGE.

[Graphic]
Federated Investors

Federated Intermediate Income Fund
(A Portfolio of Federated Income Securities Trust)
Institutional Shares

PROSPECTUS
JUNE 30, 1998

A Diversified Portfolio of Federated Income Securities Trust, an Open-End,
Management Investment Company

FEDERATED INTERMEDIATE
INCOME FUND
INSTITUTIONAL SHARES

Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000

DISTRIBUTOR

Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

INVESTMENT ADVISER

Federated Management
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

CUSTODIAN
State Street Bank and
Trust Company
P.O. Box 8600
Boston, MA 02266-8600

TRANSFER AGENT
AND DIVIDEND
DISBURSING AGENT
Federated Shareholder
Services Company
P.O. Box 8600
Boston, MA 02266-8600

INDEPENDENT AUDITORS
Ernst & Young LLP
One Oxford Centre
Pittsburgh, PA 15219

Federated Securities Corp., Distributor
1-800-341-7400
www.federatedinvestors.com

[Graphic]

Cusip 31420C407
3090804A-IS (6/98)

[Graphic]

Federated Intermediate Income Fund

(A Portfolio of Federated Income Securities Trust)

Institutional Service Shares

PROSPECTUS

The Institutional Service Shares of Federated Intermediate Income Fund (the
"Fund") offered by this prospectus represent interests in a diversified
portfolio of securities which is an investment portfolio in Federated Income
Securities Trust (the "Trust"), an open-end, management investment company (a
mutual fund).

The investment objective of the Fund is to provide current income.

This prospectus contains the information you should read and know before you
invest in Institutional Service Shares of the Fund. Keep this prospectus for
future reference. The Fund has also filed a Statement of Additional
Information for Institutional Shares and Institutional Service Shares dated June
30, 1998, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have received
it electronically, free of charge by calling 1-800-341-7400. To obtain other
information or to make inquiries about the Fund, contact the Fund at the address
listed in the back of this prospectus. The Statement of Additional Information,
material incorporated by reference into this document, and other information
regarding the Fund is maintained electronically with the SEC at Internet Web
site (http://www.sec.gov). THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated June
30, 1998 TABLE OF CONTENTS

Summary of Fund Expenses 1
Financial Highlights--Institutional Service Shares 2
General Information 3
Year 2000 Statement 3
Investment Information 3
Investment Objective 3
Investment Policies 3
Special Considerations 11
Weighted Average Portfolio Duration 12
Investment Limitations 12
Trust Information 12
Management of the Trust 12
Distribution of Institutional Service Shares 13
Administration of the Fund 14
Administrative Services 14
Net Asset Value 14
Investing in Institutional Service Shares 14
Share Purchases 14
Minimum Investment Required 14
What Shares Cost 15
Exchange Privilege 15
Account Activity 15
Dividends 15
Capital Gains 15
Redeeming Institutional Service Shares 15
Telephone Redemption 15
Redeeming Shares by Mail 15
Accounts with Low Balances 16
Shareholder Information 16
Voting Rights 16
Tax Information 16
Federal Income Tax 16
State and Local Taxes 17
Performance Information 17
Other Classes of Shares 17
Financial Highlights--Institutional Shares 18

SUMMARY OF FUND EXPENSES

INSTITUTIONAL SERVICE SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering
price) None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage
of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, if applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
</TABLE>

ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)

<TABLE>
<S> <C> <C>
Management Fee (after waiver)(1) 0.28%
12b-1 Fee (after waiver)(2) 0.16%
Total Other Expenses 0.36%
Shareholder Services Fee (after waiver)(3) 0.09%
Total Operating Expenses(4) 0.80%
</TABLE>

(4) The total operating expenses would have been 1.27% absent the voluntary
waivers of portions of the management fee, 12b-1 fee, and shareholder services
fee.

The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of Institutional Service Shares of the
Trust will bear, either directly or indirectly. For more complete descriptions
of the various costs and expenses, see "Trust Information" and "Investing in
Institutional Service Shares." Wire-transferred redemptions of less than $5,000
may be subject to additional fees.

LONG-TERM SHAREHOLDERS MAY PAY MORE THAN THE ECONOMIC EQUIVALENT OF THE
MAXIMUM FRONT-END SALES CHARGES PERMITTED UNDER THE RULES OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC.

EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period.
<TABLE>
<S> <C>
1 Year $ 8
3 Years $26
5 Years $44
10 Years $99
</TABLE>

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

(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.

FURTHER INFORMATION ABOUT THE FUND'S PERFORMANCE IS CONTAINED IN THE FUND'S
ANNUAL REPORT DATED APRIL 30, 1998, WHICH CAN BE OBTAINED FREE OF CHARGE.

GENERAL INFORMATION

The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated January 24, 1986. The Trust may offer separate series of shares
of beneficial interest representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
As of the date of this prospectus, the Board of Trustees ("Trustees") has
established two classes of shares of Federated Intermediate Income Fund:
Institutional Service Shares and Institutional Shares. This prospectus relates
only to Institutional Service Shares of the Fund.

Institutional Service Shares ("Shares") are designed primarily for retail and
private banking customers of financial institutions as a convenient means of
accumulating an interest in a professionally managed, diversified portfolio of
U.S. government, corporate and asset-backed securities. A minimum initial
investment of $25,000 over a 90-day period is required.

Shares are currently sold and redeemed at net asset value ("NAV") without a
sales charge imposed by the Fund.

YEAR 2000 STATEMENT

Like other mutual funds and business organizations worldwide, the Fund's service
provider's (among them, the adviser, distributor, administrator and transfer
agent) must ensure that their computer systems are adjusted to properly process
and calculate date-related information from and after January 1, 2000. Many
software programs and, to a lesser extent, the computer hardware in use today
cannot distinguish the year 2000 from the year 1900. Such a design flaw could
have a negative impact in the handling of securities trades, pricing and
accounting services. The Fund and its service providers are actively working on
necessary changes to computer systems to deal with the year 2000 issue and
believe that systems will be year 2000 compliant when required. Analysis
continues regarding the financial impact of instituting a year 2000 compliant
program on the Fund's operations. INVESTMENT INFORMATION

INVESTMENT OBJECTIVE

INVESTMENT POLICIES

ACCEPTABLE INVESTMENTS

The securities in which the Fund invests include:

* obligations issued or guaranteed as to payment of principal and
interest by the U.S. government, its agencies and instrumentalities
including bills, notes, bonds, and discount notes of the U.S. Treasury
and of U.S. government agencies or instrumentalities;
* domestic and foreign issues of corporate and soverign obligations
(including Eurobonds, Medium Term Notes and Deposit Notes) having
floating or fixed rates of interest;
* asset-backed securities, including mortgage-related securities; *
commercial paper (including Europaper and Canadian Commercial Paper
("CCP"));
* municipal securities;
* foreign currency transactions (including spot, futures, options and
swaps);
* convertible securities;
* preferred securities (such as trust preferred capital securities and
step up perpetual subordinated securities);
* surplus notes (or surplus debentures or certificates of contribution); *
time and savings deposits and deposit notes and bankers acceptances
(including certificates of deposit) in commercial or savings banks whose
accounts are insured by the Bank Insurance Fund ("BIF") or the Savings
Association Insurance Fund ("SAIF"), both of which are administered by the
Federal Deposit Insurance Corporation ("FDIC"), including certificates of
deposit issued by and other time deposits in foreign branches of FDIC
insured banks or who have at least $100,000,000 in capital; and
* repurchase agreements collateralized by eligible investments.

U.S. GOVERNMENT OBLIGATIONS

CORPORATE OBLIGATIONS

FLOATING RATE CORPORATE OBLIGATIONS

FIXED RATE CORPORATE OBLIGATIONS

VARIABLE RATE DEMAND NOTES

Variable rate demand notes are long-term corporate debt instruments that have
variable or floating interest rates and provide the Fund with the right to
tender the security for repurchase at its stated principal amount plus
accrued interest. Such securities typically bear interest at a rate that is
intended to cause the securities to trade at par. The interest rate may float
or be adjusted at regular intervals (ranging from daily to annually), and is
normally based on a published interest rate or interest rate index. Many
variable rate demand notes allow the Fund to demand the repurchase of the
security on not more than seven days' prior notice. Other notes only permit
the Fund to tender the security at the time of each interest rate adjustment
or at other fixed intervals. See "Demand Features." CREDIT FACILITIES
Demand notes are borrowing arrangements between a corporation and an
institutional lender (such as the Fund) payable upon demand by either party.
The notice period for demand typically ranges from one to seven days, and the
party may demand full or partial payment. Revolving credit facilities are
borrowing arrangements in which the lender agrees to make loans up to a
maximum amount upon demand by the borrower during a specified term. As the
borrower repays the loan, an amount equal to the repayment may be borrowed
again during the term of the facility. The Fund generally acquires a
participation interest in a revolving credit facility from a bank or other
financial institution. The terms of the participation require the Fund to
make a pro rata share of all loans extended to the borrower and entitles the
Fund to a pro rata share of all payments made by the borrower. Demand notes
and revolving facilities usually provide for floating or variable rates of
interest.

ASSET-BACKED SECURITIES

Asset-backed securities are created by the grouping of certain governmental,
government-related and private loans, receivables and other lender assets into
pools. Interests in these pools are sold as individual securities. Payments from
the asset pools may be divided into several different tranches of debt
securities, with some tranches entitled to receive regular installments of
principal and interest, other tranches entitled to receive regular installments
of interest, with principal payable at maturity or upon specified call dates,
and other tranches only entitled to receive payments of principal and accrued
interest at maturity or upon specified call dates. Different tranches of
securities will bear different interest rates, which may be fixed or floating.

Because the loans held in the asset pool often may be prepaid without penalty or
premium, asset-backed securities are generally subject to higher prepayment
risks than most other types of debt instruments. Prepayment risks on mortgage
securities tend to increase during periods of declining mortgage interest rates,
because many borrowers refinance their mortgages to take advantage of the more
favorable rates. Prepayments on mortgage-backed securities are also affected by
other factors, such as the frequency with which people sell their homes or elect
to make unscheduled payments on their mortgages. All asset-backed securities are
subject to similar prepayment risks, although they may be more or less sensitive
to certain factors. Depending upon market conditions, the yield that the Fund
receives from the reinvestment of such prepayments, or any scheduled principal
payments, may be lower than the yield on the original asset-backed security. As
a consequence, mortgage securities may be a less effective means of "locking in"
interest rates than other types of debt securities having the same stated
maturity and may also have less potential for capital appreciation. For certain
types of asset pools, such as collateralized mortgage obligations, prepayments
may be allocated to one tranche of securities ahead of other tranches, in order
to reduce the risk of prepayment for the other tranches.

Prepayments may result in a capital loss to the Fund to the extent that the
prepaid asset-backed securities were purchased at a market premium over their
stated amount. Conversely, the prepayment of asset-backed securities purchased
at a market discount from their stated principal amount will accelerate the
recognition of interest income by the Fund, which would be taxed as ordinary
income when distributed to the shareholders.

The Fund may also invest in various mortgage-related asset-backed securities.
These types of investments may include adjustable rate mortgage securities
("ARMS"), collateralized mortgage obligations ("CMOs"), real estate mortgage
investment conduits ("REMICs"), or other securities collateralized by or
representing an interest in real estate mortgages (collectively, "mortgage
securities"). Mortgage securities are: (i) issued or guaranteed by the U.S.
government or one of its agencies or instrumentalities, such as the
Government National Mortgage Association ("GNMA"), the Federal National
Mortgage Association ("FNMA") and the Federal Home Loan Mortgage Corporation
("FHLMC"); (ii) those issued by private issuers that represent an interest in
or are collateralized by mortgage-backed securities issued or guaranteed by
the U.S. government or one of its agencies or instrumentalities; (iii) those
issued by private issuers that represent an interest in or are collateralized
by whole loans or mortgage-backed securities without a government guarantee
but usually having some form of private credit enhancement; and (iv)
privately issued securities which are collateralized by pools of mortgages in
which each mortgage is guaranteed as to payment of principal and interest by
an agency of instrumentality of the U.S. government.

The privately issued mortgage-related securities provide for a periodic
payment consisting of both interest and principal. The interest portion of
these payments will be distributed by the Fund as income, and the capital
portion will be reinvested.

ADJUSTABLE RATE MORTGAGE SECURITIES

Unlike conventional bonds, ARMS pay back principal over the life of the ARMS
rather than at maturity. Thus, a holder of the ARMS, such as the Fund, would
receive monthly scheduled payments of principal and/or interest and may
receive unscheduled principal payments representing payments on the
underlying mortgages. At the time that a holder of the ARMS reinvests the
payments and any unscheduled prepayments of principal that it receives, the
holder may receive a rate of interest which is actually lower than the rate
of interest paid on the existing ARMS. As a consequence, ARMS may be a less
effective means of "locking in" long-term interest rates than other types of
fixed-income securities.

Like other fixed-income securities, the market value of ARMS will generally
vary inversely with changes in market interest rates. Thus, the market value
of ARMS generally declines when interest rates rise and generally rises when
interest rates decline.

While ARMS generally entail less risk of a decline during periods of rapidly
rising rates, ARMS may also have less potential for capital appreciation than
other similar investments (e.g., investments with comparable maturities)
because, as interest rates decline, the likelihood increases that mortgages
will be prepaid. Furthermore, if ARMS are purchased at a premium, mortgage
foreclosures and unscheduled principal payments may result in some loss of a
holder's principal investment to the extent of the premium paid. Conversely,
if ARMS are purchased at a discount, both a scheduled payment of principal
and an unscheduled prepayment of principal would increase current and total
returns and would accelerate the recognition of income, which would be taxed
as ordinary income when distributed to shareholders.

COLLATERALIZED MORTGAGE OBLIGATIONS

The CMOs in which the Fund may invest may be: (a) collateralized by pools of
mortgages in which each mortgage is guaranteed as to payment of principal and
interest by an agency or instrumentality of the U.S. government; (b)
collateralized by pools of mortgages in which payment of principal and
interest is guaranteed by the issuer and such guarantee is collateralized by
U.S. government securities; or (c) collateralized by pools of mortgages
without a government guarantee as to payment of principal and interest, but
which have some form of credit enhancement.

REAL ESTATE MORTGAGE INVESTMENT CONDUITS

REMICs in which the Fund may invest are offerings of multiple class real
estate mortgage-backed securities which qualify and elect treatment as such
under provisions of the Internal Revenue Code, as amended. Issuers of REMICs
may take several forms, such as trusts, partnerships, corporations,
associations, or segregated pools of mortgages. Once REMIC status is elected
and obtained, the entity is not subject to federal income taxation. Instead,
income is passed through the entity and is taxed to the person or persons who
hold interests in the REMIC. A REMIC interest must consist of one or more
classes of "regular interests," some of which may offer adjustable rates of
interest, and a single class of "residual interests." To qualify as a REMIC,
substantially all the assets of the entity must be in assets directly or
indirectly secured principally by real property.

RESETS OF INTEREST

To the extent that the adjusted interest rate on the mortgage security
reflects current market rates, the market value of an adjustable rate
mortgage security will tend to be less sensitive to interest rate changes
than a fixed rate debt security of the same stated maturity. Hence, ARMS
which use indices that lag changes in market rates should experience greater
price volatility than ARMS that closely mirror the market. Certain residual
interest tranches of CMOs may have adjustable interest rates that deviate
significantly from prevailing market rates, even after the interest rate is
reset, and are subject to correspondingly increased price volatility. In the
event that the Fund purchases such residual interest mortgage securities, it
will factor in the increased interest and price volatility of such securities
when determining its dollar-weighted average portfolio maturity and duration.

CAPS AND FLOORS

The underlying mortgages which collateralize the ARMS, CMOs, and REMICs in
which the Fund may invest will frequently have caps and floors which limit
the maximum amount by which the loan rate to the residential borrower may
change up or down: (1) per reset or adjustment interval and (2) over the life
of the loan. Some residential mortgage loans restrict periodic adjustments by
limiting changes in the borrower's monthly principal and interest payments
rather than limiting interest rate changes. These payment caps may result in
negative amortization.

The value of mortgage securities in which the Fund invests may be affected if
market interest rates rise or fall faster and farther than the allowable caps
or floors on the underlying residential mortgage loans. Additionally, even
though the interest rates on the underlying residential mortgages are
adjustable, amortization and prepayments may occur, thereby causing the
effective maturities of the mortgage securities in which the Fund invests to
be shorter than the maturities stated in the underlying mortgages.

NON-MORTGAGE RELATED ASSET-BACKED SECURITIES

Mortgage-backed and asset-backed securities generally pay back principal and
interest over the life of the security. At the time the Fund reinvests the
payments and any unscheduled prepayments of principal received, the Fund may
receive a rate of interest which is actually lower than the rate of interest
paid on these securities ("prepayment risks"). Although non-mortgage related
asset-backed securities generally are less likely to experience substantial
prepayments than are mortgage-related asset-backed securities, certain of the
factors that affect the rate of prepayments on mortgage-related asset-backed
securities also affect the rate of prepayments on non-mortgage related
asset-backed securities.

BANK INSTRUMENTS

FOREIGN SECURITIES

INTEREST RATE SWAPS, CAPS AND FLOORS

The Fund may enter into interest rate swaps and may purchase or sell (i.e.,
write) interest rate caps and floors. Interest rate swaps involve the exchange
by the Fund with another party of their respective commitments to pay or receive
interest (e.g., an exchange of floating rate payments for fixed-rate payments)
on a notional principal amount. The principal amount of an interest rate swap is
notional in that it only provides the basis for determining the amount of
interest payments under the swap agreement, and does not represent an actual
loan. For example, a $10 million LIBOR swap would require one party to pay the
equivalent of the LIBOR on $10 million principal amount in exchange for the
right to receive the equivalent of a fixed rate of interest on $10 million
principal amount. Neither party to the swap would actually advance $10 million
to the other.

The swap market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and agents
utilizing standardized swap documentation. The Fund's investment adviser has
determined that, as a result, the swap market has become relatively liquid. Caps
and floors are more recent innovations for which standardized documentation has
not yet been developed and, accordingly, they are less liquid than swaps. To the
extent interest rate swaps, caps or floors are determined by the investment
adviser to be illiquid, they will be included in the Fund's limitation on
investments in illiquid securities. To the extent the Fund sells caps and
floors, it will maintain in a segregated account cash and/or U.S. government
securities having an aggregate NAV at least equal to the full amount, accrued on
a daily basis, of the Fund's obligations with respect to the caps or floors.

The use of interest rate swaps is a highly specialized activity which involves
investment techniques and risks different from those associated with ordinary
portfolio securities transactions. If the Fund's investment adviser is incorrect
in its forecasts of market values, interest rates and other applicable factors,
the investment performance of the Fund would diminish compared with what it
would have been if these investment techniques were not utilized. Moreover, even
if the Fund's investment adviser is correct in its forecasts, there is a risk
that the swap position may correlate imperfectly with the price of the portfolio
security being hedged.

CREDIT ENHANCEMENT

DEMAND FEATURES

The Fund may acquire securities that are subject to puts and standby commitments
("demand features") to purchase the securities at their principal amount
(usually with accrued interest) within a fixed period following a demand by the
Fund. The demand feature may be issued by the issuer of the underlying
securities, a dealer in the securities or by another third party, and may not be
transferred separately from the underlying security. The Fund uses these
arrangements to provide the Fund with liquidity and not to protect against
changes in the market value of the underlying securities. The bankruptcy,
receivership or default by the issuer of the demand feature, or a default on the
underlying security or other event that terminates the demand feature before its
exercise, will adversely affect the liquidity of the underlying security. Demand
features that are exercisable even after a payment default on the underlying
security are treated as a form of credit enhancement.

DERIVATIVE CONTRACTS AND SECURITIES

The term "derivative" has traditionally been applied to certain contracts
(including futures, forward, option and swap contracts) that "derive" their
value from changes in the value of an underlying security, currency, commodity
or index. Certain types of securities that incorporate the performance
characteristics of these contracts are also referred to as "derivatives." The
term has also been applied to securities "derived" from the cash flows from
underlying securities, mortgages or other obligations.

REPURCHASE AGREEMENTS

Certain of the securities in which the Fund invests may be purchased pursuant to
repurchase agreements. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell U.S. government
securities or other securities to the Fund and agree at the time of sale to
repurchase them at a mutually agreed upon time and price. The Fund or its
custodian will take possession of the securities subject to repurchase
agreements and these securities will be marked to market daily. To the extent
that the original seller does not repurchase the securities from the Fund, the
Fund could receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be delayed
pending court action. The Fund believes that under the regular procedures
normally in effect for custody of the Fund's portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor of
the Fund and allow retention or disposition of such securities. 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 guidelines established by the Trustees.

RESTRICTED AND ILLIQUID SECURITIES

The Fund may invest in restricted securities. Restricted securities are any
securities in which the Fund may otherwise invest pursuant to its investment
objective and policies, but which are subject to restriction on resale under
federal securities law. The Fund will limit investments in illiquid securities,
including certain restricted securities not determined by the Trustees to be
liquid, non-negotiable time deposits, certain interest rate swaps, caps and
floors determined by the Fund's investment adviser to be illiquid, and
repurchase agreements providing for settlement in more than seven days after
notice, to 15% of the value of its net assets.

LENDING OF PORTFOLIO SECURITIES

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments. INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

SPECIAL CONSIDERATIONS

Duration is a commonly used measure of the potential volatility of the price of
a debt security, or the aggregate market value of a portfolio of debt
securities, prior to maturity. Duration measures the magnitude of the change in
the price of a debt security relative to a given change in the market rate of
interest. The duration of a debt security depends upon three primary variables:
the security's coupon rate, maturity date, and the level of market interest
rates for similar debt securities. Generally, debt securities with lower coupons
or longer maturities will have a longer duration than securities with higher
coupons or shorter maturities. For purposes of calculating its dollar-weighted
average portfolio duration, the Fund will treat variable and floating rate
instruments as having a remaining duration commensurate with the period
remaining until the next scheduled adjustment to the instrument's interest rate.

INVESTMENT LIMITATIONS

The Fund will not:

The above investment limitations cannot be changed without shareholder approval.
The following limitation, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in this limitation becomes effective.

The Fund will not:

TRUST INFORMATION

MANAGEMENT OF THE TRUST

BOARD OF TRUSTEES

INVESTMENT ADVISER

ADVISORY FEES

ADVISER'S BACKGROUND

Federated Management, a Delaware business trust organized on April 11, 1989,
is a registered investment adviser under the Investment Advisers Act of 1940.
It is a subsidiary of Federated Investors, Inc. All of the Class A (voting)
shares of Federated Investors, Inc. are owned by a trust, the trustees of
which are John F. Donahue, Chairman and Director of Federated Investors,
Inc., Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who
is President and Director of Federated Investors, Inc.

Federated Management and other subsidiaries of Federated Investors, Inc.
serve as investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services to
a number of investment companies. With over $120 billion invested across more
than 300 funds under management and/or administration by its subsidiaries, as
of December 31, 1997, Federated Investors, Inc. is one of the largest mutual
fund investment managers in the United States. With more than 2,000
employees, Federated continues to be led by the management who founded the
company in 1955. Federated funds are presently at work in and through
approximately 4,000 financial institutions nationwide.

Susan M. Nason has been the Fund's portfolio manager since the Fund's
inception in December 1993. Ms. Nason joined Federated Investors, Inc. or
its predecessor in 1987 and has been a Senior Vice President of the Fund's
investment adviser since April, 1997. Ms. Nason served as a Vice President
of the investment adviser from 1993 to 1997, and as an Assistant Vice
President from 1990 until 1992. Ms. Nason is a Chartered Financial Analyst
and received her M.S.I.A., concentrating in Finance from Carnegie Mellon
University.

DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES

DISTRIBUTION PLAN AND SHAREHOLDER SERVICES

Under a distribution plan adopted in accordance with Rule 12b-1 under the
Investment Company Act of 1940, (the "Plan"), the distributor may be paid a fee
by the Fund in an amount, computed at an annual rate of 0.25% of the average
daily NAV of Shares. The distributor may select financial institutions such as
banks, fiduciaries, custodians for public funds, investment advisers, and
broker/dealers to provide sales services or distribution-related support
services as agents for their clients or customers.

The Plan is a compensation-type plan. As such, the Fund makes no payments to the
distributor expect as described above. Therefore, the Fund does not pay for
unreimbursed expenses of the distributor, including amounts expended by the
distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amount or may earn a profit from future payments made by the Fund
under the Plan. In addition, the Trust has entered into a Shareholder
Services Agreement with Federated Shareholder Services, a subsidiary of
Federated Investors, Inc., under which the Trust may make payments up to 0.25%
of the average daily NAV of Shares, computed at an annual rate, to obtain
certain personal services for shareholders and to maintain shareholder accounts.
From time to time and for such periods as deemed appropriate, the amount stated
above may be reduced voluntarily. Under the Shareholder Services Agreement
Federated Shareholder Services will either perform shareholder services directly
or will select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon Shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Trust and Federated Shareholder
Services. SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS

In addition to payments made pursuant to the Shareholder Services Agreement,
Federated Securities Corp. and Federated Shareholder Services, from their own
assets, may pay financial institutions supplemental fees for the performance of
substantial sales services, distribution-related support services, or
shareholder services. The support may include sponsoring sales, educational and
training seminars for their employees, providing sales literature and
engineering computer software programs that emphasize the attributes of the
Fund. Such assistance will be predicated upon the amount of Shares the financial
institution sells or may sell, and/or upon the type and nature of sales or
marketing support furnished by the financial institution. Any payments made by
the distributor may be reimbursed by the Fund's Adviser or its affiliates.

ADMINISTRATION OF THE FUND

ADMINISTRATIVE SERVICES

MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS

0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million

NET ASSET VALUE

SHARE PURCHASES

Shares are sold on days on which the New York Stock Exchange is open for
business. Shares may be purchased either by wire or by mail.

BY WIRE

To purchase Shares of the Fund by Federal Reserve wire, call the Fund before
4:00 p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern
time) on the next business day following the order. Federal funds should be
wired as follows: Federated Shareholder Services Company, c/o State Street Bank
and Trust Company, Boston, Massachusetts; Attention: EDGEWIRE; For Credit to:
Federated Intermediate Income Fund--Institutional Service Shares; Fund Number
(this number can be found on the account statement or by contacting the Fund);
Group Number or Order Number; Nominee or Institution Name; ABA Number 011000028.
Shares cannot be purchased by wire on holidays when wire transfers are
restricted. Questions on wire purchases should be directed to your shareholder
services representative at the telephone number listed on your account
statement.

BY MAIL

To purchase Shares of the Fund by mail, send a check made payable to Federated
Intermediate Income Fund--Institutional Service Shares to: Federated Shareholder
Services Company, P.O. Box 8600, Boston, Massachusetts 02266-8600. Orders by
mail are considered received after payment by check is converted by the transfer
agent's bank, State Street Bank and Trust Company ("State Street Bank"), into
federal funds. This is normally the next business day after State Street Bank
receives the check.

MINIMUM INVESTMENT REQUIRED

The minimum initial investment in Shares is $25,000 plus any financial
intermediary's fee. However, an account may be opened with a smaller amount as
long as the $25,000 minimum is reached within 90 days. An institutional
investor's minimum investment will be calculated by combining all accounts it
maintains with the Fund. Accounts established through a financial intermediary
may be subject to a smaller minimum investment.

WHAT SHARES COST

EXCHANGE PRIVILEGE

Shares in certain Federated funds which are advised by subsidiaries or
affiliates of Federated Investors, Inc. may be exchanged for Shares of the Fund
at NAV (plus a sales charge, if applicable). The exchange is subject to any
minimum initial or subsequent investment amounts of the fund being acquired.
Prior to any exchange, the shareholder must receive a copy of the current
prospectus of the fund or class thereof into which an exchange is to be
effected. A shareholder may obtain further information on the exchange privilege
by calling Federated Securities Corp. or the shareholder's financial
institution.

ACCOUNT ACTIVITY

Shareholders will receive periodic statements reporting all account activity,
including dividends paid. The Fund will not issue share certificates.

DIVIDENDS

Dividends are declared daily and paid monthly. Dividends are declared just prior
to determining NAV. If an order for Shares is placed on the preceding business
day, Shares purchased by wire begin earning dividends on the business day wire
payment is received by State Street Bank. If the order for Shares and payment by
wire are received on the same day, Shares begin earning dividends on the next
business day. Shares purchased by check begin earning dividends on the business
day after the check is converted upon instruction of the transfer agent into
federal funds. Dividends are automatically reinvested on payment dates in
additional Shares of the Fund unless cash payments are requested by contacting
the Fund.

CAPITAL GAINS

Capital gains realized by the Fund, if any, will be distributed at least once
every 12 months.

REDEEMING INSTITUTIONAL SERVICE SHARES

The Fund redeems Shares at their NAV next determined after the Fund receives the
redemption request. Redemptions will be made on days on which the Fund computes
its NAV. Redemption requests must be received in proper form and can be made by
telephone request or by written request. Investors who redeem Shares through a
financial intermediary may be charged a service fee by that financial
intermediary.

TELEPHONE REDEMPTION

REDEEMING SHARES BY MAIL

Shares may be redeemed in any amount by mailing a written request to: Federated
Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share
certificates have been issued, they should be sent unendorsed with the written
request by registered or certified mail to the address noted above. The
written request should state: the Fund name and Share class designation; the
account name as registered with the Fund; the account number; and the number of
Shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the Shares are registered. Normally, a check
for the proceeds is mailed within one business day, but in no event more than
seven days, after the receipt of a proper written redemption request. Dividends
are paid up to and including the day that a redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Fund or a redemption payable other than to
the shareholder of record must have their signatures on written redemption
requests guaranteed by a commercial or savings bank, trust company or savings
association whose deposits are insured by an organization which is administered
by the FDIC; a member firm of a domestic stock exchange; or any other "eligible
guarantor institution," as defined in the Securities Exchange Act of 1934. The
Fund does not accept signatures guaranteed by a notary public. ACCOUNTS
WITH LOW BALANCES

Before Shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional Shares to meet the minimum
requirement.

SHAREHOLDER INFORMATION

VOTING RIGHTS

Trustees may be removed by Trustees or by shareholders at a special meeting. A
special meeting of shareholders shall be called by the Trustees upon the written
request of shareholders owning at least 10% of the Trust's outstanding shares of
all portfolios entitled to vote.

TAX INFORMATION

FEDERAL INCOME TAX

STATE AND LOCAL TAXES

Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local laws.

PERFORMANCE INFORMATION

From time to time, the Fund advertises its total return and yield for Shares.

The Shares are sold without any sales charge or other similar non-recurring
charges other than a Rule 12b-1 fee.

Total return and yield will be calculated separately for Shares and
Institutional Shares.

From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.

OTHER CLASSES OF SHARES

The Fund also offers another class of shares called Institutional Shares.

Institutional Shares are sold to banks and other institutions that hold assets
as principals or in a fiduciary capacity for individuals, trusts, estates or
partnerships and are subject to a minimum initial investment of $25,000.
Institutional Shares are sold at NAV and are distributed without a Rule 12b-1
Plan.

Shares and Institutional Shares are subject to certain of the same expenses.
Expense differences, however, between Shares and Institutional Shares may affect
the performance of each class.

To obtain more information and a prospectus for Institutional Shares, investors
may call 1-800-341-7400 or contact their financial institution.

FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

(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.

FURTHER INFORMATION ABOUT THE FUND'S PERFORMANCE IS CONTAINED IN THE FUND'S
ANNUAL REPORT DATED APRIL 30, 1998, WHICH CAN BE OBTAINED FREE OF CHARGE.

[Graphic]
Federated Investors

Federated Intermediate Income Fund
(A Portfolio of Federated Income
Securities Trust)
Institutional Service Shares

PROSPECTUS

JUNE 30, 1998

A Diversified Portfolio of Federated Income
Securities Trust, an Open-End,
Management Investment Company

FEDERATED INTERMEDIATE
INCOME FUND
INSTITUTIONAL SERVICE SHARES

Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000

DISTRIBUTOR

Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

INVESTMENT ADVISER

Federated Management
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

CUSTODIAN
State Street Bank and
Trust Company
P.O. Box 8600
Boston, MA 02266-8600

TRANSFER AGENT
AND DIVIDEND
DISBURSING AGENT
Federated Shareholder
Services Company
P.O. Box 8600
Boston, MA 02266-8600

INDEPENDENT AUDITORS
Ernst & Young LLP
One Oxford Centre
Pittsburgh, PA 15219

Federated Securities Corp., Distributor
1-800-341-7400
www.federatedinvestors.com

Cusip 31420C506
3090804A-SS (6/98)

[Graphic]

Federated Intermediate Income Fund
Institutional Shares
Institutional Service Shares
(A Portfolio of Federated Income Securities Trust)

STATEMENT OF ADDITIONAL INFORMATION

This Statement of Additional Information should be read with the prospectuses
of Federated Intermediate Income Fund (the "Fund"), a portfolio of Federated
Income Securities Trust (the "Trust") dated June 30, 1998. This Statement is not
a prospectus. You may request a copy of a prospectus or a paper copy of this
Statement, if you have received it electronically, free of charge by calling
1-800-341-7400.

Federated Intermediate Income Fund
Federated Investors Funds

5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7000

Statement dated June 30, 1998

[GRAPHIC OMITTED]

Cusip 31420C407
Cusip 31420C506
3090804B (6/98)

<PAGE>

Table of Contents

General Information About the Fund 1

Investment Objective and Policies 1 Collateralized Mortgage Obligations 1
Convertible Securities 1 Surplus Notes 2 Trust Preferred or Capital Securities
2 Step Up Perpetual Subordinated Securities 2 Medium Term Notes and Deposit
Notes 2 Average Life 2 Weighted Average Portfolio Maturity 2 Weighted Average
Portfolio Duration 3 When-Issued and Delayed Delivery Transactions 3 Foreign
Currency Transactions 4 Lending of Portfolio Securities 5 Restricted and
Illiquid Securities 5 Repurchase Agreements 6
Investing in Securities of Other Investment 6
Companies
Portfolio Turnover 6
Reverse Repurchase Agreements 6
Investment Limitations 6

Federated Income Securities Trust Management 9
Fund Ownership 13
Trustee's Compensation 14
Trustee Liability 14

Investment Advisory Services 15
Adviser to the Fund 15

Brokerage Transactions 15

Other Services 15
Fund Administration 15
Custodian and Portfolio Accountant 16
Transfer Agent 16
Independent Auditors 16

Purchasing Shares 16
Distribution Plan (Institutional Service
Shares only) and Shareholder Services16
Exchanging Securities for Fund Shares 16

Determining Net Asset Value 17
Determining Value of Securities 17

Redeeming Shares 17
Redemption in Kind 17

Tax Status 17
The Fund's Tax Status 17
Shareholders' Tax Status 18

Total Return 18

Yield 18

Performance Comparisons 18
Economic and Market Information 19

About Federated Investors, Inc. 19
Mutual Fund Market 20
Institutional Clients 20
Bank Marketing 20
Broker/Dealers and Bank Broker/Dealer
Subsidiaries 20

Financial Statements 20

Appendix 21

<PAGE>

General Information About the Fund
The Fund is a portfolio of Federated Income Securities Trust, which was
established as a Massachusetts business trust under a Declaration of Trust dated
January 24, 1986. On December 31, 1991, the shareholders voted to permit the
Trust to offer one or more separate series and classes of shares. On February
26, 1996, the Board of Trustees ("Trustees") approved changing the name of
Intermediate Income Fund to Federated Intermediate Income Fund. Shares of the
Fund are offered in two classes: Institutional Shares and Institutional Service
Shares. This Statement of Additional Information relates to the Institutional
Shares and Institutional Service Shares (individually and collectively referred
to as the "Shares") of the Fund.

Investment Objective and Policies
The Fund's investment objective is to provide current income. The investment
objective may not be changed without the prior approval of the Fund's
shareholders. The policies described below may be changed by the Trustees
without shareholder approval. Shareholders will be notified before any material
change in these policies becomes effective.

Collateralized Mortgage Obligations ("CMOs")

The following example illustrates how mortgage cash flows are prioritized in the
case of CMOs. Most of the CMOs in which the Fund may invest use the same basic
structure.

(2) The cash flows from the underlying mortgages are applied first to pay
interest and then to retire securities.

(3) The tranches of securities are retired sequentially. All principal payments
are directed first to the shortest-maturity tranche (or A bonds). When those
securities are completely retired, all principal payments are then directed to
the next-shortest-maturity security tranche (or B bond). This process continues
until all of the tranches have been completely retired.

Convertible Securities

Convertible securities include a spectrum of securities which can be exchanged
for or converted into common stock. Convertible securities may include, but are
not limited to: convertible bonds or debentures; convertible preferred stock;
units consisting of usable bonds and warrants; or securities which cap or
otherwise limit returns to the convertible security holder, such as DECS
(Dividend Enhanced Convertible Stock, or Debt Exchangeable for Common Stock when
issued as a debt security), LYONS (Liquid Yield Option Notes, which are
corporate bonds that are purchased at prices below par with no coupons and are
convertible into stock), PERCS (Preferred Equity Redemption Cumulative Stock (an
equity issue that pays a high cash dividend, has a cap price and mandatory
conversion to common stock at maturity), and PRIDES (Preferred Redeemable
Increased Dividend Securities (which are essentially the same as DECS; the
difference is little more than who initially underwrites the issue).

DECS, or similar instruments marketed under different names, offer a substantial
dividend advantage with the possibility of unlimited upside potential if the
price of the underlying common stock exceeds a certain level. DECS convert to
common stock at maturity. The amount received is dependent on the price of the
common at the time of maturity. DECS contain two call options at different
strike prices. The DECS participate with the common up to the first call price.
They are effectively capped at that point unless the common rises above a second
price point, at which time they participate with unlimited upside potential.

Surplus Notes

Surplus notes, or surplus debentures or certificates of contribution, are
subordinated debt instruments issued by mutual and stock insurance companies.
Mutual insurance companies are owned by their policyholders and cannot raise
equity capital by issuing shares of common or preferred stock and thus,
generally issue surplus notes to raise capital. Stock insurance companies
primarily issue surplus notes in the context of transactions with affiliates.
Though technically debt, surplus notes are treated by insurers as equity
capital, or "surplus," for regulatory reporting purposes. Insurance regulators
maintain control over the insurer's ability to repay principal and interest as
it comes due and have the right to approve or disapprove each payment. Surplus
notes typically are subordinated to any other debt. Surplus notes are subject to
certain investment risks including the financial stability of the issuer,
subordination to all other claims, and regulatory risk as a result of required
approval of principal and interest payments from insurance regulators prior to
making any payments. The financial stability of the issuer may be subject to
catastrophic losses or obligations to policy holders which may lead to issuer
default.

Trust Preferred or Capital Securities

Trust preferred or capital securities are junior subordinated securities with
generally a 30-50 year final maturity and a 5-10 year call protection. Dividend
payments generally can be deferred by the issuer for up to 5 years. These
securities generally are unsecured and subordinated to all senior indebtedness.
Trust preferred or capital securities are subject to certain investment risks.
Because these securities are unsecured and subordinated to all senior
securities, principal and interest payments are subject to a greater risk of
issuer default than senior debt securities.

Step Up Perpetual Subordinated Securities

Step up perpetual subordinated securities ("step ups") generally are structured
as perpetual preferred securities (with no stated maturity) with a 10-year call
option. If the issue is not called, however, the coupon increases or "steps up,"
generally 150 to 250 basis points depending on the issue and its country of
jurisdiction. The step up interest rate acts as a punitive rate which would
typically compel the issuer to call the security. Thus, these securities
generally are priced as 10-year securities. The principal risks inherent in
investments in step up notes include credit, liquidity, and financial risks.
Credit risk arises from the possibility that the issuer may default on its
obligations. Liquidity risk arises in connection with the issuer's need to repay
liabilities as they mature and to raise funds at appropriate maturities as part
of the issuer's financing, trading, and investment activities. Financial risk is
the risk to which the issuer's future earnings and financial position are
exposed as a result of potential changes in the issuer's financial condition.

Medium Term Notes and Deposit Notes

Medium term notes ("MTNs") and Deposit Notes are similar to corporate debt
obligations as described in the respective prospectuses. MTNs and Deposit Notes
trade like commercial paper, but may have maturities from nine months to ten
years and are rated like corporate debt obligations.

Average Life

Average life, as applicable to asset-backed securities, is computed by
multiplying each principal repayment by the time of payment (months or years
from the evaluation date), summing these products, and dividing the sum by the
total amount of principal repaid. The weighted-average life is calculated by
multiplying the maturity of each security in a given pool by its remaining
balance, summing the products, and dividing the result by the total remaining
balance.

Weighted Average Portfolio Maturity

The Fund will determine its dollar-weighted present average portfolio maturity
by assigning a "weight" to each portfolio security based upon the pro rata
market value of such portfolio security in comparison to the market value of the
entire portfolio. The remaining maturity of each portfolio security is then
multiplied by its weight, and the results are added together to determine the
weighted average maturity of the portfolio. For purposes of calculating its
dollar-weighted average portfolio maturity, the Fund will treat (a) asset-
backed securities as having a maturity equal to their estimated weighted-average
maturity and (b) variable and floating rate instruments as having a remaining
maturity commensurate with the period remaining until the next scheduled
adjustment to the instrument's interest rate. The average maturity of
asset-backed securities will be calculated based upon assumptions established by
the investment adviser as to the probable amount of principal prepayments
weighted by the period until such prepayments are expected to be removed.

Weighted Average Portfolio Duration

Duration is calculated by dividing the sum of the time-weighted present values
of cash flows of a security or portfolio of securities, including principal and
interest payments, by the sum of the present values of the cash flows.

The duration of interest rate agreements, such as interest rate swaps, caps and
floors, is calculated in the same manner as other securities. However, certain
interest rate agreements have negative durations, which the Fund may use to
reduce its weighted average portfolio duration.

Mathematically, duration is measured as follows:

Duration = PVCF1(1) + PVCF2(2) + PVCF3(3) + ... + PVCFn(n)
PVTCF PVTCF PVCTF PVCTF
where

PVCFt = the present value of the cash flow in period t discounted at the
prevailing yield-to-maturity

t = the period when the cash flow is received

n = remaining number of periods until maturity

PVTCF = total present value of the cash flow from the bond where the present
value is determined using the prevailing yield-to-maturity

Certain debt securities, such as asset-backed securities, may be subject to
prepayment at irregular intervals. The duration of these instruments will be
calculated based upon assumptions established by the investment adviser as to
the probable amount and sequence of principal prepayments. Duration calculated
in this manner, commonly referred to as "effective duration," allows for
changing prepayment rates as interest rates change and expected future cash
flows are affected. The calculation of effective duration will depend upon the
investment adviser's assumed prepayment rate.

When-Issued and Delayed Delivery Transactions

These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Fund sufficient
to make payment for the securities to be purchased are segregated on the Fund's
records at the trade date. These assets are marked to market daily and are
maintained until the transaction has been settled. The Fund does not intend to
engage in when-issued and delayed delivery transactions to an extent that would
cause the segregation of more than 20% of the total value of its assets.

Foreign Currency Transactions

When the Fund invests in foreign securities, such securities may be denominated
in foreign currency, and the Fund may temporarily hold funds in foreign
currencies. Thus, the value of the Fund's shares can be affected by changes in
currency exchange rates. The value of the Fund's investments denominated in
foreign currencies and any cash it holds in foreign currencies will depend on
the relative strength of those currencies and the U.S. dollar, and the Fund may
be affected favorably or unfavorably by exchange control regulations or changes
in the exchange rate between foreign currencies and the U.S. dollar. The rate of
exchange between the U.S. dollar and other currencies is determined by the
forces of supply and demand in the foreign exchange market as well as by
political factors. Changes in the foreign currency exchange rates may also
affect the value of dividends and interest earned, gains and losses realized on
the sale of securities and net investment income and gains, if any, to be
distributed to shareholders by the Fund. Accordingly, the Fund's ability to
achieve its investment objective will depend, to a certain extent, on favorable
exchange rates.

Subject to certain percentage limitations, the Fund may engage in foreign
currency exchange transactions to protect against uncertainty in the level of
future exchange rates. The Fund expects to engage in foreign currency exchange
transactions in connection with the purchase and sale of portfolio securities
("transaction hedging"), and to protect the value of specific portfolio
positions ("position hedging").

The Fund may engage in "transaction hedging" to protect against a change in the
foreign currency exchange rate between the date on which the Fund contracts to
purchase or sell the security and the settlement date, or to "lock in" the U.S.
dollar equivalent of a dividend or interest payment in a foreign currency. For
that purpose, the Fund may purchase or sell a foreign currency on a spot (or
cash) basis at the prevailing spot rate in connection with the settlement of
transactions in portfolio securities denominated in that foreign currency.

If conditions warrant, the Fund may also enter into contracts to purchase or
sell foreign currencies at a future date ("forward contracts") and purchase and
sell foreign currency futures contracts as a hedge against changes in foreign
currency exchange rates between the trade and settlement dates on particular
transactions and not for speculation. A foreign currency forward contract is a
negotiated agreement to exchange currency at a future time at a rate or rates
that may be higher or lower than the spot rate. Foreign currency futures
contracts are standardized exchange-traded contracts and have margin
requirements.

For transaction hedging purposes, the Fund may also purchase exchange- listed
and over-the-counter call and put options on foreign currency futures contracts
and on foreign currencies.

The Fund may engage in "position hedging" to protect against the decline in the
value relative to the U.S. dollar of the currencies in which its portfolio
securities are denominated or quoted (or an increase in the value of currency or
securities which the Fund intends to buy, when the Fund holds cash reserves and
short-term investments). For position hedging purposes, the Fund may purchase or
sell foreign currency futures contracts and foreign currency forward contracts,
and may purchase put or call options on foreign currency futures contracts and
on foreign currencies on domestic and foreign exchanges or over-the-counter
markets. In connection with position hedging, the Fund may also purchase or sell
foreign currency on a spot basis.

The Fund may write covered call options on foreign currencies to offset some of
the costs of hedging those currencies. Over-the-counter transactions are less
liquid than exchange-traded transactions, and are subject to the Fund's 15%
limitation on illiquid investments. The Fund will engage in over-the-counter
transactions only when appropriate exchange-traded transactions are unavailable
and when, in the opinion of the Fund's investment adviser, the pricing mechanism
and liquidity are satisfactory and the participants are responsible parties
likely to meet their contractual obligations. The Fund's ability to engage in
hedging and related option transactions may be limited by tax considerations.

Hedging transactions involve costs and may result in losses. Unlike entering
directly into a foreign currency futures contract or directly purchasing foreign
currencies, which require the purchaser to buy the security on a set date at a
specified price, the purchase of a put option entitles, but does not obligate,
its purchaser to decide, on or before a future date, whether to assume a short
position at the specified price.

Generally, if the hedged portfolio securities decrease in value during the term
of an option, the related foreign currency futures contract will also decrease
in value and the option will increase in value. In such an event, the Fund will
normally close out its option by selling an identical option. If the hedge is
successful, the proceeds received by the Fund upon the sale of the second option
will be large enough to offset both the premium paid by the Fund for the
original option plus the decrease in value of the hedged securities.
Alternatively, the Fund may exercise its put option to close out the position.
To do so, it would simultaneously enter into the futures contract of the type
underlying the option (for a price less than the strike price of the option) and
exercise the option. The Fund would then deliver the foreign currency futures
contract in return for payment of the strike price. If the Fund neither closes
out nor exercises an option, the option will expire on the date provided in the
option contract, and only the premium paid for the contract will be lost.

When the Fund writes a call option on foreign currency, it is undertaking the
obligation of assuming a short position (i.e., selling a foreign currency) at
the fixed strike price at any time during the life of the option if the option
is exercised. As currency exchange rates fall, the Fund's obligation under a
call option on foreign currencies costs less to fulfill, causing the value of
the Fund's call option position to increase.

In other words, as the exchange rate goes down below the strike price, the buyer
of the option has no reason to exercise the call, so that the Fund keeps the
premium received for the option. This premium can offset some or all of the drop
in value of the Fund's portfolio securities.

Prior to the expiration of a call written by the Fund, or exercise of it by the
buyer, the Fund may close out the option by buying an identical option. If the
hedge is successful, the cost of the second option will be less than the premium
received by the Fund for the initial option. The net premium income of the Fund
will then offset some or all of the decrease in value of the hedged currencies.

The Fund will not maintain open positions in foreign currency futures contracts
it has sold or call options it has written on foreign currencies if, in the
aggregate, the value of the open positions (marked to market) exceeds the
current market value of its securities portfolio plus or minus the unrealized
gain or loss on those open positions, adjusted for the correlation of volatility
between the hedged securities and the futures contracts. If this limitation is
exceeded at any time, the Fund will take prompt action to close out a sufficient
number of open contracts to bring its open futures and options positions within
this limitation.

Risks. When the Fund invests in foreign currency futures contracts and
foreign currency forward contracts, and options thereon as hedging
devices, there is a risk that the prices of the securities subject to the
futures contract, forward contract, or option thereon may not correlate
perfectly with the prices of the securities in the Fund's portfolio. This
may cause the futures contract, forward contract, and any related options
to react differently than the portfolio securities to market changes. In
addition, the Fund's investment adviser could be incorrect in its
expectations about the direction or extent of market factors, such as
interest rate or currency exchange rate movements. In these events, the
Fund may lose money on the futures contract, forward contract or option.
With respect to futures contracts, the Fund may be unable to anticipate
the extent of its losses.

It is not certain that a secondary market for positions in futures
contracts, forward contracts or for options will exist at all times.
Although the investment adviser will consider liquidity before entering
into such transactions, there is no assurance that a liquid secondary
market on an exchange will exist for any particular futures contract,
forward contract or option at any particular time. The Fund's ability to
establish and close out futures and options positions depends on this
secondary market.

Lending of Portfolio Securities

Restricted and Illiquid Securities

o the frequency of trades and quotes for the security;

o the number of dealers willing to purchase or sell the security and the
number of other potential buyers;

o dealer undertakings to make a market in the security; and

o the nature of the security and the nature of the marketplace trades.

Repurchase Agreements

The Fund or its custodian will take possession of the securities subject to
repurchase agreements and these securities will be marked to market daily. To
the extent that the original seller does not repurchase the securities from the
Fund, the Fund could receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be delayed
pending court action. The Fund believes that under the regular procedures
normally in effect for custody of the Fund's portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor of
the Fund and allow retention or disposition of such securities. 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 guidelines established by the Trustees.

Investing in Securities of Other Investment Companies

The Fund may invest in the securities of affiliated money market funds as an
efficient means of managing the Fund's uninvested cash.

Portfolio Turnover

o take advantage of short-term differentials in yields or market values;

o take advantage of new investment opportunities;

o respond to changes in the creditworthiness of an issuer; or

o try to preserve gains or limit losses.

Any such trading would increase the Fund's portfolio turnover and its
transaction costs. The Fund will not attempt to set or meet any arbitrary
portfolio turnover rate since turnover is incidental to transactions considered
necessary to achieve the Fund's investment objective. For the fiscal years ended
April 30, 1998, and 1997, the portfolio turnover rates were 44% and 55%,
respectively.

Reverse Repurchase Agreements

The Fund may also enter into reverse repurchase agreements. This transaction is
similar to borrowing cash. In a reverse repurchase agreement, the Fund transfers
possession of a portfolio instrument to another person, such as a financial
institution, broker, or dealer, in return for a percentage of the instrument's
market value in cash, and agrees that on a stipulated date in the future the
Fund will repurchase the portfolio instrument by remitting the original
consideration plus interest at an agreed upon rate.

Investment Limitations

SELLING SHORT AND BUYING ON MARGIN

The Fund will not sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as may be necessary for
clearance of purchases and sales of portfolio securities. The deposit or
payment by the Fund of initial or variation margin in connection with
futures contracts or related options transactions is not considered the
purchase of a security on margin.

ISSUING SENIOR SECURITIES AND BORROWING MONEY

The Fund will not issue senior securities except that the Fund may borrow
money and engage in reverse repurchase agreements in amounts up to
one-third of the value of its total assets, including the amounts
borrowed.

PLEDGING ASSETS

The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it may mortgage, pledge, or
hypothecate assets having a market value not exceeding the lesser of the
dollar amounts borrowed or 15% of the value of total assets at the time of
the borrowing. For purposes of this limitation, the following are not
deemed to be pledges: margin deposits for the purchase and sale of futures
contracts and related options, and segregation or collateral arrangements
made in connection with options activities or the purchase of securities
on a when-issued basis.

INVESTING IN REAL ESTATE

The Fund will not buy or sell real estate, including limited partnership
interests, although it may invest in the securities of companies whose
business involves the purchase or sale of real estate or in securities
which are secured by real estate or interests in real estate.

INVESTING IN COMMODITIES

The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts except to the extent that the Fund may engage
in transactions involving futures contracts and related options.

UNDERWRITING

DIVERSIFICATION OF INVESTMENTS

With respect to securities comprising 75% of the value of its total
assets, the Fund will not purchase securities issued by any one issuer
(other than cash, cash items or securities issued or guaranteed by the
government of the United States or its agencies or instrumentalities and
repurchase agreements collateralized by such securities) if as a result
more than 5% of the value of its total assets would be invested in the
securities of that issuer. Also, the Fund will not acquire more than 10%
of the outstanding voting securities of any one issuer.

CONCENTRATION OF INVESTMENTS

The Fund will not invest 25% or more of the value of its total assets in
any one industry except that the Fund may invest 25% or more of the value
of its total assets in securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities, and repurchase agreements
collateralized by such securities.

LENDING CASH OR SECURITIES

The Fund will not lend any of its assets, except portfolio securities up
to one-third of the value of its total assets. This shall not prevent the
Fund from purchasing or holding U.S. government obligations, money market
instruments, variable rate demand notes, bonds, debentures, notes,
certificates of indebtedness, or other debt securities, entering into
repurchase agreements, or engaging in other transactions where permitted
by the Fund's investment objective, policies, and limitations.

INVESTING IN RESTRICTED AND ILLIQUID SECURITIES

WRITING COVERED CALL OPTIONS

The Fund will not write call options on securities unless the underlying
securities are held in a Fund's portfolio, or unless the Fund is entitled
to them in deliverable form without further payment or after segregating
cash in the amount of any further payment. The Fund will not write call
options in excess of 25% of the value of its net assets.

PURCHASING SECURITIES TO EXERCISE CONTROL

The Fund will not purchase securities of a company for purposes of
exercising control or management.

Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction. For purposes of its policies and limitations, the Fund considers
certificates of deposit and demand and time deposits issued by a U.S. branch of
a domestic bank or savings and loan having capital, surplus, and undivided
profits in excess of $100,000,000 at the time of investment to be "cash items."

The Fund has not borrowed money or invested in reverse repurchase agreements
during the last fiscal year and has no present intent to do so in the coming
fiscal year.

<PAGE>

Federated Income Securities Trust Management
Officers and Trustees are listed with their addresses, birthdates, present
positions with Federated Income Securities Trust, and principal occupations.

John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924

Chairman and Trustee

Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934

Trustee

John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937

Trustee

Nicholas P. Constantakis
175 Woodshire Drive
Pittsburgh, PA
Birthdate: September 3, 1939

Trustee

Director or Trustee of the Funds; Formerly, Partner, Andersen Worldwide SC.

William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918

Trustee

James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922

Trustee

Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932

Trustee

Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924

Trustee

Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942

Trustee

John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932

Trustee

Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925

Trustee

Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935

Trustee

Director or Trustee of the Funds; Public relations/Marketing/Conference
Planning; formerly, National Spokesperson, Aluminum Company of America; business
owner.

Glen R. Johnson
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929

President

President and/or Trustee of some of the Funds; staff member, Federated
Securities Corp.

J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949

Executive Vice President

Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930

Executive Vice President

John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938

Executive Vice President , Secretary and Treasurer

Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923

Vice President

President or Vice President of some of the Funds; Director or Trustee of some of
the Funds; Executive Vice President, Federated Investors, Inc.; Chairman and
Director, Federated Securities Corp..

* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.

@ Member of the Executive Committee. The Executive Committee of the Board
of Trustees handles the responsibilities of the Board between meetings
of the Board.

<PAGE>

Fund Ownership

Officers and Trustees as a group own less than 1% of the Fund's outstanding
shares.

As of June 5, 1998, the following shareholders of record owned 5% or more of the
Institutional Shares of the Fund: Stockyard Bank & Trust, Louisville, Kentucky,
owned approximately 1,120,696 shares (6.39%); Pitco c/o Marshall & Ilsley Trust
Co., Milwaukee, Wisconsin, owned approximately 1,115,837 shares (6.36%);
Keystone Financial, Inc., Altoona, Pennsylvania, owned approximately 1,154,320
shares (6.58%); and Parcol & Co. c/o SEI Trust Company, Oaks, Pennsylvania,
owned approximately 2,135,793 shares (12.18%).

As of June 5, 1998, the following shareholders of record owned 5% or more of the
Institutional Service Shares of the Fund: FNB Nominee Co / First Commonwealth
Trust Co., Indiana, Pennsylvania, owned approximately 88,469 shares (15.74%);
Merchants National Bank as Trustee for the 401K Plan of Merchants Bank Thrift
Plan, Aurora, Illinois, owned approximately 43,656 shares (7.77%); UMBSC & Co.
F/B/O Mankato Clinic P/S Plan, Kansas City, Missouri, owned approximately 45,300
shares (8.06%); UMBSC & Co. F/B/O Scott Specialities P/S Plan, Kansas City,
Missouri, owned approximately 42,405 shares (7.54%); Auto/Truck Dealers
Association, Milwaukee, Wisconson, owned approximately 61,545 shares (10.95%).

<PAGE>

Trustee Compensation

AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST FROM FUND COMPLEX +

John F. Donahue, $ 0 $ 0 for the Trust and
Chairman and Trustee 56 other investment companies in the Fund Complex

Thomas G. Bigley, $605.25 $111,222 for the Trust and
Trustee 56 other investment companies in the Fund Complex

John T. Conroy, Jr., $665.87 $122,362 for the Trust and
Trustee 56 other investment companies in the Fund Complex

Nicholas P. Constantakis,++ $158.50 $ 0 for the Trust and
Trustee 36 other investment companies in the Fund Complex

William J. Copeland, $665.87 $122,362 for the Trust and
Trustee 56 other investment companies in the Fund Complex

James E. Dowd, $665.87 $122,362 for the Trust and
Trustee 56 other investment companies in the Fund Complex

Lawrence D. Ellis, M.D., $605.25 $111,222 for the Trust and
Trustee 56 other investment companies in the Fund Complex

Edward L. Flaherty, Jr., $665.87 $122,362 for the Trust and
Trustee 56 other investment companies in the Fund Complex

Peter E. Madden, $605.25 $111,222 for Trust and
Trustee 56 other investment companies in the Fund Complex

John E. Murray, Jr., $605.25 $111,222 for the Trust and
Trustee 56 other investment companies in the Fund Complex

Wesley W. Posvar, $605.25 $111,222 for the Trust and
Trustee 56 other investment companies in the Fund Complex

Marjorie P. Smuts, $605.25 $111,222 for the Trust and
Trustee 56 other investment companies in the Fund Complex

</TABLE>

*Information is furnished for the fiscal year ended April 30, 1998.

#The aggregate compensation is provided for the Trust which is comprised of
two portfolios.

+The information is provided for the last calendar year.

Trustee Liability

Investment Advisory Services
Adviser to the Fund

The Fund's investment adviser is Federated Management (the "Adviser"). It is a
subsidiary of Federated Investors, Inc. All of the voting securities of
Federated Investors, Inc. are owned by a trust, the trustees of which are John
F. Donahue, his wife, and his son, J. Christopher Donahue. The Adviser shall not
be liable to the Trust, the Fund, or any shareholder of the Fund for any losses
that may be sustained in the purchase, holding, or sale of any security, or for
anything done or omitted by it, except acts or omissions involving willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
imposed upon it by its contract with the Trust.

ADVISORY FEES

For its advisory services, the Adviser receives an annual investment
advisory fee as described in each prospectus. For the fiscal years ended
April 30, 1998, 1997, and 1996, the Fund's Adviser earned $736,045,
$539,952, and $283,938, respectively, of which $319,611, $344,689, and
$283,938, was waived, respectively, because of undertakings to limit the
Fund's expenses. In addition, the Adviser reimbursed other operating
expenses of $0, $0, and $55,252, respectively, for the same periods.

Brokerage Transactions
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The Adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
guidelines established by the Trustees. The Adviser may select brokers and
dealers who offer brokerage and research services. These services may be
furnished directly to the Fund or to the Adviser and may include: advice as to
the advisability of investing in securities; security analysis and reports;
economic studies; industry studies; receipt of quotations for portfolio
evaluations; and similar services. Research services provided by brokers and
dealers may be used by the Adviser or its affiliates in advising the Fund and
other accounts. To the extent that receipt of these services may supplant
services for which the Adviser or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The Adviser and its affiliates exercise
reasonable business judgment in selecting brokers who offer brokerage and
research services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research commissions provided. During the fiscal
years ended April 30, 1998, 1997, and 1996, no brokerage commissions were paid
by the Fund.

Other Services
Fund Administration

Federated Services Company, a subsidiary of Federated Investors, Inc., provides
administrative personnel and services to the Fund for a fee as described in each
prospectus. From March 1, 1994, to March 1, 1996, Federated Administrative
Services, a subsidiary of Federated Investors, Inc., served as the Fund's
Administrator. For purposes of this Statement of Additional information,
Federated Services Company and Federated Administrative Services may hereinafter
collectively be referred to as the "Administrators." For the fiscal years ended
April 30, 1998, 1997, and 1996, the Administrators earned $155,001, $155,001,
and $155,000, respectively.

Custodian and Portfolio Accountant

State Street Bank and Trust Company ("State Street Bank"), Boston, MA, is
custodian for the securities and cash of the Fund. Federated Services Company,
Pittsburgh, PA, provides certain accounting and recordkeeping services with
respect to the Fund's portfolio investments. The fee paid for this service is
based upon the level of the Fund's average net assets for the period plus
out-of-pocket expenses.

Transfer Agent

Federated Services Company, through its registered transfer agent, Federated
Shareholder Services Company, maintains all necessary shareholder records. For
its services, the transfer agent receives a fee based upon the level of the
Fund's average net assets for the period plus out-of-pocket expenses.

Independent Auditors

The independent auditors for the Fund are Ernst and Young LLP, Pittsburgh, PA.

Purchasing Shares
Shares are sold at their net asset value ("NAV") without a sales charge on days
on which the New York Stock Exchange is open for business. The procedure for
purchasing Shares of the Fund is explained in the respective prospectuses under
"Investing in Institutional Shares" and "Investing in Institutional Service
Shares."

Distribution Plan (Institutional Service Shares only) and Shareholder Services

By adopting the Plan (Institutional Service Shares only), the Trustees expects
that the Fund will be able to achieve a more predictable flow of cash for
investment purposes and to meet redemptions. This will facilitate more efficient
portfolio management and assist the Fund in pursuing its investment objective.
By identifying potential investors whose needs are served by the Fund's
objective, and properly servicing these accounts, it may be possible to curb
sharp fluctuations in rates of redemptions and sales.

For the fiscal year ended April 30, 1998, payments in the amount of $4,643
were made pursuant to the Plan (Institutional Service Shares only), of which
$1,671 was waived. In addition, for this period, the Fund's Institutional Shares
and Institutional Service Shares paid shareholder services fees in the amount of
$363,384 and $4,643, respectively, of which $363,384 and $2,971, respectively,
were waived.

Exchanging Securities for Fund Shares

Investors may exchange certain securities or a combination of securities and
cash for Shares. The securities and any cash must have a market value of at
least $25,000. Any securities to be exchanged must meet the investment objective
and policies of the Fund, must have a readily ascertainable market value, and
must not be subject to restrictions on resale. The Fund reserves the right to
determine the acceptability of securities to be exchanged. Securities accepted
by the Fund are valued in the same manner as the Fund values its assets.
Investors wishing to exchange securities should first contact Federated
Securities Corp. Shares purchased by exchange of U.S. government securities
cannot be redeemed by telephone for fifteen business days to allow time for the
transfer to settle.

An investor should forward the securities in negotiable form with an authorized
letter of transmittal to Federated Securities Corp. The Fund will notify the
investor of its acceptance and valuation of the securities within five business
days of their receipt by State Street Bank.

The basis of the exchange will depend upon the net asset value of Shares on the
day the securities are valued. One Share of the Fund will be issued for each
equivalent amount of securities accepted.

Any interest earned on the securities prior to the exchange will be considered
in valuing the securities. All interest, dividend, subscription, conversion, or
other rights attached to the securities become the property of the Fund, along
with the securities. Exercise of this exchange privilege is treated as a sale
for federal income tax purposes. Depending upon the cost basis of the securities
exchanged for Shares, a gain or loss may be realized by the investor.

Determining Net Asset Value
NAV generally changes each day. The days on which the NAV is calculated by the
Fund are described in the respective prospectuses.

Determining Value of Securities

The values of the Fund's portfolio securities are determined as follows:

Redemption in Kind

Redemption in kind will be made in conformity with applicable SEC rules, taking
such securities at the same value employed in determining NAV and selecting the
securities in a manner the Trustees determine to be fair and equitable.

Tax Status
The Fund's Tax Status

o derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;

o invest in securities within certain statutory limits; and

o distribute to its shareholders at least 90% of its net income earned during
the year.

Shareholders' Tax Status

Shareholders are subject to federal income tax on dividends and capital gains
received as cash or additional Shares.

No portion of any income dividend paid by the Fund is expected to be eligible
for the dividends received deduction available to corporations. These dividends,
and any short-term capital gains, are taxable as ordinary income.

CAPITAL GAINS

Capital gains or losses may also be realized on the sale of securities.
Sales would generally be made because of:

o the availability of higher relative yields;

o differentials in market values;

o new investment opportunities;

o changes in creditworthiness of an issuer; or

o an attempt to preserve gains or limit losses.

Distributions of long-term capital gains are taxed as such, whether they
are taken in cash or reinvested, and regardless of the length of time the
shareholder has owned the Shares.

Total Return

The Fund's average annual total returns for the one-year period ended April 30,
1998, and for the period from December 15, 1993 (date of initial public
offering) to April 30, 1998, were 10.58% and 7.19%, respectively, for
Institutional Shares, and 10.31% and 6.93%, respectively, for Institutional
Service Shares.

The average annual total return for Shares of the Fund is the average compounded
rate of return for a given period that would equate a $1,000 initial investment
to the ending redeemable value of that investment. The ending redeemable value
is computed by multiplying the number of Shares owned at the end of the period
by the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, adjusted over the period by any additional Shares,
assuming the monthly reinvestment of all dividends and distributions.

Yield
The Fund's yield for the thirty-day period ended April 30, 1998 was 6.20% and
5.95% for Institutional Shares and Institutional Service Shares, respectively.
The yield for both classes of Shares of the Fund is determined by dividing the
net investment income per Share (as defined by the SEC) earned by either class
of Shares over a thirty-day period by the maximum offering price per Share of
either class of Shares on the last day of the period. This value is then
annualized using semi-annual compounding. This means that the amount of income
generated during the thirty-day period is assumed to be generated each month
over a twelve-month period and is reinvested every six months. The yield does
not necessarily reflect income actually earned by the Fund because of certain
adjustments required by the SEC and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.

Performance Comparisons
The performance of both classes of Shares depends upon such variables as:

o portfolio quality;

o average portfolio maturity;

o type of instruments in which the portfolio is invested;

o changes in interest rates and market value of portfolio securities;

o changes in the Fund's or either class of Shares' expenses; and

o various other factors.

Either class of Shares' performance fluctuates on a daily basis largely because
net earnings and the maximum offering price per Share fluctuate daily. Both net
earnings and offering price per Share are factors in the computation of yield
and total return.

o Lipper Analytical Services, Inc. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and
takes into account any change in over a specific period of time. From time
to time, the Fund will quote its Lipper ranking in the "short-term
investment grade debt funds" category in advertising and sales literature.

o Merrill Lynch Total Return Investment Grade Corporate Index (Short-Term
1-2.99 Years) is comprised of over 400 issues of investment grade corporate
debt securities with remaining maturities from 1 to 2.99 years.

o Lehman Brothers Government/Corporate Total Index is 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 calculates
total returns for one month, three month, twelve month, and ten year periods
and year-to-date.

Economic and Market Information

Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by Fund portfolio managers and their views and analysis on how such
developments could affect the Funds. In addition, advertising and sales
literature may quote statistics and give general information about the mutual
fund industry, including the growth of the industry, from sources such as the
Investment Company Institute.

About Federated Investors, Inc.
Federated Investors, Inc. is dedicated to meeting investor needs which is
reflected in its investment decision making--structured, straightforward, and
consistent. This has resulted in a history of competitive performance with a
range of competitive investment products that have gained the confidence of
thousands of clients and their customers.

In the corporate bond sector, as of December 31, 1997, Federated Investors, Inc.
managed 11 money market funds, and 16 bond funds with assets approximating $17.1
billion, and $5.6 billion, respectively. Federated's corporate bond decision
making--based on intensive, diligent credit analysis, is backed by over 22 years
of experience in the corporate bond sector. In 1972, Federated introduced one of
the first high-yield bond funds in the industry. In 1983, Federated was one of
the first fund managers to participate in the asset-backed securities market, a
market totaling more than $200 billion.

J. Thomas Madden, Executive Vice President, oversees Federated Investors,
Inc. equity and high yield corporate bond management while William D. Dawson,
Executive Vice President, oversees Federated Investors, Inc. domestic fixed
income management. Henry A. Frantzen, Executive Vice President, oversees the
management of Federated Investors, Inc. international and global portfolios.

Mutual Fund Market

Federated Investors, Inc., through its subsidiaries, distributes mutual funds
for a variety of investment applications. Specific markets include:

Institutional Clients

Bank Marketing

Broker/Dealers and Bank Broker/Dealer Subsidiaries

Federated funds are available to consumers through major brokerage firms
nationwide -- we have over 2.200 broker/dealer and bank broker/dealer
relationships across the country -- supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Federated Securities Corp.

* source: Investment Company Institute.

<PAGE>

Appendix
Standard & Poor's ("S&P") Long Term Debt Rating Definitions

AAA--Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.

AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.

Plus (+) or minus (-): The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.

Moody's Investors Service, Inc. Corporate Bond Rating Definitions

NR--Not rated by Moody's.

Fitch IBCA, Inc. Long-Term Debt Ratings

BBB--Bonds considered to be investment grade and of satisfactory credit quality.

NR--NR indicates that Fitch does not rate the specific issue.

Moody's Investors Service, Inc. Commercial Paper Ratings

o Leading market positions in well established industries.

o High rates of return on funds employed.

o Conservative capitalization structure with moderate reliance on debt and
ample asset protection.

o Broad margins in earning coverage of fixed financial charges and high
internal cash generation.

o Well-established access to a range of financial markets and assured sources
of alternate liquidity.

Standard & Poor's Commercial Paper Ratings

A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.

Fitch IBCA, Inc. Commercial Paper Ratings Definitions

F-1--(Very Strong Credit Quality) Issues assigned this rating reflect an
assurance for timely payment only slightly less in degree than issues rated
F-1+.

Duff & Phelps Rating Service (Duff &Phelps) Long-Term Debt Ratings

AAA--Highest credit quality. The risk factors are negligible, being only
slightly more than for U.S. Treasury debt.

AA--High credit quality. Protection factors are strong. Risk is modest but may
vary slightly from time to time because of economic conditions.

A--Protection factors are average but adequate. However, risk factors are more
variable and greater in periods of economic stress.

BBB--Below-average protection factors but still considered sufficient for
prudent investment. Considerable variability in risk during economic cycles.

PLUS (+) OR MINUS (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category.

PART C. OTHER INFORMATION

Item 24. Financial Statements and Exhibits:

1. Financial Statements (Financial Statements are incorporated
by reference to the Annual Report of Registrant dated
April 30, 1998. (File Nos. 33-3164 and 811-4577))
2. Exhibits:
a) Conformed copy of Declaration of Trust of the
Registrant;(1)
(i) Conformed copy of Amendment No. 1 to the
Declaration of Trust;+
(ii) Conformed copy of Amendment No. 2 to the
Declaration of Trust;(6)
(iii) Conformed copy of Amendment No. 3 to the
Declaration of Trust;(9)
(iv) Conformed copy of Amendment No. 5 to
the Declaration of Trust;+
(v) Conformed copy of Amendment No. 6 to the
Declaration of Trust;+
(vi) Conformed copy of Amendment No. 7 to the
Declaration of Trust;+ Copy of Amended and
Restated By-Laws of the Registrant as of
December 31, 1991;(6)
(i) Copy of Amendment No. 4 to the By-Laws;+
(ii) Copy of Amendment No. 5 to the By-Laws;+
(iii) Copy of Amendment No. 6 to the By-Laws;+
(iv) Copy of Amendment No. 7 to the
By-Laws; +
c) Not applicable;
d) Copy of Specimen Certificate for Shares of Beneficial
Interest of the Registrant; (8)
e) (i) Conformed copy of Investment Advisory
Contract of the Registrant;(5)
(ii) Conformed copy of Exhibit to Investment
Advisory Contract of the Registrant;(9)
f) (i) Conformed copy of Distributor's Contract
of the Registrant, through and including
Exhibit B; (3)
(ii) Conformed copy of Exhibit C to
Distributor's Contract;(7)
(iii) Conformed copy of Exhibit D to
Distributor's Contract;(7)
(iv) The Registrant hereby incorporates the conformed
copy of the specimen Mutual Funds Sales and Service
Agreement; Mutual Funds Service Agreement; and
Plan/Trustee Mutual Funds Service Agreement from
Item 24(b)(6) of the Cash Trust Series II
Registration Statement on Form N-1A, filed with
the Commission on July 24, 1995.
(File Nos. 33-38550 and 811-6269);
g) Not applicable;
(8) (i) Conformed copy of Custodian Contract of
the Registrant;(10)
(ii) Conformed copy of Domestic Custody Fee
Schedule; +
----------------------------------------

1. Response is incorporated by reference to Registrant's Initial Registration
Statement on Form N-1A filed February 6, 1986. (File Nos. 33-3164 and
811-4577).

3. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 7 on Form N-1A filed April 25, 1990. (File Nos. 33-3164 and
811-4577).

5. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 12 on Form N-1A filed December 9, 1991. (File Nos. 33-3164
and 811-4577).

6. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 15 on Form N-1A filed April 30, 1993. (File Nos. 33-3164 and
811-4577).

7. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 19 on Form N-1A filed October 12, 1993. (File Nos. 33-3164
and 811-4577).

8. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 20 on Form N-1A filed June 7, 1994. (File Nos. 33-3164 and
811-4577).

9. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 21 on Form N-1A filed June 24, 1994. (File Nos. 33-3164 and
811-4577).

10. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 24 on Form N-1A filed June 23, 1995. (File Nos. 33-3164 and
811-4577).

<PAGE>

(9) (i) Conformed copy of Agreement for Fund
Accounting Services, Administrative Services,
Transfer Agency Services, and Custody Services
Procurement; +
(ii) Conformed copy of Amended and Restated Shareholder
Services Agreement; +
(iii) The responses and exhibits described in Item
24(b)(6)(iv) are hereby incorporated by reference;
(iv) The Registrant hereby incorporates the conformed copy
of the Shareholder Services Sub-Contract between
Fidelity and Federated Shareholder Services from
Item 24(b)(9)(iii) of the Federated GNMA Trust
Registration Statement on Form N-1A, filed with the
Commission on March 25, 1996.
(File Nos. 2-75670 and 811-3375);
(10) Not applicable;
(11) Conformed copy of Consent of Independent Auditors; +
(12) Not applicable;
(13) Not applicable;
(14) Not applicable;
(15) (i) Conformed copy of Rule 12b-1 Distribution
Plan of the Registrant;(5)
(ii) Conformed copy of Exhibit B to Rule 12b-1
Distribution Plan of the Registrant;(7) (iii) The
responses described in Item 24(b)(6)(iv) are hereby
incorporated by reference;
(16) Copy of Schedule of Computation of Funds Performance
Data: Federated Short-Term Income Fund;(8)
(17) Copy of Financial Data Schedules; +
(18) The Registrant hereby incorporates the conformed copy
of the specimen Multiple Class Plan from
Item 24(b)(18) of the World Investment Series, Inc.
Registration Statement on Form N-1A, filed with the
Commission on January 26, 1996. (File Nos. 33-52149 and
811-07141);
(19) Conformed copy of Power of Attorney. +
- ------------------------------------------
+ All exhibits have been filed electronically.

5. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 12 on Form N-1A filed December 9, 1991. (File Nos. 33-3164
and 811-4577).

7. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 19 on Form N-1A filed October 12, 1993. (File Nos. 33-3164
and 811-4577).

8. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 20 on Form N-1A filed June 7, 1994. (File Nos. 33-3164 and
811-4577).

<PAGE>

Item 25. Persons Controlled by or Under Common Control with Registrant:

None

Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of June 5, 1998

Shares of Beneficial Interest
(no par value)

Federated Short-Term Income Fund
Institutional Shares 2,075
Institutional Service Shares 292

Federated Intermediate Income Fund
Institutional Shares 576
Institutional Service Shares 415

Item 27. Indemnification: (4)

Item 28. Business and Other Connections of Investment Adviser:

(a) For a description of the other business of the investment adviser, see
the section entitled "Trust Information - Management of the Trust" in
Part A. The affiliations with the Registrant of four of the Trustees
and one of the Officers of the investment adviser are included in Part
B of this Registration Statement under " Federated Income Securities
Trust Management." The remaining Trustee of the investment adviser, his
position with the investment adviser, and, in parentheses, his
principal occupation is: Mark D. Olson (Partner, Wilson, Halbrook &
Bayard), 107 W. Market Street, Georgetown, Delaware 19947.

The remaining Officers of the investment adviser are:

Executive Vice Presidents: William D. Dawson, III
Henry A. Frantzen
J. Thomas Madden

Senior Vice Presidents: Joseph M. Balestrino
Drew J. Collins
Jonathan C. Conley
Deborah A. Cunningham
Mark E. Durbiano
Sandra L. McInerney
J. Alan Minteer
Susan M. Nason
Mary Jo Ochson
Robert J. Ostrowski

Vice Presidents: Todd A. Abraham
J. Scott Albrecht
Randall S. Bauer
David A. Briggs
Micheal W. Casey
Kenneth J. Cody
Alexandre de Bethmann
Michael P. Donnelly
Linda A. Duessel
Donald T. Ellenberger
Kathleen M. Foody-Malus

- ------------------------------------------

4. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 11 on Form N-1A filed June 25, 1991. (File Nos. 33-3164 and
811-4577).

Thomas M. Franks
Edward C. Gonzales
James E. Grefenstette
Susan R. Hill
Stephen A. Keen
Robert K. Kinsey
Robert M. Kowit
Jeff A. Kozemchak
Steven Lehman
Marian R. Marinack
Charles A. Ritter
Scott B. Schermerhorn
Frank Semack
Aash M. Shah
Christopher Smith
William F. Stotz
Tracy P. Stouffer
Edward J. Tiedge
Paige M. Wilhelm
Jolanta M. Wysocka

Assistant Vice Presidents: Stefanie L. Bachhuber
Arthur J. Barry
Robert E. Cauley
Lee R. Cunningham, II
Paul S. Drotch
Salvatore A. Esposito
Donna M. Fabiano
John T. Gentry
William R. Jamison
Constantine Kartsonsas
Natalie F. Metz
Joseph M. Natoli
Keith J. Sabol
John Sheehy
Michael W. Sirianni
Gregg S. Tenser
Leonardo A. Vila
Lori A. Wolff

Secretary: Stephen A. Keen

Treasurer: Thomas R. Donahue

Assistant Secretaries: Thomas R. Donahue
Richard B. Fisher
Christine I. McGonigle

Assistant Treasurer: Richard B. Fisher

The business address of each of the Officers of the investment adviser
is Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779.
These individuals are also officers of a majority of the investment
advisers to the Funds listed in Part B of this Registration Statement.

- ---

<PAGE>

Item 29. Principal Underwriters:

(a) Federated Securities Corp. the Distributor for shares of the
Registrant, acts as principal underwriter for the following
open-end investment companies, including the Registrant:

111 Corcoran Funds; Automated Government Money Trust; Blanchard Funds; Blanchard
Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc.; DG
Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated
Adjustable Rate U.S. Government Fund, Inc.; Federated American Leaders Fund,
Inc.; Federated ARMs Fund; Federated Core Trust; Federated Equity Funds;
Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government
Securities, Inc.; Federated GNMA Trust; Federated Government Income Securities,
Inc.; Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust; Federated Income
Trust; Federated Index Trust; Federated Institutional Trust; Federated Insurance
Series; Federated Investment Portfolios; Federated Investment Trust; Federated
Master Trust; Federated Municipal Opportunities Fund, Inc.; Federated Municipal
Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term Municipal
Trust; Federated Short-Term U.S. Government Trust; Federated Stock and Bond
Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated Total
Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government Securities
Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; Fixed Income Securities, Inc.; High Yield Cash
Trust; Independence One Mutual Funds; Intermediate Municipal Trust;
International Series, Inc.; Investment Series Funds, Inc.; Investment Series
Trust; Liberty U.S. Government Money Market Trust; Liquid Cash Trust; Managed
Series Trust; Marshall Funds, Inc.; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Obligations Trust II; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds; Regions
Funds; RIMCO Monument Funds; SouthTrust Vulcan Funds; Star Funds; Targeted
Duration Trust; Tax-Free Instruments Trust; The Planters Funds; The Virtus
Funds; The Wachovia Funds; The Wachovia Municipal Funds; Tower Mutual Funds;
Trust for Financial Institutions; Trust for Government Cash Reserves; Trust for
Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations;
Vision Group of Funds, Inc.; and World Investment Series, Inc.

Federated Securities Corp. also acts as principal underwriter for the
following closed-end investment company: Liberty Term Trust, Inc.- 1999.

<PAGE>

(b)

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant

Richard B. Fisher Director, Chairman, Chief Vice President
Federated Investors Tower Executive Officer, Chief
Pittsburgh, PA 15222-3779 Operating Officer, Asst.
Secretary and Asst.
Treasurer, Federated
Securities Corp.

Edward C. Gonzales Director, Executive Vice Executive Vice
Federated Investors Tower President, Federated, President
Pittsburgh, PA 15222-3779 Securities Corp.

Thomas R. Donahue Director, Assistant Secretary
Federated Investors Tower and Assistant Treasurer
Pittsburgh, PA 15222-3779 Federated Securities Corp

James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

David M. Taylor Executive Vice President --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Laura M. Deger Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant

Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Ernest G. Anderson Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Teresa M. Antoszyk Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Byron F. Bowman Vice President, Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

David J. Callahan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

R. Leonard Corton, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Marc C. Danile Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

William C. Doyle Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant

Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

John K. Goettlicher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Craig S. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard C. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Raymond Hanley Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Bruce E. Hastings Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Beth A. Hetzel Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

James E. Hickey Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Charlene H. Jennings Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Brian G. Kelly Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

H. Joseph Kennedy Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Michael W. Koenig Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Michael R. Manning Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant

Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Alec H. Neilly Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Thomas A. Peters III Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard A. Recker Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

John Rogers Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Brian S. Ronayne Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Thomas S. Schinabeck Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Edward L. Smith Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

John A. Staley Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Colin B. Starks Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant

Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Miles J. Wallace Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

John F. Wallin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Edward J. Wojnarowski Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Edward R. Bozek Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Terri E. Bush Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Beth C. Dell Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

David L. Immonen Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Renee L. Martin Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Robert M. Rossi Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Leslie K. Platt Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

<PAGE>

Item 30. Location of Accounts and Records:

All accounts and records required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and Rules 31a-1 through 31a-3 promulgated
thereunder are maintained at one of the following locations:

Registrant Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Federated Shareholder Services Company P.O. Box 8600
("Transfer Agent, Dividend Boston, MA 02266-8600
Disbursing Agent and Portfolio
Recordkeeper")

Federated Services Company Federated Investors Tower
("Administrator") 1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Federated Management Federated Investors Tower
("Adviser") 1001 Liberty Avenue
Pittsburgh, PA 15222-3779

State Street Bank and Trust Company P.O. Box 8600
("Custodian") Boston, MA 02266-8600

Item 31. Management Services: Not applicable.

Item 32.....Undertakings:

Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to removal of Trustees
and the calling of special shareholder meetings by shareholders.

Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders, upon request and without charge.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, FEDERATED INCOME SECURITIES
TRUST, has duly caused this Amendment to its Registration Statement to be signed
on its behalf by the undersigned, thereto duly authorized, in the City of
Pittsburgh and Commonwealth of Pennsylvania, on the 29th day of June, 1998.

FEDERATED INCOME SECURITIES TRUST

BY: /s/Anthony R. Bosch
Anthony R. Bosch, Assistant Secretary
Attorney in Fact for John F. Donahue
June 29, 1998

Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following person in
the capacity and on the date indicated:

NAME TITLE DATE
By: /s/Anthony R. Bosch
Anthony R. Bosch Attorney In Fact June 29, 1998
ASSISTANT SECRETARY For the Persons
Listed Below

NAME TITLE
John F. Donahue* Chairman and Trustee
(Chief Executive Officer)

Glen R. Johnson* President

John W. McGonigle* Treasurer, Executive
Vice President and Secretary
(Principal Financial and
Accounting Officer)

Thomas G. Bigley* Trustee

Nicholas P. Constantakis* Trustee

John T. Conroy, Jr.* Trustee

William J. Copeland* Trustee

James E. Dowd* Trustee

Lawrence D. Ellis, M.D.* Trustee

Edward L. Flaherty, Jr.* Trustee

Peter E. Madden* Trustee

John E. Murray, Jr.* Trustee

Wesley W. Posvar* Trustee

Marjorie P. Smuts* Trustee

* By Power of Attorney

Exhibit 1(i) under Form N-1A
Exhibit 3(i) under Item 601/Reg. S-K

AMENDED AND RESTATED
DECLARATION OF TRUST

FEDERATED INCOME SECURITIES TRUST
(Formerly Federated Floating Rate Trust)

Dated December 31, 1991

AMENDED AND RESTATED DECLARATION OF TRUST made December 31, 1991 by John F.
Donahue, John T. Conroy, Jr., William J. Copeland, James F. Dowd, Lawrence D.
Ellis, M.D., Edward L. Flaherty, Jr., Peter E. Madden, Gregor F. Meyer, Wesley
W. Posvar, Marjorie P. Smuts, and John A. Staley, IV.

WHEREAS, pursuant to a Declaration of Trust dated January 24, 1986, the
Trustees established a trust fund named Federated Floating Rate Trust for the
investment and reinvestment of funds contributed thereto; and

WHEREAS, the Trustees now desire to amend and restate the Declaration of
Trust to, among other things, (a) change the name of the Trust to "Federated
Income Securities Trust," (b) allow the Trust to establish and designate series
and classes of shares and (c) to establish the Trust's current portfolio as a
Series Company named "Federated Short-Intermediate Income Fund."

NOW, THEREFORE, the Trustees declare that all money and property
contributed to the trust fund hereunder shall be held and managed under this
Declaration of Trust IN TRUST as herein set forth below.

ARTICLE I

NAMES AND DEFINITIONS

Section 1. Name.

This Trust shall be known as Federated Income Securities Trust.

Section 2. Definitions.

Wherever used herein, unless otherwise required by the context or
specifically provided:

(a) The terms "Affiliated Person," "Assignment," "Commission,"
"Interested Person," "Majority Shareholder Vote" (the 67% or 50%
requirement of Section 2(a)(42) of the 1940 Act, whichever may be
applicable) and "Principal Underwriter" shall have the meanings given them
in the 1940 Act, as amended from time to time;

(b) The "Trust" refers to Federated Income Securities Trust;

(c) "Accumulated Net Income" means the accumulated net income of the
Trust determined in the manner provided or authorized in Article X, Section
3;

(d) "Class" refers to a class of Shares established and designated
under or in accordance with the provisions of Article III;

(e) "Series" refers to a series of Shares established and designated
under or in accordance with the provisions of Article III;

(f) "Series Company" refers to the form of a registered open-end
investment company described in Section 18(f)(2) of the 1940 Act or in any
successor statutory provision;

(g) "Shareholder" means a record owner of Shares of any Series or
Class;

(h) The "Trustees" refer to the individual Trustees in their capacity
as Trustees hereunder of the Trust and their successor or successors for
the time being in office as such Trustees;

(i) "Shares" means the equal proportionate units of interest into which
the beneficial interest in the Trust shall be divided from time to time, or
if more than one Series or Class of Shares is authorized by the Trustees,
the equal proportionate units into which each Series or Class of Shares
shall be divided from time to time and includes fractions of Shares as well
as whole Shares; and

(j) The "1940 Act" refers to the Investment Company Act of 1940, and
the Rules and Regulations thereunder (including any exemptions granted
thereunder), as amended from time to time.

ARTICLE II
PURPOSE OF TRUST

The purpose of this Trust is to provide investors a continuous source of
managed investments by investing primarily in securities.

ARTICLE III
BENEFICIAL INTEREST

Section 1. Shares of Beneficial Interest.

The beneficial interest in the Trust shall at all times be divided into
transferable Shares, without par value. Subject to the provisions of Section 5
of this Article III, each Share shall have voting rights as provided in Article
VIII hereof, and holders of the Shares of any Series shall be entitled to
receive dividends, when and as declared with respect thereto in the manner
provided in Article X, Section 1 hereof. The Shares of any Series may be issued
in two or more Classes, as the Trustees may authorize pursuant to Article XII,
Section 8 hereof. Unless the Trustees have authorized the issuance of Shares of
a Series in two or more Classes, each Share of a Series shall represent an equal
proportionate interest in the assets and liabilities of the Series with each
other Share of the same Series, none having priority or preference over another.
If the Trustees have authorized the issuance of Shares of a Series in two or
more Classes, then the Classes may have such variations as to dividend,
redemption, and voting rights, net asset values, expenses borne by the Classes,
and other matters as the Trustees have authorized provided that each Share of a
Class shall represent an equal proportionate interest in the assets and
liabilities of the Class with each other Share of the same Class, none having
priority or preference over another. The number of Shares authorized shall be
unlimited. The Trustees may from time to time divide or combine the Shares of
any Series or Class into a greater or lesser number without thereby changing the
proportionate beneficial interests in the Series or Class.

Section 2. Ownership of Shares.

The ownership of Shares shall be recorded in the books of the Trust or a
transfer agent, which books shall be maintained separately for the Shares of
each Series or Class. The Trustees may make such rules as they consider
appropriate for the transfer of Shares and similar matters. The record books of
the Trust or any transfer agent, as the case may be, shall be conclusive as to
who are the Shareholders of each Series or Class and as to the number of Shares
of each Series or Class held from time to time by each.

<PAGE>

Section 3. Investment in the Trust.

The Trustees shall accept investments in the Trust from such persons and on
such terms as they may from time to time authorize. After the date of the
initial contribution of capital (which shall occur prior to the initial public
offering of Shares), the number of Shares to represent the initial contribution
shall be considered as outstanding and the amount received by the Trustees on
account of the contribution shall be treated as an asset of the Trust to be
allocated among any Series or Classes in the manner described in Section 5(a) of
this Article. Subsequent to such initial contribution of capital, Shares
(including Shares which may have been redeemed or repurchased by the Trust) may
be issued or sold at a price which will net the relevant Series or Class, as the
case may be, before paying any taxes in connection with such issue or sale, not
less than the net asset value (as defined in Article X, Section 3) thereof;
provided, however, that the Trustees may in their discretion impose a sales
charge upon investments in the Trust.

Section 4. No Pre-emptive Rights.

Shareholders shall have no pre-emptive or other right to subscribe to any
additional Shares or other securities issued by the Trust or to the Trustees.

Section 5. Establishment and Designation of Series or Class.

Without limiting the authority of the Trustees set forth in Article XII,
Section 8, inter alia, to establish and designate any additional Series or Class
or to modify the rights and preferences of any existing Series or Class, the
Series and Classes shall be and are established and designated as:

Federated Short-Intermediate Income Fund
Institutional Service Shares
Institutional Shares

Shares of any Series or Class established in this Section 5 shall have the
following relative rights and preferences:

(a) Assets belonging to Series or Class. All consideration received by
the Trust for the issue or sale of Shares of a particular Series or Class,
together with all assets in which such consideration is invested or
reinvested, all income, earnings, profits, and proceeds thereof from
whatever source derived, including, without limitation, any proceeds
derived from the sale, exchange or liquidation of such assets, and any
funds or payments derived from any reinvestment of such proceeds in
whatever form the same may be, shall irrevocably belong to that Series or
Class for all purposes, subject only to the rights of creditors, and shall
be so recorded upon the books of account of the Trust. Such consideration,
assets, income, earnings, profits and proceeds thereof, from whatever
source derived, including, without limitation, any proceeds derived from
the sale, exchange or liquidation of such assets, and any funds or payments
derived from any reinvestment of such proceeds, in whatever form the same
may be, are herein referred to as "assets belonging to" that Series or
Class. In the event that there are any assets, income, earnings, profits
and proceeds thereof, funds or payments which are not readily identifiable
as belonging to any particular Series or Class (collectively "General
Assets"), the Trustees shall allocate such General Assets to, between or
among any one or more of the Series or Classes established and designated
from time to time in such manner and on such basis as they, in their sole
discretion, deem fair and equitable, and any General Assets so allocated to
a particular Series or Class shall belong to that Series or Class. Each
such allocation by the Trustees shall be conclusive and binding upon the
Shareholders of all Series or Classes for all purposes.

(b) Liabilities Belonging to Series or Class. The assets belonging to
each particular Series or Class shall be charged with the liabilities of
the Trust in respect to that Series or Class and all expenses, costs,
charges and reserves attributable to that Series or Class, and any general
liabilities of the Trust which are not readily identifiable as belonging to
any particular Series or Class shall be allocated and charged by the
Trustees to and among any one or more of the Series or Classes established
and designated from time to time in such manner and on such basis as the
Trustees in their sole discretion deem fair and equitable. The liabilities,
expenses, costs, charges and reserves so charged to a Series or Class are
herein referred to as "liabilities belonging to" that Series or Class. Each
allocation of liabilities belonging to a Series or Class by the Trustees
shall be conclusive and binding upon the Shareholders of all Series or
Classes for all purposes.

(c) Dividends, Distributions, Redemptions, Repurchases and
Indemnification. Notwithstanding any other provisions of this Declaration,
including, without limitation, Article X, no dividend or distribution
(including, without limitation, any distribution paid upon termination of
the Trust or of any Series or Class) with respect to, nor any redemption or
repurchase of, the Shares of any Series or Class shall be affected by the
Trust other than from the assets belonging to such Series or Class, nor
except as specifically provided in Section 1 of Article XI hereof, shall
any Shareholder of any particular Series or Class otherwise have any right
or claim against the assets belonging to any other Series or Class except
to the extent that such Shareholder has such a right or claim hereunder as
a Shareholder of such other Series or Class.

(d) Voting. Notwithstanding any of the other provisions of this
Declaration, including, without limitation, Section 1 of Article VIII, only
Shareholders of a particular Series or Class shall be entitled to vote on
any matters affecting such Series or Class. Except with respect to matters
as to which any particular Series or Class is affected, all of the Shares
of each Series or Class shall, on matters as to which such Series or Class
is entitled to vote, vote with other Series or Classes so entitled as a
single class. Notwithstanding the foregoing, with respect to matters which
would otherwise be voted on by two or more Series or Classes as a single
class, the Trustees may, in their sole discretion, submit such matters to
the Shareholders of any or all such Series or Classes, separately.

(e) Fraction. Any fractional Share of a Series or Class shall carry
proportionately all the rights and obligations of a whole Share of that
Series or Class, including rights with respect to voting, receipt of
dividends and distributions, redemption of Shares and termination of the
Trust or of any Series or Class.

(f) Exchange Privilege. The Trustees shall have the authority to
provide that the holders of Shares of any Series or Class shall have the
right to exchange said Shares for Shares of one or more other Series or
Classes in accordance with such requirements and procedures as may be
established by the Trustees.

(g) Combination of Series or Classes. The Trustees shall have the
authority, without the approval of the Shareholders of any Series or Class,
unless otherwise required by applicable law, to combine the assets and
liabilities belonging to a single Series or Class with the assets and
liabilities of one or more other Series or Classes.

(h) Elimination of Series or Classes. At any time that there are no
Shares outstanding of any particular Series or Class previously established
and designated, the Trustees may amend this Declaration of Trust to abolish
that Series or Class and to rescind the establishment and designation
thereof.

ARTICLE IV
THE TRUSTEES

Section 1. Management of the Trust.

The business and affairs of the Trust shall be managed by the Trustees, and
they shall have all powers necessary and desirable to carry out that
responsibility. The Trustees who shall serve until the election of Trustees at
the Meeting of Shareholders subsequent to the initial public offering of Shares
shall be John F. Donahue, William J. Copeland, James E. Dowd, Edward L.
Flaherty, Jr., J. Joseph Maloney, Jr., Gregor F. Meyer, Wesley W. Posvar and
Marjorie P. Smuts.

Section 2. Election of Trustees at Meeting of Shareholders.

On a date fixed by the Trustees, which shall be subsequent to the initial
public offering of Shares, the Shareholders shall elect Trustees. The number of
Trustees shall be determined by the Trustees pursuant to Article IV, Section 5.

Section 3. Term of Office of Trustees.

The Trustees shall hold office during the lifetime of this Trust, and until
its termination as hereinafter provided; except (a) that any Trustee may resign
his office at any time by written instrument signed by him and delivered to the
other Trustees, which shall take effect upon such delivery or upon such later
date as is specified therein; (b) that any Trustee may be removed at any time by
written instrument signed by at least two-thirds of the number of Trustees prior
to such removal, specifying the date when such removal shall become effective;
(c) that any Trustee who requests in writing to be retired or who has become
mentally or physically incapacitated may be retired by written instrument signed
by a majority of the other Trustees, specifying the date of his retirement; and
(d) a Trustee may be removed at any special meeting of Shareholders of the Trust
by a vote of two-thirds of the outstanding Shares.

Section 4. Termination of Service and Appointment of Trustees.

In case of the death, resignation, retirement, removal or mental or
physical incapacity of any of the Trustees, or in case a vacancy shall, by
reason of an increase in number, or for any other reason, exist, the remaining
Trustees shall fill such vacancy by appointing such other person as they in
their discretion shall see fit. Such appointment shall be effected by the
signing of a written instrument by a majority of the Trustees in office. Within
three months of such appointment, the Trustees shall cause notice of such
appointment to be mailed to each Shareholder at his address as recorded on the
books of the Trust. An appointment of a Trustee may be made by the Trustees then
in office and notice thereof mailed to Shareholders as aforesaid in anticipation
of a vacancy to occur by reason of retirement, resignation or increase in number
of Trustees effective at a later date, provided that said appointment shall
become effective only at or after the effective date of said retirement,
resignation or increase in number of Trustees. As soon as any Trustee so
appointed shall have accepted this Trust, the trust estate shall vest in the new
Trustee or Trustees, together with the continuing Trustees, without any further
act or conveyance, and he shall be deemed a Trustee hereunder. Any appointment
authorized by this Section 4 is subject to the provisions of Section 16(a) of
the 1940 Act.

<PAGE>

Section 5. Temporary Absence of Trustee.

Any Trustee may, by power of attorney, delegate his power for a period not
exceeding six months at any one time to any other Trustee or Trustees, provided
that in no case shall less than two of the Trustees personally exercise the
other power hereunder except as herein otherwise expressly provided.

Section 6. Number of Trustees.

The number of Trustees, not less than three (3) nor more than twenty (20)
serving hereunder at any time, shall be determined by the Trustees themselves.

Whenever a vacancy in the Board of Trustees shall occur, until such vacancy
is filled or while any Trustee is physically or mentally incapacitated, the
other Trustees shall have all the powers hereunder and the certificate signed by
a majority of the other Trustees of such vacancy, absence or incapacity, shall
be conclusive, provided, however, that no vacancy which reduces the number of
Trustees below three (3) shall remain unfilled for a period longer than six
calendar months.

Section 7. Effect of Death, Resignation, etc. of a Trustee.

The death, resignation, retirement, removal, or mental or physical
incapacity of the Trustees, or any one of them, shall not operate to annul the
Trust or to revoke any existing agency created pursuant to the terms of this
Declaration of Trust.

Section 8. Ownership of Assets.

The assets belonging to each Series or Class shall be held separate and
apart from any assets now or hereafter held in any capacity other than as
Trustee hereunder by the Trustees or any successor Trustee. All of the assets
belonging to each Series or Class or owned by the Trust shall at all times be
considered as vested in the Trustees. No Shareholder shall be deemed to have a
severable ownership interest in any individual asset belonging to any Series or
Class or owned by the Trust or any right of partition or possession thereof, but
each Shareholder shall have a proportionate undivided beneficial interest in a
Series or Class.

ARTICLE V
POWERS OF THE TRUSTEES

Section 1. Powers.

The Trustees in all instances shall act as principals, and are and shall be
free from the control of the Shareholders. The Trustees shall have full power
and authority to do any and all acts and to make and execute any and all
contracts and instruments that they may consider necessary or appropriate in
connection with the management of the Trust or a Series or Class. The Trustees
shall not be bound or limited by present or future laws or customs in regard to
trust investments, but shall have full authority and power to make any and all
investments which they, in their uncontrolled discretion, shall deem proper to
accomplish the purpose of this Trust. Without limiting the foregoing, the
Trustees shall have the following specific powers and authority, subject to any
applicable limitation in this Declaration of Trust or in the By-Laws of the
Trust:

(a) To buy, and invest funds in their hands in, securities including,
but not limited to, common stocks, preferred stocks, bonds, debentures,
warrants and rights to purchase securities, certificates of beneficial
interest, money market instruments, notes or other evidences of indebtedness
issued by any corporation, trust or association, domestic or foreign, or
issued or guaranteed by the United States of America or any agency or
instrumentality thereof, by the government of any foreign country, by any
State of the United States, or by any political subdivision or agency or
instrumentality of any State or foreign country, or in "when-issued" or
"delayed-delivery" contracts for any such securities, or in any repurchase
agreement or to retain assets belonging to each and every Series or Class in
cash, and from time to time to change the investments of the assets
belonging to each Series or Class.

(b) To adopt By-Laws of the Trust not inconsistent with the Declaration
of Trust providing for the conduct of the business of the Trust and to
amend and repeal them to the extent that they do not reserve that right to
the Shareholders.

(c) To elect and remove such officers of the Trust and appoint and
terminate such agents of the Trust as they consider appropriate.

(d) To appoint or otherwise engage a bank or trust company as custodian
of any assets belonging to any Series or Class subject to any conditions
set forth in this Declaration of Trust or in the By-Laws.

(e) To appoint or otherwise engage transfer agents, dividend disbursing
agents, Shareholder servicing agents, investment advisers, sub-investment
advisers, principal underwriters, administrative service agents, and such
other agents as the Trustees may from time to time appoint or otherwise
engage.

(f) To provide for the distribution of any Shares of any Series or
Class either through a principal underwriter in the manner hereinafter
provided for or by the Trust itself, or both.

(g) To set record dates in the manner hereinafter provided for;

(h) To delegate such authority as they consider desirable to a
committee or committees composed of Trustees, including without limitation,
an Executive Committee, or to any officers of the Trust and to any agent,
custodian or underwriter.

(i) To sell or exchange any or all of the assets belonging to one or
more Series or Classes, subject to the provisions of Article XII, Section
4(b) hereof.

(j) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and
deliver powers of attorney to such person or persons as the Trustees shall
deem proper, granting to such person or persons such power and discretion
with relation to securities or property as the Trustees shall deem proper.

(k) To exercise powers and rights of subscription or otherwise which in
any manner arise out of ownership of securities.

(l) To hold any security or property in a form not indicating any
trust, whether in bearer, unregistered or other negotiable form; or either
in its own name or in the name of a custodian or a nominee or nominees,
subject in either case to proper safeguards according to the usual practice
of Massachusetts trust companies or investment companies.

(m) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or concern, any security of
which belongs to any Series or Class; to consent to any contract, lease,
mortgage, purchase, or sale of property by such corporation or concern, and
to pay calls or subscriptions with respect to any security which belongs to
any Series or Class.

(n) To engage in and to prosecute, compound, compromise, abandon, or
adjust, by arbitration, or otherwise, any actions, suits, proceedings,
disputes, claims, demands, and things relating to the Trust, and out of the
assets belonging to any Series or Class to pay, or to satisfy, any debts,
claims or expenses incurred in connection therewith, including those of
litigation, upon any evidence that the Trustees may deem sufficient (such
powers shall include without limitation any actions, suits, proceedings,
disputes, claims, demands and things relating to the Trust wherein any of
the Trustees may be named individually and the subject matter of which
arises by reason of business for or on behalf of the Trust).

(o) To make distributions of income and of capital gains to
Shareholders in the manner hereinafter provided for.

(p) To borrow money but only as a temporary measure for extra ordinary
or emergency purposes and then (a) only in amounts not in excess of 5% of
the value of its total assets or of the total assets of any Series which
makes such borrowing or (b) in any amount up to one-third of the value of
its total assets or of the total assets of any Series which makes such
borrowing, including the amount borrowed, in order to meet redemption
requests without immediately selling any portfolio securities. The Trust or
any Series may also enter into reverse repurchase agreements in amounts not
in excess of one-third of its total assets in order to meet redemption
requests without immediately selling any portfolio instruments. The
Trustees shall not pledge, mortgage or hypothecate the assets of the Trust
or of any Series, except in connection with any borrowing described in (a)
and (b) herein and in amounts not in excess of the lesser of the dollar
amounts borrowed or 10% of the value of the Trust's or such Series' total
assets at the time of such borrowing.

(q) From time to time to issue and sell the Shares of any Series or
Class either for cash or for property whenever and in such amounts as the
Trustees may deem desirable, but subject to the limitation set forth in
Section 3 of Article III.

(r) To purchase insurance of any kind, including, without limitation,
insurance on behalf of any person who is or was a Trustee, officer,
employee or agent of the Trust, or is or was serving at the request of the
Trust as a trustee, director, officer, agent or employee of another
corporation, partnership, joint venture, trust or other enterprise against
any liability asserted against him and incurred by him in any such capacity
or arising out of his status as such.

No one dealing with the Trustees shall be under any obligation to make any
inquiry concerning the authority of the Trustees, or to see to the
application of any payments made or property transferred to the Trustees or
upon their order.

The Trustees shall have all of the powers set forth in this Section 1 with
respect to all assets and liabilities of each Series and Class.

Section 2. Principal Transactions.

The Trustees shall not cause the Trust on behalf of any Series or Class to
buy any securities (other than Shares) from or sell securities (other than
Shares) to, or lend any assets belonging to any Series or Class to any Trustee
or officer or employee of the Trust or any firm of which any such Trustee or
officer is a member acting as principal unless permitted by the 1940 Act, but
the Trust may employ any such other party or any such person or firm or company
in which any such person is an Interested Person in any capacity not prohibited
by the 1940 Act.

Section 3. Trustees and Officers as Shareholders.

Any Trustee, officer or other agent of the Trust or any Series or Class may
acquire, own and dispose of Shares of any Series or Class to the same extent as
if he were not a Trustee, officer or agent; and the Trustees may issue and sell
or cause to be issued or sold Shares of any Series or Class to and buy such
Shares from any such person or any firm or company in which he is an interested
person subject only to the general limitations herein contained as to the sale
and purchase of such Shares; and all subject to any restrictions which may be
contained in the By-Laws.

Section 4. Parties to Contract.

The Trustees may enter into any contract of the character described in
Article VII or in Article IX hereof or any other capacity not prohibited by the
1940 Act with any corporation, firm, trust or association, although one or more
of the Shareholders, Trustees, officers, employees or agents of the Trust or any
Series or Class or their affiliates may be an officer, Director, Trustee,
Shareholder or Interested Person of such other party to the contract, and no
such contract shall be invalidated or rendered voidable by reason of the
existence of any such relationship, nor shall any person holding such
relationship be liable merely by reason of such relationship for any loss or
expense to the Trust or any Series or Class under or by reason of said contract
or accountable for any profit realized directly or indirectly therefrom, in the
absence of actual fraud. The same person (including a firm, corporation, trust
or association) may be the other party to contracts entered into pursuant to
Article VII or Article IX or any other capacity not prohibited by the 1940 Act,
and any individual may be financially interested or otherwise an Interested
Person of persons who are parties to any or all of the contracts mentioned in
this Section 4.

ARTICLE VI
TRUSTEES' EXPENSES AND COMPENSATION

Section 1. Trustee Reimbursement.

The Trustees shall be reimbursed from the assets belonging to each
particular Series or Class for all of such Trustees' expenses as such expenses
are allocated to and among any one or more of the Series or Classes pursuant to
Article III, Section 5(b), including, without limitation, expenses of organizing
the Trust or any Series or Class and continuing its or their existence; fees and
expenses of Trustees and officers of the Trust; fees for investment advisory
services, administrative services and principal underwriting services provided
for in Article VII, Sections 1, 2 and 3; fees and expenses of preparing and
printing Registration Statements under the Securities Act of 1933 and the 1940
Act and any amendments thereto; expenses of registering and qualifying the Trust
and any Series or Class and the Shares of any Series or Class under federal and
state laws and regulations; expenses of preparing, printing and distributing
prospectuses and any amendments thereto sent to Shareholders, underwriters,
broker-dealers and to investors who may be considering the purchase of Shares;
expenses of registering, licensing or other authorization of the Trust or any
Series or Class as a broker-dealer and of its or their officers as agents and
salesmen under federal and state laws and regulations; interest expense, taxes,
fees and commissions of every kind; expenses of issue (including cost of share
certificates), purchases, repurchases and redemptions of Shares, including
expenses attributable to a program of periodic issue; charges and expenses of
custodians, transfer agents, dividend disbursing agents, Shareholder servicing
agents and registrars; printing and mailing costs; auditing, accounting and
legal expenses; reports to Shareholders and governmental officers and
commissions; expenses of meetings of Shareholders and proxy solicitations
therefor; insurance expenses; association membership dues and nonrecurring items
as may arise, including all losses and liabilities by them incurred in
administering the Trust and any Series or Class, including expenses incurred in
connection with litigation, proceedings and claims and the obligations of the
Trust under Article XI hereof and the By-Laws to indemnify its Trustees,
officers, employees, Shareholders and agents, and any contract obligation to
indemnify principal underwriters under Section 3 of Article VII; and for the
payment of such expenses, disbursements, losses and liabilities, the Trustees
shall have a lien on the assets belonging to each Series or Class prior to any
rights or interests of the Shareholders of any Series or Class. This section
shall not preclude the Trust from directly paying any of the aforementioned fees
and expenses.

Section 2. Trustee Compensation.

The Trustees shall be entitled to compensation from the Trust from the
assets belonging to any Series or Class for their respective services as
Trustees, to be determined from time to time by vote of the Trustees, and the
Trustees shall also determine the compensation of all officers, consultants and
agents whom they may elect or appoint. The Trust may pay out of the assets
belonging to any Series or Class any Trustee or any corporation, firm, trust or
other entity of which a Trustee is an Interested Person for services rendered in
any capacity not prohibited by the 1940 Act, and such payments shall not be
deemed compensation for services as a Trustee under the first sentence of this
Section 2 of Article VI.

ARTICLE VII
INVESTMENT ADVISER, ADMINISTRATIVE SERVICES,
PRINCIPAL UNDERWRITER AND TRANSFER AGENT

Section 1. Investment Adviser.

Subject to a Majority Shareholder Vote by the relevant Series or Class, the
Trustees may in their discretion from time to time enter into an investment
advisory contract whereby the other party to such contract shall undertake to
furnish the Trustees investment advisory services for such Series or Class upon
such terms and conditions and for such compensation as the Trustees may in their
discretion determine. Subject to a Majority Shareholder Vote by the relevant
Series or Class, the investment adviser may enter into a sub-investment advisory
contract to receive investment advice and/or statistical and factual information
from the sub-investment adviser for such Series or Class upon such terms and
conditions and for such compensation as the Trustees, in their discretion, may
agree. Notwithstanding any provisions of this Declaration of Trust, the Trustees
may authorize the investment adviser or sub-investment adviser or any person
furnishing administrative personnel and services as set forth in Article VII,
Section 2 (subject to such general or specific instructions as the Trustees may
from time to time adopt) to effect purchases, sales or exchanges of portfolio
securities belonging to a Series or Class on behalf of the Trustees or may
authorize any officer or Trustee to effect such purchases, sales, or exchanges
pursuant to recommendations of the investment adviser (and all without further
action by the Trustees). Any such purchases, sales and exchanges shall be deemed
to have been authorized by the Trustees. The Trustees may also authorize the
investment adviser to determine what firms shall be employed to effect
transactions in securities for the account of a Series or Class and to determine
what firms shall participate in any such transactions or shall share in
commissions or fees charged in connection with such transactions.

<PAGE>

Section 2. Administrative Services.

The Trustees may in their discretion from time to time contract for
administrative personnel and services whereby the other party shall agree to
provide the Trustees administrative personnel and services to operate the Trust
or a Series or Class on a daily basis, on such terms and conditions as the
Trustees may in their discretion determine. Such services may be provided by one
or more entities.

Section 3. Principal Underwriter.

The Trustees may in their discretion from time to time enter into an
exclusive or nonexclusive contract or contracts providing for the sale of the
Shares of a Series or Class to net such Series or Class not less than the amount
provided in Article III, Section 3 hereof, whereby a Series or Class may either
agree to sell the Shares to the other party to the contract or appoint such
other party its sales agent for such shares. In either case, the contract shall
be on such terms and conditions (including indemnification of principal
underwriters allowable under applicable law and regulation) as the Trustees may
in their discretion determine not inconsistent with the provisions of this
Article VII; and such contract may also provide for the repurchase or sale of
Shares of a Series or Class by such other party as principal or as agent of the
Trust and may provide that the other party may maintain a market for shares of a
Series or Class.

Section 4. Transfer Agent.

The Trustees may in their discretion from time to time enter into transfer
agency and shareholder services contracts whereby the other party shall
undertake to furnish a transfer agency and shareholder services. The contracts
shall be on such terms and conditions as the Trustees may in their discretion
determine not inconsistent with the provisions of this Declaration of Trust or
of the By-Laws. Such services may be provided by one or more entities.

Section 5. Provisions and Amendments.

Any contract entered into pursuant to Sections 1 or 3 of this Article VII
shall be consistent with and subject to the requirements of Section 15 of the
1940 Act (including any amendments thereof or other applicable Act of Congress
hereafter enacted) with respect to its continuance in effect, its termination
and the method of authorization and approval of such contract or renewal
thereof.

ARTICLE VIII
SHAREHOLDERS' VOTING POWERS AND MEETINGS

Section 1. Voting Powers.

Subject to the provisions set forth in Article III, Section 5(d), the
Shareholders shall have power to vote, (i) for the election of Trustees as
provided in Article IV, Section 2; (ii) for the removal of Trustees as provided
in Article IV, Section 3(d); (iii) with respect to any investment adviser or
sub-investment adviser as provided in Article VII, Section 1; (iv) with respect
to the amendment of this Declaration of Trust as provided in Article XII,
Section 7; (v) to the same extent as the shareholders of a Massachusetts
business corporation as to whether or not a court action, proceeding or claim
should be brought or maintained derivatively or as a class action on behalf of
the Trust or the Shareholders; and (vi) with respect to such additional matters
relating to the Trust as may be required by law, by this Declaration of Trust,
or the By-Laws of the Trust or any regulation of the Trust or the Commission or
any State, or as the Trustees may consider desirable. Each whole Share shall be
entitled to one vote as to any matter on which it is entitled to vote, and each
fractional Share shall be entitled to a proportionate fractional vote. There
shall be no cumulative voting in the election of Trustees. Shares may be voted
in person or by proxy. Until Shares of a Series or Class are issued, the
Trustees may exercise all rights of Shareholders of such Series or Class with
respect to matters affecting such Series or Class, and may take any action with
respect to the Trust or such Series or Class required or permitted by law, this
Declaration of Trust or any By-Laws of the Trust to be taken by Shareholders.

Section 2. Meetings.

A Shareholders meeting shall be held as specified in Section 2 of Article
IV at the principal office of the Trust or such other place as the Trustees may
designate. Special meetings of the Shareholders may be called by the Trustees or
the Chief Executive Officer of the Trust and shall be called by the Trustees
upon the written request of Shareholders owning at least one-tenth of the
outstanding Shares of all Series and Classes entitled to vote.
Shareholders shall be entitled to at least fifteen days' notice of any meeting.

Section 3. Quorum and Required Vote.

Except as otherwise provided by law, to constitute a quorum for the
transaction of any business at any meeting of Shareholders there must be
present, in person or by proxy, holders of more than fifty percent of the total
number of outstanding Shares of all Series and Classes entitled to vote at such
meeting. When any one or more Series or Classes is entitled to vote as a single
Series or Class, more than fifty percent of the shares of each such Series or
Class entitled to vote shall constitute a quorum at a Shareholder's meeting of
that Series or Class. If a quorum shall not be present for the purpose of any
vote that may properly come before the meeting, the Shares present in person or
by proxy and entitled to vote at such meeting on such matter may, by plurality
vote, adjourn the meeting from time to time to such place and time without
further notice than by announcement to be given at the meeting until a quorum
entitled to vote on such matter shall be present, whereupon any such matter may
be voted upon at the meeting as though held when originally convened. Subject to
any applicable requirement of law or of this Declaration of Trust or the
By-Laws, a plurality of the votes cast shall elect a Trustee, and all other
matters shall be decided by a majority of the votes cast and entitled to vote
thereon.

Section 4. Additional Provisions.

The By-Laws may include further provisions for Shareholders' votes and
meetings and related matters.

ARTICLE IX
CUSTODIAN

Section 1. Appointment and Duties.

The Trustees shall appoint or otherwise engage a bank or trust company
having an aggregate capital, surplus and undivided profits (as shown in its last
published report) of at least two million dollars ($2,000,000) as custodian with
authority as its agent, but subject to such restrictions, limitations and other
requirements, if any, as may be contained in the By-Laws of the Trust:

(1) To receive and hold the securities owned by the Trust or any
Series or Class and deliver the same upon written order;

(2) To receive and receipt for any moneys due to the Trust or any
Series or Class and deposit the same in its own banking department or
elsewhere as the Trustees may direct; and

(3) To disburse such funds upon orders or vouchers;

(4) To keep the books and accounts of the Trust or any Series or
Class and furnish clerical and accounting services;

(5) To compute, if authorized to do so by the Trustees, the Accumulated
Net Income of the Trust or any Series or Class and the net asset value of
the Shares in accordance with the provisions hereof;

all upon such basis of compensation as may be agreed upon between the Trustees
and the custodian. If so directed by a Majority Shareholder Vote, the custodian
shall deliver and pay over all property of the Trust or any Series held by it as
specified in such vote.

The Trustees may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of the
custodian and upon such terms and conditions, as may be agreed upon between the
custodian and such sub-custodian and approved by the Trustees, provided that in
every case such sub-custodian shall be a bank or trust company organized under
the laws of the United States or one of the states thereof and having an
aggregate capital, surplus and undivided profits (as shown in its last published
report) of at least two million dollars ($2,000,000).

Section 2. Central Certificate System.

Subject to such rules, regulations and orders as the Commission may adopt,
the Trustees may direct the custodian to deposit all or any part of the
securities owned by the Trust or any Series in a system for the central handling
of securities established by a national securities exchange or a national
securities association registered with the Commission under the Securities
Exchange Act of 1934, or such other person as may be permitted by the Commission
or otherwise in accordance with the 1940 Act, pursuant to which system all
securities of any particular class or series of any issuer deposited within the
system are treated as fungible and may be transferred or pledged by bookkeeping
entry without physical delivery of such securities, provided that all such
deposits shall be subject to withdrawal only upon the order of the custodian at
the direction of the Trustees.

ARTICLE X
DISTRIBUTIONS AND REDEMPTIONS

Section 1. Distributions.

(a) The Trustees may, on each day Accumulated Net Income of any Series or
Class is determined and is positive, declare and pay such Accumulated Net Income
as dividends to the Shareholders of such Series or Class, and the amount of such
dividends and the payment of them shall be wholly in the discretion of the
Trustees. Such dividends may be accrued and automatically reinvested in
additional Shares (or fractions thereof) of the relevant Series or Class or paid
in cash or additional Shares of such Series or Class, all upon such terms and
conditions as the Trustees may prescribe.

(b) The Trustees may distribute in respect of any fiscal year as dividends
and as capital gains distributions, respectively, amounts sufficient to enable
any Series or Class to qualify as a regulated investment company to avoid any
liability for federal income taxes in respect of that year.

(c) The decision of the Trustees as to what constitutes income and what
constitutes principal shall be final, and except as specifically provided herein
the decision of the Trustees as to what expenses and charges of any Series or
Class shall be charged against principal and what against the income shall be
final. Any income not distributed in any year may be permitted to accumulate and
as long as not distributed may be invested from time to time in the same manner
as the principal funds of any Series or Class.

(d) The Trustees shall have power, to the fullest extent permitted by the
laws of Massachusetts, at any time, or from time to time, to declare and cause
to be paid dividends on any Series or Class, which dividends, at the election of
the Trustees, may be accrued, automatically reinvested in additional Shares (or
fractions thereof) of the relevant Series or Class or paid in cash or additional
Shares of the relevant Series or Class, all upon such terms and conditions as
the Trustees may prescribe.

(e) Anything in this instrument to the contrary notwithstanding, the
Trustees may at any time declare and distribute a dividend consisting of shares
of any Series or Class of the Trust.

(f) All dividends and distributions on Shares of a particular Series or
Class shall be distributed pro rata to the holders of that Series or Class in
proportion to the number of Shares of that Series or Class held by such holders
and recorded on the books of the Trust or its transfer agent at the date and
time of record established for that payment.

Section 2. Redemptions and Repurchases.

(a) In case any Shareholder of record of any Series or Class at any time
desires to dispose of Shares of such Series or Class recorded in his name, he
may deposit a written request (or such other form of request as the Trustees may
from time to time authorize) requesting that the Trust purchase his Shares,
together with such other instruments or authorizations to effect the transfer as
the Trustees may from time to time require, at the office of the Transfer Agent,
and the Trust shall purchase his Shares out of assets belonging to such Series
or Class. The purchase price shall be the net asset value of his shares reduced
by any redemption charge as the Trustees from time to time may determine.

Payment for such Shares shall be made by the Trust to the Shareholder of
record within that time period required under the 1940 Act after the request
(and, if required, such other instruments or authorizations of transfer) is
deposited, subject to the right of the Trustees to postpone the date of payment
pursuant to Section 4 of this Article X. If the redemption is postponed beyond
the date on which it would normally occur by reason of a declaration by the
Trustees suspending the right of redemption pursuant to Section 4 of this
Article X, the right of the Shareholder to have his Shares purchased by the
Trust shall be similarly suspended, and he may withdraw his request (or such
other instruments or authorizations of transfer) from deposit if he so elects;
or, if he does not so elect, the purchase price shall be the net asset value of
his Shares determined next after termination of such suspension (reduced by any
redemption charge), and payment therefor shall be made within the time period
required under the 1940 Act.

(b) The Trust may purchase Shares of a Series or Class by agreement with
the owner thereof at a purchase price not exceeding the net asset value per
Share (reduced by any redemption charge) determined (1) next after the purchase
or contract of purchase is made or (2) at some later time.

(c) The Trust may pay the purchase price (reduced by any redemption charge)
in whole or in part by a distribution in kind of securities from the portfolio
of the relevant Series or Class, taking such securities at the same value
employed in determining net asset value, and selecting the securities in such
manner as the Trustees may deem fair and equitable.

Section 3. Determination of Accumulated Net Income.

The Accumulated Net Income of any Series or Class of the Trust shall be
determined by or on behalf of the Trustees at such time or times as the Trustees
shall in their discretion determine. Such determination shall be made in
accordance with generally accepted accounting principles and practices and may
include realized and/or unrealized gains from the sale or other disposition of
securities or other property of the relevant Series. The power and duty to
determine Accumulated Net Income for any Series or Class may be delegated by the
Trustees from time to time to one or more of the Trustees or officers of the
Trust, to the other party to any contract entered into pursuant to Section 1 or
2 of Article VII, or to the custodian or to a transfer agent.

Section 4. Net Asset Value of Shares.

The net asset value of each Share of a Series or Class outstanding shall be
determined at such time or times as may be determined by or on behalf of the
Trustees. The power and duty to determine net asset value may be delegated by
the Trustees from time to time to one or more of the Trustees or officers of the
Trust, to the other party to any contract entered into pursuant to Section 1 or
2 of Article VII or to the custodian or to a transfer agent or other person
designated by the Trustees.

The net asset value of each Share of a Series or Class as of any particular
time shall be the quotient (adjusted to the nearer cent) obtained by dividing
the value, as of such time, of the net assets belonging to such Series or Class
(i.e., the value of the assets belonging to such Series or Class less the
liabilities belonging to such Series or Class exclusive of capital and surplus)
by the total number of Shares outstanding of the Series or Class at such time in
accordance with the requirements of the 1940 Act and applicable provisions of
the By-Laws of the Trust in conformity with generally accepted accounting
practices and principles.

The Trustees may declare a suspension of the determination of net asset
value for the whole or any part of any period in accordance with the 1940 Act.

Section 5. Suspension of the Right of Redemption.

The Trustees may declare a suspension of the right of redemption or
postpone the date of payment for the whole or any part of any period in
accordance with the 1940 Act.

Section 6. Trust's Right to Redeem Shares.

The Trust shall have the right to cause the redemption of Shares of any
Series or Class in any Shareholder's account for their then current net asset
value and promptly make payment to the shareholder (which payment may be reduced
by any applicable redemption charge), if at any time the total investment in the
account does not have a minimum dollar value determined from time to time by the
Trustees in their sole discretion. Shares of any Series or Class of the Trust
are redeemable at the option of the Trust if, in the opinion of the Trustees,
ownership of such Shares has or may become concentrated to an extent which would
cause the Trust or any Series to be a personal holding company within the
meaning of the Federal Internal Revenue Code (and thereby disqualified under
Sub-chapter M of said Code); in such circumstances the Trust may compel the
redemption of Shares of such Series or Class, reject any order for the purchase
of such Shares or refuse to give effect to the transfer of such Shares.

ARTICLE XI
LIMITATION OF LIABILITY AND INDEMNIFICATION

Section 1. Limitation of Personal Liability and Indemnification of
Shareholders.

The Trustees, officers, employees or agents of the Trust shall have no
power to bind any Shareholder of any Series or Class personally or to call upon
such Shareholder for the payment of any sum of money or assessment whatsoever,
other than such as the Shareholder may at any time agree to pay by way of
subscription to any Shares or otherwise.

No Shareholder or former Shareholder of any Series or Class shall be liable
solely by reason of his being or having been a Shareholder for any debt, claim,
action, demand, suit, proceeding, judgment, decree, liability or obligation of
any kind, against, or with respect to the Trust or any Series or Class arising
out of any action taken or omitted for or on behalf of the Trust or such Series
or Class, and the Trust or such Series or Class shall be solely liable therefor
and resort shall be had solely to the property of the relevant Series or Class
of the Trust for the payment or performance thereof.

Each Shareholder or former Shareholder of any Series or Class (or their
heirs, executors, administrators or other legal representatives or, in case of a
corporate entity, its corporate or general successor) shall be entitled to be
indemnified and reimbursed by the Trust to the full extent of such liability and
the costs of any litigation or other proceedings in which such liability shall
have been determined, including, without limitation, the fees and disbursements
of counsel if, contrary to the provisions hereof, such Shareholder or former
Shareholder of such Series or Class shall be held to be personally liable. Such
indemnification and reimbursement shall come exclusively from the assets of the
relevant Series or Class.

The Trust shall, upon request by a Shareholder or former Shareholder,
assume the defense of any claim made against any Shareholder for any act or
obligation of the Trust or any Series or Class and satisfy any judgment thereon.

Section 2. Limitation of Personal Liability of Trustees, Officers,
Employees or Agents of the Trust.

No Trustee, officer, employee or agent of the Trust shall have the power to
bind any other Trustee, officer, employee or agent of the Trust personally. The
Trustees, officers, employees or agents of the Trust incurring any debts,
liabilities or obligations, or in taking or omitting any other actions for or in
connection with the Trust are, and each shall be deemed to be, acting as
Trustee, officer, employee or agent of the Trust and not in his own individual
capacity.

Provided they have acted under the belief that their actions are in the
best interest of the Trust, the Trustee and officers shall not be responsible
for or liable in any event for neglect or wrong doing by them or any officer,
agent, employee, investment adviser or principal underwriter of the Trust or of
any entity providing administrative services for the Trust, but nothing herein
contained shall protect any Trustee or officer against any liability to which he
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.

Section 3. Express Exculpatory Clauses and Instruments.

The Trustees shall use every reasonable means to assure that all persons
having dealings with the Trust or any Series or Class shall be informed that the
property of the Shareholders and the Trustees, officers, employees and agents of
the Trust or any Series or Class shall not be subject to claims against or
obligations of the Trust or any other Series or Class to any extent whatsoever.
The Trustees shall cause to be inserted in any written agreement, undertaking or
obligation made or issued on behalf of the Trust or any Series or Class
(including certificates for Shares of any Series or Class) an appropriate
reference to the provisions of this Declaration, providing that neither the
Shareholders, the Trustees, the officers, the employees nor any agent of the
Trust or any Series or Class shall be liable thereunder, and that the other
parties to such instrument shall look solely to the assets belonging to the
relevant Series or Class for the payment of any claim thereunder or for the
performance thereof; but the omission of such provisions from any such
instrument shall not render any Shareholder, Trustee, officer, employee or agent
liable, nor shall the Trustee, or any officer, agent or employee of the Trust or
any Series or Class be liable to anyone for such omission. If, notwithstanding
this provision, any Shareholder, Trustee, officer, employee or agent shall be
held liable to any other person by reason of the omission of such provision from
any such agreement, undertaking or obligation, the Shareholder, Trustee,
officer, employee or agent shall be indemnified and reimbursed by the Trust.

Section 4. Indemnification of Trustees, Officers, Employees and Agents.

(a) Every person who is or has been a Trustee, officer, employee or agent
of the Trust or of any Series of the Trust and persons who serve at the Trust's
request as director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise shall be indemnified by
the Trust or the relevant Series to fullest extent permitted by law against
liability and against all expenses reasonably incurred or paid by him in
connection with any debt, claim, action, demand, suit, proceeding, judgment,
decree, liability or obligation of any kind in which he becomes involved as a
party or otherwise by virtue of his being or having been a Trustee, officer,
employee or agent of the Trust or of such Series or of another corporation,
partnership, joint venture, trust or other enterprise at the request of the
Trust or of such Series and against amounts paid or incurred by him in the
settlement thereof.

(b) The words "claim," "action," "suit" or "proceeding" shall apply to all
claims, actions, suits or proceedings (civil, criminal, administrative,
legislative, investigative or other, including appeals), actual or threatened,
and the words "liability" and "expenses" shall include, without limitation,
attorneys' fees, costs, judgments, amounts paid in settlement, fines, penalties
and other liabilities.

(c) No indemnification shall be provided hereunder to a Trustee, officer,
employee or agent against any liability to the Trust or any Series of the Trust
or to its Shareholders by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.

(d) The rights of indemnification herein provided may be insured against by
policies maintained by the Trust or any Series, shall be severable, shall not
affect nay other rights to which any Trustee, officer, employee or agent may now
or hereafter be entitled, shall continue as to a person who has ceased to be
such Trustee, officer, employee, or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.

(e) In the absence of a final decision on the merits by a court or other
body before which such proceeding was brought, an indemnification payment will
not be made, except as provided in paragraph (f) of this Section 4, unless in
the absence of such a decision, a reasonable determination based upon a factual
review has been made (i) by a majority vote of a quorum of non-party trustees
who are not interested persons of the Trust, or (ii) by independent legal
counsel in a written opinion that the indemnitee was not liable for an act of
willful misfeasance, bad faith, gross negligence, or reckless disregard of
duties.

(f) The Trust and each Series further undertakes that advancement of
expenses incurred in the defense of a proceeding (upon undertaking for repayment
unless it is ultimately determined that indemnification is appropriate) against
an officer, trustee or controlling person of the Trust or any Series of the
Trust will not be made absent the fulfillment of at least one of the following
conditions: (i) the indemnitee provides security for his undertaking, (ii) the
Trust or Series is insured against losses arising by reason of any lawful
advances or (iii) a majority of a quorum of disinterested non-party trustees or
independent legal counsel in a written opinion makes a factual determination
that there is a reason to believe the indemnitee will be entitled to
indemnification.

ARTICLE XII
MISCELLANEOUS

Section 1. Trust is not a Partnership.

It is hereby expressly declared that a trust and not a partnership is
created hereby.

Section 2. Trustee Action Binding, Expert Advice, No Bond or Surety.

The exercise by the Trustees of their powers and discretions hereunder
shall be binding upon everyone interested. Subject to the provisions of Article
XI, the Trustees shall not be liable for errors of judgment or mistakes of fact
or law. The Trustees may take advice of counsel or other experts with respect to
the meaning and operation of this Declaration of Trust, and subject to the
provisions of Article XI, shall be under no liability for any act or omission in
accordance with such advice or for failing to follow such advice. The Trustees
shall not be required to give any bond as such, nor any surety if a bond is
required.

Section 3. Establishment of Record Dates.

The Trustees may close the Share transfer books of the Trust maintained
with respect to any Series or Class for a period not exceeding sixty (60) days
preceding the date of any meeting of Shareholders of the Trust or any Series or
Class, or the date for the payment of any dividend or the making of any
distribution to Shareholders, or the date for the allotment of rights, or the
date when any change or conversion or exchange of Shares of any Series or Class
shall go into effect; or in lieu of closing the Share transfer books as
aforesaid, the Trustees may fix in advance a date, not exceeding sixty (60) days
preceding the date of any meeting of Shareholders of the Trust or any Series or
Class, or the date for the payment of any dividend or the making of any
distribution to Shareholders of any Series or Class, or the date for the
allotment of rights, or the date when any change or conversion or exchange of
Shares of any Series or Class shall go into effect, or the last day on which the
consent or dissent of Shareholders of any Series or Class may be effectively
expressed for any purpose, as a record date for the determination of the
Shareholders entitled to notice of, and, to vote at, any such meeting and any
adjournment thereof, or entitled to receive payment of any such dividend or
distribution, or to any such allotment of rights, or to exercise the rights in
respect of any such change, conversion or exchange of shares, or to exercise the
right to give such consent or dissent, and in such case such Shareholders and
only such Shareholders as shall be Shareholders of record on the date so fixed
shall be entitled to such notice of, and to vote at, such meeting, or to receive
payment of such dividend or distribution, or to receive such allotment or
rights, or to exercise such rights, as the case may be, notwithstanding, after
such date fixed aforesaid, any transfer of any Shares on the books of the Trust
maintained with respect to any Series or Class. Nothing in the foregoing
sentence shall be construed as precluding the Trustees from setting different
record dates for different Series or Classes.

Section 4. Termination of Trust.

(a) This Trust shall continue without limitation of time but subject to the
provisions of paragraphs (b), (c) and (d) of this Section 4.

(b) The Trustees may, by majority action, with the approval of the holders
of more than fifty percent of the outstanding Shares of each Series or Class
entitled to vote and voting separately by Series or Class, sell and convey the
assets of the Trust or any Series or Class to another trust or corporation. Upon
making provision for the payment of all liabilities, by assumption or otherwise,
the Trustees shall distribute the remaining proceeds belonging to each Series or
Class ratably among the holders of the Shares of that Series or Class then
outstanding.

(c) Subject to a Majority Shareholder Vote by such Series or Class, the
Trustees may at any time sell and convert into money all the assets of the Trust
or any Series or Class. Upon making provision for the payment of all outstanding
obligations, taxes and other liabilities, accrued or contingent, belonging to
each Series or Class, the Trustees shall distribute the remaining assets
belonging to each Series or Class ratably among the holders of the outstanding
Shares of that Series or Class.

(d) Upon completion of the distribution of the remaining proceeds of the
remaining assets as provided in paragraphs (b) and (c), the Trust or the
applicable Series or Class shall terminate and the Trustees shall be discharged
of any and all further liabilities and duties hereunder or with respect thereto
and the right, title and interest of all parties shall be canceled and
discharged.

Section 5. Offices of the Trust, Filing of Copies, Headings, Counterparts.

The Trust shall maintain a usual place of business in Massachusetts, which,
initially, shall be 50 Congress Street, Boston, Massachusetts, and shall
continue to maintain an office at such address unless changed by the Trustees to
another location in Massachusetts. The Trust may maintain other offices as the
Trustees may from time to time determine. The original or a copy of this
instrument and of each Declaration of Trust supplemental hereto shall be kept at
the office of the Trust where it may be inspected by any Shareholder. A copy of
this instrument and of each supplemental declaration of trust shall be filed by
the Trustees with the Massachusetts Secretary of State and the Boston City
Clerk, as well as any other governmental office where such filing may from time
to time be required. Headings are placed herein for convenience of reference
only and in case of any conflict, the text of this instrument, rather than the
headings shall control. This instrument may be executed in any number of
counterparts each of which shall be deemed an original.

Section 6. Applicable Law.

The Trust set forth in this instrument is created under and is to be
governed by and construed and administered according to the laws of The
Commonwealth of Massachusetts. The Trust shall be of the type commonly called a
Massachusetts business trust, and without limiting the provisions hereof, the
Trust may exercise all powers which are ordinarily exercised by such a trust.

Section 7. Amendments -- General.

Prior to the initial issuance of Shares pursuant to Section 3 of Article
III, a majority of the Trustees then in office may amend or otherwise supplement
this instrument by making a Declaration of Trust supplemental hereto, which
thereafter shall form a part hereof. Subsequent to such initial issuance of
Shares, amendments or supplements to this instrument may be authorized by a
majority of the Trustees then in office and by a Majority Shareholder Vote of
all Series and Classes then outstanding and entitled to vote thereon (except
that any amendments or supplements changing the name of the Trust or pursuant to
Section 8 hereunder may be made without shareholder approval), or by any larger
vote which may be required by applicable law or this Declaration of Trust in any
particular case, which amendment or supplement thereafter shall form a part
hereof. Any such amendment or supplement (which may be in the form of a complete
restatement) may be evidenced by either (i) a supplemental Declaration of Trust
signed by at least a majority of the Trustees then in office or (ii) by a
certificate of the President and Secretary of the Trust setting forth such
amendment or supplement and certifying that such amendment or supplement has
been duly authorized by the Trustees, and if required, by the shareholders.
Copies of the supplemental Declaration of Trust or the certificate of the
President and Secretary, as the case may be, shall be filed as specified in
Section 5 of this Article XII.

Section 8. Amendments -- Series.

The establishment and designation of any series or class of Shares in
addition to those established and designated in Section 5 of Article III hereof
shall be effective upon the execution by a majority of the then Trustees of an
amendment to this Declaration of Trust, taking the form of a complete
restatement or otherwise, setting forth such establishment and designation and
the relative rights and preferences of any such Series or Class, or as otherwise
provided in such instrument.

Without limiting the generality of the foregoing, the Declaration of the
Trust may be amended to:

(a) create one or more Series or Classes of Shares (in addition to any
Series or Classes already existing or otherwise) with such rights and
preferences and such eligibility requirements for investment therein as the
Trustees shall determine and reclassify any or all outstanding Shares as Shares
of particular Series or Classes in accordance with such eligibility
requirements;

(b) combine two or more Series or Classes of Shares into a single Series
or Class on such terms and conditions as the Trustees shall determine;

(c) change or eliminate any eligibility requirements for investment in
Shares of any Series or Class, including without limitation the power to provide
for the issue of Shares of any Series or Class in connection with any merger or
consolidation of the Trust with another trust or company or any acquisition by
the Trust of part or all of the assets of another trust or company;

(d) change the designation of any Series or Class of Shares;

(e) change the method of allocating dividends among the various Series and
Classes of Shares;

(f) allocate any specific assets or liabilities of the Trust or any
specific items of income or expense of the Trust to one or more Series and
Classes of Shares;

(g) specifically allocate assets to any or all Series or Classes of Shares
or create one or more additional Series or Classes of Shares which are preferred
over all other Series or Classes of Shares in respect of assets specifically
allocated thereto or any dividends paid by the Trust with respect to any net
income, however determined, earned from the investment and reinvestment of any
assets so allocated or otherwise and provide for any special voting or other
rights with respect to such Series or Classes.

IN WITNESS WHEREOF, the undersigned have executed this instrument the day
and year first above written.

/s/John F. Donahue /s/Edward L. Flaherty, Jr.
John F. Donahue Edward L. Flaherty, Jr.

/s/John T. Conroy, Jr. /s/Peter E. Madden
John T. Conroy, Jr. Peter E. Madden

/s/William J. Copeland /s/Gregor F. Meyer
William J. Copeland Gregor F. Meyer

/s/James E. Dowd /s/Wesley W. Posvar
James E. Dowd Wesley W. Posvar

/s/Lawrence D. Ellis, M.D. /s/Marjorie P. Smuts
Lawrence D. Ellis, M.D. Marjorie P. Smuts

/s/John A. Staley, IV
John A. Staley, IV

<PAGE>

COMMONWEALTH OF PENNSYLVANIA )
) ss:
COUNTY OF ALLEGHENY )

I hereby certify that on December 31, 1991, before me, the subscriber, a
Notary Public of the Commonwealth of Pennsylvania, in the County of Allegheny,
personally appeared JOHN F. DONAHUE, JOHN T. CONROY, JR., WILLIAM J. COPELAND,
JAMES E. DOWD, LAWRENCE D. ELLIS, M.D., EDWARD L. FLAHERTY, JR., GREGOR F.
MEYER, PETER E. MADDEN, WESLEY W. POSVAR, MARJORIE P. SMUTS, AND JOHN A. STALEY,
IV., who acknowledged the foregoing Declaration of Trust to be their act.

Witness my hand and notarial seal the day and year above written.

/s/Cynthia L. Gorseth
Notary Public

Exhibit 1(iv) under Form N-1A
Exhibit 3(i) under Item 601/Reg. S-K

FEDERATED INCOME SECURITIES TRUST

Amendment No. 5
DECLARATION OF TRUST
dated December 31, 1991

This Declaration of Trust is amended as follows:

Strike the first paragraph of Section 5 of Article III from the
Declaration of Trust and substitute in its place the following:

"Section 5. Establishment and Designation of Series or Class. Without
limiting the authority of the Trustees set forth in Article XII,
Section 8, inter alia, to establish and designate any additional
Series or Class or to modify the rights and preferences of any
existing Series or Class, the Series and Classes of the Trust are
established and designated as:

Federated Short-Term Income Fund
Institutional Service Shares
Institutional Shares
Intermediate Income Fund
Institutional Service Shares
Institutional Shares
Schwab Shares"

The undersigned Assistant Secretary of Federated Income Securities
Trust hereby certifies that the above stated Amendment is a true and correct
Amendment to the Declaration of Trust, as adopted by the Board of Trustees on
the 18th day of May, 1995.

WITNESS the due execution hereof this 22nd day of May, 1995.

Victor R. Siclari,
Assistant Secretary

Exhibit 1(v) under Form N-1A
Exhibit 3(i) under Item 601/Reg. S-K

FEDERATED INCOME SECURITIES TRUST

Amendment No. 6
DECLARATION OF TRUST
Amended and Restated as of December 31, 1991

This Declaration of Trust is amended as follows:

Strike the first paragraph of Section 5 of Article III from the Declaration
of Trust and substitute in its place the following:

"Section 5. Establishment and Designation of Series or Class.

Without limiting the authority of the Trustees set forth in
Article XII, Section 8, INTER ALIA, to establish and designate any
additional Series or Class or to modify the rights and preferences
of any existing Series or Class, the Series and Classes shall be and
are established and designated as:

Federated Short-Term Income Fund
Institutional Service Shares
Institutional Shares
Intermediate Income Fund
Institutional Service Shares
Institutional Shares"

The undersigned Assistant Secretary of Federated Income Securities Trust
hereby certifies that the above-stated Amendment is a true and correct Amendment
to the Declaration of Trust, as adopted by the Board of Trustees on the 23rd day
of August, 1995.

WITNESS the due execution hereof this 23rd day of August, 1995.

Victor R. Siclari
Assistant Secretary

Exhibit 1(vi) under Form N-1A
Exhibit 3(i) under Item 601/Reg. S-K

FEDERATED INCOME SECURITIES TRUST

Amendment No. 7
DECLARATION OF TRUST
Amended and Restated as of December 31, 1991

Effective as of March 31, 1996, this Declaration of Trust is amended as
follows:

Strike the first paragraph of Section 5 of Article III from the
Declaration of Trust and substitute in its place the following:

"Section 5. Establishment and Designation of Series or Class.

Without limiting the authority of the Trustees set forth in
Article XII, Section 8, INTER ALIA, to establish and designate
any additional Series or Class or to modify the rights and
preferences of any existing Series or Class, the Series and
Classes shall be and are established and designated as:

Federated Short-Term Income Fund
Institutional Service Shares
Institutional Shares
Federated Intermediate Income Fund
Institutional Service Shares
Institutional Shares"

The undersigned Assistant Secretary of Federated Income Securities Trust
hereby certifies that the above-stated Amendment is trust and correct Amendment
to the Declaration of Trust, as adopted by the Board of Trustees on the 26th day
of February, 1996.

WITNESS the due execution hereof this 26th day of February, 1996.

/s/ Charles H. Field
Charles H. Field
Assistant Secretary

Exhibit 2(i) under Form N-1A
Exhibit 3(ii) under Item 601/Reg. S-K

Federated Income Securities Trust

Amendment No. 4
to the By-Laws

Effective November 18, 1997

Delete Article III, Section 7 and replace with the following:

Action by Consent of the Board of Trustees, Executive Committee or Other
Committee. Subject to Article V, Section 2 of these By-Laws, any action required
or permitted to be taken at any meeting of the Trustees, Executive Committee or
any other duly appointed Committee may be taken without a meeting if consents in
writing setting forth such action are signed by all members of the Board or such
committee and such consents are filed with the records of the Trust. In the
event of the death, removal, resignation or incapacity of any Board or committee
member prior to that Trustee signing such consent, the remaining Board or
committee members may re-constitute themselves as the entire Board or committee
until such time as the vacancy is filled in order to fulfill the requirement
that such consents be signed by all members of the Board of committee.

Exhibit 2(ii) under Form N-1A
Exhibit 3(ii) under Item 601/Reg. S-K

Federated Income Securities Trust

Amendment #5
to the By-Laws

(effective February 23, 1998)

Delete Sections 1, 2 and 3 of Article I, OFFICERS AND THEIR ELECTION, and
replace with:

Section 1. Officers. The Officers of the Trust shall be a President, one
or more Vice Presidents, a Treasurer, and a Secretary. The Board of
Trustees, in its discretion, may also elect or appoint a Chairman of the
Board of Trustees (who must be a Trustee) and other Officers or agents,
including one or more Assistant Vice Presidents, one or more Assistant
Secretaries, and one or more Assistant Treasurers. A Vice President, the
Secretary or the Treasurer may appoint an Assistant Vice President, an
Assistant Secretary or an Assistant Treasurer, respectively, to serve
until the next election of Officers. Two or more offices may be held by a
single person except the offices of President and Vice President may not
be held by the same person concurrently. It shall not be necessary for any
Trustee or any Officer to be a holder of shares in any Series or Class of
the Trust.

Section 2. Election of Officers. The Officers shall be elected annually by
the Trustees. Each Officer shall hold office for one year and until the
election and qualification of his successor, or until earlier resignation
or removal. The Chairman of the Board of Trustees, if there is one, shall
be elected annually by and from the Trustees, and serve until a successor
is so elected and qualified, or until earlier resignation or removal.

Section 3. Resignations and Removals and Vacancies. Any Officer of the
Trust may resign at any time by filing a written resignation with the
Board of Trustees (or Chairman of the Trustees, if there is one), with the
President, or with the Secretary. Any such resignation shall take effect
at the time specified therein or, if no time is specified, at the time of
receipt. Unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective. Any Officer
elected by the Board of Trustees or whose appointment has been ratified by
the Board of Trustees may be removed with or without cause at any time by
a majority vote of all of the Trustees. Any other employee of the Trust
may be removed or dismissed at any time by the President. Any vacancy in
any of the offices, whether by resignation, removal or otherwise, may be
filled for the unexpired portion of the term by the President. A vacancy
in the office of Assistant Vice President may be filled by a Vice
President; in the office of Assistant Secretary by the Secretary; or in
the office of Assistant Treasurer by the Treasurer. Any appointment to
fill any vacancy shall serve subject to ratification by the Board of
Trustees at its next regular meeting.

Exhibit 2(iii) under Form N-1A
Exhibit 3(ii) under Item 601/Reg. S-K

Federated Income Securities Trust

Amendment #6
to the By-Laws

(effective February 27, 1998)

Delete Section 5 Proxies of Article IV Shareholders' Meetings, and replace with
the following:

Section 5. Proxies. Any shareholder entitled to vote at any meeting of
shareholders may vote either in person, by telephone, by electronic means
including facsimile, or by proxy, but no proxy which is dated more than
six months before the meeting named therein shall be accepted unless
otherwise provided in the proxy. Every proxy shall be in writing,
subscribed by the shareholder or his duly authorized agent or be in such
other form as may be permitted by law, including documents conveyed by
electronic transmission. Every proxy shall be dated, but need not be
sealed, witnessed or acknowledged. The placing of a shareholder's name on
a proxy or authorizing another to act as the shareholder's agent, pursuant
to telephone or electronically transmitted instructions obtained in
accordance with procedures reasonably designed to verify that such
instructions have been authorized by such shareholder, shall constitute
execution of a proxy by or on behalf of such shareholder. Where Shares are
held of record by more than one person, any co-owner or co-fiduciary may
execute the proxy or give authority to an agent, unless the Secretary of
the Trust is notified in writing by any co-owner or co-fiduciary that the
joinder of more than one is to be required. All proxies shall be filed
with and verified by the Secretary or an Assistant Secretary of the Trust,
or the person acting as Secretary of the Meeting. Unless otherwise
specifically limited by their term, all proxies shall entitle the holders
thereof to vote at any adjournment of such meeting but shall not be valid
after the final adjournment of such meeting.

Exhibit 2(iv) under Form N-1A
Exhibit 3(ii) under Item 601/Reg. S-K

Federated Income Securities Trust

Amendment #7
to the By-Laws

(effective May 12, 1998)

Strike Section 3 - Place of Meeting of Article IV - Shareholders' Meetings and
replace it with the following:

Section 3. Place of Meeting. Meetings of the shareholders of the Trust or
a particular Series or Class shall be held at such place within or without
The Commonwealth of Massachusetts as may be fixed from time to time by
resolution of the Trustees.

Strike Section 6 - Place of Meeting of Article V - Trustees' Meetings and
replace it with the following:

Section 6. Place of Meeting. Meetings of the Trustees shall be held at
such place within or without The Commonwealth of Massachusetts as fixed
from time to time by resolution of the Trustees, or as the person or
persons requesting said meeting to be called may designate, but any
meeting may adjourn to any other place.

Exhibit 8(ii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K

STATE STREET
DOMESTIC CUSTODY

FEE SCHEDULE

Federated Funds

I. Custody Services

Maintain custody of fund assets. Settle portfolio purchases and sales.
Report buy and sell fails. Determine and collect portfolio income. Make
cash disbursements and report cash transactions. Monitor corporate
actions.

ANNUAL FEES

ASSET

Per Fund .25 Basis Points

Wire Fees $3.00 per wire

Settlements:

o Each DTC Transaction $5.00
o Each Federal Reserve Book Entry Transaction $3.75
o Each Repo Transaction (All Repo) $3.75
o Each Physical Transaction (NY/Boston, Private Placement) $15.00
o Each Option Written/Exercised/Expired $18.75
Each Book Entry Muni (Sub-custody) Transaction $15.00
o Government Paydowns $5.00
o Maturity Collections $8.00
o PTC Transactions $6.00

II. Special Services

Fees for activities of a non-recurring nature such as fund consolidation
or reorganization, extraordinary security shipments and the preparation of
special reports will be subject to negotiation.

III. Balance Credit

Municipal Funds
A balance credit equal to 75% of the average demand deposit account
balance in the custodian account for the month billed times the 30 day
T-Bill Rate on the last Monday of the month billed, will be applied
against the month's custodian bill.

Transfer Agent
A balance credit equal to 100% of the average balance in the transfer
agent demand deposit accounts, less the reserve requirement and applicable
related expenses, times 75% of the 30 average Fed Funds Rate.

IV. Payment

The above fees will be charged against the funds' custodian checking
account thirty (30) days after the invoice is mailed to the funds' offices.

V. Term of Contract

The parties agree that this fee schedule shall become effective
January 1, 1997.

FEDERATED SERVICES COMPANY STATE STREET

BY: /s/ Douglas L. Hein BY: /s/ Michael E. Hagerty

TITLE: Senior Vice President TITLE: Vice President

DATE: April 15, 1997 DATE: April 8, 1997

Exhibit 9(i) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K

AMENDED & RESTATED
AGREEMENT
for
FUND ACCOUNTING SERVICES,
ADMINISTRATIVE SERVICES,
TRANSFER AGENCY SERVICES
and
CUSTODY SERVICES PROCUREMENT

AGREEMENT made as of March 1, 1996, and amended and restated as of September
1, 1997, by and between those investment companies listed on Exhibit 1 as may be
amended from time to time, having their principal office and place of business
at Federated Investors Tower, Pittsburgh, PA 15222-3779 (the "Investment
Company"), on behalf of the portfolios (individually referred to herein as a
"Fund" and collectively as "Funds") of the Investment Company, and FEDERATED
SERVICES COMPANY, a Pennsylvania corporation, having its principal office and
place of business at Federated Investors Tower, Pittsburgh, Pennsylvania
15222-3779 on behalf of itself and its subsidiaries (the "Company").

WHEREAS, the Investment Company is registered as an open-end management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"), with authorized and issued shares of capital stock or beneficial
interest ("Shares");

WHEREAS, the Investment Company may desire to retain the Company as fund
accountant to provide fund accounting services (as herein defined) including
certain pricing, accounting and recordkeeping services for each of the Funds,
including any classes of shares issued by any Fund ("Classes") if so indicated
on Exhibit 1, and the Company desires to accept such appointment;

WHEREAS, the Investment Company may desire to appoint the Company as its
administrator to provide it with administrative services (as herein defined), if
so indicated on Exhibit, and the Company desires to accept such appointment;

WHEREAS, the Investment Company may desire to appoint the Company as its
transfer agent and dividend disbursing agent to provide it with transfer agency
services (as herein defined) if so indicated on Exhibit 1, and agent in
connection with certain other activities, and the Company desires to accept such
appointment; and

WHEREAS, the Investment Company may desire to appoint the Company as its
agent to select, negotiate and subcontract for custodian services from an
approved list of qualified banks if so indicated on Exhibit 1, and the Company
desires to accept such appointment; and

NOW THEREFORE, in consideration of the premises and mutual covenants herein
contained, and intending to be legally bound hereby, the parties hereto agree as
follows:

SECTION ONE: Fund Accounting.

Article 1. Appointment.
The Investment Company hereby appoints the Company to provide certain pricing
and accounting services to the Funds, and/or the Classes, for the period and on
the terms set forth in this Agreement. The Company accepts such appointment and
agrees to furnish the services herein set forth in return for the compensation
as provided in Article 3 of this Section.

Article 2. The Company's Duties.
Subject to the supervision and control of the Investment Company's Board of
Trustees or Directors ("Board"), the Company will assist the Investment Company
with regard to fund accounting for the Investment Company, and/or the Funds,
and/or the Classes, and in connection therewith undertakes to perform the
following specific services;

A. Value the assets of the Funds using: primarily, market quotations,
including the use of matrix pricing, supplied by the independent pricing
services selected by the Company in consultation with the adviser, or
sources selected by the adviser, and reviewed by the board; secondarily, if
a designated pricing service does not provide a price for a security which
the Company believes should be available by market quotation, the Company
may obtain a price by calling brokers designated by the investment adviser
of the fund holding the security, or if the adviser does not supply the
names of such brokers, the Company will attempt on its own to find brokers
to price those securities; thirdly, for securities for which no market
price is available, the Pricing Committee of the Board will determine a
fair value in good faith. Consistent with Rule 2a-4 of the 40 Act,
estimates may be used where necessary or appropriate. The Company's
obligations with regard to the prices received from outside pricing
services and designated brokers or other outside sources, is to exercise
reasonable care in the supervision of the pricing agent. The Company is not
the guarantor of the securities prices received from such agents and the
Company is not liable to the Fund for potential errors in valuing a Fund's
assets or calculating the net asset value per share of such Fund or Class
when the calculations are based upon such prices. All of the above sources
of prices used as described are deemed by the Company to be authorized
sources of security prices. The Company provides daily to the adviser the
securities prices used in calculating the net asset value of the fund, for
its use in preparing exception reports for those prices on which the
adviser has comment. Further, upon receipt of the exception reports
generated by the adviser, the Company diligently pursues communication
regarding exception reports with the designated pricing agents;

B. Determine the net asset value per share of each Fund and/or Class, at the
time and in the manner from time to time determined by the Board and as set
forth in the Prospectus and Statement of Additional Information
("Prospectus") of each Fund;

C. Calculate the net income of each of the Funds, if any;

D. Calculate realized capital gains or losses of each of the Funds resulting
from sale or disposition of assets, if any;

E. Maintain the general ledger and other accounts, books and financial records
of the Investment Company, including for each Fund, and/or Class, as
required under Section 31(a) of the 1940 Act and the Rules thereunder in
connection with the services provided by the Company;

F. Preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the
records to be maintained by Rule 31a-1 under the 1940 Act in connection
with the services provided by the Company. The Company further agrees that
all such records it maintains for the Investment Company are the property
of the Investment Company and further agrees to surrender promptly to the
Investment Company such records upon the Investment Company's request;

G. At the request of the Investment Company, prepare various reports or other
financial documents in accordance with generally accepted accounting
principles as required by federal, state and other applicable laws and
regulations; and

H. Such other similar services as may be reasonably requested by the
Investment Company.

The foregoing, along with any additional services that the Company shall
agree in writing to perform for the Investment Company under this Section One,
shall hereafter be referred to as "Fund Accounting Services."

Article 3. Compensation and Allocation of Expenses.

A. The Funds will compensate the Company for Fund Accounting Services in
accordance with the fees agreed upon from time to time between the
parties hereto. Such fees do not include out-of-pocket disbursements of
the Company for which the Funds shall reimburse the Company.
Out-of-pocket disbursements shall include, but shall not be limited to,
the items agreed upon between the parties from time to time.

B. The Fund and/or the Class, and not the Company, shall bear the cost of:
custodial expenses; membership dues in the Investment Company Institute
or any similar organization; transfer agency expenses; investment
advisory expenses; Prospectuses, reports and notices; administrative
expenses; interest on borrowed money; brokerage commissions; taxes and
fees payable to federal, state and other governmental agencies; fees of
Trustees or Directors of the Investment Company; independent auditors
expenses; legal and audit department expenses billed to the Company for
work performed related to the Investment Company, the Funds, or the
Classes; law firm expenses; organizational expenses; or other expenses
not specified in this Article 3 which may be properly payable by the
Funds and/or Classes.

C. The compensation and out-of-pocket expenses attributable to the Fund
shall be accrued by the Fund and shall be paid to the Company no less
frequently than monthly, and shall be paid daily upon request of the
Company. The Company will maintain detailed information about the
compensation and out-of-pocket expenses by Fund and Class.

D. Any schedule of compensation agreed to hereunder, as may be adjusted
from time to time, shall be dated and signed by a duly authorized
officer of the Investment Company and/or the Funds and a duly authorized
officer of the Company.

E. The fee for the period from the effective date of this Agreement with
respect to a Fund or a Class to the end of the initial month shall be
prorated according to the proportion that such period bears to the full
month period. Upon any termination of this Agreement before the end of
any month, the fee for such period shall be prorated according to the
proportion which such period bears to the full month period. For
purposes of determining fees payable to the Company, the value of the
Fund's net assets shall be computed at the time and in the manner
specified in the Fund's Prospectus.

F. The Company, in its sole discretion, may from time to time subcontract
to, employ or associate with itself such person or persons as the
Company may believe to be particularly suited to assist it in performing
Fund Accounting Services. Such person or persons may be affiliates of
the Company, third-party service providers, or they may be officers and
employees who are employed by both the Company and the Investment
Company; provided, however, that the Company shall be as fully
responsible to each Fund for the acts and omissions of any such
subcontractor as it is for its own acts and omissions. The compensation
of such person or persons shall be paid by the Company and no obligation
shall be incurred on behalf of the Investment Company, the Funds, or the
Classes in such respect.

SECTION TWO: ADMINISTRATIVE SERVICES.

Article 4. Appointment.

The Investment Company hereby appoints the Company as Administrator for the
period on the terms and conditions set forth in this Agreement. The Company
hereby accepts such appointment and agrees to furnish the services set forth in
Article 5 of this Agreement in return for the compensation set forth in Article
9 of this Agreement.

Article 5. The Company's Duties.

As Administrator, and subject to the supervision and control of the Board and
in accordance with Proper Instructions (as defined hereafter) from the
Investment Company, the Company will provide facilities, equipment, and
personnel to carry out the following administrative services for operation of
the business and affairs of the Investment Company and each of its portfolios:

A. prepare, file, and maintain the Investment Company's governing documents
and any amendments thereto, including the Charter (which has already
been prepared and filed), the By-laws and minutes of meetings of the
Board and Shareholders;

B. prepare and file with the Securities and Exchange Commission and the
appropriate state securities authorities the registration statements for
the Investment Company and the Investment Company's shares and all
amendments thereto, reports to regulatory authorities and shareholders,
prospectuses, proxy statements, and such other documents all as may be
necessary to enable the Investment Company to make a continuous offering
of its shares;

C. prepare, negotiate, and administer contracts (if any) on behalf of the
Investment Company with, among others, the Investment Company's
investment advisers and distributors, subject to any applicable
restrictions of the Board or the 1940 Act;

D. calculate performance data of the Investment Company for dissemination to
information services covering the investment company industry;

E. prepare and file the Investment Company's tax returns;

F. coordinate the layout and printing of publicly disseminated
prospectuses and reports;

G. perform internal audit examinations in accordance with a charter to be
adopted by the Company and the Investment Company;

H. assist with the design, development, and operation of the Investment
Company and the Funds;

I. provide individuals reasonably acceptable to the Board for nomination,
appointment, or election as officers of the Investment Company, who will
be responsible for the management of certain of the Investment Company's
affairs as determined by the Investment Company's Board; and

J. consult with the Investment Company and its Board on matters concerning
the Investment Company and its affairs.

The foregoing, along with any additional services that the Company shall
agree in writing to perform for the Investment Company under this Section Two,
shall hereafter be referred to as "Administrative Services."

Article 6. Records.

The Company shall create and maintain all necessary books and records in
accordance with all applicable laws, rules and regulations, including but not
limited to records required by Section 31(a) of the Investment Company act of
1940 and the rules thereunder, as the same may be amended from time to time,
pertaining to the Administrative Services performed by it and not otherwise
created and maintained by another party pursuant to contract with the Investment
Company. Where applicable, such records shall be maintained by the Company for
the periods and in the places required by Rule 31a-2 under the 1940 Act. The
books and records pertaining to the Investment Company which are in the
possession of the Company shall be the property of the Investment Company. The
Investment Company, or the Investment Company's authorized representatives,
shall have access to such books and records at all times during the Company's
normal business hours. Upon the reasonable request of the Investment Company,
copies of any such books and records shall be provided promptly by the Company
to the Investment Company or the Investment Company's authorized
representatives.

Article 7. Duties of the Fund.

The Fund assumes full responsibility for the preparation, contents and
distribution of its own offering document and for complying with all applicable
requirements the 1940 Act, the Internal Revenue Code, and any other laws, rules
and regulations of government authorities having jurisdiction.

Article 8. Expenses.

The Company shall be responsible for expenses incurred in providing office
space, equipment, and personnel as may be necessary or convenient to provide the
Administrative Services to the Investment Company, including the compensation of
the Company employees who serve as trustees or directors or officers of the
Investment Company. The Investment Company shall be responsible for all other
expenses incurred by the Company on behalf of the Investment Company, including
without limitation postage and courier expenses, printing expenses, travel
expenses, registration fees, filing fees, fees of outside counsel and
independent auditors, or other professional services, organizational expenses,
insurance premiums, fees payable to persons who are not the Company's employees,
trade association dues, and other expenses properly payable by the Funds and/or
the Classes.

Article 9. Compensation.

For the Administrative Services provided, the Investment Company hereby
agrees to pay and the Company hereby agrees to accept as full compensation for
its services rendered hereunder an administrative fee at an annual rate per
Fund, as specified below.

The compensation and out of pocket expenses attributable to the Fund shall be
accrued by the Fund and paid to the Company no less frequently than monthly, and
shall be paid daily upon request of the Company. The Company will maintain
detailed information about the compensation and out of pocket expenses by the
Fund.
Max. Admin. Average Daily Net Assets
Fee of the Funds
.150% on the first $250 million
.125% on the next $250 million
.100% on the next $250 million
.075% on assets in excess of $750 million
(Average Daily Net Asset break-points are on a complex-wide basis)

However, in no event shall the administrative fee received during any year of
the Agreement be less than, or be paid at a rate less than would aggregate
$125,000 per Fund and $30,000 per Class. The minimum fee set forth above in this
Article 9 may increase annually upon each March 1 anniversary of this Agreement
over the minimum fee during the prior 12 months, as calculated under this
agreement, in an amount equal to the increase in Pennsylvania Consumer Price
Index (not to exceed 6% annually) as last reported by the U.S. Bureau of Labor
Statistics for the twelve months immediately preceding such anniversary.

Article 10. Responsibility of Administrator.

A. The Company shall not be liable for any error of judgment or mistake of law
or for any loss suffered by the Investment Company in connection with the
matters to which this Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard by it of its
obligations and duties under this Agreement. The Company shall be entitled
to rely on and may act upon advice of counsel (who may be counsel for the
Investment Company) on all matters, and shall be without liability for any
action reasonably taken or omitted pursuant to such advice. Any person,
even though also an officer, director, trustee, partner, employee or agent
of the Company, who may be or become an officer, director, trustee,
partner, employee or agent of the Investment Company, shall be deemed, when
rendering services to the Investment Company or acting on any business of
the Investment Company (other than services or business in connection with
the duties of the Company hereunder) to be rendering such services to or
acting solely for the Investment Company and not as an officer, director,
trustee, partner, employee or agent or one under the control or direction
of the Company even though paid by the Company.

B. The Company shall be kept indemnified by the Investment Company and be
without liability for any action taken or thing done by it in performing
the Administrative Services in accordance with the above standards. In
order that the indemnification provisions contained in this Article 10
shall apply, however, it is understood that if in any case the Investment
Company may be asked to indemnify or hold the Company harmless, the
Investment Company shall be fully and promptly advised of all pertinent
facts concerning the situation in question, and it is further understood
that the Company will use all reasonable care to identify and notify the
Investment Company promptly concerning any situation which presents or
appears likely to present the probability of such a claim for
indemnification against the Investment Company. The Investment Company
shall have the option to defend the Company against any claim which may be
the subject of this indemnification. In the event that the Investment
Company so elects, it will so notify the Company and thereupon the
Investment Company shall take over complete defense of the claim, and the
Company shall in such situation initiate no further legal or other expenses
for which it shall seek indemnification under this Article. The Company
shall in no case confess any claim or make any compromise in any case in
which the Investment Company will be asked to indemnify the Company except
with the Investment Company's written consent.

SECTION THREE: Transfer Agency Services.

Article 11. Terms of Appointment.
Subject to the terms and conditions set forth in this Agreement, the
Investment Company hereby appoints the Company to act as, and the Company agrees
to act as, transfer agent and dividend disbursing agent for each Fund's Shares,
and agent in connection with any accumulation, open-account or similar plans
provided to the shareholders of any Fund ("Shareholder(s)"), including without
limitation any periodic investment plan or periodic withdrawal program.

Article 12. Duties of the Company.
The Company shall perform the following services in accordance with Proper
Instructions as may be provided from time to time by the Investment Company as
to any Fund:

A. Purchases

(1) The Company shall receive orders and payment for the purchase of
shares and promptly deliver payment and appropriate documentation
therefore to the custodian of the relevant Fund, (the
"Custodian"). The Company shall notify the Fund and the Custodian
on a daily basis of the total amount of orders and payments so
delivered.

(2) Pursuant to purchase orders and in accordance with the Fund's
current Prospectus, the Company shall compute and issue the
appropriate number of Shares of each Fund and/or Class and hold
such Shares in the appropriate Shareholder accounts.

(3) In the event that any check or other order for the purchase of
Shares of the Fund and/or Class is returned unpaid for any reason,
the Company shall debit the Share account of the Shareholder by
the number of Shares that had been credited to its account upon
receipt of the check or other order, promptly mail a debit advice
to the Shareholder, and notify the Fund and/or Class of its
action. In the event that the amount paid for such Shares exceeds
proceeds of the redemption of such Shares plus the amount of any
dividends paid with respect to such Shares, the Fund and/the Class
or its distributor will reimburse the Company on the amount of
such excess.

B. Distribution

(1) Upon notification by the Funds of the declaration of any
distribution to Shareholders, the Company shall act as Dividend
Disbursing Agent for the Funds in accordance with the provisions
of its governing document and the then-current Prospectus of the
Fund. The Company shall prepare and mail or credit income, capital
gain, or any other payments to Shareholders. As the Dividend
Disbursing Agent, the Company shall, on or before the payment date
of any such distribution, notify the Custodian of the estimated
amount required to pay any portion of said distribution which is
payable in cash and request the Custodian to make available
sufficient funds for the cash amount to be paid out. The Company
shall reconcile the amounts so requested and the amounts actually
received with the Custodian on a daily basis. If a Shareholder is
entitled to receive additional Shares by virtue of any such
distribution or dividend, appropriate credits shall be made to the
Shareholder's account; and

(2) The Company shall maintain records of account for each Fund and Class
and advise the Investment Company, each Fund and Class and its
Shareholders as to the foregoing.

C. Redemptions and Transfers

(1) The Company shall receive redemption requests and redemption
directions and, if such redemption requests comply with the
procedures as may be described in the Fund Prospectus or set forth
in Proper Instructions, deliver the appropriate instructions
therefor to the Custodian. The Company shall notify the Funds on a
daily basis of the total amount of redemption requests processed
and monies paid to the Company by the Custodian for redemptions.

(2) At the appropriate time upon receiving redemption proceeds from
the Custodian with respect to any redemption, the Company shall
pay or cause to be paid the redemption proceeds in the manner
instructed by the redeeming Shareholders, pursuant to procedures
described in the then-current Prospectus of the Fund.

(3) If any certificate returned for redemption or other request for
redemption does not comply with the procedures for redemption
approved by the Fund, the Company shall promptly notify the
Shareholder of such fact, together with the reason therefor, and
shall effect such redemption at the price applicable to the date
and time of receipt of documents complying with said procedures.

(4) The Company shall effect transfers of Shares by the registered
owners thereof.

(5) The Company shall identify and process abandoned accounts and uncashed
checks for state escheat requirements on an annual basis and report such actions
to the Fund.

D. Recordkeeping

(1) The Company shall record the issuance of Shares of each Fund,
and/or Class, and maintain pursuant to applicable rules of the
Securities and Exchange Commission ("SEC") a record of the total
number of Shares of the Fund and/or Class which are authorized,
based upon data provided to it by the Fund, and issued and
outstanding. The Company shall also provide the Fund on a regular
basis or upon reasonable request with the total number of Shares
which are authorized and issued and outstanding, but shall have no
obligation when recording the issuance of Shares, except as
otherwise set forth herein, to monitor the issuance of such Shares
or to take cognizance of any laws relating to the issue or sale of
such Shares, which functions shall be the sole responsibility of
the Funds.

(2) The Company shall establish and maintain records pursuant to
applicable rules of the SEC relating to the services to be
performed hereunder in the form and manner as agreed to by the
Investment Company or the Fund to include a record for each
Shareholder's account of the following:

(a) Name, address and tax identification number (and whether such
number has been certified);

(b) Number of Shares held;

(d) Any stop or restraining order placed against the account;

(e) Information with respect to withholding in the case of a
foreign account or an account for which withholding is
required by the Internal Revenue Code;

(f) Any dividend reinvestment order, plan application, dividend
address and correspondence relating to the current
maintenance of the account;

(g) Certificate numbers and denominations for any Shareholder
holding certificates;

(h) Any information required in order for the Company to perform
the calculations contemplated or required by this Agreement.

(3) The Company shall preserve any such records required to be
maintained pursuant to the rules of the SEC for the periods
prescribed in said rules as specifically noted below. Such record
retention shall be at the expense of the Company, and such records
may be inspected by the Fund at reasonable times. The Company may,
at its option at any time, and shall forthwith upon the Fund's
demand, turn over to the Fund and cease to retain in the Company's
files, records and documents created and maintained by the Company
pursuant to this Agreement, which are no longer needed by the
Company in performance of its services or for its protection. If
not so turned over to the Fund, such records and documents will be
retained by the Company for six years from the year of creation,
during the first two of which such documents will be in readily
accessible form. At the end of the six year period, such records
and documents will either be turned over to the Fund or destroyed
in accordance with Proper Instructions.

E. Confirmations/Reports

(1) The Company shall furnish to the Fund periodically the following
information:

(a) A copy of the transaction register;

(b) Dividend and reinvestment blotters;

(c) The total number of Shares issued and outstanding in each
state for "blue sky" purposes as determined according to
Proper Instructions delivered from time to time by the Fund
to the Company;

(d) Shareholder lists and statistical information;

(e) Payments to third parties relating to distribution
agreements, allocations of sales loads, redemption fees, or
other transaction- or sales-related payments;

(f) Such other information as may be agreed upon from time to
time.

(2) The Company shall prepare in the appropriate form, file with the
Internal Revenue Service and appropriate state agencies, and, if
required, mail to Shareholders, such notices for reporting
dividends and distributions paid as are required to be so filed
and mailed and shall withhold such sums as are required to be
withheld under applicable federal and state income tax laws, rules
and regulations.

(3) In addition to and not in lieu of the services set forth above,
the Company shall:

(a) Perform all of the customary services of a transfer agent,
dividend disbursing agent and, as relevant, agent in connection
with accumulation, open-account or similar plans (including
without limitation any periodic investment plan or periodic
withdrawal program), including but not limited to: maintaining
all Shareholder accounts, mailing Shareholder reports and
Prospectuses to current Shareholders, withholding taxes on
accounts subject to back-up or other withholding (including
non-resident alien accounts), preparing and filing reports on
U.S. Treasury Department Form 1099 and other appropriate forms
required with respect to dividends and distributions by federal
authorities for all Shareholders, preparing and mailing
confirmation forms and statements of account to Shareholders for
all purchases and redemptions of Shares and other conformable
transactions in Shareholder accounts, preparing and mailing
activity statements for Shareholders, and providing Shareholder
account information; and

(b) provide a system which will enable the Fund to monitor the total
number of Shares of each Fund (and/or Class) sold in each state
("blue sky reporting"). The Fund shall by Proper Instructions (i)
identify to the Company those transactions and assets to be
treated as exempt from the blue sky reporting for each state and
(ii) verify the classification of transactions for each state on
the system prior to activation and thereafter monitor the daily
activity for each state. The responsibility of the Company for
each Fund's (and/or Class's) state blue sky registration status
is limited solely to the recording of the initial classification
of transactions or accounts with regard to blue sky compliance
and the reporting of such transactions and accounts to the Fund
as provided above.

F. Other Duties

(1) The Company shall answer correspondence from Shareholders
relating to their Share accounts and such other correspondence as
may from time to time be addressed to the Company;

(2) The Company shall prepare Shareholder meeting lists, mail proxy
cards and other material supplied to it by the Fund in connection
with Shareholder meetings of each Fund; receive, examine and
tabulate returned proxies, and certify the vote of the
Shareholders;

(3) The Company shall establish and maintain faclities and procedures
for safekeeping of check forms and facsimile signature imprinting
devices, if any; and for the preparation or use, and for keeping
account of, such forms and devices.

The foregoing, along with any additional services that the Company shall
agree in writing to perform for the Investment Company under this Section Three,
shall hereafter be referred to as "Transfer Agency Services."

Article 13. Duties of the Investment Company.
A. Compliance

The Investment Company or Fund assume full responsibility for the
preparation, contents and distribution of their own and/or their
classes' Prospectus and for complying with all applicable requirements
of the Securities Act of 1933, as amended (the "1933 Act"), the 1940 Act
and any laws, rules and regulations of government authorities having
jurisdiction.

Distributions

The Fund shall promptly inform the Company of the declaration of any
dividend or distribution on account of any Fund's shares.

Article 14. Compensation and Expenses.
A. Annual Fee

For performance by the Company pursuant to Section Three of this
Agreement, the Investment Company and/or the Fund agree to pay the
Company an annual maintenance fee for each Shareholder account as agreed
upon between the parties and as may be added to or amended from time to
time. Such fees may be changed from time to time subject to written
agreement between the Investment Company and the Company. Pursuant to
information in the Fund Prospectus or other information or instructions
from the Fund, the Company may sub-divide any Fund into Classes or other
sub-components for recordkeeping purposes. The Company will charge the
Fund the same fees for each such Class or sub-component the same as if
each were a Fund.

B. Reimbursements

In addition to the fee paid under Article 7A above, the Investment
Company and/or Fund agree to reimburse the Company for out-of-pocket
expenses or advances incurred by the Company for the items agreed upon
between the parties, as may be added to or amended from time to time. In
addition, any other expenses incurred by the Company at the request or
with the consent of the Investment Company and/or the Fund, will be
reimbursed by the appropriate Fund.

C. Payment

The compensation and out-of-pocket expenses shall be accrued by the Fund
and shall be paid to the Company no less frequently than monthly, and
shall be paid daily upon request of the Company. The Company will
maintain detailed information about the compensation and out-of-pocket
expenses by Fund and Class.

SECTION FOUR: Custody Services Procurement.

Article 15. Appointment.
The Investment Company hereby appoints Company as its agent to evaluate and
obtain custody services from a financial institution that (i) meets the criteria
established in Section 17(f) of the 1940 Act and (ii) has been approved by the
Board as eligible for selection by the Company as a custodian (the "Eligible
Custodian"). The Company accepts such appointment.

Article 16. The Company and Its Duties.
Subject to the review, supervision and control of the Board, the Company
shall:

A. evaluate and obtain custody services from a financial institution that
meets the criteria established in Section 17(f) of the 1940 Act and has
been approved by the Board as being eligible for selection by the Company
as an Eligible Custodian;

B. negotiate and enter into agreements with Eligible Custodians for the
benefit of the Investment Company, with the Investment Company as a party
to each such agreement. The Company may, as paying agent, be a party to any
agreement with any such Eligible Custodian;

C. establish procedures to monitor the nature and the quality of the services
provided by Eligible Custodians;

D. monitor and evaluate the nature and the quality of services provided by
Eligible Custodians;

E. periodically provide to the Investment Company (i) written reports on the
activities and services of Eligible Custodians; (ii) the nature and amount
of disbursements made on account of the each Fund with respect to each
custodial agreement; and (iii) such other information as the Board shall
reasonably request to enable it to fulfill its duties and obligations under
Sections 17(f) and 36(b) of the 1940 Act and other duties and obligations
thereof;

F. periodically provide recommendations to the Board to enhance Eligible
Custodian's customer services capabilities and improve upon fees being
charged to the Fund by Eligible Custodian; and

The foregoing, along with any additional services that Company shall agree in
writing to perform for the Fund under this Section Four, shall hereafter be
referred to as "Custody Services Procurement."

Article 17. Fees and Expenses.
A. Annual Fee

For the performance of Custody Services Procurement by the Company
pursuant to Section Four of this Agreement, the Investment Company
and/or the Fund agree to compensate the Company in accordance with the
fees agreed upon from time to time.

B. Reimbursements

In addition to the fee paid under Section 11A above, the Investment
Company and/or Fund agree to reimburse the Company for out-of-pocket
expenses or advances incurred by the Company for the items agreed upon
between the parties, as may be added to or amended from time to time. In
addition, any other expenses incurred by the Company at the request or
with the consent of the Investment Company and/or the Fund, will be
reimbursed by the appropriate Fund.

C. Payment

Article 18. Representations.
The Company represents and warrants that it has obtained all required
approvals from all government or regulatory authorities necessary to enter into
this arrangement and to provide the services contemplated in Section Four of
this Agreement.

SECTION FIVE: General Provisions.

Article 19. Proper Instructions.

As used throughout this Agreement, a "Proper Instruction" means a writing
signed or initialed by one or more person or persons as the Board shall have
from time to time authorized. Each such writing shall set forth the specific
transaction or type of transaction involved. Oral instructions will be deemed to
be Proper Instructions if (a) the Company reasonably believes them to have been
given by a person previously authorized in Proper Instructions to give such
instructions with respect to the transaction involved, and (b) the Investment
Company, or the Fund, and the Company promptly cause such oral instructions to
be confirmed in writing. Proper Instructions may include communications effected
directly between electro-mechanical or electronic devices provided that the
Investment Company, or the Fund, and the Company are satisfied that such
procedures afford adequate safeguards for the Fund's assets.
Proper Instructions may only be amended in writing.

Article 20. Assignment.
Except as provided below, neither this Agreement nor any of the rights or
obligations under this Agreement may be assigned by either party without the
written consent of the other party.

A. This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.

B. With regard to Transfer Agency Services, the Company may without further
consent on the part of the Investment Company subcontract for the
performance of Transfer Agency Services with

(1) its subsidiary, Federated Shareholder Service Company, a Delaware
business trust, which is duly registered as a transfer agent
pursuant to Section 17A(c)(1) of the Securities Exchange Act of
1934, as amended, or any succeeding statute ("Section 17A(c)(1)");
or

(2) such other provider of services duly registered as a transfer
agent under Section 17A(c)(1) as Company shall select.

The Company shall be as fully responsible to the Investment Company for
the acts and omissions of any subcontractor as it is for its own acts
and omissions.

C. With regard to Fund Accounting Services, Administrative Services and
Custody Procurement Services, the Company may without further consent on
the part of the Investment Company subcontract for the performance of
such services with Federated Administrative Services, a wholly-owned
subsidiary of the Company.

D. The Company shall upon instruction from the Investment Company
subcontract for the performance of services under this Agreement with an
Agent selected by the Investment Company, other than as described in B.
and C. above; provided, however, that the Company shall in no way be
responsible to the Investment Company for the acts and omissions of the
Agent.

Article 21. Documents.
A. In connection with the appointment of the Company under this Agreement,
the Investment Company shall file with the Company the following
documents:

(1) A copy of the Charter and By-Laws of the Investment Company and all
amendments thereto;

(2) A copy of the resolution of the Board of the Investment Company
authorizing this Agreement;

(3) Printed documentation from the recordkeeping system representing
outstanding Share certificates of the Investment Company or the Funds;

(4) All account application forms and other documents relating to
Shareholders accounts; and

(5) A copy of the current Prospectus for each Fund.

B. The Fund will also furnish from time to time the following documents:

(1) Each resolution of the Board of the Investment Company authorizing the
original issuance of each Fund's, and/or Class's Shares;

(2) Each Registration Statement filed with the SEC and amendments thereof
and orders relating thereto in effect with respect to the sale of
Shares of any Fund, and/or Class;

(3) A certified copy of each amendment to the governing document and the
By-Laws of the Investment Company;

(4) Certified copies of each vote of the Board authorizing officers to
give Proper Instructions to the Custodian and agents for fund
accountant, custody services procurement, and shareholder
recordkeeping or transfer agency services;

(5) Such other certifications, documents or opinions which the Company
may, in its discretion, deem necessary or appropriate in the proper
performance of its duties; and

(6) Revisions to the Prospectus of each Fund.

Article 22. Representations and Warranties.

A. Representations and Warranties of the Company

The Company represents and warrants to the Fund that:

(1) it is a corporation duly organized and existing and in good standing
under the laws of the Commonwealth of Pennsylvania;

(2) It is duly qualified to carry on its business in each jurisdiction
where the nature of its business requires such qualification, and in
the Commonwealth of Pennsylvania;

(3) it is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this Agreement;

(4) all requisite corporate proceedings have been taken to authorize it to
enter into and perform its obligations under this Agreement;

(5) it has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under
this Agreement;

(6) it is in compliance with federal securities law requirements and in
good standing as an administrator and fund accountant; and

B. Representations and Warranties of the Investment Company

The Investment Company represents and warrants to the Company that:

(1) It is an investment company duly organized and existing and in good
standing under the laws of its state of organization;

(2) It is empowered under applicable laws and by its Charter and By-Laws
to enter into and perform its obligations under this Agreement;

(3) All corporate proceedings required by said Charter and By-Laws have
been taken to authorize it to enter into and perform its obligations
under this Agreement;

(4) The Investment Company is an open-end investment company registered
under the 1940 Act; and

(5) A registration statement under the 1933 Act will be effective, and
appropriate state securities law filings have been made and will
continue to be made, with respect to all Shares of each Fund being
offered for sale.

Article 23. Standard of Care and Indemnification.
A. Standard of Care

With regard to Sections One, Three and Four, the Company shall be held
to a standard of reasonable care in carrying out the provisions of this
Contract. The Company shall be entitled to rely on and may act upon
advice of counsel (who may be counsel for the Investment Company) on all
matters, and shall be without liability for any action reasonably taken
or omitted pursuant to such advice, provided that such action is not in
violation of applicable federal or state laws or regulations, and is in
good faith and without negligence.

B. Indemnification by Investment Company

The Company shall not be responsible for and the Investment Company or
Fund shall indemnify and hold the Company, including its officers,
directors, shareholders and their agents, employees and affiliates,
harmless against any and all losses, damages, costs, charges, counsel
fees, payments, expenses and liabilities arising out of or attributable
to:

(1) The acts or omissions of any Custodian, Adviser, Sub-adviser or other
party contracted by or approved by the Investment Company or Fund,

(2) The reliance on or use by the Company or its agents or subcontractors
of information, records and documents in proper form which

(a) are received by the Company or its agents or subcontractors and
furnished to it by or on behalf of the Fund, its Shareholders or
investors regarding the purchase, redemption or transfer of
Shares and Shareholder account information;

(b) are received by the Company from independent pricing services or
sources for use in valuing the assets of the Funds; or (c) are
received by the Company or its agents or subcontractors from
Advisers, Sub-advisers or other third parties contracted by or
approved by the Investment Company of Fund for use in the
performance of services under this Agreement;

(d) have been prepared and/or maintained by the Fund or its
affiliates or any other person or firm on behalf of the
Investment Company.

(3) The reliance on, or the carrying out by the Company or its agents or
subcontractors of Proper Instructions of the Investment Company or the
Fund.

(4) The offer or sale of Shares in violation of any requirement under the
federal securities laws or regulations or the securities laws or
regulations of any state that such Shares be registered in such state
or in violation of any stop order or other determination or ruling by
any federal agency or any state with respect to the offer or sale of
such Shares in such state.

Provided, however, that the Company shall not be protected by this
Article 23.B. from liability for any act or omission resulting
from the Company's willful misfeasance, bad faith, negligence or
reckless disregard of its duties or failure to meet the standard
of care set forth in 23.A. above.

C. Reliance

At any time the Company may apply to any officer of the Investment
Company or Fund for instructions, and may consult with legal counsel
with respect to any matter arising in connection with the services to be
performed by the Company under this Agreement, and the Company and its
agents or subcontractors shall not be liable and shall be indemnified by
the Investment Company or the appropriate Fund for any action reasonably
taken or omitted by it in reliance upon such instructions or upon the
opinion of such counsel provided such action is not in violation of
applicable federal or state laws or regulations. The Company, its agents
and subcontractors shall be protected and indemnified in recognizing
stock certificates which are reasonably believed to bear the proper
manual or facsimile signatures of the officers of the Investment Company
or the Fund, and the proper countersignature of any former transfer
agent or registrar, or of a co-transfer agent or co-registrar.

D. Notification

In order that the indemnification provisions contained in this Article
23 shall apply, upon the assertion of a claim for which either party may
be required to indemnify the other, the party seeking indemnification
shall promptly notify the other party of such assertion, and shall keep
the other party advised with respect to all developments concerning such
claim. The party who may be required to indemnify shall have the option
to participate with the party seeking indemnification in the defense of
such claim. The party seeking indemnification shall in no case confess
any claim or make any compromise in any case in which the other party
may be required to indemnify it except with the other party's prior
written consent.

Article 24. Term and Termination of Agreement.
This Agreement shall be effective from September 1, 1997, and shall continue
until February 28, 2003 (`Term"). Thereafter, the Agreement will continue for 18
month terms. The Agreement can be terminated by either party upon 18 months
notice to be effective as of the end of such 18 month period. In the event,
however, of willful misfeasance, bad faith, negligence or reckless disregard of
its duties by the Company, the Investment Company has the right to terminate the
Agreement upon 60 days written notice, if Company has not cured such willful
misfeasance, bad faith, negligence or reckless disregard of its duties within 60
days. The termination date for all original or after-added Investment companies
which are, or become, a party to this Agreement. shall be coterminous.
Investment Companies that merge or dissolve during the Term, shall cease to be a
party on the effective date of such merger or dissolution.

Should the Investment Company exercise its rights to terminate, all
out-of-pocket expenses associated with the movement of records and materials
will be borne by the Investment Company or the appropriate Fund. Additionally,
the Company reserves the right to charge for any other reasonable expenses
associated with such termination. The provisions of Articles 10 and 23 shall
survive the termination of this Agreement.

Article 25. Amendment.
This Agreement may be amended or modified by a written agreement executed by
both parties.

Article 26. Interpretive and Additional Provisions.
In connection with the operation of this Agreement, the Company and the
Investment Company may from time to time agree on such provisions interpretive
of or in addition to the provisions of this Agreement as may in their joint
opinion be consistent with the general tenor of this Agreement. Any such
interpretive or additional provisions shall be in a writing signed by both
parties and shall be annexed hereto, provided that no such interpretive or
additional provisions shall contravene any applicable federal or state
regulations or any provision of the Charter. No interpretive or additional
provisions made as provided in the preceding sentence shall be deemed to be an
amendment of this Agreement.

Article 27. Governing Law.
This Agreement shall be construed and the provisions hereof interpreted under
and in accordance with the laws of the Commonwealth of Massachusetts

Article 28. Notices.
Except as otherwise specifically provided herein, Notices and other writings
delivered or mailed postage prepaid to the Investment Company at Federated
Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, or to the Company at
Federated Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, or to such
other address as the Investment Company or the Company may hereafter specify,
shall be deemed to have been properly delivered or given hereunder to the
respective address.

Article 29. Counterparts.
This Agreement may be executed simultaneously in two or more counterparts,
each of which shall be deemed an original. Article 30. Limitations of Liability
of Trustees and Shareholders of the Company.
The execution and delivery of this Agreement have been authorized by the
Trustees of the Company and signed by an authorized officer of the Company,
acting as such, and neither such authorization by such Trustees nor such
execution and delivery by such officer shall be deemed to have been made by any
of them individually or to impose any liability on any of them personally, and
the obligations of this Agreement are not binding upon any of the Trustees or
Shareholders of the Company, but bind only the appropriate property of the Fund,
or Class, as provided in the Declaration of Trust.

Article 31. Merger of Agreement.
This Agreement constitutes the entire agreement between the parties hereto
and supersedes any prior agreement with respect to the subject hereof whether
oral or written.

Article 32. Successor Agent.
If a successor agent for the Investment Company shall be appointed by the
Investment Company, the Company shall upon termination of this Agreement deliver
to such successor agent at the office of the Company all properties of the
Investment Company held by it hereunder. If no such successor agent shall be
appointed, the Company shall at its office upon receipt of Proper Instructions
deliver such properties in accordance with such instructions.

In the event that no written order designating a successor agent or Proper
Instructions shall have been delivered to the Company on or before the date when
such termination shall become effective, then the Company shall have the right
to deliver to a bank or trust company, which is a "bank" as defined in the 1940
Act, of its own selection, having an aggregate capital, surplus, and undivided
profits, as shown by its last published report, of not less than $2,000,000, all
properties held by the Company under this Agreement. Thereafter, such bank or
trust company shall be the successor of the Company under this Agreement.

Article 33. Force Majeure.
The Company shall have no liability for cessation of services hereunder or
any damages resulting therefrom to the Fund as a result of work stoppage, power
or other mechanical failure, natural disaster, governmental action,
communication disruption or other impossibility of performance.

Article 34. Assignment; Successors.
This Agreement shall not be assigned by either party without the prior
written consent of the other party, except that either party may assign all of
or a substantial portion of its business to a successor, or to a party
controlling, controlled by, or under common control with such party. Nothing in
this Article 34 shall prevent the Company from delegating its responsibilities
to another entity to the extent provided herein.

Article 35. Severability.
In the event any provision of this Agreement is held illegal, void or
unenforceable, the balance shall remain in effect.

Article 36. Limitations of Liability of Trustees and Shareholders of the
Investment Company.
The execution and delivery of this Agreement have been authorized by the
Trustees of the Investment Company and signed by an authorized officer of the
Investment Company, acting as such, and neither such authorization by such
Trustees nor such execution and delivery by such officer shall be deemed to have
been made by any of them individually or to impose any liability on any of them
personally, and the obligations of this Agreement are not binding upon any of
the Trustees or Shareholders of the Investment Company, but bind only the
property of the Fund, or Class, as provided in the Declaration of Trust.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf under their seals by and through
their duly authorized officers, as of the day and year first above written.

INVESTMENT COMPANIES (listed on
Exhibit 1)

By: /s/ S. Elliott Cohan
Name: S. Elliott Cohan
Title: Assistant Secretary

FEDERATED SERVICES COMPANY

By: /s/ Thomas J. Ward
Name: Thomas J. Ward
Title: Secretary

<PAGE>

EXHIBIT 1

Federated Income Securities Trust

Federated Short-Term Income Fund
Institutional Shares
Institutional Service Shares

Federated Intermediate Income Fund
Institutional Shares
Institutional Service Shares

Exhibit 9(ii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K

Amended and Restated
SHAREHOLDER SERVICES AGREEMENT

THIS AGREEMENT, amended and restated as of the first day of September,
1995, (originally made and enterered into as of the first day of March, 1994),
by and between those investment companies listed on Exhibit 1, as may be amended
from time to time, having their principal office and place of business at
Federated Investors Tower, Pittsburgh, PA 15222-3779 and who have approved this
form of Agreement (individually referred to herein as a "Fund" and collectively
as "Funds") and Federated Shareholder Services, a Delaware business trust,
having its principal office and place of business at Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779 ("FSS").

1. The Funds hereby appoint FSS to render or cause to be rendered personal
services to shareholders of the Funds and/or the maintenance of accounts
of shareholders of the Funds ("Services"). In addition to providing
Services directly to shareholders of the Funds, FSS is hereby appointed
the Funds' agent to select, negotiate and subcontract for the performance
of Services. FSS hereby accepts such appointments. FSS agrees to provide
or cause to be provided Services which, in its best judgment (subject to
supervision and control of the Funds' Boards of Trustees or Directors, as
applicable), are necessary or desirable for shareholders of the Funds. FSS
further agrees to provide the Funds, upon request, a written description
of the Services which FSS is providing hereunder.

2. During the term of this Agreement, each Fund will pay FSS and FSS agrees
to accept as full compensation for its services rendered hereunder a fee
at an annual rate, calculated daily and payable monthly, up to 0.25% of 1%
of average net assets of each Fund.

For the payment period in which this Agreement becomes effective or
terminates with respect to any Fund, there shall be an appropriate
proration of the monthly fee on the basis of the number of days that this
Agreement is in effect with respect to such Fund during the month.

3. This Agreement shall continue in effect for one year from the date of its
execution, and thereafter for successive periods of one year only if the
form of this Agreement is approved at least annually by the Board of each
Fund, including a majority of the members of the Board of the Fund who are
not interested persons of the Fund ("Independent Board Members") cast in
person at a meeting called for that purpose.

4. Notwithstanding paragraph 3, this Agreement may be terminated as follows:

(a) at any time, without the payment of any penalty, by the vote of a
majority of the Independent Board Members of any Fund or by a vote of
a majority of the outstanding voting securities of any Fund as defined
in the Investment Company Act of 1940 on sixty (60) days' written
notice to the parties to this Agreement;

(b) automatically in the event of the Agreement's assignment as defined in
the Investment Company Act of 1940; and

(c) by any party to the Agreement without cause by giving the other party
at least sixty (60) days' written notice of its intention to
terminate.

5. FSS agrees to obtain any taxpayer identification number certification from
each shareholder of the Funds to which it provides Services that is
required under Section 3406 of the Internal Revenue Code, and any
applicable Treasury regulations, and to provide each Fund or its designee
with timely written notice of any failure to obtain such taxpayer
identification number certification in order to enable the implementation
of any required backup withholding.

6. FSS shall not be liable for any error of judgment or mistake of law or for
any loss suffered by any Fund in connection with the matters to which this
Agreement relates, except a loss resulting from willful misfeasance, bad
faith or gross negligence on its part in the performance of its duties or
from reckless disregard by it of its obligations and duties under this
Agreement. FSS shall be entitled to rely on and may act upon advice of
counsel (who may be counsel for such Fund) on all matters, and shall be
without liability for any action reasonably taken or omitted pursuant to
such advice. Any person, even though also an officer, trustee, partner,
employee or agent of FSS, who may be or become a member of such Fund's
Board, officer, employee or agent of any Fund, shall be deemed, when
rendering services to such Fund or acting on any business of such Fund
(other than services or business in connection with the duties of FSS
hereunder) to be rendering such services to or acting solely for such Fund
and not as an officer, trustee, partner, employee or agent or one under the
control or direction of FSS even though paid by FSS.

This Section 6 shall survive termination of this Agreement.

7. No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the
party against which an enforcement of the change, waiver, discharge or
termination is sought.

8. FSS is expressly put on notice of the limitation of liability as set forth
in the Declaration of Trust of each Fund that is a Massachusetts business
trust and agrees that the obligations assumed by each such Fund pursuant
to this Agreement shall be limited in any case to such Fund and its assets
and that FSS shall not seek satisfaction of any such obligations from the
shareholders of such Fund, the Trustees, Officers, Employees or Agents of
such Fund, or any of them.

9. The execution and delivery of this Agreement have been authorized by the
Trustees of FSS and signed by an authorized officer of FSS, acting as
such, and neither such authorization by such Trustees nor such execution
and delivery by such officer shall be deemed to have been made by any of
them individually or to impose any liability on any of them personally,
and the obligations of this Agreement are not binding upon any of the
Trustees or shareholders of FSS, but bind only the trust property of FSS
as provided in the Declaration of Trust of FSS.

10. Notices of any kind to be given hereunder shall be in writing (including
facsimile communication) and shall be duly given if delivered to any Fund
and to such Fund at the following address: Federated Investors Tower,
Pittsburgh, PA 15222-3779, Attention: President and if delivered to FSS at
Federated Investors Tower, Pittsburgh, PA 15222-3779, Attention:
President.

11. This Agreement constitutes the entire agreement between the parties hereto
and supersedes any prior agreement with respect to the subject hereof
whether oral or written. If any provision of this Agreement shall be held
or made invalid by a court or regulatory agency decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby.
Subject to the provisions of Sections 3 and 4, hereof, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto
and their respective successors and shall be governed by Pennsylvania law;
provided, however, that nothing herein shall be construed in a manner
inconsistent with the Investment Company Act of 1940 or any rule or
regulation promulgated by the Securities and Exchange Commission
thereunder.

12. This Agreement may be executed by different parties on separate
counterparts, each of which, when so executed and delivered, shall be an
original, and all such counterparts shall together constitute one and the
same instrument.

13. This Agreement shall not be assigned by any party without the prior
written consent of FSS in the case of assignment by any Fund, or of the
Funds in the case of assignment by FSS, except that any party may assign
to a successor all of or a substantial portion of its business to a party
controlling, controlled by, or under common control with such party.
Nothing in this Section 14 shall prevent FSS from delegating its
responsibilities to another entity to the extent provided herein.

IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.

Attest: Investment Companies (listed on Exhibit 1)

/s/ John W. McGonigle By:/s/ John F. Donahue
John W. McGonigle John F. Donahue
Secretary Chairman

Attest: Federated Shareholder Services

/s/ Joseph M. Huber By: /s/ John W. McGonigle
Joseph M. Huber John W. McGonigle
Secretary President

<PAGE>

EXHIBIT 1

Automated Government Money Trust
Cash Trust Series, Inc.:
Government Cash Series
Municipal Cash Series
Prime Cash Series
Treasury Cash Series
Federated Adjustable Rate U.S. Government Fund, Inc.
Federated American Leaders Fund, Inc.
Class A Shares
Class C Shares
Class F Shares
Federated ARMs Fund
Institutional Service Shares
Institutional Shares
Federated Core Trust:
High Yield Bond Portfolio
Federated Equity Funds:
Federated Aggressive Growth Fund
Class A Shares
Class C Shares
Federated Capital Appreciation Fund
Class A Shares
Class C Shares
Federated Growth Strategies Fund
Class A Shares
Class C Shares
Federated Small Cap Strategies Fund
Class A Shares
Class C Shares
Federated Equity Income Fund, Inc.
Class A Shares
Class C Shares
Class F Shares
Federated Fund for U.S. Government Securities, Inc.
Class A Shares
Class C Shares
Federated GNMA Trust
Institutional Service Shares
Institutional Shares
Federated Government Income Securities, Inc.
Class A Shares
Class C Shares
Class F Shares
Federated Government Trust"
Automated Government Cash Reserves
Automated Treasury Cash Reserves
U.S. Treasury Cash Reserves
Institutional Service Shares
Institutional Shares

<PAGE>

Federated High Income Bond Fund, Inc.
Class A Shares
Class C Shares
Federated High Yield Trust
Federated Income Securities Trust:
Federated Short-Term Income Fund
Institutional Service Shares
Institutional Shares
Federated Intermediate Income Fund
Institutional Service Shares
Institutional Shares
Federated Income Trust
Institutional Service Shares
Institutional Shares
Federated Index Trust:
Federated Max-Cap Fund
Class C Shares
Institutional Service Shares
Institutional Shares
Federated Mid-Cap Fund
Federated Mini-Cap Fund
Class C Shares
Institutional Shares
Federated Institutional Trust:
Federated Institutional Short-Term Government Fund
Institutional Service Shares
Institutional Shares
Federated Investment Trust:
Federated Bond Index Fund
Institutional Shares
Institutional Service Shares
Federated Master Trust
Federated Municipal Opportunities Fund, Inc.
Class A Shares
Class C Shares
Class F Shares
Federated Municipal Securities Fund, Inc.
Class A Shares
Class C Shares
Federated Municipal Trust:
Alabama Municipal Cash Trust
Arizona Municipal Cash Trust
Institutional Service Shares
California Municipal Cash Trust
Institutional Service Shares
Institutional Shares
Connecticut Municipal Cash Trust
Institutional Service Shares
Florida Municipal Cash Trust
Cash II Shares
Institutional Shares
Georgia Municipal Cash Trust
Maryland Municipal Cash Trust
Massachusetts Municipal Cash Trust
Institutional Service Shares
Boston 1784 Funds Shares
Michigan Municipal Cash Trust
Institutional Service Shares
Institutional Shares
Minnesota Municipal Cash Trust
Cash Series Shares
Institutional Shares
New Jersey Municipal Cash Trust
Institutional Service Shares
Institutional Shares
New York Municipal Cash Trust
Cash II Shares
Institutional Service Shares
North Carolina Municipal Cash Trust
Ohio Municipal Cash Trust
Cash II Shares
Institutional Shares
Institutional Service Shares
Pennsylvania Municipal Cash Trust
Cash Series Shares
Institutional Service Shares
Institutional Shares
Tennessee Municipal Cash Trust
Institutional Shares
Institutional Service Shares
Virginia Municipal Cash Trust
Institutional Service Shares
Institutional Shares
Federated Short-Term Municipal Trust
Institutional Service Shares
Institutional Shares
Federated Short-Term U.S. Government Trust
Federated Stock and Bond Fund, Inc.
Class A Shares
Class C Shares
Federated Stock Trust
Class A Shares
Class C Shares
Federated Tax-Free Trust
Federated U.S. Government Bond Fund
Federated U.S. Government Securities Fund: 1-3 Years
Institutional Service Shares
Institutional Shares
Federated U.S. Government Securities Fund: 2-5 Years
Institutional Service Shares
Institutional Shares

<PAGE>

Federated U. S. Government Securities Fund: 5-10 Years
Institutional Service Shares
Institutional Shares
Fixed Income Securities, Inc.:
Federated Limited Term Fund
Class A Shares
Class F Shares
Federated Limited Term Municipal Fund
Class A Shares
Class F Shares
Federated Strategic Income Fund
Class A Shares
Class C Shares
Class F Shares
Federated Total Return Series, Inc.:
Federated Limited Duration Government Fund
Institutional Shares
Institutional Service Shares
Federated Total Return Bond Fund
Institutional Shares
Institutional Service Shares
Federated Total Return Government Fund
Institutional Shares
Institutional Service Shares
Federated Total Return Limited Duration Fund
Institutional Shares
Institutional Service Shares
Federated Utility Fund, Inc.
Class A Shares
Class C Shares
Class F Shares
Intermediate Municipal Trust:
Federated Intermediate Municipal Trust
Federated Pennsylvania Intermediate Municipal Trust
International Series, Inc.:
Federated International Equity Fund
Class A Shares
Class C Shares
Federated International Income Fund
Class A Shares
Class C Shares
Investment Series Funds, Inc.:
Federated Bond Fund
Class A Shares
Class C Shares
Class F Shares
Edward D. Jones & Co. Daily Passport Cash Trust
Liberty Term Trust, Inc. -- 1999
Liberty U.S. Government Money Market Trust
Class A Shares
Liquid Cash Trust
Managed Series Trust:
Federated Aggressive Growth Fund
Institutional Shares
Select Shares
Federated Managed Growth and Income Fund
Institutional Shares
Select Shares
Federated Managed Growth Fund
Institutional Shares
Select Shares
Federated Managed Income Fund
Institutional Shares
Select Shares
Money Market Management, Inc.
Money Market Obligations Trust:
Automated Cash Management Trust
Cash II Shares
Institutional Shares
Government Obligations Fund
Institutional Shares
Institutional Service Shares
Government Obligations Tax-Managed Fund
Institutional Shares
Institutional Service Shares
Prime Obligations Fund
Institutional Shares
Institutional Service Shares
Tax-Free Obligations Fund
Institutional Shares
Institutional Service Shares
Treasury Obligations Fund
Institutional Capital Shares
Institutional Shares
Institutional Service Shares
Money Market Obligations Trust II:
Municipal Obligations Fund
Institutional Capital Shares
Institutional Service Shares
Institutional Shares
Prime Cash Obligations Fund
Institutional Capital Shares
Institutional Service Shares
Institutional Shares
Prime Value Obligations Fund
Institutional Capital Shares
Institutional Service Shares
Institutional Shares
Money Market Trust

<PAGE>

Municipal Securities Income Trust:
Federated California Municipal Income Fund
Class F Shares
Federated Michigan IntermediateMunicipal Trust
Federated New York Municipal Income Fund
Class F Shares
Federated Ohio Municipal Income Fund
Class F Shares
Federated Pennsylvania Municipal Income Fund
Class A Shares
Tax-Free Instruments Trust
Institutional Service Shares
Investment Shares
Trust for Government Cash Reserves
Trust for Short-Term U.S. Government Securities
Trust for U.S. Treasury Obligations
World Investment Series, Inc.:
Federated Asia Pacific Growth Fund
Class A Shares
Class C Shares
Federated Emerging Markets Fund
Class A Shares
Class C Shares
Federated European Growth Fund
Class A Shares
Class C Shares
Federated Global Equity Income Fund
Class A Shares
Class C Shares
FEDERATED GLOBAL FINANCIAL SERVICES FUND
CLASS A SHARES
CLASS C SHARES
Federated International Growth Fund
Class A Shares
Class C Shares
Federated International High Income Fund
Class A Shares
Class C Shares
Federated International Small Company Fund
Class A Shares
Class C Shares
Federated Latin American Growth Fund
Class A Shares
Class C Shares
Federated World Utility Fund
Class A Shares
Class C Shares
Class F Shares

Exhibit 11 under Form N-1A
Exhibit 23 under Item 601/Reg SK

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Financial Highlights"
and to the use of our report dated June 19, 1998, incorporated by reference in
Post-Effective Amendment Number 30 to the Registration Statement (Form N-1A No.
33-3164) and the related Prospectuses of Federated Income Securities Trust
(comprising respectively, Federated Short-Term Income Fund and Federated
Intermediate Income Fund), dated June 30, 1998 and to the incorporation by
reference therein of our report dated June 19, 1998 on the financial statements
of the Trust included in the Annual Report to the Shareholders for the year
ended April 30, 1998.

By: /s/Ernst & Young LLP

Pittsburgh, Pennsylvania
June 24, 1998

Exhibit 19 under Form N-1A
Exhibit 24 under Item 601/Reg. S-K

POWER OF ATTORNEY

Each person whose signature appears below hereby constitutes and appoints
the Secretary and Assistant Secretary of FEDERATED INCOME SECURITIES TRUST and
the Deputy General Counsel of Federated Services Company, and each of them,
their true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for them and in their names, place and stead, in
any and all capacities, to sign any and all documents to be filed with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, the
Securities Exchange Act of 1934 and the Investment Company Act of 1940, by means
of the Securities and Exchange Commission's electronic disclosure system known
as EDGAR; and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
sign and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as each of them
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.

SIGNATURES TITLE DATE

/s/John F. Donahue Chairman and Trustee June 2, 1998
John F. Donahue (Chief Executive Officer)

/s/Glen R. Johnson President June 2, 1998
Glen R. Johnson

/s/John W. McGonigle Treasurer, Executive June 2, 1998
John W. McGonigle Vice President and Secretary
(Principal Financial and
Accounting Officer)

/s/Thomas G. Bigley Trustee June 2, 1998
Thomas G. Bigley

/s/John T. Conroy, Jr. Trustee June 2, 1998
John T. Conroy, Jr.

<PAGE>

SIGNATURES TITLE DATE

/s/Nicholas P. Constantakis Trustee June 2, 1998
Nicholas P. Constantakis

/s/William J. Copeland Trustee June 2, 1998
William J. Copeland

/s/James E. Dowd Trustee June 2, 1998
James E. Dowd

/s/Lawrence D. Ellis, M.D. Trustee June 2, 1998
Lawrence D. Ellis, M.D.

/s/Edward L. Flaherty, Jr. Trustee June 2, 1998
Edward L. Flaherty, Jr.

/s/Peter E. Madden Trustee June 2, 1998
Peter E. Madden

/s/John E. Murray, Jr. Trustee June 2, 1998
John E. Murray, Jr.

/s/Wesley W. Posvar Trustee June 2, 1998
Wesley W. Posvar

/s/Marjorie P. Smuts Trustee June 2, 1998
Marjorie P. Smuts

Sworn to and subscribed before me this 2nd day of June, 1998

/s/Cheri S. Good
Notarial Seal
Cheri S. Good, Notary Public
Pittsburgh, Allegheny County
My Commission Expires Nov. 19, 2001
Member, Pennsylvania Association of Notaries

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 021
<NAME> Federated Income Securities Trust
Federated Intermediate Income Fund
Institutional Shares
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Apr-30-1998
<PERIOD-END> Apr-30-1998
<INVESTMENTS-AT-COST> 180,504,266
<INVESTMENTS-AT-VALUE> 184,416,665
<RECEIVABLES> 4,938,312
<ASSETS-OTHER> 8,891
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 189,363,868
<PAYABLE-FOR-SECURITIES> 5,201,377
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,928,198
<TOTAL-LIABILITIES> 8,129,575
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 177,190,229
<SHARES-COMMON-STOCK> 17,378,600
<SHARES-COMMON-PRIOR> 13,854,871
<ACCUMULATED-NII-CURRENT> 43,916
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 87,749
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,912,399
<NET-ASSETS> 176,712,153
<DIVIDEND-INCOME> 25,034
<INTEREST-INCOME> 10,060,944
<OTHER-INCOME> 0
<EXPENSES-NET> 821,097
<NET-INVESTMENT-INCOME> 9,264,881
<REALIZED-GAINS-CURRENT> 468,050
<APPREC-INCREASE-CURRENT> 4,611,356
<NET-CHANGE-FROM-OPS> 14,344,287
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 9,121,587
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,315,206
<NUMBER-OF-SHARES-REDEEMED> 3,490,041
<SHARES-REINVESTED> 167,124
<NET-CHANGE-IN-ASSETS> (9,233,051)
<ACCUMULATED-NII-PRIOR> 12,086
<ACCUMULATED-GAINS-PRIOR> (112,098)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 736,045
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,508,734
<AVERAGE-NET-ASSETS> 147,811,267
<PER-SHARE-NAV-BEGIN> 9.790
<PER-SHARE-NII> 0.630
<PER-SHARE-GAIN-APPREC> 0.380
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<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.170
<EXPENSE-RATIO> 0.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
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<NUMBER> 022
<NAME> Federated Income Securities Trust
Federated Intermediate Income Fund
Institutional Service Shares
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Apr-30-1998
<PERIOD-END> Apr-30-1998
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<INVESTMENTS-AT-VALUE> 184,416,665
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<ASSETS-OTHER> 8,891
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<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,928,198
<TOTAL-LIABILITIES> 8,129,575
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 177,190,229
<SHARES-COMMON-STOCK> 444,701
<SHARES-COMMON-PRIOR> 202,279
<ACCUMULATED-NII-CURRENT> 43,916
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 87,749
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,912,399
<NET-ASSETS> 4,522,140
<DIVIDEND-INCOME> 25,034
<INTEREST-INCOME> 10,060,944
<OTHER-INCOME> 0
<EXPENSES-NET> 821,097
<NET-INVESTMENT-INCOME> 9,264,881
<REALIZED-GAINS-CURRENT> 468,050
<APPREC-INCREASE-CURRENT> 4,611,356
<NET-CHANGE-FROM-OPS> 14,344,287
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 111,464
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 404,462
<NUMBER-OF-SHARES-REDEEMED> 48,804
<SHARES-REINVESTED> 8,355
<NET-CHANGE-IN-ASSETS> (9,233,051)
<ACCUMULATED-NII-PRIOR> 12,086
<ACCUMULATED-GAINS-PRIOR> (112,098)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 736,045
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,508,734
<AVERAGE-NET-ASSETS> 147,811,267
<PER-SHARE-NAV-BEGIN> 9.790
<PER-SHARE-NII> 0.610
<PER-SHARE-GAIN-APPREC> 0.380
<PER-SHARE-DIVIDEND> 0.610
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.170
<EXPENSE-RATIO> 0.80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> Federated Income Securities Trust
Federated Short-Term Income Fund
Institutional Shares
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Apr-30-1998
<PERIOD-END> Apr-30-1998
<INVESTMENTS-AT-COST> 210,524,075
<INVESTMENTS-AT-VALUE> 211,319,527
<RECEIVABLES> 2,386,011
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 213,705,538
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,313,116
<TOTAL-LIABILITIES> 1,313,116
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 236,593,275
<SHARES-COMMON-STOCK> 22,605,037
<SHARES-COMMON-PRIOR> 22,914,397
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (259,441)
<ACCUMULATED-NET-GAINS> (24,736,864)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 795,452
<NET-ASSETS> 197,609,804
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 14,216,083
<OTHER-INCOME> 0
<EXPENSES-NET> 1,271,350
<NET-INVESTMENT-INCOME> 12,944,733
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</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 012
<NAME> Federated Income Securities
Trust
Federated Short-Term Income
Fund
Institutional Service Shares
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</TABLE>