PRESIDENT'S MESSAGE
Dear Shareholder:
I am pleased to present the Annual Report to Shareholders for Federated
Intermediate Income Fund, a portfolio of Federated Income Securities Trust. The
report covers the 12-month period from May 1, 1997, through April 30, 1998. It
begins with a review of the bond market by the fund's portfolio manager,
followed by a complete listing of the fund's holdings, and its financial
statements.
During the reporting period, the fund's Institutional Shares delivered an
average annual total return of 10.58% through dividend income totaling $0.63 per
share and a $0.38 per share increase in net asset value.* The fund's
Institutional Service Shares produced an average annual total return of 10.31%
through dividend income totaling $0.61 per share and a $0.38 per share increase
in net asset value.* The fund's net assets totaled $181 million at the end of
the reporting period.
Thank you for participating in the income potential of high-quality bonds
through Federated Intermediate Income Fund. As always, we welcome your comments,
questions and suggestions.
Sincerely,
[Graphic]
Glen R. Johnson
President
June 15, 1998
* Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
MANAGEMENT DISCUSSION AND ANALYSIS
Federated Intermediate Income Fund invested primarily in high quality corporate
debt securities rated in one of the three highest categories (A or better) by a
nationally recognized statistical rating organization. The fund also invested in
other high quality government and asset-backed securities. The fund duration is
managed within a range of three to seven years.
The investment environment for high quality fixed income securities for the
fiscal year ended April 30, 1998, was very positive in that interest rates fell
significantly across the entire maturity spectrum. The yield curve flattened
over the past twelve months with long maturity (10-30 years) rates falling
approximately 100 basis points, while shorter maturity rates (1-2 years) fell
50-70 basis points.
The rate decline was generally caused by two factors: 1) a moderating economic
growth with stable to falling inflation and 2) a substantial "flight to quality"
into U.S. government bonds caused by the financial market crisis in Asia. The
economy continued to move forward but with no perceptible pricing pressures on
the consumer. As such, consensus earning expectations have been continually
reduced over recent quarters. Additionally, the Asian crisis started in October
1997 with the economic effects recently surfacing and spreading into other
geographical areas.
Relative to sector performance, high quality corporate bonds outperformed
comparable maturity treasury securities over the fund's fiscal year.
Quarter-to-quarter volatility was evident particularly in light of the Asian
crisis. For example, treasury securities dramatically outperformed other fixed
income sectors during the fourth quarter of 1997, again created by a global
investor flight to quality. For the year as a whole, however, the yield
advantage of corporates generated positive performance over and above pure
government debt instruments.
The fund's interest rate exposure was expanded over the latter half of the
fund's fiscal year. Duration was increased in anticipation of an Asian-induced
slowdown. For the twelve-month reporting period, the fund's Institutional Shares
generated a 10.58%* total return relative to a 9.84% total return for the Lipper
Intermediate-Term Investment Grade Debt Funds Average. The total return for the
fund's Institutional Service Shares for the twelve-month reporting period ended
April 30, 1998, was 10.31%.*
The fund ended the fiscal year in a duration position slightly long of a neutral
position. No significant near term duration changes are anticipated.
* Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
FEDERATED INTERMEDIATE INCOME FUND -- (INSTITUTIONAL SHARES)
GROWTH OF $25,000 INVESTED IN FEDERATED INTERMEDIATE INCOME FUND
(INSTITUTIONAL SHARES)
The graph below illustrates the hypothetical investment of $25,000* in the
Federated Intermediate Income Fund (Institutional Shares) (the "Fund") from
December 20, 1993 (start of performance) to April 30, 1998, compared to the
Lehman Brothers Government/Corporate Total Index ("LBGCTI")+ and the Lipper
Intermediate-Term Investment Grade Debt Funds Average ("LIIGDFA").++
[Graphic "A1" omitted. See Appendix.]
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* The Fund's performance assumes the reinvestment of all dividends and
distributions. The LBGCTI and the LIIGDFA have been adjusted to reflect
reinvestment of dividends on securities in the index and average.
+ The LBGCTI is not adjusted to reflect sales charges, expenses, or other fees
that the Securities and Exchange Commission requires to be reflected in the
Fund's performance. This index is unmanaged.
++ The LIIGDFA represents the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as falling into
the category, and is not adjusted to reflect any sales charges. However, these
total returns are reported net of expenses or other fees that the Securities and
Exchange Commission requires to be reflected in a fund's performance.
FEDERATED INTERMEDIATE INCOME FUND--(INSTITUTIONAL SERVICE SHARES)
GROWTH OF $25,000 INVESTED IN FEDERATED INTERMEDIATE INCOME FUND
(INSTITUTIONAL SERVICE SHARES)
The graph below illustrates the hypothetical investment of $25,000* in the
Federated Intermediate Income Fund (Institutional Service Shares) (the "Fund")
from December 20, 1993 (start of performance) to April 30, 1998, compared to the
Lehman Brothers Government/Corporate Total Index ("LBGCTI")+ and the Lipper
Intermediate-Term Investment Grade Debt Funds Average ("LIIGDFA").++
[Graphic "A2" omitted. See Appendix.]
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* The Fund's performance assumes the reinvestment of all dividends and
distributions. The LBGCTI and the LIIGDFA have been adjusted to reflect
reinvestment of dividends on securities in the index and average.
+ The LBGCTI is not adjusted to reflect sales charges, expenses, or other fees
that the Securities and Exchange Commission requires to be reflected in the
Fund's performance. This index is unmanaged.
++ The LIIGDFA represents the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as falling into
the category, and is not adjusted to reflect any sales charges. However, these
total returns are reported net of expenses or other fees that the Securities and
Exchange Commission requires to be reflected in a fund's performance.
PORTFOLIO OF INVESTMENTS
FEDERATED INTERMEDIATE INCOME FUND
APRIL 30, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
ASSET-BACKED SECURITIES--1.6%
STRUCTURED PRODUCTS--0.5%
$ 500,000 Residential Funding Corp. 1993-S26, Class A10, 7.50%, $ 516,905
7/25/2023
300,000 Residential Funding Corp. 1993-S31, Class A7, 7.00%, 9/25/2023 288,639
83,969 The Money Store Home Equity Trust 1992-B, Class A, 6.90%, 84,155
7/15/2007
TOTAL 889,699
UTILITIES--1.1%
2,000,000 California Infrastructure & Economic Development Bank Special 2,027,180
Purpose Trust PG&E-1, Class A8, 6.48%, 12/26/2009
TOTAL ASSET-BACKED SECURITIES (IDENTIFIED COST $2,884,210) 2,916,879
COLLATERALIZED MORTGAGE OBLIGATIONS--0.2%
STRUCTURED PRODUCT--0.2%
394,257 Prudential Bache CMO Trust Series 8, Class F, 7.965%, 3/1/2019 402,107
(identified cost $416,558)
CORPORATE BONDS--64.5%
AEROSPACE & DEFENSE--1.7%
600,000 Boeing Co., Unsecured Note, 6.35%, 6/15/2003 609,444
1,500,000 (a)British Aerospace Finance, Inc., 7.50%, 7/1/2027 1,614,168
800,000 McDonnell Douglas Finance Corp., Medium Term Note, 6.375%, 805,976
7/15/1999
TOTAL 3,029,588
AIR TRANSPORTATION--0.7%
1,150,000 Southwest Airlines Co., Deb., 7.375%, 3/1/2027 1,224,877
AUTOMOBILE--1.1%
2,000,000 Dana Corp., Note, 7.00%, 3/15/2028 2,016,780
BANKING--9.3%
1,250,000 ABN-AMRO Bank NV, Chicago, Sub. Deb., 7.30%, 12/1/2026 1,251,950
40,000 Banc One Corp., Sub. Note, 7.25%, 8/1/2002 41,700
2,000,000 Banco Santander, Bank Guarantee, 7.875%, 4/15/2005 2,159,140
200,000 BankAmerica Corp., Sub. Note, 7.75%, 7/15/2002 211,644
1,000,000 Barclays North America, Deb., 9.75%, 5/15/2021 1,126,240
10,000 Boatmen's Bancshares, Inc., Sub. Note, 9.25%, 11/1/2001 10,984
2,100,000 (a)CIBC Capital Funding LP, Bank Guarantee, 6.40%, 12/17/2004 2,113,650
30,000 Central Fidelity Banks, Inc., Sub. Note, 8.15%, 11/15/2002 32,400
920,000 Chase Manhattan Corp., Sub. Note, 8.00%, 5/1/2005 921,205
</TABLE>
FEDERATED INTERMEDIATE INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS--CONTINUED
BANKING--CONTINUED
$ 40,000 Corestates Capital Corp., Sub. Note, 5.875%, 10/15/2003 $ 39,393
1,000,000 (a)Den Danske Bank, Note, 7.40%, 6/15/2010 1,044,030
250,000 First Chicago NBD Corp., Sub. Note, 8.10%, 3/1/2002 265,145
30,000 First Union Corp., Sub. Note, 8.00%, 11/15/2002 32,176
2,000,000 National Australia Bank, Ltd., Melbourne, Sub. Note, Series B, 2,025,320
6.60%, 12/10/2007
3,000,000 National Bank of Canada, Montreal, Sub. Note, 8.125%, 3,258,510
8/15/2004
15,000 NationsBank Corp., Sub. Note, 7.625%, 4/15/2005 16,064
300,000 Northern Trust Corp., Sub. Note, 9.00%, 5/15/1998 300,483
430,000 PNC Funding Corp., Sub. Note, 6.875%, 7/15/2007 443,670
30,000 Republic New York Corp., Sub. Note, 8.25%, 11/1/2001 32,050
10,000 Sovran Financial, Deb., 9.75%, 6/15/1999 10,423
200,000 SunTrust Bank, Central Florida, Sub. Note, 6.90%, 7/1/2007 208,296
255,000 SunTrust Banks, Inc., Note, 7.375%, 7/1/2002 266,829
15,000 SunTrust Banks, Inc., Sub. Note, 6.125%, 2/15/2004 14,924
1,000,000 (a)Swedbank, Sub., 7.50%, 11/29/2049 1,023,340
TOTAL 16,849,566
BEVERAGE & TOBACCO--0.2%
350,000 American Brands, Inc., Medium Term Note, 8.87%, 8/10/1998 353,398
CHEMICALS & PLASTICS--0.9%
1,500,000 (a)Bayer Corp., Deb., 6.50%, 10/1/2002 1,530,165
40,000 Du Pont (E.I.) de Nemours & Co., Note, 8.125%, 3/15/2004 43,930
30,000 PPG Industries, Inc., Note, 6.50%, 11/1/2007 30,744
TOTAL 1,604,839
CONGLOMERATES--0.6%
1,250,000 (a)Hutchison Whampoa Finance, Company Guarantee, 7.50%, 1,118,475
8/1/2027
CONSUMER PRODUCTS--0.0%
50,000 CPC International, Inc., Note, 6.15%, 9/18/1998 50,153
ECOLOGICAL SERVICES & EQUIPMENT--1.2%
2,000,000 WMX Technologies, Inc., Deb., 8.75%, 5/1/2018 2,245,960
EDUCATION--2.5%
1,975,000 Boston University, 7.625%, 7/15/2097 2,231,643
1,150,000 Columbia University, Medium Term Note, 8.62%, 2/21/2001 1,230,557
1,000,000 Harvard University, Revenue Bonds, 8.125% Bonds, 4/15/2007 1,144,010
TOTAL 4,606,210
</TABLE>
FEDERATED INTERMEDIATE INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS--CONTINUED
ELECTRONICS--2.6%
$ 1,500,000 General Electric Financial Services, Inc., Medium Term Note, $ 1,835,445
9.18%, 12/30/2008
2,590,000 Harris Corp., Deb., 10.375%, 12/1/2018 2,782,256 15,000
Rockwell International Corp., Unsecured Note, 6.625%, 6/1/2005
15,413
TOTAL 4,633,114
FINANCE - AUTOMOTIVE--3.3%
1,750,000 Chrysler Financial Corp., Deb., 13.25%, 10/15/1999 1,934,537
2,000,000 Ford Capital BV, Note, 9.375%, 5/15/2001 2,175,880
35,000 Ford Motor Credit Corp., Note, 7.75%, 3/15/2005 37,645
20,000 Ford Motor Credit Corp., Unsecured Note, 7.75%, 10/1/1999 20,509
1,000,000 Ford Motor Credit Corp., Unsub., 6.875%, 6/5/2001 1,015,370
485,000 General Motors Acceptance Corp., Medium Term Note, 7.50%, 498,648
5/25/2000
45,000 General Motors Acceptance Corp., Note, 6.25%, 1/11/2000 45,210
155,000 General Motors Acceptance Corp., Note, 7.00%, 9/15/2002 159,982
100,000 General Motors Acceptance Corp., Unsecured Note, 7.75%, 101,446
1/15/1999
TOTAL 5,989,227
FINANCE - RETAIL--0.0%
50,000 Commercial Credit Co., Note, 5.55%, 2/15/2001 49,362
15,000 Commercial Credit Co., Note, 6.70%, 8/1/1999 15,170
TOTAL 64,532
FINANCIAL INTERMEDIARIES--4.7%
2,000,000 (a)Amvescap PLC, Sr. Note, 6.60%, 5/15/2005 1,996,960
50,000 Avco Financial Services, Inc., Sr. Note, 8.50%, 10/15/1999 51,753
40,000 CIT Group Holdings, Inc., Sr. Note, 6.375%, 5/21/1999 40,279
1,500,000 Donaldson, Lufkin and Jenrette Securities Corp., Note, 6.875%, 1,532,085
11/1/2005
15,000 Equitable Cos., Inc., Sr. Note, 6.75%, 12/1/2000 15,220
2,000,000 Lehman Brothers, Inc., Sr. Sub. Note, 7.375%, 1/15/2007 2,103,940
500,000 Merrill Lynch & Co., Inc., Note, 6.875%, 3/1/2003 514,150
15,000 Merrill Lynch & Co., Inc., Note, 7.375%, 5/15/2006 15,977
100,000 Merrill Lynch & Co., Inc., Note, 8.30%, 11/1/2002 108,229
65,000 Merrill Lynch & Co., Inc., Note, 8.375%, 2/9/2000 67,673
20,000 Morgan Stanley Group, Inc., Deb., 9.375%, 6/15/2001 21,806
30,000 Norwest Corp., Note, 5.75%, 2/1/2003 29,517
1,050,000 Norwest Financial, Inc., Note, 6.23%, 9/1/1998 1,053,265
5,000 Salomon, Inc., Note, 6.375%, 10/1/2004 5,012
</TABLE>
FEDERATED INTERMEDIATE INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS--CONTINUED
FINANCIAL INTERMEDIARIES--CONTINUED
$ 10,000 Salomon, Inc., Note, 6.625%, 11/15/2003 $ 10,151
986,574 (a)World Financial, Pass Thru Cert., Series 96 WFP-B, 6.91%, 1,033,150
9/1/2013
TOTAL 8,599,167
FINANCIAL SERVICES--1.3%
250,000 American Express Credit Corp., Deb., 8.50%, 6/15/1999 257,487
20,000 Associates Corp. of North America, Sr. Note, 6.00%, 6/15/2000 20,035
2,000,000 Associates Corp. of North America, Sr. Note, 6.68%, 9/17/1999 2,022,460
35,000 Associates Corp. of North America, Sr. Note, 6.75%, 10/15/1999 35,447
50,000 Caterpillar Financial Services Corp., Note, 6.77%, 3/15/1999 50,475
30,000 John Deere Capital Corp., Sr. Note, 6.50%, 9/20/1999 30,287
15,000 John Deere Capital Corp., Sr. Note, 7.52%, 3/6/2000 15,404
10,000 Paccar Financial Corp., Sr. Note, 6.18%, 2/15/2001 10,012
TOTAL 2,441,607
FOOD PRODUCTS--0.2%
5,000 Grand Metropolitan Investment Corp., 9.00%, 8/15/2011 6,124
5,000 Grand Metropolitan Investment Corp., Unsecured Note, 6.50%, 5,041
9/15/1999
300,000 Kraft General Foods, Inc., Deb., 6.00%, 6/15/2001 298,977
25,000 Union Camp Corp., Note, 6.50%, 11/15/2007 25,352
TOTAL 335,494
FOREST PRODUCTS--0.0%
25,000 Weyerhaeuser Co., Deb., 9.05%, 2/1/2003 27,823
HEALTH SERVICES--0.6%
1,000,000 Aetna Services, Inc., Company Guarantee, 6.75%, 8/15/2001 1,018,240
INDUSTRIAL PRODUCTS & EQUIPMENT--0.2%
10,000 Air Products & Chemicals, Inc., Note, 7.375%, 5/1/2005 10,613
30,000 Dresser Industries, Inc., Note, 6.25%, 6/1/2000 30,116
300,000 Illinois Tool Works, Inc., Note, 5.875%, 3/1/2000 300,840
25,000 Ingersoll-Rand Co., Note, 6.51%, 12/1/2004 25,419
10,000 Ingersoll-Rand Co., Note, 6.60%, 8/1/2000 10,137
TOTAL 377,125
INSURANCE--8.2%
2,500,000 Allmerica Financial Corp., Sr. Note, 7.625%, 10/15/2025 2,650,525
2,000,000 CNA Financial Corp., Deb., 7.25%, 11/15/2023 2,027,780
2,000,000 (a)Equitable Life, Note, 7.70%, 12/1/2015 2,159,520
</TABLE>
FEDERATED INTERMEDIATE INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS--CONTINUED
INSURANCE--CONTINUED
$ 1,000,000 GEICO Corp., Deb., 9.15%, 9/15/2021 $ 1,124,510
25,000 ITT Hartford Group, Inc., Note, 8.30%, 12/1/2001 26,699
15,000 Lincoln National Corp., Note, 7.625%, 7/15/2002 15,798
250,000 MBIA, Deb., 9.00%, 2/15/2001 269,202
900,000 Provident Cos., Inc., Bond, 7.405%, 3/15/2038 916,809
2,000,000 (a)Reinsurance Group of America, Sr. Note, 7.25%, 4/1/2006 2,091,400
1,500,000 SunAmerica, Inc., Medium Term Note, 7.34%, 8/30/2005 1,590,217
1,400,000 SunAmerica, Inc., Sr. Note, 6.20%, 10/31/1999 1,403,584
500,000 SunAmerica, Inc., Sr. Note, 9.00%, 1/15/1999 511,005
TOTAL 14,787,049
LEISURE & ENTERTAINMENT--0.0%
40,000 Disney (Walt) Co., Bond, 6.375%, 3/30/2001 40,513
MACHINERY & EQUIPMENT--0.9%
1,600,000 Continental Airlines, Inc., Pass Thru Cert., Series 1997-4 B, 1,643,888
6.90%, 7/2/2019
METALS & MINING--1.5%
2,500,000 Barrick Gold Corp., Deb., 7.50%, 5/1/2007 2,642,075
MUNICIPAL SERVICES--5.2%
1,250,000 Atlanta & Fulton County, GA Recreation Authority, Taxable 1,251,862
Revenue Bonds, Series 1997, 7.00% Bonds (Downtown Arena
Project)/(FSA INS), 12/1/2028
1,325,000 Kansas City, MO Redevelopment Authority, 7.65% Bonds (FSA 1,432,590
LOC), 11/1/2018
2,000,000 McKeesport, PA, Taxable G.O. Series B 1997, 7.30% Bonds (MBIA 2,044,440
INS), 3/1/2020
1,000,000 Miami Florida Revenue Pension Obligation, 7.20% Bonds (AMBAC 1,021,440
LOC), 12/1/2025
1,250,000 Minneapolis/St. Paul, MN Airport Commission, UT GO Taxable 1,397,250
Revenue Bonds (Series 9), 8.95% Bonds (Minneapolis/St. Paul,
MN), 1/1/2022
1,000,000 Pittsburgh, PA Urban Redevelopment Authority, 9.07% Bonds 1,147,770
(CGIC GTD), 9/1/2014
1,000,000 St. Johns County, FL Convention Center, Taxable Municipal 1,101,300
Revenue Bonds, 8.00% Bonds (FSA INS), 1/1/2026
TOTAL 9,396,652
OIL & GAS--1.2%
10,000 Atlantic Richfield Co., Deb., 9.125%, 3/1/2011 12,507
1,750,000 Phillips Petroleum Co., Deb., 9.18%, 9/15/2021 1,959,860
250,000 Shell Oil Co., Deb., 6.95%, 12/15/1998 252,202
TOTAL 2,224,569
</TABLE>
FEDERATED INTERMEDIATE INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS--CONTINUED
PHARMACEUTICAL--0.4%
$ 500,000 American Home Products Corp., Note, 7.70%, 2/15/2000 $ 515,240
250,000 American Home Products Corp., Note, 7.90%, 2/15/2005 272,660
TOTAL 787,900
RAIL INDUSTRY--0.6%
1,000,000 Atchison Topeka & Santa Fe RR, Equip. Trust, 6.55%, 1/6/2013 1,007,960
RETAILERS--4.1%
15,000 Dillard Investment, Deb., 9.25%, 2/1/2001 16,141
1,874,000 Eckerd Corp., Sr. Sub. Note, 9.25%, 2/15/2004 2,002,538
2,000,000 May Department Stores Co., Deb., 8.125%, 8/15/2035 2,210,980
2,250,000 Penney (J.C.) Co., Inc., Deb., 7.65%, 8/15/2016 2,423,678
300,000 Sears, Roebuck & Co., Deb., 8.45%, 11/1/1998 304,293
500,000 Sears, Roebuck & Co., Medium Term Note, 7.32%, 4/24/2000 512,205
TOTAL 7,469,835
SOVEREIGN GOVERNMENT--3.5%
1,000,000 Quebec, Province of, Deb., 13.25%, 9/15/2014 1,137,250
1,500,000 Quebec, Province of, Deb., 7.50%, 7/15/2023 1,634,670
1,000,000 Quebec, Province of, Deb., 9.125%, 8/22/2001 1,080,000
1,000,000 Sweden, Kingdom of, Deb., 10.25%, 11/1/2015 1,342,300
1,000,000 Victoria Public Authority, Local Gov't. Guarantee, 8.25%, 1,065,625
1/15/2002
TOTAL 6,259,845
SURFACE TRANSPORTATION--1.9%
3,000,000 Trans Ocean Container Corp., Sr. Sub. Note, 12.25%, 7/1/2004 3,399,810
TECHNOLOGY SERVICES--0.0%
35,000 Lucent Technologies, Inc., Note, 6.90%, 7/15/2001 35,931
TELECOMMUNICATIONS & CELLULAR--1.3%
1,500,000 Cox Communications, Inc., Medium Term Note, 6.69%, 9/20/2004 1,520,760
800,000 New England Telephone & Telegraph, Deb., 8.625%, 8/1/2001 862,408
TOTAL 2,383,168
UTILITIES--4.6%
2,000,000 Big Rivers Electric Corp., 9.52%, 3/15/2019 2,101,540
250,000 Central Illinois Public, 1st Mtg. Bond, 6.00%, 4/1/2000 250,595
250,000 Consolidated Edison Co., Deb., Series 92B, 7.625%, 3/1/2004 267,518
60,000 Duke Energy Corp., 1st Ref. Mtg., 6.25%, 8/12/1999 60,452
1,250,000 Enersis S.A., Note, 7.40%, 12/1/2016 1,246,538
</TABLE>
FEDERATED INTERMEDIATE INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS--CONTINUED
UTILITIES--CONTINUED
$ 1,500,000 (a)Israel Electric Corp. Ltd., Sr. Note, 7.875%, 12/15/2026 $ 1,542,165
30,000 Michigan Consolidated Gas, 1st Mtg. Bond, 6.80%, 6/15/2003 30,845
300,000 Midwest Power Systems, Inc., Mtg. Bond, 6.75%, 2/1/2000 304,323
180,000 Minnesota Power and Light Co., 1st Mtg. Bond, 7.75%, 6/1/2007 191,187
1,000,000 Puget Sound Energy, Inc., Medium Term Note, 7.02%, 12/1/2027 1,017,180
5,000 Sonat, Inc., Note, 6.875%, 6/1/2005 5,105
500,000 (a)Tenaga Nasional Berhad, Deb., 7.50%, 1/15/2096 378,765
400,000 Virginia Electric Power Co., Mtg. Bond, Series A, 9.375%, 401,308
6/1/1998
500,000 Wisconsin Tel Co., Deb., 6.25%, 8/1/2004 497,365
TOTAL 8,294,886
TOTAL CORPORATE BONDS (IDENTIFIED COST $113,674,515) 116,960,256
GOVERNMENT AGENCIES--5.5%
100,000 Federal Farm CreditBank, Note, 7.30%, 9/11/2001 100,683
245,000 Federal Home Loan Bank, Bond, 7.04%, 1/24/2011 244,192
250,000 Federal Home Loan Bank, Deb., 6.178%, 1/10/2001 250,528
325,000 Federal Home Loan Bank, Note, 6.11%, 1/19/2001 325,718
75,000 Federal Home Loan Mortgage Corp., Deb., 4.77%, 9/14/1998 74,865
300,000 Federal Home Loan Mortgage Corp., Deb., 6.28%, 7/15/2003 299,280
100,000 Federal Home Loan Mortgage Corp., Deb., 7.318%, 6/18/2001 100,291
50,000 Federal Home Loan Mortgage Corp., Note, 6.93%, 3/17/2004 50,341
500,000 Federal National Mortgage Association, 8.25%, 12/18/2000 529,915
1,650,000 Federal National Mortgage Association, Medium Term Note, 1,694,072
6.71%, 7/24/2001
750,000 Federal National Mortgage Association, Medium Term Note, 753,728
7.43%, 8/4/2005
100,000 Federal National Mortgage Association, Note, 7.17%, 1/20/2004 101,084
1,800,000 Tennessee Valley Authority, 8.625%, 11/15/2029 1,713,258
500,000 Tennessee Valley Authority, 6.125%, 7/15/2003 498,970
3,305,000 Tennessee Valley Authority, Note, 8.625%, 11/15/2029 3,145,732
TOTAL GOVERNMENT AGENCIES (IDENTIFIED COST $9,883,268) 9,882,657
MORTGAGE BACKED SECURITIES--12.5%
FEDERAL HOME LOAN MORTGAGE CORPORATION--3.4%
912,910 Pool E66857, 6.50%, 5/1/2012 918,041
3,663,000 Pool E70007, 6.00%, 4/1/2013 3,613,769
1,682,000 (b)Pool TBA, 7.00%, 6/1/2099 1,703,866
TOTAL 6,235,676
</TABLE>
FEDERATED INTERMEDIATE INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR SHARES VALUE
<C> <S> <C>
MORTGAGE BACKED SECURITIES--CONTINUED
FEDERAL NATIONAL MORTGAGE ASSOCIATION--4.1%
$ 1,055,403 Pool 250412, 7.00%, 12/1/2010 $ 1,075,519
898,180 Pool 267905, 7.00%, 2/1/2024 915,865
1,672,289 Pool 354370, 6.50%, 8/1/2003 1,679,613
1,807,105 Pool 421090, 6.50%, 4/1/2028 1,789,034
1,980,000 Pool 421590, 6.50%, 4/1/2028 1,960,200
TOTAL 7,420,231
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--5.0%
54,108 Pool 1851, 7.50%, 6/20/2007 55,664
1,102,478 Pool 312595, 8.00%, 1/15/2022 1,147,261
874,212 Pool 379983, 7.50%, 2/15/2024 901,260
2,005,438 Pool 468686, 7.50%, 2/15/2028 2,061,209
778,367 Pool 780204, 7.00%, 7/15/2025 790,043
2,452,089 Pool 780359, 7.50%, 12/15/2023 2,527,172
1,500,000 Pool TBA, 7.00%, 5/1/2099 1,518,285
TOTAL 9,000,894
TOTAL MORTGAGE-BACKED SECURITIES (IDENTIFIED COST $22,346,250) 22,656,801
PREFERRED STOCKS--1.5%
TECHNOLOGY SERVICES--1.5%
29,000 Microsoft Corp., Cumulative Conv. Pfd., Series A, $2.20 2,700,625
(identified cost $2,580,544)
TREASURY SECURITIES--9.5%
U.S. TREASURY BONDS--6.9%
$ 1,500,000 Bond, 10.75%, 8/15/2005 1,939,755
1,500,000 Bond, 11.625%, 11/15/2004 1,975,695
75,000 Bond, 12.00%, 8/15/2013 109,859
3,800,000 Bond, 6.00%, 2/15/2026 3,790,120
1,200,000 Bond, 6.125%, 11/15/2027 1,229,052
2,500,000 Bond, 6.375%, 8/15/2027 2,637,050
255,000 Bond, 7.125%, 2/15/2023 290,412
140,000 Bond, 7.875%, 2/15/2021 171,443
265,000 Bond, 9.875%, 11/15/2015 375,492
TOTAL 12,518,878
</TABLE>
FEDERATED INTERMEDIATE INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
TREASURY SECURITIES--CONTINUED
U.S. TREASURY NOTES--2.6%
$ 2,500,000 Note, 5.625%, 12/31/2002 $ 2,495,950
5,000 Note, 5.75%, 8/15/2003 5,014
50,000 Note, 6.375%, 7/15/1999 50,511
20,000 Note, 6.50%, 4/30/1999 20,199
5,000 Note, 7.50%, 2/15/2005 5,492
2,000,000 Note, 7.75%, 11/30/1999 2,066,440
25,000 Note, 7.875%, 11/15/1999 25,856
TOTAL 4,669,462
TOTAL TREASURY SECURITIES (IDENTIFIED COST $17,009,921) 17,188,340
(C)REPURCHASE AGREEMENTS--6.5%
1,682,000 Goldman Sachs Group, LP, 5.48%, dated 4/17/1998, due
6/10/1998 1,682,000 8,345,000 BT Securities Corp., 5.53%, dated
4/30/1998, due 5/1/1998 8,345,000 1,682,000 Credit Suisse First
Boston, Inc., 5.47%, dated 4/3/1998, due 1,682,000
5/13/1998
TOTAL REPURCHASE AGREEMENTS (AT AMORTIZED COST) 11,709,000
TOTAL INVESTMENTS (IDENTIFIED COST $180,504,266)(D) $ 184,416,665
</TABLE>
(a) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At April 30, 1998, these securities amounted to
$17,645,788 which represents 9.7% of net assets.
(b) Indicates a security subject to dollar roll transactions.
(c) The repurchase agreements are fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investments in the repurchase agreements are through participation in joint
accounts with other Federated funds.
(d) The cost of investments for federal tax purposes amounts to $180,504,458.
The net unrealized appreciation/depreciation of investments on a federal tax
basis amounts to $3,912,207 which is comprised of $4,389,493 appreciation and
$477,286 depreciation at April 30, 1998.
Note: The categories of investments are shown as a percentage of net assets
($181,234,293) at April 30, 1998.
The following acronyms are used throughout this portfolio: AMBAC -- American
Municipal Bond Assurance Corporation CGIC -- Capital Guaranty Insurance
Corporation CMO -- Collateralized Mortgage Obligation FSA -- Financial Security
Assurance GO -- General Obligation GTD -- Guaranty INS -- Insured LOC -- Letter
of Credit LP -- Limited Partnership MBIA -- Municipal Bond Investors Assurance
PLC -- Public Limited Company TBA -- To Be Announced UT -- Unlimited Tax
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF ASSETS AND LIABILITIES
FEDERATED INTERMEDIATE INCOME FUND
APRIL 30, 1998
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified cost $ 184,416,665
$180,504,266 and tax cost $180,504,458)
Income receivable 3,173,445
Receivable for shares sold 1,764,867
Prepaid expenses 8,891
Total assets 189,363,868
LIABILITIES:
Payable to bank $ 211,772
Payable for investments purchased 5,201,377
Payable for shares redeemed 318,023
Income distribution payable 694,296
Payable for dollar roll transactions 1,704,107
Total liabilities 8,129,575
Net Assets for 17,823,301 shares outstanding $ 181,234,293
NET ASSETS CONSIST OF:
Paid in capital $ 177,190,229
Net unrealized appreciation of investments 3,912,399
Accumulated net realized gain on investments 87,749
Undistributed net investment income 43,916
Total Net Assets $ 181,234,293
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$176,712,153 / 17,378,600 shares outstanding $10.17
INSTITUTIONAL SERVICE SHARES:
$4,522,140 / 444,701 shares outstanding $10.17
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
FEDERATED INTERMEDIATE INCOME FUND
YEAR ENDED APRIL 30, 1998
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 25,034
Interest (net of dollar roll expense of $4,062) 10,060,944
Total income 10,085,978
EXPENSES:
Investment advisory fee $ 736,045
Administrative personnel and services fee 155,001
Custodian fees 10,108
Transfer and dividend disbursing agent fees and expenses 35,753
Directors'/Trustees' fees 5,002
Auditing fees 17,859
Legal fees 2,671
Portfolio accounting fees 51,691
Distribution services fee--Institutional Service Shares 4,643
Shareholder services fee--Institutional Shares 363,384
Shareholder services fee--Institutional Service Shares 4,643
Share registration costs 47,375
Printing and postage 24,938
Insurance premiums 3,468
Miscellaneous 46,153
Total expenses 1,508,734
Waivers --
Waiver of investment advisory fee $ (319,611)
Waiver of distribution services fee--Institutional (1,671)
Service Shares
Waiver of shareholder services fee--Institutional (363,384)
Shares
Waiver of shareholder services fee--Institutional (2,971)
Service Shares
Total waivers (687,637)
Net expenses 821,097
Net investment income 9,264,881
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 468,050
Net change in unrealized appreciation of investments 4,611,356
Net realized and unrealized gain on investments 5,079,406
Change in net assets resulting from operations $ 14,344,287
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
FEDERATED INTERMEDIATE INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 9,264,881 $ 6,998,262
Net realized gain (loss) on investments ($356,180 net gain and 468,050 (380,854)
$268,793 net loss, respectively, as computed for federal tax
purposes)
Net change in unrealized appreciation 4,611,356 356,638
Change in net assets resulting from operations 14,344,287 6,974,046
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Institutional Shares (9,121,587) (6,940,716)
Institutional Service Shares (111,464) (45,460)
Distributions from net realized gains
Institutional Shares -- (56,910)
Institutional Service Shares -- (534)
Change in net assets resulting from distributions to (9,233,051) (7,043,620)
shareholders
SHARE TRANSACTIONS--
Proceeds from sale of shares 87,933,934 70,364,497
Net asset value of shares issued to shareholders in payment of 1,772,639 1,225,640
distributions declared
Cost of shares redeemed (35,680,483) (37,424,842)
Change in net assets resulting from share transactions 54,026,090 34,165,295
Change in net assets 59,137,326 34,095,721
NET ASSETS:
Beginning of period 122,096,967 88,001,246
End of period (including undistributed net investment income of $ 181,234,293 $ 122,096,967
$43,916 and $12,086, respectively)
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
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.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
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.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
NOTES TO FINANCIAL STATEMENTS
FEDERATED INTERMEDIATE INCOME FUND
APRIL 30, 1998
ORGANIZATION
Federated Income Securities Trust (the "Trust") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Trust consists of two portfolios. The
financial statements included herein are only those of Federated Intermediate
Income Fund (the "Fund"). The investment objective of the Fund is to provide
current income. The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held.
The Fund offers two classes of shares: Institutional Shares and
Institutional Service Shares.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
U.S. government securities, listed corporate bonds, other fixed income and
asset-backed securities, and private placement securities are generally valued
at the mean of the latest bid and asked price as furnished by an independent
pricing service. Listed equity securities are valued at the last sale price
reported on a national securities exchange. Short-term securities are valued at
the prices provided by an independent pricing service. However, short-term
securities with remaining maturities of sixty days or less at the time of
purchase may be valued at amortized cost, which approximates fair market value.
REPURCHASE AGREEMENTS
It is the policy of the Fund to require the custodian bank to take possession,
to have legally segregated in the Federal Reserve Book Entry System, or to have
segregated within the custodian bank's vault, all securities held as collateral
under repurchase agreement transactions. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of each
repurchase agreement's collateral to ensure that the value of collateral at
least equals the repurchase price to be paid under the repurchase agreement
transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/ dealers, which are deemed by
the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the "Trustees").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less than
the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex-dividend
date.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
RESTRICTED SECURITIES
Restricted securities are securities that may only be resold upon registration
under federal securities laws or in transactions exempt from such registration.
In some cases, the issuer of restricted securities has agreed to register such
securities for resale, at the issuer's expense either upon demand by the Fund or
in connection with another registered offering of the securities. Many
restricted securities may be resold in the secondary market in transactions
exempt from registration. Such restricted securities may be determined to be
liquid under criteria established by the Trustees. The Fund will not incur any
registration costs upon such resales. The Fund's restricted securities are
valued at the price provided by dealers in the secondary market or, if no market
prices are available, at the fair value as determined by the Fund's pricing
committee.
Additional information on each restricted security held at April 30, 1998 is as
follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
Amvescap PLC, Sr. Note 4/30/1998 $ 1,996,960
Bayer Corp., Deb. 3/21/1996 1,496,576
British Aerospace Finance, 6/26/1997 1,488,941
Inc.
CIBC Capital Funding LP 12/11/1997 2,098,312
Den Danske Bank, Note 1/7/1998 1,051,496
Equitable Life, Note 12/17/1997 - 2,137,477
2/11/1998
Hutchison Whampoa Finance 7/25/1997 1,241,211
Israel Electric Corp. Ltd., 1/28/1997 1,497,078
Sr. Note
Reinsurance Group of 3/19/1996 - 1,989,999
America, Sr. Note 6/2/1997
Swedbank, Sub. 1/7/1998 1,044,344
Tenaga Nasional Berhad, 3/3/1997 474,926
Deb.
World Financial, Pass Thru 11/18/1996 986,574
Cert. Series 96
</TABLE>
DOLLAR ROLL TRANSACTIONS
The Fund enters into dollar roll transactions, with respect to mortgage
securities issued by GNMA, FNMA and FHLMC, in which the Fund sells mortgage
securities to financial institutions and simultaneously agrees to accept
substantially similar (same type, coupon, and maturity) securities at a later
date at an agreed upon price. Dollar roll transactions involve "to be announced"
securities and are treated as short-term financing arrangements which will not
exceed twelve months. The Fund will use the proceeds generated from the
transactions to invest in short-term investments, which may enhance the Fund's
current yield and total return.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses, and revenues reported in
the financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
1998 1997
INSTITUTIONAL SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 8,315,206 $ 83,824,071 7,046,674 $ 69,424,049
Shares issued to shareholders in payment of
distributions declared 167,124 1,687,992 121,307 1,193,759
Shares redeemed (3,490,041) (35,185,913) (3,741,544) (36,732,127)
Net change resulting from Institutional
Share transactions 4,992,289 $ 50,326,150 3,426,437 $ 33,885,681
<CAPTION>
YEAR ENDED APRIL 30,
1998 1997
INSTITUTIONAL SERVICE SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 404,462 $ 4,109,863 95,657 $ 940,448
Shares issued to shareholders in payment of
distributions declared 8,355 84,647 3,236 31,881
Shares redeemed (48,804) (494,570) (70,216) (692,715)
Net change resulting from Institutional
Service Share transactions 364,013 $ 3,699,940 28,677 $ 279,614
Net change resulting from share
transactions 5,356,302 $ 54,026,090 3,455,114 $34,165,295
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Management, the Fund's investment adviser (the "Adviser"), receives
for its services an annual investment advisory fee equal to 0.50% of the Fund's
average daily net assets. The Adviser may voluntarily choose to waive any
portion of its fee. The Adviser can modify or terminate this voluntary waiver at
any time at its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors, Inc. for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
DISTRIBUTION SERVICES FEE
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Act. Under the terms of the Plan, the Fund will compensate Federated
Securities Corp. ("FSC"), the principal distributor, from the net assets of the
Fund to finance activities intended to result in the sale of the Fund's
Institutional Service Shares. The Plan provides that the Fund may incur
distribution expenses up to 0.25% of average daily net assets of the
Institutional Service Shares, annually, to compensate FSC. The distributor may
voluntarily choose to waive any portion of its fee. The distributor can modify
or terminate this voluntary waiver at any time at its sole discretion.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services ("FSS"), the Fund will pay FSS up to 0.25% of average daily net assets
of the Fund for the period. The fee paid to FSS is used to finance certain
services for shareholders and to maintain shareholder accounts. FSS may
voluntarily choose to waive any portion of its fee. FSS can modify or terminate
this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC")
serves as transfer and dividend disbursing agent for the Fund. The fee paid to
FSSC is based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES
Organizational expenses of $86,699 were borne initially by the Adviser. The Fund
has reimbursed the Adviser for these expenses. These expenses have been deferred
and are being amortized over the five-year period following the Fund's effective
date. For the year ended April 30, 1998, the Fund expensed $16,858 of
organizational expenses.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended April 30, 1998, were as follows:
Purchases $ 118,064,847
Sales $ 63,750,464
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and admininstrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps willl be
sufficient to avoid any adverse impact to the Fund.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Trustees and Shareholders of FEDERATED INTERMEDIATE INCOME FUND (a
Portfolio of Federated Income Securities Trust):
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Federated Intermediate Income Fund (one of the
portfolios comprising Federated Income Securities Trust), as of April 30, 1998,
and the related statement of operations for the year then ended, the statements
of changes in net assets for each of the two years in the period then ended and
the financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of April
30, 1998, by correspondence with the custodian and a broker or other appropriate
auditing procedures where replies from brokers were not received. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Federated Intermediate Income Fund, a portfolio of Federated Income Securities
Trust, at April 30, 1998, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then
ended, and financial highlights for each of the periods presented, in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
June 19, 1998
TRUSTEES
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
Nicholas P. Constantakis
William J. Copeland
James E. Dowd
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr.
Peter E. Madden
John E. Murray, Jr.
Wesley W. Posvar
Marjorie P. Smuts
OFFICERS
John F. Donahue
Chairman
Glen R. Johnson
President
J. Christopher Donahue
Executive Vice President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President, Treasurer, and Secretary
Richard B. Fisher
Vice President
Anthony R. Bosch
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
[Graphic]
Federated Investors
Federated Intermediate Income Fund
Federated Securities Corp., Distributor
Federated Investors, Inc.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
ANNUAL REPORT TO SHAREHOLDERS
APRIL 30, 1998
Cusip 31420C407
Cusip 31420C506
G00715-02 (6/98)
[Graphic]
PRESIDENT'S MESSAGE
Dear Shareholder:
I am pleased to present the Annual Report to Shareholders for Federated
Short-Term Income Fund, a portfolio of Federated Income Securities Trust. The
report covers the 12-month period from May 1, 1997, through April 30, 1998. It
begins with a review of the bond market by the fund's portfolio manager,
followed by a complete listing of fund holdings and its financial statements.
On behalf of investors, the fund pursues income through a diversified portfolio
consisting primarily of short-term, high-quality debt securities.
At the end of the reporting period, the fund's portfolio was invested primarily
in corporate bonds/asset-backed securities (69.4%), followed by non-government
agency mortgage-backed securities (17.0%), government agency mortgage-backed
securities (5.7%) and U.S. Treasury notes (2.4%).
During the 12-month reporting period, the fund's Institutional Shares produced a
total return of 6.88% through dividends totaling $0.52 per share and a net asset
value increase of $0.06 per share.* The fund's Institutional Service Shares
produced a total return of 6.61% through dividends totaling $0.50 per share and
a net asset value increase of $0.06 per share.*
Total net assets in the fund reached $212.4 million at the end of the reporting
period.
Thank you for selecting Federated Short-Term Income Fund as a high-quality,
short-term income investment. As always, we welcome your questions, comments, or
suggestions.
Sincerely,
[Graphic]
Glen R. Johnson
President
June 15, 1998
* Performance quoted reflects past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
MANAGEMENT DISCUSSION & ANALYSIS
The investment objective of the fund is to seek to provide current income. To
the extent consistent with this objective, the fund will strive to minimize
fluctuation in principal value through a portfolio with an effective modified
duration of two years or less.
The fund invested its assets primarily in a broad range of investment grade
securities rated A or better, or of comparable quality. These included fixed and
floating rate corporate bonds, asset-backed and mortgage-backed securities, and
U.S. government-backed securities which are guaranteed as to the timely payment
of principal and interest by the U.S. government, its agencies or
instrumentalities. Fund shares however, are not guaranteed by the U.S.
government.
The total return for the one-year period ended April 30, 1998, for the fund's
Institutional Shares and Institutional Service Shares were 6.88% and 6.61%,
respectively.* The net asset value of the fund increased from $8.68 at April 30,
1997 to $8.74 on April 30, 1998. The net assets of the fund decreased from
$232.0 million to $212.4 million, while the 30-day distribution rate of the
fund's Institutional Shares and Institutional Service Shares decreased from
6.19% to 5.44% and 5.94% to 5.19%, respectively.* As of April 30, 1998, the
30-day SEC yields for Institutional Shares and Institutional Service Shares were
6.19% and 5.94%, respectively.* The effective modified duration of the fund at
April 30, 1998 was 1.5 years, in the middle of the fund's 1.0 to 2.0 year
specified duration range.
The U.S. Treasury yield curve delivered a mildly positive result during the
period under review. Yields in the part of the Treasury yield curve where the
fund generally invests declined by anywhere from 25 to 55 basis points. This,
along with other positive factors, made for a reasonable overall outcome for the
fund. Returns on both classes of shares were significantly higher than that of
the Lipper Institutional Money Market Fund** category average for the reporting
period (category average return of 5.41%), while the fund's Institutional Shares
return of 6.88% also bested the average return of its own peer group, the Lipper
Short Investment Grade Debt category which returned 6.67%.
As the fund's fiscal year drew to a close, the outlook for a continued slow
decline in short-term interest rates over the intermediate term remained intact.
Inflation is at its lowest level in a generation, and the U.S. economy, while
still in very reasonable shape, appears to be slowing just a bit. That being
said, it is not inconceivable that the Federal Reserve Board (the "Fed") could
raise short-term interest rates to offset a robust labor market, but even if
this event occurs, any negative effect on the short end of the U.S. yield curve
would probably be short-lived. In fact, yields at the long end of the curve have
the potential to decline given the prospect of even lower inflation brought on
by a slowing economy.
With regard to sector performance, investors were generally compensated for
exposure to the "spread" products during the repurchasing period, despite a
flight to quality brought on by the "Asian contagion" in the latter part of
1997, which temporarily made such product less attractive. Overall, asset-backed
and investment grade corporate bonds ended up outperforming comparable maturity
Treasury securities, while mortgage-backed securities underperformed slightly.
During the repurchasing period, the fund generally maintained its largest
exposure in asset-backed securities, attempting within that sector to obtain
outperformance on a security specific basis. Mortgage-backed securities received
the smallest weighting of the three "spread" sectors, and more Treasury exposure
was added in the fourth quarter of 1997 at the further expense of
mortgage-backed securities. Conventional Treasury and agency securities however,
still comprised the smallest overall portion of the fund at period end. The
fund's duration posture over the reporting period could generally be regarded as
neutral. Duration was maintained between 1.40 and 1.65 years at all times, well
inside either end of the one to two year allowed duration range.
With regard to overall credit quality, the fund remained solidly investment
grade, with over 60% of fund assets rated "AAA" at the current fiscal year-end,
and no securities rated below "A" (per prospectus limitation). While the
limitation on securities rated below "A" makes for a very high average level of
credit quality, it also adversely affected the fund's return by preventing it
from purchasing lower quality investments, which tended to perform well during
the repurchasing period.
The current asset mix of the fund continues to consist of traditional corporate,
mortgage-backed and asset-backed securities, with the largest concentration in
the latter category. With yields not expected to increase or decrease
precipitously in the near to intermediate term, asset-backed and mortgage-backed
securities (particularly the former), which offer high quality with a yield
advantage over Treasury securities, would appear to offer value. In light of the
reasonable economic scenario depicted above, traditional corporates would also
appear to offer some value, though corporates might be considered "tight to
treasuries" by historical standards.
* Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
** Unlike the fund, money market funds seek to maintain a stable net asset value
of $1.00 per share.
FEDERATED SHORT-TERM INCOME FUND--INSTITUTIONAL SHARES
GROWTH OF $25,000 INVESTED IN FEDERATED SHORT-TERM INCOME FUND
(INSTITUTIONAL SHARES)
The graph below illustrates the hypothetical investment of $25,000* in the
Federated Short-Term Income Fund (Institutional Shares) (the "Fund") from April
30, 1988 to April 30, 1998, compared to the Merrill Lynch Total Return
Investment Grade Corporates Index (Short-Term 1-2.99 Years) ("MLTRIGCI")+ and
the Lipper Short Investment Grade Debt Funds Average ("LSIGDFA").++
[Graphic "A3" omitted. See Appendix.]
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* The Fund's performance assumes the reinvestment of all dividends and
distributions. The MLTRIGCI and the LSIGDFA have been adjusted to reflect
reinvestment of dividends on securities in the index and average.
+ The MLTRIGCI is not adjusted to reflect sales charges, expenses, or other fees
that the Securities and Exchange Commission requires to be reflected in the
Fund's performance. This index is unmanaged.
++ The LSIGDFA represents the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as falling into
the category, and is not adjusted to reflect any sales charges. However, these
total returns are reported net of expenses or other fees that the Securities and
Exchange Commission requires to be reflected in a fund's performance.
FEDERATED SHORT-TERM INCOME FUND--INSTITUTIONAL SERVICE SHARES
GROWTH OF $25,000 INVESTED IN FEDERATED SHORT-TERM INCOME FUND
(INSTITUTIONAL SERVICE SHARES)
The graph below illustrates the hypothetical investment of $25,000* in the
Federated Short-Term Income Fund (Institutional Service Shares) (the "Fund")
from January 24, 1992 (start of performance) to April 30, 1998, compared to the
Merrill Lynch Total Return Investment Grade Corporates Index (Short-Term 1-2.99
Years) ("MLTRIGCI")+ and the Lipper Short Investment Grade Debt Funds Average
("LSIGDFA").++
[Graphic "A4" omitted. See Appendix.]
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* The Fund's performance assumes the reinvestment of all dividends and
distributions. The MLTRIGCI and the LSIGDFA have been adjusted to reflect
reinvestment of dividends on securities in the index and average.
+ The MLTRIGCI is not adjusted to reflect sales charges, expenses, or other fees
that the Securities and Exchange Commission requires to be reflected in the
Fund's performance. This index is unmanaged.
++ The LSIGDFA represents the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as falling into
the category, and is not adjusted to reflect any sales charges. However, these
total returns are reported net of expenses or other fees that the Securities and
Exchange Commission requires to be reflected in a fund's performance.
PORTFOLIO OF INVESTMENTS
FEDERATED SHORT-TERM INCOME FUND
APRIL 30, 1998
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS/ASSET-BACKED SECURITIES 69.4%
AUTOMOTIVE 13.3%
$ 2,411,855 AFG Receivables Trust 1997-B, Class B, 6.40%, 2/15/2003 $ 2,421,720
986,135 Chevy Chase Auto Trust 1995-1, Class A, 6.00%, 12/15/2001 988,413
612,688 Daimler-Benz Auto Grantor Trust 1995-A, Class A, 5.85%, 613,316
5/15/2002
672,663 Fleetwood Credit Corp. 1992-A, Class A, 7.10%, 2/15/2007 672,656
1,603,987 Honda Auto Receivables Grantor Trust 1995-A, Class A, 6.20%, 1,607,948
12/15/2000
1,332,116 Navistar Financial Corp. Owner Trust 1995-A, Class B, 6.85%, 1,343,719
11/20/2001
6,000,000 Navistar Financial Dealer Note Trust 1990-A, Class A-3, 6,019,200
6.54844%, 1/25/2003
2,771,617 Olympic Automobile Receivables Trust 1995-B, Class A2, 7.35%, 2,817,625
10/15/2001
5,000,000 Olympic Automobile Receivables Trust 1996-C, Class A5, 7.00%, 5,128,575
3/15/2004
3,000,000 Premier Auto Trust 1995-3, Class B, 6.25%, 8/6/2001 3,012,030
1,819,064 The CIT Group Securitization Corp. II, Class B, 6.45%, 1,826,177
6/15/2018
1,429,622 (a)World Omni Automobile Lease Securitization Trust
1996-A, 1,431,981 Class A1, 6.30%, 6/25/2002
420,000 World Omni Automobile Lease Securitization Trust 1997-A, 425,657
Class A3, 6.85%, 6/25/2003
TOTAL 28,309,017
BANKING 9.4%
3,000,000 (a)BankAmerica Corp., Sub. Note, 5.50%, 6/25/2003 2,998,260
5,000,000 (a)Citicorp, Sub. Note, 5.725%, 10/25/2005 4,929,250
1,000,000 (a)J.P. Morgan & Co., Inc., Sub. Note, 5.3789%, 8/19/2002 986,550
3,000,000 (b)KeyCorp, Series A, 6.625%, 6/15/2029 3,016,737
2,000,000 Mercantile Bancorporation, Inc., 6.80%, 6/15/2001 2,037,840
2,000,000 National Australia Bank, Ltd., Melbourne, Sub. Note, Series 2,004,564
A, 6.40%, 12/10/2007
4,000,000 Toronto-Dominion Bank, Sub. Note, 7.875%, 8/15/2004 4,081,960
TOTAL 20,055,161
BEVERAGE & TOBACCO 1.4%
3,000,000 Philip Morris Cos., Inc., Deb., 6.00%, 11/15/1999 2,982,840
CREDIT CARD 14.1%
3,000,000 American Express Credit Account Master Trust 1997-1, Class A, 3,045,810
6.40%, 4/15/2005
3,000,000 Banco Nacional de Mexico S.A., Credit Card Merchant Voucher 2,999,070
Receivables Master Trust Series 1996-A, Class A1, 6.25%,
12/1/2003
5,000,000 Bridgestone/Firestone Master Trust 1996-1, Class B, 6.49%, 5,054,300
7/1/2003
2,000,000 Chemical Master Credit Card Trust I 1995-3, Class A, 6.23%, 2,020,890
4/15/2005
</TABLE>
FEDERATED SHORT-TERM INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS/ASSET-BACKED SECURITIESCONTINUED
CREDIT CARD CONTINUED
$ 230,000 Circuit City Credit Card Master Trust 1995-1, Class A, $ 231,622
6.375%, 8/15/2005
2,500,000 Dayton Hudson Credit Card Master Trust 1995-1, Class A, 2,504,575
6.10%, 2/25/2002
833,333 Discover Credit Card Trust 1992-B, Class A, 6.80%, 6/16/2000 832,538
4,050,000 Household Affinity Credit Card Master Trust 1993-1, Class B, 4,030,682
5.30%, 9/15/2000
1,590,000 Household Affinity Credit Card Master Trust I 1993-2, Class 1,582,781
A, 5.60%, 5/15/2002
3,000,000 Providian Master Trust 1997-4, Class B, 6.45%, 6/15/2007 3,025,770
2,800,000 Spiegel Master Trust 1994-B, Class A, 8.15%, 6/15/2004 2,902,900
1,000,000 Standard Credit Card Master Trust 1994-4, Class A, 8.25%, 1,067,980
11/7/2003
680,000 Standard Credit Card Master Trust 1995-8, Class A, 6.70%, 691,512
9/7/2002
TOTAL 29,990,430
FINANCE - AUTOMOTIVE 1.4%
3,000,000 Ford Motor Credit Corp., Note, 5.83%, 6/29/1998 3,000,156
FINANCIAL INTERMEDIARIES 1.9%
2,000,000 Lehman Brothers Holdings, Inc., Series E, 6.30%, 8/11/1999 2,009,020
2,000,000 Merrill Lynch & Co., Inc., Note, 6.00%, 2/12/2003 1,990,380
TOTAL 3,999,400
HOME EQUITY LOAN 5.4%
1,059,090 AFC Home Equity Loan Trust 1992-3, Class A, 7.05%,
8/15/2007 1,069,258 2,099,650 Advanta Home Equity Loan Trust 1992-1,
Class A, 7.875%, 2,166,587
9/25/2008
2,516,149 CWABS Asset Backed Certificates 1996-1, Class A-2, 6.525%, 2,545,060
2/25/2014
3,320,000 ContiMortgage Home Equity Loan Trust 1997-3, Class A5, 7.01%, 3,354,130
8/15/2013
306,490 GE Capital Home Equity Loan Trust 1991-1, Class A, 7.20%, 308,185
9/15/2011
1,942,564 (a)Merrill Lynch Home Equity Loan Trust 1993-1, Class B, 1,944,895
6.50%, 2/15/2003
TOTAL 11,388,115
MANUFACTURED HOUSING 6.0%
3,000,000 Associates Manufactured Housing Certificates 1996-2, Class 3,025,050
A-2, 6.05%, 6/15/2027
3,750,000 Associates Manufactured Housing Certificates 1996-2, Class 3,779,831
A2, 6.70%, 3/15/2027
4,000,000 Green Tree Financial Corp. 1993-2, Class A4, 6.90%, 7/15/2018 4,061,880
1,508,978 Merrill Lynch Mortgage Investors, Inc. 1991-I, Class A, 1,544,439
7.65%, 1/15/2012
327,882 Merrill Lynch Mortgage Investors, Inc. 1992-B, Class B, 331,987
8.50%, 4/15/2012
TOTAL 12,743,187
</TABLE>
FEDERATED SHORT-TERM INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS/ASSET-BACKED SECURITIES CONTINUED
OTHER-ASSET BACKED 4.2%
$ 1,614,212 (b)Bosque Asset Corp., 7.66%, 6/5/2002 $ 1,620,895
5,000,000 CSXT Trade Receivables Master Trust 1993-1, Class 1-A, 5.05%, 4,991,750
9/25/1999
260,000 Copelco Capital Funding Corp. X 1997-A, Class A4, 6.47%, 263,085
4/20/2005
8,546,428 (b)FMAC Loan Receivables Trust 1997-A, Class A-X, 2.77%, 1,288,630
4/15/2019
796,229 NationsCredit Grantor Trust 1997-1, Class A, 6.75%, 8/15/2013 808,427
TOTAL 8,972,787
STATE/PROVINCIAL 2.5%
5,000,000 Province of Manitoba, 9.50%, 10/1/2000 5,387,900
SUPRANATIONAL 0.8%
1,700,000 Corp Andina De Fomento, Bond, 7.10%, 2/1/2003 1,728,747
TELECOMMUNICATIONS & CELLULAR 3.0%
2,000,000 British Telecommunication PLC, 9.625%, 2/15/2019 2,141,840
1,000,000 (b)PanAmSat Corp., Note, 6.00%, 1/15/2003 991,080
3,000,000 Southwestern Bell Capital Corp., Note, 8.81%, 12/16/2004 3,183,420
TOTAL 6,316,340
UTILITIES 3.6%
1,000,000 Big Rivers Electric Corp., U.S. Gov't. Guarantee, 10.70%, 1,057,490
9/15/2017
3,000,000 California Infrastructure & Economic Development Bank Special 3,017,220
Purpose Trust SCE-1, Series 1997-1, 6.17%, 3/25/2003
2,000,000 Pennsylvania Power & Light Co., 9.25%, 10/1/2019 2,134,260
1,300,000 Philadelphia Electric Co., 8.625%, 6/1/2022 1,356,797
TOTAL 7,565,767
WHOLE LOAN 2.4%
4,984,111 (b)C-BASS ABS, LLC Series 1997-1, Class A-1, 2/1/2017
4,999,711 TOTAL CORPORATE BONDS/ASSET-BACKED
SECURITIES (IDENTIFIED 147,439,558
COST $146,984,379)
MORTGAGE-BACKED SECURITIES 25.4%
COMMERCIAL MORTGAGE-BACKED SECURITIES 2.7%
8,918,681 First Union Lehman Brothers Commercial Mortgage Trust 652,223
1997-C1, Series 1997C1, Class IO, 1.307%, 4/18/2027
4,000,000 (b)K Mart CMBS Financing, Inc. Series 1997-1, Series 1997-1, 4,001,240
Class C, 3/1/2007
1,000,000 (b)Nomura Depositor Trust Commercial Mortgage Pass-Thru 1,001,410
1998-ST I, Series 1998-STI, Class A-3, 6.178%, 2/15/2034
TOTAL 5,654,873
</TABLE>
FEDERATED SHORT-TERM INCOME FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
MORTGAGE-BACKED SECURITIES CONTINUED
NON-GOVERNMENT AGENCY-MORTGAGE-BACKED SECURITIES 17.0%
$ 3,000,000 Countrywide Home Loans 1997-5, Series 1997-5, Class A-3, $ 3,053,103
7.50%, 9/25/2027
999,034 GE Capital Mortgage Services, Inc. 1995-7, Class A-1, 7.50%, 1,005,627
9/25/2025
1,187,460 (a)Glendale Federal Bank 1988-1, Series 1988-1, Class A, 1,190,061
7.345%, 11/25/2027
7,508,599 (a)Greenwich Capital Acceptance 1994-B, Series 1994-B, 7.72%, 7,579,030
7/1/2018
2,246,277 (a)Greenwich Capital Acceptance 1991-4, Series 1991-4, 2,263,820
8.478%, 7/1/2019
2,331,889 (a)Greenwich Capital Acceptance 1993-AFCI, Series 1993-AF1, 2,348,655
Class B1, 7.618%, 9/25/2023
2,297,858 (a)Greenwich Capital Acceptance 1993-LB2, Series 1993-LB2, 2,317,965
Class A1, 7.92%, 8/25/2023
1,150,786 Greenwich Capital Acceptance 1993-LB3, Series 1993-LB3, Class 1,161,213
A1, 7.68%, 1/25/2024
316,407 Long Beach Federal Savings Bank 1992-3, Series 1992-3, Class 320,362
A, 9.60%, 6/15/2022
3,415,975 Prudential Home Mortgage Securities 1992-5, Series 1992-5, 3,432,303
Class A-6, 7.50%, 4/25/2007
2,500,000 Prudential Home Mortgage Securities, Inc. 1992-32, Class A-6, 2,545,925
7.50%, 10/25/2022
4,039,443 Residential Accredit Loans, Inc. 1996-QS8, Series 1996-QS8, 4,062,124
Class A3, 7.05%, 12/25/2026
2,850,000 Residential Accredit Loans, Inc. 1997-QS2, Class A3, 7.25%, 2,872,900
3/31/2027
2,000,018 (a)Resolution Trust Corp. 1992-12, Series 1992-12, Class B3, 2,007,518
7.851%, 1/25/2025
TOTAL 36,160,606
GOVERNMENT AGENCY-MORTGAGE-BACKED SECURITIES 5.7%
1,000,000 FNMA, 6.34%, 7/28/2000 1,003,190
2,300,685 GNMA, Pool 354754, 7.50%, 2/15/2024 2,366,117
7,244,555 GNMA, Pool 780360, 11.00%, 9/15/2015 8,183,992
45,540,095 Vendee Mortgage Trust 1995-1C, Series 1995-1C, Class 3IO, 626,176
.2925%, 2/15/2025
TOTAL 12,179,475
TOTAL MORTGAGE-BACKED SECURITIES (IDENTIFIED COST 53,994,954
$53,605,858)
U.S. TREASURY NOTES 2.4%
1,000,000 5.875%, 9/30/2002 1,007,380
3,935,000 6.625%, 5/15/2007 4,172,635
TOTAL U.S. TREASURY NOTES (IDENTIFIED COST $5,228,838) 5,180,015
(C)REPURCHASE AGREEMENT 2.2%
4,705,000 BT Securities Corp., 5.53%, dated 4/30/1998, due 5/1/1998 (at 4,705,000
amortized cost)
TOTAL INVESTMENTS (IDENTIFIED COST $210,524,075)(D) $ 211,319,527
</TABLE>
(a) Denotes variable rate and floating rate obligations for which the current
rate is shown.
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At April 30, 1998, these securities amounted to
$16,919,703 which represents 8.0% of net assets.
(c) The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
(d) The cost of investments for federal tax purposes amounts to $210,524,075.
The net unrealized appreciation of investments on a federal tax basis amounts to
$795,452 which is comprised of $1,471,086 appreciation and $675,634 depreciation
at April 30, 1998.
Note: The categories of investments are shown as a percentage of net assets
($212,392,422) at April 30, 1998.
The following acronyms are used throughout this portfolio:
IO --Interest Only
LLC --Limited Liability Corporation
PLC --Public Limited Company
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF ASSETS AND LIABILITIES
FEDERATED SHORT-TERM INCOME FUND
APRIL 30, 1998
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value $ 211,319,527
(identified and tax cost $210,524,075)
Income receivable 1,879,523
Receivable for investments sold 118,827
Receivable for shares sold 387,661
Total assets 213,705,538
LIABILITIES:
Payable for shares redeemed $ 339,533
Income distribution payable 654,752
Payable to Bank 271,536
Payable for taxes withheld 6,492
Accrued expenses 40,803
Total liabilities 1,313,116
Net Assets for 24,296,118 shares outstanding $ 212,392,422
NET ASSETS CONSIST OF:
Paid in capital $ 236,593,275
Net unrealized appreciation of investments 795,452
Accumulated net realized loss on investments (24,736,864)
Distributions in excess of net investment (259,441)
income
Total net assets $ 212,392,422
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION
PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$197,609,804 / 22,605,037 shares outstanding $8.74
INSTITUTIONAL SERVICE SHARES:
$14,782,618 / 1,691,081 shares outstanding $8.74
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
FEDERATED SHORT-TERM INCOME FUND
YEAR ENDED APRIL 30, 1998
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 14,216,083
EXPENSES:
Investment advisory fee $ 871,326
Administrative personnel and services fee 164,374
Custodian fees 17,182
Transfer and dividend disbursing agent fees and expenses 74,990
Directors'/Trustees' fees 4,048
Auditing fees 17,520
Legal fees 4,015
Portfolio accounting fees 79,345
Distribution services feeInstitutional Service Shares 41,885
Shareholder services feeInstitutional Shares 502,694
Shareholder services feeInstitutional Service Shares 41,885
Share registration costs 28,222
Printing and postage 22,995
Insurance premiums 3,932
Taxes 4,018
Miscellaneous 11,373
Total expenses 1,889,804
Waivers
Waiver of investment advisory fee $ (73,876)
Waiver of distribution services feeInstitutional (40,209)
Service Shares
Waiver of shareholder services feeInstitutional Shares (502,694)
Waiver of shareholder services feeInstitutional Service (1,675)
Shares
Total waivers (618,454)
Net expenses 1,271,350
Net investment income 12,944,733
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments (447,608)
Net change in unrealized appreciation of investments 1,977,389
Net realized and unrealized gain on investments 1,529,781
Change in net assets resulting from operations $ 14,474,514
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
FEDERATED SHORT-TERM INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS
Net investment income $ 12,944,733 $ 14,812,810
Net realized gain (loss) on investments ($696,886 and (447,608) (629,217)
$1,566,031 net loss, respectively, as computed for federal tax
purposes)
Net change in unrealized appreciation 1,977,389 928,955
Change in net assets resulting from operations 14,474,514 15,112,548
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income
Institutional Shares (12,014,535) (13,841,711)
Institutional Service Shares (960,510) (971,099)
Distributions in excess of net investment income
Institutional Shares -- (229,129)
Change in net assets resulting from distributions to (12,975,045) (15,041,939)
shareholders
SHARE TRANSACTIONS
Proceeds from sale of shares 86,943,198 139,918,706
Net asset value of shares issued to shareholders in payment of 3,931,188 3,262,307
distributions declared
Cost of shares redeemed (112,005,010) (144,248,869)
Change in net assets resulting from share transactions (21,130,624) (1,067,856)
Change in net assets (19,631,155) (997,247)
NET ASSETS:
Beginning of period 232,023,577 233,020,824
End of period $ 212,392,422 $ 232,023,577
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
YEAR ENDED APRIL 30,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.68 $ 8.68 $ 8.61 $ 8.85 $ 9.17
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.52 0.54 0.57 0.54 0.51
Net realized and unrealized gain (loss) on investments 0.06 0.01 0.07 (0.24) (0.32)
Total from investment operations 0.58 0.55 0.64 0.30 0.19
LESS DISTRIBUTIONS
Distributions from net investment income (0.52) (0.54) (0.57) (0.54) (0.51)
Distributions in excess of net investment income(a) -- (0.01) -- -- --
Total distributions (0.52) (0.55) (0.57) (0.54) (0.51)
NET ASSET VALUE, END OF PERIOD $ 8.74 $ 8.68 $ 8.68 $ 8.61 $ 8.85
TOTAL RETURN(B) 6.88% 6.53% 7.51% 3.55% 2.04%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.56% 0.56% 0.56% 0.56% 0.56%
Net investment income 5.96% 6.21% 6.43% 6.22% 5.55%
Expense waiver/ reimbursement(c) 0.28% 0.28% 0.29% 0.03% 0.08%
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $197,610 $214,438 $216,675 $219,649 $353,106
Portfolio turnover 49% 55% 77% 38% 44%
</TABLE>
(a) Distributions in excess of net investment income for the years ended April
30, 1997, 1992, and 1991, were a result of certain book and tax timing
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.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.68 $ 8.68 $ 8.61 $ 8.85 $ 9.17
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.50 0.53 0.54 0.52 0.48
Net realized and unrealized gain (loss) on investments 0.06 0.07 (0.24) (0.32)
Total from investment operations 0.56 0.53 0.61 0.28 0.16
LESS DISTRIBUTIONS
Distributions from net investment income (0.50) (0.53) (0.54) (0.52) (0.48)
NET ASSET VALUE, END OF PERIOD $ 8.74 $ 8.68 $ 8.68 $ 8.61 $ 8.85
TOTAL RETURN(A) 6.61% 6.27% 7.25% 3.29% 1.78%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.81% 0.81% 0.81% 0.81% 0.81%
Net investment income 5.73% 5.96% 6.17% 5.90% 5.30%
Expense waiver/reimbursement(b) 0.28% 0.28% 0.29% 0.27% 0.13%
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $14,783 $17,586 $16,346 $17,091 $39,649
Portfolio turnover 49% 55% 77% 38% 44%
</TABLE>
(a) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
NOTES TO FINANCIAL STATEMENTS
FEDERATED SHORT-TERM INCOME FUND
APRIL 30, 1998
ORGANIZATION
Federated Income Securities Trust (the "Trust") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Trust consists of two portfolios. The
financial statements included herein are only those of Federated Short-Term
Income Fund (the "Fund"). The financial statements of the other portfolio are
presented separately. The assets of each portfolio are segregated and a
shareholder's interest is limited to the portfolio in which shares are held. The
investment objective of the Fund is to seek to provide current income. The Fund
offers two classes of shares: Institutional Shares and Institutional Service
Shares.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
U.S. government securities, listed corporate bonds, other fixed income and
asset-backed securities, unlisted securities and private placement securities
are generally valued at the mean of the latest bid and asked price as furnished
by an independent pricing service. Short-term securities are valued at the
prices provided by an independent pricing service. However, short-term
securities with remaining maturities of sixty days or less at the time of
purchase may be valued at amortized cost, which approximates fair market value.
REPURCHASE AGREEMENTS
It is the policy of the Fund to require the custodian bank to take possession,
to have legally segregated in the Federal Reserve Book Entry System, or to have
segregated within the custodian bank's vault, all securities held as collateral
under repurchase agreement transactions. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of each
repurchase agreement's collateral to ensure that the value of collateral at
least equals the repurchase price to be paid under the repurchase agreement
transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the "Trustees").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less than
the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex-dividend
date.
Income and capital gain distributions are determined in accordance with income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments for expiring capital
loss carryforwards. The following reclassifications have been made to the
financial statements.
INCREASE (DECREASE)
ACCUMULATED
PAID-IN CAPITAL NET REALIZED LOSS
($316,627) $316,627
Net investment income, net realized gains/losses, and net assets were not
affected by this reclassification.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of their income. Accordingly, no provisions for federal tax
are necessary.
At April 30, 1998, the Fund, for federal tax purposes, had a capital loss
carryforward, as noted below, which will reduce the Fund's taxable income
arising from future net realized gain on investments, if any, to the extent
permitted by the Code, and thus will reduce the amount of the distributions to
shareholders which would otherwise be necessary to relieve the Fund of any
liability for federal tax.
Pursuant to the Code, such capital loss carryforward will expire as follows:
EXPIRATION YEAR EXPIRATION AMOUNT
1999 $1,132,354
2000 4,105,766
2002 669,532
2003 5,572,713
2004 10,784,773
2005 1,566,031
2006 696,886
Additionally, net capital losses of $208,810 attributable to security
transactions incurred after October 31, 1997 are treated as arising on the first
day of the Fund's next taxable year.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
RESTRICTED SECURITIES
Restricted securities are securities that may only be resold upon registration
under federal securities laws or in transactions exempt from such registration.
In some cases, the issuer of restricted securities has agreed to register such
securities for resale, at the issuer's expense either upon demand by the Fund or
in connection with another registered offering of the securities. Many
restricted securities may be resold in the secondary market in transactions
exempt from registration. Such restricted securities may be determined to be
liquid under criteria established by the Trustees. The Fund will not incur any
registration costs upon such resales. The Fund's restricted securities are
valued at the price provided by dealers in the secondary market or, if no market
prices are available, at the fair value as determined by the Fund's pricing
committee.
Additional information on each restricted security held at April 30, 1998, is as
follows:
ACQUISITION ACQUISITION
SECURITY DATE COST
Bosque Asset Corp. 6/19/1997 $1,620,265
C-BASS ABS, LLC Series 1997-1 2/25/1997 5,004,359
KeyCorp, Series A 5/27/1997 2,997,234
K Mart CMBS Financing, Inc. Series 1997-1 2/27/1997 4,000,000
Nomura Depositor Trust 2/3/1998 1,000,000
PanAmSat Corp. 1/14/1998 999,392
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses, and revenues reported in
the financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares.
Transactions in shares were as follows:
<TABLE>
YEAR ENDED APRIL 30,
1998 1997
INSTITUTIONAL SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 8,961,823 $ 78,330,489 15,252,983 $ 132,739,529
Shares issued to shareholders in 396,037 3,459,922 321,221 2,792,262
payment of distributions declared
Shares redeemed (11,445,782) (100,001,871) (15,832,329) (137,838,962)
Net change resulting from (2,087,922) $ (18,211,460) (258,125) $ (2,307,171)
Institutional Share transactions
YEAR ENDED APRIL 30,
1998 1997
INSTITUTIONAL SERVICE SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 985,377 $ 8,612,709 825,563 $ 7,179,177
Shares issued to shareholders in 53,929 471,266 54,067 470,045
payment of distributions declared
Shares redeemed (1,373,242) (12,003,139) (736,958) (6,409,907)
Net change resulting from (333,936) $ (2,919,164) 142,672 $ 1,239,315
Institutional Service Share
transactions
Net change resulting from Fund (2,421,858) $ (21,130,624) (115,453) $ (1,067,856)
share transactions
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Management, the Fund's investment adviser (the "Adviser"), receives
for its services an annual investment advisory fee equal to 0.40% of the Fund's
average daily net assets. The Adviser may voluntarily choose to waive any
portion of its fee. The Adviser can modify or terminate this voluntary waiver at
any time at its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors, Inc. for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
DISTRIBUTION SERVICES FEE
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Act. Under the terms of the Plan, the Fund will compensate Federated
Securities Corp.("FSC"), the principal distributor, from the net assets of the
Fund to finance activities intended to result in the sale of the Fund's
Institutional Service Shares. The Plan provides that the Fund may incur
distribution expenses up to 0.25% of the average daily net assets of
Institutional Services Shares annually, to compensate FSC. The distributor may
voluntarily choose to waive any portion of its fee. The distributor can modify
or terminate this voluntary waiver at any time at its sole discretion.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services ("FSS"), the Fund will pay FSS up to 0.25% of average daily net assets
of the Fund shares for the period. The fee paid to FSS is used to finance
certain services for shareholders and to maintain shareholder accounts. For the
period ended April 30, 1998, the Fund shares did not incur a shareholder
services fee. FSS may voluntarily choose to waive any portion of its fee. FSS
can modify or terminate this voluntary waiver at any time at its sole
discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC")
serves as transfer and dividend disbursing agent for the Fund. The fee paid to
FSSC is based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of each Fund's average daily net assets for the
period, plus out-of-pocket expenses.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended April 30, 1998, were as follows:
PURCHASES $105,102,970
SALES $115,781,820
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and admininstrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Trustees and Shareholders of FEDERATED SHORT-TERM INCOME FUND (a
Portfolio of Federated Income Securities Trust):
We have audited the accompanying statement of assets and liabilities of
Federated Short-Term Income Fund(an investment portfolio of Federated Income
Securities Trust), including the schedule of portfolio investments, as of April
30, 1998, the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended, and the financial highlights for the periods presented. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of April
30, 1998, by correspondence with the custodian and brokers or other appropriate
auditing procedures where replies from brokers were not received. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Federated Short-Term Income Fund, a portfolio of Federated Income Securities
Trust, as of April 30, 1998, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended, and its financial highlights for the periods presented, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP Pittsburgh, Pennsylvania
June 19, 1998
TRUSTEES
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
Nicholas P. Constantakis
William J. Copeland
James E. Dowd
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr.
Peter E. Madden
John E. Murray, Jr.
Wesley W. Posvar
Marjorie P. Smuts
OFFICERS
John F. Donahue
Chairman
Glen R. Johnson
President
J. Christopher Donahue
Executive Vice President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President,
Treasurer, and Secretary
Richard B. Fisher
Vice President
Anthony R. Bosch
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves risk, including possible
loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
[Graphic]
Federated Investors
Federated Short-Term Income Fund
ANNUAL REPORT TO SHAREHOLDERS APRIL 30, 1998
Federated Securities Corp., Distributor
Federated Investors, Inc.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Cusip 31420C308
Cusip 31420C209
G00831-01 (6/98)
[Graphic]
A1. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The
Institutional Shares of Federated Intermediate Income Fund (the "Fund:"), are
represented by a solid line. The Lehman Brothers Government/Corporate Total
Index ("LBGCTI") is represented by a dotted line and the Lipper
Intermediate-Term Investment Grade Debt Funds Average ("LIIGDFA") is represented
by a dashed line. The line graph is a visual representation of a comparison of
change in value of a $25,000 hypothetical investment in the Institutional Shares
of the Fund, the LBGCTI and the LIIGDFA. The "x" axis reflects computation
periods from 12/20/93 to 4/30/98. The "y" axis reflects the cost of the
investment. The right margin reflects the ending value of the hypothetical
investment in the Fund's Institutional Shares as compared to the LBGCTI and the
LIIGDFA. The ending values were $33,851, $33,146, and $32,173, respectively. The
legend in the bottom quadrant of the graphic presentation indicates the Fund's
Institutional Shares Average Annual Total Return for the one-year period ended
4/30/98 and from the start of performance of Institutional Shares (12/20/93) to
4/30/98. The total returns were 10.58% and 7.19%, respectively.
A2. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The
Institutional Service Shares of Federated Intermediate Income Fund (the
"Fund:"), are represented by a solid line. The Lehman Brothers
Government/Corporate Total Index ("LBGCTI") is represented by a dotted line and
the Lipper Intermediate-Term Investment Grade Debt Funds Average ("LIIGDFA") is
represented by a dashed line. The line graph is a visual representation of a
comparison of change in value of a $25,000 hypothetical investment in the
Institutional Service Shares of the Fund, the LBGCTI and the LIIGDFA. The "x"
axis reflects computation periods from 12/20/93 to 4/30/98. The "y" axis
reflects the cost of the investment. The right margin reflects the ending value
of the hypothetical investment in the Fund's Institutional Service Shares as
compared to the LBGCTI and the LIIGDFA. The ending values were $33,487 $33,146,
and $32,173, respectively. The legend in the bottom quadrant of the graphic
presentation indicates the fund's Institutional Service Shares Average Annual
Total Return for the one-year period ended 4/30/98 and from the start of
performance of Institutional Service Shares (12/20/93) to 4/30/98. The total
returns were 10.31% and 6.93%, respectively.
A3. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The
Institutional Shares of Federated Short-Term Income Fund (the "Fund"), are
represented by a solid line. The Merrill Lynch Total Return Investment Grade
Corporates Index (Short-Term 1-2.99 Years) ("MLTRIGCI") is represented by a
dotted line and the Lipper Short Investment Grade Debt Funds Average ("LSIGDFA")
is represented by a dashed line. The line graph is a visual representation of a
comparison of change in value of a $25,000 hypothetical investment in the
Institutional Shares of the Fund, the MLTRIGCI and the LSIGDFA. The "x" axis
reflects computation periods from 4/30/88 to 4/30/98. The "y" axis reflects the
cost of the investment. The right margin reflects the ending value of the
hypothetical investment in the Fund's Institutional Shares as compared to the
MLTRIGCI and the LSIGDFA. The ending values were $47,210, $54,239, and $48,739,
respectively. The legend in the bottom quadrant of the graphic presentation
indicates the Fund's Institutional Shares Average Annual Total Returns for the
one-year, five-year and ten-year periods ended 4/30/98 and from the start of
performance of Institutional Shares (4/30/88) to 4/30/98. The total returns were
6.88%, 5.28%, 6.56% and 6.63%, respectively.
A4. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The
Institutional Service Shares of Federated Short-Term Income Fund, (the "Fund")
are represented by a solid line. The Merrill Lynch Total Return Investment Grade
Corporates Index (Short-Term 1-2.99 Years) ("MLTRIGCI") is represented by a
dotted line and the Lipper Short Investment Grade Debt Funds Average ("LSIGDFA")
is represented by a dashed line. The line graph is a visual representation of a
comparison of change in value of a $25,000 hypothetical investment in the
Institutional Service Shares of the Fund, the MLTRIGCI and the LSIGDFA. The "x"
axis reflects computation periods from 1/24/92 to 4/30/98. The "y" axis reflects
the cost of the investment. The right margin reflects the ending value of the
hypothetical investment in the Fund's Institutional Service Shares as compared
to the MLTRIGCI and the LSIGDFA. The ending values were $34,766, $37,756, and
$35,129, respectively. The legend in the bottom quadrant of the graphic
presentation indicates the Fund's Institutional Service Shares Average Annual
Total Return for the one-year and five-year periods ended 4/30/98 and from the
start of performance of Institutional Service Shares (1/24/92) to 4/30/98.
The total returns were 6.61%, 5.02% and 5.40%, respectively.
