FEDERATED INCOME SECURITIES TRUST
FEDERATED INTERMEDIATE INCOME FUND
FEDERATED SHORT-TERM INCOME FUND
SUPPLEMENT TO PROSPECTUSES DATED AUGUST 31, 1998
I. At a special meeting of shareholders to be held on November 15, 1999,
shareholders of the above-named Funds will be asked to vote on the
changes described below. If approved by shareholders, these changes
will take effect on or after December 1, 1999. Shareholders will be
notified if any of these changes are not approved at the special
meeting or any adjournment thereof. Please keep this supplement for
your records.
Shareholders will be asked to consider the following proposals:
(1) To elect seven Trustees.
(2) To make changes to the fundamental investment policies of each
Fund (except as otherwise noted):
(a) To amend the Funds' fundamental investment policies regarding
diversification to read as follows:
"With respect to securities comprising 75% of the value of its
total assets, the Fund will not purchase securities of any one
issuer (other than cash; cash items; securities issued or
guaranteed by the government of the United States or its
agencies or instrumentalities and repurchase agreements
collateralized by such U.S. government securities; and
securities of other investment companies) if, as a result,
more than 5% of the value of its total assets would be
invested in the securities of that issuer, or the Fund would
own more than 10% of the outstanding voting securities of that
issuer."
(b) To amend the Funds' fundamental investment policies regarding
borrowing money and issuing senior securities to read as follows:
"The Fund may borrow money, directly or indirectly, and issue
senior securities to the maximum extent permitted under the 1940 Act."
(c) To amend the Funds' fundamental investment policies regarding
investments in real estate to read as follows:
"The Fund may not purchase or sell real estate, provided that
this restriction does not prevent the Fund from investing in
issuers which invest, deal, or otherwise engage in
transactions in real estate or interests therein, or investing
in securities that are secured by real estate or interests
therein. The Fund may exercise its rights under agreements
relating to such securities, including the right to enforce
security interests and to hold real estate acquired by reason
of such enforcement until that real estate can be liquidated
in an orderly manner."
(d) To amend the Funds' fundamental investment policies regarding
investments in commodities to read as follows:
"The Fund may not purchase or sell physical commodities,
provided that the Fund may purchase securities of companies that deal in
commodities."
(e) To amend the Funds' fundamental investment policies regarding
underwriting securities to read as follows:
"The Fund may not underwrite the securities of other issuers,
except that the Fund may engage in transactions involving the
acquisition, disposition or resale of its portfolio
securities, under circumstances where it may be considered to
be an underwriter under the Securities Act of 1933."
(f) To amend the Funds' fundamental investment policies regarding
lending by the Funds to read as follows:
"The Fund may not make loans, provided that this restriction
does not prevent the Fund from purchasing debt obligations,
entering into repurchase agreements, lending its assets to
broker/dealers or institutional investors and investing in
loans, including assignments and participation interests."
(g)To amend the Funds' fundamental investment policies regarding
concentration of the Funds' investments in the securities of
companies in the same industry to read as follows:
"The Fund will not make investments that will result in the
concentration of its investments in the securities of issuers
primarily engaged in the same industry. Government securities,
municipal securities and bank instruments will not be deemed
to constitute an industry."
(h) To amend, and to make non-fundamental, the Funds' fundamental
investment policies regarding buying securities on margin to read as follows:
"The Fund will not purchase securities on margin, provided
that the Fund may obtain short-term credits necessary for the
clearance of purchases and sales of securities, and further
provided that the Fund may make margin deposits in connection
with its use of financial options and futures, forward and
spot currency contracts, swap transactions and other financial
contracts or derivative instruments."
(i) To amend, and to make non-fundamental, the Funds' fundamental
investment policies regarding pledging assets to read as follows:
"The Fund will not mortgage, pledge, or hypothecate any of its
assets, provided that this shall not apply to the transfer of
securities in connection with any permissible borrowing or to
collateral arrangements in connection with permissible
activities."
(j)To make non-fundamental Federated Short-Term Income Fund's
fundamental investment policy which states that the Fund will
invest in a diversified portfolio of short and medium-term
high grade debt securities (for Federated Short-Term Income
Fund ONLY).
(3) To eliminate certain fundamental investment policies of the Funds:
(a) To remove the Funds' fundamental investment policies
regarding selling securities short;
(b)To remove Federated Short-Term Income Fund's fundamental
investment policy regarding investing in oil, gas and minerals
(for Federated Short-Term Income Fund ONLY);
(c)To remove Federated Short-Term Income Fund's fundamental
investment policy on investing in securities of new issuers
(for Federated Short-Term Income Fund ONLY);
(d)To remove Federated Short-Term Income Fund's fundamental
investment policy on investing in issuers whose securities are
owned by officers and Trustees (for Federated Short-Term
Income Fund ONLY);
(e)To remove Federated Short-Term Income Fund's fundamental
investment policy on investing for the purpose of exercising
control or management (for Federated Short-Term Income Fund
ONLY); and
(f)To remove Federated Short-Term Income Fund's fundamental
investment policy regarding engaging in when-issued and
delayed delivery transactions (for Federated Short-Term Income
Fund ONLY).
(4) To approve an amendment to the Trust's Declaration of Trust of
Federated Income Securities Trust to permit the Board of Trustees
to liquidate assets of the Trust, its series or classes, and
distribute the proceeds of such assets to the holders of such
shares representing such interests, without seeking shareholder
approval.
II. The following actions have been taken by the Board of Trustees with regard
to certain non-fundamental investment policies and limitations of the Funds:
(1) Approved the elimination of the following non-fundamental investment
limitations of the Fund:
(a)Removed Federated Intermediate Income Fund's non-fundamental
investment policy regarding investing for control or
management (for Federated Intermediate Income Fund ONLY);
(b)Removed Federated Intermediate Income Fund's non-fundamental
investment policy regarding engaging in call options (for
Federated Intermediate Income Fund ONLY); and
(c)Removed Federated Intermediate Income Fund's non-fundamental
investment policy prohibiting engaging in when-issued and
delayed delivery transactions to an extent that would cause
the segregation of more than 20% of the total value of the
Fund's assets (for Federated Intermediate Income Fund ONLY).
(2) Approved revisions to the Funds' non-fundamental investment
policies regarding investments in illiquid securities to read as follows:
"The Fund will not purchase securities for which there is no
readily available market, or enter into repurchase agreements or
purchase time deposits maturing in more than seven days, if
immediately after and as a result, the value of such securities
would exceed, in the aggregate, 15% of the Fund's net assets."
(3) Approved the elimination of the following undertakings for the
Funds:
For Federated Intermediate Income Fund:
"The Fund has not borrowed money or invested in reverse
repurchase agreements during the last fiscal year and has no present intent
to do so in the coming fiscal year."
For Federated Short-Term Income Fund:
"The Fund does not intend to borrow money, invest in reverse repurchase
agreements, or sell securities short in excess of 5% of the value of its net
assets during the coming year."
(4) Approved the adoption of the following non-fundamental investment
limitations pertaining to concentration by the Funds:
"(a) utility companies will be divided according to their
services (for example, gas, gas transmission, electric and
telephone will be considered a separate industry); (b) financial
service companies will be classified according to the end users
of their services (for example, automobile finance, bank finance
and diversified finance will each be considered a separate
industry); and (c) asset-backed securities will be classified
according to the underlying assets securing such securities. To
conform to the current view of the SEC staff that only domestic
bank instruments may be excluded from industry concentration
limitations, as a matter of non-fundamental policy, the Fund will
not exclude foreign bank instruments from industry concentration
limitation tests so long as the policy of the SEC remains in
effect. In addition, investments in bank instruments, and
investments in certain industrial development bonds funded by
activities in a single industry, will be deemed to constitute
investment in an industry, except when held for temporary
defensive purposes. The investment of more than 25% of the value
of the Fund's total assets in any one industry will constitute
`concentration.'"
(5) Approved the adoption of the following non-fundamental investment
limitation for each Fund when applying its commodities restriction:
"As a matter of non-fundamental policy, for purposes of the
commodities policy, investments in transactions involving futures
contracts and options, forward currency contracts, swap
transactions and other financial contracts that settle by payment
of cash are not deemed to be investments in commodities."
October 1, 1999
Federated Investors
Federated Securities Corp., Distributor
Federated Investors, Inc.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Cusip 31420C407
Cusip 31429C506
Cusip 31420C209
Cusip 31420C308
