SEMI-ANNUAL REPORT
President's Message
Dear Investor:
I am pleased to present the Semi-Annual Report to Shareholders for Federated
Intermediate Income Fund, a portfolio of Federated Income Securities Trust. The
report covers the six-month reporting period ended October 31, 1999. It begins
with a review of the bond market by the fund's portfolio manager, which is
followed by a complete list of fund holdings
and its financial statements.
On behalf of income-oriented investors, the fund invests in a diversified
portfolio consisting primarily of intermediate-term, high-quality debt
securities. At the end of the period, the fund's portfolio was invested in
corporate bonds (62.2%), government agency and mortgage securities (30.7%),
asset-backed securities (2.2%), U.S. Treasury securities (2.0%), repurchase
agreements (1.6%), preferred stock and a collateralized mortgage obligation.
During the six-month reporting period, Institutional Shares produced dividends
totaling $0.31 per share. Impacting the flat total return of (0.62%) was a net
asset value decrease of $0.37 per share. Institutional Service Shares produced
dividends totaling $0.29 per share. The total return was flat (0.74%) due to a
net asset value decrease of $0.37 per share. 1
Net assets in the fund totaled $328.9 million at the reporting period's end.
Thank you for selecting Federated Intermediate Income Fund as a high-quality
income investment. As always, we welcome your questions, comments, or
suggestions.
Sincerely,
[Graphic]
Glen R. Johnson
President
December 15, 1999
1 Performance quoted reflects past performance and is no guarantee of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
Investment Review
Federated Intermediate Income Fund invests primarily in high quality- corporate
debt securities rated in one of the four highest categories (BBB or better) by a
nationally recognized statistical rating organization. The fund may also invest
in other high-quality government and asset-backed securities. The fund duration
is managed within a range of three to seven years.
The six-month reporting period ended October 31, 1999, was difficult for
high-quality fixed income investors, in that interest rates rose significantly
across the entire maturity spectrum. As is typical, the largest rate move
occurred in the short to intermediate part of the yield curve, with yield
increases in both the two-year treasury and five-year treasury securities of 72
basis points. As a result, most high-quality bond investments experienced a
negative total return over the six-month reporting period.
In many respects, the spring and summer of 1999 displayed opposite economic and
market characteristics relative to the same period in 1998. Recall that the 1998
marketplace was dominated by worldwide financial crises and economic turmoil.
Under these conditions, investors sought the safety and liquidity of U.S.
government securities resulting in dramatic interest rate declines. For the most
recent six-month reporting period, the global economic landscape showed
substantial growth in most regions, creating sizable increases in stock market
valuations and overall consumer confidence. In this healthier period, the
Federal Reserve Board (the "Fed") moved to twice increase interest rates in an
effort to combat potentially rising inflation.
In terms of relative performance within the various fixed income sectors,
corporate bonds generally lagged comparable maturity treasury securities. Cash
flow into corporate bond investments tended to slow down, while simultaneously
corporations were issuing record volumes of new debt securities. The general
market sense was that, due to Year 2000 concerns, corporations were issuing new
bonds earlier in the calendar year to avoid the potential for a less orderly
marketplace as year end approached. Thus, a temporary negative situation arose
with more bonds available relative to investor demand, resulting in corporate
bond underperformance. Late in the reporting period-October 1999-the negative
situation reversed and became positive with more or the same demand as was
present in the negative situation, but very little bond supply. Thus, the
marketplace appears to be geared to deliver significant outperformance by
corporate bonds over the coming months.
No significant changes were made to the fund duration, which was maintained at a
neutral target. However, more corporate bond exposure was added to the fund late
in the period to take advantage of the higher yields available, relative to
government securities. Thus, the fund's portfolio is in a position to benefit
from an improved corporate bond market relative to U.S. treasury securities.
Last Meeting of Shareholders
A Special Meeting of the Fund's shareholders was held on November 15, 1999. On
September 16, 1999, the record date for the shareholders voting at the meeting,
there were 33,884,244 total outstanding shares. The following items were
considered by shareholders and the results were as follows:
AGENDA ITEM 1
Elected Trustees: 1
<TABLE>
<CAPTION>
WITHHELD
AUTHORITY
FOR TO VOTE
<S> <C> <C>
Thomas G. Bigley 27,556,802 21,444
Nicholas P. Constantakis 27,557,509 20,737
John F. Cunningham 27,557,509 20,737
J. Christopher Donahue 27,555,510 22,736
Charles F. Mansfield, Jr. 27,557,509 20,737
John E. Murray, Jr., J.D., S.J.D. 27,557,509 20,737
John S. Walsh 27,557,509 20,737
</TABLE>
1 Trustee elections will become effective January 1, 2000.
AGENDA ITEM 2
Made changes to the Fund's fundamental investment policies:
(a) Amended the Fund's fundamental investment policies regarding
diversification.
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
24,821,584 537,302 2,219,360
</TABLE>
(b) Amended the Fund's fundamental investment policy regarding borrowing money
and issuing senior securities.
<TABLE>
<CAPTION>
ABSTENTIONS AND
FOR AGAINST BROKER NON-VOTES
<S> <C> <C>
24,688,748 663,298 2,226,200
</TABLE>
(c) Amended the Fund's fundamental investment policies regarding investments in
real estate.
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
25,260,826 97,614 2,219,806
</TABLE>
(d) Amended the Fund's fundamental investment policies regarding investments in
commodities.
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
25,089,747 264,489 2,224,010
</TABLE>
(e) Amended the Fund's fundamental investment policies regarding underwriting
securities.
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
25,147,692 208,008 2,222,546
</TABLE>
(f) Amended the Fund's fundamental investment policies regarding lending by the
Fund.
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
25,139,339 213,154 2,225,753
</TABLE>
(g) Amended the Fund's fundamental investment policies regarding concentration
of the Fund's investments in the securities of companies in the same industry.
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
25,153,749 203,457 2,221,040
</TABLE>
(h) Amended, and made non-fundamental, the Fund's fundamental investment
policies regarding buying securities on margin.
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
24,642,500 707,593 2,228,153
</TABLE>
(i) Amended, and made non-fundamental, the Fund's fundamental investment
policies regarding pledging assets.
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
24,653,792 692,955 2,231,499
</TABLE>
AGENDA ITEM 3
Eliminated certain fundamental investment policies of the Fund:
(a) Removed the Fund's fundamental investment policies regarding selling
securities short.
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
24,638,192 720,939 2,219,115
</TABLE>
AGENDA ITEM 4
Amended and restated the Trust's Declaration of 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.
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
24,595,095 752,082 2,231,069
</TABLE>
Portfolio of Investments
OCTOBER 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
ASSET-BACKED SECURITIES-2.2%
HOME EQUITY LOAN-0.6%
$ 2,000,000 New Century Home Equity
Loan Trust 1997-NC5, Class
M2, 7.24%, 10/25/2028 $ 1,862,180
CREDIT CARD-0.1%
500,000 Discover Card Master Trust
1996-3, Class B, 6.25%,
8/18/2008 482,507
STRUCTURED PRODUCT (ABS)-0.9%
2,000,000 1 125 Home Loan Owner Trust
1998-1A, Class M2, 7.75%,
2/15/2029 1,797,500
354,255 Green Tree Home Equity Loan
Trust 1999-A, Class B2A,
7.44%, 2/15/2029 353,592
500,000 Residential Funding Corp.
1993-S26, Class A10,
7.50%, 7/25/2023 488,755
300,000 Residential Funding Corp.
1993-S31, Class A7, 7.00%,
9/25/2023 281,097
42,604 The Money Store Home Equity
Trust 1992-B, Class A,
6.90%, 7/15/2007 42,527
TOTAL 2,963,471
UTILITIES-0.6%
2,000,000 California Infrastructure
& Economic Development
Bank Special Purpose Trust
PG&E-1, Class A8, 6.48%,
12/26/2009 1,930,460
TOTAL ASSET-BACKED
SECURITIES (IDENTIFIED
COST $7,681,468) 7,238,618
COLLATERALIZED MORTGAGE
OBLIGATIONS-0.0%
STRUCTURED PRODUCT (ABS)-0.0%
161,788 Prudential Bache CMO Trust
Series 8, Class F, 7.965%,
3/1/2019
(Identified Cost $170,939) 162,187
CORPORATE BONDS-62.2%
AEROSPACE & DEFENSE-1.4%
1,500,000 1 British Aerospace Finance,
Inc., 7.50%, 7/1/2027 1,501,339
3,375,000 Raytheon Co., Notes,
6.15%, 11/1/2008 3,055,759
TOTAL 4,557,098
AIR TRANSPORTATION-0.7%
400,000 Continental Airlines,
Inc., Pass Thru Cert.,
Series 1999-ZC, 7.73%,
3/15/2011 382,708
1,582,601 Continental Airlines,
Inc., Pass Thru Cert.,
Series 1997-4 B, 6.90%,
1/2/2017 1,462,308
425,000 Southwest Airlines Co.,
Deb., 7.375%, 3/1/2027 412,241
TOTAL 2,257,257
AUTOMOBILE-1.7%
1,500,000 Dana Corp., Note, 6.25%,
3/1/2004 1,444,980
2,460,000 Hertz Corp., Sr. Note,
7.00%, 1/15/2028 2,214,640
2,000,000 Meritor Automotive, Inc.,
Note, 6.80%, 2/15/2009 1,859,478
TOTAL 5,519,098
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS-continued
BANKING-7.5%
$ 1,250,000 ABN-AMRO Bank NV, Chicago,
Sub. Deb., 7.30%, 12/1/2026 $ 1,166,400
220,000 Bank One Corp., Sub. Note,
7.25%, 8/1/2002 222,915
100,000 Bank One Corp., Sub. Deb.,
7.25%, 8/15/2004 101,102
250,000 Bank One Corp., Sr. Note,
8.10%, 3/1/2002 257,475
2,000,000 Banco Santander Central
Hispano, S.A., Bank
Guarantee, 7.875%, 4/15/2005 2,034,260
200,000 BankAmerica Corp., Sub.
Note, 7.75%, 7/15/2002 205,158
200,000 BankAmerica Corp., Sub.
Note, 8.375%, 3/15/2002 207,260
2,000,000 Barclays North America,
Deb., 9.75%, 5/15/2021 2,172,620
10,000 Boatmen's Bancshares,
Inc., Sub. Note, 9.25%,
11/1/2001 10,502
2,100,000 1 CIBC Capital Funding LP,
Bank Guarantee, 6.40%,
12/17/2004 2,034,984
30,000 Central Fidelity Banks,
Inc., Sub. Note, 8.15%,
11/15/2002 31,180
1,000,000 Chase Manhattan Corp.,
Sub. Note, 6.375%, 2/15/2008 949,500
2,000,000 City National Bank, Sub.
Note, 6.375%, 1/15/2008 1,869,543
40,000 Corestates Capital Corp.,
Sub. Note, 5.875%,
10/15/2003 38,474
1,000,000 1 Den Danske Bank Group,
Note, 7.40%, 6/15/2010 986,140
500,000 1 Den Danske Bank Group, Sub.
Note, 7.25%, 6/15/2005 496,615
30,000 First Union Corp., Sub.
Note, 8.00%, 11/15/2002 30,852
1,000,000 J.P. Morgan & Co., Inc.,
Sub. Note, 6.70%,
11/1/2007 965,760
2,300,000 Merita Bank PLC, Sub. Note,
6.50%, 4/1/2009 2,141,739
3,000,000 National Bank of Canada,
Montreal, Sub. Note,
8.125%, 8/15/2004 3,144,060
15,000 NationsBank Corp., Sub.
Note, 7.625%, 4/15/2005 15,360
1,000,000 NationsBank Corp., Sub.
Note, Series MTNF, 7.19%,
7/30/2012 973,490
30,000 NorWest Corp., MTN, 5.75%,
2/1/2003 29,140
430,000 PNC Funding Corp., Sub.
Note, 6.875%, 7/15/2007 418,295
2,750,000 Republic New York Corp.,
Sub. Note, 7.75%,
5/15/2009 2,785,722
30,000 Republic New York Corp.,
Sub. Note, 8.25%,
11/1/2001 30,814
200,000 SunTrust Bank, Central
Florida, Sub. Note, 6.90%,
7/1/2007 196,010
255,000 SunTrust Banks, Inc.,
Note, 7.375%, 7/1/2002 258,891
15,000 SunTrust Banks, Inc., Sub.
Note, 6.125%, 2/15/2004 14,548
1,000,000 1 Swedbank, Sub., 7.50%,
11/29/2049 947,917
TOTAL 24,736,726
BEVERAGE & TOBACCO-0.7%
100,000 Anheuser-Busch Cos., Inc.,
Unsecd. Note, 6.90%,
10/1/2002 100,063
225,000 Anheuser-Busch Cos., Inc.,
Unsecd. Note, 8.75%,
12/1/1999 225,711
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS-continued
BEVERAGE & TOBACCO-CONTINUED
$ 1,000,000 Philip Morris Cos., Inc.,
Note, 7.125%, 8/15/2002 $ 985,490
100,000 Philip Morris Cos., Inc.,
Note, 7.625%, 5/15/2002 100,065
1,000,000 Philip Morris Cos., Inc.,
Unsecd. Note, 9.00%,
1/1/2001 1,017,980
TOTAL 2,429,309
CABLE TELEVISION-1.2%
3,500,000 Continental Cablevision,
Sr. Deb., 9.50%, 8/1/2013 3,928,085
CHEMICALS & PLASTICS-0.6%
1,500,000 1 Bayer Corp., Deb., 6.50%,
10/1/2002 1,489,950
40,000 Du Pont (E.I.) de Nemours &
Co., Note, 8.125%,
3/15/2004 42,005
750,000 1 Fertinitro Finance, Inc.,
Company Guarantee, 8.29%,
4/1/2020 514,197
30,000 PPG Industries, Inc.,
Note, 6.50%, 11/1/2007 28,894
TOTAL 2,075,046
CONGLOMERATES-0.3%
750,000 Loews Corp., Deb., 8.875%,
4/15/2011 825,817
CONSUMER PRODUCTS-0.1%
100,000 Hershey Foods Corp., Note,
6.70%, 10/1/2005 98,288
300,000 Sara Lee Corp., Sr. Note,
6.00%, 1/15/2008 278,997
TOTAL 377,285
ECOLOGICAL SERVICES &
EQUIPMENT-0.6%
175,000 USA Waste Services, Inc.,
Sr. Note, 7.125%,
10/1/2007 149,086
2,000,000 WMX Technologies, Inc.,
Deb., 8.75%, 5/1/2018 1,811,960
TOTAL 1,961,046
EDUCATION-1.4%
2,075,000 Boston University, 7.625%,
7/15/2097 1,955,916
1,450,000 Columbia University, MTN,
8.62%, 2/21/2001 1,494,036
1,100,000 Harvard University,
Revenue Bonds, 8.125%
Bonds, 4/15/2007 1,176,186
TOTAL 4,626,138
ELECTRONICS-0.8%
1,500,000 General Electric Financial
Services, Inc., MTN,
9.18%, 12/30/2008 1,704,150
225,000 General Electric Financial
Services, Inc., Sr. Note,
6.29%, 12/15/2001 224,348
115,000 International Business
Machines Corp., 7.25%,
11/1/2002 117,115
500,000 International Business
Machines Corp., Note,
6.45%, 8/1/2007 487,710
100,000 International Business
Machines Corp., Unsecd.
Note, 6.375%, 6/15/2000 100,346
15,000 Rockwell International
Corp., Unsecd. Note,
6.625%, 6/1/2005 14,652
TOTAL 2,648,321
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS-continued
FINANCE - AUTOMOTIVE-2.5%
$ 2,100,000 Ford Capital BV, Note,
9.375%, 5/15/2001 $ 2,187,906
100,000 Ford Motor Credit Corp.,
Note, 6.375%, 4/15/2000 100,153
100,000 Ford Motor Credit Corp.,
Note, 6.625%, 6/30/2003 99,221
2,500,000 Ford Motor Credit Corp.,
Note, 7.375%, 10/28/2009 2,527,725
250,000 Ford Motor Credit Corp.,
MTN, 7.50%, 4/25/2011 249,730
35,000 Ford Motor Credit Corp.,
Note, 7.75%, 3/15/2005 36,019
100,000 Ford Motor Credit Corp.,
Unsecd. Note, 8.00%,
6/15/2002 103,073
1,000,000 Ford Motor Credit Corp.,
Unsub., 6.875%, 6/5/2001 997,031
485,000 General Motors Acceptance
Corp., MTN, 7.50%,
5/25/2000 488,686
45,000 General Motors Acceptance
Corp., MTN, 6.25%,
1/11/2000 45,049
155,000 General Motors Acceptance
Corp., Note, 7.00%,
9/15/2002 155,961
1,170,000 General Motors Acceptance
Corp., Sr. Note, 5.75%,
11/10/2003 1,125,868
TOTAL 8,116,422
FINANCE - RETAIL-0.2%
50,000 Commercial Credit Co.,
Note, 5.55%, 2/15/2001 49,438
100,000 Household Finance Corp.,
Note, 6.125%, 8/15/2003 96,686
100,000 Household Finance Corp.,
Note, 7.00%, 9/15/2002 99,947
100,000 Household Finance Corp.,
Sr. Note, 7.25%, 8/15/2002 100,964
395,000 Sears Roebuck Acceptance
Corp., MTN, 6.56%, 9/5/2000 394,838
TOTAL 741,873
FINANCIAL INTERMEDIARIES-6.6%
2,500,000 Amvescap PLC, Sr. Note,
6.60%, 5/15/2005 2,390,325
700,000 Donaldson, Lufkin and
Jenrette Securities Corp.,
Note, 6.875%, 11/1/2005 681,996
1,000,000 Donaldson, Lufkin and
Jenrette Securities Corp.,
Sr. Note, 5.875%, 4/1/2002 974,770
1,000,000 Donaldson, Lufkin and
Jenrette Securities Corp.,
Sr. Note, 6.50%, 6/1/2008 934,940
7,800 Equitable Cos., Inc., Sr.
Note, 6.75%, 12/1/2000 7,809
3,700,000 1 Fidelity Investments,
Deb., 7.57%, 6/15/2029 3,680,797
175,000 Lehman Brothers Holdings,
Inc., Bond, 7.00%, 5/15/2003 173,617
625,000 Lehman Brothers Holdings,
Inc., Note, 6.90%, 1/29/2001 625,494
2,000,000 Lehman Brothers, Inc., Sr.
Sub. Note, 7.375%, 1/15/2007 1,976,100
1,625,000 Marsh & McLennan Cos.,
Inc., Sr. Note, 7.125%,
6/15/2009 1,611,464
1,000,000 Merrill Lynch & Co., Inc.,
MTN, 7.20%, 10/15/2012 992,420
500,000 Merrill Lynch & Co., Inc.,
Note, 6.875%, 3/1/2003 500,710
15,000 Merrill Lynch & Co., Inc.,
Note, 7.375%, 5/15/2006 15,105
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS-continued
FINANCIAL INTERMEDIARIES-
CONTINUED
$ 100,000 Merrill Lynch & Co., Inc.,
Note, 8.30%, 11/1/2002 $ 104,154
65,000 Merrill Lynch & Co., Inc.,
Note, 8.375%, 2/9/2000 65,436
1,000,000 Merrill Lynch & Co., Inc.,
Note, Series MTN, 7.19%,
8/7/2012 989,400
750,000 Merrill Lynch & Co., Inc.,
Sr. Unsub., 6.00%, 2/17/2009 686,677
920,000 Morgan Stanley Group,
Inc., Deb., 9.375%, 6/15/2001 958,189
1,000,000 PaineWebber Group, Inc.,
Sr. Note, 6.64%, 4/14/2010 919,650
2,000,000 Salomon Smith Barney
Hldgs., Inc., Note,
7.375%, 5/15/2007 2,000,300
100,000 Salomon Smith Barney
Hldgs., Inc., Note, Series
C, 7.15%, 2/15/2003 100,399
100,000 Salomon Smith Barney
Hldgs, Inc., Unsecd. Note,
Series MTN, 6.35%, 1/15/2004 97,139
5,000 Salomon Smith Barney
Hldgs., Inc., Note,
6.375%, 10/1/2004 4,820
10,000 Salomon Smith Barney
Hldgs., Inc., Note,
6.625%, 11/15/2003 9,854
200,000 Salomon Smith Barney
Hldgs., Inc., Sr. Note,
6.80%, 4/15/2003 199,376
946,475 1 World Financial, Pass Thru
Cert., Series 96 WFP-B,
6.91%, 9/1/2013 909,945
TOTAL 21,610,886
FINANCIAL SERVICES-0.9%
20,000 Associates Corp. of North
America, Sr. Note, 6.00%,
6/15/2000 19,995
15,000 Deere (John) Capital
Corp., Sr. Note, 7.52%,
3/6/2000 15,078
3,000,000 General Electric Capital
Corp., MTN, 6.65%, 9/3/2002 3,004,650
10,000 Paccar Financial Corp.,
Sr. Note, 6.18%, 2/15/2001 9,959
50,000 Pitney Bowes Credit Corp.,
Unsecd. Note, 8.80%,
2/15/2003 53,029
100,000 U.S. Leasing
International, Unsecd.
Note, 6.625%, 5/15/2003 99,157
TOTAL 3,201,868
FOOD PRODUCTS-0.1%
5,000 Grand Metropolitan
Investment Corp., 9.00%,
8/15/2011 5,628
300,000 Kraft General Foods, Inc.,
Deb., 6.00%, 6/15/2001 296,964
TOTAL 302,592
FOREST PRODUCTS-1.1%
1,000,000 Fort James Corp., Deb.,
8.375%, 11/15/2001 1,026,420
300,000 Fort James Corp., Sr. Note,
6.234%, 3/15/2001 299,202
310,000 Fort James Corp., Sr. Note,
7.65%, 12/26/2000 313,683
1,000,000 Quno Corp., Sr. Note,
9.125%, 5/15/2005 1,054,670
25,000 Union Camp Corp., Note,
6.50%, 11/15/2007 23,738
750,000 Westvaco Corp., Deb.,
7.75%, 2/15/2023 727,515
25,000 Weyerhaeuser Co., Deb.,
9.05%, 2/1/2003 26,486
TOTAL 3,471,714
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS-continued
HEALTH SERVICES-0.3%
$ 1,000,000 Aetna Services, Inc.,
Company Guarantee, 6.75%,
8/15/2001 $ 994,650
INDUSTRIAL PRODUCTS &
EQUIPMENT-0.1%
10,000 Air Products & Chemicals,
Inc., Note, 7.375%, 5/1/2005 9,885
30,000 Dresser Industries, Inc.,
Note, 6.25%, 6/1/2000 30,047
300,000 Illinois Tool Works, Inc.,
Note, 5.875%, 3/1/2000 300,261
25,000 Ingersoll-Rand Co., Note,
6.51%, 12/1/2004 24,073
10,000 Ingersoll-Rand Co., Note,
6.60%, 8/1/2000 10,013
TOTAL 374,279
INSURANCE-4.6%
2,500,000 Allmerica Financial Corp.,
Sr. Note, 7.625%, 10/15/2025 2,388,675
500,000 CIGNA Corp., Sr. Note,
7.40%, 1/15/2003 498,610
1,000,000 Continental Corp., Unsecd.
Note, 7.25%, 3/1/2003 992,600
2,000,000 1 Equitable Life, Note,
7.70%, 12/1/2015 2,021,460
1,500,000 GEICO Corp., Deb., 9.15%,
9/15/2021 1,626,900
25,000 ITT Hartford Group, Inc.,
Note, 8.30%, 12/1/2001 25,736
15,000 Lincoln National Corp.,
Note, 7.625%, 7/15/2002 15,249
250,000 MBIA INS Corp., Deb.,
9.00%, 2/15/2001 257,165
900,000 Provident Cos., Inc.,
Bond, 7.405%, 3/15/2038 808,479
2,000,000 1 Reinsurance Group of
America, Sr. Note, 7.25%,
4/1/2006 1,961,530
1,000,000 St. Paul Cos., Inc., MTN,
Series MTNB, 7.29%, 8/28/2007 985,380
1,500,000 SunAmerica, Inc., MTN,
7.34%, 8/30/2005 1,513,125
2,150,000 1 Union Central Life
Insurance Co., Note,
8.20%, 11/1/2026 2,153,182
TOTAL 15,248,091
LEISURE & ENTERTAINMENT-1.2%
40,000 Disney (Walt) Co., Bond,
6.375%, 3/30/2001 39,996
3,200,000 Paramount Communications,
Inc., Sr. Deb., 8.25%,
8/1/2022 3,196,064
800,000 Paramount Communications,
Inc., Sr. Note, 7.50%,
1/15/2002 808,000
TOTAL 4,044,060
METALS & MINING-1.6%
3,000,000 Barrick Gold Corp., Deb.,
7.50%, 5/1/2007 2,976,150
875,000 Noranda, Inc., Deb.,
8.625%, 7/15/2002 895,676
765,000 Noranda, Inc., Deb.,
8.125%, 6/15/2004 776,919
750,000 Placer Dome, Inc., Bond,
8.50%, 12/31/2045 709,597
TOTAL 5,358,342
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS-continued
MUNICIPAL SERVICES-2.8%
$ 1,250,000 Atlanta & Fulton County, GA
Recreation Authority,
Taxable Revenue Bonds,
Series 1997, 7.00% Bonds
(Downtown Arena
Project)/(FSA INS),
12/1/2028 $ 1,172,425
1,325,000 Kansas City, MO Redevelopment Authority, 7.65% Bonds (FSA LOC),
11/1/2018 1,317,395
2,000,000 McKeesport, PA Taxable GO,
Series B 1997, 7.30% Bonds
(MBIA INS), 3/1/2020 1,929,960
1,000,000 Miami Florida Revenue
Pension Obligation, 7.20%
Bonds (AMBAC LOC), 12/1/2025 949,490
1,500,000 Minneapolis/St. Paul, MN
Airport Commission, UT GO
Taxable Revenue Bonds
(Series 9), 8.95% Bonds
(Minneapolis/St. Paul,
MN), 1/1/2022 1,591,365
1,000,000 Pittsburgh, PA Urban Redevelopment Authority, 9.07% Bonds (CGIC
GTD),
9/1/2014 1,060,320
1,000,000 St. Johns County, FL
Convention Center, Taxable
Municipal Revenue Bonds,
8.00% Bonds (FSA INS),
1/1/2026 998,780
TOTAL 9,019,735
OIL & GAS-1.4%
10,000 Atlantic Richfield Co.,
Deb., 9.125%, 3/1/2011 11,444
1,750,000 1 Baker Hughes, Inc., Sr.
Notes, 6.25%, 1/15/2009 1,637,755
1,000,000 Global Marine, Inc., Sr.
Note, 7.125%, 9/1/2007 973,940
1,000,000 Sun Co., Inc., 9.00%,
11/1/2024 1,081,550
900,000 Sunoco, Inc., Note, 7.75%,
9/1/2009 899,397
TOTAL 4,604,086
PHARMACEUTICAL-0.3%
500,000 American Home Products
Corp., Note, 7.70%,
2/15/2000 502,405
250,000 American Home Products
Corp., Note, 7.90%,
2/15/2005 256,102
100,000 Lilly (Eli) & Co., Unsecd.
Note, 6.25%, 3/15/2003 98,824
TOTAL 857,331
RACETRACKS-1.0%
3,250,000 1 International Speedway
Corp., 7.875%, 10/15/2004 3,245,548
RAIL INDUSTRY-0.6%
905,329 Atchison Topeka & SF RR,
Equip. Trust, 6.55%,
1/6/2013 834,740
1,000,000 Burlington Northern Santa
Fe, Pass Thru Cert., 7.57%,
1/2/2021 1,001,810
TOTAL 1,836,550
REAL ESTATE-2.0%
3,150,000 New Plan Excel Realty
Trust, MTN, 7.40%, 9/15/2009 3,025,386
3,000,000 Simon Property Group,
Inc., Note, 7.125%, 2/9/2009 2,779,710
900,000 Storage USA, Deb., 7.50%,
12/1/2027 741,942
TOTAL 6,547,038
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS-continued
RETAILERS-4.4%
$ 3,000,000 Dayton-Hudson Corp., Deb.,
10.00%, 12/1/2000 $ 3,111,990
350,000 Dayton-Hudson Corp., Deb.,
8.50%, 12/1/2022 365,004
15,000 Dillard Investment, Deb.,
9.25%, 2/1/2001 15,471
2,000,000 May Department Stores Co.,
Deb., 8.125%, 8/15/2035 2,055,740
500,000 May Department Stores Co.,
Deb., 9.875%, 6/15/2021 540,485
3,000,000 Safeway, Inc., Note,
7.25%, 9/15/2004 3,014,670
2,000,000 Sears, Roebuck & Co., MTN,
10.00%, 2/3/2012 2,328,420
500,000 Sears, Roebuck & Co., MTN,
7.32%, 4/24/2000 502,425
50,000 Wal-Mart Stores, Inc.,
Note, 8.625%, 4/1/2001 51,569
565,000 Wal-Mart Stores, Inc.,
Note, 9.10%, 7/15/2000 577,136
1,600,000 Wal-Mart Stores, Inc., Sr.
Unsecd. Note, 6.875%,
8/10/2009 1,606,448
200,000 Wal-Mart Stores, Inc.,
Unsecd. Note, 6.50%, 6/1/2003 199,752
TOTAL 14,369,110
SERVICES-0.1%
500,000 Olsten Corp., Sr. Note,
7.00%, 3/15/2006 455,020
SOVEREIGN GOVERNMENT-2.0%
200,000 Quebec, Province of,
11.00%, 6/15/2015 213,834
3,000,000 Quebec, Province of, Deb.,
Series NN, 7.125%, 2/9/2024 2,901,780
1,000,000 Quebec, Province of, Deb.,
9.125%, 8/22/2001 1,037,428
1,000,000 Sweden, Government of,
Deb., 10.25%, 11/1/2015 1,216,990
1,000,000 Victoria Public Authority,
Local Gov't. Guarantee,
8.25%, 1/15/2002 1,039,354
TOTAL 6,409,386
SUPRANATIONAL-0.3%
1,100,000 Corp Andina De Fomento, Sr.
Note, 7.75%, 3/1/2004 1,099,043
TECHNOLOGY SERVICES-1.8%
2,200,000 Dell Computer Corp., Deb.,
7.10%, 4/15/2028 2,030,886
410,000 Lucent Technologies, Inc.,
Note, 6.90%, 7/15/2001 413,403
3,200,000 Unisys Corp., Sr. Note,
11.75%, 10/15/2004 3,552,000
TOTAL 5,996,289
TELECOMMUNICATIONS &
CELLULAR-4.7%
2,000,000 AT&T Corp., Note, 6.00%,
3/15/2009 1,855,740
250,000 Bell Atlantic-New Jersey,
Deb., 5.875%, 2/1/2004 242,283
1,850,000 BellSouth
Telecommunications, Inc.,
Note, 6.00%, 6/15/2002 1,824,951
15,000 Chesapeake & Potomac
Telephone Co. of VA, Deb.,
6.75%, 5/1/2008 14,746
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS-continued
TELECOMMUNICATIONS &
CELLULAR-CONTINUED
$ 50,000 Chesapeake & Potomac
Telephone Co. of
Washington D.C., Deb.,
7.00%, 2/1/2009 $ 49,481
2,250,000 Cox Communications, Inc.,
MTN, 6.69%, 9/20/2004 2,202,975
100,000 GTE Southwest, Inc., Deb.,
6.54%, 12/1/2005 96,893
3,000,000 Lucent Technologies, Inc.,
Deb., 6.45%, 3/15/2029 2,727,300
2,000,000 MetroNet Escrow Corp., Sr.
Note, 10.625%, 11/1/2008 2,280,000
15,000 New England Telephone &
Telegraph, Deb., 6.125%,
10/1/2006 14,337
800,000 New England Telephone &
Telegraph, Deb., 8.625%,
8/1/2001 828,008
100,000 New York Telephone Co.,
Unsecd. Note, 6.25%, 2/15/2004 97,339
115,000 Ohio Bell Telephone Co.,
Unsecd. Note, 6.125%,
5/15/2003 112,712
3,125,000 1 Telecom de Puerto Rico,
Note, 6.65%, 5/15/2006 3,021,753
TOTAL 15,368,518
UTILITIES-4.6%
15,000 Bell Atlantic Corp., Deb.,
6.75%, 5/1/2008 14,744
250,000 Central Illinois Public
Service Co., 1st Mtg. Bond,
6.00%, 4/1/2000 250,313
250,000 Consolidated Edison Co.,
Deb., Series 92B, 7.625%,
3/1/2004 257,333
2,000,000 Duke Energy Corp., Sr.
Note, 5.375%, 1/1/2009 1,754,000
1,600,000 1 Edison Mission Holding
Co., Sr. Secd. Note,
8.734%, 10/1/2026 1,545,840
1,250,000 Enersis S.A., Note, 7.40%,
12/1/2016 1,046,175
1,000,000 Gulf States Utilities, 1st
Mtg. Bond, Series 2005B,
6.77%, 8/1/2005 970,520
1,500,000 1 Israel Electric Corp.
Ltd., Sr. Note, 7.875%,
12/15/2026 1,359,780
400,000 1 Israel Electric Corp.
Ltd., Sr. Secd. Note,
7.75%, 3/1/2009 393,805
100,000 Louisiana Power & Light
Co., 1st Mtg. Bond, 7.50%,
11/1/2002 100,894
30,000 Michigan Consolidated Gas,
1st Mtg. Bond, 6.80%,
6/15/2003 30,403
300,000 Midwest Power Systems,
Inc., Mtg. Bond, 6.75%,
2/1/2000 300,507
180,000 Minnesota Power and Light
Co., 1st Mtg. Bond, 7.75%,
6/1/2007 182,021
3,250,000 National Rural Utilities
Cooperative Finance Corp.,
MTN, 5.75%, 12/1/2008 2,981,518
25,000 Pacific Gas & Electric Co.,
1st Ref. Mtg., 6.75%,
12/1/2000 25,037
1,000,000 Pacific Gas & Electric Co.,
Unsecd. Note, Series B,
7.75%, 6/30/2004 1,028,390
1,200,000 Puget Sound Energy, Inc.,
MTN, 7.02%, 12/1/2027 1,097,184
100,000 Reliant Energy, Inc.,
Collateral Trust, Series
C, 6.50%, 4/21/2003 97,797
5,000 Sonat, Inc., Note, 6.875%,
6/1/2005 4,852
1,000,000 1 Tenaga Nasional Berhad,
Deb., 7.50%, 1/15/2096 720,600
1,000,000 West Penn Power Co., 1st
Mtg. Bond, 7.875%, 12/1/2004 1,013,550
TOTAL 15,175,263
TOTAL CORPORATE BONDS
(IDENTIFIED COST $218,108,605) 204,388,920
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
GOVERNMENT AGENCIES-17.0%
GOVERNMENT AGENCY-17.0%
$ 1,250,000 Federal Farm Credit
System, MTN, 5.93%, 8/7/2008 $ 1,178,613
100,000 Federal Home Loan Bank
System, 6.00%, 6/30/2003 97,913
1,000,000 Federal Home Loan Bank
System, 6.10%, 4/7/2003 983,580
1,000,000 Federal Home Loan Bank
System, 6.11%, 4/17/2003 983,770
1,000,000 Federal Home Loan Bank
System, 5.30%, 11/17/2003 961,050
1,000,000 Federal Home Loan Bank
System, 5.92%, 3/3/2009 940,480
1,000,000 Federal Home Loan Bank
System, 6.00%, 7/7/2004 970,620
1,750,000 Federal Home Loan Bank
System, 6.00%, 5/17/2006 1,669,640
1,000,000 Federal Home Loan Bank
System, 6.14%, 5/11/2005 967,990
2,000,000 Federal Home Loan Bank
System, 6.23%, 6/1/2005 1,941,740
1,000,000 Federal Home Loan Bank
System, 6.58%, 6/21/2006 992,740
1,500,000 Federal Home Loan Bank
System, 7.00%, 7/16/2009 1,478,490
1,000,000 Federal Home Loan Bank
System, 7.00%, 12/15/2009 971,280
1,500,000 Federal Home Loan Bank
System, Note, Series HH07,
6.90%, 2/7/2007 1,520,025
200,000 Federal Home Loan Bank
System, Series BC01,
5.71%, 7/13/2001 198,710
500,000 Federal Home Loan Bank
System, Series Q, 5.05%,
3/29/2000 498,730
3,000,000 Federal Home Loan Mortgage
Corp., 5.00%, 3/10/2000 2,992,500
4,000,000 Federal Home Loan Mortgage
Corp., Deb., 6.22%,
3/18/2008 3,799,520
2,500,000 Federal Home Loan Mortgage
Corp., Deb., 6.35%,
7/17/2008 2,375,900
2,500,000 Federal Home Loan Mortgage
Corp., Deb., 8.05%,
4/5/2010 2,521,950
2,000,000 Federal Home Loan Mortgage
Corp., Deb., 8.29%,
9/30/2009 2,040,780
1,333,000 Federal Home Loan Mortgage
Corp., Series 1228H,
7.00%, 2/15/2022 1,317,910
400,000 Federal Home Loan Mortgage
Corp., Series 1324VE,
7.00%, 8/15/2008 401,636
1,470,000 Federal Home Loan Mortgage
Corp., Series 1468M,
7.00%, 1/15/2010 1,449,435
1,000,000 Federal Home Loan Mortgage
Corp., Series 24, Class VB,
6.50%, 7/25/2010 990,970
500,000 Federal National Mortgage
Association, 8.25%,
12/18/2000 512,280
150,000 Federal National Mortgage
Association, MTN, 6.25%,
12/13/2002 148,688
1,650,000 Federal National Mortgage
Association, MTN, 6.71%,
7/24/2001 1,667,177
1,500,000 Federal National Mortgage
Association, MTN, Series
B, 7/9/2012 542,325
2,500,000 Federal National Mortgage
Association, MTN, Series
MTN, 6.00%, 4/17/2006 2,390,875
1,000,000 Federal National Mortgage
Association, Series 1992-
124, Class D, 7.00%,
4/25/2010 982,530
2,000,000 Federal National Mortgage
Association, Series 1993-
139, Class KD, 7.00%,
7/25/2006 1,982,300
923,908 Federal National Mortgage
Association, Series 1994-
79, Class G, 7.00%,
11/25/2004 927,909
1,000,000 Federal National Mortgage
Association, Series 1996-
68, Class VC, 6.50%,
9/18/2010 935,840
<CAPTION>
PRINCIPAL
AMOUNT
OR SHARES VALUE
<C> <S> <C>
GOVERNMENT AGENCIES-continued
GOVERNMENT AGENCY-CONTINUED
$ 1,000,000 Federal National Mortgage
Association, Series G93-
31, Class H, 7.00%, 2/25/2013 $ 961,690
4,000,000 Federal National Mortgage
Association, Unsecd. Note,
6.65%, 11/7/2007 3,906,480
200,000 Federal National Mortgage
Association, Unsecd. Note,
7.15%, 5/26/2004 199,704
10,000 Federal National Mortgage
Association, Unsecd. Note,
7.95%, 3/7/2005 10,069
500,000 Financial Assistance
Corp., 9.20%, 9/27/2005 513,065
3,305,000 Tennessee Valley
Authority, 0/8.625%,
11/15/2029 3,477,257
1,849,000 Tennessee Valley
Authority, 0/8.625%,
11/15/2029 1,945,370
500,000 Tennessee Valley
Authority, 6.125%, 7/15/2003 494,640
TOTAL GOVERNMENT AGENCIES
(IDENTIFIED COST $57,476,165) 55,844,171
PREFERRED STOCKS-0.0%
TELECOMMUNICATIONS &
CELLULAR-0.0%
6,100 AT&T Corp., Pfd.
(Identified Cost $159,820) 154,025
MUTUAL FUNDS-13.7%
3,760,207 Federated Mortgage Core
Portfolio (Identified Cost
$45,803,920) 45,062,348
TREASURY SECURITIES-2.0%
U.S. TREASURY BONDS-1.0%
1,400,000 Bond, 8.50%, 2/15/2020 1,712,830
1,265,000 Bond, 9.875%, 11/15/2015 1,688,484
TOTAL 3,401,314
U.S. TREASURY NOTES-1.0%
3,240,000 Note, 7.75%, 11/30/1999 3,248,359
TOTAL TREASURY SECURITIES
(IDENTIFIED COST $6,857,938) 6,649,673
REPURCHASE AGREEMENT-1.6% 2
5,145,000 ABN AMRO, Inc., 5.34%,
dated 10/29/1999, due
11/1/1999 (at amortized cost) 5,145,000
TOTAL INVESTMENTS
(IDENTIFIED COST
$333,551,448) 3 $ 324,644,942
</TABLE>
1 Denotes a restricted security which is subject to restrictions on resale under
federal securities laws. These securities have been deemed liquid based upon
criteria approved by the fund's Board of Trustees. At October 31, 1999, these
securities amounted to $32,420,637 which represents 9.86% of net assets.
2 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
investment in the repurchase agreements is through participation in joint
accounts with other Federated funds.
3 The cost of investments for federal tax purposes amounts to $333,551,448. The
net unrealized depreciation of investments on a federal tax basis amounts to
$8,906,506 which is comprised of $618,330 appreciation and $9,524,836
depreciation at October 31, 1999.
Note: The categories of investments are shown as a percentage of net assets
($328,862,718) at October 31, 1999.
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 MTN
- -Medium Term Note PLC -Public Limited Company UT -Unlimited Tax
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
OCTOBER 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in
securities, at value
(identified and tax cost
$333,551,448) $ 324,644,942
Income receivable 5,603,054
Receivable for investments
sold 2,400,000
Receivable for shares sold 3,075
TOTAL ASSETS 332,651,071
LIABILITIES:
Payable for investments
purchased $ 1,936,716
Payable for shares
redeemed 5,804
Income distribution
payable 1,794,588
Accrued expenses 51,245
TOTAL LIABILITIES 3,788,353
Net assets for 33,889,647
shares outstanding $ 328,862,718
NET ASSETS CONSIST OF:
Paid in capital $ 338,376,900
Net unrealized
depreciation of
investments (8,906,506)
Accumulated net realized
loss on investments (664,087)
Undistributed net
investment income 56,411
TOTAL NET ASSETS $ 328,862,718
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PROCEEDS PER SHARE
INSTITUTIONAL SHARES:
$311,659,394 / 32,116,820
shares outstanding $9.70
INSTITUTIONAL SERVICE
SHARES:
$17,203,324 / 1,772,827
shares outstanding $9.70
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
SIX MONTHS ENDED OCTOBER 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 1,213,187
Interest 8,453,901
TOTAL INCOME 9,667,088
EXPENSES:
Investment advisory fee $ 708,615
Administrative personnel
and services fee 106,859
Custodian fees 9,568
Transfer and dividend
disbursing agent fees and
expenses 17,862
Directors'/Trustees' fees 2,714
Auditing fees 9,097
Legal fees 3,088
Portfolio accounting fees 46,263
Distribution services fee-
Institutional Service
Shares 20,146
Shareholder services fee-
Institutional Shares 334,162
Shareholder services fee-
Institutional Service
Shares 20,146
Share registration costs 27,604
Printing and postage 19,943
Insurance premiums 1,273
Miscellaneous 5,756
TOTAL EXPENSES 1,333,096
WAIVERS:
Waiver of investment
advisory fee $ (172,930)
Waiver of distribution
services fee-Institutional
Service Shares (7,253)
Waiver of shareholder
services fee-Institutional
Shares (334,162)
Waiver of shareholder
services fee-Institutional
Service Shares (12,893)
TOTAL WAIVERS (527,238)
Net expenses 805,858
Net investment income 8,861,230
REALIZED AND UNREALIZED
LOSS ON INVESTMENTS:
Net realized loss on
investments (1,212,378)
Net change in unrealized
depreciation (9,622,552)
Net realized and
unrealized loss on
investments (10,834,930)
Change in net assets
resulting from operations $ (1,973,700)
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited) YEAR ENDED
OCTOBER 31, APRIL 30,
1999 1999
<S> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
OPERATIONS:
Net investment income $ 8,861,230 $ 11,918,718
Net realized gain (loss) on
investments ($(1,212,378)
and $548,291,
respectively, as computed
for federal tax purposes) (1,212,378) 553,848
Net change in unrealized
depreciation (9,622,552) (3,196,353)
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS (1,973,700) 9,276,213
DISTRIBUTIONS TO
SHAREHOLDERS:
Distributions from net
investment income
Institutional Shares (8,351,100) (11,439,982)
Institutional Service
Shares (482,968) (499,158)
Distributions from net
realized gains
Institutional Shares - (83,351)
Institutional Service
Shares - (4,200)
CHANGE IN NET ASSETS
RESULTING FROM
DISTRIBUTIONS
TO SHAREHOLDERS (8,834,068) (12,026,691)
SHARE TRANSACTIONS:
Proceeds from sale of
shares 145,602,218 119,291,368
Net asset value of shares
issued to shareholders in
payment of
distributions declared 1,712,079 3,073,325
Cost of shares redeemed (40,672,491) (67,819,828)
CHANGE IN NET ASSETS
RESULTING FROM SHARE
TRANSACTIONS 106,641,806 54,544,865
Change in net assets 95,834,038 51,794,387
NET ASSETS:
Beginning of period 233,028,680 181,234,293
End of period (including
undistributed net
investment income of
$56,411 and $29,249,
respectively) $ 328,862,718 $ 233,028,680
</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>
SIX MONTHS
ENDED
(unaudited)
OCTOBER 31, YEAR ENDED APRIL 30,
1999 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $10.07 $10.17 $ 9.79 $ 9.77 $ 9.55 $ 9.53
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income 0.31 0.60 0.63 0.63 0.66 0.66
Net realized and
unrealized gain (loss) on
investments. (0.37) (0.10) 0.38 0.03 0.22 0.02
TOTAL FROM
INVESTMENT OPERATIONS (0.06) 0.50 1.01 0.66 0.88 0.68
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.31) (0.60) (0.63) (0.63) (0.66) (0.66)
Distributions from net
realized gain on
investments - (0.00) 1 - (0.01) - -
TOTAL DISTRIBUTIONS (0.31) (0.60) (0.63) (0.64) (0.66) (0.66)
NET ASSET VALUE, END
OF PERIOD $ 9.70 $10.07 $10.17 $ 9.79 $ 9.77 $ 9.55
TOTAL RETURN 2 (0.62)% 5.03% 10.58% 7.00% 9.13% 7.53%
RATIOS TO AVERAGE NET ASSETS:
Expenses 3 0.92% 4 0.98% 1.02% 1.12% 1.40% 1.70%
Net investment income 3 5.90% 4 5.44% 5.83% 5.91% 5.67% 5.90%
Expenses (after waivers) 0.55% 4 0.55% 0.55% 0.55% 0.55% 0.48%
Net investment income
(after waivers) 6.27% 4 5.87% 6.30% 6.48% 6.52% 7.12%
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $311,659 $219,824 $176,712 $121,307 $87,493 $32,508
Portfolio turnover 27% 41% 44% 55% 66% 88%
</TABLE>
1 Amount represents less than $0.01 per share.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 During the period, certain fees were voluntarily waived. If such voluntary
waivers had not occurred, the ratios would have been as indicated.
4 Computed on an annualized basis.
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>
SIX MONTHS
ENDED
(unaudited)
OCTOBER 31 YEAR ENDED APRIL 30,
1999 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $10.07 $10.17 $ 9.79 $ 9.76 $ 9.55 $ 9.53
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income 0.29 0.58 0.61 0.61 0.63 0.64
Net realized and
unrealized gain (loss) on
investments (0.37) (0.10) 0.38 0.04 0.21 0.02
TOTAL FROM
INVESTMENT OPERATIONS (0.08) (0.48) 0.99 0.65 0.84 0.66
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.29) (0.58) (0.61) (0.61) (0.63) (0.64)
Distributions from net
realized gain on investments - (0.00) 1 - (0.01) - -
TOTAL DISTRIBUTIONS (0.29) (0.58) (0.61) (0.62) (0.63) (0.64)
NET ASSET VALUE, END
OF PERIOD $ 9.70 $10.07 $10.17 $ 9.79 $ 9.76 $ 9.55
TOTAL RETURN 2 (0.74)% 4.77% 10.31% 6.73% 8.86% 7.27%
RATIOS TO AVERAGE NET ASSETS:
Expenses 3 1.17% 4 1.23% 1.27% 1.37% 1.65% 1.94%
Net investment income 3 5.64% 4 5.21% 5.56% 5.64% 5.46% 5.63%
Expenses (after waivers) 0.80% 4 0.80% 0.80% 0.80% 0.80% 0.72%
Net investment income
(after waivers) 6.01% 4 5.64% 6.03% 6.21% 6.31% 6.85%
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $17,203 $13,204 $4,522 $790 $508 $276
Portfolio turnover 27% 41% 44% 55% 66% 88%
</TABLE>
1 Amount represents less than $0.01 per share.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 During the period, certain fees were voluntarily waived. If such voluntary
waivers had not occurred, the ratios would have been as indicated.
4 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
OCTOBER 31, 1999 (UNAUDITED)
ORGANIZATION
Federated Income Securities Trust (the "Trust") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Trust consists of two portfolios. The
financial statements included herein are only those of Federated Intermediate
Income Fund (the "Fund"). The investment objective of the Fund is to provide
current income. The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held.
The Fund offers two classes of shares: Institutional Shares and
Institutional Service Shares.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
U.S. government securities, listed corporate bonds, other fixed income and
asset-backed securities, and private placement securities are generally valued
at the mean of the latest bid and asked price as furnished by an independent
pricing service. Listed equity securities are valued at the last sale price
reported on a national securities exchange. Short-term securities are valued at
the prices provided by an independent pricing service. However, short-term
securities with remaining maturities of 60 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"). Dividend income and 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 Board of Trustees. The Fund will not
incur any registration costs upon such resales. The Fund's restricted securities
are valued at the price provided by dealers in the secondary market or, if no
market prices are available, at the fair value as determined by the Fund's
pricing committee.
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 12 months. The Fund will use the proceeds generated from the transactions
to invest in short-term investments, which may enhance the Trust'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>
SIX MONTHS ENDED YEAR ENDED
OCTOBER 31, 1999 APRIL 30, 1999
INSTITUTIONAL SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 14,035,498 $ 138,801,265 10,386,832 $ 106,338,141
Shares issued to
shareholders in payment of
distributions declared 144,120 1,409,868 261,456 2,678,552
Shares redeemed (3,900,574) (38,175,901) (6,189,112) (63,408,065)
NET CHANGE FROM
INSTITUTIONAL
SHARE TRANSACTIONS 10,279,044 $ 102,035,232 4,459,176 $ 45,608,628
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
OCTOBER 31, 1999 APRIL 30, 1999
INSTITUTIONAL SERVICE
SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 686,134 $ 6,800,953 1,259,281 $ 12,953,227
Shares issued to
shareholders in payment of
distributions declared 30,894 302,211 38,583 394,773
Shares redeemed (255,941) (2,496,590) (430,825) (4,411,763)
NET CHANGE FROM
INSTITUTIONAL SERVICE
SHARE TRANSACTIONS 461,087 $ 4,606,574 867,039 $ 8,936,237
NET CHANGE RESULTING FROM
SHARE TRANSACTIONS 10,740,131 $ 106,641,806 5,326,215 $ 54,544,865
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Investment Management Company, 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 according to the following
schedule annually, to reimburse Federated Securities Corp. 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 Company ("FSSC"), the Fund will pay FSSC up to 0.25% of average daily
net assets of the Fund shares for the period. The fee paid to FSSC is used to
finance certain services for shareholders and to maintain shareholder accounts.
FSSC may voluntarily choose to waive any portion of its fee. FSSC 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 FSSC serves as transfer and dividend disbursing
agent for the Fund. The fee paid to FSSC is based on the size, type, and number
of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended October 31, 1999, were as follows:
<TABLE>
<CAPTION>
<S> <C>
Purchases $ 176,537,512
Sales $ 74,044,993
</TABLE>
YEAR 2000
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and Administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
Trustees
JOHN F. DONAHUE
THOMAS G. BIGLEY
JOHN T. CONROY, JR.
NICHOLAS P. CONSTANTAKIS
JOHN F. CUNNINGHAM
LAWRENCE D. ELLIS, M.D.
PETER E. MADDEN
JOHN E. MURRAY, JR., J.D., S.J.D.
MARJORIE P. SMUTS
Officers
JOHN F. DONAHUE
Chairman
GLEN R. JOHNSON
President
WILLIAM D. DAWSON, III
Chief Investment Officer
J. CHRISTOPHER DONAHUE
Executive Vice President
EDWARD C. GONZALES
Executive Vice President
JOHN W. MCGONIGLE
Executive Vice President and Secretary
RICHARD B. FISHER
Vice President
JOSEPH M. BALESTRINO
Vice President
RANDALL S. BAUER
Vice President
RICHARD J. THOMAS
Treasurer
C. GRANT ANDERSON
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 the 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
World-Class Investment Manager
SEMI-ANNUAL REPORT
Federated Intermediate Income Fund
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
OCTOBER 31, 1999
[Graphic]
Federated
Federated Intermediate Income Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Cusip 31420C407
Cusip 31420C506
G00715-01 (12/99)
[Graphic]
SEMI-ANNUAL REPORT
President's Message
Dear Investor:
I am pleased to present the Semi-Annual Report to Shareholders for Federated
Short-Term Income Fund, a portfolio of Federated Income Securities Trust. The
report covers the six-month reporting period ended October 31, 1999. It begins
with a review of the bond market by the fund's portfolio manager, which is
followed by a complete list of fund holdings
and its financial statements.
On behalf of conservative, income-oriented investors, the fund invests in a
diversified portfolio consisting primarily of short-term, high-quality debt
securities. At the end of the reporting period, the fund's portfolio was
invested in corporate bonds/asset-backed securities (52.8%), mortgage-backed
securities (32.3%), U.S. Treasury notes (4.2%), U.S. government agency
mortgage-backed securities (3.7%), and a repurchase agreement (6.5%).
During the six-month reporting period, Institutional Shares produced a total
return of 1.58% through dividends totaling $0.26 per share and a net asset value
decrease of $0.12 per share. Institutional Service Shares produced a total
return of 1.46% through dividends totaling $0.24 per share and a net asset value
decrease of $0.12 per share. 1
Net assets in the fund totaled $223 million at the reporting period's end.
Thank you for selecting Federated Short-Term Income Fund as a high-quality,
short-term income investment. As always, we welcome your questions, comments, or
suggestions.
Sincerely,
[Graphic]
Glen R. Johnson
President
December 15, 1999
1 Performance quoted reflects past performance and no guarantee of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
Investment Review
Federated Short Term Income Fund represents a high-quality, fixed income
portfolio of securities combining various fixed income asset classes.
Investments are concentrated in U.S. Treasury, government agency, and
high-quality corporate debt securities. The investment objective of the fund is
to seek to provide current income. To the extent consistent with this objective,
the fund will strive to minimize fluctuation in principal value through a
portfolio with an effective average duration of no greater than three years, but
generally having an effective modified duration of no greater than two years.
Two factors had the greatest effect on the fund's outcome for the period under
review. The first was a general increase in yield levels which began almost a
year ago, and continues at this writing. The second was a continuation of spread
widening in credit-sensitive securities despite a healthy economy. The increase
in yields has put calendar 1999 on track to be the worst year for bonds since
1994, which was in turn the worst year for bonds in over a generation. To put
things in the context of the fund's current fiscal year, on April 30, 1999, the
yield on the 2-year Treasury note was 5.05%. By October 31, 1999, it had risen
to 5.79%, an increase of 15%. The belief that continued economic growth must
eventually produce inflation was the major culprit behind the yield increase,
despite an absence of actual evidence of inflation. On the credit front, Y2K
concerns were the major factor behind wider spreads, a trend which began just as
the fund began its new fiscal year, then became particularly acute in the third
quarter of 1999. Issuers hoping to clean up their funding needs prior to
calendar year-end pushed their issuance into the third, and even second calendar
quarter. The market, which had expected heavy issuance only in the fourth
quarter, was not prepared for the onslaught of supply. The silver lining in the
"Y2K cloud," however, is that the bulk of issuance for the year has now
occurred. Spreads at this writing have begun to reverse direction, and following
the turn of the millennium, there is likely to be a further snapback of spreads
as event risk is diminished in a relatively robust economy.
It is fair to say that "spread product" (i.e., those securities whose values are
established on a relative basis to treasury yields), which comprises the
majority of fund assets, did not have as good a year as might have been
expected. The market dislocation of last year moved credit spreads to the point
where fund management believed an overweighting of credit risk was the indicated
strategy. As the current fiscal year began, the fund had been positioned to take
advantage of this opportunity. As mentioned above however, once the
unanticipated supply pipeline hit beginning in the second quarter, spread gains
which had occurred in the first quarter of 1999 were reversed. In the case of
certain sectors like subordinate asset-backed securities, spreads are actually
wider today than they were at the wides of October 1998. With regard to
corporates, current spreads, while wider than they were in the second quarter,
are at least tighter than they were at last October's wides. Mortgages have
probably fared the best overall, though they too stand at wider levels than was
the case earlier in the year, and the negative convexity of mortgages has been
exacerbated by the general backup in interest rates. If one can make the case
that the economy will remain in reasonable shape, and that inflation is not as
big a factor as general market consensus would have it appear, the new fiscal
year should bring on the benefits of both spread tightening and a better
environment for interest rates.
For the six-month reporting period ended October 31, 1999, the Fund's
Institutional Shares had a total return of 1.58% and the Fund's Institutional
Service Shares total return was 1.46%, 1 compared to a 1.78% total return for
the Merrill Lynch 1-3 Year Government Bond Index and a 1.71% total return for
the Merrill Lynch 1-3 Year Corporate Bond Index.2 The Fund's "spread product"
orientation hindered comparisons to the government benchmark, while its
significant allocation to subordinate asset-backed securities (approximately 20%
of the portfolio at 10/31/99) hindered comparisons to a "corporates-only"
benchmark. Nonetheless, the fund fared well in comparison to its mutual fund
peer group, the Lipper Short Investment Grade Debt category, which returned
1.17% for the period.3
At this writing, marginal assets in the fund are generally being deployed in
AAA-rated asset backed securities (ABS), a sector which is performing much
better than its non-AAA rated counterpart. In addition, corporate exposure is
being slightly reduced as better relative value appears to exist in ABS.
Treasury and agency exposure remains between 5% and 8% of the fund, a level
which has remained unchanged for several months. Finally, mortgage-backed
securities exposure, which is generally allocated to short duration (2-3 year
average life), alternative-A (good credit borrowers who do not meet specific
agency underwriting standards) and jumbo (loan size in excess of $240,000)
product, is being maintained at a little over 30 percent of the portfolio.
Subordinate ABS exposure is not being deliberately reduced, since it makes
little sense to reduce a sector which is expected to recover, despite the
current stigma attached to it. With regard to the fund's interest rate
sensitivity, the fund's duration is positioned at 1.54 years, just inside that
of the Merrill Lynch 1-3 Year Government Index (1.57 years). Credit quality
remains high with an average credit rating of "AA." Over half of the fund's
assets were invested in AAA- rated securities at October 31, 1999.
1 Performance quoted represents past performance and is no guarantee 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.
2 The Merrill Lynch 1-3 Year Government Bond Index is an unmanaged index
tracking short-term U.S. government securities between 1 and 2.99 years. The
Merrill Lynch 1-3 Year Corporate Bond Index is an unmanaged index trading
maturities between 1 and 2.99 years. Investments cannot be made in an index.
3 Lipper Averages represent the average total returns reported by all mutual
funds designated by Lipper Analytical Services as falling into the respective
categories listed.
Last Meeting of Shareholders
A Special Meeting of the Fund's shareholders was held on November 15, 1999. On
September 16, 1999, the record date for the shareholders voting at the meeting,
there were 26,047,922 total outstanding shares. The following items were
considered by shareholders and the results were as follows:
AGENDA ITEM 1
Elected Trustees: 1
<TABLE>
<CAPTION>
WITHHELD
AUTHORITY
FOR TO VOTE
<S> <C> <C>
Thomas G. Bigley 16,814,412 30,426
Nicholas P. Constantakis 16,814,412 30,426
John F. Cunningham 16,814,145 30,693
J. Christopher Donahue 16,814,145 30,693
Charles F. Mansfield, Jr. 16,814,145 30,693
John E. Murray, Jr., J.D., S.J.D. 16,814,412 30,426
John S. Walsh 16,814,412 30,426
</TABLE>
1 Trustee Elections will become effective January 1, 2000.
AGENDA ITEM 2
Made changes to the Fund's fundamental investment policies:
(a) Amended the Fund's fundamental investment policies regarding
diversification.
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
15,294,940 1,060,011 489,887
</TABLE>
(b) Amended the Fund's fundamental investment policy regarding borrowing money
and issuing senior securities.
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
15,013,209 1,343,006 488,623
</TABLE>
(c) Amended the Fund's fundamental investment policies regarding investments in
real estate.
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
15,502,723 854,839 487,276
</TABLE>
(d) Amended the Fund's fundamental investment policies regarding investments in
commodities.
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
15,202,341 1,155,221 487,276
</TABLE>
(e) Amended the Fund's fundamental investment policies regarding underwriting
securities.
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
16,096,507 256,349 491,982
</TABLE>
(f) Amended the Fund's fundamental investment policies regarding lending by the
Funds.
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
15,808,724 546,739 489,375
</TABLE>
(g) Amended the Fund's fundamental investment policies regarding concentration
of the Funds' investments in the securities of companies in the same industry.
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
16,096,395 259,394 489,049
</TABLE>
(h) Amended, and made non-fundamental, the Fund's fundamental investment
policies regarding buying securities on margin.
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
14,973,580 1,382,316 488,942
</TABLE>
(i) Amended, and made non-fundamental, the Fund's fundamental investment
policies regarding pledging assets.
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
14,979,506 1,373,930 491,402
</TABLE>
(j) Made non-fundamental the Fund's fundamental investment policy regarding
which states that the Fund will invest in a diversified portfolio of short and
medium- term high grade debt securities.
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
14,260,563 2,077,539 506,736
</TABLE>
AGENDA ITEM 3
Eliminated certain fundamental investment policies of the Fund:
(a) Removed the Fund's fundamental investment policies regarding selling
securities short.
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
14,380,310 1,963,341 501,187
</TABLE>
(b) Removed the Fund's fundamental investment policy regarding investing in oil,
gas, and minerals.
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
14,401,216 1,941,183 502,439
</TABLE>
(c) Removed the Fund's fundamental investment policy regarding on investing in
securities of new issuers.
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
14,402,913 1,937,787 504,138
</TABLE>
(d) Removed the Fund's fundamental investment policy regarding on investing in
issuers whose securities are owned by officers and Trustees.
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
14,343,203 1,997,479 504,156
</TABLE>
(e) Removed the Fund's fundamental investment policy regarding on investing for
the purpose of exercising control or management.
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
14,979,537 1,361,349 503,952
</TABLE>
(f) Removed the Fund's fundamental investment policy regarding engaging in
when-issued and delayed delivery transactions.
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
15,067,245 1,276,006 501,587
</TABLE>
AGENDA ITEM 4
Amended and restated the Trust's Declaration of 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.
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
14,713,699 1,631,237 499,902
</TABLE>
Portfolio of Investments
OCTOBER 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
CORPORATE BONDS/ASSET-
BACKED SECURITIES-52.8%
AUTOMOBILE-6.9%
$ 959,327 AFG Receivables Trust
1997-B, Class B, 6.40%,
2/15/2003 $ 956,728
565,184 Household Automobile
Revolving Trust I 1998-1,
Class B1, 6.30%, 5/17/2005 560,595
1,954,459 Key Auto Finance Trust
1999-1, 7.08%, 1/15/2007 1,911,715
943,408 Olympic Automobile
Receivables Trust 1995-B,
Class A2, 7.35%,
10/15/2001 944,577
5,000,000 Olympic Automobile
Receivables Trust 1996-C,
Class A5, 7.00%, 3/15/2004 5,042,300
1,107,116 The CIT Group
Securitization Corp. II,
Class B, 6.45%, 6/15/2018 1,110,415
4,500,000 Toyota Auto Receivables
1999-A Owner Trust, Class
C, 6.70%, 8/16/2004 4,473,765
412,264 World Omni Automobile
Lease Securitization Trust
1997-A, Class A3, 6.85%,
6/25/2003 413,008
TOTAL 15,413,103
BANKING-2.2%
1,000,000 1 J.P. Morgan & Co., Inc.,
Sub. Note, 5.00%,
8/19/2002 970,186
2,000,000 Mercantile Bancorporation,
Inc., 6.80%, 6/15/2001 2,003,860
2,000,000 National Australia Bank
Ltd., Melbourne, Sub.
Note, Series A, 6.40%,
12/10/2007 1,965,860
TOTAL 4,939,906
BEVERAGE & TOBACCO-1.4%
3,000,000 Philip Morris Cos., Inc.,
Deb., 6.00%, 11/15/1999 3,002,100
CREDIT CARD-14.2%
3,000,000 American Express Credit
Account Master Trust 1997-
1, Class A, 6.40%,
4/15/2005 2,991,030
2,562,619 Banco Nacional de Mexico
S.A., Credit Card Merchant
Voucher Receivables Master
Trust Series 1996-A, Class
A1, 6.25%, 12/1/2003 2,513,775
5,000,000 1 Bridgestone/Firestone
Master Trust 1996-1, Class
B, 6.49%, 7/1/2003 5,017,050
2,000,000 Chemical Master Credit
Card Trust I 1995-3, Class
A, 6.23%, 4/15/2005 1,988,280
4,730,000 Circuit City Credit Card
Master Trust 1995-1, Class
A, 6.375%, 8/15/2005 4,736,811
2,000,000 Fingerhut Master Trust
1998-2, Class A, 6.23%,
2/15/2007 1,977,320
1,590,000 Household Affinity Credit
Card Master Trust I 1993-2,
Class A, 5.60%, 5/15/2002 1,589,460
5,000,000 MBNA Master Credit Card
Trust II 1999-I, Class A,
6.40%, 1/18/2005 4,986,050
3,000,000 Providian Master Trust
1997-4, Class B, 6.45%,
6/15/2007 2,949,390
1,866,667 Spiegel Master Trust 1994-
B, Class A, 8.15%,
6/15/2004 1,883,336
1,000,000 Standard Credit Card
Master Trust 1994-4, Class
A, 8.25%, 11/7/2003 1,032,360
TOTAL 31,664,862
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
CORPORATE BONDS/ASSET-
BACKED SECURITIES-
continued
FINANCIAL INTERMEDIARIES-
3.0%
$ 1,000,000 Donaldson, Lufkin and
Jenrette Securities Corp.,
Sr. Note, 5.875%, 4/1/2002 $ 974,770
1,500,000 Lehman Brothers Holdings,
Inc., Medium Term Note,
6.375%, 3/15/2001 1,489,650
2,400,000 Lehman Brothers Holdings,
Inc., Note, 6.125%,
7/15/2003 2,308,464
2,000,000 Merrill Lynch & Co., Inc.,
Note, 6.00%, 2/12/2003 1,953,100
TOTAL 6,725,984
HOME EQUITY LOAN-9.8%
2,000,000 2, 3 125 Home Loan Owner Trust 1998-1A, Class M2, 7.75%,
2/15/2029 1,797,500
634,259 AFC Home Equity Loan Trust
1992-3, Class A, 7.05%,
8/15/2007 633,114
1,069,807 Advanta Home Equity Loan
Trust 1992-1, Class A,
7.875%, 9/25/2008 1,073,054
1,000,000 Chase Funding Mortgage
Loan 1999-1, Class IIB,
8.022%, 6/25/2028 990,350
2,000,000 Cityscape Home Equity Loan
Trust 1997-1, Class A4,
7.23%, 3/25/2018 1,981,270
2,000,000 Cityscape Home Equity Loan
Trust 1997-1, Class M1,
7.58%, 3/25/2018 1,990,490
709,219 1 ContiMortgage Home Equity
Loan Trust 1996-4, Class
A10, 5.6463%, 1/15/2028 704,900
2,000,000 ContiMortgage Home Equity
Loan Trust 1997-1, Class
A7, 7.32%, 9/15/2021 1,996,260
3,235,572 ContiMortgage Home Equity
Loan Trust 1997-3, Class
A5, 7.01%, 8/15/2013 3,228,486
1,000,000 CWABS 1999-1, Class BV,
8.1587%, 2/25/2029 1,011,530
234,078 CWABS Asset Backed
Certificates 1996-1, Class
A-2, 6.525%, 2/25/2014 234,503
1,000,000 Green Tree Home Equity Loan
Trust 1999-A, Class A3,
5.98%, 4/15/2018 989,070
787,233 Green Tree Home Equity Loan
Trust 1999-A, Class B2A,
7.44%, 2/15/2029 785,761
1,324,982 Headlands Home Equity Loan
Trust 1998-2, Class A3,
6.67%, 12/15/2024 1,298,482
1,000,000 Mellon Bank Home Equity
Installment Loan 1998-1,
Class B, 6.95%, 3/25/2015 952,790
2,363,000 New Century Home Equity
Loan Trust 1997-NC5, Class
M2, 7.24%, 10/25/2028 2,200,166
TOTAL 21,867,726
MANUFACTURED HOUSING-5.9%
4,000,000 Green Tree Financial Corp.
1993-2, Class A4, 6.90%,
7/15/2018 3,994,680
2,000,000 Green Tree Financial Corp.
1996-2, Class B-1, 7.55%,
4/15/2027 1,973,780
4,000,000 Merit Securities Corp.
Class 1, 7.98%, 7/28/2033 3,720,000
3,000,000 Merit Securities Corp.
Class A4, 7.88%,
12/28/2033 2,947,620
413,338 Merrill Lynch Mortgage
Investors, Inc. 1991-I,
Class A, 7.65%, 1/15/2012 419,071
113,527 Merrill Lynch Mortgage
Investors, Inc. 1992-B,
Class B, 8.50%, 4/15/2012 113,707
TOTAL 13,168,858
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
CORPORATE BONDS/ASSET-
BACKED SECURITIES-
continued
OTHER - ASSET BACKED-3.8%
$ 724,525 1, 2, 3 Bosque Asset Corp., Series
1, Class 1, 7.66%, 6/5/2002 $ 724,409
3,250,000 California Infrastructure
& Economic Development
Bank Special Purpose Trust
SCE-1, Class A-3, 6.17%,
3/25/2003 3,251,950
1,719,277 1 Case Equipment Loan Trust
1999-A, Class B, 5.96%,
8/15/2005 1,695,663
7,887,857 2, 3 FMAC Loan Receivables
Trust 1997-A, Class A-X,
2.77%, 4/15/2019 867,664
495,668 NationsCredit Grantor
Trust 1997-1, Class A,
6.75%, 8/15/2013 499,217
1,500,000 1 Saxon Asset Securities
Trust 1999-1, Class BV1,
8.1587%, 2/25/2029 1,512,960
TOTAL 8,551,863
STATE/PROVINCIAL-2.3%
5,000,000 Manitoba, Province of,
9.50%, 10/1/2000 5,147,600
SUPRANATIONAL-1.4%
1,700,000 Corp Andina De Fomento,
Bond, 7.10%, 2/1/2003 1,667,547
1,500,000 Corp Andina De Fomento,
Bond, 7.375%, 7/21/2000 1,505,715
TOTAL 3,173,262
TELECOMMUNICATIONS &
CELLULAR-1.9%
1,000,000 MetroNet Communications
Corp., Sr. Note, 12.00%,
8/15/2007 1,170,000
3,000,000 Southwestern Bell Capital
Corp., Note, 8.81%,
12/16/2004 3,072,060
TOTAL 4,242,060
TOTAL CORPORATE
BONDS/ASSET-BACKED
SECURITIES
(IDENTIFIED COST $120,815,
764) 117,897,324
MORTGAGE-BACKED
SECURITIES-32.3%
COMMERCIAL MORTGAGE-BACKED
SECURITIES-2.5%
8,734,129 First Union Lehman
Brothers Commercial
Mortgage Trust, Series
1997-C1, Class IO,
1.25916%, 4/18/2027 519,200
4,000,000 1, 2, 3 K Mart CMBS Financing,
Inc., Series 1997-1, Class
C, 6.11%, 3/1/2007 3,977,140
1,000,000 1, 2, 3 Nomura Depositor Trust
Commercial Mortgage Pass-
Thru 1998-STI, Class A3,
5.9863%, 1/15/2003 979,220
TOTAL 5,475,560
NON-GOVERNMENT AGENCY
MORTGAGE-BACKED
SECURITIES-29.8%
730,735 1, 2, 3 Bayview Financial Acquisition Trust 1998-1, Class
MF2, 6.2325%,
5/25/2029 687,234
1,731,203 2 Bayview Financial
Acquisition Trust 1998-1,
Class MI1, 7.52%,
5/25/2029 1,617,047
645,563 1 Bayview Financial
Acquisition Trust 1998-1,
Class MI1, 6.1558%,
5/25/2029 618,127
4,067,130 1, 2, 3 C-BASS ABS LLC, Series
1997-1, Class A-1, 6.18%,
2/1/2017 4,067,130
260,000 Copelco Capital Funding
Corp. X 1997-A, Class A4,
6.47%, 4/20/2005 260,165
117,345 Countrywide Home Loans
1997-5, Class A3, 7.50%,
9/25/2027 116,916
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
MORTGAGE-BACKED
SECURITIES-continued
NON-GOVERNMENT AGENCY
MORTGAGE-BACKED
SECURITIES-CONTINUED
$ 1,112,640 Countrywide Home Loans
1997-6, Class A1, 6.75%,
11/25/2027 $ 1,109,747
803,344 GE Capital Mortgage
Services, Inc., Series
1994-27, Class A3, 6.50%,
7/25/2024 799,496
4,883,809 GE Capital Mortgage
Services, Inc., Series
1995-11, Class B1, 7.50%,
12/25/2025 4,709,115
1,348,642 GE Capital Mortgage
Services, Inc., Series
1996-3, Class A1, 7.00%,
3/25/2026 1,348,008
297,381 GE Capital Mortgage
Services, Inc., Series
1998-11, Class 1A1, 6.75%,
6/25/2028 297,052
699,633 1 Glendale Federal Bank,
Series 1988-1, Class A,
6.6022%, 11/25/2027 697,300
2,149,824 1, 2 Greenwich Capital
Acceptance, Series 1991-4,
8.57%, 7/1/2019 2,057,124
2,260,457 1 Greenwich Capital
Acceptance 1993-AFCI,
Class B1, 7.105%,
9/25/2023 2,235,027
949,068 1 Greenwich Capital
Acceptance 1993-LB2, Class
A1, 6.86387%, 8/25/2023 963,103
568,703 1 Greenwich Capital
Acceptance 1993-LB3, Class
A1, 7.15319%, 1/25/2024 573,432
3,430,321 Greenwich Capital
Acceptance 1994-C, Class
B1, 6.6624%, 1/25/2025 3,418,107
204,204 2 Long Beach Federal Savings
Bank, Series 1992-3, Class
A, 9.60%, 6/15/2022 204,204
3,070,000 1 Mellon Residential Funding
Corp. 1998-TBC1, Class B1,
6.59258%, 10/25/2028 2,999,973
4,720,686 PNC Mortgage Securities Corp., Series 1999-5 2A-1, Class
2A1, 6.75%,
7/25/2029 4,601,436
1,393,860 Prudential Home Mortgage
Securities, Series 1992-5,
Class A6, 7.50%, 4/25/2007 1,390,376
2,500,000 Prudential Home Mortgage
Securities, Inc., Series
1992-32, Class A6, 7.50%,
10/25/2022 0
2,000,000 Residential Accredit
Loans, Inc., Series 1997-
QS12, Class A6, 7.25%,
11/25/2027 2,000,520
1,272,234 Residential Asset
Securitization Trust,
Series 1997-A2, Class A3,
9.00%, 4/25/2027 1,277,603
7,500,000 Residential Asset
Securitization Trust,
Series 1997-A7, Class A5,
7.50%, 9/25/2027 7,514,700
2,500,000 1 Residential Funding
Mortgage Securities,
Series 1993-S18, Class AZ,
5/25/2023 0
1,332,273 1 Residential Funding
Mortgage Securities I
1994-S13, Class M1, 7.00%,
5/25/2024 1,280,674
3,000,000 1 Salomon Brothers Mortgage
Sec. VII 1999-3, Class M3,
8.3825%, 5/25/2029 2,945,640
4,000,000 Salomon Brothers Mortgage
Sec. VII 1999-NC2, Class
M3, 8.1625%, 4/25/2029 3,925,000
2,620,000 Salomon Brothers Mortgage
Sec. VII 1999-NC3, Class
M3, 8.50875%, 7/25/2029 2,557,775
10,422,564 Structured Asset
Securities Corp. 1999-
ALS2, Class A2, 6.75%,
7/25/2029 10,108,904
TOTAL 66,380,935
TOTAL MORTGAGE-BACKED
SECURITIES (IDENTIFIED
COST $71,938,864) 71,856,495
GOVERNMENT AGENCY
MORTGAGE-BACKED
SECURITIES-3.7%
2,000,000 FHLBS, Sr. Note, 5.80%,
9/2/2008 1,883,260
1,624,325 GNMA, Pool 354754, 7.50%,
2/15/2024 1,632,950
4,359,654 GNMA, Pool 780360, 11.00%,
9/15/2015 4,801,070
TOTAL GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES
(IDENTIFIED COST
$8,544,478) 8,317,280
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
U.S. TREASURY NOTES-4.2%
$ 1,000,000 Note, 5.50%, 5/15/2009 $ 959,620
500,000 Note, 5.625%, 5/15/2008 482,605
3,000,000 Note, 5.75%, 11/15/2000 3,003,510
4,000,000 Note, 5.875%, 9/30/2002 4,000,640
935,000 Note, 6.625%, 5/15/2007 960,058
TOTAL U.S. TREASURY NOTES
(IDENTIFIED COST
$9,597,343) 9,406,433
REPURCHASE AGREEMENTS-6.5% 4
14,585,000 ABN AMRO, Inc., 5.34%,
dated 10/29/1999, due
11/1/1999 (at amortized
cost) 14,585,000
TOTAL INVESTMENTS
(IDENTIFIED COST
$225,481,449) 5 $ 222,062,532
</TABLE>
1 Denotes variable rate and floating rate obligations for which the current rate
is shown.
2 Denotes a restricted security which is subject to restrictions on resale under
federal securities laws. At October 31, 1999, these securities amounted to
$16,978,672 which represents 7.6% of net assets. Included in these amounts,
securities which have been deemed liquid amounted to $13,100,297 which
represents 5.8% of net assets.
3 Denotes a restricted security that has been deemed liquid by criteria approved
by the fund's Board of Trustees.
4 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.
5 The cost of investments for federal tax purposes amounts to $225,481,449. The
net unrealized depreciation of investments on a federal tax basis amounts to
$3,418,917 which is comprised of $344,098 appreciation and $3,763,015
depreciation at October 31, 1999.
Note: The categories of investments are shown as a percentage of net assets
($223,106,323) at October 31, 1999.
The following acronym is used throughout this portfolio:
IO-Interest Only
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
OCTOBER 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in
securities, at value
(identified and tax cost
$225,481,449) $ 222,062,532
Income receivable 2,052,060
Receivable for investments
sold 118,827
Receivable for shares sold 1,698
TOTAL ASSETS 224,235,117
LIABILITIES:
Payable for shares
redeemed $ 38,704
Income distribution
payable 1,082,267
Accrued expenses 7,823
TOTAL LIABILITIES 1,128,794
Net assets for 26,084,113
shares outstanding $ 223,106,323
NET ASSETS CONSIST OF:
Paid in capital $ 250,925,733
Net unrealized
depreciation of
investments (3,418,917)
Accumulated net realized
loss on investments (24,121,492)
Distributions in excess of
net investment income (279,001)
TOTAL NET ASSETS $ 223,106,323
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PROCEEDS PER SHARE
INSTITUTIONAL SHARES:
$200,399,501 / 23,429,184
shares outstanding $8.55
INSTITUTIONAL SERVICE
SHARES:
$22,706,822 / 2,654,929
shares outstanding $8.55
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
SIX MONTHS ENDED OCTOBER 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 7,420,468
EXPENSES:
Investment advisory fee $ 451,185
Administrative personnel
and services fee 85,048
Custodian fees 8,898
Transfer and dividend
disbursing agent fees and
expenses 36,806
Directors'/Trustees' fees 3,811
Auditing fees 8,816
Legal fees 3,131
Portfolio accounting fees 36,535
Distribution services fee-
Institutional Service
Shares 30,365
Shareholder services fee-
Institutional Shares 251,625
Shareholder services fee-
Institutional Service
Shares 30,365
Share registration costs 19,990
Printing and postage 14,434
Insurance premiums 928
Miscellaneous 4,646
TOTAL EXPENSES 986,583
WAIVERS:
Waiver of investment
advisory fee $ (37,941)
Waiver of distribution
services fee-Institutional
Service Shares (29,150)
Waiver of shareholder
services fee-Institutional
Shares (251,625)
Waiver of shareholder
services fee-Institutional
Service Shares (1,215)
TOTAL WAIVERS (319,931)
Net expenses 666,652
Net investment income 6,753,816
REALIZED AND UNREALIZED
LOSS ON INVESTMENTS:
Net realized loss on
investments (43,355)
Net change in unrealized
depreciation of
investments (2,937,136)
Net realized and
unrealized loss on
investments (2,980,491)
Change in net assets
resulting from operations $ 3,773,325
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited) YEAR ENDED
OCTOBER 31, APRIL 30,
1999 1999
<S> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS:
Net investment income $ 6,753,816 $ 12,386,835
Net realized loss on
investments ($(43,355) and
$(159,370), respectively,
as computed for federal tax
purposes) (43,355) (473,737)
Net change in unrealized
depreciation (2,937,136) (1,277,233)
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS 3,773,325 10,635,865
DISTRIBUTIONS TO
SHAREHOLDERS:
Distributions from net
investment income
Institutional Shares (5,944,006) (11,460,278)
Institutional Service
Shares (709,750) (1,046,067)
CHANGE IN NET ASSETS
RESULTING FROM
DISTRIBUTIONS
TO SHAREHOLDERS (6,653,756) (12,506,345)
SHARE TRANSACTIONS:
Proceeds from sale of
shares 54,049,128 107,517,949
Net asset value of shares
issued to shareholders in
payment of
distributions declared 1,955,658 4,068,684
Cost of shares redeemed (43,573,929) (108,552,678)
CHANGE IN NET ASSETS
RESULTING FROM SHARE
TRANSACTIONS 12,430,857 3,033,955
Change in net assets 9,550,426 1,163,475
NET ASSETS:
Beginning of period 213,555,897 212,392,422
End of period (including
distributions in excess of
net investment income of
$279,001 and $376,061,
respectively) $ 223,106,323 $ 213,555,897
</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>
SIX MONTHS
ENDED
(unaudited)
OCTOBER 31, YEAR ENDED APRIL 30,
1999 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 8.67 $ 8.74 $ 8.68 $ 8.68 $ 8.61 $ 8.85
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income 0.26 0.52 0.52 0.54 0.57 0.54
Net realized and
unrealized gain (loss)
on investments (0.12) (0.07) 0.06 0.01 0.07 (0.24)
TOTAL FROM
INVESTMENT OPERATIONS 0.14 0.45 0.58 0.55 0.64 0.30
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.26) (0.52) (0.52) (0.54) (0.57) (0.54)
Distributions in excess of
net investment income 1 - - - (0.01) - -
TOTAL DISTRIBUTIONS (0.26) (0.52) (0.52) (0.55) (0.57) (0.54)
NET ASSET VALUE, END OF
PERIOD $ 8.55 $ 8.67 $ 8.74 $ 8.68 $ 8.68 $ 8.61
TOTAL RETURN 2 1.58% 5.25% 6.88% 6.53% 7.51% 3.55%
RATIOS TO AVERAGE NET
ASSETS
Expenses 3 0.84% 4 0.84% 0.84% 0.84% 0.85% 0.59%
Net investment income 3 5.74% 4 5.60% 5.68% 5.93% 6.14% 6.19%
Expenses (after waivers) 0.56% 4 0.56% 0.56% 0.56% 0.56% 0.56%
Net investment income
(after waivers) 6.02% 4 5.88% 5.96% 6.21% 6.43% 6.22%
SUPPLEMENTAL DATA
Net assets, end of period
(000 omitted) $200,399 $188,773 $197,610 $214,438 $216,675 $219,649
Portfolio turnover 53% 54% 49% 55% 77% 38%
</TABLE>
1 Distributions in excess of net investment income for the year ended April 30,
1997 was the result of certain book and tax timing differences. This
distribution did not represent a return of capital for federal income tax
purposes for the year ended April 30, 1997.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 During the period, certain fees were voluntarily waived. If such voluntary
waivers had not occurred, the ratios would have been as indicated.
4 Computed on an annualized basis.
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>
SIX MONTHS
ENDED
(unaudited)
OCTOBER 31, YEAR ENDED APRIL 30,
1999 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 8.67 $ 8.74 $ 8.68 $ 8.68 $ 8.61 $ 8.85
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.24 0.50 0.50 0.53 0.54 0.52
Net realized and
unrealized gain (loss)
on investments (0.12) (0.07) 0.06 - 0.07 (0.24)
TOTAL FROM INVESTMENT
OPERATIONS 0.12 0.43 0.56 0.53 0.61 0.28
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.24) (0.50) (0.50) (0.53) (0.54) (0.52)
NET ASSET VALUE, END OF
PERIOD $8.55 $ 8.67 $ 8.74 $ 8.68 $ 8.68 $ 8.61
TOTAL RETURN 1 1.46% 4.99% 6.61% 6.27% 7.25% 3.29%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 2 1.09% 3 1.09% 1.09% 1.09% 1.10% 1.08%
Net investment income 2 5.48% 3 5.35% 5.45% 5.68% 5.88% 5.63%
Expenses (after waivers) 0.81% 3 0.81% 0.81% 0.81% 0.81% 0.81%
Net investment income
(after waivers) 5.76% 3 5.63% 5.73% 5.96% 6.17% 5.90%
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $22,707 $24,783 $14,783 $17,586 $16,346 $17,091
Portfolio turnover 53% 54% 49% 55% 77% 38%
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 During the period, certain fees were voluntarily waived. If such voluntary
waivers had not occurred, the ratios would have been as indicated.
3 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
OCTOBER 31, 1999 (UNAUDITED)
ORGANIZATION
Federated Income Securities Trust (the "Trust") is registered under the
Investment Company Act of 1940, as amended (the "Act") as an open-end,
management investment company. The Trust consists of two portfolios. The
financial statements included herein are only those of Federated Short- Term
Income Fund (the "Fund"). The financial statements of the other 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 60 days or less at the time of purchase
may be valued at amortized cost, which approximates fair market value.
REPURCHASE AGREEMENTS
It is the policy of the Fund to require the custodian bank to take possession,
to have legally segregated in the Federal Reserve Book Entry System, or to have
segregated within the custodian bank's vault, all securities held as collateral
under repurchase agreement transactions. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of each
repurchase agreement's collateral to ensure that the value of collateral at
least equals the repurchase price to be paid under the repurchase agreement
transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the "Trustees").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less than
the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex-dividend
date.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary.
At April 30, 1999, 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:
<TABLE>
<CAPTION>
EXPIRATION YEAR EXPIRATION AMOUNT
<S> <C>
2000 $ 4,105,766
2002 669,532
2003 5,572,713
2004 10,784,773
2005 1,566,031
2006 696,886
2007 159,370
</TABLE>
Additionally, net capital losses of $523,066 attributable to security
transactions incurred after October 31, 1998, 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 October 31, 1999 is
as follows:
<TABLE>
<CAPTION>
ACQUISITION ACQUISITION
SECURITY DATE COST
<S> <C> <C>
Bayview Financial
Acquisition Trust, Series
1998-1, Class MI1 12/8/1998 $1,774,865
</TABLE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
OCTOBER 31, 1999 APRIL 30, 1999
INSTITUTIONAL SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 5,699,065 $ 48,965,667 9,621,324 $ 84,107,769
Shares issued to
shareholders in payment of
distributions declared 179,798 1,544,705 403,569 3,521,511
Shares redeemed (4,233,275) (36,326,608) (10,846,334) (94,780,480)
NET CHANGE RESULTING FROM
INSTITUTIONAL SHARE
TRANSACTIONS 1,645,588 $ 14,183,764 (821,441) $ (7,151,200)
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
OCTOBER 31, 1999 APRIL 30, 1999
INSTITUTIONAL SERVICE
SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 589,581 $ 5,083,461 2,684,133 $ 23,410,180
Shares issued to
shareholders in payment of
distributions declared 47,820 410,953 62,720 547,173
Shares redeemed (842,452) (7,247,321) (1,577,954) (13,772,198)
NET CHANGE RESULTING
FROM INSTITUTIONAL SERVICE
SHARE TRANSACTIONS (205,051) $ (1,752,907) 1,168,899 $ 10,185,155
NET CHANGE RESULTING FROM
SHARE TRANSACTIONS (1,440,537) $ (12,430,857) 347,458 $ 3,033,955
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Investment Management Company, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
0.40% of the Fund's average daily net assets. The Adviser may voluntarily choose
to waive any portion of its fee. The Adviser can modify or terminate this
voluntary waiver at any time at its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors, Inc. for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
DISTRIBUTION SERVICES FEE
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b- 1
under the Act. Under the terms of the Plan, the Fund will compensate Federated
Securities Corp. ("FSC"), the principal distributor, from the net assets of the
Fund to finance activities intended to result in the sale of the Fund's
Institutional Service Shares. The Plan provides that the Fund may incur
distribution expenses up to 0.25% of the average daily net assets of
Institutional Service Shares annually, to compensate FSC. The distributor may
voluntarily choose to waive any portion of its fee. The distributor can modify
or terminate this voluntary waiver at any time at its sole discretion.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services Company ("FSSC"), the Fund will pay FSSC up to 0.25% of average daily
net assets of the Fund shares for the period. The fee paid to FSSC is used to
finance certain services for shareholders and to maintain shareholder accounts.
FSSC may voluntarily choose to waive any portion of its fee. FSSC 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 FSSC, serves as transfer and dividend disbursing
agent for the Fund. The fee paid to FSSC is based on the size, type, and number
of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the six
months ended October 31, 1999, were as follows:
<TABLE>
<CAPTION>
<S> <C>
Purchases $ 189,950,641
Sales $ 112,995,545
</TABLE>
YEAR 2000
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
Trustees
JOHN F. DONAHUE
THOMAS G. BIGLEY
JOHN T. CONROY, JR.
NICHOLAS P. CONSTANTAKIS
JOHN F. CUNNINGHAM
LAWRENCE D. ELLIS, M.D.
PETER E. MADDEN
JOHN E. MURRAY, JR., J.D., S.J.D.
MARJORIE P. SMUTS
officers
JOHN F. DONAHUE
Chairman
GLEN R. JOHNSON
President
WILLIAM D. DAWSON III
Chief Investment Officer
J. CHRISTOPHER DONAHUE
Executive Vice President
EDWARD C. GONZALES
Executive Vice President
JOHN W. MCGONIGLE
Executive Vice President and Secretary
RICHARD B. FISHER
Vice President
JOSEPH M. BALESTRINO
Vice President
RANDALL S. BAUER
Vice President
RICHARD J. THOMAS
Treasurer
C. GRANT ANDERSON
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 the 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.
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Federated
World-Class Investment Manager
SEMI-ANNUAL REPORT
Federated Short-Term Income Fund
SEMI-ANNUAL REPORT TO SHAREHOLDERS
OCTOBER 31, 1999
[Graphic]
Federated
Federated Short-Term Income Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Cusip 31420C209
Cusip 31420C308
8112901 (12/99)
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