ANNUAL REPORT
President's Message
Dear Shareholder:
I am pleased to present the Annual Report for Federated Intermediate Income
Fund, which covers the 12-month period from May 1, 1998, through April 30, 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.
During the reporting period, the fund's Institutional Shares delivered a total
return of 5.03% 1 through dividend income totaling $0.60 per share while
Institutional Service Shares delivered a total return of 4.77%1 through dividend
income totaling $0.58 per share. The fund's net asset value declined slightly
from $10.17 to $10.07 over the period for both share classes. Net assets totaled
$233 million at the end of the reporting period.
Thank you for participating in the income potential of high-quality bonds
through Federated Intermediate Income Fund.
As always, we welcome your comments, questions and suggestions.
Sincerely,
[Graphic]
Glen R. Johnson
President
June 15, 1999
1 Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
Investment Review
Federated Intermediate Income Fund invests primarily in high quality corporate
debt securities rated in one of the four highest categories 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 fiscal year period ended April 30, 1999, experienced massive swings in both
economic activity and the resulting direction of interest rates. The initial
six-month reporting period ended October 31, 1998 was very positive for most
fixed income investors, particularly those in the highest quality debt sectors,
as interest rate levels declined significantly for all points along the U.S.
Treasury maturity spectrum. The decrease was caused by two predominant reasons:
1) a slower growth economic environment; and 2) dramatic economic/financial
marketplace volatility in non-U.S. markets. In the summer of 1998, the global
financial marketplace became far more unstable. Problems emanating out of Asia
quickly spread to Russia and Latin America by the third quarter of 1998. The
result was a worldwide "flight to quality" into U.S. Treasury securities, which
had outperformed most investments worldwide.
In response to worldwide turmoil, the Federal Reserve Board (the "Fed") reversed
monetary policy and began decreasing the fed funds rate, creating a further
rally in high quality bonds. The star performers were U.S. Treasury securities,
perceived to be the highest quality investment worldwide. All other investment
grade sectors (corporate, mortgages, asset-backs) produced positive rates of
return, but fell short of U.S. Treasury securities.
During the latter half of the fiscal year, the high quality fixed income
environment demonstrated a complete reversal of the 1998 summer period. Over the
past six months, however, confidence in global financial markets was largely
restored, due in no small part to over 100 instances of interest rate reductions
by central banks around the world. With increased liquidity and confidence came
significant rebounds into those asset classes that had fallen sharply in value
over the summer of 1998, namely global equity markets, emerging debt markets and
domestic high yield securities. Given the rebound in the higher risk asset
classes, the high quality bond markets lost their position as a "safety net" and
domestic interest rates rose across the entire maturity spectrum. Thus, the past
six months was a time of a negative total return for most high quality bond
sectors such as; treasuries, agencies and high quality corporates.
Taken as a whole, interest rates ended the fiscal year at slightly lower levels
and higher quality bond sectors modestly outperformed medium to lower quality
securities. The fund did not meaningfully change its duration target over the
past year, using 5.0 years as the approximate centering point. At fiscal
year-end, the investment grade corporate sector represented the highest
concentration at just over 63% of total assets. No significant changes are
anticipated over the near term as the domestic economy continues to exhibit
characteristics of both expansion (i.e., retail sales) and weakness (i.e., low
capacity utilization).
GROWTH OF $25,000 INVESTED IN FEDERATED INTERMEDIATE INCOME
FUND-INSTITUTIONAL SHARES
The graphic presentation displayed here consists of a line graph. The
corresponding components of the line graph are listed in the upper left hand
corner. The Federated Intermediate Income Fund, (Institutional Shares) (the
"Fund") is represented by a solid line. The Lehman Brothers Government/Corporate
Total Index ("LBGCTI") is represented by a dotted line and the Lipper
Intermediate-Term Investment Grade Debt Funds Average ("LIIGDFA") is represented
by dashed line. The line graph is a visual representation of a comparison of
change in value of a $25,000 hypothetical investment in the Fund, the LBGCTI,
and the LIIGDFA. The "x" axis reflects computation periods from 12/20/93 to
4/30/99. The "y" axis reflects the cost of the investment, beginning with
$20,000 and going up to $40,000, in increments of $5,000. The right margin
reflects the ending value of the hypothetical investment in the Fund as compared
to the LBGCTI and the LIIGDFA. The ending values were $35,553, $35,228, and
$33,919, respectively.
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD ENDED APRIL 30, 1999 1 Year 5.03% 5
Years 7.84% Start of Performance (12/20/93) 6.79%
The graph above illustrates the hypothetical investment of $25,000 1 in the
Federated Intermediate Income Fund (Institutional Shares) (the "Fund") from
December 20, 1993 (start of performance) to April 30, 1999, compared to the
Lehman Brothers Government/Corporate Total Index (LBGCTI)2 and the Lipper
Intermediate-Term Investment Grade Debt Funds Average (LIIGDFA).3
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE, SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF
OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
1 Represents a hypothetical investment of $25,000 in the Fund. The Fund's
performance assumes the reinvestment of all dividends and distributions. The
LBGCTI and the LIIGDFA have been adjusted to reflect reinvestment of dividends
on securities in the index and average.
2 The LBGCTI is not adjusted to reflect sales charges, expenses, or other fees
that the Securities and Exchange Commission (SEC) requires to be reflected in
the Fund's performance. The index is unmanaged.
3 The LIIGDFA represents the average of the total returns reported by all of the
mutual funds designated by Lipper Analytical Services, Inc. as falling in the
respective category, and is not adjusted to reflect any sales charges. However,
these total returns are reported net of expenses or other fees that the SEC
requires to be reflected in a fund's performance.
GROWTH OF $25,000 INVESTED IN FEDERATED INTERMEDIATE INCOME
FUND-INSTITUTIONAL SERVICE SHARES
The graphic presentation displayed here consists of a line graph. The
corresponding components of the line graph are listed in the upper left hand
corner. The Federated Intermediate Income Fund, (Institutional Service Shares)
(the "Fund") is represented by a solid line. The Lehman Brothers
Government/Corporate Total Index ("LBGCTI") is represented by a dotted line and
the Lipper Intermediate-Term Investment Grade Debt Funds Average ("LIIGDFA") is
represented by dashed line. The line graph is a visual representation of a
comparison of change in value of a $25,000 hypothetical investment in the Fund,
the LBGCTI, and the LIIGDFA. The "x" axis reflects computation periods from
12/20/93 to 4/30/99. The "y" axis reflects the cost of the investment, beginning
with $20,000 and going up to $40,000, in increments of $5,000. The right margin
reflects the ending value of the hypothetical investment in the Fund as compared
to the LBGCTI and the LIIGDFA. The ending values were $35,085, $35,228, and
$33,919, respectively.
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD ENDED APRIL 30, 1999 1 Year 4.77% 5
Years 7.57% Start of Performance (12/20/93) 6.53%
The graph above illustrates the hypothetical investment of $25,000 1 in the
Federated Intermediate Income Fund (Institutional Service Shares) (the "Fund")
from December 20, 1993 (start of performance) to April 30, 1999, compared to the
Lehman Brothers Government/Corporate Total Index (LBGCTI)2 and the Lipper
Intermediate-Term Investment Grade Debt Funds Average
(LIIGDFA).3
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE, SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF
OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
1 Represents a hypothetical investment of $25,000 in the Fund. The Fund's
performance assumes the reinvestment of all dividends and distributions. The
LBGCTI and the LIIGDFA have been adjusted to reflect reinvestment of dividends
on securities in the index and average.
2 The LBGCTI is not adjusted to reflect sales charges, expenses, or other fees
that the Securities and Exchange Commission (SEC) requires to be reflected in
the Fund's performance. The index is unmanaged.
3 The LIIGDFA represents the average of the total returns reported by all of the
mutual funds designated by Lipper Analytical Services, Inc. as falling in the
respective category, and is not adjusted to reflect any sales charges. However,
these total returns are reported net of expenses or other fees that the SEC
requires to be reflected in a fund's performance.
Portfolio of Investments
APRIL 30, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
ASSET-BACKED SECURITIES-
3.2%
HOME EQUITY LOAN-0.8%
$ 2,000,000 New Century Home Equity
Loan Trust 1997-NC5, Class
M2, 7.24%, 10/25/2028 $ 1,904,380
STRUCTURED PRODUCT (ABS)-
1.5%
2,000,000 1 125 Home Loan Owner Trust
1998-1A, Class M2, 7.75%,
2/15/2029 1,814,380
771,380 Green Tree Home Equity Loan
Trust 1999-A, Class B2A,
7.44%, 2/15/2029 771,380
500,000 Residential Funding Corp.
1993-S26, Series 1993-S26,
Class A10, 7.50%,
7/25/2023 507,190
300,000 Residential Funding Corp.
1993-S31, Series 1993-S31,
Class A7, 7.00%, 9/25/2023 284,763
53,092 The Money Store Home Equity
Trust 1992-B, Class A,
6.90%, 7/15/2007 53,093
TOTAL 3,430,806
UTILITIES-0.9%
2,000,000 California Infrastructure
& Economic Development
Bank Special Purpose Trust
PG&E-1, Class A8, 6.48%,
12/26/2009 2,046,020
TOTAL ASSET-BACKED
SECURITIES (IDENTIFIED
COST $7,610,458) 7,381,206
COLLATERALIZED MORTGAGE
OBLIGATIONS-0.1%
STRUCTURED PRODUCT (ABS)-
0.1%
226,113 Prudential Bache CMO Trust
Series 8, Series 8, Class
F, 7.965%, 3/1/2019
(identified cost $252,526) 228,573
CORPORATE BONDS-59.3%
AEROSPACE & DEFENSE-1.0%
1,500,000 1 British Aerospace Finance,
Inc., 7.50%, 7/1/2027 1,584,021
800,000 McDonnell Douglas Finance
Corp., MTN, 6.375%,
7/15/1999 802,176
TOTAL 2,386,197
AIR TRANSPORTATION-0.2%
425,000 Southwest Airlines Co.,
Deb., 7.375%, 3/1/2027 437,856
AUTOMOBILE-1.7%
750,000 Dana Corp., Note, 6.25%,
3/1/2004 750,967
2,000,000 Dana Corp., Note, 7.00%,
3/15/2028 1,929,960
1,400,000 Hertz Corp., Sr. Note,
7.00%, 1/15/2028 1,364,104
TOTAL 4,045,031
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS-continued
BANKING-10.4%
$ 1,250,000 ABN-AMRO Bank NV, Chicago,
Sub. Deb., 7.30%,
12/1/2026 $ 1,199,125
40,000 Banc One Corp., Sub. Note,
7.25%, 8/1/2002 41,548
250,000 Banc One Corp., Sub. Note,
8.10%, 3/1/2002 264,315
2,000,000 Banco Santander SA, Bank
Guarantee, 7.875%,
4/15/2005 2,134,240
200,000 BankAmerica Corp., Sub.
Note, 7.75%, 7/15/2002 210,608
2,000,000 Barclays North America,
Deb., 9.75%, 5/15/2021 2,231,180
10,000 Boatmen's Bancshares,
Inc., Sub. Note, 9.25%,
11/1/2001 10,807
2,100,000 1 CIBC Capital Funding LP,
Bank Guarantee, 6.40%,
12/17/2004 2,101,029
30,000 Central Fidelity Banks,
Inc., Sub. Note, 8.15%,
11/15/2002 32,000
2,000,000 City National Bank, Sub.
Note, 6.375%, 1/15/2008 1,963,880
40,000 Corestates Capital Corp.,
Sub. Note, 5.875%,
10/15/2003 39,868
1,000,000 1 Den Danske Bank Group,
Note, 7.40%, 6/15/2010 1,036,270
500,000 1 Den Danske Bank Group, Sub.
Note, 7.25%, 6/15/2005 521,305
30,000 First Union Corp., Sub.
Note, 8.00%, 11/15/2002 31,927
2,300,000 Merita Bank PLC, Sub. Note,
6.50%, 4/1/2009 2,276,965
2,000,000 National Australia Bank,
Ltd., Melbourne, Sub.
Note, Series B, 6.60%,
12/10/2007 2,013,320
3,000,000 National Bank of Canada,
Montreal, Sub. Note,
8.125%, 8/15/2004 3,159,660
15,000 NationsBank Corp., Sub.
Note, 7.625%, 4/15/2005 16,091
430,000 PNC Funding Corp., Sub.
Note, 6.875%, 7/15/2007 441,550
2,750,000 Republic New York Corp.,
Sub. Note, 7.75%,
5/15/2009 2,991,615
30,000 Republic New York Corp.,
Sub. Note, 8.25%,
11/1/2001 31,699
10,000 Sovran Financial, Deb.,
9.75%, 6/15/1999 10,056
200,000 SunTrust Bank, Central
Florida, Sub. Note, 6.90%,
7/1/2007 207,460
255,000 SunTrust Banks, Inc.,
Note, 7.375%, 7/1/2002 265,664
15,000 SunTrust Banks, Inc., Sub.
Note, 6.125%, 2/15/2004 15,100
1,000,000 1 Swedbank, Sub., 7.50%,
11/29/2049 994,297
TOTAL 24,241,579
CHEMICALS & PLASTICS-0.7%
1,500,000 1 Bayer Corp., Deb., 6.50%,
10/1/2002 1,536,270
40,000 Du Pont (E.I.) de Nemours &
Co., Note, 8.125%,
3/15/2004 43,622
30,000 PPG Industries, Inc.,
Note, 6.50%, 11/1/2007 30,201
TOTAL 1,610,093
ECOLOGICAL SERVICES &
EQUIPMENT-0.9%
2,000,000 WMX Technologies, Inc.,
Deb., 8.75%, 5/1/2018 2,195,600
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS-continued
EDUCATION-2.0%
$ 2,075,000 Boston University, 7.625%,
7/15/2097 $ 2,174,289
1,150,000 Columbia University, MTN,
8.62%, 2/21/2001 1,212,226
1,100,000 Harvard University,
Revenue Bonds, 8.125%
Bonds, 4/15/2007 1,235,795
TOTAL 4,622,310
ELECTRONICS-2.1%
225,000 General Electric Cap
Corp., Sr. Note,
12/15/2007 227,705
1,500,000 General Electric Financial
Services, Inc., MTN,
9.18%, 12/30/2008 1,816,125
2,590,000 Harris Corp., Deb.,
10.375%, 12/1/2018 2,736,309
15,000 Rockwell International
Corp., Unsecd. Note,
6.625%, 6/1/2005 15,384
TOTAL 4,795,523
FINANCE - AUTOMOTIVE-3.8%
1,750,000 Chrysler Financial Corp.,
Deb., 13.25%, 10/15/1999 1,819,685
2,000,000 Ford Capital BV, Note,
9.375%, 5/15/2001 2,136,120
35,000 Ford Motor Credit Corp.,
Note, 7.75%, 3/15/2005 37,638
20,000 Ford Motor Credit Corp.,
Unsecd. Note, 7.75%,
10/1/1999 20,212
1,000,000 Ford Motor Credit Corp.,
Unsub., 6.875%, 6/5/2001 1,011,557
485,000 General Motors Acceptance
Corp., MTN, 7.50%,
5/25/2000 494,802
45,000 General Motors Acceptance
Corp., Note, 6.25%,
1/11/2000 45,266
155,000 General Motors Acceptance
Corp., Note, 7.00%,
9/15/2002 160,084
1,175,000 General Motors Acceptance
Corp., Sr. Note, 6.75%,
2/7/2002 1,201,332
2,000,000 Meritor Automotive, Inc.,
Note, 6.80%, 2/15/2009 1,982,954
TOTAL 8,909,650
FINANCE - RETAIL-0.2%
50,000 Commercial Credit Co.,
Note, 5.55%, 2/15/2001 49,879
15,000 Commercial Credit Co.,
Note, 6.70%, 8/1/1999 15,065
395,000 Sears Roebuck Acceptance
Corp., MTN, 6.56%,
9/5/2000 399,523
TOTAL 464,467
FINANCIAL INTERMEDIARIES-
4.6%
2,000,000 Amvescap PLC, Sr. Note,
6.60%, 5/15/2005 1,972,580
40,000 CIT Group, Inc., Sr. Note,
6.375%, 5/21/1999 40,044
1,500,000 Donaldson, Lufkin and
Jenrette Securities Corp.,
Note, 6.875%, 11/1/2005 1,531,830
1,000,000 Donaldson, Lufkin and
Jenrette Securities Corp.,
Sr. Note, 5.875%, 4/1/2002 997,250
12,000 Equitable Cos., Inc., Sr.
Note, 6.75%, 12/1/2000 12,152
625,000 Lehman Brothers Holdings,
Inc., Note, 6.90%,
1/29/2001 632,137
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS-continued
FINANCIAL INTERMEDIARIES-
CONTINUED
$ 2,000,000 Lehman Brothers, Inc., Sr.
Sub. Note, 7.375%,
1/15/2007 $ 2,050,360
500,000 Merrill Lynch & Co., Inc.,
Note, 6.875%, 3/1/2003 515,485
15,000 Merrill Lynch & Co., Inc.,
Note, 7.375%, 5/15/2006 15,796
100,000 Merrill Lynch & Co., Inc.,
Note, 8.30%, 11/1/2002 107,490
65,000 Merrill Lynch & Co., Inc.,
Note, 8.375%, 2/9/2000 66,414
750,000 Merrill Lynch & Co., Inc.,
Sr. Unsub., 6.00%,
2/17/2009 724,252
920,000 Morgan Stanley Group,
Inc., Deb., 9.375%,
6/15/2001 985,449
5,000 Salomon, Inc., Note,
6.375%, 10/1/2004 5,021
10,000 Salomon, Inc., Note,
6.625%, 11/15/2003 10,201
30,000 Norwest Corp., Note,
5.75%, 2/1/2003 29,927
963,375 1 World Financial, Pass Thru
Cert., Series 96 WFP-B,
6.91%, 9/1/2013 968,620
TOTAL 10,665,008
FINANCIAL SERVICES-1.5%
250,000 American Express Credit
Corp., Deb., 8.50%,
6/15/1999 251,057
20,000 Associates Corp. of North
America, Sr. Note, 6.00%,
6/15/2000 20,111
2,000,000 Associates Corp. of North
America, Sr. Note, 6.68%,
9/17/1999 2,011,500
35,000 Associates Corp. of North
America, Sr. Note, 6.75%,
10/15/1999 35,248
50,000 Avco Financial Services,
Inc., Sr. Note, 8.50%,
10/15/1999 50,760
30,000 Deere (John) Capital
Corp., Sr. Note, 6.50%,
9/20/1999 30,171
15,000 Deere (John) Capital
Corp., Sr. Note, 7.52%,
3/6/2000 15,223
10,000 Paccar Financial Corp.,
Sr. Note, 6.18%, 2/15/2001 10,081
1,000,000 Simon Property Group,
Inc., Note, 7.125%,
2/9/2009 985,810
TOTAL 3,409,961
FOOD PRODUCTS-0.1%
5,000 Grand Metropolitan
Investment Corp., 9.00%,
8/15/2011 6,050
5,000 Grand Metropolitan
Investment Corp., Unsecd.
Note, 6.50%, 9/15/1999 5,022
300,000 General Foods Corp., Deb.,
6.00%, 6/15/2001 300,321
25,000 Union Camp Corp., Note,
6.50%, 11/15/2007 24,765
TOTAL 336,158
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS-continued
FOREST PRODUCTS-1.1%
$ 300,000 Fort James Corp., Sr. Note,
6.234%, 3/15/2001 $ 302,070
1,000,000 James River Corp. of
Virginia, Deb., 8.375%,
11/15/2001 1,050,404
1,000,000 Quno Corp., Sr. Note,
9.125%, 5/15/2005 1,066,509
25,000 Weyerhaeuser Co., Deb.,
9.05%, 2/1/2003 27,366
TOTAL 2,446,349
HEALTH SERVICES-0.4%
1,000,000 Aetna Services, Inc.,
Company Guarantee, 6.75%,
8/15/2001 1,014,500
INDUSTRIAL PRODUCTS &
EQUIPMENT-0.2%
10,000 Air Products & Chemicals,
Inc., Note, 7.375%,
5/1/2005 10,538
30,000 Dresser Industries, Inc.,
Note, 6.25%, 6/1/2000 30,290
300,000 Illinois Tool Works, Inc.,
Note, 5.875%, 3/1/2000 301,455
25,000 Ingersoll-Rand Co., Note,
6.51%, 12/1/2004 25,434
10,000 Ingersoll-Rand Co., Note,
6.60%, 8/1/2000 10,123
TOTAL 377,840
INSURANCE-6.8%
2,500,000 Allmerica Financial Corp.,
Sr. Note, 7.625%,
10/15/2025 2,587,900
2,000,000 CNA Financial Corp., Deb.,
7.25%, 11/15/2023 1,935,600
2,000,000 1 Equitable Life, Note,
7.70%, 12/1/2015 2,150,520
1,500,000 GEICO Corp., Deb., 9.15%,
9/15/2021 1,667,595
25,000 ITT Hartford Group, Inc.,
Note, 8.30%, 12/1/2001 26,480
15,000 Lincoln National Corp.,
Note, 7.625%, 7/15/2002 15,587
250,000 MBIA INS Corp., Deb.,
9.00%, 2/15/2001 263,333
900,000 Provident Cos., Inc.,
Bond, 7.405%, 3/15/2038 864,909
2,000,000 1 Reinsurance Group of
America, Sr. Note, 7.25%,
4/1/2006 2,092,392
1,500,000 SunAmerica, Inc., MTN,
7.34%, 8/30/2005 1,599,810
1,000,000 SunAmerica, Inc., Note,
Series 2, 6.20%,
10/31/1999 1,005,660
400,000 SunAmerica, Inc., Sr.
Note, 6.20%, 10/31/1999 401,936
1,250,000 1 Union Central Life
Insurance Co., Note,
8.20%, 11/1/2026 1,340,175
TOTAL 15,951,897
LEISURE & ENTERTAINMENT-
1.0%
40,000 Disney (Walt) Co., Bond,
6.375%, 3/30/2001 40,658
2,100,000 Paramount Communications,
Inc., Sr. Deb., 8.25%,
8/1/2022 2,212,434
TOTAL 2,253,092
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS-continued
MACHINERY & EQUIPMENT-0.7%
$ 1,600,000 Continental Airlines,
Inc., Pass Thru Cert.,
Series 1997-4 B, 6.90%,
1/2/2017 $ 1,607,856
METALS & MINING-1.4%
3,000,000 Barrick Gold Corp., Deb.,
7.50%, 5/1/2007 3,147,420
MUNICIPAL SERVICES-3.9%
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 1,248,400
1,325,000 Kansas City, MO Redevelopment Authority, 7.65% Bonds (FSA LOC),
11/1/2018 1,388,388
2,000,000 McKeesport, PA, Taxable GO
Series B 1997, 7.30% Bonds
(MBIA INS), 3/1/2020 2,017,820
1,000,000 Miami Florida Revenue
Pension Obligation, 7.20%
Bonds (AMBAC LOC),
12/1/2025 992,990
1,250,000 Minneapolis/St. Paul, MN
Airport Commission, UT GO
Taxable Revenue Bonds
(Series 9), 8.95% Bonds
(Minneapolis/St. Paul,
MN), 1/1/2022 1,372,800
1,000,000 Pittsburgh, PA Urban Redevelopment Authority, 9.07% Bonds (CGIC
GTD),
9/1/2014 1,134,330
1,000,000 St. Johns County, FL
Convention Center, Taxable
Municipal Revenue Bonds,
8.00% Bonds (FSA INS),
1/1/2026 1,041,730
TOTAL 9,196,458
OIL & GAS-2.0%
10,000 Atlantic Richfield Co.,
Deb., 9.125%, 3/1/2011 12,387
1,750,000 1 Baker Hughes, Inc., Sr.
Note, 6.25%, 1/15/2009 1,722,525
1,750,000 Phillips Petroleum Co.,
Deb., 9.18%, 9/15/2021 1,892,083
1,000,000 Sun Co., Inc., 9.00%,
11/1/2024 1,142,680
TOTAL 4,769,675
PHARMACEUTICAL-0.3%
500,000 American Home Products
Corp., Note, 7.70%,
2/15/2000 509,355
250,000 American Home Products
Corp., Note, 7.90%,
2/15/2005 272,253
TOTAL 781,608
RAIL INDUSTRY-0.4%
905,329 Atchison Topeka & SF RR,
Equip. Trust, 6.55%,
1/6/2013 900,404
REAL ESTATE-0.3%
900,000 Storage USA, Deb., 7.50%,
12/1/2027 807,849
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS-continued
RETAILERS-1.7%
$ 1,000,000 Dayton-Hudson Corp., Deb.,
10.00%, 12/1/2000 $ 1,066,360
15,000 Dillard Investment, Deb.,
9.25%, 2/1/2001 15,791
2,000,000 May Department Stores Co.,
Deb., 8.125%, 8/15/2035 2,161,680
500,000 Sears, Roebuck & Co., MTN,
7.32%, 4/24/2000 507,565
100,000 Wal-Mart Stores, Inc.,
Note, 9.10%, 7/15/2000 104,216
TOTAL 3,855,612
SOVEREIGN GOVERNMENT-2.0%
1,000,000 Quebec, Province of, Deb.,
9.125%, 8/22/2001 1,063,751
200,000 Quebec, Province of,
11.00%, 6/15/2015 219,756
1,000,000 Quebec, Province of, Deb.,
13.25%, 9/15/2014 1,073,430
1,000,000 Sweden, Government of,
Deb., 10.25%, 11/1/2015 1,291,400
1,000,000 Victoria Public Authority,
Local Gov't. Guarantee,
8.25%, 1/15/2002 1,066,922
TOTAL 4,715,259
SURFACE TRANSPORTATION-
1.4%
3,000,000 Trans Ocean Container
Corp., Sr. Sub. Note,
12.25%, 7/1/2004 3,227,880
TECHNOLOGY SERVICES-1.0%
35,000 Lucent Technologies, Inc.,
Note, 6.90%, 7/15/2001 35,973
2,200,000 Dell Computer Corp., Deb.,
7.10%, 4/15/2028 2,196,656
TOTAL 2,232,629
TELECOMMUNICATIONS &
CELLULAR-2.1%
1,850,000 BellSouth
Telecommunications, Inc.,
Note, 6.00%, 6/15/2002 1,866,095
2,250,000 Cox Communications, Inc.,
MTN, 6.69%, 9/20/2004 2,286,608
800,000 New England Telephone &
Telegraph, Deb., 8.625%,
8/1/2001 851,648
TOTAL 5,004,351
UTILITIES-3.4%
250,000 Central Illinois Public,
1st Mtg. Bond, 6.00%,
4/1/2000 251,545
250,000 Consolidated Edison Co.,
Deb., Series 92B, 7.625%,
3/1/2004 266,630
60,000 Duke Energy Corp., 1st Ref.
Mtg., 6.25%, 8/12/1999 60,224
1,250,000 Enersis S.A., Note, 7.40%,
12/1/2016 1,172,550
1,500,000 1 Israel Electric Corp.
Ltd., Sr. Note, 7.875%,
12/15/2026 1,428,240
400,000 1 Israel Electric Corp.
Ltd., Sr. Secd. Note,
7.75%, 3/1/2009 410,738
30,000 Michigan Consolidated Gas,
1st Mtg. Bond, 6.80%,
6/15/2003 31,204
300,000 Midwest Power Systems,
Inc., Mtg. Bond, 6.75%,
2/1/2000 302,163
180,000 Minnesota Power and Light
Co., 1st Mtg. Bond, 7.75%,
6/1/2007 191,815
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS-continued
UTILITIES-CONTINUED
$ 2,250,000 National Rural Utilities
Cooperative Finance Corp.,
MTN,
5.75%, 12/1/2008 $ 2,176,403
1,200,000 Puget Sound Energy, Inc.,
MTN, 7.02%, 12/1/2027 1,205,436
5,000 Sonat, Inc., Note, 6.875%,
6/1/2005 5,075
500,000 1 Tenaga Nasional Berhad,
Deb., 7.50%, 1/15/2096 401,030
TOTAL 7,903,053
TOTAL CORPORATE BONDS
(IDENTIFIED COST
$137,252,468) 138,313,165
GOVERNMENT AGENCIES-7.8%
GOVERNMENT AGENCY-7.8%
1,250,000 Federal Farm Credit
System, MTN, 5.93%,
8/7/2008 1,243,825
100,000 Federal Home Loan Bank
System, 6.00%, 6/30/2003 100,069
1,500,000 Federal Home Loan Bank
System, Note, Series HH07,
6.90%, 2/7/2007 1,586,595
2,500,000 Federal Home Loan Bank
System, Sr. Note, 5.80%,
9/2/2008 2,473,425
2,500,000 Federal Home Loan Mortgage
Corp., Deb., 8.05%,
4/5/2010 2,562,100
2,000,000 Federal Home Loan Mortgage
Corp., Deb., 8.29%,
9/30/2009 2,107,320
500,000 Federal National Mortgage
Association, 8.25%,
12/18/2000 522,785
150,000 Federal National Mortgage
Association, MTN, 6.25%,
12/13/2002 150,906
1,650,000 Federal National Mortgage
Association, MTN, 6.71%,
7/24/2001 1,697,784
5,105,000 Tennessee Valley
Authority, 8.625%,
11/15/2029 5,239,772
500,000 Tennessee Valley
Authority, 6.125%,
7/15/2003 500,100
TOTAL GOVERNMENT AGENCIES
(IDENTIFIED COST
$18,274,873) 18,184,681
PREFERRED STOCKS-1.0%
TECHNOLOGY SERVICES-0.9%
21,103 Microsoft Corp.,
Cumulative Conv. Pfd.,
Series A, $2.20 2,097,111
TELECOMMUNICATIONS &
CELLULAR-0.1%
6,100 AT&T Corp., Pfd. 159,363
TOTAL PREFERRED STOCKS
(IDENTIFIED COST
$2,026,461) 2,256,474
MUTUAL FUNDS-14.4%
3,381,412 Federated Mortgage Core
Portfolio (at net asset
value $33,804,618) 33,712,675
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
TREASURY SECURITIES-12.0%
U.S. TREASURY BONDS-5.6%
$ 1,910,000 Bond, 5.25%, 2/15/2029 $ 1,792,860
1,900,000 Bond, 6.125%, 11/15/2027 1,963,194
2,500,000 Bond, 6.375%, 8/15/2027 2,665,225
255,000 Bond, 7.125%, 2/15/2023 293,311
140,000 Bond, 7.875%, 2/15/2021 172,862
1,400,000 Bond, 8.50%, 2/15/2020 1,824,858
265,000 Bond, 9.875%, 11/15/2015 376,062
1,500,000 Bond, 10.75%, 8/15/2005 1,921,635
1,500,000 Bond, 11.625%, 11/15/2004 1,943,430
75,000 Bond, 12.00%, 8/15/2013 108,980
TOTAL 13,062,417
U.S. TREASURY NOTES-6.4%
2,000,000 Note, 4.75%, 2/15/2004 1,960,620
250,000 Note, 5.50%, 2/28/2003 252,243
250,000 Note, 5.625%, 12/31/2002 253,253
250,000 Note, 5.75%, 10/31/2000 252,533
5,000 Note, 5.75%, 8/15/2003 5,092
150,000 Note, 5.875%, 11/15/1999 150,867
250,000 Note, 5.875%, 11/30/2001 254,388
250,000 Note, 6.00%, 7/31/2002 255,805
250,000 Note, 6.125%, 9/30/2000 253,638
150,000 Note, 6.25%, 1/31/2002 154,137
3,000,000 Note, 6.25%, 2/15/2007 3,156,090
200,000 Note, 6.25%, 4/30/2001 204,340
50,000 Note, 6.375%, 7/15/1999 50,187
250,000 Note, 6.375%, 8/15/2002 258,608
250,000 Note, 6.375%, 9/30/2001 256,938
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
TREASURY SECURITIES-
continued
U.S. TREASURY NOTES-
CONTINUED
$ 1,860,000 Note, 6.50%, 8/15/2005 $ 1,971,377
200,000 Note, 6.875%, 3/31/2000 203,530
500,000 Note, 7.50%, 11/15/2001 526,635
3,240,000 Note, 7.75%, 11/30/1999 3,294,853
25,000 Note, 7.875%, 11/15/1999 25,409
1,000,000 Note, 7.875%, 11/15/2004 1,120,250
TOTAL 14,860,793
TOTAL TREASURY SECURITIES
(IDENTIFIED COST
$28,062,534) 27,923,210
REPURCHASE AGREEMENT-0.8% 2
1,775,000 ABN AMRO, Inc., 4.94%,
dated 4/30/1999, due
5/3/1999 (at amortized
cost) 1,775,000
TOTAL INVESTMENTS
(IDENTIFIED COST
$229,058,938) 3 $ 229,774,984
</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 directors. At April 30, 1999, these
securities amounted to $20,101,812 which represents 8.6% of net assets.
2 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.
3 The cost of investments for federal tax purposes amounts to $229,058,938. The
net unrealized appreciation/depreciation of investments on a federal tax basis
amounts to $716,046 which is comprised of $2,637,266 appreciation and $1,921,220
depreciation at April 30, 1999.
Note: The categories of investments are shown as a percentage of net assets
($233,028,680) at April 30, 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 MBIA -Municipal Bond Investors Assurance MTN -Medium Term Note UT
- -Unlimited Tax
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
APRIL 30, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in
securities, at value
(identified and tax cost
$229,058,938) $ 229,774,984
Income receivable 3,684,399
Receivable for investments
sold 761,147
Receivable for shares sold 608,378
TOTAL ASSETS 234,828,908
LIABILITIES:
Payable for investments
purchased $ 744,225
Payable for shares
redeemed 125,484
Income distribution
payable 871,251
Accrued expenses 59,268
TOTAL LIABILITIES 1,800,228
Net assets for 23,149,516
shares outstanding $ 233,028,680
NET ASSETS CONSIST OF:
Paid in capital $ 231,735,094
Net unrealized
appreciation of
investments 716,046
Accumulated net realized
gain on investments 548,291
Undistributed net
investment income 29,249
TOTAL NET ASSETS $ 233,028,680
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$219,824,297 / 21,837,776
shares outstanding $10.07
INSTITUTIONAL SERVICE
SHARES:
$13,204,383 / 1,311,740
shares outstanding $10.07
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
YEAR ENDED APRIL 30, 1999
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 442,457
Interest (net of dollar
roll expense of $16,692) 12,626,090
TOTAL INCOME 13,068,547
EXPENSES:
Investment advisory fee $ 1,017,158
Administrative personnel
and services fee 154,999
Custodian fees 17,035
Transfer and dividend
disbursing agent fees and
expenses 91,662
Directors'/Trustees' fees 5,209
Auditing fees 17,635
Legal fees 5,690
Portfolio accounting fees 88,225
Distribution services fee-
Institutional Service
Shares 22,093
Shareholder services fee-
Institutional Shares 486,487
Shareholder services fee-
Institutional Service
Shares 22,093
Share registration costs 46,118
Printing and postage 32,650
Insurance premiums 1,921
Miscellaneous 10,843
TOTAL EXPENSES 2,019,818
WAIVERS:
Waiver of investment
advisory fee $ (361,410)
Waiver of distribution
services fee-Institutional
Service Shares (7,953)
Waiver of shareholder
services fee-Institutional
Shares (486,487)
Waiver of shareholder
services fee-Institutional
Service Shares (14,139)
TOTAL WAIVERS (869,989)
Net expenses 1,149,829
Net investment income 11,918,718
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENT:
Net realized gain on
investments 553,848
Net change in unrealized
appreciation
(depreciation) of
investments (3,196,353)
Net realized and
unrealized gain (loss) on
investments (2,642,505)
Change in net assets
resulting from operations $ 9,276,213
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30 1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS:
Net investment income $ 11,918,718 $ 9,264,881
Net realized gain on
investments ($548,291 and
$356,180, respectively,
as computed for federal tax
purposes) 553,848 468,050
Net change in unrealized
appreciation/depreciation (3,196,353) 4,611,356
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS 9,276,213 14,344,287
DISTRIBUTIONS TO
SHAREHOLDERS:
Distributions from net
investment income
Institutional Shares (11,439,982) (9,121,587)
Institutional Service
Shares (499,158) (111,464)
Distributions from net
realized gains
Institutional Shares (83,351) -
Institutional Service
Shares (4,200) -
CHANGE IN NET ASSETS
RESULTING FROM
DISTRIBUTIONS
TO SHAREHOLDERS (12,026,691) (9,233,051)
SHARE TRANSACTIONS:
Proceeds from sale of
shares 119,291,368 87,933,934
Net asset value of shares
issued to shareholders in
payment of
distributions declared 3,073,325 1,772,639
Cost of shares redeemed (67,819,828) (35,680,483)
CHANGE IN NET ASSETS
RESULTING FROM SHARE
TRANSACTIONS 54,544,865 54,026,090
Change in net assets 51,794,387 59,137,326
NET ASSETS:
Beginning of period 181,234,293 122,096,967
End of period (including
undistributed net
investment income of $29,249
and $43,916, respectively) $ 233,028,680 $ 181,234,293
</TABLE>
See Notes which are an integral part of the Financial Statements
Financial Highlights-Institutional Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.17 $ 9.79 $ 9.77 $ 9.55 $ 9.53
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.60 0.63 0.63 0.66 0.66
Net realized and unrealized gain (loss)
on investments. (0.10) 0.38 0.03 0.22 0.02
TOTAL FROM INVESTMENT OPERATIONS 0.50 1.01 0.66 0.88 0.68
LESS DISTRIBUTIONS:
Distributions from net investment income (0.60) (0.63) (0.63) (0.66) (0.66)
Distributions from net realized gain on investments 0.00 1 - (0.01) - -
TOTAL DISTRIBUTIONS (0.60) (0.63) (0.64) (0.66) (0.66)
NET ASSET VALUE, END OF PERIOD $10.07 $10.17 $ 9.79 $ 9.77 $ 9.55
TOTAL RETURN 2 5.03% 10.58% 7.00% 9.13% 7.53%
RATIOS TO AVERAGE NET ASSETS:
Expenses 3 0.98% 1.02% 1.12% 1.40% 1.70%
Net investment income 3 5.44% 5.83% 5.91% 5.67% 5.90%
Expenses (after waivers) 0.55% 0.55% 0.55% 0.55% 0.48%
Net investment income (after waivers) 5.87% 6.30% 6.48% 6.52% 7.12%
SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $219,824 $176,712 $121,307 $87,493 $32,508
Portfolio turnover 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.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Institutional Service Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $10.17 $ 9.79 $ 9.76 $ 9.55 $ 9.53
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.58 0.61 0.61 0.63 0.64
Net realized and
unrealized gain (loss) on
investments (0.10) 0.38 0.04 0.21 0.02
TOTAL FROM INVESTMENT
OPERATIONS 0.48 0.99 0.65 0.84 0.66
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.58) (0.61) (0.61) (0.63) (0.64)
Distributions from net
realized gain on
investments 0.00 1 - (0.01) - -
TOTAL DISTRIBUTIONS (0.58) (0.61) (0.62) (0.63) (0.64)
NET ASSET VALUE, END OF
PERIOD $10.07 $10.17 $ 9.79 $ 9.76 $ 9.55
TOTAL RETURN 2 4.77% 10.31% 6.73% 8.86% 7.27%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 3 1.23% 1.27% 1.37% 1.65% 1.94%
Net investment income 3 5.21% 5.56% 5.64% 5.46% 5.63%
Expenses (after waivers) 0.80% 0.80% 0.80% 0.80% 0.72%
Net investment income
(after waivers) 5.64% 6.03% 6.21% 6.31% 6.85%
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $13,204 $4,522 $790 $508 $276
Portfolio turnover 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.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
APRIL 30, 1999
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 portfolio is 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"). Distributions to shareholders are recorded on the ex-dividend
date.
Income and capital gain distributions are determined in accordance with income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to market discount. The following
reclassifications have been made to the financial statements.
INCREASE (DECREASE)
UNDISTRIBUTED
ACCUMULATED NET INVESTMENT
NET REALIZED GAINS INCOME
$5,755 ($5,755)
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when- issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
RESTRICTED SECURITIES
Restricted securities are securities that may only be resold upon registration
under federal securities laws or in transactions exempt from such registration.
In some cases, the issuer of restricted securities has agreed to register such
securities for resale, at the issuer's expense either upon demand by the Fund or
in connection with another registered offering of the securities. Many
restricted securities may be resold in the secondary market in transactions
exempt from registration. Such restricted securities may be determined to be
liquid under criteria established by the Trustees. The Fund will not incur any
registration costs upon such resales. The Fund's restricted securities are
valued at the price provided by dealers in the secondary market or, if no market
prices are available, at the fair value as determined by the Fund's pricing
committee.
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 amount of assets, liabilities, expenses, and revenues reported in the
financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30 1999 1998
INSTITUTIONAL SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 10,386,832 $ 106,338,141 8,315,206 $ 83,824,071
Shares issued to shareholders in payment of
distributions declared 261,456 2,678,552 167,124 1,687,992
Shares redeemed (6,189,112) (63,408,065) (3,490,041) (35,185,913)
NET CHANGE FROM INSTITUTIONAL
SHARE TRANSACTIONS 4,459,176 $ 45,608,628 4,992,289 $ 50,326,150
<CAPTION>
YEAR ENDED APRIL 30 1999 1998
INSTITUTIONAL SERVICE SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 1,259,281 $ 12,953,227 404,462 $ 4,109,863
Shares issued to shareholders in payment of
distributions declared 38,583 394,773 8,355 84,647
Shares redeemed (430,825) (4,411,763) (48,804) (494,570)
NET CHANGE FROM INSTITUTIONAL SERVICE
SHARE TRANSACTIONS 867,039 $ 8,936,237 364,013 $ 3,699,940
NET CHANGE RESULTING FROM
SHARE TRANSACTIONS 5,326,215 $ 54,544,865 5,356,302 $ 54,026,090
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Management, the Fund's investment adviser, receives for its services
an annual investment advisory fee equal to 0.50% of the Fund's average daily net
assets. The Adviser may voluntarily choose to waive any portion of its fee. The
Adviser can modify or terminate this voluntary waiver at any time at its sole
discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors, Inc. for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
DISTRIBUTION SERVICES FEE
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b- 1
under the Act. Under the terms of the Plan, the Fund will compensate Federated
Securities Corp. ("FSC"), the principal distributor, from the net assets of the
Fund to finance activities intended to result in the sale of the Fund's
Institutional Service Shares. The Plan provides that the Fund may incur
distribution expenses up to 0.25% of average daily net assets of the
Institutional Service Shares, annually, to compensate FSC. The distributor may
voluntarily choose to waive any portion of its fee. The distributor can modify
or terminate this voluntary waiver at any time at its sole discretion.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services Company ("FSSC"), the Fund will pay FSSC up to 0.25% of average daily
net assets of the Fund 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 April 30, 1999, were as follows:
Purchases $ 142,748,827
Sales $ 79,693,827
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and 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.
Report of Ernst & Young LLP, Independent Auditors
TO THE TRUSTEES AND SHAREHOLDERS OF
FEDERATED INTERMEDIATE INCOME FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Federated Intermediate Income Fund (one of the
portfolios constituting Federated Income Securities Trust) as of April 30, 1999,
and the related statement of operations for the year then ended, the statement
of changes in net assets for each of the two years in the period then ended, and
financial highlights for each of the five years in the period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of April
30, 1999, by correspondence with the custodian and brokers, or other appropriate
auditing procedures where replies from brokers were not received. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Federated Intermediate Income Fund, a portfolio of Federated Income Securities
Trust, at April 30, 1999, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
then ended, in conformity with generally accepted accounting principles.
[Graphic]
Ernst & Young LLP
Boston, Massachusetts
June 21, 1999
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
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
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
ANNUAL REPORT
Federated Intermediate Income Fund
ANNUAL REPORT
TO SHAREHOLDERS
APRIL 30, 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
G00715-02 (6/99)
[Graphic]
ANNUAL REPORT
President's Message
Dear Investor:
I am pleased to present the Annual Report to Shareholders for Federated
Short-Term Income Fund, a portfolio of Federated Income Securities Trust. The
Report covers the 12-month period from May 1, 1998 through April 30, 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 investors, the fund pursues income through a diversified portfolio
consisting primarily of short-term, high-quality debt securities. At the end of
the reporting period, the fund's portfolio was invested primarily in corporate
bonds/asset-backed securities (60.1%), followed by non-government agency
mortgage-backed securities (29.7%), a repurchase agreement (6.0%), government
agency mortgage-backed securities (4.5%) and U.S. Treasury notes (3.1%).
During the 12-month reporting period, Institutional Shares produced a total
return of 5.25% 1 through dividends totaling $0.52 per share. Institutional
Service Shares produced a total return of 4.99%1 through dividends totaling
$0.50 per share.1 Total net assets in the fund reached $213.6 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
June 15, 1999
1 Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
Investment Review
Federated Short Term Income Fund represents a high-quality, fixed income
portfolio combining various fixed income asset classes. Investments are
concentrated in U.S. Treasury, government agency, and high-quality corporate
debt securities. The investment objective of the fund is to seek to provide
current income. To the extent consistent with this objective, the fund will
strive to minimize fluctuation in principal value through a portfolio with an
effective average life of no greater than three years, but generally having an
effective modified duration of no greater than two years.
The reporting period under review was characterized by three distinctly
different intervals. The first, which lasted until the end of July 1998, was a
"steady-as-she-goes" period where the fund performed in line with historical
precedent; in other words, as expected. The second period, which ran essentially
from August through November 1998, was characterized by extreme volatility
triggered by global economic and credit concerns. This period featured
unprecedented spread widening in all sectors, even off- the-run treasury
securities. The third period, which comprised the remainder of the fiscal year,
might be characterized as the "recovery period." During this latter period, a
battle of countervailing forces ensued. On one hand, credit spreads began to
recover from levels which had brought some of the world's most savvy investors
to their knees. This recovery of spread product however, was more than offset by
a significant increase in Treasury yields, especially in shorter maturity
securities. For example, from a low of 3.82% on October 15, 1998, the yield on
the 2- Year U.S. Treasury note steadily climbed until it reached 5.35% on May
18, 1999, an increase of 150 basis points. By mid-spring 1999, the bond market
was telling investors that not only was the global economy not coming to a
standstill, there was in fact quite a bit of steam left, particularly in the
U.S. At this writing the U.S. Federal Reserve Board (the "Fed") has moved to a
bias toward increasing short-term interest rates, though the last time it
maintained such a bias (from 1996 into 1998), there was no actual rate increase.
The net effect of this volatility was a relatively difficult year for the fund,
which returned 5.25% 1 for Institutional Shares and 4.99%1 for Institutional
Service Shares, compared to a 5.93% total return for the Merrill Lynch 1-3 Year
Treasury Index2 and a 6.57% total return for the Merrill Lynch 1-3 Year
Corporate Index.3 The fund's significant allocation to mortgage-backed and
asset-backed securities, which performed poorly relative to corporate bonds,
hindered comparisons to a "corporates-only" benchmark. Moreover, the fund's
shorter average duration relative to the two benchmarks also affected relative
performance as market yields fell during the reporting period under review.
1 Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
2 The Merrill Lynch 1-3 Year Treasury Index is an unmanaged index tracking
short-term U.S. government securities between 1 and 2.99 years. The index is
produced by Merrill Lynch, Pierce, Fenner & Smith, Inc. Investments cannot be
made in an index.
3 The Merrill Lynch 1-3 Year Corporate Index is an unmanaged index trading
short-term, domestic investment-grade corporate bonds with maturities between 1
and 2.99 years. The index is produced by Merrill Lynch, Pierce, Fenner & Smith,
Inc. Investments cannot be made in an index.
Once the smoke began to clear from the "credit carnage" of the late summer and
early fall, spread product slowly began to find new levels versus Treasuries.
Not all of the widening has yet been retraced, nor is it likely to be,
especially in the case of names and sectors perceived to be of lesser quality.
In general, one sees a more significant degree of
"credit tiering" than existed prior to the 1998 dislocation. There has also
been differentiation across individual sectors. For example, within the
corporate universe, financials have fared better than cyclicals until very
recently, while across broad market sectors, corporate bonds have generally
fared better than asset-backed securities (ABS). Within the asset-backed
universe, triple-A rated securities have fared better than their non-triple-A
counterparts, while individual sectors such as equipment leases have fared much
better than, say, home equity loans (HELs). Even within the HEL sub-sector,
there is now much more differentiation between individual issuers of HEL-backed
ABS than there has been in the past. Finally, all of the above factors must now
be taken in the context of an economy that would appear to be late in the
economic cycle, yet which seems to show no inclination towards any significant
slowdown. In terms of asset allocation, the situation has led fund management to
adopt a middle-of-the-road portfolio with regard to credit, interest rate and
prepayment risk. There is slightly more credit risk in the portfolio today than
at the end of fiscal year 1998, mainly because of a prospectus change which
allowed triple-B rated securities to be held in the portfolio for the first
time. Nonetheless, the fund's average credit quality remains at a solid double-A
level. The consumer appears to be in good shape, which bodes well for securities
such as well-structured home equity and manufactured housing ABS, which have yet
to show any meaningful recovery spread-wise from 1998. In addition, while
economic activity remains rather robust, inflation remains relatively benign,
which means the Fed is likely to neither raise nor lower short-term interest
rates over the next several months despite the aforementioned movement to a
tightening bias. Such an environment would seem to be a positive for
mortgage-backed paper, especially of the credit sensitive variety. Finally,
corporate bonds should continue to provide a relatively safe haven. Caution
needs to be exercised in name selection, however, as those corporate entities
showing significant earnings slowdowns will no doubt be punished.
GROWTH OF $25,000 INVESTED IN FEDERATED SHORT-TERM INCOME FUND-
INSTITUTIONAL SHARES
The graphic presentation displayed here consists of a line graph. The
corresponding components of the line graph are listed in the upper left hand
corner. The Federated Short-Term Income Fund, (Institutional Shares) (the
"Fund") is represented by a solid line. The Merrill Lynch Total Return
Investment Grade Corporates Index ("MLTRIGCI") is represented by a dotted line
and the Lipper Short Investment Grade Debt Funds Average ("LSIGDFA") is
represented by dashed line. The line graph is a visual representation of a
comparison of change in value of a $25,000 hypothetical investment in the Fund,
the MLTRIGCI, and the LSIGDFA. The "x" axis reflects computation periods from
4/30/89 to 4/30/99. The "y" axis reflects the cost of the investment, beginning
with $20,000 and going up to $60,000, in increments of $10,000. The right margin
reflects the ending value of the hypothetical investment in the Fund as compared
to the MLTRIGCI and the LSIGDFA. The ending values were $45,716, $53,758, and
$47,723, respectively.
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD ENDED APRIL 30, 1999 1 Year 5.25% 5
Years 5.94% 10 Years 6.22% Start of Performance (7/1/86) 6.52%
The graph above illustrates the hypothetical investment of $25,000 1 in the
Federated Short-Term Income Fund (Institutional Shares) (the "Fund") from April
30, 1989 to April 30, 1999, compared to the Merrill Lynch Total Return
Investment Grade Corporates Index (Short-Term 1-2.99 Years) (MLTRIGCI)2 and the
Lipper Short Investment Grade Debt Funds Average
(LSIGDFA).3
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE, SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
1 Represents a hypothetical investment of $25,000 in the Fund. The Fund's
performance assumes the reinvestment of all dividends and distributions. The
MLTRIGCI and the LSIGDFA have been adjusted to reflect reinvestment of dividends
on securities in the index and average.
2 The MLTRIGCI is not adjusted to reflect sales charges, expenses, or other fees
that the Securities and Exchange Commission (SEC) requires to be reflected in
the Fund's performance. The index is unmanaged.
3 The LSIGDFA represents the average of the total returns reported by all of the
mutual funds designated by Lipper Analytical Services, Inc. as falling in the
respective category, and is not adjusted to reflect any sales charges. However,
these total returns are reported net of expenses or other fees that the SEC
requires to be reflected in a fund's performance.
GROWTH OF $25,000 INVESTED IN FEDERATED SHORT-TERM INCOME FUND-
INSTITUTIONAL SERVICE SHARES
The graphic presentation displayed here consists of a line graph. The
corresponding components of the line graph are listed in the upper left hand
corner. The Federated Short-Term Income Fund, (Institutional Service Shares)
(the "Fund") is represented by a solid line. The Merrill Lynch Total Return
Investment Grade Corporates Index ("MLTRIGCI") is represented by a dotted line
and the Lipper Short Investment Grade Debt Funds Average ("LSIGDFA") is
represented by dashed line. The line graph is a visual representation of a
comparison of change in value of a $25,000 hypothetical investment in the Fund,
the MLTRIGCI, and the LSIGDFA. The "x" axis reflects computation periods from
1/24/92 to 4/30/99. The "y" axis reflects the cost of the investment, beginning
with $22,000 and going up to $42,000, in increments of $5,000. The right margin
reflects the ending value of the hypothetical investment in the Fund as compared
to the MLTRIGCI and the LSIGDFA. The ending values were $36,501, $40,308, and
$36,980, respectively.
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD ENDED APRIL 30, 1999 1 Year 4.99% 5
Years 5.67% Start of Performance (1/24/92) 5.35%
The graph above illustrates the hypothetical investment of $25,000 1 in the
Federated Short-Term Income Fund (Institutional Service Shares) (the
"Fund") from January 24, 1992 (start of performance) to April 30, 1999, compared
to the Merrill Lynch Total Return Investment Grade Corporates Index (Short-Term
1-2.99 Years) (MLTRIGCI)2 and the Lipper Short Investment Grade Debt Funds
Average (LSIGDFA).3
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE, SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
1 Represents a hypothetical investment of $25,000 in the Fund. The Fund's
performance assumes the reinvestment of all dividends and distributions. The
MLTRIGCI and the LSIGDFA have been adjusted to reflect reinvestment of dividends
on securities in the indices and averages.
2 The MLTRIGCI is not adjusted to reflect sales charges, expenses, or other fees
that the Securities and Exchange Commission (SEC) requires to be reflected in
the Fund's performance. The index is unmanaged.
3 The LSIGDFA represents the average of the total returns reported by all of the
mutual funds designated by Lipper Analytical Services, Inc. as falling in the
respective category, and is not adjusted to reflect any sales charges. However,
these total returns are reported net of expenses or other fees that the SEC
requires to be reflected in a fund's performance.
Portfolio of Investments
APRIL 30, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS/ASSET-
BACKED SECURITIES-60.1%
AUTOMOBILE-7.4%
$ 1,337,276 AFG Receivables Trust
1997-B, Class B, 6.40%,
2/15/2003 $ 1,347,426
448,500 Fleetwood Credit Corp.
1992-A, Class A, 7.10%,
2/15/2007 448,782
750,000 Household Automobile
Revolving Trust I 1998-1,
Class B1, 6.30%, 5/17/2005 749,183
2,000,000 Key Auto Finance Trust
1999-1, 7.08%, 1/15/2007 1,995,000
1,422,092 Olympic Automobile
Receivables Trust 1995-B,
Class A2, 7.35%,
10/15/2001 1,431,762
5,000,000 Olympic Automobile
Receivables Trust 1996-C,
Class A5, 7.00%, 3/15/2004 5,094,200
3,000,000 Premier Auto Trust 1995-3,
Class B, 6.25%, 8/6/2001 3,007,680
1,313,523 The CIT Group
Securitization Corp. II,
Class B, 6.45%, 6/15/2018 1,329,114
416,737 World Omni Automobile
Lease Securitization Trust
1997-A, Class A3, 6.85%,
6/25/2003 420,182
TOTAL 15,823,329
BANKING-5.7%
1,000,000 1 J.P. Morgan & Co., Inc.,
Sub. Note, 5.00%,
8/19/2002 967,495
3,000,000 2, 3 KeyCorp, Series A, 6.625%,
6/15/2029 3,002,520
2,000,000 Mercantile Bancorporation,
Inc., 6.80%, 6/15/2001 2,035,400
2,000,000 National Australia Bank,
Ltd., Melbourne, Sub.
Note, Series A, 6.40%,
12/10/2007 2,005,860
4,000,000 Toronto-Dominion Bank,
Sub. Note, 7.875%,
8/15/2004 4,024,680
TOTAL 12,035,955
BEVERAGE & TOBACCO-1.4%
3,000,000 Philip Morris Cos., Inc.,
Deb., 6.00%, 11/15/1999 3,010,770
CABLE TELEVISION-1.0%
2,000,000 Continental Cablevision,
Sr. Sub. Deb., 11.00%,
6/1/2007 2,127,360
CREDIT CARD-12.3%
3,000,000 American Express Credit
Account Master Trust 1997-
1, Class A, 6.40%,
4/15/2005 3,065,370
2,827,769 Banco Nacional de Mexico
S.A., Credit Card Merchant
Voucher Receivables Master
Trust Series 1996-A, Class
A1, 6.25%, 12/1/2003 2,820,700
5,000,000 1 Bridgestone/Firestone
Master Trust 1996-1, Class
B, 6.49%, 7/1/2003 5,066,900
2,000,000 Chemical Master Credit
Card Trust I 1995-3, Class
A, 6.23%, 4/15/2005 2,021,020
4,730,000 Circuit City Credit Card
Master Trust 1995-1, Class
A, 6.375%, 8/15/2005 4,784,064
1,590,000 Household Affinity Credit
Card Master Trust I 1993-2,
Class A, 5.60%, 5/15/2002 1,597,648
3,000,000 Providian Master Trust
1997-4, Class B, 6.45%,
6/15/2007 3,049,860
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS/ASSET-
BACKED SECURITIES-
Continued
CREDIT CARD-CONTINUED
$ 2,800,000 Spiegel Master Trust 1994-
B, Class A, 8.15%,
6/15/2004 $ 2,856,308
1,000,000 Standard Credit Card
Master Trust I, Series
1994-4, Class A, 8.25%,
11/7/2003 1,058,610
TOTAL 26,320,480
FINANCIAL INTERMEDIARIES-
3.2%
1,000,000 Donaldson, Lufkin and
Jenrette Securities Corp.,
Sr. Note, 5.875%, 4/1/2002 997,250
1,500,000 Lehman Brothers Holdings,
Inc., Medium Term Note,
6.375%, 3/15/2001 1,504,140
2,400,000 Lehman Brothers Holdings,
Inc., Note, 6.125%,
7/15/2003 2,366,784
2,000,000 Merrill Lynch & Co., Inc.,
Note, 6.00%, 2/12/2003 2,003,360
TOTAL 6,871,534
HOME EQUITY LOAN-10.9%
2,000,000 2, 3 125 Home Loan Owner Trust 1998-1A, Class M2, 7.75%,
2/15/2029 1,814,380
766,192 AFC Home Equity Loan Trust
1992-3, Class A, 7.05%,
8/15/2007 767,407
1,316,762 Advanta Home Equity Loan
Trust 1992-1, Class A,
7.875%, 9/25/2008 1,338,549
2,000,000 Cityscape Home Equity Loan
Trust 1997-1, Class A4,
7.23%, 3/25/2018 2,008,590
2,000,000 Cityscape Home Equity Loan
Trust 1997-1, Class M1,
7.58%, 3/25/2018 2,040,470
895,113 1 ContiMortgage Home Equity
Loan Trust 1996-4, Class
A10, 5.166%, 1/15/2028 896,921
3,320,000 ContiMortgage Home Equity
Loan Trust 1997-3, Class
A5, 7.01%, 8/15/2013 3,357,949
2,000,000 ContiMortgage Home Equity
Loan Trust 1997-1, Class
A7, 7.32%, 9/15/2021 2,024,440
520,530 CWABS Asset Backed
Certificates 1996-1, Class
A-2, 6.525%, 2/25/2014 524,470
1,000,000 CWABS Asset-Backed
Certificates 1999-1, Class
BV, 7.689%, 2/25/2029 992,030
1,000,000 Green Tree Home Equity Loan
Trust 1999-A, Class A3,
5.98%, 4/15/2018 1,000,810
1,714,177 Green Tree Home Equity Loan
Trust 1999-A, Class B2A,
7.44%, 2/15/2029 1,714,177
1,521,493 Headlands Home Equity Loan
Trust 1998-2, Class A3,
6.67%, 12/15/2024 1,516,746
1,000,000 Mellon Bank Home Equity
Installment Loan 1998-1,
Class B, 6.95%, 3/25/2015 990,000
2,363,000 New Century Home Equity
Loan Trust 1997-NC5, Class
M2, 7.24%, 10/25/2028 2,250,025
TOTAL 23,236,964
MANUFACTURED HOUSING-4.7%
796,215 Associates Manufactured
Housing Certificates 1996-
1, Class A2, 6.05%,
6/15/2027 798,373
1,063,959 Associates Manufactured
Housing Certificates 1996-
1, Class A2, 6.70%,
3/15/2027 1,069,683
1,000,000 Chase Funding Mortgage
Loan 1999-1, Class IIB,
7.688%, 6/25/2028 1,000,000
4,000,000 Green Tree Financial Corp.
1993-2, Class A4, 6.90%,
7/15/2018 4,090,520
2,000,000 Green Tree Financial Corp.
1996-2, Class B-1, 7.55%,
4/15/2027 2,032,360
747,720 Merrill Lynch Mortgage
Investors, Inc. 1991-I,
Class A, 7.65%, 1/15/2012 767,041
296,133 Merrill Lynch Mortgage
Investors, Inc. 1992-B,
Class B, 8.50%, 4/15/2012 296,730
TOTAL 10,054,707
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS/ASSET-
BACKED SECURITIES-
Continued
OTHER-ASSET BACKED-7.3%
$ 955,092 1, 2, 3 Bosque Asset Corp., Series
1, Class 1, 7.66%, 6/5/2002 $ 955,092
3,000,000 California Infrastructure
& Economic Development
Bank Special Purpose Trust
SCE-1, Class A3, 6.17%,
3/25/2003 3,030,840
1,969,405 1 Case Equipment Loan Trust,
Series 1999-A, Class B,
5.96%, 8/15/2005 1,958,977
4,312,008 1, 2, 3 C-BASS ABS, LLC, Series
1997-1, Class A1, 4.699%,
2/1/2017 4,333,568
260,000 Copelco Capital Funding
Corp. X 1997-A, Class A4,
6.47%, 4/20/2005 262,547
2,000,000 Fingerhut Master Trust
1998-2, Class A, 6.23%,
2/15/2007 2,009,980
8,079,749 2, 3 FMAC Loan Receivables
Trust 1997-A, Class A-X,
2.77%, 4/15/2019 992,274
585,860 NationsCredit Grantor
Trust 1997-1, Class A,
6.75%, 8/15/2013 594,859
1,500,000 1 Saxon Asset Securities
Trust 1999-1, Class BV1,
7.663%, 2/25/2029 1,491,090
TOTAL 15,629,227
STATE/PROVINCIAL-2.5%
5,000,000 Province of Manitoba,
9.50%, 10/1/2000 5,272,550
SUPRANATIONAL-0.8%
1,700,000 Corp Andina De Fomento,
Bond, 7.10%, 2/1/2003 1,706,205
TELECOMMUNICATIONS &
CELLULAR-1.9%
1,000,000 PanAmSat Corp., Note,
6.00%, 1/15/2003 970,990
3,000,000 Southwestern Bell Capital
Corp., Note, 8.81%,
12/16/2004 3,119,130
TOTAL 4,090,120
UTILITIES-1.0%
2,000,000 Pennsylvania Power & Light
Co., 9.25%, 10/1/2019 2,092,420
TOTAL CORPORATE
BONDS/ASSET-BACKED
SECURITIES (IDENTIFIED
COST $128,173,603) 128,271,621
MORTGAGE-BACKED
SECURITIES-29.7%
COMMERCIAL MORTGAGE-BACKED
SECURITIES-2.6%
8,810,007 First Union Lehman
Brothers Commercial
Mortgage Trust, Series
1997-C1, Class IO, 1.307%,
4/18/2027 570,184
4,000,000 1, 2, 3 K Mart CMBS Financing,
Inc., Series 1997-1, Class
C, 5.64%, 3/1/2007 3,966,140
1,000,000 1, 2, 3 Nomura Depositor Trust
Commercial Mortgage Pass-
Thru, Series 1998-STI,
Class A3, 5.506%,
1/15/2003 967,500
TOTAL 5,503,824
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
MORTGAGE-BACKED
SECURITIES-Continued
NON-GOVERNMENT AGENCY
MORTGAGE-BACKED
SECURITIES-27.1%
$ 653,698 1 Bayview Financial
Acquisition Trust, Series
1998-1, Class MII1,
5.663%, 5/25/2029 $ 618,359
739,943 1, 2, 3 Bayview Financial Acquisition Trust, Series
1998-1, Class MF2, 5.763%,
5/25/2029 691,151
1,757,773 2 Bayview Financial
Acquisition Trust, Series
1998-1, Class MI1, 7.52%,
5/25/2029 1,706,147
1,181,972 Countrywide Home Loans,
Series 1997-5, Class A3,
7.50%, 9/25/2027 1,182,137
3,625,000 Countrywide Home Loans,
Series 1997-6, Class A1,
6.75%, 11/25/2027 3,637,905
2,238,870 Countrywide Home Loans,
Series 1997-A2, Class A3,
9.00%, 4/25/2027 2,270,214
7,500,000 Countrywide Home Loans,
Series 1997-A7, Class A5,
7.50%, 9/25/2027 7,601,850
894,000 GE Capital Mortgage
Services, Inc., Series
1994-27, Class A3, 6.50%,
7/25/2024 897,147
518,038 GE Capital Mortgage
Services, Inc., Series
1998-11, Class 1A1, 6.75%,
6/25/2028 519,574
4,982,915 GE Capital Mortgage
Services, Inc., Series
1995-11, Class B1, 7.50%,
12/25/2025 4,921,126
2,170,442 GE Capital Mortgage
Services, Inc., Series
1996-3, Class A1, 7.00%,
3/25/2026 2,185,462
16,945 GE Capital Home Equity Loan
Trust 1991-1, Class A,
7.20%, 9/15/2011 17,112
784,902 1 Glendale Federal Bank,
Series 1988-1, Class A,
6.743%, 11/25/2027 782,692
3,615,800 1 Greenwich Capital
Acceptance, Series 1994-C,
Class B1, 6.662%,
1/25/2025 3,627,099
7,279,660 1 Greenwich Capital
Acceptance, Series 1994-B,
6.198%, 7/1/2018 7,056,756
2,271,988 1 Greenwich Capital
Acceptance, Series 1993-
AF1, Class B1, 7.617%,
8/25/2023 2,281,939
1,284,084 1 Greenwich Capital
Acceptance, Series 1993-
LB2, Class A1, 7.073%,
8/25/2023 1,281,074
2,172,153 1, 2 Greenwich Capital Acceptance, Series 1991-4,
8.57%, 7/1/2019 2,179,626
709,526 Greenwich Capital
Acceptance, Series 1993-
LB3, Class A1, 6.996%,
1/25/2024 707,908
236,682 2 Long Beach Federal Savings
Bank, Series 1992-3, Class
A, 9.60%, 6/15/2022 236,682
3,070,000 1 Mellon Residential Funding
Corp., Series 1998-TBC1,
Class B1, 6.593%,
10/25/2028 3,060,422
1,672,286 Prudential Home Mortgage
Securities, Series 1992-5,
Class A6, 7.50%, 4/25/2007 1,690,129
1,387,571 Residential Accredit
Loans, Inc., Series 1996-
QS8, Class A3, 7.05%,
12/25/2026 1,385,775
2,000,000 Residential Accredit
Loans, Inc., Series 1997-
QS12, Series Class A6,
7.25%, 11/25/2027 2,001,760
1,409,822 1 Residential Funding
Mortgage Securities I,
Series 1994-S13, Class M1,
7.00%, 5/25/2024 1,403,407
4,000,000 1 Salomon Brothers Mortgage
Services, Series 1999-NC2,
Class M3,
8.163%, 4/25/2029 3,980,000
TOTAL 57,923,453
TOTAL MORTGAGE-BACKED
SECURITIES (IDENTIFIED
COST $63,892,378) 63,427,277
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
GOVERNMENT AGENCY
MORTGAGE-BACKED
SECURITIES-4.5%
$ 2,000,000 FHLBS, Sr. Note, 5.80%,
9/2/2008 $ 1,978,740
1,885,098 GNMA, Pool 354754, 7.50%,
2/15/2024 1,943,423
5,169,200 GNMA, Pool 780360, 11.00%,
9/15/2015 5,781,440
TOTAL GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES
(IDENTIFIED COST
$9,715,670) 9,703,603
U.S. TREASURY NOTES-3.1%
1,000,000 Note, 4.75%, 11/15/2008 954,840
500,000 Note, 5.625%, 5/15/2008 507,125
3,000,000 Note, 5.75%, 11/15/2000 3,030,690
1,000,000 Note, 5.875%, 9/30/2002 1,020,270
935,000 Note, 6.625%, 5/15/2007 1,006,808
TOTAL U.S. TREASURY NOTES
(IDENTIFIED COST
$6,622,364) 6,519,733
REPURCHASE AGREEMENT-6.0%
4
12,895,000 ABN AMRO, Inc., 4.94%,
dated 4/30/1999, due
5/3/1999 12,895,000
TOTAL INVESTMENTS
(IDENTIFIED COST
$221,299,015) 5 $ 220,817,234
</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 April 30, 1999, these securities amounted to
$20,845,080 which represents 9.8% of net assets. Included in these amounts,
securities which have been deemed liquid amounted to $16,722,626 which
represents 7.8% of net assets.
3 Denotes a restricted security that has been deemed liquid by criteria approved
by the fund's board of directors.
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
accounts with other Federated funds.
5 The cost of investments for federal tax purposes amounts to $221,299,015. The
net unrealized depreciation of investments on a federal tax basis amounts to
$(481,781) which is comprised of $1,102,778 appreciation and $1,584,559
depreciation at April 30, 1999.
Note: The categories of investments are shown as a percentage of net assets
($213,555,897) at April 30, 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
APRIL 30, 1999
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in
securities, at value
(identified and tax cost
$221,299,015) $ 220,817,234
Income receivable 1,359,569
Receivable for investments
sold 181,845
Receivable for shares sold 923,826
TOTAL ASSETS 223,282,474
LIABILITIES:
Payable for investments
purchased $ 8,562,396
Payable for shares
redeemed 450,245
Income distribution
payable 690,345
Accrued expenses 23,591
TOTAL LIABILITIES 9,726,577
Net assets for 24,643,576
shares outstanding $ 213,555,897
NET ASSETS CONSIST OF:
Paid in capital $ 238,494,876
Net unrealized
depreciation of
investments (481,781)
Accumulated net realized
loss on investments (24,078,137)
Distributions in excess of
net investment income (379,061)
TOTAL NET ASSETS $ 213,555,897
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PROCEEDS PER SHARE
INSTITUTIONAL SHARES:
$188,773,237 / 21,783,596
shares outstanding $8.67
INSTITUTIONAL SERVICE
SHARES:
$24,782,660 / 2,859,980
shares outstanding $8.67
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
YEAR ENDED APRIL 30, 1999
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 13,626,011
EXPENSES:
Investment advisory fee $ 845,655
Administrative personnel
and services fee 159,406
Custodian fees 16,410
Transfer and dividend
disbursing agent fees and
expenses 54,374
Directors'/Trustees' fees 7,896
Auditing fees 17,635
Legal fees 5,736
Portfolio accounting fees 71,955
Distribution services fee-
Institutional Service
Shares 45,956
Shareholder services fee-
Institutional Shares 482,579
Shareholder services fee-
Institutional Service
Shares 45,956
Share registration costs 31,095
Printing and postage 27,794
Insurance premiums 1,987
Miscellaneous 11,489
TOTAL EXPENSES 1,825,923
WAIVERS:
Waiver of investment
advisory fee $ (58,212)
Waiver of distribution
services fee-Institutional
Service Shares (44,118)
Waiver of shareholder
services fee-Institutional
Shares (482,579)
Waiver of shareholder
services fee-Institutional
Service Shares (1,838)
TOTAL WAIVERS (586,747)
Net expenses 1,239,176
Net investment income 12,386,835
REALIZED AND UNREALIZED
LOSS ON INVESTMENTS:
Net realized loss on
investments (473,737)
Net change in unrealized
(depreciation) of
investments (1,277,233)
Net realized and
unrealized loss on
investments (1,750,970)
Change in net assets
resulting from operations $ 10,635,865
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30 1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS:
Net investment income $ 12,386,835 $ 12,944,733
Net realized loss on
investments ($159,370) and
($696,886), respectively,
as computed for federal
tax purposes) (473,737) (447,608)
Net change in unrealized
appreciation/depreciation (1,277,233) 1,977,389
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS 10,635,865 14,474,514
DISTRIBUTIONS TO
SHAREHOLDERS:
Distributions from net
investment income
Institutional Shares (11,460,278) (12,014,535)
Institutional Service
Shares (1,046,067) (960,510)
CHANGE IN NET ASSETS
RESULTING FROM
DISTRIBUTIONS
TO SHAREHOLDERS (12,506,345) (12,975,045)
SHARE TRANSACTIONS:
Proceeds from sale of
shares 107,517,949 86,943,198
Net asset value of shares
issued to shareholders in
payment of
distributions declared 4,068,684 3,931,188
Cost of shares redeemed (108,552,678) (112,005,010)
CHANGE IN NET ASSETS
RESULTING FROM SHARE
TRANSACTIONS 3,033,955 (21,130,624)
Change in net assets 1,163,475 (19,631,155)
NET ASSETS:
Beginning of period 212,392,422 232,023,577
End of period (including
distributions in excess of
net investment income of
$376,061, and $259,441,
respectively) $ 213,555,897 $ 212,392,422
</TABLE>
See Notes which are an integral part of the Financial Statements
Financial Highlights-Institutional Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30, 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 8.74 $ 8.68 $ 8.68 $ 8.61 $ 8.85
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.52 0.52 0.54 0.57 0.54
Net realized and
unrealized gain (loss)
on investments (0.07) 0.06 0.01 0.07 (0.24)
TOTAL FROM INVESTMENT
OPERATIONS 0.45 0.58 0.55 0.64 0.30
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.52) (0.52) (0.54) (0.57) (0.54)
Distributions in excess of
net investment income 1 - - (0.01) - -
TOTAL DISTRIBUTIONS (0.52) (0.52) (0.55) (0.57) (0.54)
NET ASSET VALUE, END OF
PERIOD $8.67 $8.74 $8.68 $8.68 $8.61
TOTAL RETURN 2 5.25% 6.88% 6.53% 7.51% 3.55%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 3 0.84% 0.84% 0.84% 0.85% 0.59%
Net investment income 3 5.60% 5.68% 5.93% 6.14% 6.19%
Expenses (after waivers) 0.56% 0.56% 0.56% 0.56% 0.56%
Net investment income
(after waivers) 5.88% 5.96% 6.21% 6.43% 6.22%
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $188,773 $197,610 $214,438 $216,675 $219,649
Portfolio turnover 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.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Institutional Service Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30, 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 8.74 $ 8.68 $ 8.68 $ 8.61 $ 8.85
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.50 0.50 0.53 0.54 0.52
Net realized and
unrealized gain (loss) on
investments (0.07) 0.06 - 0.07 (0.24)
TOTAL FROM INVESTMENT
OPERATIONS 0.43 0.56 0.53 0.61 0.28
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.50) (0.50) (0.53) (0.54) (0.52)
NET ASSET VALUE, END OF
PERIOD $ 8.67 $ 8.74 $ 8.68 $ 8.68 $ 8.61
TOTAL RETURN 1 4.99% 6.61% 6.27% 7.25% 3.29%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 2 1.09% 1.09% 1.09% 1.10% 1.08%
Net investment income 2 5.35% 5.45% 5.68% 5.88% 5.63%
Expenses (after waivers) 0.81% 0.81% 0.81% 0.81% 0.81%
Net investment income
(after waivers) 5.63% 5.73% 5.96% 6.17% 5.90%
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $24,783 $14,783 $17,586 $16,346 $17,091
Portfolio turnover 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 ratio would have been as indicated.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
APRIL 30, 1999
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.
Income and capital gain distributions are determined in accordance with income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments for expiring capital
loss carryforwards. The following reclassifications have been made to the
financial statements.
INCREASE (DECREASE)
DISTRIBUTIONS
ACCUMULATED IN EXCESS OF
NET REALIZED NET INVESTMENT
PAID IN CAPITAL LOSS INCOME
($1,132,354) $1,132,464 ($110)
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:
EXPIRATION YEAR EXPIRATION AMOUNT
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
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 April 30, 1999 is as
follows:
ACQUISITION ACQUISITION
SECURITY DATE COST
Bayview Financial
Acquisition Trust, Series
1998-1, Class MI 1 12/8/1998 $1,774,865
Bosque Asset Corp., Series
1, Class 1 6/19/1997 $ 882,108
C-Bass ABS, LLC
Series 1997-1, Class A1 2/25/1997 $4,269,437
FMAC Loan Receivables
Trust 1997-A, Class A-X 6/16/1997 $1,176,318
Greenwich Capital
Acceptance Corp. 1991-4 1/7/1993 $2,550,009
KeyCorp., Series A 5/27/1997 $2,997,210
KMart CMBS Financing, Inc.
Series 1997-1, Class C 3/4/1997 $4,000,000
Long Beach Federal Savings
Bank, Series 1992-3 6/29/1992 $2,617,645
Nomura Depositor Trust
CMPT Series 1998-STI,
Class A3 2/3/1998 $1,000,000
125 Home Loan Owner Trust
1998-1A, Class M2 7/30/1998 $1,999,062
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30 1999 1998
INSTITUTIONAL SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 9,621,324 $ 84,107,769 8,961,823 $ 78,330,489
Shares issued to
shareholders in payment of
distributions declared 403,569 3,521,511 396,037 3,459,922
Shares redeemed (10,846,334) (94,780,480) (11,445,782) (100,001,871)
NET CHANGE RESULTING FROM
INSTITUTIONAL SHARE
TRANSACTIONS (821,441) $ (7,151,200) (2,087,922) $ (18,211,460)
<CAPTION>
YEAR ENDED APRIL 30 1999 1998
INSTITUTIONAL SERVICE SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 2,684,133 $ 23,410,180 985,377 $ 8,612,709
Shares issued to
shareholders in payment of
distributions declared 62,720 547,173 53,929 471,266
Shares redeemed (1,577,954) (13,772,198) (1,373,242) (12,003,139)
NET CHANGE RESULTING FROM
INSTITUTIONAL SERVICE
SHARE TRANSACTIONS 1,168,899 $ 10,185,155 (333,936) $ (2,919,164)
NET CHANGE RESULTING FROM
SHARE TRANSACTIONS 347,458 $ 3,033,955 (2,421,858) $ (21,130,624)
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Management, the Fund's investment adviser, 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
period ended April 30, 1999, were as follows:
Purchases $116,302,284
Sales $109,131,933
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and 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.
Report of Ernst & Young LLP, Independent Auditors
TO THE TRUSTEES AND SHAREHOLDERS OF
FEDERATED SHORT-TERM INCOME FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Federated Short-Term Income Fund (a portfolio
of Federated Income Securities Trust), as of April 30, 1999, and the related
statement of operations for the year then ended, the statement of changes in net
assets for each of the two years in the period then ended, and financial
highlights for each of the five years in the period then ended. These financial
statement and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of April
30, 1999, by correspondence with the custodian and brokers, or other appropriate
auditing procedures where replies from brokers were not received. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Federated Short-Term Income Fund, a portfolio of Federated Income Securities
Trust, at April 30, 1999, and the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended, and the financial highlights for each of the five years in the
period then ended, in conformity with generally accepted accounting principles.
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Ernst & Young LLP
Boston, Massachusetts
June 21, 1999
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
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
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
ANNUAL REPORT
Federated Short-Term Income Fund
ANNUAL REPORT
TO SHAREHOLDERS
APRIL 30, 1999
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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 31420C308
Cusip 31420C209
G00831-01 (6/99)
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