1933 Act File No. 33-3164
1940 Act File No. 811-4577
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
| REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 | X |
| Pre-Effective Amendment No. | |
| Post-Effective Amendment No. 34 | X |
| and/or | |
| REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 | X |
| Amendment No. 27 | X |
|
FEDERATED INCOME SECURITIES TRUST
(Exact Name of Registrant as Specified in Charter) Federated Investors Funds 5800 Corporate Drive Pittsburgh, Pennsylvania 15237-7000 (Address of Principal Executive Offices) (412) 288-1900 (Registrant's Telephone Number) John W. McGonigle, Esquire 1001 Liberty Avenue Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 (Name and Address of Agent for Service) (Notices should be sent to the Agent for Service) |
It is proposed that this filing will become effective:
| immediately upon filing pursuant to paragraph (b) | |
| X | on June 26, 2001 pursuant to paragraph (b) |
| 60 days after filing pursuant to paragraph (a)(i) | |
| on pursuant to paragraph (a)(i) | |
| 75 days after filing pursuant to paragraph (a)(ii) | |
| on pursuant to paragraph (a)(ii) of Rule 485 |
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a previously filed post-effective amendment.
| Copies To: |
Matthew G. Maloney, Esquire
Dickstein Shapiro Morin & Oshinsky LLP 2101 L Street, N.W. Washington, D.C. 20037 and Robert J. Zutz, Esquire Kirkpatrick & Lockhart LLP 1800 Massachusetts Avenue, NW 2nd Floor Washington, DC 20036 |
Federated
A Portfolio of Federated Income Securities Trust
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June 30, 2001
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A mutual fund seeking to provide current income by investing primarily in a diversified portfolio of short- and medium-term high grade debt securities.
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As with all mutual funds, the Securities and Exchange Commission (SEC) has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense.
NOT FDIC INSURED * MAY LOSE VALUE * NO BANK GUARANTEE
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| Risk/Return Summary | 1 |
| What are the Fund's Fees and Expenses? | 3 |
| What are the Fund's Investment Strategies? | 4 |
| What are the Principal Securities in Which the Fund Invests? | 6 |
| What are the Specific Risks of Investing in the Fund? | 9 |
| What Do Shares Cost? | 11 |
| How is the Fund Sold? | 12 |
| How to Purchase Shares | 12 |
| How to Redeem Shares | 14 |
| Account and Share Information | 17 |
| Who Manages the Fund? | 18 |
| Financial Information | 19 |
| Report of Ernst & Young LLP, Independent Auditors | 34 |
The Fund's investment objective is to seek to provide current income. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by following the strategies and policies described in this prospectus.
The Fund invests in a diversified portfolio of investment grade fixed income securities consisting primarily of U.S. government and privately issued mortgage backed and asset backed securities, corporate debt securities, and U.S. treasury and agency securities. The Adviser seeks to enhance the Fund's performance by allocating relatively more of its portfolio to the security type that the Adviser expects to offer the best balance between current income and risk.
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Although the value of the Fund's shares will fluctuate, the Adviser will seek to manage the magnitude of fluctuation by limiting the Fund's dollar-weighted average duration within a range of one to two years (and, in any event, to not more than three years). Duration measures the price sensitivity of a fixed income security to changes in interest rates.
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All mutual funds take investment risks. Therefore, it is possible to lose money by investing in the Fund. The primary factors that may reduce the Fund's returns include:
The Shares offered by this prospectus are not deposits or obligations of any bank, are not endorsed or guaranteed by any bank and are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other government agency.
The bar chart shows the variability of the Fund's Institutional Shares total returns on a calendar year-end basis.
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The Fund's Institutional Shares are sold without a sales charge (load). The total returns displayed above are based upon net asset value.
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The Fund's Institutional Shares total return for the three-month period from January 1, 2001 to March 31, 2001 was 2.74%.
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Within the period shown in the Chart, the Fund's Institutional Shares highest quarterly return was 6.04% (quarter ended March 31, 1991). Its lowest quarterly return was (0.63)% (quarter ended June 30, 1994).
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The following table represents the Fund's Institutional Shares Average Annual Total Returns for the calendar periods ended December 31, 2000. The table shows the Fund's total returns averaged over a period of years relative to the Merrill Lynch 1-3 Year Short-Term Corporate Index (ML1-3STC), a broad-based market index, and the Lipper Short Investment Grade Debt Funds Average (LSIGDFA), an average of funds with similar investment objectives. Total returns for the indexes shown do not reflect sales charges, expenses or other fees that the SEC requires to be reflected in the Fund's performance. Indexes are unmanaged, and it is not possible to invest directly in an index.
|
Calendar Period |
|
Fund |
|
ML1-3STC |
|
LSIGDFA |
|
1 Year |
|
8.75% |
|
7.61% |
|
7.35% |
|
5 Years |
|
5.98% |
|
6.31% |
|
5.39% |
|
10 Years |
|
6.51% |
|
7.19% |
|
6.28% |
Past performance is no guarantee of future results. This information provides you with historical performance information so that you can analyze whether the Fund's investment risks are balanced by its potential returns.
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This table describes the fees and expenses that you may pay if you buy and hold Shares of the Fund's Institutional Shares.
This Example is intended to help you compare the cost of investing in the Fund's Institutional Shares with the cost of investing in other mutual funds.
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The Example assumes that you invest $10,000 in the Fund's Institutional Shares for the time periods indicated and then redeem all of your Shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the Fund's Institutional Shares operating expenses are before waivers as shown in the table and remain the same. Although your actual costs and returns may be higher or lower, based on these assumptions your costs would be:
|
1 Year |
|
$ |
87 |
|
|
|||
|
3 Year |
|
$ |
271 |
|
|
|||
|
5 Years |
|
$ |
471 |
|
|
|||
|
10 Years |
|
$ |
1,049 |
|
|
|||
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The Fund invests in a diversified portfolio of investment grade fixed income securities consisting primarily of U.S. government and privately issued mortgage backed and asset backed securities; corporate debt securities; and U.S. treasury and agency securities. Investment grade securities are those rated BBB or higher by a nationally recognized statistical rating organization (NRSRO). In addition, at least 65% of the Fund's securities must be rated A or higher (or, for short-term instruments, in one of the two highest rating categories) by a NRSRO. A description of the various types of securities in which the Fund invests, and their risks, immediately follows this strategy section.
The Adviser seeks to enhance the Fund's performance by allocating relatively more of its portfolio to the security type that the Adviser expects to offer the best balance between current income and risk and thus offers the greatest potential for return. The allocation process is based on the Adviser's continuing analysis of a variety of economic and market indicators in order to arrive at the projected yield "spread" of each security type. (The spread is the difference between the yield of a security versus the yield of a U.S. treasury security with a comparable average life.) The security's projected spread is weighed against the spread the security can currently be purchased for, as well as the security's risk of prepayment (in the case of asset backed and mortgage backed securities) and its credit risk (in the case of corporate securities and privately issued asset backed and mortgage backed securities) in order to complete the analysis.
Asset and mortgage backed securities tend to amortize principal on a somewhat irregular schedule over time, since the borrower can usually prepay all or part of the loan without penalty. These securities generally offer higher yields versus U.S. treasury securities and non-mortgage backed agency securities to compensate for this prepayment risk as well as any credit risk which might be present in the security. Similarly, corporate debt securities, which tend to pay off on a predetermined schedule, generally offer higher yields than treasury and agency securities to compensate for credit risk. The Adviser actively manages the Fund's portfolio, seeking the higher relative returns of asset and mortgage backed securities and corporate debt securities, while attempting to limit the associated prepayment or credit risk.
The Adviser attempts to manage the Fund's prepayment risk by selecting asset and mortgage backed securities with characteristics that make prepayment fluctuations less likely. Characteristics that the Adviser may consider in selecting securities include the average interest rates of the underlying mortgages and the federal agencies (if any) that support the mortgages. The Adviser attempts to assess the relative returns and risks for mortgage backed securities by analyzing how the timing, amount and division of cash flows might change in response to changing economic and market conditions.
The Adviser attempts to manage the Fund's credit risk by selecting corporate debt securities that make default in the payment of principal and interest less likely. The Adviser analyzes a variety of factors, including macroeconomic analysis and corporate earnings analysis to determine which business sectors and credit ratings are most advantageous for investment by the Fund. In selecting individual corporate fixed income securities, the Adviser analyzes the issuer's business, competitive position, and general financial condition to assess whether the security's credit risk is commensurate with its potential return.
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In addition to managing the Fund's portfolio to seek enhanced current income while minimizing prepayment and credit risk, the Adviser also seeks to limit the magnitude of fluctuation of the value of the Fund's shares. The Adviser attempts to manage price fluctuation by limiting the Fund's dollar-weighted average duration to within a range of one to two years and, in any event, to no greater than three years.
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The Adviser may lengthen or shorten duration from time-to-time based on its interest rate outlook. If the Adviser expects interest rates to decline, it will generally lengthen the Fund's duration, and if the Adviser expects interest rates to increase, it will generally shorten the Fund's duration. The Adviser formulates its interest rate outlook and otherwise attempts to anticipate changes in economic and market conditions in analyzing a variety of factors, such as:
There is no assurance that the Adviser's efforts to forecast market interest rates and assess the impact of market interest rates on particular securities will be successful.
The Fund may temporarily depart from its principal investment strategies by investing its assets in cash and shorter-term debt securities and similar obligations. It may do this to minimize potential losses and maintain liquidity to meet shareholder redemptions during adverse market conditions. This may cause the Fund to give up greater investment returns to maintain the safety of principal, that is, the original amount invested by shareholders.
Fixed income securities pay interest, dividends or distributions at a specified rate. The rate may be a fixed percentage of the principal or adjusted periodically. In addition, the issuer of a fixed income security must repay the principal amount of the security, normally within a specified time. Fixed income securities provide more regular income than equity securities. However, the returns on fixed income securities are limited and normally do not increase with the issuer's earnings. This limits the potential appreciation of fixed income securities as compared to equity securities.
A security's yield measures the annual income earned on a security as a percentage of its price. A security's yield will increase or decrease depending upon whether it costs less (a discount) or more (a premium) than the principal amount. If the issuer may redeem the security before its scheduled maturity, the price and yield on a discount or premium security may change based upon the probability of an early redemption. Securities with higher risks generally have higher yields.
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The following describes the principal types of fixed income securities in which the Fund may invest:
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Treasury securities are direct obligations of the federal government of the United States. Treasury securities are generally regarded as having the lowest credit risks.
Agency securities are issued or guaranteed by a federal agency or other government sponsored entity acting under federal authority (a Government Sponsored Entity, or GSE). The United States supports some GSEs with its full faith and credit. Other GSEs receive support through federal subsidies, loans or other benefits. A few GSEs have no explicit financial support, but are regarded as having implied support because the federal government sponsors their activities. Agency securities are generally regarded as having low credit risks, but not as low as treasury securities.
The Fund treats mortgage backed securities guaranteed by GSEs as agency securities. Although a GSE guarantee protects against credit risks, it does not reduce the interest rate and prepayment risks of these mortgage backed securities.
Corporate debt securities are fixed income securities issued by businesses. Notes, bonds, debentures and commercial paper are the most prevalent types of corporate debt securities. The Fund may also purchase interests in bank loans to companies. The credit risks of corporate debt securities vary widely among issuers.
In addition, the credit risk of an issuer's debt security may vary based on its priority for repayment. For example, higher ranking (senior) debt securities have a higher priority than lower ranking (subordinated) securities. This means that the issuer might not make payments on subordinated securities while continuing to make payments on senior securities. In addition, in the event of bankruptcy, holders of senior securities may receive amounts otherwise payable to the holders of subordinated securities. Some subordinated securities, such as trust preferred and capital securities notes, also permit the issuer to defer payments under certain circumstances. For example, insurance companies issue securities known as surplus notes that permit the insurance company to defer any payment that would reduce its capital below regulatory requirements.
Mortgage backed securities represent interests in pools of mortgages. The mortgages that comprise a pool normally have similar interest rates, maturities and other terms. Mortgages may have fixed or adjustable interest rates. Interests in pools of adjustable rate mortgages are known as ARMs.
Mortgage backed securities come in a variety of forms. Many have extremely complicated terms. The simplest form of mortgage backed securities are pass-through certificates. An issuer of pass-through certificates gathers monthly payments from an underlying pool of mortgages. Then, the issuer deducts its fees and expenses and passes the balance of the payments onto the certificate holders once a month. Holders of pass-through certificates receive a pro rata share of all payments and prepayments from the underlying mortgages. As a result, the holders assume all the prepayment risks of the underlying mortgages.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)
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CMOs, including interests in real estate mortgage investment conduits (REMICs), allocate payments and prepayments from an underlying pass-through certificate among holders of different classes of mortgage backed securities. This creates different prepayment and interest rate risks for each CMO class. The degree of increased or decreased prepayment risks depends upon the structure of the CMOs. However, the actual returns on any type of mortgage backed security depend upon the performance of the underlying pool of mortgages, which no one can predict and will vary among pools.
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SEQUENTIAL CMOS
In a sequential pay CMO, one class of CMOs receives all principal payments and prepayments. The next class of CMOs receives all principal payments after the first class is paid off. This process repeats for each sequential class of CMO. As a result, each class of sequential pay CMOs reduces the prepayment risks of subsequent classes.
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Asset backed securities are payable from pools of obligations other than mortgages. Most asset backed securities involve consumer or commercial debts with maturities of less than ten years. However, almost any type of fixed income assets (including other fixed income securities) may be used to create an asset backed security. Asset backed securities may take the form of commercial paper, notes, or pass-through certificates. Asset backed securities have prepayment risks. Like CMOs, the cash flows of asset backed securities may be highly structured.
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Bank instruments are unsecured interest bearing deposits with banks. Bank instruments include bank accounts, time deposits, certificates of deposit and banker's acceptances. Yankee instruments are denominated in U.S. dollars and issued by U.S. branches of foreign banks. Eurodollar instruments are denominated in U.S. dollars and issued by non-U.S. branches of U.S. or foreign banks.
Credit enhancement consists of an arrangement in which a company agrees to pay amounts due on a fixed income security if the issuer defaults. In some cases the company providing credit enhancement makes all payments directly to the security holders and receives reimbursement from the issuer. Normally, the credit enhancer has greater financial resources and liquidity than the issuer. For this reason, the Adviser usually evaluates the credit risk of a fixed income security based solely upon its credit enhancement.
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The Adviser will determine whether a security is investment grade based upon the credit ratings given by one or more NRSROs. For example, Standard & Poor's, a rating service, assigns ratings to investment grade securities (AAA, AA, A, and BBB) based on their assessment of the likelihood of the issuer's inability to pay interest or principal (default) when due on each security. Lower credit ratings correspond to higher credit risk. If a security has not received a rating, the Fund must rely entirely upon the Adviser's credit assessment that the security is comparable to investment grade. If a security is downgraded below the minimum quality grade discussed above, the Adviser will reevaluate the security, but will not be required to sell it.
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Prices of fixed income securities rise and fall in response to changes in the interest rate paid by similar securities. Generally, when interest rates rise, prices of fixed income securities fall. However, market factors, such as the demand for particular fixed income securities, may cause the price of certain fixed income securities to fall while the prices of other securities rise or remain unchanged.
Interest rate changes have a greater effect on the price of fixed income securities with longer durations. Duration measures the price sensitivity of a fixed income security to changes in interest rates.
Credit risk is the possibility that an issuer will default on a security by failing to pay interest or principal when due. If an issuer defaults, the Fund will lose money.
Many fixed income securities receive credit ratings from services such as Standard & Poor's and Moody's Investor Services, Inc. These services assign ratings to securities by assessing the likelihood of issuer default. Lower credit ratings correspond to higher credit risk. If a security has not received a rating, the Fund must rely entirely upon the Adviser's credit assessment.
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Fixed income securities generally compensate for greater credit risk by paying interest at a higher rate. The difference between the yield of a security and the yield of a U.S. Treasury security with a comparable maturity (the spread) measures the additional interest paid for the additional risk. Spreads may increase generally in response to adverse economic or market conditions. A security's spread may also increase if the security's rating is lowered, or the security is perceived to have an increased credit risk. An increase in the spread will cause the price of the security to decline.
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Credit risk includes the possibility that a party to a transaction involving the Fund will fail to meet its obligations. This could cause the Fund to lose the benefit of the transaction or prevent the Fund from selling or buying other securities to implement its investment strategy.
Unlike traditional fixed income securities, which pay a fixed rate of interest until maturity (when the entire principal amount is due) payments on mortgage backed securities include both interest and a partial payment of principal. Partial payment of principal may be comprised of scheduled principal payments as well as unscheduled payments from the voluntary prepayment, refinancing, or foreclosure of the underlying loans. These unscheduled prepayments of principal create risks that can adversely affect a Fund holding mortgage backed securities.
For example, when interest rates decline, the values of mortgage backed securities generally rise. However, when interest rates decline, unscheduled prepayments can be expected to accelerate, and the Fund would be required to reinvest the proceeds of the prepayments at the lower interest rates then available. Unscheduled prepayments would also limit the potential for capital appreciation on mortgage backed securities.
Conversely, when interest rates rise, the values of mortgage backed securities generally fall. Since rising interest rates typically result in decreased prepayments, this could lengthen the average lives of mortgage backed securities, and cause their value to decline more than traditional fixed income securities.
Generally, mortgage backed securities compensate for the increased risk associated with prepayments by paying a higher yield. The additional interest paid for risk is measured by the difference between the yield of a mortgage backed security and the yield of a U.S. Treasury security with a comparable maturity (the spread). An increase in the spread will cause the price of the mortgage backed security to decline. Spreads generally increase in response to adverse economic or market conditions. Spreads may also increase if the security is perceived to have an increased prepayment risk or is perceived to have less market demand.
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is open. When the Fund receives your transaction request in proper form (as described in this prospectus) it is processed at the next calculated net asset value (NAV). The Fund does not charge a front-end sales charge. NAV is determined at the end of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE is open. The Fund generally values fixed income securities according to the mean between bid and asked prices as furnished by an independent pricing service, except that fixed income securities with remaining maturities of less than 60 days at the time of purchase may be valued at amortized cost.
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The Fund's current NAV and public offering price may be found in the mutual funds section of certain local newspapers under "Federated."
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The required minimum initial investment for Fund Shares is $25,000. There is no required minimum subsequent investment amount.
An account may be opened with a smaller amount as long as the $25,000 minimum is reached within 90 days. An institutional investor's minimum investment is calculated by combining all accounts it maintains with the Fund. Accounts established through investment professionals may be subject to a smaller minimum investment amount. Keep in mind that investment professionals may charge you fees for their services in connection with your Share transactions.
The Fund offers two share classes: Institutional Shares and Institutional Service Shares, each representing interests in a single portfolio of securities. This prospectus relates only to Institutional Shares. Each share class has different expenses, which affect their performance. Contact your investment professional or call 1-800-341-7400 for more information concerning the other class.
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The Fund's Distributor, Federated Securities Corp., markets the Shares described in this prospectus to accounts for which financial institutions act in a fiduciary capacity or to individuals, directly or through investment professionals.
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The Distributor and its affiliates may pay out of their assets other amounts (including items of material value) to investment professionals for marketing and servicing Shares. The Distributor is a subsidiary of Federated Investors, Inc. (Federated).
You may purchase Shares through an investment professional or directly from the Fund. The Fund reserves the right to reject any request to purchase Shares.
Investment professionals should send payments according to the instructions in the sections "By Wire" or "By Check."
You will become the owner of Shares and your Shares will be priced at the next calculated NAV after the Fund receives your wire or your check. If your check does not clear, your purchase will be canceled and you could be liable for any losses or fees incurred by the Fund or Federated Shareholder Services Company, the Fund's transfer agent.
An institution may establish an account and place an order by calling the Fund and the Shares will be priced at the next calculated NAV after the Fund receives the order.
Send your wire to:
State Street Bank and Trust CompanyYou cannot purchase Shares by wire on holidays when wire transfers are restricted.
Make your check payable to The Federated Funds, note your account number on the check, and mail it to:
Federated Shareholder Services CompanyIf you send your check by a private courier or overnight delivery service that requires a street address, mail it to:
Federated Shareholder Services CompanyPayment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will not accept third-party checks (checks originally payable to someone other than you or The Federated Funds).
Once you have opened an account, you may purchase additional Shares through a depository institution that is an ACH member. This purchase option can be established by completing the appropriate sections of the New Account Form.
You should redeem Shares:
Submit your redemption request to your investment professional by the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). The redemption amount you will receive is based upon the next calculated NAV after the Fund receives the order from your investment professional.
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You may redeem Shares by simply calling the Fund at 1-800-341-7400.
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If you call before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time), you will receive a redemption amount based on that day's NAV.
You may redeem Shares by mailing a written request to the Fund.
You will receive a redemption amount based on the next calculated NAV after the Fund receives your written request in proper form.
Send requests by mail to:
Federated Shareholder Services CompanySend requests by private courier or overnight delivery service to:
Federated Shareholder Services CompanyAll requests must include:
Call your investment professional or the Fund if you need special instructions.
Signatures must be guaranteed if:
A signature guarantee is designed to protect your account from fraud. Obtain a signature guarantee from a bank or trust company, savings association, credit union or broker, dealer, or securities exchange member. A notary public cannot provide a signature guarantee.
Your redemption proceeds will be mailed by check to your address of record. The following payment options are available if you complete the appropriate section of the New Account Form or an Account Service Options Form. These payment options require a signature guarantee if they were not established when the account was opened:
Although the Fund intends to pay Share redemptions in cash, it reserves the right to pay the redemption price in whole or in part by a distribution of the Fund's portfolio securities.
Redemption proceeds normally are wired or mailed within one business day after receiving a request in proper form. Payment may be delayed up to seven days:
You will not accrue interest or dividends on uncashed checks from the Fund if those checks are undeliverable and returned to the Fund.
The Fund will record your telephone instructions. If the Fund does not follow reasonable procedures, it may be liable for losses due to unauthorized or fraudulent telephone instructions.
The Fund no longer issues share certificates. If you are redeeming Shares represented by certificates previously issued by the Fund, you must return the certificates with your written redemption request. For your protection, send your certificates by registered or certified mail, but do not endorse them.
You will receive confirmation of purchases and redemptions. In addition, you will receive periodic statements reporting all account activity, including dividends and capital gains paid.
The Fund declares any dividends daily and pays them monthly to shareholders. If you purchase Shares by wire, you begin earning dividends on the day your wire is received. If you purchase Shares by check, you begin earning dividends on the business day after the Fund receives your check. In either case, you earn dividends through the day your redemption request is received.
In addition, the Fund pays any capital gains at least annually. Your dividends and capital gains distributions will be automatically reinvested in additional Shares without a sales charge, unless you elect cash payments.
If you purchase Shares just before a Fund declares a capital gain distribution, you will pay the full price for the Shares and then receive a portion of the price back in the form of a taxable distribution, whether or not you reinvest the distribution in Shares. Therefore, you should consider the tax implications of purchasing Shares shortly before the Fund declares a capital gain. Contact your investment professional or the Fund for information concerning when dividends and capital gains will be paid.
Due to the high cost of maintaining accounts with low balances, accounts may be closed if redemptions cause the account balance to fall below the minimum initial investment amount. Before an account is closed, you will be notified and allowed 30 days to purchase additional Shares to meet the minimum.
The Fund sends an annual statement of your account activity to assist you in completing your federal, state and local tax returns. Fund distributions of dividends and capital gains are taxable to you whether paid in cash or reinvested in the Fund. Dividends are taxable as ordinary income; capital gains are taxable at different rates depending upon the length of time the Fund holds its assets.
Fund distributions are expected to be primarily dividends. Redemptions are taxable sales. Please consult your tax adviser regarding your federal, state and local tax liability.
The Board of Trustees governs the Fund. The Board selects and oversees the Adviser, Federated Investment Management Company. The Adviser manages the Fund's assets, including buying and selling portfolio securities. The Adviser's address is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
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The Adviser and other subsidiaries of Federated advise approximately 190 mutual funds and separate accounts, which totaled approximately $140 billion in assets as of December 31, 2000. Federated was established in 1955 and is one of the largest mutual fund investment managers in the United States with approximately 1,800 employees. More than 4,000 investment professionals make Federated Funds available to their customers.
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Randall S. Bauer has been the Fund's Portfolio Manager since October 1995. He is Vice President of the Trust. Mr. Bauer joined Federated in 1989 and has been a Portfolio Manager and a Vice President of the Fund's Adviser since 1994. Mr. Bauer is a Chartered Financial Analyst and received his M.B.A. in Finance from Pennsylvania State University.
Robert E. Cauley has been the Fund's Portfolio Manager since March 1999. Mr. Cauley joined Federated in 1996 as a Senior Investment Analyst and an Assistant Vice President of the Fund's Adviser and has been a Portfolio Manager since 1997. Mr. Cauley has been a Vice President of the Adviser since 1999. Mr. Cauley was a member of the Asset-Backed Structuring Group at Lehman Brothers Holding, Inc. from 1994 to 1996. Mr. Cauley earned his M.S.I.A., concentrating in Finance and Economics, from Carnegie Mellon University.
The Adviser receives an annual investment advisory fee of 0.40% of the Fund's average daily net assets. The Adviser may voluntarily waive a portion of its fee or reimburse the Fund for certain operating expenses.
The following Financial Highlights will help you understand the Fund's financial performance for its past five fiscal years. Some of the information is presented on a per share basis. Total returns represent the rate an investor would have earned (or lost) on an investment in the Fund, assuming reinvestment of any dividends and capital gains.
This information has been audited by Ernst & Young LLP, whose report, along with the Fund's audited financial statements, is included in this prospectus.
(For a Share Outstanding Throughout Each Period)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors, on page 34.
|
Year Ended April 30 |
|
2001 |
|
|
2000 |
|
|
1999 |
|
|
1998 |
|
|
1997 |
|
|
|
|||||||||||||||
|
Net Asset Value, Beginning of Period |
|
$ 8.52 |
|
|
$ 8.67 |
|
|
$ 8.74 |
|
|
$ 8.68 |
|
|
$ 8.68 |
|
|
Income From Investment Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
0.56 |
|
|
0.53 |
|
|
0.52 |
|
|
0.52 |
|
|
0.54 |
|
|
Net realized and unrealized gain (loss) on investments |
|
0.22 |
|
|
(0.15 |
) |
|
(0.07 |
) |
|
0.06 |
|
|
0.01 |
|
|
|
|||||||||||||||
|
TOTAL FROM INVESTMENT OPERATIONS |
|
0.78 |
|
|
0.38 |
|
|
0.45 |
|
|
0.58 |
|
|
0.55 |
|
|
|
|||||||||||||||
|
Less Distributions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions from net investment income |
|
(0.56 |
) |
|
(0.53 |
) |
|
(0.52 |
) |
|
(0.52 |
) |
|
(0.54 |
) |
|
Distributions in excess of net investment income 1 |
|
-- |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
(0.01 |
) |
|
|
|||||||||||||||
|
TOTAL DISTRIBUTIONS |
|
(0.56 |
) |
|
(0.53 |
) |
|
(0.52 |
) |
|
(0.52 |
) |
|
(0.55 |
) |
|
|
|||||||||||||||
|
Net Asset Value, End of Period |
|
$ 8.74 |
|
|
$ 8.52 |
|
|
$ 8.67 |
|
|
$ 8.74 |
|
|
$ 8.68 |
|
|
|
|||||||||||||||
|
Total Return 2 |
|
9.39 |
% |
|
4.52 |
% |
|
5.25 |
% |
|
6.88 |
% |
|
6.53 |
% |
|
|
|||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios to Average Net Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
Expenses |
|
0.56 |
% |
|
0.56 |
% |
|
0.56 |
% |
|
0.56 |
% |
|
0.56 |
% |
|
|
|||||||||||||||
|
Net investment income |
|
6.41 |
% |
|
6.23 |
% |
|
5.88 |
% |
|
5.96 |
% |
|
6.21 |
% |
|
|
|||||||||||||||
|
Expense waiver/reimbursement 3 |
|
0.29 |
% |
|
0.28 |
% |
|
0.28 |
% |
|
0.28 |
% |
|
0.28 |
% |
|
|
|||||||||||||||
|
Supplemental Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
Net assets, end of period (000 omitted) |
|
$193,030 |
|
$189,395 |
|
$188,773 |
|
$197,610 |
|
$214,438 |
|
||||
|
|
|||||||||||||||
|
Portfolio turnover |
|
43 |
% |
|
44 |
% |
|
54 |
% |
|
49 |
% |
|
55 |
% |
|
|
|||||||||||||||
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 This voluntary expense decrease is reflected in both the expense and the net investment income ratios shown above.
See Notes which are an integral part of the Financial Statements
April 30, 2001
|
Principal
|
|
|
|
|
Value |
|
|
|
||||||
|
|
|
|
CORPORATE BONDS/ASSET-BACKED SECURITIES--57.5% |
|
|
|
|
|
|
|
Automotive--12.9% |
|
|
|
|
$ |
228,704 |
|
AFG Receivables Trust 1997-B, Class B, 6.40%, 2/15/2003 |
|
$ |
230,762 |
|
|
1,000,000 |
|
AmSouth Auto Trust 2000-1, Class A3, 6.67%, 7/15/2004 |
|
|
1,025,990 |
|
|
2,319,584 |
|
Arcadia Automobile Receivables Trust 1997-B, Class A5, 6.70%, 2/15/2005 |
|
|
2,346,329 |
|
|
1,000,000 |
|
DaimlerChrysler AG, 7.75%, 6/15/2005 |
|
|
1,034,920 |
|
|
4,000,000 |
|
Ford Motor Credit Co., Sr. Note, 5.75%, 2/23/2004 |
|
|
3,973,480 |
|
|
2,000,000 |
|
General Motors Acceptance Corp., Note, 5.80%, 3/12/2003 |
|
|
2,009,120 |
|
|
241,430 |
|
Household Automobile Revolving Trust I 1998-1, Class B1, 6.30%, 5/17/2005 |
|
|
245,018 |
|
|
2,500,000 |
|
Isuzu Auto Owner Trust 2001-1, Class A3, 4.88%, 11/22/2004 |
|
|
2,496,675 |
|
|
937,598 |
|
Key Auto Finance Trust 1999-1, 7.08%, 1/15/2007 |
|
|
954,336 |
|
|
1,704,302 |
|
Mellon Auto Grantor Trust 2000-1, Class B, 7.43%, 10/15/2006 |
|
|
1,762,769 |
|
|
4,000,000 |
|
Navistar Financial Corp. Owner Trust 2000-B, Class A3, 6.67%, 11/15/2004 |
|
|
4,098,600 |
|
|
2,500,000 |
|
Navistar Financial Corp. Owner Trust 2001-A, Class A3, 4.99%, 8/15/2005 |
|
|
2,496,475 |
|
|
789,447 |
|
The CIT Group Securitization Corp. II, Class B, 6.45%, 6/15/2018 |
|
|
798,163 |
|
|
3,758,354 |
|
Toyota Auto Receivables 1999-A Owner Trust, Class C, 6.70%, 8/16/2004 |
|
|
3,806,836 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
27,279,473 |
|
|
||||||
|
|
|
|
Banking--2.4% |
|
|
|
|
|
1,000,000 |
1 |
J.P. Morgan Chase & Co., Sub. Note, 5.288%, 8/19/2002 |
|
|
1,007,848 |
|
|
2,000,000 |
|
Mercantile Bancorporation, Inc., 6.80%, 6/15/2001 |
|
|
2,005,980 |
|
|
2,000,000 |
|
National Australia Bank, Ltd., Melbourne, Sub. Note, Series A, 6.40%, 12/10/2007 |
|
|
2,037,640 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
5,051,468 |
|
|
||||||
|
|
|
|
Beverage & Tobacco--0.6% |
|
|
|
|
|
1,149,000 |
|
Philip Morris Cos., Inc., Deb., 8.25%, 10/15/2003 |
|
|
1,212,390 |
|
|
||||||
|
|
|
|
Credit Card--14.2% |
|
|
|
|
|
3,000,000 |
|
American Express Credit Account Master Trust 1997-1, Class A, 6.40%, 4/15/2005 |
|
|
3,063,510 |
|
|
1,715,728 |
2 |
Banco Nacional de Mexico S.A., Credit Card Merchant Voucher Receivables Master Trust (Series 1996-A), Class A1, 6.25%, 12/1/2003 |
|
|
1,707,150 |
|
|
3,650,000 |
|
Chemical Master Credit Card Trust I 1995-3, Class A, 6.23%, 4/15/2005 |
|
|
3,714,094 |
|
|
|
2 |
Circuit City Credit Card Master Trust 2000-1, Class CTF, 6.22%, 2/15/2006 |
|
|
1,305,017 |
|
Principal
|
|
|
|
|
Value |
|
|
|
||||||
|
|
|
|
CORPORATE BONDS/ASSET-BACKED SECURITIES--continued |
|
|
|
|
|
|
|
Credit Card--continued |
|
|
|
|
$ |
3,000,000 |
|
Citibank Credit Card Issuance Trust 2000-C2, Class C2, 5.43%, 10/15/2005 |
|
$ |
3,006,630 |
|
|
2,000,000 |
|
Fingerhut Master Trust 1998-2, Class A, 6.23%, 2/15/2007 |
|
|
2,040,400 |
|
|
2,300,000 |
|
First Consumers Master Trust 2001-A, Class B, 6.14%, 9/15/2008 |
|
|
2,307,360 |
|
|
5,000,000 |
|
MBNA Master Credit Card Trust 1999-I, Class A, 6.40%, 1/18/2005 |
|
|
5,095,250 |
|
|
3,500,000 |
|
Prime Credit Card Master Trust 2000-1, Class A, 6.70%, 10/15/2009 |
|
|
3,618,265 |
|
|
3,000,000 |
|
Providian Master Trust 1997-4, Class B, 6.45%, 6/15/2007 |
|
|
3,055,980 |
|
|
1,000,000 |
|
Standard Credit Card Master Trust I, 1994-4, Class A, 8.25%, 11/7/2003 |
|
|
1,017,540 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
29,931,196 |
|
|
||||||
|
|
|
|
Electronics--0.5% |
|
|
|
|
|
1,000,000 |
|
Anixter International, Inc., Company Guarantee, 8.00%, 9/15/2003 |
|
|
1,015,240 |
|
|
||||||
|
|
|
|
Energy--0.7% |
|
|
|
|
|
1,500,000 |
1, 2 |
Osprey Trust, Sr. Secd. Note, 8.31%, 1/15/2003 |
|
|
1,547,115 |
|
|
||||||
|
|
|
|
Financial Intermediaries--2.1% |
|
|
|
|
|
2,400,000 |
|
Lehman Brothers Holdings, Inc., Note, 6.125%, 7/15/2003 |
|
|
2,439,240 |
|
|
2,000,000 |
|
Merrill Lynch & Co., Inc., Note, 6.00%, 2/12/2003 |
|
|
2,026,400 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
4,465,640 |
|
|
||||||
|
|
|
|
Home Equity Loan--10.1% |
|
|
|
|
|
2,000,000 |
2 |
125 Home Loan Owner Trust 1998-1A, Class M2, 7.75%, 2/15/2029 |
|
|
2,030,620 |
|
|
3,000,000 |
|
Asset Backed Funding Certificate 2001-AQ1, Class A3, 5.745%, 4/20/2027 |
|
|
2,990,850 |
|
|
1,000,000 |
|
Chase Funding Mortgage Loan 1999-1, Class IIB, 7.80%, 6/25/2028 |
|
|
1,003,890 |
|
|
1,183,002 |
|
Cityscape Home Equity Loan Trust 1997-1, Class A4, 7.23%, 3/25/2018 |
|
|
1,197,641 |
|
|
359,411 |
1 |
ContiMortgage Home Equity Loan Trust 1996-4, Class A10, 5.2625%, 1/15/2028 |
|
|
359,837 |
|
|
1,178,317 |
|
ContiMortgage Home Equity Loan Trust 1997-1, Class A7, 7.32%, 9/15/2021 |
|
|
1,195,064 |
|
|
1,168,335 |
2 |
ContiMortgage Home Equity Loan Trust 1993-3, Class A2, 5.54%, 7/15/2020 |
|
|
1,108,820 |
|
|
1,445,000 |
|
Green Tree Home Equity Loan Trust 1999-A, Class A3, 5.98%, 4/15/2018 |
|
|
1,464,747 |
|
|
798,539 |
|
Headlands Home Equity Loan Trust 1998-2, Class A3, 6.67%, 12/15/2024 |
|
|
809,313 |
|
|
1,000,000 |
|
Mellon Bank Home Equity Installment Loan 1998-1, Class B, 6.95%, 3/25/2015 |
|
|
988,300 |
|
|
2,363,000 |
|
New Century Home Equity Loan Trust 1997-NC5, Class M2, 7.24%, 10/25/2028 |
|
|
2,381,258 |
|
|
812,722 |
1, 2 |
Saxon Asset Securities Trust 2000-2, Class AV1, 5.31%, 7/25/2030 |
|
|
813,532 |
|
|
5,000,000 |
|
Sovereign Bank Home Equity Loan Trust 2000-1, Class A2, 6.96%, 2/25/2015 |
|
|
5,109,026 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
21,452,898 |
|
|
||||||
|
Principal
|
|
|
|
|
Value |
|
|
|
||||||
|
|
|
|
CORPORATE BONDS/ASSET-BACKED SECURITIES--continued |
|
|
|
|
|
|
|
Manufactured Housing--5.8% |
|
|
|
|
$ |
3,306,346 |
|
Green Tree Financial Corp. 1993-2, Class A4, 6.90%, 7/15/2018 |
|
$ |
3,390,493 |
|
|
2,000,000 |
|
Green Tree Financial Corp. 1996-2, Class B-1, 7.55%, 4/15/2027 |
|
|
1,956,977 |
|
|
4,000,000 |
2 |
Merit Securities Corp., 12-1, Class B, 7.98%, 7/28/2033 |
|
|
3,780,000 |
|
|
3,000,000 |
|
Merit Securities Corp., 13, Class A4, 7.88%, 12/28/2033 |
|
|
3,045,629 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
12,173,099 |
|
|
||||||
|
|
|
|
Other Asset Backed--2.2% |
|
|
|
|
|
760,691 |
1 |
Case Equipment Loan Trust 1999-A, Class B, 5.96%, 8/15/2005 |
|
|
769,511 |
|
|
141,329 |
|
Copelco Capital Funding Corp. X 1997-A, Class A4, 6.47%, 4/20/2005 |
|
|
141,860 |
|
|
7,118,027 |
2 |
FMAC Loan Receivables Trust 1997-A, 144A Class A-X, 1.00%, 4/01/2019 |
|
|
391,491 |
|
|
1,714,086 |
1, 2 |
Litigation Settlement Monetized Fee Trust 2001-1A, Class A1, 8.33%, 4/25/2031 |
|
|
1,707,658 |
|
|
301,964 |
|
NationsCredit Grantor Trust 1997-1, Class A, 6.75%, 8/15/2013 |
|
|
305,126 |
|
|
1,250,000 |
|
Tobacco Settlement Revenue Management Authority 2001-A, Class A, 7.666%, 5/15/2016 |
|
|
1,250,700 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
4,566,346 |
|
|
||||||
|
|
|
|
Supranational--0.8% |
|
|
|
|
|
1,700,000 |
|
Corp Andina De Fomento, Bond, 7.10%, 2/1/2003 |
|
|
1,738,828 |
|
|
||||||
|
|
|
|
Telecommunications & Cellular--2.0% |
|
|
|
|
|
1,000,000 |
|
MetroNet Communications Corp., Sr. Note, 12.00%, 8/15/2007 |
|
|
1,102,500 |
|
|
1,000,000 |
|
Sprint Capital Corp., 7.625%, 6/10/2002 |
|
|
1,017,690 |
|
|
2,085,000 |
|
U.S. West Communications, Inc., 7.20%, 11/1/2004 |
|
|
2,138,584 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
4,258,774 |
|
|
||||||
|
|
|
|
Utilities--3.2% |
|
|
|
|
|
1,500,000 |
|
California Infrastructure SDG&E-1 1997-1, Class A6, 6.31%, 9/25/2008 |
|
|
1,508,490 |
|
|
3,000,000 |
|
National Rural Utilities Cooperative Finance Corp., Collateral Trust, 9.00%, 9/1/2021 |
|
|
3,158,160 |
|
|
2,000,000 |
|
Ohio Power Co., 7.00%, 7/1/2004 |
|
|
2,024,180 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
6,690,830 |
|
|
||||||
|
|
|
|
TOTAL CORPORATE BONDS/ASSET-BACKED SECURITIES (IDENTIFIED COST $120,772,452) |
|
|
121,383,297 |
|
|
||||||
|
Principal
|
|
|
|
|
Value |
|
|
|
||||||
|
|
|
|
MORTGAGE BACKED SECURITIES--24.4% |
|
|
|
|
|
|
|
Commercial Mortgage Backed Securities--2.5% |
|
|
|
|
$ |
8,297,033 |
|
First Union Lehman Brothers Commercial Mortgage Trust, Series 1997-C1, Class IO, 1.30324%, 4/18/2027 |
|
$ |
435,483 |
|
|
4,000,000 |
1, 2 |
KMart CMBS Financing, Inc., Series 1997-1, Class C, 6.075%, 3/1/2007 |
|
|
3,983,460 |
|
|
1,000,000 |
1, 2 |
Nomura Depositor Trust Commercial Mortgage Pass-Thru 1998-STI, Class A-3, 6.18%, 1/15/2003 |
|
|
993,130 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
5,412,073 |
|
|
||||||
|
|
|
|
Non-Government Agency Mortgage Backed Securities--21.9% |
|
|
|
|
|
703,955 |
1, 2 |
Bayview Financial Acquisition Trust, 1998-1, Class MF2, 5.90%, 5/25/2029 |
|
|
661,500 |
|
|
621,905 |
1 |
Bayview Financial Acquisition Trust, 1998-1, Class MII, 5.80%, 5/25/2029 |
|
|
597,513 |
|
|
1,648,748 |
1, 2 |
Bayview Financial Acquisition Trust, 1998-1, Class MI1, 7.52%, 5/25/2029 |
|
|
1,605,993 |
|
|
372,654 |
1, 2 |
Bosque Asset Corp., Class 1, 7.66%, 6/5/2002 |
|
|
361,474 |
|
|
3,336,773 |
1, 2 |
C-BASS ABS, LLC Series 1997-1, Class A-1, 7.82%, 2/1/2017 |
|
|
3,303,405 |
|
|
272,102 |
|
GE Capital Mortgage Services, Inc., Series 1994-27, Class A3, 6.50%, 7/25/2024 |
|
|
272,275 |
|
|
4,668,887 |
|
GE Capital Mortgage Services, Inc., Series 1995-11, Class B1, 7.50%, 12/25/2025 |
|
|
4,694,193 |
|
|
467,846 |
|
GE Capital Mortgage Services, Inc., Series 1996-3, Class A1, 7.00%, 3/25/2026 |
|
|
468,358 |
|
|
218,698 |
|
GE Capital Mortgage Services, Inc., Series1998-11, Class 1A1, 6.75%, 6/25/2028 |
|
|
219,081 |
|
|
2,058,149 |
1, 2 |
Greenwich Capital Acceptance, Series 1991-4, 8.28%, 7/1/2019 |
|
|
2,042,713 |
|
|
2,199,543 |
1 |
Greenwich Capital Acceptance, Series 1993-AFCI, Class B1, 6.66%, 9/25/2023 |
|
|
2,177,547 |
|
|
348,460 |
1 |
Greenwich Capital Acceptance, Series 1993-LB2, Class A1, 8.51%, 8/25/2023 |
|
|
350,297 |
|
|
267,066 |
1 |
Greenwich Capital Acceptance, Series 1993-LB3, Class A1, 8.48%, 1/25/2024 |
|
|
269,290 |
|
|
2,755,567 |
1 |
Greenwich Capital Acceptance, Series 1994-C, Class B1, 7.735%, 1/25/2025 |
|
|
2,732,002 |
|
|
146,158 |
2 |
Long Beach Federal Savings Bank, Series 1992-3, Class A, 9.60%, 6/15/2022 |
|
|
146,158 |
|
|
3,070,000 |
1 |
Mellon Residential Funding Corp., Series 1998-TBC1, Class B1, 6.59258%, 10/25/2028 |
|
|
3,118,936 |
|
|
1,125,420 |
1, 2 |
Merrill Lynch Mortgage Investors, Inc., Class BB, 8.00%, 3/1/2031 |
|
|
1,121,380 |
|
|
1,467,328 |
2 |
Option One Mortgage Securities Corp., Series C 1999-4, Class CTF, 9.67%, 12/25/2029 |
|
|
1,482,926 |
|
|
3,361,731 |
|
PNC Mortgage Securities Corp., Series 1999-5 2A-1, Class 2A1, 6.75%, 7/25/2029 |
|
|
3,387,111 |
|
|
4,865,169 |
|
PNC Mortgage Securities Corp., Series 1999-9, Class 3A1, 7.22%, 10/25/2029 |
|
|
4,953,228 |
|
|
1,000,274 |
|
Prudential Home Mortgage Securities, Series 1992-5, Class A-6, 7.50%, 4/25/2007 |
|
|
1,018,959 |
|
Principal
|
|
|
|
|
Value |
|
|
|
||||||
|
|
|
|
MORTGAGE BACKED SECURITIES--continued |
|
|
|
|
|
|
|
Non-Government Agency Mortgage Backed Securities--continued |
|
|
|
|
$ |
2,000,000 |
|
Residential Accredit Loans, Inc., Series 1997-QS12, Class A6, 7.25%, 11/25/2027 |
|
$ |
2,033,620 |
|
|
1,178,464 |
1 |
Residential Funding Mortgage Securities I 1994-S13, Class M1, 7.00%, 5/25/2024 |
|
|
1,173,161 |
|
|
8,025,358 |
|
Structured Asset Securities Corp. 1999-ALS2, Class A2, 6.75%, 7/25/2029 |
|
|
8,025,309 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
46,216,429 |
|
|
||||||
|
|
|
|
TOTAL MORTGAGE BACKED SECURITIES (IDENTIFIED COST $51,632,610) |
|
|
51,628,502 |
|
|
||||||
|
|
|
|
GOVERNMENT AGENCIES MORTGAGE BACKED SECURITIES--7.4% |
|
|
|
|
|
2,000,000 |
|
Federal Home Loan Bank System, Sr. Note, 5.80%, 9/2/2008 |
|
|
1,987,120 |
|
|
9,000,000 |
|
Federal National Mortgage Association, Note, 5.125%, 2/13/2004 |
|
|
9,041,850 |
|
|
1,268,701 |
|
GNMA, Pool 354754, 7.50%, 2/15/2024 |
|
|
1,304,377 |
|
|
3,088,863 |
|
GNMA, Pool 780360, 11.00%, 9/15/2015 |
|
|
3,398,336 |
|
|
||||||
|
|
|
|
TOTAL GOVERNMENT AGENCIES MORTGAGE BACKED SECURITIES (IDENTIFIED COST $15,750,853) |
|
|
15,731,683 |
|
|
||||||
|
|
|
|
U.S. TREASURY NOTES--4.1% |
|
|
|
|
|
4,000,000 |
|
Note, 5.125%, 12/31/2002 |
|
|
4,055,800 |
|
|
500,000 |
|
Note, 5.625%, 5/15/2008 |
|
|
512,005 |
|
|
2,000,000 |
|
Note, 5.75%, 11/15/2005 |
|
|
2,070,000 |
|
|
1,000,000 |
|
Note, 5.75%, 8/15/2010 |
|
|
1,025,540 |
|
|
935,000 |
|
Note, 6.625%, 5/15/2007 |
|
|
1,008,613 |
|
|
||||||
|
|
|
|
TOTAL U.S. TREASURY NOTES (IDENTIFIED COST $8,656,644) |
|
|
8,671,958 |
|
|
||||||
|
|
|
|
MUTUAL FUNDS--11.2% |
|
|
|
|
|
23,666,192 |
|
Prime Value Obligations Fund, IS Shares (at net asset value) |
|
|
23,666,192 |
|
|
||||||
|
|
|
|
TOTAL INVESTMENTS (IDENTIFIED COST $220,478,751) 3 |
|
$ |
221,081,632 |
|
|
||||||
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, 2001, these securities amounted to $30,093,542 which represents 14.3% of net assets.
3 The cost of investments for federal tax purposes amounts to $220,478,751. The net unrealized appreciation of investments on a federal tax basis amounts to $602,881 which is comprised of $2,008,709 appreciation and $1,405,828 depreciation at April 30, 2001.
Note: The categories of investments are shown as a percentage of net assets ($211,175,624) at April 30, 2001.
The following acronym is used throughout this portfolio:
|
IO |
--Interest Only |
See Notes which are an integral part of the Financial Statements
April 30, 2001
|
Assets: |
|
|
|
|
|
|
|
|
Total investments in securities, at value (identified cost $220,478,751) |
|
|
|
|
$ |
221,081,632 |
|
|
Cash |
|
|
|
|
|
317,214 |
|
|
Income receivable |
|
|
|
|
|
1,207,003 |
|
|
Receivable for investments sold |
|
|
|
|
|
334,178 |
|
|
Receivable for shares sold |
|
|
|
|
|
127,185 |
|
|
|
|||||||
|
TOTAL ASSETS |
|
|
|
|
|
223,067,212 |
|
|
|
|||||||
|
Liabilities: |
|
|
|
|
|
|
|
|
Payable for investments purchased |
|
$ |
11,076,746 |
|
|
|
|
|
Payable for shares redeemed |
|
|
225,051 |
|
|
|
|
|
Income distribution payable |
|
|
575,191 |
|
|
|
|
|
Accrued expenses |
|
|
14,600 |
|
|
|
|
|
|
|||||||
|
TOTAL LIABILITIES |
|
|
|
|
|
11,891,588 |
|
|
|
|||||||
|
Net assets for 24,166,025 shares outstanding |
|
|
|
|
$ |
211,175,624 |
|
|
|
|||||||
|
Net Assets Consist of: |
|
|
|
|
|
|
|
|
Paid in capital |
|
|
|
|
$ |
230,822,870 |
|
|
Net unrealized appreciation of investments |
|
|
|
|
|
602,881 |
|
|
Accumulated net realized loss on investments |
|
|
|
|
|
(19,902,474 |
) |
|
Distributions in excess of net investment income |
|
|
|
|
|
(347,653 |
) |
|
|
|||||||
|
TOTAL NET ASSETS |
|
|
|
|
$ |
211,175,624 |
|
|
|
|||||||
|
Net Asset Value, Offering Price and Redemption Proceeds Per Share |
|
|
|
|
|
|
|
|
Institutional Shares: |
|
|
|
|
|
|
|
|
$193,030,145 ÷ 22,089,483 shares outstanding |
|
|
|
|
|
$8.74 |
|
|
|
|||||||
|
Institutional Service Shares: |
|
|
|
|
|
|
|
|
$18,145,479 ÷ 2,076,542 shares outstanding |
|
|
|
|
|
$8.74 |
|
|
|
|||||||
See Notes which are an integral part of the Financial Statements
Year Ended April 30, 2001
|
Investment Income: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
|
|
|
|
|
|
|
$ |
13,646,314 |
|
|
|||||||||||
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Investment adviser fee |
|
|
|
|
|
$ |
782,843 |
|
|
|
|
|
Administrative personnel and services fee |
|
|
|
|
|
|
155,000 |
|
|
|
|
|
Custodian fees |
|
|
|
|
|
|
14,091 |
|
|
|
|
|
Transfer and dividend disbursing agent fees and expenses |
|
|
|
|
|
|
71,239 |
|
|
|
|
|
Directors'/Trustees' fees |
|
|
|
|
|
|
10,373 |
|
|
|
|
|
Auditing fees |
|
|
|
|
|
|
12,525 |
|
|
|
|
|
Legal fees |
|
|
|
|
|
|
3,523 |
|
|
|
|
|
Portfolio accounting fees |
|
|
|
|
|
|
65,759 |
|
|
|
|
|
Distribution services fee--Institutional Service Shares |
|
|
|
|
|
|
25,562 |
|
|
|
|
|
Shareholder services fee--Institutional Shares |
|
|
|
|
|
|
463,715 |
|
|
|
|
|
Shareholder services fee--Institutional Service Shares |
|
|
|
|
|
|
25,562 |
|
|
|
|
|
Share registration costs |
|
|
|
|
|
|
18,788 |
|
|
|
|
|
Printing and postage |
|
|
|
|
|
|
37,968 |
|
|
|
|
|
Insurance premiums |
|
|
|
|
|
|
1,174 |
|
|
|
|
|
Miscellaneous |
|
|
|
|
|
|
3,753 |
|
|
|
|
|
|
|||||||||||
|
TOTAL EXPENSES |
|
|
|
|
|
|
1,691,875 |
|
|
|
|
|
|
|||||||||||
|
Waivers and Reimbursement of Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Waiver of investment adviser fee |
|
$ |
(72,445 |
) |
|
|
|
|
|
|
|
|
Waiver of distribution services fee--Institutional Service Shares |
|
|
(24,935 |
) |
|
|
|
|
|
|
|
|
Waiver of shareholder services fee--Institutional Shares |
|
|
(463,715 |
) |
|
|
|
|
|
|
|
|
Waiver of shareholder services fee--Institutional Service Shares |
|
|
(627 |
) |
|
|
|
|
|
|
|
|
Reimbursement of investment adviser fee |
|
|
(1,002 |
) |
|
|
|
|
|
|
|
|
|
|||||||||||
|
TOTAL WAIVERS AND REIMBURSEMENT OF EXPENSES |
|
|
|
|
|
|
(562,724 |
) |
|
|
|
|
|
|||||||||||
|
Net expenses |
|
|
|
|
|
|
|
|
|
|
1,129,151 |
|
|
|||||||||||
|
Net investment income |
|
|
|
|
|
|
|
|
|
|
12,517,163 |
|
|
|||||||||||
|
Realized and Unrealized Gain on Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gain on investments |
|
|
|
|
|
|
|
|
|
|
38,971 |
|
Net change in unrealized depreciation of investments |
|
|
|
|
|
|
|
|
|
|
5,042,476 |
|
|
|||||||||||
|
Net realized and unrealized gain on investments |
|
|
|
|
|
|
|
|
|
|
5,081,447 |
|
|
|||||||||||
|
Change in net assets resulting from operations |
|
|
|
|
|
|
|
|
|
$ |
17,598,610 |
|
|
|||||||||||
See Notes which are an integral part of the Financial Statements
|
Year Ended April 30 |
|
|
2001 |
|
|
|
2000 |
|
|
|
||||||||
|
Increase (Decrease) in Net Assets |
|
|
|
|
|
|
|
|
|
Operations: |
|
|
|
|
|
|
|
|
|
Net investment income |
|
$ |
12,517,163 |
|
|
$ |
13,428,467 |
|
|
Net realized gain on investments |
|
|
38,971 |
|
|
|
26,733 |
|
|
Net change in unrealized appreciation/depreciation |
|
|
5,042,476 |
|
|
|
(3,957,814 |
) |
|
|
||||||||
|
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS |
|
|
17,598,610 |
|
|
|
9,497,386 |
|
|
|
||||||||
|
Distributions to Shareholders |
|
|
|
|
|
|
|
|
|
Distributions From Net Investment Income: |
|
|
|
|
|
|
|
|
|
Institutional Shares |
|
|
(11,961,079 |
) |
|
|
(11,980,899 |
) |
|
Institutional Service Shares |
|
|
(633,750 |
) |
|
|
(1,334,302 |
) |
|
|
||||||||
|
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS |
|
|
(12,594,829 |
) |
|
|
(13,315,201 |
) |
|
|
||||||||
|
Share Transactions: |
|
|
|
|
|
|
|
|
|
Proceeds from sale of shares |
|
|
92,461,490 |
|
|
|
84,879,137 |
|
|
Net asset value of shares issued to shareholders in payment of distributions declared |
|
|
4,774,594 |
|
|
|
4,703,745 |
|
|
Cost of shares redeemed |
|
|
(94,457,508 |
) |
|
|
(95,927,697 |
) |
|
|
||||||||
|
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS |
|
|
2,778,576 |
|
|
|
(6,344,815 |
) |
|
|
||||||||
|
Change in net assets |
|
|
7,782,357 |
|
|
|
(10,162,630 |
) |
|
|
||||||||
|
Net Assets: |
|
|
|
|
|
|
|
|
|
Beginning of period |
|
|
203,393,267 |
|
|
|
213,555,897 |
|
|
|
||||||||
|
End of period |
|
$ |
211,175,624 |
|
|
$ |
203,393,267 |
|
|
|
||||||||
See Notes which are an integral part of the Financial Statements
April 30, 2001
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"), a diversified portfolio. 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.
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.
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. Investments in other open-end registered investment companies are valued at net asset value. Securities for which no quotations are readily available are valued at fair value as determined in good faith using methods approved by the Board of Trustees (the "Trustees").
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.
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 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. The Fund, along with other affiliated investment companies, may utilize a joint trading account for the purpose of entering into one or more repurchase agreements.
Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Dividend income and distributions to shareholders are recorded on the ex-dividend date. The Fund offers multiple classes of shares, which differ in their respective distribution and service fees. All shareholders bear the common expenses of the Fund/Trust based on average daily net assets of each class, without distinction between share classes. Dividends are declared separately for each class. No class has preferential dividend rights; differences in per share dividend rates are generally due to differences in separate class expenses.
In November 2000, the American Institute of Certified Public Accountants (AICPA) issued a revised version of the AICPA Audit and Accounting Guide for Investment Companies (the "Guide"). The Guide is effective for annual financial statements issued for fiscal years beginning after December 15, 2000. Management of the Fund does not anticipate that the adoption of the Guide will have a significant effect on the financial statements.
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) |
||||
|
|
||||
|
Paid-In Capital |
|
Accumulated Net
|
|
Undistributed Net
|
|
|
||||
|
$(4,049) |
|
$4,193 |
|
$(144) |
|
|
||||
Net investment income, net realized gains/losses, and net assets were not affected by this reclassification.
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 provision for federal tax is necessary.
At April 30, 2001, the Fund, for federal tax purposes, had a capital loss carryforward of $19,902,474, 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 |
|
|
||
|
2002 |
|
$ 626,512 |
|
|
||
|
2003 |
|
5,572,713 |
|
|
||
|
2004 |
|
10,784,773 |
|
|
||
|
2005 |
|
1,566,031 |
|
|
||
|
2006 |
|
696,886 |
|
|
||
|
2007 |
|
159,370 |
|
|
||
|
2008 |
|
496,189 |
|
|
||
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. Losses may occur on these transactions due to changes in market conditions or the failure of counterparties to perform under the contract.
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, 2001 is as follows:
|
Security |
|
Acquisition
|
|
Acquisition
|
|
|
||||
|
Banco Nacional de Mexico S.A., Credit Card Merchant Voucher Receivables Master Trust Series (1996-A), Class A1 |
|
1/9/1997 |
|
$2,148,973 |
|
|
||||
|
Bayview Financial Acquisition Trust, 1998-1, Class MF2 |
|
5/14/1998 |
|
720,016 |
|
|
||||
|
Bayview Financial Acquisition Trust, 1998-1, Class MI1 |
|
12/8/1998 |
|
1,695,969 |
|
|
||||
|
Bosque Asset Corp., Class 1 |
|
6/19/1997 |
|
619,238 |
|
|
||||
|
C-BASS ABS, LLC, Series 1997-1, Class A-1 |
|
2/25/1997 |
|
3,717,340 |
|
|
||||
|
Circuit City Credit Card Master Trust 2000-1, Class CTF |
|
2/23/2000 |
|
1,300,000 |
|
|
||||
|
ContiMortgage Home Equity Loan Trust 1993-3, Class A2 |
|
2/7/2000 |
|
1,301,589 |
|
|
||||
|
FMAC Loan Receivables Trust 1997-A, Class A-X |
|
6/16/1997 |
|
1,072,954 |
|
|
||||
|
Greenwich Capital Acceptance, 1991-4 |
|
1/7/1993 |
|
2,128,745 |
|
|
||||
|
K Mart CMBS Financing, Inc., Series 1997-1, Class C |
|
2/27/1997 |
|
4,000,000 |
|
|
||||
|
Litigation Settlement Monetized Fee Trust 2001-1A, Class A1 |
|
2/5/2001 |
|
1,749,332 |
|
|
||||
|
Long Beach Federal Savings Bank, Series 1992-3, Class A |
|
6/29/1992 |
|
186,744 |
|
|
||||
|
Merit Securities Corp., 12-1, Class B |
|
5/18/1999 |
|
3,904,276 |
|
|
||||
|
Merrill Lynch Mortgage Investors, Inc., Class BB |
|
4/13/2000 |
|
1,922,782 |
|
|
||||
|
Nomura Depositor Trust Commercial Mortgage Pass-Thru, 1998-STI, Class A-3 |
|
2/3/1998 |
|
1,000,000 |
|
|
||||
|
125 Home Loan Owner Trust, 1998-1A, Class M2 |
|
7/30/1998 |
|
1,999,062 |
|
|
||||
|
Option One Mortgage Securities Corp., Series C 1999-4, Class CTF |
|
11/10/1999 |
|
2,598,831 |
|
|
||||
|
Osprey Trust, Sr. Secd. Note |
|
2/21/2001 |
|
1,555,641 |
|
|
||||
|
Saxon Asset Securities Trust 2000-2, Class AV1 |
|
6/26/2001 |
|
1,002,097 |
|
|
||||
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.
Investment transactions are accounted for on a trade date basis.
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:
|
Year Ended April 30 |
|
2001 |
|
2000 |
||||||||||
|
|
||||||||||||||
|
Institutional Shares: |
|
Shares |
|
Amount |
|
Shares |
|
Amount |
||||||
|
|
||||||||||||||
|
Shares sold |
|
9,070,507 |
|
|
$ |
78,463,919 |
|
|
8,911,953 |
|
|
$ |
76,361,992 |
|
|
Shares issued to shareholders in payment of distributions declared |
|
519,564 |
|
|
|
4,486,277 |
|
|
444,065 |
|
|
|
3,796,683 |
|
|
Shares redeemed |
|
(9,739,215 |
) |
|
|
(84,093,582 |
) |
|
(8,900,987 |
) |
|
|
(76,116,228 |
) |
|
|
||||||||||||||
|
NET CHANGE RESULTING FROM INSTITUTIONAL SHARE TRANSACTIONS |
|
(149,144 |
) |
|
$ |
(1,143,386 |
) |
|
455,031 |
|
|
$ |
4,042,447 |
|
|
|
||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30 |
|
2001 |
|
2000 |
||||||||||
|
|
||||||||||||||
|
Institutional Service Shares: |
|
Shares |
|
Amount |
|
Shares |
|
Amount |
||||||
|
|
||||||||||||||
|
Shares sold |
|
1,605,415 |
|
|
$ |
13,997,571 |
|
|
992,483 |
|
|
$ |
8,517,145 |
|
|
Shares issued to shareholders in payment of distributions declared |
|
33,448 |
|
|
|
288,317 |
|
|
106,036 |
|
|
|
907,062 |
|
|
Shares redeemed |
|
(1,206,042 |
) |
|
|
(10,363,926 |
) |
|
(2,314,778 |
) |
|
|
(19,811,469 |
) |
|
|
||||||||||||||
|
NET CHANGE RESULTING FROM INSTITUTIONAL SERVICE SHARE TRANSACTIONS |
|
432,821 |
|
|
$ |
3,921,962 |
|
|
(1,216,259 |
) |
|
$ |
(10,387,262 |
) |
|
|
||||||||||||||
|
NET CHANGE RESULTING FROM SHARE TRANSACTIONS |
|
283,677 |
|
|
$ |
2,778,576 |
|
|
(761,228 |
) |
|
$ |
(6,344,815 |
) |
|
|
||||||||||||||
Federated Investment Management Company, the Fund's investment adviser (the "Adviser"), receives for its services an annual investment adviser fee equal to 0.40% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fees. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion.
Pursuant to an Exemptive Order, the Fund may invest in the Prime Value Obligation Fund, Institutional Shares, which is managed by the Fund's Adviser. The Adviser has agreed to reimburse certain investment adviser fees as a result of the transactions.
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 a scale that ranges from 0.15% to 0.075% of the average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors, Inc., subject to a $125,000 minimum per portfolio and $30,000 per each additional class.
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. FSC may voluntarily choose to waive any portion of its fee. FSC can modify or terminate this voluntary waiver at any time at its sole discretion.
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.
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.
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.
During the year ended April 30, 2001, the Fund engaged in purchase and sale transactions with funds that have a common investment adviser (or affiliated investment advisers), common Directors/Trustees, and/or common Officers. These purchase and sales transactions complied with Rule 17a-7 under the Act and amounted to $129,696,899 and $107,852,427, respectively.
Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies.
Purchases and sales of investments, excluding short-term securities (and in-kind contributions), for the year ended April 30, 2001, were as follows:
|
Purchases |
|
$ |
79,866,822 |
|
|
|||
|
Sales |
|
$ |
81,193,513 |
|
|
|||
For the year ended April 30, 2001, the Fund did not designate any long-term capital gains dividends.
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the Federated Short-Term Income Fund (the "Fund"), one of the portfolios constituting Federated Income Securities Trust, as of April 30, 2001, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the 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 auditing standards generally accepted in the United States. 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, 2001, 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 the Federated Short-Term Income Fund, a portfolio of Federated Income Securities Trust, at April 30, 2001, 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 accounting principles generally accepted in the United States.
Ernst & Young LLP
Boston, Massachusetts
June 19, 2001
<R>
A Statement of Additional Information (SAI) dated June 30, 2001 is incorporated by reference into this prospectus. Additional information about the Fund and its investments is contained in the Fund's SAI and Annual and Semi-Annual Reports to shareholders as they become available. The Annual Report's Management's Discussion of Fund Performance discusses market conditions and investment strategies that significantly affected the Fund's performance during its last fiscal year. To obtain the SAI, Annual Report, Semi-Annual Report and other information without charge, and to make inquiries, call your investment professional or the Fund at 1-800-341-7400.
</R>
<R>
You can obtain information about the Fund (including the SAI) by writing to or visiting the SEC's Public Reference Room in Washington, DC. You may also access Fund information from the EDGAR Database on the SEC's Internet site at http://www.sec.gov. You can purchase copies of this information by contacting the SEC by email at publicinfo@sec.gov or by writing to the SEC's Public Reference Section, Washington, DC 20549-0102. Call 1-202-942-8090 for information on the Public Reference Room's operations and copying fees.
</R>
Federated
World-Class Investment Manager®
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
Investment Company Act File No. 811-4577
Federated is a registered mark of Federated Investors, Inc.
2001 ©Federated Investors, Inc.
Cusip 31420C209
<R>
1111903A-IS (6/01)
</R>
Federated
World-Class Investment Manager®
A Portfolio of Federated Income Securities Trust
<R>
</R>
<R>
June 30, 2001
</R>
<R>
A mutual fund seeking to provide current income by investing primarily in a diversified portfolio of short- and medium-term high grade debt securities.
</R>
As with all mutual funds, the Securities and Exchange Commission (SEC) has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense.
NOT FDIC INSURED * MAY LOSE VALUE * NO BANK GUARANTEE
| Risk/Return Summary | 1 |
| What are the Fund's Fees and Expenses? | 3 |
| What are the Fund's Investment Strategies? | 4 |
| What are the Principal Securities in Which the Fund Invests? | 6 |
| What are the Specific Risks of Investing in the Fund? | 9 |
| What Do Shares Cost? | 11 |
| How is the Fund Sold? | 11 |
| How to Purchase Shares | 12 |
| How to Redeem Shares | 14 |
| Account and Share Information | 17 |
| Who Manages the Fund? | 18 |
| Financial Information | 19 |
| Report of Ernst & Young LLP, Independent Auditors | 34 |
The Fund's investment objective is to seek to provide current income. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by following the strategies and policies described in this prospectus.
The Fund invests in a diversified portfolio of investment grade fixed income securities consisting primarily of U.S. government and privately issued mortgage backed and asset backed securities, corporate debt securities, and U.S. treasury and agency securities. The Adviser seeks to enhance the Fund's performance by allocating relatively more of its portfolio to the security type that the Adviser expects to offer the best balance between current income and risk.
<R>
Although the value of the Fund's shares will fluctuate, the Adviser will seek to manage the magnitude of fluctuation by limiting the Fund's dollar-weighted average duration within a range of one to two years (and, in any event, to not more than three years). Duration measures the price sensitivity of a fixed income security to changes in interest rates.
</R>
All mutual funds take investment risks. Therefore, it is possible to lose money by investing in the Fund. The primary factors that may reduce the Fund's returns include:
The Shares offered by this prospectus are not deposits or obligations of any bank, are not endorsed or guaranteed by any bank and are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other government agency.
The bar chart shows the variability of the Fund's Institutional Service Shares total returns on a calendar year-end basis.
<R>
The Fund's Institutional Service Shares are sold without a sales charge (load). The total returns displayed above are based upon net asset value.
</R>
<R>
The Fund's Institutional Service Shares total return for the three-month period from January 1, 2001 to March 31, 2001 was 2.68%.
</R>
<R>
Within the period shown in the Chart, the Fund's Institutional Service Shares highest quarterly return was 3.77% (quarter ended June 30, 1995). Its lowest quarterly return was (0.70)% (quarter ended June 30, 1994).
</R>
<R>
The following table represents the Fund's Institutional Service Shares Average Annual Total Returns for the calendar periods ended December 31, 2000. The table shows the Fund's total returns averaged over a period of years relative to the Merrill Lynch 1-3 Year Short-Term Corporate Index (ML1-3STC), a broad-based market index, and the Lipper Short Investment Grade Debt Funds Average (LSIGDFA), an average of funds with similar investment objectives. Total returns for the indexes shown do not reflect sales charges, expenses or other fees that the SEC requires to be reflected in the Fund's performance. Indexes are unmanaged, and it is not possible to invest directly in an index.
|
Calendar Period |
|
Fund |
|
ML1-3STC |
|
LSIGDFA |
|
|
||||||
|
1 Year |
|
8.48% |
|
7.61% |
|
7.35% |
|
5 Years |
|
5.72% |
|
6.31% |
|
5.39% |
|
Start of Performance 1 |
|
5.51% |
|
6.63% |
|
5.52% |
1 The Fund's Institutional Service Shares start of performance date was January 24, 1992.
Past performance is no guarantee of future results. This information provides you with historical performance information so that you can analyze whether the Fund's investment risks are balanced by its potential returns.
</R>
This table describes the fees and expenses that you may pay if you buy and hold Shares of the Fund's Institutional Service Shares.
This Example is intended to help you compare the cost of investing in the Fund's Institutional Service Shares with the cost of investing in other mutual funds.
<R>
The Example assumes that you invest $10,000 in the Fund's Institutional Service Shares for the time periods indicated and then redeem all of your Shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the Fund's Institutional Service Shares operating expenses are before waivers as shown in the table and remain the same. Although your actual costs and returns may be higher or lower, based on these assumptions your costs would be:
|
1 Year |
|
$ |
112 |
|
|
|||
|
3 Years |
|
$ |
350 |
|
|
|||
|
5 Years |
|
$ |
606 |
|
|
|||
|
10 Years |
|
$ |
1,340 |
|
|
|||
</R>
The Fund invests in a diversified portfolio of investment grade fixed income securities consisting primarily of U.S. government and privately issued mortgage backed and asset backed securities; corporate debt securities; and U.S. treasury and agency securities. Investment grade securities are those rated BBB or higher by a nationally recognized statistical rating organization (NRSRO). In addition, at least 65% of the Fund's securities must be rated A or higher (or, for short-term instruments, in one of the two highest rating categories) by a NRSRO. A description of the various types of securities in which the Fund invests, and their risks, immediately follows this strategy section.
The Adviser seeks to enhance the Fund's performance by allocating relatively more of its portfolio to the security type that the Adviser expects to offer the best balance between current income and risk and thus offers the greatest potential for return. The allocation process is based on the Adviser's continuing analysis of a variety of economic and market indicators in order to arrive at the projected yield "spread" of each security type. (The spread is the difference between the yield of a security versus the yield of a U.S. treasury security with a comparable average life.) The security's projected spread is weighed against the spread the security can currently be purchased for, as well as the security's risk of prepayment (in the case of asset backed and mortgage backed securities) and its credit risk (in the case of corporate securities and privately issued asset backed and mortgage backed securities) in order to complete the analysis.
Asset and mortgage backed securities tend to amortize principal on a somewhat irregular schedule over time, since the borrower can usually prepay all or part of the loan without penalty. These securities generally offer higher yields versus U.S. treasury securities and non-mortgage backed agency securities to compensate for this prepayment risk as well as any credit risk which might be present in the security. Similarly, corporate debt securities, which tend to pay off on a predetermined schedule, generally offer higher yields than treasury and agency securities to compensate for credit risk. The Adviser actively manages the Fund's portfolio, seeking the higher relative returns of asset and mortgage backed securities and corporate debt securities, while attempting to limit the associated prepayment or credit risk.
The Adviser attempts to manage the Fund's prepayment risk by selecting asset and mortgage backed securities with characteristics that make prepayment fluctuations less likely. Characteristics that the Adviser may consider in selecting securities include the average interest rates of the underlying mortgages and the federal agencies (if any) that support the mortgages. The Adviser attempts to assess the relative returns and risks for mortgage backed securities by analyzing how the timing, amount and division of cash flows might change in response to changing economic and market conditions.
The Adviser attempts to manage the Fund's credit risk by selecting corporate debt securities that make default in the payment of principal and interest less likely. The Adviser analyzes a variety of factors, including macroeconomic analysis and corporate earnings analysis to determine which business sectors and credit ratings are most advantageous for investment by the Fund. In selecting individual corporate fixed income securities, the Adviser analyzes the issuer's business, competitive position, and general financial condition to assess whether the security's credit risk is commensurate with its potential return.
<R>
In addition to managing the Fund's portfolio to seek enhanced current income while minimizing prepayment and credit risk, the Adviser also seeks to limit the magnitude of fluctuation of the value of the Fund's shares. The Adviser attempts to manage price fluctuation by limiting the Fund's dollar-weighted average duration to within a range of one to two years and, in any event, to no greater than three years.
</R>
The Adviser may lengthen or shorten duration from time-to-time based on its interest rate outlook. If the Adviser expects interest rates to decline, it will generally lengthen the Fund's duration, and if the Adviser expects interest rates to increase, it will generally shorten the Fund's duration. The Adviser formulates its interest rate outlook and otherwise attempts to anticipate changes in economic and market conditions in analyzing a variety of factors, such as:
There is no assurance that the Adviser's efforts to forecast market interest rates and assess the impact of market interest rates on particular securities will be successful.
The Fund may temporarily depart from its principal investment strategies by investing its assets in cash and shorter-term debt securities and similar obligations. It may do this to minimize potential losses and maintain liquidity to meet shareholder redemptions during adverse market conditions. This may cause the Fund to give up greater investment returns to maintain the safety of principal, that is, the original amount invested by shareholders.
Fixed income securities pay interest, dividends or distributions at a specified rate. The rate may be a fixed percentage of the principal or adjusted periodically. In addition, the issuer of a fixed income security must repay the principal amount of the security, normally within a specified time. Fixed income securities provide more regular income than equity securities. However, the returns on fixed income securities are limited and normally do not increase with the issuer's earnings. This limits the potential appreciation of fixed income securities as compared to equity securities.
A security's yield measures the annual income earned on a security as a percentage of its price. A security's yield will increase or decrease depending upon whether it costs less (a discount) or more (a premium) than the principal amount. If the issuer may redeem the security before its scheduled maturity, the price and yield on a discount or premium security may change based upon the probability of an early redemption. Securities with higher risks generally have higher yields.
<R>
The following describes the principal types of fixed income securities in which the Fund may invest:
</R>
Treasury securities are direct obligations of the federal government of the United States. Treasury securities are generally regarded as having the lowest credit risks.
Agency securities are issued or guaranteed by a federal agency or other government sponsored entity acting under federal authority (a Government Sponsored Entity, or GSE). The United States supports some GSEs with its full faith and credit. Other GSEs receive support through federal subsidies, loans or other benefits. A few GSEs have no explicit financial support, but are regarded as having implied support because the federal government sponsors their activities. Agency securities are generally regarded as having low credit risks, but not as low as treasury securities.
The Fund treats mortgage backed securities guaranteed by GSEs as agency securities. Although a GSE guarantee protects against credit risks, it does not reduce the interest rate and prepayment risks of these mortgage backed securities.
Corporate debt securities are fixed income securities issued by businesses. Notes, bonds, debentures and commercial paper are the most prevalent types of corporate debt securities. The Fund may also purchase interests in bank loans to companies. The credit risks of corporate debt securities vary widely among issuers.
In addition, the credit risk of an issuer's debt security may vary based on its priority for repayment. For example, higher ranking (senior) debt securities have a higher priority than lower ranking (subordinated) securities. This means that the issuer might not make payments on subordinated securities while continuing to make payments on senior securities. In addition, in the event of bankruptcy, holders of senior securities may receive amounts otherwise payable to the holders of subordinated securities. Some subordinated securities, such as trust preferred and capital securities notes, also permit the issuer to defer payments under certain circumstances. For example, insurance companies issue securities known as surplus notes that permit the insurance company to defer any payment that would reduce its capital below regulatory requirements.
Mortgage backed securities represent interests in pools of mortgages. The mortgages that comprise a pool normally have similar interest rates, maturities and other terms. Mortgages may have fixed or adjustable interest rates. Interests in pools of adjustable rate mortgages are known as ARMs.
<R>
Mortgage backed securities come in a variety of forms. Many have extremely complicated terms. The simplest form of mortgage backed securities are pass-through certificates. An issuer of pass-through certificates gathers monthly payments from an underlying pool of mortgages. Then, the issuer deducts its fees and expenses and passes the balance of the payments onto the certificate holders once a month. Holders of pass-through certificates receive a pro rata share of all payments and prepayments from the underlying mortgages. As a result, the holders assume all the prepayment risks of the underlying mortgages.
</R>
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)
<R>
CMOs, including interests in real estate mortgage investment conduits (REMICs), allocate payments and prepayments from an underlying pass-through certificate among holders of different classes of mortgage backed securities. This creates different prepayment and interest rate risks for each CMO class. The degree of increased or decreased prepayment risks depends upon the structure of the CMOs. However, the actual returns on any type of mortgage backed security depend upon the performance of the underlying pool of mortgages, which no one can predict and will vary among pools.
</R>
SEQUENTIAL CMOS
In a sequential pay CMO, one class of CMOs receives all principal payments and prepayments. The next class of CMOs receives all principal payments after the first class is paid off. This process repeats for each sequential class of CMO. As a result, each class of sequential pay CMOs reduces the prepayment risks of subsequent classes.
<R>
Asset backed securities are payable from pools of obligations other than mortgages. Most asset backed securities involve consumer or commercial debts with maturities of less than ten years. However, almost any type of fixed income assets (including other fixed income securities) may be used to create an asset backed security. Asset backed securities may take the form of commercial paper, notes, or pass-through certificates. Asset backed securities have prepayment risks. Like CMOs, the cash flows of asset backed securities may be highly structured.
</R>
Bank instruments are unsecured interest bearing deposits with banks. Bank instruments include bank accounts, time deposits, certificates of deposit and banker's acceptances. Yankee instruments are denominated in U.S. dollars and issued by U.S. branches of foreign banks. Eurodollar instruments are denominated in U.S. dollars and issued by non-U.S. branches of U.S. or foreign banks.
Credit enhancement consists of an arrangement in which a company agrees to pay amounts due on a fixed income security if the issuer defaults. In some cases the company providing credit enhancement makes all payments directly to the security holders and receives reimbursement from the issuer. Normally, the credit enhancer has greater financial resources and liquidity than the issuer. For this reason, the Adviser usually evaluates the credit risk of a fixed income security based solely upon its credit enhancement.
<R>
</R>
<R>
The Adviser will determine whether a security is investment grade based upon the credit ratings given by one or more NRSROs. For example, Standard & Poor's, a rating service, assigns ratings to investment grade securities (AAA, AA, A, and BBB) based on their assessment of the likelihood of the issuer's inability to pay interest or principal (default) when due on each security. Lower credit ratings correspond to higher credit risk. If a security has not received a rating, the Fund must rely entirely upon the Adviser's credit assessment that the security is comparable to investment grade. If a security is downgraded below the minimum quality grade discussed above, the Adviser will reevaluate the security, but will not be required to sell it.
</R>
Prices of fixed income securities rise and fall in response to changes in the interest rate paid by similar securities. Generally, when interest rates rise, prices of fixed income securities fall. However, market factors, such as the demand for particular fixed income securities, may cause the price of certain fixed income securities to fall while the prices of other securities rise or remain unchanged.
Interest rate changes have a greater effect on the price of fixed income securities with longer durations. Duration measures the price sensitivity of a fixed income security to changes in interest rates.
Credit risk is the possibility that an issuer will default on a security by failing to pay interest or principal when due. If an issuer defaults, the Fund will lose money.
Many fixed income securities receive credit ratings from services such as Standard & Poor's and Moody's Investor Services, Inc. These services assign ratings to securities by assessing the likelihood of issuer default. Lower credit ratings correspond to higher credit risk. If a security has not received a rating, the Fund must rely entirely upon the Adviser's credit assessment.
<R>
Fixed income securities generally compensate for greater credit risk by paying interest at a higher rate. The difference between the yield of a security and the yield of a U.S. Treasury security with a comparable maturity (the spread) measures the additional interest paid for the additional risk. Spreads may increase generally in response to adverse economic or market conditions. A security's spread may also increase if the security's rating is lowered, or the security is perceived to have an increased credit risk. An increase in the spread will cause the price of the security to decline.
</R>
Credit risk includes the possibility that a party to a transaction involving the Fund will fail to meet its obligations. This could cause the Fund to lose the benefit of the transaction or prevent the Fund from selling or buying other securities to implement its investment strategy.
Unlike traditional fixed income securities, which pay a fixed rate of interest until maturity (when the entire principal amount is due) payments on mortgage backed securities include both interest and a partial payment of principal. Partial payment of principal may be comprised of scheduled principal payments as well as unscheduled payments from the voluntary prepayment, refinancing, or foreclosure of the underlying loans. These unscheduled prepayments of principal create risks that can adversely affect a Fund holding mortgage backed securities.
For example, when interest rates decline, the values of mortgage backed securities generally rise. However, when interest rates decline, unscheduled prepayments can be expected to accelerate, and the Fund would be required to reinvest the proceeds of the prepayments at the lower interest rates then available. Unscheduled prepayments would also limit the potential for capital appreciation on mortgage backed securities.
Conversely, when interest rates rise, the values of mortgage backed securities generally fall. Since rising interest rates typically result in decreased prepayments, this could lengthen the average lives of mortgage backed securities, and cause their value to decline more than traditional fixed income securities.
Generally, mortgage backed securities compensate for the increased risk associated with prepayments by paying a higher yield. The additional interest paid for risk is measured by the difference between the yield of a mortgage backed security and the yield of a U.S. Treasury security with a comparable maturity (the spread). An increase in the spread will cause the price of the mortgage backed security to decline. Spreads generally increase in response to adverse economic or market conditions. Spreads may also increase if the security is perceived to have an increased prepayment risk or is perceived to have less market demand.
<R>
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is open. When the Fund receives your transaction request in proper form (as described in this prospectus) it is processed at the next calculated net asset value (NAV). The Fund does not charge a front-end sales charge. NAV is determined at the end of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE is open. The Fund generally values fixed income securities according to the mean between bid and asked prices as furnished by an independent pricing service, except that fixed income securities with remaining maturities of less than 60 days at the time of purchase may be valued at amortized cost.
</R>
<R>
The Fund's current NAV and public offering price may be found in the mutual funds section of certain local newspapers under "Federated."
</R>
The required minimum initial investment for Fund Shares is $25,000. There is no required minimum subsequent investment amount.
An account may be opened with a smaller amount as long as the $25,000 minimum is reached within 90 days. An institutional investor's minimum investment is calculated by combining all accounts it maintains with the Fund. Accounts established through investment professionals may be subject to a smaller minimum investment amount. Keep in mind that investment professionals may charge you fees for their services in connection with your Share transactions.
The Fund offers two share classes: Institutional Shares and Institutional Service Shares, each representing interests in a single portfolio of securities. This prospectus relates only to Institutional Service Shares. Each share class has different expenses, which affect their performance. Contact your investment professional or call 1-800-341-7400 for more information concerning the other class.
The Fund's Distributor, Federated Securities Corp., markets the Shares described in this prospectus to retail and private banking customers of financial institutions or to individuals, directly or through investment professionals.
When the Distributor receives marketing fees, it may pay some or all of them to investment professionals. The Distributor and its affiliates may pay out of their assets other amounts (including items of material value) to investment professionals for marketing and servicing Shares. The Distributor is a subsidiary of Federated Investors, Inc. (Federated).
The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to the Distributor and investment professionals for the sale, distribution and customer servicing of the Fund's Institutional Service Shares. Because these Shares pay marketing fees on an ongoing basis, your investment cost may be higher over time than other shares with different marketing fees.
You may purchase Shares through an investment professional or directly from the Fund. The Fund reserves the right to reject any request to purchase Shares.
Investment professionals should send payments according to the instructions in the sections "By Wire" or "By Check."
You will become the owner of Shares and your Shares will be priced at the next calculated NAV after the Fund receives your wire or your check. If your check does not clear, your purchase will be canceled and you could be liable for any losses or fees incurred by the Fund or Federated Shareholder Services Company, the Fund's transfer agent.
An institution may establish an account and place an order by calling the Fund and the Shares will be priced at the next calculated NAV after the Fund receives the order.
Send your wire to:
State Street Bank and Trust CompanyYou cannot purchase Shares by wire on holidays when wire transfers are restricted.
Make your check payable to The Federated Funds, note your account number on the check, and mail it to:
Federated Shareholder Services CompanyIf you send your check by a private courier or overnight delivery service that requires a street address, mail it to:
Federated Shareholder Services CompanyPayment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will not accept third-party checks (checks originally payable to someone other than you or The Federated Funds).
Once you have opened an account, you may purchase additional Shares through a depository institution that is an ACH member. This purchase option can be established by completing the appropriate sections of the New Account Form.
You should redeem Shares:
Submit your redemption request to your investment professional by the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). The redemption amount you will receive is based upon the next calculated NAV after the Fund receives the order from your investment professional.
<R>
You may redeem Shares by simply calling the Fund at 1-800-341-7400.
</R>
If you call before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time), you will receive a redemption amount based on that day's NAV.
You may redeem Shares by mailing a written request to the Fund.
You will receive a redemption amount based on the next calculated NAV after the Fund receives your written request in proper form.
Send requests by mail to:
Federated Shareholder Services CompanySend requests by private courier or overnight delivery service to:
Federated Shareholder Services CompanyAll requests must include:
Call your investment professional or the Fund if you need special instructions.
Signatures must be guaranteed if:
A signature guarantee is designed to protect your account from fraud. Obtain a signature guarantee from a bank or trust company, savings association, credit union or broker, dealer, or securities exchange member. A notary public cannot provide a signature guarantee.
Your redemption proceeds will be mailed by check to your address of record. The following payment options are available if you complete the appropriate section of the New Account Form or an Account Service Options Form. These payment options require a signature guarantee if they were not established when the account was opened:
Although the Fund intends to pay Share redemptions in cash, it reserves the right to pay the redemption price in whole or in part by a distribution of the Fund's portfolio securities.
Redemption proceeds normally are wired or mailed within one business day after receiving a request in proper form. Payment may be delayed up to seven days:
You will not accrue interest or dividends on uncashed checks from the Fund if those checks are undeliverable and returned to the Fund.
The Fund will record your telephone instructions. If the Fund does not follow reasonable procedures, it may be liable for losses due to unauthorized or fraudulent telephone instructions.
The Fund no longer issues share certificates. If you are redeeming Shares represented by certificates previously issued by the Fund, you must return the certificates with your written redemption request. For your protection, send your certificates by registered or certified mail, but do not endorse them.
You will receive confirmation of purchases and redemptions. In addition, you will receive periodic statements reporting all account activity, including dividends and capital gains paid.
The Fund declares any dividends daily and pays them monthly to shareholders. If you purchase Shares by wire, you begin earning dividends on the day your wire is received. If you purchase Shares by check, you begin earning dividends on the business day after the Fund receives your check. In either case, you earn dividends through the day your redemption request is received.
In addition, the Fund pays any capital gains at least annually. Your dividends and capital gains distributions will be automatically reinvested in additional Shares without a sales charge, unless you elect cash payments.
If you purchase Shares just before a Fund declares a capital gain distribution, you will pay the full price for the Shares and then receive a portion of the price back in the form of a taxable distribution, whether or not you reinvest the distribution in Shares. Therefore, you should consider the tax implications of purchasing Shares shortly before the Fund declares a capital gain. Contact your investment professional or the Fund for information concerning when dividends and capital gains will be paid.
Due to the high cost of maintaining accounts with low balances, accounts may be closed if redemptions cause the account balance to fall below the minimum initial investment amount. Before an account is closed, you will be notified and allowed 30 days to purchase additional Shares to meet the minimum.
The Fund sends an annual statement of your account activity to assist you in completing your federal, state and local tax returns. Fund distributions of dividends and capital gains are taxable to you whether paid in cash or reinvested in the Fund. Dividends are taxable as ordinary income; capital gains are taxable at different rates depending upon the length of time the Fund holds its assets.
Fund distributions are expected to be primarily dividends. Redemptions are taxable sales. Please consult your tax adviser regarding your federal, state and local tax liability.
The Board of Trustees governs the Fund. The Board selects and oversees the Adviser, Federated Investment Management Company. The Adviser manages the Fund's assets, including buying and selling portfolio securities. The Adviser's address is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
<R>
The Adviser and other subsidiaries of Federated advise approximately 190 mutual funds and separate accounts, which totaled approximately $140 billion in assets as of December 31, 2000. Federated was established in 1955 and is one of the largest mutual fund investment managers in the United States with approximately 1,800 employees. More than 4,000 investment professionals make Federated Funds available to their customers.
</R>
Randall S. Bauer has been the Fund's Portfolio Manager since October 1995. He is Vice President of the Trust. Mr. Bauer joined Federated in 1989 and has been a Portfolio Manager and a Vice President of the Fund's Adviser since 1994. Mr. Bauer is a Chartered Financial Analyst and received his M.B.A. in Finance from Pennsylvania State University.
Robert E. Cauley has been the Fund's Portfolio Manager since March 1999. Mr. Cauley joined Federated in 1996 as a Senior Investment Analyst and an Assistant Vice President of the Fund's Adviser and has been a Portfolio Manager since 1997. Mr. Cauley has been a Vice President of the Adviser since 1999. Mr. Cauley was a member of the Asset-Backed Structuring Group at Lehman Brothers Holding, Inc. from 1994 to 1996. Mr. Cauley earned his M.S.I.A., concentrating in Finance and Economics, from Carnegie Mellon University.
The Adviser receives an annual investment advisory fee of 0.40% of the Fund's average daily net assets. The Adviser may voluntarily waive a portion of its fee or reimburse the Fund for certain operating expenses.
The following Financial Highlights will help you understand the Fund's financial performance for its past five fiscal years. Some of the information is presented on a per share basis. Total returns represent the rate an investor would have earned (or lost) on an investment in the Fund, assuming reinvestment of any dividends and capital gains.
This information has been audited by Ernst & Young LLP, whose report, along with the Fund's audited financial statements, is included in this prospectus.
(For a Share Outstanding Throughout Each Period)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors, on page 34.
|
Year Ended April 30 |
|
2001 |
|
|
2000 |
|
|
1999 |
|
|
1998 |
|
|
1997 |
|
|
|
|||||||||||||||
|
Net Asset Value, Beginning of Period |
|
$ 8.52 |
|
|
$ 8.67 |
|
|
$ 8.74 |
|
|
$ 8.68 |
|
|
$ 8.68 |
|
|
Income From Investment Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
0.53 |
|
|
0.51 |
|
|
0.50 |
|
|
0.50 |
|
|
0.53 |
|
|
Net realized and unrealized gain (loss) on investments |
|
0.22 |
|
|
(0.15 |
) |
|
(0.07 |
) |
|
0.06 |
|
|
-- |
|
|
|
|||||||||||||||
|
TOTAL FROM INVESTMENT OPERATIONS |
|
0.75 |
|
|
0.36 |
|
|
0.43 |
|
|
0.56 |
|
|
0.53 |
|
|
|
|||||||||||||||
|
Less Distributions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions from net investment income |
|
(0.53 |
) |
|
(0.51 |
) |
|
(0.50 |
) |
|
(0.50 |
) |
|
(0.53 |
) |
|
|
|||||||||||||||
|
Net Asset Value, End of Period |
|
$ 8.74 |
|
|
$ 8.52 |
|
|
$ 8.67 |
|
|
$ 8.74 |
|
|
$ 8.68 |
|
|
|
|||||||||||||||
|
Total Return 1 |
|
9.12 |
% |
|
4.26 |
% |
|
4.99 |
% |
|
6.61 |
% |
|
6.27 |
% |
|
|
|||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios to Average Net Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
Expenses |
|
0.81 |
% |
|
0.81 |
% |
|
0.81 |
% |
|
0.81 |
% |
|
0.81 |
% |
|
|
|||||||||||||||
|
Net investment income |
|
6.16 |
% |
|
5.94 |
% |
|
5.63 |
% |
|
5.73 |
% |
|
5.96 |
% |
|
|
|||||||||||||||
|
Expense waiver/reimbursement 2 |
|
0.29 |
% |
|
0.28 |
% |
|
0.28 |
% |
|
0.28 |
% |
|
0.28 |
% |
|
|
|||||||||||||||
|
Supplemental Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
Net assets, end of period (000 omitted) |
|
$18,145 |
|
$13,999 |
|
$24,783 |
|
$14,783 |
|
$17,586 |
|
||||
|
|
|||||||||||||||
|
Portfolio turnover |
|
43 |
% |
|
44 |
% |
|
54 |
% |
|
49 |
% |
|
55 |
% |
|
|
|||||||||||||||
1 Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable.
2 This voluntary expense decrease is reflected in both the expense and the net investment income ratios shown above.
See Notes which are an integral part of the Financial Statements
April 30, 2001
|
Principal
|
|
|
|
|
Value |
|
|
|
||||||
|
|
|
|
CORPORATE BONDS/ASSET-BACKED SECURITIES--57.5% |
|
|
|
|
|
|
|
Automotive--12.9% |
|
|
|
|
$ |
228,704 |
|
AFG Receivables Trust 1997-B, Class B, 6.40%, 2/15/2003 |
|
$ |
230,762 |
|
|
1,000,000 |
|
AmSouth Auto Trust 2000-1, Class A3, 6.67%, 7/15/2004 |
|
|
1,025,990 |
|
|
2,319,584 |
|
Arcadia Automobile Receivables Trust 1997-B, Class A5, 6.70%, 2/15/2005 |
|
|
2,346,329 |
|
|
1,000,000 |
|
DaimlerChrysler AG, 7.75%, 6/15/2005 |
|
|
1,034,920 |
|
|
4,000,000 |
|
Ford Motor Credit Co., Sr. Note, 5.75%, 2/23/2004 |
|
|
3,973,480 |
|
|
2,000,000 |
|
General Motors Acceptance Corp., Note, 5.80%, 3/12/2003 |
|
|
2,009,120 |
|
|
241,430 |
|
Household Automobile Revolving Trust I 1998-1, Class B1, 6.30%, 5/17/2005 |
|
|
245,018 |
|
|
2,500,000 |
|
Isuzu Auto Owner Trust 2001-1, Class A3, 4.88%, 11/22/2004 |
|
|
2,496,675 |
|
|
937,598 |
|
Key Auto Finance Trust 1999-1, 7.08%, 1/15/2007 |
|
|
954,336 |
|
|
1,704,302 |
|
Mellon Auto Grantor Trust 2000-1, Class B, 7.43%, 10/15/2006 |
|
|
1,762,769 |
|
|
4,000,000 |
|
Navistar Financial Corp. Owner Trust 2000-B, Class A3, 6.67%, 11/15/2004 |
|
|
4,098,600 |
|
|
2,500,000 |
|
Navistar Financial Corp. Owner Trust 2001-A, Class A3, 4.99%, 8/15/2005 |
|
|
2,496,475 |
|
|
789,447 |
|
The CIT Group Securitization Corp. II, Class B, 6.45%, 6/15/2018 |
|
|
798,163 |
|
|
3,758,354 |
|
Toyota Auto Receivables 1999-A Owner Trust, Class C, 6.70%, 8/16/2004 |
|
|
3,806,836 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
27,279,473 |
|
|
||||||
|
|
|
|
Banking--2.4% |
|
|
|
|
|
1,000,000 |
1 |
J.P. Morgan Chase & Co., Sub. Note, 5.288%, 8/19/2002 |
|
|
1,007,848 |
|
|
2,000,000 |
|
Mercantile Bancorporation, Inc., 6.80%, 6/15/2001 |
|
|
2,005,980 |
|
|
2,000,000 |
|
National Australia Bank, Ltd., Melbourne, Sub. Note, Series A, 6.40%, 12/10/2007 |
|
|
2,037,640 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
5,051,468 |
|
|
||||||
|
|
|
|
Beverage & Tobacco--0.6% |
|
|
|
|
|
1,149,000 |
|
Philip Morris Cos., Inc., Deb., 8.25%, 10/15/2003 |
|
|
1,212,390 |
|
|
||||||
|
|
|
|
Credit Card--14.2% |
|
|
|
|
|
3,000,000 |
|
American Express Credit Account Master Trust 1997-1, Class A, 6.40%, 4/15/2005 |
|
|
3,063,510 |
|
|
1,715,728 |
2 |
Banco Nacional de Mexico S.A., Credit Card Merchant Voucher Receivables Master Trust (Series 1996-A), Class A1, 6.25%, 12/1/2003 |
|
|
1,707,150 |
|
|
3,650,000 |
|
Chemical Master Credit Card Trust I 1995-3, Class A, 6.23%, 4/15/2005 |
|
|
3,714,094 |
|
|
|
2 |
Circuit City Credit Card Master Trust 2000-1, Class CTF, 6.22%, 2/15/2006 |
|
|
1,305,017 |
|
Principal
|
|
|
|
|
Value |
|
|
|
||||||
|
|
|
|
CORPORATE BONDS/ASSET-BACKED SECURITIES--continued |
|
|
|
|
|
|
|
Credit Card--continued |
|
|
|
|
$ |
3,000,000 |
|
Citibank Credit Card Issuance Trust 2000-C2, Class C2, 5.43%, 10/15/2005 |
|
$ |
3,006,630 |
|
|
2,000,000 |
|
Fingerhut Master Trust 1998-2, Class A, 6.23%, 2/15/2007 |
|
|
2,040,400 |
|
|
2,300,000 |
|
First Consumers Master Trust 2001-A, Class B, 6.14%, 9/15/2008 |
|
|
2,307,360 |
|
|
5,000,000 |
|
MBNA Master Credit Card Trust 1999-I, Class A, 6.40%, 1/18/2005 |
|
|
5,095,250 |
|
|
3,500,000 |
|
Prime Credit Card Master Trust 2000-1, Class A, 6.70%, 10/15/2009 |
|
|
3,618,265 |
|
|
3,000,000 |
|
Providian Master Trust 1997-4, Class B, 6.45%, 6/15/2007 |
|
|
3,055,980 |
|
|
1,000,000 |
|
Standard Credit Card Master Trust I, 1994-4, Class A, 8.25%, 11/7/2003 |
|
|
1,017,540 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
29,931,196 |
|
|
||||||
|
|
|
|
Electronics--0.5% |
|
|
|
|
|
1,000,000 |
|
Anixter International, Inc., Company Guarantee, 8.00%, 9/15/2003 |
|
|
1,015,240 |
|
|
||||||
|
|
|
|
Energy--0.7% |
|
|
|
|
|
1,500,000 |
1, 2 |
Osprey Trust, Sr. Secd. Note, 8.31%, 1/15/2003 |
|
|
1,547,115 |
|
|
||||||
|
|
|
|
Financial Intermediaries--2.1% |
|
|
|
|
|
2,400,000 |
|
Lehman Brothers Holdings, Inc., Note, 6.125%, 7/15/2003 |
|
|
2,439,240 |
|
|
2,000,000 |
|
Merrill Lynch & Co., Inc., Note, 6.00%, 2/12/2003 |
|
|
2,026,400 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
4,465,640 |
|
|
||||||
|
|
|
|
Home Equity Loan--10.1% |
|
|
|
|
|
2,000,000 |
2 |
125 Home Loan Owner Trust 1998-1A, Class M2, 7.75%, 2/15/2029 |
|
|
2,030,620 |
|
|
3,000,000 |
|
Asset Backed Funding Certificate 2001-AQ1, Class A3, 5.745%, 4/20/2027 |
|
|
2,990,850 |
|
|
1,000,000 |
|
Chase Funding Mortgage Loan 1999-1, Class IIB, 7.80%, 6/25/2028 |
|
|
1,003,890 |
|
|
1,183,002 |
|
Cityscape Home Equity Loan Trust 1997-1, Class A4, 7.23%, 3/25/2018 |
|
|
1,197,641 |
|
|
359,411 |
1 |
ContiMortgage Home Equity Loan Trust 1996-4, Class A10, 5.2625%, 1/15/2028 |
|
|
359,837 |
|
|
1,178,317 |
|
ContiMortgage Home Equity Loan Trust 1997-1, Class A7, 7.32%, 9/15/2021 |
|
|
1,195,064 |
|
|
1,168,335 |
2 |
ContiMortgage Home Equity Loan Trust 1993-3, Class A2, 5.54%, 7/15/2020 |
|
|
1,108,820 |
|
|
1,445,000 |
|
Green Tree Home Equity Loan Trust 1999-A, Class A3, 5.98%, 4/15/2018 |
|
|
1,464,747 |
|
|
798,539 |
|
Headlands Home Equity Loan Trust 1998-2, Class A3, 6.67%, 12/15/2024 |
|
|
809,313 |
|
|
1,000,000 |
|
Mellon Bank Home Equity Installment Loan 1998-1, Class B, 6.95%, 3/25/2015 |
|
|
988,300 |
|
|
2,363,000 |
|
New Century Home Equity Loan Trust 1997-NC5, Class M2, 7.24%, 10/25/2028 |
|
|
2,381,258 |
|
|
812,722 |
1, 2 |
Saxon Asset Securities Trust 2000-2, Class AV1, 5.31%, 7/25/2030 |
|
|
813,532 |
|
|
5,000,000 |
|
Sovereign Bank Home Equity Loan Trust 2000-1, Class A2, 6.96%, 2/25/2015 |
|
|
5,109,026 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
21,452,898 |
|
|
||||||
|
Principal
|
|
|
|
|
Value |
|
|
|
||||||
|
|
|
|
CORPORATE BONDS/ASSET-BACKED SECURITIES--continued |
|
|
|
|
|
|
|
Manufactured Housing--5.8% |
|
|
|
|
$ |
3,306,346 |
|
Green Tree Financial Corp. 1993-2, Class A4, 6.90%, 7/15/2018 |
|
$ |
3,390,493 |
|
|
2,000,000 |
|
Green Tree Financial Corp. 1996-2, Class B-1, 7.55%, 4/15/2027 |
|
|
1,956,977 |
|
|
4,000,000 |
2 |
Merit Securities Corp., 12-1, Class B, 7.98%, 7/28/2033 |
|
|
3,780,000 |
|
|
3,000,000 |
|
Merit Securities Corp., 13, Class A4, 7.88%, 12/28/2033 |
|
|
3,045,629 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
12,173,099 |
|
|
||||||
|
|
|
|
Other Asset Backed--2.2% |
|
|
|
|
|
760,691 |
1 |
Case Equipment Loan Trust 1999-A, Class B, 5.96%, 8/15/2005 |
|
|
769,511 |
|
|
141,329 |
|
Copelco Capital Funding Corp. X 1997-A, Class A4, 6.47%, 4/20/2005 |
|
|
141,860 |
|
|
7,118,027 |
2 |
FMAC Loan Receivables Trust 1997-A, Class A-X, 3.78%, 4/15/2019 |
|
|
391,491 |
|
|
1,714,086 |
1, 2 |
Litigation Settlement Monetized Fee Trust 2001-1A, Class A1, 8.33%, 4/25/2031 |
|
|
1,707,658 |
|
|
301,964 |
|
NationsCredit Grantor Trust 1997-1, Class A, 6.75%, 8/15/2013 |
|
|
305,126 |
|
|
1,250,000 |
|
Tobacco Settlement Revenue Management Authority 2001-A, Class A, 7.666%, 5/15/2016 |
|
|
1,250,700 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
4,566,346 |
|
|
||||||
|
|
|
|
Supranational--0.8% |
|
|
|
|
|
1,700,000 |
|
Corp Andina De Fomento, Bond, 7.10%, 2/1/2003 |
|
|
1,738,828 |
|
|
||||||
|
|
|
|
Telecommunications & Cellular--2.0% |
|
|
|
|
|
1,000,000 |
|
MetroNet Communications Corp., Sr. Note, 12.00%, 8/15/2007 |
|
|
1,102,500 |
|
|
1,000,000 |
|
Sprint Capital Corp., 7.625%, 6/10/2002 |
|
|
1,017,690 |
|
|
2,085,000 |
|
U.S. West Communications, Inc., 7.20%, 11/1/2004 |
|
|
2,138,584 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
4,258,774 |
|
|
||||||
|
|
|
|
Utilities--3.2% |
|
|
|
|
|
1,500,000 |
|
California Infrastructure SDG&E-1 1997-1, Class A6, 6.31%, 9/25/2008 |
|
|
1,508,490 |
|
|
3,000,000 |
|
National Rural Utilities Cooperative Finance Corp., Collateral Trust, 9.00%, 9/1/2021 |
|
|
3,158,160 |
|
|
2,000,000 |
|
Ohio Power Co., 7.00%, 7/1/2004 |
|
|
2,024,180 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
6,690,830 |
|
|
||||||
|
|
|
|
TOTAL CORPORATE BONDS/ASSET-BACKED SECURITIES (IDENTIFIED COST $120,772,452) |
|
|
121,383,297 |
|
|
||||||
|
Principal
|
|
|
|
|
Value |
|
|
|
||||||
|
|
|
|
MORTGAGE BACKED SECURITIES--24.4% |
|
|
|
|
|
|
|
Commercial Mortgage Backed Securities--2.5% |
|
|
|
|
$ |
8,297,033 |
|
First Union Lehman Brothers Commercial Mortgage Trust, Series 1997-C1, Class IO, 1.30324%, 4/18/2027 |
|
$ |
435,483 |
|
|
4,000,000 |
1, 2 |
KMart CMBS Financing, Inc., Series 1997-1, Class C, 6.075%, 3/1/2007 |
|
|
3,983,460 |
|
|
1,000,000 |
1, 2 |
Nomura Depositor Trust Commercial Mortgage Pass-Thru 1998-STI, Class A-3, 6.18%, 1/15/2003 |
|
|
993,130 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
5,412,073 |
|
|
||||||
|
|
|
|
Non-Government Agency Mortgage Backed Securities--21.9% |
|
|
|
|
|
703,955 |
1, 2 |
Bayview Financial Acquisition Trust, 1998-1, Class MF2, 5.90%, 5/25/2029 |
|
|
661,500 |
|
|
621,905 |
1 |
Bayview Financial Acquisition Trust, 1998-1, Class MII, 5.80%, 5/25/2029 |
|
|
597,513 |
|
|
1,648,748 |
1, 2 |
Bayview Financial Acquisition Trust, 1998-1, Class MI1, 7.52%, 5/25/2029 |
|
|
1,605,993 |
|
|
372,654 |
1, 2 |
Bosque Asset Corp., Class 1, 7.66%, 6/5/2002 |
|
|
361,474 |
|
|
3,336,773 |
1, 2 |
C-BASS ABS, LLC Series 1997-1, Class A-1, 7.82%, 2/1/2017 |
|
|
3,303,405 |
|
|
272,102 |
|
GE Capital Mortgage Services, Inc., Series 1994-27, Class A3, 6.50%, 7/25/2024 |
|
|
272,275 |
|
|
4,668,887 |
|
GE Capital Mortgage Services, Inc., Series 1995-11, Class B1, 7.50%, 12/25/2025 |
|
|
4,694,193 |
|
|
467,846 |
|
GE Capital Mortgage Services, Inc., Series 1996-3, Class A1, 7.00%, 3/25/2026 |
|
|
468,358 |
|
|
218,698 |
|
GE Capital Mortgage Services, Inc., Series1998-11, Class 1A1, 6.75%, 6/25/2028 |
|
|
219,081 |
|
|
2,058,149 |
1, 2 |
Greenwich Capital Acceptance, Series 1991-4, 8.28%, 7/1/2019 |
|
|
2,042,713 |
|
|
2,199,543 |
1 |
Greenwich Capital Acceptance, Series 1993-AFCI, Class B1, 6.66%, 9/25/2023 |
|
|
2,177,547 |
|
|
348,460 |
1 |
Greenwich Capital Acceptance, Series 1993-LB2, Class A1, 8.51%, 8/25/2023 |
|
|
350,297 |
|
|
267,066 |
1 |
Greenwich Capital Acceptance, Series 1993-LB3, Class A1, 8.48%, 1/25/2024 |
|
|
269,290 |
|
|
2,755,567 |
1 |
Greenwich Capital Acceptance, Series 1994-C, Class B1, 7.735%, 1/25/2025 |
|
|
2,732,002 |
|
|
146,158 |
2 |
Long Beach Federal Savings Bank, Series 1992-3, Class A, 9.60%, 6/15/2022 |
|
|
146,158 |
|
|
3,070,000 |
1 |
Mellon Residential Funding Corp., Series 1998-TBC1, Class B1, 6.59258%, 10/25/2028 |
|
|
3,118,936 |
|
|
1,125,420 |
1, 2 |
Merrill Lynch Mortgage Investors, Inc., Class BB, 8.00%, 3/1/2031 |
|
|
1,121,380 |
|
|
1,467,328 |
2 |
Option One Mortgage Securities Corp., Series C 1999-4, Class CTF, 9.67%, 12/25/2029 |
|
|
1,482,926 |
|
|
3,361,731 |
|
PNC Mortgage Securities Corp., Series 1999-5 2A-1, Class 2A1, 6.75%, 7/25/2029 |
|
|
3,387,111 |
|
|
4,865,169 |
|
PNC Mortgage Securities Corp., Series 1999-9, Class 3A1, 7.22%, 10/25/2029 |
|
|
4,953,228 |
|
|
1,000,274 |
|
Prudential Home Mortgage Securities, Series 1992-5, Class A-6, 7.50%, 4/25/2007 |
|
|
1,018,959 |
|
Principal
|
|
|
|
|
Value |
|
|
|
||||||
|
|
|
|
MORTGAGE BACKED SECURITIES--continued |
|
|
|
|
|
|
|
Non-Government Agency Mortgage Backed Securities--continued |
|
|
|
|
$ |
2,000,000 |
|
Residential Accredit Loans, Inc., Series 1997-QS12, Class A6, 7.25%, 11/25/2027 |
|
$ |
2,033,620 |
|
|
1,178,464 |
1 |
Residential Funding Mortgage Securities I 1994-S13, Class M1, 7.00%, 5/25/2024 |
|
|
1,173,161 |
|
|
8,025,358 |
|
Structured Asset Securities Corp. 1999-ALS2, Class A2, 6.75%, 7/25/2029 |
|
|
8,025,309 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
46,216,429 |
|
|
||||||
|
|
|
|
TOTAL MORTGAGE BACKED SECURITIES (IDENTIFIED COST $51,632,610) |
|
|
51,628,502 |
|
|
||||||
|
|
|
|
GOVERNMENT AGENCIES MORTGAGE BACKED SECURITIES--7.4% |
|
|
|
|
|
2,000,000 |
|
Federal Home Loan Bank System, Sr. Note, 5.80%, 9/2/2008 |
|
|
1,987,120 |
|
|
9,000,000 |
|
Federal National Mortgage Association, Note, 5.125%, 2/13/2004 |
|
|
9,041,850 |
|
|
1,268,701 |
|
GNMA, Pool 354754, 7.50%, 2/15/2024 |
|
|
1,304,377 |
|
|
3,088,863 |
|
GNMA, Pool 780360, 11.00%, 9/15/2015 |
|
|
3,398,336 |
|
|
||||||
|
|
|
|
TOTAL GOVERNMENT AGENCIES MORTGAGE BACKED SECURITIES (IDENTIFIED COST $15,750,853) |
|
|
15,731,683 |
|
|
||||||
|
|
|
|
U.S. TREASURY NOTES--4.1% |
|
|
|
|
|
4,000,000 |
|
Note, 5.125%, 12/31/2002 |
|
|
4,055,800 |
|
|
500,000 |
|
Note, 5.625%, 5/15/2008 |
|
|
512,005 |
|
|
2,000,000 |
|
Note, 5.75%, 11/15/2005 |
|
|
2,070,000 |
|
|
1,000,000 |
|
Note, 5.75%, 8/15/2010 |
|
|
1,025,540 |
|
|
935,000 |
|
Note, 6.625%, 5/15/2007 |
|
|
1,008,613 |
|
|
||||||
|
|
|
|
TOTAL U.S. TREASURY NOTES (IDENTIFIED COST $8,656,644) |
|
|
8,671,958 |
|
|
||||||
|
|
|
|
MUTUAL FUNDS--11.2% |
|
|
|
|
|
23,666,192 |
|
Prime Value Obligations Fund, IS Shares (at net asset value) |
|
|
23,666,192 |
|
|
||||||
|
|
|
|
TOTAL INVESTMENTS (IDENTIFIED COST $220,478,751) 3 |
|
$ |
221,081,632 |
|
|
||||||
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, 2001, these securities amounted to $30,093,542 which represents 14.3% of net assets.
3 The cost of investments for federal tax purposes amounts to $220,478,751. The net unrealized appreciation of investments on a federal tax basis amounts to $602,881 which is comprised of $2,008,709 appreciation and $1,405,828 depreciation at April 30, 2001.
Note: The categories of investments are shown as a percentage of net assets ($211,175,624) at April 30, 2001.
The following acronym is used throughout this portfolio:
|
IO |
--Interest Only |
See Notes which are an integral part of the Financial Statements
April 30, 2001
|
Assets: |
|
|
|
|
|
|
|
|
Total investments in securities, at value (identified cost $220,478,751) |
|
|
|
|
$ |
221,081,632 |
|
|
Cash |
|
|
|
|
|
317,214 |
|
|
Income receivable |
|
|
|
|
|
1,207,003 |
|
|
Receivable for investments sold |
|
|
|
|
|
334,178 |
|
|
Receivable for shares sold |
|
|
|
|
|
127,185 |
|
|
|
|||||||
|
TOTAL ASSETS |
|
|
|
|
|
223,067,212 |
|
|
|
|||||||
|
Liabilities: |
|
|
|
|
|
|
|
|
Payable for investments purchased |
|
$ |
11,076,746 |
|
|
|
|
|
Payable for shares redeemed |
|
|
225,051 |
|
|
|
|
|
Income distribution payable |
|
|
575,191 |
|
|
|
|
|
Accrued expenses |
|
|
14,600 |
|
|
|
|
|
|
|||||||
|
TOTAL LIABILITIES |
|
|
|
|
|
11,891,588 |
|
|
|
|||||||
|
Net assets for 24,166,025 shares outstanding |
|
|
|
|
$ |
211,175,624 |
|
|
|
|||||||
|
Net Assets Consist of: |
|
|
|
|
|
|
|
|
Paid in capital |
|
|
|
|
$ |
230,822,870 |
|
|
Net unrealized appreciation of investments |
|
|
|
|
|
602,881 |
|
|
Accumulated net realized loss on investments |
|
|
|
|
|
(19,902,474 |
) |
|
Distributions in excess of net investment income |
|
|
|
|
|
(347,653 |
) |
|
|
|||||||
|
TOTAL NET ASSETS |
|
|
|
|
$ |
211,175,624 |
|
|
|
|||||||
|
Net Asset Value, Offering Price and Redemption Proceeds Per Share |
|
|
|
|
|
|
|
|
Institutional Shares: |
|
|
|
|
|
|
|
|
$193,030,145 ÷ 22,089,483 shares outstanding |
|
|
|
|
|
$8.74 |
|
|
|
|||||||
|
Institutional Service Shares: |
|
|
|
|
|
|
|
|
$18,145,479 ÷ 2,076,542 shares outstanding |
|
|
|
|
|
$8.74 |
|
|
|
|||||||
See Notes which are an integral part of the Financial Statements
Year Ended April 30, 2001
|
Investment Income: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
|
|
|
|
|
|
|
$ |
13,646,314 |
|
|
|||||||||||
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Investment adviser fee |
|
|
|
|
|
$ |
782,843 |
|
|
|
|
|
Administrative personnel and services fee |
|
|
|
|
|
|
155,000 |
|
|
|
|
|
Custodian fees |
|
|
|
|
|
|
14,091 |
|
|
|
|
|
Transfer and dividend disbursing agent fees and expenses |
|
|
|
|
|
|
71,239 |
|
|
|
|
|
Directors'/Trustees' fees |
|
|
|
|
|
|
10,373 |
|
|
|
|
|
Auditing fees |
|
|
|
|
|
|
12,525 |
|
|
|
|
|
Legal fees |
|
|
|
|
|
|
3,523 |
|
|
|
|
|
Portfolio accounting fees |
|
|
|
|
|
|
65,759 |
|
|
|
|
|
Distribution services fee--Institutional Service Shares |
|
|
|
|
|
|
25,562 |
|
|
|
|
|
Shareholder services fee--Institutional Shares |
|
|
|
|
|
|
463,715 |
|
|
|
|
|
Shareholder services fee--Institutional Service Shares |
|
|
|
|
|
|
25,562 |
|
|
|
|
|
Share registration costs |
|
|
|
|
|
|
18,788 |
|
|
|
|
|
Printing and postage |
|
|
|
|
|
|
37,968 |
|
|
|
|
|
Insurance premiums |
|
|
|
|
|
|
1,174 |
|
|
|
|
|
Miscellaneous |
|
|
|
|
|
|
3,753 |
|
|
|
|
|
|
|||||||||||
|
TOTAL EXPENSES |
|
|
|
|
|
|
1,691,875 |
|
|
|
|
|
|
|||||||||||
|
Waivers and Reimbursement of Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Waiver of investment adviser fee |
|
$ |
(72,445 |
) |
|
|
|
|
|
|
|
|
Waiver of distribution services fee--Institutional Service Shares |
|
|
(24,935 |
) |
|
|
|
|
|
|
|
|
Waiver of shareholder services fee--Institutional Shares |
|
|
(463,715 |
) |
|
|
|
|
|
|
|
|
Waiver of shareholder services fee--Institutional Service Shares |
|
|
(627 |
) |
|
|
|
|
|
|
|
|
Reimbursement of investment adviser fee |
|
|
(1,002 |
) |
|
|
|
|
|
|
|
|
|
|||||||||||
|
TOTAL WAIVERS AND REIMBURSEMENT OF EXPENSES |
|
|
|
|
|
|
(562,724 |
) |
|
|
|
|
|
|||||||||||
|
Net expenses |
|
|
|
|
|
|
|
|
|
|
1,129,151 |
|
|
|||||||||||
|
Net investment income |
|
|
|
|
|
|
|
|
|
|
12,517,163 |
|
|
|||||||||||
|
Realized and Unrealized Gain on Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gain on investments |
|
|
|
|
|
|
|
|
|
|
38,971 |
|
Net change in unrealized depreciation of investments |
|
|
|
|
|
|
|
|
|
|
5,042,476 |
|
|
|||||||||||
|
Net realized and unrealized gain on investments |
|
|
|
|
|
|
|
|
|
|
5,081,447 |
|
|
|||||||||||
|
Change in net assets resulting from operations |
|
|
|
|
|
|
|
|
|
$ |
17,598,610 |
|
|
|||||||||||
See Notes which are an integral part of the Financial Statements
|
Year Ended April 30 |
|
|
2001 |
|
|
|
2000 |
|
|
|
||||||||
|
Increase (Decrease) in Net Assets |
|
|
|
|
|
|
|
|
|
Operations: |
|
|
|
|
|
|
|
|
|
Net investment income |
|
$ |
12,517,163 |
|
|
$ |
13,428,467 |
|
|
Net realized gain on investments |
|
|
38,971 |
|
|
|
26,733 |
|
|
Net change in unrealized appreciation/depreciation |
|
|
5,042,476 |
|
|
|
(3,957,814 |
) |
|
|
||||||||
|
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS |
|
|
17,598,610 |
|
|
|
9,497,386 |
|
|
|
||||||||
|
Distributions to Shareholders |
|
|
|
|
|
|
|
|
|
Distributions From Net investment Income: |
|
|
|
|
|
|
|
|
|
Institutional Shares |
|
|
(11,961,079 |
) |
|
|
(11,980,899 |
) |
|
Institutional Service Shares |
|
|
(633,750 |
) |
|
|
(1,334,302 |
) |
|
|
||||||||
|
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS |
|
|
(12,594,829 |
) |
|
|
(13,315,201 |
) |
|
|
||||||||
|
Share Transactions: |
|
|
|
|
|
|
|
|
|
Proceeds from sale of shares |
|
|
92,461,490 |
|
|
|
84,879,137 |
|
|
Net asset value of shares issued to shareholders in payment of distributions declared |
|
|
4,774,594 |
|
|
|
4,703,745 |
|
|
Cost of shares redeemed |
|
|
(94,457,508 |
) |
|
|
(95,927,697 |
) |
|
|
||||||||
|
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS |
|
|
2,778,576 |
|
|
|
(6,344,815 |
) |
|
|
||||||||
|
Change in net assets |
|
|
7,782,357 |
|
|
|
(10,162,630 |
) |
|
|
||||||||
|
Net Assets: |
|
|
|
|
|
|
|
|
|
Beginning of period |
|
|
203,393,267 |
|
|
|
213,555,897 |
|
|
|
||||||||
|
End of period |
|
$ |
211,175,624 |
|
|
$ |
203,393,267 |
|
|
|
||||||||
See Notes which are an integral part of the Financial Statements
April 30, 2001
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"), a diversified portfolio. 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.
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.
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. Investments in other open-end registered investment companies are valued at net asset value. Securities for which no quotations are readily available are valued at fair value as determined in good faith using methods approved by the Board of Trustees (the "Trustees").
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.
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 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. The Fund, along with other affiliated investment companies, may utilize a joint trading account for the purpose of entering into one or more repurchase agreements.
Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Dividend income and distributions to shareholders are recorded on the ex-dividend date. The Fund offers multiple classes of shares, which differ in their respective distribution and service fees. All shareholders bear the common expenses of the Fund/Trust based on average daily net assets of each class, without distinction between share classes. Dividends are declared separately for each class. No class has preferential dividend rights; differences in per share dividend rates are generally due to differences in separate class expenses.
In November 2000, the American Institute of Certified Public Accountants (AICPA) issued a revised version of the AICPA Audit and Accounting Guide for Investment Companies (the "Guide"). The Guide is effective for annual financial statements issued for fiscal years beginning after December 15, 2000. Management of the Fund does not anticipate that the adoption of the Guide will have a significant effect on the financial statements.
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) |
||||
|
|
||||
|
Paid-In Capital |
|
Accumulated Net
|
|
Undistributed Net
|
|
|
||||
|
$(4,049) |
|
$4,193 |
|
$(144) |
|
|
||||
Net investment income, net realized gains/losses, and net assets were not affected by this reclassification.
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 provision for federal tax is necessary.
At April 30, 2001, the Fund, for federal tax purposes, had a capital loss carryforward of $19,902,474, 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 |
|
|
||
|
2002 |
|
$ 626,512 |
|
|
||
|
2003 |
|
5,572,713 |
|
|
||
|
2004 |
|
10,784,773 |
|
|
||
|
2005 |
|
1,566,031 |
|
|
||
|
2006 |
|
696,886 |
|
|
||
|
2007 |
|
159,370 |
|
|
||
|
2008 |
|
496,189 |
|
|
||
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. Losses may occur on these transactions due to changes in market conditions or the failure of counterparties to perform under the contract.
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, 2001 is as follows:
|
Security |
|
Acquisition
|
|
Acquisition
|
|
|
||||
|
Banco Nacional de Mexico S.A., Credit Card Merchant Voucher Receivables Master Trust Series (1996-A), Class A1 |
|
1/9/1997 |
|
$2,148,973 |
|
|
||||
|
Bayview Financial Acquisition Trust, 1998-1, Class MF2 |
|
5/14/1998 |
|
720,016 |
|
|
||||
|
Bayview Financial Acquisition Trust, 1998-1, Class MI1 |
|
12/8/1998 |
|
1,695,969 |
|
|
||||
|
Bosque Asset Corp., Class 1 |
|
6/19/1997 |
|
619,238 |
|
|
||||
|
C-BASS ABS, LLC, Series 1997-1, Class A-1 |
|
2/25/1997 |
|
3,717,340 |
|
|
||||
|
Circuit City Credit Card Master Trust 2000-1, Class CTF |
|
2/23/2000 |
|
1,300,000 |
|
|
||||
|
ContiMortgage Home Equity Loan Trust 1993-3, Class A2 |
|
2/7/2000 |
|
1,301,589 |
|
|
||||
|
FMAC Loan Receivables Trust 1997-A, Class A-X |
|
6/16/1997 |
|
1,072,954 |
|
|
||||
|
Greenwich Capital Acceptance, 1991-4 |
|
1/7/1993 |
|
2,128,745 |
|
|
||||
|
K Mart CMBS Financing, Inc., Series 1997-1, Class C |
|
2/27/1997 |
|
4,000,000 |
|
|
||||
|
Litigation Settlement Monetized Fee Trust 2001-1A, Class A1 |
|
2/5/2001 |
|
1,749,332 |
|
|
||||
|
Long Beach Federal Savings Bank, Series 1992-3, Class A |
|
6/29/1992 |
|
186,744 |
|
|
||||
|
Merit Securities Corp., 12-1, Class B |
|
5/18/1999 |
|
3,904,276 |
|
|
||||
|
Merrill Lynch Mortgage Investors, Inc., Class BB |
|
4/13/2000 |
|
1,922,782 |
|
|
||||
|
Nomura Depositor Trust Commercial Mortgage Pass-Thru, 1998-STI, Class A-3 |
|
2/3/1998 |
|
1,000,000 |
|
|
||||
|
125 Home Loan Owner Trust, 1998-1A, Class M2 |
|
7/30/1998 |
|
1,999,062 |
|
|
||||
|
Option One Mortgage Securities Corp., Series C 1999-4, Class CTF |
|
11/10/1999 |
|
2,598,831 |
|
|
||||
|
Osprey Trust, Sr. Secd. Note |
|
2/21/2001 |
|
1,555,641 |
|
|
||||
|
Saxon Asset Securities Trust 2000-2, Class AV1 |
|
6/26/2001 |
|
1,002,097 |
|
|
||||
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.
Investment transactions are accounted for on a trade date basis.
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:
|
Year Ended April 30 |
|
2001 |
|
2000 |
||||||||||
|
|
||||||||||||||
|
Institutional Shares: |
|
Shares |
|
Amount |
|
Shares |
|
Amount |
||||||
|
|
||||||||||||||
|
Shares sold |
|
9,070,507 |
|
|
$ |
78,463,919 |
|
|
8,911,953 |
|
|
$ |
76,361,992 |
|
|
Shares issued to shareholders in payment of distributions declared |
|
519,564 |
|
|
|
4,486,277 |
|
|
444,065 |
|
|
|
3,796,683 |
|
|
Shares redeemed |
|
(9,739,215 |
) |
|
|
(84,093,582 |
) |
|
(8,900,987 |
) |
|
|
(76,116,228 |
) |
|
|
||||||||||||||
|
NET CHANGE RESULTING FROM INSTITUTIONAL SHARE TRANSACTIONS |
|
(149,144 |
) |
|
$ |
(1,143,386 |
) |
|
455,031 |
|
|
$ |
4,042,447 |
|
|
|
||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30 |
|
2001 |
|
2000 |
||||||||||
|
|
||||||||||||||
|
Institutional Service Shares: |
|
Shares |
|
Amount |
|
Shares |
|
Amount |
||||||
|
|
||||||||||||||
|
Shares sold |
|
1,605,415 |
|
|
$ |
13,997,571 |
|
|
992,483 |
|
|
$ |
8,517,145 |
|
|
Shares issued to shareholders in payment of distributions declared |
|
33,448 |
|
|
|
288,317 |
|
|
106,036 |
|
|
|
907,062 |
|
|
Shares redeemed |
|
(1,206,042 |
) |
|
|
(10,363,926 |
) |
|
(2,314,778 |
) |
|
|
(19,811,469 |
) |
|
|
||||||||||||||
|
NET CHANGE RESULTING FROM INSTITUTIONAL SERVICE SHARE TRANSACTIONS |
|
432,821 |
|
|
$ |
3,921,962 |
|
|
(1,216,259 |
) |
|
$ |
(10,387,262 |
) |
|
|
||||||||||||||
|
NET CHANGE RESULTING FROM SHARE TRANSACTIONS |
|
283,677 |
|
|
$ |
2,778,576 |
|
|
(761,228 |
) |
|
$ |
(6,344,815 |
) |
|
|
||||||||||||||
Federated Investment Management Company, the Fund's investment adviser (the "Adviser"), receives for its services an annual investment adviser fee equal to 0.40% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fees. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion.
Pursuant to an Exemptive Order, the Fund may invest in the Prime Value Obligations Fund, Institutional Shares, which is managed by the Fund's Adviser. The Adviser has agreed to reimburse certain investment adviser fees as a result of the transactions.
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 a scale that ranges from 0.15% to 0.075% of the average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors, Inc., subject to a $125,000 minimum per portfolio and $30,000 per each additional class.
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. FSC may voluntarily choose to waive any portion of its fee. FSC can modify or terminate this voluntary waiver at any time at its sole discretion.
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.
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.
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.
During the year ended April 30, 2001, the Fund engaged in purchase and sale transactions with funds that have a common investment adviser (or affiliated investment advisers), common Directors/Trustees, and/or common Officers. These purchase and sales transactions complied with Rule 17a-7 under the Act and amounted to $129,696,899 and $107,852,427, respectively.
Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies.
Purchases and sales of investments, excluding short-term securities (and in-kind contributions), for the year ended April 30, 2001, were as follows:
|
Purchases |
|
$ |
79,866,822 |
|
|
|||
|
Sales |
|
$ |
81,193,513 |
|
|
|||
For the year ended April 30, 2001, the Fund did not designate any long-term capital gains dividends.
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the Federated Short-Term Income Fund (the "Fund"), one of the portfolios constituting Federated Income Securities Trust, as of April 30, 2001, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the 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 auditing standards generally accepted in the United States. 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, 2001, 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 the Federated Short-Term Income Fund, a portfolio of Federated Income Securities Trust, at April 30, 2001, 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 accounting principles generally accepted in the United States
Ernst & Young LLP
Boston, Massachusetts
June 19, 2001
<R>
A Statement of Additional Information (SAI) dated June 30, 2001 is incorporated by reference into this prospectus. Additional information about the Fund and its investments is contained in the Fund's SAI and Annual and Semi-Annual Reports to shareholders as they become available. The Annual Report's Management's Discussion of Fund Performance discusses market conditions and investment strategies that significantly affected the Fund's performance during its last fiscal year. To obtain the SAI, Annual Report, Semi-Annual Report and other information without charge, and to make inquiries, call your investment professional or the Fund at 1-800-341-7400.
</R>
<R>
You can obtain information about the Fund (including the SAI) by writing to or visiting the SEC's Public Reference Room in Washington, DC. You may also access Fund information from the EDGAR Database on the SEC's Internet site at http://www.sec.gov.
You can purchase copies of this information by contacting the SEC by email at publicinfo@sec.gov or by writing to the SEC's Public Reference Section, Washington, DC 20549-0102. Call 1-202-942-8090 for information on the Public Reference Room's
operations and copying fees.
</R>
Federated
World-Class Investment Manager®
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
Investment Company Act File No. 811-4577
Federated is a registered mark of Federated Investors, Inc.
2001 ©Federated Investors, Inc.
Cusip 31420C308
<R>
1111903A-SS (6/01)
</R>
Federated
World-Class Investment Manager®
A Portfolio of Federated Income Securities Trust
<R>
</R>
<R>
June 30, 2001
</R>
A mutual fund seeking to provide current income by investing in a diversified portfolio of investment grade securities, which are rated in one of the four highest categories by a nationally recognized statistical rating organization.
As with all mutual funds, the Securities and Exchange Commission (SEC) has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense.
NOT FDIC INSURED * MAY LOSE VALUE * NO BANK GUARANTEE
<R>
| Risk/Return Summary | 1 |
| What are the Fund's Fees and Expenses? | 3 |
| What are the Fund's Investment Strategies? | 4 |
| What are the Principal Securities in Which the Fund Invests? | 6 |
| What are the Specific Risks of Investing in the Fund? | 9 |
| What Do Shares Cost? | 10 |
| How is the Fund Sold? | 11 |
| How to Purchase Shares | 11 |
| How to Redeem Shares | 13 |
| Account and Share Information | 15 |
| Who Manages the Fund? | 16 |
| Financial Information | 18 |
| Report of Ernst & Young LLP, Independent Auditors | 42 |
</R>
The Fund's investment objective is to provide current income. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by following the strategies and policies described in this prospectus.
The Fund invests in a diversified portfolio of investment grade fixed income securities consisting primarily of corporate debt securities, U.S. government and privately issued mortgage backed securities, and U.S. treasury and agency securities. The Adviser seeks to enhance the Fund's performance by allocating relatively more of its portfolio to the security type that the Adviser expects to offer the best balance between current income and risk.
Although the value of the Fund's shares will fluctuate, the Adviser will seek to manage the magnitude of fluctuation by limiting the Fund's dollar weighted average maturity to between three and ten years and duration to between three and seven years. Maturity reflects the time until a fixed income security becomes payable. Duration measures the price sensitivity of a fixed income security to changes in interest rates.
All mutual funds take investment risks. Therefore, it is possible to lose money by investing in the Fund. The primary factors that may reduce the Fund's returns include:
The Shares offered by this prospectus are not deposits or obligations of any bank, are not endorsed or guaranteed by any bank and are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other government agency.
The bar chart shows the variability of the Fund's Institutional Shares total returns on a calendar year-end basis.
<R>
The Fund's Institutional Shares are sold without a sales charge (load). The total returns displayed above are based upon net asset value.
</R>
<R>
The Fund's Institutional Shares total return for the three-month period from January 1, 2001 to March 31, 2001 was 3.18%.
</R>
<R>
Within the period shown in the Chart, the Fund's Institutional Shares highest quarterly return was 6.69% (quarter ended June 30, 1995). Its lowest quarterly return was (2.22)% (quarter ended March 31, 1996).
</R>
<R>
The following table represents the Fund's Institutional Shares Average Annual Total Returns for the calendar periods ended December 31, 2000. The table shows the Fund's total returns averaged over a period of years relative to the Lehman Brothers Government/Credit Total Index (LBGCT), Lehman Brothers Credit Bond Total Index (LBCB), Lehman Brothers Intermediate Government/Credit Index (LBIGC), broad-based market indexes, and the Lipper Intermediate-Term Investment Grade Debt Funds Average (LIIGDFA), an average of funds with similar investment objectives. Total returns for the indexes shown do not reflect sales charges, expenses or other fees that the SEC requires to be reflected in the Fund's performance. Indexes are unmanaged, and it is not possible to invest directly in an index.
|
Calendar Period |
|
Fund |
|
LBGCT |
|
LBCB |
|
LBIGC |
|
LIIGDFA |
|
|
||||||||||
|
1 Year |
|
10.26% |
|
9.39% |
|
11.85% |
|
10.12% |
|
9.89% |
|
5 Years |
|
5.65% |
|
5.80% |
|
6.24% |
|
6.11% |
|
5.54% |
|
Start of Performance 1 |
|
6.45% |
|
6.57% |
|
6.59% |
|
6.22% |
|
5.79% |
1 The Fund's Institutional Shares start of performance date was December 20, 1993.
Past performance is no guarantee of future results. This information provides you with historical performance information so that you can analyze whether the Fund's investment risks are balanced by its potential returns.
</R>
This table describes the fees and expenses that you may pay if you buy and hold Shares of the Fund's Institutional Shares.
This Example is intended to help you compare the cost of investing in the Fund's Institutional Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Institutional Shares for the time periods indicated and then redeem all of your Shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the Fund's Institutional Shares operating expenses are before waivers as shown in the table and remain the same. Although your actual costs and returns may be higher or lower, based on these assumptions your costs would be:
|
1 Year |
|
$ |
92 |
|
|
|||
|
3 Years |
|
$ |
287 |
|
|
|||
|
5 Years |
|
$ |
498 |
|
|
|||
|
10 Years |
|
$ |
1,108 |
|
|
|||
<R>
The Adviser actively manages the Fund's portfolio seeking current income within the Fund's investment policy parameters for limiting credit risk and share price volatility attributable to interest rate risk. The Fund limits credit risk by investing exclusively in a diversified portfolio of investment grade fixed income securities, including corporate debt securities, U.S. government and privately issued mortgage backed securities, and U.S. treasury and agency securities. Investment grade securities are rated in one of the four highest categories (BBB or higher) by a nationally recognized statistical rating organization (NRSRO), or if unrated, of comparable quality as determined by the Adviser. A description of the various types of securities in which the Fund invests, and their risks, immediately follows this strategy section.
</R>
The Fund's share price volatility attributable to interest rate risk is managed by maintaining, under normal market conditions, a dollar-weighted average portfolio duration of between three and seven years. Further, the dollar-weighted average portfolio maturity of the Fund will normally be between three and ten years.
Within the Fund's three to seven-year portfolio duration range, the Adviser may seek to change the Fund's interest rate volatility exposure, by lengthening or shortening duration from time-to-time based on its interest rate outlook. If the Adviser expects interest rates to decline, it will generally lengthen the Fund's duration. If the Adviser expects interest rates to increase, it will generally shorten the Fund's duration. The Adviser formulates its interest rate outlook and otherwise attempts to anticipate changes in economic and market conditions by analyzing a variety of factors, such as:
<R>
In addition to managing the Fund's portfolio duration, the Adviser seeks to enhance the Fund's current income by selecting securities, within the Fund's credit quality range, that the Adviser expects will offer the best relative value. In other words, in selecting securities, the Adviser assesses whether the Fund will be adequately compensated for assuming the risks (such as credit risk) of a particular security by comparing the security to other securities without those risks. The Adviser continually analyzes a variety of economic and market indicators in order to arrive at the projected yield "spread" of each security type. (The spread is the difference between the yield of a security versus the yield of a U.S. treasury security with a comparable average life.) The security's projected spread is weighed against the security's credit risk (in the case of corporate securities and privately issued asset backed and mortgage backed securities) and its risk of prepayment (in the case of asset backed and mortgage backed securities) in order to complete the analysis.
</R>
<R>
Corporate debt securities generally offer higher yields than U.S. government securities to compensate for credit risk. Similarly, asset and mortgage backed securities generally offer higher yields versus U.S. treasury securities and non-mortgage backed agency securities, to compensate for prepayment risk. The Adviser invests the Fund's portfolio seeking the higher relative returns of corporate debt securities and asset and mortgage backed securities, when available, while maintaining appropriate portfolio diversification and attempting to limit the associated credit or prepayment risks.
</R>
The Adviser attempts to manage the Fund's credit risk by selecting corporate debt securities that make default in the payment of principal and interest less likely. The Adviser uses corporate earnings analysis to determine which business sectors and credit ratings are most advantageous for investment by the Fund. In selecting individual corporate fixed income securities, the Adviser analyzes a company's business, competitive position, and financial condition to assess whether the security's credit risk is commensurate with its potential return.
<R>
The Adviser attempts to manage the Fund's prepayment risk by selecting asset and mortgage backed securities with characteristics that make prepayment less likely. Characteristics that the Adviser may consider in selecting securities include the average interest rates of the underlying mortgages and the federal agencies (if any) that securitize the mortgages. The Adviser attempts to assess the relative returns and risks for mortgage backed securities by analyzing how the timing, amount and division of cash flows might change in response to changing economic and market conditions.
</R>
There is no assurance that the Adviser's efforts to forecast market interest rates and assess the impact of market interest rates in particular will be successful.
The Fund may temporarily depart from its principal investment strategies by investing its assets in cash and shorter-term debt securities and similar obligations. It may do this to minimize potential losses and maintain liquidity to meet shareholder redemptions during adverse market conditions. This may cause the Fund to give up greater investment returns to maintain the safety of principal, that is, the original amount invested by shareholders.
Fixed income securities pay interest, dividends or distributions at a specified rate. The rate may be a fixed percentage of the principal or adjusted periodically. In addition, the issuer of a fixed income security must repay the principal amount of the security, normally within a specified time. Fixed income securities provide more regular income than equity securities. However, the returns on fixed income securities are limited and normally do not increase with the issuer's earnings. This limits the potential appreciation of fixed income securities as compared to equity securities.
A security's yield measures the annual income earned on a security as a percentage of its price. A security's yield will increase or decrease depending upon whether it costs less (a discount) or more (a premium) than the principal amount. If the issuer may redeem the security before its scheduled maturity, the price and yield on a discount or premium security may change based upon the probability of an early redemption. Securities with higher risks generally have higher yields.
The following describes the principal types of fixed income securities in which the Fund may invest.
Treasury securities are direct obligations of the federal government of the United States. Treasury securities are generally regarded as having the lowest credit risks.
Agency securities are issued or guaranteed by a federal agency or other government sponsored entity acting under federal authority (a Government Sponsored Entity, or GSE). The United States supports some GSEs with its full faith and credit. Other GSEs receive support through federal subsidies, loans or other benefits. A few GSEs have no explicit financial support, but are regarded as having implied support because the federal government sponsors their activities. Agency securities are generally regarded as having low credit risks, but not as low as treasury securities.
The Fund treats mortgage backed securities guaranteed by GSEs as agency securities. Although a GSE guarantee protects against credit risks, it does not reduce the interest rate and prepayment risks of these mortgage backed securities.
Corporate debt securities are fixed income securities issued by businesses. Notes, bonds, debentures and commercial paper are the most prevalent types of corporate debt securities. The Fund may also purchase interests in bank loans to companies. The credit risks of corporate debt securities vary widely among issuers.
In addition, the credit risk of an issuer's debt security may vary based on its priority for repayment. For example, higher ranking (senior) debt securities have a higher priority than lower ranking (subordinated) securities. This means that the issuer might not make payments on subordinated securities while continuing to make payments on senior securities. In addition, in the event of bankruptcy, holders of senior securities may receive amounts otherwise payable to the holders of subordinated securities. Some subordinated securities, such as trust preferred and capital securities notes, also permit the issuer to defer payments under certain circumstances. For example, insurance companies issue securities known as surplus notes that permit the insurance company to defer any payment that would reduce its capital below regulatory requirements.
Mortgage backed securities represent interests in pools of mortgages. The mortgages that comprise a pool normally have similar interest rates, maturities and other terms. Mortgages may have fixed or adjustable interest rates. Interests in pools of adjustable rate mortgages are known as ARMs.
<R>
Mortgage backed securities come in a variety of forms. Many have extremely complicated terms. The simplest form of mortgage backed securities are pass-through certificates. An issuer of pass-through certificates gathers monthly payments from an underlying pool of mortgages. Then, the issuer deducts its fees and expenses and passes the balance of the payments onto the certificate holders once a month. Holders of pass-through certificates receive a pro rata share of all payments and prepayments from the underlying mortgages. As a result, the holders assume all the prepayment risks of the underlying mortgages.
</R>
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)
CMOs, including interests in real estate mortgage investment conduits (REMICs), allocate payments and prepayments from an underlying pass-through certificate among holders of different classes of mortgage backed securities. This creates different prepayment and interest rate risks for each CMO class. The degree of increased or decreased prepayment risks depends upon the structure of the CMOs. However, the actual returns on any type of mortgage backed security depend upon the performance of the underlying pool of mortgages, which no one can predict and will vary among pools.
<R>
The Adviser will determine whether a security is investment grade based upon the credit ratings given by one or more NRSROs. For example, Standard & Poor's, a rating service, assigns ratings to investment grade securities (AAA, AA, A, and BBB) based on their assessment of the likelihood of the issuer's inability to pay interest or principal (default) when due on each security. Lower credit ratings correspond to higher credit risk. If a security has not received a rating, the Fund must rely entirely upon the Adviser's credit assessment that the security is comparable to investment grade. If a security is downgraded below the minimum quality grade discussed above, the Adviser will reevaluate the security, but will not be required to sell it.
</R>
Prices of fixed income securities rise and fall in response to changes in the interest rate paid by similar securities. Generally, when interest rates rise, prices of fixed income securities fall. However, market factors, such as the demand for particular fixed income securities, may cause the price of certain fixed income securities to fall while the prices of other securities rise or remain unchanged.
Interest rate changes have a greater effect on the price of fixed income securities with longer durations. Duration measures the price sensitivity of a fixed income security to changes in interest rates.
Credit risk is the possibility that an issuer will default on a security by failing to pay interest or principal when due. If an issuer defaults, the Fund will lose money.
Many fixed income securities receive credit ratings from services such as Standard & Poor's and Moody's Investor Services, Inc. These services assign ratings to securities by assessing the likelihood of issuer default. Lower credit ratings correspond to higher credit risk. If a security has not received a rating, the Fund must rely entirely upon the Adviser's credit assessment.
<R>
Fixed income securities generally compensate for greater credit risk by paying interest at a higher rate. The difference between the yield of a security and the yield of a U.S. treasury security with a comparable maturity (the spread) measures the additional interest paid for the additional risk. Spreads may increase generally in response to adverse economic or market conditions. A security's spread may also increase if the security's rating is lowered, or the security is perceived to have an increased credit risk. An increase in the spread will cause the price of the security to decline.
</R>
Credit risk includes the possibility that a party to a transaction involving the Fund will fail to meet its obligations. This could cause the Fund to lose the benefit of the transaction or prevent the Fund from selling or buying other securities to implement its investment strategy.
Unlike traditional fixed income securities, which pay a fixed rate of interest until maturity (when the entire principal amount is due) payments on mortgage backed securities include both interest and a partial payment of principal. Partial payment of principal may be comprised of scheduled principal payments as well as unscheduled payments from the voluntary prepayment, refinancing, or foreclosure of the underlying loans. These unscheduled prepayments of principal create risks that can adversely affect a Fund holding mortgage backed securities.
For example, when interest rates decline, the values of mortgage backed securities generally rise. However, when interest rates decline, unscheduled prepayments can be expected to accelerate, and the Fund would be required to reinvest the proceeds of the prepayments at the lower interest rates then available. Unscheduled prepayments would also limit the potential for capital appreciation on mortgage backed securities.
Conversely, when interest rates rise, the values of mortgage backed securities generally fall. Since rising interest rates typically result in decreased prepayments, this could lengthen the average lives of mortgage backed securities, and cause their value to decline more than traditional fixed income securities.
<R>
Generally, mortgage backed securities compensate for the increased risk associated with prepayments by paying a higher yield. The additional interest paid for risk is measured by the difference between the yield of a mortgage backed security and the yield of a U.S. treasury security with a comparable maturity (the spread). An increase in the spread will cause the price of the mortgage backed security to decline. Spreads generally increase in response to adverse economic or market conditions. Spreads may also increase if the security is perceived to have an increased prepayment risk or is perceived to have less market demand.
</R>
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is open. When the Fund receives your transaction request in proper form (as described in this prospectus) it is processed at the next calculated net asset value (NAV). The Fund does not charge a front-end sales charge. NAV is determined at the end of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE is open.
The Fund generally values fixed income securities according to the mean between bid and asked prices as furnished by an independent pricing service, except that fixed income securities with remaining maturities of less than 60 days at the time of purchase may be valued at amortized cost.
<R>
The Fund's current NAV and public offering price may be found in the mutual funds section of certain local newspapers under "Federated."
</R>
The required minimum initial investment for Fund Shares is $25,000. There is no required minimum subsequent investment amount.
An account may be opened with a smaller amount as long as the $25,000 minimum is reached within 90 days. An institutional investor's minimum investment is calculated by combining all accounts it maintains with the Fund. Accounts established through investment professionals may be subject to a smaller minimum investment amount. Keep in mind that investment professionals may charge you fees for their services in connection with your Share transactions.
The Fund offers two share classes: Institutional Shares and Institutional Service Shares, each representing interests in a single portfolio of securities. This prospectus relates only to Institutional Shares. Each share class has different expenses, which affect their performance. Contact your investment professional or call 1-800-341-7400 for more information concerning the other class.
The Fund's Distributor, Federated Securities Corp., markets the Shares described in this prospectus to retail and private banking customers of financial institutions or to individuals, directly or through investment professionals.
The Distributor and its affiliates may pay out of their assets other amounts (including items of material value) to investment professionals for marketing and servicing Shares. The Distributor is a subsidiary of Federated Investors, Inc. (Federated).
You may purchase Shares through an investment professional or directly from the Fund. The Fund reserves the right to reject any request to purchase Shares.
Investment professionals should send payments according to the instructions in the sections "By Wire" or "By Check."
You will become the owner of Shares and your Shares will be priced at the next calculated NAV after the Fund receives your wire or your check. If your check does not clear, your purchase will be canceled and you could be liable for any losses or fees incurred by the Fund or Federated Shareholder Services Company, the Fund's transfer agent.
An institution may establish an account and place an order by calling the Fund and the Shares will be priced at the next calculated NAV after the Fund receives the order.
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are restricted.
Make your check payable to The Federated Funds , note your account number on the check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a private courier or overnight delivery service that requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will not accept third-party checks (checks originally payable to someone other than you or The Federated Funds).
Once you have opened an account, you may purchase additional Shares through a depository institution that is an ACH member. This purchase option can be established by completing the appropriate sections of the New Account Form.
You should redeem Shares:
Submit your redemption request to your investment professional by the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). The redemption amount you will receive is based upon the next calculated NAV after the Fund receives the order from your investment professional.
<R>
You may redeem Shares by simply calling the Fund at 1-800-341-7400.
</R>
<R>
If you call before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time), you will receive a redemption amount based on that day's NAV.
</R>
<R>
You may redeem Shares by mailing a written request to the Fund.
</R>
<R>
You will receive a redemption amount based on the next calculated NAV after the Fund receives your written request in proper form.
</R>
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by private courier or overnight delivery service to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
Call your investment professional or the Fund if you need special instructions.
Signatures must be guaranteed if:
A signature guarantee is designed to protect your account from fraud. Obtain a signature guarantee from a bank or trust company, savings association, credit union or broker, dealer, or securities exchange member. A notary public cannot provide a signature guarantee.
Your redemption proceeds will be mailed by check to your address of record. The following payment options are available if you complete the appropriate section of the New Account Form or an Account Service Options Form. These payment options require a signature guarantee if they were not established when the account was opened:
Although the Fund intends to pay Share redemptions in cash, it reserves the right to pay the redemption price in whole or in part by a distribution of the Fund's portfolio securities.
Redemption proceeds normally are wired or mailed within one business day after receiving a request in proper form. Payment may be delayed up to seven days:
You will not accrue interest or dividends on uncashed checks from the Fund if those checks are undeliverable and returned to the Fund.
The Fund will record your telephone instructions. If the Fund does not follow reasonable procedures, it may be liable for losses due to unauthorized or fraudulent telephone instructions.
The Fund no longer issues share certificates. If you are redeeming Shares represented by certificates previously issued by the Fund, you must return the certificates with your written redemption request. For your protection, send your certificates by registered or certified mail, but do not endorse them.
You will receive confirmation of purchases and redemptions. In addition, you will receive periodic statements reporting all account activity, including dividends and capital gains paid.
The Fund declares any dividends daily and pays them monthly to shareholders. If you purchase Shares by wire, you begin earning dividends on the day your wire is received. If you purchase Shares by check, you begin earning dividends on the business day after the Fund receives your check. In either case, you earn dividends through the day your redemption request is received.
In addition, the Fund pays any capital gains at least annually. Your dividends and capital gains distributions will be automatically reinvested in additional Shares without a sales charge, unless you elect cash payments.
If you purchase Shares just before a Fund declares a capital gain distribution, you will pay the full price for the Shares and then receive a portion of the price back in the form of a taxable distribution, whether or not you reinvest the distribution in Shares. Therefore, you should consider the tax implications of purchasing Shares shortly before the Fund declares a capital gain. Contact your investment professional or the Fund for information concerning when dividends and capital gains will be paid.
Due to the high cost of maintaining accounts with low balances, accounts may be closed if redemptions cause the account balance to fall below the minimum initial investment amount. Before an account is closed, you will be notified and allowed 30 days to purchase additional Shares to meet the minimum.
The Fund sends an annual statement of your account activity to assist you in completing your federal, state and local tax returns. Fund distributions of dividends and capital gains are taxable to you whether paid in cash or reinvested in the Fund. Dividends are taxable as ordinary income; capital gains are taxable at different rates depending upon the length of time the Fund holds its assets.
Fund distributions are expected to be primarily dividends. Redemptions are taxable sales. Please consult your tax adviser regarding your federal, state and local tax liability.
The Board of Trustees governs the Fund. The Board selects and oversees the Adviser, Federated Investment Management Company. The Adviser manages the Fund's assets, including buying and selling portfolio securities. The Adviser's address is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
<R>
The Adviser and other subsidiaries of Federated advise approximately 190 mutual funds and separate accounts, which totaled approximately $140 billion in assets as of December 31, 2000. Federated was established in 1955 and is one of the largest mutual fund investment managers in the United States with approximately 1,800 employees. More than 4,000 investment professionals make Federated Funds available to their customers.
</R>
Joseph M. Balestrino has been the Fund's Portfolio Manager since January 1994. He is Vice President of the Trust. Mr. Balestrino joined Federated in 1986 and has been a Senior Portfolio Manager and Senior Vice President of the Fund's Adviser since 1998. He was a Portfolio Manager and a Vice President of the Fund's Adviser from 1995 to 1998. Mr. Balestrino served as a Portfolio Manager and an Assistant Vice President of the Adviser from 1993 to 1995. Mr. Balestrino is a Chartered Financial Analyst and received his Master's Degree in Urban and Regional Planning from the University of Pittsburgh.
Christopher J. Smith has been the Fund's Portfolio Manager since June 2000. Mr. Smith joined Federated in 1995 as a Portfolio Manager and a Vice President of a Federated advisory subsidiary. He has been a Vice President of the Fund's Adviser since 1997. He was an Assistant Vice President of Provident Life & Accident Insurance Company from 1987 through 1994. Mr. Smith is a Chartered Financial Analyst. He received his M.A. in Economics and Finance from the University of Kentucky.
Susan M. Nason has been the Fund's Portfolio Manager since December 1993. Ms. Nason joined Federated in 1987 and has been a Senior Portfolio Manager and Senior Vice President of the Fund's Adviser since 1997. Ms. Nason served as a Portfolio Manager and Vice President of the Adviser from 1993 to 1997. Ms. Nason is a Chartered Financial Analyst and received her M.S.I.A. concentrating in Finance from Carnegie Mellon University.
The Adviser receives an annual investment advisory fee of 0.50% of the Fund's average daily net assets. The Adviser may voluntarily waive a portion of its fee or reimburse the Fund for certain operating expenses.
The following Financial Highlights will help you understand the Fund's financial performance for its past five fiscal years. Some of the information is presented on a per share basis. Total returns represent the rate an investor would have earned (or lost) on an investment in the Fund, assuming reinvestment of any dividends and capital gains.
This information has been audited by Ernst & Young LLP, whose report, along with the Fund's audited financial statements, is included in this prospectus.
(For a Share Outstanding Throughout Each Period)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors, on page 42.
|
Year Ended April 30 |
|
2001 |
|
|
2000 |
|
|
1999 |
|
|
1998 |
|
|
1997 |
|
|
|
|||||||||||||||
|
Net Asset Value, Beginning of Period |
|
$ 9.45 |
|
|
$10.07 |
|
|
$10.17 |
|
|
$ 9.79 |
|
|
$ 9.77 |
|
|
Income From Investment Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
0.65 |
|
|
0.62 |
|
|
0.60 |
|
|
0.63 |
|
|
0.63 |
|
|
Net realized and unrealized gain (loss) on investments |
|
0.41 |
|
|
(0.60 |
) |
|
(0.10 |
) |
|
0.38 |
|
|
0.03 |
|
|
|
|||||||||||||||
|
TOTAL FROM INVESTMENT OPERATIONS |
|
1.06 |
|
|
0.02 |
|
|
0.50 |
|
|
1.01 |
|
|
0.66 |
|
|
|
|||||||||||||||
|
Less Distributions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions from net investment income |
|
(0.65 |
) |
|
(0.62 |
) |
|
(0.60 |
) |
|
(0.63 |
) |
|
(0.63 |
) |
|
Distributions from net realized gain on investments |
|
-- |
|
|
(0.02 |
) |
|
(0.00 |
) 1 |
|
-- |
|
|
(0.01 |
) |
|
|
|||||||||||||||
|
TOTAL DISTRIBUTIONS |
|
(0.65 |
) |
|
(0.64 |
) |
|
(0.60 |
) |
|
(0.63 |
) |
|
(0.64 |
) |
|
|
|||||||||||||||
|
Net Asset Value, End of Period |
|
$ 9.86 |
|
|
$ 9.45 |
|
|
$10.07 |
|
|
$10.17 |
|
|
$ 9.79 |
|
|
|
|||||||||||||||
|
Total Return 2 |
|
11.54 |
% |
|
0.30 |
% |
|
5.03 |
% |
|
10.58 |
% |
|
7.00 |
% |
|
|
|||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios to Average Net Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
Expenses |
|
0.55 |
% |
|
0.55 |
% |
|
0.55 |
% |
|
0.55 |
% |
|
0.55 |
% |
|
|
|||||||||||||||
|
Net investment income |
|
6.72 |
% |
|
6.48 |
% |
|
5.87 |
% |
|
6.30 |
% |
|
6.48 |
% |
|
|
|||||||||||||||
|
Expense waiver/reimbursement 3 |
|
0.35 |
% |
|
0.37 |
% |
|
0.43 |
% |
|
0.47 |
% |
|
0.57 |
% |
|
|
|||||||||||||||
|
Supplemental Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
Net assets, end of period (000 omitted) |
|
$300,289 |
|
$294,644 |
|
$219,824 |
|
$176,712 |
|
$121,307 |
|
||||
|
|
|||||||||||||||
|
Portfolio turnover |
|
43 |
% |
|
54 |
% |
|
41 |
% |
|
44 |
% |
|
55 |
% |
|
|
|||||||||||||||
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 This voluntary expense decrease is reflected in both the expense and the net investment income ratios shown above.
See Notes which are an integral part of the Financial Statements
April 30, 2001
|
Principal
|
|
|
|
Value |
||
|
|
||||||
|
|
|
|
ASSET-BACKED SECURITIES--2.7% |
|
|
|
|
|
|
|
Credit Card--0.6% |
|
|
|
|
$ |
500,000 |
|
Discover Card Trust 1996-3, Class B, 6.25%, 8/18/2008 |
|
$ |
500,831 |
|
|
1,500,000 |
|
Prime Credit Card Master Trust 2000-1, Class A, 6.70%, 10/15/2009 |
|
|
1,550,685 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
2,051,516 |
|
|
||||||
|
|
|
|
Structured Product (Abs)--1.5% |
|
|
|
|
|
2,000,000 |
1 |
125 Home Loan Owner Trust 1998-1A, Class M2, 7.75%, 2/15/2029 |
|
|
2,030,620 |
|
|
2,000,000 |
|
New Century Home Equity Loan Trust 1997-NC5, Class M2, 7.24%, 10/25/2028 |
|
|
2,015,453 |
|
|
500,000 |
|
Residential Funding Corp. 1993-S26, Class A10, 7.50%, 7/25/2023 |
|
|
510,520 |
|
|
300,000 |
|
Residential Funding Corp. 1993-S31, Class A7, 7.00%, 9/25/2023 |
|
|
297,630 |
|
|
25,885 |
|
The Money Store Home Equity Trust 1992-B, Class A, 6.90%, 7/15/2007 |
|
|
25,845 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
4,880,068 |
|
|
||||||
|
|
|
|
Utilities--0.6% |
|
|
|
|
|
2,000,000 |
|
California Infrastructure & Economic Development Bank Special Purpose Trust PG&E-1, Series 1997-1, Class A8, 6.48%, 12/26/2009 |
|
|
1,994,640 |
|
|
||||||
|
|
|
|
TOTAL ASSET-BACKED SECURITIES (IDENTIFIED COST $8,808,849) |
|
|
8,926,224 |
|
|
||||||
|
|
|
|
CORPORATE BONDS--69.4% |
|
|
|
|
|
|
|
Aerospace & Defense--0.3% |
|
|
|
|
|
1,000,000 |
|
Boeing Capital Corp., 6.68%, 12/1/2003 |
|
|
1,038,340 |
|
|
||||||
|
|
|
|
Air Transportation--2.0% |
|
|
|
|
|
215,890 |
|
Continental Airlines, Inc., Pass Thru Cert., 7.73%, 3/15/2011 |
|
|
215,400 |
|
|
1,554,766 |
|
Continental Airlines, Inc., Pass Thru Cert., Series 1997-4 B, 6.90%, 1/2/2017 |
|
|
1,485,968 |
|
|
1,150,000 |
|
Delta Air Lines, Inc., Note, 8.30%, 12/15/2029 |
|
|
975,349 |
|
|
1,300,000 |
|
Delta Air Lines, Inc., Pass Thru Cert., Series 2000-1 B, 7.92%, 11/18/2010 |
|
|
1,373,645 |
|
|
895,529 |
|
Northwest Airlines Corp., Equip. Trust, 8.072%, 10/1/2019 |
|
|
958,628 |
|
|
425,000 |
|
Southwest Airlines Co., Deb., 7.375%, 3/1/2027 |
|
|
401,617 |
|
|
1,150,000 |
|
United Air Lines, Pass Thru Cert., 7.73%, 7/1/2010 |
|
|
1,213,952 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
6,624,559 |
|
|
||||||
|
|
|
|
Automobile--0.4% |
|
|
|
|
|
1,460,000 |
|
Ford Motor Co., 7.45%, 7/16/2031 |
|
|
1,427,223 |
|
|
||||||
|
Principal
|
|
|
|
Value |
||
|
|
||||||
|
|
|
|
CORPORATE BONDS--continued |
|
|
|
|
|
|
|
Banking--7.6% |
|
|
|
|
$ |
1,250,000 |
|
ABN-AMRO Bank NV, Chicago, Sub. Deb., 7.30%, 12/1/2026 |
|
$ |
1,196,837 |
|
|
2,000,000 |
|
Banco Santander Central Hispano, S.A., Bank Guarantee, 7.875%, 4/15/2005 |
|
|
2,100,820 |
|
|
100,000 |
|
Bank One Corp., Sub. Deb., 7.25%, 8/15/2004 |
|
|
103,816 |
|
|
220,000 |
|
Bank One Corp., Sub. Note, 7.25%, 8/1/2002 |
|
|
225,845 |
|
|
250,000 |
|
Bank One Corp., Sr. Note, 8.10%, 3/1/2002 |
|
|
256,830 |
|
|
200,000 |
|
BankAmerica Corp., Sub. Note, 7.75%, 7/15/2002 |
|
|
206,832 |
|
|
200,000 |
|
BankAmerica Corp., Sub. Note, 8.375%, 3/15/2002 |
|
|
206,434 |
|
|
2,200,000 |
|
Barclays North America, Deb., 9.75%, 5/15/2021 |
|
|
2,316,050 |
|
|
10,000 |
|
Boatmen's Bancshares, Inc., Sub. Note, 9.25%, 11/1/2001 |
|
|
10,233 |
|
|
2,000,000 |
|
Capital One Bank, 6.875%, 2/1/2006 |
|
|
1,950,140 |
|
|
30,000 |
|
Central Fidelity Banks, Inc., Sub. Note, 8.15%, 11/15/2002 |
|
|
31,402 |
|
|
2,000,000 |
|
City National Bank, Sub. Note, 6.375%, 1/15/2008 |
|
|
1,838,968 |
|
|
40,000 |
|
Corestates Capital Corp., Sub. Note, 5.875%, 10/15/2003 |
|
|
40,380 |
|
|
1,000,000 |
1 |
Den Danske Bank Group, Note, 7.40%, 6/15/2010 |
|
|
1,019,470 |
|
|
30,000 |
|
First Union Corp., Sub. Note, 8.00%, 11/15/2002 |
|
|
31,278 |
|
|
30,000 |
|
HSBC USA, Inc., Sub. Note, 8.25%, 11/1/2001 |
|
|
30,549 |
|
|
1,000,000 |
|
J.P. Morgan Chase & Co., Sub. Note, 6.70%, 11/1/2007 |
|
|
1,003,220 |
|
|
1,000,000 |
|
J.P. Morgan Chase & Co., Note, 6.375%, 2/15/2008 |
|
|
982,990 |
|
|
3,300,000 |
|
National Bank of Canada, NY, Note, Series B, 8.125%, 8/15/2004 |
|
|
3,507,108 |
|
|
15,000 |
|
NationsBank Corp., Sub. Note, 7.625%, 4/15/2005 |
|
|
15,852 |
|
|
1,000,000 |
|
NationsBank Corp., Sub. Note, Series MTNF, 7.19%, 7/30/2012 |
|
|
991,720 |
|
|
715,000 |
|
PNC Funding Corp., Sub. Note, 6.875%, 7/15/2007 |
|
|
723,787 |
|
|
4,000,000 |
1 |
Regional Diversified Funding, 9.25%, 3/15/2030 |
|
|
4,009,224 |
|
|
200,000 |
|
SunTrust Bank, Inc., Central Florida, Sub. Note, 6.90%, 7/1/2007 |
|
|
200,602 |
|
|
255,000 |
|
SunTrust Bank, Inc., Note, 7.375%, 7/1/2002 |
|
|
262,319 |
|
|
15,000 |
|
SunTrust Bank, Inc., Sub. Note, 6.125%, 2/15/2004 |
|
|
15,273 |
|
|
1,000,000 |
1 |
Swedbank, Sub., 7.50%, 11/29/2049 |
|
|
1,003,906 |
|
|
1,250,000 |
|
Washington Mutual, Inc., Sr. Note, 7.50%, 8/15/2006 |
|
|
1,303,388 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
25,585,273 |
|
|
||||||
|
Principal
|
|
|
|
Value |
||
|
|
||||||
|
|
|
|
CORPORATE BONDS--continued |
|
|
|
|
|
|
|
Beverage & Tobacco--0.0% |
|
|
|
|
$ |
100,000 |
|
Philip Morris Cos., Inc., Note, 7.625%, 5/15/2002 |
|
$ |
102,346 |
|
|
||||||
|
|
|
|
Broadcast Radio & TV--1.0% |
|
|
|
|
|
3,100,000 |
|
Clear Channel Communications, Inc., Sr. Note, 7.65%, 9/15/2010 |
|
|
3,213,553 |
|
|
||||||
|
|
|
|
Cable Television--1.8% |
|
|
|
|
|
3,500,000 |
|
Continental Cablevision, Sr. Deb., 9.50%, 8/1/2013 |
|
|
3,748,465 |
|
|
2,250,000 |
|
Cox Communications, Inc., MTN, 6.69%, 9/20/2004 |
|
|
2,281,252 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
6,029,717 |
|
|
||||||
|
|
|
|
Chemicals & Plastics--0.6% |
|
|
|
|
|
10,000 |
|
Air Products & Chemicals, Inc., Sr. Note, 7.375%, 5/1/2005 |
|
|
10,356 |
|
|
1,500,000 |
1 |
Bayer Corp., Deb., 6.50%, 10/1/2002 |
|
|
1,530,810 |
|
|
40,000 |
|
Du Pont (E.I.) de Nemours & Co., Note, 8.125%, 3/15/2004 |
|
|
42,878 |
|
|
750,000 |
1 |
Fertinitro Finance, Company Guarantee, 8.29%, 4/1/2020 |
|
|
514,815 |
|
|
30,000 |
|
PPG Industries, Inc., Note, 6.50%, 11/1/2007 |
|
|
29,080 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
2,127,939 |
|
|
||||||
|
|
|
|
Conglomerates--0.2% |
|
|
|
|
|
750,000 |
|
Loews Corp., Deb., 8.875%, 4/15/2011 |
|
|
826,605 |
|
|
||||||
|
|
|
|
Consumer Products--0.8% |
|
|
|
|
|
2,250,000 |
|
Alberto-Culver Co., Unsecd. Note, 8.25%, 11/1/2005 |
|
|
2,402,122 |
|
|
100,000 |
|
Hershey Foods Corp., Note, 6.70%, 10/1/2005 |
|
|
103,131 |
|
|
300,000 |
|
Sara Lee Corp., Sr. Note, 6.00%, 1/15/2008 |
|
|
293,721 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
2,798,974 |
|
|
||||||
|
|
|
|
Ecological Services & Equipment--1.5% |
|
|
|
|
|
2,500,000 |
|
USA Waste Services, Inc., Sr. Note, 7.00%, 10/1/2004 |
|
|
2,511,300 |
|
|
425,000 |
|
USA Waste Services, Inc., Sr. Note, 7.125%, 10/1/2007 |
|
|
419,675 |
|
|
2,000,000 |
|
WMX Technologies, Inc., Deb., 8.75%, 5/1/2018 |
|
|
2,081,480 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
5,012,455 |
|
|
||||||
|
|
|
|
Education--1.0% |
|
|
|
|
|
3,425,000 |
|
Boston University, MTN, 7.625%, 7/15/2097 |
|
|
3,335,299 |
|
|
||||||
|
Principal
|
|
|
|
Value |
||
|
|
||||||
|
|
|
|
CORPORATE BONDS--continued |
|
|
|
|
|
|
|
Electronics--1.5% |
|
|
|
|
$ |
2,250,000 |
|
Anixter International, Inc., Company Guarantee, 8.00%, 9/15/2003 |
|
$ |
2,284,290 |
|
|
1,500,000 |
|
General Electric Financial Services, Inc., MTN, 9.18%, 12/30/2008 |
|
|
1,751,055 |
|
|
225,000 |
|
General Electric Financial Services, Inc., Sr. Note, 6.29%, 12/15/2001 |
|
|
227,457 |
|
|
115,000 |
|
International Business Machines Corp., 7.25%, 11/1/2002 |
|
|
118,810 |
|
|
500,000 |
|
International Business Machines Corp., Note, 6.45%, 8/1/2007 |
|
|
506,035 |
|
|
15,000 |
|
Rockwell International Corp., Unsecd. Note, 6.625%, 6/1/2005 |
|
|
15,220 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
4,902,867 |
|
|
||||||
|
|
|
|
Finance - Automotive--1.9% |
|
|
|
|
|
2,100,000 |
|
Ford Capital BV, Note, 9.375%, 5/15/2001 |
|
|
2,104,431 |
|
|
100,000 |
|
Ford Motor Credit Co., Note, 6.625%, 6/30/2003 |
|
|
101,967 |
|
|
250,000 |
|
Ford Motor Credit Co., Note, 7.50%, 4/25/2011 |
|
|
249,380 |
|
|
35,000 |
|
Ford Motor Credit Co., Note, 7.75%, 3/15/2005 |
|
|
36,592 |
|
|
100,000 |
|
Ford Motor Credit Co., Unsecd. Note, 8.00%, 6/15/2002 |
|
|
103,124 |
|
|
1,000,000 |
|
Ford Motor Credit Co., Unsub., 6.875%, 6/5/2001 |
|
|
1,001,000 |
|
|
1,500,000 |
|
General Motors Acceptance Corp., MTN, 7.50%, 7/15/2005 |
|
|
1,561,335 |
|
|
155,000 |
|
General Motors Acceptance Corp., Note, 7.00%, 9/15/2002 |
|
|
158,353 |
|
|
1,170,000 |
|
General Motors Acceptance Corp., Sr. Note, 5.75%, 11/10/2003 |
|
|
1,173,416 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
6,489,598 |
|
|
||||||
|
|
|
|
Finance - Retail--0.8% |
|
|
|
|
|
100,000 |
|
Household Finance Corp., Note, 6.125%, 8/15/2003 |
|
|
101,430 |
|
|
100,000 |
|
Household Finance Corp., Note, 7.00%, 9/15/2002 |
|
|
102,449 |
|
|
100,000 |
|
Household Finance Corp., Sr. Note, 7.25%, 8/15/2002 |
|
|
102,586 |
|
|
2,250,000 |
|
Waddell & Reed Financial, Inc., Note, 7.50%, 1/18/2006 |
|
|
2,280,083 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
2,586,548 |
|
|
||||||
|
|
|
|
Financial Intermediaries--5.8% |
|
|
|
|
|
4,000,000 |
|
Amvescap PLC, Sr. Note, 6.60%, 5/15/2005 |
|
|
4,040,800 |
|
|
1,000,000 |
|
Donaldson, Lufkin and Jenrette Securities Corp., Sr. Note, 6.50%, 6/1/2008 |
|
|
992,710 |
|
|
175,000 |
|
Lehman Brothers Holdings, Inc., Bond, 7.00%, 5/15/2003 |
|
|
180,672 |
|
|
2,575,000 |
|
Lehman Brothers Holdings, Inc., Note, 7.875%, 8/15/2010 |
|
|
2,704,110 |
|
|
1,575,000 |
|
Lehman Brothers, Inc., Sr. Sub. Note, 7.375%, 1/15/2007 |
|
|
1,611,997 |
|
|
2,325,000 |
|
Marsh & McLennan Cos., Inc., Sr. Note, 7.125%, 6/15/2009 |
|
|
2,404,608 |
|
Principal
|
|
|
|
Value |
||
|
|
||||||
|
|
|
|
CORPORATE BONDS--continued |
|
|
|
|
|
|
|
Financial Intermediaries--continued |
|
|
|
|
$ |
1,000,000 |
|
Merrill Lynch & Co., Inc., MTN, 7.20%, 10/15/2012 |
|
$ |
997,220 |
|
|
500,000 |
|
Merrill Lynch & Co., Inc., Note, 6.875%, 3/1/2003 |
|
|
514,020 |
|
|
15,000 |
|
Merrill Lynch & Co., Inc., Note, 7.375%, 5/15/2006 |
|
|
15,941 |
|
|
100,000 |
|
Merrill Lynch & Co., Inc., Note, 8.30%, 11/1/2002 |
|
|
104,702 |
|
|
1,000,000 |
|
Merrill Lynch & Co., Inc., Note, Series MTNB, 7.19%, 8/7/2012 |
|
|
984,800 |
|
|
920,000 |
|
Morgan Stanley Group, Inc., Deb., 9.375%, 6/15/2001 |
|
|
925,511 |
|
|
2,500,000 |
|
Morgan Stanley Group, Inc., Note, 7.125%, 1/15/2003 |
|
|
2,585,650 |
|
|
50,000 |
|
Pitney Bowes Credit Corp., Unsecd. Note, 8.80%, 2/15/2003 |
|
|
53,006 |
|
|
100,000 |
|
Salomon Smith Barney Holdings, Inc., Note, Series C, 7.15%, 2/15/2003 |
|
|
103,429 |
|
|
100,000 |
|
Salomon Smith Barney Holdings, Inc., Unsecd. Note, Series MTNG, 6.35%, 1/15/2004 |
|
|
101,905 |
|
|
5,000 |
|
Salomon, Inc., Note, 6.375%, 10/1/2004 |
|
|
5,092 |
|
|
10,000 |
|
Salomon, Inc., Note, 6.625%, 11/15/2003 |
|
|
10,309 |
|
|
200,000 |
|
Salomon, Inc., Sr. Note, 6.80%, 4/15/2003 |
|
|
205,907 |
|
|
30,000 |
|
Wells Fargo & Co., Note, 5.75%, 2/1/2003 |
|
|
30,363 |
|
|
892,132 |
1 |
World Financial, Pass Thru Cert., Series 96 WFP-B, 6.91%, 9/1/2013 |
|
|
901,650 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
19,474,402 |
|
|
||||||
|
|
|
|
Financial Services--0.9% |
|
|
|
|
|
3,000,000 |
|
General Electric Capital Corp., MTN, 6.65%, 9/3/2002 |
|
|
3,074,820 |
|
|
100,000 |
|
U.S. Leasing International, Unsecd. Note, 6.625%, 5/15/2003 |
|
|
101,148 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
3,175,968 |
|
|
||||||
|
|
|
|
Food & Drug Retailers--0.8% |
|
|
|
|
|
2,000,000 |
|
Kroger Co., Inc., 7.25%, 6/1/2009 |
|
|
2,033,820 |
|
|
500,000 |
|
Meyer (Fred), Inc., Company Guarantee, 7.45%, 3/1/2008 |
|
|
514,695 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
2,548,515 |
|
|
||||||
|
|
|
|
Food Products--0.4% |
|
|
|
|
|
5,000 |
|
Grand Metropolitan Investment Corp., 9.00%, 8/15/2011 |
|
|
5,922 |
|
|
1,200,000 |
|
Kellogg Co., 7.45%, 4/1/2031 |
|
|
1,193,160 |
|
|
300,000 |
|
Kraft General Foods, Inc., Deb., 6.00%, 6/15/2001 |
|
|
300,252 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
1,499,334 |
|
|
||||||
|
Principal
|
|
|
|
Value |
||
|
|
||||||
|
|
|
|
CORPORATE BONDS--continued |
|
|
|
|
|
|
|
Forest Products--1.3% |
|
|
|
|
$ |
1,500,000 |
|
Donohue Forest Products, 7.625%, 5/15/2007 |
|
$ |
1,553,700 |
|
|
1,000,000 |
|
Fort James Corp., Deb., 8.375%, 11/15/2001 |
|
|
1,011,580 |
|
|
1,000,000 |
|
Quno Corp., Sr. Note, 9.125%, 5/15/2005 |
|
|
1,037,140 |
|
|
25,000 |
|
Union Camp Corp., Note, 6.50%, 11/15/2007 |
|
|
24,311 |
|
|
750,000 |
|
Westvaco Corp., Deb., 7.75%, 2/15/2023 |
|
|
753,143 |
|
|
25,000 |
|
Weyerhaeuser Co., Deb., 9.05%, 2/1/2003 |
|
|
26,292 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
4,406,166 |
|
|
||||||
|
|
|
|
Health Services--1.4% |
|
|
|
|
|
1,000,000 |
|
Aetna Services, Inc., Company Guarantee, 6.75%, 8/15/2001 |
|
|
1,006,850 |
|
|
1,550,000 |
|
Guidant Corp., 6.15%, 2/15/2006 |
|
|
1,508,491 |
|
|
2,000,000 |
|
UnitedHealth Group, Inc., 7.50%, 11/15/2005 |
|
|
2,093,120 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
4,608,461 |
|
|
||||||
|
|
|
|
Industrial Products & Equipment--0.0% |
|
|
|
|
|
25,000 |
|
Ingersoll-Rand Co., Note, 6.51%, 12/1/2004 |
|
|
25,402 |
|
|
||||||
|
|
|
|
Insurance--4.7% |
|
|
|
|
|
500,000 |
|
CIGNA Corp., Sr. Note, 7.40%, 1/15/2003 |
|
|
515,640 |
|
|
1,975,000 |
|
Continental Corp., Unsecd. Note, 7.25%, 3/1/2003 |
|
|
1,998,443 |
|
|
2,000,000 |
|
Delphi Financial Group, Inc., Note, 8.00%, 10/1/2003 |
|
|
2,045,040 |
|
|
2,000,000 |
1 |
Equitable Life, Note, 7.70%, 12/1/2015 |
|
|
2,097,500 |
|
|
4,000,000 |
|
GEICO Corp., Deb., 9.15%, 9/15/2021 |
|
|
4,241,080 |
|
|
25,000 |
|
ITT Hartford Group, Inc., Note, 8.30%, 12/1/2001 |
|
|
25,522 |
|
|
15,000 |
|
Lincoln National Corp., Note, 7.625%, 7/15/2002 |
|
|
15,443 |
|
|
2,000,000 |
1 |
Reinsurance Group of America, Sr. Note, 7.25%, 4/1/2006 |
|
|
2,056,810 |
|
|
1,000,000 |
|
St. Paul Cos., Inc., MTN, Series MTNB, 7.29%, 8/28/2007 |
|
|
1,032,240 |
|
|
2,150,000 |
1 |
Union Central Life Insurance Co., Note, 8.20%, 11/1/2026 |
|
|
1,911,221 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
15,938,939 |
|
|
||||||
|
|
|
|
Leisure & Entertainment--2.4% |
|
|
|
|
|
3,900,000 |
|
International Speedway Corp., 7.875%, 10/15/2004 |
|
|
3,949,764 |
|
|
800,000 |
|
Paramount Communications, Inc., Sr. Note, 7.50%, 1/15/2002 |
|
|
814,456 |
|
|
3,200,000 |
|
Viacom, Inc., Sr. Deb., 8.25%, 8/1/2022 |
|
|
3,273,792 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
8,038,012 |
|
|
||||||
|
Principal
|
|
|
|
Value |
||
|
|
||||||
|
|
|
|
CORPORATE BONDS--continued |
|
|
|
|
|
|
|
Metals & Mining--3.0% |
|
|
|
|
$ |
3,000,000 |
|
Barrick Gold Corp., Deb., 7.50%, 5/1/2007 |
|
$ |
3,090,990 |
|
|
2,922,000 |
|
Inco Ltd., Note, 9.60%, 6/15/2022 |
|
|
2,937,896 |
|
|
2,405,000 |
|
Noranda, Inc., Deb., 8.125%, 6/15/2004 |
|
|
2,456,251 |
|
|
875,000 |
|
Noranda, Inc., Deb., 8.625%, 7/15/2002 |
|
|
896,857 |
|
|
750,000 |
|
Placer Dome, Inc., Bond, 8.50%, 12/31/2045 |
|
|
646,813 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
10,028,807 |
|
|
||||||
|
|
|
|
Oil & Gas--5.8% |
|
|
|
|
|
10,000 |
|
Atlantic Richfield Co., Deb., 9.125%, 3/1/2011 |
|
|
12,097 |
|
|
1,250,000 |
|
Enterprise Oil, Sr. Note, 7.00%, 5/1/2018 |
|
|
1,204,562 |
|
|
1,000,000 |
|
Global Marine, Inc., Sr. Note, 7.125%, 9/1/2007 |
|
|
1,017,730 |
|
|
3,300,000 |
|
Husky Oil Ltd., Deb., 7.55%, 11/15/2016 |
|
|
3,287,823 |
|
|
750,000 |
|
Husky Oil Ltd., Sr. Note, 7.125%, 11/15/2006 |
|
|
757,875 |
|
|
500,000 |
|
Norcen Energy Resources, Inc., Sr. Deb., 6.80%, 7/2/2002 |
|
|
506,005 |
|
|
3,250,000 |
1 |
Pemex Finance Ltd., 9.03%, 2/15/2011 |
|
|
3,461,868 |
|
|
1,000,000 |
|
Sun Co., Inc., 9.00%, 11/1/2024 |
|
|
1,115,940 |
|
|
2,450,000 |
|
Tosco Corp., 8.125%, 2/15/2030 |
|
|
2,660,186 |
|
|
1,000,000 |
|
USX Corp., Deb., 9.375%, 5/15/2022 |
|
|
1,187,550 |
|
|
1,000,000 |
|
Union Pacific Resources Group, Inc., Unsecd. Note, 7.00%, 10/15/2006 |
|
|
1,028,830 |
|
|
3,150,000 |
1 |
Yosemite Securities Trust I, Bond, 8.25%, 11/15/2004 |
|
|
3,256,565 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
19,497,031 |
|
|
||||||
|
|
|
|
Pharmaceutical--0.6% |
|
|
|
|
|
1,750,000 |
|
American Home Products Corp., 6.25%, 3/15/2006 |
|
|
1,737,470 |
|
|
250,000 |
|
American Home Products Corp., Note, 7.90%, 2/15/2005 |
|
|
262,220 |
|
|
100,000 |
|
Lilly (Eli) & Co., Unsecd. Note, 6.25%, 3/15/2003 |
|
|
102,157 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
2,101,847 |
|
|
||||||
|
|
|
|
Printing & Publishing--1.1% |
|
|
|
|
|
3,250,000 |
|
News America Holdings, Inc., 10.125%, 10/15/2012 |
|
|
3,548,870 |
|
|
||||||
|
|
|
|
Rail Industry--0.5% |
|
|
|
|
|
831,404 |
|
Atchison Topeka & SF RR, Equip. Trust, 6.55%, 1/6/2013 |
|
|
801,132 |
|
|
937,109 |
|
Burlington Northern Santa Fe, Pass Thru Cert., 7.57%, 1/2/2021 |
|
|
990,243 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
1,791,375 |
|
|
||||||
|
Principal
|
|
|
|
Value |
||
|
|
||||||
|
|
|
|
CORPORATE BONDS--continued |
|
|
|
|
|
|
|
Real Estate--1.5% |
|
|
|
|
$ |
3,250,000 |
|
EOP Operating LP, 7.375%, 11/15/2003 |
|
$ |
3,359,655 |
|
|
1,000,000 |
|
Price REIT, Inc., Sr. Note, 7.50%, 11/5/2006 |
|
|
1,031,860 |
|
|
900,000 |
|
Storage USA, Deb., 7.50%, 12/1/2027 |
|
|
779,013 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
5,170,528 |
|
|
||||||
|
|
|
|
Retailers--5.5% |
|
|
|
|
|
2,000,000 |
|
CVS Corp., 5.625%, 3/15/2006 |
|
|
1,967,580 |
|
|
850,000 |
|
Dayton-Hudson Corp., Deb., 8.50%, 12/1/2022 |
|
|
910,996 |
|
|
2,250,000 |
|
Federated Department Stores, Inc., Sr. Note, 8.125%, 10/15/2002 |
|
|
2,329,920 |
|
|
2,200,000 |
|
Harcourt General, Inc., Sr. Note, 6.70%, 8/1/2007 |
|
|
2,120,184 |
|
|
500,000 |
|
May Department Stores Co., Deb., 9.875%, 6/15/2021 |
|
|
522,485 |
|
|
3,000,000 |
|
Safeway, Inc., Note, 7.25%, 9/15/2004 |
|
|
3,109,530 |
|
|
2,000,000 |
|
Sears, Roebuck & Co., MTN, 10.00%, 2/3/2012 |
|
|
2,387,580 |
|
|
3,000,000 |
|
TJX Cos., Inc., 7.45%, 12/15/2009 |
|
|
3,033,330 |
|
|
1,750,000 |
|
Target Corp., 7.50%, 2/15/2005 |
|
|
1,853,198 |
|
|
200,000 |
|
Wal-Mart Stores, Inc., Unsecd. Note, 6.50%, 6/1/2003 |
|
|
206,132 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
18,440,935 |
|
|
||||||
|
|
|
|
Services--0.1% |
|
|
|
|
|
500,000 |
|
Olsten Corp., Sr. Note, 7.00%, 3/15/2006 |
|
|
482,695 |
|
|
||||||
|
|
|
|
Sovereign--1.4% |
|
|
|
|
|
200,000 |
|
Korea Development Bank, 7.625%, 10/1/2002 |
|
|
204,835 |
|
|
1,200,000 |
|
Korea Development Bank, Sr. Unsub., 6.50%, 11/15/2002 |
|
|
1,211,988 |
|
|
1,000,000 |
|
Quebec, Province of, 5.50%, 4/11/2006 |
|
|
986,260 |
|
|
1,000,000 |
|
Sweden, Government of, Deb., 10.25%, 11/1/2015 |
|
|
1,248,950 |
|
|
1,000,000 |
|
Victoria Public Authority, Local Gov't. Guarantee, 8.25%, 1/15/2002 |
|
|
1,019,796 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
4,671,829 |
|
|
||||||
|
|
|
|
Supranational--0.6% |
|
|
|
|
|
2,100,000 |
|
Corp Andina De Fomento, Bond, 7.375%, 1/18/2011 |
|
|
2,121,378 |
|
|
||||||
|
|
|
|
Technology Services--1.2% |
|
|
|
|
|
3,750,000 |
|
Unisys Corp., Sr. Note, 11.75%, 10/15/2004 |
|
|
3,956,250 |
|
|
||||||
|
Principal
|
|
|
|
Value |
||
|
|
||||||
|
|
|
|
CORPORATE BONDS--continued |
|
|
|
|
|
|
|
Telecommunications & Cellular--4.4% |
|
|
|
|
$ |
1,800,000 |
|
AT&T Wireless Group, Sr. Note, 7.875%, 3/1/2011 |
|
$ |
1,811,916 |
|
|
250,000 |
|
Bell Atlantic-New Jersey, Deb., 5.875%, 2/1/2004 |
|
|
248,490 |
|
|
1,850,000 |
|
BellSouth Telecommunications, Inc., Note, 6.00%, 6/15/2002 |
|
|
1,873,292 |
|
|
3,100,000 |
|
CenturyTel, Inc., 8.375%, 10/15/2010 |
|
|
3,166,743 |
|
|
15,000 |
|
Chesapeake & Potomac Telephone Co. of VA, Deb., 6.75%, 5/1/2008 |
|
|
14,857 |
|
|
50,000 |
|
Chesapeake & Potomac Telephone Co. of Washington D.C., Deb., 7.00%, 2/1/2009 |
|
|
49,788 |
|
|
100,000 |
|
GTE Southwest, Inc., Deb., 6.54%, 12/1/2005 |
|
|
101,765 |
|
|
410,000 |
|
Lucent Technologies, Inc., Note, 6.90%, 7/15/2001 |
|
|
406,412 |
|
|
650,000 |
|
MetroNet Communications Corp., Sr. Note, 12.00%, 8/15/2007 |
|
|
716,625 |
|
|
2,000,000 |
|
MetroNet Escrow Corp., Sr. Note, 10.625%, 11/1/2008 |
|
|
2,205,000 |
|
|
15,000 |
|
New England Telephone & Telegraph, Deb., 6.125%, 10/1/2006 |
|
|
14,694 |
|
|
800,000 |
|
New England Telephone & Telegraph, Deb., 8.625%, 8/1/2001 |
|
|
806,400 |
|
|
100,000 |
|
New York Telephone Co., Unsecd. Note, 6.25%, 2/15/2004 |
|
|
101,123 |
|
|
115,000 |
|
Ohio Bell Telephone Co., Unsecd. Note, 6.125%, 5/15/2003 |
|
|
116,990 |
|
|
3,125,000 |
|
Telecom de Puerto Rico, Note, 6.65%, 5/15/2006 |
|
|
3,018,063 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
14,652,158 |
|
|
||||||
|
|
|
|
Utilities--4.6% |
|
|
|
|
|
250,000 |
|
Consolidated Edison Co., Deb., Series 92B, 7.625%, 3/1/2004 |
|
|
259,245 |
|
|
1,600,000 |
1 |
Edison Mission Holding Co., Sr. Secd. Note, 8.734%, 10/1/2026 |
|
|
1,488,698 |
|
|
1,250,000 |
|
Enersis S.A., Note, 7.40%, 12/1/2016 |
|
|
1,106,225 |
|
|
1,000,000 |
|
Gulf States Utilities, 1st Mtg. Bond, Series 2005B, 6.77%, 8/1/2005 |
|
|
1,004,100 |
|
|
3,100,000 |
1 |
Israel Electric Corp. Ltd., 8.25%, 10/15/2009 |
|
|
3,173,067 |
|
|
1,500,000 |
1 |
Israel Electric Corp. Ltd., Sr. Note, 7.875%, 12/15/2026 |
|
|
1,302,675 |
|
|
400,000 |
1 |
Israel Electric Corp. Ltd., Sr. Secd. Note, 7.75%, 3/1/2009 |
|
|
397,392 |
|
|
1,800,000 |
|
Kansas City Power & Light Co., 7.125%, 12/15/2005 |
|
|
1,828,206 |
|
|
100,000 |
|
Louisiana Power & Light Co., 1st Mtg. Bond, 7.50%, 11/1/2002 |
|
|
100,603 |
|
|
30,000 |
|
Michigan Consolidated Gas, 1st Mtg. Bond, 6.80%, 6/15/2003 |
|
|
30,619 |
|
|
180,000 |
|
Minnesota Power and Light Co., 1st Mtg. Bond, 7.75%, 6/1/2007 |
|
|
179,986 |
|
|
1,000,000 |
|
National Rural Utilities Cooperative Finance Corp., Collateral Trust, 9.00%, 9/1/2021 |
|
|
1,052,720 |
|
|
1,000,000 |
|
PSEG Power LLC, 7.75%, 4/15/2011 |
|
|
1,007,110 |
|
Principal
|
|
|
|
Value |
||
|
|
||||||
|
|
|
|
CORPORATE BONDS--continued |
|
|
|
|
|
|
|
Utilities--continued |
|
|
|
|
$ |
1,000,000 |
|
Pacific Gas & Electric Co., Unsecd. Note, Series B, 7.75%, 6/30/2004 |
|
$ |
685,000 |
|
|
100,000 |
|
Reliant Energy, Inc., Collateral Trust, Series C, 6.50%, 4/21/2003 |
|
|
101,265 |
|
|
5,000 |
|
Sonat, Inc., Note, 6.875%, 6/1/2005 |
|
|
5,078 |
|
|
1,000,000 |
1 |
Tenaga Nasional Berhad, Deb., 7.50%, 1/15/2096 |
|
|
721,320 |
|
|
900,000 |
|
Utilicorp United, Inc., Sr. Note, 7.95%, 2/1/2011 |
|
|
891,198 |
|
|
15,000 |
|
Verizon Communications, Deb., 6.75%, 5/1/2008 |
|
|
14,743 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
15,349,250 |
|
|
||||||
|
|
|
|
TOTAL CORPORATE BONDS (IDENTIFIED COST $231,819,008) |
|
|
233,629,448 |
|
|
||||||
|
|
|
|
U.S. GOVERNMENT AGENCIES--13.4% |
|
|
|
|
|
100,000 |
|
Federal Home Loan Bank System, 6.00%, 6/30/2003 |
|
|
102,537 |
|
|
1,000,000 |
|
Federal Home Loan Bank System, 6.00%, 7/7/2004 |
|
|
1,026,110 |
|
|
1,750,000 |
|
Federal Home Loan Bank System, 6.00%, 5/17/2006 |
|
|
1,748,215 |
|
|
1,000,000 |
|
Federal Home Loan Bank System, 6.10%, 4/7/2003 |
|
|
1,024,680 |
|
|
1,000,000 |
|
Federal Home Loan Bank System, 6.11%, 4/17/2003 |
|
|
1,025,210 |
|
|
1,000,000 |
|
Federal Home Loan Bank System, 6.14%, 5/11/2005 |
|
|
1,000,740 |
|
|
2,000,000 |
|
Federal Home Loan Bank System, 6.23%, 6/1/2005 |
|
|
2,003,080 |
|
|
1,500,000 |
|
Federal Home Loan Bank System, 7.00%, 7/16/2009 |
|
|
1,543,155 |
|
|
1,000,000 |
|
Federal Home Loan Bank System, 7.00%, 12/15/2009 |
|
|
1,003,160 |
|
|
200,000 |
|
Federal Home Loan Bank System, Series BC01, 5.71%, 7/13/2001 |
|
|
200,588 |
|
|
4,000,000 |
|
Federal Home Loan Mortgage Corp., Deb., 6.22%, 3/18/2008 |
|
|
3,987,640 |
|
|
2,500,000 |
|
Federal Home Loan Mortgage Corp., Deb., 6.35%, 7/17/2008 |
|
|
2,498,750 |
|
|
2,000,000 |
|
Federal Home Loan Mortgage Corp., Deb., 8.29%, 9/30/2009 |
|
|
2,028,800 |
|
|
3,000,000 |
|
Federal Home Loan Mortgage Corp., Note, 5.625%, 3/15/2011 |
|
|
2,907,270 |
|
|
10,000,000 |
|
Federal Home Loan Mortgage Corp., Note, 6.875%, 1/15/2005 |
|
|
10,555,400 |
|
|
1,333,000 |
|
Federal Home Loan Mortgage Corp., Series 1228H, 7.00%, 2/15/2022 |
|
|
1,360,873 |
|
|
387,580 |
|
Federal Home Loan Mortgage Corp., Series 1324VE, 7.00%, 8/15/2008 |
|
|
390,331 |
|
|
1,470,000 |
|
Federal Home Loan Mortgage Corp., Series 1468M, 7.00%, 1/15/2010 |
|
|
1,509,308 |
|
|
1,000,000 |
|
Federal Home Loan Mortgage Corp., Series 24, Class VB, 6.50%, 7/25/2010 |
|
|
1,010,070 |
|
|
150,000 |
|
Federal National Mortgage Association, MTN, 6.25%, 12/13/2002 |
|
|
153,937 |
|
|
1,650,000 |
|
Federal National Mortgage Association, MTN, 6.71%, 7/24/2001 |
|
|
1,659,256 |
|
Principal
|
|
|
|
Value |
||
|
|
||||||
|
|
|
|
U.S. GOVERNMENT AGENCIES--continued |
|
|
|
|
$ |
1,000,000 |
|
Federal National Mortgage Association, Series 1992-124, Class D, 7.00%, 4/25/2010 |
|
$ |
1,028,280 |
|
|
2,000,000 |
|
Federal National Mortgage Association, Series 1993-139, Class KD, 7.00%, 7/25/2006 |
|
|
2,068,520 |
|
|
680,377 |
|
Federal National Mortgage Association, Series 1994-79, Class G, 7.00%, 11/25/2004 |
|
|
698,114 |
|
|
1,000,000 |
|
Federal National Mortgage Association, Series 1996-68, Class VC, 6.50%, 9/18/2010 |
|
|
996,930 |
|
|
1,000,000 |
|
Federal National Mortgage Association, Series G93-31, Class H, 7.00%, 2/25/2013 |
|
|
1,012,440 |
|
|
500,000 |
|
Tennessee Valley Authority, 6.125%, 7/15/2003 |
|
|
504,125 |
|
|
||||||
|
|
|
|
TOTAL GOVERNMENT AGENCIES (IDENTIFIED COST $44,810,366) |
|
|
45,047,519 |
|
|
||||||
|
|
|
|
MUNICIPALS--3.1% |
|
|
|
|
|
|
|
Education--0.3% |
|
|
|
|
|
1,100,000 |
|
Harvard University, Revenue Bonds, 8.125% Bonds, 4/15/2007 |
|
|
1,224,036 |
|
|
||||||
|
|
|
|
Municipal Services--2.8% |
|
|
|
|
|
1,250,000 |
|
Atlanta & Fulton County, GA, Recreation Authority, Taxable Revenue Bonds, Series 1997, 7.00% Bonds (Downtown Arena Project)/(FSA INS), 12/1/2028 |
|
|
1,202,762 |
|
|
1,325,000 |
|
Kansas City, MO, Redevelopment Authority, 7.65% Bonds (Auditorium Project), (FSA INS), 11/1/2018 |
|
|
1,378,464 |
|
|
2,000,000 |
|
McKeesport, PA, Taxable GO, Series B 1997, 7.30% Bonds (MBIA INS), 3/1/2020 |
|
|
2,024,320 |
|
|
1,000,000 |
|
Miami Florida Revenue Pension Obligation, 7.20% Bonds (AMBAC INS), 12/1/2025 |
|
|
986,310 |
|
|
1,500,000 |
|
Minneapolis/St. Paul, MN, Airport Commission, UT GO Taxable Revenue Bonds, Series 9, 8.95% Bonds, 1/1/2022 |
|
|
1,598,250 |
|
|
1,000,000 |
|
Pittsburgh, PA Urban Redevelopment Authority, 9.07% Bonds (CGIC GTD), 9/1/2014 |
|
|
1,105,570 |
|
|
1,000,000 |
|
St. Johns County, FL Convention Center, Taxable Municipal Revenue Bonds, 8.00% Bonds (FSA INS), 1/1/2026 |
|
|
1,036,250 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
9,331,926 |
|
|
||||||
|
|
|
|
TOTAL MUNICIPALS (IDENTIFIED COST $10,301,895) |
|
|
10,555,962 |
|
|
||||||
|
Shares or
|
|
|
|
Value |
||
|
|
||||||
|
|
|
|
PREFERRED STOCKS--1.3% |
|
|
|
|
|
|
|
Financial Intermediaries--1.0% |
|
|
|
|
|
70,000 |
|
Citigroup, Inc., Cumulative Pfd. |
|
$ |
3,280,900 |
|
|
||||||
|
|
|
|
Telecommunications & Cellular--0.3% |
|
|
|
|
|
6,100 |
|
AT&T Corp., Pfd. |
|
|
150,487 |
|
|
40,000 |
|
AT&T Corp., Pfd., $2.50 |
|
|
1,010,000 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
1,160,487 |
|
|
||||||
|
|
|
|
TOTAL PREFERRED STOCKS (IDENTIFIED COST $4,560,940) |
|
|
4,441,387 |
|
|
||||||
|
|
|
|
MUTUAL FUNDS--1.2% |
|
|
|
|
|
280,289 |
|
Federated Mortgage Core Portfolio |
|
|
2,788,878 |
|
|
1,224,147 |
|
Prime Value Obligations Fund, Class IS |
|
|
1,224,147 |
|
|
||||||
|
|
|
|
TOTAL MUTUAL FUNDS (IDENTIFIED COST $3,897,216) |
|
|
4,013,025 |
|
|
||||||
|
|
|
|
U.S. TREASURY SECURITIES--7.6% |
|
|
|
|
$ |
3,600,000 |
|
United States Treasury Bond, 5.375%, 2/15/2031 |
|
|
3,397,500 |
|
|
5,400,000 |
|
United States Treasury Bond, 6.25%, 5/15/2030 |
|
|
5,702,400 |
|
|
22,000,000 |
|
United States Treasury Note, Principal Only, 8/15/2027 |
|
|
4,560,160 |
|
|
1,000,000 |
|
United States Treasury Note, 4.75%, 2/15/2004 |
|
|
1,004,630 |
|
|
11,000,000 |
|
United States Treasury Note, 5.00%, 2/15/2011 |
|
|
10,726,760 |
|
|
||||||
|
|
|
|
TOTAL U.S. TREASURY SECURITIES (IDENTIFIED COST $26,580,743) |
|
|
25,391,450 |
|
|
||||||
|
|
|
|
TOTAL INVESTMENTS (IDENTIFIED COST $330,779,017) 2 |
|
$ |
332,005,015 |
|
|
||||||
1 Denotes a restricted security which is subject to restrictions on resale under federal securities laws. These securities have been deemed liquid based upon criteria approved by the Fund's Board of Trustees. At April 30, 2001, these securities amounted to $30,877,611 which represents 9.2% of net assets.
2 The cost of investments for federal tax purposes amounts to $330,822,752. The net unrealized appreciation of investments on a federal tax basis amounts to $1,182,263 which is comprised of $5,620,805 appreciation and $4,438,542 depreciation at April 30, 2001.
Note: The categories of investments are shown as a percentage of net assets ($336,495,471) at April 30, 2001.
The following acronyms are used throughout this portfolio:
See Notes which are an integral part of the Financial Statements
April 30, 2001
|
Assets: |
|
|
|
|
|
|
|
|
Total investments in securities, at value (identified cost $330,779,017) |
|
|
|
|
$ |
332,005,015 |
|
|
Income receivable |
|
|
|
|
|
6,073,814 |
|
|
Receivable for investments sold |
|
|
|
|
|
1,378,444 |
|
|
Receivable for shares sold |
|
|
|
|
|
761,450 |
|
|
Prepaid expenses |
|
|
|
|
|
28,594 |
|
|
|
|||||||
|
TOTAL ASSETS |
|
|
|
|
|
340,247,317 |
|
|
|
|||||||
|
Liabilities: |
|
|
|
|
|
|
|
|
Payable for investments purchased |
|
$ |
1,459,552 |
|
|
|
|
|
Payable for shares redeemed |
|
|
455,580 |
|
|
|
|
|
Income distribution payable |
|
|
1,811,707 |
|
|
|
|
|
Accrued expenses |
|
|
25,007 |
|
|
|
|
|
|
|||||||
|
TOTAL LIABILITIES |
|
|
|
|
|
3,751,846 |
|
|
|
|||||||
|
Net assets for 34,132,549 shares outstanding |
|
|
|
|
$ |
336,495,471 |
|
|
|
|||||||
|
Net Assets Consist of: |
|
|
|
|
|
|
|
|
Paid in capital |
|
|
|
|
$ |
344,228,292 |
|
|
Net unrealized appreciation of investments |
|
|
|
|
|
1,225,998 |
|
|
Accumulated net realized loss on investments |
|
|
|
|
|
(8,958,819 |
) |
|
|
|||||||
|
TOTAL NET ASSETS |
|
|
|
|
$ |
336,495,471 |
|
|
|
|||||||
|
Net Asset Value, Offering Price and Redemption Proceeds Per Share |
|
|
|
|
|
|
|
|
Institutional Shares: |
|
|
|
|
|
|
|
|
$300,289,332 ÷ 30,460,020 shares outstanding |
|
|
|
|
|
$9.86 |
|
|
|
|||||||
|
Institutional Service Shares: |
|
|
|
|
|
|
|
|
$36,206,139 ÷ 3,672,529 shares outstanding |
|
|
|
|
|
$9.86 |
|
|
|
|||||||
See Notes which are an integral part of the Financial Statements
Year Ended April 30, 2001
|
Investment Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends |
|
|
|
|
|
|
|
|
|
$ |
2,151,854 |
|
|
Interest |
|
|
|
|
|
|
|
|
|
|
21,655,395 |
|
|
|
||||||||||||
|
TOTAL INCOME |
|
|
|
|
|
|
|
|
|
|
23,807,249 |
|
|
|
||||||||||||
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment adviser fee |
|
|
|
|
|
$ |
1,636,420 |
|
|
|
|
|
|
Administrative personnel and services fee |
|
|
|
|
|
|
246,445 |
|
|
|
|
|
|
Custodian fees |
|
|
|
|
|
|
20,946 |
|
|
|
|
|
|
Transfer and dividend disbursing agent fees and expenses |
|
|
|
|
|
|
38,293 |
|
|
|
|
|
|
Directors'/Trustees' fees |
|
|
|
|
|
|
9,491 |
|
|
|
|
|
|
Auditing fees |
|
|
|
|
|
|
13,419 |
|
|
|
|
|
|
Legal fees |
|
|
|
|
|
|
3,600 |
|
|
|
|
|
|
Portfolio accounting fees |
|
|
|
|
|
|
101,785 |
|
|
|
|
|
|
Distribution services fee--Institutional Service Shares |
|
|
|
|
|
|
76,467 |
|
|
|
|
|
|
Shareholder services fee--Institutional Shares |
|
|
|
|
|
|
741,743 |
|
|
|
|
|
|
Shareholder services fee--Institutional Service Shares |
|
|
|
|
|
|
76,467 |
|
|
|
|
|
|
Share registration costs |
|
|
|
|
|
|
28,146 |
|
|
|
|
|
|
Printing and postage |
|
|
|
|
|
|
23,237 |
|
|
|
|
|
|
Insurance premiums |
|
|
|
|
|
|
1,964 |
|
|
|
|
|
|
Miscellaneous |
|
|
|
|
|
|
5,237 |
|
|
|
|
|
|
|
||||||||||||
|
TOTAL EXPENSES |
|
|
|
|
|
|
3,023,660 |
|
|
|
|
|
|
|
||||||||||||
|
Waivers and Reimbursement of Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Waiver of investment adviser fee |
|
$ |
(314,520 |
) |
|
|
|
|
|
|
|
|
|
Waiver of distribution services fee--Institutional Service Shares |
|
|
(50,504 |
) |
|
|
|
|
|
|
|
|
|
Waiver of shareholder services fee--Institutional Shares |
|
|
(741,743 |
) |
|
|
|
|
|
|
|
|
|
Waiver of shareholder services fee--Institutional Service Shares |
|
|
(25,963 |
) |
|
|
|
|
|
|
|
|
|
Reimbursement of investment adviser fee |
|
|
(507 |
) |
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
TOTAL WAIVERS AND REIMBURSEMENT OF EXPENSES |
|
|
|
|
|
|
(1,133,237 |
) |
|
|
|
|
|
|
||||||||||||
|
Net expenses |
|
|
|
|
|
|
|
|
|
|
1,890,423 |
|
|
|
||||||||||||
|
Net investment income |
|
|
|
|
|
|
|
|
|
|
21,916,826 |
|
|
|
||||||||||||
|
Realized and Unrealized Gain (Loss) on Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized loss on investments |
|
|
|
|
|
|
|
|
|
|
(1,151,723 |
) |
|
Net change in unrealized depreciation of investments |
|
|
|
|
|
|
|
|
|
|
14,511,383 |
|
|
|
||||||||||||
|
Net realized and unrealized gain on investments |
|
|
|
|
|
|
|
|
|
|
13,359,660 |
|
|
|
||||||||||||
|
Change in net assets resulting from operations |
|
|
|
|
|
|
|
|
|
$ |
35,276,486 |
|
|
|
||||||||||||
See Notes which are an integral part of the Financial Statements
|
Year Ended April 30 |
|
|
2001 |
|
|
|
2000 |
|
|
|
||||||||
|
Increase (Decrease) in Net Assets |
|
|
|
|
|
|
|
|
|
Operations: |
|
|
|
|
|
|
|
|
|
Net investment income |
|
$ |
21,916,826 |
|
|
$ |
19,392,792 |
|
|
Net realized loss on investments |
|
|
(1,151,723 |
) |
|
|
(4,458,939 |
) |
|
Net change in unrealized depreciation of investments |
|
|
14,511,383 |
|
|
|
(12,588,996 |
) |
|
|
||||||||
|
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS |
|
|
35,276,486 |
|
|
|
2,344,857 |
|
|
|
||||||||
|
Distributions to Shareholders: |
|
|
|
|
|
|
|
|
|
Distributions from net investment income |
|
|
|
|
|
|
|
|
|
Institutional Shares |
|
|
(19,899,706 |
) |
|
|
(18,312,786 |
) |
|
Institutional Service Shares |
|
|
(1,969,657 |
) |
|
|
(1,040,735 |
) |
|
Distributions from net realized gain on investments |
|
|
|
|
|
|
|
|
|
Institutional Shares |
|
|
-- |
|
|
|
(629,456 |
) |
|
Institutional Service Shares |
|
|
-- |
|
|
|
(35,010 |
) |
|
|
||||||||
|
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS |
|
|
(21,869,363 |
) |
|
|
(20,017,987 |
) |
|
|
||||||||
|
Share Transactions: |
|
|
|
|
|
|
|
|
|
Proceeds from sale of shares |
|
|
94,663,101 |
|
|
|
119,391,787 |
|
|
Proceeds from share issued in connection with the tax-free transfer of assets from Vermont National Bank, a Common Trust Fund |
|
|
-- |
|
|
|
3,849,562 |
|
|
Net asset value of shares issued in connection with the acquisition of CCB Bond Fund |
|
|
-- |
|
|
|
79,584,880 |
|
|
Net asset value of shares issued to shareholders in payment of distributions declared |
|
|
5,533,409 |
|
|
|
4,636,595 |
|
|
Cost of shares redeemed |
|
|
(89,910,908 |
) |
|
|
(110,015,628 |
) |
|
|
||||||||
|
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS |
|
|
10,285,602 |
|
|
|
97,447,196 |
|
|
|
||||||||
|
Change in net assets |
|
|
23,692,725 |
|
|
|
79,774,066 |
|
|
|
||||||||
|
Net Assets: |
|
|
|
|
|
|
|
|
|
Beginning of period |
|
|
312,802,746 |
|
|
|
233,028,680 |
|
|
|
||||||||
|
End of period |
|
$ |
336,495,471 |
|
|
$ |
312,802,746 |
|
|
|
||||||||
See Notes which are an integral part of the Financial Statements
April 30, 2001
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"), a diversified portfolio. 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 Fund offers two classes of shares: Institutional Shares and Institutional Service Shares.
Effective July 19, 1999, the Fund received a tax-free transfer of assets from Vermont National Bank, a Common Trust Fund.
|
Fund Shares Issued |
|
Common Trust Fund
|
|
Unrealized
|
1 |
|
|
|||||
|
389,238 |
|
$3,849,562 |
|
$15,443 |
|
|
|
|||||
1 Unrealized appreciation is included in the Common Trust Fund's net assets received.
On July 26, 1999, the Fund acquired all the net assets of CCB Bond Fund ("Acquired Fund") pursuant to a plan of reorganization approved by the Acquired Fund's shareholders. The acquisition was accomplished by a tax-free exchange of 8,112,628 Institutional Shares of the Fund (valued at $79,584,880) for the 8,045,396 Shares of the Acquired Fund outstanding at July 26, 1999. The Acquired Fund's net assets of $79,590,157 (which consisted of $84,134,127 of Paid In Capital, $1,427,878 of net unrealized depreciation and $3,116,092 of accumulated net realized loss on investments) were combined with those of the Fund. The aggregate net assets of the Fund and the Acquired Fund immediately before the acquisition were $244,260,248 and $79,590,157, respectively. Immediately after the acquisition, the combined aggregate net assets of the Fund were $323,850,405.
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.
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. 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. Investments in other open-end registered investment companies are valued at net asset value. Securities for which no quotations are readily available are valued at fair value as determined in good faith using methods approved by the Board of Trustees (the "Trustees").
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.
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 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. The Trust along with other affiliated investment companies, may utilize a joint trading account for the purpose of entering into one or more repurchase agreements.
Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Dividend income and distributions to shareholders are recorded on the ex-dividend date. Non-cash dividends included in dividend income, if any, are recorded at fair value. The Fund offers multiple classes of shares, which differ in their respective distribution and service fees. All shareholders bear the common expenses of the Fund based on average daily net assets of each class, without distinction between share classes. Dividends are declared separately for each class. No class has preferential dividend rights; differences in per share dividend rates are generally due to differences in separate class expenses.
In November 2000, the American Institute of Certified Public Accountants (AICPA) issued a revised version of the AICPA Audit and Accounting Guide for Investment Companies (the "Guide"). The Guide is effective for annual financial statements issued for fiscal years beginning after December 15, 2000. Management of the Fund does not anticipate that the adoption of the Guide will have a significant effect on the financial statements.
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 permanent book and tax differences. The following reclassifications have been made to the financial statements.
|
Increase (Decrease) |
||
|
|
||
|
Paid-in Capital |
|
Accumulated Net
|
|
|
||
|
$3,347,966 |
|
$(3,347,966) |
|
|
||
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 provision for federal tax is necessary.
At April 30, 2001, the Fund, for federal tax purposes, had a capital loss carryforward of $8,915,071 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 |
|
Expire Amount |
|
|
||
|
2003 |
|
$2,025,815 |
|
|
||
|
2004 |
|
1,187,066 |
|
|
||
|
2007 |
|
135,079 |
|
|
||
|
2008 |
|
1,141,628 |
|
|
||
|
2009 |
|
4,425,483 |
|
|
||
The availability of a portion of these capital loss carryforwards, which were acquired in connection with the CCB Bond reorganization on July 23, 1999, may be limited in a given year.
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. Losses may occur on these transactions due to changes in market conditions or the failure of counterparties to perform under the contract.
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.
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.
Investment transactions are accounted for on a trade date basis.
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:
|
Year Ended April 30 |
|
2001 |
|
|
2000 |
|
||||||||
|
|
||||||||||||||
|
Institutional Shares: |
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
||
|
Shares sold |
|
7,091,961 |
|
|
$ |
69,118,887 |
|
|
10,978,126 |
|
|
$ |
105,935,864 |
|
|
Shares issued in connection with the tax-free transfer of assets from Vermont National Bank, a Common Trust Fund |
|
-- |
|
|
|
-- |
|
|
389,238 |
|
|
|
3,849,562 |
|
|
Shares issued in connection with the acquisition of CCB Bond Fund |
|
-- |
|
|
|
-- |
|
|
8,112,628 |
|
|
|
79,584,880 |
|
|
Shares issued to shareholders in payment of distributions declared |
|
381,411 |
|
|
|
3,706,876 |
|
|
393,124 |
|
|
|
3,795,046 |
|
|
Shares redeemed |
|
(8,180,053 |
) |
|
|
(79,300,609 |
) |
|
(10,544,191 |
) |
|
|
(101,673,032 |
) |
|
|
||||||||||||||
|
NET CHANGE RESULTING FROM INSTITUTIONAL SHARE TRANSACTIONS |
|
(706,681 |
) |
|
$ |
(6,474,846 |
) |
|
9,328,925 |
|
|
$ |
91,492,320 |
|
|
|
||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30 |
|
2001 |
|
|
2000 |
|
||||||||
|
|
||||||||||||||
|
Institutional Service Shares: |
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
||
|
Shares sold |
|
2,657,607 |
|
|
$ |
25,544,214 |
|
|
1,388,440 |
|
|
$ |
13,455,923 |
|
|
Shares issued to shareholders in payment of distributions declared |
|
187,610 |
|
|
|
1,826,533 |
|
|
87,253 |
|
|
|
841,549 |
|
|
Shares redeemed |
|
(1,093,418 |
) |
|
|
(10,610,299 |
) |
|
(866,703 |
) |
|
|
(8,342,596 |
) |
|
|
||||||||||||||
|
NET CHANGE RESULTING FROM INSTITUTIONAL SERVICE SHARE TRANSACTIONS |
|
1,751,799 |
|
|
$ |
16,760,448 |
|
|
608,990 |
|
|
$ |
5,954,876 |
|
|
|
||||||||||||||
|
NET CHANGE RESULTING FROM SHARE TRANSACTIONS |
|
1,045,118 |
|
|
$ |
10,285,602 |
|
|
9,937,915 |
|
|
$ |
97,447,196 |
|
|
|
||||||||||||||
Federated Investment Management Company, the Fund's investment adviser (the "Adviser"), receives for its services an annual investment adviser 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.
Pursuant to an Exemptive Order, the Fund may invest in Federated Prime Value Obligations Fund, which is managed by the Fund's Adviser. The Adviser has agreed to reimburse certain investment adviser fees as a result of these transactions.
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 a scale that ranges from 0.15% to 0.075% of the average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors, Inc., subject to a $125,000 minimum per portfolio and $30,000 per each additional class.
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. FSC may voluntarily choose to waive any portion of its fee. FSC can modify or terminate this voluntary waiver at any time at its sole discretion.
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.
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.
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.
During the year ended April 30, 2001, the Fund engaged in purchase and sale transactions with funds that have a common investment adviser (or affiliated investment advisers), common Director/Trustees, and/or common Officers. These purchase and sales transactions complied with Rule 17a-7 under the Act and amounted to $109,495,552 and $142,686,263, respectively.
Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies.
Purchases and sales of investments, excluding long-term U.S. government securities and short-term securities (and in-kind contributions), for the year ended April 30, 2001, were as follows:
|
Purchases |
|
$ |
98,562,585 |
|
|
|||
|
Sales |
|
$ |
109,860,866 |
|
|
|||
Purchases and sales of long-term U.S. government securities for the year ended April 30, 2001, were as follows:
|
Purchases |
|
$ |
57,269,718 |
|
|
|||
|
Sales |
|
$ |
27,653,101 |
|
|
|||
For the year ended April 30, 2001, the Fund did not designate any long-term capital gains dividends.
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the Federated Intermediate Income Fund (the "Fund"), one of the portfolios constituting Federated Income Securities Trust, as of April 30, 2001, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the 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 auditing standards generally accepted in the United States. 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, 2001, 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 the Federated Intermediate Income Fund, a portfolio of Federated Income Securities Trust, at April 30, 2001, 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 accounting principles generally accepted in the United States.
Ernst & Young LLP
Boston, Massachusetts
June 19, 2001
A Statement of Additional Information (SAI) dated June 30, 2001 is incorporated by reference into this prospectus. Additional information about the Fund and its investments is contained in the Fund's SAI and Annual and Semi-Annual Reports to shareholders as they become available. The Annual Report's Management's Discussion of Fund Performance discusses market conditions and investment strategies that significantly affected the Fund's performance during its last fiscal year. To obtain the SAI, Annual Report, Semi-Annual Report and other information without charge, and to make inquiries, call your investment professional or the Fund at 1-800-341-7400.
<R>
You can obtain information about the Fund (including the SAI) by writing to or visiting the SEC's Public Reference Room in Washington, DC. You may also access Fund information from the EDGAR Database on the SEC's Internet site at http://www.sec.gov. You can purchase copies of this information by contacting the SEC by email at publicinfo@sec.gov or by writing to the SEC's Public Reference Section, Washington, DC 20549-0102. Call 1-202-942-8090 for information on the Public Reference Room's operations and copying fees.
</R>
Federated
Investment Company Act File No. 811-4577
Federated is a registered mark of Federated Investors, Inc.
2001 ©Federated Investors, Inc.
Cusip 31420C407
<R>
3090804A-IS (6/01)
</R>
Federated
World-Class Investment Manager®
A Portfolio of Federated Income Securities Trust
<R>
</R>
<R>
June 30, 2001
</R>
A mutual fund seeking to provide current income by investing in a diversified portfolio of investment grade securities, which are rated in one of the four highest categories by a nationally recognized statistical rating organization.
As with all mutual funds, the Securities and Exchange Commission (SEC) has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense.
NOT FDIC INSURED * MAY LOSE VALUE * NO BANK GUARANTEE
<R>
| Risk/Return Summary | 1 |
| What are the Fund's Fees and Expenses? | 3 |
| What are the Fund's Investment Strategies? | 4 |
| What are the Principal Securities in Which the Fund Invests? | 6 |
| What are the Specific Risks of Investing in the Fund? | 9 |
| What Do Shares Cost? | 10 |
| How is the Fund Sold? | 11 |
| How to Purchase Shares | 12 |
| How to Redeem Shares | 13 |
| Account and Share Information | 16 |
| Who Manages the Fund? | 17 |
| Financial Information | 18 |
| Report of Ernst & Young LLP, Independent Auditors | 42 |
</R>
The Fund's investment objective is to provide current income. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by following the strategies and policies described in this prospectus.
The Fund invests in a diversified portfolio of investment grade fixed income securities consisting primarily of corporate debt securities, U.S. government and privately issued mortgage backed securities, and U.S. treasury and agency securities. The Adviser seeks to enhance the Fund's performance by allocating relatively more of its portfolio to the security type that the Adviser expects to offer the best balance between current income and risk.
Although the value of the Fund's shares will fluctuate, the Adviser will seek to manage the magnitude of fluctuation by limiting the Fund's dollar weighted average maturity to between three and ten years and duration to between three and seven years. Maturity reflects the time until a fixed income security becomes payable. Duration measures the price sensitivity of a fixed income security to changes in interest rates.
All mutual funds take investment risks. Therefore, it is possible to lose money by investing in the Fund. The primary factors that may reduce the Fund's returns include:
The Shares offered by this prospectus are not deposits or obligations of any bank, are not endorsed or guaranteed by any bank and are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other government agency.
[Graphic Omitted, See Appendix]
The bar chart shows the variability of the Fund's Institutional Service Shares total returns on a calendar year-end basis.
<R>
The Fund's Institutional Service Shares are sold without a sales charge (load). The total returns displayed above are based upon net asset value.
The Fund's Institutional Service Shares total return for the three-month period from January 1, 2001 to March 31, 2001 was 3.11%.
Within the period shown in the Chart, the Fund's Institutional Service Shares highest quarterly return was 6.62% (quarter ended June 30, 1995). Its lowest quarterly return was (2.28)% (quarter ended March 31, 1996).
</R>
<R>
The following table represents the Fund's Institutional Service Shares Average Annual Total Returns for the calendar periods ended December 31, 2000. The table shows the Fund's total returns averaged over a period of years relative to the Lehman Brothers Government/Credit Total Index (LBGCT), Lehman Brothers Credit Bond Total Index (LBCB), Lehman Brothers Intermediate Government/Credit Index (LBIGC), broad-based market indexes, and the Lipper Intermediate-Term Investment Grade Debt Funds Average (LIIGDFA), an average of funds with similar investment objectives. Total returns for the indexes shown do not reflect sales charges, expenses or other fees that the SEC requires to be reflected in the Fund's performance. Indexes are unmanaged, and it is not possible to invest directly in an index.
|
Calendar Period |
|
Fund |
|
LBGCT |
|
LBCB |
|
LBIGC |
|
LIIGDFA |
|
|
||||||||||
|
1 Year |
|
9.99% |
|
9.39% |
|
11.85% |
|
10.12% |
|
9.89% |
|
5 Years |
|
5.38% |
|
5.80% |
|
6.24% |
|
6.11% |
|
5.54% |
|
Start of Performance 1 |
|
6.19% |
|
6.57% |
|
6.59% |
|
6.22% |
|
5.79% |
1 The Fund's Institutional Service Shares start of performance date was December 20, 1993.
Past performance is no guarantee of future results. This information provides you with historical performance information so that you can analyze whether the Fund's investment risks are balanced by its potential returns.
</R>
This table describes the fees and expenses that you may pay if you buy and hold Shares of the Fund's Institutional Service Shares.
This Example is intended to help you compare the cost of investing in the Fund's Institutional Service Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Institutional Service Shares for the time periods indicated and then redeem all of your Shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the Fund's Institutional Service Shares operating expenses are before waivers as shown in the table and remain the same. Although your actual costs and returns may be higher or lower, based on these assumptions your costs would be:
|
1 Year |
|
$ |
117 |
|
|
|||
|
3 Years |
|
$ |
365 |
|
|
|||
|
5 Years |
|
$ |
633 |
|
|
|||
|
10 Years |
|
$ |
1,398 |
|
|
|||
<R>
The Adviser actively manages the Fund's portfolio seeking current income within the Fund's investment policy parameters for limiting credit risk and share price volatility attributable to interest rate risk. The Fund limits credit risk by investing exclusively in a diversified portfolio of investment grade fixed income securities, including corporate debt securities, U.S. government and privately issued mortgage backed securities, and U.S. treasury and agency securities. Investment grade securities are rated in one of the four highest categories (BBB or higher) by a nationally recognized statistical rating organization (NRSRO), or if unrated, of comparable quality as determined by the Adviser. A description of the various types of securities in which the Fund invests, and their risks, immediately follows this strategy section.
</R>
The Fund's share price volatility attributable to interest rate risk is managed by maintaining, under normal market conditions, a dollar-weighted average portfolio duration of between three and seven years. Further, the dollar-weighted average portfolio maturity of the Fund will normally be between three and ten years.
<R>
Within the Fund's three to seven-year portfolio duration range, the Adviser may seek to change the Fund's interest rate volatility exposure, by lengthening or shortening duration from time-to-time based on its interest rate outlook. If the Adviser expects interest rates to decline, it will generally lengthen the Fund's duration. If the Adviser expects interest rates to increase, it will generally shorten the Fund's duration. The Adviser formulates its interest rate outlook and otherwise attempts to anticipate changes in economic and market conditions by analyzing a variety of factors, such as:
</R>
<R>
In addition to managing the Fund's portfolio duration, the Adviser seeks to enhance the Fund's current income by selecting securities, within the Fund's credit quality range, that the Adviser expects will offer the best relative value. In other words, in selecting securities, the Adviser assesses whether the Fund will be adequately compensated for assuming the risks (such as credit risk) of a particular security by comparing the security to other securities without those risks. The Adviser continually analyzes a variety of economic and market indicators in order to arrive at the projected yield "spread" of each security type. (The spread is the difference between the yield of a security versus the yield of a U.S. treasury security with a comparable average life.) The security's projected spread is weighed against the security's credit risk (in the case of corporate securities and privately issued asset backed and mortgage backed securities) and its risk of prepayment (in the case of asset backed an d mortgage backed securities) in order to complete the analysis.
</R>
<R>
Corporate debt securities generally offer higher yields than U.S. government securities to compensate for credit risk. Similarly, asset and mortgage backed securities generally offer higher yields versus U.S. treasury securities and non-mortgage backed agency securities, to compensate for prepayment risk. The Adviser invests the Fund's portfolio seeking the higher relative returns of corporate debt securities and asset and mortgage backed securities, when available, while maintaining appropriate portfolio diversification and attempting to limit the associated credit or prepayment risks.
</R>
The Adviser attempts to manage the Fund's credit risk by selecting corporate debt securities that make default in the payment of principal and interest less likely. The Adviser uses corporate earnings analysis to determine which business sectors and credit ratings are most advantageous for investment by the Fund. In selecting individual corporate fixed income securities, the Adviser analyzes a company's business, competitive position, and financial condition to assess whether the security's credit risk is commensurate with its potential return.
<R>
The Adviser attempts to manage the Fund's prepayment risk by selecting asset and mortgage backed securities with characteristics that make prepayment less likely. Characteristics that the Adviser may consider in selecting securities include the average interest rates of the underlying mortgages and the federal agencies (if any) that securitize the mortgages. The Adviser attempts to assess the relative returns and risks for mortgage backed securities by analyzing how the timing, amount and division of cash flows might change in response to changing economic and market conditions.
</R>
There is no assurance that the Adviser's efforts to forecast market interest rates and assess the impact of market interest rates in particular will be successful.
The Fund may temporarily depart from its principal investment strategies by investing its assets in cash and shorter-term debt securities and similar obligations. It may do this to minimize potential losses and maintain liquidity to meet shareholder redemptions during adverse market conditions. This may cause the Fund to give up greater investment returns to maintain the safety of principal, that is, the original amount invested by shareholders.
Fixed income securities pay interest, dividends or distributions at a specified rate. The rate may be a fixed percentage of the principal or adjusted periodically. In addition, the issuer of a fixed income security must repay the principal amount of the security, normally within a specified time. Fixed income securities provide more regular income than equity securities. However, the returns on fixed income securities are limited and normally do not increase with the issuer's earnings. This limits the potential appreciation of fixed income securities as compared to equity securities.
A security's yield measures the annual income earned on a security as a percentage of its price. A security's yield will increase or decrease depending upon whether it costs less (a discount) or more (a premium) than the principal amount. If the issuer may redeem the security before its scheduled maturity, the price and yield on a discount or premium security may change based upon the probability of an early redemption. Securities with higher risks generally have higher yields.
The following describes the principal types of fixed income securities in which the Fund may invest.
Treasury securities are direct obligations of the federal government of the United States. Treasury securities are generally regarded as having the lowest credit risks.
Agency securities are issued or guaranteed by a federal agency or other government sponsored entity acting under federal authority (a Government Sponsored Entity, or GSE). The United States supports some GSEs with its full faith and credit. Other GSEs receive support through federal subsidies, loans or other benefits. A few GSEs have no explicit financial support, but are regarded as having implied support because the federal government sponsors their activities. Agency securities are generally regarded as having low credit risks, but not as low as treasury securities.
The Fund treats mortgage backed securities guaranteed by GSEs as agency securities. Although a GSE guarantee protects against credit risks, it does not reduce the interest rate and prepayment risks of these mortgage backed securities.
Corporate debt securities are fixed income securities issued by businesses. Notes, bonds, debentures and commercial paper are the most prevalent types of corporate debt securities. The Fund may also purchase interests in bank loans to companies. The credit risks of corporate debt securities vary widely among issuers.
In addition, the credit risk of an issuer's debt security may vary based on its priority for repayment. For example, higher ranking (senior) debt securities have a higher priority than lower ranking (subordinated) securities. This means that the issuer might not make payments on subordinated securities while continuing to make payments on senior securities. In addition, in the event of bankruptcy, holders of senior securities may receive amounts otherwise payable to the holders of subordinated securities. Some subordinated securities, such as trust preferred and capital securities notes, also permit the issuer to defer payments under certain circumstances. For example, insurance companies issue securities known as surplus notes that permit the insurance company to defer any payment that would reduce its capital below regulatory requirements.
Mortgage backed securities represent interests in pools of mortgages. The mortgages that comprise a pool normally have similar interest rates, maturities and other terms. Mortgages may have fixed or adjustable interest rates. Interests in pools of adjustable rate mortgages are known as ARMs.
Mortgage backed securities come in a variety of forms. Many have extremely complicated terms. The simplest form of mortgage backed securities are pass-through certificates. An issuer of pass-through certificates gathers monthly payments from an underlying pool of mortgages. Then, the issuer deducts its fees and expenses and passes the balance of the payments onto the certificate holders once a month. Holders of pass-through certificates receive a pro rata share of all payments and prepayments from the underlying mortgages. As a result, the holders assume all the prepayment risks of the underlying mortgages.
COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)
CMOs, including interests in real estate mortgage investment conduits (REMICs), allocate payments and prepayments from an underlying pass-through certificate among holders of different classes of mortgage backed securities. This creates different prepayment and interest rate risks for each CMO class. The degree of increased or decreased prepayment risks depends upon the structure of the CMOs. However, the actual returns on any type of mortgage backed security depend upon the performance of the underlying pool of mortgages, which no one can predict and will vary among pools.
<R>
The Adviser will determine whether a security is investment grade based upon the credit ratings given by one or more NRSROs. For example, Standard & Poor's, a rating service, assigns ratings to investment grade securities (AAA, AA, A, and BBB) based on their assessment of the likelihood of the issuer's inability to pay interest or principal (default) when due on each security. Lower credit ratings correspond to higher credit risk. If a security has not received a rating, the Fund must rely entirely upon the Adviser's credit assessment that the security is comparable to investment grade. If a security is downgraded below the minimum quality grade discussed above, the Adviser will reevaluate the security, but will not be required to sell it.
</R>
Prices of fixed income securities rise and fall in response to changes in the interest rate paid by similar securities. Generally, when interest rates rise, prices of fixed income securities fall. However, market factors, such as the demand for particular fixed income securities, may cause the price of certain fixed income securities to fall while the prices of other securities rise or remain unchanged.
Interest rate changes have a greater effect on the price of fixed income securities with longer durations. Duration measures the price sensitivity of a fixed income security to changes in interest rates.
Credit risk is the possibility that an issuer will default on a security by failing to pay interest or principal when due. If an issuer defaults, the Fund will lose money.
Many fixed income securities receive credit ratings from services such as Standard & Poor's and Moody's Investor Services, Inc. These services assign ratings to securities by assessing the likelihood of issuer default. Lower credit ratings correspond to higher credit risk. If a security has not received a rating, the Fund must rely entirely upon the Adviser's credit assessment.
<R>
Fixed income securities generally compensate for greater credit risk by paying interest at a higher rate. The difference between the yield of a security and the yield of a U.S. treasury security with a comparable maturity (the spread) measures the additional interest paid for the additional risk. Spreads may increase generally in response to adverse economic or market conditions. A security's spread may also increase if the security's rating is lowered, or the security is perceived to have an increased credit risk. An increase in the spread will cause the price of the security to decline.
</R>
Credit risk includes the possibility that a party to a transaction involving the Fund will fail to meet its obligations. This could cause the Fund to lose the benefit of the transaction or prevent the Fund from selling or buying other securities to implement its investment strategy.
Unlike traditional fixed income securities, which pay a fixed rate of interest until maturity (when the entire principal amount is due) payments on mortgage backed securities include both interest and a partial payment of principal. Partial payment of principal may be comprised of scheduled principal payments as well as unscheduled payments from the voluntary prepayment, refinancing, or foreclosure of the underlying loans. These unscheduled prepayments of principal create risks that can adversely affect a Fund holding mortgage backed securities.
For example, when interest rates decline, the values of mortgage backed securities generally rise. However, when interest rates decline, unscheduled prepayments can be expected to accelerate, and the Fund would be required to reinvest the proceeds of the prepayments at the lower interest rates then available. Unscheduled prepayments would also limit the potential for capital appreciation on mortgage backed securities.
Conversely, when interest rates rise, the values of mortgage backed securities generally fall. Since rising interest rates typically result in decreased prepayments, this could lengthen the average lives of mortgage backed securities, and cause their value to decline more than traditional fixed income securities.
<R>
Generally, mortgage backed securities compensate for the increased risk associated with prepayments by paying a higher yield. The additional interest paid for risk is measured by the difference between the yield of a mortgage backed security and the yield of a U.S. treasury security with a comparable maturity (the spread). An increase in the spread will cause the price of the mortgage backed security to decline. Spreads generally increase in response to adverse economic or market conditions. Spreads may also increase if the security is perceived to have an increased prepayment risk or is perceived to have less market demand.
</R>
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is open. When the Fund receives your transaction request in proper form (as described in this prospectus) it is processed at the next calculated net asset value (NAV). The Fund does not charge a front-end sales charge. NAV is determined at the end of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE is open.
The Fund generally values fixed income securities according to the mean between bid and asked prices as furnished by an independent pricing service, except that fixed income securities with remaining maturities of less than 60 days at the time of purchase may be valued at amortized cost.
<R>
The Fund's current NAV and public offering price may be found in the mutual funds section of certain local newspapers under "Federated."
</R>
The required minimum initial investment for Fund Shares is $25,000. There is no required minimum subsequent investment amount.
An account may be opened with a smaller amount as long as the $25,000 minimum is reached within 90 days. An institutional investor's minimum investment is calculated by combining all accounts it maintains with the Fund. Accounts established through investment professionals may be subject to a smaller minimum investment amount. Keep in mind that investment professionals may charge you fees for their services in connection with your Share transactions.
The Fund offers two share classes: Institutional Shares and Institutional Service Shares, each representing interests in a single portfolio of securities. This prospectus relates only to Institutional Service Shares. Each share class has different expenses, which affect their performance. Contact your investment professional or call 1-800-341-7400 for more information concerning the other class.
The Fund's Distributor, Federated Securities Corp., markets the Shares described in this prospectus to retail and private banking customers of financial institutions or to individuals, directly or through investment professionals.
When the Distributor receives marketing fees, it may pay some or all of them to investment professionals. The Distributor and its affiliates may pay out of their assets other amounts (including items of material value) to investment professionals for marketing and servicing Shares. The Distributor is a subsidiary of Federated Investors, Inc. (Federated).
The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to the Distributor and investment professionals for the sale, distribution and customer servicing of the Fund's Institutional Service Shares. Because these Shares pay marketing fees on an ongoing basis, your investment cost may be higher over time than other shares with different marketing fees.
You may purchase Shares through an investment professional or directly from the Fund. The Fund reserves the right to reject any request to purchase Shares.
Investment professionals should send payments according to the instructions in the sections "By Wire" or "By Check."
You will become the owner of Shares and your Shares will be priced at the next calculated NAV after the Fund receives your wire or your check. If your check does not clear, your purchase will be canceled and you could be liable for any losses or fees incurred by the Fund or Federated Shareholder Services Company, the Fund's transfer agent.
An institution may establish an account and place an order by calling the Fund and the Shares will be priced at the next calculated NAV after the Fund receives the order.
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are restricted.
Make your check payable to The Federated Funds , note your account number on the check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a private courier or overnight delivery service that requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will not accept third-party checks (checks originally payable to someone other than you or The Federated Funds).
Once you have opened an account, you may purchase additional Shares through a depository institution that is an ACH member. This purchase option can be established by completing the appropriate sections of the New Account Form.
You should redeem Shares:
Submit your redemption request to your investment professional by the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). The redemption amount you will receive is based upon the next calculated NAV after the Fund receives the order from your investment professional.
<R>
You may redeem Shares by simply calling the Fund at 1-800-341-7400.
</R>
<R>
If you call before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time), you will receive a redemption amount based on that day's NAV.
</R>
<R>
You may redeem Shares by mailing a written request to the Fund.
</R>
<R>
You will receive a redemption amount based on the next calculated NAV after the Fund receives your written request in proper form.
</R>
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by private courier or overnight delivery service to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
Call your investment professional or the Fund if you need special instructions.
Signatures must be guaranteed if:
A signature guarantee is designed to protect your account from fraud. Obtain a signature guarantee from a bank or trust company, savings association, credit union or broker, dealer, or securities exchange member. A notary public cannot provide a signature guarantee.
Your redemption proceeds will be mailed by check to your address of record. The following payment options are available if you complete the appropriate section of the New Account Form or an Account Service Options Form. These payment options require a signature guarantee if they were not established when the account was opened:
Although the Fund intends to pay Share redemptions in cash, it reserves the right to pay the redemption price in whole or in part by a distribution of the Fund's portfolio securities.
Redemption proceeds normally are wired or mailed within one business day after receiving a request in proper form. Payment may be delayed up to seven days:
You will not accrue interest or dividends on uncashed checks from the Fund if those checks are undeliverable and returned to the Fund.
The Fund will record your telephone instructions. If the Fund does not follow reasonable procedures, it may be liable for losses due to unauthorized or fraudulent telephone instructions.
The Fund no longer issues share certificates. If you are redeeming Shares represented by certificates previously issued by the Fund, you must return the certificates with your written redemption request. For your protection, send your certificates by registered or certified mail, but do not endorse them.
You will receive confirmation of purchases and redemptions. In addition, you will receive periodic statements reporting all account activity, including dividends and capital gains paid.
The Fund declares any dividends daily and pays them monthly to shareholders. If you purchase Shares by wire, you begin earning dividends on the day your wire is received. If you purchase Shares by check, you begin earning dividends on the business day after the Fund receives your check. In either case, you earn dividends through the day your redemption request is received.
In addition, the Fund pays any capital gains at least annually. Your dividends and capital gains distributions will be automatically reinvested in additional Shares without a sales charge, unless you elect cash payments.
If you purchase Shares just before a Fund declares a capital gain distribution, you will pay the full price for the Shares and then receive a portion of the price back in the form of a taxable distribution, whether or not you reinvest the distribution in Shares. Therefore, you should consider the tax implications of purchasing Shares shortly before the Fund declares a capital gain. Contact your investment professional or the Fund for information concerning when dividends and capital gains will be paid.
Due to the high cost of maintaining accounts with low balances, accounts may be closed if redemptions cause the account balance to fall below the minimum initial investment amount. Before an account is closed, you will be notified and allowed 30 days to purchase additional Shares to meet the minimum.
The Fund sends an annual statement of your account activity to assist you in completing your federal, state and local tax returns. Fund distributions of dividends and capital gains are taxable to you whether paid in cash or reinvested in the Fund. Dividends are taxable as ordinary income; capital gains are taxable at different rates depending upon the length of time the Fund holds its assets.
Fund distributions are expected to be primarily dividends. Redemptions are taxable sales. Please consult your tax adviser regarding your federal, state and local tax liability.
The Board of Trustees governs the Fund. The Board selects and oversees the Adviser, Federated Investment Management Company. The Adviser manages the Fund's assets, including buying and selling portfolio securities. The Adviser's address is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
<R>
The Adviser and other subsidiaries of Federated advise approximately 190 mutual funds and separate accounts, which totaled approximately $140 billion in assets as of December 31, 2000. Federated was established in 1955 and is one of the largest mutual fund investment managers in the United States with approximately 1,800 employees. More than 4,000 investment professionals make Federated Funds available to their customers.
</R>
Joseph M. Balestrino has been the Fund's Portfolio Manager since January 1994. He is Vice President of the Trust. Mr. Balestrino joined Federated in 1986 and has been a Senior Portfolio Manager and Senior Vice President of the Fund's Adviser since 1998. He was a Portfolio Manager and a Vice President of the Fund's Adviser from 1995 to 1998. Mr. Balestrino served as a Portfolio Manager and an Assistant Vice President of the Adviser from 1993 to 1995. Mr. Balestrino is a Chartered Financial Analyst and received his Master's Degree in Urban and Regional Planning from the University of Pittsburgh.
Christopher J. Smith has been the Fund's Portfolio Manager since June 2000. Mr. Smith joined Federated in 1995 as a Portfolio Manager and a Vice President of a Federated advisory subsidiary. He has been a Vice President of the Fund's Adviser since 1997. He was an Assistant Vice President of Provident Life & Accident Insurance Company from 1987 through 1994. Mr. Smith is a Chartered Financial Analyst. He received his M.A. in Economics and Finance from the University of Kentucky.
Susan M. Nason has been the Fund's Portfolio Manager since December 1993. Ms. Nason joined Federated in 1987 and has been a Senior Portfolio Manager and Senior Vice President of the Fund's Adviser since 1997. Ms. Nason served as a Portfolio Manager and Vice President of the Adviser from 1993 to 1997. Ms. Nason is a Chartered Financial Analyst and received her M.S.I.A. concentrating in Finance from Carnegie Mellon University.
The Adviser receives an annual investment advisory fee of 0.50% of the Fund's average daily net assets. The Adviser may voluntarily waive a portion of its fee or reimburse the Fund for certain operating expenses.
The following Financial Highlights will help you understand the Fund's financial performance for its past five fiscal years. Some of the information is presented on a per share basis. Total returns represent the rate an investor would have earned (or lost) on an investment in the Fund, assuming reinvestment of any dividends and capital gains.
This information has been audited by Ernst & Young LLP, whose report, along with the Fund's audited financial statements, is included in this prospectus.
(For a Share Outstanding Throughout Each Period)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors, on page 42.
|
Year Ended April 30 |
|
2001 |
|
|
2000 |
|
|
1999 |
|
|
1998 |
|
|
1997 |
|
|
|
|||||||||||||||
|
Net Asset Value, Beginning of Period |
|
$ 9.45 |
|
|
$10.07 |
|
|
$10.17 |
|
|
$ 9.79 |
|
|
$ 9.76 |
|
|
Income From Investment Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
0.63 |
|
|
0.60 |
|
|
0.58 |
|
|
0.61 |
|
|
0.61 |
|
|
Net realized and unrealized gain (loss) on investments |
|
0.41 |
|
|
(0.60 |
) |
|
(0.10 |
) |
|
0.38 |
|
|
0.04 |
|
|
|
|||||||||||||||
|
TOTAL FROM INVESTMENT OPERATIONS |
|
1.04 |
|
|
0.00 |
|
|
0.48 |
|
|
0.99 |
|
|
0.65 |
|
|
|
|||||||||||||||
|
Less Distributions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions from net investment income |
|
(0.63 |
) |
|
(0.60 |
) |
|
(0.58 |
) |
|
(0.61 |
) |
|
(0.61 |
) |
|
Distributions from net realized gain on investments |
|
-- |
|
|
(0.02 |
) |
|
(0.00 |
) 1 |
|
-- |
|
|
(0.01 |
) |
|
|
|||||||||||||||
|
TOTAL DISTRIBUTIONS |
|
(0.63 |
) |
|
(0.62 |
) |
|
(0.58 |
) |
|
(0.61 |
) |
|
(0.62 |
) |
|
|
|||||||||||||||
|
Net Asset Value, End of Period |
|
$ 9.86 |
|
|
$ 9.45 |
|
|
$10.07 |
|
|
$10.17 |
|
|
$ 9.79 |
|
|
|
|||||||||||||||
|
Total Return 2 |
|
11.26 |
% |
|
0.05 |
% |
|
4.77 |
% |
|
10.31 |
% |
|
6.73 |
% |
|
|
|||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios to Average Net Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
Expenses |
|
0.81 |
% |
|
0.80 |
% |
|
0.80 |
% |
|
0.80 |
% |
|
0.80 |
% |
|
|
|||||||||||||||
|
Net investment income |
|
6.46 |
% |
|
6.24 |
% |
|
5.64 |
% |
|
6.03 |
% |
|
6.21 |
% |
|
|
|||||||||||||||
|
Expense waiver/reimbursement 3 |
|
0.34 |
% |
|
0.37 |
% |
|
0.43 |
% |
|
0.47 |
% |
|
0.57 |
% |
|
|
|||||||||||||||
|
Supplemental Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
Net assets, end of period (000 omitted) |
|
$36,206 |
|
$18,159 |
|
$13,204 |
|
$4,522 |
|
$790 |
|
||||
|
|
|||||||||||||||
|
Portfolio turnover |
|
43 |
% |
|
54 |
% |
|
41 |
% |
|
44 |
% |
|
55 |
% |
|
|
|||||||||||||||
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 This voluntary expense decrease is reflected in both the expense and the net investment income ratios shown above.
See Notes which are an integral part of the Financial Statements
April 30, 2001
|
|
|
|
|
Value |
||
|
|
||||||
|
|
|
|
ASSET-BACKED SECURITIES--2.7% |
|
|
|
|
|
|
|
Credit Card--0.6% |
|
|
|
|
$ |
500,000 |
|
Discover Card Trust 1996-3, Class B, 6.25%, 8/18/2008 |
|
$ |
500,831 |
|
|
1,500,000 |
|
Prime Credit Card Master Trust 2000-1, Class A, 6.70%, 10/15/2009 |
|
|
1,550,685 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
2,051,516 |
|
|
||||||
|
|
|
|
Structured Product (Abs)--1.5% |
|
|
|
|
|
2,000,000 |
1 |
125 Home Loan Owner Trust 1998-1A, Class M2, 7.75%, 2/15/2029 |
|
|
2,030,620 |
|
|
2,000,000 |
|
New Century Home Equity Loan Trust 1997-NC5, Class M2, 7.24%, 10/25/2028 |
|
|
2,015,453 |
|
|
500,000 |
|
Residential Funding Corp. 1993-S26, Class A10, 7.50%, 7/25/2023 |
|
|
510,520 |
|
|
300,000 |
|
Residential Funding Corp. 1993-S31, Class A7, 7.00%, 9/25/2023 |
|
|
297,630 |
|
|
25,885 |
|
The Money Store Home Equity Trust 1992-B, Class A, 6.90%, 7/15/2007 |
|
|
25,845 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
4,880,068 |
|
|
||||||
|
|
|
|
Utilities--0.6% |
|
|
|
|
|
2,000,000 |
|
California Infrastructure & Economic Development Bank Special Purpose Trust PG&E-1, Series 1997-1, Class A8, 6.48%, 12/26/2009 |
|
|
1,994,640 |
|
|
||||||
|
|
|
|
TOTAL ASSET-BACKED SECURITIES (IDENTIFIED COST $8,808,849) |
|
|
8,926,224 |
|
|
||||||
|
|
|
|
CORPORATE BONDS--69.4% |
|
|
|
|
|
|
|
Aerospace & Defense--0.3% |
|
|
|
|
|
1,000,000 |
|
Boeing Capital Corp., 6.68%, 12/1/2003 |
|
|
1,038,340 |
|
|
||||||
|
|
|
|
Air Transportation--2.0% |
|
|
|
|
|
215,890 |
|
Continental Airlines, Inc., Pass Thru Cert., 7.73%, 3/15/2011 |
|
|
215,400 |
|
|
1,554,766 |
|
Continental Airlines, Inc., Pass Thru Cert., Series 1997-4 B, 6.90%, 1/2/2017 |
|
|
1,485,968 |
|
|
1,150,000 |
|
Delta Air Lines, Inc., Note, 8.30%, 12/15/2029 |
|
|
975,349 |
|
|
1,300,000 |
|
Delta Air Lines, Inc., Pass Thru Cert., Series 2000-1 B, 7.92%, 11/18/2010 |
|
|
1,373,645 |
|
|
895,529 |
|
Northwest Airlines Corp., Equip. Trust, 8.072%, 10/1/2019 |
|
|
958,628 |
|
|
425,000 |
|
Southwest Airlines Co., Deb., 7.375%, 3/1/2027 |
|
|
401,617 |
|
|
1,150,000 |
|
United Air Lines, Pass Thru Cert., 7.73%, 7/1/2010 |
|
|
1,213,952 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
6,624,559 |
|
|
||||||
|
|
|
|
Automobile--0.4% |
|
|
|
|
|
1,460,000 |
|
Ford Motor Co., 7.45%, 7/16/2031 |
|
|
1,427,223 |
|
|
||||||
|
Principal
|
|
|
|
Value |
||
|
|
||||||
|
|
|
|
CORPORATE BONDS--continued |
|
|
|
|
|
|
|
Banking--7.6% |
|
|
|
|
$ |
1,250,000 |
|
ABN-AMRO Bank NV, Chicago, Sub. Deb., 7.30%, 12/1/2026 |
|
$ |
1,196,837 |
|
|
2,000,000 |
|
Banco Santander Central Hispano, S.A., Bank Guarantee, 7.875%, 4/15/2005 |
|
|
2,100,820 |
|
|
100,000 |
|
Bank One Corp., Sub. Deb., 7.25%, 8/15/2004 |
|
|
103,816 |
|
|
220,000 |
|
Bank One Corp., Sub. Note, 7.25%, 8/1/2002 |
|
|
225,845 |
|
|
250,000 |
|
Bank One Corp., Sr. Note, 8.10%, 3/1/2002 |
|
|
256,830 |
|
|
200,000 |
|
BankAmerica Corp., Sub. Note, 7.75%, 7/15/2002 |
|
|
206,832 |
|
|
200,000 |
|
BankAmerica Corp., Sub. Note, 8.375%, 3/15/2002 |
|
|
206,434 |
|
|
2,200,000 |
|
Barclays North America, Deb., 9.75%, 5/15/2021 |
|
|
2,316,050 |
|
|
10,000 |
|
Boatmen's Bancshares, Inc., Sub. Note, 9.25%, 11/1/2001 |
|
|
10,233 |
|
|
2,000,000 |
|
Capital One Bank, 6.875%, 2/1/2006 |
|
|
1,950,140 |
|
|
30,000 |
|
Central Fidelity Banks, Inc., Sub. Note, 8.15%, 11/15/2002 |
|
|
31,402 |
|
|
2,000,000 |
|
City National Bank, Sub. Note, 6.375%, 1/15/2008 |
|
|
1,838,968 |
|
|
40,000 |
|
Corestates Capital Corp., Sub. Note, 5.875%, 10/15/2003 |
|
|
40,380 |
|
|
1,000,000 |
1 |
Den Danske Bank Group, Note, 7.40%, 6/15/2010 |
|
|
1,019,470 |
|
|
30,000 |
|
First Union Corp., Sub. Note, 8.00%, 11/15/2002 |
|
|
31,278 |
|
|
30,000 |
|
HSBC USA, Inc., Sub. Note, 8.25%, 11/1/2001 |
|
|
30,549 |
|
|
1,000,000 |
|
J.P. Morgan Chase & Co., Sub. Note, 6.70%, 11/1/2007 |
|
|
1,003,220 |
|
|
1,000,000 |
|
J.P. Morgan Chase & Co., Note, 6.375%, 2/15/2008 |
|
|
982,990 |
|
|
3,300,000 |
|
National Bank of Canada, NY, Note, Series B, 8.125%, 8/15/2004 |
|
|
3,507,108 |
|
|
15,000 |
|
NationsBank Corp., Sub. Note, 7.625%, 4/15/2005 |
|
|
15,852 |
|
|
1,000,000 |
|
NationsBank Corp., Sub. Note, Series MTNF, 7.19%, 7/30/2012 |
|
|
991,720 |
|
|
715,000 |
|
PNC Funding Corp., Sub. Note, 6.875%, 7/15/2007 |
|
|
723,787 |
|
|
4,000,000 |
1 |
Regional Diversified Funding, 9.25%, 3/15/2030 |
|
|
4,009,224 |
|
|
200,000 |
|
SunTrust Bank, Inc., Central Florida, Sub. Note, 6.90%, 7/1/2007 |
|
|
200,602 |
|
|
255,000 |
|
SunTrust Bank, Inc., Note, 7.375%, 7/1/2002 |
|
|
262,319 |
|
|
15,000 |
|
SunTrust Bank, Inc., Sub. Note, 6.125%, 2/15/2004 |
|
|
15,273 |
|
|
1,000,000 |
1 |
Swedbank, Sub., 7.50%, 11/29/2049 |
|
|
1,003,906 |
|
|
1,250,000 |
|
Washington Mutual, Inc., Sr. Note, 7.50%, 8/15/2006 |
|
|
1,303,388 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
25,585,273 |
|
|
||||||
|
Principal
|
|
|
|
Value |
||
|
|
||||||
|
|
|
|
CORPORATE BONDS--continued |
|
|
|
|
|
|
|
Beverage & Tobacco--0.0% |
|
|
|
|
$ |
100,000 |
|
Philip Morris Cos., Inc., Note, 7.625%, 5/15/2002 |
|
$ |
102,346 |
|
|
||||||
|
|
|
|
Broadcast Radio & TV--1.0% |
|
|
|
|
|
3,100,000 |
|
Clear Channel Communications, Inc., Sr. Note, 7.65%, 9/15/2010 |
|
|
3,213,553 |
|
|
||||||
|
|
|
|
Cable Television--1.8% |
|
|
|
|
|
3,500,000 |
|
Continental Cablevision, Sr. Deb., 9.50%, 8/1/2013 |
|
|
3,748,465 |
|
|
2,250,000 |
|
Cox Communications, Inc., MTN, 6.69%, 9/20/2004 |
|
|
2,281,252 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
6,029,717 |
|
|
||||||
|
|
|
|
Chemicals & Plastics--0.6% |
|
|
|
|
|
10,000 |
|
Air Products & Chemicals, Inc., Sr. Note, 7.375%, 5/1/2005 |
|
|
10,356 |
|
|
1,500,000 |
1 |
Bayer Corp., Deb., 6.50%, 10/1/2002 |
|
|
1,530,810 |
|
|
40,000 |
|
Du Pont (E.I.) de Nemours & Co., Note, 8.125%, 3/15/2004 |
|
|
42,878 |
|
|
750,000 |
1 |
Fertinitro Finance, Company Guarantee, 8.29%, 4/1/2020 |
|
|
514,815 |
|
|
30,000 |
|
PPG Industries, Inc., Note, 6.50%, 11/1/2007 |
|
|
29,080 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
2,127,939 |
|
|
||||||
|
|
|
|
Conglomerates--0.2% |
|
|
|
|
|
750,000 |
|
Loews Corp., Deb., 8.875%, 4/15/2011 |
|
|
826,605 |
|
|
||||||
|
|
|
|
Consumer Products--0.8% |
|
|
|
|
|
2,250,000 |
|
Alberto-Culver Co., Unsecd. Note, 8.25%, 11/1/2005 |
|
|
2,402,122 |
|
|
100,000 |
|
Hershey Foods Corp., Note, 6.70%, 10/1/2005 |
|
|
103,131 |
|
|
300,000 |
|
Sara Lee Corp., Sr. Note, 6.00%, 1/15/2008 |
|
|
293,721 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
2,798,974 |
|
|
||||||
|
|
|
|
Ecological Services & Equipment--1.5% |
|
|
|
|
|
2,500,000 |
|
USA Waste Services, Inc., Sr. Note, 7.00%, 10/1/2004 |
|
|
2,511,300 |
|
|
425,000 |
|
USA Waste Services, Inc., Sr. Note, 7.125%, 10/1/2007 |
|
|
419,675 |
|
|
2,000,000 |
|
WMX Technologies, Inc., Deb., 8.75%, 5/1/2018 |
|
|
2,081,480 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
5,012,455 |
|
|
||||||
|
|
|
|
Education--1.0% |
|
|
|
|
|
3,425,000 |
|
Boston University, MTN, 7.625%, 7/15/2097 |
|
|
3,335,299 |
|
|
||||||
|
Principal
|
|
|
|
Value |
||
|
|
||||||
|
|
|
|
CORPORATE BONDS--continued |
|
|
|
|
|
|
|
Electronics--1.5% |
|
|
|
|
$ |
2,250,000 |
|
Anixter International, Inc., Company Guarantee, 8.00%, 9/15/2003 |
|
$ |
2,284,290 |
|
|
1,500,000 |
|
General Electric Financial Services, Inc., MTN, 9.18%, 12/30/2008 |
|
|
1,751,055 |
|
|
225,000 |
|
General Electric Financial Services, Inc., Sr. Note, 6.29%, 12/15/2001 |
|
|
227,457 |
|
|
115,000 |
|
International Business Machines Corp., 7.25%, 11/1/2002 |
|
|
118,810 |
|
|
500,000 |
|
International Business Machines Corp., Note, 6.45%, 8/1/2007 |
|
|
506,035 |
|
|
15,000 |
|
Rockwell International Corp., Unsecd. Note, 6.625%, 6/1/2005 |
|
|
15,220 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
4,902,867 |
|
|
||||||
|
|
|
|
Finance - Automotive--1.9% |
|
|
|
|
|
2,100,000 |
|
Ford Capital BV, Note, 9.375%, 5/15/2001 |
|
|
2,104,431 |
|
|
100,000 |
|
Ford Motor Credit Co., Note, 6.625%, 6/30/2003 |
|
|
101,967 |
|
|
250,000 |
|
Ford Motor Credit Co., Note, 7.50%, 4/25/2011 |
|
|
249,380 |
|
|
35,000 |
|
Ford Motor Credit Co., Note, 7.75%, 3/15/2005 |
|
|
36,592 |
|
|
100,000 |
|
Ford Motor Credit Co., Unsecd. Note, 8.00%, 6/15/2002 |
|
|
103,124 |
|
|
1,000,000 |
|
Ford Motor Credit Co., Unsub., 6.875%, 6/5/2001 |
|
|
1,001,000 |
|
|
1,500,000 |
|
General Motors Acceptance Corp., MTN, 7.50%, 7/15/2005 |
|
|
1,561,335 |
|
|
155,000 |
|
General Motors Acceptance Corp., Note, 7.00%, 9/15/2002 |
|
|
158,353 |
|
|
1,170,000 |
|
General Motors Acceptance Corp., Sr. Note, 5.75%, 11/10/2003 |
|
|
1,173,416 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
6,489,598 |
|
|
||||||
|
|
|
|
Finance - Retail--0.8% |
|
|
|
|
|
100,000 |
|
Household Finance Corp., Note, 6.125%, 8/15/2003 |
|
|
101,430 |
|
|
100,000 |
|
Household Finance Corp., Note, 7.00%, 9/15/2002 |
|
|
102,449 |
|
|
100,000 |
|
Household Finance Corp., Sr. Note, 7.25%, 8/15/2002 |
|
|
102,586 |
|
|
2,250,000 |
|
Waddell & Reed Financial, Inc., Note, 7.50%, 1/18/2006 |
|
|
2,280,083 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
2,586,548 |
|
|
||||||
|
|
|
|
Financial Intermediaries--5.8% |
|
|
|
|
|
4,000,000 |
|
Amvescap PLC, Sr. Note, 6.60%, 5/15/2005 |
|
|
4,040,800 |
|
|
1,000,000 |
|
Donaldson, Lufkin and Jenrette Securities Corp., Sr. Note, 6.50%, 6/1/2008 |
|
|
992,710 |
|
|
175,000 |
|
Lehman Brothers Holdings, Inc., Bond, 7.00%, 5/15/2003 |
|
|
180,672 |
|
|
2,575,000 |
|
Lehman Brothers Holdings, Inc., Note, 7.875%, 8/15/2010 |
|
|
2,704,110 |
|
|
1,575,000 |
|
Lehman Brothers, Inc., Sr. Sub. Note, 7.375%, 1/15/2007 |
|
|
1,611,997 |
|
|
2,325,000 |
|
Marsh & McLennan Cos., Inc., Sr. Note, 7.125%, 6/15/2009 |
|
|
2,404,608 |
|
Principal
|
|
|
|
Value |
||
|
|
||||||
|
|
|
|
CORPORATE BONDS--continued |
|
|
|
|
|
|
|
Financial Intermediaries--continued |
|
|
|
|
$ |
1,000,000 |
|
Merrill Lynch & Co., Inc., MTN, 7.20%, 10/15/2012 |
|
$ |
997,220 |
|
|
500,000 |
|
Merrill Lynch & Co., Inc., Note, 6.875%, 3/1/2003 |
|
|
514,020 |
|
|
15,000 |
|
Merrill Lynch & Co., Inc., Note, 7.375%, 5/15/2006 |
|
|
15,941 |
|
|
100,000 |
|
Merrill Lynch & Co., Inc., Note, 8.30%, 11/1/2002 |
|
|
104,702 |
|
|
1,000,000 |
|
Merrill Lynch & Co., Inc., Note, Series MTNB, 7.19%, 8/7/2012 |
|
|
984,800 |
|
|
920,000 |
|
Morgan Stanley Group, Inc., Deb., 9.375%, 6/15/2001 |
|
|
925,511 |
|
|
2,500,000 |
|
Morgan Stanley Group, Inc., Note, 7.125%, 1/15/2003 |
|
|
2,585,650 |
|
|
50,000 |
|
Pitney Bowes Credit Corp., Unsecd. Note, 8.80%, 2/15/2003 |
|
|
53,006 |
|
|
100,000 |
|
Salomon Smith Barney Holdings, Inc., Note, Series C, 7.15%, 2/15/2003 |
|
|
103,429 |
|
|
100,000 |
|
Salomon Smith Barney Holdings, Inc., Unsecd. Note, Series MTNG, 6.35%, 1/15/2004 |
|
|
101,905 |
|
|
5,000 |
|
Salomon, Inc., Note, 6.375%, 10/1/2004 |
|
|
5,092 |
|
|
10,000 |
|
Salomon, Inc., Note, 6.625%, 11/15/2003 |
|
|
10,309 |
|
|
200,000 |
|
Salomon, Inc., Sr. Note, 6.80%, 4/15/2003 |
|
|
205,907 |
|
|
30,000 |
|
Wells Fargo & Co., Note, 5.75%, 2/1/2003 |
|
|
30,363 |
|
|
892,132 |
1 |
World Financial, Pass Thru Cert., Series 96 WFP-B, 6.91%, 9/1/2013 |
|
|
901,650 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
19,474,402 |
|
|
||||||
|
|
|
|
Financial Services--0.9% |
|
|
|
|
|
3,000,000 |
|
General Electric Capital Corp., MTN, 6.65%, 9/3/2002 |
|
|
3,074,820 |
|
|
100,000 |
|
U.S. Leasing International, Unsecd. Note, 6.625%, 5/15/2003 |
|
|
101,148 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
3,175,968 |
|
|
||||||
|
|
|
|
Food & Drug Retailers--0.8% |
|
|
|
|
|
2,000,000 |
|
Kroger Co., Inc., 7.25%, 6/1/2009 |
|
|
2,033,820 |
|
|
500,000 |
|
Meyer (Fred), Inc., Company Guarantee, 7.45%, 3/1/2008 |
|
|
514,695 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
2,548,515 |
|
|
||||||
|
|
|
|
Food Products--0.4% |
|
|
|
|
|
5,000 |
|
Grand Metropolitan Investment Corp., 9.00%, 8/15/2011 |
|
|
5,922 |
|
|
1,200,000 |
|
Kellogg Co., 7.45%, 4/1/2031 |
|
|
1,193,160 |
|
|
300,000 |
|
Kraft General Foods, Inc., Deb., 6.00%, 6/15/2001 |
|
|
300,252 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
1,499,334 |
|
|
||||||
|
Principal
|
|
|
|
Value |
||
|
|
||||||
|
|
|
|
CORPORATE BONDS--continued |
|
|
|
|
|
|
|
Forest Products--1.3% |
|
|
|
|
$ |
1,500,000 |
|
Donohue Forest Products, 7.625%, 5/15/2007 |
|
$ |
1,553,700 |
|
|
1,000,000 |
|
Fort James Corp., Deb., 8.375%, 11/15/2001 |
|
|
1,011,580 |
|
|
1,000,000 |
|
Quno Corp., Sr. Note, 9.125%, 5/15/2005 |
|
|
1,037,140 |
|
|
25,000 |
|
Union Camp Corp., Note, 6.50%, 11/15/2007 |
|
|
24,311 |
|
|
750,000 |
|
Westvaco Corp., Deb., 7.75%, 2/15/2023 |
|
|
753,143 |
|
|
25,000 |
|
Weyerhaeuser Co., Deb., 9.05%, 2/1/2003 |
|
|
26,292 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
4,406,166 |
|
|
||||||
|
|
|
|
Health Services--1.4% |
|
|
|
|
|
1,000,000 |
|
Aetna Services, Inc., Company Guarantee, 6.75%, 8/15/2001 |
|
|
1,006,850 |
|
|
1,550,000 |
|
Guidant Corp., 6.15%, 2/15/2006 |
|
|
1,508,491 |
|
|
2,000,000 |
|
UnitedHealth Group, Inc., 7.50%, 11/15/2005 |
|
|
2,093,120 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
4,608,461 |
|
|
||||||
|
|
|
|
Industrial Products & Equipment--0.0% |
|
|
|
|
|
25,000 |
|
Ingersoll-Rand Co., Note, 6.51%, 12/1/2004 |
|
|
25,402 |
|
|
||||||
|
|
|
|
Insurance--4.7% |
|
|
|
|
|
500,000 |
|
CIGNA Corp., Sr. Note, 7.40%, 1/15/2003 |
|
|
515,640 |
|
|
1,975,000 |
|
Continental Corp., Unsecd. Note, 7.25%, 3/1/2003 |
|
|
1,998,443 |
|
|
2,000,000 |
|
Delphi Financial Group, Inc., Note, 8.00%, 10/1/2003 |
|
|
2,045,040 |
|
|
2,000,000 |
1 |
Equitable Life, Note, 7.70%, 12/1/2015 |
|
|
2,097,500 |
|
|
4,000,000 |
|
GEICO Corp., Deb., 9.15%, 9/15/2021 |
|
|
4,241,080 |
|
|
25,000 |
|
ITT Hartford Group, Inc., Note, 8.30%, 12/1/2001 |
|
|
25,522 |
|
|
15,000 |
|
Lincoln National Corp., Note, 7.625%, 7/15/2002 |
|
|
15,443 |
|
|
2,000,000 |
1 |
Reinsurance Group of America, Sr. Note, 7.25%, 4/1/2006 |
|
|
2,056,810 |
|
|
1,000,000 |
|
St. Paul Cos., Inc., MTN, Series MTNB, 7.29%, 8/28/2007 |
|
|
1,032,240 |
|
|
2,150,000 |
1 |
Union Central Life Insurance Co., Note, 8.20%, 11/1/2026 |
|
|
1,911,221 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
15,938,939 |
|
|
||||||
|
|
|
|
Leisure & Entertainment--2.4% |
|
|
|
|
|
3,900,000 |
|
International Speedway Corp., 7.875%, 10/15/2004 |
|
|
3,949,764 |
|
|
800,000 |
|
Paramount Communications, Inc., Sr. Note, 7.50%, 1/15/2002 |
|
|
814,456 |
|
|
3,200,000 |
|
Viacom, Inc., Sr. Deb., 8.25%, 8/1/2022 |
|
|
3,273,792 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
8,038,012 |
|
|
||||||
|
Principal
|
|
|
|
Value |
||
|
|
||||||
|
|
|
|
CORPORATE BONDS--continued |
|
|
|
|
|
|
|
Metals & Mining--3.0% |
|
|
|
|
$ |
3,000,000 |
|
Barrick Gold Corp., Deb., 7.50%, 5/1/2007 |
|
$ |
3,090,990 |
|
|
2,922,000 |
|
Inco Ltd., Note, 9.60%, 6/15/2022 |
|
|
2,937,896 |
|
|
2,405,000 |
|
Noranda, Inc., Deb., 8.125%, 6/15/2004 |
|
|
2,456,251 |
|
|
875,000 |
|
Noranda, Inc., Deb., 8.625%, 7/15/2002 |
|
|
896,857 |
|
|
750,000 |
|
Placer Dome, Inc., Bond, 8.50%, 12/31/2045 |
|
|
646,813 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
10,028,807 |
|
|
||||||
|
|
|
|
Oil & Gas--5.8% |
|
|
|
|
|
10,000 |
|
Atlantic Richfield Co., Deb., 9.125%, 3/1/2011 |
|
|
12,097 |
|
|
1,250,000 |
|
Enterprise Oil, Sr. Note, 7.00%, 5/1/2018 |
|
|
1,204,562 |
|
|
1,000,000 |
|
Global Marine, Inc., Sr. Note, 7.125%, 9/1/2007 |
|
|
1,017,730 |
|
|
3,300,000 |
|
Husky Oil Ltd., Deb., 7.55%, 11/15/2016 |
|
|
3,287,823 |
|
|
750,000 |
|
Husky Oil Ltd., Sr. Note, 7.125%, 11/15/2006 |
|
|
757,875 |
|
|
500,000 |
|
Norcen Energy Resources, Inc., Sr. Deb., 6.80%, 7/2/2002 |
|
|
506,005 |
|
|
3,250,000 |
1 |
Pemex Finance Ltd., 9.03%, 2/15/2011 |
|
|
3,461,868 |
|
|
1,000,000 |
|
Sun Co., Inc., 9.00%, 11/1/2024 |
|
|
1,115,940 |
|
|
2,450,000 |
|
Tosco Corp., 8.125%, 2/15/2030 |
|
|
2,660,186 |
|
|
1,000,000 |
|
USX Corp., Deb., 9.375%, 5/15/2022 |
|
|
1,187,550 |
|
|
1,000,000 |
|
Union Pacific Resources Group, Inc., Unsecd. Note, 7.00%, 10/15/2006 |
|
|
1,028,830 |
|
|
3,150,000 |
1 |
Yosemite Securities Trust I, Bond, 8.25%, 11/15/2004 |
|
|
3,256,565 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
19,497,031 |
|
|
||||||
|
|
|
|
Pharmaceutical--0.6% |
|
|
|
|
|
1,750,000 |
|
American Home Products Corp., 6.25%, 3/15/2006 |
|
|
1,737,470 |
|
|
250,000 |
|
American Home Products Corp., Note, 7.90%, 2/15/2005 |
|
|
262,220 |
|
|
100,000 |
|
Lilly (Eli) & Co., Unsecd. Note, 6.25%, 3/15/2003 |
|
|
102,157 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
2,101,847 |
|
|
||||||
|
|
|
|
Printing & Publishing--1.1% |
|
|
|
|
|
3,250,000 |
|
News America Holdings, Inc., 10.125%, 10/15/2012 |
|
|
3,548,870 |
|
|
||||||
|
|
|
|
Rail Industry--0.5% |
|
|
|
|
|
831,404 |
|
Atchison Topeka & SF RR, Equip. Trust, 6.55%, 1/6/2013 |
|
|
801,132 |
|
|
937,109 |
|
Burlington Northern Santa Fe, Pass Thru Cert., 7.57%, 1/2/2021 |
|
|
990,243 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
1,791,375 |
|
|
||||||
|
Principal
|
|
|
|
Value |
||
|
|
||||||
|
|
|
|
CORPORATE BONDS--continued |
|
|
|
|
|
|
|
Real Estate--1.5% |
|
|
|
|
$ |
3,250,000 |
|
EOP Operating LP, 7.375%, 11/15/2003 |
|
$ |
3,359,655 |
|
|
1,000,000 |
|
Price REIT, Inc., Sr. Note, 7.50%, 11/5/2006 |
|
|
1,031,860 |
|
|
900,000 |
|
Storage USA, Deb., 7.50%, 12/1/2027 |
|
|
779,013 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
5,170,528 |
|
|
||||||
|
|
|
|
Retailers--5.5% |
|
|
|
|
|
2,000,000 |
|
CVS Corp., 5.625%, 3/15/2006 |
|
|
1,967,580 |
|
|
850,000 |
|
Dayton-Hudson Corp., Deb., 8.50%, 12/1/2022 |
|
|
910,996 |
|
|
2,250,000 |
|
Federated Department Stores, Inc., Sr. Note, 8.125%, 10/15/2002 |
|
|
2,329,920 |
|
|
2,200,000 |
|
Harcourt General, Inc., Sr. Note, 6.70%, 8/1/2007 |
|
|
2,120,184 |
|
|
500,000 |
|
May Department Stores Co., Deb., 9.875%, 6/15/2021 |
|
|
522,485 |
|
|
3,000,000 |
|
Safeway, Inc., Note, 7.25%, 9/15/2004 |
|
|
3,109,530 |
|
|
2,000,000 |
|
Sears, Roebuck & Co., MTN, 10.00%, 2/3/2012 |
|
|
2,387,580 |
|
|
3,000,000 |
|
TJX Cos., Inc., 7.45%, 12/15/2009 |
|
|
3,033,330 |
|
|
1,750,000 |
|
Target Corp., 7.50%, 2/15/2005 |
|
|
1,853,198 |
|
|
200,000 |
|
Wal-Mart Stores, Inc., Unsecd. Note, 6.50%, 6/1/2003 |
|
|
206,132 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
18,440,935 |
|
|
||||||
|
|
|
|
Services--0.1% |
|
|
|
|
|
500,000 |
|
Olsten Corp., Sr. Note, 7.00%, 3/15/2006 |
|
|
482,695 |
|
|
||||||
|
|
|
|
Sovereign--1.4% |
|
|
|
|
|
200,000 |
|
Korea Development Bank, 7.625%, 10/1/2002 |
|
|
204,835 |
|
|
1,200,000 |
|
Korea Development Bank, Sr. Unsub., 6.50%, 11/15/2002 |
|
|
1,211,988 |
|
|
1,000,000 |
|
Quebec, Province of, 5.50%, 4/11/2006 |
|
|
986,260 |
|
|
1,000,000 |
|
Sweden, Government of, Deb., 10.25%, 11/1/2015 |
|
|
1,248,950 |
|
|
1,000,000 |
|
Victoria Public Authority, Local Gov't. Guarantee, 8.25%, 1/15/2002 |
|
|
1,019,796 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
4,671,829 |
|
|
||||||
|
|
|
|
Supranational--0.6% |
|
|
|
|
|
2,100,000 |
|
Corp Andina De Fomento, Bond, 7.375%, 1/18/2011 |
|
|
2,121,378 |
|
|
||||||
|
|
|
|
Technology Services--1.2% |
|
|
|
|
|
3,750,000 |
|
Unisys Corp., Sr. Note, 11.75%, 10/15/2004 |
|
|
3,956,250 |
|
|
||||||
|
Principal
|
|
|
|
Value |
||
|
|
||||||
|
|
|
|
CORPORATE BONDS--continued |
|
|
|
|
|
|
|
Telecommunications & Cellular--4.4% |
|
|
|
|
$ |
1,800,000 |
|
AT&T Wireless Group, Sr. Note, 7.875%, 3/1/2011 |
|
$ |
1,811,916 |
|
|
250,000 |
|
Bell Atlantic-New Jersey, Deb., 5.875%, 2/1/2004 |
|
|
248,490 |
|
|
1,850,000 |
|
BellSouth Telecommunications, Inc., Note, 6.00%, 6/15/2002 |
|
|
1,873,292 |
|
|
3,100,000 |
|
CenturyTel, Inc., 8.375%, 10/15/2010 |
|
|
3,166,743 |
|
|
15,000 |
|
Chesapeake & Potomac Telephone Co. of VA, Deb., 6.75%, 5/1/2008 |
|
|
14,857 |
|
|
50,000 |
|
Chesapeake & Potomac Telephone Co. of Washington D.C., Deb., 7.00%, 2/1/2009 |
|
|
49,788 |
|
|
100,000 |
|
GTE Southwest, Inc., Deb., 6.54%, 12/1/2005 |
|
|
101,765 |
|
|
410,000 |
|
Lucent Technologies, Inc., Note, 6.90%, 7/15/2001 |
|
|
406,412 |
|
|
650,000 |
|
MetroNet Communications Corp., Sr. Note, 12.00%, 8/15/2007 |
|
|
716,625 |
|
|
2,000,000 |
|
MetroNet Escrow Corp., Sr. Note, 10.625%, 11/1/2008 |
|
|
2,205,000 |
|
|
15,000 |
|
New England Telephone & Telegraph, Deb., 6.125%, 10/1/2006 |
|
|
14,694 |
|
|
800,000 |
|
New England Telephone & Telegraph, Deb., 8.625%, 8/1/2001 |
|
|
806,400 |
|
|
100,000 |
|
New York Telephone Co., Unsecd. Note, 6.25%, 2/15/2004 |
|
|
101,123 |
|
|
115,000 |
|
Ohio Bell Telephone Co., Unsecd. Note, 6.125%, 5/15/2003 |
|
|
116,990 |
|
|
3,125,000 |
|
Telecom de Puerto Rico, Note, 6.65%, 5/15/2006 |
|
|
3,018,063 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
14,652,158 |
|
|
||||||
|
|
|
|
Utilities--4.6% |
|
|
|
|
|
250,000 |
|
Consolidated Edison Co., Deb., Series 92B, 7.625%, 3/1/2004 |
|
|
259,245 |
|
|
1,600,000 |
1 |
Edison Mission Holding Co., Sr. Secd. Note, 8.734%, 10/1/2026 |
|
|
1,488,698 |
|
|
1,250,000 |
|
Enersis S.A., Note, 7.40%, 12/1/2016 |
|
|
1,106,225 |
|
|
1,000,000 |
|
Gulf States Utilities, 1st Mtg. Bond, Series 2005B, 6.77%, 8/1/2005 |
|
|
1,004,100 |
|
|
3,100,000 |
1 |
Israel Electric Corp. Ltd., 8.25%, 10/15/2009 |
|
|
3,173,067 |
|
|
1,500,000 |
1 |
Israel Electric Corp. Ltd., Sr. Note, 7.875%, 12/15/2026 |
|
|
1,302,675 |
|
|
400,000 |
1 |
Israel Electric Corp. Ltd., Sr. Secd. Note, 7.75%, 3/1/2009 |
|
|
397,392 |
|
|
1,800,000 |
|
Kansas City Power & Light Co., 7.125%, 12/15/2005 |
|
|
1,828,206 |
|
|
100,000 |
|
Louisiana Power & Light Co., 1st Mtg. Bond, 7.50%, 11/1/2002 |
|
|
100,603 |
|
|
30,000 |
|
Michigan Consolidated Gas, 1st Mtg. Bond, 6.80%, 6/15/2003 |
|
|
30,619 |
|
|
180,000 |
|
Minnesota Power and Light Co., 1st Mtg. Bond, 7.75%, 6/1/2007 |
|
|
179,986 |
|
|
1,000,000 |
|
National Rural Utilities Cooperative Finance Corp., Collateral Trust, 9.00%, 9/1/2021 |
|
|
1,052,720 |
|
|
1,000,000 |
|
PSEG Power LLC, 7.75%, 4/15/2011 |
|
|
1,007,110 |
|
Principal
|
|
|
|
Value |
||
|
|
||||||
|
|
|
|
CORPORATE BONDS--continued |
|
|
|
|
|
|
|
Utilities--continued |
|
|
|
|
$ |
1,000,000 |
|
Pacific Gas & Electric Co., Unsecd. Note, Series B, 7.75%, 6/30/2004 |
|
$ |
685,000 |
|
|
100,000 |
|
Reliant Energy, Inc., Collateral Trust, Series C, 6.50%, 4/21/2003 |
|
|
101,265 |
|
|
5,000 |
|
Sonat, Inc., Note, 6.875%, 6/1/2005 |
|
|
5,078 |
|
|
1,000,000 |
1 |
Tenaga Nasional Berhad, Deb., 7.50%, 1/15/2096 |
|
|
721,320 |
|
|
900,000 |
|
Utilicorp United, Inc., Sr. Note, 7.95%, 2/1/2011 |
|
|
891,198 |
|
|
15,000 |
|
Verizon Communications, Deb., 6.75%, 5/1/2008 |
|
|
14,743 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
15,349,250 |
|
|
||||||
|
|
|
|
TOTAL CORPORATE BONDS (IDENTIFIED COST $231,819,008) |
|
|
233,629,448 |
|
|
||||||
|
|
|
|
U.S. GOVERNMENT AGENCIES--13.4% |
|
|
|
|
|
100,000 |
|
Federal Home Loan Bank System, 6.00%, 6/30/2003 |
|
|
102,537 |
|
|
1,000,000 |
|
Federal Home Loan Bank System, 6.00%, 7/7/2004 |
|
|
1,026,110 |
|
|
1,750,000 |
|
Federal Home Loan Bank System, 6.00%, 5/17/2006 |
|
|
1,748,215 |
|
|
1,000,000 |
|
Federal Home Loan Bank System, 6.10%, 4/7/2003 |
|
|
1,024,680 |
|
|
1,000,000 |
|
Federal Home Loan Bank System, 6.11%, 4/17/2003 |
|
|
1,025,210 |
|
|
1,000,000 |
|
Federal Home Loan Bank System, 6.14%, 5/11/2005 |
|
|
1,000,740 |
|
|
2,000,000 |
|
Federal Home Loan Bank System, 6.23%, 6/1/2005 |
|
|
2,003,080 |
|
|
1,500,000 |
|
Federal Home Loan Bank System, 7.00%, 7/16/2009 |
|
|
1,543,155 |
|
|
1,000,000 |
|
Federal Home Loan Bank System, 7.00%, 12/15/2009 |
|
|
1,003,160 |
|
|
200,000 |
|
Federal Home Loan Bank System, Series BC01, 5.71%, 7/13/2001 |
|
|
200,588 |
|
|
4,000,000 |
|
Federal Home Loan Mortgage Corp., Deb., 6.22%, 3/18/2008 |
|
|
3,987,640 |
|
|
2,500,000 |
|
Federal Home Loan Mortgage Corp., Deb., 6.35%, 7/17/2008 |
|
|
2,498,750 |
|
|
2,000,000 |
|
Federal Home Loan Mortgage Corp., Deb., 8.29%, 9/30/2009 |
|
|
2,028,800 |
|
|
3,000,000 |
|
Federal Home Loan Mortgage Corp., Note, 5.625%, 3/15/2011 |
|
|
2,907,270 |
|
|
10,000,000 |
|
Federal Home Loan Mortgage Corp., Note, 6.875%, 1/15/2005 |
|
|
10,555,400 |
|
|
1,333,000 |
|
Federal Home Loan Mortgage Corp., Series 1228H, 7.00%, 2/15/2022 |
|
|
1,360,873 |
|
|
387,580 |
|
Federal Home Loan Mortgage Corp., Series 1324VE, 7.00%, 8/15/2008 |
|
|
390,331 |
|
|
1,470,000 |
|
Federal Home Loan Mortgage Corp., Series 1468M, 7.00%, 1/15/2010 |
|
|
1,509,308 |
|
|
1,000,000 |
|
Federal Home Loan Mortgage Corp., Series 24, Class VB, 6.50%, 7/25/2010 |
|
|
1,010,070 |
|
|
150,000 |
|
Federal National Mortgage Association, MTN, 6.25%, 12/13/2002 |
|
|
153,937 |
|
|
1,650,000 |
|
Federal National Mortgage Association, MTN, 6.71%, 7/24/2001 |
|
|
1,659,256 |
|
Principal
|
|
|
|
Value |
||
|
|
||||||
|
|
|
|
U.S. GOVERNMENT AGENCIES--continued |
|
|
|
|
$ |
1,000,000 |
|
Federal National Mortgage Association, Series 1992-124, Class D, 7.00%, 4/25/2010 |
|
$ |
1,028,280 |
|
|
2,000,000 |
|
Federal National Mortgage Association, Series 1993-139, Class KD, 7.00%, 7/25/2006 |
|
|
2,068,520 |
|
|
680,377 |
|
Federal National Mortgage Association, Series 1994-79, Class G, 7.00%, 11/25/2004 |
|
|
698,114 |
|
|
1,000,000 |
|
Federal National Mortgage Association, Series 1996-68, Class VC, 6.50%, 9/18/2010 |
|
|
996,930 |
|
|
1,000,000 |
|
Federal National Mortgage Association, Series G93-31, Class H, 7.00%, 2/25/2013 |
|
|
1,012,440 |
|
|
500,000 |
|
Tennessee Valley Authority, 6.125%, 7/15/2003 |
|
|
504,125 |
|
|
||||||
|
|
|
|
TOTAL GOVERNMENT AGENCIES (IDENTIFIED COST $44,810,366) |
|
|
45,047,519 |
|
|
||||||
|
|
|
|
MUNICIPALS--3.1% |
|
|
|
|
|
|
|
Education--0.3% |
|
|
|
|
|
1,100,000 |
|
Harvard University, Revenue Bonds, 8.125% Bonds, 4/15/2007 |
|
|
1,224,036 |
|
|
||||||
|
|
|
|
Municipal Services--2.8% |
|
|
|
|
|
1,250,000 |
|
Atlanta & Fulton County, GA, Recreation Authority, Taxable Revenue Bonds, Series 1997, 7.00% Bonds (Downtown Arena Project)/(FSA INS), 12/1/2028 |
|
|
1,202,762 |
|
|
1,325,000 |
|
Kansas City, MO, Redevelopment Authority, 7.65% Bonds (Auditorium Project), (FSA INS), 11/1/2018 |
|
|
1,378,464 |
|
|
2,000,000 |
|
McKeesport, PA, Taxable GO, Series B 1997, 7.30% Bonds (MBIA INS), 3/1/2020 |
|
|
2,024,320 |
|
|
1,000,000 |
|
Miami Florida Revenue Pension Obligation, 7.20% Bonds (AMBAC INS), 12/1/2025 |
|
|
986,310 |
|
|
1,500,000 |
|
Minneapolis/St. Paul, MN, Airport Commission, UT GO Taxable Revenue Bonds, Series 9, 8.95% Bonds, 1/1/2022 |
|
|
1,598,250 |
|
|
1,000,000 |
|
Pittsburgh, PA Urban Redevelopment Authority, 9.07% Bonds (CGIC GTD), 9/1/2014 |
|
|
1,105,570 |
|
|
1,000,000 |
|
St. Johns County, FL Convention Center, Taxable Municipal Revenue Bonds, 8.00% Bonds (FSA INS), 1/1/2026 |
|
|
1,036,250 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
9,331,926 |
|
|
||||||
|
|
|
|
TOTAL MUNICIPALS (IDENTIFIED COST $10,301,895) |
|
|
10,555,962 |
|
|
||||||
|
Shares or
|
|
|
|
Value |
||
|
|
||||||
|
|
|
|
PREFERRED STOCKS--1.3% |
|
|
|
|
|
|
|
Financial Intermediaries--1.0% |
|
|
|
|
|
70,000 |
|
Citigroup, Inc., Cumulative Pfd. |
|
$ |
3,280,900 |
|
|
||||||
|
|
|
|
Telecommunications & Cellular--0.3% |
|
|
|
|
|
6,100 |
|
AT&T Corp., Pfd. |
|
|
150,487 |
|
|
40,000 |
|
AT&T Corp., Pfd., $2.50 |
|
|
1,010,000 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
1,160,487 |
|
|
||||||
|
|
|
|
TOTAL PREFERRED STOCKS (IDENTIFIED COST $4,560,940) |
|
|
4,441,387 |
|
|
||||||
|
|
|
|
MUTUAL FUNDS--1.2% |
|
|
|
|
|
280,289 |
|
Federated Mortgage Core Portfolio |
|
|
2,788,878 |
|
|
1,224,147 |
|
Prime Value Obligations Fund, Class IS |
|
|
1,224,147 |
|
|
||||||
|
|
|
|
TOTAL MUTUAL FUNDS (IDENTIFIED COST $3,897,216) |
|
|
4,013,025 |
|
|
||||||
|
|
|
|
U.S. TREASURY SECURITIES--7.6% |
|
|
|
|
$ |
3,600,000 |
|
United States Treasury Bond, 5.375%, 2/15/2031 |
|
|
3,397,500 |
|
|
5,400,000 |
|
United States Treasury Bond, 6.25%, 5/15/2030 |
|
|
5,702,400 |
|
|
22,000,000 |
|
United States Treasury Note, Principal Only, 8/15/2027 |
|
|
4,560,160 |
|
|
1,000,000 |
|
United States Treasury Note, 4.75%, 2/15/2004 |
|
|
1,004,630 |
|
|
11,000,000 |
|
United States Treasury Note, 5.00%, 2/15/2011 |
|
|
10,726,760 |
|
|
||||||
|
|
|
|
TOTAL U.S. TREASURY SECURITIES (IDENTIFIED COST $26,580,743) |
|
|
25,391,450 |
|
|
||||||
|
|
|
|
TOTAL INVESTMENTS (IDENTIFIED COST $330,779,017) 2 |
|
$ |
332,005,015 |
|
|
||||||
1 Denotes a restricted security which is subject to restrictions on resale under federal securities laws. These securities have been deemed liquid based upon criteria approved by the Fund's Board of Trustees. At April 30, 2001, these securities amounted to $30,877,611 which represents 9.2% of net assets.
2 The cost of investments for federal tax purposes amounts to $330,822,752. The net unrealized appreciation of investments on a federal tax basis amounts to $1,182,263 which is comprised of $5,620,805 appreciation and $4,438,542 depreciation at April 30, 2001.
Note: The categories of investments are shown as a percentage of net assets ($336,495,471) at April 30, 2001.
The following acronyms are used throughout this portfolio:
See Notes which are an integral part of the Financial Statements
April 30, 2001
|
Assets: |
|
|
|
|
|
|
|
|
Total investments in securities, at value (identified cost $330,779,017) |
|
|
|
|
$ |
332,005,015 |
|
|
Income receivable |
|
|
|
|
|
6,073,814 |
|
|
Receivable for investments sold |
|
|
|
|
|
1,378,444 |
|
|
Receivable for shares sold |
|
|
|
|
|
761,450 |
|
|
Prepaid expenses |
|
|
|
|
|
28,594 |
|
|
|
|||||||
|
TOTAL ASSETS |
|
|
|
|
|
340,247,317 |
|
|
|
|||||||
|
Liabilities: |
|
|
|
|
|
|
|
|
Payable for investments purchased |
|
$ |
1,459,552 |
|
|
|
|
|
Payable for shares redeemed |
|
|
455,580 |
|
|
|
|
|
Income distribution payable |
|
|
1,811,707 |
|
|
|
|
|
Accrued expenses |
|
|
25,007 |
|
|
|
|
|
|
|||||||
|
TOTAL LIABILITIES |
|
|
|
|
|
3,751,846 |
|
|
|
|||||||
|
Net assets for 34,132,549 shares outstanding |
|
|
|
|
$ |
336,495,471 |
|
|
|
|||||||
|
Net Assets Consist of: |
|
|
|
|
|
|
|
|
Paid in capital |
|
|
|
|
$ |
344,228,292 |
|
|
Net unrealized appreciation of investments |
|
|
|
|
|
1,225,998 |
|
|
Accumulated net realized loss on investments |
|
|
|
|
|
(8,958,819 |
) |
|
|
|||||||
|
TOTAL NET ASSETS |
|
|
|
|
$ |
336,495,471 |
|
|
|
|||||||
|
Net Asset Value, Offering Price and Redemption Proceeds Per Share |
|
|
|
|
|
|
|
|
Institutional Shares: |
|
|
|
|
|
|
|
|
$300,289,332 ÷ 30,460,020 shares outstanding |
|
|
|
|
|
$9.86 |
|
|
|
|||||||
|
Institutional Service Shares: |
|
|
|
|
|
|
|
|
$36,206,139 ÷ 3,672,529 shares outstanding |
|
|
|
|
|
$9.86 |
|
|
|
|||||||
See Notes which are an integral part of the Financial Statements
Year Ended April 30, 2001
|
Investment Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends |
|
|
|
|
|
|
|
|
|
$ |
2,151,854 |
|
|
Interest |
|
|
|
|
|
|
|
|
|
|
21,655,395 |
|
|
|
||||||||||||
|
TOTAL INCOME |
|
|
|
|
|
|
|
|
|
|
23,807,249 |
|
|
|
||||||||||||
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment adviser fee |
|
|
|
|
|
$ |
1,636,420 |
|
|
|
|
|
|
Administrative personnel and services fee |
|
|
|
|
|
|
246,445 |
|
|
|
|
|
|
Custodian fees |
|
|
|
|
|
|
20,946 |
|
|
|
|
|
|
Transfer and dividend disbursing agent fees and expenses |
|
|
|
|
|
|
38,293 |
|
|
|
|
|
|
Directors'/Trustees' fees |
|
|
|
|
|
|
9,491 |
|
|
|
|
|
|
Auditing fees |
|
|
|
|
|
|
13,419 |
|
|
|
|
|
|
Legal fees |
|
|
|
|
|
|
3,600 |
|
|
|
|
|
|
Portfolio accounting fees |
|
|
|
|
|
|
101,785 |
|
|
|
|
|
|
Distribution services fee--Institutional Service Shares |
|
|
|
|
|
|
76,467 |
|
|
|
|
|
|
Shareholder services fee--Institutional Shares |
|
|
|
|
|
|
741,743 |
|
|
|
|
|
|
Shareholder services fee--Institutional Service Shares |
|
|
|
|
|
|
76,467 |
|
|
|
|
|
|
Share registration costs |
|
|
|
|
|
|
28,146 |
|
|
|
|
|
|
Printing and postage |
|
|
|
|
|
|
23,237 |
|
|
|
|
|
|
Insurance premiums |
|
|
|
|
|
|
1,964 |
|
|
|
|
|
|
Miscellaneous |
|
|
|
|
|
|
5,237 |
|
|
|
|
|
|
|
||||||||||||
|
TOTAL EXPENSES |
|
|
|
|
|
|
3,023,660 |
|
|
|
|
|
|
|
||||||||||||
|
Waivers and Reimbursement of Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Waiver of investment adviser fee |
|
$ |
(314,520 |
) |
|
|
|
|
|
|
|
|
|
Waiver of distribution services fee--Institutional Service Shares |
|
|
(50,504 |
) |
|
|
|
|
|
|
|
|
|
Waiver of shareholder services fee--Institutional Shares |
|
|
(741,743 |
) |
|
|
|
|
|
|
|
|
|
Waiver of shareholder services fee--Institutional Service Shares |
|
|
(25,963 |
) |
|
|
|
|
|
|
|
|
|
Reimbursement of investment adviser fee |
|
|
(507 |
) |
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
TOTAL WAIVERS AND REIMBURSEMENT OF EXPENSES |
|
|
|
|
|
|
(1,133,237 |
) |
|
|
|
|
|
|
||||||||||||
|
Net expenses |
|
|
|
|
|
|
|
|
|
|
1,890,423 |
|
|
|
||||||||||||
|
Net investment income |
|
|
|
|
|
|
|
|
|
|
21,916,826 |
|
|
|
||||||||||||
|
Realized and Unrealized Gain (Loss) on Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized loss on investments |
|
|
|
|
|
|
|
|
|
|
(1,151,723 |
) |
|
Net change in unrealized depreciation of investments |
|
|
|
|
|
|
|
|
|
|
14,511,383 |
|
|
|
||||||||||||
|
Net realized and unrealized gain on investments |
|
|
|
|
|
|
|
|
|
|
13,359,660 |
|
|
|
||||||||||||
|
Change in net assets resulting from operations |
|
|
|
|
|
|
|
|
|
$ |
35,276,486 |
|
|
|
||||||||||||
See Notes which are an integral part of the Financial Statements
|
Year Ended April 30 |
|
|
2001 |
|
|
|
2000 |
|
|
|
||||||||
|
Increase (Decrease) in Net Assets |
|
|
|
|
|
|
|
|
|
Operations: |
|
|
|
|
|
|
|
|
|
Net investment income |
|
$ |
21,916,826 |
|
|
$ |
19,392,792 |
|
|
Net realized loss on investments |
|
|
(1,151,723 |
) |
|
|
(4,458,939 |
) |
|
Net change in unrealized depreciation of investments |
|
|
14,511,383 |
|
|
|
(12,588,996 |
) |
|
|
||||||||
|
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS |
|
|
35,276,486 |
|
|
|
2,344,857 |
|
|
|
||||||||
|
Distributions to Shareholders: |
|
|
|
|
|
|
|
|
|
Distributions from net investment income |
|
|
|
|
|
|
|
|
|
Institutional Shares |
|
|
(19,899,706 |
) |
|
|
(18,312,786 |
) |
|
Institutional Service Shares |
|
|
(1,969,657 |
) |
|
|
(1,040,735 |
) |
|
Distributions from net realized gain on investments |
|
|
|
|
|
|
|
|
|
Institutional Shares |
|
|
-- |
|
|
|
(629,456 |
) |
|
Institutional Service Shares |
|
|
-- |
|
|
|
(35,010 |
) |
|
|
||||||||
|
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS |
|
|
(21,869,363 |
) |
|
|
(20,017,987 |
) |
|
|
||||||||
|
Share Transactions: |
|
|
|
|
|
|
|
|
|
Proceeds from sale of shares |
|
|
94,663,101 |
|
|
|
119,391,787 |
|
|
Proceeds from share issued in connection with the tax-free transfer of assets from Vermont National Bank, a Common Trust Fund |
|
|
-- |
|
|
|
3,849,562 |
|
|
Net asset value of shares issued in connection with the acquisition of CCB Bond Fund |
|
|
-- |
|
|
|
79,584,880 |
|
|
Net asset value of shares issued to shareholders in payment of distributions declared |
|
|
5,533,409 |
|
|
|
4,636,595 |
|
|
Cost of shares redeemed |
|
|
(89,910,908 |
) |
|
|
(110,015,628 |
) |
|
|
||||||||
|
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS |
|
|
10,285,602 |
|
|
|
97,447,196 |
|
|
|
||||||||
|
Change in net assets |
|
|
23,692,725 |
|
|
|
79,774,066 |
|
|
|
||||||||
|
Net Assets: |
|
|
|
|
|
|
|
|
|
Beginning of period |
|
|
312,802,746 |
|
|
|
233,028,680 |
|
|
|
||||||||
|
End of period |
|
$ |
336,495,471 |
|
|
$ |
312,802,746 |
|
|
|
||||||||
See Notes which are an integral part of the Financial Statements
April 30, 2001
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"), a diversified portfolio. 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 Fund offers two classes of shares: Institutional Shares and Institutional Service Shares.
Effective July 19, 1999, the Fund received a tax-free transfer of assets from Vermont National Bank, a Common Trust Fund.
|
Fund Shares Issued |
|
|
|
Unrealized
|
1 |
|
|
|||||
|
389,238 |
|
$3,849,562 |
|
$15,443 |
|
|
|
|||||
1 Unrealized appreciation is included in the Common Trust Fund's net assets received.
On July 26, 1999, the Fund acquired all the net assets of CCB Bond Fund ("Acquired Fund") pursuant to a plan of reorganization approved by the Acquired Fund's shareholders. The acquisition was accomplished by a tax-free exchange of 8,112,628 Institutional Shares of the Fund (valued at $79,584,880) for the 8,045,396 Shares of the Acquired Fund outstanding at July 26, 1999. The Acquired Fund's net assets of $79,590,157 (which consisted of $84,134,127 of Paid In Capital, $1,427,878 of net unrealized depreciation and $3,116,092 of accumulated net realized loss on investments) were combined with those of the Fund. The aggregate net assets of the Fund and the Acquired Fund immediately before the acquisition were $244,260,248 and $79,590,157, respectively. Immediately after the acquisition, the combined aggregate net assets of the Fund were $323,850,405.
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.
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. 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. Investments in other open-end registered investment companies are valued at net asset value. Securities for which no quotations are readily available are valued at fair value as determined in good faith using methods approved by the Board of Trustees (the "Trustees").
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.
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 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. The Trust along with other affiliated investment companies, may utilize a joint trading account for the purpose of entering into one or more repurchase agreements.
Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Dividend income and distributions to shareholders are recorded on the ex-dividend date. Non-cash dividends included in dividend income, if any, are recorded at fair value. The Fund offers multiple classes of shares, which differ in their respective distribution and service fees. All shareholders bear the common expenses of the Fund based on average daily net assets of each class, without distinction between share classes. Dividends are declared separately for each class. No class has preferential dividend rights; differences in per share dividend rates are generally due to differences in separate class expenses.
In November 2000, the American Institute of Certified Public Accountants (AICPA) issued a revised version of the AICPA Audit and Accounting Guide for Investment Companies (the "Guide"). The Guide is effective for annual financial statements issued for fiscal years beginning after December 15, 2000. Management of the Fund does not anticipate that the adoption of the Guide will have a significant effect on the financial statements.
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 permanent book and tax differences. The following reclassifications have been made to the financial statements.
|
Increase (Decrease) |
||
|
|
||
|
Paid-in Capital |
|
Accumulated Net
|
|
|
||
|
$3,347,966 |
|
$(3,347,966) |
|
|
||
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 provision for federal tax is necessary.
At April 30, 2001, the Fund, for federal tax purposes, had a capital loss carryforward of $8,915,071 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 |
|
Expire Amount |
|
|
||
|
2003 |
|
$2,025,815 |
|
|
||
|
2004 |
|
1,187,066 |
|
|
||
|
2007 |
|
135,079 |
|
|
||
|
2008 |
|
1,141,628 |
|
|
||
|
2009 |
|
4,425,483 |
|
|
||
The availability of a portion of these capital loss carryforwards, which were acquired in connection with the CCB Bond reorganization on July 23, 1999, may be limited in a given year.
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. Losses may occur on these transactions due to changes in market conditions or the failure of counterparties to perform under the contract.
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.
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.
Investment transactions are accounted for on a trade date basis.
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:
|
Year Ended April 30 |
|
2001 |
|
|
2000 |
|
||||||||
|
|
||||||||||||||
|
Institutional Shares: |
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
||
|
Shares sold |
|
7,091,961 |
|
|
$ |
69,118,887 |
|
|
10,978,126 |
|
|
$ |
105,935,864 |
|
|
Shares issued in connection with the tax-free transfer of assets from Vermont National Bank, a Common Trust Fund |
|
-- |
|
|
|
-- |
|
|
389,238 |
|
|
|
3,849,562 |
|
|
Shares issued in connection with the acquisition of CCB Bond Fund |
|
-- |
|
|
|
-- |
|
|
8,112,628 |
|
|
|
79,584,880 |
|
|
Shares issued to shareholders in payment of distributions declared |
|
381,411 |
|
|
|
3,706,876 |
|
|
393,124 |
|
|
|
3,795,046 |
|
|
Shares redeemed |
|
(8,180,053 |
) |
|
|
(79,300,609 |
) |
|
(10,544,191 |
) |
|
|
(101,673,032 |
) |
|
|
||||||||||||||
|
NET CHANGE RESULTING FROM INSTITUTIONAL SHARE TRANSACTIONS |
|
(706,681 |
) |
|
$ |
(6,474,846 |
) |
|
9,328,925 |
|
|
$ |
91,492,320 |
|
|
|
||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended April 30 |
|
2001 |
|
|
2000 |
|
||||||||
|
|
||||||||||||||
|
Institutional Service Shares: |
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
||
|
Shares sold |
|
2,657,607 |
|
|
$ |
25,544,214 |
|
|
1,388,440 |
|
|
$ |
13,455,923 |
|
|
Shares issued to shareholders in payment of distributions declared |
|
187,610 |
|
|
|
1,826,533 |
|
|
87,253 |
|
|
|
841,549 |
|
|
Shares redeemed |
|
(1,093,418 |
) |
|
|
(10,610,299 |
) |
|
(866,703 |
) |
|
|
(8,342,596 |
) |
|
|
||||||||||||||
|
NET CHANGE RESULTING FROM INSTITUTIONAL SERVICE SHARE TRANSACTIONS |
|
1,751,799 |
|
|
$ |
16,760,448 |
|
|
608,990 |
|
|
$ |
5,954,876 |
|
|
|
||||||||||||||
|
NET CHANGE RESULTING FROM SHARE TRANSACTIONS |
|
1,045,118 |
|
|
$ |
10,285,602 |
|
|
9,937,915 |
|
|
$ |
97,447,196 |
|
|
|
||||||||||||||
Federated Investment Management Company, the Fund's investment adviser (the "Adviser"), receives for its services an annual investment adviser 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.
Pursuant to an Exemptive Order, the Fund may invest in Federated Prime Value Obligations Fund, which is managed by the Fund's Adviser. The Adviser has agreed to reimburse certain investment adviser fees as a result of these transactions.
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 a scale that ranges from 0.15% to 0.075% of the average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors, Inc., subject to a $125,000 minimum per portfolio and $30,000 per each additional class.
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. FSC may voluntarily choose to waive any portion of its fee. FSC can modify or terminate this voluntary waiver at any time at its sole discretion.
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.
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.
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.
During the year ended April 30, 2001, the Fund engaged in purchase and sale transactions with funds that have a common investment adviser (or affiliated investment advisers), common Director/Trustees, and/or common Officers. These purchase and sales transactions complied with Rule 17a-7 under the Act and amounted to $109,495,552 and $142,686,263, respectively.
Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies.
Purchases and sales of investments, excluding long-term U.S. government securities and short-term securities (and in-kind contributions), for the year ended April 30, 2001, were as follows:
|
Purchases |
|
$ |
98,562,585 |
|
|
|||
|
Sales |
|
$ |
109,860,866 |
|
|
|||
Purchases and sales of long-term U.S. government securities for the year ended April 30, 2001, were as follows:
|
Purchases |
|
$ |
57,269,718 |
|
|
|||
|
Sales |
|
$ |
27,653,101 |
|
|
|||
For the year ended April 30, 2001, the Fund did not designate any long-term capital gains dividends.
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the Federated Intermediate Income Fund (the "Fund"), one of the portfolios constituting Federated Income Securities Trust, as of April 30, 2001, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the 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 auditing standards generally accepted in the United States. 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, 2001, 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 the Federated Intermediate Income Fund, a portfolio of Federated Income Securities Trust, at April 30, 2001, 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 accounting principles generally accepted in the United States.
Ernst & Young LLP
Boston, Massachusetts
June 19, 2001
A Statement of Additional Information (SAI) dated June 30, 2001 is incorporated by reference into this prospectus. Additional information about the Fund and its investments is contained in the Fund's SAI and Annual and Semi-Annual Reports to shareholders as they become available. The Annual Report's Management's Discussion of Fund Performance discusses market conditions and investment strategies that significantly affected the Fund's performance during its last fiscal year. To obtain the SAI, Annual Report, Semi-Annual Report and other information without charge, and to make inquiries, call your investment professional or the Fund at 1-800-341-7400.
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You can obtain information about the Fund (including the SAI) by writing to or visiting the SEC's Public Reference Room in Washington, DC. You may also access Fund information from the EDGAR Database on the SEC's Internet site at http://www.sec.gov. You can purchase copies of this information by contacting the SEC by email at publicinfo@sec.gov or by writing to the SEC's Public Reference Section, Washington, DC 20549-0102. Call 1-202-942-8090 for information on the Public Reference Room's operations and copying fees.
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Federated
World-Class Investment Manager®
Federated Intermediate Income Fund
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
www.federatedinvestors.com
Federated
Investment Company Act File No. 811-4577
Federated is a registered mark of Federated Investors, Inc.
2001 ©Federated Investors, Inc.
Cusip 31420C506
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3090804A-SS (6/01)
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FEDERATED INCOME SECURITIES TRUST
APPENDIX TO THE PROSPECTUSES
Federated Short-Term Income Fund, Institutional Shares
Risk/Return Bar Chart
The graphic presentation displayed here consists of a bar chart representing the annual total returns of Federated Short-Term Income Fund’s Institutional Shares as of the calendar year-end for each of ten years.
The ‘y’ axis reflects the “% Total Return” beginning with “-3%” and increasing in increments of 3% up to 15%.
The ‘x’ axis represents calculation periods for the last ten calendar years of the Fund, beginning with the earliest year. The light gray shaded chart features ten distinct vertical bars, each shaded in charcoal, and each visually representing by height the total return percentages for the calendar year stated directly at its base. The calculated total return percentage for the Fund for each calendar year is stated directly at the top of each respective bar, for the calendar years 1991 through 2000. The percentages noted are: 13.86%, 6.13%, 5.48%, (0.53)%, 10.89%, 5.41%, 6.41%, 5.73%, 3.66% and 8.75%.
Federated Short-Term Income Fund, Institutional Service Shares
Risk/Return Bar Chart
The graphic presentation displayed here consists of a bar chart representing the annual total returns of Federated Short-Term Income Fund’s Institutional Service Shares as of the calendar year-end for each year of eight years.
The ‘y’ axis reflects the “% Total Return” beginning with “-2%” and increasing in increments of 2% up to 12%.
The ‘x’ axis represents calculation periods from the earliest first full calendar year-end of the Fund’s start of business through the calendar year ended December 31, 2000. The light gray shaded chart features eight distinct vertical bars, each shaded in charcoal, and each visually representing by height the total return percentages for the calendar year stated directly at its base. The calculated total return percentage for the Fund for each calendar year is stated directly at the top of each respective bar, for the calendar years 1993 through 2000. The percentages noted are: 5.22%, (0.78)%, 10.61%, 5.15%, 6.14%, 5.47%, 3.41% and 8.48%.
Federated Intermediate Income Fund, Institutional Shares
Risk/Return Bar Chart
The graphic presentation displayed here consists of a bar chart representing the annual total returns of Federated Intermediate Income Fund’s Institutional Shares as of the calendar year-end for each year of seven years.
The ‘y’ axis reflects the “% Total Return” beginning with “-5%” and increasing in increments of 5% up to 25%.
The ‘x’ axis represents calculation periods from the earliest first full calendar year-end of the Fund’s start of business through the calendar year ended December 31, 2000. The light gray shaded chart features seven distinct vertical bars, each shaded in charcoal, and each visually representing by height the total return percentages for the calendar year stated directly at its base. The calculated total return percentage for the Fund for each calendar year is stated directly at the top of each respective bar, for the calendar years 1994 through 2000. The percentages noted are: (2.12)%, 20.26%, 3.34%, 8.64%, 7.83%, (1.41)% and 10.26%.
Federated Intermediate Income Fund, Institutional Service Shares
Risk/Return Bar Chart
The graphic presentation displayed here consists of a bar chart representing the annual total returns of Federated Intermediate Income Fund’s Institutional Service Shares as of the calendar year-end for each year of seven years.
The ‘y’ axis reflects the “% Total Return” beginning with “-5%” and increasing in increments of 5% up to 20%.
The ‘x’ axis represents calculation periods from the earliest first full calendar year-end of the Fund’s start of business through the calendar year ended December 31, 2000. The light gray shaded chart features seven distinct vertical bars, each shaded in charcoal, and each visually representing by height the total return percentages for the calendar year stated directly at its base. The calculated total return percentage for the Fund for each calendar year is stated directly at the top of each respective bar, for the calendar years 1994 through 2000. The percentages noted are: (2.36)%, 19.96%, 3.09%, 8.37%, 7.56%, (1.66)% and 9.99%.
A Portfolio of Federated Income Securities Trust
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June 30, 2001
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This Statement of Additional Information (SAI) is not a prospectus. Read this SAI in conjunction with the prospectuses for Federated Short-Term Income Fund (Fund) Institutional Shares and Institutional Service Shares, dated June 30, 2001. Obtain the prospectuses and the Annual Report's Management's Discussion of Fund Performance without charge by calling 1-800-341-7400.
</R>
Federated
World-Class Investment Manager®
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
www.federatedinvestors.com
Federated Securities Corp., Distributor
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1111903B (6/01)
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Federated is a registered mark of Federated Investors, Inc.
2001© Federatd Investors, Inc.
| <R> | |
| How is the Fund Organized? | 1 |
| Securities in Which the Fund Invests | 1 |
| What Do Shares Cost? | 10 |
| How is the Fund Sold? | 10 |
| Subaccounting Services | 10 |
| Redemption in Kind | 10 |
| Massachusetts Partnership Law | 11 |
| Account and Share Information | 11 |
| Tax Information | 11 |
| Who Manages and Provides Services to the Fund? | 12 |
| How Does the Fund Measure Performance? | 16 |
| Who is Federated Investors, Inc.? | 17 |
| Investment Ratings | 19 |
| Addresses | 21 |
| </R> |
The Fund is a diversified portfolio of Federated Income Securities Trust (Trust). The Trust is an open-end, management investment company that was established under the laws of the Commonwealth of Massachusetts on January 24, 1986. The Trust may offer separate series of shares representing interests in separate portfolios of securities.
The Board of Trustees (the Board) has established two classes of shares of the Fund, known as Institutional Shares and Institutional Service Shares (Shares). This SAI relates to both classes of Shares. The Fund's investment adviser is Federated Investment Management Company (Adviser).
In pursuing its investment strategy, the Fund may invest in the following securities for any purpose that is consistent with its investment objective.
Fixed income securities pay interest, dividends or distributions at a specified rate. The rate may be a fixed percentage of the principal or adjusted periodically. In addition, the issuer of a fixed income security must repay the principal amount of the security, normally within a specified time. Fixed income securities provide more regular income than equity securities. However, the returns on fixed income securities are limited and normally do not increase with the issuer's earnings. This limits the potential appreciation of fixed income securities as compared to equity securities.
A security's yield measures the annual income earned on a security as a percentage of its price. A security's yield will increase or decrease depending upon whether it costs less (a discount) or more (a premium) than the principal amount. If the issuer may redeem the security before its scheduled maturity, the price and yield on a discount or premium security may change based upon the probability of an early redemption. Securities with higher risks generally have higher yields.
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The following describes the types of fixed income securities in which the Fund may invest:
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Treasury securities are direct obligations of the federal government of the United States. Treasury securities are generally regarded as having the lowest credit risks.
Agency securities are issued or guaranteed by a federal agency or other government sponsored entity acting under federal authority (a GSE). The United States supports some GSEs with its full faith and credit. Other GSEs receive support through federal subsidies, loans or other benefits. A few GSEs have no explicit financial support, but are regarded as having implied support because the federal government sponsors their activities. Agency securities are generally regarded as having low credit risks, but not as low as treasury securities.
The Fund treats mortgage backed securities guaranteed by GSEs as agency securities. Although a GSE guarantee protects against credit risks, it does not reduce the interest rate and prepayment risks of these mortgage backed securities.
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Corporate debt securities are fixed income securities issued by businesses. Notes, bonds, debentures and commercial paper are the most prevalent types of corporate debt securities. The Fund may also purchase interests in bank loans to companies. The credit risks of corporate debt securities vary widely among issuers.
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In addition, the credit risk of an issuer's debt security may vary based on its priority for repayment. For example, higher ranking (senior) debt securities have a higher priority than lower ranking (subordinated) securities. This means that the issuer might not make payments on subordinated securities while continuing to make payments on senior securities. In addition, in the event of bankruptcy, holders of senior securities may receive amounts otherwise payable to the holders of subordinated securities. Some subordinated securities, such as trust preferred and capital securities notes, also permit the issuer to defer payments under certain circumstances. For example, insurance companies issue securities known as surplus notes that permit the insurance company to defer any payment that would reduce its capital below regulatory requirements.
COMMERCIAL PAPER
Commercial paper is an issuer's obligation with a maturity of less than nine months. Companies typically issue commercial paper to pay for current expenditures. Most issuers constantly reissue their commercial paper and use the proceeds (or bank loans) to repay maturing paper. If the issuer cannot continue to obtain liquidity in this fashion, its commercial paper may default. The short maturity of commercial paper reduces both the market and credit risks as compared to other debt securities of the same issuer.
DEMAND INSTRUMENTS
Demand instruments are corporate debt securities that the issuer must repay upon demand. Other demand instruments require a third party, such as a dealer or bank, to repurchase the security for its face value upon demand. The Fund treats demand instruments as short-term securities, even though their stated maturity may extend beyond one year.
Mortgage backed securities represent interests in pools of mortgages. The mortgages that comprise a pool normally have similar interest rates, maturities and other terms. Mortgages may have fixed or adjustable interest rates. Interests in pools of adjustable rate mortgages are known as ARMs.
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Mortgage backed securities come in a variety of forms. Many have extremely complicated terms. The simplest form of mortgage backed securities are pass-through certificates. An issuer of pass-through certificates gathers monthly payments from an underlying pool of mortgages. Then, the issuer deducts its fees and expenses and passes the balance of the payments onto the certificate holders once a month. Holders of pass-through certificates receive a pro rata share of all payments and prepayments from the underlying mortgages. As a result, the holders assume all the prepayment risks of the underlying mortgages.
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COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)
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CMOs, including interests in real estate mortgage investment conduits (REMICs), allocate payments and prepayments from an underlying pass-through certificate among holders of different classes of mortgage backed securities. This creates different prepayment and interest rate risks for each CMO class.
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The degree of increased or decreased prepayment risks depends upon the structure of the CMOs. However, the actual returns on any type of mortgage backed security depend upon the performance of the underlying pool of mortgages, which no one can predict and will vary among pools.
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SEQUENTIAL CMOS
In a sequential pay CMO, one class of CMOs receives all principal payments and prepayments. The next class of CMOs receives all principal payments after the first class is paid off. This process repeats for each sequential class of CMO. As a result, each class of sequential pay CMOs reduces the prepayment risks of subsequent classes.
PACS, TACS AND COMPANION CLASSES
More sophisticated CMOs include planned amortization classes (PACs) and targeted amortization classes (TACs). PACs and TACs are issued with companion classes. PACs and TACs receive principal payments and prepayments at a specified rate. The companion classes receive principal payments and prepayments in excess of the specified rate. In addition, PACs will receive the companion classes' share of principal payments, if necessary, to cover a shortfall in the prepayment rate. This helps PACs and TACs to control prepayment risks by increasing the risks to their companion classes.
IOS AND POS
CMOs may allocate interest payments to one class (Interest Only or IOs) and principal payments to another class (Principal Only or POs). POs increase in value when prepayment rates increase. In contrast, IOs decrease in value when prepayments increase, because the underlying mortgages generate less interest payments. However, IOs tend to increase in value when interest rates rise (and prepayments decrease), making IOs a useful hedge against interest rate risks.
FLOATERS AND INVERSE FLOATERS
Another variant allocates interest payments between two classes of CMOs. One class (Floaters) receives a share of interest payments based upon a market index such as LIBOR. The other class (Inverse Floaters) receives any remaining interest payments from the underlying mortgages. Floater classes receive more interest (and Inverse Floater classes receive correspondingly less interest) as interest rates rise. This shifts prepayment and interest rate risks from the Floater to the Inverse Floater class, reducing the price volatility of the Floater class and increasing the price volatility of the Inverse Floater class.
Z CLASSES AND RESIDUAL CLASSES
CMOs must allocate all payments received from the underlying mortgages to some class. To capture any unallocated payments, CMOs generally have an accrual (Z) class. Z classes do not receive any payments from the underlying mortgages until all other CMO classes have been paid off. Once this happens, holders of Z class CMOs receive all payments and prepayments. Similarly, REMICs have residual interests that receive any mortgage payments not allocated to another REMIC class.
Asset backed securities are payable from pools of obligations other than mortgages. Most asset backed securities involve consumer or commercial debts with maturities of less than ten years. However, almost any type of fixed income assets (including other fixed income securities) may be used to create an asset backed security. Asset backed securities may take the form of commercial paper, notes, or pass through certificates. Asset backed securities have prepayment risks. Like CMOs, asset backed securities may be structured like Floaters, Inverse Floaters, IOs and POs.
Zero coupon securities do not pay interest or principal until final maturity unlike debt securities that provide periodic payments of interest (referred to as a coupon payment). Investors buy zero coupon securities at a price below the amount payable at maturity. The difference between the purchase price and the amount paid at maturity represents interest on the zero coupon security. Investors must wait until maturity to receive interest and principal, which increases the interest rate and credit risks of a zero coupon security. A zero coupon step-up security converts to a coupon security before final maturity.
There are many forms of zero coupon securities. Some are issued at a discount and are referred to as zero coupon or capital appreciation bonds. Others are created from interest bearing bonds by separating the right to receive the bond's coupon payments from the right to receive the bond's principal due at maturity, a process known as coupon stripping. Treasury STRIPs, IOs and POs are the most common forms of stripped zero coupon securities. In addition, some securities give the issuer the option to deliver additional securities in place of cash interest payments, thereby increasing the amount payable at maturity. These are referred to as pay-in-kind or PIK securities.
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Bank instruments are unsecured interest bearing deposits with banks. Bank instruments include bank accounts, time deposits, certificates of deposit and banker's acceptances. Yankee instruments are denominated in U.S. dollars and issued by U.S. branches of foreign banks. Eurodollar instruments are denominated in U.S. dollars and issued by non-U.S. branches of U.S. or foreign banks.
</R>
Credit enhancement consists of an arrangement in which a company agrees to pay amounts due on a fixed income security if the issuer defaults. In some cases the company providing credit enhancement makes all payments directly to the security holders and receives reimbursement from the issuer. Normally, the credit enhancer has greater financial resources and liquidity than the issuer. For this reason, the Adviser usually evaluates the credit risk of a fixed income security based solely upon its credit enhancement.
Common types of credit enhancement include guarantees, letters of credit, bond insurance and surety bonds. Credit enhancement also includes arrangements where securities or other liquid assets secure payment of a fixed income security. If a default occurs, these assets may be sold and the proceeds paid to security's holders. Either form of credit enhancement reduces credit risks by providing another source of payment for a fixed income security.
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Foreign securities are securities of issuers based outside the United States. The Fund considers an issuer to be based outside the United States if:
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</R>
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Foreign securities are primarily denominated in foreign currencies. Along with the risks normally associated with domestic securities of the same type, foreign securities are subject to currency risks and risks of foreign investing.
</R>
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FOREIGN EXCHANGE CONTRACTS
</R>
<R>
In order to convert U.S. dollars into the currency needed to buy a foreign security, or to convert foreign currency received from the sale of a foreign security into U.S. dollars, the Fund may enter into spot currency trades. In a spot trade, the Fund agrees to exchange one currency for another at the current exchange rate. The Fund may also enter into derivative contracts in which a foreign currency is an underlying asset. The exchange rate for currency derivative contracts may be higher or lower than the spot exchange rate. Use of these derivative contracts may increase or decrease the Fund's exposure to currency risks.
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Derivative contracts are financial instruments that require payments based upon changes in the values of designated (or underlying) securities, currencies, commodities, financial indices or other assets. Some derivative contracts (such as futures, forwards and options) require payments relating to a future trade involving the underlying asset. Other derivative contracts (such as swaps) require payments relating to the income or returns from the underlying asset. The other party to a derivative contract is referred to as a counterparty.
Many derivative contracts are traded on securities or commodities exchanges. In this case, the exchange sets all the terms of the contract except for the price. Investors make payments due under their contracts through the exchange. Most exchanges require investors to maintain margin accounts through their brokers to cover their potential obligations to the exchange. Parties to the contract make (or collect) daily payments to the margin accounts to reflect losses (or gains) in the value of their contracts. This protects investors against potential defaults by the counterparty. Trading contracts on an exchange also allows investors to close out their contracts by entering into offsetting contracts.
For example, the Fund could close out an open contract to buy an asset at a future date by entering into an offsetting contract to sell the same asset on the same date. If the offsetting sale price is more than the original purchase price, the Fund realizes a gain; if it is less, the Fund realizes a loss. Exchanges may limit the amount of open contracts permitted at any one time. Such limits may prevent the Fund from closing out a position. If this happens, the Fund will be required to keep the contract open (even if it is losing money on the contract), and to make any payments required under the contract (even if it has to sell portfolio securities at unfavorable prices to do so). Inability to close out a contract could also harm the Fund by preventing it from disposing of or trading any assets it has been using to secure its obligations under the contract.
Depending upon how the Fund uses derivative contracts and the relationships between the market value of a derivative contract and the underlying asset, derivative contracts may increase or decrease the Fund's exposure to interest rate and currency risks, and may also expose the Fund to liquidity and leverage risks. OTC contracts also expose the Fund to credit risks in the event that a counterparty defaults on the contract.
<R>
The Fund may trade in the following types of derivative contracts:
</R>
SWAPS
Swaps are contracts in which two parties agree to pay each other (swap) the returns derived from underlying assets with differing characteristics. Most swaps do not involve the delivery of the underlying assets by either party, and the parties might not own the assets underlying the swap. The payments are usually made on a net basis so that, on any given day, the Fund would receive (or pay) only the amount by which its payment under the contract is less than (or exceeds) the amount of the other party's payment. Swap agreements are sophisticated instruments that can take many different forms, and are known by a variety of names including caps, floors, and collars. Common swap agreements that the Fund may use include:
Interest Rate Swaps
Interest rate swaps are contracts in which one party agrees to make regular payments equal to a fixed or floating interest rate times a stated principal amount of fixed income securities, in return for payments equal to a different fixed or floating rate times the same principal amount, for a specific period. For example, a $10 million LIBOR swap would require one party to pay the equivalent of the London Interbank Offer Rate of interest (which fluctuates) on $10 million principal amount in exchange for the right to receive the equivalent of a stated fixed rate of interest on $10 million principal amount.
Caps and Floors
Caps and Floors are contracts in which one party agrees to make payments only if an interest rate or index goes above (Cap) or below (Floor) a certain level in return for a fee from the other party.
Total Return Swaps
Total return swaps are contracts in which one party agrees to make payments of the total return from the underlying asset during the specified period, in return for payments equal to a fixed or floating rate of interest or the total return from another underlying asset.
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The Securities and Exchange Commission (SEC) has granted an exemption that permits the Fund and all other funds advised by subsidiaries of Federated Investors, Inc. ("Federated funds") to lend and borrow money for certain temporary purposes directly to and from other Federated funds. Participation in this inter-fund lending program is voluntary for both borrowing and lending funds, and an inter-fund loan is only made if it benefits each participating fund. Federated administers the program according to procedures approved by the Fund's Board, and the Board monitors the operation of the program. Any inter-fund loan must comply with certain conditions set out in the exemption, which are designed to assure fairness and protect all participating funds.
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For example, inter-fund lending is permitted only: (a) to meet shareholder redemption requests; and (b) to meet commitments arising from "failed" trades. All inter-fund loans must be repaid in seven days or less. The Fund's participation in this program must be consistent with its investment policies and limitations, and must meet certain percentage tests. Inter-fund loans may be made only when the rate of interest to be charged is more attractive to the lending fund than market-competitive rates on overnight repurchase agreements (the "Repo Rate") and more attractive to the borrowing fund than the rate of interest that would be charged by an unaffiliated bank for short-term borrowings (the "Bank Loan Rate"), as determined by the Board. The interest rate imposed on inter-fund loans is the average of the Repo Rate and the Bank Loan Rate.
</R>
Repurchase agreements are transactions in which the Fund buys a security from a dealer or bank and agrees to sell the security back at a mutually agreed upon time and price. The repurchase price exceeds the sale price, reflecting the Fund's return on the transaction. This return is unrelated to the interest rate on the underlying security. The Fund will enter into repurchase agreements only with banks and other recognized financial institutions, such as securities dealers, deemed creditworthy by the Adviser .
The Fund's custodian or subcustodian will take possession of the securities subject to repurchase agreements. The Adviser or subcustodian will monitor the value of the underlying security each day to ensure that the value of the security always equals or exceeds the repurchase price.
Repurchase agreements are subject to credit risks.
Reverse repurchase agreements are repurchase agreements in which the Fund is the seller (rather than the buyer) of the securities, and agrees to repurchase them at an agreed upon time and price. A reverse repurchase agreement may be viewed as a type of borrowing by the Fund. Reverse repurchase agreements are subject to credit risks. In addition, reverse repurchase agreements create leverage risks because the Fund must repurchase the underlying security at a higher price, regardless of the market value of the security at the time of repurchase.
Delayed delivery transactions, including when issued transactions, are arrangements in which the Fund buys securities for a set price, with payment and delivery of the securities scheduled for a future time. During the period between purchase and settlement, no payment is made by the Fund to the issuer and no interest accrues to the Fund. The Fund records the transaction when it agrees to buy the securities and reflects their value in determining the price of its shares. Settlement dates may be a month or more after entering into these transactions so that the market values of the securities bought may vary from the purchase prices. Therefore, delayed delivery transactions create interest rate risks for the Fund. Delayed delivery transactions also involve credit risks in the event of a counterparty default.
The Fund may lend portfolio securities to borrowers that the Adviser deems creditworthy. In return, the Fund receives cash or liquid securities from the borrower as collateral. The borrower must furnish additional collateral if the market value of the loaned securities increases. Also, the borrower must pay the Fund the equivalent of any dividends or interest received on the loaned securities.
The Fund will reinvest cash collateral in securities that qualify as an acceptable investment for the Fund. However, the Fund must pay interest to the borrower for the use of cash collateral.
Loans are subject to termination at the option of the Fund or the borrower. The Fund will not have the right to vote on securities while they are on loan, but it will terminate a loan in anticipation of any important vote. The Fund may pay administrative and custodial fees in connection with a loan and may pay a negotiated portion of the interest earned on the cash collateral to a securities lending agent or broker.
Securities lending activities are subject to interest rate risks and credit risks.
In order to secure its obligations in connection with derivatives contracts or special transactions, the Fund will either own the underlying assets, enter into an offsetting transaction or set aside readily marketable securities with a value that equals or exceeds the Fund's obligations. Unless the Fund has other readily marketable assets to set aside, it cannot trade assets used to secure such obligations without entering into an offsetting derivative contract or terminating a special transaction. This may cause the Fund to miss favorable trading opportunities or to realize losses on derivative contracts or special transactions.
The Fund may invest its assets in securities of other investment companies, including the securities of affiliated money market funds, as an efficient means of carrying out its investment policies and managing its uninvested cash.
The Fund may invest in mortgage backed securities primarily by investing in another investment company (which is not available for general investment by the public) that owns those securities and that is advised by an affiliate of the Adviser. This other investment company is managed independently of the Fund and may incur additional administrative expenses. Therefore, any such investment by the Fund may be subject to duplicate expenses. However, the Adviser believes that the benefits and efficiencies of this approach should outweigh the potential additional expenses. The Fund may also invest in such securities directly.
<R>
There are many factors which may affect an investment in the Fund. The Fund's risk factors are outlined below.
</R>
Prices of fixed income securities rise and fall in response to changes in the interest rate paid by similar securities. Generally, when interest rates rise, prices of fixed income securities fall. However, market factors, such as the demand for particular fixed income securities, may cause the price of certain fixed income securities to fall while the prices of other securities rise or remain unchanged.
Interest rate changes have a greater effect on the price of fixed income securities with longer durations. Duration measures the price sensitivity of a fixed income security to changes in interest rates.
Credit risk is the possibility that an issuer will default on a security by failing to pay interest or principal when due. If an issuer defaults, the Fund will lose money.
Many fixed income securities receive credit ratings from services such as Standard & Poor's and Moody's Investor Services, Inc. These services assign ratings to securities by assessing the likelihood of issuer default. Lower credit ratings correspond to higher credit risk. If a security has not received a rating, the Fund must rely entirely upon the Adviser's credit assessment.
Fixed income securities generally compensate for greater credit risk by paying interest at a higher rate. The difference between the yield of a security and the yield of a U.S. Treasury security with a comparable maturity (the spread) measures the additional interest paid for risk. Spreads may increase generally in response to adverse economic or market conditions. A security's spread may also increase if the security's rating is lowered, or the security is perceived to have an increased credit risk. An increase in the spread will cause the price of the security to decline.
Credit risk includes the possibility that a party to a transaction involving the Fund will fail to meet its obligations. This could cause the Fund to lose the benefit of the transaction or prevent the Fund from selling or buying other securities to implement its investment strategy.
Call risk is the possibility that an issuer may redeem a fixed income security before maturity (a call) at a price below its current market price. An increase in the likelihood of a call may reduce the security's price.
If a fixed income security is called, the Fund may have to reinvest the proceeds in other fixed income securities with lower interest rates, higher credit risks, or other less favorable characteristics.
Unlike traditional fixed income securities, which pay a fixed rate of interest until maturity (when the entire principal amount is due) payments on mortgage backed securities include both interest and a partial payment of principal. Partial payment of principal may be comprised of scheduled principal payments as well as unscheduled payments from the voluntary prepayment, refinancing, or foreclosure of the underlying loans. These unscheduled prepayments of principal create risks that can adversely affect a Fund holding mortgage backed securities.
For example, when interest rates decline, the values of mortgage backed securities generally rise. However, when interest rates decline, unscheduled prepayments can be expected to accelerate, and the Fund would be required to reinvest the proceeds of the prepayments at the lower interest rates then available. Unscheduled prepayments would also limit the potential for capital appreciation on mortgage backed securities.
Conversely, when interest rates rise, the values of mortgage backed securities generally fall. Since rising interest rates typically result in decreased prepayments, this could lengthen the average lives of mortgage backed securities, and cause their value to decline more than traditional fixed income securities.
Generally, mortgage backed securities compensate for the increased risk associated with prepayments by paying a higher yield. The additional interest paid for risk is measured by the difference between the yield of a mortgage backed security and the yield of a U.S. Treasury security with a comparable maturity (the spread). An increase in the spread will cause the price of the mortgage backed security to decline. Spreads generally increase in response to adverse economic or market conditions. Spreads may also increase if the security is perceived to have an increased prepayment risk or is perceived to have less market demand.
Trading opportunities are more limited for fixed income securities that have not received any credit ratings, have received ratings below investment grade or are not widely held.
Trading opportunities are more limited for CMOs that have complex terms or that are not widely held. These features may make it more difficult to sell or buy a security at a favorable price or time. Consequently, the Fund may have to accept a lower price to sell a security, sell other securities to raise cash or give up an investment opportunity, any of which could have a negative effect on the Fund's performance. Infrequent trading of securities may also lead to an increase in their price volatility.
Liquidity risk also refers to the possibility that the Fund may not be able to sell a security or close out a derivative contract when it wants to. If this happens, the Fund will be required to continue to hold the security or keep the position open, and the Fund could incur losses.
OTC derivative contracts generally carry greater liquidity risk than exchange-traded contracts.
CMOs with complex or highly variable prepayment terms, such as companion classes, IOs, POs, Inverse Floaters and residuals, generally entail greater market, prepayment and liquidity risks than other mortgage backed securities. For example, their prices are more volatile and their trading market may be more limited.
Foreign securities pose additional risks because foreign economic or political conditions may be less favorable than those of the United States. Securities in foreign markets may also be subject to taxation policies that reduce returns for U.S. investors.
Foreign companies may not provide information (including financial statements) as frequently or to as great an extent as companies in the United States. Foreign companies may also receive less coverage than U.S. companies by market analysts and the financial press. In addition, foreign countries may lack uniform accounting, auditing and financial reporting standards or regulatory requirements comparable to those applicable to U.S. companies. These factors may prevent the Fund and its Adviser from obtaining information concerning foreign companies that is as frequent, extensive and reliable as the information available concerning companies in the United States.
Foreign countries may have restrictions on foreign ownership of securities or may impose exchange controls, capital flow restrictions or repatriation restrictions which could adversely affect the liquidity of the Fund's investments.
<R>
</R>
<R>
Exchange rates for currencies fluctuate daily. The combination of currency risk and market risks tends to make securities traded in foreign markets more volatile than securities traded exclusively in the United States.
</R>
<R>
The Adviser attempts to manage currency risk by limiting the amount the Fund invests in securities denominated in a particular currency. However, diversification will not protect the Fund against a general increase in the value of the U.S. dollar relative to other currencies.
</R>
Leverage risk is created when an investment exposes the Fund to a level of risk that exceeds the amount invested. Changes in the value of such an investment magnify the Fund's risk of loss and potential for gain.
Investments can have these same results if their returns are based on a multiple of a specified index, security, or other benchmark.
<R>
The Fund's investment objective is to seek to provide current income. The investment objective may not be changed by the Fund's Directors without shareholder approval.
</R>
<R>
The Fund may borrow money, directly or indirectly, and issue senior securities to the maximum extent permitted under the Investment Company Act of 1940 (1940 Act).
</R>
The Fund may not purchase or sell real estate, provided that this restriction does not prevent the Fund from investing in issuers which invest, deal, or otherwise engage in transactions in real estate or interests therein, or investing in securities that are secured by real estate or interests therein. The Fund may exercise its rights under agreements relating to such securities, including the right to enforce security interests and to hold real estate acquired by reason of such enforcement until that real estate can be liquidated in an orderly manner.
The Fund may not purchase or sell physical commodities, provided that the Fund may purchase securities of companies that deal in commodities.
The Fund may not underwrite the securities of other issuers, except that the Fund may engage in transactions involving the acquisition, disposition or resale of its portfolio securities, under circumstances where it may be considered to be an underwriter under the Securities Act of 1933.
With respect to securities comprising 75% of the value of its total assets, the Fund will not purchase securities of any one issuer (other than cash; cash items; securities issued or guaranteed by the government of the United States or its agencies or instrumentalities and repurchase agreements collateralized by such U.S. government securities; and securities of other investment companies) if, as a result, more than 5% of the value of its total assets would be invested in the securities of that issuer, or the Fund would own more than 10% of the outstanding voting securities of that issuer.
The Fund will not make investments that will result in the concentration of its investments in the securities of issuers primarily engaged in the same industry. Government securities, municipal securities and bank instruments will not be deemed to constitute an industry.
The Fund may not make loans, provided that this restriction does not prevent the Fund from purchasing debt obligations, entering into repurchase agreements, lending its assets to broker/dealers or institutional investors and investing in loans, including assignments and participation interests.
<R>
The above limitations cannot be changed unless authorized by the Board and by the "vote of a majority of its outstanding voting securities," as defined by the 1940 Act. The following limitations, however, may be changed by the Board without shareholder approval. Shareholders will be notified before any material change in these limitations becomes effective.
</R>
The Fund will not purchase securities on margin, provided that the Fund may obtain short-term credits necessary for the clearance of purchases and sales of securities, and further provided that the Fund may make margin deposits in connection with its use of financial options and futures, forward and spot currency contracts, swap transactions and other financial contracts or derivative instruments.
The Fund will not mortgage, pledge, or hypothecate any of its assets, provided that this shall not apply to the transfer of securities in connection with any permissible borrowing or to collateral arrangements in connection with permissible activities.
<R>
</R>
The Fund will not purchase securities for which there is no readily available market, or enter into repurchase agreements or purchase time deposits maturing in more than seven days, if immediately after and as a result, the value of such securities would exceed, in the aggregate, 15% of the Fund's net assets.
<R>
For purposes of the concentration limitation: (a) utility companies will be divided according to their services (for example, gas, gas transmission, electric and telephone will be considered a separate industry); (b) financial service companies will be classified according to the end users of their services (for example, automobile finance, bank finance and diversified finance will each be considered a separate industry); and (c) asset-backed securities will be classified according to the underlying assets securing such securities. To conform to the current view of the SEC that only domestic bank instruments may be excluded from industry concentration limitations, as a matter of non-fundamental policy, the Fund will not exclude foreign bank instruments from industry concentration limits as long as the policy of the SEC remains in effect. In addition, investments in bank instruments, and investments in certain industrial development bonds funded by activities in a single industry, will be deemed to constitute investment in an industry, except when held for temporary defensive purposes. The investment of more than 25% of the value of the Fund's total assets in any one industry will constitute "concentration."
</R>
<R>
As a matter of non-fundamental policy, for purposes of the commodities policy, investments in transactions involving futures contracts and options, forward currency contracts, swap transactions and other financial contracts that settle by payment of cash are not deemed to be investments in commodities.
</R>
As a non-fundamental policy, the Fund will invest primarily in a diversified portfolio of short and medium-term high grade debt securities.
<R>
For purposes of the above limitations, the Fund considers certificates of deposit and demand and time deposits issued by a U.S. branch of a domestic bank or savings association having capital, surplus and undivided profits in excess of $100,000,000 at the time of investment to be "cash items." Except with respect to borrowing money, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in percentage resulting from any change in value or net assets will not result in a violation of such limitation.
</R>
Market values of the Fund's portfolio securities are determined as follows:
Prices provided by independent pricing services may be determined without relying exclusively on quoted prices and may consider institutional trading in similar groups of securities, yield, quality, stability, risk, coupon rate, maturity, type of issue, trading characteristics, and other market data or factors. From time to time, when prices cannot be obtained from an independent pricing service, securities may be valued based on quotes from broker-dealers or other financial institutions that trade the securities.
Trading in foreign securities may be completed at times which vary from the closing of the New York Stock Exchange (NYSE). In computing its NAV, the Fund values foreign securities at the latest closing price on the exchange on which they are traded immediately prior to the closing of the NYSE. Certain foreign currency exchange rates may also be determined at the latest rate prior to the closing of the NYSE. Foreign securities quoted in foreign currencies are translated into U.S. dollars at current rates. Occasionally, events that affect these values and exchange rates may occur between the times at which they are determined and the closing of the NYSE. If such events materially affect the value of portfolio securities, these securities may be valued at their fair value as determined in good faith by the Fund's Board, although the actual calculation may be done by others.
The Fund's net asset value (NAV) per Share fluctuates and is based on the market value of all securities and other assets of the Fund.
The NAV for each class of Shares may differ due to the variance in daily net income realized by each class. Such variance will reflect only accrued net income to which the shareholders of a particular class are entitled.
Under the Distributor's Contract with the Fund, the Distributor (Federated Securities Corp.) offers Shares on a continuous, best-efforts basis.
As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the Distributor (who may then pay investment professionals such as banks, broker/dealers, trust departments of banks, and registered investment advisers) for marketing activities (such as advertising, printing and distributing prospectuses, and providing incentives to investment professionals) to promote sales of Shares so that overall Fund assets are maintained or increased. This helps the Fund achieve economies of scale, reduce per share expenses, and provide cash for orderly portfolio management and Share redemptions. In addition, the Fund's service providers that receive asset-based fees also benefit from stable or increasing Fund assets.
The Fund may compensate the Distributor more or less than its actual marketing expenses. In no event will the Fund pay for any expenses of the Distributor that exceed the maximum Rule 12b-1 Plan fee.
For some classes of Shares, the maximum Rule 12b-1 Plan fee that can be paid in any one year may not be sufficient to cover the marketing-related expenses the Distributor has incurred. Therefore, it may take the Distributor a number of years to recoup these expenses.
The Fund may pay Federated Shareholder Services Company, a subsidiary of Federated Investors, Inc. (Federated), for providing shareholder services and maintaining shareholder accounts. Federated Shareholder Services Company may select others to perform these services for their customers and may pay them fees.
<R>
Investment professionals (such as broker/dealers or banks) may be paid fees, in significant amounts, out of the assets of the Distributor Federated Shareholder Services Company. (These fees do not come out of Fund assets.) The Distributor Federated Shareholder Services Company may be reimbursed by the Adviser or its affiliates.
</R>
<R>
Investment professionals receive such fees for providing distribution-related and/or shareholder services, such as advertising, providing incentives to their sales personnel, sponsoring other activities intended to promote sales, and maintaining shareholder accounts. These payments may be based upon such factors as the number or value of Shares the investment professional sells or may sell; the value of client assets invested; and/or the type and nature of sales or marketing support furnished by the investment professional.
</R>
<R>
Certain investment professionals may wish to use the transfer agent's subaccounting system to minimize their internal recordkeeping requirements. The transfer agent may charge a fee based on the level of subaccounting services rendered. Investment professionals holding Shares in a fiduciary, agency, custodial or similar capacity may charge or pass through subaccounting fees as part of or in addition to normal trust or agency account fees. They may also charge fees for other services that may be related to the ownership of Shares. This information should, therefore, be read together with any agreement between the customer and the investment professional about the services provided, the fees charged for those services, and any restrictions and limitations imposed.
</R>
Although the Fund intends to pay Share redemptions in cash, it reserves the right, as described below, to pay the redemption price in whole or in part by a distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the 1940 Act, the Fund is obligated to pay Share redemptions to any one shareholder in cash only up to the lesser of $250,000 or 1% of the net assets represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash unless the Fund's Board determines that payment should be in kind. In such a case, the Fund will pay all or a portion of the remainder of the redemption in portfolio securities, valued in the same way as the Fund determines its NAV. The portfolio securities will be selected in a manner that the Fund's Board deems fair and equitable and, to the extent available, such securities will be readily marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made in kind, shareholders receiving the portfolio securities and selling them before their maturity could receive less than the redemption value of the securities and could incur certain transaction costs.
Under certain circumstances, shareholders may be held personally liable as partners under Massachusetts law for obligations of the Fund. To protect its shareholders, the Fund has filed legal documents with Massachusetts that expressly disclaim the liability of its shareholders for acts or obligations of the Fund.
In the unlikely event a shareholder is held personally liable for the Fund's obligations, the Fund is required by the Declaration of Trust to use its property to protect or compensate the shareholder. On request, the Fund will defend any claim made and pay any judgment against a shareholder for any act or obligation of the Fund. Therefore, financial loss resulting from liability as a shareholder will occur only if the Fund itself cannot meet its obligations to indemnify shareholders and pay judgments against them.
<R>
Each share of the Fund gives the shareholder one vote in Trustee elections and other matters submitted to shareholders for vote. All Shares of the Trust have equal voting rights, except that in matters affecting only a particular Fund or class, only Shares of that Fund or class are entitled to vote. Trustees may be removed by the Board or by shareholders at a special meeting. A special meeting of shareholders will be called by the Board upon the written request of shareholders who own at least 10% of the Trust's outstanding shares of all series entitled to vote.
</R>
<R>
As of June 1, 2001, the following shareholders owned of record, beneficially, or both, 5% or more of outstanding Shares:
|
Name and Address of Shareholder |
|
|
|
|
||
|
Charles Schwab & Co. Inc.
|
|
20.89% Institutional Shares
|
|
Hubco Regions Financial Corp.
|
|
6.66% Institutional Service Shares |
|
Milards & Co.
|
|
7.16% Institutional Shares |
|
NFSC FEBO # X44-159298
|
|
6.88% Institutional Service Shares |
|
TRUCOJO Trust Company of St. Joseph
|
|
37.39% Institutional Service Shares |
</R>
Shareholders owning 25% or more of outstanding Shares may be in control and be able to affect the outcome of certain matters presented for a vote of shareholders.
<R>
The Fund intends to meet requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies. If these requirements are not met, it will not receive special tax treatment and will be subject to federal corporate income tax.
</R>
The Fund will be treated as a single, separate entity for federal income tax purposes so that income earned and capital gains and losses realized by the Trust's other portfolios will be separate from those realized by the Fund.
If the Fund purchases foreign securities, their investment income may be subject to foreign withholding or other taxes that could reduce the return on these securities. Tax treaties between the United States and foreign countries, however, may reduce or eliminate the amount of foreign taxes to which the Fund would be subject. The effective rate of foreign tax cannot be predicted since the amount of Fund assets to be invested within various countries is uncertain. However, the Fund intends to operate so as to qualify for treaty-reduced tax rates when applicable.
<R>
Distributions from the Fund may be based on estimates of book income for the year. Book income generally consists solely of the income generated by the securities in the portfolio, whereas tax-basis income includes, in addition, gains or losses attributable to currency fluctuation. Due to differences in the book and tax treatment of fixed-income securities denominated in foreign currencies, it is difficult to project currency effects on an interim basis. Therefore, to the extent that currency fluctuations cannot be anticipated, a portion of distributions to shareholders could later be designated as a return of capital, rather than income, for income tax purposes, which may be of particular concern to simple trusts.
</R>
If the Fund invests in the stock of certain foreign corporations, they may constitute Passive Foreign Investment Companies (PFIC), and the Fund may be subject to Federal income taxes upon disposition of PFIC investments.
<R>
If more than 50% of the value of the Fund's assets at the end of the tax year is represented by stock or securities of foreign corporations, the Fund will qualify for certain Code provisions that allow its shareholders to claim a foreign tax credit or deduction on their U.S. income tax returns. The Code may limit a shareholder's ability to claim a foreign tax credit. Shareholders who elect to deduct their portion of the Fund's foreign taxes rather than take the foreign tax credit must itemize deductions on their income tax returns.
</R>
<R>
The Board is responsible for managing the Trust's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. Information about each Board member is provided below and includes each person's: name; address; birth date; present position(s) held with the Trust; principal occupations for the past five years and positions held prior to the past five years; total compensation received as a Trustee from the Trust for its most recent fiscal year, if applicable; and the total compensation received from the Federated Fund Complex for the most recent calendar year. The Trust comprises two funds and the Federated Fund Complex comprises 44 investment companies, whose investment advisers are affiliated with the Fund's Adviser.
</R>
<R>
As of June 1, 2001, the Fund's Board and Officers as a group owned less than 1% of the Fund's outstanding Shares.
</R>
| * | An asterisk denotes a Trustee who is deemed to be an interested person as defined in the 1940 Act. |
| # | A pound sign denotes a Member of the Board's Executive Committee, which handles the Board's responsibilities between its meetings. |
| <R> | |
| † | Mr. Donahue is the father of J. Christopher Donahue, President and Trustee of the Trust. |
| </R> |
The Adviser conducts investment research and makes investment decisions for the Fund.
The Adviser is a wholly owned subsidiary of Federated.
The Adviser shall not be liable to the Trust or any Fund shareholder for any losses that may be sustained in the purchase, holding, or sale of any security or for anything done or omitted by it, except acts or omissions involving willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties imposed upon it by its contract with the Trust.
Affiliates of the Adviser may, from time to time, provide certain electronic equipment and software to institutional customers in order to facilitate the purchase of Fund Shares offered by the Distributor.
As required by SEC rules, the Fund, its Adviser, and its Distributor have adopted codes of ethics. These codes govern securities trading activities of investment personnel, Fund Trustees, and certain other employees. Although they do permit these people to trade in securities, including those that the Fund could buy, they also contain significant safeguards designed to protect the Fund and its shareholders from abuses in this area, such as requirements to obtain prior approval for, and to report, particular transactions.
When selecting brokers and dealers to handle the purchase and sale of portfolio instruments, the Adviser looks for prompt execution of the order at a favorable price. The Adviser will generally use those who are recognized dealers in specific portfolio instruments, except when a better price and execution of the order can be obtained elsewhere. In selecting among firms believed to meet these criteria, the Adviser may give consideration to those firms which have sold or are selling Shares of the Fund and other funds distributed by the Distributor and its affiliates. The Adviser makes decisions on portfolio transactions and selects brokers and dealers subject to review by the Fund's Board.
<R>
Investment decisions for the Fund are made independently from those of other accounts managed by the Adviser. When the Fund and one or more of those accounts invests in, or disposes of, the same security, available investments or opportunities for sales will be allocated among the Fund and the account(s) in a manner believed by the Adviser to be equitable. While the coordination and ability to participate in volume transactions may benefit the Fund, it is possible that this procedure could adversely impact the price paid or received and/or the position obtained or disposed of by the Fund.
</R>
Federated Services Company, a subsidiary of Federated, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund. Federated Services Company provides these at the following annual rate of the average aggregate daily net assets of all Federated Funds as specified below:
|
Maximum Administrative Fee |
|
Average Aggregate Daily Net
|
|
|
||
|
0.150 of 1% |
|
on the first $250 million |
|
0.125 of 1% |
|
on the next $250 million |
|
0.100 of 1% |
|
on the next $250 million |
|
0.075 of 1% |
|
on assets in excess of $750 million |
The administrative fee received during any fiscal year shall be at least $125,000 per portfolio and $30,000 per each additional class of Shares. Federated Services Company may voluntarily waive a portion of its fee and may reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping services with respect to the Fund's portfolio investments for a fee based on Fund assets plus out-of-pocket expenses.
<R>
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the securities and cash of the Fund. Foreign instruments purchased by the Fund are held by foreign banks participating in a network coordinated by the custodian.
</R>
Federated Services Company, through its registered transfer agent subsidiary, Federated Shareholder Services Company, maintains all necessary shareholder records. The Fund pays the transfer agent a fee based on the size, type and number of accounts and transactions made by shareholders.
<R>
The independent auditor for the Fund, Ernst & Young LLP, conducts its audits in accordance with accounting principles generally accepted in the United States of America, which require it to plan and perform its audits to provide reasonable assurance about whether the Fund's financial statements and financial highlights are free of material misstatement.
</R>
<R>
|
For the Year Ended April 30 |
|
2001 |
|
2000 |
|
1999 |
|
|
||||||
|
Advisory Fee Earned |
|
$782,843 |
|
$866,191 |
|
$845,655 |
|
|
||||||
|
Advisory Fee Reduction |
|
72,445 |
|
69,191 |
|
58,212 |
|
|
||||||
|
Advisory Fee Reimbursement |
|
1,002 |
|
-- |
|
-- |
|
|
||||||
|
Brokerage Commissions |
|
0 |
|
0 |
|
0 |
|
|
||||||
|
Administrative Fee |
|
155,034 |
|
163,194 |
|
159,406 |
|
|
||||||
|
12b-1 Fee: |
|
|
|
|
|
|
|
|
||||||
|
Institutional Service Shares |
|
627 |
|
-- |
|
-- |
|
|
||||||
|
Shareholder Services Fee: |
|
|
|
|
|
|
|
|
||||||
|
Institutional Shares |
|
0 |
|
-- |
|
-- |
|
|
||||||
|
Institutional Service Shares |
|
24,935 |
|
-- |
|
-- |
|
|
||||||
</R>
Fees are allocated among classes based on their pro rata share of Fund assets, except for marketing (Rule 12b-1) fees and shareholder services fees, which are borne only by the applicable class of Shares.
The Fund may advertise Share performance by using the Securities and Exchange Commission's (SEC) standard method for calculating performance applicable to all mutual funds. The SEC also permits this standard performance information to be accompanied by non-standard performance information.
The performance of Shares depends upon such variables as: portfolio quality; average portfolio maturity; type and value of portfolio securities; changes in interest rates; changes or differences in the Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings fluctuate daily. Both net earnings and offering price per Share are factors in the computation of yield and total return.
<R>
Total returns are given for the one-year, five-year and ten-year periods ended April 30, 2001 for Institutional Shares and the one-year, five-year and Start of Performance periods ended April 30, 2001 for Institutional Service Shares.
</R>
<R>
Yield is given for the 30-day period ended April 30, 2001.
</R>
<R>
|
Institutional Shares: |
|
30-Day Period |
|
1 Year |
|
5 Years |
|
10 Years |
|
|
||||||||
|
Total Return |
|
N/A |
|
9.39% |
|
6.50% |
|
5.98% |
|
Yield |
|
5.90% |
|
N/A |
|
N/A |
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
Institutional Service Shares: |
|
30-Day Period |
|
1 Year |
|
5 Years |
|
Start of Performance
|
|
|
||||||||
|
Total Return |
|
N/A |
|
9.12% |
|
6.24% |
|
5.63% |
|
Yield |
|
5.63% |
|
N/A |
|
N/A |
|
N/A |
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Total return represents the change (expressed as a percentage) in the value of Shares over a specific period of time, and includes the investment of income and capital gains distributions.
The average annual total return for Shares is the average compounded rate of return for a given period that would equate a $1,000 initial investment to the ending redeemable value of that investment. The ending redeemable value is computed by multiplying the number of Shares owned at the end of the period by the NAV per Share at the end of the period. The number of Shares owned at the end of the period is based on the number of Shares purchased at the beginning of the period with $1,000, less any applicable sales charge, adjusted over the period by any additional Shares, assuming the annual reinvestment of all dividends and distributions.
The yield of Shares is calculated by dividing: (i) the net investment income per Share earned by the Shares over a 30-day period; by (ii) the maximum offering price per Share on the last day of the period. This number is then annualized using semi-annual compounding. This means that the amount of income generated during the 30-day period is assumed to be generated each month over a 12-month period and is reinvested every six months. The yield does not necessarily reflect income actually earned by Shares because of certain adjustments required by the SEC and, therefore, may not correlate to the dividends or other distributions paid to shareholders.
To the extent investment professionals and broker/dealers charge fees in connection with services provided in conjunction with an investment in Shares, the Share performance is lower for shareholders paying those fees.
Advertising and sales literature may include:
The Fund may compare its performance, or performance for the types of securities in which it invests, to a variety of other investments, including federally insured bank products such as bank savings accounts, certificates of deposit, and Treasury bills.
The Fund may quote information from reliable sources regarding individual countries and regions, world stock exchanges, and economic and demographic statistics.
You may use financial publications and/or indices to obtain a more complete view of Share performance. When comparing performance, you should consider all relevant factors such as the composition of the index used, prevailing market conditions, portfolio compositions of other funds, and methods used to value portfolio securities and compute offering price. The financial publications and/or indices which the Fund uses in advertising may include:
Lipper Analytical Services, Inc., ranks funds in various fund categories by making comparative calculations using total return. Total return assumes the reinvestment of all capital gains distributions and income dividends and takes into account any change in over a specific period of time. From time to time, the Fund will quote its Lipper ranking in the "short-term investment grade debt funds" category in advertising and sales literature.
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Merrill Lynch 1-3 Year Short-Term Corporate Index is comprised of over 400 issues of investment grade corporate debt securities with remaining maturities from 1 to 2.99 years.
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Morningstar, Inc., an independent rating service, is the publisher of the bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000 NASDAQ-listed mutual funds of all types, according to their risk-adjusted returns. The maximum rating is five stars, and ratings are effective for two weeks.
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Federated is dedicated to meeting investor needs by making structured, straightforward and consistent investment decisions. Federated investment products have a history of competitive performance and have gained the confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound methodologies backed by fundamental and technical research. At Federated, success in investment management does not depend solely on the skill of a single portfolio manager. It is a fusion of individual talents and state-of-the-art industry tools and resources. Federated's investment process involves teams of portfolio managers and analysts, and investment decisions are executed by traders who are dedicated to specific market sectors and who handle trillions of dollars in annual trading volume.
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In the municipal sector, as of December 31, 2000, Federated managed 11 bond funds with approximately $4.0 billion in assets and 22 money market funds with approximately $41.8 billion in total assets. In 1976, Federated introduced one of the first municipal bond mutual funds in the industry and is now one of the largest institutional buyers of municipal securities. The Funds may quote statistics from organizations including The Tax Foundation and the National Taxpayers Union regarding the tax obligations of Americans.
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In the equity sector, Federated has more than 31 years' experience. As of December 31, 2000, Federated managed 40 equity funds totaling approximately $20.6 billion in assets across growth, value, equity income, international, index and sector (i.e. utility) styles. Federated's value-oriented management style combines quantitative and qualitative analysis and features a structured, computer-assisted composite modeling system that was developed in the 1970s.
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In the corporate bond sector, as of December 31, 2000, Federated managed 11 money market funds and 30 bond funds with assets approximating $20.9 billion and $9.7 billion, respectively. Federated's corporate bond decision making--based on intensive, diligent credit analysis--is backed by over 29 years of experience in the corporate bond sector. In 1972, Federated introduced one of the first high-yield bond funds in the industry. In 1983, Federated was one of the first fund managers to participate in the asset backed securities market, a market totaling more than $209 billion.
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In the government sector, as of December 31, 2000, Federated managed 6 mortgage backed, 5 multi-sector government funds, 3 government/agency and 19 government money market mutual funds, with assets approximating $3.3 billion, $1.6 billion, $1.2 billion and $36.2 billion, respectively. Federated trades approximately $133.4 billion in U.S. government and mortgage backed securities daily and places approximately $28.5 billion in repurchase agreements each day. Federated introduced the first U.S. government fund to invest in U.S. government bond securities in 1969. Federated has been a major force in the short- and intermediate-term government markets since 1982 and currently manages approximately $50 billion in government funds within these maturity ranges.
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In the money market sector, Federated gained prominence in the mutual fund industry in 1974 with the creation of the first institutional money market fund. Simultaneously, the company pioneered the use of the amortized cost method of accounting for valuing shares of money market funds, a principal means used by money managers today to value money market fund shares. Other innovations include the first institutional tax-free money market fund. As of December 31, 2000, Federated managed $99.0 billion in assets across 52 money market funds, including 19 government, 11 prime, 22 municipal and 1 euro-denominated with assets approximating $36.2 billion, $21.0 billion, $41.8 billion and $110 million, respectively.
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The Chief Investment Officers responsible for oversight of the various investment sectors within Federated are: U.S. equity and high yield--J. Thomas Madden; U.S. fixed income--William D. Dawson III; and global equities and fixed income--Henry A. Frantzen. The Chief Investment Officers are Executive Vice Presidents of the Federated advisory companies.
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Forty-nine percent of American households are pursuing their financial goals through mutual funds. These investors, as well as businesses and institutions, have entrusted over $7 trillion to the more than 8,157 funds available, according to the Investment Company Institute.
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Federated distributes mutual funds through its subsidiaries for a variety of investment purposes. Specific markets include:
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Federated meets the needs of approximately 3,031 institutional clients nationwide by managing and servicing separate accounts and mutual funds for a variety of purposes, including defined benefit and defined contribution programs, cash management, and asset/liability management. Institutional clients include corporations, pension funds, tax exempt entities, foundations/endowments, insurance companies, and investment and financial advisers. The marketing effort to these institutional clients is headed by John B. Fisher, President, Institutional Sales Division, Federated Securities Corp.
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Other institutional clients include more than 1,600 banks and trust organizations. Virtually all of the trust divisions of the top 100 bank holding companies use Federated Funds in their clients' portfolios. The marketing effort to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank Marketing & Sales.
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Federated Funds are available to consumers through major brokerage firms nationwide--we have over 2,000 broker/dealer and bank broker/dealer relationships across the country--supported by more wholesalers than any other mutual fund distributor. Federated's service to financial professionals and institutions has earned it high ratings in several surveys performed by DALBAR, Inc. DALBAR is recognized as the industry benchmark for service quality measurement. The marketing effort to these firms is headed by James F. Getz, President, Broker/Dealer Sales Division, Federated Securities Corp.
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AAA-- Debt rated AAA has the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong.
AA-- Debt rated AA has a very strong capacity to pay interest and repay principal and differs from the higher-rated issues only in small degree.
A-- Debt rated A has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher-rated categories.
BBB-- Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher-rated categories.
BB-- Debt rated BB has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The BB rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BBB rating.
B-- Debt rated B has a greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The B rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BB or BB- rating.
CCC-- Debt rated CCC has a currently identifiable vulnerability to default, and is dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial, or economic conditions, it is not likely to have the capacity to pay interest and repay principal. The CCC rating category is also used for debt subordinated to senior debt that is assigned an actual or implied B or B- rating.
CC-- The rating CC typically is applied to debt subordinated to senior debt that is assigned an actual or implied CCC debt rating.
C-- The rating C typically is applied to debt subordinated to senior debt which is assigned an actual or implied CCC debt rating. The C rating may be used to cover a situation where a bankruptcy petition has been filed, but debt service payments are continued.
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AAA-- Bonds which are rated AAA are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as gilt edged. Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues.
AA-- Bonds which are rated AA are judged to be of high quality by all standards. Together with the AAA group, they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in AAA securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in AAA securities.
A-- Bonds which are rated A possess many favorable investment attributes and are to be considered as upper-medium-grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future.
BAA-- Bonds which are rated BAA are considered as medium-grade obligations, (i.e., they are neither highly protected nor poorly secured). Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well.
BA-- Bonds which are BA are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class.
B-- Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small.
CAA-- Bonds which are rated CAA are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest.
CA-- Bonds which are rated CA represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings.
C-- Bonds which are rated C are the lowest-rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.
AAA-- Bonds considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and repay principal, which is unlikely to be affected by reasonably foreseeable events.
AA-- Bonds considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated F-1+.
A-- Bonds considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings.
BBB-- Bonds considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds, and therefore impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings.
BB-- Bonds are considered speculative. The obligor's ability to pay interest and repay principal may be affected over time by adverse economic changes. However, business and financial alternatives can be identified which could assist the obligor in satisfying its debt service requirements.
B-- Bonds are considered highly speculative. While bonds in this class are currently meeting debt service requirements, the probability of continued timely payment of principal and interest reflects the obligor's limited margin of safety and the need for reasonable business and economic activity throughout the life of the issue.
CCC-- Bonds have certain identifiable characteristics which, if not remedied, may lead to default. The ability to meet obligations requires an advantageous business and economic environment.
CC-- Bonds are minimally protected. Default in payment of interest and/or principal seems probable over time.
C-- Bonds are imminent default in payment of interest or principal.
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Prime-1-- Issuers rated Prime-1 (or related supporting institutions) have a superior capacity for repayment of short-term promissory obligations. Prime-1 repayment capacity will normally be evidenced by the following characteristics:
Prime-2-- Issuers rated Prime-2 (or related supporting institutions) have a strong capacity for repayment of short-term promissory obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained.
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A-1-- This designation indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation.
A-2-- Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issues designated A-1.
FITCH-1-- (Highest Grade) Commercial paper assigned this rating is regarded as having the strongest degree of assurance for timely payment.
FITCH-2-- (Very Good Grade) Issues assigned this rating reflect an assurance of timely payment only slightly less in degree than the strongest issues.
Institutional Shares
Institutional Service Shares
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Federated Investment Management Company
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116-5072
A Portfolio of Federated Income Securities Trust
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June 30, 2001
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This Statement of Additional Information (SAI) is not a prospectus. Read this SAI in conjunction with the prospectuses for Federated Intermediate Income Fund (Fund) Institutional Shares and Institutional Service Shares, dated June 30, 2001. Obtain the prospectuses and the Annual Report's Management's Discussion of Fund Performance without charge by calling 1-800-341-7400.
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Federated
World-Class Investment Manager®
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
www.federatedinvestors.com
Federated Securities Corp., Distributor
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3090804B (6/01)
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Federated is a registered mark of Federated Investors, Inc.
2001© Federated Investors, Inc.
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| How is the Fund Organized? | 1 |
| Securities in Which the Fund Invests | 1 |
| What Do Shares Cost? | 10 |
| How is the Fund Sold? | 10 |
| Subaccounting Services | 10 |
| Redemption in Kind | 11 |
| Massachusetts Partnership Law | 11 |
| Account and Share Information | 11 |
| Tax Information | 12 |
| Who Manages and Provides Services to the Fund? | 12 |
| How Does the Fund Measure Performance? | 16 |
| Who is Federated Investors, Inc.? | 18 |
| Investment Ratings | 19 |
| Addresses | 21 |
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The Fund is a diversified portfolio of Federated Income Securities Trust (Trust). The Trust is an open-end, management investment company that was established under the laws of the Commonwealth of Massachusetts on January 24, 1986. The Trust may offer separate series of shares representing interests in separate portfolios of securities.
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The Board of Trustees (the Board) has established two classes of shares of the Fund, known as Institutional Shares and Institutional Service Shares (Shares). This SAI relates to both classes of Shares. The Fund's investment adviser is Federated Investment Management Company (Adviser).
In pursuing its investment strategy, the Fund may invest in the following securities for any purpose that is consistent with its investment objective.
Fixed income securities pay interest, dividends or distributions at a specified rate. The rate may be a fixed percentage of the principal or adjusted periodically. In addition, the issuer of a fixed income security must repay the principal amount of the security, normally within a specified time. Fixed income securities provide more regular income than equity securities. However, the returns on fixed income securities are limited and normally do not increase with the issuer's earnings. This limits the potential appreciation of fixed income securities as compared to equity securities.
A security's yield measures the annual income earned on a security as a percentage of its price. A security's yield will increase or decrease depending upon whether it costs less (a discount) or more (a premium) than the principal amount. If the issuer may redeem the security before its scheduled maturity, the price and yield on a discount or premium security may change based upon the probability of an early redemption. Securities with higher risks generally have higher yields.
The following describes the types of fixed income securities in which the Fund may invest.
Treasury securities are direct obligations of the federal government of the United States. Treasury securities are generally regarded as having the lowest credit risks.
Agency securities are issued or guaranteed by a federal agency or other government sponsored entity acting under federal authority (a GSE). The United States supports some GSEs with its full faith and credit. Other GSEs receive support through federal subsidies, loans or other benefits. A few GSEs have no explicit financial support, but are regarded as having implied support because the federal government sponsors their activities. Agency securities are generally regarded as having low credit risks, but not as low as treasury securities.
The Fund treats mortgage backed securities guaranteed by GSEs as agency securities. Although a GSE guarantee protects against credit risks, it does not reduce the interest rate and prepayment risks of these mortgage backed securities.
Corporate debt securities are fixed income securities issued by businesses. Notes, bonds, debentures and commercial paper are the most prevalent types of corporate debt securities. The Fund may also purchase interests in bank loans to companies. The credit risks of corporate debt securities vary widely among issuers.
In addition, the credit risk of an issuer's debt security may vary based on its priority for repayment. For example, higher ranking (senior) debt securities have a higher priority than lower ranking (subordinated) securities. This means that the issuer might not make payments on subordinated securities while continuing to make payments on senior securities. In addition, in the event of bankruptcy, holders of senior securities may receive amounts otherwise payable to the holders of subordinated securities. Some subordinated securities, such as trust preferred and capital securities notes, also permit the issuer to defer payments under certain circumstances. For example, insurance companies issue securities known as surplus notes that permit the insurance company to defer any payment that would reduce its capital below regulatory requirements.
COMMERCIAL PAPER
Commercial paper is an issuer's obligation with a maturity of less than nine months. Companies typically issue commercial paper to pay for current expenditures. Most issuers constantly reissue their commercial paper and use the proceeds (or bank loans) to repay maturing paper. If the issuer cannot continue to obtain liquidity in this fashion, its commercial paper may default. The short maturity of commercial paper reduces both the market and credit risks as compared to other debt securities of the same issuer.
DEMAND INSTRUMENTS
Demand instruments are corporate debt securities that the issuer must repay upon demand. Other demand instruments require a third party, such as a dealer or bank, to repurchase the security for its face value upon demand. The Fund treats demand instruments as short-term securities, even though their stated maturity may extend beyond one year.
SURPLUS NOTES
Surplus notes are subordinated debt instruments issued by mutual and stock insurance companies. Mutual insurance companies generally issue surplus notes to raise capital. Stock insurance companies primarily issue surplus notes in transactions with affiliates. Surplus notes are treated by insurers as equity capital, or "surplus" for regulatory reporting purposes. Surplus notes typically are subordinated to any other debt.
CAPITAL SECURITIES
Capital securities are subordinated securities, generally with a 30-50 year maturity and a 5-10 year call protection. Dividend payments generally can be deferred by the issuer for up to 5 years. These securities generally are unsecured and subordinated to all senior debt securities of the issuer, therefore, principal and interest payments on capital securities are subject to a greater risk of default than senior debt securities.
STEP UP PERPETUAL SUBORDINATED SECURITIES
Step up perpetual subordinated securities ("step ups") generally are structured as perpetual preferred securities (with no stated maturity) with a 10-year call option. If the issue is not called, however, the coupon increases or "steps up," generally 150 to 250 basis points depending on the issue and its country of jurisdiction. The step up interest rate acts as a punitive rate which would typically compel the issuer to call the security. Thus, these securities generally are priced as 10-year securities.
Municipal securities are issued by states, counties, cities and other political subdivisions and authorities. Although many municipal securities are exempt from federal income tax, the Fund may invest in taxable municipal securities.
Mortgage backed securities represent interests in pools of mortgages. The mortgages that comprise a pool normally have similar interest rates, maturities and other terms. Mortgages may have fixed or adjustable interest rates. Interests in pools of adjustable rate mortgages are known as ARMs.
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Mortgage backed securities come in a variety of forms. Many have extremely complicated terms. The simplest form of mortgage backed securities are pass-through certificates. An issuer of pass-through certificates gathers monthly payments from an underlying pool of mortgages. Then, the issuer deducts its fees and expenses and passes the balance of the payments onto the certificate holders once a month. Holders of pass-through certificates receive a pro rata share of all payments and prepayments from the underlying mortgages. As a result, the holders assume all the prepayment risks of the underlying mortgages.
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COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)
CMOs, including interests in real estate mortgage investment conduits (REMICs), allocate payments and prepayments from an underlying pass-through certificate among holders of different classes of mortgage backed securities. This creates different prepayment and interest rate risks for each CMO class.
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The degree of increased or decreased prepayment risks depends upon the structure of the CMOs. However, the actual returns on any type of mortgage backed security depend upon the performance of the underlying pool of mortgages, which no one can predict and will vary among pools.
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Sequential CMOs
In a sequential pay CMO, one class of CMOs receives all principal payments and prepayments. The next class of CMOs receives all principal payments after the first class is paid off. This process repeats for each sequential class of CMO. As a result, each class of sequential pay CMOs reduces the prepayment risks of subsequent classes.
PACs, TACs and Companion Classes
More sophisticated CMOs include planned amortization classes (PACs) and targeted amortization classes (TACs). PACs and TACs are issued with companion classes. PACs and TACs receive principal payments and prepayments at a specified rate. The companion classes receive principal payments and prepayments in excess of the specified rate. In addition, PACs will receive the companion classes' share of principal payments, if necessary, to cover a shortfall in the prepayment rate. This helps PACs and TACs to control prepayment risks by increasing the risks to their companion classes.
IOs and POs
CMOs may allocate interest payments to one class (Interest Only or IOs) and principal payments to another class (Principal Only or POs). POs increase in value when prepayment rates increase. In contrast, IOs decrease in value when prepayments increase, because the underlying mortgages generate less interest payments. However, IOs tend to increase in value when interest rates rise (and prepayments decrease), making IOs a useful hedge against interest rate risks.
Floaters and Inverse Floaters
Another variant allocates interest payments between two classes of CMOs. One class (Floaters) receives a share of interest payments based upon a market index such as LIBOR. The other class (Inverse Floaters) receives any remaining interest payments from the underlying mortgages. Floater classes receive more interest (and Inverse Floater classes receive correspondingly less interest) as interest rates rise. This shifts prepayment and interest rate risks from the Floater to the Inverse Floater class, reducing the price volatility of the Floater class and increasing the price volatility of the Inverse Floater class.
Z Classes and Residual Classes
CMOs must allocate all payments received from the underlying mortgages to some class. To capture any unallocated payments, CMOs generally have an accrual (Z) class. Z classes do not receive any payments from the underlying mortgages until all other CMO classes have been paid off. Once this happens, holders of Z class CMOs receive all payments and prepayments. Similarly, REMICs have residual interests that receive any mortgage payments not allocated to another REMIC class.
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Asset backed securities are payable from pools of obligations other than mortgages. Most asset backed securities involve consumer or commercial debts with maturities of less than ten years. However, almost any type of fixed income assets (including other fixed income securities) may be used to create an asset backed security. Asset backed securities may take the form of commercial paper, notes, or pass-through certificates. Asset backed securities have prepayment risks. Like CMOs, asset backed securities may be structured like Floaters, Inverse Floaters, IOs and POs.
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Zero coupon securities do not pay interest or principal until final maturity unlike debt securities that provide periodic payments of interest (referred to as a coupon payment). Investors buy zero coupon securities at a price below the amount payable at maturity. The difference between the purchase price and the amount paid at maturity represents interest on the zero coupon security. Investors must wait until maturity to receive interest and principal, which increases the interest rate and credit risks of a zero coupon security. A zero coupon step-up security converts to a coupon security before final maturity.
There are many forms of zero coupon securities. Some are issued at a discount and are referred to as zero coupon or capital appreciation bonds. Others are created from interest bearing bonds by separating the right to receive the bond's coupon payments from the right to receive the bond's principal due at maturity, a process known as coupon stripping. Treasury STRIPs, IOs and POs are the most common forms of stripped zero coupon securities. In addition, some securities give the issuer the option to deliver additional securities in place of cash interest payments, thereby increasing the amount payable at maturity. These are referred to as pay-in-kind or PIK securities.
Bank instruments are unsecured interest bearing deposits with banks. Bank instruments include bank accounts, time deposits, certificates of deposit and banker's acceptances. Yankee instruments are denominated in U.S. dollars and issued by U.S. branches of foreign banks. Eurodollar instruments are denominated in U.S. dollars and issued by non-U.S. branches of U.S. or foreign banks.
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Credit enhancement consists of an arrangement in which a company agrees to pay amounts due on a fixed income security if the issuer defaults. In some cases the company providing credit enhancement makes all payments directly to the security holders and receives reimbursement from the issuer. Normally, the credit enhancer has greater financial resources and liquidity than the issuer. For this reason, the Adviser usually evaluates the credit risk of a fixed income security based solely upon its credit enhancement.
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Common types of credit enhancement include guarantees, letters of credit, bond insurance and surety bonds. Credit enhancement also includes arrangements where securities or other liquid assets secure payment of a fixed income security. If a default occurs, these assets may be sold and the proceeds paid to security's holders. Either form of credit enhancement reduces credit risks by providing another source of payment for a fixed income security.
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Convertible securities are convertible preferred stock or convertible bonds that the Fund has the option to exchange for equity securities of the issuer at a specified conversion price. The option allows the Fund to realize additional returns if the market price of the equity securities exceeds the conversion price. For example, the Fund may hold securities that are convertible into shares of common stock at a conversion price of $10 per share. If the market value of the shares of common stock reached $12, the Fund could realize an additional $2 per share by converting its securities.
Convertible preferred stock and convertible bonds pay or accrue interest or dividends at a specified rate. The rate may be a fixed percentage of the principal or adjusted periodically. In addition, the issuer of a convertible bond must repay the principal amount of the bond, normally within a specified time. Convertible preferred stock and convertible bonds provide more income than equity securities.
The Fund treats convertible securities as fixed income securities for purposes of its investment policies and limitations, because of their unique characteristics.
Foreign securities are securities of issuers based outside the United States. The Fund considers an issuer to be based outside the United States if:
Foreign securities are primarily denominated in foreign currencies. Along with the risks normally associated with domestic securities of the same type, foreign securities are subject to currency risks and risks of foreign investing.
FOREIGN EXCHANGE CONTRACTS
In order to convert U.S. dollars into the currency needed to buy a foreign security, or to convert foreign currency received from the sale of a foreign security into U.S. dollars, the Fund may enter into spot currency trades. In a spot trade, the Fund agrees to exchange one currency for another at the current exchange rate. The Fund may also enter into derivative contracts in which a foreign currency is an underlying asset. The exchange rate for currency derivative contracts may be higher or lower than the spot exchange rate. Use of these derivative contracts may increase or decrease the Fund's exposure to currency risks.
Derivative contracts are financial instruments that require payments based upon changes in the values of designated (or underlying) securities, currencies, commodities, financial indices or other assets. Some derivative contracts (such as futures, forwards and options) require payments relating to a future trade involving the underlying asset. Other derivative contracts (such as swaps) require payments relating to the income or returns from the underlying asset. The other party to a derivative contract is referred to as a counterparty.
Many derivative contracts are traded on securities or commodities exchanges. In this case, the exchange sets all the terms of the contract except for the price. Investors make payments due under their contracts through the exchange. Most exchanges require investors to maintain margin accounts through their brokers to cover their potential obligations to the exchange. Parties to the contract make (or collect) daily payments to the margin accounts to reflect losses (or gains) in the value of their contracts. This protects investors against potential defaults by the counterparty. Trading contracts on an exchange also allows investors to close out their contracts by entering into offsetting contracts.
For example, the Fund could close out an open contract to buy an asset at a future date by entering into an offsetting contract to sell the same asset on the same date. If the offsetting sale price is more than the original purchase price, the Fund realizes a gain; if it is less, the Fund realizes a loss. Exchanges may limit the amount of open contracts permitted at any one time. Such limits may prevent the Fund from closing out a position. If this happens, the Fund will be required to keep the contract open (even if it is losing money on the contract), and to make any payments required under the contract (even if it has to sell portfolio securities at unfavorable prices to do so). Inability to close out a contract could also harm the Fund by preventing it from disposing of or trading any assets it has been using to secure its obligations under the contract.
The Fund may also trade derivative contracts over-the-counter (OTC) in transactions negotiated directly between the Fund and the counterparty. OTC contracts do not necessarily have standard terms, so they cannot be directly offset with other OTC contracts. In addition, OTC contracts with more specialized terms may be more difficult to price than exchange traded contracts.
Depending upon how the Fund uses derivative contracts and the relationships between the market value of a derivative contract and the underlying asset, derivative contracts may increase or decrease the Fund's exposure to interest rate and currency risks, and may also expose the Fund to liquidity and leverage risks. OTC contracts also expose the Fund to credit risks in the event that a counterparty defaults on the contract.
The Fund may trade in the following types of derivative contracts.
FUTURES CONTRACTS
Futures contracts provide for the future sale by one party and purchase by another party of a specified amount of an underlying asset at a specified price, date, and time. Entering into a contract to buy an underlying asset is commonly referred to as buying a contract or holding a long position in the asset. Entering into a contract to sell an underlying asset is commonly referred to as selling a contract or holding a short position in the asset. Futures contracts are considered to be commodity contracts. Futures contracts traded OTC are frequently referred to as forward contracts.
The Fund may buy and sell futures contracts on portfolio securities or indexes, and may buy and sell foreign currency forward contracts and foreign currency futures contracts.
OPTIONS
Options are rights to buy or sell an underlying asset for a specified price (the exercise price) during, or at the end of, a specified period. A call option gives the holder (buyer) the right to buy the underlying asset from the seller (writer) of the option. A put option gives the holder the right to sell the underlying asset to the writer of the option. The writer of the option receives a payment, or premium, from the buyer, which the writer keeps regardless of whether the buyer uses (or exercises) the option.
The Fund may:
The Fund may also write call options on securities, futures contracts and foreign currencies to generate income from premiums, and in anticipation of a decrease or only limited increase in the value of the underlying asset. If a call written by the Fund is exercised, the Fund foregoes any possible profit from an increase in the market price of the underlying asset over the exercise price plus the premium received.
SWAPS
Swaps are contracts in which two parties agree to pay each other (swap) the returns derived from underlying assets with differing characteristics. Most swaps do not involve the delivery of the underlying assets by either party, and the parties might not own the assets underlying the swap. The payments are usually made on a net basis so that, on any given day, the Fund would receive (or pay) only the amount by which its payment under the contract is less than (or exceeds) the amount of the other party's payment. Swap agreements are sophisticated instruments that can take many different forms, and are known by a variety of names including caps, floors, and collars. Common swap agreements that the Fund may use include:
Interest Rate Swaps
Interest rate swaps are contracts in which one party agrees to make regular payments equal to a fixed or floating interest rate times a stated principal amount of fixed income securities, in return for payments equal to a different fixed or floating rate times the same principal amount, for a specific period. For example, a $10 million LIBOR swap would require one party to pay the equivalent of the London Interbank Offer Rate of interest (which fluctuates) on $10 million principal amount in exchange for the right to receive the equivalent of a stated fixed rate of interest on $10 million principal amount.
Caps and Floors
Caps and Floors are contracts in which one party agrees to make payments only if an interest rate or index goes above (Cap) or below (Floor) a certain level in return for a fee from the other party.
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The Securities and Exchange Commission (SEC) has granted an exemption that permits the Fund and all other funds advised by subsidiaries of Federated Investors, Inc. ("Federated funds") to lend and borrow money for certain temporary purposes directly to and from other Federated funds. Participation in this inter-fund lending program is voluntary for both borrowing and lending funds, and an inter-fund loan is only made if it benefits each participating fund. Federated administers the program according to procedures approved by the Fund's Board, and the Board monitors the operation of the program. Any inter-fund loan must comply with certain conditions set out in the exemption, which are designed to assure fairness and protect all participating funds.
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For example, inter-fund lending is permitted only: (a) to meet shareholder redemption requests; and (b) to meet commitments arising from "failed" trades. All inter-fund loans must be repaid in seven days or less. The Fund's participation in this program must be consistent with its investment policies and limitations, and must meet certain percentage tests. Inter-fund loans may be made only when the rate of interest to be charged is more attractive to the lending fund than market-competitive rates on overnight repurchase agreements (the "Repo Rate") and more attractive to the borrowing fund than the rate of interest that would be charged by an unaffiliated bank for short-term borrowings (the "Bank Loan Rate"), as determined by the Board. The interest rate imposed on inter-fund loans is the average of the Repo Rate and the Bank Loan Rate.
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Repurchase agreements are transactions in which the Fund buys a security from a dealer or bank and agrees to sell the security back at a mutually agreed upon time and price. The repurchase price exceeds the sale price, reflecting the Fund's return on the transaction. This return is unrelated to the interest rate on the underlying security. The Fund will enter into repurchase agreements only with banks and other recognized financial institutions, such as securities dealers, deemed creditworthy by the Adviser .
The Fund's custodian or subcustodian will take possession of the securities subject to repurchase agreements. The Adviser or subcustodian will monitor the value of the underlying security each day to ensure that the value of the security always equals or exceeds the repurchase price.
Repurchase agreements are subject to credit risks.
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Reverse repurchase agreements are repurchase agreements in which the Fund is the seller (rather than the buyer) of the securities, and agrees to repurchase them at an agreed upon time and price. A reverse repurchase agreement may be viewed as a type of borrowing by the Fund. Reverse repurchase agreements are subject to credit risks. In addition, reverse repurchase agreements create leverage risks because the Fund must repurchase the underlying security at a higher price, regardless of the market value of the security at the time of repurchase.
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Delayed delivery transactions, including when issued transactions, are arrangements in which the Fund buys securities for a set price, with payment and delivery of the securities scheduled for a future time. During the period between purchase and settlement, no payment is made by the Fund to the issuer and no interest accrues to the Fund. The Fund records the transaction when it agrees to buy the securities and reflects their value in determining the price of its shares. Settlement dates may be a month or more after entering into these transactions so that the market values of the securities bought may vary from the purchase prices. Therefore, delayed delivery transactions create interest rate risks for the Fund. Delayed delivery transactions also involve credit risks in the event of a counterparty default.
DOLLAR ROLLS
Dollar rolls are transactions where the Fund sells mortgage backed securities with a commitment to buy similar, but not identical, mortgage backed securities on a future date at a lower price. Normally, one or both securities involved are TBA mortgage backed securities. Dollar rolls are subject to interest rate risks and credit risks.
The Fund may lend portfolio securities to borrowers that the Adviser deems creditworthy. In return, the Fund receives cash or liquid securities from the borrower as collateral. The borrower must furnish additional collateral if the market value of the loaned securities increases. Also, the borrower must pay the Fund the equivalent of any dividends or interest received on the loaned securities.
The Fund will reinvest cash collateral in securities that qualify as an acceptable investment for the Fund. However, the Fund must pay interest to the borrower for the use of cash collateral.
Loans are subject to termination at the option of the Fund or the borrower. The Fund will not have the right to vote on securities while they are on loan, but it will terminate a loan in anticipation of any important vote. The Fund may pay administrative and custodial fees in connection with a loan and may pay a negotiated portion of the interest earned on the cash collateral to a securities lending agent or broker.
Securities lending activities are subject to interest rate risks and credit risks.
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In order to secure its obligations in connection with derivatives contracts or special transactions, the Fund will either own the underlying assets, enter into an offsetting transaction or set aside readily marketable securities with a value that equals or exceeds the Fund's obligations. Unless the Fund has other readily marketable assets to set aside, it cannot trade assets used to secure such obligations without entering into an offsetting derivative contract or terminating a special transaction. This may cause the Fund to miss favorable trading opportunities or to realize losses on derivative contracts or special transactions.
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The Fund may invest its assets in securities of other investment companies, including the securities of affiliated money market funds, as an efficient means of carrying out its investment policies and managing its uninvested cash.
The Fund may invest in mortgage backed securities primarily by investing in another investment company (which is not available for general investment by the public) that owns those securities and that is advised by an affiliate of the Adviser. This other investment company is managed independently of the Fund and may incur additional administrative expenses. Therefore, any such investment by the Fund may be subject to duplicate expenses. However, the Adviser believes that the benefits and efficiencies of this approach should outweigh the potential additional expenses. The Fund may also invest in such securities directly.
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There are many factors which may affect an investment in the Fund. The Fund's risk factors are outlined below.
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The Fund's investment objective is to provide current income. The investment objective may not be changed by the Fund's Directors without shareholder approval.
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The Fund may borrow money, directly or indirectly, and issue senior securities to the maximum extent permitted under the Investment Company Act of 1940 (1940 Act).
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The Fund may not purchase or sell real estate, provided that this restriction does not prevent the Fund from investing in issuers which invest, deal, or otherwise engage in transactions in real estate or interests therein, or investing in securities that are secured by real estate or interests therein. The Fund may exercise its rights under agreements relating to such securities, including the right to enforce security interests and to hold real estate acquired by reason of such enforcement until that real estate can be liquidated in an orderly manner.
The Fund may not purchase or sell physical commodities, provided that the Fund may purchase securities of companies that deal in commodities.
The Fund may not underwrite the securities of other issuers, except that the Fund may engage in transactions involving the acquisition, disposition or resale of its portfolio securities, under circumstances where it may be considered to be an underwriter under the Securities Act of 1933.
With respect to securities comprising 75% of the value of its total assets, the Fund will not purchase securities of any one issuer (other than cash; cash items; securities issued or guaranteed by the government of the United States or its agencies or instrumentalities and repurchase agreements collateralized by such U.S. government securities; and securities of other investment companies) if, as a result, more than 5% of the value of its total assets would be invested in the securities of that issuer, or the Fund would own more than 10% of the outstanding voting securities of that issuer.
The Fund will not make investments that will result in the concentration of its investments in the securities of issuers primarily engaged in the same industry. Government securities, municipal securities and bank instruments will not be deemed to constitute an industry.
The Fund may not make loans, provided that this restriction does not prevent the Fund from purchasing debt obligations, entering into repurchase agreements, lending its assets to broker/dealers or institutional investors and investing in loans, including assignments and participation interests.
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The above limitations cannot be changed unless authorized by the Board and by the "vote of a majority of its outstanding voting securities," as defined by the 1940 Act. The following limitations, however, may be changed by the Board without shareholder approval. Shareholders will be notified before any material change in these limitations becomes effective.
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The Fund will not purchase securities on margin, provided that the Fund may obtain short-term credits necessary for the clearance of purchases and sales of securities, and further provided that the Fund may make margin deposits in connection with its use of financial options and futures, forward and spot currency contracts, swap transactions and other financial contracts or derivative instruments.
The Fund will not mortgage, pledge, or hypothecate any of its assets, provided that this shall not apply to the transfer of securities in connection with any permissible borrowing or to collateral arrangements in connection with permissible activities.
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The Fund will not purchase securities for which there is no readily available market, or enter into repurchase agreements or purchase time deposits maturing in more than seven days, if immediately after and as a result, the value of such securities would exceed, in the aggregate, 15% of the Fund's net assets.
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For purposes of the concentration limitation: (a) utility companies will be divided according to their services (for example, gas, gas transmission, electric and telephone will be considered a separate industry); (b) financial service companies will be classified according to the end users of their services (for example, automobile finance, bank finance and diversified finance will each be considered a separate industry); and (c) asset-backed securities will be classified according to the underlying assets securing such securities. To conform to the current view of the SEC that only domestic bank instruments may be excluded from industry concentration limitations, as a matter of non-fundamental policy, the Fund will not exclude foreign bank instruments from industry concentration limits as long as the policy of the SEC remains in effect. In addition, investments in bank instruments, and investments in certain industrial development bonds funded by activities in a single industry, will be deemed to constitute investment in an industry, except when held for temporary defensive purposes. The investment of more than 25% of the value of the Fund's total assets in any one industry will constitute "concentration."
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As a matter of non-fundamental policy, for purposes of the commodities policy, investments in transactions involving futures contracts and options, forward currency contracts, swap transactions and other financial contracts that settle by payment of cash are not deemed to be investments in commodities.
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For purposes of the above limitations, the Fund considers certificates of deposit and demand and time deposits issued by a U.S. branch of a domestic bank or savings association having capital, surplus and undivided profits in excess of $100,000,000 at the time of investment to be "cash items." Except with respect to borrowing money, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in percentage resulting from any change in value or net assets will not result in a violation of such limitation.
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Market values of the Fund's portfolio securities are determined as follows:
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Prices provided by independent pricing services may be determined without relying exclusively on quoted prices and may consider institutional trading in similar groups of securities, yield, quality, stability, risk, coupon rate, maturity, type of issue, trading characteristics, and other market data or factors. From time to time, when prices cannot be obtained from an independent pricing service, securities may be valued based on quotes from broker/dealers or other financial institutions that trade the securities.
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Trading in foreign securities may be completed at times which vary from the closing of the New York Stock Exchange (NYSE). In computing its NAV, the Fund values foreign securities at the latest closing price on the exchange on which they are traded immediately prior to the closing of the NYSE. Certain foreign currency exchange rates may also be determined at the latest rate prior to the closing of the NYSE. Foreign securities quoted in foreign currencies are translated into U.S. dollars at current rates. Occasionally, events that affect these values and exchange rates may occur between the times at which they are determined and the closing of the NYSE. If such events materially affect the value of portfolio securities, these securities may be valued at their fair value as determined in good faith by the Fund's Board, although the actual calculation may be done by others.
The Fund's net asset value (NAV) per Share fluctuates and is based on the market value of all securities and other assets of the Fund.
The NAV for each class of Shares may differ due to the variance in daily net income realized by each class. Such variance will reflect only accrued net income to which the shareholders of a particular class are entitled.
Under the Distributor's Contract with the Fund, the Distributor (Federated Securities Corp.) offers Shares on a continuous, best-efforts basis.
As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the Distributor (who may then pay investment professionals such as banks, broker/dealers, trust departments of banks, and registered investment advisers) for marketing activities (such as advertising, printing and distributing prospectuses, and providing incentives to investment professionals) to promote sales of Shares so that overall Fund assets are maintained or increased. This helps the Fund achieve economies of scale, reduce per share expenses, and provide cash for orderly portfolio management and Share redemptions. In addition, the Fund's service providers that receive asset-based fees also benefit from stable or increasing Fund assets.
The Fund may compensate the Distributor more or less than its actual marketing expenses. In no event will the Fund pay for any expenses of the Distributor that exceed the maximum Rule 12b-1 Plan fee.
For some classes of Shares, the maximum Rule 12b-1 Plan fee that can be paid in any one year may not be sufficient to cover the marketing-related expenses the Distributor has incurred. Therefore, it may take the Distributor a number of years to recoup these expenses.
The Fund may pay Federated Shareholder Services Company, a subsidiary of Federated Investors, Inc. (Federated), for providing shareholder services and maintaining shareholder accounts. Federated Shareholder Services Company may select others to perform these services for their customers and may pay them fees.
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Investment professionals (such as broker/dealers or banks) may be paid fees, in significant amounts, out of the assets of the Distributor Federated Shareholder Services Company. (These fees do not come out of Fund assets.) The Distributor Federated Shareholder Services Company may be reimbursed by the Adviser or its affiliates.
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Investment professionals receive such fees for providing distribution-related and/or shareholder services, such as advertising, providing incentives to their sales personnel, sponsoring other activities intended to promote sales, and maintaining shareholder accounts These payments may be based upon such factors as the number or value of Shares the investment professional sells or may sell; the value of client assets invested; and/or the type and nature of sales or marketing support furnished by the investment professional.
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Certain investment professionals may wish to use the transfer agent's subaccounting system to minimize their internal recordkeeping requirements. The transfer agent may charge a fee based on the level of subaccounting services rendered. Investment professionals holding Shares in a fiduciary, agency, custodial or similar capacity may charge or pass-through subaccounting fees as part of or in addition to normal trust or agency account fees. They may also charge fees for other services that may be related to the ownership of Shares. This information should, therefore, be read together with any agreement between the customer and the investment professional about the services provided, the fees charged for those services, and any restrictions and limitations imposed.
</R>
Although the Fund intends to pay Share redemptions in cash, it reserves the right, as described below, to pay the redemption price in whole or in part by a distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the 1940 Act, the Fund is obligated to pay Share redemptions to any one shareholder in cash only up to the lesser of $250,000 or 1% of the net assets represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash unless the Fund's Board determines that payment should be in kind. In such a case, the Fund will pay all or a portion of the remainder of the redemption in portfolio securities, valued in the same way as the Fund determines its NAV. The portfolio securities will be selected in a manner that the Fund's Board deems fair and equitable and, to the extent available, such securities will be readily marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made in kind, shareholders receiving the portfolio securities and selling them before their maturity could receive less than the redemption value of the securities and could incur certain transaction costs.
Under certain circumstances, shareholders may be held personally liable as partners under Massachusetts law for obligations of the Fund. To protect its shareholders, the Fund has filed legal documents with Massachusetts that expressly disclaim the liability of its shareholders for acts or obligations of the Fund.
In the unlikely event a shareholder is held personally liable for the Fund's obligations, the Fund is required by the Declaration of Trust to use its property to protect or compensate the shareholder. On request, the Fund will defend any claim made and pay any judgment against a shareholder for any act or obligation of the Fund. Therefore, financial loss resulting from liability as a shareholder will occur only if the Fund itself cannot meet its obligations to indemnify shareholders and pay judgments against them.
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Each share of the Fund gives the shareholder one vote in Trustee elections and other matters submitted to shareholders for vote. All Shares of the Trust have equal voting rights, except that in matters affecting only a particular Fund or class, only Shares of that Fund or class are entitled to vote. Trustees may be removed by the Board or by shareholders at a special meeting. A special meeting of shareholders will be called by the Board upon the written request of shareholders who own at least 10% of the Trust's outstanding shares of all series entitled to vote.
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As of June 1, 2001, the following shareholders owned of record, beneficially, or both, 5% or more of outstanding Shares:
|
Name & Address
|
|
Percentage |
|
Name of Share
|
|
|
||||
|
Calhoun & Co.
|
|
|
|
|
|
Central Carolina Bank & Trust
|
|
|
|
|
|
First Citizens Bank & Trust Co.
|
|
|
|
|
|
Milards & Co.
|
|
|
|
|
|
Nationwide QPVA
|
|
|
|
|
|
Stockyards Bank & Trust
|
|
|
|
|
Shareholders owning 25% or more of outstanding Shares may be in control and be able to affect the outcome of certain matters presented for a vote of shareholders.
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The Fund intends to meet requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies. If these requirements are not met, it will not receive special tax treatment and will be subject to federal corporate income tax.
</R>
The Fund will be treated as a single, separate entity for federal income tax purposes so that income earned and capital gains and losses realized by the Trust's other portfolios will be separate from those realized by the Fund.
If the Fund purchases foreign securities, their investment income may be subject to foreign withholding or other taxes that could reduce the return on these securities. Tax treaties between the United States and foreign countries, however, may reduce or eliminate the amount of foreign taxes to which the Fund would be subject. The effective rate of foreign tax cannot be predicted since the amount of Fund assets to be invested within various countries is uncertain. However, the Fund intends to operate so as to qualify for treaty-reduced tax rates when applicable.
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Distributions from the Fund may be based on estimates of book income for the year. Book income generally consists solely of the income generated by the securities in the portfolio, whereas tax-basis income includes, in addition, gains or losses attributable to currency fluctuation. Due to differences in the book and tax treatment of fixed-income securities denominated in foreign currencies, it is difficult to project currency effects on an interim basis. Therefore, to the extent that currency fluctuations cannot be anticipated, a portion of distributions to shareholders could later be designated as a return of capital, rather than income, for income tax purposes, which may be of particular concern to simple trusts.
</R>
If the Fund invests in the stock of certain foreign corporations, they may constitute Passive Foreign Investment Companies (PFIC), and the Fund may be subject to Federal income taxes upon disposition of PFIC investments.
<R>
If more than 50% of the value of the Fund's assets at the end of the tax year is represented by stock or securities of foreign corporations, the Fund will qualify for certain Code provisions that allow its shareholders to claim a foreign tax credit or deduction on their U.S. income tax returns. The Code may limit a shareholder's ability to claim a foreign tax credit. Shareholders who elect to deduct their portion of the Fund's foreign taxes rather than take the foreign tax credit must itemize deductions on their income tax returns.
</R>
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The Board is responsible for managing the Trust's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. Information about each Board member is provided below and includes each person's: name; address; birth date; present position(s) held with the Trust; principal occupations for the past five years and positions held prior to the past five years, total compensation received as a Trustee from the Trust for its most recent fiscal year, if applicable; and the total compensation received from the Federated Fund Complex for the most recent calendar year. The Trust comprises two funds and the Federated Fund Complex comprises 44 investment companies, whose investment advisers are affiliated with the Fund's Adviser.
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As of June 1, 2001, the Fund's Board and Officers as a group owned less than 1% of the Fund's outstanding Shares.
</R>
|
|
Principal Occupations for Past Five Years |
Aggregate
|
Total
|
|
|
|||
|
John F. Donahue*†#
|
Chief Executive Officer and Director or Trustee of the Federated Fund Complex; Chairman and Director, Federated Investors, Inc.; Chairman, Federated Investment Management Company, Federated Global Investment Management Corp. and Passport Research, Ltd.; formerly: Trustee, Federated Investment Management Company and Chairman and Director, Federated Investment Counseling. |
$0 |
$0 for the Trust and 43 other investment companies in the Fund Complex |
|
Thomas G. Bigley
|
Director or Trustee of the Federated Fund Complex; Director, Member of Executive Committee, Children's Hospital of Pittsburgh; Director and Chairman of Audit Committee, Robroy Industries, Inc. (coated steel conduits/computer storage equipment); formerly: Senior Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc. (physician practice management); Director, Member of Executive Committee, University of Pittsburgh. |
$780.42 |
$128,847.72 for the Trust and 43 other investment companies in the Fund Complex |
|
John T. Conroy, Jr.
|
Director or Trustee of the Federated Fund Complex; Chairman of the Board, Investment Properties Corporation; Partner or Trustee in private real estate ventures in Southwest Florida; formerly: President, Investment Properties Corporation; Senior Vice President, John R. Wood and Associates, Inc., Realtors; President, Naples Property Management, Inc. and Northgate Village Development Corporation. |
$780.42 |
$128,847.66 for the Trust and 43 other investment companies in the Fund Complex |
|
Nicholas P. Constantakis
|
Director or Trustee of the Federated Fund Complex; Director and Chairman of the Audit Committee, Michael Baker Corporation (engineering, construction, operations and technical services); formerly: Partner, Andersen Worldwide SC. |
$780.42 |
$126,923.53 for the Trust and 43 other investment companies in the Fund Complex |
|
John F. Cunningham
|
Director or Trustee of some of the Federated Fund Complex; Chairman, President and Chief Executive Officer, Cunningham & Co., Inc. (strategic business consulting); Trustee Associate, Boston College; Director, Iperia Corp.
(communications/software); formerly: Director, Redgate Communications and EMC Corporation (computer storage systems).
|
$709.37 |
$115,368.16 for the Trust and 43 other investment companies in the Fund Complex |
|
Lawrence D. Ellis, M.D.*
|
Director or Trustee of the Federated Fund Complex; Professor of Medicine, University of Pittsburgh; Medical Director, University of Pittsburgh Medical Center--Downtown; Hematologist, Oncologist and Internist, University of Pittsburgh Medical Center; Member, National Board of Trustees, Leukemia Society of America. |
$709.37 |
$117,117.17 for the Trust and 43 other investment companies in the Fund Complex |
|
Peter E. Madden
|
Director or Trustee of the Federated Fund Complex; formerly: Representative, Commonwealth of Massachusetts General Court; President, State Street Bank and Trust Company and State Street Corporation.
|
$709.37 |
$117,117.14 for the Trust and 43 other investment companies in the Fund Complex |
|
Charles F. Mansfield, Jr.
|
Director or Trustee of some of the Federated Fund Complex; Management Consultant.
|
$780.42 |
$128,847.66 for the Trust and 43 other investment companies in the Fund Complex |
|
John E. Murray, Jr., J.D., S.J.D.#
|
Director or Trustee of the Federated Fund Complex; President, Law Professor, Duquesne University; Consulting Partner, Mollica & Murray; Director, Michael Baker Corp. (engineering, construction, operations and technical
services).
|
$709.37 |
$117,117.14 for the Trust and 43 other investment companies in the Fund Complex |
|
Marjorie P. Smuts
|
Director or Trustee of the Federated Fund Complex; Public Relations/Marketing/Conference Planning.
|
$709.37 |
$117,117.17 for the Trust and 43 other investment companies in the Fund Complex |
|
John S. Walsh
|
Director or Trustee of some of the Federated Fund Complex; President and Director, Heat Wagon, Inc. (manufacturer of construction temporary heaters); President and Director, Manufacturers Products, Inc. (distributor of portable construction heaters); President, Portable Heater Parts, a division of Manufacturers Products, Inc.; Director, Walsh & Kelly, Inc. (heavy highway contractor); formerly: Vice President, Walsh & Kelly, Inc. |
$709.37 |
$117,117.17 for the Trust and 43 other investment companies in the Fund Complex |
|
J. Christopher Donahue*†
|
President or Executive Vice President of the Federated Fund Complex; Director or Trustee of some of the Funds in the Federated Fund Complex; President, Chief Executive Officer and Director, Federated Investors, Inc.; President, Chief Executive Officer and Trustee, Federated Investment Management Company; Trustee, Federated Investment Counseling; President, Chief Executive Officer and Director, Federated Global Investment Management Corp.; President and Chief Executive Officer, Passport Research, Ltd.; Trustee, Federated Shareholder Services Company; Director, Federated Services Company; formerly: President, Federated Investment Counseling. |
$0 |
$0 for the Trust and 43 other investment companies in the Fund Complex |
|
Edward C. Gonzales
|
President, Executive Vice President and Treasurer of some of the Funds in the Federated Fund Complex; Vice Chairman, Federated Investors, Inc.; Trustee, Federated Administrative Services; formerly: Trustee or Director of some of the Funds in the Federated Fund Complex; CEO and Chairman, Federated Administrative Services; Vice President, Federated Investment Management Company, Federated Investment Counseling, Federated Global Investment Management Corp. and Passport Research, Ltd.; Director and Executive Vice President, Federated Securities Corp.; Director, Federated Services Company; Trustee, Federated Shareholder Services Company. |
$0 |
$0 for the Trust and 37 other investment companies in the Fund Complex |
|
John W. McGonigle
|
Executive Vice President and Secretary of the Federated Fund Complex; Executive Vice President, Secretary and Director, Federated Investors, Inc.; formerly: Trustee, Federated Investment Management Company and Federated Investment Counseling; Director, Federated Global Investment Management Corp., Federated Services Company and Federated Securities Corp. |
$0 |
$0 for the Trust and 43 other investment companies in the Fund Complex |
|
Richard J. Thomas
|
Treasurer of the Federated Fund Complex; Senior Vice President, Federated Administrative Services; formerly: Vice President, Federated Administrative Services; held various management positions within Funds Financial Services Division of Federated Investors, Inc. |
$0 |
$0 for the Trust and 43 other investment companies in the Fund Complex |
|
William D. Dawson III
|
Chief Investment Officer of this Fund and various other Funds in the Federated Fund Complex; Executive Vice President, Federated Investment Counseling, Federated Global Investment Management Corp., Federated Investment Management Company and Passport Research, Ltd.; Director, Federated Global Investment Management Corp. and Federated Investment Management Company; Registered Representative, Federated Securities Corp.; Portfolio Manager, Federated Administrative Services; Vice President, Federated Investors, Inc.; formerly: Executive Vice President and Senior Vice President, Federated Investment Counseling Institutional Portfolio Management Services Division; Senior Vice President, Federated Investment Management Company and Passport Research, Ltd. |
$0 |
$0 for the Trust and 25 other investment companies in the Fund Complex |
|
Richard B. Fisher
|
President or Vice President of some of the Funds in the Federated Fund Complex; Vice Chairman, Federated Investors, Inc.; Chairman, Federated Securities Corp.; formerly: Director or Trustee of some of the Funds in the Federated Fund Complex; Executive Vice President, Federated Investors, Inc. and Director and Chief Executive Officer, Federated Securities Corp. |
$0 |
$0 for the Trust and 36 other investment companies in the Fund Complex |
|
Joseph M. Balestrino
|
Joseph M. Balestrino has been the Fund's Portfolio Manager since January 1994. He is Vice President of the Trust. Mr. Balestrino joined Federated in 1986 and has been a Senior Portfolio Manager and Senior Vice President of the Fund's Adviser since 1998. He was a Portfolio Manager and a Vice President of the Fund's Adviser from 1995 to 1998. Mr. Balestrino served as a Portfolio Manager and an Assistant Vice President of the Adviser from 1993 to 1995. Mr. Balestrino is a Chartered Financial Analyst and received his Master's Degree in Urban and Regional Planning from the University of Pittsburgh. |
$0 |
$0 for the Trust and 3 other investment companies in the Fund Complex |
|
Randall S. Bauer
|
Randall S. Bauer is Vice President of the Trust. Mr. Bauer joined Federated in 1989 and has been a Portfolio Manager and a Vice President of the Fund's Adviser since 1994. Mr. Bauer is a Chartered Financial Analyst and received his M.B.A. in Finance from Pennsylvania State University. |
$0 |
$0 for the Trust and 0 other investment companies in the Fund Complex |
* An asterisk denotes a Trustee who is deemed to be an interested person as defined in the 1940 Act.
# A pound sign denotes a Member of the Board's Executive Committee, which handles the Board's responsibilities between its meetings.
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† Mr. Donahue is the father of J. Christopher Donahue, President and Trustee of the Trust.
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The Adviser conducts investment research and makes investment decisions for the Fund.
The Adviser is a wholly owned subsidiary of Federated.
The Adviser shall not be liable to the Trust or any Fund shareholder for any losses that may be sustained in the purchase, holding, or sale of any security or for anything done or omitted by it, except acts or omissions involving willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties imposed upon it by its contract with the Trust.
Affiliates of the Adviser may, from time to time, provide certain electronic equipment and software to institutional customers in order to facilitate the purchase of Fund Shares offered by the Distributor.
As required by SEC rules, the Fund, its Adviser, and its Distributor have adopted codes of ethics. These codes govern securities trading activities of investment personnel, Fund Trustees, and certain other employees. Although they do permit these people to trade in securities, including those that the Fund could buy, they also contain significant safeguards designed to protect the Fund and its shareholders from abuses in this area, such as requirements to obtain prior approval for, and to report, particular transactions.
When selecting brokers and dealers to handle the purchase and sale of portfolio instruments, the Adviser looks for prompt execution of the order at a favorable price. The Adviser will generally use those who are recognized dealers in specific portfolio instruments, except when a better price and execution of the order can be obtained elsewhere. In selecting among firms believed to meet these criteria, the Adviser may give consideration to those firms which have sold or are selling Shares of the Fund and other funds distributed by the Distributor and its affiliates. The Adviser makes decisions on portfolio transactions and selects brokers and dealers subject to review by the Fund's Board.
Investment decisions for the Fund are made independently from those of other accounts managed by the Adviser. When the Fund and one or more of those accounts invests in, or disposes of, the same security, available investments or opportunities for sales will be allocated among the Fund and the account(s) in a manner believed by the Adviser to be equitable. While the coordination and ability to participate in volume transactions may benefit the Fund, it is possible that this procedure could adversely impact the price paid or received and/or the position obtained or disposed of by the Fund.
Federated Services Company, a subsidiary of Federated, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund. Federated Services Company provides these at the following annual rate of the average aggregate daily net assets of all Federated Funds as specified below:
|
Maximum Administrative Fee |
|
Average Aggregate Daily
|
|
|
||
|
0.150 of 1% |
|
on the first $250 million |
|
0.125 of 1% |
|
on the next $250 million |
|
0.100 of 1% |
|
on the next $250 million |
|
0.075 of 1% |
|
on assets in excess of $750 million |
The administrative fee received during any fiscal year shall be at least $125,000 per portfolio and $30,000 per each additional class of Shares. Federated Services Company may voluntarily waive a portion of its fee and may reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping services with respect to the Fund's portfolio investments for a fee based on Fund assets plus out-of-pocket expenses.
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the securities and cash of the Fund. Foreign instruments purchased by the Fund are held by foreign banks participating in a network coordinated by the custodian.
Federated Services Company, through its registered transfer agent subsidiary, Federated Shareholder Services Company, maintains all necessary shareholder records. The Fund pays the transfer agent a fee based on the size, type and number of accounts and transactions made by shareholders.
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The independent auditor for the Fund, Ernst & Young LLP, conducts its audits in accordance with accounting principles generally accepted in the United States of America, which require it to plan and perform its audits to provide reasonable assurance about whether the Fund's financial statements and financial highlights are free of material misstatement.
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<R>
|
For the Year Ended April 30 |
|
2001 |
|
2000 |
|
1999 |
|
|
||||||
|
Advisory Fee Earned |
|
$1,636,420 |
|
$1,498,510 |
|
$1,017,158 |
|
|
||||||
|
Advisory Fee Reduction |
|
314,520 |
|
363,771 |
|
361,410 |
|
|
||||||
|
Advisory Fee Reimbursement |
|
507 |
|
-- |
|
-- |
|
|
||||||
|
Brokerage Commissions |
|
0 |
|
0 |
|
0 |
|
|
||||||
|
Administrative Fee |
|
246,445 |
|
225,849 |
|
154,999 |
|
|
||||||
|
12b-1 Fee |
|
|
|
|
|
|
|
|
||||||
|
Institutional Service Shares |
|
25,963 |
|
-- |
|
-- |
|
|
||||||
|
Shareholder Services Fee |
|
|
|
|
|
|
|
|
||||||
|
Institutional Shares |
|
0 |
|
-- |
|
-- |
|
|
||||||
|
Institutional Service Shares |
|
50,504 |
|
-- |
|
-- |
|
|
||||||
</R>
Fees are allocated among classes based on their pro rata share of Fund assets, except for marketing (Rule 12b-1) fees and shareholder services fees, which are borne only by the applicable class of Shares.
The Fund may advertise Share performance by using the Securities and Exchange Commission's (SEC) standard method for calculating performance applicable to all mutual funds. The SEC also permits this standard performance information to be accompanied by non-standard performance information.
The performance of Shares depends upon such variables as: portfolio quality; average portfolio maturity; type and value of portfolio securities; changes in interest rates; changes or differences in the Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings fluctuate daily. Both net earnings and offering price per Share are factors in the computation of yield and total return.
<R>
Total returns are given for the one-year, five-year and Start of Performance periods ended April 30, 2001.
</R>
<R>
Yield is given for the 30-day period ended April 30, 2001.
</R>
<R>
</R>
Total return represents the change (expressed as a percentage) in the value of Shares over a specific period of time, and includes the investment of income and capital gains distributions.
The average annual total return for Shares is the average compounded rate of return for a given period that would equate a $1,000 initial investment to the ending redeemable value of that investment. The ending redeemable value is computed by multiplying the number of Shares owned at the end of the period by the NAV per Share at the end of the period. The number of Shares owned at the end of the period is based on the number of Shares purchased at the beginning of the period with $1,000, less any applicable sales charge, adjusted over the period by any additional Shares, assuming the annual reinvestment of all dividends and distributions.
The yield of Shares is calculated by dividing: (i) the net investment income per Share earned by the Shares over a 30-day period; by (ii) the maximum offering price per Share on the last day of the period. This number is then annualized using semi-annual compounding. This means that the amount of income generated during the 30-day period is assumed to be generated each month over a 12-month period and is reinvested every six months. The yield does not necessarily reflect income actually earned by Shares because of certain adjustments required by the SEC and, therefore, may not correlate to the dividends or other distributions paid to shareholders.
To the extent investment professionals and broker/dealers charge fees in connection with services provided in conjunction with an investment in Shares, the Share performance is lower for shareholders paying those fees.
Advertising and sales literature may include:
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</R>
The Fund may compare its performance, or performance for the types of securities in which it invests, to a variety of other investments, including federally insured bank products such as bank savings accounts, certificates of deposit, and Treasury bills.
The Fund may quote information from reliable sources regarding individual countries and regions, world stock exchanges, and economic and demographic statistics.
You may use financial publications and/or indices to obtain a more complete view of Share performance. When comparing performance, you should consider all relevant factors such as the composition of the index used, prevailing market conditions, portfolio compositions of other funds, and methods used to value portfolio securities and compute offering price. The financial publications and/or indices which the Fund uses in advertising may include:
Lipper Analytical Services, Inc., ranks funds in various fund categories by making comparative calculations using total return. Total return assumes the reinvestment of all capital gains distributions and income dividends and takes into account any change in over a specific period of time. From time to time, the Fund will quote its Lipper ranking in the "short-term investment grade debt funds" category in advertising and sales literature.
<R>
</R>
Morningstar, Inc., an independent rating service, is the publisher of the bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000 NASDAQ-listed mutual funds of all types, according to their risk-adjusted returns. The maximum rating is five stars, and ratings are effective for two weeks.
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</R>
<R>
Lehman Brothers Government/Credit Total Index is comprised of approximately 5,000 issues which include nonconvertible bonds publicly issued by the U.S. government or its agencies; corporate bonds guaranteed by the U.S. government and quasi- federal corporations; and publicly issued, fixed rate, nonconvertible domestic bonds of companies in industry, public utilities, and finance. The average maturity of these bonds approximates nine years. Tracked by Shearson Lehman Brothers, Inc. the index calculates total returns for one month, three month, twelve month, and ten year periods and year-to-date.
</R>
Federated is dedicated to meeting investor needs by making structured, straightforward and consistent investment decisions. Federated investment products have a history of competitive performance and have gained the confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound methodologies backed by fundamental and technical research. At Federated, success in investment management does not depend solely on the skill of a single portfolio manager. It is a fusion of individual talents and state-of-the-art industry tools and resources. Federated's investment process involves teams of portfolio managers and analysts, and investment decisions are executed by traders who are dedicated to specific market sectors and who handle trillions of dollars in annual trading volume.
<R>
In the municipal sector, as of December 31, 2000, Federated managed 11 bond funds with approximately $4.0 billion in assets and 22 money market funds with approximately $41.8 billion in total assets. In 1976, Federated introduced one of the first municipal bond mutual funds in the industry and is now one of the largest institutional buyers of municipal securities. The Funds may quote statistics from organizations including The Tax Foundation and the National Taxpayers Union regarding the tax obligations of Americans.
</R>
<R>
In the equity sector, Federated has more than 31 years' experience. As of December 31, 2000, Federated managed 40 equity funds totaling approximately $20.6 billion in assets across growth, value, equity income, international, index and sector (i.e. utility) styles. Federated's value-oriented management style combines quantitative and qualitative analysis and features a structured, computer-assisted composite modeling system that was developed in the 1970s.
</R>
<R>
In the corporate bond sector, as of December 31, 2000, Federated managed 11 money market funds and 30 bond funds with assets approximating $20.9 billion and $9.7 billion, respectively. Federated's corporate bond decision making--based on intensive, diligent credit analysis--is backed by over 29 years of experience in the corporate bond sector. In 1972, Federated introduced one of the first high-yield bond funds in the industry. In 1983, Federated was one of the first fund managers to participate in the asset backed securities market, a market totaling more than $209 billion.
</R>
<R>
In the government sector, as of December 31, 2000, Federated managed 6 mortgage backed, 5 multi-sector government funds, 3 government/agency and 19 government money market mutual funds, with assets approximating $3.3 billion, $1.6 billion, $1.2 billion and $36.2 billion, respectively. Federated trades approximately $133.4 billion in U.S. government and mortgage backed securities daily and places approximately $28.5 billion in repurchase agreements each day. Federated introduced the first U.S. government fund to invest in U.S. government bond securities in 1969. Federated has been a major force in the short- and intermediate-term government markets since 1982 and currently manages approximately $50 billion in government funds within these maturity ranges.
</R>
<R>
In the money market sector, Federated gained prominence in the mutual fund industry in 1974 with the creation of the first institutional money market fund. Simultaneously, the company pioneered the use of the amortized cost method of accounting for valuing shares of money market funds, a principal means used by money managers today to value money market fund shares. Other innovations include the first institutional tax-free money market fund. As of December 31, 2000, Federated managed $99.0 billion in assets across 52 money market funds, including 19 government, 11 prime, 22 municipal and 1 euro-denominated with assets approximating $36.2 billion, $21.0 billion, $41.8 billion and $110 million, respectively.
</R>
The Chief Investment Officers responsible for oversight of the various investment sectors within Federated are: U.S. equity and high yield--J. Thomas Madden; U.S. fixed income--William D. Dawson III; and global equities and fixed income--Henry A. Frantzen. The Chief Investment Officers are Executive Vice Presidents of the Federated advisory companies.
<R>
Forty-nine percent of American households are pursuing their financial goals through mutual funds. These investors, as well as businesses and institutions, have entrusted over $7 trillion to the more than 8,157 funds available, according to the Investment Company Institute.
</R>
Federated distributes mutual funds through its subsidiaries for a variety of investment purposes. Specific markets include:
<R>
Federated meets the needs of approximately 3,031 institutional clients nationwide by managing and servicing separate accounts and mutual funds for a variety of purposes, including defined benefit and defined contribution programs, cash management, and asset/liability management. Institutional clients include corporations, pension funds, tax exempt entities, foundations/endowments, insurance companies, and investment and financial advisers. The marketing effort to these institutional clients is headed by John B. Fisher, President, Institutional Sales Division, Federated Securities Corp.
</R>
Other institutional clients include more than 1,600 banks and trust organizations. Virtually all of the trust divisions of the top 100 bank holding companies use Federated Funds in their clients' portfolios. The marketing effort to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank Marketing & Sales.
<R>
Federated Funds are available to consumers through major brokerage firms nationwide--we have over 2,000 broker/dealer and bank broker/dealer relationships across the country--supported by more wholesalers than any other mutual fund distributor. Federated's service to financial professionals and institutions has earned it high ratings in several surveys performed by DALBAR, Inc. DALBAR is recognized as the industry benchmark for service quality measurement. The marketing effort to these firms is headed by James F. Getz, President, Broker/Dealer Sales Division, Federated Securities Corp.
</R>
AAA-- Debt rated AAA has the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong.
AA-- Debt rated AA has a very strong capacity to pay interest and repay principal and differs from the higher-rated issues only in small degree.
A-- Debt rated A has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher-rated categories.
BBB-- Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher-rated categories.
BB-- Debt rated BB has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The BB rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BBB rating.
B-- Debt rated B has a greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The B rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BB or BB- rating.
CCC-- Debt rated CCC has a currently identifiable vulnerability to default, and is dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial, or economic conditions, it is not likely to have the capacity to pay interest and repay principal. The CCC rating category is also used for debt subordinated to senior debt that is assigned an actual or implied B or B- rating.
CC-- The rating CC typically is applied to debt subordinated to senior debt that is assigned an actual or implied CCC debt rating.
C-- The rating C typically is applied to debt subordinated to senior debt which is assigned an actual or implied CCC debt rating. The C rating may be used to cover a situation where a bankruptcy petition has been filed, but debt service payments are continued.
AAA-- Bonds which are rated AAA are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as gilt edged. Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues.
AA-- Bonds which are rated AA are judged to be of high quality by all standards. Together with the AAA group, they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in AAA securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in AAA securities.
A-- Bonds which are rated A possess many favorable investment attributes and are to be considered as upper-medium-grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future.
BAA-- Bonds which are rated BAA are considered as medium-grade obligations, (i.e., they are neither highly protected nor poorly secured). Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well.
BA-- Bonds which are BA are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class.
B-- Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small.
CAA-- Bonds which are rated CAA are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest.
CA-- Bonds which are rated CA represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings.
C-- Bonds which are rated C are the lowest-rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.
AAA-- Bonds considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and repay principal, which is unlikely to be affected by reasonably foreseeable events.
AA-- Bonds considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated F-1+.
A-- Bonds considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings.
BBB-- Bonds considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds, and therefore impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings.
BB-- Bonds are considered speculative. The obligor's ability to pay interest and repay principal may be affected over time by adverse economic changes. However, business and financial alternatives can be identified which could assist the obligor in satisfying its debt service requirements.
B-- Bonds are considered highly speculative. While bonds in this class are currently meeting debt service requirements, the probability of continued timely payment of principal and interest reflects the obligor's limited margin of safety and the need for reasonable business and economic activity throughout the life of the issue.
CCC-- Bonds have certain identifiable characteristics which, if not remedied, may lead to default. The ability to meet obligations requires an advantageous business and economic environment.
CC-- Bonds are minimally protected. Default in payment of interest and/or principal seems probable over time.
C-- Bonds are imminent default in payment of interest or principal.
Prime-1-- Issuers rated Prime-1 (or related supporting institutions) have a superior capacity for repayment of short-term promissory obligations. Prime-1 repayment capacity will normally be evidenced by the following characteristics:
Prime-2-- Issuers rated Prime-2 (or related supporting institutions) have a strong capacity for repayment of short-term promissory obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained.
A-1-- This designation indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation.
A-2-- Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issues designated A-1.
FITCH-1-- (Highest Grade) Commercial paper assigned this rating is regarded as having the strongest degree of assurance for timely payment.
FITCH-2-- (Very Good Grade) Issues assigned this rating reflect an assurance of timely payment only slightly less in degree than the strongest issues.
Institutional Shares
Institutional Service Shares
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Federated Investment Management Company
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116-5072
| 6. | Response is incorporated by reference to Registrant's Post-Effective Amendment No. 15 on Form N-1A filed April 30, 1993. (File Nos. 33-3164 and 811-4577). |
| 8. | Response is incorporated by reference to Registrant's Post-Effective Amendment No. 20 on Form N-1A filed June 7, 1994. (File Nos. 33-3164 and 811-4577). |
| 9. | Response is incorporated by reference to Registrant's Post-Effective Amendment No. 21 on Form N-1A filed June 24, 1994. (File Nos. 33-3164 and 811-4577). |
| 11. | Response is incorporated by reference to Registrant's Post-Effective Amendment No. 30 on Form N-1A filed June 29, 1998. (File Nos. 33-3164 and 811-4577). |
| 12. | Response is incorporated by reference to Registrant's Post-Effective Amendment No. 32 on Form N-1A filed August 26, 1999. (File Nos. 33-3164 and 811-4577). |
| (iv) | Conformed copy of Exhibit C to Distributor's Contract of the Registrant; (8) | ||
| (v) | Conformed copy of Exhibit D to Distributor's Contract of the Registrant; (8) | ||
| (vi) | The Registrant hereby incorporates the conformed copy of the specimen Mutual Funds Sales and Service Agreement; Mutual Funds Service Agreement; and Plan/Trustee Mutual Funds Service Agreement from Item 24(b)(6) of the Cash Trust Series II Registration Statement on Form N-1A, filed with the Commission on July 24, 1995. (File Nos. 33-38550 and 811-6269); | ||
| (f) | Not applicable; | ||
| (g) | (i) | Conformed copy of Custodian Agreement of the Registrant; (10) | |
| (ii) | Conformed copy of Custodian Fee Schedule; (11) | ||
| (h) | (i) | Conformed copy of Amended and Restated Agreement for Fund Accounting Services, Administrative Services, Shareholder Transfer Agency Services and Custody Services Procurement; (11) | |
| (ii) | Conformed copy of Amended and Restated Shareholder Services Agreement; (11) | ||
| (iii) | The responses and exhibits described in Item 23(e)(vi) are hereby incorporated by reference; | ||
| (iv) | The Registrant hereby incorporates by reference the conformed copy of the Shareholder Services Sub-Contract between Fidelity and Federated Shareholder Services from Item 24(b)(9)(iii) of Federated GNMA Trust Registration Statement on Form N-1A, filed with the Commission on March 25, 1996. (File Nos. 2-75670 and 811-3375); | ||
| (i) | Conformed copy of Opinion and Consent of Counsel as to legality of shares being registered; + | ||
| (j) | Conformed copy of Consent of Independent Public Accountants; + | ||
| (k) | Not applicable; | ||
| (l) | Not applicable; | ||
| + | All exhibits are being filed electronically. |
| 8. | Response is incorporated by reference to Registrant's Post-Effective Amendment No. 20 on Form N-1A filed June 7, 1994. (File Nos. 33-3164 and 811-4577). |
| 10. | Response is incorporated by reference to Registrant's Post-Effective Amendment No. 24 on Form N-1A filed June 23, 1995. (File Nos. 33-3164 and 811-4577). |
| 11. | Response is incorporated by reference to Registrant's Post-Effective Amendment No. 30 on Form N-1A filed June 29, 1998. (File Nos. 33-3164 and 811-4577). |
| (m) | (i) | Conformed copy of Distribution Plan of the Registrant; (5) | |
| (ii) | Conformed copy of Exhibit B to Distribution Plan of the Registrant; (7) | ||
| (iii) | The responses described in Item 23(e)(vi) are hereby incorporated by reference; | ||
| (n) | The Registrant hereby incorporates the conformed copy of specimen Multiple Class Plan from Item 24(b)(18) of the World Investment Series, Inc. Registration Statement on Form N-1A, filed with the Commission on January 26, 1996. (File Nos. 33-52149 and 811-07141). | ||
| (o) | (i) | Conformed copy of Power of Attorney of the Registrant; (12) | |
| (ii) | Conformed copy of Power of Attorney of Chief Investment Officer of the Registrant; + | ||
| (iii) | Conformed copy of Power of Attorney of Trustees of the Registrant; + | ||
| (p) | The Registrant hereby incorporates the conformed copy of the Code of Ethics for Access Persons from Item 23 (p) of the Federated Managed Allocation Portfolios' Registration Statement on Form N-1A filed with the Commission on January 23, 2001. (File Nos. 33-51247 and 811-7129). | ||
| + | All Exhibits are being filed electronically. |
| 4. | Response is incorporated by reference to Registrant's Post-Effective Amendment No. 11 on Form N-1A filed June 25, 1991. (File Nos. 33-3164 and 811-4577). |
| 5. | Response is incorporated by reference to Registrant's Post-Effective Amendment No. 12 on Form N-1A filed December 9, 1991. (File Nos. 33-3164 and 811-4577). |
| 7. | Response is incorporated by reference to Registrant's Post-Effective Amendment No. 19 on Form N-1A filed October 12, 1993. (File Nos. 33-3164 and 811-4577). |
| 12. | Response is incorporated by reference to Registrant's Post-Effective Amendment No. 31 on Form N-1A filed June 25, 1999. (File Nos. 33-3164 and 811-4577). |
| Item 27. | Principal Underwriters: | |
| (a) | Federated Securities Corp. the Distributor for shares of the Registrant, acts as principal underwriter for the following open-end investment companies, including the Registrant: | |
| Cash Trust Series II; Cash Trust Series, Inc.; CCMI Funds; Edward D. Jones & Co. Daily Passport Cash Trust; Federated Limited Duration Government Fund, Inc.; Federated American Leaders Fund, Inc.; Federated ARMs Fund; Federated Core Trust; Federated Equity Funds; Federated Equity Income Fund, Inc.; Federated Fixed Income Securities, Inc.; Federated Fund for U.S. Government Securities, Inc.; Federated GNMA Trust; Federated Government Income Securities, Inc.; Federated High Income Bond Fund, Inc.; Federated High Yield Trust; Federated Income Securities Trust; Federated Income Trust; Federated Index Trust; Federated Institutional Trust; Federated Insurance Series; Federated International Series, Inc.; Federated Investment Series Funds, Inc.; Federated Managed Allocation Portfolios; Federated Municipal Opportunities Fund, Inc.; Federated Municipal Securities Fund, Inc.; Federated Municipal Securities Income Trust; Federated Short-Term Municipal Trust; Federated Stock and Bond Fund, Inc.; Federated Stock Trust; Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S. Government Securities Fund: 2-5 Years; Federated Total Return Government Bond Fund; Federated Utility Fund, Inc.; Federated World Investment Series, Inc.; FirstMerit Funds; Hibernia Funds; Independence One Mutual Funds; Intermediate Municipal Trust; Marshall Funds, Inc.; Money Market Obligations Trust; Regions Funds; RIGGS Funds; SouthTrust Funds; Wachovia Variable Insurance Funds; The Wachovia Funds; The Wachovia Municipal Funds; and Vision Group of Funds, Inc. | ||
The business address of each of the Officers of Federated Securities Corp. is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, Pennsylvania 15222-3779.
| (c) Not applicable | |
| Item 28. | Location of Accounts and Records: |
All accounts and records required to be maintained by Section 31(a) of the Investment Company Act of 1940 and Rules 31a-1 through 31a-3 promulgated thereunder are maintained at one of the following locations:
| Registrant |
Federated Investors Tower
1001 Liberty Avenue Pittsburgh, PA 15222-3779 (Notices should be sent to the Agent for service at the above address) Federated Investors Funds 5800 Corporate Drive Pittsburgh, PA 15237-7000 |
|
Federated Shareholder Services Company
("Transfer Agent and Dividend Disbursing Agent") |
P.O. Box 8600
Boston, MA 02266-8600 |
|
Federated Services Company
("Administrator") |
Federated Investors Tower
1001 Liberty Avenue Pittsburgh, PA 15222-3779 |
| Federated Investment Management Company ("Adviser") |
Federated Investors Tower
1001 Liberty Avenue Pittsburgh, PA 15222-3779 |
| State Street Bank and Trust Company ("Custodian") |
P.O. Box 8600
Boston, MA 02266-8600 |
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant, FEDERATED INCOME SECURITIES TRUST, certifies that it meets all of the requirements for effectiveness of this Amendment to its Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this Amendment to its Registration Statement to be signed on its behalf by the undersigned, duly authorized, in the City of Pittsburgh and Commonwealth of Pennsylvania, on the 26th day of June 2001.
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FEDERATED INCOME SECURITIES TRUST
By: /s/ C. Grant Anderson C. Grant Anderson, Assistant Secretary Attorney in Fact for John F. Donahue June 26, 2001 |
Pursuant to the requirements of the Securities Act of 1933, this Amendment to its Registration Statement has been signed below by the following person in the capacity and on the date indicated:
| NAME | TITLE | DATE |
|
By: /s/ C. Grant Anderson
C. Grant Anderson ASSISTANT SECRETARY |
Attorney In Fact
For the Persons Listed Below |
June 26, 2001 |
| NAME | TITLE | |
| John F. Donahue* | Chairman and Trustee | |
| J. Christopher Donahue* | President and Trustee | |
| William D. Dawson III* | Chief Investment Officer | |
| Richard J. Thomas* | Treasurer | |
| Thomas G. Bigley* | Trustee | |
| John T. Conroy, Jr.* | Trustee | |
| Nicholas P. Constantakis* | Trustee | |
| John F. Cunningham* | Trustee | |
| Lawrence D. Ellis, M.D.* | Trustee | |
| Peter E. Madden* | Trustee | |
| Charles F. Mansfield, Jr.* | Trustee | |
| John E. Murray, Jr., J.D., S.J.D.* | Trustee | |
| Marjorie P. Smuts* | Trustee | |
| John S. Walsh* | Trustee | |
| Marjorie P. Smuts* | Trustee | |
| John S. Walsh* | Trustee | |
| *By Power of Attorney |
HOUSTON, HOUSTON & DONNELLY
ATTORNEYS AT LAW
CENTRE CITY TOWER
PITTSBURGH, PA 15222
June 19, 1986
The Trustees of
Federated Floating Rate Trust
421 Seventh Avenue
Pittsburgh, PA 15219
Gentlemen:
Federated Floating Rate Trust ("Trust") proposes to offer and sell Shares of Beneficial Interest ("Shares") in the manner and on the terms set forth in its Registration Statement filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended.
As counsel we have participated in the organization of the Trust, its registration under the Investment Company Act of 1940 and the preparation and filing of its Registration Statement under the Securities Act of 1933. We have examined and are familiar with the provisions of the written Declaration of Trust dated January 24, 1986, ("Declaration of Trust"), the Bylaws of the Trust and such other documents and records deemed relevant. We have also reviewed questions of law and consulted with counsel thereon as deemed necessary or appropriate by us for the purposes of this opinion.
Based upon the foregoing, it is our opinion that:
1. The Trust is duly organized and validly existing pursuant to the Declaration of Trust.
2. The Shares which are currently being registered by the Registration Statement referred to above may be legally and validly issued from time to time in accordance with the Declaration of Trust upon receipt of consideration sufficient to comply with the provisions of Article III, Section 3, of the Declaration of Trust and subject to compliance with the Securities Act of 1933, as amended, the Investment Company Act of 1940, as amended, and applicable state laws regulating the sale of securities. Such Shares, when so issued, will be fully paid and non-assessable.
We consent to your filing this opinion as an exhibit to the Registration Statement referred to above and to any application or registration statement filed under the securities laws of any of the States of the United States. We further consent to the reference to our firm under the caption "Legal Counsel" in the prospectus filed as a part of such Registration Statement, applications and registration statements.
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Very truly yours,
HOUSTON, HOUSTON & DONNELLY By /s/ Thomas J. Donnelly |
TJD/heh
Consent of Ernst & Young LLP, Independent Auditors
We consent to the references to our firm under the caption "Financial Highlights" in the Prospectuses and "Independent Auditors" in the Statements of Additional Information and to the use of our reports dated June 19, 2001, in the Post-Effective Amendment Number 34 to the Registration Statement (Form N-1A No. 33-03164) of the Federated Income Securities Trust.
| /s/ Ernst & Young LLP |
Boston, Massachusetts
June 25, 2001
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints the Secretary and Assistant Secretaries of FEDERATED INCOME SECURITIES TRUST and each of them, their true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for them and in their names, place and stead, in any and all capacities, to sign any and all documents to be filed with the Securities and Exchange Commission pursuant to the Securities Act of 1933, the Securities Exchange Act of 1934 and the Investment Company Act of 1940, by means of the Securities and Exchange Commission's electronic disclosure system known as EDGAR; and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to sign and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as each of them might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue thereof.
| SIGNATURES | TITLE | DATE |
|
/s/ William D. Dawson, III
William D. Dawson, III |
Chief Investment Officer | June 1, 2001 |
Sworn to and subscribed before me this 1st day of June, 2001
/s/ Janice L. Vandenberg
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Notarial Seal
Janice L. Vandenberg, Notary Public Pittsburgh, Allegheny County My Commission Expires July 4, 2002 |
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints the Secretary and Assistant Secretaries of FEDERATED INCOME SECURITIES TRUST and each of them, their true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for them and in their names, place and stead, in any and all capacities, to sign any and all documents to be filed with the Securities and Exchange Commission pursuant to the Securities Act of 1933, the Securities Exchange Act of 1934 and the Investment Company Act of 1940, by means of the Securities and Exchange Commission's electronic disclosure system known as EDGAR; and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to sign and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as each of them might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue thereof.
| SIGNATURES | TITLE | DATE |
|
/s/ John F. Donahue
John F. Donahue |
Chairman and Trustee
(Chief Executive Officer) |
June 1, 2001 |
|
/s/ J. Christopher Donahue
J. Christopher Donahue |
President and Trustee | June 1, 2001 |
|
/s/ Richard J. Thomas
Richard J. Thomas |
Treasurer
(Principal Financial and Accounting Officer) |
June 1, 2001 |
|
/s/ Thomas G. Bigley
Thomas G. Bigley |
Trustee | June 1, 2001 |
|
/s/ John T. Conroy, Jr.
John T. Conroy, Jr. |
Trustee | June 1, 2001 |
|
/s/ Nicholas P. Constantakis
Nicholas P. Constantakis |
Trustee | June 1, 2001 |
|
/s/ John F. Cunningham
John F. Cunningham |
Trustee | June 1, 2001 |
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/s/ Lawrence D. Ellis, M.D.
Lawrence D. Ellis, M.D. |
Trustee | June 1, 2001 |
|
/s/ Peter E. Madden
Peter E. Madden |
Trustee | June 1, 2001 |
|
/s/ Charles F. Mansfield, Jr.
Charles F. Mansfield, Jr. |
Trustee | June 1, 2001 |
|
/s/ John E. Murray, Jr.
John E. Murray, Jr. |
Trustee | June 1, 2001 |
|
/s/ Marjorie P. Smuts
Marjorie P. Smuts |
Trustee | June 1, 2001 |
|
/s/ John S. Walsh
John S. Walsh |
Trustee | June 1, 2001 |
Sworn to and subscribed before me this 1st day of June, 2001
/s/ Janice L. Vandenberg
|
Notarial Seal
Janice L. Vandenberg, Notary Public Pittsburgh, Allegheny County My Commission Expires July 4, 2002 |
Member, Pennsylvania Association of Notaries