FEDERATED INCOME SECURITIES TRUST
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7000
September 15, 2006
EDGAR Operations Branch
Securities and Exchange Commission
Division of Investment Management
100 F Street, N. E.
Washington, DC 20549
RE: FEDERATED INCOME SECURITIES TRUST
Federated Short-Term Income Fund (the "Fund")
1933 Act File No. 333-136577
1940 Act File No. 811-4577
Dear Sir or Madam:
The following responds to your specific instruction that we furnish a
written review of the responses provided to the oral comments received from the
Commission's staff with respect to the N-14 filing for the above referenced Fund
filed with the Commission on August 14, 2006.
(1) In response to your first comment, Federated will revise item (ii)
of the second paragraph under "Reasons for the Proposed Reorganization" as
follows:
(ii)the opportunity to participate in a fund with superior
historical performance, though past performance is no guarantee of future
results.
(2) In response to your second comment, the following disclosure has
been added to "Comparison of Investment Objectives, Policies and Limitations":
In addition to the objectives and policies set forth above, each
Fund is subject to certain fundamental investment limitations which may
not be changed without shareholder approval. The fundamental limitations
for the Federated Fund and the MDT Fund are generally similar; however,
you may want to note these differences:
{circle}With regard to the limitation on real estate, the Federated 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.
{circle}With regard to the limitation on lending, the MDT Fund may loan money
to other MDT Funds in accordance with the terms of any applicable rule or
regulation or an exemptive order removing the current prohibitions that
exist under the 1940 Act.
{circle}With regard to the limitation on borrowing, the MDT Fund may borrow
money from other Funds within the MDT Funds in accordance with the terms
of any applicable rule or regulation that may permit such practice or
exemptive order removing the current prohibitions that exist under the
1940 Act.
{circle}The MDT Fund does not disclose a fundamental limitation on investing
in commodities.
{circle}The Federated Fund does not have a fundamental limitation on
investing in other investment companies.
With regard to your comment regarding the concentration policy, the following
clarifying language has been added to the concentration policy:
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. For purposes of the above limitation, 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."
(3) In response to your third comment, please see the attached fee
table.
(4) In response to your fourth comment, correct placement of all
footnotes has been confirmed and footnote 8 has been revised to read as follows:
Other Expenses include custodian, administration, transfer agency
and other customary Fund expenses. Since the MDT Bond Fund Class A and
Class C Shares commenced operations on September 15, 2005, these expenses
are based on estimated amounts for the current fiscal year. This also
includes an account administration fee which is used to compensate
intermediaries for account administrative services, and a record keeping
fee which is used to compensate intermediaries for recordkeeping
services.
(5) In response to your fifth comment, the Federated Fund Pro Forma
expense example has been revised and follows below.
MDT Fund - Class A Shares MDT Fund- Class C Shares Federated Fund - Class A Shares Federated Fund Pro Forma Combined
Expenses assuming redemption:
1 Year $341 $294 $241 $221
3 Years $585 $600 $539 $491
5 Years $849 $1,032 $858 $796
10 Years $1,602 $2,233 $1,763 $1,662
(6) In response to your sixth comment, the following has been added
under the section "Information about the Reorganization" under the heading
"Description of the Plan of Reorganization":
At the time of the Reorganization, if approved, the NAV of the MDT
Fund's shares will be determined in accordance with the procedures
described in the Federated Fund's Prospectus and Statement of Additional
Information, and in accordance with the Federated Fund's valuation
procedures. The MDT Fund and the Federated Fund currently utilize the
same valuation procedures and therefore, there is not anticipated to be
any impact on NAV as a result of using the Federated Fund's valuation
procedures in the Reorganization.
(7) In response to your seventh comment, the following has been added
under the section "Income Tax Consequences":
The Reorganization will not require the MDT Fund to dispose of a
material portion of its portfolio securities prior to the Reorganization
due to non-conformance of those securities with the investment
objectives, policies or limitations of the Federated Fund. However, the
Federated Fund may dispose of a material portion of the acquired
portfolio securities in order to rebalance the portfolio and in the
normal course of investing the Federated Fund's assets.
(8) In response to your eighth comment, the following has been added to
the second bullet point under the section "Information about the Reorganization"
under the heading "Background and Trustees Considerations Relating to the
Proposed Reorganization":
This voluntary waiver may be terminated at any time.
(9) In response to your ninth comment, the following has been added
under the section "Income Tax Consequences":
The Funds had unutilized capital loss carryovers as of the
end of each Fund's fiscal year end. The final amount of unutilized capital loss
carryovers for each fund is subject to change and will not be determined until
the time of the Reorganization.
FUND (FISCAL YEAR END) UNUTILIZED CAPITAL LOSS CARRYOVERS FUND(FISCAL YEAR END) UNUTILIZED CAPITAL LOSS CARRYOVERS
Federated Fund (April 30, 2006) $47,105,043 MDT Fund (July 31, 2006) $779,861
The same Funds had the following tax basis appreciation or (depreciation)
as of each Fund's fiscal year end.
FUND (FISCAL YEAR END) TAX BASIS APPRECIATION OR FUND (FISCAL YEAR END) TAX BASIS APPRECIATION OR
(DEPRECIATION) (DEPRECIATION)
Federated Fund (April 30, (5,421,675) MDT Fund (July 31, 2006) $(549,580)
2006)
After and as a result of the Reorganization, it is not anticipated that the
Federated Fund will be limited under Section 382 of the Code in its use of the
MDT Fund's capital loss carryover.
(10) In response to your tenth comment, the following disclosure has
been added to Note 2 of the SAI's "Notes to Pro Forma Combining Statements of
Operation":
The Reorganization will not require the MDT Fund to dispose of a
material portion of its portfolio securities prior to the Reorganization
due to non-conformance of those securities with the investment
objectives, policies or limitations of the Federated Fund. However, the
Federated Fund may dispose of a material portion of the acquired
portfolio securities in order to rebalance the portfolio and in the
normal course of investing the Federated Fund's assets.
(11) In response to your eleventh comment, the following footnote has
been added as footnote 6 to the SAI's schedule of investments:
(6) Purchased with proceeds from securities lending collateral.
This footnote has been added to the following items:
6 Interest in $1,200,000,000 joint repurchase agreement 4.79%, dated
4/28/2006 under which Barclays Capital, Inc. will repurchase U.S.
Government Agency securities with various maturities to 3/19/2026 for
$1,200,479,000 on 5/1/2006. The market value of the underlying securities
at the end of the period was $1,224,000,973.
6 Interest in $2,000,000,000 joint repurchase agreement 4.79%, dated
4/28/2006 under which Bear Stearns and Co., Inc. will repurchase U.S.
Government Agency securities with various maturities to 3/25/2045 for
$2,000,798,333 on 5/1/2006. The market value of the underlying securities
at the end of the period was $2,060,003,916.
(12) In response to your twelfth comment, the following has been added
to Note 5 of the SAI's "Notes to Pro Forma Combining Statements of Operation":
The Funds had unutilized capital loss carryovers as of the end of each
Fund's fiscal year end. The final amount of unutilized capital loss carryovers
for each fund is subject to change and will not be determined until the time of
the Reorganization.
FUND (FISCAL YEAR END) UNUTILIZED CAPITAL LOSS CARRYOVERS FUND (FISCAL YEAR END) UNUTILIZED CAPITAL LOSS CARRYOVERS
Federated Fund (April 30, 2006) $47,105,043 MDT Fund (July 31, 2006) $779,861
The same Funds had the following tax basis appreciation or (depreciation)
as of each Fund's fiscal year end.
FUND (FISCAL YEAR END) TAX BASIS APPRECIATION OR FUND (FISCAL YEAR END) TAX BASIS APPRECIATION OR
(DEPRECIATION) (DEPRECIATION)
Federated Fund (April 30, $(5,421,675) MDT Fund (July 31, 2006) $(549,580)
2006)
After and as a result of the Reorganization, it is not anticipated that the
Federated Fund will be limited under Section 382 of the Code in its use of the
MDT Fund's capital loss carryover.
Please contact Alice Helscher at 412.288.1202 with any questions.
Very truly yours,
/s/ Alice Helscher
Alice Helscher
Paralegal
Exhibit A
COMPARATIVE FEE TABLES
MDT FUND CLASS A SHARES AND CLASS C SHARES - FEDERATED FUND CLASS A SHARES
This table describes (1) the actual fees and expenses that you may pay if
you buy and hold Class A and Class C Shares of the MDT Fund and the Federated
Fund - Class A Shares and (2) the pro forma fees and expenses of Class A Shares
of the Federated Fund on a combined basis after giving effect to the
Reorganization. As described below, the pro forma operating expenses of the
Federated Fund are shown after giving effect to a contractual waiver and
reimbursement of expenses by the Federated Adviser to limit annual total
operating expenses to not more than 1.20%, which will commence on the effective
date of the Reorganization and will continue through November 2008 (two years
from the effective date of the Reorganization); and annual total operating
expenses of the MDT Fund Class A and Class C Shares are shown after giving
effect to a contractual waiver of expenses by the MDT Adviser to limit annual
total operating expenses to not more than 1.20% and 1.95%, respectively, through
November 30, 2006.
SHAREHOLDER FEES MDT FUND MDT FEDERATED FUND -
- CLASS FUND - CLASS A SHARES
A SHARES CLASS C FEDERATED PRO FORMA
SHARES FUND - COMBINED
CLASS A
SHARES
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) 2.25% None 1.00% 1.00%
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or None 1.00% 0.00% 0.00%
redemption proceeds, as applicable)
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other Distributions) None None None None
(as a percentage of offering price)
Redemption Fee (including exchanges) (as a percentage of amount redeemed, if 2.00%1 2.00%1 None None
applicable)
Exchange Fee None None None None
Account Fee None None None None
ANNUAL FUND OPERATING EXPENSES2
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee 0.40% 0.40% 0.40%3 0.40%4
Distribution (12b-1) Fee 0.25%5 1.00% 0.50%6 0.50%7
Other Expenses 0.51%8 0.51%8 0.50%9 0.49%10
Total Annual Fund Operating Expenses 1.16%11 1.91%11 1.40% 1.39%
Fee Waivers and/or Expense Reimbursement (contractual) 0.00% 0.00% 0.00% 0.19%
Net Annual Fund Operating Expenses 1.16%11 1.91%11 1.40% 1.20%4
________________________________
(1) The Fund charges a 2.00% redemption fee on shares redeemed within 30 days
of purchase.
(2) For the Federated Fund - Class A Shares and the Federated Fund - Class A
Shares Pro Forma Combined, the percentages shown are annualized based on
expenses for the fiscal year ended April 30, 2006 and the anticipated
expenses for the fiscal year ending April 30, 2007, respectively. However,
the rate at which expenses are accrued during the fiscal year may not be
constant and, at any particular point, may be greater or less than the
stated average percentage. Although not contractually obligated to do so
(except as discussed in note 4), the Federated Adviser, distributor and
administrator waived or have voluntarily agreed to waive certain amounts.
These are shown below along with the net expenses the Federated Fund paid
for the fiscal year ended April 30, 2006 and the Federated Fund Class A
Shares Pro Forma Combined expects to pay for the fiscal year ending April
30, 2007.
MDT MDT FEDERATED FEDERATED FUND - CLASS A
FUND - FUND - FUND - SHARES PRO FORMA COMBINED
CLASS CLASS CLASS A
A C SHARES
SHARES SHARES
Additional Waivers/Reimbursement of Fund Expenses 0.00% 0.00% 0.32% 0.12%
(voluntary)
Total Anticipated Annual Fund Operating Expenses (after 1.16% 1.91% 1.08% 1.08%
waivers/reimbursement)
(3) The Federated Adviser voluntarily waived a portion of the management fee.
The Federated Adviser can terminate this voluntary waiver at any time. The
management fee paid by the Fund (after the voluntary waiver) was 0.10% for
the fiscal year ended April 30, 2006.
(4) The Federated Adviser is obligated to waive all or a portion of its
investment advisory fee which it is otherwise entitled to receive, and/or
reimburse other operating expenses (excluding interest, taxes and brokerage
commissions), in order to limit the aggregate annual operating expenses for
the Class A Shares of the Fund to not more than 1.20% of its daily net
assets. Any waiver by the administrator and/or distributor that reduces
such expenses (as discussed in note 2) may have the effect of reducing the
amount to be waived or reimbursed by the Federated Adviser pursuant to its
contractual commitment. This commitment will expire in November 2008.
Pursuant to the contractual commitment, the Adviser expects to waive 0.17%
of its management fee for the fiscal period ending July 31, 2007. As a
separate matter, although not obligated to do so, the Federated Adviser
expects to voluntarily waive a portion of its investment advisory fee. This
voluntary waiver can be terminated at any time. The management fee paid by
the Fund (after all waivers/reimbursement) is expected to be 0.11% for the
fiscal year ending April 30, 2007.
(5) The MDT Fund's Rule 12b-1 Plan permits the Fund's Class A Shares to pay
12b-1 fees of up to 0.35%. Currently, the Board of Trustees has authorized
the Fund's Class A Shares to pay up to 0.25% per year.
(6) The distributor voluntarily waived a portion of the distribution (12b-1)
fee. The distributor can terminate this voluntary waiver at any time. The
distribution (12b-1) fee paid by the Federated Fund's Class A Shares (after
the voluntary waiver) was 0.49% for the fiscal year ended April 30, 2006.
(7) Although not contractually obligated to do so, the distributor has
voluntarily agreed to waive a portion of the distribution (12b-1) fee. The
distributor can terminate this voluntary waiver at any time. The
distribution (12b-1) fee to be paid by the Federated Fund's Class A Shares
Pro Forma Combined (after the anticipated voluntary waiver) is expected to
be 0.49% for the fiscal year ending April 30, 2007.
(8) Other Expenses include custodian, administration, transfer agency and other
customary Fund expenses. Since the MDT Bond Fund Class A and Class C Shares
commenced operations on September 15, 2005, these expenses are based on
estimated amounts for the current fiscal year. This also includes an
account administration fee which is used to compensate intermediaries for
account administrative services, and a record keeping fee which is used to
compensate intermediaries for recordkeeping services.
(9) Includes a shareholder services fee/account administration fee which is
used to compensate intermediaries for shareholder services or account
administrative services. Also includes a recordkeeping fee which is used to
compensate intermediaries for recordkeeping services. The administrator
voluntarily waived a portion of its fee. This voluntary waiver can be
terminated at any time. Total Other Expenses paid by the Fund's Class A
Shares (after the voluntary waiver) were 0.49% for the fiscal year ended
April 30, 2006.
(10) Includes a shareholder services fee/account administration fee which is
used to compensate intermediaries for shareholder services or account
administrative services. Also includes a recordkeeping fee which is used to
compensate intermediaries for recordkeeping services. Although not
contractually obligated to do so, the administrator has voluntarily agreed
to waive a portion of its fee. This voluntary waiver can be terminated at
any time. Total Other Expenses paid by the Fund's Class A Shares (after the
anticipated waiver) are expected to be 0.48% for the fiscal year ending
April 30, 2007.
(11) The MDT Adviser has contractually agreed to limit the Class A Shares' and
Class C Shares' Total Annual Fund Operating Expenses to 1.20% and 1.95%,
respectively, of average net assets through November 30, 2006.