Federated Income Trust
Institutional Shares
Prospectus
The Institutional Shares of Federated Income Trust (the "Trust") offered by
this prospectus represent interests in a diversified portfolio of securities
(the "Fund"). The Trust is a no-load, open-end, diversified management
investment company (a mutual fund). The investment objective of the Fund is to
provide current income. The Fund pursues this investment objective by investing
in U.S. government securities. As of the date of this prospectus, it is
anticipated that the Fund will invest primarily in securities of U.S.
government agencies or instrumentalities, such as the Federal Home Loan
Mortgage Corporation. Institutional Shares are sold at net asset value.
The Institutional 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 by the Federal Deposit Insurance Corporation, the Federal Reserve Board,
or any other government agency. Investment in these Institutional Shares
involves investment risks, including the possible loss of principal.
This prospectus contains the information you should read and know before you
invest in Institutional Shares of the Fund. Keep this prospectus for future
reference.
The Fund has also filed a Combined Statement of Additional Information for
Institutional Shares and Institutional Service Shares dated March 31, 1994, with
the Securities and Exchange Commission. The information contained in the
Combined Statement of Additional Information is incorporated by reference into
this prospectus. You may request a copy of the Combined Statement of Additional
Information free of charge by calling 1-800-235-4669. To obtain other
information, or make inquiries about the Fund, contact the Fund at the address
listed in the back of this prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated March 31, 1994
Table of Contents
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Summary of Fund Expenses 1
- ------------------------------------------------------
Financial Highlights 2
- ------------------------------------------------------
General Information 3
- ------------------------------------------------------
Investment Information 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Acceptable Investments 4
CMOs 4
Repurchase Agreements 5
Characteristics of Mortgage-Backed
Securities 5
When-Issued and Delayed Delivery
Transactions 5
Investment Limitations 6
Trust Information 6
- ------------------------------------------------------
Management of the Trust 6
Board of Trustees 6
Investment Adviser 6
Advisory Fees 6
Adviser's Background 6
Other Payments to Financial Institutions 7
Distribution of Institutional Shares 7
Administration of the Fund 7
Administrative Services 7
Shareholder Services Plan 7
Custodian 8
Transfer Agent and Dividend
Disbursing Agent 8
Legal Counsel 8
Independent Auditors 8
Net Asset Value 8
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Investing in Institutional Shares 8
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Share Purchases 8
By Wire 8
By Mail 8
Minimum Investment Required 9
What Shares Cost 9
Exchanging Securities for Fund Shares 9
Subaccounting Services 9
Certificates and Confirmations 10
Dividends 10
Capital Gains 10
Redeeming Institutional Shares 10
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Telephone Redemption 10
Written Requests 11
Signatures 11
Receiving Payment 11
Accounts with Low Balances 11
Shareholder Information 11
- ------------------------------------------------------
Voting Rights 11
Massachusetts Partnership Law 12
Tax Information 12
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Federal Income Tax 12
Pennsylvania Corporate and Personal
Property Taxes 12
Other Classes of Shares 13
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Performance Information 13
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Financial Highlights--
Institutional Service Shares 14
Financial Statements 15
- ------------------------------------------------------
Independent Auditors' Report 26
- ------------------------------------------------------
Addresses Inside Back Cover
- ------------------------------------------------------
Summary of Fund Expenses--Institutional Shares
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)........................................................................ None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)........................................................................ None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds as applicable)....................................................... None
Redemption Fee (as a percentage of amount
redeemed, if applicable)................................................................................... None
Exchange Fee................................................................................................. None
Annual Institutional Shares Operating Expenses
(As a percentage of average net assets)
Management Fee............................................................................................... 0.40%
12b-1 Fee.................................................................................................... None
Total Other Expenses......................................................................................... 0.17%
Shareholder Servicing Fee (1)................................................................ 0.05%
Total Institutional Shares Operating Expenses (2).................................................. 0.57%
</TABLE>
(1) The maximum shareholder servicing fee is 0.25%.
(2) The Total Institutional Shares Operating Expenses in the table above are
based on expenses expected during the fiscal year ended January 31, 1995.
The Total Institutional Shares Operating Expenses were 0.51% for the fiscal
year ended January 31, 1994.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Institutional Shares of the
Fund will bear, either directly or indirectly. For more complete descriptions of
the various costs and expenses, see "Trust Information" and "Investing in
Institutional Shares." Wire-transferred redemptions of less than $5,000 may be
subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment assuming
(1) 5% annual return and (2) redemption at the end of each time
period................................................................ $6 $18 $32 $71
</TABLE>
The above example should not be considered a representation of past or
future expenses. Actual expenses may be greater or less than those shown.
The information set forth in the foregoing table and example relates only
to Institutional Shares of the Fund. The Fund also offers another class of
shares called Institutional Service Shares. Institutional Shares and
Institutional Service Shares are subject to certain of the same expenses;
however, Institutional Service Shares are subject to a 12b-1 fee of 0.25%. See
"Other Classes of Shares."
Federated Income Trust
Financial Highlights--Institutional Shares
- --------------------------------------------------------------------------------
(For a share outstanding throughout each period)
Reference is made to the Independent Auditor's Report on page 26.
<TABLE>
<CAPTION>
Year Ended January 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994 1993 1992 1991 1990 1989 1988 1987 1986
Net asset value,
beginning of period $ 10.73 $ 10.66 $ 10.42 $ 10.18 $ 10.05 $ 10.43 $ 10.74 $ 10.87 $ 10.50
- -----------------------
Income from investment
operations
- -----------------------
Net investment income 0.77 0.80 0.89 0.93 0.94 0.95 0.99 1.03 1.19
- -----------------------
Net realized and
unrealized gain (loss)
on investments (0.23) 0.07 0.24 0.24 0.13 (0.38) (0.31) (0.05) 0.37
- ----------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total from investment
operations 0.54 0.87 1.13 1.17 1.07 0.57 0.68 0.98 1.56
- -----------------------
Less distributions
- -----------------------
Dividends to
shareholders from net
investment income (0.77) (0.80) (0.89) (0.93) (0.94) (0.95) (0.99) (1.04) (1.19)
- -----------------------
Distributions to
shareholders from net
realized gain on
investment
transactions -- -- -- -- -- -- -- (0.07) --
- ----------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total distributions (0.77) (0.80) (0.89) (0.93) (0.94) (0.95) (0.99) (1.11) (1.19)
- ----------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Net asset value, end of
period $ 10.50 $ 10.73 $ 10.66 $ 10.42 $ 10.18 $ 10.05 $ 10.43 $ 10.74 $ 10.87
- ----------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total return* 5.22% 8.51% 11.27% 12.01% 11.04% 5.75% 6.79% 9.52% 15.66%
- -----------------------
Ratios to average net
assets
- -----------------------
Expenses 0.51% 0.51% 0.50% 0.50% 0.53% 0.52% 0.50% 0.54% 0.57%
- -----------------------
Net investment income 7.28% 7.53% 8.41% 9.06% 9.23% 9.33% 9.49% 9.47% 11.13%
- -----------------------
Expense waiver/
reimbursement(a) -- -- -- -- -- -- -- -- --
- -----------------------
Supplemental Data
- -----------------------
Net assets, end of
period (000 omitted) $1,727,247 $1,548,858 $1,231,978 $892,255 $1,023,886 $1,196,585 $1,376,895 $1,169,155 $270,612
- -----------------------
Portfolio turnover
rate 178% 52% 51% 36% 45% 77% 92% 146% 235%
- -----------------------
<CAPTION>
<S> <C>
1985
Net asset value,
beginning of period $ 10.38
- -----------------------
Income from investment
operations
- -----------------------
Net investment income 1.23
- -----------------------
Net realized and
unrealized gain (loss)
on investments 0.12
- ----------------------- ---------
Total from investment
operations 1.35
- -----------------------
Less distributions
- -----------------------
Dividends to
shareholders from net
investment income (1.23)
- -----------------------
Distributions to
shareholders from net
realized gain on
investment
transactions --
- ----------------------- ---------
Total distributions (1.23)
- ----------------------- ---------
Net asset value, end of
period $ 10.50
- ----------------------- ---------
Total return* 14.31%
- -----------------------
Ratios to average net
assets
- -----------------------
Expenses 0.49%
- -----------------------
Net investment income 12.41%
- -----------------------
Expense waiver/
reimbursement(a) 0.15%
- -----------------------
Supplemental Data
- -----------------------
Net assets, end of
period (000 omitted) $225,935
- -----------------------
Portfolio turnover
rate 174%
- -----------------------
</TABLE>
* Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(See Notes which are an integral part of the Financial Statements)
Further information about the Fund's performance is contained in the Fund's
annual report for the fiscal year ended January 31, 1994, which can be obtained
free of charge.
General Information
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated November 17, 1981. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. As of the date of this prospectus, the Board of
Trustees ("Trustees") have established two classes of shares of the Fund, known
as Institutional Shares and Institutional Service Shares. This prospectus
relates only to Institutional Shares of the Fund.
Institutional Shares ("Shares") are sold primarily to accounts for which
financial institutions act in a fiduciary or agency capacity as a convenient
means of accumulating an interest in a professionally managed, diversified
portfolio of U.S. government securities. A minimum initial investment of $25,000
over a 90-day period is required.
Shares are currently sold and redeemed at net asset value without a sales charge
imposed by the Fund.
Investment Information
- --------------------------------------------------------------------------------
Investment Objective
The investment objective of the Fund is current income. The investment objective
may not be changed without the approval of shareholders. The Fund pursues this
investment objective by investing in U.S. government securities and certain
collateralized mortgage obligations ("CMOs"). While there is no assurance that
the Fund will achieve its investment objective, it endeavors to do so by
following the investment policies described in this prospectus.
Investment Policies
As a matter of investment policy which may be changed without shareholder
approval, the Fund will limit its investments to those that are permitted for
purchase by federal savings associations pursuant to applicable rules,
regulations, or interpretations of the Office of Thrift Supervision and by
federal credit unions under the Federal Credit Union Act and the rules,
regulations, and interpretations of the National Credit Union Administration.
Should additional permitted investments be allowed as a result of future changes
in applicable regulations or federal laws, the Fund reserves the right, without
shareholder approval, to make such investments consistent with the Fund's
investment objective, policies, and limitations. Further, should existing
statutes or regulations change so as to cause any securities held by the Fund to
become ineligible for purchase by federal savings associations or federal credit
unions, the Fund will dispose of those securities at times advantageous to the
Fund.
As operated within the above limitation, the Fund may also to serve as an
appropriate vehicle for a national bank as an investment for its own account.
Except as otherwise noted, the investment policies and limitations described
below cannot be changed without approval of shareholders:
Acceptable Investments. The U.S. government securities in which the Fund
invests are either issued or guaranteed by the U.S. government, its
agencies, or instrumentalities. The securities in which the Fund may invest
are limited to:
direct obligations of the U.S. Treasury such as U.S. Treasury bills,
notes, and bonds; and
notes, bonds, and discount notes of U.S. government agencies or
instrumentalities such as Federal Home Loan Banks, Federal National
Mortgage Association, Government National Mortgage Association, Banks for
Cooperatives (including Central Bank for Cooperatives), Federal Land
Banks, Federal Intermediate Credit Banks, Tennessee Valley Authority,
Export-Import Bank of the United States, Commodity Credit Corporation,
Federal Financing Bank, The Student Loan Marketing Association, Federal
Home Loan Mortgage Corporation, or National Credit Union Administration.
Some obligations issued or guaranteed by agencies or instrumentalities of
the U.S. government, such as Government National Mortgage Association
participation certificates, are backed by the full faith and credit of the
U.S. Treasury. No assurances can be given that the U.S. government will
provide financial support to other agencies or instrumentalities, since it
is not obligated to do so. These instruments are supported by:
the issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;
the discretionary authority of the U.S. government to purchase certain
obligations of an agency or instrumentality; or
the credit of the agency or instrumentality.
CMOs. CMOs are bonds issued by single-purpose stand-alone finance
subsidiaries or trusts of financial institutions, government agencies,
investment bankers, or companies related to the construction industry and
may meet the Internal Revenue Code requirements to be classified as real
estate mortgage investment conduits. Most of the CMOs in which the Fund
would invest use the same basic structure:
Several classes of securities are issued against a pool of mortgage
collateral. The most common structure contains four classes of securities:
The first three (A, B, and C bonds) pay interest at their stated rates
beginning with the issue date; the final class (or Z bond) typically
receives the residual income from the underlying investments after
payments are made to the other classes.
The cash flows from the underlying mortgages are applied first to pay
interest and then to retire securities.
The classes of securities are retired sequentially. All principal payments
are directed first to the shortest-maturity class (or A bonds). When those
securities are completely retired, all principal payments are then
directed to the next-shortest-maturity security (or B bond.) This process
continues until all of the classes have been paid off.
Because the cash flow is distributed sequentially instead of pro rata as
with pass-through securities, the cash flows and average lives of CMOs are
more predictable, and there is a period of time during which the investors
in the longer-maturity classes receive no principal paydowns. The
interest portion of these payments is distributed by the Fund as income and
the capital portion is reinvested.
The Fund will invest only in CMOs which are rated AAA by a nationally
recognized rating agency, and which may be: (a) collateralized by pools of
mortgages in which each mortgage is guaranteed as to payment of principal
and interest by an agency or instrumentality of the U.S. government; (b)
collateralized by pools of mortgages in which payment of principal and
interest is guaranteed by the issuer and such guarantee is collateralized
by U.S. government securities; or (c) securities in which the proceeds of
the issuance are invested in mortgage securities and payment of the
principal and interest are supported by the credit of an agency or
instrumentality of the U.S. government.
Repurchase Agreements. Repurchase agreements are arrangements in which
banks, broker/dealers, and other recognized financial institutions sell
U.S. government securities or other securities to the Fund and agree at the
time of sale to repurchase them at a mutually agreed upon time and price.
To the extent that the original seller does not repurchase the securities
from the Fund, the Fund could receive less than the repurchase price on any
sale of such securities.
As a matter of investment practice, which can be changed without
shareholder approval, the Fund will not invest more than 15% of its net
assets in repurchase agreements providing for settlement in more than seven
days after notice.
Characteristics of Mortgage-Backed Securities. Some of the U.S. government
securities in which the Fund will invest can represent an undivided interest in
a pool of residential mortgages or may be collateralized by a pool of
residential mortgages ("mortgage-backed securities"). Mortgage-backed securities
have yield and maturity characteristics corresponding to the underlying
mortgages. Distributions to holders of mortgage-backed securities include both
interest and principal payments. Principal payments represent the amortization
of the principal of the underlying mortgages and any prepayments of principal
due to prepayment, refinancing, or foreclosure of the underlying mortgages.
Although maturities of the underlying mortgage loans may range up to 30 years,
amortization and prepayments substantially shorten the effective maturities of
mortgage-backed securities. Due to these features, mortgage-backed securities
are less effective as a means of "locking in" attractive long-term interest
rates than fixed-income securities which pay only a stated amount of interest
until maturity, when the entire principal amount is returned. This is caused by
the need to reinvest at lower interest rates both distributions of principal
generally and significant prepayments which become more likely as mortgage
interest rates decline. Since comparatively high interest rates cannot be
effectively "locked in", mortgage-backed securities may have less potential for
capital appreciation during periods of declining interest rates than other
non-callable fixed-income government securities of comparable stated maturities.
However, mortgage-backed securities may experience less pronounced declines in
value during periods of rising interest rates.
When-Issued and Delayed Delivery Transactions. The Fund may purchase U.S.
government obligations on a when-issued or delayed delivery basis. In
when-issued and delayed delivery transactions, the Fund relies on the seller to
complete the transaction. The seller's failure to complete the transaction may
cause the Fund to miss a price or yield considered to be advantageous.
Investment Limitations
The Fund will not borrow money or pledge securities except, under certain
circumstances, the Fund may borrow up to one-third of the value of its total
assets and pledge up to 10% of the value of those assets to secure such
borrowings.
Trust Information
- --------------------------------------------------------------------------------
Management of the Trust
Board of Trustees. The Trust is managed by a Board of Trustees. The Trustees
are responsible for managing the Trust's business affairs and for exercising all
the Trust's powers except those reserved for the shareholders. The Executive
Committee of the Board of Trustees handles the Board's responsibilities between
meetings of the Board.
Investment Adviser. Pursuant to an investment advisory contract with the Trust,
investment decisions for the Fund are made by Federated Management, the Fund's
investment adviser (the "Adviser"), subject to direction by the Trustees. The
Adviser continually conducts investment research and supervision for the Fund
and is responsible for the purchase and sale of portfolio instruments, for which
it receives an annual fee from the Fund.
Advisory Fees. The Fund's Adviser receives an annual investment advisory
fee equal to .40 of 1% of the Fund's average daily net assets. The Adviser
has undertaken to reimburse the Fund for operating expenses in excess of
limitations established by certain states.
Adviser's Background. Federated Management, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. Total assets under management or
administration by these and other subsidiaries of Federated Investors are
approximately $70 billion. Federated Investors, which was founded in 1956
as Federated Investors, Inc., develops and manages mutual funds primarily
for the financial industry. Federated Investors' track record of
competitive performance and its disciplined, risk-averse investment
philosophy serve approximately 3,500 client institutions nationwide.
Through these same client institutions, individual shareholders also have
access to this same level of investment expertise.
Gary J. Madich has been the Fund's co-portfolio manager since February,
1987. Mr. Madich joined Federated Investors in 1984 and has been a Senior
Vice President of the Fund's investment adviser since 1993. Mr. Madich
served as a Vice President of the Fund's investment adviser from 1988 until
1993. Mr. Madich is a Chartered Financial Analyst and received his M.B.A.
in Public Finance from the University of Pittsburgh.
Kathleen M. Foody-Malus has been the Fund's co-portfolio manager since
April, 1990.
Ms. Foody-Malus joined Federated Investors in 1983 and has been a Vice
President of the Fund's investment adviser since 1993. Ms. Foody-Malus
served as an Assistant Vice President of the investment adviser from 1990
until 1992, and from 1986 until 1989 she acted as an investment analyst.
Ms. Foody-Malus received her M.B.A. in Accounting/Finance from the
University of Pittsburgh.
Other Payments to Financial Institutions. _In addition to periodic payments to
financial institutions under the Shareholder Services Plans, certain financial
institutions may be compensated by the adviser or its affiliates for the
continuing investment of customers' assets in certain funds, including the Fund,
advised by those entities. These payments will be made directly by the
distributor or adviser from their assets, and will not be made from the assets
of the Fund or by the assessment of a sales charge on Shares.
Distribution of Institutional Shares
Federated Securities Corp. is the principal distributor for Institutional
Shares. It is a Pennsylvania corporation organized on November 14, 1969, and is
the principal distributor for a number of investment companies. Federated
Securities Corp. is a subsidiary of Federated Investors.
Administration of the Fund
Administrative Services. _Federated Administrative Services, a subsidiary of
Federated Investors, provides adminstrative personnel and services (including
certain legal and financial reporting services) necessary to operate the Fund.
Federated Administrative Services provides these at an annual rate, which
relates to the average aggregate daily net assets of all funds advised by
subsidiaries of Federated Investors ("Federated Funds") as specified below:
<TABLE>
<CAPTION>
Maximum Average Aggregate Daily Net
Administrative Fee Assets of the Federated Funds
<C> <S>
0.15 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.10 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
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 Administrative Services may choose voluntarily to waive a portion of
its fee.
Shareholder Services Plan. _The Trust has adopted a Shareholder Services Plan
(the "Services Plan") under which it may make payments up to 0.25 of 1% of the
average daily net asset value of the Fund to obtain certain personal service for
shareholders and the maintenance of shareholder accounts ("shareholder
services"). The Trust has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
Federated Shareholder Services will either perform shareholder services directly
or will select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon Shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Trust and Federated Shareholder
Serivces.
Custodian. State Street Bank and Trust Company, Boston, Massachusetts, is
custodian for the securities and cash of the Fund.
Transfer Agent and Dividend Disbursing Agent. _Federated Services Company,
Pittsburgh, Pennsylvania, is transfer agent for the shares of the Fund and
dividend disbursing agent for the Fund.
Legal Counsel. Legal counsel is provided by Houston, Houston & Donnelly,
Pittsburgh, Pennsylvania and Dickstein, Shapiro & Morin, Washington, D.C.
Independent Auditors. The independent auditors for the Fund are Deloitte &
Touche, Boston, Massachusetts.
Net Asset Value
- --------------------------------------------------------------------------------
The Fund's net asset value per Share fluctuates. The net asset value for Shares
is determined by adding the interest of the Shares in the market value of all
securities and other assets of the Fund, subtracting the interest of the Shares
in the liabilities of the Fund and those attributable to Shares, and dividing
the remainder by the number of shares outstanding. The net asset value for
Shares may exceed that of Institutional Service Shares 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.
Investing in Institutional Shares
- --------------------------------------------------------------------------------
Share Purchases
Shares are sold on days on which the New York Stock Exchange and the Federal
Reserve Wire System are open for business. Shares may be purchased either by
wire or mail.
To purchase Shares, open an account by calling Federated Securities Corp.
Information needed to establish the account will be taken over the telephone.
The Fund reserves the right to reject any purchase request.
By Wire. To purchase Shares by Federal Reserve wire, call the Fund before 4:00
p.m. (Boston time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m. (Boston
time) on the next business day following the order. Federal funds should be
wired as follows: State Street Bank and Trust Company, Boston, Massachusetts;
Attention: EDGEWIRE; For Credit to: Federated Income Trust--Institutional
Shares; Fund Number (this number can be found on the account statement or by
contacting the Fund); Group Number or Order Number; Nominee or Institution Name;
and ABA Number 011000028. Institutional Shares cannot be purchased by wire on
days on which the New York Stock Exchange is closed and on federal holidays
restricting wire transfers.
By Mail. To purchase Shares by mail, send a check made payable to Federated
Income Trust-- Institutional Shares to Federated Services Company, c/o State
Street Bank and Trust Company, P.O.
Box 8602, Boston, Massachusetts 02266-8602. Orders by mail are considered
received after payment by check is converted by State Street Bank into federal
funds. This is normally the next business day after State Street Bank receives
the check.
Minimum Investment Required
The minimum initial investment in Shares is $25,000 plus any non-affiliated bank
or broker's fee, if applicable. However, 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 will be calculated by combining all
accounts it maintains with the Fund. Accounts established through a
non-affiliated bank or broker may be subject to a smaller minimum investment.
What Shares Cost
Shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Fund. Investors who purchase
Shares through a non-affiliated bank or broker may be charged an additional
service fee by that bank or broker.
The net asset value is determined at 4:00 p.m. (Boston time), Monday through
Friday, except on:
(i) days on which there are not sufficient changes in the value of the Fund's
portfolio securities that its net asset value might be materially affected; (ii)
days during which no Shares are tendered for redemption and no orders to
purchase Shares are received; and (iii) the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
Exchanging Securities For Fund Shares
Investors may exchange certain U.S. government securities or a combination of
securities and cash for Shares. The securities and any cash must have a market
value of at least $25,000. The Fund reserves the right to determine the
acceptability of securities to be exchanged. Securities accepted by the Fund are
valued in the same manner as the Fund values its assets. Investors wishing to
exchange securities should first contact Federated Securities Corp.
Shares purchased by exchange of U.S. government securities cannot be redeemed by
telephone for five business days to allow time for the transfer to settle.
Subaccounting Services
Institutions are encouraged to open single master accounts. However, certain
institutions may wish to use the transfer agent's subaccounting system to
minimize their internal recordkeeping requirements. The transfer agent charges a
fee based on the level of subaccounting services rendered. Institutions 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 provided which may be
related to the ownership of Shares. This prospectus should, therefore, be read
together with any agreement between the customer and the institution with regard
to the services provided, the fees charged for those services, and any
restrictions and limitations imposed.
Certificates and Confirmations
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
by contacting the Fund.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during the
month.
Dividends
Dividends are declared daily and paid monthly. Dividends are declared just prior
to determining net asset value. If an order for Shares is placed on the
preceding business day, Shares purchased by wire begin earning dividends on the
business day wire payment is received by State Street Bank. If the order for
Shares and payment by wire are received on the same day, shares begin earning
dividends on the next business day. Shares purchased by check begin earning
dividends on the business day after the check is converted, upon instruction of
the transfer agent, into federal funds. Dividends are automatically reinvested
in additional Shares unless cash payments are requested by contacting the Fund.
Capital Gains
Capital gains realized by the Fund, if any, are distributed at least once every
12 months.
Redeeming Institutional Shares
- --------------------------------------------------------------------------------
The Fund redeems Shares at the net asset value next determined after the Fund
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Redemption requests must be received in
proper form and can be made by telephone request or by written request.
Telephone Redemption
Shareholders may redeem their Shares by telephoning the Fund before 4:00 p.m.
(Boston time). Telephone redemption instructions may be recorded. The proceeds
will normally be wire transferred the following business day, but in no event
more than seven days, to the shareholder's account at a domestic commercial bank
that is a member of the Federal Reserve System. If at any time, the Fund shall
determine it necessary to terminate or modify this method of redemption,
shareholders would be promptly notified.
An authorization form permitting the Fund to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from Federated Securities Corp.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as "Written Requests," should be considered. If
reasonable procedures are not followed by the Fund, it may be liable for losses
due to unauthorized or fraudulent telephone instructions.
Written Requests
Shares may also be redeemed by sending a written request to the Fund. Call the
Fund for specific instructions before redeeming by letter. The shareholder will
be asked to provide in the request his name, the Fund name, his account number,
and the share or dollar amount requested. If share certificates have been
issued, they must be properly endorsed and should be sent by registered or
certified mail with the written request.
Signatures. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
the Fund, or a redemption payable other than to the shareholder of record must
have signatures on written redemption requests guaranteed by:
a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("SAIF"), which is administered
by the FDIC; or
any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
Receiving Payment. Normally, a check for the proceeds is mailed within one
business day, but in no event more than seven days, after receipt of a proper
written redemption request.
Accounts with Low Balances
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum of $25,000 due to shareholder
redemptions. This requirement does not apply, however, if the balance falls
below $25,000 because of changes in the Fund's net asset value.
Before Shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional Shares to meet the minimum
requirement.
Shareholder Information
- --------------------------------------------------------------------------------
Voting Rights
Each Share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
each portfolio in 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.
As a Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust's or the Fund's operation and for the election of Trustees
under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders for this purpose shall be called by the
Trustees upon the written request of shareholders owning at least 10% of the
Trust's outstanding shares entitled to vote.
Massachusetts Partnership Law
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for such acts or
obligations of the Trust. These documents require notice of this disclaimer to
be given in each agreement, obligation, or instrument that the Trust or its
Trustees enter into or sign on behalf of the Fund.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required to use its property to protect or compensate
the shareholder. On request, the Trust will defend any claim made and pay any
judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder will occur
only if the Trust itself cannot meet its obligations to indemnify shareholders
and pay judgments against them from its assets.
Tax Information
- --------------------------------------------------------------------------------
Federal Income Tax
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions received. This applies whether dividends
and distributions are received in cash or as additional shares.
Pennsylvania Corporate and Personal Property Taxes
In the opinion of Houston, Houston & Donnelly, counsel to the Trust:
the Fund is not subject to Pennsylvania corporate or personal property
taxes; and
Fund shares may be subject to personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania to the extent that
the portfolio securities in the Fund would be subject to such taxes if
owned directly by residents of those jurisdictions.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
Other Classes of Shares
- --------------------------------------------------------------------------------
Institutional Service Shares are sold primarily to retail and private banking
customers of financial institutions. Institutional Service Shares are sold at
net asset value. Investments in Institutional Service Shares are subject to a
minimum initial investment of $25,000.
Institutional Service Shares are distributed pursuant to a 12b-1 Plan adopted by
the Trust whereby the distributor is paid a fee of .25 of 1% of the
Institutional Service Shares' average daily net assets.
Financial institutions and brokers providing sales and/or administrative
services may receive different compensation depending upon which class of shares
of the Fund is sold.
The amount of dividends payable to Institutional Shares will exceed that of
Institutional Service Shares by the difference between Class Expenses and
distribution and shareholder service expenses borne by shares of each respective
class.
The stated advisory fee is the same for both classes of shares.
Performance Information
- --------------------------------------------------------------------------------
From time to time the Fund advertises its total return and yield for Shares.
Total return represents the change, over a specified period of time, in the
value of an investment in Shares of the Fund after reinvesting all income and
capital gains distributions. It is calculated by dividing that change by the
initial investment and is expressed as a percentage.
The yield of Shares of the Fund is calculated by dividing the net investment
income per share (as defined by the Securities and Exchange Commission) earned
by Shares over a thirty-day period by the offering price per share of Shares on
the last day of the period. This number is then annualized using semi-annual
compounding. The yield does not necessarily reflect income actually earned by
Shares and, therefore, may not correlate to the dividends or other distributions
paid to shareholders.
Total return and yield will be calculated separately for Institutional Shares
and Institutional Service Shares. Because Institutional Service Shares are
subject to a 12b-1 fee, the total return and yield for Institutional Shares, for
the same period, will exceed that of Institutional Service Shares.
Institutional Shares are sold without any sales load or other similar
non-recurring charges.
From time to time, the Fund may advertise the performance of Institutional
Shares using certain financial publications and/or compare the performance of
Institutional Shares to certain indices.
Federated Income Trust
Financial Highlights--Institutional Service Shares
- --------------------------------------------------------------------------------
(For a share outstanding throughout each period)
Reference is made to the Independent Auditor's Report on page 26.
<TABLE>
<CAPTION>
Year Ended
January 31,
<S> <C> <C>
1994 1993*
Net asset value, beginning of period $ 10.73 $ 10.64
- --------------------------------------------------------------------------------------------
Income from investment operations
- --------------------------------------------------------------------------------------------
Net investment income 0.75 0.51
- --------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.23) 0.09
- -------------------------------------------------------------------------------------------- --------- ---------
Total from investment operations 0.52 0.60
- --------------------------------------------------------------------------------------------
Less distributions
- --------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.75) (0.51)
- -------------------------------------------------------------------------------------------- --------- ---------
Net asset value, end of period $ 10.50 $ 10.73
- -------------------------------------------------------------------------------------------- --------- ---------
Total return** 4.96% 4.80%
- --------------------------------------------------------------------------------------------
Ratios to average net assets
- --------------------------------------------------------------------------------------------
Expenses 0.76% 0.76%(a)
- --------------------------------------------------------------------------------------------
Net investment income 7.03% 7.16%(a)
- --------------------------------------------------------------------------------------------
Supplemental Data
- --------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $67,176 $53,981
- --------------------------------------------------------------------------------------------
Portfolio turnover rate 178% 52%
- --------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from May 31, 1992 (effective date of
Institutional Service Shares) to January 31, 1993.
** Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
Further information about the Fund's performance is contained in the Fund's
annual report for the fiscal year ended January 31, 1994, which can be obtained
free of charge.
Federated Income Trust
Portfolio of Investments
January 31, 1994
- --------------------------------------------------------------------------------
The obligations listed below are issued, guaranteed, or insured by the U.S.
government, its agencies or instrumentalities, or secured by such obligations.
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
- --------------- ----------------------------------------------------------------------------- -----------------
Long-Term Obligations--97.0%
- ----------------------------------------------------------------------------------------------
*Federal Home Loan Mortgage Corp. PC--25.3%
-----------------------------------------------------------------------------
$ 7,537,051 12.50%, 11/1/2009-6/1/2015 $ 8,575,732
-----------------------------------------------------------------------------
18,256,906 12.00%, 5/1/1999-7/1/2019 20,653,125
-----------------------------------------------------------------------------
8,706,322 11.50%, 3/1/2011-7/1/2016 9,770,060
-----------------------------------------------------------------------------
10,089,119 11.00%, 5/1/2000-9/1/2020 11,266,127
-----------------------------------------------------------------------------
60,872,762 10.50%, 1/1/1999-1/1/2021 67,529,873
-----------------------------------------------------------------------------
58,798,990 10.00%, 10/1/2020-6/1/2021 64,561,267
-----------------------------------------------------------------------------
49,686,875 9.50%, 10/1/2006-12/1/2022 53,706,375
-----------------------------------------------------------------------------
5,990,813 9.00%, 4/1/2009-2/1/2013 6,374,584
-----------------------------------------------------------------------------
152,220,776 7.00%, 1/1/1999-10/1/2007 156,318,210**
-----------------------------------------------------------------------------
24,500,000 6.00%, 1/1/2001 25,051,250
-----------------------------------------------------------------------------
30,305,271 5.50%, 11/1/2000-12/1/2000 30,561,047
----------------------------------------------------------------------------- -----------------
Total 454,367,650
----------------------------------------------------------------------------- -----------------
*Federal Home Loan Mortgage Corp. REMIC--14.4%
-----------------------------------------------------------------------------
27,560,000 9.50%, Series 188G, 9/15/2021 7,830,347
-----------------------------------------------------------------------------
5,605,556 9.00%, Series 1136Y, 9/15/2021 1,277,899
-----------------------------------------------------------------------------
13,565,444 9.00%, Series 187G, 8/15/2021 2,567,667
-----------------------------------------------------------------------------
25,000,000 7.00%, Series 1072G, 5/15/2006 25,643,250
-----------------------------------------------------------------------------
10,920,000 7.00%, Series 1080D, 7/15/2020 11,172,471
-----------------------------------------------------------------------------
20,000,000 6.90%, Series 1551G, 7/15/2008 20,295,800
-----------------------------------------------------------------------------
10,000,000 6.60%, Series 1559VH, 12/15/2021 9,976,100
-----------------------------------------------------------------------------
18,453,000 6.50%, Series 1369G, 3/15/2006 18,785,523
-----------------------------------------------------------------------------
20,000,000 6.50%, Series 1450E, 9/15/2004 20,438,400
-----------------------------------------------------------------------------
43,116,000 6.375%, Series 1423-DD, 1/15/2006 43,220,772
-----------------------------------------------------------------------------
$ 25,000,000 6.25%, Series 1564G, 5/15/2007 $ 24,986,000
-----------------------------------------------------------------------------
10,000,000 6.00%, Series 1476G, 4/15/2006 9,809,300
-----------------------------------------------------------------------------
16,153,000 6.00%, Series 1584G, 9/1/2018 15,850,939
-----------------------------------------------------------------------------
15,000,000 5.90%, Series 1612-PE, 11/15/2007 14,805,900
-----------------------------------------------------------------------------
31,678,000 5.50%, Series 1353B, 6/15/2006 31,150,245
----------------------------------------------------------------------------- -----------------
Total 257,810,613
----------------------------------------------------------------------------- -----------------
*Federal Home Loan Mortgage Corp. PC ARM--6.5%
-----------------------------------------------------------------------------
2,260,486 5.25%, 6/1/2018 2,331,827
-----------------------------------------------------------------------------
4,880,792 4.697%, 3/1/2023 5,034,829
-----------------------------------------------------------------------------
4,517,547 4.349%, 3/1/2023 4,641,780
-----------------------------------------------------------------------------
16,644,474 4.32%, 4/1/2023 17,273,801
-----------------------------------------------------------------------------
44,067,219 4.251%, 5/1/2023 45,609,571
-----------------------------------------------------------------------------
4,988,678 4.25%, 7/1/2023 5,138,339
-----------------------------------------------------------------------------
4,831,225 4.164%, 9/1/2023 4,475,728
-----------------------------------------------------------------------------
14,511,704 4.156%, 7/1/2023 14,933,414
-----------------------------------------------------------------------------
9,879,666 4.125%, 6/1/2023 10,182,280
-----------------------------------------------------------------------------
6,531,528 4.117%, 3/1/2023 6,715,260
----------------------------------------------------------------------------- -----------------
Total 116,336,829
----------------------------------------------------------------------------- -----------------
*Federal National Mortgage Association--40.5%
-----------------------------------------------------------------------------
2,838,173 13.00%, 9/1/2011-10/1/2015 3,268,327
-----------------------------------------------------------------------------
9,589,953 12.50%, 12/1/2010-11/1/2015 11,025,377
-----------------------------------------------------------------------------
8,755,263 12.00%, 2/1/2005-5/1/2016 10,011,030
-----------------------------------------------------------------------------
20,439,393 11.50%, 5/1/2012-2/1/2016 23,262,951
-----------------------------------------------------------------------------
22,818,134 11.00%, 7/1/2011-5/1/2023 25,680,384
-----------------------------------------------------------------------------
41,683,644 10.50%, 12/1/2019-4/1/2022 46,555,212
-----------------------------------------------------------------------------
121,492,725 10.00%, 5/1/2019-5/1/2023 134,237,886
-----------------------------------------------------------------------------
3,548,827 9.50%, 7/1/2018-11/1/2019 3,788,373
-----------------------------------------------------------------------------
$ 12,609,162 9.00%, 5/1/2009-2/1/2013 $ 13,539,088
-----------------------------------------------------------------------------
2,573,700 8.00%, 1/1/2023-4/1/2023 3,400,890
-----------------------------------------------------------------------------
101,923,080 7.50%, 3/1/2010-9/1/2023 106,371,586
-----------------------------------------------------------------------------
146,539,120 7.00%, 1/1/1999-12/31/1999 150,786,017**
-----------------------------------------------------------------------------
141,764,910 6.50%, 10/25/2008-12/1/2008 144,954,620
-----------------------------------------------------------------------------
49,000,000 6.00%, 1/1/2001 50,010,870
----------------------------------------------------------------------------- -----------------
Total 726,892,611
----------------------------------------------------------------------------- -----------------
*Federal National Mortgage Association REMIC--5.9%
-----------------------------------------------------------------------------
15,118,567 9.00%, Series 1991-82PQ, 8/25/2021 2,097,701
-----------------------------------------------------------------------------
10,000,000 7.00%, Series 1992-15E, 9/25/2018 10,231,700
-----------------------------------------------------------------------------
11,393,000 6.50%, Series 1993-55K, 5/25/2008 11,278,614
-----------------------------------------------------------------------------
19,716,180 6.00%, Series 1993-229J, 12/25/2008 19,712,829
-----------------------------------------------------------------------------
15,000,000 6.00%, Series 1993-96PG, 2/25/2019 14,761,500
-----------------------------------------------------------------------------
12,203,000 5.90%, Series 1993-197PG, 9/25/2007 11,989,814
-----------------------------------------------------------------------------
21,000,000 5.50%, Series 1993-198G, 5/25/2019 20,115,480
-----------------------------------------------------------------------------
15,000,000 4.75%, Series 1993-189PB, 5/25/2007 14,963,850
----------------------------------------------------------------------------- -----------------
Total 105,151,488
----------------------------------------------------------------------------- -----------------
*Federal National Mortgage Association ARM--4.4%
-----------------------------------------------------------------------------
10,348,246 5.50%, 12/1/2022 10,716,954
-----------------------------------------------------------------------------
10,428,789 4.97%, 3/1/2023 10,757,922
-----------------------------------------------------------------------------
4,687,084 4.133%, 9/1/2023 4,795,497
-----------------------------------------------------------------------------
6,830,775 4.094%, 7/1/2023 7,010,083
-----------------------------------------------------------------------------
26,154,232 4.062%, 6/1/2023 26,906,166
-----------------------------------------------------------------------------
11,785,746 4.058%, 7/1/2023 12,132,012
-----------------------------------------------------------------------------
5,968,362 4.009%, 9/1/2023 6,113,870
----------------------------------------------------------------------------- -----------------
Total 78,432,504
----------------------------------------------------------------------------- -----------------
Total Long-Term Obligations (identified cost, $1,742,565,541) 1,738,991,695
----------------------------------------------------------------------------- -----------------
(a) Repurchase Agreements--14.5%
- ----------------------------------------------------------------------------------------------
$ 9,865,000 J.P. Morgan Securities, Inc., 3.19%, dated 1/31/94,
due 2/1/94 (b) $ 9,865,000
-----------------------------------------------------------------------------
250,000,000 \Kidder Peabody & Co. Inc., 3.15%, dated 1/13/94, due
2/14/94 250,000,000
----------------------------------------------------------------------------- -----------------
Total Repurchase Agreements (at amortized cost) (Note 2B) 259,865,000
----------------------------------------------------------------------------- -----------------
Total Investments (identified cost, $2,002,430,541) $ 1,998,856,695\\
----------------------------------------------------------------------------- -----------------
</TABLE>
* Because of monthly principal payments, the average life of the Federal Home
Loan Mortgage Corp. Participation
securities and Federal National Mortgage Association Pass-Through securities
approximates 1-10 years.
** Includes securities with a market value of $256,561,500 subject to Dollar
Roll transactions.
(a) The repurchase agreements are fully collateralized by U.S. government
obligations based on market prices at the date of the portfolio.
(b) The investment in the repurchase agreement is through participation in a
joint account with other Federated funds.
\ Although final maturity falls beyond seven days, a liquidity feature is
included in each transaction to permit termination of the repurchase
agreement within seven days.
\\ The cost of investments for federal tax purposes amounts to $2,002,430,541.
The net unrealized depreciation of investments on a federal tax basis
amounts to $3,573,846, which is comprised of $24,173,109 appreciation and
$27,746,955 depreciation at January 31, 1994.
Note: The categories of investments are shown as a percentage of net assets
($1,794,423,798) at January 31, 1994.
The following abbreviations are used in this portfolio:
ARM--Adjustable Rate Mortgage
PC--Participation Certificates
REMIC--Real Estate Mortgage Investment Conduit
(See Notes which are an integral part of the Financial Statements)
Federated Income Trust
Statement of Assets and Liabilities
January 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets:
- ---------------------------------------------------------------------------------------------
Investments in repurchase agreements (Note 2B) $ 259,865,000
- --------------------------------------------------------------------------
Investments in other securities (Note 2A) 1,738,991,695
- -------------------------------------------------------------------------- -----------------
Total investments, at value
(identified and tax cost, $2,002,430,541) $ 1,998,856,695
- ---------------------------------------------------------------------------------------------
Receivable for investments sold 41,152,749
- ---------------------------------------------------------------------------------------------
Interest receivable 17,037,707
- ---------------------------------------------------------------------------------------------
Receivable for Fund shares sold 2,558,505
- --------------------------------------------------------------------------------------------- ------------------
Total assets 2,059,605,656
- ---------------------------------------------------------------------------------------------
Liabilities:
- ---------------------------------------------------------------------------------------------
Payable for dollar roll transactions (Note 2F) 253,358,399
- --------------------------------------------------------------------------
Dividends payable 8,810,911
- --------------------------------------------------------------------------
Payable for Fund shares redeemed 2,822,546
- --------------------------------------------------------------------------
Accrued expenses 190,002
- -------------------------------------------------------------------------- -----------------
Total liabilities 265,181,858
- --------------------------------------------------------------------------------------------- ------------------
Net Assets for 170,836,972 shares of beneficial interest outstanding $ 1,794,423,798
- --------------------------------------------------------------------------------------------- ------------------
Net Assets Consist of:
- ---------------------------------------------------------------------------------------------
Paid-in capital (Note 2G) $ 1,874,594,776
- ---------------------------------------------------------------------------------------------
Undistributed net investment income 77,257
- ---------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investments (3,573,846)
- ---------------------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments (Note 2G) (76,674,389)
- --------------------------------------------------------------------------------------------- ------------------
Total $ 1,794,423,798
- --------------------------------------------------------------------------------------------- ------------------
Net Asset Value, Offering Price and Redemption Price Per Share
Institutional Shares (net assets of $1,727,247,398 / 164,441,814 shares of
beneficial interest outstanding) $10.50
- --------------------------------------------------------------------------------------------- ------------------
Institutional Service Shares (net assets of $67,176,400 / 6,395,158 shares of
beneficial interest outstanding) $10.50
- --------------------------------------------------------------------------------------------- ------------------
(See Notes which are an integral part of the Financial Statements)
</TABLE>
Federated Income Trust
Statement of Operations
Year Ended January 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment Income:
- ------------------------------------------------------------------------------------------------
Interest income (Note 2C) (net of interest expense of $1,825,273) $ 133,602,508
- ------------------------------------------------------------------------------------------------
Expenses:
- ------------------------------------------------------------------------------------------------
Investment advisory fee (Note 5) $ 6,861,374
- ---------------------------------------------------------------------------------
Trustees' fees 28,208
- ---------------------------------------------------------------------------------
Administrative personnel and services (Note 5) 1,043,969
- ---------------------------------------------------------------------------------
Custodian, transfer and dividend disbursing agent fees and expenses 442,593
- ---------------------------------------------------------------------------------
Registration costs 124,625
- ---------------------------------------------------------------------------------
Auditing fees 22,291
- ---------------------------------------------------------------------------------
Legal fees 19,394
- ---------------------------------------------------------------------------------
Printing and postage 38,379
- ---------------------------------------------------------------------------------
Taxes 38,566
- ---------------------------------------------------------------------------------
Distribution services fee (Note 5) 137,722
- ---------------------------------------------------------------------------------
Insurance premiums 33,004
- ---------------------------------------------------------------------------------
Miscellaneous 11,269
- --------------------------------------------------------------------------------- -------------
Total expenses 8,801,394
- ------------------------------------------------------------------------------------------------ ---------------
Net investment income 124,801,114
- ------------------------------------------------------------------------------------------------ ---------------
Realized and Unrealized Gain (Loss) on Investments:
- ------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments 6,604,924
- ------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (44,130,386)
- ------------------------------------------------------------------------------------------------ ---------------
Net realized and unrealized gain (loss) on investments (37,525,462)
- ------------------------------------------------------------------------------------------------ ---------------
Change in net assets resulting from operations $ 87,275,652
- ------------------------------------------------------------------------------------------------ ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Federated Income Trust
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended January 31,
<S> <C> <C>
------------------------------------
<CAPTION>
1994 1993
<S> <C> <C>
Increase (Decrease) in Net Assets:
- ---------------------------------------------------------------------------
Operations--
- ---------------------------------------------------------------------------
Net investment income $ 124,801,114 $ 106,105,720
- ---------------------------------------------------------------------------
Net realized gain (loss) on investment transactions ($6,669,676 net gain
and $8,708,974 net gain, respectively, as computed for federal income tax
purposes) 6,604,924 8,708,974
- ---------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) of investments (44,130,386) 127,889
- --------------------------------------------------------------------------- ----------------- -----------------
Change in net assets resulting from operations 87,275,652 114,942,583
- --------------------------------------------------------------------------- ----------------- -----------------
Distributions to Shareholders (Note 3)--
- ---------------------------------------------------------------------------
Dividends to shareholders from net investment income:
- ---------------------------------------------------------------------------
Institutional Shares (120,844,426) (104,675,949)
- ---------------------------------------------------------------------------
Institutional Service Shares (3,879,431) (1,429,771)
- --------------------------------------------------------------------------- ----------------- -----------------
Change in net assets from distributions to shareholders (124,723,857) (106,105,720)
- --------------------------------------------------------------------------- ----------------- -----------------
Fund Share (Principal) Transactions (Note 4)--
- ---------------------------------------------------------------------------
Proceeds from sales of shares 858,701,229 895,706,111
- ---------------------------------------------------------------------------
Net asset value of shares issued to shareholders electing
to receive payment of distributions in Fund shares 25,460,750 19,640,007
- ---------------------------------------------------------------------------
Cost of shares redeemed (655,129,012) (553,322,293)
- --------------------------------------------------------------------------- ----------------- -----------------
Change in net assets from Fund share transactions 229,032,967 362,023,825
- --------------------------------------------------------------------------- ----------------- -----------------
Change in net assets 191,584,762 370,860,688
- ---------------------------------------------------------------------------
Net Assets:
- ---------------------------------------------------------------------------
Beginning of period 1,602,839,036 1,231,978,348
- --------------------------------------------------------------------------- ----------------- -----------------
End of period (includes undistributed net investment
income of $77,257) $ 1,794,423,798 $ 1,602,839,036
- --------------------------------------------------------------------------- ----------------- -----------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Federated Income Trust
Notes to Financial Statements
January 31, 1994
- --------------------------------------------------------------------------------
(1) Organization
Federated Income Trust (the "Trust") is registered under the Investment Company
Act of 1940, as amended, as a diversified, open-end, management investment
company. The Trust provides two classes of shares ("Institutional Shares" and
"Institutional Service Shares"). Institutional Service Shares are identical in
all respects to Institutional Shares except that Institutional Service Shares
are sold pursuant to a distribution plan ("Plan") adopted in accordance with the
Investment Company Act Rule 12b-1.
(2) Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principals.
A. Investment Valuations--U.S. government obligations are generally valued at
the mean between the over-the-counter bid and asked prices as furnished by
an independent pricing service.
B. Repurchase Agreements--It is the policy of the Trust 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 in support of
repurchase agreement investments. Additionally, procedures have been
established by the Trust to monitor, on a daily basis, the market value of
each repurchase agreement's underlying collateral to ensure the value at
least equals the principal amount of the repurchase transaction, including
accrued interest.
The Trust will only enter into repurchase agreements with banks and other
recognized financial institutions such as broker/dealers which are deemed
by the Trust's adviser to be creditworthy pursuant to guidelines
established by the Board of Trustees ("Trustees"). Risks may arise from the
potential inability of counterparties to honor the terms of the repurchase
agreement. Accordingly, the Trust could receive less than the repurchase
price on the sale of collateral securities.
C. Income--Interest income is recorded on the accrual basis and includes
discount earned less any premium on short-term obligations and original
issue discount on all other debt securities.
D. Federal Taxes--It is the Trust's policy to comply with the provisions of
the Internal Revenue Code, as amended, (the "Code"), applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its taxable income, including any net realized gain on
investments. Accordingly, no provisions for federal tax are necessary. At
January 31, 1994, the Trust, for federal income tax purposes, had a capital
loss carryforward of $59,511,521, which will reduce the Trust's taxable
income arising from future net realized gains on investments, if any, to
the extent permitted by the Code, and thus will reduce the amount of the
distribution to shareholders which would otherwise be necessary to relieve
the Trust of any liability for federal tax. Pursuant to the Code, such
capital loss carryforward will expire in 1996 ($14,398,108), 1997
($26,760,646), 1998 ($16,389,825) and 1999 ($1,962,942). Included in these
amounts are $583,490 of losses which were incurred by Federated Variable
Rate Mortgage Securities Trust prior to its merger into the Trust. The
Trust's ability to use these losses may be limited, however, through the
application of the Code's change of ownership rules.
Additionally, net capital losses of $17,162,868 attributable to security
transactions incurred after October 31, 1993, are treated as arising on
February 1, 1994, the first day of the Fund's next taxable year.
E. When-Issued and Delayed Delivery Transactions--The Trust may engage in
when-issued or delayed delivery transactions. The Trust records when-issued
securities 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.
F. Dollar Roll Transactions--The Trust enters into dollar roll transactions,
with respect to mortgage securities issued by GNMA, FNMA and FHLMC, in
which the Trust sells mortgage securities to financial institutions and
simultaneously agrees to repurchase substantially similiar (same type,
coupon and maturity) securities at a later date at an agreed upon price.
During the period between the sale and repurchase, the Trust forgoes
principal and interest paid on the mortgage security sold. The Trust is
compensated by the interest earned on the cash proceeds of the initial sale
and any additional fee income received on the sale.
G. Reclassifications--During the current period, the Fund adopted Statement of
Position 93-2 Determination, Disclosure, and Financial Statement
Presentation of Income, Capital Gain, and Return of Capital Distributions
by Investment Companies. Accordingly, permanent book and tax basis
differences relating to shareholder distributions have been reclassified to
paid-in-capital. As of February 1, 1993, the cumulative effect of such
differences, totaling $517,028 was reclassified from accumulated net
realized gain/(loss) on investments to paid-in-capital. Net investment
income, net realized gains, and net assets were not affected by this
change.
H. Other--Investment transactions are accounted for on the date of the
transaction.
(3) Dividends and Distributions
Dividends from net investment income are declared daily and paid monthly.
Distributions of any net realized capital gains are made at least once every
twelve months. Dividends and capital gain distributions, if any, are recorded on
the ex-dividend date.
(4) Shares of Beneficial Interest
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. Transactions in Trust shares were as follows:
<TABLE>
<CAPTION>
Year Ended January 31,
<S> <C> <C> <C> <C>
--------------------------------------------------------------------
<CAPTION>
1994 1993
--------------------------------- ---------------------------------
Institutional Shares Shares Dollars Shares Dollars
- ------------------------------------------ -------------- ----------------- -------------- -----------------
<S> <C> <C> <C> <C>
Shares outstanding,
beginning of period 144,383,249 $ 1,591,146,575 115,614,902 $ 1,283,604,950
- ------------------------------------------
Shares sold 73,655,885 783,979,962 77,004,962 822,750,753
- ------------------------------------------
Shares issued to shareholders
electing to receive payment of
distributions in Fund shares 2,174,745 23,092,260 1,718,663 18,331,718
- ------------------------------------------
Shares redeemed (55,772,065) (592,762,823) (49,955,278) (532,956,850)
- ------------------------------------------ -------------- ----------------- -------------- -----------------
Shares outstanding, end of period 164,441,814 $ 1,805,455,974 144,383,249 $ 1,591,730,571
- ------------------------------------------ -------------- ----------------- -------------- -----------------
</TABLE>
<TABLE>
<CAPTION>
Year Ended January 31,
<S> <C> <C> <C> <C>
--------------------------------------------------------------
<CAPTION>
1994 1993*
------------------------------ ------------------------------
Institutional Service Shares Shares Dollars Shares Dollars
- ----------------------------------------------- ------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Shares outstanding, beginning of period 5,032,890 $ 53,898,204 -- $ --
- -----------------------------------------------
Shares sold 7,007,589 74,721,267 6,795,689 72,955,358
- -----------------------------------------------
Shares issued to shareholders
electing to receive payment of
distributions in Fund shares 222,804 2,368,490 122,524 1,308,289
- -----------------------------------------------
Shares redeemed (5,868,125) (62,366,189) (1,885,323) (20,365,443)
- ----------------------------------------------- ------------- --------------- ------------- ---------------
Shares outstanding, end of period 6,395,158 $ 68,621,772 5,032,890 $ 53,898,204
- ----------------------------------------------- ------------- --------------- ------------- ---------------
</TABLE>
*For the period from May 31, 1992 (effective date of Institutional Service
Shares) to January 31, 1993.
(5) Investment Advisory Fee and Other Transactions with Affiliates
Federated Management, the Trust's investment adviser ("Adviser"), receives for
its services an annual investment advisory fee equal to 0.40 of 1% of the
Trust's average daily net assets. For the year ended January 31, 1994, the
Adviser earned a fee of $6,861,374.
Administrative personnel and services were provided at approximate cost by
Federated Administrative Services, Inc. Effective March 1, 1994, Federated
Administrative Services ("FAS") will provide administrative personnel and
services at an annual rate of 0.15 of 1% on the first $250 million of average
aggregate net assets of the total Federated Funds; 0.125 of 1% on the next $250
million; 0.10 of 1% on the next $250 million; and 0.075 of 1% on average
aggregate net 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.
The Trust has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Investment Company Act of 1940. The Trust will compensate Federated
Securities Corp., ("FSC"), the principal distributor, from the net assets of the
Trust, to finance activities intended to result in the sale of the Trust's
Institutional Service Shares. The Plan provides that the Fund will incur
distribution expenses up to 0.25 of 1% of the average daily net assets of the
Institutional Service Shares, annually, to compensate FSC. For the year ended
January 31, 1994, FSC was compensated $137,222 in distribution services fees
under the plan.
Certain of the Officers and Trustees of the Trust are Officers and Directors of
the above corporations.
(6) Investment Transactions
Purchases and sales of investments, excluding short-term securities, for the
fiscal year ended January 31, 1994, were as follows:
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------------
Purchases-- $ 3,195,722,654
- ----------------------------------------------------------------------------------------------- -----------------
Sales-- $ 3,016,520,332
- ----------------------------------------------------------------------------------------------- -----------------
</TABLE>
(7) Acquisition of Federated Variable Rate Mortgage Securities Trust
On April 26, 1990, the Trust acquired all the net assets of Federated Variable
Rate Mortgage Securities Trust ("Acquired Trust") pursuant to a plan of
reorganization approved by the Acquired Trust's shareholders on February 14,
1990. The acquisition was accomplished by a tax-free exchange of 742,473 shares
of the Trust (valued at $7,439,576) for assets of the Acquired Trust outstanding
on April 26, 1990. The Acquired Trust's net assets at that date ($7,439,576)
including $14,365 of unrealized appreciation and $583,996 net realized loss on
investment transactions, were combined with those of the Trust. The aggregate
net assets of the Trust immediately before and after the acquisition were
$960,530,883 and $967,970,459, respectively.
Independent Auditors' Report
- --------------------------------------------------------------------------------
To the Trustees and Shareholders of
FEDERATED INCOME TRUST:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Federated Income Trust as of January 31, 1994,
the related statement of operations for the year then ended, the statement of
changes in net assets for the years ended January 31, 1994 and 1993, and the
financial highlights (see pages 2 and 14 of the prospectus) for each of the
years in the ten-year period ended January 31, 1994. These financial statements
and financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
January 31, 1994 by correspondence with the custodian and brokers; where replies
were not received from brokers, we performed other auditing procedures. 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, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Federated Income
Trust as of January 31, 1994, the results of its operations, the changes in its
net assets, and the financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE
Boston, Massachusetts
March 15, 1994
Addresses
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Federated Income Trust Federated Investors Tower
Institutional Shares Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Custodian
State Street Bank and P.O. Box 8602
Trust Company Boston, Massachusetts 02266-8602
- ---------------------------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
- ---------------------------------------------------------------------------------------------------------------------
Legal Counsel
Dickstein, Shapiro & Morin 2101 L Street, N.W.
Washington, D.C. 20037
- ---------------------------------------------------------------------------------------------------------------------
Independent Auditors
Deloitte & Touche 125 Summer Street
Boston, Massachusetts 02110-1617
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Federated Income Trust
Institutional Shares
Prospectus
An Open-End, Diversified
Management Investment Company
March 31, 1994
8030102A-IS (3/94)
Federated Income Trust
Institutional Service Shares
Prospectus
The Institutional Service Shares of Federated Income Trust (the "Trust") offered
by this prospectus represent interests in a diversified portfolio of securities
(the "Fund"). The Trust is a no-load, open-end management investment company (a
mutual fund). The investment objective of the Fund is to provide current income.
The Fund pursues this investment objective by investing in U.S. government
securities. As of the date of this prospectus, it is anticipated that the Fund
will invest primarily in securities of U.S. government agencies or
instrumentalities, such as the Federal Home Loan Mortgage Corporation.
The Institutional Service 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 by the Federal Deposit Insurance Corporation, the Federal Reserve Board,
or any other government agency. Investment in these Institutional Service Shares
involves investment risks, including the possible loss of principal.
This prospectus contains the information you should read and know before you
invest in Institutional Service Shares of the Fund. Keep this prospectus for
future reference.
The Fund has also filed a Combined Statement of Additional Information for
Institutional Shares and Institutional Service Shares dated March 31, 1994, with
the Securities and Exchange Commission. The information contained in the
Combined Statement of Additional Information is incorporated by reference into
this prospectus. You may request a copy of the Combined Statement of Additional
Information free of charge by calling 1-800-235-4669. To obtain other
information, or make inquiries about the Fund, contact the Fund at the address
listed in the back of this prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated March 31, 1994
Table of Contents
- --------------------------------------------------------------------------------
Summary of Fund Expenses 1
- ------------------------------------------------------
Financial Highlights 2
- ------------------------------------------------------
General Information 3
- ------------------------------------------------------
Investment Information 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Acceptable Investments 4
CMOs 4
Repurchase Agreements 5
Characteristics of Mortgage-Backed
Securities 5
When-Issued and Delayed Delivery
Transactions 5
Investment Limitations 6
Trust Information 6
- ------------------------------------------------------
Management of the Trust 6
Board of Trustees 6
Investment Adviser 6
Advisory Fees 6
Adviser's Background 6
Other Payments to Financial Institutions 7
Distribution of Institutional Service
Shares 7
Distribution and Shareholder Services
Plans 7
Administration of the Fund 8
Administrative Services 8
Custodian 8
Transfer Agent and Dividend
Disbursing Agent 8
Legal Counsel 8
Independent Auditors 8
Net Asset Value 8
- ------------------------------------------------------
Investing in Institutional Service Shares 9
- ------------------------------------------------------
Share Purchases 9
By Wire 9
By Mail 9
Minimum Investment Required 9
What Shares Cost 9
Exchanging Securities for Fund Shares 10
Subaccounting Services 10
Certificates and Confirmations 10
Dividends 10
Capital Gains 10
Redeeming Institutional Service Shares 11
- ------------------------------------------------------
Telephone Redemption 11
Written Requests 11
Signatures 11
Receiving Payment 12
Accounts with Low Balances 12
Shareholder Information 12
- ------------------------------------------------------
Voting Rights 12
Massachusetts Partnership Law 12
Tax Information 13
- ------------------------------------------------------
Federal Income Tax 13
Pennsylvania Corporate and Personal
Property Taxes 13
Performance Information 13
- ------------------------------------------------------
Other Classes of Shares 14
- ------------------------------------------------------
Financial Highlights--
Institutional Shares 15
- ------------------------------------------------------
Financial Statements 16
- ------------------------------------------------------
Independent Auditors' Report 27
- ------------------------------------------------------
Addresses Inside Back Cover
- ------------------------------------------------------
Summary of Fund Expenses--
Institutional Service Shares
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)..................................................................... None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)..................................................................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds as applicable).................................................... None
Redemption Fee (as a percentage of amount
redeemed, if applicable)................................................................................ None
Exchange Fee.............................................................................................. None
Annual Institutional Service Shares Operating Expenses
(As a percentage of average net assets)
Management Fee............................................................................................ 0.40%
12b-1 Fee(1).............................................................................................. 0.05%
Total Other Expenses...................................................................................... 0.32%
Shareholder Servicing Fee(2)................................................................... 0.20%
Total Institutional Service Shares Operating Expenses (3)....................................... 0.77%
</TABLE>
(1) The maximum 12b-1 Fee is 0.25%.
(2) The maximum Shareholder Servicing Fee is 0.25%.
(3) The Total Institutional Service Shares Operating Expenses in the table
above are based on expenses expected during the fiscal year ending January
31, 1995. The Total Institutional Service Shares Operating Expenses were
0.76% for the fiscal year ended January 31, 1994.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Institutional Service Shares of
the Fund will bear, either directly or indirectly. For more complete
descriptions of the various costs and expenses, see "Trust Information" and
"Investing in Institutional Service Shares." Wire-transferred redemptions of
less than $5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay following expenses on a $1,000 investment assuming (1)
5% annual return and (2) redemption at the end of each time period.... $8 $25 $43 $95
</TABLE>
The above example should not be considered a representation of past or
future expenses. Actual expenses may be greater or less than those shown.
The information set forth in the foregoing table and example relates only
to Institutional Service Shares of the Fund. The Fund also offers another class
of shares called Institutional Shares. Institutional Service Shares and
Institutional Shares are subject to certain of the same expenses; however,
Institutional Shares are not subject to a 12b-1 fee. See "Other Classes of
Shares."
Federated Income Trust
Financial Highlights--Institutional Service Shares
- --------------------------------------------------------------------------------
(For a share outstanding throughout each period)
Reference is made to the Independent Auditor's Report on page 27.
<TABLE>
<CAPTION>
Year Ended
January 31,
<S> <C> <C>
1994 1993*
Net asset value, beginning of period $ 10.73 $ 10.64
- --------------------------------------------------------------------------------------------
Income from investment operations
- --------------------------------------------------------------------------------------------
Net investment income 0.75 0.51
- --------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.23) 0.09
- -------------------------------------------------------------------------------------------- --------- ---------
Total from investment operations 0.52 0.60
- --------------------------------------------------------------------------------------------
Less distributions
- --------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.75) (0.51)
- -------------------------------------------------------------------------------------------- --------- ---------
Net asset value, end of period $ 10.50 $ 10.73
- -------------------------------------------------------------------------------------------- --------- ---------
Total return** 4.96% 4.80%
- --------------------------------------------------------------------------------------------
Ratios to average net assets
- --------------------------------------------------------------------------------------------
Expenses 0.76% 0.76%(a)
- --------------------------------------------------------------------------------------------
Net investment income 7.03% 7.16%(a)
- --------------------------------------------------------------------------------------------
Supplemental Data
- --------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $67,176 $53,981
- --------------------------------------------------------------------------------------------
Portfolio turnover rate 178% 52%
- --------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from May 31, 1992 (effective date of
Institutional Service Shares) to January 31, 1993.
** Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
Further information about the Fund's performance is contained in the Fund's
annual report for the fiscal year ended January 31, 1994, which can be obtained
free of charge.
General Information
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated November 17, 1981. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. As of the date of this prospectus, the Board of
Trustees ("Trustees") have established two classes of shares of the Fund, known
as Institutional Service Shares and Institutional Shares. This prospectus
relates only to Institutional Service Shares of the Fund.
Institutional Service Shares ("Shares") are designed for institutions that
provide sales and/or administrative services to their clients as a convenient
means of accumulating an interest in a professionally managed, diversified
portfolio of U.S. government securities. A minimum initial investment of $25,000
over a 90-day period is required.
Shares are currently sold and redeemed at net asset value without a sales charge
imposed by the Fund.
Investment Information
- --------------------------------------------------------------------------------
Investment Objective
The investment objective of the Fund is current income. The investment objective
may not be changed without the approval of shareholders. The Fund pursues this
investment objective by investing in U.S. government securities and certain
collateralized mortgage obligations ("CMOs"). While there is no assurance that
the Fund will achieve its investment objective, it endeavors to do so by
following the investment policies described in this prospectus.
Investment Policies
As a matter of investment policy which may be changed without shareholder
approval, the Fund will limit its investments to those that are permitted for
purchase by federal savings associations pursuant to applicable rules,
regulations, or interpretations of the Office of Thrift Supervision and by
federal credit unions under the Federal Credit Union Act and the rules,
regulations, and interpretations of the National Credit Union Administration.
Should additional permitted investments be allowed as a result of future changes
in applicable regulations or federal laws, the Fund reserves the right, without
shareholder approval, to make such investments consistent with the Fund's
investment objective, policies, and limitations. Further, should existing
statutes or regulations change so as to cause any securities held by the Fund to
become ineligible for purchase by federal savings associations or federal credit
unions, the Fund will dispose of those securities at times advantageous to the
Fund.
As operated within the above limitation, the Fund may also serve as an
appropriate vehicle for a national bank as an investment for its own account.
Except as otherwise noted, the investment policies and limitations described
below cannot be changed without approval of shareholders.
Acceptable Investments. The U.S. government securities in which the Fund
invests are either issued or guaranteed by the U.S. government, its agencies, or
instrumentalities. The securities in which the Fund may invest are limited to:
direct obligations of the U.S. Treasury such as U.S. Treasury bills,
notes, and bonds; and
notes, bonds, and discount notes of U.S. government agencies or
instrumentalities such as Federal Home Loan Banks, Federal National
Mortgage Association, Government National Mortgage Association, Banks for
Cooperatives (including Central Bank for Cooperatives), Federal Land
Banks, Federal Intermediate Credit Banks, Tennessee Valley Authority,
Export-Import Bank of the United States, Commodity Credit Corporation,
Federal Financing Bank, The Student Loan Marketing Association, Federal
Home Loan Mortgage Corporation, or National Credit Union Administration.
Some obligations issued or guaranteed by agencies or instrumentalities of the
U.S. government, such as Government National Mortgage Association participation
certificates, are backed by the full faith and credit of the U.S. Treasury. No
assurances can be given that the U.S. government will provide financial support
to other agencies or instrumentalities, since it is not obligated to do so.
These instruments are supported by:
the issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;
the discretionary authority of the U.S. government to purchase certain
obligations of an agency or instrumentality; or
the credit of the agency or instrumentality.
CMOs. CMOs are bonds issued by single-purpose stand-alone finance
subsidiaries or trusts of financial institutions, government agencies,
investment bankers, or companies related to the construction industry and
may meet the Internal Revenue Code requirements to be classified as real
estate mortgage investment conduits. Most of the CMOs in which the Fund
would invest use the same basic structure:
Several classes of securities are issued against a pool of mortgage
collateral. The most common structure contains four classes of securities:
The first three (A, B, and C bonds) pay interest at their stated rates
beginning with the issue date; the final class (or Z bond) typically
receives the residual income from the underlying investments after
payments are made to the other classes.
The cash flows from the underlying mortgages are applied first to pay
interest and then to retire securities.
The classes of securities are retired sequentially. All principal payments
are directed first to the shortest-maturity class (or A bonds). When those
securities are completely retired, all principal payments are then
directed to the next-shortest-maturity security (or B bond.) This process
continues until all of the classes have been paid off.
Because the cash flow is distributed sequentially instead of pro rata as
with pass-through securities, the cash flows and average lives of CMOs are
more predictable, and there is a period of time during which the investors
in the longer-maturity classes receive no principal paydowns.
The interest portion of these payments is distributed by the Fund as
income and the capital portion is reinvested.
The Fund will invest only in CMOs which are rated AAA by a nationally recognized
rating agency, and which may be: (a) collateralized by pools of mortgages in
which each mortgage is guaranteed as to payment of principal and interest by an
agency or instrumentality of the U.S. government; (b) collateralized by pools of
mortgages in which payment of principal and interest is guaranteed by the issuer
and such guarantee is collateralized by U.S. government securities; or (c)
securities in which the proceeds of the issuance are invested in mortgage
securities and payment of the principal and interest are supported by the credit
of an agency or instrumentality of the U.S. government.
Repurchase Agreements. Repurchase agreements are arrangements in which
banks, broker/dealers, and other recognized financial institutions sell
U.S. government securities or other securities to the Fund and agree at the
time of sale to repurchase them at a mutually agreed upon time and price.
To the extent that the original seller does not repurchase the securities
from the Fund, the Fund could receive less than the repurchase price on any
sale of such securities.
As a matter of investment practice, which can be changed without shareholder
approval, the Fund will not invest more than 15% of its net assets in repurchase
agreements providing for settlement in more than seven days after notice.
Characteristics of Mortgage-Backed Securities. Some of the U.S. government
securities in which the Fund will invest can represent an undivided interest in
a pool of residential mortgages or may be collateralized by a pool of
residential mortgages ("mortgage-backed securities"). Mortgage-backed securities
have yield and maturity characteristics corresponding to the underlying
mortgages. Distributions to holders of mortgage-backed securities include both
interest and principal payments. Principal payments represent the amortization
of the principal of the underlying mortgages and any prepayments of principal
due to prepayment, refinancing, or foreclosure of the underlying mortgages.
Although maturities of the underlying mortgage loans may range up to 30 years,
amortization and prepayments substantially shorten the effective maturities of
mortgage-backed securities. Due to these features, mortgage-backed securities
are less effective as a means of "locking in" attractive long-term interest
rates than fixed-income securities which pay only a stated amount of interest
until maturity, when the entire principal amount is returned. This is caused by
the need to reinvest at lower interest rates both distributions of principal
generally and significant prepayments which become more likely as mortgage
interest rates decline. Since comparatively high interest rates cannot be
effectively "locked in," mortgage-backed securities may have less potential for
capital appreciation during periods of declining interest rates than other
non-callable fixed-income government securities of comparable stated maturities.
However, mortgage-backed securities may experience less pronounced declines in
value during periods of rising interest rates.
When-Issued and Delayed Delivery Transactions. The Fund may purchase U.S.
government obligations on a when-issued or delayed delivery basis. In
when-issued and delayed delivery transactions, the Fund relies on the seller to
complete the transaction. The seller's failure to complete the transaction may
cause the Fund to miss a price or yield considered to be advantageous.
Investment Limitations
The Fund will not borrow money or pledge securities except, under certain
circumstances, the Fund may borrow up to one-third of the value of its total
assets and pledge up to 10% of the value of those assets to secure such
borrowings.
Trust Information
- --------------------------------------------------------------------------------
Management of the Trust
Board of Trustees. The Trust is managed by a Board of Trustees. The Trustees
are responsible for managing the Trust's business affairs and for exercising all
the Trust's powers except those reserved for the shareholders. The Executive
Committee of the Board of Trustees handles the Board's responsibilities between
meetings of the Board.
Investment Adviser. Pursuant to an investment advisory contract with the Trust,
investment decisions for the Fund are made by Federated Management, the Fund's
investment adviser ("Adviser"), subject to direction by the Trustees. The
Adviser continually conducts investment research and supervision for the Fund
and is responsible for the purchase and sale of portfolio instruments, for which
it receives an annual fee from the Fund.
Advisory Fees. The Fund's Adviser receives an annual investment advisory
fee equal to .40 of 1% of the Fund's average daily net assets. The Adviser
has undertaken to reimburse the Fund for operating expenses in excess of
limitations established by certain states.
Adviser's Background. Federated Management, a Delaware business trust
organized on
April 11, 1989, is a registered investment adviser under the Investment
Advisers Act of 1940. It is a subsidiary of Federated Investors. All of the
Class A (voting) shares of Federated Investors are owned by a trust, the
trustees of which are John F. Donahue, Chairman and Trustee of Federated
Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher
Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. Total assets under management or
administration by these and other subsidiaries of Federated Investors are
approximately $70 billion. Federated Investors, which was founded in 1956
as Federated Investors, Inc., develops and manages mutual funds primarily
for the financial industry. Federated Investors' track record of
competitive performance and its disciplined, risk-averse investment
philosophy serve approximately 3,500 client institutions nationwide.
Through these same client institutions, individual shareholders also have
access to this same level of investment expertise.
Gary J. Madich has been the Fund's co-portfolio manager since February 1987. Mr.
Madich joined Federated Investors in 1984 and has been a Senior Vice President
of the Fund's investment adviser since 1993. Mr. Madich served as a Vice
President of the Fund's investment adviser from 1988 until 1993. Mr. Madich is a
Chartered Financial Analyst and received his M.B.A. in Public Finance from the
University of Pittsburgh.
Kathleen M. Foody-Malus has been the Fund's co-portfolio manager since April,
1990. Ms. Foody-Malus joined Federated Investors in 1983 and has been a Vice
President of the Fund's investment adviser since 1993. Ms. Foody-Malus served as
an Assistant Vice President of the investment adviser from 1990 until 1992, and
from 1986 until 1989 she acted as an investment analyst. Ms. Foody-Malus
received her M.B.A. in Accounting/Finance from the University of Pittsburgh.
Other Payments to Financial Institutions. _In addition to periodic payments to
financial institutions under the Distribution and Shareholder Services Plans,
certain financial institutions may be compensated by the adviser or its
affiliates for the continuing investment of customers' assets in certain funds,
including the Fund, advised by those entities. These payments will be made
directly by the distributor or adviser from their assets, and will not be made
from the assets of the Fund or by the assessment of a sales charge on Shares.
Distribution of Institutional Service Shares
Federated Securities Corp. is the principal distributor for Institutional
Service Shares. It is a Pennsylvania corporation organized on November 14, 1969,
and is the principal distributor for a number of investment companies. Federated
Securities Corp. is a subsidiary of Federated Investors.
Distribution and Shareholder Services Plans. _Under a distribution plan adopted
in accordance with Investment Company Act Rule 12b-1 (the "Distribution Plan"),
the Fund may pay to the distributor an amount, computed at an annual rate of
0.25 of 1% of the average daily net asset value of the Fund to finance any
activity which is principally intended to result in the sale of shares subject
to the Distribution Plan. The distributor may select Financial Institutions such
as banks, fiduciaries, custodians for public funds, investment advisers, and
broker/dealers to provide sales support services as agents for their clients or
customers.
The Distribution Plan is a compensation-type plan. As such, the Fund makes no
payments to the distributor except as described above. Therefore, the Fund does
not pay for unreimbursed expenses of the distributor, including amounts expended
by the distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amount or may earn a profit from future payments made by the Fund
under the Distribution Plan.
In addition, the Trust has adopted a Shareholder Services Plan (the "Services
Plan") under which it may make payments up to 0.25 of 1% of the average daily
net asset value of the Fund to obtain certain personal services for shareholders
and the maintenance of shareholder accounts ("shareholder services"). The Trust
has entered into a Shareholder Services Agreement with Federated Shareholder
Services, a subsidiary of Federated Investors, under which Federated Shareholder
Services will either perform shareholder services directly or will select
financial institutions to perform shareholder services. Financial institutions
will receive fees based upon shares owned by their clients or customers. The
schedules of such fees and the basis upon which such fees will be paid will be
determined from time to time by the Trust and Federated Shareholder Services.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings and loan association) from being an underwriter or distributor
of securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the administrative capacities described
above or should Congress relax current restrictions on depository institutions,
the Board of Trustees will consider appropriate changes in the administrative
services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
Administration of the Fund
Administrative Services. _Federated Administrative Services, a subsidiary of
Federated Investors, provides administrative personnel and services (including
certain legal and financial reporting services) necessary to operate the Fund.
Federated Administrative Services provides these at an annual rate, which
relates to the average aggregate daily net assets of all funds advised by
subsidiaries of Federated Investors ("Federated Funds"), as specified below:
<TABLE>
<CAPTION>
Maximum Average Aggregate Daily Net
Administrative Fee Assets of the Federated Funds
<C> <S>
0.15 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.10 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
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 Administrative Services may choose voluntarily to waive a portion of
its fee.
Custodian. State Street Bank and Trust Company, Boston, Massachusetts, is
custodian for the securities and cash of the Fund.
Transfer Agent and Dividend Disbursing Agent. _Federated Services Company,
Pittsburgh, Pennsylvania, is transfer agent for the shares of the Fund and
dividend disbursing agent for the Fund.
Legal Counsel. Legal counsel is provided by Houston, Houston & Donnelly,
Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, Washington, D.C.
Independent Auditors. The independent auditors for the Fund are Deloitte &
Touche, Boston, Massachusetts.
Net Asset Value
- --------------------------------------------------------------------------------
The Fund's net asset value per Share fluctuates. The net asset value for Shares
is determined by adding the interest of the Shares in the market value of all
securities and other assets of the Fund, subtracting the interest of Shares in
the liabilities of the Fund and those attributable to Shares, and dividing the
remainder by the total number of Shares outstanding. The net asset value for
Institutional Shares may exceed that of Shares 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.
Investing in Institutional Service Shares
- --------------------------------------------------------------------------------
Share Purchases
Shares are sold on days on which the New York Stock Exchange and the Federal
Reserve Wire System are open for business. Shares may be purchased either by
wire or mail.
To purchase Shares, open an account by calling Federated Securities Corp.
Information needed to establish the account will be taken over the telephone.
The Fund reserves the right to reject any purchase request.
By Wire. To purchase Shares by Federal Reserve wire, call the Fund before 4:00
p.m. (Boston time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m. (Boston
time) on the next business day following the order. Federal funds should be
wired as follows: State Street Bank and Trust Company, Boston, Massachusetts;
Attention: EDGEWIRE; For Credit to: Federated Income Trust--Institutional
Service Shares; Fund Number (this number can be found on the account statement
or by contacting the Fund); Group Number or Order Number; Nominee or Institution
Name; and ABA Number 011000028. Institutional Service Shares cannot be purchased
by wire on days on which the New York Stock Exchange is closed and on federal
holidays restricting wire transfers.
By Mail. To purchase Shares by mail, send a check made payable to Federated
Income Trust-- Institutional Service Shares to Federated Services Company, c/o
State Street Bank and Trust Company, P.O. Box 8602, Boston, Massachusetts
02266-8602. Orders by mail are considered received after payment by check is
converted by State Street Bank into federal funds. This is normally the next
business day after State Street Bank receives the check.
Minimum Investment Required
The minimum initial investment in Shares is $25,000 plus any non-affiliated bank
or broker's fee, if applicable. However, 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 will be calculated by combining all
accounts it maintains with the Fund. Accounts established through a
non-affiliated bank or broker may be subject to a smaller minimum investment.
What Shares Cost
Shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Fund. Investors who purchase
Shares through a non-affiliated bank or broker may be charged an additional
service fee by that bank or broker.
The net asset value is determined at 4:00 p.m. (Boston time), Monday through
Friday, except on:
(i) days on which there are not sufficient changes in the value of the Fund's
portfolio securities that its net asset value might be materially affected; (ii)
days during which no shares are tendered for redemption and no orders to
purchase shares are received; and (iii) the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
Exchanging Securities for Fund Shares
Investors may exchange certain U.S. government securities or a combination of
securities and cash for Shares. The securities and any cash must have a market
value of at least $25,000. The Fund reserves the right to determine the
acceptability of securities to be exchanged. Securities accepted by the Fund are
valued in the same manner as the Fund values its assets. Investors wishing to
exchange securities should first contact Federated Securities Corp.
Shares purchased by exchange of U.S. government securities cannot be redeemed
for five business days to allow time for the transfer to settle.
Subaccounting Services
Institutions are encouraged to open single master accounts. However, certain
institutions may wish to use the transfer agent's subaccounting system to
minimize their internal recordkeeping requirements. The transfer agent charges a
fee based on the level of subaccounting services rendered. Institutions 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 provided which may be
related to the ownership of Shares. This prospectus should, therefore, be read
together with any agreement between the customer and the institution with regard
to the services provided, the fees charged for those services, and any
restrictions and limitations imposed.
Certificates and Confirmations
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
by contacting the Fund.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during the
month.
Dividends
Dividends are declared daily and paid monthly. Dividends are declared just prior
to determining net asset value. If an order for Shares is placed on the
preceding business day, Shares purchased by wire begin earning dividends on the
business day wire payment is received by State Street Bank. If the order for
Shares and payment by wire are received on the same day, Shares begin earning
dividends on the next business day. Shares purchased by check begin earning
dividends on the business day after the check is converted, upon instruction of
the transfer agent, into federal funds. Dividends are automatically reinvested
in additional Shares unless cash payments are requested by contacting the Fund.
Capital Gains
Capital gains realized by the Fund, if any, are distributed at least once every
12 months.
Redeeming Institutional Service Shares
- --------------------------------------------------------------------------------
The Fund redeems Shares at the net asset value next determined after the Fund
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Redemption requests must be received in
proper form and can be made by telephone request or by written request.
Telephone Redemption
Shareholders may redeem their Shares by telephoning the Fund before 4:00 p.m.
(Boston time). Telephone redemption instructions may be recorded. All proceeds
will normally be wire transferred the following business day, but in no event
more than seven days, to the shareholder's account at a domestic commercial bank
that is a member of the Federal Reserve System. If at any time, the Fund shall
determine it necessary to terminate or modify this method of redemption,
shareholders would be promptly notified.
An authorization form permitting the Fund to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from Federated Securities Corp.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as "Written Requests," should be considered. If
reasonable procedures are not followed by the Fund, it may be liable for losses
due to unauthorized or fraudulent telephone instructions.
Written Requests
Shares may also be redeemed by sending a written request to the Fund. Call the
Fund for specific instructions before redeeming by letter. The shareholder will
be asked to provide in the request his name, the Fund name, his account number,
and the share or dollar amount requested. If share certificates have been
issued, they must be properly endorsed and should be sent by registered or
certified mail with the written request.
Signatures. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
the Fund, or a redemption payable other than to the shareholder of record must
have signatures on written redemption requests guaranteed by:
a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("SAIF"), which is administered
by the FDIC; or
any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions
that are members of a signature guarantee program. The Fund and its transfer
agent reserve the right to amend these standards at any time without notice.
Receiving Payment. Normally, a check for the proceeds is mailed within one
business day, but in no event more than seven days, after receipt of a proper
written redemption request.
Accounts with Low Balances
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum of $25,000 due to shareholder
redemptions. This requirement does not apply, however, if the balance falls
below $25,000 because of changes in the Fund's net asset value.
Before Shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional Shares to meet the minimum
requirement.
Shareholder Information
- --------------------------------------------------------------------------------
Voting Rights
Each Share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
each portfolio in 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.
As a Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust's or the Fund's operation and for the election of Trustees
under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders for this purpose shall be called by the
Trustees upon the written request of shareholders owning at least 10% of the
Trust's outstanding shares entitled to vote.
Massachusetts Partnership Law
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect
shareholders of the Fund, the Trust has filed legal documents with Massachusetts
that expressly disclaim the liability of its shareholders for such acts or
obligations of the Trust. These documents require notice of this disclaimer to
be given in each agreement, obligation, or instrument that the Trust or its
Trustees enter into or sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required to use its property to protect or compensate
the shareholder. On request, the Trust will defend any claim made and pay any
judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder will occur
only if the Trust itself cannot meet its obligations to indemnify shareholders
and pay judgments against them from its assets.
Tax Information
- --------------------------------------------------------------------------------
Federal Income Tax
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions received. This applies whether dividends
and distributions are received in cash or as additional shares.
Pennsylvania Corporate and Personal Property Taxes
In the opinion of Houston, Houston & Donnelly, counsel to the Trust:
the Fund is not subject to Pennsylvania corporate or personal property
taxes; and
Fund shares may be subject to personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania to the extent that
the portfolio securities in the Fund would be subject to such taxes if
owned directly by residents of those jurisdictions.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
Performance Information
- --------------------------------------------------------------------------------
From time to time the Fund advertises its total return and yield for Shares.
Total return represents the change, over a specified period of time, in the
value of an investment in Shares of the Fund after reinvesting all income and
capital gains distributions. It is calculated by dividing that change by the
initial investment and is expressed as a percentage.
The yield of Shares of the Fund is calculated by dividing the net investment
income per share (as defined by the Securities and Exchange Commission) earned
by Shares over a thirty-day period by the offering price per share of Shares on
the last day of the period. This number is then annualized using semi-annual
compounding. The yield does not necessarily reflect income actually earned by
Shares and, therefore, may not correlate to the dividends or other distributions
paid to shareholders.
Total return and yield will be calculated separately for Institutional Service
Shares and Institutional Shares. Because Institutional Service Shares are
subject to a 12b-1 fee, the total return and yield for Institutional Shares for
the same period, will exceed that of Institutional Service Shares.
Institutional Service Shares are sold without any sales load or other similar
non-recurring charges.
From time to time, the Fund may advertise the performance of Institutional
Service Shares using certain financial publications and/or compare the
performance of Institutional Service Shares to certain indices.
Other Classes of Shares
- --------------------------------------------------------------------------------
Institutional Shares are sold to accounts for which financial institutions act
in a fiduciary or agency capacity. Institutional Shares are sold at net asset
value. Investments in Institutional Shares are subject to a minimum initial
investment of $25,000.
Institutional Shares are distributed without a 12b-1 Plan.
Financial institutions and brokers providing sales and administrative services
may receive different compensation depending upon which class of shares of the
Fund is sold.
The amount of dividends payable to Institutional Shares will exceed that of
Institutional Service Shares by the difference between Class Expenses and
distribution and shareholder service expenses by shares of each respective
class.
The stated advisory fee is the same for both classes of shares.
Federated Income Trust
Financial Highlights--Institutional Shares
- --------------------------------------------------------------------------------
(For a share outstanding throughout each period)
Reference is made to the Independent Auditors' Report on page 27.
<TABLE>
<CAPTION>
Year Ended January 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994 1993 1992 1991 1990 1989 1988 1987 1986
Net asset value,
beginning of period $ 10.73 $ 10.66 $ 10.42 $ 10.18 $ 10.05 $ 10.43 $ 10.74 $ 10.87 $ 10.50
- -----------------------
Income from investment
operations
- -----------------------
Net investment income 0.77 0.80 0.89 0.93 0.94 0.95 0.99 1.03 1.19
- -----------------------
Net realized and
unrealized gain (loss)
on investments (0.23) 0.07 0.24 0.24 0.13 (0.38) (0.31) (0.05) 0.37
- ----------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total from investment
operations 0.54 0.87 1.13 1.17 1.07 0.57 0.68 0.98 1.56
- -----------------------
Less distributions
- -----------------------
Dividends to
shareholders from net
investment income (0.77) (0.80) (0.89) (0.93) (0.94) (0.95) (0.99) (1.04) (1.19)
- -----------------------
Distributions to
shareholders from net
realized gain on
investment
transactions -- -- -- -- -- -- -- (0.07) --
- ----------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total distributions (0.77) (0.80) (0.89) (0.93) (0.94) (0.95) (0.99) (1.11) (1.19)
- ----------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Net asset value, end of
period $ 10.50 $ 10.73 $ 10.66 $ 10.42 $ 10.18 $ 10.05 $ 10.43 $ 10.74 $ 10.87
- ----------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total return* 5.22% 8.51% 11.27% 12.01% 11.04% 5.75% 6.79% 9.52% 15.66%
- -----------------------
Ratios to average net
assets
- -----------------------
Expenses 0.51% 0.51% 0.50% 0.50% 0.53% 0.52% 0.50% 0.54% 0.57%
- -----------------------
Net investment income 7.28% 7.53% 8.41% 9.06% 9.23% 9.33% 9.49% 9.47% 11.13%
- -----------------------
Expense waiver/
reimbursement(a) -- -- -- -- -- -- -- -- --
- -----------------------
Supplemental Data
- -----------------------
Net assets, end of
period (000 omitted) $1,727,247 $1,548,858 $1,231,978 $892,255 $1,023,886 $1,196,585 $1,376,895 $1,169,155 $270,612
- -----------------------
Portfolio turnover
rate 178% 52% 51% 36% 45% 77% 92% 146% 235%
- -----------------------
<CAPTION>
<S> <C>
1985
Net asset value,
beginning of period $ 10.38
- -----------------------
Income from investment
operations
- -----------------------
Net investment income 1.23
- -----------------------
Net realized and
unrealized gain (loss)
on investments 0.12
- ----------------------- ---------
Total from investment
operations 1.35
- -----------------------
Less distributions
- -----------------------
Dividends to
shareholders from net
investment income (1.23)
- -----------------------
Distributions to
shareholders from net
realized gain on
investment
transactions --
- ----------------------- ---------
Total distributions (1.23)
- ----------------------- ---------
Net asset value, end of
period $ 10.50
- ----------------------- ---------
Total return* 14.31%
- -----------------------
Ratios to average net
assets
- -----------------------
Expenses 0.49%
- -----------------------
Net investment income 12.41%
- -----------------------
Expense waiver/
reimbursement(a) 0.15%
- -----------------------
Supplemental Data
- -----------------------
Net assets, end of
period (000 omitted) $225,935
- -----------------------
Portfolio turnover
rate 174%
- -----------------------
</TABLE>
* Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(See Notes which are an integral part of the Financial Statements)
Further information about the Fund's performance is contained in the Fund's
annual report for the fiscal year ended January 31, 1994, which can be obtained
free of charge.
Federated Income Trust
Portfolio of Investments
January 31, 1994
- --------------------------------------------------------------------------------
The obligations listed below are issued, guaranteed, or insured by the U.S.
government, its agencies or instrumentalities, or secured by such obligations.
<TABLE>
<CAPTION>
Principal
Amount Value
<C> <S> <C>
- --------------- ----------------------------------------------------------------------------- -----------------
Long-Term Obligations--97.0%
- ----------------------------------------------------------------------------------------------
*Federal Home Loan Mortgage Corp. PC--25.3%
-----------------------------------------------------------------------------
$ 7,537,051 12.50%, 11/1/2009-6/1/2015 $ 8,575,732
-----------------------------------------------------------------------------
18,256,906 12.00%, 5/1/1999-7/1/2019 20,653,125
-----------------------------------------------------------------------------
8,706,322 11.50%, 3/1/2011-7/1/2016 9,770,060
-----------------------------------------------------------------------------
10,089,119 11.00%, 5/1/2000-9/1/2020 11,266,127
-----------------------------------------------------------------------------
60,872,762 10.50%, 1/1/1999-1/1/2021 67,529,873
-----------------------------------------------------------------------------
58,798,990 10.00%, 10/1/2020-6/1/2021 64,561,267
-----------------------------------------------------------------------------
49,686,875 9.50%, 10/1/2006-12/1/2022 53,706,375
-----------------------------------------------------------------------------
5,990,813 9.00%, 4/1/2009-2/1/2013 6,374,584
-----------------------------------------------------------------------------
152,220,776 7.00%, 1/1/1999-10/1/2007 156,318,210**
-----------------------------------------------------------------------------
24,500,000 6.00%, 1/1/2001 25,051,250
-----------------------------------------------------------------------------
30,305,271 5.50%, 11/1/2000-12/1/2000 30,561,047
----------------------------------------------------------------------------- -----------------
Total 454,367,650
----------------------------------------------------------------------------- -----------------
*Federal Home Loan Mortgage Corp. REMIC--14.4%
-----------------------------------------------------------------------------
27,560,000 9.50%, Series 188G, 9/15/2021 7,830,347
-----------------------------------------------------------------------------
5,605,556 9.00%, Series 1136Y, 9/15/2021 1,277,899
-----------------------------------------------------------------------------
13,565,444 9.00%, Series 187G, 8/15/2021 2,567,667
-----------------------------------------------------------------------------
25,000,000 7.00%, Series 1072G, 5/15/2006 25,643,250
-----------------------------------------------------------------------------
10,920,000 7.00%, Series 1080D, 7/15/2020 11,172,471
-----------------------------------------------------------------------------
20,000,000 6.90%, Series 1551G, 7/15/2008 20,295,800
-----------------------------------------------------------------------------
10,000,000 6.60%, Series 1559VH, 12/15/2021 9,976,100
-----------------------------------------------------------------------------
18,453,000 6.50%, Series 1369G, 3/15/2006 18,785,523
-----------------------------------------------------------------------------
20,000,000 6.50%, Series 1450E, 9/15/2004 20,438,400
-----------------------------------------------------------------------------
43,116,000 6.375%, Series 1423-DD, 1/15/2006 43,220,772
-----------------------------------------------------------------------------
$ 25,000,000 6.25%, Series 1564G, 5/15/2007 $ 24,986,000
-----------------------------------------------------------------------------
10,000,000 6.00%, Series 1476G, 4/15/2006 9,809,300
-----------------------------------------------------------------------------
16,153,000 6.00%, Series 1584G, 9/1/2018 15,850,939
-----------------------------------------------------------------------------
15,000,000 5.90%, Series 1612-PE, 11/15/2007 14,805,900
-----------------------------------------------------------------------------
31,678,000 5.50%, Series 1353B, 6/15/2006 31,150,245
----------------------------------------------------------------------------- -----------------
Total 257,810,613
----------------------------------------------------------------------------- -----------------
*Federal Home Loan Mortgage Corp. PC ARM--6.5%
-----------------------------------------------------------------------------
2,260,486 5.25%, 6/1/2018 2,331,827
-----------------------------------------------------------------------------
4,880,792 4.697%, 3/1/2023 5,034,829
-----------------------------------------------------------------------------
4,517,547 4.349%, 3/1/2023 4,641,780
-----------------------------------------------------------------------------
16,644,474 4.32%, 4/1/2023 17,273,801
-----------------------------------------------------------------------------
44,067,219 4.251%, 5/1/2023 45,609,571
-----------------------------------------------------------------------------
4,988,678 4.25%, 7/1/2023 5,138,339
-----------------------------------------------------------------------------
4,831,225 4.164%, 9/1/2023 4,475,728
-----------------------------------------------------------------------------
14,511,704 4.156%, 7/1/2023 14,933,414
-----------------------------------------------------------------------------
9,879,666 4.125%, 6/1/2023 10,182,280
-----------------------------------------------------------------------------
6,531,528 4.117%, 3/1/2023 6,715,260
----------------------------------------------------------------------------- -----------------
Total 116,336,829
----------------------------------------------------------------------------- -----------------
*Federal National Mortgage Association--40.5%
-----------------------------------------------------------------------------
2,838,173 13.00%, 9/1/2011-10/1/2015 3,268,327
-----------------------------------------------------------------------------
9,589,953 12.50%, 12/1/2010-11/1/2015 11,025,377
-----------------------------------------------------------------------------
8,755,263 12.00%, 2/1/2005-5/1/2016 10,011,030
-----------------------------------------------------------------------------
20,439,393 11.50%, 5/1/2012-2/1/2016 23,262,951
-----------------------------------------------------------------------------
22,818,134 11.00%, 7/1/2011-5/1/2023 25,680,384
-----------------------------------------------------------------------------
41,683,644 10.50%, 12/1/2019-4/1/2022 46,555,212
-----------------------------------------------------------------------------
121,492,725 10.00%, 5/1/2019-5/1/2023 134,237,886
-----------------------------------------------------------------------------
3,548,827 9.50%, 7/1/2018-11/1/2019 3,788,373
-----------------------------------------------------------------------------
$ 12,609,162 9.00%, 5/1/2009-2/1/2013 $ 13,539,088
-----------------------------------------------------------------------------
2,573,700 8.00%, 1/1/2023-4/1/2023 3,400,890
-----------------------------------------------------------------------------
101,923,080 7.50%, 3/1/2010-11/1/2023 106,371,586
-----------------------------------------------------------------------------
146,539,120 7.00%, 1/1/1999-12/31/1999 150,786,017**
-----------------------------------------------------------------------------
141,764,910 6.50%, 10/25/2008-12/1/2008 144,954,620
-----------------------------------------------------------------------------
49,000,000 6.00%, 1/1/2001 50,010,870
----------------------------------------------------------------------------- -----------------
Total 726,892,611
----------------------------------------------------------------------------- -----------------
*Federal National Mortgage Association REMIC--5.9%
-----------------------------------------------------------------------------
15,118,567 9.00%, Series 1991-82PQ, 8/25/2021 2,097,701
-----------------------------------------------------------------------------
10,000,000 7.00%, Series 1992-15E, 9/25/2018 10,231,700
-----------------------------------------------------------------------------
11,393,000 6.50%, Series 1993-55K, 5/25/2008 11,278,614
-----------------------------------------------------------------------------
19,716,180 6.00%, Series 1993-229J, 12/25/2008 19,712,829
-----------------------------------------------------------------------------
15,000,000 6.00%, Series 1993-96PG, 2/25/2019 14,761,500
-----------------------------------------------------------------------------
12,203,000 5.90%, Series 1993-197PG, 9/25/2007 11,989,814
-----------------------------------------------------------------------------
21,000,000 5.50%, Series 1993-198G, 5/25/2019 20,115,480
-----------------------------------------------------------------------------
15,000,000 4.75%, Series 1993-189PB, 5/25/2007 14,963,850
----------------------------------------------------------------------------- -----------------
Total 105,151,488
----------------------------------------------------------------------------- -----------------
*Federal National Mortgage Association ARM--4.4%
-----------------------------------------------------------------------------
10,348,246 5.50%, 12/1/2022 10,716,954
-----------------------------------------------------------------------------
10,428,789 4.97%, 3/1/2023 10,757,922
-----------------------------------------------------------------------------
4,687,084 4.133%, 9/1/2023 4,795,497
-----------------------------------------------------------------------------
6,830,775 4.094%, 7/1/2023 7,010,083
-----------------------------------------------------------------------------
26,154,232 4.062%, 6/1/2023 26,906,166
-----------------------------------------------------------------------------
11,785,746 4.058%, 7/1/2023 12,132,012
-----------------------------------------------------------------------------
5,968,362 4.009%, 9/1/2023 6,113,870
----------------------------------------------------------------------------- -----------------
Total 78,432,504
----------------------------------------------------------------------------- -----------------
Total Long-Term Obligations (identified cost, $1,742,565,541) 1,738,991,695
----------------------------------------------------------------------------- -----------------
(a) Repurchase Agreements--14.5%
- ----------------------------------------------------------------------------------------------
$ 9,865,000 J.P. Morgan Securities, Inc., 3.19%, dated 1/31/94,
due 2/1/94 (b) $ 9,865,000
-----------------------------------------------------------------------------
250,000,000\ Kidder Peabody & Co. Inc., 3.15%, dated 1/13/94, due
2/14/94 250,000,000
----------------------------------------------------------------------------- -----------------
Total Repurchase Agreements (at amortized cost) (Note 2B) 259,865,000
----------------------------------------------------------------------------- -----------------
Total Investments (identified cost, $2,002,430,541) $ 1,998,856,695\\
----------------------------------------------------------------------------- -----------------
</TABLE>
* Because of monthly principal payments, the average life of the Federal Home
Loan Mortgage Corp. Participation securities and Federal National Mortgage
Association Pass-Through securities approximates 1-10 years.
** Includes securities with a market value of $256,561,500 subject to Dollar
Roll transactions.
(a) The repurchase agreements are fully collateralized by U.S. government
obligations based on market prices at the date of the portfolio.
(b) The investments in the repurchase agreement is through participation in a
joint account with other Federated funds.
\ Although final maturity falls beyond seven days, a liquidity feature is
included in each transaction to permit termination of the repurchase
agreement within seven days.
\\ The cost of investments for federal tax purposes amounts to $2,002,430,541.
The net unrealized depreciation of investments on a federal tax basis
amounts to $3,573,846, which is comprised of $24,173,109 appreciation and
$27,746,955 depreciation at January 31, 1994.
Note: The categories of investments are shown as a percentage of net assets
($1,794,423,798) at January 31, 1994.
The following abbreviations are used in this portfolio:
ARM--Adjustable Rate Mortgage
PC--Participation Certificates
REMIC--Real Estate Mortgage Investment Conduit
(See Notes which are an integral part of the Financial Statements)
Federated Income Trust
Statement of Assets and Liabilities
January 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets:
- ----------------------------------------------------------------------------------------------
Investments in repurchase agreements (Note 2B) $ 259,865,000
- ---------------------------------------------------------------------------
Investments in other securities (Note 2A) 1,738,991,695
- --------------------------------------------------------------------------- -----------------
Total investments, at value
(identified and tax cost, $2,002,430,541) $ 1,998,856,695
- ----------------------------------------------------------------------------------------------
Receivable for investments sold 41,152,749
- ----------------------------------------------------------------------------------------------
Interest receivable 17,037,707
- ----------------------------------------------------------------------------------------------
Receivable for Fund shares sold 2,558,505
- ---------------------------------------------------------------------------------------------- -----------------
Total assets 2,059,605,656
- ----------------------------------------------------------------------------------------------
Liabilities:
- ----------------------------------------------------------------------------------------------
Payable for dollar roll transactions (Note 2F) 253,358,399
- ---------------------------------------------------------------------------
Dividends payable 8,810,911
- ---------------------------------------------------------------------------
Payable for Fund shares redeemed 2,822,546
- ---------------------------------------------------------------------------
Accrued expenses 190,002
- --------------------------------------------------------------------------- -----------------
Total liabilities 265,181,858
- ---------------------------------------------------------------------------------------------- -----------------
Net Assets for 170,836,972 shares of beneficial interest outstanding $ 1,794,423,798
- ---------------------------------------------------------------------------------------------- -----------------
Net Assets Consist of:
- ----------------------------------------------------------------------------------------------
Paid-in capital (Note 2G) 1,874,594,776
- ----------------------------------------------------------------------------------------------
Undistributed net investment income 77,257
- ----------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of investments (3,573,846)
- ----------------------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments (Note 2G) (76,674,389)
- ---------------------------------------------------------------------------------------------- -----------------
Total $ 1,794,423,798
- ---------------------------------------------------------------------------------------------- -----------------
Net Asset Value, Offering Price and Redemption Price Per Share
Institutional Shares (net assets of $1,727,247,398/ 164,441,814 shares of
beneficial interest outstanding) $10.50
- ---------------------------------------------------------------------------------------------- -----------------
Institutional Service Shares (net assets of $67,176,400 / 6,395,158 shares of
beneficial interest outstanding) $10.50
- ---------------------------------------------------------------------------------------------- -----------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Federated Income Trust
Statement of Operations
Year Ended January 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment Income:
- ------------------------------------------------------------------------------------------------
Interest income (Note 2C) (net of interest expense of $1,825,273) $ 133,602,508
- ------------------------------------------------------------------------------------------------
Expenses:
- ------------------------------------------------------------------------------------------------
Investment advisory fee (Note 5) $ 6,861,374
- ---------------------------------------------------------------------------------
Trustees' fees 28,208
- ---------------------------------------------------------------------------------
Administrative personnel and services (Note 5) 1,043,969
- ---------------------------------------------------------------------------------
Custodian, transfer and dividend disbursing agent fees and expenses 442,593
- ---------------------------------------------------------------------------------
Registration costs 124,625
- ---------------------------------------------------------------------------------
Auditing fees 22,291
- ---------------------------------------------------------------------------------
Legal fees 19,394
- ---------------------------------------------------------------------------------
Printing and postage 38,379
- ---------------------------------------------------------------------------------
Taxes 38,566
- ---------------------------------------------------------------------------------
Distribution services fee (Note 5) 137,722
- ---------------------------------------------------------------------------------
Insurance premiums 33,004
- ---------------------------------------------------------------------------------
Miscellaneous 11,269
- --------------------------------------------------------------------------------- -------------
Total expenses 8,801,394
- ------------------------------------------------------------------------------------------------ ---------------
Net investment income 124,801,114
- ------------------------------------------------------------------------------------------------ ---------------
Realized and Unrealized Gain (Loss) on Investments:
- ------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments 6,604,924
- ------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (44,130,386)
- ------------------------------------------------------------------------------------------------ ---------------
Net realized and unrealized gain (loss) on investments (37,525,462)
- ------------------------------------------------------------------------------------------------ ---------------
Change in net assets resulting from operations $ 87,275,652
- ------------------------------------------------------------------------------------------------ ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Federated Income Trust
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended January 31,
<S> <C> <C>
------------------------------------
<CAPTION>
1994 1993
<S> <C> <C>
Increase (Decrease) in Net Assets:
- ---------------------------------------------------------------------------
Operations--
- ---------------------------------------------------------------------------
Net investment income $ 124,801,114 $ 106,105,720
- ---------------------------------------------------------------------------
Net realized gain (loss) on investment transactions ($6,669,676 net gain
and $8,708,974 net gain, respectively, as computed for federal income tax
purposes) 6,604,924 8,708,974
- ---------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) of investments (44,130,386) 127,889
- --------------------------------------------------------------------------- ----------------- -----------------
Change in net assets resulting from operations 87,275,652 114,942,583
- --------------------------------------------------------------------------- ----------------- -----------------
Distributions to Shareholders (Note 3)--
- ---------------------------------------------------------------------------
Dividends to shareholders from net investment income:
- ---------------------------------------------------------------------------
Institutional Shares (120,844,426) (104,675,949)
- ---------------------------------------------------------------------------
Institutional Service Shares (3,879,431) (1,429,771)*
- --------------------------------------------------------------------------- ----------------- -----------------
Change in net assets from distributions to shareholders (124,723,857) (106,105,720)
- --------------------------------------------------------------------------- ----------------- -----------------
Fund Share (Principal) Transactions (Note 4)--
- ---------------------------------------------------------------------------
Proceeds from sales of shares 858,701,229 895,706,111
- ---------------------------------------------------------------------------
Net asset value of shares issued to shareholders electing
to receive payment of distributions in Trust shares 25,460,750 19,640,007
- ---------------------------------------------------------------------------
Cost of shares redeemed (655,129,012) (553,322,293)
- --------------------------------------------------------------------------- ----------------- -----------------
Change in net assets from Fund share transactions 229,032,967 362,023,825
- --------------------------------------------------------------------------- ----------------- -----------------
Change in net assets 191,584,762 370,860,688
- ---------------------------------------------------------------------------
Net Assets:
- ---------------------------------------------------------------------------
Beginning of period 1,602,839,036 1,231,978,348
- --------------------------------------------------------------------------- ----------------- -----------------
End of period (includes undistributed net investment income
of $77,257) $ 1,794,423,798 $ 1,602,839,036
- --------------------------------------------------------------------------- ----------------- -----------------
</TABLE>
*For the period from May 31, 1992 (effective date of Institutional Service
Shares) to January 31, 1993.
(See Notes which are an integral part of the Financial Statements)
Federated Income Trust
Notes to Financial Statements
January 31, 1994
- --------------------------------------------------------------------------------
(1) Organization
Federated Income Trust (the "Trust") is registered under the Investment Company
Act of 1940, as amended, as a diversified, open-end, management investment
company. The Trust provides two classes of shares ("Institutional Shares" and
"Institutional Service Shares"). Institutional Service Shares are identical in
all respects to Institutional Shares except that Institutional Service Shares
are sold pursuant to a distribution plan ("Plan") adopted in accordance with the
Investment Company Act Rule 12b-1.
(2) Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principals.
A. Investment Valuations--U.S. government obligations are generally valued at
the mean between the over-the-counter bid and asked prices as furnished by
an independent pricing service.
B. Repurchase Agreements--It is the policy of the Trust 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 in support of
repurchase agreement investments. Additionally, procedures have been
established by the Trust to monitor, on a daily basis, the market value of
each repurchase agreement's underlying collateral to ensure the value at
least equals the principal amount of the repurchase transaction, including
accrued interest.
The Trust will only enter into repurchase agreements with banks and other
recognized financial institutions such as broker/dealers which are deemed
by the Trust's adviser to be creditworthy pursuant to guidelines
established by the Board of Trustees ("Trustees"). Risks may arise from the
potential inability of counterparties to honor the terms of the repurchase
agreement. Accordingly, the Trust could receive less than the repurchase
price on the sale of collateral securities.
C. Income--Interest income is recorded on the accrual basis and includes
discount earned less any premium on short-term obligations and original
issue discount on all other debt securities.
D. Federal Taxes--It is the Trust's policy to comply with the provisions of
the Internal Revenue Code, as amended, (the "Code"), applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its taxable income, including any net realized gain on
investments. Accordingly, no provisions for federal tax are necessary. At
January 31, 1994, the Trust, for federal income tax purposes, had a capital
loss carryforward of $59,511,521, which will reduce the Trust's taxable
income arising from future net realized gains on investments, if any, to
the extent permitted by the Code, and thus will reduce the amount of the
distribution to shareholders which would otherwise be necessary to relieve
the Trust of any liability for federal tax. Pursuant to the Code, such
capital loss carryforward will expire in 1996 ($14,398,108), 1997
($26,760,646), 1998 ($16,389,825) and 1999 ($1,962,942). Included in these
amounts are $583,490 of losses which were incurred by Federated Variable
Rate Mortgage Securities Trust prior to its merger into the Trust. The
Trust's ability to use these losses may be limited, however, through the
application of the Code's change of ownership rules.
Additionally, net capital losses of $17,162,868 attributable to security
transactions incurred after October 31, 1993, are treated as arising on
February 1, 1994, the first day of the Fund's next taxable year.
E. When-Issued and Delayed Delivery Transactions--The Trust may engage in
when-issued or delayed delivery transactions. The Trust records when-issued
securities 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.
F. Dollar Roll Transactions--The Trust enters into dollar roll transactions,
with respect to mortgage securities issued by GNMA, FNMA and FHLMC, in
which the Trust sells mortgage securities to financial institutions and
simultaneously agrees to repurchase substantially similiar (same type,
coupon and maturity) securities at a later date at an agreed upon price.
During the period between the sale and repurchase, the Trust forgoes
principal and interest paid on the mortgage security sold. The Trust is
compensated by the interest earned on the cash proceeds of the initial sale
and any additional fee income received on the sale.
G. Reclassifications--During the current period, the Fund adopted Statement of
Position 93-2 Determination, Disclosure, and Financial Statement
Presentation of Income, Capital Gain, and Return of Capital Distributions
by Investment Companies. Accordingly, permanent book and tax basis
differences relating to shareholder distributions have been reclassified to
paid-in-capital. As of February 1, 1993, the cumulative effect of such
differences, totaling $517,028 was reclassified from accumulated net
realized gain/(loss) on investments to paid-in-capital. Net investment
income, net realized gains, and net assets were not affected by this
change.
H. Other--Investment transactions are accounted for on the date of the
transaction.
(3) Dividends and Distributions
Dividends from net investment income are declared daily and paid monthly.
Distributions of any net realized capital gains are made at least once every
twelve months. Dividends and capital gain distributions, if any, are recorded on
the ex-dividend date.
(4) Shares of Beneficial Interest
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. Transactions in Trust shares were as follows:
<TABLE>
<CAPTION>
Year Ended January 31,
<S> <C> <C> <C> <C>
--------------------------------------------------------------------
<CAPTION>
1994 1993
--------------------------------- ---------------------------------
Institutional Shares Shares Dollars Shares Dollars
- ------------------------------------------ -------------- ----------------- -------------- -----------------
<S> <C> <C> <C> <C>
Shares outstanding,
beginning of period 144,383,249 $ 1,591,146,575 115,614,902 $ 1,283,604,950
- ------------------------------------------
Shares sold 73,655,885 783,979,962 77,004,962 822,750,753
- ------------------------------------------
Shares issued to shareholders
electing to receive payment of
distributions in Fund shares 2,174,745 23,092,260 1,718,663 18,331,718
- ------------------------------------------
Shares redeemed (55,772,065) (592,762,823) (49,955,278) (532,956,850)
- ------------------------------------------ -------------- ----------------- -------------- -----------------
Shares outstanding, end of period 164,441,814 $ 1,805,455,974 144,383,249 $ 1,591,730,571
- ------------------------------------------ -------------- ----------------- -------------- -----------------
</TABLE>
<TABLE>
<CAPTION>
Year Ended January 31,
<S> <C> <C> <C> <C>
--------------------------------------------------------------
<CAPTION>
1994 1993*
------------------------------ ------------------------------
Institutional Service Shares Shares Dollars Shares Dollars
- ----------------------------------------------- ------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Shares outstanding, beginning of period 5,032,890 $ 53,898,204 -- $ --
- -----------------------------------------------
Shares sold 7,007,589 74,721,267 6,795,689 72,955,358
- -----------------------------------------------
Shares issued to shareholders
electing to receive payment of
distributions in Fund shares 222,804 2,368,490 122,524 1,308,289
- -----------------------------------------------
Shares redeemed (5,868,125) (62,366,189) (1,885,323) (20,365,443)
- ----------------------------------------------- ------------- --------------- ------------- ---------------
Shares outstanding, end of period 6,395,158 $ 68,621,772 5,032,890 $ 53,898,204
- ----------------------------------------------- ------------- --------------- ------------- ---------------
</TABLE>
*For the period from May 31, 1992 (effective date of Institutional Service
Shares) to January 31, 1993.
(5) Investment Advisory Fee and Other Transactions with Affiliates
Federated Management, the Trust's investment adviser ("Adviser"), receives for
its services an annual investment advisory fee equal to 0.40 of 1% of the
Trust's average daily net assets. For the year ended January 31, 1994, the
Adviser earned a fee of $6,861,374.
Administrative personnel and services were provided at approximate cost by
Federated Administrative Services, Inc. Effective March 1, 1994, Federated
Administrative Services ("FAS") will provide administrative personnel and
services at an annual rate of 0.15 of 1% on the first $250 million of average
aggregate net assets of the total Federated Funds; 0.125 of 1% on the next $250
million; 0.10 of 1% on the next $250 million; and 0.075 of 1% on average
aggregate net 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.
The Trust has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Investment Company Act of 1940. The Trust will compensate Federated
Securities Corp., ("FSC"), the principal distributor, from the net assets of the
Trust, to finance activities intended to result in the sale of the Trust's
Institutional Service Shares. The Plan provides that the Fund will incur
distribution expenses up to 0.25 of 1% of the average daily net assets of the
Institutional Service Shares, annually, to compensate FSC. For the year ended
January 31, 1994, FSC was compensated $137,722 in distribution services fees
under the plan.
Certain of the Officers and Trustees of the Trust are Officers and Directors of
the above corporations.
(6) Investment Transactions
Purchases and sales of investments, excluding short-term securities, for the
fiscal year ended January 31, 1994, were as follows:
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------------
Purchases-- $ 3,195,722,654
- ----------------------------------------------------------------------------------------------- -----------------
Sales-- $ 3,016,520,332
- ----------------------------------------------------------------------------------------------- -----------------
</TABLE>
(7) Acquisition of Federated Variable Rate Mortgage Securities Trust
On April 26, 1990, the Trust acquired all the net assets of Federated Variable
Rate Mortgage Securities Trust ("Acquired Trust") pursuant to a plan of
reorganization approved by the Acquired Trust's shareholders on February 14,
1990. The acquisition was accomplished by a tax-free exchange of 742,473 shares
of the Trust (valued at $7,439,576) for assets of the Acquired Trust outstanding
on April 26, 1990. The Acquired Trust's net assets at that date ($7,439,576)
including $14,365 of unrealized appreciation and $583,996 net realized loss on
investment transactions, were combined with those of the Trust. The aggregate
net assets of the Trust immediately before and after the acquisition were
$960,530,883 and $967,970,459, respectively.
Independent Auditors' Report
- --------------------------------------------------------------------------------
To the Trustees and Shareholders of
FEDERATED INCOME TRUST:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Federated Income Trust as of January 31, 1994,
the related statement of operations for the year then ended, the statement of
changes in net assets for the years ended January 31, 1994 and 1993, and the
financial highlights (see pages 2 and 15 of the prospectus) for each of the
years in the ten-year period ended January 31, 1994. These financial statements
and financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
January 31, 1994 by correspondence with the custodian and brokers; where replies
were not received from brokers, we performed other auditing procedures. 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, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Federated Income
Trust as of January 31, 1994, the results of its operations, the changes in its
net assets, and the financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE
Boston, Massachusetts
March 15, 1994
Addresses
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Federated Income Trust Federated Investors Tower
Institutional Service Shares Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Custodian
State Street Bank and P.O. Box 8602
Trust Company Boston, Massachusetts 02266-8602
- ---------------------------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3799
- ---------------------------------------------------------------------------------------------------------------------
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
- ---------------------------------------------------------------------------------------------------------------------
Legal Counsel
Dickstein, Shapiro & Morin 2101 L Street, N.W.
Washington, D.C. 20037
- ---------------------------------------------------------------------------------------------------------------------
Independent Auditors
Deloitte & Touche 125 Summer Street
Boston, Massachusetts 02110-1617
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Federated Income Trust
Institutional Service Shares
Prospectus
An Open-End, Diversified
Management Investment Company
March 31, 1994
8030102A-ISS (3/94)
Federated Income Trust
Institutional Shares
Institutional Service Shares
Combined Statement of Additional Information
The Institutional Shares and Institutional Service Shares of Federated
Income Trust (the "Trust") represent interests in a diversified
portfolio of securities (the "Fund"). This Combined Statement of
Additional Information should be read with the respective prospectus
for Institutional Shares and Institutional Service Shares dated March
31, 1994. This Statement is not a prospectus itself. To receive a copy
of either prospectus, write or call Federated Income Trust.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Statement dated March 31, 1994
[LOGO] FEDERATED SECURITIES CORP.
---------------------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
Table of Contents
- --------------------------------------------------------------------------------
General Information About the Trust 1
- ---------------------------------------------------------------
Investment Objective and Policies 1
- ---------------------------------------------------------------
Types of Investments 1
When-Issued and Delayed Delivery
Transactions 1
Repurchase Agreements 1
Portfolio Turnover 1
Investment Limitations 1
Trust Management 2
- ---------------------------------------------------------------
Officers and Trustees 2
The Funds 4
Fund Ownership 5
Trustee Liability 5
Investment Advisory Services 5
- ---------------------------------------------------------------
Adviser to the Fund 5
Advisory Fees 5
Other Advisory Services 6
Administrative Services 6
- ---------------------------------------------------------------
Brokerage Transactions 6
- ---------------------------------------------------------------
Purchasing Shares 6
- ---------------------------------------------------------------
Distribution and Shareholder
Services Plans 7
Conversion to Federal Funds 7
Determining Net Asset Value 7
- ---------------------------------------------------------------
Determining Market Value of Securities 7
Redeeming Shares 7
- ---------------------------------------------------------------
Exchanging Securities for Trust Shares 7
- ---------------------------------------------------------------
Tax Consequences 8
Tax Status 8
- ---------------------------------------------------------------
The Fund's Tax Status 8
Shareholders' Tax Status 8
Total Return 8
- ---------------------------------------------------------------
Yield 8
- ---------------------------------------------------------------
Performance Comparisons 9
- ---------------------------------------------------------------
Duration 10
General Information About the Trust
- --------------------------------------------------------------------------------
Federated Income Trust was established as a Massachusetts business trust under a
Declaration of Trust dated November 17, 1981.
Shares of the Fund are offered in two classes known as Institutional Shares and
Institutional Service Shares (individually and collectively referred to as
"Shares"). This Combined Statement of Additional Information relates to the
above-mentioned Shares of the Fund.
Investment Objective and Policies
- --------------------------------------------------------------------------------
The Fund's investment objective is current income.
Types of Investments
The Fund invests only in U.S. government securities and certain collateralized
mortgage obligations. This investment policy and the objective stated above
cannot be changed without approval of shareholders.
When-Issued and Delayed Delivery Transactions
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The Fund engages in
when-issued and delayed delivery transactions only for the purpose of acquiring
portfolio securities consistent with the Fund's investment objective and
policies, and not for investment leverage. The Fund may engage in these
transactions to an extent that would cause the segregation of an amount up to
20% of the total value of its assets.
These transactions are made to secure what is considered to be an advantageous
price and yield for the Fund. Settlement dates will occur no more than 120 days
after entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
No fees or other expenses, other than normal transaction costs, are incurred.
However, liquid assets of the Fund sufficient to make payment for the securities
to be purchased are segregated at the trade date. These securities are marked to
market daily and maintained until the transaction is settled.
Repurchase Agreements
The Fund requires its custodian to take possession of the securities subject to
repurchase agreements, and these securities are marked to market daily. To the
extent that the original seller does not repurchase the securities from the
Fund, the Fund could receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be delayed
pending court action. The Fund believes that under the regular procedures
normally in effect for custody of the Fund's portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor of
the Fund and allow retention or disposition of such securities. 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 guidelines established by the Trustees.
Portfolio Turnover
The Fund conducts portfolio transactions to accomplish its investment objective
as interest rates change, to invest new money obtained from selling its shares,
and to meet redemption requests. The Fund may dispose of portfolio securities at
any time if it appears that selling the securities will help the Fund achieve
its investment objective.
The Fund will not attempt to set or meet a portfolio turnover rate since any
turnover would be incidental to transactions undertaken in an attempt to achieve
the Fund's investment objective. During the fiscal years ended January 31, 1994
and 1993, the portfolio turnover rates were 178% and 52%, respectively.
Investment Limitations
The Fund will not change any of the investment limitations described below
without approval of shareholders.
Selling Short and Buying on Margin
The Fund will not sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as may be necessary for
clearance of purchases and sales of portfolio securities.
Borrowing Money
The Fund will not borrow money except as a temporary measure for
extraordinary or emergency purposes and then only in amounts not in
excess of 5% of the value of its total assets or in an amount up to one-
third of the value of its total assets, including the amount borrowed, in
order to meet redemption requests without immediately selling portfolio
securities. This borrowing provision is not for investment leverage but
solely to facilitate management of the portfolio by enabling the Fund to
meet redemption requests when the liquidation of portfolio securities
would be inconvenient or disadvantageous.
Interest paid on borrowed funds will not be available for investment. The
Fund will liquidate any such borrowings as soon as possible and may not
purchase any portfolio securities while any borrowings are outstanding.
Pledging Assets
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it may mortgage, pledge, or
hypothecate assets having a market value not exceeding 10% of the value
of total assets at the time of the borrowing.
Lending Cash or Securities
The Fund will not lend any assets except portfolio securities. (This will
not prevent the purchase or holding of bonds, debentures, notes,
certificates of indebtedness or other debt securities of an issuer,
repurchase agreements or other transactions which are permitted by the
Fund's investment objective and policies or Declaration of Trust).
Issuing Senior Securities
The Fund will not issue senior securities, except as permitted by its
investment objective and policies.
Investing in Securities of Other Investment Companies
The Fund may not own securities of open-end investment companies. The
Fund can acquire up to 3 per centum of the total outstanding stock of
closed-end investment companies. The Fund will not be subject to any
other limitations with regard to the acquisition of securities of
closed-end investment companies so long as the public offering price of
the Fund's Shares does not include a sales load exceeding 1-1/2 per cent.
The Fund will purchase securities of closed-end investment companies only
in open-market transactions involving only customary broker's
commissions. However, these limitations are not applicable if the
securities are acquired in a merger, consolidation, or acquisition of
assets.
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
restriction.
The Fund did not borrow money or pledge securities in excess of 5% of the value
of its total assets during the last fiscal year and has no present intent to do
so in the coming fiscal year.
Trust Management
- --------------------------------------------------------------------------------
Officers and Trustees
Officers and Trustees are listed with their addresses, principal occupations,
and present positions, including any affiliation with Federated Management,
Federated Investors, Federated Securities Corp., Federated Services Company, and
Federated Administrative Services, and the Funds (as defined below).
<TABLE>
<CAPTION>
Positions with Principal Occupations
Name and Address the Trust During Past Five Years
<S> <C> <C>
John F. Donahue\* Chairman and Chairman and Trustee, Federated Investors; Chairman and Trustee,
Federated Investors Tower Trustee Federated Advisers, Federated Management, and Federated Research;
Pittsburgh, PA Director, AEtna Life and Casualty Company; Chief Executive Officer and
Director, Trustee, or Managing General Partner of the Funds; formerly,
Director, The Standard Fire Insurance Company. Mr. Donahue is the father
of J. Christopher Donahue, Vice President of the Trust.
John T. Conroy, Jr. Trustee President, Investment Properties Corporation; Senior Vice-President,
Wood/IPC Commercial John R. Wood and Associates, Inc., Realtors; President, Northgate
Department Village Development Corporation; General Partner or Trustee in private
John R. Wood and real estate ventures in Southwest Florida; Director, Trustee or Managing
Associates, Inc., Realtors General Partner of the Funds; formerly, President, Naples Property
3255 Tamiami Trail North Management, Inc.
Naples, FL
William J. Copeland Trustee Director and Member of the Executive Committee, Michael Baker, Inc.;
One PNC Plaza-- Director, Trustee, or Managing General Partner of the Funds; formerly,
23rd Floor Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp and
Pittsburgh, PA Director, Ryan Homes, Inc.
James E. Dowd Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
571 Hayward Mill Road Trustee, or Managing General Partner of the Funds; formerly, Director,
Concord, MA Blue Cross of Massachusetts, Inc.
Lawrence D. Ellis, M.D. 3471 Trustee Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
Fifth Avenue Hospitals; Clinical Professor of Medicine and Trustee, University of
Suite 1111 Pittsburgh; Director, Trustee, or Managing General Partner of the Funds.
Pittsburgh, PA
Edward L. Flaherty, Jr.\ Trustee Attorney-at-law; Partner, Meyer and Flaherty; Director, Eat'N Park
5916 Penn Mall Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director,
Pittsburgh, PA Trustee, or Managing General Partner of the Funds; formerly, Counsel,
Horizon Financial, F.A., Western Region.
Glen R. Johnson* President and Trustee, Federated Investors; President and/or Trustee of some of the
Federated Investors Tower Trustee Funds; staff member, Federated Securities Corp., and Federated
Pittsburgh, PA Administrative Services.
Peter E. Madden Trustee Consultant; State Representative, Commonwealth of Massachusetts;
225 Franklin Street Director, Trustee, or Managing General Partner of the Funds; formerly
Boston, MA President, State Street Bank and Trust Company and State Street Boston
Corporation and Trustee, Lahey Clinic Foundation, Inc.
Gregor F. Meyer Trustee Attorney-at-law; Partner, Meyer and Flaherty; Chairman, Meritcare, Inc.;
5916 Penn Mall Director, Trustee, or Managing General Partner of the Funds; formerly,
Pittsburgh, PA Vice Chairman, Horizon Financial, F.A.
Wesley W. Posvar Trustee Professor, Foreign Policy and Management Consultant; Trustee, Carnegie
1202 Cathedral of Endowment for International Peace, RAND Corporation; Online Computer
Learning Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Slovak
University of Pittsburgh Management Center; Director, Trustee, or Managing General Partner of the
Pittsburgh, PA Funds; President Emeritus, University of Pittsburgh; formerly, Chairman,
National Advisory Council for Environmental Policy and Technology.
Marjorie P. Smuts Trustee Public relations/marketing consultant; Director, Trustee, or Managing
4905 Bayard Street General Partner of the Funds.
Pittsburgh, PA
J. Christopher Donahue Vice President President and Trustee, Federated Investors; Trustee, Federated Advisers,
Federated Investors Tower Federated Management, and Federated Research; President and Director,
Pittsburgh, PA Federated Administrative Services; Trustee, Federated Services Company;
President or Vice President of the Funds; Director, Trustee or Managing
General Partner of some of the Funds. Mr. Donahue is the son of John F.
Donahue, Chairman and Trustee of the Trust.
Richard B. Fisher Vice President Executive Vice President and Trustee, Federated Investors; Chairman,
Federated Investors Tower Federated Securities Corp.; President or Vice President of the Funds;
Pittsburgh, PA Director or Trustee of some of the Funds.
Edward C. Gonzales Vice President Vice President, Treasurer and Trustee, Federated Investors; Vice
Federated Investors Tower and Treasurer President and Treasurer, Federated Advisers, Federated Management, and
Pittsburgh, PA Federated Research; Executive Vice President, Treasurer, and Director,
Federated Securities Corp.; Trustee, Federated Services Company;
Chairman, Treasurer, and Director, Federated Administrative Services;
Trustee of some of the Funds; Vice President and Treasurer of the Funds.
John W. McGonigle Vice President Vice President, Secretary, General Counsel, and Trustee,
Federated Investors Tower and Secretary Federated Investors; Vice President, Secretary and Trustee,
Pittsburgh, PA Federated Advisers, Federated Management, and Federated
Research; Trustee, Federated Services Company; Executive Vice President,
Secretary, and Director, Federated Administrative Services; Director and
Executive Vice President, Federated Securities Corp.; Vice President and
Secretary of the Funds.
John A. Staley, IV Vice President Vice President and Trustee, Federated Investors; Executive Vice
Federated Investors Tower President, Federated Securities Corp.; President and Trustee, Federated
Pittsburgh, PA Advisers, Federated Management, and Federated Research; Vice President
of the Funds; Director, Trustee, or Managing General Partner of some of
the Funds; formerly, Vice President, The Standard Fire Insurance Com-
pany and President of its Federated Research Division.
</TABLE>
*This Trustee is deemed to be an "interested person" of the Trust as defined in
the Investment Company Act of 1940.
\Members of the Trust's Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board of Trustees between
meetings of the Board.
The Funds
"The Funds" and "Funds" mean the following investment companies: A.T. Ohio
Municipal Money Fund; American Leaders Fund, Inc.; Annuity Management Series;
Automated Cash Management Trust; Automated Government Money Trust; The Boulevard
Funds; California Municipal Cash Trust; Cash Trust Series Inc; Cash Trust Series
II; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; FT
Series, Inc.; Federated ARMS Fund; Federated Exchange Fund, Ltd.; Federated GNMA
Trust; Federated Government Trust; Federated Growth Trust; Federated High Yield
Trust; Federated Income Securities Trust; Federated Income Trust, Federated
Index Trust; Federated Intermediate Government Trust; Federated Master Trust;
Federated Municipal Trust; Federated Short-Intermediate Government Trust;
Federated Short-Term U.S. Government Trust; Federated Stock Trust; Federated
Tax-Free Trust; Federated U.S. Government Bond Fund; First Priority Funds; Fixed
Income Securities, Inc.; Fortress Adjustable Rate U.S. Government Fund, Inc.;
Fortress Municipal Income Fund, Inc.; Fortress Utility Fund, Inc.; Fund for U.S.
Government Securities, Inc.; Government Income Securities, Inc.; High Yield Cash
Trust; Insight Institutional Series, Inc.; Insurance Management Series;
Intermediate Municipal Trust; Investment Series Funds, Inc.; Investment Series
Trust; Liberty Equity Income Fund, Inc.; Liberty High Income Bond Fund, Inc.;
Liberty Municipal Securities Fund, Inc.; Liberty Term Trust, Inc.-1999; Liberty
Utility Fund Inc.; Liberty U.S. Government Money
Market Trust; Liquid Cash Trust; Managed Series Trust; Mark Twain Funds; Money
Market Management Inc.; Money Market Obligations Trust; Money Market Trust;
Municipal Securities Income Trust; New York Municipal Cash Trust; 111 Corcoran
Funds; The Planters Funds; Peachtree Funds; Portage Funds; RIMCO Monument Funds;
The Shawmut Funds; Short-Term Municipal Trust; Signet Select Funds; Star Funds;
The Starburst Funds; The Starburst Funds II; Stock and Bond Fund, Inc.; Sunburst
Funds; Targeted Duration Trust; Tax-Free Instruments Trust; Trademark Funds;
Trust for Financial Institutions; Trust for Government Cash Reserves; Trust for
Short-Term U.S. Government Securities; and Trust for U.S. Treasury Obligations.
Fund Ownership
Officers and Trustees own less than 1% of the Fund's outstanding shares.
As of March 7, 1994, the following shareholder of record owned 5% or more of the
outstanding Institutional Shares of the Fund: Integra Trust Services,
Pittsburgh, Pennsylvania, owned approximately 15,975,728 shares (9.86%).
As of March 7, 1994, the following shareholders of record owned 5% or more of
the outstanding Institutional Service Shares of the Fund: Charles Schwab & Co.,
Inc., San Francisco, California, owned approximately 1,390,963 shares (24.11%);
Heritage Trust Company, Grand Junction, Colorado, owned approximately 518,033
shares (8.98%); First National Bank & Trust of McAllister, McAllister, Oklahoma,
owned approximately 438,328 shares (8.38%); Pawtucket Trust Co., Pawtucket,
Rhode Island, owned approximately 441,778 shares (7.66%); First Albany Corp.,
Albany, New York, owned approximately 293,679 shares (7.60%); Bank One Utah NA,
Salt Lake City, Utah, owned approximately 321,477 shares (5.57%); and Signet
Trust Co., Baltimore, Maryland, owned approximately 309,548 shares (5.36%).
Trustee Liability
The Trust's Declaration of Trust provides that the Trustees are not liable for
errors of judgment or mistakes of fact or law. However, they are not protected
against any liability to which they would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of their office.
Investment Advisory Services
- --------------------------------------------------------------------------------
Adviser to the Fund
The Fund's investment adviser is Federated Management. It is a subsidiary of
Federated Investors. All the voting securities of Federated Investors are owned
by a trust, the trustees of which are John F. Donahue, his wife, and his son, J.
Christopher Donahue. John F. Donahue is Chairman and Trustee of Federated
Management; Chairman and Trustee, Federated Investors and Chairman and Trustee
of the Trust. John A. Staley, IV, is President of Federated Management; Vice
President and Trustee, Federated Investors; Executive Vice President, Federated
Securities Corp. and Vice President of the Trust. J. Christopher Donahue, is
Trustee, Federated Management; President and Trustee, Federated Investors;
Trustee, President and Director, Federated Administrative Services; and Vice
President of the Trust. John W. McGonigle is Vice President, Secretary and
Trustee of Federated Management; Trustee, Vice President, Secretary and General
Counsel, Federated Investors; Executive Vice President, Secretary and Director,
Federated Administrative Services; Federated Services Company; Director and
Executive Vice President, Federated Securities Corp.; and Vice President and
Secretary of the Trust.
The adviser shall not be liable to the Fund or any shareholder of the Fund 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.
Advisory Fees
For its advisory services, Federated Management receives an annual investment
advisory fee as described in the prospectus. During the fiscal years ended
January 31, 1994, 1993 and 1992 the Fund's adviser earned $6,861,374, $5,643,772
and $4,134,391, respectively.
State Expense Limitations
The adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2-1/2% per year of the first $30 million of average net assets, 2%
per
year of the next $70 million of average net assets, and 1-1/2% per year
of the remaining average net assets, the adviser will reimburse the Fund
for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the adviser will
be limited, in any single fiscal year, by the amount of the investment
advisory fee.
This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.
Other Advisory Services
Federated Research Corp. receives fees from certain depository institutions for
providing consulting and portfolio advisory services relating to each
institution's program of asset management. Federated Research Corp. may advise
such clients to purchase or redeem shares of investment companies, such as the
Fund, which are managed for a fee by Federated Research Corp. or other
affiliates of Federated Investors such as the adviser, and may advise such
clients to purchase and sell securities in the direct markets. Further,
Federated Research Corp. and other affiliates of the adviser may, from time to
time, provide certain consulting services and equipment to depository
institutions in order to facilitate the purchase of shares of funds offered by
Federated Securities Corp.
Administrative Services
- --------------------------------------------------------------------------------
Federated Administrative Services, Inc., a subsidiary of Federated Investors,
has provided administrative personnel and services to the Fund at approximate
cost. For the fiscal years ended January 31, 1994, 1993 and 1992, the Fund
incurred costs for administrative service fees of $1,043,969, $778,981, and
$683,146, respectively. John A. Staley, IV, an officer of the Fund, and Dr.
Henry J. Gailliot, an officer of Federated Management, the adviser to the Fund,
each hold approximately 15% and 20%, respectively, of the outstanding common
stock and serve as Directors of Commercial Data Services, Inc., a company which
provides computer processing services to Federated Administrative Services, Inc.
For the fiscal years ended January 31, 1994, 1993 and 1992 Federated
Administrative Services, Inc. paid approximately $161,054, $181,235, and
$200,212, respectively, for services provided by Commercial Data Services, Inc.
Brokerage 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. In working with dealers, the adviser will generally utilize those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Board of Trustees.
The adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the adviser
and may include:
advice as to the advisability of investing in securities;
security analysis and reports;
economic studies;
industry studies;
receipt of quotations for portfolio evaluations; and
similar services.
The adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
Research services provided by brokers may be used by the adviser or by
affiliates of Federated Investors in advising the Funds and other accounts. To
the extent that receipt of these services may supplant services for which the
adviser or its affiliates might otherwise have paid, it would tend to reduce
their expenses.
Purchasing Shares
- --------------------------------------------------------------------------------
Shares are sold at their net asset value without a sales charge on days the New
York Stock Exchange is open for business. The procedure for purchasing Shares is
explained in the respective prospectus under "Investing in Institutional Shares"
or "Investing in Institutional Service Shares."
Distribution and Shareholder Services Plans
These arrangements permit the payment of fees to Financial Institutions, the
distributor, and Federated Shareholder Services, to stimulate distribution
activities and to cause services to be provided to shareholders by a
representative who has knowledge of the shareholder's particular circumstances
and goals. These activities and services may include, but are not limited to,
marketing efforts; providing office space, equipment, telephone facilities, and
various clerical, supervisory, computer, and other personnel as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries; and assisting
clients in changing dividend options, account designations, and addresses.
With respect to the Institutional Service Shares Class of the Fund, by adopting
the Distribution Plan, the Board of Trustees expects that the Fund will be able
to achieve a more predictable flow of cash for investment purposes and to meet
redemptions. This will facilitate more efficient portfolio management and assist
the Fund in pursuing its investment objectives. By identifying potential
investors whose needs are served by the Fund's objectives, and properly
servicing these accounts, it may be possible to curb sharp fluctuations in rates
of redemptions and sales.
Other benefits, which may be realized under either arrangement, may include: (1)
providing personal services to shareholders; (2) investing shareholder assets
with a minimum of delay and administrative detail; (3) enhancing shareholder
recordkeeping systems; and (4) responding promptly to shareholders' requests and
inquiries concerning their accounts.
For the years ended January 31, 1994, and 1993, payments in the amount of
$137,722 and $49,924, respectively, were made pursuant to the Distribution Plan
(Institutional Service Shares only).
Conversion to Federal Funds
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds. State Street Bank acts as the
shareholder's agent in depositing checks and converting them to federal funds.
Determining Net Asset Value
- --------------------------------------------------------------------------------
Net asset value generally changes each day. The days on which the net asset
value is calculated by the Fund are described in the respective prospectus.
Determining Market Value of Securities
Market values of the Fund's portfolio securities are determined as follows:
according to the mean between the over-the-counter bid and asked prices
provided by an independent pricing service, if available, or at fair value as
determined in good faith by the Fund's Board of Trustees; or
for short-term obligations with remaining maturities of less than 60 days at
the time of purchase, at amortized cost unless the Board of Trustees determines
that particular circumstances of the security indicate otherwise.
Redeeming Shares
- --------------------------------------------------------------------------------
The Fund redeems Shares of either class at the next computed net asset value
after the Fund receives the redemption request. Redemption procedures are
explained in the respective prospectus under "Redeeming Institutional Shares" or
"Redeeming Institutional Service Shares." Although State Street Bank does not
charge for telephone redemptions, it reserves the right to charge a fee for the
cost of wire-transferred redemptions of less than $5,000.
Exchanging Securities for Trust Shares
- --------------------------------------------------------------------------------
Investors may exchange certain U.S. government securities they already own for
Shares of either class, or they may exchange a combination of securities and
cash for Shares of either class. An investor should forward the securities in
negotiable form with an authorized letter of transmittal to Federated Securities
Corp. specifying whether the investor will receive Institutional Shares or
Institutional Service Shares. The Fund will notify the investor of its
acceptance and valuation of the securities within five business days of their
receipt by the transfer agent.
The Fund values securities in the same manner as the Fund values its assets. The
basis of the exchange will depend upon the net asset value of Shares on the day
the securities are valued. One share of the Fund will be issued for each
equivalent amount of securities accepted.
Any interest earned on the securities prior to the exchange will be considered
in valuing the securities. All interest, dividends, subscription, or other
rights attached to the securities become the property of the Fund, along with
the securities.
Tax Consequences
Exercise of this exchange privilege is treated as a sale for federal income tax
purposes. Depending upon the cost basis of the securities exchanged for Shares,
a gain or loss may be realized by the investor.
Tax Status
- --------------------------------------------------------------------------------
The Fund's Tax Status
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;
derive less than 30% of its gross income from the sale of securities held less
than three months;
invest in securities within certain statutory limits; and
distribute to its shareholders at least 90% of its net income earned during the
year.
Shareholders' Tax Status
Shareholders are subject to federal income tax on dividends and capital gains
received as cash or additional Shares. No portion of any income dividend paid by
the Fund is eligible for the dividends received deduction available to
corporations. These dividends, and any short-term capital gains, are taxable as
ordinary income.
Capital Gains
Capital gains distributed to shareholders will be treated as long-term
capital gains regardless of how long shareholders have held Shares.
Total Return
- --------------------------------------------------------------------------------
The average annual total return for Institutional Shares of the Fund 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 offering price 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, adjusted over the period
by any additional shares, assuming the monthly reinvestment of all dividends and
distributions. Cumulative total return reflects the Fund's performance over a
specific period of time. The Fund's cumulative total return for Institutional
Service Shares is representative of the activity in that class of shares from
January 31, 1993 through January 31, 1994.
The Fund's average annual total return for Institutional Shares for the one-year
and five-year periods ended January 31, 1994, and for the period from March 30,
1982 (effective date of the Trust's registration statement) to January 31, 1994
were 5.22%, 9.58%, and 10.89%, respectively. The Fund's cumulative total return
for Institutional Service Shares for the period from June 18, 1992, through
January 31, 1993, and for the year ended January 31, 1994, was 4.96% and 6.07%,
respectively.
Yield
- --------------------------------------------------------------------------------
The yield for both classes of shares of the Fund is determined each day by
dividing the net investment income per share (as defined by the Securities and
Exchange Commission) earned by either class of shares over a thirty-day period
by the offering price per share by either class of shares on the last day of the
period. This value is then annualized using semi-annual compounding. This means
that the amount of income generated during the thirty-day period is assumed to
be generated each month over a twelve-month period and is reinvested every six
months. The yield does not necessarily reflect income actually earned by the
Fund because of certain adjustments required by the Securities and Exchange
Commission and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in either
class of shares, performance will be reduced for those shareholders paying those
fees.
The Fund's yield for Institutional Shares for the thirty-day period ended
January 31, 1994, was 5.04%. The Fund's yield for Institutional Service Shares
was 4.79% for the same period.
Performance Comparisons
- --------------------------------------------------------------------------------
The performance of both class of shares depends upon such variables as:
portfolio quality;
average portfolio maturity;
type of instruments in which the portfolio is invested;
changes in interest rates and market value of portfolio securities;
changes in the Fund's expenses or either class of shares' expenses; and
various other factors.
Both classes of shares' performance fluctuates on a daily basis largely because
net earnings and net asset value per share fluctuate daily. Both net earnings
and net asset value per share are factors in the computation of yield and total
return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any 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 net asset value over a specific period of time. From
time to time, the Fund will quote its Lipper ranking in the U.S. government
funds category in advertising and sales literature.
Lehman Government/Corporate (Total) index is comprised of approximately 5,000
issues which include non-convertible 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,
non-convertible domestic bonds of companies in industry, public utilities and
finance. The average maturity of these bonds approximates nine years. Tracked
by Smith Barney Shearson, the index calculates total returns for the one month,
three month, twelve month and ten year periods and year-to-date.
Lehman Brothers Government Index is an unmanaged index comprised of all
publicly issued, non-convertible domestic debt of the U.S. government, or any
agency thereof, or any quasi-federal corporation and of corporate debt
guaranteed by the U.S. government. Only notes and bonds with a minimum
outstanding principal of $1 million and a minimum maturity of one year are
included.
Salomon Brothers 15 Year Mortgage Backed Securities Index includes the average
of all 15 year mortgage securities which include Federal Home Loan Mortgage
Corp. (Freddie Mac), Federal National Mortgage Association (Fannie Mae), and
Government National Mortgage Association (GNMA).
Lehman Brothers Five Year Treasury Bellwether Index is an unmanaged index
comprised of U.S. government Treasury Bonds with an average maturity of five
years.
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.
In addition, the Fund will make comparisons to certain direct market securities
in which it is permitted to invest. The type of security that will be used for
such comparisons, and the sources of its performance are listed below.
5-Year Treasury Notes--Source: Wall Street Journal, Bloomberg Financial
Markets, and Telerate.
Advertisements and other sales literature for both classes of shares may quote
total returns which are calculated on nonstandardized base periods. These total
returns also represent the historic change in the value of an investment in
either class of shares based on monthly reinvestment of dividends over a
specified period of time.
Duration
Duration is a commonly used measure of the potential volatility in the price of
a bond, or other fixed income security, or in a portfolio of fixed income
securities, prior to maturity. Volatility is the magnitude of the change in the
price of a bond relative to a given change in the market rate of interest. A
bond's price volatility depends on three primary variables: the bond's coupon
rate; maturity date; and the level of market yields of similar fixed-income
securities. Generally, bonds with lower coupons or longer maturities will be
more volatile than bonds with higher coupons or shorter maturities. Duration
combines these variables into a single measure.
Duration is calculated by dividing the sum of the time-weighted values of the
cash flows of a bond or bonds, including interest and principal payments, by the
sum of the present values of the cash flows.
When the Fund invests in mortgage pass-through securities, its duration will be
calculated in a manner which requires assumptions to be made regarding future
principal prepayments. A more complete description of this calculation is
available upon request from the Fund.
8030102B (3/94)
FEDERATED INCOME TRUST
- --------------------------------------------------------------------------------
ANNUAL REPORT FOR FISCAL YEAR ENDED JANUARY 31, 1994
Investment Review
---------------------------------------------------------------------------
Federated Income Trust (the "Trust"), provides shareholders with a
professionally managed portfolio of U.S. Government securities. The Trust
is managed for a short to intermediate average life and is invested
primarily in mortgage-backed securities. Current invesment strategy
emphasizes a diversified range of government securities with coupons
averaging 7.46%, and issues with a weighted average life of 4.3 years. The
Trust is managed as a short duration, mortgage-backed security alternative
subject to our projections on market risk and volatility. The Trust's
portfolio should have volatility similar to an intermediate Treasury.
Interest rates have risen substantially from their lows of October,
1993. The 5-year Treasury note has increased by 100 basis points in yield
in that time, and with the Federal Reserve now committed to a tighter
monetary policy aimed at intercepting inflationary pressures, this trend
will be difficult to reverse. Therefore, the Trust's portfolio strategy has
been geared toward purchasing defensive securities that will outperform in
a weak market. Securities of this type, which have been purchased by the
Trust, include adjustable rate mortgages and seven-year balloon mortgages.
This approach has allowed the Trust to reduce its interest rate risk
profile by shortening its duration from 4.3 years in July, 1993 to 3.0
years at the end of January, 1994. A cautious monitoring of prepayment risk
has also been a major part of the Trust's strategy. As a follow through
from the low interest rates in the fall, refinancings by homeowners
continue to flow through to the holders of mortgage-backed securities.
Therefore, the Trust continues to emphasize purchasing those securities,
such as current coupon pass-throughs, which offer positive prepayment
horizons or securities that are appropriately priced to include prepayment
risk.
As of January 31, 1994, total net assets were $1.8 billion and the
average 30-day net yield as calculated under SEC guidelines was 5.04% for
Institutional Shares and 4.79% for Institutional Service Shares based upon
the net asset value of $10.50. The Trust is rated AAAf, the highest mutual
fund rating of Standard & Poor's, and will continue to provide monthly cash
flow and daily liquidity while seeking competitive yields.
*Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investors shares, when
redeemed, may be worth more or less than their original cost.
**Ratings are subject to change.
Performance Comparison
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN
FEDERATED INCOME TRUST (INSTITUTIONAL SHARES), LEHMAN BROTHERS 5-YEAR TREASURY
BELLWETHER INDEX, SALOMON BROTHERS 15-YEAR MORTGAGE INDEX, AND LIPPER U.S.
MORTGAGE FUNDS AVERAGE CATEGORY.
[CHART]
Graphic representation "A" omitted. See Appendix.
Past performance is not predictive of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than original cost. Mutual funds are not obligations of or
guaranteed by any bank and are not federally insured.
This annual report incorporates by reference and accompanies the prospectus
dated March 31, 1994.
*Reflects performance of Federated Income Trust (Institutional
Shares) from March 30, 1982 through January 31, 1994.
**The Fund's performance assumes the reinvestment of all dividends
and distributions. The Lehman Brothers
5-Year Treasury Bellwether Index, Salomon Brothers 15-Year
Mortgage Index and Lipper U.S. Mortgage Funds Average are
adjusted to reflect reinvestment of dividends on securities in
the indices and category. For this illustration the Salomon
Brothers 15-Year Mortgage Index began performance on February 1,
1986. The Salomon Brothers 15-Year Mortgage Index was assigned a
beginning value of $13,221, the value of the Fund on January 31,
1986.
The Lehman Brothers 5-Year Treasury Bellwether Index and the Salomon
Brothers 15-Year Mortgage Index are not adjusted to reflect sales
loads, expenses, or other fees that the SEC requires to be reflected in
the Fund's performance.
The Lipper U.S. Mortgage Funds Average Category is a compilation of mutual
fund total returns reported to Lipper Analytical Services, Inc. Each fund is
reported net of sales loads, expenses or other fees that the SEC requires to
be reflected in a fund's performance.
Reflects maximum applicable fees.
Performance Comparison
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN
FEDERATED INCOME TRUST (INSTITUTIONAL SERVICE SHARES), LEHMAN BROTHERS 5-YEAR
TREASURY BELLWETHER INDEX, SALOMON BROTHERS 15-YEAR MORTGAGE INDEX, AND LIPPER
U.S. MORTGAGE FUNDS AVERAGE CATEGORY.
[CHART]
Graphic representation "B" omitted. See Appendix.
Past performance is not predictive of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than original cost. Mutual funds are not obligations of or
guaranteed by any bank and are not federally insured.
This annual report incorporates by reference and accompanies the prospectus
dated March 31, 1994.
*Reflects performance of Federated Income Trust (Institutional
Service Shares) from the start of business June 18, 1992 through
January 31, 1994.
**The Fund's performance assumes the reinvestment of all dividends
and distributions. The Lehman Brothers
5-Year Treasury Bellwether Index, Salomon Brothers 15-Year
Mortgage Index and Lipper U.S. Mortgage Funds Average are
adjusted to reflect reinvestment of dividends on securities in
the indices and category respectively.
The Lehman Brothers 5-Year Treasury Bellwether Index and the Salomon
Brothers 15-Year Mortgage Index are not adjusted to reflect sales
loads, expenses, or other fees that the SEC requires to be reflected in
the Fund's performance.
The Lipper U.S. Mortgage Funds Average Category is a compilation of mutual
fund total returns reported to Lipper Analytical Services, Inc. Each fund is
reported net of sales loads, expenses or other fees that the SEC requires to
be reflected in a fund's performance.
Reflects maximum applicable fees.
FEDERATED SECURITIES CORP.
--------------------------------------------------------------------------
Distributor
8030102ARS (03/94)
APPENDIX
A. The graphic presentation here displayed consists of a boxed legend
in the bottom center indicating the components of the corresponding line
graph. Federated Income Trust (Institutional Shares) (the "Fund") is
represented by a solid line;. the Lehman Brothers 5-Year Treasury
Bellwether Index is represented by a horizontal broken line; the Salomon
Brothers 15-year Mortgage Index is represented by a part solid, part
broken line and the Lipper U.S. Mortgage Funds Average is represented by
a vertical broken line. The line graph is a visual representation of a
comparison of change in value of a hypothetical $10,000 purchase in the
Fund and the Lehman Brothers 5-Year Treasury Bellwether Index; the
Salomon Brothers 15-Year Mortgage Index and the Lipper U.S. Mortgage
Funds Average. The "y" axis reflects the cost of the investment. The
"x" axis reflects computation periods from the Fund's start of business,
since March 30, 1982. The right margin reflects the ending value of the
hypothetical investment in the Fund as compared to the Lehman Brothers
5-Year Treasury Bellwether Index; the Salomon Brothers 15-Year Mortgage
Index and the Lipper U.S. Mortgage Funds Average; the ending values are
$25, 838, $26,293, 28,237 and 26,297. There is also a legend in the
upper left quadrant of the graphic presentation which indicates the
Average Annual Total Return for the period ended January 31, 1994,
beginning with the inception date of the Fund, March 30, 1982, and the
ten, five and one year periods; the Average Total Returns are 10.89%,
9.96%, 9.58% and 5.22% respectively.
B. The graphic presentation here displayed consists of a boxed legend
in the bottom center indicating the components of the corresponding line
graph. Federated Income Trust (Institutional Service Shares) (the
"Fund") is represented by a solid line;. the Lehman Brothers 5-Year
Treasury Bellwether Index is represented by a horizontal broken line;
the Salomon Brothers
15-year Mortgage Index is represented by a part solid, part broken line
and the Lipper U.S. Mortgage Funds Average is represented by a vertical
broken line. The line graph is a visual representation of a comparison
of change in value of a hypothetical $10,000 purchase in the Fund and
the Lehman Brothers 5-Year Treasury Bellwether Index; the Salomon
Brothers 15-Year Mortgage Index and the Lipper U.S. Mortgage Funds
Average. The "y" axis reflects the cost of the investment. The "x"
axis reflects computation periods from the Fund's start of business,
since June 18, 1992. The right margin reflects the ending value of the
hypothetical investment in the Fund as compared to the Lehman Brothers
5-Year Treasury Bellwether Index; the Salomon Brothers 15-Year Mortgage
Index and the Lipper U.S. Mortgage Funds Average; the ending values are
$10,999, $11,587, $11,270, and $11,256. There is also a legend in the
upper left quadrant of the graphic presentation which indicates the
Average Annual Total Return for the period ended January 31, 1994,
beginning with the inception date of the Fund, June 18, 1992, and the
one -year period ; the Average Total Returns are 6.07% and 4.96%
respectively.
