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
Trust is a no-load, open-end, diversified management investment company (a
mutual fund). The investment objective of the Trust is to provide current
income. The Trust pursues this investment objective by investing in U.S.
government securities. As of the date of this prospectus, it is anticipated that
the Trust 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 Trust. Keep this prospectus for future
reference.
The Trust has also filed a Combined Statement of Additional Information for
Institutional Shares and Institutional Service Shares dated March 31, 1995, 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 Trust, contact the Trust 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, 1995
TABLE OF CONTENTS
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SUMMARY OF TRUST EXPENSES 1
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FINANCIAL HIGHLIGHTS--
INSTITUTIONAL SHARES 2
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GENERAL INFORMATION 3
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INVESTMENT INFORMATION 3
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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
Portfolio Turnover 6
TRUST INFORMATION 6
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Management of the Trust 6
Board of Trustees 6
Investment Adviser 6
Advisory Fees 6
Adviser's Background 6
Distribution of Institutional Shares 7
Administration of the Trust 7
Administrative Services 7
Shareholder Services Plan 8
Other Payments to Financial Institutions 8
Custodian 8
Transfer Agent and Dividend
Disbursing Agent 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 9
By Mail 9
Minimum Investment Required 9
What Shares Cost 9
Exchanging Securities for Trust Shares 9
Subaccounting Services 10
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 12
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Voting Rights 12
Massachusetts Partnership Law 12
TAX INFORMATION 12
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Federal Income Tax 12
Pennsylvania Corporate and
Personal Property Taxes 13
PERFORMANCE INFORMATION 13
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OTHER CLASSES OF SHARES 14
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Financial Highlights--
Institutional Service Shares 15
FINANCIAL STATEMENTS 16
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INDEPENDENT AUDITORS' REPORT 27
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ADDRESSES 28
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SUMMARY OF TRUST EXPENSES
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<TABLE>
<S> <C> <C>
INSTITUTIONAL SHARES
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.................................................................. 0.18%
Shareholder Services Fee (after waiver)(1).............................. 0.03%
Total Institutional Shares Operating Expenses(2)............................ 0.58%
</TABLE>
(1) The maximum shareholder services fee is 0.25%.
(2) The Total Institutional Shares Operating Expenses in the table above are
based on expenses expected during the fiscal year ending January 31, 1996. The
Total Institutional Shares Operating Expenses were 0.56% for the fiscal year
ended January 31, 1995.
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
Trust 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 $19 $32 $ 73
</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 Trust. The Trust 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 up to 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 Auditors' Report, on page 27.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
---------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
---------- ---------- ---------- ---------- -------- ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
---
NET
ASSET
VALUE,
BEGINNING
OF
PERIOD $10.50 $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 0.70 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 (0.80) (0.23) 0.07 0.24 0.24 0.13 (0.38) (0.31) (0.05) 0.37
--- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total
from
investment
operations (0.10) 0.54 0.87 1.13 1.17 1.07 0.57 0.68 0.98 1.56
---
LESS
DISTRIBUTIONS
---
Distributions
from net
investment
income (0.70) (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 (0.70) (0.77) (0.80) (0.89) (0.93) (0.94) (0.95) (0.99) (1.11) (1.19)
--- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
NET
ASSET
VALUE,
END OF
PERIOD $ 9.70 $10.50 $10.73 $10.66 $10.42 $10.18 $10.05 $10.43 $10.74 $10.87
--- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
TOTAL
RETURN(A) (0.86)% 5.22% 8.51% 11.27% 12.01% 11.04% 5.75% 6.79% 9.52% 15.66%
---
RATIOS
TO
AVERAGE
NET
ASSETS
---
Expenses 0.56% 0.51% 0.51% 0.50% 0.50% 0.53% 0.52% 0.50% 0.54% 0.57%
---
Net
investment
income 6.99% 7.28% 7.53% 8.41% 9.06% 9.23% 9.33% 9.49% 9.47% 11.13%
---
SUPPLEMENTAL
DATA
---
Net
assets,
end of
period
(000
omitted) $1,119,976 $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 217% 178% 52% 51% 36% 45% 77% 92% 146% 235%
---
</TABLE>
(a) Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(See Notes which are an integral part of the Financial Statements)
Further information about the Trust's performance is contained in the Trust's
annual report for the fiscal year ended January 31, 1995, 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") has established two classes of shares of the Trust, known
as Institutional Shares and Institutional Service Shares. This prospectus
relates only to Institutional Shares of the Trust.
Institutional Shares ("Shares") are sold primarily to accounts for which
financial institutions act in a fiduciary or agency capacity or other accounts
where the financial institution maintains master accounts with an aggregate
investment of at least $400 million in certain funds which are advised or
distributed by affiliates of Federated Investors. Shares are also made available
to financial intermediaries, public, and private organizations. An investment in
the Trust serves 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 Trust.
INVESTMENT INFORMATION
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Trust is current income. The investment
objective may not be changed without the approval of shareholders. The Trust
pursues this investment objective by investing in U.S. government securities and
certain collateralized mortgage obligations ("CMOs"). While there is no
assurance that the Trust 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 Trust 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. Should
additional permitted investments be allowed as a result of future changes in
applicable regulations or federal laws, the Trust reserves the right, without
shareholder approval, to make such investments consistent with the Trust's
investment objective, policies, and limitations. Further, should existing
statutes or regulations change so as to cause any securities held by the Trust
to become ineligible for purchase by federal savings associations, the Trust
will dispose of those securities at times advantageous to the Trust.
As operated within the above limitation, the Trust 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 Trust
invests are either issued or guaranteed by the U.S. government, its agencies, or
instrumentalities. The securities in which the Trust 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 the: Farm Credit System, including the National
Bank for Cooperatives and Banks for Cooperatives; Federal Home Loan
Banks; Federal Home Loan Mortgage Corporation; Federal National Mortgage
Association; Government National Mortgage Association; Export-Import Bank
of the United States; Commodity Credit Corporation; Federal Financing
Bank; National Credit Union Administration; Tennessee Valley Authority;
and the Student Loan Marketing Association.
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 Trust 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 Trust as income and the capital portion is
reinvested. One or more of the classes may be adjustable rate.
The Trust 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.
The prices of fixed income securities fluctuate inversely to the direction of
interest rates.
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 Trust 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 Trust, the Trust
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 Trust 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 Trust 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 Trust may purchase U.S.
government obligations on a when-issued or delayed delivery basis. These
transactions are arrangements in which the Trust purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Trust to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the
market values of the securities purchased may vary from the purchase prices.
Accordingly, the Trust may pay more or less than the market value of the
securities on the settlement date.
The Trust may dispose of a commitment prior to settlement if the adviser deems
it appropriate to do so. In addition, the Trust may enter in transactions to
sell its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Trust may realize short-term profits or losses upon the sale of such
commitments.
INVESTMENT LIMITATIONS
The Trust will not borrow money or pledge securities except, under certain
circumstances, the Trust 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.
PORTFOLIO TURNOVER
The Trust does not attempt to set or meet any specific portfolio turnover rate,
since turnover is incidental to transactions undertaken in an attempt to achieve
the Trust's investment objective. The turnover rates for the fiscal years ended
January 31, 1995 and 1994 were 217% and 178%, respectively. Such high turnover
rates may result in higher brokerage commissions and capital gains. See "Tax
Information" in this prospectus.
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 Trust are made by Federated Management, the Trust's
investment adviser (the "Adviser"), subject to direction by the Trustees. The
Adviser continually conducts investment research and supervision for the Trust
and is responsible for the purchase and sale of portfolio instruments, for which
it receives an annual fee from the Trust.
ADVISORY FEES. The Adviser receives an annual investment advisory fee
equal to .40 of 1% of the Trust's average daily net assets. The Adviser has
undertaken to reimburse the Trust 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.
Kathleen M. Foody-Malus has been the Trust's co-portfolio manager since
April, 1990. Ms. Foody-Malus joined Federated Investors in 1983 and has
been a Vice President of the Trust'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.
James D. Roberge has been the Trust's co-portfolio manager since March,
1995. Mr. Roberge joined Federated Investors in 1990 and has been a Vice
President of the Trust's investment adviser since October 1994. Prior to
this, Mr. Roberge served as an Assistant Vice President of the Trust's
investment adviser. From 1990 until 1992, Mr. Roberge acted as an
investment analyst. Mr. Roberge is a Chartered Financial Analyst and
received his M.B.A. in Finance from Wharton Business School in 1990.
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 TRUST
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 Trust.
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>
AVERAGE AGGREGATE DAILY NET
MAXIMUM ADMINISTRATIVE FEE ASSETS OF THE FEDERATED FUNDS
--------------------------------------------- ---------------------------------------------
<S> <C>
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 Institutional Shares 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 Services.
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 Trust, 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 Trust or by the assessment of a sales load on Shares.
CUSTODIAN. State Street Bank and Trust Company, Boston, Massachusetts, is
custodian for the securities and cash of the Trust.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company,
Pittsburgh, Pennsylvania, is transfer agent for the shares of the Trust and
dividend disbursing agent for the Trust.
INDEPENDENT AUDITORS. The independent auditors for the Trust are Deloitte &
Touche LLP, Pittsburgh, Pennsylvania.
NET ASSET VALUE
--------------------------------------------------------------------------------
The Trust'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 Trust, subtracting the interest of the Shares
in the liabilities of the Trust 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 Trust reserves the right to reject any purchase request.
BY WIRE. To purchase Shares by Federal Reserve wire, call the Trust before 4:00
p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern
time) on the next business day following the order. Federal funds should be
wired as follows: Federated Services Company c/o State Street Bank and Trust
Company, Boston, Massachusetts; Attention: EDGEWIRE; For Credit to: Federated
Income Trust--Institutional Shares; Trust Number (this number can be found on
the account statement or by contacting the Trust); 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
the transfer agent's bank, State Street Bank and Trust Company ("State Street
Bank") into federal funds. This is generally 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 Trust. 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 Trust. 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. (Eastern time), Monday through
Friday, except on: (i) days on which there are not sufficient changes in the
value of the Trust'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 TRUST 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 Trust reserves the right to determine the
acceptability of securities to be exchanged. Securities accepted by the Trust
are valued in the same manner as the Trust 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 Trust, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
by contacting the Trust.
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 Trust.
CAPITAL GAINS
Capital gains realized by the Trust, if any, are distributed at least once every
12 months.
REDEEMING INSTITUTIONAL SHARES
--------------------------------------------------------------------------------
The Trust redeems Shares at the net asset value next determined after the Trust
receives the redemption request. Redemptions will be made on days on which the
Trust 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 Trust before 4:00 p.m.
(Eastern 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 Trust
shall determine it necessary to terminate or modify this method of redemption,
shareholders would be promptly notified.
An authorization form permitting the Trust 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 Trust, 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 Trust. Call the
Trust for specific instructions before redeeming by letter. The shareholder will
be asked to provide in the request his name, the Trust 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 Trust, 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 Trust does not accept signatures guaranteed by a notary public.
The Trust and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Trust may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Trust 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 Trust 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 Trust'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 Trust 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 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 Trust.
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 Trust 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 Trust is not subject to Pennsylvania corporate or personal property
taxes; and
- Trust 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 Trust 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 Trust 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 Trust 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 Trust 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 and shareholder services 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, advertisements for the Trust may refer to ratings, rankings,
and certain other information in certain financial publications and/or compare
the performance of Institutional Shares to certain indices.
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 0.25 of 1% of the
Institutional Service Shares' average daily net assets. In addition,
Institutional Service Shares pay a shareholder services fee of 0.25 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 Trust 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.
FEDERATED INCOME TRUST
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE 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,
-------------------------------
1995 1994 1993(A)
------- ------- ------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.50 $10.73 $10.64
-------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
-------------------------------------------------------------
Net investment income 0.68 0.75 0.51
-------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.80) (0.23) 0.09
------------------------------------------------------------- ------ ------ ------
Total from investment operations (0.12) 0.52 0.60
-------------------------------------------------------------
LESS DISTRIBUTIONS
-------------------------------------------------------------
Distributions from net investment income (0.68) (0.75) (0.51)
------------------------------------------------------------- ------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 9.70 $10.50 $10.73
------------------------------------------------------------- ------ ------ ------
TOTAL RETURN (B) (1.08)% 4.96% 4.80%
-------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
-------------------------------------------------------------
Expenses 0.78% 0.76% 0.76%(c)
-------------------------------------------------------------
Net investment income 6.75% 7.03% 7.16%(c)
-------------------------------------------------------------
Expense waiver/reimbursement (d) 0.22% 0.00% 0.00%(c)
-------------------------------------------------------------
SUPPLEMENTAL DATA
-------------------------------------------------------------
Net assets, end of period (000 omitted) $40,428 $67,176 $53,981
-------------------------------------------------------------
Portfolio turnover rate 217% 178% 52%
-------------------------------------------------------------
</TABLE>
(a) Reflects operations for the period from May 31, 1992 (effective date of
Institutional Service Shares) to January 31, 1993.
(b) Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(c) Computed on an annualized basis.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Further information about the Trust's performance is contained in the Trust's
annual report for the fiscal year ended January 31, 1995, which can be obtained
free of charge.
FEDERATED INCOME TRUST
PORTFOLIO OF INVESTMENTS
JANUARY 31, 1995
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------ ------------------------------------------------------------- --------------
<C> <C> <S> <C>
LONG-TERM OBLIGATIONS--94.9%
----------------------------------------------------------------------------------
*FEDERAL HOME LOAN MORTGAGE CORP.--16.1%
-------------------------------------------------------------
$ 5,242,651 12.50%, 11/1/2009-6/1/2015 $ 5,770,114
-------------------------------------------------------------
13,442,830 12.00%, 5/1/1999-7/1/2019 14,702,961
-------------------------------------------------------------
5,637,696 11.50%, 3/1/2011-7/1/2016 6,116,844
-------------------------------------------------------------
7,214,066 11.00%, 5/1/2000-9/1/2020 7,735,041
-------------------------------------------------------------
42,351,292 10.50%, 1/1/1999-1/1/2021 45,116,618
-------------------------------------------------------------
33,536,176 9.50%, 10/1/2006-12/1/2022 34,776,840
-------------------------------------------------------------
4,819,178 9.00%, 4/1/2009-2/1/2013 4,915,514
-------------------------------------------------------------
67,518,188 7.50%, 11/1/1999-9/1/2000 66,324,817
-------------------------------------------------------------
1,712,820 7.00%, 10/1/2007 1,629,303
------------------------------------------------------------- --------------
TOTAL 187,088,052
------------------------------------------------------------- --------------
*FEDERAL HOME LOAN MORTGAGE CORP. REMIC--19.6%
-------------------------------------------------------------
25,000,000 7.00%, Series 1072G, 5/15/2006 23,572,000
-------------------------------------------------------------
10,920,000 7.00%, Series 1080D, 7/15/2020 10,282,927
-------------------------------------------------------------
20,000,000 6.90%, Series 1551G, 7/15/2008 18,062,600
-------------------------------------------------------------
10,000,000 6.60%, Series 1559VH, 12/15/2021 8,856,400
-------------------------------------------------------------
20,000,000 6.50%, Series 1450E, 9/15/2004 19,040,200
-------------------------------------------------------------
8,500,000 6.50%, Series 1526K, 11/15/2021 7,303,200
-------------------------------------------------------------
15,000,000 6.50%, Series 1522G, 3/15/2022 12,903,150
-------------------------------------------------------------
43,116,000 6.375%, Series 1423DD, 1/15/2006 38,772,494
-------------------------------------------------------------
25,000,000 6.25%, Series 1564G, 5/15/2007 22,311,750
-------------------------------------------------------------
14,245,000 6.25%, Series 1731D, 1/15/2021 12,007,680
-------------------------------------------------------------
16,153,000 6.00%, Series 1584G, 9/1/2018 14,203,171
-------------------------------------------------------------
15,000,000 5.90%, Series 1612PE, 11/15/2007 13,264,050
-------------------------------------------------------------
31,678,000 5.50%, Series 1353B, 6/15/2006 26,730,213
------------------------------------------------------------- --------------
TOTAL 227,309,835
------------------------------------------------------------- --------------
</TABLE>
FEDERATED INCOME TRUST
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------ ------------------------------------------------------------- --------------
<C> <C> <S> <C>
LONG-TERM OBLIGATIONS--CONTINUED
----------------------------------------------------------------------------------
*FEDERAL NATIONAL MORTGAGE ASSOCIATION--47.5%
-------------------------------------------------------------
$ 2,100,446 13.00%, 9/1/2011-10/1/2015 $ 2,336,053
-------------------------------------------------------------
6,842,992 12.50%, 12/1/2010-8/1/2015 7,589,221
-------------------------------------------------------------
5,455,812 12.00%, 2/1/2005-11/1/2015 6,009,849
-------------------------------------------------------------
22,040,638 11.50%, 5/1/2012-10/1/2019 24,014,187
-------------------------------------------------------------
15,542,577 11.00%, 7/1/2011-5/1/2023 16,799,005
-------------------------------------------------------------
28,571,814 10.50%, 12/1/2019-4/1/2022 30,660,700
-------------------------------------------------------------
84,198,305 10.00%, 5/1/2019-5/1/2023 89,086,544
-------------------------------------------------------------
32,386,644 9.50%, 7/1/2018-12/1/2023 33,583,635
-------------------------------------------------------------
69,839,386 9.00%, 5/1/2009-6/1/2024 71,065,521**
-------------------------------------------------------------
75,458,116 8.50%, 7/1/2024-11/1/2024 75,221,178
-------------------------------------------------------------
112,410,129 8.00%, 9/1/2001-11/1/2024 110,267,317**
-------------------------------------------------------------
88,822,282 7.50%, 3/1/2010-1/1/2025 83,523,493**
------------------------------------------------------------- --------------
TOTAL 550,156,703
------------------------------------------------------------- --------------
*FEDERAL NATIONAL MORTGAGE ASSOCIATION REMIC--6.4%
-------------------------------------------------------------
10,000,000 7.00%, Series G92-15E, 8/15/2018 9,358,400
-------------------------------------------------------------
11,393,000 6.50%, Series 1993-55K, 5/25/2008 9,873,857
-------------------------------------------------------------
14,878,162 6.00%, Series 1993-229J, 12/25/2008 13,163,305
-------------------------------------------------------------
15,000,000 6.00%, Series 1993-96PG, 2/25/2019 13,365,750
-------------------------------------------------------------
12,203,000 5.90%, Series 1993-197PG, 9/25/2007 10,729,122
-------------------------------------------------------------
21,000,000 5.50%, Series 1993-198G, 5/25/2019 18,038,160
------------------------------------------------------------- --------------
TOTAL 74,528,594
------------------------------------------------------------- --------------
*FEDERAL NATIONAL MORTGAGE ASSOCIATION ARM--3.6%
-------------------------------------------------------------
6,355,761 6.149%, 10/1/2024 6,300,148
-------------------------------------------------------------
15,143,396 5.732%, 7/1/2024 15,045,418
-------------------------------------------------------------
21,028,983 5.393%, 7/1/2024 20,869,584
------------------------------------------------------------- --------------
TOTAL 42,215,150
------------------------------------------------------------- --------------
</TABLE>
FEDERATED INCOME TRUST
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------ ------------------------------------------------------------- --------------
<C> <C> <S> <C>
LONG-TERM OBLIGATIONS--CONTINUED
----------------------------------------------------------------------------------
UNITED STATES TREASURY NOTES--1.7%
-------------------------------------------------------------
$ 20,000,000 6.50%, 8/15/1997 $ 19,610,400
------------------------------------------------------------- --------------
TOTAL LONG-TERM OBLIGATIONS (IDENTIFIED COST, $1,135,620,216) 1,100,908,734
------------------------------------------------------------- --------------
(A) REPURCHASE AGREEMENTS--16.1%
----------------------------------------------------------------------------------
7,575,000 J.P. Morgan Securities, Inc., 5.87%, dated 1/31/95, due
2/1/1995 7,575,000
-------------------------------------------------------------
50,000,000 + Merrill Lynch Government Securities, Inc., 5.83%, dated
1/18/1995, due 2/15/1995 45,000,000
-------------------------------------------------------------
45,000,000 + Merrill Lynch Government Securities, Inc., 5.85%, dated
1/23/1995, due 2/15/1995 50,000,000
-------------------------------------------------------------
84,700,000 + First Boston Corp., 5.725%, dated 1/12/1995, due 2/13/1995 84,700,000
------------------------------------------------------------- --------------
TOTAL REPURCHASE AGREEMENTS (AT AMORTIZED COST) 187,275,000
------------------------------------------------------------- --------------
TOTAL INVESTMENTS (IDENTIFIED COST, $1,322,895,216) $1,288,183,734++
------------------------------------------------------------- --------------
</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 $146,719,572 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. The
investments in the repurchase agreements are 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 $1,322,901,027.
The net unrealized depreciation of investments on a federal tax basis
amounts to $34,717,293 which is comprised of $5,107,326 appreciation and
$39,824,619 depreciation at January 31, 1995.
Note: The categories of investments are shown as a percentage of net assets
($1,160,404,886) at January 31, 1995.
The following abbreviations are used in this portfolio:
ARM--Adjustable Rate Mortgage
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, 1995
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
-------------------------------------------------------------------------------
Investments in repurchase agreements $ 187,275,000
--------------------------------------------------------------
Investments in securities 1,100,908,734
-------------------------------------------------------------- --------------
Total investments in securities, at value (identified cost
$1,322,895,216 and tax cost; $1,322,901,027) $1,288,183,734
-------------------------------------------------------------------------------
Cash 2,392
-------------------------------------------------------------------------------
Income receivable 9,210,866
-------------------------------------------------------------------------------
Receivable for investments sold 92,520,050
-------------------------------------------------------------------------------
Receivable for shares sold 487,558
------------------------------------------------------------------------------- --------------
Total assets 1,390,404,600
-------------------------------------------------------------------------------
LIABILITIES:
-------------------------------------------------------------------------------
Payable for dollar roll transactions $ 174,895,115
--------------------------------------------------------------
Payable for investments purchased 46,218,228
--------------------------------------------------------------
Payable for shares redeemed 3,203,052
--------------------------------------------------------------
Income distribution payable 5,585,187
--------------------------------------------------------------
Accrued expenses 98,132
-------------------------------------------------------------- --------------
Total liabilities 229,999,714
------------------------------------------------------------------------------- --------------
NET ASSETS for 119,616,012 shares outstanding $1,160,404,886
------------------------------------------------------------------------------- --------------
NET ASSETS CONSISTS OF:
-------------------------------------------------------------------------------
Paid-in capital $1,367,715,299
-------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (34,711,482)
-------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments (172,598,931)
------------------------------------------------------------------------------- --------------
Total Net Assets $1,160,404,886
------------------------------------------------------------------------------- --------------
NET ASSET VALUE, Offering Price and Redemption Proceeds Per Share:
-------------------------------------------------------------------------------
INSTITUTIONAL SHARES:
($1,119,976,123 / 115,448,566 shares outstanding) $9.70
------------------------------------------------------------------------------- --------------
INSTITUTIONAL SERVICE SHARES:
($40,428,763 / 4,167,446 shares outstanding) $9.70
------------------------------------------------------------------------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED INCOME TRUST
STATEMENT OF OPERATIONS
YEAR ENDED JANUARY 31, 1995
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
-------------------------------------------------------------------------------
Interest (net of dollar roll expense of $8,348,079) $ 109,304,533
-------------------------------------------------------------------------------
EXPENSES--
-------------------------------------------------------------------------------
Investment advisory fee $5,793,071
------------------------------------------------------------------
Administrative personnel and services fee 1,081,996
------------------------------------------------------------------
Custodian fees 348,230
------------------------------------------------------------------
Transfer agent and dividend disbursing agent fees and expenses 112,975
------------------------------------------------------------------
Trustees fees 12,237
------------------------------------------------------------------
Auditing fees 18,025
------------------------------------------------------------------
Legal fees 12,379
------------------------------------------------------------------
Portfolio accounting fees 77,209
------------------------------------------------------------------
Distribution services fee--Institutional Service Shares 125,049
------------------------------------------------------------------
Shareholder services fee--Institutional Shares 447,959
------------------------------------------------------------------
Shareholder services fee--Institutional Service Shares 108,249
------------------------------------------------------------------
Share registration costs 48,836
------------------------------------------------------------------
Printing and postage 42,808
------------------------------------------------------------------
Insurance premiums 28,245
------------------------------------------------------------------
Taxes 47,416
------------------------------------------------------------------
Miscellaneous 16,189
------------------------------------------------------------------ ----------
Total expenses 8,320,873
------------------------------------------------------------------
Deduct--Waiver of distribution services fee 108,249
------------------------------------------------------------------ ----------
Net expenses 8,212,624
------------------------------------------------------------------------------- -------------
Net investment income 101,091,909
------------------------------------------------------------------------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
-------------------------------------------------------------------------------
Net realized gain (loss) on investments (95,924,544)
-------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (31,137,636)
------------------------------------------------------------------------------- -------------
Net realized and unrealized gain (loss) on investments (127,062,180)
------------------------------------------------------------------------------- -------------
Change in net assets resulting from operations $ (25,970,271)
------------------------------------------------------------------------------- -------------
</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,
--------------------------------
1995 1994
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
--------------------------------------------------------------
OPERATIONS--
--------------------------------------------------------------
Net investment income $ 101,091,909 $ 124,801,114
--------------------------------------------------------------
Net realized gain (loss) on investments ($99,607,019 and
$23,832,544, net gain, respectively, as computed for federal
income tax purposes) (95,924,544) 6,604,924
--------------------------------------------------------------
Net change in unrealized appreciation (depreciation) (31,137,636) (44,130,386)
-------------------------------------------------------------- -------------- --------------
Change in assets resulting from operations (25,970,271) 87,275,652
-------------------------------------------------------------- -------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS--
--------------------------------------------------------------
Dividends from net investment income:
--------------------------------------------------------------
Institutional Shares (97,779,181) (120,844,426)
--------------------------------------------------------------
Institutional Service Shares (3,389,985) (3,879,431)
-------------------------------------------------------------- -------------- --------------
Change in net assets resulting from distributions to
shareholders (101,169,166) (124,723,857)
-------------------------------------------------------------- -------------- --------------
SHARE TRANSACTIONS--
--------------------------------------------------------------
Proceeds from sale of shares 262,132,109 858,701,229
--------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
dividends declared 21,662,288 25,460,750
--------------------------------------------------------------
Cost of shares redeemed (790,673,872) (655,129,012)
-------------------------------------------------------------- -------------- --------------
Change in net assets resulting from share transactions (506,879,475) 229,032,967
-------------------------------------------------------------- -------------- --------------
Change in net assets (634,018,912) 191,584,762
--------------------------------------------------------------
NET ASSETS:
--------------------------------------------------------------
Beginning of period 1,794,423,798 1,602,839,036
-------------------------------------------------------------- -------------- --------------
End of period (including undistributed net investment income
of
$0 and $77,257, respectively) $1,160,404,886 $1,794,423,798
-------------------------------------------------------------- -------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED INCOME TRUST
STATEMENT OF CASH FLOWS
YEAR ENDED JANUARY 31, 1995
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
-----------------------------------------------------------------------------
Investment income received $ 132,909,292
-----------------------------------------------------------------------------
Payment of operating expenses (8,304,494)
-----------------------------------------------------------------------------
Proceeds from sales and maturities of investments 3,219,710,183
-----------------------------------------------------------------------------
Purchase of investments (2,729,616,393)
-----------------------------------------------------------------------------
Net purchase of short-term investments 72,590,000
----------------------------------------------------------------------------- --------------
Cash used by operating activities 687,288,588
----------------------------------------------------------------------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
-----------------------------------------------------------------------------
Net proceeds from Trust share activity (526,090,310)
-----------------------------------------------------------------------------
Decrease on payable for dollar roll transactions (78,463,284)
-----------------------------------------------------------------------------
Distributions paid (82,732,602)
----------------------------------------------------------------------------- --------------
Cash used by financing activities (687,286,196)
----------------------------------------------------------------------------- --------------
Increase in cash 2,392
----------------------------------------------------------------------------- --------------
Cash at beginning of period 0
----------------------------------------------------------------------------- --------------
Cash at end of period $ 2,392
----------------------------------------------------------------------------- --------------
RECONCILIATION OF NET INCREASE IN NET ASSETS FROM OPERATIONS TO CASH USED BY
OPERATING ACTIVITIES:
-----------------------------------------------------------------------------
Net decrease in net assets resulting from operations $ (25,970,271)
-----------------------------------------------------------------------------
Net decrease in investments 710,672,961
-----------------------------------------------------------------------------
Decrease in interest receivable 7,826,841
-----------------------------------------------------------------------------
Increase in receivable for investments sold (51,367,301)
-----------------------------------------------------------------------------
Increase in payable for investments purchased 46,218,228
-----------------------------------------------------------------------------
Decrease in accrued expenses (91,870)
----------------------------------------------------------------------------- --------------
Cash used by operating activities $ 687,288,588
----------------------------------------------------------------------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED INCOME TRUST
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1995
--------------------------------------------------------------------------------
(1) ORGANIZATION
Federated Income Trust (the "Trust") is registered under the Investment Company
Act of 1940, as amended (the "Act"), as a diversified, open-end management
investment company. The Trust provides two classes of shares; Institutional
Shares and Institutional Service Shares.
(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. These
policies are in conformity with generally accepted accounting principles.
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. Short-term securities with remaining
maturities of sixty days or less may be stated at amortized cost, which
approximates value.
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 under repurchase
agreement transactions. Additionally, procedures have been established by
the Trust to monitor, on a daily basis, the market value of each repurchase
agreement's collateral to ensure that the value of collateral at least
equals the repurchase price to be paid under the repurchase agreement
transaction.
The 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 and/or
standards reviewed or established by the Board of Trustees (the
"Trustees"). Risks may arise from the potential inability of counterparties
to honor the terms of the repurchase agreement. Accordingly, the Trust
could receive less than the repurchase price on the sale of collateral
securities.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS--Interest income and
expenses are accrued daily. Bond premium and discount, if applicable, are
amortized as required by the Internal Revenue Code, as amended (the
"Code"). Distributions to shareholders are recorded on the ex-dividend
date.
FEDERAL TAXES--It is the Trust's policy to comply with the provisions of
the Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
FEDERATED INCOME TRUST
--------------------------------------------------------------------------------
At January 31, 1995, the Trust, for federal tax purposes, had a capital
loss carryforward of $159,119,254, which will reduce the Trust taxable
income arising from future net realized gain on investments, if any, to the
extent permitted by the Code, and thus will reduce the amount of the
distributions to shareholders which would otherwise be necessary to relieve
the 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), 1999 ($1,962,942) and 2003
($99,607,733).
Additionally, net capital losses of $13,358,619 attributable to security
transactions incurred after October 31, 1994 are treated as arising on
February 1, 1995, the first day of the Trust's next taxable year.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Trust may engage in
when-issued or delayed delivery transactions. The Trust records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
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 loans mortgage securities to financial institutions and
simultaneously agrees to accept substantially similar (same type, coupon
and maturity) securities at a later date at an agreed upon price. Dollar
roll transactions are short-term financing arrangements which will not
exceed twelve months. The Trust may use the proceeds generated from the
transactions to invest in short-term investments, which may enhance the
Trust's current yield and total return.
STATEMENT OF CASHFLOWS--Information on financial transactions which have
been settled through the receipt or disbursement of cash is presented in
the Trust's Statement of Cash Flows. The cash amount shown in the Statement
of Cash Flows is the amount reported as cash in the Trust's Statement of
Assets and Liabilities and represents cash on hand in its custodian bank
account and does not include any short-term investments at January 31,
1995.
OTHER--Investment transactions are accounted for on the trade date.
FEDERATED INCOME TRUST
--------------------------------------------------------------------------------
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
--------------------------------------------------------------
1995 1994
----------------------------- -----------------------------
SHARES DOLLARS SHARES DOLLARS
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
INSTITUTIONAL SHARES
-----------------------------------
Shares sold 24,209,157 $ 243,458,344 73,655,885 $ 783,979,962
-----------------------------------
Shares issued to shareholders in
payment of dividends declared 1,982,271 19,612,008 2,174,745 23,092,260
-----------------------------------
Shares redeemed (75,184,676) (747,629,375) (55,772,065) (592,762,823)
----------------------------------- ----------- ------------- ----------- -------------
Net change resulting from share
transactions (48,993,248) $(484,559,023) 20,058,565 $ 214,309,399
----------------------------------- ----------- ------------- ----------- -------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
--------------------------------------------------------------
1995 1994
----------------------------- -----------------------------
SHARES DOLLARS SHARES DOLLARS
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
INSTITUTIONAL SERVICE SHARES
-----------------------------------
Shares sold 1,862,669 $ 18,673,765 7,007,589 $ 74,721,267
-----------------------------------
Shares issued to shareholders in
payment of dividends declared 207,419 2,050,280 222,804 2,368,490
-----------------------------------
Shares redeemed (4,297,801) (43,044,497) (5,868,125) (62,366,189)
----------------------------------- ----------- ------------- ----------- -------------
Net change resulting from share
transactions (2,227,713) $ (22,320,452) 1,362,268 $ 14,723,568
----------------------------------- ----------- ------------- ----------- -------------
Net change resulting from Trust
share transactions (51,220,961) $(506,879,475) 21,420,833 $ 229,032,967
----------------------------------- ----------- ------------- ----------- -------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Management, the Trust's investment
adviser, (the "Adviser"), receives for its services an annual investment
advisory fee equal to .40 of 1% of the Trust's average daily net assets.
FEDERATED INCOME TRUST
--------------------------------------------------------------------------------
The Adviser may voluntarily choose to waive any portion of its fee and/or
reimburse certain operating expenses of the Trust. The Adviser can modify
or terminate this voluntary waiver and/or reimbursement at any time at its
sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the
Trust with administrative personnel and services. Prior to March 1, 1994,
these services were provided at approximate cost. Effective March 1, 1994,
the FAS fee is based on the level of average aggregate daily net assets of
all funds advised by subsidiaries of Federated Investors for the period.
The administrative fee received during the period of the Administrative
Services Agreement shall be at least $125,000 per portfolio and $30,000 per
each additional class of shares.
DISTRIBUTION SERVICES FEE--The Trust has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan,
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 Trust may incur distribution expenses up to .25
of 1% of the average daily net assets of the Institutional Service Shares,
annually, to compensate FSC. The distributor may voluntarily choose to
waive any portion of its fee. The distributor can modify or terminate this
voluntary waiver at any time at its sole discretion.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services ("FSS"), the Trust will pay
FSS up to .25 of 1% of average net assets of each class of shares of the
Trust for the period. This fee is to obtain certain personal services for
shareholders and to maintain the shareholder accounts.
TRANSFER AGENT FEES--Federated Services Company ("FServ") serves as
transfer and dividend disbursing agent for the Trust. The fee is based on
the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES--FServ maintains the Trust's accounting records
for which it receives a fee. The fee is based on the level of the Trust's
average net assets for the period, plus out-of-pocket expenses.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
year ended January 31, 1995, were as follows:
<TABLE>
<S> <C>
-----------------------------------------------------------------------------
PURCHASES-- $2,775,834,621
----------------------------------------------------------------------------- --------------
SALES-- $3,240,201,683
----------------------------------------------------------------------------- --------------
</TABLE>
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, 1995,
and the related statement of operations and cash flows for the year then ended,
and the statement of changes in net assets for the years ended January 31, 1995
and 1994, and the financial highlights (see pages 2 and 15 of the prospectus)
for each of the ten years in the period ended January 31, 1995. 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 audits 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 the securities owned as of
January 31, 1995 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, 1995, the results of its operations and cash flows, the
changes in its net assets and its financial highlights for the respective stated
periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
March 14, 1995
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
------------------------------------------------------------------------------------------------
Independent Auditors
Deloitte & Touche LLP 2500 One PPG Place
Pittsburgh, Pennsylvania 15222
------------------------------------------------------------------------------------------------
</TABLE>
FEDERATED INCOME
TRUST
INSTITUTIONAL SHARES
PROSPECTUS
An Open-End, Diversified
Management Investment Company
March 31, 1995
FEDERATED SECURITIES CORP.
(LOGO)
---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
314199100
8030102A-IS (3/95)
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 Trust is a no-load, open-end management investment company (a mutual fund).
The investment objective of the Trust is to provide current income. The Trust
pursues this investment objective by investing in U.S. government securities. As
of the date of this prospectus, it is anticipated that the Trust 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 Trust. Keep this prospectus for
future reference.
The Trust has also filed a Combined Statement of Additional Information for
Institutional Shares and Institutional Service Shares dated March 31, 1995, 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 Trust, contact the Trust 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, 1995
TABLE OF CONTENTS
--------------------------------------------------------------------------------
SUMMARY OF TRUST EXPENSES 1
------------------------------------------------------
FINANCIAL HIGHLIGHTS--
INSTITUTIONAL SERVICE SHARES 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
Portfolio Turnover 6
TRUST INFORMATION 6
------------------------------------------------------
Management of the Trust 6
Board of Trustees 6
Investment Adviser 6
Advisory Fees 6
Adviser's Background 6
Distribution of Institutional Service Shares 7
Distribution and Shareholder
Services Plan 7
Administration of the Trust 8
Administrative Services 8
Other Payments to Financial Institutions 8
Custodian 8
Transfer Agent and Dividend
Disbursing Agent 8
Independent Auditors 9
NET ASSET VALUE 9
------------------------------------------------------
INVESTING IN INSTITUTIONAL SERVICE SHARES 9
------------------------------------------------------
Share Purchases 9
By Wire 9
By Mail 9
Minimum Investment Required 9
What Shares Cost 10
Exchanging Securities for Trust Shares 10
Subaccounting Services 10
Certificates and Confirmations 10
Dividends 11
Capital Gains 11
REDEEMING INSTITUTIONAL SERVICE SHARES 11
------------------------------------------------------
Telephone Redemption 11
Written Requests 11
Signatures 12
Receiving Payment 12
Accounts with Low Balances 12
SHAREHOLDER INFORMATION 12
------------------------------------------------------
Voting Rights 12
Massachusetts Partnership Law 13
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 28
------------------------------------------------------
SUMMARY OF TRUST EXPENSES
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INSTITUTIONAL SERVICE SHARES
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 (after waiver)(1)........................................................... 0.01%
Total Other Expenses.................................................................. 0.39%
Shareholder Services Fee (after waiver)(2).............................. 0.24%
Total Institutional Service Shares Operating Expenses(3)....................... 0.80%
</TABLE>
(1) The maximum 12b-1 fee is 0.25%.
(2) The maximum shareholder services 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, 1996.
The Total Institutional Service Shares Operating Expenses were 0.78% for the
fiscal year ended January 31, 1995 and would have been 1.00% absent the
voluntary waiver of a portion of the 12b-1 fee.
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 Trust 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.
Long-term shareholders may pay more than the economic equivalent of the maximum
front-end sales charge permitted under the rules of the National Association of
Securities Dealers, Inc.
<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............... $8 $26 $44 $ 99
</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 Trust. The Trust 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 Auditors' Report, on page 27.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-------------------------------
1995 1994 1993(A)
------- ------- -------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.50 $10.73 $10.64
-------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
-------------------------------------------------------------
Net investment income 0.68 0.75 0.51
-------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.80) (0.23) 0.09
------------------------------------------------------------- ------ ------ ------
Total from investment operations (0.12) 0.52 0.60
-------------------------------------------------------------
LESS DISTRIBUTIONS
-------------------------------------------------------------
Distributions from net investment income (0.68) (0.75) (0.51)
------------------------------------------------------------- ------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 9.70 $10.50 $10.73
------------------------------------------------------------- ------ ------ ------
TOTAL RETURN (B) (1.08)% 4.96% 4.80%
-------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
-------------------------------------------------------------
Expenses 0.78% 0.76% 0.76%(c)
-------------------------------------------------------------
Net investment income 6.75% 7.03% 7.16%(c)
-------------------------------------------------------------
Expense waiver/reimbursement (d) 0.22% 0.00% 0.00%(c)
-------------------------------------------------------------
SUPPLEMENTAL DATA
-------------------------------------------------------------
Net assets, end of period (000 omitted) $40,428 $67,176 $53,981
-------------------------------------------------------------
Portfolio turnover rate 217% 178% 52%
-------------------------------------------------------------
</TABLE>
(a) Reflects operations for the period from May 31, 1992 (effective date of
Institutional Service Shares) to January 31, 1993.
(b) Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(c) Computed on an annualized basis.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Further information about the Trust's performance is contained in the Trust's
annual report for the fiscal year ended January 31, 1995, 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") has established two classes of shares of the Trust, known
as Institutional Service Shares and Institutional Shares. This prospectus
relates only to Institutional Service Shares of the Trust.
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 Trust.
INVESTMENT INFORMATION
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Trust is current income. The investment
objective may not be changed without the approval of shareholders. The Trust
pursues this investment objective by investing in U.S. government securities and
certain collateralized mortgage obligations ("CMOs"). While there is no
assurance that the Trust 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 Trust 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. Should
additional permitted investments be allowed as a result of future changes in
applicable regulations or federal laws, the Trust reserves the right, without
shareholder approval, to make such investments consistent with the Trust's
investment objective, policies, and limitations. Further, should existing
statutes or regulations change so as to cause any securities held by the Trust
to become ineligible for purchase by federal savings associations, the Trust
will dispose of those securities at times advantageous to the Trust.
As operated within the above limitation, the Trust 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 Trust
invests are either issued or guaranteed by the U.S. government, its agencies, or
instrumentalities. The securities in which the Trust 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 the: Farm Credit System, including the National
Bank for Cooperatives and Banks for Cooperatives; Federal Home Loan
Banks; Federal Home Loan Mortgage Corporation; Federal National Mortgage
Association; Government National Mortgage Association; Export-Import Bank
of the United States; Commodity Credit Corporation; Federal Financing
Bank; National Credit Union Administration; Tennessee Valley Authority;
and the Student Loan Marketing Association.
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 Trust 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 Trust as income and the capital portion is
reinvested. One or more of the classes may be adjustable rate.
The interest portion of these payments is distributed by the Trust as income and
the capital portion is reinvested.
The Trust 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.
The prices of fixed income securities fluctuate inversely to the direction of
interest rates.
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 Trust 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 Trust, the Trust
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 Trust 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 Trust 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 Trust may purchase U.S.
government obligations on a when-issued or delayed delivery basis. These
transactions are arrangements in which the Trust purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Trust to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the
market values of the securities purchased may vary from the purchase prices.
Accordingly, the Trust may pay more or less than the market value of the
securities on the settlement date.
The Trust may dispose of a commitment prior to settlement if the adviser deems
it appropriate to do so. In addition, the Trust may enter in transactions to
sell its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Trust may realize short-term profits or losses upon the sale of such
commitments.
INVESTMENT LIMITATIONS
The Trust will not borrow money or pledge securities except, under certain
circumstances, the Trust 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.
PORTFOLIO TURNOVER
The Trust does not attempt to set or meet any specific portfolio turnover rate,
since turnover is incidental to transactions undertaken in an attempt to achieve
the Trust's investment objective. The turnover rates for the fiscal years ended
January 31, 1995 and 1994 were 217% and 178%, respectively. Such high turnover
rates may result in higher brokerage commissions and capital gains. See "Tax
Information" in this prospectus.
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 Trust are made by Federated Management, the Trust's
investment adviser ("Adviser"), subject to direction by the Trustees. The
Adviser continually conducts investment research and supervision for the Trust
and is responsible for the purchase and sale of portfolio instruments, for which
it receives an annual fee from the Trust.
ADVISORY FEES. The Adviser receives an annual investment advisory fee
equal to .40 of 1% of the Trust's average daily net assets. The Adviser has
undertaken to reimburse the Trust 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.
Kathleen M. Foody-Malus has been the Trust's co-portfolio manager since
April, 1990. Ms. Foody-Malus joined Federated Investors in 1983 and has
been a Vice President of the Trust'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.
James D. Roberge has been the Trust's co-portfolio manager since March,
1995. Mr. Roberge joined Federated Investors in 1990 and has been a Vice
President of the Trust's investment adviser since October 1994. Prior to
this, Mr. Roberge served as an Assistant Vice President of the Trust's
investment adviser. From 1990 until 1992, Mr. Roberge acted as an
investment analyst. Mr. Roberge is a Chartered Financial Analyst and
received his M.B.A. in Finance from Wharton Business School in 1990.
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 Trust 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 Institutional Service
Shares 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 Trust makes no
payments to the distributor except as described above. Therefore, the Trust does
not pay for unreimbursed expenses of the distributor, including amounts expended
by the distributor in excess of amounts received by it from the Trust, 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 Trust
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 Institutional Service Shares 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 TRUST
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 Trust.
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>
AVERAGE AGGREGATE DAILY NET
MAXIMUM ADMINISTRATIVE FEE ASSETS OF THE FEDERATED FUNDS
--------------------------------------------- ---------------------------------------------
<S> <C>
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.
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 Trust, 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 Trust or by the assessment of a sales load on Shares.
CUSTODIAN. State Street Bank and Trust Company, Boston, Massachusetts, is
custodian for the securities and cash of the Trust.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company,
Pittsburgh, Pennsylvania, is transfer agent for the shares of the Trust and
dividend disbursing agent for the Trust.
INDEPENDENT AUDITORS. The independent auditors for the Trust are Deloitte &
Touche LLP, Pittsburgh, Pennsylvania.
NET ASSET VALUE
--------------------------------------------------------------------------------
The Trust'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 Trust, subtracting the interest of Shares in
the liabilities of the Trust 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 Trust reserves the right to reject any purchase request.
BY WIRE. To purchase Shares by Federal Reserve wire, call the Trust before 4:00
p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern
time) on the next business day following the order. Federal funds should be
wired as follows: Federated Services Company c/o State Street Bank and Trust
Company, Boston, Massachusetts; Attention: EDGEWIRE; For Credit to: Federated
Income Trust--Institutional Service Shares; Trust Number (this number can be
found on the account statement or by contacting the Trust); 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 the transfer agent's bank, State Street Bank and Trust Company
("State Street Bank") into federal funds. This is generally 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 Trust. 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 Trust. 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. (Eastern time), Monday through
Friday, except on: (i) days on which there are not sufficient changes in the
value of the Trust'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 TRUST 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 Trust reserves the right to determine the
acceptability of securities to be exchanged. Securities accepted by the Trust
are valued in the same manner as the Trust 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 Trust, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
by contacting the Trust.
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 Trust.
CAPITAL GAINS
Capital gains realized by the Trust, if any, are distributed at least once every
12 months.
REDEEMING INSTITUTIONAL SERVICE SHARES
--------------------------------------------------------------------------------
The Trust redeems Shares at the net asset value next determined after the Trust
receives the redemption request. Redemptions will be made on days on which the
Trust 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 Trust before 4:00 p.m.
(Eastern 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 Trust shall
determine it necessary to terminate or modify this method of redemption,
shareholders would be promptly notified.
An authorization form permitting the Trust 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 Trust, 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 Trust. Call the
Trust for specific instructions before redeeming by letter. The shareholder will
be asked to provide in the request his name, the Trust 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 Trust, 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 Trust does not accept signatures guaranteed by a notary public.
The Trust and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Trust may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Trust 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 Trust 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 Trust'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 Trust 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 Trust'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 Trust, 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 Trust 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 Trust is not subject to Pennsylvania corporate or personal property
taxes; and
- Trust 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 Trust 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 Trust 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 Trust 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 Trust 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 and shareholder services 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, advertisements for the Trust may refer to ratings, rankings,
and other information in 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. Institutional Shares
pay a shareholder services fee of 0.25 of 1% of the Institutional Shares'
average daily net assets.
Financial institutions and brokers providing sales and administrative services
may receive different compensation depending upon which class of shares of the
Trust 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,
---------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
---------- ---------- ---------- ---------- -------- ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
---
NET
ASSET
VALUE,
BEGINNING
OF
PERIOD $10.50 $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 0.70 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 (0.80) (0.23) 0.07 0.24 0.24 0.13 (0.38) (0.31) (0.05) 0.37
--- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total
from
investment
operations (0.10) 0.54 0.87 1.13 1.17 1.07 0.57 0.68 0.98 1.56
---
LESS
DISTRIBUTIONS
---
Distributions
from net
investment
income (0.70) (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 (0.70) (0.77) (0.80) (0.89) (0.93) (0.94) (0.95) (0.99) (1.11) (1.19)
--- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
NET
ASSET
VALUE,
END OF
PERIOD $ 9.70 $10.50 $10.73 $10.66 $10.42 $10.18 $10.05 $10.43 $10.74 $10.87
--- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
TOTAL
RETURN(A) (0.86)% 5.22% 8.51% 11.27% 12.01% 11.04% 5.75% 6.79% 9.52% 15.66%
---
RATIOS
TO
AVERAGE
NET
ASSETS
---
Expenses 0.56% 0.51% 0.51% 0.50% 0.50% 0.53% 0.52% 0.50% 0.54% 0.57%
---
Net
investment
income 6.99% 7.28% 7.53% 8.41% 9.06% 9.23% 9.33% 9.49% 9.47% 11.13%
---
SUPPLEMENTAL
DATA
---
Net
assets,
end of
period
(000
omitted) $1,119,976 $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 217% 178% 52% 51% 36% 45% 77% 92% 146% 235%
---
</TABLE>
(a) Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(See Notes which are an integral part of the Financial Statements)
Further information about the Trust's performance is contained in the Trust's
annual report for the fiscal year ended January 31, 1995, which can be obtained
free of charge.
FEDERATED INCOME TRUST
PORTFOLIO OF INVESTMENTS
JANUARY 31, 1995
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------ ----------------------------------------------------------- --------------
<C> <C> <S> <C>
LONG-TERM OBLIGATIONS--94.9%
---------------------------------------------------------------------------------
*FEDERAL HOME LOAN MORTGAGE CORP.--16.1%
-----------------------------------------------------------
$ 5,242,651 12.50%, 11/1/2009-6/1/2015 $ 5,770,114
-----------------------------------------------------------
13,442,830 12.00%, 5/1/1999-7/1/2019 14,702,961
-----------------------------------------------------------
5,637,696 11.50%, 3/1/2011-7/1/2016 6,116,844
-----------------------------------------------------------
7,214,066 11.00%, 5/1/2000-9/1/2020 7,735,041
-----------------------------------------------------------
42,351,292 10.50%, 1/1/1999-1/1/2021 45,116,618
-----------------------------------------------------------
33,536,176 9.50%, 10/1/2006-12/1/2022 34,776,840
-----------------------------------------------------------
4,819,178 9.00%, 4/1/2009-2/1/2013 4,915,514
-----------------------------------------------------------
67,518,188 7.50%, 11/1/1999-9/1/2000 66,324,817
-----------------------------------------------------------
1,712,820 7.00%, 10/1/2007 1,629,303
----------------------------------------------------------- --------------
TOTAL 187,088,052
----------------------------------------------------------- --------------
*FEDERAL HOME LOAN MORTGAGE CORP. REMIC--19.6%
-----------------------------------------------------------
25,000,000 7.00%, Series 1072G, 5/15/2006 23,572,000
-----------------------------------------------------------
10,920,000 7.00%, Series 1080D, 7/15/2020 10,282,927
-----------------------------------------------------------
20,000,000 6.90%, Series 1551G, 7/15/2008 18,062,600
-----------------------------------------------------------
10,000,000 6.60%, Series 1559VH, 12/15/2021 8,856,400
-----------------------------------------------------------
20,000,000 6.50%, Series 1450E, 9/15/2004 19,040,200
-----------------------------------------------------------
8,500,000 6.50%, Series 1526K, 11/15/2021 7,303,200
-----------------------------------------------------------
15,000,000 6.50%, Series 1522G, 3/15/2022 12,903,150
-----------------------------------------------------------
43,116,000 6.375%, Series 1423DD, 1/15/2006 38,772,494
-----------------------------------------------------------
25,000,000 6.25%, Series 1564G, 5/15/2007 22,311,750
-----------------------------------------------------------
14,245,000 6.25%, Series 1731D, 1/15/2021 12,007,680
-----------------------------------------------------------
16,153,000 6.00%, Series 1584G, 9/1/2018 14,203,171
-----------------------------------------------------------
15,000,000 5.90%, Series 1612PE, 11/15/2007 13,264,050
-----------------------------------------------------------
</TABLE>
<TABLE>
<C> <C> <S> <C>
31,678,000 5.50%, Series 1353B, 6/15/2006 26,730,213
----------------------------------------------------------- --------------
TOTAL 227,309,835
----------------------------------------------------------- --------------
</TABLE>
FEDERATED INCOME TRUST
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------ ----------------------------------------------------------- --------------
<C> <C> <S> <C>
LONG-TERM OBLIGATIONS--CONTINUED
---------------------------------------------------------------------------------
*FEDERAL NATIONAL MORTGAGE ASSOCIATION--47.5%
-----------------------------------------------------------
$ 2,100,446 13.00%, 9/1/2011-10/1/2015 $ 2,336,053
-----------------------------------------------------------
6,842,992 12.50%, 12/1/2010-8/1/2015 7,589,221
-----------------------------------------------------------
5,455,812 12.00%, 2/1/2005-11/1/2015 6,009,849
-----------------------------------------------------------
22,040,638 11.50%, 5/1/2012-10/1/2019 24,014,187
-----------------------------------------------------------
15,542,577 11.00%, 7/1/2011-5/1/2023 16,799,005
-----------------------------------------------------------
28,571,814 10.50%, 12/1/2019-4/1/2022 30,660,700
-----------------------------------------------------------
84,198,305 10.00%, 5/1/2019-5/1/2023 89,086,544
-----------------------------------------------------------
32,386,644 9.50%, 7/1/2018-12/1/2023 33,583,635
-----------------------------------------------------------
69,839,386 9.00%, 5/1/2009-6/1/2024 71,065,521**
-----------------------------------------------------------
75,458,116 8.50%, 7/1/2024-11/1/2024 75,221,178
-----------------------------------------------------------
112,410,129 8.00%, 9/1/2001-11/1/2024 110,267,317**
-----------------------------------------------------------
88,822,282 7.50%, 3/1/2010-1/1/2025 83,523,493**
----------------------------------------------------------- --------------
TOTAL 550,156,703
----------------------------------------------------------- --------------
*FEDERAL NATIONAL MORTGAGE ASSOCIATION REMIC--6.4%
-----------------------------------------------------------
10,000,000 7.00%, Series G92-15E, 8/15/2018 9,358,400
-----------------------------------------------------------
11,393,000 6.50%, Series 1993-55K, 5/25/2008 9,873,857
-----------------------------------------------------------
14,878,162 6.00%, Series 1993-229J, 12/25/2008 13,163,305
-----------------------------------------------------------
15,000,000 6.00%, Series 1993-96PG, 2/25/2019 13,365,750
-----------------------------------------------------------
12,203,000 5.90%, Series 1993-197PG, 9/25/2007 10,729,122
-----------------------------------------------------------
21,000,000 5.50%, Series 1993-198G, 5/25/2019 18,038,160
----------------------------------------------------------- --------------
TOTAL 74,528,594
----------------------------------------------------------- --------------
*FEDERAL NATIONAL MORTGAGE ASSOCIATION ARM--3.6%
-----------------------------------------------------------
6,355,761 6.149%, 10/1/2024 6,300,148
-----------------------------------------------------------
15,143,396 5.732%, 7/1/2024 15,045,418
-----------------------------------------------------------
21,028,983 5.393%, 7/1/2024 20,869,584
----------------------------------------------------------- --------------
TOTAL 42,215,150
----------------------------------------------------------- --------------
</TABLE>
FEDERATED INCOME TRUST
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------ ----------------------------------------------------------- --------------
<C> <C> <S> <C>
LONG-TERM OBLIGATIONS--CONTINUED
---------------------------------------------------------------------------------
UNITED STATES TREASURY NOTES--1.7%
-----------------------------------------------------------
$ 20,000,000 6.50%, 8/15/1997 $ 19,610,400
----------------------------------------------------------- --------------
TOTAL LONG-TERM OBLIGATIONS (IDENTIFIED COST,
$1,135,620,216) 1,100,908,734
----------------------------------------------------------- --------------
(A) REPURCHASE AGREEMENTS--16.1%
---------------------------------------------------------------------------------
7,575,000 J.P. Morgan Securities, Inc., 5.87%, dated 1/31/95, due
2/1/1995 7,575,000
-----------------------------------------------------------
50,000,000 + Merrill Lynch Government Securities, Inc., 5.83%, dated
1/18/1995, due 2/15/1995 45,000,000
-----------------------------------------------------------
45,000,000 + Merrill Lynch Government Securities, Inc., 5.85%, dated
1/23/1995, due 2/15/1995 50,000,000
-----------------------------------------------------------
84,700,000 + First Boston Corp., 5.725%, dated 1/12/1995, due 2/13/1995 84,700,000
----------------------------------------------------------- --------------
TOTAL REPURCHASE AGREEMENTS (AT AMORTIZED COST) 187,275,000
----------------------------------------------------------- --------------
TOTAL INVESTMENTS (IDENTIFIED COST, $1,322,895,216) $1,288,183,734++
----------------------------------------------------------- --------------
</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 $146,719,572 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. The
investments in the repurchase agreements 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 $1,322,901,027.
The net unrealized depreciation of investments on a federal tax basis
amounts to $34,717,293 which is comprised of $5,107,326 appreciation and
$39,824,619 depreciation at January 31, 1995.
Note: The categories of investments are shown as a percentage of net assets
($1,160,404,886) at January 31, 1995.
The following abbreviations are used in this portfolio:
ARM--Adjustable Rate Mortgage
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, 1995
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
-------------------------------------------------------------------------------
Investments in repurchase agreements $ 187,275,000
--------------------------------------------------------------
Investments in securities 1,100,908,734
-------------------------------------------------------------- --------------
Total investments in securities, at value
(identified cost $1,322,895,216 and tax cost $1,322,901,027) $1,288,183,734
-------------------------------------------------------------------------------
Cash 2,392
-------------------------------------------------------------------------------
Income receivable 9,210,866
-------------------------------------------------------------------------------
Receivable for investments sold 92,520,050
-------------------------------------------------------------------------------
Receivable for shares sold 487,558
------------------------------------------------------------------------------- --------------
Total assets 1,390,404,600
-------------------------------------------------------------------------------
LIABILITIES:
-------------------------------------------------------------------------------
Payable for dollar roll transactions $ 174,895,115
--------------------------------------------------------------
Payable for investments purchased 46,218,228
--------------------------------------------------------------
Payable for shares redeemed 3,203,052
--------------------------------------------------------------
Income distribution payable 5,585,187
--------------------------------------------------------------
Accrued expenses 98,132
-------------------------------------------------------------- --------------
Total liabilities 229,999,714
------------------------------------------------------------------------------- --------------
NET ASSETS for 119,616,012 shares outstanding $1,160,404,886
------------------------------------------------------------------------------- --------------
NET ASSETS CONSISTS OF:
-------------------------------------------------------------------------------
Paid-in capital $1,367,715,299
-------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (34,711,482)
-------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments (172,598,931)
------------------------------------------------------------------------------- --------------
Total Net Assets $1,160,404,886
------------------------------------------------------------------------------- --------------
NET ASSET VALUE, Offering Price and Redemption Proceeds Per Share:
-------------------------------------------------------------------------------
INSTITUTIONAL SHARES:
($1,119,976,123 / 115,448,566 shares outstanding) $9.70
------------------------------------------------------------------------------- --------------
INSTITUTIONAL SERVICE SHARES:
($40,428,763 / 4,167,446 shares outstanding) $9.70
------------------------------------------------------------------------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED INCOME TRUST
STATEMENT OF OPERATIONS
YEAR ENDED JANUARY 31, 1995
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
-------------------------------------------------------------------------------
Interest (net of dollar roll expense of $8,348,079) $ 109,304,533
-------------------------------------------------------------------------------
EXPENSES--
-------------------------------------------------------------------------------
Investment advisory fee $5,793,071
------------------------------------------------------------------
Administrative personnel and services fee 1,081,996
------------------------------------------------------------------
Custodian fees 348,230
------------------------------------------------------------------
Transfer agent and dividend disbursing agent fees and expenses 112,975
------------------------------------------------------------------
Trustees fees 12,237
------------------------------------------------------------------
Auditing fees 18,025
------------------------------------------------------------------
Legal fees 12,379
------------------------------------------------------------------
Portfolio accounting fees 77,209
------------------------------------------------------------------
Distribution services fee--Institutional Service Shares 125,049
------------------------------------------------------------------
Shareholder services fee--Institutional Shares 447,959
------------------------------------------------------------------
Shareholder services fee--Institutional Service Shares 108,249
------------------------------------------------------------------
Share registration costs 48,836
------------------------------------------------------------------
Printing and postage 42,808
------------------------------------------------------------------
Insurance premiums 28,245
------------------------------------------------------------------
Taxes 47,416
------------------------------------------------------------------
Miscellaneous 16,189
------------------------------------------------------------------ ----------
Total expenses 8,320,873
------------------------------------------------------------------
Deduct--Waiver of distribution services fee 108,249
------------------------------------------------------------------ ----------
Net expenses 8,212,624
------------------------------------------------------------------------------- -------------
Net investment income 101,091,909
------------------------------------------------------------------------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
-------------------------------------------------------------------------------
Net realized gain (loss) on investments (95,924,544)
-------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (31,137,636)
------------------------------------------------------------------------------- -------------
Net realized and unrealized gain (loss) on investments (127,062,180)
------------------------------------------------------------------------------- -------------
Change in net assets resulting from operations $ (25,970,271)
------------------------------------------------------------------------------- -------------
</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,
--------------------------------
1995 1994
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
--------------------------------------------------------------
OPERATIONS--
--------------------------------------------------------------
Net investment income $ 101,091,909 $ 124,801,114
--------------------------------------------------------------
Net realized gain (loss) on investments ($99,607,019 and
$23,832,544, net gain, respectively, as computed for federal
income tax purposes) (95,924,544) 6,604,924
--------------------------------------------------------------
Net change in unrealized appreciation (depreciation) (31,137,636) (44,130,386)
-------------------------------------------------------------- -------------- --------------
Change in assets resulting from operations (25,970,271) 87,275,652
-------------------------------------------------------------- -------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS--
--------------------------------------------------------------
Dividends from net investment income:
--------------------------------------------------------------
Institutional Shares (97,779,181) (120,844,426)
--------------------------------------------------------------
Institutional Service Shares (3,389,985) (3,879,431)
-------------------------------------------------------------- -------------- --------------
Change in net assets resulting from distributions to
shareholders (101,169,166) (124,723,857)
-------------------------------------------------------------- -------------- --------------
SHARE TRANSACTIONS--
--------------------------------------------------------------
Proceeds from sale of shares 262,132,109 858,701,229
--------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
dividends declared 21,662,288 25,460,750
--------------------------------------------------------------
Cost of shares redeemed (790,673,872) (655,129,012)
-------------------------------------------------------------- -------------- --------------
Change in net assets resulting from share transactions (506,879,475) 229,032,967
-------------------------------------------------------------- -------------- --------------
Change in net assets (634,018,912) 191,584,762
--------------------------------------------------------------
NET ASSETS:
--------------------------------------------------------------
Beginning of period 1,794,423,798 1,602,839,036
-------------------------------------------------------------- -------------- --------------
End of period (including undistributed net investment income
of $0 and $77,257, respectively) $1,160,404,886 $1,794,423,798
-------------------------------------------------------------- -------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED INCOME TRUST
STATEMENT OF CASH FLOWS
YEAR ENDED JANUARY 31, 1995
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
----------------------------------------------------------------------------
Investment income received $ 132,909,292
----------------------------------------------------------------------------
Payment of operating expenses (8,304,494)
----------------------------------------------------------------------------
Proceeds from sales and maturities of investments 3,219,710,183
----------------------------------------------------------------------------
Purchase of investments (2,729,616,393)
----------------------------------------------------------------------------
Net purchase of short-term investments 72,590,000
---------------------------------------------------------------------------- ---------------
Cash used by operating activities 687,288,588
---------------------------------------------------------------------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
----------------------------------------------------------------------------
Net proceeds from Trust share activity (526,090,310)
----------------------------------------------------------------------------
Decrease on payable for dollar roll transactions (78,463,284)
----------------------------------------------------------------------------
Distributions paid (82,732,602)
---------------------------------------------------------------------------- ---------------
Cash used by financing activities (687,286,196)
---------------------------------------------------------------------------- ---------------
Increase in cash 2,392
---------------------------------------------------------------------------- ---------------
Cash at beginning of period 0
---------------------------------------------------------------------------- ---------------
Cash at end of period $ 2,392
---------------------------------------------------------------------------- ---------------
RECONCILIATION OF NET INCREASE IN NET ASSETS FROM OPERATIONS TO CASH USED BY
OPERATING ACTIVITIES:
----------------------------------------------------------------------------
Net decrease in net assets resulting from operations $ (25,970,271)
----------------------------------------------------------------------------
Net decrease in investments 710,672,961
----------------------------------------------------------------------------
Decrease in interest receivable 7,826,841
----------------------------------------------------------------------------
Increase in receivable for investments sold (51,367,301)
----------------------------------------------------------------------------
Increase in payable for investments purchased 46,218,228
----------------------------------------------------------------------------
Decrease in accrued expenses (91,870)
---------------------------------------------------------------------------- ---------------
Cash used by operating activities $ 687,288,588
---------------------------------------------------------------------------- ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED INCOME TRUST
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1995
--------------------------------------------------------------------------------
(1) ORGANIZATION
Federated Income Trust, (the "Trust"), is registered under the Investment
Company Act of 1940, as amended (the "Act"), as a diversified, open-end,
management investment company. The Trust provides two classes of shares;
Institutional Shares and Institutional Service Shares.
(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 principles.
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. Short-term securities with remaining
maturities of sixty days or less may be stated at amortized cost, which
approximate value.
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 under repurchase
agreement transactions. Additionally, procedures have been established by
the Trust to monitor, on a daily basis, the market value of each repurchase
agreement's collateral to ensure the value of collateral at least equals
the repurchase price to be paid under the repurchase agreement transaction.
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 and/or
standards reviewed or established by the Board of Trustees (the
"Trustees"). Risks may arise from the potential inability of counterparties
to honor the terms of the repurchase agreement. Accordingly, the Trust
could receive less than the repurchase price on the sale of collateral
securities.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS--Interest income and
expenses are accrued daily. Bond premium and discount, if applicable, are
amortized as required by the Internal Revenue Code, as amended (the
"Code"). Distributions to shareholders are recorded on the ex-dividend
date.
FEDERAL TAXES--It is the Trust's policy to comply with the provisions of
the Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
FEDERATED INCOME TRUST
--------------------------------------------------------------------------------
At January 31, 1995, the Trust for federal tax purposes, had a capital loss
carryforward of $159,119,254, which will reduce the Trust taxable income
arising from future net realized gain on investments, if any, to the extent
permitted by the Code, and thus will reduce the amount of the distributions
to shareholders which would otherwise be necessary to relieve the 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), 1999 ($1,962,942) and 2003 ($99,607,733).
Additionally, net capital losses of $13,358,619 attributable to security
transactions incurred after October 31, 1994 are treated as arising on
February 1, 1995, the first day of the Trust's next taxable year.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Trust may engage in
when-issued or delayed delivery transactions. The Trust records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
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 loans mortgage securities to financial institutions and
simultaneously agrees to accept substantially similar (same type, coupon
and maturity) securities at a later date at an agreed upon price. Dollar
roll transactions are short-term financing arrangements which will not
exceed twelve months. The Trust may use the proceeds generated from the
transactions to invest in short-term investments, which may enhance the
Trust's current yield and total return.
STATEMENT OF CASHFLOWS--Information on financial transactions which have
been settled through the receipt or disbursement of cash is presented in
the Trust's Statement of Cash Flows. The cash amount shown in the Statement
of Cash Flows is the amount reported as cash in the Trust's Statement of
Assets and Liabilities and represents cash on hand in its custodian bank
account and does not include any short-term investments at January 31,
1995.
OTHER--Investment transactions are accounted for on the trade date.
FEDERATED INCOME TRUST
--------------------------------------------------------------------------------
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
--------------------------------------------------------------
1995 1994
----------------------------- -----------------------------
SHARES DOLLARS SHARES DOLLARS
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
INSTITUTIONAL SHARES
-----------------------------------
Shares sold 24,209,157 $ 243,458,344 73,655,885 $ 783,979,962
-----------------------------------
Shares issued to shareholders in
payment of dividends declared 1,982,271 19,612,008 2,174,745 23,092,260
-----------------------------------
Shares redeemed (75,184,676) (747,629,375) (55,772,065) (592,762,823)
----------------------------------- ----------- ------------- ----------- -------------
Net change resulting from share
transactions (48,993,248) $(484,559,023) 20,058,565 $ 214,309,399
----------------------------------- ----------- ------------- ----------- -------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
--------------------------------------------------------------
1995 1994
----------------------------- -----------------------------
SHARES DOLLARS SHARES DOLLARS
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
INSTITUTIONAL SERVICE SHARES
-----------------------------------
Shares sold 1,862,669 $ 18,673,765 7,007,589 $ 74,721,267
-----------------------------------
Shares issued to shareholders in
payment of dividends declared 207,419 2,050,280 222,804 2,368,490
-----------------------------------
Shares redeemed (4,297,801) (43,044,497) (5,868,125) (62,366,189)
----------------------------------- ----------- ------------- ----------- -------------
Net change resulting from share
transactions (2,227,713) $ (22,320,452) 1,362,268 $ 14,723,568
----------------------------------- ----------- ------------- ----------- -------------
Net change resulting from Trust
share transactions (51,220,961) $(506,879,475) 21,420,833 $ 229,032,967
----------------------------------- ----------- ------------- ----------- -------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Management, the Trust's investment
adviser, ("Adviser"), receives for its services an annual investment
advisory fee equal to .40 of 1% of the Trust's average daily net assets.
FEDERATED INCOME TRUST
--------------------------------------------------------------------------------
The Adviser may voluntarily choose to waive any portion of its fee and/or
reimburse certain operating expenses of the Trust. The adviser can modify
or terminate this voluntary waiver and/or reimbursement at any time at its
sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the
Trust with administrative personnel and services. Prior to March 1, 1994,
these services were provided at approximate cost. Effective March 1, 1994,
the FAS fee is based on the level of average aggregate daily net assets of
all Trusts advised by subsidiaries of Federal Investors for the period. The
administrative fee received during the period of the Administrative
Services Agreement shall be at least $125,000 per portfolio and $30,000 per
each additional class of shares.
DISTRIBUTION SERVICES FEE--The Trust has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan,
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 class
of shares. The Plan provides that the Trust may incur distribution expenses
up to .25 of 1% of the average daily net assets of the Institutional
Service shares, annually, to compensate FSC. The distributor may
voluntarily choose to waive any portion of its fee. The distributor can
modify or terminate this voluntary waiver at any time at its sole
discretion.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services ("FSS"), the Trust will pay
FSS up to .25 of 1% of average net assets of each class of shares of the
Trust for the period. This fee is to obtain certain personal services for
shareholders and to maintain the shareholder accounts.
TRANSFER AGENT FEES--Federated Services Company ("FServ") serves as
transfer and dividend disbursing agent for the Trust. The fee is based on
the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES--FServ maintains the Trust's accounting records
for which it receives a fee. The fee is based on the level of the Trust's
average net assets for the period plus, out-of-pocket expenses.
GENERAL--Certain of the Offices and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
year ended January 31, 1995, were as follows:
<TABLE>
<S> <C>
-----------------------------------------------------------------------------
PURCHASES-- $2,775,834,621
----------------------------------------------------------------------------- --------------
SALES-- $3,240,201,683
----------------------------------------------------------------------------- --------------
</TABLE>
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, 1995,
and the related statement of operations and cash flows for the year then ended,
and the statement of changes in net assets for the years ended January 31, 1995
and 1994, and the financial highlights (see pages 2 and 15 of the prospectus)
for each of the ten years in the period ended January 31, 1995. 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 audits 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 the securities owned as of
January 31, 1995 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, 1995, the results of its operations and cash flows the
changes in its net assets and its financial highlights for the respective stated
periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
March 14, 1995
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 15222-3779
------------------------------------------------------------------------------------------------
Independent Auditors
Deloitte & Touche LLP 2500 One PPG Place
Pittsburgh, PA 15222
------------------------------------------------------------------------------------------------
</TABLE>
FEDERATED INCOME TRUST
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
An Open-End, Diversified
Management Investment Company
March 31, 1995
FEDERATED SECURITIES CORP.
(LOGO)
---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
314199209
8030102A-ISS (3/95)
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. This Combined Statement of Additional Information should be
read with the respective prospectus for Institutional Shares and
Institutional Service Shares dated March 31, 1995. 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, 1995
Federated Securities Corp.
Distributor
A subsidiary of Federated
Investors
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
Selling Short and Buying on Margin 2
Borrowing Money 2
Pledging Assets 2
Lending Cash or Securities 2
Issuing Senior Securities 2
Investing in Securities of Other
Investment Companies 2
FEDERATED INCOME TRUST MANAGEMENT 3
Trust Ownership 8
Trustees Compensation 8
Trustee Liability 9
INVESTMENT ADVISORY SERVICES 9
Adviser to the Trust 9
Advisory Fees 9
State Expense Limitations 9
Other Advisory Services 10
TRANSFER AGENT AND DIVIDEND
DISBURSING AGENT 10
BROKERAGE TRANSACTIONS 10
PURCHASING SHARES 11
Distribution and Shareholder
Services Plans 11
Conversion to Federal Funds 12
DETERMINING NET ASSET VALUE 12
Determining Market Value of
Securities 12
REDEEMING SHARES 12
EXCHANGING SECURITIES FOR TRUST
SHARES 12
Tax Consequences 12
TAX STATUS 13
The Trust's Tax Status 13
Shareholders' Tax Status 13
Capital Gains 13
TOTAL RETURN 13
YIELD 13
PERFORMANCE COMPARISONS 14
Duration 15
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 Trust 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 Trust.
INVESTMENT OBJECTIVE AND POLICIES
The Trust's investment objective is current income.
TYPES OF INVESTMENTS
The Trust 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 made to secure what is considered to be an advantageous
price or yield for the Trust. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Trust sufficient
to make payment for the securities to be purchased are segregated on the Trust's
records at the trade date. These assets are marked to market daily and are
maintained until the transaction has been settled. The Trust does not intend to
engage in when-issued and delayed delivery transactions to an extent that would
cause the segregation of more than 20% of the total value of its assets.
REPURCHASE AGREEMENTS
The Trust 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
Trust, the Trust 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 Trust might be
delayed pending court action. The Trust believes that under the regular
procedures normally in effect for custody of the Trust's portfolio securities
subject to repurchase agreements, a court of competent jurisdiction would rule
in favor of the Trust and allow retention or disposition of such securities. 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 Trustees.
PORTFOLIO TURNOVER
The Trust 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 Trust may dispose of portfolio securities
at any time if it appears that selling the securities will help the Trust
achieve its investment objective.
The Trust 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 Trust's investment objective. During the fiscal years ended January 31, 1995
and 1994, the portfolio turnover rates were 217% and 178%, respectively.
INVESTMENT LIMITATIONS
The Trust will not change any of the investment limitations described below
without approval of shareholders.
Selling Short and Buying on Margin
The Trust 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 Trust 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 Trust 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
Trust will liquidate any such borrowings as soon as possible and may not
purchase any portfolio securities while any borrowings are outstanding.
Pledging Assets
The Trust 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 Trust 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
Trust's investment objective and policies or Declaration of Trust).
Issuing Senior Securities
The Trust will not issue senior securities, except as permitted by its
investment objective and policies.
Investing in Securities of Other Investment Companies
The Trust may not own securities of open-end investment companies. The
Trust can acquire up to 3 per centum of the total outstanding stock of
closed-end investment companies. The Trust 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
Trust's Shares does not include a sales load exceeding 1-1/2 per cent. The
Trust 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 Trust 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.
Federated Income Trust Management
Officers and Trustees are listed with their addresses, birthdates, present
positions with Federated Income Trust, and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Manageme
Management, and Federated Research; Chairman and Director, Federated Research
Corp.; Chairman, Passport Research, Ltd.; Director, AEtna Life and Casualty
Company; Chief Executive Officer and Director, Trustee, or Managing General
Partner of the Funds. Mr. Donahue is the father of J. Christopher Donahue, Vice
President of the Trust.
Thomas G. Bigley
28th Floor, One Oxford Center
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Director, Oberg Manufacturing Co.; Chairman of the Board, Children's Hospital of
Pittsburgh; Director, Trustee, or Managing General Partner of the Funds;
formerly, Senior Partner, Ernst & Young LLP.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; President, Northgate Village Development
Corporation; Partner or Trustee in private real estate ventures in Southwest
Florida; Director, Trustee, or Managing General Partner of the Funds; formerly,
President, Naples Property Management, Inc.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Vice Chairman and
Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes, Inc.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May, 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director, Trustee,
or Managing General Partner of the Funds; formerly, Director, Blue Cross of
Massachusetts, Inc.
Lawrence D. Ellis, M.D.
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine and Member, Board of Trustees, University of Pittsburgh;
Medical Director, University of Pittsburgh Medical Center - Downtown; Member,
Board of Directors, University of Pittsburgh Medical Center; formerly,
Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals;
Director, Trustee, or Managing General Partner of the Funds.
Edward L. Flaherty, Jr.@
Henny, Koehuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney-at-law; Partner, Henny, Koehuba, Meyer and Flaherty; Director, Eat'N
Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Counsel, Horizon
Financial, F.A., Western Region.
Glen R. Johnson *
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929
President and Trustee
Trustee, Federated Investors; President and/or Trustee of some of the Funds;
staff member, Federated Securities Corp. and Federated Administrative Services.
Peter E. Madden
225 Franklin Street
Boston, MA
Birthdate: April 16, 1942
Trustee
Consultant; State Representative, Commonwealth of Massachusetts; Director,
Trustee, or Managing General Partner of the Funds; formerly, President, State
Street Bank and Trust Company and State Street Boston Corporation and Trustee,
Lahey Clinic Foundation, Inc.
Gregor F. Meyer
Henny, Koehuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney-at-law; Partner, Henny, Koehuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or
Managing General Partner of the Funds; formerly, Vice Chairman, Horizon
Financial, F.A.
John E. Murray, Jr., J.D.,S.J.D.
President
Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Director, Trustee, or Managing
General Partner of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, Foreign Policy and Management Consultant; Trustee, Carnegie Endowment
for International Peace, RAND Corporation, Online Computer Library Center, Inc.,
and U.S. Space Foundation; Chairman, Czecho Slovak Management Center; Director,
Trustee, or Managing General Partner of the Funds; President Emeritus,
University of Pittsburgh; formerly, Chairman, National Advisory Council for
Environmental Policy and Technology.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/marketing consultant; Director, Trustee, or Managing General
Partner of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated Research
Corp.; President, Passport Research, Ltd.; Trustee, Federated Administrative
Services, Federated Services Company, and Federated Shareholder Services;
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
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Director, Federated
Research Corp.; Chairman and Director, Federated Securities Corp.; President or
Vice President of some of the Funds; Director or Trustee of some of the Funds.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Vice President and Treasurer
Vice President, Treasurer, and Trustee, Federated Investors; Vice President and
Treasurer, Federated Advisers, Federated Management, Federated Research,
Federated Research Corp., and Passport Research, Ltd.; Executive Vice President,
Treasurer, and Director, Federated Securities Corp.; Trustee, Federated Services
Company and Federated Shareholder Services; Chairman, Treasurer, and Trustee,
Federated Administrative Services; Trustee or Director of some of the Funds;
Vice President and Treasurer of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Vice President and Secretary
Vice President, Secretary, General Counsel, and Trustee, Federated Investors;
Vice President, Secretary, and Trustee, Federated Advisers, Federated
Management, and Federated Research; Vice President and Secretary, Federated
Research Corp. and Passport Research, Ltd.; Trustee, Federated Services Company;
Executive Vice President, Secretary, and Trustee, Federated Administrative
Services; Secretary and Trustee, Federated Shareholder Services; Executive Vice
President and Director, Federated Securities Corp.; Vice President and Secretary
of the Funds.
* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940, as amended.
@ Member of the Executive Committee. The Executive Committee of the Board
of Trustees handles the responsibilities of the Board of Trustees
between meetings of the Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: American Leaders Fund, Inc.; Annuity Management Series;
Arrow Funds; Automated Government Money Trust; Cash Trust Series Inc.; Cash
Trust Series II; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash
Trust; 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 Institutional 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; International Series,
Inc.; 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 U.S. Government
Money Market Trust; Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed
Series Trust; Money Market Management Inc.; Money Market Obligations Trust;
Money Market Trust; Municipal Securities Income Trust; 111 Corcoran Funds;
Peachtree Funds; The Planters Funds; Portage Funds; RIMCO Monument Funds; The
Shawmut Funds; Short-Term Municipal Trust; 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; Trust for U.S. Treasury Obligations; the Virtus Funds;
and World Investment Series.
TRUST OWNERSHIP
Officers and Trustees own less than 1% of the Trust's outstanding shares.
As of March 7 1995, the following shareholder of record owned 5% or more of the
outstanding Institutional Shares of the Trust: Integra Trust Services,
Pittsburgh, Pennsylvania, owned approximately 9,647,140.000 shares (8.47%).
As of March 7, 1995, the following shareholders of record owned 5% or more of
the outstanding Institutional Service Shares of the Trust: Charles Schwab & Co.,
Inc., San Francisco, California, owned approximately 1,036,296.671 shares
(24.19%); First National Bank & Trust of McAllister, McAllister, Oklahoma, owned
approximately 517,465.883 shares (12.08%); Signet Trust Co., Baltimore,
Maryland, owned approximately 330,550.658 shares (7.72%); Citizens' Scholarship
FOA Inc., St. Peter, Minnesota, owned approximately 248,803.727 shares (5.81%);
and Rockland Trust Company, Hanover, Massachusetts, owned approximately
236,305.856 shares (5.52%).
TRUSTEES COMPENSATION
NAME , AGGREGATE TOTAL COMPENSATION
POSITION WITH COMPENSATION FROM PAID TO TRUSTEES FROM
TRUST TRUST* TRUST AND FUND COMPLEX +
John F. Donahue, Chairman $-0- $-0- for the Trust and
and Trustee 68 investment companies
Glen R. Johnson, President $-0- $-0- for the Trust and
and Trustee 8 investment companies
Thomas G. Bigley, Trustee $2,574 $24,991 for the Trust and
49 investment companies
John T. Conroy, Jr., Trustee $2,568 $136,100 for the Trust and
64 investment companies
William J. Copeland, Trustee $2,568 $136,100 for the Trust and
64 investment companies
James E. Dowd, Trustee $2,568 $136,100 for the Trust and
64 investment companies
Lawrence D. Ellis, M.D., Trustee $2,574 $123,600 for the Trust and
64 investment companies
Edward L. Flaherty, Jr., Trustee $2,568 $136,100 for the Trust and
64 investment companies
Peter E. Madden, Trustee $2,156 $104,880 for the Trust and
64 investment companies
Gregor F. Meyer, Trustee $2,574 $123,600 for the Trust and
64 investment companies
John E. Murray, Jr., Trustee $-0- $-0- for the Trust and
68 investment companies
Wesley W. Posvar, Trustee $2,574 $123,600 for the Trust and
64 investment companies
Marjorie P. Smuts, Trustee $2,574 $123,600 for the Trust and
64 investment companies
*Information is furnished for the fiscal year ended January 31, 1995.
+The information provided is for the last calendar year.
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 TRUST
The Trust'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.
The adviser shall not be liable to the Trust or any shareholder of the Trust 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, 1995, 1994 and 1993 the Trust's adviser earned $5,793,071,
$6,861,374, and $5,643,772, 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 Trust'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 Trust for
its expenses over the limitation.
If the Trust'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
Trust, 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, a subsidiary of Federated Investors, provides
administrative personnel and services to the Trust for a fee as described in the
prospectus. Prior to March 1, 1994, Federated Administrative Services, Inc.,
also a subsidiary of Federated Investors, served as the Trust's administrator.
(For purposes of this Combined Statement of Additional Information, Federated
Administrative Services and Federated Administrative Services, Inc., may
hereinafter be referred to as the "Administrators.") For the fiscal years ended
January 31, 1995, 1994 and 1993, the Trust incurred costs for administrative
service fees of $1,081,996, $1,043,969, and $778,981, respectively. Dr. Henry
J. Gailliot, an officer of Federated Management, the adviser to the Trust, holds
approximately 20% of the outstanding common stock and serves as a director of
Commercial Data Services, Inc., a company which provides computer processing
services to Federated Administrative Services.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company serves as transfer agent and dividend disbursing
agent for the Trust. The fee paid to the transfer agent is based upon the size,
type and number of accounts and transactions made by shareholders.
Federated Services Company also maintains the Trust's accounting records. The
fee paid for this service is based upon the level of the Trust's average net
assets for the period plus out-of-pocket expenses.
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 Trust or to the
adviser and may include:
o advice as to the advisability of investing in securities;
o security analysis and reports;
o economic studies;
o industry studies;
o receipt of quotations for portfolio evaluations; and
o 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 Trusts 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.
For the fiscal years ended January 31, 1995, 1994 and 1993, the Trust paid no
commissions on brokerage transactions.
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 Trust, by adopting
the Distribution Plan, the Board of Trustees expects that the Trust 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 Trust in pursuing its investment objectives. By identifying potential
investors whose needs are served by the Trust'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 year ended January 31, 1995, payments in the amount of $125,049, were
made pursuant to the Distribution Plan (Institutional Service Shares only),
$108,249 of which was waived. In addition, for this period, payments in the
amount of $447,959 for Institutional Shares and $108,249 for Institutional
Service Shares were made pursuant to the Shareholder Services Plan.
CONVERSION TO FEDERAL FUNDS
It is the Trust'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 Trust are described in the respective prospectus.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Trust's portfolio securities are determined as follows:
o 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 Trust's Board of Trustees; or
o 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 Trust redeems Shares of either class at the next computed net asset value
after the Trust 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 Trust will notify the investor of its
acceptance and valuation of the securities within five business days of their
receipt by the transfer agent.
The Trust values securities in the same manner as the Trust 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 Trust 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 Trust, 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 TRUST'S TAX STATUS
The Trust will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code, as amended,
applicable to regulated investment companies and to receive the special tax
treatment afforded to such companies. To qualify for this treatment, the Trust
must, among other requirements:
o derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;
o derive less than 30% of its gross income from the sale of securities held
less than three months;
o invest in securities within certain statutory limits; and
o 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 Trust 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 Shares of the Trust 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.
The Trust's average annual total return for Institutional Shares for the one-
year, five-year and ten-year periods ended January 31, 1995 were (0.86%), 7.13%,
and 8.40%, respectively. The Trust's average annual total return for
Institutional Service Shares for the for the year ended January 31, 1995 and the
period from June 2, 1992 (date of the Trust's inception) to January 31, 1995,
were (1.08%) and 3.64%, respectively.
YIELD
The yield for both classes of Shares of the Trust 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
Trust 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 Trust's yield for Institutional Shares for the thirty-day period ended
January 31, 1995, was 7.38%. The Trust's yield for Institutional Service Shares
was 7.15% for the same period.
PERFORMANCE COMPARISONS
The performance of both class of Shares depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Trust's expenses or either class of shares' expenses; and
o 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 Trust'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 Trust uses in advertising may include:
o 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 Trust will quote its Lipper ranking in the U.S.
government funds category in advertising and sales literature.
o 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.
o 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).
o 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.
o 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 Trust 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.
o 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 non-standardized 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 Trust 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 Trust.
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FEDERATED INCOME TRUST
--------------------------------------------------------------------------------
ANNUAL REPORT FOR FISCAL YEAR ENDED JANUARY 31, 1995
MANAGEMENT DISCUSSION AND ANALYSIS:
---------------------------------------------------------------------------
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 investment strategy
emphasizes a diversified range of mortgage securities with coupons
averaging 8.16% and a weighted average duration of 4.3 years. The Trust's
portfolio targets a volatility level similar to an intermediate Treasury
security.
In 1994, the Federal Reserve boosted short-term interest rates by 250
basis points under the objective of slowing the U.S. economy. The U.S.
Treasury yield curve flattened 190 basis points with the current 2-year
Treasury yield increasing 350 basis points, while the 30-year yield
increased by only 160 basis points. The dramatic turnaround of the Treasury
market spilled over into the mortgage sector as investors' fears of rapid
prepayments turned to concern over the impact of extension risk. The
Mortgage Bankers Association Refinancing Index, one measure of refinancing
activity, declined from 1036.8 in early February of 1994 to 64.3 by the end
of 1994, the lowest level since the inception of the index. Where
refinancings accounted for almost two-thirds of all mortgage originations
in 1993, they fell sharply to less than 15% of originations by the end of
1994.
The new year has been marked by a reversal of the dramatic flattening
of the yield curve. After reaching its flattest point in late December,
1994, the 2-to-30-year yield spread has steepened out to levels last seen
in early December, 1994. Given this reversal, the Trust's strategy during
this period has been to move from a defensive bias to a more neutral curve
position. And given the level of confusion in the market, relative value
opportunities have been more oriented toward market dislocations than
traditional market fundamentals. Over the last six months, the Trust has
taken advantage of opportunities in 15-year and balloon mortgage
securities, adding nominal yield and relatively attractive return profiles
versus 30-year counterparts. In addition, the Trust also purchased teaser
adjustable rate mortgages ("ARMs")-ARMs with rates below current market
levels-which were indexed to the One Year Constant Maturity Treasury (CMT).
While trading at historically wide yield spreads, these short-duration
securities were coupled with long duration collateralized mortgage
obligations (CMOs) to produce relatively attractive total rates of return.
As of January 31, 1995, the Trust, with its focus on relative value
opportunities, posted a one year total return of -.86%* for Institutional
Shares and -1.08%* for Institutional Service Shares versus returns of -.64%
for the Salomon 15-year Mortgage Index and -3.66% for the Lehman Brothers
5-year Treasury Index.
As of January 31, 1995, the Trust recorded total net assets of $1.2
billion with an average 30-day yield-as calculated under SEC guidelines-of
7.38%* for Institutional Shares and 7.15%* for Institutional Service Shares
based upon the net asset value of $9.70. The Trust is rated AAAf/aa-for
credit quality and risk by Standard & Poor's,** and will continue to strive
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 investor's shares, when
redeemed, may be worth more or less than their original cost.
**This rating is obtained after Standard and Poor's evaluates a number of
factors, including credit quality, market price exposure and management.
They monitor the portfolio weekly for developments that could cause
changes in ratings.
FEDERATED INCOME TRUST (INSTITUTIONAL SHARES)
--------------------------------------------------------------------------------
GROWTH OF $25,000 INVESTED IN FEDERATED INCOME TRUST
(INSTITUTIONAL SHARES)
The graph below illustrates the hypothetical investment of $25,000 in the
Federated Income Trust (Institutional Shares) (the "Trust") from January 31,
1985 to January 31, 1995 compared to the Lehman Brothers 5-Year Treasury
Bellwether Index (LB5YRTBI)+, the Salomon Brothers 15-Year Mortgage Index
(SB15YRMI)+ and the Lipper U.S. Mortgage Funds Average (LUSMFA).++
Graphic Representation omitted. See appendix A1.
<TABLE>
<S> <C>
AVERAGE ANNUAL TOTAL RETURNS** FOR THE PERIOD
ENDED JANUARY 31, 1995
1 Year........................................................................ (0.86%)
5 Year........................................................................ 7.13%
10 Year....................................................................... 8.40%
Start of Performance (3/30/82)................................................ 9.91%
</TABLE>
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 REPORT MUST BE PRECEDED OR ACCOMPANIED BY THE TRUST'S PROSPECTUS FOR
INSTITUTIONAL SHARES DATED MARCH 31, 1995 AND, TOGETHER WITH THE FINANCIAL
STATEMENTS CONTAINED THEREIN, CONSTITUTES THE TRUST'S ANNUAL REPORT.
* The Trust's performance assumes the reinvestment of all dividends and
distributions. The LB5YRTBI, the SB15YRMI and the LUSMFA have been adjusted
to reflect reinvestment of dividends on securities in the indices. For this
illustration, the SB15YRMI began performance on February 1, 1986. The
SB15YRMI was assigned a beginning value of $28,915 (the value of the Trust on
January 31, 1986).
** Total returns quoted reflect all applicable sales loads and contingent
deferred sales charges.
+ The LB5YRTBI and the SB15YRMI are not adjusted to reflect sales loads,
expenses, or other fees that the SEC requires to be reflected in the Trust's
performance. The indices are unmanaged.
++ The LUSMFA represents the average of the total returns reported by all of the
mutual funds designated by Lipper Analytical Services, Inc. as falling into
the category, and is not adjusted to reflect any sales loads.
However, these total returns are reported net of expenses or other fees that
the SEC requires to be reflected in a fund's performance.
FEDERATED INCOME TRUST
(INSTITUTIONAL SERVICE SHARES)
--------------------------------------------------------------------------------
GROWTH OF $25,000 INVESTED IN FEDERATED INCOME TRUST
(INSTITUTIONAL SERVICE SHARES)
The graph below illustrates the hypothetical investment of $25,000 in the
Federated Income Trust (Institutional Service Shares) (the "Trust") from June 2,
1992 (start of performance) to January 31, 1995 compared to the Lehman Brothers
5-Year Treasury Bellwether Index (LB5YRTBI)+, Salomon Brothers 15-Year Mortgage
Index (SB15YRMI)+ and the Lipper U.S. Mortgage Funds Average (LUSMFA).++
Graphic Representation omitted. See appendix A2.
<TABLE>
<S> <C>
AVERAGE ANNUAL TOTAL RETURNS** FOR THE PERIOD
ENDED JANUARY 31, 1995
1 Year........................................................................ (1.08%)
Start of Performance (6/2/92)................................................. 3.64%
</TABLE>
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 REPORT MUST BE PRECEDED OR ACCOMPANIED BY THE TRUST'S PROSPECTUS FOR
INSTITUTIONAL SERVICE SHARES DATED MARCH 31, 1995 AND, TOGETHER WITH THE
FINANCIAL STATEMENTS CONTAINED THEREIN, CONSTITUTES THE TRUST'S ANNUAL REPORT.
* The Trust's performance assumes the reinvestment of all dividends and
distributions. The LB5YRTBI, the SB15YRMI and the LUSMFA have been adjusted
to reflect reinvestment of dividends on securities in the indices.
** Total returns quoted reflect all applicable sales loads and contingent
deferred sales charges.
+ The LB5YRTBI and the SB15YRMI are not adjusted to reflect sales loads,
expenses, or other fees that the SEC requires to be reflected in the Trust's
performance. The indices are unmanaged.
++ The LUSMFA represents the average of the total returns reported by all of the
mutual funds designated by Lipper Analytical Services, Inc. as falling into
the category, and is not adjusted to reflect any sales loads. However, these
total returns are reported net of expenses or other fees that the SEC
requires to be reflected in a fund's performance.
FEDERATED SECURITIES CORP.
(LOGO)
--------------------------------------------------------------------------------
Distributor
314199100
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8030102A-ARS (3/95)
APPENDIX
A 1. 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 "Trust") is represented by a solid line.
The Lehman
Brothers 5-Year Treasury Bellwether Index is represented by a broken line. The
Salomon Brothers 15-Year Mortgage Index is represented by a broken and dotted
line.
The Lipper U.S. Mortgage Funds Average is represented by a dotted line.
The line
graph is a visual representation of a comparison of change in value of a
hypothetical
$25,000 purchase in the Institutional Shares of the Trust and the above-
referenced
indices. The "y" axis reflects the cost of the investment. The "x" axis
reflects
computation periods from the Trust's start of performance, March 30, 1982,
through
January 31, 1995. The right margin reflects the ending value of the
hypothetical
investment in the Trust 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 $56,028.00, $57,895.00, $61,362.00 and
$55,820.00,
respectively. There is also a legend in beneath the graphic presentation which
indicates the Average Annual Total Return for the period ended January 31, 1995,
beginning with the Trust's start of performance (March 30, 1982); the
Cumulative Total Return is 9.91%.
A 2. 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 "Trust") is represented by a
solid line. The
Lehman Brothers 5-Year Treasury Bellwether Index is represented by a broken
line. The
Salomon Brothers 15-Year Mortgage Index is represented by a broken and
dotted line.
The Lipper U.S. Mortgage Funds Average is represented by a dotted line.
The line
graph is a visual representation of a comparison of change in value of a
hypothetical
$25,000 purchase in the Institutional Shares of the Trust and the above-
referenced
indices. The "y" axis reflects the cost of the investment. The "x" axis
reflects
computation periods from the Trust's start of performance, June 2, 1992, through
January 31, 1995. The right margin reflects the ending value of the
hypothetical
investment in the Trust 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 $27,498.00, $28,467.00, $28,356.00 and
$27,664.00,
respectively. There is also a legend in beneath the graphic presentation which
indicates the Average Annual Total Return for the period ended January 31, 1995,
beginning with the Trust's start of performance (June 2, 1992); the
Cumulative Total Return is 3.64%.
