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 Statement of Additional Information dated March 31,
1996, with the Securities and Exchange Commission. The information contained in
the Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Statement of Additional Information,
or a paper copy of this prospectus, if you have received your prospectus
electronically, 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, 1996
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF TRUST EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Investment Limitations 6
Portfolio Turnover 6
TRUST INFORMATION 6
- ------------------------------------------------------
Management of the Trust 6
Distribution of Institutional Shares 7
Supplemental Payments to
Financial Institutions 8
Administration of the Trust 8
NET ASSET VALUE 8
- ------------------------------------------------------
INVESTING IN INSTITUTIONAL SHARES 9
- ------------------------------------------------------
Share Purchases 9
Minimum Investment Required 9
What Shares Cost 9
Exchanging Securities for Trust Shares 10
Certificates and Confirmations 10
Dividends 10
Capital Gains 10
REDEEMING INSTITUTIONAL SHARES 10
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Telephone Redemption 10
Written Requests 11
Accounts with Low Balances 11
SHAREHOLDER INFORMATION 12
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Voting Rights 12
TAX INFORMATION 12
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Federal Income Tax 12
State and Local Taxes 12
PERFORMANCE INFORMATION 13
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OTHER CLASSES OF SHARES 13
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FINANCIAL HIGHLIGHTS--INSTITUTIONAL
SERVICE SHARES 14
- ------------------------------------------------------
FINANCIAL STATEMENTS 15
- ------------------------------------------------------
INDEPENDENT AUDITORS' REPORT 27
- ------------------------------------------------------
ADDRESSES 28
- ------------------------------------------------------
SUMMARY OF TRUST EXPENSES
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<TABLE>
<S> <C> <C>
INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)......... None
Maximum Sales Charge 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 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 Operating Expenses(2)................................................. 0.58%
</TABLE>
(1) The maximum shareholder services fee is 0.25%.
(2) The total operating expenses would have been 0.80% absent the voluntary
waiver of a portion of the shareholder services fee.
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.
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,
---------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
-------- ---------- ---------- ---------- ---------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET
ASSET
VALUE,
BEGINNING
OF
PERIOD $9.70 $10.50 $10.73 $10.66 $10.42 $10.18 $10.05 $10.43 $10.74 $10.87
- ---
INCOME
FROM
INVESTMENT
OPERATIONS
- ---
Net
investment
income 0.67 0.70 0.77 0.80 0.89 0.93 0.94 0.95 0.99 1.03
- ---
Net
realized
and
unrealized
gain
(loss) on
investments 0.69 (0.80) (0.23) 0.07 0.24 0.24 0.13 (0.38) (0.31) (0.05)
- --- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total
from
investment
operations 1.36 (0.10) 0.54 0.87 1.13 1.17 1.07 0.57 0.68 0.98
- --- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
LESS
DISTRIBUTIONS
- ---
Distributions
from net
investment
income (0.67) (0.70) (0.77) (0.80) (0.89) (0.93) (0.94) (0.95) (0.99) (1.04)
- ---
Distributions
in excess of
net
investment
income 0.00 -- -- -- -- -- -- -- -- --
- ---
Distributions
from net
realized
gain on
investments -- -- -- -- -- -- -- -- -- (0.07)
- --- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total
distributions (0.67) (0.70) (0.77) (0.80) (0.89) (0.93) (0.94) (0.95) (0.99) (1.11)
- --- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
NET
ASSET
VALUE,
END OF
PERIOD $10.39 $9.70 $10.50 $10.73 $10.66 $10.42 $10.18 $10.05 $10.43 $10.74
- --- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
TOTAL
RETURN(A) 14.44% (0.86)% 5.22% 8.51% 11.27% 12.01% 11.04% 5.75% 6.79% 9.52%
- ---
RATIOS
TO
AVERAGE
NET
ASSETS
- ---
Expenses 0.58% 0.56% 0.51% 0.51% 0.50% 0.50% 0.53% 0.52% 0.50% 0.54%
- ---
Net
investment
income 6.67% 6.99% 7.28% 7.53% 8.41% 9.06% 9.23% 9.33% 9.49% 9.47%
- ---
Expense
waiver/
reimbursement
(b) 0.22% -- -- -- -- -- -- -- -- --
- ---
SUPPLEMENTAL
DATA
- ---
Net
assets,
end of
period
(000
omitted) $983,093 $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
- ---
Portfolio
turnover 184% 217% 178% 52% 51% 36% 45% 77% 92% 146%
- ---
</TABLE>
(a) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(b) 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, 1996, 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 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. These limitations may not be changed without shareholder approval.
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, 1996 and 1995 were 184% and 217%, 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. With over $80 billion invested across
more than 250 funds under management and/or administration by its
subsidiaries, as of December 31, 1995, Federated Investors is one of the
largest mutual fund investment managers in the United States. With more
than 1,800 employees, Federated continues to be led by the management who
founded the company in 1955. Federated funds are presently at work in and
through 4,000 financial institutions nationwide. More than 100,000
investment professionals have selected Federated funds for their clients.
Kathleen M. Foody-Malus has been the Trust's 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. Ms. Foody-Malus received her M.B.A. in
Accounting/Finance from the University of Pittsburgh.
Edward J. Tiedge has been the Trust's portfolio manager since October 1995.
Mr. Tiedge joined Federated Investors in 1993 as an Investment Analyst and
has been an Assistant Vice President of the Trust's investment adviser
since 1995. Mr. Tiedge served as Director of Investments at Duquesne Light
Company from 1990 to 1993. Mr. Tiedge is a Chartered Financial Analyst and
received his M.S. in Industrial Administration from Carnegie Mellon
University.
Both the Trust and the Adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Trust and its portfolio securities.
These codes recognize that such persons owe a fiduciary duty to the Trust's
shareholders and must place the interests of shareholders ahead of the
employees' own interest. Among other things, the codes: require preclearance and
periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Board of Trustees,
and could result in severe penalties.
State securities laws may require certain financial institutions such as
depository institutions to register as dealers.
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.
SHAREHOLDER SERVICES. The Trust has entered into a Shareholder Services
Agreement with Federated Shareholder Services, a subsidiary of Federated
Investors, under which the Trust may make payments up to .25 of 1% of the
average daily net asset value of Institutional Shares, computed at an annual
rate, to obtain certain personal services for shareholders and to maintain
shareholder accounts. From time to time and for such periods as deemed
appropriate, the amount stated above may be reduced voluntarily. Under the
Shareholder Services Agreement, 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.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS
In addition to payments made pursuant to the Shareholder Services Agreement,
Federated Securities Corp. and Federated Shareholder Services, from their own
assets, may pay financial institutions supplemental fees for the performance of
substantial sales services, distribution-related support services, or
shareholder services. The support may include sponsoring sales, educational and
training seminars for their employees, providing sales literature, and
engineering computer software programs that emphasize the attributes of the
Trust. Such assistance will be predicated upon the amount of shares the
financial institution sells or may sell, and/or upon the type and nature of
sales or marketing support furnished by the financial institution. Any payments
made by the distributor may be reimbursed by the Trust's investment adviser or
its affiliates.
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 Services Company 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>
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.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 Services Company may choose voluntarily to waive a portion of its fee.
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 is open. 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 Shareholder 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 holidays when wire transfers
are restricted. Questions on wire purchases should be directed to your
shareholder services representative at the telephone number listed on your
account statement.
BY MAIL. To purchase Shares by mail, send a check made payable to Federated
Income Trust-- Institutional Shares to Federated Shareholder Services Company,
c/o State Street Bank and Trust Company, P.O. Box 8600, Boston, Massachusetts
02266-8600. 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 financial intermediary may be charged an
additional service fee by that financial intermediary.
The net asset value is determined as of the close of trading (normally 4:00
p.m., Eastern time) on the New York Stock Exchange, 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; or (iii) the following holidays: New Year's Day,
President's 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.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Trust, Federated Shareholder 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. Investors who redeem shares through a financial
intermediary may be charged a service fee by that financial intermediary.
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. All owners of the account must sign
the request exactly as the shares are registered. If share certificates have
been issued, they must be sent unendorsed with the written request by registered
or certified mail.
SIGNATURES. Shareholders requesting 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 their signatures 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 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.
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.
STATE AND LOCAL TAXES
In the opinion of Houston, Houston & Donnelly, counsel to the Trust, 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 charge 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 designed primarily for retail and private
banking customers of financial institutions 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.
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,
-------------------------------------------
1996 1995 1994 1993(A)
------ ------ ------ -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.70 $10.50 $10.73 $10.64
- -------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------
Net investment income 0.65 0.68 0.75 0.51
- -------------------------------------------------
Net realized and unrealized gain (loss) on
investments 0.69 (0.80) (0.23) 0.09
- ------------------------------------------------- ------ ------ ------ -------
Total from investment operations 1.34 (0.12) 0.52 0.60
- ------------------------------------------------- ------ ------ ------ -------
LESS DISTRIBUTIONS
- -------------------------------------------------
Distributions from net investment income (0.65) (0.68) (0.75) (0.51)
- ------------------------------------------------- ------ ------ ------ -------
NET ASSET VALUE, END OF PERIOD $10.39 $ 9.70 $10.50 $10.73
- ------------------------------------------------- ------ ------ ------ -------
TOTAL RETURN(B) 14.19% (1.08)% 4.96% 4.80%
- -------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------
Expenses 0.80% 0.78% 0.76% 0.76%*
- -------------------------------------------------
Net investment income 6.45% 6.75% 7.03% 7.16%*
- -------------------------------------------------
Expense waiver/reimbursement (c) 0.25% 0.22% -- --
- -------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------
Net assets, end of period (000 omitted) $40,788 $40,428 $67,176 $53,981
- -------------------------------------------------
Portfolio turnover 184% 217% 178% 52%
- -------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(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 charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and the net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Further information about the Trust's performance is contained in the Trust's
annual report for the fiscal year ended January 31, 1996, which can be obtained
free of charge.
FEDERATED INCOME TRUST
PORTFOLIO OF INVESTMENTS
JANUARY 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ------------------------------------------------------------ --------------
<C> <C> <S> <C>
LONG-TERM OBLIGATIONS--98.8%
- ---------------------------------------------------------------------------------
(A) FEDERAL HOME LOAN MORTGAGE CORP.--33.5%
------------------------------------------------------------
$ 154,286 11.50%, 12/1/2014 $ 173,233
------------------------------------------------------------
643,164 11.00%, 5/1/2000 687,773
------------------------------------------------------------
411,897 10.50%, 7/1/2000 438,406
------------------------------------------------------------
18,044,682 9.50%, 11/1/2009-12/1/2022 19,363,222
------------------------------------------------------------
4,043,894 9.00%, 4/1/2009-2/1/2013 4,244,754
------------------------------------------------------------
67,601,853 8.00%, 4/1/2025-10/1/2025 70,114,614
------------------------------------------------------------
51,811,400 7.50%, 7/1/2025-11/1/2025 53,219,116
------------------------------------------------------------
52,129,517 7.00%, 8/1/2010 53,301,910
------------------------------------------------------------
15,000,000 (b) 7.00%, 8/1/2010 15,337,350
------------------------------------------------------------
50,000,000 (b) 7.00%, 2/1/2026 50,561,500
------------------------------------------------------------
1,394,456 7.00%, 10/1/2007 1,427,978
------------------------------------------------------------
48,506,802 6.50%, 8/1/2010-10/1/2010 48,945,789
------------------------------------------------------------
25,000,000 6.00%, 2/1/2011 24,812,250
------------------------------------------------------------ --------------
TOTAL 342,627,895
------------------------------------------------------------ --------------
(A) FEDERAL HOME LOAN MORTGAGE CORP. REMIC--7.9%
------------------------------------------------------------
10,000,000 7.00%, Series 1573PJ, 2/15/2023 10,230,000
------------------------------------------------------------
26,856,081 7.00%, Strip, 152B, Interest Only, 8/1/2023 7,085,708
------------------------------------------------------------
10,000,000 6.80%, Series 1560-PK, 3/15/2023 9,876,900
------------------------------------------------------------
15,000,000 6.50%, Series 1522G, 3/15/2022 14,741,550
------------------------------------------------------------
8,500,000 6.50%, Series 1526K, 11/15/2021 8,352,440
------------------------------------------------------------
11,130,000 6.50%, Series 1638G, 9/15/2023 11,153,818
------------------------------------------------------------
26,660,697 6.06%, Series 1567-B, Inverse Floater, 8/15/2023 19,920,540
------------------------------------------------------------ --------------
TOTAL 81,360,956
------------------------------------------------------------ --------------
</TABLE>
FEDERATED INCOME TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ------------------------------------------------------------ --------------
<C> <C> <S> <C>
LONG-TERM OBLIGATIONS--CONTINUED
- ---------------------------------------------------------------------------------
(A) FEDERAL NATIONAL MORTGAGE ASSOCIATION--52.4%
------------------------------------------------------------
$ 21,769,109 10.50%, 12/1/2019-4/1/2022 $ 24,109,070
------------------------------------------------------------
40,000,000 (b) 10.00%, 2/1/2026 44,012,000
------------------------------------------------------------
73,284,103 8.50%, 7/1/2024-2/1/2025 76,649,309
------------------------------------------------------------
48,051,395 8.00%, 11/1/2024 49,822,569
------------------------------------------------------------
123,828,335 7.50%, 3/1/2010-2/1/2026 127,369,200
------------------------------------------------------------
151,337,225 7.00%, 10/1/2010-2/1/2026 153,184,577
------------------------------------------------------------
49,171,022 6.50%, 6/1/2009-10/1/2010 49,554,556
------------------------------------------------------------
12,500,000 7.00%, 2/1/2026 12,124,875
------------------------------------------------------------ --------------
TOTAL 536,826,156
------------------------------------------------------------ --------------
(A) FEDERAL NATIONAL MORTGAGE ASSOCIATION REMIC--5.0%
------------------------------------------------------------
18,000,000 7.00%, Series 1993-133J, 12/25/2022 18,389,160
------------------------------------------------------------
16,400,000 7.00%, Series 1993-77K, 11/25/2022 16,751,124
------------------------------------------------------------
16,500,000 7.00%, Series 1993-89D, 6/25/2023 16,171,650
------------------------------------------------------------ --------------
TOTAL 51,311,934
------------------------------------------------------------ --------------
TOTAL LONG-TERM OBLIGATIONS (IDENTIFIED COST $986,586,811) 1,012,126,941
------------------------------------------------------------ --------------
</TABLE>
FEDERATED INCOME TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ -------------------------------------------------------------- --------------
<C> <C> <S> <C>
(C) REPURCHASE AGREEMENTS--20.3%
- ----------------------------------------------------------------------------------
$ 2,570,000 BT Securities Corp., 5.93%, dated 1/31/1996, due 2/1/1996 $ 2,570,000
--------------------------------------------------------------
50,000,000 (d) CS First Boston Corp., 5.55%, dated 1/24/1996, due 2/22/1996 50,000,000
--------------------------------------------------------------
15,000,000 (d) Goldman, Sachs & Co., 5.50%, dated 1/18/1996, due 2/15/1996 15,000,000
--------------------------------------------------------------
15,000,000 (d) Goldman, Sachs & Co., 5.52%, dated 1/16/1996, due 2/13/1996 15,000,000
--------------------------------------------------------------
125,000,000 (d) UBS Securities, Inc., 5.55%, dated 1/16/1996, due 2/13/1996 125,000,000
-------------------------------------------------------------- --------------
TOTAL REPURCHASE AGREEMENTS (AT AMORTIZED COST) 207,570,000
-------------------------------------------------------------- --------------
TOTAL INVESTMENTS (IDENTIFIED COST $1,194,156,811)(E) $1,219,696,941
-------------------------------------------------------------- --------------
</TABLE>
(a) Because of monthly principal payments, the average life of the Federal Home
Loan Mortgage Corp. securities and Federal National Mortgage Association
securities approximates 1-10 years.
(b) These securities are subject to dollar roll transactions.
(c) 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.
(d) 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 if the creditworthiness of the issuer is
downgraded.
(e) The cost of investments for federal tax purposes amounts to $1,194,156,811.
The net unrealized appreciation of investments on a federal tax basis
amounts to $25,540,130 which is comprised of $26,289,815 appreciation and
$749,685 depreciation at January 31, 1996.
Note: The categories of investments are shown as a percentage of net assets
($1,023,880,937) at January 31, 1996.
The following acronym(s) are used throughout this portfolio:
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, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------
Investments in repurchase agreements $ 207,570,000
- --------------------------------------------------------------
Investments in securities 1,012,126,941
- -------------------------------------------------------------- --------------
Total investments in securities, at value
(identified cost and tax cost $1,194,156,811) $1,219,696,941
- -------------------------------------------------------------------------------
Income receivable 5,553,196
- -------------------------------------------------------------------------------
Receivable for investments sold 150,501,812
- -------------------------------------------------------------------------------
Receivable for shares sold 2,035,465
- ------------------------------------------------------------------------------- --------------
Total assets 1,377,787,414
- -------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------
Payable for investments purchased 138,375,130
- --------------------------------------------------------------
Payable for shares redeemed 1,628,151
- --------------------------------------------------------------
Income distribution payable 4,210,051
- --------------------------------------------------------------
Payable to Bank 593,325
- --------------------------------------------------------------
Payable for dollar roll transactions 209,001,742
- --------------------------------------------------------------
Accrued expenses 98,078
- -------------------------------------------------------------- --------------
Total liabilities 353,906,477
- ------------------------------------------------------------------------------- --------------
NET ASSETS for 98,592,367 shares outstanding $1,023,880,937
- ------------------------------------------------------------------------------- --------------
NET ASSETS CONSISTS OF:
- -------------------------------------------------------------------------------
Paid in capital $1,143,083,754
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments 25,540,130
- -------------------------------------------------------------------------------
Accumulated net realized loss on investments (144,656,392)
- -------------------------------------------------------------------------------
Distributions in excess of net investment income (86,555)
- ------------------------------------------------------------------------------- --------------
Total Net Assets $1,023,880,937
- ------------------------------------------------------------------------------- --------------
NET ASSET VALUE, Offering Price and Redemption Proceeds Per Share:
- -------------------------------------------------------------------------------
INSTITUTIONAL SHARES:
($983,093,084 / 94,664,706 shares outstanding) $10.39
- ------------------------------------------------------------------------------- --------------
INSTITUTIONAL SERVICE SHARES:
($40,787,853 / 3,927,661 shares outstanding) $10.39
- ------------------------------------------------------------------------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED INCOME TRUST
STATEMENT OF OPERATIONS
YEAR ENDED JANUARY 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -----------------------------------------------------------------------------
Interest (net of dollar roll expense of $10,345,585) $ 79,345,137
- -----------------------------------------------------------------------------
EXPENSES--
- -----------------------------------------------------------------------------
Investment advisory fee $ 4,380,678
- -----------------------------------------------------------------------------
Administrative personnel and services fee 828,876
- -----------------------------------------------------------------------------
Custodian fees 176,741
- -----------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 221,874
- -----------------------------------------------------------------------------
Directors'/Trustees' fees 24,139
- -----------------------------------------------------------------------------
Auditing fees 19,597
- -----------------------------------------------------------------------------
Legal fees 14,004
- -----------------------------------------------------------------------------
Portfolio accounting fees 144,108
- -----------------------------------------------------------------------------
Distribution services fee--Institutional Service Shares 109,203
- -----------------------------------------------------------------------------
Shareholder services fee--Institutional Shares 2,628,721
- -----------------------------------------------------------------------------
Shareholder services fee--Institutional Service Shares 109,203
- -----------------------------------------------------------------------------
Share registration costs 29,122
- -----------------------------------------------------------------------------
Printing and postage 26,390
- -----------------------------------------------------------------------------
Insurance premiums 17,084
- -----------------------------------------------------------------------------
Taxes 69,361
- -----------------------------------------------------------------------------
Miscellaneous 21,525
- ----------------------------------------------------------------------------- -----------
Total expenses 8,820,626
- -----------------------------------------------------------------------------
Waivers--
- -----------------------------------------------------------------------------
Waiver of distribution services fee--Institutional Service
Shares $ (101,882)
- ---------------------------------------------------------------
Waiver of shareholder services fee--Institutional Shares (2,313,263)
- ---------------------------------------------------------------
Waiver of shareholder services fee--Institutional Service
Shares (7,310)
- --------------------------------------------------------------- -----------
Total waivers (2,422,455)
- ----------------------------------------------------------------------------- -----------
Net expenses 6,398,171
- -------------------------------------------------------------------------------------------- ------------
Net investment income 72,946,966
- -------------------------------------------------------------------------------------------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- --------------------------------------------------------------------------------------------
Net realized gain on investments 15,870,867
- --------------------------------------------------------------------------------------------
Net change in unrealized appreciation on investments 60,251,612
- -------------------------------------------------------------------------------------------- ------------
Net realized and unrealized gain on investments 76,122,479
- -------------------------------------------------------------------------------------------- ------------
Change in net assets resulting from operations $149,069,445
- -------------------------------------------------------------------------------------------- ------------
</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,
--------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- --------------------------------------------------------------
OPERATIONS--
- --------------------------------------------------------------
Net investment income $ 72,946,966 $ 101,091,909
- --------------------------------------------------------------
Net realized gain (loss) on investments ($2,326,436 net gain,
and $99,607,019 net loss, respectively, as computed for
federal tax purposes) 15,870,867 (95,924,544)
- --------------------------------------------------------------
Net change in unrealized appreciation (depreciation) 60,251,612 (31,137,636)
- -------------------------------------------------------------- -------------- --------------
Change in net assets resulting from operations 149,069,445 (25,970,271)
- -------------------------------------------------------------- -------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS--
- --------------------------------------------------------------
Distributions from net investment income:
- --------------------------------------------------------------
Institutional Shares (70,138,212) (97,779,181)
- --------------------------------------------------------------
Institutional Service Shares (2,808,754) (3,389,985)
- --------------------------------------------------------------
Distributions in excess of net investment income:
- --------------------------------------------------------------
Institutional Shares (86,555) --
- -------------------------------------------------------------- -------------- --------------
Change in net assets resulting from distributions to
shareholders (73,033,521) (101,169,166)
- -------------------------------------------------------------- -------------- --------------
SHARE TRANSACTIONS--
- --------------------------------------------------------------
Proceeds from sale of shares 149,627,416 262,132,109
- --------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
declared 17,688,726 21,662,288
- --------------------------------------------------------------
Cost of shares redeemed (379,876,015) (790,673,872)
- -------------------------------------------------------------- -------------- --------------
Change in net assets resulting from share transactions (212,559,873) (506,879,475)
- -------------------------------------------------------------- -------------- --------------
Change in net assets (136,523,949) (634,018,912)
- --------------------------------------------------------------
NET ASSETS:
- --------------------------------------------------------------
Beginning of period 1,160,404,886 1,794,423,798
- -------------------------------------------------------------- -------------- --------------
End of period $1,023,880,937 $1,160,404,886
- -------------------------------------------------------------- -------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED INCOME TRUST
STATEMENT OF CASH FLOWS
YEAR ENDED JANUARY 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- -----------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 149,069,445
- -----------------------------------------------------------------------------
ADJUSTMENTS TO RECONCILE NET INCREASE IN NET ASSETS FROM OPERATIONS TO CASH
PROVIDED BY OPERATING ACTIVITIES:
- -----------------------------------------------------------------------------
Net decrease in investments (including $60,251,612 increase in unrealized
appreciation) 68,486,793
- -----------------------------------------------------------------------------
Decrease in income receivable 3,657,670
- -----------------------------------------------------------------------------
Increase in receivable for investments sold (57,981,762)
- -----------------------------------------------------------------------------
Increase in payable for investments purchased 92,156,902
- -----------------------------------------------------------------------------
Decrease in accrued expenses (54)
- -----------------------------------------------------------------------------
Increase in payable to bank 593,325
- ----------------------------------------------------------------------------- -------------
Cash provided by operating activities 255,982,319
- ----------------------------------------------------------------------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
- -----------------------------------------------------------------------------
Net proceeds from the sale of shares 148,079,509
- -----------------------------------------------------------------------------
Net cost of shares redeemed (381,450,916)
- -----------------------------------------------------------------------------
Increase on payable for dollar roll transactions 34,106,627
- -----------------------------------------------------------------------------
Distributions paid (56,719,931)
- ----------------------------------------------------------------------------- -------------
Cash used in financing activities (255,984,711)
- ----------------------------------------------------------------------------- -------------
Decrease in cash (2,392)
- ----------------------------------------------------------------------------- -------------
Cash at beginning of period 2,392
- ----------------------------------------------------------------------------- -------------
Cash at end of period $0
- ----------------------------------------------------------------------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED INCOME TRUST
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1996
- --------------------------------------------------------------------------------
(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 investment objective of the Trust is current income. The
Trust offers 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--Short-term securities with remaining maturities of
sixty days or less at the time of purchase may be stated at amortized cost,
which approximates fair market value. All other securities are valued at
prices provided by an independent pricing service.
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 the guidelines and/or
standards reviewed or established by the Board of Trustees (the
"Trustees"). Risks may arise from the potential inability of counterparties
to honor the terms of the repurchase agreement. Accordingly, the 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.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily
FEDERATED INCOME TRUST
- --------------------------------------------------------------------------------
due to differing treatments for expiring capital loss carryforwards. The
following reclassifications have been made to the financial statements.
<TABLE>
<CAPTION>
INCREASE (DECREASE)
- ---------------------------------------
ACCUMULATED
PAID-IN CAPITAL NET REALIZED LOSS
- ---------------- ------------------
<S> <C>
(12,071,672) (12,071,672)
</TABLE>
Net investment income, net realized gains/losses, and net assets were not
affected by this reclassification.
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.
At January 31, 1996, the Trust, for federal tax purposes, had a capital
loss carryforward of $144,721,046, which will reduce the Trust's taxable
income arising from future net realized gain on investments, if any, to the
extent permitted by the Code, and thus will reduce the amount of the
distributions to shareholders which would otherwise be necessary to relieve
the Trust of any liability for federal tax. Pursuant to the Code, such
capital loss carryforward will expire as follows:
<TABLE>
<CAPTION>
EXPIRATION YEAR EXPIRATION AMOUNT
------------------ --------------------
<S> <C>
1997 $26,760,646
1998 $16,389,825
1999 $ 1,962,842
2003 $99,607,733
</TABLE>
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 sells mortgage securities to financial institutions and
simultaneously agrees to accept substantially similar (same type, coupon
and maturity) securities at a later date at an agreed upon price. Dollar
roll transactions 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 CASH FLOWS--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
FEDERATED INCOME TRUST
- --------------------------------------------------------------------------------
Trust's Statement of Assets and Liabilities which does not include any
short-term investments at January 31, 1996.
USE OF ESTIMATES--The preparation of the financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues in the financial statements. Actual results could
differ from those estimated.
OTHER--Investment transactions are accounted for on the trade date.
(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,
--------------------------------------------------------------
1996 1995
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
- -----------------------------------
INSTITUTIONAL SHARES
- -----------------------------------
Shares sold 13,342,322 $ 135,013,099 24,209,157 $ 243,458,344
- -----------------------------------
Shares issued to shareholders in
payment of distributions declared 1,532,878 15,528,395 1,982,271 19,612,008
- -----------------------------------
Shares redeemed (35,659,060) (360,499,241) (75,184,676) (747,629,375)
- ----------------------------------- ----------- ------------- ----------- -------------
Net change resulting from
Institutional Share transactions (20,783,860) $(209,957,747) (48,993,248) $(484,559,023)
- ----------------------------------- ----------- ------------- ----------- -------------
</TABLE>
FEDERATED INCOME TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
--------------------------------------------------------------
1996 1995
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
- -----------------------------------
INSTITUTIONAL SERVICE SHARES
- -----------------------------------
Shares sold 1,456,002 $ 14,614,317 1,862,669 $ 18,673,765
- -----------------------------------
Shares issued to shareholders in
payment of distributions declared 213,112 2,160,331 207,419 2,050,280
- -----------------------------------
Shares redeemed (1,908,899) (19,376,774) (4,297,801) (43,044,497)
- ----------------------------------- ----------- ------------- ----------- -------------
Net change resulting from
Institutional Service Share
transactions (239,785) $ (2,602,126) (2,227,713) $ (22,320,452)
- ----------------------------------- ----------- ------------- ----------- -------------
Net change resulting from
share transactions (21,023,645) $(212,559,873) (51,220,961) $(506,879,475)
- ----------------------------------- ----------- ------------- ----------- -------------
</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.
ADMINISTRATIVE FEE--Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Trust with administrative
personnel and services. The fee paid to FServ is based on the level of average
aggregate daily net assets of all funds advised by subsidiaries of Federated
Investors 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 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 the Trust for the period. The fee paid to FSS is
used to finance certain services for shareholders and to maintain
FEDERATED INCOME TRUST
- --------------------------------------------------------------------------------
shareholder accounts. FSS may voluntarily choose to waive a portion of its fee.
FSS can modify or terminate this voluntary waiver at any time at its sole
discretion.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES--FServ through its registered
transfer and dividend disbursing agent, Federated Shareholder Services Company,
maintains all necessary shareholder records and receives a fee 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
daily net assets for the period, plus out-of-pocket expenses.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
year ended January 31, 1996, were as follows:
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------
PURCHASES-- $1,976,177,426
- ----------------------------------------------------------------------------- --------------
SALES-- $2,066,697,674
- ----------------------------------------------------------------------------- --------------
</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, 1996,
and the related statements of operations and cash flows for the year then ended,
the statements of changes in net assets for the years ended January 31, 1996 and
1995, and the financial highlights (see pages 2 and 14 of the prospectus) for
the periods presented. These financial statements and financial highlights are
the responsibility of the Trust's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
January 31, 1996 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, 1996, the results of its operations and its 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 15, 1996
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Federated Income Trust
Institutional Shares Federated Investors Tower
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 8600
Trust Company Boston, Massachusetts 02266-8600
- ------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company P.O. Box 8600
Boston, Massachusetts 02266-8600
- ------------------------------------------------------------------------------------------------
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, 1996
LOGO
FEDERATED SECURITIES CORP.
- --------------------------------------------------------------------------------
Distributor
A Subsidiary of Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
Cusip 314199100
8030102A-IS (3/96)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 Statement of Additional Information dated March 31,
1996, with the Securities and Exchange Commission. The information contained in
the Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Statement of Additional Information,
or a paper copy of this prospectus, if you have received your prospectus
electronically, 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, 1996
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
Investment Limitations 6
Portfolio Turnover 6
TRUST INFORMATION 6
- ------------------------------------------------------
Management of the Trust 6
Distribution of Institutional Service Shares 7
Supplemental Payments to
Financial Institutions 8
Administration of the Trust 8
NET ASSET VALUE 9
- ------------------------------------------------------
INVESTING IN INSTITUTIONAL SERVICE SHARES 9
- ------------------------------------------------------
Share Purchases 9
Exchange Privilege 9
Minimum Investment Required 10
What Shares Cost 10
Exchanging Securities for Trust Shares 10
Certificates and Confirmations 10
Dividends 10
Capital Gains 11
REDEEMING INSTITUTIONAL SERVICE SHARES 11
- ------------------------------------------------------
Telephone Redemption 11
Written Requests 11
Accounts with Low Balances 12
SHAREHOLDER INFORMATION 12
- ------------------------------------------------------
Voting Rights 12
TAX INFORMATION 13
- ------------------------------------------------------
Federal Income Tax 13
State and Local Taxes 13
PERFORMANCE INFORMATION 13
- ------------------------------------------------------
OTHER CLASSES OF SHARES 14
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
INSTITUTIONAL SHARES 15
- ------------------------------------------------------
FINANCIAL STATEMENTS 16
- ------------------------------------------------------
INDEPENDENT AUDITORS' REPORT 28
- ------------------------------------------------------
ADDRESSES 29
- ------------------------------------------------------
SUMMARY OF TRUST EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INSTITUTIONAL SERVICE SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)......... None
Maximum Sales Charge 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 OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee........................................................................ 0.40%
12b-1 Fee (after waiver)(1)........................................................... 0.02%
Total Other Expenses.................................................................. 0.38%
Shareholder Services Fee (after waiver)(2).............................. 0.23%
Total 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 operating expenses would have been 1.05% absent the voluntary
waiver of portions of the 12b-1 fee and shareholder services fee.
Long-term shareholders may pay more than the economic equivalent of the maximum
front-end sales charges permitted under the rules of the National Association of
Securities Dealers, Inc.
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.
<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.
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 28.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-------------------------------------------
1996 1995 1994 1993(A)
------ ------ ------ -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.70 $10.50 $10.73 $10.64
- -------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------
Net investment income 0.65 0.68 0.75 0.51
- -------------------------------------------------
Net realized and unrealized gain (loss) on
investments 0.69 (0.80) (0.23) 0.09
- ------------------------------------------------- ------ ------ ------ -------
Total from investment operations 1.34 (0.12) 0.52 0.60
- ------------------------------------------------- ------ ------ ------ -------
LESS DISTRIBUTIONS
- -------------------------------------------------
Distributions from net investment income (0.65) (0.68) (0.75) (0.51)
- ------------------------------------------------- ------ ------ ------ -------
NET ASSET VALUE, END OF PERIOD $10.39 $ 9.70 $10.50 $10.73
- ------------------------------------------------- ------ ------ ------ -------
TOTAL RETURN(B) 14.19% (1.08)% 4.96% 4.80%
- -------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------
Expenses 0.80% 0.78% 0.76% 0.76%*
- -------------------------------------------------
Net investment income 6.45% 6.75% 7.03% 7.16%*
- -------------------------------------------------
Expense waiver/reimbursement (c) 0.25% 0.22% -- --
- -------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------
Net assets, end of period (000 omitted) $40,788 $40,428 $67,176 $53,981
- -------------------------------------------------
Portfolio turnover 184% 217% 178% 52%
- -------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(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 charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and the net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Further information about the Trust's performance is contained in the Trust's
annual report for the fiscal year ended January 31, 1996, 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 primarily for retail and
private banking customers of financial institutions 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 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. These limitations may not be changed without shareholder approval.
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, 1996 and 1995 were 184% and 217%, 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. With over $80 billion invested across
more than 250 funds under management and/or administration by its
subsidiaries, as of December 31, 1995, Federated Investors is one of the
largest mutual fund investment managers in the United States. With more
than 1,800 employees, Federated continues to be led by the management who
founded the company in 1955. Federated funds are presently at work in and
through 4,000 financial institutions nationwide. More than 100,000
investment professionals have selected Federated funds for their clients.
Kathleen M. Foody-Malus has been the Trust's 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. Ms. Foody-Malus received her M.B.A. in
Accounting/Finance from the University of Pittsburgh.
Edward J. Tiedge has been the Trust's portfolio manager since October 1995.
Mr. Tiedge joined Federated Investors in 1993 as an Investment Analyst and
has been an Assistant Vice President of the Trust's investment adviser
since 1995. Mr. Tiedge served as Director of Investments at Duquesne Light
Company from 1990 to 1993. Mr. Tiedge is a Chartered Financial Analyst and
received his M.S. in Industrial Administration from Carnegie Mellon
University.
Both the Trust and the Adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Trust and its portfolio securities.
These codes recognize that such persons owe a fiduciary duty to the Trust's
shareholders and must place the interests of shareholders ahead of the
employees' own interest. Among other things, the codes: require preclearance and
periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Board of Trustees,
and could result in severe penalties.
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.
State securities laws may require certain financial institutions such as
depository institutions to register as dealers.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES. Under a distribution plan adopted
in accordance with Rule 12b-1 under the Investment Company Act of 1940 (the
"Plan"), the distributor may be paid a fee by the the Trust in an amount
computed at an annual rate of up to .25 of 1% of the average daily net asset
value of the Institutional Service Shares. The distributor may select financial
institutions such as banks, fiduciaries, custodians for public funds, investment
advisers, and broker/dealers to provide sales services or distribution-related
support services as agents for their clients or customers.
The 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 amounts or may earn a profit from future payments made by the Trust
under the Plan.
In addition, the Trust has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
the Trust may make payments up to .25 of 1% of the average daily net asset value
of the Institutional Service Shares to obtain certain personal services for
shareholders and to maintain shareholder accounts. From time to time and for
such periods as deemed appropriate, the amount stated above may be reduced
voluntarily. Under the Shareholder Services Agreement, 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.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS
In addition to payments made pursuant to the Distribution Plan and Shareholder
Services Agreement, Federated Securities Corp. and Federated Shareholder
Services, from their own assets, may pay financial institutions supplemental
fees for the performance of substantial sales services, distribution-related
support services, or shareholder services. The support may include sponsoring
sales, educational and training seminars for their employees, providing sales
literature, and engineering computer software programs that emphasize the
attributes of the Trust. Such assistance will be predicated upon the amount of
shares the financial institution sells or may sell, and/or upon the type and
nature of sales or marketing support furnished by the financial institution. Any
payments made by the distributor may be reimbursed by the Trust's investment
adviser or its affiliates.
ADMINISTRATION OF THE TRUST
ADMINISTRATIVE SERVICES. Federated Services Company, 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>
. 15 of 1% on the first $250 million
.125 of 1% on the next $250 million
. 10 of 1% on the next $250 million
.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 Services Company may choose voluntarily to waive a portion of its fee.
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 is open. 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 Shareholder 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 holidays when wire
transfers are restricted. Questions on wire purchases should be directed to your
shareholder services representative at the telephone number listed on your
account statement.
BY MAIL. To purchase Shares by mail, send a check made payable to Federated
Income Trust--Institutional Service Shares to Federated Shareholder Services
Company, c/o State Street Bank and Trust Company, P.O. Box 8600, Boston,
Massachusetts 02266-8600. 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.
EXCHANGE PRIVILEGE
Financial institutions that maintain master accounts with an aggregate
investment of at least $400 million in certain funds which are advised or
distributed by affiliates of Federated Investors may exchange their Shares for
Institutional Shares of the Trust.
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 financial intermediary may be charged an additional service fee
by that financial intermediary.
The net asset value is determined as of the close of trading (normally 4:00
p.m., Eastern time) on the New York Stock Exchange, 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; or (iii) the following holidays: New
Year's Day, President's 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.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Trust Federated Shareholder 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. Investors who redeem shares through a
financial intermediary may be charged a service fee by that financial
intermediary. 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. All owners of the account must sign
the request exactly as the shares are registered. If share certificates have
been issued, they must be sent unendorsed with the written request by registered
or certified mail.
SIGNATURES. Shareholders requesting 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 their signatures 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 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.
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.
STATE AND LOCAL TAXES
In the opinion of Houston, Houston & Donnelly, counsel to the Trust, 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 charge 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 primarily 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 28.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
---------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
-------- ---------- ---------- ---------- ---------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET
ASSET
VALUE,
BEGINNING
OF
PERIOD $9.70 $10.50 $10.73 $10.66 $10.42 $10.18 $10.05 $10.43 $10.74 $10.87
- ---
INCOME
FROM
INVESTMENT
OPERATIONS
- ---
Net
investment
income 0.67 0.70 0.77 0.80 0.89 0.93 0.94 0.95 0.99 1.03
- ---
Net
realized
and
unrealized
gain
(loss) on
investments 0.69 (0.80) (0.23) 0.07 0.24 0.24 0.13 (0.38) (0.31) (0.05)
- --- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total
from
investment
operations 1.36 (0.10) 0.54 0.87 1.13 1.17 1.07 0.57 0.68 0.98
- --- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
LESS
DISTRIBUTIONS
- ---
Distributions
from net
investment
income (0.67) (0.70) (0.77) (0.80) (0.89) (0.93) (0.94) (0.95) (0.99) (1.04)
- ---
Distributions
in excess of
net
investment
income 0.00 -- -- -- -- -- -- -- -- --
- ---
Distributions
from net
realized
gain on
investments -- -- -- -- -- -- -- -- -- (0.07)
- --- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total
distributions (0.67) (0.70) (0.77) (0.80) (0.89) (0.93) (0.94) (0.95) (0.99) (1.11)
- --- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
NET
ASSET
VALUE,
END OF
PERIOD $10.39 $ 9.70 $10.50 $10.73 $10.66 $10.42 $10.18 $10.05 $10.43 $10.74
- --- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
TOTAL
RETURN(A) 14.44% (0.86) 5.22% 8.51% 11.27% 12.01% 11.04% 5.75% 6.79% 9.52%
- ---
RATIOS
TO
AVERAGE
NET
ASSETS
- ---
Expenses 0.58% 0.56% 0.51% 0.51% 0.50% 0.50% 0.53% 0.52% 0.50% 0.54%
- ---
Net
investment
income 6.67% 6.99% 7.28% 7.53% 8.41% 9.06% 9.23% 9.33% 9.49% 9.47%
- ---
Expense
waiver/
reimbursement
(b) 0.22% -- -- -- -- -- -- -- -- --
- ---
SUPPLEMENTAL
DATA
- ---
Net
assets,
end of
period
(000
omitted) $983,093 $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
- ---
Portfolio
turnover 184% 217% 178% 52% 51% 36% 45% 77% 92% 146%
- ---
</TABLE>
(a) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(b) 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, 1996, which can be obtained
free of charge.
FEDERATED INCOME TRUST
PORTFOLIO OF INVESTMENTS
JANUARY 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ------------------------------------------------------------ --------------
<C> <C> <S> <C>
LONG-TERM OBLIGATIONS--98.8%
- ---------------------------------------------------------------------------------
(A) FEDERAL HOME LOAN MORTGAGE CORP.--33.5%
------------------------------------------------------------
$ 154,286 11.50%, 12/1/2014 $ 173,233
------------------------------------------------------------
643,164 11.00%, 5/1/2000 687,773
------------------------------------------------------------
411,897 10.50%, 7/1/2000 438,406
------------------------------------------------------------
18,044,682 9.50%, 11/1/2009-12/1/2022 19,363,222
------------------------------------------------------------
4,043,894 9.00%, 4/1/2009-2/1/2013 4,244,754
------------------------------------------------------------
67,601,853 8.00%, 4/1/2025-10/1/2025 70,114,614
------------------------------------------------------------
51,811,400 7.50%, 7/1/2025-11/1/2025 53,219,116
------------------------------------------------------------
52,129,517 7.00%, 8/1/2010 53,301,910
------------------------------------------------------------
15,000,000 (b) 7.00%, 8/1/2010 15,337,350
------------------------------------------------------------
50,000,000 (b) 7.00%, 2/1/2026 50,561,500
------------------------------------------------------------
1,394,456 7.00%, 10/1/2007 1,427,978
------------------------------------------------------------
48,506,802 6.50%, 8/1/2010-10/1/2010 48,945,789
------------------------------------------------------------
25,000,000 6.00%, 2/1/2011 24,812,250
------------------------------------------------------------ --------------
TOTAL 342,627,895
------------------------------------------------------------ --------------
(A) FEDERAL HOME LOAN MORTGAGE CORP. REMIC--7.9%
------------------------------------------------------------
10,000,000 7.00%, Series 1573PJ, 2/15/2023 10,230,000
------------------------------------------------------------
26,856,081 7.00%, Strip, 152B, Interest Only, 8/1/2023 7,085,708
------------------------------------------------------------
10,000,000 6.80%, Series 1560-PK, 3/15/2023 9,876,900
------------------------------------------------------------
15,000,000 6.50%, Series 1522G, 3/15/2022 14,741,550
------------------------------------------------------------
8,500,000 6.50%, Series 1526K, 11/15/2021 8,352,440
------------------------------------------------------------
11,130,000 6.50%, Series 1638G, 9/15/2023 11,153,818
------------------------------------------------------------
26,660,697 6.06%, Series 1567-B, Inverse Floater, 8/15/2023 19,920,540
------------------------------------------------------------ --------------
TOTAL 81,360,956
------------------------------------------------------------ --------------
</TABLE>
FEDERATED INCOME TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ------------------------------------------------------------ --------------
<C> <C> <S> <C>
LONG-TERM OBLIGATIONS--CONTINUED
- ---------------------------------------------------------------------------------
(A) FEDERAL NATIONAL MORTGAGE ASSOCIATION--52.4%
------------------------------------------------------------
$ 21,769,109 10.50%, 12/1/2019-4/1/2022 $ 24,109,070
------------------------------------------------------------
40,000,000 (b) 10.00%, 2/1/2026 44,012,000
------------------------------------------------------------
73,284,103 8.50%, 7/1/2024-2/1/2025 76,649,309
------------------------------------------------------------
48,051,395 8.00%, 11/1/2024 49,822,569
------------------------------------------------------------
123,828,335 7.50%, 3/1/2010-2/1/2026 127,369,200
------------------------------------------------------------
151,337,225 7.00%, 10/1/2010-2/1/2026 153,184,577
------------------------------------------------------------
49,171,022 6.50%, 6/1/2009-10/1/2010 49,554,556
------------------------------------------------------------
12,500,000 7.00%, 2/1/2026 12,124,875
------------------------------------------------------------ --------------
TOTAL 536,826,156
------------------------------------------------------------ --------------
(a) FEDERAL NATIONAL MORTGAGE ASSOCIATION REMIC--5.0%
------------------------------------------------------------
18,000,000 7.00%, Series 1993-133J, 12/25/2022 18,389,160
------------------------------------------------------------
16,400,000 7.00%, Series 1993-77K, 11/25/2022 16,751,124
------------------------------------------------------------
16,500,000 7.00%, Series 1993-89D, 6/25/2023 16,171,650
------------------------------------------------------------ --------------
TOTAL 51,311,934
------------------------------------------------------------ --------------
TOTAL LONG-TERM OBLIGATIONS (IDENTIFIED COST $986,586,811) 1,012,126,941
------------------------------------------------------------ --------------
</TABLE>
FEDERATED INCOME TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ -------------------------------------------------------------- --------------
<C> <C> <S> <C>
(C) REPURCHASE AGREEMENTS--20.3%
- ----------------------------------------------------------------------------------
$ 2,570,000 BT Securities Corp., 5.93%, dated 1/31/1996, due 2/1/1996 $ 2,570,000
--------------------------------------------------------------
50,000,000 (d) CS First Boston Corp., 5.55%, dated 1/24/1996, due 2/22/1996 50,000,000
--------------------------------------------------------------
15,000,000 (d) Goldman, Sachs & Co., 5.50%, dated 1/18/1996, due 2/15/1996 15,000,000
--------------------------------------------------------------
15,000,000 (d) Goldman, Sachs & Co., 5.52%, dated 1/16/1996, due 2/13/1996 15,000,000
--------------------------------------------------------------
125,000,000 (d) UBS Securities, Inc., 5.55%, dated 1/16/1996, due 2/13/1996 125,000,000
-------------------------------------------------------------- --------------
TOTAL REPURCHASE AGREEMENTS (AT AMORTIZED COST) 207,570,000
-------------------------------------------------------------- --------------
TOTAL INVESTMENTS (IDENTIFIED COST $1,194,156,811)(E) $1,219,696,941
-------------------------------------------------------------- --------------
</TABLE>
(a) Because of monthly principal payments, the average life of the Federal Home
Loan Mortgage Corp. securities and Federal National Mortgage Association
securities approximates 1-10 years.
(b) These securities are subject to dollar roll transactions.
(c) 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.
(d) 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 if the creditworthiness of the issuer is
downgraded.
(e) The cost of investments for federal tax purposes amounts to $1,194,156,811.
The net unrealized appreciation of investments on a federal tax basis
amounts to $25,540,130 which is comprised of $26,289,815 appreciation and
$749,685 depreciation at January 31, 1996.
Note: The categories of investments are shown as a percentage of net assets
($1,023,880,937) at January 31, 1996.
The following acronym(s) are used throughout this portfolio:
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, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------
Investments in repurchase agreements $ 207,570,000
- --------------------------------------------------------------
Investments in securities 1,012,126,941
- -------------------------------------------------------------- --------------
Total investments in securities, at value
(identified cost and tax cost $1,194,156,811) $1,219,696,941
- -------------------------------------------------------------------------------
Income receivable 5,553,196
- -------------------------------------------------------------------------------
Receivable for investments sold 150,501,812
- -------------------------------------------------------------------------------
Receivable for shares sold 2,035,465
- ------------------------------------------------------------------------------- --------------
Total assets 1,377,787,414
- -------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------
Payable for investments purchased 138,375,130
- --------------------------------------------------------------
Payable for shares redeemed 1,628,151
- --------------------------------------------------------------
Income distribution payable 4,210,051
- --------------------------------------------------------------
Payable to Bank 593,325
- --------------------------------------------------------------
Payable for dollar roll transactions 209,001,742
- --------------------------------------------------------------
Accrued expenses 98,078
- -------------------------------------------------------------- --------------
Total liabilities 353,906,477
- ------------------------------------------------------------------------------- --------------
NET ASSETS for 98,592,367 shares outstanding $1,023,880,937
- ------------------------------------------------------------------------------- --------------
NET ASSETS CONSISTS OF:
- -------------------------------------------------------------------------------
Paid in capital $1,143,083,754
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments 25,540,130
- -------------------------------------------------------------------------------
Accumulated net realized loss on investments (144,656,392)
- -------------------------------------------------------------------------------
Distributions in excess of net investment income (86,555)
- ------------------------------------------------------------------------------- --------------
Total Net Assets $1,023,880,937
- ------------------------------------------------------------------------------- --------------
NET ASSET VALUE, Offering Price and Redemption Proceeds Per Share:
- -------------------------------------------------------------------------------
INSTITUTIONAL SHARES:
($983,093,084 / 94,664,706 shares outstanding) $10.39
- ------------------------------------------------------------------------------- --------------
INSTITUTIONAL SERVICE SHARES:
($40,787,853 / 3,927,661 shares outstanding) $10.39
- ------------------------------------------------------------------------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED INCOME TRUST
STATEMENT OF OPERATIONS
YEAR ENDED JANUARY 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -----------------------------------------------------------------------------
Interest (net of dollar roll expense of $10,345,585) $ 79,345,137
- -----------------------------------------------------------------------------
EXPENSES--
- -----------------------------------------------------------------------------
Investment advisory fee $ 4,380,678
- -----------------------------------------------------------------------------
Administrative personnel and services fee 828,876
- -----------------------------------------------------------------------------
Custodian fees 176,741
- -----------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 221,874
- -----------------------------------------------------------------------------
Directors'/Trustees' fees 24,139
- -----------------------------------------------------------------------------
Auditing fees 19,597
- -----------------------------------------------------------------------------
Legal fees 14,004
- -----------------------------------------------------------------------------
Portfolio accounting fees 144,108
- -----------------------------------------------------------------------------
Distribution services fee--Institutional Service Shares 109,203
- -----------------------------------------------------------------------------
Shareholder services fee--Institutional Shares 2,628,721
- -----------------------------------------------------------------------------
Shareholder services fee--Institutional Service Shares 109,203
- -----------------------------------------------------------------------------
Share registration costs 29,122
- -----------------------------------------------------------------------------
Printing and postage 26,390
- -----------------------------------------------------------------------------
Insurance premiums 17,084
- -----------------------------------------------------------------------------
Taxes 69,361
- -----------------------------------------------------------------------------
Miscellaneous 21,525
- ----------------------------------------------------------------------------- -----------
Total expenses 8,820,626
- -----------------------------------------------------------------------------
Waivers--
- -----------------------------------------------------------------------------
Waiver of distribution services fee--Institutional Service
Shares $ (101,882)
- ---------------------------------------------------------------
Waiver of shareholder services fee--Institutional Shares (2,313,263)
- ---------------------------------------------------------------
Waiver of shareholder services fee--Institutional Service
Shares (7,310)
- --------------------------------------------------------------- -----------
Total waivers (2,422,455)
- ----------------------------------------------------------------------------- -----------
Net expenses 6,398,171
- -------------------------------------------------------------------------------------------- ------------
Net investment income 72,946,966
- -------------------------------------------------------------------------------------------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- --------------------------------------------------------------------------------------------
Net realized gain on investments 15,870,867
- --------------------------------------------------------------------------------------------
Net change in unrealized appreciation on investments 60,251,612
- -------------------------------------------------------------------------------------------- ------------
Net realized and unrealized gain on investments 76,122,479
- -------------------------------------------------------------------------------------------- ------------
Change in net assets resulting from operations $149,069,445
- -------------------------------------------------------------------------------------------- ------------
</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,
--------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- --------------------------------------------------------------
OPERATIONS--
- --------------------------------------------------------------
Net investment income $ 72,946,966 $ 101,091,909
- --------------------------------------------------------------
Net realized gain (loss) on investments ($2,326,436, net gain
and $99,607,019, net loss, respectively, as computed for
federal tax purposes) 15,870,867 (95,924,544)
- --------------------------------------------------------------
Net change in unrealized appreciation (depreciation) 60,251,612 (31,137,636)
- -------------------------------------------------------------- -------------- --------------
Change in net assets resulting from operations 149,069,445 (25,970,271)
- -------------------------------------------------------------- -------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS--
- --------------------------------------------------------------
Distributions from net investment income:
- --------------------------------------------------------------
Institutional Shares (70,138,212) (97,779,181)
- --------------------------------------------------------------
Institutional Service Shares (2,808,754) (3,389,985)
- --------------------------------------------------------------
Distributions in excess of net investment income:
- --------------------------------------------------------------
Institutional Shares (86,555) --
- -------------------------------------------------------------- -------------- --------------
Change in net assets resulting from distributions to
shareholders (73,033,521) (101,169,166)
- -------------------------------------------------------------- -------------- --------------
SHARE TRANSACTIONS--
- --------------------------------------------------------------
Proceeds from sale of shares 149,627,416 262,132,109
- --------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
declared 17,688,726 21,662,288
- --------------------------------------------------------------
Cost of shares redeemed (379,876,015) (790,673,872)
- -------------------------------------------------------------- -------------- --------------
Change in net assets resulting from share transactions (212,559,873) (506,879,475)
- -------------------------------------------------------------- -------------- --------------
Change in net assets (136,523,949) (634,018,912)
- --------------------------------------------------------------
NET ASSETS:
- --------------------------------------------------------------
Beginning of period 1,160,404,886 1,794,423,798
- -------------------------------------------------------------- -------------- --------------
End of period $1,023,880,937 $1,160,404,886
- -------------------------------------------------------------- -------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED INCOME TRUST
STATEMENT OF CASH FLOWS
YEAR ENDED JANUARY 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- -----------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 149,069,445
- -----------------------------------------------------------------------------
ADJUSTMENTS TO RECONCILE NET INCREASE IN NET ASSETS FROM OPERATIONS TO CASH
PROVIDED BY OPERATING ACTIVITIES:
- -----------------------------------------------------------------------------
Net decrease in investments (including $60,251,612 increase in unrealized
appreciation) 68,486,793
- -----------------------------------------------------------------------------
Decrease in income receivable 3,657,670
- -----------------------------------------------------------------------------
Increase in receivable for investments sold (57,981,762)
- -----------------------------------------------------------------------------
Increase in payable for investments purchased 92,156,902
- -----------------------------------------------------------------------------
Decrease in accrued expenses (54)
- -----------------------------------------------------------------------------
Increase in payable to bank 593,325
- ----------------------------------------------------------------------------- -------------
Cash provided by operating activities 255,982,319
- ----------------------------------------------------------------------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
- -----------------------------------------------------------------------------
Net proceeds from the sale of shares 148,079,509
- -----------------------------------------------------------------------------
Net cost of shares redeemed (381,450,916)
- -----------------------------------------------------------------------------
Increase on payable for dollar roll transactions 34,106,627
- -----------------------------------------------------------------------------
Distributions paid (56,719,931)
- ----------------------------------------------------------------------------- -------------
Cash used in financing activities (255,984,711)
- ----------------------------------------------------------------------------- -------------
Decrease in cash (2,392)
- ----------------------------------------------------------------------------- -------------
Cash at beginning of period 2,392
- ----------------------------------------------------------------------------- -------------
Cash at end of period $0
- ----------------------------------------------------------------------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED INCOME TRUST
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1996
- --------------------------------------------------------------------------------
(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 investment objective of the Trust is current income. The
Trust offers 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--Short-term securities with remaining maturities of
sixty days or less at the time of purchase may be stated at amortized cost,
which approximates fair market value. All other securities are valued at
prices provided by an independent pricing service.
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 the guidelines and/or
standards reviewed or established by the Board of Trustees (the
"Trustees"). Risks may arise from the potential inability of counterparties
to honor the terms of the repurchase agreement. Accordingly, the 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.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily
FEDERATED INCOME TRUST
- --------------------------------------------------------------------------------
due to differing treatments for expiring capital loss carryforwards. The
following reclassifications have been made to the financial statements.
<TABLE>
<CAPTION>
INCREASE (DECREASE)
- ------------------------------------------
ACCUMULATED
PAID-IN CAPITAL NET REALIZED LOSS
- ------------------ --------------------
<S> <C>
(12,071,672) (12,071,672)
</TABLE>
Net investment income, net realized gains/losses, and net assets were not
affected by this reclassification.
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.
At January 31, 1996, the Trust, for federal tax purposes, had a capital
loss carryforward of $144,721,046, which will reduce the Trust's taxable
income arising from future net realized gain on investments, if any, to the
extent permitted by the Code, and thus will reduce the amount of the
distributions to shareholders which would otherwise be necessary to relieve
the Trust of any liability for federal tax. Pursuant to the Code, such
capital loss carryforward will expire as follows:
<TABLE>
<CAPTION>
EXPIRATION YEAR EXPIRATION AMOUNT
------------------ --------------------
<S> <C>
1997 $26,760,646
1998 $16,389,825
1999 $ 1,962,842
2003 $99,607,733
</TABLE>
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 sells mortgage securities to financial institutions and
simultaneously agrees to accept substantially similar (same type, coupon
and maturity) securities at a later date at an agreed upon price. Dollar
roll transactions 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 CASH FLOWS--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
FEDERATED INCOME TRUST
- --------------------------------------------------------------------------------
Trust's Statement of Assets and Liabilities which does not include any
short-term investments at January 31, 1996.
USE OF ESTIMATES--The preparation of the financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues in the financial statements. Actual results could
differ from those estimated.
OTHER--Investment transactions are accounted for on the trade date.
(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,
--------------------------------------------------------------
1996 1995
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
- -----------------------------------
INSTITUTIONAL SHARES
- -----------------------------------
Shares sold 13,342,322 $ 135,013,099 24,209,157 $ 243,458,344
- -----------------------------------
Shares issued to shareholders in
payment of distributions declared 1,532,878 15,528,395 1,982,271 19,612,008
- -----------------------------------
Shares redeemed (35,659,060) (360,499,241) (75,184,676) (747,629,375)
- ----------------------------------- ----------- ------------- ----------- -------------
Net change resulting from
Institutional Share transactions (20,783,860) $(209,957,747) (48,993,248) $(484,559,023)
- ----------------------------------- ----------- ------------- ----------- -------------
</TABLE>
FEDERATED INCOME TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
--------------------------------------------------------------
1996 1995
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
- -----------------------------------
INSTITUTIONAL SERVICE SHARES
- -----------------------------------
Shares sold 1,456,002 $ 14,614,317 1,862,669 $ 18,673,765
- -----------------------------------
Shares issued to shareholders in
payment of distributions declared 213,112 2,160,331 207,419 2,050,280
- -----------------------------------
Shares redeemed (1,908,899) (19,376,774) (4,297,801) (43,044,497)
- ----------------------------------- ----------- ------------- ----------- -------------
Net change resulting from
Institutional Service Share
transactions (239,785) $ (2,602,126) (2,227,713) $ (22,320,452)
- ----------------------------------- ----------- ------------- ----------- -------------
Net change resulting from
share transactions (21,023,645) $(212,559,873) (51,220,961) $(506,879,475)
- ----------------------------------- ----------- ------------- ----------- -------------
</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.
ADMINISTRATIVE FEE--Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Trust with administrative
personnel and services. The fee paid to FServ is based on the level of average
aggregate daily net assets of all funds advised by subsidiaries of Federated
Investors 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 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 the Trust for the period. The fee paid to FSS is
used to finance certain services for shareholders and to maintain
FEDERATED INCOME TRUST
- --------------------------------------------------------------------------------
shareholder accounts. FSS may voluntarily choose to waive a portion of its fee.
FSS can modify or terminate this voluntary waiver at any time at its sole
discretion.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES--FServ through its registered
transfer and dividend disbursing agent, Federated Shareholder Services Company,
maintains all necessary shareholder records and receives a fee 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
daily net assets for the period, plus out-of-pocket expenses.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
year ended January 31, 1996, were as follows:
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------
PURCHASES-- $1,976,177,426
- ----------------------------------------------------------------------------- --------------
SALES-- $2,066,697,674
- ----------------------------------------------------------------------------- --------------
</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, 1996,
and the related statements of operations and cash flows for the year then ended,
the statements of changes in net assets for the years ended January 31, 1996 and
1995, and the financial highlights (see pages 2 and 15 of the prospectus) for
the periods presented. These financial statements and financial highlights are
the responsibility of the Trust's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
January 31, 1996 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, 1996, the results of its operations and its 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 15, 1996
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Federated Income Trust
Institutional Service Shares Federated Investors Tower
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 8600
Trust Company Boston, Massachusetts 02266-8600
- ------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company P.O. Box 8600
Boston, Massachusetts 02266-8600
- ------------------------------------------------------------------------------------------------
Independent Auditors
Deloitte & Touche LLP 2500 One PPG Place
Pittsburgh, Pennsylvania 15222
- ------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FEDERATED INCOME TRUST
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
An Open-End, Diversified
Management Investment Company
March 31, 1996
LOGO
FEDERATED SECURITIES CORP.
- --------------------------------------------------------------------------------
Distributor
A Subsidiary of Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
CUSIP 314199209
8030102A-SS (3/96)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FEDERATED INCOME TRUST
INSTITUTIONAL SHARES
INSTITUTIONAL SERVICE SHARES
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 Statement of Additional Information should be read with the
respective prospectus for Institutional Shares and Institutional Service
Shares dated March 31, 1996. This Statement is not a prospectus itself. You
may request a copy of either prospectus or a paper copy of this Statement,
if you have received it electronically, free of charge by calling 1-800-235-
4669.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated March 31, 1996
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FederatedInvestors
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
INTEREST-ONLY AND PRINCIPAL-ONLY
INVESTMENTS 1
PORTFOLIO TURNOVER 2
INVESTMENT LIMITATIONS 2
FEDERATED INCOME TRUST MANAGEMENT 3
TRUST OWNERSHIP 8
TRUSTEES' COMPENSATION 9
TRUSTEE LIABILITY 10
INVESTMENT ADVISORY SERVICES 10
ADVISER TO THE TRUST 10
ADVISORY FEES 10
OTHER ADVISORY SERVICES 10
BROKERAGE TRANSACTIONS 11
OTHER SERVICES 11
TRUST ADMINISTRATION 11
CUSTODIAN AND PORTFOLIO RECORDKEEPER 11
TRANSFER AGENT 11
INDEPENDENT PUBLIC AUDITORS 11
PURCHASING SHARES 12
DISTRIBUTION PLAN AND SHAREHOLDER
SERVICES 12
CONVERSION TO FEDERAL FUNDS 12
DETERMINING NET ASSET VALUE 13
REDEEMING SHARES 13
MASSACHUSETTS PARTNERSHIP LAW 13
EXCHANGING SECURITIES FOR TRUST SHARES13
TAX CONSEQUENCES 14
TAX STATUS 14
THE TRUST'S TAX STATUS 14
SHAREHOLDERS' TAX STATUS 14
TOTAL RETURN 15
YIELD 15
PERFORMANCE COMPARISONS 15
DURATION 16
ABOUT FEDERATED INVESTORS 17
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 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.
INTEREST-ONLY AND PRINCIPAL-ONLY INVESTMENTS
Some of the securities purchased by the Fund may represent an interest solely
in the principal repayments or solely in the interest payments on mortgage-
backed securities (stripped mortgage-backed securities or "SMBSs"). SMBSs are
usually structured with two classes and receive different proportions of the
interest and principal distributions on the pool of underlying mortgage-backed
securities. Due to the possibility of prepayments on the underlying mortgages,
SMBSs may be more interest-rate sensitive than other securities purchased by
the Fund. If prevailing interest rates fall below the level at which SMBSs
were issued, there may be substantial prepayments on the underlying mortgages,
leading to the relatively early prepayments of principal-only SMBSs (the
principal-only or "PO" class) and a reduction in the amount of payments made to
holders of interest-only SMBS (the interest-only or "IO" class). Because the
yield to maturity of an IO class is extremely sensitive to the rate of
principal payments (including prepayments) on the related underlying mortgage-
backed securities, it is possible that the Fund might not recover its original
investment on interest-only SMBSs if there are substantial prepayments on the
underlying mortgages. The Fund's inability to fully recoup its investments in
these securities as a result of a rapid rate of principal prepayments may occur
even if the securities are rated by an NRSRO. Therefore, interest-only SMBSs
generally increase in value as interest rates rise and decrease in value as
interest rates fall, counter to changes in value experienced by most fixed
income securities.
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, 1996 and 1995, the portfolio turnover rates were 184% and 217%,
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. Officers and Trustees are listed with their addresses,
birthdates, present positions with Federated Income Trust, and principal
occupations, including those with , its affiliates, and the "Funds" described
in the Statement of Additional Information.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated Research
Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.;
Chief Executive Officer and Director or Trustee of the Funds. Mr. Donahue is
the father of J. Christopher Donahue, Executive Vice President of the Trust .
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Director, Oberg Manufacturing Co.; Chairman of the Board, Children's Hospital
of Pittsburgh; Director or Trustee 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 or Trustee 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
or Trustee 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 or Trustee
of the Funds.
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 or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Director,
Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director
or Trustee 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.
Peter E. Madden
Seacliff
562 Bellevue Avenue
New port, RI
Birthdate: March 16, 1942
Trustee
Consultant; State Representative, Commonwealth of Massachusetts; Director or
Trustee of the Funds; formerly, President, State Street Bank and Trust Company
and State Street Boston Corporation.
Gregor F. Meyer
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee of
the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics and Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., and U.S. Space Foundation; Chairman, Czecho Management Center;
Director or Trustee of the Funds; President Emeritus, University of Pittsburgh;
founding Chairman, National Advisory Council for Environmental Policy and
Technology and Federal Emergency Management Advisory Board.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/marketing consultant; Conference Coordinator, Non-profit
entities; Director or Trustee of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated Research
Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.;
Trustee, Federated Shareholder Services Company, and Federated Shareholder
Services; Director, Federated Services Company; President or Executive Vice
President of the Funds; Director or Trustee of some of the Funds. Mr. Donahue
is the son of John F. Donahue, Chairman and Trustee of the Trust.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp. and Passport Research, Ltd.;
Executive Vice President and Director, Federated Securities Corp.; Trustee,
Federated Shareholder Services Company; Trustee or Director of some of the
Funds; President, Executive Vice President and Treasurer of some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President and Secretary
Executive Vice President, Secretary, and Trustee, Federated Investors; Trustee,
Federated Advisers, Federated Management, and Federated Research; Director,
Federated Research Corp. and Federated Global Research Corp.; Trustee,
Federated Shareholder Services Company; Director, Federated Services Company;
President and Trustee, Federated Shareholder Services; Director, Federated
Securities Corp.; Executive Vice President and Secretary of the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of
the Funds; Director or Trustee of some of the Funds.
David M. Taylor
Federated Investors Tower
Pittsburgh, PA
Birthdate: January 13, 1947
Treasurer
Senior Vice President and Trustee, Federated Investors; Vice President,
Federated Shareholder Services; Executive Vice President, Federated Securities
Corp.; Treasurer of some of the Funds.
* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.
@ Member of the Executive Committee. The Executive Committee of the Board of
Trustees handles the responsibilities of the Board 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; Blanchard Funds; Blanchard
Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc.; DG
Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; FTI Funds;
Federated ARMs Fund; Federated Equity Funds; Federated GNMA Trust; Federated
Government Trust; Federated High Yield Trust; Federated Income Securities
Trust; Federated Income Trust; Federated Index Trust; Federated Institutional
Trust; Federated Master Trust; Federated Municipal Trust; Federated Short-Term
Municipal Trust; Federated Short-Term U.S. Government Trust; Federated Stock
Trust; Federated Tax-Free Trust; Federated Total Return Series, Inc.; Federated
U.S. Government Bond Fund; Federated U.S. Government Securities Fund: 1-3
Years; Federated U.S. Government Securities Fund: 3-5 Years; Federated U.S.
Government Securities Fund: 5-10 Years; 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; 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 U.S. Government Money Market
Trust; Liberty Term Trust, Inc. - 1999; 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;
Newpoint Funds; 111 Corcoran Funds; Peachtree Funds; The Planters Funds; RIMCO
Monument Funds; Star Funds; The Starburst Funds; The Starburst Funds II; Stock
and Bond Fund, Inc.; Targeted Duration Trust; Tax-Free Instruments Trust; 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; World Investment Series, Inc.
TRUST OWNERSHIP
Officers and Trustees own less than 1% of the Trust's outstanding shares.
As of March 1, 1996, the following shareholder of record owned 5% or more of
the outstanding Institutional Shares of the Trust: Integra Trust Services,
Pittsburgh, Pennsylvania, owned approximately 7,414,812.2350 shares (7.85%).
As of March 1, 1996, 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 766,691.0190 shares
(19.22%); First National Bank & Trust of McAllister, McAllister, Oklahoma,
owned approximately 548,460.9320 shares (13.75%); Heritage Trust Company, Grand
Junction, Colorado, owned approximately 455,638.3220 shares (11.42%); Signet
Trust Company, Baltimore, Maryland, owned approximately 306,940.8210 shares
(7.69%); and Citizens' Scholarship FOA Inc., St. Peter, Minnesota, owned
approximately 263,706.5090 shares (6.61%).
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 54 investment companies
Glen R. Johnson, President $-0- $-0- for the Trust and
and Trustee 9 investment companies
Thomas G. Bigley, Trustee++ $1,915 $86,331 for the Trust and
54 investment companies
John T. Conroy, Jr., Trustee $1,915 $115,760 for the Trust and
54 investment companies
William J. Copeland, Trustee $1,915 $115,760 for the Trust and
54 investment companies
James E. Dowd, Trustee $2,048 $115,760 for the Trust and
54 investment companies
Lawrence D. Ellis, M.D., Trustee $2,048 $104,898 for the Trust
and
54 investment companies
Edward L. Flaherty, Jr., Trustee $1,915 $115,760 for the Trust
and
54 investment companies
Peter E. Madden, Trustee $2,048 $104,898 for the Trust and
54 investment companies
Gregor F. Meyer, Trustee $2,048 $104,898 for the Trust and
54 investment companies
John E. Murray, Jr., Trustee $1,915 $104,898 for the Trust and
54 investment companies
Wesley W. Posvar, Trustee $2,048 $104,898 for the Trust and
54 investment companies
Marjorie P. Smuts, Trustee $2,048 $104,898 for the Trust and
54 investment companies
*Information is furnished for the fiscal year ended January 31, 1996.
+ The information provided is for the last calendar year.
++Mr. Bigley served on 39 investment companies in the Federated Funds Complex
from January 1 through September 30, 1995. On October 1, 1995, he was
appointed a Trustee on 15 additional Federated Funds.
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, 1996, 1995 and 1994 the Trust's adviser earned $4,380,678,
$5,793,071, and $6,861,374, 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.
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 use 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
guidelines established by the 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: advice as
to the advisability of investing in securities; security analysis and reports;
economic studies; industry studies; receipt of quotations for portfolio
evaluations; and similar services. Research services provided by brokers and
dealers may be used by the adviser or its affiliates in advising the Fund 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. 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. During the fiscal
years ended January 31, 1996, 1995, 1994, the Trust paid no brokerage
commissions.
Although investment decisions for the Trust are made independently from those
of the other accounts managed by the adviser, investments of the type the Trust
may make may also be made by those other accounts. When the Trust and one or
more other accounts managed by the adviser are prepared to invest in, or desire
to dispose of, the same security, available investments or opportunities for
sales will be allocated in a manner believed by the adviser to be equitable to
each. In some cases, this procedure may adversely affect the price paid or
received by the Trust or the size of the position obtained or disposed of by
the Trust. In other cases, however, it is believed that coordination and the
ability to participate in volume transactions will be to the benefit of the
Trust.
OTHER SERVICES
TRUST ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Trust for a fee as described in
the prospectus. From March 1, 1994, to March 1, 1996, Federated Administrative
Services served as the Trust's/Fund's Administrator. Prior to March 1, 1994,
Federated Administrative Services, Inc. served as the Trust's/Fund's
Administrator. Both former Administrators are subsidiaries of Federated
Investors. For purposes of this Statement of Additional Information, Federated
Services Company, Federated Administrative Services, and Federated
Administrative Services, Inc. may hereinafter collectively be referred to as
the "Administrators." For the fiscal years ended January 31, 1996, 1995 and
1994 Federated Administrative Services earned $828,876, $1,081,996 and
$1,043,969, 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
Services Company.
CUSTODIAN AND PORTFOLIO RECORDKEEPER
State Street Bank and Trust Company, Boston, MA, is custodian for the
securities and cash of the Trust. Federated Services Company, Pittsburgh, PA,
provides certain accounting and recordkeeping services with respect to the
Trust's portfolio investments. 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.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent, Federated
Shareholder Services Company, maintains all necessary shareholder records and
receives a fee based on the size, type and number of accounts and transactions
made by shareholders.
INDEPENDENT AUDITORS
The independent auditors for the Trust are Deloitte & Touche LLP, Pittsburgh,
Pennsylvania.
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 PLAN AND SHAREHOLDER SERVICES
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, 1996, payments in the amount of $109,203, were
made pursuant to the Distribution Plan (Institutional Service Shares only),
$101,882 of which was waived. In addition, for this period, the Trust paid
shareholder service fees in the amount of $2,628,721 for Institutional Shares
and $109,203 for Institutional Service Shares, of which $2,313,263 and $7,310
was waived, respectively.
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 is obligated to redeem shares solely in cash up to $250,000 or 1% of
the Trust's net asset value, whichever is less, for any one shareholder within
a 90-day period. Any redemption beyond this amount will also be in cash unless
the Trustees determine that further payments should be in kind. In such cases,
the Trust will pay all or a portion of the remainder of the redemption in
portfolio instruments valued in the same way as the Trust determines net asset
value. The portfolio instruments will be selected in a manner that the Trustees
deem fair and equitable. Redemption in kind is not as liquid as a cash
redemption. If redemption is made in kind, shareholders who sell these
securities, could receive less than the redemption value and could incur
certain transaction costs.
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 acts or obligations of
the Trust. These documents require notice of this disclaimer to be given in
each agreement, obligation, or instrument 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 by the Declaration of Trust 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.
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, 1996 were 14.44 %,
7.59%, and 8.29%, respectively. The Trust's average annual total return for
Institutional Service Shares for the for the year ended January 31, 1996 and
the period from June 2, 1992 (date of Institutional Service Shares inception)
to January 31, 1996, was 14.19% and 6.42%, 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, 1996, was 6.58%. The Trust's yield for Institutional Service Shares
was 6.36% for the same period.
PERFORMANCE COMPARISONS
The performance of both classes 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.
ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is reflected
in its investment decision making-structured, straightforward, and consistent.
This has resulted in a history of competitive performance with a range of
competitive investment products that have gained the confidence of thousands of
clients and their customers.
The company's disciplined security selection process is firmly rooted in sound
methodologies backed by fundamental and technical research. Investment
decisions are made and executed by teams of portfolio managers, analysts, and
traders dedicated to specific market sectors.
J. Thomas Madden, Executive Vice President, oversees Federated Investors'
equity and high yield corporate bond management while William D. Dawson,
Executive Vice President, oversees Federated Investors' domestic fixed income
management. Henry A. Frantzen, Executive Vice President, oversees the
management of Federated Investors' international portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $2 trillion to the more than 5,500 funds available.*
Federated Investors, through its subsidiaries, distributes mutual funds for a
variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for a
variety of applications, including defined benefit and defined contribution
programs, cash management, and asset/liability management. Institutional
clients include corporations, pension funds, tax-exempt entities,
foundations/endowments, insurance companies, and investment and financial
advisors. The marketing effort to these institutional clients is headed by John
B. Fisher, President, Institutional Sales Division.
TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than 1,500
banks and trust organizations. Virtually all of the trust divisions of the top
100 bank holding companies use Federated funds in their clients' portfolios.
The marketing effort to trust clients is headed by Mark R. Gensheimer,
Executive Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage firms
nationwide--including 200 New York Stock Exchange firms--supported by more
wholesalers than any other mutual fund distributor. The marketing effort to
these firms is headed by James F. Getz, President, Broker/Dealer Division.
*Source: Investment Company Institute
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