PRESIDENT'S MESSAGE
Dear Investor:
I'm pleased to present the Semi-Annual Report to Shareholders for Federated
Income Trust. The Report covers the six-month period ended July 31, 1996 and
includes the fund's Investment Review, Portfolio of Investments, and
Financial Statements.
During the report period, the fund continued to pursue attractive income.
Dividends paid by the fund during this period totaled $0.33 per share for
Institutional Shares and $0.32 per share for Institutional Service Shares.
The fund's net asset value ended the period at $10.01. Total net assets
stood at $935.4 million on the last day of the period.
On the last day of the period, the fund's assets were primarily invested in
mortgage-backed securities. Approximately 24% of assets were invested in
repurchase agreements, with a minor position in a U.S. Treasury note. During
the period, the Trust maintained its AAAf rating by Standard & Poor's
Ratings Group, the highest available from this independent rating service.*
We appreciate your continued confidence in Federated Income Trust. As
always, we welcome your questions and comments.
Sincerely,
[Graphic]
Glen R. Johnson
President
September 15, 1996
* An AAAf rating means that the fund's portfolio holdings and counterparties
provide extremely strong protection against losses from credit defaults.
This rating, however, does not remove market risks. Ratings are subject to
change.
INVESTMENT REVIEW
Federated Income Trust (the "Trust"), provides shareholders with a
professionally managed portfolio of U.S. Government securities. The Trust
offers daily liquidity, credit control and other advantages over comparable
U.S. Treasuries while at the same time allowing investors to avoid the
complexities of managing a portfolio of mortgage-backed securities.
Shareholders receive a diversified portfolio managed under a set of highly
conservative disciplines.
The first half of 1996 by all definitions was robust; second quarter GDP
growth was 4.2%, following the 2% first quarter GDP growth. On a
year-over-year basis, GDP growth was up 2.6% in second quarter, which was
the highest quarter since first quarter 1995. As we start the second half of
1996, the economic data being released depicts the pace of economic activity
is likely to slow moving forward. For example, the high level of housing
activity in the first half of 1996 has begun to reverse as the impact of the
sharp rise in mortgage rates is beginning to be observed in the data being
released.
Despite the moderating tone to the economy, the bond market remains in a
trading range with no discernible directional bias in place. Given the
trend, the outlook for the mortgage market remains positive as investors
focus on the income component of total rate of return. The mortgage market's
stellar year-to-date performance relative to other bond market sectors has
been aided by a continued decline in prepayment volatility as well as the 1%
increase in interest rates. In order for the mortgage market to become
concerned about prepayment pressures, interest rates would have to decline
about 125 basis points. Other factors such as two-thirds of the mortgage
market at a discount, decreased issuance of fixed rate mortgages and tight
spread levels on asset-backed and corporate securities bode well for the
mortgage market.
Current portfolio strategy targets an effective duration of 4.1 years, which
is neutral to the Lehman Brothers Mortgage-Backed Securities Index.< The
asset allocation mix continues to reflect emphasis on an overweight in
conventional mortgage-backed securities with a weighted average coupon of
7.7%. During the semi-annual reporting period, the Trust focused on
purchases of discount and current coupon 30-year mortgage securities. This
strategy gave the Trust, for the semi-annual reporting period, a net total
rate of return of -0.45% on Institutional Shares and -0.56% on Institutional
Service Shares* versus the Lehman Brothers Mortgage-Backed Securities Index
return of -0.04% and the Merrill Lynch 5-Year Treasury Index< return of
- -2.62%.
As of July 31, 1996, total net assets were $935.4 million and the average
30-day net yield as calculated under SEC guidelines was 6.23%* for
Institutional Shares and 6.00%* for Institutional Service Shares based upon
the net asset value of $10.01. The Trust is rated AAAf by Standard & Poor's
Ratings Group, for credit qualities. The Trust remains committed to
competitive yields and daily liquidity.
* Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when redeemed,
may be worth more or less than their original cost.
< The Lehman Brothers Mortgage-Backed Securities Index is composed of all
fixed rate, securitized mortgage pools by GNMA, FNMA and the FHLMC,
including GNMA Graduated Payment Mortgages. The minimum principal amount
required for inclusion is $50 million. Total return comprises price
appreciation/depreciation and income as a percentage of the original
investment. The Merrill Lynch 5-Year Treasury Index is an unmanaged index
tracking 5-year U.S. government securities. The index is produced by Merrill
Lynch, Pierce, Fenner & Smith, Inc. These indexes are unmanaged and
rebalanced monthly by market capitalization. Investments cannot be made in
an index.
FEDERATED INCOME TRUST
PORTFOLIO OF INVESTMENTS
JULY 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
LONG-TERM GOVERNMENT OBLIGATIONS -- 92.6%
(A)FEDERAL HOME LOAN MORTGAGE CORP. -- 34.8%
<S> <C> <C> <C>
$ 144,008 11.50%, 12/1/2014 $ 160,028
531,160 11.00%, 5/1/2000 563,354
327,070 10.50%, 7/1/2000 344,647
15,406,478 9.50%, 11/1/2009-12/1/2022 16,458,950
34,766,280 9.00%, 4/1/2009-2/1/2025 36,281,289
12,877,932 8.00%, 4/1/2025-10/1/2025 12,976,706
50,854,809 7.50%, 7/1/2025-11/1/2025 50,155,047
80,000,000 (b)7.50%, 7/1/2026-8/1/2026 78,899,200
89,703,667 7.00%, 10/1/2007-5/1/2026 87,779,196
19,000,000 6.50%, 3/1/2026 17,752,840
25,000,000 (b)6.00%, 5/1/2011 23,609,000
Total 324,980,257
(A)FEDERAL HOME LOAN MORTGAGE CORP. REMIC -- 3.7%
11,046,631 8.00%, Series FHG 8I, (Interest Only), 8/15/2023 6,061,065
17,933,000 6.50%, Series 1817E, 9/15/2023 15,936,143
40,364,829 4.00%, Series 1707B, (Interest Only), 3/15/2024 12,410,974
Total 34,408,182
(A)FEDERAL NATIONAL MORTGAGE ASSOCIATION -- 36.7%
18,906,692 10.50%, 12/1/2019-4/1/2022 20,773,539
37,250,657 10.00%, 11/1/2009-4/1/2025 40,311,768
36,344,157 8.50%, 7/1/2024-11/1/2024 37,252,397
43,165,922 8.00%, 11/1/2024 43,408,083
14,000,000 (b)8.00%, 7/1/2011 14,257,880
25,148,597 7.50%, 3/1/2010-11/1/2010 25,238,166
FEDERATED INCOME TRUST
PRINCIPAL
AMOUNT VALUE
LONG-TERM GOVERNMENT OBLIGATIONS -- CONTINUED
(A)FEDERAL NATIONAL MORTGAGE ASSOCIATION -- CONTINUED
$40,000,000 (b)7.50%, 5/1/2011 $ 40,112,000
58,474,663 7.00%, 8/1/2025-11/1/2025 56,208,185
28,150,000 (b)7.00%, 5/1/2011 27,780,109
40,991,293 6.50%, 2/1/2026-4/1/2026 38,262,502
Total 343,604,629
(A)FEDERAL NATIONAL MORTGAGE ASSOCIATION REMIC -- 4.6%
19,156,919 8.00%, Series 176-2, (Interest Only), 8/25/2022 6,653,581
15,350,000 6.50%, Series 1996-7J, 9/25/2024 13,474,384
10,000,000 6.50%, Series 1996-10J, 12/25/2023 8,974,390
9,309,916 Series 1996-34B, (Principal Only), 4/25/2024 4,512,423
13,723,592 Series 1994-78G, (Principal Only), 11/25/2023 6,228,452
9,331,209 Series 1993-253H, (Principal Only), 11/25/2023 3,557,990
Total 43,401,220
(A)GOVERNMENT NATIONAL MORTGAGE ASSOCIATION -- 12.8%
54,824,226 8.50%, 7/15/2024 56,262,265
63,523,479 8.00%, 1/15/2023-12/15/2023 63,919,230
Total 120,181,495
TOTAL LONG-TERM GOVERNMENT OBLIGATIONS
(IDENTIFIED COST $869,757,920) 866,575,783
U.S. TREASURY OBLIGATIONS -- 4.8%
U.S. TREASURY NOTE -- 4.8%
45,000,000 6.50%, 5/31/2001
TOTAL U.S. TREASURY OBLIGATIONS (IDENTIFIED COST $44,555,273) 44,886,600
FEDERATED INCOME TRUST
PRINCIPAL
AMOUNT VALUE
(C)REPURCHASE AGREEMENTS -- 24.0%
$37,070,000 BT Securities Corp., 5.68%, dated 7/31/1996, due 8/1/1996 $ 37,070,000
14,000,000 (d)J.P. Morgan Securities, Inc., 5.33%, dated 7/17/1996, due 8/15/1996 14,000,000
80,200,000 (d)J.P. Morgan Securities, Inc., 5.33%, dated 7/15/1996, due 8/12/1996 80,200,000
93,150,000 (d)UBS Securities, Inc., 5.32%, dated 7/17/1996, due 8/15/1996 93,150,000
TOTAL REPURCHASE AGREEMENTS (AT AMORTIZED COST) 224,420,000
TOTAL INVESTMENTS (IDENTIFIED COST $1,138,733,193)(E) $1,135,882,383
</TABLE>
(a) Because of monthly principal payments, the average lives of the
Government National Mortgage Association Modified Pass-Through securities,
Federal Home Loan Mortgage Corp. securities, and Federal National Mortgage
Association Pass-Through securities are less than the stated maturities.
(b) Indicates securities subject to dollar roll transactions with a total
market value of $184,658,189.
(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
$1,138,733,193. The net unrealized depreciation of investment on a federal
tax basis amounts to $2,850,810 which is comprised of $5,870,114
appreciation and $8,720,924 depreciation at July 31, 1996.
Note: The categories of investments are shown as a percentage of net assets
($935,417,388) at July 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
JULY 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Investments in repurchase agreements $224,420,000
Investments in securities 911,462,383
Total investments in securities, at value
(identified and tax cost $1,138,733,193) $1,135,882,383
Income receivable 5,410,489
Receivable for investments sold 1,767
Receivable for shares sold 329,479
Other assets 659,042
Total assets 1,142,283,160
LIABILITIES:
Payable for investments purchased 17,710,705
Payable for shares redeemed 9,912
Income distribution payable 5,303,028
Payable to Bank 291,848
Payable for dollar roll transactions 183,423,112
Accrued expenses 127,167
Total liabilities 206,865,772
Net Assets for 93,458,320 shares outstanding $ 935,417,388
NET ASSETS CONSIST OF:
Paid in capital $1,091,365,905
Net unrealized depreciation of investments and other assets (2,866,080)
Accumulated net realized loss on investments (153,119,081)
Undistributed net investment income 36,644
Total Net Assets $ 935,417,388
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$896,459,708 o 89,566,054 shares outstanding $10.01
INSTITUTIONAL SERVICE SHARES:
$38,957,680 o 3,892,266 shares outstanding $10.01
(See Notes which are an integral part of the Financial Statements)
FEDERATED INCOME TRUST
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JULY 31, 1996 (UNAUDITED)
INVESTMENT INCOME:
Interest (net of dollar roll expense of $4,252,686) $ 34,820,488
EXPENSES:
Investment advisory fee $ 1,938,495
Administrative personnel and services fee 366,375
Custodian fees 81,457
Transfer and dividend disbursing agent fees and expenses 115,947
Directors'/Trustees' fees 11,788
Auditing fees 9,522
Legal fees 6,942
Portfolio accounting fees 73,157
Distribution services fee -- Institutional Service Shares 49,533
Shareholder services fee -- Institutional Shares 1,162,026
Shareholder services fee -- Institutional Service Shares 49,533
Share registration costs 13,727
Printing and postage 12,273
Insurance premiums 8,396
Taxes 29,982
Miscellaneous 10,334
Total expenses 3,939,487
Waivers --
Waiver of distribution services fee -- Institutional $ (47,552)
Service Shares
Waiver of shareholder services fee -- Institutional Shares (1,022,583)
Waiver of shareholder services fee -- Institutional Service (1,981)
Shares
Total waivers (1,072,116)
Net expenses 2,867,371
Net investment income 31,953,117
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments (8,462,689)
Net change in unrealized depreciation of investments (28,406,210)
Net realized and unrealized loss on investments (36,868,899)
Change in net assets resulting from operations $ (4,915,782)
(See Notes which are an integral part of the Financial Statements)
FEDERATED INCOME TRUST
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
JULY 31, JANUARY 31,
1996 1996
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 31,953,117 $ 72,946,966
Net realized gain (loss) on investments ($8,462,689 net loss and
$2,326,436 net gain, respectively, as computed for federal tax
purposes) (8,462,689) 15,870,867
Net change in unrealized appreciation (depreciation) (28,406,210) 60,251,612
Change in net assets resulting from operations (4,915,782) 149,069,445
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Institutional Shares (30,576,330) (70,138,212)
Institutional Service Shares (1,253,588) (2,808,754)
Distributions in excess of net investment income
Institutional Shares -- (86,555)
Change in net assets resulting from distributions
to shareholders (31,829,918) (73,033,521)
SHARE TRANSACTIONS--
Proceeds from sale of shares 98,646,851 149,627,416
Net asset value of shares issued to shareholders in payment of
distributions declared 6,856,873 17,688,726
Cost of shares redeemed (157,221,573) (379,876,015)
Change in net assets resulting from share transactions (51,717,849) (212,559,873)
Change in net assets (88,463,549) (136,523,949)
NET ASSETS:
Beginning of period 1,023,880,937 1,160,404,886
End of period (including undistributed net investment income
of $36,644 and $0, respectively) $ 935,417,388 $1,023,880,937
(See Notes which are an integral part of the Financial Statements)
FEDERATED INCOME TRUST
STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JULY 31, 1996 (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net decrease in net assets resulting from operations $ (4,915,782)
ADJUSTMENTS TO RECONCILE NET DECREASE IN NET ASSETS FROM OPERATIONS TO CASH PROVIDED
IN OPERATING ACTIVITIES:
Net decrease in investments (including $28,390,940 increase in
unrealized depreciation) 83,814,558
Decrease in income receivable 142,707
Decrease in receivable for investments sold 150,500,045
Increase in other assets (including $15,270 increase in unrealized depreciation) (659,042)
Decrease in payable for investments purchased (120,664,425)
Increase in accrued expenses 29,089
Decrease in payable to bank (301,477)
Cash provided by operating activities 107,945,673
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from the sale of shares 100,352,837
Net cost of shares redeemed (158,839,812)
Decrease in payable for dollar roll transactions (25,578,630)
Distributions paid (23,880,068)
Cash used in financing activities (107,945,673)
Net change in cash 0
Cash at beginning of period 0
Cash at end of period $ 0
(See Notes which are an integral part of the Financial Statements)
</TABLE>
FEDERATED INCOME TRUST
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
JULY 31, YEAR ENDED JANUARY 31,
1996 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $10.39 $ 9.70 $10.50 $10.73 $10.66
INCOME FROM
INVESTMENT OPERATIONS
Net investment income 0.33 0.67 0.70 0.77 0.80
Net realized and
unrealized gain
(loss) on investments (0.38) 0.69 (0.80) (0.23) 0.07)
Total from investment
operations (0.05) 1.36 (0.10) 0.54 0.87
LESS DISTRIBUTIONS
Distributions from
net investment (0.33) (0.67) (0.70) (0.77) (0.80)
income
Distributions in
excess of net -- 0.00 -- -- --
investment
income
Distributions
from net realized
gain on investments -- -- -- -- --
Total distributions (0.33) (0.67) (0.70) (0.77) (0.80)
NET ASSET VALUE,
END OF PERIOD $10.01 $10.39 $9.70 $10.50 $10.73
TOTAL RETURN(A) (0.45)% 14.44% (0.86)% 5.22% 8.51%
RATIOS TO AVERAGE
NET ASSETS
Expenses 0.58%* 0.58% 0.56% 0.51% 0.51%
Net investment
income 6.57%* 6.67% 6.99% 7.28% 7.53%
Expense waiver/
reimbursement(b) 0.22%* 0.22% -- -- --
SUPPLEMENTAL DATA
Net assets, end
of period
(000 omitted) $896,460 $983,093 $1,119,976 $1,727,247 $1,548,858
Portfolio turnover 135% 184% 217% 178% 52%
YEAR ENDED JANUARY 31,
1992 1991 1990 1989 1988
NET ASSET VALUE,
BEGINNING OF PERIOD $10.42 $10.18 $10.05 $10.43 $10.74
INCOME FROM
INVESTMENT OPERATIONS
Net investment income 0.89 0.93 0.94 0.95 0.99
Net realized and
unrealized gain
(loss) on investments 0.24 0.24 0.13 (0.38) (0.31)
Total from investment
operations 1.13 1.17 1.07 0.57 0.68
LESS DISTRIBUTIONS
Distributions from
net investment (0.89) (0.93) (0.94) (0.95) (0.99)
income
Distributions in
excess of net -- -- -- -- --
investment
income
Distributions
from net realized
gain on investments -- -- -- -- --
Total distributions (0.89) (0.93) (0.94) (0.95) (0.99)
NET ASSET VALUE,
END OF PERIOD $10.66 $10.42 $10.18 $10.05 $10.43
TOTAL RETURN(A) 11.27% 12.01% 11.04% 5.75% 6.79%
RATIOS TO AVERAGE
NET ASSETS
Expenses 0.50% 0.50% 0.53% 0.52% 0.50%
Net investment
income 8.41% 9.06% 9.23% 9.33% 9.49%
Expense waiver/
reimbursement(b) -- -- -- -- --
SUPPLEMENTAL DATA
Net assets, end
of period
(000 omitted) $1,231,978 $892,255 $1,023,886 $1,196,585 $1,376,895
Portfolio turnover 51% 36% 45% 77% 92%
* Computed on an annualized basis.
(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)
FEDERATED INCOME TRUST
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SIX MONTHS
ENDED
(UNAUDITED)
JULY 31, YEAR ENDED JANUARY 31,
1996 1996 1995 1994 1993(A)
NET ASSET VALUE, BEGINNING OF PERIOD $10.39 $ 9.70 $10.50 $10.73 $10.64
INCOME FROM INVESTMENT OPERATION
Net investment income 0.32 0.65 0.68 0.75 0.51
Net realized and unrealized gain (loss)
on investments (0.38) 0.69 (0.80) (0.23) 0.09
Total from investment operations (0.06) 1.34 (0.12) 0.52 0.60
LESS DISTRIBUTIONS
Distributions from net investment income (0.32) (0.65) (0.68) (0.75) (0.51)
NET ASSET VALUE, END OF PERIOD $10.01 $10.39 $ 9.70 $10.50 $10.73
TOTAL RETURN(B) (0.56)% 14.19% (1.08)% 4.96% 4.80%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.80%* 0.80% 0.78% 0.76% 0.76%*
Net investment income 6.35%* 6.45% 6.75% 7.03% 7.16%*
Expense waiver/reimbursement(c) 0.25%* 0.25% 0.22% -- --
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $38,958 $40,788 $40,428 $67,176 $53,981
Portfolio turnover 135% 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 net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED INCOME TRUST
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1996 (UNAUDITED)
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 -- U.S. government securities are generally valued at
the mean of the latest bid and asked price as furnished by an independent
pricing service. Short-term securities are valued at the prices provided by
an independent pricing service. However, short-term securities with
remaining maturities of sixty days or less at the time of purchase may be
valued at amortized cost, which approximates fair market value.
REPURCHASE AGREEMENTS -- It is the policy of the Trust to require the
custodian bank to take possession, to have legally segregated in the Federal
Reserve Book Entry System, or to have segregated within the custodian bank's
vault, all securities held as collateral under repurchase agreement
transactions. Additionally, procedures have been established by the Trust to
monitor, on a daily basis, the market value of each repurchase agreement's
collateral to ensure that the value of collateral at least equals the
repurchase price to be paid under the repurchase agreement transaction.
The Trust will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Trust's adviser to be creditworthy pursuant to 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.
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:
EXPIRATION YEAR EXPIRATION AMOUNT
1997 $26,760,646
1998 $16,389,825
1999 $ 1,962,842
2003 $99,607,733
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 will 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 Trust's Statement of Assets
and Liabilities which does not include any short-term investments at July
31, 1996.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
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>
PERIOD ENDED YEAR ENDED
JULY 31, 1996 JANUARY 31, 1996
INSTITUTIONAL SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C>
Shares sold 9,238,749 $ 93,500,722 13,342,322 $ 135,013,099
Shares issued to shareholders in payment of
distributions declared 606,674 6,117,098 1,532,878 15,528,395
Shares redeemed (14,944,075) (151,004,401) (35,659,060) (360,499,241)
Net change resulting from
Institutional Share transactions (5,098,652) $ (51,386,581) (20,783,860) $(209,957,747)
PERIOD ENDED YEAR ENDED
JULY 31, 1996 JANUARY 31, 1996
INSTITUTIONAL SERVICE SHARES SHARES AMOUNT SHARES AMOUNT
Shares sold 509,139 $ 5,146,129 1,456,002 $ 14,614,317
Shares issued to shareholders in payment of
distributions declared 73,329 739,775 213,112 2,160,331
Shares redeemed (617,863) (6,217,172) (1,908,899) (19,376,774)
Net change resulting from Institutional
Service Share transactions (35,395) $ (331,268) (239,785) $ (2,602,126)
Net change resulting from share
transactions (5,134,047) $ (51,717,849) (21,023,645) $(212,559,873)
</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 0.40% 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 0.25% of the
average daily net assets of the Institutional Service Shares, annually, to
compensate FSC. The distributor may voluntarily choose to waive a portion of
its fee. The distributor can modify or terminate this voluntary waiver at
any time at its sole discretion.
SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services ("FSS"), the Trust will pay
FSS up to 0.25% of average daily net assets of the Trust for the period. The
fee paid to FSS is used to finance certain services for shareholders and to
maintain shareholder accounts. FSS may voluntarily choose to waive a portion
of this fee. FSS can modify or terminate this voluntary waiver at any time
at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ through
its subsidiary, Federated Shareholder Services Company, ("FSSC"), serves as
transfer and dividend disbursing agent for the Trust. The fee paid to FSSC
is based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES -- FServ maintains the Trust's accounting records
for which it receives a fee. The fee is based on the level of the Trust's
average 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
period ended July 31, 1996, were as follows:
PURCHASES $1,095,633,830
SALES $1,100,076,024
TRUSTEES OFFICERS
John F. Donahue John F. Donahue
Thomas G. Bigley Chairman
John T. Conroy, Jr. Glen R. Johnson
William J. Copeland President
James E. Dowd J. Christopher Donahue
Lawrence D. Ellis, M.D. Executive Vice President
Edward L. Flaherty, Jr. Edward C. Gonzales
Glen R. Johnson Executive Vice President
Peter E. Madden John W. McGonigle
Gregor F. Meyer Executive Vice President, Treasurer,
John E. Murray, Jr. and Secretary
Wesley W. Posvar Richard B. Fisher
Marjorie P. Smuts Vice President
Douglas L. Hein
Assistant Treasurer
J. Crilley Kelly
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including possible loss of principal.
This report is authorized for distribution to prospective investors only
when preceded or accompanied by the trust's prospectus which contains facts
concerning its objective and policies, management fees, expenses and other
information.
FEDERATED
INCOME
TRUST
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
JULY 31, 1996
[Graphic]
Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
[Graphic]
Cusip 314199100
Cusip 314199209
8082203 (9/96)
