FEDERATED INCOME TRUST, 497, 1997-04-02

FEDERATED INCOME TRUST
497, 1997-04-02

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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, 1997, with the Securities and Exchange Commission ("SEC"). 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 1-800-341-7400. To obtain other information, or make inquiries about
the Trust, contact the Trust at the address listed in the back of this
prospectus. This Statement of Additional Information, material incorporated
by reference into this document, and other information regarding the Trust
is maintained electronically with the SEC at Internet Website
(http://www.sec.gov).

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

Prospectus dated March 31, 1997

Table of Contents
<TABLE>
<S> <C>
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 7
Administration of the Trust 8
NET ASSET VALUE 8
INVESTING IN INSTITUTIONAL SHARES 8
Share Purchases 8
Minimum Investment Required 9
What Shares Cost 9
Exchanging Securities for Trust Shares 9
Certificates and Confirmations 9
Dividends 10
Capital Gains 10
REDEEMING INSTITUTIONAL SHARES 10
Telephone Redemption 10
Written Requests 10
Accounts with Low Balances 11
SHAREHOLDER INFORMATION 11
Voting Rights 11
TAX INFORMATION 12
Federal Income Tax 12
State and Local Taxes 12
PERFORMANCE INFORMATION 12
OTHER CLASSES OF SHARES 13
FINANCIAL HIGHLIGHTS --
INSTITUTIONAL SERVICE SHARES 14
FINANCIAL STATEMENTS 15
INDEPENDENT AUDITORS' REPORT 25
ADDRESSES 26
</TABLE>

SUMMARY OF TRUST EXPENSES

INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <S>
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
</TABLE>

ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<S> <C> <C>
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 shareholder services fee has been reduced to reflect the voluntary
waiver of a portion of the shareholder services fee. The shareholder
service provider can terminate this voluntary waiver at any time at
its sole discretion. 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
Fund will bear, either directly or indirectly. For more complete
descriptions of the various costs and expenses, see "Trust Information" and
"Investing in Institutional Shares." Wire-transferred redemptions of less
than $5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and
(2) redemption at the end of each time period $6 $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 25.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING
OF PERIOD $10.39 $ 9.70 $10.50 $10.73 $10.66 $10.42 $10.18 $10.05 $10.43 $10.74
INCOME FROM
INVESTMENT
OPERATIONS
Net investment 0.68 0.67 0.70 0.77 0.80 0.89 0.93 0.94 0.95 0.99
income
Net realized and
unrealized gain
(loss)
on investments (0.24) 0.69 (0.80) (0.23) 0.07 0.24 0.24 0.13 (0.38) (0.31)
Total from
investment
operations 0.44 1.36 (0.10) 0.54 0.87 1.13 1.17 1.07 0.57 0.68
LESS DISTRIBUTIONS
Distributions
from net
investment (0.68) (0.67) (0.70) (0.77) (0.80) (0.89) (0.93) (0.94) (0.95) (0.99)
income
Distributions in
excess of net
investment
income -- (0.00) -- -- -- -- -- -- -- --
Total (0.68) (0.67) (0.70) (0.77) (0.80) (0.89) (0.93) (0.94) (0.95) (0.99)
distributions
NET ASSET
VALUE, END
OF
PERIOD $10.15 $10.39 $ 9.70 $10.50 $10.73 $10.66 $10.42 $10.18 $10.05 $10.43
TOTAL RETURN(A) 4.44% 14.44% (0.86)% 5.22% 8.51% 11.27% 12.01% 11.04% 5.75% 6.79%
RATIOS TO AVERAGE
NET ASSETS
Expenses 0.58% 0.58% 0.56% 0.51% 0.51% 0.50% 0.50% 0.53% 0.52% 0.50%
Net investment 6.70% 6.67% 6.99% 7.28% 7.53% 8.41% 9.06% 9.23% 9.33% 9.49%
income
Expense waiver/
reimbursement(b) 0.22% 0.22% -- -- -- -- -- -- -- --
SUPPLEMENTAL DATA
Net assets, end
of
period (000 $838,542 $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
omitted)
Portfolio
turnover 212% 184% 217% 178% 52% 51% 36% 45% 77% 92%
</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)

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 issued or guaranteed by U.S. government
agencies and instrumentalities supported by the full faith and credit of the
United States;

* notes, bonds, and discount notes of U.S. government agencies or
instrumentalities which receive or have access to federal funding; and

* notes, bonds, and discount notes of other U.S. government
instrumentalities supported only by the credit of the instrumentalities.

Some obligations issued or guaranteed by agencies or instrumentalities of
the U.S. government 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.

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.

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 into
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. High turnover rates may result
in higher brokerage commissions and capital gains. See "Tax Information" in
this prospectus and "Brokerage Transactions" in the Statement of Additional
Information.

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 0.40% of the Trust's average daily net assets.

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 $110 billion invested across
over 300 funds under management and/or administration by its subsidiaries,
as of December 31, 1996, Federated Investors is one of the largest mutual
fund investment managers in the United States. With more than 2,000
employees, Federated continues to be led by the management who founded the
company in 1955. Federated funds are presently at work in and through 4,500
financial institutions nationwide.

Edward J. Tiedge has been the Trust's portfolio manager since October 1995.
Mr. Tiedge joined Federated Investors in 1993 and has been a Vice President
of the Trust's investment adviser since January 1996. He served as an
Assistant Vice President of the Trust's investment adviser in 1995, and an
Investment Analyst during 1993 and 1994. 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 Trustees, and could result in severe penalties.

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 0.25% 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

<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE
ADMINISTRATIVE FEE DAILY NET ASSETS
<C> <S>
.15% on the first $250 million
.125% on the next $250 million
.10% on the next $250 million
.075% 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 financial
intermediary'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
financial intermediary 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 a 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, Donnelly & Meck, 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 the
Institutional Service Shares' average daily net assets. In addition,
Institutional Service Shares pay a shareholder services fee of 0.25% 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 25.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1997 1996 1995 1994 1993(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.39 $ 9.70 $10.50 $10.73 $10.64
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.65 0.65 0.68 0.75 0.51
Net realized and unrealized gain (loss)
on investments (0.24) 0.69 (0.80) (0.23) 0.09
Total from investment operations 0.41 1.34 (0.12) 0.52 0.60
LESS DISTRIBUTIONS
Distributions from net investment income (0.65) (0.65) (0.68) (0.75) (0.51)
NET ASSET VALUE, END OF PERIOD $10.15 $10.39 $ 9.70 $10.50 $10.73
TOTAL RETURN(B) 4.21% 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 6.49% 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) $43,257 $40,788 $40,428 $67,176 $53,981
Portfolio turnover 212% 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.

(See Notes which are an integral part of the Financial Statements)

FEDERATED INCOME TRUST
PORTFOLIO OF INVESTMENTS

JANUARY 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
LONG-TERM OBLIGATIONS -- 98.3%
(A)FEDERAL HOME LOAN MORTGAGE CORP. -- 31.8%
$ 131,983 11.50%, 12/1/2014 $ 148,770
405,792 11.00%, 5/1/2000 428,683
269,365 10.50%, 7/1/2000 283,423
13,769,920 9.50%, 11/1/2009 - 12/1/2022 14,897,958
32,109,957 9.00%, 4/1/2009 - 2/1/2025 33,928,682
24,542,293 8.00%, 9/1/2026 25,056,208
126,698,603 7.50%, 7/1/2025 - 8/1/2026 127,010,909
57,593,637 7.00%, 10/1/2007 - 5/1/2011 57,716,480
21,173,385 6.00%, 5/1/2011 20,460,477
Total 279,931,590
(A)FEDERAL HOME LOAN MORTGAGE CORP. REMIC -- 3.3%
5,269,800 7.50%, Series 1928-PG, (Interest Only), 12/15/2018 999,627
14,000,247 7.00%, Series 176, (Interest Only), 6/1/2026 4,956,927
8,662,405 6.50%, Series 1808-B, 5/15/2008 8,234,742
5,326,902 5.958%, Series 1590-T, (Inverse Floater), 10/15/2023 3,159,545
40,364,829 4.00%, Series 1707-B, (Interest Only), 3/15/2024 12,037,196
Total 29,388,037
(A)FEDERAL NATIONAL MORTGAGE ASSOCIATION -- 31.5%
17,017,107 10.50%, 12/1/2019 - 4/1/2022 18,851,722
32,793,923 10.00%, 11/1/2009 - 4/1/2025 35,857,131
34,073,753 8.50%, 7/1/2024 - 12/1/2024 35,399,501
52,050,521 8.00%, 2/1/2002 - 11/1/2026 53,159,303
23,521,767 7.50%, 3/1/2010 - 11/1/2010 23,921,032
113,129,182 7.00%, 8/1/2025 - 11/1/2026 110,774,890
Total 277,963,579
</TABLE>

FEDERATED INCOME TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
LONG-TERM OBLIGATIONS -- CONTINUED
(A)FEDERAL NATIONAL MORTGAGE ASSOCIATION REMIC -- 3.9%
$ 8,557,426 7.00%, Series 1996-64 PM, (Interest Only), 1/18/2012 $ 2,388,035
20,850,000 6.50%, Series 1995-24 M, 5/25/2008 19,813,964
3,834,001 5.958%, Series 1993-202 SK, (Inverse Floater), 11/25/2023 2,274,061
11,139,000 2.618%, Series 96X-225C VN, (Inverse Floater), 12/25/2023 5,103,110
7,100,000 0.00%, Series 1996-24 C, (Principal Only), 2/25/2008 4,657,174
Total 34,236,344
(A)GOVERNMENT NATIONAL MORTGAGE ASSOCIATION -- 13.0%
50,649,732 8.50%, 7/15/2024 52,701,046
60,190,284 8.00%, 12/15/2023 61,902,096
Total 114,603,142
(A)GOVERNMENT NATIONAL MORTGAGE ASSOCIATION REMIC -- 0.3%
11,280,560 7.50%, Series 1997-3 PG, (Interest Only), 2/28/2027 2,642,132
U.S. TREASURY NOTES -- 14.5%
48,200,000 6.875%, 5/15/2006 49,414,158
78,250,000 6.375%, 9/30/2001 78,611,515
Total 128,025,673
TOTAL LONG-TERM OBLIGATIONS (IDENTIFIED COST $860,873,070) 866,790,497
(B)REPURCHASE AGREEMENT -- 1.7%
15,335,000 BT Securities Corporation, 5.58%, dated 1/31/1997, due 2/3/1997
(AT AMORTIZED COST) 15,335,000
TOTAL INVESTMENTS (IDENTIFIED COST $876,208,070)(C) $ 882,125,497
</TABLE>

(a) Because of monthly principal payments, the average lives of the Federal
Home Loan Mortgage Corp., Federal National Mortgage Association, and
Government National Mortgage Association securities approximates
1-10 Years.

(b) The repurchase agreement is fully collateralized by U.S. government
and/or agency obligations based on market prices at the date of the
portfolio. The investment in the repurchase agreement is through
participation in a joint account with other Federated funds.

(c) The cost of investments for federal tax purposes amounts to
$876,208,070. The net unrealized appreciation of investments on a federal
tax basis amounts to $5,917,427 which is comprised of $10,635,349
appreciation and $4,717,922 depreciation at January 31, 1997.

Note: The categories of investments are shown as a percentage of net assets
($881,799,547) at January 31, 1997.

The following acronym is 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, 1997
<TABLE>
<S> <C> <C>

ASSETS:
Total investments in securities, at value (identified and tax cost $876,208,070) $ 882,125,497
Income receivable 7,104,079
Receivable for shares sold 928,588
Total assets 890,158,164
LIABILITIES:
Payable for investments purchased $ 2,632,436
Payable for shares redeemed 1,264,195
Income distribution payable 3,759,427
Payable to Bank 583,368
Accrued expenses 119,191
Total liabilities 8,358,617
NET ASSETS for 86,885,019 shares outstanding $ 881,799,547
NET ASSETS CONSIST OF:
Paid in capital $ 998,005,101
Net unrealized appreciation of investments 5,917,427
Accumulated net realized loss on investments (122,565,968)
Undistributed net investment income 442,987
Total Net Assets $ 881,799,547
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$838,542,422 / 82,622,365 shares outstanding $10.15
INSTITUTIONAL SERVICE SHARES:
$43,257,125 / 4,262,654 shares outstanding $10.15
</TABLE>

(See Notes which are an integral part of the Financial Statements)

FEDERATED INCOME TRUST
STATEMENT OF OPERATIONS

YEAR ENDED JANUARY 31, 1997
<TABLE>
<S> <C> <C> <C>

INVESTMENT INCOME:
Interest (net of dollar roll expense of $5,157,675) $ 68,902,516
EXPENSES:
Investment advisory fee $ 3,763,073
Administrative personnel and services fee 711,038
Custodian fees 184,349
Transfer and dividend disbursing agent fees and expenses 209,530
Directors'/Trustees' fees 20,716
Auditing fees 19,981
Legal fees 5,597
Portfolio accounting fees 144,584
Distribution services fee -- Institutional Service Shares 101,450
Shareholder services fee -- Institutional Shares 2,250,471
Shareholder services fee -- Institutional Service Shares 101,450
Share registration costs 28,533
Printing and postage 28,052
Insurance premiums 10,676
Taxes 53,011
Miscellaneous 11,597
Total expenses 7,644,108
Waivers and reimbursements --
Waiver of distribution services fee -- Institutional Service Shares $ (97,392)
Waiver of shareholder services fee -- Institutional Shares (1,980,414)
Waiver of shareholder services fee -- Institutional Service Shares (4,058)
Total waivers (2,081,864)
Net expenses 5,562,244
Net investment income 63,340,272
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments (4,670,222)
Net change in unrealized appreciation of investments (19,622,703)
Net realized and unrealized loss on investments (24,292,925)
Change in net assets resulting from operations $ 39,047,347
</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,
1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 63,340,272 $ 72,946,966
Net realized gain (loss) on investments ($4,661,466 net loss and
$2,326,436 net gain, respectively, as computed for federal
tax purposes) (4,670,222) 15,870,867
Net change in unrealized appreciation (depreciation) (19,622,703) 60,251,612
Change in net assets resulting from operations 39,047,347 149,069,445
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income
Institutional Shares (60,187,940) (70,138,212)
Institutional Service Shares (2,622,790) (2,808,754)
Distributions in excess of net investment income
Institutional Shares --- (86,555)
Change in net assets resulting from distributions to shareholders (62,810,730) (73,033,521)
SHARE TRANSACTIONS --
Proceeds from sale of shares 181,714,820 149,627,416
Net asset value of shares issued to shareholders in payment of
distributions declared 16,144,090 17,688,726
Cost of shares redeemed (316,176,917) (379,876,015)
Change in net assets resulting from share transactions (118,318,007) (212,559,873)
Change in net assets (142,081,390) (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 $442,987 and $0, respectively) $ 881,799,547 $ 1,023,880,937
</TABLE>

(See Notes which are an integral part of the Financial Statements)

FEDERATED INCOME TRUST
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1997

1. ORGANIZATION

Federated Income Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as a diversified, open-end
management investment company. The Trust offers two classes of shares:
Institutional Shares and Institutional Service Shares. The investment
objective of the Trust is current income.

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.

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 due to differing treatments for
expiring capital loss carryforwards. The following reclassifications have
been made to the financial statements.
<TABLE>
<CAPTION>
INCREASE (DECREASE)
ACCUMULATED
NET REALIZED NET REALIZED
PAID-IN CAPITAL GAIN/LOSS
<C> <C>
$(26,760,646) $26,760,646
</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, 1997, the Trust, for federal tax purposes, had a capital loss
carryforward of $122,621,966, 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
<C> <C>
1998 $ 16,389,825
1999 $ 1,962,942
2003 $ 99,607,733
2005 $ 4,661,466
</TABLE>

Additionally, net capital losses of $8,756 attributable to security
transactions incurred after October 31, 1996 are treated as arising on the
first day of the Trust's next taxable year.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Trust may engage in
when-issued or delayed delivery transactions. The Trust records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.

DOLLAR ROLL TRANSACTIONS -- The Trust enters into dollar roll transactions,
with respect to mortgage securities issued by GNMA, FNMA and FHLMC, in which
the Trust 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.

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>
YEAR ENDED JANUARY 31,
1997 1996
INSTITUTIONAL SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 16,566,782 $ 167,676,822 13,342,322 $ 135,013,099
Shares issued to shareholders in payment of
distributions declared 1,436,529 14,505,137 1,532,878 15,528,395
Shares redeemed (30,045,652) (303,965,855) (35,659,060) (360,499,241)
Net change resulting from
Institutional Share transactions (12,042,341) $(121,783,896) (20,783,860) $(209,957,747)
<CAPTION>
YEAR ENDED JANUARY 31,
1997 1996
INSTITUTIONAL SERVICE SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 1,383,128 $ 14,037,998 1,456,002 $ 14,614,317
Shares issued to shareholders in payment of
distributions declared 162,236 1,638,953 213,112 2,160,331
Shares redeemed (1,210,371) (12,211,062) (1,908,899) (19,376,774)
Net change resulting from
Institutional Service Share transactions 334,993 $ 3,465,889 (239,785) $ (2,602,126)
Net change resulting from
share transactions (11,707,348) $(118,318,007) (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 any portion
of its fee. The distributor can modify or terminate this voluntary waiver at
any time at its sole discretion.

SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services ("FSS"), the Trust will pay
FSS up to 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 any
portion of its fee. FSS can modify or terminate this voluntary waiver at any
time at its sole discretion.

TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- Federated
Services Company ("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 January 31, 1997, were as follows:
<TABLE>
<S> <C>
PURCHASES $ 2,262,621,245
SALES $ 1,963,542,901
</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, 1997, and the related statement of operations for the year then
ended, the statements of changes in net assets for the years ended January
31, 1997 and 1996, and the financial highlights 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, 1997 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, 1997, the results of its operations, 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 12, 1997

ADDRESSES

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 P.O. Box 8600
Services Company Boston, Massachusetts 02266-8600

Independent Auditors
Deloitte & Touche LLP 2500 One PPG Place
Pittsburgh, Pennsylvania 15222-5401

FEDERATED INCOME TRUST
INSTITUTIONAL SHARES

PROSPECTUS

An Open-End, Diversified
Management Investment Company

March 31, 1997

[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
8030102A-IS (3/97)

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, 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.

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.

Prospectus dated March 31, 1997

TABLE OF CONTENTS
<TABLE>
<S> <C>
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 8
INVESTING IN INSTITUTIONAL SERVICE SHARES 9
Share Purchases 9
Exchange Privilege 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 SERVICE SHARES 11
Telephone Redemption 11
Written Requests 11
Accounts with Low Balances 12
SHAREHOLDER INFORMATION 12
Voting Rights 12
TAX INFORMATION 12
Federal Income Tax 12
State and Local Taxes 13
PERFORMANCE INFORMATION 13
OTHER CLASSES OF SHARES 13
FINANCIAL HIGHLIGHTS --
INSTITUTIONAL SHARES 14
FINANCIAL STATEMENTS 15
INDEPENDENT AUDITORS' REPORT 25
ADDRESSES 26
</TABLE>

SUMMARY OF TRUST EXPENSES

INSTITUTIONAL SERVICE SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
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
</TABLE>

ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<S> <C> <C>

Management Fee 0.40%
12b-1 Fee (after waiver)(1) 0.01%
Total Other Expenses 0.39%
Shareholder Services Fee (after waiver)(2) 0.24%
Total Operating Expenses(3) 0.80%
</TABLE>

(1) The 12b-1 fee has been reduced to reflect the voluntary waiver of a
portion of the 12b-1 fee. The distributor can terminate this voluntary
waiver at any time at its sole discretion. The maximum 12b-1 fee is 0.25%.

(2) The shareholder services fee has been reduced to reflect the voluntary
waiver of a portion of the shareholder services fee. The shareholder
service provider can terminate this voluntary waiver at any time at its
sole discretion. The maximum shareholder services fee is 0.25%.

(3) The total operating expenses would have been 1.05% absent the voluntary
waivers of portions of the 12b-1 fee and 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 Service
Shares of the Fund will bear, either directly or indirectly. For more
complete descriptions of the various costs and expenses, see "Trust
Information" and "Investing in Institutional Service Shares."
Wire-transferred redemptions of less than $5,000 may be subject to
additional fees.

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.
<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;
(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)

* 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.

(See Notes which are an integral part of the Financial Statements)

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

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.

* direct obligations of the U.S. Treasury such as U.S. Treasury bills,
notes, and bonds; and

* notes, bonds, and discount notes issued or guaranteed by U.S. government
agencies and instrumentalities supported by the full faith and credit of the
United States;

* notes, bonds, and discount notes of U.S. government agencies or
instrumentalities which receive or have access to federal funding; and

* notes, bonds, and discount notes of other U.S. government
instrumentalities supported only by the credit of the instrumentalities.

* 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.

* The cash flows from the underlying mortgages are applied first to pay
interest and then to retire securities.

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. In addition, the Trust may invest in CMOs that include a class whose
yield floats inversely against a specified index 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.

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.

INVESTMENT LIMITATIONS

PORTFOLIO TURNOVER

TRUST INFORMATION

MANAGEMENT OF THE TRUST

ADVISORY FEES. The Adviser receives an annual investment advisory fee equal
to 0.40% of the Trust's average daily net assets.

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 and has been a Vice President
of the Trust's investment adviser since January 1996. He served as an
Assistant Vice President of the Trust's investment adviser in 1995, and an
Investment Analyst during 1993 and 1994. 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.

DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES

Federated Securities Corp. is the principal distributor for Institutional
Service Shares. It is a Pennsylvania corporation organized on November 14,
1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.

DISTRIBUTION 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 Trust in an
amount computed at an annual rate of up to 0.25% 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 0.25% 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 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 as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE
ADMINISTRATIVE FEE DAILY NET ASSETS
<C> <S>
.15% on the first $250 million
.125% on the next $250 million
.10% on the next $250 million
.075% on assets in excess of $750 million
</TABLE>

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.

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

EXCHANGING SECURITIES FOR TRUST SHARES

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.

WRITTEN REQUESTS

* 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.

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

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

FEDERAL INCOME TAX

STATE AND LOCAL TAXES

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 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 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 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)

(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
PORTFOLIO OF INVESTMENTS

Note: The categories of investments are shown as a percentage of net assets
($881,799,547) at January 31, 1997.

The following acronym is 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, 1997
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $876,208,070) $ 882,125,497
Income receivable 7,104,079
Receivable for shares sold 928,588
Total assets 890,158,164
LIABILITIES:
Payable for investments purchased $ 2,632,436
Payable for shares redeemed 1,264,195
Income distribution payable 3,759,427
Payable to Bank 583,368
Accrued expenses 119,191
Total liabilities 8,358,617
NET ASSETS for 86,885,019 shares outstanding $ 881,799,547
NET ASSETS CONSIST OF:
Paid in capital $ 998,005,101
Net unrealized appreciation of investments 5,917,427
Accumulated net realized loss on investments (122,565,968)
Undistributed net investment income 442,987
Total Net Assets $ 881,799,547
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$838,542,422 / 82,622,365 shares outstanding $10.15
INSTITUTIONAL SERVICE SHARES:
$43,257,125 / 4,262,654 shares outstanding $10.15
</TABLE>

(See Notes which are an integral part of the Financial Statements)

FEDERATED INCOME TRUST
STATEMENT OF OPERATIONS

YEAR ENDED JANUARY 31, 1997
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest (net of dollar roll expense of $5,157,675) $ 68,902,516
EXPENSES:
Investment advisory fee $ 3,763,073
Administrative personnel and services fee 711,038
Custodian fees 184,349
Transfer and dividend disbursing agent fees and expenses 209,530
Directors'/Trustees' fees 20,716
Auditing fees 19,981
Legal fees 5,597
Portfolio accounting fees 144,584
Distribution services fee -- Institutional Service Shares 101,450
Shareholder services fee -- Institutional Shares 2,250,471
Shareholder services fee -- Institutional Service Shares 101,450
Share registration costs 28,533
Printing and postage 28,052
Insurance premiums 10,676
Taxes 53,011
Miscellaneous 11,597
Total expenses 7,644,108
Waivers and reimbursements --
Waiver of distribution services fee -- Institutional Service Shares $ (97,392)
Waiver of shareholder services fee -- Institutional Shares (1,980,414)
Waiver of shareholder services fee -- Institutional Service Shares (4,058)
Total waivers (2,081,864)
Net expenses 5,562,244
Net investment income 63,340,272
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments (4,670,222)
Net change in unrealized appreciation of investments (19,622,703)
Net realized and unrealized loss on investments (24,292,925)
Change in net assets resulting from operations $ 39,047,347
</TABLE>

(See Notes which are an integral part of the Financial Statements)

FEDERATED INCOME TRUST
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1997

1. ORGANIZATION

2. SIGNIFICANT ACCOUNTING POLICIES

Net investment income, net realized gains/losses, and net assets were not
affected by this reclassification.

Additionally, net capital losses of $8,756 attributable to security
transactions incurred after October 31, 1996 are treated as arising on the
first day of the Trust's next taxable year.

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.

4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

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 January 31, 1997, were as follows:
<TABLE>
<S> <C>
PURCHASES $ 2,262,621,245
SALES $ 1,963,542,901
</TABLE>

INDEPENDENT AUDITORS' REPORT
To the Trustees and Shareholders of
FEDERATED INCOME TRUST:

DELOITTE & TOUCHE LLP

Pittsburgh, Pennsylvania
March 12, 1997

ADDRESSES

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 P.O. Box 8600
Services Company Boston, Massachusetts 02266-8600

Independent Auditors
Deloitte & Touche LLP 2500 One PPG Place
Pittsburgh, Pennsylvania 15222-5401

FEDERATED INCOME TRUST
INSTITUTIONAL SERVICE SHARES
PROSPECTUS

An Open-End, Diversified
Management Investment Company

March 31, 1997

[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 314199209
8030102A-SS(3/97)

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
prospectuses of the Trust dated March 31, 1997. This Statement is not a
prospectus. You may request a copy of a prospectus or a paper copy of this
Statement, if you have received it electronically, free of charge by calling
1-800-341-7400.

FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779

Statement dated March 31, 1997

[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.

Cusip 314199100
Cusip 314199209
8030102B (3/97)

TABLE OF CONTENTS

GENERAL INFORMATION ABOUT THE TRUST 1
INVESTMENT OBJECTIVE AND POLICIES 1
Types of Investments 1
When-Issued and Delayed Delivery Transactions 1
Repurchase Agreements 1
Interest-Only and Principal-Only Investments 1
Inverse Floaters 1
Portfolio Turnover 2
INVESTMENT LIMITATIONS 2
Selling Short and Buying on Margin 2
Borrowing Money 2
Pledging Assets 2
Lending Cash or Securities 2
Issuing Senior Securities 2
Investing in Securities of Other Investment
Companies 2
FEDERATED INCOME TRUST MANAGEMENT 3
Trust Ownership 6
Trustees Compensation 7
Trustee Liability 7
INVESTMENT ADVISORY SERVICES 8
Adviser to the Trust 8
Advisory Fees 8
BROKERAGE TRANSACTIONS 8
OTHER SERVICES 8
Trust Administration 8
Custodian and Portfolio Accountant 9
Transfer Agent 9
Independent Auditors 9
PURCHASING SHARES 9
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
9
Conversion to Federal Funds 9
DETERMINING NET ASSET VALUE 9
Determining Market Value of Securities 10
REDEEMING SHARES 10
MASSACHUSETTS PARTNERSHIP LAW 10
EXCHANGING SECURITIES FOR TRUST SHARES 10
Tax Consequences 10
TAX STATUS 11
The Trust's Tax Status 11
Shareholders' Tax Status 11
TOTAL RETURN 11
YIELD 11
PERFORMANCE COMPARISONS 12
Economic and Market Information 13
Duration 13
ABOUT FEDERATED INVESTORS 13
Mutual Fund Market 13
Institutional Clients 13
Bank Marketing 14
Broker/Dealers and Bank
Broker/Dealer Subsidiaries 14

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 SMBSs
(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 a nationally rated statistical rating
organization. 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.

INVERSE FLOATERS

Some of the collateralized mortgage obligations ("CMOs") purchased by the
Fund may include a class whose yield floats inversely against a specified
index rate. These "inverse floaters" are more volatile than conventional
fixed or floating rate classes of a CMO and the yield thereon, as well as
the value thereof, will fluctuate in inverse proportion to changes in the
index on which interest rate adjustments are based. As a result, the yield
on an inverse floater class of a CMO will generally increase when market
yields (as reflected by the index) decrease and decrease when market yields
increase. The extent of the volatility of inverse floaters depends on the
extent of anticipated changes in market rates of interest. Generally,
inverse floaters provide for interest rate adjustments based upon a multiple
of the specified interest index, which further increases their volatility.
The degree of additional volatility will be directly proportional to the
size of the multiple used in determining interest rate adjustments.

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, 1997 and 1996, the portfolio turnover rates were 212% and 184%,
respectively.

INVESTMENT LIMITATIONS

The Trust will not change any of the investment limitations described below
without approval of shareholders.

SELLING SHORT AND BUYING ON MARGIN

The Trust will not sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as may be necessary for
clearance of purchases and sales of portfolio securities.

BORROWING MONEY

The Trust will not borrow money except as a temporary measure for
extraordinary or emergency purposes and then only in amounts not in excess
of 5% of the value of its total assets or in an amount up to one-third of
the value of its total assets, including the amount borrowed, in order to
meet redemption requests without immediately selling portfolio securities.
This borrowing provision is not for investment leverage but solely to
facilitate management of the portfolio by enabling the Trust to meet
redemption requests when the liquidation of portfolio securities would be
inconvenient or disadvantageous.

Interest paid on borrowed funds will not be available for investment. The
Trust will liquidate any such borrowings as soon as possible and may not
purchase any portfolio securities while any borrowings are outstanding.

PLEDGING ASSETS

The Trust will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it may mortgage, pledge, or
hypothecate assets having a market value not exceeding 10% of the value of
total assets at the time of the borrowing.

LENDING CASH OR SECURITIES

The Trust will not lend any assets except portfolio securities. (This will
not prevent the purchase or holding of bonds, debentures, notes,
certificates of indebtedness or other debt securities of an issuer,
repurchase agreements or other transactions which are permitted by the
Trust's investment objective and policies or Declaration of Trust).
ISSUING SENIOR SECURITIES

The Trust will not issue senior securities, except as permitted by its
investment objective and policies.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

The Trust may not own securities of open-end investment companies. The Trust
can acquire up to 3 per centum of the total outstanding stock of closed-end
investment companies. The Trust will not be subject to any other limitations
with regard to the acquisition of securities of closed-end investment
companies so long as the public offering price of the Trust's Shares does
not include a sales load exceeding 1-1/2 per cent. The Trust will purchase
securities of closed-end investment companies only in open-market
transactions involving only customary broker's commissions. However, these
limitations are not applicable if the securities are acquired in a merger,
consolidation, or acquisition of assets.

Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in
percentage resulting from any change in value or net assets will not result
in a violation of such restriction.

The Trust did not borrow money or pledge securities in excess of 5% of the
value of its total assets during the last fiscal year and has no present
intent to do so in the coming fiscal year.

FEDERATED INCOME TRUST MANAGEMENT

Officers and Trustees are listed with their addresses, birthdates, present
positions with Federated Income Trust, and principal occupations.

John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924

Chairman and Trustee

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.

Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934

Trustee

Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Trustee,
University of Pittsburgh; Director or Trustee of the Funds.

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; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.

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.;
formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.;
Director, Ryan Homes, Inc.; Director or Trustee of the Funds.

James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922

Trustee

Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Trustee of the
Funds.

Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932

Trustee
Professor of Medicine, 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.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924

Trustee

Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee of the Funds.

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
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942

Trustee

Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street
Boston Corporation; Director or Trustee of the Funds.

Gregor F. Meyer
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: October 6, 1926

Trustee

Attorney, Member of Miller, Ament, Henny & Kochuba; 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; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., National Defense University, U.S. Space Foundation and Czech
Management Center; President Emeritus, University of Pittsburgh; Founding
Chairman, National Advisory Council for Environmental Policy and Technology,
Federal Emergency Management Advisory Board and Czech Management Center;
Director or Trustee of the Funds.

Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935

Trustee

Public Relations/Marketing/Conference Planning, Manchester Craftsmen's
Guild; Restaurant Consultant, Frick Art & History Center; Conference
Coordinator, University of Pittsburgh Art History Department; 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 Company.

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, Secretary and Treasurer

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; Treasurer of some 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.

* 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: 111 Corcoran Funds; 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; Federated Adjustable Rate U.S.
Government Fund, Inc.; Federated American Leaders Fund, Inc.; Federated ARMs
Fund; Federated Equity Funds; Federated Equity Income Fund, Inc.; Federated
Fund for U.S. Government Securities, Inc.; Federated GNMA Trust; Federated
Government Income Securities, Inc.; Federated Government Trust; Federated
High Income Bond Fund, Inc.; Federated High Yield Trust; Federated Income
Securities Trust; Federated Income Trust; Federated Index Trust; Federated
Institutional Trust; Federated Insurance Series; Federated Investment
Portfolios; Federated Investment Trust; Federated Master Trust; Federated
Municipal Opportunities Fund, Inc.; Federated Municipal Securities Fund,
Inc.; Federated Municipal Trust; Federated Short-Term Municipal Trust;
Federated Short-Term U.S. Government Trust; Federated Stock and Bond Fund,
Inc.; 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: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed Income Securities,
Inc.; High Yield Cash Trust; Intermediate Municipal Trust; International
Series, Inc.; Investment Series Funds, Inc.; Investment Series Trust;
Liberty Term Trust, Inc. -- 1999; Liberty U.S. Government Money Market
Trust; Liquid Cash Trust; Managed Series Trust; Money Market Management,
Inc.; Money Market Obligations Trust; Money Market Trust; Municipal
Securities Income Trust; Newpoint Funds; Peachtree Funds; RIMCO Monument
Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The Planters
Funds; The Starburst Funds; The Starburst Funds II; The Virtus Funds; Trust
for Financial Institutions; Trust for Government Cash Reserves; Trust for
Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations;
Wesmark Funds; and World Investment Series, Inc.

TRUST OWNERSHIP

Officers and Trustees own less than 1% of the Trust's outstanding shares.

As of March 10, 1997, the following shareholder of record owned 5% or more
of the outstanding Institutional Shares of the Trust: Sheldon & Co.,
National City Bank, Cleveland, Ohio, owned approximately 7,028,036.8110
shares (8.60%).

As of March 10, 1997, the following shareholders of record owned 5% or more
of the outstanding Institutional Service Shares of the Trust: First National
Bank & Trust of McAllister, McAllister, Oklahoma owned approximately
559,908.2780 shares (13.08%); Charles Schwab & Co., Inc., San Francisco,
California owned approximately 514,820.8740 shares (12.03%); Heritage Trust
Company, Grand Junction, Colorado owned approximately 505,816.9580 shares
(11.82%); Signet Trust Company, Baltimore, Maryland owned approximately
310,942.6120 shares (7.26%); Community First National Bank, Fargo, North
Dakota owned approximately 301,606.0920 shares (7.05%); Citizens'
Scholarship FOA, Inc., St. Peter, Minnesota owned approximately 282,809.7270
shares (6.61%); and CPB Trust Division, Honolulu, Hawaii owned approximately
278,573.3610 shares (6.51%).

TRUSTEES COMPENSATION
<TABLE>
<CAPTION>
NAME, AGGREGATE TOTAL COMPENSATION
POSITION WITH COMPENSATION FROM PAID TO TRUSTEES FROM
TRUST TRUST* TRUST AND FUND COMPLEX+
<S> <C> <S>

John F. Donahue, Chairman $-0- $-0- for the Trust and
and Trustee 56 investment companies
Glen R. Johnson, President $-0- $-0- for the Trust and
and Trustee 8 investment companies
Thomas G. Bigley, Trustee $1,967 $108,725 for the Trust and
56 investment companies
John T. Conroy, Jr., Trustee $2,164 $119,615 for the Trust and
56 investment companies
William J. Copeland, Trustee $2,164 $119,615 for the Trust and
56 investment companies
James E. Dowd, Trustee $2,164 $119,615 for the Trust and
56 investment companies
Lawrence D. Ellis, M.D., Trustee $1,967 $108,725 for the Trust and
56 investment companies
Edward L. Flaherty, Jr., Trustee $2,164 $119,615 for the Trust and
56 investment companies
Peter E. Madden, Trustee $1,967 $108,725 for the Trust and
56 investment companies
Gregor F. Meyer, Trustee $1,967 $108,725 for the Trust and
56 investment companies
John E. Murray, Jr., Trustee $1,967 $108,725 for the Trust and
56 investment companies
Wesley W. Posvar, Trustee $1,967 $108,725 for the Trust and
56 investment companies
Marjorie P. Smuts, Trustee $1,967 $108,725 for the Trust and
56 investment companies
</TABLE>

* Information is furnished for the fiscal year ended January 31, 1997

+ The information provided is for the last calendar year.

TRUSTEE LIABILITY

The Trust's Declaration of Trust provides that the Trustees are not liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.

INVESTMENT ADVISORY SERVICES

ADVISER TO THE TRUST

The Trust's investment adviser is Federated Management (the "Adviser"). 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 prospectuses. During the fiscal
years ended January 31, 1997, 1996, and 1995, the Trust's Adviser earned
$3,763,073, $4,380,678, and $5,793,071, respectively.

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, 1997, 1996, 1995, 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 Administrator. Prior to March
1, 1994, Federated Administrative Services, Inc. served as the Trust'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, 1997, 1996, and
1995, the Administrators earned $711,038, $828,876, and $1,081,996,
respectively.

Custodian and Portfolio Accountant

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 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, 1997, payments in the amount of $101,450 were
made pursuant to the Distribution Plan (Institutional Service Shares only),
$97,392 of which was waived. In addition, for this period, the Trust paid
shareholder service fees in the amount of $2,250,471 for Institutional
Shares and $101,450 for Institutional Service Shares, of which $1,980,414
and $4,058 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
prospectuses.

DETERMINING MARKET VALUE OF SECURITIES

Market values of the Trust's portfolio securities are determined as follows:

* according to the mean between the over-the-counter bid and asked prices
provided by an independent pricing service, if available, or at fair value
as determined in good faith by the Trustees; or

* for short-term obligations with remaining maturities of less than 60 days
at the time of purchase, at amortized cost unless the Trustees determine
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:

* derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;

* derive less than 30% of its gross income from the sale of securities held
less than three months;

* invest in securities within certain statutory limits; and

* distribute to its shareholders at least 90% of its net income earned
during the year.

SHAREHOLDERS' TAX STATUS

Shareholders are subject to federal income tax on dividends and capital
gains received as cash or additional Shares. No portion of any income
dividend paid by the 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, 1997, were 4.44%,
6.23%, and 7.78%, respectively. The Trust's average annual total return for
Institutional Service Shares for the year ended January 31, 1997 and the
period from June 2, 1992 (date of Institutional Service Shares inception) to
January 31, 1997, was 4.21% and 5.94%, 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, 1997, was 6.69%. The Trust's yield for Institutional Service
Shares was 6.47% for the same period.

PERFORMANCE COMPARISONS

The performance of both classes of Shares depends upon such variables as:

* portfolio quality;

* average portfolio maturity;

* type of instruments in which the portfolio is invested;

* changes in interest rates and market value of portfolio securities;
* changes in the Trust's expenses or either class of shares' expenses; and

* various other factors.

Both classes of Shares' performance fluctuates on a daily basis largely
because net earnings and net asset value per share fluctuate daily. Both net
earnings and net asset value per share are factors in the computation of
yield and total return. Investors may use financial publications and/or
indices to obtain a more complete view of the 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:

* 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.

* LEHMAN BROTHERS GOVERNMENT INDEX is an unmanaged index comprised of all
publicly issued, non-convertible domestic debt of the U.S. government, or
any agency thereof, or any quasi-federal corporation and of corporate debt
guaranteed by the U.S. government. Only notes and bonds with a minimum
outstanding principal of $1 million and a minimum maturity of one year are
included.

* SALOMON BROTHERS 15-YEAR MORTGAGE-BACKED SECURITIES INDEX includes the
average of all 15-year mortgage securities which include Federal Home Loan
Mortgage Corp. (Freddie Mac), Federal National Mortgage Association (Fannie
Mae), and Government National Mortgage Association (GNMA).

* LEHMAN BROTHERS FIVE-YEAR TREASURY BELLWETHER INDEX is an unmanaged index
comprised of U.S. government Treasury bonds with an average maturity of five
years.

* MORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for two
weeks.

In addition, the 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.

* 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.

Advertising and other promotional literature may include charts, graphs and
other illustrations using the Trust's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Trust can
compare its performance, or performance for the types of securities in which
it invests, to a variety of other investments, such as bank savings
accounts, certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION

Advertising and sales literature for the Trust may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by Trust portfolio managers and their views and analysis on how
such developments could affect the Funds. In addition, advertising and sales
literature may quote statistics and give general information about the
mutual fund industry, including the growth of the industry, from sources
such as the Investment Company Institute.

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. These traders handle
trillions of dollars in annual trading volume.

In the government sector, as of December 31, 1996, Federated Investors
managed 9 mortgage-backed, 5 government/agency and 17 government money
market mutual funds, with assets approximating $6.3 billion, $1.7 billion
and $23.6 billion, respectively. Federated trades approximately $309 million
in U.S. government and mortgage-backed securities daily and places $17
billion in repurchase agreements each day. Federated introduced the first
U.S. government fund to invest in U.S. government bond securities in 1969.
Federated has been a major force in the short- and intermediate-term
government markets since 1982 and currently manages nearly $30 billion in
government funds within these maturity ranges.

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 and global portfolios.

MUTUAL FUND MARKET

Thirty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $3.5 trillion to the more than 6,000 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 advisers. The marketing effort to these institutional clients is
headed by John B. Fisher, President, Institutional Sales Division.

BANK MARKETING

Other institutional clients include close relationships with more than 1,600
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 -- we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country -- supported by more wholesalers than any
other mutual fund distributor. Federated's service to financial
professionals and institutions has earned it high ratings in several surveys
performed by DALBAR, Inc. DALBAR is recognized as the industry benchmark for
service quality measurement. The marketing effort to these firms is headed
by James F. Getz, President, Federated Securities Corp.

*Source: Investment Company Institute