PRESIDENT'S MESSAGE
Dear Investor:
I am pleased to present the Semi-Annual Report to Shareholders for Federated
Income Trust. The report covers the six-month period from February 1, 1998,
through July 31, 1998, and includes the trust's investment review, portfolio of
investments and financial statements.
This trust pursues an attractive level of monthly income through a diversified
portfolio of mortgage-backed securities. During the reporting period, the trust
maintained its AAAf rating by Standard & Poor's, the highest available from this
independent rating service.*
Over the reporting period, the trust paid dividends totaling $0.31 per share for
Institutional Shares and $0.30 per share for Institutional Service Shares. Net
asset value for both share classes decreased by $0.02 to end the reporting
period at $10.36. Total returns for Institutional Shares and Institutional
Service Shares were 2.82%** and 2.71%,** respectively. The trust's net assets
totaled $762 million on the last day of the reporting period.
We appreciate your continued confidence in Federated Income Trust. As always, we
welcome your questions and comments.
Sincerely,
[graphic]
Glen R. Johnson
President
September 15, 1998
* An AAAf rating means that the trust's portfolio holdings and counterparties
provide extremely strong protection against losses from credit defaults. Ratings
do not remove market risks and are subject to change.
** Performance quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate, so that an
investor's shares when redeemed, may be worth more or less than their original
cost.
INVESTMENT REVIEW
Federated Income Trust provides shareholders with a professionally managed
portfolio of U.S. government securities. The trust offers daily liquidity,
credit control, and other advantages over comparable U.S. Treasuries, while at
the same time allowing investors to avoid the complexities of managing a
portfolio of mortgage-backed securities. Shareholders hold an interest in a
diversified portfolio, managed with very conservative disciplines.
During the semi-annual reporting period, the U.S. economy dealt with a
confluence of events. The events ranged from concerns over Asia's financial
turmoil to a stronger domestic economy. The divergence in these events creates a
problem for the Federal Reserve Board (the "Fed"). The Fed cannot respond to the
continued strength in the U.S. economy and the tightness in the domestic labor
markets. This is due to the uncertain impact that a tighter Fed monetary policy
would have on Asia and the emerging market economies. The result has been a Fed
that continues to be on hold. This global tug-of-war has benefited the U.S.
Treasury market as the long bond yield has declined to all time historic lows.
The decline in interest rates has been a direct result of the worldwide
flight-to-quality. This flight is due to concerns over Asian financial woes, and
the spreading of those problems to other developing countries.
The impact to the mortgage market has been a widening in both nominal and option
adjusted spreads. There are two reasons for this widening. The first reason has
been investors' concerns over an increase in prepayment activity. Prepayment
numbers, while robust, are below the 1992-93 experience and show a gradual
reduction in prepayment demand. In order to have prepayment risk become a
dominant issue for investors, the prevailing mortgage rate would need to decline
below 6.7%. Additionally, the widening in mortgage spreads is adequately
compensating investors against the possibility of faster prepayments. The second
reason is due to the turmoil in the foreign and corporate debt markets. The
outcome of this worldwide turmoil has been a general widening of spreads in all
fixed income sectors.
Current portfolio strategy targets an effective duration of 2.64 years which is
neutral to the Lehman Brothers Mortgage-Backed Security Index.* The asset
allocation mix reflects a blend of GNMA and conventional mortgage-backed
securities with a diversified range of coupons averaging 6.96%. During the
semi-annual reporting period, the trust continually upgraded its prepayment
protection to guard against unexpected increases in prepayments. These purchases
focused on newly originated GNMA securities. The GNMA borrower tends to be slow
to take advantage of refinancing due to income constraints and the inability to
finance up-front costs. During the first half of 1998, prepayments for current
GNMA securities have averaged 35% slower than comparable conventional
securities.
Overall, our view on the mortgage market is one of fair value when viewed from a
historical spread and prepayment perspective. The widening of spreads in other
fixed income markets combined with the turmoil in Russia, Asia, and Latin
America portray a near-term difficult time for mortgages.
As of July 31, 1998, total net assets were $762.5 million and the average 30-
day net yield as calculated under Securities and Exchange Commission guidelines
was 6.08%** for Institutional Shares and 5.86%** for Institutional Service
Shares. Rated AAAf by Standard & Poor's for credit quality, the trust remains
committed to competitive yields and daily liquidity.+
* Lehman Brothers Mortgage-Backed Securities Index is composed of all fixed
rate, securitized mortgage pools by GNMA, FNMA, and the FHLMC, including GNMA
Graduated Payment Mortgages. This index is unmanaged, and investments cannot be
made in an index.
** Performance quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
+ An AAAf rating means that the trust's portfolio holdings and counterparties
provide extremely strong protection against losses from credit defaults. Ratings
do not remove market risks and are subject to change.
PORTFOLIO OF INVESTMENTS
FEDERATED INCOME TRUST
JULY 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
LONG-TERM OBLIGATIONS--98.3%
(A)FEDERAL HOME LOAN MORTGAGE CORP.--22.1%
$ 113,884 10.50%, 7/1/2000 $ 116,173
114,733 11.50%, 12/1/2014 129,757
179,071 11.00%, 5/1/2000 182,904
9,408,977 9.50%, 11/1/2009 - 12/1/2022 10,195,417
2,569,227 9.00%, 4/1/2009 - 2/1/2013 2,716,160
12,415,743 8.00%, 6/1/2027 12,861,965
48,207,147 7.50%, 12/1/2022 - 6/1/2027 49,497,540
67,296,951 7.00%, 10/1/2007 - 6/1/2028 68,432,532
24,356,191 6.00%, 3/1/2011 - 6/1/2011 24,143,074
Total 168,275,52 2
(A)FEDERAL HOME LOAN MORTGAGE CORP. REMIC--5.5%
12,675,000 7.50%, Series 2081-ED (Interest Only), 8/15/2028 4,079,766
15,000,000 6.50%, Series 1992-PM, 2/15/2026 15,007,200
15,000,000 6.50%, Series 1959-C, 5/15/2027 14,901,750
15,384,615 6.50%, Series 2070-IO (Interest Only), 7/15/2028 4,942,308
3,287,334 0.00%, Series 2015-PO (Principal Only), 12/15/2027 2,435,717
472,897 0.00%, Series 2031-BO (Principal Only), 2/20/2028 345,659
Total 41,712,400
(A)FEDERAL NATIONAL MORTGAGE ASSOCIATION--25.2%
11,424,494 10.50%, 12/1/2019 - 4/1/2022 12,721,758
17,870,246 10.00%, 11/1/2009 - 4/1/2025 19,580,160
15,910,335 8.00%, 12/1/2026 16,487,085
6,491,067 7.50%, 3/1/2010 - 7/1/2028 6,701,113
28,310,000 (b)7.00%, 8/1/2028 (TBA) 28,716,815
6,895,294 7.00%, 1/1/2013 - 5/1/2013 7,026,718
82,868,182 6.00%, 3/1/2013 - 5/1/2013 81,494,974
20,000,000 (b)6.00%, 8/1/2013 (TBA) 19,762,400
Total 192,491,02 3
</TABLE>
FEDERATED INCOME TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
LONG-TERM OBLIGATIONS--CONTINUED
(A)FEDERAL NATIONAL MORTGAGE ASSOCIATION REMIC--2.4%
$ 44,350,000 2.84%, Series 98-46-SC (Interest Only/Inverse Floater), 5/18/2028 $ 5,107,346
17,293,108 0.00%, Series 98-40-PO, 6/17/2028 (Principal Only) 13,034,680
Total 18,142,026
(A)GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--42.0%
58,461,252 8.00%, 2/15/2027 - 3/15/2028 60,653,549
43,010,874 7.50%, 5/15/2028 44,260,770
35,525,000 (b)TBA, 7.50%, 8/1/2028 (TBA) 36,557,357
62,800,000 (b)TBA, 7.00%, 8/1/2028 (TBA) 63,801,032
30,617,690 7.00%, 11/15/2026 - 12/15/2026 31,115,228
83,731,374 6.50%, 12/15/2023 - 7/15/2028 83,919,127
Total 320,307,063
(A)GOVERNMENT NATIONAL MORTGAGE ASSOCIATION REMIC--1.1%
19,313,862 8.00%, Series 97-7-PI, 5/16/2027 (Interest Only) 5,963,155
3,645,934 0.00%, Series 97-17 PO, 12/20/2027 (Principal Only) 2,704,846
Total 8,668,001
TOTAL LONG-TERM OBLIGATIONS (IDENTIFIED COST $744,507,385) 749,596,03 5
(C)REPURCHASE AGREEMENTS--14.2%
16,925,000 BT Securities Corp., 5.64%, dated 7/31/1998, due 8/3/1998 16,925,000
28,300,000 (d)Goldman Sachs Group, LP, 5.54%, dated 7/7/1998, due 8/13/1998 28,300,000
62,800,000 (d)Warburg Dillon Reed LLC, 5.53%, dated 7/16/1998, due 8/19/1998 62,800,000
TOTAL REPURCHASE AGREEMENTS (AT AMORTIZED COST) 108,025,000
TOTAL INVESTMENTS (IDENTIFIED COST $852,532,385)(E) $ 857,621,035
</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) Indicates securities subject to dollar roll transactions with a total
market value of $148,837,604.
(c) The repurchase agreements are fully collateralized by U.S. government
and/or agency obligations based on market prices at the date of the portfolio.
The investments in the repurchase agreements are through participation in joint
accounts with other Federated funds.
(d) Although final maturity falls beyond seven days, a liquidity feature is
included in each transaction to permit termination of the repurchase agreement
within seven days if creditworthiness of the issuer is downgraded.
(e) The cost of investments for federal tax purposes amounts to $852,532,385.
The net unrealized appreciation/depreciation of investments on a federal tax
basis amounts to $5,088,650 which is comprised of $6,491,343 appreciation and
$1,402,693 depreciation at July 31, 1998.
Note: The categories of investments are shown as a percentage of net assets
($762,526,895) at July 31, 1998.
The following acronyms are used throughout this portfolio:
LLC --Limited Liability Corporation
LP --Limited Partnership
REMIC --Real Estate Mortgage Investment Conduit
TBA --To Be Announced
(See Notes which are an integral part of the Financial Statements) STATEMENT OF
ASSETS AND LIABILITIES
FEDERATED INCOME TRUST
JULY 31, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Investments in repurchase agreements $ 108,025,000
Investments in securities 749,596,035
Total investments in securities, at value (identified and
tax cost $852,532,385) $ 857,621,035
Income receivable 4,193,265
Receivable for investments sold 61,494,410
Receivable for shares sold 455,789
Total assets 923,764,499
LIABILITIES:
Payable for investments purchased 128,608,137
Payable for shares redeemed 15,638
Income distribution payable 3,787,059
Payable for dollar roll transactions 28,639,803
Accrued expenses 186,967
Total liabilities 161,237,604
NET ASSETS for 73,614,224 shares outstanding $ 762,526,895
NET ASSETS CONSIST OF:
Paid in capital $ 861,787,554
Net unrealized appreciation of investments 5,088,650
Accumulated net realized loss on investments (104,973,188)
Undistributed net investment income 623,879
Total Net Assets $ 762,526,895
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$713,886,878 / 68,918,391 shares outstanding $10.36
INSTITUTIONAL SERVICE SHARES:
$48,640,017 / 4,695,833 shares outstanding $10.36
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
FEDERATED INCOME TRUST
SIX MONTHS ENDED JULY 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest (net of dollar roll expense of $2,356,294) $ 25,995,226
EXPENSES:
Investment advisory fee $ 1,542,823
Administrative personnel and services fee 290,822
Custodian fees 32,408
Transfer and dividend disbursing agent fees and expenses 59,979
Directors'/Trustees' fees 4,989
Auditing fees 12,020
Legal fees 2,800
Portfolio accounting fees 70,461
Distribution services fee--Institutional Service Shares 56,655
Shareholder services fee--Institutional Shares 907,609
Shareholder services fee--Institutional Service Shares 56,655
Share registration costs 15,105
Printing and postage 9,320
Insurance premiums 1,069
Taxes 91
Miscellaneous 7,768
Total expenses 3,070,574
Waivers--
Waiver of distribution services fee--Institutional Service Shares $ (54,389)
Waiver of shareholder services fee--Institutional Shares (762,391)
Total waivers (816,780)
Net expenses 2,253,794
Net investment income 23,741,432
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 1,183,746
Net change in unrealized depreciation of investments (3,115,994)
Net realized and unrealized loss on investments (1,932,248)
Change in net assets resulting from operations $ 21,809,184
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
FEDERATED INCOME TRUST
<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
JULY 31, JANUARY 31,
1998 1998
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 23,741,432 $ 54,077,741
Net realized gain on investments ($1,183,746 and $16,260,368,
respectively, as computed for federal tax purposes) 1,183,746 16,279,577
Net change in unrealized appreciation/depreciation (3,115,994) 2,287,217
Change in net assets resulting from operations 21,809,184 72,644,535
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Institutional Shares (21,806,802) (51,782,096)
Institutional Service Shares (1,310,751) (2,738,632)
Change in net assets resulting from distributions to shareholders (23,117,553) (54,520,728)
SHARE TRANSACTIONS--
Proceeds from sale of shares 86,462,653 171,602,234
Net asset value of shares issued to shareholders in payment of
distributions declared 5,261,630 14,317,427
Cost of shares redeemed (117,720,341) (296,011,693)
Change in net assets resulting from share transactions (25,996,058) (110,092,032)
Change in net assets (27,304,427) (91,968,225)
NET ASSETS:
Beginning of period 789,831,322 881,799,547
End of period (including undistributed net investment income of
$623,879 and $0, respectively) $ 762,526,895 $ 789,831,322
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
FEDERATED INCOME TRUST
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SIX MONTHS
ENDED
(UNAUDITED)
JULY 31, YEAR ENDED JANUARY 31,
1998 1998 1997 1996 1995 1994
NET ASSET VALUE, BEGINNING OF PERIOD $10.38 $10.15 $10.39 $ 9.70 $10.50 $10.73
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.32 0.66 0.68 0.67 0.70 0.77
Net realized and unrealized gain
(loss) on investments (0.03) 0.24 (0.24) 0.69 (0.80) (0.23)
Total from investment operations 0.29 0.90 0.44 1.36 (0.10) 0.54
LESS DISTRIBUTIONS
Distributions from net investment income (0.31) (0.67) (0.68) (0.67) (0.70) (0.77)
Distributions in excess of net
realized gain on investments -- -- -- -- -- --
Total distributions (0.31) (0.67) (0.68) (0.67) (0.70) (0.77)
NET ASSET VALUE, END OF PERIOD $10.36 $10.38 $10.15 $10.39 $ 9.70 $10.50
TOTAL RETURN(A) 2.82 % 9.20 % 4.44 % 14.44 % (0.86) % 5.22 %
RATIOS TO AVERAGE NET ASSETS
Expenses 0.57 %* 0.58 % 0.58 % 0.58 % 0.56 % 0.51 %
Net investment income 6.18 %* 6.50 % 6.70 % 6.67 % 6.99 % 7.28 %
Expense waiver/reimbursement(b) 0.21 %* 0.22 % 0.22 % 0.22 % -- --
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $713,887 $746,407 $838,542 $983,093 $1,119,976 $1,727,247
Portfolio turnover 111 % 306 % 212 % 184 % 217 % 178 %
</TABLE>
* Computed on an annualized basis.
(a) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
FEDERATED INCOME TRUST
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
JULY 31, YEAR ENDED JANUARY31,
1998 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.38 $10.15 $10.39 $ 9.70 $10.50 $10.73
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.30 0.64 0.65 0.65 0.68 0.75
Net realized and unrealized gain
(loss) on investments (0.02) 0.24 (0.24) 0.69 (0.80) (0.23)
Total from investment operations 0.28 0.88 0.41 1.34 (0.12) 0.52
LESS DISTRIBUTIONS
Distributions from net
investment income (0.30) (0.65) (0.65) (0.65) (0.68) (0.75)
NET ASSET VALUE, END OF PERIOD $10.36 $10.38 $10.15 $10.39 $ 9.70 $10.50
TOTAL RETURN (A) 2.71 % 8.96 % 4.21 % 14.19 % (1.08 %) 4.96 %
RATIOS TO AVERAGE NET ASSETS
Expenses 0.79 %* 0.80 % 0.80 % 0.80 % 0.78 % 0.76 %
Net investment income 5.74 %* 6.28 % 6.49 % 6.45 % 6.75 % 7.03 %
Expense waiver/reimbursement(b) 0.24 %* 0.25 % 0.25 % 0.25 % 0.22 % --
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $48,640 $43,424 $43,257 $40,788 $40,428 $67,176
Portfolio turnover 111 % 306 % 212 % 184 % 217 % 178 %
</TABLE>
* Computed on an annualized basis.
(a) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
NOTES TO FINANCIAL STATEMENTS
FEDERATED INCOME TRUST
JULY 31, 1998 (UNAUDITED)
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.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
U.S. government securities are generally valued at the mean of the latest bid
and asked price as furnished by an independent pricing service. Short-term
securities are valued at the prices provided by an independent pricing service.
However, short-term securities with remaining maturities of sixty days or less
at the time of purchase may be valued at amortized cost, which approximates fair
market value.
REPURCHASE AGREEMENTS
It is the policy of the Trust to require the custodian bank to take possession,
to have legally segregated in the Federal Reserve Book Entry System, or to have
segregated within the custodian bank's vault, all securities held as collateral
under repurchase agreement transactions. Additionally, procedures have been
established by the Trust to monitor, on a daily basis, the market value of each
repurchase agreement's collateral to ensure that the value of collateral at
least equals the repurchase price to be paid under the repurchase agreement
transaction.
The Trust will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Trust's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the "Trustees").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Trust could receive less
than the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex- dividend
date.
FEDERAL TAXES
It is the Trust's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary.
At January 31, 1998, the Trust, for federal tax purposes, had a capital loss
carryforward of $106,232,141, which will reduce the Trust's taxable income
arising from future net realized gain on investments, if any, to the extent
permitted by the Code, and thus will reduce the amount of the distributions to
shareholders which would otherwise be necessary to relieve the Trust of any
liability for federal tax. Pursuant to the Code, such capital loss carryforward
will expire as follows:
Expiration Year Expiration Amount
1999 $ 1,962,942
2003 99,607,733
2005 4,661,466
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 involve "to be announced"
securities and are treated as 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.
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>
SIX MONTHS ENDED YEAR ENDED
JULY 31, 1998 JANUARY 31, 1998
<S> <C> <C> <C> <C>
INSTITUTIONAL SHARES SHARES AMOUNT SHARES AMOUNT
Shares sold 7,524,166 $ 77,849,008 15,549,209 $ 159,250,672
Shares issued to shareholders in payment of
distributions declared 458,830 4,747,082 1,254,667 12,827,066
Shares redeemed (11,003,861) (113,879,770) (27,486,985) (281,173,119)
Net change resulting from Institutional Share
transactions (3,020,865) $ (31,283,680) (10,683,109) $ (109,095,381)
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JULY 31, 1998 JANUARY 31, 1998
<S> <C> <C> <C> <C>
INSTITUTIONAL SERVICE SHARES SHARES AMOUNT SHARES AMOUNT
Shares sold 832,445 $ 8,613,645 1,224,367 $ 12,546,246
Shares issued to shareholders in payment of
distributions declared 49,734 514,548 145,892 1,490,361
Shares redeemed (371,190) (3,840,571) ( 1,448,069) (14,838,574)
Net change resulting from Institutional Service
Share transactions 510,989 $ 5,287,622 (77,810) $ (801,967)
Net change resulting from share transactions (2,509,876) $ (25,996,058) (10,760,919) $ (109,897,348)
</TABLE>
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, Inc. 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 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.
YEAR 2000
Similar to other financial organizations, the Trust could be adversely affected
if the computer systems used by the Trust's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Trust's Adviser and Administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Trust's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Trust.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended July 31, 1998, were as follows:
PURCHASES $895,162,1 97
SALES $843,081,6 70
TRUSTEES
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
Nicholas P. Constantakis
William J. Copeland
James E. Dowd, Esq.
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr., Esq.
Glen R. Johnson
Peter E. Madden
John E. Murray, Jr., J.D., S.J.D.
Wesley W. Posvar
Marjorie P. Smuts
OFFICERS
John F. Donahue
Chairman
Glen R. Johnson
President
J. Christopher Donahue
Executive Vice President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President, Treasurer, and Secretary
Richard B. Fisher
Vice President
Anthony R. Bosch
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the trust's prospectus which contains facts
concerning its objective and policies, management fees, expenses, and other
information.
[graphic]
Federated Income Trust
Federated Securities Corp., Distributor
Federated Investors, Inc.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
SEMI-ANNUAL REPORT TO SHAREHOLDERS JULY 31, 1998 [graphic] Cusip 314199100 Cusip
314199209 8082203 (9/98) [graphic]
