FEDERATED INCOME TRUST, N-30D, 1998-04-01

FEDERATED INCOME TRUST
N-30D, 1998-04-01

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Federated Income Trust
Institutional Shares
Institutional Service Shares

Annual Report for Fiscal Year Ended January 31, 1998

MANAGEMENT DISCUSSION AND ANALYSIS

Federated Income Trust (the "Trust"), provides shareholders with a
professionally managed portfolio of U.S. government securities. The Trust

offers daily liquidity, credit control and other advantages over comparable U.S.
Treasuries while at the same time allowing investors to avoid the complexities
of managing a portfolio of mortgage-backed securities. Shareholders accumulate
an interest in a diversified portfolio managed using very conservative
disciplines.

During the Trust's fiscal year, the U.S. economy continued to show strong growth
with relatively benign inflation. Recent economic data is beginning to show
signs of some moderation as seen by manufacturing, factory orders and durable
good orders. This recent weakness could be reflecting that many businesses have
at least paused due to the slowdown in Asia. The inflation picture continues to
be sanguine as witnessed by falling commodities prices and stable to declining
consumer price inflation. This overall economic environment supports the Federal
Reserve Board's continued decision for steady monetary policy over the near
term.

The reaction of the U.S. bond market has been euphoric as yields have fallen by
50+ basis points during the final quarter of the reporting period. The decline
in long-term interest rates has created the best opportunity for homeowners to
refinance their mortgage in over four years. Given this environment, the Trust
throughout 1997 took advantage of opportunities to add cheap prepayment
protection. These opportunities were in the form of structured mortgage product
and collateral holdings with favorable loan characteristics. The structured
mortgage product is attractive given the prepayment protection offered by the
lockout of collateralized mortgage obligations (CMOs). This lockout feature will
become more valuable as anticipated prepayment speeds increase in the near term.
The Trust, over the course of the last several months, swapped comparable coupon
collateral for structured mortgage product in the intermediate part of the yield
curve. These structures allowed the Trust to add convexity and option-adjusted
spread over collateral. Collateral positioning focused on mortgage pools with
favorable loan characteristics in the form of lower than average loan balances.
(The prepayment profile on these pools has been very favorable versus generic
collateral for several reasons.) The most predominant reason is that homeowners
with a lower loan balance recognize less total savings when they refinance due
to the fixed costs associated with refinancing. A secondary reason is due to
less profit for mortgage bankers who prefer to concentrate on refinancing
homeowners with larger outstanding mortgage loans.

Current portfolio strategy targets an effective duration of 2.4 years, which is
neutral to the Lehman Brothers Mortgage Index.* For the fiscal year, the Trust
provided shareholders a net total rate of return of 9.20% on Institutional
Shares and 8.96% on Institutional Service Shares versus the Lehman Brothers
Mortgage Index return of 9.77%.

As of January 31, 1998, total net assets were $789.8 million and the average
30-day net yield as calculated under SEC guidelines was 6.38%** for
Institutional Shares and 6.16%** for Institutional Service Shares based upon the
net asset value of $10.38. The Trust is rated AAAf by Standard & Poor's*** for
its extremely high credit quality and the Trust remains committed to competitive
yields and daily liquidity.+

* This index is unmanaged.

** Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when redeemed, may
be worth more or less than their original cost.

*** An AAAf rating means that the trust's portfolio holdings and counterparties
provide extremely strong protection against losses from credit defaults. Ratings
are subject to change, and do not remove market risks.

+ Rating is subject to change.

Federated Income Trust

(Institutional Shares)

GROWTH OF $25,000 INVESTED IN FEDERATED INCOME TRUST (INSTITUTIONAL SHARES)

The graph below illustrates the hypothetical investment of $25,000* in the
Federated Income Trust (Institutional Shares) (the "Fund") from January 31, 1988
to January 31, 1998, compared to the Lehman Brothers 5-Year Treasury Bellwether
Index (LB5YRTBI),** the Salomon Brothers 15-Year Mortgage Index (SB15YRMI),**
the Lipper U.S. Mortgage Funds Average (LUSMFA),*** and the Lehman Brothers
Mortgage Backed Securities Index (LBMBSI).**+

[GRAPHIC] - See Appendix (A)

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE, SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.

This report must be preceded or accompanied by the Fund's prospectus dated March
31, 1998, and, together with financial statements contained therein, constitutes
the Fund's annual report.

* The Fund's performance assumes the reinvestment of all dividends and
distributions. The LB5YRTBI, the SB15YRMI, LUSMFA, and the LBMBSI have been
adjusted to reflect reinvestment of dividends on securities in the indices and
average.

** The LB5YRTBI, SB15YRMI, and the LBMBSI are not adjusted to reflect sales
charges, expenses, or other fees that the SEC requires to be reflected in the
Fund's performance. The indices are unmanaged.

*** The LUSMFA represents the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as falling in
the respective category, and is not adjusted to reflect any sales charges.
However, these total returns are reported net of expenses or other fees that the
SEC requires to be reflected in a fund's performance.

+ The Fund has elected to change the benchmark index from the SB15YRMI to the
LBMBSI. The LBMBSI is more representative of the securities in which the Fund
invests. It is composed of all fixed rate securitized mortgage pools by
Government National Mortgage Association (GNMA), Federal National Mortgage
Association (FNMA) and the Federal Home Loan Mortgage Corp. (FHMLC), including
GNMA Graduated Payment Mortgages, all of which can have maturities in excess of
15 years. In contrast, while the SB15YRMI consists of many of the same
securities, it limits their maturities to 15 years.

Federated Income Trust

(Institutional Service Shares)

GROWTH OF $25,000 INVESTED IN FEDERATED INCOME TRUST (INSTITUTIONAL SERVICE
SHARES)

The graph below illustrates the hypothetical investment of $25,000* in the
Federated Income Trust (Institutional Service Shares) (the "Fund") from June 2,
1992 (start of performance) to January 31, 1998, compared to the Lehman
Brothers 5-Year Treasury Bellwether Index (LB5YRTBI),** the Salomon Brothers
15-Year Mortgage Index (SB15YRMI),** the Lipper U.S. Mortgage Funds Average
(LUSMFA),*** and the Lehman Brothers Mortgage Backed Securities Index
(LBMBSI).**+

[GRAPHIC] - See Appendix (B)

This report must be preceded or accompanied by the Fund's prospectus dated March
31, 1998, and, together with financial statements contained therein, constitutes
the Fund's annual report.

[Graphic]

Federated Securities Corp., Distributor
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com

Cusip 314199100
Cusip 314199209
8030102ARS (3/98)

[Graphic]

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,
1998, 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, 1998

TABLE OF CONTENTS

Summary of Trust Expenses 1
Financial Highlights--Institutional Shares 2
General Information 3
Investment Information 3
Investment Objective 3
Investment Policies 3
Investment Limitations 5
Portfolio Turnover 5
Trust Information 5
Management of the Trust 5
Distribution of Institutional Shares 6
Supplemental Payments to Financial Institutions 6
Administration of the Trust 7
Administrative Services 7
Net Asset Value 7
Investing in Institutional Shares 7
Share Purchases 7
Minimum Investment Required 7
What Shares Cost 7
Exchanging Securities for Trust Shares 8
Confirmations and Account Statements 8
Dividends 8
Capital Gains 8
Redeeming Institutional Shares 8
Telephone Redemption 8
Written Requests 8
Accounts with Low Balances 9
Shareholder Information 9
Voting Rights 9
Tax Information 9
Federal Income Tax 9
State and Local Taxes 9
Performance Information 10
Other Classes of Shares 10
Financial Highlights--Institutional Service Shares 11
Financial Statements 12
Independent Auditors' Report Inside Back Cover

SUMMARY OF TRUST EXPENSES

INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
<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
<CAPTION>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C> <C>
Management Fee 0.40%
12b-1 Fee None
Total Other Expenses 0.19%
Shareholder Services Fee (after waiver)(1) 0.04%
Total Operating Expenses (after waiver)(2) 0.59%
</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 are estimated to be 0.80% absent the voluntary
waiver of a portion of the shareholder services fee. The total operating
expenses were 0.58% for the fiscal year ended January 31, 1998 and 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.

EXAMPLE
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.
<TABLE>
<S> <C>
1 Year $ 6
3 Years $19
5 Years $33
10 Years $74
</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.

FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

Reference is made to the Independent Auditors' Report on the inside back cover.

<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, $10.15 $10.39 $ 9.70 $10.50 $10.73 $10.66 $10.42 $10.18 $10.05 $10.43
BEGINNING OF PERIOD
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.66 0.68 0.67 0.70 0.77 0.80 0.89 0.93 0.94 0.95
Net realized and 0.24 (0.24) 0.69 (0.80) (0.23) 0.07 0.24 0.24 0.13 (0.38)
unrealized gain (loss)
on investments
Total from investment 0.90 0.44 1.36 (0.10) 0.54 0.87 1.13 1.17 1.07 0.57
operations
LESS DISTRIBUTIONS
Distributions from net (0.67) (0.68) (0.67) (0.70) (0.77) (0.80) (0.89) (0.93) (0.94) (0.95)
investment income
Distributions in -- -- (0.00) -- -- -- -- -- -- --
excess of net realized
gain on investments
Total distributions (0.67) (0.68) (0.67) (0.70) (0.77) (0.80) (0.89) (0.93) (0.94) (0.95)
NET ASSET VALUE, END OF $10.38 $10.15 $10.39 $ 9.70 $10.50 $10.73 $10.66 $10.42 $10.18 $10.05
PERIOD
TOTAL RETURN(A) 9.20% 4.44% 14.44% (0.86)% 5.22% 8.51% 11.27% 12.01% 11.04% 5.75%
RATIOS TO AVERAGE NET
ASSETS
Expenses 0.58% 0.58% 0.58% 0.56% 0.51% 0.51% 0.50% 0.50% 0.53% 0.52%
Net investment income 6.50% 6.70% 6.67% 6.99% 7.28% 7.53% 8.41% 9.06% 9.23% 9.33%
Expense 0.22% 0.22% 0.22% -- -- -- -- -- -- --
waiver/reimbursement(b)
SUPPLEMENTAL DATA
Net assets, end of $746,407 $838,542 $983,093 $1,119,976 $1,727,247 $1,548,858 $1,231,978 $892,255 $1,023,886 $1,196,585
period (000 omitted)
Portfolio turnover 306% 212% 184% 217% 178% 52% 51% 36% 45% 77%
</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 only 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;

* 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.

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.

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.

LENDING OF PORTFOLIO SECURITIES

In order to generate additional income, the Trust may lend its portfolio
securities on a short-term or long-term basis to broker/dealers, banks, or other
institutional borrowers of securities. As a matter of operating policy, which
may be changed by the Trustees without shareholder approval, the Trust will
limit its lending to one-third of the value of its total assets. The Trust will
only enter into loan arrangements with broker/dealers, banks, or other
institutions which the Adviser has determined are creditworthy under guidelines
established by the Directors and will receive collateral in the form of cash or
U.S. government securities equal to at least 100% of the value of the securities
loaned.

There is the risk that when lending portfolio securities, the securities may not
be available to the Trust on a timely basis and the Fund may, therefore, lose
the opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.

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 $120 billion invested across more than 300
funds under management and/or administration by its subsidiaries, as of
December 31, 1997, 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 approximately
4,000 financial institutions nationwide.

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.

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

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:

MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS

0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million

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.
Please include an account number on the check. 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, Martin Luther King, Jr. 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.

CONFIRMATIONS AND ACCOUNT STATEMENTS

Shareholders will receive detailed confirmations of transactions. In addition,
shareholders will receive periodic statements reporting all account activity,
including dividends paid. The Trust will not issue share certificates.

DIVIDENDS

Dividends are declared daily and paid monthly to all shareholders invested in
the Trust on the record date. 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). 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.
Telephone redemption instructions may be recorded. 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

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.

FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

Reference is made to the Independent Auditors' Report on the inside back cover.

<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1998 1997 1996 1995 1994 1993(A)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.15 $10.39 $ 9.70 $10.50 $10.73 $10.64
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.64 0.65 0.65 0.68 0.75 0.51
Net realized and unrealized gain (loss) on 0.24 (0.24) 0.69 (0.80) (0.23) 0.09
investments
Total from investment operations 0.88 0.41 1.34 (0.12) 0.52 0.60
LESS DISTRIBUTIONS
Distributions from net investment income (0.65) (0.65) (0.65) (0.68) (0.75) (0.51)
NET ASSET VALUE, END OF PERIOD $10.38 $10.15 $10.39 $ 9.70 $10.50 $10.73
TOTAL RETURN(B) 8.96% 4.21% 14.19% (1.08%) 4.96% 4.80%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.80% 0.80% 0.80% 0.78% 0.76% 0.76%*
Net investment income 6.28% 6.49% 6.45% 6.75% 7.03% 7.16%*
Expense waiver/reimbursement(c) 0.25% 0.25% 0.25% 0.22% -- --
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $43,424 $43,257 $40,788 $40,428 $67,176 $53,981
Portfolio turnover 306% 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)

PORTFOLIO OF INVESTMENTS
FEDERATED INCOME TRUST

JANUARY 31, 1998

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
LONG-TERM OBLIGATIONS--97.5%
(A)FEDERAL HOME LOAN MORTGAGE CORP.--29.2%
$ 124,634 11.50%, 12/1/2014 $ 141,265
242,304 11.00%, 5/1/2000 253,208
161,147 10.50%, 7/1/2000 168,386
11,093,750 9.50%, 11/1/2009-12/1/2022 12,018,477
2,878,701 9.00%, 4/1/2009 - 2/1/2013 3,061,002
62,591,738 8.00%, 6/1/2027 - 1/1/2028 64,979,024
14,294,951 7.50%, 12/1/2022 - 2/1/2027 14,739,261
37,400,000 (b) 7.50%, 2/15/2028 38,533,595
24,715,722 7.00%, 10/1/2007 - 2/15/2013 25,230,750
24,000,000 (b) 6.50%, 2/15/2013 23,940,000
21,420,000 6.50%, 3/15/2028 21,366,450
26,313,338 6.00%, 3/1/2011 - 6/1/2011 26,142,828
TOTAL 230,574,246
(A)FEDERAL HOME LOAN MORTGAGE CORP. REMIC--12.8%
14,900,347 7.25%, Series 1967-J, 1/17/2011 15,356,000
11,250,000 7.00%, Series 1541-H, 10/15/2022 11,761,988
20,000,000 6.75%, Series 1583-K, 2/15/2023 20,773,800
15,000,000 6.50%, Series 1992-PM, 2/15/2026 15,272,100
15,000,000 6.50%, Series 1959-C, 5/15/2027 14,890,200
22,731,000 6.50%, Series 1994-E, 9/15/2027 22,717,816
TOTAL 100,771,904
(A)FEDERAL NATIONAL MORTGAGE ASSOCIATION--20.9%
13,034,834 10.50%, 12/1/2019 - 4/1/2022 14,562,810
20,980,357 10.00%, 11/1/2009 - 4/1/2025 23,179,312
17,920,645 8.00%, 12/1/2026 18,612,741
5,058,979 7.50%, 3/1/2010 - 4/1/2010 5,281,878
44,000,000 (b)6.50%, 2/15/2028 44,302,720
20,000,000 (b)6.00%, 2/15/2013 19,878,126
39,837,712 6.00%, 2/1/2010-12/1/2024 39,195,325
TOTAL 165,012,912
</TABLE>

FEDERATED INCOME TRUST

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE

<C> <S> <C>
LONG-TERM OBLIGATIONS--CONTINUED
(A)FEDERAL NATIONAL MORTGAGE ASSOCIATION REMIC--1.6%
$ 17,110,817 8.50%, Strip 32-2, (Interest Only), 4/1/2018 $ 3,946,268
20,284,464 7.00%, Series 97-89 E, (Interest Only), 12/20/2027 9,115,432
TOTAL 13,061,700
(A)GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--33.0%
79,444,703 8.00%, 12/15/2012 - 2/15/2028 82,705,857
58,506,117 7.00%, 7/20/2022 - 11/15/2026 59,786,513
7,500,000 (b) 7.00%, 2/15/2028 7,610,175
109,949,668 6.50%, 12/15/2023 - 10/15/2024 110,226,700
TOTAL 260,329,245
TOTAL LONG-TERM OBLIGATIONS (IDENTIFIED COST $761,545,363) 769,750,007
(C)REPURCHASE AGREEMENTS--21.3%
21,435,000 BT Securities Corp., 5.61%, dated 1/30/1998, due 2/2/1998
21,435,000 68,000,000 (d)Credit Suisse First Boston, Inc., 5.50%,
dated 1/13/1998, 68,000,000
due 2/18/1998
20,000,000 (d)Credit Suisse First Boston, Inc., 5.50%, dated 1/15/1998, 20,000,000
due 2/18/1998
13,700,000 (d)Morgan Stanley Group, Inc., 5.49%, dated 1/14/1998, due 13,700,000
2/18/1998
37,400,000 (d)UBS Securities, Inc., 5.47%, dated 1/12/1998, due 37,400,000
2/12/1998
7,500,000 (d)UBS Securities, Inc., 5.48%, dated 1/22/1998, due 7,500,000
2/19/1998
TOTAL REPURCHASE AGREEMENTS (AT AMORTIZED COST) 168,035,000
TOTAL INVESTMENTS (IDENTIFIED COST $929,580,363)(E) $ 937,785,007
</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 $134,264,616.

(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 $929,580,363.
The net unrealized appreciation of investments on a federal tax basis amounts to
$8,204,644 which is comprised of $11,802,942 appreciation and $3,598,298
depreciation at January 31, 1998.

Note: The categories of investments are shown as a percentage of net assets
($789,831,322) at January 31, 1998.

The following acronyms are used throughout this portfolio:

REMIC --Real Estate Mortgage Investment Conduit

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

STATEMENT OF ASSETS AND LIABILITIES

FEDERATED INCOME TRUST

JANUARY 31, 1998

<TABLE>
<S> <C> <C>
ASSETS:
Investments in repurchase agreements $ 168,035,000
Investments in securities 769,750,007
Total investments in securities, at value (identified and $ 937,785,007
tax cost $929,580,363)
Income receivable 4,556,606
Receivable for investments sold 42,322,046
Receivable for shares sold 3,476,218
Total assets 988,139,877
LIABILITIES:
Payable for investments purchased $ 59,544,297
Payable for shares redeemed 789,432
Income distribution payable 2,985,580
Payable for dollar roll transactions 134,808,547
Accrued expenses 180,699
Total liabilities 198,308,555
NET ASSETS for 76,124,100 shares outstanding $ 789,831,322
NET ASSETS CONSIST OF:
Paid in capital $ 887,783,612
Net unrealized appreciation of investments 8,204,644
Accumulated net realized loss on investments (106,156,934)
Total Net Assets $ 789,831,322
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION
PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$746,407,311 / 71,939,256 shares outstanding $10.38
INSTITUTIONAL SERVICE SHARES:
$43,424,011 / 4,184,844 shares outstanding $10.38
</TABLE>

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

STATEMENT OF OPERATIONS
FEDERATED INCOME TRUST

YEAR ENDED JANUARY 31, 1998

<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest (net of dollar roll expense of $ 59,026,546
$2,698,298)
EXPENSES:
Investment advisory fee $ 3,331,788
Administrative personnel and services fee 628,738
Custodian fees 66,335
Transfer and dividend disbursing agent fees
and expenses 279,119
Directors'/Trustees' fees 12,189
Auditing fees 24,874
Legal fees 9,581
Portfolio accounting fees 128,060
Distribution services fee--Institutional Service 107,761
Shares
Shareholder services fee--Institutional Shares 1,974,679
Shareholder services fee--Institutional Service 107,761
Shares
Share registration costs 26,523
Printing and postage 23,759
Taxes 37,695
Miscellaneous 15,132
Total expenses 6,773,994
Waivers --
Waiver of distribution services fee
--Institutional Service Shares $ (103,450)
Waiver of shareholder services fee
--Institutional Shares (1,718,521)
Waiver of shareholder services fee
--Institutional Service Shares (3,218)
Total waivers (1,825,189)
Net expenses 4,948,805
Net investment income 54,077,741
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain on investments 16,279,577
Net change in unrealized appreciation of 2,287,217
investments
Net realized and unrealized gain on investments 18,566,794
Change in net assets resulting from operations $ 72,644,535

</TABLE>
(See Notes which are an integral part of the Financial Statements)

STATEMENT OF CHANGES IN NET ASSETS
FEDERATED INCOME TRUST

<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 31,
1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 54,077,741 $ 63,340,272
Net realized gain (loss) on investments ($16,260,368 net gain 16,279,577 (4,670,222)
and $4,661,466 net loss, respectively, as computed for federal
tax purposes)
Net change in unrealized appreciation/depreciation 2,287,217 (19,622,703)
Change in net assets resulting from operations 72,644,535 39,047,347
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Institutional Shares (51,782,096) (60,187,940)
Institutional Service Shares (2,738,632) (2,622,790)
Change in net assets resulting from distributions to (54,520,728) (62,810,730)
shareholders
SHARE TRANSACTIONS--
Proceeds from sale of shares 171,602,234 181,714,820
Net asset value of shares issued to shareholders in payment of 14,317,427 16,144,090
distributions declared
Cost of shares redeemed (296,011,693) (316,176,917)
Change in net assets resulting from share transactions (110,092,032) (118,318,007)
Change in net assets (91,968,225) (142,081,390)
NET ASSETS:
Beginning of period 881,799,547 1,023,880,937
End of period (including undistributed net investment income of $ 789,831,322 $ 881,799,547
$0 and $442,987, respectively)
</TABLE>

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

NOTES TO FINANCIAL STATEMENTS

FEDERATED INCOME TRUST

JANUARY 31, 1998

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.

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.

INCREASE (DECREASE)
ACCUMULATED
NET REALIZED
PAID-IN CAPITAL GAIN/LOSS

($129,457) $129,457

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, 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:

YEAR ENDED JANUARY 31,
1998 1997
INSTITUTIONAL SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 15,549,209 $ 159,250,672 16,566,782 $ 167,676,822
Shares issued to shareholders in payment 1,254,667 12,827,066 1,436,529 14,505,137
of distributions declared
Shares redeemed (27,486,985) (281,173,119) (30,045,652) (303,965,855)
Net change resulting from Institutional
Share transactions (10,683,109) $ (109,095,381) (12,042,341) $ (121,783,896)
<CAPTION>
YEAR ENDED JANUARY 31,
1998 1997
INSTITUTIONAL SERVICE SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 1,224,367 $ 12,546,246 1,383,128 $ 14,037,998
Shares issued to shareholders in payment
of distributions declared 145,892 1,490,361 162,236 1,638,953
Shares redeemed (1,448,069) (14,838,574) (1,210,371) (12,211,062)
Net change resulting from Institutional
Service Share transactions (77,810) $ (801,967) 334,993 $ 3,465,889
Net change resulting from share
transactions (10,760,919) $ (109,897,348) (11,707,348) $ (118,318,007)
</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 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.

INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding short-term securities, for the
period ended January 31, 1998, were as follows:

PURCHASES $2,511,635,255
SALES $2,541,718,196

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, 1998,
and the related statement of operations for the year then ended, the statements
of changes in net assets for the years ended January 31, 1998 and 1997, 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, 1998, by correspondence with the custodian and brokers; where
replies were not received, 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, 1998, 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 18, 1998

FEDERATED INCOME TRUST
INSTITUTIONAL SHARES

Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000

DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower

1001 Liberty Avenue

Pittsburgh, PA 15222-3779

INVESTMENT ADVISER
Federated Management
Federated Investors Tower

1001 Liberty Avenue

Pittsburgh, PA 15222-3779

CUSTODIAN
State Street Bank and
Trust Company
P.O. Box 8600
Boston, MA 02266-8600

TRANSFER AGENT
AND DIVIDEND
DISBURSING AGENT
Federated Shareholder
Services Company
P.O. Box 8600
Boston, MA 02266-8600

INDEPENDENT AUDITORS
Deloitte & Touche LLP
2500 One PPG Place
Pittsburgh, PA 15222-5401

Federated Securities Corp., Distributor
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM

[Graphic]

FEDERATED INCOME TRUST

Institutional Shares

PROSPECTUS

MARCH 31, 1998

An Open-End, Diversified Management
Investment Company

Cusip 314199100
8030102A-IS (3/98)

[Graphic]

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, 1998

TABLE OF CONTENTS

Summary of Trust Expenses 1 Financial Highlights--Institutional Service Shares
2 General Information 3 Investment Information 3 Investment Objective 3
Investment Policies 3 Investment Limitations 5 Portfolio Turnover 5 Trust
Information 5 Management of the Trust 5 Distribution of Institutional Service
Shares 6 Supplemental Payments to Financial Institutions 6 Administration of
the Trust 7 Administrative Services 7 Net Asset Value 7 Investing in
Institutional Service Shares 7 Share Purchases 7 Exchange Privilege 7 Minimum
Investment Required 8 What Shares Cost 8 Exchanging Securities for Trust Shares
8 Confirmations and Account Statements 8 Dividends 8 Capital Gains 8 Redeeming
Institutional Service Shares 8 Telephone Redemption 8 Written Requests 9
Accounts with Low Balances 9 Shareholder Information 9 Voting Rights 9 Tax
Information 9 Federal Income Tax 9 State and Local Taxes 10 Performance
Information 10 Other Classes of Shares 10 Financial Highlights--Institutional
Shares 11 Financial Statements 12 Independent Auditors' Report Inside Back
Cover

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
<CAPTION>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C> <C>
Management Fee 0.40%
12b-1 Fee (after waiver)(1) None
Total Other Expenses 0.40%
Shareholder Services Fee 0.25%
Total Operating Expenses(2) 0.81%
</TABLE>

(1) The shareholder services 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 total operating expenses are estimated to be 1.05% absent the voluntary
waiver of a portion of the 12b-1 fee. The total operating expenses were 0.80%
for the fiscal year ended January 31, 1998 and would have been 1.05% absent the
voluntary waiver of a portion of the 12b-1 fee.

The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of Institutional Service Shares of the
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 MAXIMIM
FRONT-END SALES CHARGES PERMITTED UNDER THE RULES OF THE NATIONAL ASSOCIATION
OF SECURITIES DEALERS, INC.

EXAMPLE
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.
<TABLE>
<S> <C>
1 Year $ 8
3 Years $ 26
5 Years $ 45
10 Years $100
</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.

FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

Reference is made to the Independent Auditors' Report on the inside back cover.

(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 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

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

CMOS

The prices of fixed income securities fluctuate inversely to the direction of
interest rates.

REPURCHASE AGREEMENTS

CHARACTERISTICS OF MORTGAGE-BACKED SECURITIES

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

LENDING OF PORTFOLIO SECURITIES

INVESTMENT LIMITATIONS

PORTFOLIO TURNOVER

TRUST INFORMATION

MANAGEMENT OF THE TRUST

BOARD OF TRUSTEES

INVESTMENT ADVISER

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

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

MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS

0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million

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. Please include an account number on the check. 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

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, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.

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.

CONFIRMATIONS AND ACCOUNT STATEMENTS

DIVIDENDS

Dividends are declared daily and paid monthly to all shareholders invested in
the Trust on the record date. 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). 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

SIGNATURES

* 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

TAX INFORMATION

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.

The yield of Shares of the Trust is calculated by dividing the net investment
income per share (as defined by the SEC) earned by Shares over a thirty-day
period by the offering price per share of Shares on the last day of the period.
This number is then annualized using semi-annual compounding. The yield does not
necessarily reflect income actually earned by Shares and, therefore, may not
correlate to the dividends or other distributions paid to shareholders.

Total return and yield will be calculated separately for Institutional Service
Shares and Institutional Shares. Because Institutional Service Shares are
subject to a 12b-1 fee and shareholder services fee, the total return and yield
for Institutional Shares, for the same period, will exceed that of Institutional
Service Shares.

Institutional Service Shares are sold without any sales charge or other similar
non-recurring charges.

From time to time, advertisements for the Trust may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
performance of Institutional Service Shares to certain indices.

OTHER CLASSES OF SHARES

Institutional Shares are sold primarily to accounts for which financial
institutions act in a fiduciary or agency capacity. Institutional Shares are
sold at net asset value. Investments in Institutional Shares are subject to a
minimum initial investment of $25,000.

Institutional Shares are distributed without a 12b-1 Plan. Institutional Shares
pay a shareholder services fee of 0.25% of 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.

FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

Reference is made to the Independent Auditors' Report on the inside back cover.

(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)

PORTFOLIO OF INVESTMENTS
FEDERATED INCOME TRUST

JANUARY 31, 1998

FEDERATED INCOME TRUST

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE

(b) Indicates securities subject to dollar roll transactions with a total market
value of $134,264,616.

Note: The categories of investments are shown as a percentage of net assets
($789,831,322) at January 31, 1998.

The following acronyms are used throughout this portfolio:

REMIC --Real Estate Mortgage Investment Conduit

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

STATEMENT OF ASSETS AND LIABILITIES

FEDERATED INCOME TRUST

JANUARY 31, 1998

<TABLE>
<S> <C> <C>
ASSETS:
Investments in repurchase agreements $ 168,035,000
Investments in securities 769,750,007
Total investments in securities, at value (identified and $ 937,785,007
tax cost $929,580,363)
Income receivable 4,556,606
Receivable for investments sold 42,322,046
Receivable for shares sold 3,476,218
Total assets 988,139,877
LIABILITIES:
Payable for investments purchased $ 59,544,297
Payable for shares redeemed 789,432
Income distribution payable 2,985,580
Payable for dollar roll transactions 134,808,547
Accrued expenses 180,699
Total liabilities 198,308,555
Net Assets for 76,124,100 shares outstanding $ 789,831,322
NET ASSETS CONSIST OF:
Paid in capital $ 887,783,612
Net unrealized appreciation of investments 8,204,644
Accumulated net realized loss on investments (106,156,934)
Total Net Assets $ 789,831,322
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION
PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$746,407,311 / 71,939,256 shares outstanding $10.38
INSTITUTIONAL SERVICE SHARES:
$43,424,011 / 4,184,844 shares outstanding $10.38
</TABLE>

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

STATEMENT OF OPERATIONS
FEDERATED INCOME TRUST

YEAR ENDED JANUARY 31, 1998

</TABLE>

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

STATEMENT OF CHANGES IN NET ASSETS
FEDERATED INCOME TRUST

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

NOTES TO FINANCIAL STATEMENTS

FEDERATED INCOME TRUST

JANUARY 31, 1998

ORGANIZATION

SIGNIFICANT ACCOUNTING POLICIES

INVESTMENT VALUATIONS

REPURCHASE AGREEMENTS

INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS

INCREASE (DECREASE)
ACCUMULATED
NET REALIZED
PAID-IN CAPITAL GAIN/LOSS

($129,457) $129,457

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

FEDERAL TAXES

EXPIRATION YEAR EXPIRATION AMOUNT
1999 $ 1,962,942
2003 99,607,733
2005 4,661,466

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

DOLLAR ROLL TRANSACTIONS

USE OF ESTIMATES

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>
YEAR ENDED JANUARY 31,
1998 1997

INSTITUTIONAL SERVICE SHARES SHARES AMOUNT SHARES AMOUNT

Shares sold 1,224,367 $ 12,546,246 1,383,128 $ 14,037,998
Shares issued to shareholders in payment
of distributions declared 145,892 1,490,361 162,236 1,638,953
Shares redeemed (1,448,069) (14,838,574) (1,210,371) (12,211,062)
Net change resulting from Institutional
Service Share transactions (77,810) $ (801,967) 334,993 $ 3,465,889
Net change resulting from share
transactions (10,760,919) $ (109,897,348) (11,707,348) $ (118,318,007)
</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

DISTRIBUTION SERVICES FEE

SHAREHOLDER SERVICES FEE

TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES

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.

INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding short-term securities, for the
period ended January 31, 1998, were as follows:

Purchases $2,511,635,255
Sales $2,541,718,196

INDEPENDENT AUDITORS' REPORT

To the Trustees and Shareholders of FEDERATED INCOME TRUST:

DELOITTE & TOUCHE LLP

Pittsburgh, Pennsylvania
March 18, 1998

FEDERATED INCOME TRUST
INSTITUTIONAL SERVICE SHARES

Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000

DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

INVESTMENT ADVISER
Federated Management
Federated Investors Tower
1001 Liberty Avenue

Pittsburgh, PA 15222-3779

CUSTODIAN
State Street Bank and
Trust Company
P.O. Box 8600
Boston, MA 02266-8600

TRANSFER AGENT
AND DIVIDEND
DISBURSING AGENT
Federated Shareholder
Services Company
P.O. Box 8600
Boston, MA 02266-8600

INDEPENDENT AUDITORS
Deloitte & Touche LLP
2500 One PPG Place
Pittsburgh, PA 15222-5401

Federated Securities Corp., Distributor
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM

[Graphic]

FEDERATED INCOME TRUST

Institutional Service Shares

PROSPECTUS

MARCH 31, 1998

An Open-End, Diversified Management
Investment Company

Cusip 314199209
8030102A-SS (3/98)

[Graphic]

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, 1998. 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 FUNDS

5800 CORPORATE DRIVE

PITTSBURGH, PENNSYLVANIA 15237-7000

Statement dated March 31, 1998

[Graphic]

Cusip 314199100
Cusip 314199209

8030102B (3/98)

[Graphic]

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 Lending
Portfolio Securities 1 Repurchase Agreements 1 Interest-Only and Principal-Only
Investments 1 Inverse Floaters 2 Portfolio Turnover 2 INVESTMENT LIMITATIONS 2
Selling Short and Buying on Margin 2 Borrowing Money 2 Pledging Assets 2
Lending Cash or Securities 3 Issuing Senior Securities 3 Investing in
Securities of Other Investment Companies 3 FEDERATED INCOME TRUST MANAGEMENT 3
Trust Ownership 7 Trustee Compensation 8 Trustee Liability 8 INVESTMENT
ADVISORY SERVICES 8 Adviser to the Trust 8 Advisory Fees 9 BROKERAGE
TRANSACTIONS 9 OTHER SERVICES 9 Trust Administration 9 Custodian and Portfolio
Accountant 9 Transfer Agent 9 Independent Auditors 9 PURCHASING SHARES 10
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES 10 Conversion to Federal Funds 10
DETERMINING NET ASSET VALUE 10 Determining Market Value of Securities 10
REDEEMING SHARES 11 MASSACHUSETTS PARTNERSHIP LAW 11 EXCHANGING SECURITIES FOR
TRUST SHARES 11 Tax Consequences 11 TAX STATUS 11 The Trust's Tax Status 11
Shareholders' Tax Status 12 TOTAL RETURN 12 YIELD 12 PERFORMANCE COMPARISONS 12
Economic and Market Information 13 Duration 13 ABOUT FEDERATED INVESTORS 14
Mutual Fund Market 14 Institutional Clients 14 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. The investment objective
cannot be changed without approval of shareholders.

Unless indicated otherwise, the policies described below cannot be changed
without the approval of shareholders.

TYPES OF INVESTMENTS

The Trust invests only in U.S. government securities and certain collateralized
mortgage obligations. This investment policy 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.

LENDING PORTFOLIO SECURITIES

The collateral received when the Trust lends portfolio securities must be valued
daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the Trust. During the time
portfolio securities are on loan, the borrower pays the Trust any dividends or
interest paid on such securities. Loans are subject to termination at the option
of the Trust or the borrower. The Trust may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or equivalent collateral to the borrower or placing
broker. The Trust does not have the right to vote securities on loan, but would
terminate the loan and regain the right to vote if that were considered
important with respect to the investment.

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, 1998
and 1997, the portfolio turnover rates were 306% and 212%, 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.

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 nor will the Trust be
required to make any changes in portfolio holdings.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

The Trust will not own securities of open-end investment companies. The Trust
can acquire up to 3% 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 11U2%. 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. Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President of the Company.

Thomas G. Bigley

15 Old Timber Trail
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.; Director, Member of
Executive Committee, 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.

Nicholas P. Constantakis
175 Woodshire Drive
Pittsburgh, PA

Birthdate: September 3, 1939

Trustee

Formerly, Partner, Andersen Worldwide SC; Director or Trustee of the Funds.

William J. Copeland

One PNC Plaza--3rd 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.; Director or
Trustee of the Funds.

Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA

Birthdate: October 11, 1932

Trustee

Professor of Medicine, 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.

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; 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 and U.S. Space Foundation; President
Emeritus, University of Pittsburgh; Founding Chairman, National Advisory Council
for Environmental Policy and Technology, Federal Emergency Management Advisory
Board and Czech Management Center, Prague; Director or Trustee of the Funds.

Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA

Birthdate: June 21, 1935

Trustee

Public Relations/Marketing/Conference Planning; 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 2, 1998, the following shareholder 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 (13.14%)
shares; Heritage Trust Company, Grand Junction, Colorado owned approximately
533,397 (12.52%) shares; CPB Trust Division Fiduciary, Honolulu, Hawaii owned
approximately 523,697 (12.29%) shares; Charles Schwab & Co., Inc.,. San
Francisco, California owned approximately 381,009 (8.94%) shares; Community
First National Bank, Fargo, North Dakota owned approximately 331,994 (7.79%)
shares; and Citizens' Scholarship FOA, Inc., St. Peter, Minnesota owned
approximately 301,140 (7.07%) shares.

TRUSTEE COMPENSATION

NAME, AGGREGATE TOTAL COMPENSATION
POSITION WITH COMPENSATION PAID TO TRUSTEES FROM
TRUST FROM TRUST*# TRUST AND FUND COMPLEX+

John F. Donahue, $0 $0 for the Trust and

Chairman and Trustee 56 investment companies

Glen R. Johnson, $0 $0 for the Trust and

President and Trustee 8 investment companies

Thomas G. Bigley, $1,698 $111,222 for the Trust and

Trustee 56 investment companies

John T. Conroy, Jr., $1,868 $122,362 for the Trust and

Trustee 56 investment companies

Nicholas P. Constantakis,** $0 $0 for the Trust and

Trustee 34 investment companies

William J. Copeland, $1,868 $122,362 for the Trust and

Trustee 56 investment companies

James E. Dowd, $1,868 $122,362 for the Trust and

Trustee 56 investment companies

Lawrence D. Ellis, M.D., $1,698 $111,222 for the Trust and

Trustee 56 investment companies

Edward L. Flaherty, Jr., $1,868 $122,362 for the Trust and

Trustee 56 investment companies

Peter E. Madden, $1,698 $111,222 for the Trust and

Trustee 56 investment companies

John E. Murray, Jr., $1,698 $111,222 for the Trust and

Trustee 56 investment companies

Wesley W. Posvar, $1,698 $111,222 for the Trust and

Trustee 56 investment companies

Marjorie P. Smuts, $1,698 $111,222 for the Trust and

Trustee 56 investment companies

* Information is furnished for the fiscal year ended January 31, 1998.

** Mr. Constantakis became a member of the Board of Trustees on February 23,
1998. He did not receive any fees as of the fiscal year end of the Trust.

# The aggregate compensation is provided for the Trust which is comprised of
one portfolio.

+ 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, 1998, 1997, and 1996 the Trust's Adviser earned $3,331,788,
$3,763,073, and $4,380,678, 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, 1998, 1997, 1996, 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. For purposes of this Statement of
Additional Information, Federated Services Company and Federated Administrative
Services may hereinafter collectively be referred to as the "Administrators."
For the fiscal years ended January 31, 1998, 1997, and 1996 the Administrators
earned $628,738, $711,038, and $828,876, 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 expect 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, 1998, payments in the amount of $107,761 were
made pursuant to the Distribution Plan (Institutional Service Shares only),
$103,450 of which was paid to financial institutions. In addition, for this
period, the Trust paid shareholder service fees in the amount of $1,974,679 for
Institutional Shares and $1,718,521 for Institutional Service Shares, of which
$107,761 and $3,218, respectively, were paid to financial institutions.

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;

* 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, 1998 were 9.20%,
6.37%, and 8.02%, respectively. The Trust's average annual total return for
Institutional Service Shares for the year ended January 31, 1998 and the period
from June 2, 1992 (date of Institutional Service Shares inception) to January
31, 1998, was 8.96% and 6.47%, 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, 1998, was 6.38%. The Trust's yield for Institutional Service
Shares was 6.16% 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.

* Lehman Brothers Mortgage-Backed Securities Index is an unmanaged index
composed of all fixed rate, securitized mortgage pools by GNMA, FNMA, and
the FHLMC, including GNMA Graduated Payment Mortgages. The minimum
principal amount required for inclusion is $50 million. Total return
comprises price appreciation/depreciation and income as a percentage of the
original investment.

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, 1997, Federated Investors managed 9
mortgage-backed, 6 government/agency and 17 government money market mutual
funds, with assets approximating $5.9 billion, $1.5 billion and $29.7 billion,
respectively. Federated trades approximately $400 million in U.S. government and
mortgage-backed securities daily and places approximately $23 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 $36 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 $4.4 trillion to the more than 6,700 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 approximately 900 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 Timothy C.
Pillion, Senior Vice President.

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

APPENDIX

A. The graphic representation here displayed consists of a boxed legend in the
bottom center indicating the components of the corresponding line graph.
Federated Income Trust (Institutional Shares) (the "Trust") is represented by a
solid black line. Lehman Brothers 5-Year Treasury Bellweather Index (LB5YRTBI)
is represented by a series of dots. Saolmon Brothers 15-Year Mortgage Index
(SB15YRMI) is represented by a series of dashes. Lipper U.S. Mortgage Funds
Average (LUSMFA) is represented by broken line. Lehman Brothers Mortgage Backed
Securities Index (LBMBSI) is represented by a _________. The line graph is a
visual representation of a comparison of a change in value of a hypothetical
$25,000 investment in the Trust, the LB5YRTBI, the SB15YRMI, the LUSMFA and the
LBMBSI. The "x" axis reflects computation periods from 1/31/88 to 1/31/98. The
"y" axis reflects the cost of investment in $5,000 increments ranging from
$20,000 to $60,000. The right margin reflects the ending value of the
hypothetical investment in the Trust as compared to the the LB5YRTBI, the
SB15YRMI, the LUSMFA and the LBMBSI; the ending values are $54,053, $53,318,
$57,783, $53,412 and $59,223, respectively. Below the legend is the Average
Annual Total Returns for the one-year, five-year, ten-year, and Start of
Performance (3/30/82) for the period ended January 31,1998; the Average Annual
Total Returns are 9.20%, 6.37%, 8.02% and 9.79%, respectively.

B. The graphic representation here displayed consists of a boxed legend in the
bottom center indicating the components of the corresponding line graph.
Federated Income Trust (Institutional Service Shares) (the "Trust") is
represented by a solid black line. Lehman Brothers 5-Year Treasury Bellweather
Index (LB5YRTBI) is represented by a series of dots. Saolmon Brothers 15-Year
Mortgage Index (SB15YRMI) is represented by a series of dashes. Lipper U.S.
Mortgage Funds Average (LUSMFA) is represented by broken line. Lehman Brothers
Mortgage Backed Securities Index (LBMBSI) is represented by a _________. The
line graph is a visual representation of a comparison of a change in value of a
hypothetical $25,000 investment in the Trust, the LB5YRTBI, the SB15YRMI, the
LUSMFA and the LBMBSI. The "x" axis reflects computation periods from 6/2/92 to
1/31/98. The "y" axis reflects the cost of investment in $4,000 increments
ranging from $24,000 to $40,000. The right margin reflects the ending value of
the hypothetical investment in the Trust as compared to the the LB5YRTBI, the
SB15YRMI, the LUSMFA and the LBMBSI; the ending values are $35,654, $36,872,
$37,744, $36,105 and $37,527, respectively. Below the legend is the Average
Annual Total Returns for the one-year, five-year and Start of Performance
(6/2/92) for the period ended January 31,1998; the Average Annual Total Returns
are 8.96%, 6.13%, and 6.47%, respectively.