SEMI-ANNUAL REPORT
President's Message
Dear Investor:
I'm pleased to present the Semi-Annual Report to Shareholders for Federated
Income Trust. This Report covers the six-month reporting period from February 1,
1999 through July 31, 1999 and includes the fund's investment review, portfolio
of investments and financial statements.
This fund pursues an attractive level of monthly income through a diversified
portfolio of mortgage-backed securities. During the reporting period, the fund's
portfolio maintained its AAAf rating by Standard & Poor's Ratings Group, the
highest available from this independent rating service. 1
Over the six-month reporting period, the fund paid dividends totaling $0.34 per
share for Institutional Shares and $0.33 per share for Institutional Service
Shares. Net asset value for both share classes decreased by $0.46 to end the
reporting period at $9.95. Total returns for Institutional Shares and
Institutional Service Shares were (1.16%) 2 and (1.27%),2 respectively. The
fund's net assets totaled $733 million on the last day of the reporting period.
We appreciate your continued confidence in Federated Income Trust. As always, we
welcome your questions and comments.
Sincerely,
[Graphic]
Glen R. Johnson
President
September 15, 1999
1 An AAAf rating means that the fund'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.
2 Performance quoted represents past performance and is not indicative of future
returns. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
Investment Review
Federated Income Trust is designed for shareholders seeking participation in a
professionally managed portfolio of U.S. Government securities. The fund offers
daily liquidity, credit control and other advantages over comparable U.S.
Treasurys, while at the same time allowing investors to avoid the complexities
of managing a portfolio of mortgage backed securities. Shareholders receive a
diversified portfolio managed under a set of highly conservative disciplines.
The U.S. economy continued to perform well during the six-month reporting
period. The ongoing economic expansion has moved into a near record ninth year.
The catalyst for this has been real output expanding vigorously, the
unemployment rate hovering around lows last seen in 1970, and underlying trends
in inflation remaining subdued. As the year began, investor concerns focused on
emerging market contagion and a slowdown of growth in the U.S. economy. Spreads
and liquidity premiums remained high in the fixed income markets. U.S. Treasury
yields surged as market sentiment switched from hopes for further easing to
fears of further tightening. Anxiety over the potential for Japanese
repatriation of funds, large corporate and agency issuance, and soaring oil
prices offered further incentive to sell U.S. Treasurys. Concerns of potential
inflationary pressures caused the Federal Reserve to increase short term notes
by 25 basis points to 5% on June 30, 1999. The move was widely anticipated by
fixed income investors and a "relief rally" from the market suggesting that the
Fed would not raise rates again ensued. This feeling of euphoria proved to be
short lived as Federal Reserve Chairman Greenspan, in his Humphrey Hawkins
testimony, reiterated the Federal Reserve's concern about potential signs of
inflation. Yields across the U.S. Treasury curve surged again in response. The
combination of Greenspan's testimony, a weaker dollar and strong data increased
the probability of a rate hike in August. As expected, the Federal Open Market
Committee at the August 24, 1999 meeting raised both the fed funds rate and the
discount rate 25 basis points, to 5.25% and 4.75%, respectively.
Current portfolio strategy targets an effective duration of 4.8 years, which is
neutral to the Lehman Brothers Mortgage Index. The asset allocation mix reflects
a blend of GNMA and conventional mortgage securities with a diversified range of
coupons averaging 6.7%. The mortgage market during the reporting period went
through two distinct periods of performance. The first quarter of 1999 saw
tremendous tightening of mortgages versus Treasurys. The mortgage market
benefited from a return to liquidity and declining volatility. However, this
strong performance was reversed in the second quarter as mortgages lagged U.S.
Treasurys. The mortgage market's performance was largely consistent with what
was occurring in other fixed income spread asset classes. The technicals in the
mortgage sector are quite positive: the prepayment environment is benign,
production has declined, and hedge funds are using far less leverage than in
1998 and account for a much smaller proportion of the investor base. Although
mortgage spreads to U.S. Treasurys could easily continue to widen further, we
believe that current spread levels already provide a significant cushion against
further widening. The portfolio during this time has increased exposure to
current coupon conventionals and structured mortgage product. Current coupon
conventionals were favored due to their greater liquidity, and the potential for
attractive dollar roll opportunities. Structured mortgage product was purchased
at even yield levels to equivalent coupon collateral. Historically, structured
product with prepayment protection has traded at lower yields versus the
underlying collateral.
During the semi-annual reporting period, the Trust produced a net total rate of
return of (1.16%) 1 on the Institutional Shares and a (1.27%)1 return for the
Institutional Service Shares. This compares to a (0.86%)2 return on the Lehman
Brothers Mortgage-Backed Securities Index. Rated AAAf 3 by Standard & Poor's for
credit quality, the Trust remains committed to competitive yields and daily
liquidity.
1 Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
2 The Lehman Brothers Mortgage-Backed Securities Index is composed of all fixed
note, securitized mortgage pools by GNMA, FNMA, and the FMLMC, including GNMA
Graduated Payment Mortgages. This index is unmanaged, and investments cannot be
made in an index.
3 An AAAf rating means that the fund'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.
Last Meeting of Shareholders
A Special Meeting of the Fund's shareholders was held on June 28, 1999. On April
30, 1999, the record date for the shareholders voting at the meeting, there were
73,246,206 total outstanding shares. The following were considered by
shareholders and the results were as follows:
AGENDA ITEM 1
Election of Trustees:
1. Vote on Trustees
<TABLE>
<CAPTION>
WITHHELD
AUTHORITY
FOR TO VOTE
<S> <C> <C>
Thomas G. Bigley 52,920,300 262,769
Nicholas P. Constantakis 52,921,850 261,219
John F. Cunningham 52,934,262 248,807
J. Christopher Donahue 52,934,262 248,807
Charles F. Mansfield, Jr. 52,934,262 248,807
John E. Murray, Jr., J.D., S.J.D. 52,934,262 248,807
John S. Walsh 52,934,262 248,807
</TABLE>
AGENDA ITEM 2
Ratified the selection of Deloitte & Touche LLP as the Trust's Independent
auditors:
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
52,570,816 83,878 528,373
</TABLE>
AGENDA ITEM 3
Made changes to the Fund's fundamental investment policies:
(a) Amended the Fund's fundamental investment policy regarding borrowing money
and issuing senior securities:
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
48,793,882 2,413,540 903,292
</TABLE>
(b) Amended the Fund's fundamental investment policy regarding lending by the
Fund:
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
49,460,268 1,767,414 883,032
</TABLE>
(c) Amended and made non-fundamental, the Fund's fundamental investment policy
regarding buying securities on margin:
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
49,202,117 2,068,719 839,878
</TABLE>
(d) Amended, and made non-fundamental, the Fund's fundamental investment policy
regarding pledging assets:
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
49,240,807 2,053,124 816,783
</TABLE>
(e) Amended, and made non-fundamental, the Fund's fundamental investment policy
regarding investing in other investment companies:
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
49,382,677 1,905,868 822,169
</TABLE>
(f) Amended, and made non-fundamental, the Fund's fundamental investment policy
regarding investments in U.S. government securities:
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
49,840,630 1,453,546 816,537
</TABLE>
(g) Amended, and made non-fundamental, the Fund's fundamental investment policy
regarding investments in collateralized mortgage obligations and
mortgage-related securities:
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
49,446,512 1,850,613 813,589
</TABLE>
(h) Made non-fundamental the Fund's fundamental investment policy regarding
dollar roll transactions:
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
49,385,649 1,876,928 848,137
</TABLE>
(i) Made non-fundamental the Fund's fundamental investment policy regarding
investing in repurchase agreements:
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
49,770,816 1,490,230 849,668
</TABLE>
(j) Made non-fundamental the Fund's fundamental investment policy regarding
engaging in when-issued and delayed delivery transactions:
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
49,747,809 1,518,355 844,550
</TABLE>
(k) Made non-fundamental the Fund's fundamental investment policy regarding
lending portfolio securities;
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
49,274,640 1,954,730 881,344
</TABLE>
AGENDA ITEM 4
Eliminated certain of the Fund's fundamental investment policies:
(a) Removed the Fund's fundamental investment policy regarding selling
securities short;
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
48,764,959 2,473,752 872,002
</TABLE>
(b) Removed the Fund's fundamental investment policy on engaging in portfolio
transactions;
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
49,599,236 1,632,478 879,001
</TABLE>
AGENDA ITEM 5
Amended and restated the Fund's fundamental investment policy:
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
49,743,936 1,563,530 803,248
</TABLE>
AGENDA ITEM 6
Approved the amendment and restatement to the Fund's Declaration of Trust:
(a) Requires the approval of a majority of the outstanding voting shares in
the event of the sale and conveyance of the assets of the Trusts to another Fund
or Corporation;
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
49,540,019 1,659,406 911,289
</TABLE>
(b) Permits the Board of Trustees to liquidate the assets of the Trust without
seeking shareholder approval;
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
47,986,866 3,289,289 834,559
</TABLE>
(c) Permits the Board of Trustees to change the name of the Fund without seeking
shareholder approval;
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
46,322,557 1,950,189 801,010
</TABLE>
Portfolio of Investments
JULY 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
LONG TERM OBLIGATIONS-
98.7%
FEDERAL HOME LOAN MORTGAGE
CORP.-28.9% 1
$ 100,319 11.500%, 12/1/2014 $ 112,608
47,952 11.000%, 5/1/2000 48,335
38,392 10.500%, 7/1/2000 38,717
502,250 9.500%, 11/1/2009 -
9/1/2016 533,826
1,948,100 9.000%, 4/1/2009 -
2/1/2013 2,053,451
34,910,799 7.500%, 12/1/2022 -
6/1/2027 34,959,983
107,510,484 7.000%, 10/1/2007 -
4/1/2029 105,118,417
72,878,144 6.500%, 2/1/2029 -
4/1/2029 69,416,432
TOTAL 212,281,769
FEDERAL HOME LOAN MORTGAGE
CORP. REMIC-2.2% 1
12,675,000 7.500%, Series 2081-ED
(Interest Only), 8/15/2028 4,119,375
7,706,466 6.500%, Series 2139-IO,
(Interest Only),
10/15/2026 1,921,839
14,809,426 6.500%, Series 2070-IO
(Interest Only), 7/15/2028 4,479,851
75,986,802 1.000%, Series 2100-AI
(Interest Only), 6/15/2026 2,469,571
3,287,334 0.000%, Series 2015-PO
(Principal Only),
12/15/2027 2,438,906
472,897 0.000%, Series 2031-BO
(Principal Only),
2/20/2028 350,847
TOTAL 15,780,389
FEDERAL NATIONAL MORTGAGE
ASSOCIATION-28.9% 1
7,650,613 10.500%, 12/1/2019 -
4/1/2022 8,427,542
9,977,763 10.000%, 11/1/2009 -
4/1/2025 10,825,989
10,951,905 8.000%, 12/1/2026 11,184,633
5,291,620 7.500%, 3/1/2010 -
7/1/2028 5,301,568
30,629,772 7.000%, 2/1/2029 - 6/1/29 29,931,107
63,070,926 6.500%, 12/1/2027 -
5/1/2029 60,048,453
92,125,341 6.000%, 1/1/2014 -
1/1/2029 86,501,556
TOTAL 212,220,848
FEDERAL NATIONAL MORTGAGE
ASSOCIATION REMIC-3.0% 1
22,950,000 6.500%, Series 1999-41-PE,
8/25/2014 21,881,448
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION-32.1%
1
23,496,000 2 7.500%, 8/1/2029 23,466,630
75,486,488 7.000%, 6/15/2026 -
7/15/2029 73,561,289
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
LONG TERM OBLIGATIONS-
continued
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION-
CONTINUED 1
$ 123,424,971 6.500%, 12/15/2023 -
4/15/2029 $ 117,569,522
22,726,261 6.000%, 11/15/2028 -
6/15/2029 20,939,086
TOTAL 235,536,527
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION
REMIC-1.1% 1
15,922,120 8.000%, 5/16/2027 Series
97-7 (Interest Only) 5,373,711
3,445,934 0.000%, 12/20/2027 Series
97-17 (Principal Only) 2,556,574
TOTAL 7,930,285
U.S. TREASURY-2.5%
18,500,000 United States Treasury
Notes, 6.125%, 8/15/2007 18,548,285
TOTAL LONG TERM
OBLIGATIONS (IDENTIFIED
COST $748,376,405) 724,179,551
REPURCHASE AGREEMENTS-6.8%
3
15,445,000 ABN AMRO, Inc., 5.130%,
dated 7/30/1999, due
8/2/1999 15,445,000
23,496,000 4 Credit Suisse First
Boston, Inc., 5.010%,
dated 7/20/1999, due
8/24/1999 23,496,000
10,400,000 4 Morgan Stanley Group,
Inc., 5.030%, dated
7/23/1999, due 8/16/1999 10,400,000
TOTAL REPURCHASE
AGREEMENTS (AT AMORTIZED
COST) 49,341,000
TOTAL INVESTMENTS
(IDENTIFIED COST
$797,717,405) 5 $ 773,520,551
</TABLE>
1 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 approximate 1-10
years.
2 Indicates securities subject to dollar roll transactions.
3 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.
4 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.
5 The cost of investments for federal tax purposes amounts to $797,717,405. The
net unrealized depreciation of investments on a federal tax basis amounts to
$24,196,854 which is comprised of $1,925,734 appreciation and $26,122,588
depreciation at July 31, 1999.
Note: The categories of investments are shown as a percentage of net assets
($733,331,641) at July 31, 1999.
The following acronym is used throughout this portfolio:
REMIC -Real Estate Mortgage Investment Conduit
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
JULY 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Investments in repurchase
agreements $ 49,341,000
Investments in securities 724,179,551
Total investments in
securities, at value
(identified and
tax cost $797,717,405) $ 773,520,551
Income receivable 4,528,062
Receivable for investments
sold 22,673,167
TOTAL ASSETS 800,721,780
LIABILITIES:
Payable for investments
purchased 39,027,135
Income distribution
payable 4,461,259
Payable for dollar roll
transactions 23,791,712
Accrued expenses 110,033
TOTAL LIABILITIES 67,390,139
Net assets for 73,692,055
shares outstanding $ 733,331,641
NET ASSETS CONSIST OF:
Paid in capital $ 862,268,967
Net unrealized
depreciation of
investments (24,196,854)
Accumulated net realized
loss on investments (104,740,472)
TOTAL NET ASSETS $ 733,331,641
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PROCEEDS PER SHARE
INSTITUTIONAL SHARES:
$675,898,213 / 67,920,826
shares outstanding $9.95
INSTITUTIONAL SERVICE
SHARES:
$57,433,428 / 5,771,229
shares outstanding $9.95
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
SIX MONTHS ENDED JULY 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest (net of dollar
roll expense of
$1,213,482) $ 26,398,826
EXPENSES:
Investment advisory fee $ 1,486,573
Administrative personnel
and services fee 280,219
Custodian fees 31,611
Transfer and dividend
disbursing agent fees and
expenses 56,595
Directors'/Trustees' fees 8,877
Auditing fees 10,778
Legal fees 5,575
Portfolio accounting fees 68,494
Distribution services fee-
Institutional Service
Shares 66,663
Shareholder services fee-
Institutional Shares 862,446
Shareholder services fee-
Institutional Service
Shares 66,663
Share registration costs 13,204
Printing and postage 12,110
Insurance premiums 1,034
Miscellaneous 8,723
TOTAL EXPENSES 2,979,565
WAIVERS:
Waiver of distribution
services fee-Institutional
Service Shares $ (63,996)
Waiver of shareholder
services fee-Institutional
Shares (724,454)
TOTAL WAIVERS (788,450)
Net expenses 2,191,115
Net investment income 24,207,711
REALIZED AND UNREALIZED
LOSS ON INVESTMENTS:
Net realized loss on
investments (4,764,707)
Net change in unrealized
depreciation of
investments (28,213,304)
Net realized and
unrealized loss on
investments (32,978,011)
Change in net assets
resulting from operations $ (8,770,300)
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
(unaudited) ENDED
JULY 31, JANUARY 31,
1999 1999
<S> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS:
Net investment income $ 24,207,711 $ 46,145,357
Net realized gain (loss) on
investments ($(4,764,707)
and $5,833,165,
respectively, as computed
for federal tax purposes) (4,764,707) 6,501,645
Net change in unrealized
depreciation (28,213,304) (4,188,194)
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS (8,770,300) 48,458,808
DISTRIBUTIONS TO
SHAREHOLDERS:
Distributions from net
investment income
Institutional Shares (23,296,690) (43,354,300)
Institutional Service
Shares (1,748,949) (2,791,057)
CHANGE IN NET ASSETS
RESULTING FROM
DISTRIBUTIONS
TO SHAREHOLDERS (25,045,639) (46,145,357)
SHARE TRANSACTIONS:
Proceeds from sale of
shares 106,005,846 162,767,371
Net asset value of shares
issued to shareholders in
payment of
distributions declared 5,474,434 12,501,333
Cost of shares redeemed (99,566,784) (212,179,393)
CHANGE IN NET ASSETS
RESULTING FROM SHARE
TRANSACTIONS 11,913,496 (36,910,689)
Change in net assets (21,902,443) (34,597,238)
NET ASSETS:
Beginning of period 755,234,084 789,831,322
End of period (including
distributions in excess of
net investment income and
undistributed net
investment income of
($739,438) and $98,490,
respectively) $ 733,331,641 $ 755,234,084
</TABLE>
See Notes which are an integral part of the Financial Statements
Financial Highlights-Institutional Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
JULY 31, YEAR ENDED JANUARY 31,
1999 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $10.41 $10.38 $10.15 $10.39 $9.70 $10.50
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income 0.33 0.62 0.66 0.68 0.67 0.70
Net realized and
unrealized
gain (loss) on investments (0.45) 0.03 0.24 (0.24) 0.69 (0.80)
TOTAL FROM
INVESTMENT OPERATIONS (0.12) 0.65 0.90 0.44 1.36 (0.10)
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.34) (0.62) (0.67) (0.68) (0.67) (0.70)
NET ASSET VALUE, END OF
PERIOD $ 9.95 $10.41 $10.38 $10.15 $10.39 $ 9.70
TOTAL RETURN 1 (1.16%) 6.46% 9.20% 4.44% 14.44% (0.86%)
RATIOS TO AVERAGE NET
ASSETS:
Expenses 2 0.78%3 0.78% 0.80% 0.80% 0.80% 0.56%
Net investment income 2 6.32%3 5.84% 6.28% 6.48% 6.45% 6.99%
Expenses (after waivers
and reimbursements) 0.57%3 0.57% 0.58% 0.58% 0.58% 0.56%
Net investment income
(after waivers and
reimbursements) 6.53%3 6.05% 6.50% 6.70% 6.67% 6.99%
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $675,899 $704,266 $746,407 $838,542 $983,093 $1,119,976
Portfolio turnover 61% 151% 306% 212% 184% 217%
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 During the period, certain fees were voluntarily waived and reimbursed. If
such voluntary waivers and reimbursements had not occurred, the ratios would
have been as indicated.
3 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Institutional Service Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
JULY 31, YEAR ENDED JANUARY 31,
1999 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $10.41 $10.38 $10.15 $10.39 $9.70 $10.50
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income 0.32 0.60 0.64 0.65 0.65 0.68
Net realized and
unrealized
gain (loss) on investments (0.45) 0.03 0.24 (0.24) 0.69 (0.80)
TOTAL FROM
INVESTMENT OPERATIONS (0.13) 0.63 0.88 0.41 1.34 (0.12)
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.33) (0.60) (0.65) (0.65) (0.65) (0.68)
NET ASSET VALUE, END OF
PERIOD $ 9.95 $10.41 $10.38 $10.15 $10.39 $ 9.70
TOTAL RETURN 1 (1.27%) 6.22% 8.96% 4.21% 14.19% (1.08%)
RATIOS TO AVERAGE NET
ASSETS:
Expenses 2 1.03%3 1.03% 1.05% 1.05% 1.05% 1.00%
Net investment income 2 6.07%3 5.47% 6.03% 6.24% 6.20% 6.53%
Expenses (after waivers
and reimbursements) 0.79%3 0.79% 0.80% 0.80% 0.80% 0.78%
Net investment income
(after waivers and
reimbursements) 6.31%3 5.71% 6.28% 6.49% 6.45% 6.75%
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $57,433 $50,968 $43,424 $43,257 $40,788 $40,428
Portfolio turnover 61% 151% 306% 212% 184% 217%
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 During the period, certain fees were voluntarily waived and reimbursed. If
such voluntary waivers and reimbursements had not occurred, the ratios would
have been as indicated.
3 Computed on an annualized basis.
See Notes which are an
integral part of the
Financial Statements
Notes to Financial Statements
JULY 31, 1999 (UNAUDITED)
ORGANIZATION
Federated Income Trust (the "Fund") is registered under the Investment Company
Act of 1940, as amended (the "Act"), as a diversified, open-end management
investment company. The Fund 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 Fund 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 60 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 Fund 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 Fund 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 Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Fund'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 Fund could receive less than
the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex- dividend
date.
FEDERAL TAXES
It is the Fund'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, 1999, the Fund, for federal tax purposes, had a capital loss
carryforward of $100,371,770, which will reduce the Fund'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 Fund of any
liability for federal tax. Pursuant to the Code, such capital loss carryforward
will expire as follows:
<TABLE>
<CAPTION>
EXPIRATION YEAR EXPIRATION AMOUNT
<S> <C>
2003 $95,710,304
2005 4,661,466
</TABLE>
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
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 Fund 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 12 months. The Fund will use the proceeds generated from the transactions
to invest in short-term investments, which may enhance the Fund's current yield
and total return.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JULY 31, 1999 JANUARY 31, 1999
INSTITUTIONAL SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 8,917,226 $ 91,471,115 14,248,595 $ 147,641,961
Shares issued to
shareholders in payment of
distributions declared 472,775 4,838,940 1,080,448 11,205,917
Shares redeemed (9,131,054) (93,307,551) (19,606,420) (203,143,989)
NET CHANGE RESULTING FROM
INSTITUTIONAL SHARE
TRANSACTIONS 258,947 $ 3,002,504 (4,277,377) $ (44,296,111)
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JULY 31, 1999 JANUARY 31, 1999
<S> <C> <C> <C> <C>
INSTITUTIONAL SERVICE
SHARES: SHARES AMOUNT SHARES AMOUNT
Shares sold 1,423,711 $ 14,534,731 1,459,104 $ 15,125,410
Shares issued to
shareholders in payment of
distributions declared 62,112 635,494 124,887 1,295,416
Shares redeemed (611,330) (6,259,233) (872,099) (9,035,404)
NET CHANGE RESULTING FROM
INSTITUTIONAL SERVICE
SHARE TRANSACTIONS 874,493 $ 8,910,992 711,892 $ 7,385,422
NET CHANGE RESULTING FROM
SHARE TRANSACTIONS 1,133,440 $ 11,913,496 (3,565,485) $ (36,910,689)
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Investment Management Company, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
0.40% of the Fund's average daily net assets.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors, Inc. for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
DISTRIBUTION SERVICES FEE
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b- 1
under the Act. Under the terms of the Plan, the Fund will compensate Federated
Securities Corp. ("FSC"), the principal distributor, from the net assets of the
Fund to finance activities intended to result in the sale of the Fund's
Institutional Service Shares. The Plan provides that the Fund 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 Company ("FSSC"), the Fund will pay FSSC up to 0.25% of average daily
net assets of the Fund shares for the period. The fee paid to FSSC is used to
finance certain services for shareholders and to maintain shareholder accounts.
FSSC may voluntarily choose to waive any portion of its fee. FSSC 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 FSSC, serves as transfer and dividend disbursing
agent for the Fund. 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 Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
INTERFUND TRANSACTIONS
During the period ended July 31, 1999, the Fund engaged in purchase and sales
transactions with funds that have a common investment adviser (or affiliated
advisers), common Directors/Trustees, and/or common officers. These purchase and
sales transactions were made at current market value pursuant to Rule 17a-7
under the Act amounting to $3,060,020 and $1,571,918, respectively.
GENERAL
Certain of the Officers and Trustees of the Fund 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 July 31, 1999, were as follows:
<TABLE>
<CAPTION>
<S> <C>
Purchases $ 456,544,709
Sales $ 454,138,520
</TABLE>
YEAR 2000
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
Trustees
JOHN F. DONAHUE
THOMAS G. BIGLEY
JOHN T. CONROY, JR.
NICHOLAS P. CONSTANTAKIS
LAWRENCE D. ELLIS, M.D.
GLEN R. JOHNSON
PETER E. MADDEN
CHARLES F. MANSFIELD, JR.
JOHN E. MURRAY, JR., J.D., S.J.D.
MARJORIE P. SMUTS
Officers
JOHN F. DONAHUE
Chairman
GLEN R. JOHNSON
President
J. CHRISTOPHER DONAHUE
Executive Vice President
EDWARD C. GONZALES
Executive Vice President
JOHN W. MCGONIGLE
Executive Vice President and Secretary
RICHARD J. THOMAS
Treasurer
RICHARD B. FISHER
Vice President
KATHY M. FOODY-MALUS
Vice President
C. GRANT ANDERSON
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment
risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
[Graphic]
Federated
World-Class Investment Manager
SEMI-ANNUAL REPORT
Federated Income Trust
SEMI-ANNUAL REPORT TO SHAREHOLDERS
JULY 31, 1999
[Graphic]
Federated
Federated Income Trust
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Cusip 314199100
Cusip 314199209
8082203 (9/99)
[Graphic]
