ANNUAL REPORT
President's Message
Dear Shareholder:
I am pleased to present the Annual Report to Shareholders for Federated Income
Trust. This report covers the 12-month period from February 1, 1998 through
January 31, 1999 and includes the fund's investment review, portfolio of
investments and the 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 12-month reporting period, the fund paid dividends totaling $0.62 per
share for Institutional Shares and $0.60 per share for Institutional Service
Shares. Net asset value for both share classes increased by $0.03 to end the
reporting period at $10.41. Total returns for Institutional Shares and
Institutional Service Shares for the period ended January 31, 1999, were 6.46%
and 6.22%, respectively. 2 The fund's net assets totaled $755 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
March 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
do not remove market risks and are subject to change.
2 Performance quoted represents past performance and is not indicative of future
returns. Investment return and principal value will fluctuate so when shares are
redeemed, they 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.
Treasuries, while at the same time allowing investors to avoid the complexities
of managing a portfolio of mortgage- backed securities. Shareholders receive a
diversified portfolio managed under a set of highly conservative disciplines.
During the annual reporting period, the U.S. Treasury market put in a stellar
performance by outperforming other major fixed income asset classes. The key
factors driving the performance of Treasuries in 1998 were reductions in
Treasury supply due to the first budget surplus in close to 30 years, declining
commodity prices, emerging market contagion, and heightened liquidity premiums.
While the U.S. economy continued to post strong growth in 1998, the overall
performance and shape of the U.S. Treasury yield curve were driven by events
taking place in other markets. The first half of the fiscal reporting period saw
a continued flattening of the yield curve between the 2- and 30-year U.S.
Treasuries. During this time period, the yield spread between the 2- and 30-year
U.S. Treasuries declined from 50 to 23 basis points. The turning point for
investors was the emerging market crisis in Russia and Latin America. As this
crisis unfolded, investors favored the most liquid U.S. Treasury securities
available and avoided all other fixed income asset classes. This risk aversion
drove U.S. Treasury rates to levels not seen in a generation and spreads on
non-U.S. Treasury assets to their widest point in 10 years. At the peak of this
turmoil, the yield on the 30-year U.S. Treasury reached a low of 4.71%.
During the reporting period, the Federal Reserve Board eased the federal funds
target rate 75 basis points over a three-month time period to provide stability
to the capital markets. As the market stabilized, there was a partial reversal
of the flight-to-quality activity, and the U.S. Treasury market gave back some
of the gains. With the return to stability and a focus on the domestic economy,
investors in the mortgage-backed sector started to benefit as the new year
began. Current valuation in the mortgage market continued to highlight the
attractiveness of the sector on an option-adjusted spread basis versus other
fixed income sectors.
Current portfolio strategy targets an effective duration of 2.38 years, which is
neutral to the Lehman Brothers Mortgage-Backed Securities Index. 1 The asset
allocation mix reflects a blend of Government National Mortgage Association
("GNMA") securities and conventional mortgage securities with a diversified
range of coupons averaging 6.05%. Exposure to the GNMA sector is in new
origination higher coupon securities. The reason for this bias is due to the
underlying characteristics of the GNMA borrower. The GNMA borrower tends to be
slow to take advantage of refinancing due to income constraints and the
inability to finance the up-front costs. During 1998, prepayments for current
and premium GNMA securities have averaged 15% to 25% slower than comparable
conventional securities. The conventional allocation favors the current coupon
sector due to their greater liquidity and the potential for attractive dollar
roll opportunities. The fund continued to take advantage of opportunities in
structured mortgage product. This included structured mortgage securities with
average lives ranging between 8 and 15 years. These securities, with their
longer average lives, should outperform U.S. Treasury securities as mortgage
spreads narrow.
1 The Lehman Brothers Mortgage-Backed Securities Index is an unmanaged index
composed of all fixed securities mortgage pools by GNMA, FNMA and FHLMC,
including GNMA Graduated Payment Mortgages. Investments cannot be made in an
index.
Overall, our view on the mortgage market is positive as we move into 1999. We
believe that mortgages should perform well due to strong technical and
fundamental factors. In terms of fundamentals, mortgages underperformed last
year due to mortgage rates declining to 30-year lows, creating two major
refinancing waves. With mortgage origination rates having increased
substantially, and prepayments having peaked for this cycle, the outlook for
mortgages is positive. The technical situation is positive due to decreasing
supply and increasing demand. Origination from the mortgage bankers has declined
accompanied by a pickup in investor demand due to attractive yield spreads over
comparable duration U.S. Treasuries.
For the year ended January 31, 1999, the fund produced a total return of 6.46% 2
for Institutional Shares and a 6.22%2 return for the Institutional Service
Shares. This compares to a 6.66% return on the Lehman Brothers Mortgage-Backed
Securities Index.1 Rated AAAf by Standard & Poor's for credit quality, the fund
remains committed to competitive yields and daily liquidity.
2 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.
GROWTH OF $25,000 INVESTED IN FEDERATED INCOME TRUST-INSTITUTIONAL SHARES
[Graphic]
See Appendix A1
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD ENDED JANUARY 31, 1999
1 Year 6.46%
5 Year 6.61%
10 Year 8.09%
Start of Performance (3/30/82) 9.59%
The graph above illustrates the hypothetical investment of $25,000 1 in
Federated Income Trust (Institutional Shares) (the "Fund") from January 31, 1989
to January 31, 1999, compared to the Lehman Brothers 5- Year Treasury Bellwether
Index (LB5YRTBI),1 the Lipper U.S. Mortgage Funds Average (LUSMFA),2 and the
Lehman Brothers Mortgage Backed
Securities Index (LBMBSI).1
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.
1 The Fund's performance assumes the reinvestment of all dividends and
distributions. The LB5YRTBI, LUSMFA, and the LBMBSI have been adjusted to
reflect reinvestment of dividends on securities in the indices and average. The
LB5YRTBI and the LBMBSI are not adjusted to reflect sales charges, expenses, or
other fees that the Securities and Exchange Commission ("SEC") requires to be
reflected in the Fund's performance. The indices are unmanaged and investments
cannot be made in an index.
2 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.
GROWTH OF $25,000 INVESTED IN FEDERATED INCOME TRUST-INSTITUTIONAL
SERVICE SHARES
[Graphic]
See Appendix A2
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD ENDED JANUARY 31, 1999
1 Year 6.22%
5 Year 6.38%
Start of Performance (6/2/92) 6.43%
The graph above illustrates the hypothetical investment of $25,000 1 in
Federated Income Trust (Institutional Service Shares) (the "Fund") from June 2,
1992 (start of performance) to January 31, 1999, compared to the Lehman Brothers
5-Year Treasury Bellwether Index (LB5YRTBI),1 the Lipper U.S. Mortgage Funds
Average (LUSMFA),2 and the Lehman Brothers Mortgage
Backed Securities Index (LBMBSI).1
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.
1 The Fund's performance assumes the reinvestment of all dividends and
distributions. The LB5YRTBI, LUSMFA, and the LBMBSI have been adjusted to
reflect reinvestment of dividends on securities in the indices and average. The
LB5YRTBI and the LBMBSI are not adjusted to reflect sales charges, expenses, or
other fees that the Securities and Exchange Commission ("SEC") requires to be
reflected in the Fund's performance. The indices are unmanaged and investments
cannot be made in an index.
2 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.
Portfolio of Investments
JANUARY 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
LONG-TERM OBLIGATIONS-105%
FEDERAL HOME LOAN MORTGAGE CORP.-27.6% 1
$ 102,064 11.500%, 12/1/2014 $ 114,949
110,486 11.000%, 5/1/2000 112,112
71,955 10.500%, 7/1/2000 72,919
625,628 9.500%, 11/1/2009 - 9/1/2016 669,627
2,219,486 9.000%, 4/1/2009 - 2/1/2013 2,344,072
42,669,284 7.500%, 12/1/2022 - 6/1/2027 43,917,022
640,611 7.000%, 10/1/2007 653,423
84,238,247 7.000%, 2/1/2027 - 9/1/2028 86,081,380
68,600,000 6.500%, 2/1/2029 62,242,782
5,000,000 2 6.500%, 2/1/2029 5,046,850
TOTAL 208,255,136
FEDERAL HOME LOAN MORTGAGE CORP. DEBENTURES-7.3%
55,614,000 3 5.020% - 5.030%, 2/18/1999 55,494,986
FEDERAL HOME LOAN MORTGAGE CORP. REMIC-7.6% 1
21,989,000 10.048%, Series 2100-BB, 12/15/2028 23,916,556
12,675,000 7.500%, Series 2081-ED (Interest Only), 8/15/2028 2,740,969
5,798,459 7.000%, Series 1991-PJ (Interest Only), 9/15/2027 1,904,446
15,000,000 6.500%, Series 1992-PM, 2/15/2026 15,294,300
15,192,872 6.500%, Series 2070-IO (Interest Only), 7/15/2028 3,537,053
9,625,000 0.000%, Series 1802-A (Principal Only), 3/15/2024 6,617,188
3,287,334 0.000%, Series 2015-PO (Principal Only), 12/15/2027 2,894,925
472,897 0.000%, Series 2031-BO (Principal Only), 2/20/2028 411,718
TOTAL 57,317,155
FEDERAL NATIONAL MORTGAGE ASSOCIATION-34.8% 1
9,339,339 10.500%, 12/1/2019 - 4/1/2022 10,341,620
9,915,354 10.000%, 11/1/2009 - 12/1/2019 10,754,365
5,006,261 10.000%, 1/1/2021 - 4/1/2025 5,482,559
12,855,605 8.000%, 12/1/2026 13,353,759
3,961,955 7.500%, 3/1/2010 - 4/1/2010 4,094,298
1,927,222 7.500%, 7/1/2028 1,984,441
16,311,151 6.500%, 9/1/2013 - 1/1/2014 16,592,006
76,000,000 2 6.500%, 2/1/2029 76,665,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
LONG-TERM OBLIGATIONS-continued
FEDERAL NATIONAL MORTGAGE ASSOCIATION-CONTINUED 1
$ 32,809,965 6.000%, 1/1/2014 $ 32,922,831
91,475,265 6.000%, 1/1/2028 - 2/1/2029 90,446,081
TOTAL 262,636,960
FEDERAL NATIONAL MORTGAGE ASSOCIATION REMIC-0.7%
11,156,455 7.000%, Series 1997-89-E (Interest Only), 12/20/2027 3,678,172
11,634,660 7.000%, Series 1998-15-PE (Interest Only), 2/18/2021 1,407,096
TOTAL 5,085,268
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION-26.0% 1
25,879,026 7.500%, 7/15/2028 - 9/15/2028 26,736,139
87,635,908 7.000%, 11/15/2026 - 1/15/2029 89,799,638
78,437,491 6.500%, 12/15/2023 - 7/15/2028 79,465,085
TOTAL 196,000,862
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION REMIC-1.0% 1
18,913,958 8.000%, 5/16/2027 Series 97-7 (Interest Only) 4,698,984
3,445,934 0.000%, 12/20/2027 Series 97-17 (Principal Only) 3,034,593
TOTAL 7,733,577
TOTAL LONG-TERM OBLIGATIONS (IDENTIFIED COST $788,507,464) 792,523,944
REPURCHASE AGREEMENTS-14.9% 4
18,495,000 ABN AMRO, Inc., 4.820%, dated 1/29/1999, due 2/1/1999 18,495,000
20,557,000 5,6 Merrill Lynch, Pierce, Fenner and Smith, 4.950%, dated
12/3/1998, due 2/18/1999 20,557,000
73,600,000 5,6 Morgan Stanley Group, Inc., 4.780%, dated 1/11/1999, due
2/11/1999 73,600,000
TOTAL REPURCHASE AGREEMENTS (AT AMORTIZED COST) 112,652,000
TOTAL INVESTMENTS (IDENTIFIED COST $901,159,494) 7 $ 905,175,944
</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 approximates 1-10
years.
2 Indicates securities subject to dollar roll transactions.
3 All or a portion of this security is subject to a future dollar roll
transaction.
4 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.
5 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.
6 Securities held as collateral for future dollar roll transactions.
7 The cost of investments for federal tax purposes amounts to $901,159,494. The
net unrealized appreciation of investments on a federal tax basis amounts to
$4,016,450 which is comprised of $8,153,581 appreciation and $4,137,131
depreciation at January 31, 1999.
Note: The categories of investments are shown as a percentage of net assets
($755,234,084) at January 31, 1999.
The following acronym is used throughout this portfolio:
REMIC -Real Estate Mortgage Conduit
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
JANUARY 31, 1999
<TABLE>
<S> <C> <C>
ASSETS:
Investments in repurchase agreements $ 112,652,000
Investments in securities 792,523,944
Total investments in securities, at value (identified and
tax cost $901,159,494) $ 905,175,944
Cash 1,916
Income receivable 3,889,473
Receivable for investments sold 76,647,649
Receivable for shares sold 410,568
TOTAL ASSETS 986,125,550
LIABILITIES:
Payable for investments purchased 222,255,383
Payable for shares redeemed 797,564
Income distribution payable 2,705,760
Payable for dollar roll transactions 5,019,675
Accrued expenses 113,084
TOTAL LIABILITIES 230,891,466
Net assets for 72,558,615 shares outstanding $ 755,234,084
NET ASSETS CONSIST OF:
Paid in capital $ 851,094,909
Net unrealized appreciation of investments 4,016,450
Accumulated net realized loss on investments (99,975,765)
Undistributed net investment income 98,490
TOTAL NET ASSETS $ 755,234,084
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS PER
SHARE:
INSTITUTIONAL SHARES:
$704,266,123 / 67,661,879 shares outstanding $10.41
INSTITUTIONAL SERVICE SHARES:
$50,967,961 / 4,896,736 shares outstanding $10.41
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
YEAR ENDED JANUARY 31, 1999
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest (net of dollar roll expense of $2,695,704) $ 50,604,101
EXPENSES:
Investment advisory fee $ 3,062,716
Administrative personnel and services fee 577,322
Custodian fees 62,560
Transfer and dividend disbursing agent fees and expenses 69,877
Directors'/Trustees' fees 15,895
Auditing fees 21,132
Legal fees 10,066
Portfolio accounting fees 145,541
Distribution services fee-Institutional Service Shares 119,914
Shareholder services fee-Institutional Shares 1,794,284
Shareholder services fee-Institutional Service Shares 119,914
Share registration costs 31,804
Printing and postage 25,090
Insurance premiums 8,003
Miscellaneous 16,941
TOTAL EXPENSES 6,081,059
WAIVERS AND REIMBURSEMENTS:
Waiver of distribution services fee-Institutional
Service Shares $ (115,117)
Waiver of shareholder services fee-Institutional Shares (1,507,198)
TOTAL WAIVERS (1,622,315)
Net expenses 4,458,744
Net investment income 46,145,357
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 6,501,645
Net change in unrealized appreciation/depreciation
of investments (4,188,194)
Net realized and unrealized gain on investments 2,313,451
Change in net assets resulting from operations $ 48,458,808
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31 1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income $ 46,145,357 $ 54,077,741
Net realized gain on investments ($5,833,165 and
$16,260,368, respectively, as computed for federal
tax purposes) 6,501,645 16,279,577
Net change in unrealized appreciation/depreciation (4,188,194) 2,287,217
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 48,458,808 72,644,535
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
Institutional Shares (43,354,300) (51,782,096)
Institutional Service Shares (2,791,057) (2,738,632)
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS
TO SHAREHOLDERS (46,145,357) (54,520,728)
SHARE TRANSACTIONS:
Proceeds from sale of shares 162,767,371 171,602,234
Net asset value of shares issued to shareholders in payment
of distributions declared 12,501,333 14,317,427
Cost of shares redeemed (212,179,393) (296,011,693)
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS (36,910,689) (110,092,032)
Change in net assets (34,597,238) (91,968,225)
NET ASSETS:
Beginning of period 789,831,322 881,799,547
End of period (including undistributed net investment
income of $98,490 and $0, respectively) $ 755,234,084 $ 789,831,322
</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>
YEAR ENDED JANUARY 31 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $10.38 $10.15 $10.39 $ 9.70 $10.50
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income 0.62 0.66 0.68 0.67 0.70
Net realized and unrealized gain (loss)
on investments 0.03 0.24 (0.24) 0.69 (0.80)
TOTAL FROM
INVESTMENT OPERATIONS 0.65 0.90 0.44 1.36 (0.10)
LESS DISTRIBUTIONS:
Distributions from net investment income (0.62) (0.67) (0.68) (0.67) (0.70)
NET ASSET VALUE, END OF PERIOD $10.41 $10.38 $10.15 $10.39 $ 9.70
TOTAL RETURN 1 6.46% 9.20% 4.44% 14.44% (0.86%)
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.57% 0.58% 0.58% 0.58% 0.56%
Net investment income 6.05% 6.50% 6.70% 6.67% 6.99%
Expense waiver/ reimbursement 2 0.21% 0.22% 0.22% 0.22% -
SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $704,266 $746,407 $838,542 $983,093 $1,119,976
Portfolio turnover 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 This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Institutional Service Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.38 $10.15 $10.39 $ 9.70 $10.50
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.60 0.64 0.65 0.65 0.68
Net realized and unrealized gain
(loss) on investments 0.03 0.24 (0.24) 0.69 (0.80)
TOTAL FROM INVESTMENT OPERATIONS 0.63 0.88 0.41 1.34 (0.12)
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.60) (0.65) (0.65) (0.65) (0.68)
NET ASSET VALUE, END OF PERIOD $10.41 $10.38 $10.15 $10.39 $ 9.70
TOTAL RETURN 1 6.22% 8.96% 4.21% 14.19% (1.08%)
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.79% 0.80% 0.80% 0.80% 0.78%
Net investment income 5.71% 6.28% 6.49% 6.45% 6.75%
Expense waiver/ reimbursement 2 0.24% 0.25% 0.25% 0.25% 0.22%
SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $50,968 $43,424 $43,257 $40,788 $40,428
Portfolio turnover 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 This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
JANUARY 31, 1999
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 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 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 mortgage-backed
securities, market discount, foreign currency transactions, partnerships,
non-taxable dividends, net operating losses, expiring capital loss
carryforwards, wash sales, futures and options, post-October losses. The
following reclassifications have been made to the financial statements.
INCREASE (DECREASE)
ACCUMULATED UNDISTRIBUTED
NET REALIZED NET INVESTMENT
PAID-IN CAPITAL GAIN/LOSS INCOME
$221,986 $(320,476) $98,490
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, 1999, the Trust, for federal tax purposes, had a capital loss
carryforward of $100,371,770, 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
2003 $95,710,304
2005 4,661,466
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Trust may engage in when-issued or delayed delivery transactions. The Trust
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when- issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
DOLLAR ROLL TRANSACTIONS
The Trust enters into dollar roll transactions, with respect to mortgage
securities issued by GNMA, FNMA and FHLMC, in which the Trust sells mortgage
securities to financial institutions and simultaneously agrees to accept
substantially similar (same type, coupon and maturity) securities at a later
date at an agreed upon price. Dollar roll transactions involve "to be announced"
securities and are treated as short-term financing arrangements which will not
exceed twelve months. The Trust will use the proceeds generated from the
transactions to invest in short-term investments, which may enhance the Trust's
current yield and total return.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31 1999 1998
INSTITUTIONAL SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 14,248,595 $ 147,641,961 15,549,209 $ 159,057,200
Shares issued to shareholders in payment of
distributions declared 1,080,448 11,205,917 1,254,667 12,827,066
Shares redeemed (19,606,420) (203,143,989) (27,486,985) (281,173,119)
NET CHANGE RESULTING FROM
INSTITUTIONAL SHARE TRANSACTIONS (4,277,377) $ (44,296,111) (10,683,109) $ (109,288,853)
<CAPTION>
YEAR ENDED JANUARY 31 1999 1998
INSTITUTIONAL SERVICE SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 1,459,104 $ 15,125,410 1,224,367 $ 12,545,034
Shares issued to shareholders in payment of
distributions declared 124,887 1,295,416 145,892 1,490,361
Shares redeemed (872,099) (9,035,404) (1,448,069) (14,838,574)
NET CHANGE RESULTING FROM
INSTITUTIONAL SERVICE SHARE TRANSACTIONS 711,892 $7,385,422 (77,810) $ (803,179)
NET CHANGE RESULTING FROM SHARE TRANSACTIONS (3,565,485) $ (36,910,689) (10,760,919) $ (110,092,032)
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Management, the Trust's investment adviser (the "Adviser"), receives
for its services an annual investment advisory fee equal to 0.40% of the Trust's
average daily net assets.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Trust with administrative personnel and services. The
fee paid to FServ is based on the level of average aggregate daily net assets of
all funds advised by subsidiaries of Federated Investors, Inc. for the period.
The administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
DISTRIBUTION SERVICES FEE
The Trust has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Act. Under the terms of the Plan, the Trust will compensate Federated
Securities Corp. ("FSC"), the principal distributor, from the net assets of the
Trust to finance activities intended to result in the sale of the Trust's
Institutional Service Shares. The Plan provides that the Trust may incur
distribution expenses up to 0.25% of the average daily net assets of the
Institutional Service Shares, annually, to compensate FSC. The distributor may
voluntarily choose to waive any portion of its fee. The distributor can modify
or terminate this voluntary waiver at any time at its sole discretion.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services Company ("FSSC"), the Trust will pay FSSC up to 0.25% of average daily
net assets of the Trust 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 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, 1999, were as follows:
Purchases $1,653,715,602
Sales $1,941,019,449
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Trust could be adversely affected
if the computer systems used by the Trust's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Trust's Adviser and administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Trust's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Trust.
SUBSEQUENT EVENT (UNAUDITED)
Effective March 31, 1999, Federated Management, Adviser to the Fund, will
merge into Federated Investment Management Company (formerly Federated
Advisers).
Independent Auditors' Report
TO THE SHAREHOLDERS AND TRUSTEES OF
FEDERATED INCOME TRUST:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Federated Income Trust, (the "Trust") as of
January 31, 1999, and the related statement of operations for the year then
ended, the statement of changes in net assets for the years ended January 31,
1999 and 1998, 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, 1999, 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, 1999, 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
Boston, Massachusetts
March 19, 1999
Trustees
JOHN F. DONAHUE
THOMAS G. BIGLEY
JOHN T. CONROY, JR.
NICHOLAS P. CONSTANTAKIS
WILLIAM J. COPELAND
JAMES E. DOWD, ESQ.
LAWRENCE D. ELLIS, M.D.
EDWARD L. FLAHERTY, JR., ESQ.
GLEN R. JOHNSON
PETER E. MADDEN
CHARLES F. MANSFIELD, JR.
JOHN E. MURRAY, JR., J.D., S.J.D.
WESLEY W. POSVAR
MARJORIE P. SMUTS
Officers
JOHN F. DONAHUE
Chairman
GLEN R. JOHNSON
President
J. CHRISTOPHER DONAHUE
Executive Vice President
EDWARD C. GONZALES
Executive Vice President
JOHN W. MCGONIGLE
Executive Vice President and Secretary
RICHARD B. FISHER
Vice President
RICHARD J. THOMAS
Treasurer
ANTHONY R. BOSCH
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment
risk, including 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.
ANNUAL REPORT
[Graphic]
Federated Income Trust
ANNUAL REPORT
TO SHAREHOLDERS
JANUARY 31, 1999
[Graphic]
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
G00620-01 (3/99)
[Graphic]
Appendix - Federated Income Trust
A1. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The
Institutional Shares of Federated Income Trust (the "Fund) is represented by a
solid line. The Lehman Brothers 5-Year Treasury Bellweather Index (the
"LB5YRTBI") is represented by a dotted line, the Lipper U.S. Mortgage Funds
Average (the "LUSMFA") is represented by a dashed line and the Lehman Brothers
Mortgage Backed Securities Index (the "LBMBSI") is represented by a broken line.
The line graph is a visual representation of a comparison of change in value of
a $25,000 hypothetical investment in the Fund's Institutional Shares, the
LB5YRTBI, the LUSMFA and the LBMBSI. The "x" axis reflects computation periods
from 1/31/89 to 1/31/99. The "y" axis reflects the cost of the investment. The
right margin reflects the ending value of the hypothetical investment in the
Fund's Institutional Shares as compared to the LB5YRTBI, the LUSMFA and the
LBMBSI. The ending values were $54,416, $54,739, $53,752 and $59,251,
respectively.
A2. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The
Institutional Service Shares of Federated Income Trust (the "Fund) is
represented by a solid line. The Lehman Brothers 5-Year Treasury Bellweather
Index (the "LB5YRTBI") is represented by a dotted line, the Lipper U.S. Mortgage
Funds Average (the "LUSMFA") is represented by a dashed line and the Lehman
Brothers Mortgage Backed Securities Index (the "LBMBSI") is represented by a
broken line. The line graph is a visual representation of a comparison of change
in value of a $25,000 hypothetical investment in the Fund's Institutional
Service Shares, the LB5YRTBI, the LUSMFA and the LBMBSI. The "x" axis reflects
computation periods from 1/31/89 to 1/31/99. The "y" axis reflects the cost of
the investment. The right margin reflects the ending value of the hypothetical
investment in the Fund's Institutional Service Shares as compared to the
LB5YRTBI, the LUSMFA and the LBMBSI. The ending values were $37,872, $39,166,
$38,271 and $40,026, respectively.
