TAX FREE INSTRUMENTS TRUST, 497, 1995-05-26

TAX FREE INSTRUMENTS TRUST
497, 1995-05-26

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TAX-FREE INSTRUMENTS TRUST
INVESTMENT SHARES
PROSPECTUS

The Investment Shares of Tax-Free Instruments Trust (the "Trust") offered by
this prospectus represent interests in an open-end, diversified management
investment company (a mutual fund), investing in short-term municipal securities
to achieve current income exempt from federal income tax consistent with
stability of principal and liquidity.

THE INVESTMENT 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 OR
GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE
SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE
TRUST ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER INVESTMENT
SHARE; THERE CAN BE NO ASSURANCE THAT THE TRUST WILL BE ABLE TO DO SO.

This prospectus contains the information you should read and know before you
invest in Investment Shares of the Trust. Keep this prospectus for future
reference.

The Trust has also filed a Combined Statement of Additional Information dated
May 31, 1995, with the Securities and Exchange Commission. The information
contained in the Combined Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Combined Statement
of Additional Information free of charge by calling 1-800-235-4669. To obtain
other information, or make inquiries about the Trust, contact your financial
institution.

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

Prospectus dated May 31, 1995

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TABLE OF CONTENTS

Summary of Trust Expenses......................................................1

Financial Highlights--Investment Shares........................................2

General Information............................................................3

Liberty Family of Funds........................................................3

Investment Information.........................................................5
Investment Objective.........................................................5
Investment Policies..........................................................5
Municipal Securities.........................................................7
Investment Risks.............................................................8
Investment Limitations.......................................................8
Regulatory Compliance........................................................8

Net Asset Value................................................................9

Trust Information..............................................................9
Management of the Trust......................................................9
Distribution of Shares......................................................10
Administration of the Trust.................................................11

How to Purchase Shares........................................................12
Minimum Investment Required.................................................12
Certificates and Confirmations..............................................12

Dividends...................................................................13
Capital Gains...............................................................13

Exchange Privilege............................................................13
Making an Exchange..........................................................14

How To Redeem Shares..........................................................14
Special Redemption Features.................................................16
Contingent Deferred Sales Charge............................................16
Accounts with Low Balances..................................................16

Shareholder Information.......................................................17
Voting Rights...............................................................17
Massachusetts Partnership Law...............................................17

Tax Information...............................................................18
Federal Income Tax..........................................................18
Pennsylvania Corporate and Personal
Property Taxes...........................................................18

Performance Information.......................................................19

Other Classes of Shares.......................................................19

- ------------------------------------- ---------------------------------------

SUMMARY OF TRUST EXPENSES
TAX-FREE INSTRUMENTS TRUST

<TABLE>
<S> <C> <C>
INVESTMENT SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)................................... None
Maximum Sales Load 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) (1)..................................................................... 0.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)............................................ None
Exchange Fee.................................................................................................. None
ANNUAL INVESTMENT SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (2)............................................................................. 0.35%
12b-1 Fee..................................................................................................... None
Total Other Expenses.......................................................................................... 0.36%
Shareholder Services Fee (after waiver) (3).................................................... 0.15%
Total Investment Shares Operating Expenses (4)....................................................... 0.71%
</TABLE>

(1) Shareholders who purchase shares of funds in the Liberty Family of Funds
with proceeds of a redemption of shares of a mutual fund sold with a sales
load and not distributed by Federated Securities Corp., and subsequently
exchange into the Trust will be charged a contingent deferred sales charge
by the Trust's distributor of .50 of 1% for redemptions made within one year
of purchase based upon the terms and conditions applicable to the
redemption. See "Contingent Deferred Sales Charge" on page 16.

(2) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary
waiver at any time at its sole discretion. The maximum management fee is
0.50%.

(3) The maximum shareholder services fee is 0.25%.

(4) The total Investment Shares operating expenses in the table above are based
on expenses expected during the fiscal year ending March 31, 1996. The total
Investment Shares operating expenses were 0.70% for the fiscal year ended
March 31, 1995 and were 0.87% absent the voluntary waiver of a portion of
the management fee.

The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Investment Shares of the Trust
will bear, either directly or indirectly. For more complete descriptions of the
various costs and expenses, see "How to Purchase Shares" and "Trust
Information." Wire-transferred redemptions of less than $5,000 may be subject to
additional fees.

<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period.............. $12 $23 $40 $88
You would pay the following expenses on the same investment, assuming no
redemption................................................................... $7 $23 $40 $88
</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--INVESTMENT SHARES
TAX-FREE INSTRUMENTS TRUST
- --------------------------------------------------------------------------------

(FOR AN INVESTMENT SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Arthur Andersen LLP, the Trust's
independent public accountants. Their report, dated May 12, 1995, on the Trust's
financial statements for the year ended March 31, 1995, and on the following
table for each of the periods presented, is included in the Annual Report, which
is incorporated herein by reference. This table should be read in conjunction
with the Trust's financial statements and notes thereto, which may be obtained
free of charge from the Trust.

<TABLE>
<CAPTION>
PERIOD ENDED MARCH 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
NET ASSET VALUE,
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- --------------------
INCOME FROM
INVESTMENT
OPERATIONS
- --------------------
Net investment
income 0.03 0.02 0.02 0.04 0.05 0.06 0.05 0.04 0.04 0.05
- -------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS
- --------------------
Distributions from
net investment
income (0.03) (0.02) (0.02) (0.04) (0.05) (0.06) (0.05) (0.04) (0.04) (0.05)
- -------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
NET ASSET VALUE,
END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
TOTAL RETURN(A) 2.70% 2.01% 2.42% 3.84% 5.40% 5.88% 5.28% 4.29% 3.84% 4.79%
- --------------------
RATIOS TO AVERAGE
NET ASSETS
- --------------------
Expenses 0.70% 0.61% 0.55% 0.55% 0.55% 0.55% 0.55% 0.55% 0.55% 0.55%
- --------------------
Net investment
income 2.66% 2.00% 2.38% 3.73% 5.25% 5.73% 5.14% 4.19% 3.74% 4.70%
- --------------------
Expense waiver/
reimbursement(b) 0.17% 0.14% 0.10% 0.11% 0.12% 0.11% 0.08% 0.06% 0.06% 0.07%
- --------------------
SUPPLEMENTAL DATA
- --------------------
Net assets,
end of period
(000 omitted) $1,277,894 $1,327,506 $1,619,531 $1,440,970 $1,214,045 $1,142,022 $1,313,391 $1,552,460 $1,661,086 $1,225,138
- --------------------
</TABLE>

(a) Based on net asset value, which does not reflect the sales load 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.

- --------------------------------------------------------------------------------
GENERAL INFORMATION

The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated November 17, 1981. The Trust's address is Federated Investors
Tower, Pittsburgh, Pennsylvania 15222-3779. The Declaration of Trust permits the
Trust to offer separate series of shares representing interests in separate
portfolios of securities. The shares in any one portfolio may be offered in
separate classes. With respect to the Trust, as of the date of this prospectus,
the Trustees have established two classes of shares known as Investment Shares
and Institutional Service Shares. This prospectus relates only to Investment
Shares of the Trust, which are designed primarily for individuals as a
convenient means of accumulating an interest in a professionally managed,
diversified portfolio investing primarily in short-term municipal securities.
The Trust may not be a suitable investment for retirement plans since it invests
in municipal securities. A minimum initial investment of $500 is required.

The Trust attempts to stabilize the value of a share at $1.00. Shares are
currently sold and redeemed at that price. However, a contingent deferred sales
charge may be imposed under certain circumstances.

- --------------------------------------------------------------------------------
LIBERTY FAMILY OF FUNDS

The Investment Shares of the Trust are a member of a family of mutual funds,
collectively known as the Liberty Family of Funds. The other funds in the
Liberty Family of Funds are:

.American Leaders Fund, Inc., providing growth of capital and income through
high-quality stocks;

.Capital Growth Fund, providing appreciation of capital primarily through equity
securities;

.Fund for U.S. Government Securities, Inc., providing current income through
long-term U.S. government securities;

.International Equity Fund, providing long-term capital growth and income
through international securities;

.International Income Fund, providing a high level of current income consistent
with prudent investment risk through high-quality debt securities denominated
primarily in foreign currencies;

.Liberty Equity Income Fund, Inc., providing above-average income and capital
appreciation through income producing equity securities;

.Liberty High Income Bond Fund, Inc., providing high current income through
high-yielding, lower-rated corporate bonds;

.Liberty Municipal Securities Fund, Inc., providing a high level of current
income exempt from federal regular income tax through municipal bonds;

.Liberty U.S. Government Money Market Trust, providing current income consistent
with stability of principal through high-quality U.S. government securities;

.Liberty Utility Fund, Inc., providing current income and long-term growth of
income, primarily through electric, gas, and communications utilities;

.Limited Term Fund, providing a high level of current income consistent with
minimum fluctuation in principal value through investment grade securities;

.Limited Term Municipal Fund, providing a high level of current income exempt
from federal regular income tax consistent with the preservation of principal,
primarily limited to municipal securities;

.Michigan Intermediate Municipal Trust, providing current income exempt from
federal regular income tax and the personal income taxes imposed by the state
of Michigan and Michigan municipalities, primarily through Michigan municipal
securities;

.Pennsylvania Municipal Income Fund, providing current income exempt from
federal regular income tax and the personal income taxes imposed by the
Commonwealth of Pennsylvania, primarily through Pennsylvania municipal
securities;

.Strategic Income Fund, providing a high level of current income, primarily
through domestic and foreign corporate debt obligations;

.World Utility Fund, providing total return primarily through securities issued
by domestic and foreign companies in the utilities industries.

Prospectuses for these funds are available by writing to Federated Securities
Corp.

Each of the funds may also invest in certain other types of securities as
described in each fund's prospectus.

The Liberty Family of Funds provides flexibility and diversification for an
investor's long-term investment planning. It enables an investor to meet the
challenges of changing market conditions by offering convenient exchange
privileges which give access to various investment vehicles and by providing the
investment services of proven, professional investment advisers.

Shareholders participating in The Liberty Account are designated Liberty Life
Members. Liberty Life Members are exempt from sales loads on future purchases in
and exchanges between any funds in the Liberty Family of Funds, as long as they
maintain a $500 balance in one of those funds.

- --------------------------------------------------------------------------------
INVESTMENT INFORMATION

INVESTMENT OBJECTIVE

The investment objective of the Trust is current income which is exempt from
federal income tax (including alternative minimum tax) consistent with stability
of principal. Interest income of the Trust that is exempt from federal income
tax retains its tax-free status when distributed to the Trust's shareholders. At
least 80% of the Trust's annual income will be exempt from federal income tax.
However, the interest from certain municipal securities is subject to federal
alternative minimum tax, and up to 20% of the Trust's income may be derived from
such securities.

The Trust pursues its investment objective by investing in a diversified
portfolio of municipal securities as defined below, with remaining maturities of
these securities, computed on a dollar-weighted basis, will be 90 days or less.
This investment objective cannot be changed without shareholder approval. 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

ACCEPTABLE INVESTMENTS

The Trust invests primarily in debt obligations issued by or on behalf of
states, territories, and possessions of the United States, including the
District of Columbia, and any political subdivision or financing authority of
any of these, the income from which is, in the opinion of qualified legal
counsel, exempt from federal income tax ("Municipal Securities"). Examples of
Municipal Securities include, but are not limited to:

.tax and revenue anticipation notes ("TRANs") issued to finance working capital
needs in anticipation of receiving taxes or other revenues;

.bond anticipation notes ("BANs") that are intended to be refinanced through a
later issuance of longer-term bonds;

.municipal commercial paper and other short-term notes;

.variable rate demand notes;

.municipal bonds (including bonds having serial maturities and pre-refunded
bonds) and leases; and

.participation, trust, and partnership interests in any of the foregoing
obligations.

VARIABLE RATE DEMAND NOTES

Variable rate demand notes are long-term debt instruments that have variable or
floating interest rates and provide the Trust with the right to tender the
security for repurchase at its stated principal amount plus accrued interest.
Such securities typically bear interest at a rate that is intended to cause the
securities to trade at par. The interest rate may float or be adjusted at
regular intervals (ranging from daily to annually), and is normally based on a
published interest rate or interest rate index. Most variable rate demand notes
allow the Trust to demand the repurchase of the security on not more than seven
days prior notice. Other notes only permit the Trust to tender the security at
the time of each interest rate adjustment or at other fixed intervals. See
"Demand Features." The Trust treats variable rate demand notes as maturing on
the later of the date of the next interest rate adjustment or the date on which
the Trust may next tender the security for repurchase.

PARTICIPATION INTERESTS

The Trust may purchase interests in Municipal Securities from financial
institutions such as commercial and investment banks, savings and loan
associations, and insurance companies. These interests may take the form of
participations, beneficial interests in a trust, partnership interests or any
other form of indirect ownership that allows the Trust to treat the income from
the investment as exempt from federal income tax. The Trust invests in these
participation interests in order to obtain credit enhancement or demand features
that would not be available through direct ownership of the underlying Municipal
Securities.

MUNICIPAL LEASES

Municipal leases are obligations issued by state and local governments or
authorities to finance the acquisition of equipment and facilities. They may
take the form of a lease, an installment purchase contract, a conditional sales
contract, or a participation interest in any of the above.

RATINGS

The securities in which the Trust invests must be rated in one of the two
highest short-term rating categories by one or more nationally recognized
statistical rating organizations ("NRSROs") or be of comparable quality to
securities having such ratings. An NRSRO's two highest rating categories are
determined without regard for sub-categories and gradations. For example,
securities rated SP-1+, SP-1, or SP-2 by Standard & Poor's Ratings Group
("S&P"), MIG-1 or MIG-2 by Moody's Investors Service, Inc. ("Moody's"), or
FIN-1+, FIN-1, and FIN-2 by Fitch Investors Service, Inc. ("Fitch") are all
considered rated in one of the two highest short-term rating categories. The
Trust will follow applicable regulations in determining whether a security rated
by more than one NRSRO can be treated as being in one of the two highest
short-term rating categories; currently, such securities must be rated by two
NRSROs in one of their two highest rating categories. See "Regulatory
Compliance."

CREDIT ENHANCEMENT

Certain of the Trust's acceptable investments may be credit enhanced by a
guaranty, letter of credit, or insurance. The Trust typically evaluates the
credit quality and ratings of credit-enhanced securities based upon the
financial condition and ratings of the party providing the credit enhancement
(the "credit enhancer"), rather than the issuer. However, credit-enhanced
securities will not be treated as having been issued by the credit enhancer for
diversification purposes, unless the Trust has invested more than 10% of its
assets in securities issued, guaranteed or otherwise credit enhanced by the
credit enhancer, in which case the securities will be treated as having been
issued by both the issuer and the credit enhancer. The bankruptcy, receivership,
or default of the credit enhancer will adversely affect the quality and
marketability of the underlying security.

DEMAND FEATURES

The Trust may acquire securities that are subject to puts and standby
commitments ("demand features") to purchase the securities at their principal
amount (usually with accrued interest) within a fixed period (usually seven
days) following a demand by the Trust. The demand feature may be issued by the
issuer of the underlying securities, a dealer in the securities, or by another
third party, and may not be transferred separately from the underlying security.
The Trust uses these arrangements to provide the Trust with liquidity and not to
protect against changes in the market value of the underlying securities. The
bankruptcy, receivership, or default by the issuer of the demand feature, or a
default on the underlying security or other event that terminates the demand
feature before its exercise, will adversely affect the liquidity of the
underlying security. Demand features that are exercisable even after a payment
default on the underlying security may be treated as a form of credit
enhancement.

WHEN-ISSUED AND DELAYED
DELIVERY TRANSACTIONS

The Trust may purchase short-term municipal securities 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. Accordingly, the Trust
may pay more or less than the market value of the securities on the settlement
date.

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.

TEMPORARY INVESTMENTS

From time to time on a temporary basis when the investment adviser determines
that market conditions call for a temporary defensive posture, the Trust may
invest in short-term tax-exempt or taxable temporary investments. These
temporary investments include: obligations issued by or on behalf of municipal
or corporate issuers having the same quality characteristics as municipal
securities purchased by the Trust; marketable obligations issued or guaranteed
by the U.S. government, its agencies, or instrumentalities; repurchase
agreements (arrangements in which the organization selling the Trust a temporary
investment agrees at the time of sale to repurchase it at a mutually agreed upon
time and price); and prime commercial paper rated A-1 by S&P, Prime-1 by
Moody's, or F-1 by Fitch.

Although the Trust is permitted to make taxable, temporary investments, there is
no current intention of generating income subject to federal income tax.

MUNICIPAL SECURITIES

Municipal Securities are generally issued to finance public works, such as
airports, bridges, highways, housing, hospitals, mass transportation projects,
schools, streets, and water and sewer works. They are also issued to repay
outstanding obligations, to raise funds for general operating expenses, and to
make loans to other public institutions and facilities.

Municipal Securities include industrial development bonds issued by or on behalf
of public authorities to provide financing aid to acquire sites or construct and
equip facilities for privately or publicly owned corporations. The availability
of this financing encourages these corporations to locate within the sponsoring
communities and thereby increases local employment.

The two principal classifications of Municipal Securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. Interest on and principal of revenue bonds, however, are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.

INVESTMENT RISKS

Yields on Municipal Securities depend on a variety of factors, including: the
general conditions of the short-term municipal note market and of the municipal
bond market; the size of the particular offering; the maturity of the
obligations; and the rating of the issue. The ability of the Trust to achieve
its investment objective also depends on the continuing ability of the issuers
of Municipal Securities and participation interests, or the credit enhancers of
either, to meet their obligations for the payment of interest and principal when
due. In addition, from time to time, the supply of Municipal Securities
acceptable for purchase by the Trust could become limited.

The Trust may invest in Municipal Securities which are repayable out of revenue
streams generated from economically related projects or facilities and/or whose
issuers are located in the same state. Sizable investments in these Municipal
Securities could involve an increased risk to the Trust should any of these
related projects or facilities experience financial difficulties.

Obligations of issuers of Municipal Securities are subject to the provisions of
bankruptcy, insolvency, and other laws affecting the rights and remedies of
creditors. In addition, the obligations of such issuers may become subject to
laws enacted in the future by Congress, state legislators, or referenda
extending the time for payment of principal and/or interest, or imposing other
constraints upon enforcement of such obligations or upon the ability of states
or municipalities to levy taxes. There is also the possibility that, as a result
of litigation or other conditions, the power or ability of any issuer to pay,
when due, the principal of and interest on its municipal securities may be
materially affected.

INVESTMENT LIMITATIONS

The Trust will not borrow money directly or through reverse repurchase
agreements (arrangements in which the Trust sells a money market instrument for
a percentage of its cash value with an agreement to buy it back on a set date)
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 total assets to secure such borrowings.

The Trust will not invest more than 10% of its net assets in illiquid
securities, including repurchase agreements maturing in more than seven days.

The above investment limitations cannot be changed without shareholder approval.

REGULATORY COMPLIANCE

The Trust may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in this
prospectus and its Combined Statement of Additional Information, in order to
comply with applicable laws and regulations, including the provisions of and
regulations under the Investment Company Act of 1940, as amended. In particular,
the Trust will comply with the various requirements of Rule 2a-7, which
regulates money market mutual funds. The Trust will determine the effective
maturity of its investments, as well as its ability to consider a security as
having received the requisite short-term ratings by NRSROs, according to Rule
2a-7. The Trust may change these operational policies to reflect changes in the
laws and regulations without the approval of its shareholders.

- --------------------------------------------------------------------------------
NET ASSET VALUE

The Trust attempts to stabilize the net asset value of shares at $1.00 by
valuing the portfolio securities using the amortized cost method. The net asset
value per share is determined by subtracting total liabilities from total assets
and dividing the remainder by the number of shares outstanding. The Trust cannot
guarantee that its net asset value will always remain at $1.00 per share.

The net asset value is determined at 12:00 noon, 3:00 p.m. (Eastern time), and
as of the close of trading (normally 4:00 p.m., Eastern time) on the New York
Stock Exchange each day the New York Stock Exchange is open.

- --------------------------------------------------------------------------------
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. An Executive Committee of the Board
of Trustees handles the Board's responsibilities between meetings of the Board.

LIABILITY OF TRUSTEES

Under the Trust's Declaration of Trust, the Trustees will not be 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 ADVISER

Investment decisions for the Trust are made by Federated Management, the Trust's
investment adviser, subject to direction by the Trustees. The adviser's address
is Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779. The adviser
continually conducts investment research and supervision for the Trust and is
responsible for the purchase and sale of portfolio instruments.

ADVISORY FEES

The adviser receives an annual investment advisory fee equal to .50 of 1% of the
Trust's average daily net assets. The adviser has undertaken to reimburse the
Trust up to the amount of the advisory fee for operating expenses in excess of
limitations established by certain states. The adviser also may voluntarily
choose to waive a portion of its fee or reimburse other expenses of the Trust,
but reserves the right to terminate such waiver or reimbursement at any time at
its sole discretion.

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 $72 billion invested across more than 260 funds
under management and/or administration by its subsidiaries, as of December 31,
1994, Federated Investors is one of the largest mutual fund investment managers
in the United States. With more than 1,750 employees, Federated continues to be
led by the management who founded the company in 1955. Federated funds are
presently at work in and through 4,000 financial institutions nationwide. More
than 100,000 investment professionals have selected Federated funds for their
clients.

DISTRIBUTION OF SHARES

Federated Securities Corp. is the principal distributor for shares of the Trust.
Federated Securities Corp. is located at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779. 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 PLAN

The Trust has adopted a Shareholder Services Plan (the "Services Plan") under
which it will pay Federated Shareholder Services, a subsidiary of Federated
Investors, an amount not exceeding 0.25 of 1% of the average daily net asset
value of the shares to provide personal services and/or maintenance of
shareholder accounts to the Trust and its shareholders. From time to time and
for such periods as deemed appropriate, the amount stated above may be reduced
voluntarily.

Federated Shareholder Services may elect to pay financial institutions fees
based upon shares owned by their clients or customers for services provided to
those 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 Federated
Shareholder Services.

State securities laws may require certain financial institutions such as
depository institutions to register as dealers.

OTHER PAYMENTS TO
FINANCIAL INSTITUTIONS

In addition to periodic payments to financial institutions under the Shareholder
Services Plan, certain financial institutions may be compensated by the adviser
or its affiliates for the continuing investment of customers' assets in certain
funds, including the Trust, advised by those entities. These payments will be
made directly by the distributor or adviser from their assets, and will not be
made from the assets of the Trust or by the assessment of a sales charge on
Investment Shares.

ADMINISTRATION OF THE TRUST

ADMINISTRATIVE SERVICES

Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Trust. Federated Administrative
Services provides these at an annual rate as specified below:

<TABLE>
<CAPTION>
AVERAGE AGGREGATE
MAXIMUM FEE DAILY NET ASSETS
<C> <S>
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess of
$750 million
</TABLE>

The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares. Average
aggregate daily net assets include those of all mutual funds advised by
affiliates of Federated Investors. Federated Administrative Services may choose
voluntarily to waive a portion of its fee.

CUSTODIAN

State Street Bank and Trust Company, P.O. Box 8600, Boston, Massachusetts,
02266-8600, is custodian for the securities and cash of the Trust.

TRANSFER AGENT AND DIVIDEND
DISBURSING AGENT

Federated Services Company, P.O. Box 8600, Boston, Massachusetts 02266-8600, is
transfer agent for the shares of, and dividend disbursing agent for, the Trust.
Federated Services Company is a subsidiary of Federated Investors.

INDEPENDENT PUBLIC ACCOUNTANTS

The independent public accountants for the Trust are Arthur Andersen LLP, 2100
One PPG Place, Pittsburgh, Pennsylvania 15222.

- --------------------------------------------------------------------------------
HOW TO PURCHASE SHARES

Shares are sold at their net asset value, without a sales load, next determined
after an order is received, on days on which the New York Stock Exchange and the
Federal Reserve Wire System are open for business. Shares may be purchased as
described below. Accounts may be opened through a financial institution (such as
a bank or broker/dealer) or by completing, signing, and returning the new
account form available from the Trust. In connection with any sale, Federated
Securities Corp. may from time to time offer certain items of nominal value to
any shareholder or investor. The Trust reserves the right to reject any purchase
request.

THROUGH A FINANCIAL INSTITUTION

Investors may call their financial institutions, which have sales agreements
with the distributor, to place a purchase order. Orders through a financial
institution are considered received when the Trust receives payment by wire or
converts payment by check from the financial institution into federal funds. It
is the financial institution's responsibility to transmit orders promptly. Texas
residents must place purchase orders directly through the distributor. Financial
institutions may charge additional fees for their services.

BY WIRE

To purchase by wire, call the Trust before 3:00 p.m. (Eastern time) to place an
order. All information needed will be taken over the telephone, and the order is
considered received immediately. Payment by federal funds must be received
before 3 p.m. (Eastern time) that same day. Federal funds should be wired as
follows: Federated Services Company, c/o State Street Bank and Trust Company,
Boston, MA; Attention; EDGEWIRE; For Credit to: Tax-Free Instruments
Trust--Investment Shares; Fund 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.

BY MAIL

To purchase by mail, send a check made payable to Tax-Free Instruments
Trust--Investment Shares to: Federated Services Company, P.O. Box 8600, Boston,
MA 02266-8600. Orders by mail are considered received when payment by check is
converted into federal funds. This is normally the next business day after the
check is received.

SYSTEMATIC INVESTMENT PROGRAM

Under this program, funds in a minimum of $100 are automatically withdrawn
periodically from the shareholder's checking account at any Automated Clearing
House member institution and invested in Trust shares.

Shareholders should contact their financial institution and/or the Trust to
participate in this program.

MINIMUM INVESTMENT REQUIRED

The minimum initial investment is $500. Minimum subsequent investments must be
$100.

CERTIFICATES AND CONFIRMATIONS

As transfer agent for the Trust, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
by contacting the Trust or Federated Services Company in writing.

Monthly confirmations are sent to report transactions such as all purchases and
redemptions as well as dividends paid during the month.

DIVIDENDS

Dividends are declared daily and paid monthly. Dividends are automatically
reinvested on payment dates in additional shares of the Trust unless cash
payments are requested by writing to the Trust. Shares purchased by wire before
3:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by
check begin earning dividends the day after the check is converted into federal
funds.

CAPITAL GAINS

The Trust does not expect to realize any capital gains or losses. If capital
gains or losses were to occur, they could result in an increase or decrease in
dividends. The Trust will distribute in cash or additional shares any realized
net long-term capital gains at least once every 12 months.

- -------------------------------------------------------------------------------
EXCHANGE PRIVILEGE

Investment Shares may be acquired in exchange for shares of other mutual funds
in the Liberty Family of Funds at net asset value plus the difference between
the Trust's sales load already paid and any sales load of the fund into which
the Investment Shares are to be exchanged, if higher. No additional fees are
imposed on exchanges. This privilege is available to shareholders resident in
any state in which the fund shares being acquired may be sold.

Shareholders using this privilege must exchange Investment Shares having a net
asset value equal to the value of the minimum investment required of the fund
into which the Investments Shares are to be exchanged. Before the exchange, the
shareholder must receive a prospectus for the fund for which the exchange is
being made. Upon receipt of proper instructions and required supporting
documents, Investment Shares submitted for exchange are redeemed, and the
proceeds invested in shares of the other fund. The Trust reserves the right to
reject any exchange. The exchange privilege may be terminated or modified at any
time. Shareholders will be notified of the termination or modification of the
exchange privilege.

An exercise of the exchange privilege is treated as a sale for federal income
tax purposes. Depending on the circumstances, a short-term or long-term capital
gain or loss may be realized.

For further information on the exchange privilege and to obtain prospectuses for
the Liberty Family of Funds or certain Federated Funds, contact the Trust.

MAKING AN EXCHANGE

Instructions for exchanges for the Liberty Family of Funds may be given in
writing or by telephone. Written instructions may require a signature guarantee.
Shareholders of the Trust may have difficulty in making exchanges by telephone
through brokers and other financial institutions during times of drastic
economic or market changes. If a shareholder cannot contact his broker or
financial institution by telephone, it is recommended that an exchange request
be made in writing and sent by overnight mail to Federated Services Company, 500
Victory Road--2nd Floor, Quincy, Massachusetts 02171.

TELEPHONE INSTRUCTIONS

Before an exchange can be made by telephone, a properly executed authorization
form must be completed and on file with Federated Services Company. Shares may
be exchanged between two funds only if they have identical shareholder
registrations. If reasonable procedures are not followed by the Trust, it may be
liable for losses due to unauthorized or fraudulent telephone instructions.

Any shares held in certificate form cannot be exchanged by telephone but must be
forwarded to Federated Services Company, P.O. Box 8600, Boston, Massachusetts
02266-8600 and deposited to the shareholder's account before being exchanged.
Telephone instructions will be processed as of 4:00 p.m. (Eastern time) and must
be received by the Trust before that time for shares to be exchanged the same
day. Shareholders exchanging into a fund will begin receiving dividends the
following business day. This privilege may be modified or terminated at any
time.

- --------------------------------------------------------------------------------
HOW TO REDEEM SHARES

Shares are redeemed at their net asset value next determined after Federated
Services Company receives the redemption request. 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 as described below.

REDEEMING SHARES THROUGH A
FINANCIAL INSTITUTION

Shares may be redeemed by calling the shareholder's financial institution.
Shares will be redeemed at the net asset value next determined after the Trust
receives the redemption request from the financial institution. The financial
institution is responsible for promptly submitting redemption requests and
providing proper written redemption instructions. The financial institution may
charge customary fees and commissions for this service.

An authorization form permitting redemption requests by telephone 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 this occurs, another method of
redemption, such as "Redeeming Shares By Mail", should be considered.

REDEEMING SHARES BY TELEPHONE

fraudulent telephone instructions. 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.

If the redemption request is received before 3:00 p.m. (Eastern time), the
proceeds will be wired the same day to the shareholder's account at a domestic
commercial bank which is a member of the Federal Reserve System, and those
shares redeemed will not be entitled to that day's dividend. A daily dividend
will be paid on shares redeemed if the redemption request is received after 3:00
p.m. (Eastern time). However, the proceeds are not wired until the following
business day.

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 "Redeeming Shares By Mail", should be considered.
If at any time the Trust shall determine it necessary to terminate or modify
this method of redemption, shareholders would be promptly notified.

REDEEMING SHARES BY MAIL

Shares may be redeemed by sending a written request to: Federated Services
Company, P.O. Box 8600, Boston, MA 02266-8600. The written request should state:
Tax-Free Instruments Trust--Investment Shares; shareholder's name; the account
number; and the share or dollar amount requested. Sign the request exactly as
the shares are registered. Shareholders should call the Trust for assistance in
redeeming by mail.

If share certificates have been issued, they must be properly endorsed and
should be sent by registered or certified mail with the written request.

Shareholders requesting a redemption of $50,000 or more, 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 which is administered by the Federal Deposit Insurance
Corporation ("FDIC");

.a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchanges;

.a savings bank or savings and loan association whose deposits are insured by
the Savings Association Insurance Fund, 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 the 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 the
signature guarantee program. The Trust and its transfer agent reserve the right
to amend these standards at any time without notice.

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. Dividends are paid up to and including the day that a redemption
request is processed.

BY WRITING A CHECK

At the shareholder's request, Federated Services Company will establish a
checking account for redeeming shares. The cost for providing and processing
checks will be $10.00. Annual Liberty Life Members shall not be subject to such
fee. For further information, contact the Trust.

With this checking account, shares may be redeemed by writing a check for
$100.00 or more. The redemption will be made at the net asset value on the date
that the check is presented to the Trust. A check may not be written to close an
account. A shareholder may obtain cash by negotiating the check through the
shareholder's local bank. Checks should never be made payable or sent to State
Street Bank and Trust Company or Federated Services Company to redeem shares.
Canceled checks are sent to the shareholder each month.

SPECIAL REDEMPTION FEATURES

SYSTEMATIC WITHDRAWAL PROGRAM

If a shareholder's account has a value of at least $10,000, a systematic
withdrawal program may be established whereby automatic redemptions are made
from the account and transferred electronically to any commercial bank, savings
bank, or credit union that is an Automated Clearing House member. Shareholders
may apply for participation in this program through their financial institution.

CONTINGENT DEFERRED SALES CHARGE

Shareholders who purchase shares of funds in the Liberty Family of Funds with
proceeds of a redemption of shares of a mutual fund sold with a sales load and
not distributed by Federated Securities Corp., and subsequently exchange into
the Trust, will be charged a contingent deferred sales charge by the Trust's
distributor of .50 of 1% for redemptions made within one year of purchase based
upon the terms and conditions applicable to the redemption.

The contingent deferred sales charge will not be imposed in connection with
redemptions by the Trust of accounts with low balances or when a redemption
results from a return under the following circumstances: (i) a total or partial
distribution from a qualified plan, other than an IRA, Keogh Plan, or a
custodial account, following retirement; (ii) a total or partial distribution
from an IRA, Keogh Plan, or a custodial account, after the beneficial owner
attains age 70-1/2; or (iii) from the death or disability of the beneficial
owner. The exemption from the contingent deferred sales charge for qualified
plans, an IRA, Keogh Plan or custodial account does not extend to account
transfers, rollovers, and other redemptions made for purposes of reinvestment.

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, the Trust may
redeem shares in any account, except accounts maintained by retirement plans,
and pay the proceeds to the shareholder if the account balance falls below a
required minimum value of $500 due to shareholder redemptions.

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.

This policy does not currently apply to IRAs, Koeghs, or other retirement
accounts. These types of accounts may be subject to the fund-required minimum in
the future. The shares may be redeemed and placed in a non-interest bearing
brokerage account without prior written notification.

- --------------------------------------------------------------------------------
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 portfolio or class, only shares of that portfolio 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
outstanding shares of the Trust.

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.

- --------------------------------------------------------------------------------
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.

Shareholders are not required to pay the federal regular income tax on any
dividends received from the Trust that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986, dividends
representing net interest earned on certain "private activity" bonds issued
after August 7, 1986, may be included in calculating the federal individual
alternative minimum tax or the federal alternative minimum tax for corporations.
The Trust may purchase all types of municipal bonds, including private activity
bonds. Should the Trust purchase any such bonds, a portion of the Trust's
dividends may be treated as a tax preference item.

The alternative minimum tax applies when it exceeds the regular tax for the
taxable year. Alternative minimum taxable income is equal to the regular taxable
income of the taxpayer increased by certain "tax preference" items not included
in regular taxable income and reduced by only a portion of the deductions
allowed in the calculation of the regular tax.

Dividends of the Trust representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.

These tax consequences apply whether dividends are received in cash or as
additional shares.

PENNSYLVANIA CORPORATE AND
PERSONAL PROPERTY TAXES

In the opinion of Houston, Houston & Donnelly, counsel to the Trust:

.the Trust is not subject to Pennsylvania corporate or personal property taxes;
and

.Trust shares may be subject to personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania to the extent that the
portfolio securities in the Trust would be subject to such taxes if owned
directly by residents of those jurisdictions.

Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.

- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION

From time to time, the Trust advertises its yield, effective yield, and
tax-equivalent yield for Investment Shares.

Yield represents the annualized rate of income earned on an investment over a
seven-day period. It is the annualized dividends earned during the period on an
investment shown as a percentage of the investment. The effective yield is
calculated similarly to the yield, but when annualized, the income earned by an
investment is assumed to be reinvested daily. The effective yield will be
slightly higher than the yield because of the compounding effect of this assumed
reinvestment. The tax-equivalent yield is calculated similarly to the yield, but
is adjusted to reflect the taxable yield that would have to be earned to equal
the shares' tax-exempt yield, assuming a specific tax rate.

Advertisements and sales literature may also refer to total return. Total return
represents the change, over a specified period of time, in the value of an
investment in shares after reinvesting all income distributions. It is
calculated by dividing that change by the initial investment and is expressed as
a percentage.

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

- --------------------------------------------------------------------------------
OTHER CLASSES OF SHARES

The Trust also offers another class of shares called Institutional Service
Shares. Institutional Service Shares are sold at net asset value primarily to
financial institutions and are subject to a minimum initial investment of
$25,000.

Investment Shares and Institutional Service Shares are subject to certain of the
same expenses; however, Institutional Service Shares are subject to a
Shareholder Services Plan. Expense differences between Investment Shares and
Institutional Service Shares may affect the performance of each class.

To obtain more information and a prospectus for Institutional Service Shares,
investors may call 1-800-235-4699 or contact their financial institution.

TAX-FREE
INSTRUMENTS TRUST
INVESTMENT SHARES
PROSPECTUS

An Open-End, Diversified, Management
Investment Company

Prospectus dated May 31, 1995

[LOGO] FEDERATED SECURITIES CORP.
---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS

FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
876924101
8062810A-IV (5/95)

TAX-FREE INSTRUMENTS TRUST
INSTITUTIONAL SERVICE SHARES
PROSPECTUS

The Institutional Service Shares of Tax-Free Instruments Trust (the "Trust")
offered by this prospectus represent interests in an open-end, diversified
management investment company (a mutual fund), investing in short-term municipal
securities to achieve current income exempt from federal income tax consistent
with stability of principal.

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 OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY.
INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL. THE TRUST ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
INSTITUTIONAL SERVICE SHARES; THERE CAN BE NO ASSURANCE THAT THE TRUST WILL BE
ABLE TO DO SO.

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 May 31, 1995

- ------------------------------------- --------------------------------------

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
Municipal Securities.........................................................6
Investment Risks.............................................................6
Investment Limitations.......................................................7
Regulatory Compliance........................................................7

Net Asset Value................................................................7

Trust Information..............................................................8
Management of the Trust......................................................8
Distribution of Shares.......................................................8
Administration of the Trust..................................................9

How To Purchase Shares........................................................10
Minimum Investment Required.................................................11
Certificates and Confirmations..............................................11
Dividends...................................................................11
Capital Gains...............................................................11

How to Redeem Shares..........................................................11
Accounts with Low Balances..................................................12

Shareholder Information.......................................................13
Voting Rights...............................................................13
Massachusetts Partnership Law...............................................13

Tax Information...............................................................14
Federal Income Tax..........................................................14
Pennsylvania Corporate and Personal
Property Taxes...........................................................14

Performance Information.......................................................15

Other Classes of Shares.......................................................15

- ------------------------------------- --------------------------------------

SUMMARY OF TRUST EXPENSES
TAX-FREE INSTRUMENTS TRUST

<TABLE>
<S> <C> <C>
INSTITUTIONAL SERVICE SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)........................................................................ None
Maximum Sales Load 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
ANNUAL INSTITUTIONAL SERVICE SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (1)............................................................................ 0.35%
12b-1 Fee.................................................................................................... None
Total Other Expenses......................................................................................... 0.21%
Shareholder Services Fee (after waiver) (2).................................................. 0.00%
Total Institutional Service Shares Operating Expenses (3).......................................... 0.56%
</TABLE>

(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary
waiver at any time at its sole discretion. The maximum management fee is
0.50%

(2) The maximum shareholder services fee is 0.25%.

(3) The total Institutional Service Shares operating expenses in the table
above are based on expenses expected during the fiscal year ending March
31, 1996. The total Institutional Service Shares operating expenses were
0.55% for the fiscal year ended March 31, 1995, and were 0.72% absent the
voluntary waiver of a portion of the management 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 Trust will bear, either directly or indirectly. For more complete
descriptions of the various costs and expenses, see "How to Purchase Shares" and
"Trust Information." Wire-transferred redemptions of less than $5,000 may be
subject to additional fees.

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
TAX-FREE INSTRUMENTS TRUST
- --------------------------------------------------------------------------------

(FOR AN INSTITUTIONAL SERVICE SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
PERIOD ENDED
MARCH 31,
---------------------
<S> <C> <C>
1995 1994(A)
--------- ---------
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------
Net investment income 0.03 0.01
- --------------------------------------------------------------------------------------------- --------- -----------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------------------------------------
Distributions from net investment income (0.03) (0.01)
- --------------------------------------------------------------------------------------------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00
- --------------------------------------------------------------------------------------------- --------- -----------
TOTAL RETURN(B) 2.85% 0.92%
- ---------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------------------
Expenses 0.55% 0.55%(c)
- ---------------------------------------------------------------------------------------------
Net investment income 2.82% 1.99%(c)
- ---------------------------------------------------------------------------------------------
Expense waiver/reimbursement (d) 0.17% 0.14%(c)
- ---------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $358,826 $390,453
- ---------------------------------------------------------------------------------------------
</TABLE>

(a) Reflects operations for the period from October 15, 1993 (date of initial
public investment) to
March 31, 1994.

(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.

(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.

- --------------------------------------------------------------------------------

GENERAL INFORMATION

The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated November 17, 1981. The Trust's address is Federated Investors
Tower, Pittsburgh, Pennsylvania 15222-3779. The Declaration of Trust permits the
Trust to offer separate series of shares representing interests in separate
portfolios of securities. The shares in any one portfolio may be offered in
separate classes. With respect to the Trust, as of the date of this prospectus,
the Trustees have established two classes of shares known as Institutional
Service Shares and Investment Shares. This prospectus relates only to
Institutional Service Shares of the Trust, which are designed primarily for
individuals, institutions, and fiduciaries as a convenient means of accumulating
an interest in a professionally managed, diversified portfolio investing
primarily in short-term municipal securities. The Trust may not be a suitable
investment for retirement plans since it invests in municipal securities. A
minimum initial investment of $25,000 is required.

The Trust attempts to stabilize the value of a share at $1.00. Shares are
currently sold and redeemed at that price.

- --------------------------------------------------------------------------------

INVESTMENT INFORMATION

INVESTMENT OBJECTIVE

INVESTMENT POLICIES

ACCEPTABLE INVESTMENTS

.tax and revenue anticipation notes ("TRANs") issued to finance working capital
needs in anticipation of receiving taxes or other revenues;

.bond anticipation notes ("BANs") that are intended to be refinanced through a
later issuance of longer-term bonds;

.municipal commercial paper and other short-term notes;

.variable rate demand notes;

.municipal bonds (including bonds having serial maturities and pre-refunded
bonds) and leases; and

.participation, trust, and partnership interests in any of the foregoing
obligations.

VARIABLE RATE DEMAND NOTES

PARTICIPATION INTERESTS

MUNICIPAL LEASES

RATINGS

The securities in which the Trust invests must be rated in one of the two
highest short-term rating categories by one or more nationally
recognized statistical rating organizations ("NRSROs") or be of comparable
quality to securities having such ratings. An NRSRO's two highest rating
categories are determined without regard for sub-categories and gradations. For
example, securities rated SP-1+, SP-1, or
SP-2 by Standard & Poor's Ratings Group ("S&P"), MIG-1 or MIG-2 by Moody's
Investors Service, Inc. ("Moody's"), or FIN-1+, FIN-1, and FIN-2 by Fitch
Investors Service, Inc. ("Fitch") are all considered rated in one of the two
highest short-term rating categories. The Trust will follow applicable
regulations in determining whether a security rated by more than one NRSRO can
be treated as being in one of the two highest short-term rating categories;
currently, such securities must be rated by two NRSROs in one of their two
highest rating categories. See "Regulatory Compliance."

CREDIT ENHANCEMENT

DEMAND FEATURES

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

TEMPORARY INVESTMENTS

Although the Trust is permitted to make taxable, temporary investments, there is
no current intention of generating income subject to federal income tax.

MUNICIPAL SECURITIES

INVESTMENT RISKS

INVESTMENT LIMITATIONS

The Trust will not invest more than 10% of its net assets in illiquid
securities, including repurchase agreements maturing in more than seven days.

The above investment limitations cannot be changed without shareholder approval.

REGULATORY COMPLIANCE

- -------------------------------------------------------------------------------
NET ASSET VALUE

- --------------------------------------------------------------------------------
TRUST INFORMATION

MANAGEMENT OF THE TRUST

BOARD OF TRUSTEES

LIABILITY OF TRUSTEES

INVESTMENT ADVISER

ADVISORY FEES

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.

DISTRIBUTION OF SHARES

SHAREHOLDER SERVICES PLAN

State securities laws may require certain financial institutions such as
depository institutions to register as dealers.

OTHER PAYMENTS TO FINANCIAL INSTITUTIONS

ADMINISTRATION OF THE TRUST

ADMINISTRATIVE SERVICES

<TABLE>
<CAPTION>
AVERAGE AGGREGATE
MAXIMUM FEE DAILY NET ASSETS
----------- -------------------------
<C> <S>
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess of
$750 million
</TABLE>

CUSTODIAN

State Street Bank and Trust Company, P.O. Box 8600, Boston, Massachusetts
02266-8600, is custodian for the securities and cash of the Trust.

TRANSFER AGENT AND DIVIDEND
DISBURSING AGENT

INDEPENDENT PUBLIC ACCOUNTANTS

The independent public accountants for the Trust are Arthur Andersen LLP, 2100
One PPG Place, Pittsburgh, Pennsylvania 15222.

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HOW TO PURCHASE SHARES

To make a purchase, open an account by calling Federated Securities Corp.
Information needed to establish the account will be taken by telephone.

BY WIRE

To purchase by Federal Reserve wire, call the Trust before 3:00 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) that day.
Federal funds should be wired as follows: Federated Services Company, c/o State
Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to:
Tax-Free Instruments Trust--Institutional Service Shares; Fund 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.

BY MAIL

To purchase by mail, send a check made payable to Tax-Free Instruments
Trust--Institutional Service Shares to: Federated Services Company, P.O. Box
8600, Boston, MA 02266-8600. Orders by mail are considered received when payment
by check is converted into federal funds. This is normally the next business day
after the check is received.

MINIMUM INVESTMENT REQUIRED

The minimum initial investment is $25,000. There is no minimum for subsequent
investments.

CERTIFICATES AND CONFIRMATIONS

Monthly confirmations are sent to report transactions such as all purchases and
redemptions as well as dividends paid during the month.

DIVIDENDS

CAPITAL GAINS

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HOW TO REDEEM SHARES

REDEEMING SHARES BY MAIL

Shares may be redeemed by sending a written request to: Federated Services
Company, P.O. Box 8600, Boston, MA 02266-8600. The written request should state:
Tax-Free Instruments Trust--Institutional Service Shares; shareholder's name;
the account number; and the share or dollar amount requested. Sign the request
exactly as the shares are registered. Shareholders should call the Trust for
assistance in redeeming by mail.

If share certificates have been issued, they must be properly endorsed and
should be sent by registered or certified mail with the written request.

.a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund which is administered by the Federal Deposit Insurance
Corporation ("FDIC");

.a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchanges;

.a savings bank or savings and loan association whose deposits are insured by
the Savings Association Insurance Fund, 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.

REDEEMING SHARES BY TELEPHONE

Shares may be redeemed in minimum amounts of $1,000 by telephoning the Trust.
Telephone instructions may be recorded and if reasonable procedures are not
followed by the Trust, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. 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.

If the redemption request is received before 12:00 p.m. (Eastern time), the
proceeds will be wired the same day to the shareholder's account at a domestic
commercial bank which is a member of the Federal Reserve System, and those
shares redeemed will not be entitled to that day's dividend. A daily dividend
will be paid on shares redeemed if the redemption request is received after
12:00 p.m. (Eastern time). However, the proceeds are not wired until the
following business day.

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.

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SHAREHOLDER INFORMATION

VOTING RIGHTS

MASSACHUSETTS PARTNERSHIP LAW

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TAX INFORMATION

FEDERAL INCOME TAX

Dividends of the Trust representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.

These tax consequences apply whether dividends are received in cash or as
additional shares.

PENNSYLVANIA CORPORATE AND
PERSONAL PROPERTY TAXES

In the opinion of Houston, Houston & Donnelly, counsel to the Trust:

.the Trust is not subject to Pennsylvania corporate or personal property taxes;
and

Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.

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PERFORMANCE INFORMATION

From time to time, the Trust advertises its yield, effective yield, and
tax-equivalent yield for Institutional Service Shares.

Advertisements and sales literature may also refer to total return. Total return
represents the change, over a specified period of time, in the value of an
investment in the shares after reinvesting all income distributions. It is
calculated by dividing that change by the initial investment and is expressed as
a percentage.

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

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OTHER CLASSES OF SHARES

The Trust also offers another class of shares called Investment Shares.
Investment Shares are sold at net asset value through brokers and dealers and
are subject to a minimum initial investment of $500.

Investment Shares and Institutional Service Shares are subject to certain of the
same expenses; however, Investment Shares are subject to a Shareholder Services
Plan. Expense differences between Investment Shares and Institutional Service
Shares may affect the performance of each class.

To obtain more information and a prospectus for Institutional Service Shares,
investors may call 1-800-235-4699 or contact their financial institution.

TAX-FREE
INSTRUMENTS TRUST
INSTITUTIONAL SERVICE SHARES
PROSPECTUS

An Open-End, Diversified,
Management
Investment Company

Prospectus dated May 31, 1995

[LOGO] FEDERATED SECURITIES CORP.
---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS

FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779

876924200
8062810A-SS (5/95)

Tax-Free Instruments Trust
Investment Shares
Institutional Service Shares
Combined Statement of Additional Information

This Combined Statement of Additional Information should be read
with the prospectus(es) of Tax-Free Instruments Trust (the
"Trust") dated May 31, 1995. This Statement is not a prospectus.
To receive a copy of a prospectus, write or call the Trust.

Federated Investors Tower
Pittsburgh, PA 15222-3779

Statement dated May 31, 1995

Federated Securities Corp.
Distributor
A subsidiary of Federated
Investors
Investment Policies 1
Acceptable Investments 1
Participation Interests 1
Municipal Leases 1
When-Issued And Delayed
Delivery Transactions 1
Repurchase Agreements 1
Reverse Repurchase Agreements 2
Investment Limitations 2
Brokerage Transactions 4
Tax-Free Instruments Trust
Management 5
Share Ownership 9
Trustees Compensation 10
Trustee Liability 10
Investment Advisory Services 11
Investment Adviser 11
Advisory Fees 11
Shareholder Services Plan 11
Determining Net Asset Value 12
Redemption in Kind 12
The Trust's Tax Status 12
Performance Information 12
Yield 12
Effective Yield 13
Tax-Equivalent Yield 13
Tax-Equivalency Table 13
Performance Comparisons 15
About Federated Investors 15
Financial Statements 16
Investment Policies
Unless indicated otherwise, the policies described below may be changed
by the Trustees without shareholder approval. Shareholders will be
notified before any material change in these policies becomes effective.
Acceptable Investments
When determining whether a security presents minimal credit risks, the
investment adviser will consider the creditworthiness of: the issuer of
the security, the issuer of any demand feature applicable to the
security, or any guarantor of either the security or any demand feature.
Participation Interests
The financial institutions from which the Trust purchases participation
interests frequently provide or secure from another financial
institution irrevocable letters of credit or guarantees and give the
Trust the right to demand payment of the principal amounts of the
participation interests plus accrued interest on short notice (usually
within seven days). The municipal securities subject to the
participation interests are not limited to the Trust's maximum maturity
requirements so long as the participation interests include the right to
demand payment from the issuers of those interests. By purchasing these
participation interests, the Trust is buying a security meeting the
maturity and quality requirements of the Trust and also is receiving the
tax-free benefits of the underlying securities.
Municipal Leases
The Trust may purchase municipal securities in the form of participation
interests that represent an undivided proportional interest in lease
payments by a governmental or nonprofit entity. The lease payments and
other rights under the lease provide for and secure payments on the
certificates. Lease obligations may be limited by municipal charter or
the nature of the appropriation for the lease. Furthermore, a lease may
provide that the participants cannot accelerate lease obligations upon
default. The participants would only be able to enforce lease payments
as they became due. In the event of a default or failure of
appropriation, unless the participation interests are credit enhanced,
it is unlikely that the participants would be able to obtain an
acceptable substitute source of payment.
In determining the liquidity of municipal lease securities, the
investment adviser, under the authority delegated by the Board of
Trustees, will base its determination on the following factors: whether
the lease can be terminated by the lessee; the potential recovery, if
any, from a sale of the leased property upon termination of the lease;
the lessee's general credit strength (e.g., its debt, administrative,
economic and financial characteristics and prospects); the likelihood
that the lessee will discontinue appropriating funding for the leased
property because the property is no longer deemed essential to its
operations (e.g., the potential for an "event of non-appropriation");
and any credit enhancement or legal recourse provided upon an event of
non-appropriation or other termination of the lease.
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. As a matter of operating policy, which may
be changed without shareholder approval, the Trust does not intend to
engage in when-issued and delayed delivery transactions to an extent
that would cause the segregation of more than 20% of the total value of
its assets.
Repurchase Agreements
Certain securities in which the Trust invests may be purchased pursuant
to repurchase agreements. Repurchase agreements are arrangements in
which banks, broker/dealers, and other recognized financial institutions
sell 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
seller does not repurchase the securities from the Trust, the Trust
could receive less than the repurchase price on any sale of such
securities. The Trust or its custodian will take possession of the
securities subject to repurchase agreements, and these securities will
be marked to market daily. In the event that 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.
Reverse Repurchase Agreements
The Trust may also enter into reverse repurchase agreements. These
transactions are similar to borrowing cash. In a reverse repurchase
agreement, the Trust transfers possession of a portfolio instrument in
return for a percentage of the instrument's market value in cash and
agrees that on a stipulated date in the future the Trust will repurchase
the portfolio instrument by remitting the original consideration plus
interest at an agreed upon rate. The use of reverse repurchase
agreements may enable the Trust to avoid selling portfolio instruments
at a time when a sale may be deemed to be disadvantageous, but does not
ensure this result. When effecting reverse repurchase agreements, liquid
assets of the Trust, in a dollar amount sufficient to make payment for
the obligations to be purchased, are: segregated on the Trust's records
at the trade date; marked to market daily; and maintained until the
transaction is settled.
Investment Limitations
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 are necessary for
clearance of purchases and sales of 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. In addition, the Trust
may enter into reverse repurchase agreements and otherwise borrow 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 latter practice 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 serve to reduce the Trust's income.
The Trust will liquidate any borrowings as soon as possible and may not
purchase any portfolio instruments while any borrowings are outstanding.
Pledging Assets
The Trust will not mortgage, pledge, or hypothecate its assets except as
necessary to secure permitted borrowings. In those cases, it may pledge
assets having a market value not exceeding 10% of the value of total
assets at the time of the pledge.
Lending Cash or Securities
The Trust will not lend any of its assets, except that it may acquire
publicly or non-publicly issued municipal securities or temporary
investments or enter into repurchase agreements, as permitted by its
investment objective and policies.
Investing in Commodities and Minerals
The Trust will not purchase or sell commodities, commodity contracts, or
oil, gas, or other mineral exploration or development programs.
Investing in Real Estate
The Trust will not purchase or sell real estate, although it may invest
in municipal securities secured by real estate or interests in real
estate.
Underwriting
The Trust will not underwrite any issue of securities, except as it may
be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its investment
objective, policies, and limitations.
Acquiring Securities
The Trust will not acquire the voting securities of any issuer, except
as a part of a merger, consolidation, reorganization, or acquisition of
assets. It may not invest in securities issued by any other investment
company or investment trust.
Investing in Illiquid Securities
The Trust will not invest more than 10% of the value of its total assets
in illiquid securities, including repurchase agreements maturing in more
than seven days.
Investing in New Issuers
The Trust will not invest more than 5% of the value of its total assets
in securities of issuers (or in the alternative, guarantors, where
applicable) which have records of less than three years of continuous
operations, including the operation of any predecessor.
Investing in Issuers Whose Securities Are Owned by Officers of the Trust
The Trust will not purchase or retain the securities of any issuer other
than the Trust if the officers and Trustees of the Trust or its
investment adviser individually owning beneficially more than 1/2 of 1%
of the issuer's securities together beneficially own more than 5% of the
issuer's securities.
Investing in Options
The Trust will not purchase or sell puts, calls, straddles, spreads, or
any combination of them, except that the Trust may purchase municipal
securities from a bank, broker, dealer, or other person accompanied by
the agreement of the seller to purchase them, at the Trust's option,
prior to maturity..
Concentration of Investments
The Trust will not purchase securities (other than securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities)
if, as a result of such purchase, more than 25% of the value of its
assets would be invested in any one industry.
This policy applies to securities which are related in such a way that
an economic, business, or political development affecting one security
would also affect the other securities (such as securities paid from
revenues from selected projects in transportation, public works,
education, or housing.
Diversification of Investments
With respect to securities comprising 75% of its assets, the Trust will
not invest more than 5% of its total assets in the securities of any one
issuer.
Under this limitation, each governmental subdivision, including states
and the District of Columbia, territories, possessions of the United
States, or their political subdivisions, agencies, authorities,
instrumentalities, or similar entities, will be considered a separate
issuer if its assets and revenues are separate from those of the
governmental body creating it and the security is backed only by its own
assets and revenues.
Industrial development bonds backed only by the assets and revenues of a
non governmental user are considered to be issued solely by that user.
If in the case of an industrial development bond or governmental issued
security, a governmental or some other entity guarantees the security,
such guarantee would be considered a separate security issued by the
guarantor, as well as the issuer, subject to limited exclusions allowed
by the 1940 Act.
The above limitations cannot be changed without shareholder approval.
The following investment limitations, however, may be changed by the
Trustees without shareholder approval. Shareholders will be notified
before any material change in these limitations becomes effective.
Investing in Restricted Securities
The Trust will not invest in securities subject to restrictions on
resale under federal securities law.
Investing in Securities of Other Investment Companies
The Trust will not purchase securities of other investment companies,
except as part of a merger, consolidation, or other acquisition.
Investing for Control
The Trust will not invest in securities of a company for the purpose of
exercising control or management.
For purposes of the above limitations, the Trust considers instruments
issued by a U.S. branch of a domestic bank or savings and loan having
capital, surplus, and undivided profits in excess of $100,000,000 at the
time of investment to be "cash items." 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
limitation.
The Trust did not borrow money or pledge securities in excess of 5% of
the value of its net assets during the last fiscal year and has no
present intent to do so during the coming fiscal year.
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 Board of 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 Trust 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 year(s) ended March 31, 1995, 1994 and 1993,
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.
Tax-Free Instruments Trust Management
Officers and Trustees are listed with their addresses, present
positions with Tax-Free Instruments 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.; Chairman, Passport Research, Ltd.; Director, AEtna Life
and Casualty Company; Chief Executive Officer and Director, Trustee, or
Managing General Partner of the Funds. Mr. Donahue is the father
of J. Christopher Donahue, Vice President of the Trust.

Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Director, Oberg Manufacturing Co.; Chairman of the Board, Children's
Hospital of Pittsburgh; Director, Trustee, or Managing General Partner
of the Funds; formerly, Senior Partner, Ernst & Young LLP.

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

William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.;
Director, Trustee, or Managing General Partner of the Funds; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and
Director, Ryan Homes, Inc.

James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
Trustee, or Managing General Partner of the Funds.

Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine and Member, Board of Trustees, 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, Trustee, or Managing General Partner
of the Funds.

Edward L. Flaherty, Jr.@
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney-at-law; Partner, Henny, Kochuba, Meyer and Flaherty; Director,
Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.;
Director, Trustee, or Managing General Partner of the Funds; formerly,
Counsel, Horizon Financial, F.A., Western Region.

Peter E. Madden
70 Westcliff Road
Westin, MA
Birthdate: March 16, 1942
Trustee
Consultant; State Representative, Commonwealth of Massachusetts;
Director, Trustee, or Managing General Partner of the Funds; formerly,
President, State Street Bank and Trust Company and State Street Boston
Corporation.

Gregor F. Meyer
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney-at-law; Partner, Henny, Kochuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Vice
Chairman, Horizon Financial, F.A.

John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner,
Mollica, Murray and Hogue; Director, Trustee or Managing General Partner
of the Funds.

Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, Foreign Policy and Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Slovak
Management Center; Director, Trustee, or Managing General Partner of the
Funds; President Emeritus, University of Pittsburgh; formerly, Chairman,
National Advisory Council for Environmental Policy and Technology.

Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: July 21, 1935
Trustee
Public relations/marketing consultant; Director, Trustee, or Managing
General Partner of the Funds.

Glen R. Johnson
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929
President
Trustee, Federated Investors; President and/or Trustee of some of the
Funds; staff member, Federated Securities Corp. and Federated
Administrative Services.

J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Vice President
President and Trustee, Federated Investors, Federated Advisers,
Federated Management, and Federated Research; President and Director,
Federated Research Corp.; President, Passport Research, Ltd.; Trustee,
Federated Administrative Services, Federated Services Company, and
Federated Shareholder Services; President or Vice President of the
Funds; Director, Trustee, or Managing General Partner of some of the
Funds. Mr. Donahue is the son of John F. Donahue, Chairman and Trustee
of the Trust.

Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Director,
Federated Research Corp.; Chairman and Director, Federated Securities
Corp.; President or Vice President of some of the Funds; Director or
Trustee of some of the Funds.

Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Vice President and Treasurer
Vice President, Treasurer, and Trustee, Federated Investors; Vice
President and Treasurer, Federated Advisers, Federated Management,
Federated Research, Federated Research Corp., and Passport Research,
Ltd.; Executive Vice President, Treasurer, and Director, Federated
Securities Corp.; Trustee, Federated Services Company and Federated
Shareholder Services; Chairman, Treasurer, and Trustee, Federated
Administrative Services; Trustee or Director of some of the Funds; Vice
President and Treasurer of the Funds.

John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Vice President and Secretary
Vice President, Secretary, General Counsel, and Trustee, Federated
Investors; Vice President, Secretary, and Trustee, Federated Advisers,
Federated Management, and Federated Research; Vice President and
Secretary, Federated Research Corp. and Passport Research, Ltd.;
Trustee, Federated Services Company; Executive Vice President,
Secretary, and Trustee, Federated Administrative Services; Secretary and
Trustee, Federated Shareholder Services; Executive Vice President and
Director, Federated Securities Corp.; Vice President and Secretary of
the Funds.

* This Trustee is deemed to be an "interested person" as defined
in the Investment Company Act of 1940, as amended.
@ Member of the Executive Committee. The Executive Committee of
the Board of Trustees handles the responsibilities of the Board
of Trustees between meetings of the Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: American Leaders Fund, Inc.; Annuity Management
Series; Arrow Funds; Automated Cash Management Trust; Automated
Government Money Trust; California Municipal Cash Trust; Cash Trust
Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones
& Co. Daily Passport Cash Trust; Federated ARMs Fund; Federated Exchange
Fund, Ltd.; Federated GNMA Trust; Federated Government Trust; Federated
Growth Trust; Federated High Yield Trust; Federated Income Securities
Trust; Federated Income Trust; Federated Index Trust; Federated
Institutional Trust; Federated Intermediate Government Trust; Federated
Master Trust; Federated Municipal Trust; Federated Short-Intermediate
Government Trust; Federated Short-Term U.S. Government Trust; Federated
Stock Trust; Federated Tax-Free Trust; Federated U.S. Government Bond
Fund; First Priority Funds; Fixed Income Securities, Inc.; Fortress
Adjustable Rate U.S. Government Fund, Inc.; Fortress Municipal Income
Fund, Inc.; Fortress Utility Fund, Inc.; Fund for U.S. Government
Securities, Inc.; Government Income Securities, Inc.; High Yield Cash
Trust; Insight Institutional Series, Inc.; Insurance Management Series;
Intermediate Municipal Trust; International Series, Inc.; Investment
Series Funds, Inc.; Investment Series Trust; Liberty Equity Income Fund,
Inc.; Liberty High Income Bond Fund, Inc.; Liberty Municipal Securities
Fund, Inc.; Liberty U.S. Government Money Market Trust; Liberty Term
Trust, Inc. - 1999; Liberty Utility Fund, Inc.; Liquid Cash Trust;
Managed Series Trust; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; Municipal Securities Income
Trust; Newpoint Funds; New York Municipal Cash Trust; 111 Corcoran
Funds; Peachtree Funds; The Planters Funds; RIMCO Monument Funds; The
Shawmut Funds; Short-Term Municipal Trust; Star Funds; The Starburst
Funds; The Starburst Funds II; Stock and Bond Fund, Inc.; Sunburst
Funds; Targeted Duration Trust; Trademark Funds; Trust for Financial
Institutions; Trust For Government Cash Reserves; Trust for Short-Term
U.S. Government Securities; Trust for U.S. Treasury Obligations; The
Virtus Funds; World Investment Series, Inc.
Share Ownership
Officers and Trustees as a group own less than 1% of the Trust's
outstanding shares.
As of May 5, 1995, the following shareholder(s) of record owned 5% or
more of the outstanding Investment Shares of the Trust: Stephens Inc.,
Little Rock, Arkansas, owned approximately 24,328,314 shares (12.22%);
and BHC Securities Inc., Philadelphia, Pennsylvania, owned approximately
25,052,842 shares (12.58%).
As of May 5, 1995, the following shareholder(s) of record owned 5% or
more of the outstanding Institutional Service Shares of the Trust:
State Street Bank and Trust Company, North Quincy, Massachusetts, owned
approximately 17,385,457 shares (5.09%); Egap & Co., Burlington,
Vermont, owned approximately 19,971,638 shares (5.85%); Citibank, NA,
Long Island, New York, owned approximately 20,837,885 shares (6.10%);
Unit & Co., Portland, Oregon, owned approximately 21,311,960 shares
(6.24%); VAR & Co., St. Paul, Minnesota, owned approximately 34,917,682
shares (10.23%); and Fiduciary Trust Company International, New York,
New York, owned approximately 70,225,400 shares (20.58%).
Trustees Compensation

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

John F. Donahue $0 $0 for the Trust and
68 other investment companies in the Fund
Complex
Thomas G. Bigley $1,319 $20,688 for the Trust and
49 other investment companies in the Fund
Complex
John T. Conroy $2,918 $117,202 for the Trust and
64 other investment companies in the Fund
Complex
William J. Copeland $2,918 $117,202 for the Trust and
64 other investment companies in the Fund
Complex
James E. Dowd $2,918 $117,202 for the Trust and
64 other investment companies in the Fund
Complex
Lawrence D. Ellis, M.D. $2,647 $106,460 for the Trust and
64 other investment companies in the Fund
Complex
Edward L. Flaherty, Jr. $2,918 $117,202 for the Trust and
64 other investment companies in the Fund
Complex
Peter E. Madden $2,243 $90,563 for the Trust and
64 other investment companies in the Fund
Complex
Gregor F. Meyer $2,647 $106,460 for the Trust and
64 other investment companies in the Fund
Complex
John E. Murray, Jr. $0 $0 for the Trust and
64 other investment companies in the Fund
Complex
Wesley W. Posvar $2,647 $106,460 for the Trust and
64 other investment companies in the Fund
Complex
Marjorie P. Smuts $2,647 $106,460 for the Trust and
64 other investment companies in the Fund
Complex

*Information is furnished for the fiscal year ended March 31, 1995.
#The aggregate compensation is provided for the Trust which is comprised
of 1 portfolio.
+The information is provided for the last calendar year.
Trustee Liability
The Declaration of Trust provides that the Trustees will not be 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
Investment Adviser
The Trust's investment adviser is Federated Management. 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 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 prospectus. For the fiscal
years ended March 31, 1995, 1994, and 1993, the adviser earned
$8,274,688, $8,264,650, and $7,625,674, respectively, of which
$2,852,758, $2,322,865, and $1,446,925, respectively, were waived.
State Expense Limitations
The adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose
shares are registered for sale in those states. If the Trust's
normal operating expenses (including the investment advisory fee,
but not including brokerage commissions, interest, taxes, and
extraordinary expenses) exceed 2-1/2% per year of the first $30
million of average net assets, 2% per year of the next $70 million
of average net assets, and 1-1/2% per year of the remaining
average net assets, the adviser will reimburse the Trust for its
expenses over the limitation.
If the Trust's monthly projected operating expenses exceed this
limitation, the investment advisory fee paid will be reduced by
the amount of the excess, subject to an annual adjustment. If the
expense limitation is exceeded, the amount to be reimbursed by the
adviser will be limited, in any single fiscal year, by the amount
of the investment advisory fees.
This arrangement is not part of the advisory contract and may be
amended or rescinded in the future.
Trust Administration
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Trust for a fee as
described in the prospectus. Prior to March 1, 1994, Federated
Administrative Services, Inc., also a subsidiary of Federated Investors,
served as the Trust's Administrator. (For purposes of this Statement of
Additional Information, Federated Administrative Services and Federated
Administrative Services, Inc. may hereinafter collectively be referred
to as the "Administrators.") For the fiscal years ended March 31, 1995
and March 31, 1994, the Administrators earned $1,252,788 and $954,364.
For the fiscal year ended March 31, 1993, Federated Administrative
Services, Inc. earned $684,378. Dr. Henry J. Gailliot, an officer of
Federated Management, the adviser to the Trust, holds approximately 20%
of the outstanding common stock and serves as a director of Commercial
Data Services, Inc., a company which provides computer processing
services to Federated Administrative Services.
Shareholder Services Plan
This arrangement permits the payment of fees to Federated Shareholder
Services and financial institutions to cause services to be provided
which are necessary for the maintenance of shareholder accounts and to
encourage personal services 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: 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 balance; answering routine client inquiries; and assisting
clients in changing dividend options, account designations, and
addresses. By adopting the Shareholder Services Plan, the Board of
Trustees expects that the Trust will benefit by: (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 fiscal period
ending March 31, 1995, payments in the amount of $2,075,824 were made
pursuant to the Shareholder Services Plan, all of which was paid to
financial institutions.
Custodian and Portfolio Recordkeeper. State Street Bank and Trust
Company, Boston, MA, is custodian for the securities and cash of the
Trust. It also provides certain accounting and recordkeeping services
with respect to the Trust's portfolio investments.
Transfer Agent. As transfer agent, Federated Services Company maintains
all necessary shareholder records. For its services, the transfer agent
receives a fee based on the number of shareholder accounts.
Determining Net Asset Value
The Trustees have decided that the best method for determining the value
of portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for
amortization of premium or accumulation of discount rather than at
current market value. Accordingly, neither the amount of daily income
nor the net asset value is affected by any unrealized appreciation or
depreciation of the portfolio. In periods of declining interest rates,
the indicated daily yield on shares of the Trust computed by dividing
the annualized daily income on the Trust's portfolio by the net asset
value computed as above may tend to be higher than a similar computation
made by using a method of valuation based upon market prices and
estimates. In periods of rising interest rates, the opposite may be
true.
The Trust's use of the amortized cost method of valuing portfolio
instruments depends on its compliance with certain conditions in Rule 2a-
7 (the "Rule") promulgated by the Securities and Exchange Commission
under the Investment Company Act of 1940. Under the Rule, the Trustees
must establish procedures reasonably designed to stabilize the net asset
value per share, as computed for purposes of distribution and
redemption, at $1.00 per share, taking into account current market
conditions and the Trust's investment objective. The procedures include
monitoring the relationship between the amortized cost value per share
and the net asset value per share based upon available indications of
market value. The Trustees will decide what, if any, steps should be
taken if there is a difference of more than 0.5 of 1% between the two
values. The Trustees will take any steps they consider appropriate (such
as redemption in kind or shortening the average portfolio maturity) to
minimize any material dilution or other unfair results arising from
differences between the two methods of determining net asset value.
Redemption in Kind
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.
The Trust's Tax Status
To qualify for the special tax treatment afforded to regulated
investment companies, the Trust must, among other requirements: derive
at least 90% of its gross income from dividends, interest, and gains
from the sale of securities; derive less than 30% of its gross income
from the sale of securities held less than three months; invest in
securities within certain statutory limits; and distribute to its
shareholders at least 90% of its net income earned during the year.
Performance Information
Performance depends upon such variables as: portfolio quality; average
portfolio maturity; type of instruments in which the portfolio is
invested; changes in interest rates; changes in expenses; and the
relative amount of cash flow. To the extent that financial institutions
and broker/dealers charge fees in connection with services provided in
conjunction with an investment in shares of the Trust, the performance
will be reduced for those shareholders paying those fees.
Yield
The yield is calculated based upon the seven days ending on the day of
the calculation, called the "base period." This yield is computed by:
determining the net change in the value of a hypothetical account with a
balance of one share at the beginning of the base period, with the net
change excluding capital changes but including the value of any
additional shares purchased with dividends earned from the original one
share and all dividends declared on the original and any purchased
shares; dividing the net change in the account's value by the value of
the account at the beginning of the base period to determine the base
period return; and multiplying the base period return by 365/7.
For the seven-day period ended March 31, 1995, the yield for Investment
Shares was 3.48%, Institutional Service Shares was 3.63%.
Effective Yield
The effective yield is calculated by compounding the unannualized base
period return by: adding 1 to the base period return; raising the sum to
the 365/7th power; and subtracting 1 from the result.
For the seven-day period ended March 31, 1995, the effective yield for
Investment Shares was 3.54%, Institutional Service Shares was 3.70%.
Tax-Equivalent Yield
For the seven-day period ended March 31, 1995, the tax-equivalent yield
for Investment Shares was 5.76%, Institutional Service Shares was 6.01%.
Tax-Equivalency Table
A tax-equivalency table may be used in advertising and sales literature.
The interest earned by the municipal securities in the Trust's portfolio
generally remains free from federal regular income tax,* and is often
free from state and local taxes as well. As the table below indicates, a
"tax-free" investment can be an attractive choice for investors,
particularly in times of narrow spreads between tax-free and taxable
yields.
TAXABLE YIELD EQUIVALENT FOR 1995

FEDERAL INCOME TAX BRACKET:
15.00% 28.00% 31.00% 36.00% 39.60%

JOINT $1- $39,001- $94,251- $143,601- OVER
RETURN 39,000 94,250 143,600 256,500 256,500

SINGLE $1- $23,351- $56,551- $117,951- OVER
RETURN 23,350 56,550 117,950 256,500 256,500

Tax-Exempt
Yield Taxable Yield Equivalent

1.00% 1.18% 1.39% 1.45% 1.56%
1.66%
1.50% 1.76% 2.08% 2.17% 2.34%
2.48%
2.00% 2.35% 2.78% 2.90% 3.13%
3.31%
2.50% 2.94% 3.47% 3.62% 3.91%
4.14%
3.00% 3.53% 4.17% 4.35% 4.69%
4.97%
3.50% 4.12% 4.86% 5.07% 5.47%
5.79%
4.00% 4.71% 5.56% 5.80% 6.25%
6.62%
4.50% 5.29% 6.25% 6.52% 7.03%
7.45%
5.00% 5.88% 6.94% 7.25% 7.81%
8.28%
5.50% 6.47% 7.64% 7.97% 8.59%
9.11%
6.00% 7.06% 8.33% 8.70% 9.38%
9.93%
6.50% 7.65% 9.03% 9.42% 10.16%
10.76%
7.00% 8.24% 9.72% 10.14% 10.94%
11.59%
7.50% 8.82% 10.42% 10.87% 11.72%
12.42%
8.00% 9.41% 11.11% 11.59% 12.50%
13.25%

Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent. Furthermore, additional
state and local taxes paid on comparable taxable investments were
not used to increase federal deductions.
The chart above is for illustrative purposes only. It is not an
indicator of past or future performance of Trust shares.
* Some portion of the Trust's income may be subject to the
federal alternative minimum tax and state and local income taxes.
Performance Comparisons
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:
o Lipper Analytical Services, Inc., ranks funds in various fund
categories based on total return, which assumes the reinvestment
of all income dividends and capital gains distributions, if any.
o Donoghue's Money Fund Report publishes annualized yields of money
market funds weekly. Donoghue's MONEY MARKET INSIGHT publication
reports monthly and 12-month-to-date investment results for the
same money funds.
o Money, a monthly magazine, regularly ranks money market funds in
various categories based on the latest available seven-day
effective yield.
About Federated Investors
Federated 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.
In the money market sector, Federated gained prominence in
the mutual fund industry in 1974 with the creation of the
first institutional money market fund. Simultaneously, the
company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a
principal means used by money managers today to value money
market fund shares. Other innovations include the first
institutional tax-free money market fund. As of December
31, 1994, Federated managed more than $31 billion in assets
across approximately 43 money market funds, including 17
government, 8 prime and 18 municipal with assets
approximating $17 billion, $7.4 billion and $6.6 billion,
respectively.
J. Thomas Madden, Executive Vice President, oversees
Federated's equity and high yield corporate bond management
while William D. Dawson, Executive Vice President, oversees
Federated's domestic fixed income management. Henry A.
Frantzen, Executive Vice President, oversees the management
of Federated's international portfolios.
Mutual Fund Market
Twenty-seven percent of American households are pursuing
their financial goals through mutual funds. These
investors, as well as businesses and institutions, have
entrusted over $2 trillion to the more than 5,500 funds
available.*
Federated Investors, through its subsidiaries, distributes
mutual funds for a variety of investment applications.
Specific markets include:
Institutional
Federated meets the needs of more than 4,000 institutional
clients nationwide by managing and servicing separate
accounts and mutual funds for a variety of applications,
including defined benefit and defined contribution
programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds,
tax-exempt entities, foundations/endowments, insurance
companies, and investment and financial advisors. The
marketing effort to these institutional clients is headed
by John B. Fisher, President, Institutional Sales Division.

*source: Investment Company Institute
Trust Organizations
Other institutional clients include close relationships
with more than 1,500 banks and trust organizations.
Virtually all of the trust divisions of the top 100 bank
holding companies use Federated funds in their clients'
portfolios. The marketing effort to trust clients is headed
by Mark R. Gensheimer, Executive Vice President, Bank
Marketing & Sales.
Broker/dealers and bank broker/dealer subsidiaries
Federated mutual funds are available to consumers through
major brokerage firms nationwide--including 200 New York
Stock Exchange firms--supported by more wholesalers than
any other mutual fund distributor. The marketing effort to
these firms is headed by James F. Getz, President,
Broker/Dealer Division.

Financial Statements
The financial statements for the fiscal year ended March 31, 1995, are
incorporated herein by reference to the Annual Report of the Trust dated
March 31, 1995; (File Nos. 2-75122 and 811-3337). A copy of the report
may be obtained without charge by contacting the Trust at the address
listed in the prospectus.
876924101
876924200
8062810B (5/95)