TAX FREE INSTRUMENTS TRUST, 497, 1997-05-30

TAX FREE INSTRUMENTS TRUST
497, 1997-05-30

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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
management investment company (a mutual fund). The Trust invests in
short-term municipal securities to achieve current income exempt from
all federal income tax including the alternative minimum tax
consistent with stability of principal.

THE 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 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 the Trust. Keep this prospectus for future
reference.

The Trust has also filed a Statement of Additional Information dated
May 31, 1997, with the Securities and Exchange Commission ("SEC"). The
information contained in the Statement of Additional Information is
incorporated by reference into this prospectus. You may request a copy
of the Statement of Additional Information or a paper copy of this
prospectus, if you have received your prospectus electronically, free
of charge by calling 1-800-341-7400. To obtain other information, or
make inquiries about the Trust, contact your financial institution.
The Statement of Additional Information, material incorporated by
reference into this document, and other information regarding the
Trust is maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).

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

Prospectus dated May 31, 1997

TABLE OF CONTENTS

<TABLE>
<S> <C>
Summary of Trust Expenses 1
Financial Highlights -- Investment Shares 2
General Information 3
Investment Information 3
Investment Objective 3
Investment Policies 3
Municipal Securities 5
Investment Risks 5
Investment Limitations 5
Trust Information 5
Management of the Trust 5
Distribution of Investment Shares 6
Administration of the Trust 7
Net Asset Value 7
How to Purchase Shares 7
Purchasing Shares Through a
Financial Institution 7
Purchasing Shares By Wire 7
Purchasing Shares By Check 8
Special Purchase Features 8
Exchange Privilege 8
Making an Exchange 8
How to Redeem Shares 8
Redeeming Shares Through a
Financial Institutions 9
Redeeming Shares By Telephone 9
Redeeming Shares By Mail 9
Special Redemption Features 9
Account and Share Information 10
Dividends 10
Capital Gains 10
Certificates and Confirmations 10
Accounts with Low Balances 10
Voting Rights 10
Tax Information 10
Federal Income Tax 10
State and Local Taxes 11
Other Classes of Shares 11
Performance Information 11
Addresses Inside Back Cover

</TABLE>

SUMMARY OF TRUST EXPENSES

INVESTMENT SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
<C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering
price) None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as
applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange
Fee
None
<CAPTION>

ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after
waiver)(1) 0.42%
12b-1
Fee
None
Total Other
Expenses
0.29%
Shareholder Services Fee (after waiver)(2) 0.15%
Total Operating
Expenses(3) 0.71%
</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 shareholder services fee has been reduced to reflect the
voluntary waiver of a portion of the shareholder services fee. The
shareholder service provider can terminate this voluntary waiver
at any time at its sole discretion. The maximum shareholder
services fee is 0.25%.

(3) The total operating expenses would have been 0.89% absent the
voluntary waivers of portions of the management fee and the
shareholder services fee.

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

EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time
period.

1 Year $ 7
3 Years $23
5 Years $40
10 Years $88

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

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Arthur Andersen LLP, the
Trust's independent public accountants. Their report, dated April 24,
1997, on the Trust's financial statements for the year ended March 31,
1997, 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>

YEAR ENDED MARCH 31,
1997 1996 1995
1994 1993
<S> <C> <C> <C> <C>
<C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.03 0.03 0.03 0.02 0.02
LESS DISTRIBUTIONS
Distributions from net
investment income (0.03) (0.03) (0.03) (0.02) (0.02)
NET ASSET VALUE,
END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(A) 2.92% 3.32% 2.70% 2.01% 2.42%
RATIOS TO AVERAGE
NET ASSETS
Expenses 0.71% 0.71% 0.70% 0.61% 0.55%
Net investment income 2.88% 3.27% 2.66% 2.00% 2.38%
Expense 0.18% 0.24% 0.17% 0.14% 0.10%
waiver/reimbursement(b)
SUPPLEMENTAL DATA
Net assets, end of
period (000 omitted) $1,506,918 $1,465,333 $1,277,894 $1,327,506 $1,619,531
</TABLE>

YEAR ENDED MARCH 31,
1992 1991 1990
1989 1988
<S> <C> <C> <C> <C>
<C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.04 0.05 0.06 0.05 0.04
LESS DISTRIBUTIONS
Distributions from net
investment income (0.04) (0.05) (0.06) (0.05) (0.04)
NET ASSET VALUE,
END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(A) 3.84% 5.40% 5.88% 5.28% 4.29%
RATIOS TO AVERAGE
NET ASSETS
Expenses 0.55% 0.55% 0.55% 0.55% 0.55%
Net investment income 3.73% 5.25% 5.73% 5.14% 4.19%
Expense 0.11% 0.12% 0.11% 0.08% 0.06%
waiver/reimbursement(b)
SUPPLEMENTAL DATA
Net assets, end of
period (000 omitted) $1,440,970 $1,214,045 $1,142,022 $1,313,391 $1,552,460
</TABLE>

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

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

FURTHER INFORMATION ABOUT THE TRUST'S PERFORMANCE IS CONTAINED IN THE
TRUST'S ANNUAL REPORT FOR THE FISCAL YEAR ENDED MARCH 31, 1997, WHICH CAN BE
OBTAINED FREE OF CHARGE.

GENERAL INFORMATION

The Trust was established as a Massachusetts business trust under a
Declaration of Trust dated November 17, 1981. The shares in any one
portfolio may be offered in separate classes. With respect to this
Trust, as of the date of this prospectus, the Board of Trustees has
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 portfolio investing primarily in short-term
municipal securities. The Trust may not be a suitable investment for
retirement plans because 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.

INVESTMENT INFORMATION

INVESTMENT OBJECTIVE

The investment objective of the Trust is current income exempt from
federal income tax consistent with stability of principal. Federal
income tax includes the alternative minimum tax. While there is no
assurance that the Trust will achieve its investment objective, it
endeavors to do so by complying with the diversification and other
requirements of Rule 2a-7 under the Investment Company Act of 1940
which regulates money market mutual funds and by following the
investment policies described in this prospectus. The investment
objective and the policies and limitations described below cannot be
changed without approval of shareholders, unless indicated otherwise.

INVESTMENT POLICIES

The Trust pursues its investment objective by investing in a portfolio
of municipal securities maturing in thirteen months or less. At least
80% of the Trust's annual interest income will be exempt from federal
income tax. However, the interest from certain municipal securities is
subject to the federal alternative minimum tax, and up to 20% of the
Trust's income may be derived from such securities. As a matter of
operating policy, the Trust will limit the average maturity of its
portfolio to 90 days or less, in order to meet regulatory
requirements.

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 all federal income tax
including the alternative minimum 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 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. Lease obligations may be subject to periodic appropriation.
Municipal leases are subject to certain specific risks in the event of
default or failure of appropriation.

REPURCHASE AGREEMENTS

CREDIT ENHANCEMENT

Certain of the Trust's acceptable investments may be credit-enhanced
by a guaranty, letter of credit, or insurance. Any bankruptcy,
receivership, default, or change in the credit quality of the party
providing the credit enhancement will adversely affect the quality and
marketability of the underlying security and could cause losses to the
Trust and affect its share price. The Trust may have more than 25% of
its total assets invested in securities credit-enhanced by banks.

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 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.

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, when the investment adviser determines that market
conditions call for a temporary defensive posture, the Trust may
invest in tax-exempt or taxable securities, all of comparable quality
to other securities in which the Trust invests, such as: obligations
issued by or on behalf of municipal or corporate issuers; obligations
issued or guaranteed by the U.S. government, its agencies, or
instrumentalities; instruments issued by a U.S. branch of a domestic
bank or other deposit institutions having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment;
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 Standard and Poor's Ratings Group,
Prime-1 by Moody's Investors Services, Inc., or F-1 by Fitch Investors
Service Inc. Although, the Trust is permitted to make taxable,
temporary investments, there is no current intention to do so.

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. The Fund's
concentration in Municipal Securities may entail a greater level of
risk than other types of money market funds.

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 the value of its total
assets in illiquid securities, including repurchase agreements
maturing in more than seven days.

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.

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 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 0.50%
of the Trust's average daily net assets. The adviser 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
$110 billion invested across more than 300 funds under management
and/or administration by its subsidiaries, as of December 31, 1996,
Federated Investors is one of the largest mutual fund investment
managers in the United States. With more than 2,000 employees,
Federated continues to be led by the management who founded the
company in 1955. Federated funds are presently at work in and through
4,500 financial institutions nationwide.

Both the Trust and the adviser have adopted strict codes of ethics
governing the conduct of all employees who manage the Trust and its
portfolio securities. These codes recognize that such persons owe a
fiduciary duty to the Trust's shareholders and must place the
interests of shareholders ahead of the employees' own interests. Among
other things, the codes: require preclearance and periodic reporting
of personal securities transactions; prohibit personal transactions in
securities being purchased or sold, or being considered for purchase
or sale, by the Trust; prohibit purchasing securities in initial
public offerings; and prohibit taking profits on securities held for
less than sixty days. Violations of the codes are subject to review by
the Trustees, and could result in severe penalties.

DISTRIBUTION OF INVESTMENT SHARES

Federated Securities Corp. is the principal distributor for Investment
Shares of the Trust. It is a Pennsylvania corporation organized on November
14, 1969, and is the principal distributor for a number of investment
companies. Federated Securities Corp. is a subsidiary of Federated
Investors.

SHAREHOLDER SERVICES

The Trust has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors,
under which the Trust may make payments up to 0.25% of the average
daily net assets of the Investment Shares, computed at an annual rate,
to obtain certain personal services for shareholders and to provide
the maintenance of shareholder accounts. From time to time and for
such periods as deemed appropriate, the amount stated above may be
reduced voluntarily.

Under the Shareholder Services Agreement, Federated Shareholder
Services will either perform shareholder services directly or will
select financial institutions to perform shareholder services.
Financial institutions will receive fees based upon shares owned by
their clients or customers. The schedules of such fees and the basis
upon which such fees will be paid will be determined from time to time
by the Trust and Federated Shareholder Services.

SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS

In addition to payments made pursuant to the Shareholder Services
Agreement, Federated Securities Corp. and Federated Shareholder
Services, from their own assets, may pay financial institutions
supplemental fees for the performance of substantial sales services,
distribution-related support services, or shareholder services. The
support may include sponsoring sales, educational and training
seminars for their employees, providing sales literature, and
engineering computer software programs that emphasize the attributes
of the Trust. Such assistance will be predicated upon the amount of
shares the financial institution sells or may sell, and/or upon the
type and nature of sales or marketing support furnished by the
financial institution. Any payments made by the distributor may be
reimbursed by the Trust's investment adviser or its affiliates.

ADMINISTRATION OF THE TRUST

ADMINISTRATIVE SERVICES

Federated Services Company, a subsidiary of Federated Investors,
provides administrative personnel and services (including certain
legal and financial reporting services) necessary to operate the Trust
at an annual rate which relates to the average aggregate daily net
assets of all funds advised by affiliates of Federated Investors as
specified below:

AVERAGE AGGREGATE
MAXIMUM FEE DAILY NET ASSETS
0.15% on the first $250 million
0.125% on the next $250 million
0.10% on the next $250 million
0.075% on assets in excess of $750 million

The administrative fee received during any fiscal year shall be at
least $125,000 per portfolio and $30,000 per each additional class of
shares. Federated Services Company may choose voluntarily to waive a
portion of its fee.

NET ASSET VALUE

The Trust 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 liabilities
attributable to Investment Shares from the value of Trust assets
attributable to Investment Shares, 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, Monday through Friday, except on
New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.

HOW TO PURCHASE SHARES

Shares are sold at their net asset value, without a sales charge, next
determined after an order is received, on days on which the New York
Stock Exchange is open for business. Shares may be purchased as
described below, either through a financial institution (such as a
bank or broker/dealer) or by wire or by check directly from the Trust,
with a minimum initial investment of $500 or more or additional
investments of as little as $100. Financial institutions may impose
different minimum investment requirements on their customers.

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.
An account must be established at a financial institution or by
completing, signing, and returning the new account form available from
the Trust before shares can be purchased.

PURCHASING SHARES THROUGH A
FINANCIAL INSTITUTION

Investors may purchase shares through a financial institution which
has a sales agreement with the distributor. Orders 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.
Financial institutions may charge additional fees for their services.

Shareholders who have purchased shares through a financial
intermediary, such as a bank or broker/dealer, should consult their
financial representative for information regarding the applicability
of this section, "How to Purchase Shares," as well as "Exchange
Privilege" and "How to Redeem Shares."

PURCHASING SHARES BY WIRE

Shares may be purchased by wire by calling 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) in order to begin earning dividends that same day.
Federal funds should be wired as follows: Federated Shareholder
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. Shares
cannot be purchased by wire on holidays when wire transfers are
restricted. Questions on wire purchases should be directed to your
shareholder services representative at the telephone number listed on
your account statement.

PURCHASING SHARES BY CHECK

Shares may be purchased by sending a check to Federated Shareholder
Services Company, P.O. Box 8600, Boston, MA 02266-8600. The check
should be made payable to Tax-Free Instruments Trust -- Investment
Shares. Please include an account number on the check. Orders by mail
are considered received when payment by check is converted into
federal funds (normally the business day after the check is received),
and shares begin earning dividends the next day.

SPECIAL PURCHASE FEATURES

SYSTEMATIC INVESTMENT PROGRAM

A minimum of $100 can be automatically withdrawn periodically from the
shareholder's checking account at an Automated Clearing House ("ACH")
member and invested in Trust shares. Shareholders should contact their
financial institution or the Trust to participate in this program.
Customers of certain financial institutions may not be eligible to
participate in this program.

EXCHANGE PRIVILEGE

Investment Shares may be acquired in exchange for shares of certain
other funds for which affiliates of Federated Investors serve as
investment adviser and principal underwriter (the "Federated Funds")
at net asset value plus the difference between the Trust's sales
charge already paid and any sales charge of the fund into which the
Investment Shares are to be exchanged, if higher. Investment shares
also may be exchanged for shares of other Federated mutual funds at
net asset value plus a sales charge, if applicable and not previously
paid. No additional fees are imposed on exchanges.

Exchanges must be in amounts of at least the value of the minimum
investment required of the fund into which the Investment 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,
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
modifications 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 Federated Funds, contact the Trust.

MAKING AN EXCHANGE

Instructions for exchanges for the Federated 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 Shareholder Services
Company, 1099 Hingham Street, Rockland, MA 02370-3317.

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 Shareholder 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 Shareholder 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 contacting the shareholder's financial
institution. Shares will be redeemed at the net asset value next
determined after Federated Services Company receives the redemption
request. According to the shareholder's instructions, redemption
proceeds can be sent to the financial institution or to the
shareholder by check or by wire. The financial institution is
responsible for promptly submitting redemption requests and providing
proper written redemption instructions. Customary fees and commissions
may be charged by the financial institution for this service.

REDEEMING SHARES BY TELEPHONE

Redemptions in minimum amounts of $1,000 may be made by calling the
Trust provided the Trust has a properly completed authorization form.
These forms can be obtained from Federated Securities Corp. Proceeds
from redemption requests received before 12:00 noon (Eastern time)
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, but
will not include that day's dividend. Proceeds from redemption
requests received after that time include that day's dividend but will
be wired the following business day. Under limited circumstances,
arrangements may be made with the distributor for same-day payment of
proceeds, without that day's dividend, for redemption requests
received before 2:00 p.m. (Eastern time). Proceeds from redeemed
shares purchased by check or through ACH will not be wired until that
method of payment has cleared. Proceeds from redemption requests on
holidays when wire transfers are restricted will be wired the
following business day. Questions about telephone redemptions on days
when wire transfers are restricted should be directed to your
shareholder services representative at the telephone number listed on
your account statement.

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.

In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming by telephone. If this occurs,
"Redeeming Shares By Mail" should be considered. If at any time the
Trust shall determine it necessary to terminate or modify the
telephone redemption privilege, shareholders would be promptly
notified.

REDEEMING SHARES BY MAIL

Shares may be redeemed in any amount by mailing a written request to:
Federated Shareholder Services Company, P.O. Box 8600, Boston, MA
02266-8600. If share certificates have been issued, they should be
sent unendorsed with the written request by registered or certified
mail to the address noted above.

The written request should state: the Trust name and the class
designation; the account name as registered with the Trust; the
account number; and the number of shares to be redeemed or the dollar
amount requested. All owners of the account must sign the request
exactly as the shares are registered. Normally, a check for the
proceeds is mailed within one business day, but in no event more than
seven days, after the receipt of a proper written redemption request.
Dividends are paid up to and including the day that a redemption
request is processed.

Shareholders requesting a redemption of any amount to be sent to an
address other than that on record with the Trust or a redemption
payable other than to the shareholder of record must have their
signatures guaranteed by a commercial or savings bank, trust company
or savings association whose deposits are insured by an organization
which is administered by the Federal Deposit Insurance Corporation; a
member firm of a domestic stock exchange; 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.

SPECIAL REDEMPTION FEATURES

CHECK WRITING

Upon request, a checking account will be established to allow
shareholders to redeem their Trust shares. Shareholder accounts will
continue to receive the daily dividend declared on the shares to be
redeemed until the check is presented to UMB Bank, N.A., the bank
responsible for administering the check writing program, for payment.
However, checks should never be made payable or sent to UMB Bank, N.A.
or the Trust to redeem shares, and a check may not be written to close
an account.

SYSTEMATIC WITHDRAWAL PROGRAM

If a shareholder's account has a value of at least $10,000, other than
retirement accounts subject to required minimum distributions, 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 ACH
member. Shareholders may apply for participation in this program
through their financial institutions or the Trust. Customers of
certain financial institutions may not be eligible to participate in
this program.

ACCOUNT AND SHARE INFORMATION

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.

CERTIFICATES AND CONFIRMATIONS

As transfer agent for the Trust, Federated Shareholder Services
Company maintains a share account for each shareholder. Share
certificates are not issued unless requested by contacting the Trust
or Federated Shareholder Services Company in writing. Monthly
confirmations are sent to report all transactions as well as dividends
paid during the month.

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, there
is an average monthly (calculated on a 30-day basis) account balance
policy. Shareholders must maintain a $5,000 average monthly account
balance. Shareholders who do not maintain an average monthly account
balance of $5,000, in any given 30-day period, will be charged a $3.00
fee for that period. A shareholder's checkwriting privilege may be
discontinued at any time. This policy does not currently apply to
IRAs, Keoghs, other retirement accounts or accounts owned by
associates of Edward D. Jones & Co., L.P. These types of accounts may
be subject to the policy in the future.

VOTING RIGHTS

Each share of the Trust owned by a shareholder gives that shareholder
one vote in Trustee elections and other matters submitted to
shareholders for vote. All shares of classes of each portfolio in the
Trust have equal voting rights, except that in matters affecting only
a particular portfolio or class, only shareholders of that portfolio
or class are entitled to vote. 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 election of
Trustees under certain circumstances.

Trustees may be removed by the Trustees or by shareholders at a
special meeting. A special meeting shall be called by the Trustees
upon the written request of shareholders owning at least 10% of the
outstanding shares of the Trust.

As of May 7, 1997, Fiduciary Trust Co. International, organized in the
state of New York, owned 38.55% of the Institutional Service Shares of
the Trust, and, therefore, may, for certain purposes, be deemed to
control the Trust and be able to affect the outcome of certain matters
presented for a vote of shareholders.

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, within the limits of its investment policies, all types of
municipal bonds, including private activity bonds.

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.

STATE AND LOCAL TAXES

In the opinion of Houston, Donnelly & Meck, counsel to the Trust,
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.

Because interest received by the Trust may not be exempt from all
state and local income taxes, shareholders may be required to pay
state and local taxes on dividends received from the Trust.
Shareholders are urged to consult their own tax advisers regarding the
status of their accounts under state and local tax laws.

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 individuals, institutions, and fiduciaries and are
subject to a minimum initial investment of $25,000.

All classes are subject to certain of the same expenses. Institutional
Service Shares are distributed with no 12b-1 Plan but are subject to
shareholder services fees. Expense differences between classes may
affect the performance of each class.

To obtain more information and a prospectus for any other class,
investors may call 1-800-341-7400.

PERFORMANCE INFORMATION

From time to time, the Trust advertises its total return, yield,
effective yield, and tax-equivalent yield. The performance figures
will be calculated separately for each class of 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 Trust's tax-exempt yield, assuming a specific tax rate.

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.

NOTES

ADDRESSES

TAX-FREE INSTRUMENTS TRUST
INVESTMENT SHARES
Federated Investors Tower
Pittsburgh, PA 15222-3779

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

INVESTMENT ADVISER
Federated Management
Federated Investors Tower
Pittsburgh, PA 15222-3779

Edward Jones
201 Progress Parkway
Maryland Heights, MO 63043
1-800-331-2451
Distributor

Edward Jones

Cusip 876924101
8062810A-IV (5/97)

Edward Jones

Tax-Free
Instruments Trust

PROSPECTUS
May 31, 1997
Serving Individual Investors Since 1871

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
management investment company (a mutual fund). The Trust invests in
short-term municipal securities to achieve current income exempt from
all federal income tax including the alternative minimum tax
consistent with stability of principal.

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

The Trust has also filed a Statement of Additional Information dated
May 31, 1997, with the Securities and Exchange Commission ("SEC"). The
information contained in the Statement of Additional Information is
incorporated by reference into this prospectus. You may request a copy
of the Statement of Additional Information or a paper copy of this
prospectus, if you have received your prospectus electronically, free
of charge by calling 1-800-341-7400. To obtain other information, or
make inquiries about the Trust, contact the Trust at the address
listed in the back of this prospectus. The Statement of Additional
Information, material incorporated by reference into this document,
and other information regarding the Trust is maintained electronically
with the SEC at Internet Web site (http://www.sec.gov).

Prospectus dated May 31, 1997

TABLE OF CONTENTS

<TABLE>
<S> <C>
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 5
Investment Risks 5
Investment Limitations 5
Trust Information 5
Management of the Trust 5
Distribution of Institutional Service Shares 6
Administration of the Trust 6
Net Asset Value 7
How to Purchase Shares 7
Purchasing Shares By Wire 7
Purchasing Shares By Check 7
How to Redeem Shares 7
Redeeming Shares By Telephone 7
Redeeming Shares By Mail 8
Account and Share Information 8
Dividends 8
Capital Gains 8
Certificates and Confirmations 8
Accounts with Low Balances 8
Voting Rights 8
Tax Information 9
Federal Income Tax 9
State and Local Taxes 9
Other Classes of Shares 9
Performance Information 9
</TABLE>

SUMMARY OF TRUST EXPENSES

INSTITUTIONAL SERVICE SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S>
<C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering
price) None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as
applicable) None
Redemption Fee (as a percentage of amount redeemed, if
applicable) None
Exchange
Fee
None
<CAPTION>

ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after
waiver)(1)
0.42%
12b-1
Fee
None
Total Other
Expenses
0.14%
Shareholder Services Fee (after waiver)(2)
0.00%
Total Operating
Expenses(3)
0.56%
</TABLE>

(2) The shareholder services fee has been reduced to reflect the
voluntary waiver of the shareholder services fee. The shareholder
service provider can terminate this voluntary waiver at any time
at its sole discretion.
The maximum shareholder services fee is 0.25%.

(3) The total operating expenses would have been 0.89% absent the
voluntary waivers of portions of the management fee and the
shareholder services fee.

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

EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time
period.

1 Year $ 6
3 Years $18
5 Years $31
10 Years $70

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SERVICE SHARES

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

YEAR ENDED MARCH 31,
1997
1996 1995 1994(A)
<S> <C>
<C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.03
0.03 0.01
LESS DISTRIBUTIONS
Distributions from net investment income (0.03) (0.03)
(0.03) (0.01)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(B) 3.08% 3.47%
2.85% 0.92%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.56%
0.56% 0.55% 0.55%*
Net investment income 3.02% 3.43%
2.82% 1.99%*
Expense waiver/reimbursement(c) 0.33% 0.40%
0.17% 0.14%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $247,946 $304,516 $358,826
$390,453
</TABLE>

* Computed on an annualized basis.

(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 charge
or contingent deferred sales charge, if applicable.

FURTHER INFORMATION ABOUT THE TRUST'S PERFORMANCE IS CONTAINED IN THE
TRUST'S ANNUAL REPORT FOR THE FISCAL YEAR ENDED MARCH 31, 1997, WHICH CAN BE
OBTAINED FREE OF CHARGE.

GENERAL INFORMATION

The Trust was established as a Massachusetts business trust under a
Declaration of Trust dated November 17, 1981. The shares in any one
portfolio may be offered in separate classes. With respect to this
Trust, as of the date of this prospectus, the Board of Trustees has
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 portfolio investing primarily in short-term municipal
securities. The Trust may not be a suitable investment for retirement
plans because 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

REPURCHASE AGREEMENTS

CREDIT ENHANCEMENT

DEMAND FEATURES

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

TEMPORARY INVESTMENTS

From time to time, when the investment adviser determines that market
conditions call for a temporary defensive posture, the Trust may
invest in tax-exempt or taxable securities, all of comparable quality
to other securities in which the Trust invests, such as: obligations
issued by or on behalf of municipal or corporate issuers; obligations
issued or guaranteed by the U.S. government, its agencies, or
instrumentalities; instruments issued by a U.S. branch of a domestic
bank or other deposit institutions having capital, surplus, and
undivided profits in excess of $100,000,000 at the time of investment;
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 Standard and Poor's Ratings Group,
Prime-1 by Moody's Investors Services, Inc., or F-1 by Fitch Investors
Service, Inc. Although the Trust is permitted to make taxable,
temporary investments, there is no current intention to do so.

MUNICIPAL SECURITIES

INVESTMENT RISKS

INVESTMENT LIMITATIONS

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.

TRUST INFORMATION

MANAGEMENT OF THE TRUST

BOARD OF TRUSTEES

INVESTMENT ADVISER

ADVISORY FEES

ADVISER'S BACKGROUND

DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES

Federated Securities Corp. is the principal distributor for Institutional
Service Shares of the Trust. It is a Pennsylvania corporation organized on
November 14, 1969, and is the principal distributor for a number of
investment companies. Federated Securities Corp. is a subsidiary of
Federated Investors.

SHAREHOLDER SERVICES

The Trust has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors,
under which the Trust may make payments up to 0.25% of the average
daily net assets of the Institutional Service Shares, computed at an
annual rate, to obtain certain personal services for shareholders and
to provide the maintenance of shareholder accounts. From time to time
and for such periods as deemed appropriate, the amount stated above
may be reduced voluntarily.

SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS

ADMINISTRATION OF THE TRUST

ADMINISTRATIVE SERVICES

AVERAGE AGGREGATE
MAXIMUM FEE DAILY NET ASSETS
0.15% on the first $250 million
0.125% on the next $250 million
0.10% on the next $250 million
0.075% on assets in excess of $750 million

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 liabilities
attributable to Institutional Service Shares from the value of Trust
assets attributable to Institutional Service Shares, 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.

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. The minimum initial investment is $25,000. However, an
account may be opened with a smaller amount as long as the minimum is
reached within 90 days. Minimum investments will be calculated by
combining all accounts maintained with the Trust. Financial
institutions may impose different minimum investment requirements on
their customers.

PURCHASING SHARES BY WIRE

Shares may be purchased by Federal Reserve wire by calling 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 Shareholder 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. Shares cannot
be purchased by wire on holidays when wire transfers are restricted.
Questions on wire purchases should be directed to your shareholder
services representative at the telephone number listed on your account
statement.

PURCHASING SHARES BY CHECK

Shares may be purchased by sending a check to Federated Shareholder
Services Company, P.O. Box 8600, Boston, MA 02266-8600. The check
should be made payable to: Tax-Free Instruments Trust -- Institutional
Service Shares. Orders by mail are considered received when payment by
check is converted into federal funds (normally the business day after
the check is received), and shares begin earning dividends the next
day.

HOW TO REDEEM SHARES

REDEEMING SHARES BY TELEPHONE

Redemptions in minimum amounts of $1,000 may be made by calling the
Trust provided the Trust has a properly completed authorization form.
These forms can be obtained from Federated Securities Corp. Proceeds
from redemption requests received before 12:00 p.m. (Eastern time)
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, but
will not include that day's dividend. Proceeds from redemption
requests received after that time include that day's dividend but will
be wired the following business day. Proceeds from redemption requests
on holidays when wire transfers are restricted will be wired the
following business day. Questions about telephone redemptions on days
when wire transfers are restricted should be directed to your
shareholder services representative at the telephone number listed on
your account statement.

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.

REDEEMING SHARES BY MAIL

ACCOUNT AND SHARE INFORMATION

DIVIDENDS

CAPITAL GAINS

CERTIFICATES AND CONFIRMATIONS

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, the
Trust may redeem shares in any account and pay the proceeds to the
shareholder if the account balance falls below a required minimum
value of $25,000 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.

VOTING RIGHTS

Each share of the Trust owned by a shareholder gives that 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 shareholders of that
portfolio or class are entitled to vote. 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 election of
Trustees under certain circumstances.

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.

STATE AND LOCAL TAXES

OTHER CLASSES OF SHARES

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

All classes are subject to certain of the same expenses. Investment
Shares are distributed with no 12b-1 Plan but are subject to
shareholder services fees. Expense differences between classes may
affect the performance of each class.

To obtain more information and a prospectus for any other class,
investors may call 1-800-341-7400.

PERFORMANCE INFORMATION

From time to time, the Trust advertises its total return, yield,
effective yield, and tax-equivalent yield. The performance figures
will be calculated separately for each class of shares.

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.

TAX-FREE INSTRUMENTS TRUST
INSTITUTIONAL SERVICE SHARES

Federated Investors Tower
Pittsburgh, PA 15222-3779

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

INVESTMENT ADVISER
Federated Management
Federated Investors Tower
Pittsburgh, PA 15222-3779

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

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

INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
2100 One PPG Place
Pittsburgh, PA 15222

Federated Securities Corp., Distributor

Cusip 876924200
8062810A-SS (5/97)

[Graphic]

Tax-Free Instruments Trust
Institutional Service Shares

PROSPECTUS

MAY 31, 1997

An Open-End
Management Investment Company

TAX-FREE INSTRUMENTS TRUST
INVESTMENT SHARES
INSTITUTIONAL SERVICE SHARES

STATEMENT OF ADDITIONAL INFORMATION

This Statement of Additional Information should be read with the
prospectuses of Tax-Free Instruments Trust (the "Trust"), dated May
31, 1997. This Statement is not a prospectus. You may request a copy
of a prospectus or a paper copy of this Statement, if you have
received it electronically, free of charge by calling 1-800-341-7400.

FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779

Statement dated May 31, 1997

[Graphic]

Cusip 876924101
Cusip 876924200
8062810B (5/97)

TABLE OF CONTENTS

<TABLE>
<S> <C>
INVESTMENT POLICIES 1
Acceptable Investments 1
Participation Interests 1
Municipal Leases 1
Ratings 1
When-Issued and Delayed Delivery Transactions 1
Repurchase Agreements 2
Reverse Repurchase Agreements 2
Credit Enhancement 2
INVESTMENT LIMITATIONS
Selling Short and Buying on Margin 2
Borrowing Money 2
Pledging Assets 2
Lending Cash or Securities 3
Investing in Commodities and Minerals 3
Investing in Real Estate 3
Underwriting 3
Concentration of Investments 3
Diversification of Investments 3
Investing in Illiquid Securities 3
Investing in Securities of Other
Investment Companies 3
Investing in New Issuers 3
Investing in Issuers Whose Securities
are Owned by Officers and Trustees 3
Investing in Options 4
Investing for Control 4
Regulatory Compliance 4
TAX-FREE INSTRUMENTS TRUST MANAGEMENT 4
The Funds 8
Share Ownership 8
Trustee Compensation 9
Trustee Liability 9
INVESTMENT ADVISORY SERVICES 9
Investment Adviser 9
Advisory Fees 10
BROKERAGE TRANSACTIONS 10
Accounts with Low Balances (Investment Shares) 10
OTHER SERVICES 10
Trust Administration 10
Custodian and Portfolio Accountant 10
Transfer Agent 10
Independent Public Accountants 11
SHAREHOLDER SERVICES 11
DETERMINING NET ASSET VALUE 11
REDEMPTION IN KIND 11
MASSACHUSETTS PARTNERSHIP LAW 11
THE TRUST'S TAX STATUS 12
PERFORMANCE INFORMATION 12
Yield 12
Effective Yield 12
Tax-Equivalent Yield 12
Tax-Equivalency Table 12
Total Return 13
Performance Comparisons 14
Economic and Market Information 14
ABOUT FEDERATED INVESTORS 14
Mutual Fund Market 15
Institutional Clients 15
Bank Marketing 15
Broker/Dealers and Bank Broker/Dealer
Subsidiaries 15
FINANCIAL STATEMENTS 15
APPENDIX 16
</TABLE>

INVESTMENT POLICIES

Unless indicated otherwise, the policies described below may not be
changed by the Board of Trustees without shareholder approval.

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 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.

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. The 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 F-1+, F-1, or
F-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."

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 in a dollar amount sufficient to make payment for
the securities 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. 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. However, liquid assets of the Trust,
in a dollar amount sufficient to make payment for the securities 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.

CREDIT ENHANCEMENT

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 Trust may have more than 25% of its total assets invested in
securities credit enhanced by banks.

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
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.

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 nongovernmental user are considered to be
issued solely by that user.

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 SECURITIES OF OTHER INVESTMENT COMPANIES

The Trust will not acquire the voting securities of any issuer, except
as part of a merger, consolidation, or other acquisition of other
assets. It may not invest in securities issued by any other investment
company or investment trust.

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 AND TRUSTEES

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, owning individually more than .50% 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.

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 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
certificates of deposit and demand and time deposits issued by a U.S.
branch of a domestic bank or savings association 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.

REGULATORY COMPLIANCE

The Trust may follow non-fundamental operational policies that are
more restrictive than its fundamental investment limitations, as set
forth in the prospectus and this 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. 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.

TAX-FREE INSTRUMENTS TRUST MANAGEMENT

Officers and Trustees are listed with their addresses, birthdates,
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. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds.

Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA

Birthdate: February 3, 1934

Trustee

Chairman of the Board, Children's Hospital of Pittsburgh; formerly,
Senior Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.;
Director, Member of Executive Committee, University of Pittsburgh;
Director or Trustee of the Funds.

John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL

Birthdate: June 23, 1937

Trustee

President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.

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.;
formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank
Corp.; Director, Ryan Homes, Inc.; Director or Trustee of the Funds.

James E. Dowd
571 Hayward Mill Road
Concord, MA

Birthdate: May 18, 1922

Trustee

Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.

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

Birthdate: October 11, 1932

Trustee

Professor of Medicine, University of Pittsburgh; Medical Director,
University of Pittsburgh Medical Center - Downtown; Member, Board of
Directors, University of Pittsburgh Medical Center; formerly,
Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
Hospitals; Director or Trustee of the Funds.

Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA

Birthdate: June 18, 1924

Trustee

Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee of the Funds.

Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL

Birthdate: March 16, 1942

Trustee

Consultant; Former State Representative, Commonwealth of
Massachusetts; formerly, President, State Street Bank and Trust
Company and State Street Boston Corporation; Director or Trustee of
the Funds.

Gregor F. Meyer
Boca Grande Club
Boca Grande, FL

Birthdate: October 6, 1926

Trustee

Attorney, Retired Member of Miller, Ament, Henny & Kochuba; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee
of the Funds.

John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA

Birthdate: December 20, 1932

Trustee

President, Law Professor, Duquesne University; Consulting Partner,
Mollica, Murray and Hogue; Director or Trustee of the Funds.

Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA

Birthdate: September 14, 1925

Trustee

Professor, International Politics; Management Consultant; Trustee,
Carnegie Endowment for International Peace, RAND Corporation, Online
Computer Library Center, Inc., National Defense University, U.S. Space
Foundation and Czech Management Center; President Emeritus, University
of Pittsburgh; Founding Chairman, National Advisory Council for
Environmental Policy and Technology, Federal Emergency Management
Advisory Board and Czech Management Center; Director or Trustee of the
Funds.

Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA

Birthdate: June 21, 1935

Trustee

Public Relations/Marketing/Conference Planning, Manchester Craftsmen's
Guild; Restaurant Consultant, Frick Art & History Center; Conference
Coordinator, University of Pittsburgh Art History Department; Director or
Trustee 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.

J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA

Birthdate: April 11, 1949

Executive Vice President

President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Trustee of the Trust.

Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA

Birthdate: October 22, 1930

Executive Vice President

Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice
President, Federated Advisers, Federated Management, Federated
Research, Federated Research Corp., Federated Global Research Corp.
and Passport Research, Ltd.; Executive Vice President and Director,
Federated Securities Corp.; Trustee, Federated Shareholder Services
Company; Trustee or Director of some of the Funds; President,
Executive Vice President and Treasurer of some of the Funds.

John W. McGonigle
Federated Investors Tower
Pittsburgh, PA

Birthdate: October 26, 1938

Executive Vice President, Secretary and Treasurer

Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated
Research; Director, Federated Research Corp. and Federated Global
Research Corp.; Trustee, Federated Shareholder Services Company;
Director, Federated Services Company; President and Trustee, Federated
Shareholder Services; Director, Federated Securities Corp.; Executive
Vice President and Secretary of the Funds; Treasurer of some of the
Funds.

Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA

Birthdate: May 17, 1923

Vice President

Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of
the Funds; Director or Trustee of some of the Funds.

* This Trustee is deemed to be an "interested person" as defined in
the Investment Company Act of 1940.

@ Member of the Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board between
meetings of the Board.

THE FUNDS

As referred to in the list of Trustees and Officers, "Funds" includes
the following investment companies:

111 Corcoran Funds; Arrow Funds; Automated Government Money Trust;
BayFunds; Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash
Trust Series II; Cash Trust Series, Inc.; DG Investor Series; Edward
D. Jones & Co. Daily Passport Cash Trust; Federated Adjustable Rate
U.S. Government Fund, Inc.; Federated American Leaders Fund, Inc.;
Federated ARMs Fund; Federated Equity Funds; Federated Equity Income
Fund, Inc.; Federated Fund for U.S. Government Securities, Inc.;
Federated GNMA Trust; Federated Government Income Securities, Inc.;
Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust;
Federated Income Trust; Federated Index Trust; Federated Institutional
Trust; Federated Insurance Series; Federated Investment Portfolios;
Federated Investment Trust; Federated Master Trust; Federated
Municipal Opportunities Fund, Inc.; Federated Municipal Securities
Fund, Inc.; Federated Municipal Trust; Federated Short-Term Municipal
Trust; Federated Short-Term U.S. Government Trust; Federated Stock and
Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust;
Federated Total Return Series, Inc.; Federated U.S. Government Bond
Fund; Federated U.S. Government Securities Fund: 1-3 Years; Federated
U.S. Government Securities Fund: 2-5 Years; Federated U.S. Government
Securities Fund: 5-10 Years; Federated Utility Fund, Inc.; First
Priority Funds; Fixed Income Securities, Inc.; High Yield Cash Trust;
Independence One Mutual Funds; Intermediate Municipal Trust;
International Series, Inc.; Investment Series Funds, Inc.; Investment
Series Trust; Liberty U.S. Government Money Market Trust; Liquid Cash
Trust; Managed Series Trust; Marshall Funds, Inc.; Money Market
Management, Inc.; Money Market Obligations Trust; Money Market
Obligations Trust II; Money Market Trust; Municipal Securities Income
Trust; Newpoint Funds; Peachtree Funds; RIMCO Monument Funds;
SouthTrust Vulcan Funds; Star Funds; Targeted Duration Trust; Tax-Free
Instruments Trust; The Biltmore Funds; The Biltmore Municipal Funds;
The Monitor Funds; The Planters Funds; The Starburst Funds; The
Starburst Funds II; The Virtus Funds; Tower Mutual Funds; Trust for
Financial Institutions; Trust for Government Cash Reserves; Trust for
Short-Term U.S. Government Securities; Trust for U.S. Treasury
Obligations; Vision Group of Funds, Inc.; Wesmark Funds; and World
Investment Series, Inc.

Federated Securities Corp. also acts as principal underwriter for the
following closed-end investment company: Liberty Term Trust, Inc. -- 1999.

SHARE OWNERSHIP

Officers and Trustees as a group own less than 1% of the Trust's
outstanding Investment Shares.

As of May 8, 1997, the following shareholders of record owned 5% or
more of the outstanding Investment Shares of the Trust: Stephens,
Inc., Little Rock, Arkansas, owned approximately 37,496,500 shares
(19.81%); and BHC Securities, Inc., Philadelphia, Pennsylvania, owned
approximately 14,662,711 shares (7.74%).

As of May 7, 1997, the following shareholders of record owned 5% or
more of the outstanding Institutional Service Shares of the Trust:
Fiduciary Trust Co. International, New York, New York, owned
approximately 97,425,800 shares (38.55%); Memphis Commerce Square, c/o
National Bank of Commerce, Memphis, Tennessee, owned approximately
18,089,776 shares (7.16%); State Street Bank and Trust, North Quincy,
Massachusetts, owned approximately 16,279,834 shares (6.44%); and
Citibank NA, Long Island City, New York owned approximately 15,735,269
shares (6.23%).

TRUSTEE COMPENSATION

<TABLE>
<CAPTION>
AGGREGATE
NAME, COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX+

<S> <C> <S>
John F. Donahue $0 $0 for the Trust and
Chairman and Trustee 56 other investment companies in the Fund Complex
Thomas G. Bigley $ 2,643.32 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
John T. Conroy, Jr. $ 2,908.09 $119,615 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
William J. Copeland $ 2,908.09 $119,615 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
James E. Dowd $ 2,908.09 $119,615 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Lawrence D. Ellis, M.D. $ 2,643.32 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Edward L. Flaherty, Jr. $ 2,908.09 $119,615 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Peter E. Madden $ 2,643.32 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Gregor F. Meyer $ 2,643.32 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
John E. Murray, Jr. $ 2,643.32 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Wesley W. Posvar $ 2,643.32 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Marjorie P. Smuts $ 2,643.32 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex

</TABLE>

* Information is furnished for the fiscal year ended March 31, 1997.

# The aggregate compensation is provided for the Trust which is comprised of
one 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, 1997, 1996, and 1995, the adviser earned
$8,802,596, $8,657,750, and $8,274,688, respectively, of which
$1,432,278, $2,483,925, and $2,852,758, respectively, were waived.

BROKERAGE TRANSACTIONS

When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the adviser looks for prompt execution of the
order at a favorable price. In working with dealers, the adviser will
generally use those who are recognized dealers in specific portfolio
instruments, except when a better price and execution of the order can
be obtained elsewhere. The adviser makes decisions on portfolio
transactions and selects brokers and dealers subject to guidelines
established by the Trustees. The adviser may select brokers and
dealers who offer brokerage and research services. These services may
be furnished directly to the Trust or to the adviser and may include:
advice as to the advisability of investing in securities; security
analysis and reports; economic studies; industry studies; receipt of
quotations for portfolio evaluations; and similar services. Research
services provided by brokers and dealers may be used by the adviser or
its affiliates in advising the 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 years ended March 31, 1997, 1996,
and 1995, 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.

ACCOUNTS WITH LOW BALANCES (INVESTMENT SHARES)

The average monthly account balance policy, whereby shareholders
maintain a $5,000 average monthly account balance in order to avoid
the $3.00 monthly fee, is not applicable to Liberty Life Members;
shareholders who have purchased shares through Aetna Insurance Company
of America and its affiliates or the Lutheran Brotherhood; associates
of E.D. Jones & Co., L.P., and employees of Federated Investors.

OTHER SERVICES

TRUST ADMINISTRATION

Federated Services Company, a subsidiary of Federated Investors,
provides administrative personnel and services to the Trust for a fee
as described in the prospectus. From March 1, 1994 to March 1, 1996,
Federated Administrative Services, a subsidiary of Federated
Investors, served as the Trust's Administrator. For purposes of this
Statement of Additional Information, Federated Services Company and
Federated Administrative Services may hereinafter collectively be
referred to as the "Administrators." For the fiscal years ended March
31, 1997, 1996, and 1995, the Administrators earned $1,330,311,
$1,310,182, and $1,252,788, respectively.

CUSTODIAN AND PORTFOLIO ACCOUNTANT

State Street Bank and Trust Company, Boston, MA, is custodian for the
securities and cash of the Trust. Federated Services Company,
Pittsburgh, PA, provides certain accounting and recordkeeping services
with respect to the Trust's portfolio investments. The fee paid for
this service is based upon the level of the Trust's average daily net
assets for the period plus out-of-pocket expenses.

TRANSFER AGENT

Federated Services Company, through its registered transfer agent,
Federated Shareholder Services Company, maintains all necessary
shareholder records and receives a fee based on the size, type and
number of accounts and transactions made by shareholders.

INDEPENDENT PUBLIC ACCOUNTANTS

The independent public accountants for the Trust are Arthur Andersen
LLP, Pittsburgh, PA.

SHAREHOLDER SERVICES

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 balances; answering routine client
inquiries; and assisting clients in changing dividend options, account
designations, and addresses. By adopting the Shareholder Services
Agreement, the Trustees expect 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 year ended March 31, 1997, payment in the
amount of $2,178,734 was made pursuant to the Shareholder Services
Agreement, all of which was paid to financial institutions.

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.

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.

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, 1997, the yield for
Investment Shares was 2.90%, Institutional Service Shares was 3.05%.

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, 1997, the effective yield for
Investment Shares was 2.94%, Institutional Service Shares was 3.09%.

TAX-EQUIVALENT YIELD

The tax-equivalent yield of the Trust is calculated similarly to the
yield but is adjusted to reflect the taxable yield that the Trust
would have had to earn to equal its actual yield, assuming 28% tax
rate (the maximum effective federal rate for individuals) and assuming
that the income is 100% tax exempt.

For the seven-day period ended March 31, 1997, the tax-equivalent
yield for Investment Shares was 4.03%, Institutional Service Shares
was 4.24%.

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.

<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1997
MULTISTATE MUNICIPAL FUNDS
FEDERAL INCOME TAX BRACKET:
15.00% 28.00% 31.00% 36.00% 39.60%
<S> <C> <C> <C> <C>
<C>
JOINT $1- $41,201- $99,601- $151,751- OVER
RETURN 41,200 99,600 151,750 271,050 $271,050
SINGLE $1- $24,651- $59,751- $124,651- OVER
RETURN 24,650 59,750 124,650 271,050 $271,050
</TABLE>

<TABLE>
<CAPTION>
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
<S> <C> <C> <C> <C>
<C>
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%
</TABLE>

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 the Trust shares.

* Some portion of the Trust's income may be subject to the federal
alternative minimum tax and state and local taxes.

TOTAL RETURN

Average annual total return is the average compounded rate of return
for a given period that would equate a $1,000 initial investment to
the ending redeemable value of that investment. The ending redeemable
value is computed by multiplying the number of shares owned at the end
of the period by the net asset value per share at the end of the
period. The number of shares owned at the end of the period is based
on the number of shares purchased at the beginning of the period with
$1,000, adjusted over the period by any additional shares, assuming
the monthly reinvestment of all dividends and distributions.

For the one-, five-, and ten-year periods ended March 31, 1997 the
average annual total returns for Investment Shares were 2.92%, 2.67%
and 3.80%, respectively. For the one-year period ended March 31, 1997,
and for the period from October 15, 1993 through March 31, 1997, the
average annual total returns for Institutional Service Shares were
3.08% and 2.98%, respectively.

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:

* 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.

* IBC/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.

* MONEY, a monthly magazine, regularly ranks money market funds in
various categories based on the latest available seven-day
effective yield.

Advertising and other promotional literature may include charts,
graphs and other illustrations using the Trust's returns, or returns
in general, that demonstrate basic investment concepts such as
tax-deferred compounding, dollar-cost averaging and systematic
investment. In addition, the Trust can compare its performance, or
performance for the types of securities in which it invests, to a
variety of other investments, such as bank savings accounts,
certificates of deposit, and Treasury bills.

ECONOMIC AND MARKET INFORMATION

Advertising and sales literature for the Trust may include discussions
of economic, financial and political developments and their effect on
the securities market. Such discussions may take the form of
commentary on these developments by Trust portfolio managers and their
views and analysis on how such developments could affect the funds. In
addition, advertising and sales literature may quote statistics and
give general information about the mutual fund industry, including the
growth of the industry, from sources such as the Investment Company
Institute.

ABOUT FEDERATED INVESTORS

Federated Investors is dedicated to meeting investor needs which is
reflected in its investment decision making --structured,
straightforward, and consistent. This has resulted in a history of
competitive performance with a range of competitive investment
products that have gained the confidence of thousands of clients and
their customers.

The company's disciplined security selection process is firmly rooted
in sound methodologies backed by fundamental and technical research.
Investment decisions are made and executed by teams of portfolio
managers, analysts, and traders dedicated to specific market sectors.
These traders handle trillions of dollars in annual trading volume.

In the money market sector, Federated Investors 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, 1996,
Federated Investors managed more than $50.3 billion in assets across
50 money market funds, including 18 government, 11 prime and 21
municipal with assets approximating $28.0 billion, $12.8 billion and
$9.5 billion, respectively.

J. Thomas Madden, Executive Vice President, oversees Federated
Investors' equity and high yield corporate bond management while
William D. Dawson, Executive Vice President, oversees Federated
Investors' domestic fixed income management. Henry A. Frantzen,
Executive Vice President, oversees the management of Federated
Investors' international and global portfolios.

MUTUAL FUND MARKET

Thirty-seven percent of American households are pursuing their
financial goals through mutual funds. These investors, as well as
businesses and institutions, have entrusted over $3.5 trillion to the
more than 6,000 funds available.*

Federated Investors, through its subsidiaries, distributes mutual
funds for a variety of investment applications. Specific markets
include:

INSTITUTIONAL CLIENTS

Federated Investors meets the needs of 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.

BANK MARKETING

Other institutional clients include close relationships with more than
1,600 banks and trust organizations. Virtually all of the trust
divisions of the top 100 bank holding companies use Federated funds in
their clients' portfolios. The marketing effort to trust clients is
headed by Mark R. Gensheimer, Executive Vice President, Bank Marketing
& Sales.

BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES

Federated funds are available to consumers through major brokerage
firms nationwide -- we have over 2,200 broker/dealer and bank
broker/dealer relationships across the country -- supported by more
wholesalers than any other mutual fund distributor. Federated's
service to financial professionals and institutions has earned it high
ratings in several surveys performed by DALBAR, Inc. DALBAR is
recognized as the industry benchmark for service quality measurement.
The marketing effort to these firms is headed by James F. Getz,
President, Federated Securities Corp.

FINANCIAL STATEMENTS

The Financial Statements for the fiscal year ended March 31, 1997, are
incorporated herein by reference to the Annual Report to Shareholders
of the Trust dated March 31, 1997 (File Nos. 2-75122 and 811-3337). A
copy of the report may be obtained without charge by contacting the
Trust.

* Source: Investment Company Institute

APPENDIX

STANDARD & POOR'S RATINGS GROUP SHORT-TERM MUNICIPAL OBLIGATION RATINGS

A Standard & Poor's Ratings Group (S&P) note rating reflects the
liquidity concerns and market access risks unique to notes.

SP-1 -- Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety characteristics
will be given a plus sign (+) designation.

SP-2 -- Satisfactory capacity to pay principal and interest.

VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS

S&P assigns dual ratings to all long-term debt issues that have as
part of their provisions a variable rate demand feature. The first
rating (long-term rating) addresses the likelihood of repayment of
principal and interest when due, and the second rating (short-term
rating) describes the demand characteristics. Several examples are
AAA/A-L+, AA/A-I+, A/A-1. (The definitions for the long-term and the
short-term ratings are provided below.)

COMMERCIAL PAPER (CP) RATINGS

An S&P commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no
more than 365 days.

A-1 -- This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign
(+) designation.

A-2 -- Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated A-1.

LONG-TERM DEBT RATINGS

AAA -- Debt rated "AAA" has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.

AA -- Debt rate "AA" has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in
small degree.

A -- Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.

MOODY'S INVESTORS SERVICE, INC., SHORT-TERM MUNICIPAL OBLIGATION RATINGS

Moody's Investor Service, Inc. (Moody's) short-term ratings are
designated Moody's Investment Grade (MIG or VMIG) (see below). The
purpose of the MIG or VMIG ratings is to provide investors with a
simple system by which the relative investment qualities of short-term
obligations may be evaluated.

MIG1 -- This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or
demonstrated broad based access to the market for refinancing.

MIG2 -- This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.

VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS) RATINGS

Short-term ratings on issues with demand features are differentiated
by the use of the VMIG symbol to reflect such characteristics as
payment upon periodic demand rather than fixed maturity dates and
payment relying on external liquidity. In this case, two ratings are
usually assigned, (for example, AAA/VMIG-1); the first representing an
evaluation of the degree of risk associated with scheduled principal
and interest payments, and the second representing an evaluation of
the degree of risk associated with the demand feature. The VMIG rating
can be assigned a 1 or 2 designation using the same definitions
described above for the MIG rating.

COMMERCIAL PAPER (CP) RATINGS

P-1 -- Issuers rated PRIME-1 (or related supporting institutions) have
a superior capacity for repayment of short-term promissory
obligations. PRIME-1 repayment capacity will normally be evidenced by
the following characteristics: leading market positions in well
established industries, high rates of return on funds employed,
conservative capitalization structure with moderate reliance on debt
and ample asset protection, broad margins in earning coverage of fixed
financial charges and high internal cash generation, well-established
access to a range of financial markets and assured sources of
alternate liquidity.

P-2 -- Issuers rated PRIME-2 (or related supporting institutions) have
a strong capacity for repayment of short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited
above, but to a lesser degree. Earnings trends and coverage ratios,
while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.

LONG-TERM DEBT RATINGS

AAA -- Bonds which are rated AAA are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edged." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.

AA -- Bonds which are rated AA are judged to be of high quality by all
standards. Together with the AAA group, they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in AAA
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in AAA securities.

A -- Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment sometime in the future.

NR -- Indicates that both the bonds and the obligor or credit enhancer
are not currently rated by S&P or Moody's with respect to short-term
indebtedness. However, management considers them to be of comparable
quality to securities rated A-1 or P-1.

NR(1) -- The underlying issuer/obligor/guarantor has other outstanding
debt rated "AAA" by S&P or "AAA" by Moody's.

NR(2) -- The underlying issuer/obligor/guarantor has other outstanding
debt rated "AA" by S&P or "AA" by Moody's.

NR(3) -- The underlying issuer/obligor/guarantor has other outstanding
debt rated "A" by S&P or Moody's.

FITCH INVESTORS SERVICE, INC. SHORT-TERM DEBT RATING DEFINITIONS

F-1+ -- Exceptionally Strong Credit Quality. Issues assigned this
rating are regarded as having the strongest degree of assurance for
timely payment.

F-1 -- Very Strong Credit Quality. Issues assigned this rating reflect
an assurance for timely payment, only slightly less in degree than
issues rated F-1+.

F-2 -- Good Credit Quality. Issues carrying this rating have a
satisfactory degree of assurance for timely payment, but the margin of
safety is not as great as for issues assigned F-1+ and F-1 ratings.