FEDERATED GOVERNMENT TRUST/PA, N-30D, 1996-07-01

FEDERATED GOVERNMENT TRUST/PA
N-30D, 1996-07-01

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AUTOMATED GOVERNMENT CASH RESERVES
(A PORTFOLIO OF FEDERATED GOVERNMENT TRUST)
PROSPECTUS

The shares of Automated Government Cash Reserves (the "Fund") offered by this
prospectus represent interests in a diversified portfolio of Federated
Government Trust (the "Trust"), an open-end management investment company (a
mutual fund). The Fund invests in short-term U.S. government securities to
achieve current income consistent with stability of principal and liquidity.

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 FUND
ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE
NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO.

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

The Fund has also filed a Statement of Additional Information dated June 30,
1996, 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 1-800-235-4669. To
obtain other information, or make inquiries about the Fund, contact the Fund 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 Fund 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 OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

Prospectus dated June 30, 1996

TABLE OF CONTENTS
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SUMMARY OF FUND EXPENSES 1
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FINANCIAL HIGHLIGHTS 2
- ------------------------------------------------------

GENERAL INFORMATION 3
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INVESTMENT INFORMATION 3
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Investment Objective 3
Investment Policies 3
Investment Limitations 4

TRUST INFORMATION 5
- ------------------------------------------------------

Management of the Trust 5
Distribution of Shares 6
Administration of the Fund 6

NET ASSET VALUE 7
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HOW TO PURCHASE SHARES 7
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HOW TO REDEEM SHARES 8
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ACCOUNT AND SHARE INFORMATION 9
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TAX INFORMATION 10
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Federal Income Tax 10
State and Local Taxes 10

PERFORMANCE INFORMATION 10
- ------------------------------------------------------

FINANCIAL STATEMENTS 11
- ------------------------------------------------------

REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS 17
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ADDRESSES 18
- ------------------------------------------------------

SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
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
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1)............................................. 0.20%
12b-1 Fee.................................................................... None
Total Other Expenses......................................................... 0.38%
Shareholder Services Fee................................................ 0.25%
Total Operating Expenses(2)........................................ 0.58%
</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 total operating expenses would have been 0.88% absent the voluntary
waiver of a portion of the management fee.

The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of 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.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2)
redemption at the end of each time period .............. $6 $19 $32 $ 73
</TABLE>

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

AUTOMATED GOVERNMENT CASH RESERVES

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

Reference is made to the Report of Ernst & Young LLP, Independent Auditors, on
page 17.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990(A)
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $1.00
- --------------------------------
INCOME FROM INVESTMENT
OPERATIONS
- --------------------------------
Net investment income 0.05 0.05 0.03 0.03 0.05 0.07 0.02
- -------------------------------- ------ ------ ------ ------ ------ ------ -----
LESS DISTRIBUTIONS
- --------------------------------
Distributions from net
investment income (0.05) (0.05) (0.03) (0.03) (0.05) (0.07) (0.02 )
- -------------------------------- ------ ------ ------ ------ ------ ------ -----
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $1.00
- -------------------------------- ------ ------ ------ ------ ------ ------ -----
TOTAL RETURN(B) 5.24% 4.68% 2.77% 2.92% 4.79% 7.20% 1.93 %
- --------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------
Expenses 0.58% 0.58% 0.57% 0.57% 0.58% 0.55% 0.32 %*
- --------------------------------
Net investment income 5.12% 4.70% 2.75% 2.87% 4.58% 6.70% 8.02 %*
- --------------------------------
Expense waiver/
reimbursement(c) 0.30% 0.32% 0.09% 0.08% 0.14% 0.30% 0.89 %*
- --------------------------------
SUPPLEMENTAL DATA
- --------------------------------
Net assets, end of period (000
omitted) $603,136 $603,849 $457,944 $396,370 $308,625 $206,694 $34,053
- --------------------------------
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from February 15, 1990 (date of initial
public investment) to April 30, 1990.

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

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

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

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

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

INVESTMENT OBJECTIVE

The investment objective of the Fund is current income consistent with stability
of principal and liquidity. This investment objective cannot be changed without
shareholder approval. While there is no assurance that the Fund 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.

INVESTMENT POLICIES

The Fund pursues its investment objective by investing only in a portfolio of
short-term U.S. government securities maturing in 13 months or less. The average
maturity of the securities in the Fund's portfolio, computed on a
dollar-weighted basis, will be 90 days or less. Unless indicated otherwise, the
investment policies may be changed by the Board of Trustees without shareholder
approval. Shareholders will be notified before any material change in these
policies becomes effective.

The Fund will limit its investments to investments which, if owned directly, pay
interest exempt from state personal income tax. Therefore, dividends paid by the
Fund may be exempt from state personal income tax.

ACCEPTABLE INVESTMENTS. The Fund invests only in U.S. government securities.
These instruments are either issued or guaranteed by the U.S. government, its
agencies, or instrumentalities. These securities include, but are not limited
to:

- direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds; and
- notes, bonds, and discount notes of U.S. government agencies or
instrumentalities, such as the: Farm Credit System, including the
National Bank for Cooperatives, Farm Credit Banks, and Banks for
Cooperatives; Farmers Home Administration; Federal Home Loan Banks;
Federal Home Loan Mortgage Corporation; Federal National Mortgage
Association; Government National Mortgage Association; and Student Loan
Marketing Association.

Some obligations issued or guaranteed by agencies or instrumentalities of the
U.S. government, such as Government National Mortgage Association participation
certificates, are backed by the full faith and credit of the U.S. Treasury. No
assurances can be given that the U.S. government will provide financial support
to other agencies or instrumentalities, since it is not obligated to do so.
These instrumentalities are supported by:

- the issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;

- discretionary authority of the U.S. government to purchase certain
obligations of an agency or instrumentality; or

- the credit of the agency or instrumentality.

AGENCY MASTER DEMAND NOTES. The Fund may enter into master demand notes with
various federal agencies and instrumentalities. Under a master demand note, the
Fund has the right to increase or decrease the amount of the note on a daily
basis within specified maximum and minimum amounts. Master demand notes also
normally provide for full or partial repayment upon seven or more days notice by
either the Fund or the borrower and bear interest at a variable rate. The Fund
relies on master demand notes, in part, to provide daily liquidity. To the
extent that the Fund cannot obtain liquidity through master demand notes, it may
be required to maintain a larger cash position, invest more assets in securities
with current maturities or dispose of assets at a gain or loss to maintain
sufficient liquidity.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities
on a when-issued or delayed delivery basis. These transactions are arrangements
in which the Fund purchases securities with payment and delivery scheduled for a
future time. The seller's failure to complete these transactions may cause the
Fund to miss a price or yield considered to be advantageous. Settlement dates
may be a month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices.
Accordingly, the Fund may pay more or less than the market value of the
securities on the settlement date.

The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund 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 Fund may realize short-term profits or losses upon the sale of such
commitments.

INVESTMENT LIMITATIONS

The Fund will not borrow money or pledge securities except, under certain
circumstances, the Fund may borrow up to one-third of the value of its total
assets and pledge up to 10% of the value of its total assets to secure such
borrowings.

The above investment limitations cannot be changed without shareholder approval.
The following limitation, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in this limitation becomes effective.

The Fund will not invest more than 10% of its net assets in illiquid securities.

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 Fund are made by Federated
Management, the Fund's investment adviser, subject to direction by the Trustees.
The adviser continually conducts investment research and supervision for the
Fund and is responsible for the purchase and sale of portfolio instruments.

ADVISORY FEES. The adviser receives an annual investment advisory fee equal
to .50% of the Fund's average daily net assets. The adviser has undertaken
to reimburse the Fund up to the amount of the advisory fee for operating
expenses in excess of limitations established by certain states. Also, the
adviser may voluntarily choose to waive a portion of its fee or reimburse
other expenses of the Fund, 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 $80 billion invested across
more than 250 funds under management and/or administration by its
subsidiaries, as of December 31, 1995, Federated Investors is one of the
largest mutual fund investment managers in the United States. With more
than 1,800 employees, Federated continues to be led by the management who
founded the company in 1955. Federated funds are presently at work in and
through 4,000 financial institutions nationwide. More than 100,000
investment professionals have selected Federated funds for their clients.

Both the Trust and the adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Fund and its portfolio securities. These
codes recognize that such persons owe a fiduciary duty to the Fund'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 Fund; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Trustees, and could
result in severe penalties.

DISTRIBUTION OF SHARES

Federated Securities Corp. is the principal distributor for shares of the Fund.
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.

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

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 .25% of the average
daily net asset value of its shares, computed at an annual rate, to obtain
certain personal services for shareholders and to maintain shareholder accounts.
From time to time and for such periods as deemed appropriate, the amount stated
above may be reduced voluntarily. Under the Shareholder Services Agreement,
Federated Shareholder Services will either perform shareholder services directly
or will select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Trust and Federated Shareholder
Services.

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

ADMINISTRATION OF THE FUND
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 Fund 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:
<TABLE>
<CAPTION>
MAXIMUM FEE AVERAGE AGGREGATE DAILY NET ASSETS
- --------------------------- -----------------------------------
<S> <C>
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
</TABLE>

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

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

The Fund attempts to stabilize the net asset value of its shares at $1.00 by
valuing the portfolio securities using the amortized cost method. The net asset
value per share is determined by subtracting total liabilities from total assets
and dividing the remainder by the number of shares outstanding. The Fund 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, 1:00 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 either by wire or by
check. The Fund reserves the right to reject any purchase request.

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
Fund. 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 Fund before 1:00 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:
Automated Government Cash Reserves; Fund Number (this number can be found
on the account statement or by contacting the Fund); 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 Automated Government Cash
Reserves. 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.

AUTOMATIC INVESTMENTS. Investors may establish accounts with their
financial institutions to have cash accumulations automatically invested in
the Fund. The investments may be made on predetermined dates or when the
investor's account reaches a certain level. Participating financial
institutions are responsible for prompt transmission of orders relating to
the program, and they
may charge for their services. Investors should read this prospectus along
with the financial institution's agreement or literature describing these
services.

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 Fund computes its net asset value. Redemption
requests must be received in proper form and can be made as described below.

REDEEMING SHARES BY TELEPHONE. Redemptions may be made by calling the Fund
provided the Fund 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. 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 Fund, 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 Fund 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 Fund name; the account name as registered
with the Fund; 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 Fund 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 Fund does not accept
signatures guaranteed by a notary public.

ACCOUNT AND SHARE INFORMATION
- --------------------------------------------------------------------------------

DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are
automatically reinvested on payment dates in additional shares of the Fund
unless cash payments are requested by writing to the Fund. Shares purchased by
wire before 1:00 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 Fund 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 Fund 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 Fund, Federated
Shareholder Services Company maintains a share account for each shareholder.
Share certificates are not issued unless requested by contacting the Fund 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, the Fund may redeem shares in any account, except accounts
maintained by retirement plans, and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $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 Fund owned by a shareholder gives that
shareholder one vote in Trustee elections and other matters submitted to
shareholders for vote. All shares of each portfolio in the Trust have equal
voting rights, except that in matters affecting only a particular portfolio,
only shareholders of that portfolio 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 or the Fund'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 31, 1996, State Street Bank and Trust, North Quincy, MA owned 26.99%
of the voting securities of the Fund, and, therefore, may, for certain purposes,
be deemed to control the Fund and be able to affect the outcome of certain
matters presented for a vote of shareholders.

TAX INFORMATION
- --------------------------------------------------------------------------------

FEDERAL INCOME TAX

The Fund 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. The Fund will be
treated as a single, separate entity for federal income tax purposes so that
income (including capital gains) and losses realized by the Trust's other
portfolios will not be combined for tax purposes with those realized by the
Fund.

Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions received. This applies whether dividends
and distributions are received in cash or as additional shares.

STATE AND LOCAL TAXES

In the opinion of Houston, Houston, & Donnelly, counsel to the Trust, Fund
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 Fund would be subject to such taxes if owned
directly by residents of those jurisdictions.
The Fund will limit its investments to those which, if owned directly, pay
interest exempt from state personal income tax. However, under the laws of some
states, the net investment income distributed by the Fund may be taxable to
shareholders. Shareholders are urged to consult their own tax advisers regarding
the status of their accounts under state and local tax laws.

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

From time to time, the Fund advertises its total return, yield, and effective
yield.

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.

Total return represents the change, over a specified period of time, in the
value of an investment in the Fund 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 Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.

AUTOMATED GOVERNMENT CASH RESERVES

PORTFOLIO OF INVESTMENTS
APRIL 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
- ------------
SHORT-TERM GOVERNMENT AND AGENCY OBLIGATIONS--103.3% VALUE
------------
<C> <C> <S> <C>
- ----------------------------------------------------------------------------------
$ 3,000,000 Federal Farm Credit Bank Note, 5.40%, 12/2/1996 $ 2,997,077
-------------------------------------------------------------- ------------
21,890,000 (a) Federal Farm Credit Bank, Discount Notes, 5.22%-5.37%,
5/6/1996-9/13/1996 21,746,083
-------------------------------------------------------------- ------------
10,000,000 (b) Federal Farm Credit Bank, Floating Rate Note, 5.23%, 5/1/1996 9,998,940
-------------------------------------------------------------- ------------
23,800,000 Federal Home Loan Bank Notes, 6.01%-6.05%,
5/15/1996-6/13/1996 23,802,438
-------------------------------------------------------------- ------------
214,925,000 (a) Federal Home Loan Bank, Discount Notes, 5.06%-5.38%,
5/1/1996-7/30/1996 214,040,616
-------------------------------------------------------------- ------------
26,400,000 (b) Federal Home Loan Bank, Floating Rate Notes, 5.195%-5.27%,
5/1/1996 26,395,839
-------------------------------------------------------------- ------------
55,300,000 Student Loan Marketing Association Master Notes, 5.33%,
5/7/1996 55,300,000
-------------------------------------------------------------- ------------
62,605,000 (a) Student Loan Marketing Association, Discount Notes,
5.32%-5.36%, 6/13/1996-6/28/1996 62,148,245
-------------------------------------------------------------- ------------
105,550,000 (b) Student Loan Marketing Association, Floating Rate Notes,
5.28%-5.555%, 5/7/1996 105,568,196
-------------------------------------------------------------- ------------
31,000,000 (a) Tennessee Valley Authority, 5.25%-5.34%, 6/7/1996-6/13/1996 30,822,968
-------------------------------------------------------------- ------------
16,000,000 (a) U.S. Treasury Bills, 5.09%, 9/19/1996-11/14/1996 15,614,774
-------------------------------------------------------------- ------------
54,000,000 U.S. Treasury Notes, 6.50%-8.00%, 9/30/1996-12/31/1996 54,443,342
-------------------------------------------------------------- ------------
TOTAL INVESTMENTS (AT AMORTIZED COST)(C) $622,878,518
-------------------------------------------------------------- ------------
</TABLE>

(a) The issue shows the rate of discount at time of purchase.

(b) Floating rate note with current rate and next reset date shown.

Note: The categories of investments are shown as a percentage of net assets
($603,135,860) at April 30, 1996.

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

AUTOMATED GOVERNMENT CASH RESERVES
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Total investments in securities, at amortized cost and value $622,878,518
- --------------------------------------------------------------------------------
Cash 199,363
- --------------------------------------------------------------------------------
Income receivable 2,485,461
- --------------------------------------------------------------------------------
Receivable for investments sold 5,169,531
- --------------------------------------------------------------------------------
Receivable for shares sold 255,678
- -------------------------------------------------------------------------------- ------------
Total assets 630,988,551
- --------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------
Payable for investments purchased $25,823,893
- ------------------------------------------------------------------
Payable for shares redeemed 5,001
- ------------------------------------------------------------------
Income distribution payable 1,861,817
- ------------------------------------------------------------------
Accrued expenses 161,980
- ------------------------------------------------------------------ -----------
Total liabilities 27,852,691
- -------------------------------------------------------------------------------- ------------
NET ASSETS for 603,135,860 shares outstanding $603,135,860
- -------------------------------------------------------------------------------- ------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- --------------------------------------------------------------------------------
$603,135,860 / 603,135,860 shares outstanding $1.00
- -------------------------------------------------------------------------------- ------------
</TABLE>

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

AUTOMATED GOVERNMENT CASH RESERVES

STATEMENT OF OPERATIONS
YEAR ENDED APRIL 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------
Interest $31,513,653
- ---------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------------------
Investment advisory fee $2,764,784
- --------------------------------------------------------------------
Administrative personnel and services fee 418,364
- --------------------------------------------------------------------
Custodian fees 84,743
- --------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 37,507
- --------------------------------------------------------------------
Directors'/Trustees' fees 8,509
- --------------------------------------------------------------------
Auditing fees 13,061
- --------------------------------------------------------------------
Legal fees 13,785
- --------------------------------------------------------------------
Portfolio accounting fees 98,356
- --------------------------------------------------------------------
Shareholder services fee 1,382,392
- --------------------------------------------------------------------
Share registration costs 10,820
- --------------------------------------------------------------------
Printing and postage 7,384
- --------------------------------------------------------------------
Insurance premiums 9,894
- --------------------------------------------------------------------
Miscellaneous 13,785
- -------------------------------------------------------------------- ----------
Total expenses 4,863,384
- --------------------------------------------------------------------
Deduct--Waiver of investment advisory fee (1,634,559)
- -------------------------------------------------------------------- ----------
Net expenses 3,228,825
- --------------------------------------------------------------------------------- -----------
Net investment income $28,284,828
- --------------------------------------------------------------------------------- -----------
</TABLE>

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

AUTOMATED GOVERNMENT CASH RESERVES

STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
----------------------------------
1996 1995
--------------- ---------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ------------------------------------------------------------
OPERATIONS--
- ------------------------------------------------------------
Net investment income $ 28,284,828 $ 23,502,455
- ------------------------------------------------------------ --------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ------------------------------------------------------------
Distributions from net investment income (28,284,828) (23,502,455)
- ------------------------------------------------------------ --------------- ---------------
SHARE TRANSACTIONS--
- ------------------------------------------------------------
Proceeds from sale of shares 2,822,902,273 1,984,550,122
- ------------------------------------------------------------
Net asset value of shares issued to shareholders
in payment of distributions declared 5,461,926 4,439,144
- ------------------------------------------------------------
Cost of shares redeemed (2,829,077,401) (1,843,084,556)
- ------------------------------------------------------------ --------------- ---------------
Change in net assets resulting from share transactions (713,202) 145,904,710
- ------------------------------------------------------------ --------------- ---------------
Change in net assets (713,202) 145,904,710
- ------------------------------------------------------------
NET ASSETS:
- ------------------------------------------------------------
Beginning of period 603,849,062 457,944,352
- ------------------------------------------------------------ --------------- ---------------
End of period $ 603,135,860 $ 603,849,062
- ------------------------------------------------------------ --------------- ---------------
</TABLE>

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

AUTOMATED GOVERNMENT CASH RESERVES

NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1996
- --------------------------------------------------------------------------------
(1) ORGANIZATION

Federated Government Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of three portfolios. The financial
statements included herein are only those of Automated Government Cash Reserves
(the "Fund"), a diversified portfolio. The financial statements of the other
portfolios are presented separately. The assets of each portfolio are segregated
and a shareholder's interest is limited to the portfolio in which shares are
held. The investment objective of the Fund is current income consistent with
stability of principal and liquidity.

(2) SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.

INVESTMENT VALUATIONS--The Trust's use of the amortized cost method to value
its portfolio securities is in accordance with Rule 2a-7 under the Act.

INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized as
required by the Internal Revenue Code, as amended (the "Code"). Distributions
to shareholders are recorded on the ex-dividend date.

FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the securities
purchased. Securities purchased on a when-issued or delayed delivery basis are
marked to market daily and begin earning interest on the settlement date.

USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts of assets, liabilities, expenses, and
revenues reported in the financial statements. Actual results could differ
from those estimated.

OTHER--Investment transactions are accounted for on the trade date.

AUTOMATED GOVERNMENT CASH RESERVES
- --------------------------------------------------------------------------------

(3) SHARES OF BENEFICIAL INTEREST

The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value). At April
30, 1996, capital paid-in aggregated $603,135,860.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
---------------------------------
1996 1995
- ------------------------------------------------------------ -------------- --------------
<S> <C> <C>
Shares sold 2,822,902,273 1,984,550,122
- ------------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 5,461,926 4,439,144
- ------------------------------------------------------------
Shares redeemed (2,829,077,401) (1,843,084,556)
- ------------------------------------------------------------ -------------- --------------
Net change resulting from share transactions (713,202) 145,904,710
- ------------------------------------------------------------ -------------- --------------
</TABLE>

(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to 0.50% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive any portion of its fee. The Adviser can modify or
terminate this voluntary waiver at any time at its sole discretion.

ADMINISTRATIVE FEE--Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of average
aggregate daily net assets of all funds advised by subsidiaries of Federated
Investors for the period. The administrative fee received during the period of
the Administrative Services Agreement shall be at least $125,000 per portfolio
and $30,000 per each additional class of shares.

TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--FServ, through its
subsidiary, Federated Shareholder Services Company serves as transfer and
dividend disbursing agent for the Fund. The fee paid to FServ is based on the
size, type, and number of accounts and transactions made by shareholders.

PORTFOLIO ACCOUNTING FEES--FServ maintains the Trust's accounting records for
which it receives a fee. The fee is based on the level of the Trust's average
daily net assets for the period, plus out-of-pocket expenses.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------

To the Trustees and Shareholders of

AUTOMATED GOVERNMENT CASH RESERVES:

We have audited the accompanying statement of assets and liabilities of
Automated Government Cash Reserves (a portfolio of Federated Government Trust),
including the portfolio of investments, as of April 30, 1996, and the related
statement of operations for the year then ended, the statement of changes in net
assets for each of the two years in the period then ended and the financial
highlights for the periods presented therein. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of April
30, 1996, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Automated Government Cash Reserves at April 30, 1996, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for the
periods presented therein, in conformity with generally accepted accounting
principles.

ERNST & YOUNG LLP

Pittsburgh, Pennsylvania
June 14, 1996

ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Federated Government Trust
Automated Government Cash Reserves Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Custodian
State Street Bank and c/o Federated Shareholder Services
Trust Company Company
P.O. Box 8600
Boston, Massachusetts 02266-8600
- ------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services P.O. Box 8600
Company Boston, Massachusetts 02266-8600
- ------------------------------------------------------------------------------------------------
Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, Pennsylvania 15219
- ------------------------------------------------------------------------------------------------
</TABLE>

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

- --------------------------------------------------------------------------------
AUTOMATED GOVERNMENT
CASH RESERVES
PROSPECTUS

A Diversified Portfolio of Federated
Government Trust, an Open-End
Management Investment Company

Prospectus dated June 30, 1996

LOGO
CUSIP 314186107
0011606X (6/96)

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

AUTOMATED TREASURY CASH RESERVES
(A PORTFOLIO OF FEDERATED GOVERNMENT TRUST)
PROSPECTUS

The shares of Automated Treasury Cash Reserves (the "Fund") offered by this
prospectus represent interests in a diversified portfolio of Federated
Government Trust (the "Trust"), an open-end management investment company (a
mutual fund). The Fund invests in short-term U.S. Treasury securities to achieve
current income consistent with stability of principal and liquidity.

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

TABLE OF CONTENTS
- --------------------------------------------------------------------------------

SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------

FINANCIAL HIGHLIGHTS 2
- ------------------------------------------------------

GENERAL INFORMATION 3
- ------------------------------------------------------

INVESTMENT INFORMATION 3
- ------------------------------------------------------

Investment Objective 3
Investment Policies 3
Investment Limitations 4

TRUST INFORMATION 4
- ------------------------------------------------------

Management of the Trust 4
Distribution of Shares 5
Administration of the Fund 6

NET ASSET VALUE 6
- ------------------------------------------------------

HOW TO PURCHASE SHARES 6
- ------------------------------------------------------

HOW TO REDEEM SHARES 7
- ------------------------------------------------------

ACCOUNT AND SHARE INFORMATION 8
- ------------------------------------------------------

TAX INFORMATION 9
- ------------------------------------------------------

Federal Income Tax 9
State and Local Taxes 9
- ------------------------------------------------------

PERFORMANCE INFORMATION 9
- ------------------------------------------------------

FINANCIAL STATEMENTS 10
- ------------------------------------------------------

REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS 17
- ------------------------------------------------------

ADDRESSES 18
- ------------------------------------------------------

SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
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
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1)............................................. 0.15%
12b-1 Fee.................................................................... None
Total Other Expenses......................................................... 0.42%
Shareholder Services Fee (after waiver)(2).............................. 0.23%
Total Operating Expenses(3)........................................ 0.57%
</TABLE>

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

(3) The total operating expenses would have been 0.94% 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 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.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
- ----------------------------------------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2)
redemption at the end of each time period ................. $6 $18 $32 $ 71
</TABLE>

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

AUTOMATED TREASURY CASH RESERVES
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

Reference is made to the Report of Ernst & Young LLP, Independent Auditors on
page 17.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
-------------------------------------------------------
1996 1995 1994 1993 1992(A)
-------- -------- -------- -------- -------
<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 0.05 0.04 0.03 0.03 0.03
- ------------------------------------------------
Net realized and unrealized gain (loss) on
investments 0.00 -- -- -- --
- ------------------------------------------------ ------ ------ ------ ------ ------
Total from investment operations 0.05 0.04 0.03 0.03 0.03
- ------------------------------------------------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS
- ------------------------------------------------
Distributions from net investment income (0.05) (0.04) (0.03) (0.03) (0.03)
- ------------------------------------------------
Distributions from net realized gain on
investment transactions (0.00) -- -- -- --
- ------------------------------------------------ ------ ------ ------ ------ ------
Total distributions (0.05) (0.04) (0.03) (0.03) (0.03)
- ------------------------------------------------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------ ------ ------ ------ ------ ------
TOTAL RETURN(B) 5.04% 4.37% 2.58% 2.88% 3.07%
- ------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------
Expenses 0.57% 0.56% 0.57% 0.39% 0.51%*
- ------------------------------------------------
Net investment income 4.92% 4.29% 2.55% 2.79% 3.84%*
- ------------------------------------------------
Expense waiver/reimbursement(c) 0.37% 0.32% 0.13% 0.53% 0.30%*
- ------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------
Net assets, end of period (000 omitted) $260,668 $167,508 $190,840 $252,955 $36,803
- ------------------------------------------------
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from August 9, 1991 (date of initial
public investment) to April 30, 1992.

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

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

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

The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated December 7, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The Fund is designed primarily for institutional investors, such as
banks, fiduciaries, custodians of public funds, and similar institutional
investors, such as corporations, unions, hospitals, insurance companies and
municipalities as a convenient means of accumulating an interest in a
professionally managed, diversified portfolio investing only in short-term U.S.
Treasury securities. The Fund is also designed for customers of institutional
investors. A minimum initial investment of $25,000 within a 90-day period is
required.

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

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

INVESTMENT OBJECTIVE

The investment objective of the Fund is to provide current income consistent
with stability of principal and liquidity. This investment objective cannot be
changed without shareholder approval. While there is no assurance that the Fund
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.

INVESTMENT POLICIES

The Fund pursues its investment objective by investing only in a portfolio of
short-term U.S. Treasury securities maturing in 13 months or less. The average
maturity of the securities in the Fund's portfolio, computed on a
dollar-weighted basis, will be 90 days or less. Unless indicated otherwise, the
investment policies may be changed by the Board of Trustees without shareholder
approval. Shareholders will be notified before any material change in these
policies becomes effective.

ACCEPTABLE INVESTMENTS. The Fund invests only in U.S. Treasury securities, which
are fully guaranteed as to principal and interest by the United States.

securities purchased may vary from the purchase prices. Accordingly, the Fund
may pay more or less than the market value of the securities on the settlement
date.

INVESTMENT LIMITATIONS

The Fund will not invest more than 10% of its net assets in illiquid securities.

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

MANAGEMENT OF THE TRUST

DISTRIBUTION OF SHARES

State securities laws may require certain financial institutions such as
depository institutions to register as dealers.
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 .25% of the average
daily net asset value of its shares, computed at an annual rate, to obtain
certain personal services for shareholders and to maintain shareholder accounts.
From time to time and for such periods as deemed appropriate, the amount stated
above may be reduced voluntarily. Under the Shareholder Services Agreement,
Federated Shareholder Services will either perform shareholder services directly
or will select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Trust and Federated Shareholder
Services.

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 FUND

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 Fund 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:
<TABLE>
<CAPTION>
MAXIMUM FEE AVERAGE AGGREGATE DAILY NET ASSETS
--------------------- -----------------------------------
<S> <C>
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
</TABLE>

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

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

PURCHASING SHARES BY WIRE. Shares may be purchased by Federal Reserve wire
by calling the Fund before 1:00 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:
Automated Treasury Cash Reserves ; Fund Number (this number can be found on
the account statement or by contacting the Fund); 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 Automated Treasury Cash
Reserves . 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.

AUTOMATIC INVESTMENTS. Investors may establish accounts with their
financial institutions to have cash accumulations automatically invested in
the Fund. The investments may be made on predetermined dates or when the
investor's account reaches a certain level. Participating financial
institutions are responsible for prompt transmission of orders relating to
the program, and they may charge for their services. Investors should read
this prospectus along with the financial institution's agreement or
literature describing these services.

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

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 Fund 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.

ACCOUNT AND SHARE INFORMATION
- --------------------------------------------------------------------------------

meetings. Shareholder approval will be sought only for certain changes in the
Trust's or the Fund's operation and for election of Trustees under certain
circumstances.

TAX INFORMATION
- --------------------------------------------------------------------------------

FEDERAL INCOME TAX

STATE AND LOCAL TAXES

The Fund will limit its investments to those which, if owned directly, pay
interest exempt from state personal income tax. However, under the laws of some
states, the net investment income distributed by the Fund may be taxable to
shareholders. Shareholders are urged to consult their own tax advisers regarding
the status of their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------

From time to time, the Fund advertises its total return, yield, and effective
yield.

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

AUTOMATED TREASURY CASH RESERVES

PORTFOLIO OF INVESTMENTS
APRIL 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------
<C> <C> <S> <C>
U.S. TREASURY OBLIGATIONS--99.6%
- ---------------------------------------------------------------------------------
(A) U.S. TREASURY BILLS--75.0%
---------------------------------------------------------------
$ 7,500,000 4.900%, 5/2/1996 $ 7,498,979
---------------------------------------------------------------
23,000,000 4.780% - 4.785%, 5/9/1996 22,975,553
---------------------------------------------------------------
27,000,000 4.785% - 4.880%, 5/16/1996 26,945,496
---------------------------------------------------------------
14,000,000 4.830% - 5.015%, 5/23/1996 13,957,998
---------------------------------------------------------------
25,000,000 4.860% - 4.935%, 5/30/1996 24,901,823
---------------------------------------------------------------
25,000,000 4.895% - 4.930%, 6/6/1996 24,877,100
---------------------------------------------------------------
10,000,000 4.975%, 6/20/1996 9,930,903
---------------------------------------------------------------
19,000,000 4.890% - 4.930%, 6/27/1996 18,852,323
---------------------------------------------------------------
25,000,000 4.945% - 5.010%, 7/5/1996 24,775,822
---------------------------------------------------------------
11,000,000 4.960% - 4.975%, 7/11/1996 10,892,169
---------------------------------------------------------------
4,000,000 4.820%, 8/29/1996 3,935,733
---------------------------------------------------------------
6,000,000 5.175%, 10/10/1996 5,860,275
--------------------------------------------------------------- ------------
Total 195,404,174
--------------------------------------------------------------- ------------
U.S. TREASURY NOTES--24.6%
---------------------------------------------------------------
10,000,000 7.375%, 5/15/1996 10,008,917
---------------------------------------------------------------
25,000,000 5.875% - 7.625%, 5/31/1996 25,028,897
---------------------------------------------------------------
5,000,000 7.875%, 7/15/1996 5,029,297
---------------------------------------------------------------
17,000,000 6.125% - 7.875%, 7/31/1996 17,064,491
---------------------------------------------------------------
7,000,000 4.375%, 8/15/1996 6,982,308
--------------------------------------------------------------- ------------
Total 64,113,910
--------------------------------------------------------------- ------------
TOTAL INVESTMENTS (AT AMORTIZED COST)(B) $259,518,084
--------------------------------------------------------------- ------------
</TABLE>

(a) Each issue shows the rate of discount at the time of purchase.

(b) Also represents cost for federal tax purposes.

Note: The categories of investments are shown as a percentage of net assets
($260,668,207) at April 30, 1996.

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

AUTOMATED TREASURY CASH RESERVES

STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Total investments in securities, at amortized cost and value $259,518,084
- --------------------------------------------------------------------------------
Cash 471,744
- --------------------------------------------------------------------------------
Income receivable 1,498,151
- --------------------------------------------------------------------------------
Receivable for investments sold 10,252,235
- --------------------------------------------------------------------------------
Receivable for shares sold 64,643
- --------------------------------------------------------------------------------
Deferred expenses 1,176
- -------------------------------------------------------------------------------- ------------
Total assets 271,806,033
- --------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------
Payable for investments purchased $10,339,063
- ------------------------------------------------------------------
Payable for shares redeemed 599
- ------------------------------------------------------------------
Income distribution payable 700,043
- ------------------------------------------------------------------
Accrued expenses 98,121
- ------------------------------------------------------------------ -----------
Total liabilities 11,137,826
- -------------------------------------------------------------------------------- ------------
NET ASSETS FOR 260,668,207 shares outstanding $260,668,207
- -------------------------------------------------------------------------------- ------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- --------------------------------------------------------------------------------
$260,668,207 / 260,668,207 shares outstanding $1.00
- -------------------------------------------------------------------------------- ------------
</TABLE>

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

AUTOMATED TREASURY CASH RESERVES
STATEMENT OF OPERATIONS
YEAR ENDED APRIL 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -----------------------------------------------------------------------------------
Interest $11,472,581
- -----------------------------------------------------------------------------------
EXPENSES:
- -----------------------------------------------------------------------------------
Investment advisory fee $1,059,678
- ---------------------------------------------------------------------
Administrative personnel and services fee 160,338
- ---------------------------------------------------------------------
Custodian fees 29,757
- ---------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 24,422
- ---------------------------------------------------------------------
Directors'/Trustees' fees 5,617
- ---------------------------------------------------------------------
Auditing fees 13,061
- ---------------------------------------------------------------------
Legal fees 6,831
- ---------------------------------------------------------------------
Portfolio accounting fees 55,906
- ---------------------------------------------------------------------
Shareholder services fee 529,839
- ---------------------------------------------------------------------
Share registration costs 46,492
- ---------------------------------------------------------------------
Printing and postage 5,903
- ---------------------------------------------------------------------
Insurance premiums 6,115
- ---------------------------------------------------------------------
Miscellaneous 30,605
- --------------------------------------------------------------------- ----------
Total expenses 1,974,564
- ---------------------------------------------------------------------
Waivers--
- ---------------------------------------------------------------------
Waiver of investment advisory fee $(734,005)
- ---------------------------------------------------------
Waiver of shareholder services fee (32,731)
- --------------------------------------------------------- ---------
Total waivers (766,736)
- --------------------------------------------------------------------- ----------
Net expenses 1,207,828
- ----------------------------------------------------------------------------------- -----------
Net investment income $10,264,753
- ----------------------------------------------------------------------------------- -----------
REALIZED GAIN ON INVESTMENTS:
- -----------------------------------------------------------------------------------
Net realized gain on investments 155,205
- ----------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $10,419,958
- ----------------------------------------------------------------------------------- -----------
</TABLE>

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

AUTOMATED TREASURY CASH RESERVES

STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
-------------------------------
1996 1995
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- --------------------------------------------------------------
OPERATIONS--
- --------------------------------------------------------------
Net investment income $ 10,264,753 $ 7,864,070
- --------------------------------------------------------------
Net realized gain on investments 155,205 --
- -------------------------------------------------------------- ------------- -------------
Change in net assets resulting from operations 10,419,958 7,864,070
- --------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS--
- --------------------------------------------------------------
Distributions from net investment income (10,264,753) (7,864,070)
- --------------------------------------------------------------
Distributions from net realized gains (155,205) --
- -------------------------------------------------------------- ------------- -------------
Change in net assets from distributions to shareholders (10,419,958) (7,864,070)
- --------------------------------------------------------------
SHARE TRANSACTIONS--
- --------------------------------------------------------------
Proceeds from sale of shares 871,777,363 676,882,602
- --------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
distributions declared 3,362,478 4,267,547
- --------------------------------------------------------------
Cost of shares redeemed (781,979,740) (704,481,817)
- -------------------------------------------------------------- ------------- -------------
Change in net assets resulting from share transactions 93,160,101 (23,331,668)
- -------------------------------------------------------------- ------------- -------------
Change in net assets 93,160,101 (23,331,668)
- --------------------------------------------------------------
NET ASSETS:
- --------------------------------------------------------------
Beginning of period 167,508,106 190,839,774
- -------------------------------------------------------------- ------------- -------------
End of period $ 260,668,207 $ 167,508,106
- -------------------------------------------------------------- ------------- -------------
</TABLE>

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

AUTOMATED TREASURY CASH RESERVES

NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1996
- --------------------------------------------------------------------------------
(1) ORGANIZATION

Federated Government Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of three portfolios. The financial
statements included herein are only those of Automated Treasury Cash Reserves
(the "Fund"), a diversified portfolio. The financial statements of the other
portfolios are presented separately. The assets of each portfolio are segregated
and a shareholder's interest is limited to the portfolio in which shares are
held. The investment objective of the Fund is to provide current income
consistent with stability of principal and liquidity.

(2) SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.

INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value
its portfolio securities is in accordance with Rule 2a-7 under the Act.

INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.

DEFERRED EXPENSES--The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering its shares, have been deferred and are being
amortized using the straight-line method over a period of five years from
the Fund's commencement date.

USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that

AUTOMATED TREASURY CASH RESERVES
- --------------------------------------------------------------------------------

affect the amounts of assets, liabilities, expenses and revenues reported
in the financial statements. Actual results could differ from those
estimated.

OTHER--Investment transactions are accounted for on the trade date.

(3) SHARES OF BENEFICIAL INTEREST

Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
- ---------------------------------------------------------------
Shares sold 871,777,363 676,882,602
- ---------------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 3,362,478 4,267,547
- ---------------------------------------------------------------
Shares redeemed (781,979,740) (704,481,817)
- --------------------------------------------------------------- ------------ ------------
Net change resulting from share transactions 93,160,101 (23,331,668)
- --------------------------------------------------------------- ------------ ------------
</TABLE>

(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser,
(the "Adviser"), receives for its services an annual investment advisory fee
equal to 0.50% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive any portion of its fee. The Adviser can modify or
terminate this voluntary waiver at any time at its sole discretion.

SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services, the Fund will pay Federated Shareholder
Services up to 0.25% of average daily net assets of the Fund for the period. The
fee paid to Federated Shareholder Services is used to finance certain services
for shareholders and to maintain shareholder accounts. Federated Shareholder
Services may voluntarily choose to waive any portion of its fee. Federated
Shareholder Services can modify or terminate this voluntary waiver at any time
at its sole discretion.

AUTOMATED TREASURY CASH RESERVES
- --------------------------------------------------------------------------------

PORTFOLIO ACCOUNTING FEES--Federated Services Company maintains the Fund's
accounting records for which it receives a fee. The fee is based on the level of
the Fund's average daily net assets for the period, plus out-of-pocket expenses.

GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------

To the Trustees and Shareholders of

AUTOMATED TREASURY CASH RESERVES:

We have audited the accompanying statement of assets and liabilities of
Automated Treasury Cash Reserves (a portfolio of Federated Government Trust),
including the portfolio of investments, as of April 30, 1996, and the related
statement of operations for the year then ended, the statement of changes in net
assets for each of the two years in the period then ended and the financial
highlights for the periods presented therein. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of April
30, 1996, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Automated Treasury Cash Reserves at April 30, 1996, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for the
periods presented therein, in conformity with generally accepted accounting
principles.

ERNST & YOUNG LLP

Pittsburgh, Pennsylvania
June 14, 1996

ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Federated Government Trust
Automated Treasury Federated Investors Tower
Cash Reserves Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
c/o Federated Shareholder Services
Custodian Company
State Street Bank and P.O. Box 8600
Trust Company Boston, Massachusetts 02266-8600
- ------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services P.O. Box 8600
Company Boston, Massachusetts 02266-8600
- ------------------------------------------------------------------------------------------------
Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, Pennsylvania 15219
- ------------------------------------------------------------------------------------------------
</TABLE>

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

- --------------------------------------------------------------------------------
AUTOMATED TREASURY
CASH RESERVES
PROSPECTUS

A Diversified Portfolio of Federated
Government Trust, an Open-End
Management Investment Company

Prospectus dated June 30, 1996

LOGO
CUSIP 314186404
1052101A (6/96)

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

U.S. TREASURY CASH RESERVES
(A PORTFOLIO OF FEDERATED GOVERNMENT TRUST)
INSTITUTIONAL SHARES
PROSPECTUS
The Institutional Shares of U.S. Treasury Cash Reserves (the "Fund") offered by
this prospectus represent interests in a diversified portfolio of Federated
Government Trust (the "Trust"), an open-end management investment company (a
mutual fund). The Fund invests in short-term U.S. Treasury securities to provide
current income consistent with stability of principal and liquidity.

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

Prospectus dated June 30, 1996

TABLE OF CONTENTS
- --------------------------------------------------------------------------------

SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------

FINANCIAL HIGHLIGHTS--
INSTITUTIONAL SHARES 2
- ------------------------------------------------------

GENERAL INFORMATION 3
- ------------------------------------------------------

INVESTMENT INFORMATION 3
- ------------------------------------------------------

Investment Objective 3
Investment Policies 3
Investment Limitations 4

TRUST INFORMATION 4
- ------------------------------------------------------

Management of the Trust 4
Distribution of Institutional Shares 5
Administration of the Fund 6

NET ASSET VALUE 6
- ------------------------------------------------------

HOW TO PURCHASE SHARES 6
- ------------------------------------------------------

HOW TO REDEEM SHARES 7
- ------------------------------------------------------

ACCOUNT AND SHARE INFORMATION 8
- ------------------------------------------------------

TAX INFORMATION 9
- ------------------------------------------------------

Federal Income Tax 9
State and Local Taxes 9

OTHER CLASSES OF SHARES 9
- ------------------------------------------------------

PERFORMANCE INFORMATION 10
- ------------------------------------------------------

FINANCIAL HIGHLIGHTS--
INSTITUTIONAL SERVICE SHARES 11
- ------------------------------------------------------

FINANCIAL STATEMENTS 12
- ------------------------------------------------------

REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS 19
- ------------------------------------------------------
ADDRESSES 20
- ------------------------------------------------------

SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
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
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1)............................................. 0.06%
12b-1 Fee.................................................................... None
Total Other Expenses......................................................... 0.14%
Shareholder Services Fee (after waiver)(2).............................. 0.00%
Total Operating Expenses(3)........................................ 0.20%
</TABLE>

(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The advisor can terminate this voluntary waiver
at any time at its sole discretion. The maximum management fee is 0.40%.

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

(3) The total operating expenses would have been 0.79% 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 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.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
- ---------------------------------------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment assuming (1) 5% annual return and (2)
redemption at the end of each time period................. $2 $ 6 $11 $ 26
</TABLE>

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

U.S. TREASURY CASH RESERVES
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

Reference is made to the Report of Ernst & Young LLP, Independent Auditors on
page 19.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
---------------------------------------------------
1996 1995 1994 1993 1992(A)
-------- -------- -------- -------- -------
<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 0.05 0.05 0.03 0.03 0.04
- ------------------------------------------- ------ ------ ------ ------ ------
LESS DISTRIBUTIONS
- -------------------------------------------
Distributions from net investment income (0.05) (0.05) (0.03) (0.03) (0.04)
- ------------------------------------------- ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------- ------ ------ ------ ------ ------
TOTAL RETURN(B) 5.43% 4.75% 2.95% 3.13% 4.24%
- -------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------
Expenses 0.20% 0.20% 0.20% 0.20% 0.16%*
- -------------------------------------------
Net investment income 5.29% 4.85% 2.93% 3.03% 4.42%*
- -------------------------------------------
Expense waiver/reimbursement(c) 0.59% 0.39% 0.43% 0.50% 0.62%*
- -------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------
Net assets, end of period (000 omitted) $937,662 $609,233 $265,030 $177,471 $83,244
- -------------------------------------------
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from June 11, 1991 (date of initial
public investment) to April 30, 1992.

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

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

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

The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated December 7, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
With respect to this Fund, as of the date of this prospectus, the Board of
Trustees has established two classes of shares known as Institutional Shares and
Institutional Service Shares. This prospectus relates only to Institutional
Shares of the Fund, which are designed primarily for institutional investors,
such as banks, fiduciaries, custodians of public funds and similar institutional
investors, such as corporations, unions, hospitals, insurance companies and
municipalities as a convenient means of accumulating an interest in a
professionally managed, diversified portfolio investing only in short-term U.S.
Treasury securities. The Fund is also designed for customers of institutional
investors. A minimum initial investment of $25,000 within a 90-day period is
required.

The Fund 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. The Fund invests only in U.S. Treasury securities, which
are fully guaranteed as to principal and interest by the United States.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase U.S.
Treasury securities on a when-issued or delayed delivery basis. These
transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's

failure to complete these transactions may cause the Fund to miss a price or
yield considered to be advantageous. Settlement dates may be a month or more
after entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices. Accordingly, the Fund may pay more
or less than the market value of the securities on the settlement date.

INVESTMENT LIMITATIONS

The Fund will not borrow money directly or pledge securities except, under
certain circumstances, the Fund may borrow up to one-third of the value of its
total assets and pledge up to 10% of the value of its total assets to secure
such borrowings.

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

MANAGEMENT OF THE TRUST

ADVISORY FEES. The adviser receives an annual investment advisory fee equal
to .40% of the Fund's average daily net assets. The adviser has undertaken
to reimburse the Fund up to the amount of the advisory fee for operating
expenses in excess of limitations established by certain states. Also, the
adviser may voluntarily choose to waive a portion of its fee or reimburse
other expenses of the Fund, but reserves the right to terminate such waiver
or reimbursement at any time at its sole discretion.

Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher
Donahue, who is President and Trustee of Federated Investors.

DISTRIBUTION OF INSTITUTIONAL SHARES

Federated Securities Corp. is the principal distributor for Institutional Shares
of the Fund. 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.

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

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 FUND

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 Fund 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:
<TABLE>
<CAPTION>
MAXIMUM ADMINISTRATIVE
FEE ----------------------- AVERAGE AGGREGATE DAILY NET ASSETS
-----------------------------------
<S> <C>
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
</TABLE>

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

The Fund 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
Shares from the value of Fund assets attributable to Institutional Shares, and
dividing the remainder by the number of shares outstanding. The Fund cannot
guarantee that its net asset value will always remain at $1.00 per share.

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

Minimum investments will be calculated by combining all accounts maintained with
the Fund. 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 Fund before 1:00 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: U.S. Treasury Cash
Reserves-Institutional Shares; Fund Number (this number can be found on the
account statement or by contacting the Fund); 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 U.S. Treasury Cash Reserves-Institutional
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.

AUTOMATIC INVESTMENTS. Investors may establish accounts with their financial
institutions to have cash accumulations automatically invested in the Fund. The
investments may be made on predetermined dates or when the investor's account
reaches a certain level. Participating financial institutions are responsible
for prompt transmission of orders relating to the program, and they may charge
for their services. Investors should read this prospectus along with the
financial institution's agreement or literature describing these services.

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

not followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.

ACCOUNT AND SHARE INFORMATION
- --------------------------------------------------------------------------------

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 or the Fund's
operation and for election of Trustees under certain circumstances.

TAX INFORMATION
- --------------------------------------------------------------------------------

FEDERAL INCOME TAX

STATE AND LOCAL TAXES

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

The Fund also offers another class of shares called Institutional Service
Shares. Institutional Service Shares are sold at net asset value primarily to
accounts for which financial institutions act in an agency or fiduciary capacity
and are subject to a minimum initial investment of $25,000 within a 90-day
period.

All classes are subject to certain of the same expenses, however, Institutional
Service Shares are distributed under a 12b-1 Plan adopted by the Trust and also
are subject to shareholder services fees.

Other 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 1-800-235-4669.

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

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

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 Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.

U.S. TREASURY CASH RESERVES
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

Reference is made to the Report of Ernst & Young LLP, Independent Auditors, on
page 19.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
----------------------
1996 1995(A)
- ------------------------------------------------------------- -------- -------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00
- -------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------
Net investment income 0.05 0.03
- ------------------------------------------------------------- ------ ------
LESS DISTRIBUTIONS
- -------------------------------------------------------------
Distributions from net investment income (0.05) (0.03)
- ------------------------------------------------------------- ------ ------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00
- ------------------------------------------------------------- ------ ------
TOTAL RETURN(B) 5.17% 2.60%
- -------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------------
Expenses 0.45% 0.45%*
- -------------------------------------------------------------
Net investment income 4.97% 5.33%*
- -------------------------------------------------------------
Expense waiver/reimbursement(c) 0.34% 0.39%*
- -------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------
Net assets, end of period (000 omitted) $277,099 $60,508
- -------------------------------------------------------------
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from December 15, 1994 (date of initial
public investment) to April 30, 1995.

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

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

U.S. TREASURY CASH RESERVES

PORTFOLIO OF INVESTMENTS
APRIL 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ------------------------------------------------------------- --------------
<C> <C> <S> <C>
U.S. TREASURY OBLIGATIONS--99.7%
- --------------------------------------------------------------------------------
(A) U.S. TREASURY BILLS--72.8%
-------------------------------------------------------------
$125,000,000 4.76% - 4.79%, 5/16/1996 $ 124,751,457
-------------------------------------------------------------
74,000,000 4.78% - 4.84%, 5/9/1996 73,921,010
-------------------------------------------------------------
16,000,000 4.82%, 8/29/1996 15,742,933
-------------------------------------------------------------
114,000,000 4.82% - 5.02%, 5/23/1996 113,657,894
-------------------------------------------------------------
85,000,000 4.84% - 4.94%, 5/30/1996 84,664,708
-------------------------------------------------------------
86,000,000 4.89% - 4.94%, 6/27/1996 85,331,691
-------------------------------------------------------------
87,500,000 4.89% - 5.04%, 6/6/1996 87,068,645
-------------------------------------------------------------
7,500,000 4.90%, 5/2/1996 7,498,979
-------------------------------------------------------------
147,000,000 4.91% - 5.01%, 7/5/1996 145,684,454
-------------------------------------------------------------
27,000,000 4.94%, 8/15/1996 26,607,270
-------------------------------------------------------------
27,000,000 4.96%, 6/13/1996 26,840,040
-------------------------------------------------------------
30,000,000 4.98%, 6/20/1996 29,792,708
-------------------------------------------------------------
45,000,000 4.98%, 7/11/1996 44,558,469
-------------------------------------------------------------
19,000,000 5.18%, 10/10/1996 18,557,538
------------------------------------------------------------- --------------
Total 884,677,796
------------------------------------------------------------- --------------
U.S. TREASURY NOTES--26.9%
-------------------------------------------------------------
33,000,000 4.38%, 8/15/1996 32,916,596
-------------------------------------------------------------
130,000,000 5.88% - 7.63%, 5/31/1996 130,147,378
-------------------------------------------------------------
73,000,000 6.13% - 7.88%, 7/31/1996 73,247,265
-------------------------------------------------------------
70,000,000 7.38%, 5/15/1996 70,059,982
-------------------------------------------------------------
20,000,000 7.88%, 7/15/1996 20,117,188
------------------------------------------------------------- --------------
Total 326,488,409
------------------------------------------------------------- --------------
TOTAL INVESTMENTS (AT AMORTIZED COST)(B) $1,211,166,205
------------------------------------------------------------- --------------
</TABLE>

(a) Each issue shows the rate of discount at time of purchase.

(b) Also represents cost for federal tax purposes.

Note: The categories of investments are shown as a percentage of net assets
($1,214,760,873) at April 30, 1996.

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

U.S. TREASURY CASH RESERVES
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ------------------------------------------------------------------------------
Total investments in securities, at amortized cost and value $1,211,166,205
- ------------------------------------------------------------------------------
Cash 434,842
- ------------------------------------------------------------------------------
Income receivable 7,923,507
- ------------------------------------------------------------------------------
Receivable for investments sold 51,261,174
- ------------------------------------------------------------------------------ --------------
Total assets 1,270,785,728
- ------------------------------------------------------------------------------
LIABILITIES:
- ------------------------------------------------------------------------------
Payable for investments purchased $51,695,313
- ----------------------------------------------------------------
Income distribution payable 4,040,954
- ----------------------------------------------------------------
Accrued expenses 288,588
- ---------------------------------------------------------------- -----------
Total liabilities 56,024,855
- ------------------------------------------------------------------------------ --------------
NET ASSETS for 1,214,760,873 shares outstanding $1,214,760,873
- ------------------------------------------------------------------------------ --------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- ------------------------------------------------------------------------------
INSTITUTIONAL SHARES:
- ------------------------------------------------------------------------------
$937,661,503 / 937,661,503 shares outstanding $1.00
- ------------------------------------------------------------------------------ --------------
INSTITUTIONAL SERVICE SHARES:
- ------------------------------------------------------------------------------
$277,099,370 / 277,099,370 shares outstanding $1.00
- ------------------------------------------------------------------------------ --------------
</TABLE>

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

U.S. TREASURY CASH RESERVES
STATEMENT OF OPERATIONS
YEAR ENDED APRIL 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -----------------------------------------------------------------------------------
Interest $49,987,998
- -----------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------------
Investment advisory fee $ 3,645,164
- --------------------------------------------------------------------
Administrative personnel and services fee 689,421
- --------------------------------------------------------------------
Custodian fees 104,967
- --------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 89,110
- --------------------------------------------------------------------
Directors'/Trustees' fees 10,293
- --------------------------------------------------------------------
Auditing fees 13,468
- --------------------------------------------------------------------
Legal fees 4,487
- --------------------------------------------------------------------
Portfolio accounting fees 131,524
- --------------------------------------------------------------------
Shareholder services fee--Institutional Shares 1,906,454
- --------------------------------------------------------------------
Shareholder services fee--Institutional Service Shares 371,773
- --------------------------------------------------------------------
Share registration costs 233,608
- --------------------------------------------------------------------
Printing and postage 11,387
- --------------------------------------------------------------------
Insurance premiums 13,149
- --------------------------------------------------------------------
Miscellaneous 4,756
- -------------------------------------------------------------------- -----------
Total expenses 7,229,561
- --------------------------------------------------------------------
Waivers--
- --------------------------------------------------------------------
Waiver of investment advisory fee $(3,091,301)
- ------------------------------------------------------
Waiver of shareholder services fee--Institutional
Shares (1,906,454)
- ------------------------------------------------------ -----------
Total waivers (4,997,755)
- -------------------------------------------------------------------- -----------
Net expenses 2,231,806
- ----------------------------------------------------------------------------------- -----------
Net investment income $47,756,192
- ----------------------------------------------------------------------------------- -----------
</TABLE>

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

U.S. TREASURY CASH RESERVES

STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
----------------------------------
1996 1995
--------------- ---------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ------------------------------------------------------------
OPERATIONS--
- ------------------------------------------------------------
Net investment income $ 47,756,192 $ 19,174,852
- ------------------------------------------------------------ --------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ------------------------------------------------------------
Distributions from net investment income
- ------------------------------------------------------------
Institutional Shares (40,360,730) (18,188,542)
- ------------------------------------------------------------
Institutional Service Shares (7,395,462) (986,310)
- ------------------------------------------------------------ --------------- ---------------
Change in net assets resulting from distributions
to shareholders (47,756,192) (19,174,852)
- ------------------------------------------------------------ --------------- ---------------
SHARE TRANSACTIONS--
- ------------------------------------------------------------
Proceeds from sale of shares 3,934,548,103 1,756,823,729
- ------------------------------------------------------------
Net asset value of shares issued to shareholders in
payment of distributions declared 5,240,359 1,510,042
- ------------------------------------------------------------
Cost of shares redeemed (3,394,768,512) (1,353,622,888)
- ------------------------------------------------------------ --------------- ---------------
Change in net assets resulting from share transactions 545,019,950 404,710,883
- ------------------------------------------------------------ --------------- ---------------
Change in net assets 545,019,950 404,710,883
- ------------------------------------------------------------
NET ASSETS:
- ------------------------------------------------------------
Beginning of period 669,740,923 265,030,040
- ------------------------------------------------------------ --------------- ---------------
End of period $ 1,214,760,873 $ 669,740,923
- ------------------------------------------------------------ --------------- ---------------
</TABLE>

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

U.S. TREASURY CASH RESERVES

NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1996
- --------------------------------------------------------------------------------

(1) ORGANIZATION

Federated Government Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of three portfolios. The financial
statements included herein are only those of U.S. Treasury Cash Reserves (the
"Fund"), a diversified portfolio. The financial statements of the other
portfolios are presented separately. The assets of each portfolio are segregated
and a shareholder's interest is limited to the portfolio in which shares are
held. The investment objective of the Fund is current income consistent with
stability of principal and liquidity.

The Fund offers two classes of shares: Institutional Shares and Institutional
Service Shares.

(2) SIGNIFICANT ACCOUNTING POLICIES

INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value
its portfolio securities is in accordance with Rule 2a-7 under the Act.

USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts of assets, liabilities, expenses and
revenues reported in the financial statements. Actual results could differ
from those estimated.

OTHER--Investment transactions are accounted for on the trade date.

U.S. TREASURY CASH RESERVES
- --------------------------------------------------------------------------------

(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. At April 30, 1996, capital paid-in aggregated $1,214,760,873.

Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
--------------------------------
1996
--------------
INSTITUTIONAL SHARES
- -------------------------------------------------------------- 1995
--------------
<S> <C> <C>
Shares sold 3,218,643,175 1,652,377,627
- --------------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 4,028,759 1,509,906
- --------------------------------------------------------------
Shares redeemed (2,894,243,576) (1,309,684,428)
- -------------------------------------------------------------- -------------- --------------
Net change resulting from Institutional share transactions 328,428,358 344,203,105
- -------------------------------------------------------------- -------------- --------------
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
--------------------------------
1996
--------------
INSTITUTIONAL SERVICE SHARES
- -------------------------------------------------------------- 1995(A)
--------------
<S> <C> <C>
Shares sold 715,904,928 104,446,102
- --------------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 1,211,600 136
- --------------------------------------------------------------
Shares redeemed (500,524,936) (43,938,460)
- -------------------------------------------------------------- -------------- --------------
Net change resulting from Institutional Service share
transactions 216,591,592 60,507,778
- -------------------------------------------------------------- -------------- --------------
Net change resulting from share transactions 545,019,950 404,710,883
- -------------------------------------------------------------- -------------- --------------
</TABLE>

(a) Reflects operations for the period from December 15, 1994 (date of initial
public investment) to April 30, 1995.

(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser,
(the "Adviser"), receives for its services an annual investment advisory fee
equal to 0.40% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive any portion of its fee. The Adviser can modify or
terminate this voluntary waiver at any time at its sole discretion.

U.S. TREASURY CASH RESERVES
- --------------------------------------------------------------------------------

SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25%
of average daily net assets of the Fund for the period. The fee paid to FSS is
used to finance certain services for shareholders and to maintain shareholder
accounts. FSS may voluntarily choose to waive any portion of its fee. For the
fiscal year ended April 30, 1996, Institutional Shares fully waived its
shareholder service fee. FSS can modify or terminate this voluntary waiver at
any time at its sole discretion.

PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.

GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------

To the Trustees and Shareholders of

U.S. TREASURY CASH RESERVES:

We have audited the accompanying statement of assets and liabilities of U.S.
Treasury Cash Reserves (a portfolio of Federated Government Trust), including
the portfolio of investments, as of April 30, 1996, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended and the financial highlights for
the periods presented therein. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of U.S.
Treasury Cash Reserves at April 30, 1996, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for the periods presented
therein, in conformity with generally accepted accounting principles.

ERNST & YOUNG LLP

Pittsburgh, Pennsylvania
June 14, 1996

ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
U.S. Treasury Cash Reserves
Institutional Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
c/o Federated Shareholder
Custodian Services Company
State Street Bank and P.O. Box 8600
Trust Company Boston, Massachusetts 02266-8600
- ------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services P.O. Box 8600
Company Boston, Massachusetts 02266-8600
- ------------------------------------------------------------------------------------------------
Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, Pennsylvania 15219
- ------------------------------------------------------------------------------------------------
</TABLE>

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

- --------------------------------------------------------------------------------
U.S. TREASURY
CASH RESERVES
INSTITUTIONAL SHARES
PROSPECTUS

A Diversified Portfolio of Federated
Government Trust, an Open-End
Management Investment Company

Prospectus dated June 30, 1996

LOGO
CUSIP 314186305
1022103A-IS (6/96)

U.S. TREASURY CASH RESERVES
(A PORTFOLIO OF FEDERATED GOVERNMENT TRUST)
INSTITUTIONAL SERVICE SHARES
PROSPECTUS

The Institutional Service Shares of U.S. Treasury Cash Reserves (the "Fund")
offered by this prospectus represent interests in a diversified portfolio of
Federated Government Trust (the "Trust"), an open-end management investment
company (a mutual fund). The Fund invests in short-term U.S. Treasury securities
to provide current income consistent with stability of principal and liquidity.

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

Prospectus dated June 30, 1996
TABLE OF CONTENTS
- --------------------------------------------------------------------------------

SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------

FINANCIAL HIGHLIGHTS--
INSTITUTIONAL SERVICE SHARES 2
- ------------------------------------------------------

GENERAL INFORMATION 3
- ------------------------------------------------------

INVESTMENT INFORMATION 3
- ------------------------------------------------------

Investment Objective 3
Investment Policies 3
Investment Limitations 4

TRUST INFORMATION 4
- ------------------------------------------------------

Management of the Trust 4
Distribution of Institutional
Service Shares 5
Administration of the Fund 6

NET ASSET VALUE 6
- ------------------------------------------------------

HOW TO PURCHASE SHARES 7
- ------------------------------------------------------

HOW TO REDEEM SHARES 8
- ------------------------------------------------------

ACCOUNT AND SHARE INFORMATION 9
- ------------------------------------------------------

TAX INFORMATION 10
- ------------------------------------------------------

Federal Income Tax 10
State and Local Taxes 10

OTHER CLASSES OF SHARES 10
- ------------------------------------------------------

PERFORMANCE INFORMATION 10
- ------------------------------------------------------

FINANCIAL HIGHLIGHTS--
INSTITUTIONAL SHARES 12
- ------------------------------------------------------

FINANCIAL STATEMENTS 13
- ------------------------------------------------------

REPORT OF ERNST & YOUNG, LLP
INDEPENDENT AUDITORS 20
- ------------------------------------------------------

ADDRESSES 21
- ------------------------------------------------------

SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INSTITUTIONAL SERVICE SHARES
SHAREHOLDER TRANSACTION EXPENSES
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
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1)............................................. 0.06%
12b-1 Fee(2)................................................................. 0.00%
Total Other Expenses......................................................... 0.39%
Shareholder Services Fee................................................ 0.25%
Total Operating Expenses(3)........................................ 0.45%
</TABLE>

(2) The Institutional Service Shares has no present intention of paying or
accruing the 12b-1 fee during the fiscal year ending April 30, 1997. If the
Institutional Service Shares were paying or accruing the 12b-1 fee, the
Institutional Service Shares would be able to pay up to 0.25% of its average
daily net assets for the 12b-1 fee. See "Trust Information".

(3) The total operating expenses would have been 0.79% absent the voluntary
waiver of a portion of the management fee.

The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Institutional Service Shares of
the 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.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
- ---------------------------------------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment assuming (1) 5% annual return and (2)
redemption at the end of each time period................. $5 $14 $25 $ 57
</TABLE>

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

U.S. TREASURY CASH RESERVES
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

Reference is made to the Report of Ernst & Young LLP, Independent Auditors, on
page 20.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
----------------------
1996 1995(A)
- ------------------------------------------------------------- -------- -------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00
- -------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------------------------
Net investment income 0.05 0.03
- ------------------------------------------------------------- ------ ------
LESS DISTRIBUTIONS
- -------------------------------------------------------------
Distributions from net investment income (0.05) (0.03)
- ------------------------------------------------------------- ------ ------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00
- ------------------------------------------------------------- ------ ------
TOTAL RETURN(B) 5.17% 2.60%
- -------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------------------
Expenses 0.45% 0.45%*
- -------------------------------------------------------------
Net investment income 4.97% 5.33%*
- -------------------------------------------------------------
Expense waiver/reimbursement(c) 0.34% 0.39%*
- -------------------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------------------
Net assets, end of period (000 omitted) $277,099 $60,508
- -------------------------------------------------------------
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from December 15, 1994 (date of initial
public investment) to April 30, 1995.

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

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

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

The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated December 7, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
With respect to this Fund, as of the date of this prospectus, the Board of
Trustees has established two classes of shares known as Institutional Service
Shares and Institutional Shares. This prospectus relates only to Institutional
Service Shares of the Fund, which are designed primarily for accounts for which
financial institutions act in an agency or fiduciary capacity as a convenient
means of accumulating an interest in a professionally managed, diversified
portfolio investing only in short-term U.S. Treasury securities. A minimum
initial investment of $25,000 within a 90-day period is required. Institutional
Service Shares are also distributed under a 12b-1 Plan adopted by the Trust and
are subject to shareholder services fees.

The Fund 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. The Fund invests only in U.S. Treasury securities, which
are fully guaranteed as to principal and interest by the United States.

transactions may cause the Fund to miss a price or yield considered to be
advantageous. Settlement dates may be a month or more after entering into these
transactions, and the market values of the securities purchased may vary from
the purchase prices. Accordingly, the Fund may pay more or less than the market
value of the securities on the settlement date.

INVESTMENT LIMITATIONS

The Fund will not invest more than 10% of its net assets in illiquid securities.

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

MANAGEMENT OF THE TRUST

Investors, Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher
Donahue, who is President and Trustee of Federated Investors.

DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES

Federated Securities Corp. is the principal distributor for Institutional
Service Shares of the Fund. 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.

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

DISTRIBUTION PLAN AND SHAREHOLDER SERVICES. Under a distribution plan adopted in
accordance with Rule 12b-1 under the Investment Company Act of 1940 (the
"Plan"), the distributor may be paid a fee by the Fund in an amount computed at
an annual rate of up to .25% of the average daily net asset value of the Fund.
The distributor may select financial institutions such as banks, fiduciaries,
custodians for public funds, investment advisers, and broker/dealers to provide
sales services or distribution-related support services as agents for their
clients or customers.

The Plan is a compensation-type plan. As such, the Fund makes no payments to the
distributor except as described above. Therefore, the Fund does not pay for
unreimbursed expenses of the distributor, including amounts expended by the
distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amounts or may earn a profit from future payments made by the Fund
under the Plan.

In addition, the Trust has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
the Trust may make payments up to .25% of the average daily net asset value of
its shares to obtain certain personal services for shareholders and to

maintain shareholder accounts. From time to time and for such periods as deemed
appropriate, the amount stated above may be reduced voluntarily. Under the
Shareholder Services Agreement, Federated Shareholder Services will either
perform shareholder services directly or will select financial institutions to
perform shareholder services. Financial institutions will receive fees based
upon shares owned by their clients or customers. The schedules of such fees and
the basis upon which such fees will be paid will be determined from time to time
by the Trust and Federated Shareholder Services.

ADMINISTRATION OF THE FUND

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 Fund 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:
<TABLE>
<CAPTION>
MAXIMUM FEE AVERAGE AGGREGATE DAILY NET ASSETS
- --------------------------- -----------------------------------
<S> <C>
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
</TABLE>

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

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

The Fund 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 Fund assets attributable to Institutional
Service Shares, and dividing the remainder by the number of shares outstanding.
The Fund cannot guarantee that its net asset value will always remain at $1.00
per share.

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 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 Fund, with a minimum initial investment of $25,000 or more
within a 90-day period. 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 Fund
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 Fund 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 Fund 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.

PURCHASING SHARES BY WIRE. Shares may be purchased by wire by calling the Fund
before 1:00 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:
U.S. Treasury Cash Reserves--Institutional Service Shares; Fund Number (this
number can be found on the account statement or by contacting the Fund); 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 U.S. Treasury Cash Reserves--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.

AUTOMATIC INVESTMENTS. Investors may establish accounts with their financial
institutions to have cash accumulations automatically invested in the Fund. The
investments may be made on predetermined dates or when the investor's account
reaches a certain level. Participating financial institutions are responsible
for prompt transmission of orders relating to the program, and they may charge
for their services. Investors should read this prospectus along with the
financial institution's agreement or literature describing these services and
fees.

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

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 Shareholder 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 may be made by calling the Fund
provided the Fund 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 Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.

The written request should state: the Fund name and the class designation; the
account name as registered with the Fund; 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.

ACCOUNT AND SHARE INFORMATION
- --------------------------------------------------------------------------------

TAX INFORMATION
- --------------------------------------------------------------------------------

FEDERAL INCOME TAX

STATE AND LOCAL TAXES

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

The Fund also offers another class of shares called Institutional Shares.
Institutional Shares are sold at net asset value primarily to institutional
investors, such as banks, fiduciaries, custodians of public funds and similar
institutional investors, such as corporations, unions, hospitals, insurance
companies and municipalities and are subject to a minimum initial investment of
$25,000 within a 90-day period.
All classes are subject to certain of the same expenses, however, Institutional
Shares are distributed with no 12b-1 Plan but are subject to shareholder
services fees.

Other 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 1-800-235-4669.

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

From time to time, the Fund advertises its total return, yield, and effective
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.

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

U.S. TREASURY CASH RESERVES
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

Reference is made to the Report of Ernst & Young LLP, Independent Auditors, on
page 20.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
---------------------------------------------------
1996 1995 1994 1993 1992(A)
- ----------------------------------------- -------- -------- -------- -------- -------
<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 0.05 0.05 0.03 0.03 0.04
- ----------------------------------------- ------ ------ ------ ------ ------
LESS DISTRIBUTIONS
- -----------------------------------------
Distributions from net investment
income (0.05) (0.05) (0.03) (0.03) (0.04)
- ----------------------------------------- ----- ----- ----- ----- -----
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------- ------ ------ ------ ------ ------
TOTAL RETURN(B) 5.43% 4.75% 2.95% 3.13% 4.24%
- -----------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------
Expenses 0.20% 0.20% 0.20% 0.20% 0.16%*
- -----------------------------------------
Net investment income 5.29% 4.85% 2.93% 3.03% 4.42%*
- -----------------------------------------
Expense waiver/reimbursement(c) 0.59% 0.39% 0.43% 0.50% 0.62%*
- -----------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------
Net assets, end of period (000
omitted) $937,662 $609,233 $265,030 $177,471 $83,244
- -----------------------------------------
</TABLE>

* Computed on an annualized basis.

(a) Reflects operations for the period from June 11, 1991 (date of initial
public investment) to April 30, 1992.

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

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

U.S. TREASURY CASH RESERVES

PORTFOLIO OF INVESTMENTS
APRIL 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ------------------------------------------------------------------------ --------------
<C> <S> <C>
U.S. TREASURY OBLIGATIONS--99.7%
- -----------------------------------------------------------------------------------------
(A) U.S. TREASURY BILLS--72.8%
------------------------------------------------------------------------
$125,000,000 4.76% - 4.79%, 5/16/1996 $ 124,751,457
------------------------------------------------------------------------
74,000,000 4.78% - 4.84%, 5/9/1996 73,921,010
------------------------------------------------------------------------
16,000,000 4.82%, 8/29/1996 15,742,933
------------------------------------------------------------------------
114,000,000 4.82% - 5.02%, 5/23/1996 113,657,894
------------------------------------------------------------------------
85,000,000 4.84% - 4.94%, 5/30/1996 84,664,708
------------------------------------------------------------------------
86,000,000 4.89% - 4.94%, 6/27/1996 85,331,691
------------------------------------------------------------------------
87,500,000 4.89% - 5.04%, 6/6/1996 87,068,645
------------------------------------------------------------------------
7,500,000 4.90%, 5/2/1996 7,498,979
------------------------------------------------------------------------
147,000,000 4.91% - 5.01%, 7/5/1996 145,684,454
------------------------------------------------------------------------
27,000,000 4.94%, 8/15/1996 26,607,270
------------------------------------------------------------------------
27,000,000 4.96%, 6/13/1996 26,840,040
------------------------------------------------------------------------
30,000,000 4.98%, 6/20/1996 29,792,708
------------------------------------------------------------------------
45,000,000 4.98%, 7/11/1996 44,558,469
------------------------------------------------------------------------
19,000,000 5.18%, 10/10/1996 18,557,538
------------------------------------------------------------------------ --------------
Total 884,677,796
------------------------------------------------------------------------ --------------
U.S. TREASURY NOTES--26.9%
------------------------------------------------------------------------
33,000,000 4.38%, 8/15/1996 32,916,596
------------------------------------------------------------------------
130,000,000 5.88% - 7.63%, 5/31/1996 130,147,378
------------------------------------------------------------------------
73,000,000 6.13% - 7.88%, 7/31/1996 73,247,265
------------------------------------------------------------------------
70,000,000 7.38%, 5/15/1996 70,059,982
------------------------------------------------------------------------
20,000,000 7.88%, 7/15/1996 20,117,188
------------------------------------------------------------------------ --------------
Total 326,488,409
------------------------------------------------------------------------ --------------
TOTAL INVESTMENTS (AT AMORTIZED COST)(B) $1,211,166,205
------------------------------------------------------------------------ --------------
</TABLE>

(a) Each issue shows the rate of discount at time of purchase.

(b) Also represents cost for federal tax purposes.

Note: The categories of investments are shown as a percentage of net assets
($1,214,760,873) at
April 30, 1996.

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

U.S. TREASURY CASH RESERVES
STATEMENT OF OPERATIONS
YEAR ENDED APRIL 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -----------------------------------------------------------------------------------
Interest $49,987,998
- -----------------------------------------------------------------------------------
EXPENSES:
- -----------------------------------------------------------------------------------
Investment advisory fee $ 3,645,164
- --------------------------------------------------------------------
Administrative personnel and services fee 689,421
- --------------------------------------------------------------------
Custodian fees 104,967
- --------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 89,110
- --------------------------------------------------------------------
Directors'/Trustees' fees 10,293
- --------------------------------------------------------------------
Auditing fees 13,468
- --------------------------------------------------------------------
Legal fees 4,487
- --------------------------------------------------------------------
Portfolio accounting fees 131,524
- --------------------------------------------------------------------
Shareholder services fee--Institutional Shares 1,906,454
- --------------------------------------------------------------------
Shareholder services fee--Institutional Service Shares 371,773
- --------------------------------------------------------------------
Share registration costs 233,608
- --------------------------------------------------------------------
Printing and postage 11,387
- --------------------------------------------------------------------
Insurance premiums 13,149
- --------------------------------------------------------------------
Miscellaneous 4,756
- -------------------------------------------------------------------- -----------
Total expenses 7,229,561
- --------------------------------------------------------------------
Waivers--
- --------------------------------------------------------------------
Waiver of investment advisory fee $(3,091,301)
- ------------------------------------------------------
Waiver of shareholder services fee--Institutional
Shares (1,906,454)
- ------------------------------------------------------ -----------
Total waivers (4,997,755)
- -------------------------------------------------------------------- -----------
Net expenses 2,231,806
- ----------------------------------------------------------------------------------- -----------
Net investment income $47,756,192
- ----------------------------------------------------------------------------------- -----------
</TABLE>

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

U.S. TREASURY CASH RESERVES
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
----------------------------------
1996 1995
--------------- ---------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ------------------------------------------------------------
OPERATIONS--
- ------------------------------------------------------------
Net investment income $ 47,756,192 $ 19,174,852
- ------------------------------------------------------------ --------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ------------------------------------------------------------
Distributions from net investment income
- ------------------------------------------------------------
Institutional Shares (40,360,730) (18,188,542)
- ------------------------------------------------------------
Institutional Service Shares (7,395,462) (986,310)
- ------------------------------------------------------------ --------------- ---------------
Change in net assets resulting from distributions to
shareholders (47,756,192) (19,174,852)
- ------------------------------------------------------------ --------------- ---------------
SHARE TRANSACTIONS--
- ------------------------------------------------------------
Proceeds from sale of shares 3,934,548,103 1,756,823,729
- ------------------------------------------------------------
Net asset value of shares issued to shareholders in
payment of distributions declared 5,240,359 1,510,042
- ------------------------------------------------------------
Cost of shares redeemed (3,394,768,512) (1,353,622,888)
- ------------------------------------------------------------ --------------- ---------------
Change in net assets resulting from share transactions 545,019,950 404,710,883
- ------------------------------------------------------------ --------------- ---------------
Change in net assets 545,019,950 404,710,883
- ------------------------------------------------------------
NET ASSETS:
- ------------------------------------------------------------
Beginning of period 669,740,923 265,030,040
- ------------------------------------------------------------ --------------- ---------------
End of period $ 1,214,760,873 $ 669,740,923
- ------------------------------------------------------------ --------------- ---------------
</TABLE>

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

U.S. TREASURY CASH RESERVES

NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1996
- --------------------------------------------------------------------------------

(1) ORGANIZATION

Federated Government Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Trust consists of three portfolios. The financial
statements included herein are only those of U.S. Treasury Cash Reserves (the
"Fund"), a diversified portfolio. The financial statements of the other
portfolios are presented separately. The assets of each portfolio are segregated
and a shareholder's interest is limited to the portfolio in which shares are
held. The investment objective of the Fund is current income consistent with
stability of principal and liquidity.

The Fund offers two classes of shares: Institutional Shares and Institutional
Service Shares.

(2) SIGNIFICANT ACCOUNTING POLICIES

INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value
its portfolio securities is in accordance with Rule 2a-7 under the Act.

USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts of assets, liabilities, expenses and
revenues reported in the financial statements. Actual results could differ
from those estimated.

OTHER--Investment transactions are accounted for on the trade date.

U.S. TREASURY CASH RESERVES
- --------------------------------------------------------------------------------

Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
--------------------------------
INSTITUTIONAL SHARES 1996 1995
- -------------------------------------------------------------- -------------- --------------
<S> <C> <C>
Shares sold 3,218,643,175 1,652,377,627
- --------------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 4,028,759 1,509,906
- --------------------------------------------------------------
Shares redeemed (2,894,243,576) (1,309,684,428)
- -------------------------------------------------------------- -------------- --------------
Net change resulting from Institutional share transactions 328,428,358 344,203,105
- -------------------------------------------------------------- -------------- --------------
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
--------------------------------
INSTITUTIONAL SERVICE SHARES 1996 1995(A)
- -------------------------------------------------------------- -------------- --------------
<S> <C> <C>
Shares sold 715,904,928 104,446,102
- --------------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 1,211,600 136
- --------------------------------------------------------------
Shares redeemed (500,524,936) (43,938,460)
- -------------------------------------------------------------- -------------- --------------
Net change resulting from Institutional Service share
transactions 216,591,592 60,507,778
- -------------------------------------------------------------- -------------- --------------
Net change resulting from share transactions 545,019,950 404,710,883
- -------------------------------------------------------------- -------------- --------------
</TABLE>

(a) Reflects operations for the period from December 15, 1994 (date of initial
public investment) to April 30, 1995.

(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

U.S. TREASURY CASH RESERVES
- --------------------------------------------------------------------------------

TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSE--FServ, through its
subsidiary, Federated Shareholder Services Company serves as transfer and
dividend disbursing agent for the Fund. The fee paid to FServ is based on the
size, type, and number of accounts and transactions made by shareholders.

GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------

To the Trustees and Shareholders of

U.S. TREASURY CASH RESERVES:

We have audited the accompanying statement of assets and liabilities of U.S.
Treasury Cash Reserves (a portfolio of Federated Government Trust), including
the portfolio of investments, as of April 30, 1996, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended and financial highlights for the
periods presented therein. These financial statements and the financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.

In our opinion, this financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of U.S.
Treasury Cash Reserves at April 30, 1996, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for the periods presented
therein, in conformity with generally accepted accounting principles.

ERNST & YOUNG LLP

Pittsburgh, Pennsylvania
June 14, 1996

ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
U.S. Treasury Cash Reserves
Institutional Service Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Custodian
State Street Bank and c/o Federated Shareholder Services
Trust Company Company
P.O. Box 8600
Boston, Massachusetts 02266-8600
- ------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services P.O. Box 8600
Company Boston, Massachusetts 02266-8600
- ------------------------------------------------------------------------------------------------
Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, Pennsylvania 15219
- ------------------------------------------------------------------------------------------------
</TABLE>

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

- --------------------------------------------------------------------------------
U.S. TREASURY
CASH RESERVES
INSTITUTIONAL SERVICE SHARES
PROSPECTUS

A Diversified Portfolio of Federated
Government Trust, an Open-End
Management Investment Company

Prospectus dated June 30, 1996

LOGO
CUSIP 314186503
1022103A-SS (6/96)

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

AUTOMATED GOVERNMENT CASH RESERVES
(A PORTFOLIO OF FEDERATED GOVERNMENT TRUST)

STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of Automated Government Cash Reserves (the "Fund"), a
portfolio of Federated Government Trust (the "Trust") dated June 30,
1996. 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 1-800-235-4669.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779

FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779

Federated Securities Corp is the distributor
of the Fund and is a subsidiary of Federated
Investors
Cusip 31486107
0011606B (6/96)
Statement dated June 30, 1996

INVESTMENT POLICIES 3

Acceptable Investments 3
When-Issued and Delayed Delivery Transactions 3
INVESTMENT LIMITATIONS 4

Regulatory Compliance 6
FEDERATED GOVERNMENT TRUST MANAGEMENT 7

The Funds 14
Share Ownership 15
Trustee Compensation 16
Trustee Liability 18
INVESTMENT ADVISORY SERVICES 18

Investment Adviser 18
Advisory Fees 18
State Expense Limitations 19
BROKERAGE TRANSACTIONS 19

OTHER SERVICES 21

Fund Administration 21
Custodian and Portfolio Accountant 22
Transfer Agent 22
Independent Auditors 22
SHAREHOLDER SERVICES 22

DETERMINING NET ASSET VALUE 23

REDEMPTION IN KIND 24

MASSACHUSETTS PARTNERSHIP LAW 25

THE FUND'S TAX STATUS 25

PERFORMANCE INFORMATION 26

Yield 26
Effective Yield 26
Total Return 27
Performance Comparisons 27
Economic and Market Information 28
ABOUT FEDERATED INVESTORS 29

Mutual Fund Market 30
Institutional Clients 30
Trust Organizations 31
Broker/Dealers and Bank Broker/Dealer Subsidiaries 31

INVESTMENT POLICIES

ACCEPTABLE INVESTMENTS
Some of the short-term U.S. government securities the Fund may purchase
carry variable interest rates. These securities have a rate of interest
subject to adjustment at least annually. This adjusted interest rate is
ordinarily tied to some objective standard, such as the 91-day U.S.
Treasury bill rate. Variable interest rates will reduce the changes in the
market value of such securities from their original purchase prices.
Accordingly, the potential for capital appreciation or capital
depreciation should not be greater than that of fixed interest rate U.S.
government securities having maturities equal to the interest rate
adjustment dates of the variable rate U.S. government securities. The Fund
may purchase variable rate U.S. government securities upon the
determination by the Board of Trustees that the interest rate as adjusted
will cause the instrument to have a current market value that approximates
its par value on the adjustment date.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of the

Fund in a dollar amount sufficient to make payment for the securities to be
purchased are: segregated on the Fund`s records at the trade date; marked
to market daily; and maintained until the transaction is settled. The Fund
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.

INVESTMENT LIMITATIONS

SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin but may obtain such short-term credits as may necessary for
clearance of transactions.
ISSUING SENIOR SECURITIES AND BORROWING MONEY

The Fund will not issue senior securities except that the Fund may borrow
money in amounts up to one-third of the value of its total assets,
including the amounts borrowed.
The Fund will not borrow money except as a temporary, extraordinary, or
emergency measure or to facilitate management of the portfolio by enabling
the Fund to meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. The Fund will
not purchase any securities while borrowings in excess of 5% of its total
assets are outstanding.

PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it may pledge assets having a

market value not exceeding the lesser of the dollar amounts borrowed or 10%
of the value of total assets at the time of the pledge.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except that it may purchase or
hold U.S. government securities permitted by its investment objective,
policies, and limitations or Declaration of Trust.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, or limited partnership
interests in real estate, although it may invest in securities of companies
whose business involves the purchase or sale of real estate or in
securities which are secured by real estate or which represent interests in
real estate.

The above limitations cannot be changed without shareholder approval. The
following limitations, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material
change in those limitations becomes effective.

INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities, such as demand master notes, the demand for full or
partial prepayment of which may not occur within 7 days notice.
INVESTING IN WARRANTS
The Fund will not invest in warrants.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will not purchase securities of other investment companies, except
as part of a merger, consolidation, or other acquisition.

INVESTING IN MINERALS
The Fund will not purchase or sell interests in oil, gas, or other mineral
exploration or development programs or leases, although it may purchase the
securities of issuers which invest in or sponsor such programs.

For purposes of the above limitations, the Fund 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 Fund 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 Fund 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 Fund will comply with the various requirements of Rule 2a-7, which
regulates money market mutual funds. The Fund will determine the effective
maturity of its investments according to Rule 2a-7. The Fund may change

these operational policies to reflect changes in the laws and regulations
without the approval of its shareholders.
FEDERATED GOVERNMENT TRUST
MANAGEMENT

Officers and Trustees are listed with their addresses, birthdates, present
positions with Federated Government Trust , and principal occupations.

John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds. Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President of the Trust.

Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee

Chairman of the Board, Children's Hospital of Pittsburgh; Director or
Trustee of the Funds; formerly, Senior Partner, Ernst & Young LLP.

John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President, John
R. Wood and Associates, Inc., Realtors; President, Northgate Village
Development Corporation; Partner or Trustee in private real estate ventures
in Southwest Florida; Director or Trustee of the Funds; formerly,
President, Naples Property Management, Inc.

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

James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director 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 and Member, Board of Trustees, University of
Pittsburgh; Medical Director, University of Pittsburgh Medical Center -
Downtown; Member, Board of Directors, University of Pittsburgh Medical
Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian and
Montefiore Hospitals; Director or Trustee of the Funds.

Edward L. Flaherty, Jr.@
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee

Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Director,
Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.;
Director or Trustee of the Funds; formerly, Counsel, Horizon Financial,
F.A., Western Region.

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

Peter E. Madden
Seacliff
562 Bellevue Avenue
Newport, RI
Birthdate: March 16, 1942
Trustee
Consultant; State Representative, Commonwealth of Massachusetts; Director
or Trustee of the Funds; formerly, President, State Street Bank and Trust
Company and State Street Boston Corporation.

Gregor F. Meyer
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674

Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; 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 and Management Consultant; Trustee,
Carnegie Endowment for International Peace, RAND Corporation, Online
Computer Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho
Management Center; Director or Trustee of the Funds; President Emeritus,

University of Pittsburgh; founding Chairman, National Advisory Council for
Environmental Policy and Technology and Federal Emergency Management
Advisory Board.

Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/marketing consultant; Conference Coordinator, Non-profit
entities; Director or Trustee of the Funds.

J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Trustee of the 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, Secretary
and Treasurer 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; Annuity Management Series; Arrow Funds; Automated
Government Money Trust; Blanchard Funds; Blanchard Precious Metals Fund,
Inc.; Cash Trust Series II; Cash Trust Series, Inc. ; DG Investor Series;
Edward D. Jones & Co. Daily Passport Cash Trust; Federated Adjustable Rate
U.S. Government Fund, Inc.; Federated American Leaders Fund, Inc.;
Federated ARMs Fund; Federated Equity Funds; Federated Equity Income Fund,
Inc.; Federated Fund for U.S. Government Securities, Inc.; Federated GNMA
Trust; Federated Government Income Securities, Inc.; Federated Government
Trust; Federated High Income Bond Fund, Inc.; Federated High Yield Trust;

Federated Income Securities Trust; Federated Income Trust; Federated Index
Trust; Federated Institutional Trust; Federated Insurance Series; Federated
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.; Fortress Utility Fund, Inc.; High
Yield Cash Trust; Intermediate Municipal Trust; International Series, Inc.;
Investment Series Funds, Inc.; Investment Series Trust; Liberty Term
Trust, Inc. - 1999; Liberty U.S. Government Money Market Trust; Liquid Cash
Trust; Managed Series Trust; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; Municipal Securities Income Trust;
Newpoint Funds; Peachtree Funds; RIMCO Monument Funds; Targeted Duration
Trust; Tax-Free Instruments Trust; The Planters Funds; The Starburst Funds;
The Starburst Funds II; The Virtus Funds; Trust for Financial Institutions;
Trust for Government Cash Reserves; Trust for Short-Term U.S. Government
Securities; Trust for U.S. Treasury Obligations; and World Investment
Series, Inc.
SHARE OWNERSHIP
Officers and Trustees as a group own less than 1% of the Fund`s outstanding
shares.
As of May 31, 1996, the following shareholders of record owned 5% or more
of the outstanding shares of the Automated Government Cash Reserves: The
Chase Manhattan Bank, NA, New York, NY, owned 5.49%; Fiduciary Trust

Company International, New York, NY, owned 18.82%; Bancfirst, Oklahoma
City, OK, owned 7.19%; State Street Bank and Trust, North Quincy, MA, owned
26.99%%; Wheeler & Co., Boston, MA, owned 7.85%.
TRUSTEE COMPENSATION

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

John F. Donahue, $ 0 $-0- for the Trust and
Chairman and Trustee 54 other investment companies in the Fund
Complex

Thomas G. Bigley,++ $489.82 $86,331 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
John T. Conroy, $901.31 $115,760 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
William J. Copeland, $901.31 $115,760 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
James E. Dowd, $901.31 $115,760 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
Lawrence D. Ellis, M.D., $841.82 $104,898 for the Trust and

Trustee 54 other investment companies in the Fund
Complex
Edward L. Flaherty, Jr., $901.31 $115,760 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
Glen R. Johnson, $ 0 $-0- for the Trust and
President and Trustee 9 other investment companies in the Fund
Complex

Peter E. Madden, $841.82 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
Gregor F. Meyer, $841.82 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
John E. Murray, Jr., $841.82 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
Wesley W. Posvar,$841.82 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
Marjorie P. Smuts, $841.82 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex

*Information is furnished for the fiscal year ended April 30, 1996.

#The aggregate compensation is provided for the Trust which is comprised of
three portfolios.
+The information is provided for the last calendar year.
++ Mr. Bigley served on 39 investment companies in the Federated Funds
Complex from January 1 through September 30, 1995. On October 1, 1995, he
was appointed a Trustee on 15 additional Federated Funds.

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 Fund'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, the Fund, or any shareholder
of the Fund 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 April 30, 1996, 1995, and 1994, the adviser earned $2,764,784,
$2,501,388, and $2,227,794, respectively, of which $1,634,559, $1,583,947,
and $389,870, respectively, were waived.

STATE EXPENSE LIMITATIONS
The adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares
are registered for sale in those states. If the Fund's normal
operating expenses (including the investment advisory fee, but not
including brokerage commissions, interest, taxes, and extraordinary
expenses) exceed 2-1/2% per year of the first $30 million of average
net assets, 2% per year of the next $70 million of average net assets,
and 1-1/2% per year of the remaining average net assets, the adviser
will reimburse the Fund for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the adviser
will be limited, in any single fiscal year, by the amount of the
investment advisory fees.
This arrangement is not part of the advisory contract and may be
amended or rescinded in the future.
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 Fund
or to the adviser and may include: advice as to the advisability of
investing in securities; security analysis and reports; economic studies;
industry studies; receipt of quotations for portfolio evaluations; and
similar services. Research services provided by brokers and dealers may be
used by the adviser or its affiliates in advising the Fund and other
accounts. To the extent that receipt of these services may supplant
services for which the adviser or its affiliates might otherwise have paid,
it would tend to reduce their expenses. The adviser and its affiliates
exercise reasonable business judgment in selecting brokers who offer
brokerage and research services to execute securities transactions. They
determine in good faith that commissions charged by such persons are
reasonable in relationship to the value of the brokerage and research
services provided. During the fiscal year(s) ended April 30, 1996, 1995 and
1994, the Fund paid no brokerage commissions.

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 Fund or
the size of the position obtained or disposed of by the Fund. In other
cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.

OTHER SERVICES

FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in
the prospectus. From March 1, 1994 to March 1, 1996, Federated
Administrative Services served as the Fund's Administrator. Prior to March
1, 1994, Federated Aministrative Services, Inc. served as the Fund's
Administrator. Both former Administrators are subsidiaries of Federated
Investors. For purposes of this Statement of Additional Information,
Federated Services Company, Federated Administrative Services and Federated
Administrative Services, Inc. may hereinafter collectively be referred to
as the "Administrators." For the fiscal years ended April 30, 1996, 1995,
and 1994, the Administrators earned $418,364, $378,710, and $348,312,
respectively. Dr. Henry J. Gailliot, an officer of Federated Management,
the adviser to the Fund, holds approximately 20% of the outstanding common
stock and serves as a director of Commercial Data Services, Inc., a company
which provides computer processing services to Federated Services Company.

CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the
securities and cash of the Fund. Federated Services Company, Pittsburgh,
PA, provides certain accounting and recordkeeping services with respect to
the Fund's portfolio investments. The fee paid for this service is based
upon the level of the Fund's average net assets for the period plus out-of-
pocket expenses.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent,
Federated Shareholder Services Company, maintains all necessary shareholder
records. For its services, the transfer agent receives a fee based on size,
type, number of accounts and transactions made by shareholders.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Ernst & Young 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 ending April 30, 1996, payments in the amount of
$1,382,392 were 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 Fund computed by dividing the annualized daily income on the Fund'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 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
Fund'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% 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 Fund is obligated to redeem shares solely in cash up to $250,000 or 1%
of the Fund'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 Fund will pay all or a portion of the remainder of the
redemption in portfolio instruments valued in the same way as the Fund
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 FUND'S TAX STATUS

To qualify for the special tax treatment afforded to regulated investment
companies, the Fund 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 Fund, 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.

The Fund's yield for the seven-day period ended April 30, 1996 was 4.74%.

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. The Fund's effective
yield for the seven-day period ended April 30, 1996, was 4.85%.

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.

The Fund's average annual total returns for the one-year and five-year
periods ended April 30, 1996 and for the period from February 15, 1990
(date of initial public investment) through April 30, 1996 were 5.24% ,
4.08% and 4.72%, respectively.

PERFORMANCE COMPARISONS
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund'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 Fund
uses in advertising may include:

O LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund
categories based on total return, which assumes the reinvestment of
all income dividends and capital gains distributions, if any.
o DONOGHUE'S MONEY FUND REPORT publishes annualized yields of money
market funds weekly. Donoghue's Money Market Insight publication
reports monthly and 12 month-to-date investment results for the same
money funds.
o MONEY, a monthly magazine, regularly ranks money market funds in
various categories based on the latest available seven-day effective
yield.
o SALOMON 30-DAY TREASURY BILL INDEX is a weekly quote of the most
representative yields for selected securities, issued by the U.S.
Treasury, maturing in 30 days.
o DISCOUNT CORPORATION OF NEW YORK 30-DAY FEDERAL AGENCIES is a weekly
quote of the average daily offering price for selected federal agency
issues maturing in 30 days.

Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deffered compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in
which it invests, to a variety of other invstments, such as bank savings
accounts, certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Fund 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 the Fund portfolio managers and their views and
anaylsis 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

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, 1995, Federated Investors managed
more than $40.2 billion in assets across approximately 47 money market

funds, including 17 government, 10 prime and 20 municipal with assets
approximating $20.9 billion, $11.5 billion and $7.8 billion, respectively.

Twenty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $3 trillion to the more than 5,500 funds
available.*

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

INSTITUTIONAL 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.

TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than
1,500 banks and trust organizations. Virtually all of the trust divisions
of the top 100 bank holding companies use Federated funds in their clients'
portfolios. The marketing effort to trust clients is headed by Mark R.
Gensheimer, Executive Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES

Federated funds are available to consumers through major brokerage firms
nationwide--including 200 New York Stock Exchange firms--supported by more
wholesalers than any other mutual fund distributor. Federated's service to
financial professionals and institutions has earned it high ranking in
several DALBAR Surveys. The marketing effort to these firms is headed by
James F. Getz, President, Broker/Dealer Division.
*Source: Investment Company Institute
CUSIP 314186107
0011606B (6/96)

AUTOMATED TREASURY CASH RESERVES
(A PORTFOLIO OF FEDERATED GOVERNMENT TRUST)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of Automated Treasury Cash reserves (the "Fund"), a
portfolio of Federated Government Trust (the "Trust") dated June 30,
1996. 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 1-800-235-4669.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated June 30, 1996

FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779

Federated Securities Corp. is the distributor
of the Fund and is a subsidiary of Federated
Investors.
Cusip 31486404
1052101B (6/96)

INVESTMENT POLICIES 3

When-Issued and Delayed Delivery Transactions 3
INVESTMENT LIMITATIONS 3

Regulatory Compliance 5
FEDERATED GOVERNMENT TRUST MANAGEMENT 6

The Funds 13
Share Ownership 15
Trustee Compensation 15
Trustee Liability 17
INVESTMENT ADVISORY SERVICES 17

Investment Adviser 17
Advisory Fees 18
State Expense Limitations 18
BROKERAGE TRANSACTIONS 19

OTHER SERVICES 20

Fund Administration 20
Custodian and Portfolio Accountant 21
Transfer Agent 21
Independent Auditors 21
SHAREHOLDER SERVICES 21

DETERMINING NET ASSET VALUE 22

REDEMPTION IN KIND 23

MASSACHUSETTS PARTNERSHIP LAW 24

THE FUND'S TAX STATUS 24

PERFORMANCE INFORMATION 25

Yield 25
Effective Yield 26
Total Return 26
Performance Comparisons 26
Economic and Market Information 27
ABOUT FEDERATED INVESTORS 28

Mutual Fund Market 29
Institutional Clients 29
Trust Organizations 30
Broker/Dealers and Bank Broker/Dealer Subsidiaries 30

INVESTMENT POLICIES

Unless indicated otherwise, the policies described below may be changed by
the Board of Trustees without shareholder approval. Shareholders will be
notified before any material change in these policies becomes effective.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of the
Fund in a dollar amount sufficient to make payment for the securities to be
purchased are: segregated on the Fund`s records at the trade date; marked
to market daily; and maintained until the transaction is settled. The Fund
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.

INVESTMENT LIMITATIONS

SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin but may obtain such short-term credits as may be necessary for
clearance of transactions.
ISSUING SENIOR SECURITIES AND BORROWING MONEY

The Fund will not issue senior securities except that the Fund may borrow
money in amounts up to one-third of the value of its total assets,
including the amounts borrowed.

The Fund will not borrow money except as a temporary, extraordinary, or
emergency measure or to facilitate management of the portfolio by enabling
the Fund to meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. The Fund will
not purchase any securities while borrowings in excess of 5% of its total
assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it may pledge assets having a
market value not exceeding the lesser of the dollar amounts borrowed or 10%
of the value of total assets at the time of the pledge.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except that it may purchase or
hold U. S. Treasury obligations, as permitted by its investment objective,
policies, and limitations or Declaration of Trust.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, including limited
partnership interests.

INVESTING IN WARRANTS
The Fund will not invest in warrants.

INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities, such as demand master notes, the demand for full or
partial prepayment of which may not occur within 7 days notice.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will not purchase securities of other investment companies, except
as part of a merger, consolidation, or other acquisition.
INVESTING IN MINERALS
The Fund will not purchase or sell interests in oil, gas, or other mineral
exploration or development programs or leases, although it may purchase the
securities of issuers which invest in or sponsor such programs.

The Fund 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 Fund 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 Fund will comply with the various requirements of Rule 2a-7, which
regulates money market mutual funds. The Fund will determine the effective
maturity of its investmentsaccording to Rule 2a-7. The Fund may change
these operational policies to reflect changes in the laws and regulations
without the approval of its shareholders.
FEDERATED GOVERNMENT TRUST
MANAGEMENT

Officers and Trustees are listed with their addresses, birthdates, present
positions with Federated Government Trust , and principal occupations.

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

William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918

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

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

Edward L. Flaherty, Jr.@
Henny, Kochuba, Meyer and Flaherty

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

Peter E. Madden
Seacliff
562 Bellevue Avenue
Newport, RI
Birthdate: March 16, 1942
Trustee

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

Gregor F. Meyer
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; 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 and Management Consultant; Trustee,
Carnegie Endowment for International Peace, RAND Corporation, Online
Computer Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho
Management Center; Director or Trustee of the Funds; President Emeritus,
University of Pittsburgh; founding Chairman, National Advisory Council for
Environmental Policy and Technology and Federal Emergency Management
Advisory Board.

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.

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, Secretary
and Treasurer of the Funds.

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
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.; Fortress Utility Fund, Inc.; High
Yield Cash Trust; Intermediate Municipal Trust; International Series, Inc.;
Investment Series Funds, Inc.; Investment Series Trust; Liberty Term
Trust, Inc. - 1999; Liberty U.S. Government Money Market Trust; Liquid Cash
Trust; Managed Series Trust; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; Municipal Securities Income Trust;
Newpoint Funds; Peachtree Funds; RIMCO Monument Funds; Targeted Duration
Trust; Tax-Free Instruments Trust; The Planters Funds; The Starburst Funds;
The Starburst Funds II; The Virtus Funds; Trust for Financial Institutions;
Trust for Government Cash Reserves; Trust for Short-Term U.S. Government

Securities; Trust for U.S. Treasury Obligations; and World Investment
Series, Inc.
SHARE OWNERSHIP
Officers and Trustees as a group own less than 1% of the Fund`s outstanding
shares.
As of May 31, 1996, the following shareholders of record owned 5% or more
of the outstanding shares of the Automated Treasury Cash Reserves: The
Chase Manhattan Bank,NA, New York, NY, owned 24.89%; HUBCO, Birmingham, AL,
owned 6.52%; State Street Bank and Trust, North Quincy, MA, owned 5.34%;
Capital Bank, Miami, FLA, owned 7.97%; Var & Co., St. Paul , MN, owned
19.36%; BHC Securities, Inc., Philadelphia, PA, owned 13.10%.

TRUSTEE COMPENSATION

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

John F. Donahue, $ 0 $-0- for the Trust and
Chairman and Trustee 54 other investment companies in the Fund
Complex

Thomas G. Bigley,++ $326.84 $86,331 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
John T. Conroy, $580.63 $115,760 for the Trust and

Trustee 54 other investment companies in the Fund
Complex
William J. Copeland, $580.63 $115,760 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
James E. Dowd, $580.63 $115,760 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
Lawrence D. Ellis, M.D., $536.84 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
Edward L. Flaherty, Jr., $580.63 $115,760 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
Glen R. Johnson, $ 0 $-0- for the Trust and
President and Trustee 9 other investment companies in the Fund
Complex

Peter E. Madden, $536.84 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
Gregor F. Meyer, $536.84 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
John E. Murray, Jr., $536.84 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
Wesley W. Posvar,$536.84 $104,898 for the Trust and

Trustee 54 other investment companies in the Fund
Complex
Marjorie P. Smuts, $536.84 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex

*Information is furnished for the fiscal year ended April 30, 1996.
#The aggregate compensation is provided for the Trust which is comprised of
three portfolios.
+The information is provided for the last calendar year.
++ Mr. Bigley served on 39 investment companies in the Federated Funds
Complex from January 1 through September 30, 1995. On October 1, 1995, he
was appointed a Trustee on 15 additional Federated Funds.

The adviser shall not be liable to the Trust, the Fund, or any shareholder
of the Fund 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 April 30, 1996, 1995, and 1994, the adviser earned $1,059,678,
$916,195, and $1,347,324, respectively, of which $734,005, $587,578, and
$365,620, respectively, were waived.

will be limited, in any single fiscal year, by the amount of the
investment advisory fees.
This arrangement is not part of the advisory contract and may be
amended or rescinded in the future.
BROKERAGE TRANSACTIONS

services provided. During the fiscal year(s) ended April 30, 1996, 1995 and
1994, the Fund paid no brokerage commissions.

Although investment decisions for the Fund are made independently from
those of the other accounts managed by the adviser, investments of the type
the Fund may make may also be made by those other accounts. When the Fund
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 Fund or
the size of the position obtained or disposed of by the Fund. In other
cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.

OTHER SERVICES

and 1994, the Administrators earned $160,338, $138,717, and $316,918,
respectively. Dr. Henry J. Gailliot, an officer of Federated Management,
the adviser to the Fund, holds approximately 20% of the outstanding common
stock and serves as a director of Commercial Data Services, Inc., a company
which provides computer processing services to Federated Services Company.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the
securities and cash of the Fund. Federated Services Company, Pittsburgh,
PA, provides certain accounting and recordkeeping services with respect to
the Fund's portfolio investments. The fee paid for this service is based
upon the level of the Fund's average net assets for the period plus out-of-
pocket expenses.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent,
Federated Shareholder Services Company, maintains all necessary shareholder
records. For its services, the transfer agent receives a fee based on size,
type, number of accounts and transactions made by shareholders.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Ernst & Young LLP, Pittsburgh,
PA.
SHAREHOLDER SERVICES

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 ending April 30, 1996, payments in the amount of
$497,108 were made pursuant to the Shareholder Services Agreement, all of
which was paid to financial institutions.

DETERMINING NET ASSET VALUE

market prices and estimates. In periods of rising interest rates, the
opposite may be true.

The Fund'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
Fund'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% 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

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

THE FUND'S TAX STATUS

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

The Fund's yield for the seven-day period ended April 30, 1996, was 4.45%.

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. The Fund's effective
yield for the seven-day period ended April 30, 1996, was 4.55%.

The Fund's average annual total returns for the one-year period ended April
30, 1996 and for the period from August 9, 1991 (date of initial public
investment) through April 30, 1996 were 5.04% and 3.79%, respectively.

offering price. The financial publications and/or indices which the Fund
uses in advertising may include:
O LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund
categories based on total return, which assumes the reinvestment of
all income dividends and capital gains distributions, if any.
o DONOGHUE'S MONEY FUND REPORT publishes annualized yields of money
market funds weekly. Donoghue's Money Market Insight publication
reports monthly and 12 month-to-date investment results for the same
money funds.
o MONEY, a monthly magazine, regularly ranks money market funds in
various categories based on the latest available seven-day effective
yield.
o SALOMON 30-DAY TREASURY BILL INDEX is a weekly quote of the most
representative yields for selected securities, issued by the U.S.
Treasury, maturing in 30 days.

anaylsis 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

funds, including 17 government, 10 prime and 20 municipal with assets
approximating $20.9 billion, $11.5 billion and $7.8 billion, respectively.

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

U.S. TREASURY CASH RESERVES
(A PORTFOLIO OF FEDERATED GOVERNMENT TRUST)
INSTITUTIONAL SERVICE SHARES
INSTITUTIONAL SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectuses of U.S. Treasury Cash Reserves (the "Fund"), a portfolio
of Federated Government Trust (the "Trust") dated June 30, 1996. 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 1-800-235-4669.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779

FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779

Federated Securities Corp is the distributor of the Funds and is a
subsidiary of Federated Investors
Cusip 314186305
Cusip 314186503
1022103B (6/96)

Statement dated June 30, 1996

INVESTMENT POLICIES 3

When-Issued and Delayed Delivery Transactions 3
INVESTMENT LIMITATIONS 3

Regulatory Compliance 6
FEDERATED GOVERNMENT TRUST MANAGEMENT 6

The Funds 14
Share Ownership 15
Trustee Compensation 15
Trustee Liability 17
INVESTMENT ADVISORY SERVICES 18

Investment Adviser 18
Advisory Fees 18
State Expense Limitations 18
BROKERAGE TRANSACTIONS 19

OTHER SERVICES 20

Fund Administration 20
Custodian and Portfolio Accountant 21
Transfer Agent 21
Independent Auditors 21
DISTRIBUTION PLAN (INSTITUTIONAL SERVICE SHARES) AND
SHAREHOLDER SERVICES 22

DETERMINING NET ASSET VALUE 23

REDEMPTION IN KIND 24

MASSACHUSETTS PARTNERSHIP LAW 25

THE FUND'S TAX STATUS 25

PERFORMANCE INFORMATION 26

Yield 26
Effective Yield 26
Total Return 27
Performance Comparisons 27
Economic and Market Information 28
ABOUT FEDERATED INVESTORS 29

Mutual Fund Market 30
Institutional Clients 30
Trust Organizations 30
Broker/Dealers and Bank Broker/Dealer Subsidiaries31

INVESTMENT POLICIES

INVESTMENT LIMITATIONS

The Fund will not issue senior securities except that the Fund may borrow
money in amounts up to one-third of the value of its total assets,
including the amounts borrowed.

The Fund will not borrow money except as a temporary, extraordinary, or
emergency measure or to facilitate management of the portfolio by enabling
the Fund to meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. The Fund will
not purchase any securities while borrowings in excess of 5% of the value
of its total assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except as
necessary to secure permitted borrowings. In those cases, it may pledge
assets having a market value not exceeding the lesser of the dollar amounts
borrowed or 10% of the value of total assets at the time of the pledge.
LENDING CASH OR SECURITIES

The Fund will not lend any of its assets, except that it may purchase or
hold U.S. Treasury obligations as permitted by its investment objective,
policies, and limitations or Declaration of Trust.

INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, including limited
partnership interests, although it may invest in the securities of
companies whose business involves the purchase or sale of real estate or in
securities which are secured by real estate or which represent interests in
real estate.

The above limitations cannot be changed without shareholder approval. The
following limitations, however, may be changed by the Trustees without

shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective.

INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will not purchase securities of other investment companies, except
as part of a merger, consolidation, or other acquisition.
INVESTING IN MINERALS
The Fund will not purchase or sell interests in oil, gas, or other mineral
exploration or development programs or leases, although it may purchase the
securities of issuers which invest in or sponsor such programs.
INVESTING IN WARRANTS
The Fund will not invest in warrants.

The Fund 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 Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in
each 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 Fund will comply with the various requirements of Rule 2a-7, which
regulates money market mutual funds. The Fund will determine the effective
maturity of its investments according to Rule 2a-7. The Fund may change
these operational policies to reflect changes in the laws and regulations
without the approval of its shareholders.

FEDERATED GOVERNMENT TRUST MANAGEMENT

Officers and Trustees are listed with their addresses, birthdates, present
positions with Federated Government Trust, and principal occupations.

Funds. Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President of the Trust.

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.

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

Peter E. Madden
Seacliff
562 Bellevue Avenue

Newport, RI
Birthdate: March 16, 1942
Trustee
Consultant; State Representative, Commonwealth of Massachusetts; Director
or Trustee of the Funds; formerly, President, State Street Bank and Trust
Company and State Street Boston Corporation.

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.

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, Secretary
and Treasurer of the Funds.

THE FUNDS
As referred to in the list of Trustees and Officers, "Funds" includes the
following investment companies:
111 Corcoran Funds; Annuity Management Series; Arrow Funds; Automated
Government Money Trust; Blanchard Funds; Blanchard Precious Metals Fund,
Inc.; Cash Trust Series II; Cash Trust Series, Inc. ; DG Investor Series;
Edward D. Jones & Co. Daily Passport Cash Trust; Federated Adjustable Rate
U.S. Government Fund, Inc.; Federated American Leaders Fund, Inc.;
Federated ARMs Fund; Federated Equity Funds; Federated Equity Income Fund,
Inc.; Federated Fund for U.S. Government Securities, Inc.; Federated GNMA
Trust; Federated Government Income Securities, Inc.; Federated Government
Trust; Federated High Income Bond Fund, Inc.; Federated High Yield Trust;
Federated Income Securities Trust; Federated Income Trust; Federated Index
Trust; Federated Institutional Trust; Federated Insurance Series; Federated
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.; Fortress Utility Fund, Inc.; High
Yield Cash Trust; Intermediate Municipal Trust; International Series, Inc.;
Investment Series Funds, Inc.; Investment Series Trust; Liberty Term
Trust, Inc. - 1999; Liberty U.S. Government Money Market Trust; Liquid Cash
Trust; Managed Series Trust; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; Municipal Securities Income Trust;

Newpoint Funds; Peachtree Funds; RIMCO Monument Funds; Targeted Duration
Trust; Tax-Free Instruments Trust; The Planters Funds; The Starburst Funds;
The Starburst Funds II; The Virtus Funds; Trust for Financial Institutions;
Trust for Government Cash Reserves; Trust for Short-Term U.S. Government
Securities; Trust for U.S. Treasury Obligations; and World Investment
Series, Inc.
SHARE OWNERSHIP
Officers and Trustees as a group own less than 1% of the Fund`s outstanding
Institutional Service Shares.
As of May 31, 1996, the following shareholders of record owned 5% or more
of the outstanding shares of the U.S. Treasury Cash Reserves-Institutional
Shares: The Chase Mahattan Bank,New York, NY, owned 10.49%; Barhemco,
Boston, MA, owned 5.91%.
As of May 31, 1996, the following shareholders of record owned 5% or more
of the outstanding shares of the U.S. Treasury Cash Reserves-Institutional
Service Shares: The Chase Mahattan Bank,New York, NY, owned 23.21%; Seaway
National Bank of Chicago, Chicago, IL, owned 12.62%; Central Carolina Bank
& Trust, Durham, NC, owned 11.90%; Warner & Stackpole, Boston, MA, owned
5.56%; Voice Control Systems Inc., Dallas, TX, owned 5.66%.
TRUSTEE COMPENSATION

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

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

Chairman and Trustee 54 other investment companies in the Fund
Complex

Thomas G. Bigley,++ $683.51 $86,331 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
John T. Conroy, $1,112.77 $115,760 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
William J. Copeland, $1,112.77 $115,760 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
James E. Dowd, $1,112.77 $115,760 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
Lawrence D. Ellis, M.D., $1,038.51 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
Edward L. Flaherty, Jr., $1,112.77 $115,760 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
Glen R. Johnson, $ 0 $-0- for the Trust and
President and Trustee 9 other investment companies in the Fund
Complex

Peter E. Madden, $1,038.51 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex

Gregor F. Meyer, $1,038.51 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
John E. Murray, Jr., $1,038.51 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
Wesley W. Posvar,$1,038.51 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
Marjorie P. Smuts, $1,038.51 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex

INVESTMENT ADVISORY SERVICES

For its advisory services, Federated Management receives an annual
investment advisory fee as described in the prospectus. For the fiscal
years ended April 30, 1996, 1995, and 1994, the adviser earned $3,645,164,
$1,572,822, and $981,067, respectively, of which $3,091,301, $1,525,643,
and $981,067, respectively, were waived.

net assets, 2% per year of the next $70 million of average net assets,
and 1-1/2% per year of the remaining average net assets, the adviser
will reimburse the Fund for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the adviser
will be limited, in any single fiscal year, by the amount of the
investment advisory fees.
This arrangement is not part of the advisory contract and may be
amended or rescinded in the future.
BROKERAGE TRANSACTIONS

accounts. To the extent that receipt of these services may supplant
services for which the adviser or its affiliates might otherwise have paid,
it would tend to reduce their expenses. The adviser and its affiliates
exercise reasonable business judgment in selecting brokers who offer
brokerage and research services to execute securities transactions. They
determine in good faith that commissions charged by such persons are
reasonable in relationship to the value of the brokerage and research
services provided. During the fiscal year April 30, 1996, 1995 and 1994,
the Trust paid no brokerage commissions.

OTHER SERVICES

FUND ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in
each prospectus. From March 1, 1994 to March 1, 1996, Federated

Administrative Services served as the Fund's Administrator. Prior to March
1, 1994, Federated Aministrative Services, Inc. served as the Fund's
Administrator. Both former Administrators are subsidiaries of Federated
Investors. For purposes of this Statement of Additional Information,
Federated Services Company, Federated Administrative Services and Federated
Administrative Services, Inc. may hereinafter collectively be referred to
as the "Administrators." For the fiscal years ended April 30, 1996, 1995,
and 1994, the Administrators earned $689,421, $302,477, and $295,386,
respectively. Dr. Henry J. Gailliot, an officer of Federated Management,
the adviser to the Fund, holds approximately 20% of the outstanding common
stock and serves as a director of Commercial Data Services, Inc., a company
which provides computer processing services to Federated Services Company.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the
securities and cash of the Fund. Federated Services Company, Pittsburgh,
PA, provides certain accounting and recordkeeping services with respect to
the Fund's portfolio investments. The fee paid for this service is based
upon the level of the Fund's average net assets for the period plus out-of-
pocket expenses.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent,
Federated Shareholder Services Company, maintains all necessary shareholder
records. For its services, the transfer agent receives a fee based on size,
type, number of accounts and transactions made by shareholders.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Ernst & Young LLP , Pittsburgh,
PA.

DISTRIBUTION PLAN (INSTITUTIONAL SERVICE SHARES) AND SHAREHOLDER SERVICES

These arrangements permit the payment of fees to financial institutions,
the distributor, and Federated Shareholder Services, to stimulate
distribution activities and to cause services to be provided to
shareholders by a representative who has knowledge of the shareholder's
particular circumstances and goals. These activities and services may
include, but are not limited to: marketing efforts; providing office
space, equipment, telephone facilities, and various clerical, supervisory,
computer, and other personnel as necessary or beneficial to establish and
maintain shareholder accounts and records, processing purchase and
redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries; and assisting clients in
changing dividend options, account designations, and addresses.
By adopting the Plan on behalf of the Institutional Service Shares, the
Trustees expect that the Fund will be able to achieve a more predictable
flow of cash for investment purposes and to meet redemptions. This will
facilitate more efficient portfolio management and assist the Fund in
pursuing its investment objectives. By identifying potential investors
whose needs are served by the Fund's objectives, and properly servicing
these accounts, it may be possible to curb sharp fluctuations in rates of
redemptions and sales.
Other benefits, which may be realized under either arrangement, may
include: (1) providing personal services to shareholders; (2) investing
shareholder assets with a minimum of delay and administrative detail; (3)
enhancing shareholder recordkeeping systems; and (4) responding promptly to
shareholders' requests and inquiries concerning their accounts.

For the fiscal year ended April 30, 1996, the Fund incurred no distribution
services fees on behalf of Institutional Service Shares. In addition, for
the fiscal year ended April 30, 1996, the Fund paid shareholder service
fees in the amount of $371,773 on behalf of Institutional Service Shares.
For the fiscal year ended April 30, 1996, the Fund incurred shareholder
services fees in the amount of $1,906,454, on behalf of Institutional
Shares, all of which were waived.

DETERMINING 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
Fund'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% 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

MASSACHUSETTS PARTNERSHIP LAW

THE FUND'S TAX STATUS

PERFORMANCE INFORMATION

For the seven-day period ended April 30, 1996, the yield for Institutional
Service Shares was 4.58%, and Institutional Shares was 4.83%.

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 April 30, 1996, the effective yield for
Institutional Service Shares was 4.70%, and Institutional Shares was 4.95%.

For the one-year period ended April 30, 1996 and for the period from
December 15, 1994 (date of initial public investment) through April 30,
1996, the average annual total returns were 5.11%, and 5.15%, respectively,
for Institutional Service Shares. For the one-year period ended April 30,
1996 and for the period from June 11, 1991 (date of initial public
investment) through April 30, 1996 the average annual total returns and
were 5.43% and 4.19%, respectively, for Institutional Shares.

other funds, and methods used to value portfolio securities and compute
offering price. The financial publications and/or indices which the Fund
uses in advertising may include:
O LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund
categories based on total return, which assumes the reinvestment of
all income dividends and capital gains distributions, if any.
o DONOGHUE'S MONEY FUND REPORT publishes annualized yields of money
market funds weekly. Donoghue's Money Market Insight publication
reports monthly and 12 month-to-date investment results for the same
money funds.
o MONEY, a monthly magazine, regularly ranks money market funds in
various categories based on the latest available seven-day effective
yield.
o SALOMON 30-DAY TREASURY BILL INDEX is a weekly quote of the most
representative yields for selected securities, issued by the U.S.
Treasury, maturing in 30 days.

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, 1995, Federated Investors managed
more than $40.2 billion in assets across approximately 47 money market
funds, including 17 government, 10 prime and 20 municipal with assets
approximating $20.9 billion, $11.5 billion and $7.8 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 portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $2 trillion to the more than 5,500 funds
available.*
Federated Investors, through its subsidiaries, distributes mutual funds for
a variety of investment applications. Specific markets include:
INSTITUTIONAL 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.
TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than
1,500 banks and trust organizations. Virtually all of the trust divisions
of the top 100 bank holding companies use Federated funds in their clients'
portfolios. The marketing effort to trust clients is headed by Mark R.
Gensheimer, Executive Vice President, Bank Marketing & Sales.

BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage firms
nationwide--including 200 New York Stock Exchange firms--supported by more
wholesalers than any other mutual fund distributor. Federated's service to
financial professionals and institutions has earned it high ranking in
several DALBAR Surveys. The marketing effort to these firms is headed by
James F. Getz, President, Broker/Dealer Division.
*Source: Investment Company Institute
Cusip 314186305
Cusip 314186503
1022103B (6/96)