Federated Institutional Short Duration Government Fund
(A Portfolio of Federated Institutional Trust)
PROSPECTUS
The shares of Federated Institutional Short Duration Government Fund
(the "Fund") offered by this prospectus represent interests in a
diversified portfolio of securities which is a portfolio of Federated
Institutional Trust (the "Trust"), an open-end management investment
company (a mutual fund).
The investment objective of the Fund is current income. The Fund invests
only in U.S. government securities. Shares are sold at net asset value.
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 BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE
SHARES INVOLVES INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
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
September 30, 1997, with the Securities and Exchange Commission
("SEC"). The information contained in the Statement of Additional
Information is incorporated by reference into this prospectus. You may
request a copy of the Statement of Additional Information or a paper
copy of this prospectus, if you have received your prospectus
electronically, free of charge by calling 1-800-341-7400. To obtain
other information or make inquiries about the 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 are maintained
electronically with the SEC at Internet Web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated September 30, 1997
TABLE OF CONTENTS
Summary of Fund Expenses 1
Financial Highlights 2
General Information 3
Investment Information 3
Investment Objective 3
Investment Policies 3
Portfolio Turnover 4
Investment Limitations 5
Trust Information 5
Management of the Trust 5
Distribution of Fund Shares 6
Administration of the Fund 6
Net Asset Value 6
Investing in the Fund. 7
Share Purchases 7
Minimum Investment Required 7
What Shares Cost 7
Confirmations and Account Statements 7
Dividends 7
Capital Gains 7
Redeeming Shares. 8
Telephone Redemption 8
Written Requests 8
Accounts with Low Balances 8
Shareholder Information 8
Voting Rights 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 Inside Back Cover
SUMMARY OF FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price) None Contingent Deferred Sales
Charge (as a percentage of original purchase price or redemption
proceeds, as applicable) None Redemption Fee (as a percentage of
amount redeemed, if applicable) None Exchange Fee None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(As a percentage of projected average net assets)*
Management Fee (after waiver)(1) 0.00%
12b-1 Fee None
Total Other Expenses (after expense reimbursement) 0.25%
Shareholder Services Fee(2) 0.00%
Total Fund Operating Expenses(3) 0.25%
</TABLE>
(1) The estimated management fee has been reduced to reflect the
anticipated voluntary waiver of the management fee. The adviser can
terminate this voluntary waiver at any time at its sole discretion.
The maximum management fee is 0.40%.
(2) The Fund has no present intention of paying or accruing the shareholder
services fee during the fiscal year ending July 31, 1998. If the Fund were
paying or accruing the shareholder services fee, the Fund would be able to
pay up to 0.25% of its average daily net assets for the shareholder services
fee. See "Trust Information."
(3) The total Fund operating expenses are estimated to be 0.97% absent
the anticipated voluntary waiver of the management fee and the
anticipated voluntary reimbursement of certain other operating
expenses. The total operating expenses were 0.00% for the fiscal year
ended July 31, 1997 and would have been 77.80% absent the voluntary
wiaver of the management fee and the voluntary reimbursement of other
operating expenses.
* Total operating expenses are estimated based on average expenses
expected to be incurred during the period ending July 31, 1998. During
the course of this period, expenses may be more or less than the
average amount shown.
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 "Investing in the Fund."
Wire-transferred redemptions of less than $5,000 may be subject to
additional fees.
<TABLE>
<CAPTION>
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time
period.
<S> <C>
1 Year $3
3 Years $8
5 Years $14
10 Years $32
</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.
THIS EXAMPLE IS BASED ON ESTIMATED DATA FOR THE FUND'S FISCAL YEAR ENDING
JULY 31, 1998.
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent
Auditors on the inside back cover.
<TABLE>
<CAPTION>
PERIOD ENDED
JULY 31, 1997(A)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 2.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.01
LESS DISTRIBUTIONS
Distributions from net investment income (0.01)
NET ASSET VALUE, END OF PERIOD $ 2.00
TOTAL RETURN(B) 0.34%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.00%*
Net investment income 5.75%*
Expense waiver/reimbursement(c) 77.80%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $11,100
Portfolio turnover 0%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from July 10, 1997 (start of
performance) to July 31, 1997. For the period from August 1, 1996 to
July 9, 1997, all income was distributed to the Administrator.
(b) Based on net asset value, which does not reflect the sales charge
or contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense
and net investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a
Declaration of Trust dated June 9, 1994. The Declaration of Trust
permits the Trust to offer separate series of shares of beneficial
interest representing interests in separate portfolios of securities.
The shares in any one portfolio may be offered in separate classes.
Shares of the Fund are designed to give institutions a convenient
means of accumulating an interest in a professionally managed,
diversified portfolio of U.S. government securities. A minimum initial
investment of $25,000 is required.
Shares are currently sold and redeemed at net asset value without a
sales charge imposed by the Fund.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is current income. The investment
objective cannot be changed without the approval of shareholders.
While there is no assurance that the Fund will achieve its investment
objective, it endeavors to do so by following the investment policies
described in this prospectus.
Unless indicated otherwise, the investment policies of the Fund may be
changed by the Board of Trustees ("Trustees") without the approval of
shareholders. Shareholders will be notified before any material change
in these policies becomes effective.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing only in U.S.
government securities and by seeking to maintain a weighted average
portfolio duration of one year or less. Even though the price of fixed
income securities fluctuates, the portfolio will be managed in a way
that will seek to minimize the volatility of principal. The prices of
fixed income securities fluctuate inversely to the direction of
interest rates.
ACCEPTABLE INVESTMENTS
The U.S. government securities in which the Fund invests 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;
* notes, bonds, and discount notes issued or guaranteed by U.S.
government agencies and instrumentalities supported by the full faith
and credit of the United States;
* notes, bonds, and discount notes of other U.S. government agencies or
instrumentalities which receive or have access to federal funding; and
* notes, bonds, and discount notes of other U.S. government
instrumentalities supported only by the credit of the
instrumentalities.
Some obligations issued or guaranteed by agencies or instrumentalities of
the U.S. government 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 obligations are supported by:
* the issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;
* the discretionary authority of the U.S. government to purchase certain
obligations of an agency or instrumentality; or
* the credit of the agency or instrumentality.
MORTGAGE-BACKED SECURITIES
The Fund may invest in mortgage-backed securities that are issued by
the U.S. government or one of its agencies or instrumentalities. The
Fund limits its investments in mortgage-backed securities to those
that are "pass-through" securities representing an undivided interest
in a pool of residential mortgages. These mortgage-backed securities
have yield and maturity characteristics corresponding to the
underlying mortgages, which may be fixed rate or adjustable rate.
Distributions to holders of mortgage-backed securities include both
interest and principal payments.
INVESTMENT RISKS
Because mortgage-backed securities pay both interest and principal as
their underlying mortgages are paid off, they are subject to
prepayment risk. Prepayment risk is attributable to an underlying
mortgage holder's ability to prepay and refinance the underlying
mortgage which may expose the Fund to a lower rate of return upon
reinvestment and the loss of any premiums paid on the security. Also,
the value of mortgage-backed securities may be significantly affected
by changes in interest rates. The market value of adjustable rate
mortgage-backed securities ("ARMS") may be impacted based upon the
frequency that the interest rates of the underlying mortgages reset
and changes to the index upon which the interest rates are based.
Also, the underlying mortgages relating to ARMS will frequently have
caps and floors which limit the maximum amount by which the loan rate
to the residential borrower may change up or down. Unanticipated
changes in interest rates could cause periods of extending durations
and greater principal volatility. Therefore, there can be no assurance
that the Fund will succeed in maintaining a weighted average portfolio
duration one year or less or minimizing volatility of principal.
AVERAGE PORTFOLIO DURATION
Although the Fund will not maintain a stable net asset value, the
adviser will seek to limit, to the extent consistent with the Fund's
investment objective of current income, the magnitude of fluctuations
in the Fund's net asset value by limiting the dollar-weighted average
duration of the Fund's portfolio. Duration is a measure of a
security's or a portfolio's price sensitivity to changes in interest
rates. Securities with shorter durations generally have less volatile
prices than securities of comparable quality with longer durations.
REPURCHASE AGREEMENTS
The U.S. government securities in which the Fund invests may be
purchased pursuant to repurchase agreements. Repurchase agreements are
arrangements in which banks, broker/dealers, and other recognized
financial institutions sell U.S. government securities to the Fund and
agree at the time of sale to repurchase them at a mutually agreed upon
time and price.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, the Fund may lend its
portfolio securities on a short-term or long-term basis up to
one-third of the value of its total assets to broker/dealers, banks,
or other institutional borrowers of securities. The Fund will only
enter into loan arrangements with broker/ dealers, banks, or other
institutions which the adviser has determined are creditworthy under
guidelines established by the Fund's Trustees and will receive
collateral equal to at least 100% of the value of the securities
loaned. There is the risk that when lending portfolio securities, the
securities may not be available to the Fund on a timely basis and the
Fund may, therefore, lose the opportunity to sell the securities at a
desirable price. In addition, in the event that a borrower of
securities would file for bankruptcy or become insolvent, disposition
of the securities may be delayed pending court action.
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.
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
in 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.
INVESTING IN OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment
companies as an efficient means of investing in government securities.
It should be noted that investment companies incur certain expenses,
such as management fees, and, therefore, any investment by the Fund in
shares of other investment companies may be subject to such duplicate
expenses.
PORTFOLIO TURNOVER
The securities in the Fund's portfolio will be sold whenever the
Fund's investment adviser believes it is appropriate to do so in light
of the Fund's investment objective, without regard to the length of
time a particular security may have been held. The rate of portfolio
turnover for the Fund may exceed that of certain other mutual funds
with the same investment objective. It is currently anticipated that
the Fund's annual rate of portfolio turnover will not exceed 300%. A
portfolio turnover rate exceeding 100% is considered to be high. A
higher rate of portfolio turnover involves correspondingly greater
transaction expenses which must be borne directly by the Fund and,
thus, indirectly by its shareholders. In addition, a high rate of
portfolio turnover may result in the realization of larger amounts of
capital gains which, when distributed to the Fund's shareholders, are
taxable to them. Nevertheless, transactions for the Fund's portfolio
will be based only upon investment considerations and will not be
limited by any other considerations when the investment adviser deems
it appropriate to make changes in the Fund's portfolio.
INVESTMENT LIMITATIONS
The Fund will not borrow money directly or through reverse repurchase
agreements (arrangements in which the Fund sells a money market or
other portfolio instrument, as applicable, for a percentage of its
cash value with an agreement to buy it back on a set date) or pledge
securities except, under certain circumstances, the Fund may borrow
money up to one-third of the value of its total assets and pledge
assets as necessary to secure such borrowings.
The above investment limitation 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 15% of the value of its net assets
in illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice.
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. The 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 (the "adviser"), subject to direction by
the Trustees. The adviser continually conducts investment research and
supervision for the Fund and is responsible for the purchase or sale
of portfolio instruments, for which it receives an annual fee from the
Fund.
ADVISORY FEES
The Fund's adviser receives an annual investment advisory fee equal to
0.40% of the Fund's average daily net assets. This does not include
reimbursement to the Fund of any expenses incurred by shareholders who
use the transfer agent's subaccounting facilities.
ADVISER'S BACKGROUND
Federated Management, a Delaware business trust organized on April 11,
1989, is a registered investment adviser under the Investment Advisers
Act of 1940. It is a subsidiary of Federated Investors. All of the
Class A (voting) shares of Federated Investors are owned by a trust,
the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated
Investors.
Federated Management and other subsidiaries of Federated Investors
serve as investment advisers to a number of investment companies and
private accounts. Certain other subsidiaries also provide
administrative services to a number of investment companies. With over
$110 billion invested across more than 300 funds under management
and/or administration by its subsidiaries, as of December 31, 1996,
Federated Investors is one of the largest mutual fund investment
managers in the United States. With more than 2,000 employees,
Federated continues to be led by the management who founded the
company in 1955. Federated funds are presently at work in and through
4,500 financial institutions nationwide. Both the Trust and the
adviser have adopted strict codes of ethics governing the conduct of
all employees who manage the 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 interest. 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.
Susan R. Hill has been the Fund's portfolio manager since July 1997. Ms.
Hill joined Federated Investors in 1990 and has been a Vice President of the
Fund's investment adviser since January 1997. Ms. Hill was an Assistant Vice
President of the investment adviser from 1994 until 1996, and from 1990 to
1993 served as an Investment Analyst. Ms. Hill is a Chartered Financial
Analyst and received an M.S. in Industrial Administration from Carnegie
Mellon University.
Todd A. Abraham has been the Fund's portfolio manager since July 1997. Mr.
Abraham joined Federated Investors in 1993 and has been a Vice President of
the Fund's investment adviser since 1997. Mr. Abraham was an Assistant Vice
President of the investment adviser from 1995 to 1997, and from 1993 to 1995
served as an Investment Analyst. Mr. Abraham served as a Portfolio Analyst
at Ryland Mortgage Co. from 1992 to 1993. Mr. Abraham received his M.B.A. in
finance from Loyola College.
Susan M. Nason has been the Fund's portfolio manager since inception. Ms.
Nason joined Federated Investors in 1987 and has been a Senior Vice
President of the Fund's investment adviser since 1997. Ms. Nason served as a
Vice President of the investment adviser from 1992 until 1997 and an
Assistant Vice President from 1990 until 1992. Ms. Nason is a Chartered
Financial Analyst and received her M.S. in Industrial Administration from
Carnegie Mellon University.
DISTRIBUTION OF FUND 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.
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.
Federated Services Company provides these at an annual rate which
relates to the average aggregate daily net assets of all funds advised
by subsidiaries of Federated Investors as specified below:
MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at
least $125,000 per portfolio and $30,000 per each additional class of
shares. Federated Services Company may choose voluntarily to waive a
portion of its fee.
SHAREHOLDER SERVICES
The Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors,
under which the Fund may make payments up to 0.25% of the average
daily net asset value of the Fund 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 Fund 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 Fund. 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 Fund's investment adviser or its affiliates.
NET ASSET VALUE
The Fund's net asset value per share fluctuates. The net asset value
for shares is determined by adding the interest of the shares in the
market value of all securities and other assets of the Fund,
subtracting the interest of the shares in the liabilities of the Fund
and those attributable to shares, and dividing the remainder by the
total number of shares outstanding.
INVESTING IN THE FUND
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange is open
for business. Shares may be purchased either by wire or mail.
To purchase shares, open an account by calling Federated Securities
Corp. Information needed to establish an account will be taken over
the telephone. The Fund reserves the right to reject any purchase
request.
BY WIRE
To purchase shares by Federal Reserve wire, call the Fund before 4:00
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) on the next business day following the order.
Federal funds should be wired as follows: Federated Shareholder
Services Company, c/o State Street Bank and Trust Company, Boston,
Massachusetts; Attention: EDGEWIRE; For Credit to: Federated
Institutional Short Duration Government Fund; Fund Number (this number
can be found on the account statement or by contacting the Fund);
Group Number or Wire 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.
BY MAIL
To purchase shares by mail, send a check made payable to Federated
Institutional Short Duration Government Fund to: Federated Shareholder
Services Company, P.O. Box 8600, Boston, Massachusetts 02266-8600.
Orders by mail are considered received after payment by check is
converted by State Street Bank and Trust Company ("State Street Bank")
into federal funds. This is normally the next business day after State
Street Bank receives the check.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in shares is $25,000. An institutional
investor's minimum investment will be calculated by combining all
accounts it maintains with the Fund. Accounts established through a
non-affiliated bank or broker may be subject to a smaller minimum
investment.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an
order is received. There is no sales charge imposed by the Fund.
Investors who purchase shares through a financial intermediary may be
charged a service fee by that financial intermediary.
The net asset value is determined as of the close of trading (normally
4:00 p.m., Eastern time) on the New York Stock Exchange, Monday
through Friday, except on: (i) days on which there are not sufficient
changes in the value of the Fund's portfolio securities that its net
asset value might be materially affected; (ii) days during which no
shares are tendered for redemption and no orders to purchase shares
are received; or (iii) the following holidays: New Year's Day, Martin
Luther King Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
CONFIRMATIONS AND ACCOUNT STATEMENTS
Shareholders will receive detailed confirmations of transactions. In
addition, shareholders will receive periodic statements reporting all
account activity, including dividends paid. The Fund will not issue
share certificates.
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are declared
just prior to determining net asset value. If an order for shares is
placed on the preceding business day, shares purchased by wire begin
earning dividends on the business day wire payment is received by the
Fund. If the order for shares and payment by wire are received on the
same day, shares begin earning dividends on the next business day.
Shares purchased by check begin earning dividends on the business day
after the check is converted by the transfer agent into federal funds.
Dividends are automatically reinvested on payment dates in additional
shares unless cash payments are requested by contacting the Fund.
CAPITAL GAINS
Capital gains realized by the Fund, if any, will be distributed at
least once every 12 months.
REDEEMING SHARES
The Fund redeems shares at their net asset value next determined after
the Fund receives the redemption request. Redemptions will be made on
days on which the Fund computes its net asset value. Investors who
redeem shares through a financial intermediary may be charged a
service fee by that financial intermediary. Redemption requests must
be received in proper form and can be made by telephone request or by
written request.
TELEPHONE REDEMPTION
Shareholders may redeem their shares by telephoning the Fund before
4:00 p.m. (Eastern time). Telephone redemption instructions may be
recorded. All proceeds will normally be wire transferred the following
business day, but in no event more than seven days, to the
shareholder's account at a domestic commercial bank that is a member
of the Federal Reserve System. Proceeds from redemption requests
received 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. If at any time, the Fund shall determine it
necessary to terminate or modify this method of redemption,
shareholders would be promptly notified.
An authorization form permitting the Fund to accept telephone requests
must first be completed. Authorization forms and information on this
service are available from Federated Securities Corp.
In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming by telephone. If such a case should
occur, another method of redemption, such as written requests, should
be considered. If reasonable procedures are not followed by the Fund,
it may be liable for losses due to unauthorized or fraudulent
telephone instructions.
WRITTEN REQUESTS
Shares may be redeemed in any amount by mailing a written request to:
Federated Shareholder Services Company, P.O. Box 8600, Boston,
Massachusetts 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: Federated Institutional
Trust--Federated Institutional Short Duration Government Fund; 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.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the
Fund may redeem shares in any account and pay the proceeds to the
shareholder if the account balance falls below a required minimum
value of $25,000. This requirement does not apply, however, if the
balance falls below $25,000 because of changes in the Fund's net asset
value.
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.
SHAREHOLDER INFORMATION
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee
elections and other matters submitted to shareholders for vote. As a
Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for
certain changes in the Trust's or the Fund's operation and for the
election of Trustees under certain circumstances. As of September 5,
1997, City of Detroit General Investment Fund owned 94.45% 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.
Trustees may be removed by the Trustees or by shareholders at a
special meeting. A special meeting of the shareholders for this
purpose shall be called by the Trustees upon the written request of
shareholders owning at least 10% of the outstanding shares of the
Trust entitled to vote.
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.
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
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 and yield.
Total return represents the change, over a specified period of time,
in the value of an investment in the Fund after reinvesting all income
and capital gain distributions. It is calculated by dividing that
change by the initial investment and is expressed as a percentage.
The yield of the Fund is calculated by dividing the net investment
income per share (as defined by the Securities and Exchange
Commission) earned by the Fund over a thirty-day period by the maximum
offering price per share of the Fund on the last day of the period.
This number is then annualized using semi-annual compounding. The
yield does not necessarily reflect income actually earned by the Fund
and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
The Fund is sold without any sales charge or other similar
non-recurring charges.
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.
PORTFOLIO OF INVESTMENTS
FEDERATED INSTITUTIONAL SHORT DURATION GOVERNMENT FUND
JULY 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
GOVERNMENT OBLIGATIONS--1.8%
$ 183,013 Government National Mortgage Association, 9.500%, 11/15/2017 $ 199,370
Total Government Obligations (identified cost $199,398) 199,370
SHORT-TERM OBLIGATIONS--8.1%
900,000 Student Loan Marketing Association Discount Note, 5.75%, dated 900,000
7/31/97, due 8/1/97
Total Investments (identified cost $1,099,398)(a) $ 1,099,370
</TABLE>
(a) The cost of investments for federal tax purposes amounts to
$1,099,398. The net unrealized depreciation of investments on a
federal tax basis amounts to $28 which is comprised of $0 appreciation
and $28 depreciation at July 31, 1997.
Note: The categories of investments are shown as a percentage of net assets
($11,099,920) at July 31, 1997.
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF ASSETS AND LIABILITIES
FEDERATED INSTITUTIONAL SHORT DURATION GOVERNMENT FUND
JULY 31, 1997
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $ 1,099,370
$1,099,398)
Cash 3,507
Income receivable 1,373
Receivable for shares sold 10,000,000
Total assets 11,104,250
LIABILITIES:
Income distribution payable $ 4,143
Accrued expenses 187
Total liabilities 4,330
Net Assets for 5,550,084 shares outstanding $ 11,099,920
NET ASSETS CONSIST OF:
Paid in capital $ 11,100,168
Net unrealized depreciation of investments (28)
Distributions in excess of net investment income (220)
Total Net Assets $ 11,099,920
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
$11,099,920 / 5,550,084 shares outstanding $2.00
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
FEDERATED INSTITUTIONAL SHORT DURATION GOVERNMENT FUND
YEAR ENDED JULY 31, 1997
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 8,565
EXPENSES:
Investment advisory fee $ 4,399
Administrative personnel and services fee 7,534
Custodian fees 6,740
Transfer and dividend disbursing agent fees and expenses 15,920
Portfolio accounting fees 13,960
Share registration costs 3,030
Total expenses 51,583
Waivers and reimbursements--
Waiver of investment advisory fee $ (4,399)
Reimbursement of other operating expenses (47,184)
Total waivers and reimbursements (51,583)
Net investment income 8,565
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net change in unrealized depreciation of investments (28)
Change in net assets resulting from operations $ 8,537
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
FEDERATED INSTITUTIONAL SHORT DURATION GOVERNMENT FUND
<TABLE>
<CAPTION>
YEAR ENDED
JULY 31, 1997
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 8,565
Net change in unrealized depreciation (28)
Change in net assets resulting from operations 8,537
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income (8,785)
SHARE TRANSACTIONS--
Proceeds from sale of shares 11,100,172
Cost of shares redeemed (100,167)
Change in net assets resulting from share transactions 11,000,005
Change in net assets 10,999,757
NET ASSETS:
Beginning of period 100,163
End of period $ 11,099,920
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NOTES TO FINANCIAL STATEMENTS
FEDERATED INSTITUTIONAL SHORT DURATION GOVERNMENT FUND
JULY 31, 1997
ORGANIZATION
Federated Institutional 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 one diversified
portfolio, Federated Institutional Short Duration Government Fund (the
"Fund"). The investment objective of the Fund is current income.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. These policies are in conformity with generally accepted
accounting principles.
INVESTMENT VALUATIONS
U.S. Government securities and mortgage-backed securities are
generally valued at the mean of the latest bid and asked price as
furnished by an independent pricing service. Short-term securities are
valued at the prices provided by an independent pricing service.
However, short-term securities with remaining maturities of sixty days
or less at the time of purchase may be valued at amortized cost, which
approximates fair market value.
REPURCHASE AGREEMENTS
It is the policy of the Fund to require the custodian bank or broker
to take possession, to have legally segregated in the Federal Reserve
Book Entry System, or to have segregated within the custodian bank's
vault, all securities held as collateral under repurchase agreement
transactions. Additionally, procedures have been established by the
Fund to monitor, on a daily basis, the market value of each repurchase
agreement's collateral to ensure that the value of collateral at least
equals the repurchase price to be paid under the repurchase agreement
transaction.
The Fund will only enter into repurchase agreements with banks and
other recognized financial institutions such as broker/dealers which
are deemed by the Fund's adviser to be creditworthy pursuant to
guidelines and/or standards reviewed or established by the Board of
Trustees (the "Trustees"). Risks may arise from the potential
inability of counterparties to honor the terms of the repurchase
agreement. Accordingly, the Fund could receive less than the
repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and
discount, if applicable, are amortized as required by the Internal
Revenue Code, as amended (the "Code"). Distributions to shareholders
are recorded on the ex-dividend date.
FEDERAL TAXES
It is the Fund's policy to comply with the provisions of the Code
applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly,
no provisions for federal tax are necessary.
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
over a period not to exceed 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 affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual
results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without
par value).
Transactions in shares were as follows:
Year Ended
July 31, 1997
Shares sold 5,550,085
Shares redeemed (10,017)
Net change resulting from share transactions 5,540,068
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
and/or reimburse certain operating expenses of the Fund. The Adviser
can modify or terminate this voluntary waiver and/or reimbursement 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.
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. For the period ended July 31, 1997, the Fund did not incur a
shareholder services fee.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
Federated Services Company ("FServ"), through its subsidiary,
Federated Shareholder Services Company ("FSSC") serves as transfer and
dividend disbursing agent for the Fund. The fee paid to FSSC is based
on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES
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.
ORGANIZATIONAL EXPENSES
Organizational and/or start-up administrative service expenses were
borne initially by Adviser.
The Fund has agreed to reimburse Adviser for the organizational and/or
start-up administrative expenses during the five-year period following
effective date.
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 Board of Trustees and Shareholders of FEDERATED INSTITUTIONAL
TRUST:
We have audited the accompanying statement of assets and liabilities
of Federated Institutional Short Duration Government Fund as of July
31, 1997, and the related statements of operations, changes in net
assets for the period then ended and the financial highlights for the
period presented therein. These financial statements and financial
highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements
and financial highlights based on our audit.
We conducted our audit 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. 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 audit provides 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 Federated Institutional Short Duration
Government Fund as of July 31, 1997, the results of its operations and
changes in its net assets for the period then ended and financial
highlights for the period presented therein, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
September 12, 1997
[Graphic]
Federated Institutional Short Duration Government Fund
(A Portfolio of Federated Institutional Trust)
PROSPECTUS
SEPTEMBER 30, 1997
A Diversified Portfolio of Federated Institutional Trust An Open-End,
Diversified Management Investment Company
FEDERATED INSTITUTIONAL SHORT DURATION GOVERNMENT FUND
Federated Investors Tower
Pittsburgh, PA 15222-3779
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
Pittsburgh, PA 15222-3779
INVESTMENT ADVISOR
Federated Management
Federated Investors Tower
Pittsburgh, PA 15222-3779
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
INDEPENDENT AUDITORS
Ernst & Young LLP
One Oxford Centre
Pittsburgh, PA 15219
Cusip 31420B102
G00352-01 (9/97)
[Graphic]
FEDERATED INSTITUTIONAL SHORT DURATION GOVERNMENT FUND
(A PORTFOLIO OF FEDERATED INSTITUTIONAL TRUST)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of Federated Institutional Short Duration Government Fund
(the "Fund"), a portfolio of Federated Institutional Trust (the
"Trust") dated September 30, 1997. This Statement is not a prospectus.
You may request a copy of a prospectus or a paper copy of this
Statement, if you have received it electronically, free of charge by
calling 1-800-341-7400.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated September 30, 1997
[Graphic]
Cusip 31420B102
G00352-02 (9/97)
[Graphic]
TABLE OF CONTENTS
GENERAL INFORMATION ABOUT THE FUND 1
INVESTMENT OBJECTIVE AND POLICIES 1
Types of Investments 1
Mortgage-Backed Securities 1
Reverse Repurchase Agreements 1
When-Issued and Delayed Delivery Transactions 1
Repurchase Agreements 1
Portfolio Turnover 2
INVESTMENT LIMITATIONS 2
Selling Short and Buying on Margin 2
Issuing Senior Securities and Borrowing Money 2
Pledging Assets 2
Concentration of Investments 2
Diversification of Investments 2
Investing in Real Estate 2
Investing in Commodities 2
Underwriting 2
Lending Cash or Securities 2
Investing in Illiquid Securities 3
FEDERATED INSTITUTIONAL TRUST MANAGEMENT 3
Fund Ownership 7
Trustee Compensation 7
Trustee Liability 7
INVESTMENT ADVISORY SERVICES 8
Adviser to the Fund 8
ADVISORY FEES 8
OTHER SERVICES 8
Fund Administration 8
Custodian and Portfolio Accountant 8
Transfer Agent 8
Independent Auditors 8
SHAREHOLDER SERVICES 8
BROKERAGE TRANSACTIONS 9
PURCHASING SHARES 9
Conversion to Federal Funds 9
DETERMINING NET ASSET VALUE 9
Determining Market Value of Securities 9
REDEEMING SHARES 10
Redemption in Kind 10
Massachusetts Partnership Law 10
TAX STATUS 10
The Fund's Tax Status 10
Shareholders' Tax Status 11
Capital Gains 11
TOTAL RETURN 11
YIELD 11
PERFORMANCE COMPARISONS 11
Economic and Market Information 12
Duration 12
ABOUT FEDERATED INVESTORS 12
Mutual Fund Market 13
Institutional Clients 13
Bank Marketing 13
Broker/Dealers and Bank
Broker/Dealer Subsidiaries 13
GENERAL INFORMATION ABOUT THE FUND
Federated Institutional Short Duration Government Fund is a portfolio
of Federated Institutional Trust (the "Trust"). The Trust was
established as a Massachusetts business trust under a Declaration of
Trust dated June 9, 1994.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is current income. The Fund's
investment objective cannot be changed without approval of
shareholders. Unless otherwise indicated, the investment policies
described below may be changed by the Board of Trustees ("Trustees")
without shareholder approval. Shareholders will be notified before any
material change in these policies becomes effective.
TYPES OF INVESTMENTS
The Fund invests only in U.S. government securities.
MORTGAGE-BACKED SECURITIES
Principal payments represent the amortization of the principal of the
underlying mortgages and any prepayments of principal due to
prepayment, refinancing, or foreclosure of the underlying mortgages.
Although maturities of the underlying mortgage loans may range up to
30 years, amortization and prepayments substantially shorten the
effective maturities of mortgage-backed securities. The interest rates
paid on the underlying mortgages relating to adjustable rate
mortgage-backed securities in which the Fund invests, generally are
readjusted or reset at intervals of one year or less to an increment
over some predetermined interest rate index.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These
transactions are similar to borrowing cash. In a reverse repurchase
agreement, the Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker, or dealer, in
return for the instrument's market value in cash, and agrees that on a
stipulated date in the future the Fund will repurchase the portfolio
instrument by remitting the original consideration plus interest at an
agreed upon rate. The use of reverse repurchase agreements may enable
the Fund to avoid selling portfolio instruments at a time when a sale
may be deemed to be disadvantageous, but the ability to enter into
reverse repurchase agreements does not ensure that the Fund will be
able to avoid selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the
Fund, in a dollar amount sufficient to make payment for the
obligations to be purchased, are segregated at the trade date. These
securities are marked to market daily and are maintained until the
transaction is settled.
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 sufficient to make payment for the securities to be
purchased are segregated on the Fund's records at the trade date.
These assets are marked to market daily and are maintained until the
transaction has been 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.
REPURCHASE AGREEMENTS
The Fund or its custodian will take possession of the securities
subject to repurchase agreements, and these securities will be marked
to market daily. To the extent that the original seller does not
repurchase the securities from the Fund, the Fund could receive less
than the repurchase price on any sale of such securities. In the event
that such a defaulting seller filed for bankruptcy or became
insolvent, disposition of such securities by the Fund might be delayed
pending court action. The Fund believes that under the regular
procedures normally in effect for custody of the Fund's portfolio
securities subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of the Fund and allow retention or
disposition of such securities. The Fund will only enter into
repurchase agreements with banks and other recognized financial
institutions such as broker/dealers which are deemed by the Fund's
adviser to be creditworthy pursuant to guidelines established by the
Trustees.
PORTFOLIO TURNOVER
The Fund will not attempt to set or meet a portfolio turnover rate
since any turnover would be incidental to transactions undertaken in
an attempt to achieve the Fund's investment objective. The Fund's
portfolio turnover rates for the fiscal year ended July 31, 1997, and
the period from August 15, 1994, (start of business) to July 31, 1996,
were 0% and 0%, respectively.
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 purchases and sales of securities.
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 amount borrowed. The Fund will not borrow money
for investment leverage, but rather as a temporary, extraordinary, or
emergency measure to facilitate management of the portfolio by
enabling the Fund to, for example, 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
to secure permitted borrowings. In those cases, it may mortgage,
pledge, or hypothecate assets having a market value not exceeding 15%
of the value of total assets at the time of the borrowing.
CONCENTRATION OF INVESTMENTS
The Fund will not invest 25% or more of the value of its total assets
in any one industry. However, investing in U.S. government obligations
shall not be considered investments in any one industry.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of its total
assets, the Fund will not purchase securities issued by any one issuer
(other than cash, cash items or securities issued or guaranteed by the
government of the United States or its agencies or instrumentalities
and repurchase agreements collateralized by such securities) if as a
result more than 5% of the value of its total assets would be invested
in the securities of that issuer, or if it would own more than 10% of
the outstanding voting securities of such issuer.
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 interests in real
estate.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts,
or commodity futures contracts.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may
be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities which the Fund may purchase
pursuant to its investment objective, policies, and limitations.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except portfolio securities.
This shall not prevent the Fund from purchasing or holding U.S.
government obligations, entering into repurchase agreements, or
engaging in other transactions where permitted by the Fund's
investment objective, policies and limitations or the Trust's
Declaration of Trust.
The above limitations cannot be changed without shareholder approval.
The following limitations 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 15% of the value of its net assets
in illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice and certain restricted
securities not determined by the Trustees to be liquid. 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 restriction.
The Fund does not expect to borrow money or invest in reverse
repurchase agreements in excess of 5% of the value of its net assets
during the coming fiscal year.
For purposes of its policies and limitations, the Fund considers
certificates of deposit and demand and time deposits issued by a U.S.
branch of a domestic bank or savings and loan having capital, surplus,
and undivided profits in excess of $100,000,000 at the time of
investment to be "cash items."
FEDERATED INSTITUTIONAL TRUST MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates,
present positions with Federated Institutional 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 Company.
Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly,
Senior Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.;
Director, Member of Executive Committee, University of Pittsburgh;
Director or Trustee of the Funds.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.;
formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank
Corp.; Director, Ryan Homes, Inc.; Director or Trustee of the Funds.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director,
University of Pittsburgh Medical Center - Downtown; Member, Board of
Directors, University of Pittsburgh Medical Center; formerly,
Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
Hospitals; Director or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee of the Funds.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of
Massachusetts; formerly, President, State Street Bank and Trust
Company and State Street Boston Corporation; Director or Trustee of
the Funds.
Gregor F. Meyer
203 Kensington Ct.
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Chairman, Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Retired
from the law firm of Miller, Ament, Henny & Kochuba; 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; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee,
Carnegie Endowment for International Peace, RAND Corporation, Online
Computer Library Center, Inc., National Defense University and U.S.
Space Foundation; President Emeritus, University of Pittsburgh;
Founding Chairman, National Advisory Council for Environmental Policy
and Technology, Federal Emergency Management Advisory Board and Czech
Management Center, Prague; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public Relations/Marketing/Conference Planning; Director or Trustee of the
Funds.
Glen R. Johnson
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929
President
Trustee, Federated Investors; President and/or Trustee of some of the
Funds; staff member, Federated Securities Corp.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Trustee of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice
President, Federated Advisers, Federated Management, Federated
Research, Federated Research Corp., Federated Global Research Corp.
and Passport Research, Ltd.; Executive Vice President and Director,
Federated Securities Corp.; Trustee, Federated Shareholder Services
Company; Trustee or Director of some of the Funds; President,
Executive Vice President and Treasurer of some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President, Secretary and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated
Research; Director, Federated Research Corp. and Federated Global
Research Corp.; Trustee, Federated Shareholder Services Company;
Director, Federated Services Company; President and Trustee, Federated
Shareholder Services; Director, Federated Securities Corp.; Executive
Vice President and Secretary of the Funds; Treasurer of some of the
Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of
the Funds; Director or Trustee of some of the Funds.
* This Trustee is deemed to be an "interested person" as defined in
the Investment Company Act of 1940.
@ Member of the Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board between
meetings of the Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies:
111 Corcoran Funds; 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 Investment Portfolios;
Federated Investment Trust; Federated Master Trust; Federated
Municipal Opportunities Fund, Inc.; Federated Municipal Securities
Fund, Inc.; Federated Municipal Trust; Federated Short-Term Municipal
Trust; Federated Short-Term U.S. Government Trust; Federated Stock and
Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust;
Federated Total Return Series, Inc.; Federated U.S. Government Bond
Fund; Federated U.S. Government Securities Fund: 1-3 Years; Federated
U.S. Government Securities Fund: 2-5 Years; Federated U.S. Government
Securities Fund: 5-10 Years; Federated Utility Fund, Inc.; First
Priority Funds; Fixed Income Securities, Inc.; High Yield Cash Trust;
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 Obligations Trust II; Money Market
Trust; Municipal Securities Income Trust; Newpoint Funds; RIMCO
Monument Funds; Targeted Duration Trust; Tax-Free Instruments Trust;
The Planters Funds; 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;
Wesmark Funds; and World Investment Series, Inc.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding
shares.
As of September 5, 1997, one shareholder of record owned 5% or more of
the outstanding shares of the Fund: City of Detroit General Investment
Fund, Detroit, Michigan owned approximately 5,025,267 shares (94.45%).
TRUSTEE COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
NAME, COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX+
<S> <C> <S>
John F. Donahue, $0 $0 for the Trust and
Chairman and Trustee 56 other investment companies in the Fund Complex
Thomas G. Bigley, $1,000 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
John T. Conroy, Jr. $1,100 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
William J. Copeland, $1,100 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
James E. Dowd, $1,100 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Lawrence D. Ellis, M.D., $1,000 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Edward L. Flaherty, Jr., $1,100 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Peter E. Madden, $1,000 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Gregor F. Meyer, $1,000 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
John E. Murray, Jr., $1,000 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Wesley W. Posvar, $1,000 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Marjorie P. Smuts, $1,000 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
</TABLE>
* Information is furnished for the fiscal year ended July 30, 1997.
# The aggregate compensation is provided for the Trust which is comprised of
one portfolio.
+ The information is provided for the last calendar year.
TRUSTEE LIABILITY
The Trust's 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
ADVISER TO THE FUND
The Fund's investment adviser is Federated Management (the "adviser"). It is
a subsidiary of Federated Investors. All of 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
year ended July 31, 1997, and the period from August 15, 1994, (start
of business) to July 31, 1996, the adviser earned $4,399 and $0,
respectively.
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 August 15, 1994 to March 1, 1996,
Federated Administrative Services, a subsidiary of Federated
Investors, served as the Fund's administrator. For purposes of this
Statement of Additional Information, Federated Services Company and
Federated Administrative Services may hereinafter collectively be
referred to as the "Administrators." For the fiscal year ended July
31, 1997 and for the period from August 15, 1994 (start of business)
to July 31, 1996, the Administrators earned $7,534 and $0,
respectively, none of which was waived.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, Massachusetts, is
custodian for the securities and cash of the Fund. Federated Services
Company, Pittsburgh, Pennsylvania, 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 upon the size, type and number of accounts and transactions
made by shareholders.
INDEPENDENT AUDITORS
The independent auditors for the Fund are Ernst & Young LLP,
Pittsburgh, Pennsylvania.
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 to 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 Fund will benefit by: (1) providing personal services to
shareholders; (2) investing shareholder assets with a minimum of delay
and administrative detail; (3) enhancing shareholder recordkeeping
systems; and (4) responding promptly to shareholders' requests and
inquiries concerning their accounts.
For the fiscal year ended July 31, 1997, and the period August 15,
1994 (start of buisness) to July 31, 1996, the Fund paid $0 and $0,
respectively, pursuant to the Shareholder Services Agreement of which
$0 and $0 were waived.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the adviser looks for prompt execution of the
order at a favorable price. In working with dealers, the adviser will
generally use those who are recognized dealers in specific portfolio
instruments, except when a better price and execution of the order can
be obtained elsewhere. The adviser makes decisions on portfolio
transactions and selects brokers and dealers subject to guidelines
established by the Trustees. The adviser may select brokers and
dealers who offer brokerage and research services. These services may
be furnished directly to the 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 ended July 31, 1997 and the
period from August 15, 1994 (start of business) to July 31, 1996, the
Fund paid $0 and $0, respectively, in 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.
PURCHASING SHARES
Shares are sold at their net asset value without a sales charge on
days the New York Stock Exchange is open for business. The procedure
for purchasing shares is explained in the prospectus under "Investing
in Shares."
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that
maximum interest may be earned. To this end, all payments from
shareholders must be in federal funds or be converted into federal
funds. State Street Bank acts as the shareholder's agent in depositing
checks and converting them to federal funds.
DETERMINING NET ASSET VALUE
Net asset value generally changes each day. The days on which net
asset value is calculated by the Fund are described in the prospectus.
Net asset value will not be calculated on days on which the New York
Stock Exchange is closed.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as
follows:
* according to the mean between the over-the-counter bid and asked
prices provided by an independent pricing service, if available, or at
fair value as determined in good faith by the Fund's Board of
Trustees; or
* for short-term obligations with remaining maturities of less than 60
days at the time of purchase, at amortized cost unless the Board of
Trustees determines that particular circumstances of the security
indicate otherwise.
Prices provided by independent pricing services may be determined
without relying exclusively on quoted prices. Pricing services may
consider:
* yield;
* quality;
* coupon rate;
* maturity;
* type of issue;
* trading characteristics; and
* other market data.
REDEEMING SHARES
The Fund redeems shares at the next computed net asset value after the
Fund receives the redemption request. Redemption procedures are
explained in the prospectus under "Redeeming Shares". Although the
transfer agent does not charge for telephone redemptions, the transfer
agent's bank reserves the right to charge a fee for the cost of
wire-transferred redemptions of less than $5,000.
REDEMPTION IN KIND
Although the Trust intends to redeem shares in cash, it reserves the
right under certain circumstances to pay the redemption price in whole
or in part by a distribution of securities from the Fund's portfolio.
To the extent available, such securities will be readily marketable.
Redemption in kind will be made in conformity with applicable
Securities and Exchange Commission rules, taking such securities at
the same value employed in determining net asset value and selecting
the securities in a manner the Trustees determine to be fair and
equitable.
The Trust has elected to be governed by Rule 18f-1 of the Investment
Company Act of 1940 under which the Fund is obligated to redeem shares
for any one shareholder in cash only up to the lesser of $250,000 or
1% of the Fund's net asset value during any 90-day period. Redemption
in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them
before their maturity could receive less than the redemption value of
their securities and could incur certain transaction costs.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally
liable as partners under Massachusetts law for acts or obligations of
the Trust. To protect shareholders of the Fund, 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 that the Trust or its Trustees
enter into or sign on behalf of the Fund.
In the unlikely event a shareholder is held personally liable for the
Trust's obligations, the Trust is required 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 on behalf of the Fund. Therefore,
financial loss resulting from liability as a shareholder of the Fund
will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them from the assets
of the Fund.
TAX STATUS
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable
to regulated investment companies and to receive the special tax
treatment afforded to such companies. To qualify for this treatment,
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.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and
capital gains received as cash or additional shares. No portion of any
income dividend paid by the Fund is eligible for the dividends
received deduction available to corporations. These dividends, and any
short-term capital gains, are taxable as ordinary income.
CAPITAL GAINS
Long-term capital gains distributed to shareholders will be treated as
long-term capital gains regardless of how long shareholders have held
Fund shares.
TOTAL RETURN
The Fund's average annual total return for the fiscal year ended July
31, 1997, was 0.34%.
The Fund's cumulative total return for the period August 15, 1994
(start of business) to July 31, 1996, was 0.34%. Cumulative total
return reflects the Fund's total performance over a specific period of
time. The Fund's cumulative total return is representative of only
eleven months of fund activity. The average annual total return for
the Fund 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
maximum offering price 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, less any
applicable sales charge, adjusted over the period by any additional
shares, assuming the reinvestment of all dividends and distributions.
YIELD
The Fund's yield for the thirty-day period ended July 31, 1997, was
5.85%. The yield for the Fund is determined by dividing the net
investment income per share (as defined by the Securities and Exchange
Commission) earned by the Fund over a thirty-day period by the maximum
offering price per share of the Fund on the last day of the period.
This value is then annualized using semi-annual compounding. This
means that the amount of income generated during the thirty-day period
is assumed to be generated each month over a twelve-month period and
is reinvested every six months. The yield does not necessarily reflect
income actually earned by the Fund because of certain adjustments
required by the Securities and Exchange Commission and, therefore, may
not correlate to the dividends or other distributions paid to
shareholders.
To the extent that financial institutions and broker/dealers charge
fees in connection with services provided in conjunction with an
investment in the Fund, performance will be reduced for those
shareholders paying those fees.
PERFORMANCE COMPARISONS
The performance of the Fund depends upon such variables as:
* portfolio quality;
* average portfolio maturity;
* type of instruments in which the portfolio is invested
* changes in interest rates and market value of portfolio securities;
* changes in the Fund's expenses; and
* various other factors.
The Fund's performance fluctuates on a daily basis largely because net
earnings and offering price per share fluctuate daily. Both net
earnings and net asset value per share are factors in the computation
of yield and total return.
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:
* LIPPER ANALYTICAL SERVICES, INC. ranks funds in various categories
by making comparative calculations using total return. Total return
assumes the reinvestment of all capital gains distributions and income
dividends and takes into account any change in net asset value over a
specific period of time. From time to time, the Fund will quote its
Lipper ranking in the "short-term U.S. government funds" category in
advertising and sales literature.
* MERRILL LYNCH 2-YEAR TREASURY INDEX is comprised of the most
recently issued 2-year Treasury notes. Index returns are calculated as
total returns for periods of one, three, six and twelve months as well
as year-to-date.
* MORNINGSTAR, INC., an independent rating service, is the publisher
of the bi-weekly Mutual Fund Values. Mutual Fund Values rates more
than 1,000 NASDAQ-listed mutual funds of all types, according to their
risk-adjusted returns. The maximum rating is five stars, and ratings
are effective for two weeks.
Advertisements and other sales literature for the Fund may quote total
returns which are calculated on nonstandardized base periods. The
total return represents the historic change in the value of an
investment in the Fund based on reinvestment of dividends over a
specified period of time.
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-deferred 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 investments, 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 Fund portfolio managers and their
views and analysis on how such developments could affect the Fund. 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.
DURATION
Duration is a commonly used measure of the potential volatility in the
price of a bond, or other fixed income security, or in a portfolio of
fixed income securities, prior to maturity. Volatility is the
magnitude of the change in the price of a bond relative to a given
change in the market rate of interest. A bond's price volatility
depends on three primary variables: the bond's coupon rate; maturity
date; and the level of market yields of similar fixed income
securities. Generally, bonds with lower coupons or longer maturities
will be more volatile than bonds with higher coupons or shorter
maturities. Duration combines these variables into a single measure.
Duration is calculated by dividing the sum of the time-weighted
present values of the cash flows of a bond or bonds, including
interest and principal payments, by the sum of the present values of
the cash flows.
ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is
reflected in its investment decision making--structured,
straightforward, and consistent. This has resulted in a history of
competitive performance with a range of competitive investment
products that have gained the confidence of thousands of clients and
their customers. The company's disciplined security selection process
is firmly rooted in sound methodologies backed by fundamental and
technical research. Investment decisions are made and executed by
teams of portfolio managers, analysts, and traders dedicated to
specific market sectors. These traders handle trillions of dollars in
annual trading volume.
In the government sector, as of December 31, 1996, Federated Investors
managed 9 mortgage-backed, 5 government/agency and 17 government money
market mutual funds, with assets approximating $6.3 billion, $1.7
billion and $23.6 billion, respectively. Federated trades
approximately $309 million in U.S. government and mortgage-backed
securities daily and places $17 billion in repurchase agreements each
day. Federated introduced the first U.S. government fund to invest in
U.S. government bond securities in 1969. Federated has been a major
force in the short- and intermediate-term government markets since
1982 and currently manages nearly $30 billion in government funds
within these maturity ranges.
J. Thomas Madden, Executive Vice President, oversees Federated
Investors' equity and high yield corporate bond management while
William D. Dawson, Executive Vice President, oversees Federated
Investors' domestic fixed income management. Henry A. Frantzen,
Executive Vice President, oversees the management of Federated
Investors' international and global portfolios.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their
financial goals through mutual funds. These investors, as well as
businesses and institutions, have entrusted over $3.5 trillion to the
more than 6,000 funds available.* Federated Investors, through its
subsidiaries, distributes mutual funds for a variety of investment
applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional
clients nationwide by managing and servicing separate accounts and
mutual funds for a variety of applications, including defined benefit
and defined contribution programs, cash management, and
asset/liability management. Institutional clients include
corporations, pension funds, tax-exempt entities,
foundations/endowments, insurance companies, and investment and
financial advisors. The marketing effort to these institutional
clients is headed by John B. Fisher, President, Institutional Sales
Division.
BANK MARKETING
Other institutional clients include close relationships with more than
1,600 banks and trust organizations. Virtually all of the trust
divisions of the top 100 bank holding companies use Federated funds in
their clients' portfolios. The marketing effort to trust clients is
headed by Timothy C. Pillion, Senior Vice President, Bank Marketing &
Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage
firms nationwide -- we have over 2,200 broker/dealer and bank
broker/dealer relationships across the country -- supported by more
wholesalers than any other mutual fund distributor. Federated's
service to financial professionals and institutions has earned it high
ratings in several surveys performed by DALBAR, Inc. DALBAR is
recognized as the industry benchmark for service quality measurement.
The marketing effort to these firms is headed by James F. Getz,
President, Federated Securities Corp.
* Source: Investment Company Institute
