FEDERATED INSTITUTIONAL TRUST, 497, 1998-04-02

FEDERATED INSTITUTIONAL TRUST
497, 1998-04-02

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Federated Institutional Short Duration Government Fund

(A Portfolio of Federated Institutional Trust)

SEMI-ANNUAL REPORT AND SUPPLEMENT TO PROSPECTUS DATED MARCH 31, 1997

The following information is a supplement to your prospectus. We're providing it
to keep you up to date and comply with regulations that require mutual fund
companies to update shareholders concerning changes in prospectuses.

We suggest that you keep this information for your records.

A. Please delete the "Financial Highlights" table on page 2 of the Prospectus
and replace it with the following:

FINANCIAL HIGHLIGHTS

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
JANUARY 31, JULY 31,
1998 1997(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $2.00 $2.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.06 0.01
LESS DISTRIBUTIONS
Distributions from net investment income (0.06) (0.01)
Distributions from net realized gains 0.00** --
Total Distributions (0.06) (0.01)
NET ASSET VALUE, END OF PERIOD $2.00 $2.00
TOTAL RETURN(B) 2.99% 0.34%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.12%* 0.00%*
Net investment income 5.80%* 5.75%*
Expense waiver/reimbursement(c) 0.92%* 77.80%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $85,876 $11,100
Portfolio turnover 105% 0%
</TABLE>
* Computed on an annualized basis.

** Less than one cent per share.

(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.

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

B. Delete the financial statements starting on page 10 of the Prospectus, and
replace with the following:

PORTFOLIO OF INVESTMENTS
FEDERATED INSTITUTIONAL SHORT DURATION GOVERNMENT FUND
JANUARY 31, 1998 (UNAUDITED)

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE

<C> <S> <C>
LONG-TERM GOVERNMENT OBLIGATIONS--50.9%
FEDERAL HOME LOAN BANK--5.8%
$ 3,000,000 5.700%, 10/23/1998 $ 3,005,160
2,000,000 6.000%, 12/30/1998 2,000,960
TOTAL 5,006,120
FEDERAL HOME LOAN MORTGAGE CORPORATION, REMIC--21.9%
13,775,415 5.250%, 12/15/2014 13,732,712
5,090,000 5.750%, 10/15/2016 5,095,599
TOTAL 18,828,311
FEDERAL NATIONAL MORTGAGE ASSOCIATION--0.7%
574,376 Federal National Mortgage Association, 10.000%, 2/1/2025
636,300 FEDERAL NATIONAL MORTGAGE ASSOCIATION, FLOATING RATE NOTE--8.2%
2,000,000 (a)5.415%, 3/17/1998 2,000,640
5,000,000 (a)5.594%, 2/3/1998 4,999,625
TOTAL 7,000,265
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--5.4%
2,862,174 8.500%, 6/15/2021 3,043,751
1,324,881 9.000%, 12/15/2019 1,445,366
170,927 9.500%, 11/15/2017 187,347
TOTAL 4,676,464
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION, ARM--5.4%
4,500,248 7.000%, 9/20/2024 4,600,648
STUDENT LOAN MARKETING ASSOCIATION--3.5%
3,000,000 5.720%, 11/20/1998 3,003,432
TOTAL LONG-TERM GOVERNMENT OBLIGATIONS 43,751,540
(IDENTIFIED COST $43,702,155)
(B)REPURCHASE AGREEMENTS--46.8%
3,000,000 ABN AMRO Chicago Corp., 5.650%, dated 1/30/1998, due
2/2/1998 3,000,000 10,000,000 Bear, Stearns and Co., 5.650%, dated
1/30/1998, due 2/2/1998 10,000,000
3,000,000 Greenwich Capital Markets, Inc., 5.650%, dated 1/30/1998, due 3,000,000
2/2/1998
3,000,000 HSBC Securities, Inc., 5.650%, dated 1/30/1998, due 2/2/1998 3,000,000
10,000,000 J.P. Morgan & Co., Inc., 5.650%, dated 1/30/1998, due 2/2/1998 10,000,000
</TABLE>
FEDERATED INSTITUTIONAL SHORT DURATION GOVERNMENT FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE

<C> <S> <C>
(B)REPURCHASE AGREEMENTS--CONTINUED
$ 3,000,000 Prudential Securities, Inc., 5.650%, dated 1/30/1998, due $ 3,000,000
2/2/1998
3,000,000 Salomon Smith Barney Holdings, Inc., 5.650%, dated 1/30/1998, 3,000,000
due 2/2/1998
2,195,000 Swiss Bank Capital Markets, 5.610%, dated 1/30/1998, due 2,195,000
2/2/1998
3,000,000 Toronto Dominion Securities (USA) Inc., 5.650%, dated 3,000,000
1/30/1998, due 2/2/1998
TOTAL REPURCHASE AGREEMENTS (AT 40,195,000
AMORTIZED COST)
TOTAL INVESTMENTS (IDENTIFIED COST $ 83,946,540
$83,897,155)(C)
</TABLE>

(a) Current rate and next reset date shown.

(b) The repurchase agreements are fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investments in the repurchase agreements are through participation in joint
accounts with other Federated funds.

(c) The cost of investments for federal tax purposes amounts to $83,897,155. The
net unrealized appreciation of investments on a federal tax basis amounts to
$49,385 which is comprised of $76,257 appreciation and $26,872 depreciation at
January 31, 1998.

Note: The categories of investments are shown as a percentage of net assets
($85,876,319) at January 31, 1998.

The following acronyms are used throughout this portfolio:

ARM --Adjustable Rate Mortgages
REMIC --Real Estate Mortgage Investment Conduit

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

STATEMENT OF ASSETS AND LIABILITIES
FEDERATED INSTITUTIONAL SHORT DURATION GOVERNMENT FUND
JANUARY 31, 1998 (UNAUDITED)

<TABLE>
<S> <C> <C>
ASSETS:
Investments in repurchase agreements $ 40,195,000
Investments in securities 43,751,540
Total investments in securities, at value (identified and tax cost $ 83,946,540
$83,897,155)
Cash 4,000,629
Income receivable 307,864
Total assets 88,255,033
LIABILITIES:
Payable for investments purchased 1,998,430
Income distribution payable 368,286
Accrued expenses 11,998
Total liabilities 2,378,714
Net Assets for 42,917,511 shares outstanding $ 85,876,319
NET ASSETS CONSIST OF:
Paid in capital $ 85,835,021
Net unrealized appreciation of investments 49,385
Accumulated net realized loss on investments (7,867)
Accumulated distributions in excess of net investment income (220)
Total Net Assets $ 85,876,319
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
$85,876,319 / 42,917,511 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
SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)

<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest (net of dollar roll expense of $20,648) $ 1,470,589
EXPENSES:
Investment advisory fee $ 99,366
Administrative personnel and services fee 62,500
Custodian fees 4,462
Transfer and dividend disbursing agent fees and expenses 11,902
Directors'/Trustees' fees 2,696
Auditing fees 10,280
Legal fees 2,170
Portfolio accounting fees 23,016
Share registration costs 30,705
Printing and postage 4,187
Insurance premiums 1,493
Miscellaneous 5,000
Total expenses 257,777
Waivers and reimbursements--
Waiver of investment advisory fee $ (99,366)
Reimbursement of other operating expenses (128,383)
Total waivers and reimbursements (227,749)
Net expenses 30,028
Net investment income 1,440,561
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments (4,389)
Net change in unrealized appreciation of investments 49,413
Net realized and unrealized gain on investments 45,024
Change in net assets resulting from operations $ 1,485,585
</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>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
JANUARY 31, JULY 31,
1998 1997(A)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 1,440,561 $ 8,565
Net realized gain (loss) on investments ($4,389 net loss and $0, (4,389) --
respectively, as computed for federal tax purposes)
Net change in unrealized appreciation/depreciation 49,413 (28)
Change in net assets resulting from operations 1,485,585 8,537
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income (1,440,561) (8,785)
Distributions from net realized gains (3,478) --
Change in net assets resulting from distributions to shareholders (1,444,039) (8,785)
SHARE TRANSACTIONS--
Proceeds from sale of shares 98,828,483 11,100,172
Net asset value of shares issued to shareholders in payment of 1,009,277 --
distributions declared
Cost of shares redeemed (25,102,907) (100,167)
Change in net assets resulting from share transactions 74,734,853 11,000,005
Change in net assets 74,776,399 10,999,757
NET ASSETS:
Beginning of period 11,099,920 100,163
End of period $ 85,876,319 $ 11,099,920
</TABLE>
(a) Reflects operations for the period from July 10, 1997 (start of performance)
to July 31, 1997.

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

NOTES TO FINANCIAL STATEMENTS
FEDERATED INSTITUTIONAL SHORT DURATION GOVERNMENT FUND
SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)

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 brokers/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.

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:

<TABLE>
<CAPTION>
Six Months
Ended Year Ended
January 31, July 31,
1998 1997(a)
<S> <C> <C>
Shares sold 49,414,242 5,550,085
Shares issued to shareholders in payment of distributions declared 504,638 --
Shares redeemed (12,551,453) (10,017)
Net change resulting from share transactions 37,367,427 5,540,068
</TABLE>
(a) Reflects operations for the period from July 10, 1997 (start of performance)
to July 31, 1997.

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 January 31, 1998, the Fund
did not incur a shareholder services fee.

TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES

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

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

ORGANIZATIONAL EXPENSES

Organizational and/or start-up administrative service were borne initially by
the Adviser. The Fund has agreed to reimburse the 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.

INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding short-term securities, for the
period ended January 31, 1998, were as follows:

PURCHASES $63,663,943
SALES $20,158,127

TRUSTEES
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
William J. Copeland
James E. Dowd
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr.
Peter E. Madden
John E. Murray, Jr.
Wesley W. Posvar
Marjorie P. Smuts

OFFICERS
John F. Donahue
Chairman
Glen R. Johnson
President
J. Christopher Donahue
Executive Vice President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President, Treasurer, and Secretary
Richard B. Fisher
Vice President
J. Crilley Kelly
Assistant Secretary

Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves risk, including possible
loss of principal. Although money market funds seek to maintain a stable net
asset value of $1.00 per share, there is no assurance that they will be able to
do so.

This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses and other information.

[Graphic]
Federated Institutional Short Duration Government Fund
A Portfolio of Federated Institutional Trust
SEMI-ANNUAL REPORT AND SUPPLEMENT TO PROSPECTUS
MARCH 31, 1998

Federated Securities Corp., Distributor
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com

Cusip 31420B102
G02287-01 (3/98)
[Graphic]

Federated Institutional Short Duration Government Fund

Annual Report for Fiscal Year Ended July 31, 1997

MANAGEMENT DISCUSSION AND ANALYSIS

Federated Institutional Short Duration Government Fund invests in U.S.
Government securities, to include U.S. Treasuries, U.S. Government agencies, and
U.S. Government agency-sponsored mortgage-backed securities, either directly or
through repurchase agreements. The Fund seeks to maintain a duration of one year
or less. Federated Institutional Short Duration Government Fund became effective
on July 10, 1997. The Fund was assigned an AAAf credit rating* from Standard &
Poor's on July 31, 1997.

With the effective date for the Fund occurring so close to the end of the fiscal
year, the performance record for Federated Institutional Short Duration
Government Fund is rather brief. However, the portfolio's assets were invested
in a representative fashion, with an allocation in repurchase agreements
balanced by a position in a short duration government agency mortgage-backed
security to give the portfolio a duration of approximately six months. This
somewhat defensive stance was appropriate in light of the relatively expensive
nature of the short to intermediate sector of the government yield curve, and
since the performance of the portfolio holdings was in line with expectations.
As a whole, securities within the Fund's investment spectrum largely traded
within a range over this brief period, amidst benign inflation and moderate
economic growth.

* An AAAf rating by Standard and Poor's means that the fund's portfolio holdings
and counterparties provide extremely strong protection against losses from
credit defaults. Ratings do not remove market risks and are subject to change.

Federated Institutional Short Duration Government Fund

GROWTH OF $25,000 INVESTED IN FEDERATED INSTITUTIONAL SHORT DURATION
GOVERNMENT FUND

The graph below illustrates the hypothetical investment of $25,000* in the
Federated Institutional Short-Duration Government Fund (the "Fund") from July
10, 1997 (start of performance) to July 31, 1997 compared to the Merrill Lynch
6-Month Treasury Bill Index (ML6MTBI).+

A1. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed in the top left quadrant.
Federated Institutional Short Duration Government Fund (the "Fund") is
represented by a solid line. The Merrill Lynch 6-Month Treasury Bill Index
(ML6MTBI) is represented by a dotted line. The line graph is a visual
representation of a comparison of change in value of a $25,000 hypothetical
investment in the Fund and the ML6MTBI. The "x" axis reflects computation
periods from 7/10/97 to 7/31/97. The "y" axis reflects the cost of the
investment. The right margin reflects the ending value of the hypothetical
investment in the Fund as compared to the ML6MTBI. The ending values were
$25,085 and $25,115, respectively. The legend in the bottom quadrant of the
graphic presentation indicates the Fund's Average Annual Total Return from the
Fund's start of performance (7/10/97) to 7/31/97. The total return was 0.34%.

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.

This report must be preceded or accompanied by the Fund's prospectus dated March
31, 1998, and, together with financial statements contained therein, constitutes
the Fund's annual report.

* The Fund's performance assumes the reinvestment of all dividends and
distributions. The ML6MTBI has been adjusted to reflect reinvestment of
dividends on securities in the index.

+ The ML6MTBI is not adjusted to reflect sales charges, expenses, or other
fees that the SEC requires to be reflected in the Fund's performance. This
index is unmanaged.

[Graphic]

Federated Securities Corp., Distributor

Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

1-800-341-7400

www.federatedinvestors.com

Cusip 31420B102
G00352-03

[Graphic]

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 March 31,
1998, 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 March 31, 1998

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 7
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 8
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

Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)
(As a percentage of projected average net assets)* Management Fee (after
waiver)(1)
<TABLE>
<CAPTION>
SHAREHOLDER TRRANSACTION EXPENSES

<S> <C> Maximum Sales Charge Imposed on Purchases (as a percentage of offering
price) None Maximum Sales Charge Imposed on Reinvested Dividends (as a
percentage of offering price) None Contingent Deferred Sales Charge (as a
percentage of original purchase
price or redemption proceeds, if 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)*
<S> <C> <C>
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>

* 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.

(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 1.00% 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 waiver of the management fee and
the voluntary reimbursement of other operating expenses.

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.

EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period.
1 year $3
3 years $8

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.

COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS") AND REAL ESTATE MORTGAGE
INVESTMENT CONDUITS ("REMICS")

CMOs are a type of mortgage-backed security issued as multiple class bonds and
collateralized by pools of real estate mortgages. The CMOs in which the Fund
invests are issued and guaranteed as to payment of principal and interest by the
U.S. government or its agencies or instrumentalities. A REMIC is a CMO that
qualifies and elects treatment as such under provisions of the Internal Revenue
Code that provide for favorable federal tax treatment. The Fund will only
purchase investment grade CMOs, as rated by a nationally recognized statistical
rating organization. The Fund's investment in CMOs will meet interest rate risk
testing requirements for investments by federal credit unions and other
financial institutions.

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 $120 billion invested across more than 300 funds
under management and/or administration by its subsidiaries, as of December 31,
1997, 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 4,000 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.

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.

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.

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, Jr. 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 March 6, 1998, City of Detroit General Investment Fund
owned 50.03% 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

SIGNIFICANT ACCOUNTING POLICIES

INVESTMENT VALUATIONS

REPURCHASE AGREEMENTS

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

FEDERAL TAXES

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

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

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

MARCH 31, 1998

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

FEDERATED INSTITUTIONAL SHORT DURATION GOVERNMENT FUND

Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000

DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower

1001 Liberty Avenue

Pittsburgh, PA 15222-3779

INVESTMENT ADVISOR
Federated Management
Federated Investors Tower

1001 Liberty 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

Federated Securities Corp., Distributor

1-800-341-7400
www.federatedinvestors.com

Cusip 31420B102
G00352-01 (3/98)

[Graphic]

FEDERATED INSTITUTIONAL SHORT DURATION GOVERNMENT FUND
(A PORTFOLIO OF FEDERATED INSTITUTIONAL TRUST)

SEMI-ANNUAL REPORT AND SUPPLEMENT TO STATEMENT OF ADDITIONAL INFORMATION DATED
MARCH 31, 1998

A. Please delete the last sentence in the subsection entitled "Portfolio
Turnover" on page 2 of the Statement of Additional Information, and replace
with the following:

"For the six month period ended January 31, 1998, the Fund's portfolio
turnover rate was 105%."

B. Please delete the last sentence of the section entitled "Advisory Fees" on
page 9 of the Statement of Additional Information, and replace with the
following:

"For the six month period ended January 31, 1998, the adviser earned $99,366."

C. Please delete the last sentence of the subsection entitled "Fund
Administration" on page 9 of the Statement of Additional Information, and
replace with the following:

"For the six-month period ended January 31, 1998, the Administrators earned
$62,500."

D. Please delete the first paragraph and the first sentence of the second
paragraph in the section entitled "Total Return" on page 12 of the Statement
of Additional Information, and replace with the following:

"The Fund's cumulative total return for the six-month period ended January 31,
1998, was 2.99%."

E. Please delete the first sentence of the section entitled "Yield" on page 12
of the Statement of Additional Information, and replace with the following:

"The Fund's yield for the thirty-day period ended January 31, 1998, was 5.76%."

[graphic]

Federated Securities Corp., Distributor

Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

1-800-341-7400

www.federatedinvestors.com

Cusip 31420B102
G00352-05 (3/98)

[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 March 31, 1998. 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 INSTITUTIONAL SHORT DURATION GOVERNMENT FUND

FEDERATED INVESTORS FUNDS
5800 CORPORATE DRIVE
PITTSBURGH, PENNSYLVANIA 15237-7000

Statement dated March 31, 1998

[Graphic]

Cusip 31420B102
G00352-02 (3/98)

[Graphic]

TABLE OF CONTENTS

GENERAL INFORMATION ABOUT THE FUND 1
INVESTMENT OBJECTIVE AND POLICIES 1
Types of Investments 1
Mortgage-Backed Securities 1
Collateralized Mortgage Obligations ("CMOs") and Real Estate Mortgage
Investment Conduits ("REMICS") 1
Reverse Repurchase Agreements 1
When-Issued and Delayed Delivery Transactions 1
Repurchase Agreements 2
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 3
Lending Cash or Securities 3
Investing in Illiquid Securities 3
FEDERATED INSTITUTIONAL TRUST MANAGEMENT 3
Fund Ownership 7
Trustee Compensation 8
Trustee Liability 8
INVESTMENT ADVISORY SERVICES 8
Adviser to the Fund 8
ADVISORY FEES 9
OTHER SERVICES 9
Fund Administration 9
Custodian and Portfolio Accountant 9
Transfer Agent 9
Independent Auditors 9
SHAREHOLDER SERVICES 9
BROKERAGE TRANSACTIONS 10
PURCHASING SHARES 10
Conversion to Federal Funds 10
DETERMINING NET ASSET VALUE 10
Determining Market Value of Securities 10
REDEEMING SHARES 11
Redemption in Kind 11
Massachusetts Partnership Law 11
TAX STATUS 11
The Fund's Tax Status 11
Shareholders' Tax Status 12
Capital Gains 12
TOTAL RETURN 12
YIELD 12
PERFORMANCE COMPARISONS 12
Economic and Market Information 13
Duration 13
ABOUT FEDERATED INVESTORS 13
Mutual Fund Market 14

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.

COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS") AND REAL ESTATE MORTGAGE
INVESTMENT CONDUITS ("REMICS")

The Fund will not invest in any CMO that meets any of the following three tests:
(1) the CMO has an expected average life greater than 10 years; (2) the average
life of the CMO extends by more than four years assuming an immediate and
sustained parallel shift in the yield curve of plus 300 basis points, or
shortens by more than six years assuming an immediate and sustained parallel
shift in the yield curve of minus 300 basis points; or (3) the estimated change
in the price of the CMO is more than 17%, due to an immediate and sustained
parallel shift in the yield curve of plus or minus 300 basis points.

Neither test (1) nor (2) above apply to floating or adjustable rate CMOs with
all of the following characteristics: (a) the interest rate of the instrument is
reset at least annually; (b) the interest rate is below the contractual cap of
the instrument; (c) the instrument is tied to a widely-used market rate; and (d)
the instrument varies directly (not inversely) and is reset in proportion with
the index's changes.

The Fund may not purchase a residual interest in a CMO.

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.

Nicholas P. Constantakis
175 Woodshire Drive
Pittsburgh, PA

Birthdate: September 3, 1939

Trustee

Formerly, Partner, Anderson Worldwide SC; 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.

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 March 6, 1998, the following shareholders of record owned 5% or more of
the outstanding shares of the Fund: City of Detroit General Investment Fund,
Detroit, Michigan owned approximately 25,354,004.21 shares (50.03%); Holy Cross
Endowment Account, Worchester, Massachusetts, owned approximately 6,035,364.365
shares (11.91%); University of San Francisco, San Francisco, California, owned
approximately 5,090,888.55 shares (10.05%); Diocese of Greensburg, Greensburg,
Pennsylvania, owned approximately 2,667,783.42 shares (5.26%); and Eastern
Michigan University, Ypsilanti, Michigan, owned approximately 2,610,616.435
shares (5.15%).

TRUSTEE COMPENSATION

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

John F. Donahue $0 $0 for the Trust and
Chairman and Trustee 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

Nicholas P. Constantakis@ $0 $0 for the Trust and
Trustee 34 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

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

* 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.

@ Mr. Constantakis became a member of the Board of Trustees on February 23,
1998. He did not receive any fees as of the fiscal year end of the Trust.

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 for the period from August 15, 1994
(start of business) 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;
* 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, 1997, Federated Investors managed 9
mortgage-backed, 6 government/agency, and 18 government money market mutual
funds, with assets approximating $5.9 billion, $1.5 billion, and $35 billion,
respectively. Federated trades approximately $400 million in U.S. government and
mortgage-backed securities daily and places approximately $23 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 approximately $36 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 $4.4 trillion to the more than 6, 700 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 approximately 900 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