FEDERATED INSTITUTIONAL TRUST, N-30D, 1999-09-29

FEDERATED INSTITUTIONAL TRUST
N-30D, 1999-09-29

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MANAGEMENT DISCUSSION AND ANALYSIS

Federated Institutional Short Duration Government Fund

ANNUAL REPORT FOR FISCAL YEAR ENDED JULY 31, 1999

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, and was assigned a AAAf credit rating 1 from Standard & Poor's
on July 31, 1997.

The reporting period opened at the high of the height of the economic crises in
Asia, Latin America, and Russia, and amid rumors of the troubles at Long Term
Capital. In spite of considerable signs of strength in the domestic economy,
these developments took center stage, and when they introduced vulnerability
into our own domestic equity market, a dramatic flight to quality to the U.S.
Treasury market ensued. Prompt, assertive action by the Federal Reserve Board
(the "Fed") in the form of three 25 basis point easing steps over September,
October, and November relaxed the credit and liquidity strains evident in the
financial markets. As a result, the economy entered 1999 with a considerable
head of steam in the midst of relative market stability.

Relentless consumer spending and a robust housing market drove the economy's
growth to 3.7%, 6.0%, and 4.3% in the third and fourth quarters of 1998 and the
first quarter of 1999, respectively. The market's attention returned to economic
fundamentals, as this pace clearly exceeded measures of the non-inflationary
potential of the economy. Although overall signs of inflation remained benign,
interest rates rose across the yield curve as expectations grew that the Fed
would need to tighten monetary policy to preempt pressures down the road. By the
time of Fed Chairman Alan Greenspan's testimony before the Joint Economic
Committee later in June 1999, where he hinted that it may be appropriate for the
Fed to take back some of the liquidity that had been infused into the market in
the fourth quarter of 1998, market expectations reflected the inevitable
near-term tightening with more to follow. As a result, when the Fed opted to
tighten by 25 basis points on June 30, 1999, but announced a neutral
inter-meeting policy stance, the market took this as a sign that additional
tightenings may not be forthcoming and breathed a sigh of relief. This relief
was short-lived, however, as Chairman Greenspan indicated in his Humphrey
Hawkins testimony before Congress later in July that the Fed was prepared to
continue to act preemptively against the threat of inflation. The reporting
period closed amid belief that the Fed would likely tighten incrementally again
at the August 24, 1999, Federal Open Market Committee meeting.

1 An AAAf rating by Standard & 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.

Movements in short-term interest rates reflected the pronounced shifts in market
sentiment over the reporting period. The one-year Treasury bill, for example,
began last August at 5.4%, then plummeted to a low of 3.86% by mid-October, as
investors flocked to U.S. Treasuries as a safe haven from the turbulence in
other markets. As the monetary policy easings by the Fed calmed the markets and
the economy returned to center stage, the yield climbed to end the reporting
period at close to 5.2%.

Mortgage spreads experienced a roller coaster-like ride over the reporting
period due to significant market volatility. After reaching 10-year wides in
mid-October 1998, mortgage spreads retraced the vast majority of the
crisis-induced widening through May 1999 before again reversing course. Over the
12-month reporting period, par-priced 15-year MBS and GNMA adjustable rate
mortgage (ARM) spreads were wider by 20 and 23 basis points, respectively.

As market interest rates and refinance risk vacillated, the fund moved
opportunistically to manage duration and prepayment risk. In the fixed-rate
sector, we executed up-in-coupon trades to increase income as well as limit
duration extension. ARM holdings increased over the reporting period as spreads
widened and prepayment incentive declined. Given the rising rate environment of
the last nine months and corresponding decline in prepayment risk and
production, we have a positive view on mortgages, allocating approximately
one-third of fund assets to the sector. The remaining two-thirds of the fund was
invested in traditional government money market instruments, including floating
rate agency securities, fixed rate agencies and repurchase agreements. We added
to our floating rate security position over the reporting period in order to
enhance the fund yield's responsiveness to rising interest rates.

The net asset value of the fund ended the reporting period at $1.99 per share.
The portfolio's effective duration was .80 years, modestly longer than its
benchmark, the Merrill Lynch Six-Month Treasury Bill Index. 2

2 The Merrill Lynch Six-Month Treasury Bill Index is an unmanaged index tracking
six-month U.S. government securities. The index is produced by Merrill Lynch
Pierce Fenner and Smith, Inc. Investment cannot be made in an index.

LAST MEETING OF SHAREHOLDERS

The Special Meeting of Shareholders of Federated Institutional Short Duration
Government Fund, (the "Fund") was held on June 21, 1999. The following items
were approved by shareholders at this meeting.

AGENDA ITEM 1

Election of Directors.

SHARES VOTED SHARES
AFFIRMATIVELY WITHHELD

Thomas G. Bigley 99,682,772 35,000
Nicholas P. Constantakis 99,682,772 35,000
John F. Cunningham 99,682,772 35,000
J. Christopher Donahue 99,682,772 35,000
Charles F. Mansfield, Jr. 99,682,772 35,000
John E. Murray, Jr., J.D., S.J.D. 99,682,772 35,000
John S. Walsh 99,682,772 35,000

AGENDA ITEM 2

To ratify the selection of Ernst & Young LLP, as the Fund's independent
auditors.

SHARES VOTED SHARES VOTED SHARES
AFFIRMATIVELY NEGATIVELY ABSTAINING
95,923,435 0 3,794,337

AGENDA ITEM 3

To make changes to the Fund's fundamental investment policies:

(a) To approve amending the Fund's fundamental investment policy regarding
diversification.

SHARES VOTED SHARES VOTED SHARES
AFFIRMATIVELY NEGATIVELY ABSTAINING
91,093,908 288,428 4,567,261

(b) To approve amending the Fund's fundamental investment policy regarding
borrowing money and issuing senior securities.

SHARES VOTED SHARES VOTED SHARES
AFFIRMATIVELY NEGATIVELY ABSTAINING
89,856,358 1,525,977 4,567,261

SHARES VOTED SHARES VOTED SHARES
AFFIRMATIVELY NEGATIVELY ABSTAINING
89,821,358 1,560,977 4,567,261

(d) To approve amending the Fund's fundamental investment policy concerning
investments in commodities.

SHARES VOTED SHARES VOTED SHARES
AFFIRMATIVELY NEGATIVELY ABSTAINING
89,821,358 1,560,977 4,567,261

(e) To approve amending the Fund's fundamental investment policy regarding
underwriting securities.

SHARES VOTED SHARES VOTED SHARES
AFFIRMATIVELY NEGATIVELY ABSTAINING
90,629,282 1,525,977 3,794,337

(f) To approve amending the Fund's fundamental investment policy regarding
lending by the Fund.

SHARES VOTED SHARES VOTED SHARES
AFFIRMATIVELY NEGATIVELY ABSTAINING
89,962,156 1,415,679 4,571,761

(g) To approve amending the Fund's fundamental investment policy regarding
concentration of the Fund's investments in the securities of companies in the
same industry.

SHARES VOTED SHARES VOTED SHARES
AFFIRMATIVELY NEGATIVELY ABSTAINING
90,589,782 1,560,977 3,798,837

(h) To approve amending and making nonfundamental, the Fund's fundamental
investment policy regarding buying securities on margin.

SHARES VOTED SHARES VOTED SHARES
AFFIRMATIVELY NEGATIVELY ABSTAINING
89,851,858 2,298,901 3,798,837

(i) To approve amending and making nonfundamental, the Fund's fundamental
investment policy regarding pledging assets.

SHARES VOTED SHARES VOTED SHARES
AFFIRMATIVELY NEGATIVELY ABSTAINING
89,851,858 2,298,901 3,798,837

AGENDA ITEM 4

To approve eliminating the Fund's fundamental investment policy on selling
securities short.

SHARES VOTED SHARES VOTED SHARES
AFFIRMATIVELY NEGATIVELY ABSTAINING
89,851,858 2,298,901 3,798,837

INSTITUTIONAL SHARES

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

[Graphic]

AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD ENDED JULY 31, 1999
1 Year 4.87%

Start of Performance (7/10/97) 5.37%

The graph above illustrates the hypothetical investment of $25,000 1 in the
Federated Institutional Short Duration Government Fund (the "Fund") from July
10, 1997 (start of performance) to July 31, 1999, compared to the Merrill Lynch
Six-Month Treasury Bill Index ("ML6MTBI").2

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
September 30, 1999, and, together with financial statements contained therein,
constitutes the Fund's annual report.

1 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.

2 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. The index is
unmanaged.

[Graphic]
Federated

Federated Institutional Short Duration Government Fund
Federated Investors Funds
5800 Corporate Drive

Pittsburgh, PA 15237-7000

1-800-341-7400

WWW.FEDERATEDINVESTORS.COM

Federated Securities Corp., Distributor

Cusip 31420B102
Cusip 31420B201
G00352-03 (9/99)

[Graphic]

PROSPECTUS

Federated Government Ultrashort Fund

(Formerly, Federated Institutional Short Duration Government Fund)

A Portfolio of Federated Institutional Trust

INSTITUTIONAL SHARES

A mutual fund seeking current income by investing in U.S. government securities.

As with all mutual funds, the Securities and Exchange Commission (SEC) has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.

SEPTEMBER 30, 1999

CONTENTS

Risk/Return Summary 1

What are the Fund's Fees and Expenses? 3

What are the Fund's Investment Strategies? 4

What are the Principal Securities in Which the

Fund Invests? 5

What are the Specific Risks of Investing in the Fund? 6

What Do Shares Cost? 7

How is the Fund Sold? 7

How to Purchase Shares 8

How to Redeem Shares 9

Account and Share Information 10

Who Manages the Fund? 11

Financial Information 12

Report of Ernst & Young LLP, Independent Auditors 22

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The Fund's investment objective is current income. While there is no assurance
that the Fund will achieve its investment objective, it endeavors to do so by
following the strategies and policies described in this prospectus.

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

The Fund pursues its investment objective by investing exclusively in
U.S. government securities. These government securities consist of
treasury, agency and agency mortgage backed securities, and repurchase
agreements collateralized by U.S. government securities.

Although the value of the Fund's Shares will fluctuate, the Adviser will seek to
manage the magnitude of fluctuation by limiting the Fund's dollar weighted
average duration to approximately one year or less. Duration measures the price
sensitivity of a fixed income security to changes in interest rates. The Fund
will normally invest a majority of its assets in money market instruments due to
their short maturities. The Fund limits its investments to those that would
enable it to qualify as a permissible investment for Federal credit unions and
Federal savings assocations, and as an appropriate direct investment for
national banks.

WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?

All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund. The primary factors that may reduce the Fund's returns
include:

* INTEREST RATE RISK. Prices of fixed income securities generally fall when
interest rates rise.

* PREPAYMENT RISK. When homeowners prepay their mortgages in response to lower
interest rates, the Fund will be required to reinvest the proceeds at the lower
interest rates available. Also, when interest rates fall, the price of mortgage
backed securities may not rise to as great an extent as that of other fixed
income securities.

The Shares offered by this prospectus are not deposits or obligations of any
bank, are not endorsed or guaranteed by any bank and are not insured or
guaranteed by the U.S. government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board, or any other government agency.

RISK/RETURN BAR CHART AND TABLE

[Graphic]

The bar chart shows the variability of the Fund's Institutional Shares total
return on a calendar year-end basis.

The Fund's Institutional Shares are not sold subject to a sales charge (load).
The total return displayed above is based upon net asset value.

The Fund's Institutional Shares total return for the six-month period from
January 1, 1999 to June 30, 1999 was 2.06%.

Within the period shown in the Chart, the Fund's Institutional Shares highest
quarterly return was 1.91% (quarter ended September 30, 1998). Its lowest
quarterly return was 0.86% (quarter ended December 31, 1998).

AVERAGE ANNUAL TOTAL RETURN TABLE

The following table represents the Fund's Institutional Shares Average Annual
Total Return for the calendar period ended December 31, 1998.

The table shows the Fund's total returns averaged over a period of years
relative to the Merrill Lynch Six-Month Treasury Bill Index (ML6MTBI), a broad
based market index. The ML6MTBI tracks six-month government securities. Total
returns for the index shown do not reflect sales charges, expenses or other fees
that the SEC requires to be reflected in the Fund's performance. Indexes are
unmanaged, and it is not possible to invest directly in an index.

<TABLE>

CALENDAR PERIOD FUND ML6MTBI
<S> <C> <C>
1 Year 5.67% 5.58%
Start of Performance 1 5.78% 5.49%

</TABLE>

1 The Fund's Institutional Shares start of performance date was July 10, 1997.

Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
returns.

What are the Fund's Fees and Expenses?

FEDERATED GOVERNMENT ULTRASHORT FUND

(formerly Federated Institutional Short Duration Government Fund)

FEES AND EXPENSES

This table describes the fees and expenses that you may pay if you buy and hold
Institutional Shares of the Fund.

<TABLE>

SHAREHOLDER FEES

<S> <C>
Fees Paid Directly From
Your Investment
Maximum Sales Charge
(Load) Imposed on
Purchases (as a percentage
of offering price) None
Maximum Deferred Sales
Charge (Load) (as a
percentage of original
purchase price or
redemption proceeds,
as applicable) None
Maximum Sales Charge
(Load) Imposed on
Reinvested Dividends (and
other Distributions) (as a
percentage of offering
price) None
Redemption Fee (as a
percentage of amount
redeemed, if applicable) None
Exchange Fee None

ANNUAL FUND OPERATING
EXPENSES (Before Waivers)

Expenses That are Deducted
From Fund Assets (as a
percentage of average net
assets)

Management Fee 2 0.40%
Distribution (12b-1) Fee None
Shareholder Services Fee 3 0.25%
Other Expenses 0.21%
Total Annual Fund
Operating Expenses 0.86%
1 Although not contractually obligated to do so, the Adviser and shareholder
service provider waived certain amounts. These are shown below along with the net
expenses the Fund actually paid for the fiscal year ended July 31, 1999.
Total Waivers of Fund

Expenses 0.61%
Total Annual Operating

Expenses (after waivers) 0.25%
2 The Adviser voluntarily waived a portion of the management fee. The Adviser can
terminate this voluntary waiver at any time. The management fee paid by the
Fund's Institutional Shares (after the voluntary waiver) was 0.04% for the year
ended July 31, 1999.
3 Institutional Shares did not pay or accrue the shareholder services fee during
the year ended July 31, 1999. Institutional Shares have no present intention of
paying or accruing the shareholder services fee during the fiscal year ending
July 31, 2000.

</TABLE>

EXAMPLE

This Example is intended to help you compare the cost of investing in the Fund's
Institutional Shares with the cost of investing in other mutual funds.

The Example assumes that you invest $10,000 in the Fund's Institutional Shares
for the time periods indicated and then redeem all of your Shares at the end of
those periods. The Example also assumes that your investment has a 5% return
each year and that the Fund's Institutional Shares' operating expenses are
BEFORE WAIVERS as shown in the table and remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:

1 Year $ 88
3 Years $ 274
5 Years $ 477
10 Years $ 1,061

What are the Fund's Investment Strategies?

The Fund invests exclusively in U.S. government securities, consisting of
treasury, agency and agency mortgage backed securities, and repurchase
agreements collateralized by U.S. government securities. The Adviser actively
manages the Fund's portfolio seeking current income while limiting share price
volatility attributable to interest rate risk. A description of the various
types of securities in which the Fund invests, and their risks, immediately
follows this strategy section.

The Fund's Share price volatility attributable to interest rate risk is limited
by maintaining a dollar- weighted average portfolio duration of one year or
less. Accordingly, because of their relatively short maturities, the Adviser
includes money market instruments as a major component of the Fund's portfolio
in order to attempt to limit the fluctuation of the Fund's share price.

Within the one-year constraint, however, the Adviser may seek to increase the
Fund's current income by lengthening or shortening portfolio duration from time
to time based on its interest rate outlook. If the Adviser expects interest
rates to decline, it will generally lengthen the Fund's duration. If the Adviser
expects interest rates to increase, it will generally shorten the Fund's
duration. The Adviser formulates its interest rate outlook and otherwise
attempts to anticipate changes in economic and market conditions by analyzing a
variety of factors, such as:

* current and expected U.S. economic growth;

* current and expected interest rates and inflation;

* the Federal Reserve Board's monetary policy; and

* changes in the supply of or demand for U.S. government securities.

In addition to managing the Fund's portfolio duration, the Adviser seeks to
enhance the Fund's current income through its allocation of the Fund's portfolio
holdings between U.S. government mortgage backed securities and other types of
U.S. government securities. Mortgage backed securities generally offer higher
yields versus other government securities of comparable duration in order to
compensate for prepayment risk. Prepayment risk is the unscheduled partial or
complete payment of the principal outstanding on the underlying mortgage loans
by the homeowners. The Adviser attempts to limit prepayment risk by selecting
those mortgage backed securities with characteristics which make prepayment less
likely.

The Adviser increases the portfolio's mortgage backed securities component when,
in the opinion of the Adviser, mortgage backed securities have an attractive
current and expected "spread" versus Treasury securities. (The spread is the
difference between the yield of a security versus the yield of a U.S. Treasury
security with a comparable average life.)

There is no assurance that the Adviser's efforts to forecast market interest
rates and assess the impact of market interest rates in particular will be
successful.

PORTFOLIO TURNOVER

The Fund actively trades its portfolio securities in an attempt to achieve its
investment objective. Active trading will cause the Fund to have an increased
portfolio turnover rate, which is likely to generate shorter-term gains (losses)
for its shareholders, which are taxed at a higher rate than longer-term gains
(losses). Actively trading portfolio securities increases the Fund's trading
costs and may have an adverse impact on the Fund's performance.

What are the Principal Securities in Which the Fund Invests?

FIXED INCOME SECURITIES

Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or may be adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.

A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields.

The following describes the principal types of fixed income securities in which
the Fund invests.

TREASURY SECURITIES

Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded as having the lowest
credit risks.

AGENCY SECURITIES

Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a "GSE"). The United
States supports some GSEs with its full faith and credit. Other GSEs receive
support through federal subsidies, loans or other benefits. A few GSEs have no
explicit financial support, but are regarded as having implied support because
the federal government sponsors their activities. Agency securities are
generally regarded as having low credit risks, but not as low as treasury
securities.

The Fund treats mortgage backed securities guaranteed by GSEs as agency
securities. Although a GSE guarantee protects against credit risks, it does not
reduce the interest rate and prepayment risks of these mortgage backed
securities.

MORTGAGE BACKED SECURITIES

Mortgage backed securities represent interests in pools of mortgages. The
mortgages that comprise a pool normally have similar interest rates, maturities
and other terms. Mortgages may have fixed or adjustable interest rates.
Interests in pools of adjustable rate mortgages are known as ARMs.

Mortgage backed securities come in a variety of forms. Many have extremely
complicated terms. The simplest form of mortgage backed securities are
pass-through certificates. An issuer of pass-through certificates gathers
monthly payments from an underlying pool of mortgages. Then, the issuer deducts
its fees and expenses and passes the balance of the payments onto the
certificate holders once a month. Holders of pass-through certificates receive a
pro rata share of all payments and prepayments from the underlying mortgages. As
a result, the holders assume all the prepayment risks of the underlying
mortgages.

COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)

CMOs, including interests in real estate mortgage investment conduits (REMICs),
allocate payments and prepayments from an underlying pass-through certificate
among holders of different classes of mortgage backed securities. This creates
different prepayment and interest rate risks for each CMO class. The degree of
increased or decreased prepayment risk depends upon the structure of the CMOs.
However, the actual returns of any type of mortgage backed security depend upon
the performance of the underlying pool of mortgages, which no one can predict
and will vary among pools. The Fund's investment in CMOs will meet interest rate
risk testing requirements for investments by federal credit unions and other
financial institutions.

SEQUENTIAL CMOS

In a sequential pay CMO, one class of CMOs receives all principal payments and
prepayments. The next class of CMOs receives all principal payments after the
first class is paid off. This process repeats for each sequential class of CMO.
As a result, each class of sequential pay CMOs reduces the prepayment risks of
subsequent classes.

SPECIAL TRANSACTIONS

REPURCHASE AGREEMENTS

Repurchase agreements are transactions in which the Fund buys a security from a
dealer or bank and agrees to sell the security back at a mutually agreed upon
time and price. The repurchase price exceeds the original purchase price,
reflecting the Fund's return on the transaction. This return is unrelated to the
interest rate on the underlying security. The Fund will enter into repurchase
agreements only with banks and other recognized financial institutions, such as
securities dealers, deemed creditworthy by the Adviser.

What are the Specific Risks of Investing in the Fund?

INTEREST RATE RISKS

Prices of fixed income securities rise and fall in response to changes in the
interest rate paid by similar securities. Generally, when interest rates rise,
prices of fixed income securities fall. However, market factors, such as the
demand for particular fixed income securities, may cause the price of certain
fixed income securities to fall while the prices of other securities rise or
remain unchanged.

Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of a
fixed income security to changes in interest rates.

PREPAYMENT RISKS

Unlike traditional fixed income securities, which pay a fixed rate of interest
until maturity (when the entire principal amount is due) payments on mortgage
backed securities include both interest and a partial payment of principal.
Partial payment of principal may be comprised of scheduled principal payments as
well as unscheduled payments from the voluntary prepayment, refinancing, or
foreclosure of the underlying loans. These unscheduled prepayments of principal
create risks that can adversely affect a Fund holding mortgage backed
securities.

For example, when interest rates decline, the values of mortgage backed
securities generally rise. However, when interest rates decline, unscheduled
prepayments can be expected to accelerate, and the Fund would be required to
reinvest the proceeds of the prepayments at the lower interest rates then
available. Unscheduled prepayments would also limit the potential for capital
appreciation on mortgage backed securities.

Conversely, when interest rates rise, the values of mortgage backed securities
generally fall. Since rising interest rates typically result in decreased
prepayments, this could lengthen the average lives of mortgage backed
securities, and cause their value to decline more than traditional fixed income
securities.

Generally, mortgage backed securities compensate for the increased risk
associated with prepayments by paying a higher yield. The additional interest
paid for risk is measured by the difference between the yield of a mortgage
backed security and the yield of a U.S. Treasury security with a comparable
maturity (the spread). An increase in the spread will cause the price of the
mortgage backed security to decline. Spreads generally increase in response to
adverse economic or market conditions. Spreads may also increase if the security
is perceived to have an increased prepayment risk or is perceived to have less
market demand.

What Do Shares Cost?

You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. When the Fund receives your transaction request in proper form (as
described in the prospectus), it is processed at the next calculated net asset
value (NAV).

The Fund does not charge a front-end sales charge.

NAV is determined at the end of regular trading (normally 4:00 p.m. Eastern
time) each day the NYSE is open. The Fund generally values fixed income
securities according to their last sale price in the market in which they are
primarily traded (either a national securities exchange or over the counter
market).

The required minimum initial investment for Fund Shares is $25,000. There is no
required minimum subsequent investment amount.

An account may be opened with a smaller amount as long as the $25,000 minimum is
reached within 90 days. An institutional investor's minimum investment is
calculated by combining all accounts it maintains with the Fund. Accounts
established through investment professionals may be subject to a smaller minimum
investment amount. Keep in mind that investment professionals may charge you
fees for their services in connection with your Share transactions.

How is the Fund Sold?

The Fund offers two share classes: Institutional Shares and Institutional
Service Shares, each representing interests in a single portfolio of securities.
This prospectus relates only to Institutional Shares. Each share class has
different expenses, which affect their performance. Contact your investment
professional or call 1-800-341-7400 for more information concerning the other
class.

The Fund's Distributor, Federated Securities Corp., markets the Shares described
in this prospectus to financial institutions, credit unions, savings
associations and national banks or individuals, directly or through investment
professionals.

The Distributor and its affiliates may pay out of their assets other
amounts (including items of material value) to investment professionals
for marketing and servicing Shares. The Distributor is a subsidiary of
Federated Investors, Inc. (Federated).

How to Purchase Shares

You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase Shares.

THROUGH AN INVESTMENT PROFESSIONAL

* Establish an account with the investment professional; and

* Submit your purchase order to the investment professional before the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). You will receive
the next calculated NAV if the investment professional forwards the order to the
Fund on the same day and the Fund receives payment within one business day. You
will become the owner of Shares and receive dividends when the Fund receives
your payment.

Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."

DIRECTLY FROM THE FUND

* Establish your account with the Fund by submitting a completed New
Account Form; and

* Send your payment to the Fund by Federal Reserve wire or check.

You will become the owner of Shares and your Shares will be priced at the next
calculated NAV after the Fund receives your wire or your check. If your check
does not clear, your purchase will be canceled and you could be liable for any
losses or fees the Fund or its transfer agent incurs.

An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the next calculated NAV after the Fund receives
the order.

BY WIRE

Send your wire to:

State Street Bank and Trust Company

Boston, MA

Dollar Amount of Wire

ABA Number 011000028

Attention: EDGEWIRE

Wire Order Number, Dealer Number or Group Number

Nominee/Institution Name

Fund Name and Number and Account Number

You cannot purchase Shares by wire on holidays when wire transfers are
restricted.

BY CHECK

Make your check payable to THE FEDERATED FUNDS, note your account number on the
check, and mail it to:

Federated Shareholder Services Company

P.O. Box 8600

Boston, MA 02266-8600

If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:

Federated Shareholder Services Company

1099 Hingham Street

Rockland, MA 02370-3317

Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone
other than you or The Federated Funds).

BY AUTOMATED CLEARING HOUSE (ACH)

Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.

How to Redeem Shares

You should redeem Shares:

* through an investment professional if you purchased Shares through an
investment professional; or

* directly from the Fund if you purchased Shares directly from the Fund.

THROUGH AN INVESTMENT PROFESSIONAL

Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). The redemption
amount you will receive is based upon the next calculated NAV after the Fund
receives the order from your investment professional.

DIRECTLY FROM THE FUND

BY TELEPHONE

You may redeem Shares by calling the Fund at 1-800-341-7400 once you have
completed the appropriate authorization form for telephone transactions.

If you call before the end of regular trading on the NYSE (normally 4:00 p.m.
Eastern time), you will receive a redemption amount based on that day's NAV.

BY MAIL

You may redeem Shares by mailing a written request to the Fund.

You will receive a redemption amount based on the next calculated NAV after the
Fund receives your written request in proper form.

Send requests by mail to:

Federated Shareholder Services Company

P.O. Box 8600

Boston, MA 02266-8600

Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:

Federated Shareholder Services Company

1099 Hingham Street

Rockland, MA 02370-3317

All requests must include:

* Fund Name and Share Class, account number and account registration;

* amount to be redeemed; and

* signatures of all shareholders exactly as registered.

Call your investment professional or the Fund if you need special instructions.

SIGNATURE GUARANTEES

Signatures must be guaranteed if:

* your redemption will be sent to an address other than the address of
record;

* your redemption will be sent to an address of record that was changed
within the last 30 days; or

* a redemption is payable to someone other than the shareholder(s) of
record.

A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A NOTARY PUBLIC CANNOT
PROVIDE A SIGNATURE GUARANTEe.

PAYMENT METHODS FOR REDEMPTIONS

Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:

* an electronic transfer to your account at a financial institution that is
an ACH member; or

* wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.

REDEMPTION IN KIND

Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.

LIMITATIONS ON REDEMPTION PROCEEDS

Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:

* to allow your purchase to clear;

* during periods of market volatility; or

* when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.

You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.

ADDITIONAL CONDITIONS

TELEPHONE TRANSACTIONS

The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.

SHARE CERTIFICATES

The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return the
certificates with your written redemption request. For your protection, send
your certificates by registered or certified mail, but do not endorse them.

Account and Share Information

CONFIRMATIONS AND ACCOUNT STATEMENTS

You will receive confirmation of purchases and redemptions. In addition, you
will receive periodic statements reporting all account activity, including
dividends and capital gains paid.

DIVIDENDS AND CAPITAL GAINS

The Fund declares any dividends daily and pays them monthly to shareholders. If
you purchase Shares by wire, you begin earning dividends on the day your wire is
received. If you purchase Shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through the day your redemption request is received.

In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.

If you purchase Shares just before a Fund declares a capital gain distribution,
you will pay the full price for the Shares and then receive a portion of the
price back in the form of a taxable distribution, whether or not you reinvest
the distribution in Shares. Therefore, you should consider the tax implications
of purchasing Shares shortly before the Fund declares a capital gain. Contact
your investment professional or the Fund for information concerning when
dividends and capital gains will be paid.

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, accounts may be
closed if redemptions cause the account balance to fall below the minimum
initial investment amount. Before an account is closed, you will be notified and
allowed 30 days to purchase additional Shares to meet the minimum.

TAX INFORMATION

The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Dividends are taxable as ordinary income; capital gains
are taxable at different rates depending upon the length of time the Fund holds
its assets.

Fund distributions are expected to be primarily dividends. Redemptions are
taxable sales. Please consult your tax adviser regarding your federal, state,
and local tax liability.

Who Manages the Fund?

The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Investment Management Company. The Adviser manages the Fund's
assets, including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.

The Adviser and other subsidiaries of Federated advise approximately 175 mutual
funds and separate accounts, which totaled approximately $111 billion in assets
as of December 31, 1998. Federated was established in 1955 and is one of the
largest mutual fund investment managers in the United States with approximately
1,900 employees. More than 4,000 investment professionals make Federated Funds
available to their customers.

THE FUND'S PORTFOLIO MANAGERS ARE:

SUSAN R. HILL

Susan R. Hill has been the Fund's portfolio manager since July 1997. She is
Vice President of the Fund. Ms. Hill joined Federated in 1990 and has been
a Portfolio Manager since 1993 and a Vice President of the Fund's Adviser
since 1997. Ms. Hill was a Portfolio Manager and an Assistant Vice
President of the Adviser from 1994 until 1997. Ms. Hill is a Chartered
Financial Analyst and received an M.S. in Industrial Administration from
Carnegie Mellon University.

TODD A. ABRAHAM

Todd A. Abraham has been the Fund's portfolio manager since July 1997.
Mr. Abraham has been a Portfolio Manager since 1995 and a Vice President of
the Fund's Adviser since 1997. Mr. Abraham joined Federated in 1993 as an
Investment Analyst and served as Assistant Vice President from 1995 to
1997. Mr. Abraham served as a Portfolio Analyst at Ryland Mortgage Co. from
1992 to 1993. Mr. Abraham is a Chartered Financial Analyst and received his
M.B.A. in Finance from Loyola College.

SUSAN M. NASON

Susan M. Nason has been the Fund's portfolio manager since the Fund's
inception. Ms. Nason joined Federated in 1987 and has been a Senior
Portfolio Manager and Senior Vice President of the Fund's Adviser since
1997. Ms. Nason served as a Portfolio Manager and Vice President of the
Adviser from 1993 to 1997. Ms. Nason is a Chartered Financial Analyst and
received her M.S.I.A. concentrating in Finance from Carnegie Mellon
University.

ADVISORY FEES

The Adviser receives an annual investment advisory fee of 0.40% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.

YEAR 2000 READINESS

The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999 or may experience other date-related problems. The Year 2000 problem may
cause systems to process information incorrectly and could disrupt businesses,
such as the Fund, that rely on computers.

While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.

The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.

Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase.

The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.

Financial Information

FINANCIAL HIGHLIGHTS

The following Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of any dividends and capital
gains.

This information has been audited by Ernst & Young LLP, whose report, along with
the Fund's audited financial statements, is included in this prospectus.

Financial Highlights

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

<TABLE>

YEAR ENDED JULY 31 1999 1998 1997 1
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING

OF PERIOD $ 2.00 $ 2.00 $ 2.00
INCOME FROM INVESTMENT
OPERATIONS:

Net investment income 0.10 0.11 0.01
Net realized and
unrealized gain (loss) on
investments (0.01) - -
TOTAL FROM INVESTMENT

OPERATIONS 0.09 0.11 0.01
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.10) (0.11) (0.01)
Distributions from capital
gains - 2 - 2 -
TOTAL DISTRIBUTIONS (0.10) (0.11) (0.01)
NET ASSET VALUE, END OF

PERIOD $ 1.99 $ 2.00 $ 2.00
TOTAL RETURN 3 4.87% 5.86% 0.34%

RATIOS TO AVERAGE NET

ASSETS:

Expenses 4 0.61% 0.78% 77.80% 5
Net investment income 4 4.84% 4.99% (72.05)% 5
Expenses (after waivers) 0.25% 0.15% 0.00 % 5
Net investment income
(after waiver) 5.20% 5.62% 5.75% 5
SUPPLEMENTAL DATA:
Net assets, end of period

(000 omitted) $186,362 $117,932 $11,100
Portfolio turnover 278% 145% 0%
</TABLE>

1 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.

2 Distributions from capital gains were less than $.01 per share.

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

4 During the period, certain fees were voluntarily waived. If such voluntary
waivers had not occurred, the ratios would have been as indicated.

5 Computed on an annualized basis.

See Notes which are an integral part of the Financial Statements

Portfolio of Investments

JULY 31, 1999

<TABLE>

PRINCIPAL

AMOUNT VALUE
<S> <C> <C>

LONG TERM GOVERNMENT

OBLIGATIONS-83.3%
FEDERAL HOME LOAN BANK-

3.8%

$ 2,000,000 4.950%, 2/17/2000 $ 1,997,600
2,000,000 4.980%, 2/16/2000 1,997,940
2,000,000 4.995%, 2/24/2000 1,997,840
1,000,000 5.035%, 2/25/2000 999,120
TOTAL 6,992,500
FEDERAL HOME LOAN BANK,

DISCOUNT RATE NOTE-5.3%

10,000,000 4.772%, 8/27/1999 9,964,600
FEDERAL HOME LOAN BANK,
FLOATING RATE NOTE-4.3% 1

5,000,000 4.851%, 9/1/1999 4,998,875
3,000,000 5.120%, 8/2/1999 3,000,060
TOTAL 7,998,935

FEDERAL HOME LOAN MORTGAGE
ASSOCIATION, DISCOUNT RATE

NOTE-9.0%
17,000,000 4.810% - 5.180%, 9/3/1999 -

1/21/2000 16,774,920

FEDERAL HOME LOAN MORTGAGE
ASSOCIATION, FLOATING RATE

NOTE-6.4% 1

10,000,000 4.985%, 8/23/1999 10,002,000
2,000,000 5.008%, 8/23/1999 2,000,320
TOTAL 12,002,320

FEDERAL NATIONAL MORTGAGE

ASSOCIATION-20.4%

1,000,000 4.780%, 11/30/1999 998,860
2,000,000 5.000%, 5/5/2000 1,992,840
3,000,000 5.520%, 8/9/1999 3,001,140
2,000,000 5.570%, 3/17/2000 2,004,780
30,120,603 7.000%, 7/1/2014 -

9/1/2014 29,998,313
TOTAL 37,995,933

FEDERAL NATIONAL MORTGAGE
ASSOCIATION, ARM-16.6%

19,998,003 5.812%, 3/1/2033 19,587,044
4,270,276 6.766%, 11/1/2018 4,374,514
6,748,506 6.847%, 9/1/2021 6,942,728
TOTAL 30,904,286

FEDERAL NATIONAL MORTGAGE
ASSOCIATION, FLOATING RATE

NOTE-14.5% 1

20,000,000 4.773%, 8/5/1999 20,001,000
<CAPTION>

PRINCIPAL

AMOUNT VALUE
<S> <C> <C>

LONG TERM GOVERNMENT

OBLIGATIONS-continued

FEDERAL NATIONAL MORTGAGE
ASSOCIATION, FLOATING RATE
NOTE-CONTINUED 1

$ 7,000,000 4.993%, 8/16/1999 $ 7,002,660
TOTAL 27,003,660
STUDENT LOAN MARKETING

ASSOCIATION-1.1%

2,000,000 4.930%, 2/8/2000 1,996,480
STUDENT LOAN MARKETING
ASSOCIATION, FLOATING RATE

NOTE-1.9%

3,500,000 5.313%, 8/10/1999 3,498,250
TOTAL LONG TERM GOVERNMENT
OBLIGATIONS (IDENTIFIED
COST $155,489,393) 155,131,884
REPURCHASE AGREEMENTS -

15.5% 2
5,000,000 Bank of America, 5.130%,

dated 7/30/1999, due

8/2/1999 5,000,000
5,000,000 Bear, Stearns and Co.,
5.130%, dated 7/30/1999,

due 8/2/1999 5,000,000
3,925,000 Deutsche Bank AG, 5.080%,
dated 7/30/1999, due

8/2/1999 3,925,000
5,000,000 Goldman Sachs Group LP,
5.130%, dated 7/30/1999,

due 8/2/1999 5,000,000
5,000,000 Paribas Corp., 5.130%,
dated 7/30/1999, due

8/2/1999 5,000,000
5,000,000 Salomon Brothers, Inc.,
5.125%, dated 7/30/1999,

due 8/2/1999 5,000,000

TOTAL REPURCHASE

AGREEMENTS (AT AMORTIZED

COST) 28,925,000

TOTAL INVESTMENTS
(IDENTIFIED COST

$184,414,393) 3 $ 184,056,884

</TABLE>

1 Current rate and next reset date shown.

2 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.

3 The cost of investments for federal tax purposes amounts to $184,414,393. The
net unrealized depreciation of investments on a federal tax basis amounts to
$357,509 which is comprised of $28,436 appreciation and $385,945 depreciation at
July 31, 1999.

Note: The categories of investments are shown as a percentage of net assets
($186,361,764) at July 31, 1999.

See Notes which are an integral part of the Financial Statements

Statement of Assets and Liabilities

JULY 31, 1999

<TABLE>

<S> <C> <C>
ASSETS:
Investments in repurchase
agreements $ 28,925,000
Investments in securities 155,131,884
Total investments in
securities, at value
(identified and tax cost
$184,414,393) $ 184,056,884
Income receivable 1,024,749
Receivable for investments
sold 22,008,784
Receivable for shares sold 2,105
TOTAL ASSETS 207,092,522
LIABILITIES:

Payable for investments

purchased 20,430,550
Payable for shares
redeemed 16,464
Income distribution
payable 200,123
Accrued expenses 83,621
TOTAL LIABILITIES 20,730,758
Net assets for 93,881,984
shares outstanding $ 186,361,764
NET ASSETS CONSIST OF:

Paid in capital $ 188,025,370
Net unrealized
depreciation of
investments (357,509)
Accumulated net realized
loss on investments (1,305,139)
Distributions in excess of
net investment income (958)
TOTAL NET ASSETS $ 186,361,764
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PROCEEDS PER SHARE:
$186,361,764 / 93,881,984
shares outstanding $1.99

</TABLE>

See Notes which are an integral part of the Financial Statements

Statement of Operations

YEAR ENDED JULY 31, 1999

<TABLE>

<S> <C> <C>
INVESTMENT INCOME:
Interest (net of dollar
roll expense of $71,490) $ 10,430,446
EXPENSES:

Investment advisory fee $ 766,423
Administrative personnel
and services fee 145,900
Custodian fees 22,568
Transfer and dividend
disbursing agent fees and
expenses 8,600
Directors'/Trustees' fees 10,952
Auditing fees 15,135
Legal fees 4,871
Portfolio accounting fees 67,723
Share registration costs 91,280
Printing and postage 14,478
Insurance premiums 1,754
Miscellaneous 6,583
TOTAL EXPENSES 1,156,267
WAIVER:
Waiver of investment
advisory fee (682,002)
Net expenses 474,265
Net investment income 9,956,181
REALIZED AND UNREALIZED
LOSS ON INVESTMENTS:
Net realized loss on
investments (1,275,123)
Net change in unrealized
depreciation of
investments (342,432)
Net realized and
unrealized loss on
investments (1,617,555)
Change in net assets
resulting from operations $ 8,338,626

</TABLE>

See Notes which are an integral part of the Financial Statements

Statement of Changes in Net Assets

<TABLE>

YEAR ENDED JULY 31 1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET

ASSETS
OPERATIONS:

Net investment income $ 9,956,181 $ 4,628,050
Net realized gain (loss) on
investments ($(1,305,139)
and $57,875, respectively,
as computed for federal tax
purposes) (1,275,123) 57,875
Net change in unrealized
depreciation (342,432) (15,049)
CHANGE IN NET ASSETS

RESULTING FROM OPERATIONS 8,338,626 4,670,876
DISTRIBUTIONS TO
SHAREHOLDERS:

Distributions from net

investment income (9,957,683) (4,650,695)
Distributions from net

realized gains (61,004) (3,478)
CHANGE IN NET ASSETS
RESULTING FROM

DISTRIBUTIONS

TO SHAREHOLDERS (10,018,687) (4,654,173)
SHARE TRANSACTIONS:
Proceeds from sale of
shares 369,878,554 206,279,411
Net asset value of shares
issued to shareholders in
payment of
distributions declared 7,420,283 4,190,491
Cost of shares redeemed (307,189,137) (103,654,400)
CHANGE IN NET ASSETS
RESULTING FROM SHARE

TRANSACTIONS 70,109,700 106,815,502
Change in net assets 68,429,639 106,832,205
NET ASSETS:

Beginning of period 117,932,125 11,099,920
End of period $ 186,361,764 $ 117,932,125

</TABLE>

See Notes which are an integral part of the Financial Statements

Notes to Financial Statements

JULY 31, 1999

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 60 days or less at the time of purchase may be valued at amortized
cost, which approximates fair market value.

REPURCHASE AGREEMENTS

It is the policy of the Fund to require the custodian bank or broker to take
possession, to have legally segregated in the Federal Reserve Book Entry System,
or to have segregated within the custodian bank's vault, all securities held as
collateral under repurchase agreement transactions. Additionally, procedures
have been established by the Fund to monitor, on a daily basis, the market value
of each repurchase agreement's collateral to ensure that the value of collateral
at least equals the repurchase price to be paid under the repurchase agreement
transaction.

The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Fund's adviser to be creditworthy pursuant to the 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.

Additonally, net capital losses of $1,305,139 attributable to security
transactions incurred after October 31, 1998, are treated as arising on the
first day of the next taxable year.

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). At July
31, 1999 capital paid-in aggregated $188,025,370

Transactions in shares were as follows:

<TABLE>

YEAR ENDED JULY 31 1999 1998
<S> <C> <C>
Shares sold 184,938,794 103,139,705
Shares issued to
shareholders in payment of
distributions declared 3,713,864 2,095,246
Shares redeemed (153,728,509) (51,827,200)

NET CHANGE RESULTING FROM

SHARE TRANSACTIONS 34,924,149 53,407,751

</TABLE>

INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

INVESTMENT ADVISORY FEE

Federated Investment Management Company, 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, Inc.

for the period.

SHAREHOLDER SERVICES FEE

Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services Company ("FSSC"), the Fund will pay FSSC up to 0.25% of average daily
net assets of the Fund for the period. The fee paid to FSSC is used to finance
certain services for shareholders and to maintain shareholder accounts. For the
period ended July 31, 1999, the Fund did not incur a shareholder services fee.

TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES

FServ, through its subsidiary 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.

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
year ended July 31, 1999, were as follows:

<TABLE>

<S> <C>
Purchases $ 445,485,363
Sales $ 350,631,784

</TABLE>

YEAR 2000 (UNAUDITED)

Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.

SUBSEQUENT EVENTS (UNAUDITED)

On September 29, 1999, the Fund changed its name from Federated Institutional
Short Duration Government Fund to Federated Government Ultrashort Fund. In
addition, the Fund commenced an offering of Institutional Service Shares to the
public on September 30, 1999.

Report of Ernst & Young LLP, Independent Auditors

TO THE TRUSTEES AND SHAREHOLDERS OF

FEDERATED INSTITUTIONAL TRUST:

We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of the Federated Institutional Short Duration
Government Fund (one portfolio constituting the Federated Institutional Trust)
as of July 31, 1999, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and financial highlights for each of the periods presented
therein. These financial statement and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of July
31, 1999, by correspondence with the custodian and brokers or other appropriate
auditing procedures where replies from brokers were not received. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Federated Institutional Short Duration Government Fund of the Federated
Institutional Trust at July 31, 1999, and the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the periods presented
therein, in conformity with generally accepted accounting principles.

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Ernst & Young LLP

Boston, Massachusetts

September 21, 1999

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Federated

World-Class Investment Manager

PROSPECTUS

Federated Government Ultrashort Fund

(Formerly, Federated Institutional Short Duration Government Fund)

A Portfolio of Federated Institutional Trust

INSTITUTIONAL SHARES

SEPTEMBER 30, 1999

A Statement of Additional Information (SAI) dated September 30, 1999, is
incorporated by reference into this prospectus. Additional information about the
Fund and its investments is contained in the Fund's SAI and Annual and
Semi-Annual Reports to shareholders as they become available. The Annual
Report's Management Discussion and Analysis discusses market conditions and
investment strategies that significantly affected the Fund's performance during
its last fiscal year. To obtain the SAI, the Annual Report, Semi-Annual Report
and other information without charge, and make inquiries, call your investment
professional or the Fund at 1-800- 341-7400.

You can obtain information about the Fund (including the SAI) by visiting or
writing the Public Reference Room in Washington, DC. You may also access fund
information from the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. You can purchase copies of this information by contacting
the SEC by email at [email protected] or by writing to the SEC's Public
Reference Section, Washington, DC 20549-0102. Call 1-202-942- 8090 for
information on the Public Reference Room's operations and copying fees.

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Federated

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

1-800-341-7400

WWW.FEDERATEDINVESTORS.COM

Federated Securities Corp., Distributor

Investment Company Act File No. 811-07193

Cusip 31420B102

G00352-01 (9/99)

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STATEMENT OF ADDITIONAL INFORMATION

Federated Government Ultrashort Fund

(Formerly, Federated Institutional Short Duration Government Fund)

A Portfolio of Federated Institutional Trust

INSTITUTIONAL SHARES
INSTITUTIONAL SERVICE SHARES

This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectuses for Federated Government Ultrashort
Fund (Fund), dated September 30, 1999.

Obtain the prospectuses and the Annual Report's Management Discussion & Analysis
without charge by calling 1-800-341-7400.

SEPTEMBER 30, 1999

[Graphic]
Federated

World-Class Investment Manager
Federated Government Ultrashort Fund
Federated Investors Funds
5800 Corporate Drive

Pittsburgh, PA 15237-7000

1-800-341-7400

WWW.FEDERATEDINVESTORS.COM

Federated Securities Corp., Distributor

G00352-02 (9/99)

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CONTENTS

How is the Fund Organized? 1

Securities in Which the Fund Invests 1

What Do Shares Cost? 5

How is the Fund Sold? 5

Subaccounting Services 6

Redemption in Kind 6

Massachusetts Partnership Law 6

Account and Share Information 6

Tax Information 6

Who Manages and Provides Services to the Fund? 7

How Does the Fund Measure Performance? 10

Who is Federated Investors, Inc.? 11

Addresses 13

How is the Fund Organized?

The Fund is a diversified portfolio of Federated Institutional Trust (Trust).
The Trust is an open-end, management investment company that was established
under the laws of the Commonwealth of Massachusetts on June 9, 1994. The Trust
may offer separate series of shares representing interests in separate
portfolios of securities. The Fund changed its name from Federated Institutional
Short Duration Government Fund to Federated Government Ultrashort Fund on
September 29, 1999.

The Board of Trustees (the Board) has established two classes of shares of the
Fund, known as Institutional Shares and Institutional Service Shares (Shares).
This SAI relates to both classes of Shares. The Fund's investment adviser is
Federated Investment Management Company (Adviser). Effective March 31, 1999,
Federated Management, Adviser to the Fund, merged into Federated Investment
Management Company (formerly, Federated Advisers).

Securities in Which the Fund Invests

SECURITIES DESCRIPTIONS AND TECHNIQUES

In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.

FIXED INCOME SECURITIES

Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.

The following describes the types of fixed income securities in which the Fund
invests.

TREASURY SECURITIES

Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded as having the lowest
credit risks.

AGENCY SECURITIES

Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a GSE). The United
States supports some GSEs with its full faith and credit. Other GSEs receive
support through federal subsidies, loans or other benefits. A few GSEs have no
explicit financial support, but are regarded as having implied support because
the federal government sponsors their activities. Agency securities are
generally regarded as having low credit risks, but not as low as treasury
securities.

The Fund treats mortgage backed securities guaranteed by GSEs as agency
securities. Although a GSE guarantee protects against credit risks, it does not
reduce the market and prepayment risks of these mortgage backed securities.

MORTGAGE BACKED SECURITIES

COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)

SEQUENTIAL CMOS

PACS, TACS AND COMPANION CLASSES

More sophisticated CMOs include planned amortization classes (PACs) and targeted
amortization classes (TACs). PACs and TACs are issued with companion classes.
PACs and TACs receive principal payments and prepayments at a specified rate.
The companion classes receive principal payments and prepayments in excess of
the specified rate. In addition, PACs will receive the companion classes' share
of principal payments, if necessary, to cover a shortfall in the prepayment
rate. This helps PACs and TACs to control prepayment risks by increasing the
risks to their companion classes.

IOS AND POS

CMOs may allocate interest payments to one class (Interest Only or IOs) and
principal payments to another class (Principal Only or POs). POs increase in
value when prepayment rates increase. In contrast, IOs decrease in value when
prepayments increase, because the underlying mortgages generate less interest
payments. However, IOs tend to increase in value when interest rates rise (and
prepayments decrease), making IOs a useful hedge against interest rate risks.

FLOATERS AND INVERSE FLOATERS

Another variant allocates interest payments between two classes of CMOs. One
class (Floaters) receives a share of interest payments based upon a market index
such as LIBOR. The other class (Inverse Floaters) receives any remaining
interest payments from the underlying mortgages. Floater classes receive more
interest (and Inverse Floater classes receive correspondingly less interest) as
interest rates rise. This shifts prepayment and interest rate risks from the
Floater to the Inverse Floater class, reducing the price volatility of the
Floater class and increasing the price volatility of the Inverse Floater class.

SPECIAL TRANSACTIONS

REPURCHASE AGREEMENTS

REVERSE REPURCHASE AGREEMENTS

Reverse repurchase agreements are repurchase agreements in which the Fund is the
seller (rather than the buyer) of the securities, and agrees to repurchase them
at an agreed upon time and price. A reverse repurchase agreement may be viewed
as a type of borrowing by the Fund. Reverse repurchase agreements are subject to
counterparty risks. In addition, reverse repurchase agreements create leverage
risks because the Fund must repurchase the underlying security at a higher
price, regardless of the market value of the security at the time of repurchase.

DELAYED DELIVERY TRANSACTIONS

Delayed delivery transactions, including when issued transactions, are
arrangements in which the Fund buys securities for a set price, with payment and
delivery of the securities scheduled for a future time. During the period
between purchase and settlement, no payment is made by the Fund to the issuer
and no interest accrues to the Fund. The Fund records the transaction when it
agrees to buy the securities and reflects their value in determining the price
of its shares. Settlement dates may be a month or more after entering into these
transactions so that the market values of the securities bought may vary from
the purchase prices. Therefore, delayed delivery transactions create interest
rate risks for the Fund. Delayed delivery transactions also involve credit risks
in the event of a counterparty default.

SECURITIES LENDING

The Fund may lend portfolio securities to borrowers that the Adviser deems
creditworthy. In return, the Fund receives cash or liquid securities from the
borrower as collateral. The borrower must furnish additional collateral if the
market value of the loaned securities increases. Also, the borrower must pay the
Fund the equivalent of any dividends or interest received on the loaned
securities.

The Fund will reinvest cash collateral in securities that qualify as an
acceptable investment for the Fund. However, the Fund must pay interest to the
borrower for the use of cash collateral.

Loans are subject to termination at the option of the Fund or the borrower. The
Fund will not have the right to vote on securities while they are on loan, but
it will terminate a loan in anticipation of any important vote. The Fund may pay
administrative and custodial fees in connection with a loan and may pay a
negotiated portion of the interest earned on the cash collateral to a securities
lending agent or broker.

Securities lending activities are subject to interest rate risks and
counterparty risks.

ASSET COVERAGE

In order to secure its obligations in connection with derivatives contracts or
special transactions, the Fund will either own the underlying assets, enter into
an offsetting transaction or set aside readily marketable securities with a
value that equals or exceeds the Fund's obligations. Unless the Fund has other
readily marketable assets to set aside, it cannot trade assets used to secure
such obligations without entering into an offsetting derivative contract or
terminating a special transaction. This may cause the Fund to miss favorable
trading opportunities or to realize losses on derivative contracts or special
transactions.

INVESTMENT RISKS

There are many factors which may affect an investment in the Fund. The Fund's
principal risks are described in its prospectus. Additional risk factors are
outlined below.

INTEREST RATE RISKS

* Prices of fixed income securities rise and fall in response to changes in the
interest rate paid by similar securities. Generally, when interest rates rise,
prices of fixed income securities fall. However, market factors, such as the
demand for particular fixed income securities, may cause the price of certain
fixed income securities to fall while the prices of other securities rise or
remain unchanged.

* Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of a
fixed income security to changes in interest rates.

COUNTERPARTY RISKS

* Counterparty risk is the possibility that a party to a transaction involving
the Fund will fail to meet its obligations. This could cause the Fund to lose
the benefit of the transaction or prevent the Fund from selling or buying other
securities to implement its investment strategy.

PREPAYMENT RISKS

* Unlike traditional fixed income securities, which pay a fixed rate of interest
until maturity (when the entire principal amount is due) payments on mortgage
backed securities include both interest and a partial payment of principal.
Partial payment of principal may be comprised of scheduled principal payments as
well as unscheduled payments from the voluntary prepayment, refinancing, or
foreclosure of the underlying loans. These unscheduled prepayments of principal
create risks that can adversely affect a Fund holding mortgage backed
securities.

* For example, when interest rates decline, the values of mortgage backed
securities generally rise. However, when interest rates decline, unscheduled
prepayments can be expected to accelerate, and the Fund would be required to
reinvest the proceeds of the prepayments at the lower interest rates then
available. Unscheduled prepayments would also limit the potential for capital
appreciation on mortgage backed securities.

* Conversely, when interest rates rise, the values of mortgage backed securities
generally fall. Since rising interest rates typically result in decreased
prepayments, this could lengthen the average lives of mortgage backed
securities, and cause their value to decline more than traditional fixed income
securities.

* Generally, mortgage backed securities compensate for the increased risk
associated with prepayments by paying a higher yield. The additional interest
paid for risk is measured by the difference between the yield of a mortgage
backed security and the yield of a U.S. Treasury security with a comparable
maturity (the spread). An increase in the spread will cause the price of the
mortgage backed security to decline. Spreads generally increase in response to
adverse economic or market conditions. Spreads may also increase if the security
is perceived to have an increased prepayment risk or is perceived to have less
market demand.

LIQUIDITY RISKS

* Trading opportunities are more limited for CMOs that have complex terms or
that are not widely held. These features may make it more difficult to sell or
buy a security at a favorable price or time. Consequently, the Fund may have to
accept a lower price to sell a security, sell other securities to raise cash or
give up an investment opportunity, any of which could have a negative effect on
the Fund's performance. Infrequent trading of securities may also lead to an
increase in their price volatility.

* Liquidity risk also refers to the possibility that the Fund may not be able to
sell a security when it wants to. If this happens, the Fund will be required to
continue to hold the security or keep the position open, and the Fund could
incur losses.

REGULATORY COMPLIANCE

In accordance with the rules and regulations established by the National Credit
Union Administration (NCUA), unless the purchase is made solely to reduce
interest-rate risk, the Fund will not invest in any CMO or REMIC security that
meets any of the following three tests: (1) the CMO or REMIC has an expected
average life greater than 10 years; (2) the average life of the CMO or REMIC
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 immediately and sustained parallel shift in the yield curve of
minus 300 basis points; or (3) the estimated change in the price of the CMO or
REMIC 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 or
REMICs 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 CMO or REMIC.

FUNDAMENTAL INVESTMENT OBJECTIVE AND POLICIES

* The Fund's investment objective is current income. The investment objective
may not be changed by the Fund's Board without shareholder approval.

INVESTMENT LIMITATIONS

ISSUING SENIOR SECURITIES AND BORROWING MONEY

The Fund may borrow money, directly or indirectly, and issue senior securities
to the maximum extent permitted under the 1940 Act.

CONCENTRATION OF INVESTMENTS

The Fund will not make investments that will result in the concentration of its
investments in the securities of issuers primarily engaged in the same industry.
Government securities, municipal securities and bank instruments will not be
deemed to constitute an industry. To conform to the current view of the SEC
staff that only domestic bank instruments may be excluded from industry
concentration limitations, as a matter of non-fundamental policy, the Fund will
not exclude foreign bank instruments from industry concentration tests so long
as the policy of the SEC remains in effect. As a non-fundamental operating
policy, the Fund will consider concentration to be the investment of more than
25% of the value of its total assets 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 U.S. government securities; and securities of other
investment companies) if, as a result, more than 5% of the value of its total
assets would be invested in the securities of that issuer, or the Fund would own
more than 10% of the outstanding voting securities of that issuer.

INVESTING IN REAL ESTATE

The Fund may not purchase or sell real estate, provided that this restriction
does not prevent the Fund from investing in issuers which invest, deal, or
otherwise engage in transactions in real estate or interests therein, or
investing in securities that are secured by real estate or interests therein.
The Fund may exercise its rights under agreements relating to such securities,
including the right to enforce security interests and to hold real estate
acquired by reason of such enforcement until that real estate can be liquidated
in an orderly manner.

INVESTING IN COMMODITIES

The Fund may not purchase or sell physical commodities, provided that the Fund
may purchase securities of companies that deal in commodities.

UNDERWRITING

The Fund may not underwrite the securities of other issuers, except that the
Fund may engage in transactions involving the acquisition, disposition or resale
of its portfolio securities, under circumstances where it may be considered to
be an underwriter under the Securities Act of 1933.

LENDING CASH OR SECURITIES

The Fund may not make loans, provided that this restriction does not prevent the
Fund from purchasing debt obligations, entering into repurchase agreements,
lending its assets to broker/dealers or institutional investors and investing in
loans, including assignments and participation interests.

THE ABOVE LIMITATIONS CANNOT BE CHANGED UNLESS AUTHORIZED BY THE BOARD OF
TRUSTEES (BOARD) AND BY THE "VOTE OF A MAJORITY OF ITS OUTSTANDING VOTING
SECURITIES," AS DEFINED BY THE INVESTMENT COMPANY ACT. THE FOLLOWING
LIMITATIONS, HOWEVER, MAY BE CHANGED BY THE BOARD WITHOUT SHAREHOLDER APPROVAL.
SHAREHOLDERS WILL BE NOTIFIED BEFORE ANY MATERIAL CHANGE IN THESE LIMITATIONS
BECOMES EFFECTIVE.

BUYING SECURITIES ON MARGIN

The Fund will not purchase securities on margin, provided that the Fund may
obtain short-term credits necessary for the clearance of purchases and sales of
securities.

PLEDGING ASSETS

The Fund will not mortgage, pledge, or hypothecate any of its assets, provided
that this shall not apply to the transfer of securities in connection with any
permissible borrowing or to collateral arrangements in connection with
permissible activities.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

The Fund may invest its assets in securities of other investment companies,
including the securities of affiliated money market funds, as an efficient means
of carrying out its investment policies and managing its uninvested cash.

INVESTING IN ILLIQUID SECURITIES

The Fund will not purchase securities for which there is no readily available
market, or enter into repurchase agreements or purchase time deposits maturing
in more than seven days, if immediately after and as a result, the value of such
securities would exceed, in the aggregate, 15% of the Fund's net assets.

In applying the Fund's concentration restriction: (a) utility companies will be
divided according to their services, for example, gas, gas transmission,
electric and telephone will each be considered a separate industry; (b)
financial service companies will be classified according to the end users of
their services, for example, automobile finance, bank finance and diversified
finance will each be considered a separate industry; and (c) asset backed
securities will be classified according to the underlying assets securing such
securities.

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."

PORTFOLIO TURNOVER

DETERMINING MARKET VALUE OF SECURITIES

Market values of the Fund's portfolio securities are determined as follows:

* for fixed income securities, at the last sale price on a national securities
exchange, if available, otherwise, as determined by an independent pricing
service;

* for short-term obligations, according to the mean between bid and asked prices
as furnished by an independent pricing service, except that short-term
obligations with remaining maturities of less than 60 days at the time of
purchase may be valued at amortized cost or at fair market value as determined
in good faith by the Board; and

* for all other securities at fair value as determined in good faith by the
Board.

Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.

What Do Shares Cost?

The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund. The NAV for each class of
Shares may differ due to the variance in daily net income realized by each
class. Such variance will reflect only accrued net income to which the
shareholders of a particular class are entitled.

How is the Fund Sold?

Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.) offers Shares on a continuous, best-efforts basis.

RULE 12B-1 PLAN (INSTITUTIONAL SERVICE SHARES)

As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of banks, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per share expenses, and
provide cash for orderly portfolio management and Share redemptions. In
addition, the Fund's service providers that receive asset-based fees also
benefit from stable or increasing Fund assets.

The Fund may compensate the Distributor more or less than its actual marketing
expenses. In no event will the Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.

For some classes of Shares, the maximum Rule 12b-1 Plan fee that can be paid in
any one year may not be sufficient to cover the marketing-related expenses the
Distributor has incurred. Therefore, it may take the Distributor a number of
years to recoup these expenses.

SHAREHOLDER SERVICES

The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated Investors, Inc. (Federated), for providing shareholder services and
maintaining shareholder accounts. Federated Shareholder Services Company may
select others to perform these services for their customers and may pay them
fees.

SUPPLEMENTAL PAYMENTS

Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.

Investment professionals receive such fees for providing distribution- related
or shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the investment professional.

Subaccounting Services

Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.

Redemption in Kind

Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.

Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.

Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.

Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the 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 obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust.

In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.

Account and Share Information

VOTING RIGHTS

Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote.

All Shares of the Fund have equal voting rights, except that in matters
affecting only a particular class, only Shares of that class are entitled to
vote.

Trustees may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Fund's outstanding shares of
all series entitled to vote.

As of September 10, 1999, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Institutional Shares:

City of Detroit, Downtown Development Authority, Detroit, Michigan, owned
approximately 12,649,889 Shares (17.11%); Federated Investors Management
Company, Pittsburgh, Pennsylvania, owned approximately 12,505,321 Shares
(15.68%); Prince William County General Fund, Woodbridge, Virginia, owned
approximately 12,242,461 Shares (15.35%); Holy Cross Endowment Account,
Worcester, Massachusetts, owned approximately 11,962,483 Shares (15.00%); and
City of Detroit, General Invested Fund, Detroit, Michigan, owned approximately
5,290,909 Shares (6.63%).

Tax Information

FEDERAL INCOME TAX

The Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, it will not receive special tax treatment and will pay federal income tax.

Who Manages and Provides Services to the Fund?

BOARD OF TRUSTEES

The Board is responsible for managing the Fund's business affairs and for
exercising all the Fund's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes each
person's: name, address, birth date, present position(s) held with the Funds,
principal occupations for the past five years and positions held prior to the
past five years, total compensation received as a Trustee from the Fund for its
most recent fiscal year, and the total compensation received from the Federated
Fund Complex for the most recent calendar year. The Federated Fund Complex is
comprised of 54 investment companies, whose investment advisers are affiliated
with the Fund's Adviser.

As of September 10, 1999, the Fund's Board and Officers as a group owned less
than 1% of the Fund's outstanding Shares.

NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM FUND
POSITION WITH FUND FOR PAST FIVE YEARS FROM FUND AND FUND COMPLEX
<S> <C> <C> <C>
JOHN F. DONAHUE*#+ Chief Executive Officer $0 $0 for the Fund and
Birth Date: July 28, 1924 and Director or Trustee of 54 other investment
Federated Investors Tower the Federated Fund companies in the
1001 Liberty Avenue Complex; Chairman and Fund Complex
Pittsburgh, PA Director, Federated
CHAIRMAN AND TRUSTEE Investors, Inc.; Chairman
and Trustee, Federated Investment
Management Company; Chairman and
Director, Federated Investment
Counseling, and Federated Global
Investment Management Corp.; Chairman,
Passport Research, Ltd.

THOMAS G. BIGLEY Director or Trustee of $1,079.95 $113,860.22 for the
Birth Date: February 3, 1934 the Federated Fund Fund and 54 other
15 Old Timber Trail Complex; Director, Member investment companies
Pittsburgh, PA of Executive Committee, in the Fund Complex
TRUSTEE Children's Hospital of
Pittsburgh; Director,
Robroy Industries, Inc.
(coated steel conduits/
computer storage
equipment); formerly:
Senior Partner, Ernst &
Young LLP; Director, MED
3000 Group, Inc.
(physician practice
management); Director,
Member of Executive
Committee, University of
Pittsburgh

JOHN T. CONROY, JR. Director or Trustee of the $1,188.12 $125,264.48 for the
Birth Date: June 23, 1937 Federated Fund Complex; Fund and 54 other
Wood/ Commercial Dept. President, Investment investment companies
John R. Wood Associates, Inc. Realtors Properties Corporation; in the Fund Complex

3255 Tamiami Trail North Senior Vice President,
Naples, FL John R. Wood and
TRUSTEE 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.

NICHOLAS CONSTANTAKIS Director or Trustee of the $1,079.95 $47,958.02 for the
Birth Date: September 3, 1939 Federated Fund Complex; Fund and 29 other
175 Woodshire Drive formerly: Partner, investment companies
Pittsburgh, PA Andersen Worldwide SC. in the Fund Complex
TRUSTEE

JOHN F. CUNNINGHAM Director or Trustee of some $544.09 $0 for the Fund and
Birth Date: March 5, 1943 of the Federated Fund 46 other investment
353 El Brillo Way Complex; Chairman, companies in the
Palm Beach, FL President and Chief Fund Complex
TRUSTEE Executive Officer,
Cunningham & Co., Inc.
(strategic business
consulting); Trustee
Associate, Boston College;
Director, Iperia Corp.
(communications/software);
formerly: Director, Redgate
Communications and EMC
Corporation (computer
storage systems).
Previous Positions:
Chairman of the Board and
Chief Executive Officer,
Computer Consoles, Inc.;
President and Chief
Operating Officer, Wang
Laboratories; Director,
First National Bank of
Boston; Director, Apollo
Computer, Inc.
LAWRENCE D. ELLIS, M.D.* Director or Trustee of the $1,079.95 $113,860.22 for the
Birth Date: October 11, 1932 Federated Fund Complex; Fund and 54 other
3471 Fifth Avenue Professor of Medicine, investment companies
Suite 1111 University of Pittsburgh; in the Fund Complex
Pittsburgh, PA Medical Director,
TRUSTEE University of Pittsburgh

Medical Center - Downtown;
Hematologist, Oncologist, and
Internist, University of Pittsburgh
Medical Center; Member, National Board
of Trustees, Leukemia Society of
America.

PETER E. MADDEN Director or Trustee of the $954.00 $113,860.22 for the
Birth Date: March 16, 1942 Federated Fund Complex; Fund and 54 other
One Royal Palm Way formerly: Representative, investment companies
100 Royal Palm Way Commonwealth of in the Fund Complex
Palm Beach, FL Massachusetts General
TRUSTEE Court; President, State
Street Bank and Trust
Company and State Street
Corporation.
Previous Positions:
Director, VISA USA and VISA
International; Chairman
and Director,
Massachusetts Bankers
Association; Director,
Depository Trust
Corporation; Director, The
Boston Stock Exchange.

NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM FUND
POSITION WITH FUND FOR PAST FIVE YEARS FROM FUND AND FUND COMPLEX
<S> <C> <C> <C>
CHARLES F. MANSFIELD, JR.++ Director or Trustee of some $0 $0 for the Fund and
Birth Date: April 10, 1945 of the Federated Fund 50 other investment
80 South Road Complex; Management companies in the
Westhampton Beach, NY Consultant. Fund Complex
TRUSTEE Previous Positions: Chief
Executive Officer, PBTC International
Bank; Partner, Arthur Young & Company
(now Ernst & Young LLP); Chief
Financial Officer of Retail Banking
Sector, Chase Manhattan Bank; Senior
Vice President, Marine Midland Bank;
Vice President, Citibank; Assistant
Professor of Banking and Finance, Frank
G. Zarb School of Business, Hofstra
University.

JOHN E. MURRAY, JR., J.D., S.J.D.# Director or Trustee of $1,134.45 $113,860.22 for the
Birth Date: December 20, 1932 the Federated Fund Fund and 54 other
President, Duquesne University Complex; President, Law investment companies
Pittsburgh, PA Professor, Duquesne in the Fund Complex
TRUSTEE University; Consulting

Partner, Mollica & Murray;
Director, Michael Baker
Corp. (engineering,
construction, operations,
and technical services).
Previous Positions: Dean
and Professor of Law,
University of Pittsburgh
School of Law; Dean and
Professor of Law,
Villanova University
School of Law.

MARJORIE P. SMUTS Director or Trustee of the $1,079.95 $113,860.22 for the
Birth Date: June 21, 1935 Federated Fund Complex; Fund and 54 other
4905 Bayard Street Public Relations/ investment companies
Pittsburgh, PA Marketing/Conference in the Fund Complex
TRUSTEE Planning.
Previous Positions:
National Spokesperson,
Aluminum Company of
America; television
producer; business owner.

JOHN S. WALSH++ Director or Trustee of some $0 $0 for the Fund and
Birth Date: November 28, 1957 of the Federated Fund 48 other investment
2007 Sherwood Drive Complex; President and companies in the
Valparaiso, IN Director, Heat Wagon, Inc. Fund Complex
TRUSTEE (manufacturer of
construction temporary
heaters); President and
Director, Manufacturers
Products, Inc.
(distributor of portable
construction heaters);
President, Portable Heater
Parts, a division of
Manufacturers Products,
Inc.; Director, Walsh &
Kelly, Inc. (heavy highway
contractor); formerly:
Vice President, Walsh &
Kelly, Inc.

GLEN R. JOHNSON Staff member, Federated $0 $0 for the Fund and
Birth Date: May 2, 1929 Securities Corp. 8 other investment
Federated Investors Tower companies in the
1001 Liberty Avenue Fund Complex

Pittsburgh, PA
President

J. CHRISTOPHER DONAHUE+* President or Executive $0 $0 for the Fund and
Birth Date: April 11, 1949 Vice President of the 16 other investment
Federated Investors Tower Federated Fund Complex; companies in the
1001 Liberty Avenue Director or Trustee of some Fund Complex
Pittsburgh, PA of the Funds in the
EXECUTIVE VICE PRESIDENT AND TRUSTEE Federated Fund Complex;
President, CEO and Director, Federated
Investors, Inc.; President and Trustee,
Federated Investment Management
Company; President and Trustee,
Federated Investment Counseling
President and Director, Federated
Global Investment Management Corp.;
President, Passport Research, Ltd.;
Trustee, Federated Shareholder Services
Company; Director, Federated Services
Company.

EDWARD C. GONZALES Trustee or Director of some $0 $0 for the Fund and
Birth Date: October 22, 1930 of the Funds in the 1 other investment
Federated Investors Tower Federated Fund Complex; company in the
1001 Liberty Avenue President, Executive Vice Fund Complex
Pittsburgh, PA President and Treasurer of
EXECUTIVE VICE PRESIDENT some of the Funds in the
Federated Fund Complex; Vice Chairman,
Federated Investors, Inc.; Vice
President, Federated Investment
Management Company and Federated
Investment Counseling, Federated Global
Investment Management Corp. and
Passport Research, Ltd.; Executive Vice
President and Director, Federated
Securities Corp.; Trustee, Federated
Shareholder Services Company.

JOHN W. MCGONIGLE Executive Vice President $0 $0 for the Fund and
Birth Date: October 26, 1938 and Secretary of the 54 other investment
Federated Investors Tower Federated Fund Complex; companies in the
1001 Liberty Avenue Executive Vice President, Fund Complex
Pittsburgh, PA Secretary, and Director,
EXECUTIVE VICE PRESIDENT Federated Investors, Inc.;

Trustee, Federated Investment
Management Company; Trustee, Federated
Investment Counseling and Director,
Federated Global Investment Management
Corp.; Director, Federated Services
Company; Director, Federated Securities
Corp.

NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM FUND
POSITION WITH FUND FOR PAST FIVE YEARS FROM FUND AND FUND COMPLEX
<S> <C> <C> <C>
RICHARD J. THOMAS Treasurer of the Federated $0 $0 for the Fund and
Birth Date: June 17, 1954 Fund Complex; Vice 54 other investment
Federated Investors Tower President - Funds companies in the
1001 Liberty Avenue Financial Services Fund Complex
Pittsburgh, PA Division, Federated
TREASURER Investors, Inc.; formerly:
various management
positions within Funds
Financial Services
Division of Federated
Investors, Inc.

RICHARD B. FISHER President or Vice $0 $0 for the Fund and
Birth Date: May 17, 1923 President of some of the 6 other investment
Federated Investors Tower Funds in the Federated Fund companies in the
1001 Liberty Avenue Complex; Director or Fund Complex
Pittsburgh, PA Trustee of some of the
VICE PRESIDENT Funds in the Federated Fund
Complex; Executive Vice
President, Federated
Investors, Inc.; Chairman
and Director, Federated
Securities Corp.

WILLIAM D. DAWSON, III Chief Investment Officer $0 $0 for the Fund and
Birth Date: March 3, 1949 of this Fund and various 41 other investment
Federated Investors Tower other Funds in the companies in the

1001 Liberty Avenue Federated Fund Complex; Fund Complex
Pittsburgh, PA Executive Vice President,
CHIEF INVESTMENT OFFICER Federated Investment

Counseling, Federated Global Investment
Management Corp., Federated Investment
Management Company and Passport
Research, Ltd.; Registered
Representative, Federated Securities
Corp.; Portfolio Manager, Federated
Administrative Services; Vice
President, Federated Investors, Inc.;
formerly: Executive Vice President and
Senior Vice President, Federated
Investment Counseling Institutional
Portfolio Management Services Division;
Senior Vice President, Federated
Investment Management Company and
Passport Research, Ltd.

SUSAN R. HILL Susan R. Hill has been the $0 $0 for the Fund and
Birth Date: June 20, 1963 Fund's portfolio manager 9 other investment
Federated Investors Tower since July 1997. She is companies in the
1001 Liberty Avenue Vice President of the Fund. Fund Complex
Pittsburgh, PA Ms. Hill joined Federated
VICE PRESIDENT in 1990 and has been a
Portfolio Manager since
1993 and a Vice President
of the Fund's Adviser since
1997. Ms. Hill was a
Portfolio Manager and an
Assistant Vice President
of the Adviser from 1994
until 1997. Ms. Hill is a
Chartered Financial
Analyst and received an
M.S. in Industrial
Administration from
Carnegie Mellon
University.

</TABLE>

* An asterisk denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940.

# A pound sign denotes a Member of the Board's Executive Committee, which
handles the Board's responsibilities between its meetings.

+ Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President of the Fund.

++ Messrs., Mansfield and Walsh became members of the Board of Trustees on July
1, 1999. They did not earn any fees for serving the Fund Complex since these
fees are reported as of the end of the last calendar year. They did not receive
any fees as of the fiscal year end of the Fund.

INVESTMENT ADVISER

The Adviser conducts investment research and makes investment decisions for the
Fund.

The Adviser is a wholly owned subsidiary of Federated.

The Adviser shall not be liable to the Fund or any Fund shareholder for any
losses that may be sustained in the purchase, holding, or sale of any security
or for anything done or omitted by it, except acts or omissions involving
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties imposed upon it by its contract with the Fund.

OTHER RELATED SERVICES

Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.

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. 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. In selecting among firms believed to meet these
criteria, the Adviser may give consideration to those firms which have sold or
are selling Shares of the Fund and other funds distributed by the Distributor
and its affiliates. The Adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to review by the Fund's Board.

ADMINISTRATOR

Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:

MAXIMUM AVERAGE AGGREGATE DAILY ADMINISTRATIVE FEE NET ASSETS OF THE FEDERATED
FUNDS 0.150 of 1% on the first $250 million 0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million 0.075 of 1% 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 voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.

Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.

CUSTODIAN

State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

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

shareholders.

INDEPENDENT AUDITOR

The independent auditor for the Fund, Ernst & Young LLP, plans and performs its
audit so that it may provide an opinion as to whether the Fund's financial
statements and financial highlights are free of material misstatement.

FEES PAID BY THE FUND FOR SERVICES (INSTITUTIONAL SHARES)

FOR THE YEAR ENDED JULY 31, 1999 1999 1998 1997
<S> <C> <C> <C>
Advisory Fee Earned $766,423 $329,570 $4,399
Advisory Fee Reduction 682,002 329,570 4,399
Brokerage Commissions 0 0 0
Administrative Fee 145,900 125,000 7,534

SHAREHOLDER SERVICES FEE

Institutional Shares 0 - -
</TABLE>

Fees are allocated among classes based on their pro rata share of Fund assets,
except for marketing (Rule 12b-1) fees and shareholder services fees, which are
borne only by the applicable class of Shares.

How Does the Fund Measure Performance?

The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.

The performance of Shares depends upon such variables as: portfolio quality;
average portfolio maturity; type and value of portfolio securities; changes in
interest rates; changes or differences in the Fund's or any class of Shares'
expenses; and various other factors.

Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return.

AVERAGE ANNUAL TOTAL RETURNS AND YIELD (INSTITUTIONAL SHARES)

Total returns given for the one-year and Start of Performance period ended July
10, 1997.

Yield given for the 30-day period ended July 31, 1999.

30-DAY START OF PERFORMANCE
PERIOD 1 YEAR ON JULY 10, 1997

<S> <C> <C> <C>
INSTITUTIONAL SHARES:
Total Return NA 4.87% 5.37%
Yield 5.18% NA NA

</TABLE>

Since the Fund's Institutional Service Shares did not commence operations prior
to July 31, 1999, there is no similar performance information.

TOTAL RETURN

Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.

The average annual total return for Shares 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 NAV 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 annual reinvestment of all
dividends and distributions.

When Shares of a Fund are in existence for less than a year, the Fund may
advertise cumulative total return for that specific period of time, rather than
annualizing the total return.

YIELD

The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a 30-day period; by (ii) the maximum offering
price per Share on the last day of the period. This number is then annualized
using semi-annual compounding. This means that the amount of income generated
during the 30-day period is assumed to be generated each month over a 12-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by Shares because of certain adjustments required
by the SEC and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.

To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.

PERFORMANCE COMPARISONS

Advertising and sales literature may include:

* references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;

* charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment;

* discussions of economic, financial and political developments and their impact
on the securities market, including the portfolio manager's views on how such
developments could impact the Funds; and

* information about the mutual fund industry from sources such as the Investment
Company Institute.

The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.

The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.

You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the 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.

Lipper Analytical Services, Inc. ranks funds in various fund 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 Trust will quote its Lipper ranking in the U.S. government
funds category in advertising and sales literature.

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.

MERRILL LYNCH 2-YEAR TREASURY INDEX

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.

Who is Federated Investors, Inc.?

Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.

Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state- of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.

FEDERATED FUNDS OVERVIEW

MUNICIPAL FUNDS

In the municipal sector, as of December 31, 1998, Federated managed 10 bond
funds with approximately $2.2 billion in assets and 23 money market funds with
approximately $12.5 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of municipal securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.

EQUITY FUNDS

In the equity sector, Federated has more than 28 years' experience. As of
December 31, 1998, Federated managed 27 equity funds totaling approximately
$14.9 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value- oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.

CORPORATE BOND FUNDS

In the corporate bond sector, as of December 31, 1998, Federated managed 9 money
market funds and 15 bond funds with assets approximating $22.8 billion and $7.1
billion, respectively. Federated's corporate bond decision making-based on
intensive, diligent credit analysis-is backed by over 26 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset backed securities market, a market
totaling more than $209 billion.

GOVERNMENT FUNDS

In the government sector, as of December 31, 1998, Federated manages 9 mortgage
backed, 5 government/agency and 19 government money market mutual funds, with
assets approximating $5.3 billion, $1.8 billion and $41.6 billion, respectively.
Federated trades approximately $425 million in U.S. government and mortgage
backed securities daily and places approximately $25 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 $43.2 billion in government funds within these
maturity ranges.

MONEY MARKET FUNDS

In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1998, Federated managed more than $76.7 billion in assets across 52 money market
funds, including 19 government, 9 prime and 23 municipal with assets
approximating $41.6 billion, $22.8 billion and $12.5 billion, respectively.

The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield-
J. Thomas Madden; U.S. fixed income-William D. Dawson, III; and global
equities and fixed income-Henry A. Frantzen. The Chief Investment Officers
are Executive Vice Presidents of the Federated advisory companies.

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 $5 trillion to the more than 7,300 funds available,
according to the Investment Company Institute.

FEDERATED CLIENTS OVERVIEW

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

INSTITUTIONAL CLIENTS

Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, 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 advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.

BANK MARKETING

Other institutional clients include 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,
Broker/Dealer Sales Division, Federated Securities Corp.

Addresses

FEDERATED GOVERNMENT ULTRASHORT FUND

(FORMERLY, FEDERATED INSTITUTIONAL SHORT DURATION GOVERNMENT FUND)

Institutional Shares
Institutional Service Shares

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 ADVISER

Federated Investment Management Company
Federated Investors Tower
1001 Liberty Avenue

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 AUDITOR

Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116-5072

FEDERATED INSTITUTIONAL SHORT DURATION GOVERNMENT FUND

APPENDIX

A1. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. Institutional
Shares of Federated Institutional Short Duration Government Fund (the "Fund")
are represented by a solid line. The Merrill Lynch Six-Month Treasury Bill Index
(ML6MTBI) is represented by a dashed line. The line graph is a visual
representation of a comparison of change in value of a $25,000 hypothetical
investment in the Institutional Shares of the Fund, and the ML6MTBI. The "x"
axis reflects computation periods from 7/10/97 to 7/31/99. The "y" axis reflects
the cost of the investment. The right margin reflects the ending value of the
hypothetical investment in the Fund's Institutional Shares as compared to the
ML6MTBI. The right margin reflects the ending value of the hypothetical
investment in the Fund's Institutional Shares as compared to the ML6MTBI. The
ending values were $27,848, $27,761, respectively. The legend in the bottom
quadrant of the graphic presentation indicates the Fund's Institutional Shares
Average Annual Total Returns for the one-year, and start of performance
(7/10/97) to 7/31/99. The total returns were 4.87% and 5.37%, respectively.