FEDERATED GNMA TRUST
485BPOS, 1996-03-26
Previous: HUMMER WAYNE MONEY FUND TRUST, 497, 1996-03-26
Next: FEDERATED U S GOVERNMENT SECURITIES FUND 2-5 YEARS, 485BPOS, 1996-03-26




                                   1933 Act File No. 2-75670
                                   1940 Act File No. 811-3375

                     SECURITIES AND EXCHANGE COMMISSION
                           Washington, D.C. 20549

                                  Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933        X

   Pre-Effective Amendment No.          ..........

   Post-Effective Amendment No.   29   ...........        X

                                   and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940     X

   Amendment No.   26   ..........................        X

                            FEDERATED GNMA TRUST

             (Exact Name of Registrant as Specified in Charter)

       Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
                  (Address of Principal Executive Offices)

                               (412) 288-1900
                       (Registrant's Telephone Number)

                         John W. McGonigle, Esquire,
                         Federated Investors Tower,
                     Pittsburgh, Pennsylvania 15222-3779
                   (Name and Address of Agent for Service)

It is proposed that this filing will become effective:

    immediately upon filing pursuant to paragraph (b)
 X  on March 31, 1996 pursuant to paragraph (b)
    60 days after filing pursuant to paragraph (a) (i)
    on                 pursuant to paragraph (a) (i).
    75 days after filing pursuant to paragraph (a)(ii)
    on                   pursuant to paragraph (a)(ii) of Rule 485.
       -----------------

If appropriate, check the following box:

    This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.



Registrant has filed with the Securities and Exchange Commission a
declaration pursuant to Rule 24f-2 under the Investment Company Act of 1940,
and:

 X  filed the Notice required by that Rule on March 15, 1996; or
    intends to file the Notice required by that Rule on or about
               ; or
   ------------
    during the most recent fiscal year did not sell any securities pursuant
 to Rule 24f-2 under the Investment Company Act of 1940, and, pursuant to
 Rule 24f-2(b)(2), need not file the Notice.

                                 Copies to:

Matthew G. Maloney, Esquire
Dickstein, Shapiro & Morin, L.L.P
2101 L Street, N.W.
Washington, D.C.  20037





                            CROSS REFERENCE SHEET


     This Amendment to the Registration Statement of FEDERATED GNMA TRUST,
which consists of one portfolio:  Federated GNMA Trust, which is offered in
two separate classes of shares, (a) Institutional Shares and (b)
Institutional Service Shares, relates to both Institutional Shares and
Institutional Service Shares, and is comprised of the following:

PART A. INFORMATION REQUIRED IN A PROSPECTUS.

                                   Prospectus Heading
                                   (Rule 404(c) Cross Reference)

Item 1.   Cover Page...............Cover Page (a,b).
Item 2.   Synopsis.................Summary of Trust Expenses (a,b).
Item 3.   Condensed Financial
           Information.............Financial Highlights (a,b); Performance
                                   Information (a,b).
Item 4.   General Description of
           Registrant..............General Information (a,b); Investment
                                   Information (a,b); Investment Objective
                                   (a,b); Investment Policies (a,b);
                                   Investment Limitations (a,b).
Item 5.   Management of the Trust..Trust Information (a,b); Management of the
                                   Trust (a,b); Distribution of Institutional
                                   Shares (a); Distribution of Institutional
                                   Service Shares (b); Distribution Plan and
                                   Shareholder Services (b); Shareholder
                                   Services (a); Administration of the Trust
                                   (a,b).
Item 6.   Capital Stock and Other
          Securities...............Dividends (a,b); Capital Gains (a,b);
                                   Shareholder Information (a,b); Voting
                                   Rights (a,b); Tax Information (a,b);
                                   Federal Income Tax (a,b); State and Local
                                   Taxes (a,b); Other Classes of Shares
                                   (a,b).
Item 7.   Purchase of Securities
           Being Offered...........Investing in Institutional Shares (a);
                                   Investing in Institutional Service Shares
                                   (b); Share Purchases (a,b); Minimum
                                   Investment Required (a,b); What Shares
                                   Cost (a,b); Exchanging Securities for
                                   Trust Shares (a,b); Certificates and
                                   Confirmations (a,b); Net Asset Value
                                   (a,b).
Item 8.   Redemption or Repurchase.Redeeming Institutional Shares (a);
                                   Redeeming Institutional Service Shares
                                   (b); Telephone Redemption (a,b); Redeeming
                                   Shares By Mail (a,b); Accounts With Low
                                   Balances (a,b).
Item 9.   Legal Proceedings........None.



PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.

Item 10.  Cover Page...............Cover Page (a,b).
Item 11.  Table of Contents........Table of Contents (a,b).
Item 12.  General Information and
           History.................General Information About the Trust (a,b).
Item 13.  Investment Objectives and
          Policies.................Investment Objective and Policies (a,b).
Item 14.  Management of the Registrant  Federated GNMA Trust Management
                                   (a,b); Trustees Compensation (a,b); About
                                   Federated Investors (a,b).
Item 15.  Control Persons and Principal
           Holders of Securities...Trust Ownership (a,b).
Item 16.  Investment Advisory and Other
           Services................Investment Advisory Services (a,b); Other
                                   Services (a,b).
Item 17.  Brokerage Allocation.....Brokerage Transactions (a,b).
Item 18.  Capital Stock and Other
           Securities..............Not Applicable.
Item 19.  Purchase, Redemption and
           Pricing of Securities
           Being Offered...........Purchasing Shares (a,b); Distribution Plan
                                   and Shareholder Services (a,b); Exchanging
                                   Securities for Shares (a,b); Determining
                                   Net Asset Value (a,b); Redeeming Shares
                                   (a,b).
Item 20.  Tax Status...............Tax Status (a,b).
Item 21.  Underwriters.............Not applicable.
Item 22.  Calculation of Performance
           Data....................Total Return (a,b); Yield (a,b);
                                   Performance Comparisons (a,b).
Item 23.  Financial Statements.....Filed in Part A.

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

- --------------------------------------------------------------------------------
FEDERATED GNMA TRUST
INSTITUTIONAL SERVICE SHARES
PROSPECTUS

The Institutional Service Shares of Federated GNMA Trust (the "Trust") offered
by this prospectus represent interests in a diversified portfolio of securities
investing primarily in instruments issued or guaranteed by the Government
National Mortgage Association, to achieve current income. The Trust is an
open-end, diversified management investment company (a mutual fund).
Institutional Service Shares are sold at net asset value.

THE INSTITUTIONAL SERVICE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR
OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD,
OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE INSTITUTIONAL SERVICE SHARES
INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.

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

   
The Trust has also filed a Statement of Additional Information dated March 31,
1996 with the Securities and Exchange Commission. The information contained in
the Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Statement of Additional Information or
a paper copy of this prospectus, if you received your prospectus electronically,
free of charge by calling 1-800-235-4669. To obtain other information or to make
inquiries about the Trust, contact the Trust at the address listed in the back
of this prospectus.
    

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

Prospectus dated March 31, 1996

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

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

FINANCIAL HIGHLIGHTS--INSTITUTIONAL
 SERVICE SHARES                                                                2
- ------------------------------------------------------
GENERAL INFORMATION                                                            3
- ------------------------------------------------------

INVESTMENT INFORMATION                                                         3
- ------------------------------------------------------
  Investment Objective                                                         3
  Investment Policies                                                          3
  Investment Limitations                                                       6

TRUST INFORMATION                                                              6
- ------------------------------------------------------
  Management of the Trust                                                      6
DISTRIBUTION OF INSTITUTIONAL
 SERVICE SHARES                                                                8
- ------------------------------------------------------

ADMINISTRATION OF THE TRUST                                                    9
- ------------------------------------------------------

NET ASSET VALUE                                                                9
- ------------------------------------------------------

   
INVESTING IN INSTITUTIONAL
 SERVICE SHARES                                                                9
    
- ------------------------------------------------------
   
  Share Purchases                                                              9
    
   
  Exchange Privilege                                                          10
    
  Minimum Investment Required                                                 10
   
  What Shares Cost                                                            10
    
  Exchanging Securities for Trust Shares                                      11
   
  Certificates and Confirmations                                              11
    
  Dividends                                                                   11
  Capital Gains                                                               11

   
REDEEMING INSTITUTIONAL
 SERVICE SHARES                                                               11
    
- ------------------------------------------------------
   
  Telephone Redemption                                                        11
    
   
  Accounts with Low Balances                                                  12
    

SHAREHOLDER INFORMATION                                                       13
- ------------------------------------------------------
  Voting Rights                                                               13

TAX INFORMATION                                                               13
- ------------------------------------------------------
  Federal Income Tax                                                          13
   
  State and Local Taxes                                                       13
    

PERFORMANCE INFORMATION                                                       14
- ------------------------------------------------------

   
OTHER CLASSES OF SHARES                                                       14
    
- ------------------------------------------------------

   
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES 15
    
- ------------------------------------------------------

   
FINANCIAL STATEMENTS                                                          16
    
- ------------------------------------------------------

   
INDEPENDENT AUDITORS' REPORT                                                  27
    
- ------------------------------------------------------

   
ADDRESSES                                                                     28
    
- ------------------------------------------------------


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

   
<TABLE>
<S>                                                                                  <C>      <C>
                                    INSTITUTIONAL SERVICE SHARES
                                  SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
  (as a percentage of offering price)......................................................     None
Maximum Sales Charge Imposed on Reinvested Dividends
  (as a percentage of offering price)......................................................     None
Contingent Deferred Sales Charge (as a percentage of original
  purchase price or redemption proceeds, as applicable)....................................     None
Redemption Fee (as a percentage of amount redeemed, if applicable).........................     None
Exchange Fee...............................................................................     None
                                     ANNUAL OPERATING EXPENSES
                              (As a percentage of average net assets)
Management Fee.............................................................................    0.40%
12b-1 Fee (after waiver)(1)................................................................    0.01%
Total Other Expenses.......................................................................    0.39%
    Shareholder Services Fee (after waiver)(2)....................................    0.24%
       Total Operating Expenses(3).........................................................    0.80%
</TABLE>

    

(1) The maximum 12b-1 fee is 0.25%.

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

   
(3) The total operating expenses would have been 1.05% absent the voluntary
waiver of a portion of the shareholder services fee and the 12b-1 fee.
    

Long-term shareholders may pay more than the economic equivalent of the maximum
front-end sales charges permitted under the rules of the National Association of
Securities Dealers, Inc.

     The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Institutional Service Shares of
the Fund will bear, either directly or indirectly. For more complete
descriptions of the various costs and expenses, see "Trust Information" and
"Investing in Institutional Service Shares." Wire--transferred redemptions of
less than $5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE                                                         1 year    3 years    5 years    10 years
                                                                ------    -------    -------    --------
<S>                                                             <C>       <C>        <C>        <C>
You would pay the following expenses on a $1,000 investment
  assuming (1) 5% annual return and (2) redemption at the end
  of each time period........................................     $8        $26        $44        $ 99
</TABLE>


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


FEDERATED GNMA TRUST
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

   
<TABLE>
<CAPTION>
                                                                  YEAR ENDED JANUARY 31,
                                                         ----------------------------------------
                                                          1996       1995       1994      1993(A)
                                                         ------     ------     ------     -------
<S>                                                      <C>        <C>        <C>        <C>
NET ASSET VALUE, BEGINNING OF PERIOD                     $10.61     $11.64     $11.80     $11.71
- ------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------
  Net investment income                                    0.78       0.79       0.82       0.61
- ------------------------------------------------------
  Net realized and unrealized gain (loss) on
     investments                                           0.71      (1.03)     (0.16)      0.09
                                                                                           -----
- ------------------------------------------------------   ------     ------     ------
  Total from investment operations                         1.49      (0.24)      0.66       0.70
                                                                                           -----
- ------------------------------------------------------   ------     ------     ------
LESS DISTRIBUTIONS
- ------------------------------------------------------
  Distributions from net investment income                (0.76)     (0.79)     (0.82)     (0.61 )
                                                                                           -----
- ------------------------------------------------------   ------     ------     ------
NET ASSET VALUE, END OF PERIOD                           $11.34     $10.61     $11.64     $11.80
                                                                                           -----
- ------------------------------------------------------   ------     ------     ------
TOTAL RETURN(B)                                           14.39%     (1.92%)     5.76%      5.62 %
- ------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------
  Expenses                                                 0.80%      0.77%      0.76%      0.76 %*
- ------------------------------------------------------
  Net investment income                                    6.82%      7.32%      6.97%      7.57 %*
- ------------------------------------------------------
  Expense waiver/reimbursement(c)                          0.25%      0.14%        --         --
- ------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------
  Net assets, end of period (000 omitted)                $123,614   $120,427   $137,235   $50,166
- ------------------------------------------------------
  Portfolio turnover rate                                    43%       136%       117%        33 %
- ------------------------------------------------------
</TABLE>

    

* Computed on an annualized basis.

(a) Reflects operations for the period from June 18, 1992 (date of initial
    public investment) to January 31, 1993.

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

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

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

Further information about the Trust's performance is contained in the Trust's
annual report for the fiscal year ended January 31, 1996, which can be obtained
free of charge.


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

The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated December 10, 1981. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. As of the date of this prospectus, the Board of
Trustees ("Trustees") has established two classes of shares of the Trust, known
as Institutional Service Shares and Institutional Shares. This prospectus
relates to Institutional Service Shares of the Trust.
Institutional Service Shares ("Shares") are designed primarily for retail and
private banking customers of financial institutions as a convenient means of
accumulating an interest in a professionally managed, diversified portfolio of
mortgage-backed securities. A minimum initial investment of $25,000 over a
90-day period is required.

Shares are currently sold and redeemed at net asset value without a sales load
imposed by the Trust.

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

INVESTMENT OBJECTIVE

The investment objective of the Trust is current income. The investment
objective may not be changed without the approval of shareholders. The Trust
pursues this investment objective by investing primarily in instruments issued
or guaranteed by the Government National Mortgage Association ("GNMA"). While
there is no assurance that the Trust will achieve its investment objective, it
endeavors to do so by following the investment policies described in this
prospectus.

INVESTMENT POLICIES

As a matter of investment policy which may be changed without shareholder
approval, the Trust will limit its investments to those that are permitted for
purchase by federal savings associations pursuant to applicable rules,
regulations, or interpretations of the Office of Thrift Supervision. Should
additional permitted investments be allowed as a result of future changes in
applicable regulations or federal laws, the Trust reserves the right, without
shareholder approval, to make such investments consistent with the Trust's
investment objective, policies, and limitations. Further, should existing
statutes or regulations change so as to cause any securities held by the Trust
to become ineligible for purchase by federal savings associations, the Trust
will dispose of those securities at times advantageous to the Trust.

As operated within the above limitation, the Trust may also serve as an
appropriate vehicle for a national bank as an investment for its own account.

Unless otherwise designated, the investment policies described below may not be
changed without shareholder approval.

ACCEPTABLE INVESTMENTS.  The Trust will invest primarily in mortgage-backed
securities. Under normal circumstances, at least 65% of the Trust's portfolio
will be invested in instruments issued or fully guaranteed as to principal and
interest by GNMA. In addition, to the extent that the Trust will invest in


other mortgage-backed securities, as described below, these will be
collateralized by GNMA obligations.

The Trust's permissible investments are as follows:

     - U.S. Treasury bills, notes, and bonds;

     - collateralized mortgage obligations;

     - real estate mortgage investment conduits; and

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

COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS").  CMOs are bonds issued by
single-purpose, stand-alone finance subsidiaries or trusts of financial
institutions, government agencies, investment bankers, or companies related to
the construction industry. CMOs purchased by the Trust will be collateralized by
pools of mortgages in which each mortgage is guaranteed as to payment of
principal and interest by GNMA.

All CMOs purchased by the Trust are issued by an agency of the United States and
are rated in the highest rating category by a nationally recognized statistical
rating organization.

The following example illustrates how mortgage cash flows are prioritized in the
case of CMOs--most of the CMOs in which the Trust invests use the same basic
structure:

     (1) Several classes of securities are issued against a pool of mortgage
         collateral. The most common structure contains four classes of
         securities: The first three (A, B, and C bonds) pay interest at their
         stated rates beginning with the issue date; the final class (Z bond)
         typically receives any excess income from the underlying investments
         after payments are made to the other classes and receives no principal
         or interest payments until the shorter maturity classes have been
         retired, but then receives all remaining principal and interest
         payments.

     (2) The cash flows from the underlying mortgages are applied first to pay
         interest and then to retire securities.

     (3) The classes of securities are retired sequentially. All principal
         payments are directed first to the shortest-maturity class (or A bond).
         When those securities are completely retired, all principal payments
         are then directed to the next-shortest-maturity security (or B bond).
         This process continues until all of the classes have been paid off.

Because the cash flow is distributed sequentially instead of pro-rata, as with
pass-through securities, the cash flows and average lives of CMOs are more
predictable, and there is a period of time during which the investors in the
longer-maturity classes receive no principal paydowns. One or more of the
classes may be adjustable rate. The interest portion of these payments is
distributed by the Trust as income, and the capital portion is reinvested.


REAL ESTATE MORTGAGE INVESTMENT CONDUITS ("REMICS").  REMICs are offerings of
multiple class real estate mortgage-backed securities which qualify and elect
treatment as such under provisions of the Internal Revenue Code, as amended.
Issuers of REMICs may take several forms, such as trusts, partnerships,
corporations, associations or a segregated pool of mortgages. Once REMIC status
is elected and obtained, the entity is not subject to federal income taxation.
Instead, income is passed through the entity and is taxed to the person or
persons who hold interests in the REMIC. A REMIC interest must consist of one or
more classes of "regular interests," some of which may offer adjustable rates,
and a single class of "residual interests." To qualify as a REMIC, substantially
all of the assets of the entity must be in assets directly or indirectly secured
principally by real property.

Because the mortgages underlying mortgage-backed securities often may be prepaid
without penalty or premium, mortgage-backed securities are generally subject to
higher prepayment risks than most other types of debt instruments. Prepayment
risks on mortgage securities tend to increase during periods of declining
mortgage interest rates, because many borrowers refinance their mortgages to
take advantage of the more favorable rates. Depending upon market conditions,
the yield that the Trust receives from the reinvestment of such prepayments, or
any scheduled principal payments, may be lower than the yield on the original
mortgage security. As a consequence, mortgage securities may be a less effective
means of "locking in" interest rates than other types of debt securities having
the same stated maturity and may also have less potential for capital
appreciation. For certain types of asset pools, such as collateralized mortgage
obligations, prepayments may be allocated to one tranche of securities ahead of
other tranches, in order to reduce the risk of prepayment for the other
tranches.

Prepayments may result in a capital loss to the Trust to the extent that the
prepaid mortgage securities were purchased at a market premium over their stated
principal amount. Conversely, the prepayment of mortgage securities purchased at
a market discount from their stated principal amount will accelerate the
recognition of interest income by the Trust, which would be taxed as ordinary
income when distributed to the shareholders.

The prices of fixed income securities fluctuate inversely to the direction of
interest rates.

TEMPORARY INVESTMENTS.  For defensive purposes only, the Trust may invest
temporarily in cash and money market instruments during times of unusual market
conditions and to maintain liquidity. Money market instruments may include:

     - obligations of the U.S. government or its agencies or instrumentalities;
       and

     - repurchase agreements.

     REPURCHASE AGREEMENTS.  Repurchase agreements are arrangements in which
     banks, broker/ dealers, and other recognized financial institutions sell
     U.S. government securities or other securities to the Trust and agree at
     the time of sale to repurchase them at a mutually agreed upon time and
     price. To the extent that the original seller does not repurchase the
     securities from the Trust, the Trust could receive less than the repurchase
     price on any sale of such securities.
LENDING OF PORTFOLIO SECURITIES.  In order to generate additional income, the
Trust may lend portfolio securities on a short-term or long-term basis, or both
up to one-third of the value of its total assets to broker/dealers, banks, or
other institutional borrowers of securities. The Trust will only enter into loan
arrangements with broker/dealers, banks, or other institutions which the
investment adviser


has determined are creditworthy under guidelines established by the Trustees.
The Trust will receive collateral in the form of cash or U.S. government
securities equal to at least 100% of the value of the securities loaned.

There is the risk that when lending portfolio securities, the securities may not
be available to the Trust on a timely basis and the Trust may, therefore, lose
the opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.

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

The Trust may dispose of a commitment prior to settlement if the adviser deems
it appropriate to do so. In addition, the Trust may enter into transactions to
sell its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Trust may realize short-term profits or losses upon the sale of such
commitments.

INVESTMENT LIMITATIONS

The Trust will not borrow money directly or through reverse repurchase
agreements (arrangements in which the Trust sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set date) or
pledge securities except, under certain circumstances, the Trust may borrow
money and engage in reverse repurchase agreements up to one-third of the value
of its total assets and pledge up to 10% of the value of those assets to secure
such borrowings.

As a matter of investment practice, which can be changed without shareholder
approval, the Trust will not invest more than 15% of its net assets in
securities which are illiquid, including repurchase agreements providing for
settlement in more than seven days after notice, and certain restricted
securities not determined by the Trustees to be liquid.

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

MANAGEMENT OF THE TRUST

BOARD OF TRUSTEES.  The Trust is managed by a Board of Trustees. The Trustees
are responsible for managing the Trust's business affairs and for exercising all
the Trust's powers except those reserved for the shareholders. The Executive
Committee of the Board of Trustees handles the Board's responsibilities between
meetings of the Board.

INVESTMENT ADVISER.  Investment decisions for the Trust are made by Federated
Management, the Trust's investment adviser, subject to direction by the
Trustees. The adviser continually conducts

investment research and supervision for the Trust and is responsible for the
purchase or sale of portfolio instruments, for which it receives an annual fee
from the Trust.

     ADVISORY FEES.  The Trust's adviser receives an annual investment advisory
     fee equal to .40 of 1% of the Trust's average daily net assets. The adviser
     has also undertaken to reimburse the Trust for operating expenses in excess
     of limitations established by certain states. This does not include
     reimbursement to the Trust of any expenses incurred by shareholders who use
     the transfer agent's subaccounting facilities.

     ADVISER'S BACKGROUND.  Federated Management, a Delaware business trust
     organized on April 11, 1989, is a registered investment adviser under the
     Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
     All of the Class A (voting) shares of Federated Investors are owned by a
     trust, the trustees of which are John F. Donahue, Chairman and Trustee of
     Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
     Christopher Donahue, who is President and Trustee of Federated Investors.

   
     Federated Management and other subsidiaries of Federated Investors serve as
     investment advisers to a number of investment companies and private
     accounts. Certain other subsidiaries also provide administrative services
     to a number of investment companies. With over $80 billion invested across
     more than 250 funds under management and/or administration by its
     subsidiaries, as of December 31, 1995, Federated Investors is one of the
     largest mutual fund investment managers in the United States. With more
     than 1,800 employees, Federated continues to be led by the management who
     founded the company in 1955. Federated funds are presently at work in and
     through 4,000 financial institutions nationwide. More than 100,000
     investment professionals have selected Federated funds for their clients.
    

   
     Kathleen M. Foody-Malus has been the Trust's portfolio manager since July,
     1993. Ms. Foody-Malus joined Federated Investors in 1983 and has been a
     Vice President of the Trust's investment adviser since 1993. Ms.
     Foody-Malus served as an Assistant Vice President of the investment adviser
     from 1990 until 1992, and from 1986 until 1989 she acted as an investment
     analyst. Ms. Foody-Malus received her M.B.A. in Accounting/Finance from the
     University of Pittsburgh.
    

   
     Edward J. Tiedge has been the Trust's portfolio manager since October 1995.
     Mr. Tiedge joined Federated Investors in 1993 as an Investment Analyst and
     has been an Assistant Vice President of the Trust's investment adviser
     since 1995. Mr. Tiedge served as Director of Investments at Duquesne Light
     Company from 1990 to 1993. Mr. Tiedge is a Chartered Financial Analyst and
     received his M.S. in Industrial Administration from Carnegie Mellon
     University.
    

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


DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------

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

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

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

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

   
In addition, the Trust has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
the Trust may make payments up to .25 of 1% of the average daily net asset value
of the Institutional Service Shares to obtain certain personal services for
shareholders and to maintain shareholder accounts. From time to time and for
such periods as deemed appropriate, the amount stated above may be reduced
voluntarily. Under the Shareholder Services Agreement, Federated Shareholder
Services will either perform shareholder services directly or will select
financial institutions to perform shareholder services. Financial institutions
will receive fees based upon shares owned by their clients or customers. The
schedules of such fees and the basis upon which such fees will be paid will be
determined from time to time by the Trust and Federated Shareholder Services.
    

The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the administrative capacities described
above or should Congress relax current restrictions on depository institutions,
the Trustees will consider appropriate changes in the services.

State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.

   
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS.  In addition to payments made
pursuant to the Shareholder Services Agreement, Federated Securities Corp. and
Federated Shareholder Services, from their own assets, may pay financial
institutions supplemental fees for the performance of
    


   
substantial sales services, distribution-related support services, or
shareholder services. The support may include sponsoring sales, educational and
training seminars for their employees, providing sales literature, and
engineering computer software programs that emphasize the attributes of the
Trust. Such assistance will be predicated upon the amount of shares the
financial institution sells or may sell, and/or upon the type and nature of
sales or marketing support furnished by the financial institution. Any payments
made by the distributor may be reimbursed by the Trust's investment adviser or
its affiliates.
    

   
ADMINISTRATION OF THE TRUST
    
- --------------------------------------------------------------------------------

   
ADMINISTRATIVE SERVICES.  Federated Services Company, a subsidiary of Federated
Investors, provides administrative personnel and services (including certain
legal and financial reporting services) necessary to operate the Trust.
Federated Services Company provides these at an annual rate, which relates to
the average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors ("Federated Funds"), as specified below:
    
<TABLE>
<CAPTION>
       MAXIMUM                AVERAGE AGGREGATE DAILY
 ADMINISTRATIVE FEE      NET ASSETS OF THE FEDERATED FUNDS
- ---------------------    ----------------------------------
<S>                      <C>
      .15 of 1%              on the first $250 million
     .125 of 1%               on the next $250 million
      .10 of 1%               on the next $250 million
                            on assets in excess of $750
     .075 of 1%                       million
</TABLE>


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

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

The Trust's net asset value per Share fluctuates. The net asset value for Shares
is determined by adding the interest of the Shares in the market value of all
securities and other assets of the Trust, subtracting the interest of the Shares
in the liabilities of the Trust and those attributable to Shares, and dividing
the remainder by the total number of Shares outstanding. The net asset value for
Institutional Shares may exceed that of Shares 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.

INVESTING IN INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------

SHARE PURCHASES

Shares are sold on days on which the New York Stock Exchange and the Federal
Reserve wire system are open. Shares may be purchased either by wire or mail.


To purchase Shares, open an account by calling Federated Securities Corp.
Information needed to establish the account will be taken over the telephone.
The Trust reserves the right to reject any purchase request.

   
PURCHASING SHARES BY WIRE.  To purchase Shares by Federal Reserve wire, call the
Trust before 4:00 p.m. (Eastern time) to place an order. The order is considered
received immediately. Payment by federal funds must be received before 3:00 p.m.
(Eastern time) on the next business day following the order. Federal funds
should be wired as follows: Federated Shareholder Services Company, c/o State
Street Bank and Trust Company, Boston, Massachusetts; Attention: EDGEWIRE; For
Credit to: Federated GNMA Trust--Institutional Service Shares; Trust Number
(this number can be found on the account statement or by contacting the Trust);
Group Number or Order Number; Nominee or Institution Name; and ABA Number
011000028. Shares cannot be purchased by wire on holidays when wire transfers
are restricted. Questions on wire purchases should be directed to your
shareholder services representative at the telephone number listed on your
account statement.
    

   
BY MAIL.  To purchase Shares by mail, send a check made payable to Federated
GNMA Trust-- Institutional Service Shares to Federated Shareholder Services
Company, c/o State Street Bank and Trust Company, P.O. Box 8602, Boston,
Massachusetts 02266-8602. Orders by mail are considered received after payment
by check is converted by State Street Bank into federal funds. This is normally
the next business day after State Street Bank receives the check.
    

   
EXCHANGE PRIVILEGE
    

   
Financial institutions that maintain master accounts with an aggregate
investment of at least $400 million in certain funds which are advised or
distributed by affiliates of Federated Investors may exchange their Shares for
Institutional Shares of the Trust.
    

MINIMUM INVESTMENT REQUIRED

The minimum initial investment in Shares is $25,000 plus any non-affiliated bank
or broker's fee, if applicable. However, 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 will be calculated by combining all
accounts it maintains with the Trust.

Individual accounts established through a non-affiliated bank or broker may be
subject to a smaller minimum investment.

WHAT SHARES COST

Shares are sold at their net asset value next determined after an order is
received. There is no sales load imposed by the Trust. Investors who purchase
Shares through a non-affiliated bank or broker may be charged an additional
service fee by that bank or broker.

   
The net asset value is determined at the close of trading (normally 4:00 p.m.
Eastern time) on the New York Stock Exchange, Monday through Friday, except on:
(i) days on which there are not sufficient changes in the value of the Trust's
portfolio securities that its net asset value might be materially affected; (ii)
days during which no Shares are tendered for redemption and no orders to
purchase Shares are received; and (iii) the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
    


EXCHANGING SECURITIES FOR TRUST SHARES

Investors may exchange certain U.S. government securities or a combination of
securities and cash for Shares. The securities and any cash must have a market
value of at least $25,000. The Trust reserves the right to determine the
acceptability of securities to be exchanged. Securities accepted by the Trust
are valued in the same manner as the Trust values its assets. Investors wishing
to exchange securities should first contact Federated Securities Corp.

   
CERTIFICATES AND CONFIRMATIONS
    

   
As transfer agent for the Trust, Federated Shareholder Services Company
maintains a share account for each shareholder. Share certificates are not
issued unless requested by contacting the Trust.
    

Detailed confirmations of each purchase or redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during the
month.

DIVIDENDS

Dividends are declared daily and paid monthly. Dividends are declared just prior
to determining net asset value. If an order for Shares is placed on the
preceding business day, Shares purchased by wire begin earning dividends on the
business day wire payment is received by the transfer agent. If the order for
Shares and payment by wire are received on the same day, Shares begin earning
dividends on the next business day. Shares purchased by check begin earning
dividends on the business day after the check is converted, upon instruction of
the transfer agent, into federal funds. Dividends are automatically reinvested
on payment dates in additional Shares unless cash payments are requested by
contacting the Trust.

CAPITAL GAINS

Capital gains realized by the Trust, if any, are distributed at least once every
12 months.

REDEEMING INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------

The Trust redeems Shares at their net asset value next determined after the
Trust receives the redemption request. Redemptions will be made on days on which
the Trust computes its net asset value. Redemption requests must be received in
proper form and can be made by telephone request or by written request.

TELEPHONE REDEMPTION

   
Shareholders may redeem their Shares by telephoning the Trust before 4:00 p.m.
(Eastern time). The proceeds will normally be wire transferred the following
business day, but in no event more than seven days, to the shareholder's account
at a domestic commercial bank that is a member of the Federal Reserve System.
Proceeds from redemption requests received on holidays when wire transfers are
restricted will be wired the following business day. Questions about telephone
redemptions on days when wire transfers are restricted should be directed to
your shareholder services representative at the telephone number listed on your
account statement. If at any time, the Trust shall determine it necessary to
terminate or modify this method of redemption, shareholders would be promptly
notified.
    


An authorization form permitting the Trust to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from Federated Securities Corp.

Telephone redemption instructions may be recorded. If reasonable procedures are
not followed by the Trust, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.

   
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as "Redeeming Shares By Mail," should be considered.
    

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

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

   
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Trust or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a commercial
or savings bank, trust company or savings and loan association whose deposits
are insured by an organization which is administered by the Federal Deposit
Insurance Corporation; a member firm of a domestic stock exchange; or any other
"eligible guarantor institution," as defined in the Securities Exchange Act of
1934. The Trust does not accept signatures guaranteed by a notary public.
    

The Trust and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Trust may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Trust and its transfer agent reserve the right
to amend these standards at any time without notice.

   
ACCOUNTS WITH LOW BALANCES
    

Due to the high cost of maintaining accounts with low balances, the Trust may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $25,000. This
requirement does not apply, however, if the balance falls below $25,000 because
of changes in the Trust's net asset value.

Before Shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional Shares to meet the minimum
requirement.
   
SHAREHOLDER INFORMATION
    
- --------------------------------------------------------------------------------

VOTING RIGHTS

   
Each Share of the Trust gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
each portfolio in the Trust have equal voting rights except that, in matters
affecting only a particular fund or class, only shares of that fund or class are
entitled to vote. As of March 4, 1996, Ambank & Co., Baton Rouge, Louisiana,
owned 3,241,915 shares (29.57%) of the voting securities of the Trust, and,
therefore, may, for certain purposes, be deemed to control the Trust and be able
to affect the outcome of certain matters presented for a vote of shareholders.
    

As a Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust's operation and for the election of Trustees under certain
circumstances.

Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders for this purpose shall be called by the
Trustees upon the written request of shareholders owning at least 10% of the
Trust's outstanding shares entitled to vote.

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

FEDERAL INCOME TAX
   
The Trust will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
    

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

   
STATE AND LOCAL TAXES
    

   
In the opinion of Houston, Houston, & Donnelly, counsel to the Trust, Trust
shares may be subject to personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania to the extent that the
portfolio securities in the Trust would be subject to such taxes if owned
directly by residents of those jurisdictions.
    

   
Shareholders are urged to consult their own tax advisers regarding the status of
    
their accounts under state and local tax laws.


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

From time to time, the Trust advertises its total return and yield for Shares.
Total return represents the change, over a specified period of time, in the
value of an investment in the Shares of the Trust after reinvesting all income
and capital gains distributions. It is calculated by dividing that change by the
initial investment and is expressed as a percentage.

The yield of Shares of the Trust is calculated by dividing the net investment
income per share (as defined by the Securities and Exchange Commission) earned
by Shares over a thirty-day period by the offering price per share of Shares on
the last day of the period. This number is then annualized using semi-annual
compounding. The yield does not necessarily reflect income actually earned by
Shares and, therefore, may not correlate to the dividends or other distributions
paid to shareholders.

Shares are sold without any sales load or other similar non-recurring charges.

Total return and yield will be calculated separately for Institutional Service
Shares and Institutional Shares.

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

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

Institutional Shares are sold to accounts for which financial institutions act
in a fiduciary or agency capacity, and other accounts where a financial
institution maintains master accounts with an aggregate investment of at least
$400 million in certain mutual funds which are advised or distributed by
affiliates of Federated Investors. Shares are also made available to financial
intermediaries, public, and private organizations. Institutional Shares are sold
at net asset value. Investments in Institutional Shares are subject to a minimum
initial investment of $25,000 over a 90-day period.

Institutional Shares are distributed without a 12b-1 Plan.

Financial institutions and brokers providing sales and administrative services
may receive different compensation depending upon which class of shares of the
Trust is sold.

The amount of dividends payable to Institutional Shares will exceed that of
Institutional Service Shares by the difference between class expenses and
distribution and shareholder service expenses borne by shares of each respective
class.

The stated advisory fee is the same for both classes of shares.


FEDERATED GNMA TRUST
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

   
<TABLE>
<CAPTION>
                                                            YEAR ENDED JANUARY 31,
             --------------------------------------------------------------------------------------------------------------------
              1996        1995        1994        1993        1992        1991        1990        1989        1988         1987
             ------      ------      ------      ------      ------      ------      ------      ------      ------      --------
<S>          <C>         <C>         <C>         <C>         <C>         <C>         <C>         <C>         <C>         <C>
- --------
NET
  ASSET
VALUE,
BEGINNING
OF PERIOD    $10.61      $11.64      $11.80      $11.64      $11.29      $10.97      $10.70      $11.08      $11.46        $11.35
- --------
INCOME
  FROM
INVESTMENT
OPERATIONS
- --------
 Net
 investment
 income        0.78        0.82        0.85        0.93        0.98        1.00        1.00        1.01        1.04          1.11
- --------
 Net
realized
 and
 unrealized
 gain
 (loss)
 on
 investments   0.73       (1.03)      (0.16)       0.16        0.35        0.32        0.27       (0.38)      (0.38)         0.14
- --------       ----        ----        ----        ----        ----        ----        ----        ----        ----          ----
 Total
 from
 investment
 operations    1.51       (0.21)       0.69        1.09        1.33        1.32        1.27        0.63        0.66          1.25
- --------       ----        ----        ----        ----        ----        ----        ----        ----        ----          ----
LESS
DISTRIBUTIONS
- --------
 Distributions
 from net
 investment
 income       (0.77)      (0.82)      (0.85)      (0.93)      (0.98)      (1.00)      (1.00)      (1.01)      (1.04)        (1.11)
- --------
 Distributions
 in excess
 of net
 investment
 income(a)    (0.01)       --          --          --          --          --          --          --          --           --
- --------
 Distributions
 from net
realized
 gain on
 investment
 transactions   --         --          --          --          --          --          --          --          --           (0.03)
- --------       ----        ----        ----        ----        ----        ----        ----        ----        ----          ----
 Total
 distributions  (0.78)    (0.82)      (0.85)      (0.93)      (0.98)      (1.00)      (1.00)      (1.01)      (1.04)        (1.14)
- --------       ----        ----        ----        ----        ----        ----        ----        ----        ----          ----
NET
  ASSET
VALUE,
END OF
PERIOD       $11.34      $10.61      $11.64      $11.80      $11.64      $11.29      $10.97      $10.70      $11.08        $11.46
- --------       ----        ----        ----        ----        ----        ----        ----        ----        ----          ----
TOTAL
RETURN(B)     14.61%      (1.71%)      6.02%       9.78%      12.25%      12.65%      12.33%       5.99%       6.29%        11.53%
- --------
RATIOS
  TO
AVERAGE
NET
ASSETS
- --------
Expenses       0.60%       0.56%       0.51%       0.51%       0.51%       0.52%       0.52%       0.53%       0.52%         0.51%
- --------
 Net
 investment
 income        7.02%       7.51%       7.22%       7.98%       8.54%       9.08%       9.19%       9.33%       9.51%         9.66%
- --------
 Expense
 waiver/
 reimbursement(c)   0.20%   --         --          --          --          --          --          --          --           --
- --------
SUPPLEMENTAL
 DATA
- --------
 Net
 assets,
 end of
 period
 (000
omitted)     $1,352,894  $1,442,074  $1,910,500  $1,770,169  $1,333,930  $1,268,706  $1,312,780  $1,710,890  $2,111,559  $2,515,127
- --------
 Portfolio
 turnover
 rate            43%        136%        117%         33%         57%         48%         27%         40%         45%          100%
- --------
</TABLE>

    

(a) Distributions are determined in accordance with income tax regulations which
    may differ from generally accepted accounting principles. These
    distributions do not represent a return of capital for federal income tax
    purposes.

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

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

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

Further information about the Trust's performance is contained in the Trust's
annual report for the fiscal year ended January 31, 1996, which can be obtained
free of charge.


FEDERATED GNMA TRUST
PORTFOLIO OF INVESTMENTS
JANUARY 31, 1996
- --------------------------------------------------------------------------------

   
<TABLE>
<CAPTION>
 PRINCIPAL
   AMOUNT                                                                               VALUE
- ------------       --------------------------------------------------------------   --------------
<C>          <C>   <S>                                                              <C>
LONG-TERM GOVERNMENT OBLIGATIONS--98.9%
- ---------------------------------------------------------------------------------
               (a) GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--98.9%
                   --------------------------------------------------------------
$ 34,000,000   (b) 6.50%, 2/15/2026                                                 $   33,808,240
                   --------------------------------------------------------------
 262,006,438       7.00%, 5/15/2023-2/15/2026                                          265,603,787
                   --------------------------------------------------------------
  62,500,000   (b) 7.00%, 2/15/2026                                                     63,358,125
                   --------------------------------------------------------------
 215,115,828       7.50%, 5/15/2022-2/15/2026                                          221,626,126
                   --------------------------------------------------------------
   9,000,000   (b) 7.50%, 2/15/2026                                                      9,271,875
                   --------------------------------------------------------------
 272,905,411       8.00%, 3/15/2017-10/15/2025                                         284,636,182
                   --------------------------------------------------------------
 132,382,965       8.50%, 4/15/2017-2/15/2022                                          139,404,259
                   --------------------------------------------------------------
 173,972,187       9.00%, 6/15/2016-8/15/2025                                          185,630,188
                   --------------------------------------------------------------
  75,769,309       9.50%, 5/15/2016-12/15/2026                                          82,329,179
                   --------------------------------------------------------------
  12,000,000   (b) 9.50%, 2/15/2026                                                     12,892,320
                   --------------------------------------------------------------
  32,708,091       10.00%, 2/15/2018-2/15/2026                                          35,967,926
                   --------------------------------------------------------------
  32,500,000   (b) 10.00%, 12/15/2020                                                   35,769,825
                   --------------------------------------------------------------
   9,503,769       10.50%, 1/15/2016-8/15/2019                                          10,578,741
                   --------------------------------------------------------------
  18,219,599       11.00%, 12/15/2009-10/15/2019                                        20,468,262
                   --------------------------------------------------------------
  14,512,921       11.50%, 4/15/2010-4/15/2016                                          16,412,952
                   --------------------------------------------------------------
  23,585,131       12.00%, 7/15/2011-12/15/2015                                         26,930,918
                   --------------------------------------------------------------
  10,583,629       12.50%, 1/15/2010-6/15/2016                                          12,190,858
                   --------------------------------------------------------------
   1,477,604       13.00%, 12/15/2010-3/15/2015                                          1,712,617
                   --------------------------------------------------------------
   1,881,250       13.50%, 5/15/2010-8/15/2014                                           2,190,451
                   --------------------------------------------------------------   --------------
                   TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
                   (IDENTIFIED COST $1,412,222,272)                                  1,460,782,831
                   --------------------------------------------------------------   --------------
</TABLE>

    


FEDERATED GNMA TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
 PRINCIPAL
   AMOUNT                                                                               VALUE
- ------------       --------------------------------------------------------------   --------------
<C>          <C>   <S>                                                              <C>
(C) REPURCHASE AGREEMENTS--15.9%
- ---------------------------------------------------------------------------------
$ 19,480,000       BT Securities Corp., 5.93%, dated 1/31/1996, due 2/1/1996        $   19,480,000
                   --------------------------------------------------------------
 170,335,000   (d) Goldman, Sachs & Co., 5.47%, dated 1/22/1996, due 2/20/1996         170,335,000
                   --------------------------------------------------------------
  44,500,000   (d) Goldman, Sachs & Co., 5.485%, dated 1/24/1996, due 2/22/1996         44,500,000
                   --------------------------------------------------------------   --------------
                   TOTAL REPURCHASE AGREEMENTS (AT AMORTIZED COST)                     234,315,000
                   --------------------------------------------------------------   --------------
                   TOTAL INVESTMENTS (IDENTIFIED COST $1,646,537,272)(E)            $1,695,097,831
                   --------------------------------------------------------------   --------------
</TABLE>


(a) Because of monthly principal payments and prepayments, the average lives of
    the Government National Mortgage Association Modified Pass-Through
    securities (based upon FHA/VA historical experience) are less than the
    indicated periods.

(b) These securities are subject to Dollar Roll transactions.

(c) 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 a
    joint account with other Federated Funds.

(d) Although final maturity falls beyond seven days, a liquidity feature is
    included in each transaction to permit termination of the repurchase
    agreement within seven days if the creditworthiness of the issuer is
    downgraded.

(e) The cost of investments for federal tax purposes amounts to $1,646,537,272.
    The net unrealized appreciation of investments on a federal tax basis
    amounts to $48,560,559 which is comprised of $48,925,770 appreciation and
    $365,211 depreciation at January 31, 1996.

Note: The categories of investments are shown as a percentage of net assets
      ($1,476,507,620) at January 31, 1996.

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


FEDERATED GNMA TRUST

STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S>                                                              <C>               <C>
ASSETS:
- -------------------------------------------------------------------------------
Investments in repurchase agreements                             $  234,315,000
- --------------------------------------------------------------
Investments in securities                                         1,460,782,831
- --------------------------------------------------------------   --------------
  Total investments in securities, at value
  (identified and tax cost $1,646,537,272)                                         $1,695,097,831
- -------------------------------------------------------------------------------
Receivable for investments sold                                                        64,556,417
- -------------------------------------------------------------------------------
Income receivable                                                                       8,442,711
- -------------------------------------------------------------------------------
Receivable for shares sold                                                              1,678,652
- -------------------------------------------------------------------------------    --------------
     Total assets                                                                   1,769,775,611
- -------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------
Payable for dollar roll transactions                                210,034,259
- --------------------------------------------------------------
Payable for investments purchased                                    75,119,497
- --------------------------------------------------------------
Income distribution payable                                           6,041,893
- --------------------------------------------------------------
Payable for shares redeemed                                           1,245,613
- --------------------------------------------------------------
Payable to Bank                                                         580,063
- --------------------------------------------------------------
Accrued expenses                                                        246,666
- --------------------------------------------------------------   --------------
     Total liabilities                                                                293,267,991
- -------------------------------------------------------------------------------    --------------
NET ASSETS for 130,191,928 shares outstanding                                      $1,476,507,620
- -------------------------------------------------------------------------------    --------------
NET ASSETS CONSISTS OF:
- -------------------------------------------------------------------------------
Paid in capital                                                                    $1,573,515,955
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments                                             48,560,559
- -------------------------------------------------------------------------------
Accumulated net realized loss on investments                                         (145,448,348)
- -------------------------------------------------------------------------------
Distributions in excess of net investment income                                         (120,546)
- -------------------------------------------------------------------------------    --------------
     Total Net Assets                                                              $1,476,507,620
- -------------------------------------------------------------------------------    --------------
NET ASSET VALUE, Offering Price and Redemption Proceeds Per Share:
- -------------------------------------------------------------------------------
INSTITUTIONAL SHARES:
($1,352,893,830 / 119,292,094 shares outstanding)                                          $11.34
- -------------------------------------------------------------------------------    --------------
INSTITUTIONAL SERVICE SHARES:
($123,613,790 / 10,899,834 shares outstanding)                                             $11.34
- -------------------------------------------------------------------------------    --------------
</TABLE>


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


FEDERATED GNMA TRUST

STATEMENT OF OPERATIONS
YEAR ENDED JANUARY 31, 1996
- --------------------------------------------------------------------------------

   
<TABLE>
<S>                                                              <C>             <C>            <C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------------------------
Interest (net of dollar roll expense of $11,801,600)                                            $117,376,570
- --------------------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------------------------------------
Investment advisory fee                                                          $ 6,160,922
- -----------------------------------------------------------------------------
Administrative personnel and services fee                                          1,165,702
- -----------------------------------------------------------------------------
Custodian fees                                                                       353,849
- -----------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses                             439,902
- -----------------------------------------------------------------------------
Directors'/Trustees' fees                                                              9,325
- -----------------------------------------------------------------------------
Auditing fees                                                                         18,632
- -----------------------------------------------------------------------------
Legal fees                                                                            13,288
- -----------------------------------------------------------------------------
Portfolio accounting fees                                                            158,537
- -----------------------------------------------------------------------------
Distribution services fee--Institutional Service Shares                              306,186
- -----------------------------------------------------------------------------
Shareholder services fee--Institutional Shares                                     3,544,653
- -----------------------------------------------------------------------------
Shareholder services fee--Institutional Service Shares                               305,671
- -----------------------------------------------------------------------------
Share registration costs                                                              27,015
- -----------------------------------------------------------------------------
Printing and postage                                                                  23,973
- -----------------------------------------------------------------------------
Insurance premiums                                                                    24,821
- -----------------------------------------------------------------------------
Taxes                                                                                 74,949
- -----------------------------------------------------------------------------
Miscellaneous                                                                         17,722
- -----------------------------------------------------------------------------    -----------
    Total expenses                                                                12,645,147
- -----------------------------------------------------------------------------
Waivers-
- -----------------------------------------------------------------------------
  Waiver of distribution services fee-Institutional Service
    Shares                                                       $   (289,939)
- --------------------------------------------------------------
  Waiver of shareholder services fee-Institutional Shares          (2,835,722)
- --------------------------------------------------------------
  Waiver of shareholder services fee-Institutional Service
    Shares                                                            (15,984)
- --------------------------------------------------------------   ------------
    Total waivers                                                                 (3,141,645)
- -----------------------------------------------------------------------------    -----------
         Net expenses                                                                              9,503,502
- --------------------------------------------------------------------------------------------    ------------
             Net investment income                                                               107,873,068
- --------------------------------------------------------------------------------------------    ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- --------------------------------------------------------------------------------------------
Net realized gain on investments                                                                  14,663,260
- --------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments                                              88,242,539
- --------------------------------------------------------------------------------------------    ------------
    Net realized and unrealized gain on investments                                              102,905,799
- --------------------------------------------------------------------------------------------    ------------
         Change in net assets resulting from operations                                         $210,778,867
- --------------------------------------------------------------------------------------------    ------------
</TABLE>

    

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


FEDERATED GNMA TRUST
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------

   
<TABLE>
<CAPTION>
                                                                    YEAR ENDED JANUARY 31,
                                                               ---------------------------------
                                                                    1996               1995
                                                               --------------     --------------
<S>                                                            <C>                <C>
INCREASE (DECREASE) IN NET ASSETS:
- ------------------------------------------------------------
OPERATIONS--
- ------------------------------------------------------------
Net investment income                                          $  107,873,068     $  130,962,665
- ------------------------------------------------------------
Net realized gain (loss) on investments ($21,821,623 net
  loss and $71,738,355 net loss, respectively, as computed
for federal income tax purposes)                                   14,663,260        (97,737,729)
- ------------------------------------------------------------
Net change in unrealized appreciation (depreciation)               88,242,539        (77,177,049)
- ------------------------------------------------------------   --------------     --------------
     Change in assets resulting from operations                   210,778,867        (43,952,113)
- ------------------------------------------------------------   --------------     --------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ------------------------------------------------------------
Distributions from net investment income:
- ------------------------------------------------------------
  Institutional Shares                                            (99,770,141)      (121,679,720)
- ------------------------------------------------------------
  Institutional Service Shares                                     (8,102,927)        (9,282,945)
- ------------------------------------------------------------
Distributions in excess of net investment income:
- ------------------------------------------------------------
  Institutional Shares                                               (120,546)                --
- ------------------------------------------------------------   --------------     --------------
     Change in net assets resulting from distributions
     to shareholders                                             (107,993,614)      (130,962,665)
- ------------------------------------------------------------   --------------     --------------
SHARE TRANSACTIONS--
- ------------------------------------------------------------
Proceeds from sale of shares                                      257,208,894        398,304,925
- ------------------------------------------------------------
Net asset value of shares issued to shareholders in payment
  of distributions declared                                        30,445,454         33,750,837
- ------------------------------------------------------------
Cost of shares redeemed                                          (476,432,552)      (742,374,713)
- ------------------------------------------------------------   --------------     --------------
     Change in net assets resulting from share transactions      (188,778,204)      (310,318,951)
- ------------------------------------------------------------   --------------     --------------
          Change in net assets                                    (85,992,951)      (485,233,729)
- ------------------------------------------------------------
NET ASSETS:
- ------------------------------------------------------------
Beginning of period                                             1,562,500,571      2,047,734,300
- ------------------------------------------------------------   --------------     --------------
End of period                                                  $1,476,507,620     $1,562,500,571
- ------------------------------------------------------------   --------------     --------------
</TABLE>

    

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


   
FEDERATED GNMA TRUST
    

   
STATEMENT OF CASH FLOWS
    
   
YEAR ENDED JANUARY 31, 1996
    
- --------------------------------------------------------------------------------

   
<TABLE>
<S>                                                                             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- -----------------------------------------------------------------------------
Net increase in net assets resulting from operations                            $ 210,778,867
- -----------------------------------------------------------------------------
  ADJUSTMENTS TO RECONCILE NET INCREASE IN NET ASSETS FROM OPERATIONS TO CASH
  PROVIDED BY OPERATING ACTIVITIES:
- -----------------------------------------------------------------------------
  Net decrease in investments (including $88,242,539 increase in unrealized
  appreciation)                                                                    38,176,738
- -----------------------------------------------------------------------------
  Decrease in income receivable                                                     1,697,481
- -----------------------------------------------------------------------------
  Increase in receivable for investments sold                                     (15,176,209)
- -----------------------------------------------------------------------------
  Increase in payable for investments purchased                                    28,157,908
- -----------------------------------------------------------------------------
  Increase in accrued expenses                                                        238,589
- -----------------------------------------------------------------------------
  Increase in payable to bank                                                         580,063
- -----------------------------------------------------------------------------   -------------
     Cash provided by operating activities                                        264,453,437
- -----------------------------------------------------------------------------   -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
- -----------------------------------------------------------------------------
Net proceeds from the sale of shares                                              255,982,797
- -----------------------------------------------------------------------------
Net cost of shares redeemed                                                      (477,164,652)
- -----------------------------------------------------------------------------
Increase on payable for dollar roll transactions                                   35,844,772
- -----------------------------------------------------------------------------
Distributions paid                                                                (79,119,452)
- -----------------------------------------------------------------------------   -------------
     Cash used in financing activities                                           (264,456,535)
- -----------------------------------------------------------------------------   -------------
Decrease in cash                                                                       (3,098)
- -----------------------------------------------------------------------------   -------------
Cash at beginning of period                                                             3,098
- -----------------------------------------------------------------------------   -------------
Cash at end of period                                                           $           0
- -----------------------------------------------------------------------------   -------------
</TABLE>

    

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


FEDERATED GNMA TRUST

NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1996
- --------------------------------------------------------------------------------

(1) ORGANIZATION

Federated GNMA Trust (the "Trust") is registered under the Investment Company
Act of 1940, as amended (the "Act"), as a diversified, open-end management
investment company. The Trust's objective is to obtain current income by
investing in instruments issued or guaranteed by the Government National
Mortgage Association. The Trust offers two classes of shares: Institutional
Shares and Institutional Service Shares.

(2) SIGNIFICANT ACCOUNTING POLICIES

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

     INVESTMENT VALUATIONS--Short-term securities with remaining maturities of
     sixty days or less at the time of purchase may be valued at amortized cost,
     which approximates fair market value. All other securities are valued at
     prices provided by an independent pricing service.

     REPURCHASE AGREEMENTS--It is the policy of the Trust to require the
     custodian bank 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 Trust 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 Trust will only enter into repurchase agreements with banks and other
     recognized financial institutions, such as broker/dealers, which are deemed
     by the Trust's adviser to be creditworthy pursuant to 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 Trust
     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.

     Income and capital gain distributions are determined in accordance with
     income tax regulations which may differ from generally accepted accounting
     principles. These differences are primarily


FEDERATED GNMA TRUST
- --------------------------------------------------------------------------------
     due to differing treatments for expiring capital loss carryforwards. The
     following reclassifications have been made to the financial statements.
<TABLE>
<CAPTION>
          INCREASE (DECREASE)
- ----------------------------------------
                         ACCUMULATED
 PAID-IN CAPITAL      NET REALIZED LOSS
- -----------------    -------------------
<S>                  <C>
  ($31,912,913)         ($31,912,913)
</TABLE>


     Net investment income, net realized gains/losses, and net assets were not
     affected by this reclassification.

     FEDERAL TAXES--It is the Trust'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.

   
     At January 31, 1996, the Trust, for federal tax purposes, had a capital
     loss carryforward of $145,448,348, which will reduce the Trust's taxable
     income arising from future net realized gain on investments, if any, to the
     extent permitted by the Code, and thus will reduce the amount of the
     distributions to shareholders which would otherwise be necessary to relieve
     the Trust of any liability for federal tax. Pursuant to the Code, such
     capital loss carryforward will expire as follows:
    
<TABLE>
<CAPTION>
                           EXPIRATION YEAR                   EXPIRATION AMOUNT
            ---------------------------------------------    ------------------
            <S>                                              <C>
                                1997                            $ 18,028,171
                                1998                            $ 14,893,518
                                1999                            $ 13,784,245
                                2001                            $  5,182,436
                                2003                            $ 71,738,355
                                2004                            $ 21,821,623
</TABLE>


     WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Trust may engage in
     when-issued or delayed delivery transactions. The Trust 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.

     DOLLAR ROLL TRANSACTIONS--The Trust enters into dollar roll transactions,
     with respect to mortgage securities issued by GNMA in which the Trust sells
     mortgage securities to financial institutions and simultaneously agrees to
     accept substantially similar (same type, coupon and maturity) securities at
     a later date at an agreed upon price. Dollar roll transactions are
     short-term financing arrangements which will not exceed twelve months. The
     Trust will use the proceeds generated from the transactions to invest in
     short-term investments, which may enhance the Trust's current yield and
     total return.

   
     STATEMENT OF CASH FLOWS--Information on financial transactions which have
     been settled through the receipt or disbursement of cash is presented in
     the Trust's Statement of Cash Flows.
    


FEDERATED GNMA TRUST
- --------------------------------------------------------------------------------

   
     The cash amount shown in the Statement of Cash Flows is the amount reported
     as cash in the Trust's Statement of Assets and Liabilities which does not
     include any short-term investments at January 31, 1996.
    

     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.


FEDERATED GNMA TRUST
- --------------------------------------------------------------------------------

(3) SHARES OF BENEFICIAL INTEREST

The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. Transactions in shares were as follows:

   
<TABLE>
<CAPTION>
                                                          YEAR ENDED JANUARY 31,
                                       -------------------------------------------------------------
                                                   1996                             1995
                                       ----------------------------     ----------------------------
        INSTITUTIONAL SHARES             SHARES          AMOUNT           SHARES          AMOUNT
- ------------------------------------   -----------    -------------     -----------    -------------
<S>                                    <C>            <C>               <C>            <C>
Shares sold                             21,399,885    $ 236,718,872      33,458,790    $ 365,277,979
- ------------------------------------
Shares issued to shareholders in
payment of distributions declared        2,212,467       24,540,300       2,556,101       27,566,855
- ------------------------------------
Shares redeemed                        (40,178,059)    (445,126,223)    (64,291,288)    (698,723,436)
- ------------------------------------   -----------    -------------     -----------    -------------
  Net change resulting from
  Institutional Shares share
  transactions                         (16,565,707)   ($183,867,051)    (28,276,397)   ($305,878,602)
- ------------------------------------   -----------    -------------     -----------    -------------
</TABLE>

    

   
<TABLE>
<CAPTION>
                                                          YEAR ENDED JANUARY 31,
                                       -------------------------------------------------------------
                                                   1996                             1995
                                       ----------------------------     ----------------------------
    INSTITUTIONAL SERVICE SHARES         SHARES          AMOUNT           SHARES          AMOUNT
- ------------------------------------   -----------    -------------     -----------    -------------
<S>                                    <C>            <C>               <C>            <C>
Shares sold                              1,850,765    $  20,490,022       3,007,210    $  33,026,946
- ------------------------------------
Shares issued to shareholders in
payment of distributions declared          532,433        5,905,154         573,520        6,183,982
- ------------------------------------
Shares redeemed                         (2,828,872)     (31,306,329)     (4,025,344)     (43,651,277)
- ------------------------------------   -----------    -------------     -----------    -------------
  Net change resulting from
  Institutional Service Shares share
  transactions                            (445,674)   ($  4,911,153)       (444,614)   ($  4,440,349)
- ------------------------------------   -----------    -------------     -----------    -------------
     Net change resulting from share
     transactions                      (17,011,381)   ($188,778,204)    (28,721,011)   ($310,318,951)
- ------------------------------------   -----------    -------------     -----------    -------------
</TABLE>

    

(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

INVESTMENT ADVISORY FEE--Federated Management, the Trust's investment adviser,
(the "Adviser"), receives for its services an annual investment advisory fee
equal to .40 of 1% of the Trust's average daily net assets.

   
ADMINISTRATIVE FEE--Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Trust with administrative
personnel and services. This fee is based on the level of average aggregate
daily net assets of all funds advised by subsidiaries of Federated Investors for
    


FEDERATED GNMA TRUST
- --------------------------------------------------------------------------------

the period. The administrative fee received during the period of the
Administrative Services Agreement shall be at least $125,000 per portfolio and
$30,000 per each additional class of shares.

DISTRIBUTION SERVICES FEE--The Trust has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the
Trust will compensate Federated Securities Corp.("FSC"), the principal
distributor, from the net assets of the Trust to finance activities intended to
result in the sale of the Trust's Institutional Service Shares. The Plan
provides that the Trust may incur distribution expenses up to .25 of 1% of the
average daily net assets of the Institutional Service Shares, annually, to
compensate FSC. The distributor may voluntarily choose to waive any portion of
its fee. The distributor can modify or terminate this voluntary waiver at any
time at its sole discretion.

SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Trust will pay FSS up to .25 of
1% of average daily net assets of the Trust shares for the period. This fee is
to obtain certain services for shareholders and to maintain shareholder
accounts. FSS may voluntarily choose to waive any portion of its fee. FSS can
modify or terminate this voluntary waiver at any time at its sole discretion.

   
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES--FServ, through its registered
transfer and dividend disbursing agent, Federated Shareholder Services Company,
maintains all necessary shareholder records and receives a fee based on the
size, type, and number of accounts and transactions made by shareholders.
    

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

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

(5) INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding short-term securities, for the
period ended January 31, 1996, were as follows:
<TABLE>
<S>                                                                              <C>
- ------------------------------------------------------------------------------
PURCHASES--                                                                      $657,675,766
- ------------------------------------------------------------------------------   ------------
SALES--                                                                          $691,719,332
- ------------------------------------------------------------------------------   ------------
</TABLE>



INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------

To the Trustees and Shareholders of

FEDERATED GNMA TRUST:

   
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Federated GNMA Trust as of January 31, 1996,
and the related statements of operations and cash flows for the year then ended,
the statements of changes in net assets for the years ended January 31, 1996 and
1995, and the financial highlights (see pages 2 and 15 of the prospectus) for
the periods presented. These financial statements and financial highlights are
the responsibility of the Trust's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
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 the securities owned at
January 31, 1996 by correspondence with the custodian and brokers; where replies
were not received from brokers, we performed other auditing procedures. 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, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Federated GNMA Trust
as of January 31, 1996, the results of its operations and its cash flows, the
changes in its net assets and its financial highlights for the respective stated
periods in conformity with generally accepted accounting principles.
    

DELOITTE & TOUCHE LLP

Pittsburgh, Pennsylvania
   
March 15, 1996
    


ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S>             <C>                                          <C>
Federated GNMA Trust
                Institutional Service Shares                 Federated Investors Tower
                                                             Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Distributor
                Federated Securities Corp.                   Federated Investors Tower
                                                             Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Investment Adviser
                Federated Management                         Federated Investors Tower
                                                             Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Custodian
                State Street Bank and                        P.O. Box 8602
                Trust Company                                Boston, Massachusetts 02266-8602
- ------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
                Federated Shareholder Services Company       Federated Investors Tower
                                                             Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Independent Auditors
                Deloitte & Touche LLP                        2500 PPG Place
                                                             Pittsburgh, Pennsylvania 15222-5401
- ------------------------------------------------------------------------------------------------
</TABLE>



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

- --------------------------------------------------------------------------------
                                            FEDERATED GNMA TRUST
                                            INSTITUTIONAL SERVICE SHARES
                                            PROSPECTUS

                                            An Open-End, Diversified
                                            Management Investment Company

                                            March 31, 1996

LOGO
FEDERATED SECURITIES CORP.
- --------------------------------------------------------------------------------
Distributor

A Subsidiary of Federated Investors

Federated Investors Tower
Pittsburgh, PA 15222-3779

Cusip 314184201
   
8022901A-SS (3/96)
    

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

- --------------------------------------------------------------------------------
FEDERATED GNMA TRUST
INSTITUTIONAL SHARES
PROSPECTUS

The Institutional Shares of Federated GNMA Trust (the "Trust") offered by this
prospectus represent interests in a diversified portfolio of securities
investing primarily in instruments issued or guaranteed by the Government
National Mortgage Association, to achieve current income. The Trust is an open-
end, diversified management investment company (a mutual fund). Institutional
Shares are sold at net asset value.

THE INSTITUTIONAL SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR
OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD,
OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE INSTITUTIONAL SHARES
INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.

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

   
The Trust has also filed a Statement of Additional Information for Institutional
Shares and Institutional Service Shares dated March 31, 1996 with the Securities
and Exchange Commission. The information contained in the Statement of
Additional Information is incorporated by reference into this prospectus. You
may request a copy of the Statement of Additional Information or a paper copy of
this prospectus, if you received your prospectus electronically, free of charge
by calling 1-800-235-4669. To obtain other information or to make inquiries
about the Trust, contact the Trust at the address listed in the back of this
prospectus.
    
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

Prospectus dated March 31, 1996

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

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

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

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

INVESTMENT INFORMATION                                                         3
- ------------------------------------------------------
  Investment Objective                                                         3
  Investment Policies                                                          3
  Investment Limitations                                                       6

TRUST INFORMATION                                                              6
- ------------------------------------------------------
  Management of the Trust                                                      6

   
DISTRIBUTION OF INSTITUTIONAL SHARES                                           8
    
- ------------------------------------------------------

   
ADMINISTRATION OF THE TRUST                                                    8
    
- ------------------------------------------------------

NET ASSET VALUE                                                                9
- ------------------------------------------------------

   
INVESTING IN INSTITUTIONAL SHARES                                              9
    
- ------------------------------------------------------
   
  Share Purchases                                                              9
    
  Minimum Investment Required                                                 10
   
  What Shares Cost                                                            10
    
   
  Exchanging Securities for Trust Shares                                      10
    
   
  Certificates and Confirmations                                              10
    
   
  Dividends                                                                   10
    
   
  Capital Gains                                                               11
    

   
REDEEMING INSTITUTIONAL SHARES                                                11
    
- ------------------------------------------------------
   
  Telephone Redemption                                                        11
    
   
  Accounts with Low Balances                                                  12
    

   
SHAREHOLDER INFORMATION                                                       12
    
- ------------------------------------------------------
   
  Voting Rights                                                               12
    

   
TAX INFORMATION                                                               12
    
- ------------------------------------------------------
   
  Federal Income Tax                                                          12
    
   
  State and Local Taxes                                                       13
    
   
PERFORMANCE INFORMATION                                                       13
    
   
- ------------------------------------------------------
    

   
OTHER CLASSES OF SHARES                                                       14
    
   
- ------------------------------------------------------
    

FINANCIAL HIGHLIGHTS--
 INSTITUTIONAL SERVICE SHARES                                                 15
- ------------------------------------------------------

   
FINANCIAL STATEMENTS                                                          16
    
   
- ------------------------------------------------------
    

   
INDEPENDENT AUDITORS' REPORT                                                  27
    
- ------------------------------------------------------

   
ADDRESSES                                                                     28
    
- ------------------------------------------------------


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

   
<TABLE>
<S>                                                                             <C>      <C>
                                     INSTITUTIONAL SHARES
                               SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
  (as a percentage of offering price).................................................     None
Maximum Sales Charge Imposed on Reinvested Dividends
  (as a percentage of offering price).................................................     None
Contingent Deferred Sales Charge (as a percentage of original
  purchase price or redemption proceeds, as applicable)...............................     None
Redemption Fee (as a percentage of amount redeemed, if applicable)....................     None
Exchange Fee..........................................................................     None
                                   ANNUAL OPERATING EXPENSES
                            (As a percentage of average net assets)
Management Fee........................................................................    0.40%
12b-1 Fee.............................................................................     None
Total Other Expenses..................................................................    0.20%
     Shareholder Services Fee (after waiver)(1)..............................    0.05%
       Total Operating Expenses(2)....................................................    0.60%
</TABLE>

    

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

(2) The total operating expenses would have been 0.80% absent the voluntary
waiver of a portion of the shareholder services fee.

     The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Institutional Shares of the
Fund will bear, either directly or indirectly. For more complete descriptions of
the various costs and expenses, see "Trust Information" and "Investing in
Institutional Shares." Wire-transferred redemptions of less than $5,000 may be
subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE                                                    1 year    3 years    5 years    10 years
                                                           ------    -------    -------    --------
<S>                                                        <C>       <C>        <C>        <C>
You would pay the following expenses on a $1,000
  investment, assuming (1) 5% annual return and (2)
  redemption at the end of each time period.............     $6        $19        $33        $ 75
</TABLE>


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


FEDERATED GNMA TRUST
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

   
<TABLE>
<CAPTION>
                                                            YEAR ENDED JANUARY 31,
             --------------------------------------------------------------------------------------------------------------------
              1996        1995        1994        1993        1992        1991        1990        1989        1988         1987
             ------      ------      ------      ------      ------      ------      ------      ------      ------      --------
<S>          <C>         <C>         <C>         <C>         <C>         <C>         <C>         <C>         <C>         <C>
- --------
NET
  ASSET
VALUE,
BEGINNING
OF PERIOD    $10.61      $11.64      $11.80      $11.64      $11.29      $10.97      $10.70      $11.08      $11.46        $11.35
- --------
INCOME
  FROM
INVESTMENT
OPERATIONS
- --------
 Net
 investment
 income        0.78        0.82        0.85        0.93        0.98        1.00        1.00        1.01        1.04          1.11
- --------
 Net
realized
 and
 unrealized
 gain
 (loss)
 on
 investments   0.73       (1.03)      (0.16)       0.16        0.35        0.32        0.27       (0.38)      (0.38)         0.14
- --------       ----        ----        ----        ----        ----        ----        ----        ----        ----          ----
 Total
 from
 investment
 operations    1.51       (0.21)       0.69        1.09        1.33        1.32        1.27        0.63        0.66          1.25
- --------       ----        ----        ----        ----        ----        ----        ----        ----        ----          ----
LESS
DISTRIBUTIONS
- --------
 Distributions
 from net
 investment
 income       (0.77)      (0.82)      (0.85)      (0.93)      (0.98)      (1.00)      (1.00)      (1.01)      (1.04)        (1.11)
- --------
 Distributions
 in excess
 of net
 investment
 income(a)    (0.01)       --          --          --          --          --          --          --          --           --
- --------
 Distributions
 from net
realized
 gain on
 investment
 transactions   --         --          --          --          --          --          --          --          --           (0.03)
- --------       ----        ----        ----        ----        ----        ----        ----        ----        ----          ----
 Total
 distributions  (0.78)    (0.82)      (0.85)      (0.93)      (0.98)      (1.00)      (1.00)      (1.01)      (1.04)        (1.14)
- --------       ----        ----        ----        ----        ----        ----        ----        ----        ----          ----
NET
  ASSET
VALUE,
END OF
PERIOD       $11.34      $10.61      $11.64      $11.80      $11.64      $11.29      $10.97      $10.70      $11.08        $11.46
- --------       ----        ----        ----        ----        ----        ----        ----        ----        ----          ----
TOTAL
RETURN(B)     14.61%      (1.71%)      6.02%       9.78%      12.25%      12.65%      12.33%       5.99%       6.29%        11.53%
- --------
RATIOS
  TO
AVERAGE
NET
ASSETS
- --------
Expenses       0.60%       0.56%       0.51%       0.51%       0.51%       0.52%       0.52%       0.53%       0.52%         0.51%
- --------
 Net
 investment
 income        7.02%       7.51%       7.22%       7.98%       8.54%       9.08%       9.19%       9.33%       9.51%         9.66%
- --------
 Expense
 waiver/
 reimbursement(c)   0.20%   --         --          --          --          --          --          --          --           --
- --------
SUPPLEMENTAL
 DATA
- --------
 Net
 assets,
 end of
 period
 (000
omitted)     $1,352,894  $1,442,074  $1,910,500  $1,770,169  $1,333,930  $1,268,706  $1,312,780  $1,710,890  $2,111,559  $2,515,127
- --------
 Portfolio
 turnover
 rate            43%        136%        117%         33%         57%         48%         27%         40%         45%          100%
- --------
</TABLE>

    

(a) Distributions are determined in accordance with income tax regulations which
    may differ from generally accepted accounting principles. These
    distributions do not represent a return of capital for federal income tax
    purposes.

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

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

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

Further information about the Trust's performance is contained in the Trust's
annual report for the fiscal year ended January 31, 1996, which can be obtained
free of charge.


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

The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated December 10, 1981. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. As of the date of this prospectus, the Board of
Trustees ("Trustees") has established two classes of shares of the Trust, known
as Institutional Shares and Institutional Service Shares. This prospectus
relates only to Institutional Shares of the Trust.
Institutional Shares ("Shares") are sold primarily to accounts for which
financial institutions act in a fiduciary or agency capacity, and other accounts
where a financial institution maintains master accounts with an aggregate
investment of at least $400 million in certain mutual funds which are advised or
distributed by affiliates of Federated Investors. Shares are also made available
to financial intermediaries, public, and private organizations. An investment in
the Trust serves as a convenient means of accumulating an interest in a
professionally managed, diversified portfolio of primarily mortgage-backed
securities. A minimum initial investment of $25,000 over a 90-day period is
required.

Shares are currently sold and redeemed at net asset value without a sales load
imposed by the Trust.

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

INVESTMENT OBJECTIVE

The investment objective of the Trust is current income. The investment
objective may not be changed without the approval of shareholders. The Trust
pursues this investment objective by investing primarily in instruments issued
or guaranteed by the Government National Mortgage Association ("GNMA"). While
there is no assurance that the Trust will achieve its investment objective, it
endeavors to do so by following the investment policies described in this
prospectus.

INVESTMENT POLICIES

As a matter of investment policy which may be changed without shareholder
approval, the Trust will limit its investments to those that are permitted for
purchase by federal savings associations pursuant to applicable rules,
regulations, or interpretations of the Office of Thrift Supervision. Should
additional permitted investments be allowed as a result of future changes in
applicable regulations or federal laws, the Trust reserves the right, without
shareholder approval, to make such investments consistent with the Trust's
investment objective, policies, and limitations. Further, should existing
statutes or regulations change so as to cause any securities held by the Trust
to become ineligible for purchase by federal savings associations, the Trust
will dispose of those securities at times advantageous to the Trust.

As operated within the above limitation, the Trust may also serve as an
appropriate vehicle for a national bank as an investment for its own account.

Unless otherwise designated, the investment policies described below may not be
changed without shareholder approval.


ACCEPTABLE INVESTMENTS.  The Trust will invest primarily in mortgage-backed
securities. Under normal circumstances, at least 65% of the Trust's portfolio
will be invested in instruments issued or fully guaranteed as to principal and
interest by GNMA. In addition, to the extent that the Trust will invest in other
mortgage-backed securities, as described below, these will be collateralized by
GNMA obligations.

The Trust's permissible investments are as follows:

     - U.S. Treasury bills, notes, and bonds;

     - collateralized mortgage obligations;

     - real estate mortgage investment conduits; and

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

COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS").  CMOs are bonds issued by
single-purpose, stand-alone finance subsidiaries or trusts of financial
institutions, government agencies, investment bankers, or companies related to
the construction industry. CMOs purchased by the Trust will be collateralized by
pools of mortgages in which each mortgage is guaranteed as to payment of
principal and interest by GNMA.

All CMOs purchased by the Trust are issued by an agency of the United States and
are rated in the highest rating category by a nationally recognized statistical
rating organization.

The following example illustrates how mortgage cash flows are prioritized in the
case of CMOs--most of the CMOs in which the Trust invests use the same basic
structure:

(1) Several classes of securities are issued against a pool of mortgage
    collateral. The most common structure contains four classes of securities:
    The first three (A, B, and C bonds) pay interest at their stated rates
    beginning with the issue date; the final class (Z bond) typically receives
    any excess income from the underlying investments after payments are made to
    the other classes and receives no principal or interest payments until the
    shorter maturity classes have been retired, but then receives all remaining
    principal and interest payments.

(2) The cash flows from the underlying mortgages are applied first to pay
    interest and then to retire securities.

(3) The classes of securities are retired sequentially. All principal payments
    are directed first to the shortest-maturity class (or A bond). When those
    securities are completely retired, all principal payments are then directed
    to the next-shortest-maturity security (or B bond). This process continues
    until all of the classes have been paid off.

Because the cash flow is distributed sequentially instead of pro-rata, as with
pass-through securities, the cash flows and average lives of CMOs are more
predictable, and there is a period of time during which the investors in the
longer-maturity classes receive no principal paydowns. One or more of the
classes


may be adjustable rate. The interest portion of these payments is distributed by
the Trust as income, and the capital portion is reinvested.

REAL ESTATE MORTGAGE INVESTMENT CONDUITS ("REMICS").  REMICs are offerings of
multiple class real estate mortgage-backed securities which qualify and elect
treatment as such under provisions of the Internal Revenue Code, as amended.
Issuers of REMICs may take several forms, such as trusts, partnerships,
corporations, associations or a segregated pool of mortgages. Once REMIC status
is elected and obtained, the entity is not subject to federal income taxation.
Instead, income is passed through the entity and is taxed to the person or
persons who hold interests in the REMIC. A REMIC interest must consist of one or
more classes of "regular interests," some of which may offer adjustable rates,
and a single class of "residual interests." To qualify as a REMIC, substantially
all of the assets of the entity must be in assets directly or indirectly secured
principally by real property.

Because the mortgages underlying mortgage-backed securities often may be prepaid
without penalty or premium, mortgage-backed securities are generally subject to
higher prepayment risks than most other types of debt instruments. Prepayment
risks on mortgage securities tend to increase during periods of declining
mortgage interest rates, because many borrowers refinance their mortgages to
take advantage of the more favorable rates. Depending upon market conditions,
the yield that the Trust receives from the reinvestment of such prepayments, or
any scheduled principal payments, may be lower than the yield on the original
mortgage security. As a consequence, mortgage securities may be a less effective
means of "locking in" interest rates than other types of debt securities having
the same stated maturity and may also have less potential for capital
appreciation. For certain types of asset pools, such as collateralized mortgage
obligations, prepayments may be allocated to one tranche of securities ahead of
other tranches, in order to reduce the risk of prepayment for the other
tranches.

Prepayments may result in a capital loss to the Trust to the extent that the
prepaid mortgage securities were purchased at a market premium over their stated
principal amount. Conversely, the prepayment of mortgage securities purchased at
a market discount from their stated principal amount will accelerate the
recognition of interest income by the Trust, which would be taxed as ordinary
income when distributed to the shareholders.

The prices of fixed income securities fluctuate inversely to the direction of
interest rates.

TEMPORARY INVESTMENTS.  For defensive purposes only, the Trust may invest
temporarily in cash and money market instruments during times of unusual market
conditions and to maintain liquidity. Money market instruments items may
include:

     - obligations of the U.S. government or its agencies or instrumentalities;
      and

     - repurchase agreements.

     REPURCHASE AGREEMENTS.  Repurchase agreements are arrangements in which
     banks, broker/dealers, and other recognized financial institutions sell
     U.S. government securities or other securities to the Trust and agree at
     the time of sale to repurchase them at a mutually agreed upon time and
     price. To the extent that the original seller does not repurchase the
     securities from the Trust, the Trust could receive less than the repurchase
     price on any sale of such securities.


LENDING OF PORTFOLIO SECURITIES.  In order to generate additional income, the
Trust may lend portfolio securities on a short-term or long-term basis, or both
up to one-third of the value of its total assets to broker/dealers, banks, or
other institutional borrowers of securities. The Trust will only enter into loan
arrangements with broker/dealers, banks, or other institutions which the
investment adviser has determined are creditworthy under guidelines established
by the Trustees. The Trust will receive collateral in the form of cash or U.S.
government securities equal to at least 100% of the value of the securities
loaned.

There is the risk that when lending portfolio securities, the securities may not
be available to the Trust on a timely basis and the Trust may, therefore, lose
the opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS.  The Trust may purchase
securities on a when-issued or delayed delivery basis. These transactions are
arrangements in which the Trust purchases securities with payment and delivery
scheduled for a future time. The seller's failure to complete these transactions
may cause the Trust to miss a price or yield considered to be advantageous.
Settlement dates may be a month or more after entering into these transactions,
and the market values of the securities purchased may vary from the purchase
prices. Accordingly, the Trust may pay more or less than the market value of the
securities on the settlement date.
The Trust may dispose of a commitment prior to settlement if the adviser deems
it appropriate to do so. In addition, the Trust may enter into transactions to
sell its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Trust may realize short-term profits or losses upon the sale of such
commitments.

INVESTMENT LIMITATIONS

The Trust will not borrow money directly or through reverse repurchase
agreements (arrangements in which the Trust sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set date) or
pledge securities except, under certain circumstances, the Trust may borrow
money and engage in reverse repurchase agreements up to one-third of the value
of its total assets and pledge up to 10% of the value of those assets to secure
such borrowings.

As a matter of investment practice, which can be changed without shareholder
approval, the Trust will not invest more than 15% of its net assets in
securities which are illiquid, including repurchase agreements providing for
settlement in more than seven days after notice, and certain restricted
securities not determined by the Trustees to be liquid.

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

MANAGEMENT OF THE TRUST

BOARD OF TRUSTEES.  The Trust is managed by a Board of Trustees. The Trustees
are responsible for managing the Trust's business affairs and for exercising all
the Trust's powers except those reserved for the shareholders. The Executive
Committee of the Board of Trustees handles the Board's responsibilities between
meetings of the Board.


INVESTMENT ADVISER.  Investment decisions for the Trust are made by Federated
Management, the Trust's investment adviser, subject to direction by the
Trustees. The adviser continually conducts investment research and supervision
for the Trust and is responsible for the purchase or sale of portfolio
instruments, for which it receives an annual fee from the Trust.

     ADVISORY FEES.  The Trust's adviser receives an annual investment advisory
     fee equal to .40 of 1% of the Trust's average daily net assets. The adviser
     has also undertaken to reimburse the Trust for operating expenses in excess
     of limitations established by certain states. This does not include
     reimbursement to the Trust of any expenses incurred by shareholders who use
     the transfer agent's subaccounting facilities.

     ADVISER'S BACKGROUND.  Federated Management, a Delaware business trust
     organized on April 11, 1989, is a registered investment adviser under the
     Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
     All of the Class A (voting) shares of Federated Investors are owned by a
     trust, the trustees of which are John F. Donahue, Chairman and Trustee of
     Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
     Christopher Donahue, who is President and Trustee of Federated Investors.

   
     Federated Management and other subsidiaries of Federated Investors serve as
     investment advisers to a number of investment companies and private
     accounts. Certain other subsidiaries also provide administrative services
     to a number of investment companies. With over $80 billion invested across
     more than 250 funds under management and/or administration by its
     subsidiaries, as of December 31, 1995, Federated Investors is one of the
     largest mutual fund investment managers in the United States. With more
     than 1,800 employees, Federated continues to be led by the management who
     founded the company in 1955. Federated funds are presently at work in and
     through 4,000 financial institutions nationwide. More than 100,000
     investment professionals have selected Federated funds for their clients.
    

   
     Kathleen M. Foody-Malus has been the Trust's portfolio manager since July,
     1993. Ms. Foody-Malus joined Federated Investors in 1983 and has been a
     Vice President of the Trust's investment adviser since 1993. Ms.
     Foody-Malus served as an Assistant Vice President of the investment adviser
     from 1990 until 1992, and from 1986 until 1989 she acted as an investment
     analyst. Ms. Foody-Malus received her M.B.A. in Accounting/Finance from the
     University of Pittsburgh.
    

   
     Edward J. Tiedge has been the Trust's portfolio manager since October 1995.
     Mr. Tiedge joined Federated Investors in 1993 as an Investment Analyst and
     has been an Assistant Vice President of the Trust's investment adviser
     since 1995. Mr. Tiedge served as Director of Investments at Duquesne Light
     Company from 1990 to 1993. Mr. Tiedge is a Chartered Financial Analyst and
     received his M.S. in Industrial Administration from Carnegie Mellon
     University.
    

   
Both the Trust and the Adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Trust and its portfolio securities.
These codes recognize that such persons owe a fiduciary duty to the Trust's
shareholders and must place the interest of shareholders ahead of the employees'
own interest. Among other things, the codes: require preclearance and periodic
reporting of personal securities transactions; prohibit personal transactions in
securities being purchased or sold, or being considered for purchase or sale, by
the Trust; prohibit purchasing securities in
    


   
initial public offerings; and prohibit taking profits on securities held for
less than sixty days. Violations of the codes are subject to review by the Board
of Trustees, and could result in severe penalties.
    

DISTRIBUTION OF INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------

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

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

ADMINISTRATION OF THE TRUST
- --------------------------------------------------------------------------------

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

<TABLE>
<CAPTION>
                      MAXIMUM                  AVERAGE AGGREGATE DAILY NET
                 ADMINISTRATIVE FEE           ASSETS OF THE FEDERATED FUNDS
          --------------------------------   --------------------------------
          <S>                                <C>
                     0.15 of 1%                 on the first $250 million
                    0.125 of 1%                  on the next $250 million
                     0.10 of 1%                  on the next $250 million
                                               on assets in excess of $750
                    0.075 of 1%                          million
</TABLE>


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

   
SHAREHOLDER SERVICES.  The Trust has entered into a Shareholder Services
Agreement with Federated Shareholder Services, a subsidiary of Federated
Investors, under which the Trust may make payments up to .25 of 1% of the
average daily net asset value of the Institutional Shares, computed at an annual
rate, to obtain certain personal services for shareholders and to maintain
shareholder accounts. From time to time and for such periods as deemed
appropriate, the amount stated above may be reduced voluntarily. Under the
Shareholder Services Agreement, Federated Shareholder Services will either
perform shareholder services directly or will select financial institutions to
perform shareholder services. Financial institutions will receive fees based
upon shares owned by their clients or customers. The schedule of such fees and
the basis upon which such fees will be paid will be determined from time to time
by the Trust and Federated Shareholder Services.
    

   
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS.  In addition to payments made
pursuant to the Shareholder Services Agreement, Federated Securities Corp. and
Federated Shareholder Services, from their own assets, may pay financial
institutions supplemental for the performance of substantial
    


   
sales services, distribution-related support services, or shareholder services.
The support may include sponsoring sales, educational and training seminars for
their employees, providing sales literature, and engineering computer software
programs that emphasize the attributes of the Trust. Such assistance will be
predicated upon the amount of shares the financial institution sells or may
sell, and/or upon the type and nature of sales or marketing support furnished by
the financial institution. Any payments made by the distributor may be
reimbursed by the Trust's investment adviser or its affiliates.
    

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

The Trust's net asset value per Share fluctuates. The net asset value for Shares
is determined by adding the interest of the Shares in the market value of all
securities and other assets of the Trust, subtracting the interest of the Shares
in the liabilities of the Trust and those attributable to Shares, and dividing
the remainder by the total number of Shares outstanding. The net asset value for
Shares may exceed that of Institutional Service Shares 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.

INVESTING IN INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------

SHARE PURCHASES

Shares are sold on days on which the New York Stock Exchange is open for
business. Shares may be purchased either by wire or mail.

To purchase Shares, open an account by calling Federated Securities Corp.
Information needed to establish the account will be taken over the telephone.
The Trust reserves the right to reject any purchase request.

   
PURCHASING SHARES BY WIRE.  Shares may be purchased by Federal Reserve wire by
calling the Trust before 4:00 p.m. (Eastern time) to place an order. The order
is considered received immediately. Payment by federal funds must be received
before 3:00 p.m. (Eastern time) on the next business day following the order.
Federal funds should be wired as follows: Federated Shareholder Services
Company, c/o State Street Bank and Trust Company, Boston, Massachusetts;
Attention: EDGEWIRE; For Credit to: Federated GNMA Trust--Institutional Shares;
Trust Number (this number can be found on the account statement or by contacting
the Trust); Group Number or Order Number; Nominee or Institution Name; and ABA
Number 011000028. Shares cannot be purchased by wire on holidays when wire
transfers are restricted. Questions on wire purchases should be directed to your
shareholder services representative at the telephone number listed on your
account statement.
    

BY MAIL.  To purchase Shares by mail, send a check made payable to Federated
GNMA Trust--Institutional Shares to Federated Shareholder Services Company, P.O.
Box 8600, Boston, Massachusetts 02266-8600. Orders by mail are considered
received after payment by check is converted by State Street Bank into federal
funds. This is normally the next business day after State Street Bank receives
the check.


MINIMUM INVESTMENT REQUIRED

The minimum initial investment in Shares is $25,000 plus any non-affiliated bank
or broker's fee, if applicable. However, 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 will be calculated by combining all
accounts it maintains with the Trust.
Individual accounts established through a non-affiliated bank or broker may be
subject to a smaller minimum investment.

WHAT SHARES COST

   
Shares are sold at their net asset value next determined after an order is
received. There is no sales load imposed by the Trust. Investors who purchase
Shares through a financial intermediary may be charged a service fee by that
financial intermediary.
    

   
The net asset value is determined at the close of trading (normally 4:00 p.m.
Eastern time) on the New York Stock Exchange, Monday through Friday, except on:
(i) days on which there are not sufficient changes in the value of the Trust's
portfolio securities that its net asset value might be materially affected; (ii)
days during which no Shares are tendered for redemption and no orders to
purchase Shares are received; and (iii) the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
    

EXCHANGING SECURITIES FOR TRUST SHARES

Investors may exchange certain U.S. government securities or a combination of
securities and cash for Shares. The securities and any cash must have a market
value of at least $25,000. The Trust reserves the right to determine the
acceptability of securities to be exchanged. Securities accepted by the Trust
are valued in the same manner as the Trust values its assets. Investors wishing
to exchange securities should first contact Federated Securities Corp.

   
CERTIFICATES AND CONFIRMATIONS
    

As transfer agent for the Trust, Federated Shareholder Services Company
maintains a share account for each shareholder. Share certificates are not
issued unless requested by contacting the Trust.

Detailed confirmations of each purchase or redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during the
month.

DIVIDENDS

Dividends are declared daily and paid monthly. Dividends are declared just prior
to determining net asset value. If an order for Shares is placed on the
preceding business day, Shares purchased by wire begin earning dividends on the
business day wire payment is received by the transfer agent. If the order for
Shares and payment by wire are received on the same day, Shares begin earning
dividends on the next business day. Shares purchased by check begin earning
dividends on the business day after the check is converted, upon instruction of
the transfer agent, into federal funds. Dividends are automatically reinvested
on payment dates in additional Shares unless cash payments are requested by
contacting the Trust.


CAPITAL GAINS

Capital gains realized by the Trust, if any, are distributed at least once every
12 months.

REDEEMING INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
   
The Trust redeems Shares at their net asset value next determined after the
Trust receives the redemption request. Investors who redeem shares through a
financial intermediary may be charged a service fee by that financial
intermediary. Redemptions will be made on days on which the Trust computes its
net asset value. Redemption requests must be received in proper form and can be
made by telephone request or by written request.
    

TELEPHONE REDEMPTION

   
Shareholders may redeem their Shares by telephoning the Trust before 4:00 p.m.
(Eastern time). The proceeds will normally be wire transferred the following
business day, but in no event more than seven days, to the shareholder's account
at a domestic commercial bank that is a member of the Federal Reserve System.
Proceeds from redemption requests received on holidays when wire transfers are
restricted will be wired the following business day. Questions about telephone
redemptions on days when wire transfers are restricted should be directed to
your shareholder services representative at the telephone number listed on your
account statement. If at any time, the Trust shall determine it necessary to
terminate or modify this method of redemption, shareholders would be promptly
notified.
    

An authorization form permitting the Trust to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from Federated Securities Corp.

Telephone redemption instructions may be recorded. If reasonable procedures are
not followed by the Trust, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
   
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as "Redeeming Shares By Mail," should be considered.
    

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

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

   
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Trust or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a commercial
or savings bank, trust company or savings and loan association
    


   
whose deposits are insured by an organization which is administered by the
Federal Deposit Insurance Corporation; a member firm of a domestic stock
exchange; or any other "eligible guarantor institution," as defined in the
Securities Exchange Act of 1934. The Trust does not accept signatures guaranteed
by a notary public.
    

The Trust and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Trust may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Trust and its transfer agent reserve the right
to amend these standards at any time without notice.

   
ACCOUNTS WITH LOW BALANCES
    

Due to the high cost of maintaining accounts with low balances, the Trust may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $25,000. This
requirement does not apply, however, if the balance falls below $25,000 because
of changes in the Trust's net asset value.

Before Shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional Shares to meet the minimum
requirement.

SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------

VOTING RIGHTS

Each Share of the Trust gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
each portfolio in the Trust have equal voting rights except that, in matters
affecting only a particular fund or class, only shares of that fund or class are
entitled to vote.

As a Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust's operation and for the election of Trustees under certain
circumstances.

Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders for this purpose shall be called by the
Trustees upon the written request of shareholders owning at least 10% of the
Trust's outstanding shares entitled to vote.

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

FEDERAL INCOME TAX

   
The Trust will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
    


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

   
STATE AND LOCAL TAXES
    

   
In the opinion of Houston, Houston, & Donnelly, counsel to the Trust, Trust
shares may be subject to personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania to the extent that the
portfolio securities in the Trust would be subject to such taxes if owned
directly by residents of those jurisdictions.
    

Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.

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

From time to time, the Trust advertises its total return and yield for Shares.

Total return represents the change, over a specified period of time, in the
value of an investment in Shares of the Trust after reinvesting all income and
capital gains distributions. It is calculated by dividing that change by the
initial investment and is expressed as a percentage.

The yield of Shares of the Trust is calculated by dividing the net investment
income per share (as defined by the Securities and Exchange Commission) earned
by Shares over a thirty-day period by the offering price per share of Shares on
the last day of the period. This number is then annualized using semi-annual
compounding. The yield does not necessarily reflect income actually earned by
Shares and, therefore, may not correlate to the dividends or other distributions
paid to shareholders.

Shares are sold without any sales load or other similar non-recurring charges.
Total return and yield will be calculated separately for Institutional Shares
and Institutional Service Shares.

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


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

Institutional Service Shares are sold primarily to retail and private banking
customers of financial institutions. Institutional Service Shares are sold at
net asset value. Investments in Institutional Service Shares are subject to a
minimum initial investment of $25,000.

Institutional Service Shares are distributed pursuant to a 12b-1 Plan adopted by
the Trust whereby the distributor is paid a fee of 0.25 of 1% of the
Institutional Service Shares' average daily net assets.

Financial institutions and brokers providing sales and/or administrative
services may receive different compensation depending upon which class of shares
of the Trust is sold.

The amount of dividends payable to Institutional Shares will exceed that of
Institutional Service Shares by the difference between class expenses and
distribution and shareholder service expenses borne by shares of each respective
class.

The stated advisory fee is the same for both classes of shares.

FEDERATED GNMA TRUST
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

   
<TABLE>
<CAPTION>
                                                                  YEAR ENDED JANUARY 31,
                                                         ----------------------------------------
                                                          1996       1995       1994      1993(A)
                                                         ------     ------     ------     -------
<S>                                                      <C>        <C>        <C>        <C>
NET ASSET VALUE, BEGINNING OF PERIOD                     $10.61     $11.64     $11.80     $11.71
- ------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------
  Net investment income                                    0.78       0.79       0.82       0.61
- ------------------------------------------------------
  Net realized and unrealized gain (loss) on
     investments                                           0.71      (1.03)     (0.16)      0.09
                                                                                           -----
- ------------------------------------------------------   ------     ------     ------
  Total from investment operations                         1.49      (0.24)      0.66       0.70
                                                                                           -----
- ------------------------------------------------------   ------     ------     ------
LESS DISTRIBUTIONS
- ------------------------------------------------------
  Distributions from net investment income                (0.76)     (0.79)     (0.82)     (0.61 )
                                                                                           -----
- ------------------------------------------------------   ------     ------     ------
NET ASSET VALUE, END OF PERIOD                           $11.34     $10.61     $11.64     $11.80
                                                                                           -----
- ------------------------------------------------------   ------     ------     ------
TOTAL RETURN(B)                                           14.39%     (1.92%)     5.76%      5.62 %
- ------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------
  Expenses                                                 0.80%      0.77%      0.76%      0.76 %*
- ------------------------------------------------------
  Net investment income                                    6.82%      7.32%      6.97%      7.57 %*
- ------------------------------------------------------
  Expense waiver/reimbursement(c)                          0.25%      0.14%        --         --
- ------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------
  Net assets, end of period (000 omitted)                $123,614   $120,427   $137,235   $50,166
- ------------------------------------------------------
  Portfolio turnover rate                                    43%       136%       117%        33 %
- ------------------------------------------------------
</TABLE>

    

* Computed on an annualized basis.

(a) Reflects operations for the period from June 18, 1992 (date of initial
    public investment) to January 31, 1993.

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

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

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

Further information about the Trust's performance is contained in the Trust's
annual report for the fiscal year ended January 31, 1996, which can be obtained
free of charge.


FEDERATED GNMA TRUST
PORTFOLIO OF INVESTMENTS
JANUARY 31, 1996
- --------------------------------------------------------------------------------

   
<TABLE>
<CAPTION>
 PRINCIPAL
   AMOUNT                                                                               VALUE
- ------------       --------------------------------------------------------------   --------------
<C>          <C>   <S>                                                              <C>
LONG-TERM GOVERNMENT OBLIGATIONS--98.9%
- ---------------------------------------------------------------------------------
               (a) GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--98.9%
                   --------------------------------------------------------------
$ 34,000,000   (b) 6.50%, 2/15/2026                                                 $   33,808,240
                   --------------------------------------------------------------
 262,006,438       7.00%, 5/15/2023-2/15/2026                                          265,603,787
                   --------------------------------------------------------------
  62,500,000   (b) 7.00%, 2/15/2026                                                     63,358,125
                   --------------------------------------------------------------
 215,115,828       7.50%, 5/15/2022-2/15/2026                                          211,626,126
                   --------------------------------------------------------------
   9,000,000   (b) 7.50%, 2/15/2026                                                      9,271,875
                   --------------------------------------------------------------
 272,905,411       8.00%, 3/15/2017-10/15/2025                                         284,636,182
                   --------------------------------------------------------------
 132,382,965       8.50%, 4/15/2017-2/15/2022                                          139,404,259
                   --------------------------------------------------------------
 173,972,187       9.00%, 6/15/2016-8/15/2025                                          185,630,188
                   --------------------------------------------------------------
  75,769,309       9.50%, 5/15/2016-12/15/2026                                          82,329,179
                   --------------------------------------------------------------
  12,000,000   (b) 9.50%, 2/15/2026                                                     12,892,320
                   --------------------------------------------------------------
  32,708,091       10.00%, 2/15/2018-2/15/2026                                          35,967,926
                   --------------------------------------------------------------
  32,500,000   (b) 10.00%, 12/15/2020                                                   35,769,825
                   --------------------------------------------------------------
   9,503,769       10.50%, 1/15/2016-8/15/2019                                          10,578,741
                   --------------------------------------------------------------
  18,219,599       11.00%, 12/15/2009-10/15/2019                                        20,468,262
                   --------------------------------------------------------------
  14,512,921       11.50%, 4/15/2010-4/15/2016                                          16,412,952
                   --------------------------------------------------------------
  23,585,131       12.00%, 7/15/2011-12/15/2015                                         26,930,918
                   --------------------------------------------------------------
  10,583,629       12.50%, 1/15/2010-6/15/2016                                          12,190,858
                   --------------------------------------------------------------
   1,477,604       13.00%, 12/15/2010-3/15/2015                                          1,712,617
                   --------------------------------------------------------------
   1,881,250       13.50%, 5/15/2010-8/15/2014                                           2,190,451
                   --------------------------------------------------------------   --------------
                   TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
                   (IDENTIFIED COST $1,412,222,272)                                  1,460,782,831
                   --------------------------------------------------------------   --------------
</TABLE>

    


FEDERATED GNMA TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
 PRINCIPAL
   AMOUNT                                                                               VALUE
- ------------       --------------------------------------------------------------   --------------
<C>          <C>   <S>                                                              <C>
(C) REPURCHASE AGREEMENTS--15.9%
- ---------------------------------------------------------------------------------
$ 19,480,000       BT Securities Corp., 5.93%, dated 1/31/1996, due 2/1/1996        $   19,480,000
                   --------------------------------------------------------------
 170,335,000   (d) Goldman, Sachs & Co., 5.47%, dated 1/22/1996, due 2/20/1996         170,335,000
                   --------------------------------------------------------------
  44,500,000   (d) Goldman, Sachs & Co., 5.485%, dated 1/24/1996, due 2/22/1996         44,500,000
                   --------------------------------------------------------------   --------------
                   TOTAL REPURCHASE AGREEMENTS (AT AMORTIZED COST)                     234,315,000
                   --------------------------------------------------------------   --------------
                   TOTAL INVESTMENTS (IDENTIFIED COST $1,646,537,272)(E)            $1,695,097,831
                   --------------------------------------------------------------   --------------
</TABLE>


(a) Because of monthly principal payments and prepayments, the average lives of
    the Government National Mortgage Association Modified Pass-Through
    securities (based upon FHA/VA historical experience) are less than the
    indicated periods.

(b) These securities are subject to Dollar Roll transactions.

(c) 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 a
    joint account with other Federated Funds.

(d) Although final maturity falls beyond seven days, a liquidity feature is
    included in each transaction to permit termination of the repurchase
    agreement within seven days if the creditworthiness of the issuer is
    downgraded.

(e) The cost of investments for federal tax purposes amounts to $1,646,537,272.
    The net unrealized appreciation of investments on a federal tax basis
    amounts to $48,560,559 which is comprised of $48,925,770 appreciation and
    $365,211 depreciation at January 31, 1996.

Note: The categories of investments are shown as a percentage of net assets
      ($1,476,507,620) at January 31, 1996.

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


FEDERATED GNMA TRUST

STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S>                                                              <C>               <C>
ASSETS:
- -------------------------------------------------------------------------------
Investments in repurchase agreements                             $  234,315,000
- --------------------------------------------------------------
Investments in securities                                         1,460,782,831
- --------------------------------------------------------------   --------------
     Total investments in securities, at value
     (identified and tax cost $1,646,537,272)                                      $1,695,097,831
- -------------------------------------------------------------------------------
Receivable for investments sold                                                        64,556,417
- -------------------------------------------------------------------------------
Income receivable                                                                       8,442,711
- -------------------------------------------------------------------------------
Receivable for shares sold                                                              1,678,652
- -------------------------------------------------------------------------------    --------------
     Total assets                                                                   1,769,775,611
- -------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------
Payable for dollar roll transactions                                210,034,259
- --------------------------------------------------------------
Payable for investments purchased                                    75,119,497
- --------------------------------------------------------------
Income distribution payable                                           6,041,893
- --------------------------------------------------------------
Payable for shares redeemed                                           1,245,613
- --------------------------------------------------------------
Payable to Bank                                                         580,063
- --------------------------------------------------------------
Accrued expenses                                                        246,666
- --------------------------------------------------------------   --------------
     Total liabilities                                                                293,267,991
- -------------------------------------------------------------------------------    --------------
NET ASSETS for 130,191,928 shares outstanding                                      $1,476,507,620
- -------------------------------------------------------------------------------    --------------
NET ASSETS CONSISTS OF:
- -------------------------------------------------------------------------------
Paid in capital                                                                    $1,573,515,955
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments                                             48,560,559
- -------------------------------------------------------------------------------
Accumulated net realized loss on investments                                         (145,448,348)
- -------------------------------------------------------------------------------
Distributions in excess of net investment income                                         (120,546)
- -------------------------------------------------------------------------------    --------------
     Total Net Assets                                                              $1,476,507,620
- -------------------------------------------------------------------------------    --------------
NET ASSET VALUE, Offering Price and Redemption Proceeds Per Share:
- -------------------------------------------------------------------------------
INSTITUTIONAL SHARES:
($1,352,893,830 / 119,292,094 shares outstanding)                                          $11.34
- -------------------------------------------------------------------------------    --------------
INSTITUTIONAL SERVICE SHARES:
($123,613,790 / 10,899,834 shares outstanding)                                             $11.34
- -------------------------------------------------------------------------------    --------------
</TABLE>


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


FEDERATED GNMA TRUST

STATEMENT OF OPERATIONS
YEAR ENDED JANUARY 31, 1996
- --------------------------------------------------------------------------------

   
<TABLE>
<S>                                                               <C>            <C>            <C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------------------------
Interest (net of dollar roll expense of $11,801,600)                                            $117,376,570
- --------------------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------------------------------------
Investment advisory fee                                                          $ 6,160,922
- -----------------------------------------------------------------------------
Administrative personnel and services fee                                          1,165,702
- -----------------------------------------------------------------------------
Custodian fees                                                                       353,849
- -----------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses                             439,902
- -----------------------------------------------------------------------------
Directors'/Trustees' fees                                                              9,325
- -----------------------------------------------------------------------------
Auditing fees                                                                         18,632
- -----------------------------------------------------------------------------
Legal fees                                                                            13,288
- -----------------------------------------------------------------------------
Portfolio accounting fees                                                            158,537
- -----------------------------------------------------------------------------
Distribution services fee--Institutional Service Shares                              306,186
- -----------------------------------------------------------------------------
Shareholder services fee--Institutional Shares                                     3,544,653
- -----------------------------------------------------------------------------
Shareholder services fee--Institutional Service Shares                               305,671
- -----------------------------------------------------------------------------
Share registration costs                                                              27,015
- -----------------------------------------------------------------------------
Printing and postage                                                                  23,973
- -----------------------------------------------------------------------------
Insurance premiums                                                                    24,821
- -----------------------------------------------------------------------------
Taxes                                                                                 74,949
- -----------------------------------------------------------------------------
Miscellaneous                                                                         17,722
- -----------------------------------------------------------------------------    -----------
    Total expenses                                                                12,645,147
- -----------------------------------------------------------------------------
Waivers-
- -----------------------------------------------------------------------------
  Waiver of distribution services fee-Institutional Service
    Shares                                                        $  (289,939)
- ---------------------------------------------------------------
  Waiver of shareholder services fee-Institutional Shares          (2,835,722)
- ---------------------------------------------------------------
  Waiver of shareholder services fee-Institutional Service
    Shares                                                            (15,984)
- ---------------------------------------------------------------   -----------
    Total waivers                                                                 (3,141,645)
- -----------------------------------------------------------------------------    -----------
         Net expenses                                                                              9,503,502
- --------------------------------------------------------------------------------------------    ------------
             Net investment income                                                               107,873,068
- --------------------------------------------------------------------------------------------    ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- --------------------------------------------------------------------------------------------
Net realized gain on investments                                                                  14,663,260
- --------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments                                              88,242,539
- --------------------------------------------------------------------------------------------    ------------
    Net realized and unrealized gain on investments                                              102,905,799
- --------------------------------------------------------------------------------------------    ------------
         Change in net assets resulting from operations                                         $210,778,867
- --------------------------------------------------------------------------------------------    ------------
</TABLE>

    

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


FEDERATED GNMA TRUST
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------

   
<TABLE>
<CAPTION>
                                                                    YEAR ENDED JANUARY 31,
                                                               ---------------------------------
                                                                    1996               1995
                                                               --------------     --------------
<S>                                                            <C>                <C>
INCREASE (DECREASE) IN NET ASSETS:
- ------------------------------------------------------------
OPERATIONS--
- ------------------------------------------------------------
Net investment income                                          $  107,873,068     $  130,962,665
- ------------------------------------------------------------
Net realized gain (loss) on investments ($21,821,623 net
  loss and $71,738,355 net loss, respectively, as computed
for federal income tax purposes)                                   14,663,260        (97,737,729)
- ------------------------------------------------------------
Net change in unrealized appreciation (depreciation)               88,242,539        (77,177,049)
- ------------------------------------------------------------   --------------     --------------
     Change in assets resulting from operations                   210,778,867        (43,952,113)
- ------------------------------------------------------------   --------------     --------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ------------------------------------------------------------
Distributions from net investment income:
- ------------------------------------------------------------
  Institutional Shares                                            (99,770,141)      (121,679,720)
- ------------------------------------------------------------
  Institutional Service Shares                                     (8,102,927)        (9,282,945)
- ------------------------------------------------------------
Distributions in excess of net investment income:
- ------------------------------------------------------------
  Institutional Shares                                               (120,546)                --
- ------------------------------------------------------------   --------------     --------------
     Change in net assets resulting from distributions
     to shareholders                                             (107,993,614)      (130,962,665)
- ------------------------------------------------------------   --------------     --------------
SHARE TRANSACTIONS--
- ------------------------------------------------------------
Proceeds from sale of shares                                      257,208,894        398,304,925
- ------------------------------------------------------------
Net asset value of shares issued to shareholders in payment
  of distributions declared                                        30,445,454         33,750,837
- ------------------------------------------------------------
Cost of shares redeemed                                          (476,432,552)      (742,374,713)
- ------------------------------------------------------------   --------------     --------------
     Change in net assets resulting from share transactions      (188,778,204)      (310,318,951)
- ------------------------------------------------------------   --------------     --------------
          Change in net assets                                    (85,992,951)      (485,233,729)
- ------------------------------------------------------------
NET ASSETS:
- ------------------------------------------------------------
Beginning of period                                             1,562,500,571      2,047,734,300
- ------------------------------------------------------------   --------------     --------------
End of period                                                  $1,476,507,620     $1,562,500,571
- ------------------------------------------------------------   --------------     --------------
</TABLE>

    

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


   
FEDERATED GNMA TRUST
    

   
STATEMENT OF CASH FLOWS
    
   
YEAR ENDED JANUARY 31, 1996
    
- --------------------------------------------------------------------------------

   
<TABLE>
<S>                                                                             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- -----------------------------------------------------------------------------
Net increase in net assets resulting from operations                            $ 210,778,867
- -----------------------------------------------------------------------------
  ADJUSTMENTS TO RECONCILE NET INCREASE IN NET ASSETS FROM
  OPERATIONS TO CASH PROVIDED BY OPERATING ACTIVITIES:
- -----------------------------------------------------------------------------
  Net decrease in investments (including $88,242,539 increase in
  unrealized appreciation)                                                         38,176,738
- -----------------------------------------------------------------------------
  Decrease in income receivable                                                     1,697,481
- -----------------------------------------------------------------------------
  Increase in receivable for investments sold                                     (15,176,209)
- -----------------------------------------------------------------------------
  Increase in payable for investments purchased                                    28,157,908
- -----------------------------------------------------------------------------
  Increase in accrued expenses                                                        238,589
- -----------------------------------------------------------------------------
  Increase in payable to bank                                                         580,063
- -----------------------------------------------------------------------------   -------------
     Cash provided by operating activities                                        264,453,437
- -----------------------------------------------------------------------------   -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
- -----------------------------------------------------------------------------
Net proceeds from the sale of shares                                              255,982,797
- -----------------------------------------------------------------------------
Net cost of shares redeemed                                                      (477,164,652)
- -----------------------------------------------------------------------------
Increase on payable for dollar roll transactions                                   35,844,772
- -----------------------------------------------------------------------------
Distributions paid                                                                (79,119,452)
- -----------------------------------------------------------------------------   -------------
     Cash used in financing activities                                           (264,456,535)
- -----------------------------------------------------------------------------   -------------
Decrease in cash                                                                       (3,098)
- -----------------------------------------------------------------------------   -------------
Cash at beginning of period                                                             3,098
- -----------------------------------------------------------------------------   -------------
Cash at end of period                                                           $           0
- -----------------------------------------------------------------------------   -------------
</TABLE>

    

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


FEDERATED GNMA TRUST

NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1996
- --------------------------------------------------------------------------------

(1) ORGANIZATION

Federated GNMA Trust (the "Trust") is registered under the Investment Company
Act of 1940, as amended (the "Act"), as a diversified, open-end management
investment company. The Trust's objective is to obtain current income by
investing in instruments issued or guaranteed by the Government National
Mortgage Association. The Trust offers two classes of shares: Institutional
Shares and Institutional Service Shares.

(2) SIGNIFICANT ACCOUNTING POLICIES

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

     INVESTMENT VALUATIONS--Short-term securities with remaining maturities of
     sixty days or less at the time of purchase may be valued at amortized cost,
     which approximates fair market value. All other securities are valued at
     prices provided by an independent pricing service.

     REPURCHASE AGREEMENTS--It is the policy of the Trust to require the
     custodian bank 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 Trust 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 Trust will only enter into repurchase agreements with banks and other
     recognized financial institutions, such as broker/dealers, which are deemed
     by the Trust's adviser to be creditworthy pursuant to 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 Trust
     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.

     Income and capital gain distributions are determined in accordance with
     income tax regulations which may differ from generally accepted accounting
     principles. These differences are primarily


FEDERATED GNMA TRUST
- --------------------------------------------------------------------------------
     due to differing treatments for expiring capital loss carryforwards. The
     following reclassifications have been made to the financial statements.
<TABLE>
<CAPTION>
          INCREASE (DECREASE)
- ----------------------------------------
                         ACCUMULATED
 PAID-IN CAPITAL      NET REALIZED LOSS
- -----------------    -------------------
<S>                  <C>
  ($31,912,913)         ($31,912,913)
</TABLE>


     Net investment income, net realized gains/losses, and net assets were not
     affected by this reclassification.

     FEDERAL TAXES--It is the Trust'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.

   
     At January 31, 1996, the Trust, for federal tax purposes, had a capital
     loss carryforward of $145,448,348, which will reduce the Trust's taxable
     income arising from future net realized gain on investments, if any, to the
     extent permitted by the Code, and thus will reduce the amount of the
     distributions to shareholders which would otherwise be necessary to relieve
     the Trust of any liability for federal tax. Pursuant to the Code, such
     capital loss carryforward will expire as follows:
    
<TABLE>
<CAPTION>
                           EXPIRATION YEAR                   EXPIRATION AMOUNT
            ---------------------------------------------    ------------------
            <S>                                              <C>
                                1997                            $ 18,028,171
                                1998                            $ 14,893,518
                                1999                            $ 13,784,245
                                2001                            $  5,182,436
                                2003                            $ 71,738,355
                                2004                            $ 21,821,623
</TABLE>


     WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Trust may engage in
     when-issued or delayed delivery transactions. The Trust 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.

     DOLLAR ROLL TRANSACTIONS--The Trust enters into dollar roll transactions,
     with respect to mortgage securities issued by GNMA in which the Trust sells
     mortgage securities to financial institutions and simultaneously agrees to
     accept substantially similar (same type, coupon and maturity) securities at
     a later date at an agreed upon price. Dollar roll transactions are
     short-term financing arrangements which will not exceed twelve months. The
     Trust will use the proceeds generated from the transactions to invest in
     short-term investments, which may enhance the Trust's current yield and
     total return.

   
     STATEMENT OF CASH FLOWS--Information on financial transactions which have
     been settled through the receipt or disbursement of cash is presented in
     the Trust's Statement of Cash Flows.
    


FEDERATED GNMA TRUST
- --------------------------------------------------------------------------------

   
     The cash amount shown in the Statement of Cash Flows is the amount reported
     as cash in the Trust's Statement of Assets and Liabilities which does not
     include any short-term investments at January 31, 1996.
    

     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.

(3) SHARES OF BENEFICIAL INTEREST

The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. Transactions in shares were as follows:

   
<TABLE>
<CAPTION>
                                                          YEAR ENDED JANUARY 31,
                                       -------------------------------------------------------------
                                                   1996                             1995
                                       ----------------------------     ----------------------------
        INSTITUTIONAL SHARES             SHARES          AMOUNT           SHARES          AMOUNT
- ------------------------------------   -----------    -------------     -----------    -------------
<S>                                    <C>            <C>               <C>            <C>
Shares sold                             21,399,885    $ 236,718,872      33,458,790    $ 365,277,979
- ------------------------------------
Shares issued to shareholders in
payment of distributions declared        2,212,467       24,540,300       2,556,101       27,566,855
- ------------------------------------
Shares redeemed                        (40,178,059)    (445,126,223)    (64,291,288)    (698,723,436)
- ------------------------------------   -----------    -------------     -----------    -------------
  Net change resulting from
  Institutional Shares share
  transactions                         (16,565,707)   ($183,867,051)    (28,276,397)   ($305,878,602)
- ------------------------------------   -----------    -------------     -----------    -------------
</TABLE>

    


FEDERATED GNMA TRUST
- --------------------------------------------------------------------------------

   
<TABLE>
<CAPTION>
                                                          YEAR ENDED JANUARY 31,
                                       -------------------------------------------------------------
                                                   1996                             1995
                                       ----------------------------     ----------------------------
    INSTITUTIONAL SERVICE SHARES         SHARES          AMOUNT           SHARES          AMOUNT
- ------------------------------------   -----------    -------------     -----------    -------------
<S>                                    <C>            <C>               <C>            <C>
Shares sold                              1,850,765    $  20,490,022       3,007,210    $  33,026,946
- ------------------------------------
Shares issued to shareholders in
payment of distributions declared          532,433        5,905,154         573,520        6,183,982
- ------------------------------------
Shares redeemed                         (2,828,872)     (31,306,329)     (4,025,344)     (43,651,277)
- ------------------------------------   -----------    -------------     -----------    -------------
  Net change resulting from
  Institutional Service Shares share
  transactions                            (445,674)   ($  4,911,153)       (444,614)   ($  4,440,349)
- ------------------------------------   -----------    -------------     -----------    -------------
     Net change resulting from share
     transactions                      (17,011,381)   ($188,778,204)    (28,721,011)   ($310,318,951)
- ------------------------------------   -----------    -------------     -----------    -------------
</TABLE>

    

(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

INVESTMENT ADVISORY FEE--Federated Management, the Trust's investment adviser,
(the "Adviser"), receives for its services an annual investment advisory fee
equal to .40 of 1% of the Trust's average daily net assets.

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

DISTRIBUTION SERVICES FEE--The Trust has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the
Trust will compensate Federated Securities Corp.("FSC"), the principal
distributor, from the net assets of the Trust to finance activities intended to
result in the sale of the Trust's Institutional Service Shares. The Plan
provides that the Trust may incur distribution expenses up to .25 of 1% of the
average daily net assets of the Institutional Service Shares, annually, to
compensate FSC. The distributor may voluntarily choose to waive any portion of
its fee. The distributor can modify or terminate this voluntary waiver at any
time at its sole discretion.

SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Trust will pay FSS up to .25 of
1% of average daily net assets of the Trust shares for the period. This fee is
to obtain certain services for shareholders and to maintain shareholder
accounts. FSS may voluntarily choose to waive any portion of its fee. FSS can
modify or terminate this voluntary waiver at any time at its sole discretion.

   
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES--FServ, through its registered
transfer and dividend disbursing agent, Federated Shareholder Services Company,
maintains all necessary share-
    


FEDERATED GNMA TRUST
- --------------------------------------------------------------------------------

   
holder records and receives a fee based on the size, type, and number of
accounts and transactions made by shareholders.
    

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

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

(5) INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding short-term securities, for the
period ended January 31, 1996, were as follows:
<TABLE>
<S>                                                                              <C>
- ------------------------------------------------------------------------------
PURCHASES--                                                                      $657,675,766
- ------------------------------------------------------------------------------   ------------
SALES--                                                                          $691,719,332
- ------------------------------------------------------------------------------   ------------
</TABLE>



INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------

To the Trustees and Shareholders of

FEDERATED GNMA TRUST:

   
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Federated GNMA Trust as of January 31, 1996,
and the related statements of operations and cash flows for the year then ended,
the statements of changes in net assets for the years ended January 31, 1996 and
1995, and the financial highlights (see pages 2 and 15 of the prospectus) for
the periods presented. These financial statements and financial highlights are
the responsibility of the Trust's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
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 the securities owned at
January 31, 1996 by correspondence with the custodian and brokers; where replies
were not received from brokers, we performed other auditing procedures. 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, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Federated GNMA Trust
as of January 31, 1996, the results of its operations and its cash flows, the
changes in its net assets and its financial highlights for the respective stated
periods in conformity with generally accepted accounting principles.
    

DELOITTE & TOUCHE LLP

Pittsburgh, Pennsylvania
   
March 15, 1996
    


ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S>             <C>                                          <C>
Federated GNMA Trust
                Institutional Shares                         Federated Investors Tower
                                                             Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Distributor
                Federated Securities Corp.                   Federated Investors Tower
                                                             Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Investment Adviser
                Federated Management                         Federated Investors Tower
                                                             Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Custodian
                State Street Bank and                        P.O. Box 8602
                Trust Company                                Boston, Massachusetts 02266-8602
- ------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
                Federated Shareholder Services Company       Federated Investors Tower
                                                             Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Independent Auditors
                Deloitte & Touche LLP                        2500 PPG Place
                                                             Pittsburgh, Pennsylvania 15222-5401
- ------------------------------------------------------------------------------------------------
</TABLE>



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

- --------------------------------------------------------------------------------
                                            FEDERATED GNMA TRUST
                                            INSTITUTIONAL SHARES
                                            PROSPECTUS

                                            An Open-End, Diversified
                                            Management Investment Company

                                            March 31, 1996

LOGO
FEDERATED SECURITIES CORP.
- --------------------------------------------------------------------------------
Distributor

A Subsidiary of Federated Investors

Federated Investors Tower
Pittsburgh, PA 15222-3779

Cusip 314184102
   
8022901A-IS (3/96)
    
                            FEDERATED GNMA TRUST
                            INSTITUTIONAL SHARES
                        INSTITUTIONAL SERVICE SHARES
                     STATEMENT OF ADDITIONAL INFORMATION
      The Institutional Shares and Institutional Service Shares of Federated
   GNMA Trust (the "Trust") represent interests in a diversified portfolio of
   securities.  This Statement of Additional Information should be read with
   the respective prospectus for Institutional Shares and Institutional
   Service Shares dated March 31, 1996. This Statement is not a prospectus
   itself. You may request a copy of a prospectus or a paper copy of this
   Statement of Additional Information, if you have received it
   electronically, free of charge by calling 1-800-235-4669.
   FEDERATED INVESTORS TOWER
   PITTSBURGH, PENNSYLVANIA 15222-3779

                       Statement dated March 31, 1996    


FEDERATED SECURITIES CORP.

Distributor
A subsidiary of Federated Investors


GENERAL INFORMATION ABOUT THE TRUST     3
INVESTMENT OBJECTIVE AND POLICIES  3
 TYPES OF INVESTMENTS          3
 WHEN-ISSUED AND DELAYED DELIVERY
   TRANSACTIONS                4
 LENDING OF PORTFOLIO SECURITIES   4
 REPURCHASE AGREEMENTS         5
 REVERSE REPURCHASE AGREEMENTS 5
 PORTFOLIO TURNOVER            6
 INVESTMENT LIMITATIONS        6
FEDERATED GNMA TRUST MANAGEMENT10
 TRUST OWNERSHIP              18
 TRUSTEES COMPENSATION        19
 TRUSTEE LIABILITY            20
INVESTMENT ADVISORY SERVICES  21
 ADVISER TO THE TRUST         21
 ADVISORY FEES                21
 OTHER ADVISORY SERVICES      22
BROKERAGE TRANSACTIONS        22
OTHER SERVICES                23
 TRUST ADMINISTRATION         23
 CUSTODIAN AND PORTFOLIO RECORDKEEPER   24
 TRANSFER AGENT               24
 INDEPENDENT AUDITORS         24
PURCHASING SHARES             24
 DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
                              25
 CONVERSION TO FEDERAL FUNDS  26
DETERMINING NET ASSET VALUE   26


REDEEMING SHARES              26
MASSACHUSETTS PARTNERSHIP LAW 27
EXCHANGING SECURITIES FOR SHARES27
 TAX CONSEQUENCES             28
TAX STATUS                    28
 THE TRUST'S TAX STATUS       28
 SHAREHOLDERS' TAX STATUS     29
TOTAL RETURN                  29
YIELD                         30
PERFORMANCE COMPARISONS       30
 DURATION                     33
ABOUT FEDERATED INVESTORS     33
 MUTUAL FUND MARKET           34
 INSTITUTIONAL CLIENTS        34
 TRUST ORGANIZATIONS          34
 BROKER/DEALERS AND BANK BROKER/DEALER
 SUBSIDIARIES                 34


GENERAL INFORMATION ABOUT THE TRUST

Federated GNMA Trust was established as a Massachusetts business trust under
a Declaration of Trust dated December 10, 1981.
Shares of the Trust are offered in two classes, known as Institutional Shares
and Institutional Service Shares (individually and collectively referred to
as "Shares"). This Statement of Additional Information relates to the above-
mentioned Shares of the Trust.
INVESTMENT OBJECTIVE AND POLICIES

The Trust's investment objective is current income. The investment objective
cannot be changed without approval of shareholders.
TYPES OF INVESTMENTS
The Trust will invest primarily in mortgage-backed securities. Under normal
circumstances, at least 65% of the Trust's portfolio will be invested in
instruments issued or fully guaranteed as to principal and interest by the
Government National Mortgage Association ("GNMA"). In addition, to the extent
that the Trust will invest in other mortgage-backed securities, these will be
collateralized by GNMA obligations.
Because the mortgages underlying mortgage-backed securities often may be
prepaid without penalty or premium, mortgage-backed securities are generally
subject to higher prepayment risks than most other types of debt instruments.
Prepayment risks on mortgage securities tend to increase during periods of
declining mortgage interest rates, because many borrowers refinance their
mortgages to take advantage of the more favorable rates. Depending upon
market conditions, the yield that the Trust receives from the reinvestment of
such prepayments, or any scheduled principal payments, may be lower than the
yield on the original mortgage security. As a consequence, mortgage
securities may be a less effective means of "locking in" interest rates than
other types of debt securities having the same stated maturity and may also


have less potential for capital appreciation. For certain types of asset
pools, such as collateralized mortgage obligations, prepayments may be
allocated to one tranche of securities ahead of other tranches, in order to
reduce the risk of prepayment for the other tranches.
Prepayments may result in a capital loss to the Trust to the extent that the
prepaid mortgage securities were purchased at a market premium over their
stated principal amount. Conversely, the prepayment of mortgage securities
purchased at a market discount from their stated principal amount will
accelerate the recognition of interest income by the Trust, which would be
taxed as ordinary income when distributed to the shareholders.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price or yield for the Trust.  Settlement dates may be a month
or more after entering into these transactions, and the market values of the
securities purchased may vary from the purchase prices.  No fees or other
expenses, other than normal transaction costs, are incurred.  However, liquid
assets of the Trust sufficient to make payment for the securities to be
purchased are segregated on the Trust's records at the trade date.  These
assets are marked to market daily and are maintained until the transaction
has been settled.  The Trust does not intend to engage in when-issued and
delayed delivery transactions to an extent that would cause the segregation
of more than 20% of the total value of its assets.
LENDING OF PORTFOLIO SECURITIES
The collateral received when the Trust lends portfolio securities must be
valued daily and, should the market value of the loaned securities increase,
the borrower must furnish additional collateral to the Trust.  During the
time portfolio securities are on loan, the borrower pays the Trust any
dividends or interest paid on such securities.  Loans are subject to
termination at the option of the Trust or the borrower.  The Trust may pay


reasonable administrative and custodial fees in connection with a loan and
may pay a negotiated portion of the interest earned on the cash or equivalent
collateral to the borrower or placing broker.
REPURCHASE AGREEMENTS
The Trust requires its custodian to take possession of the securities subject
to repurchase agreements, and these securities are marked to market daily. To
the extent that the original seller does not repurchase the securities from
the Trust, the Trust could receive less than the repurchase price on any sale
of such securities. In the event that such a defaulting seller filed for
bankruptcy or became insolvent, disposition of such securities by the Trust
might be delayed pending court action. The Trust believes that under the
regular procedures normally in effect for custody of the Trust's portfolio
securities subject to repurchase agreements, a court of competent
jurisdiction would rule in favor of the Trust and allow retention or
disposition of such securities. The Trust will only enter into repurchase
agreements with banks and other recognized financial institutions such as
broker/dealers which are deemed by the Trust's adviser to be creditworthy
pursuant to guidelines established by the Board of Trustees ("Trustees").
REVERSE REPURCHASE AGREEMENTS
The Trust may also enter into reverse repurchase agreements. These
transactions are similar to borrowing cash. In a reverse repurchase agreement
the Trust transfers possession of a portfolio instrument to another person,
such as a financial institution, broker, or dealer, in return for a
percentage of the instrument's market value in cash, and agrees that on a
stipulated date in the future the Trust will repurchase the portfolio
instrument by remitting the original consideration plus interest at an agreed
upon rate.
When effecting reverse repurchase agreements, liquid assets of the Trust, in
a dollar amount sufficient to make payment for the obligations to be


purchased, are segregated at the trade date. These securities are marked to
market daily and maintained until the transaction is settled.
The use of reverse repurchase agreements may enable the Trust to avoid
selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but the ability to enter into reverse repurchase agreements
does not ensure that the Trust will be able to avoid selling portfolio
instruments at a disadvantageous time.
PORTFOLIO TURNOVER
The Trust will not attempt to set or meet a portfolio turnover rate since any
turnover would be incidental to transactions undertaken in an attempt to
achieve the Trust's investment objective. During the fiscal years ended
January 31, 1996 and 1995, the portfolio turnover rates were 43% and 136%,
respectively.
INVESTMENT LIMITATIONS
  SELLING SHORT AND BUYING ON MARGIN
     The Trust will not sell any securities short or purchase any securities
     on margin, but may obtain such short-term credits as may be necessary
     for clearance of purchases and sales of portfolio securities.
  BORROWING MONEY
     The Trust will not borrow money directly or through reverse repurchase
     agreements in amounts in excess of one-third of the value of its assets,
     including the amounts borrowed.
     The Trust will not borrow money or engage in reverse repurchase
     agreements for investment leverage, but rather as a temporary,
     extraordinary or emergency measure or to facilitate management of the
     portfolio by enabling the Trust to meet redemption requests when the
     liquidation of portfolio securities is deemed to be inconvenient or
     disadvantageous. The Trust will not purchase any securities while


     borrowings in excess of 5% of the value of its total assets are
     outstanding.
  ISSUING SENIOR SECURITIES
     The Trust will not issue senior securities except as permitted by its
     investment objective and policies.
  PLEDGING ASSETS
     The Trust will not mortgage, pledge, or hypothecate any assets except to
     secure permitted borrowings. In those cases, it may mortgage, pledge, or
     hypothecate assets having a market value not exceeding the lesser of the
     dollar amount borrowed or 10% of the value of total assets at the time
     of the borrowing.
  LENDING CASH OR SECURITIES
     The Trust will not lend any of its assets, except portfolio securities
     up to one-third of the value of its total assets. This shall not prevent
     the Trust from purchasing or holding U.S. government obligations, money
     market instruments, bonds, debentures, notes, certificates of
     indebtedness or other debt securities, entering into repurchase
     agreements, or engaging in other transactions where permitted by the
     Trust's investment objective, policies and limitations.
  DIVERSIFICATION OF INVESTMENTS
     With respect to securities comprising 75% of the value of its total
     assets, the Trust will not purchase securities of 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 U.S. government securities) if
     as a result more than 5% of the value of its total assets would be
     invested in the securities of that issuer.


  INVESTING IN REAL ESTATE
     The Trust will not buy or sell real estate, including limited
     partnership interests in real estate, although it may invest in
     securities of companies whose business involves the purchase or sale of
     real estate or in securities which are secured by real estate or
     interests in real estate.
  INVESTING IN COMMODITIES
     The Trust will not purchase or sell commodities.
  UNDERWRITING
     The Trust will not underwrite any issue of securities, except as it may
     be deemed to be an underwriter under the Securities Act of 1933 in
     connection with the sale of restricted securities which the Trust may
     purchase pursuant to its investment objective, policies, and
     limitations.
The above investment limitations cannot be changed without shareholder
approval. The following limitations, however, may be changed by the Trustees
without shareholder approval. Shareholders will be notified before any
material change in these limitations becomes effective.
  INVESTING IN NEW ISSUERS
     The Trust will not invest more than 5% of the value of its total assets
     in securities of issuers which have records of less than three years of
     operating history, including the operation of any predecessor. (This
     limitation does not apply to issuers of CMOs or REMICs which are
     collateralized by securities or mortgages issued or guaranteed as to
     prompt payment of principal and interest by an agency of the U.S.
     government).


  INVESTING IN MINERALS
     The Trust will not purchase or sell oil, gas, or other mineral
     exploration or development programs or leases, although it may purchase
     the securities of issuers which invest or sponsor such programs.
  INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF
  THE TRUST
     The Trust will not purchase or retain the securities of any issuer if
     the officers and Trustees of the Trust's investment adviser owning
     individually more than 1/2 of 1% of the issuer's securities together own
     more than 5% of the issuer's securities.
  INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
     The Trust may not own securities of open-end investment companies. The
     Trust can acquire up to 3% of the total outstanding stock of closed-end
     investment companies. The Trust will not be subject to any other
     limitations with regard to the acquisition of securities of closed-end
     investment companies so long as the public offering price of the Trust's
     shares does not include a sales charge  exceeding 1 1/2%. The Trust will
     purchase securities of closed-end investment companies only in open-
     market transactions involving only customary broker's commissions.
     However, these limitations are not applicable if the securities are
     acquired in a merger, consolidation, or acquisition of assets; nor are
     they applicable with respect to securities of investment companies that
     have been exempted from registration under the Investment Company Act of
     1940.
  INVESTING IN ILLIQUID SECURITIES
     The Trust will not invest more than 15% of the value of its net assets
     in illiquid securities, including repurchase agreements providing for
     settlement in more than seven days after notice, and certain restricted
     securities not determined by the Trustees to be liquid.


Except with respect to borrowing money, if a percentage limitation is adhered
to at the time of investment, a later increase or decrease in percentage
resulting from any change in value or net assets will not result in a
violation of such restriction.
For the purposes of its policies and limitations, the Trust considers
certificates of deposit and demand and time deposits issued by a U.S. branch
of a domestic bank or savings and loan having capital, surplus and undivided
profits in excess of $100,000,000 at the time of investment to be "cash
items."

   
FEDERATED GNMA TRUST MANAGEMENT

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


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


Thomas G. Bigley


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


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


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


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



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


Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate:  October 11, 1932
Trustee
Professor of Medicine and Member, Board of Trustees, University of
Pittsburgh; Medical Director, University of Pittsburgh Medical Center -
Downtown; Member, Board of Directors, University of Pittsburgh Medical
Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian and
Montefiore Hospitals; Director or Trustee of the Funds.


Edward L. Flaherty, Jr.@
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674


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


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


Gregor F. Meyer
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate:  October 6, 1926
Trustee
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee
of the Funds.




John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate:  December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director or Trustee of the Funds.


Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate:  September 14, 1925
Trustee
Professor, International Politics and Management Consultant; Trustee,
Carnegie Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Management
Center; Director or Trustee of the Funds; President Emeritus, University of
Pittsburgh; founding Chairman, National Advisory Council for Environmental
Policy and Technology and Federal Emergency Management Advisory Board.


Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate:  June 21, 1935
Trustee


Public relations/marketing consultant; Conference Coordinator, Non-profit
entities; Director or Trustee of the Funds.


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


J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate:  April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Trustee  of the Trust.



Edward C. Gonzales


Federated Investors Tower
Pittsburgh, PA
Birthdate:  October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp. and Passport Research, Ltd.;
Executive Vice President and Director, Federated Securities Corp.; Trustee,
Federated Shareholder Services Company; Trustee or Director of some of the
Funds; President, Executive Vice President and Treasurer of some of the
Funds.


 John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate:  October 26, 1938
Executive Vice President and Secretary
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated Research;
Director, Federated Research Corp. and Federated Global Research Corp.;
Trustee, Federated Shareholder Services Company; Director, Federated Services
Company; President and Trustee, Federated Shareholder Services; Director,
Federated Securities Corp.; Executive Vice President and Secretary of the
Funds.


Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA


Birthdate:  May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of
the Funds; Director or Trustee of some of the Funds.


David M. Taylor
Federated Investors Tower
Pittsburgh, PA
Birthdate:  January 13, 1947
Treasurer
Senior Vice President and Trustee, Federated Investors; Vice President,
Federated Shareholder Services; Executive Vice President, Federated
Securities Corp.; Treasurer of some of the Funds.


* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.
@ Member of the Executive Committee. The Executive Committee of the Board of
Trustees handles the responsibilities of the Board between meetings of the
Board.


As used in the table above, "The Funds" and "Funds" mean the following
investment companies: American Leaders Fund, Inc.; Annuity Management Series;
Arrow Funds; Automated Government Money Trust; BayFunds;  The Biltmore Funds;
The Biltmore Municipal Funds; Blanchard Funds; Blanchard Precious Metals
Fund, Inc.; Cash Trust Series, Inc.; Cash Trust Series II; DG Investor
Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated ARMs Fund;


Federated Equity Funds; Federated GNMA Trust; Federated Government Trust;
Federated High Yield Trust; Federated Income Securities Trust; Federated
Income Trust; Federated Index Trust; Federated Institutional Trust; Federated
Master Trust; Federated Municipal Trust; Federated Short-Term Municipal
Trust; Federated Short-Term U.S. Government Trust; Federated Stock Trust;
Federated Tax-Free Trust; Federated Total Return Series, Inc.; Federated U.S.
Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years;
Federated U.S. Government Securities Fund: 3-5 Years; Federated
U.S. Government Securities Fund: 5-10 Years;First Priority Funds; Fixed
Income Securities, Inc.; Fortress Adjustable Rate U.S. Government Fund, Inc.;
Fortress Municipal Income Fund, Inc.; Fortress Utility Fund, Inc.; Fund for
U.S. Government Securities, Inc.; Government Income Securities, Inc.; High
Yield Cash Trust; Independence One Mutual Funds; Insurance Management Series;
Intermediate Municipal Trust; International Series Inc.; Investment Series
Funds, Inc.; Investment Series Trust; Liberty Equity Income Fund, Inc.;
Liberty High Income Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.;
Liberty U.S. Government Money Market Trust; Liberty Term Trust, Inc. - 1999;
Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed Series Trust; Marshall
Funds, Inc.; Money Market Management, Inc.; Money Market Obligations Trust;
Money Market Trust; The Monitor Funds; Municipal Securities Income Trust;
Newpoint Funds; 111 Corcoran Funds; Peachtree Funds; The Planters Funds;
RIMCO Monument Funds; SouthTrust Vulcan Funds; Star Funds; The Starburst
Funds; The Starburst Funds II; Stock and Bond Fund, Inc.; Targeted Duration
Trust; Tax-Free Instruments Trust; Tower Mutual Funds; Trust for Financial
Institutions; Trust for Government Cash Reserves; Trust for Short-Term U.S.
Government Securities; Trust for U.S. Treasury Obligations; The Virtus Funds;
Vision Group of Funds, Inc.; and World Investment Series, Inc.
TRUST OWNERSHIP
Officers and Trustees own less than 1% of the Trust's outstanding shares.


As of March 6, 1996, the following shareholders of record owned 5% or more of
the outstanding Institutional Service Shares of the Trust. Charles Schwab &
Co., Inc., San Francisco, California, owned approximately 792,465 Shares
(7.23%); Trucojo Trust Company of St. Joseph, St. Joseph, Missouri, owned
approximately 1,150,208 Shares (10.49%); and The Bank of Guam, Agana, Guam,
owned approximately 1,114,989 Shares (10.17%).
As of March 6, 1996, there were no shareholders of record who owned 5% or
more of the outstanding Institutional Shares of the Trust.


TRUSTEES COMPENSATION


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



John F. Donahue  $ 0       $0 for the Trust  and
Trustee                    54 other investment companies in the Fund Complex
Thomas G. Bigley++         $ 2,264 $86,331 for the Trust  and
Trustee                    54 other investment companies in the Fund Complex
John T. Conroy   $ 2,408   $115,760 for the Trust  and
Trustee                    54 other investment companies in the Fund Complex
William J. Copeland        $ 2,408 $115,760 for the Trust and
Trustee                    54 other investment companies in the Fund Complex
James E. Dowd    $ 2,408   $115,760 for the Trust and
Trustee                    54 other investment companies in the Fund Complex


Lawrence D. Ellis$ 2,264   $104,898 for the Trust and
Trustee                    54 other investment companies in the Fund Complex
Edward L. Flaherty         $ 2,408 $115,760 for the Trust and
Trustee                    54 other investment companies in the Fund Complex
Peter E. Madden  $ 2,264   $104,898 for the Trust and
Trustee                    54 other investment companies in the Fund Complex
Gregor F. Meyer  $ 2,264   $104,898 for the Trust and
Trustee                    54 other investment companies in the Fund Complex
John Murray      $ 2,264   $104,898 for the Trust and
Trustee                    54  other investment companies in the Fund Complex
Wesley W. Posvar $ 2,264   $104,898 for the Trust and
Trustee                    54 other investment companies in the Fund Complex
Marjorie P. Smuts$ 2,264   $104,898 for the Trust and
Trustee                    54 other investment companies in the Fund Complex


*Information is furnished for the fiscal year ended January 31, 1996.
++Mr. Bigley served on 39 investment companies in the Federated Funds Complex
from January 1 through September 30, 1995. On October 1, 1995, he was
appointed a Trustee on 15 additional Federated Funds.    


TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law. However, they are
not protected against any liability to which they would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.


INVESTMENT ADVISORY SERVICES

ADVISER TO THE TRUST
The Trust's investment adviser is Federated Management.  It is a subsidiary
of Federated Investors.  All of the voting securities of Federated Investors
are owned by a trust, the trustees of which are John F. Donahue, his wife,
and his son, J. Christopher Donahue.
The adviser shall not be liable to the Trust or any shareholder of the Trust
for any losses that may be sustained in the purchase, holding, or sale of any
security, or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
ADVISORY FEES
For its advisory services, Federated Management receives an annual investment
advisory fee as described in the prospectuses. During the fiscal years ended
January 31, 1996, 1995, and 1994, the Trust's adviser earned $6,160,922,
$6,989,013, and $8,180,174, respectively.
  STATE EXPENSE LIMITATIONS
     The adviser has undertaken to comply with the expense limitations
     established by certain states for investment companies whose shares are
     registered for sale in those states. If the Trust's normal operating
     expenses (including the investment advisory fee, but not including
     brokerage commissions, interest, taxes, and extraordinary expenses)
     exceed 2 1/2% per year of the first $30 million of average net assets,
     2% per year of the next $70 million of average net assets, and 1 1/2%
     per year of the remaining average net assets, the adviser will reimburse
     the Trust for its expenses over the limitation.
     If the Trust's monthly projected operating expenses exceed this
     limitation, the investment advisory fee paid will be reduced by the


     amount of the excess, subject to an annual adjustment. If the expense
     limitation is exceeded, the amount to be reimbursed will be limited, in
     any single fiscal year, by the amount of the investment advisory fee.
     This arrangement is not part of the advisory contract and may be amended
     or rescinded in the future.
OTHER ADVISORY SERVICES
Federated Research Corp. receives fees from certain depository institutions
for providing consulting and portfolio advisory services relating to each
institution's program of asset management. Federated Research Corp. may
advise such clients to purchase or redeem shares of investment companies,
such as the Trust, which are managed, for a fee, by Federated Research Corp.
or other affiliates of Federated Investors, such as the adviser, and may
advise such clients to purchase and sell securities in the direct markets.
Further, Federated Research Corp., and other affiliates of the adviser may,
from time to time, provide certain consulting services and equipment to
depository institutions in order to facilitate the purchase of shares of
funds offered by Federated Securities Corp.
BROKERAGE TRANSACTIONS

When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the adviser looks for prompt execution of the order at
a favorable price. In working with dealers, the adviser will generally use
those who are recognized dealers in specific portfolio instruments, except
when a better price and execution of the order can be obtained elsewhere. The
adviser makes decisions on portfolio transactions and selects brokers and
dealers subject to guidelines established by the Trustees. The adviser may
select brokers and dealers who offer brokerage and research services. These
services may be furnished directly to the Trust or to the adviser and may
include: advice as to the advisability of investing in securities; security


analysis and reports; economic studies; industry studies; receipt of
quotations for portfolio evaluations; and similar services. Research services
provided by brokers and dealers may be used by the adviser or its affiliates
in advising the Trust and other accounts. To the extent that receipt of these
services may supplant services for which the adviser or its affiliates might
otherwise have paid, it would tend to reduce their expenses. The adviser and
its affiliates exercise reasonable business judgment in selecting brokers who
offer brokerage and research services to execute securities transactions.
They determine in good faith that commissions charged by such persons are
reasonable in relationship to the value of the brokerage and research
services provided.
Although investment decisions for the Trust are made independently from those
of the other accounts managed by the adviser, investments of the type the
Trust may make may also be made by those other accounts. When the Trust and
one or more other accounts managed by the adviser are prepared to invest in,
or desire to dispose of, the same security, available investments or
opportunities for sales will be allocated in a manner believed by the adviser
to be equitable to each. In some cases, this procedure may adversely affect
the price paid or received by the Trust or the size of the position obtained
or disposed of by the Trust. In other cases, however, it is believed that
coordination and the ability to participate in volume transactions will be to
the benefit of the Trust.
   OTHER SERVICES

TRUST ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Trust for a fee as described in
the prospectuses. From March 1, 1994, to March 1, 1996, Federated
Administrative Services served as the Trust's administrator. Prior to March


1, 1994, Federated Administrative Services, Inc. served as the Trust's
Administrator. Both former Administrators are subsidiaries of Federated
Investors. For purposes of this Statement of Additional Information,
Federated Services Company, Federated Administrative Services, and Federated
Administrative Services, Inc., may hereinafter collectively be referred to as
the Administrators.
For the fiscal year ended January 31, 1996, the Administrators  earned
$1,165,702. For the fiscal years ended January 31, 1995 and 1994, the
Administrators earned $1,317,794  and $1,316,655.
CUSTODIAN AND PORTFOLIO RECORDKEEPER
State Street Bank and Trust Company ("State Street Bank"), Boston,
Massachusetts, is custodian for the securities and cash of the Trust. It also
provides certain accounting and recordkeeping services with respect to the
Trust's portfolio investments.
TRANSFER AGENT
Federated Services Company, through it registered transfer agent, Federated
Shareholder Services Company, maintains all necessary shareholder records and
receives a fee based on the size, type and number of accounts and
transactions made by shareholders.
INDEPENDENT AUDITORS
The independent auditors for the Trust are Deloitte & Touche LLP, Pittsburgh,
Pennsylvania.    
PURCHASING SHARES

Shares are sold at their net asset value without a sales charge on days the
New York Stock Exchange and the Federal Reserve wire system are open for
business. The procedure for purchasing Shares is explained in the respective
prospectus under "Investing in Institutional Shares" or "Investing in
Institutional Service Shares."


DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
These arrangements permit the payment of fees to financial institutions, the
distributor, and Federated Shareholder Services, to stimulate distribution
activities and to cause services to be provided to shareholders by a
representative who has knowledge of the shareholder's particular
circumstances and goals. These activities and services may include, but are
not limited to, marketing efforts; providing office space, equipment,
telephone facilities, and various clerical, supervisory, computer, and other
personnel as necessary or beneficial to establish and maintain shareholder
accounts and records; processing purchase and redemption transactions and
automatic investments of client account cash balances; answering routine
client inquiries; and assisting clients in changing dividend options, account
designations, and addresses.
With respect to the Institutional Service Shares class of the Trust, by
adopting the Distribution Plan, the Board of Trustees expects that the Trust
will be able to achieve a more predictable flow of cash for investment
purposes and to meet redemptions. This will facilitate more efficient
portfolio management and assist the Trust in pursuing its investment
objectives. By identifying potential investors whose needs are served by the
Trust's objectives, and properly servicing these accounts, it may be possible
to curb sharp fluctuations in rates of redemptions and sales.
Other benefits, which may be realized under either arrangement, may include:
(1) providing personal services to shareholders; (2) investing shareholder
assets with a minimum of delay and administrative detail; (3) enhancing
shareholder recordkeeping systems; and (4) responding promptly to
shareholders' requests and inquiries concerning their accounts.
   For the fiscal period ending January 31, 1996 and 1995, payments in the
amount of $306,186  and $317,246 were made pursuant to the Distribution Plan
(Institutional Service Shares only) of which $289,939 and $172,503,


respectively, was waived. In addition, for the fiscal year ended January 31,
1996, the Trust paid shareholder service fees in the amount of $3,850,324 of
which $2,851,706 was waived.    
CONVERSION TO FEDERAL FUNDS
It is the Trust's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be
in federal funds or be converted into federal funds.  State Street Bank acts
as the shareholder's agent in depositing checks and converting them to
federal funds.
DETERMINING NET ASSET VALUE

Net asset value generally changes each day. The days on which the net asset
value for each class of Shares is calculated by the Trust are described in
the respective prospectuses.

DETERMINING MARKET VALUE OF SECURITIES
Market values of the Trust's portfolio securities are determined as follows:
   according to the mean between the over-the-counter bid and asked prices
 provided by an independent pricing     service, if available, or at fair
 value as determined in good faith by the Trustees; or
   for short-term obligations with remaining maturities of 60 days or less
 at the time of purchase, at amortized       cost unless the Trustees
 determine that particular circumstances of the security indicate otherwise.
REDEEMING SHARES

The Trust redeems Shares of either class at the next computed net asset value
after the Trust receives the redemption request. Redemption procedures are
explained in the respective prospectus under "Redeeming Institutional Shares"
or "Redeeming Institutional Service Shares." Although the transfer agent does


not charge for telephone redemptions, it reserves the right to charge a fee
for the cost of wire-transferred redemptions of less than $5,000.
   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 such acts or
obligations of the Trust. These documents require notice of this disclaimer
to be given in each agreement, obligation, or instrument that the Trust or
its Trustees enter into or sign on behalf of the Trust.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required to use its property to protect or
compensate the shareholder. On request, the Trust will defend any claim made
and pay any judgment against a shareholder for any act or obligation of the
Trust. 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 from its assets.    
EXCHANGING SECURITIES FOR SHARES

Investors may exchange certain U.S. government securities they already own
for Shares of either class, or they may exchange a combination of U.S.
government securities and cash for Shares of either class. An investor should
forward the securities in negotiable form with an authorized letter of
transmittal to Federated Securities Corp. specifying whether the investor
will receive Institutional Shares or Institutional Service Shares in
exchange. The Trust will notify the investor of its acceptance and valuation
of the securities within five business days of their receipt by State Street
Bank.


The Trust values securities in the same manner as the Trust values its
assets. The basis of the exchange will depend upon the net asset value of
Shares on the day the securities are valued. One Share will be issued for
each equivalent amount of securities accepted.
Any interest earned on the securities prior to the exchange will be
considered in valuing the securities. All interest, dividends, subscription,
or other rights attached to the securities become the property of the Trust,
along with the securities.
TAX CONSEQUENCES
Exercise of this exchange privilege is treated as a sale for federal income
tax purposes. Depending upon the cost basis of the securities exchanged for
Shares, a gain or loss may be realized by the investor.
TAX STATUS

THE TRUST'S TAX STATUS
The Trust will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment
afforded to such companies. To qualify for this treatment, the Trust must,
among other requirements:
   derive at least 90% of its gross income from dividends, interest, and
   gains from the sale of securities;
   derive less than 30% of its gross income from the sale of securities held
   less than three months;
   invest in securities within certain statutory limits; and
   distribute to its shareholders at least 90% of its net income earned
   during the year.


SHAREHOLDERS' TAX STATUS
   Shareholders are subject to federal income tax on dividends and capital
   gains received as cash or additional Shares. No portion of any income
   dividend paid by the Trust is eligible for the dividends received
   deduction available to corporations. These dividends, and any short-term
   capital gains, are taxable as ordinary income.
  CAPITAL GAINS
   Capital gains distributed to shareholders will be treated as long-term
   capital gains regardless of how long shareholders have held Shares.
TOTAL RETURN

   The Trust's average annual total returns for Institutional Shares for the
one-year and five-year periods ended January 31, 1996, and for the period
from March 23, 1982 (effective date of the Trust's registration statement) to
January 31, 1996 were 14.61%, 8.04%, and 10.86%, respectively. The Trust's
average annual total return for Institutional Service Shares for the one-year
period ended January 31, 1996, and for the period from May 30, 1992 (start of
performance) to January 31, 1996 were 14.39% and 6.59%, respectively.    
The average annual total return for both classes of shares of the Trust 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 offering price per share at the end of
the period. The number of shares owned at the end of the period is based on
the number of shares purchased at the beginning of the period with $1,000,
adjusted over the period by any additional shares, assuming the monthly
reinvestment of all dividends and distributions.


YIELD

   The Trust's yield for Institutional Shares for the thirty-day period ended
January 31, 1996 was 6.91%. The Trust's yield for Institutional Service
Shares was 6.71% for the same period.    
The yield for both classes of shares of the Trust is determined by dividing
the net investment income per share (as defined by the Securities and
Exchange Commission) earned by the respective class of shares over a thirty-
day period by the offering price per share of the respective class on the
last day of the period. This value is then annualized using semi-annual
compounding. This means that the amount of income generated during the
thirty-day period is assumed to be generated each month over a twelve-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by the Trust because of certain adjustments
required by the Securities and Exchange Commission and, therefore, may not
correlate to the dividends or other distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in either
class of shares, the performance will be reduced for those shareholders
paying those fees.
PERFORMANCE COMPARISONS

The performance of both classes of Shares depends upon such variables as:
   portfolio quality;
   average portfolio maturity;
   type of instruments in which the portfolio is invested;
   changes in interest rates and market value of portfolio securities;
   changes in the Trust's expenses or either class of Shares' expenses; and
   various other factors.


Both classes of Shares' performance fluctuates on a daily basis largely
because net earnings and offering price per share fluctuate daily. Both net
earnings and offering price per share are factors in the computation of yield
and total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Trust's performance. When comparing performance,
investors should consider all relevant factors such as the composition of any
index used, prevailing market conditions, portfolio compositions of other
funds, and methods used to value portfolio securities and compute offering
price. The financial publications and/or indices which the Trust uses in
advertising may include:
   LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories
   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
   specified period of time. From time to time, the Trust will quote its
   Lipper ranking in the "GNMA 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.
   SALOMON BROTHERS GNMA 9-11% INDEX, a widely recognized index of
   Government National Mortgage Association mortgage pass-through securities
   in the 9-11% current coupon range. Total return is reported for periods
   of 1 month, 3 months, and 12 months. The index is tracked by Salomon
   Brothers, Inc.


   SALOMON BROTHERS GNMA 30 YEAR INDEX is a total, comprehensive GNMA index
   comprised of 30-year GNMA pass-throughs, 15-year GNMA pass-throughs, and
   GNMA GPM's.
   LEHMAN BROTHERS GOVERNMENT/CORPORATE (TOTAL) INDEX is comprised of
   approximately 5,000 issues which include non-convertible bonds publicly
   issued by the U.S. government or its agencies; corporate bonds guaranteed
   by the U.S. government and quasifederal corporations; and publicly
   issued, fixed rate, nonconvertible domestic bonds of companies in
   industry, public utilities and finance. The average maturity of these
   bonds approximates nine years. Tracked by Lehman Brothers Inc., the index
   calculates total returns for one month, three month, twelve month and ten
   year periods and year-to-date.
   LEHMAN BROTHERS GOVERNMENT INDEX is an unmanaged index comprised of all
   publicly issued, non-convertible domestic debt of the U.S. government, or
   any agency thereof, or any quasi-federal corporation and of corporate
   debt guaranteed by the U.S. government. Only notes and bonds with a
   minimum outstanding principal of $1 million and a minimum maturity of one
   year are included.
In addition, the Trust will make comparisons to certain direct market
securities in which it is permitted to invest. The type of security that will
be used for such comparisons, and the source of its performance information
is listed below.
   10-YEAR TREASURY NOTES--Source: Salomon Brothers. Total returns are
   calculated for periods of one, three, and twelve months.
Advertisements and other sales literature for both classes of Shares may
quote total returns which are calculated on non-standardized base periods.
These total returns also represent the historic change in the value of an
investment in either class of Shares based on monthly reinvestment of
dividends over a specified period of time.


DURATION
Duration is a commonly used measure of the potential volatility in the price
of a bond, or other fixed income security, or in a portfolio of fixed income
securities, prior to maturity. Volatility is the magnitude of the change in
the price of a bond relative to a given change in the market rate of
interest. A bond's price volatility depends on three primary variables: the
bond's coupon rate; maturity date; and the level of market yields of similar
fixed-income securities. Generally, bonds with lower coupons or longer
maturities will be more volatile than bonds with higher coupons or shorter
maturities. Duration combines these variables into a single measure.
Duration is calculated by dividing the sum of the time-weighted values of the
cash flows of a bond or bonds, including interest and principal payments, by
the sum of the present values of the cash flows.
When the Trust invests in mortgage pass-through securities, its duration will
be calculated in a manner which requires assumptions to be made regarding
future principal prepayments. A more complete description of this calculation
is available upon request from the Trust.
   ABOUT FEDERATED INVESTORS

Federated Investors is dedicated to meeting investor needs which is reflected
in its investment decision making---structured, straightforward, and
consistent. This has resulted in a history of competitive performance with a
range of competitive investment products that have gained the confidence of
thousands of clients and their customers.
The company's disciplined security selection process is firmly rooted in
sound methodologies backed by fundamental and technical research. Investment
decisions are made and executed by teams of portfolio managers, analysts, and
traders dedicated to specific market sectors.


J. Thomas Madden, Executive Vice President, oversees Federated Investors'
equity and high yield corporate bond management while William D. Dawson,
Executive Vice President, oversees Federated Investors' domestic fixed income
management. Henry A. Frantzen, Executive Vice President, oversees the
management of Federated Investors' international portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $2 trillion to the more than 5,500 funds
available.* Federated Investors, through its subsidiaries, distributes mutual
funds for a variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for a
variety of applications, including defined benefit and defined contribution
programs, cash management, and asset/liability management. Institutional
clients include corporations, pension funds, tax-exempt entities,
foundations/endowments, insurance companies, and investment and financial
advisors. The marketing effort to these institutional clients is headed by
John B. Fisher, President, Institutional Sales Division.
TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than 1,500
banks and trust organizations. Virtually all of the trust divisions of the
top 100 bank holding companies use Federated funds in their clients'
portfolios. The marketing effort to trust clients is headed by Mark R.
Gensheimer, Executive Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage firms
nationwide--including 200 New York Stock Exchange Firms--supported by more


wholesalers than any other mutual fund distributor. The marketing effort to
these firms is headed by James F. Getz, President, Broker/Dealer Division.
*Source: Investment Company Institute
8022901B (3/96)     
314184102
314184201




PART C. OTHER INFORMATION

Item 24.  Financial Statements and Exhibits:
          (a)Financial Statements (Filed in Part A)
          (b)Exhibits:
                (1) Conformed copy of the Declaration of Trust of the
                    Registrant as amended (14.);
                (2) Copy of the By-Laws of the Registrant as amended
                    (1,2,4,7,8);
                (3) Not applicable;
                (4) Copy of revised Specimen Certificate for Shares of
                    Beneficial Interest of the Registrant (5.);
                (5) Conformed copy of the revised Investment Advisory
                    Contract of the Registrant dated September 11, 1984
                    (10.);
                (6) (i) Conformed copy of the revised Distributor's Contract
                    (10.);
                    (ii) The Registrant hereby incorporates the conformed
                    copy of the specimen Mutual Funds Sales and Service


                    Agreement; Mutual Funds Service Agreement; and Plan
                    Trustee/Mutual Funds Service Agreement from Item 24
                    (b)(6) of the Cash Trust Series II Registration Statement
                    on Form N-1A, filed with the Commission on July 24, 1995.
                    (File Numbers 33-3850 and 811-6269);
                (7) Not applicable;
                (8) (i) Conformed copy of the Custodian Agreement of
                    the Registrant (15);
                 (9)...............(i) Conformed copy of Shareholder Services
                    Agreement of the Registrant (15);
                    (ii) Conformed copy of Shareholder Services Sub-Contract
                    between National Pensions Alliance, Ltd. and Federated
                    Shareholder Services, on behalf of the Registrant;+
                    (iii) Conformed copy of Shareholder Services Sub-Contract
                    between Fidelity and Federated Shareholder Services, on
                    behalf of the Registrant;+
                    (iv) Conformed copy of Administrative Services Agreement
                    of the Registrant (15);
                    (v) Conformed Copy of Agreement for Fund Accounting,
                    Shareholder Recordkeeping, and Custody Services
                    Procurement (15);
                    (vi) The responses described in Item 24(b)6 are hereby
                    incorporated by reference.
               (10) Conformed copy of the Opinion and Consent of Counsel as
                    to legality of shares being registered (15);
               (11) (i) Conformed copy of the Consent of Independent Public
                    Accountants;+
                    (ii) Opinion and Consent of Counsel as to Transfer of
                    Organization Expenses (6);


               (12) Not applicable;
               (13) Initial Capital Understanding (2);
               (14) Not applicable;
               (15) Not applicable;
               (16) Schedule of Computation of Fund Performance Data (15);
               (17) Financial Data Schedules;+
               (18) (i) The Registrant hereby incorporates the conformed
                   copy of the specimen Multiple Class Plann from Item
                   24(b)(18) of the World Investment Series, Inc.
                   Registration Statement on Form N-1A, filed with the
                   Commission on January 26, 1996. (File Nos. 33-52149
                   and 811-07141)
                   (ii) Opinion and Consent of Counsel as to Transfer of
                   Organization Expenses (6);
               (19) Power of Attorney;+



 +   All exhibits have been filed electronically.

 1.  Response is incorporated by reference to Registrant's Initial
     Registration Statement on Form N-1A filed January 12, 1982.  (File Nos.
     2-75670 and 811-3375)
 2.  Response is incorporated by reference to Registrant's Pre-Effective
     Amendment No. 1 on Form N-1A filed February 11, 1982.  (File Nos. 2-
     75670 and 811-3375)
 4.  Response is incorporated by reference to Registrant's Post-Effective
     Amendment No. 4 on Form N-1A filed January 30, 1984.  (File Nos. 2-75670
     and 811-3375)


 5.  Response is incorporated by reference to Registrant's Post-Effective
     Amendment No. 5 on Form N-1A filed March 27, 1984.  (File Nos. 2-75670
     and 811-3375)
 7.  Response is incorporated by reference to Registrant's Post-Effective
     Amendment No. 10 on Form N-1A filed March 23, 1987.  (File Nos. 2-75670
     and 811-3375)
 8.  Response is incorporated by reference to Registrant's Post-Effective
     Amendment No. 12 on Form N-1A filed March 22, 1988.  (File Nos. 2-75670
     and 811-3375)
10.  Response is incorporated by reference to Registrant's Post-Effective
     Amendment No. 15 on Form N-1A filed January 22, 1990.  (File Nos. 2-
     75670 and 811-3375)
14.  Response is incorporated by reference to Registrant's Post-Effective
     Amendment No. 23 on Form N-1A filed March 24, 1993.  (File Nos. 2-75670
     and 811-3375)
15.  Response is incorporated by reference to Registrant's Post-Effective
     Amendment No. 27 on Form N-1A filed March 30, 1995.  (File Nos. 2-75670
     and 811-3375)



Item 25.  Persons Controlled by or Under Common Control with Registrant:
          None.

Item 26.  Number of Holders of Securities:
                                        Number of Record Holders
          Title of Class                  as of March 4, 1996
          Shares of Beneficial Interest
          (no par value)


          Institutional Shares                    13,677
          Institutional Service Shares             1,099

Item 27.  Indemnification:  (12.)

Item 28.  Business and Other Connections of Investment Adviser:

          (a)For a description of the other business of the investment
             adviser, see the section entitled "Trust Information -
             Management of the Trust" in Part A.  The affiliations with the
             Registrant of four of the Trustees and one of the Officers of
             the investment adviser are included in Part B of this
             Registration Statement under "Trust Management - Officers and
             Trustees."  The remaining Trustee of the investment adviser,
             his position with the investment adviser, and, in parentheses,
             his principal occupation is:  Mark D. Olson (Partner, Wilson,
             Halbrook & Bayard), 107 W. Market Street, Georgetown, Delaware
             19947.

 +   All exhibits have been filed electronically.

 2.   Response is incorporated by reference to Registrant's Pre-Effective
     Amendment No. 1 on Form N-1A filed February 11, 1982.  (File Nos. 2-
     75670 and 811-3375)
 6.  Response is incorporated by reference to Registrant's Post-Effective
     Amendment No. 6 on Form N-1A filed January 30, 1985.  (File Nos. 2-75670
     and 811-3375)


12.  Response is incorporated by reference to Registrant's Post-Effective
     Amendment No. 19 on Form N-1A filed on March 22, 1991.  (File Nos. 2-
     75670 and 811-3375)


             The remaining Officers of the investment adviser are:  William
             D. Dawson, J. Thomas Madden, and Mark L. Mallon, Executive Vice
             Presidents; Henry J. Gailliot, Senior Vice President-Economist;
             Peter R. Anderson, and J. Alan Minteer, Senior Vice Presidents;
             Randall A. Bauer, David A. Briggs, Jonathan C. Conley,
             Deborah A. Cunningham, Michael P. Donnelly, Mark E. Durbiano,
             Kathleen M. Foody-Malus, Thomas M. Franks, Edward C. Gonzales,
             Jeff A. Kozemchak, Marian R. Marinack, John W. McGonigle,
             Gregory M. Melvin, Susan M. Nason, Mary Jo Ochson, Robert J.
             Ostrowski, Frederick L. Plautz, Jr., Charles A. Ritter, James
             D. Roberge, Sandra L. Weber, and Christopher H. Wiles, Vice
             Presidents, Edward C. Gonzales, Treasurer, and John W.
             McGonigle, Secretary.  The business address of each of the
             Officers of the investment adviser is Federated Investors
             Tower, Pittsburgh, PA 15222-3779.  These individuals are also
             officers of a majority of the investment advisers to the Funds
             listed in Part B of this Registration Statement.

Item 29.  Principal Underwriters:

(a)       Federated Securities Corp., the Distributor for shares of the
             Registrant, also acts as principal underwriter for the
             following open-end investment companies: American Leaders Fund,
             Inc.; Annuity Management Series; Arrow Funds; Automated


             Government Money Trust; BayFunds;  The Biltmore Funds; The
             Biltmore Municipal Funds; Blanchard Funds; Blanchard Precious
             Metals Fund, Inc.; Cash Trust Series, Inc.; Cash Trust Series
             II; DG Investor Series; Edward D. Jones & Co. Daily Passport
             Cash Trust; Federated ARMs Fund; Federated Equity Funds;
             Federated GNMA Trust; Federated Government Trust; Federated
             High Yield Trust; Federated Income Securities Trust; Federated
             Income Trust; Federated Index Trust; Federated Institutional
             Trust; Federated Master Trust; Federated Municipal Trust;
             Federated Short-Term Municipal Trust; Federated Short-Term U.S.
             Government Trust; Federated Stock Trust; Federated Tax-Free
             Trust; Federated Total Return Series, Inc.; Federated U.S.
             Government Bond Fund; Federated U.S. Government Securities
             Fund: 1-3 Years; Federated U.S. Government Securities Fund: 3-5
             Years; Federated U.S. Government Securities Fund: 5-10
             Years;First Priority Funds; Fixed Income Securities, Inc.;
             Fortress Adjustable Rate U.S. Government Fund, Inc.; Fortress
             Municipal Income Fund, Inc.; Fortress Utility Fund, Inc.; Fund
             for U.S. Government Securities, Inc.; Government Income
             Securities, Inc.; High Yield Cash Trust; Independence One
             Mutual Funds; Insurance Management Series; Intermediate
             Municipal Trust; International Series Inc.; Investment Series
             Funds, Inc.; Investment Series Trust; Liberty Equity Income
             Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty
             Municipal Securities Fund, Inc.; Liberty U.S. Government Money
             Market Trust; Liberty Utility Fund, Inc.; Liquid Cash Trust;
             Managed Series Trust; Marshall Funds, Inc.; Money Market
             Management, Inc.; Money Market Obligations Trust; Money Market
             Trust; The Monitor Funds; Municipal Securities Income Trust;


             Newpoint Funds; 111 Corcoran Funds; Peachtree Funds; The
             Planters Funds; RIMCO Monument Funds; SouthTrust Vulcan Funds;
             Star Funds; The Starburst Funds; The Starburst Funds II; Stock
             and Bond Fund, Inc.; Targeted Duration Trust; Tax-Free
             Instruments Trust; Tower Mutual Funds; Trust for Financial
             Institutions; Trust for Government Cash Reserves; Trust for
             Short-Term U.S. Government Securities; Trust for U.S. Treasury
             Obligations; The Virtus Funds; Vision Group of Funds, Inc.; and
             World Investment Series, Inc.

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




          (b)

       (1)                      (2)                   (3)
Name and Principal        Positions and Offices Positions and Offices
 Business Address            With Underwriter               With Registrant


Richard B. Fisher         Director, Chairman, Chief    Vice President
Federated Investors Tower Executive Officer, Chief
Pittsburgh, PA 15222-3779 Operating Officer, Asst.
                          Secretary, and Asst.
                          Treasurer, Federated


                          Securities Corp.

Edward C. Gonzales        Director, Executive ViceExecutive Vice
Federated Investors Tower President, Federated,   President
Pittsburgh, PA 15222-3779 Securities Corp.

John W. McGonigle         Director, Federated     Executive Vice
Federated Investors Tower Securities Corp.        President and
Pittsburgh, PA 15222-3779                         Secretary

John B. Fisher            President-Institutional Sales,    --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

James F. Getz             President-Broker/Dealer,     --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Mark R. Gensheimer        Executive Vice President of       --
Federated Investors Tower Bank/Trust, Federated
Pittsburgh, PA 15222-3779 Securities Corp.

Mark W. Bloss             Senior Vice President,       --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard W. Boyd           Senior Vice President,       --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779



Theodore Fadool, Jr.      Senior Vice President,       --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Bryant R. Fisher          Senior Vice President,       --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Christopher T. Fives      Senior Vice President,       --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

James S. Hamilton         Senior Vice President,       --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

       (1)                      (2)                   (3)
Name and Principal        Positions and Offices Positions and Offices
 Business Address            With Underwriter               With Registrant


James M. Heaton           Senior Vice President,       --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Keith Nixon               Senior Vice President,       --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779



Solon A. Person, IV       Senior Vice President,       --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Timothy C. Pillion        Senior Vice President,       --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Thomas E. Territ          Senior Vice President,       --
Federated Investors Tower Federated Securities Corp
Pittsburgh, PA 15222-3779

John B. Bohnet            Vice President,              --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Byron F. Bowman           Vice President, Secretary,        --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Jane E. Broeren-Lambesis  Vice President,              --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Mary J. Combs             Vice President,              --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779


R. Edmond Connell, Jr.    Vice President,              --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Kevin J. Crenny           Vice President,              --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Daniel T. Culbertson      Vice President,              --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

G. Michael Cullen         Vice President,              --
Federated Investors Tower Federated Securites Corp.
Pittsburgh, PA 15222-3779



       (1)                      (2)                   (3)
Name and Principal        Positions and Offices Positions and Offices
 Business Address            With Underwriter               With Registrant


Laura M. Deger            Vice President,              --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Jill Ehrenfeld            Vice President,              --
Federated Investors Tower Federated Securities Corp.


Pittsburgh, PA 15222-3779

Mark D. Fisher            Vice President,              --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Michael D. Fitzgerald     Vice President,              --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Joseph D. Gibbons         Vice President,              --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Craig S. Gonzales         Vice President,              --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard C. Gonzales       Vice President,              --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Scott A. Hutton           Vice President,              --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

H. Joeseph Kenedy         Vice President,              --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779



William E. Kugler         Vice President,              --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Steven A. La Versa        Vice President,              --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Mark J. Miehl             Vice President,              --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779




       (1)                      (2)                   (3)
Name and Principal        Positions and Offices Positions and Offices
 Business Address            With Underwriter               With Registrant


Richard C. Mihm           Vice President,              --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

J. Michael Miller         Vice President,              --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779


Michael P. O'Brien        Vice President,              --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Robert D. Oehlschlager    Vice President,              --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Robert F. Phillips        Vice President,              --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Eugene B. Reed            Vice President,              --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Paul V. Riordan           Vice President,              --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

John C. Shelar, Jr.       Vice President,              --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

David W. Spears           Vice President,              --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Jeffrey A. Stewart        Vice President,              --


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

Jamie M. Teschner         Vice President,              --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

William C. Tustin         Vice President,              --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Paul A. Uhlman            Vice President,              --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard B. Watts          Vice President,              --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Michael P. Wolff          Vice President,              --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

       (1)                      (2)                   (3)
Name and Principal        Positions and Offices Positions and Offices
 Business Address            With Underwriter               With Registrant


Charlene H. Jennings      Assistant Vice President,         --


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

J. Timothy Radcliff       Assistant Vice President,         --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Denis McAuley             Treasurer,                   --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Thomas R. Donahue         Asstistant Secretary,        --
Federated Investors Tower Assistant Treasurer,
Pittsburgh, PA 15222-3779 Federated Securities Corp.

Joseph M. Huber           Assistant Secretary,         --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

David M. Taylor           Assistant Secretary,     Treasurer
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

          (c)Not applicable.

Item 30.  Location of Accounts and Records:

          Federated GNMA Trust               Federated Investors Tower
                                             Pittsburgh, Pennsylvania


                                             15222-3779

          Federated Shareholder
          Services Company                   Federated Investors Tower
          ("Transfer Agent and                Pittsburgh, Pennsylvania
          Dividend Disbursing Agent")        15222-3779

          Federated Administrative Services   Federated Investors Tower
          ("Administrator")                   Pittsburgh, Pennsylvania
                                              15222-3779

          Federated Management                Federated Investors Tower
          ("Adviser")                         Pittsburgh, Pennsylvania
                                              15222-3779

          State Street Bank and Trust         P.O. Box 8602
            Company                           Boston, Massachusetts 02266-
          ("Custodian")                       8602

Item 31.  Management Services:  Not applicable.

Item 32.  Undertakings:

          Registrant hereby undertakes to comply with the provisions of
          Section 16(c) of the 1940 Act with respect to the removal of
          Trustees and the calling of special shareholder meetings by
          shareholders.


          Registrant hereby undertakes to furnish each person to whom a
          prospectus is delivered with a copy of the Registrant's latest
          annual report to shareholders, upon request and without charge.



                                 SIGNATURES

   Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, FEDERATED GNMA TRUST,
certifies that it meets all of the requirements for effectiveness of this
Amendment to its Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Pittsburgh and Commonwealth of Pennsylvania, on
the 26th day of March, 1996.

                            FEDERATED GNMA TRUST

               BY: /s/ Melissa A. Moore
               Melissa A. Moore, Assistant Secretary
               Attorney in Fact for John F. Donahue
               March 26, 1996

   Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following person
in the capacity and on the date indicated:

   NAME               TITLE                   DATE


By:/s/Melissa A. Moore
   Melissa A. Moore   Attorney In Fact        March 26, 1996
   ASSISTANT SECRETARYFor the Persons
                      Listed Below

   NAME               TITLE
John F. Donahue*      Chairman and Trustee
                      (Chief Executive Officer)

Glen R. Johnson*      President

David M. Taylor*      Treasurer
                      (Principal Financial and
                      Accounting Officer)

Thomas G. Bigley*     Trustee

John T. Conroy, Jr.*  Trustee

William J. Copeland*  Trustee

James E. Dowd*        Trustee

Lawrence D. Ellis, M.D.*                      Trustee

Edward L. Flaherty, Jr.*                      Trustee

Peter E. Madden*      Trustee


Gregor F. Meyer*      Trustee

John E. Murray, Jr.*  Trustee

Wesley W. Posvar*     Trustee

Marjorie P. Smuts*    Trustee





                                   Exhibit (11) under N-1A
                                   Exhibit 23 under 601/Reg SK




INDEPENDENT AUDITORS' CONSENT


To the Board of Trustees and
   Shareholders of FEDERATED GNMA TRUST:

We consent to the use in Post-Effective Amendment No. 29 to Registration
Statement (No. 2-75670) of Federated GNMA Trust of our report dated March 15,
1996, appearing in the Prospectus, which is a part of such Registration
Statement, and to the reference to us under the heading "Financial
Highlights" in such Prospectus.



By:DELOITTE & TOUCHE LLP
   Deloitte & Touche LLP
Pittsburgh, Pennsylvania



                                              Exhibit (9)(ii) under Form N-1A
                                                Exhibit 10 under 601/Reg. S-K

                      SHAREHOLDER SERVICES SUB-CONTRACT

     This Agreement is made between National Pension Alliance, Ltd.
("Provider") and Federated Shareholder Services ("FSS") on behalf of the
investment companies listed in Exhibit A hereto (the "Funds"), for whom FSS
administers the Shareholder Services Plan ("Plan") and who have approved this
form of Agreement.  In consideration of the mutual covenants hereinafter
contained, it is hereby agreed by and between the parties hereto as follows:

     1.   FSS hereby appoints Provider to render or cause to be rendered
personal services to shareholders of the Funds and/or the maintenance of
accounts of shareholders of the Funds ("Services").  Provider agrees to
provide Services which, in its best judgment, are necessary or desirable for
its customers who are investors in the Funds.  Provider further agrees to
provide FSS, upon request, a written description of the Services which
Provider is providing hereunder.  FSS understands and agrees that the
services Provider agrees to provide under this Agreement may be provided
through service providers who are independent contract administrators ("SP")
with whom Provider has agreements to provide such services on its behalf.
Neither Provider nor the SPs may effect any transactions in, or induce or
attempt to induce the purchase or sale of, any shares of the Funds, except as
permitted by law.

     2.   During the term of this Agreement, FSS will pay the Provider fees
as set forth in a written schedule delivered to the Provider pursuant to this
Agreement.  The fee schedule for Provider may be changed by FSS sending a new
fee schedule to Provider pursuant to Paragraph 9 of this Agreement.  For the
payment period in which this Agreement becomes effective or terminates, there
shall be an appropriate proration of the fee on the basis of the number of
days that this Agreement is in effect during the quarter.  To enable the


Funds to comply with an applicable exemptive order, Provider represents that
the fees received pursuant to this Agreement will be disclosed to its
customers, will be authorized by its customers, and will not result in an
excessive fee to the Provider.

     3.   The Provider understands that the Department of Labor views ERISA
as prohibiting fiduciaries of discretionary ERISA assets from receiving
shareholder service fees or other compensation from funds in which the
fiduciary's discretionary ERISA assets are invested.  To date, the Department
of Labor has not issued any exemptive order or advisory opinion that would
exempt fiduciaries from this interpretation.  Without specific authorization
from the Department of Labor, fiduciaries should carefully avoid investing
discretionary assets in any fund pursuant to an arrangement where the
fiduciary is to be compensated by the fund for such investment.  Receipt of
such compensation could violate ERISA provisions against fiduciary self-
dealing and conflict of interest and could subject the fiduciary to
substantial penalties.

     4.   The Provider agrees not to solicit or cause to be solicited
directly, or indirectly at any time in the future, any proxies from the
shareholders of a Fund.  This paragraph 4 will survive the term of this
Agreement.

     5.   This Agreement shall continue in effect for one year from the date
of its execution, and thereafter for successive periods of one year if the
form of this Agreement is approved at least annually by the Board of each
Fund, including a majority of the members of the Board of the Fund who are
not interested persons of the Fund and have no direct or indirect financial
interest in the operation of the Fund's Plan or in any related documents to
FSS subcontract                    2


the Plan ("Disinterested Board Members") cast in person at a meeting called
for that purpose.

     6.   Notwithstanding paragraph 5, this Agreement may be terminated as
follows:

          (a)  at any time, without the payment of any penalty, by the vote
      of a majority of the Disinterested Board Members of the Fund or by a
      vote of a majority of the outstanding voting securities of the Fund as
      defined in the Investment Company Act of 1940 on not more than sixty
      (60) days' written notice to the parties to this Agreement;

          (b)  automatically in the event of the Agreement's assignment as
      defined in the Investment Company Act of 1940; and

          (c)  by either party to the Agreement without cause by giving the
      other party at least sixty (60) days' written notice of its intention
      to terminate.

      After the date of a termination pursuant to subparagraph 6(c) as to
      any Fund, FSS will not be obligated to pay Provider the fees set forth
      in the written schedule referred to in paragraph 2 with respect to any
      shares of such Fund that are first placed or purchased in Provider
      customer accounts after the date of such termination.  If FSS
      terminates this Agreement pursuant to subparagraph 6(c), FSS will
      remain obligated to pay Provider such fees as to each share of such
      Fund that was considered in the calculation of such fees as of the
      date of such termination (a "Pre-Termination Share"), for so long as
      such Pre-Termination Share is held in any of Provider customer
FSS subcontract                    3


      accounts and Provider continues to perform the services contemplated
      by this Agreement, but only so long as the Shareholder Services
      Agreement between FSS and the Funds remains in effect.  FSS will not
      be obligated to pay Provider fees relating to Pre-Termination Shares
      if this Agreement is terminated pursuant to subparagraph 6(a) or 6(b).
      Further, the provisions of this Agreement will remain in full force
      and effect as to such Pre-Termination Shares to the extent necessary
      for each party to perform its obligations with respect to Pre-
      Termination Shares for which fees continue to be due subsequent to
      termination.

     7.   The Provider agrees to obtain any taxpayer identification number
certification from its customers required under Section 3406 of the Internal
Revenue Code, and any applicable Treasury regulations, and to provide the
Fund or its designee with timely written notice of any failure to obtain such
taxpayer identification number certification in order to enable the
implementation of any required backup withholding.


     8.   The execution and delivery of this Agreement have been authorized
by the Trustees of FSS and signed by an authorized officer of FSS, acting as
such, and neither such authorization by such Trustees nor such execution and
delivery by such officer shall be deemed to have been made by any of them
individually or to impose any liability on any of them personally, and the
obligations of this Agreement are not binding upon any of the Trustees or
shareholders of FSS, but bind only the trust property of FSS as provided in
the Declaration of Trust of FSS.


FSS subcontract                    4


     9.   Notices of any kind to be given hereunder shall be in writing
(including facsimile communication) and shall be duly given if delivered to
FSS at Federated Investors Tower, Pittsburgh, PA  15222-3779, Attention:
President; and if delivered to Provider at National Pension Alliance, Ltd.,
Corbel/NPA, Inc. General Partner, Attention: Don Mackanos; 1660 Prudential
Drive, Jacksonville, Florida 32207.

     10.  This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject hereof
whether oral or written.  If any provision of this Agreement shall be held or
made invalid by a court or regulatory agency decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby.
Subject to the provisions of Sections 5 and 6, hereof, this Agreement shall
be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and shall be governed by Pennsylvania law;
provided, however, that nothing herein shall be construed in a manner
inconsistent with the Investment Company Act of 1940 or any rule or
regulation promulgated by the Securities and Exchange Commission thereunder.

     11.  This Agreement may be executed by different parties on separate
counterparts, each of which, when so executed and delivered, shall be an
original, and all such counterparts shall together constitute one and the
same instrument.

     12.  This Agreement shall not be assigned by any party without the prior
written consent of FSS in the case of assignment by Provider, or of Provider
in the case of assignment by FSS, except that any party may assign to a
successor all of or a substantial portion of its business to a party
controlling, controlled by, or under common control with such party.
FSS subcontract                    5



     13.  This Agreement may be amended by FSS from time to time by the
following procedure.  FSS will mail a copy of the amendment to the Provider's
address, as shown below.  If the Provider does not object to the amendment
within thirty (30) days after its receipt, the amendment will become part of
the Agreement.  The Provider's objection must be in writing and be received
by FSS within such thirty days.

     14.   This Agreement may be terminated with regard to a particular Fund
or Class at any time, without the payment of any penalty, by FSS (subject to
the same fee continuation provisions set forth in paragraph 6 above with
respect to a termination under subparagraph 6(c)) or by the vote of a
majority of the Disinterested Trustees or Directors, as applicable, or by a
majority of the outstanding voting securities of the particular Fund or Class
on not more than sixty (60) days' written notice to the Provider.  This
Agreement may be terminated  by Provider on sixty (60) days' written notice
to FSS.

     15.  The Provider acknowledges and agrees that FSS has entered into this
Agreement solely in the capacity of agent for the Funds and administrator of
the Plan.








FSS subcontract                    6










                              NATIONAL PENSION
                              ALLIANCE,LTD.

                              By: CORBEL/NPA, INC.,
                                     General Partner
                                     1660 Prudential Drive
                                     Jacksonville, FL 32207

 Dated:  September 19, 1994       By:/s/Stuart Hack
                                        Authorized Signature

                              Senior Vice President
                              Title

                              Stuart Hack
                              Print Name of Authorized Signature



                         FEDERATED SHAREHOLDER SERVICES
                         Federated Investors Tower
FSS subcontract                    7


                         Pittsburgh, Pennsylvania 15222-3779


                         By: /s/Thomas J. Ward
                            Vice President

                           Thomas J. Ward
                           Print Name of Authorized Signature




             EXHIBIT A to Shareholder Services Sub-Contract with
                       National Pension Alliance, Ltd.



Funds covered by this Agreement:

     Federated U.S. Government Securities Fund:  1-3 Years (Institutional
       Service Shares) (formerly, Federated Short-Intermediate Trust)
     Federated Arms Fund (Institutional Service Shares)
     Federated U.S. Government Securities Fund:  2-5 Years (Institutional
       Service Shares) (formerly, Federated Intermediate Government Trust)
     Intermediate Income Fund (Institutional Service Shares)
     Federated Income Trust (Institutional Service Shares)
     Federated GNMA Trust (Institutional Service Shares)
     Federated Max-Cap Fund (Institutional Service Shares)
     Federated Managed Growth and Income Fund (Institutional Shares)
FSS subcontract                    8


     Federated Managed Income Fund (Institutional Shares)
     Federated Managed Growth Fund (Institutional Shares)
     Federated Managed Aggressive Growth Fund (Institutional Shares)
     Federated Short-Term Income Fund (Institutional Service Shares)
     Federated High Yield Trust
     Fortress Bond Fund
     Federated International Income Fund
     Federated Stock Trust
     Federated Growth Strategies Fund (Class A Shares) (formerly, Federated
       Growth Trust)
     Federated Stock & Bond Fund, Inc.
     Federated International Equity Fund
     Federated Equity Income Fund, Inc. (Class A Shares)
     Federated Utility Fund, Inc.  (Class A Shares)
     Federated Mid-Cap Fund (11/94)
     Federated Mini-Cap Fund (11/94)
     Federated U.S. Government Bond Fund (11/95)
     Federated American Leaders Fund, Inc. (Class A Shares) (11/95)
     Federated Fund for U.S. Government Securities, Inc. (Class A Shares)
       (11/95)
     Federated High Income Bond Fund, Inc. (Class A Shares) (11/95)
     Federated Strategic Income Fund (Class A Shares) (11/95)
     Federated U.S. Government Securities Fund:  5-10 Years (Institutional
       Service Shares (2/96)
     Federated Capital Appreciation Fund (Class A Shares) (2/96)

Shareholder Service Fees


FSS subcontract                    9


     1.   During the term of this Agreement, FSS will pay Provider a
quarterly fee.  This fee will be computed at the annual rate of .25 of 1% of
the average net asset value of shares of the Funds held during the quarter in
accounts for which the Provider provides Services under this Agreement, so
long as the average net asset value of Shares in the Funds during the quarter
equals or exceeds such minimum amount as FSS shall from time to time
determine and communicate in writing to the Provider.

     2.   For the quarterly period in which the Agreement becomes effective
or terminates, there shall be an appropriate proration of any fee payable on
the basis of the number of days that the Agreement is in effect during the
quarter.




















                                             Exhibit (9)(iii) under Form N-1A
                                                Exhibit 10 under 601/Reg. S-K


                             SERVICES AGREEMENT

   This Agreement is made as of the 2nd day of May, 1994 between:  (1)
Fidelity Brokerage Services, Inc. ("FBSI") and National Financial Services
Corporation ("NFSC") (together "Fidelity"), and (2) the undersigned
("Fund/Agent").

                                  RECITALS

A. Fund/Agent is either (i) an open-end investment company with one or more
series or classes of shares (each such series or class of shares a "Fund"),
(ii) an investment adviser to or administrator for the Funds, (iii) the
principal underwriter or distributor for the Funds, or (iv) the transfer
agent for the Funds.

B. Fund/Agent wishes to have Fidelity provide to Fund/Agent or on its behalf
certain administrative services with respect to beneficial owners of shares
("Shareholder(s)") of such Funds which Fidelity makes available to
Shareholders through securities brokerage accounts carried by NFSC on behalf
of FBSI or correspondents of NFSC ("Correspondents").

C. Fidelity agrees to provide such services on the terms and conditions set
forth herein.

                                  AGREEMENT

   THEREFORE, in consideration of the mutual promises set forth herein, the
parties agree as follows:
I. SHAREHOLDER SERVICES

A. Shareholder Account Set-Up and Maintenance - To facilitate Shareholders'
ownership of shares of any Fund, Fidelity shall provide to FBSI and
Correspondents adequate facilities and procedures to:  (1) establish and
maintain Fund investments on behalf of Shareholders within a consolidated
brokerage account(s) on the Fidelity transaction processing and recordkeeping
system, and (2) access Shareholders' current Fund information including, but
not limited to, share balances, dividend information and transaction history.

B. Shareholder Assistance - Fidelity shall make available to Correspondents
any information maintained by Fidelity as may be necessary for Correspondents
to support and resolve Shareholder servicing inquiries.  Fidelity personnel
will assist Correspondents in the investigation of Shareholder inquiries when
necessary.  FBSI will support Shareholder service inquiries from Shareholders
who maintain brokerage accounts with FBSI.

C. Transaction Processing and Settlement - The Fidelity transaction
processing system shall enable Shareholders to purchase, redeem and exchange
shares of Funds available through Fidelity.  NFSC shall facilitate settlement
with each Fund of Shareholder transactions in such Fund insofar as such
transactions are transmitted to NFSC by FBSI or Correspondents on behalf of
Shareholders.

D. Shareholder Account Statement Preparation and Distribution - With respect
to each Shareholder holding Fund investments through Fidelity, Fidelity shall
deliver or cause to be delivered to such Shareholder monthly statements when
there has been activity in such Shareholder's brokerage account during such
month, or quarterly statements during periods when there has been no monthly
account activity.  Statements will include transaction detail for the
statement period for each Fund in which shares were purchased, redeemed or
exchanged, and a summary of the number of Fund shares owned and share value
thereof as of the statement date to the extent such value is provided by the
Fund.

E. Confirmation, Preparation and Distribution - Fidelity shall generate a
written confirmation for each purchase, redemption and exchange transaction
affecting each Shareholder's Fund investments held through Fidelity to the
extent such confirmation is required, and such confirmation shall be
distributed to Shareholders through or on behalf of FBSI or Correspondents.

F. Payment of Fund Distributions - NFSC shall distribute to Shareholders all
dividend, capital gain or other payments authorized by the Fund and
distributed to and received by NFSC, and such distributions shall be credited
to Shareholders in accordance with the instructions provided by each
Shareholder, including but not limited to dividend reinvestment into the
Fund, or cash payments of distributions.

G. Prospectus Fulfillment - Fund/Agent agrees to make available to Fidelity
prospectuses for each Fund meeting the requirements of applicable law.  To
the extent a prospectus is required to be delivered to a Shareholder in
connection with a purchase or exchange of Fund shares, Fidelity agrees to
provide each Shareholder with such a prospectus within the time required by
applicable law.

   Fund/Agent acknowledges and agrees that Fidelity is not responsible for
(i) the compliance of any prospectus or supplement thereto, annual report,
proxy statement or item of advertising or marketing material of or relating
to any Fund, with any applicable laws, rules or regulations, (ii) the
registration or qualification of any shares of any Fund under any federal or
applicable state laws or (iii) the compliance by any Fund or Fund/Agent or
any "affiliated person" (as that term is defined in the rules under the
Investment Company Act of 1940, as amended), with any applicable federal or
state law, rule, or regulation or the rules and regulations of any self-
regulatory organization with jurisdiction over such Fund, Fund Agent or
affiliated person.

H. Account Level Tax Reporting - NFSC shall provide to Shareholders through
FBSI or Correspondent such reports and information as may be required by the
then-prevailing laws and regulations under the Internal Revenue Code for non-
retirement accounts and qualified and non-qualified retirement plan accounts.

II.REPRESENTATIONS AND WARRANTIES

A. Fund/Agent represents and warrants that:

   (1)    it has the requisite authority to enter into this agreement on its
   own behalf and on behalf of the Fund(s), and

   (2)    that the payment to NFSC of any fees pursuant hereto:

      (a) has been duly authorized by the Fund(s), the Board of Trustees of
        the Fund(s), or any other persons to the extent such authorization
        is required to properly make such payment;

      (b) is properly disclosed in the relevant Fund prospectus to the extent
        such disclosure may be required, and

      (c) is and will remain in material conformity with all federal and
        state laws or regulations and self-regulatory organization rules to
        which the Fund or its agents are subject.

B. FBSI and NFSC each represent and warrant that:

   (1)    it is a corporation duly organized under the laws of the
Commonwealth of Massachusetts and is duly registered and/or qualified as a
broker/dealer with the SEC, NASD and in every state or territory of the
United States of America (including the District of Columbia) where such
registration or qualification is required and has the requisite authority to
enter into this Agreement and to carry out the services contemplated herein;

   (2)    the execution and delivery of this Agreement and the performance of
the services contemplated herein have been duly authorized by all necessary
corporate action in its part, and this Agreement constitutes the valid and
binding obligations of FBSI and NFSC; and

   (3)    it is and will remain in material conformity with all federal and
state laws or regulations and self-regulatory organization rules to which
FBSI or NFSC or their agents are subject.

C. Each party hereto represents and warrants that it shall provide to the
others such information or documentation necessary for such party to fulfill
its obligations hereunder, such other information or documentation as any
party may reasonably request, and that it shall comply with such operating
policies and procedures as the parties may adopt from time to time.

III. FEES

   For the services provided by Fidelity hereunder, Fund/Agent shall pay to
NFSC a fee with respect to each Fund, which fee shall be based upon a
percentage per annum of the average daily value of the aggregate number of
shares of the Fund held by NFSC for the accounts of customers of FBSI and
Correspondents.  Such fee shall be calculated and paid in accordance with
Exhibit A hereto.

   In the event the parties agree to material changes to the scope of
services provided hereunder, the parties agree to negotiate in good faith as
to the appropriate amendment to the fees due NFSC.

IV.INDEMNIFICATION

   Fund/Agent shall indemnify and hold harmless Fidelity and each officer,
employee and agent of Fidelity from and against any and all claims, demands,
actions, losses, damages, liabilities, or costs, charges, counsel fees, and
expenses of any nature ("Losses") arising out of (i) any inaccuracy or
omission in any prospectus or supplement thereto, registration statement,
annual report or proxy statement, of any Fund or Fund/Agent or any
advertising or promotional material generated by any Fund or Fund/Agent, (ii)
any breach by Fund/Agent of any representation, warranty, convenant, or
agreement contained in this Agreement and (iii) any action taken or omitted
to be taken by Fidelity pursuant to this Agreement in reliance on any such
representation, warranty, covenant or agreement by Fund/Agent, except to the
extent such Losses result from Fidelity's breach of the Agreement, willful
misconduct, or gross negligence.

Fidelity shall indemnify and hold harmless Fund/Agent and each officer,
employee and agent of Fund/Agent from and against any and all claims,
demands, actions, losses, damages, liabilities, or costs, charges, counsel
fees, and expenses of any nature ("Losses") arising out of (i) any breach by
Fidelity of any representation, warranty, covenant, or agreement contained in
this Agreement and (ii) any action taken or omitted to be taken by Fund/Agent
pursuant to this Agreement in reliance on any such representation, warranty,
covenant, or agreement by Fidelity, except to the extent such Losses result
from Fund/Agent's breach of this Agreement, willful misconduct, or gross
negligence.

V. CONFIDENTIALITY

   Each party acknowledges and understands that any and all technical, trade
secret, or business information, including, without limitation, financial
information, business or marketing strategies or plans, product development
or customer information, which is disclosed to the other or is otherwise
obtained by the other, its affiliates, agent or representatives during the
term of this Agreement other than through publicly available sources (the
"Proprietary Information") is confidential and proprietary, constitutes trade
secrets of the owner, and is of great value and importance to the success of
the owner's business.  Each party agrees to use its best efforts (the same
being not less than that employed to protect his own proprietary information)
to safeguard the Proprietary Information and to prevent the unauthorized,
negligent or inadvertent use or disclosure thereof.  Neither party shall,
without the prior written approval of any officer of the other, directly or
indirectly, disclose the Proprietary Information to any person or business
entity except for a limited number of employees, attorneys, accountants and
other advisors of the other on a need-to-know basis or as may be required by
law or regulation.  Each party shall promptly notify the other in writing of
any unauthorized, negligent or inadvertent use or disclosure of Proprietary
Information.  Each party shall be liable under this Agreement to the other
for any use or disclosure in violation of this Agreement by its employees,
attorneys, accountants, or other advisors or agents.  This Section V shall
continue in full force and effect notwithstanding the termination of this
Agreement.

VI.DURATION AND TERMINATION OF AGREEMENT

   With respect to any Fund, this Agreement shall become effective upon the
date such Fund is identified on Exhibit B, and this Agreement is approved by
the Fund or its Board of Trustees if such approval is required, and shall
continue in force for one year, and shall thereafter continue automatically
for successive annual periods unless earlier terminated and subject to any
periodic approval required by the Fund or its Board of Trustees.  This
Agreement is terminable as to any Fund by any party upon 90 days written
notice thereof to the other parties or upon default hereof provided that such
default shall not terminate this Agreement to the extent the defaulting party
has been notified of such default by the non-defaulting party and the
defaulting party cures such default within 10 business days of notice of such
default.

In addition, this Agreement may be terminated at any time with respect to a
Fund, without the payment of any penalty, by the vote of a majority of the
members of the Board of the Fund who are not interested persons of the Fund
and have no direct or indirect financial interest in the operation of the
Fund's Shareholder Services Plan or in any related documents to the
Shareholder Services Plan.

   After the date of termination as to any Fund, no fee will be due with
respect to any shares of such Fund that are first placed or purchased in
Fidelity or Correspondent customer accounts after the date of such
termination.  However, notwithstanding any such termination, Fund/Agent, and
any successor or assignee, will remain obligated to pay NFSC the fee as to
each share of such Fund that was considered in the calculation of the fee as
of the date of such termination, for so long as such share is held in the
Fidelity or Correspondent account, but only so long as the Shareholder
Services Agreement between the Fund and Fund/Agent, or any successor or
assignee, remains in effect.  This Agreement, or any provision hereof, shall
survive termination to the extent necessary for each party to perform its
obligations with respect to shares for which a fee continues to be due
subsequent to such termination.



VII. MISCELLANEOUS

A. Custody - Fund/Agent acknowledges that Fund shares maintained by the Fund
for Shareholders hereunder are held in custody for the exclusive benefit of
customers of NFSC or its Correspondents and shall be held free of any right,
charge, security interest, lien or claim against NFSC in favor of the Fund or
its agents acting on behalf of the Fund.
B. Transaction Charges - During the term of this Agreement, FBSI shall not
assess against or collect from its brokerage customers any transaction fee
upon the purchase or redemption of any Fund's shares that are considered in
calculating the fee due pursuant to Section III hereof.  The parties
acknowledge and agree that FBSI reserves the right to collect such
transaction fees from certain customers (including "Active Traders," as FBSI
may define that term) for certain special trading services and from other
customers upon such other customers' redemption of certain shares.

C. Use of Fidelity Investments Name - Fund/Agent will not, nor will
Fund/Agent cause or permit any Fund to, describe or refer to the name
"Fidelity Investments" or any derivation thereof, or to FMR Corp. or any
affiliate thereof, or to the services or relationship contemplated by this
Agreement in any advertisement or promotional materials or activities without
the prior written consent of an authorized officer of Fidelity.

D. Nonexclusivity - Fund/Agent acknowledges that Fidelity may perform
services similar to those to be provided under this Agreement to other
investment companies, investment company sponsors, or service providers to
investment companies.

E. Force Majeure - Neither Fidelity nor its affiliates shall be liable to
Fund/Agent or any Fund, nor shall Fund/Agent or any Fund or their affiliates
be liable to Fidelity for any damage, claim, or other loss whatsoever caused
by circumstances or events beyond its reasonable control.

F. Notices - All notices and communications required or permitted by this
Agreement shall be in writing and delivered personally or sent by first class
mail unless otherwise agreed.  All such notices and other communications
shall be made:

if to Fidelity, to:
               Fidelity Investments
               82 Devonshire Street, R20A
               Boston, MA  02109
               Attn:  Donna Morris

if to Fund/Agent, to:

               Federated Shareholder Services
               Attn:  John W. McGonigle
               1001 Liberty Avenue
               Pittsburgh, PA  15222-3779

G. This Agreement and any Exhibits hereto may be amended only upon the
written agreement of the parties.

H. This Agreement may not be transferred or assigned by either Fund/Agent or
Fidelity, and shall be construed in accordance with the laws of the
Commonwealth of Massachusetts.

I. Proxies:  Fidelity agrees not to solicit or cause to be solicited
directly, or indirectly at any time in the future, any proxies from the
shareholders of a Fund in opposition to proxies solicited by management of
the Fund, unless a court of competent jurisdiction shall have determined that
the conduct of a majority of the Board of Trustees or Directors of the Fund
constitutes willful misfeasance, bad faith, gross negligence or reckless
disregard of their duties.  This Subsection I will survive the term of the
Agreement.

J. Fund and Fund/Agent's Names:  Unless otherwise agreed to in writing by
the parties, references to the Fund/Agent and any Fund may only appear in:

   i. Direct mail pieces to existing Fidelity customers;
  ii. Fidelity Focus
 iii. Fidelity Performance Directory
  iv. FundsNetwork newsletters
   v. Segment Newsletters
  vi. Fidelity On-Line Express
 vii. Brokerage Fulfillment kits

Fidelity will not use the Fund/Agent's name or the name of any Fund in any
advertisements, promotional materials or other communications with the
general public.

   IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.

Federated Shareholder Services  Fidelity Brokerage Services, Inc.


By:/s/Jeffrey R. Niss           By:/s/Donna Morris

Title:  Senior Vice President                              Title:  Senior
Vice President
Fund or
Company:

                                National Financial Services Corporation


                                By:/s/Robert J. Adams

                                Title:  Director



                                  EXHIBIT A

           Calculation and Payment of Fees Pursuant to Section III

1. Except as provided in paragraph 2 below, for the services provided by
Fidelity hereunder, Fund/Agent shall pay to NFSC a fee with respect to each
Fund, calculated daily and paid monthly in arrears, equal to (1) .35 percent
per annum with respect to non-Fixed Income Funds and (2) .25 percent per
annum with respect to Fixed Income Funds (as defined below) of the daily
market value of the total number of shares of such Fund held in accounts at
NFSC (determined by multiplying the number of such shares times the publicly-
reported net asset value of each share), excluding the value of (i) shares as
to which a brokerage customer may pay a transaction fee to FBSI because such
customer has been defined as an Active Trader, and (ii) shares held in a
brokerage account prior to the effective date of the Agreement as to the Fund
issuing such shares, and (iii) shares first placed or purchased in a
brokerage account after the termination of the Agreement as to the Fund/Agent
issuing such shares.  The total number of shares of all Funds with respect to
which a fee will be due to Fidelity hereunder shall be referred to in this
Exhibit A as "Participating Assets".  For the purposes of Exhibit A, Fixed
Income Fund shall be defined as any Fund whose underlying portfolio at the
time of the calculation of the fee is not less than 80% invested in fixed
income instruments.

2. With respect to non-Fixed Income Funds, Fidelity shall calculate the
total market value of Participating Assets for each Fund/Agent two times per
calendar year, once as of Fidelity's brokerage month end in June and once as
of Fidelity's brokerage month end in December.  In the event that as of any
such month-end the total value of Fund/Agent Participating Assets equals or
exceeds the amount(s) set forth below, then the fee due Fidelity with respect
to total Participating Assets shall be adjusted prospectively as of such
month-end to the per annum fee set forth opposite the total value of
Participating Assets.  The new fee will apply on a per annum basis going
forward, calculated daily and paid monthly in arrears, on all participating
assets until the next evaluation date.

     Total Value of Fund/Agent
      Participating Assets         Per Annum Fee

     $100 million up to $500 million .30%
     over $500 million               .25%

In all other respects, the fee due Fidelity shall be calculated and payable
in accordance with this Agreement and Exhibit A.

3. Subsequent to each month-end, NFSC shall send to Fund/Agent a statement
of the market value of shares of the Fund for which the fee is calculated for
the preceding month, together with a statement of the amount of such fee.  In
the calculation of such fee, NFSC records shall govern unless Fund/Agent can
demonstrate that the number of shares or Fund price(s) used in such
calculation is inaccurate.

4. Fund/Agent shall pay to NFSC such fee within 30 days after Fund/Agent's
receipt of such statement.  Such payment shall be by wire transfer or other
form acceptable to NFSC and shall be separate from payments related to
redemption proceeds and distributions.



                                  EXHIBIT B

                  FUNDS PARTICIPATING IN SERVICES AGREEMENT

Fund Name                CUSIP      Trading Symbol  Date

Federated High Yield Trust            314197104   FHYTX     May 2, 1994
Federated Growth Strategies Fund      314190109   FGTRX     Nov 14, 1994
Federated Stock Trust    313900102    FSTKX       Nov 14, 1994
Federated US Gov't Bond Fund          314284100   FEDBX     Nov 14, 1994
Federated Stock & Bond Fund, Inc.     86101A104   FSTBX     Nov 14, 1994
Federated Short-Term Income Fund      314206308   FSISX     May 2, 1994
Intermediate Income Fund 31420C506    N/A         May 2, 1994
Intermediate Municipal Trust                           May 2, 1994
Federated Mid-Cap Fund                            August, 1995
Federated Mini-Cap Fund                           August, 1995
Fed. Ohio Intermediate Municipal Trust            November, 1995
Fed. Pennsylvania Intermediate Municipal Trust         November, 1995

Institutional Service Shares of:
 Federated U.S. Government Securities
  Fund:  1-3 Years       313901209    FSGIX       May 2, 1994
 Federated ARMs Fund     314082207    FASSX.      May 2, 1994
 Federated U.S. Government Securities
  Fund:  2-5 Years       314200205    FIGIX       May 2, 1994
 Federated Income Trust  314199209    FITSX       May 2, 1994
 Fed Short-Term Municipal Trust       825253206   FSHSX     May 2, 1994
 Federated GNMA Trust    314184201    FGSSX       May 2, 1994
 Federated Max-Cap Fund  31420E403    N/A         Nov. 14, 1994
 Fed. U.S. Government Securities Fund:  5-10 Years          February, 1996

Class A Shares of:
 Fed. American Leaders Fund, Inc.     027128107   FALDX     Nov. 14, 1994
 Federated Equity Income Fund, Inc.   530461102   LEIFX     Nov. 14, 1994
 Federated Municipal Securities
  Fund, Inc.             530900109    LMSFX       Nov. 14, 1994
 Fed. International Equity Fund       46031P908   FTITX     Nov. 14, 1994
 Fed. International Income Fund       46031P100   FTIIX     Nov. 14, 1994
 Fed. Strategic Income Fund           338319700   N/A  Nov. 14, 1994
 Fed. World Utility Fund 981487101    N/A         Nov. 14, 1994
 Fed. Fund for U.S. Government
  Securities, Inc.                                November, 1995

Select Shares of:
 Federated Managed Aggressive
  Growth Fund            56166K800    N/A         Nov. 14, 1994
 Federated Managed Growth Fund        56166K602   N/A  Nov. 14, 1994
 Federated Managed Growth &
  Income Fund            56166K404    N/A         Nov. 14, 1994
 Federated Managed Income Fund        56166K206   N/A  Nov. 14, 1994



Fortress Shares of:
Fed. California Municipal Income Fund 625922109   N/A  Nov. 14, 1994
Fed. New York Municipal Income Fund   625922208   NYIFX     Nov. 14, 1994
Fortress Utility Fund    349561100    FEUTX       Nov. 14, 1994



                                                   Exhibit 19 under Form N-1A
                                           Exhibit 24 under Item 601/Reg. S-K


                              POWER OF ATTORNEY


     Each person whose signature appears below hereby constitutes and
appoints the Secretary and Assistant Secretary of FEDERATED GNMA TRUST and
the Deputy General Counsel of Federated Investors, and each of them, their
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution for them and in their names, place and stead, in any and
all capacities, to sign any and all documents to be filed with the Securities
and Exchange Commission pursuant to the Securities Act of 1933, the
Securities Exchange Act of 1934 and the Investment Company Act of 1940, by
means of the Securities and Exchange Commission's electronic disclosure
system known as EDGAR; and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to sign and perform each and every act and
thing requisite and necessary to be done in connection therewith, as fully to
all intents and purposes as each of them might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any
of them, or their or his substitute or substitutes, may lawfully do or cause
to be done by virtue thereof.

SIGNATURES                    TITLE                          DATE

/s/ JOHN F. DONAHUE           Chairman              March 1, 1996
John F. Donahue                (Chief Executive Officer)
/s/ GLEN R. JOHNSON           President             March 1, 1996
Glen R. Johnson



/s/ DAVID M. TAYLOR           Treasurer             March 1, 1996
David M. Taylor                 (Principal Financial and
                                 Accounting Officer)



/s/ THOMAS G. BIGLEY                                March 1, 1996
Thomas G. Bigley



/s/ JOHN T. CONROY                                  March 1, 1996
John T. Conroy, Jr.




SIGNATURES                    TITLE                          DATE



/s/ WILLIAM J. COPELAND                             March 1, 1996
William J. Copeland



/s/ JAMES E. DOWD                                   March 1, 1996
James E. Dowd



/s/ LAWRENCE D. ELLIS, M.D.                         March 1, 1996
Lawrence D. Ellis, M.D.



/s/ EDWARD L. FLAHERTY                              March 1, 1996
Edward L. Flaherty, Jr.



/s/ PETER E. MADDEN                                 March 1, 1996
Peter E. Madden



/s/ GREGOR F. MEYER                                 March 1, 1996
Gregor F. Meyer



/s/ JOHN E. MURRAY, JR.                             March 1, 1996
John E. Murray, Jr.



/s/ WESLEY W. POSVAR                                March 1, 1996
Wesley W. Posvar
/s/ MARJORIE P. SMUTS                               March 1, 1996
Marjorie P. Smuts

Sworn to and subscribed before me this 1st day of March , 1996

/s/ Marie M. Hamm
Notorial Seal
Marie M. Hamm, Notary Public
Plum Boro, Allegheny County
My Commission Expires Sept. 16, 1996


<TABLE> <S> <C>

                                                                               
<S>                             <C>                                            
                                                                               
<ARTICLE>                       6                                              
<SERIES>                                                                       
     <NUMBER>                   001                                            
     <NAME>                     Federated GNMA Trust                           
                                Institutional Shares                           
                                                                               
<PERIOD-TYPE>                   12-MOS                                         
<FISCAL-YEAR-END>               Jan-31-1996                                    
<PERIOD-END>                    Jan-31-1996                                    
<INVESTMENTS-AT-COST>           1,646,537,272                                  
<INVESTMENTS-AT-VALUE>          1,695,097,831                                  
<RECEIVABLES>                   74,677,780                                     
<ASSETS-OTHER>                  0                                              
<OTHER-ITEMS-ASSETS>            0                                              
<TOTAL-ASSETS>                  1,769,775,611                                  
<PAYABLE-FOR-SECURITIES>        75,119,497                                     
<SENIOR-LONG-TERM-DEBT>         0                                              
<OTHER-ITEMS-LIABILITIES>       218,148,494                                    
<TOTAL-LIABILITIES>             293,267,991                                    
<SENIOR-EQUITY>                 0                                              
<PAID-IN-CAPITAL-COMMON>        1,573,515,955                                  
<SHARES-COMMON-STOCK>           119,292,094                                    
<SHARES-COMMON-PRIOR>           135,857,801                                    
<ACCUMULATED-NII-CURRENT>       0                                              
<OVERDISTRIBUTION-NII>          120,546                                        
<ACCUMULATED-NET-GAINS>         (145,448,348)                                  
<OVERDISTRIBUTION-GAINS>        0                                              
<ACCUM-APPREC-OR-DEPREC>        48,560,559                                     
<NET-ASSETS>                    1,352,893,830                                  
<DIVIDEND-INCOME>               0                                              
<INTEREST-INCOME>               117,376,570                                    
<OTHER-INCOME>                  0                                              
<EXPENSES-NET>                  9,503,502                                      
<NET-INVESTMENT-INCOME>         107,873,068                                    
<REALIZED-GAINS-CURRENT>        14,663,260                                     
<APPREC-INCREASE-CURRENT>       88,242,539                                     
<NET-CHANGE-FROM-OPS>           210,778,867                                    
<EQUALIZATION>                  0                                              
<DISTRIBUTIONS-OF-INCOME>       99,770,141                                     
<DISTRIBUTIONS-OF-GAINS>        0                                              
<DISTRIBUTIONS-OTHER>           120,546                                        
<NUMBER-OF-SHARES-SOLD>         21,399,885                                     
<NUMBER-OF-SHARES-REDEEMED>     40,178,059                                     
<SHARES-REINVESTED>             2,212,467                                      
<NET-CHANGE-IN-ASSETS>          (85,992,951)                                   
<ACCUMULATED-NII-PRIOR>         0                                              
<ACCUMULATED-GAINS-PRIOR>       (192,024,521)                                  
<OVERDISTRIB-NII-PRIOR>         0                                              
<OVERDIST-NET-GAINS-PRIOR>      0                                              
<GROSS-ADVISORY-FEES>           6,160,922                                      
<INTEREST-EXPENSE>              0                                              
<GROSS-EXPENSE>                 12,645,147                                     
<AVERAGE-NET-ASSETS>            1,537,644,206                                  
<PER-SHARE-NAV-BEGIN>           10.610                                         
<PER-SHARE-NII>                 0.780                                          
<PER-SHARE-GAIN-APPREC>         0.730                                          
<PER-SHARE-DIVIDEND>            0.777                                          
<PER-SHARE-DISTRIBUTIONS>       0.000                                          
<RETURNS-OF-CAPITAL>            0.003                                          
<PER-SHARE-NAV-END>             11.340                                         
<EXPENSE-RATIO>                 0.60                                           
<AVG-DEBT-OUTSTANDING>          185,141,788                                    
<AVG-DEBT-PER-SHARE>            1.329                                          
                                                                               

</TABLE>

<TABLE> <S> <C>

                                                                               
<S>                             <C>                                            
                                                                               
<ARTICLE>                       6                                              
<SERIES>                                                                       
     <NUMBER>                   002                                            
     <NAME>                     Federated GNMA Trust                           
                                Institutional Service Shares                   
                                                                               
<PERIOD-TYPE>                   12-MOS                                         
<FISCAL-YEAR-END>               Jan-31-1996                                    
<PERIOD-END>                    Jan-31-1996                                    
<INVESTMENTS-AT-COST>           1,646,537,272                                  
<INVESTMENTS-AT-VALUE>          1,695,097,831                                  
<RECEIVABLES>                   74,677,780                                     
<ASSETS-OTHER>                  0                                              
<OTHER-ITEMS-ASSETS>            0                                              
<TOTAL-ASSETS>                  1,769,775,611                                  
<PAYABLE-FOR-SECURITIES>        75,119,497                                     
<SENIOR-LONG-TERM-DEBT>         0                                              
<OTHER-ITEMS-LIABILITIES>       218,148,494                                    
<TOTAL-LIABILITIES>             293,267,991                                    
<SENIOR-EQUITY>                 0                                              
<PAID-IN-CAPITAL-COMMON>        1,573,515,955                                  
<SHARES-COMMON-STOCK>           10,899,834                                     
<SHARES-COMMON-PRIOR>           11,345,508                                     
<ACCUMULATED-NII-CURRENT>       0                                              
<OVERDISTRIBUTION-NII>          120,546                                        
<ACCUMULATED-NET-GAINS>         (145,448,348)                                  
<OVERDISTRIBUTION-GAINS>        0                                              
<ACCUM-APPREC-OR-DEPREC>        48,560,559                                     
<NET-ASSETS>                    123,613,790                                    
<DIVIDEND-INCOME>               0                                              
<INTEREST-INCOME>               117,376,570                                    
<OTHER-INCOME>                  0                                              
<EXPENSES-NET>                  9,503,502                                      
<NET-INVESTMENT-INCOME>         107,873,068                                    
<REALIZED-GAINS-CURRENT>        14,663,260                                     
<APPREC-INCREASE-CURRENT>       88,242,539                                     
<NET-CHANGE-FROM-OPS>           210,778,867                                    
<EQUALIZATION>                  0                                              
<DISTRIBUTIONS-OF-INCOME>       8,102,927                                      
<DISTRIBUTIONS-OF-GAINS>        0                                              
<DISTRIBUTIONS-OTHER>           0                                              
<NUMBER-OF-SHARES-SOLD>         1,850,765                                      
<NUMBER-OF-SHARES-REDEEMED>     2,828,872                                      
<SHARES-REINVESTED>             532,433                                        
<NET-CHANGE-IN-ASSETS>          (85,992,951)                                   
<ACCUMULATED-NII-PRIOR>         0                                              
<ACCUMULATED-GAINS-PRIOR>       (192,024,521)                                  
<OVERDISTRIB-NII-PRIOR>         0                                              
<OVERDIST-NET-GAINS-PRIOR>      0                                              
<GROSS-ADVISORY-FEES>           6,160,922                                      
<INTEREST-EXPENSE>              0                                              
<GROSS-EXPENSE>                 12,645,147                                     
<AVERAGE-NET-ASSETS>            1,537,644,206                                  
<PER-SHARE-NAV-BEGIN>           10.610                                         
<PER-SHARE-NII>                 0.780                                          
<PER-SHARE-GAIN-APPREC>         0.710                                          
<PER-SHARE-DIVIDEND>            0.760                                          
<PER-SHARE-DISTRIBUTIONS>       0.000                                          
<RETURNS-OF-CAPITAL>            0.000                                          
<PER-SHARE-NAV-END>             11.340                                         
<EXPENSE-RATIO>                 0.80                                           
<AVG-DEBT-OUTSTANDING>          185,141,788                                    
<AVG-DEBT-PER-SHARE>            1.329                                          
                                                                               

</TABLE>


© 2022 IncJournal is not affiliated with or endorsed by the U.S. Securities and Exchange Commission