FEDERATED GNMA TRUST, 485BPOS, 1997-03-24

FEDERATED GNMA TRUST
485BPOS, 1997-03-24

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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. 31 ........... X

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X

Amendment No. 27 .......................... 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, 1997 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:

filed the Notice required by that Rule on ; or
- -------------
intends to file the Notice required by that Rule on or about
; or
------------
X 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).
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 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, 1997
with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you received
your prospectus electronically, free of charge by calling 1-800-341-7400. To
obtain other information or to make inquiries about the Trust, contact the
Trust at the address listed in the back of this prospectus. The Statement of
Additional Information, material incorporated by reference into this
document, and other information regarding the Trust is maintained
electronically with the SEC at Internet Web site (http://www.sec.gov).

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

Prospectus dated March 31, 1997

Table of Contents

<TABLE>
<S> <C>
SUMMARY OF TRUST 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 9
What Shares Cost 10
Exchanging Securities for Trust Shares 10
Certificates and Confirmations 10
Dividends 10
Capital Gains 10
REDEEMING INSTITUTIONAL SHARES 10
Telephone Redemption 11
Redeeming Shares By Mail 11
Accounts with Low Balances 12
SHAREHOLDER INFORMATION 12
Voting Rights 12
TAX INFORMATION 12
Federal Income Tax 12
State and Local Taxes 12
PERFORMANCE INFORMATION 13
OTHER CLASSES OF SHARES 13
FINANCIAL HIGHLIGHTS --
INSTITUTIONAL SERVICE SHARES 14
FINANCIAL STATEMENTS 15
INDEPENDENT AUDITORS' REPORT 24
ADDRESSES Inside Back Cover
</TABLE>

SUMMARY OF TRUST EXPENSES

INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(As a percentage of 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 shareholder services fee has been reduced to reflect the voluntary
waiver of a portion of the shareholder services fee. The shareholder
service provider can terminate this voluntary waiver at any time at its
sole discretion. The maximum shareholder services fee is 0.25%.

(2) The total operating expenses would have been 0.80% absent the voluntary
waivers 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 the 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)

Reference is made to the Independent Auditors' Report on page 24.
<TABLE>
<CAPTION>

YEAR ENDED JANUARY 31,
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD $11.34 $10.61 $11.64 $11.80 $11.64 $11.29 $10.97 $10.70 $11.08 $11.46
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income 0.74 0.78 0.82 0.85 0.93 0.98 1.00 1.00 1.01 1.04
Net realized and
unrealized gain
(loss)
on investments (0.21) 0.73 (1.03) (0.16) 0.16 0.35 0.32 0.27 (0.38) (0.38)
Total from
investment
operations 0.53 1.51 (0.21) 0.69 1.09 1.33 1.32 1.27 0.63 0.66
LESS DISTRIBUTIONS
Distributions
from
net investment
income (0.74) (0.77) (0.82) (0.85) (0.93) (0.98) (1.00) (1.00) (1.01) (1.04)
Distributions in
excess of net
investment
income(a) -- (0.01) -- -- -- -- -- -- -- --
Total
distributions (0.74) (0.78) (0.82) (0.85) (0.93) (0.98) (1.00) (1.00) (1.01) (1.04)
NET ASSET VALUE,
END OF PERIOD $11.13 $11.34 $10.61 $11.64 $11.80 $11.64 $11.29 $10.97 $10.70 $11.08
TOTAL RETURN(B) 4.97% 14.61% (1.71%) 6.02% 9.78% 12.25% 12.65% 12.33% 5.99% 6.29%
RATIOS TO
AVERAGE
NET ASSETS
Expenses 0.60% 0.60% 0.56% 0.51% 0.51% 0.51% 0.52% 0.52% 0.53% 0.52%
Net investment
income 6.74% 7.02% 7.51% 7.22% 7.98% 8.54% 9.08% 9.19% 9.33% 9.51%
Expense waiver/
reimbursement(c) 0.20% 0.20% -- -- -- -- -- -- -- --
SUPPLEMENTAL DATA
Net assets, end
of period (000
omitted) $1,199,733 $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
Portfolio
turnover 63% 43% 136% 117% 33% 57% 48% 27% 40% 45%
</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.

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

GENERAL INFORMATION

The Trust was established as a Massachusetts business trust under a
Declaration of Trust dated December 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
charge 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:

* direct obligations of the U.S. Treasury bills, notes, and bonds;

* collateralized mortgage obligations;

* real estate mortgage investment conduits;

* notes, bonds, and discount notes issued or guaranteed by U.S. government
agencies and instrumentalities supported by the full faith and credit of the
United States;

* notes, bonds, and discount notes of U.S. government agencies or
instrumentalities which receive or have access to federal funding; and

* notes, bonds, and discount notes of other U.S. government
instrumentalities supported only by the credit of the instrumentalities.

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.

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 0.40% of the Trust's average daily net assets. 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 $110 billion invested across
over 300 funds under management and/or administration by its subsidiaries,
as of December 31, 1996, Federated Investors is one of the largest mutual
fund investment managers in the United States. With more than 2,000
employees, Federated continues to be led by the management who founded the
company in 1955. Federated funds are presently at work in and through 4,500
financial institutions nationwide.

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.

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> <S>
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
0.075 of 1% on assets in excess of $750 million
</TABLE>

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

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 0.25% 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 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.

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.

PURCHASING SHARES 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 financial intermediary may be subject to a
smaller minimum investment.

WHAT SHARES COST

Shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the 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, Donnelly, and Meck, 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 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)

Reference is made to the Independent Auditors' Report on page 24.
<TABLE>
<CAPTION>

YEAR ENDED JANUARY 31,
1997 1996 1995 1994 1993(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.34 $10.61 $11.64 $11.80 $11.71
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.74 0.78 0.79 0.82 0.61
Net realized and unrealized gain (loss)
on investments (0.23) 0.71 (1.03) (0.16) 0.09
Total from investment operations 0.51 1.49 (0.24) 0.66 0.70
LESS DISTRIBUTIONS
Distributions from net investment income (0.72) (0.76) (0.79) (0.82) (0.61)
NET ASSET VALUE, END OF PERIOD $11.13 $11.34 $10.61 $11.64 $11.80
TOTAL RETURN(B) 4.76% 14.39% (1.92%) 5.76% 5.62%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.80% 0.80% 0.77% 0.76% 0.76%*
Net investment income 6.54% 6.82% 7.32% 6.97% 7.57%*
Expense waiver/reimbursement(c) 0.25% 0.25% 0.14% -- --
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $73,857 $123,614 $120,427 $137,235 $50,166
Portfolio turnover 63% 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.

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

FEDERATED GNMA TRUST
PORTFOLIO OF INVESTMENTS

JANUARY 31, 1997
<TABLE>
<CAPTION>

PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
LONG-TERM GOVERNMENT OBLIGATIONS -- 89.9%
(A)GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--89.9%
$ 4,939 6.00%, 12/15/2023 - 4/15/2024 $ 4,613
112,466,126 6.50%, 10/15/2023 - 5/15/2024 107,897,752
244,569,326 7.00%, 5/15/2023 - 10/15/2024 240,972,943
274,957,573 7.50%, 5/15/2022 - 5/15/2026 277,135,591
184,711,535 8.00%, 3/15/2017 - 8/15/2026 190,049,932
63,953,285 8.50%, 4/15/2017 - 2/15/2022 66,983,909
85,769,122 9.00%, 6/15/2016 - 12/15/2026 91,690,615
62,130,693 9.50%, 5/15/2016 - 10/15/2026 67,454,552
14,493,268 10.00%, 1/15/2018 - 1/15/2026 15,986,064
16,200,000 (b)10.00%, 12/15/2027 17,850,456
6,744,852 10.50%, 1/15/2016 - 8/15/2019 7,482,603
13,777,854 11.00%, 12/15/2009 - 10/15/2019 15,492,247
11,270,250 11.50%, 4/15/2010 - 4/15/2016 12,816,157
18,427,939 12.00%, 7/15/2011 - 12/15/2015 21,225,256
8,095,889 12.50%, 1/15/2010 - 10/15/2015 9,405,733
1,006,104 13.00%, 12/15/2010 - 3/15/2015 1,175,250
1,536,651 13.50%, 5/15/2010 - 8/15/2014 1,801,210
TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(IDENTIFIED COST $1,127,423,107) 1,145,424,883
</TABLE>

FEDERATED GNMA TRUST

PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
U.S. TREASURY NOTES--8.3%
$ 105,000,000 6.250%-7.00%, 9/30/2001-7/15/2006
(IDENTIFIED COST $106,243,877) $ 105,267,220
(C)REPURCHASE AGREEMENTS--2.7%
18,330,000 BT Securities Corp., 5.58%, dated 1/31/1997, due 2/3/1997 18,330,000
16,000,000 (d)Goldman Sachs Group, 5.32%, dated 1/21/1997, due 2/24/1997 16,000,000
TOTAL REPURCHASE AGREEMENTS (AT AMORTIZED COST) 34,330,000
TOTAL INVESTMENTS (IDENTIFIED COST $1,267,996,984)(e) $1,285,022,103
</TABLE>

(a) Because of monthly principal payments, the average lives of the
Government National Mortgage Association Modified Pass-Through Securities
(based upon Federal Housing Authority/Veterans Administration historical
experience) are less than the stated maturities.

(b) Indicates securities subject to dollar roll transactions with a total
market value of $17,850,456.

(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 creditworthiness of the issuer is
downgraded.

(e) The cost of investments for federal tax purposes amounts to
$1,267,996,984. The net unrealized appreciation of investments on a
federal tax basis amounts to $17,025,119 which is comprised of $27,651,974
appreciation and $10,626,855 depreciation at January 31, 1997.

Note: The categories of investments are shown as a percentage of net assets
($1,273,590,472) at January 31, 1997.

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

FEDERATED GNMA TRUST
STATEMENT OF ASSETS AND LIABILITIES

JANUARY 31, 1997
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax
cost $1,262,996,984) $ 1,285,022,103
Income receivable 10,094,013
Receivable for investments sold 42,256,150
Receivable for shares sold 3,631,298
Total assets 1,341,003,564
LIABILITIES:
Payable for investments purchased $ 42,154,181
Payable for shares redeemed 1,202,199
Income distribution payable 5,036,848
Payable to Bank 852,804
Payable for dollar roll transactions 17,841,832
Accrued expenses 325,228
Total liabilities 67,413,092
NET ASSETS for 114,430,342 shares outstanding $ 1,273,590,472
NET ASSETS CONSIST OF:
Paid in capital $ 1,383,977,987
Net unrealized appreciation of investments 17,025,119
Accumulated net realized loss on investments (127,420,175)
Undistributed net investment income 7,541
Total Net Assets $ 1,273,590,472
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$1,199,733,545 / 107,794,429 shares outstanding $11.13
INSTITUTIONAL SERVICE SHARES:
$73,856,927 / 6,635,913 shares outstanding $11.13
</TABLE>

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

FEDERATED GNMA TRUST
STATEMENT OF OPERATIONS

YEAR ENDED JANUARY 31, 1997
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest (net of dollar roll expense of $7,790,773) $ 100,048,132
EXPENSES:
Investment advisory fee $ 5,451,836
Administrative personnel and services fee 1,030,132
Custodian fees 302,537
Transfer and dividend disbursing agent fees and expenses 332,360
Directors'/Trustees' fees 24,381
Auditing fees 19,998
Legal fees 4,102
Portfolio accounting fees 160,203
Distribution services fee -- Institutional Service Shares 272,453
Shareholder services fee -- Institutional Shares 3,134,846
Shareholder services fee -- Institutional Service Shares 272,453
Share registration costs 33,495
Printing and postage 27,051
Insurance premiums 13,545
Taxes 82,126
Miscellaneous 12,647
Total expenses 11,174,165
Waivers --
Waiver of distribution services fee -- Institutional Service Shares $ (264,824)
Waiver of shareholder services fee -- Institutional Shares (2,507,877)
Waiver of shareholder services fee -- Institutional Service Shares (7,629)
Total waivers (2,780,330)
Net expenses 8,393,835
Net investment income 91,654,297
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 2,951,050
Net change in unrealized appreciation of investments (31,535,440)
Net realized and unrealized loss on investments (28,582,977)
Change in net assets resulting from operations $ 63,069,907
</TABLE>

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

FEDERATED GNMA TRUST
STATEMENT OF CHANGES IN NET ASSETS

YEAR ENDED JANUARY 31,
1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 91,654,297 $ 107,873,068
Net realized gain (loss) on investments ($2,951,050 net gain
and $21,821,623 net loss, respectively, as computed for federal
income tax purposes) 2,951,050 14,663,260
Net change in unrealized appreciation (depreciation) (31,535,440) 88,242,539
Change in net assets resulting from operations 63,069,907 210,778,867
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income
Institutional Shares (84,428,204) (99,770,141)
Institutional Service Shares (7,098,006) (8,102,927)
Distributions in excess of net investment income
Institutional Shares -- (120,546)
Change in net assets resulting from distributions to shareholders (91,526,210) (107,993,614)
SHARE TRANSACTIONS --
Proceeds from sale of shares 214,663,961 257,208,894
Net asset value of shares issued to shareholders in payment
of distributions declared 25,204,908 30,445,454
Cost of shares redeemed (414,329,714) (476,432,552)
Change in net assets resulting from share transactions (174,460,845) (188,778,204)
Change in net assets (202,917,148) (85,992,951)
NET ASSETS:
Beginning of period 1,476,507,620 1,562,500,571
End of period (including undistributed net investment income
of $7,541 and $0, respectively) $ 1,273,590,472 $ 1,476,507,620
</TABLE>

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

FEDERATED GNMA TRUST
NOTES TO FINANCIAL STATEMENTS

JANUARY 31, 1997

1. ORGANIZATION

Federated GMNA 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 offers two classes of shares:
Institutional Shares and Institutional Service Shares. The Trust's objective
is to obtain current income by investing in instruments issued or guaranteed
by the Government National Mortgage Association.

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 -- U.S. government securities are generally valued at
the mean of the latest bid and asked price as furnished by an independent
pricing service. Short-term securities are valued at the prices provided by
an independent pricing service. However, short-term securities with
remaining maturities of sixty days or less at the time of purchase may be
valued at amortized cost, which approximates fair market value.

REPURCHASE AGREEMENTS -- It is the policy of the 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 due to differing treatments for
expiring capital loss carryforwards. The following reclassifications have
been made to the financial statements.

INCREASE (DECREASE)
ACCUMULATED
PAID-IN CAPITAL NET REALIZED LOSS

($15,077,123) $15,077,123

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, 1997, the Trust, for federal tax purposes, had a capital loss
carryforward of $127,420,177, 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:

EXPIRATION YEAR EXPIRATION AMOUNT
1998 $ 14,893,518
1999 $ 13,784,245
2001 $ 5,182,436
2003 $ 71,738,355
2004 $ 21,821,623

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.

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:

YEAR ENDED JANUARY 31,
1997 1996
INSTITUTIONAL SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 18,461,312 $ 204,235,676 21,399,885 $ 236,718,872
Shares issued to shareholders in payment
of distributions declared 2,016,195 22,248,293 2,212,467 24,540,300
Shares redeemed (31,975,172) (353,373,236) (40,178,059) (445,126,223)
Net change resulting from Institutional
Share transactions (11,497,665) $ (126,889,267) (16,565,707) $ (183,867,051)
<CAPTION>
YEAR ENDED JANUARY 31,
1997 1996
INSTITUTIONAL SERVICE SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 943,333 $ 10,428,285 1,850,765 $ 20,490,022
Shares issued to shareholders in payment
of distributions declared 267,944 2,956,615 532,433 5,905,154
Shares redeemed (5,475,198) (60,956,478) (2,828,872) (31,306,329)
Net change resulting from Institutional
Service Share transactions (4,263,921) $ (47,571,578) (445,674) $ (4,911,153)
Net change resulting from share
transactions (15,761,586) $ (174,460,845) (17,011,381) $ (188,778,204)
</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 0.40% 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. The 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 0.25% of the
average daily net assets of the Institutional Service Shares, annually to
compensate FSC. FSC may voluntarily choose to waive any portion of its fee.
FSC 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 0.25% of average daily net assets of the Trust for the period. The
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 AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ, through
its subsidiary, Federated Shareholder Services Company ("FSSC") serves as
transfer and dividend disbursing agent for the Trust. The fee paid to FSSC
is based on the size, type, and number of accounts and transactions made by
shareholders.

PORTFOLIO ACCOUNTING FEES -- FServ maintains the 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, 1997, were as follows:

Purchases $994,730,976
Sales $846,282,185

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, 1997, the related statement of operations for the year then
ended, the statements of changes in net assets for the years ended January
31, 1997 and 1996, and the financial highlights 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
securities owned as of January 31, 1997, 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, 1997, the results of its operations, 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 12, 1997

ADDRESSES

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 8600
Trust Company Boston, Massachusetts 02266-8600

Transfer Agent and Dividend
Disbursing Agent
Federated Shareholder P.O. Box 8600
Services Company Boston, Massachusetts 02266-8600

Independent Auditors
Deloitte & Touche LLP 2500 PPG Place
Pittsburgh, Pennsylvania 15222-5401

FEDERATED GNMA TRUST
INSTITUTIONAL SHARES

Prospectus

An Open-End,
Diversified Management
Investment Company

March 31, 1997

[Graphic]
Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779

Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.

Cusip 314184102

8022901A-IS (3/97)

[Graphic]

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, 1997 with the Securities and Exchange Commission ("SEC"). The
information contained in the Statement of Additional Information is
incorporated by reference into this prospectus. You may request a copy of
the Statement of Additional Information or a paper copy of this prospectus,
if you received your prospectus electronically, free of charge by calling
1-800-341-7400. To obtain other information or to make inquiries about the
Trust, contact the Trust at the address listed in the back of this
prospectus. The Statement of Additional Information, material incorporated
by reference into this document, and other information regarding the Trust
is maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).

Prospectus dated March 31, 1997

Table of Contents

<TABLE>
<S> <C>
SUMMARY OF TRUST 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 10
Certificates and Confirmations 11
Dividends 11
Capital Gains 11
REDEEMING INSTITUTIONAL SERVICE SHARES 11
Telephone Redemption 11
Redeeming Shares By Mail 12
Accounts with Low Balances 12
SHAREHOLDER INFORMATION 12
Voting Rights 12
TAX INFORMATION 13
Federal Income Tax 13
State and Local Taxes 13
PERFORMANCE INFORMATION 13
OTHER CLASSES OF SHARES 14
FINANCIAL HIGHLIGHTS --
INSTITUTIONAL SHARES 15
FINANCIAL STATEMENTS 16
INDEPENDENT AUDITORS' REPORT 25
ADDRESSES 26

SUMMARY OF TRUST EXPENSES

</TABLE>
<TABLE>
<CAPTION>

INSTITUTIONAL SERVICE SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(As a percentage of 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 12b-1 fee has been reduced to reflect the voluntary waiver of a
portion of the 12b-1 fee. The distributor can terminate this voluntary
waiver at any time at its sole discretion. The maximum 12b-1 fee is 0.25%.

(2) The shareholder services fee has been reduced to reflect the voluntary
waiver of a portion of the shareholder services fee. The shareholder
service provider can terminate this voluntary waiver at any time at its
sole discretion. The maximum shareholder services fee is 0.25%.

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

The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of the 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.

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 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)

Reference is made to the Independent Auditors' Report on page 25.
<TABLE>
<CAPTION>

* 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.

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

GENERAL INFORMATION

The Trust was established as a Massachusetts business trust under a
Declaration of Trust dated December 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
charge imposed by the Trust.

INVESTMENT INFORMATION

INVESTMENT OBJECTIVE

INVESTMENT POLICIES

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.

The Trust's permissible investments are as follows:

* direct obligations of the U.S. Treasury bills, notes, and bonds;

* collateralized mortgage obligations;

* real estate mortgage investment conduits;

* notes, bonds, and discount notes issued or guaranteed by U.S. government
agencies and instrumentalities supported by the full faith and credit of the
United States;

* notes, bonds, and discount notes of U.S. government agencies or
instrumentalities which receive or have access to federal funding; and

* notes, bonds, and discount notes of other U.S. government
instrumentalities supported only by the credit of the instrumentalities.

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.

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.

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

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

* repurchase agreements.

INVESTMENT LIMITATIONS

TRUST INFORMATION

MANAGEMENT OF THE TRUST

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.

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 0.25% 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 0.25% 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.

ADMINISTRATION OF THE TRUST

MAXIMUM AVERAGE AGGREGATE DAILY NET
ADMINISTRATIVE FEE ASSETS OF THE FEDERATED FUNDS
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

0.075 of 1% on assets in excess of $750 million

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.

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.

PURCHASING SHARES 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 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.

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

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 charge 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.

EXCHANGING SECURITIES FOR TRUST SHARES

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

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

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.

REDEEMING SHARES BY MAIL

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.

ACCOUNTS WITH LOW BALANCES

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

TAX INFORMATION

FEDERAL INCOME TAX

STATE AND LOCAL TAXES

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

PERFORMANCE INFORMATION

From time to time, the 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.

Shares are sold without any sales charge 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 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)

Reference is made to the Independent Auditors' Report on page 24.
<TABLE>
<CAPTION>

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

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

FEDERATED GNMA TRUST
PORTFOLIO OF INVESTMENTS

JANUARY 31, 1997
<TABLE>
<CAPTION>

FEDERATED GNMA TRUST

(b) Indicates securities subject to dollar roll transactions with a total
market value of $17,850,456.

Note: The categories of investments are shown as a percentage of net assets
($1,273,590,472) at January 31, 1997.

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

FEDERATED GNMA TRUST
STATEMENT OF ASSETS AND LIABILITIES

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

FEDERATED GNMA TRUST
STATEMENT OF OPERATIONS

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

FEDERATED GNMA TRUST
STATEMENT OF CHANGES IN NET ASSETS

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

FEDERATED GNMA TRUST
NOTES TO FINANCIAL STATEMENTS

JANUARY 31, 1997

1. ORGANIZATION

2. SIGNIFICANT ACCOUNTING POLICIES

INCREASE (DECREASE)
ACCUMULATED
PAID-IN CAPITAL NET REALIZED LOSS

($15,077,123) $15,077,123

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

EXPIRATION YEAR EXPIRATION AMOUNT
1998 $ 14,893,518
1999 $ 13,784,245
2001 $ 5,182,436
2003 $ 71,738,355
2004 $ 21,821,623

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:

4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

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, 1997, were as follows:

Purchases $994,730,976
Sales $846,282,185

INDEPENDENT AUDITORS' REPORT

To the Trustees and Shareholders of
FEDERATED GNMA TRUST:

DELOITTE & TOUCHE LLP

Pittsburgh, Pennsylvania
March 12, 1997

ADDRESSES

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 8600
Trust Company Boston, Massachusetts 02266-8600

Transfer Agent and Dividend
Disbursing Agent

Federated Shareholder P.O. Box 8600
Services Company Boston, Massachusetts 02266-8600

Independent Auditors
Deloitte & Touche LLP 2500 PPG Place
Pittsburgh, Pennsylvania 15222-5401

FEDERATED GNMA TRUST

INSTITUTIONAL SERVICE SHARES

PROSPECTUS

An Open-End,
Diversified Management
Investment Company

March 31, 1997

[Graphic]
Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779

Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.

Cusip 314184201

8022901A-SS (3/97)

[Graphic]

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, 1997. 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 1-800-341-7400.

FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779

Statement dated March 31, 1997

[Graphic]
Federated Investors

Federated Investors Tower
Pittsburgh, PA 15222-3779

Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.

Cusip 314184102
Cusip 314184201
8022901B (3/97)

TABLE OF CONTENTS

GENERAL INFORMATION ABOUT THE TRUST 1
INVESTMENT OBJECTIVE AND POLICIES 1
Types of Investments 1
When-Issued and Delayed Delivery Transactions 1
Lending of Portfolio Securities 1
Repurchase Agreements 1
Reverse Repurchase Agreements 2
Portfolio Turnover 2
Investment Limitations 2
FEDERATED GNMA TRUST MANAGEMENT 4
Trust Ownership 7
Trustees Compensation 8
Trustee Liability 8
INVESTMENT ADVISORY SERVICES 8
Adviser to the Trust 8
Advisory Fees 9
BROKERAGE TRANSACTIONS 9
OTHER SERVICES 9
Trust Administration 9
Custodian and Portfolio Recordkeeper 9
Transfer Agent 9
Independent Auditors 10
PURCHASING SHARES 10
Distribution Plan and Shareholder Services 10
Conversion to Federal Funds 10
DETERMINING NET ASSET VALUE 10
Determining Market Value of Securities 10
REDEEMING SHARES 11
MASSACHUSETTS PARTNERSHIP LAW 11
EXCHANGING SECURITIES FOR SHARES 11
Tax Consequences 11
TAX STATUS 11
The Trust's Tax Status 11
Shareholders' Tax Status 11
TOTAL RETURN 12
YIELD 12
PERFORMANCE COMPARISONS 12
Economic and Market Information 13
Duration 13
ABOUT FEDERATED INVESTORS 14
Mutual Fund Market 14
Institutional Clients 14
Bank Marketing 14
Broker/Dealers and Bank
Broker/Dealer Subsidiaries 14

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.

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, 1997 and 1996, the portfolio turnover rates were 63% and 43%,
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 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 11U2%. 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

Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Director or
Trustee of the Funds.

John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937

Trustee

President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.

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

Trustee

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

James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922

Trustee

Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.

Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932

Trustee

Professor of Medicine, University of Pittsburgh; Medical Director,
University of Pittsburgh Medical Center - Downtown; Member, Board of
Directors, University of Pittsburgh Medical Center; formerly, Hematologist,
Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director
or Trustee of the Funds.

Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924

Trustee

Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc., formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee of the Funds.

Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee

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

Gregor F. Meyer
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: October 6, 1926

Trustee

Attorney, Member of Miller, Ament, Henny & Kochuba; 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; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., National Defense University, U.S. Space Foundation and Czech
Management Center; President Emeritus, University of Pittsburgh; founding
Chairman, National Advisory Council for Environmental Policy and Technology,
Federal Emergency Management Advisory Board and Czech Management Center;
Director or Trustee of the Funds.

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

Trustee

Public Relations/Marketing/Conference Planning, Manchester Craftsmen's
Guild; Restaurant Consultant, Frick Art & History Center; Conference
Coordinator, University of Pittsburgh Art History Department, 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, Secretary and Treasurer

Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated Research;
Director, Federated Research Corp. and Federated Global Research Corp.;
Trustee, Federated Shareholder Services Company; Director, Federated
Services Company; President and Trustee, Federated Shareholder Services;
Director, Federated Securities Corp.; Executive Vice President and Secretary
of the Funds; Treasurer of some of the Funds.

Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923

Vice President

Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of
the Funds; Director or Trustee of some of the Funds.

* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.

@ Member of the Executive Committee. The Executive Committee of the Board of
Trustees handles the responsibilities of the Board between meetings of the
Board.

As used in the table above, "The Funds" and "Funds" mean the following
investment companies: 111 Corcoran Funds; Arrow Funds; Automated Government
Money Trust; Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash
Trust Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D.
Jones & Co. Daily Passport Cash Trust; Federated Adjustable Rate U.S.
Government Fund, Inc.; Federated American Leaders Fund, Inc.; Federated ARMs
Fund; Federated Equity Funds; Federated Equity Income Fund, Inc.; Federated
Fund for U.S. Government Securities, Inc.; Federated GNMA Trust; Federated
Government Income Securities, Inc.; Federated Government Trust; Federated
High Income Bond Fund, Inc.; Federated High Yield Trust; Federated Income
Securities Trust; Federated Income Trust; Federated Index Trust; Federated
Institutional Trust; Federated Insurance Series; Federated Investment
Portfolios; Federated Investment Trust; Federated Master Trust; Federated
Municipal Opportunities Fund, Inc.; Federated Municipal Securities Fund,
Inc.; Federated Municipal Trust; Federated Short-Term Municipal Trust;
Federated Short-Term U.S. Government Trust; Federated Stock and Bond Fund,
Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated Total
Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government Securities
Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed Income Securities,
Inc.; High Yield Cash Trust; Intermediate Municipal Trust; International
Series, Inc.; Investment Series Funds, Inc.; Investment Series Trust;
Liberty Term Trust, Inc. -- 1999; Liberty U.S. Government Money Market
Trust; Liquid Cash Trust; Managed Series Trust; Money Market Management,
Inc.; Money Market Obligations Trust; Money Market Trust; Municipal
Securities Income Trust; Newpoint Funds; Peachtree Funds; RIMCO Monument
Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The Planters
Funds; The Starburst Funds; The Starburst Funds II; The Virtus Funds; Trust
for Financial Institutions; Trust for Government Cash Reserves; Trust for
Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations;
Wesmark Funds; and World Investment Series, Inc.

TRUST OWNERSHIP
Officers and Trustees own less than 1% of the Trust's outstanding shares.

As of March 10, 1997, 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 640,950 Shares
(9.64%); Trucojo Trust Company of St. Joseph, St. Joseph, Missouri, owned
approximately 623,141 Shares (9.37%); and Ambank & Co., Baton Rouge,
Louisiana, owned approximately 994,140 Shares (14.95%).

As of March 10, 1997, the following shareholder of record owned 5% or more
of the outstanding Institutional Shares of the Trust: Edrayco, Gainesville,
Georgia, owned approximately 5,603,650 Shares (5.28%).

TRUSTEES COMPENSATION

<TABLE>
<CAPTION>
AGGREGATE
NAME, COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX+
<S> <C> <S>
John F. Donahue $0 $0 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Thomas G. Bigley $2,390.92 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
John T. Conroy, Jr. $2,630.40 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
William J. Copeland $2,630.40 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
James E. Dowd $2,630.40 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Lawrence D. Ellis, M.D. $2,390.92 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Edward L. Flaherty, Jr. $2,630.40 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Peter E. Madden $2,390.92 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Gregor F. Meyer $2,390.92 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
John E. Murray, Jr. $2,390.92 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Wesley W. Posvar $2,390.92 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Marjorie P. Smuts $2,390.92 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
</TABLE>

* Information is furnished for the fiscal year ended January 31, 1997.

# The aggregate compensation is provided for the Trust which is comprised of
one portfolio, as of January 31, 1997.

+ The information is provided for the last calendar year.

TRUSTEE LIABILITY

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

INVESTMENT ADVISORY SERVICES

ADVISER TO THE 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, 1997, 1996, and 1995, the Trust's adviser earned
$5,451,836, $6,160,922, and $6,989,013, respectively.

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. The former
Administrator is a subsidiary of Federated Investors. For purposes of this
Statement of Additional Information, Federated Services Company and
Federated Administrative Services, may hereinafter collectively be referred
to as the Administrators.

For the fiscal year ended January 31, 1997, Federated Services Company
earned $1,030,132. For the fiscal years ended January 31, 1996 and 1995,
Federated Administrative Services earned $1,165,702 and $1,317,794,
respectively.

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.
Federated Services Company, Pittsburgh, PA, 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.
For its services, the transfer agent 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 year ended January 31, 1997, payments in the amount of
$272,453 were made pursuant to the Distribution Plan (Institutional Service
Shares only) of which $264,824 was waived. In addition, for the fiscal year
ended January 31, 1997, the Institutional Shares and Institutional Service
Shares paid shareholder service fees in the amount of $3,134,846 and
$272,453, respectively, of which $2,507,877 and $7,629, respectively, were
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, five-year, and ten-year periods ended January 31, 1997, and for
the period from March 23, 1982 (effective date of the Trust's registration
statement) to January 31, 1997 were 4.97%, 6.60%, 8.22%, and 10.46%,
respectively. The Trust's average annual total return for Institutional
Service Shares for the one-year period ended January 31, 1997, and for the
period from May 30, 1992 (start of performance) to January 31, 1997 were
4.76% and 6.19%, 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, 1997 was 6.86%. The Trust's yield for Institutional Service
Shares was 6.66% 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.

* LEHMAN BROTHERS GNMA 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 quasi-federal 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.

Advertising and other promotional literature may include charts, graphs and
other illustrations using the Trust's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Trust can
compare its performance, or performance for the types of securities in which
it invests, to a variety of other investments, such as bank savings
accounts, certificates of deposit, and Treasury bills.

ECONOMIC AND MARKET INFORMATION

Advertising and sales literature for the Trust may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by Trust portfolio managers and their views and analysis on how
such developments could affect the Funds. In addition, advertising and sales
literature may quote statistics and give general information about the
mutual fund industry, including the growth of the industry, from sources
such as the Investment Company Institute.

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. These traders handle
trillions of dollars in annual trading volume.

J. Thomas Madden, Executive Vice President, oversees Federated Investors'
equity and high yield corporate bond management while William D. Dawson,
Executive Vice President, oversees Federated Investors' domestic fixed
income management. Henry A. Frantzen, Executive Vice President, oversees the
management of Federated Investors' international and global portfolios.

MUTUAL FUND MARKET

Twenty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $3.5 trillion to the more than 6,000 funds
available.* Federated Investors, through its subsidiaries, distributes
mutual funds for a variety of investment applications. Specific markets
include:

INSTITUTIONAL CLIENTS

Federated Investors meets the needs of more than 4,000 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for
a variety of applications, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax-exempt
entities, foundations/endowments, insurance companies, and investment and
financial advisors. The marketing effort to these institutional clients is
headed by John B. Fisher, President, Institutional Sales Division.

BANK MARKETING

Other institutional clients include close relationships with more than 1,600
banks and trust organizations. Virtually all of the trust divisions of the
top 100 bank holding companies use Federated funds in their clients'
portfolios. The marketing effort to trust clients is headed by 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 -- we have over 2,000 broker/dealer and bank broker/dealer
relationships across the country -- supported by more wholesalers than any
other mutual fund distributor. Federated's service to financial
professionals and institutions has earned it high ratings in several surveys
performed by DALBAR, Inc. DALBAR is recognized as the industry benchmark for
service quality measurement. The marketing effort to these firms is headed
by James F. Getz, President, Federated Securities Corp.

* Source: Investment Company Institute [Graphic] [Graphic]

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) (i) Copy of Speciman Certificate for Shares of Capital
Stock for Institutional Shares of the Registrant; +
(ii) Copy of Speciman Certificate for Shares of Capital
Stock for Institutional Service Shares of the
Registrant; +
(5) Conformed copy of Investment Advisory Contract of the
Registrant dated August 1, 1989; +
(6) (i) Conformed copy of Distributor's Contract; +
(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);

+ 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)
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)
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)

(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 (16);
(iii) Conformed copy of Shareholder Services Sub-
Contract between Fidelity and Federated Shareholder
Services, on behalf of the Registrant (16);
(iv) Conformed copy of Administrative Services
Agreement of the Registrant (15);
(v) Conformed Copy of Agreement for Fund Accounting
Services, Administrative Services, Transfer Agency
Services, and Custody Services Procurement of the
Registrant; +
(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 Independent Auditors Consent;+
(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) Conformed copy of Distribution Plan; +
(16) Schedule of Computation of Fund Performance Data (15);
(17) Copy of Financial Data Schedules;+
(18) (i) The Registrant hereby incorporates the conformed
copy of the specimen Multiple Class Plan 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) Conformed copy of Power of Attorney;+

+ 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)
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)
16. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 29 on Form N-1A filed March 26, 1996. (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 10, 1997
Shares of Beneficial Interest
(no par value)
Institutional Shares 10,650
Institutional Service Shares 978

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.

The remaining Officers of the investment adviser are:
William D. Dawson III, Henry A. Frantzen, J. Thomas Madden,
and Mark L. Mallon, Executive Vice Presidents; Peter R.
Anderson, Drew J. Collins, Jonathan C. Conley, Deborah A.
Cunningham, Mark E. Durbiano, J. Alan Minteer, and Mary Jo
Ochson, Senior Vice Presidents; J. Scott Albrecht, Joseph M.
Balestrino, Randall S. Bauer, David F. Belton, Christine A.
Bosio, David A. Briggs, Michael P. Donnelly, Michael J.
Donnelly, Alexandre de Bethmann, Linda A. Duessel, Kathleen
M. Foody-Malus, Thomas M. Franks, Edward C. Gonzales, James
E. Grefenstette, Susan R. Hill, Stephen A. Keen, Mark S.
Kopinski, Robert M. Kowit, Jeff A. Kozemchak, Marian R.
Marinack, Sandra L. McInerney, Susan M. Nason,Robert J.
Ostrowski, Charles A. Ritter, Scott B. Schermerhorn, Frank
Semack, Aash M. Shah, William F. Stotz, Tracy P. Stouffer,
Edward J. Tiedge, Paige M. Wilhelm, and Jolanta M. Wysocka,
Vice Presidents, Thomas R. Donahue, Treasurer, and Stephen A.
Keen, 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.
+ All exhibits have been filed electronically.

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)

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: 111 Corcoran Funds;
Arrow Funds; Automated Government Money Trust; BayFunds;
Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash
Trust Series II; Cash Trust Series, Inc.; DG Investor
Series; Edward D. Jones & Co. Daily Passport Cash Trust;
Federated Adjustable Rate U.S. Government Fund, Inc.;
Federated American Leaders Fund, Inc.; Federated ARMs Fund;
Federated Equity Funds; Federated Equity Income Fund, Inc.;
Federated Fund for U.S. Government Securities, Inc.;
Federated GNMA Trust; Federated Government Income
Securities, Inc.; Federated Government Trust; Federated High
Income Bond Fund, Inc.; Federated High Yield Trust;
Federated Income Securities Trust; Federated Income Trust;
Federated Index Trust; Federated Institutional Trust;
Federated Insurance Series; Federated Investment Portfolios;
Federated Investment Trust; Federated Master Trust;
Federated Municipal Opportunities Fund, Inc.; Federated
Municipal Securities Fund, Inc.; Federated Municipal Trust;
Federated Short-Term Municipal Trust; Federated Short-Term
U.S. Government Trust; Federated Stock and Bond Fund, Inc.;
Federated Stock Trust; Federated Tax-Free Trust; Federated
Total Return Series, Inc.; Federated U.S. Government Bond
Fund; Federated U.S. Government Securities Fund: 1-3 Years;
Federated U.S. Government Securities Fund: 2-5 Years;
Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed
Income Securities, Inc.; High Yield Cash Trust; Independence
One Mutual Funds; Intermediate Municipal Trust;
International Series, Inc.; Investment Series Funds, Inc.;
Investment Series Trust; Liberty U.S. Government Money
Market Trust; Liquid Cash Trust; Managed Series Trust;
Marshall Funds, Inc.; Money Market Management, Inc.; Money
Market Obligations Trust; Money Market Trust; Municipal
Securities Income Trust; Newpoint Funds; Peachtree Funds;
RIMCO Monument Funds; SouthTrust Vulcan Funds; Star Funds;
Targeted Duration Trust; Tax-Free Instruments Trust; The
Biltmore Funds; The Biltmore Municipal Funds; The Monitor
Funds; The Planters Funds; The Starburst Funds; The
Starburst Funds II; The Virtus Funds; 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; Vision Group of Funds,
Inc.; Wesmark Funds; 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,
Pittsburgh, PA 15222-3779 Secretary, and
Treasurer

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

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

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

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

Dale R. Browne 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

R. Leonard Corton, 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

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

Mark D. Fisher 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

John K. Goettlicher 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

James E. Hickey 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

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

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

Thomas A. Peters III 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

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

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

Edward L. Smith 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

Richard Suder 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

Miles J. Wallace 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

Edward J. Wojnarowski 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

Edward R. Bozek Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Charlene H. Jennings Assistant 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

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

Leslie K. Platt Asstistant Secretary, --
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 P.O. Box 8600
("Transfer Agent and Boston, Massachusetts
Dividend Disbursing Agent') 02266-8600

Federated Services Company 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 8600
Company Boston, Massachusetts 02266-
("Custodian") 8600

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 24th day of March, 1996.

FEDERATED GNMA TRUST

BY: /s/ J. Crilley Kelly
J. Crilley Kelly, Assistant Secretary
Attorney in Fact for John F. Donahue
March 24, 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/J. Crilley Kelly
J. Crilley Kelly Attorney In Fact March 24, 1996
ASSISTANT SECRETARYFor the Persons
Listed Below

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

Glen R. Johnson* President

John W. McGonigle* Treasurer, Executive Vice President
and Secretary
(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

* By Power of Attorney

Exhibit 11 under Form N-1A
Exhibit 23 under 601/Reg. S-K

INDEPENDENT AUDITORS' CONSENT

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

We consent to the use in Post-Effective Amendment No. 31 to Registration
Statement (No. 2-75670) of Federated GNMA Trust of our report dated March
12, 1997, 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
Deloitte & Touche

Pittsburgh, Pennsylvania
March 21, 1997

Exhibit 4(i) under Form N-1A
Exhibit 4 under Item 601/Reg. S-K

FEDERATED GNMA TRUST

Number Institutional Shares
Account No. Alpha Code See Reverse Side For
Certain Definitions

THIS IS TO CERTIFY THAT is the owner of

CUSIP 313184102

Fully Paid and Non-Assessable Shares of Beneficial Interest of FEDERATED
GNMA TRUST (Institutional Shares) hereafter called the Trust, transferable
on the books of the Trust by the owner in person or by duly authorized
attorney upon surrender of this certificate properly endorsed.

The shares represented hereby are issued and shall be held subject to
the provisions of the Declaration of Trust and By-Laws of the Trust and all
amendments thereto, all of which the holder by acceptance hereof assents.

This Certificate is not valid unless countersigned by the Transfer
Agent.

IN WITNESS WHEREOF, the Trust has caused this Certificate to be signed
in its name by its proper officers and to be sealed with its seal.

Dated: FEDERATED GNMA TRUST
Corporate Seal
(1981)
Massachusetts

/s/John W. McGonigle /s/ John F. Donahue
Executive Vice President,
Secretary, and Treasurer Chairman

Countersigned: Federated Shareholder
Services Company (Pittsburgh)
Transfer Agent
By:
Authorized Signature

The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in
full according to applicable laws or regulations;
TEN COM - as tenants in common UNIF GIFT MIN
ACT-...Custodian...
TEN ENT - as tenants by the entireties (Cust)
(Minors)
JT TEN - as joint tenants with right of under
Uniform Gifts to Minors
survivorship and not as tenants Act.............................
in common (State)

Additional abbreviations may also be used though not in the above
list.

For value received hereby sell, assign, and transfer unto
----------

Please insert social security or other
identifying number of assignee

===========================================================================
(Please print or typewrite name and address, including zip code, of
assignee)

of beneficial interest represented by the within Certificate, and do hereby
irrevocably constitute and appoint

===========================================================================
to transfer the said shares on the books of the within named Trust with
full power of substitution in the premises.

Dated
----------------------
NOTICE:
------------------------------
The signature to this assignment must
correspond with the name as written upon the
face of the certificate in every particular,
without alteration or enlargement or any
change whatever.

All persons dealing with FEDERATED GNMA TRUST, a Massachusetts business
trust, must look solely to the Trust property for the enforcement of any
claim against the Trust, as the Trustees, officers, agents or shareholders
of the Trust assume no personal liability whatsoever for obligations
entered into on behalf of the Trust.
THIS SPACE MUST NOT BE COVERED IN ANY WAY

DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE

Page One

A. The Certificate is outlined by an (color) one-half inch border.

B. The number in the upper left-hand corner and the number of shares in
the upper right-hand corner are outlined by octagonal boxes.

C. The cusip number in the middle right-hand area of the page is boxed.

D. The Massachusetts corporate seal appears in the bottom middle of the
page.

Page Two

The social security or other identifying number of the assignee
appears in a box in the top-third upper-left area of the page.

Exhibit 4(ii) under Form N-1A
Exhibit 4 under Item 601/Reg. S-K

FEDERATED GNMA TRUST

Number Institutional Service Shares
Account No. Alpha Code See Reverse Side For
Certain Definitions

THIS IS TO CERTIFY THAT is the owner of

CUSIP 314184201

Fully Paid and Non-Assessable Shares of Beneficial Interest of FEDERATED
GNMA TRUST (Institutional Service Shares) hereafter called the Trust,
transferable on the books of the Trust by the owner in person or by duly
authorized attorney upon surrender of this certificate properly endorsed.
The shares represented hereby are issued and shall be held subject to
the provisions of the Declaration of Trust and By-Laws of the Trust and all
amendments thereto, all of which the holder by acceptance hereof assents.

This Certificate is not valid unless countersigned by the Transfer
Agent.

IN WITNESS WHEREOF, the Trust has caused this Certificate to be signed
in its name by its proper officers and to be sealed with its seal.

Dated: FEDERATED GNMA TRUST
Corporate Seal
(1981)
Massachusetts

/s/John W. McGonigle /s/ John F. Donahue
Executive Vice President,
Secretary, and Treasurer Chairman

Countersigned: Federated Shareholder
Services Company (Pittsburgh)
Transfer Agent
By:
Authorized Signature
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in
full according to applicable laws or regulations;
TEN COM - as tenants in common UNIF GIFT MIN
ACT-...Custodian...
TEN ENT - as tenants by the entireties (Cust)
(Minors)
JT TEN - as joint tenants with right of under
Uniform Gifts to Minors
survivorship and not as tenants Act.............................
in common (State)

Additional abbreviations may also be used though not in the above
list.

For value received hereby sell, assign, and transfer unto
----------

Please insert social security or other
identifying number of assignee

===========================================================================
(Please print or typewrite name and address, including zip code, of
assignee)

- --

of beneficial interest represented by the within Certificate, and do hereby
irrevocably constitute and appoint

===========================================================================
to transfer the said shares on the books of the within named Trust with
full power of substitution in the premises.

DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE
Page One

A. The Certificate is outlined by an (color) one-half inch border.

B. The number in the upper left-hand corner and the number of shares in
the upper right-hand corner are outlined by octagonal boxes.

C. The cusip number in the middle right-hand area of the page is boxed.

D. The Massachusetts corporate seal appears in the bottom middle of the
page.

Page Two

The social security or other identifying number of the assignee appears
in a box in the top-third upper-left area of the page.

Exhibit 5 under Form N-1A
Exhibit 10 under Item 601/Reg. S-K

FEDERATED GNMA TRUST

INVESTMENT ADVISORY CONTRACT

This Contract is made between FEDERATED MANAGEMENT, a Delaware
business Fund having its principal place of business in Pittsburgh,
Pennsylvnia (hereinafter referred to as `Adviser''), and FEDERATED GNMA
TRUST, a Massachusetts business Fund having its principal place of business
in Pittsburgh, Pennsylvania (hereinafter referred to as the `Fund''), and
is based on the following premises:

(a) That the Fund is an open-end management investment company as
that term is defined in the Investment Company Act of 1940 and is
registered as such with the Securities and Exchange Commission;

(b) That Adviser is engaged in the business of rendering investment
advisory and management services.

NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:

1. The Fund hereby appoints Adviser as investment adviser and Adviser
accepts the appointment. Subject to the direction of the Trustees of the
Fund, Adviser shall provide investment research and supervision of the
investments of the Fund and conduct a continuous program of investment
evaluation and of appropriate sale or other disposition and reinvestment of
the Fund portfolio.

2. Adviser, in its supervision of the investments of the Fund will be
guided by the Fund's fundamental investment policies and the provisions and
restrictions contained in the Declaration of Fund and By-Laws of the Fund
and as set forth in the Registration Statements and exhibits as may be on
file with the Securities and Exchange Commission.

3. The Fund shall pay all of its expenses, including, without
limitation, the expenses of continuing the Fund's existence; fees and
expenses of Trustees and Officers of the Fund; fees for investment advisory
services and administrative personnel and services; fees and expenses of
preparing and printing its Registration Statements under the Securities Act
of 1933 and the Investment Company Act of 1940 and any amendments thereto;
expenses of registering and qualifying the Fund and its shares under
Federal and State laws and regulations; expenses of preparing, printing,
and distributing prospectuses (and any amendments thereto) to shareholders;
expenses of registering, licensing or other authorization of the Fund as a
broker-dealer and of its Officers as agents and salesmen under Federal and
State laws and regulations; interest expense, taxes, fees, and commissions
of every kind; expenses of issue (including cost of share certificates),
purchase, repurchase, and redemption of shares, including expenses
attributable to a program of periodic issue; charges and expenses of
custodians, transfer agents, dividend disbursing agents, shareholder
servicing agents, and registrars; printing and mailing costs, auditing,
accounting, and legal expenses; reports to shareholders and governmental
officers and commissions; expenses of meetings of Trustees and shareholders
and proxy solicitation therefor; insurance expenses; association membership
dues and such nonrecurring items as may arise, including all losses and
liabilities incurred in administering the Fund. The Fund will also pay
extraordinary expenses as may arise including expenses incurred in
connection with litigation, proceedings, and claims and the legal
obligations of the Fund to indemnify its Trustees, officers, employees,
shareholders, distributors, and agents with respect thereto.
4. For all services rendered by Adviser hereunder, the Fund shall pay
to Adviser and Adviser agrees to accept as full compensation for all
services rendered hereunder, an annual gross investment advisory fee equal
to .40% of the average daily net assets of the Fund. Such fees shall be
accrued and paid daily at the rate of 1/365th of .40% of the daily net
assets of the Fund.

5. The Adviser may from time to time and for such periods as it deems
appropriate reduce its compensation (and, if appropriate, assume expenses
of the Fund) to the extent that the Fund's expenses exceed such lower
expense limitation as the Adviser may, by notice to the Fund, voluntarily
declare to be effective.

6. The term of this Contract shall continue in effect for two years
from its execution and from year to year thereafter, subject to the
provisions for termination and all of the other terms and conditions hereof
if: (a) such continuation shall be specifically approved at least annually
by the vote of a majority of the Trustees of the Fund, including a majority
of the Trustees who are not parties to this Contract or interested persons
of any such party (other than as Trustees of the Fund ) cast in person at a
meeting called for that purpose; and (b) Adviser shall not have notified
the Fund in writing at least sixty (60) days prior to the anniversary date
of this Contract in any year thereafter that it does not desire such
continuation.

7. Notwithstanding any provision in this Contract, it may be
terminated at any time, without the payment of any penalty, by the Trustees
of the Fund, or by a vote of a majority of the outstanding voting
securities of the Fund on sixty (60) days' written notice to Adviser.

8. This Contract may not be assigned by Adviser and shall
automatically terminate in the event of any assignment. Adviser may employ
or contract with such other person, persons, corporation, or corporations
at its own cost and expense as it shall determine in order to asset it in
carrying out this Contract.

9. In the absence of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the obligations or duties under this
Contract on the part of Adviser, Adviser shall not be liable to the Fund or
any shareholder for any act or omission in the course of or connected in
any way with rendering services or for any losses that may be sustained in
the purchase, holding, or sale of any security.

10. This Contract may be amended at any time by agreement of the
parties, provided that the amendment shall be approved both by the vote of
a majority of the Trustees of the Fund, including a majority of the
Trustees who are not parties to this Contract or interested persons of any
such party to this Contract (other than as Trustees of the Fund ) cast in
person at a meeting called for that purpose, and by the holders of a
majority of the outstanding voting securities of the Fund.

11. Adviser is hereby expressly put on notice of the limitation of
liability as set forth in Article XI of the Declaration of Fund and agrees
that the obligations assumed by the Fund pursuant to this Contract shall be
limited in any case to the Fund and its assets and Adviser shall not seek
satisfaction of any obligation from the shareholders of the Fund, the
Trustees, officers, employees, or agents of the Fund, or any of them.

12. This Contract shall be construed in accordance with and governed
by the laws of the Commonwealth of Pennsylvania.

13. The parties hereto acknowledge that Federated Investors has
reserved the right to grant the non-excusive use of the name `Federated''
or any derivative thereof to any other investment company, investment
adviser, distributor, or other business enterprise, and to withdraw from
the Fund the use of the name `Federated.'' The name ``Federated'' will
continue to be used by the Fund so long as such use is mutually agreeable
to Federated Investors and the Fund.

14. The Fund is hereby expressly put on notice of the limitation of
liability as set forth in the Declaration of Fund of the Adviser and agrees
that the obligations assumed by the Adviser pursuant to this Contract shall
be limited in any case to the Adviser and its assets and, except to the
extent expressly permitted by the Investment Company Act of 1940, the Fund
shall not seek satisfaction of any obligation from the shareholders of the
Adviser, the Trustees, officers, employees or agents of the Adviser, or any
of them.

IN WITNESS WHEREOF, the parties have caused this Contract to be
executed on their behalf by their duly authorized officers and their seals
to be affixed hereto this 1st day of August, 1989.

Attest: FEDERATED MANAGEMENT

/s/ John W. McGonigle /s/ Edward C. Gonzales
Secretary Vice President

Attest: FEDERATED GNMA TRUST

/s/ John W. McGonigle /s/ John F. Donahue
Secretary Chairman

Exhibit 6(i) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K

FEDERATED GNMA TRUST

DISTRIBUTOR'S CONTRACT

AGREEMENT is made this 29th day of May, 1992, by and between FEDERATED
GNMA TRUST (the `Trust''), a Massachusetts business trust, and FEDERATED
SECURITIES CORP. (`FSC''), a Pennsylvania Corporation.

In considerationof the mutual covenants hereinafter contained, it is
hereby agreed by and between the parties hereto as follows:

1. The Trust hereby appoints FSC as its agent to sell and distribute
shares of the Trust which may be offered in one or more series (the
`Funds'') consisting of one or more classes (the ``Classes'') of shares
(the `Shares'') as described and set forth on one or more exhibits to this
Agreement, at the current offering price thereof as described and set forth
in the current Prospectuses of the Trust. FSC hereby accepts such
appointment and agrees to provide such other services for the Trust, if
any, and accept such compensation from the Trust, if any, as set forth in
the applicable exhibit to this Agreement.

2. The sale of any Shares may be suspended without prior notice
whenever in the judgment of the Trust it is in its best interest to do so.

3. Neither FSC nor any other person is authorized by the Trust to
give any information or to make any representation relative to any Shares
other than those contained in the Registration Statement, Prospectuses, or
Statements of Additional Information (`SAIs'') filed with the Securities
and Exchange Commission, as the same may be amended from time to time, or
in any supplemental information to said Prospectuses or SAIs approved by
the Trust. FSC agrees that any other information or representations other
than those specified above which it or any dealer or other person who
purchases Shares through FSC may make in connection with the offer or sale
of Shares, shall be made entirely without liability on the part of the
Trust. No person or dealer, other than FSC, is authorized to act as agent
for the Trust for any purpose. FSC agrees that in offering or selling
Shares as agent of the Trust, it will, in all respects, duly conform to all
applicable state and federal laws and rules and regulations of the National
Association of Securities Dealers, Inc., including its Rules of Fair
Practice. FSC will submit to the Trust copies of all sales literature
before using the same and will not use such sales literature if disapproved
by the Trust.

4. This Agreement is effective with respect to each Class as of the
date of execution of the applicable exhibit and shall continue in effect
with respect to each Class presently set forth on an exhibit and any
subsequent Classes added pursuant to an exhibit during the initial term of
this Agreement for one year from the date set forth above, and thereafter
for successive periods of one year if such continuance is approved at least
annually by the Trustees of the Trust including a majority of the member of
the Board of Trustees of the Trust who are not interested persons of the
Trust and have no direct or indirect financial interest in the operation of
any Distribution Plan relating to the Trust or in any related documents to
such Plan (`Disinterested Trustees'') cast in person at a meeting called
for that purpose. If a Class is added after the first annual approval by
the Trustees as described above, this Agreement will be effective as to
that Class upon execution of the applicable exhibit and will continue in
effect until the next annual approval of this Agreement by the Trustees and
thereafter for successive periods of one year, subject to approval as
described above.

5. This Agreement may be terminated with regard to a particular Fund
or Class at any time, without the payment of any penalty, by the vote of a
majority of the Disinterested Trustees 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 any other party to this Agreement. This
Agreement may be terminated with regard to a particular Fund or Class by
FSC on sixty (60) days' written notice to the Trust.

6. This Agreement may not be assigned by FSC and shall automatically
terminate in the event of an assignment by FSC as defined in the Investment
Company Act of 1940, provided, however, that FSC may employ such other
person, persons, corporation or corporations as it shall determine in order
to assist it in carrying out its duties under this Agreement.

7. FSC shall not be liable to the Trust 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 by this
Agreement.

8. This Agreement may be amended at any time by mutual agreement in
writing of all the parties hereto, provided that such amendment is approved
by the Trusteesof the Trust including a majority of the Disinterested
Trustees of the Trust cast in person at a meeting called for that purpose.

9. This Agreement shall be construed in accordance with and governed
by the laws of the Commonwealth of Pennsylvania.

10. (a) Subject to the conditions set forth below, the Trust agrees
to indemnify and hold harmless FSC and each person, if any, who controls
FSC within the meaning of Section 15 of the Securities Act of 1933 and
Section 20 of the Securities Act of 1934, as amended, against any and all
loss, liability, claim, damage and expense whatsoever (including but not
limited to any and all expenses whatsoever reasonably incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever) arising out of or based upon any
untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement, any Prospectus or SAI's (as from time to
time amended and supplemented) or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to
make the statements therein not misleading, unless such statement or
omission was made in reliance upon and in conformity with written
information furnished to the Trust about FSC by or on behalf of FSC
expressly for use in the Registration Statement, any Prospectuses and SAIs
or any amendment or supplement thereof.

If any action is brought against FSC or any controlling person thereof
with respect to which indemnity may be sought against the Trust pursuant to
the foregoing paragraph, FSC shall promptly notify the Trust in writing of
the institution of such action and the Trust shall assume the defense of
such action, including the employment of counsel selected by the Trust and
payment of expenses. FSC or any such controlling person thereof shall have
the right to employ separate counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of FSC or such controlling
person unless the employment of such counsel shall have been authorized in
writing by the Trust in connection with the defense of such action or the
Trust shall not have employed counsel to have charge of the defense of such
action, in any of which events such fees and expenses shall be borne by the
Trust. Anything in this paragraph to the contrary notwithstanding, the
Trust shall not be liable for any settlement of any such claim of action
effected without its written consent. The Trust agrees promptly to notify
FSC of the commencement of any litigation or proceedings against the Trust
or any of its officers or Trustees or controlling persons in connectionwith
the issue and sale of Shares or in connection withthe Registration
Statement, Prospectuses, or SAIs.

(b) FSC agrees to indemnify and hold harmless the Trust, each of its
Trustees, each of its officers who have signed the Registration Statement
and each other person, if any, who controls the Trust within the meaning of
Section 15 of the Securities Act of 1933, but only with respect to
statements or omissions, if any, made in the Registration Statement or any
prospectus, SAI, or amendment or supplement thereof in reliance upon, and
in conformity with, information furnished to the Trust about FSC by or on
behalf of FSC expressly for use in the Registration Statement or any
Prospectus, SAI, or any amendment or supplement thereof. In case any
action shall be brought against the Trust or any other person so
indemnified based on the Registration Statement or any Prospectus, SAI, or
any amendment or supplement thereof, and with respect to which indemnity
may be sought against FSC, FSC shall have the rights and duties given to
the Trust, and the Trust and each other person so indemnified shall have
the rights and duties given to FSC by the provisions of subsection (a)
above.

(c) Nothing herein contained shall be deemed to protect any person
against liability to the Trust or its shareholders to which such person
would otherwise be subject by reason of willful misfeasance, bad faith or
gross negligence in the performance of the duties of such person or by
reason of the reckless disregard by such person of the obligations and
duties of such person under this Agreement.

(d) Insofar as indemnification for liabilities may be permitted
pursuant to Section 17 of the Investment Company Act of 1940 for Trustees,
officers, FSC and controlling persons of the Trust by the Trust pursuant to
this Agreement, the Trust is aware of the position of the Securities and
Exchange Commission as set forth in the Investment Company Act Release No.
IC-11330. Therefore, the Trust undertakes that in addition to complying
with the applicable provisions of this Agreement, in the absence of a final
decision on the merits by a court or other body before which the proceeding
was brought, that an indemnification payments will not be made unless in
the absence of such a decision, a reasonable determination based upon
factual review has been made (i) by a majority vote of a quorum of non-
party Disinterested Trustees, or (ii) by independent legal counsel in a
written opinion that the indemnitee was not liable for any act of willful
misfeasance, bad faith, gross negligence or reckless disregard of duties.
The Trust further undertakes that advancement of expenses incurred in the
defense of a proceeding (upon undertaking for repayment unless it is
ultimately determined that indemnification is appropriate) against an
officer, Trustee, FSC or controlling person of the Trust will not be made
absent the fulfillment of at least one of the following conditions: (i)
the indemnitee provides security for his undertaking; (ii) the Trust is
insured against losses arising by reason of any lawful advances; or (iii) a
majority of a quorum of non-party Disinterested Trustees or independent
legal counsel in a written opinion makes a factual determination that there
is reason to believe the indemnitee will be entitlted to indemnification.

11. FSC is hereby expressly put on notice of the limitation of
liability as set forth in Article XI of the Declaration of Trust and agrees
that the obligations assumed by the Trust pursuant to this Agreement shall
be limited in any case to the Trust and its assets and FSC shall not seek
satisfaction of any such obligation from the shareholders of the Trust, the
Trustees, officers, employees or agents of the Trust, or any of them.

12. If at any time the Shares of any Fund are offered in two or more
Classes, FSC agrees to adopt compliance standards as to when a class of
shares may be sold to particular investors.

13. This Agreement will become binding upon the parties hereto upon
the execution of the attached exhibits to the Agreement.

Exhibit A

FEDERATED GNMA TRUST

Institutional Shares

In consideration of the mutual covenants set forth in the
Distributor's Contract dated May 29, 1992, between Federated GNMA Trust and
Federated Securities Corp., Federated GNMA Trust executes and delivers this
Exhibit on behalf of the Funds, and with respect to the separate Classes of
Shares thereof, first set forth in this Exhibit.

Witness the due execution hereof this 29th day of May, 1992.

Attest: FEDERATED GNMA TRUST

/s/ John W. McGonigle By: /s/Glen R. Johnson
Secretary President
(SEAL)

Attest: FEDERATED SECURITIES CORP.

/s/ S. Elliott Cohan By: /s/ Richard B. Fisher
Secretary President
(SEAL)

Exhibit B
to the Distributor's Contract

FEDERATED GNMA TRUST

Institutional Service Shares

The following provisions are hereby incorporated and made part of the
Distributor's Contract dated the 29th day of May, 1992, between Federated
GNMA Trust and Federated Securities Corp. with respect to the Classes of
the Funds set forth above.

1. The Trust hereby appoints FSC to engage in activities principally
intended to result in the sale of shares of the Classes. Pursuant to this
appointment FSC is authorized to select a group of brokers (`Brokers') to
sell the above-listed Classes (`Shares''), the the current offering price
thereof as described and set forth in the respective prospectuses of the
Trust, and to render administrative support services to the Trust and its
shareholders. In addition, FSC is authorized to select a group of
Administrators (`Administrators'') to render administrative support
services to the Trust and its shareholders.

2. Administrative support services may include, but are not limited
to, the following eleven functions: (1) account openings: the Broker or
Administrator communicates account openings via computer terminals located
on the Broker or Administrator's premises; (2) account closings: the
Broker or Administrator communicates account closings via computer
terminals; (3) enter purchase transactions: purchase transactions are
entered through the Broker or Administrator's own personal computer or
through the use of a toll-free telephone number; (4) enter redemption
transactions: Broker or Administrator enters redemption transactions in
the same manner as purchases; (5) account maintenance: Broker or
Administrator provides or arranges to provide accounting support all
transactions. Broker or Administrator also wires and reconciles all
transactions, reviews the activity in the Trust's accounts, and provides
training and supervision of its personnel; (6) interest posting: Broker or
Administrator posts and reinvests dividends to the Trust's accounts; (7)
prospectus and shareholder reports: Broker or Administrator maintains and
distributes current copies of prospectuses and shareholder reports; (8)
advertisements: the Broker or Administrator continuously advertises the
availability of its services and products; (9) customer lists: The Broker
or Administrator continuously provides name of potential customers; (10)
design services: the Broker or Administrator continuously designs material
to send to customers and develops methods of making such materials
accessible to customers; and (11) consultation services: the Broker or
Administrator continuously provides information about the product needs of
customers.

3. During the term of this Agreement, the Trust will pay FSC for
services pursuant to this Agreement, a monthly fee computed at the annual
rate of .25% of the average aggregate net asset value of the Institutional
Service Shares of the Trust held during the month. For the month in which
this 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 month.

4. FSC may from time-to-time and for such periods as it deemed
appropriate reduce its compensation to the extent any Class expenses exceed
such lower expense limitation as FSC may, by notice to the Trust,
voluntarily declare to be effective.

5. FSC will enter into separate written agreements with various
firms to provide certain of the services set forth in Paragaph 1 herein.
FSC, in its sole discretion, may pay Brokers and Administrators a periodic
fee in respect of Shares owned from time to time by their clients or
customers. The schedules of such fees and the basis upon which such fees
will be paid shall be determined from time to time by FSC in its sole
discretion.

6. FSC will prepare reports to the Board of Trustees of the Trust on
a quarterly basis showing amounts expended hereunder including amounts paid
to Brokers and Administrators and the purpose for such payments.

In consideration of the mutual covenants set forth in the
Distributor's Contract dated May 29, 1992 between Federated GNMA Trust and
Federated Securities Corp., Federated GNMA Trust executes and delivers this
Exhibit on behalf of the Funds, and with respect to the separate Classes of
Shares thereof, first set forth in this Exhibit.

Witness the due execution hereof this 29th day of May, 1992.

ATTEST: FEDERATED GNMA TRUST

/s/ John W. McGonigle By: /s/ Glen R. Johnson
Secretary President
(SEAL)

ATTEST: FEDERATED SECURITIES CORP.

/s/ S. Elliott Cohan By: /s/ Richard B. Fisher
Secretary President
(SEAL)

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

AGREEMENT
FOR
FUND ACCOUNTING SERVICES,
ADMINISTRATIVE SERVICES,
TRANSFER AGENCY SERVICES
AND
CUSTODY SERVICES PROCUREMENT

AGREEMENT made as of March 1, 1996, by and between those investment
companies listed on Exhibit 1 as may be amended from time to time, having
their principal office and place of business at Federated Investors Tower,
Pittsburgh, PA 15222-3779 (the `Investment Company''), on behalf of the
portfolios (individually referred to herein as a `Fund'' and collectively
as `Funds'') of the Investment Company, and FEDERATED SERVICES COMPANY, a
Pennsylvania corporation, having its principal office and place of business
at Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779 on behalf
of itself and its subsidiaries (the `Company'').
WHEREAS, the Investment Company is registered as an open-end management
investment company under the Investment Company Act of 1940, as amended
(the `1940 Act''), with authorized and issued shares of capital stock or
beneficial interest (`Shares'');
WHEREAS, the Investment Company may desire to retain the Company as fund
accountant to provide fund accounting services (as herein defined)
including certain pricing, accounting and recordkeeping services for each
of the Funds, including any classes of shares issued by any Fund
(`Classes'') if so indicated on Exhibit 1, and the Company desires to
accept such appointment;
WHEREAS, the Investment Company may desire to appoint the Company as its
administrator to provide it with administrative services (as herein
defined), if so indicated on Exhibit, and the Company desires to accept
such appointment;
WHEREAS, the Investment Company may desire to appoint the Company as its
transfer agent and dividend disbursing agent to provide it with transfer
agency services (as herein defined) if so indicated on Exhibit 1, and agent
in connection with certain other activities, and the Company desires to
accept such appointment; and
WHEREAS, the Investment Company may desire to appoint the Company as its
agent to select, negotiate and subcontract for custodian services from an
approved list of qualified banks if so indicated on Exhibit 1, and the
Company desires to accept such appointment; and
NOW THEREFORE, in consideration of the premises and mutual covenants
herein contained, and intending to be legally bound hereby, the parties
hereto agree as follows:
SECTION ONE: FUND ACCOUNTING.
ARTICLE 1. APPOINTMENT.
The Investment Company hereby appoints the Company to provide certain
pricing and accounting services to the Funds, and/or the Classes, for the
period and on the terms set forth in this Agreement. The Company accepts
such appointment and agrees to furnish the services herein set forth in
return for the compensation as provided in Article 3 of this Section.
ARTICLE 2. THE COMPANY'S DUTIES.
Subject to the supervision and control of the Investment Company's Board
of Trustees or Directors (`Board''), the Company will assist the
Investment Company with regard to fund accounting for the Investment
Company, and/or the Funds, and/or the Classes, and in connection therewith
undertakes to perform the following specific services;
A. Value the assets of the Funds using: primarily, market quotations,
including the use of matrix pricing, supplied by the independent
pricing services selected by the Company in consultation with the
adviser, or sources selected by the adviser, and reviewed by the
board; secondarily, if a designated pricing service does not provide
a price for a security which the Company believes should be
available by market quotation, the Company may obtain a price by
calling brokers designated by the investment adviser of the fund
holding the security, or if the adviser does not supply the names of
such brokers, the Company will attempt on its own to find brokers to
price those securities; thirdly, for securities for which no market
price is available, the Pricing Committee of the Board will
determine a fair value in good faith. Consistent with Rule 2a-4 of
the 40 Act, estimates may be used where necessary or appropriate.
The Company's obligations with regard to the prices received from
outside pricing services and designated brokers or other outside
sources, is to exercise reasonable care in the supervision of the
pricing agent. The Company is not the guarantor of the securities
prices received from such agents and the Company is not liable to
the Fund for potential errors in valuing a Fund's assets or
calculating the net asset value per share of such Fund or Class when
the calculations are based upon such prices. All of the above
sources of prices used as described are deemed by the Company to be
authorized sources of security prices. The Company provides daily to
the adviser the securities prices used in calculating the net asset
value of the fund, for its use in preparing exception reports for
those prices on which the adviser has comment. Further, upon receipt
of the exception reports generated by the adviser, the Company
diligently pursues communication regarding exception reports with
the designated pricing agents;
B. Determine the net asset value per share of each Fund and/or Class,
at the time and in the manner from time to time determined by the
Board and as set forth in the Prospectus and Statement of Additional
Information (``Prospectus') of each Fund;
C. Calculate the net income of each of the Funds, if any;
D. Calculate realized capital gains or losses of each of the Funds
resulting from sale or disposition of assets, if any;
E. Maintain the general ledger and other accounts, books and financial
records of the Investment Company, including for each Fund, and/or
Class, as required under Section 31(a) of the 1940 Act and the Rules
thereunder in connection with the services provided by the Company;
F. Preserve for the periods prescribed by Rule 31a-2 under the 1940 Act
the records to be maintained by Rule 31a-1 under the 1940 Act in
connection with the services provided by the Company. The Company
further agrees that all such records it maintains for the Investment
Company are the property of the Investment Company and further
agrees to surrender promptly to the Investment Company such records
upon the Investment Company's request;
G. At the request of the Investment Company, prepare various reports or
other financial documents in accordance with generally accepted
accounting principles as required by federal, state and other
applicable laws and regulations; and
H. Such other similar services as may be reasonably requested by the
Investment Company.
The foregoing, along with any additional services that the Company shall
agree in writing to perform for the Investment Company under this Section
One, shall hereafter be referred to as `Fund Accounting Services.''
ARTICLE 3. COMPENSATION AND ALLOCATION OF EXPENSES.
A. The Funds will compensate the Company for Fund Accounting Services
in accordance with the fees agreed upon from time to time between
the parties hereto. Such fees do not include out-of-pocket
disbursements of the Company for which the Funds shall reimburse the
Company. Out-of-pocket disbursements shall include, but shall not be
limited to, the items agreed upon between the parties from time to
time.
B. The Fund and/or the Class, and not the Company, shall bear the cost
of: custodial expenses; membership dues in the Investment Company
Institute or any similar organization; transfer agency expenses;
investment advisory expenses; costs of printing and mailing stock
certificates, Prospectuses, reports and notices; administrative
expenses; interest on borrowed money; brokerage commissions; taxes
and fees payable to federal, state and other governmental agencies;
fees of Trustees or Directors of the Investment Company; independent
auditors expenses; legal and audit department expenses billed to the
Company for work performed related to the Investment Company, the
Funds, or the Classes; law firm expenses; organizational expenses;
or other expenses not specified in this Article 3 which may be
properly payable by the Funds and/or Classes.
C. The compensation and out-of-pocket expenses attributable to the Fund
shall be accrued by the Fund and shall be paid to the Company no
less frequently than monthly, and shall be paid daily upon request
of the Company. The Company will maintain detailed information about
the compensation and out-of-pocket expenses by Fund and Class.
D. Any schedule of compensation agreed to hereunder, as may be adjusted
from time to time, shall be dated and signed by a duly authorized
officer of the Investment Company and/or the Funds and a duly
authorized officer of the Company.
E. The fee for the period from the effective date of this Agreement
with respect to a Fund or a Class to the end of the initial month
shall be prorated according to the proportion that such period bears
to the full month period. Upon any termination of this Agreement
before the end of any month, the fee for such period shall be
prorated according to the proportion which such period bears to the
full month period. For purposes of determining fees payable to the
Company, the value of the Fund's net assets shall be computed at the
time and in the manner specified in the Fund's Prospectus.
F. The Company, in its sole discretion, may from time to time
subcontract to, employ or associate with itself such person or
persons as the Company may believe to be particularly suited to
assist it in performing Fund Accounting Services. Such person or
persons may be affiliates of the Company, third-party service
providers, or they may be officers and employees who are employed by
both the Company and the Investment Company; provided, however, that
the Company shall be as fully responsible to each Fund for the acts
and omissions of any such subcontractor as it is for its own acts
and omissions. The compensation of such person or persons shall be
paid by the Company and no obligation shall be incurred on behalf of
the Investment Company, the Funds, or the Classes in such respect.
SECTION TWO: ADMINISTRATIVE SERVICES.
ARTICLE 4. APPOINTMENT.
The Investment Company hereby appoints the Company as Administrator for
the period on the terms and conditions set forth in this Agreement. The
Company hereby accepts such appointment and agrees to furnish the services
set forth in Article 5 of this Agreement in return for the compensation set
forth in Article 9 of this Agreement.
ARTICLE 5. THE COMPANY'S DUTIES.
As Administrator, and subject to the supervision and control of the
Board and in accordance with Proper Instructions (as defined hereafter)
from the Investment Company, the Company will provide facilities,
equipment, and personnel to carry out the following administrative services
for operation of the business and affairs of the Investment Company and
each of its portfolios:
A. prepare, file, and maintain the Investment Company's governing
documents and any amendments thereto, including the Charter (which
has already been prepared and filed), the By-laws and minutes of
meetings of the Board and Shareholders;
B. prepare and file with the Securities and Exchange Commission and the
appropriate state securities authorities the registration statements
for the Investment Company and the Investment Company's shares and
all amendments thereto, reports to regulatory authorities and
shareholders, prospectuses, proxy statements, and such other
documents all as may be necessary to enable the Investment Company
to make a continuous offering of its shares;
C. prepare, negotiate, and administer contracts (if any) on behalf of
the Investment Company with, among others, the Investment Company's
investment advisers and distributors, subject to any applicable
restrictions of the Board or the 1940 Act;
D. calculate performance data of the Investment Company for
dissemination to information services covering the investment
company industry;
E. prepare and file the Investment Company's tax returns;
F. coordinate the layout and printing of publicly disseminated
prospectuses and reports;
G. perform internal audit examinations in accordance with a charter to
be adopted by the Company and the Investment Company;
H. assist with the design, development, and operation of the Investment
Company and the Funds;
I. provide individuals reasonably acceptable to the Board for
nomination, appointment, or election as officers of the Investment
Company, who will be responsible for the management of certain of
the Investment Company's affairs as determined by the Investment
Company's Board; and
J. consult with the Investment Company and its Board on matters
concerning the Investment Company and its affairs.
The foregoing, along with any additional services that the Company shall
agree in writing to perform for the Investment Company under this Section
Two, shall hereafter be referred to as "Administrative Services."
ARTICLE 6. RECORDS.
The Company shall create and maintain all necessary books and records in
accordance with all applicable laws, rules and regulations, including but
not limited to records required by Section 31(a) of the Investment Company
act of 1940 and the rules thereunder, as the same may be amended from time
to time, pertaining to the Administrative Services performed by it and not
otherwise created and maintained by another party pursuant to contract with
the Investment Company. Where applicable, such records shall be maintained
by the Company for the periods and in the places required by Rule 31a-2
under the 1940 Act. The books and records pertaining to the Investment
Company which are in the possession of the Company shall be the property of
the Investment Company. The Investment Company, or the Investment
Company's authorized representatives, shall have access to such books and
records at all times during the Company's normal business hours. Upon the
reasonable request of the Investment Company, copies of any such books and
records shall be provided promptly by the Company to the Investment Company
or the Investment Company's authorized representatives.
ARTICLE 7. DUTIES OF THE FUND.
The Fund assumes full responsibility for the preparation, contents and
distribution of its own offering document and for complying with all
applicable requirements the 1940 Act, the Internal Revenue Code, and any
other laws, rules and regulations of government authorities having
jurisdiction.
ARTICLE 8. EXPENSES.
The Company shall be responsible for expenses incurred in providing
office space, equipment, and personnel as may be necessary or convenient to
provide the Administrative Services to the Investment Company, including
the compensation of the Company employees who serve as trustees or
directors or officers of the Investment Company. The Investment Company
shall be responsible for all other expenses incurred by the Company on
behalf of the Investment Company, including without limitation postage and
courier expenses, printing expenses, travel expenses, registration fees,
filing fees, fees of outside counsel and independent auditors, or other
professional services, organizational expenses, insurance premiums, fees
payable to persons who are not the Company's employees, trade association
dues, and other expenses properly payable by the Funds and/or the Classes.
ARTICLE 9. COMPENSATION.
For the Administrative Services provided, the Investment Company hereby
agrees to pay and the Company hereby agrees to accept as full compensation
for its services rendered hereunder an administrative fee at an annual rate
per Fund, as specified below.
The compensation and out of pocket expenses attributable to the Fund
shall be accrued by the Fund and paid to the Company no less frequently
than monthly, and shall be paid daily upon request of the Company. The
Company will maintain detailed information about the compensation and out
of pocket expenses by the Fund.
MAX. ADMIN. AVERAGE DAILY NET ASSETS
FEE OF THE FUNDS
.150% on the first $250 million
.125% on the next $250 million
.100% on the next $250 million
.075% on assets in excess of $750 million
(Average Daily Net Asset break-points are on a complex-wide basis)

However, in no event shall the administrative fee received during any
year of the Agreement be less than, or be paid at a rate less than would
aggregate $125,000 per Fund and $30,000 per Class. The minimum fee set
forth above in this Article 9 may increase annually upon each March 1
anniversary of this Agreement over the minimum fee during the prior 12
months, as calculated under this agreement, in an amount equal to the
increase in Pennsylvania Consumer Price Index (not to exceed 6% annually)
as last reported by the U.S. Bureau of Labor Statistics for the twelve
months immediately preceding such anniversary.

ARTICLE 10. RESPONSIBILITY OF ADMINISTRATOR.
A. The Company shall not be liable for any error of judgment or mistake
of law or for any loss suffered by the Investment Company in
connection with the matters to which this Agreement relates, except
a loss resulting from willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or from
reckless disregard by it of its obligations and duties under this
Agreement. The Company shall be entitled to rely on and may act
upon advice of counsel (who may be counsel for the Investment
Company) on all matters, and shall be without liability for any
action reasonably taken or omitted pursuant to such advice. Any
person, even though also an officer, director, trustee, partner,
employee or agent of the Company, who may be or become an officer,
director, trustee, partner, employee or agent of the Investment
Company, shall be deemed, when rendering services to the Investment
Company or acting on any business of the Investment Company (other
than services or business in connection with the duties of the
Company hereunder) to be rendering such services to or acting solely
for the Investment Company and not as an officer, director, trustee,
partner, employee or agent or one under the control or direction of
the Company even though paid by the Company.
B. The Company shall be kept indemnified by the Investment Company and
be without liability for any action taken or thing done by it in
performing the Administrative Services in accordance with the above
standards. In order that the indemnification provisions contained
in this Article 10 shall apply, however, it is understood that if in
any case the Investment Company may be asked to indemnify or hold
the Company harmless, the Investment Company shall be fully and
promptly advised of all pertinent facts concerning the situation in
question, and it is further understood that the Company will use all
reasonable care to identify and notify the Investment Company
promptly concerning any situation which presents or appears likely
to present the probability of such a claim for indemnification
against the Investment Company. The Investment Company shall have
the option to defend the Company against any claim which may be the
subject of this indemnification. In the event that the Investment
Company so elects, it will so notify the Company and thereupon the
Investment Company shall take over complete defense of the claim,
and the Company shall in such situation initiate no further legal or
other expenses for which it shall seek indemnification under this
Article. The Company shall in no case confess any claim or make any
compromise in any case in which the Investment Company will be asked
to indemnify the Company except with the Investment Company's
written consent.
SECTION THREE: TRANSFER AGENCY SERVICES.
ARTICLE 11. TERMS OF APPOINTMENT.
Subject to the terms and conditions set forth in this Agreement, the
Investment Company hereby appoints the Company to act as, and the Company
agrees to act as, transfer agent and dividend disbursing agent for each
Fund's Shares, and agent in connection with any accumulation, open-account
or similar plans provided to the shareholders of any Fund
(`Shareholder(s)''), including without limitation any periodic investment
plan or periodic withdrawal program.
ARTICLE 12. DUTIES OF THE COMPANY.
The Company shall perform the following services in accordance with
Proper Instructions as may be provided from time to time by the Investment
Company as to any Fund:
A. Purchases
(1) The Company shall receive orders and payment for the purchase
of shares and promptly deliver payment and appropriate
documentation therefore to the custodian of the relevant Fund,
(the ``Custodian'). The Company shall notify the Fund and the
Custodian on a daily basis of the total amount of orders and
payments so delivered.
(2) Pursuant to purchase orders and in accordance with the Fund's
current Prospectus, the Company shall compute and issue the
appropriate number of Shares of each Fund and/or Class and hold
such Shares in the appropriate Shareholder accounts.
(3) For certificated Funds and/or Classes, if a Shareholder or its
agent requests a certificate, the Company, as Transfer Agent,
shall countersign and mail by first class mail, a certificate
to the Shareholder at its address as set forth on the transfer
books of the Funds, and/or Classes, subject to any Proper
Instructions regarding the delivery of certificates.
(4) In the event that any check or other order for the purchase of
Shares of the Fund and/or Class is returned unpaid for any
reason, the Company shall debit the Share account of the
Shareholder by the number of Shares that had been credited to
its account upon receipt of the check or other order, promptly
mail a debit advice to the Shareholder, and notify the Fund
and/or Class of its action. In the event that the amount paid
for such Shares exceeds proceeds of the redemption of such
Shares plus the amount of any dividends paid with respect to
such Shares, the Fund and/the Class or its distributor will
reimburse the Company on the amount of such excess.
B. Distribution
(1) Upon notification by the Funds of the declaration of any
distribution to Shareholders, the Company shall act as Dividend
Disbursing Agent for the Funds in accordance with the
provisions of its governing document and the then-current
Prospectus of the Fund. The Company shall prepare and mail or
credit income, capital gain, or any other payments to
Shareholders. As the Dividend Disbursing Agent, the Company
shall, on or before the payment date of any such distribution,
notify the Custodian of the estimated amount required to pay
any portion of said distribution which is payable in cash and
request the Custodian to make available sufficient funds for
the cash amount to be paid out. The Company shall reconcile the
amounts so requested and the amounts actually received with the
Custodian on a daily basis. If a Shareholder is entitled to
receive additional Shares by virtue of any such distribution or
dividend, appropriate credits shall be made to the
Shareholder's account, for certificated Funds and/or Classes,
delivered where requested; and
(2) The Company shall maintain records of account for each Fund and
Class and advise the Investment Company, each Fund and Class
and its Shareholders as to the foregoing.
C. Redemptions and Transfers
(1) The Company shall receive redemption requests and redemption
directions and, if such redemption requests comply with the
procedures as may be described in the Fund Prospectus or set
forth in Proper Instructions, deliver the appropriate
instructions therefor to the Custodian. The Company shall
notify the Funds on a daily basis of the total amount of
redemption requests processed and monies paid to the Company by
the Custodian for redemptions.
(2) At the appropriate time upon receiving redemption proceeds from
the Custodian with respect to any redemption, the Company shall
pay or cause to be paid the redemption proceeds in the manner
instructed by the redeeming Shareholders, pursuant to
procedures described in the then-current Prospectus of the
Fund.
(3) If any certificate returned for redemption or other request for
redemption does not comply with the procedures for redemption
approved by the Fund, the Company shall promptly notify the
Shareholder of such fact, together with the reason therefor,
and shall effect such redemption at the price applicable to the
date and time of receipt of documents complying with said
procedures.
(4) The Company shall effect transfers of Shares by the registered
owners thereof.
(5) The Company shall identify and process abandoned accounts and
uncashed checks for state escheat requirements on an annual
basis and report such actions to the Fund.
D. Recordkeeping
(1) The Company shall record the issuance of Shares of each Fund,
and/or Class, and maintain pursuant to applicable rules of the
Securities and Exchange Commission (``SEC') a record of the
total number of Shares of the Fund and/or Class which are
authorized, based upon data provided to it by the Fund, and
issued and outstanding. The Company shall also provide the Fund
on a regular basis or upon reasonable request with the total
number of Shares which are authorized and issued and
outstanding, but shall have no obligation when recording the
issuance of Shares, except as otherwise set forth herein, to
monitor the issuance of such Shares or to take cognizance of
any laws relating to the issue or sale of such Shares, which
functions shall be the sole responsibility of the Funds.
(2) The Company shall establish and maintain records pursuant to
applicable rules of the SEC relating to the services to be
performed hereunder in the form and manner as agreed to by the
Investment Company or the Fund to include a record for each
Shareholder's account of the following:
(a) Name, address and tax identification number (and whether
such number has been certified);
(b) Number of Shares held;
(c) Historical information regarding the account, including
dividends paid and date and price for all transactions;
(d) Any stop or restraining order placed against the account;
(e) Information with respect to withholding in the case of a
foreign account or an account for which withholding is
required by the Internal Revenue Code;
(f) Any dividend reinvestment order, plan application,
dividend address and correspondence relating to the
current maintenance of the account;
(g) Certificate numbers and denominations for any Shareholder
holding certificates;
(h) Any information required in order for the Company to
perform the calculations contemplated or required by this
Agreement.
(3) The Company shall preserve any such records required to be
maintained pursuant to the rules of the SEC for the periods
prescribed in said rules as specifically noted below. Such
record retention shall be at the expense of the Company, and
such records may be inspected by the Fund at reasonable times.
The Company may, at its option at any time, and shall forthwith
upon the Fund's demand, turn over to the Fund and cease to
retain in the Company's files, records and documents created
and maintained by the Company pursuant to this Agreement, which
are no longer needed by the Company in performance of its
services or for its protection. If not so turned over to the
Fund, such records and documents will be retained by the
Company for six years from the year of creation, during the
first two of which such documents will be in readily accessible
form. At the end of the six year period, such records and
documents will either be turned over to the Fund or destroyed
in accordance with Proper Instructions.
E. Confirmations/Reports
(1) The Company shall furnish to the Fund periodically the
following information:
(a) A copy of the transaction register;
(b) Dividend and reinvestment blotters;
(c) The total number of Shares issued and outstanding in each
state for ``blue sky''purposes as determined according to
Proper Instructions delivered from time to time by the
Fund to the Company;
(d) Shareholder lists and statistical information;
(e) Payments to third parties relating to distribution
agreements, allocations of sales loads, redemption fees,
or other transaction- or sales-related payments;
(f) Such other information as may be agreed upon from time to
time.
(2) The Company shall prepare in the appropriate form, file with
the Internal Revenue Service and appropriate state agencies,
and, if required, mail to Shareholders, such notices for
reporting dividends and distributions paid as are required to
be so filed and mailed and shall withhold such sums as are
required to be withheld under applicable federal and state
income tax laws, rules and regulations.
(3) In addition to and not in lieu of the services set forth above,
the Company shall:
(a) Perform all of the customary services of a transfer agent,
dividend disbursing agent and, as relevant, agent in
connection with accumulation, open-account or similar
plans (including without limitation any periodic
investment plan or periodic withdrawal program), including
but not limited to: maintaining all Shareholder accounts,
mailing Shareholder reports and Prospectuses to current
Shareholders, withholding taxes on accounts subject to
back-up or other withholding (including non-resident alien
accounts), preparing and filing reports on U.S. Treasury
Department Form 1099 and other appropriate forms required
with respect to dividends and distributions by federal
authorities for all Shareholders, preparing and mailing
confirmation forms and statements of account to
Shareholders for all purchases and redemptions of Shares
and other conformable transactions in Shareholder
accounts, preparing and mailing activity statements for
Shareholders, and providing Shareholder account
information; and
(b) provide a system which will enable the Fund to monitor the
total number of Shares of each Fund (and/or Class) sold in
each state (``blue sky reporting'). The Fund shall by
Proper Instructions (i) identify to the Company those
transactions and assets to be treated as exempt from the
blue sky reporting for each state and (ii) verify the
classification of transactions for each state on the
system prior to activation and thereafter monitor the
daily activity for each state. The responsibility of the
Company for each Fund's (and/or Class's) state blue sky
registration status is limited solely to the recording of
the initial classification of transactions or accounts
with regard to blue sky compliance and the reporting of
such transactions and accounts to the Fund as provided
above.
F. Other Duties
(1) The Company shall answer correspondence from Shareholders
relating to their Share accounts and such other correspondence
as may from time to time be addressed to the Company;
(2) The Company shall prepare Shareholder meeting lists, mail proxy
cards and other material supplied to it by the Fund in
connection with Shareholder meetings of each Fund; receive,
examine and tabulate returned proxies, and certify the vote of
the Shareholders;
(3) The Company shall establish and maintain facilities and
procedures for safekeeping of stock certificates, check forms
and facsimile signature imprinting devices, if any; and for the
preparation or use, and for keeping account of, such
certificates, forms and devices.
The foregoing, along with any additional services that the Company shall
agree in writing to perform for the Investment Company under this Section
Three, shall hereafter be referred to as "Transfer Agency Services."

ARTICLE 13. DUTIES OF THE INVESTMENT COMPANY.
A. Compliance
The Investment Company or Fund assume full responsibility for the
preparation, contents and distribution of their own and/or their
classes' Prospectus and for complying with all applicable
requirements of the Securities Act of 1933, as amended (the ``1933
Act''), the 1940 Act and any laws, rules and regulations of
government authorities having jurisdiction.
B. Share Certificates
The Investment Company shall supply the Company with a sufficient
supply of blank Share certificates and from time to time shall renew
such supply upon request of the Company. Such blank Share
certificates shall be properly signed, manually or by facsimile, if
authorized by the Investment Company and shall bear the seal of the
Investment Company or facsimile thereof; and notwithstanding the
death, resignation or removal of any officer of the Investment
Company authorized to sign certificates, the Company may continue to
countersign certificates which bear the manual or facsimile
signature of such officer until otherwise directed by the Investment
Company.
C. Distributions
The Fund shall promptly inform the Company of the declaration of any
dividend or distribution on account of any Fund's shares.

ARTICLE 14. COMPENSATION AND EXPENSES.
A. Annual Fee
For performance by the Company pursuant to Section Three of this
Agreement, the Investment Company and/or the Fund agree to pay the
Company an annual maintenance fee for each Shareholder account as
agreed upon between the parties and as may be added to or amended
from time to time. Such fees may be changed from time to time
subject to written agreement between the Investment Company and the
Company. Pursuant to information in the Fund Prospectus or other
information or instructions from the Fund, the Company may sub-
divide any Fund into Classes or other sub-components for
recordkeeping purposes. The Company will charge the Fund the same
fees for each such Class or sub-component the same as if each were a
Fund.
B. Reimbursements
In addition to the fee paid under Article 7A above, the Investment
Company and/or Fund agree to reimburse the Company for out-of-pocket
expenses or advances incurred by the Company for the items agreed
upon between the parties, as may be added to or amended from time to
time. In addition, any other expenses incurred by the Company at the
request or with the consent of the Investment Company and/or the
Fund, will be reimbursed by the appropriate Fund.
C. Payment
The compensation and out-of-pocket expenses shall be accrued by the
Fund and shall be paid to the Company no less frequently than
monthly, and shall be paid daily upon request of the Company. The
Company will maintain detailed information about the compensation
and out-of-pocket expenses by Fund and Class.
D. Any schedule of compensation agreed to hereunder, as may be adjusted
from time to time, shall be dated and signed by a duly authorized
officer of the Investment Company and/or the Funds and a duly
authorized officer of the Company.
SECTION FOUR: CUSTODY SERVICES PROCUREMENT.
ARTICLE 15. APPOINTMENT.
The Investment Company hereby appoints Company as its agent to evaluate
and obtain custody services from a financial institution that (i) meets the
criteria established in Section 17(f) of the 1940 Act and (ii) has been
approved by the Board as eligible for selection by the Company as a
custodian (the `Eligible Custodian''). The Company accepts such
appointment.
ARTICLE 16. THE COMPANY AND ITS DUTIES.
Subject to the review, supervision and control of the Board, the Company
shall:
A. evaluate and obtain custody services from a financial institution
that meets the criteria established in Section 17(f) of the 1940 Act
and has been approved by the Board as being eligible for selection by
the Company as an Eligible Custodian;
B. negotiate and enter into agreements with Eligible Custodians for the
benefit of the Investment Company, with the Investment Company as a
party to each such agreement. The Company may, as paying agent, be a
party to any agreement with any such Eligible Custodian;
C. establish procedures to monitor the nature and the quality of the
services provided by Eligible Custodians;
D. monitor and evaluate the nature and the quality of services provided
by Eligible Custodians;
E. periodically provide to the Investment Company (i) written reports
on the activities and services of Eligible Custodians; (ii) the
nature and amount of disbursements made on account of the each Fund
with respect to each custodial agreement; and (iii) such other
information as the Board shall reasonably request to enable it to
fulfill its duties and obligations under Sections 17(f) and 36(b) of
the 1940 Act and other duties and obligations thereof;
F. periodically provide recommendations to the Board to enhance
Eligible Custodian's customer services capabilities and improve upon
fees being charged to the Fund by Eligible Custodian; and
The foregoing, along with any additional services that Company shall
agree in writing to perform for the Fund under this Section Four, shall
hereafter be referred to as "Custody Services Procurement."
ARTICLE 17. FEES AND EXPENSES.
A. Annual Fee
For the performance of Custody Services Procurement by the Company
pursuant to Section Four of this Agreement, the Investment Company
and/or the Fund agree to compensate the Company in accordance with
the fees agreed upon from time to time.
B. Reimbursements
In addition to the fee paid under Section 11A above, the Investment
Company and/or Fund agree to reimburse the Company for out-of-pocket
expenses or advances incurred by the Company for the items agreed
upon between the parties, as may be added to or amended from time to
time. In addition, any other expenses incurred by the Company at the
request or with the consent of the Investment Company and/or the
Fund, will be reimbursed by the appropriate Fund.
C. Payment
The compensation and out-of-pocket expenses shall be accrued by the
Fund and shall be paid to the Company no less frequently than
monthly, and shall be paid daily upon request of the Company. The
Company will maintain detailed information about the compensation
and out-of-pocket expenses by Fund.
D. Any schedule of compensation agreed to hereunder, as may be adjusted
from time to time, shall be dated and signed by a duly authorized
officer of the Investment Company and/or the Funds and a duly
authorized officer of the Company.
ARTICLE 18. REPRESENTATIONS.
The Company represents and warrants that it has obtained all required
approvals from all government or regulatory authorities necessary to enter
into this arrangement and to provide the services contemplated in Section
Four of this Agreement.
SECTION FIVE: GENERAL PROVISIONS.
ARTICLE 19. PROPER INSTRUCTIONS.
As used throughout this Agreement, a ``Proper Instruction'' means a
writing signed or initialed by one or more person or persons as the Board
shall have from time to time authorized. Each such writing shall set forth
the specific transaction or type of transaction involved. Oral instructions
will be deemed to be Proper Instructions if (a) the Company reasonably
believes them to have been given by a person previously authorized in
Proper Instructions to give such instructions with respect to the
transaction involved, and (b) the Investment Company, or the Fund, and the
Company promptly cause such oral instructions to be confirmed in writing.
Proper Instructions may include communications effected directly between
electro-mechanical or electronic devices provided that the Investment
Company, or the Fund, and the Company are satisfied that such procedures
afford adequate safeguards for the Fund's assets. Proper Instructions may
only be amended in writing.
ARTICLE 20. ASSIGNMENT.
Except as provided below, neither this Agreement nor any of the rights
or obligations under this Agreement may be assigned by either party without
the written consent of the other party.
A. This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
B. With regard to Transfer Agency Services, the Company may without
further consent on the part of the Investment Company subcontract
for the performance of Transfer Agency Services with
(1) its subsidiary, Federated Shareholder Service Company, a
Delaware business trust, which is duly registered as a transfer
agent pursuant to Section 17A(c)(1) of the Securities Exchange
Act of 1934, as amended, or any succeeding statute (``Section
17A(c)(1)''); or
(2) such other provider of services duly registered as a transfer
agent under Section 17A(c)(1) as Company shall select.
The Company shall be as fully responsible to the Investment Company
for the acts and omissions of any subcontractor as it is for its own
acts and omissions.
C. With regard to Fund Accounting Services, Administrative Services and
Custody Procurement Services, the Company may without further
consent on the part of the Investment Company subcontract for the
performance of such services with Federated Administrative Services,
a wholly-owned subsidiary of the Company.
D. The Company shall upon instruction from the Investment Company
subcontract for the performance of services under this Agreement
with an Agent selected by the Investment Company, other than as
described in B. and C. above; provided, however, that the Company
shall in no way be responsible to the Investment Company for the
acts and omissions of the Agent.
ARTICLE 21. DOCUMENTS.
A. In connection with the appointment of the Company under this
Agreement, the Investment Company shall file with the Company the
following documents:
(1) A copy of the Charter and By-Laws of the Investment Company and
all amendments thereto;
(2) A copy of the resolution of the Board of the Investment Company
authorizing this Agreement;
(3) Specimens of all forms of outstanding Share certificates of the
Investment Company or the Funds in the forms approved by the
Board of the Investment Company with a certificate of the
Secretary of the Investment Company as to such approval;
(4) All account application forms and other documents relating to
Shareholders accounts; and
(5) A copy of the current Prospectus for each Fund.
B. The Fund will also furnish from time to time the following
documents:
(1) Each resolution of the Board of the Investment Company
authorizing the original issuance of each Fund's, and/or
Class's Shares;
(2) Each Registration Statement filed with the SEC and amendments
thereof and orders relating thereto in effect with respect to
the sale of Shares of any Fund, and/or Class;
(3) A certified copy of each amendment to the governing document
and the By-Laws of the Investment Company;
(4) Certified copies of each vote of the Board authorizing officers
to give Proper Instructions to the Custodian and agents for
fund accountant, custody services procurement, and shareholder
recordkeeping or transfer agency services;
(5) Specimens of all new Share certificates representing Shares of
any Fund, accompanied by Board resolutions approving such
forms;
(6) Such other certificates, documents or opinions which the
Company may, in its discretion, deem necessary or appropriate
in the proper performance of its duties; and
(7) Revisions to the Prospectus of each Fund.
ARTICLE 22. REPRESENTATIONS AND WARRANTIES.
A. Representations and Warranties of the Company
The Company represents and warrants to the Fund that:
(1) it is a corporation duly organized and existing and in good
standing under the laws of the Commonwealth of Pennsylvania;
(2) It is duly qualified to carry on its business in each
jurisdiction where the nature of its business requires such
qualification, and in the Commonwealth of Pennsylvania;
(3) it is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this
Agreement;
(4) all requisite corporate proceedings have been taken to
authorize it to enter into and perform its obligations under
this Agreement;
(5) it has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement;
(6) it is in compliance with federal securities law requirements
and in good standing as an administrator and fund accountant;
and
B. Representations and Warranties of the Investment Company
The Investment Company represents and warrants to the Company that:
(1) It is an investment company duly organized and existing and in
good standing under the laws of its state of organization;
(2) It is empowered under applicable laws and by its Charter and
By-Laws to enter into and perform its obligations under this
Agreement;
(3) All corporate proceedings required by said Charter and By-Laws
have been taken to authorize it to enter into and perform its
obligations under this Agreement;
(4) The Investment Company is an open-end investment company
registered under the 1940 Act; and
(5) A registration statement under the 1933 Act will be effective,
and appropriate state securities law filings have been made and
will continue to be made, with respect to all Shares of each
Fund being offered for sale.
ARTICLE 23. STANDARD OF CARE AND INDEMNIFICATION.
A. Standard of Care
With regard to Sections One, Three and Four, the Company shall be
held to a standard of reasonable care in carrying out the provisions
of this Contract. The Company shall be entitled to rely on and may
act upon advice of counsel (who may be counsel for the Investment
Company) on all matters, and shall be without liability for any
action reasonably taken or omitted pursuant to such advice, provided
that such action is not in violation of applicable federal or state
laws or regulations, and is in good faith and without negligence.
B. Indemnification by Investment Company
The Company shall not be responsible for and the Investment Company
or Fund shall indemnify and hold the Company, including its
officers, directors, shareholders and their agents, employees and
affiliates, harmless against any and all losses, damages, costs,
charges, counsel fees, payments, expenses and liabilities arising
out of or attributable to:
(1) The acts or omissions of any Custodian, Adviser, Sub-adviser or
other party contracted by or approved by the Investment Company
or Fund,
(2) The reliance on or use by the Company or its agents or
subcontractors of information, records and documents in proper
form which
(a) are received by the Company or its agents or
subcontractors and furnished to it by or on behalf of the
Fund, its Shareholders or investors regarding the
purchase, redemption or transfer of Shares and Shareholder
account information;
(b) are received by the Company from independent pricing
services or sources for use in valuing the assets of the
Funds; or
(c) are received by the Company or its agents or
subcontractors from Advisers, Sub-advisers or other third
parties contracted by or approved by the Investment
Company of Fund for use in the performance of services
under this Agreement;
(d) have been prepared and/or maintained by the Fund or its
affiliates or any other person or firm on behalf of the
Investment Company.
(3) The reliance on, or the carrying out by the Company or its
agents or subcontractors of Proper Instructions of the
Investment Company or the Fund.
(4) The offer or sale of Shares in violation of any requirement
under the federal securities laws or regulations or the
securities laws or regulations of any state that such Shares be
registered in such state or in violation of any stop order or
other determination or ruling by any federal agency or any
state with respect to the offer or sale of such Shares in such
state.
Provided, however, that the Company shall not be protected by
this Article 23.B. from liability for any act or omission
resulting from the Company's willful misfeasance, bad faith,
negligence or reckless disregard of its duties or failure to
meet the standard of care set forth in 23.A. above.
C. Reliance
At any time the Company may apply to any officer of the Investment
Company or Fund for instructions, and may consult with legal counsel
with respect to any matter arising in connection with the services
to be performed by the Company under this Agreement, and the Company
and its agents or subcontractors shall not be liable and shall be
indemnified by the Investment Company or the appropriate Fund for
any action reasonably taken or omitted by it in reliance upon such
instructions or upon the opinion of such counsel provided such
action is not in violation of applicable federal or state laws or
regulations. The Company, its agents and subcontractors shall be
protected and indemnified in recognizing stock certificates which
are reasonably believed to bear the proper manual or facsimile
signatures of the officers of the Investment Company or the Fund,
and the proper countersignature of any former transfer agent or
registrar, or of a co-transfer agent or co-registrar.
D. Notification
In order that the indemnification provisions contained in this
Article 23 shall apply, upon the assertion of a claim for which
either party may be required to indemnify the other, the party
seeking indemnification shall promptly notify the other party of
such assertion, and shall keep the other party advised with respect
to all developments concerning such claim. The party who may be
required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The
party seeking indemnification shall in no case confess any claim or
make any compromise in any case in which the other party may be
required to indemnify it except with the other party's prior written
consent.
ARTICLE 24. TERM AND TERMINATION OF AGREEMENT.
This Agreement shall be effective from March 1, 1996 and shall continue
until February 28, 2003 (`Term'). Thereafter, the Agreement will continue
for 18 month terms. The Agreement can be terminated by either party upon
18 months notice to be effective as of the end of such 18 month period. In
the event, however, of willful misfeasance, bad faith, negligence or
reckless disregard of its duties by the Company, the Investment Company has
the right to terminate the Agreement upon 60 days written notice, if
Company has not cured such willful misfeasance, bad faith, negligence or
reckless disregard of its duties within 60 days. The termination date for
all original or after-added Investment companies which are, or become, a
party to this Agreement. shall be coterminous. Investment Companies that
merge or dissolve during the Term, shall cease to be a party on the
effective date of such merger or dissolution.
Should the Investment Company exercise its rights to terminate, all out-
of-pocket expenses associated with the movement of records and materials
will be borne by the Investment Company or the appropriate Fund.
Additionally, the Company reserves the right to charge for any other
reasonable expenses associated with such termination. The provisions of
Articles 10 and 23 shall survive the termination of this Agreement.
ARTICLE 25. AMENDMENT.
This Agreement may be amended or modified by a written agreement
executed by both parties.
ARTICLE 26. INTERPRETIVE AND ADDITIONAL PROVISIONS.
In connection with the operation of this Agreement, the Company and the
Investment Company may from time to time agree on such provisions
interpretive of or in addition to the provisions of this Agreement as may
in their joint opinion be consistent with the general tenor of this
Agreement. Any such interpretive or additional provisions shall be in a
writing signed by both parties and shall be annexed hereto, provided that
no such interpretive or additional provisions shall contravene any
applicable federal or state regulations or any provision of the Charter. No
interpretive or additional provisions made as provided in the preceding
sentence shall be deemed to be an amendment of this Agreement.
ARTICLE 27. GOVERNING LAW.
This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the Commonwealth of Massachusetts
ARTICLE 28. NOTICES.
Except as otherwise specifically provided herein, Notices and other
writings delivered or mailed postage prepaid to the Investment Company at
Federated Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, or to the
Company at Federated Investors Tower, Pittsburgh, Pennsylvania, 15222-3779,
or to such other address as the Investment Company or the Company may
hereafter specify, shall be deemed to have been properly delivered or given
hereunder to the respective address.
ARTICLE 29. COUNTERPARTS.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original.
ARTICLE 30. LIMITATIONS OF LIABILITY OF TRUSTEES AND SHAREHOLDERS OF THE
COMPANY.
The execution and delivery of this Agreement have been authorized by the
Trustees of the Company and signed by an authorized officer of the Company,
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 the Company, but bind only the
appropriate property of the Fund, or Class, as provided in the Declaration
of Trust.
ARTICLE 31. MERGER OF AGREEMENT.
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.
ARTICLE 32. SUCCESSOR AGENT.
If a successor agent for the Investment Company shall be appointed by
the Investment Company, the Company shall upon termination of this
Agreement deliver to such successor agent at the office of the Company all
properties of the Investment Company held by it hereunder. If no such
successor agent shall be appointed, the Company shall at its office upon
receipt of Proper Instructions deliver such properties in accordance with
such instructions.
In the event that no written order designating a successor agent or
Proper Instructions shall have been delivered to the Company on or before
the date when such termination shall become effective, then the Company
shall have the right to deliver to a bank or trust company, which is a
`bank'' as defined in the 1940 Act, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $2,000,000, all properties held by the
Company under this Agreement. Thereafter, such bank or trust company shall
be the successor of the Company under this Agreement.
ARTICLE 33. FORCE MAJEURE.
The Company shall have no liability for cessation of services hereunder
or any damages resulting therefrom to the Fund as a result of work
stoppage, power or other mechanical failure, natural disaster, governmental
action, communication disruption or other impossibility of performance.
ARTICLE 34. ASSIGNMENT; SUCCESSORS.
This Agreement shall not be assigned by either party without the prior
written consent of the other party, except that either party may assign all
of or a substantial portion of its business to a successor, or to a party
controlling, controlled by, or under common control with such party.
Nothing in this Article 34 shall prevent the Company from delegating its
responsibilities to another entity to the extent provided herein.
ARTICLE 35. SEVERABILITY.
In the event any provision of this Agreement is held illegal, void or
unenforceable, the balance shall remain in effect.
ARTICLE 36. LIMITATIONS OF LIABILITY OF TRUSTEES AND SHAREHOLDERS OF
THE INVESTMENT COMPANY.
The execution and delivery of this Agreement have been authorized by the
Trustees of the Investment Company and signed by an authorized officer of
the Investment Company, 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 the Investment
Company, but bind only the property of the Fund, or Class, as provided in
the Declaration of Trust.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf under their seals by and
through their duly authorized officers, as of the day and year first above
written.

INVESTMENT COMPANIES
(LISTED ON EXHIBIT 1)

By: /s/ S. Elliott Cohan
S. Elliott Cohan
Assistant Secretary

FEDERATED SERVICES COMPANY

By: /s/ Thomas J. Ward
Thomas J. Ward
Secretary

EXHIBIT 1
CONTRACT
DATE INVESTMENT COMPANY
Portfolios
Classes

March 1, 1996 FEDERATED GNMA TRUST
Institutional Shares
Institutional Service Shares

FEDERATED SERVICES COMPANY provides the following services:

Fund Accounting Services
Administrative Services
Shareholder Recordkeeping Services

Exhibit 15 under Form N-1A
Exhibit 1 under Item 601/Reg. S-K

FEDERATED GNMA TRUST
DISTRIBUTION PLAN

This Distribution Plan ("Plan") is adopted as of 29th day of May,
1992,, by the Board of Trustees of FEDERATED GNMA TRUST (the "Trust"), a
Massachusetts business trust with respect to certain classes of shares
("Classes") of the portfolios of the Trust (the "Funds") set forth in
exhibits hereto.
1. This Plan is adopted pursuant to Rule 12b-1 under the Investment
Company Act of 1940, as amended ("Act"), so as to allow the Trust to make
payments as contemplated herein, in conjunction with the distribution of
Classes of the Funds ("Shares").
2. This Plan is designed to finance activities of Federated
Securities Corp. ("FSC") principally intended to result in the sale of
Shares to include: (a) providing incentives to broker/dealers (`Brokers'')
to sell Shares and to provide administrative support services to the Funds
and their shareholders; (b) compensating other participating financial
institutions and other persons (`Administrators'') for providing
administrative support services to the Funds and their shareholders; (c)
paying for the costs incurred in conjunction with advertising and marketing
of Shares to include expenses of preparing, printing and distributing
prospectuses and sales literature to prospective shareholders, Brokers or
Administrators, and; (d) other costs incurred in the implementation and
operation of the Plan. In compensation for services provided pursuant to
this Plan, FSC will be paid a fee in respect of the following Classes set
forth on the applicable exhibit.
3. Any payment to FSC in accordance with this Plan will be made
pursuant to the "Distributor's Contract" entered into by the Trust and FSC.
Any payments made by FSC to Brokers and Administrators with funds received

as compensation under this Plan will be made pursuant to the "Rule 12b-1
Agreement" entered into by FSC and the Broker or Administrator.
4. FSC has the right (i) to select, in its sole discretion, the
Brokers and Administrators to participate in the Plan and (ii) to terminate
without cause and in its sole discretion any Rule 12b-1 Agreement.
5. Quarterly in each year that this Plan remains in effect, FSC
shall prepare and furnish to the Board of Trustees of the Trust, and the
Board of Trustees shall review, a written report of the amounts expended
under the Plan and the purpose for which such expenditures were made.
6. This Plan shall become effective with respect to each Class
(i) after approval by majority votes of: (a) the Trust's Board of Trustees;
(b) the Disinterested Trustees of the Trust, cast in person at a meeting
called for the purpose of voting on the Plan; and (c) the outstanding
voting securities of the particular Class, as defined in Section 2(a)(42)
of the Act and (ii) upon execution of an exhibit adopting this Plan with
respect to such Class.
7. This Plan shall remain in effect with respect to each Class
presently set forth on an exhibit and any subsequent Classes added pursuant
to an exhibit during the initial year of this Plan for the period of one
year from the date set forth above and may be continued thereafter if this
Plan is approved with respect to each Class at least annually by a majority
of the Trust's Board of Trustees and a majority of the Disinterested
Trustees, cast in person at a meeting called for the purpose of voting on
such Plan. If this Plan is adopted with respect to a Class after the first
annual approval by the Trustees as described above, this Plan will be
effective as to that Class upon execution of the applicable exhibit
pursuant to the provisions of paragraph 6(ii) above and will continue in
effect until the next annual approval of this Plan by the Trustees and

thereafter for successive periods of one year subject to approval as
described above.
8. All material amendments to this Plan must be approved by a vote
of the Board of Trustees of the Trust and of the Disinterested Trustees,
cast in person at a meeting called for the purpose of voting on it.
9. This Plan may not be amended in order to increase materially the
costs which the Classes may bear for distribution pursuant to the Plan
without being approved by a majority vote of the outstanding voting
securities of the Classes as defined in Section 2(a)(42) of the Act.
10. This Plan may be terminated with respect to a particular Class at
any time by: (a) a majority vote of the Disinterested Trustees; or (b) a
vote of a majority of the outstanding voting securities of the particular
Class as defined in Section 2(a)(42) of the Act; or (c) by FSC on 60 days'
notice to the Trust.
11. While this Plan shall be in effect, the selection and nomination
of Disinterested Trustees of the Trust shall be committed to the discretion
of the Disinterested Trustees then in office.
12. All agreements with any person relating to the implementation of
this Plan shall be in writing and any agreement related to this Plan shall
be subject to termination, without penalty, pursuant to the provisions of
Paragraph 10 herein.
13. This Plan shall be construed in accordance with and governed by
the laws of the Commonwealth of Pennsylvania.

EXHIBIT A
to the
Plan

FEDERATED GNMA TRUST

Institutional Service Shares

This Plan is adopted by Federated GNMA Trust with respect to the Class
of Shares of the Trust set forth above.
In compensation for the services provided pursuant to this Plan, FSC
will be paid a monthly fee computed at the annual rate of .25 of 1% of the
average aggregate net asset value of the Institutional Service Shares of
Trust held during the month.
Witness the due execution hereof this 29th day of May, 1992.

FEDERATED GNMA TRUST

By: /s/ Glen R. Johnson
President

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 Services Company, 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 and Trustee March 4, 1997
John F. Donahue (Chief Executive Officer)

/s/ GLEN R. JOHNSON President March 4, 1997
Glen R. Johnson

/s/ JOHN W. McGONIGLE Treasurer, Executive March 4, 1997
John W. McGonigle Vice President and Secretary
(Principal Financial and
Accounting Officer)

/s/ THOMAS G. BIGLEY Trustee March 4, 1997
Thomas G. Bigley

/s/ JOHN T. CONROY, JR. Trustee March 4, 1997
John T. Conroy, Jr.

SIGNATURES TITLE DATE

/s/ WILLIAM J. COPELAND Trustee March 4, 1997
William J. Copeland

/s/ JAMES E. DOWD Trustee March 4, 1997
James E. Dowd

/s/ LAWRENCE D. ELLIS, M.D. Trustee March 4, 1997
Lawrence D. Ellis, M.D.

EDWARD L. FLAHERTY, JR. Trustee March 4, 1997
Edward L. Flaherty, Jr.

PETER E. MADDEN Trustee March 4, 1997
Peter E. Madden

GREGOR F. MEYER Trustee March 4, 1997
Gregor F. Meyer

JOHN E. MURRAY, JR. Trustee March 4, 1997
John E. Murray, Jr.

WESLEY W. POSVAR Trustee March 4, 1997
Wesley W. Posvar

MARJORIE P. SMUTS Trustee March 4, 1997
Marjorie P. Smuts

Sworn to and subscribed before me this 4th day of March, 1997

/s/ MARIE M. HAMM
Marie M. Hamm
Notarial Seal
Marie M. Hamm, Notary Public
Plum Boro, Allegheny County
My Commission Expires Oct. 9, 2000
Member, Pennsylvania Association of Notaries

<S> <C>

<ARTICLE> 6
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<NAME> Federated GNMA Trust
Institutional Shares

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<PERIOD-END> Jan-31-1997
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<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 002
<NAME> Federated GNMA Trust
Institutional Service Shares

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