FEDERATED GNMA TRUST, 497, 1998-04-02

FEDERATED GNMA TRUST
497, 1998-04-02

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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, 1998 with the Securities
and Exchange Commission ("SEC"). The information contained in the Statement of
Additional Information is incorporated by reference into this prospectus. You
may request a copy of the Statement of Additional Information or a paper copy of
this prospectus, if you 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, 1998

TABLE OF CONTENTS

Summary of Trust Expenses 1 Financial Highlights -- Institutional Shares 2
General Information 3 Investment Information 3 Investment Objective 3
Investment Policies 3 Investment Limitations 5 Trust Information 5 Management
of the Trust 5 Distribution of Institutional Shares 6 Administration of the
Trust 6 Administrative Services 6 Shareholder Services 7 Supplemental Payments
to Financial Institutions 7 Net Asset Value 7 Investing in Institutional Shares
7 Share Purchases 7 Minimum Investment Required 7 What Shares Cost 8 Exchanging
Securities for Trust Shares 8 Confirmations and Account Statements 8 Dividends
8 Capital Gains 8 Redeeming Institutional Shares 8 Telephone Redemption 8
Redeeming Shares by Mail 9 Accounts with Low Balances 9 Shareholder Information
9 Voting Rights 9 Tax Information 9 Federal Income Tax 9 State and Local Taxes
9 Performance Information 10 Other Classes of Shares 10 Financial Highlights --
Institutional Service Shares 11 Financial Statements 12 Independent Auditors'
Report 20

SUMMARY OF TRUST EXPENSES
<TABLE>
<CAPTION>

INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> Maximum Sales Charge Imposed on Purchases (as a percentage of offering
price) None Maximum Sales Charge Imposed on Reinvested Dividends (as a
percentage of offering price) None Contingent Deferred Sales Charge (as a
percentage of original purchase price
or redemption proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None

<CAPTION>
ANNUAL OPERATING EXPENSES
(As a percentage of projected average net assets)
<S> <C> <C>
Management Fee 0.40%
12b-1 Fee None
Total Other Expenses 0.23%
Shareholder Services Fee (after waiver)(1) 0.09%
Total Operating Expenses(2) 0.63%

</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 are estimated to be 0.79% absent the voluntary
waiver of a portion of the shareholder services fee. The total operating
expenses were 0.60% for the fiscal year ended January 31, 1998, and would
have been 0.78% absent the voluntary waiver of the shareholder services fee.

The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of Institutional Shares of the Fund will
bear, either directly or indirectly. For more complete descriptions of the
various costs and expenses, see "Trust Information" and "Investing in
Institutional Shares." Wire-transferred redemptions of less than $5,000 may be
subject to additional fees.

EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period.
1 Year $ 6
3 Years $20
5 Years $35
10 Years $79

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

FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

Reference is made to the Independent Auditors' Report on page 20.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $11.13 $11.34 $10.61 $11.64 $11.80 $11.64 $11.29 $10.97 $10.70 $11.08
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income 0.73 0.74 0.78 0.82 0.85 0.93 0.98 1.00 1.00 1.01
Net realized and
unrealized gain
(loss) on
investments 0.25 (0.21) 0.73 (1.03) (0.16) 0.16 0.35 0.32 0.27 (0.38)
Total from
investment
operations 0.98 0.53 1.51 (0.21) 0.69 1.09 1.33 1.32 1.27 0.63
LESS DISTRIBUTIONS
Distributions from
net investment
income (0.73) (0.74) (0.77) (0.82) (0.85) (0.93) (0.98) (1.00) (1.00) (1.01)
Distributions in
excess of net
investment
income(a) -- -- (0.01) -- -- -- -- -- -- --
Total distributions (0.73) (0.74) (0.78) (0.82) (0.85) (0.93) (0.98) (1.00) (1.00) (1.01)
NET ASSET VALUE,
END OF PERIOD $11.38 $11.13 $11.34 $10.61 $11.64 $11.80 $11.64 $11.29 $10.97 $10.70
TOTAL RETURN(B) 9.17% 4.97% 14.61% (1.71%) 6.02% 9.78% 12.25% 12.65% 12.33% 5.99%
RATIOS TO AVERAGE
NET ASSETS
Expenses 0.60% 0.60% 0.60% 0.56% 0.51% 0.51% 0.51% 0.52% 0.52% 0.53%
Net investment
income 6.57% 6.74% 7.02% 7.51% 7.22% 7.98% 8.54% 9.08% 9.19% 9.33%
Expense waiver/
reimbursement(c) 0.18% 0.20% 0.20% -- -- -- -- -- -- --
SUPPLEMENTAL DATA
Net assets,
end of period
(000 omitted) $1,087,227 $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
Portfolio turnover 74% 63% 43% 136% 117% 33% 57% 48% 27% 40%
</TABLE>
(a) Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These
distributions did 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. govern-ment
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.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

As a matter of non-fundamental investment policy, the Trust may invest its
assets in securities of other investment companies as an efficient means of
carrying out its investment policies. It should be noted that investment
companies incur certain expenses, such as management fees, and, therefore, any
investment by the Trust in shares of other investment companies may be subject
to such duplicate expenses.

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 $120 billion invested across more than 300 funds
under management and/or administration by its subsidiaries, as of December 31,
1997, Federated Investors is one of the largest mutual fund investment managers
in the United States. With more than 2,000 employees, Federated continues to be
led by the management who founded the company in 1955. Federated funds are
presently at work in and through approximately 4,000 financial institutions
nationwide.

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.

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.

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:

MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.

SHAREHOLDER SERVICES

The 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,
Martin Luther King, Jr. 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.

CONFIRMATIONS AND ACCOUNT STATEMENTS

Shareholders will receive detailed confirmations of transactions. In addition,
shareholders will receive periodic statements reporting all account activity,
including dividends paid. The Trust will not issue share certificates.

DIVIDENDS

Dividends are declared daily and paid monthly. Dividends are declared just prior
to determining net asset value. If an order for Shares is placed on the
preceding business day, Shares purchased by wire begin earning dividends on the
business day wire payment is received by the 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 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

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 SEC) 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 charge 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.

FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

Reference is made to the Independent Auditors' Report on page 20.

<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1998 1997 1996 1995 1994 1993(A)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.13 $11.34 $10.61 $11.64 $11.80 $11.71
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.72 0.74 0.78 0.79 0.82 0.61
Net realized and unrealized gain (loss) on 0.24 (0.23) 0.71 (1.03) (0.16) 0.09
investments
Total from investment operations 0.96 0.51 1.49 (0.24) 0.66 0.70
LESS DISTRIBUTIONS
Distributions from net investment income (0.71) (0.72) (0.76) (0.79) (0.82) (0.61)
NET ASSET VALUE, END OF PERIOD $11.38 $11.13 $11.34 $10.61 $11.64 $11.80
TOTAL RETURN(B) 8.95% 4.76% 14.39% (1.92%) 5.76% 5.62%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.78% 0.80% 0.80% 0.77% 0.76% 0.76%*
Net investment income 6.39% 6.54% 6.82% 7.32% 6.97% 7.57%*
Expense waiver/reimbursement(c) 0.25% 0.25% 0.25% 0.14% -- --
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $61,866 $73,857 $123,614 $120,427 $137,235 $50,166
Portfolio turnover 74% 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)

PORTFOLIO OF INVESTMENTS

FEDERATED GNMA TRUST

JANUARY 31, 1998

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE

<C> <S> <C>
LONG-TERM GOVERNMENT OBLIGATIONS--98.0%
(A)GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--98.0%
$ 16,616,181 6.00%, 12/15/2023 $ 16,346,168
168,753,088 6.50%, 10/15/2023 - 2/15/2028 169,007,033
16,600,000 (b)7.00%, 2/15/2028 16,859,292
233,079,293 7.00%, 5/15/2023 - 11/15/2027 237,728,874
228,138,652 7.50%, 5/15/2022 - 11/15/2027 236,074,742
273,376,354 8.00%, 12/15/2012 - 12/15/2028 284,781,470
19,163,786 8.50%, 10/15/2017 20,535,146
59,439,950 9.00%, 6/15/2016 - 12/15/2026 64,829,971
45,316,246 9.50%, 5/15/2016 - 10/15/2026 49,577,493
27,432,122 10.00%, 1/15/2018 - 2/15/2026 30,429,828
Total Long-Term Government Obligations (identified 1,126,170,017
cost $1,093,078,952)
(C)REPURCHASE AGREEMENTS--11.6%
24,540,000 BT Securities Corp., 5.610%, dated 1/30/1998, due 2/2/1998 24,540,000
33,600,000 (d)(f)Credit Suisse First Boston, Inc., 5.500%, dated 33,600,000
1/22/1998, due 2/19/1998
74,600,000 (d)(f)UBS Securities, Inc., 5.480%, dated 1/22/1998, due 74,600,000
2/19/1998
Total Repurchase Agreements (at amortized cost) 132,740,000
Total Investments (identified cost $1,225,818,952)(e) $ 1,258,910,017
</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.

(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 joint
accounts 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 $1,225,818,952.
The net unrealized appreciation of investments on a federal tax basis
amounts to $33,091,065 which is comprised of $33,566,698 appreciation and
$475,633 depreciation at January 31, 1998.

(f) Securities held as collateral for future dollar roll transactions.

Note: The categories of investments are shown as a percentage of net assets
($1,149,093,168) at January 31, 1998.

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

STATEMENT OF ASSETS AND LIABILITIES

FEDERATED GNMA TRUST

JANUARY 31, 1998

<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax $ 1,258,910,017
cost $1,225,818,952)
Cash 15,027
Income receivable 6,463,740
Receivable for investments sold 75,427,132
Receivable for shares sold 2,178,926
Total assets 1,342,994,842
LIABILITIES:
Payable for investments purchased $ 168,777,356
Payable for shares redeemed 4,071,512
Income distribution payable 3,994,405
Payable for dollar roll transactions 16,856,879
Accrued expenses 201,522
Total liabilities 193,901,674
Net Assets for 100,973,299 shares outstanding $ 1,149,093,168
NET ASSETS CONSIST OF:
Paid in capital $ 1,228,528,762
Net unrealized appreciation of investments 33,091,065
Accumulated net realized loss on investments (112,526,659)
Total Net Assets $ 1,149,093,168
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS PER
SHARE:
INSTITUTIONAL SHARES:
$1,087,227,000 / 95,536,481 shares outstanding $11.38
INSTITUTIONAL SERVICE SHARES:
$61,866,168 / 5,436,818 shares outstanding $11.38
</TABLE>

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

STATEMENT OF OPERATIONS

FEDERATED GNMA TRUST

YEAR ENDED JANUARY 31, 1998

<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest (net of dollar roll expense of $2,740,595) $ 86,473,546
EXPENSES:
Investment advisory fee $ 4,824,062
Administrative personnel and services fee 910,343
Custodian fees 106,618
Transfer and dividend disbursing agent fees and 205,386
expenses
Directors'/Trustees' fees 14,433
Auditing fees 21,292
Legal fees 6,326
Portfolio accounting fees 158,977
Distribution services fee--Institutional Service 176,418
Shares
Shareholder services fee--Institutional Shares 2,838,621
Shareholder services fee--Institutional Service 176,418
Shares
Share registration costs 30,438
Printing and postage 34,690
Insurance premiums 9,490
Taxes 62,273
Miscellaneous 24,842
Total expenses 9,600,627
Waivers --
Waiver of distribution services fee--Institutional $ (171,478)
Service Shares
Waiver of shareholder services fee--Institutional (2,007,300)
Shares
Waiver of shareholder services fee--Institutional (4,940)
Service Shares
Total waivers (2,183,718)
Net expenses 7,416,909
Net investment income 79,056,637
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 10,112,724
Net change in unrealized appreciation of investments 16,065,946
Net realized and unrealized gain on investments 26,178,670
Change in net assets resulting from operations $ 105,235,307
</TABLE>

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

STATEMENT OF CHANGES IN NET ASSETS

FEDERATED GNMA TRUST

<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 79,056,637 $ 91,654,297
Net realized gain (loss) on investments ($10,112,724 and 10,112,724 2,951,050
$2,951,050, net gains, respectively, as computed for federal
tax purposes)
Net change in unrealized appreciation/depreciation 16,065,946 (31,535,440)
Change in net assets resulting from operations 105,235,307 63,069,907
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Institutional Shares (74,565,995) (84,428,204)
Institutional Service Shares (4,498,183) (7,098,006)
Change in net assets resulting from distributions to (79,064,178) (91,526,210)
shareholders
SHARE TRANSACTIONS--
Proceeds from sale of shares 213,783,903 214,663,961
Net asset value of shares issued to shareholders in payment of 23,518,122 25,204,908
distributions declared
Cost of shares redeemed (387,970,458) (414,329,714)
Change in net assets resulting from share transactions (150,668,433) (174,460,845)
Change in net assets (124,497,304) (202,917,148)
NET ASSETS:
Beginning of period 1,273,590,472 1,476,507,620
End of period (including undistributed net investment income of $ 1,149,093,168 $ 1,273,590,472
$0 and $7,541, respectively)
</TABLE>

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

NOTES TO FINANCIAL STATEMENTS

FEDERATED GNMA TRUST

JANUARY 31, 1998

ORGANIZATION

Federated GNMA Trust (the "Trust") is registered under the Investment Company
Act of 1940, as amended (the "Act"), as a diversified, open-end management
investment company. The Trust 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.

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
($4,780,792) $4,780,792
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, 1998, the Trust, for federal tax purposes, had a capital loss
carryforward of $112,526,659, 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
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 involve "to be announced" securities and are
treated as short-term financing arrangements which will not exceed 12 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.

SHARES OF BENEFICIAL INTEREST

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

<TABLE>
<CAPTION>
Year Ended January 31,
1998 1997
Institutional Shares Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 17,914,645 $ 200,799,424 18,461,312 $ 204,235,676
Shares issued to shareholders in 1,884,677 21,084,267 2,016,195 22,248,293
payment of distributions declared
Shares redeemed (32,057,270) (359,010,618) (31,975,172) (353,373,236)
Net change resulting from (12,257,948) $(137,126,927) (11,497,665) $(126,889,267)
Institutional share transactions
<CAPTION>
Year Ended January 31,
1998 1997
Institutional Service Shares Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 1,159,988 $ 13,034,477 943,333 $ 10,428,285
Shares issued to shareholders in 217,640 2,433,855 267,944 2,956,615
payment of distributions declared
Shares redeemed (2,576,723) (28,959,840) (5,475,198) (60,956,478)
Net change resulting from (1,199,095) $ (13,491,508) (4,263,921) $ (47,571,578)
Institutional Service share
transactions
Net change resulting from (13,457,043) $(150,618,435) (15,761,586) $(174,460,845)
share transactions
</TABLE>

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 paid to FServ is based on the level of average aggregate daily net assets of
all funds advised by subsidiaries of Federated Investors for the period. 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 shares for the period. The fee paid to FSS is used to finance
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.

INVESTMENT TRANSACTIONS

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

PURCHASES $881,192,170
SALES $995,442,000

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, 1998,
and the related statements of operations for the year then ended, the statements
of changes in net assets for the years ended January 31, 1998 and 1997, and the
financial highlights for the periods presented. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
January 31, 1998, by correspondence with the custodian and brokers; where
replies were not received, 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, 1998, 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 18, 1998

[Graphic]

Federated GNMA Trust

Institutional Shares

PROSPECTUS

MARCH 31, 1998

An Open-End, Diversified Management Investment Company

FEDERATED GNMA TRUST
Institutional Shares
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000

DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

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

CUSTODIAN
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600

INDEPENDENT AUDITORS
Deloitte & Touche LLP
2500 PPG Place
Pittsburgh, PA 15222-5401

Federated Securities Corp., Distributor
1-800-341-7400
www.federatedinvestors.com

Cusip 314184102

8022901A-IS (3/98)

[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,
1998, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you 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, 1998

TABLE OF CONTENTS

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 5 Trust Information 5 Management
of the Trust 5 Distribution of Institutional Service Shares 6 Distribution and
Shareholder Services 6 Supplemental Payments to Financial Institutions 7
Administration of the Trust 7 Administrative Services 7 Net Asset Value 7
Investing in Institutional Service Shares 7 Share Purchases 7 Exchange
Privilege 8 Minimum Investment Required 8 What Shares Cost 8 Exchanging
Securities for Trust Shares 8 Confirmations and Account Statements 8 Dividends
8 Capital Gains 9 Redeeming Institutional Service Shares 9 Telephone Redemption
9 Redeeming Shares by Mail 9 Accounts with Low Balances 9 Shareholder
Information 10 Voting Rights 10 Tax Information 10 Federal Income Tax 10 State
and Local Taxes 10 Performance Information 10 Other Classes of Shares 10
Financial Highlights -- Institutional Shares 11 Financial Statements 12
Independent Auditors' Report 20

SUMMARY OF TRUST EXPENSES

<TABLE>
<CAPTION>
INSTITUTIONAL SERVICE SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> Maximum Sales Charge Imposed on Purchases (as a percentage of offering
price) None Maximum Sales Charge Imposed on Reinvested Dividends (as a
percentage of offering price) None Contingent Deferred Sales Charge (as a
percentage of original purchase price
or redemption proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None

<CAPTION>
ANNUAL OPERATING EXPENSES
(As a percentage of projected average net assets)
<S> <C> <C>
Management Fee 0.40%
12b-1 Fee (after waiver)(1) 0.01%
Total Other Expenses 0.38%
Shareholder Services Fee (after waiver)(2) 0.24%
Total Operating Expenses(3) 0.79%
</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 are estimated to be 1.04% absent the voluntary
waivers of portions of the 12b-1 fee and the shareholder services fee. The
total operating expenses were 0.78% for the fiscal year ended January 31,
1998, and would have been 1.03% absent the voluntary waivers of the
shareholder services fee and 12b-1 fee.

The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of Institutional Service Shares of the
Fund will bear, either directly or indirectly. For more complete descriptions of
the various costs and expenses, see "Trust Information" and "Investing in
Institutional Service Shares." Wire-transferred redemptions of less than $5,000
may be subject to additional fees.

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.

EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period.
1 Year $ 8
3 Years $25
5 Years $44
10 Years $98

The above example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown.

FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

Reference is made to the Independent Auditors' Report on page 20.

(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.

ACCEPTABLE INVESTMENTS

The Trust's permissible investments are as follows:

COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS")

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:

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.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

TEMPORARY INVESTMENTS

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

REPURCHASE AGREEMENTS

LENDING OF PORTFOLIO SECURITIES

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

INVESTMENT LIMITATIONS

TRUST INFORMATION

MANAGEMENT OF THE TRUST

BOARD OF TRUSTEES

INVESTMENT ADVISER

ADVISORY FEES

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.

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.

SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS

In addition to payments made pursuant to the Shareholder Services Agreement,
Federated Securities Corp. and Federated Shareholder Services, from their own
assets, may pay financial institutions supplemental fees for the performance of
substantial sales services, distribution-related support services, or
shareholder services. The support may include sponsoring sales, educational, and
training seminars for their employees, providing sales literature, and
engineering computer software programs that emphasize the attributes of the
Trust. Such assistance will be predicated upon the amount of shares the
financial institution sells or may sell, and/or upon the type and nature of
sales or marketing support furnished by the financial institution. Any payments
made by the distributor may be reimbursed by the Trust's investment adviser or
its affiliates.

ADMINISTRATION OF THE TRUST

ADMINISTRATIVE SERVICES

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

CONFIRMATIONS AND ACCOUNT STATEMENTS

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

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.

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 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.

FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

Reference is made to the Independent Auditors' Report on page 20.

<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $11.13 $11.34 $10.61 $11.64 $11.80 $11.64 $11.29 $10.97 $10.70 $11.08
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income 0.73 0.74 0.78 0.82 0.85 0.93 0.98 1.00 1.00 1.01
Net realized and
unrealized gain
(loss) on
investments 0.25 (0.21) 0.73 (1.03) (0.16) 0.16 0.35 0.32 0.27 (0.38)
Total from
investment
operations 0.98 0.53 1.51 (0.21) 0.69 1.09 1.33 1.32 1.27 0.63
LESS DISTRIBUTIONS
Distributions from
net investment
income (0.73) (0.74) (0.77) (0.82) (0.85) (0.93) (0.98) (1.00) (1.00) (1.01)
Distributions in
excess of net
investment
income(a) -- -- (0.01) -- -- -- -- -- -- --
Total distributions (0.73) (0.74) (0.78) (0.82) (0.85) (0.93) (0.98) (1.00) (1.00) (1.01)
NET ASSET VALUE,
END OF PERIOD $11.38 $11.13 $11.34 $10.61 $11.64 $11.80 $11.64 $11.29 $10.97 $10.70
TOTAL RETURN(B) 9.17% 4.97% 14.61% (1.71%) 6.02% 9.78% 12.25% 12.65% 12.33% 5.99%
RATIOS TO AVERAGE
NET ASSETS
Expenses 0.60% 0.60% 0.60% 0.56% 0.51% 0.51% 0.51% 0.52% 0.52% 0.53%
Net investment
income 6.57% 6.74% 7.02% 7.51% 7.22% 7.98% 8.54% 9.08% 9.19% 9.33%
Expense waiver/
reimbursement(c) 0.18% 0.20% 0.20% -- -- -- -- -- -- --
SUPPLEMENTAL DATA
Net assets,
end of period
(000 omitted) $1,087,227 $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
Portfolio turnover 74% 63% 43% 136% 117% 33% 57% 48% 27% 40%
</TABLE>
(a) Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These
distributions did 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)

PORTFOLIO OF INVESTMENTS

FEDERATED GNMA TRUST

JANUARY 31, 1998

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE

(b) Indicates securities subject to dollar roll transactions.

(f) Securities held for collateral for future dollar roll transactions.

Note: The categories of investments are shown as a percentage of net assets
($1,149,093,168) at January 31, 1998.

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

STATEMENT OF ASSETS AND LIABILITIES

FEDERATED GNMA TRUST

JANUARY 31, 1998

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

STATEMENT OF OPERATIONS

FEDERATED GNMA TRUST

YEAR ENDED JANUARY 31, 1998

<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest (net of dollar roll expense of $2,740,595) $ 86,473,546
EXPENSES:
Investment advisory fee $ 4,824,062
Administrative personnel and services fee 910,343
Custodian fees 106,618
Transfer and dividend disbursing agent fees and
expenses 205,386
Directors'/Trustees' fees 14,433
Auditing fees 21,292
Legal fees 6,326
Portfolio accounting fees 158,977
Distribution services fee--Institutional Service 176,418
Shares
Shareholder services fee--Institutional Shares 2,838,621
Shareholder services fee--Institutional Service 176,418
Shares
Share registration costs 30,438
Printing and postage 34,690
Insurance premiums 9,490
Taxes 62,273
Miscellaneous 24,842
Total expenses 9,600,627
Waivers --
Waiver of distribution services fee--Institutional $ (171,478)
Service Shares
Waiver of shareholder services fee--Institutional (2,007,300)
Shares
Waiver of shareholder services fee--Institutional (4,940)
Service Shares
Total waivers (2,183,718)
Net expenses 7,416,909
Net investment income 79,056,637
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 10,112,724
Net change in unrealized appreciation of investments 16,065,946
Net realized and unrealized gain on investments 26,178,670
Change in net assets resulting from operations $ 105,235,307
</TABLE>

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

STATEMENT OF CHANGES IN NET ASSETS

FEDERATED GNMA TRUST

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

NOTES TO FINANCIAL STATEMENTS

FEDERATED GNMA TRUST

JANUARY 31, 1998

ORGANIZATION

SIGNIFICANT ACCOUNTING POLICIES

INVESTMENT VALUATIONS

REPURCHASE AGREEMENTS

INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS

INCREASE (DECREASE)
ACCUMULATED
PAID-IN CAPITAL NET REALIZED LOSS
($4,780,792) $4,780,792
Net investment income, net realized gains/losses, and net assets were not
affected by this reclassification.

FEDERAL TAXES

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

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

DOLLAR ROLL TRANSACTIONS

USE OF ESTIMATES

OTHER

Investment transactions are accounted for on the trade date.

SHARES OF BENEFICIAL INTEREST

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

DISTRIBUTION SERVICES FEE

SHAREHOLDER SERVICES FEE

TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES

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.

INVESTMENT TRANSACTIONS

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

PURCHASES $881,192,170
SALES $995,442,000

INDEPENDENT AUDITORS' REPORT

To the Trustees and Shareholders of FEDERATED GNMA TRUST:

DELOITTE & TOUCHE LLP

Pittsburgh, Pennsylvania
March 18, 1998

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Federated GNMA Trust

Institutional Service Shares

PROSPECTUS

MARCH 31, 1998

An Open-End, Diversified Management Investment Company

FEDERATED GNMA TRUST INSTITUTIONAL SERVICE SHARES Federated Investors Funds 5800
Corporate Drive Pittsburgh, PA 15237-7000

DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

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

CUSTODIAN
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600

INDEPENDENT AUDITORS
Deloitte & Touche LLP
2500 PPG Place
Pittsburgh, PA 15222-5401

Federated Securities Corp., Distributor

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

Cusip 314184201
8022901A-SS (3/98)

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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, 1998. 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 GNMA TRUST

FEDERATED INVESTORS FUNDS

5800 CORPORATE DRIVE

PITTSBURGH, PENNSYLVANIA 15237-7000

Statement dated March 31, 1998

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Cusip 314184102
Cusip 314184201
8022901B (3/98)

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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 2 Reverse Repurchase Agreements 2
Portfolio Turnover 2 Investment Limitations 2 FEDERATED GNMA TRUST MANAGEMENT 4
Trust Ownership 7 Trustee 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 9 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 10 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 13
Mutual Fund Market 14 Institutional Clients 14 Bank Marketing 14 Broker/Dealers
and Bank Broker/Dealer Subsidiaries14

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 both classes of
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, 1998
and 1997, the portfolio turnover rates were 75% and 63%, 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 invest in the securities of affiliated money market funds as an
efficient means of managing the Trust's uninvested cash.

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.

Nicholas P. Constantakis
175 Woodshire Drive
Pittsburgh, PA

Birthdate: September 3, 1939

Trustee

Formerly, Partner, Anderson Worldwide SC; Director or Trustee of the Funds.

William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA

Birthdate: July 4, 1918

Trustee

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

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; 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 Core
Trust; Federated Equity Funds; Federated Equity Income Fund, Inc.; Federated
Fund for U.S. Government Securities, Inc.; Federated GNMA Trust; Federated
Government Income Securities, Inc.; Federated Government Trust; Federated High
Income Bond Fund, Inc.; Federated High Yield Trust; Federated Income Securities
Trust; Federated Income Trust; Federated Index Trust; Federated Institutional
Trust; Federated Insurance Series; Federated Investment Portfolios; Federated
Investment Trust; Federated Master Trust; Federated Municipal Opportunities
Fund, Inc.; Federated Municipal Securities Fund, Inc.; Federated Municipal
Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S.
Government Trust; Federated Stock and Bond Fund, Inc.; Federated Stock Trust;
Federated Tax-Free Trust; Federated Total Return Series, Inc.; Federated U.S.
Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years;
Federated U.S. Government Securities Fund: 2-5 Years; Federated U.S. Government
Securities Fund: 5-10 Years; Federated Utility Fund, Inc.; First Priority Funds;
Fixed Income Securities, Inc.; High Yield Cash Trust; Intermediate Municipal
Trust; International Series, Inc.; Investment Series Funds, Inc.; Investment
Series Trust; Liberty Term Trust, Inc.--1999; Liberty U.S. Government Money
Market Trust; Liquid Cash Trust; Managed Series Trust; Money Market Management,
Inc.; Money Market Obligations Trust; Money Market Obligations Trust II; Money
Market Trust; Municipal Securities Income Trust; Newpoint Funds; RIMCO Monument
Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds;
The Virtus Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; Wesmark Funds; WCT Funds; and World Investment Series,
Inc.

TRUST OWNERSHIP

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

As of March 2, 1998, 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 561,130 Shares
(10.30%); and Trucojo Trust Company of St. Joseph, St. Joseph, Missouri,
owned approximately 615,992 Shares (11.31%).

Trustee Compensation

AGGREGATE

NAME, COMPENSATION

POSITION WITH FROM TOTAL COMPENSATION PAID

TRUST TRUST*# FROM FUND COMPLEX+

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

Trustee 56 other investment companies
in the Fund Complex

Thomas G. Bigley $2,011.33 $111,222 for the Trust and

Trustee 56 other investment companies
in the Fund Complex

John T. Conroy, Jr. $2,212.80 $122,362 for the Trust and

Trustee 56 other investment companies
in the Fund Complex

Nicholas P. Constantakis** $0 $0 for the Trust and

Trustee 34 other investment companies
in the Fund Complex

William J. Copeland $2,212.80 $122,362 for the Trust and

Trustee 56 other investment companies
in the Fund Complex

James E. Dowd $2,212.80 $122,362 for the Trust and

Trustee 56 other investment companies
in the Fund Complex

Lawrence D. Ellis, M.D. $2,011.33 $111,222 for the Trust and

Trustee 56 other investment companies
in the Fund Complex

Edward L. Flaherty, Jr. $2,212.80 $122,362 for the Trust and

Trustee 56 other investment companies
in the Fund Complex

Peter E. Madden $2,011.33 $111,222 for the Trust and

Trustee 56 other investment companies
in the Fund Complex

John E. Murray, Jr. $2,011.33 $111,222 for the Trust and

Trustee 56 other investment companies
in the Fund Complex

Wesley W. Posvar $2,011.33 $111,222 for the Trust and

Trustee 56 other investment companies
in the Fund Complex

Marjorie P. Smuts $2,011.33 $111,222 for the Trust and

Trustee 56 other investment companies
in the Fund Complex

* Information is furnished for the fiscal year ended January 31, 1998.

# The aggregate compensation is provided for the Trust which is comprised of one
portfolio, as of January 31, 1998.

+ The information is provided for the last calendar year.

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

TRUSTEE LIABILITY

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

INVESTMENT ADVISORY SERVICES

ADVISER TO THE 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, 1998, 1997, and 1996, the Trust's adviser earned $4,824,062,
$5,451,836, and $6,160,922, 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 years ended January 31, 1998, and 1997, Federated Services
Company earned $910,343 and $1,030,132 respectively. For the fiscal year ended
January 31, 1996, Federated Administrative Services earned $1,165,702.

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, 1998, payments in the amount of 176,418
were made pursuant to the Distribution Plan (Institutional Service Shares only)
of which $171,478 was waived. In addition, for the fiscal year ended January 31,
1998, the Institutional Shares and Institutional Service Shares paid shareholder
service fees in the amount of $2,838,621 and $176,418, respectively, of which
$2,007,300 and $4,940, 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;
* 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, 1998 were 9.17%,
6.48% and 8.51% respectively. The Trust's average annual total return for
Institutional Service Shares for the one-year and five-year periods ended
January 31, 1998 were 8.95% and 6.25% 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, 1998, was 6.90%. The Trust's yield for Institutional Service
Shares was 6.74% 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.

In the government sector, as of December 31, 1997, Federated Investors manages 9
mortgage-backed, 6 government agency and 17 government money market mutual
funds, with assets approximating $5.9 billion, $1.5 billion and $29.7 billion,
respectively. Federated trades approximately $400 million in U.S. government and
mortgage-backed securities daily and places approximately $23 billion in
repurchase agreements each day. Federated introduced the first U.S. government
fund to invest in U.S. government bond securities in 1969. Federated has been a
major force in the short- and intermediate-term government markets since 1982
and currently manages approximately $36 billion in government funds within these
maturity ranges.

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

MUTUAL FUND MARKET

Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $4.4 trillion to the more than 6,700 funds available.*

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

INSTITUTIONAL CLIENTS

Federated Investors meets the needs of approximately 900 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for a
variety of applications, including defined benefit and defined contribution
programs, cash management, and asset/liability management. Institutional clients
include corporations, pension funds, tax-exempt entities,
foundations/endowments, insurance companies, and investment and financial
advisors. The marketing effort to these institutional clients is headed by John
B. Fisher, President, Institutional Sales Division.

BANK MARKETING

Other institutional clients include close relationships with more than 1,600
banks and trust organizations. Virtually all of the trust divisions of the top
100 bank holding companies use Federated funds in their clients' portfolios. The
marketing effort to trust clients is headed by Timothy C. Pillion, Senior Vice
President, Bank Marketing & Sales.

BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES

Federated funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Federated Securities Corp.

* Source: Investment Company Institute