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 (the
"Fund") 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 Fund. Keep this prospectus for future
reference.
The Fund has also filed a Combined Statement of Additional Information for
Institutional Shares and Institutional Service Shares dated March 31, 1994 with
the Securities and Exchange Commission. The information contained in the
Combined Statement of Additional Information is incorporated by reference into
this prospectus. You may request a copy of the Combined Statement of Additional
Information free of charge by calling 1-800-235-4669. To obtain other
information or to make inquiries about the Fund, contact the Fund at the address
listed in the back of this prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated March 31, 1994
TABLE OF CONTENTS
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SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
INSTITUTIONAL SHARES 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Acceptable Investments 3
Collateralized Mortgage Obligations
("CMOs") 4
Real Estate Mortgage Investment
Conduits ("REMICs") 5
Temporary Investments 5
Repurchase Agreements 5
Lending of Portfolio Securities 6
When-Issued and Delayed
Delivery Transactions 6
Investment Limitations 6
TRUST INFORMATION 6
- ------------------------------------------------------
Management of the Trust 6
Board of Trustees 6
Investment Adviser 6
Advisory Fees 6
Adviser's Background 7
Other Payments to Financial Institutions 7
Distribution of Institutional Shares 7
Administration of the Fund 7
Administrative Services 7
Shareholder Services Plan 8
Custodian 8
Transfer Agent and Dividend
Disbursing Agent 8
Legal Counsel 8
Independent Auditors 8
NET ASSET VALUE 8
- ------------------------------------------------------
INVESTING IN INSTITUTIONAL SHARES 9
- ------------------------------------------------------
Share Purchases 9
By Wire 9
By Mail 9
Minimum Investment Required 9
What Shares Cost 9
Exchanging Securities for Fund Shares 10
Subaccounting Services 10
Certificates and Confirmations 10
Dividends 10
Capital Gains 10
REDEEMING INSTITUTIONAL SHARES 11
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Telephone Redemption 11
Written Requests 11
Signatures 11
Receiving Payment 12
Accounts with Low Balances 12
SHAREHOLDER INFORMATION 12
- ------------------------------------------------------
Voting Rights 12
Massachusetts Partnership Law 12
TAX INFORMATION 13
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Federal Income Tax 13
Pennsylvania Corporate and
Personal Property Taxes 13
PERFORMANCE INFORMATION 13
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OTHER CLASSES OF SHARES 14
- ------------------------------------------------------
Financial Highlights--
Institutional Service Shares 15
FINANCIAL STATEMENTS 16
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INDEPENDENT AUDITORS' REPORT 25
- ------------------------------------------------------
ADDRESSES Inside Back Cover
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)................................................. None
Maximum Sales Load 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 amounts redeemed, if applicable)................... None
Exchange Fee.......................................................................... None
ANNUAL INSTITUTIONAL SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee........................................................................ 0.40%
12b-1 Fee............................................................................. None
Total Other Expenses.................................................................. 0.17%
Shareholder Servicing Fee(1)............................................ 0.05%
Total Institutional Shares Operating Expenses(2)................................. 0.57%
</TABLE>
(1) The maximum Shareholder Servicing Fee is 0.25%.
(2) The Total Institutional Shares Operating Expenses in the table above are
based on expenses expected during the fiscal year ending January 31, 1995.
The Total Institutional Shares Operating Expenses were 0.51% for the fiscal
year ended January 31, 1994.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF INSTITUTIONAL SHARES OF THE
FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF
THE VARIOUS COSTS AND EXPENSES, SEE "TRUST INFORMATION" AND "INVESTING IN
INSTITUTIONAL SHARES." Wire-transferred redemptions of less than $5,000 may be
subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 invest-
ment assuming (1) 5% annual return and (2) redemption at
the end of each time period............................. $6 $18 $32 $ 71
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The information set forth in the foregoing table and example relates only
to Institutional Shares of the Fund. The Fund offers another class of shares
called Institutional Service Shares. Institutional Shares and Institutional
Service Shares are subject to certain of the same expenses; however,
Institutional Service Shares are subject to a 12b-1 fee of 0.25%. See "Other
Classes of Shares."
FEDERATED GNMA TRUST
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Independent Auditors' Report on page 25.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
---------------------------------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ---
NET
ASSET
VALUE,
BEGINNING
OF
PERIOD $11.80 $11.64 $11.29 $10.97 $10.70 $11.08 $11.46 $11.35 $10.77 $10.63
- ---
INCOME
FROM
INVESTMENT
OPERATIONS
- ---
Net
investment
income 0.85 0.93 0.98 1.00 1.00 1.01 1.04 1.11 1.22 1.26
- ---
Net
realized
and
unrealized
gain
(loss) on
investments (0.16) 0.16 0.35 0.32 0.27 (0.38) (0.38) 0.14 0.58 0.13
- --- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total
from
investment
operations 0.69 1.09 1.33 1.32 1.27 0.63 0.66 1.25 1.80 1.39
- --- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
LESS
DISTRIBUTIONS
- ---
Dividends
to
shareholders
from
net
investment
income (0.85) (0.93) (0.98) (1.00) (1.00) (1.01) (1.04) (1.11) (1.22) (1.25)
- ---
Distributions
to
shareholders
from net
realized
gain on
investment
transactions -- -- -- -- -- -- -- (0.03) -- --
- --- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total
distributions (0.85) (0.93) (0.98) (1.00) (1.00) (1.01) (1.04) (1.14) (1.22) (1.25)
- --- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
NET
ASSET
VALUE,
END OF
PERIOD $11.64 $11.80 $11.64 $11.29 $10.97 $10.70 $11.08 $11.46 $11.35 $10.77
- --- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
TOTAL
RETURN* 6.02% 9.78% 12.25% 12.65% 12.33% 5.99% 6.29% 11.53% 17.75% 14.53%
- ---
RATIOS
TO
AVERAGE
NET
ASSETS
- ---
Expenses 0.51% 0.51% 0.51% 0.52% 0.52% 0.53% 0.52% 0.51% 0.61% 0.53%
- ---
Net
investment
income 7.22% 7.98% 8.54% 9.08% 9.19% 9.33% 9.51% 9.66% 11.01% 12.35%
- ---
Expense
waiver/reimbursement(a) -- -- -- -- -- -- -- -- -- 0.13%
- ---
SUPPLEMENTAL
DATA
- ---
Net
assets,
end of
period
(000
omitted) $1,910,500 $1,770,169 $1,333,930 $1,268,706 $1,312,780 $1,710,890 $2,111,559 $2,515,127 $569,404 $174,882
- ---
Portfolio
turnover
rate 117% 33% 57% 48% 27% 40% 45% 100% 141% 147%
- ---
</TABLE>
* Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) The voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(See Notes which are an integral part of the Financial Statements)
Further information about the Fund's performance is contained in the Fund's
annual report dated January 31, 1994, which can be obtained free of charge.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated December 10, 1981. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. As of the date of this prospectus, the Board of
Trustees ("Trustees") have established two classes of shares of the Fund, known
as Institutional Shares and Institutional Service Shares. This prospectus
relates only to Institutional Shares of the Fund.
Institutional Shares ("Shares") of the Fund are sold primarily to accounts for
which financial institutions act in a fiduciary or agency capacity 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 Fund.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is current income. The investment objective
may not be changed without the approval of shareholders. The Fund 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 Fund 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 Fund 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 Fund reserves the right, without
shareholder approval, to make such investments consistent with the Fund's
investment objective, policies, and limitations. Further, should existing
statutes or regulations change so as to cause any securities held by the Fund to
become ineligible for purchase by federal savings associations, the Fund will
dispose of those securities at times advantageous to the Fund.
As operated within the above limitation, the Fund 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 Fund will invest primarily in mortgage-backed
securities. Under normal circumstances, at least 65% of the Fund'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 Fund will invest in
other mortgage-backed securities, as described below, these will be
collateralized by GNMA obligations.
The Fund's permissible investments are as follows:
- U.S. Treasury bills, notes, and bonds;
- collateralized mortgage obligations;
- real estate mortgage investment conduits; and
- notes, bonds and discount notes of the following U.S. government agencies
or instrumentalities: GNMA, Export-Import Bank of the United States,
General Services Administration, Small Business Administration,
Washington Metropolitan Transit Authority, Federal National Mortgage
Association ("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"),
Bank for Cooperatives , Federal Farm Credit Banks, Tennessee Valley
Authority, Commodity Credit Corporation, Federal Financing Bank, the
Student Loan Marketing Association, or National Credit Union
Administration. These government securities in which the Fund may invest
are backed in a variety of ways by the U.S. government or its agencies or
instrumentalities. Some of these securities, such as GNMA mortgage-backed
securities, are backed by the full faith and credit of the U.S.
government. Other securities, such as obligations of the FNMA or FHLMC,
are backed by the credit of the agency or instrumentality issuing the
obligations but not the full faith and credit of the U.S. government.
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 Fund 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 Fund 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 Fund 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 are often adjustable rate. The interest portion of these payments is
distributed by the Fund 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. 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 Fund 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 Fund 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 Fund, which would be taxed as ordinary
income when distributed to the shareholders.
TEMPORARY INVESTMENTS. For defensive purposes only, the Fund may invest
temporarily in cash and money market instruments during times of unusual market
conditions and to maintain liquidity. Money market instruments items may
include:
- obligations of the U.S. government or its agencies or instrumentalities;
and
- repurchase agreements.
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which
banks, broker/ dealers, and other recognized financial institutions sell
U.S. government securities or other securities to the Fund 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 Fund, the Fund could receive less than the
repurchase price on any sale of such securities.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund 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 Fund 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 Fund 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.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase U.S.
government obligations on a when-issued or delayed delivery basis. In
when-issued and delayed delivery transactions, the Fund relies on the seller to
complete the transaction. The seller's failure to complete the transaction may
cause the Fund to miss a price or yield considered to be advantageous.
INVESTMENT LIMITATIONS
The Fund will not borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund 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 Fund 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 Fund 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 Fund are made by Federated
Management, the Fund's investment adviser, subject to direction by the Trustees.
The adviser continually conducts investment research and supervision for the
Fund and is responsible for the purchase or sale of portfolio instruments, for
which it receives an annual fee from the Fund.
ADVISORY FEES. The Fund's adviser receives an annual investment advisory
fee equal to .40 of 1% of the Fund's average daily net assets. The adviser
has also undertaken to reimburse the Trust for operating expenses in excess
of limitations established by certain states. This does not include
reimbursement to the Trust of any expenses incurred by shareholders who use
the transfer agent's subaccounting facilities.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. Total assets under management or
administration by these and other subsidiaries of Federated Investors are
approximately $ 70 billion. Federated Investors, which was founded in 1956
as Federated Investors, Inc., develops and manages mutual funds primarily
for the financial industry. Federated Investors' track record of
competitive performance and its disciplined, risk-averse investment
philosophy serve approximately 3,500 client institutions nationwide.
Through these same client institutions, individual shareholders also have
access to this same level of investment expertise.
Gary J. Madich has been the Fund's portfolio manager since February, 1987.
Mr. Madich joined Federated Investors in 1984 and has been a Senior Vice
President of the Fund's investment adviser since 1993. Mr. Madich served as
a Vice President of the Fund's investment adviser from 1988 until 1993. Mr.
Madich is a Chartered Financial Analyst and received his M.B.A. in Public
Finance from the University of Pittsburgh.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to periodic payments to
financial institutions under the Shareholder Services Plan, certain financial
institutions may be compensated by the adviser or its affiliates for the
continuing investment of customers' assets in certain funds, including the Fund,
advised by those entities. These payments will be made directly by the
distributor or adviser from their assets, and will not be made from the assets
of the Fund or by the assessment of a sales charge on Shares.
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 FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides administrative personnel and services (including
certain legal and financial reporting services) necessary to operate the Fund.
Federated Administrative Services provides these at an annual
rate, which relates to the average aggregate daily net assets of all funds
advised by subsidiaries of Federated Investors ("Federated Funds"), as specified
below:
<TABLE>
<CAPTION>
AVERAGE AGGREGATE DAILY NET
MAXIMUM ADMINISTRATIVE FEE ASSETS OF THE FEDERATED FUNDS
- --------------------------------------------- ---------------------------------------------
<S> <C>
0. 15 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0. 10 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Administrative Services may choose voluntarily to waive a portion of
its fee.
SHAREHOLDER SERVICES PLAN. The Trust has adopted a Shareholder Services Plan
(the "Services Plan") under which it may make payments up to 0.25 of 1% of the
average daily net asset value of the Institutional Shares to obtain certain
personal services for shareholders and the maintenance of shareholder accounts
("shareholder services"). The Trust has entered into a Shareholder Services
Agreement with Federated Shareholder Services, a subsidiary of Federated
Investors, under which 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.
CUSTODIAN. State Street Bank and Trust Company, Boston, Massachusetts, is
custodian for the securities and cash of the Fund.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company,
Pittsburgh, Pennsylvania, is transfer agent for the Shares of the Fund, and
dividend disbursing agent for the Fund.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly,
Pittsburgh, Pennsylvania and Dickstein, Shapiro & Morin, Washington, D.C.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Deloitte &
Touche, Boston, Massachusetts.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund's net asset value per Share fluctuates. The net asset value for Shares
is determined by adding the interest of the Shares in the market value of all
securities and other assets of the Fund, subtracting the interest of the Shares
in the liabilities of the Fund and those attributable to Shares, and dividing
the remainder by the total number of Shares outstanding. 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 and the Federal
Reserve wire system are open. Shares may be purchased either by wire or mail.
To purchase Shares, open an account by calling Federated Securities Corp.
Information needed to establish the account will be taken over the telephone.
The Fund reserves the right to reject any purchase request.
BY WIRE. To purchase Shares by Federal Reserve wire, call the Fund before 4:00
p.m. (Boston time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m. (Boston
time) on the next business day following the order. Federal funds should be
wired as follows: State Street Bank and Trust Company, Boston, Massachusetts;
Attention: EDGEWIRE; For Credit to: Federated GNMA Trust--Institutional Shares;
Fund Number (this number can be found on the account statement or by contacting
the Fund); Group Number or Order Number; Nominee or Institution Name; and ABA
Number 011000028. Shares cannot be purchased by wire on days on which the New
York Stock Exchange is closed and on federal holidays restricting wire
transfers.
BY MAIL. To purchase Shares by mail, send a check made payable to Federated
GNMA Trust-- Institutional Shares to Federated Services Company, c/o State
Street Bank and Trust Company, P.O. Box 8602, Boston, Massachusetts 02266-8602.
Orders by mail are considered received after payment by check is converted by
State Street Bank into federal funds. This is normally the next business day
after State Street Bank receives the check.
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 Fund.
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 Fund. Investors who purchase
Shares through a non-affiliated bank or broker may be charged an additional
service fee by that bank or broker.
The net asset value is determined at 4:00 p.m. (Boston time), Monday through
Friday, except on: (i) days on which there are not sufficient changes in the
value of the Fund's portfolio securities that its net asset value might be
materially affected; (ii) days during which no Shares are tendered for
redemption and no orders to purchase Shares are received; and (iii) the
following holidays: New Year's
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
EXCHANGING SECURITIES FOR FUND 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 Fund reserves the right to determine the
acceptability of securities to be exchanged. Securities accepted by the Fund are
valued in the same manner as the Fund values its assets. Investors wishing to
exchange securities should first contact Federated Securities Corp.
SUBACCOUNTING SERVICES
Institutions are encouraged to open single master accounts. However, certain
institutions may wish to use the transfer agent's subaccounting system to
minimize their internal recordkeeping requirements. The transfer agent charges a
fee based on the level of subaccounting services rendered. Institutions holding
Shares in a fiduciary, agency, custodial, or similar capacity may charge or pass
through subaccounting fees as part of or in addition to normal trust or agency
account fees. They may also charge fees for other services provided which may be
related to the ownership of Shares. This prospectus should, therefore, be read
together with any agreement between the customer and the institution with regard
to the services provided, the fees charged for those services, and any
restrictions and limitations imposed.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
by contacting the Fund.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during the
month.
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are declared just prior
to determining net asset value. If an order for Shares is placed on the
preceding business day, Shares purchased by wire begin earning dividends on the
business day wire payment is received by the transfer agent. If the order for
Shares and payment by wire are received on the same day, Shares begin earning
dividends on the next business day. Shares purchased by check begin earning
dividends on the business day after the check is converted, upon instruction of
the transfer agent, into federal funds. Dividends are automatically reinvested
on payment dates in additional Shares unless cash payments are requested by
contacting the Fund.
CAPITAL GAINS
Capital gains realized by the Fund, if any, are distributed at least once every
12 months.
REDEEMING INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at their net asset value next determined after the Fund
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Redemption requests must be received in
proper form and can be made by telephone request or by written request.
TELEPHONE REDEMPTION
Shareholders may redeem their Shares by telephoning the Fund before 4:00 p.m.
(Boston 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. If
at any time, the Fund shall determine it necessary to terminate or modify this
method of redemption, shareholders would be promptly notified.
An authorization form permitting the Fund to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from Federated Securities Corp.
Telephone redemption instructions may be recorded. If reasonable procedures are
not followed by the Fund, 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 "Written Requests," should be considered.
WRITTEN REQUESTS
Shares may also be redeemed by sending a written request to the Fund. Call the
Fund for specific instructions before redeeming by letter. The shareholder will
be asked to provide in the request his name, the Fund name, his account number,
and the share or dollar amount requested. If share certificates have been
issued, they must be properly endorsed and should be sent by registered or
certified mail with the written request.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
the Fund, or a redemption payable other than to the shareholder of record must
have signatures on written redemption requests guaranteed by:
- a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
- a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
- a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("SAIF"), which is administered
by the FDIC; or
- any other "eligible guarantor institution," as defined in the Securities
and Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions
that are members of a signature guarantee program. The Fund and its transfer
agent reserve the right to amend these standards at any time without notice.
RECEIVING PAYMENT. Normally, a check for the proceeds is mailed within one
business day, but in no event more than seven days, after receipt of a proper
written redemption request.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $25,000. This
requirement does not apply, however, if the balance falls below $25,000 because
of changes in the Fund's net asset value.
Before Shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional Shares to meet the minimum
requirement.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each Share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. 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 or the Fund'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.
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 Fund.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required to use its property to protect or compensate
the shareholder. On request, the Trust will defend any claim made and pay any
judgment against a shareholder for any act or obligation of the Trust.
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.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions received. This applies whether dividends
and distributions are received in cash or as additional shares.
PENNSYLVANIA CORPORATE AND PERSONAL PROPERTY TAXES
In the opinion of Houston, Houston & Donnelly, counsel to the Trust:
- the Fund is not subject to Pennsylvania corporate or personal property
taxes; and
- Fund shares may be subject to personal property taxes imposed by
counties, municipalities, and school districts in Pennsylvania to the
extent that the portfolio securities in the Fund would be subject to such
taxes if owned directly by residents of those jurisdictions.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund 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 Fund 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 Fund is calculated by dividing the net investment
income per share (as defined by the Securities and Exchange Commission) earned
by Shares over a thirty-day period by the offering price per share of Shares on
the last day of the period. This number is then annualized using semi-annual
compounding. The yield does not necessarily reflect income actually earned by
Shares and, therefore, may not correlate to the dividends or other distributions
paid to shareholders.
Shares are sold without any sales load or other similar non-recurring charges.
Total return and yield will be calculated separately for Institutional Shares
and Institutional Service Shares. Because Institutional Service Shares are
subject to a 12b-1 fee, the total return and yield for Institutional Shares, for
the same period, will exceed that of Institutional Service Shares.
From time to time, the Fund may advertise the performance of Institutional
Shares using certain financial publications and/or compare the performance of
Institutional Shares 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 .25 of 1% of the
Institutional Service Shares' average daily net assets.
Financial institutions and brokers providing sales and/or administrative
services may receive different compensation depending upon which class of shares
of the Fund is sold.
The amount of dividends payable to Institutional Shares will exceed that of
Institutional Service Shares by the difference between Class Expenses and
distribution and shareholder service expenses borne by shares of each respective
class.
The stated advisory fee is the same for both classes of shares.
FEDERATED GNMA TRUST
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Independent Auditors' Report on page 25.
<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 31,
--------------------
1994 1993*
-------- -------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.80 $11.71
- -----------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------
Net investment income 0.82 0.61
- -----------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.16) 0.09
- ----------------------------------------------------------------------- ------- -------
Total from investment operations 0.66 0.70
- ----------------------------------------------------------------------- ------- -------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------
Dividends to shareholders from net investment income (0.82) (0.61)
- ----------------------------------------------------------------------- ------- -------
NET ASSET VALUE, END OF PERIOD $11.64 $11.80
- ----------------------------------------------------------------------- ------- -------
TOTAL RETURN** 5.76% 5.62%
- -----------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------
Expenses 0.76% 0.76%(a)
- -----------------------------------------------------------------------
Net investment income 6.97% 7.57%(a)
- -----------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------
Net assets, end of period (000 omitted) $137,235 $50,166
- -----------------------------------------------------------------------
Portfolio turnover rate 117% 33%
- -----------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from June 18, 1992 (date of initial public
investment) to
January 31, 1993.
** Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
Further information about the Fund's performance is contained in the Fund's
annual report dated January 31, 1994, which can be obtained free of charge.
FEDERATED GNMA TRUST
PORTFOLIO OF INVESTMENTS
JANUARY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ --------------
<C> <S> <C>
LONG-TERM GOVERNMENT OBLIGATIONS--100.1%
- -------------------------------------------------------------------------------
*GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--93.5%
---------------------------------------------------------------
$164,851,822 6.50%, 12/15/2023 $ 165,521,121**
---------------------------------------------------------------
474,279,079 7.00%, 1/1/2099 487,615,806**
---------------------------------------------------------------
359,438,025 7.50%, 1/15/2024 376,173,460
---------------------------------------------------------------
229,290,185 8.00%, 4/15/2017-3/15/2023 242,798,049
---------------------------------------------------------------
216,272,028 9.00%, 8/15/2016-1/20/2020 231,422,442
---------------------------------------------------------------
145,230,805 9.50%, 7/15/2009-5/15/2020 157,215,796
---------------------------------------------------------------
106,286,668 10.00%, 4/15/2016-12/20/2020 117,318,128
---------------------------------------------------------------
19,204,497 10.50%, 1/15/2016-6/15/2018 21,581,053
---------------------------------------------------------------
12,804,753 11.00%, 8/15/2019 14,589,351
---------------------------------------------------------------
25,422,544 11.50%, 4/15/2016 29,347,022
---------------------------------------------------------------
36,101,241 12.00%, 9/15/2013 42,125,456
---------------------------------------------------------------
18,698,109 12.50%, 7/15/2014 22,005,244
---------------------------------------------------------------
2,526,006 13.00%, 1/15/2015 2,982,253
---------------------------------------------------------------
3,282,005 13.50%, 10/15/2012 3,888,125
--------------------------------------------------------------- --------------
TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(IDENTIFIED COST $1,876,274,385) 1,914,583,306
--------------------------------------------------------------- --------------
UNITED STATES TREASURY NOTES--6.6%
---------------------------------------------------------------
97,000,000 6.25%, 2/15/2003 101,243,750
---------------------------------------------------------------
31,220,000 6.375%, 1/15/2000 33,099,132
--------------------------------------------------------------- --------------
TOTAL UNITED STATES TREASURY NOTES
(IDENTIFIED COST $135,156,734) 134,342,882
--------------------------------------------------------------- --------------
TOTAL LONG-TERM GOVERNMENT OBLIGATIONS
(IDENTIFIED COST $2,011,431,119) 2,048,926,188
--------------------------------------------------------------- --------------
</TABLE>
FEDERATED GNMA TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ --------------
<C> <S> <C>
(A) REPURCHASE AGREEMENTS--15.8%
- -------------------------------------------------------------------------------
$ 9,275,000 J.P. Morgan Securities, Inc., 3.19%, dated 1/31/94, due
2/1/94(b) $ 9,275,000
---------------------------------------------------------------
165,000,000+ First Boston Corp., 3.16%, dated 1/19/94, due 2/16/94 165,000,000
---------------------------------------------------------------
150,000,000+ Goldman, Sachs & Co., 3.15%, dated 1/19/94, due 2/16/94(b) 150,000,000
--------------------------------------------------------------- --------------
TOTAL REPURCHASE AGREEMENTS (AT AMORTIZED COST) (NOTE 2B) 324,275,000
--------------------------------------------------------------- --------------
TOTAL INVESTMENTS (IDENTIFIED COST $2,335,706,119) $2,373,201,188++
--------------------------------------------------------------- --------------
</TABLE>
* Because of monthly principal payments, the average lives of the Government
National Mortgage Association Modified Pass-Through securities (based upon
FHA/VA historical experience) are less than the indicated periods.
** Includes securities with a market value of $320,248,800 subject to Dollar
Roll transactions.
(a) Repurchase agreements are fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio.
(b) The investments in repurchase agreements are through participation in a
joint account with other Federated Funds.
+ 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.
++ The cost of investments for federal tax purposes amounts to $2,335,817,213.
The net unrealized appreciation on a federal tax cost basis amounts to
$37,383,975, which is comprised of $40,911,331 appreciation and $3,527,356
depreciation at January 31, 1994.
Note: The categories of investments are shown as a percentage of net assets
($2,047,734,300) at January 31, 1994.
(See Notes which are an integral part of the Financial Statements)
FEDERATED GNMA TRUST
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ------------------------------------------------------------------------------
Investments, at value (Notes 2A and 2B) (identified cost $2,335,706,119; tax
cost $2,335,817,213) $2,373,201,188
- ------------------------------------------------------------------------------
Receivable for investments sold 51,124,895
- ------------------------------------------------------------------------------
Interest receivable 13,675,584
- ------------------------------------------------------------------------------
Receivable for Fund shares sold 1,892,291
- ------------------------------------------------------------------------------ --------------
Total assets 2,439,893,958
- ------------------------------------------------------------------------------
LIABILITIES:
- ------------------------------------------------------------------------------
Payable for dollar roll transactions (Note 2F) $316,212,625
- ---------------------------------------------------------------
Payable for investments purchased 63,492,861
- ---------------------------------------------------------------
Dividends payable 8,869,673
- ---------------------------------------------------------------
Payable for Fund shares redeemed 3,406,054
- ---------------------------------------------------------------
Payable to bank 32,902
- ---------------------------------------------------------------
Accrued expenses 145,543
- --------------------------------------------------------------- ------------
Total liabilities 392,159,658
- ------------------------------------------------------------------------------ --------------
NET ASSETS for 175,924,320 shares of beneficial interest outstanding $2,047,734,300
- ------------------------------------------------------------------------------ --------------
NET ASSETS CONSISTS OF:
- ------------------------------------------------------------------------------
Paid in capital $2,104,524,265
- ------------------------------------------------------------------------------
Unrealized appreciation of investments 37,495,069
- ------------------------------------------------------------------------------
Accumulated net realized loss on investments (94,285,034)
- ------------------------------------------------------------------------------ --------------
Total $2,047,734,300
- ------------------------------------------------------------------------------ --------------
NET ASSET VALUE, Offering Price, and Redemption Price Per Share
Institutional Shares ($1,910,499,593 / 164,134,198 shares of beneficial
interest outstanding) $11.64
- ------------------------------------------------------------------------------ --------------
Institutional Service Shares ($137,234,707 / 11,790,122 shares of beneficial
interest outstanding) $11.64
- ------------------------------------------------------------------------------ --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED GNMA TRUST
STATEMENT OF OPERATIONS
YEAR ENDED JANUARY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------------
Interest income (Note 2C) (net of interest expense of $5,291,699) $157,922,760
- --------------------------------------------------------------------------------
EXPENSES--
- --------------------------------------------------------------------------------
Investment advisory fee (Note 5) $8,180,174
- -------------------------------------------------------------------
Trustees' fees 22,730
- -------------------------------------------------------------------
Administrative personnel and services (Note 5) 1,316,655
- -------------------------------------------------------------------
Custodian, transfer and dividend disbursing agent fees and expenses 683,096
- -------------------------------------------------------------------
Auditing fees 25,791
- -------------------------------------------------------------------
Legal fees 19,472
- -------------------------------------------------------------------
Printing and postage 19,238
- -------------------------------------------------------------------
Registration costs 61,021
- -------------------------------------------------------------------
Taxes 47,000
- -------------------------------------------------------------------
Insurance premiums 39,520
- -------------------------------------------------------------------
Distribution services fees (Note 5) 287,334
- -------------------------------------------------------------------
Miscellaneous 15,025
- ------------------------------------------------------------------- ----------
Total expenses 10,717,056
- -------------------------------------------------------------------------------- ------------
Net investment income 147,205,704
- -------------------------------------------------------------------------------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- --------------------------------------------------------------------------------
Net realized gain (loss) on investments (identified cost basis)-- 12,114,105
- --------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments (41,032,970)
- -------------------------------------------------------------------------------- ------------
Net realized and unrealized gain (loss) on investments (28,918,865)
- -------------------------------------------------------------------------------- ------------
Change in net assets resulting from operations $118,286,839
- -------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED GNMA TRUST
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
--------------------------------
1994 1993*
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- --------------------------------------------------------------
OPERATIONS--
- --------------------------------------------------------------
Net investment income $ 147,205,704 $ 125,517,714
- --------------------------------------------------------------
Net realized gain (loss) on investment transactions
($18,860,608 net gain and $5,182,436 net loss, respectively,
as computed for federal income tax purposes) 12,114,105 (7,890,682)
- --------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of
investments (41,032,970) 28,795,454
- -------------------------------------------------------------- -------------- --------------
Change in net assets from operations 118,286,839 146,422,486
- -------------------------------------------------------------- -------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)--
- --------------------------------------------------------------
Dividends to shareholders from net investment income:
- --------------------------------------------------------------
Institutional Shares (139,286,614) (123,799,825)
- --------------------------------------------------------------
Institutional Service Shares (7,919,090) (1,717,889)
- -------------------------------------------------------------- -------------- --------------
Change in net assets from distributions to shareholders (147,205,704) (125,517,714)
- -------------------------------------------------------------- -------------- --------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)--
- --------------------------------------------------------------
Net proceeds from sales of shares 1,020,100,336 916,147,877
- --------------------------------------------------------------
Net asset value of shares issued to shareholders electing to
receive payment of distributions in Fund shares 34,919,870 28,623,142
- --------------------------------------------------------------
Cost of shares redeemed (798,702,252) (479,270,829)
- -------------------------------------------------------------- -------------- --------------
Change in net assets resulting from Fund share transactions 256,317,954 465,500,190
- -------------------------------------------------------------- -------------- --------------
Change in net assets 227,399,089 486,404,962
- --------------------------------------------------------------
NET ASSETS:
- --------------------------------------------------------------
Beginning of period 1,820,335,211 1,333,930,249
- -------------------------------------------------------------- -------------- --------------
End of period $2,047,734,300 $1,820,335,211
- -------------------------------------------------------------- -------------- --------------
</TABLE>
* The period from June 18, 1992 (date of initial public investment) to January
31, 1993.
(See Notes which are an integral part of the Financial Statements)
FEDERATED GNMA TRUST
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1994
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Federated GNMA Trust, ("the Trust"), is registered under the Investment Company
Act of 1940, as amended, as a diversified, open-end, management investment
company. The Trust provides two classes of shares ("Institutional Shares" and
"Institutional Service Shares"). Institutional Service Shares are identical in
all respects to Institutional Shares except that Institutional Service Shares
are sold pursuant to a distribution plan ("Plan") adopted in accordance with
Investment Company Act Rule 12b-1.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
<TABLE>
<S> <C>
A. INVESTMENT VALUATIONS--U.S. government obligations are generally valued at the mean
between the over-the-counter bid and asked prices as furnished by an independent pricing
service.
B. 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
in support of repurchase agreement investments. Additionally, procedures have been
established by the Trust to monitor, on a daily basis, the market value of each
repurchase agreement's underlying collateral to ensure the value at least equals the
principal amount of the repurchase transaction, including accrued interest.
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"). 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.
C. INCOME--Interest income is recorded on the accrual basis and includes discount earned,
less any premium, on short-term obligations, and original issue discount on all other
debt securities.
D. FEDERAL TAXES--It is the Trust's policy to comply with the provisions of the Internal
Revenue Code, (the "Code") as amended, applicable to regulated investment companies and
to distribute to shareholders each year substantially all of its taxable income,
including any net realized gain on investments. Accordingly, no provisions for federal
tax is necessary. At January 31, 1994, the Trust, for federal tax purposes, had a
capital loss carryforward of $83,801,283 which will reduce the Trust's taxable income
arising from future net realized gain on investments, if any, to the extent
</TABLE>
FEDERATED GNMA TRUST
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
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 in,
1996 ($31,912,913), 1997 ($18,028,171), 1998 ($14,893,518), 1999 ($13,784,245) and 2000
($5,182,436). Additionally, net capital losses of $10,374,414 attributable to security
transactions incurred after October 31, 1993 are treated as arising on February 1, 1994,
the first day of the Trust's next taxable year.
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Trust may engage in when-issued or
delayed delivery transactions. The Trust records when-issued securities 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.
F. DOLLAR ROLL TRANSACTIONS--The Trust enters into dollar roll transactions, with respect
to mortgage securities issued by GNMA, FNMA and FHLMC, in which the Trust sells mortgage
securities to financial institutions and simultaneously agrees to repurchase
substantially similar (same type, coupon and maturity) securities at a later date at an
agreed upon price. During the period between the sale and repurchase, the Trust forgoes
principal and interest paid on the mortgage securities sold. The Trust is compensated by
the interest earned on the cash proceeds of the initial sale and any additional fee
income received on the sale.
G. OTHER--Investment transactions are accounted for on the date of the transaction.
</TABLE>
(3) DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income are declared daily and paid monthly.
Distributions of any net realized capital gains are made at least once every
twelve months. Dividends and capital gain distributions, if any, are recorded on
the ex-dividend date.
FEDERATED GNMA TRUST
- --------------------------------------------------------------------------------
(4) 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 Trust shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
----------------------------------------------------------------
1994 1993
------------------------------ ------------------------------
SHARES DOLLARS SHARES DOLLARS
----------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
INSTITUTIONAL SHARES
- ----------------------------------
Shares outstanding, beginning of
period 150,077,131 $1,798,223,784 114,604,384 $1,382,706,120
- ----------------------------------
Shares sold 75,001,659 882,750,706 72,096,540 844,106,250
- ----------------------------------
Shares issued to shareholders
electing to receive payment of
distributions in Fund shares 2,539,103 29,822,854 2,325,483 27,205,875
- ----------------------------------
Shares redeemed (63,483,695) (745,434,319) (38,949,276) (455,794,461)
- ---------------------------------- ----------- -------------- ----------- --------------
Shares outstanding, end of period 164,134,198 $1,965,363,025 150,077,131 $1,798,223,784
- ---------------------------------- ----------- -------------- ----------- --------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
----------------------------------------------------------------
1994 1993*
------------------------------ ------------------------------
SHARES DOLLARS SHARES DOLLARS
----------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
INSTITUTIONAL SERVICE SHARES
- ----------------------------------
Shares outstanding, beginning of
period 4,253,153 49,982,526 -- $ --
- ----------------------------------
Shares sold 11,649,200 137,349,630 6,131,846 72,041,627
- ----------------------------------
Shares issued to shareholders
electing to receive payment of
distributions in Fund shares 434,613 5,097,016 120,649 1,417,267
- ----------------------------------
Shares redeemed (4,546,844) (53,267,933) (1,999,342) (23,476,368)
- ---------------------------------- ----------- -------------- ----------- --------------
Shares outstanding, end of period 11,790,122 $ 139,161,239 4,253,153 $ 49,982,526
- ---------------------------------- ----------- -------------- ----------- --------------
</TABLE>
* The period from June 18, 1992 (date of initial public investment) to January
31, 1993.
FEDERATED GNMA TRUST
- --------------------------------------------------------------------------------
(5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Federated Management, the Trust's investment adviser ("Adviser"), receives for
its services an annual investment advisory fee equal to .40 of 1% of the Trust's
average daily net assets. For the year ended January 31, 1994, the Adviser
earned a fee of $8,180,174.
Administrative personnel and services were provided at approximate cost by
Federated Administrative Services, Inc. Effective March 1, 1994, Federated
Administrative Services ("FAS") will provide administrative personnel and
services at an annual rate of 0.15 of 1% on the first $250 million of average
aggregate net assets of the total Federated Funds; 0.125 of 1% on the next $250
million; 0.10 of 1% on the next $250 million; and 0.075 of 1% on average
aggregate net 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.
The Trust has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Investment Company Act of 1940. 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 Fund may incur
distribution expenses up to .25 of 1% of the average daily net assets of the
Institutional Service Shares, annually, to compensate FSC. For the year ended
January 31, 1994, FSC was compensated $287,334 in fees under the Plan.
Certain of the Officers and Trustees of the Trust are Officers and Directors of
the above corporations.
(6) INVESTMENT TRANSACTIONS
Purchases, and sales of investments excluding short-term securities, for the
fiscal year ended January 31, 1994.
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------
PURCHASES-- $2,661,935,260
- ----------------------------------------------------------------------------- --------------
SALES-- $2,343,022,606
- ----------------------------------------------------------------------------- --------------
</TABLE>
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Trustees and Shareholders of
FEDERATED GNMA TRUST:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Federated GNMA Trust as of January 31, 1994,
the related statement of operations for the year then ended, the statement of
changes in net assets for the years ended January 31, 1994 and 1993, and the
financial highlights (see pages 2 and 15 of the prospectus) for each of the
years in the ten-year period ended January 31, 1994. These financial statements
and financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned at
January 31, 1994 by correspondence with the custodian and brokers. 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, 1994, 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
Boston, Massachusetts
March 15, 1994
[THIS PAGE INTENTIONALLY LEFT BLANK]
[THIS PAGE INTENTIONALLY LEFT BLANK]
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Federated GNMA Trust Federated Investors Tower
Institutional Shares Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Custodian
State Street Bank and P.O. Box 8602
Trust Company Boston, Massachusetts 02266-8602
- ------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
- ------------------------------------------------------------------------------------------------
Legal Counsel
Dickstein, Shapiro & Morin 2101 L Street, N.W.
Washington, D.C. 20037
- ------------------------------------------------------------------------------------------------
Independent Auditor
Deloitte & Touche 125 Summer Street
Boston, Massachusetts 02110-1617
- ------------------------------------------------------------------------------------------------
</TABLE>
FEDERATED GNMA TRUST
INSTITUTIONAL SHARES
PROSPECTUS
An Open-End, Diversified
Management Investment Company
March 31, 1994
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
8022901A-IS (3/94)
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
(the "Fund") 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 Fund. Keep this prospectus for
future reference.
The Fund has also filed a Combined Statement of Additional Information for
Institutional Service Shares and Institutional Shares dated March 31, 1994 with
the Securities and Exchange Commission. The information contained in the
Combined Statement of Additional Information is incorporated by reference into
this prospectus. You may request a copy of the Combined Statement of Additional
Information free of charge by calling 1-800-235-4669. To obtain other
information or to make inquiries about the Fund, contact the Fund at the address
listed in the back of this prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated March 31, 1994
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
INSTITUTIONAL SERVICE SHARES 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Acceptable Investments 3
Collateralized Mortgage Obligations
("CMOs") 4
Real Estate Mortgage
Investment Conduits ("REMICs") 5
Temporary Investments 5
Repurchase Agreements 5
Lending of Portfolio Securities 6
When-Issued and Delayed
Delivery Transactions 6
Investment Limitations 6
TRUST INFORMATION 6
- ------------------------------------------------------
Management of the Trust 6
Board of Trustees 6
Investment Adviser 6
Advisory Fees 6
Adviser's Background 7
Other Payments to
Financial Institutions 7
Distribution of Institutional
Service Shares 7
Distribution and Shareholder
Services Plans 7
Administration of the Fund 8
Administrative Services 8
Custodian 9
Transfer Agent and
Dividend Disbursing Agent 9
Legal Counsel 9
Independent Auditors 9
NET ASSET VALUE 9
- ------------------------------------------------------
INVESTING IN INSTITUTIONAL
SERVICE SHARES 9
- ------------------------------------------------------
Share Purchases 9
By Wire 9
By Mail 9
Minimum Investment Required 10
What Shares Cost 10
Exchanging Securities for Fund Shares 10
Subaccounting Services 10
Certificates and Confirmations 10
Dividends 11
Capital Gains 11
REDEEMING INSTITUTIONAL SERVICE SHARES 11
- ------------------------------------------------------
Telephone Redemption 11
Written Requests 11
Signatures 12
Receiving Payment 12
Accounts with Low Balances 12
SHAREHOLDER INFORMATION 12
- ------------------------------------------------------
Voting Rights 12
Massachusetts Partnership Law 13
TAX INFORMATION 13
- ------------------------------------------------------
Federal Income Tax 13
Pennsylvania Corporate and Personal
Property Taxes 13
PERFORMANCE INFORMATION 14
- ------------------------------------------------------
OTHER CLASSES OF SHARES 14
- ------------------------------------------------------
Financial Highlights--
Institutional Shares 15
- ------------------------------------------------------
FINANCIAL STATEMENTS 16
- ------------------------------------------------------
INDEPENDENT AUDITORS' REPORT 25
- ------------------------------------------------------
ADDRESSES Inside Back Cover
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INSTITUTIONAL SERVICE SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)................................................. None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)................................................. None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds as applicable)................................ None
Redemption Fee (as a percentage of amount redeemed, if applicable).................... None
Exchange Fee.......................................................................... None
ANNUAL INSTITUTIONAL SERVICE SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee........................................................................ 0.40%
12b-1 Fee(1).......................................................................... 0.02%
Total Other Expenses.................................................................. 0.35%
Shareholder Servicing Fee (2).............................................. 0.23%
Total Institutional Service Shares Operating Expenses(3)......................... 0.77%
</TABLE>
(1) The maximum 12b-1 Fee is 0.25%.
(2) The maximum Shareholder Servicing Fee is 0.25%.
(3) The Total Institutional Service Shares Operating Expenses in the table above
are based on expenses expected during the fiscal year ending January 31,
1995. The Total Institutional Service Shares Operating Expenses were 0.76%
for the fiscal year ended January 31, 1994.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF INSTITUTIONAL SERVICE SHARES OF
THE FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE
DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE " TRUST INFORMATION" AND
"INVESTING IN INSTITUTIONAL SERVICE SHARES." Wire-transferred redemptions of
less than $5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
- -------------------------------------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 invest-
ment assuming (1) 5% annual return and (2) redemption at
the end of each time period............................. $8 $25 $43 $ 95
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The information set forth in the foregoing table and example relates only
to Institutional Service Shares of the Fund. The Fund offers another class of
shares called Institutional Shares. Institutional Service Shares and
Institutional Shares are subject to certain of the same expenses; however,
Institutional Shares are not subject to a 12b-1 fee. See "Other Classes of
Shares."
FEDERATED GNMA TRUST
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Independent Auditors' Report on page 25.
<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 31,
---------------------
1994 1993*
-------- --------
<S> <C> <C>
- ----------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $11.80 $11.71
- ----------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------
Net Investment income 0.82 0.61
- ----------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.16 ) 0.09
-------- --------
- ----------------------------------------------------------------
Total from investment operations 0.66 0.70
-------- --------
- ----------------------------------------------------------------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------
Dividends to shareholders from net investment income (0.82 ) (0.61 )
-------- --------
- ----------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $11.64 $11.80
- ---------------------------------------------------------------- ------- -------
TOTAL RETURN** 5.76 % 5.62 %
- ----------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------
Expenses 0.76 % 0.76 %(a)
- ----------------------------------------------------------------
Net investment income 6.97 % 7.57 %(a)
- ----------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------
Net assets, end of period (000 omitted) $137,235 $50,166
- ----------------------------------------------------------------
Portfolio turnover rate 117 % 33 %
- ----------------------------------------------------------------
</TABLE>
* Reflects operations for the period from June 18, 1992 (date of initial public
investment) to
January 31, 1993.
** Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
Further information about the Fund's performance is contained in the Fund's
annual report dated January 31, 1994, which can be obtained free of charge.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated December 10, 1981. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. As of the date of this prospectus, the Board of
Trustees ("Trustees") have established two classes of shares of the Fund, known
as Institutional Service Shares and Institutional Shares. This prospectus
relates to Institutional Service Shares of the Fund.
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 Fund.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is current income. The investment objective
may not be changed without the approval of shareholders. The Fund 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 Fund 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 Fund 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 Supervisor. Should
additional permitted investments be allowed as a result of future changes in
applicable regulations or federal laws, the Fund reserves the right, without
shareholder approval, to make such investments consistent with the Fund's
investment objective, policies, and limitations. Further, should existing
statutes or regulations change so as to cause any securities held by the Fund to
become ineligible for purchase by federal savings associations, the Fund will
dispose of those securities at times advantageous to the Fund.
As operated within the above limitation, the Fund 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 Fund will invest primarily in mortgage-backed
securities. Under normal circumstances, at least 65% of the Fund'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 Fund will invest in
other mortgage-backed securities, as described below, these will be
collateralized by GNMA obligations.
The Fund's permissible investments are as follows:
- collateralized mortgage obligations;
- real estate mortgage investment conduits; and
- notes, bonds and discount notes of the following U.S. government agencies
or instrumentalities: GNMA, Export-Import Bank of the United States,
General Services Administration, Small Business Administration,
Washington Metropolitan Transit Authority, Federal National Mortgage
Association ("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC"),
Bank for Cooperatives, Federal Farm Credit Banks, Tennessee Valley
Authority, Commodity Credit Corporation, Federal Financing Bank, the
Student Loan Marketing Association, or National Credit Union
Administration. These government securities in which the Fund may invest
are backed in a variety of ways by the U.S. government or its agencies or
instrumentalities. Some of these securities, such as GNMA mortgage-backed
securities, are backed by the full faith and credit of the U.S.
government. Other securities, such as obligations of the FNMA or FHLMC,
are backed by the credit of the agency or instrumentality issuing the
obligations but not the full faith and credit of the U.S. government.
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 Fund 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 Fund 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 Fund 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 are often adjustable rate. The interest portion of these payments is
distributed by the Fund 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. 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 of 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 Fund 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 Fund 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 Fund, which would be taxed as ordinary
income when distributed to the shareholders.
TEMPORARY INVESTMENTS. For defensive purposes only, the Fund 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 Fund 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 Fund, the Fund could receive less than the
repurchase price on any sale of such securities.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund 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 Fund 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 Fund 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.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase U.S.
government obligations on a when-issued or delayed delivery basis. In
when-issued and delayed delivery transactions, the Fund relies on the seller to
complete the transaction. The seller's failure to complete the transaction may
cause the Fund to miss a price or yield considered to be advantageous.
INVESTMENT LIMITATIONS
The Fund will not borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund 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 Fund 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 Fund 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 Fund are made by Federated
Management, the Fund's investment adviser, subject to direction by the Trustees.
The adviser continually conducts investment research and supervision for the
Fund and is responsible for the purchase or sale of portfolio instruments, for
which it receives an annual fee from the Fund.
ADVISORY FEES. The Fund's adviser receives an annual investment advisory
fee equal to .40 of 1% of the Fund's average daily net assets. The adviser
has also undertaken to reimburse the Fund for operating expenses in excess
of limitations established by certain states. This does not include
reimbursement to the Trust of any expenses incurred by shareholders who use
the transfer agent's subaccounting facilities.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. Total assets under management or
administration by these and other subsidiaries of Federated Investors are
approximately $70 billion. Federated Investors, which was founded in 1956
as Federated Investors, Inc., develops and manages mutual funds primarily
for the financial industry. Federated Investors' track record of
competitive performance and its disciplined risk-averse investment
philosophy serve approximately 3,500 client institutions nationwide.
Through these same client institutions, individual shareholders also have
access to this same level of investment expertise.
Gary J. Madich has been the Fund's portfolio manager since February, 1987.
Mr. Madich joined Federated Investors in 1984 and has been a Senior Vice
President of the Fund's investment adviser since 1993. Mr. Madich served as
a Vice President of the Fund's investment adviser from 1988 until 1993. Mr.
Madich is a Chartered Financial Analyst and received his M.B.A. in Public
Finance from the University of Pittsburgh.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to periodic payments to
financial institutions under the Distribution and Shareholder Services Plans,
certain financial institutions may be compensated by the adviser or its
affiliates for the continuing investment of customers' assets in certain funds,
including the Fund, advised by those entities. These payments will be made
directly by the distributor or adviser from their assets, and will not be made
from the assets of the Fund or by the assessment of a sales charge on Shares.
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 PLANS. Under a distribution plan adopted
in accordance with Investment Company Act Rule 12b-1 (the "Distribution Plan"),
the Fund will pay to the distributor an amount, computed at an annual rate of
.25 of 1% of the average daily net asset value of the Institutional Service
Shares to finance any activity which is principally intended to result in the
sale of shares subject to the Distribution Plan. The distributor may select
financial institutions such as banks, fiduciaries, custodians for public funds,
investment advisers, and broker/dealers to provide sales support services as
agents for their clients or customers.
The Distribution Plan is a compensation-type plan. As such, the Fund makes no
payments to the distributor except as described above. Therefore, the Fund does
not pay for unreimbursed expenses of the distributor, including amounts expended
by the distributor in excess of amounts received by it from the Fund, 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 amount or may earn a profit from future payments made by the Fund
under the Distribution Plan.
In addition, the Fund has adopted a Shareholder Services Plan (the "Services
Plan") under which it may make payments up to 0.25 of 1% of the average daily
net asset value of the Institutional Service Shares to obtain certain personal
services for shareholders and the maintenance of shareholder accounts
("shareholder services"). The Fund has entered into a Shareholder Services
Agreement with Federated Shareholder Services, a subsidiary of Federated
Investors, under which Federated Shareholder Services will either perform
shareholder services directly or will select financial institutions to perform
shareholder services. Financial institutions will receive fees based upon shares
owned by their clients or customers. The schedules of such fees and the basis
upon which such fees will be paid will be determined from time to time by the
Fund and Federated Shareholder Services.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the administrative capacities described
above or should Congress relax current restrictions on depository institutions,
the Trustee will consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides administrative personnel and services (including
certain legal and financial reporting services) necessary to operate the Fund.
Federated Administrative Services provides these at an annual rate, which
relates to the average aggregate daily net assets of all funds advised by
subsidiaries of Federated Investors ("Federated Funds"), as specified below:
<TABLE>
<CAPTION>
AVERAGE AGGREGATE DAILY NET
MAXIMUM ADMINISTRATIVE FEE ASSETS OF THE FEDERATED FUNDS
- --------------------------------------------- ---------------------------------------------
<S> <C>
0.15 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.10 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Administrative Services may choose voluntarily to waive a portion of
its fee.
CUSTODIAN. State Street Bank and Trust Company, Boston, Massachusetts, is
custodian for the securities and cash of the Fund.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company,
Pittsburgh, Pennsylvania, is transfer agent for the Shares of the Fund and
dividend disbursing agent for the Fund.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly,
Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, Washington, D.C.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Deloitte &
Touche, Boston, Massachusetts.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund's net asset value per Share fluctuates. The net asset value for Shares
is determined by adding the interest of the Shares in the market value of all
securities and other assets of the Fund, subtracting the interest of the Shares
in the liabilities of the Fund and those attributable to Shares, and dividing
the remainder by the total number of Shares outstanding. The net asset value for
Institutional Shares may exceed that of Shares due to the variance in daily net
income realized by each class. Such variance will reflect only accrued net
income to which the shareholders of a particular class are entitled.
INVESTING IN INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange and the Federal
Reserve wire system are open. Shares may be purchased either by wire or mail.
To purchase Shares, open an account by calling Federated Securities Corp.
Information needed to establish the account will be taken over the telephone.
The Fund reserves the right to reject any purchase request.
BY WIRE. To purchase Shares by Federal Reserve wire, call the Fund before 4:00
p.m. (Boston time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m. (Boston
time) on the next business day following the order. Federal funds should be
wired as follows: State Street Bank and Trust Company, Boston, Massachusetts;
Attention: EDGEWIRE; For Credit to: Federated GNMA Trust--Institutional Service
Shares; Fund Number (this number can be found on the account statement or by
contacting the Fund); Group Number or Order Number; Nominee or Institution Name;
and ABA Number 011000028. Shares cannot be purchased by wire on days on which
the New York Stock Exchange is closed and on federal holidays restricting wire
transfers.
BY MAIL. To purchase Shares by mail, send a check made payable to Federated
GNMA Trust-- Institutional Service Shares to Federated Services Company, c/o
State Street Bank and Trust Company, P.O. Box 8602, Boston, Massachusetts
02266-8602. Orders by mail are considered received after
payment by check is converted by State Street Bank into federal funds. This is
normally the next business day after State Street Bank receives the check.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Shares is $25,000 plus any non-affiliated bank
or broker's fee, if applicable. However, an account may be opened with a smaller
amount as long as the $25,000 minimum is reached within 90 days. An
institutional investor's minimum investment will be calculated by combining all
accounts it maintains with the Trust.
Individual accounts established through a non-affiliated bank or broker may be
subject to a smaller minimum investment.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Fund. Investors who purchase
Shares through a non-affiliated bank or broker may be charged an additional
service fee by that bank or broker.
The net asset value is determined at 4:00 p.m. (Boston time), Monday through
Friday, except on: (i) days on which there are not sufficient changes in the
value of the Fund's portfolio securities that its net asset value might be
materially affected; (ii) days during which no Shares are tendered for
redemption and no orders to purchase Shares are received; and (iii) the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
EXCHANGING SECURITIES FOR FUND 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 Fund reserves the right to determine the
acceptability of securities to be exchanged. Securities accepted by the Fund are
valued in the same manner as the Fund values its assets. Investors wishing to
exchange securities should first contact Federated Securities Corp.
SUBACCOUNTING SERVICES
Institutions are encouraged to open single master accounts. However, certain
institutions may wish to use the transfer agent's subaccounting system to
minimize their internal recordkeeping requirements. The transfer agent charges a
fee based on the level of subaccounting services rendered. Institutions holding
Shares in a fiduciary, agency, custodial, or similar capacity may charge or pass
through subaccounting fees as part of or in addition to normal trust or agency
account fees. They may also charge fees for other services provided which may be
related to the ownership of Shares. This prospectus should, therefore, be read
together with any agreement between the customer and the institution with regard
to the services provided, the fees charged for those services, and any
restrictions and limitations imposed.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
by contacting the Fund.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during the
month.
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are declared just prior
to determining net asset value. If an order for Shares is placed on the
preceding business day, Shares purchased by wire begin earning dividends on the
business day wire payment is received by the transfer agent. If the order for
Shares and payment by wire are received on the same day, Shares begin earning
dividends on the next business day. Shares purchased by check begin earning
dividends on the business day after the check is converted, upon instruction of
the transfer agent, into federal funds. Dividends are automatically reinvested
on payment dates in additional Shares unless cash payments are requested by
contacting the Fund.
CAPITAL GAINS
Capital gains realized by the Fund, if any, are distributed at least once every
12 months.
REDEEMING INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at their net asset value next determined after the Fund
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Redemption requests must be received in
proper form and can be made by telephone request or by written request.
TELEPHONE REDEMPTION
Shareholders may redeem their Shares by telephoning the Fund before 4:00 p.m.
(Boston 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. If
at any time, the Fund shall determine it necessary to terminate or modify this
method of redemption, shareholders would be promptly notified.
An authorization form permitting the Fund to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from Federated Securities Corp.
Telephone redemption instructions may be recorded. If reasonable procedures are
not followed by the Fund, 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 "Written Requests," should be considered.
WRITTEN REQUESTS
Shares may also be redeemed by sending a written request to the Fund. Call the
Fund for specific instructions before redeeming by letter. The shareholder will
be asked to provide in the request his name, the Fund name, his account number,
and the Share or dollar amount requested. If Share
certificates have been issued, they must be properly endorsed and should be sent
by registered or certified mail with the written request.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
the Fund, or a redemption payable other than to the shareholder of record must
have signatures on written redemption requests guaranteed by:
- a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
- a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
- a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("SAIF"), which is administered
by the FDIC; or
- any other "eligible guarantor institution," as defined in the Securities
and Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
RECEIVING PAYMENT. Normally, a check for the proceeds is mailed within one
business day, but in no event more than seven days, after receipt of a proper
written redemption request.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $25,000. This
requirement does not apply, however, if the balance falls below $25,000 because
of changes in the Fund's net asset value.
Before Shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional Shares to meet the minimum
requirement.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each Share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. 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 or the Fund'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.
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 Fund.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required to use its property to protect or compensate
the shareholder. On request, the Trust will defend any claim made and pay any
judgment against a shareholder for any act or obligation of the Trust.
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.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions received. This applies whether dividends
and distributions are received in cash or as additional shares.
PENNSYLVANIA CORPORATE AND PERSONAL PROPERTY TAXES
In the opinion of Houston, Houston & Donnelly, counsel to the Trust:
- the Fund is not subject to Pennsylvania corporate or personal property
taxes; and
- Fund shares may be subject to personal property taxes imposed by
counties, municipalities, and school districts in Pennsylvania to the
extent that the portfolio securities in the Fund would be subject to such
taxes if owned directly by residents of those jurisdictions.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund 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 Fund after reinvesting all income
and capital gain distributions. It is calculated by dividing that change by the
initial investment and is expressed as a percentage.
The yield of Shares of the Fund is calculated by dividing the net investment
income per share (as defined by the Securities and Exchange Commission) earned
by Shares over a thirty-day period by the offering price per share of Shares on
the last day of the period. This number is then annualized using semi-annual
compounding. The yield does not necessarily reflect income actually earned by
Shares and, therefore, may not correlate to the dividends or other distributions
paid to shareholders.
Shares are sold without any sales load or other similar non-recurring charges.
Total return and yield will be calculated separately for Institutional Service
Shares and Institutional Shares. Because Institutional Service Shares are
subject to a 12b-1 fee, the total return and yield for Institutional Shares for
the same period, will exceed that of Institutional Service Shares.
From time to time, the Fund may advertise the performance of Institutional
Service Shares using certain financial publications and/or compare the
performance of Institutional Service Shares to certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
Institutional Shares are sold to accounts for which financial institutions act
in a fiduciary or agency capacity. Institutional Shares are sold at net asset
value. Investments in Institutional Shares are subject to a minimum initial
investment of $25,000.
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
Fund is sold.
The amount of dividends payable to Institutional Shares will exceed that of
Institutional Service Shares by the difference between Class Expenses and
distribution and shareholder service expenses borne by shares of each respective
class.
The stated advisory fee is the same for both classes of shares.
FEDERATED GNMA TRUST
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Independent Auditors' Report on page 25.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
---------------------------------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ---
NET
ASSET
VALUE,
BEGINNING
OF
PERIOD $11.80 $11.64 $11.29 $10.97 $10.70 $11.08 $11.46 $11.35 $10.77 $10.63
- ---
INCOME
FROM
INVESTMENT
OPERATIONS
- ---
Net
investment
income 0.85 0.93 0.98 1.00 1.00 1.01 1.04 1.11 1.22 1.26
- ---
Net
realized
and
unrealized
gain(loss)
on
investments (0.16) 0.16 0.35 0.32 0.27 (0.38) (0.38) 0.14 0.58 0.13
- --- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total
from
investment
operations 0.69 1.09 1.33 1.32 1.27 0.63 0.66 1.25 1.80 1.39
- --- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
LESS
DISTRIBUTIONS
Dividends
to
shareholders
from
net
investment
income (0.85) (0.93) (0.98) (1.00) (1.00) (1.01) (1.04) (1.11) (1.22) (1.25)
- ---
Distributions
to
shareholders
from net
realized
gain on
investment
transactions -- -- -- -- -- -- -- (0.03) -- --
- --- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total
distributions (0.85) (0.93) (0.98) (1.00) (1.00) (1.01) (1.04) (1.14) (1.22) (1.25)
- --- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
NET
ASSET
VALUE,
END
OF
PERIOD $11.64 $11.80 $11.64 $11.29 $10.97 $10.70 $11.08 $11.46 $11.35 $10.77
- --- ----- ----- ----- ----- ----- ----- ----- ----- ----- ------
TOTAL
RETURN* 6.02% 9.78% 12.25% 12.65% 12.33% 5.99% 6.29% 11.53% 17.75% 14.53%
- ---
RATIOS
TO
AVERAGE
NET
ASSETS
- ---
Expenses 0.51% 0.51% 0.51% 0.52% 0.52% 0.53% 0.52% 0.51% 0.61% 0.53%
- ---
Net
investment
income 7.22% 7.98% 8.54% 9.08% 9.19% 9.33% 9.51% 9.66% 11.01% 12.35%
- ---
Expense
waiver/reimbursement(a) -- -- -- -- -- -- -- -- -- 0.13%
- ---
SUPPLEMENTAL
DATA
- ---
Net
assets,
end of
period
(000
omitted) $1,910,500 $1,770,169 $1,333,930 $1,268,706 $1,312,780 $1,710,890 $2,111,559 $2,515,127 $569,404 $174,882
- ---
Portfolio
turnover
rate 117% 33% 57% 48% 27% 40% 45% 100% 141% 147%
- ---
</TABLE>
* Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(See Notes which are an integral part of the Financial Statements)
Further information about the Fund's performance is contained in the Fund's
annual report dated January 31, 1994, which can be obtained free of charge.
FEDERATED GNMA TRUST
PORTFOLIO OF INVESTMENTS
JANUARY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ --------------
<C> <S> <C>
LONG-TERM GOVERNMENT OBLIGATIONS--100.1%
- -------------------------------------------------------------------------------
*GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--93.5%
---------------------------------------------------------------
$164,851,822 6.50%, 12/15/2023 $ 165,521,121**
---------------------------------------------------------------
474,279,079 7.00%, 1/1/2099 487,615,806**
---------------------------------------------------------------
359,438,025 7.50%, 1/15/2024 376,173,460
---------------------------------------------------------------
229,290,185 8.00%, 4/15/2017-3/15/2023 242,798,049
---------------------------------------------------------------
216,272,028 9.00%, 8/15/2016-1/20/2020 231,422,442
---------------------------------------------------------------
145,230,805 9.50%, 7/15/2009-5/15/2020 157,215,796
---------------------------------------------------------------
106,286,668 10.00%, 4/15/2016-12/20/2020 117,318,128
---------------------------------------------------------------
19,204,497 10.50%, 1/15/2016-6/15/2018 21,581,053
---------------------------------------------------------------
12,804,753 11.00%, 8/15/2019 14,589,351
---------------------------------------------------------------
25,422,544 11.50%, 4/15/2016 29,347,022
---------------------------------------------------------------
36,101,241 12.00%, 9/15/2013 42,125,456
---------------------------------------------------------------
18,698,109 12.50%, 7/15/2014 22,005,244
---------------------------------------------------------------
2,526,006 13.00%, 1/15/2015 2,982,253
---------------------------------------------------------------
3,282,005 13.50%, 10/15/2012 3,888,125
--------------------------------------------------------------- --------------
TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(IDENTIFIED COST $1,876,274,385) 1,914,583,306
--------------------------------------------------------------- --------------
UNITED STATES TREASURY NOTES--6.6%
---------------------------------------------------------------
97,000,000 6.25%, 2/15/2003 101,243,750
---------------------------------------------------------------
31,220,000 6.375%, 1/15/2000 33,099,132
--------------------------------------------------------------- --------------
TOTAL UNITED STATES TREASURY NOTES
(IDENTIFIED COST $135,156,734) 134,342,882
--------------------------------------------------------------- --------------
TOTAL LONG-TERM GOVERNMENT OBLIGATIONS
(IDENTIFIED COST $2,011,431,119) 2,048,926,188
--------------------------------------------------------------- --------------
</TABLE>
FEDERATED GNMA TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ --------------
<C> <S> <C>
(A) REPURCHASE AGREEMENTS--15.8%
- -------------------------------------------------------------------------------
$ 9,275,000 J.P. Morgan Securities, Inc., 3.19%, dated 1/31/94, due 2/1/94
(b) $ 9,275,000
---------------------------------------------------------------
165,000,000+ First Boston Corp., 3.16%, dated 1/19/94, due 2/16/94 165,000,000
---------------------------------------------------------------
150,000,000+ Goldman, Sachs & Co., 3.15%, dated 1/19/94, due 2/16/94 (b) 150,000,000
--------------------------------------------------------------- --------------
TOTAL REPURCHASE AGREEMENTS (AT AMORTIZED COST) (NOTE 2B) 324,275,000
--------------------------------------------------------------- --------------
TOTAL INVESTMENTS (IDENTIFIED COST $2,335,706,119) $2,373,201,188++
--------------------------------------------------------------- --------------
</TABLE>
* Because of monthly principal payments, the average lives of the Government
National Mortgage Association Modified Pass-Through securities (based upon
FHA/VA historical experience) are less than the indicated periods.
** Includes securities with a market value of $320,248,800 subject to Dollar
Roll transactions.
(a) Repurchase agreements are fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio.
(b) The investments in repurchase agreements are through participation in a
joint account with other Federated Funds.
+ 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.
++ The cost of investments for federal tax purposes amounts to $2,335,817,213.
The net unrealized appreciation on a federal tax cost basis amounts to
$37,383,975, which is comprised of $40,911,331 appreciation and $3,527,356
depreciation at January 31, 1994.
Note: The categories of investments are shown as a percentage of net assets
($2,047,734,300) at January 31, 1994.
(See Notes which are an integral part of the Financial Statements)
FEDERATED GNMA TRUST
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ------------------------------------------------------------------------------
Investments, at value (Notes 2A and 2B) (identified cost $2,335,706,119;
tax cost $2,335,817,213) $2,373,201,188
- ------------------------------------------------------------------------------
Receivable for investments sold 51,124,895
- ------------------------------------------------------------------------------
Interest receivable 13,675,584
- ------------------------------------------------------------------------------
Receivable for Fund shares sold 1,892,291
- ------------------------------------------------------------------------------ --------------
Total assets 2,439,893,958
- ------------------------------------------------------------------------------
LIABILITIES:
- ------------------------------------------------------------------------------
Payable for dollar roll transactions (Note 2F) $316,212,625
- ---------------------------------------------------------------
Payable for investments purchased 63,492,861
- ---------------------------------------------------------------
Dividends payable 8,869,673
- ---------------------------------------------------------------
Payable for Fund shares redeemed 3,406,054
- ---------------------------------------------------------------
Payable to bank 32,902
- ---------------------------------------------------------------
Accrued expenses 145,543
- --------------------------------------------------------------- ------------
Total liabilities 392,159,658
- ------------------------------------------------------------------------------ --------------
NET ASSETS for 175,924,320 shares of beneficial interest outstanding $2,047,734,300
- ------------------------------------------------------------------------------ --------------
NET ASSETS CONSISTS OF:
- ------------------------------------------------------------------------------
Paid in capital $2,104,524,265
- ------------------------------------------------------------------------------
Unrealized appreciation of investments 37,495,069
- ------------------------------------------------------------------------------
Accumulated net realized loss on investments (94,285,034)
- ------------------------------------------------------------------------------ --------------
Total $2,047,734,300
- ------------------------------------------------------------------------------ --------------
NET ASSET VALUE, Offering Price, and Redemption Price Per Share
Institutional Shares ($1,910,499,593 / 164,134,198 shares of
beneficial interest outstanding) $11.64
- ------------------------------------------------------------------------------ --------------
Institutional Service Shares ($137,234,707 / 11,790,122 shares of beneficial
interest outstanding) $11.64
- ------------------------------------------------------------------------------ --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED GNMA TRUST
STATEMENT OF OPERATIONS
YEAR ENDED JANUARY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------------
Interest income (Note 2C) (net of interest expense of $5,291,699) $157,922,760
- --------------------------------------------------------------------------------
EXPENSES--
- --------------------------------------------------------------------------------
Investment advisory fee (Note 5) $8,180,174
- -------------------------------------------------------------------
Trustees' fees 22,730
- -------------------------------------------------------------------
Administrative personnel and services (Note 5) 1,316,655
- -------------------------------------------------------------------
Custodian, transfer and dividend disbursing agent fees and expenses 683,096
- -------------------------------------------------------------------
Auditing fees 25,791
- -------------------------------------------------------------------
Legal fees 19,472
- -------------------------------------------------------------------
Printing and postage 19,238
- -------------------------------------------------------------------
Registration costs 61,021
- -------------------------------------------------------------------
Taxes 47,000
- -------------------------------------------------------------------
Insurance premiums 39,520
- -------------------------------------------------------------------
Distribution services fees (Note 5) 287,334
- -------------------------------------------------------------------
Miscellaneous 15,025
- ------------------------------------------------------------------- ----------
Total expenses 10,717,056
- -------------------------------------------------------------------------------- ------------
Net investment income 147,205,704
- -------------------------------------------------------------------------------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- --------------------------------------------------------------------------------
Net Realized gain (loss) on investments (identified cost basis)-- 12,114,105
- --------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of
investments-- (41,032,970)
- -------------------------------------------------------------------------------- ------------
Net realized and unrealized gain (loss) on investments (28,918,865)
- -------------------------------------------------------------------------------- ------------
Change in net assets resulting from operations $118,286,839
- -------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED GNMA TRUST
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
--------------------------------
1994 1993*
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- --------------------------------------------------------------
OPERATIONS--
- --------------------------------------------------------------
Net investment income $ 147,205,704 $ 125,517,714
- --------------------------------------------------------------
Net realized gain (loss) on investment transactions
($18,860,608> net gain and $5,182,436 net loss,
respectively, as computed for federal income tax purposes) 12,114,105 (7,890,682)
- --------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of
investments (41,032,970) 28,795,454
- -------------------------------------------------------------- -------------- --------------
Change in net assets from operations 118,286,839 146,422,486
- -------------------------------------------------------------- -------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)--
- --------------------------------------------------------------
Dividends to shareholders from net investment income:
- --------------------------------------------------------------
Institutional Shares (139,286,614) (123,799,825)
- --------------------------------------------------------------
Institutional Service Shares (7,919,090) (1,717,889)
- -------------------------------------------------------------- -------------- --------------
Change in net assets from distributions to shareholders (147,205,704) (125,517,714)
- -------------------------------------------------------------- -------------- --------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)--
- --------------------------------------------------------------
Net proceeds from sales of shares 1,020,100,336 916,147,877
- --------------------------------------------------------------
Net asset value of shares issued to shareholders electing to
receive payment of distributions in Fund shares 34,919,870 28,623,142
- --------------------------------------------------------------
Cost of shares redeemed (798,702,252) (479,270,829)
- -------------------------------------------------------------- -------------- --------------
Change in net assets resulting from Fund share transactions 256,317,954 465,500,190
- -------------------------------------------------------------- -------------- --------------
Change in net assets 227,399,089 486,404,962
- --------------------------------------------------------------
NET ASSETS:
- --------------------------------------------------------------
Beginning of period 1,820,335,211 1,333,930,249
- -------------------------------------------------------------- -------------- --------------
End of period $2,047,734,300 $1,820,335,211
- -------------------------------------------------------------- -------------- --------------
</TABLE>
* The period from June 18, 1992 (date of initial public investment) to January
31, 1993.
(See Notes which are an integral part of the Financial Statements)
FEDERATED GNMA TRUST
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1994
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Federated GNMA Trust, ("the Trust"), is registered under the Investment Company
Act of 1940, as amended, as a diversified, open-end, management investment
company. The Trust provides two classes of shares ("Institutional Shares" and
"Institutional Service Shares"). Institutional Service Shares are identical in
all respects to Institutional Shares except that Institutional Service Shares
are sold pursuant to a distribution plan ("Plan") adopted in accordance with
Investment Company Act Rule 12b-1.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
<TABLE>
<S> <C>
A. INVESTMENT VALUATIONS--U.S. government obligations are generally valued at the mean
between the over-the-counter bid and asked prices as furnished by an independent pricing
service.
B. 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
in support of repurchase agreement investments. Additionally, procedures have been
established by the Trust to monitor, on a daily basis, the market value of each
repurchase agreement's underlying collateral to ensure the value at least equals the
principal amount of the repurchase transaction, including accrued interest.
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"). 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.
C. INCOME--Interest income is recorded on the accrual basis and includes discount earned,
less any premium, on short-term obligations, and original issue discount on all other
debt securities.
D. FEDERAL TAXES--It is the Trust's policy to comply with the provisions of the Internal
Revenue Code, (the "Code") as amended, applicable to regulated investment companies and
to distribute to shareholders each year substantially all of its taxable income,
including any net realized gain on investments. Accordingly, no provisions for federal
tax is necessary. At January 31, 1994, the Trust, for federal tax purposes, had a
capital loss carryforward of $83,801,283 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
</TABLE>
FEDERATED GNMA TRUST
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
would otherwise be necessary to relieve the Trust of any liability for federal tax.
Pursuant to the Code, such capital loss carryforward will expire in 1996 ($31,912,913),
1997 ($18,028,171), 1998 ($14,893,518), 1999 ($13,784,245) and 2000 ($5,182,436).
Additionally, net capital losses of $10,374,414 attributable to security transactions
incurred after October 31, 1993 are treated as arising on February 1, 1994, the first
day of the Trust's next taxable year.
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Trust may engage in when-issued or
delayed delivery transactions. The Trust records when-issued securities 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.
F. DOLLAR ROLL TRANSACTIONS--The Trust enters into dollar roll transactions, with respect
to mortgage securities issued by GNMA, FNMA and FHLMC, in which the Trust sells mortgage
securities to financial institutions and simultaneously agrees to repurchase
substantially similar (same type, coupon and maturity) securities at a later date at an
agreed upon price. During the period between the sale and repurchase, the Trust forgoes
principal and interest paid on the mortgage securities sold. The Trust is compensated by
the interest earned on the cash proceeds of the initial sale and any additional fee
income received on the sale.
G. OTHER--Investment transactions are accounted for on the date of the transaction.
</TABLE>
(3) DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income are declared daily and paid monthly.
Distributions of any net realized capital gains are made at least once every
twelve months. Dividends and capital gain distributions, if any, are recorded on
the ex-dividend date.
FEDERATED GNMA TRUST
- --------------------------------------------------------------------------------
(4) 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 Trust shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
----------------------------------------------------------------
1994 1993
------------------------------ ------------------------------
SHARES DOLLARS SHARES DOLLARS
----------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
INSTITUTIONAL SHARES
- ----------------------------------
Shares outstanding, beginning
of period 150,077,131 $1,798,223,784 114,604,384 $1,382,706,120
- ----------------------------------
Shares sold 75,001,659 882,750,706 72,096,540 844,106,250
- ----------------------------------
Shares issued to shareholders
electing to receive payment of
distributions in Fund shares 2,539,103 29,822,854 2,325,483 27,205,875
- ----------------------------------
Shares redeemed (63,483,695) (745,434,319) (38,949,276) (455,794,461)
- ---------------------------------- ----------- -------------- ----------- --------------
Shares outstanding, end of period 164,134,198 $1,965,363,025 150,077,131 $1,798,223,784
- ---------------------------------- ----------- -------------- ----------- --------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
----------------------------------------------------------------
1994 1993*
------------------------------ ------------------------------
SHARES DOLLARS SHARES DOLLARS
----------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
INSTITUTIONAL SERVICE SHARES
- ----------------------------------
Shares outstanding, beginning
of period 4,253,153 $ 49,982,526 -- $ --
- ----------------------------------
Shares sold 11,649,200 137,349,630 6,131,846 72,041,627
- ----------------------------------
Shares issued to shareholders
electing to receive payment of
distributions in Fund shares 434,613 5,097,016 120,649 1,417,267
- ----------------------------------
Shares redeemed (4,546,844) (53,267,933) (1,999,342) (23,476,368)
- ---------------------------------- ----------- -------------- ----------- --------------
Shares outstanding, end of period 11,790,122 $ 139,161,239 4,253,153 $ 49,982,526
- ---------------------------------- ----------- -------------- ----------- --------------
</TABLE>
* The period from June 18, 1992 (date of initial public investment) to January
31, 1993.
FEDERATED GNMA TRUST
- --------------------------------------------------------------------------------
(5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATE
Federated Management, the Trust's investment adviser ("Adviser"), receives for
its services an annual investment advisory fee equal to .40 of 1% of the Trust's
average daily net assets. For the year ended January 31, 1994, the Adviser
earned a fee of $8,180,174.
Administrative personnel and services were provided at approximate cost by
Federated Administrative Services, Inc. Effective March 1, 1994, Federated
Administrative Services ("FAS") will provide administrative personnel and
services at an annual rate of 0.15 of 1% on the first $250 million of average
aggregate net assets of the total Federated Funds; 0.125 of 1% on the next $250
million; 0.10 of 1% on the next $250 million; and 0.075 of 1% on average
aggregate net 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.
The Trust has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Investment Company Act of 1940. 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 Fund may incur
distribution expenses up to .25 of 1% of the average daily net assets of the
Institutional Service Shares, annually, to compensate FSC. For the year ended
January 31, 1994, FSC was compensated $287,334 in fees under the Plan.
Certain of the Officers and Trustees of the Trust are Officers and Directors of
the above corporations.
(6) INVESTMENT TRANSACTIONS
Purchases, and sales of investments excluding short-term securities, for the
fiscal year ended January 31, 1994.
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------
PURCHASES $2,661,935,260
- ----------------------------------------------------------------------------- --------------
SALES $2,343,022,606
- ----------------------------------------------------------------------------- --------------
</TABLE>
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Trustees and Shareholders of
FEDERATED GNMA TRUST:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Federated GNMA Trust as of January 31, 1994,
the related statement of operations for the year then ended, the statement of
changes in net assets for the years ended January 31, 1994 and 1993, and the
financial highlights (see pages 2 and 15 of the prospectus) for each of the
years in the ten-year period ended January 31, 1994. These financial statements
and financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned at
January 31, 1994 by correspondence with the custodian and brokers. 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, 1994, 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
Boston, Massachusetts
March 15, 1994
[THIS PAGE INTENTIONALLY LEFT BLANK]
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Federated GNMA Trust Federated Investors Tower
Institutional Service Shares Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Custodian
State Street Bank and P.O. Box 8602
Trust Company Boston, Massachusetts 02266-8602
- ------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
- ------------------------------------------------------------------------------------------------
Legal Counsel
Dickstein, Shapiro & Morin 2101 L Street, N.W.
Washington, D.C. 20037
- ------------------------------------------------------------------------------------------------
Independent Auditor
Deloitte & Touche 125 Summer Street
Boston, Massachusetts 02110-1617
- ------------------------------------------------------------------------------------------------
</TABLE>
FEDERATED GNMA TRUST
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
An Open-End Diversified
Management Investment Company
March 31, 1994
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
8022901A-ISS (3/94)
FEDERATED GNMA TRUST
INSTITUTIONAL SHARES
INSTITUTIONAL SERVICE SHARES
COMBINED 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
(the "Fund"). This Combined Statement of Additional Information should be read
with the respective prospectus for Institutional Shares and Institutional
Service Shares dated March 31, 1994. This Statement is not a prospectus itself.
To receive a copy of either prospectus, write or call the Fund.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated March 31, 1994
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE TRUST 1
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES 1
- ---------------------------------------------------------------
Types of Investments 1
When-Issued and Delayed Delivery
Transactions 1
Lending of Portfolio Securities 1
Repurchase Agreements 1
Reverse Repurchase Agreements 2
Portfolio Turnover 2
Investment Limitations 2
TRUST MANAGEMENT 4
- ---------------------------------------------------------------
Officers and Trustees 4
The Funds 5
Trust Ownership 6
Trustee Liability 6
INVESTMENT ADVISORY SERVICES 6
- ---------------------------------------------------------------
Adviser to the Fund 6
Advisory Fees 6
Other Advisory Services 7
ADMINISTRATIVE SERVICES 7
- ---------------------------------------------------------------
BROKERAGE TRANSACTIONS 7
- ---------------------------------------------------------------
PURCHASING SHARES 7
- ---------------------------------------------------------------
Distribution and Shareholder Services Plans 8
Conversion to Federal Funds 8
DETERMINING NET ASSET VALUE 8
- ---------------------------------------------------------------
Determining Market Value of Securities 8
REDEEMING SHARES 8
- ---------------------------------------------------------------
EXCHANGING SECURITIES FOR SHARES 8
- ---------------------------------------------------------------
Tax Consequences 9
TAX STATUS 9
- ---------------------------------------------------------------
The Fund's Tax Status 9
Shareholders' Tax Status 9
TOTAL RETURN 9
- ---------------------------------------------------------------
YIELD 9
- ---------------------------------------------------------------
PERFORMANCE COMPARISONS 10
- ---------------------------------------------------------------
Duration 11
- ---------------------------------------------------------------
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 Fund are offered in two classes, known as Institutional Shares and
Institutional Service Shares (individually and collectively referred to as
"Shares"). This Combined Statement of Additional Information relates to the
above-mentioned Shares of the Fund.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Fund's investment objective is current income. The investment objective
cannot be changed without approval of shareholders.
TYPES OF INVESTMENTS
The Fund will invest primarily in mortgage-backed securities. Under normal
circumstances, at least 65% of the Fund'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 Fund will invest in other mortgage-backed securities, these will be
collateralized by GNMA obligations.
Because the mortgages underlying mortgage-backed securities often may be prepaid
without penalty or premium, mortgage-backed securities are generally subject to
higher prepayment risks than most other types of debt instruments. Prepayment
risks on mortgage securities tend to increase during periods of declining
mortgage interest rates, because many borrowers refinance their mortgages to
take advantage of the more favorable rates. Depending upon market conditions,
the yield that the Fund 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 Fund 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 Fund, which would be taxed as ordinary
income when distributed to the shareholders.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The Fund engages in
when-issued and delayed delivery transactions only for the purpose of acquiring
portfolio securities consistent with the Fund's investment objective and
policies, and not for investment leverage.
These transactions are made to secure what is considered to be an advantageous
price and yield for the Fund. Settlement dates will occur no more than 120 days
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 Fund sufficient to make payment for the securities
to be purchased are segregated by the Fund's custodian at the trade date. These
securities are marked to market daily and maintained until the transaction is
settled.
The Fund may engage in these transactions to an extent that would cause the
segregation of an amount up to 20% of the total value of its assets.
LENDING OF PORTFOLIO SECURITIES
The collateral received when the Fund 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 Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination at the option
of the Fund or the borrower. The Fund 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 Fund 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
Fund, the Fund could receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be delayed
pending court action. The Fund believes that under the regular procedures
normally in effect for custody of
- --------------------------------------------------------------------------------
the Fund's portfolio securities subject to repurchase agreements, a court of
competent jurisdiction would rule in favor of the Fund and allow retention or
disposition of such securities. The Fund will only enter into repurchase
agreements with banks and other recognized financial institutions such as
broker/dealers which are deemed by the Fund's adviser to be creditworthy
pursuant to guidelines established by the Board of Trustees ("Trustees").
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These transactions
are similar to borrowing cash. In a reverse repurchase agreement the Fund
transfers possession of a portfolio instrument to another person, such as a
financial institution, broker, or dealer, in return for a percentage of the
instrument's market value in cash, and agrees that on a stipulated date in the
future the Fund will repurchase the portfolio instrument by remitting the
original consideration plus interest at an agreed upon rate.
When effecting reverse repurchase agreements, liquid assets of the Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market daily
and maintained until the transaction is settled.
The use of reverse repurchase agreements may enable the Fund to avoid selling
portfolio instruments at a time when a sale may be deemed to be disadvantageous,
but the ability to enter into reverse repurchase agreements does not ensure that
the Fund will be able to avoid selling portfolio instruments at a
disadvantageous time.
PORTFOLIO TURNOVER
The Fund will not attempt to set or meet a portfolio turnover rate since any
turnover would be incidental to transactions undertaken in an attempt to achieve
the Fund's investment objective. During the fiscal years ended January 31, 1994
and 1993, the portfolio turnover rates were 117% and 33%, respectively.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as may be necessary for
clearance of purchases and sales of portfolio securities.
BORROWING MONEY
The Fund 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 Fund 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 Fund to meet redemption requests when the liquidation of
portfolio securities is deemed to be inconvenient or disadvantageous. The
Fund will not purchase any securities while borrowings in excess of 5% of
the value of its total assets are outstanding.
ISSUING SENIOR SECURITIES
The Fund will not issue senior securities except as permitted by its
investment objective and policies.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it may mortgage, pledge, or
hypothecate assets having a market value not exceeding 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 Fund 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
Fund 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 Fund's investment objective,
policies and limitations.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of its total
assets, the Fund 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 Fund 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 Fund will not purchase or sell commodities.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of restricted securities which the Fund may
purchase pursuant to its investment objective, policies, and limitations.
The above investment limitations cannot be changed without shareholder approval.
The following limitations, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets in
securities of issuers which have records of less than three years of
operating history, including the operation of any predecessor. (This
limitation does not apply to issuers of CMOs or REMICs which are
collateralized by securities or mortgages issued or guaranteed as to
prompt payment of principal and interest by an agency of the U.S.
government).
INVESTING IN MINERALS
The Fund will not purchase or sell oil, gas, or other mineral exploration
or development programs or leases, although it may purchase the
securities of issuers which invest or sponsor such programs.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF
THE TRUST
The Fund will not purchase or retain the securities of any issuer if the
officers and Trustees of the Trust or the Fund's investment adviser
owning individually more than 1/2 of 1% of the issuer's securities
together own more than 5% of the issuer's securities.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may not own securities of open-end investment companies. The
Fund can acquire up to 3% of the total outstanding stock of closed-end
investment companies. The Fund will not be subject to any other
limitations with regard to the acquisition of securities of closed-end
investment companies so long as the public offering price of the Fund's
shares does not include a sales load exceeding 1 1/2%. The Fund will
purchase securities of closed-end investment companies only in
open-market transactions involving only customary broker's commissions.
However, these limitations are not applicable if the securities are
acquired in a merger, consolidation, or acquisition of assets; nor are
they applicable with respect to securities of investment companies that
have been exempted from registration under the Investment Company Act of
1940.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of the value of its net assets in
illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice, and certain restricted
securities not determined by the Trustees to be liquid.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
The Fund does not consider the issuance of separate classes of shares to
constitute an issuance of "senior securities" within the meaning of the
investment limitations set forth above.
For the purposes of the above limitations, the Fund considers instruments issued
by a U.S. branch of a domestic bank having capital, surplus, and undivided
profits in excess of $100,000,000 at the time of investment to be "cash items."
TRUST MANAGEMENT
- --------------------------------------------------------------------------------
OFFICERS AND TRUSTEES
Officers and Trustees are listed with their addresses, principal occupations,
and present positions, including any affiliation with Federated Management,
Federated Investors, Federated Securities Corp., Federated Services Company,
Federated Administrative Services, and the Funds (as defined below).
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
John F. Donahue*+ Chairman and Chairman and Trustee, Federated Investors; Chairman and Trustee, Federated
Federated Investors Trustee Advisers, Federated Management, and Federated Research; Director, AEtna Life
Tower and Casualty Company; Chief Executive Officer and Director, Trustee, or
Pittsburgh, PA Managing General Partner of the Funds; formerly, Director, The Standard Fire
Insurance Company. Mr. Donahue is the
father of J. Christopher Donahue, Vice President of the Trust.
- --------------------------------------------------------------------------------------------------------------------------------
John T. Conroy, Jr. Trustee President, Investment Properties Corporation; Senior Vice-President, John R.
Wood/IPC Commercial Wood and Associates, Inc., Realtors; President, Northgate Village
Department Development Corporation; General Partner or Trustee in private real estate
John R. Wood and ventures in Southwest Florida; Director, Trustee, or Managing General
Associates, Inc., Realtors Partner of the Funds; formerly, President, Naples Property Management, Inc.
3255 Tamiami Trail North
Naples, FL
- --------------------------------------------------------------------------------------------------------------------------------
William J. Copeland Trustee Director and Member of the Executive Committee, Michael Baker, Inc.;
One PNC Plaza- Director, Trustee, or Managing General Partner of the Funds; formerly, Vice
23rd Floor Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan
Pittsburgh, PA Homes, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
James E. Dowd Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
571 Hayward Mill Road Trustee, or Managing General Partner of the Funds; formerly, Director, Blue
Concord, MA Cross of Massachusetts, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Lawrence D. Ellis, M.D. Trustee Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
3471 Fifth Avenue Hospitals; Clinical Professor of Medicine and Trustee, University of
Suite 1111 Pittsburgh; Director, Trustee, or Managing General Partner of the Funds.
Pittsburgh, PA
- --------------------------------------------------------------------------------------------------------------------------------
Edward L. Flaherty, Jr.+ Trustee Attorney-at-law; Partner, Meyer and Flaherty; Director, Eat'N Park
5916 Penn Mall Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director, Trustee,
Pittsburgh, PA or Managing General Partner of the Funds; formerly, Counsel, Horizon
Financial, F.A., Western Region.
- --------------------------------------------------------------------------------------------------------------------------------
Peter E. Madden Trustee Consultant; State Representative, Commonwealth of Massachusetts; Director,
225 Franklin Street Trustee or Managing General Partner of the Funds; formerly, President, State
Boston, MA Street Bank and Trust Company and State Street Boston Corporation and
Trustee, Lahey Clinic Foundation, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Gregor F. Meyer Trustee Attorney-at-law; Partner, Meyer and Flaherty; Chairman, Meritcare, Inc.;
5916 Penn Mall Director, Trustee, or Managing General Partner of the Funds; formerly, Vice
Pittsburgh, PA Chairman, Horizon Financial, F.A.
- --------------------------------------------------------------------------------------------------------------------------------
Wesley W. Posvar Trustee Professor, Foreign Policy and Management Consultant; Trustee, Carnegie
1202 Cathedral of Endowment for International Peace, RAND Corporation, Online Computer Library
Learning Center, Inc., and U.S. Space Foundation; Chairman, Czecho Slovak Management
University of Pittsburgh Center; Director, Trustee, or Managing General Partner of the Funds;
Pittsburgh, PA President Emeritus, University of Pittsburgh; formerly, Chairman, National
Advisory Council for Environmental Policy and Technology.
- --------------------------------------------------------------------------------------------------------------------------------
Marjorie P. Smuts Trustee Public relations/marketing consultant; Director, Trustee, or Managing
4905 Bayard Street General Partner of the Funds.
Pittsburgh, PA
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
Glen R. Johnson President Trustee, Federated Investors; President and/or Trustee of some of the Funds;
Federated Investors staff member, Federated Securities Corp. and Federated Administrative
Tower Services.
Pittsburgh, PA
- --------------------------------------------------------------------------------------------------------------------------------
J. Christopher Donahue Vice President President and Trustee, Federated Investors; Trustee, Federated Advisers,
Federated Investors Federated Management, and Federated Research; President and Director,
Tower Federated Administrative Services; Trustee, Federated Services Company;
Pittsburgh, PA President or Vice President of the Funds; Director, Trustee or Managing
General Partner of some of the Funds. Mr. Donahue is the son of John F.
Donahue, Chairman and Trustee of the Trust.
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Richard B. Fisher Vice President Executive Vice President and Trustee, Federated Investors; Chairman and
Federated Investors Director, Federated Securities Corp.; President or Vice President of the
Tower Funds; Director or Trustee of some of the Funds.
Pittsburgh, PA
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Edward C. Gonzales Vice President Vice President, Treasurer and Trustee, Federated Investors; Vice President
Federated Investors and Treasurer and Treasurer, Federated Advisers, Federated Management, and Federated
Tower Research; Executive Vice President, Treasurer, and Director, Federated
Pittsburgh, PA Securities Corp.; Trustee, Federated Services Company; Chairman, Treasurer,
and Director, Federated Administrative Services; Trustee of some of the
Funds; Vice President and Treasurer of the Funds.
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John W. McGonigle Vice President Vice President, Secretary, General Counsel, and Trustee, Federated
Federated Investors and Secretary Investors; Vice President, Secretary and Trustee, Federated Advisers,
Tower Federated Management, and Federated Research; Trustee, Federated Services
Pittsburgh, PA Company; Executive Vice President, Secretary, and Director, Federated
Administrative Services; Director and Executive Vice President, Federated
Securities Corp.; Vice President and Secretary of the Funds.
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John A. Staley, IV Vice President Vice President and Trustee, Federated Investors; Executive Vice President,
Federated Investors Federated Securities Corp.; President and Trustee, Federated Advisers,
Tower Federated Management, and Federated Research; Vice President of the Funds;
Pittsburgh, PA Director, Trustee, or Managing General Partner of some of the Funds;
formerly, Vice President, The Standard Fire Insurance Company and President
of its Federated Research Division.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* This Trustee is deemed to be an "interested person" of the Trust as defined in
the Investment Company Act of 1940.
+ Member of the Trust's Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board of Trustees
between meetings of the Board.
THE FUNDS
"The Funds" and "Funds" mean the following investment companies: A.T. Ohio
Municipal Money Fund; American Leaders Fund, Inc.; Annuity Management Series;
Automated Cash Management Trust; Automated Government Money Trust; The Boulevard
Funds; California Municipal Cash Trust; Cash Trust Series II; Cash Trust Series,
Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; FT
Series, Inc.; Federated ARMs Fund; Federated Exchange Fund, Ltd.; Federated GNMA
Trust; Federated Government Trust; Federated Growth Trust; Federated High Yield
Trust; Federated Income Securities Trust; Federated Income Trust; Federated
Index Trust; Federated Intermediate Government Trust; Federated Master Trust;
Federated Municipal Trust; Federated Short-Intermediate Government Trust;
Federated Short-Intermediate Municipal Trust; Federated Short-Term U.S.
Government Trust; Federated Stock Trust; Federated Tax-Free Trust; First
Priority Funds; Fixed Income Securities, Inc.; Fortress Adjustable Rate U.S.
Government Fund, Inc.; Fortress Municipal Income Fund, Inc.; Fortress Utility
Fund, Inc.; Fund for U.S. Government Securities, Inc.; Government Income
Securities, Inc.; High Yield Cash Trust; Insight
- --------------------------------------------------------------------------------
Institutional Series, Inc.; Insurance Management Series; Intermediate Municipal
Trust; Investment Series Funds, Inc.; Investment Series Trust; Liberty Equity
Income Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty Municipal
Securities Fund, Inc.; Liberty Term Trust, Inc.-1999; Liberty U.S. Government
Money Market Trust; Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed
Series Trust; Mark Twain Funds; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; Municipal Securities Income Trust; New
York Municipal Cash Trust; 111 Corcoran Funds; Peachtree Funds; Portage Funds;
RIMCO Monument Funds; The Shawmut Funds; Short-Term Municipal Trust; Signet
Select Funds; Star Funds; The Starburst Funds; The Starburst Funds II; Stock and
Bond Fund, Inc.; Sunburst Funds; Targeted Duration Trust; Tax-Free Instruments
Trust; Trademark Funds; Trust for Financial Institutions; Trust for Government
Cash Reserves; Trust for Short-Term U.S. Government Securities; and Trust for
U.S. Treasury Obligations.
TRUST OWNERSHIP
Officers and Trustees own less than 1% of the Trust's outstanding shares.
As of March 4, 1994, 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 917,805 Shares (7.53%);
Trucojo Trust Company of St. Joseph, St. Joseph, Missouri, owned approximately
1,397,640 Shares (11.47%); Ambank & Co., Baton Rouge, Louisiana, owned
approximately 2,846,283 Shares (23.35%); and The Bank of Guam, Agana, Guam,
owned approximately 861,319 Shares (7.07%).
As of March 4, 1994, there were no shareholders of record who owned 5% or more
of the outstanding Institutional Shares 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
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ADVISER TO THE FUND
The Fund's investment adviser is Federated Management, 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. John F. Donahue, Chairman and Trustee of Federated
Management, is Chairman and Trustee of Federated Investors and Chairman and
Trustee of the Trust. John A. Staley, IV, President and Trustee of Federated
Management, is Vice President and Trustee of Federated Investors, Executive Vice
President of Federated Securities Corp., and Vice President of the Trust. J.
Christopher Donahue, Trustee of Federated Management, is President and Trustee
of Federated Investors, Trustee, President, and Director of Federated
Administrative Services, Trustee, Federated Services Company, and Vice President
of the Trust. John W. McGonigle, Vice President, Secretary and Trustee of
Federated Management, is Trustee, Vice President, Secretary, and General Counsel
of Federated Investors, Director, Executive Vice President, and Secretary of
Federated Administrative Services, Director and Executive Vice President of
Federated Securities Corp., Trustee, Federated Services Company, and Vice
President and Secretary of the Trust.
The adviser shall not be liable to the Trust, the Fund or any shareholder of the
Fund for any losses that may be sustained in the purchase, holding, or sale of
any security, or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
ADVISORY FEES
For its advisory services, Federated Management receives an annual investment
advisory fee as described in the prospectuses. During the fiscal years ended
January 31, 1994, 1993, and 1992, the Fund's adviser earned $8,180,174,
$6,298,393, and $5,128,808, respectively.
STATE EXPENSE LIMITATIONS
The adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2 1/2% per year of the first $30 million of average net assets, 2%
per year of
- --------------------------------------------------------------------------------
the next $70 million of average net assets, and 1 1/2% per year of the
remaining average net assets, the adviser will reimburse the Fund for its
expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed will be limited, in
any single fiscal year, by the amount of the investment advisory fee.
This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.
OTHER ADVISORY SERVICES
Federated Research Corp. receives fees from certain depository institutions for
providing consulting and portfolio advisory services relating to each
institution's program of asset management. Federated Research Corp. may advise
such clients to purchase or redeem shares of investment companies, such as the
Fund, which are managed, for a fee, by Federated Research Corp. or other
affiliates of Federated Investors, such as the adviser, and may advise such
clients to purchase and sell securities in the direct markets. Further,
Federated Research Corp., and other affiliates of the adviser may, from time to
time, provide certain consulting services and equipment to depository
institutions in order to facilitate the purchase of shares of funds offered by
Federated Securities Corp.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in the
prospectuses. For the fiscal years ended January 31, 1994, 1993, and 1992,
Federated Administrative Services, Inc., the Fund's former administrator, earned
$1,316,655, $1,015,784, and $886,358, respectively. John A. Staley, IV, an
officer of the Trust, and Dr. Henry J. Gailliot, an officer of Federated
Management, the adviser to the Fund, each hold approximately 15% and 20%,
respectively, of the outstanding common stock and serve as directors of
Commercial Data Services, Inc., a company which provides computer processing
services to Federated Administrative Services, Inc., and Federated
Administrative Services. For the fiscal years ended January 31, 1994, 1993, and
1992, Federated Administrative Services, Inc. paid approximately $161,054,
$181,235, and $200,212, respectively, for services provided by Commercial Data
Services, Inc.
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
review by the Trustees.
The adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the adviser
and may include:
- - advice as to the advisability of investing in securities;
- - security analysis and reports;
- - economic studies;
- - industry studies;
- - receipt of quotations for portfolio evaluations; and
- - similar services.
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.
Research services provided by brokers may be used by the adviser or by
affiliates of Federated Investors in advising Federated funds 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.
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 AND SHAREHOLDER SERVICES PLANS
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 Fund, by adopting the
Distribution Plan, the Board of Trustees expects that the Fund 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 Fund in pursuing its investment objectives. By identifying potential
investors whose needs are served by the Fund's objectives, and properly
servicing these accounts, it may be possible to curb sharp fluctuations in rates
of redemptions and sales. Other benefits, which may be realized under either
arrangement, may include: (1) providing personal services to shareholders; (2)
investing shareholder assets with a minimum of delay and administrative detail;
(3) enhancing shareholder recordkeeping systems; and (4) responding promptly to
shareholders' requests and inquiries concerning their accounts. For the fiscal
period ending January 31, 1994, payments in the amount of $287,334 were made
pursuant to the Distribution Plan (Institutional Service Shares only) all of
which was paid to financial institutions.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds. State Street Bank acts as the
shareholder's agent in depositing checks and converting them to federal funds.
DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
Net asset value generally changes each day. The days on which the net asset
value for each class of Shares is calculated by the Fund are described in the
respective prospectuses.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
- - according to the mean between the over-the-counter bid and asked prices
provided by an independent pricing service, if available, or at fair value as
determined in good faith by the Trustees; or
- - for short-term obligations with maturities of less than 60 days, at amortized
cost unless the Trustees determines that particular circumstances of the
security indicate otherwise.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares of either class at the next computed net asset value
after the Fund 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.
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 Fund will
notify the investor of its acceptance and valuation of the securities within
five business days of their receipt by State Street Bank.
The Fund values securities in the same manner as the Fund 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 Fund, 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 FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
- - derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;
- - derive less than 30% of its gross income from the sale of securities held less
than three months;
- - invest in securities within certain statutory limits; and
- - distribute to its shareholders at least 90% of its net income earned during
the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and capital gains
received as cash or additional Shares. No portion of any income dividend paid by
the Fund is eligible for the dividends received deduction available to
corporations. These dividends, and any short-term capital gains, are taxable as
ordinary income.
CAPITAL GAINS
Capital gains distributed to shareholders will be treated as long-term
capital gains regardless of how long shareholders have held Shares.
TOTAL RETURN
- --------------------------------------------------------------------------------
The Fund's average annual total returns for Institutional Shares for the
one-year and five-year periods ended January 31, 1994, and for the period from
March 23, 1982 (effective date of the Trust's registration statement) to January
31, 1994, were 6.02%, 10.58%, and 11.68%, respectively. The Fund's average
annual total return for Institutional Service Shares for the one-year period
ended January 31, 1994, and for the period from June 18, 1992 (date of initial
public investment) to January 31, 1994 were 5.76% and 7.09%, respectively.
The average annual total return for both classes of shares of the Fund is the
average compounded rate of return for a given period that would equate a $1,000
initial investment to the ending redeemable value of that investment. The ending
redeemable value is computed by multiplying the number of shares owned at the
end of the period by the 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 Fund's yield for Institutional Shares for the thirty-day period ended
January 31, 1994 was 6.58%. The Fund's yield for Institutional Service Shares
was 6.33% for the same period.
The yield for both classes of shares of the Fund 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
Fund because of certain adjustments required by the Securities and Exchange
Commission and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in 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 Fund'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 Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
- - LIPPER ANALYTICAL SERVICES, INC. ranks funds in various 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 Fund will quote its Lipper ranking in the "GNMA funds"
category in advertising and sales literature.
- - MORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for two
weeks.
- - SALOMON BROTHERS GNMA 9-11% INDEX, a widely recognized index of Government
National Mortgage Association mortgage pass-through securities in the 9-11%
current coupon range. Total return is reported for periods of 1 month, 3
months, and 12 months. The index is tracked by Salomon Brothers, Inc.
- - SALOMON BROTHERS GNMA 30 YEAR INDEX is a total, comprehensive GNMA index
comprised of 30-year GNMA pass-throughs, 15-year GNMA pass-throughs, and GNMA
GPM's.
- - SHEARSON LEHMAN GOVERNMENT/CORPORATE (TOTAL) INDEX is comprised of
approximately 5,000 issues which include non-convertible bonds publicly issued
by the U.S. government or its agencies; corporate bonds guaranteed by the U.S.
government and quasifederal corporations; and publicly issued, fixed rate,
nonconvertible domestic bonds of companies in industry, public utilities and
finance. The average maturity of these bonds approximates nine years. Tracked
by Shearson Lehman Brothers Inc., the index calculates total returns for one
month, three month, twelve month and ten year periods and year-to-date.
- - SHEARSON LEHMAN 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 Fund will make comparisons to certain direct market securities
in which it is permitted to invest. The type of security that will be used for
such comparisons, and the source of its performance information is listed below.
- - 10-YEAR TREASURY NOTES--Source: Salomon Brothers. Total returns are calculated
for periods of one, three, and twelve months.
Advertisements and other sales literature for both classes of shares may quote
total returns which are calculated on non-standardized base periods. These total
returns also represent the historic change in the value of an investment in
either class of Shares based on monthly reinvestment of dividends over a
specified period of time.
- --------------------------------------------------------------------------------
DURATION
Duration is a commonly used measure of the potential volatility in the price of
a bond, or other fixed income security, or in a portfolio of fixed income
securities, prior to maturity. Volatility is the magnitude of the change in the
price of a bond relative to a given change in the market rate of interest. A
bond's price volatility depends on three primary variables: the bond's coupon
rate; maturity date; and the level of market yields of similar fixed-income
securities. Generally, bonds with lower coupons or longer maturities will be
more volatile than bonds with higher coupons or shorter maturities. Duration
combines these variables into a single measure.
Duration is calculated by dividing the sum of the time-weighted values of the
cash flows of a bond or bonds, including interest and principal payments, by the
sum of the present values of the cash flows.
When the Fund 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 Fund.
8022901B (3/94)
FEDERATED GNMA TRUST
- --------------------------------------------------------------------------------
ANNUAL REPORT FOR FISCAL YEAR ENDED JANUARY 31, 1994
INVESTMENT REVIEW
---------------------------------------------------------------------------
The Federated GNMA Trust (the "Trust") is designed for shareholders
seeking participation in a professionally managed portfolio of GNMAs
guaranteed as to the payment of principal and interest by the U.S.
government. (Trust shares are not guaranteed.) The Trust is managed for
specific maturity levels according to our projections on market risk and
volatility. The Trust offers daily liquidity, credit control and other
advantages over comparable Treasuries while the investor avoids the
complexities of managing a portfolio of mortgage-backed securities.
Shareholders receive a diversified portfolio managed under a set of highly
conservative disciplines.
A bearish market psychology has existed in the bond market since early
in the fourth quarter of 1993. With interest rates anticipated to remain at
the higher end of the trading range over the near term, investors have
focused on the income component in pursuing total rate of return
performance. This focus on income has enabled the mortgage market to turn
in a strong performance at the start of 1994. The technicals for the
mortgage market remain very strong, with continuing demand from investors
for spread product combined with reduced production from mortgage
originators.
The current structure of the portfolio shows a modified duration of
3.5 years, which is down significantly from the 4.6 year level of the July
report. Portfolio strategy has favored up in coupon swaps from the GNMA
6.5%-7.0% to GNMA 7.5%-8.0% as prepayment risk has been greatly reduced in
these slightly higher coupons as a result of the backup in interest rates.
With these up in coupon trades adding additional negative convexity to the
Trust, a position in ten-year U.S. Treasury notes was added over the last
six months to mitigate some of this negative convexity risk. These
portfolio transactions still maintain the portfolio's barbell structure but
with a more defensive profile.
As of January 31, 1994, total net assets were $2.0 billion and the
average 30-day net yield as calculated under SEC guidelines was 6.58% for
Institutional Shares and 6.33% for Institutional Service Shares*. Rated
AAAf by Standard and Poor's**, the Trust remains committed to competitive
yields and daily liquidity.
* Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
** Ratings are subject to change.
PERFORMANCE COMPARISON
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000 INVESTMENT IN
FEDERATED GNMA TRUST (INSTITUTIONAL SERVICE SHARES), SALOMON BROTHERS
GNMA 30 YEAR INDEX+, AND LIPPER GNMA FUNDS AVERAGE CATEGORY++.
Graphic representation "A1" omitted. See Appendix.
Past performance is not predictive of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than original cost. Mutual funds are not obligations of or
guaranteed by any bank and are not federally insured.
This annual report incorporates by reference and accompanies the prospectus
dated March 31, 1994.
* Reflects performance of Federated GNMA Trust (Institutional Service Shares)
from 6/18/92 through 1/31/94.
** The Fund's performance assumes the reinvestment of all dividends and
distributions. The Salomon Brothers GNMA 30 Year Index and the Lipper GNMA
Funds Average are adjusted to reflect reinvestment of dividends on
securities in the index and category.
+ The Salomon Brothers GNMA 30 Year Index is not adjusted to reflect sales
loads, expenses, or other fees that the SEC requires to be reflected in the
Fund's performance.
++ The Lipper GNMA Funds Average is a compilation of mutual fund total returns
reported to Lipper Analytical Services, Inc. Each fund is reported net of
sales loads, expenses, or other fees, that the SEC requires to be reflected
in the Fund's performance.
+++ Reflects maximum applicable fees.
PERFORMANCE COMPARISON
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000 INVESTMENT
IN FEDERATED GNMA TRUST (INSTITUTIONAL SHARES), SALOMON BROTHERS
GNMA 30 YEAR INDEX+, AND LIPPER GNMA FUNDS AVERAGE CATEGORY++.
Graphic representation "A2" omitted. See Appendix.
Past performance is not predictive of future performance. Your investment return
and principal value will fluctuate so when shares are redeemed, they may be
worth more or less than original cost. Mutual funds are not obligations of or
guaranteed by any bank and are not federally insured.
This annual report incorporates by reference and accompanies the prospectus
dated March 31, 1994.
* Reflects performance of Federated GNMA Trust (Institutional Shares) from
3/23/82 through 1/31/94.
** The Fund's performance assumes the reinvestment of all dividends and
distributions. The Salomon Brothers GNMA 30 Year Index and the Lipper GNMA
Funds Average are adjusted to reflect reinvestment of dividends on
securities in the index and category.
+ The Salomon Brothers GNMA 30 Year Index is not adjusted to reflect sales
loads, expenses, or other fees that the SEC requires to be reflected in the
Fund's performance.
++ The Lipper GNMA Funds Average is a compilation of mutual fund total returns
reported to Lipper Analytical Services, Inc. Each fund is reported net of
sales loads, expenses, or other fees, that the SEC requires to be reflected
in the Fund's performance.
+++ Reflects maximum applicable fees.
FEDERATED SECURITIES CORP.
(LOGO)
- --------------------------------------------------------------------------------
Distributor
3110810-ARS (3/94)
