FEDERATED GNMA TRUST
INSTITUTIONAL SHARES
PROSPECTUS
The Institutional Shares of Federated GNMA Trust (the "Trust") offered by this
prospectus represent interests in a diversified portfolio of securities
investing primarily in instruments issued or guaranteed by the Government
National Mortgage Association, to achieve current income. The Trust is an open-
end, diversified management investment company (a mutual fund). Institutional
Shares are sold at net asset value.
THE INSTITUTIONAL SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR
OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD,
OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE INSTITUTIONAL SHARES
INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before you
invest in Institutional Shares of the Trust. Keep this prospectus for future
reference.
The Trust has also filed a Combined Statement of Additional Information for
Institutional Shares and Institutional Service Shares dated March 31, 1995 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 Trust, contact the Trust at the
address listed in the back of this prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated March 31, 1995
TABLE OF CONTENTS
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SUMMARY OF TRUST EXPENSES 1
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FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES 2
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GENERAL INFORMATION 3
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INVESTMENT INFORMATION 3
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Investment Objective 3
Investment Policies 3
Investment Limitations 6
TRUST INFORMATION 6
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Management of the Trust 6
DISTRIBUTION OF INSTITUTIONAL SHARES 8
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ADMINISTRATION OF THE TRUST 8
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NET ASSET VALUE 9
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INVESTING IN INSTITUTIONAL SHARES 9
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Share Purchases 9
Minimum Investment Required 9
What Shares Cost 10
Exchanging Securities for Trust Shares 10
Subaccounting Services 10
Certificates and Confirmations 10
Dividends 11
Capital Gains 11
REDEEMING INSTITUTIONAL SHARES 11
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Telephone Redemption 11
Written Requests 11
Accounts with Low Balances 12
SHAREHOLDER INFORMATION 12
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Voting Rights 12
Massachusetts Partnership Law 13
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
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Financial Highlights--Institutional
Service Shares 15
FINANCIAL STATEMENTS 16
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INDEPENDENT AUDITORS' REPORT 25
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ADDRESSES 26
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SUMMARY OF TRUST EXPENSES
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<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 amount 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.................................................................. 0.22%
Shareholder Services Fee (after waiver)(1).............................. 0.05%
Total Institutional Shares Operating Expenses(2)............................ 0.62%
</TABLE>
(1) The maximum shareholder services 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, 1996. The
total Institutional Shares operating expenses were 0.56% for the fiscal year
ended January 31, 1995.
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
Trust 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 $20 $35 $ 77
</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 examples relates only
to the Institutional Shares of the Trust. The Trust 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 up to 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,
--------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
------ ------ ------ ------ ------ ------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
--------
NET
ASSET
VALUE,
BEGINNING
OF PERIOD $11.64 $11.80 $11.64 $11.29 $10.97 $10.70 $11.08 $11.46 $11.35 $10.77
--------
INCOME
FROM
INVESTMENT
OPERATIONS
--------
Net
investment
income 0.82 0.85 0.93 0.98 1.00 1.00 1.01 1.04 1.11 1.22
--------
Net
realized
and
unrealized
gain
(loss)
on
investments (1.03) (0.16) 0.16 0.35 0.32 0.27 (0.38) (0.38) 0.14 0.58
-------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total
from
investment
operations (0.21) 0.69 1.09 1.33 1.32 1.27 0.63 0.66 1.25 1.80
-------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
LESS
DISTRIBUTIONS
--------
Distributions
from net
investment
income (0.82) (0.85) (0.93) (0.98) (1.00) (1.00) (1.01) (1.04) (1.11) (1.22)
--------
Distributions
from net
realized
gain on
investment
transactions -- -- -- -- -- -- -- -- (0.03) --
-------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total
distributions (0.82) (0.85) (0.93) (0.98) (1.00) (1.00) (1.01) (1.04) (1.14) (1.22)
-------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
NET
ASSET
VALUE,
END OF
PERIOD $10.61 $11.64 $11.80 $11.64 $11.29 $10.97 $10.70 $11.08 $11.46 $11.35
-------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
TOTAL
RETURN(A) (1.71%) 6.02% 9.78% 12.25% 12.65% 12.33% 5.99% 6.29% 11.53% 17.75%
--------
RATIOS
TO
AVERAGE
NET
ASSETS
--------
Expenses 0.56% 0.51% 0.51% 0.51% 0.52% 0.52% 0.53% 0.52% 0.51% 0.61%
--------
Net
investment
income 7.51% 7.22% 7.98% 8.54% 9.08% 9.19% 9.33% 9.51% 9.66% 11.01%
--------
SUPPLEMENTAL
DATA
--------
Net
assets,
end of
period
(000
omitted) $1,442,074 $1,910,500 $1,770,169 $1,333,930 $1,268,706 $1,312,780 $1,710,890 $2,111,559 $2,515,127 $569,404
--------
Portfolio
turnover
rate 136% 117% 33% 57% 48% 27% 40% 45% 100% 141%
--------
</TABLE>
(a) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(See Notes which are an integral part of the Financial Statements)
Further information about the Trust's performance is contained in the Trust's
annual report for the fiscal year ended January 31, 1995, which can be obtained
free of charge.
GENERAL INFORMATION
--------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated December 10, 1981. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. As of the date of this prospectus, the Board of
Trustees ("Trustees") has established two classes of shares of the Trust, known
as Institutional Shares and Institutional Service Shares. This prospectus
relates only to Institutional Shares of the Trust.
Institutional Shares ("Shares") are sold primarily to accounts for which
financial institutions act in a fiduciary or agency capacity, and other accounts
where a financial institution maintains master accounts with an aggregate
investment of at least $400 million in certain mutual funds which are advised or
distributed by affiliates of Federated Investors. Shares are also made available
to financial intermediaries, public, and private organizations. An investment in
the Trust serves as a convenient means of accumulating an interest in a
professionally managed, diversified portfolio of primarily mortgage-backed
securities. A minimum initial investment of $25,000 over a 90-day period is
required.
Shares are currently sold and redeemed at net asset value without a sales load
imposed by the Trust.
INVESTMENT INFORMATION
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Trust is current income. The investment
objective may not be changed without the approval of shareholders. The Trust
pursues this investment objective by investing primarily in instruments issued
or guaranteed by the Government National Mortgage Association ("GNMA"). While
there is no assurance that the Trust will achieve its investment objective, it
endeavors to do so by following the investment policies described in this
prospectus.
INVESTMENT POLICIES
As a matter of investment policy which may be changed without shareholder
approval, the Trust will limit its investments to those that are permitted for
purchase by federal savings associations pursuant to applicable rules,
regulations, or interpretations of the Office of Thrift Supervision. Should
additional permitted investments be allowed as a result of future changes in
applicable regulations or federal laws, the Trust reserves the right, without
shareholder approval, to make such investments consistent with the Trust's
investment objective, policies, and limitations. Further, should existing
statutes or regulations change so as to cause any securities held by the Trust
to become ineligible for purchase by federal savings associations, the Trust
will dispose of those securities at times advantageous to the Trust.
As operated within the above limitation, the Trust may also serve as an
appropriate vehicle for a national bank as an investment for its own account.
Unless otherwise designated, the investment policies described below may not be
changed without shareholder approval.
ACCEPTABLE INVESTMENTS. The Trust will invest primarily in mortgage-backed
securities. Under normal circumstances, at least 65% of the Trust's portfolio
will be invested in instruments issued or fully guaranteed as to principal and
interest by GNMA. In addition, to the extent that the Trust will invest in other
mortgage-backed securities, as described below, these will be collateralized by
GNMA obligations.
The Trust's permissible investments are as follows:
- U.S. Treasury bills, notes, and bonds;
- collateralized mortgage obligations;
- real estate mortgage investment conduits; and
- notes, bonds, and discount notes of U.S. government agencies or
instrumentalities, such as the: Farm Credit System, including the
National Bank for Cooperatives, Farm Credit Banks, and Banks for
Cooperatives; Farmers Home Administration; Federal Home Loan Banks;
Federal Home Loan Mortgage Corporation; Federal National Mortgage
Association; Government National Mortgage Association; and Student Loan
Marketing Association.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). CMOs are bonds issued by
single-purpose, stand-alone finance subsidiaries or trusts of financial
institutions, government agencies, investment bankers, or companies related to
the construction industry. CMOs purchased by the Trust will be collateralized by
pools of mortgages in which each mortgage is guaranteed as to payment of
principal and interest by GNMA.
All CMOs purchased by the Trust are issued by an agency of the United States and
are rated in the highest rating category by a nationally recognized statistical
rating organization.
The following example illustrates how mortgage cash flows are prioritized in the
case of CMOs--most of the CMOs in which the Trust invests use the same basic
structure:
(1) Several classes of securities are issued against a pool of mortgage
collateral. The most common structure contains four classes of securities:
The first three (A, B, and C bonds) pay interest at their stated rates
beginning with the issue date; the final class (Z bond) typically receives
any excess income from the underlying investments after payments are made
to the other classes and receives no principal or interest payments until
the shorter maturity classes have been retired, but then receives all
remaining principal and interest payments.
(2) The cash flows from the underlying mortgages are applied first to pay
interest and then to retire securities.
(3) The classes of securities are retired sequentially. All principal payments
are directed first to the shortest-maturity class (or A bond). When those
securities are completely retired, all principal payments are then directed
to the next-shortest-maturity security (or B bond). This process continues
until all of the classes have been paid off.
Because the cash flow is distributed sequentially instead of pro-rata, as with
pass-through securities, the cash flows and average lives of CMOs are more
predictable, and there is a period of time during which the investors in the
longer-maturity classes receive no principal paydowns. One or more of the
classes
may be adjustable rate. The interest portion of these payments is distributed by
the Trust as income, and the capital portion is reinvested.
REAL ESTATE MORTGAGE INVESTMENT CONDUITS ("REMICS"). REMICs are offerings of
multiple class real estate mortgage-backed securities which qualify and elect
treatment as such under provisions of the Internal Revenue Code, as amended.
Issuers of REMICs may take several forms, such as trusts, partnerships,
corporations, associations or a segregated pool of mortgages. Once REMIC status
is elected and obtained, the entity is not subject to federal income taxation.
Instead, income is passed through the entity and is taxed to the person or
persons who hold interests in the REMIC. A REMIC interest must consist of one or
more classes of "regular interests," some of which may offer adjustable rates,
and a single class of "residual interests." To qualify as a REMIC, substantially
all of the assets of the entity must be in assets directly or indirectly secured
principally by real property.
Because the mortgages underlying mortgage-backed securities often may be prepaid
without penalty or premium, mortgage-backed securities are generally subject to
higher prepayment risks than most other types of debt instruments. Prepayment
risks on mortgage securities tend to increase during periods of declining
mortgage interest rates, because many borrowers refinance their mortgages to
take advantage of the more favorable rates. Depending upon market conditions,
the yield that the Trust receives from the reinvestment of such prepayments, or
any scheduled principal payments, may be lower than the yield on the original
mortgage security. As a consequence, mortgage securities may be a less effective
means of "locking in" interest rates than other types of debt securities having
the same stated maturity and may also have less potential for capital
appreciation. For certain types of asset pools, such as collateralized mortgage
obligations, prepayments may be allocated to one tranche of securities ahead of
other tranches, in order to reduce the risk of prepayment for the other
tranches.
Prepayments may result in a capital loss to the Trust to the extent that the
prepaid mortgage securities were purchased at a market premium over their stated
principal amount. Conversely, the prepayment of mortgage securities purchased at
a market discount from their stated principal amount will accelerate the
recognition of interest income by the Trust, which would be taxed as ordinary
income when distributed to the shareholders.
The prices of fixed income securities fluctuate inversely to the direction of
interest rates.
TEMPORARY INVESTMENTS. For defensive purposes only, the Trust may invest
temporarily in cash and money market instruments during times of unusual market
conditions and to maintain liquidity. Money market instruments items may
include:
- obligations of the U.S. government or its agencies or instrumentalities;
and
- repurchase agreements.
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which
banks, broker/ dealers, and other recognized financial institutions sell
U.S. government securities or other securities to the Trust and agree at
the time of sale to repurchase them at a mutually agreed upon time and
price. To the extent that the original seller does not repurchase the
securities from the Trust, the Trust could receive less than the repurchase
price on any sale of such securities.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Trust may lend portfolio securities on a short-term or long-term basis, or both
up to one-third of the value of its total assets to broker/dealers, banks, or
other institutional borrowers of securities. The Trust will only enter into loan
arrangements with broker/dealers, banks, or other institutions which the
investment adviser has determined are creditworthy under guidelines established
by the Trustees. The Trust will receive collateral in the form of cash or U.S.
government securities equal to at least 100% of the value of the securities
loaned.
There is the risk that when lending portfolio securities, the securities may not
be available to the Trust on a timely basis and the Trust may, therefore, lose
the opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Trust may purchase
securities on a when-issued or delayed delivery basis. These transactions are
arrangements in which the Trust purchases securities with payment and delivery
scheduled for a future time. The seller's failure to complete these transactions
may cause the Trust to miss a price or yield considered to be advantageous.
Settlement dates may be a month or more after entering into these transactions,
and the market values of the securities purchased may vary from the purchase
prices. Accordingly, the Trust may pay more or less than the market value of the
securities on the settlement date.
The Trust may dispose of a commitment prior to settlement if the adviser deems
it appropriate to do so. In addition, the Trust may enter into transactions to
sell its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Trust may realize short-term profits or losses upon the sale of such
commitments.
INVESTMENT LIMITATIONS
The Trust will not borrow money directly or through reverse repurchase
agreements (arrangements in which the Trust sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set date) or
pledge securities except, under certain circumstances, the Trust may borrow
money and engage in reverse repurchase agreements up to one-third of the value
of its total assets and pledge up to 10% of the value of those assets to secure
such borrowings.
As a matter of investment practice, which can be changed without shareholder
approval, the Trust will not invest more than 15% of its net assets in
securities which are illiquid, including repurchase agreements providing for
settlement in more than seven days after notice, and certain restricted
securities not determined by the Trustees to be liquid.
TRUST INFORMATION
--------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees
are responsible for managing the Trust's business affairs and for exercising all
the Trust's powers except those reserved for the shareholders. The Executive
Committee of the Board of Trustees handles the Board's responsibilities between
meetings of the Board.
INVESTMENT ADVISER. Investment decisions for the Trust are made by Federated
Management, the Trust's investment adviser, subject to direction by the
Trustees. The adviser continually conducts investment research and supervision
for the Trust and is responsible for the purchase or sale of portfolio
instruments, for which it receives an annual fee from the Trust.
ADVISORY FEES. The Trust's adviser receives an annual investment advisory
fee equal to .40 of 1% of the Trust's average daily net assets. The adviser
has also undertaken to reimburse the Trust for operating expenses in excess
of limitations established by certain states. This does not include
reimbursement to the Trust of any expenses incurred by shareholders who use
the transfer agent's subaccounting facilities.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. 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.
James D. Roberge has been the Trust's portfolio manager since February,
1995. Mr. Roberge joined Federated Investors in 1990 and has been a Vice
President of the Trust's investment adviser since October, 1994. Prior to
this, Mr. Roberge served as an Assistant Vice President of the Trust's
investment adviser. From 1990 until 1992, Mr. Roberge acted as an
investment analyst. Mr. Roberge is a Chartered Financial Analyst and
received his M.B.A. in Finance from Wharton Business School in 1990.
Kathleen M. Foody-Malus has been the Trust's portfolio manager since July,
1993. Ms. Foody-Malus joined Federated Investors in 1983 and has been a
Vice President of the Trust's investment adviser since 1993. Ms.
Foody-Malus served as an Assistant Vice President of the investment adviser
from 1990 until 1992, and from 1986 until 1989 she acted as an investment
analyst. Ms. Foody-Malus received her M.B.A. in Accounting/Finance from the
University of Pittsburgh.
DISTRIBUTION OF INSTITUTIONAL SHARES
--------------------------------------------------------------------------------
Federated Securities Corp. is the principal distributor for Institutional
Shares. It is a Pennsylvania corporation organized on November 14, 1969, and is
the principal distributor for a number of investment companies. Federated
Securities Corp. is a subsidiary of Federated Investors.
ADMINISTRATION OF THE TRUST
--------------------------------------------------------------------------------
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides administrative personnel and services (including
certain legal and financial reporting services) necessary to operate the Trust.
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>
MAXIMUM AVERAGE AGGREGATE DAILY NET
ADMINISTRATIVE FEE ASSETS OF THE FEDERATED FUNDS
-------------------- ------------------------------------
<S> <C>
0.15 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.10 of 1% on the next $250 million
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.
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
Trust, 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 Trust or by the assessment of a sales load on Shares.
CUSTODIAN. State Street Bank and Trust Company ("State Street Bank"), Boston,
Massachusetts, is custodian for the securities and cash of the Trust.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company,
Pittsburgh, Pennsylvania, is transfer agent for the Shares of the Trust, and
dividend disbursing agent for the Trust.
INDEPENDENT AUDITORS. The independent auditors for the Trust are Deloitte &
Touche LLP, Pittsburgh, Pennsylvania.
NET ASSET VALUE
--------------------------------------------------------------------------------
The Trust's net asset value per Share fluctuates. The net asset value for Shares
is determined by adding the interest of the Shares in the market value of all
securities and other assets of the Trust, subtracting the interest of the Shares
in the liabilities of the Trust and those attributable to Shares, and dividing
the remainder by the total number of Shares outstanding. The net asset value for
Shares may exceed that of Institutional Service Shares due to the variance in
daily net income realized by each class. Such variance will reflect only accrued
net income to which the shareholders of a particular class are entitled.
INVESTING IN INSTITUTIONAL SHARES
--------------------------------------------------------------------------------
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange and the Federal
Reserve wire system are open. Shares may be purchased either by wire or mail.
To purchase Shares, open an account by calling Federated Securities Corp.
Information needed to establish the account will be taken over the telephone.
The Trust reserves the right to reject any purchase request.
BY WIRE. To purchase Shares by Federal Reserve wire, call the Trust before 4:00
p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern
time) on the next business day following the order. Federal funds should be
wired as follows: Federated Services Company, c/o State Street Bank and Trust
Company, Boston, Massachusetts; Attention: EDGEWIRE; For Credit to: Federated
GNMA Trust--Institutional Shares; Trust Number (this number can be found on the
account statement or by contacting the Trust); Group Number or Order Number;
Nominee or Institution Name; and ABA Number 011000028. Shares cannot be
purchased by wire on 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
Trust.
Individual accounts established through a non-affiliated bank or broker may be
subject to a smaller minimum investment.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. There is no sales load imposed by the Trust. Investors who purchase
Shares through a non-affiliated bank or broker may be charged an additional
service fee by that bank or broker.
The net asset value is determined at 4:00 p.m. (Eastern time), Monday through
Friday, except on: (i) days on which there are not sufficient changes in the
value of the Trust's portfolio securities that its net asset value might be
materially affected; (ii) days during which no Shares are tendered for
redemption and no orders to purchase Shares are received; and (iii) the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
EXCHANGING SECURITIES FOR TRUST SHARES
Investors may exchange certain U.S. government securities or a combination of
securities and cash for Shares. The securities and any cash must have a market
value of at least $25,000. The Trust reserves the right to determine the
acceptability of securities to be exchanged. Securities accepted by the Trust
are valued in the same manner as the Trust values its assets. Investors wishing
to exchange securities should first contact Federated Securities Corp.
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 Trust, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
by contacting the Trust.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during the
month.
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are declared just prior
to determining net asset value. If an order for Shares is placed on the
preceding business day, Shares purchased by wire begin earning dividends on the
business day wire payment is received by the transfer agent. If the order for
Shares and payment by wire are received on the same day, Shares begin earning
dividends on the next business day. Shares purchased by check begin earning
dividends on the business day after the check is converted, upon instruction of
the transfer agent, into federal funds. Dividends are automatically reinvested
on payment dates in additional Shares unless cash payments are requested by
contacting the Trust.
CAPITAL GAINS
Capital gains realized by the Trust, if any, are distributed at least once every
12 months.
REDEEMING INSTITUTIONAL SHARES
--------------------------------------------------------------------------------
The Trust redeems Shares at their net asset value next determined after the
Trust receives the redemption request. Redemptions will be made on days on which
the Trust computes its net asset value. Redemption requests must be received in
proper form and can be made by telephone request or by written request.
TELEPHONE REDEMPTION
Shareholders may redeem their Shares by telephoning the Trust before 4:00 p.m.
(Eastern time). The proceeds will normally be wire transferred the following
business day, but in no event more than seven days, to the shareholder's account
at a domestic commercial bank that is a member of the Federal Reserve System. If
at any time, the Trust shall determine it necessary to terminate or modify this
method of redemption, shareholders would be promptly notified.
An authorization form permitting the Trust to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from Federated Securities Corp.
Telephone redemption instructions may be recorded. If reasonable procedures are
not followed by the Trust, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as "Written Requests," should be considered.
WRITTEN REQUESTS
Shares may also be redeemed by sending a written request to the Trust. Call the
Trust for specific instructions before redeeming by letter. The shareholder will
be asked to provide in the request his name, the Trust 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 to Federated Services Company, 500 Victory Road - 2nd Floor,
Quincy, Massachusetts 02171 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 Trust, 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 Trust does not accept signatures guaranteed by a notary public.
The Trust and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Trust may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Trust and its transfer agent reserve the right
to amend these standards at any time without notice.
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 Trust may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $25,000. This
requirement does not apply, however, if the balance falls below $25,000 because
of changes in the Trust's net asset value.
Before Shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional Shares to meet the minimum
requirement.
SHAREHOLDER INFORMATION
--------------------------------------------------------------------------------
VOTING RIGHTS
Each Share of the Trust gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
each portfolio in the Trust have equal voting rights except that, in matters
affecting only a particular fund or class, only shares of that fund or class are
entitled to vote.
As a Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust's operation and for the election of Trustees under certain
circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders for this purpose shall be called by the
Trustees upon the written request of shareholders owning at least 10% of the
Trust's outstanding shares entitled to vote.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for such acts or
obligations of the Trust. These documents require notice of this disclaimer to
be given in each agreement, obligation, or instrument that the Trust or its
Trustees enter into or sign on behalf of the Trust.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required to use its property to protect or compensate
the shareholder. On request, the Trust will defend any claim made and pay any
judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder will occur
only if the Trust itself cannot meet its obligations to indemnify shareholders
and pay judgments against them from its assets.
TAX INFORMATION
--------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Trust will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code, as amended 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 Trust is not subject to Pennsylvania corporate or personal property
taxes; and
- Trust shares may be subject to personal property taxes imposed by
counties, municipalities, and school districts in Pennsylvania to the
extent that the portfolio securities in the Trust would be subject to such
taxes if owned directly by residents of those jurisdictions.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
PERFORMANCE INFORMATION
--------------------------------------------------------------------------------
From time to time, the Trust advertises its total return and yield for Shares.
Total return represents the change, over a specified period of time, in the
value of an investment in Shares of the Trust after reinvesting all income and
capital gains distributions. It is calculated by dividing that change by the
initial investment and is expressed as a percentage.
The yield of Shares of the Trust is calculated by dividing the net investment
income per share (as defined by the Securities and Exchange Commission) earned
by Shares over a thirty-day period by the
offering price per share of Shares on the last day of the period. This number is
then annualized using semi-annual compounding. The yield does not necessarily
reflect income actually earned by Shares and, therefore, may not correlate to
the dividends or other distributions paid to shareholders.
Shares are sold without any sales load or other similar non-recurring charges.
Total return and yield will be calculated separately for Institutional Shares
and Institutional Service Shares. 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 Trust 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 0.25 of 1% of the
Institutional Service Shares' average daily net assets.
Financial institutions and brokers providing sales and/or administrative
services may receive different compensation depending upon which class of shares
of the Trust is sold.
The amount of dividends payable to Institutional Shares will exceed that of
Institutional Service Shares by the difference between class expenses and
distribution and shareholder service expenses borne by shares of each respective
class.
The stated advisory fee is the same for both classes of shares.
FEDERATED GNMA TRUST
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
--------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Independent Auditors' Report on page 25.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-----------------------------
1995 1994 1993(A)
------ ------ -------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.64 $11.80 $11.71
---------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
---------------------------------------------------------------
Net investment income 0.79 0.82 0.61
---------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (1.03) (0.16) 0.09
-----
--------------------------------------------------------------- ------ ------
Total from investment operations (0.24) 0.66 0.70
-----
--------------------------------------------------------------- ------ ------
LESS DISTRIBUTIONS
---------------------------------------------------------------
Distributions from net investment income (0.79) (0.82) (0.61 )
-----
--------------------------------------------------------------- ------ ------
NET ASSET VALUE, END OF PERIOD $10.61 $11.64 $11.80
-----
--------------------------------------------------------------- ------ ------
TOTAL RETURN(B) (1.92%) 5.76% 5.62 %
---------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
---------------------------------------------------------------
Expenses 0.77% 0.76% 0.76 %(c)
---------------------------------------------------------------
Net investment income 7.32% 6.97% 7.57 %(c)
---------------------------------------------------------------
Expense waiver/reimbursement(d) 0.14% -- --
---------------------------------------------------------------
SUPPLEMENTAL DATA
---------------------------------------------------------------
Net assets, end of period (000 omitted) $120,427 $137,235 $50,166
---------------------------------------------------------------
Portfolio turnover rate 136% 117% 33 %
---------------------------------------------------------------
</TABLE>
(a) Reflects operations for the period from June 18, 1992 (date of initial
public investment) to January 31, 1993.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) Computed on an annualized basis.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Further information about the Trust's performance is contained in the Trust's
annual report for the fiscal year ended January 31, 1995, which can be obtained
free of charge.
FEDERATED GNMA TRUST
PORTFOLIO OF INVESTMENTS
JANUARY 31, 1995
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------ -------------------------------------------------------------- --------------
<C> <C> <S> <C>
LONG-TERM GOVERNMENT OBLIGATIONS--98.3%
---------------------------------------------------------------------------------
* GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--98.3%
--------------------------------------------------------------
$256,254,850 7.00%, 11/15/2023 $ 234,229,746
--------------------------------------------------------------
216,653,976 7.50%, 2/15/2023 204,532,186
--------------------------------------------------------------
285,045,143 8.00%, 3/15/2017-8/15/2024 277,075,873+
--------------------------------------------------------------
150,688,678 8.50%, 1/15/2022 150,780,598
--------------------------------------------------------------
238,645,839 9.00%, 8/15/2016-12/15/2022 243,765,236+
--------------------------------------------------------------
198,158,531 9.50%, 7/15/2009-8/15/2019 206,800,472+
--------------------------------------------------------------
104,802,840 10.00%, 3/15/2016-12/20/2020 111,376,044+
--------------------------------------------------------------
12,309,500 10.50%, 6/15/2018-7/15/2019 13,247,978
--------------------------------------------------------------
22,465,853 11.00%, 9/15/2010 24,529,566
--------------------------------------------------------------
17,403,249 11.50%, 8/15/2015 19,154,189
--------------------------------------------------------------
28,655,850 12.00%, 7/15/2015 31,924,049
--------------------------------------------------------------
13,034,483 12.50%, 11/15/2010 14,655,452
--------------------------------------------------------------
1,813,191 13.00%, 2/15/2011 2,056,249
--------------------------------------------------------------
2,155,222 13.50%, 8/15/2014 2,456,931
-------------------------------------------------------------- --------------
TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(IDENTIFIED COST $1,576,266,549) 1,536,584,569
-------------------------------------------------------------- --------------
</TABLE>
FEDERATED GNMA TRUST
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------ -------------------------------------------------------------- --------------
<C> <C> <S> <C>
(A) REPURCHASE AGREEMENTS--12.6%
---------------------------------------------------------------------------------
$ 25,000,000 Chase Manhattan Bank, N. A., 5.80%, dated 1/31/1995,
due 2/1/1995 $ 25,000,000
--------------------------------------------------------------
100,300,000 ** First Boston Corp., 5.78%, dated 1/19/1995, due 2/16/1995 100,300,000
--------------------------------------------------------------
50,000,000 ** First Boston Corp., 5.78%, dated 1/24/1995, due 2/24/1995 50,000,000
--------------------------------------------------------------
20,000,000 ** First Boston Corp., 5.875%, dated 1/24/1995, due 2/22/1995 20,000,000
--------------------------------------------------------------
1,390,000 J.P. Morgan Securities, Inc., 5.87%, dated 1/31/1995, due
2/1/1995 1,390,000
-------------------------------------------------------------- --------------
TOTAL REPURCHASE AGREEMENTS (AT AMORTIZED COST) 196,690,000
-------------------------------------------------------------- --------------
TOTAL INVESTMENTS (IDENTIFIED COST $1,772,956,549) $1,733,274,569++
-------------------------------------------------------------- --------------
</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.
** 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.
(a) Repurchase agreements are fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investments in the repurchase agreements are through participation in a
joint account with other Federated Funds.
+ Includes securities with a market value of $175,597,383 subject to Dollar
Roll transactions.
++ The cost of investments for federal tax purposes amounts to $1,772,956,549.
The net unrealized depreciation on a federal tax cost basis amounts to
$39,681,980, which is comprised of $13,149,611 appreciation and $52,831,591
depreciation at January 31, 1995.
Note: The categories of investments are shown as a percentage of net assets
($1,562,500,571) at January 31, 1995.
(See Notes which are an integral part of the Financial Statements)
FEDERATED GNMA TRUST
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 1995
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
-------------------------------------------------------------------------------
Investments in repurchase agreements $ 196,690,000
--------------------------------------------------------------
Investments in securities 1,536,584,569
-------------------------------------------------------------- --------------
Total investments in securities, at value (identified and
tax cost $1,772,956,549) $1,733,274,569
-------------------------------------------------------------------------------
Cash 3,098
-------------------------------------------------------------------------------
Receivable for investments sold 49,380,208
-------------------------------------------------------------------------------
Income receivable 10,140,192
-------------------------------------------------------------------------------
Receivable for shares sold 452,555
------------------------------------------------------------------------------- --------------
Total assets 1,793,250,622
-------------------------------------------------------------------------------
LIABILITIES:
-------------------------------------------------------------------------------
Payable for dollar roll transactions 174,189,487
--------------------------------------------------------------
Payable for investments purchased 46,961,589
--------------------------------------------------------------
Payable for shares redeemed 1,977,713
--------------------------------------------------------------
Income distribution payable 7,613,185
--------------------------------------------------------------
Accrued expenses 8,077
-------------------------------------------------------------- --------------
Total liabilities 230,750,051
------------------------------------------------------------------------------- --------------
NET ASSETS for 147,203,309 shares outstanding $1,562,500,571
------------------------------------------------------------------------------- --------------
NET ASSETS CONSISTS OF:
-------------------------------------------------------------------------------
Paid in capital $1,794,207,072
-------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (39,681,980)
-------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments (192,024,521)
------------------------------------------------------------------------------- --------------
Total Net Assets $1,562,500,571
------------------------------------------------------------------------------- --------------
NET ASSET VALUE, Offering Price and Redemption Proceeds Per Share:
Institutional Shares:
($1,442,073,954 / 135,857,801 shares outstanding) $10.61
------------------------------------------------------------------------------- --------------
Institutional Service Shares:
($120,426,617 / 11,345,508 shares outstanding) $10.61
------------------------------------------------------------------------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED GNMA TRUST
STATEMENT OF OPERATIONS
YEAR ENDED JANUARY 31, 1995
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
-------------------------------------------------------------------------------
Interest (net of dollar roll expense of $4,216,711) $ 141,079,522
-------------------------------------------------------------------------------
EXPENSES:
-------------------------------------------------------------------------------
Investment advisory fee $ 6,989,013
-----------------------------------------------------------------
Administrative personnel and services fee 1,317,794
-----------------------------------------------------------------
Custodian fees 381,143
-----------------------------------------------------------------
Transfer agent and dividend disbursing agent fees and expenses 65,214
-----------------------------------------------------------------
Trustees' fees 20,567
-----------------------------------------------------------------
Auditing fees 22,124
-----------------------------------------------------------------
Legal fees 24,238
-----------------------------------------------------------------
Portfolio accounting fees 66,542
-----------------------------------------------------------------
Distribution services fee--Institutional Service Shares 317,246
-----------------------------------------------------------------
Shareholder services fee--Institutional Shares 683,138
-----------------------------------------------------------------
Shareholder services fee--Institutional Service Shares 172,503
-----------------------------------------------------------------
Share registration costs 44,086
-----------------------------------------------------------------
Printing and postage 22,064
-----------------------------------------------------------------
Insurance premiums 29,889
-----------------------------------------------------------------
Taxes 108,159
-----------------------------------------------------------------
Miscellaneous 25,640
----------------------------------------------------------------- -----------
Total expenses 10,289,360
-----------------------------------------------------------------
Deduct-waiver of distribution services fee 172,503
----------------------------------------------------------------- -----------
Net expenses 10,116,857
------------------------------------------------------------------------------- -------------
Net investment income 130,962,665
------------------------------------------------------------------------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
-------------------------------------------------------------------------------
Net realized gain (loss) on investments (97,737,729)
-------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (77,177,049)
------------------------------------------------------------------------------- -------------
Net realized and unrealized gain (loss) on investments (174,914,778)
------------------------------------------------------------------------------- -------------
Change in net assets resulting from operations ($ 43,952,113)
------------------------------------------------------------------------------- -------------
</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,
---------------------------------
1995 1994
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
------------------------------------------------------------
OPERATIONS--
------------------------------------------------------------
Net investment income $ 130,962,665 $ 147,205,704
------------------------------------------------------------
Net realized gain (loss) on investments ($71,738,355 net
loss and $18,860,608 net gain, respectively, as computed
for federal income tax purposes) (97,737,729) 12,114,105
------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of
investments (77,177,049) (41,032,970)
------------------------------------------------------------ -------------- --------------
Change in assets resulting from operations (43,952,113) 118,286,839
------------------------------------------------------------ -------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS--
------------------------------------------------------------
Dividends to shareholders from net investment income:
------------------------------------------------------------
Institutional Shares (121,679,720) (139,286,614)
------------------------------------------------------------
Institutional Service Shares (9,282,945) (7,919,090)
------------------------------------------------------------ -------------- --------------
Change in net assets resulting from distributions
to shareholders (130,962,665) (147,205,704)
------------------------------------------------------------ -------------- --------------
SHARE TRANSACTIONS
------------------------------------------------------------
Proceeds from sale of Shares 398,304,925 1,020,100,336
------------------------------------------------------------
Net asset value of Shares issued to shareholders in payment
of dividends declared 33,750,837 34,919,870
------------------------------------------------------------
Cost of Shares redeemed (742,374,713) (798,702,252)
------------------------------------------------------------ -------------- --------------
Change in net assets resulting from share transactions (310,318,951) 256,317,954
------------------------------------------------------------ -------------- --------------
Change in net assets (485,233,729) 227,399,089
------------------------------------------------------------
NET ASSETS:
------------------------------------------------------------
Beginning of period 2,047,734,300 1,820,335,211
------------------------------------------------------------ -------------- --------------
End of period $1,562,500,571 $2,047,734,300
------------------------------------------------------------ -------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED GNMA TRUST
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1995
--------------------------------------------------------------------------------
(1) ORGANIZATION
Federated GNMA Trust ("the Trust") is registered under the Investment Company
Act of 1940, as amended (the "Act"), as a diversified, open-end management
investment company. The Trust provides two classes of shares; Institutional
Shares and Institutional Service Shares.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--Short-term securities with remaining maturities of sixty
days or less at the time of purchase may be valued at amortized cost, which
approximates fair market value. U.S. government securities are generally valued
at the mean between the over-the-counter bid and asked prices as furnished by an
independent pricing service.
REPURCHASE AGREEMENTS--It is the policy of the Trust to require the custodian
bank to take possession, to have legally segregated in the Federal Reserve Book
Entry System, or to have segregated within the custodian bank's vault, all
securities held as collateral under repurchase agreement 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 that the value of collateral 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 and/or standards
reviewed or established by the Board of Trustees (the "Trustees"). Risks may
arise from the potential inability of counterparties to honor the terms of the
repurchase agreements. Accordingly, the Trust could receive less than the
repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are
accrued daily. Bond premium and discount, if applicable, are amortized as
required by the Internal Revenue Code, as amended (the "Code"). Distributions to
shareholders are recorded on the ex-dividend date.
FEDERAL TAXES--It is the Trust's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary. At January 31, 1995, the Trust, for
federal tax purposes, had a capital loss carryforward of $155,539,638, 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 will thus reduce
the amount of the distributions to shareholders which would otherwise
FEDERATED GNMA TRUST
--------------------------------------------------------------------------------
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), 2001 ($5,182,436),
and 2003 ($71,738,355). Additionally, net capital losses of $36,484,883
attributable to security transactions incurred after October 31, 1994, are
treated as arising on February 1, 1995, the first day of the Trust's next
taxable year.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Trust may engage in
when-issued or delayed delivery transactions. The Trust records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the securities
purchased. Securities purchased on a when-issued or delayed delivery basis are
marked to market daily and begin earning interest on the settlement date.
DOLLAR ROLL TRANSACTIONS--The Trust enters into dollar roll transactions with
respect to mortgage securities, issued by GNMA in which the Trust loans 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. Dollar roll transactions are short-term financing
arrangements which will not exceed twelve months. The Trust will use the
proceeds generated from the transactions to invest in short-term investments,
which may enhance the Trust's current yield and total return.
OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. Transactions in Trust shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
--------------------------------------------------------------
1995 1994
----------------------------- -----------------------------
SHARES DOLLARS SHARES DOLLARS
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
INSTITUTIONAL SHARES
-----------------------------------
Shares sold 33,458,790 $ 365,277,979 75,001,659 $ 882,750,706
-----------------------------------
Shares issued to shareholders in
payment of dividends declared 2,556,101 27,566,855 2,539,103 29,822,854
-----------------------------------
Shares redeemed (64,291,288) (698,723,436) (63,483,695) (745,434,319)
----------------------------------- ----------- ------------- ----------- -------------
Net change resulting from
Institutional share transactions (28,276,397) ($305,878,602) 14,057,067 $ 167,139,241
----------------------------------- ----------- ------------- ----------- -------------
</TABLE>
FEDERATED GNMA TRUST
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
------------------------------------------------------------
1995 1994
---------------------------- ---------------------------
SHARES DOLLARS SHARES DOLLARS
----------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
INSTITUTIONAL SERVICE SHARES
-------------------------------------
Shares sold 3,007,210 $ 33,026,946 11,649,200 $137,349,630
-------------------------------------
Shares issued to shareholders in
payment of dividends declared 573,520 6,183,982 434,613 5,097,016
-------------------------------------
Shares redeemed (4,025,344) (43,651,277) (4,546,844) (53,267,933)
------------------------------------- ----------- ------------- ----------- ------------
Net change resulting from Institu-
tional Service share transactions (444,614) ($ 4,440,349) 7,536,969 $ 89,178,713
------------------------------------- ----------- ------------- ----------- ------------
Net change resulting from Trust
share transactions (28,721,011) ($310,318,951) 21,594,036 $256,317,954
------------------------------------- ----------- ------------- ----------- ------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Management, the Trust's investment adviser,
(the "Adviser"), receives for its services an annual investment advisory fee
equal to .40 of 1% of the Trust's average daily net assets.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS"), under the
Administrative Services Agreement, provides the Trust with administrative
personnel and services. Prior to March 1, 1994, these services were provided at
approximate cost. Effective March 1, 1994, the FAS fee is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received during the
period of the Administrative Services Agreement shall be at least $125,000 per
portfolio and $30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE--The Trust has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the
Trust will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Trust to finance activities intended to
result in the sale of the Trust's Institutional Service Shares. The Plan
provides that the Trust may incur distribution expenses up to .25 of 1% of the
average daily net assets of the Institutional Service Shares, annually, to
compensate FSC. The distributor may voluntarily choose to waive any portion of
its fee. The distributor can modify or terminate this voluntary waiver at any
time at its sole discretion.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Trust will pay FSS up to .25 of
1% of average net assets of the Trust for the period. This fee is to obtain
certain personal services for shareholders and to maintain the shareholder
accounts.
FEDERATED GNMA TRUST
--------------------------------------------------------------------------------
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated
Services Company ("FServ") serves as transfer and dividend disbursing agent for
the Trust. The fee is based on the size, type, and number of accounts and
transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES--FServ also maintains the Trust's accounting records
for which it receives a fee. The fee is based on the level of the Trust's
average net assets for the period plus, out-of-pocket expenses.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Trustees or Directors of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities and in kind
contributions, for the fiscal year ended January 31, 1995, were as follows:
<TABLE>
<S> <C>
-----------------------------------------------------------------------------
PURCHASES-- $2,351,740,117
----------------------------------------------------------------------------- --------------
SALES-- $2,448,916,033
----------------------------------------------------------------------------- --------------
</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, 1995,
the related statement of operations for the year then ended, the statement of
changes in net assets for the years ended January 31, 1995 and 1994, and the
financial highlights (see pages 2 and 15 of the prospectus) for each of the ten
years in the period ended January 31, 1995. 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, 1995 by correspondence with the custodian and brokers; where replies
were not received from brokers, we performed other auditing procedures. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Federated GNMA Trust
as of January 31, 1995, the results of its operations, the changes in its net
assets and its financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
March 16, 1995
ADDRESSES
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Federated GNMA Trust
Institutional Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
------------------------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
------------------------------------------------------------------------------------------------
Custodian
State Street Bank and P.O. Box 8602
Trust Company Boston, Massachusetts 02266-8602
------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
------------------------------------------------------------------------------------------------
Independent Auditors
Deloitte & Touche LLP 2500 One PPG Place
Pittsburgh, Pennsylvania 15222
------------------------------------------------------------------------------------------------
</TABLE>
FEDERATED GNMA TRUST
INSTITUTIONAL SHARES
PROSPECTUS
An Open-End, Diversified
Management Investment Company
March 31, 1995
FEDERATED SECURITIES CORP.
(LOGO)
---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
314184102
8022901 A-IS (3/95)
FEDERATED GNMA TRUST
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
The Institutional Service Shares of Federated GNMA Trust (the "Trust") offered
by this prospectus represent interests in a diversified portfolio of securities
investing primarily in instruments issued or guaranteed by the Government
National Mortgage Association, to achieve current income. The Trust is an
open-end, diversified management investment company (a mutual fund).
Institutional Service Shares are sold at net asset value.
THE INSTITUTIONAL SERVICE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR
OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD,
OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE INSTITUTIONAL SERVICE SHARES
INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before you
invest in Institutional Service Shares of the Trust. Keep this prospectus for
future reference.
The Trust has also filed a Combined Statement of Additional Information for
Institutional Service Shares and Institutional Shares dated March 31, 1995 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 Trust, contact the Trust at the
address listed in the back of this prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated March 31, 1995
TABLE OF CONTENTS
--------------------------------------------------------------------------------
SUMMARY OF TRUST EXPENSES 1
------------------------------------------------------
FINANCIAL HIGHLIGHTS--INSTITUTIONAL
SERVICE SHARES 2
------------------------------------------------------
GENERAL INFORMATION 3
------------------------------------------------------
INVESTMENT INFORMATION 3
------------------------------------------------------
Investment Objective 3
Investment Policies 3
Investment Limitations 6
TRUST INFORMATION 6
------------------------------------------------------
Management of the Trust 6
DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES 8
------------------------------------------------------
ADMINISTRATION OF THE TRUST 9
------------------------------------------------------
NET ASSET VALUE 9
------------------------------------------------------
INVESTING IN INSTITUTIONAL SERVICE SHARES 10
------------------------------------------------------
Share Purchases 10
Minimum Investment Required 10
What Shares Cost 10
Exchanging Securities for Trust Shares 11
Subaccounting Services 11
Certificates and Confirmations 11
Dividends 11
Capital Gains 11
REDEEMING INSTITUTIONAL SERVICE SHARES 12
------------------------------------------------------
Telephone Redemption 12
Written Requests 12
Accounts with Low Balances 13
SHAREHOLDER INFORMATION 13
------------------------------------------------------
Voting Rights 13
Massachusetts Partnership Law 13
TAX INFORMATION 14
------------------------------------------------------
Federal Income Tax 14
Pennsylvania Corporate and Personal
Property Taxes 14
PERFORMANCE INFORMATION 14
------------------------------------------------------
OTHER CLASSES OF SHARES 15
------------------------------------------------------
Financial Highlights--
Institutional Shares 16
FINANCIAL STATEMENTS 17
------------------------------------------------------
INDEPENDENT AUDITORS' REPORT 26
------------------------------------------------------
ADDRESSES 27
------------------------------------------------------
SUMMARY OF TRUST 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 (after waiver)(1)................................................................ 0.03%
Total Other Expenses....................................................................... 0.39%
Shareholder Services Fee (after waiver)(2).................................... 0.23%
Total Institutional Service Shares Operating Expenses(3)............................ 0.82%
</TABLE>
(1) The maximum 12b-1 fee is 0.25%.
(2) The maximum shareholder service 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, 1996.
The total Institutional Service Shares operating expenses were 0.77% for the
fiscal year ended January 31, 1995 and would have been 0.91% absent the
voluntary waiver of a portion of the 12b-1 fee.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Institutional Service Shares of
the Trust will bear, either directly or indirectly. For more complete
descriptions of the various costs and expenses, see "Trust Information" and
"Investing in Institutional Service Shares." Wire-transferred redemptions of
less than $5,000 may be subject to additional fees.
Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted under the rules of the National
Association of Securities Dealers, Inc.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return and (2) redemption at the end
of each time period........................................ $8 $26 $46 $101
</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 relates only to
Institutional Service Shares of the Trust. The Trust 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 26.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-----------------------------
1995 1994 1993(A)
------ ------ -------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.64 $11.80 $11.71
---------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
---------------------------------------------------------------
Net investment income 0.79 0.82 0.61
---------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (1.03) (0.16) 0.09
-----
--------------------------------------------------------------- ------ ------
Total from investment operations (0.24) 0.66 0.70
-----
--------------------------------------------------------------- ------ ------
LESS DISTRIBUTIONS
---------------------------------------------------------------
Distributions from net investment income (0.79) (0.82) (0.61 )
-----
--------------------------------------------------------------- ------ ------
NET ASSET VALUE, END OF PERIOD $10.61 $11.64 $11.80
-----
--------------------------------------------------------------- ------ ------
TOTAL RETURN(B) (1.92%) 5.76% 5.62 %
---------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
---------------------------------------------------------------
Expenses 0.77% 0.76% 0.76 %(c)
---------------------------------------------------------------
Net investment income 7.32% 6.97% 7.57 %(c)
---------------------------------------------------------------
Expense waiver/reimbursement(d) 0.14% -- --
---------------------------------------------------------------
SUPPLEMENTAL DATA
---------------------------------------------------------------
Net assets, end of period (000 omitted) $120,427 $137,235 $50,166
---------------------------------------------------------------
Portfolio turnover rate 136% 117% 33 %
---------------------------------------------------------------
</TABLE>
(a) Reflects operations for the period from June 18, 1992 (date of initial
public investment) to January 31, 1993.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) Computed on an annualized basis.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Further information about the Trust's performance is contained in the Trust's
annual report for the fiscal year ended January 31, 1995, which can be obtained
free of charge.
GENERAL INFORMATION
--------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated December 10, 1981. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. As of the date of this prospectus, the Board of
Trustees ("Trustees") has established two classes of shares of the Trust, known
as Institutional Service Shares and Institutional Shares. This prospectus
relates to Institutional Service Shares of the Trust.
Institutional Service Shares ("Shares") are designed primarily for retail and
private banking customers of financial institutions as a convenient means of
accumulating an interest in a professionally managed, diversified portfolio of
mortgage-backed securities. A minimum initial investment of $25,000 over a
90-day period is required.
Shares are currently sold and redeemed at net asset value without a sales load
imposed by the Trust.
INVESTMENT INFORMATION
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Trust is current income. The investment
objective may not be changed without the approval of shareholders. The Trust
pursues this investment objective by investing primarily in instruments issued
or guaranteed by the Government National Mortgage Association ("GNMA"). While
there is no assurance that the Trust will achieve its investment objective, it
endeavors to do so by following the investment policies described in this
prospectus.
INVESTMENT POLICIES
As a matter of investment policy which may be changed without shareholder
approval, the Trust will limit its investments to those that are permitted for
purchase by federal savings associations pursuant to applicable rules,
regulations, or interpretations of the Office of Thrift Supervision. Should
additional permitted investments be allowed as a result of future changes in
applicable regulations or federal laws, the Trust reserves the right, without
shareholder approval, to make such investments consistent with the Trust's
investment objective, policies, and limitations. Further, should existing
statutes or regulations change so as to cause any securities held by the Trust
to become ineligible for purchase by federal savings associations, the Trust
will dispose of those securities at times advantageous to the Trust.
As operated within the above limitation, the Trust may also serve as an
appropriate vehicle for a national bank as an investment for its own account.
Unless otherwise designated, the investment policies described below may not be
changed without shareholder approval.
ACCEPTABLE INVESTMENTS. The Trust will invest primarily in mortgage-backed
securities. Under normal circumstances, at least 65% of the Trust's portfolio
will be invested in instruments issued or fully guaranteed as to principal and
interest by GNMA. In addition, to the extent that the Trust will invest in
other mortgage-backed securities, as described below, these will be
collateralized by GNMA obligations.
The Trust's permissible investments are as follows:
- U.S. Treasury bills, notes, and bonds;
- collateralized mortgage obligations;
- real estate mortgage investment conduits; and
- notes, bonds and discount notes of U.S. government agencies or
instrumentalities, such as the: Farm Credit System, including the
National Bank for Cooperatives, Farm Credit Banks, and Banks for
Cooperatives; Farmers Home Administration; Federal Home Loan Banks;
Federal Home Loan Mortgage Corporation; Federal National Mortgage
Association; Government National Mortgage Association; and Student Loan
Marketing Association.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). CMOs are bonds issued by
single-purpose, stand-alone finance subsidiaries or trusts of financial
institutions, government agencies, investment bankers, or companies related to
the construction industry. CMOs purchased by the Trust will be collateralized by
pools of mortgages in which each mortgage is guaranteed as to payment of
principal and interest by GNMA.
All CMOs purchased by the Trust are issued by an agency of the United States and
are rated in the highest rating category by a nationally recognized statistical
rating organization.
The following example illustrates how mortgage cash flows are prioritized in the
case of CMOs--most of the CMOs in which the Trust invests use the same basic
structure:
(1) Several classes of securities are issued against a pool of mortgage
collateral. The most common structure contains four classes of securities:
The first three (A, B, and C bonds) pay interest at their stated rates
beginning with the issue date; the final class (Z bond) typically receives
any excess income from the underlying investments after payments are made
to the other classes and receives no principal or interest payments until
the shorter maturity classes have been retired, but then receives all
remaining principal and interest payments.
(2) The cash flows from the underlying mortgages are applied first to pay
interest and then to retire securities.
(3) The classes of securities are retired sequentially. All principal payments
are directed first to the shortest-maturity class (or A bond). When those
securities are completely retired, all principal payments are then directed
to the next-shortest-maturity security (or B bond). This process continues
until all of the classes have been paid off.
Because the cash flow is distributed sequentially instead of pro-rata, as with
pass-through securities, the cash flows and average lives of CMOs are more
predictable, and there is a period of time during which the investors in the
longer-maturity classes receive no principal paydowns. One or more of the
classes may be adjustable rate. The interest portion of these payments is
distributed by the Trust as income, and the capital portion is reinvested.
REAL ESTATE MORTGAGE INVESTMENT CONDUITS ("REMICS"). REMICs are offerings of
multiple class real estate mortgage-backed securities which qualify and elect
treatment as such under provisions of the Internal Revenue Code, as amended.
Issuers of REMICs may take several forms, such as trusts, partnerships,
corporations, associations or a segregated pool of mortgages. Once REMIC status
is elected and obtained, the entity is not subject to federal income taxation.
Instead, income is passed through the entity and is taxed to the person or
persons who hold interests in the REMIC. A REMIC interest must consist of one or
more classes of "regular interests," some of which may offer adjustable rates,
and a single class of "residual interests." To qualify as a REMIC, substantially
all of the assets of the entity must be in assets directly or indirectly secured
principally by real property.
Because the mortgages underlying mortgage-backed securities often may be prepaid
without penalty or premium, mortgage-backed securities are generally subject to
higher prepayment risks than most other types of debt instruments. Prepayment
risks on mortgage securities tend to increase during periods of declining
mortgage interest rates, because many borrowers refinance their mortgages to
take advantage of the more favorable rates. Depending upon market conditions,
the yield that the Trust receives from the reinvestment of such prepayments, or
any scheduled principal payments, may be lower than the yield on the original
mortgage security. As a consequence, mortgage securities may be a less effective
means of "locking in" interest rates than other types of debt securities having
the same stated maturity and may also have less potential for capital
appreciation. For certain types of asset pools, such as collateralized mortgage
obligations, prepayments may be allocated to one tranche of securities ahead of
other tranches, in order to reduce the risk of prepayment for the other
tranches.
Prepayments may result in a capital loss to the Trust to the extent that the
prepaid mortgage securities were purchased at a market premium over their stated
principal amount. Conversely, the prepayment of mortgage securities purchased at
a market discount from their stated principal amount will accelerate the
recognition of interest income by the Trust, which would be taxed as ordinary
income when distributed to the shareholders.
The prices of fixed income securities fluctuate inversely to the direction of
interest rates.
TEMPORARY INVESTMENTS. For defensive purposes only, the Trust may invest
temporarily in cash and money market instruments during times of unusual market
conditions and to maintain liquidity. Money market instruments may include:
- obligations of the U.S. government or its agencies or instrumentalities;
and
- repurchase agreements.
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which
banks, broker/ dealers, and other recognized financial institutions sell
U.S. government securities or other securities to the Trust and agree at
the time of sale to repurchase them at a mutually agreed upon time and
price. To the extent that the original seller does not repurchase the
securities from the Trust, the Trust could receive less than the repurchase
price on any sale of such securities.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Trust may lend portfolio securities on a short-term or long-term basis, or both
up to one-third of the value of its total assets to broker/dealers, banks, or
other institutional borrowers of securities. The Trust will only enter into loan
arrangements with broker/dealers, banks, or other institutions which the
investment adviser
has determined are creditworthy under guidelines established by the Trustees.
The Trust will receive collateral in the form of cash or U.S. government
securities equal to at least 100% of the value of the securities loaned.
There is the risk that when lending portfolio securities, the securities may not
be available to the Trust on a timely basis and the Trust may, therefore, lose
the opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Trust may purchase
securities on a when-issued or delayed delivery basis. These transactions are
arrangements in which the Trust purchases securities with payment and delivery
scheduled for a future time. The seller's failure to complete these transactions
may cause the Trust to miss a price or yield considered to be advantageous.
Settlement dates may be a month or more after entering into these transactions,
and the market values of the securities purchased may vary from the purchase
prices. Accordingly, the Trust may pay more or less than the market value of the
securities on the settlement date.
The Trust may dispose of a commitment prior to settlement if the adviser deems
it appropriate to do so. In addition, the Trust may enter into transactions to
sell its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Trust may realize short-term profits or losses upon the sale of such
commitments.
INVESTMENT LIMITATIONS
The Trust will not borrow money directly or through reverse repurchase
agreements (arrangements in which the Trust sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set date) or
pledge securities except, under certain circumstances, the Trust may borrow
money and engage in reverse repurchase agreements up to one-third of the value
of its total assets and pledge up to 10% of the value of those assets to secure
such borrowings.
As a matter of investment practice, which can be changed without shareholder
approval, the Trust will not invest more than 15% of its net assets in
securities which are illiquid, including repurchase agreements providing for
settlement in more than seven days after notice, and certain restricted
securities not determined by the Trustees to be liquid.
TRUST INFORMATION
--------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees
are responsible for managing the Trust's business affairs and for exercising all
the Trust's powers except those reserved for the shareholders. The Executive
Committee of the Board of Trustees handles the Board's responsibilities between
meetings of the Board.
INVESTMENT ADVISER. Investment decisions for the Trust are made by Federated
Management, the Trust's investment adviser, subject to direction by the
Trustees. The adviser continually conducts
investment research and supervision for the Trust and is responsible for the
purchase or sale of portfolio instruments, for which it receives an annual fee
from the Trust.
ADVISORY FEES. The Trust's adviser receives an annual investment advisory
fee equal to .40 of 1% of the Trust's average daily net assets. The adviser
has also undertaken to reimburse the Trust for operating expenses in excess
of limitations established by certain states. This does not include
reimbursement to the Trust of any expenses incurred by shareholders who use
the transfer agent's subaccounting facilities.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. 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.
James D. Roberge has been the Trust's portfolio manager since February,
1995. Mr. Roberge joined Federated Investors in 1990 and has been a Vice
President of the Trust's investment adviser since October, 1994. Prior to
this, Mr. Roberge served as an Assistant Vice President of the Trust's
investment adviser. From 1990 until 1992, Mr. Roberge acted as an
investment analyst. Mr. Roberge is a Chartered Financial Analyst and
received his M.B.A. in Finance from Wharton Business School in 1990.
Kathleen M. Foody-Malus has been the Trust's portfolio manager since July,
1993. Ms. Foody-Malus joined Federated Investors in 1983 and has been a
Vice President of the Trust's investment adviser since 1993. Ms.
Foody-Malus served as an Assistant Vice President of the investment adviser
from 1990 until 1992, and from 1986 until 1989 she acted as an investment
analyst. Ms. Foody-Malus received her M.B.A. in Accounting/Finance from the
University of Pittsburgh.
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 Trust will pay to the distributor an amount, computed at an annual rate of
0.25 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 Trust makes no
payments to the distributor except as described above. Therefore, the Trust does
not pay for unreimbursed expenses of the distributor, including amounts expended
by the distributor in excess of amounts received by it from the Trust, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amount or may earn a profit from future payments made by the Trust
under the Distribution Plan.
In addition, 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 Service 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.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the administrative capacities described
above or should Congress relax current restrictions on depository institutions,
the Trustees will consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
ADMINISTRATION OF THE TRUST
--------------------------------------------------------------------------------
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 Trust.
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>
MAXIMUM AVERAGE AGGREGATE DAILY NET
ADMINISTRATIVE FEE ASSETS OF THE FEDERATED FUNDS
-------------------------------- --------------------------------
<S> <C>
0.15 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.10 of 1% on the next $250 million
on assets in excess of $750
0.075 of 1% million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Administrative Services may choose voluntarily to waive a portion of
its fee.
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 Trust, 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 Trust or by the assessment of a sales load on Shares.
CUSTODIAN. State Street Bank and Trust Company ("State Street Bank"), Boston,
Massachusetts, is custodian for the securities and cash of the Trust.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company,
Pittsburgh, Pennsylvania, is transfer agent for the Shares of the Trust and
dividend disbursing agent for the Trust.
INDEPENDENT AUDITORS. The independent auditors for the Trust are Deloitte &
Touche LLP, Pittsburgh, Pennsylvania.
NET ASSET VALUE
--------------------------------------------------------------------------------
The Trust's net asset value per Share fluctuates. The net asset value for Shares
is determined by adding the interest of the Shares in the market value of all
securities and other assets of the Trust, subtracting the interest of the Shares
in the liabilities of the Trust and those attributable to Shares, and dividing
the remainder by the total number of Shares outstanding. The net asset value for
Institutional Shares may exceed that of Shares due to the variance in daily net
income realized by each class. Such variance will reflect only accrued net
income to which the shareholders of a particular class are entitled.
INVESTING IN INSTITUTIONAL SERVICE SHARES
--------------------------------------------------------------------------------
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange and the Federal
Reserve wire system are open. Shares may be purchased either by wire or mail.
To purchase Shares, open an account by calling Federated Securities Corp.
Information needed to establish the account will be taken over the telephone.
The Trust reserves the right to reject any purchase request.
BY WIRE. To purchase Shares by Federal Reserve wire, call the Trust before 4:00
p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern
time) on the next business day following the order. Federal funds should be
wired as follows: Federated Services Company, c/o State Street Bank and Trust
Company, Boston, Massachusetts; Attention: EDGEWIRE; For Credit to: Federated
GNMA Trust--Institutional Service Shares; Trust Number (this number can be found
on the account statement or by contacting the Trust); Group Number or Order
Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot be
purchased by wire on 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 load imposed by the Trust. Investors who purchase
Shares through a non-affiliated bank or broker may be charged an additional
service fee by that bank or broker.
The net asset value is determined at 4:00 p.m. (Eastern time), Monday through
Friday, except on: (i) days on which there are not sufficient changes in the
value of the Trust's portfolio securities that its net asset value might be
materially affected; (ii) days during which no Shares are tendered for
redemption and no orders to purchase Shares are received; and (iii) the
following holidays: New Year's
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
EXCHANGING SECURITIES FOR TRUST SHARES
Investors may exchange certain U.S. government securities or a combination of
securities and cash for Shares. The securities and any cash must have a market
value of at least $25,000. The Trust reserves the right to determine the
acceptability of securities to be exchanged. Securities accepted by the Trust
are valued in the same manner as the Trust values its assets. Investors wishing
to exchange securities should first contact Federated Securities Corp.
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 Trust, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
by contacting the Trust.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during the
month.
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are declared just prior
to determining net asset value. If an order for Shares is placed on the
preceding business day, Shares purchased by wire begin earning dividends on the
business day wire payment is received by the transfer agent. If the order for
Shares and payment by wire are received on the same day, Shares begin earning
dividends on the next business day. Shares purchased by check begin earning
dividends on the business day after the check is converted, upon instruction of
the transfer agent, into federal funds. Dividends are automatically reinvested
on payment dates in additional Shares unless cash payments are requested by
contacting the Trust.
CAPITAL GAINS
Capital gains realized by the Trust, if any, are distributed at least once every
12 months.
REDEEMING INSTITUTIONAL SERVICE SHARES
--------------------------------------------------------------------------------
The Trust redeems Shares at their net asset value next determined after the
Trust receives the redemption request. Redemptions will be made on days on which
the Trust computes its net asset value. Redemption requests must be received in
proper form and can be made by telephone request or by written request.
TELEPHONE REDEMPTION
Shareholders may redeem their Shares by telephoning the Trust before 4:00 p.m.
(Eastern time). The proceeds will normally be wire transferred the following
business day, but in no event more than seven days, to the shareholder's account
at a domestic commercial bank that is a member of the Federal Reserve System. If
at any time, the Trust shall determine it necessary to terminate or modify this
method of redemption, shareholders would be promptly notified.
An authorization form permitting the Trust to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from Federated Securities Corp.
Telephone redemption instructions may be recorded. If reasonable procedures are
not followed by the Trust, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as "Written Requests," should be considered.
WRITTEN REQUESTS
Shares may also be redeemed by sending a written request to the Trust. Call the
Trust for specific instructions before redeeming by letter. The shareholder will
be asked to provide in the request his name, the Trust 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 to Federated Services Company, 500 Victory Road-2nd Floor,
Quincy, Massachusetts 02171 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 Trust, 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 Trust does not accept signatures guaranteed by a notary public.
The Trust and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Trust may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Trust and its transfer agent reserve the right
to amend these standards at any time without notice.
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 Trust may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $25,000. This
requirement does not apply, however, if the balance falls below $25,000 because
of changes in the Trust's net asset value.
Before Shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional Shares to meet the minimum
requirement.
SHAREHOLDER INFORMATION
--------------------------------------------------------------------------------
VOTING RIGHTS
Each Share of the Trust gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
each portfolio in the Trust have equal voting rights except that, in matters
affecting only a particular fund or class, only shares of that fund or class are
entitled to vote. As of March 6, 1995, Ambank & Co., Baton Rouge, Louisiana,
owned 3,064,163.0800 shares (26.97%) of the voting securities of the Trust, and,
therefore, may, for certain purposes, be deemed to control the Trust and be able
to affect the outcome of certain matters presented for a vote of shareholders.
As a Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust's operation and for the election of Trustees under certain
circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders for this purpose shall be called by the
Trustees upon the written request of shareholders owning at least 10% of the
Trust's outstanding shares entitled to vote.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for such acts or
obligations of the Trust. These documents require notice of this disclaimer to
be given in each agreement, obligation, or instrument that the Trust or its
Trustees enter into or sign on behalf of the Trust.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required to use its property to protect or compensate
the shareholder. On request, the Trust will defend
any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them from its assets.
TAX INFORMATION
--------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Trust will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code, as amended 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 Trust is not subject to Pennsylvania corporate or personal property
taxes; and
- Trust shares may be subject to personal property taxes imposed by
counties, municipalities, and school districts in Pennsylvania to the
extent that the portfolio securities in the Trust would be subject to
such taxes if owned directly by residents of those jurisdictions.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
PERFORMANCE INFORMATION
--------------------------------------------------------------------------------
From time to time, the Trust advertises its total return and yield for Shares.
Total return represents the change, over a specified period of time, in the
value of an investment in the Shares of the Trust after reinvesting all income
and capital gains distributions. It is calculated by dividing that change by the
initial investment and is expressed as a percentage.
The yield of Shares of the Trust is calculated by dividing the net investment
income per share (as defined by the Securities and Exchange Commission) earned
by Shares over a thirty-day period by the offering price per share of Shares on
the last day of the period. This number is then annualized using semi-annual
compounding. The yield does not necessarily reflect income actually earned by
Shares and, therefore, may not correlate to the dividends or other distributions
paid to shareholders.
Shares are sold without any sales load or other similar non-recurring charges.
Total return and yield will be calculated separately for Institutional Service
Shares and Institutional Shares. 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 Trust 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, and other accounts where a financial
institution maintains master accounts with an aggregate investment of at least
$400 million in certain mutual funds which are advised or distributed by
affiliates of Federated Investors. Shares are also made available to financial
intermediaries, public, and private organizations. Institutional Shares are sold
at net asset value. Investments in Institutional Shares are subject to a minimum
initial investment of $25,000 over a 90-day period.
Institutional Shares are distributed without a 12b-1 Plan.
Financial institutions and brokers providing sales and administrative services
may receive different compensation depending upon which class of shares of the
Trust is sold.
The amount of dividends payable to Institutional Shares will exceed that of
Institutional Service Shares by the difference between class expenses and
distribution and shareholder service expenses borne by shares of each respective
class.
The stated advisory fee is the same for both classes of shares.
FEDERATED GNMA TRUST
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
--------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Independent Auditors' Report on page 26.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
--------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
------ ------ ------ ------ ------ ------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
--------
NET
ASSET
VALUE,
BEGINNING
OF PERIOD $11.64 $11.80 $11.64 $11.29 $10.97 $10.70 $11.08 $11.46 $11.35 $10.77
--------
INCOME
FROM
INVESTMENT
OPERATIONS
--------
Net
investment
income 0.82 0.85 0.93 0.98 1.00 1.00 1.01 1.04 1.11 1.22
--------
Net
realized
and
unrealized
gain
(loss)
on
investments (1.03) (0.16) 0.16 0.35 0.32 0.27 (0.38) (0.38) 0.14 0.58
-------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total
from
investment
operations (0.21) 0.69 1.09 1.33 1.32 1.27 0.63 0.66 1.25 1.80
-------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
LESS
DISTRIBUTIONS
--------
Distributions
from net
investment
income (0.82) (0.85) (0.93) (0.98) (1.00) (1.00) (1.01) (1.04) (1.11) (1.22)
--------
Distributions
from net
realized
gain on
investment
transactions -- -- -- -- -- -- -- -- (0.03) --
-------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total
distributions (0.82) (0.85) (0.93) (0.98) (1.00) (1.00) (1.01) (1.04) (1.14) (1.22)
-------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
NET
ASSET
VALUE,
END OF
PERIOD $10.61 $11.64 $11.80 $11.64 $11.29 $10.97 $10.70 $11.08 $11.46 $11.35
-------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
TOTAL
RETURN(A) (1.71%) 6.02% 9.78% 12.25% 12.65% 12.33% 5.99% 6.29% 11.53% 17.75%
--------
RATIOS
TO
AVERAGE
NET
ASSETS
--------
Expenses 0.56% 0.51% 0.51% 0.51% 0.52% 0.52% 0.53% 0.52% 0.51% 0.61%
--------
Net
investment
income 7.51% 7.22% 7.98% 8.54% 9.08% 9.19% 9.33% 9.51% 9.66% 11.01%
--------
SUPPLEMENTAL
DATA
--------
Net
assets,
end of
period
(000
omitted) $1,442,074 $1,910,500 $1,770,169 $1,333,930 $1,268,706 $1,312,780 $1,710,890 $2,111,559 $2,515,127 $569,404
--------
Portfolio
turnover
rate 136% 117% 33% 57% 48% 27% 40% 45% 100% 141%
--------
</TABLE>
(a) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(See Notes which are an integral part of the Financial Statements)
Further information about the Trust's performance is contained in the Trust's
annual report for the fiscal year ended January 31, 1995, which can be obtained
free of charge.
FEDERATED GNMA TRUST
PORTFOLIO OF INVESTMENTS
JANUARY 31, 1995
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------ -------------------------------------------------------------- --------------
<C> <C> <S> <C>
LONG-TERM GOVERNMENT OBLIGATIONS--98.3%
---------------------------------------------------------------------------------
* GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--98.3%
--------------------------------------------------------------
$256,254,850 7.00%, 11/15/2023 $ 234,229,746
--------------------------------------------------------------
216,653,976 7.50%, 2/15/2023 204,532,186
--------------------------------------------------------------
285,045,143 8.00%, 3/15/2017-8/15/2024 277,075,873+
--------------------------------------------------------------
150,688,678 8.50%, 1/15/2022 150,780,598
--------------------------------------------------------------
238,645,839 9.00%, 8/15/2016-12/15/2022 243,765,236+
--------------------------------------------------------------
198,158,531 9.50%, 7/15/2009-8/15/2019 206,800,472+
--------------------------------------------------------------
104,802,840 10.00%, 3/15/2016-12/20/2020 111,376,044+
--------------------------------------------------------------
12,309,500 10.50%, 6/15/2018-7/15/2019 13,247,978
--------------------------------------------------------------
22,465,853 11.00%, 9/15/2010 24,529,566
--------------------------------------------------------------
17,403,249 11.50%, 8/15/2015 19,154,189
--------------------------------------------------------------
28,655,850 12.00%, 7/15/2015 31,924,049
--------------------------------------------------------------
13,034,483 12.50%, 11/15/2010 14,655,452
--------------------------------------------------------------
1,813,191 13.00%, 2/15/2011 2,056,249
--------------------------------------------------------------
2,155,222 13.50%, 8/15/2014 2,456,931
-------------------------------------------------------------- --------------
TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(IDENTIFIED COST $1,576,266,549) 1,536,584,569
-------------------------------------------------------------- --------------
</TABLE>
FEDERATED GNMA TRUST
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------ -------------------------------------------------------------- --------------
<C> <C> <S> <C>
(A) REPURCHASE AGREEMENTS--12.6%
---------------------------------------------------------------------------------
$ 25,000,000 Chase Manhattan Bank, N. A., 5.80%, dated 1/31/1995, due
2/1/1995 $ 25,000,000
--------------------------------------------------------------
100,300,000 ** First Boston Corp., 5.78%, dated 1/19/1995, due 2/16/1995 100,300,000
--------------------------------------------------------------
50,000,000 ** First Boston Corp., 5.78%, dated 1/24/1995, due 2/24/1995 50,000,000
--------------------------------------------------------------
20,000,000 ** First Boston Corp., 5.875%, dated 1/24/1995, due 2/22/1995 20,000,000
--------------------------------------------------------------
1,390,000 J.P. Morgan Securities, Inc., 5.87%, dated 1/31/1995, due
2/1/1995 1,390,000
-------------------------------------------------------------- --------------
TOTAL REPURCHASE AGREEMENTS (AT AMORTIZED COST) 196,690,000
-------------------------------------------------------------- --------------
TOTAL INVESTMENTS (IDENTIFIED COST $1,772,956,549) $1,733,274,569++
-------------------------------------------------------------- --------------
</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.
** 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.
(a) Repurchase agreements are fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investments in the repurchase agreements are through participation in a
joint account with other Federated Funds.
+ Includes securities with a market value of $175,597,383 subject to Dollar
Roll transactions.
++ The cost of investments for federal tax purposes amounts to $1,772,956,549.
The net unrealized depreciation on a federal tax cost basis amounts to
$39,681,980, which is comprised of $13,149,611 appreciation and $52,831,591
depreciation at January 31, 1995.
Note: The categories of investments are shown as a percentage of net assets
($1,562,500,571) at January 31, 1995.
(See Notes which are an integral part of the Financial Statements)
FEDERATED GNMA TRUST
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 1995
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
-------------------------------------------------------------------------------
Investments in repurchase agreements $ 196,690,000
--------------------------------------------------------------
Investments in securities 1,536,584,569
-------------------------------------------------------------- --------------
Total investments in securities, at value
(identified and tax cost $1,772,956,549) $1,733,274,569
-------------------------------------------------------------------------------
Cash 3,098
-------------------------------------------------------------------------------
Receivable for investments sold 49,380,208
-------------------------------------------------------------------------------
Income receivable 10,140,192
-------------------------------------------------------------------------------
Receivable for shares sold 452,555
------------------------------------------------------------------------------- --------------
Total assets 1,793,250,622
-------------------------------------------------------------------------------
LIABILITIES:
-------------------------------------------------------------------------------
Payable for dollar roll transactions 174,189,487
--------------------------------------------------------------
Payable for investments purchased 46,961,589
--------------------------------------------------------------
Payable for shares redeemed 1,977,713
--------------------------------------------------------------
Income distribution payable 7,613,185
--------------------------------------------------------------
Accrued expenses 8,077
-------------------------------------------------------------- --------------
Total liabilities 230,750,051
------------------------------------------------------------------------------- --------------
NET ASSETS for 147,203,309 shares outstanding $1,562,500,571
------------------------------------------------------------------------------- --------------
NET ASSETS CONSISTS OF:
-------------------------------------------------------------------------------
Paid in capital $1,794,207,072
-------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (39,681,980)
-------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments (192,024,521)
------------------------------------------------------------------------------- --------------
Total Net Assets $1,562,500,571
------------------------------------------------------------------------------- --------------
NET ASSET VALUE, Offering Price and Redemption Proceeds Per Share:
Institutional Shares:
($1,442,073,954 / 135,857,801 shares outstanding) $10.61
------------------------------------------------------------------------------- --------------
Institutional Service Shares:
($120,426,617 / 11,345,508 shares outstanding) $10.61
------------------------------------------------------------------------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED GNMA TRUST
STATEMENT OF OPERATIONS
YEAR ENDED JANUARY 31, 1995
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
-------------------------------------------------------------------------------
Interest (net of dollar roll expense of $4,216,711) $ 141,079,522
-------------------------------------------------------------------------------
EXPENSES:
-------------------------------------------------------------------------------
Investment advisory fee $ 6,989,013
-----------------------------------------------------------------
Administrative personnel and services fee 1,317,794
-----------------------------------------------------------------
Custodian fees 381,143
-----------------------------------------------------------------
Transfer agent and dividend disbursing agent fees and expenses 65,214
-----------------------------------------------------------------
Trustees' fees 20,567
-----------------------------------------------------------------
Auditing fees 22,124
-----------------------------------------------------------------
Legal fees 24,238
-----------------------------------------------------------------
Portfolio accounting fees 66,542
-----------------------------------------------------------------
Distribution services fee--Institutional Service Shares 317,246
-----------------------------------------------------------------
Shareholder services fee--Institutional Shares 683,138
-----------------------------------------------------------------
Shareholder services fee--Institutional Service Shares 172,503
-----------------------------------------------------------------
Share registration costs 44,086
-----------------------------------------------------------------
Printing and postage 22,064
-----------------------------------------------------------------
Insurance premiums 29,889
-----------------------------------------------------------------
Taxes 108,159
-----------------------------------------------------------------
Miscellaneous 25,640
----------------------------------------------------------------- -----------
Total expenses 10,289,360
-----------------------------------------------------------------
Deduct-waiver of distribution services fee 172,503
----------------------------------------------------------------- -----------
Net expenses 10,116,857
------------------------------------------------------------------------------- -------------
Net investment income 130,962,665
------------------------------------------------------------------------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
-------------------------------------------------------------------------------
Net realized gain (loss) on investments (97,737,729)
-------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (77,177,049)
------------------------------------------------------------------------------- -------------
Net realized and unrealized gain (loss) on investments (174,914,778)
------------------------------------------------------------------------------- -------------
Change in net assets resulting from operations ($ 43,952,113)
------------------------------------------------------------------------------- -------------
</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,
---------------------------------
1995 1994
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
------------------------------------------------------------
OPERATIONS--
------------------------------------------------------------
Net investment income $ 130,962,665 $ 147,205,704
------------------------------------------------------------
Net realized gain (loss) on investments ($71,738,355 net
loss and $18,860,608 net gain, respectively, as computed
for federal income tax purposes) (97,737,729) 12,114,105
------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of
investments (77,177,049) (41,032,970)
------------------------------------------------------------ -------------- --------------
Change in assets resulting from operations (43,952,113) 118,286,839
------------------------------------------------------------ -------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS--
------------------------------------------------------------
Dividends to shareholders from net investment income:
------------------------------------------------------------
Institutional Shares (121,679,720) (139,286,614)
------------------------------------------------------------
Institutional Service Shares (9,282,945) (7,919,090)
------------------------------------------------------------ -------------- --------------
Change in net assets resulting from distributions
to shareholders (130,962,665) (147,205,704)
------------------------------------------------------------ -------------- --------------
SHARE TRANSACTIONS
------------------------------------------------------------
Proceeds from sale of Shares 398,304,925 1,020,100,336
------------------------------------------------------------
Net asset value of Shares issued to shareholders in payment
of dividends declared 33,750,837 34,919,870
------------------------------------------------------------
Cost of Shares redeemed (742,374,713) (798,702,252)
------------------------------------------------------------ -------------- --------------
Change in net assets resulting from share transactions (310,318,951) 256,317,954
------------------------------------------------------------ -------------- --------------
Change in net assets (485,233,729) 227,399,089
------------------------------------------------------------
NET ASSETS:
------------------------------------------------------------
Beginning of period 2,047,734,300 1,820,335,211
------------------------------------------------------------ -------------- --------------
End of period $1,562,500,571 $2,047,734,300
------------------------------------------------------------ -------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED GNMA TRUST
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1995
--------------------------------------------------------------------------------
(1) ORGANIZATION
Federated GNMA Trust ("the Trust") is registered under the Investment Company
Act of 1940, as amended (the "Act"), as a diversified, open-end management
investment company. The Trust provides two classes of shares; Institutional
Shares and Institutional Service Shares.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--Short-term securities with remaining maturities of sixty
days or less at the time of purchase may be valued at amortized cost, which
approximates fair market value. U.S. government securities are generally valued
at the mean between the over-the-counter bid and asked prices as furnished by an
independent pricing service.
REPURCHASE AGREEMENTS--It is the policy of the Trust to require the custodian
bank to take possession, to have legally segregated in the Federal Reserve Book
Entry System, or to have segregated within the custodian bank's vault, all
securities held as collateral under repurchase agreement 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 that the value of collateral 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 and/or standards
reviewed or established by the Board of Trustees (the "Trustees"). Risks may
arise from the potential inability of counterparties to honor the terms of the
repurchase agreements. Accordingly, the Trust could receive less than the
repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are
accrued daily. Bond premium and discount, if applicable, are amortized as
required by the Internal Revenue Code, as amended (the "Code"). Distributions to
shareholders are recorded on the ex-dividend date.
FEDERAL TAXES--It is the Trust's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary. At January 31, 1995, the Trust, for
federal tax purposes, had a capital loss carryforward of $155,539,638, 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 will thus reduce
the amount of the distributions to shareholders which would otherwise
FEDERATED GNMA TRUST
--------------------------------------------------------------------------------
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), 2001 ($5,182,436), and
2003 ($71,738,355). Additionally, net capital losses of $36,484,883 attributable
to security transactions incurred after October 31, 1994, are treated as arising
on February 1, 1995, the first day of the Trust's next taxable year.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Trust may engage in
when-issued or delayed delivery transactions. The Trust records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the securities
purchased. Securities purchased on a when-issued or delayed delivery basis are
marked to market daily and begin earning interest on the settlement date.
DOLLAR ROLL TRANSACTIONS--The Trust enters into dollar roll transactions with
respect to mortgage securities, issued by GNMA in which the Trust loans 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. Dollar roll transactions are short-term financing
arrangements which will not exceed twelve months. The Trust will use the
proceeds generated from the transactions to invest in short-term investments,
which may enhance the Trust's current yield and total return.
OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. Transactions in Trust shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
--------------------------------------------------------------
1995 1994
----------------------------- -----------------------------
SHARES DOLLARS SHARES DOLLARS
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
INSTITUTIONAL SHARES
-----------------------------------
Shares sold 33,458,790 $ 365,277,979 75,001,659 $ 882,750,706
-----------------------------------
Shares issued to shareholders in
payment of dividends declared 2,556,101 27,566,855 2,539,103 29,822,854
-----------------------------------
Shares redeemed (64,291,288) (698,723,436) (63,483,695) (745,434,319)
----------------------------------- ----------- ------------- ----------- -------------
Net change resulting from
Institutional share transactions (28,276,397) ($305,878,602) 14,057,067 $ 167,139,241
----------------------------------- ----------- ------------- ----------- -------------
</TABLE>
FEDERATED GNMA TRUST
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-----------------------------------------------------------
1995 1994
---------------------------- --------------------------
SHARES DOLLARS SHARES DOLLARS
----------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
INSTITUTIONAL SERVICE SHARES
--------------------------------------
Shares sold 3,007,210 $ 33,026,946 11,649,200 $137,349,630
--------------------------------------
Shares issued to shareholders in
payment of dividends declared 573,520 6,183,982 434,613 5,097,016
--------------------------------------
Shares redeemed (4,025,344) (43,651,277) (4,546,844) (53,267,933)
-------------------------------------- ----------- ------------- ---------- ------------
Net change resulting from
Institutional Service share
transactions (444,614) $ (4,440,349) 7,536,969 $ 89,178,713
-------------------------------------- ----------- ------------- ---------- ------------
Net change resulting from Trust
share transactions (28,721,011) $(310,318,951) 21,594,036 $256,317,954
-------------------------------------- ----------- ------------- ---------- ------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Management, the Trust's investment adviser,
(the "Adviser"), receives for its services an annual investment advisory fee
equal to .40 of 1% of the Trust's average daily net assets.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS"), under the
Administrative Services Agreement, provides the Trust with administrative
personnel and services. Prior to March 1, 1994, these services were provided at
approximate cost. Effective March 1, 1994, the FAS fee is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received during the
period of the Administrative Services Agreement shall be at least $125,000 per
portfolio and $30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE--The Trust has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the
Trust will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Trust to finance activities intended to
result in the sale of the Trust's Institutional Service Shares. The Plan
provides that the Trust may incur distribution expenses up to .25 of 1% of the
average daily net assets of the Institutional Service Shares, annually, to
compensate FSC. The distributor may voluntarily choose to waive any portion of
its fee. The distributor can modify or terminate this voluntary waiver at any
time at its sole discretion.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Trust will pay FSS up to .25 of
1% of average net assets of the Trust for the period. This fee is to obtain
certain personal services for shareholders and to maintain the shareholder
accounts.
FEDERATED GNMA TRUST
--------------------------------------------------------------------------------
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated
Services Company ("FServ") serves as transfer and dividend disbursing agent for
the Trust. The Fee is based on the size, type, and number of accounts and
transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES--FServ also maintains the Trust's accounting records
for which it receives a fee. The fee is based on the level of the Trust's
average net assets for the period plus, out-of-pocket expenses.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Trustees or Directors of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities and in kind
contributions, for the fiscal year ended January 31, 1995, were as follows:
<TABLE>
<S> <C>
-----------------------------------------------------------------------------
PURCHASES-- $2,351,740,117
----------------------------------------------------------------------------- --------------
SALES-- $2,448,916,033
----------------------------------------------------------------------------- --------------
</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, 1995,
the related statement of operations for the year then ended, the statement of
changes in net assets for the years ended January 31, 1995 and 1994, and the
financial highlights (see pages 2 and 16 of the prospectus) for each of the ten
years in the period ended January 31, 1995. 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, 1995 by correspondence with the custodian and brokers; where replies
were not received from brokers, we performed other auditing procedures. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Federated GNMA Trust
as of January 31, 1995, the results of its operations, the changes in its net
assets and its financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
March 16, 1995
ADDRESSES
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Federated GNMA Trust
Institutional Service Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
------------------------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
------------------------------------------------------------------------------------------------
Custodian
State Street Bank and P.O. Box 8602
Trust Company Boston, Massachusetts 02266-8602
------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
------------------------------------------------------------------------------------------------
Independent Auditors
Deloitte & Touche LLP 2500 One PPG Place
Pittsburgh, Pennsylvania 15222
------------------------------------------------------------------------------------------------
</TABLE>
FEDERATED GNMA TRUST
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
An Open-End, Diversified
Management Investment Company
March 31, 1995
FEDERATED SECURITIES CORP.
(LOGO)
---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
314184201
8022901A-SS (3/95)
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. This Combined
Statement of Additional Information should be
read with the respective prospectus for
Institutional Shares and Institutional Service
Shares dated March 31, 1995. This Statement is
not a prospectus itself. To receive a copy of
either prospectus, write or call the Trust.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Statement dated March 31, 1995
Federated
Securitie
s Corp.
Distr
ibuto
r
A
subsi
diary
of
Feder
ated
Inves
tors
VALUE 13
GENERAL INFORMATION
ABOUT THE TRUST 1
REDEEMING SHARES 13
INVESTMENT OBJECTIVE AND
POLICIES 1EXCHANGING SECURITIES
FOR SHARES 13
Types of Investments 1
When-Issued and Tax Consequences 13
Delayed Delivery
Transactions 1TAX STATUS 14
Lending of Portfolio
Securities 1 The Trust's Tax Status 14
Repurchase Agreements 2 Shareholders' Tax
Reverse Repurchase Status 14
Agreements 2
Portfolio Turnover 2TOTAL RETURN 14
Investment Limitations 2
FEDERATED GNMA TRUST YIELD 14
MANAGEMENT 4
Officers and Trustees 4PERFORMANCE COMPARISONS 15
Trust Ownership 9
Trustees Compensation 9 Duration 16
Trustee Liability 10
INVESTMENT ADVISORY
SERVICES 10
Adviser to the Trust 10
Advisory Fees 11
Other Advisory
Services 11
ADMINISTRATIVE SERVICES 11
Transfer Agent and
Dividend Disbursing
Agent 11
BROKERAGE TRANSACTIONS 12
PURCHASING SHARES 12
Distribution and
Shareholder Services
Plans 12
Conversion to Federal
Funds 13
DETERMINING NET ASSET
General Information About the Trust
Federated GNMA Trust was established as a
Massachusetts business trust under a Declaration of
Trust dated December 10, 1981.
Shares of the Trust are offered in two classes, known
as Institutional Shares and Institutional Service
Shares (individually and collectively referred to as
"Shares"). This Combined Statement of Additional
Information relates to the above-mentioned Shares of
the Trust.
Investment Objective and Policies
The Trust's investment objective is current income.
The investment objective cannot be changed without
approval of shareholders.
Types of Investments
The Trust will invest primarily in mortgage-backed
securities. Under normal circumstances, at least 65%
of the Trust's portfolio will be invested in
instruments issued or fully guaranteed as to principal
and interest by the Government National Mortgage
Association ("GNMA"). In addition, to the extent that
the Trust will invest in other mortgage-backed
securities, these will be collateralized by GNMA
obligations.
Because the mortgages underlying mortgage-backed
securities often may be prepaid without penalty or
premium, mortgage-backed securities are generally
subject to higher prepayment risks than most other
types of debt instruments. Prepayment risks on
mortgage securities tend to increase during periods of
declining mortgage interest rates, because many
borrowers refinance their mortgages to take advantage
of the more favorable rates. Depending upon market
conditions, the yield that the Trust receives from the
reinvestment of such prepayments, or any scheduled
principal payments, may be lower than the yield on the
original mortgage security. As a consequence, mortgage
securities may be a less effective means of "locking
in" interest rates than other types of debt securities
having the same stated maturity and may also have less
potential for capital appreciation. For certain types
of asset pools, such as collateralized mortgage
obligations, prepayments may be allocated to one
tranche of securities ahead of other tranches, in
order to reduce the risk of prepayment for the other
tranches.
Prepayments may result in a capital loss to the Trust
to the extent that the prepaid mortgage securities
were purchased at a market premium over their stated
principal amount. Conversely, the prepayment of
mortgage securities purchased at a market discount
from their stated principal amount will accelerate the
recognition of interest income by the Trust, which
would be taxed as ordinary income when distributed to
the shareholders.
When-Issued and Delayed Delivery Transactions
These transactions are made to secure what is
considered to be an advantageous price or yield for
the Trust. Settlement dates may be a month or more
after entering into these transactions, and the market
values of the securities purchased may vary from the
purchase prices. No fees or other expenses, other
than normal transaction costs, are incurred. However,
liquid assets of the Trust sufficient to make payment
for the securities to be purchased are segregated on
the Trust's records at the trade date. These assets
are marked to market daily and are maintained until
the transaction has been settled. The Trust does not
intend to engage in when-issued and delayed delivery
transactions to an extent that would cause the
segregation of more than 20% of the total value of its
assets.
Lending of Portfolio Securities
The collateral received when the Trust lends portfolio
securities must be valued daily and, should the market
value of the loaned securities increase, the borrower
must furnish additional collateral to the Trust.
During the time portfolio securities are on loan, the
borrower pays the Trust any dividends or interest paid
on such securities. Loans are subject to termination
at the option of the Trust or the borrower. The Trust
may pay reasonable administrative and custodial fees
in connection with a loan and may pay a negotiated
portion of the interest earned on the cash or
equivalent collateral to the borrower or placing
broker.
Repurchase Agreements
The Trust requires its custodian to take possession of
the securities subject to repurchase agreements, and
these securities are marked to market daily. To the
extent that the original seller does not repurchase
the securities from the Trust, the Trust could receive
less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller
filed for bankruptcy or became insolvent, disposition
of such securities by the Trust might be delayed
pending court action. The Trust believes that under
the regular procedures normally in effect for custody
of the Trust's portfolio securities subject to
repurchase agreements, a court of competent
jurisdiction would rule in favor of the Trust and
allow retention or disposition of such securities. The
Trust will only enter into repurchase agreements with
banks and other recognized financial institutions such
as broker/dealers which are deemed by the Trust's
adviser to be creditworthy pursuant to guidelines
established by the Board of Trustees ("Trustees").
Reverse Repurchase Agreements
The Trust may also enter into reverse repurchase
agreements. These transactions are similar to
borrowing cash. In a reverse repurchase agreement the
Trust transfers possession of a portfolio instrument
to another person, such as a financial institution,
broker, or dealer, in return for a percentage of the
instrument's market value in cash, and agrees that on
a stipulated date in the future the Trust will
repurchase the portfolio instrument by remitting the
original consideration plus interest at an agreed upon
rate.
When effecting reverse repurchase agreements, liquid
assets of the Trust, in a dollar amount sufficient to
make payment for the obligations to be purchased, are
segregated at the trade date. These securities are
marked to market daily and maintained until the
transaction is settled.
The use of reverse repurchase agreements may enable
the Trust to avoid selling portfolio instruments at a
time when a sale may be deemed to be disadvantageous,
but the ability to enter into reverse repurchase
agreements does not ensure that the Trust will be able
to avoid selling portfolio instruments at a
disadvantageous time.
Portfolio Turnover
The Trust will not attempt to set or meet a portfolio
turnover rate since any turnover would be incidental
to transactions undertaken in an attempt to achieve
the Trust's investment objective. During the fiscal
years ended January 31, 1995 and 1994, the portfolio
turnover rates were 136% and 117%, respectively.
Investment Limitations
Selling Short and Buying on Margin
The Trust will not sell any securities short or
purchase any securities on margin, but may
obtain such short-term credits as may be
necessary for clearance of purchases and sales
of portfolio securities.
Borrowing Money
The Trust will not borrow money directly or
through reverse repurchase agreements in amounts
in excess of one-third of the value of its
assets, including the amounts borrowed.
The Trust will not borrow money or engage in
reverse repurchase agreements for investment
leverage, but rather as a temporary,
extraordinary or emergency measure or to
facilitate management of the portfolio by
enabling the Trust to meet redemption requests
when the liquidation of portfolio securities is
deemed to be inconvenient or disadvantageous.
The Trust will not purchase any securities while
borrowings in excess of 5% of the value of its
total assets are outstanding.
Issuing Senior Securities
The Trust will not issue senior securities
except as permitted by its investment objective
and policies.
Pledging Assets
The Trust will not mortgage, pledge, or
hypothecate any assets except to secure
permitted borrowings. In those cases, it may
mortgage, pledge, or hypothecate assets having a
market value not exceeding the lesser of the
dollar amount borrowed or 10% of the value of
total assets at the time of the borrowing.
Lending Cash or Securities
The Trust will not lend any of its assets,
except portfolio securities up to one-third of
the value of its total assets. This shall not
prevent the Trust from purchasing or holding
U.S. government obligations, money market
instruments, bonds, debentures, notes,
certificates of indebtedness or other debt
securities, entering into repurchase agreements,
or engaging in other transactions where
permitted by the Trust's investment objective,
policies and limitations.
Diversification of Investments
With respect to securities comprising 75% of the
value of its total assets, the Trust will not
purchase securities of any one issuer (other
than cash, cash items or securities issued or
guaranteed by the government of the United
States or its agencies or instrumentalities and
repurchase agreements collateralized by U.S.
government securities) if as a result more than
5% of the value of its total assets would be
invested in the securities of that issuer.
Investing in Real Estate
The Trust will not buy or sell real estate,
including limited partnership interests in real
estate, although it may invest in securities of
companies whose business involves the purchase
or sale of real estate or in securities which
are secured by real estate or interests in real
estate.
Investing in Commodities
The Trust will not purchase or sell commodities.
Underwriting
The Trust will not underwrite any issue of
securities, except as it may be deemed to be an
underwriter under the Securities Act of 1933 in
connection with the sale of restricted
securities which the Trust may purchase pursuant
to its investment objective, policies, and
limitations.
The above investment limitations cannot be changed
without shareholder approval. The following
limitations, however, may be changed by the Trustees
without shareholder approval. Shareholders will be
notified before any material change in these
limitations becomes effective.
Investing in New Issuers
The Trust will not invest more than 5% of the
value of its total assets in securities of
issuers which have records of less than three
years of operating history, including the
operation of any predecessor. (This limitation
does not apply to issuers of CMOs or REMICs
which are collateralized by securities or
mortgages issued or guaranteed as to prompt
payment of principal and interest by an agency
of the U.S. government).
Investing in Minerals
The Trust will not purchase or sell oil, gas, or
other mineral exploration or development
programs or leases, although it may purchase the
securities of issuers which invest or sponsor
such programs.
Investing in Issuers Whose Securities are Owned by
Officers and Trustees of the Trust
The Trust will not purchase or retain the
securities of any issuer if the officers and
Trustees of the Trust's investment adviser
owning individually more than 1/2 of 1% of the
issuer's securities together own more than 5% of
the issuer's securities.
Investing in Securities of Other Investment
Companies
The Trust may not own securities of open-end
investment companies. The Trust can acquire up
to 3% of the total outstanding stock of closed-
end investment companies. The Trust will not be
subject to any other limitations with regard to
the acquisition of securities of closed-end
investment companies so long as the public
offering price of the Trust's shares does not
include a sales load exceeding 1 1/2%. The Trust
will purchase securities of closed-end
investment companies only in open-market
transactions involving only customary broker's
commissions. However, these limitations are not
applicable if the securities are acquired in a
merger, consolidation, or acquisition of assets;
nor are they applicable with respect to
securities of investment companies that have
been exempted from registration under the
Investment Company Act of 1940.
Investing in Illiquid Securities
The Trust will not invest more than 15% of the
value of its net assets in illiquid securities,
including repurchase agreements providing for
settlement in more than seven days after notice,
and certain restricted securities not determined
by the Trustees to be liquid.
Except with respect to borrowing money, if a
percentage limitation is adhered to at the time of
investment, a later increase or decrease in percentage
resulting from any change in value or net assets will
not result in a violation of such restriction.
For the purposes of its policies and limitations, the
Trust considers certificates of deposit and demand and
time deposits issued by a U.S. branch of a domestic
bank or savings and loan having capital, surplus and
undivided profits in excess of $100,000,000 at the
time of investment to be "cash items".
Federated GNMA Trust Management
Officers and Trustees
Officers and Trustees are listed with their addresses,
birthdates, present positions with Federated GNMA
Trust, and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated
Advisers, Federated Management, and Federated
Research; Chairman and Trustee, Federated Research
Corp.; Chairman, Passport Research, Ltd.; Director,
AEtna Life and Casualty Company; Chief Executive
Officer and Director, Trustee, or Managing General
Partner of the Funds. Mr. Donahue is the father of J.
Christopher Donahue, Vice President of the Trust.
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Director, Oberg Manufacturing Co.; Chairman of the
Board, Children's Hospital of Pittsburgh; Director,
Trustee, or Managing General Partner of the Funds;
formerly, Senior Partner, Ernst & Young LLP.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
Presid
President, Naples Property Management, Inc.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee,
Michael Baker, Inc.; Director, Trustee, or Managing
General Partner of the Funds; formerly, Vice Chairman
and Director, PNC Bank, N.A., and PNC Bank Corp. and
Director, Ryan Homes, Inc.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Trust,
Inc.; Director, Trustee, or Managing General Partner
of the Funds; formerly, Director, Blue Cross of
Massachusetts, Inc.
Lawrence D. Ellis, M.D.
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine and Member, Board of Trustees,
University of Pittsburgh; Medical Director, University
of Pittsburgh Medical Center, Downtown; Member, Board
of Directors, University of Pittsburgh Medical Center;
formerly, Hematologist, Oncologist, and Internist,
Presbyterian and Montefiore Hospitals; Director,
Trustee, or Managing General Partner of the Funds.
Edward L. Flaherty, Jr.@
Henny, Koehuba, Meyer and Flaherty
Two Gateway Center, Suite 674
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney-at-law; Partner, Henny, Koehuba, Meyer and
Flaherty; Director, Eat'N Park Restaurants, Inc., and
Statewide Settlement Agency, Inc.; Director, Trustee,
or Managing General Partner of the Funds; formerly,
Counsel, Horizon Financial, F.A., Western Region.
Peter E. Madden
225 Franklin Street
Boston, MA
Birthdate: April 16, 1942
Trustee
Consultant; State Representative, Commonwealth of
Massachusetts; Director, Trustee, or Managing General
Partner of the Funds; formerly, President, State
Street Bank and Trust Company and State Street Boston
Corporation and Trustee, Lahey Clinic Foundation, Inc.
Gregor F. Meyer
Henny, Koehuba, Meyer and Flaherty
Two Gateway Center, Suite 674
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney-at-law; Partner, Henny, Koehuba, Meyer and
Flaherty; Chairman, Meritcare, Inc.; Director, Eat'N
Park Restaurants, Inc.; Director, Trustee, or Managing
General Partner of the Funds; formerly, Vice Chairman,
Horizon Financial, F.A.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University;
Consulting Partner, Mollica, Murray and Hogue;
Director, Trustee or Managing General Partner of the
Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, Foreign Policy and Management Consultant;
Trustee, Carnegie Endowment for International Peace,
RAND Corporation, Online Computer Library Center,
Inc., and U.S. Space Foundation; Chairman, Czecho
Slovak Management Center; Director, Trustee, or
Managing General Partner of the Funds; President
Emeritus, University of Pittsburgh; formerly,
Chairman, National Advisory Council for Environmental
Policy and Technology.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: July 21, 1935
Trustee
Public relations/marketing consultant; Director,
Trustee, or Managing General Partner of the Funds.
Glen R. Johnson
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929
President
Trustee, Federated Investors; President and/or Trustee
of some of the Funds; staff member, Federated
Securities Corp. and Federated Administrative
Services.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Vice President
President and Trustee, Federated Investors, Federated
Advisers, Federated Management, and Federated
Research; President and Director, Federated Research
Corp.; President, Passport Research, Ltd.; Trustee,
Federated Administrative Services, Federated Services
Company, and Federated Shareholder Services; 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.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated
Investors; Director, Federated Research Corp.;
Chairman and Director, Federated Securities Corp.;
President or Vice President of some of the Funds;
Director or Trustee of some of the Funds.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Vice President and Treasurer
Vice President, Treasurer, and Trustee, Federated
Investors; Vice President and Treasurer, Federated
Advisers, Federated Management, Federated Research,
Federated Research Corp., and Passport Research, Ltd.;
Executive Vice President, Treasurer, and Director,
Federated Securities Corp.; Trustee, Federated
Services Company and Federated Shareholder Services;
Chairman, Treasurer, and Trustee, Federated
Administrative Services; Trustee or Director of some
of the Funds; Vice President and Treasurer of the
Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Vice President and Secretary
Vice President, Secretary, General Counsel, and
Trustee, Federated Investors; Vice President,
Secretary, and Trustee, Federated Advisers, Federated
Management, and Federated Research; Vice President and
Secretary, Federated Research Corp. and Passport
Research, Ltd.; Trustee, Federated Services Company;
Executive Vice President, Secretary, and Trustee,
Federated Administrative Services; Secretary and
Trustee, Federated Shareholder Services; Executive
Vice President and Director, Federated Securities
Corp.; Vice President and Secretary of the Funds.
* This Trustee is deemed to be an "interested
person" as defined in the Investment Company
Act of 1940, as amended.
@ 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.
As used in the table above, "The Funds" and "Funds"
mean the following investment companies: American
Leaders Fund, Inc.; Annuity Management Series; Arrow
Funds; Automated Cash Management Trust; Automated
Government Money Trust; California Municipal Cash
Trust; Cash Trust Series II; Cash Trust Series, Inc.;
DG Investor Series; Edward D. Jones & Co. Daily
Passport Cash Trust; 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 Institutional Trust; Federated Intermediate
Government Trust; Federated Master Trust; Federated
Municipal Trust; Federated Short-Intermediate
Government Trust; Federated Short-Term U.S.
Government Trust; Federated Stock Trust; Federated Tax-
Free Trust; Federated U.S. Government Bond 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;
International Series, Inc.; Investment Series Funds,
Inc.; Investment Series Trust; Liberty Equity Income
Fund, Inc.; Liberty High Income Bond Fund, Inc.;
Liberty Municipal Securities Fund, Inc.; Liberty U.S.
Government Money Market Trust; Liberty Term Trust,
Inc. - 1999; Liberty Utility Funds, Inc.; Liquid Cash
Trust; Managed Series Trust; Money Market Management,
Inc.; Money Market Obligations Trust; Money Market
Trust; Municipal Securities Income Trust; Newpoint
Funds; New York Municipal Cash Trust; 111 Corcoran
Funds; Peachtree Funds; The Planters Funds; RIMCO
Monument Funds; The Shawmut Funds; Short-Term
Municipal Trust; 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; Trust for U.S. Treasury Obligations; The
Virtus Funds; and World Investment Series, Inc.
Trust Ownership
Officers and Trustees own less than 1% of the Trust's
outstanding shares.
As of March 6, 1995, 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 905,267.6840 Shares (7.97%); Trucojo
Trust Company of St. Joseph, St. Joseph, Missouri,
owned approximately 1,323,499.9570 Shares (11.65%);
Ambank & Co., Baton Rouge, Louisiana, owned
approximately 3,064,163.0800 Shares (26.97%); and The
Bank of Guam, Agana, Guam, owned approximately
1,065,876.0210 Shares (9.38%).
As of March 6,1995, there were no shareholders of
record who owned 5% or more of the outstanding
Institutional Shares of the Trust.
Trustees Compensation
NAME, POSITION WITH AGGREGATE COMPENSATION FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX+
Thomas G. Bigley $2,840.00 $20,688 for the Trust and
50 other investment companies
in the Fund Complex
John T. Conroy, Jr. $3,139.00 $117,202 for the Trust and
65 other investment companies
in the Fund Complex
William J. Copeland $3,139.00 $117,202 for the Trust and
65 other investment companies
in the Fund Complex
James E. Dowd $3,139.00 $117,202 for the Trust and
65 other investment companies
in the Fund Complex
Lawrence D. Ellis, $2,840.00 $106,460 for the Trust and
M.D. 65 other investment companies
in the Fund Complex
Edward L. Flaherty, $3,139.00 $117,202 for the Trust and
Jr. 65 other investment companies
in the Fund Complex
Peter E. Madden $2,382.00 $90,563 for the Trust and
65 other investment companies
in the Fund Complex
Gregor F. Meyer $2,840.00 $106,460 for the Trust and
65 other investment companies
in the Fund Complex
John E. Murray, Jr. $ -0- $0 for the Trust and
69 other investment companies
in the Fund Complex
Wesley W. Posvar $2,840.00 $106,460 for the Trust and
65 other investment companies
in the Fund Complex
Marjorie P. Smuts $2,840.00 $106,460 for the Trust and
65 other investment companies
in the Fund Complex
*Information is furnished for the fiscal year ended
January 31, 1995.
#The aggregate compensation is provided for the Trust
which is comprised of one portfolio.
+The information is provided for the last calendar
year.
Trustee Liability
The Trust's Declaration of Trust provides that the
Trustees will not be liable for errors of judgment or
mistakes of fact or law. However, they are not
protected against any liability to which they would
otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence, or reckless disregard of
the duties involved in the conduct of their office.
Investment Advisory Services
Adviser to the Trust
The Trust's investment adviser is Federated
Management. It is a subsidiary of Federated
Investors. All of the voting securities of Federated
Investors are owned by a trust, the trustees of which
are John F. Donahue, his wife, and his son, J.
Christopher Donahue.
The adviser shall not be liable to the Trust or any
shareholder of the Trust for any losses that may be
sustained in the purchase, holding, or sale of any
security, or for anything done or omitted by it,
except acts or omissions involving willful
misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its
contract with the Trust.
Advisory Fees
For its advisory services, Federated Management
receives an annual investment advisory fee as
described in the prospectuses. During the fiscal years
ended January 31, 1995, 1994, and 1993, the Trust's
adviser earned $6,989,013, $8,180,174, and $6,298,393,
respectively.
State Expense Limitations
The adviser has undertaken to comply with the
expense limitations established by certain
states for investment companies whose shares are
registered for sale in those states. If the
Trust's normal operating expenses (including the
investment advisory fee, but not including
brokerage commissions, interest, taxes, and
extraordinary expenses) exceed 2 1/2% per year
of the first $30 million of average net assets,
2% per year of the next $70 million of average
net assets, and 1 1/2% per year of the remaining
average net assets, the adviser will reimburse
the Trust for its expenses over the limitation.
If the Trust's monthly projected operating
expenses exceed this limitation, the investment
advisory fee paid will be reduced by the amount
of the excess, subject to an annual adjustment.
If the expense limitation is exceeded, the
amount to be reimbursed will be limited, in any
single fiscal year, by the amount of the
investment advisory fee.
This arrangement is not part of the advisory
contract and may be amended or rescinded in the
future.
Other Advisory Services
Federated Research Corp. receives fees from certain
depository institutions for providing consulting and
portfolio advisory services relating to each
institution's program of asset management. Federated
Research Corp. may advise such clients to purchase or
redeem shares of investment companies, such as the
Trust, which are managed, for a fee, by Federated
Research Corp. or other affiliates of Federated
Investors, such as the adviser, and may advise such
clients to purchase and sell securities in the direct
markets. Further, Federated Research Corp., and other
affiliates of the adviser may, from time to time,
provide certain consulting services and equipment to
depository institutions in order to facilitate the
purchase of shares of funds offered by Federated
Securities Corp.
Administrative Services
Federated Administrative Services, a subsidiary of
Federated Investors, provides administrative personnel
and services to the Trust for a fee as described in
the prospectuses. Prior to March 1, 1994, Federated
Administrative Services, Inc., also a subsidiary of
Federated Investors, served as the Trust's
administrator. (For purposes of this Statement of
Additional Information, Federated Administrative
Services and Federated Administrative Services, Inc.,
may hereinafter collectively be referred to as the
"Administrators.") For the fiscal year ended January
31, 1995, the Administrators earned $1,317,794. For
the fiscal years ended January 31, 1994 and 1993,
Federated Administrative Services, Inc. earned
$1,316,655 and $1,015,784. Dr. Henry J. Gailliot, an
officer of Federated Management, the adviser to the
Trust, holds approximately 20% of the outstanding
common stock and serves as a director of Commercial
Data Services, Inc., a company which provides computer
processing services to Federated Administrative
Services
Transfer Agent and Dividend Disbursing Agent
Federated Services Company serves as transfer agent
and dividend disbursing agent for the Trust. The fee
paid to the transfer agent is based upon the size,
type and number of accounts and transactions made by
shareholders.
Federated Services Company also maintains the Trust's
accounting records. The fee paid for this service is
based upon the level of the Trust's average net assets
for the period plus out-of-pocket expenses.
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 Trust or to the adviser and
may include:
o advice as to the advisability of investing in
securities;
o security analysis and reports;
o economic studies;
o industry studies;
o receipt of quotations for portfolio evaluations;
and
o 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 load 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 Trust, by adopting the Distribution Plan, the
Board of Trustees expects that the Trust will be able
to achieve a more predictable flow of cash for
investment purposes and to meet redemptions. This will
facilitate more efficient portfolio management and
assist the Trust in pursuing its investment
objectives. By identifying potential investors whose
needs are served by the Trust's objectives, and
properly servicing these accounts, it may be possible
to curb sharp fluctuations in rates of redemptions and
sales.
Other benefits, which may be realized under either
arrangement, may include: (1) providing personal
services to shareholders; (2) investing shareholder
assets with a minimum of delay and administrative
detail; (3) enhancing shareholder recordkeeping
systems; and (4) responding promptly to shareholders'
requests and inquiries concerning their accounts.
For the fiscal period ending January 31, 1995 and
1994, payments in the amount of $317,246 and $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 Trust's policy to be as fully invested as
possible so that maximum interest may be earned. To
this end, all payments from shareholders must be in
federal funds or be converted into federal funds.
State Street Bank acts as the shareholder's agent in
depositing checks and converting them to federal
funds.
Determining Net Asset Value
Net asset value generally changes each day. The days
on which the net asset value for each class of Shares
is calculated by the Trust are described in the
respective prospectuses.
Determining Market Value of Securities
Market values of the Trust's portfolio securities are
determined as follows:
o 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
o for short-term obligations with remaining
maturities of 60 days or less at the time of
purchase, at amortized cost unless the Trustees
determine that particular circumstances of the
security indicate otherwise.
Redeeming Shares
The Trust redeems Shares of either class at the next
computed net asset value after the Trust receives the
redemption request. Redemption procedures are
explained in the respective prospectus under
"Redeeming Institutional Shares" or "Redeeming
Institutional Service Shares." Although the transfer
agent does not charge for telephone redemptions, it
reserves the right to charge a fee for the cost of
wire-transferred redemptions of less than $5,000.
Exchanging Securities for Shares
Investors may exchange certain U.S. government
securities they already own for Shares of either
class, or they may exchange a combination of U.S.
government securities and cash for Shares of either
class. An investor should forward the securities in
negotiable form with an authorized letter of
transmittal to Federated Securities Corp. specifying
whether the investor will receive Institutional Shares
or Institutional Service Shares in exchange. The Trust
will notify the investor of its acceptance and
valuation of the securities within five business days
of their receipt by State Street Bank.
The Trust values securities in the same manner as the
Trust values its assets. The basis of the exchange
will depend upon the net asset value of Shares on the
day the securities are valued. One Share will be
issued for each equivalent amount of securities
accepted.
Any interest earned on the securities prior to the
exchange will be considered in valuing the securities.
All interest, dividends, subscription, or other rights
attached to the securities become the property of the
Trust, along with the securities.
Tax Consequences
Exercise of this exchange privilege is treated as a
sale for federal income tax purposes. Depending upon
the cost basis of the securities exchanged for Shares,
a gain or loss may be realized by the investor.
Tax Status
The Trust's Tax Status
The Trust will pay no federal income tax because it
expects to meet the requirements of Subchapter M of
the Internal Revenue Code applicable to regulated
investment companies and to receive the special tax
treatment afforded to such companies. To qualify for
this treatment, the Trust must, among other
requirements:
o derive at least 90% of its gross income from
dividends, interest, and gains from the sale of
securities;
o derive less than 30% of its gross income from the
sale of securities held less than three months;
o invest in securities within certain statutory
limits; and
o distribute to its shareholders at least 90% of its
net income earned during the year.
Shareholders' Tax Status
Shareholders are subject to federal income tax on
dividends and capital gains received as cash or
additional Shares. No portion of any income dividend
paid by the Trust is eligible for the dividends
received deduction available to corporations. These
dividends, and any short-term capital gains, are
taxable as ordinary income.
Capital Gains
Capital gains distributed to shareholders will
be treated as long-term capital gains regardless
of how long shareholders have held Shares.
Total Return
The Trust's average annual total returns for
Institutional Shares for the one-year and five-year
periods ended January 31, 1995, and for the period
from March 23, 1982 (effective date of the Trust's
registration statement) to January 31, 1995 were
(1.71)%, 7.66%, and 10.58%, respectively. The Trust's
average annual total return for Institutional Service
Shares for the one-year period ended January 31, 1995,
and for the period from June 18, 1992 (date of initial
public investment) to January 31, 1995 were (1.92)%
and 3.80%, respectively.
The average annual total return for both classes of
shares of the Trust is the average compounded rate of
return for a given period that would equate a $1,000
initial investment to the ending redeemable value of
that investment. The ending redeemable value is
computed by multiplying the number of shares owned at
the end of the period by the offering price per share
at the end of the period. The number of shares owned
at the end of the period is based on the number of
shares purchased at the beginning of the period with
$1,000, adjusted over the period by any additional
shares, assuming the monthly reinvestment of all
dividends and distributions.
Yield
The Trust's yield for Institutional Shares for the
thirty-day period ended January 31, 1995 was 8.01%.
The Trust's yield for Institutional Service Shares was
7.81% for the same period.
The yield for both classes of shares of the Trust is
determined by dividing the net investment income per
share (as defined by the Securities and Exchange
Commission) earned by the respective class of shares
over a thirty-day period by the offering price per
share of the respective class on the last day of the
period. This value is then annualized using semi-
annual compounding. This means that the amount of
income generated during the thirty-day period is
assumed to be generated each month over a twelve-month
period and is reinvested every six months. The yield
does not necessarily reflect income actually earned by
the Trust because of certain adjustments required by
the Securities and Exchange Commission and, therefore,
may not correlate to the dividends or other
distributions paid to shareholders.
To the extent that financial institutions and
broker/dealers charge fees in connection with services
provided in conjunction with an investment in either
class of shares, the performance will be reduced for
those shareholders paying those fees.
Performance Comparisons
The performance of both classes of Shares depends upon
such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is
invested;
o changes in interest rates and market value of
portfolio securities;
o changes in the Trust's expenses or either class
of Shares' expenses; and
o various other factors.
Both classes of Shares' performance fluctuates on a
daily basis largely because net earnings and offering
price per share fluctuate daily. Both net earnings and
offering price per share are factors in the
computation of yield and total return.
Investors may use financial publications and/or
indices to obtain a more complete view of the Trust's
performance. When comparing performance, investors
should consider all relevant factors such as the
composition of any index used, prevailing market
conditions, portfolio compositions of other funds, and
methods used to value portfolio securities and compute
offering price. The financial publications and/or
indices which the Trust uses in advertising may
include:
o Lipper Analytical Services, Inc. ranks funds in
various fund categories by making comparative
calculations using total return. Total return
assumes the reinvestment of all capital gains
distributions and income dividends and takes into
account any change in net asset value over a
specified period of time. From time to time, the
Trust will quote its Lipper ranking in the "GNMA
Funds" category in advertising and sales
literature.
o 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.
o 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.
o 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.
o Lehman Brothers Government/Corporate (Total)
Index is comprised of approximately 5,000 issues
which include non-convertible bonds publicly
issued by the U.S. government or its agencies;
corporate bonds guaranteed by the U.S. government
and quasifederal corporations; and publicly
issued, fixed rate, nonconvertible domestic bonds
of companies in industry, public utilities and
finance. The average maturity of these bonds
approximates nine years. Tracked by Lehman
Brothers Inc., the index calculates total returns
for one month, three month, twelve month and ten
year periods and year-to-date.
o Lehman Brothers Government Index is an unmanaged
index comprised of all publicly issued, non-
convertible domestic debt of the U.S. government,
or any agency thereof, or any quasi-federal
corporation and of corporate debt guaranteed by
the U.S. government. Only notes and bonds with a
minimum outstanding principal of $1 million and a
minimum maturity of one year are included.
In addition, the Trust will make comparisons to
certain direct market securities in which it is
permitted to invest. The type of security that will be
used for such comparisons, and the source of its
performance information is listed below.
o 10-Year Treasury Notes--Source: Salomon Brothers.
Total returns are calculated for periods of one,
three, and twelve months.
Advertisements and other sales literature for both
classes of Shares may quote total returns which are
calculated on non-standardized base periods. These
total returns also represent the historic change in
the value of an investment in either class of Shares
based on monthly reinvestment of dividends over a
specified period of time.
Duration
Duration is a commonly used measure of the potential
volatility in the price of a bond, or other fixed
income security, or in a portfolio of fixed income
securities, prior to maturity. Volatility is the
magnitude of the change in the price of a bond
relative to a given change in the market rate of
interest. A bond's price volatility depends on three
primary variables: the bond's coupon rate; maturity
date; and the level of market yields of similar fixed-
income securities. Generally, bonds with lower coupons
or longer maturities will be more volatile than bonds
with higher coupons or shorter maturities. Duration
combines these variables into a single measure.
Duration is calculated by dividing the sum of the time-
weighted values of the cash flows of a bond or bonds,
including interest and principal payments, by the sum
of the present values of the cash flows.
When the Trust invests in mortgage pass-through
securities, its duration will be calculated in a
manner which requires assumptions to be made regarding
future principal prepayments. A more complete
description of this calculation is available upon
request from the Trust.
8022901B (3/95)
314184102
314184201
ANNUAL REPORT FOR FISCAL YEAR ENDED JANUARY 31, 1995
MANAGEMENT DISCUSSION AND ANALYSIS:
---------------------------------------------------------------------------
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 offers daily
liquidity, credit control and other advantages over comparable Treasuries,
while at the same time allowing investors to avoid the complexities of
managing a portfolio of mortgage-backed securities. Shareholders receive a
diversified portfolio managed under a set of highly conservative
disciplines.
The Trust is managed for specific maturity levels according to our
assumptions on market risk and volatility. Current strategy stresses an
effective duration of 4.8 years, which is slightly shorter than the Salomon
Brothers 30-Year GNMA Index single-family aggregate market weighted average
effective duration. The basis for the slightly shorter duration to the
Salomon Brothers 30-Year GNMA Index was to underweight exposure to GNMA
securities in the 6 1/2% to 7 1/2% sector due to concern over prepayment
speeds not fully reflecting the extension risk in discount GNMA securities.
This strategy gave the Trust, during the six month reporting period, a net
total rate of return of 1.33% versus the Salomon Brothers 30-Year GNMA
Index return of 1.64% and the Merrill Lynch 10-Year Treasury Index return
of .16%.
Current asset allocation reflects 98% GNMA mortgage securities with a
diversified range of coupons averaging 8 1/4%. The last six months has
presented the opportunity for the Trust to favor selective purchases of
discount and current GNMA securities. These sectors had been out of favor
due to market concerns regarding prepayments speeds--most notably, the
assumability option for GNMA mortgages and subsequent extension risk of
average life/duration versus a conventional, non-assumable mortgage. Taken
together, the dramatic 140 basis point flattening of the yield curve (2-30
year) over the last six months to 46 basis points as of 1/31/95 coupled
with the faster-than-anticipated GNMA prepayment speeds resulted in a very
solid total rate of return performance for GNMA securities over the past
six months.
The outlook for the next six months is expected to be very positive.
GNMA securities appear poised to continue their strong performance due in
large part to anticipated declines in interest rate volatility and modest
supply of new securities. Given this scenario, the Trust will continue to
overweight GNMA securities to offer investors competitive income
distributions and total return over time.
As of January 31, 1995, total net assets were $1.6 billion and the
average 30-day net yield as calculated under SEC guidelines was 8.01% for
Institutional Shares and 7.81% for Institutional Service Shares.* Rated
AAAf/a+ by Standard & Poor's for credit and risk qualities, the Trust
remains committed to competitive yields and daily liquidity.**
* Data quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so when
shares are redeemed they may be worth more or less than the original
cost.
** Ratings are subject to change.
FEDERATED GNMA TRUST (INSTITUTIONAL SHARES)
--------------------------------------------------------------------------------
GROWTH OF $25,000 INVESTED IN FEDERATED GNMA TRUST
(INSTITUTIONAL SHARES)
The graph below illustrates the hypothetical investment of $25,000 in the
Federated GNMA Trust (Institutional Shares) (the "Trust") from January 31, 1985
to January 31, 1995 compared to the Salomon Brothers 30-Year GNMA Index
(SB30YRGI)+ and the Lipper GNMA Funds Average. (LGFA)++
Please see Appendix #1
AVERAGE ANNUAL TOTAL RETURN** FOR THE PERIOD
ENDED JANUARY 31, 1995
1 Year............................................... (1.71%)
5 Year............................................... 7.66%
10 Year.............................................. 9.17%
Start of Performance (3/23/82)....................... 10.58%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
THIS REPORT MUST BE PRECEDED OR ACCOMPANIED BY THE TRUST'S PROSPECTUS DATED
MARCH 31, 1995 AND, TOGETHER WITH FINANCIAL STATEMENTS CONTAINED THEREIN,
CONSTITUTES THE TRUST'S ANNUAL REPORT.
* The Trust's performance assumes the reinvestment of all dividends and
distributions. The SB30YRGI and the LGFA have been adjusted to reflect
reinvestment of dividends on securities in the indices.
** Total returns quoted reflect all applicable sales loads and contingent
deferred sales charges.
+ The SB30YRGI is not adjusted to reflect sales loads, expenses, or other fees
that the SEC requires to be reflected in the Trust's performance. The index
is unmanaged.
++ The LGFA represents the average of the total returns reported by all of the
mutual funds designated by Lipper Analytical Services, Inc. as falling into
the category, and is not adjusted to reflect any sales loads. However, these
total returns are reported net of expenses or other fees that the SEC
requires to be reflected in a fund's performance.
FEDERATED GNMA TRUST (INSTITUTIONAL SERVICE SHARES)
--------------------------------------------------------------------------------
GROWTH OF $25,000 INVESTED IN FEDERATED GNMA TRUST
(INSTITUTIONAL SERVICE SHARES)
The graph below illustrates the hypothetical investment of $25,000 in the
Federated GNMA Trust (Institutional Service Shares) (the "Trust") from May 30,
1992 (start of performance) to January 31, 1995 compared to the Salomon Brothers
30-Year GNMA Index (SB30YRGI)+ and the Lipper GNMA Funds Average (LGFA).++
Please see Appendix #2
AVERAGE ANNUAL TOTAL RETURN** FOR THE PERIOD
ENDED JANUARY 31, 1995
1 Year.............................................. (1.92%)
Start of Performance (5/30/92)...................... 3.80%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
THIS REPORT MUST BE PRECEDED OR ACCOMPANIED BY THE TRUST'S PROSPECTUS DATED
MARCH 31, 1995 AND, TOGETHER WITH FINANCIAL STATEMENTS CONTAINED THEREIN,
CONSTITUTES THE TRUST'S ANNUAL REPORT.
* The Trust's performance assumes the reinvestment of all dividends and
distributions. The SB30YRGI and the LGFA have been adjusted to reflect
reinvestment of dividends on securities in the indices.
** Total returns quoted reflect all applicable sales loads and contingent
deferred sales charges.
+ The SB30YRGI is not adjusted to reflect sales loads, expenses, or other fees
that the SEC requires to be reflected in the Trust's performance. The index
is unmanaged.
++ The LGFA represents the average of the total returns reported by all of the
mutual funds designated by Lipper Analytical Services, Inc. as falling into
the category, and is not adjusted to reflect any sales loads. However, these
total returns are reported net of expenses or other fees that the SEC
requires to be reflected in a fund's performance.
FEDERATED SECURITIES CORP.
(LOGO)
--------------------------------------------------------------------------------
Distributor
314184102
314184201
8022901ARS (3/95)
APPENDIX
1. The graphic presentation here displayed consists
of a line graph titled "Growth of $25,000 Invested in
Federated GNMA Trust (Institutional Shares)." The
corresponding components of the line graph are listed
underneath. Federated GNMA Trust-Institutional Shares
(the "Trust") is represented by a solid line. Salomon
Brothers 30-Year GNMA Index (the "SB30YRGI") is
represented by a broken line. Lipper GNMA Funds
Average (the "LGFA") is represented by a dotted line.
The line graph is a visual representation of a
comparison of change in value of a hypothetical
$25,000 investment in the Trust, the SB30YRGI and the
LGFA. The "x" axis reflects computation periods from
January 31, 1985 through, January 31, 1995. The "y"
axis reflects the cost of the investment, ranging from
$20,000 to $70,000. The right margin reflects the
ending value of the hypothetical investment in the
Trust as compared to the SB30YRGI and the LGFA; the
ending values are $60,102, $67,410 and $57,172,
respectively.
2. The graphic presentation here displayed consists
of a line graph titled "Growth of $25,000 Invested in
Federated GNMA Trust (Institutional Service Shares)."
The corresponding components of the line graph are
listed underneath. Federated GNMA Trust-Institutional
Service Shares (the "Trust") is represented by a solid
line. Salomon Brothers 30-Year GNMA Index (the
"SB30YRGI") is represented by a broken line. Lipper
GNMA Funds Average (the "LGFA") is represented by a
dotted line. The line graph is a visual
representation of a comparison of change in value of a
hypothetical $25,000 investment in the Trust, the
SB30YRGI and the LGFA. The "x" axis reflects
computation periods from May 30, 1992 through, January
31, 1995. The "y" axis reflects the cost of the
investment, ranging from $24,000 to $30,000. The
right margin reflects the ending value of the
hypothetical investment in the Trust as compared to
the SB30YRGI and the LGFA; the ending values are
$27,623, $28,347, and $27,794, respectively.
