PRESIDENT'S MESSAGE
Dear Investor:
I'm pleased to present the Semi-Annual Report to Shareholders for Federated
GNMA Trust. The Report covers the six-month period ended July 31, 1996 and
includes the trust's Investment Review, Financial Statements, and Portfolio
of Investments.
In pursuit of income, the trust invests primarily in a diversified portfolio
of Government National Mortgage Association ("GNMA") securities. Dividends
paid by the trust during this period totaled $0.37 per share for
Institutional Shares and $0.35 per share for Institutional Service Shares.
The trust's net asset value ended the period at $10.91. Total net assets
stood at $1.3 billion on the last day of the period.
Thank you for selecting Federated GNMA Trust as a prudent way to pursue
investment income. Your questions and comments are always welcome.
Sincerely,
[Graphic]
Glen R. Johnson
President
September 15, 1996
INVESTMENT REVIEW
The Federated GNMA 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.
Current portfolio strategy targets an effective duration of 4.4 years, which
is neutral to the Salomon Brothers GNMA 30-Year Index* single-family
aggregate market weighted average effective duration. The asset allocation
mix reflects a fully invested position in GNMA mortgage securities with a
diversified range of coupons averaging 8%. The last six months have
presented the opportunity for the trust to favor selective purchases of
discount and current coupon GNMA securities. The trust also maintained
exposure to the seasoned premium sector over new premium issues. The
seasoned premiums have better convexity than comparable coupon new issues
and they have less exposure to interest rate volatility. This portfolio
strategy, during the six-month reporting period, produced a net total rate
of return of -0.55% for Institutional Shares** and -0.64% for Institutional
Service Shares** versus the Salomon Index return of 0.12% and the Merrill
Lynch 10-Year Treasury Index*** return of -5.41%.
The first half of 1996, by all definitions, was robust; second quarter gross
domestic product ("GDP") growth was 4.2%, following first quarter GDP growth
of 2%. On a year-over-year basis, GDP growth was up 2.6% in the second
quarter, which was the highest quarter since the first quarter of 1995. As
we start the second half of 1996, the economic data being released indicates
that the pace of economic activity is likely to slow moving forward. For
example, the high level of housing activity in the first half of 1996 has
begun to reverse as the impact of the sharp rise in mortgage rates is
beginning to be observed in the data being released.
Despite the moderating tone to the economy, the bond market remains in a
trading range with no discernible directional bias in place. Given the
trend, the outlook for the mortgage market remains positive as investors
focus on the income component of total rate of return. The mortgage market's
stellar year-to-date performance relative to other bond market sectors has
been aided by a continued decline in prepayment volatility as well as the 1%
increase in interest rates. In order for the mortgage market to become
concerned about prepayment pressures, interest rates would have to decline
about 125 basis points. Other factors such as two-thirds of the mortgage
market at a discount, decreased issuance of fixed-rate mortgages and tight
spread levels on asset-backed and corporate securities bode well for the
mortgage market.
As of July 31, 1996, total net assets were approximately $1.3 billion and
the average 30-day net yield as calculated under Securities and Exchange
Commission guidelines was 6.41% for Institutional Shares and 6.21% for
Institutional Service Shares.** Rated AAAf by Standard & Poor's Rating
Group, for credit qualities, the trust remains committed to competitive
yields and daily liquidity.****
* The 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 graduated payment mortgages. This index is unmanaged and actual
investments cannot be made in an index.
** Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when redeemed,
may be worth more or less than their original cost.
*** The Merrill Lynch 10-Year Treasury Index is an unmanaged index tracking
10-year U.S. government securities. Actual investments cannot be made in an
index.
**** An AAAf rating means that the fund's portfolio holdings and
counterparties provide extremely strong protection against losses from
credit defaults. Ratings do not remove market risks and are subject to
change.
FEDERATED GNMA TRUST
PORTFOLIO OF INVESTMENTS
JULY 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
LONG-TERM GOVERNMENT OBLIGATIONS -- 98.3%
(A)GOVERNMENT NATIONAL MORTGAGE ASSOCIATION -- 98.3%
$ 10,118,334 6.00%, 12/15/2023-4/15/2026 $ 9,122,184
101,849,426 6.50%, 9/15/2025-5/15/2026 94,559,044
203,777,119 7.00%, 5/15/2023-8/15/2026 194,923,003
111,500,000 (b)7.00%, 12/15/2026 106,655,325
320,062,008 7.50%, 5/15/2022-5/15/2026 314,879,112
187,661,152 8.00%, 3/15/2017-8/15/2026 189,118,629
49,800,000 (b)8.00%, 2/15/2023 50,110,254
69,700,539 8.50%, 4/15/2017-2/15/2022 71,893,809
83,322,774 9.00%, 6/15/2016-8/15/2026 88,141,163
8,740,000 (b)9.00%, 2/15/2023 9,149,556
52,880,621 9.50%, 5/15/2016-8/15/2026 56,803,248
16,800,000 (b)9.50%, 6/15/2025 17,954,664
7,864,903 10.00%, 10/15/2018-8/15/2026 8,557,879
32,500,000 (b)10.00%, 10/15/2018 35,363,575
7,995,053 10.50%, 1/15/2016-8/15/2019 8,809,429
16,163,997 11.00%, 12/15/2009-10/15/2019 18,037,727
12,548,769 11.50%, 4/15/2010-4/15/2016 14,168,188
20,836,314 12.00%, 7/15/2011-12/15/2015 23,785,695
9,221,366 12.50%, 1/15/2010-6/15/2016 10,618,864
1,230,690 13.00%, 12/15/2010-3/15/2015 1,424,511
1,718,585 13.50%, 5/15/2010-8/15/2014 1,998,371
TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(IDENTIFIED COST $1,335,851,922) 1,326,074,230
</TABLE>
FEDERATED GNMA TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(C)REPURCHASE AGREEMENTS -- 18.0%
$ 21,675,000 BT Securities Corp., 5.68%, dated 7/31/1996, due 8/1/1996 $ 21,675,000
49,800,000 (d)Goldman, Sachs & Co., 5.315%, dated 7/24/1996, due 8/22/1996 49,800,000
156,000,000 (d)Goldman, Sachs & Co., 5.33%, dated 7/22/1996, due 8/19/1996 156,000,000
15,000,000 (d)J.P. Morgan Securities, Inc., 5.33%, dated 7/22/1996,
due 8/19/1996 15,000,000
TOTAL REPURCHASE AGREEMENTS (AT AMORTIZED COST) 242,475,000
TOTAL INVESTMENTS (IDENTIFIED COST $1,578,326,922)(E) $1,568,549,230
</TABLE>
(a) Because of monthly principal payments, the average lives of the
Government National Mortgage Association Modified Pass-Through Securities
(based upon Federal Housing Authority/Veterans Administration historical
experience) are less than the stated maturities.
(b) Indicates securities subject to dollar roll transactions with a total
market value of $219,233,374.
(c) The repurchase agreements are fully collateralized by U.S. government
and/or agency obligations based on market prices at the date of the
portfolio. The investments in the repurchase agreements are through
participation in joint accounts with other Federated Funds.
(d) Although final maturity falls beyond seven days, a liquidity feature is
included in each transaction to permit termination of the repurchase
agreement within seven days if the creditworthiness of the issuer is
downgraded.
(e) The cost of investments for federal tax purposes amounts to
$1,578,326,922. The net unrealized depreciation of investments on a federal
tax basis amounts to $9,777,692 which is comprised of $11,885,957
appreciation and $21,663,649 depreciation at July 31, 1996.
Note: The categories of investments are shown as a percentage of net assets
($1,349,480,880) at July 31, 1996.
(See Notes which are an integral part of the Financial Statements)
FEDERATED GNMA TRUST
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Investments in securities $1,326,074,230
Investments in repurchase agreements 242,475,000
Total investments in securities, at value (identified and tax
cost $1,578,326,922) $1,568,549,230
Income receivable 7,508,488
Receivable for shares sold 395,901
Total assets 1,576,453,619
LIABILITIES:
Payable for dollar roll transactions 218,740,636
Income distribution payable 7,597,846
Payable to Bank 382,456
Payable for shares redeemed 76,458
Accrued expenses 175,343
Total liabilities 226,972,739
NET ASSETS for 123,657,585 shares outstanding $1,349,480,880
NET ASSETS CONSIST OF:
Paid in capital $1,501,567,350
Net unrealized depreciation of investments (9,777,692)
Accumulated net realized loss on investments (142,429,944)
Undistributed net investment income 121,166
Total Net Assets $1,349,480,880
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$1,232,405,818 O 112,929,583 shares outstanding $10.91
INSTITUTIONAL SERVICE SHARES:
$117,075,062 O 10,728,002 shares outstanding $10.91
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED GNMA TRUST
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JULY 31, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest (net of dollar roll expense of $5,908,188) $ 50,915,265
EXPENSES:
Investment advisory fee $ 2,789,154
Administrative personnel and services fee 527,150
Custodian fees 156,639
Transfer and dividend disbursing agent fees and expenses 133,277
Directors'/Trustees' fees 13,583
Auditing fees 9,264
Legal fees 2,979
Portfolio accounting fees 77,632
Distribution services fee -- Institutional Service Shares 147,848
Shareholder services fee -- Institutional Shares 1,595,365
Shareholder services fee -- Institutional Service Shares 147,848
Share registration costs 15,840
Printing and postage 19,955
Insurance premiums 11,754
Taxes 39,648
Miscellaneous 8,168
Total expenses 5,696,104
Waivers--
Waiver of distribution services fee --
Institutional Service Shares $ (143,709)
Waiver of shareholder services fee --
Institutional Shares (1,276,292)
Waiver of shareholder services fee --
Institutional Service Shares (4,140)
Total waivers (1,424,141)
Net expenses 4,271,963
Net investment income 46,643,302
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 3,018,404
Net change in unrealized depreciation of investments (58,338,251)
Net realized and unrealized loss on investments (55,319,847)
Change in net assets resulting from operations $ (8,676,545)
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED GNMA TRUST
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
(UNAUDITED) JANUARY 31,
JULY 31, 1996 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 46,643,302 $ 107,873,068
Net realized gain (loss) on investments ($3,018,404 net
gain and $21,821,623 net loss, respectively, as computed
for federal tax purposes) 3,018,404 14,663,260
Net change in unrealized appreciation (depreciation) (58,338,251) 88,242,539
Change in net assets resulting from operations (8,676,545) 210,778,867
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Institutional Shares (42,583,137) (99,770,141)
Institutional Service Shares (3,818,453) (8,102,927)
Distributions in excess of net investment income:
Institutional Shares -- (120,546)
Change in net assets resulting from distributions to shareholders (46,401,590) (107,993,614)
SHARE TRANSACTIONS--
Proceeds from sale of shares 110,482,279 257,208,894
Net asset value of shares issued to shareholders in payment of
distributions declared 10,600,586 30,445,454
Cost of shares redeemed (193,031,470) (476,432,552)
Change in net assets resulting from share transactions (71,948,605) (188,778,204)
Change in net assets (127,026,740) (85,992,951)
NET ASSETS:
Beginning of period 1,476,507,620 1,562,500,571
End of period (including undistributed net investment income of
$121,166 and $0, respectively) $1,349,480,880 $1,476,507,620
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED GNMA TRUST
STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JULY 31, 1996 (UNAUDITED)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net decrease in net assets resulting from operations $ (8,676,545)
ADJUSTMENTS TO RECONCILE NET DECREASE IN NET ASSETS FROM OPERATIONS TO CASH
PROVIDED BY OPERATING ACTIVITIES:
Net decrease in investments (including $58,338,251 increase in unrealized depreciation) 126,548,601
Decrease in income receivable 934,223
Decrease in receivable for investments sold 64,556,417
Decrease in payable for investments purchased (75,119,497)
Decrease in accrued expenses (71,323)
Decrease in payable to Bank (197,607)
Cash provided by operating activities 107,974,269
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from the sale of shares 111,765,030
Net cost of shares redeemed (194,200,625)
Increase in payable for dollar roll transactions 8,706,377
Distributions paid (34,245,051)
Cash used in financing activities (107,974,269)
Net change in cash 0
Cash at beginning of period 0
Cash at end of period $ 0
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED GNMA TRUST
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
JULY 31, YEAR ENDED JANUARY 31,
1996 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $11.34 $10.61 $11.64 $11.80 $11.64
INCOME FROM INVESTMENT
OPERATIONS
Net investment
income 0.37 0.78 0.82 0.85 0.93
Net realized and unrealized
gain (loss) on investments (0.43) 0.73 (1.03) (0.16) 0.16
Total from investment
operations (0.06) 1.51 (0.21) 0.69 1.09
LESS DISTRIBUTIONS
Distributions from net
investment income (0.37) (0.77) (0.82) (0.85) (0.93))
Distributions in excess
of net investment income(a) -- (0.01) -- -- --
Total distributions (0.37) (0.78) (0.82) (0.85) (0.93)
NET ASSET VALUE,
END OF PERIOD $10.91 $11.34 $10.61 $11.64 $11.80
TOTAL RETURN(B) (0.55%) 14.61% (1.71%) 6.02% 9.78%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.60%* 0.60% 0.56% 0.51% 0.51%
Net investment income 6.71%* 7.02% 7.51% 7.22% 7.98%
Expense waiver/
reimbursement(c) 0.20%* 0.20% -- -- --
SUPPLEMENTAL DATA
Net assets, end
of period
(000 omitted) $1,232,406 $1,352,894 $1,442,074 $1,910,500 $1,770,169
Portfolio turnover 38% 43% 136% 117% 33%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $11.29 $10.97 $10.70 $11.08 $11.46
INCOME FROM INVESTMENT
OPERATIONS
Net investment
income 0.98 1.00 1.00 1.01 1.04
Net realized and unrealized
gain (loss) on investments 0.35 0.32 0.27 (0.38) (0.38)
Total from investment
operations 1.33 1.32 1.27 0.63 0.66
LESS DISTRIBUTIONS
Distributions from net
investment income (0.98) (1.00) (1.00) (1.01) (1.04)
Distributions in excess
of net investment income(a) -- -- -- -- --
Total distributions (0.98) (1.00) (1.00) (1.01) (1.04)
NET ASSET VALUE,
END OF PERIOD $11.64 $11.29 $10.97 $10.70 $11.08
TOTAL RETURN(B) 12.25% 12.65% 12.33% 5.99% 6.29%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.51% 0.52% 0.52% 0.53% 0.52%
Net investment income 8.54% 9.08% 9.19% 9.33% 9.51%
Expense waiver/
reimbursement(c) -- -- -- -- --
SUPPLEMENTAL DATA
Net assets, end
of period
(000 omitted) $1,333,930 $1,268,706 $1,312,780 $1,710,890 $2,111,559
Portfolio turnover 57% 48% 27% 40% 45%
</TABLE>
* Computed on an annualized basis.
(a) Distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal income tax
purposes.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED GNMA TRUST
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED),
JULY 31, YEAR ENDED JANUARY 31,
1996 1996 1995 1994 1993(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.34 $10.61 $11.64 $11.80 $11.71
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.35 0.78 0.79 0.82 0.61
Net realized and unrealized gain (loss)
on investments (0.43) 0.71 (1.03) (0.16) 0.09
Total from investment operations (0.08) 1.49 (0.24) 0.66 0.70
LESS DISTRIBUTIONS
Distributions from net investment income (0.35) (0.76) (0.79) (0.82) (0.61)
NET ASSET VALUE, END OF PERIOD $10.91 $11.34 $10.61 $11.64 $11.80
TOTAL RETURN(B) (0.64%) 14.39% (1.92%) 5.76% 5.62%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.80%* 0.80% 0.77% 0.76% 0.76%*
Net investment income 6.52%* 6.82% 7.32% 6.97% 7.57%*
Expense waiver/reimbursement(c) 0.25%* 0.25% 0.14% -- --
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $117,075 $123,614 $120,427 $137,235 $50,166
Portfolio turnover 38% 43% 136% 117% 33%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from June 18, 1992 (date of initial
public investment) to January 31, 1993.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED GNMA TRUST
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1996 (UNAUDITED)
1. ORGANIZATION
Federated GNMA Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as a diversified, open-end
management investment company. The Trust's objective is to obtain current
income by investing primarily in instruments issued or guaranteed by the
Government National Mortgage Association.
The Trust offers two classes of shares: Institutional Shares and
Institutional Service Shares.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS -- U.S. government securities are generally valued at
the mean of the latest bid and asked price as furnished by an independent
pricing service. Short-term securities are valued at the prices provided by
an independent pricing service. However, short-term securities with
remaining maturities of sixty days or less at the time of purchase may be
valued at amortized cost, which approximates fair market value.
REPURCHASE AGREEMENTS -- It is the policy of the Trust to require the
custodian bank to take possession, to have legally segregated in the Federal
Reserve Book Entry System, or to have segregated within the custodian bank's
vault, all securities held as collateral under repurchase agreement
transactions. Additionally, procedures have been established by the Trust to
monitor, on a daily basis, the market value of each repurchase agreement's
collateral to ensure that the value of collateral at least equals the
repurchase price to be paid under the repurchase agreement transaction.
The Trust will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Trust's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the "Trustees").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Trust could receive less
than the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and
expenses are accrued daily. Bond premium and discount, if applicable, are
amortized as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal income tax
purposes.
FEDERAL TAXES -- It is the Trust's policy to comply with the provisions of
the Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
At January 31, 1996, the Trust, for federal tax purposes, had a capital loss
carryforward of $145,448,348, which will reduce the Trust's taxable income
arising from future net realized gain on investments, if any, to the extent
permitted by the Code, and thus will reduce the amount of the distributions
to shareholders which would otherwise be necessary to relieve the Trust of
any liability for federal tax. Pursuant to the Code, such capital loss
carryforward will expire as follows:
<TABLE>
<CAPTION>
EXPIRATION YEAR EXPIRATION AMOUNT
<S> <C>
1997 $18,028,171
1998 $14,893,518
1999 $13,784,245
2001 $ 5,182,436
2003 $71,738,355
2004 $21,821,623
</TABLE>
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Trust may engage in
when-issued or delayed delivery transactions. The Trust records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
DOLLAR ROLL TRANSACTIONS -- The Trust enters into dollar roll transactions,
with respect to mortgage securities issued by GNMA in which the Trust sells
mortgage securities to financial institutions and simultaneously agrees to
accept substantially similar (same type, coupon and maturity) securities at
a later date at an agreed upon price. Dollar roll transactions are
short-term financing arrangements which will not exceed twelve months. The
Trust will use the proceeds generated from the transactions to invest in
short-term investments, which may enhance the Trust's current yield and
total return.
STATEMENT OF CASH FLOWS -- Information on financial transactions which have
been settled through the receipt or disbursement of cash is presented in the
Trust's Statement of Cash Flows. The cash amount shown in the Statement of
Cash Flows is the amount reported as cash in the Trust's Statement of Assets
and Liabilities and represents cash on hand in its custodian bank account
and does not include any short-term investments at July 31, 1996.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER -- Investment transactions are accounted for on the trade date.
3. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value) for
each class of shares. Transactions in shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JULY 31, 1996 JANUARY 31, 1996
INSTITUTIONAL SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 9,432,115 $ 104,294,056 21,399,885 $ 236,718,872
Shares issued to shareholders in
payment of distributions declared 838,421 9,234,457 2,212,467 24,540,300
Shares redeemed (16,633,047) (183,569,994) (40,178,059) (445,126,223)
Net change resulting from
Institutional Shares transactions (6,362,511) $ (70,041,481) (16,565,707) $(183,867,051)
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JULY 31, 1996 JANUARY 31, 1996
INSTITUTIONAL SERVICE SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 560,974 $ 6,188,223 1,850,765 $ 20,490,022
Shares issued to shareholders in
payment of distributions declared 123,994 1,366,129 532,433 5,905,154
Shares redeemed (856,800) (9,461,476) (2,828,872) (31,306,329)
Net change resulting from
Institutional Service Shares
transactions (171,832) $ (1,907,124) (445,674) $ (4,911,153)
Net change resulting
from shares transactions (6,534,343) $ (71,948,605) (17,011,381) $(188,778,204)
</TABLE>
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE -- Federated Management, the Trust's investment
adviser, (the "Adviser"), receives for its services an annual investment
advisory fee equal to 0.40% of the Trust's average daily net assets.
ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Trust with administrative
personnel and services. The fee paid to FServ is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received during
the period of the Administrative Services Agreement shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE -- The Trust has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan,
the Trust will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Trust's Institutional Service Shares
finance activities intended to result in the sale of the Trust's
Institutional Service Shares. The Plan provides that the Trust may incur
distribution expenses up to 0.25% of the average daily net assets of the
Institutional Service Shares, annually, to compensate FSC. 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 0.25% of average daily net assets of the Trust for the period. The
fee paid to FSS is used to finance certain services for shareholders and to
maintain shareholder accounts. FSS may voluntarily choose to waive any
portion of its fee. FSS can modify or terminate this voluntary waiver at any
time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ, through
its subsidiary, Federated Shareholder Services Company ("FSSC") serves as
transfer and dividend disbursing agent for the Trust. The fee paid to FSSC
is based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES -- FServ maintains the Trust's accounting records
for which it receives a fee. The fee is based on the level of the Trust's
average daily net assets for the period, plus out-of-pocket expenses.
GENERAL -- Certain of the Officers and Trustees of the Trust are Officers
and Directors or Trustees of the above companies.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
six months ended July 31, 1996, were as follows:
<TABLE>
<S> <C>
PURCHASES $469,027,908
SALES $576,743,401
</TABLE>
<TABLE>
<S> <S>
TRUSTEES OFFICERS
John F. Donahue John F. Donahue
Thomas G. Bigley Chairman
John T. Conroy, Jr. Glen R. Johnson
William J. Copeland President
James E. Dowd J. Christopher Donahue
Lawrence D. Ellis, M.D. Executive Vice President
Edward L. Flaherty, Jr. Edward C. Gonzales
Peter E. Madden Executive Vice President
Gregor F. Meyer John W. McGonigle
John E. Murray, Jr. Executive Vice President, Treasurer,
Wesley W. Posvar and Secretary
Marjorie P. Smuts Richard B. Fisher
Vice President
J. Crilley Kelly
Assistant Secretary
</TABLE>
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including possible loss of principal.
This report is authorized for distribution to prospective investors only
when preceded or accompanied by the Trust's prospectus which contains facts
concerning its objective and policies, management fees, expenses, and other
information.
FEDERATED GNMA TRUST
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
JULY 31, 1996
[Graphic]
Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
[Graphic]
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