SEMI-ANNUAL REPORT
President's Message
Dear Investor:
I am pleased to present the Semi-Annual Report to Shareholders for Federated
GNMA Trust. The report covers the six-month period from February 1, 1999 through
July 31, 1999, and includes the fund's investment review, portfolio holdings,
and financial statements.
In pursuit of monthly income, the fund's portfolio invests primarily in a
portfolio of Government National Mortgage Association securities. Dividends paid
by the fund during the six-month period totaled $0.34 per share for
Institutional Shares and $0.33 per share for Institutional Service Shares. The
net asset value for both share classes decreased by $0.52 to end the reporting
period at $10.86. Total returns for Institutional Shares and Institutional
Service Shares were (1.65%) 1 and (1.73%)1 respectively. The fund's net assets
totaled $974 million on the last day of the reporting period.
Thank you for selecting Federated GNMA Trust as a prudent, professionally
managed way to pursue investment income. Your questions and comments are always
welcome.
Sincerely,
[Graphic]
Glen R. Johnson
President
September 15, 1999
1 Performance quoted represents past performance and is not indicative of future
results. 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.
Investment Review
Federated GNMA Trust invests in securities backed by the full faith and credit
of the U.S. government. While the fund invests primarily in mortgage-backed
securities ("MBS") issued or guaranteed by the Government National Mortgage
Association (GNMA), the fund may also invest in U.S. Treasury securities.
Improving overseas economies, a fading "flight-to-quality" bid for U.S. Treasury
securities, strong U.S. economic growth and concern over potential inflation
combined to raise yields significantly over the semi-annual reporting period.
Two-year and ten-year Treasuries closed the reporting period yielding 5.62% and
5.90%, respectively, increases of 98 and 116 basis points, respectively.
As overseas economies and financial markets stabilized after the events of 1998,
investor demand for Treasury securities declined and attention returned to
economic fundamentals, which indicated continued strong U.S. consumer demand.
While the domestic economy continued to display a remarkable blend of robust
growth and subdued inflation, concern over potential inflationary pressures was
a contributing factor behind Federal Reserve Board (the "Fed") action. On June
30, 1999, the Fed increased the federal funds target rate by 25 basis points to
5.00%.
While impressive productivity growth, highly competitive markets and low import
prices continued to hold inflation at bay, a possible inflationary flare-up due
to a 30-year low in the unemployment rate and rising commodity prices had the
Fed on alert. Commodity prices, most notably oil, rose substantially over the
reporting period. The Fed's action served dual purposes-to remove a portion of
1998's easings deemed no longer necessary to aid financial markets and to act as
a preemptive strike against inflation.
For MBS, yield movements significantly altered sector risk and improved the
outlook. Concern over mortgage prepayments declined precipitously as mortgage
rates climbed approximately 100 basis points to nearly 8.00%. Current rates are
the highest of the past two years, resulting in reduced refinance risk. Evidence
of the diminished risk can be seen in the Mortgage Bankers Refinance Index,
which declined nearly 70.00% during the reporting period.
While the prepayment picture showed marked improvement, the effect of rising
interest rates negatively impacted GNMA MBS prices which declined over the
reporting period. Premium coupon GNMAs outperformed relative to lower coupons as
current and discount mortgages experienced greater duration extension versus
premiums as rates increased. Mortgage spreads, which initially tightened over
the first two and one-half months of the reporting period, ended the reporting
period wider. The par-priced GNMA current coupon spread was 164 basis points as
of July 31, 1999, an increase of 18 basis points.
Given historically attractive spreads, declining refinance applications and
prepayments, we are positive on the GNMA MBS sector. While the near term
contains uncertainties given Y2K-driven concerns over accelerated debt issuance
schedules (corporate and asset-backed securities) and liquidity, the mortgage
market offers attractive valuations and the expectation of declining production,
a combination of factors that should offer investors a solid investment
opportunity.
The fund's net total returns for Institutional Shares and Institutional Service
Shares for the semi-annual period ending July 31, 1999, were (1.65%) 1 and
(1.73%),1 respectively, compared to (0.79%) for the Lehman Brothers GNMA Index.2
1 Performance quoted represents past performance and is not indicative of future
results. 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.
2 The Lehman Brothers GNMA Index is a total comprehensive GNMA index comprised
of 30-year GNMA pass-throughs, 15-year GNMA pass-throughs and GNMA GPMS. This
index is unmanaged and investments cannot be made in an index.
Shareholder Meeting Results
A Special Meeting of Shareholders of Federated GNMA Trust was held on June 21,
1999. On April 23, 1999, the record date for shareholders voting at the meeting,
there were 90,729,760 total outstanding shares. The following items were
considered by shareholders and the results of their voting were as follows:
AGENDA ITEM 1
Election of Trustees: 1
<TABLE>
<CAPTION>
WITHHELD
AUTHORITY
FOR TO VOTE
<S> <C> <C>
Thomas G. Bigley 62,563,279 230,089
Nicholas P. Constantakis 62,587,861 205,507
John F. Cunningham 62,603,712 189,656
J. Christopher Donahue 62,597,735 195,633
Charles F. Mansfield, Jr. 62,598,754 194,614
John E. Murray, Jr., J.D., S.J.D. 62,608,839 184,529
John S. Walsh 62,609,347 184,021
</TABLE>
1 The following Trustees continued their terms as Trustees: John F.
Donahue, John T. Conroy, Jr., Lawrence D. Ellis, M.D., Peter E. Madden and
Marjorie P. Smuts.
AGENDA ITEM 2
To ratify the selection of Deloitte & Touche LLP as the fund's independent
auditors.
<TABLE>
<CAPTION>
ABSTENTIONS WITHHELD
AND BROKER AUTHORITY
FOR NON-VOTES TO VOTE
<S> <C> <C>
62,208,836 116,154 468,377
</TABLE>
AGENDA ITEM 3
To make changes to the fund's fundamental investment policies:
(a) To amend the fund's fundamental investment policy regarding diversification:
<TABLE>
<CAPTION>
ABSTENTIONS WITHHELD
AND BROKER AUTHORITY
FOR NON-VOTES TO VOTE
<S> <C> <C>
57,480,067 1,881,674 3,431,627
</TABLE>
(b) To amend the fund's fundamental investment policy regarding borrowing money
and issuing senior securities:
<TABLE>
<CAPTION>
ABSTENTIONS WITHHELD
AND BROKER AUTHORITY
FOR NON-VOTES TO VOTE
<S> <C> <C>
57,508,810 1,976,187 3,308,371
</TABLE>
(c) To amend the fund's fundamental investment policy regarding investing in
real estate:
<TABLE>
<CAPTION>
ABSTENTIONS WITHHELD
AND BROKER AUTHORITY
FOR NON-VOTES TO VOTE
<S> <C> <C>
57,655,865 1,828,672 3,308,831
</TABLE>
(d) To amend the fund's fundamental investment policy regarding investing in
commodities:
<TABLE>
<CAPTION>
ABSTENTIONS WITHHELD
AND BROKER AUTHORITY
FOR NON-VOTES TO VOTE
<S> <C> <C>
57,392,580 2,113,047 3,287,741
</TABLE>
(e) To amend the fund's fundamental investment policy regarding underwriting
securities:
<TABLE>
<CAPTION>
ABSTENTIONS WITHHELD
AND BROKER AUTHORITY
FOR NON-VOTES TO VOTE
<S> <C> <C>
57,401,655 2,029,864 3,361,849
</TABLE>
(f) To amend the fund's fundamental investment policy regarding lending assets:
<TABLE>
<CAPTION>
ABSTENTIONS WITHHELD
AND BROKER AUTHORITY
FOR NON-VOTES TO VOTE
<S> <C> <C>
57,252,394 2,249,793 3,291,181
</TABLE>
(g) To amend, and to make non-fundamental, the fund's fundamental investment
policy on buying securities on margin:
<TABLE>
<CAPTION>
ABSTENTIONS WITHHELD
AND BROKER AUTHORITY
FOR NON-VOTES TO VOTE
<S> <C> <C>
57,286,842 2,144,908 3,361,618
</TABLE>
(h) To amend, and to make non-fundamental, the fund's fundamental investment
policy on assets:
<TABLE>
<CAPTION>
ABSTENTIONS WITHHELD
AND BROKER AUTHORITY
FOR NON-VOTES TO VOTE
<S> <C> <C>
57,002,467 2,408,664 3,382,237
</TABLE>
AGENDA ITEM 4
To eliminate the fund's fundamental investment policy regarding selling
securities short:
<TABLE>
<CAPTION>
ABSTENTIONS WITHHELD
AND BROKER AUTHORITY
FOR NON-VOTES TO VOTE
<S> <C> <C>
56,960,462 2,401,504 3,431,402
</TABLE>
AGENDA ITEM 5
To approve amendments and a restatement to the fund's Declaration of Trust:
(a) To require the approval by a majority of the outstanding voting shares in
the event of the sale or conveyance of the assets of the fund to another trust
or corporation:
<TABLE>
<CAPTION>
ABSTENTIONS WITHHELD
AND BROKER AUTHORITY
FOR NON-VOTES TO VOTE
<S> <C> <C>
59,149,471 845,347 2,798,550
</TABLE>
(b) To permit the Board of Trustees to liquidate assets of the fund without
seeking shareholder approval:
<TABLE>
<CAPTION>
ABSTENTIONS WITHHELD
AND BROKER AUTHORITY
FOR NON-VOTES TO VOTE
<S> <C> <C>
53,870,944 6,118,570 2,803,854
</TABLE>
(c) To permit the Board of Trustees to change the name of the fund without
seeking shareholder approval:
<TABLE>
<CAPTION>
ABSTENTIONS WITHHELD
AND BROKER AUTHORITY
FOR NON-VOTES TO VOTE
<S> <C> <C>
54,508,469 5,431,665 2,853,234
</TABLE>
Portfolio of Investments
JULY 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
LONG-TERM GOVERNMENT
OBLIGATIONS-99.5%
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION-99.5% 1
$ 43,832,671 6.000%, 11/15/2023 -
1/15/2029 $ 40,507,337
301,024,315 2 6.500%, 10/15/2023 -
5/15/2029 286,518,303
319,476,486 7.000%, 6/15/2027 -
8/15/2029 311,298,469
211,270,990 7.500%, 12/15/2023 -
8/15/2029 211,019,125
105,548,909 8.000%, 7/15/2017 -
8/15/2029 108,032,744
11,155,213 8.500%, 10/15/2017 11,744,319
TOTAL LONG-TERM GOVERNMENT
OBLIGATIONS
(IDENTIFIED COST $1,002,147,138) 969,120,297
REPURCHASE AGREEMENTS-15.6% 3
143,334,000 4, 5 Credit Suisse First
Boston, Inc., 5.010%,
dated 7/20/1999, due
8/24/1999 143,334,000
8,785,000 Societe Generale, New
York, 5.060%, dated
7/30/1999, due 8/2/1999 8,785,000
TOTAL REPURCHASE
AGREEMENTS (AT AMORTIZED
COST) 152,119,000
TOTAL INVESTMENTS
(IDENTIFIED COST
$1,154,266,138) 6 $1,121,239,297
</TABLE>
1 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.
2 All or a portion of this security is subject to a future dollar roll
transaction.
3 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.
4 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.
5 Security held as collateral for future dollar roll transaction.
6 The cost of investments for federal tax purposes amounts to $1,154,266,138.
The net unrealized depreciation of investments on a federal tax basis amounts to
$33,026,841 which is comprised of $1,346,645 appreciation and $34,373,486
depreciation at July 31, 1999.
Note: The categories of investments are shown as a percentage of net assets
($974,149,998) at July 31, 1999.
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
JULY 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in
securities, at value
(identified and tax cost
$1,154,266,138) $ 1,121,239,297
Income receivable 4,892,570
Receivable for investments
sold 44,124,229
Receivable for shares sold 347,821
TOTAL ASSETS 1,170,603,917
LIABILITIES:
Payable for investments
purchased $ 45,371,315
Payable for shares
redeemed 99,657
Income distribution
payable 4,927,972
Payable for dollar roll
transactions 145,962,755
Accrued expenses 92,220
TOTAL LIABILITIES 196,453,919
Net assets for 89,696,958
shares outstanding $ 974,149,998
NET ASSETS CONSIST OF:
Paid in capital $ 1,099,333,200
Net unrealized
depreciation of
investments (33,026,841)
Accumulated net realized
loss on investments (92,154,052)
Distributions in excess of
net investment income (2,309)
TOTAL NET ASSETS $ 974,149,998
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PROCEEDS PER SHARE
INSTITUTIONAL SHARES:
$906,224,771 / 83,442,655
shares outstanding $10.86
INSTITUTIONAL SERVICE
SHARES:
$67,925,227 / 6,254,303
shares outstanding $10.86
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
SIX MONTHS ENDED JULY 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest (net of dollar
roll expense of $220,540) $ 33,885,564
EXPENSES:
Investment advisory fee $ 2,021,821
Administrative personnel
and services fee 381,113
Custodian fees 44,182
Transfer and dividend
disbursing agent fees and
expenses 158,748
Trustees' fees 10,580
Auditing fees 10,615
Legal fees 3,303
Portfolio accounting fees 72,640
Distribution services fee-
Institutional Service
Shares 82,579
Shareholder services fee-
Institutional Shares 1,181,062
Shareholder services fee-
Institutional Service
Shares 82,579
Share registration costs 15,905
Printing and postage 15,198
Insurance premiums 2,217
Miscellaneous 5,054
TOTAL EXPENSES 4,087,596
WAIVERS:
Waiver of distribution
services fee-Institutional
Service Shares $ (80,267)
Waiver of shareholder
services fee-Institutional
Shares (755,880)
Waiver of shareholder
services fee-Institutional
Service Shares (2,312)
TOTAL WAIVERS (838,459)
Net expenses 3,249,137
Net investment income 30,636,427
REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS:
Net realized gain on
investments 6,509,796
Net change in unrealized
appreciation of
investments (54,149,759)
Net realized and
unrealized loss on
investments (47,639,963)
Change in net assets
resulting from operations $ (17,003,536)
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
(unaudited) JANUARY 31,
JULY 31, 1999 1999
<S> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS:
Net investment income $ 30,636,427 $ 67,946,888
Net realized gain on
investments ($6,509,796
and $12,165,305,
respectively, as computed
for federal tax purposes) 6,509,796 12,243,870
Net change in unrealized
appreciation of
investments (54,149,759) (11,968,147)
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS (17,003,536) 68,222,611
DISTRIBUTIONS TO
SHAREHOLDERS:
Distributions from net
investment income
Institutional Shares (28,677,151) (64,170,667)
Institutional Service
Shares (1,954,105) (3,776,221)
CHANGE IN NET ASSETS
RESULTING FROM
DISTRIBUTIONS
TO SHAREHOLDERS (30,631,256) (67,946,888)
SHARE TRANSACTIONS:
Proceeds from sale of shares 138,201,035 239,681,334
Net asset value of shares
issued to shareholders in
payment of
distributions declared 7,969,131 22,096,774
Cost of shares redeemed (179,874,377) (355,657,998)
CHANGE IN NET ASSETS
RESULTING FROM SHARE
TRANSACTIONS (33,704,211) (93,879,890)
Change in net assets (81,339,003) (93,604,167)
NET ASSETS:
Beginning of period 1,055,489,001 1,149,093,168
End of period $ 974,149,998 $ 1,055,489,001
</TABLE>
See Notes which are an integral part of the Financial Statements
Financial Highlights-Institutional Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
JULY 31, YEAR ENDED JANUARY 31,
1999 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $11.38 $11.38 $11.13 $11.34 $10.61 $11.64
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income 0.34 0.70 0.73 0.74 0.78 0.82
Net realized and
unrealized gain (loss) on
investments (0.52) - 0.25 (0.21) 0.73 (1.03)
TOTAL FROM
INVESTMENT OPERATIONS (0.18) 0.70 0.98 0.53 1.51 (0.21)
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.34) (0.70) (0.73) (0.74) (0.77) (0.82)
Distributions in excess of
net investment income 1 - - - - (0.01) -
TOTAL DISTRIBUTIONS (0.34) (0.70) (0.73) (0.74) (0.78) (0.82)
NET ASSET VALUE, END OF
PERIOD $10.86 $11.38 $11.38 $11.13 $11.34 $10.61
TOTAL RETURN 2 (1.65%) 6.30% 9.17% 4.97% 14.61% (1.71%)
RATIOS TO AVERAGE NET ASSETS:
Expenses 3 0.79% 4 0.77% 0.78% 0.80% 0.80% 0.56%
Net investment income 3 5.91% 4 5.97% 6.39% 6.54% 6.82% 7.51%
Expenses (after waivers) 0.63% 4 0.61% 0.60% 0.60% 0.60% 0.56%
Net investment income
(after waivers) 6.07% 4 6.13% 6.57% 6.74% 7.02% 7.51%
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $906,225 $991,334 $1,087,227 $1,199,733 $1,352,894 $1,442,074
Portfolio turnover 55% 104% 74% 63% 43% 136%
</TABLE>
1 Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These distributions
did not represent a return of capital for federal income tax purposes.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 During the period, certain fees were voluntarily waived. If such voluntary
waivers had not occurred, the ratios would have been as indicated.
4 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Institutional Service Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
JULY 31, YEAR ENDED JANUARY 31,
1999 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $11.38 $11.38 $11.13 $11.34 $10.61 $11.64
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income 0.32 0.68 0.72 0.74 0.78 0.79
Net realized and
unrealized gain (loss) on
investments (0.51) - 0.24 (0.23) 0.71 (1.03)
TOTAL FROM INVESTMENT
OPERATIONS (0.19) 0.68 0.96 0.51 1.49 (0.24)
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.33) (0.68) (0.71) (0.72) (0.76) (0.79)
NET ASSET VALUE, END OF
PERIOD $10.86 $11.38 $11.38 $11.13 $11.34 $10.61
TOTAL RETURN 1 (1.73%) 6.11% 8.95% 4.76% 14.39% (1.92%)
RATIOS TO AVERAGE NET ASSETS:
Expenses 2 1.04% 3 1.02% 1.03% 1.05% 1.05% 0.91%
Net investment income 2 5.66% 3 5.72% 6.14% 6.29% 6.57% 7.18%
Expenses (after waivers) 0.79% 3 0.77% 0.78% 0.80% 0.80% 0.77%
Net investment income
(after waivers) 5.91% 3 5.97% 6.39% 6.54% 6.82% 7.32%
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $67,925 $64,155 $61,866 $73,857 $123,614 $120,427
Portfolio turnover 55% 104% 74% 63% 43% 136%
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 During the period, certain fees were voluntarily waived. If such voluntary
waivers had not occurred, the ratios would have been as indicated.
3 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
JULY 31, 1999 (UNAUDITED)
ORGANIZATION
Federated GNMA Trust (the "Fund") is registered under the Investment Company Act
of 1940, as amended (the "Act"), as a diversified, open-end management
investment company. The Fund offers two classes of shares: Institutional Shares
and Institutional Service Shares. The Fund's objective is current income.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund 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 60 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 Fund 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 Fund 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 Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Fund's adviser to be creditworthy pursuant to 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 Fund 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 Fund'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, 1999, the Fund, for federal tax purposes, had a capital loss
carryforward of $98,742,414, which will reduce the Fund'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 Fund 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>
2001 $ 5,182,436
2003 71,738,355
2004 21,821,623
</TABLE>
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
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 Fund enters into dollar roll transactions, with respect to mortgage
securities issued by GNMA in which the Fund sells mortgage securities to
financial institutions and simultaneously agrees to accept substantially similar
(same type, coupon and maturity) securities at a later date at an agreed upon
price. Dollar roll transactions involve "to be announced" securities and are
treated as short-term financing arrangements which will not exceed 12 months.
The Fund will use the proceeds generated from the transactions to invest in
short-term investments, which may enhance the Fund's current yield and total
return.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JULY 31, 1999 JANUARY 31, 1999
INSTITUTIONAL SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 10,976,407 $ 122,836,201 19,361,451 $ 219,785,865
Shares issued to
shareholders in payment of
distributions declared 625,442 6,999,953 1,742,970 19,791,254
Shares redeemed (15,234,049) (170,474,274) (29,566,047) (335,709,442)
NET CHANGE RESULTING FROM
INSTITUTIONAL SHARE
TRANSACTIONS (3,632,200) $ (40,638,120) (8,461,626) $ (96,132,323)
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JULY 31, 1999 JANUARY 31, 1999
INSTITUTIONAL SERVICE SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 1,372,246 $ 15,364,834 1,752,306 $ 19,895,469
Shares issued to
shareholders in payment of
distributions declared 86,629 969,178 203,023 2,305,520
Shares redeemed (839,590) (9,400,103) (1,757,129) (19,948,556)
NET CHANGE RESULTING FROM
INSTITUTIONAL SERVICE
SHARE TRANSACTIONS 619,285 6,933,909 198,200 $ 2,252,433
NET CHANGE RESULTING FROM
SHARE TRANSACTIONS (3,012,915) $ (33,704,211) (8,263,426) $ (93,879,890)
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Investment Management Company, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
0.40% of the Fund's average daily net assets.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund 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, Inc. 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 Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b- 1
under the Act. Under the terms of the Plan, the Fund will compensate Federated
Securities Corp. ("FSC"), the principal distributor, from the net assets of the
Fund to finance activities intended to result in the sale of the Fund's
Institutional Service Shares. The Plan provides that the Fund may incur
distribution expenses up to 0.25% of the average daily net assets of the
Institutional Service Shares annually to compensate FSC. FSC may voluntarily
choose to waive any portion of its fee. FSC can modify or terminate this
voluntary waiver at any time at its sole discretion.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services Company ("FSSC"), the Fund will pay FSSC up to 0.25% of average daily
net assets of the Fund for the period. The fee paid to FSSC is used to finance
certain services for shareholders and to maintain shareholder accounts. FSSC may
voluntarily choose to waive any portion of its fee. FSSC 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 FSSC, serves as transfer and dividend disbursing
agent for the Fund. 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 Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
GENERAL
Certain of the Officers and Trustees of the Fund are Officers and Directors or
Trustees of the above companies.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the six
months ended July 31, 1999, were as follows:
<TABLE>
<CAPTION>
<S> <C>
Purchases $563,441,713
Sales $553,205,154
</TABLE>
YEAR 2000
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
Trustees
JOHN F. DONAHUE
THOMAS G. BIGLEY
JOHN T. CONROY, JR.
NICHOLAS P. CONSTANTAKIS
JOHN F. CUNNINGHAM
LAWRENCE D. ELLIS, M.D.
PETER E. MADDEN
JOHN E. MURRAY, JR., J.D., S.J.D.
MARJORIE P. SMUTS
Officers
JOHN F. DONAHUE
Chairman
GLEN R. JOHNSON
President
WILLIAM D. DAWSON, III
Chief Investment Officer
J. CHRISTOPHER DONAHUE
Executive Vice President
EDWARD C. GONZALES
Executive Vice President
JOHN W. MCGONIGLE
Executive Vice President and Secretary
RICHARD B. FISHER
Vice President
RICHARD J. THOMAS
Treasurer
C. GRANT ANDERSON
Assistant Secretary
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 the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
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Federated
World-Class Investment Manager
SEMI-ANNUAL REPORT
Federated GNMA Trust
SEMI-ANNUAL REPORT TO SHAREHOLDERS
JULY 31, 1999
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Federated
Federated GNMA Trust
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Cusip 314184102
Cusip 314184201
8083002 (9/99)
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