ANNUAL REPORT
President's Message
Dear Investor:
I am pleased to present the Annual Report to Shareholders for Federated GNMA
Trust. The Report covers the 12-month reporting period from February 1, 1998
through January 31, 1999 and includes the fund's investment review, portfolio
holdings, and financial statements.
In pursuit of monthly income, the fund's portfolio invests at least 65% of its
assets in a portfolio of Government National Mortgage Association (GNMA)
securities. Dividends paid by the fund during the 12-month reporting period
totaled $0.70 per share for Institutional Shares and $0.68 per share for
Institutional Service Shares. Net asset value for both share classes was
unchanged at $11.38 on the first and last day of the 12-month reporting period.
Total returns, for the 12-month reporting period, for Institutional Shares and
Institutional Service Shares were 6.30% 1 and 6.11%,1 respectively. The fund's
net assets totaled $1.1 billion on the last day of the 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
March 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
The Federated GNMA Trust (the "Fund") is designed for shareholders seeking
participation in a professionally managed portfolio of GNMA securities
guaranteed as to the payment of principal and interest by the U.S. government.
(Fund shares are not guaranteed or insured by the U.S. government or any
government agency.) The Fund offers daily liquidity, 1 credit control and other
advantages over comparable U.S. Treasury securities, while at the same time
allowing investors to avoid the complexities of managing a portfolio of
mortgage-backed securities. Shareholders hold an interest in a diversified
portfolio managed under a set of highly conservative disciplines.
During the annual reporting period, the U.S. Treasury market put in a stellar
performance by outperforming other major fixed income asset classes. The key
factors driving the performance of Treasury securities in 1998 were reductions
in Treasury supply due to the first budget surplus in close to 30 years,
declining commodity prices, emerging market contagion, and heightened liquidity
premiums. While the U.S. economy continued to post strong growth in 1998, the
overall performance and shape of the U.S. Treasury yield curve were driven by
events taking place in other markets. The first half of the annual reporting
period saw a continued flattening of the yield curve between the 2- and 30-year
U.S. Treasury securities. During this time period, the yield spread between the
2- and 30-year U.S. Treasury securities declined from 50 to 23 basis points. The
turning point for investors was the emerging market crisis in Russia and Latin
America. As this crisis unfolded, investors favored the most liquid U.S.
Treasury securities available and avoided all other fixed income asset classes.
This risk aversion drove U.S. Treasury rates to levels not seen in a generation
and spreads on non-U.S. Treasury assets to their widest point in 10 years. At
the peak of this turmoil, the yield on the 30- year U.S. Treasury reached a low
of 4.71%. During this period, the Federal Reserve Board eased 75 basis points
over a three-month time period to provide stability to the capital markets. As
the market stabilized, there was a partial reversal of the flight to quality
activity, and the U.S. Treasury market gave back some of the gains. With the
return to stability and a focus on the domestic economy, investors in the
mortgage-backed sector started to benefit as the new year began. Current
valuation in the mortgage market continues to highlight the attractiveness of
the sector on an option-adjusted spread basis versus other fixed income sectors.
Current portfolio strategy targets an effective duration of 2.66 years, which is
neutral to the Lehman Brothers GNMA. 2 The asset allocation mix reflects a blend
of GNMA mortgage securities with a diversified range of coupons averaging 7.07%.
During the annual reporting period, the Fund continued to emphasize the 6% to 7%
coupon sector. Given the boom in the housing market, this coupon sector has
become a much larger part of the overall GNMA universe. The purchases continue
to focus on newly- originated GNMA securities. The GNMA borrower tends to be
slow to take advantage of refinancing due to income constraints and the
inability to finance the up-front costs. Prepayments on current GNMA securities
have averaged 15% to 25% slower than comparable conventional securities.
1 Redemption is at the then-current net asset value, which may be more or less
than the original cost.
2 The Lehman Brothers GNMA Index is a total comprehensive GNMA index composed 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.
In the several weeks prior to the Fund's fiscal year end, there was a proposal
put forth to sell the GNMA agency to a private entity. The idea is designed as a
one-time revenue raising measure to fund other non-mortgage related programs.
The details of the potential GNMA privatization are incomplete, and it appears
that any new entity would not carry the full faith and credit status. The plan
is currently on hold due to the fact that the sale would probably not raise the
projected amount. In addition, the inevitable outcome would be to raise the
borrowing costs for the low and moderate income borrowers serviced by the FHA
and VA programs. The initial proposal created a flurry of concern for mortgage
investors as to potential implications for the overall mortgage market. These
concerns have subsequently diminished.
Overall, our view on the mortgage market is positive as we move into 1999. We
believe that mortgages will perform well due to strong technical and fundamental
factors. In terms of fundamentals, mortgages underperformed last year due to
mortgage rates declining to 30-year lows, creating two major refinancing waves.
With mortgage origination rates having increased substantially, and prepayments
having peaked for this cycle, the outlook for mortgages is positive. The
technical situation is positive due to decreasing supply and increasing demand.
Origination from the mortgage bankers has declined accompanied by a pickup in
investor demand due to attractive yield spreads over comparable duration U.S.
Treasurys.
As of January 31, 1999, the Fund produced an annualized total return of 6.30% 3
on the Institutional Shares and a 6.11%3 return for the Institutional Service
Shares. This compares to a 6.66% return on the Lehman Brothers GNMA Index. Rated
AAAf 4 by Standard & Poor's, for credit quality, the Fund remains committed to
pursuing competitive yields and daily liquidity.
3 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.
4 An AAAf rating means that the Fund's portfolio holdings and counterparties
provide extremely strong protection against losses from credit defaults. Ratings
are subject to change, and do not remove market risks.
GROWTH OF $25,000 INVESTED IN FEDERATED GNMA TRUST-INSTITUTIONAL SHARES
Graphic Presentation omitted. See Appendix A.1
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD ENDED JANUARY 31, 1999
1 Year 6.30%
5 Year 6.53%
10 Year 8.54%
Start of Performance (3/23/82) 10.13%
The graph above illustrates the hypothetical investment of $25,000 1 in the
Federated GNMA Trust (Institutional Shares) (the "Fund") from January 31, 1989
to January 31, 1999 compared to the Salomon Brothers 30-Year GNMA Index
(SB30YRGI),1 the Lipper GNMA Funds Average (LGFA)2 and the Lehman Brothers GNMA
Index (LBGNMA).1
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.
1 The Fund's performance assumes the reinvestment of all dividends and
distributions. The SB30YRGI, LGFA and the LBGNMA have been adjusted to reflect
reinvestment of dividends on securities in the indices and average. The SB30YRGI
and LBGNMA are not adjusted to reflect sales charges, expenses, or other fees
that the SEC requires to be reflected in the Fund's performance. The indices are
unmanaged.
2 The LGFA represents the average of the total returns reported by all of the
mutual funds designated by Lipper Analytical Services, Inc. as falling in the
respective category, and is not adjusted to reflect any sales charges. However,
these total returns are reported net of expenses or other fees that the SEC
requires to be reflected in a fund's performance.
GROWTH OF $25,000 INVESTED IN FEDERATED GNMA TRUST-INSTITUTIONAL
SERVICE SHARES
Graphic Presentation omitted. See Appendix A.2
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD ENDED JANUARY 31, 1999
1 Year 6.11%
5 Year 6.32%
Start of Performance (5/30/92) 6.58%
The graph above illustrates the hypothetical investment of $25,000 1 in the
Federated GNMA Trust (Institutional Service Shares) (the "Fund") from May 30,
1992 (start of performance) to January 31, 1999 compared to the Salomon Brothers
30-Year GNMA Index (SB30YRGI),1 the Lipper GNMA Funds Average (LGFA)2 and the
Lehman Brothers GNMA Index (LBGNMA).1
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.
1 The Fund's performance assumes the reinvestment of all dividends and
distributions. The SB30YRGI, LGFA and the LBGNMA have been adjusted to reflect
reinvestment of dividends on securities in the indices and average. The SB30YRGI
and LBGNMA are not adjusted to reflect sales charges, expenses, or other fees
that the SEC requires to be reflected in the Fund's performance. The indices are
unmanaged.
2 The LGFA represents the average of the total returns reported by all of the
mutual funds designated by Lipper Analytical Services, Inc. as falling in the
respective category, and is not adjusted to reflect any sales charges. However,
these total returns are reported net of expenses or other fees that the SEC
requires to be reflected in a fund's performance.
Portfolio of Investments
JANUARY 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
LONG-TERM GOVERNMENT OBLIGATIONS-98.5%
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION-98.5% 1
$ 96,312,436 6.000%, 11/15/2023 - 1/15/2029 $ 95,625,766
227,888,238 2 6.500%, 10/15/2023 - 12/15/2028 230,735,077
292,143,471 7.000%, 5/15/2023 - 1/15/2029 299,456,791
255,391,527 7.500%, 5/15/2022 - 12/15/2028 263,882,808
129,963,700 8.000%, 3/15/2017 - 1/15/2029 135,814,297
13,624,748 8.500%, 10/15/2017 14,586,928
TOTAL LONG-TERM GOVERNMENT OBLIGATIONS
(IDENTIFIED COST $1,018,978,749) 1,040,101,667
REPURCHASE AGREEMENTS-4.9% 3
24,800,000 4, 5 J.P. Morgan & Co., Inc., 4.820%, dated 1/19/1999, due
2/22/1999 24,800,000
26,485,000 Societe Generale, New York, 4.730%, dated 1/29/1999, due
2/1/1999 26,485,000
TOTAL REPURCHASE AGREEMENTS (AT AMORTIZED COST) 51,285,000
TOTAL INVESTMENTS (IDENTIFIED COST $1,070,263,749) 6 $ 1,091,386,667
</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 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 $1,070,263,749.
The net unrealized appreciation/depreciation of investments on a federal tax
basis amounts to $21,122,918, which is comprised of $21,382,989 appreciation and
$260,071 depreciation as of January 31, 1999.
Note: The categories of investments are shown as a percentage of net assets
($1,055,489,001) as of January 31, 1999.
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
JANUARY 31, 1999
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and
tax cost $1,070,263,749) $ 1,091,386,667
Cash 4,718
Income receivable 5,813,304
Receivable for investments sold 11,032,108
Receivable for shares sold 821,041
TOTAL ASSETS 1,109,057,838
LIABILITIES:
Payable for investments purchased $ 46,891,817
Payable for shares redeemed 3,021,463
Income distribution payable 3,491,560
Accrued expenses 163,997
TOTAL LIABILITIES 53,568,837
Net assets for 92,709,873 shares outstanding $ 1,055,489,001
NET ASSETS CONSIST OF:
Paid in capital $ 1,133,037,411
Net unrealized appreciation of investments 21,122,918
Accumulated net realized loss on investments (98,663,848)
Distributions in excess of net investment income (7,480)
TOTAL NET ASSETS $ 1,055,489,001
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS PER
SHARE:
INSTITUTIONAL SHARES:
$991,334,411 / 87,074,855 shares outstanding $11.38
INSTITUTIONAL SERVICE SHARES:
$64,154,590 / 5,635,018 shares outstanding $11.38
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
YEAR ENDED JANUARY 31, 1999
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest (net of dollar roll expense of $2,009,729) $ 74,859,077
EXPENSES:
Investment advisory fee $ 4,438,230
Administrative personnel and services fee 836,606
Custodian fees 79,955
Transfer and dividend disbursing agent fees and expenses 174,937
Directors'/Trustees' fees 18,736
Auditing fees 20,969
Legal fees 6,851
Portfolio accounting fees 150,635
Distribution services fee-Institutional Service Shares 158,775
Shareholder services fee-Institutional Shares 2,615,122
Shareholder services fee-Institutional Service Shares 158,775
Share registration costs 34,123
Printing and postage 31,501
Insurance premiums 11,208
Taxes 75
Miscellaneous 8,144
TOTAL EXPENSES 8,744,642
WAIVERS AND REIMBURSEMENTS:
Waiver of distribution services fee-Institutional Service
Shares $ (154,329)
Waiver of shareholder services fee-Institutional Shares (1,673,678)
Waiver of shareholder services fee-Institutional Service
Shares (4,446)
TOTAL WAIVERS (1,832,453)
Net expenses 6,912,189
Net investment income 67,946,888
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 12,243,870
Net change in unrealized depreciation of investments (11,968,147)
Net realized and unrealized gain on investments 275,723
Change in net assets resulting from operations $ 68,222,611
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31 1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income $ 67,946,888 $ 79,056,637
Net realized gain on investments ($12,165,305 and
$10,112,724, respectively, as computed for federal tax
purposes) 12,243,870 10,112,724
Net change in unrealized appreciation/depreciation (11,968,147) 16,065,946
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 68,222,611 105,235,307
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net investment income
Institutional Shares (64,170,667) (74,565,995)
Institutional Service Shares (3,776,221) (4,498,183)
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS
TO SHAREHOLDERS (67,946,888) (79,064,178)
SHARE TRANSACTIONS:
Proceeds from sale of shares 239,681,334 213,783,903
Net asset value of shares issued to shareholders in payment
of distributions declared 22,096,774 23,518,122
Cost of shares redeemed (355,657,998) (387,970,458)
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS (93,879,890) (150,668,433)
Change in net assets (93,604,167) (124,497,304)
NET ASSETS:
Beginning of period 1,149,093,168 1,273,590,472
End of period $ 1,055,489,001 $ 1,149,093,168
</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>
YEAR ENDED JANUARY 31 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $11.38 $11.13 $11.34 $10.61 $11.64
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.70 0.73 0.74 0.78 0.82
Net realized and unrealized gain (loss)
on investments - 0.25 (0.21) 0.73 (1.03)
TOTAL FROM INVESTMENT OPERATIONS 0.70 0.98 0.53 1.51 (0.21)
LESS DISTRIBUTIONS:
Distributions from net investment income (0.70) (0.73) (0.74) (0.77) (0.82)
Distributions in excess of net
investment income 1 - - - (0.01) -
TOTAL DISTRIBUTIONS (0.70) (0.73) (0.74) (0.78) (0.82)
NET ASSET VALUE, END OF PERIOD $11.38 $11.38 $11.13 $11.34 $10.61
TOTAL RETURN 2 6.30% 9.17% 4.97% 14.61% (1.71%)
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.61% 0.60% 0.60% 0.60% 0.56%
Net investment income 6.13% 6.57% 6.74% 7.02% 7.51%
Expense waiver/reimbursement 3 0.16% 0.18% 0.20% 0.20% -
SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $991,334 $1,087,227 $1,199,733 $1,352,894 $1,442,074
Portfolio turnover 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 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
Financial Highlights-Institutional Service Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $11.38 $11.13 $11.34 $10.61 $11.64
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.68 0.72 0.74 0.78 0.79
Net realized and unrealized gain (loss)
on investments - 0.24 (0.23) 0.71 (1.03)
TOTAL FROM
INVESTMENT OPERATIONS 0.68 0.96 0.51 1.49 (0.24)
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.68) (0.71) (0.72) (0.76) (0.79)
NET ASSET VALUE, END OF PERIOD $11.38 $11.38 $11.13 $11.34 $10.61
TOTAL RETURN 1 6.11% 8.95% 4.76% 14.39% (1.92%)
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.77% 0.78% 0.80% 0.80% 0.77%
Net investment income 5.97% 6.39% 6.54% 6.82% 7.32%
Expense waiver/reimbursement 2 0.25% 0.25% 0.25% 0.25% 0.14%
SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $64,155 $61,866 $73,857 $123,614 $120,427
Portfolio turnover 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 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
Notes to Financial Statements
JANUARY 31, 1999
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 to obtain current
income by investing in instruments issued or guaranteed by the Government
National Mortgage Association.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the 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.
Income and capital gain distributions are determined in accordance with income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments for expiring capital
loss carryforwards. The following reclassifications have been made to the
financial statements.
INCREASE (DECREASE)
ACCUMULATED UNDISTRIBUTED
NET REALIZED NET INVESTMENT
PAID-IN CAPITAL GAIN/LOSS INCOME
($1,611,461) $1,618,941 ($7,480)
Net investment income, net realized gains/losses, and net assets were not
affected by this reclassification.
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:
EXPIRATION YEAR EXPIRATION AMOUNT
2001 $ 5,182,436
2003 71,738,355
2004 21,821,623
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>
YEAR ENDED JANUARY 31 1999 1998
INSTITUTIONAL SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 19,361,451 $ 219,785,865 17,914,645 $ 200,749,424
Shares issued to shareholders in payment of
distributions declared 1,742,970 19,791,254 1,884,677 21,084,267
Shares redeemed (29,566,047) (335,709,442) (32,057,270) (359,010,618)
NET CHANGE RESULTING FROM
INSTITUTIONAL SHARE TRANSACTIONS (8,461,626) $ (96,132,323) (12,257,948) $ (137,176,927)
<CAPTION>
YEAR ENDED JANUARY 31 1999 1998
INSTITUTIONAL SERVICE SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 1,752,306 $ 19,895,469 1,159,988 $ 13,034,477
Shares issued to shareholders in payment of
distributions declared 203,023 2,305,520 217,640 2,433,855
Shares redeemed (1,757,129) (19,948,556) (2,576,723) (28,959,840)
NET CHANGE RESULTING
FROM INSTITUTIONAL SERVICE
SHARE TRANSACTIONS 198,200 $ 2,252,433 (1,199,095) $ (13,491,508)
NET CHANGE RESULTING FROM
SHARE TRANSACTIONS (8,263,426) $ (93,879,890) (13,457,043) $ (150,668,435)
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Management, 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 fees. 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 shares for the period. The fee paid to FSSC is used to
finance certain services for shareholders and to maintain shareholder account.
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
period ended January 31, 1999, were as follows:
Purchases $ 1,312,477,432
Sales $ 1,140,248,041
YEAR 2000 (UNAUDITED)
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.
SUBSEQUENT EVENT (UNAUDITED)
Effective March 31, 1999, Federated Management, Adviser to the Fund, will
merge into Federated Investment Management Company (formerly Federated
Advisers).
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, (the "Fund") as of January
31, 1999, the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years then ended January
31, 1999 and 1998, and the financial highlights for the periods presented. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned at
January 31, 1999, by correspondence with the custodian and brokers; where
replies were not received, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Federated GNMA Trust
as of January 31, 1999, 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
Boston, Massachusetts
March 18, 1999
Trustees
JOHN F. DONAHUE
THOMAS G. BIGLEY
JOHN T. CONROY, JR.
NICHOLAS P. CONSTANTAKIS
WILLIAM J. COPELAND
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
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
ANTHONY R. BOSCH
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. Although money market funds seek to
maintain a stable net asset value of $1.00 per share, there is no assurance that
they will be able to do so.
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.
ANNUAL REPORT
[Graphic]
Federated GNMA Trust
ANNUAL REPORT
TO SHAREHOLDERS
JANUARY 31, 1999
[Graphic]
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
G00613-01 (3/99)
[Graphic]
APPENDIX
A.1 The graphic presentation here displayed consists of a boxed legend in the
bottom center indicating the components of the corresponding line graph.
Federated GNMA Trust's Institutional Shares (the "Fund") is represented by a
solid line. The Saloman Brothers 30-year GNMA Index (SB30YRGI), Lipper GNMA
Funds Average (LGFA) and Lehman Brothers GNMA Index (LBGNMA) are represented by
a dotted line, a dashed line and a broken line, respectively. The line graph is
a visual representation of a comparison of change in value of a hypothetical
$25,000 investment in the Fund and SB30YRGI, LGFA, and LBGNMA. The "y" axis
reflects the growth of the investment. The "x" axis reflects the computation
period from 1/31/89 through 1/31/99. The right margin reflects the ending value
of the hypothetical investment in the Fund as compared to SB30YRGI, LGFA, and
LBGNMA; the ending values were $56,715, $60,500, $54,450, and $60,156,
respectively. There is also a legend in the lower left quadrant of the graphic
presentation which indicates the Average Annual Total Return for the periods
ended January 31, 1999, showing the one-year, five-year, ten-year, and from the
start of performance of the Fund's Institutional Shares (3/28/82), the Average
Annual Total Return are 6.30%, 6.53%, 8.54% and 10.13%, respectively.
A.2 The graphic presentation here displayed consists of a boxed legend in the
bottom center indicating the components of the corresponding line graph.
Federated GNMA Trust's Institutional Service Shares (the "Fund") is represented
by a solid line. The Saloman Brothers 30-year GNMA Index (SB30YRGI), Lipper GNMA
Funds Average (LGFA) and Lehman Brothers GNMA Index (LBGNMA) are represented by
a dotted line, a dashed line and a broken line, respectively. The line graph is
a visual representation of a comparison of change in value of a hypothetical
$25,000 investment in the Fund and SB30YRGI, LGFA, and LBGNMA. The "y" axis
reflects the growth of the investment. The "x" axis reflects the computation
period from start of business 5/30/92 through 1/31/99. The right margin reflects
the ending value of the hypothetical investment in the Fund as compared to
SB30YRGI, LGFA, and LBGNMA; the ending values were $38,268, $39,930, $38,344,
and $41,080, respectively. There is also a legend in the lower left quadrant of
the graphic presentation which indicates the Average Annual Total Return for the
periods ended January 31, 1999, showing the one-year, five-year, and start of
performance period; the Average Annual Total Return are 6.11%, 6.32%, and 6.58%,
respectively.
