United States
Securities and Exchange Commission
Washington, D.C. 20549
Form N-CSR
Certified Shareholder Report of Registered Management Investment Companies
811-3375
(Investment Company Act File Number)
Federated GNMA Trust
(Exact Name of Registrant as Specified in Charter)
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7000
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
(Notices should be sent to the Agent for Service)
Date of Fiscal Year End: 1/31/04
Date of Reporting Period: Fiscal Year Ended 1/31/04
Item 1. Reports to Stockholders
Federated Investors
World-Class Investment Manager
Federated GNMA Trust
ANNUAL SHAREHOLDER REPORT
January 31, 2004
Institutional Shares
Institutional Service Shares
FINANCIAL HIGHLIGHTS
FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
BOARD OF TRUSTEES AND TRUST OFFICERS
VOTING PROXIES ON FUND PORTFOLIO SECURITIES
NOT FDIC INSURED * MAY LOSE VALUE * NO BANK GUARANTEE
Financial Highlights -- Institutional Shares
(For a Share Outstanding Throughout Each Period)
Year Ended January 31 |
| 2004 |
|
| 2003 |
|
| 2002 |
|
| 2001 |
|
| 2000 |
|
Net Asset Value, Beginning of Period |
| $11.56 |
|
| $11.34 |
|
| $11.28 |
|
| $10.61 |
|
| $11.38 |
|
Income From Investment Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
| 0.51 |
|
| 0.62 |
|
| 0.68 |
|
| 0.72 |
|
| 0.69 |
|
Net realized and unrealized gain (loss) on investments |
| (0.25 | ) |
| 0.22 |
|
| 0.06 |
|
| 0.67 |
|
| (0.77 | ) |
TOTAL FROM INVESTMENT OPERATIONS |
| 0.26 |
|
| 0.84 |
|
| 0.74 |
|
| 1.39 |
|
| (0.08 | ) |
Less Distributions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions from net investment income |
| (0.51 | ) |
| (0.62 | ) |
| (0.68 | ) |
| (0.72 | ) |
| (0.69 | ) |
Net Asset Value, End of Period |
| $11.31 |
|
| $11.56 |
|
| $11.34 |
|
| $11.28 |
|
| $10.61 |
|
Total Return1 |
| 2.28 | % |
| 7.60 | % |
| 6.76 | % |
| 13.53 | % |
| (0.73 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios to Average Net Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses |
| 0.63 | % |
| 0.63 | % |
| 0.62 | % |
| 0.64 | % |
| 0.63 | % |
Net investment income |
| 4.46 | % |
| 5.42 | % |
| 6.03 | % |
| 6.60 | % |
| 6.26 | % |
Expense waiver/reimbursement2 |
| 0.16 | % |
| 0.16 | % |
| 0.16 | % |
| 0.16 | % |
| 0.16 | % |
Supplemental Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (000 omitted) |
| $758,178 |
|
| $898,881 |
|
| $793,286 |
|
| $761,629 |
|
| $830,719 |
|
Portfolio turnover |
| 70 | % |
| 55 | % |
| 46 | % |
| 54 | % |
| 90 | % |
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 the 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)
Year Ended January 31 |
| 2004 |
|
| 2003 |
|
| 2002 |
|
| 2001 |
|
| 2000 |
|
Net Asset Value, Beginning of Period |
| $11.56 |
|
| $11.34 |
|
| $11.28 |
|
| $10.61 |
|
| $11.38 |
|
Income From Investment Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
| 0.50 |
|
| 0.59 |
|
| 0.65 |
|
| 0.70 |
|
| 0.67 |
|
Net realized and unrealized gain (loss) on investments |
| (0.26 | ) |
| 0.23 |
|
| 0.07 |
|
| 0.67 |
|
| (0.77 | ) |
TOTAL FROM INVESTMENT OPERATIONS |
| 0.24 |
|
| 0.82 |
|
| 0.72 |
|
| 1.37 |
|
| (0.10 | ) |
Less Distributions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions from net investment income |
| (0.49) |
|
| (0.60 | ) |
| (0.66 | ) |
| (0.70 | ) |
| (0.67 | ) |
Net Asset Value, End of Period |
| $11.31 |
|
| $11.56 |
|
| $11.34 |
|
| $11.28 |
|
| $10.61 |
|
Total Return1 |
| 2.11 | % |
| 7.43 | % |
| 6.59 | % |
| 13.35 | % |
| (0.89 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios to Average Net Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses |
| 0.79 | % |
| 0.79 | % |
| 0.78 | % |
| 0.80 | % |
| 0.79 | % |
Net investment income |
| 4.30 | % |
| 5.26 | % |
| 5.86 | % |
| 6.43 | % |
| 6.10 | % |
Expense waiver/reimbursement2 |
| 0.25 | % |
| 0.25 | % |
| 0.25 | % |
| 0.25 | % |
| 0.25 | % |
Supplemental Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (000 omitted) |
| $65,709 |
|
| $101,057 |
|
| $72,815 |
|
| $58,873 |
|
| $58,438 |
|
Portfolio turnover |
| 70 | % |
| 55 | % |
| 46 | % |
| 54 | % |
| 90 | % |
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 the net investment income ratios shown above.
See Notes which are an integral part of the Financial Statements
Management's Discussion of Fund Performance
The factors that materially affected market and fund performance, during the fiscal year, were changes in interest rates and resulting refinance activity.
U.S. Treasury yield movements were significant during the reporting period. While the ten-year Treasury yielded 4.13% at period end--an increase of just 0.17%--such a year-over-year measurement does not adequately convey significant intra-year yield movements. Ten-year Treasury yields fell as low as 3.11% in June 2003, before rebounding to 4.60% in September 2003, a range of nearly 150 basis points.
Mortgage rates gyrated along with Treasury yields. As 30-year mortgage rates fell to multi-decade lows, record refinance activity ensued. Mortgage refinancing negatively impacts Mortgage-Backed Securities (MBS) performance due to the more rapid return of security principal and reinvestment of prepayment proceeds at lower market yields.
While the risk of MBS prepayments cannot be eliminated, the fund attempted to reduce exposure to refinance risk via security selection. Factors which impact prepayments include geographical considerations, loan age and loan size. Newly-produced loans, for example, tend to prepay more slowly during their initial months relative to more seasoned cohorts. Slower prepays are translated into greater income and return. By considering the factors of MBS prepayments and investing accordingly, the fund was able to somewhat reduce the deleterious impact of refinancing via security selection.
Despite advantageous security selection from a prepayment standpoint, the fund was negatively impacted by large interest rate movements, most notably in the months of July and December 2003. During those two months, the fund's price action underperformed relative to its benchmark, the Lehman Brothers GNMA Index,1 negating the benefits of security selection.
For the 12-month period ending January 31, 2004, the fund's net total return for the Institutional Shares was 2.28% and the net total return for Institutional Service Shares was 2.11%,2 compared to 3.10% for the unmanaged Lehman Brothers GNMA Index and 2.24% for the Lipper GNMA Funds Average.3
1 The Lehman Brothers GNMA Index is a total comprehensive GNMA index comprised of 30-year GNMA pass-throughs, and GNMA GPMS. The index is unmanaged and investments cannot be made in an index.
2 Past performance is no guarantee 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. Current performance information is available at our website www.federatedinv.com or by calling 1-800-341-7400.
3 Lipper Averages represent the average total returns reported by all mutual funds designated by Lipper, Inc. as falling into the respective categories.
GROWTH OF A $25,000 INVESTMENT -- INSTITUTIONAL SHARES
The graph below illustrates the hypothetical investment of $25,0001 in the Federated GNMA Trust (Institutional Shares) (the "Fund") from January 31, 1994 to January 31, 2004 compared to the Lehman Brothers GNMA Index (LBGNMA)1 and the Lipper GNMA Funds Average (LGNMAFA).2
Average Annual Total Returns for the Periods Ended 1/31/2004 |
| |
1 Year |
| 2.28% |
5 Years |
| 5.78% |
10 Years |
| 6.15% |
Past performance is no guarantee of future results. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. For after-tax returns, visit www.federatedinvestors.com. 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. 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 LBGNMA and the LGNMAFA have been adjusted to reflect reinvestment of dividends on securities in the index and the average. The LBGNMA is not adjusted to reflect sales charges, expenses, or other fees that the Securities and Exchange Commission (SEC) requires to be reflected in the Fund's performance. The index and average are unmanaged.
2 The LGNMAFA represents the average of the total returns reported by all of the mutual funds designated by Lipper, Inc. as falling in the category indicated. These figures do not reflect sales charges.
GROWTH OF A $25,000 INVESTMENT -- INSTITUTIONAL SERVICE SHARES
The graph below illustrates the hypothetical investment of $25,0001 in the Federated GNMA Trust (Institutional Service Shares) (the "Fund") from January 31, 1994 to January 31, 2004 compared to the Lehman Brothers GNMA Index (LBGNMA)1 and the Lipper GNMA Funds Average (LGNMAFA).2
Average Annual Total Returns for the Periods Ended 1/31/2004 |
|
|
1 Year |
| 2.11% |
5 Years |
| 5.61% |
10 Years |
| 5.97% |
Past performance is no guarantee of future results. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. For after-tax returns, visit www.federatedinvestors.com. 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. 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 LBGNMA and the LGNMAFA have been adjusted to reflect reinvestment of dividends on securities in the index and the average. The LBGNMA is not adjusted to reflect sales charges, expenses, or other fees that the SEC requires to be reflected in the Fund's performance. The index and average are unmanaged.
2 The LGNMAFA represents the average of the total returns reported by all of the mutual funds designated by Lipper, Inc. as falling in the category indicated. These figures do not reflect sales charges.
Portfolio of Investments
January 31, 2004
Principal |
|
|
| Value |
| ||
|
|
| MORTGAGE BACKED SECURITIES--98.7% |
|
|
|
|
|
|
| Government National Mortgage Association--98.7%1 |
|
|
|
|
$ | 4,984,358 |
| 4.500%, 8/15/2033 |
| $ | 4,822,366 |
|
| 99,796,276 |
| 5.000%, 1/15/2018 - 1/15/2034 |
|
| 99,700,873 |
|
| 174,967,084 | 2 | 5.500%, 1/15/2018 - 3/15/2034 |
|
| 178,908,369 |
|
| 172,633,201 | 2 | 6.000%, 9/15/2008 - 3/15/2034 |
|
| 180,403,781 |
|
| 170,125,495 |
| 6.500%, 10/15/2023 - 7/15/2033 |
|
| 180,045,432 |
|
| 106,890,614 |
| 7.000%, 6/15/2027 - 10/15/2033 |
|
| 114,130,543 |
|
| 35,962,626 |
| 7.500%, 5/15/2005 - 9/15/2032 |
|
| 38,651,080 |
|
| 14,356,456 |
| 8.000%, 11/15/2027 - 8/15/2032 |
|
| 15,591,917 |
|
| 999,478 |
| 8.500%, 10/15/2029 - 4/15/2030 |
|
| 1,087,097 |
|
|
|
| TOTAL MORTGAGE BACKED SECURITIES (IDENTIFIED COST $793,011,924) |
|
| 813,341,458 |
|
|
|
| REPURCHASE AGREEMENTS--13.9% |
|
|
|
|
| 102,000,000 | 3,4 | Interest in $159,000,000 joint repurchase agreement with Credit Suisse First Boston Corp., 1.020%, dated 1/22/2004, to be repurchased at $102,080,920 on 2/19/2004, collateralized by U.S. Government Agency Obligations with maturities on 1/1/2019 |
|
| 102,000,000 |
|
| 12,366,000 |
| Interest in $2,000,000,000 joint repurchase agreement with Goldman Sachs & Co., 1.050%, dated 1/30/2004, to be repurchased at $12,367,082 on 2/2/2004, collateralized by U.S. Government Agency Obligations with various maturities to 11/25/2033 |
|
| 12,366,000 |
|
|
|
| TOTAL REPURCHASE AGREEMENTS (AT AMORTIZED COST) |
|
| 114,366,000 |
|
|
|
| TOTAL INVESTMENTS--112.6% |
|
| 927,707,458 |
|
|
|
| OTHER ASSETS AND LIABILITIES - NET--(12.6)% |
|
| (103,821,205 | ) |
|
|
| TOTAL NET ASSETS--100% |
| $ | 823,886,253 |
|
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 these securities are subject to dollar roll transactions.
3 Securities held as collateral for dollar roll transactions.
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.
5 The cost of investments for federal tax purposes amounts to $907,382,007.
Note: The categories of investments are shown as a percentage of total net assets at January 31, 2004.
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
January 31, 2004
Assets: |
|
|
|
|
|
|
|
Investments in securities |
| $ | 813,341,458 |
|
|
|
|
Investments in repurchase agreements |
|
| 114,366,000 |
|
|
|
|
Total investments in securities, at value (identified cost $907,377,924) |
|
|
|
| $ | 927,707,458 |
|
Cash |
|
|
|
|
| 291 |
|
Income receivable |
|
|
|
|
| 3,516,824 |
|
Receivable for shares sold |
|
|
|
|
| 428,976 |
|
Prepaid expenses |
|
|
|
|
| 5,125 |
|
TOTAL ASSETS |
|
|
|
|
| 931,658,674 |
|
Liabilities: |
|
|
|
|
|
|
|
Payable for shares redeemed |
|
| 795,792 |
|
|
|
|
Income distribution payable |
|
| 1,426,882 |
|
|
|
|
Payable for dollar roll transactions |
|
| 105,465,533 |
|
|
|
|
Payable for portfolio accounting fees (Note 5) |
|
| 11,647 |
|
|
|
|
Payable for shareholder services fee (Note 5) |
|
| 72,567 |
|
|
|
|
TOTAL LIABILITIES |
|
|
|
|
| 107,772,421 |
|
Net assets for 72,828,242 shares outstanding |
|
|
|
| $ | 823,886,253 |
|
Net Assets Consist of: |
|
|
|
|
|
|
|
Paid in capital |
|
|
|
| $ | 821,317,185 |
|
Net unrealized appreciation of investments |
|
|
|
|
| 20,329,534 |
|
Accumulated net realized loss on investments |
|
|
|
|
| (17,913,559 | ) |
Undistributed net investment income |
|
|
|
|
| 153,093 |
|
TOTAL NET ASSETS |
|
|
|
| $ | 823,886,253 |
|
Net Asset Value, Offering Price and Redemption Proceeds Per Share |
|
|
|
|
|
|
|
Institutional Shares: |
|
|
|
|
|
|
|
$758,177,734 ÷ 67,019,834 shares outstanding |
|
|
|
|
| $11.31 |
|
Institutional Service Shares: |
|
|
|
|
|
|
|
$65,708,519 ÷ 5,808,408 shares outstanding |
|
|
|
|
| $11.31 |
|
See Notes which are an integral part of the Financial Statements
Statement of Operations
Year Ended January 31, 2004
Investment Income: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest (net of dollar roll expense of $4,199,798) |
|
|
|
|
|
|
|
|
| $ | 47,151,997 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Investment adviser fee (Note 5) |
|
|
|
|
| $ | 3,703,550 |
|
|
|
|
|
Administrative personnel and services fee (Note 5) |
|
|
|
|
|
| 706,265 |
|
|
|
|
|
Custodian fees |
|
|
|
|
|
| 79,087 |
|
|
|
|
|
Transfer and dividend disbursing agent fees and expenses (Note 5) |
|
|
|
|
|
| 242,850 |
|
|
|
|
|
Directors'/Trustees' fees |
|
|
|
|
|
| 16,634 |
|
|
|
|
|
Auditing fees |
|
|
|
|
|
| 17,100 |
|
|
|
|
|
Legal fees |
|
|
|
|
|
| 4,704 |
|
|
|
|
|
Portfolio accounting fees (Note 5) |
|
|
|
|
|
| 150,645 |
|
|
|
|
|
Distribution services fee--Institutional Service Shares (Note 5) |
|
|
|
|
|
| 200,417 |
|
|
|
|
|
Shareholder services fee--Institutional Shares (Note 5) |
|
|
|
|
|
| 2,114,302 |
|
|
|
|
|
Shareholder services fee--Institutional Service Shares (Note 5) |
|
|
|
|
|
| 200,417 |
|
|
|
|
|
Share registration costs |
|
|
|
|
|
| 51,465 |
|
|
|
|
|
Printing and postage |
|
|
|
|
|
| 44,062 |
|
|
|
|
|
Insurance premiums |
|
|
|
|
|
| 3,140 |
|
|
|
|
|
Miscellaneous |
|
|
|
|
|
| 13,246 |
|
|
|
|
|
TOTAL EXPENSES |
|
|
|
|
|
| 7,547,884 |
|
|
|
|
|
Waivers (Note 5): |
|
|
|
|
|
|
|
|
|
|
|
|
Waiver of administrative personnel and services fee |
| $ | (7,871 | ) |
|
|
|
|
|
|
|
|
Waiver of distribution services fee--Institutional Service Shares |
|
| (200,417 | ) |
|
|
|
|
|
|
|
|
Waiver of shareholder services fee--Institutional Shares |
|
| (1,353,153 | ) |
|
|
|
|
|
|
|
|
TOTAL WAIVERS |
|
|
|
|
|
| (1,561,441 | ) |
|
|
|
|
Net expenses |
|
|
|
|
|
|
|
|
|
| 5,986,443 |
|
Net investment income |
|
|
|
|
|
|
|
|
|
| 41,165,554 |
|
Realized and Unrealized Gain (Loss) on Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
Net realized loss on investments |
|
|
|
|
|
|
|
|
|
| (894,738 | ) |
Net change in unrealized appreciation of investments |
|
|
|
|
|
|
|
|
|
| (20,597,125 | ) |
Net realized and unrealized loss on investments |
|
|
|
|
|
|
|
|
|
| (21,491,863 | ) |
Change in net assets resulting from operations |
|
|
|
|
|
|
|
|
| $ | 19,673,691 |
|
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
Year Ended January 31 |
|
| 2004 |
|
|
| 2003 |
|
Increase (Decrease) in Net Assets |
|
|
|
|
|
|
|
|
Operations: |
|
|
|
|
|
|
|
|
Net investment income |
| $ | 41,165,554 |
|
| $ | 52,156,976 |
|
Net realized gain (loss) on investments |
|
| (894,738 | ) |
|
| 1,406,663 |
|
Net change in unrealized appreciation/depreciation of investments |
|
| (20,597,125 | ) |
|
| 17,294,370 |
|
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS |
|
| 19,673,691 |
|
|
| 70,858,009 |
|
Distributions to Shareholders: |
|
|
|
|
|
|
|
|
Distributions from net investment income |
|
|
|
|
|
|
|
|
Institutional Shares |
|
| (37,603,469 | ) |
|
| (47,392,958 | ) |
Institutional Service Shares |
|
| (3,448,961 | ) |
|
| (4,752,389 | ) |
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS |
|
| (41,052,430 | ) |
|
| (52,145,347 | ) |
Share Transactions: |
|
|
|
|
|
|
|
|
Proceeds from sale of shares |
|
| 243,798,203 |
|
|
| 489,896,193 |
|
Net asset value of shares issued to shareholders in payment of distributions declared |
|
| 20,670,167 |
|
|
| 26,240,866 |
|
Cost of shares redeemed |
|
| (419,141,947 | ) |
|
| (401,012,520 | ) |
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS |
|
| (154,673,577 | ) |
|
| 115,124,539 |
|
Change in net assets |
|
| (176,052,316 | ) |
|
| 133,837,201 |
|
Net Assets: |
|
|
|
|
|
|
|
|
Beginning of period |
|
| 999,938,569 |
|
|
| 866,101,368 |
|
End of period (including undistributed net investment income of $153,093 and $39,969, respectively) |
| $ | 823,886,253 |
|
| $ | 999,938,569 |
|
See Notes which are an integral part of the Financial Statements
Statement of Cash Flows
For the Year Ended January 31, 2004
Increase (Decrease) in Cash |
|
|
|
|
Cash Flows From Operating Activities: |
|
|
|
|
Change in net assets resulting from operations |
| $ | 19,673,691 |
|
Adjustments to Reconcile Change in Net Assets Resulting from Operations to Net Cash Provided by Operating Activities: |
|
|
|
|
Purchases of investment securities |
|
| (2,639,987,066 | ) |
Paydowns on investment securities |
|
| 452,698,980 |
|
Realized loss on paydowns |
|
| 4,258,657 |
|
Proceeds from sale of investment securities |
|
| 2,321,691,994 |
|
Net sales of short-term investment securities |
|
| 110,203,000 |
|
Decrease in income receivable |
|
| 686,017 |
|
Decrease in accrued expenses |
|
| (20,001 | ) |
Increase in prepaid expenses |
|
| (5,125 | ) |
Net realized gain on investments |
|
| 891,614 |
|
Net unrealized depreciation on investments |
|
| 20,597,125 |
|
NET CASH PROVIDED BY OPERATING ACTIVITIES |
|
| 290,688,886 |
|
Cash Flows From Financing Activities: |
|
|
|
|
Cash paid for dollar roll transactions, net |
|
| (95,275,308 | ) |
Proceeds from sale of shares |
|
| 245,053,043 |
|
Cash distributions paid |
|
| (20,945,232 | ) |
Payment for shares redeemed |
|
| (419,521,111 | ) |
NET CASH USED IN FINANCING ACTIVITIES |
| $ | (290,688,608 | ) |
NET INCREASE IN CASH |
| $ | 278 |
|
Cash: |
|
|
|
|
Beginning of period |
|
| 13 |
|
End of period |
|
| $291 |
|
Supplemental disclosure of cash flow information: Non-cash financing not included herein consists of reinvestment of dividends and distributions of $20,670,167.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
January 31, 2004
1. 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 investment objective is current income.
2. 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 ("GAAP") in the United States of America.
Investment Valuation
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. Securities for which no quotations are readily available are valued at fair value as determined in good faith using methods approved by the Board of Trustees (the "Trustees").
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.
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 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. The Fund, along with other affiliated investment companies, may utilize a joint trading account for the purpose of entering into one or more repurchase agreements.
Investment Income, Expenses and Distributions
Interest income and expenses are accrued daily. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Non-cash dividends included in dividend income, if any, are recorded at fair value. The Fund offers multiple classes of shares, which differ in their respective distribution and service fees. All shareholders bear the common expenses of the Fund based on average daily net assets of each class, without distinction between share classes. Dividends are declared separately for each class. No class has preferential dividend rights; differences in per share dividend rates are generally due to differences in separate class expenses.
Premium and Discount Amortization/Paydown Gains and Losses
All premiums and discounts are amortized/accreted. Gains and losses realized on principal payments of mortgage backed securities (paydown gains and losses) are classified as part of investment income.
Federal Taxes
It is the Fund's policy to comply with the Subchapter M provision of the Internal Revenue Code (the "Code") and to distribute to shareholders each year substantially all of its income. Accordingly, no provision for federal tax is necessary.
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. Losses may occur on these transactions due to changes in market conditions or the failure of counterparties to perform under the contract.
Dollar Roll Transactions
The Fund may engage in dollar roll transactions, with respect to mortgage backed securities issued by GNMA, in which the Fund sells mortgage backed 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 or mortgage backed securities, which may enhance the Fund's current yield and total return.
Information regarding dollar roll transactions for the Fund for the year ended January 31, 2004 was as follows:
Maximum amount outstanding during the period |
| $228,565,528 |
Average amount outstanding during the period1 |
| $173,815,444 |
Average shares outstanding during the period |
| 81,319,465 |
Average debt per share outstanding during the period |
| 2.14 |
1 The average amount outstanding during the period was calculated by adding the borrowings at the end of each day and dividing the sum by the number of days in the year ended January 31, 2004.
Use of Estimates
The preparation of financial statements in conformity with GAAP 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 a trade-date basis.
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:
Year Ended January 31 | 2004 | 2003 | ||||||||||||
Institutional Shares: |
| Shares |
| Amount |
| Shares |
| Amount | ||||||
Shares sold |
| 18,768,579 |
|
| $ | 214,379,813 |
|
| 33,030,869 |
|
| $ | 377,570,829 |
|
Shares issued to shareholders in payment of distributions declared |
| 1,571,629 |
|
|
| 17,862,858 |
|
| 1,958,270 |
|
|
| 22,469,007 |
|
Shares redeemed |
| (31,111,103 | ) |
|
| (353,344,574 | ) |
| (27,160,740 | ) |
|
| (311,601,543 | ) |
NET CHANGE RESULTING FROM INSTITUTIONAL SHARE TRANSACTIONS |
| (10,770,895 | ) |
| $ | (121,101,903 | ) |
| 7,828,399 |
|
| $ | 88,438,293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31 | 2004 | 2003 | ||||||||||||
Institutional Service Shares: | Shares | Amount | Shares | Amount | ||||||||||
Shares sold |
| 2,576,292 |
|
| $ | 29,418,390 |
|
| 9,802,829 |
|
| $ | 112,325,364 |
|
Shares issued to shareholders in payment of distributions declared |
| 246,679 |
|
|
| 2,807,309 |
|
| 328,683 |
|
|
| 3,771,859 |
|
Shares redeemed |
| (5,760,300 | ) |
|
| (65,797,373 | ) |
| (7,807,608 | ) |
|
| (89,410,977 | ) |
NET CHANGE RESULTING FROM INSTITUTIONAL SERVICE SHARE TRANSACTIONS |
| (2,937,329 | ) |
| $ | (33,571,674 | ) |
| 2,323,904 |
|
| $ | 26,686,246 |
|
NET CHANGE RESULTING FROM SHARE TRANSACTIONS |
| (13,708,224 | ) |
| $ | (154,673,577 | ) |
| 10,152,303 |
|
| $ | 115,124,539 |
|
4. FEDERAL TAX INFORMATION
The timing and character of income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP. These differences are due in part to differing treatments for an expired capital loss carryforward.
For the year ended January 31, 2004, permanent differences identified and reclassified among the components of net assets were as follows:
Increase (Decrease) | ||
Paid-In Capital |
| Accumulated Net |
$(21,821,623) |
| $21,821,623 |
Net investment income (loss), net realized gains (losses), as disclosed on the Statement of Operations and net assets were not affected by this reclassification.
The tax character of distributions as reported on the Statement of Changes in Net Assets for the years ended January 31, 2004 and 2003 was as follows:
|
| 2004 |
| 2003 |
Ordinary income1 |
| $41,052,430 |
| $52,145,347 |
1 For tax purposes short-term capital gain distributions are considered ordinary income distributions.
As of January 31, 2004, the components of distributable earnings on a tax basis were as follows:
Undistributed ordinary income |
| $ 1,579,976 |
Unrealized appreciation |
| $20,325,451 |
Capital loss carryforward |
| $ 17,909,478 |
The difference between book-basis and tax-basis net unrealized appreciation is attributable in part to differing treatments for tax deferral of losses on wash sales.
At January 31, 2004, the cost of investments for federal tax purposes was $907,382,007. The net unrealized appreciation of investments for federal tax purposes was $20,325,451. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $22,491,801 and net unrealized depreciation from investments for those securities having an excess of cost over value of $2,166,350.
At January 31, 2004, the Fund had a capital loss carryforward of $17,909,478 which will reduce the Fund's taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Code and thus will reduce the amount of 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 |
2009 |
| $9,358,296 |
2010 |
| $ 7,642,119 |
2012 |
| $ 909,063 |
5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Adviser Fee
Federated Investment Management Company, the Fund's investment adviser (the "Adviser"), receives for its services an annual investment adviser fee equal to 0.40% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion.
Administrative Fee
Federated Administrative Services ("FAS"), under the Administrative Services Agreement ("Agreement"), provides the Fund with administrative personnel and services. The fee paid to FAS is based on the average aggregate daily net assets of all Federated funds as specified below:
Maximum Administrative Fee |
| Average Aggregate Daily |
0.150% |
| on the first $5 billion |
0.125% |
| on the next $5 billion |
0.100% |
| on the next $10 billion |
0.075% |
| on assets in excess of $20 billion |
The administrative fee received during any fiscal year shall be at least $150,000 per portfolio and $40,000 per each additional class of Shares.
FAS may voluntary choose to waive any portion of its fee. FAS can modify or terminate this voluntary waiver at any time at its sole discretion.
Prior to November 1, 2003, Federated Services Company ("FServ") provided the Fund with administrative personnel and services. The fee paid to FServ was based on the average aggregate daily net assets of all Federated funds as specified below:
Maximum Administrative Fee |
| Average Aggregate Daily |
0.150% |
| on the first $250 million |
0.125% |
| on the next $250 million |
0.100% |
| on the next $250 million |
0.075% |
| on assets in excess of $750 million |
The administrative fee received during any fiscal year was at least $125,000 per portfolio and $30,000 per each additional class of Shares.
For the year ended January 31, 2004 the fees paid to FAS and FServ were $162,092 and $536,302, respectively, after voluntary waiver, if applicable.
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 daily net assets of the Fund's Institutional Service Shares to finance activities intended to result in the sale of these shares. The Plan provides that the Fund may incur distribution expenses of up to 0.25% of average daily net assets, 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 the average daily net assets of the Fund's Institutional Shares and Institutional Service Shares 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. 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.
Portfolio Accounting Fees
Prior to January 1, 2004 FServ maintained the Fund's accounting records for which it received a fee. The fee was based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. The fee paid to FServ during the reporting period was $138,510, after voluntary waiver, if applicable.
General
Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies.
6. LEGAL PROCEEDINGS
In October, 2003, Federated Investors, Inc. and various subsidiaries thereof (including the advisers and distributor for various investment companies, collectively, "Federated"), along with various investment companies sponsored by Federated ("Funds") were named as defendants in several class action lawsuits filed in the United States District Court for the Western District of Pennsylvania seeking damages of unspecified amounts. The lawsuits were purportedly filed on behalf of people who purchased, owned and/or redeemed shares of Federated-sponsored mutual funds during specified periods beginning November 1, 1998. The suits are generally similar in alleging that Federated engaged in illegal and improper trading practices including market timing and late trading in concert with certain institutional traders, which allegedly caused financial injury to the mutual fund shareholders. The Board of the Funds has retained the law firm of Dickstein Shapiro Morin & Oshinsky LLP to represent the Funds in these lawsuits. Federated and the Funds, and their respective counsel, are reviewing the allegations and will respond appropriately. Additional lawsuits based upon similar allegations have been filed, and others may be filed in the future. Although Federated does not believe that these lawsuits will have a material adverse effect on the Funds, there can be no assurance that these suits, the ongoing adverse publicity and/or other developments resulting from related regulatory investigations will not result in increased Fund redemptions, reduced sales of Fund shares, or other adverse consequences for the Funds.
Independent Auditors' Report
TO THE BOARD OF 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, 2004, and the related statement of operations and cash flows for the year then ended, the statement of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended. 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 auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to provide 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 as of January 31, 2004, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe 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 the Federated GNMA Trust as of January 31, 2004, the results of its operations and its cash flows for the year then ended, the changes in its net assets for each of the two years in the period then ended, and its financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
Boston, Massachusetts
March 12, 2004
Board of Trustees and Fund Officers
The Board is responsible for managing the Fund's business affairs and for exercising all the Fund's powers except those reserved for the shareholders. The following tables give information about each Board member and the senior officers of the Fund. Where required, the tables separately list Board members who are "interested persons" of the Fund (i.e., "Interested" Board members) and those who are not (i.e., "Independent" Board members). Unless otherwise noted, the address of each person listed is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA. The Federated Fund Complex consists of 44 investment companies (comprising 136 portfolios). Unless otherwise noted, each Officer is elected annually. Unless otherwise noted, each Board member oversees all portfolios in the Federated Fund Complex; serves for an indefinite term; and also serves as a Board member of the following investment company complexes: Banknorth Funds--four portfolios; Golden Oak® Family of Funds--seven portfolios; and WesMark Funds--five portfolios. The Fund's Statement of Additional Information includes additional information about Fund Trustees and is available, without charge and upon request, by calling 1-800-341-7400.
INTERESTED TRUSTEES BACKGROUND
|
|
|
Name |
| Principal Occupation(s), Other Directorships Held and |
John F. Donahue* |
| Principal Occupations: Chairman and Director or Trustee of the Federated Fund Complex; Chairman and Director, Federated Investors, Inc. |
|
|
|
J. Christopher Donahue* |
| Principal Occupations: Principal Executive Officer and President of the Federated Fund Complex; Director or Trustee of some of the Funds in the Federated Fund Complex; President, Chief Executive Officer and Director, Federated Investors, Inc.; Chairman and Trustee, Federated Investment Management Company; Trustee, Federated Investment Counseling; Chairman and Director, Federated Global Investment Management Corp.; Chairman, Passport Research, Ltd.; Trustee, Federated Shareholder Services Company; Director, Federated Services Company. |
|
|
|
|
|
|
Name |
| Principal Occupation(s), Other Directorships Held and |
Lawrence D. Ellis, M.D.* |
| Principal Occupations: Director or Trustee of the Federated Fund Complex; Professor of Medicine, University of Pittsburgh; Medical Director, University of Pittsburgh Medical Center Downtown; Hematologist, Oncologist and Internist, University of Pittsburgh Medical Center. |
|
|
|
* Family relationships and reasons for "interested" status: John F. Donahue is the father of J. Christopher Donahue; both are "interested" due to the positions they hold with Federated Investors, Inc. and its subsidiaries. Lawrence D. Ellis, M.D. is "interested" because his son-in-law is employed by the Fund's principal underwriter, Federated Securities Corp.
INDEPENDENT TRUSTEES BACKGROUND
|
|
|
Name |
| Principal Occupation(s), Other Directorships Held and |
Thomas G. Bigley |
| Principal Occupation: Director or Trustee of the Federated Fund Complex. |
|
|
|
John T. Conroy, Jr. |
| Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman of the Board, Investment Properties Corporation; Partner or Trustee in private real estate ventures in Southwest Florida. |
|
|
|
Nicholas P. Constantakis |
| Principal Occupations: Director or Trustee of the Federated Fund Complex. |
|
|
|
|
|
|
Name |
| Principal Occupation(s), Other Directorships Held and |
John F. Cunningham |
| Principal Occupation: Director or Trustee of the Federated Fund Complex. |
|
|
|
Peter E. Madden |
| Principal Occupation: Director or Trustee of the Federated Fund Complex; Management Consultant. |
|
|
|
Charles F. Mansfield, Jr. |
| Principal Occupations: Director or Trustee of the Federated Fund Complex; Management Consultant; Executive Vice President, DVC Group, Inc. (marketing communications and technology) (prior to 9/1/00). |
|
|
|
John E. Murray, Jr., J.D., S.J.D. |
| Principal Occupations: Director or Trustee of the Federated Fund Complex; Chancellor and Law Professor, Duquesne University; Partner, Murray, Hogue and Lannis. |
|
|
|
|
|
|
Name |
| Principal Occupation(s), Other Directorships Held and |
Marjorie P. Smuts |
| Principal Occupations: Director or Trustee of the Federated Fund Complex; Public Relations/Marketing Consultant/Conference Coordinator. |
|
|
|
John S. Walsh |
| Principal Occupations: Director or Trustee of the Federated Fund Complex; President and Director, Heat Wagon, Inc. (manufacturer of construction temporary heaters); President and Director, Manufacturers Products, Inc. (distributor of portable construction heaters); President, Portable Heater Parts, a division of Manufacturers Products, Inc. |
|
|
|
OFFICERS
|
|
|
Name |
| Principal Occupation(s) and Previous Position(s) |
John W. McGonigle |
| Principal Occupations: Executive Vice President and Secretary of the Federated Fund Complex; Executive Vice President, Secretary and Director, Federated Investors, Inc. |
|
|
|
Richard J. Thomas |
| Principal Occupations: Principal Financial Officer and Treasurer of the Federated Fund Complex; Senior Vice President, Federated Administrative Services. |
|
|
|
Richard B. Fisher |
| Principal Occupations: Vice Chairman or President of some of the Funds in the Federated Fund Complex; Vice Chairman, Federated Investors, Inc.; Chairman, Federated Securities Corp. |
|
|
|
|
|
|
Name |
| Principal Occupation(s) and Previous Position(s) |
William D. Dawson III |
| Principal Occupations: Chief Investment Officer of this Fund and various other Funds in the Federated Fund Complex; Executive Vice President, Federated Investment Counseling, Federated Global Investment Management Corp., Federated Investment Management Company and Passport Research, Ltd. |
|
|
|
Todd A. Abraham |
| Todd A. Abraham has been the Fund's Portfolio Manager since March 1999. Todd A. Abraham is Vice President of the Fund. Mr. Abraham has been a Portfolio Manager since 1995 and a Vice President of the Fund's Adviser since 1997. Mr. Abraham joined Federated in 1993 as an Investment Analyst and served as Assistant Vice President from 1995 to 1997. Mr. Abraham served as a Portfolio Analyst at Ryland Mortgage Co. from 1992-1993. Mr. Abraham is a Chartered Financial Analyst and received his M.B.A. in Finance from Loyola College. |
|
|
|
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.
VOTING PROXIES ON FUND PORTFOLIO SECURITIES
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to securities held in the Fund's portfolio is available, without charge and upon request, by calling 1-800-341-7400. This information is also available from the EDGAR database on the SEC's Internet site at http://www.sec.gov.
Federated Investors
World-Class Investment Manager
Federated GNMA Trust
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
www.federatedinvestors.com
Contact us at 1-800-341-7400 or
www.federatedinvestors.com/contact
Federated Securities Corp., Distributor
Cusip 314184102
Cusip 314184201
Federated is a registered mark of Federated Investors, Inc. 2004 ©Federated Investors, Inc.
30068 (3/04)
Item 2. Code of Ethics
As of the end of the period covered by this report, the registrant has adopted a
code of ethics (the "Section 406 Standards for Investment Companies - Ethical
Standards for Principal Executive and Financial Officers") that applies to the
registrant's Principal Executive Officer and Principal Financial Officer; the
registrant's Principal Financial Officer also serves as the Principal Accounting
Officer.
The registrant hereby undertakes to provide any person, without charge, upon
request, a copy of the code of ethics. To request a copy of the code of ethics,
contact the registrant at 1-800-341-7400, and ask for a copy of the Section 406
Standards for Investment Companies - Ethical Standards for Principal Executive
and Financial Officers.
Item 3. Audit Committee Financial Expert
The registrant's Board has determined that each member of the Board's Audit
Committee is an "audit committee financial expert," and that each such member is
"independent," for purposes of this Item. The Audit Committee consists of the
following Board members: Thomas G. Bigley, John T. Conroy, Jr., Nicholas P.
Constantakis and Charles F. Mansfield, Jr.
Item 4. Principal Accountant Fees and Services
(a) Audit Fees billed to the registrant for the two most
recent fiscal years:
Fiscal year ended 2004 - $17,976
Fiscal year ended 2003 - $17,500
(b) Audit-Related Fees billed to the registrant for the two most
recent fiscal years:
Fiscal year ended 2004 - $409
Fiscal year ended 2003 - $657
Transfer Agent Service Auditors Report
Amount requiring approval of the registrant's audit committee
pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X,
$16,492 and $0 respectively. Design of Sarbanes Oxley sec. 302
procedures.
(c) Tax Fees billed to the registrant for the two most recent
fiscal years:
Fiscal year ended 2004 - $0
Fiscal year ended 2003 - $0
Amount requiring approval of the registrant's audit committee
pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X,
$205,000 and $0 respectively.
Analysis regarding the realignment of advisory companies.
(d) All Other Fees billed to the registrant for the two most
recent fiscal years:
Fiscal year ended 2004 - $0
Fiscal year ended 2003 - $0
Amount requiring approval of the registrant's audit committee
pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X,
$28,088 and $38,999 respectively.
Executive compensation analysis.
(e)(1) Audit Committee Policies regarding Pre-approval of Services.
The Audit Committee is required to pre-approve audit and non-audit services
performed by the independent auditor in order to assure that the provision of
such services do not impair the auditor's independence. Unless a type of service
to be provided by the independent auditor has received general pre-approval, it
will require specific pre-approval by the Audit Committee. Any proposed services
exceeding pre-approved cost levels will require specific pre-approval by the
Audit Committee.
Certain services have the general pre-approval of the Audit Committee. The
term of the general pre-approval is 12 months from the date of pre-approval,
unless the Audit Committee specifically provides for a different period. The
Audit Committee will annually review the services that may be provided by the
independent auditor without obtaining specific pre-approval from the Audit
Committee and may grant general pre-approval for such services. The Audit
Committee will revise the list of general pre-approved services from time to
time, based on subsequent determinations. The Audit Committee will not delegate
its responsibilities to pre-approve services performed by the independent
auditor to management.
The Audit Committee has delegated pre-approval authority to its Chairman.
The Chairman will report any pre-approval decisions to the Audit Committee at
its next scheduled meeting. The Committee will designate another member with
such pre-approval authority when the Chairman is unavailable.
AUDIT SERVICES
The annual Audit services engagement terms and fees will be subject to the
specific pre-approval of the Audit Committee. The Audit Committee must approve
any changes in terms, conditions and fees resulting from changes in audit scope,
registered investment company (RIC) structure or other matters.
In addition to the annual Audit services engagement specifically approved
by the Audit Committee, the Audit Committee may grant general pre-approval for
other Audit Services, which are those services that only the independent auditor
reasonably can provide. The Audit Committee has pre-approved certain Audit
services, all other Audit services must be specifically pre-approved by the
Audit Committee.
AUDIT-RELATED SERVICES
Audit-related services are assurance and related services that are
reasonably related to the performance of the audit or review of the Company's
financial statements or that are traditionally performed by the independent
auditor. The Audit Committee believes that the provision of Audit-related
services does not impair the independence of the auditor, and has pre-approved
certain Audit-related services, all other Audit-related services must be
specifically pre-approved by the Audit Committee.
TAX SERVICES
The Audit Committee believes that the independent auditor can provide Tax
services to the Company such as tax compliance, tax planning and tax advice
without impairing the auditor's independence. However, the Audit Committee will
not permit the retention of the independent auditor in connection with a
transaction initially recommended by the independent auditor, the purpose of
which may be tax avoidance and the tax treatment of which may not be supported
in the Internal Revenue Code and related regulations. The Audit Committee has
pre-approved certain Tax services, all Tax services involving large and complex
transactions must be specifically pre-approved by the Audit Committee.
ALL OTHER SERVICES
With respect to the provision of services other than audit, review or
attest services the pre-approval requirement is waived if:
(1) The aggregate amount of all such services provided constitutes no more
than five percent of the total amount of revenues paid by the
registrant, the registrant's adviser (not including any sub-adviser
whose role is primarily portfolio management and is subcontracted with
or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the registrant to
its accountant during the fiscal year in which the services are
provided;
(2) Such services were not recognized by the registrant, the registrant's
adviser (not including any sub-adviser whose role is primarily
portfolio management and is subcontracted with or overseen by another
investment adviser), and any entity controlling, controlled by, or
under common control with the investment adviser that provides ongoing
services to the registrant at the time of the engagement to be
non-audit services; and
(3) Such services are promptly brought to the attention of the Audit
Committee of the issuer and approved prior to the completion of the
audit by the Audit Committee or by one or more members of the Audit
Committee who are members of the board of directors to whom authority
to grant such approvals has been delegated by the Audit Committee.
The Audit Committee may grant general pre-approval to those permissible
non-audit services classified as All Other services that it believes are routine
and recurring services, and would not impair the independence of the auditor.
The SEC's rules and relevant guidance should be consulted to determine the
precise definitions of prohibited non-audit services and the applicability of
exceptions to certain of the prohibitions.
PRE-APPROVAL FEE LEVELS
Pre-approval fee levels for all services to be provided by the independent
auditor will be established annually by the Audit Committee. Any proposed
services exceeding these levels will require specific pre-approval by the Audit
Committee.
PROCEDURES
Requests or applications to provide services that require specific approval
by the Audit Committee will be submitted to the Audit Committee by both the
independent auditor and the Principal Accounting Officer and/or Internal
Auditor, and must include a joint statement as to whether, in their view, the
request or application is consistent with the SEC's rules on auditor
independence.
(e)(2) Percentage of services identified in items 4(b) through 4(d)
that were approved by the registrants audit committee pursuant to
paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X:
4(b)
Fiscal year ended 2004 - 0%
Fiscal year ended 2003 - 0%
Percentage of services provided to the registrants investment
adviser and any entity controlling, controlled by, or under
common control with the investment adviser that provides
ongoing services to the registrant that were approved by the
registrants audit committee pursuant to paragraph (c)(7)(i)(C)
of Rule 2-01 of Regulation S-X, 0% and 0% respectively.
4(c)
Fiscal year ended 2004 - 0%
Fiscal year ended 2003 - 0%
Percentage of services provided to the registrants investment
adviser and any entity controlling, controlled by, or under
common control with the investment adviser that provides
ongoing services to the registrant that were approved by the
registrants audit committee pursuant to paragraph (c)(7)(i)(C)
of Rule 2-01 of Regulation S-X, 0% and 0% respectively.
4(d)
Fiscal year ended 2004 - 0%
Fiscal year ended 2003 - 0%
Percentage of services provided to the registrants investment
adviser and any entity controlling, controlled by, or under
common control with the investment adviser that provides
ongoing services to the registrant that were approved by the
registrants audit committee pursuant to paragraph (c)(7)(i)(C)
of Rule 2-01 of Regulation S-X, 0% and 0% respectively.
(f) NA
(g) Non-Audit Fees billed to the registrant, the registrant's investment
adviser, and certain entities controlling, controlled by or under common
control with the investment adviser:
Fiscal year ended 2004 - $404,902
Fiscal year ended 2003 - $221,665
(h) The registrant's Audit Committee has considered that the provision of
non-audit services that were rendered to the registrant's adviser (not
including any sub-adviser whose role is primarily portfolio management and
is subcontracted with or overseen by another investment adviser), and any
entity controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the registrant that
were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of
Regulation S-X is compatible with maintaining the principal accountant's
independence.
Item 5 Audit Committee of Listed Registrants
Not Applicable
Item 6 [Reserved]
Item 7. Disclosure of Proxy Voting Policies and Procedures for
Closed-End Management Investment Companies
Not Applicable
Item 8. Purchases of Equity Securities by Closed-End Management
Investment Company and Affiliated Purchasers
Not Applicable
Item 9. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 10. Controls and Procedures
(a) The registrant's President and Treasurer have concluded that the
registrant's disclosure controls and procedures (as defined in rule
30a-3(c) under the Act) are effective in design and operation and are
sufficient to form the basis of the certifications required by Rule 30a-(2)
under the Act, based on their evaluation of these disclosure controls and
procedures within 90 days of the filing date of this report on Form N-CSR.
(b) There were no changes in the registrant's internal control over financial
reporting (as defined in rule 30a-3(d) under the Act), or the internal
control over financial reporting of its service providers during the last
fiscal half year (the registrant's second half year in the case of an
annual report) that have materially affected, or are reasonably likely to
materially affect, the registrant's internal control over financial
reporting.
Item 11. Exhibits
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant Federated GNMA Trust
By /S/ Richard J. Thomas, Principal Financial Officer
(insert name and title)
Date March 26, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /S/ J. Christopher Donahue, Principal Executive Officer
Date March 26, 2004
By /S/ Richard J. Thomas, Principal Financial Officer
Date March 26, 2004