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FEDERATED U.S.
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GOVERNMENT
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BOND
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FUND
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
FEBRUARY 28, 1995
[FEDERATED LOGO] ----------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
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FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
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[RECYCLED LOGO]
RECYCLED
PAPER
314284100
8040402 (4/95)
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PRESIDENT'S MESSAGE
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Dear Investor:
I'm pleased to present the Semi-Annual Report to Shareholders for Federated U.S.
Government Bond Fund (the "Fund"). The report covers the six-month period ended
February 28, 1995, and includes the Fund's Investment Review, Financial
Statements, and Portfolio of Investments.
During the period, the Fund pursued monthly income from a portfolio invested
exclusively in U.S. Treasury notes and bonds and a repurchase agreement backed
by Treasury obligations.
At the end of the report period, assets had increased to $151.2 million,
compared to $138.0 million at the beginning of the period. During the period,
the Fund paid dividends of $0.29 per share, or $4,291,849 to shareholders.
Thank you for your participation in this quality investment. We welcome your
questions and comments.
Sincerely,
Glen R. Johnson
President
April 15, 1995
1
<PAGE>
INVESTMENT REVIEW
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Federated U.S. Government Bond Fund's (the "Fund") portfolio represents a
fully-invested participation in U.S. Treasury and government agency obligations
which have an average duration of 6 to 10 years. Since the Fund's August 31,
1994 fiscal year end, net assets increased from $138.0 million to approximately
$151.2 million and the Fund remained fully invested in U.S. Treasury securities.
During the semi-annual reporting period, the 30-year Treasury bond yield
increased from 7.45% to 8.16% before declining back to 7.44%. Short- to
intermediate-term rates rose more than long-term rates in response to continued
tightening of monetary policy by the Federal Reserve Board (the "Fed"). The Fed
tightened two more times during the reporting period, increasing the Fed Funds
target rate from 4.75% to the current 6.0%, in reaction to a strong U.S. economy
and resource utilization pressures. Although the bear market in bonds that began
in October 1993, will not end until the next recession is in view, the level of
real interest rates on bonds was attractive following an unusually severe first
leg of the bear market. Therefore, in mid-July, the Fund's duration was extended
from 7 to 8 years to target the midpoint of its overall range of 6 to 10 years.
The Fund maintained a barbelled portfolio structure through the end of 1994, to
benefit from the flattening of the yield curve. Given the extent of the curve
flattening that occurred during the fourth quarter of 1994, the Fund's portfolio
was shifted toward more of a laddered structure by year-end.
The Fund's total return for the six-month period ended February 28, 1995, was
3.26%* compared to 2.96% for the Merrill Lynch 10-Year Treasury Index.**
* PERFORMANCE QUOTED REPRESENTS PAST PERFORMANCE. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED,
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
** THIS INDEX IS UNMANAGED.
2
<PAGE>
FEDERATED U.S. GOVERNMENT BOND FUND
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1995 (UNAUDITED)
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<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- ------------------------------------------------------------------- -----------
<C> <S> <C>
U.S. GOVERNMENT OBLIGATIONS--97.7%
- -------------------------------------------------------------------------------
U.S. TREASURY NOTES AND BONDS--97.7%
-------------------------------------------------------------------
$2,000,000 8.75%, 8/15/2000 $ 2,149,920
-------------------------------------------------------------------
5,000,000 8.50%, 11/15/2000 5,326,850
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12,000,000 6.25%, 2/15/2003 11,304,600
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7,000,000 10.75%, 2/15/2003 8,462,720
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5,000,000 11.125%, 8/15/2003 6,207,950
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5,000,000 5.875%, 2/15/2004 4,556,100
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3,000,000 12.375%, 5/15/2004 4,014,300
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14,000,000 7.25%, 8/15/2004 14,015,260
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7,500,000 7.50%, 2/15/2005 7,647,825
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5,000,000 12.00%, 5/15/2005 6,664,400
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3,000,000 10.75%, 8/15/2005 3,742,440
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3,300,000 9.375%, 2/15/2006 3,814,437
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2,000,000 13.25%, 5/15/2014 2,995,060
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10,000,000 11.25%, 2/15/2015 13,755,000
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10,260,000 8.875%, 2/15/2019 11,681,318
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10,000,000 8.75%, 8/15/2020 11,281,000
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8,000,000 8.125%, 8/15/2021 8,487,360
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11,500,000 8.00%, 11/15/2021 12,047,400
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10,000,000 7.125%, 2/15/2023 9,525,900
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TOTAL U.S. GOVERNMENT OBLIGATIONS (IDENTIFIED COST,
$151,190,289) 147,679,840
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(A) REPURCHASE AGREEMENT--1.9%
-------------------------------------------------------------------
2,850,000 J. P. Morgan Securities, Inc., 6.13%, dated 2/28/1995, due 3/1/1995
(at amortized cost) 2,850,000
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TOTAL INVESTMENTS (IDENTIFIED COST, $154,040,289) (B) $150,529,840
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<FN>
(a) The repurchase agreement is fully collateralized by U.S. Treasury
obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
</TABLE>
3
<PAGE>
FEDERATED U.S. GOVERNMENT BOND FUND
- ---------------------------------------------------------
<TABLE>
<S> <C>
(b) The cost of investments for federal tax purposes amounts to $154,040,289.
The net unrealized depreciation of investments on a federal tax basis
amounts to $3,510,449 which is comprised of $1,282,654 appreciation and
$4,793,103 depreciation at February 28, 1995.
Note: The categories of investments are shown as a percentage of net assets
($151,180,308) at February 28, 1995.
</TABLE>
(See Notes which are an integral part of the Financial Statements)
4
<PAGE>
FEDERATED U.S. GOVERNMENT BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1995 (UNAUDITED)
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<TABLE>
<S> <C> <C>
ASSETS:
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Investments in securities, at value (identified and tax cost; $154,040,289) $150,529,840
- -------------------------------------------------------------------------------------------
Cash 4,538
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Interest receivable 1,105,764
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Receivable for Fund shares sold 213,385
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Total assets 151,853,527
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LIABILITIES:
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Income distribution payable $562,973
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Payable for Fund shares redeemed 100,449
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Accrued expenses 9,797
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Total liabilities 673,219
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NET ASSETS for 15,544,129 shares of beneficial interest outstanding $151,180,308
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NET ASSETS CONSIST OF:
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Paid-in-capital $156,498,968
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Net unrealized appreciation (depreciation) of investments (3,510,449)
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Accumulated net realized gain (loss) on investments (1,808,211)
- ------------------------------------------------------------------------------------------- ----------
Total Net Assets $151,180,308
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NET ASSET VALUE, Offering Price, and Redemption Proceeds Per Share:
(net assets of $151,180,308 DIVIDED BY 15,544,129 shares of beneficial interest
outstanding) $ 9.73
- ------------------------------------------------------------------------------------------- ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
5
<PAGE>
FEDERATED U.S. GOVERNMENT BOND FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED FEBRUARY 28, 1995 (UNAUDITED)
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<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
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Interest $4,870,130
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EXPENSES:
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Investment advisory fee $408,198
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Administrative personnel and services fee 57,219
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Custodian fees 22,604
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Transfer and dividend disbursing agent fees and expenses 10,296
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Directors'/Trustees' fees 4,080
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Auditing fees 8,164
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Fund share registration costs 13,755
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Portfolio accounting fees 18,410
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Legal fees 4,410
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Printing and postage 8,434
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Shareholder services fee 34,016
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Insurance premiums 2,732
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Taxes 180
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Miscellaneous 1,176
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Total expenses 593,674
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Deduct--Waiver of investment advisory fee 15,393
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Net expenses 578,281
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Net investment income 4,291,849
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REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
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Net realized gain (loss) on investment transactions
(identified cost basis) (780,170)
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Net change in unrealized appreciation (depreciation) of
investments 1,297,504
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Net realized and unrealized gain (loss) on investments 517,334
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Change in net assets resulting from operations $4,809,183
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</TABLE>
(See Notes which are an integral part of the Financial Statements)
6
<PAGE>
FEDERATED U.S. GOVERNMENT BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
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<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED
1995 AUGUST 31,
(UNAUDITED) 1994
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ---------------------------------------------------------------------------
OPERATIONS--
- ---------------------------------------------------------------------------
Net investment income $ 4,291,849 $ 5,617,264
- ---------------------------------------------------------------------------
Net realized gain (loss) on investment transactions ($780,170 net loss and
$0 net gain, respectively, as computed for federal income tax purposes) (780,170) (1,028,041)
- ---------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) of investments 1,297,504 (9,813,977)
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Change in net assets resulting from operations 4,809,183 (5,224,754)
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DISTRIBUTIONS TO SHAREHOLDERS--
- ---------------------------------------------------------------------------
Dividends to shareholders from net investment income (4,291,849) (5,617,264)
- ---------------------------------------------------------------------------
Distributions to shareholders from net realized gain on investment
transactions -- (2,249,765)
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Change in net assets resulting from distributions to shareholders (4,291,849) (7,867,029)
- --------------------------------------------------------------------------- ------------ ------------
FUND SHARE (PRINCIPAL) TRANSACTIONS--
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Proceeds from sale of shares 43,456,104 147,438,720
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Net asset value of shares issued to shareholders in payment of dividends
declared 859,810 1,039,068
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Cost of shares redeemed (31,669,079) (80,106,516)
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Change in net assets from Fund share transactions 12,646,835 68,371,272
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Change in net assets 13,164,169 55,279,489
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NET ASSETS:
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Beginning of period 138,016,139 82,736,650
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End of period $151,180,308 $138,016,139
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</TABLE>
(See Notes which are an integral part of the Financial Statements)
7
<PAGE>
FEDERATED U.S. GOVERNMENT BOND FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
1995 ------------------------------------
(UNAUDITED) 1994 1993 1992 1991
- -------------------------------------------------- ------------ --------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.72 $ 11.04 $10.03 $ 9.48 $ 8.90
- --------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------
Net investment income 0.29 0.54 0.58 0.63 0.66
- --------------------------------------------------
Net realized and unrealized gain
(loss) on investments 0.01 (1.09) 1.01 0.55 0.58
- -------------------------------------------------- ------------ --------- ------- ------- -------
Total from investment operations 0.30 (0.55) 1.59 1.18 1.24
- --------------------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------------------
Dividends to shareholders from net investment
income (0.29) (0.54) (0.58) (0.63) (0.66)
- --------------------------------------------------
Distributions to shareholders from net realized
gain on investment transactions -- (0.23) -- -- --
- -------------------------------------------------- ------------ --------- ------- ------- -------
Total distributions (0.29) (0.77) (0.58) (0.63) (0.66)
- -------------------------------------------------- ------------ --------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 9.73 $ 9.72 $11.04 $10.03 $ 9.48
- -------------------------------------------------- ------------ --------- ------- ------- -------
TOTAL RETURN (B) 3.26% (5.23%) 16.44% 12.89% 14.37%
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RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------
Expenses 0.85%(d) 0.83% 0.81% 0.88% 0.78%
- --------------------------------------------------
Net investment income 6.31%(d) 5.25% 5.58% 6.54% 7.17%
- --------------------------------------------------
Expense waiver/reimbursement (c) 0.02%(d) 0.17% 0.62% 0.88% 0.85%
- --------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------
Net assets, end of period
(000 omitted) $151,850 $138,016 $82,737 $34,125 $27,427
- --------------------------------------------------
Portfolio turnover rate 7% 22% 53% 98% 73%
- --------------------------------------------------
<CAPTION>
YEAR ENDED AUGUST 31,
----------------------------------------------
1990 1989 1988 1987 1986(A)
- -------------------------------------------------- ------- ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.12 $ 8.78 $ 9.08 $10.00 $10.00
- --------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------
Net investment income 0.71 0.70 0.76 0.86 0.66
- --------------------------------------------------
Net realized and unrealized gain
(loss) on investments (0.22) 0.34 (0.30) (0.89) (0.03)
- -------------------------------------------------- ------- ------- ------- -------- ---------
Total from investment operations 0.49 1.04 0.46 (0.03) 0.63
- --------------------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------------------
Dividends to shareholders from net investment
income (0.71) (0.70) (0.76) (0.89) (0.63)
- --------------------------------------------------
Distributions to shareholders from net realized
gain on investment transactions -- -- -- -- --
- -------------------------------------------------- ------- ------- ------- -------- ---------
Total distributions (0.71) (0.70) (0.76) (0.89) (0.63)
- -------------------------------------------------- ------- ------- ------- -------- ---------
NET ASSET VALUE, END OF PERIOD $ 8.90 $ 9.12 $ 8.78 $ 9.08 $10.00
- -------------------------------------------------- ------- ------- ------- -------- ---------
TOTAL RETURN (B) 5.50% 12.35% 5.23% (0.43%) 5.75%
- --------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------
Expenses 0.78% 0.80% 0.75% 0.76% 0.91%(d)
- --------------------------------------------------
Net investment income 7.81% 7.87% 8.40% 8.87% 9.87%(d)
- --------------------------------------------------
Expense waiver/reimbursement (c) 0.76% 0.96% 1.17% 0.75% 1.50%(d)
- --------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------
Net assets, end of period
(000 omitted) $43,729 $36,325 $13,125 $11,067 $1,467
- --------------------------------------------------
Portfolio turnover rate 42% 36% 152% 62% 25%
- --------------------------------------------------
<FN>
(a) Reflects operations for the period from December 3, 1985 (start of
business) to August 31, 1986.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(d) Computed on an annualized basis.
</TABLE>
(See Notes which are an integral part of the Financial Statements)
8
<PAGE>
FEDERATED U.S. GOVERNMENT BOND FUND
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Federated U.S. Government Bond Fund (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end, management investment company.
(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.
A. INVESTMENT VALUATIONS--U.S. government securities are generally valued at
the mean between the over-the-counter bid and asked prices as furnished by
an independent pricing service. Short-term securities with remaining
maturities of sixty days or less at the time of purchase may be valued at
amortized cost, which approximates fair market value.
B. 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 underlying
collateral to ensure that the value of collateral at least equals the
repurchase price to be paid under the repurchase agreement transaction,
including accrued interest.
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 ("Trustees").
C. 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 distributions 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
market discount. Amounts, as of February 28, 1995, have been reclassified to
reflect an increase in paid-in capital of $7,584 and a decrease in
accumulated net realized gain of $7,584. Net investment income, net realized
gains, and net assets were not affected by this change.
9
<PAGE>
FEDERATED U.S. GOVERNMENT BOND FUND
- ---------------------------------------------------------
D. 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. Additionally, net capital losses
of $1,028,041 attributable to security transactions incurred after October
31, 1993 are treated as arising on September 1, 1994, the first day of the
Fund's next taxable year.
E. 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.
F. OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FEBRUARY YEAR ENDED
28, AUGUST 31,
1995 1994
---------- ----------
<S> <C> <C>
Shares sold 4,622,831 14,322,697
- ----------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 91,208 102,603
- ----------------------------------------------------------------------
Shares redeemed (3,369,250) (7,723,265)
- ---------------------------------------------------------------------- ---------- ----------
Net change resulting from Fund share transactions 1,344,789 6,702,035
- ---------------------------------------------------------------------- ---------- ----------
</TABLE>
(4) 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 .60 of 1% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive a 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, provides the Fund with administrative
personnel and services. The FAS fee is based on the level of average aggregate
daily net assets of all funds advised by subsidiaries of Federated Investors for
the period. The administrative fee received during the period of the
Administrative Services Agreement shall be at least $125,000 per portfolio and
$30,000 per each additional class of shares.
10
<PAGE>
FEDERATED U.S. GOVERNMENT BOND FUND
- ---------------------------------------------------------
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to .25 of
1% of average daily net assets of the Fund for the period. This fee is to obtain
certain personal services for shareholders and to maintain the shareholder
accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated Services
Company ("FServ") serves as transfer and dividend disbursing agent for the Fund.
The fee is based on the size, type, and number of accounts and transactions made
by shareholders.
Certain of the Officers and Trustees of the Fund are Officers and Directors or
Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the six
months ended February 28, 1995, were as follows:
<TABLE>
<S> <C>
PURCHASES $25,849,776
- ---------------------------------------------------------------------- -----------
SALES $ 9,565,725
- ---------------------------------------------------------------------- -----------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
TRUSTEES OFFICERS
- ---------------------------------------------------------
<S> <C>
John F. Donahue John F. Donahue
Thomas G. Bigley CHAIRMAN
John T. Conroy, Jr. Glen R. Johnson
William J. Copeland PRESIDENT
James E. Dowd J. Christopher Donahue
Lawrence D. Ellis, M.D. VICE PRESIDENT
Edward L. Flaherty, Jr. Richard B. Fisher
Peter E. Madden VICE PRESIDENT
Gregor F. Meyer Edward C. Gonzales
John E. Murray, Jr. VICE PRESIDENT AND TREASURER
Wesley W. Posvar John W. McGonigle
Marjorie P. Smuts VICE PRESIDENT AND SECRETARY
David M. Taylor
ASSISTANT TREASURER
Victor R. Siclari
ASSISTANT SECRETARY
</TABLE>
Mutual funds are not bank deposits or obligations, are not
guaranteed by any bank, and are not insured or guaranteed by the
U.S. government, the Federal Deposit Insurance Corporation, the
Federal Reserve Board, or any other government agency. Investment
in mutual funds involves 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.
12
<PAGE>
