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FEDERATED U.S.
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GOVERNMENT
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BOND
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FUND
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SEMI-ANNUAL REPORT
TO SHAREHOLDERS
FEBRUARY 29, 1996
FEDERATED INVESTORS
(LOGO)
- ---------------------------------------------
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
CUSIP 314284100
8040402 (4/96)
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 Report covers the six-month period ended February 29,
1996 and includes the fund's Investment Review, Portfolio of Investments, and
Financial Statements.
During the period, the fund pursued total return from a portfolio invested
exclusively in U.S. Treasury notes and bonds and a repurchase agreement backed
by Treasury obligations.
Over the period, the fund achieved a total return of 4.22%*, based on net asset
value, and paid dividends totaling $0.30 per share. On February 29, 1996, total
assets stood at $85.8 million.
Thank you for your participation in this quality approach to investing. We
welcome your questions and comments.
Sincerely,
LOGO
Glen R. Johnson
President
April 15, 1996
* 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.
INVESTMENT REVIEW
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Federated U.S. Government Bond Fund's 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, 1995 fiscal year
end, the fund remained fully invested in U.S. Treasury securities.
During most of the fund's semi-annual reporting period, interest rates declined
steadily in response to benign inflation and slower economic growth and in
anticipation of federal deficit reduction legislation. Minimal inflation
pressures had allowed the Federal Reserve Board (the "Fed") to lower the federal
funds target rate from 6% to 5.75% in early July for the first time since
September 1992. As economic growth continued to slow, reducing potential
inflation pressures, the federal funds target rate was lowered two more times in
December and January to the current 5.25%. The short to intermediate sector
outperformed as the 2 to 30-year yield curve steepened in this more
accommodative monetary policy environment. But by mid-February, market
technicals soured with the Treasury refunding supply and the unwinding of the
yen/dollar carry trade by hedge funds. The market also reacted negatively to
Greenspan's Humphrey-Hawkins testimony which described a non-recessionary
economy which would not warrant aggressive easing of monetary policy. The
30-year Treasury bond yield fell from 6.65% at the end of August 1995 to 5.95%
at year end 1995, before rising to 6.47% at the end of February 1996. Although
economic data during the first quarter of 1996 was distorted by severe winter
weather and the government shutdown, recent data has shown some pickup in
economic activity, resulting in a Fed policy on hold in the near term. However,
economic growth is expected to remain moderate with inflation under control.
Given the likelihood that the economy does not accelerate significantly, the
fund's average duration is positioned at the midpoint of its range.
The fund's net total return for the six months ending February 29, 1996, was
4.22%* compared to 3.87% for the Merrill Lynch 10-Year U.S. Treasury Index.**
* Performance quoted reflects 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.
** Merrill Lynch 10-Year U.S. Treasury Index is an unmanaged index comprised of
the current 10-Year Treasury note. This index is unmanaged and actual
investments can not be made in an index.
FEDERATED U.S. GOVERNMENT BOND FUND
PORTFOLIO OF INVESTMENTS
FEBRUARY 29, 1996 (UNAUDITED)
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<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <C> <S> <C>
------------ -------------------------------------------------------------------------------- ------------
U.S. GOVERNMENT OBLIGATIONS--99.2%
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U.S. TREASURY NOTES AND BONDS--99.2%
--------------------------------------------------------------------------------
$ 10,700,000 6.250%, 2/15/2003 $ 10,865,529
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3,710,000 10.750%, 2/15/2003 4,706,877
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4,500,000 5.750%, 8/15/2003 4,426,290
--------------------------------------------------------------------------------
5,000,000 11.125%, 8/15/2003 6,511,550
--------------------------------------------------------------------------------
3,000,000 12.375%, 5/15/2004 4,203,390
--------------------------------------------------------------------------------
9,900,000 7.250%, 8/15/2004 10,630,521
--------------------------------------------------------------------------------
5,000,000 12.000%, 5/15/2005 7,032,600
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2,000,000 13.250%, 5/15/2014 3,200,500
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7,800,000 8.750%, 8/15/2020 9,768,954
--------------------------------------------------------------------------------
8,000,000 8.125%, 8/15/2021 9,440,240
--------------------------------------------------------------------------------
11,500,000 8.000%, 11/15/2021 13,400,490
--------------------------------------------------------------------------------
1,000,000 6.000%, 2/15/2026 937,670
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TOTAL GOVERNMENT AGENCIES (IDENTIFIED COST, $79,411,123) 85,124,611
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(A)REPURCHASE AGREEMENTS--0.3%
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260,000 BT Securities Corp., 5.450%, dated 2/29/1996, due 3/1/1996
(AT AMORTIZED COST) 260,000
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TOTAL INVESTMENTS (IDENTIFIED COST, $79,671,123)(B) $ 85,384,611
-------------------------------------------------------------------------------- ------------
</TABLE>
(a) The repurchase agreements is fully collateralized by U.S. Treasury
obligations based on market prices at the date of the portfolio. The
investments in the repurchase agreements is through participation in a joint
account with other Federated funds.
(b) The cost of investments for federal tax purposes amounts to $79,671,123. The
net unrealized appreciation of investments on a federal tax basis amounts to
$5,713,488 which is comprised of $5,894,845 appreciation and $181,357
depreciation at February 29, 1996.
Note: The categories of investments are shown as a percentage of net assets
($85,803,492) at February 29, 1996.
(See Notes which are an integral part of the Financial Statements)
FEDERATED U.S. GOVERNMENT BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 29, 1996 (UNAUDITED)
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<TABLE>
<S> <C> <C>
ASSETS:
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Total investments in securities at value (identified and tax cost; $79,671,123) $85,384,611
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Income receivable 798,422
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Receivable for shares sold 77,579
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Total assets 86,260,612
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LIABILITIES:
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Income distribution payable $376,775
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Payable to Bank 73,985
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Accrued expenses 6,360
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Total liabilities 457,120
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NET ASSETS for 8,151,108 shares outstanding $85,803,492
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NET ASSETS CONSIST OF:
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Paid-in-capital $79,560,483
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Net unrealized appreciation of investments 5,713,488
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Accumulated net realized gain on investments 529,521
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Total Net Assets $85,803,492
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NET ASSET VALUE, Offering Price and Redemption Proceeds Per Share:
$85,803,492 / 8,151,108 shares outstanding $10.53
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</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED U.S. GOVERNMENT BOND FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED FEBRUARY 29, 1996 (UNAUDITED)
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<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
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Interest $3,350,190
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EXPENSES:
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Investment advisory fee $ 315,904
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Administrative personnel and services fee 62,158
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Custodian fees 12,003
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Transfer and dividend disbursing agent fees and expenses 17,478
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Directors'/Trustees' fees 4,914
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Auditing fees 7,462
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Legal fees 2,730
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Portfolio accounting fees 23,270
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Shareholder services fee 131,627
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Share registration costs 9,862
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Printing and postage 6,918
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Insurance premiums 2,548
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Taxes 182
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Miscellaneous 1,002
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Total expenses 598,058
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Waivers--
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Waiver of investment advisory fee $ (42,909)
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Waiver of shareholder services fee (105,301)
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Total waivers (148,210)
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Net expenses 449,848
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Net investment income 2,900,342
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REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
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Net realized gain on investments 2,198,292
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Net change in unrealized (depreciation) of investments (345,010)
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Net realized and unrealized gain on investments 1,853,282
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Change in net assets resulting from operations $4,753,624
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</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED U.S. GOVERNMENT BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
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<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FEBRUARY 29, YEAR ENDED
1996 AUGUST 31,
(UNAUDITED) 1995
------------ -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
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OPERATIONS--
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Net investment income $ 2,900,342 $ 8,605,441
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Net realized gain (loss) on investments ($0 and $716,495 net
gain respectively, as computed for federal tax purposes) 2,198,292 75,396
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Net change in unrealized appreciation (depreciation) (345,010) 10,866,451
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Change in net assets resulting from operations 4,753,624 19,547,288
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DISTRIBUTIONS TO SHAREHOLDERS--
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Distributions from net investment income (2,900,342) (8,605,441)
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Distributions from net realized gains (716,126) --
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Change in net assets resulting from distributions to
shareholders (3,616,468) (8,605,441)
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SHARE TRANSACTIONS--
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Proceeds from sale of shares 45,926,447 88,288,665
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Net asset value of shares issued to shareholders in payment
of distributions declared 640,918 1,458,853
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Cost of shares redeemed (86,596,839) (114,009,694)
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Change in net assets resulting from share transactions (40,029,474) (24,262,176)
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Change in net assets (38,892,318) (13,320,329)
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NET ASSETS:
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Beginning of period 124,695,810 138,016,139
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End of period $ 85,803,492 $ 124,695,810
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</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED U.S. GOVERNMENT BOND FUND
FINANCIAL HIGHLIGHTS
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(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FEBRUARY 29, YEAR ENDED AUGUST 31,
1996 ------------------------------------------------------------------------------------------------------
(UNAUDITED) 1995 1994 1993 1992 1991 1990 1989 1988 1987
------------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET
ASSET
VALUE,
BEGINNING
OF PERIOD $10.45 $ 9.72 $11.04 $10.03 $ 9.48 $ 8.90 $ 9.12 $ 8.78 $ 9.08 $10.00
- -----
INCOME
FROM
INVESTMENT
OPERATIONS
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Net
investment
income 0.30 0.60 0.54 0.58 0.63 0.66 0.71 0.70 0.76 0.86
- -----
Net
realized
and
unrealized
gain
(loss)
on
investments 0.16 0.73 (1.09) 1.01 0.55 0.58 (0.22) 0.34 (0.30) (0.89)
- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total
from
investment
operations 0.46 1.33 (0.55) 1.59 1.18 1.24 0.49 1.04 0.46 (0.03)
- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
LESS
DISTRIBUTIONS
- -----
Distributions
from
net
investment
income (0.30) (0.60) (0.54) (0.58) (0.63) (0.66) (0.71) (0.70) (0.76) (0.89)
- -----
Distributions
from
net
realized
gain on
investments (0.08) -- (0.23) -- -- -- -- -- -- --
- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total
distributions (0.38) (0.60) (0.77) (0.58) (0.63) (0.66) (0.71) (0.70) (0.76) (0.89)
- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
NET
ASSET
VALUE,
END OF
PERIOD $10.53 $10.45 $ 9.72 $11.04 $10.03 $ 9.48 $ 8.90 $ 9.12 $ 8.78 $ 9.08
- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
TOTAL
RETURN(A) 4.22% 14.34% (5.23%) 16.44% 12.89% 14.37% 5.50% 12.35% 5.23% (0.43%)
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RATIOS
TO
AVERAGE
NET
ASSETS
- -----
Expenses 0.85%* 0.85% 0.83% 0.81% 0.88% 0.78% 0.78% 0.80% 0.75% 0.76%
- -----
Net
investment
income 5.51%* 6.10% 5.25% 5.58% 6.54% 7.17% 7.81% 7.87% 8.40% 8.87%
- -----
Expense
waiver/
reimbursement(b) 0.28%* 0.22% 0.17% 0.62% 0.88% 0.85% 0.76% 0.96% 1.17% 0.75%
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SUPPLEMENTAL
DATA
- -----
Net
assets,
end of
period
(000
omitted) $85,803 $124,696 $138,016 $82,737 $34,125 $27,427 $43,729 $36,325 $13,125 $11,067
- -----
Portfolio
turnover 14% 37% 22% 53% 98% 73% 42% 35% 152% 62%
- -----
</TABLE>
* Computed on an annualized basis.
(a) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED U.S. GOVERNMENT BOND FUND
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996 (UNAUDITED)
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(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.
INVESTMENT VALUATIONS--U.S. government obligations are generally valued at
the mean of the latest bid and asked price 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.
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 Trust to monitor, on a daily basis, the market value of each repurchase
agreement's collateral to ensure that the value of collateral at least
equals the repurchase price to be paid under the repurchase agreement
transaction.
The 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 guidelines and/or
standards reviewed or established by the Board of Trustees (the
"Trustees").
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary. Additionally, net capital losses
of $1,669,140 attributable to security transactions incurred after October
31, 1994 are treated as arising on the first day of the Fund's next taxable
year.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Trust may engage in
when-issued or delayed delivery transactions. The Trust records when-issued
securities on the trade date and
FEDERATED U.S. GOVERNMENT BOND FUND
- --------------------------------------------------------------------------------
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.
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 shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 29, 1996 AUGUST 31, 1995
------------------- ----------------
<S> <C> <C>
Shares sold 4,241,684 9,078,568
- ------------------------------------------------------
Shares issued to shareholders in payment of
distributions declared 58,974 149,974
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Shares redeemed (8,078,156) (11,499,261)
- ------------------------------------------------------ --------------- --------------
Net change resulting from share transactions (3,777,498) (2,270,719)
- ------------------------------------------------------ --------------- --------------
</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 0.60% 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 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 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.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25%
of average daily net assets of the Fund for the period. The fee paid to FSS is
used to finance certain services for shareholders and to maintain shareholder
accounts. FSS may voluntarily choose to waive any portion of its fee. FSS can
modify or terminate this voluntary waiver at any time at its sole discretion.
FEDERATED U.S. GOVERNMENT BOND FUND
- --------------------------------------------------------------------------------
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--FServ, through its
registered transfer and dividend disbursing agent, Federated Shareholder
Services Company, maintains all necessary shareholder records and receives a fee
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.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended
February 29, 1996, were as follows:
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------
PURCHASES $14,450,878
- --------------------------------------------------------------------------- -----------
SALES $52,065,458
- --------------------------------------------------------------------------- -----------
</TABLE>
TRUSTEES OFFICERS
- --------------------------------------------------------------------------------
John F. Donahue John F. Donahue
Thomas G. Bigley Chairman
John T. Conroy, Jr. Glen R. Johnson
William J. Copeland President
James E. Dowd J. Christopher Donahue
Lawrence D. Ellis, M.D. Executive Vice President
Edward L. Flaherty, Jr. Edward C. Gonzales
Peter E. Madden Executive Vice President
Gregor F. Meyer John W. McGonigle
John E. Murray, Jr. Executive Vice President
Wesley W. Posvar and Secretary
Marjorie P. Smuts Richard B. Fisher
Vice President
David M. Taylor
Treasurer
S. Elliott Cohan
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 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
