PRESIDENT'S MESSAGE
Dear Investor:
I am 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 28, 1997, and includes an investment review by the portfolio
manager, a complete list of holdings, and the financial statements.
Federated U.S. Government Bond Fund is managed to pursue total return
through the relative safety of U.S. government securities. The prompt
payment of principal and interest on these securities is guaranteed by the
U.S. government, its agencies and instrumentalities. Of course, fund shares
are not guaranteed by the U.S. government.
At the end of the reporting period, U.S. Treasury notes and bonds comprised
95.7% of the fund's portfolio. The remaining holding consisted of a
repurchase agreement backed by Treasury obligations.
Over the six-month period, the fund achieved a total return of 6.09%*
through dividends totaling $0.30 per share, capital gains totaling $0.12 per
share, and a net asset value increase of $0.19. On February 28, 1997, total
assets stood at $75.6 million.
Thank you for your participation in this quality approach to pursuing
investment income. We welcome your questions and comments.
Sincerely,
[Graphic]
Glen R. Johnson
President
April 15, 1997
* 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
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 six to ten years. During the six-month reporting
period ended February 28, 1997, the fund has been primarily invested in U.S.
Treasury securities.
During the first half of the fund's six-month reporting period, the U.S.
Treasury market benefited from moderate economic growth, benign inflation, a
stronger dollar, and unprecedented foreign demand. Yields on the 10-year
U.S. Treasury note and 30-year U.S. Treasury bond fell from 6.94% and 7.12%,
respectively, at the end of August, 1996 to 6.04% and 6.35% near the end of
November, 1996. During the second half of the reporting period, the U.S.
Treasury market followed the trend of selling-off in response to stronger
economic growth and rallying in response to subdued inflation. However,
since Federal Reserve Board (the "Fed") Chairman Greenspan's semi-annual
Humphrey Hawkins testimony near the end of February, 1997 warned of the
possibility of a preemptive tightening, the market has focused on stronger
economic growth rather than benign inflation. Market expectations of
moderate economic growth and a Fed monetary policy on hold shifted to
stronger growth and a more restrictive monetary policy, resulting in higher
yields and a flatter yield curve. Yields on the 10-year U.S. Treasury note
and 30-year U.S. Treasury bond ended February, 1997 at 6.55% and 6.80%,
respectively. The fund's average annual total return for the six-month
reporting period ended February 28, 1997 was 6.09%* compared to 5.60% for
the Merrill Lynch 10-Year Treasury Index** and 5.80% for the Merrill Lynch
30-Year Treasury Index.**
The fund's average duration is positioned near the midpoint of its range due
to the attractive level of real interest rates and our anticipation that the
economy will not accelerate enough to warrant aggressive tightening of
monetary policy.
* 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.
** The Merrill Lynch 10-Year Treasury Index is an unmanaged index tracking
10-year U.S. government securities. The Merrill Lynch 30-Year Treasury Index
is an unmanaged index tracking 30-year U.S. government securities. These
indices are produced by Merrill Lynch, Pierce, Fenner & Smith, Inc.
Investments cannot be made in these indices.
FEDERATED U.S. GOVERNMENT BOND FUND
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
U.S. GOVERNMENT OBLIGATIONS -- 98.5%
FEDERAL HOME LOAN BANK BOND -- 2.8%
$ 2,000,000 7.59%, 3/10/2005 $ 2,097,220
U.S. TREASURY NOTES AND BONDS -- 95.7%
3,300,000 6.25%, 10/31/2001 3,282,576
2,500,000 6.125%, 12/31/2001 2,473,450
1,700,000 6.25%, 1/31/2002 1,690,514
1,000,000 5.75%, 8/15/2003 963,630
3,000,000 11.125%, 8/15/2003 3,728,070
3,400,000 5.875%, 2/15/2004 3,286,848
1,750,000 12.375%, 5/15/2004 2,332,435
4,800,000 7.25%, 8/15/2004 5,008,176
4,700,000 12.00%, 5/15/2005 6,302,230
8,550,000 7.00%, 7/15/2006 8,793,504
275,000 6.50%, 10/15/2006 273,383
2,000,000 13.25%, 5/15/2014 3,062,800
7,000,000 7.25%, 5/15/2016 7,268,730
5,000,000 8.125%, 8/15/2019 5,676,650
8,500,000 8.75%, 8/15/2020 10,282,620
5,000,000 8.00%, 11/15/2021 5,625,600
1,000,000 6.00%, 2/15/2026 888,930
1,500,000 6.75%, 8/15/2026 1,476,870
Total 72,417,016
TOTAL U.S. GOVERNMENT OBLIGATIONS (IDENTIFIED COST $72,834,981) 74,514,236
</TABLE>
FEDERATED U.S. GOVERNMENT BOND FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)REPURCHASE AGREEMENT -- 0.7%
$ 520,000 BT Securities Corporation, 5.380%, dated 2/28/1997, due 3/3/1997
(AT AMORTIZED COST) $ 520,000
TOTAL INVESTMENTS (IDENTIFIED COST $73,354,981)(B) $ 75,034,236
</TABLE>
(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.
(b) The cost of investments for federal tax purposes amounts to $73,354,981.
The net unrealized appreciation of investments on a federal tax basis
amounts to $1,679,255 which is comprised of $2,121,784 appreciation and
$442,529 depreciation at February 28, 1997.
Note: The categories of investments are shown as a percentage of net assets
($75,620,150) at February 28, 1997.
(See Notes which are an integral part of the Financial Statements)
FEDERATED U.S. GOVERNMENT BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax $ 75,034,236
cost $73,354,981)
Income receivable 915,059
Receivable for shares sold 72,540
Total assets 76,021,835
LIABILITIES:
Income distribution payable $330,528
Payable to Bank 65,489
Accrued expenses 5,668
Total liabilities 401,685
NET ASSETS for 7,468,116 shares outstanding $ 75,620,150
NET ASSETS CONSIST OF:
Paid in capital $ 72,036,004
Net unrealized appreciation of investments 1,679,255
Accumulated net realized gain on investments 1,904,891
Total Net Assets $ 75,620,150
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
$75,620,150 / 7,468,116 shares outstanding $10.13
</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 28, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 2,869,686
EXPENSES:
Investment advisory fee $ 259,184
Administrative personnel and services fee 61,987
Custodian fees 11,584
Transfer and dividend disbursing agent fees 12,385
and expenses
Directors'/Trustees' fees 7,421
Auditing fees 7,181
Legal fees 2,715
Portfolio accounting fees 23,476
Shareholder services fee 107,993
Share registration costs 11,226
Printing and postage 6,221
Insurance premiums 767
Taxes 181
Miscellaneous 1,672
Total expenses 513,993
Waivers --
Waiver of investment advisory fee $ (58,520)
Waiver of shareholder services fee (86,395)
Total waivers (144,915)
Net expenses 369,078
Net investment income 2,500,608
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 2,266,889
Net change in unrealized appreciation of 883,712
investments
Net realized and unrealized gain on 3,150,601
investments
Change in net assets resulting from $ 5,651,209
operations
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED U.S. GOVERNMENT BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
FEBRUARY 28, AUGUST 31,
1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 2,500,608 $ 5,540,398
Net realized gain on investments ($2,266,889 and
$2,200,449 respectively,
as computed for federal tax purposes) 2,266,889 2,200,449
Net change in unrealized appreciation (depreciation) 883,712 (5,262,955)
Change in net assets resulting from operations 5,651,209 2,477,892
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income (2,500,608) (5,540,398)
Distributions from net realized gains (893,676) (716,127)
Change in net assets resulting from distributions to (3,394,284) (6,256,525)
shareholders
SHARE TRANSACTIONS --
Proceeds from sale of shares 65,909,227 102,051,549
Net asset value of shares issued to shareholders in
payment of
distributions declared 1,397,105 1,691,349
Cost of shares redeemed (78,749,200) (139,853,982)
Change in net assets resulting from share transactions (11,442,868) (36,111,084)
Change in net assets (9,185,943) (39,889,717)
NET ASSETS:
Beginning of period 84,806,093 124,695,810
End of period $ 75,620,150 $ 84,806,093
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED U.S. GOVERNMENT BOND FUND
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
FEBRUARY 28, YEAR ENDED AUGUST 31,
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF $ 9.94 $10.45 $ 9.72 $11.04 $10.03 $ 9.48 $ 8.90 $ 9.12 $ 8.78 $ 9.08
PERIOD
INCOME FROM INVESTMENT
OPERATIONS
Net investment
income 0.30 0.60 0.60 0.54 0.58 0.63 0.66 0.71 0.70 0.76
Net realized and
unrealized gain
(loss) on 0.31 (0.43) 0.73 (1.09) 1.01 0.55 0.58 (0.22) 0.34 (0.30)
investments
Total from
investment
operations 0.61 0.17 1.33 (0.55) 1.59 1.18 1.24 0.49 1.04 0.46
LESS DISTRIBUTIONS
Distributions
from
net investment
income (0.30) (0.60) (0.60) (0.54) (0.58) (0.63) (0.66) (0.71) (0.70) (0.76)
Distributions
from
net realized gain
on
investments (0.12) (0.08) -- (0.23) -- -- -- -- -- --
Total (0.42) (0.68) (0.60) (0.77) (0.58) (0.63) (0.66) (0.71) (0.70) (0.76)
distributions
NET ASSET VALUE, END
OF PERIOD $10.13 $ 9.94 $10.45 $ 9.72 $11.04 $10.03 $ 9.48 $ 8.90 $ 9.12 $ 8.78
TOTAL RETURN(A) 6.09% 1.37% 14.34% (5.23)% 16.44% 12.89% 14.37% 5.50% 12.35% 5.23%
RATIOS TO AVERAGE
NET
ASSETS
Expenses 0.85%* 0.85% 0.85% 0.83% 0.81% 0.88% 0.78% 0.78% 0.80% 0.75%
Net investment
income 5.79%* 5.71% 6.10% 5.25% 5.58% 6.54% 7.17% 7.81% 7.87% 8.40%
Expense waiver/
reimbursement(b) 0.34%* 0.31% 0.22% 0.17% 0.62% 0.88% 0.85% 0.76% 0.96% 1.17%
SUPPLEMENTAL DATA
Net assets, end of
period (000 $75,620 $84,806 $124,696 $138,016 $82,737 $34,125 $27,427 $43,729 $36,325 $13,125
omitted)
Portfolio 72% 53% 37% 22% 53% 98% 73% 42% 35% 152%
turnover
</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 28, 1997
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. The investment objective of the fund
is to pursue total return.
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 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.
REPURCHASE AND REVERSE REPURCHASE AGREEMENTS -- It is the policy of the Fund
to require the custodian bank to take possession, to have legally segregated
in the Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral under repurchase
agreement transactions. Additionally, procedures have been established by
the Fund to monitor, on a daily basis, the market value of each repurchase
agreement's collateral to ensure that the value of collateral at least
equals the repurchase price to be paid under the repurchase agreement
transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the "Trustees").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less
than the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and
expenses are accrued daily. Bond premium and discount, if applicable, are
amortized as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of
the Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
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.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER -- Investment transactions are accounted for on the trade date.
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 28, AUGUST 31,
1997 1996
<S> <C> <C>
Shares sold 6,369,675 9,780,023
Shares issued to shareholders in payment of 134,981 162,691
distributions declared
Shares redeemed (7,567,254) (13,340,606)
Net change resulting from share transactions (1,062,598) (3,397,892)
</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.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ, through
its subsidiary, Federated Shareholder Services Company ("FSSC") serves as
transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is
based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES -- FServ maintains the Fund's accounting records
for which it receives a fee. The fee is based on the level of the Fund's
average daily net assets for the period, plus out-of-pocket expenses.
GENERAL -- Certain of the Officers and Trustees of the Fund are Officers and
Directors or Trustees of the above companies.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended February 28, 1997, were as follows:
PURCHASES $ 60,047,786
SALES $ 73,087,612
TRUSTEES
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
William J. Copeland
James E. Dowd
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr.
Peter E. Madden
Gregor F. Meyer
John E. Murray, Jr.
Wesley W. Posvar
Marjorie P. Smuts
OFFICERS
John F. Donahue
Chairman
Glen R. Johnson
President
J. Christopher Donahue
Executive Vice President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President, Treasurer, and Secretary
Richard B. Fisher
Vice President
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 risk, including
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.
FEDERATED U.S. GOVERNMENT BOND FUND
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
FEBRUARY 28, 1997
[Graphic]
Federated Investors
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
804042(4/97)
