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, 1998, and includes an investment review by the portfolio manager, a complete
list of holdings, and the financial statements.
At the end of the reporting period, U.S. Treasury notes and bonds comprised
95.3% of the fund's portfolio. The remaining holdings consisted of Federal Home
Loan Bank securities and a repurchase agreement backed by U.S. Treasury
obligations.
Over the six-month reporting period, the fund achieved a strong total return of
8.26%* through dividends totaling $0.24 per share, capital gains totaling $0.31
per share, and a net asset value increase of $0.24. On February 28, 1998, total
net assets reached $95.2 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, 1998
* Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
INVESTMENT REVIEW
Federated U.S. Government Bond Fund represents a fully-invested participation in
U.S. Treasury and government agency obligations which have an average duration
of six to ten years. Since the fund's August 31, 1997, fiscal year end, the fund
has been primarily invested in U.S. Treasury securities.
During the fund's semi-annual reporting period ended February 28, 1998, fixed
income performance reflected above trend economic growth combined with subdued
inflation. U.S. Treasury yields declined as consumer prices increased at only a
1.4% annual rate through February 1998, and the Asian financial crisis
eliminated the possibility of a tightening of Federal Reserve Board (the "Fed")
monetary policy. The 30-year Treasury bond yield declined from 6.61% at the end
of August 1997 to 5.69% in mid-January 1998 before ending February 1998 at
5.92%. While the 2- to 30-year coupon curve flattened from 66 to 39 basis points
with the Fed on hold, the 10- to 30-year portion of the yield curve actually
steepened from 27 to 30 basis points. Due to the counteracting forces of the
underlying strength in the U.S. economy and the potential deflationary impact of
the Asian crisis, the fund's average maturity/duration has been managed within
its neutral range, and ended the reporting period at 13.4/7.9 years. Portfolio
structure has been more barbelled when the 10-year Treasury yield has traded
below the federal funds target rate and more laddered when trading above the
federal funds target rate. Although the impact of the Asian crisis is currently
difficult to estimate, the Treasury market should continue to benefit from
positive factors such as attractive real yield levels, declining supply, and
yield spreads over foreign bonds.
The fund's total return for the six-month reporting period ended February 28,
1998 was 8.26%* compared to 7.74% for the Merrill Lynch 10-Year Treasury Index
and 12.31% for the Merrill Lynch 30-Year Treasury Index.**
* Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
** 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.
PORTFOLIO OF INVESTMENTS
FEDERATED U.S. GOVERNMENT BOND FUND
FEBRUARY 28, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
U.S. GOVERNMENT OBLIGATIONS--98.7%
FEDERAL HOME LOAN BANK --3.4%
$ 1,000,000 6.160%, 10/17/2002 $ 1,015,940
2,000,000 7.590%, 3/10/2005 2,193,960
TOTAL 3,209,900
U.S. TREASURY NOTES AND BONDS--95.3%
4,500,000 5.625%, 12/31/2002 4,503,870
3,000,000 11.125%, 8/15/2003 3,763,470
4,500,000 7.250%, 5/15/2004 4,879,305
1,750,000 12.375%, 5/15/2004 2,358,055
4,800,000 7.250%, 8/15/2004 5,216,928
1,000,000 7.875%, 11/15/2004 1,122,740
4,700,000 12.000%, 5/15/2005 6,433,595
1,500,000 6.500%, 8/15/2005 1,574,820
750,000 10.750%, 8/15/2005 977,910
1,600,000 6.875%, 5/15/2006 1,721,648
3,400,000 7.000%, 7/15/2006 3,689,442
4,950,000 6.500%, 10/15/2006 5,214,182
9,950,000 6.625%, 5/15/2007 10,604,112
2,000,000 13.250%, 5/15/2014 3,198,580
5,000,000 7.250%, 5/15/2016 5,710,750
5,000,000 8.125%, 8/15/2019 6,276,100
7,000,000 8.750%, 8/15/2020 9,361,450
6,000,000 8.000%, 11/15/2021 7,502,820
1,500,000 6.750%, 8/15/2026 1,656,705
2,500,000 6.375%, 8/15/2027 2,649,125
2,300,000 6.125%, 11/15/2027 2,365,389
TOTAL 90,780,996
TOTAL U.S. GOVERNMENT OBLIGATIONS (IDENTIFIED COST $ 93,990,896
$88,188,255)
</TABLE>
FEDERATED U.S. GOVERNMENT BOND FUND
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)REPURCHASE AGREEMENT--0.0%
$ 40,000 BT Securities Corp., 5.640%, dated 2/27/1998, due 3/2/1998 (AT $ 40,000
AMORTIZED COST)
TOTAL INVESTMENTS (IDENTIFIED COST $ 94,030,896
$88,228,255)(B)
</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 $88,228,255. The
net unrealized appreciation of investments on a federal tax basis amounts to
$5,802,641 which is comprised of $5,910,596 appreciation and $107,955
depreciation at February 28, 1998.
Note: The categories of investments are shown as a percentage of net assets
($95,258,485) at February 28, 1998.
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF ASSETS AND LIABILITIES
FEDERATED U.S. GOVERNMENT BOND FUND
FEBRUARY 28, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $ 94,030,896
$88,228,255)
Income receivable 1,136,919
Receivable for shares sold 513,556
Total assets 95,681,371
LIABILITIES:
Payable for investments purchased $ 40,000
Income distribution payable 375,181
Accrued expenses 7,705
Total liabilities 422,886
NET ASSETS for 9,039,121 shares outstanding $ 95,258,485
NET ASSETS CONSIST OF:
Paid in capital $ 89,296,384
Net unrealized appreciation of investments 5,802,641
Accumulated net realized gain on investments 159,460
Total net assets $ 95,258,485
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS PER SHARE:
$95,258,485 / 9,039,121 shares outstanding $10.54
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
FEDERATED U.S. GOVERNMENT BOND FUND
SIX MONTHS ENDED FEBRUARY 28, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 2,401,025
EXPENSES:
Investment advisory fee $ 227,791
Administrative personnel and services fee 61,987
Custodian fees 3,123
Transfer and dividend disbursing agent fees and expenses 19,991
Directors'/Trustees' fees 6,150
Auditing fees 7,690
Legal fees 2,534
Portfolio accounting fees 24,353
Shareholder services fee 94,913
Share registration costs 10,943
Printing and postage 6,063
Insurance premiums 2,620
Miscellaneous 4,519
Total expenses 472,677
Waivers--
Waiver of investment advisory fee $ (71,472)
Waiver of shareholder services fee (75,930)
Total waivers (147,402)
Net expenses 325,275
Net investment income 2,075,750
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 344,263
Net change in unrealized appreciation (depreciation) of 3,282,902
investments
Net realized and unrealized gain on investments 3,627,165
Change in net assets resulting from operations $ 5,702,915
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
FEDERATED U.S. GOVERNMENT BOND FUND
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
FEBRUARY 28, AUGUST 31,
1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 2,075,750 $ 4,466,704
Net realized gain on investments ($344,263 and $2,322,664, 344,263 2,346,459
respectively, as computed for federal tax purposes)
Net change in unrealized appreciation/depreciation 3,282,902 1,724,197
Change in net assets resulting from operations 5,702,915 8,537,360
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income (2,075,750) (4,466,704)
Distributions from net realized gains (2,169,265) (893,676)
Change in net assets resulting from distributions to (4,245,015) (5,360,380)
shareholders
SHARE TRANSACTIONS--
Proceeds from sale of shares 47,225,815 80,772,073
Net asset value of shares issued to shareholders in payment of 1,980,819 2,286,293
distributions declared
Cost of shares redeemed (24,047,195) (102,400,293)
Change in net assets resulting from share transactions 25,159,439 (19,341,927)
Change in net assets 26,617,339 (16,164,947)
NET ASSETS:
Beginning of period 68,641,146 84,806,093
End of period $ 95,258,485 $ 68,641,146
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
FEBRUARY 28, YEAR ENDED AUGUST 31,
1998 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.30 $ 9.94 $10.45 $ 9.72 $11.04 $10.03
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.24 0.60 0.60 0.60 0.54 0.58
Net realized and unrealized gain (loss)
on investments 0.55 0.48 (0.43) 0.73 (1.09) 1.01
Total from investment operations 0.79 1.08 0.17 1.33 (0.55) 1.59
LESS DISTRIBUTIONS
Distributions from net investment income (0.24) (0.60) (0.60) (0.60) (0.54) (0.58)
Distributions from net realized gain
on investments (0.31) (0.12) (0.08) -- (0.23) --
Total distributions (0.55) (0.72) (0.68) (0.60) (0.77) (0.58)
NET ASSET VALUE, END OF PERIOD $10.54 $10.30 $ 9.94 $10.45 $ 9.72 $11.04
TOTAL RETURN(A) 8.26% 11.13% 1.37% 14.34% (5.23%) 16.44%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.86%* 0.85% 0.85% 0.85% 0.83% 0.81%
Net investment income 5.47%* 5.85% 5.71% 6.10% 5.25% 5.58%
Expense waiver/reimbursement(b) 0.39%* 0.36% 0.31% 0.22% 0.17% 0.62%
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $95,258 $68,641 $84,806 $124,696 $138,016 $82,737
Portfolio turnover 20% 90% 53% 37% 22% 53%
</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)
NOTES TO FINANCIAL STATEMENTS
FEDERATED U.S. GOVERNMENT BOND FUND
FEBRUARY 28, 1998 (UNAUDITED)
ORGANIZATION
Federated U.S. Government Bond Fund (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as an open-end
management investment company. The investment objective of the Fund is to pursue
total return.
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, listed corporate bonds, (other fixed-income and
asset-backed securities), and unlisted securities and private placement
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 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 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.
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,
1998 1997
<S> <C> <C>
Shares sold 4,456,731 7,825,538
Shares issued to shareholders in payment of distributions declared 187,818 222,638
Shares redeemed (2,271,185) (9,913,133)
Net change resulting from share transactions 2,373,364 (1,864,957)
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Management, the Fund's investment adviser (the "Adviser"), receives
for its services an annual investment advisory fee equal to 0.60% 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.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended February 28, 1998, were as follows:
PURCHASES $39,176,258
SALES $15,312,043
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
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
Karen M. Brownlee
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.
NOTES
NOTES
[Graphic]
Federated Investors
Federated U.S. Government Bond Fund
SEMI-ANNUAL REPORT TO SHAREHOLDERS FEBRUARY 28, 1998
[Graphic]
Federated Securities Corp., Distributor
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Cusip 314284100
8040402 (4/98)
[Graphic]
