United States
Securities and Exchange Commission
Washington, D.C. 20549
Form N-CSR
Certified Shareholder Report of Registered Management Investment Companies
811-4489
(Investment Company Act File Number)
Federated U.S. Government Bond Fund
---------------------------------------------------------------
(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: 8/31/04
Date of Reporting Period: Fiscal year ended 8/31/04
Item 1. Reports to Stockholders
Federated
World-Class Investment Manager
Federated U.S. Government Bond Fund
ANNUAL SHAREHOLDER REPORT
August 31, 2004
FINANCIAL HIGHLIGHTS
SHAREHOLDER EXPENSE EXAMPLE
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
PORTFOLIO OF INVESTMENTS SUMMARY TABLES
FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
BOARD OF TRUSTEES AND FUND OFFICERS
VOTING PROXIES ON FUND PORTFOLIO SECURITIES
QUARTERLY PORTFOLIO SCHEDULE
Not FDIC Insured * May Lose Value * No Bank Guarantee
Financial Highlights
(For a Share Outstanding Throughout Each Period)
Year Ended August 31
|
| 2004
|
|
| 2003
|
|
| 2002
|
|
| 2001
|
|
| 2000
|
|
Net Asset Value, Beginning of Period
| | $11.10 | | | $11.45 | | | $10.93 | | | $10.27 | | | $ 9.79 | |
Income From Investment Operations:
| | | | | | | | | | | | | | | |
Net investment income
| | 0.47 | | | 0.48 | | | 0.51 | | | 0.53 | | | 0.53 | |
Net realized and unrealized gain (loss) on investments
|
| 0.49
|
|
| (0.29
| )
|
| 0.54
|
|
| 0.65
|
|
| 0.50
|
|
TOTAL FROM INVESTMENT OPERATIONS
|
| 0.96
|
|
| 0.19
|
|
| 1.05
|
|
| 1.18
|
|
| 1.03
|
|
Less Distributions:
| | | | | | | | | | | | | | | |
Distributions from net investment income
| | (0.47 | ) | | (0.48 | ) | | (0.51 | ) | | (0.52 | ) | | (0.53 | ) |
Distributions from net realized gain on investments
|
| (0.05
| )
|
| (0.06
| )
|
| (0.02
| )
|
| - --
|
|
| (0.02
| )
|
TOTAL DISTRIBUTIONS
|
| (0.52
| )
|
| (0.54
| )
|
| (0.53
| )
|
| (0.52
| )
|
| (0.55
| )
|
Net Asset Value, End of Period
|
| $11.54
|
|
| $11.10
|
|
| $11.45
|
|
| $10.93
|
|
| $10.27
|
|
Total Return 1
|
| 8.81
| %
|
| 1.55
| %
|
| 9.99
| %
|
| 11.82
| %
|
| 10.95
| %
|
| | | | | | | | | | | | | | | |
Ratios to Average Net Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
| 0.91
| %
|
| 0.91
| %
|
| 0.91
| %
|
| 0.92
| %
|
| 0.88
| %
|
Net investment income
|
| 4.18
| %
|
| 4.13
| %
|
| 4.74
| %
|
| 4.99
| %
|
| 5.42
| %
|
Expense waiver/reimbursement 2
|
| 0.29
| %
|
| 0.22
| %
|
| 0.27
| %
|
| 0.20
| %
|
| 0.26
| %
|
Supplemental Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of period (000 omitted)
| $95,878
|
| $111,880
|
| $107,058
|
| $115,645
|
| $117,468
|
|
Portfolio turnover
|
| 16
| %
|
| 62
| %
|
| 52
| %
|
| 88
| %
|
| 38
| %
|
1 Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable. Total returns for periods of less than one year are not annualized.
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
Shareholder Expense Example
As a shareholder of the Fund, you incur ongoing costs, including management fees, shareholder services fees and other Fund expenses. This Example is intended to help you to understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. It is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from March 1, 2004 to August 31, 2004.
ACTUAL EXPENSES
The first section of the table below provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you incurred over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled "Expenses Paid During Period" to estimate the expenses attributable to your investment during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. Thus, you should not use the hypothetical account values and expenses to estimate the actual ending account balance or your expenses for the period. Rather, these figures are provided to enable you to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds.
|
| Beginning
Account Value
3/1/2004
|
| Ending
Account Value
8/31/2004
|
| Expenses Paid
During Period 1
|
Actual:
|
|
|
|
|
|
|
Fund
|
| $1,000
|
| $1,010.30
|
| $4.60
|
Hypothetical (assuming a 5% return before expenses):
|
|
|
|
|
|
|
Fund
|
| $1,000
|
| $1,020.56
|
| $4.62
|
1 Expenses are equal to the Federated U.S. Government Bond Fund's annualized expense ratio of 0.91%, multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).
Management's Discussion of Fund Performance
Federated U.S. Government Bond Fund (the "fund") invests in U.S. government securities that include U.S. Treasury and agency obligations. The fund's average duration is managed within 20% of the duration of the Merrill Lynch 10+ Year Treasury Index. 1
The level of and changes in interest rates continue to be the primary drivers of the fund's performance. The U.S. Treasury coupon curve ended the fund's annual reporting period flatter with shorter-term yields higher- and longer-term yields lower. Yields of 10-year and 30-year Treasury securities declined to 3.68% and 4.64%, respectively, in mid-March 2004 versus 4.46% and 5.22% at the end of August 2003 as the economic recovery remained jobless and Federal Reserve monetary policy remained on hold. Significantly stronger employment reports during the spring of 2004 prompted the Fed to shift into a tightening mode for the first time in over four years and yields of 10-year and 30-year Treasury securities increased significantly to 4.87% and 5.56%. The Federal Funds Target Rate was increased twice during the summer of 2004 to 1.50% from the four-decade low of 1%. Yields ended the reporting period lower in response to slower economic growth during the summer of 2004 with 10-year and 30-year Treasury securities at 4.12% and 4.93%, respectively, at the end of August 2004.
The 2- to 30-year Treasury yield curve flattened significantly, ending the reporting period at 253 basis points versus 325 basis points at the end of August 2003. The 10- to 30-year portion of the curve was more range bound, ending the period at a yield spread of 81 basis points versus 76 basis points at the end of August 2003.
Although the majority of the fund remained in Treasury securities, 14% of the fund was invested in government agency securities at the start of the reporting period. As a result of agency spreads widening versus Treasurys in late spring 2004, the fund's agency allocation was increased and ended the period at 18%. Agency securities outperformed Treasury securities over the entire reporting period.
The fund's below-neutral duration detracted from fund performance but was offset by the fund's agency and Treasury Inflation-Protected Securities holdings during the reporting period. The fund's average duration 2 ended the period at 9.6 years and the fund's net total return for the year ending August 31, 2004 was 8.81% versus 9.60% for the Merrill Lynch 10+ Year Treasury Index. 3
1 Merrill Lynch 10+ Year Treasury Index is an unmanaged index which includes U. S. Treasury securities with maturities greater than ten years. Investments cannot be made directly in an index.
2 Duration is a measure of a security's price sensitivity to changes in interest rates. Securities with long durations are more sensitive to changes in interest rates than securities of shorter durations.
3 Performance data quoted represents past performance which 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. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance, visit www.federatedinvestors.com or call 1-800-341-7400.
GROWTH OF A $25,000 INVESTMENT
The graph below illustrates the hypothetical investment of $25,000 1 in Federated U.S. Government Bond Fund (the "Fund") from August 31, 1994 to August 31, 2004, compared to the Merrill Lynch 10+ Year Treasury Index (ML10+T) and the Merrill Lynch 10-Year Treasury Index (ML10T). 2
Average Annual Total Return for the Period Ended 8/31/2004
|
|
|
1 Year
|
| 8.81%
|
5 Years
|
| 8.56%
|
10 Years
|
| 7.95%
|
Performance data quoted represents past performance which 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 fund performance changes over time and current performance may be lower or higher than what is stated. 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 ML10+T and the ML10T have been adjusted to reflect reinvestment of dividends on securities in the index.
2 The ML10+T and the ML10T are not adjusted to reflect sales charges, expenses or other fees that the Securities and Exchange Commission requires to be reflected in the Fund's performance. The indexes are unmanaged, and unlike the Fund, are not affected by cash flows.
Portfolio of Investments Summary Tables
At August 31, 2004, the fund's portfolio composition 1 was as follows:
|
|
|
| Percentage of
Total Investments 2
|
U.S. Treasury Securities
|
| 58.1%
| | |
U.S. Government Agency Securities
|
| 14.7%
| | |
Repurchase Agreements
|
| 27.2%
|
|
|
TOTAL
|
|
|
| 100%
|
At August 31, 2004, the fund's effective maturity composition 3 was as follows:
Securities with an
Effective Maturity of:
|
|
|
| Percentage of
Total Investments 2
|
Less than 10-Year Securities
|
| 32.6%
| | |
10- to 20-Year Securities
|
| 34.4%
| | |
20- to 30-Year Securities
|
| 33.0%
|
|
|
TOTAL
|
|
|
| 100%
|
1 See the fund's prospectus for a more complete description of these types of investments.
2 Percentages are based on total investments, which may differ from total net assets.
3 For investments subject to prepayment, "effective maturity" is the unexpired period until the earliest date the investment is subject to change in accordance with market rates, subject to prepayment or repurchase by the issuer (if the market value of the investment indicates an expectation that the investment will be prepaid or repurchased). For adjustable rate investments "effective maturity" is the unexpired period until the date of the earliest interest rate adjustment. For all other investments "effective maturity" is the unexpired period until final maturity.
Portfolio of Investments
August 31, 2004
Principal
Amount
|
|
|
|
| Value
|
|
| | | U.S. TREASURY--72.0% | | | | |
| | | U.S. Treasury Bonds--68.9% | | | | |
| $ | 2,880,000 | 1 | 11.250%, 2/15/2015
| | $ | 4,587,754 | |
| 3,650,000 | 1 | 9.250%, 2/15/2016
| | | 5,253,737 | |
| 4,300,000 | | 7.500%, 11/15/2016
| | | 5,518,792 | |
| 1,500,000 | 1 | 9.125%, 5/15/2018
| | | 2,191,170 | |
| 4,000,000 | 1 | 9.000%, 11/15/2018
| | | 5,811,880 | |
| 4,000,000 | | 8.125%, 8/15/2019
| | | 5,467,520 | |
| 4,000,000 | 1 | 8.750%, 5/15/2020
| | | 5,775,640 | |
| 500,000 | | 7.875%, 2/15/2021
| | | 673,985 | |
| 3,200,000 | 1 | 8.000%, 11/15/2021
| | | 4,381,984 | |
| 1,000,000 | 1 | 7.125%, 2/15/2023
| | | 1,268,440 | |
| 3,000,000 | | 6.875%, 8/15/2025
| | | 3,742,500 | |
| 4,600,000 | 1 | 6.000%, 2/15/2026
| | | 5,207,338 | |
| 3,350,000 | 1 | 6.750%, 8/15/2026
| | | 4,133,062 | |
| 3,400,000 | 1 | 6.125%, 11/15/2027
| | | 3,919,554 | |
| 3,500,000 | 1 | 5.500%, 8/15/2028
| | | 3,734,045 | |
| 2,000,000 | | 5.250%, 11/15/2028
| | | 2,064,380 | |
| 2,200,000 | 1 | 5.375%, 2/15/2031
|
|
| 2,341,284
|
|
| | | TOTAL
|
|
| 66,073,065
|
|
| | | U.S. Treasury Note--3.1% | | | | |
| 2,850,000 | 1 | 4.750%, 5/15/2014
|
|
| 2,990,705
|
|
| | | TOTAL U.S. TREASURY (IDENTIFIED COST $60,975,513)
|
|
| 69,063,770
|
|
| | | GOVERNMENT AGENCIES--18.3% | | | | |
| | | Federal Home Loan Bank System--9.0% | | | | |
| 1,000,000 | | 6.500%, 11/13/2009
| | | 1,125,740 | |
| 1,150,000 | | 7.625%, 5/14/2010
| | | 1,366,878 | |
| 5,000,000 | | 7.125%, 2/15/2030
|
|
| 6,147,900
|
|
| | | TOTAL
|
|
| 8,640,518
|
|
| | | Federal Home Loan Mortgage Corporation--5.8% | | | | |
| 141,000 | | 6.750%, 9/15/2029
| | | 166,393 | |
| 4,820,000 | 1 | 6.250%, 7/15/2032
|
|
| 5,402,545
|
|
| | | TOTAL
|
|
| 5,568,938
|
|
Principal
Amount
|
|
|
|
| Value
|
|
| | | GOVERNMENT AGENCIES--continued | | | | |
| | | Federal National Mortgage Association--3.5% | | | | |
| $ | 1,000,000 | 1 | 3.125%, 7/15/2006
| | $ | 1,010,830 | |
| 2,000,000 | 1 | 6.625%, 11/15/2030
|
|
| 2,330,020
|
|
| | | TOTAL
|
|
| 3,340,850
|
|
| | | TOTAL GOVERNMENT AGENCIES (IDENTIFIED COST $16,297,761)
|
|
| 17,550,306
|
|
| | | REPURCHASE AGREEMENT--33.7% | | | | |
| 8,699,000 | | Interest in $500,000,000 joint repurchase agreement with Greenwich Capital Markets, Inc., 1.610%, dated 8/31/2004 to be repurchased at $8,699,389 on 9/1/2004, collateralized by U.S. Government Agency Obligations with various maturities to 1/25/2042, collateral market value $515,000,807
| | | 8,699,000 | |
| 13,620,000 | | Interest in $700,000,000 joint repurchase agreement with Bear Stearns & Co., 1.610%, dated 8/31/2004 to be repurchased at $13,620,609 on 9/1/2004, collateralized by U.S. Government Agency Obligations with various maturities to 8/15/2034, collateral market value $721,001,005 (held as collateral for securities lending)
| | | 13,620,000 | |
| 10,000,000 | | Interest in $500,000,000 joint repurchase agreement with Citigroup Global Markets, Inc., 1.610%, dated 8/31/2004 to be repurchased at $10,000,447 on 9/1/2004, collateralized by U.S. Government Agency Obligations with various maturities to 8/1/2034, collateral market value $513,386,591 (held as collateral for securities lending)
|
|
| 10,000,000
|
|
| | | TOTAL REPURCHASE AGREEMENTS
(AT AMORTIZED COST)
|
|
| 32,319,000
|
|
| | | TOTAL INVESTMENTS--124.0%
(IDENTIFIED COST $109,592,274) 2
|
|
| 118,933,076
|
|
| | | OTHER ASSETS AND LIABILITIES - NET--(24.0)%
|
|
| (23,054,776
| )
|
| | | TOTAL NET ASSETS--100.0%
|
| $
| 95,878,300
|
|
1 Certain principal amounts are temporarily on loan to unaffiliated broker/dealers.
2 The cost of investments for federal tax purposes amounts to $109,661,377.
Note: The categories of investments are shown as a percentage of total net assets at August 31, 2004.
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
August 31, 2004
Assets:
| | | | | | | | |
Investments in securities
| | $ | 86,614,076 | | | | | |
Investments in repurchase agreements
|
|
| 32,319,000
|
|
|
|
|
|
Total investments in securities, at value including $23,036,964 of securities loaned (identified cost $109,592,274)
| | | | | | $ | 118,933,076 | |
Cash
| | | | | | | 109 | |
Income receivable
| | | | | | | 800,151 | |
Receivable for shares sold
|
|
|
|
|
|
| 70,000
|
|
TOTAL ASSETS
|
|
|
|
|
|
| 119,803,336
|
|
Liabilities:
| | | | | | | | |
Payable for shares redeemed
| | | 144,689 | | | | | |
Income distribution payable
| | | 119,568 | | | | | |
Payable for collateral due to broker
| | | 23,620,000 | | | | | |
Payable for shareholder services fee (Note 5)
| | | 3,958 | | | | | |
Accrued expenses
|
|
| 36,821
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
|
|
|
| 23,925,036
|
|
Net assets for 8,309,414 shares outstanding
|
|
|
|
|
| $
| 95,878,300
|
|
Net Assets Consist of:
| | | | | | | | |
Paid-in capital
| | | | | | $ | 87,224,457 | |
Net unrealized appreciation of investments
| | | | | | | 9,340,802 | |
Accumulated net realized loss on investments
| | | | | | | (678,637 | ) |
Distributions in excess of net investment income
|
|
|
|
|
|
| (8,322
| )
|
TOTAL NET ASSETS
|
|
|
|
|
| $
| 95,878,300
|
|
Net Asset Value, Offering Price and Redemption Proceeds Per Share:
| | | | | | | | |
$95,878,300 ÷ 8,309,414 shares outstanding, no par value,unlimited shares authorized
|
|
|
|
|
|
| $11.54
|
|
See Notes which are an integral part of the Financial Statements
Statement of Operations
Year Ended August 31, 2004
Investment Income:
| | | | | | | | | | | | |
Interest (including income on securities loaned of $10,232)
| | | | | | | | | | $ | 5,636,195 | |
Dividends (received from affiliated issuers) (Note 5)
|
|
|
|
|
|
|
|
|
|
| 12,906
|
|
TOTAL INCOME
|
|
|
|
|
|
|
|
|
|
| 5,649,101
|
|
Expenses:
| | | | | | | | | | | | |
Investment adviser fee (Note 5)
| | | | | | $ | 664,667 | | | | | |
Administrative personnel and services fee (Note 5)
| | | | | | | 145,845 | | | | | |
Custodian fees
| | | | | | | 11,147 | | | | | |
Transfer and dividend disbursing agent fees and expenses (Note 5)
| | | | | | | 100,874 | | | | | |
Directors'/Trustees' fees
| | | | | | | 11,254 | | | | | |
Auditing fees
| | | | | | | 11,528 | | | | | |
Legal fees
| | | | | | | 12,065 | | | | | |
Portfolio accounting fees (Note 5)
| | | | | | | 41,257 | | | | | |
Shareholder services fee (Note 5)
| | | | | | | 276,945 | | | | | |
Share registration costs
| | | | | | | 27,560 | | | | | |
Printing and postage
| | | | | | | 18,301 | | | | | |
Insurance premiums
| | | | | | | 7,918 | | | | | |
Miscellaneous
|
|
|
|
|
|
| 7,433
|
|
|
|
|
|
TOTAL EXPENSES
|
|
|
|
|
|
| 1,336,794
|
|
|
|
|
|
Waivers (Note 5):
| | | | | | | | | | | | |
Waiver of investment adviser fee
| | $ | (78,523 | ) | | | | | | | | |
Waiver of administrative personnel and services fee
| | | (19,917 | ) | | | | | | | | |
Waiver of transfer and dividend disbursing agent fees and expenses
| | | (3,292 | ) | | | | | | | | |
Waiver of shareholder services fee
|
|
| (221,556
| )
|
|
|
|
|
|
|
|
|
TOTAL WAIVERS
|
|
|
|
|
|
| (323,288
| )
|
|
|
|
|
Net expenses
|
|
|
|
|
|
|
|
|
|
| 1,013,506
|
|
Net investment income
|
|
|
|
|
|
|
|
|
|
| 4,635,595
|
|
Realized and Unrealized Gain (Loss) on Investments:
| | | | | | | | | | | | |
Net realized loss on investments
| | | | | | | | | | | (516,870 | ) |
Net change in unrealized appreciation of investments
|
|
|
|
|
|
|
|
|
|
| 4,156,525
|
|
Net realized and unrealized gain on investments
|
|
|
|
|
|
|
|
|
|
| 3,639,655
|
|
Change in net assets resulting from operations
|
|
|
|
|
|
|
|
|
| $
| 8,275,250
|
|
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
Year Ended August 31
|
|
| 2004
|
|
|
| 2003
| |
Increase (Decrease) in Net Assets
| | | | | | | | |
Operations:
| | | | | | | | |
Net investment income
| | $ | 4,635,595 | | | $ | 4,931,656 | |
Net realized gain (loss) on investments
| | | (516,870 | ) | | | 446,967 | |
Net change in unrealized appreciation/depreciation of investments
|
|
| 4,156,525
|
|
|
| (5,188,699
| )
|
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS
|
|
| 8,275,250
|
|
|
| 189,924
|
|
Distributions to Shareholders:
| | | | | | | | |
Distributions from net investment income
| | | (4,633,235 | ) | | | (4,876,007 | ) |
Distributions from net realized gains
|
|
| (456,321
| )
|
|
| (601,282
| )
|
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS
|
|
| (5,089,556
| )
|
|
| (5,477,289
| )
|
Share Transactions:
| | | | | | | | |
Proceeds from sale of shares
| | | 52,520,738 | | | | 140,961,938 | |
Net asset value of shares issued to shareholders in payment of distributions declared
| | | 3,516,769 | | | | 4,263,789 | |
Cost of shares redeemed
|
|
| (75,225,027
| )
|
|
| (135,116,235
| )
|
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS
|
|
| (19,187,520
| )
|
|
| 10,109,492
|
|
Change in net assets
|
|
| (16,001,826
| )
|
|
| 4,822,127
|
|
Net Assets:
| | | | | | | | |
Beginning of period
|
|
| 111,880,126
|
|
|
| 107,057,999
|
|
End of period (including distributions in excess of net investment income of $(8,322) and $(10,682), respectively)
|
| $
| 95,878,300
|
|
| $
| 111,880,126
|
|
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
August 31, 2004
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 (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. Investments in other open-end registered investment companies are valued at net asset value. Securities for which no quotations are readily available are valued at fair value as determined in accordance with procedures established by and under general supervision of 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 the 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.
Premium and Discount Amortization
All premiums and discounts on fixed-income securities are amortized/accreted.
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 income 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.
Securities Lending
The Fund participates in a securities lending program providing for the lending of corporate bonds, equity and government securities to qualified brokers. Collateral for securities loaned is invested in an affiliated money market fund or in short-term securities, including repurchase agreements. Collateral is maintained at a minimum level of 102% of the market value of investments loaned, plus interest, if applicable. Earnings on collateral are allocated between the securities lending agent, as a fee for its services under the program, and the Fund, according to agreed-upon rates.
As of August 31, 2004, securities subject to this type of arrangement and related collateral were as follows:
Market Value of
Securities Loaned
|
| Market Value
of Collateral
|
$23,036,964
|
| $23,620,000
|
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. Realized gains and losses from investment transactions are recorded on an identified cost basis.
3. SHARES OF BENEFICIAL INTEREST
The following table summarizes share activity:
Year Ended August 31
|
| 2004
|
|
| 2003
|
|
Shares sold
| | 4,628,138 | | | 12,072,847 | |
Shares issued to shareholders in payment of distributions declared
| | 309,425 | | | 367,866 | |
Shares redeemed
|
| (6,703,779
| )
|
| (11,717,208
| )
|
NET CHANGE RESULTING FROM SHARE TRANSACTIONS
|
| (1,766,216
| )
|
| 723,505
|
|
4. FEDERAL TAX INFORMATION
The tax character of distributions as reported on the Statement of Changes in Net Assets for the years ended August 31, 2004 and August 31, 2003, were as follows:
|
| 2004
|
| 2003
|
Ordinary income 1
|
| $4,633,235
|
| $4,876,007
|
Long-term capital gains
|
| $ 456,321
|
| $ 601,282
|
1 For tax purposes short-term capital gain distributions are considered ordinary income.
As of August 31, 2004, the components of distributable earnings on a tax basis were as follows:
Undistributed ordinary income
|
| $
| 111,246
|
Unrealized appreciation
|
| $
| 9,271,699
|
Capital loss carryforward
|
| $
| 64,137
|
At August 31, 2004, the cost of investments for federal tax purposes was $109,661,377. The net unrealized appreciation of investments for federal tax purposes was $9,271,699. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $9,373,988 and net unrealized depreciation from investments for those securities having an excess of cost over value of $102,289.
At August 31, 2004, the Fund had a capital loss carry forward of $64,137 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 other wise be necessary to relieve the Fund of any liability for federal tax. Pursuant to the Code, such capital loss carryforward will expire in 2012.
Under current tax regulations, capital losses realized after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. As of August 31, 2004, for federal income tax purposes, post October losses of $545,397 were deferred to September 1, 2004.
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 0.60% 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.
Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the Fund may invest in Government Obligations Fund, which is managed by the Adviser or an affiliate of the Fund's Adviser. The Adviser has agreed to reimburse certain investment adviser fees as a result of these transactions. Income distributions earned from investment in this fund are recorded as income in the accompanying financial statements and totaled $12,906 for the period.
Administrative Fee
Federated Administrative Services (FAS), under the Administrative Services 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 Net Assets
of the Federated Funds
|
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 voluntarily 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 Net Assets
of the Federated Funds
|
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 August 31, 2004 the fees paid to FAS and FServ were $105,084 and $20,844, respectively, after voluntary waiver, if applicable.
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 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
Prior to July 1, 2004, FServ, through its subsidiary FSSC, served as transfer and dividend disbursing agent for the Fund. The fee paid to FSSC was based on the size, type and number of accounts and transactions made by shareholders. The fee paid to FSSC during the reporting period was $81,395, after voluntary waiver, if applicable.
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 $14,322, after voluntary waiver, if applicable.
General
Certain of the Officers and Trustees of the Fund are Officers and Directors or Trustees of the above companies.
6. LEGAL PROCEEDINGS
Beginning 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 now pending in the United States District Court for the District of Maryland 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. Federated and various Funds have also been named as defendants in several additional lawsuits, the majority of which are now pending in the United States District Court for the Western District of Pennsylvania, alleging, among other things, excessive advisory and Rule 12b-1 fees, and seeking damages of unspecified amounts. 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 may be filed in the future. The potential impact of these recent lawsuits and future potential similar suits is uncertain. Although we do 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 the regulatory investigations will not result in increased Fund redemptions, reduced sales of Fund shares, or other adverse consequences for the Funds.
7. FEDERAL TAX INFORMATION (UNAUDITED)
For the year ended August 31, 2004, the amount of long-term capital gain designated by the Fund was $456,802.
Report of Independent Registered Public Accounting Firm
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF FEDERATED U.S. GOVERNMENT BOND FUND:
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of Federated U.S. Government Bond Fund (the "Fund") as of August 31, 2004, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years 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 standards of the Public Company Accounting Oversight Board (United States). 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 at August 31, 2004, by correspondence with the custodian. 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 Federated U.S. Government Bond Fund as of August 31, 2004, the results of its operations, the changes in its net assets and its financial highlights for the respective stated periods in conformity with accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
Boston, Massachusetts
October 20, 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 and serves for an indefinite term. 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
Birth Date
Address
Positions Held with Fund
Date Service Began
|
| Principal Occupation(s) for Past Five Years,
Other Directorships Held and Previous Position(s)
|
John F. Donahue*
Birth Date: July 28, 1924
CHAIRMAN AND TRUSTEE
Began serving: May 1985 | | Principal Occupations : Chairman and Director or Trustee of the Federated Fund Complex; Chairman and Director, Federated Investors, Inc.
Previous Positions : Trustee, Federated Investment Management Company and Chairman and Director, Federated Investment Counseling. |
|
|
|
J. Christopher Donahue*
Birth Date: April 11, 1949
PRESIDENT AND TRUSTEE
Began serving: January 2000 | | 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.
Previous Positions : President, Federated Investment Counseling; President and Chief Executive Officer, Federated Investment Management Company, Federated Global Investment Management Corp. and Passport Research, Ltd. |
|
|
|
|
|
|
Name
Birth Date
Address
Positions Held with Fund
Date Service Began
|
| Principal Occupation(s) for Past Five Years,
Other Directorships Held and Previous Position(s)
|
Lawrence D. Ellis, M.D.*
Birth Date: October 11, 1932
3471 Fifth Avenue
Suite 1111
Pittsburgh, PA
TRUSTEE
Began serving: August 1987 | | 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.
Other Directorships Held : Member, National Board of Trustees, Leukemia Society of America.
Previous Positions : Trustee, University of Pittsburgh; Director, 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
Birth Date
Address
Positions Held with Fund
Date Service Began
|
| Principal Occupation(s) for Past Five Years,
Other Directorships Held and Previous Position(s)
|
Thomas G. Bigley
Birth Date: February 3, 1934
15 Old Timber Trail
Pittsburgh, PA
TRUSTEE
Began serving: November 1994 | | Principal Occupation : Director or Trustee of the Federated Fund Complex.
Other Directorships Held : Director, Member of Executive Committee, Children's Hospital of Pittsburgh; Director, University of Pittsburgh.
Previous Position : Senior Partner, Ernst & Young LLP. |
|
|
|
John T. Conroy, Jr.
Birth Date: June 23, 1937
Grubb & Ellis/Investment
Properties Corporation
3838 North Tamiami Trail
Suite 402
Naples, FL
TRUSTEE
Began serving: August 1991 | | 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.
Previous Positions : President, Investment Properties Corporation; Senior Vice President, John R. Wood and Associates, Inc., Realtors; President, Naples Property Management, Inc. and Northgate Village Development Corporation. |
|
|
|
Nicholas P. Constantakis
Birth Date: September 3, 1939
175 Woodshire Drive
Pittsburgh, PA
TRUSTEE
Began serving: January 1999 | | Principal Occupations : Director or Trustee of the Federated Fund Complex.
Other Directorships Held : Director and Member of the Audit Committee, Michael Baker Corporation (engineering and energy services worldwide).
Previous Position : Partner, Andersen Worldwide SC. |
|
|
|
|
|
|
Name
Birth Date
Address
Positions Held with Fund
Date Service Began
|
| Principal Occupation(s) for Past Five Years,
Other Directorships Held and Previous Position(s)
|
John F. Cunningham
Birth Date: March 5, 1943
353 El Brillo Way
Palm Beach, FL
TRUSTEE
Began serving: January 1999 | | Principal Occupation : Director or Trustee of the Federated Fund Complex.
Other Directorships Held : Chairman, President and Chief Executive Officer, Cunningham & Co., Inc. (strategic business consulting); Trustee Associate, Boston College.
Previous Positions : Director, Redgate Communications and EMC Corporation (computer storage systems); Chairman of the Board and Chief Executive Officer, Computer Consoles, Inc.; President and Chief Operating Officer, Wang Laboratories; Director, First National Bank of Boston; Director, Apollo Computer, Inc. |
|
|
|
Peter E. Madden
Birth Date: March 16, 1942
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
TRUSTEE
Began serving: August 1991 | | Principal Occupation : Director or Trustee of the Federated Fund Complex; Management Consultant.
Other Directorships Held : Board of Overseers, Babson College.
Previous Positions : Representative, Commonwealth of Massachusetts General Court; President, State Street Bank and Trust Company and State Street Corporation (retired); Director, VISA USA and VISA International; Chairman and Director, Massachusetts Bankers Association; Director, Depository Trust Corporation; Director, The Boston Stock Exchange. |
|
|
|
Charles F. Mansfield, Jr.
Birth Date: April 10, 1945
80 South Road
Westhampton Beach, NY
TRUSTEE
Began serving: January 1999 | | 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).
Previous Positions : Chief Executive Officer, PBTC International Bank; Partner, Arthur Young & Company (now Ernst & Young LLP); Chief Financial Officer of Retail Banking Sector, Chase Manhattan Bank; Senior Vice President, HSBC Bank USA (formerly, Marine Midland Bank); Vice President, Citibank; Assistant Professor of Banking and Finance, Frank G. Zarb School of Business, Hofstra University. |
|
|
|
John E. Murray, Jr., J.D., S.J.D.
Birth Date: December 20, 1932
Chancellor, Duquesne University
Pittsburgh, PA
TRUSTEE
Began serving: February 1995 | | Principal Occupations : Director or Trustee of the Federated Fund Complex; Chancellor and Law Professor, Duquesne University; Partner, Murray, Hogue and Lannis.
Other Directorships Held : Director, Michael Baker Corp. (engineering, construction, operations and technical services).
Previous Positions : President, Duquesne University; Dean and Professor of Law, University of Pittsburgh School of Law; Dean and Professor of Law, Villanova University School of Law. |
|
|
|
|
|
|
Name
Birth Date
Address
Positions Held with Fund
Date Service Began
|
| Principal Occupation(s) for Past Five Years,
Other Directorships Held and Previous Position(s)
|
Marjorie P. Smuts
Birth Date: June 21, 1935
4905 Bayard Street
Pittsburgh, PA
TRUSTEE
Began serving: May 1985 | | Principal Occupations : Director or Trustee of the Federated Fund Complex; Public Relations/Marketing Consultant/Conference Coordinator.
Previous Positions : National Spokesperson, Aluminum Company of America; television producer; President, Marj Palmer Assoc.; Owner, Scandia Bord. |
|
|
|
John S. Walsh
Birth Date: November 28, 1957
2604 William Drive
Valparaiso, IN
TRUSTEE
Began serving: January 1999 | | 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.
Previous Position : Vice President, Walsh & Kelly, Inc. |
|
|
|
OFFICERS
|
|
|
Name
Birth Date
Positions Held with Fund
Date Service Began
|
| Principal Occupation(s) for Past Five Years and Previous Position(s)
|
John W. McGonigle
Birth Date: October 26, 1938
EXECUTIVE VICE PRESIDENT
AND SECRETARY
Began serving: May 1985 | | Principal Occupations : Executive Vice President and Secretary of the Federated Fund Complex; Executive Vice President, Secretary and Director, Federated Investors, Inc. |
|
|
|
Richard J. Thomas
Birth Date: June 17, 1954
TREASURER
Began serving: November 1998 | | Principal Occupations : Principal Financial Officer and Treasurer
of the Federated Fund Complex; Senior Vice President, Federated Administrative Services. |
|
|
|
Richard B. Fisher
Birth Date: May 17, 1923
VICE PRESIDENT
Began serving: May 1985 | | 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.
Previous Positions : President and Director or Trustee of some of the Funds in the Federated Fund Complex; Executive Vice President, Federated Investors, Inc.; and Director and Chief Executive Officer, Federated Securities Corp. |
|
|
|
|
|
|
Name
Birth Date
Positions Held with Fund
Date Service Began
|
| Principal Occupation(s) for Past Five Years and Previous Position(s)
|
Robert J. Ostrowski
Birth Date: April 26, 1963
CHIEF INVESTMENT OFFICER
Began serving: May 2004 | | Principal Occupations : Robert J. Ostrowski joined Federated in 1987 as an Investment Analyst and became a Portfolio Manager in 1990. He was named Chief Investment Officer of taxable, fixed-income products in 2004 and also serves as a Senior Portfolio Manager. He has been a Senior Vice President of the Fund's Adviser since 1997. Mr. Ostrowski is a Chartered Financial Analyst. He received his M.S. in Industrial Administration from Carnegie Mellon University. |
|
|
|
Susan M. Nason
Birth Date: August 29, 1961
VICE PRESIDENT
Began serving: November 1998 | | Susan M. Nason has been the Fund's Portfolio Manager since 1994. She is Vice President of the Fund. Ms. Nason joined Federated in 1987 and has been a Senior Portfolio Manager and Senior Vice President of the Fund's Adviser since 1997. Ms. Nason served as a Portfolio Manager and Vice President of the Adviser from 1993 to 1997. Ms. Nason is a Chartered Financial Analyst and received her M.S.I.A. concentrating in Finance from Carnegie Mellon University. |
|
|
|
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. A report on "Form N-PX" of how the Fund voted any such proxies during the most recent 12-month period ended June 30 is available through Federated's Internet site. Go to http://www.federatedinvestors.com, select "Products," select the "Prospectuses and Regulatory Reports" link, then select the Fund to access the link to Form N-PX. This information is also available from the EDGAR database on the SEC's Internet site at http://www.sec.gov.
QUARTERLY PORTFOLIO SCHEDULE
The Fund files with the SEC a complete schedule of its portfolio holdings, as of the close of the first and third quarters of its fiscal year, on "Form N-Q." These filings are available on the SEC's website at http://www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. (Call 1-800-SEC-0330 for information on the operation of the Public Reference Room.) You may also access this information from the "Products" section of the Federated Investors website at www.federatedinvestors.com by clicking on "Portfolio Holdings" and selecting the name of the Fund, or by selecting the name of the Fund and clicking on "Portfolio Holdings." You must register on the website the first time you wish to access this information.
Federated
World-Class Investment Manager
Federated U.S. Government Bond Fund
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 314284100
G00569-01 (10/04)
Federated is a registered mark of Federated Investors, Inc. 2004 (c)Federated Investors, Inc.
Item 2. Code of Ethics
(a) 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.
(c) Not Applicable
(d) Not Applicable
(e) Not Applicable
f)(3) 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 - $19,147
Fiscal year ended 2003 - $13,000
(b) Audit-Related Fees billed to the registrant for the two most
recent fiscal years:
Fiscal year ended 2004 - $190
Fiscal year ended 2003 - $375
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, $79,413 and $16,493
respectively. Fiscal year ended 2004 - Attestation services relating to the
review of fund share transactions and Transfer Agent Service Auditors
report. Fiscal year ended 2003 - 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, $65,000 and $140,000
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, $125,143 and $38,999
respectively. Fiscal year ended 2004 - Consultation regarding information
requests by regulatory agencies and executive compensation analysis. Fiscal
year ended 2003 - 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 - $341,679
Fiscal year ended 2003 - $243,501
(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. Schedule of Investments
Not Applicable
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies
Not Applicable
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Not Applicable
Item 9. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers
Not Applicable
Item 10. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 11. 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) during the last
fiscal half year (the registrant's second fiscal 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 12. 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 U.S. Government Bond Fund
By /S/ Richard J. Thomas, Principal Financial Officer
(insert name and title)
Date October 25, 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 October 25, 2004
By /S/ Richard J. Thomas, Principal Financial Officer
Date October 25, 2004
