[LOGO] Federated Investors
Federated
Government
Income
Securities, Inc.
(formerly, Government
Income Securities, Inc.)
10th Annual Report
February 29, 1996
Established 1986
FIXED INCOME
President's Message
Dear Fellow Shareholder:
I am pleased to present the 10th Annual Report for Federated Government Income
Securities, Inc., formerly, Government Income Securities, Inc. The fund's name
begins with "Federated" to make it easy for investors to locate all Federated
Funds in newspapers and other publications.
This Report covers the 12-month period from March 1, 1995, through February 29,
1996. It begins with a discussion with the fund's portfolio manager, Kathy
Foody-Malus, Vice President of Federated Advisers. She gives you her views on
today's interest rate environment and how your fund is positioned. In
addition, she comments on a policy to moderately expand the fund's duration
range, which will increase the fund's ability to pursue a competitive return.
Over the 12-month reporting period, your fund achieved a total return of 9.87%
based on net asset value.* The fund provided a dividend stream of $0.623 per
share. The share price improved, rising from $8.55 to $8.75, an increase of
2.3%. On February 29, 1996, the fund's 30-day distribution rate was 7.00%,
and the 30-day SEC yield was 5.62% based on offering price.**
The fund's management continues to focus on mortgage-backed securities for
their yields and good long-term value compared to U.S. Treasury securities. At
the end of the reporting period, more than 80% of fund assets were invested in
mortgage-backed securities with a neutral effective duration of 4.1 years and
an average coupon of 7.72%. The fund is rated AAAf by Standard & Poor's Ratings
Group, the highest quality rating available for a mutual fund.+
Following the portfolio manager's discussion are three additional items of
shareholder interest. First is a series of graphs which display the fund's
performance with income dividends reinvested and the investment results of
making additional investments in the fund shares with dividends reinvested.
Second is a complete listing of the fund's holdings in U.S. government
securities. Third is the publication of the fund's financial statements.
Thank you for your continued participation in Federated Government Income
Securities, Inc. If you have any questions or comments, please do not hesitate
to write.
Very sincerely yours,
Richard B. Fisher
President
April 15, 1996
* Performance quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate, so
when shares are redeemed, they may be worth more or less than the original
cost. Total return reflecting all sales charges was 7.61%.
** Distribution rate reflects actual distribution made to shareholders. It is
calculated by dividing the monthly annualized dividend plus short-term
capital gains, if any, by the average 30-day offering price. Current net
yield is calculated by dividing the net investment income per share for the
prior 30 days by the maximum offering price per share on that date.
+ An AAAf rating means that the fund's portfolio holdings and counterparties
provide extremely strong protection against losses from credit defaults.
This rating, however, does not remove market risks. Ratings are subject to
change.
Investment Review
[INSERT PHOTO HERE]
Kathy Foody-Malus
Vice President
Federated Advisers
Q Can you give us a review of the economy over the past 12 months and its
positive impact on the bond market overall?
A The overall performance of the bond market in 1995 was most welcome. Fixed
income investors can attribute this performance to the work of the Federal
Reserve Board (the "Fed") toward achieving the elusive "soft landing." Their
handiwork began in 1994 with six tightening moves and was completed in the
first quarter of 1995, resulting in a very tough period for bond portfolio
managers. This trend was reversed in mid-1995 with three easings by the end of
the fund's fiscal year. Although the sharp slowdown in the first quarter of
1995 raised concerns over a potential "hard landing," the overall read on the
economy for 1995 showed a mixture of moderate growth and low inflation combined
with anticipation of a deficit reduction package.
As 1996 unfolds, the U.S. economy is moving according to the Fed's scenario
which describes a pickup in growth, with less room for further improvement on
inflation, and reduced likelihood of any further major declines of interest
rates. In other words, we believe that 1996 should be a very good year for
bond investors in spread products, particularly mortgage-backed securities.
Q How did investors respond to this, and how did mortgage-backed securities
ultimately perform?
A The dominant trend in the mortgage market over the last 15 months continued
to be the market-directional mortgage/ Treasury basis trade. Throughout 1995,
mortgage-to-Treasury spreads widened in market rallies and narrowed in market
sell-offs. Over the entire year, mortgages generally underperformed equivalent
duration Treasurys due to the greater-than-200-basis point rally in the
Treasury market.
However, looking forward, we believe that the picture is very positive for
mortgages in 1996. The prepayment and supply picture has become positive due
to the recent rise in interest rates. The near-term technicals are favorable
given increased participation of financial institutions as their credit
demands slow in combination with continuing strong support by the governmental
agencies in the growth of their investment portfolios and the crossover buyer
enticed by the yield spread advantage.
Overall, we feel that the outlook for the mortgage market on a technical and
fundamental basis is quite positive as we move through 1996.
Q In this environment, how did Federated Government Income Securities, Inc.
perform for shareholders during the 12-month reporting period ended February
29, 1996?
A The fund provided a dividend stream of $0.623 per share over the last fiscal
year which amounted to $171.4 million. The net annual total return for the
one-year period ended February 29, 1996, was 9.87% based on net asset value.
The price per share fluctuated from a low of $8.49 to a high of $8.94 over the
reporting period.*
Q What is the fund's current weighting in mortgage-backed and Treasury
securities, and why?
A The current structure of Federated Government Income Securities, Inc. has a
neutral duration of 4.1 years versus a blend of the Lehman Government and
Lehman Mortgage Indexes.** Portfolio structure continues to favor an
overweighted position in mortgage-backed securities due to management's belief
of good long-term value versus comparable government securities.
The Treasury position currently represents 20% of overall assets and acts as a
hedge against mortgage duration drift due to prepayment activity. As of
February 29, 1996, the portfolio composition was:
Government National Mortgage Association (GNMA) 56.4%
U.S. Treasury Obligations 17.7%
Federal National Mortgage Association (FNMA) 10.3%
Federal Home Loan Mortgage Corporation (FHLMC) 11.4%
U.S. Government Obligations 3.2%
* Past performance is not indicative of future results. Total return for the
period reflecting all sales charges was 7.61%. Investment return and
principal value will fluctuate, so when shares are redeemed, they may be
worth more or less than the original cost.
** Lehman Brothers Government Index is an unmanaged index comprised of all
publicly issued, non-convertible domestic debt of the U.S. government, or
any agency thereof, or any quasi-federal corporation and of corporate debt
guaranteed by the U.S. government. Only notes and bonds with a minimum
outstanding principal of $1 million and a minimum maturity of one year are
included. Lehman Brothers Mortgage-Backed Securities Index is a universe of
fixed rate securities backed by mortgage pools of Government National
Mortgage Association (GNMA), Federal Home Loan Mortgage Corp. (FHLMC), and
Federal National Mortgage Association (FNMA). These indexes are unmanaged,
and actual investments cannot be made in an index.
Q You now have the flexibility to extend the range of the fund's duration to
three to eight years. What are the advantages?
A Since the fund's inception in 1986, the portfolio of investments had been
managed in a narrow duration range. The duration range has now been expanded
in response to changes in investors' needs and market conditions.
The wider duration range will allow the portfolio to extend duration and
participate to a greater degree in bullish environments. The extension of
portfolio duration will come largely from increased U.S. Treasury holdings.
Other investment vehicles to be used will be mortgage securities created for
varying interest rate environments. With these additional tools and expanded
duration range the fund has the potential to experience increased volatility;
however, the trade-off is a competitive total rate of return which will benefit
shareholders longer term.
Two Ways You May Seek to Invest for Success in
Federated Government Income Securities, Inc.
(formerly, Government Income Securities, Inc.)
Initial Investment:
If you had made an initial investment of $10,000 in Federated Government Income
Securities, Inc. on 4/4/86, reinvested dividends and capital gains, and didn't
redeem any shares, your account would have been worth $20,374 on 2/29/96. You
would have earned a 7.45%* average annual total return for the 10-year
investment life span.
One key to investing wisely is to reinvest all distributions in Fund shares.
This increases the number of shares on which you can earn future dividends,
and you gain the benefit of compounding.
As of 3/31/96, the Fund's average annual one-year, five-year and since
inception (4/4/86) total returns were 6.69%, 6.24%, and 7.32%, respectively.
[INSERT GRAPH HERE-SEE APPENDIX FOR DESCRIPTION]
* Total return represents the change in the value of an investment after
reinvesting all income and capital gains, and takes into account the 1% sales
charge and 1% contingent deferred sales charge prior to 48 months.
Data quoted represent past performance and do not guarantee future results.
Investment return and principal value will fluctuate so an investor's shares,
when redeemed, may be worth more or less than their original cost.
Federated Government Income Securities, Inc.
(formerly, Government Income Securities, Inc.)
One Step at a Time:
$1,000 invested each year for 10 years (reinvesting all dividends and capital
gains) grew to $14,934.
With this approach, the key is consistency.
If you had started investing $1,000 annually in Federated Government Income
Securities, Inc. on 4/4/86, reinvested your dividends and capital gains and
didn't redeem any shares, you would have invested only $10,000, but your
account would have reached a total value of $14,934* by 2/29/96. You would
have earned an average annual total return of 7.29%.
A practical investment plan helps you pursue long-term performance from U.S.
government securities. Through systematic investing, you buy shares on a
regular basis and reinvest all earnings. An investment plan works for you when
you invest only $1,000 annually. You can take it one step at a time. Put time
and compounding to work!
[INSERT GRAPH HERE-SEE APPENDIX FOR DESCRIPTION]
* No method of investing can guarantee a profit or protect against loss in down
markets. However, by investing regularly over time and buying shares at
various prices, investors can purchase more shares at lower prices, and all
accumulated shares have the ability to pay income to the investor.
Because such a plan involves continuous investment, regardless of changing
price levels, the investor should consider whether or not to continue
purchases through periods of low price levels.
Federated Government Income Securities, Inc.
(formerly, Government Income Securities, Inc.)
Hypothetical Investor Profile: Investing for Current Income
Ten years ago, in April 1986, Anne and Denny Laughlin, an imaginary working
couple with no children, had to decide how to invest a $100,000 inheritance
from her late father's estate. They chose Federated Government Income
Securities, Inc. because it invests in government securities which
traditionally are some of the safest, most creditworthy securities issued in
America.
They like the way they can use their account for an occasional
extravagance like the $50,000 Jaguar they bought this August to celebrate their
-
10th anniversary without touching their original principal.
-
The Laughlins' account totaled $203,741 as of 2/29/96 for a total return of
7.45%.*
[INSERT GRAPH HERE-SEE APPENDIX FOR DESCRIPTION]
* This hypothetical scenario is provided for illustrative purposes only and
does not represent the result obtained by any particular shareholder. Past
performance does not guarantee future results.
Federated Government Income Securities, Inc.
(formerly, Government Income Securities, Inc.)
Serving a Wide Range of Investors
Federated Government Income Securities, Inc. appeals to a broad range of
investors seeking attractive monthly income and relative safety.
The Fund invests primarily in some of the most creditworthy securities issued
in America.
Fund shares are not guaranteed, but the securities comprising the portfolio are
guaranteed as to the timely payment of interest and principal by the U.S.
government, its agencies or instrumentalities.
[INSERT GRAPH HERE-SEE APPENDIX FOR DESCRIPTION]
Federated Government Income Securities, Inc.
(formerly, Government Income Securities, Inc.)
Portfolio Update
The chart shows the percentage of Fund assets diversified across
different types of securities at the end of the reporting period.
[INSERT GRAPH HERE-SEE APPENDIX FOR DESCRIPTION]
Federated Government Income Securities, Inc.
(formerly, Government Income Securities, Inc.)
Growth of $10,000 Invested in Federated Government Income Securities, Inc.
The graph below illustrates the hypothetical investment of $10,000 in the
Federated Government Income Securities, Inc. (the "Fund") from April 4, 1986
(start of performance) to February 29, 1996 compared to the Salomon Brothers 15
Year Mortgage-Backed Securities Index (SB15MSI) and the Lipper U.S. Mortgage
Funds Average (LUSMF).++
[INSERT GRAPH HERE-SEE APPENDIX FOR DESCRIPTION]
Past performance is not predictive of future performance. Your investment
return and principal value will fluctuate so when shares are redeemed, they
may be worth more or less than original cost. Mutual funds are not obligations
of or guaranteed by any bank and are not federally insured.
* Represents a hypothetical investment of $9,900 in the Fund after deducting
the maximum sales charge of 1.00% ($10,000 investment minus $100 sales
charge = $9,900). The Fund's performance assumes the reinvestment of all
dividends and distributions. The SB15MSI and the LUSMF have been adjusted
to reflect reinvestment of dividends on securities in the index and average.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ SB15MSI is not adjusted to reflect sales charges, expenses, or other fees
that the SEC requires to be reflected in the Fund's performance. This index
is unmanaged.
++ LUSMF represents the average of the total returns reported by all of the
mutual funds designated by Lipper Analytical Services, Inc. as falling in
the respective category, and is not adjusted to reflect any sales charges.
However, these total returns are reported net of expenses or other fees
that the SEC requires to be reflected in a fund's performance.
Federated Government Income Securities, Inc.
(formerly, Government Income Securities, Inc.)
Portfolio of Investments
- --------------------------------------------------------------------------------
February 29, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- -------------- ------------------------------------------------------------------------------ ----------------
LONG-TERM OBLIGATIONS--99.0%
- ----------------------------------------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORP.--11.4%
------------------------------------------------------------------------------
$ 35,392,741 8.00%, 10/1/2023-11/1/2025 $ 36,299,149
------------------------------------------------------------------------------
24,435,076 7.50%, 9/1/2025-12/1/2025 24,679,183
------------------------------------------------------------------------------
74,584,978 7.00%, 12/1/2025 73,768,273
------------------------------------------------------------------------------
64,000,000 (c) 7.00%, 4/1/2011-3/1/2026 63,842,800
------------------------------------------------------------------------------
60,000,000 (c) 6.50%, 4/1/2011 59,418,000
------------------------------------------------------------------------------ ----------------
Total 258,007,405
------------------------------------------------------------------------------ ----------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION--10.3%
------------------------------------------------------------------------------
20,122,235 8.00%, 12/1/2025 20,631,328
------------------------------------------------------------------------------
345,372 7.50%, 2/1/2026 348,498
------------------------------------------------------------------------------
70,436,361 7.00%, 7/1/2025-11/1/2025 69,577,037
------------------------------------------------------------------------------
58,000,000 (c) 7.00%, 4/1/2011-10/1/2025 58,207,280
------------------------------------------------------------------------------
71,126,749 6.50%, 6/1/2009-12/1/2025 69,422,884
------------------------------------------------------------------------------
15,000,000 (c) 6.50%, 4/1/2011 14,845,050
------------------------------------------------------------------------------ ----------------
Total 233,032,077
------------------------------------------------------------------------------ ----------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--56.4%
------------------------------------------------------------------------------
8,889,957 12.50%, 4/15/2010-7/15/2015 10,303,905
------------------------------------------------------------------------------
24,484,015 12.00%, 5/15/2011-12/15/2015 28,133,357
------------------------------------------------------------------------------
31,859,650 11.50%, 3/15/2010-12/15/2017 36,249,909
------------------------------------------------------------------------------
6,713,321 11.00%, 7/15/2010-5/15/2020 7,554,500
------------------------------------------------------------------------------
30,901,780 10.50%, 11/15/2015-9/15/2020 34,455,176
------------------------------------------------------------------------------
123,623,796 10.00%, 3/15/2016-1/15/2021 136,641,382
------------------------------------------------------------------------------
94,454,495 9.50%, 8/15/2016-2/15/2022 103,200,596
------------------------------------------------------------------------------
42,285,610 9.00%, 2/15/2009-7/15/2021 45,449,207
------------------------------------------------------------------------------
155,198,162 8.50%, 1/15/2017-1/15/2025 162,400,705
------------------------------------------------------------------------------
155,519,614 8.00%, 10/15/2010-11/15/2025 160,018,476
------------------------------------------------------------------------------
$ 281,894,312 7.50%, 7/15/2022-3/1/2026 $ 284,710,436
------------------------------------------------------------------------------
121,356,734 7.00%, 7/15/2023-8/1/2025 119,913,802
------------------------------------------------------------------------------
55,000,000 (c) 7.00%, 8/1/2025-3/1/2026 54,346,050
------------------------------------------------------------------------------
97,000,000 6.50%, 3/1/2026 93,421,670
------------------------------------------------------------------------------ ----------------
Total 1,276,799,171
------------------------------------------------------------------------------ ----------------
UNITED STATES GOVERNMENT OBLIGATIONS--3.2%
------------------------------------------------------------------------------
25,000,000 6.55%, 9/12/2005 25,216,750
------------------------------------------------------------------------------
25,000,000 5.95%, 1/19/2006 24,258,500
------------------------------------------------------------------------------
25,000,000 5.875%, 2/2/2006 24,091,075
------------------------------------------------------------------------------ ----------------
Total 73,566,325
------------------------------------------------------------------------------ ----------------
UNITED STATES TREASURY BONDS--3.5%
------------------------------------------------------------------------------
27,600,000 8.75%, 5/15/2017 34,269,540
------------------------------------------------------------------------------
38,800,000 8.125%, 8/15/2019-5/15/2021 45,669,156
------------------------------------------------------------------------------ ----------------
Total 79,938,696
------------------------------------------------------------------------------ ----------------
UNITED STATES TREASURY NOTES--14.2%
------------------------------------------------------------------------------
12,600,000 7.875%, 11/15/2004 14,058,450
------------------------------------------------------------------------------
24,000,000 7.50%, 11/15/2001 25,882,800
------------------------------------------------------------------------------
43,500,000 7.375%, 11/15/1997 44,856,765
------------------------------------------------------------------------------
54,100,000 7.25%, 2/15/1998 55,888,005
------------------------------------------------------------------------------
98,500,000 6.125%, 9/30/2000 99,937,115
------------------------------------------------------------------------------
47,400,000 5.50%, 11/15/1998 47,345,964
------------------------------------------------------------------------------
32,600,000 5.375%, 11/30/1997 32,573,920
------------------------------------------------------------------------------ ----------------
Total 320,543,019
------------------------------------------------------------------------------ ----------------
TOTAL LONG-TERM OBLIGATIONS (IDENTIFIED COST $2,227,261,833) 2,241,886,693
------------------------------------------------------------------------------ ----------------
(a) REPURCHASE AGREEMENTS--17.0%
- ----------------------------------------------------------------------------------------------
19,445,000 BT Securities Corp., 5.45%, dated 2/29/1996, due 3/1/1996 19,445,000
------------------------------------------------------------------------------
$ 10,000,000 (b) Bear, Stearns & Co., Inc., 5.24%, dated 2/20/1996, due 3/13/1996 $ 10,000,000
------------------------------------------------------------------------------
34,000,000 (b) CS First Boston Corp., 5.27%, dated 2/13/1996, due 3/13/1996 34,000,000
------------------------------------------------------------------------------
30,000,000 (b) Goldman Sachs & Co., 5.15%, dated 2/23/1996, due 4/16/1996 30,000,000
------------------------------------------------------------------------------
15,000,000 (b) Goldman Sachs & Co., 5.17%, dated 2/28/1996, due 4/16/1996 15,000,000
------------------------------------------------------------------------------
20,000,000 (b) Morgan Stanley & Co., Inc., 5.17%, dated 2/27/1996,
due 4/16/1996 20,000,000
------------------------------------------------------------------------------
48,000,000 (b) Morgan Stanley & Co., Inc., 5.18%, dated 2/26/1996,
due 4/16/1996 48,000,000
------------------------------------------------------------------------------
78,000,000 (b) Morgan Stanley & Co., Inc., 5.25%, dated 2/15/1996,
due 3/18/1996 78,000,000
------------------------------------------------------------------------------
75,000,000 (b) Morgan Stanley & Co., Inc., 5.265%, dated 2/15/1996,
due 3/18/1996 75,000,000
------------------------------------------------------------------------------
55,000,000 (b) Morgan Stanley & Co., Inc., 5.275%, dated 2/20/1996,
due 3/19/1996 55,000,000
------------------------------------------------------------------------------ ----------------
TOTAL REPURCHASE AGREEMENTS (AT AMORTIZED COST) 384,445,000
------------------------------------------------------------------------------ ----------------
TOTAL INVESTMENTS (IDENTIFIED COST $2,611,706,833)(D) $ 2,626,331,693
------------------------------------------------------------------------------ ----------------
</TABLE>
(a) The repurchase agreements are fully collateralized by U.S. government
and/or agency obligations based on market prices at the date of the
portfolio. The investments in the repurchase agreements are through
participation in joint accounts with other Federated funds.
(b) Although final maturity falls beyond seven days, a liquidity feature is
included in each transaction to permit termination of the repurchase
agreement within seven days if the creditworthiness of the issuer is
downgraded.
(c) These securities are subject to Dollar Roll transactions.
(d) The cost of investments for federal tax purposes amounts to $2,611,690,644.
The net unrealized appreciation of investments on a federal tax basis
amounts to $14,641,049 which is comprised of $30,819,054 appreciation and
$16,178,005 depreciation at February 29, 1996.
Note: The categories of investments are shown as a percentage of net assets
($2,264,373,685) at February 29, 1996.
(See Notes which are an integral part of the Financial Statements)
Federated Government Income Securities, Inc.
(formerly, Government Income Securities, Inc.)
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
February 29, 1996
<TABLE>
<S> <C> <C>
ASSETS:
- -----------------------------------------------------------------------------------------------
Investments in repurchase agreements $ 384,445,000
- -----------------------------------------------------------------------------
Investments in securities 2,241,886,693
- ----------------------------------------------------------------------------- ----------------
Total investments, at value (identified cost $2,611,706,833 and tax
cost $2,611,690,644) $ 2,626,331,693
- -----------------------------------------------------------------------------------------------
Cash 42
- -----------------------------------------------------------------------------------------------
Income receivable 18,623,937
- -----------------------------------------------------------------------------------------------
Receivable for investments sold 190,325,500
- -----------------------------------------------------------------------------------------------
Receivable for shares sold 509,027
- ----------------------------------------------------------------------------------------------- ----------------
Total assets 2,835,790,199
- -----------------------------------------------------------------------------------------------
LIABILITIES:
- -----------------------------------------------------------------------------
Payable for investments purchased $ 303,251,156
- -----------------------------------------------------------------------------
Payable for shares redeemed 3,480,101
- -----------------------------------------------------------------------------
Income distribution payable 8,622,493
- -----------------------------------------------------------------------------
Payable for dollar roll transactions 255,313,530
- -----------------------------------------------------------------------------
Accrued expenses 749,234
- ----------------------------------------------------------------------------- ----------------
Total liabilities 571,416,514
- ----------------------------------------------------------------------------------------------- ----------------
NET ASSETS for 258,890,596 shares outstanding $ 2,264,373,685
- ----------------------------------------------------------------------------------------------- ----------------
NET ASSETS CONSIST OF:
- -----------------------------------------------------------------------------------------------
Paid-in capital $ 2,603,667,392
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 14,624,860
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (354,420,078)
- -----------------------------------------------------------------------------------------------
Undistributed net investment income 501,511
- ----------------------------------------------------------------------------------------------- ----------------
Total Net Assets $ 2,264,373,685
- ----------------------------------------------------------------------------------------------- ----------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- -----------------------------------------------------------------------------------------------
Net Asset Value Per Share ($2,264,373,685 / 258,890,596 shares outstanding) $8.75
- ----------------------------------------------------------------------------------------------- ----------------
Offering Price Per Share (100/99.00 of $8.75)* $8.84
- ----------------------------------------------------------------------------------------------- ----------------
Redemption Proceeds Per Share (99.00/100 of $8.75)** $8.66
- ----------------------------------------------------------------------------------------------- ----------------
</TABLE>
*See "What Shares Cost" in the Prospectus.
**See "Contingent Deferred Sales Charge" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
Federated Government Income Securities, Inc.
(formerly, Government Income Securities, Inc.)
Statement of Operations
- --------------------------------------------------------------------------------
Year Ended February 29, 1996
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -------------------------------------------------------------------------------------------------
Interest (net of dollar roll expense of $23,203,579) $ 192,647,651
- -------------------------------------------------------------------------------------------------
EXPENSES:
- -------------------------------------------------------------------------------------------------
Investment advisory fee $ 18,231,613
- ----------------------------------------------------------------------------------
Administrative personnel and services fee 1,839,595
- ----------------------------------------------------------------------------------
Custodian fees 365,967
- ----------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 1,861,255
- ----------------------------------------------------------------------------------
Directors'/Trustees' fees 29,287
- ----------------------------------------------------------------------------------
Auditing fees 21,176
- ----------------------------------------------------------------------------------
Legal fees 12,831
- ----------------------------------------------------------------------------------
Portfolio accounting fees 139,568
- ----------------------------------------------------------------------------------
Shareholder services fee 6,077,204
- ----------------------------------------------------------------------------------
Share registration costs 102,644
- ----------------------------------------------------------------------------------
Printing and postage 235,396
- ----------------------------------------------------------------------------------
Insurance premiums 33,762
- ----------------------------------------------------------------------------------
Taxes 539,384
- ----------------------------------------------------------------------------------
Miscellaneous 4,748
- ---------------------------------------------------------------------------------- -------------
Total expenses 29,494,430
- ----------------------------------------------------------------------------------
Waivers and reimbursements--
- ----------------------------------------------------------------------------------
Waiver of investment advisory fee $ (6,060,604)
- -------------------------------------------------------------------
Waiver of shareholder services fee (48,618)
- ------------------------------------------------------------------- -------------
Total waivers (6,109,222)
- ---------------------------------------------------------------------------------- -------------
Net expenses 23,385,208
- ------------------------------------------------------------------------------------------------- --------------
Net investment income 169,262,443
- ------------------------------------------------------------------------------------------------- --------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- -------------------------------------------------------------------------------------------------
Net realized gain on investments 28,475,478
- -------------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments 34,036,205
- ------------------------------------------------------------------------------------------------- --------------
Net realized and unrealized gain on investments 62,511,683
- ------------------------------------------------------------------------------------------------- --------------
Change in net assets resulting from operations $ 231,774,126
- ------------------------------------------------------------------------------------------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Federated Government Income Securities, Inc.
(formerly, Government Income Securities, Inc.)
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 1996 FEBRUARY 28, 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- --------------------------------------------------------------------
OPERATIONS--
- --------------------------------------------------------------------
Net investment income $ 169,262,443 $ 215,756,944
- --------------------------------------------------------------------
Net realized gain (loss) on investments ($17,733,056 net loss and
$192,317,284 net loss, respectively, as computed for federal tax
purposes) 28,475,478 (192,595,526)
- --------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) 34,036,205 3,066,135
- -------------------------------------------------------------------- --------------------- ---------------------
Change in net assets resulting from operations 231,774,126 26,227,553
- -------------------------------------------------------------------- --------------------- ---------------------
NET EQUALIZATION (DEBITS)-- (1,642,823) (2,212,810)
- -------------------------------------------------------------------- --------------------- ---------------------
DISTRIBUTIONS TO SHAREHOLDERS--
- --------------------------------------------------------------------
Distributions from net investment income (171,414,167) (209,071,289)
- -------------------------------------------------------------------- --------------------- ---------------------
SHARE TRANSACTIONS--
- --------------------------------------------------------------------
Proceeds from sale of shares 53,344,226 140,367,951
- --------------------------------------------------------------------
Net asset value of shares issued to shareholders in
payment of distributions declared 70,463,057 63,719,987
- --------------------------------------------------------------------
Cost of shares redeemed (456,164,008) (1,023,096,149)
- -------------------------------------------------------------------- --------------------- ---------------------
Change in net assets resulting from
share transactions (332,356,725) (819,008,211)
- -------------------------------------------------------------------- --------------------- ---------------------
Change in net assets (273,639,589) (1,004,064,757)
- --------------------------------------------------------------------
NET ASSETS:
- --------------------------------------------------------------------
Beginning of period 2,538,013,274 3,542,078,031
- -------------------------------------------------------------------- --------------------- ---------------------
End of period (including undistributed net investment income of
$501,511 and $4,296,058, respectively) $ 2,264,373,685 $ 2,538,013,274
- -------------------------------------------------------------------- --------------------- ---------------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Federated Government Income Securities, Inc.
(formerly, Government Income Securities, Inc.)
Statement of Cash Flows
- --------------------------------------------------------------------------------
Year Ended February 29, 1996
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 231,774,126
- -------------------------------------------------------------------------------------------------
ADJUSTMENTS TO RECONCILE NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS TO CASH PROVIDED BY
OPERATING ACTIVITIES:
- -------------------------------------------------------------------------------------------------
Net decrease in investments (including $34,036,205 increase in unrealized
appreciation) 350,892,791
- -------------------------------------------------------------------------------------------------
Increase in income receivable (1,408,621)
- -------------------------------------------------------------------------------------------------
Increase in receivable for investments sold (125,245,153)
- -------------------------------------------------------------------------------------------------
Increase in payable for investments purchased 170,351,677
- -------------------------------------------------------------------------------------------------
Decrease in accrued expenses (126,942)
- ------------------------------------------------------------------------------------------------- ---------------
Net cash provided by operating activities 626,237,878
- ------------------------------------------------------------------------------------------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------------------------------------------------------------------
Net proceeds from the sale of shares 56,490,981
- -------------------------------------------------------------------------------------------------
Net cost of shares redeemed (459,703,636)
- -------------------------------------------------------------------------------------------------
Equalization (debits) credits (1,642,823)
- -------------------------------------------------------------------------------------------------
Decrease on payable for dollar roll transactions (118,448,269)
- -------------------------------------------------------------------------------------------------
Distributions paid (102,936,963)
- ------------------------------------------------------------------------------------------------- ---------------
Net cash used in financing activities (626,240,710)
- ------------------------------------------------------------------------------------------------- ---------------
Net decrease in cash (2,832)
- -------------------------------------------------------------------------------------------------
Cash at beginning of period 2,874
- ------------------------------------------------------------------------------------------------- ---------------
Cash at end of period $ 42
- ------------------------------------------------------------------------------------------------- ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Federated Government Income Securities, Inc.
(formerly, Government Income Securities, Inc.)
Financial Highlights
- --------------------------------------------------------------------------------
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28 OR 29,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992 1991 1990 1989 1988
NET ASSET VALUE,
BEGINNING OF PERIOD $ 8.55 $ 9.00 $ 9.44 $ 9.48 $ 9.32 $ 9.19 $ 9.00 $ 9.49 $ 9.76
- -------------------------
INCOME FROM INVESTMENT
OPERATIONS
- -------------------------
Net investment income 0.62 0.63 0.68 0.79 0.83 0.87 0.87 0.86 0.88
- -------------------------
Net realized and
unrealized gain (loss)
on investments 0.20 (0.46) (0.44) (0.05) 0.17 0.15 0.24 (0.53) (0.27)
- ------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total from investment
operations 0.82 0.17 0.24 0.74 1.00 1.02 1.11 0.33 0.61
- -------------------------
LESS DISTRIBUTIONS
- -------------------------
Distributions from net
investment income (0.62) (0.62) (0.68) (0.78) (0.83) (0.87) (0.91) (0.82) (0.88)
- -------------------------
Distributions in excess
of net investment income -- -- -- -- (0.01)(b) (0.02)(b) (0.01)(b) -- --
- ------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS (0.62) (0.62) (0.68) (0.78) (0.84) (0.89) (0.92) (0.82) (0.88)
- ------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF
PERIOD $ 8.75 $ 8.55 $ 9.00 $ 9.44 $ 9.48 $ 9.32 $ 9.19 $ 9.00 $ 9.49
- ------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
TOTAL RETURN (C) 9.87% 2.11% 2.63% 8.08% 11.12% 11.63% 12.81% 3.65% 6.80%
- -------------------------
RATIOS TO AVERAGE NET
ASSETS
- -------------------------
Expenses 0.96% 0.97% 0.97% 0.90% 0.92% 0.90% 0.93% 0.88% 0.81%
- -------------------------
Net investment income 6.96% 7.34% 7.39% 8.27% 8.86% 9.43% 9.42% 9.33% 9.47%
- -------------------------
Expense waiver/
reimbursement (d) 0.25% 0.23% 0.19% -- -- -- -- -- --
- -------------------------
SUPPLEMENTAL DATA
- -------------------------
Net assets, end of
period (000 omitted) $2,264,374 $2,538,013 $3,542,078 $3,643,180 $2,261,762 $1,322,749 $1,320,710 $1,482,030 $1,846,198
- -------------------------
Portfolio Turnover 161% 143% 134% 43% 36% 37% 76% 62% 34%
- -------------------------
<CAPTION>
<S> <C>
1987(A)
NET ASSET VALUE,
BEGINNING OF PERIOD $ 9.99
- -------------------------
INCOME FROM INVESTMENT
OPERATIONS
- -------------------------
Net investment income 0.94
- -------------------------
Net realized and
unrealized gain (loss)
on investments (0.23)
- ------------------------- -----
Total from investment
operations 0.71
- -------------------------
LESS DISTRIBUTIONS
- -------------------------
Distributions from net
investment income (0.94)
- -------------------------
Distributions in excess
of net investment income --
- ------------------------- -----
TOTAL DISTRIBUTIONS (0.94)
- ------------------------- -----
NET ASSET VALUE, END OF
PERIOD $ 9.76
- ------------------------- -----
TOTAL RETURN (C) 6.76%
- -------------------------
RATIOS TO AVERAGE NET
ASSETS
- -------------------------
Expenses 0.95%*
- -------------------------
Net investment income 9.18%*
- -------------------------
Expense waiver/
reimbursement (d) --
- -------------------------
SUPPLEMENTAL DATA
- -------------------------
Net assets, end of
period (000 omitted) $3,183,612
- -------------------------
Portfolio Turnover 208%
- -------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from April 4, 1986 (date of initial
public investment) to February 28, 1987.
(b) Distributions in excess of net investment income for the years ended
February 29, 1992, February 28, 1991, and 1990 were a result of certain
book and tax timing differences. These distributions did not represent a
return of capital for federal income tax purposes.
(c) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(d) 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 Government Income Securities, Inc.
(formerly, Government Income Securities, Inc.)
Notes to Financial Statements
- --------------------------------------------------------------------------------
February 29, 1996
(1) ORGANIZATION
Federated Government Income Securities, Inc. (the "Fund") is registered under
the Investment Company Act of 1940, (the "Act"), as a diversified, open-end
management investment company. The Fund's objective is to obtain current income
by investing in securities guaranteed as to payment of principal and interest by
the U.S. government or its agencies.
Effective March 31, 1996, the Board of Directors ("Directors") changed the name
of the Fund from Government Income Securities, Inc. to Federated Government
Income Securities, Inc.
(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 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 Directors. 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.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are
primarily due to differing treatments for expiring capital loss
carryforwards. The following reclassifications have been made to the
financial statements.
<TABLE>
<CAPTION>
INCREASE (DECREASE)
ACCUMULATED
NET REALIZED
PAID-IN CAPITAL GAIN/LOSS
<S> <C> <C>
($ 68,203,141) $ 68,203,141
</TABLE>
Net investment income, net realized gains/losses, and net assets were not
affected by this reclassification.
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.
At February 29, 1996, the Fund, for federal tax purposes, had a capital
loss carryforward of $354,403,888, which will reduce the Fund's taxable
income arising from future net realized gain on investments, if any, to the
extent permitted by the Code, and thus will reduce the amount of the
distributions to shareholders which would otherwise be necessary to relieve
the Fund of any liability for federal tax. Pursuant to the Code, such
capital loss carryforward will expire as follows:
<TABLE>
<CAPTION>
EXPIRATION YEAR EXPIRATION AMOUNT
<S> <C>
1997 $ 35,933,841
1998 $ 13,325,628
1999 $ 147,841
2000 $ 3,842,806
2001 $ 7,365,127
2002 $ 83,738,305
2003 $ 192,317,284
2004 $ 17,733,056
</TABLE>
EQUALIZATION--The Fund follows the accounting practice known as
equalization. With equalizaion, a portion of the proceeds from sales and
costs of redemptions of fund shares (equivalent, on a per share basis, to
the amount of undistributed net investment income on the date of the
transaction) is credited or charged to undistributed net investment income.
As a result, undistributed net investment income per share is unaffected by
sales or redemptions of fund shares.
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.
DOLLAR ROLL TRANSACTIONS--The Fund enters into dollar roll transactions,
with respect to mortgage securities issued by GNMA, FNMA and FHLMC, in
which the Fund sells mortgage securities to financial institutions and
simultaneously agrees to accept substantially similar (same type, coupon
and maturity) securities at a later date at an agreed upon price. Dollar
roll transactions are short-term financing arrangements which will not
exceed twelve months. The Fund will use the proceeds generated from the
transactions to invest in short-term investments, which may enhance the
Fund's current yield and total return.
STATEMENT OF CASH FLOWS--Information on financial transactions which have
been settled through the receipt or disbursement of cash is presented in
the Fund's Statement of Cash Flows. The cash amount shown in the Statement
of Cash Flows is the amount reported as cash in the Fund's Statement of
Assets and Liabilities and represents cash on hand in its custodian bank
account and does not include any short-term investments at February 29,
1996.
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) CAPITAL STOCK
At February 29, 1996, there were 2,000,000,000 shares of $0.001 par value
capital stock authorized. Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 29, 1996 FEBRUARY 28, 1995
<S> <C> <C>
Shares sold 6,124,214 16,366,043
- --------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 8,062,587 6,992,784
- --------------------------------------------------------------------
Shares redeemed (52,286,242) (119,737,988)
- -------------------------------------------------------------------- --------------------- ---------------------
Net change resulting from share transactions (38,099,441) (96,379,161)
- -------------------------------------------------------------------- --------------------- ---------------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Advisers, the Fund's investment adviser, (the
"Adviser"), receives for its services an annual investment advisory fee equal to
0.75% of the Fund's average daily net assets. The Adviser may voluntarily choose
to waive any portion of itsfee. 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 daily average net assets of the Fund shares 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 a portion of its fee.
FSS can modify or terminate this voluntary waiver at any time at its sole
discretion.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--FServ, through
its registered transfer and dividend disbursing agent, Federated Shareholder
Services Company, maintains all necessary shareholder records and receives a fee
based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.
GENERAL--Certain of the Officers and Trustees of the Fund are Officers and
Directors or Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
fiscal year ended February 29, 1996, were as follows:
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------
PURCHASES $ 3,920,143,754
- ------------------------------------------------------------------------------------------------ ----------------
SALES $ 3,862,433,479
- ------------------------------------------------------------------------------------------------ ----------------
</TABLE>
Independent Auditors' Report
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
Federated Government Income Securities, Inc.:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Federated Government Income Securities, Inc.
(formerly, Government Income Securities, Inc.) as of February 29, 1996, and the
related statements of operations and cash flows for the year then ended, the
statements of changes in net assets for the years ended February 29, 1996 and
February 28, 1995 and the financial highlights for the periods presented. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
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 as of
February 29, 1996 by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
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 that 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 Government
Income Securities, Inc. as of February 29, 1996, the results of its operations
and its cash flows, the changes in its net assets and its financial highlights
for the respective stated periods in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
April 18, 1996
Directors Officers
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
John F. Donahue John F. Donahue
Thomas G. Bigley Chairman
John T. Conroy, Jr. Richard B. Fisher
William J. Copeland President
James E. Dowd J. Christopher Donahue
Lawrence D. Ellis, M.D. Executive Vice President
Richard B. Fisher Edward C. Gonzales
Edward L. Flaherty, Jr. Executive Vice President
Peter E. Madden John W. McGonigle
Gregor F. Meyer Executive Vice President and Secretary
John E. Murray, Jr. David M. Taylor
Wesley W. Posvar Treasurer
Marjorie P. Smuts Charles H. Field
Assistant Secretary
</TABLE>
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment 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.
[LOGO] Federated Investors
since 1995
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
Cusip 383733102
G01109-01 (4/96)
APPENDIX
A. The graphic representation here displayed entitled "Initial Investment of
$10,000," consists of a boxed legend in the upper left quadrant indicating the
components of the corresponding mountain chart. The lighter-shaded portion
represents the value of Reinvested Income of an initial $10,000 investment in
the Fund. The darker-shaded portion represents the Principal Value of a
$10,000 Investment (993 Shares) in the Fund. The color-coded mountain chart is
a visual representation of the narrative text above it, which shows that an
initial investment of $10,000 in the Fund on 4/4/86, would have a reinvested
total worth of $20,374/2,316 Shares on 2/29/96. The "x" axis reflects
computation periods from 4/4/86 to 2/29/96. The right margin of the chart
reflects the ending values of a hypothetical investment of $10,000 in the Fund
measured in increments of $5,000 ranging from $0 to $25,000.
B. The graphic representation here displayed, entitled "Yearly Investments of
$1,000," consists of a boxed legend in the upper left quadrant indicating the
components of the corresponding mountain chart. The lighter-shaded portion
represents the value of Reinvested Income of annual $1,000 investments in the
Fund. The darker-shaded portion reflects the Principal Value of annual $1,000
investments in the Fund. The color-coded mountain chart is a visual
representation of the narrative text above it which shows that a $1,000/99
Shares annual investment in the Fund beginning on 4/4/86 would have a
reinvested total value of $14,934/1,698 Shares on 2/29/96. The "x" axis
reflects computation periods from 4/4/86 to 2/29/96. The right margin of the
chart reflects the ending values of a hypothetical annual investment of $1,000
in the Fund measured in increments of $3,000 ranging from $0 to $15,000.
C. The graphic representation here displayed, entitled "Income Over Time,"
consists of a boxed legend in the upper left quadrant indicating the
components of the corresponding mountain chart. The lighter-shaded portion
represents the value of Reinvested Income in an $100,000 investment in the
Fund. The darker-shaded portion represents and Principal Value of a $100,000
Investment (9,930 Shares) in the Fund. The color-coded mountain chart is a
visual representation of the narrative text above it which shows that
$100,000/9,930 Shares plus reinvested income would have totaled
$203,741/23,160 Shares on 2/29/96. The "x" axis reflects computation periods
from 4/4/86 to 2/29/96. The right margin of the chart reflects the ending
values of a hypothetical investment of $100,000 in the Fund measured in
increments of $70,000 ranging from $0 to $210,000.
D. The graphic representation here displayed consists of a list entitled "Some
of the Fund's Major Shareholder Groups." This list is comprised of the
following Shareholder Groups and their invested amounts:
Individuals and Joint Tenants $513,591,820
IRAs 181,667,944
Trusts 91,514,860
Corporations 40,652,747
Churches/Religious Organizations 23,085,259
Clubs/Fraternal Organizations 22,098,105
Custodians (under Uniform Gift
to Minors Act) 11,425,231
E. The graphic representation here displayed, entitled "Portfolio Overview as
of February 29, 1996," consists of a pie-chart describing the percentage of
Fund assets diversified across different types of securities at the end of the
reporting period. The chart displays the following:
GNMA 46.5%
GNMA (subject to dollar roll transactions) 2.1%
FNMA 6.1%
FNMA (subject to dollar roll transactions) 2.8%
FHLMC 5.1%
FHLMC (subject to dollar roll transactions) 4.7%
U.S. Treasury Obligations 15.3%
Repurchase Agreements 1.0%
Repurchase Agreements (securities held as
collateral for dollar roll transactions) 13.6%
U.S. Government Obligations 2.8%
F. The graphic representation here displayed, entitled "Growth of $10,000 as
of February 29, 1996," consists of a boxed legend indicating the components of
the corresponding line graph. Federated Government Income Securities, Inc.
(the "Fund") is represented by a solid black line. Lipper U.S. Mortgage Funds
Average ("LUSMF") is represented by a broken line. Salomon Brothers 15 Year
Mortgage-Backed Securities Index ("SB15MSI") is represented by a series of
dashes. The line graph is a visual representation of a comparison of a change
in value of a hypothetical $10,000 investment in the Fund, the LUSMF, and the
SB15MSI. The "x" axis reflects computation periods from 4/4/86 to 2/29/96. The
"y" axis reflects the cost of the investment in $3,000 increments ranging from
$9,000 to $24,000. The right margin reflects the ending values of the
hypothetical investment in the Fund as compared to the LUSMF and the SB15MSI;
the ending values are $20,374, $21,012 , and $23,381, respectively. Below the
legend is the Average Annual Total Return for the one-year, five-year and
Start of Performance (4/4/86) for the period ended February 29, 1996; the
