[Graphic]
FEDERATED GOVERNMENT INCOME SECURITIES, INC.
11TH SEMI-ANNUAL REPORT
AUGUST 31, 1997
ESTABLISHED 1986
President's Message
[Graphic]
Dear Fellow Shareholder:
Federated Government Income Securities, Inc. was established in 1986, and I am
pleased to present the 11th Semi-Annual Report for the fund. As of August 31,
1997, the fund's net assets totaled $1.6 billion serving over 45,000
shareholders. This report covers the six-month period from March 1, 1997,
through August 31, 1997. Kathy Foody-Malus, Vice President of Federated
Advisers, discusses the economic influences on the bond market, the fund's
performance, her strategies, and her outlook.
Following Kathy's discussion are three additional items of shareholder interest.
First is a series of graphs that display the fund's performance with income
dividends reinvested, and the investment results of making additional
investments in the fund 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.
More than 70% of the fund's assets were invested in mortgage-backed securities,
which have been among the better performing high-grade, fixed-income securities.
These securities are issued by Government National Mortgage Association, Federal
National Mortgage Corporation and Federal Home Loan Mortgage Corporation, and
are guaranteed as to principal by the U.S. government, its agencies or
instrumentalities.*
The fund's effective duration was 4.6 years, and the average coupon of its
holdings was 7.59%.
* Fund shares are not guaranteed.
Over the six-month reporting period, the fund's performance was consistent with
that of the overall Treasury market as well as the average U.S. government bond
fund. Individual share class total return performance and income distributions
follow.** <TABLE> <CAPTION>
TOTAL INCOME SHARE PRICE
RETURN DISTRIBUTIONS MOVEMENT
<S> <C> <C> <C>
Class A Shares 4.09% $0.28 $8.59 to $8.66=0.81%
Class B Shares 3.70% $0.24 $8.59 to $8.66=0.81%
Class C Shares 3.68% $0.24 $8.59 to $8.66=0.81%
Class F Shares 4.06% $0.28 $8.59 to $8.65=0.69%
</TABLE>
The one-year total returns for the fund's Class A, B, C, and F Shares as of
August 31, 1997, were 9.38%, 8.64%, 8.63%, and 9.40%, respectively.**
Thank you for participating in the income opportunities of U.S. government
securities through Federated Government Income Securities, Inc. If you have
any questions or comments, please do not hesitate to write.
Very sincerely yours,
[Graphic]
Richard B. Fisher
President
October 15, 1997
** Performance quoted reflects past performance, is based on net asset value,
and is not indicative of future results. Investment return and principal value
will fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost. Total returns based on offering price or
contingent deferred sales charge for Class A, B, C, and F Shares were -0.54%,
- -1.90%, 2.61% and 1.91%, respectively, for the reporting period. The one-year
total returns as of 8/31/97 based on offering price or contingent deferred sales
charge for Class A, B, C, and F Shares were 4.43%, 2.90%, 7.63%, and 7.25%,
respectively.
INVESTMENT REVIEW
[Graphic]
Kathy Foody-Malus
Vice President
Federated Advisers
[Graphic]
WHAT IS YOUR ANALYSIS OF THE CURRENT ECONOMIC SIGNALS AND THEIR EFFECT ON THE
BOND MARKET?
The early read on third-quarter data portrays a textbook model economy of
balanced growth and moderate inflation. As the third quarter of 1997 began,
demand that had appeared to have softened in the second quarter of 1997 based
upon initial releases, has shown vigor. The pickup in spending has been
reflected in increased housing sales and manufacturing activity. Overall, the
U.S. economy looks to be advancing at a solid pace through the remainder of
1997.
This news, in combination with strong gross domestic product ("GDP") growth,
caused the U.S. bond market to be skittish during August 1997. In this
environment, the U.S. Treasury market continued to drift from data release
to data release without any clear conviction. Of course, any action by the
Federal Reserve Board will be reflected in the U.S. bond market. [Graphic]
HOW DID FEDERATED GOVERNMENT INCOME SECURITIES, INC. PERFORM FOR
SHAREHOLDERS IN TERMS OF TOTAL RETURN AND INCOME DURING THE FIRST SIX MONTHS
OF ITS FISCAL YEAR?
For the six-month reporting period ended August 31, 1997, investors in the
fund's Class A Shares received a total return of 4.09% based on net asset
value.* Investors in the fund's Class0 B, C, and F Shares received total returns
of 3.70%, 3.68%, and 4.06%, respectively, based on net asset value.* The
one-year total returns as of August 31, 1997, for the fund's Class A, B, C, and
F shares were 9.38%, 8.64%, 8.63%, and 9.40%, respectively, based on net asset
value.*
* Performance quoted reflects past performance and is not indicative of future
results. Investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. Total returns based on offering price or contingent deferred sales charge
for Class A, B, C, and F Shares were -0.54%, -1.90%, 2.61%, and 1.91%,
respectively, for the reporting period. The one-year total returns as of 8/31/97
based on offering price or contingent deferred sales charge for Class A, B, C,
and F Shares were 4.43%, 2.90%, 7.63%, and 7.25%, respectively.
The fund's returns were consistent with those of the market overall and the
average U.S. government mutual fund. For the six-month reporting period, the
Merrill Lynch 5-Year and 10-Year U.S. Treasury Note Indexes returns were
3.90% and 4.64%, respectively.** The total return for the Lipper General
U.S. Government Fund Average was 3.88%.+
In terms of income, the fund's Class A, B, C, and F Shares paid six monthly
dividends totaling $0.28, $0.24, $0.24, and $0.28 per share, respectively.
[Graphic]
AS MORTGAGE-BACKED SECURITIES CONTINUED TO BE A RELATIVELY BRIGHT SPOT IN
THE FIXED-INCOME MARKET, ARE YOU MAINTAINING THE PORTFOLIO'S EMPHASIS ON
THIS SECTOR?
Yes! The portfolio continued to have a 70% weighting in agency mortgage
securities due to attractive valuations versus other high-grade, fixed-income
assets. In fact, the mortgage sector through August had outperformed the U.S.
Treasury market on a duration-adjusted basis by 100 basis points.
An important part of mortgage outperformance came from falling option
volatility. The decline in volatility allowed investors to more efficiently
manage the call risk of mortgage securities. The mortgage market also benefited
from tightening spreads versus comparable duration U.S. Treasuries. Despite the
tightening of yield spreads, mortgages remain attractive versus spreads on
alternative fixed-income products.
As of August 31, 1997, the portfolio composition was:
<TABLE>
<S> <C>
Government National Mortgage Association 46.04%
U.S. Treasury Obligations 25.26%
Federal National Mortgage Corporation 13.08%
Federal Home Loan Mortgage Corporation 11.06%
Repurchase Agreements 4.23%
</TABLE>
** Merrill Lynch 5-Year and 10-Year Treasury Note Indexes comprise the most
recently issued 5-year and 10-year U.S. Treasury notes. Index returns are
calculated as total returns for periods of 1, 3, 6, and 12 months as well as
year-to-date. Indexes are unmanaged, and investments cannot be made in an index.
+ Lipper figures represent the average of the total returns reported by all
of the mutual funds designated by Lipper Analytical Services, Inc. as
falling into the category indicated. These figures do not reflect sales
charges. [Graphic]
AS WE MOVE TOWARD THE END OF 1997, DO YOU SEE ANY SIGNS THAT MAY POINT TO A
CLEARER DIRECTION FOR THE BOND MARKET?
With the fourth quarter of 1997 fast approaching, the U.S. Treasury market
continues to trade in a mixed state. Yields over the course of the last six
months on the bellwether, 30-year Treasury curve have been as low as 6.30% and
as high as 7.17%. The spread between 2-year U.S. Treasuries and 30-year U.S.
Treasuries has ranged between 57 and 79 basis points during this period. The
Treasury market has gyrated quite a bit, but has not traded with a solid set of
convictions to establish any pattern moving into the final quarter of 1997.
In an environment of a market in a trading range, low volatility and attractive
yield spreads versus other fixed-income sectors, our traditional strategy seems
to offer the best dimension in which to manage the fund's portfolio. In the long
run, we believe that the fund's returns will be driven primarily by sector
allocation and yield curve decisions.
TWO WAYS YOU MAY SEEK TO INVEST FOR SUCCESS IN FEDERATED GOVERNMENT INCOME
SECURITIES, INC.
INITIAL INVESTMENT:
IF YOU MADE AN INITIAL INVESTMENT OF $12,000 IN FEDERATED GOVERNMENT INCOME
SECURITIES, INC. CLASS F SHARES ON 4/4/86, REINVESTED DIVIDENDS AND CAPITAL
GAINS, AND DIDN'T REDEEM ANY SHARES, YOUR ACCOUNT WOULD HAVE BEEN WORTH $26,662
ON 8/31/97. YOU WOULD HAVE EARNED A 7.25%* AVERAGE ANNUAL TOTAL RETURN FOR THE
12-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 9/30/97, the Class A Shares' average annual one-year and since-inception
(8/5/96) total returns were 4.65% and 4.00%, respectively. Class B Shares'
average annual one-year and since-inception (8/5/96) total returns were 3.00%
and 3.22%, respectively. Class C Shares' average annual one-year and
since-inception (8/5/96) total returns were 7.69% and 7.55%, respectively. Class
F Shares' average annual one-, five-, and ten-year total returns were 7.35%,
5.34%, and 8.02%, respectively.
[Graphic] See Appendix A1. for description of graphic.
* Total return represents the change in the value of an investment after
reinvesting all income and capital gains, and takes into account the 1.00% sales
charge and 1.00% contingent deferred sales charge prior to 48 months for Class F
Shares.
Data quoted represents past performance and does not guarantee 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.
FEDERATED GOVERNMENT INCOME SECURITIES, INC.
ONE STEP AT A TIME:
$1,000 INVESTED IN THE FUND'S CLASS F SHARES EACH YEAR FOR 12 YEARS (REINVESTING
ALL DIVIDENDS AND CAPITAL GAINS) GREW TO $18,384.
With this approach, the key is consistency.
If you had started investing $1,000 annually in Federated Government Income
Securities, Inc. Class F Shares on 4/4/86, reinvested your dividends and capital
gains, and didn't redeem any shares, you would have invested only $12,000, but
your account would have reached a total value of $18,384* by 8/31/97. You would
have earned an average annual total return of 7.07%.
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, money, and compounding to work!
[Graphic] See Appendix A2. for description of graphic.
* This chart assumes that the subsequent annual investments are made on the last
day of each anniversary month. 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.
HYPOTHETICAL INVESTOR PROFILE: INVESTING FOR CURRENT INCOME
Eleven 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 Class F Shares of Federated Government
Income Securities, Inc. because the fund 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--without touching their original
principal.
The Laughlin's account totaled $222,185 as of August 31, 1997 for a total
return of 7.25%.*
[Graphic] See Appendix A3. for description of graphic.
+ Fund shares are not guaranteed and their value will fluctuate.
* This hypothetical scenario is provided for illustrative purposes only and
does not represent the results obtained by any particular shareholder. Past
performance does not guarantee future results.
FEDERATED GOVERNMENT INCOME SECURITIES, INC.
PORTFOLIO OF INVESTMENTS
AUGUST 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
LONG-TERM OBLIGATIONS--99.2%
FEDERAL HOME LOAN MORTGAGE CORPORATION--6.8%
$ 17,299,531 9.500%, 8/1/2016 $ 18,602,359
24,340,000 8.500%, 9/1/2027 25,397,086
67,539,683 7.500%, 5/1/2027 - 9/1/2027 68,297,482
Total 112,296,927
FEDERAL HOME LOAN MORTGAGE CORPORATION REMIC--4.7%
24,400,000 Series 1127-G, 8.500%, 8/15/2006 26,035,044
10,000,000 Series 1347-1, 8.00%, 8/15/2022 10,469,300
18,947,562 Series 176-2, (Interest Only), 6/1/2026 6,477,793
26,471,927 Series 177-1, (Principal Only), 7/1/2026 17,004,243
270,242 Series 180-2, (Interest Only), 10/1/2026 90,204
25,000,000 Series 184-1, (Principal Only), 10/15/2026 16,253,250
Total 76,329,834
FEDERAL NATIONAL MORTGAGE ASSOCIATION--9.5%
52,819,673 8.000%, 1/1/2023 - 4/1/2023 54,528,342
34,000,000 (a)8.000%, 9/1/2027 34,966,620
29,000,000 (a)7.500%, 9/1/2027 29,326,250
38,859,274 6.500%, 5/1/2026 - 6/1/2026 37,580,027
Total 156,401,239
FEDERAL NATIONAL MORTGAGE ASSOCIATION REMIC--4.1%
28,118,288 Series 1991-146Z, 8.000%, 10/25/2006 28,979,551
28,198,690 Series 1993-199SB, 1.844%, (Interest Only) 10/25/2023 1,261,327
19,225,000 Series 1996-50P, (Principal Only), 11/25/2026 13,673,781
20,000,000 Series 1996-52B, (Principal Only), 11/25/2026 15,018,800
10,310,651 Series 280-1, (Principal Only), 1/1/2026 7,748,145
Total 66,681,604
</TABLE>
FEDERATED GOVERNMENT INCOME SECURITIES, INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
LONG-TERM OBLIGATIONS--CONTINUED
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--47.9%
$ 5,950,705 12.500%, 4/15/2010 - 7/15/2015 $ 6,941,476
16,868,663 12.000%, 5/15/2011 - 12/15/2015 19,535,519
6,412,781 10.500%, 3/15/2016 7,140,246
32,362,309 10.000%, 3/15/2016 - 7/15/2022 35,549,342
55,865,203 9.500%, 8/15/2016 - 2/15/2022 60,717,943
65,385,500 9.000%, 2/15/2009 - 7/15/2021 70,383,677
139,364,646 8.500%, 1/15/2017 - 11/15/2026 146,948,853
97,613,361 8.000%, 5/15/2017 - 12/15/2023 101,062,873
117,369,025 7.500%, 11/15/2022 - 1/15/2026 118,857,701
142,626,267 7.000%, 10/15/2023 - 3/15/2026 141,391,516
10,000,000 (a)7.000%, 9/15/2027 9,887,500
69,085,065 6.500%, 10/15/2023 - 5/15/2024 67,077,452
Total 785,494,098
UNITED STATES TREASURY BONDS AND NOTES --26.2%
12,600,000 11.250%, 2/15/2015 18,590,166
27,300,000 10.750%, 8/15/2005 34,625,955
15,000,000 9.250%, 2/15/2016 19,081,650
73,000,000 8.875%, 2/15/1999 - 5/15/2000 76,406,580
34,000,000 8.125%, 8/15/2019 - 5/15/2021 39,615,880
37,000,000 7.625%, 2/15/2025 41,344,910
17,000,000 7.500%, 11/15/2001 17,804,950
29,000,000 7.250%, 5/15/2004 30,477,260
40,000,000 7.125%, 9/30/1999 40,895,200
20,800,000 7.000%, 7/15/2006 21,621,600
12,000,000 6.500%, 5/31/2001 12,132,840
17,900,000 6.375%, 8/15/2027 17,356,914
25,000,000 6.375%, 9/30/2001 25,163,250
</TABLE>
FEDERATED GOVERNMENT INCOME SECURITIES, INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
LONG-TERM OBLIGATIONS--CONTINUED
UNITED STATES TREASURY BONDS AND NOTES--CONTINUED
$ 3,600,000 6.250%, 2/15/2007 $ 3,564,756
21,000,000 6.125%, 12/31/2001 20,939,520
1,000,000 6.000%, 9/30/1998 1,002,500
43,500,000 0.00%, STRIP, 2/15/2019 10,285,575
Total 430,909,506
TOTAL LONG-TERM OBLIGATIONS (IDENTIFIED COST $1,609,088,320)
1,628,113,208
CALL OPTIONS--0.3%
192,271,920 (b)Series FNCPT 96-C4B 2,824,475
189,445,086 (b)Series FNCPT 96-C5B 2,892,826
TOTAL CALL OPTIONS (IDENTIFIED COST $5,656,250) 5,717,301
(C)REPURCHASE AGREEMENTS--4.4%
$ 28,150,000 BT Securities Corp., 5.580%, dated 8/29/1997, due 9/2/1997 28,150,000
10,000,000 (d)Credit Suisse First Boston, 5.510%, dated 8/20/1997,
due 9/18/1997 10,000,000
34,000,000 (d)Goldman Sachs Group, LP, 5.550%, dated 8/13/1997,
due 9/11/1997 34,000,000
TOTAL REPURCHASE AGREEMENTS (AT AMORTIZED COST) 72,150,000
TOTAL INVESTMENTS (IDENTIFIED COST $1,686,894,570)(E) $ 1,705,980,509
</TABLE>
(a) Subject to dollar roll transactions.
(b) Beginning October 1997, the Fund may exercise the option to "call away" the
security's underlying collateral from holders of the security at any amount
exceeding par value.
(c) 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.
(d) 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.
(e) The cost of investments for federal tax purposes amounts to $1,686,894,570.
The net unrealized appreciation of investments on a federal tax basis amounts to
$19,085,939 which is comprised of $25,933,070 appreciation and $6,847,131
depreciation at August 31, 1997.
Note: The categories of investments are shown as a percentage of net assets
($1,641,484,255) at August 31, 1997.
The following acronyms are used throughout this portfolio:
LP --Limited Partnership
REMIC --Real Estate Mortgage Investment Conduit
STRIP --Separate Trading of Registered Interest & Principal of Securities
(See Notes which are an integral part of the Financial Statements)
FEDERATED GOVERNMENT INCOME SECURITIES, INC.
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $ 1,705,980,509
$1,686,894,570)
Cash 42,646
Income receivable 12,457,031
Receivable for investments sold 109,107,490
Receivable for shares sold 1,364,806
Total assets 1,828,952,482
LIABILITIES:
Payable for investments purchased $ 101,787,727
Payable for shares redeemed 1,501,824
Income distribution payable 8,891,238
Payable for dollar roll transactions 74,053,939
Accrued expenses 1,233,499
Total liabilities 187,468,227
NET ASSETS for 189,789,315 shares outstanding $ 1,641,484,255
NET ASSETS CONSIST OF:
Paid in capital $ 1,972,084,333
Net unrealized appreciation of investments 19,085,939
Accumulated net realized loss on investments (348,069,212)
Distributions in excess of net investment income (1,616,805)
Total Net Assets $ 1,641,484,255
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
CLASS A SHARES:
Net Asset Value Per Share ($99,277,872 / 11,467,974 shares outstanding) $8.66
Offering Price Per Share (100/95.50 of $8.66)* $9.07
Redemption Proceeds Per Share $8.66
CLASS B SHARES:
Net Asset Value Per Share ($5,261,982 / 607,859 shares outstanding) $8.66
Offering Price Per Share $8.66
Redemption Proceeds Per Share (94.50/100 of $8.66)** $8.18
CLASS C SHARES:
Net Asset Value Per Share ($2,063,725 / 238,413 shares outstanding) $8.66
Offering Price Per Share $8.66
Redemption Proceeds Per Share (99/100 of $8.66)** $8.57
CLASS F SHARES:
Net Asset Value Per Share ($1,534,880,676 / 177,475,069 shares outstanding) $8.65
Offering Price Per Share (100/99 of $8.65)* $8.74
Redemption Proceeds Per Share (99/100 of $8.65)** $8.56
</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.
STATEMENT OF OPERATIONS
SIX MONTHS ENDED AUGUST 31, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest (net of dollar roll expense of $286,036) $ 61,729,644
EXPENSES:
Investment advisory fee $ 6,444,258
Administrative personnel and services fee 648,722
Custodian fees 103,218
Transfer and dividend disbursing agent fees and expenses 869,692
Directors'/Trustees' fees 12,464
Auditing fees 13,474
Legal fees 5,035
Portfolio accounting fees 94,177
Distribution services fee--Class A Shares 89,339
Distribution services fee--Class B Shares 15,308
Distribution services fee--Class C Shares 7,643
Shareholder services fee--Class A Shares 89,339
Shareholder services fee--Class B Shares 5,103
Shareholder services fee--Class C Shares 2,548
Shareholder services fee--Class F Shares 2,051,097
Share registration costs 20,409
Printing and postage 166,467
Insurance premiums 10,203
Taxes 165,860
Miscellaneous 22,881
Total expenses 10,837,237
Waivers and reimbursements--
Waiver of investment advisory fee $ (2,438,489)
Waiver of distribution services fee--Class A Shares (89,339)
Waiver of shareholder services fee--Class F Shares (16,409)
Total waivers (2,544,237)
Net expenses 8,293,000
Net investment income 53,436,644
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments (4,092,886)
Net change in unrealized appreciation of investments 16,915,309
Net realized and unrealized gain on investments 12,822,423
Change in net assets resulting from operations $ 66,259,067
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED GOVERNMENT INCOME SECURITIES, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
AUGUST 31, FEBRUARY 28,
1997 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 53,436,644 $ 127,536,042
Net realized gain (loss) on investments ($4,092,886 net loss and
$23,283,777 net loss, respectively, as computed for
federal tax purposes) (4,092,886) (25,490,089)
Net change in unrealized appreciation/depreciation 16,915,309 (12,454,230)
Change in net assets resulting from operations 66,259,067 89,591,723
NET EQUALIZATION CREDITS (DEBITS)-- (86,279) (1,203,307)
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Class A Shares (2,544,707) (3,920)
Class B Shares (121,561) (34,408)
Class C Shares (58,756) (31,848)
Class F Shares (52,620,803) (128,455,862)
Change in net assets resulting from distributions to shareholders (55,345,827) (128,526,038)
SHARE TRANSACTIONS--
Proceeds from sale of shares 121,235,380 70,576,821
Net asset value of shares issued to shareholders in payment of
distributions declared 24,104,030 67,780,045
Cost of shares redeemed (292,639,659) (584,635,386)
Change in net assets resulting from share transactions (147,300,249) (446,278,520)
Change in net assets (136,473,288) (486,416,142)
NET ASSETS:
Beginning of period 1,777,957,543 2,264,373,685
End of period (including undistributed net investment income of
$0 and $378,657, respectively) $ 1,641,484,255 $ 1,777,957,543
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED GOVERNMENT INCOME SECURITIES, INC.
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED PERIOD
(UNAUDITED) ENDED
AUGUST 31, FEBRUARY 28,
1997 1997(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.59 $ 8.63
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.30 0.30
Net realized and unrealized gain (loss) on investments 0.05 (0.02)
Total from investment operations 0.35 0.28
LESS DISTRIBUTIONS
Distributions from net investment income (0.28) (0.32)
NET ASSET VALUE, END OF PERIOD $ 8.66 $ 8.59
TOTAL RETURN(B) 4.09% 3.34%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.97%* 1.03%*
Net investment income 6.26%* 6.45%*
Expense waiver/reimbursement(c) 0.53%* 0.50%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 99,278 $ 289
Portfolio turnover 71% 97%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from August 5, 1996 (date of initial
public offering) to February 28, 1997.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) 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.
FINANCIAL HIGHLIGHTS--CLASS B SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED PERIOD
(UNAUDITED) ENDED
AUGUST 31, FEBRUARY 28,
1997 1997(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.59 $ 8.63
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.24 0.28
Net realized and unrealized gain (loss) on investments 0.07 (0.02)
Total from investment operations 0.31 0.26
LESS DISTRIBUTIONS
Distributions from net investment income (0.24) $ (0.30)
NET ASSET VALUE, END OF PERIOD $ 8.66 8.59
TOTAL RETURN(B) 3.70% 3.00%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.72%* 1.71%*
Net investment income 5.49%* 5.80%*
Expense waiver/reimbursement(c) 0.28%* 0.26%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 5,262 $ 2,421
Portfolio turnover 71% 97%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from August 5, 1996 (date of initial
public offering) to February 28, 1997.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) 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.
FINANCIAL HIGHLIGHTS--CLASS C SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED PERIOD
(UNAUDITED) ENDED
AUGUST 31, FEBRUARY 28,
1997 1997(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.59 $ 8.63
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.24 0.27
Net realized and unrealized gain (loss) on investments 0.07 (0.01)
Total from investment operations 0.31 0.26
LESS DISTRIBUTIONS
Distributions from net investment income (0.24) (0.30)
NET ASSET VALUE, END OF PERIOD $ 8.66 $ 8.59
TOTAL RETURN(B) 3.68% 3.02%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.71%* 1.71%*
Net investment income 5.45%* 5.65%*
Expense waiver/reimbursement(c) 0.28%* 0.26%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 2,064 $ 1,343
Portfolio turnover 71% 97%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from August 5, 1996 (date of initial
public offering) to February 28, 1997.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) 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.
FINANCIAL HIGHLIGHTS--CLASS F SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
AUGUST 31, YEAR ENDED FEBRUARY 28 OR 29,
1997 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.59 $ 8.75 $ 8.55 $ 9.00 $ 9.44 $ 9.48
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.27 0.55 0.62 0.63 0.68 0.79
Net realized and unrealized gain
(loss) on investments 0.07 (0.15) 0.20 (0.46) (0.44) (0.05)
Total from investment operations 0.34 0.40 0.82 0.17 0.24 0.74
LESS DISTRIBUTIONS
Distributions from net investment
income (0.28) (0.56) (0.62) (0.62) (0.68) (0.78)
NET ASSET VALUE, END OF PERIOD $ 8.65 $ 8.59 $ 8.75 $ 8.55 $ 9.00 $ 9.44
TOTAL RETURN(A) 4.06% 4.81% 9.87% 2.11% 2.63% 8.08%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.96%* 0.96% 0.96% 0.97% 0.97% 0.90%
Net investment income 6.22%* 6.42% 6.96% 7.34% 7.39% 8.27%
Expense waiver/reimbursement(b) 0.29%* 0.26% 0.25% 0.23% 0.19% --
SUPPLEMENTAL DATA
Net assets, end of period (000 $1,534,881 $1,773,905 $2,264,374 $2,538,013 $3,542,078 $3,643,180
omitted)
Portfolio turnover 71% 97% 161% 143% 134% 43%
</TABLE>
* Computed on an annualized basis.
(a) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED GOVERNMENT INCOME SECURITIES, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1997 (UNAUDITED)
1. ORGANIZATION
Federated Government Income Securities, Inc. (the "Fund") is registered under
the Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company. The Fund offers four classes of shares:
Class A Shares, Class B Shares, Class C Shares and Class F Shares. The Fund's
objective is to provide current income.
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. securities, listed corporate bonds, other
fixed-income and asset-backed securities, and unlisted securities and private
placement securities are generally valued at the mean of the latest bid and
asked price as furnished by an independent pricing service. Short-term
securities are valued at the prices provided by an independent pricing
service. However, short-term securities with remaining maturities of 60 days
or less at the time of purchase may be valued at amortized cost, which
approximates fair market value.
REPURCHASE AGREEMENTS--It is the policy of the Fund to require the custodian
bank to take possession, to have legally segregated in the Federal Reserve
Book Entry System, or to have segregated within the custodian bank's vault,
all securities held as collateral under repurchase agreement transactions.
Additionally, procedures have been established by the Fund to monitor, on a
daily basis, the market value of each repurchase agreement's collateral to
ensure that the value of collateral at least equals the repurchase price to
be paid under the repurchase agreement transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Directors (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.
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 28, 1997, the Fund, for federal tax purposes, had a capital loss
carryforward of $341,002,405, 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>
1998 $ 13,473,469
2000 $ 3,842,806
2001 $ 7,365,127
2002 $ 83,738,305
2003 $192,317,284
2004 $ 16,981,637
2005 $ 23,283,777
</TABLE>
Additionally, net capital losses of $3,012,218 attributable to security
transactions incurred after October 31, 1996, are treated as arising on the
first day of the Fund's next taxable year.
EQUALIZATION--The Fund follows the accounting practice known as equalization.
With equalization, 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 12 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.
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 August 31, 1997, par value shares ($0.001 per share) authorized were as
follows:
<TABLE>
<CAPTION>
PERCENTAGE OF PAR VALUE
CLASS NAME CAPITAL STOCK AUTHORIZED
<S> <C>
Class A Shares 500,000,000
Class B Shares 500,000,000
Class C Shares 500,000,000
Class F Shares 500,000,000
</TABLE>
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED PERIOD ENDED
AUGUST 31, 1997 FEBRUARY 28, 1997*
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 12,521,737 $ 107,020,073 41,367 $ 357,558
Shares issued to
shareholders in
payment of 202,478 1,737,295 341 2,956
distributions
declared
Shares redeemed (1,289,854) (11,036,003) (8,095) (69,858)
Net change
resulting from
Class A
Share transactions 11,434,361 $ 97,721,365 33,613 $ 290,656
<CAPTION>
SIX MONTHS ENDED PERIOD ENDED
AUGUST 31, 1997 FEBRUARY 28, 1997*
CLASS B SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 377,552 $ 3,241,377 292,206 $ 2,532,030
Shares issued to
shareholders in
payment of 6,100 52,386 2,107 18,234
distributions
declared
Shares redeemed (57,509) (497,617) (12,597) (109,332)
Net change
resulting from
Class B
Share transactions 326,143 $ 2,796,146 281,716 $ 2,440,932
</TABLE>
*For the period from August 5, 1996 (date of initial public offering) to
February 28, 1997.
<TABLE>
<CAPTION>
SIX MONTHS ENDED PERIOD ENDED
AUGUST 31, 1997 FEBRUARY 28, 1997*
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 129,277 $ 1,102,858 162,616 $ 1,405,057
Shares issued to
shareholders in
payment of 3,291 28,163 2,060 17,884
distributions
declared
Shares redeemed (50,428) (438,154) (8,403) (73,246)
Net change
resulting from
Class C
Share transactions 82,140 $ 692,867 156,273 $ 1,349,695
</TABLE>
*For the period from August 5, 1996 (date of initial public offering) to
February 28, 1997.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
AUGUST 31, 1997 FEBRUARY 28, 1997
CLASS F SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 1,147,765 $ 9,871,072 7,667,232 $ 66,282,176
Shares issued to
shareholders in
payment of 2,603,803 22,286,186 7,877,965 67,740,971
distributions
declared
Shares redeemed (32,732,036) (280,667,885) (67,980,256) (584,382,950)
Net change
resulting from
Class F
Share transactions (28,980,468) $(248,510,627) (52,435,059) $(450,359,803)
Net change
resulting from
share
transactions (17,137,824) $(147,300,249) (51,963,457) $(446,278,520)
</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 its fee. The Adviser can modify or
terminate this voluntary waiver at any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received during
the period of the Administrative Services Agreement shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan,
the Fund will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended
to result in the sale of the Fund's Class A Shares, Class B Shares, and Class
C Shares. The Plan provides that the Fund may incur distribution expenses
according to the following schedule annually, to compensate FSC.
<TABLE>
<CAPTION>
PERCENTAGE OF AVERAGE DAILY
SHARE CLASS NAME NET ASSETS OF CLASS
<S> <C>
Class A Shares 0.25%
Class B Shares 0.75%
Class C Shares 0.75%
</TABLE>
The distributor may voluntarily choose to waive any portion of its fee. The
distributor can modify or terminate this voluntary waiver at any time at its
sole discretion.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to
0.25% of average daily net assets of the Fund for the period. The fee paid to
FSS is used to finance certain services for shareholders and to maintain
shareholder accounts. FSS may voluntarily choose to waive any portion of its
fee. FSS can modify or terminate this voluntary waiver at any time at its
sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--FServ, through its
subsidiary, Federated Shareholder Services Company ("FSSC") serves as
transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is
based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.
GENERAL--Certain of the Officers and Directors of the Fund are Officers and
Directors or Trustees of the above companies.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended August 31, 1997, were as follows:
PURCHASES $1,209,209,531
SALES $1,362,014,689
DIRECTORS
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
William J. Copeland
James E. Dowd
Lawrence D. Ellis, M.D.
Richard B. Fisher
Edward L. Flaherty, Jr.
Peter E. Madden
Gregor F. Meyer
John E. Murray, Jr.
Wesley W. Posvar
Marjorie P. Smuts
OFFICERS
John F. Donahue
Chairman
Richard B. Fisher
President
J. Christopher Donahue
Executive Vice President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President, Treasurer, and Secretary
Matthew S. Hardin
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including 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.
[Graphic]
Federated Investors
Federated Securities Corp., Distributor
Federated Investors Tower
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Cusip 313912206
Cusip 313912305
Cusip 313912404
Cusip 313912107
8092706 (10/97)
[Graphic]
A1. The graphic presentation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The color coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects computation periods from 4/4/86
to 8/31/97. The "y" axis is measured in increments of $5,000 ranging from $0 to
$30,000 and indicates that the ending value of a hypothetical initial investment
of $12,000 (1,192 Shares) in the fund's Class F Shares, assuming the
reinvestment of capital gains and dividends, would have grown to $26,662 (3,082
Shares) on 8/31/97.
A2. The graphic presentation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The color coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects computation periods from 4/4/86
to 8/31/97. The "y" axis is measured in increments of $4,000 ranging from $0 to
$20,000 and indicates that the ending value of hypothetical yearly investments
of $1,000 (99 Shares) in the fund's Class F Shares, assuming the reinvestment of
capital gains and dividends, would have grown to $18,384 (2,125 Shares) on
8/31/97.
A3. The graphic presentation here displayed consists of a boxed legend in the
upper left quadrant indicating the components of the corresponding mountain
chart. The color coded mountain chart is a visual representation of the
narrative text above it. The "x" axis reflects computation periods from 4/4/86
to 8/31/97. The "y" axis is measured in increments of $50,000 ranging from $0 to
$250,000 and indicates that the ending value of a hypothetical initial
investment of $100,000 (9,930 Shares) in the fund's Class F Shares, assuming the
reinvestment of capital gains and dividends, would have grown to $222,185
(25,686 Shares) on 8/31/97.
