FEDERATED GOVERNMENT INCOME SECURITIES INC, N-30D, 1998-04-27

FEDERATED GOVERNMENT INCOME SECURITIES INC
N-30D, 1998-04-27

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[Graphic]

[Graphic]
Federated Investors

Federated Government Income Securities, Inc.

12TH ANNUAL REPORT FEBRUARY 28, 1998

ESTABLISHED 1986

PRESIDENT'S MESSAGE

[Graphic]

Dear Fellow Shareholder:

Federated Government Income Securities, Inc. was created in 1986, and has
been serving income investors for over a decade. I am pleased to present the
fund's 12th Annual Report.

Fund shareholders own U.S. government securities and receive income from U.S.
Treasury bonds, Government National Mortgage Association ("GNMA") issues,
Federal Home Loan Mortgage Corporation ("FHLMC") issues, and Federal National
Mortgage Association ("FNMA") issues. These U.S. government securities have no
credit risk or default risk. The prices of all U.S. government issues are
subject to interest rate changes with corresponding price changes in the market
place.

This report covers the 12-month period from March 1, 1997, through February 28,
1998. It begins with a discussion with the fund's portfolio manager, Kathy
Foody-Malus, Vice President of Federated Advisers. She offers her views on
today's interest rate environment, fund performance and how your fund is
invested in U.S. government securities.

Over the 12-month reporting period, due largely to the fund's mortgage-backed
securities holdings, the fund's share classes outperformed, or were competitive
with, the overall Treasury market. All share classes outperformed the average
U.S. government bond fund. Individual share class total return performance and
income distributions follow.*

TOTAL
RETURN INCOME NET ASSET VALUE INCREASE
Class A Shares 10.10% $0.59 $8.59 to $8.84 = 3%
Class B Shares 9.34% $0.53 $8.59 to $8.84 = 3%
Class C Shares 9.29% $0.53 $8.59 to $8.84 = 3%
Class F Shares 10.19% $0.61 $8.59 to $8.83 = 3%

* Performance quoted is based on net asset value, 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 for Class A, B,
C, and F Shares were 5.20%, 3.55%, 8.18% and 7.94%, respectively, for the
12-month reporting period.

The fund's management has continued to emphasize mortgage-backed securities for
their attractive yields and good long-term value. More than 70% of the fund's
assets were invested in mortgage-backed securities. These government securities
are guaranteed as to payment of principal and interest by the U.S. government,
its agencies or instrumentalities.

Following Kathy's discussion are three additional items of shareholder interest.
First, is a series of graphs that display the fund's performance of a lump sum
investment with all income dividends reinvested and the investment results of
making systematic investments in 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,

[Graphic]

Richard B. Fisher
President
April 15, 1998

* An AAAf rating means that the fund's portfolio holdings and counterparties
provide extremely strong protection against losses from credit defaults.
Ratings are subject to change and do not remove market risks.

INVESTMENT REVIEW

[Graphic]

Kathy Foody-Malus
Vice President
Federated Advisers

[Graphic]

THE FUND'S FISCAL YEAR WAS CHARACTERIZED BY STEADY GROWTH IN THE U.S.
ECONOMY, NEGLIGIBLE INFLATION, AND THE ASIAN ECONOMIC CRISIS. HOW HAS THE
BOND MARKET REACTED TO THESE INFLUENCES?

The first half of the fund's fiscal year was dominated by strong growth and
benign inflation. These factors caused the Federal Reserve Board to tighten
interest rates 25 basis points once during this period. The dominating issues in
the second half of the fund's fiscal year were the currency and financial crisis
in the Asian markets. The bond market rallied on the trouble in Asia and its
potential cooling effect on inflation and growth in the U.S. The 30-year
Treasury bond reached a cyclical low of 5.69% in mid-January. Since then,
interest rates have slightly risen from their historical lows, and the market
continues to support a view of low inflation and slower economic growth.

[Graphic]

FOR MOST OF THE FUND'S FISCAL YEAR, THE MORTGAGE-BACKED SECURITIES MARKET'S
PERFORMANCE IN THIS ENVIRONMENT WAS STELLAR. TO WHAT EXTENT HAVE
MORTGAGE-BACKED SECURITIES OUTPERFORMED TREASURIES?

Overall, the mortgage-backed securities market outperformed comparable duration
Treasuries by 132 basis points over the year. The majority of the
mortgage-backed securities market's strong performance over Treasuries occurred
in the first half of 1997. During this period, the mortgage-backed securities
market was the beneficiary of a trading range environment in the U.S. Treasury
market, low volatility, and tightening spreads. The second half of 1997 proved
to be less favorable as interest rates declined on 10-year Treasury bill by 75
basis points, the yield curve flattened, and volatility increased. The recent
decline in interest rates is feeding fears of prepayment spikes comparable to
those witnessed in 1993 and 1996. With the virtually flat yield curve -- which
means that securities with longer maturities do not offer proportionally higher
yields -- fixed-rate refinancing to date has mirrored the relatively benign 1996
experience, compared to the record refinancing of 1993. However, while the flat
yield curve restrains refinancing, improvements in the financing process could
offset this effect.

[Graphic]

WHAT WAS YOUR STRATEGY FOR THIS TYPE OF MARKET?

The bond market environment over the last several years has been very friendly
for mortgage-backed securities investors. The mortgage-backed securities market
has outperformed equivalent duration Treasuries for the last two years annually
in excess of 100 basis points. Given this environment, we were very proactive in
adding prepayment protection to the portfolio in various types of securities.
This prepayment protection was added at very attractive levels, given the fact
that most investors were unconcerned about the potential for any increase in
refinancing if interest rates were to decline.

Consider this analogy: When it has not rained for years, how many homeowners
would be willing to buy flood insurance? Very few! But typically, this is when
the insurance is at its cheapest levels. As the rains begin, the cost of
insurance to homeowners starts to increase dramatically. The mortgage-backed
securities market today is in a similar situation. Over the last two years, we
were adding securities that inhibited prepayments by homeowners and mortgage
structures that prevented early prepayments under a given set of scenarios. The
early purchase of prepayment "insurance" has been beneficial to investors in the
fund.

[Graphic]

HOW MUCH OF THE FUND'S PORTFOLIO FOCUSED ON THE MORTGAGE-BACKED SECURITIES
MARKET?

The portfolio has a 78% weighting in agency mortgage-backed securities due to
attractive valuations versus other high-grade, fixed-income assets. As of
February 28, 1998, the portfolio composition of net assets was:

PERCENTAGE OF
NET ASSETS
GNMA 38.9%
FNMA 25.5%
U.S. Treasury Obligations 24.3%
Repurchase Agreement 14.3%
FHLMC 13.7%

[Graphic]

HOW DID FEDERATED GOVERNMENT INCOME SECURITIES, INC. PERFORM FOR
SHAREHOLDERS IN TERMS OF TOTAL RETURN AND INCOME FOR THE FISCAL YEAR ENDED
FEBRUARY 28, 1998?

For the 12-month reporting period ended February 28, 1998, investors in the
fund's Class A Shares received a total return of 10.10%, based on net asset
value.* Investors in Class B, C, and F Shares received total returns of 9.34%,
9.29%, and 10.19%, respectively, based on net asset value.*

The fund's returns were consistent with those of the market overall and
greater than the returns of the average U.S. government mutual fund. For the
12-month reporting period, the Merrill Lynch 5-Year and 10-Year U.S.
Treasury Indices returned 9.32% and 12.75%, respectively.** The total return
for the Lipper General U.S. Government Fund Average was 9.12%.+

In terms of income, the fund's Class A, B, C, and F Shares paid monthly
dividends totaling $0.59, $0.53, $0.53, and $0.61 per share, respectively.

[Graphic]

WHAT ARE YOUR EXPECTATIONS FOR THE REMAINDER OF 1998, AND HOW WILL THAT IMPACT
YOUR STRATEGY?

The current environment in bonds continues to be a trading range which will
continue until the release of further economic data confirming a slowdown in
economic growth and continued low inflation. The mortgage-backed securities
market will incur some bumps along the way, as the low rates earlier this year
filter through the prepayment numbers which will be released over the next
several months. Overall, we continue to believe that the combination of
Treasuries and mortgage-backed securities with prepayment protection will serve
investors well moving through the remainder of 1998.

* Performance quoted is based on net asset value, 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 for the 12-month reporting
period based on offering price for Class A, B, C, and F Shares were 5.20%,
3.55%, 8.18%, and 7.94%, respectively.

** Merrill Lynch 5-Year and 10-Year Treasury Indices 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. Indices 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.

BOND INVESTING TERMS

MATURITY -- The amount of time in which a bond's principal becomes due.

COUPON -- The interest rate on a bond that the issuer promises to pay until the
bond matures.

CURRENT YIELD -- The amount of interest paid by a bond, expressed as a
percentage of its value. Yield may differ from the coupon because the bond's
value may change over time. As a bond's price falls, its yield rises, and vice
versa.

DURATION -- A measurement of a bond's price volatility relative to a change in
the general level of interest rates. Duration takes into account the size of the
coupon and the time to maturity. Generally, longer or higher durations have more
risk than shorter or lower durations.

INVESTMENT GRADE BONDS -- Corporate and municipal bonds rated within the top
four categories (Baa or higher by Moody's or BBB or higher by Standard & Poor's)
based on the issuer's ability to pay the interest and principal. Bonds rated
lower are more speculative. U.S. Treasury and government agency bonds are not
rated because the payment of principal and interest are guaranteed directly by
the U.S. government or the issuing agency.

FEDERAL RESERVE BOARD -- Under the direction of a Chairman (currently Alan
Greenspan), the Federal Reserve Board (the "Fed") consists of seven members that
are appointed by the President. The Fed regulates the U.S. monetary and banking
system and sets economic policy, including the direction of short-term interest
rates. When the Fed is said to "tighten," it raises rates. When it "eases," it
lowers rates.

MORTGAGE-BACKED BOND -- A bond that gives the owner an interest in a group of
home mortgages, known as a pool.

PREPAYMENTS -- This occurs when homeowners move or refinance mortgages to take
advantage of lower interest rates. As a result, the principal is paid off to
investors who own interests in the mortgages--and have to reinvest in a lower
rate environment.

PASS-THROUGH MORTGAGE SECURITIES -- A group of mortgages pooled together and
sold to investors.

GNMA -- An abbreviation for the Government National Mortgage Association, a U.S.
government agency that issues pass-through mortgage securities. These securities
are known as "Ginnie Maes," and their payment of principal and interest is
guaranteed by the U.S. government.

FNMA -- An abbreviation for the Federal National Mortgage Association, a
publicly owned, government-sponsored company that buys mortgages from lenders
and packages them into securities for sale to investors. This agency and each
mortgage-backed security are also known as "Fannie Mae."

FHLMC -- An abbreviation for the Federal Home Loan Mortgage Corporation, an
agency that buys mortgages from lenders and packages them into securities for
sale to investors. The agency and each mortgage-backed security it issues are
also known as "Freddie Mac."

TWO WAYS YOU MAY SEEK TO INVEST FOR SUCCESS IN FEDERATED GOVERNMENT INCOME
SECURITIES, INC.

INITIAL INVESTMENT:

IF YOU HAD MADE AN INITIAL INVESTMENT OF $12,000 IN THE CLASS F SHARES OF
FEDERATED GOVERNMENT INCOME SECURITIES, INC. ON 4/4/86, REINVESTED YOUR
DIVIDENDS AND CAPITAL GAINS, AND DID NOT REDEEM ANY SHARES, YOUR ACCOUNT WOULD
HAVE BEEN WORTH $28,096 ON 2/28/98. YOU WOULD HAVE EARNED A 7.41%* 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 3/31/98, the Class F Shares' average annual 1-year, 5-year, and 10-year
total returns were 9.89%, 5.70%, and 7.58%, respectively.

As of 3/31/98, the Class A Shares' average annual 1-year and since inception
(8/5/96) total returns were 6.91% and 5.28%, respectively. The Class B Shares'
average annual 1-year and since inception (8/5/96) total returns were 5.46% and
4.54%, respectively. The Class C Shares' average annual 1-year and since
inception (8/5/96) total returns were 10.19% and 7.56%, respectively.**

[Graphic] - See Appendix (A)

* 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 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.

** The total return stated takes into account the 4.50% sales charge for Class A
Shares, the 5.50% contingent deferred sales charge for Class B Shares, the
1.00% contingent deferred sales charge for Class C Shares, and the 1.00%
sales charge and 1.00% contingent deferred sales charge for Class F Shares.

FEDERATED GOVERNMENT INCOME SECURITIES, INC.

ONE STEP AT A TIME:

$1,000 INVESTED EACH YEAR FOR 12 YEARS (REINVESTING ALL DIVIDENDS AND
CAPITAL GAINS) GREW TO $19,373.

With this approach, the key is consistency.

If you had started investing $1,000 annually in the Class F Shares of Federated
Government Income Securities, Inc. on 4/4/86, reinvested your dividends and
capital gains and did not redeem any shares, you would have invested only
$12,000, but your account would have reached a total value of $19,373* by
2/28/98. You would have earned an average annual total return of
7.34%.

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 (B)

* 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. 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

Twelve 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 credit-worthy securities issued in America.

They like the way they can use their account for an occasional extravagance --
like the $50,000 Jaguar they bought last August to celebrate their anniversary
- -- without touching their original principal.

The Laughlins' account totaled $234,135 as of 2/28/98 for an average annual
total return of 7.41%.*

[Graphic] - See Appendix (C)

* 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.

CLASS A SHARES

GROWTH OF $10,000 INVESTED IN FEDERATED GOVERNMENT INCOME SECURITIES, INC.
(CLASS A SHARES)

The graph below illustrates the hypothetical investment of $10,000* in Federated
Government Income Securities, Inc. (Class A Shares) (the "Fund") from August 5,
1996 (start of performance) to February 28, 1998 compared to the Salomon
Brothers 15 Year Mortgage-Backed Securities Index (SB15MSI), the Lipper U.S.
Mortgage Funds Average (LUSMF), the Merrill Lynch 5 Year Treasury Index
(ML5YRT), the Merrill Lynch 10 Year Treasury Index (ML10YRT), the Lipper General
U.S. Government Funds Average (LUSGFA), and the Lehman Brothers Mortgage-Backed
Securities Index (LBMBSI).+

[Graphic] - See Appendix (D)

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 THEIR ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF
OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.

* Represents a hypothetical investment of $9,550 in the Fund after deducting the
maximum sales charge of 4.50% ($10,000 investment minus $450 sales charge =
$9,550). The Fund's performance assumes the reinvestment of all dividends and
distributions. The SB15MSI, LUSMF, ML5YRT, ML10YRT, LUSGFA, and the LBMBSI
have been adjusted to reflect reinvestment of dividends on securities in the
indices and averages.

** Total returns quoted reflect all applicable sales charges and contingent
deferred sales charges.

+ The SB15MSI, ML5YRT, ML10YRT, and LBMBSI are not adjusted to reflect sales
charges, expenses, or other fees that the SEC requires to be reflected in the
Fund's performance. The indices are unmanaged. The LUSMF and LUSGFA represent
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 are 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. The Fund has elected to change the
benchmark index from the SB15YRMI to the LBMBSI. The LBMBSI is more
representative of the securities in which the Fund invests. It is composed of
all fixed rate securitized mortgage pools by Government National Mortgage
Association (GNMA), Federal National Mortgage Association (FNMA), and the
Federal Home Loan Mortgage Corp. (FHMLC), including GNMA Graduated Payment
Mortgages, all of which can have maturities in excess of 15 years. In
contrast, while the SB15YRMI consists of many of the same securities, it
limits their maturities to 15 years. The Fund is also removing references to
the LUSMFA as the Fund already references the LUSGFA which is more
representative of the Fund's holdings.

FEDERATED GOVERNMENT INCOME SECURITIES, INC.

CLASS B SHARES

GROWTH OF $10,000 INVESTED IN FEDERATED GOVERNMENT INCOME SECURITIES, INC.
(CLASS B SHARES)

The graph below illustrates the hypothetical investment of $10,000* in Federated
Government Income Securities, Inc. (Class B Shares) (the "Fund") from August 5,
1996 (start of performance) to February 28, 1998 compared to the Salomon
Brothers 15 Year Mortgage-Backed Securities Index (SB15MSI), the Lipper U.S.
Mortgage Funds Average (LUSMF), the Merrill Lynch 5 Year Treasury Index
(ML5YRT), the Merrill Lynch 10 Year Treasury Index (ML10YRT), the Lipper General
U.S. Government Funds Average (LUSGFA), and the Lehman Brothers Mortgage-Backed
Securities Index (LBMBSI).+

[Graphic] - See Appendix (E)

* Represents a hypothetical investment of $10,000 in the Fund. The ending value
of the Fund reflects a 4.75% contingent deferred sales charge on any
redemptions less than 2 years from the purchase date. The ending value of the
Fund reflects the maximum contingent deferred sales charge of 5.50% on any
redemption less than 1 year from the purchase date. The Fund's performance
assumes the reinvestment of all dividends and distributions. The SB15MSI,
LUSMF, ML5YRT, ML10YRT, LUSGFA, and the LBMBSI have been adjusted to reflect
reinvestment of dividends on securities in the indices and averages.

** Total returns quoted reflect all applicable sales charges and contingent
deferred sales charges.

+ The SB15MSI, ML5YRT, and ML10YRT, and LBMSBSI are not adjusted to reflect
sales charges, expenses, or other fees that the SEC requires to be reflected
in the Fund's performance. The indices are unmanaged. The LUSMF and LUSGFA
represent 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 are 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. The Fund has elected to change the
benchmark index from the SB15YRMI to the LBMBSI. The LBMBSI is more
representative of the securities in which the Fund invests. It is composed of
all fixed rate securitized mortgage pools by Government National Mortgage
Association (GNMA), Federal National Mortgage Association (FNMA), and the
Federal Home Loan Mortgage Corp. (FHMLC), including GNMA Graduated Payment
Mortgages, all of which can have maturities in excess of 15 years. In
contrast, while the SB15YRMI consists of many of the same securities, it
limits their maturities to 15 years. The Fund is also removing references to
the LUSMFA as the Fund already references the LUSGFA which is more
representative of the Fund's holdings.

FEDERATED GOVERNMENT INCOME SECURITIES, INC.
CLASS C SHARES

GROWTH OF $10,000 INVESTED IN FEDERATED GOVERNMENT INCOME SECURITIES, INC.
(CLASS C SHARES)

The graph below illustrates the hypothetical investment of $10,000* in Federated
Government Income Securities, Inc. (Class C Shares) (the "Fund") from August 5,
1996 (start of performance) to February 28, 1998 compared to the Salomon
Brothers 15 Year Mortgage-Backed Securities Index (SB15MSI), the Lipper U.S.
Mortgage Funds Average (LUSMF), the Merrill Lynch 5 Year Treasury Index
(ML5YRT), the Merrill Lynch 10 Year Treasury Index (ML10YRT), the Lipper General
U.S. Government Funds Average (LUSGFA), and the Lehman Brothers Mortgage-Backed
Securities Index (LBMBSI).+

[Graphic] - See Appendix (F)

* Represents a hypothetical investment of $10,000 in the Fund. The ending value
of the Fund reflects a 1.00% contingent deferred sales charge applied on any
redemption less than 1 year from the purchase date. The Fund's performance
assumes the reinvestment of all dividends and distributions. The SB15MSI,
LUSMF, ML5YRT, ML10YRT, LUSGFA, and the LBMBSI have been adjusted to reflect
reinvestment of dividends on securities in the indices and averages.

** Total returns quoted reflect all applicable sales charges and contingent
deferred sales charges.

FEDERATED GOVERNMENT INCOME SECURITIES, INC.
CLASS F SHARES

GROWTH OF $10,000 INVESTED IN FEDERATED GOVERNMENT INCOME SECURITIES, INC.
(CLASS F SHARES)

The graph below illustrates the hypothetical investment of $10,000* in Federated
Government Income Securities, Inc. (Class F Shares) (the "Fund") from February
29, 1988 to February 28, 1998 compared to the Salomon Brothers 15 Year
Mortgage-Backed Securities Index (SB15MSI), the Lipper U.S. Mortgage Funds
Average (LUSMF), the Merrill Lynch 5 Year Treasury Index (ML5YRT), the Merrill
Lynch 10 Year Treasury Index (ML10YRT), the Lipper General U.S. Government Funds
Average (LUSGFA), and the Lehman Brothers Mortgage-Backed Securities Index
(LBMBSI).+

[Graphic] - See Appendix (G)

* Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 1.00% ($10,000 investment minus $100 sales charge
= $9,900). The ending value of the Fund reflects a contingent deferred sales
charge of 1.00% on any redemption less than 4 years from the purchase date.
The Fund's performance assumes the reinvestment of all dividends and
distributions. The SB15MSI, LUSMF, ML5YRT, ML10YRT, LUSGFA, and the LBMBSI
have been adjusted to reflect reinvestment of dividends on securities in the
indices and averages.

** Total returns quoted reflect all applicable sales charges and contingent
deferred sales charges.

FEDERATED GOVERNMENT INCOME SECURITIES, INC.

PORTFOLIO OF INVESTMENTS

FEBRUARY 28, 1998

PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
LONG-TERM OBLIGATIONS--102.4%
FEDERAL HOME LOAN MORTGAGE CORP. --8.6%
$ 14,982,661 9.500%, 8/1/2016 $ 16,218,731
49,500,000 8.000%, 1/1/2028 51,359,715
65,722,814 7.500%, 1/1/2027 - 8/1/2027 67,439,296
977,320 6.500%, 12/1/2027 969,071
Total 135,986,813
FEDERAL HOME LOAN MORTGAGE CORP. REMIC--5.1%
24,400,000 Series 1127-G, 8.500%, 8/15/2006 26,564,280
10,000,000 Series 1347-I, 8.000%, 8/15/2022 10,733,000
22,000,000 Series 1591-PV, 6.250%, 10/15/2023 21,586,400
23,991,000 Series 2024-E, 6.000%, 1/15/2028 22,019,180
Total 80,902,860
FEDERAL NATIONAL MORTGAGE ASSOCIATION--10.5%
40,000,000 (a) 6.500%, 3/15/2013 40,137,600
78,500,000 6.500%, 3/15/2028 77,715,000
48,000,000 7.000%, 3/15/2028 48,549,120
Total 166,401,720
FEDERAL NATIONAL MORTGAGE ASSOCIATION REMIC--15.0%
28,118,288 Series 1991-146 -- Z, 8.000%, 10/25/2006 29,130,265
25,000,000 Series 1997-67 -- PL, 6.500%, 10/18/2012 24,991,150
10,324,345 Series 1994-30 -- K, 6.500%, 2/25/2024 10,253,623
30,000,000 Series 1994-30 -- M, 6.500%, 2/25/2024 29,564,400
13,970,000 Series 1994-56 -- K, 6.500%, 3/25/2024 13,812,558
16,000,000 Series 1994-37 -- L, 6.500%, 3/25/2024 15,812,640
24,577,000 Series 1997-74 -- PH, 6.500%, 11/18/2027 23,947,976
11,075,000 Series 1993-198 -- L, 6.250%, 10/25/2023 10,881,188
28,339,850 Series 1997-67 -- GA, 4.000%, 2/25/2009 24,865,951
</TABLE>

FEDERATED GOVERNMENT INCOME SECURITIES, INC.
<TABLE>
<CAPTION>

PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
LONG-TERM OBLIGATIONS--CONTINUED
FEDERAL NATIONAL MORTGAGE ASSOCIATION REMIC--CONTINUED
$ 580,847 Series 1993-199 -- L, (Interest Only), 10/25/2023 $ 33,399
81,070,628 Series 293-1, (Principal Only), 12/1/2024 53,810,629
Total 237,103,779
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--38.1%
1,242,590 13.000%, 1/15/2011 - 12/15/2014 1,471,425
5,266,525 12.500%, 4/15/2010 - 7/15/2015 6,193,811
23,762,129 12.000%, 5/15/2011 - 1/15/2016 27,753,149
7,890,912 11.000%, 12/15/2009 - 10/15/2019 8,976,447
5,897,890 10.500%, 3/15/2016 6,657,244
26,082,960 10.000%, 3/15/2016 - 7/15/2022 28,931,633
49,303,315 9.500%, 8/15/2016 - 2/15/2022 53,885,283
299,921 9.000%, 2/15/2009 - 6/15/2018 324,472
48,281,759 8.500%, 1/15/2017 - 6/15/2026 51,947,046
153,246,232 8.000%, 6/15/2017 - 2/15/2028 159,596,445
55,000,000 (a) 8.000%, 3/15/2028 57,028,400
130,579,326 7.500%, 1/15/2026 - 1/15/2028 134,116,854
104,000 7.000%, 9/15/2027 104,683
66,305,434 6.500%, 10/15/2023 - 5/15/2024 66,093,748
Total 603,080,640
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION REMIC--0.8%
16,694,832 Series 1997-13 -P1, 8.00%, 9/16/2027 6,755,397
14,500,186 Series 1997-7-PI, 8.00%, 5/16/2027 5,177,146
Total 11,932,543
UNITED STATES TREASURY SECURITIES--24.3%
22,000,000 12.000%, 5/15/2005 30,114,700
12,600,000 11.250%, 2/15/2015 19,769,148
27,300,000 10.750%, 8/15/2005 35,595,924
</TABLE>

FEDERATED GOVERNMENT INCOME SECURITIES, INC.
<TABLE>
<CAPTION>

PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
LONG-TERM OBLIGATIONS--CONTINUED
UNITED STATES TREASURY SECURITIES--CONTINUED
$ 15,000,000 9.250%, 2/15/2016 $ 20,395,350
72,600,000 8.125%, 8/15/2019 - 5/15/2021 91,624,142
115,000,000 STRIP, (Interest Only), 8/15/2017 - 5/15/2018 35,127,900
15,000,000 5.875%, 9/30/2002 15,152,250
90,000,000 5.750%, 11/15/2000 - 10/31/2002 90,448,300
45,500,000 5.625%, 12/31/2002 45,539,130
Total 383,766,844
TOTAL LONG-TERM OBLIGATIONS (IDENTIFIED 1,619,175,199
COST $1,602,438,825)
(B) REPURCHASE AGREEMENTS--14.3%
28,065,000 BT Securities Corp., 5.64%, dated 28,065,000
2/27/1998, due 3/2/1998
32,000,000 (c) Credit Suisse First Boston, Inc., 5.50%,
dated 2/5/1998, due 3/17/1998 32,000,000
40,000,000 (c) Goldman Sachs Group, LP, 5.50%, dated
2/3/1998, due 3/17/1998 40,000,000
39,500,000 (c) J.P. Morgan & Co., Inc., 5.49%, dated 39,500,000
1/29/1998, due 3/12/1998
32,000,000 (c) J.P. Morgan & Co., Inc., 5.52%, dated 32,000,000
2/11/1998, due 3/17/1998
55,104,000 (c) Morgan Stanley Group, Inc., 5.50%, dated 2/18/1998,
due 3/19/1998 55,104,000
TOTAL REPURCHASE AGREEMENTS (AT AMORTIZED COST) 226,669,000
TOTAL INVESTMENTS (IDENTIFIED COST $ 1,845,844,199
$1,829,107,825)(D)
</TABLE>

(a) Indicates securities subject to dollar roll transactions with a total market
value of $97,166,000.

(b) 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.

(c) 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 credit of the issuer is downgraded. The Fund
has entered into these transactions to ensure the availability of cash to
satisfy obligations associated with the open dollar roll transactions.

(d) The cost of investments for federal tax purposes amounts to $1,829,107,825.
The net unrealized appreciation of investments on a federal tax basis
amounts to $16,736,374 which is comprised of $22,044,993 appreciation and
$5,308,619 depreciation at February 28, 1998.

Note: The categories of investments are shown as a percentage of net assets
($1,580,800,180) at February 28, 1998.

The following acronyms are used throughout this portfolio:

LP --Limited Partnership

REMIC --Real Estate Mortgage Investment Conduit

(See Notes which are an integral part of the Financial Statements)

FEDERATED GOVERNMENT INCOME SECURITIES, INC.

STATEMENT OF ASSETS AND LIABILITIES

FEBRUARY 28, 1998
<TABLE>
<S> <C> <C>
ASSETS:
Investments in repurchase agreements $ 226,669,000
Investments in securities 1,619,175,199
Total investments in securities, at value (identified and tax cost $ 1,845,844,199
$1,829,107,825)
Income receivable 6,281,481
Receivable for investments sold 182,616,067
Receivable for shares sold 1,317,481
Total assets 2,036,059,228
LIABILITIES:
Payable for investments purchased 182,840,504
Payable for shares redeemed 3,196,226
Income distribution payable 3,870,877
Payable for dollar roll transactions 264,500,234
Accrued expenses 851,207
Total liabilities 455,259,048
NET ASSETS for 179,073,479 shares outstanding $ 1,580,800,180
NET ASSETS CONSIST OF:
Paid in capital $ 1,877,184,045
Net unrealized appreciation of investments 16,736,374
Accumulated net realized loss on investments (314,032,769)
Undistributed net investment income 912,530
Total Net Assets $ 1,580,800,180
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
CLASS A SHARES:
Net Asset Value Per Share ($138,554,219 / 15,666,375 shares $8.84
outstanding)
Offering Price Per Share (100/95.50 of $8.84)* $9.26
Redemption Proceeds Per Share (100.00/100 of $8.84) $8.84
CLASS B SHARES:
Net Asset Value Per Share ($10,818,544 / 1,223,793 shares $8.84
outstanding)
Offering Price Per Share (100/100.00 of $8.84) $8.84
Redemption Proceeds Per Share (94.50/100 of $8.84)** $8.35
CLASS C SHARES:
Net Asset Value Per Share ($2,836,371 / 320,772 shares $8.84
outstanding)
Offering Price Per Share (100/100.00 of $8.84) $8.84
Redemption Proceeds Per Share (99.00/100 of $8.84)** $8.75
CLASS F SHARES:
Net Asset Value Per Share ($1,428,591,046 / 161,862,539 shares $8.83
outstanding)
Offering Price Per Share (100/99.00 of $8.83)* $8.92
Redemption Proceeds Per Share (99.00/100 of $8.83)** $8.74
</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

YEAR ENDED FEBRUARY 28, 1998
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest (net of dollar roll expense of $ 131,266,819
$3,973,230)
EXPENSES:
Investment advisory fee $ 12,503,435
Administrative personnel and services fee 1,258,281
Custodian fees 121,463
Transfer and dividend disbursing agent fees and 1,580,004
expenses
Directors'/Trustees' fees 22,264
Auditing fees 19,469
Legal 7,773
fees
Portfolio accounting fees 152,272
Distribution services fee--Class A Shares 238,761
Distribution services fee--Class B Shares 43,640
Distribution services fee--Class C Shares 16,743
Shareholder services fee--Class A Shares 238,761
Shareholder services fee--Class B Shares 14,547
Shareholder services fee--Class C Shares 5,581
Shareholder services fee--Class F Shares 3,908,923
Share registration costs 41,718
Printing and postage 110,144
Insurance premiums 13,155
Taxes 64,982
Miscellaneous 22,132
Total expenses 20,384,048
Waivers --
Waiver of investment advisory fee $ (4,007,152)
Waiver of distribution services fee--Class A (238,761)
Shares
Waiver of shareholder services fee--Class F (31,271)
Shares
Total waivers (4,277,184)
Net expenses 16,106,864
Net investment income 115,159,955
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 29,943,557
Net change in unrealized appreciation of 14,565,744
investments
Net realized and unrealized gain on 44,509,301
investments
Change in net assets resulting from $ 159,669,256
operations
</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>

YEAR ENDED FEBRUARY 28,
1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 115,159,955 $ 127,536,042
Net realized gain (loss) on investments ($26,969,638 net gain and ($23,283,777)
net loss, respectively, as computed for federal
tax purposes) 29,943,557 (25,490,089)
Net change in unrealized appreciation/depreciation 14,565,744 (12,454,230)
Change in net assets resulting from operations 159,669,256 89,591,723
NET EQUALIZATION CREDITS (DEBITS)-- (123,530) (1,203,307)
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Class A Shares (6,962,087) (3,920)
Class B Shares (388,908) (34,408)
Class C Shares (139,249) (31,848)
Class F Shares (107,135,838) (128,455,862)
Change in net assets resulting from distributions to
shareholders (114,626,082) (128,526,038)
SHARE TRANSACTIONS--
Proceeds from sale of shares 186,850,576 70,576,821
Net asset value of shares issued to shareholders in payment
of
distributions declared 60,263,685 67,780,045
Cost of shares redeemed (489,191,268) (584,635,386)
Change in net assets resulting from share transactions (242,077,007) (446,278,520)
Change in net assets (197,157,363) (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
$912,530 and $378,657, respectively) $ 1,580,800,180 $ 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>

YEAR ENDED
FEBRUARY 28,
1998 1997(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.59 $ 8.63
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.62** 0.30
Net realized and unrealized gain (loss) on investments 0.22 (0.02)
Total from investment operations 0.84 0.28
LESS DISTRIBUTIONS
Distributions from net investment income (0.59) (0.32)
NET ASSET VALUE, END OF PERIOD $ 8.84 $ 8.59
TOTAL RETURN(B) 10.10% 3.34%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.96% 1.03%*
Net investment income 7.13% 6.45%*
Expense waiver/reimbursement(c) 0.49% 0.50%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $138,554 $289
Portfolio turnover 264% 97%
</TABLE>

* Computed on an annualized basis.

** Per share information presented is based upon the average number of shares
outstanding.

(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.

(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>

YEAR ENDED
FEBRUARY 28,
1998 1997(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.59 $ 8.63
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.58 0.28
Net realized and unrealized gain (loss) on investments 0.20 (0.02)
Total from investment operations 0.78 0.26
LESS DISTRIBUTIONS
Distributions from net investment income (0.53) (0.30)
NET ASSET VALUE, END OF PERIOD $ 8.84 $ 8.59
TOTAL RETURN(B) 9.34% 3.00%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.71% 1.71%*
Net investment income 6.51% 5.80%*
Expense waiver/reimbursement(c) 0.24% 0.26%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $10,819 $2,421
Portfolio turnover 264% 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.

(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>

YEAR ENDED
FEBRUARY 28,
1998 1997(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.59 $ 8.63
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.55 0.27
Net realized and unrealized gain (loss) on investments 0.23 (0.01)
Total from investment operations 0.78 0.26
LESS DISTRIBUTIONS
Distributions from net investment income (0.53) (0.30)
NET ASSET VALUE, END OF PERIOD $ 8.84 $ 8.59
TOTAL RETURN(B) 9.29% 3.02%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.71% 1.71%*
Net investment income 6.21% 5.65%*
Expense waiver/reimbursement(c) 0.24% 0.26%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $2,836 $1,343
Portfolio turnover 264% 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.

(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>

YEAR ENDED FEBRUARY 28 OR 29,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF $ 8.59 $ 8.75 $ 8.55 $ 9.00 $ 9.44
PERIOD
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.61 0.55 0.62 0.63 0.68
Net realized and unrealized gain
(loss)
on investments 0.24 (0.15) 0.20 (0.46) (0.44)
Total from investment operations 0.85 0.40 0.82 0.17 0.24
LESS DISTRIBUTIONS
Distributions from net investment (0.61) (0.56) (0.62) (0.62) (0.68)
income
Distributions in excess of net
investment
income -- -- -- -- --
Total distributions (0.61) (0.56) (0.62) (0.62) (0.68)
NET ASSET VALUE, END OF PERIOD $ 8.83 $ 8.59 $ 8.75 $ 8.55 $ 9.00
TOTAL RETURN(A) 10.19% 4.81% 9.87% 2.11% 2.63%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.96% 0.96% 0.96% 0.97% 0.97%
Net investment income 6.87% 6.42% 6.96% 7.34% 7.39%
Expense waiver/reimbursement(b) 0.24% 0.26% 0.25% 0.23% 0.19%
SUPPLEMENTAL DATA
Net assets, end of period (000 $1,428,591 $1,773,905 $2,264,374 $2,538,013 $3,542,078
omitted)
Portfolio turnover 264% 97% 161% 143% 134%
</TABLE>

(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

FEBRUARY 28, 1998

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. 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 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.

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 equalization.
The following reclassifications have been made to the financial statements.

INCREASE (DECREASE)
UNDISTRIBUTED NET
INVESTMENT
PAID-IN CAPITAL INCOME
$(123,530) $123,530

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 28, 1998, the Fund, for federal tax purposes, had a capital loss
carryforward of $314,032,767, 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:

EXPIRATION YEAR EXPIRATION AMOUNT
2002 $ 81,450,069
2003 $192,317,284
2004 $ 16,981,637
2005 $ 23,283,777

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 involve "to be
announced" securities and are treated as 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.

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 28, 1998, par value shares ($0.001 per share) authorized were as
follows:

NUMBER OF PAR VALUE
CLASS NAME CAPITAL STOCK AUTHORIZED
Class A Shares 500,000,000
Class B Shares 500,000,000
Class C Shares 500,000,000
Class F Shares 500,000,000

Transactions in capital stock were as follows:

YEAR ENDED PERIOD ENDED
FEBRUARY 28, 1998 FEBRUARY 28, 1997*
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 17,863,053 $ 154,174,787 41,367 $ 357,558
Shares issued to shareholders in
payment of distributions declared 686,406 6,011,544 341 2,956
Shares redeemed (2,916,697) (25,430,665) (8,095) (69,858)
Net change resulting from
Class A Share transactions 15,632,762 $ 134,755,666 33,613 $ 290,656

<CAPTION>
YEAR ENDED PERIOD ENDED
FEBRUARY 28, 1998 FEBRUARY 28, 1997*
CLASS B SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 1,033,325 $ 9,058,031 292,206 $ 2,532,030
Shares issued to shareholders in
payment of distributions declared 24,091 211,420 2,107 18,234
Shares redeemed (115,339) (1,007,902) (12,597) (109,332)
Net change resulting from
Class B Share transactions 942,077 $ 8,261,549 281,716 $ 2,440,932

<CAPTION>
YEAR ENDED PERIOD ENDED
FEBRUARY 28, 1998 FEBRUARY 28, 1997*
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 370,357 $ 3,245,060 162,616 $ 1,405,057
Shares issued to shareholders in
payment of distributions declared 9,162 80,022 2,060 17,884
Shares redeemed (215,020) (1,900,157) (8,403) (73,246)
Net change resulting from
Class C Share transactions 164,499 $ 1,424,925 156,273 $ 1,349,695
</TABLE>

* For the period from August 5, 1996 (date of initial public offering) to
February 28, 1997.

<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
1998 1997
CLASS F SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 2,333,488 $ 20,372,698 7,667,232 $ 66,282,176
Shares issued to
shareholders in
payment of distributions 6,195,998 53,960,699 7,877,965 67,740,971
declared
Shares redeemed (53,122,484) (460,852,544) (67,980,256) (584,382,950)
Net change resulting from
Class F Share (44,592,998) $ (386,519,147) (52,435,059) $ (450,359,803)
transactions
Net change resulting
from share
transactions (27,853,660) $ (242,077,007) (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.

PERCENTAGE OF AVERAGE
DAILY NET ASSETS
SHARE CLASS NAME OF CLASS
Class A Shares 0.25%
Class B Shares 0.75%
Class C Shares 0.75%

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 February 28, 1998, were as follows:

PURCHASES $ 4,344,909,010

SALES $ 4,507,001,183

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. as
of February 28, 1998, and the related statement of operations for the year then
ended, the statements of changes in net assets for the years ended February 28,
1998 and 1997, 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 28, 1998 by correspondence with the custodian and brokers; where
replies were not received, 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 28, 1998, the results of its operations,
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 23, 1998

DIRECTORS
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
Nicholas P. Constantakis
William J. Copeland
James E. Dowd
Lawrence D. Ellis, M.D.
Richard B. Fisher
Edward L. Flaherty, Jr.
Peter E. Madden
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,
Secretary, and Treasurer

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 each 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
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com

Cusip 313912206
Cusip 313912305
Cusip 313912404
Cusip 313912107
G01109-01 (4/98)

[Graphic]

APPENDIX

A. The graphic representation here displayed 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 for
the Fund. The dark shaded portion reflects the principal value of $12,000
investment 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 $12,000 in the Fund on April 4, 1986 (date of initial public
investment) would have grown to $28,096 on February 28, 1998. The "x" axis
reflects computation periods from April 4, 1986 (date of initial public
investment) to February 28, 1998. The right margin of the chart reflects the
ending value of a hypothetical investment of $12,000 in the Fund measured in
increments of $8,000 ranging from $0 to $32,000.

B. The graphic representation here displayed 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 for
Class F Shares of the Fund. The dark shaded portion reflects the principal value
of annual $1,000 investments in Class F Shares of the Fund. The color-coded
mountain chart is a visual representation of the narrative text above it, which
shows that annual investments of $1,000 in Class F Shares of the Fund beginning
April 4, 1986 (date of initial public investment) would have grown to $19,373 on
February 28, 1998. The "x" axis reflects computation periods from April 4, 1986
(date of initial public investment) to February 28, 1998. The right margin of
the chart reflects the ending value of a hypothetical investment of $12,000 in
the Fund measured in increments of $3,000 ranging from $0 to $21,000.

C. The graphic representation here displayed 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 for
the Fund. The dark shaded portion reflects the principal value of a $100,000
investment 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 $100,000 in the Fund on April 4, 1986 (date of initial public
investment) would have grown to $234,135 on February 28, 1998. The "x" axis
reflects computation periods from April 4, 1986 (date of initial public
investment) to February 28, 1998. The right margin of the chart reflects the
ending value of a hypothetical investment of $100,000 in the Fund measured in
increments of $30,000 ranging from $0 to $270,000.

D. The graphic representation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class A
Shares of the Fund is represented by a solid line. Salomon Brothers 15 Year
Mortgage-Backed Securities Index is represented by a closely dotted line. Lipper
U.S. Mortgage Funds Average is represented by a broken line. Merrill Lynch 5
Year Treasury Index is represented by a dashed and dotted line. Merrill Lynch 10
Year Treasury Index is represented by a broken, dashed line. The Lipper General
U.S. Government Funds Average is represented by a dotted line. The Lehman
Brothers Mortgage Backed Securities Index is represented by a line consisting of
a series of two dashes. The line graph is a visual representation of a
comparison of change in value of a hypothetical investment of $10,000 in the
Class A Shares of the Fund, Salomon Brothers 15 Year Mortgage-Backed Securities
Index, Lipper U.S. Mortgage Funds Average, Merrill Lynch 5 Year Treasury Index ,
Merrill Lynch 10 Year Treasury Index , Lipper General U.S. Government Funds
Average, and Lehman Brothers Mortgage Backed Securities Index for the period
from August 5, 1996 (start of performance) to February 28, 1998. The "y" axis
reflects the cost of investment. The "x" axis reflects computation period from
August 5, 1996 (start of performance) to February 28, 1998. The right margin of
the chart reflects the ending value of the hypothetical investment in Class A
Shares of the Fund as compared to Salomon Brothers 15 Year Mortgage-Backed
Securities Index, Lipper U.S. Mortgage Funds Average, Merrill Lynch 5 Year
Treasury Index , Merrill Lynch 10 Year Treasury Index, Lipper General U.S.
Government Funds Average, and Lehman Brothers Mortgage Backed Securities Index.
The ending values are $10,866, $11,640, $11,450, $11,233, $11,607, $11,474 and
$11,590, respectively.

E. The graphic representation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class B
Shares of the Fund is represented by a solid line. Salomon Brothers 15 Year
Mortgage-Backed Securities Index is represented by a closely dotted line. Lipper
U.S. Mortgage Funds Average is represented by a broken line. Merrill Lynch 5
Year Treasury Index is represented by a dashed and dotted line. Merrill Lynch 10
Year Treasury Index is represented by a broken, dashed line. The Lipper General
U.S. Government Funds Average is represented by a dotted line. The Lehman
Brothers Mortgage Backed Securities Index is represented by a line consisting of
a series of dashes. The line graph is a visual representation of a comparison of
change in value of a hypothetical investment of $10,000 in the Class B Shares of
the Fund, Salomon Brothers 15 Year Mortgage-Backed Securities Index, Lipper U.S.
Mortgage Funds Average, Merrill Lynch 5 Year Treasury Index , Merrill Lynch 10
Year Treasury Index , Lipper General U.S. Government Funds Average, and Lehman
Brothers Mortgage Backed Securities Index for the period from August 5, 1996
(start of performance) to February 28, 1998. The "y" axis reflects the cost of
investment. The "x" axis reflects computation period from August 5, 1996 (start
of performance) to February 28, 1998. The right margin of the chart reflects the
ending value of the hypothetical investment in Class B Shares of the Fund as
compared to Salomon Brothers 15 Year Mortgage-Backed Securities Index, Lipper
U.S. Mortgage Funds Average, Merrill Lynch 5 Year Treasury Index , Merrill Lynch
10 Year Treasury Index, Lipper General U.S. Government Funds Average, and Lehman
Brothers Mortgage Backed Securities Index. The ending values are $10,688,
$11,640, $11,450, $11,233, $11,607, $11,474 and $11,590, respectively.

F. The graphic representation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class C
Shares of the Fund is represented by a solid line. Salomon Brothers 15 Year
Mortgage-Backed Securities Index is represented by a closely dotted line. Lipper
U.S. Mortgage Funds Average is represented by a broken line. Merrill Lynch 5
Year Treasury Index is represented by a dashed and dotted line. Merrill Lynch 10
Year Treasury Index is represented by a broken, dashed line. The Lipper General
U.S. Government Funds Average is represented by a dotted line. The Lehman
Brothers Mortgage Backed Securities Index is represented by a line consisting of
a series of dashes. The line graph is a visual representation of a comparison of
change in value of a hypothetical investment of $10,000 in the Class C Shares of
the Fund, Salomon Brothers 15 Year Mortgage-Backed Securities Index, Lipper U.S.
Mortgage Funds Average, Merrill Lynch 5 Year Treasury Index , Merrill Lynch 10
Year Treasury Index , Lipper General U.S. Government Funds Average, and Lehman
Brothers Mortgage Backed Securities Index for the period from August 5, 1996
(start of performance) to February 28, 1998. The "y" axis reflects the cost of
investment. The "x" axis reflects computation period from August 5, 1996 (start
of performance) to February 28, 1998. The right margin of the chart reflects the
ending value of the hypothetical investment in Class C Shares of the Fund as
compared to Salomon Brothers 15 Year Mortgage-Backed Securities Index, Lipper
U.S. Mortgage Funds Average, Merrill Lynch 5 Year Treasury Index , Merrill Lynch
10 Year Treasury Index, Lipper General U.S. Government Funds Average, and Lehman
Brothers Mortgage Backed Securities Index. The ending values are $11,259,
$11,640, $11,450, $11,233, $11,607, $11,474 and $11,590, respectively.

G. The graphic representation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The Class F
Shares of the Fund is represented by a solid line. Salomon Brothers 15 Year
Mortgage-Backed Securities Index is represented by a closely dotted line. Lipper
U.S. Mortgage Funds Average is represented by a broken line. Merrill Lynch 5
Year Treasury Index is represented by a dashed and dotted line. Merrill Lynch 10
Year Treasury Index is represented by a broken, dashed line. The Lipper General
U.S. Government Funds Average is represented by a dotted line. The Lehman
Brothers Mortgage Backed Securities Index is represented by a line consisting of
a series of dashes. The line graph is a visual representation of a comparison of
change in value of a hypothetical investment of $10,000 in the Class F Shares of
the Fund, Salomon Brothers 15 Year Mortgage-Backed Securities Index, Lipper U.S.
Mortgage Funds Average, Merrill Lynch 5 Year Treasury Index , Merrill Lynch 10
Year Treasury Index , Lipper General U.S. Government Funds Average, and Lehman
Brothers Mortgage Backed Securities Index for the period from February 29, 1988,
to February 28, 1998. The "y" axis reflects the cost of investment. The "x" axis
reflects computation period from February 29, 1988, to February 28, 1998. The
right margin of the chart reflects the ending value of the hypothetical
investment in Class F Shares of the Fund as compared to Salomon Brothers 15 Year
Mortgage-Backed Securities Index, Lipper U.S. Mortgage Funds Average, Merrill
Lynch 5 Year Treasury Index , Merrill Lynch 10 Year Treasury Index, Lipper
General U.S. Government Funds Average, and Lehman Brothers Mortgage Backed
Securities Index. The ending values are $20,637, $23,151, $21,007, $22,229,
$20,711, $20,731, and $23,441, respectively.