SEMI-ANNUAL REPORT
[Graphic]
Richard B. Fisher
President
Federated Government Income Securities, Inc.
President's Message
Dear Fellow Shareholder:
Federated Government Income Securities, Inc. was created in 1986, and I am
pleased to present its
13th Semi-Annual Report. This fund is designed for investors seeking high
monthly income from U.S. government issues, i.e., U.S. Treasuries and U.S.
government agencies. As of August 31, 1999, the fund's net assets totaled $1.3
billion, serving over 45,000 shareholders. Currently, the fund's duration target
is 5.8 years, and the average coupon of its holdings is 6.7%.
This report covers the first half of the fund's fiscal year which is the
six-month period from March 1, 1999 through August 31, 1999. It begins with an
interview with the fund's portfolio manager, Kathy Foody-Malus, Vice President
of Federated Investment Management Company. Following her discussion covering
the economic influences on the bond market, the fund's performance, her
strategies and outlook, are three additional items of shareholder interest.
First is a series of graphs showing the fund's long-term investment performance.
Second is a complete listing of the fund's holdings in U.S. government
securities, and third is the publication of the fund's financial statements.
The fund's portfolio focuses exclusively on a mix of U.S. government securities
including Treasury, agency and mortgage-backed securities. At the end of the
reporting period, approximately 76% of the fund's assets were invested in
mortgage-backed securities. These securities are issued by the Government
National Mortgage Association, the Federal National Mortgage Association and the
Federal Home Loan Mortgage Corporation, and are guaranteed as to principal by
the U.S. government, its agencies or instrumentalities. 1
1 Fund shares are not guaranteed.
In the last six months, the actions of the Federal Reserve Board (the "Fed")
have caused all bond prices to decline, as Chairman Alan Greenspan increased
interest rates based on fears of inflation threatening the U.S. economy. The
fund's focus on mortgage-backed securities, which offer an attractive yield
advantage over comparable duration U.S. Treasuries, continued to generate an
attractive income stream, while an allocation to Treasuries offers the potential
for future principal appreciation.
The fund's managers have faced this market environment a number of times in the
fund's 13 year history. However, we believe long-term interest rates are in a
downward trend and have been since the early 1980s. U.S. interest rate cycles,
whether rising or falling, do so over 20, 25 or 30 year periods. The fund's
managers are optimistic about the mortgage-backed securities held by the fund
because of their attractive current yields and the slowdown in mortgage
prepayments. The fund's total return 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 for the six-month reporting
period, including income distributions, follows. 2
TOTAL INCOME
RETURN DISTRIBUTIONS NET ASSET VALUE CHANGE Class A Shares
(1.77%) $0.26 $8.79 to $8.38 = (5%) Class B Shares (2.25%) $0.23 $8.78 to $8.36
= (5%) Class C Shares (2.13%) $0.23 $8.79 to $8.38 = (5%) Class F Shares (1.77%)
$0.26 $8.78 to $8.37 = (5%)
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, 1999
2 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 period, based on offering price
(i.e., less any applicable sales charge), for Class A, B, C, and F Shares were
(6.15%), (7.49%), (3.08%), and (3.71%), respectively.
[Graphic]
Kathy Foody-Malus
Vice President
Federated Investment Management Company
Investment Review
THE U.S. ECONOMY'S STRENGTH HAS PROVEN TO BE A CHALLENGE FOR THE FED. DURING
THE REPORTING PERIOD THE FED HAS INCREASED INTEREST RATES TWICE. WHAT ARE
YOUR COMMENTS ON THE FED'S ACTIONS AND THE EFFECTS ON THE FIXED-INCOME MARKET
OVER THIS REPORTING PERIOD?
The U.S. economy has continued to perform exceptionally well in 1999. The
ongoing economic expansion is moving into a near-record ninth year. The
combination of an unemployment rate hovering around lows not seen since the
early 1970s, inflation remaining subdued, and real output expanding vigorously
have been the main contributors. Two of the major threats faced by the economy
in late 1998-economic downturns in many foreign nations and turmoil in financial
markets around the world-dissipated during the first half of 1999. The Fed was
concerned that as economic activity strengthened abroad, the firming of
commodity and other prices might create a less favorable inflationary
environment. To gain some greater assurance that the benign inflation
performance of the economy would continue, the Fed decided at the June and
August meetings to reverse portions of the easings put into place last fall when
global financial markets were disrupted. The overnight Fed Funds Target Rate
increased twice by 25 basis points to end the reporting period at 5.25%.
During this time period, investors in the fixed-income market experienced rising
yields and lower bond prices in all fixed-income sectors. Yields along the curve
increased between 50 to 70 basis points. Strong earnings growth, concerns about
the potential Japanese repatriation of funds, and soaring oil prices all
contributed to the negative sentiment in the U.S. Treasury market. The focus in
1999 for determining the tone in the U.S. Treasury market has been on economic
fundamentals rather than equity prices and emerging market turmoil.
DID THE MORTGAGE-BACKED SECURITIES MARKET CONTINUE TO PERFORM STRONGLY RELATIVE
TO THE TREASURY SECTOR?
The mortgage-backed securities market went through two distinct periods of
performance during the reporting period. The first quarter of 1999 saw
tremendous tightening of mortgages versus Treasuries. The mortgage-backed
securities market benefited from a return to liquidity and declining volatility.
However, this strong performance was reversed in the second quarter of 1999 as
mortgage-backed securities lagged U.S. Treasuries. This underperformance was
caused by massive corporate issuance drawing mortgage and other domestic fixed
income spread sectors wider. While the market technicals are uncertain for
corporate bonds, the technicals in the mortgage-backed securities market are
quite positive: the prepayment environment is benign, and mortgage supply has
declined significantly. These two items have positively affected bonds over the
long-term.
The prepayment environment is benign due to the increase in mortgage rates. With
current 30-year fixed mortgage rates in the 7.75% area, the incentive for
homeowners to refinance is non-existent. Slower refinancing activity translates
into less supply. Demand for mortgage assets should increase over the next
several months.
WHAT HAS BEEN YOUR STRATEGY FOR THE FUND IN THIS RISING RATE ENVIRONMENT?
During the past six months, interest rates have risen on average 50 to 70 basis
points. Given that we appear to be near the peak in interest rates, the fund's
portfolio has been positioned to take advantage of the historic wide spreads in
mortgage-backed securities. Current portfolio strategy targets an effective
duration of 5.8 years. The asset allocation mix reflects an overweighted
position in mortgage-backed securities due to the attractive spread advantage
over comparable duration U.S. Treasuries. The mortgage-backed securities
position allows the portfolio to generate an attractive income stream with the
possibility for potential principal appreciation from the U.S. Treasury
component. The overweighted position in mortgage-backed securities has helped to
cushion some of the pain from rising interest rates in the U.S. Treasury market.
Mortgage-backed securities trade at a spread above U.S. Treasuries, and that
spread is, by historic standards, quite wide in today's environment.
Mortgage-backed securities favored were those trading at a slight discount to
par. These securities were favored due to their greater liquidity as year-end
approaches. The allocation to U.S. Treasuries has varied throughout the
reporting period due to movement in interest rates combined with opportunities
available in the mortgage-backed securities market.
HOW WAS THE FUND'S PORTFOLIO ALLOCATED AT THE END OF THE REPORTING PERIOD?
The portfolio's allocation to mortgage-backed securities increased during the
reporting period. The fund currently has an 76% weighting in agency
mortgage-backed securities. As of August 31, 1999, the portfolio composition
was:
PERCENTAGE OF
NET ASSETS
Federal National Mortgage Association 34.7%
Government National
Mortgage Association 24.9%
Federal Home Loan
Mortgage Corporation 22.6%
U.S. Treasury Obligations 13.8%
HOW DID FEDERATED GOVERNMENT INCOME SECURITIES, INC. PERFORM
FOR SHAREHOLDERS IN TERMS OF TOTAL RETURN AND INCOME FOR THE
SIX-MONTH PERIOD ENDED AUGUST 31, 1999?
For the first half of the fund's fiscal year, the Class F Shares of the fund
produced a total return (net of expenses) of (1.77%), based on net asset value.
1 Class A, B, and C Shares produced total returns (net of expenses) of (1.77%),
(2.25%), and (2.13%), respectively, based on net asset value.1
The fund's returns were consistent with the negative returns of the overall
government market. For the six-month reporting period, the Merrill Lynch 5-Year
and 10-Year U.S. Treasury Indexes returned (0.14%) and (3.10%), respectively. 2
The average total return for the Lipper General U.S.
Government Funds Average was (1.84%).3
In terms of income, the fund's Class A, B, C and F Shares paid monthly dividends
totaling $0.26, $0.23, $0.23, and $0.26 per share, respectively.
1 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 (i.e., less any
applicable sales charge), for Class A, B, C, and F Shares were (6.15%), (7.49%),
(3.08%), and (3.71%), respectively.
2 The Merrill Lynch 5-Year and 10-Year U.S. Treasury 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.
3 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.
IN EARLY SEPTEMBER 1999, THE NEW YORK FEDERAL RESERVE ("NEW YORK FED") ANNOUNCED
THAT IT WILL ACCEPT MORTGAGE-BACKED SECURITIES AS COLLATERAL IN REPURCHASE
TRANSACTIONS. WILL THAT DEVELOPMENT HAVE LONG-TERM POSITIVE IMPLICATIONS FOR THE
MORTGAGE-BACKED SECURITIES MARKET?
New York Fed officials announced on September 8, 1999, that they would expand
the types of securities used for repurchase agreements to include agency
mortgage-backed securities. Prior to this announcement, the only securities
permissible were U.S. Treasury and agency debenture securities. This move by the
New York Fed is to ensure that there will be enough money in the banking system
to offset any Year 2000 liquidity problems that may arise. Currently, this new
rule will be in effect until April 2000. However, there have already been
discussions to include mortgage-backed securities permanently in the repurchase
agreements. By including agency mortgage-backed securities, this is a signal to
investors that the agency mortgage-backed securities market has excellent depth
and liquidity.
This announcement, combined with the strong technicals and fundamentals for
mortgage-backed securities, has been positive for investors in mortgage-backed
securities.
Two Ways You May Seek to Invest for Success:
INITIAL INVESTMENT
IF YOU MADE AN INITIAL INVESTMENT OF $14,000 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
$34,135 ON 8/31/99. YOU WOULD HAVE EARNED A 6.87% 1 AVERAGE ANNUAL TOTAL RETURN
FOR THE 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 9/30/99, the Class A Shares' average annual 1-year and since-inception
(8/5/96) total returns were (5.81%) and 4.36%, respectively. 2 Class B Shares'
average annual 1-year and since-inception (8/5/96) total returns were (7.27%)
and 4.25%, respectively. Class C Shares' average annual 1-year and since-
inception (8/5/96) total returns were (3.00%) and 5.15%, respectively. Class F
Shares' average annual 1-year, 5-year, and 10-year total returns were (3.24%),
6.59%, and 6.75%, respectively.2
[Graphic representation "A1" omitted-see appendix.]
1 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.
2 The total returns stated take into account all applicable sales charges. The
maximum sales charges contingent deferred sales charges for the fund are as
follows: Class A Shares, 4.50% sales charge; Class B Shares, 5.50% contingent
deferred sales charge; Class C Shares, 1.00% contingent deferred sales charge;
Class F Shares, 1.00% sales charge and 1.00% contingent deferred sales charge.
ONE STEP AT A TIME
$1,000 INITIAL INVESTMENT AND SUBSEQUENT INVESTMENTS OF $1,000 EACH YEAR FOR 13
YEARS (REINVESTING ALL DIVIDENDS AND CAPITAL GAINS) GREW TO $22,154.
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
$14,000, but your account would have reached a total value of $22,154 1 by
8/31/99. You would have earned an average annual total return of
6.87%.
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 can work 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 representation "A2" omitted-see appendix.]
1 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.
Hypothetical Investor Profile-Investing for Current Income
Thirteen 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 the 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. 1
They like the way they can use their account for an occasional extravagance-
like the $50,000 Jaguar they bought to celebrate their anniversary-without
touching their original principal.
The Laughlin's account totaled $243,819 as of August 31, 1999 for an average
annual total return of 6.87%. 2
[Graphic representation "A3" omitted-see appendix.]
1 Fund shares are not guaranteed and their value will fluctuate.
2 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.
Portfolio of Investments
AUGUST 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
LONG-TERM OBLIGATIONS-107.3%
FEDERAL HOME LOAN BANK-1.6%
$ 22,325,000 5.925%, 4/9/2008 $ 20,866,731
FEDERAL HOME LOAN MORTGAGE
CORP.-17.7%
7,154,731 9.500%, 8/1/2016 7,606,337
6,148,904 7.500%, 1/1/2027 6,114,347
182,399,660 6.500%, 9/1/2028 -
8/1/2029 172,740,246
51,328,383 6.000%, 5/1/2029 -
6/1/2029 47,206,201
TOTAL 233,667,131
FEDERAL HOME LOAN MORTGAGE
CORP. REMIC-4.9%
10,000,000 Series 1347-I, 8.000%,
8/15/2022 10,170,800
7,000,000 Series 2081-ED, 7.500%
(Interest Only), 8/15/2028 2,305,660
13,071,000 Series 2030-PE, 7.000%,
(Interest Only), 2/15/2028 5,032,335
23,991,000 Series 2024-E, 6.000%,
1/15/2028 20,613,307
20,000,000 Series 2161-PG, 6.000%,
4/15/2028 18,137,400
158,925,897 Series 2097-S, 2.231%
(Interest Only),
11/15/2028 5,761,064
4,261,658 Series 197-1, (Principal
Only), 4/1/2028 2,746,127
TOTAL 64,766,693
FEDERAL HOME LOAN MORTGAGE
CORPORATION AGENCY
DEBENTURE-7.7%
48,500,000 6.250%, 7/15/2004 47,728,850
58,300,000 5.750%, 4/15/2008 -
3/15/2009 53,850,766
TOTAL 101,579,616
FEDERAL NATIONAL MORTGAGE
ASSOCIATION-29.0%
42,018,280 7.500%, 7/1/2028 41,230,437
140,798,000 1 7.000%, 9/1/2029 136,750,058
75,329,949 1 6.500%, 9/1/2028 -
9/1/2029 71,337,697
145,853,054 6.000%, 12/1/2013 -
7/1/2029 134,890,328
TOTAL 384,208,520
FEDERAL NATIONAL MORTGAGE
ASSOCIATION REMIC-5.7%
23,945,029 Series 1993-201-FA,
11.164%, 10/25/2023 28,734,035
12,336,173 Series 1999-41-S, 8.974%,
(Inverse Floater),
8/25/2014 11,070,111
20,800,000 Series 1999-32-PK, 6.000%,
2/25/2028 18,753,696
26,186,702 Series 276-1, (Principal
Only), 10/1/2024 17,479,624
TOTAL 76,037,466
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
LONG-TERM OBLIGATIONS-
continued
FEDERAL NATIONAL MORTGAGE
ASSOCIATION AGENCY
DEBENTURE-1.6%
$ 21,500,000 5.625%, 5/14/2004 $ 20,666,445
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION-24.9%
872,507 13.000%, 1/15/2011 -
11/15/2014 1,017,552
3,097,510 12.500%, 4/15/2010 -
7/15/2015 3,576,630
11,317,789 12.000%, 5/15/2011 -
1/15/2016 13,028,704
4,359,293 11.000%, 12/15/2009 -
10/15/2019 4,873,746
3,599,228 10.500%, 3/15/2016 3,996,259
167,135 9.000%, 2/15/2009 176,903
875,993 8.000%, 6/15/2017 896,797
39,766,514 1 7.500%, 5/15/2024 39,419,192
148,937,615 7.000%, 10/15/2025 -
8/15/2029 144,429,520
48,532,704 6.500%, 4/15/2028 -
3/15/2029 45,742,073
79,843,689 6.000%, 5/15/2024 -
6/15/2029 73,019,906
TOTAL 330,177,282
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION
REMIC-0.4%
16,694,831 8.000%, Series 1997-13 PI,
8.000% (Interest Only)
9/16/2027 5,801,454
UNITED STATES TREASURY
SECURITIES-13.8%
40,800,000 9.000%, 11/15/2018 51,953,904
78,525,000 8.125%, 8/15/2019 -
5/15/2021 93,332,217
66,000,000 0% Principal Strip,
8/15/2017 20,593,980
16,200,000 6.000%, 8/15/2009 16,222,680
TOTAL 182,102,781
TOTAL LONG TERM
OBLIGATIONS (IDENTIFIED
COST $1,483,258,046) $ 1,419,874,119
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
REPURCHASE AGREEMENTS-6.1%
2
$ 30,000,000 3 Morgan Stanley Group,
Inc., 5.220%, dated
8/13/1999, due 9/21/1999 $ 30,000,000
37,719,000 3 Morgan Stanley Group,
Inc., 5.220%, dated
8/20/1999, due 9/21/1999 37,719,000
7,574,000 3 Morgan Stanley Group,
Inc., 5.170%, dated
8/13/1999, due 9/15/1999 7,574,000
5,530,000 Salomon Brothers, Inc.,
5.500%, dated 8/31/1999,
due 9/1/1999 5,530,000
TOTAL REPURCHASE
AGREEMENTS (AT AMORTIZED
COST) 80,823,000
TOTAL INVESTMENTS
(IDENTIFIED COST
$1,564,081,046) 4 $ 1,500,697,119
</TABLE>
1 Indicates securities subject to dollar roll transactions.
2 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.
3 Although final maturity falls beyond seven days, a liquidity feature is
included in each transaction to permit termination of the
repurchase agreement within seven days if the creditworthiness of the
issuer is downgraded.
4 The cost of investments for federal tax purposes amounts to $1,564,081,046.
The net unrealized depreciation of investments on a federal tax basis amounts to
$63,383,927 which is comprised of $3,907,088 appreciation and $67,291,015
depreciation at August 31, 1999.
Note: The categories of investments are shown as a percentage of net assets
($1,323,828,384) at August 31, 1999.
The following acronym is used throughout this portfolio:
REMIC -Real Estate Mortgage Investment Conduit
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
AUGUST 31, 1999 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in
securities, at value
(identified and tax cost
$1,564,081,046) $ 1,500,697,119
Cash 1,054
Income receivable 10,899,612
Receivable for shares sold 476,833
TOTAL ASSETS 1,512,074,618
LIABILITIES:
Payable for investments
purchased $ 7,126,871
Payable for shares
redeemed 935,397
Income distribution
payable 6,753,148
Payable for dollar roll
transactions 172,885,972
Accrued expenses 544,846
TOTAL LIABILITIES 188,246,234
Net assets for 158,171,259
shares outstanding $ 1,323,828,384
NET ASSETS CONSIST OF:
Paid in capital $ 1,695,721,078
Net unrealized
depreciation of
investments (63,383,927)
Accumulated net realized
loss on investments (308,881,262)
Undistributed net
investment income 372,495
TOTAL NET ASSETS $ 1,323,828,384
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PROCEEDS PER SHARE
CLASS A SHARES:
Net Asset Value Per Share
($176,035,201 / 21,007,909
shares outstanding) $8.38
Offering Price Per Share
(100/95.50 of $8.38) 1 $8.77
Redemption Proceeds Per
Share $8.38
CLASS B SHARES:
Net Asset Value Per Share
($63,179,115 / 7,555,582
shares outstanding) $8.36
Offering Price Per Share $8.36
Redemption Proceeds Per
Share (94.50/100 of $8.36)1 $7.90
CLASS C SHARES:
Net Asset Value Per Share
($17,488,137 / 2,087,581
shares outstanding) $8.38
Offering Price Per Share $8.38
Redemption Proceeds Per
Share (99.00/100 of $8.38)1 $8.30
CLASS F SHARES:
Net Asset Value Per Share
($1,067,125,931 /
127,520,187 shares
outstanding) $8.37
Offering Price Per Share
(100/99.00 of $8.37) 1 $8.45
Redemption Proceeds Per
Share (99.00/100 of $8.37)1 $8.29
</TABLE>
1 See "What Do Shares Cost?" in the Prospectus.
See Notes which are an integral part of the Financial Statements
Statement of Operations
SIX MONTHS ENDED AUGUST 31, 1999 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest (net of dollar
roll expense of $376,752) $ 46,398,120
EXPENSES:
Investment advisory fee $ 5,329,474
Administrative personnel
and services fee 535,790
Custodian fees 61,672
Transfer and dividend
disbursing agent fees and
expenses 792,041
Directors'/Trustees' fees 12,077
Auditing fees 11,194
Legal fees 3,674
Portfolio accounting fees 86,656
Distribution services fee-
Class A Shares 233,828
Distribution services fee-
Class B Shares 220,389
Distribution services fee-
Class C Shares 66,445
Shareholder services fee-
Class A Shares 233,828
Shareholder services fee-
Class B Shares 73,463
Shareholder services fee-
Class C Shares 22,148
Shareholder services fee-
Class F Shares 1,447,055
Share registration costs 23,140
Printing and postage 111,611
Insurance premiums 2,516
Taxes 52,617
Miscellaneous 8,301
TOTAL EXPENSES 9,327,919
WAIVERS:
Waiver of investment
advisory fee $ (1,812,145)
Waiver of distribution
services fee-Class A
Shares (233,828)
Waiver of shareholder
services fee-Class F
Shares (11,576)
TOTAL WAIVERS (2,057,549)
Net expenses 7,270,370
Net investment income 39,127,750
REALIZED AND UNREALIZED
LOSS ON INVESTMENTS:
Net realized loss on
investments (16,348,177)
Net change in unrealized
depreciation of
investments (48,505,922)
Net realized and
unrealized loss on
investments (64,854,099)
Change in net assets
resulting from operations $ (25,726,349)
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
(unaudited) ENDED
AUGUST 31, FEBRUARY 28,
1999 1999
<S> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS:
Net investment income $ 39,127,750 $ 89,924,383
Net realized gain (loss) on
investments ($(16,348,177)
and $21,822,092,
respectively, as computed
for federal tax purposes) (16,348,177) 22,482,080
Net change in unrealized
depreciation (48,505,922) (31,614,379)
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS (25,726,349) 80,792,084
DISTRIBUTIONS TO
SHAREHOLDERS:
Distributions from net
investment income
Class A Shares (5,540,779) (10,042,618)
Class B Shares (1,569,988) (1,386,425)
Class C Shares (468,006) (462,569)
Class F Shares (34,048,389) (77,291,063)
CHANGE IN NET ASSETS
RESULTING FROM
DISTRIBUTIONS
TO SHAREHOLDERS (41,627,162) (89,182,675)
SHARE TRANSACTIONS:
Proceeds from sale of
shares 97,817,027 217,946,689
Net asset value of shares
issued to shareholders in
payment of
distributions declared 19,853,235 49,379,711
Cost of shares redeemed (194,093,500) (372,130,856)
CHANGE IN NET ASSETS
RESULTING FROM SHARE
TRANSACTIONS (76,423,238) (104,804,456)
Change in net assets (143,776,749) (113,195,047)
NET ASSETS:
Beginning of period 1,467,605,133 1,580,800,180
End of period (including
undistributed net
investment income
of $372,495 and
$2,871,907, respectively) $ 1,323,828,384 $ 1,467,605,133
</TABLE>
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class A Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
AUGUST 31, YEAR ENDED FEBRUARY 28,
1999 1999 1998 1997 1
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 8.79 $ 8.84 $ 8.59 $ 8.63
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.28 0.53 2 0.62 2 0.30
Net realized and
unrealized gain (loss) on
investments (0.43) (0.04) 0.22 (0.02)
TOTAL FROM INVESTMENT
OPERATIONS (0.15) 0.49 0.84 0.28
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.26) (0.54) (0.59) (0.32)
NET ASSET VALUE, END OF
PERIOD $ 8.38 $ 8.79 $ 8.84 $ 8.59
TOTAL RETURN 3 (1.77%) 5.58% 10.10% 3.34%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 4 1.48% 5 1.44% 1.45% 1.53% 5
Net investment income 4 5.01% 5 5.53% 6.64% 5.95% 5
Expenses (after waivers) 0.98% 5 0.98% 0.96% 1.03% 5
Net investment income
(after waivers) 5.51% 5 5.99% 7.13% 6.45% 5
SUPPLEMENTAL DATA:
Net assets,
end of period
(000 omitted) $176,035 $182,597 $138,554 $289
Portfolio turnover 93% 209% 264% 97%
</TABLE>
1 Reflects operations for the period from August 5, 1996 (date of initial public
investment) to February 28, 1997.
2 Per share information presented is based upon the average number of shares
outstanding.
3 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
4 During the period, certain fees were voluntarily waived. If such voluntary
waivers had not occurred, the ratios would have been as indicated.
5 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class B Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
AUGUST 31, YEAR ENDED FEBRUARY 28,
1999 1999 1998 1997 1
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNNG
OF PERIOD $ 8.78 $ 8.84 $ 8.59 $ 8.63
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.25 0.46 2 0.58 0.28
Net realized and
unrealized gain (loss) on
investments (0.44) (0.05) 0.20 (0.02)
TOTAL FROM INVESTMENT
OPERATIONS (0.19) 0.41 0.78 0.26
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.23) (0.47) (0.53) (0.30)
NET ASSET VALUE, END OF
PERIOD $ 8.36 $ 8.78 $ 8.84 $ 8.59
TOTAL RETURN 3 (2.25%) 4.65% 9.34% 3.00%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 4 1.99% 5 1.94% 1.95% 1.97% 5
Net investment income 4 4.53% 5 5.15% 6.27% 5.54% 5
Expenses (after waivers) 1.73% 5 1.73% 1.71% 1.71% 5
Net investment income
(after waivers) 4.79% 5 5.36% 6.51% 5.80% 5
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $63,179 $48,304 $10,819 $2,421
Portfolio turnover 93% 209% 264% 97%
</TABLE>
1 Reflects operations for the period from August 5, 1996 (date of initial public
investment) to February 28, 1997.
2 Per share information presented is based upon the average number of shares
outstanding.
3 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
4 During the period, certain fees were voluntarily waived. If such voluntary
waivers had not occurred, the ratios would have been as indicated.
5 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class C Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
AUGUST 31, YEAR ENDED FEBRUARY 28,
1999 1999 1998 1997 1
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 8.79 $ 8.84 $ 8.59 $ 8.63
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.25 0.48 2 0.55 0.27
Net realized and
unrealized gain (loss) on
investments (0.43) (0.06) 0.23 (0.01)
TOTAL FROM INVESTMENT
OPERATIONS (0.18) 0.42 0.78 0.26
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.23) (0.47) (0.53) (0.30)
NET ASSET VALUE, END OF
PERIOD $ 8.38 $ 8.79 $ 8.84 $ 8.59
TOTAL RETURN 3 (2.13%) 4.76% 9.29% 3.02%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 4 1.99% 5 1.94% 1.95% 1.97% 5
Net investment income 4 4.53% 5 5.17% 5.97% 5.39% 5
Expenses (after waivers) 1.73% 5 1.73% 1.71% 1.71% 5
Net investment income
(after waivers) 4.79% 5 5.38% 6.21% 5.65% 5
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $17,488 $15,682 $2,836 $1,343
Portfolio turnover 93% 209% 264% 97%
</TABLE>
1 Reflects operations for the period from August 5, 1996 (date of initial public
investment) to February 28, 1997.
2 Per share information presented is based upon the average number of shares
outstanding.
3 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
4 During the period, certain fees were voluntarily waived. If such voluntary
waivers had not occurred, the ratios would have been as indicated.
5 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
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,
1999 1999 1998 1997 1996
1995
<S> <C> <C> <C> <C> <C>
<C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 8.78 $ 8.83 $ 8.59 $ 8.75 $ 8.55 $
9.00
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income 0.26 0.53 1 0.61 0.55 0.62
0.63
Net realized
and unrealized gain
(loss) on investments (0.41) (0.05) 0.24 (0.15) 0.20
(0.46)
TOTAL FROM
INVESTMENT OPERATIONS (0.15) 0.48 0.85 0.40 0.82
0.17
LESS DISTRIBUTIONS:
Distributions from
net investment income (0.26) (0.53) (0.61) (0.56) (0.62)
(0.62)
NET ASSET VALUE,
END OF PERIOD $ 8.37 $ 8.78 $ 8.83 $ 8.59 $ 8.75 $
8.55
TOTAL RETURN 2 (1.77%) 5.49% 10.19% 4.81% 9.87%
2.11%
RATIOS TO AVERAGE
NET ASSETS:
Expenses 3 1.24% 4 1.19% 1.20% 1.22% 1.21%
1.20%
Net investment income 3 5.27% 4 5.74% 6.63% 6.16% 6.71%
7.11%
Expenses (after waivers) 0.98% 4 0.98% 0.96% 0.96% 0.96%
0.97%
Net investment income
(after waivers) 5.53% 4 5.95% 6.87% 6.42% 6.96%
7.34%
SUPPLEMENTAL DATA:
Net assets,
end of period
(000 omitted) $1,067,126 $1,221,022 $1,428,591 $1,773,905 $2,264,374
$2,538,013
Portfolio turnover 93% 209% 264% 97%
161% 143%
</TABLE>
1 Per share information presented is based upon the average number of shares
outstanding.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 During the period, certain fees were voluntarily waived. If such voluntary
waivers had not occurred, the ratios would have been as indicated.
4 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
AUGUST 31, 1999 (UNAUDITED)
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.
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 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 its 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, 1999, the Fund, for federal tax purposes, had a capital loss
carryforward of $292,210,675, 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
EXPIRATION YEAR AMOUNT
2002 $ 59,627,977
2003 $ 192,317,284
2004 $ 16,981,637
2005 $ 23,283,777
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.
CAPITAL STOCK
At August 31, 1999, 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
TOTAL 2,000,000,000
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
AUGUST 31, 1999 FEBRUARY 28, 1999
CLASS A SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 5,827,980 $ 50,845,641 13,380,685 $ 121,312,072
Shares issued to
shareholders in payment of
distributions declared 463,943 4,011,763 968,378 8,642,719
Shares redeemed (6,064,453) (52,404,698) (9,234,999) (82,910,600)
NET CHANGE RESULTING FROM
CLASS A SHARE
TRANSACTIONS 227,470 $ 2,452,706 5,114,064 $ 47,044,191
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
AUGUST 31, 1999 FEBRUARY 28, 1999
CLASS B SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 3,212,031 $ 27,903,246 5,160,248 $ 46,198,415
Shares issued to
shareholders in payment of
distributions declared 98,139 842,413 96,415 859,149
Shares redeemed (1,258,084) (10,889,972) (976,960) (8,731,605)
NET CHANGE RESULTING FROM
CLASS B SHARE
TRANSACTIONS 2,052,086 $ 17,855,687 4,279,703 $ 38,325,959
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
AUGUST 31, 1999 FEBRUARY 28, 1999
CLASS C SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 1,028,925 $ 8,976,774 2,208,237 $ 19,790,392
Shares issued to
shareholders in payment of
distributions declared 28,380 245,149 28,812 257,083
Shares redeemed (753,083) (6,508,108) (774,462) (6,929,369)
NET CHANGE RESULTING FROM
CLASS C SHARE
TRANSACTIONS 304,222 $ 2,713,815 1,462,587 $ 13,118,106
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
AUGUST 31, 1999 FEBRUARY 28, 1999
CLASS F SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 1,154,821 $ 10,091,366 3,427,530 $ 30,645,810
Shares issued to
shareholders in payment of
distributions declared 1,707,626 14,753,910 4,449,449 39,620,760
Shares redeemed (14,363,845) (124,290,722) (30,717,933) (273,559,282)
NET CHANGE RESULTING FROM
CLASS F SHARE
TRANSACTIONS (11,501,398) $ (99,445,446) (22,840,954) $ (203,292,712)
NET CHANGE RESULTING FROM
SHARE TRANSACTIONS (8,917,620) $ (77,423,238) (11,984,600) $ (104,804,456)
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Investment Management Company, 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, Inc. 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
SHARE CLASS NAME ASSETS 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 Company ("FSSC"), the Fund will pay FSSC up to 0.25% of average daily
net assets of the Fund for the period. The fee paid to FSSC is used to finance
certain services for shareholders and to maintain shareholder accounts. FSSC may
voluntarily choose to waive any portion of its fee. FSSC can modify or terminate
this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary 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.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the six
month period ended August 31, 1999, were as follows:
Purchases $1,379,280,139
Sales $1,394,486,196
YEAR 2000
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
Directors
JOHN F. DONAHUE
THOMAS G. BIGLEY
JOHN T. CONROY, JR.
NICHOLAS P. CONSTANTAKIS
JOHN F. CUNNINGHAM
LAWRENCE D. ELLIS, M.D.
RICHARD B. FISHER
PETER E. MADDEN
CHARLES F. MANSFIELD, JR.
JOHN E. MURRAY, JR., J.D., S.J.D.
MARJORIE P. SMUTS
JOHN S. WALSH
Officers
JOHN F. DONAHUE
Chairman
RICHARD B. FISHER
President
WILLIAM D. DAWSON III
Chief Investment Officer
J. CHRISTOPHER DONAHUE
Executive Vice President
EDWARD C. GONZALES
Executive Vice President
JOHN W. MCGONIGLE
Executive Vice President and Secretary
RICHARD J. THOMAS
Treasurer
C. GRANT ANDERSON
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 the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
AS OF AUGUST 31, 1999
[Graphic]
Federated
World-Class Investment Manager
SEMI-ANNUAL REPORT
Federated Government Income Securities, Inc.
Established 1986
13TH SEMI-ANNUAL REPORT
[Graphic]
Federated
Federated Government Income Securities, Inc.
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Cusip 313912206
Cusip 313912305
Cusip 313912404
Cusip 313912107
8092706 (10/99)
[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 8/31/99. The "y" axis is measured in increments of $5,000 ranging from $0 to
$40,000 and indicates that the ending value of hypothetical initial investment
of $14,000 in the fund's Class F Shares, assuming the reinvestment of capital
gains and dividends, would have grown to $34,135 on 8/31/99.
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 8/31/99. The "y" axis is measured in increments of $5,000 ranging from $0 to
$25,000 and indicates that the ending value of hypothetical yearly investments
of $1,000 in the fund's Class F Shares, assuming the reinvestment of capital
gains and dividends, would have grown to $22,154 on 8/31/99.
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 beneath it. The "x" axis reflects computation periods from 4/4/86
to 8/31/99. The "y" axis is measured in increments of $50,000 ranging from $0 to
$300,000 and indicates that the ending value of a hypothetical initial
investment of $100,000 in the fund's Class F Shares would have grown to $243,819
on 8/31/99.
