President's Message
- - --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the 24th Annual Report for Fund
for U.S. Government Securities, Inc. (the "Fund"). This
Report features a design that is easier to read. We
have also included more charts that show how investments
in the Fund have grown over time. I trust you will find
this format both informative and appealing.
This Report covers the 12-month period ended March 31,
1994. It begins with an interview with Gary J. Madich,
Senior Vice President of Federated Advisers, the
Fund's portfolio manager, and follows with a series of
performance charts, a complete listing of the Fund's
holdings, and its financial statements.
To bring you a competitive monthly income, the Fund
invests primarily in a portfolio of long-term
mortgage-backed securities, in addition to U.S. Treasury
notes or bonds. While quality is a hallmark of these
securities, the Fund itself is also rated AAAf by
Standard & Poor's, the highest available rating from this
independent mutual fund rating service.
Because all bond prices fall when interest rates rise,
the Fund's share price declined over the past 12 months
as interest rates rose during the last quarter of its
fiscal year. On the first day of the reporting period,
the Class A Share price based on net asset value was
$8.50 compared to $7.89 on the last day of the reporting
period. Dividends paid to Class A shareholders over the
period totaled $0.63 per share. The Class A Shares posted
a total return during the period of (4.37%) based
offering price and 0.13% based on net asset value.
Remember that the Fund is managed with a traditional,
conservative strategy that pursues consistent performance
over the long term. While more daring strategies such as
these may offer greater rewards in some time periods,
they can be extremely disappointing in others.
I urge you to review the series of charts at the
beginning of this Report, which show the Fund's record of
success over time.
We appreciate your continued confidence in Fund for U.S.
Government Securities, Inc. In the current volatile
interest rate environment, the Fund's manager is
employing a cautious, quality approach in attempting to
provide you with monthly income while protecting your
principal. And, by reinvesting your dividends or
purchasing additional shares, you can economically
position your account for future growth.
As always, we invite your comments or questions.
Sincerely,
J. Christopher Donahue
President
May 16, 1994
Investment Review
- - --------------------------------------------------------------------------------
Q. HOW ARE CURRENT ECONOMIC TRENDS AFFECTING THE
FUND?
A. The first quarter of 1994 was similar to the
fourth quarter of 1993, in that interest rates
rose all along the yield curve. However, the
back-up in rates was much more pronounced in 1994, in
reaction to two Federal Reserve (the "Fed") tightenings
and a stronger economy. Just as the market began to
recover in January from the negative fourth quarter,
the Fed increased the Fed Funds target rate by 0.25% to
3.25% in early February as a preemptive strike against
any threat on inflation. Interest rates continued to rise
Gary Madich, CFA after the Fed's move due to market expectations that
Senior Vice President, further Fed tightenings would follow.
Federated Advisers
The Fed tightened again in late March by another 0.25% to
bring the Fed Funds target rate to 3.50% and interest
rates rose significantly since then. The 5-year Treasury
note yield increased by over 1.0% over the first three
months of 1994. Mortgage securities outperformed
comparable Treasuries in early 1994, but quickly lost
some appeal as interest rate volatility led to spread
widening, reduced demand, and higher levels of mortgage
banker selling to hedge mortgage pipelines. Along with
price pressures on direct securities, the Fund has
experienced net asset value decline, but to a much lesser
degree than comparable Treasuries.
- - --------------------------------------------------------------------------------
Q. ASSUMING THAT MARKET VOLATILITY WILL CONTINUE TO
SOME DEGREE, WHAT IS THE FUND'S POSITION?
A. The current structure of the portfolio calls for
a defensive, extremely cautious, strategy. With
the fear of further Fed tightening, continued
deleveraging in the fixed-income markets, and the
potential for larger levels of investor liquidity,
management will err on the side of caution. Portfolio
duration and average life measures remain less than
market neutral, and the core barbell strategy remains
in place in an effort to directly defend against
management's concern that volatility will remain at
higher levels in 1994, and yield curve flattening will
occur in sporadic fashion.
Portfolio structure continues to favor an overweighted
position in mortgage-backed securities due to the
appearance of good long-term value versus comparable
government and corporate securities. The assessment of
mortgage security value resides in the fact that future
supply levels are limited, prepayment risk has been
minimized, the majority of extension risk has been
realized, and wider yield spreads will attract demand
once volatility declines. The security barbell consists
of longer duration discount/current coupon mortgages
being balanced by short duration instruments, including
adjustable rate mortgages, short agency Collateralized
Mortgage Obligations ("CMOs"), and 2-3 year Treasury
notes.
Thus, in an environment of rapid market decline,
increased volatility, and wider yield spreads in most
fixed-income sectors, traditional strategies seem to
offer the best dimension on which to manage. In the long
run, management believes the Fund's returns will be
driven primarily by sector allocation and yield exposure
curve decisions. With this in mind, caution will be
maintained until market assessment changes.
- - --------------------------------------------------------------------------------
Q. GOVERNMENT BOND FUNDS SUCH AS FUND FOR U.S.
GOVERNMENT SECURITIES, INC. HAVE CONTINUED TO
EXPERIENCE DIVIDEND REDUCTIONS. CAN YOU
BRIEFLY COMMENT?
A. Dividend policy represents two primary
determining factors; current market
reinvestment rates and fund portfolio structure.
Relating this to the Fund, the design of a defensive
portfolio represents the use of lower yielding, shorter
duration securities. In addition, reinvestment
decisions still represent cash flows from seasoned,
higher yielding mortgage securities and bond
swaps related to a lower rate environment. When one
combines this with the belief that any portfolio of
securities will lag market moves in both directions,
there are always periods in which current market interest
rate levels gap current distribution levels.
Despite the reductions over the past year, the
distribution stream is expected to remain competitive
with intermediate Treasury notes and to offer the
needed flexibility to support the net asset
value in what seems to be a more challenging, volatile
market. With a shorter duration/defensive core strategy,
the Fund will err on the side of giving up income to
protect principal.
- - --------------------------------------------------------------------------------
Q. HOW DID THE FUND PERFORM DURING THE LAST TWELVE
MONTHS?
A. The Fund's price per share has fluctuated
downward as a direct result of the rapid market
decline over the last quarter of the Fund's
fiscal year. However, in reviewing the last 12 months
of performance, it is important to keep short-term
performance in perspective with the long-term picture
and the Fund's investment philosophy.
Q. COULD YOU PLACE THE FUND IN PERSPECTIVE IN
RELATION TO THE PRESSURES NOW BEING FELT IN THE
DERIVATIVES MARKET?
A. 1993 was a year when the most common investment
strategy was described as being daring.
Securities and investment techniques once
considered to be extremely risky became mainstream,
everyday investments. In a declining rate and steepening
curve environment, these investments were rewarded with
well above-average income streams and capital
appreciation. The Fund, by employing a more traditional
approach and strategy, lagged most indices. With
volatility returning in the first quarter of 1994,
however, many of the derivative strategies have
reversed their superior return profiles, adding increased
market risk to the portfolios which utilized them.
Fund for U.S. Government Securities, Inc. remains a
traditional product that stresses quality, competitive
distribution streams, and relatively low volatility. The
Fund strives to earn consistent returns, not obtain an
average return resulting from large performance peaks and
valleys.
Fund for U.S. Government Securities, Inc.
(Class A Shares)
- - --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN FUND FOR U.S. GOVERNMENT SECURITIES, INC.
(CLASS A SHARES) FOR THE TEN YEAR PERIOD ENDED MARCH 31, 1994
This graph shows the hypothetical investment of $10,000 in Fund for U.S.
Government Securities, Inc. (Class A Shares) from March 31, 1984 to March 31,
1994, compared to the Lehman Brothers 5-Year Treasury Bellwether Index
("LB5YTB"), Salomon Brothers 15-Year Mortgage Index ("SB15YM"), and the Lipper
U.S. Mortgage Funds Average ("LUSMF").+
[GRAPH GOES HERE]
AVERAGE ANNUAL TOTAL RETURN FOR THE FISCAL YEAR ENDED MARCH 31, 1994
<TABLE>
<S> <C>
1 Year....................................................(4.37)%
5 Year......................................................7.57%
10 Year.....................................................8.85%
Start of Performance (10/6/69)..............................7.67%
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST.
* Represents a hypothetical investment of $10,000 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 LB5YTB,
SB15YM and the LUSMF have been adjusted to reflect reinvestment of
dividends on securities in the indices.
+ The LUSMF is a compilation of mutual fund total returns reported to
Lipper Analytical Services, Inc. Each fund is reported net of sales load,
expenses, and other fees that the Securities and Exchange Commission
requires to reflect in a funds performance.
++ For this illustration the SB15YM began performance on 4/1/86. The SB15YM
Index was assigned a beginning value of $12,834, which was the value of the
hypothetical investment in the Fund on 3/31/86.
Fund for U.S. Government Securities, Inc.
(Class C Shares)
- - --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN FUND FOR U.S. GOVERNMENT SECURITIES, INC.
(CLASS C SHARES) FOR THE PERIOD ENDED MARCH 31, 1994
This graph shows the hypothetical investment of $10,000 in Fund for U.S.
Government Securities, Inc. (Class C Shares) from April 26, 1993 (date of
initial public offering), to March 31, 1994, compared to the Lehman Brothers 5-
Year Treasury Bellwether Index ("LB5YTB"), Salomon Brothers 15-Year Mortgage
Index ("SB15YM") and the Lipper U.S. Mortgage Funds Average ("LUSMF").+
[GRAPH GOES HERE]
<TABLE>
<S> <C>
Start of Performance (4/26/93) Total Cumulative Return.....(2.17)%
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST.
* Represents a hypothetical investment of $10,000 in the Fund. The ending
value of the Fund reflects a contingent deferred sales charge fee of
1.00% on any redemption of Class C Shares less than one year from the
purchase date. The Fund's performance assumes the reinvestment of all
dividends and distributions. The LB15YTB, SB15YM and the LUSMF have been
adjusted to reflect reinvestment of dividends on securities in the
indices.
+ The LUSMF is a compilation of mutual fund total returns reported to Lipper
Analytical Services, Inc. Each fund is reported net of sales load, expenses,
and other fees that the Securities and Exchange Commission requires to
reflect in a fund's performance.
Fund for U.S. Government Securities, Inc.
(Select Shares)
- - --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN FUND FOR U.S. GOVERNMENT SECURITIES, INC.
(SELECT SHARES) FOR THE PERIOD ENDED MARCH 31, 1994
This graph shows the hypothetical investment of $10,000 in Fund for U.S.
Government Securities, Inc. (Select Shares) from January 15, 1994 (date of
initial public offering) to March 31, 1994, compared to the Lehman Brothers 5-
Year Treasury Bellwether Index ("LB5YTB"), Salomon Brothers 15-Year Mortgage
Index ("SB15YM") and the Lipper U.S. Mortgage Funds Average ("LUSMF").+
[GRAPH GOES HERE]
<TABLE>
<S> <C>
Start of Performance (1/15/93) Total Cumulative Return....(2.51)%
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST.
* The Fund's performance assumes the reinvestment of all dividends and
distributions. The LB5YTB, SB15YM and the LUSMF have been adjusted to
reflect reinvestment of dividends on securities in the indices.
+ The LUSMF is a compilation of mutual fund total returns reported to Lipper
Analytical Services, Inc. Each fund is reported net of sales load, expenses,
and other fees that the Securities and Exchange Commission requires to
reflect in a fund's performance.
Two Ways You May Seek to Invest for Success in
Fund for U.S. Government Securities, Inc.
- - --------------------------------------------------------------------------------
Initial Investment:
A $25,000 INVESTMENT (REINVESTING ALL DIVIDENDS AND CAPITAL GAINS) GREW TO
$152,708.
If you had invested $25,000 in the Class A Shares of Fund for U.S. Government
Securities, Inc. on 10/6/69, reinvested your dividends and capital gains, and
didn't redeem any shares, your account would be worth $152,708 on 3/31/94. You
would have earned a 7.67%* average annual total return for the 25-year
investment lifespan--quite attractive for a government income fund, especially
during a time when the economic markets went through several cycles.
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 3/31/94, the Class A Shares' average annual one-year, five-year, and
ten-year total returns were -4.37%, 7.57%, 8.85%, respectively. Class C Shares'
total return since inception on 4/26/93 was -2.17%. Select Shares' total return
since inception on 1/15/94 was -2.51%.
[GRAPH GOES HERE]
* Total return represents the change in the value of an investment in Class A
Shares after reinvesting all income and capital gains, and takes into account
the 4.5% sales charge applicable to an initial investment in Class A Shares.
Data quoted represents past performance and does not guarantee future results.
Investment return and principal value will fluctuate so an investor's shares,
when redeemed, may be worth more or less than their original cost.
Annual Investing in
Fund for U.S. Government Securities, Inc.
- - --------------------------------------------------------------------------------
One Step at a Time:
$1,000 INVESTED EACH YEAR FOR 25 YEARS (REINVESTING ALL DIVIDENDS AND CAPITAL
GAINS) GREW TO $77,633.
With this approach, the key is consistency.
If you had started investing $1,000 annually in the Class A Shares of Fund for
U.S. Government Securities, Inc. on 10/6/69, reinvested your dividends and
capital gains, and didn't redeem any shares, you would have invested only
$25,000, but your account would have reached a total value of $77,633* by
3/31/94. You would have earned an average annual total return of 7.10%.
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. This investment plan works for you even if you
invest only $1,000 annually. You can take it one step at a time. Put time and
compounding to work!
[GRAPH GOES HERE]
* 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.
Fund for U.S. Government Securities, Inc.
A History of Solid Earnings--Sixteen 10-Year Periods
- - --------------------------------------------------------------------------------
$10,000 INVESTED WITH DISTRIBUTIONS REINVESTED
HOW A $10,000 INVESTMENT GREW DURING EACH 10-YEAR PERIOD SINCE FUND INCEPTION.
This chart shows what your account would be worth had you invested $10,000 in
Class A Shares at the beginning of these consecutive decades.
OVER EVERY 10-YEAR PERIOD SINCE THE FUND'S INCEPTION, A $10,000 INVESTMENT IN
ITS CLASS A SHARES (WITH ALL DIVIDENDS AND CAPITAL GAINS REINVESTED) GREW IN
VALUE. There was never a decade in which an investor would have lost money.
A HISTORY OF INVESTMENT GROWTH
<TABLE>
<CAPTION>
Dividends and
April 1- Initial Number Capital Gains Total Ending Value
March 31 of Shares Reinvested Shares of Shares
<S> <C> <C> <C> <C>
1969-1979* 955 $ 8,163 1,858 $16,797
1970-1980 951 7,432 1,981 14,302
1971-1981 866 6,993 1,838 13,218
1972-1982 907 7,349 1,997 13,460
1973-1983 935 10,113 2,120 18,085
1974-1984 991 10,955 2,319 19,132
1975-1985 1007 12,169 2,461 20,598
1976-1986 988 13,416 2,518 22,082
1977-1987 978 13,523 2,556 21,908
1978-1988 1015 14,314 2,717 22,852
1979-1989 1056 14,552 2,873 23,010
1980-1990 1323 18,900 3,619 29,786
1981-1991 1328 19,392 3,634 30,561
1982-1992 1416 20,128 3,782 32,182
1983-1993 1120 15,490 2,942 25,008
1984-1994 1157 14,218 2,959 23,350
</TABLE>
Fund for U.S. Government Securities, Inc.
Serving a Wide Range of Investors
- - --------------------------------------------------------------------------------
FUND FOR U.S. GOVERNMENT SECURITIES, INC. APPEALS TO A BROAD RANGE OF INVESTORS
SEEKING ATTRACTIVE MONTHLY INCOME AND RELATIVE SAFETY.
The Fund invests primarily in some of the most creditworthy securities issued in
America. Fund shares are not guaranteed, but the securities comprising the
portfolio are guaranteed as to the timely payment of interest and principal by
the U.S. government, its agencies or instrumentalities.
SOME OF THE FUND'S MAJOR SHAREHOLDER GROUPS
<TABLE>
<S> <C>
Individuals and Joint Tenants $1,054,618,716
Trusts 164,484,008
IRAs 128,972,511
Corporations 76,125,545
Churches/Religious Organizations 20,927,283
Clubs/Fraternal Organizations 13,954,197
Custodians (under Uniform Gift to Minors Act) 9,149,456
Pension Plans 6,107,056
Keogh/Profit-Sharing 4,743,489
Estates 2,455,742
</TABLE>
Portfolio Update
- - --------------------------------------------------------------------------------
The chart shows the percentage of Fund assets diversified across different types
of securities at the end of the reporting period.
[GRAPH GOES HERE]
* A Real Estate Mortgage Investment Conduit (REMIC), created by the 1986 tax
act, is a vehicle for issuing multi-class mortgage securities. These
securities are similar to Collateralized Mortgage Obligations (CMOs), only the
tax treatment differs substantially.
Fund for U.S. Government Securities, Inc.
Portfolio of Investments
- - --------------------------------------------------------------------------------
March 31, 1994
The obligations listed below are issued by the U.S. government, its agencies or
instrumentalities.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- - -------------- ------------------------------------------------------------------------------- ----------------
LONG-TERM GOVERNMENT OBLIGATIONS--92.7%
- - -----------------------------------------------------------------------------------------------
*FEDERAL HOME LOAN MORTGAGE CORP. PC (30 YEAR)
-------------------------------------------------------------------------------
$ 1,908,475 13.000%, 7/1/2015-10/1/2015 $ 2,152,989
-------------------------------------------------------------------------------
12,616,915 12.500%, 10/1/2009-12/1/2015 14,178,258
-------------------------------------------------------------------------------
5,743,762 12.000%, 7/1/2010-7/1/2019 6,415,282
-------------------------------------------------------------------------------
5,234,677 11.500%, 8/1/2012-5/1/2019 5,797,405
-------------------------------------------------------------------------------
14,604,976 11.000%, 6/1/2010-7/l/2019 16,121,939
-------------------------------------------------------------------------------
16,828,691 10.500%, 2/1/2020-10/1/2020 18,364,309
-------------------------------------------------------------------------------
5,196,155 9.500%, 1/1/2006 5,441,310
-------------------------------------------------------------------------------
27,251,316 9.000%, 8/1/2001-11/1/2016 28,417,594
-------------------------------------------------------------------------------
45,000,000 7.500%, 1/1/2024 44,521,650
-------------------------------------------------------------------------------
40,000,000 4.500%, 3/1/2024 (ARM) 40,562,400
------------------------------------------------------------------------------- ----------------
Total 181,973,136
------------------------------------------------------------------------------- ----------------
*FEDERAL HOME LOAN MORTGAGE CORP. REMIC
-------------------------------------------------------------------------------
4,800,000 9.500%, Series 139F, 6/15/2020 5,005,296
-------------------------------------------------------------------------------
6,977,328 9.500%, Series 1051C, 3/15/2021 1,744,332
-------------------------------------------------------------------------------
10,000,000 9.000%, Series 151E, 9/15/2020 10,273,800
-------------------------------------------------------------------------------
14,996,655 9.000%, Series 1136Y, 9/15/2021 4,498,997
-------------------------------------------------------------------------------
10,000,000 6.600%, Series 1559VH, 12/15/2021 9,284,900
------------------------------------------------------------------------------- ----------------
Total 30,807,325
------------------------------------------------------------------------------- ----------------
*FEDERAL NATIONAL MORTGAGE ASSOCIATION
-------------------------------------------------------------------------------
2,112,778 13.000%, 6/1/2015 2,415,159
-------------------------------------------------------------------------------
7,176,705 12.500%, 3/1/2013-1/1/2016 8,207,615
-------------------------------------------------------------------------------
4,386,450 12.000%, 11/1/2010-1/1/2016 4,969,014
-------------------------------------------------------------------------------
6,895,828 11.500%, 11/1/2015-8/1/2019 7,810,925
-------------------------------------------------------------------------------
37,016,811 11.000%, 9/1/2010-1/1/2023 41,331,268
-------------------------------------------------------------------------------
5,244,665 10.500%, 12/1/2002-5/1/2005 5,539,678
-------------------------------------------------------------------------------
</TABLE>
Fund for U.S. Government Securities, Inc.
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- - -------------- ------------------------------------------------------------------------------- ----------------
LONG-TERM GOVERNMENT OBLIGATIONS--CONTINUED
- - -----------------------------------------------------------------------------------------------
*FEDERAL NATIONAL MORTGAGE ASSOCIATION--CONTINUED
-------------------------------------------------------------------------------
$ 10,580,366 9.000%, 7/1/2001-4/1/2005 $ 11,076,268
-------------------------------------------------------------------------------
89,539,518 8.000%, 1/1/2023-12/1/2023 90,602,352
-------------------------------------------------------------------------------
45,000,000 7.500%, 1/1/2024 44,437,500
-------------------------------------------------------------------------------
34,560,762 4.164%, 9/1/2023 (ARM) 35,373,631
------------------------------------------------------------------------------- ----------------
Total 251,763,410
------------------------------------------------------------------------------- ----------------
*FEDERAL NATIONAL MORTGAGE ASSOCIATION REMIC
-------------------------------------------------------------------------------
29,655,732 10.966%, Series G92-27SQ, 5/25/2022 3,632,827
-------------------------------------------------------------------------------
7,630,000 9.300%, Series 90-20H, 1/25/2019 7,846,539
-------------------------------------------------------------------------------
5,918,249 9.200%, Series 88-14F, 12/25/2017 6,072,301
-------------------------------------------------------------------------------
10,000,000 9.000%, Series 90-116G, 11/25/2019 10,151,300
-------------------------------------------------------------------------------
6,425,000 8.700%, Series 90-2E, 12/25/2018 6,673,005
-------------------------------------------------------------------------------
8,329,000 8.700%, Series G89-1D, 11/25/2017 8,648,500
-------------------------------------------------------------------------------
2,912,443 8.500%, Series 91-138M, 10/25/2006 509,678
-------------------------------------------------------------------------------
13,000,000 7.000%, Series 93-155J, 12/25/2022 12,064,390
-------------------------------------------------------------------------------
9,000,000 6.750%, Series 93-163PY, 3/25/2022 8,336,880
-------------------------------------------------------------------------------
10,000,000 6.500%, Series 93-71PK, 1/25/2008 9,263,200
-------------------------------------------------------------------------------
12,469,855 6.500%, Series 93-189PK, 3/25/2022 11,343,578
-------------------------------------------------------------------------------
23,004,000 6.500%, Series 93-187K, 8/25/2022 20,841,854
-------------------------------------------------------------------------------
9,605,000 6.250%, Series 93-194PM, 6/25/2008 8,734,403
-------------------------------------------------------------------------------
7,497,000 6.150%, Series 93-160AG, 12/25/2020 7,002,573
------------------------------------------------------------------------------- ----------------
Total 121,121,028
------------------------------------------------------------------------------- ----------------
*GOVERNMENT NATIONAL MORTGAGE ASSOCIATION MPT
-------------------------------------------------------------------------------
3,251,044 13.000%, 12/15/2010-12/15/2014 3,798,455
-------------------------------------------------------------------------------
3,588,894 12.500%, 2/15/2011-7/20/2015 4,182,095
-------------------------------------------------------------------------------
30,753,156 12.000%, 5/15/2011-1/15/2016 35,502,314
-------------------------------------------------------------------------------
32,827,635 11.500%, 3/15/2010-9/15/2018 37,653,134
-------------------------------------------------------------------------------
14,039,353 11.000%, 1/15/2010-10/15/2019 15,828,661
-------------------------------------------------------------------------------
</TABLE>
Fund for U.S. Government Securities, Inc.
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- - -------------- ------------------------------------------------------------------------------- ----------------
LONG-TERM GOVERNMENT OBLIGATIONS--CONTINUED
- - -----------------------------------------------------------------------------------------------
*GOVERNMENT NATIONAL MORTGAGE ASSOCIATION MPT--CONTINUED
-------------------------------------------------------------------------------
$ 34,977,473 10.500%, 1/15/2014-10/15/2019 $ 38,956,161
-------------------------------------------------------------------------------
146,640,538 10.000%, 11/15/2009-1/15/2021 159,378,757
-------------------------------------------------------------------------------
128,853,284 9.500%, 9/15/2016-12/15/2021 136,825,437
-------------------------------------------------------------------------------
73,620,239 9.000%, 11/15/2019-8/20/2022 77,153,699
-------------------------------------------------------------------------------
48,775,401 8.500%, 2/15/2022-1/1/2024 50,375,722
-------------------------------------------------------------------------------
639,837 8.200%, 6/15/2012-5/15/2013 635,838
-------------------------------------------------------------------------------
99,673,044 8.000%, 3/15/2017-8/15/2023 100,686,767
-------------------------------------------------------------------------------
319,340,349 7.500%, 12/15/2022-3/15/2024 313,949,883
-------------------------------------------------------------------------------
8,123,991 7.000%, 7/15/2008-9/15/2008 8,042,750
------------------------------------------------------------------------------- ----------------
Total 982,969,673
------------------------------------------------------------------------------- ----------------
U.S. TREASURY NOTES
-------------------------------------------------------------------------------
100,000,000 4.750%, 2/15/1997 97,702,000
------------------------------------------------------------------------------- ----------------
TOTAL LONG-TERM GOVERNMENT OBLIGATIONS
(IDENTIFIED COST, $1,718,170,129) 1,666,336,572
------------------------------------------------------------------------------- ----------------
**REPURCHASE AGREEMENTS--14.0%
- - -----------------------------------------------------------------------------------------------
90,000,000 First Boston Corp., 3.46% dated 3/14/94, due 4/14/94 90,000,000
-------------------------------------------------------------------------------
62,170,000 J.P. Morgan Securities, Inc. 3.59% dated 3/31/94, due 4/4/94 62,170,000
-------------------------------------------------------------------------------
100,000,000 J.P. Morgan Securities, Inc., 3.50% dated 3/14/94, due 4/14/94 100,000,000
------------------------------------------------------------------------------- ----------------
TOTAL REPURCHASE AGREEMENTS 252,170,000
------------------------------------------------------------------------------- ----------------
TOTAL INVESTMENTS (IDENTIFIED COST $1,970,340,129) $ 1,918,506,572
------------------------------------------------------------------------------- ----------------
</TABLE>
*Because of monthly principal payments, the average life of the
Government National Mortgage Association Modified Pass-Through
securities (based upon FHA/VA historical experience), Federal Home Loan
Mortgage Corp. Participation Certificates, Interest Only, REMICS, and
Federal National Mortgage Assn. Pass-through securities is less than
the stated maturities.
Fund for U.S. Government Securities, Inc.
- - --------------------------------------------------------------------------------
**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 repurchase agreements were through
participation in joint accounts with other Federated funds.
+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.
++The cost of investments for federal tax purposes amount to $1,970,340,129.
The net unrealized depreciation on a federal tax basis amounts to
$51,833,557, which is comprised of $15,727,572 appreciation and $67,561,129
depreciation as of March 31, 1994.
Note: The categories of investments are shown as a percentage of net assets
($1,798,477,849) at March 31, 1994.
The following abbreviations are used in this portfolio:
ARM--Adjustable Rate Mortgage
MPT--Modified Pass-Through
PC--Participation Certificate
REMIC--Real Estate Mortgage Investment Conduit
(See Notes which are an integral part of the Financial Statements)
Fund for U.S. Government Securities, Inc.
Statement of Assets and Liabilities
- - --------------------------------------------------------------------------------
March 31, 1994
<TABLE>
<S> <C> <C>
ASSETS:
- - --------------------------------------------------------------------------------------------------
Investments in securities $1,666,336,572
- - -----------------------------------------------------------------------------------
Investments in repurchase agreements 252,170,000
- - ----------------------------------------------------------------------------------- -------------
Total investments in securities, at value (Notes 2A and 2B)
(identified and tax cost $1,970,340,129) $1,918,506,572
- - --------------------------------------------------------------------------------------------------
Cash 217,321
- - --------------------------------------------------------------------------------------------------
Receivable for investments sold 136,909,459
- - --------------------------------------------------------------------------------------------------
Interest receivable 15,077,409
- - --------------------------------------------------------------------------------------------------
Receivable for capital stock sold 1,460,928
- - -------------------------------------------------------------------------------------------------- -------------
Total assets 2,072,171,689
- - -------------------------------------------------------------------------------------------------- -------------
LIABILITIES:
- - --------------------------------------------------------------------------------------------------
Payable for dollar roll transactions (Note 6) 192,347,039
- - -----------------------------------------------------------------------------------
Payable for investments purchased 69,249,375
- - -----------------------------------------------------------------------------------
Payable for capital stock redeemed 7,685,064
- - -----------------------------------------------------------------------------------
Dividends payable 3,787,619
- - -----------------------------------------------------------------------------------
Payable to transfer and dividend disbursing agent (Note 4) 457,841
- - -----------------------------------------------------------------------------------
Payable to Adviser (Note 4) 2,474
- - -----------------------------------------------------------------------------------
Accrued expenses and other liabilities 164,428
- - ----------------------------------------------------------------------------------- -------------
Total liabilities 273,693,840
- - -------------------------------------------------------------------------------------------------- -------------
NET ASSETS for 227,814,562 shares of capital stock outstanding 1,798,477,849
- - -------------------------------------------------------------------------------------------------- -------------
NET ASSETS CONSIST OF (NOTE 2G):
- - --------------------------------------------------------------------------------------------------
PAID-IN CAPITAL 1,974,397,491
- - --------------------------------------------------------------------------------------------------
UNREALIZED DEPRECIATION OF INVESTMENTS (51,833,557)
- - --------------------------------------------------------------------------------------------------
ACCUMULATED NET REALIZED LOSS ON INVESTMENTS (135,730,309)
- - --------------------------------------------------------------------------------------------------
UNDISTRIBUTED NET INVESTMENT INCOME 11,644,224
- - -------------------------------------------------------------------------------------------------- -------------
TOTAL $1,798,477,849
- - -------------------------------------------------------------------------------------------------- -------------
NET ASSET VALUE PER SHARE:
- - --------------------------------------------------------------------------------------------------
Class A Shares (net assets of $1,693,293,447 / 214,485,582 shares of capital stock outstanding) $7.89
- - -------------------------------------------------------------------------------------------------- -------------
Class C Shares (net assets of $103,433,152 / 13,107,203 shares of capital stock outstanding) $7.89
- - -------------------------------------------------------------------------------------------------- -------------
Select Shares (net assets of $1,751,250 / 221,777 shares of capital stock outstanding) $7.90
- - -------------------------------------------------------------------------------------------------- -------------
COMPUTATION OF OFFERING PRICE PER SHARE:
- - --------------------------------------------------------------------------------------------------
Class A Shares (100/95.5 of $7.89)* $8.26
- - -------------------------------------------------------------------------------------------------- -------------
Class C Shares $7.89
- - -------------------------------------------------------------------------------------------------- -------------
Select Shares $7.90
- - -------------------------------------------------------------------------------------------------- -------------
COMPUTATION OF REDEMPTION PROCEEDS PER SHARE:
- - --------------------------------------------------------------------------------------------------
Class A Shares (99.5/100 of $7.89)** $7.85
- - -------------------------------------------------------------------------------------------------- -------------
Class C Shares (99/100 of $7.89)** $7.81
- - -------------------------------------------------------------------------------------------------- -------------
Select Shares $7.90
- - -------------------------------------------------------------------------------------------------- -------------
</TABLE>
*See "What Shares Cost" in the prospectus.
**Under certain limited conditions, a contingent deferred sales charge of 0.50%
and 1.00% on Class A and Class C Shares, respectively, is imposed. See
"Contingent Deferred Sales Charge" in the prospectus.
(See Notes which are an integral part of the Financial Statements)
Fund for U.S. Government Securities, Inc.
Statement of Operations
- - --------------------------------------------------------------------------------
Year Ended March 31, 1994
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- - ------------------------------------------------------------------------------------------------
Interest income (Note 2C) (Net of interest expense of $2,246,299) $ 162,195,691
- - ------------------------------------------------------------------------------------------------
EXPENSES:
- - ------------------------------------------------------------------------------------------------
Investment advisory fee (Note 4) $ 11,548,068
- - ---------------------------------------------------------------------------------
Directors' fees 22,874
- - ---------------------------------------------------------------------------------
Administrative personnel and services fees (Note 4) 1,358,170
- - ---------------------------------------------------------------------------------
Custodian fees 448,428
- - ---------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses (Note 4) 1,706,836
- - ---------------------------------------------------------------------------------
Capital stock registration costs 121,902
- - ---------------------------------------------------------------------------------
Auditing fees 23,906
- - ---------------------------------------------------------------------------------
Legal fees 28,665
- - ---------------------------------------------------------------------------------
Printing and postage 146,605
- - ---------------------------------------------------------------------------------
Taxes 227,474
- - ---------------------------------------------------------------------------------
Shareholder service fees--Class A Shares (Note 4) 1,247,797
- - ---------------------------------------------------------------------------------
Shareholder service fees--Class C Shares (Note 4) 151,602
- - ---------------------------------------------------------------------------------
Shareholder service fees--Select Shares (Note 4) 488
- - ---------------------------------------------------------------------------------
Insurance premiums 36,952
- - ---------------------------------------------------------------------------------
Distribution service fees--Class A Shares (Note 4) 454,806
- - ---------------------------------------------------------------------------------
Distribution service fees--Select Shares (Note 4) 1,462
- - ---------------------------------------------------------------------------------
Miscellaneous 20,738
- - --------------------------------------------------------------------------------- -------------
Total expenses 17,546,773
- - ------------------------------------------------------------------------------------------------ ---------------
Net investment income 144,648,918
- - ------------------------------------------------------------------------------------------------ ---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- - ------------------------------------------------------------------------------------------------
Net realized loss on investments (identified cost basis)-- (59,750,411)
- - ------------------------------------------------------------------------------------------------
Net change in unrealized depreciation on investments (79,685,198)
- - ------------------------------------------------------------------------------------------------ ---------------
Net realized and unrealized loss on investments (139,435,609)
- - ------------------------------------------------------------------------------------------------ ---------------
Change in net assets resulting from operations $ 5,213,309
- - ------------------------------------------------------------------------------------------------ ---------------
</TABLE>
(See Notes which are integral part of the Financial Statements)
Fund for U.S. Government Securities, Inc.
Statement of Changes in Net Assets
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1994 1993
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- - --------------------------------------------------------------------------------
OPERATIONS--
- - --------------------------------------------------------------------------------
Net investment income $ 144,648,918 $ 133,699,659
- - --------------------------------------------------------------------------------
Net realized loss on investments ($19,160,797 net loss and $5,923,640 net loss,
respectively, as computed for federal income tax purposes) (Note 2D) (59,750,411) (13,070,372)
- - --------------------------------------------------------------------------------
Change in unrealized depreciation of investments (79,685,198) 3,566,676
- - -------------------------------------------------------------------------------- --------------- ---------------
Change in net assets resulting from operations 5,213,309 124,195,963
- - -------------------------------------------------------------------------------- --------------- ---------------
NET EQUALIZATION (DEBITS) CREDITS (NOTE 2E)-- (447,920) 4,018,640
- - -------------------------------------------------------------------------------- --------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2C)--
- - --------------------------------------------------------------------------------
Dividends to shareholders from net investment income:
- - --------------------------------------------------------------------------------
Class A Shares (140,902,757) (131,005,075)
- - --------------------------------------------------------------------------------
Class C Shares (4,025,216) --
- - --------------------------------------------------------------------------------
Select Shares (17,077) --
- - --------------------------------------------------------------------------------
Distributions in excess of net investment income:
- - --------------------------------------------------------------------------------
Class C Shares (229,165) --
- - --------------------------------------------------------------------------------
Select Shares (1,839) --
- - -------------------------------------------------------------------------------- --------------- ---------------
Change in net assets resulting from distributions
to shareholders (145,176,054) (131,005,075)
- - -------------------------------------------------------------------------------- --------------- ---------------
CAPITAL STOCK TRANSACTIONS (NOTE 3)--
- - --------------------------------------------------------------------------------
(Exclusive of amounts allocated to net investment income)
- - --------------------------------------------------------------------------------
Net proceeds from sales of shares 627,866,467 688,694,217
- - --------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in
payment of dividends declared 94,982,947 86,638,122
- - --------------------------------------------------------------------------------
Cost of shares redeemed (628,672,944) (311,947,093)
- - -------------------------------------------------------------------------------- --------------- ---------------
Change in net assets resulting from capital stock transactions 94,176,470 463,385,246
- - -------------------------------------------------------------------------------- --------------- ---------------
Change in net assets (46,234,195) 460,594,774
- - --------------------------------------------------------------------------------
NET ASSETS:
- - --------------------------------------------------------------------------------
Beginning of period 1,844,712,044 1,384,117,270
- - -------------------------------------------------------------------------------- --------------- ---------------
End of period (including undistributed net investment income of $11,644,224 and
$12,375,124, respectively) $ 1,798,477,849 $ 1,844,712,044
- - -------------------------------------------------------------------------------- --------------- ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Fund for U.S. Government Securities, Inc.
Financial Highlights--Class A Shares
- - --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1994 1993 1992 1991 1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 8.50 $ 8.51 $ 8.41 $ 8.23 $ 8.01 $ 8.41 $ 8.56 $ 8.77 $ 8.37
- - -----------------------
INCOME FROM INVESTMENT
OPERATIONS
- - -----------------------
Net investment income 0.63 0.71 0.75 0.77 0.78 0.76 0.78 0.80 0.93
- - -----------------------
Net realized and
unrealized gain/(loss)
on investments (0.61) (0.03) 0.08 0.19 0.21 (0.40) (0.15) (0.21) 0.46
- - ----------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total from investment
operations 0.02 0.68 0.83 0.96 0.99 0.36 0.63 0.59 1.39
- - -----------------------
LESS DISTRIBUTIONS
- - -----------------------
Dividends to
shareholders from net
investment income (0.63) (0.69) (0.73) (0.78) (0.77) (0.76) (0.78) (0.80) (0.99)
- - ----------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF
PERIOD $ 7.89 $ 8.50 $ 8.51 $ 8.41 $ 8.23 $ 8.01 $ 8.41 $ 8.56 $ 8.77
- - ----------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
TOTAL RETURN** 0.13% 8.31% 10.20% 12.12% 12.59% 4.47% 7.66% 7.23% 17.42%
- - -----------------------
RATIOS TO AVERAGE NET
ASSETS
- - -----------------------
Expenses 0.88% 0.83% 0.91% 0.97% 0.96% 0.96% 0.96% 0.95% 0.91%
- - -----------------------
Net investment income 7.50% 8.33% 8.69% 9.21% 9.32% 9.22% 9.31% 9.24% 10.51%
- - -----------------------
Expense waiver/
reimbursement (b) -- -- -- -- 0.04% -- 0.01% 0.05% 0.13%
- - -----------------------
SUPPLEMENTAL DATA
- - -----------------------
Net assets, end of
period
(000 omitted) $1,693,293 $1,844,712 $1,384,117 $1,133,017 $1,039,493 $1,054,055 $1,150,395 $1,193,389 $761,290
- - -----------------------
Portfolio turnover
rate 149% 52% 43% 27% 98% 83% 72% 135% 179%
- - -----------------------
<CAPTION>
June 30,
1985* 1984
<S> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 7.74 $ 8.45
- - -----------------------
INCOME FROM INVESTMENT
OPERATIONS
- - -----------------------
Net investment income 0.74 0.92
- - -----------------------
Net realized and
unrealized gain/(loss)
on investments 0.64 (0.72)
- - ----------------------- ----------- -----------
Total from investment
operations 1.38 0.20
- - -----------------------
LESS DISTRIBUTIONS
- - -----------------------
Dividends to
shareholders from net
investment income (0.75) (0.91)
- - ----------------------- ----------- -----------
NET ASSET VALUE, END OF
PERIOD $ 8.37 $ 7.74
- - ----------------------- ----------- -----------
TOTAL RETURN** 18.39% 2.27%
- - -----------------------
RATIOS TO AVERAGE NET
ASSETS
- - -----------------------
Expenses 0.89%(a) 1.15%
- - -----------------------
Net investment income 12.11%(a)11.16%
- - -----------------------
Expense waiver/
reimbursement (b) 0.55%(a) 0.24%
- - -----------------------
SUPPLEMENTAL DATA
- - -----------------------
Net assets, end of
period
(000 omitted) $156,834 $47,215
- - -----------------------
Portfolio turnover
rate 121 % 117%
- - -----------------------
</TABLE>
* For the nine months ended March 31, 1985. The Fund changed its fiscal
year-end from June 30 to March 31, effective March 1, 1985.
** Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).
(See Notes which are an integral part of the Financial Statements)
Fund for U.S. Government Securities, Inc.
Financial Highlights--Class C Shares
- - --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
1994*
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.54
- - --------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- - --------------------------------------------------------------------------------------------------
Net investment income 0.54
- - --------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.63)
- - -------------------------------------------------------------------------------------------------- ---------------
Total from investment operations (0.09)
- - --------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- - --------------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.54)
- - --------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (0.02)***
- - -------------------------------------------------------------------------------------------------- ---------------
Total distributions (0.56)
- - -------------------------------------------------------------------------------------------------- ---------------
NET ASSET VALUE, END OF PERIOD $ 7.89
- - -------------------------------------------------------------------------------------------------- ---------------
TOTAL RETURN** (1.17%)
- - --------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- - --------------------------------------------------------------------------------------------------
Expenses 1.81%(a)
- - --------------------------------------------------------------------------------------------------
Net investment income 6.45%(a)
- - --------------------------------------------------------------------------------------------------
Expense waiver/reimbursement --
- - --------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- - --------------------------------------------------------------------------------------------------
Net assets, end of period (000
omitted) $103,433
- - --------------------------------------------------------------------------------------------------
Portfolio turnover rate 149%
- - --------------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from April 26, 1993 (date of initial
public offering) to
March 31, 1994.
** Based on net asset value which does not reflect the sales load or
contingent deferred sales charge, if applicable.
*** Distribution in excess of net investment income was a result of certain
book and tax timing differences. This distribution does not represent a
return of capital for federal income tax purposes.
(a) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
Fund for U.S. Government Securities, Inc.
Financial Highlights--Select Shares
- - --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
1994*
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.24
- - --------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- - --------------------------------------------------------------------------------------------------
Net investment income 0.13
- - --------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.33)
- - -------------------------------------------------------------------------------------------------- ---------------
Total from investment operations (0.20)
- - --------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- - --------------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.13)
- - --------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (0.01)***
- - -------------------------------------------------------------------------------------------------- ---------------
Total distributions (0.14)
- - -------------------------------------------------------------------------------------------------- ---------------
NET ASSET VALUE, END OF PERIOD $ 7.90
- - -------------------------------------------------------------------------------------------------- ---------------
TOTAL RETURN** (2.51%)
- - --------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- - --------------------------------------------------------------------------------------------------
Expenses 1.81%(a)
- - --------------------------------------------------------------------------------------------------
Net investment income 6.65%(a)
- - --------------------------------------------------------------------------------------------------
Expense waiver/reimbursement --
- - --------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- - --------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $ 1,751
- - --------------------------------------------------------------------------------------------------
Portfolio turnover rate 149%
- - --------------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from January 15, 1994 (date of initial
public offering) to March 31, 1994.
** Based on net asset value which does not reflect the sales load or
contingent deferred sales charge, if applicable.
*** Distribution in excess of net investment income was a result of certain
book and tax timing differences. This distribution does not represent a
return of capital for federal income tax purposes.
(a) Computed on an annualized basis.
(See Notes which are an integral part of the Financial Statements)
Fund for U.S. Government Securities, Inc.
Notes to Financial Statements
- - --------------------------------------------------------------------------------
March 31, 1994
(1) ORGANIZATION
Fund for U.S. Government Securities, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end,
management investment company. The Fund provides three classes of shares: Class
A Shares, Class C Shares and Select Shares. Class C and Select Shares are
identical in all respects to Class A Shares except that Class C and Select
Shares are sold pursuant to a distribution plan ("Plan") adopted in accordance
with Investment Company Act Rule 12b-1. Class A Shares and Class C Shares are
also subject to certain sales and contingent deferred sales charges.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles (GAAP).
A. INVESTMENT VALUATIONS--U.S. Government obligations are generally valued at
the mean between the over-the-counter bid and asked prices as furnished by
an independent pricing service. Short-term securities with remaining
maturities of sixty days, or less may be stated at amortized cost, which
approximates value.
B. 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 in support of
repurchase agreement investments. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of
each repurchase agreements underlying collateral to ensure the value at
least equals the principal amount of the repurchase agreement, including
accrued interest.
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 guidelines established
by the Directors. Risks may arise from the potential inability of
counterparties to honor the terms of the repurchase agreement. Accordingly,
the Fund could receive less than the repurchase price on the sale of
collateral securities.
C. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount are amortized as required by
the Internal Revenue Code. Distributions to shareholders are recorded on
the ex-dividend date. Distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These distributions do not represent a return of capital for
federal income tax purposes.
Fund for U.S. Government Securities, Inc.
- - --------------------------------------------------------------------------------
D. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Internal Revenue Code ("Code") applicable to regulated investment companies
and to distribute to shareholders each year substantially all of its
taxable income. Accordingly, no provisions for federal tax are necessary.
At March 31, 1994, the Fund for federal tax purposes, had a capital loss
carryforward of $86,702,357 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 income tax. Pursuant to the Code, such capital
loss carryforward will expire in 1995 ($19,577,428), 1996 ($21,945,640),
1997 ($13,496,695), 1999 ($4,037,707), 2000 ($2,560,450), 2001 ($5,923,640)
and 2002 ($19,160,797). Additionally, net capital losses of $49,027,952
attributable to security transactions incurred after October 31, 1993, are
treated as arising on (April 1, 1994) the first day of the Fund's next
taxable year.
E. EQUALIZATION--The Fund follows the accounting practice known as
equalization by which a portion of the proceeds from sales and costs of
redemptions of capital stock 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 capital stock.
F. 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 to be purchased. Securities purchased on a when-issued or
delayed delivery basis are marked to market daily and begin earning
interest on the settlement date.
G. RECLASSIFICATIONS--During the current year ended March 31, 1994, the Fund
adopted Statement of Position ("SOP") 93-2 Determination, Disclosure, and
Financial Statement Presentation of Income, Capital Gain, and Return of
Capital Distributions by Investment Companies. Accordingly, permanent book
and tax basis differences have been reclassified to paid-in-capital. The
Fund reclassified $6,120,202 from accumulated undistributed net realized
loss on investments and $244,156 from undistributed net investment income,
respectively, to paid-in capital in accordance with SOP 93-2. Net
investment income, net realized gains, and net assets were not affected by
this change.
H. OTHER--Investment transactions are accounted for on the trade date.
Fund for U.S. Government Securities, Inc.
- - --------------------------------------------------------------------------------
(3) CAPITAL STOCK
At March 31, 1994, there were 2,000,000,000 shares of $0.001 par value capital
stock authorized. Of these shares, 750,000,000 have been designated as Class A
Shares of the Fund, 750,000,000 as Class C Shares of the Fund, and 500,000,000
have been designated as Select Shares of the Fund. Transactions in capital stock
were as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1994 1993
CLASS A SHARES SHARES DOLLARS SHARES DOLLARS
<S> <C> <C> <C> <C>
Shares sold 60,711,645 $ 505,623,646 81,095,616 $ 688,694,217
- - --------------------------------------------------
Shares issued to shareholders in payment of
dividends declared 11,340,281 93,265,264 10,244,423 86,638,122
- - --------------------------------------------------
Shares redeemed (74,704,693) (616,470,022) (36,757,030) (311,947,093)
- - -------------------------------------------------- ------------- -------------- ------------- --------------
Net change resulting from capital stock
transactions (2,652,767) $ (17,581,112) 54,583,009 $ 463,385,246
- - -------------------------------------------------- ------------- -------------- ------------- --------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1994*
CLASS C SHARES SHARES DOLLARS
<S> <C> <C>
Shares sold 14,283,011 $ 119,562,252
- - --------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends in declared 206,053 1,707,156
- - --------------------------------------------------------------------------------
Shares redeemed (1,381,861) (11,322,332)
- - -------------------------------------------------------------------------------- ------------ --------------
Net change resulting from capital stock transactions 13,107,203 $ 109,947,076
- - -------------------------------------------------------------------------------- ------------ --------------
</TABLE>
*For the period from April 26, 1993 (date of initial public offering) to March
31, 1994.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1994*
SELECT SHARES SHARES DOLLARS
<S> <C> <C>
Shares sold 328,043 $ 2,680,569
- - ---------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 1,307 10,527
- - ---------------------------------------------------------------------------------
Shares redeemed (107,573) (880,590)
- - --------------------------------------------------------------------------------- ---------- ------------
Net change resulting from capital stock transactions 221,777 $ 1,810,506
- - --------------------------------------------------------------------------------- ---------- ------------
</TABLE>
*For the period from January 15, 1994 (date of initial public offering) to March
31, 1994.
Fund for U.S. Government Securities, Inc.
- - --------------------------------------------------------------------------------
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Advisers, the Fund's investment adviser
("Adviser"), receives for its services an annual investment advisory fee equal
to (a) a maximum of 0.25% of the average daily net assets of the Fund, and (b)
4.5% of the gross income of the Fund, excluding capital gains or losses. Adviser
may voluntarily choose to waive a portion of its fee. Adviser can modify or
terminate this voluntary waiver at any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
administrative personnel and services. Prior to March 1, 1994, these services
were provided at approximate cost. Effective March 1, 1994, the fee 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 any fiscal year shall be at least $125,000 per portfolio and
$30,000 per each additional class of shares.
DISTRIBUTION AND SERVICE PLAN--The Fund has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940. 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 C Shares and
Select Shares. The Plan provides that the Fund may incur distribution expenses
of up to 0.75 of 1% of the average daily net assets of the Class C Shares and
Select Shares, annually, to compensate FSC.
Under the terms of a shareholder service agreement with Federated Shareholder
Services ("FSS") the Fund will pay FSS up to 0.25 of 1% of average net assets
for each class for the period. This fee is to obtain certain personal services
for shareholders and the maintenance of shareholder accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES--Federated Services Company
("FServ") serves as transfer and dividend disbursing agent for the Fund. The fee
is based on the size, type and number of accounts and transactions made by
shareholders.
Certain of the Officers and Directors of the Fund are Officers and Trustees of
the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
fiscal year ended March 31, 1994 were as follows:
<TABLE>
<S> <C>
- - ------------------------------------------------------------------------------------------------
Purchases $ 2,890,981,265
- - ------------------------------------------------------------------------------------------------ ----------------
Sales $ 2,840,432,553
- - ------------------------------------------------------------------------------------------------ ----------------
</TABLE>
Fund for U.S. Government Securities, Inc.
- - --------------------------------------------------------------------------------
(6) 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 loans mortgage
securities to financial institutions and simultaneously agrees to accept
substantially similar (same type, coupon and maturity) securities at a later
date at an agreed upon price. Dollar roll transactions are short-term financing
arrangements which will not exceed twelve months. The Fund will use the proceeds
generated from the transactions to invest in short-term instruments. The income
received from these short-term investments may enhance the Fund's current yield
and total return.
(7) FORWARD TRADE COMMITMENTS
At March 31, 1994, the Fund was under agreement to enter into the following
repurchase agreement:
$90,000,000 First Boston Corp., 3.58%, dated 4/14/94, due 5/12/94
This repurchase agreement was made in the normal course of business and is
subject to the Fund's general investment restrictions regarding creditworthiness
and collateralization levels. The contract was executed on April 14, 1994.
Independent Auditors' Report
- - --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
Fund for U.S. Government Securities, Inc.:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Fund for U.S. Government Securities, Inc. as of
March 31, 1994, the related statement of operations for the year then ended, the
statements of changes in net assets for the years ended March 31, 1994 and 1993,
and the financial highlights for each of the periods in the eleven-year period
ended March 31, 1994. 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 at
March 31, 1994 by correspondence with the custodian and brokers. 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 Fund for U.S.
Government Securities, Inc. as of March 31, 1994, 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
Boston, Massachusetts
May 13, 1994
Directors Officers
- - --------------------------------------------------------------------------------
John F. Donahue John F. Donahue
John T. Conroy, Jr. Chairman
William J. Copeland J. Christopher Donahue
J. Christopher Donahue President
James E. Dowd Richard B. Fisher
Lawrence D. Ellis, M.D. Vice President
Edward L. Flaherty, Jr. Edward C. Gonzales
Peter E. Madden Vice President and Treasurer
Gregor F. Meyer John W. McGonigle
Wesley W. Posvar Vice President and Secretary
Marjorie P. Smuts John A. Staley, IV
Vice President
David M. Taylor
Assistant Treasurer
Charles H. Field
Assistant Secretary
Mutual funds are not obligations of or insured by any bank nor are they insured
by the federal government or any of its agencies. Investment in these shares
involves 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.
[LOGO] FUND FOR
U.S. GOVERNMENT
SECURITIES, INC.
24TH ANNUAL REPORT
March 31, 1994
Established 1969
[LOGO] FEDERATED SECURITIES CORP.
--------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
8042505 (5/94)
FUND FOR U.S. GOVERNMENT SECURITIES, INC.
APPENDIX
A. 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 are represented by a solid
line. Lehman Brothers 5-Year Treasury Bellwether Index is represented
by a broken dotted line. Salomon Brothers 15-Year Mortgage Index is
represented by a broken line and Lipper U.S. Mortgage Funds Index is
represented by a dotted line. The line graph is a visual representation
of a comparison of change in value of a hypothetical investment of
$10,000 in Class A Shares of the Fund, Lehman Brothers 5-Year Treasury
Bellwether Index, Salomon Brothers 15-Year Mortgage Index and Lipper
U.S. Mortgage Funds Index for the ten year period from March 31, 1984 to
March 31, 1994. The "y" axis reflects the cost of investment. The "x"
axis reflects computation periods in yearly increments from March 31,
1984 to March 31, 1994. The right margin of the chart reflects the
ending value of the hypothetical investment in the Class A Shares of the
Fund as compared to Lehman Brothers 5-Year Treasury Bellwether Index,
Salomon Brothers 15-Year Mortgage Index and Lipper U.S. Mortgage Funds
Index. The ending values are $26,468, $25,677, $25,576 and $23,352,
respectively.
B. 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 are represented by a solid
line. Lehman Brothers 5-Year Treasury Bellwether Index is represented
by a broken dotted line. Salomon Brothers 15-Year Mortgage Index is
represented by a broken line and Lipper U.S. Mortgage Funds Index is
represented by a dotted line. The line graph is a visual representation
of a comparison of change in value of a hypothetical investment of
$10,000 in Class C Shares of the Fund, Lehman Brothers 5-Year Treasury
Bellwether Index, Salomon Brothers 15-Year Mortgage Index and Lipper
U.S. Mortgage Funds Index for the period from April 26, 1993 (date of
inital public offering) to March 31, 1994. The "y" axis reflects the
cost of investment. The "x" axis reflects computation periods from
April 26, 1993 (date of initial public offering) to March 31, 1994. The
right margin of the chart reflects the ending value of the hypothetical
investment in the Class C Shares of the Fund as compared to Lehman
Brothers 5-Year Treasury Bellwether Index, Salomon Brothers 15-Year
Mortgage Index and Lipper U.S. Mortgage Funds Index. The ending values
are $10,115, $10,064, $10,060 and $9,783, respectively.
C. The graphic representation here displayed consists of a line
graph. The corresponding components of the line graph are listed
underneath. The Select Shares of the Fund are represented by a solid
line. Lehman Brothers 5-Year Treasury Bellwether Index is represented
by a broken dotted line. Salomon Brothers 15-Year Mortgage Index is
represented by a broken line and Lipper U.S. Mortgage Funds Index is
represented by a dotted line. The line graph is a visual representation
of a comparison of change in value of a hypothetical investment of
$10,000 in Select Shares of the Fund, Lehman Brothers 5-Year Treasury
Bellwether Index, Salomon Brothers 15-Year Mortgage Index and Lipper
U.S. Mortgage Funds Index for the period from January 15, 1994 (date of
inital public offering) to March 31, 1994. The "y" axis reflects the
cost of investment. The "x" axis reflects computation periods from
January 15, 1994 (date of initial public offering) to March 31, 1994.
The right margin of the chart reflects the ending value of the
hypothetical investment in the Select Shares of the Fund as compared to
Lehman Brothers 5-Year Treasury Bellwether Index, Salomon Brothers 15-
Year Mortgage Index and Lipper U.S. Mortgage Funds Index. The ending
values are $9,749, $9,679, $9,626 and $9,582, respectively.
D. 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 $25,000 investment in the Fund. The
color-coded mountain chart is a visual representation of the narrative
text beneath it, which shows that an initial investment of $25,000 in
Fund for U.S. Government Securities, Inc. on October 6, 1969 would have
grown to $152,708 on March 31, 1994. The "x" axis reflects computation
periods from October 6, 1969 (the Fund's start of business) to March 31,
1994. The right margin of the chart reflects the ending value of a
hypothetical investment of $25,000 in the Fund measured in increments of
$50,000 ranging from $0 to $200,000.
E. 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 annual $1,000 investments in the Fund
over a 25 year period . The color-coded mountain chart is a visual
representation of the narrative text beneath it, which shows that an
annual investment of $1,000 in Fund for U.S. Government Securities, Inc.
from October 6, 1969 through March 31, 1994 would grow to $77,633 at the
end of the 25 year period. The "x" axis reflects computation periods
from October 6, 1969 (the Fund's start of business) to March 31, 1994,
and the right margin of the chart reflects the ending value of a
hypothetical annual $1,000 investment in the Fund measured in increments
of $20,000 ranging from $0 to $80,000.
F. The graphic representation here displayed consists of a boxed pie
chart in the upper center of the page which shows the percentage of
assets in Fund for U.S. Government Securities, Inc. that are diversified
across different types of securities as of March 31, 1994. The pie
chart is made up of seven pieces labeled as follows (going clockwise
starting from 12:00 noon): GNMA 51.2%, FNMA 13.1%, FHLMC 9.5%, FNMA
REMICs 6.3%, U.S. Treasuries 5.1%, Repurchase Agreements 13.2% and FHLMC
REMICs 1.6%.
