FEDERATED INVESTORS
Fund for
U.S. Government
Securities, Inc.
26th Annual Report
March 31, 1995
Established 1969
FIXED INCOME
President's Message
Dear Fellow Shareholder:
I am pleased to present the 26th Annual Report for Fund for U.S. Government
Securities, Inc., established in 1969.
This report covers the 12-month period from April 1, 1994 to March 31, 1995. It
contains an interview with the fund's portfolio manager, Kathy Foody-Malus,
Vice President of Federated Advisers. Following the interview, you will find a
series of investment record performance charts, a complete listing of the
fund's portfolio of U.S. government securities, and its Financial Statements.
To seek attractive current income, the fund invests primarily in
short-to-intermediate term U.S. government mortgage-backed securities and
Treasury notes or bonds. The fund is rated AAAf by Standard & Poor's Ratings
Group, the highest credit rating given by this independent mutual fund rating
service.* While high quality is a hallmark of U.S. government securities, they
do react to changes in interest rates.
The fund's portfolio manager continues to use a conservative strategy that
pursues consistent long-term performance by investing in U.S. government
securities. As of March 31, 1995, the fund's portfolio consisted of the
following securities:
<TABLE>
<S> <C> <C>
Government National Mortgage Association 53.57% $933,320,917
Federal National Mortgage Association 11.03% $192,133,919
Federal Home Loan Mortgage Association 7.86% $136,868,394
Treasury Notes 10.29% $179,245,341
Repurchase Agreements 17.25% $300,620,000
</TABLE>
The fund has achieved a record of success for over 26 years, as you will see
when you review the investment performance charts in this report. In the past
year, the U.S. bond market has experienced a sharp decline as a result of one
of the most rapid increases in short-term rates recorded in over 100 years. We
believe, however, that we have experienced most of the increases in interest
rates in the current attempt to curb inflation.
We appreciate your continued confidence in the fund. In today's volatile
interest rate environment, the fund's portfolio manager is using a cautious
approach in attempting to provide monthly income while offering some protection
for your principal. I encourage shareholders to consider adding to their
accounts.
As always, we invite your comments or questions.
Very sincerely yours,
J. Christopher Donahue President
May 15, 1995
* This rating is obtained after Standard & Poor's Ratings Group evaluates a
number of factors, including credit quality, market price exposure, and
management. They monitor the portfolio monthly for developments that could
cause changes in ratings.
Investment Review
Kathy Foody-Malus
Vice President,
Federated Advisers
How would you describe the Fund for U.S. Government Securities, Inc., and what
type of investor should consider buying these securities?
The fund is a short-to-intermediate bond fund rated AAAf by Standard & Poor's
and has an above-average track record compared to a five-year U.S. Treasury
note. The fund's current holdings focus on mortgage-backed securities-54% of
the fund's assets are in the GNMA sector. The fund invests in other U.S.
government and agency debt/issues for the purpose of creating monthly income
and offering lower volatility to the fund's share net asset value.
I would recommend this income investment to investors seeking current monthly
income from mortgage-backed securities as they enjoy a spread over Treasurys.*
Because of the recent interest rate increases, many investors saw their bond
fund's net asset values decline for the first time. As a professional money
manager, what is your advice to these shareholders?
This is an opportune time for investors to compare a bond fund's investment
objectives to their own. If the dividends are appropriate and income is your
reason for owning shares of Fund for U.S. Government Securities, Inc., there
should be little need to reposition your assets.
Remember, a bond fund seeks to provide income first and diversification in
government securities second, this may reduce rapid and extreme fluctuations
caused by interest rate volatility-particularly when compared with individual
bonds. You should review bond fund performance over a complete interest rate
cycle. Eventually, interest rates may move down again, offering the potential
to reverse losses.
U.S. bond funds, like Fund for U.S. Government Securities, Inc., are managed to
provide regular dividends, but do fluctuate in price and yield depending upon
their maturity structure. The reinvestment of dividends at lower share prices
accumulates additional shares, and as rates cycle down, total return may
increase. For the cyclical investor, volatility is what creates investment
performance and should be viewed as a friend, not an enemy. As long as the fund
stays within its stated objectives and expected performance ranges, it would be
imprudent to redeem shares due to the Federal Reserve action in increasing
interest rates.
* You should be aware that investing in mortgage-backed securities involves
prepayment risk, which is the possibility that some securities may receive
unscheduled principal payments. This may lower the total return.
Throughout the interest rate cycle, our goal is to manage the fund in a
conservative, disciplined style focusing on income. We avoid higher risk
strategies such as leverage and derivatives. We do not like the risks in these
strategies.
What are the fund's vital statistics and investment objective?
As of March 31, 1995, total net assets were $1.5 billion and the average 30-day
yield of Class A Shares as calculated under SEC guidelines was 6.98% based upon
the offering price of $8.03. The 30-day yield for Class B and Class C Shares
was 6.49% and 6.44%, respectively. The fund is rated AAAf, the highest mutual
fund credit rating of Standard & Poor's and will pursue monthly cash flow and
daily liquidity while seeking competitive yields.
Almost 90% of the fund's portfolio is currently invested in mortgage-backed
securities. Would you summarize what happened in that market in 1994?
The mortgage market was buffeted by a series of negative developments in 1994.
Most notable was the dramatic decline in prepayment speeds and expectations
after the first tightening of monetary policy in five years. This dramatic
decline sparked a chain reaction in the Treasury market as investors scrambled
to sell ten-year U.S. Treasurys to hedge the extension risk in mortgages. The
resultant principal losses on government securities forced the liquidation of
several large derivative portfolios, pushing the spread relationship between
mortgage securities and U.S. Treasurys to levels last seen in the late 1980s.
During the fund's fiscal year (4/1/94 to 3/31/95), the yield of the two-year
U.S. Treasury moved up from 5.18% to 6.78% while the yield of the ten-year U.S.
Treasury rose from 6.73% to 7.19%.
In summary, 1994 was a difficult year for bond investors.
What is your outlook now?
The lower level of volatility has persisted throughout early 1995. In this
environment, we believe that mortgage-backed securities should continue to
outperform U.S. Treasurys as 1995 progresses. The expected relative performance
should be bolstered by lower levels of mortgage origination coupled with
continued demand for mortgage assets to replace runoff of existing holdings.
How is the portfolio of the fund structured?
As of 3/31/95, the fund's portfolio is invested as follows:
<TABLE>
<S> <C> <C>
Government National Mortgage
Association 53.57% $933,320,917
Federal National Mortgage
Association 11.03% $192,133,919
Federal Home Loan Mortgage
Association 7.86% $136,868,394
Treasury Notes 10.29% $179,245,341
Repurchase Agreements 17.25% $300,620,000
</TABLE>
In this market today, we have recently bought an 8% GNMA due 7/15/23, an 8%
FNMA due 2/1/25, and an 8% FHLMC due 5/1/01, as listed in the portfolio of
investments. We like these securities for their income and yield potential over
Treasurys.
Two Ways You May Seek to Invest for Success in
Fund for U.S. Government Securities, Inc.
Initial Investment:
If you had made an initial investment of $26,000 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
$166,099 on 3/31/95. You would have earned a 7.55%* average annual total return
for the 26-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 3/31/95, the Class A Shares' average annual one-year, five-year, and
ten-year total returns were (0.09%), 6.00%, and 7.88%, respectively. Class B
Shares' total return since inception on 7/25/94 was (1.54%). Class C Shares'
average annual one-year and since inception on 4/26/93 were 2.64% and 1.29%,
respectively.
[GRAPHIC SEE NARRATIVE APPENDEX]
* 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 4.50% sales load 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. Fund for
U.S. Government Securities, Inc.
One Step at a Time:
$1,000 invested each year for 26 years (reinvesting all dividends and capital
gains) grew to $82,192 by 3/31/95.
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
$26,000, but your account would have reached a total value of $82,192* by
3/31/95. You would have earned an average annual total return of 7.94%.
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!
[GRAPHIC SEE NARRATIVE APPENDIX]
* 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.-
Hypothetical Investor Profile: Investing for Current Income
Ten years ago, on March 31, 1985, 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 Fund for U.S. Government Securities,
Inc. because it invests in government securities which traditionally are some
of the safest, most credit-worthy securities issued in America.
They like the way they can use their Fund for U.S. Government Securities, Inc.
account for an occasional extravagance-like the $50,000 Jaguar they bought this
August to celebrate their 10th anniversary-without touching their original
principal.
The Laughlin's account totaled $214,992 as of 3/31/95 for a total return of
7.95%.*
[GRAPHIC SEE NARRATIVE APPENDIX]
* 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.
Fund for U.S. Government Securities, Inc.-
A History of Solid Earnings-Seventeen 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.
[GRAPHIC SEE NARRATIVE APPENDIX]
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.
[GRAPHIC SEE NARRATIVE APPENDIX]
Fund for U.S. Government Securities, Inc.-
Portfolio Update
The chart shows the percentage of fund assets diversified across different
types of U.S. Government securities.
[GRAPHIC SEE NARRATIVE APPENDIX]
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)
The graph below illustrates the hypothetical investment of $10,000 in the Fund
for U.S. Government Securities, Inc. (Class A Shares) from March 31, 1985 to
March 31, 1995, compared to the Lehman Brothers 5-Year Treasury Bellwether
Index (LB5YRTBI)+, the Salomon Brothers 15-Year Mortgage Index (SB15YRMI)+ and
the Lipper U.S. Mortgage Funds Average (LUSMFA).++
[GRAPHIC SEE NARRATIVE APPENDIX]
Past performance is not predictive of future performance. Your investment
return and principal value will fluctuate so when shares are redeemed, they may
be worth more or less than original cost. Mutual funds are not obligations of
or guaranteed by any bank and are not federally insured.
* Represents a hypothetical investment of $10,000 in the fund after deducting
the maximum sales load of 4.50% ($10,000 investment minus $450 sales load =
$9,550). The fund's performance assumes the reinvestment of all dividends and
distributions. The LB5YRTBI, SB15YRMI and the LUSMFA have been adjusted to
reflect reinvestment of dividends on securities in the indices.
** For this illustration, the SB15YRMI began performance on April 1, 1986. The
SB15YRMI was assigned a beginning value of $11,219, the value of the fund on
March 31, 1986.
*** Total return quoted reflects all applicable sales loads and contingent
deferred sales charges.
+ The LB5YRTBI and the SB15YRMI are not adjusted to reflect sales loads,
expenses, or other fees that the SEC requires to be reflected in the fund's
performance. The indices are unmanaged.
++The LUSMFA represents the average of the total returns reported by all of the
mutual funds designated by Lipper Analytical Services, Inc. as falling into the
respective category, and is not adjusted to reflect any sales loads. However,
these total returns are reported net of expenses or other fees that the SEC
requires to be reflected in a fund's performance.
Fund for U.S. Government Securities, Inc.
(Class B Shares and Class C Shares)
Growth of $10,000 Invested in Fund for U.S. Government Securities, Inc.
The graphs below illustrate the hypothetical investment of $10,000 in the Fund
for U.S. Government Securities, Inc. from the start of performance to March
31,1995, compared to the Lehman Brothers 5-Year Treasury Bellwether Index
(LB5YRTBI)++, the Salomon Brothers 15-Year Mortgage Index (SB15YRMI)++, and the
Lipper U.S. Mortgage Funds Average (LUSMFA)+++.
[GRAPHIC SEE NARRATIVE APPENDIX]
Fund for U.S. Government Securities, Inc.
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 Class B Shares of the
fund. The ending value of the fund reflects a 5.50% contingent deferred sales
charge on any redemption made within one full year from the purchase date. The
fund's performance assumes the reinvestment of all dividends and distributions.
The LB5YRTBI, the SB15YRMI, and LUSMFA have been adjusted to reflect
reinvestment of dividends on securities in the indices.
**Represents a hypothetical investment of $10,000 in Class C Shares of the
fund. The ending value of the fund reflects a 1.00% contingent deferred sales
charge on any redemption made within one full year from the purchase date. The
fund's performance assumes the reinvestment of all dividends and distributions.
The LB5YRTBI, the SB15YRMI, and LUSMFA have been adjusted to reflect
reinvestment of dividends on securities in the indices.
+ Total return quoted reflects all applicable sales loads and contingent
deferred sales charges.
++The LB5YRTBI and the SB15YRMI are not adjusted to reflect sales loads,
expenses, or other fees that the SEC requires to be reflected in the Fund's
performance. These indices are unmanaged.
+++The LUSMFA represents the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as falling into
the respective category, and is not, adjusted to reflect any sales loads.
However, these total returns are reported net of expenses or other fees that
the SEC requires to be reflected in a fund's performance.
Fund for U.S. Government Securities, Inc.
Portfolio of Investments
--------------------------------------------------------------------------------
March 31, 1995
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
-------------- ------------------------------------------------------------------------------- ----------------
LONG-TERM GOVERNMENT OBLIGATIONS--97.2%
-----------------------------------------------------------------------------------------------
*FEDERAL HOME LOAN MORTGAGE CORP. PC--8.6%
-------------------------------------------------------------------------------
$ 467,037 12.50%, 7/1/2011-4/1/2013 $ 515,777
-------------------------------------------------------------------------------
91,519 12.00%, 3/1/2015 100,726
-------------------------------------------------------------------------------
10,418,901 11.00%, 6/1/2010-7/1/2019 11,248,659
-------------------------------------------------------------------------------
12,293,439 10.50%, 2/1/2020-10/1/2020 13,161,479
-------------------------------------------------------------------------------
3,744,130 9.50%, 1/1/2006 3,904,379
-------------------------------------------------------------------------------
20,048,038 9.00%, 8/1/2001-11/1/2016 20,613,441
-------------------------------------------------------------------------------
77,067,488 **8.00%, 5/1/2001-4/1/2024 78,161,233
------------------------------------------------------------------------------- ----------------
Total 127,705,694
------------------------------------------------------------------------------- ----------------
*FEDERAL HOME LOAN MORTGAGE CORP. REMIC--0.6%
-------------------------------------------------------------------------------
10,000,000 6.60%, Series 1559VH, 12/15/2021 9,162,700
------------------------------------------------------------------------------- ----------------
*FEDERAL NATIONAL MORTGAGE ASSOCIATION--9.0%
-------------------------------------------------------------------------------
3,683,347 11.50%, 11/1/2015 4,036,654
-------------------------------------------------------------------------------
28,375,111 11.00%, 9/1/2010-5/1/2023 30,841,419
-------------------------------------------------------------------------------
3,823,779 10.50%, 12/1/2002-5/1/2005 4,035,234
-------------------------------------------------------------------------------
29,000,000 **10.00%, 3/1/2025 30,830,190
-------------------------------------------------------------------------------
3,600,000 9.00%, 3/1/2025 3,700,080
-------------------------------------------------------------------------------
30,000,000 **8.50%, 3/1/2025 30,355,800
-------------------------------------------------------------------------------
15,662,101 8.00%, 2/1/2025 15,534,611
-------------------------------------------------------------------------------
15,000,000 7.50%, 3/1/2025 14,531,100
------------------------------------------------------------------------------- ----------------
Total 133,865,088
------------------------------------------------------------------------------- ----------------
*FEDERAL NATIONAL MORTGAGE ASSOCIATION REMIC--3.9%
-------------------------------------------------------------------------------
13,000,000 7.00%, Series 93-155J, 12/25/2022 11,893,050
-------------------------------------------------------------------------------
9,000,000 6.75%, Series 93-163PY, 3/25/2022 8,219,790
-------------------------------------------------------------------------------
23,004,000 6.50%, Series 93-187K, 8/25/2022 20,112,167
-------------------------------------------------------------------------------
12,469,855 6.50%, Series 93-189PK, 3/25/2022 11,156,031
-------------------------------------------------------------------------------
$ 7,497,000 6.15%, Series 93-160AG, 12/25/2020 $ 6,887,793
------------------------------------------------------------------------------- ----------------
Total 58,268,831
------------------------------------------------------------------------------- ----------------
</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
-------------------------------------------------------------------------------
*GOVERNMENT NATIONAL MORTGAGE ASSOCIATION MPT--63.0%
-------------------------------------------------------------------------------
2,449,677 13.00%, 12/15/2010-12/15/2014 2,782,264
-------------------------------------------------------------------------------
2,809,379 12.50%, 2/15/2011-7/20/2015 3,166,422
-------------------------------------------------------------------------------
20,206,171 12.00%, 5/15/2011-1/15/2016 22,578,916
-------------------------------------------------------------------------------
23,236,053 11.50%, 3/15/2010-9/15/2018 25,784,395
-------------------------------------------------------------------------------
16,942,681 11.00%, 12/15/2009-10/15/2019 18,617,219
-------------------------------------------------------------------------------
24,579,888 10.50%, 1/15/2014-9/15/2019 26,738,002
-------------------------------------------------------------------------------
86,583,171 10.00%, 4/15/2016-1/15/2021 92,795,712
-------------------------------------------------------------------------------
136,661,237 9.50%, 9/15/2016-1/15/2025 143,369,475
-------------------------------------------------------------------------------
133,969,335 9.00%, 11/15/2019-8/20/2022 138,277,323
-------------------------------------------------------------------------------
140,220,132 **8.50%, 5/15/2021-3/15/2025 142,584,243
-------------------------------------------------------------------------------
621,949 8.20%, 6/15/2012-5/15/2013 605,810
-------------------------------------------------------------------------------
137,265,026 **8.00%, 7/15/2023-3/15/2025 136,105,136
-------------------------------------------------------------------------------
106,658,605 **7.50%, 11/15/2022-3/15/2025 103,023,680
-------------------------------------------------------------------------------
82,101,672 **7.00%, 7/15/2023-3/15/2025 76,892,320
------------------------------------------------------------------------------- ----------------
Total 933,320,917
------------------------------------------------------------------------------- ----------------
U.S. TREASURY NOTES--12.1%
-------------------------------------------------------------------------------
10,000,000 8.00%, 1/15/1997 10,207,800
-------------------------------------------------------------------------------
70,000,000 7.75%, 11/30/1999 71,820,700
-------------------------------------------------------------------------------
8,700,000 7.50%, 1/31/1997 8,808,141
-------------------------------------------------------------------------------
12,500,000 7.25%, 2/15/1998 12,611,000
-------------------------------------------------------------------------------
25,000,000 6.875%, 7/31/1999 24,819,000
-------------------------------------------------------------------------------
24,800,000 6.375%, 8/15/2002 23,655,480
-------------------------------------------------------------------------------
</TABLE>
Fund for U.S. Government Securities, Inc.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
-------------- ------------------------------------------------------------------------------- ----------------
LONG-TERM GOVERNMENT OBLIGATIONS--CONTINUED
-----------------------------------------------------------------------------------------------
U.S. TREASURY NOTES--CONTINUED
-------------------------------------------------------------------------------
$ 29,000,000 6.25%, 2/15/2003 $ 27,323,220
------------------------------------------------------------------------------- ----------------
Total 179,245,341
------------------------------------------------------------------------------- ----------------
TOTAL LONG-TERM GOVERNMENT OBLIGATIONS
(IDENTIFIED COST, $1,450,868,987) 1,441,568,571
------------------------------------------------------------------------------- ----------------
***REPURCHASE AGREEMENTS--20.3%
-----------------------------------------------------------------------------------------------
17,620,000 J.P. Morgan Securities, Inc., 6.30%, dated 3/31/1995, due 4/3/1995 17,620,000
-------------------------------------------------------------------------------
15,000,000 Goldman, Sachs & Co., 6.00%, dated 3/22/1995, due 4/20/1995 15,000,000
-------------------------------------------------------------------------------
149,000,000 Goldman, Sachs & Co., 6.05%, dated 3/16/1995, due 4/19/1995 149,000,000
-------------------------------------------------------------------------------
45,000,000 Merrill Lynch Government Securities, Inc., 6.00%, dated 3/20/1995, due
4/12/1995 45,000,000
-------------------------------------------------------------------------------
29,000,000 Merrill Lynch Government Securities, Inc., 6.00%, dated 3/20/1995, due
4/20/1995 29,000,000
-------------------------------------------------------------------------------
30,000,000 Merrill Lynch Government Securities, Inc., 6.00%, dated 3/21/1995, due
4/19/1995 30,000,000
-------------------------------------------------------------------------------
15,000,000 UBS Securities, Inc., 6.02%, dated 3/13/1995, due 4/12/1995 15,000,000
------------------------------------------------------------------------------- ----------------
TOTAL REPURCHASE AGREEMENTS, AT AMORTIZED COST 300,620,000
------------------------------------------------------------------------------- ----------------
TOTAL INVESTMENTS (IDENTIFIED COST, $1,751,488,987)(A) $ 1,742,188,571
------------------------------------------------------------------------------- ----------------
</TABLE>
*Because of monthly principal payments, the average lives of the Government
National Association Modified Pass-Through Securities (based upon FHA/VA
historical experience), Federal Home Loan Mortgage Corp. Participation
Certificates, and Federal National Mortgage Association Pass-Through
Securities are less than the stated maturities.
**Includes securities with a market value of $253,598,340 subject to dollar
roll transactions.
***Repurchase agreements are fully collateralized by U.S. treasury 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.
(a)The cost of investments for federal tax purposes amounts to $1,751,488,987.
The net unrealized depreciation on a federal tax cost basis amounts to
$9,300,416, and is comprised of $12,820,573 appreciation and $22,120,989
depreciation at March 31, 1995.
Note: The categories of investments are shown as a percentage of net assets
($1,482,505,126) at March 31, 1995.
The following abbreviations are used in this portfolio:
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, 1995
<TABLE>
<S> <C> <C>
ASSETS:
--------------------------------------------------------------------------------------------------
Investments in securities $1,441,568,571
-----------------------------------------------------------------------------------
Investments in repurchase agreements 300,620,000
----------------------------------------------------------------------------------- -------------
Total investments in securities, at value (identified and tax cost, $1,751,488,987) $1,742,188,571
--------------------------------------------------------------------------------------------------
Cash 3,175
--------------------------------------------------------------------------------------------------
Income receivable 12,222,665
--------------------------------------------------------------------------------------------------
Receivable for investments sold 72,524,161
--------------------------------------------------------------------------------------------------
Receivable for shares sold 2,350,957
-------------------------------------------------------------------------------------------------- -------------
Total assets 1,829,289,529
--------------------------------------------------------------------------------------------------
LIABILITIES:
--------------------------------------------------------------------------------------------------
Payable for investments purchased 57,998,194
-----------------------------------------------------------------------------------
Payable for shares redeemed 2,566,667
-----------------------------------------------------------------------------------
Income distribution payable 3,503,816
-----------------------------------------------------------------------------------
Accrued expenses 556,639
-----------------------------------------------------------------------------------
Payable for dollar roll transactions 282,159,087
----------------------------------------------------------------------------------- -------------
Total liabilities 346,784,403
-------------------------------------------------------------------------------------------------- -------------
NET ASSETS for 193,286,258 shares outstanding $1,482,505,126
-------------------------------------------------------------------------------------------------- -------------
NET ASSETS CONSIST OF:
--------------------------------------------------------------------------------------------------
Paid in capital 1,691,107,720
--------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (9,300,416)
--------------------------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments (210,825,433)
--------------------------------------------------------------------------------------------------
Undistributed net investment income 11,523,255
-------------------------------------------------------------------------------------------------- -------------
Total Net Assets $1,482,505,126
-------------------------------------------------------------------------------------------------- -------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
--------------------------------------------------------------------------------------------------
CLASS A SHARES:
--------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($1,367,710,086 / 178,322,326 shares outstanding) $7.67
-------------------------------------------------------------------------------------------------- -------------
Offering Price Per Share (100/95.50 of $7.67)* $8.03
-------------------------------------------------------------------------------------------------- -------------
Redemption Proceeds Per Share $7.67
-------------------------------------------------------------------------------------------------- -------------
CLASS B SHARES:
--------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($34,276,495 / 4,469,045 shares outstanding) $7.67
-------------------------------------------------------------------------------------------------- -------------
Offering Price Per Share $7.67
-------------------------------------------------------------------------------------------------- -------------
Redemption Proceeds Per Share (94.50/100 of $7.67)** $7.25
-------------------------------------------------------------------------------------------------- -------------
CLASS C SHARES:
--------------------------------------------------------------------------------------------------
Net Asset Value Per Share ($80,518,545 / 10,494,887 shares outstanding) $7.67
-------------------------------------------------------------------------------------------------- -------------
Offering Price Per Share $7.67
-------------------------------------------------------------------------------------------------- -------------
Redemption Proceeds Per Share (99.00/100 of $7.67)** $7.59
-------------------------------------------------------------------------------------------------- -------------
</TABLE>
*See "What Shares Cost" in the prospectus.
**See "Contingent Deferred Sales Charge" in the prospectus.
(See Notes which are an integral part of the Financial Statements)
Fund for U.S. Government Securities, Inc.
Statement of Operations
--------------------------------------------------------------------------------
Year Ended March 31, 1995
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
-------------------------------------------------------------------------------------------------
Interest (net of dollar roll expense $9,860,251) $ 131,884,840
-------------------------------------------------------------------------------------------------
EXPENSES:
-------------------------------------------------------------------------------------------------
Investment advisory fee $ 9,463,243
----------------------------------------------------------------------------------
Administrative personnel and services fee 1,193,581
----------------------------------------------------------------------------------
Custodian fees 237,028
----------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 1,155,112
----------------------------------------------------------------------------------
Directors'/Trustees fees 17,396
----------------------------------------------------------------------------------
Auditing fees 19,860
----------------------------------------------------------------------------------
Legal fees 25,631
----------------------------------------------------------------------------------
Portfolio accounting fees 79,485
----------------------------------------------------------------------------------
Distribution services fee--Select Shares 3,751
----------------------------------------------------------------------------------
Distribution services fee--Class B Shares 80,959
----------------------------------------------------------------------------------
Distribution services fee--Class C Shares 683,581
----------------------------------------------------------------------------------
Shareholder services fee--Select Shares 1,250
----------------------------------------------------------------------------------
Shareholder services fee--Class A Shares 2,209,143
----------------------------------------------------------------------------------
Shareholder services fee--Class B Shares 26,994
----------------------------------------------------------------------------------
Shareholder services fee--Class C Shares 231,665
----------------------------------------------------------------------------------
Share registration costs 222,627
----------------------------------------------------------------------------------
Printing and postage 218,810
----------------------------------------------------------------------------------
Insurance premiums 30,988
----------------------------------------------------------------------------------
Taxes 300,433
----------------------------------------------------------------------------------
Miscellaneous 18,977
---------------------------------------------------------------------------------- -------------
Total expenses 16,220,514
----------------------------------------------------------------------------------
Deduct--
----------------------------------------------------------------------
Waiver of investment advisory fee $ 338,354
----------------------------------------------------------------------
Waiver of shareholder services fee--Class B Shares 4,319
---------------------------------------------------------------------- ----------
Total waivers 342,673
---------------------------------------------------------------------------------- -------------
Net expenses 15,877,841
------------------------------------------------------------------------------------------------- --------------
Net investment income 116,006,999
------------------------------------------------------------------------------------------------- --------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
-------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (94,672,552)
-------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments 42,533,141
------------------------------------------------------------------------------------------------- --------------
Net realized and unrealized gain (loss) on investments (52,139,411)
------------------------------------------------------------------------------------------------- --------------
Change in net assets resulting from operations $ 63,867,588
------------------------------------------------------------------------------------------------- --------------
</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,
1995 1994
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
--------------------------------------------------------------------------------
OPERATIONS--
--------------------------------------------------------------------------------
Net investment income $ 116,006,999 $ 144,648,918
--------------------------------------------------------------------------------
Net realized gain/(loss) on investments ($123,323,419 net loss and $19,160,797
net loss, respectively, as computed for federal income tax
purposes) (94,672,552) (59,750,411)
--------------------------------------------------------------------------------
Net change in unrealized appreciation/(depreciation) 42,533,141 (79,685,198)
-------------------------------------------------------------------------------- --------------- ---------------
Change in assets resulting from operations 63,867,588 5,213,309
-------------------------------------------------------------------------------- --------------- ---------------
NET EQUALIZATION DEBITS-- (2,842,296) (447,920)
-------------------------------------------------------------------------------- --------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS--
--------------------------------------------------------------------------------
Distributions from net investment income:
--------------------------------------------------------------------------------
Class A Shares (106,507,664) (140,902,757)
--------------------------------------------------------------------------------
Class B Shares (782,408) --
--------------------------------------------------------------------------------
Class C Shares (5,907,635) (4,025,216)
--------------------------------------------------------------------------------
Select Shares (31,388) (17,077)
--------------------------------------------------------------------------------
Distributions in excess of net investment income:
--------------------------------------------------------------------------------
Class B Shares (56,577 (a) --
--------------------------------------------------------------------------------
Class C Shares -- (229,165)(a)
--------------------------------------------------------------------------------
Select Shares -- (1,839)(a)
-------------------------------------------------------------------------------- --------------- ---------------
Change in net assets resulting from distributions to shareholders (113,285,672) (145,176,054)
-------------------------------------------------------------------------------- --------------- ---------------
SHARE TRANSACTIONS--
--------------------------------------------------------------------------------
Proceeds from sale of Shares 145,070,864 627,866,467
--------------------------------------------------------------------------------
Net asset value of Shares issued to shareholders in
payment of distributions declared 70,938,753 94,982,947
--------------------------------------------------------------------------------
Cost of Shares redeemed (479,721,960) (628,672,944)
-------------------------------------------------------------------------------- --------------- ---------------
Change in net assets resulting from share transactions (263,712,343) 94,176,470
-------------------------------------------------------------------------------- --------------- ---------------
Change in net assets (315,972,723) (46,234,195)
--------------------------------------------------------------------------------
NET ASSETS:
--------------------------------------------------------------------------------
Beginning of period 1,798,477,849 1,844,712,044
-------------------------------------------------------------------------------- --------------- ---------------
End of period (including undistributed net investment income of $11,523,255 and
$11,644,224, respectively) $ 1,482,505,126 $ 1,798,477,849
-------------------------------------------------------------------------------- --------------- ---------------
</TABLE>
(a) Distributions in excess of net investment income were a result of certain
book and tax timing differences. These distributions do not represent a
return of capital for federal income tax purposes.
(See Notes which are an integral part of the Financial Statements)
Fund for U.S. Government Securities, Inc.
Statement of Cash Flows
--------------------------------------------------------------------------------
Year Ended March 31, 1995
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
-----------------------------------------------------------------------------------------------
Investment income received $ 158,328,490
-----------------------------------------------------------------------------------------------
Payment of operating expenses (15,945,945)
-----------------------------------------------------------------------------------------------
Proceeds from sales and maturities of investments 2,669,682,177
-----------------------------------------------------------------------------------------------
Purchase of investments (2,467,508,346)
-----------------------------------------------------------------------------------------------
Net sales of short-term investments (48,450,000)
----------------------------------------------------------------------------------------------- -----------------
Cash provided by operating activities 296,106,376
----------------------------------------------------------------------------------------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
-----------------------------------------------------------------------------------------------
Net proceeds from share activity (343,501,848)
-----------------------------------------------------------------------------------------------
Increase in payable for dollar roll transactions 89,812,048
-----------------------------------------------------------------------------------------------
Distributions paid (42,630,722)
----------------------------------------------------------------------------------------------- -----------------
Cash used for financing activities (296,320,522)
----------------------------------------------------------------------------------------------- -----------------
Decrease in cash (214,146)
-----------------------------------------------------------------------------------------------
Cash at beginning of period 217,321
----------------------------------------------------------------------------------------------- -----------------
Cash at end of period $ 3,175
----------------------------------------------------------------------------------------------- -----------------
RECONCILIATION OF NET INCREASE IN NET ASSETS FROM OPERATIONS TO CASH
PROVIDED BY OPERATING ACTIVITIES:
-----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 63,867,588
-----------------------------------------------------------------------------------------------
Net decrease in investments 176,318,001
-----------------------------------------------------------------------------------------------
Decrease in interest receivable 2,854,774
-----------------------------------------------------------------------------------------------
Decrease in receivable for investments sold 64,385,298
-----------------------------------------------------------------------------------------------
Decrease in payable for investments purchased (11,251,181)
-----------------------------------------------------------------------------------------------
Decrease in payable to Adviser (2,474)
-----------------------------------------------------------------------------------------------
Decrease in transfer agent fee payable (457,841)
-----------------------------------------------------------------------------------------------
Increase in accrued expenses 392,211
----------------------------------------------------------------------------------------------- -----------------
Cash provided by operating activities $ 296,106,376
----------------------------------------------------------------------------------------------- -----------------
</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>
PERIOD ENDED MARCH 31,
1995 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 7.89 $ 8.50 $ 8.51 $ 8.41 $ 8.23 $ 8.01 $ 8.41 $ 8.56 $ 8.77
-------------------------
INCOME FROM INVESTMENT
OPERATIONS
-------------------------
Net investment income 0.57 0.63 0.71 0.75 0.77 0.78 0.76 0.78 0.80
-------------------------
Net realized and
unrealized gain (loss)
on investments (0.23) (0.61) (0.03) 0.08 0.19 0.21 (0.40) (0.15) (0.21)
------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total from investment
operations 0.34 0.02 0.68 0.83 0.96 0.99 0.36 0.63 0.59
-------------------------
LESS DISTRIBUTIONS
-------------------------
Distributions to
shareholders from net
investment income (0.56) (0.63) (0.69) (0.73) (0.78) (0.77) (0.76) (0.78) (0.80)
------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF
PERIOD $ 7.67 $ 7.89 $ 8.50 $ 8.51 $ 8.41 $ 8.23 $ 8.01 $ 8.41 $ 8.56
------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
TOTAL RETURN(A) 4.59% 0.13% 8.31% 10.20% 12.12% 12.59% 4.47% 7.66% 7.23%
-------------------------
RATIOS TO AVERAGE NET
ASSETS
-------------------------
Expenses 0.95% 0.88% 0.83% 0.91% 0.97% 0.96% 0.96% 0.96% 0.95%
-------------------------
Net investment income 7.41% 7.50% 8.33% 8.69% 9.21% 9.32% 9.22% 9.31% 9.24%
-------------------------
Expense waiver/
reimbursement (b) 0.02% -- -- -- -- 0.04% -- 0.01% 0.05%
-------------------------
SUPPLEMENTAL DATA
-------------------------
Net assets,
end of period
(000 omitted) $1,367,710 $1,693,293 $1,844,712 $1,384,117 $1,133,017 $1,039,493 $1,054,055 $1,150,395 $1,193,389
-------------------------
Portfolio Turnover 154% 149% 52% 43% 27% 98% 83% 72% 135%
-------------------------
<CAPTION>
1986
<S> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 8.37
-------------------------
INCOME FROM INVESTMENT
OPERATIONS
-------------------------
Net investment income 0.93
-------------------------
Net realized and
unrealized gain (loss)
on investments 0.46
------------------------- ---------
Total from investment
operations 1.39
-------------------------
LESS DISTRIBUTIONS
-------------------------
Distributions to
shareholders from net
investment income (0.99)
------------------------- ---------
NET ASSET VALUE, END OF
PERIOD $ 8.77
------------------------- ---------
TOTAL RETURN(A) 17.42%
-------------------------
RATIOS TO AVERAGE NET
ASSETS
-------------------------
Expenses 0.91%
-------------------------
Net investment income 10.51%
-------------------------
Expense waiver/
reimbursement (b) 0.13%
-------------------------
SUPPLEMENTAL DATA
-------------------------
Net assets,
end of period
(000 omitted) $761,290
-------------------------
Portfolio Turnover 179%
-------------------------
</TABLE>
(a) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Fund for U.S. Government Securities, Inc.
Financial Highlights--Class B Shares
--------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
PERIOD ENDED
MARCH 31,
1995(A)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.75
------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
------------------------------------------------------------------------------------------------
Net investment income 0.37
------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.06)
------------------------------------------------------------------------------------------------ -------
Total from investment operations 0.31
------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income (0.37)
------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (0.02)(b)
------------------------------------------------------------------------------------------------ -------
Total distributions (0.39)
------------------------------------------------------------------------------------------------ -------
NET ASSET VALUE, END OF PERIOD $ 7.67
------------------------------------------------------------------------------------------------ -------
TOTAL RETURN(C) 4.13%
------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
------------------------------------------------------------------------------------------------
Expenses 1.76%(d)
------------------------------------------------------------------------------------------------
Net investment income 7.02%(d)
------------------------------------------------------------------------------------------------
Expense waiver/reimbursement(e) 0.06%(d)
------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $ 34,276
------------------------------------------------------------------------------------------------
Portfolio turnover 154%
------------------------------------------------------------------------------------------------
</TABLE>
(a) Reflects operations for the period from July 25, 1994 (date of initial
public offering) to March 31, 1995.
(b) Distributions in excess of net investment income were a result of certain
book and tax timing differences. These distributions do not represent a
return of capital for federal income tax purposes.
(c) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(d) Computed on an annualized basis.
(e) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Fund for U.S. Government Securities, Inc.
Financial Highlights--Class C Shares
--------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
1995 1994(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.89 $ 8.54
-------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
-------------------------------------------------------------------------------------------
Net investment income 0.51 0.54
-------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.23) (0.63)
------------------------------------------------------------------------------------------- --------- -----------
Total from investment operations 0.28 (0.09)
-------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
-------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income (0.50) (0.54)
-------------------------------------------------------------------------------------------
Distributions in excess of net investment income -- (0.02)(b)
------------------------------------------------------------------------------------------- --------- -----------
Total distributions (0.50) (0.56)
------------------------------------------------------------------------------------------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 7.67 $ 7.89
------------------------------------------------------------------------------------------- --------- -----------
TOTAL RETURN(C) 3.72% (1.17%)
-------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
-------------------------------------------------------------------------------------------
Expenses 1.79% 1.81%(d)
-------------------------------------------------------------------------------------------
Net investment income 6.56% 6.45%(d)
-------------------------------------------------------------------------------------------
Expense waiver/reimbursement(e) 0.02% --
-------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
-------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $80,519 $103,433
-------------------------------------------------------------------------------------------
Portfolio Turnover 154% 149%
-------------------------------------------------------------------------------------------
</TABLE>
(a) Reflects operations for the period from April 26, 1993 (date of initial
public offering) to March 31, 1994.]
(b) Distributions in excess of net investment income were a result of certain
book and tax timing differences. These distributions do not represent a
return of capital for federal income tax purposes.
(c) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(d) Computed on an annualized basis.
(e) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Fund for U.S. Government Securities, Inc.
Financial Highlights--Select Shares
--------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
1995(A) 1994(B)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.90 $ 8.24
-----------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
-----------------------------------------------------------------------------------------
Net investment income 0.17 0.13
-----------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.15) (0.33)
----------------------------------------------------------------------------------------- ----------- -----------
Total from investment operations 0.02 (0.20)
-----------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
-----------------------------------------------------------------------------------------
Distributions to shareholders from net investment income (0.16) (0.13)
-----------------------------------------------------------------------------------------
Distributions in excess of net investment income -- (0.01)(c)
----------------------------------------------------------------------------------------- ----------- -----------
Total distributions (0.16) (0.14)
----------------------------------------------------------------------------------------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 7.76 $ 7.90
----------------------------------------------------------------------------------------- ----------- -----------
TOTAL RETURN(D) 0.28% (2.51%)
-----------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
-----------------------------------------------------------------------------------------
Expenses 1.80%(e) 1.81%(e)
-----------------------------------------------------------------------------------------
Net investment income 6.09%(e) 6.65%(e)
-----------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
-----------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) -- $1,751
-----------------------------------------------------------------------------------------
Portfolio Turnover 154% 149%
-----------------------------------------------------------------------------------------
</TABLE>
(a) Reflects operations for the period from April 1, 1994 to July 29, 1994
(date Select Shares ceased operations).]
(b) Reflects operations for the period from January 15, 1994 (date of initial
public offering) to March 31, 1994.
(c) Distributions in excess of net investment income were a result of certain
book and tax timing differences. These distributions do not represent a
return of capital for federal income tax purposes.
(d) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(e) 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, 1995
(1) ORGANIZATION
Fund for U.S. Government 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. Effective July 29, 1994, the Fund's
Select Shares ceased operations and were reclassified as Class C Shares. The
Fund provides three classes of shares: Class A Shares, Class B Shares and Class
C Shares.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--Short-term securities with remaining maturities of
sixty days or less may be stated at amortized cost, which approximates fair
market value. 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.
REPURCHASE AGREEMENTS--It is the policy of the Fund to require a 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 underlying
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
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 taxable income.
Accordingly, no provisions for federal tax are necessary. At March 31,
1995, the Fund for federal tax purposes, had a capital loss carryforward of
$190,448,348 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 1996 ($21,945,640), 1997 ($13,496,695),
1999 ($4,037,707), 2000 ($2,560,450), 2001 ($5,923,640), 2002
($19,160,797) and 2003 ($123,323,419). Additionally, net capital losses
of $20,377,085 attributable to security transactions incurred after
October 31, 1994, are treated as arising on April 1, 1995, the first day
of the Fund's next taxable year.
EQUALIZATION--The Fund follows the accounting practice known as
equalization, in which a portion of the proceeds from sales and costs of
redemptions of Fund shares equivalent, on a per share basis, to the amount
of undistributed net investment income on the date of the transaction, is
credited or charged to undistributed net investment income. As a result,
undistributed net investment income per share is unaffected by sales or
redemptions of Fund shares.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
DOLLAR ROLL TRANSACTIONS--The Fund enters into dollar roll transactions,
with respect to mortgage securities in which the Fund loans mortgage
securities issued by GNMA, FNMA, FHLMC, 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 may use the proceeds generated from the
transactions to invest in short-term investments, which may enhance the
Fund's current yield and total return.
STATEMENT OF CASH FLOWS--Information on financial transactions which have
been settled through the receipt or disbursement of cash is presented in
the Fund's Statement of Cash Flows. The cash amount shown in the Statement
of Cash Flows is the amount reported as cash in the Fund's Statement of
Assets and Liabilities and represents cash on hand in its custodian bank
account and does not include any short-term investments at March 31, 1995.
OTHER--Investment transactions are accounted for on the trade date.
Fund for U.S. Government Securities, Inc.
--------------------------------------------------------------------------------
(3) CAPITAL STOCK
At March 31, 1995, 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, 500,000,000 have been designated as Class B Shares of the
Fund, and 750,000,000 as Class C Shares of the Fund. Transactions in Shares were
as follows:
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31, 1995 MARCH 31, 1994
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares Sold 11,722,674 $ 89,460,417 60,711,645 $ 505,623,646
-------------------------------------------------
Shares issued to shareholders in
payment of dividends declared 8,973,807 68,149,188 11,340,281 93,265,264
-------------------------------------------------
Shares redeemed (56,859,738) (433,752,920) (74,704,693) (616,470,022)
------------------------------------------------- ------------- --------------- ------------- ---------------
Net change resulting from
Class A Share transactions (36,163,257) $ (276,143,315) (2,652,767) ($ 17,581,112)
------------------------------------------------- ------------- --------------- ------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31, 1995* MARCH 31, 1994
CLASS B SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares Sold 4,664,234 $ 35,599,952 -- $ --
-----------------------------------------------
Shares issued to shareholders in
payment of dividends declared 63,077 479,778 -- --
-----------------------------------------------
Shares redeemed (258,267) (1,965,937) -- --
----------------------------------------------- ----------- -------------- ------------ --------------
Net change resulting from
Class B Share transactions 4,469,044 $ 34,113,793 -- $ --
----------------------------------------------- ----------- -------------- ------------ --------------
</TABLE>
*For the period from July 25, 1994 (date of initial public offering) to March
31, 1995.
Fund for U.S. Government Securities, Inc.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31, 1995 MARCH 31, 1994**
CLASS C SHARES SHARES DOLLARS SHARES DOLLARS
<S> <C> <C> <C> <C>
Shares Sold 2,299,459 $ 17,762,992 14,283,011 $ 119,562,252
-----------------------------------------------
Shares reclassified from Select Shares 214,402 1,663,760 -- --
-----------------------------------------------
Shares issued to shareholders in
payment of dividends declared 300,203 2,298,084 206,053 1,707,156
-----------------------------------------------
Shares redeemed (5,426,379) (41,597,151) (1,381,861) (11,322,332)
----------------------------------------------- ----------- -------------- ------------ --------------
Net change resulting from
Class C Share transactions (2,612,315) $ (19,872,315) 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, 1995**** MARCH 31, 1994***
------------------------------ ---------------------------
SELECT SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares Sold 75,117 $ 583,743 328,043 $ 2,680,569
----------------------------------------------
Shares issued to shareholders in
payment of dividends declared 1,522 11,703 1,307 10,527
----------------------------------------------
Shares redeemed (84,014) (742,192) (107,573) (880,590)
----------------------------------------------
Shares reclassified to Class C Shares (214,402) (1,663,760) -- --
---------------------------------------------- ------------- --------------- ------------ -------------
Net change resulting from
Select Share transactions (221,777) $ (1,810,506) 221,771 $ 1,810,506
---------------------------------------------- ------------- --------------- ------------ -------------
Net change resulting from
Fund share transactions (34,528,305) (263,712,343) 10,676,207 94,176,470
---------------------------------------------- ------------- --------------- ------------ -------------
</TABLE>
***For the period from January 15, 1994 (date of initial public offering) to
March 31, 1994.
****For the period from April 1, 1994 to July 29, 1994 the date the Select
shares were reclassified to Class C shares.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Advisers, the Fund's investment adviser
(the "Adviser"), receives for its services an annual investment advisory
fee equal to (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.
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.
Fund for U.S. Government Securities, Inc.
--------------------------------------------------------------------------------
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") under the
Administrative Services Agreement provides the Fund with administrative
personnel and services. The FAS 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
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 daily net assets of the Fund to finance activities
intended to result in the sale of the Fund's Class C Shares and Class B
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
Class B Shares, annually, to compensate FSC.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services ("FSS"), the Fund will pay
FSS up to .25 of 1% of average daily net assets of the Fund for the period.
This fee is to obtain certain personal services for shareholders and to
maintain shareholder accounts.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated
Services Company ("FServ") serves as transfer and dividend disbursing agent
for the Fund. This fee is based on the size, type, and number of accounts
and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records
for which it receives a fee. The fee is based on the level of the Fund's
average daily net assets for the period plus, out-of-pocket expenses.
GENERAL--Certain of the Officers and Directors of the Fund are Officers and
Directors or Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
year ended March 31, 1995, were as follows:
<TABLE>
<S> <C>
------------------------------------------------------------------------------------------------
PURCHASES $ 2,368,391,096
------------------------------------------------------------------------------------------------ ----------------
SALES $ 2,366,444,877
------------------------------------------------------------------------------------------------ ----------------
</TABLE>
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, 1995, the related statement of operations and cash flows for the year
then ended, the statements of changes in net assets for the years ended March
31, 1995 and 1994, and the financial highlights for each of the years in the
ten-year period ended March 31, 1995. 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, 1995 by correspondence with the custodian and brokers; where replies
were not received from brokers, we performed other auditing procedures. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Fund for U.S.
Government Securities, Inc. as of March 31, 1995, the results of its operations,
its cash flows, the changes in its net assets, and its financial highlights for
the respective stated periods in conformity with generally accepted accounting
principles.
Deloitte & Touche, LLP
Pittsburgh, Pennsylvania
May 15, 1995
Directors Officers
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
John F. Donahue John F. Donahue
Thomas G. Bigley Chairman
John T. Conroy, Jr. J. Christopher Donahue
William J. Copeland President
J. Christopher Donahue Richard B. Fisher
James E. Dowd Vice President
Lawrence D. Ellis, M.D. Edward C. Gonzales
Edward L. Flaherty, Jr. Vice President and Treasurer
Peter E. Madden John W. McGonigle
Gregor F. Meyer Vice President and Secretary
John E. Murray, Jr. David M. Taylor
Wesley W. Posvar Assistant Treasurer
Marjorie P. Smuts Charles H. Field
Assistant Secretary
</TABLE>
Mutual funds are not bank deposits or obligations, are not guaranteed
by any bank, and are not insured or guaranteed by the U.S. government, the
Federal Deposit
Insurance Corporation, the Federal Reserve Board, or any other government
agency.
Investment in mutual funds involves investment risk, including possible loss of
principal.
This report is authorized for distribution to prospective investors only when
preceded
or accompanied by the Fund's prospectus, which contains facts concerning its
objective and policies, management fees, expenses and other information.
FEDERATED SECURITIES CORP.
Distributor
A Subsidiary of Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
360799100
360799407
360799209
8042505 (5/95)
APPENDIX
A. 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, which shows that
an initial investment of $26,000 in Fund for U.S. Government Securities,
Inc. Class A Shares on 10/6/69 would have grown to $166,099 on 3/31/95.
The "x" axis reflects the cost of investment, the "y" axis reflects
computation periods from 10/6/69 to 3/31/95, and the right margin
reflects a total investment range from $0 to $180,000. The chart
further indicates the ending market value attributable to principal, as
well as the ending market value attributable to capital gains and
reinvested dividends.
B. 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, which shows that
an annual investment of $1,000 in Fund for U.S. Government Securities,
Inc. Class A Shares on 10/6/69 would have grown to $82,192 on 3/31/95.
The "x" axis reflects the cost of investment, the "y" axis reflects
computation periods from 10/6/69 to 3/31/95, and the right margin
reflects a total investment range from $0 to $90,000. The chart further
indicates the ending market value attributable to principal, as well as
the ending market value attributable to capital gains and reinvested
dividends.
C. 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, which shows that
an investment of $100,000 in Fund for U.S. Government Securities, Inc.
on 3/31/85 would have grown to $214,993 on 3/31/95. The "x" axis
reflects the cost of investment, the "y" axis reflects computation
periods from 3/31/85 to 3/31/95, and the right margin reflects a total
investment range from $0 to $220,000. The chart further indicates the
ending market value attributable to principal, as well as the ending
market value attributable to capital gains and reinvested dividends.
D. The chart indicates how a $10,000 investment grew during each 10-
year period since fund inception.
E. Some of the fund's major shareholder groups
Individuals and Joint tenants $914,184,909
Trusts $152,152,499
IRAs $121,043,307
Corporations $45,959,521
Clubs/Fraternal Organizations $15,142,077
Churches/Religious Organizations $12,282,339
Custodians $8,097,731
F. The pie chart shows the percentage of fund assets diversified across
different types of U.S. government securities.
G. The graphic presentation here displayed consists of a boxed legend
in the bottom center indicating the components of the corresponding line
graph. Fund for U.S. Government Securities, Inc. Class A Shares is
represented by a solid line. Lehman Brothers 5-Year Treasury Bellwether
Index is represented by a double dotted line ; Salomon Brothers 15-Year
Mortgage Index is represented by an M-dash line; and the Lipper U.S.
Mortgage Funds Average Category is represented by a hyphenated line.
The line graph is a visual representation of a comparison of change in
value of a hypothetical $10,000 purchase in the fund, Lehman Brothers 5-
Year Treasury Bellwether Index, Salomon Brothers 15-Year Mortgage Index,
and Lipper U.S. Mortgage Average. The "x" axis reflects the cost of the
investment. The "y" axis reflects computation periods from March 31,
1985 through March 31, 1995. The right margin reflects the ending value
of the hypothetical investment in the fund as compared to Lehman
Brothers 5-Year Treasury BellwetherIndex, Salomon Brothers 15-Year
Mortgage Index, and Lipper U.S. Mortgage Funds Average; the ending
values are $21,352, $23,820, $23,750, and $22,894, respectively. There
is also a legend which indicates the Average Annual Total Return for the
1 year, 5 year, and 10 year periods; the Average Annual Total Returns
are (0.09%), 6.00% and 7.88%, respectively.
H. The graphic presentation here displayed consists of a boxed legend
in the bottom center indicating the components of the corresponding line
graph. Fund for U.S. Government Securities, Inc. Class B Shares is
represented by a solid line. Lehman Brothers 5-Year Treasury Bellwether
Index is represented by a double dotted line ; Salomon Brothers 15-Year
Mortgage Index is represented by an M-dash line; and the Lipper U.S.
Mortgage Funds Average Category is represented by a hyphenated line.
The line graph is a visual representation of a comparison of change in
value of a hypothetical $10,000 purchase in the fund, Lehman Brothers 5-
Year Treasury Bellwether Index, Salomon Brothers 15-Year Mortgage Index,
and Lipper U.S. Mortgage Average. The "x" axis reflects the cost of the
investment. The "y" axis reflects computation periods from July 25,
1994 (start of performance) through March 31, 1995. The right margin
reflects the ending value of the hypothetical investment in the fund as
compared to Lehman Brothers 5-Year Treasury BellwetherIndex, Salomon
Brothers 15-Year Mortgage Index, and Lipper U.S. Mortgage Funds Average;
the ending values are $9,846, $10,322, $10,437, and $10,322,
respectively. There is also a legend which indicates the Average Annual
Total Return for the period from July 25, 1995 to March 31, 1995; the
Average Annual Total Return is (1.54%).
I. The graphic presentation here displayed consists of a boxed legend
in the bottom center indicating the components of the corresponding line
graph. Fund for U.S. Government Securities, Inc. Class C Shares is
represented by a solid line. Lehman Brothers 5-Year Treasury Bellwether
Index is represented by a double dotted line ; Salomon Brothers 15-Year
Mortgage Index is represented by an M-dash line; and the Lipper U.S.
Mortgage Funds Average Category is represented by a hyphenated line.
The line graph is a visual representation of a comparison of change in
value of a hypothetical $10,000 purchase in the fund, Lehman Brothers 5-
Year Treasury Bellwether Index, Salomon Brothers 15-Year Mortgage Index,
and Lipper U.S. Mortgage Average. The "x" axis reflects the cost of the
investment. The "y" axis reflects computation periods from April 26,
1993 (start of performance) through March 31, 1995. The right margin
reflects the ending value of the hypothetical investment in the fund as
compared to Lehman Brothers 5-Year Treasury BellwetherIndex, Salomon
Brothers 15-Year Mortgage Index, and Lipper U.S. Mortgage Funds Average;
the ending values are $10,250, $10,417, $10,703, and $10,377,
respectively. There is also a legend which indicates the Average Annual
Total Return for the 1 year and since inception periods; the Average
Annual Total Returns are 2,64%, and 1.29%, respectively.
