[Graphic]
Federated Fund for U.S. Government Securities, Inc.
28TH ANNUAL REPORT
MARCH 31, 1997
ESTABLISHED 1969
PRESIDENT'S MESSAGE
[Graphic]
Dear Fellow Shareholder:
Federated Fund for U.S. Government Securities, Inc. was created in 1969, and
I am pleased to present its 28th Annual Report. On March 31, 1997, the
fund's total assets stood at $1.3 billion representing over 62,000
shareholders.
This report covers the 12-month period from April 1, 1996, through March 31,
1997. It begins with a discussion with the fund's portfolio manager, Kathy
Foody-Malus, Vice President, Federated Advisers. She offers you her views on
today's interest rate environment, fund performance, and how your fund is
positioned.
Over the 12-month reporting period, the fund's portfolio produced a healthy
income stream and a total return competitive with the overall Treasury
market, as well as with the average U.S. government bond fund. Individual
share class total return performance and income distributions follow.*
NET INCOME
TOTAL RETURN DISTRIBUTIONS
Class A Shares 4.88% $0.50
Class B Shares 4.13% $0.43
Class C Shares 4.14% $0.44
Following Kathy's discussion are three additional items of shareholder
interest.
First is a series of graphs that display the fund's performance of a lump
sum investment with income dividends reinvested, and the investment results
of making systematic annual investments in the fund shares with dividends
reinvested.
Second is a complete listing of the fund's holdings in mortgage-backed
securities and U.S. Treasury bonds and notes.
Third is the publication of the fund's financial statements.
* Performance quoted is based on net asset value and reflects past
performance. Past performance is not indicative of future results.
Investment return and principal value will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
Total returns for the period, based on offering price, for Class A Shares,
Class B Shares and Class C Shares were 0.12%, -1.55%, and 3.06%,
respectively.
During the past 12 months, the bond market reflected its concerns and
anxiety anticipating interest rate increases, and finally on March 25, 1997,
Alan Greenspan, Chairman of the Federal Reserve Board (the "Fed"), raised
interest rates by 0.25%. Many people believe Mr. Greenspan will again raise
interest rates in May. These moves are in anticipation of rising inflation;
however, his actions have certainly been evident in the recent negative
performance of the bond market.
For over one year, we have experienced increased volatility in both the
stock and bond markets, anticipating the Fed's action. Historically, raising
interest rates affects business by increasing the cost of borrowing money
and impacting earnings of corporations. Long term, we believe Mr.
Greenspan's actions are good for the bond market because a slowdown in the
economy, brought on by the high cost of money, would cause businesses to be
more conservative in their expansion plans and inventories. They become
hesitant to borrow money as the price of money could decline.
The fund's management has continued to emphasize mortgage-backed securities
for their attractive yields and good long-term value. These securities are
issued by Government National Mortgage Association and Federal National
Mortgage Corporation. More than 86% of the fund's assets were invested in
these mortgage-backed securities. These government securities are guaranteed
as to payment of principal and interest by the U.S. government, its agencies
or instrumentalities.
Thank you for pursuing income opportunities through Federated Fund for U.S.
Government Securities, Inc. If you have any questions or comments, do not
hesitate to write.
Sincerely,
[Graphic]
J. Christopher Donahue
President
May 15, 1997
Investment Review
[Graphic]
Kathy Foody-Malus
Vice President
Federated Advisers
[Graphic]
HOW DID THE ECONOMY AND THE FEDERAL RESERVE BOARD'S RECENT RATE INCREASE
INFLUENCE THE BOND MARKET DURING THE FUND'S FISCAL YEAR?
The strong growth of real Gross Domestic Product ("GDP") over the past six
months and the subsequent 25 basis point increase of the Federal Funds
Target Rate in late March has roiled the U.S. Treasury market. The U.S.
Treasury yield curve has reacted as shorter rates have increased more than
longer rates. Given this environment, the mortgage-backed securities sector
has been the best-performing, high-grade, fixed-income sector during this
period. On a total rate of return basis for the fiscal year ended March 31,
1997, mortgages outperformed their U.S. Treasury counterparts by over 150
basis points. The fundamentals and technicals in the mortgage market were
attractive during this reporting period due to the relatively stable
interest rate environment.
[Graphic]
HOW DID FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES, INC. PERFORM FOR
SHAREHOLDERS IN TERMS OF INCOME AND TOTAL RETURN DURING THE 12-MONTH
REPORTING PERIOD ENDED MARCH 31, 1997?
In terms of income, the fund's Class A Shares paid $0.50 per share in
dividends over the fiscal year. The fund's B and C Share classes each paid
dividends totaling $0.43 and $0.44 per share, respectively.
For the 12-month period ended on March 31, 1997, investors in the fund's
Class A, Class B and Class C Shares received a total net return of 4.88%,
4.13%, and 4.14%, respectively based on net asset value,* which was
competitive with the 4.79% net total return for the Lipper U.S. Mortgage
Funds Average and the 4.76% net total return on the Lipper GNMA Funds
Average.** As a reference point during this same time period, the Merrill
Lynch 5-Year and 10-Year U.S. Treasury Note Indexes' returns were 4.49% and
3.14%, respectively. ***
* Performance quoted reflects past performance and is not indicative of
future results. Investment return and principal value will fluctuate so that
an investor's shares, when redeemed, may be worth more or less than their
original cost. Total returns for the period, based on offering price, for
Class A, Class B and Class C Shares were 0.12%, -1.55%, and 3.06%,
respectively.
** Lipper figures represent the average of the total returns reported by all
of the mutual funds designated by Lipper Analytical Services, Inc. as
falling into the respective categories indicated. These figures do not
reflect sales charges.
*** Merrill Lynch 5-Year and 10-Year Treasury Note Indexes comprise the most
recently issued 5-year U.S. Treasury notes and 10-year U.S. Treasury notes,
respectively. Index returns are calculated as total returns for periods of
1, 3, 6, and 12 months as well as year-to-date. Indexes are unmanaged, and
investments cannot be made in an index.
[Graphic]
WHAT WERE THE FUND'S WEIGHTINGS IN MORTGAGE-BACKED AND TREASURY SECURITIES,
AND WHY?
The fund's management currently remains committed to an 86% position in
mortgage-backed securities and a 12% position in U.S. Treasury securities.
This asset allocation mix reflects the historically tight
mortgage-to-Treasury yield spreads and also a concern that further
tightening implies spread levels that have not been witnessed over the last
three years. The fund's bias continued to be neutral in duration -- 4.5
years -- to the Lehman Brothers GNMA Index.*
As of March 31, 1997, the portfolio composition was:
PERCENTAGE
SECTOR OF NET ASSETS
Government National Mortgage Association (GNMA) 85.5%
Federal National Mortgage Association (FNMA) 0.2%
U.S. Treasury Bonds 3.0%
U.S. Treasury Notes 9.2%
[Graphic]
WHAT DO YOU SEE AHEAD FOR THE BOND MARKET THROUGH 1997?
As anticipated by bond market participants, the Fed increased the Fed Funds
Target Rate by 0.25% on March 25, 1997. Initial reaction was muted as
investors have reflected on the increase; however, Treasury yields have
risen due to their concerns over further potential tightenings. Our view is
that when the announcement was made regarding the rate increase, the move
was taken in light of stronger growth rather than any emerging inflationary
pressures. Chairman Greenspan, before and after the announcement, has
attempted to dispel the notion that 1997 is a repeat of 1994. The strength
of the dollar combined with the increase in Treasury yields should, we
believe, help moderate growth moving forward in 1997 and help to restrain
inflation.
Given this scenario, there may be no need for additional rate increases, and
we believe the outlook for the fixed-rate mortgage market in 1997 remains
favorable. The year has already started out strongly for fixed-income
products that offer incremental yield pick-up over U.S. Treasury securities.
* The Lehman Brothers GNMA Index includes 15- and 30-year fixed rate
securities backed by mortgage pools of the Government National Mortgage
Association (GNMA).
TWO WAYS YOU MAY SEEK TO INVEST FOR SUCCESS IN
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES, INC.
INITIAL INVESTMENT:
IF YOU HAD MADE AN INITIAL INVESTMENT OF $28,000 IN THE CLASS A SHARES OF
FEDERATED 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 HAVE BEEN WORTH $204,054 ON 3/31/97. YOU WOULD HAVE EARNED A 7.49%*
AVERAGE ANNUAL TOTAL RETURN FOR THE 28-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 3/31/97, the Class A Shares' average annual one-year, five-year, and
ten-year total returns were 0.12%, 4.33%, and 6.82%, respectively. Class B
Shares' average annual one-year and since inception (7/25/94) total returns
were -1.55% and 4.42%, respectively. Class C Shares' average annual one-year
and since inception (4/26/93) total returns were 3.06% and 3.65%,
respectively.
[Graphic]
* 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 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.
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES, INC.
ONE STEP AT A TIME:
$1,000 INVESTED EACH YEAR FOR 28 YEARS (REINVESTING ALL DIVIDENDS AND
CAPITAL GAINS) GREW TO $95,768 BY 3/31/97.
With this approach, the key is consistency.
If you had started investing $1,000 annually in the Class A Shares of
Federated 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 $28,000, but your account would have reached a total
value of $95,768* by 3/31/97. You would have earned an average annual total
return of 7.81%.
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, money, and compounding to work!
[Graphic]
* No method of investing can guarantee a profit or protect against loss in
down markets. However, by investing regularly over time and buying shares at
various prices, investors can purchase more shares at lower prices. All
accumulated shares have the ability to pay income to the investor.
Because such a plan involves continuous investment, regardless of changing
price levels, the investor should consider whether or not to continue
purchases through periods of low price levels.
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES, INC.
HYPOTHETICAL INVESTOR PROFILE: INVESTING FOR CURRENT INCOME
Eleven years ago, on March 31, 1986, Anne and Denny Laughlin, an imaginary
working couple with no children, had to decide how to invest a $100,000
inheritance from her late father's estate. They chose Federated Fund for
U.S. Government Securities, Inc. because it invests in government securities
which historically have been some of the safest, most creditworthy
securities issued in America.
They like the way they can use their Federated Fund for U.S. Government
Securities, Inc. account for an occasional extravagance -- like the $50,000
Jaguar they bought this August to celebrate their 11th anniversary --
without touching their original principal.
The Laughlin's account totaled $208,998 as of 3/31/97 for an average annual
total return of 6.93%.*
[Graphic]
* This hypothetical scenario is provided for illustrative purposes only and
does not represent the result obtained by any particular shareholder. Past
performance does not guarantee future results.
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES, INC.
A HISTORY OF SOLID EARNINGS -- NINETEEN 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. At the end of each decade, no investor who stayed invested for the
entire period 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
1985-1995 1141 12,590 2,782 21,341
1986-1996 1089 11,256 2,528 19,775
1987-1997 1115 10,768 2,515 19,344
</TABLE>
* This 10-year period is October 6, 1969 through March 31, 1979.
For each time period shown, share price fluctuated.
FEDERATED 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]
* As a percentage of the Portfolio of Investments.
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES, INC.
(CLASS A SHARES)
GROWTH OF $10,000 INVESTED IN FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES,
INC. (CLASS A SHARES)
The graph below illustrates the hypothetical investment of $10,000 in the
Federated Fund for U.S. Government Securities, Inc. (Class A Shares) (the
"Fund") from March 31, 1987 to
March 31, 1997, 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]
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MUTUAL FUNDS ARE NOT
OBLIGATIONS OF OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* Represents a hypothetical investment of $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 LB5YRTBI, SB15YRMI and the LUSMFA have
been adjusted to reflect reinvestment of dividends on securities in the
indices and average.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The LB5YRTBI and the SB15YRMI are not adjusted to reflect sales charges,
expenses, or other fees that the SEC requires to
be reflected in the Fund's performance. The indices are unmanaged.
++ The LUSMFA represents the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as falling
in the respective category, and is not adjusted to reflect any sales
charges. However, these total returns are reported net of expenses or other
fees that the SEC requires to be reflected in a fund's performance.
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES, INC.
(CLASS B SHARES)
GROWTH OF $10,000 INVESTED IN FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES,
INC. (CLASS B SHARES)
The graph below illustrates the hypothetical investment of $10,000 in the
Federated Fund for U.S. Government Securities, Inc. (Class B Shares) (the
"Fund") from July 25, 1994 (start of performance) to March 31, 1997 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]
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MUTUAL FUNDS ARE NOT
OBLIGATIONS OF OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* Represents a hypothetical investment of $10,000 in the Fund. The ending
value of the Fund reflects a 4.00% contingent deferred sales charge on any
redemption less than three years from the purchase date. The maximum
contingent deferred sales charge is 5.50% on any redemption less than one
year from the purchase date. The Fund's performance assumes the reinvestment
of all dividends and distributions. The LB5YRTBI, the SB15YRMI, and the
LUSMFA have been adjusted to reflect reinvestment of dividends on securities
in the indices and average.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The LB5YRTBI and the SB15YRMI are not adjusted to reflect sales charges,
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
charges. However, these total returns are reported net of expenses or other
fees that the SEC requires to be reflected in a fund's performance.
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES, INC.
(CLASS C SHARES)
GROWTH OF $10,000 INVESTED IN FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES,
INC. (CLASS C SHARES)
The graph below illustrates the hypothetical investment of $10,000 in the
Federated Fund for U.S. Government Securities, Inc. (Class C Shares) (the
"Fund") from April 26, 1993 (start of performance) to March 31, 1997
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]
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. MUTUAL FUNDS ARE NOT
OBLIGATIONS OF OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* Represents a hypothetical investment of $10,000 in the Fund. The ending
value of the Fund reflects a 1.00% contingent deferred sales charge on any
redemption less than one 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 and average.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The LB5YRTBI and the SB15YRMI are not adjusted to reflect sales charges,
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
charges. However, these total returns are reported net of expenses or other
fees that the SEC requires to be reflected in a fund's performance.
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES, INC
PORTFOLIO OF INVESTMENTS
MARCH 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
LONG-TERM U.S. GOVERNMENT OBLIGATIONS -- 97.9%
(A)GOVERNMENT NATIONAL MORTGAGE ASSOCIATION MPT -- 85.5%
$ 87,019,144 6.500%, 2/15/2024 - 7/15/2024 $ 81,118,375
7,804,557 6.875%, 12/20/2022 7,976,414
241,562,056 7.000%, 7/15/2023 - 2/20/2027 232,358,831
14,253,954 7.125%, 4/20/2022 - 9/20/2022 14,644,915
253,860,185 (b)7.500%, 12/15/2021 - 1/15/2027 249,889,326
218,472,423 8.000%, 1/15/2022 - 9/15/2026 219,792,647
88,575,115 8.500%, 5/15/2018 - 8/15/2026 91,193,992
101,535,091 9.000%, 10/15/2017 - 11/15/2024 107,602,522
47,861,820 9.500%, 9/15/2016 - 9/15/2026 51,621,177
27,459,276 10.000%, 4/15/2016 - 8/15/2020 30,121,503
9,490,273 10.500%, 10/15/2015 - 10/15/2019 10,500,378
9,683,212 11.000%, 12/15/2009 - 10/15/2019 10,904,259
13,591,006 11.500%, 3/15/2010 - 9/15/2018 15,473,134
11,145,275 12.000%, 5/15/2011 - 1/15/2016 12,875,570
1,483,713 12.500%, 2/15/2011 - 5/15/2015 1,729,823
1,809,690 13.000%, 1/15/2011 - 12/15/2014 2,112,688
Total 1,139,915,554
(A)FEDERAL NATIONAL MORTGAGE ASSOCIATION -- 0.2%
2,893,957 7.000%, 11/1/2023 - 12/1/2023 2,787,740
385,992 11.00%, 10/1/2010 428,272
Total 3,216,012
U.S. TREASURY BONDS -- 3.0%
18,300,000 7.125%, 2/15/2023 18,078,204
3,000,000 8.125%, 8/15/2019 3,292,140
10,000,000 8.75%, 5/15/2017 11,603,800
6,030,000 9.25%, 2/15/2016 7,290,391
Total 40,264,535
</TABLE>
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES, INC
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
LONG-TERM U.S. GOVERNMENT OBLIGATIONS -- CONTINUED
U.S. TREASURY NOTES -- 9.2%
$ 20,000,000 5.500, 11/15/1998 $ 19,746,800
14,000,000 5.875%, 11/15/1999 13,778,520
10,000,000 6.125%, 9/30/2000 9,834,800
26,500,000 6.250, 5/31/2000 - 2/15/2003 26,027,895
7,000,000 6.375%, 9/30/2001 6,899,760
17,400,000 6.500, 5/31/2001 17,258,886
14,000,000 7.000, 7/15/2006 14,033,040
10,000,000 7.500, 2/15/2005 10,344,200
4,000,000 8.000, 8/15/1999 4,130,000
Total 122,053,901
TOTAL LONG-TERM U.S. GOVERNMENT OBLIGATIONS
(IDENTIFIED COST $1,309,585,996) 1,305,450,002
(C)REPURCHASE AGREEMENTS -- 5.0%
21,235,000 BT Securities Corporation, 6.450%, dated 3/31/1997, due 4/1/1997 21,235,000
45,000,000 (d)Goldman Sachs Group, LP, 5.350%, dated 3/17/1997, due 4/17/1997 45,000,000
TOTAL REPURCHASE AGREEMENTS (AT AMORTIZED COST) 66,235,000
TOTAL INVESTMENTS (IDENTIFIED COST $1,375,820,996)(E) $ 1,371,685,002
</TABLE>
(a) Because of monthly principal payments, the average lives of the
Government National Mortgage Association Modified Pass-Through Securities
and Federal National Mortgage Association Pass-Through Securities are less
than the stated maturities.
(b) This security is subject to dollar roll transactions.
(c) The repurchase agreements are fully collateralized by U.S. Treasury
obligations based on market prices at the date of the portfolio. The
investments in the repurchase agreements are through participation in
joint accounts with other Federated funds.
(d) Although final maturity falls beyond seven days, a liquidity feature is
included in each transaction to permit termination of the repurchase
agreement within seven days.
(e) The cost of investments for federal tax purposes amounts to
$1,375,820,996. The net unrealized depreciation of investments on a
federal tax basis amounts to $4,135,994 which is comprised of $10,453,953
appreciation and $14,589,947 depreciation at March 31, 1997.
Note: The categories of investments are shown as a percentage of net assets
($1,333,352,441) at March 31, 1997.
The following acronym is used throughout this portfolio:
MPT -- Modified Pass Through
(See Notes which are an integral part of the Financial Statements)
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES, INC.
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1997
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $1,375,820,996) $ 1,371,685,002
Cash 3,633
Income receivable 9,777,662
Receivable for investments sold 101,918,365
Receivable for shares sold 738,708
Total assets 1,484,123,370
LIABILITIES:
Payable for investments purchased $98,167,767
Payable for shares redeemed 4,586,243
Income distribution payable 2,775,192
Payable for dollar roll transactions 44,651,858
Accrued expenses 589,869
Total liabilities 150,770,929
NET ASSETS for 174,247,804 shares outstanding $ 1,333,352,441
NET ASSETS CONSIST OF:
Paid in capital $ 1,510,752,173
Net unrealized depreciation of investments (4,135,994)
Accumulated net realized loss on investments (182,288,759)
Undistributed net investment income 9,025,021
Total Net Assets $ 1,333,352,441
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
CLASS A SHARES:
Net Asset Value Per Share ($1,177,071,713 / 153,839,703 shares outstanding) $7.65
Offering Price Per Share (100/95.50 of $7.65)* $8.01
Redemption Proceeds Per Share $7.65
CLASS B SHARES:
Net Asset Value Per Share ($100,438,990 / 13,116,511 shares outstanding) $7.66
Offering Price Per Share $7.66
Redemption Proceeds Per Share (94.50/100 of $7.66)** $7.24
CLASS C SHARES:
Net Asset Value Per Share ($55,841,738 / 7,291,590 shares outstanding) $7.66
Offering Price Per Share $7.66
Redemption Proceeds Per Share (99.00/100 of $7.66)** $7.58
</TABLE>
* See "How to Purchase Shares" in the Prospectus.
** See "Contingent Deferred Sales Charge" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES, INC.
STATEMENT OF OPERATIONS
YEAR ENDED MARCH 31, 1997
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest (net of dollar roll expense of $4,493,871) $ 106,835,941
EXPENSES:
Investment advisory fee $ 8,025,601
Administrative personnel and services fee 1,069,801
Custodian fees 231,987
Transfer and dividend disbursing agent fees and expenses 1,462,531
Directors'/Trustees' fees 10,798
Auditing fees 21,178
Legal fees 30,082
Portfolio accounting fees 156,850
Distribution services fee -- Class B Shares 735,142
Distribution services fee -- Class C Shares 512,501
Shareholder services fee -- Class A Shares 3,123,496
Shareholder services fee -- Class B Shares 245,047
Shareholder services fee -- Class C Shares 170,834
Share registration costs 60,016
Printing and postage 180,437
Insurance premiums 14,533
Taxes 249,885
Miscellaneous 30,209
Total expenses 16,330,928
Waivers --
Waiver of shareholder services fee -- Class A Shares (1,463,188)
Waiver of shareholder services fee -- Class B Shares (17,532)
Waiver of shareholder services fee -- Class C Shares (11,147)
Total waivers (1,491,867)
Net expenses 14,839,061
Net investment income 91,996,880
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments (22,638,986)
Net change in unrealized depreciation of investments (2,749,753)
Net realized and unrealized loss on investments (25,388,739)
Change in net assets resulting from operations $ 66,608,141
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 91,996,880 $ 102,434,216
Net realized gain (loss) on investments ($20,479,836 and
$4,621,860 net loss respectively, as computed for federal tax purposes) (22,638,986) 15,733,325
Net change in unrealized appreciation (depreciation) (2,749,753) 7,914,175
Change in net assets resulting from operations 66,608,141 126,081,716
NET EQUALIZATION CREDITS (DEBITS) -- (1,276,332) (663,008)
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income
Class A Shares (80,122,258) (95,810,418)
Class B Shares (5,509,826) (4,295,610)
Class C Shares (3,782,566) (4,916,823)
Change in net assets resulting from distributions to shareholders (89,414,650) (105,022,851)
SHARE TRANSACTIONS --
Proceeds from sale of shares 153,017,859 203,854,783
Net asset value of shares issued to shareholders in payment of
distributions declared 55,974,907 65,198,244
Cost of shares redeemed (354,947,794) (268,563,700)
Change in net assets resulting from share transactions (145,955,028) 489,327
Change in net assets (170,037,869) 20,885,184
NET ASSETS:
Beginning of period 1,503,390,310 1,482,505,126
End of period (including undistributed net investment income
of $9,025,021 and $6,442,791, respectively) $ 1,333,352,441 $ 1,503,390,310
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED 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,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD $ 7.78 $ 7.67 $ 7.89 $ 8.50 $ 8.51
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income 0.51 0.54 0.57 0.63 0.71
Net realized and
unrealized gain
(loss)
on investments (0.14) 0.12 (0.23) (0.61) (0.03)
Total from
investment
operations 0.37 0.66 0.34 0.02 0.68
LESS DISTRIBUTIONS
Distributions
from net
investment
income (0.50) (0.55) (0.56) (0.63) (0.69)
NET ASSET VALUE,
END OF PERIOD $ 7.65 $ 7.78 $ 7.67 $ 7.89 $ 8.50
TOTAL RETURN(A) 4.88% 8.77% 4.59% 0.13% 8.31%
RATIOS TO
AVERAGE
NET ASSETS
Expenses 0.95% 0.95% 0.95% 0.88% 0.83%
Net investment
income 6.60% 6.80% 7.41% 7.50% 8.33%
Expense waiver/
reimbursement(b) 0.12% 0.11% 0.02% -- --
SUPPLEMENTAL DATA
Net assets, end
of period
(000 omitted) $1,177,071 $1,330,272 $1,367,710 $1,693,293 $1,844,712
Portfolio
turnover 120% 157% 154% 149% 52%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD $ 8.41 $ 8.23 $ 8.01 $ 8.41 $ 8.56
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income 0.75 0.77 0.78 0.76 0.78
Net realized and
unrealized gain
(loss)
on investments 0.08 0.19 0.21 (0.40) (0.15)
Total from
investment
operations 0.83 0.96 0.99 0.36 0.63
LESS DISTRIBUTIONS
Distributions
from net
investment
income (0.73) (0.78) (0.77) (0.76) (0.78)
NET ASSET VALUE,
END OF PERIOD $ 8.51 $ 8.41 $ 8.23 $ 8.01 $ 8.41
TOTAL RETURN(A) 10.20% 12.12% 12.59% 4.47% 7.66%
RATIOS TO
AVERAGE
NET ASSETS
Expenses 0.91% 0.97% 0.96% 0.96% 0.96%
Net investment
income 8.69% 9.21% 9.32% 9.22% 9.31%
Expense waiver/
reimbursement(b) -- -- 0.04% -- 0.01%
SUPPLEMENTAL DATA
Net assets, end
of period
(000 omitted) $1,384,117 $1,133,017 $1,039,493 $1,054,055 $1,150,395
Portfolio
turnover 43% 27% 98% 83% 72%
</TABLE>
(a) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES, INC
FINANCIAL HIGHLIGHTS -- CLASS B SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1997 1996 1995(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.78 $ 7.67 $ 7.75
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.44 0.49 0.37
Net realized and unrealized gain (loss) on investments (0.13) 0.11 (0.06)
Total from investment operations 0.31 0.60 0.31
LESS DISTRIBUTIONS
Distributions from net investment income (0.43) (0.49) (0.37)
Distributions in excess of net investment income(b) -- -- (0.02)
Total distributions (0.43) (0.49) (0.39)
NET ASSET VALUE, END OF PERIOD $ 7.66 $ 7.78 $ 7.67
TOTAL RETURN(C) 4.13% 7.90% 4.13%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.80% 1.78% 1.76%*
Net investment income 5.75% 5.93% 7.02%*
Expense waiver/reimbursement(d) 0.02% 0.04% 0.06%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $100,439 $93,169 $34,276
Portfolio turnover 120% 157% 154%
</TABLE>
* Computed on an annualized basis.
(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 purpose.
(c) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED 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,
1997 1996 1995 1994(A)(B)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.78 $ 7.67 $ 7.89 $ 8.54
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.45 0.47 0.51 0.54
Net realized and unrealized gain (loss) on investments (0.13) 0.12 (0.23) (0.63)
Total from investment operations 0.32 0.59 0.28 (0.09)
LESS DISTRIBUTIONS
Distributions from net investment income (0.44) (0.48) (0.50) (0.54)
Distributions in excess of net investment income(c) -- -- -- (0.02)
Total distributions (0.44) (0.48) (0.50) (0.56)
NET ASSET VALUE, END OF PERIOD $ 7.66 $ 7.78 $ 7.67 $ 7.89
TOTAL RETURN(D) 4.14% 7.85% 3.72% (1.17%)
RATIOS TO AVERAGE NET ASSETS
Expenses 1.80% 1.79% 1.79% 1.81%*
Net investment income 5.74% 5.96% 6.56% 6.45%*
Expense waiver/reimbursement(e) 0.02% 0.02% 0.02% --
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $55,842 $79,949 $80,519 $103,433
Portfolio turnover 120% 157% 154% 149%
</TABLE>
* Computed on an annualized basis.
(a) As of July 29, 1994, Select Shares were no longer offered and were
reclassified as Class C Shares. For the year ended March 31, 1994, Select
Shares' net assets (000 omitted) were $1,751.
(b) Reflects operations for the period from April 26, 1993 (date of initial
public offering) to March 31, 1994.
(c) Distributions in excess of net investment income were 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 charge or
contingent deferred sales charge, if applicable.
(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)
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES, INC
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
1. ORGANIZATION
Federated 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. The Fund offers
three classes of shares: Class A Shares, Class B Shares, and Class C Shares.
The investment objective of the Fund is to provide current income.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS -- U.S. government securities are generally valued at
the mean of the latest bid and asked price as furnished by an independent
pricing service. Short-term securities are valued at the prices provided by
an independent pricing service. However, short-term securities with
remaining maturities of sixty days or less at the time of purchase may be
valued at amortized cost, which approximates fair market value.
REPURCHASE AGREEMENTS -- It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the Federal
Reserve Book Entry System, or to have segregated within the custodian bank's
vault, all securities held as collateral under repurchase agreement
transactions. Additionally, procedures have been established by the Fund to
monitor, on a daily basis, the market value of each repurchase agreement's
collateral to ensure that the value of collateral at least equals the
repurchase price to be paid under the repurchase agreement transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Directors (the
"Directors"). Risks may arise from the potential inability of counterparties
to honor the terms of the repurchase agreement. Accordingly, the Fund could
receive less than the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and
expenses are accrued daily. Bond premium and discount, if applicable, are
amortized as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
expiring capital loss carryforwards and equalization. The following
reclassifications have been made to the financial statements.
INCREASE (DECREASE)
ACCUMULATED UNDISTRIBUTED
NET REALIZED NET INVESTMENT
PAID-IN CAPITAL GAIN/LOSS INCOME
($14,773,027) $13,496,695 $1,276,332
Net investment income, net realized gains/losses, and net assets were not
affected by this reclassification.
FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of
the Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
At March 31, 1997, the Fund, for federal tax purposes, had a capital loss
carryforward of $180,107,709 which will reduce the Fund's taxable income
arising from future net realized gain on investments, if any, to the extent
permitted by the Code, and thus will reduce the amount of the distributions
to shareholders which would otherwise be necessary to relieve the Fund of
any liability for federal tax. Pursuant to the Code, such capital loss
carryforward will expire as follows:
EXPIRATION YEAR EXPIRATION AMOUNT
1999 $ 4,037,707
2000 $ 2,560,450
2001 $ 5,923,640
2002 $ 19,160,797
2003 $ 123,323,419
2004 $ 4,621,860
2005 $ 20,479,836
EQUALIZATION -- The Fund follows the accounting practice known as
equalization. With equalization, a portion of the proceeds from sales and
costs of redemptions of fund shares (equivalent, on a per share basis, to
the amount of undistributed net investment income on the date of the
transaction) is credited or charged to undistributed net investment income.
As a result, undistributed net investment income per share is unaffected by
sales or redemptions of fund shares.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
DOLLAR ROLL TRANSACTIONS -- The Fund enters into dollar roll transactions,
with respect to mortgage securities issued by GNMA, FNMA and FHLMC, in which
the Fund sells mortgage securities to financial institutions and
simultaneously agrees to accept substantially similar (same type, coupon and
maturity) securities at a later date at an agreed upon price. Dollar roll
transactions are short-term financing arrangements which will not exceed
twelve months. The Fund will use the proceeds generated from the
transactions to invest in short-term investments, which may enhance the
Fund's current yield and total return.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimates.
OTHER -- Investment transactions are accounted for on the trade date.
3. CAPITAL STOCK
At March 31, 1997, par value shares ($0.001 per share) authorized were as
follows:
NUMBER OF PAR
VALUE CAPITAL
CLASS NAME STOCK AUTHORIZED
Class A 750,000,000
Class B 500,000,000
Class C 750,000,000
Total 2,000,000,000
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1997 1996
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 13,802,678 $ 106,373,098 14,028,935 $ 109,836,978
Shares issued to shareholders in
payment of distributions declared 6,594,535 50,648,967 7,725,001 60,313,945
Shares redeemed (37,560,941) (288,629,597) (29,072,831) (227,106,948)
Net change resulting from
Class A Share transactions (17,163,728) $ (131,607,532) (7,318,895) $ (56,956,025)
<CAPTION>
YEAR ENDED MARCH 31,
1997 1996
<S> <C> <C> <C> <C>
CLASS B SHARES SHARES AMOUNT SHARES AMOUNT
Shares sold 4,065,970 $ 31,504,278 9,233,866 $ 72,641,142
Shares issued to shareholders in
payment of distributions declared 420,703 3,252,961 309,614 2,434,786
Shares redeemed (3,348,106) (25,930,245) (2,034,581) (16,019,590)
Net change resulting from
Retired Share transactions 1,138,567 $ 8,826,994 7,508,899 $ 59,056,338
<CAPTION>
YEAR ENDED MARCH 31,
1997 1996
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 1,953,059 $ 15,140,483 2,705,784 $ 21,376,663
Shares issued to shareholders in
payment of distributions declared 268,312 2,072,979 311,557 2,449,513
Shares redeemed (5,206,746) (40,387,952) (3,235,263) (25,437,162)
Net change resulting from
Class C Share transactions (2,985,375) $ (23,174,490) (217,922) $ (1,610,986)
Net change resulting from
share transactions (19,010,536) $ (145,955,028) (27,918) $ 489,327
</TABLE>
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE -- Federated Advisers, the Fund's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to (a) a maximum of 0.25% of 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.
ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received during
the period of the Administrative Services Agreement shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE -- The Fund has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan,
the Fund will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended
to result in the sale of the Fund's Class B Shares and Class C Shares. The
Plan provides that the Fund may incur distribution expenses according to the
following schedule, annually, to compensate FSC.
PERCENTAGE OF
AVERAGE DAILY
NET ASSETS
SHARE CLASS NAME OF CLASS
Class B Shares 0.75%
Class C Shares 0.75%
SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services ("FSS"), the Fund will pay FSS
up to 0.25% of average daily net assets of the Fund shares for the period.
The fee paid to FSS is used to finance certain services for shareholders and
to maintain shareholder accounts. FSS may voluntarily choose to waive any
portion of its fee. FSS can modify or terminate this voluntary waiver at any
time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ, through
its subsidiary, Federated Shareholder Services Company ("FSSC") serves as
transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is
based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES -- FServ maintains the Fund's accounting records
for which it receives a fee. The fee is based on the level of the Fund's
average daily net assets for the period, plus out-of-pocket expenses.
GENERAL -- Certain of the Officers and Directors of the Fund are Officers
and Directors or Trustees of the above companies.
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended March 31, 1997, were as follows:
PURCHASES $ 1,699,604,560
SALES $ 1,815,091,923
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES, INC.:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Federated Fund for U.S.
Government Securities, Inc. as of March 31, 1997, the related statement of
operations for the year then ended, the statements of changes in net assets
for the years ended March 31, 1997 and 1996, and the financial highlights
for the periods presented. These financial statements and financial
highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of March 31, 1997 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, the financial statements and financial highlights present
fairly, in all material respects, the financial position of Federated Fund
for U.S. Government Securities, Inc. as of March 31, 1997, the results of
its operations, the changes in its net assets, and its financial highlights
for the respective stated periods in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
May 2, 1997
DIRECTORS
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
William J. Copeland
J. Christopher Donahue
James E. Dowd
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr.
Peter E. Madden
Gregor F. Meyer
John E. Murray, Jr.
Wesley W. Posvar
Marjorie P. Smuts
OFFICERS
John F. Donahue
Chairman
J. Christopher Donahue
President
Richard B. Fisher
Vice President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President, Treasurer, and Secretary
S. Elliott Cohan
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including possible loss of principal.
This report is authorized for distribution to prospective investors only
when preceded or accompanied by the fund's prospectus, which contains facts
concerning its objective and policies, management fees, expenses and other
information.
[Graphic]
Cusip 314182106
Cusip 314182205
Cusip 314182304
8042505 (5/97)
Federated Fund for U.S. Government Securities, Inc.
A1. The graphic presentation here displayed consists of a boxed legend in
the upper left quadrant indicating the components of the corresponding
mountain chart. The color coded mountain chart is a visual representation
of the narrative text above it. The `x'' axis reflects computation periods
from 10/6/69 to 3/31/97. The `y'' axis is measured in increments of
$25,000 ranging from $0 to $225,000 and indicates that the ending value of
hypothetical initial investment of $28,000 in the fund's Class A Shares,
assuming the reinvestment of capital gains and dividends, would have grown
to $204,054 on 3/31/97.
A2. The graphic presentation here displayed consists of a boxed legend in
the upper left quadrant indicating the components of the corresponding
mountain chart. The color coded mountain chart is a visual representation
of the narrative text above it. The `x'' axis reflects computation periods
from 10/6/69 to 3/31/97. The `y'' axis is measured in increments of
$20,000 ranging from $0 to $100,000 and indicates that the ending value of
hypothetical yearly investments of $1,000 in the fund's Class A Shares,
assuming the reinvestment of capital gains and dividends, would have grown
to $95,768 on 3/31/97.
A3. The graphic presentation here displayed consists of a boxed legend in
the upper left quadrant indicating the components of the corresponding
mountain chart. The color-coded mountain chart is a visual representation
of the narrative text beneath it. The `x'' axis reflects computation
periods from 3/31/86 to 3/31/97. The `y'' axis is measured in increments
of $50,000 ranging from $0 to $250,000 and indicates that the ending value
of a hypothetical initial investment of $100,000 in the fund would have
grown to $208,998 on 3/31/97.
A4. The graphic presentation here displayed consists of a five column chart
outlining the nineteen ten-year periods of investment growth. The columns
are as follows: April 1-March 31; Initial Number of Shares; Dividends and
Capital Gains Reinvested; Total Shares; Ending Value of Shares. The
information is as follows: 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; 1,007,
$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; 1,105, $14,314, 2,717,
$22,852; 1979-1989; 1,056, $14,552, 2,873, $23,010; 1980-1990; 1,323,
$18,900, 3,619, $29,786; 1981-1991; 1,328, $19,392, 3,634, $30,561; 1982-
1992; 1,416, $20,128, 3,782, $32,182; 1983-1993; 1,120, $15,490, 2,942,
$25,008; 1984-1994; 1157, $14,218, 2,959, $23,350; 1985-1995; 1,141,
$12,590, 2,782, $21,341, 1986-1996, 1,089, 11,256, 2,528, $19,775 and 1987-
1997, 1,115, $10,768, 2,515 and $19,344.
A5. The graphic presentation here displayed consists of a pie chart showing
the percentage of fund assets diversified across different types of U.S.
government securities. The pie chart is divided into five separate pieces
labeled as follows: Government National Mortgage Association, 80.87%, U.S.
Treasurys, 11.83%, Repurchase Agreements, 4.82%, Government National
Mortgage Association ARMs, 2.24% and Federal National Mortgage Association,
0.24%.
A6. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The
Class A Shares of Federated Fund for U.S. Government Securities, Inc.,
based on a 4.50% sales charge are represented by a solid line. The Lehman
Brothers 5-Year Treasury Bellwether Index (the `LB5YRTBI'') is represented
by a dotted line, the Salomon Brothers
15-Year Mortgage Index (the `SB15YRMI'') is represented by a broken line
and the Lipper U.S. Mortgage Funds Average (the `LUSMFA'') is represented
by a dashed line. The line graph is a visual representation of a comparison
of change in value of a $10,000 hypothetical investment in the Class A
Shares of the fund, the LB5YRTBI, the SB15YRMI and the LUSMFA. The `x''
axis reflects computation periods from 3/31/87 to 3/31/97. The `y'' axis
reflects the cost of the investment. The right margin reflects the ending
value of the hypothetical investment in the fund's Class A Shares, based on
a 4.50% sales charge, as compared to the LB5YRTBI, the SB15YRMI and the
LUSMFA. The ending values were $19,335, $19,855, $22,621 and $20,194,
respectively. The legend in the bottom quadrant of the graphic presentation
indicates the fund's Class A Shares Average Annual Total Returns for the
one-year, five-year and 10-year periods ended 3/31/97 and from the fund's
start of performance (10/6/69) to 3/31/97. The total returns were 0.12%,
4.33%, 6.82% and 7.49%, respectively.
A7. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The
Class B Shares of Federated Fund for U.S. Government Securities, Inc. are
represented by a solid line. The Lehman Brothers 5-Year Treasury Bellwether
Index (the `LB5YRTBI'') is represented by a dotted line, the Salomon
Brothers 15-Year Mortgage Index (the `SB15YRMI'') is represented by a
broken line and the Lipper U.S. Mortgage Funds Average (the `LUSMFA'') is
represented by a dashed line. The line graph is a visual representation of
a comparison of change in value of a $10,000 hypothetical investment in the
Class B Shares of the fund, the LB5YRTBI, the SB15YRMI and the LUSMFA. The
`x'' axis reflects computation periods from 7/25/94 to 3/31/97. The ``y''
axis reflects the cost of the investment. The right margin reflects the
ending value of the hypothetical investment in the fund's Class B Shares as
compared to the LB5YRTBI, the SB15YRMI and the LUSMFA. The ending values
were $11,172, $11,742, $12,485 and $11,857, respectively. The legend in the
bottom quadrant of the graphic presentation indicates the fund's Class B
Shares Average Annual Total Returns for the one-year period ended 3/31/97
and from the fund's start of performance (7/25/94) to 3/31/97. The total
returns were (1.55%) and 4.42%, respectively.
A8. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed underneath. The
Class C Shares of Federated Fund for U.S. Government Securities, Inc. are
represented by a solid line. The Lehman Brothers 5-Year Treasury Bellwether
Index (the `LB5YRTBI'') is represented by a dotted line, the Salomon
Brothers 15-Year Mortgage Index (the `SB15YRMI'') is represented by a
broken line and the Lipper U.S. Mortgage Funds Average (the `LUSMFA'') is
represented by a dashed line. The line graph is a visual representation of
a comparison of change in value of a $10,000 hypothetical investment in the
Class C Shares of the fund, the LB5YRTBI, the SB15YRMI and the LUSMFA. The
`x'' axis reflects computation periods from 4/26/93 to 3/31/97. The ``y''
axis reflects the cost of the investment. The right margin reflects the
ending value of the hypothetical investment in the fund's Class C Shares as
compared to the LB5YRTBI, the SB15YRMI and the LUSMFA. The ending values
were $11,513, $11,958, $12,736 and $11,983, respectively. The legend in the
bottom quadrant of the graphic presentation indicates the fund's Class C
Shares Average Annual Total Returns for the one-year period ended 3/31/97
and from the fund's start of performance (4/26/93) to 3/31/97. The total
returns were 3.06% and 3.65%, respectively.
