[Graphic]
Federated Fund for U.S. Government Securities, Inc.
29TH SEMI-ANNUAL REPORT
SEPTEMBER 30, 1998
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 29th Semi-Annual Report. The fund's
$1.3 billion in assets are invested in U.S. government issues that have
provided generous monthly income. In the past six months, over $37
million in dividends were paid to over 67,000 shareholders. The fund's
share price increased in value as interest rates declined, and
investors purchased U.S. bonds for their relative safety and
generous income.
This report covers the first half of the fund's fiscal year, which is the
six-month period from April 1, 1998 through September 30, 1998. It begins with a
discussion with the fund's portfolio manager, Kathy Foody-Malus, Vice President
of Federated Advisers. Following her discussion are three additional items of
shareholder interest. First is a series of graphs showing the fund's long-term
investment performance. Second is a complete listing of the fund's broadly
diversified U.S. government bond portfolio, and third is the publication of the
fund's financial statements.
To pursue an attractive level of income, the fund invests primarily in
intermediate-term U.S. government securities. During the reporting period, the
fund maintained a strong focus on Government National Mortgage Association
("GNMA") securities for their long-term value and their current yield. As of
September 30, 1998, 81% of the fund's $1.4 billion portfolio was invested in
GNMA securities, with the remainder invested in other mortgage-backed
securities, government agency securities, and overnight repurchase agreements.
As Kathy notes, the longer term outlook for mortgage-backed securities is very
favorable due to their current yield advantage over U.S. Treasury securities.
The fund's average effective duration was two years, and the weighted average
coupon of its holdings was 6.91%. The shorter duration securities held by the
fund provided almost 90% of the income with less risk than would have been
available in longer duration securities. The fund's portfolio maintained its
AAAf rating by Standard & Poor's Ratings Group, the highest rating given by this
independent mutual fund rating service.*
* An AAAf rating means that the fund's portfolio holdings and counterparties
provide extremely strong protection against losses from credit defaults. Ratings
are subject to change and do not remove market risks.
Over the six-month reporting period, the fund produced a good level of income
and modest share price growth. Its total return performance was consistent with
that of the average U.S. government bond fund. Individual share class total
return performance, including income distributions, follows.**
TOTAL INCOME NET ASSET
RETURN DISTRIBUTIONS VALUE INCREASE
Class A Shares 4.24% $0.24 $7.90 to $7.99 = 1.14%
Class B Shares 3.85% $0.21 $7.90 to $7.99 = 1.14%
Class C Shares 3.72% $0.21 $7.91 to $7.99 = 1.01%
So far, 1998 has been a very good year for U.S. bond investors. In fact, since
1994, the fund's share prices have modestly and gradually increased in value, as
the interest rate environment since 1994 has been attractive for income
investors.
Thank you for investing a portion of your wealth in the fund. Remember,
reinvesting your monthly dividends is a convenient way to build the value of
your account-and help your shares increase through the benefit of compounding.+
Sincerely,
[Graphic]
J. Christopher Donahue
President
November 15, 1998
** Performance quoted is based on net asset value, reflects past performance,
and is not indicative of future results. Investment return and principal value
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost. Total returns for the period, based on
offering price, for Class A, B, and C Shares were (0.42%), (1.72%), and 2.68%,
respectively.
+ Systematic investing does not ensure a profit or protect against loss in
declining markets.
INVESTMENT REVIEW
[Graphic]
Kathy Foody-Malus
Vice President
Federated Advisers
[Graphic]
WHAT IS YOUR ANALYSIS OF THE U.S. BOND MARKET OVER THE FIRST
HALF OF THE FUND'S FISCAL YEAR, WHICH SAW EXTREME STOCK MARKET
VOLATILITY AND OVERSEAS ECONOMIC DISTRESS THAT CAUSED TREASURY
YIELDS TO DECLINE?
During much of the reporting period, the U.S. Treasury market traded in a
narrowly defined trading range of 25 basis points. However, this trend reversed
during August 1998, when the stock market started to crack due to disappointing
earnings expectations. Other factors driving the U.S. Treasury market included
the financial crises in Southeast Asia, Russia, and Latin America, and the
potential that these crises would spread to other countries. The U.S. Treasury
market was the main beneficiary as the "flight to quality" sent bond prices
soaring and yields plummeting to levels not seen in 30 years. The 30-year
Treasury yield as of September 30, 1998 was 4.97%. This volatile environment has
led to a significant widening of all fixed-income spread products.
[Graphic]
HOW EXTENSIVE WAS THE FLIGHT TO QUALITY TO TREASURIES DURING THE
REPORTING PERIOD, AND HOW DID THE MORTGAGE-BACKED SECURITIES
MARKET FARE RELATIVE TO THE TREASURY MARKET?
The massive flight to quality occurred during August 1998 due to investors
bailing out of equities and lower quality, fixed-income investments. Although
mortgage-backed securities did underperform U.S. Treasuries during this period,
they outperformed lower quality, fixed-income products. For example, during the
month of August, the mortgage-backed securities market underperformed U.S.
Treasuries by 0.88% compared to investment-grade corporate bonds, which
underperformed by 2.66%.
An area of concern for mortgage-backed securities investors has been the
potential increase in refinancing activity. However, the difference between
today's refinancing wave versus the one that occurred in the early 1990s is
significant. During the early 1990s, many homeowners were able to take advantage
of a significant refinancing opportunity for the first time and did so with a
vengeance. Since we have been in an environment of relatively low rates for a
number of years, the potential refinancing advantages by homeowners has not been
as great. With mortgage refinancing, there are costs to be incurred, and the
lower mortgage rates must be attractive.
[Graphic]
WHAT HAS BEEN YOUR STRATEGY FOR THE FUND IN THIS CURRENT MARKET
ENVIRONMENT?
Our strategy was to maintain a slightly longer duration as compared to the
Lehman Brothers Mortgage-Backed Securities Index.* The fund's portfolio
continues to favor the GNMA sector of the agency securities market, and our
overweighted position in the GNMA sector is due to less issuance and favorable
prepayment differences. Throughout 1998, GNMA securities have experienced
prepayment activity on average 15%-30% slower than comparable Federal Home Loan
Mortgage Corporation ("FHLMC") and Federal National Mortgage Association
("FNMA") coupons. The GNMA borrower tends to be slower to take advantage of
refinancing due to income constraints and the inability to finance the up-front
costs.
As of September 30, 1998, the fund's portfolio composition was:
PERCENTAGE OF
NET ASSETS
Government National Mortgage Association 80.6%
Federal National Mortgage Association 12.9%
Repurchase Agreements 12.3%
U.S. Government Agency Debentures 3.8%
Federal Home Loan Mortgage Corporation 2.0%
* Lehman Brothers Mortgage-Backed Securities Index is an unmanaged index
composed of all fixed securities mortgage pools by GNMA, FNMA, and FHLMC,
including GNMA Graduated Payment Mortgages. Investments cannot be made in an
index.
[Graphic]
HOW DID FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES, INC.
PERFORM FOR ITS SHAREHOLDERS IN TERMS OF TOTAL RETURN AND INCOME
FOR THE SIX-MONTH REPORTING PERIOD ENDED SEPTEMBER 30, 1998?
For the first half of the fund's fiscal year, Class A Shares of the fund
produced a total return of 4.24%, based on net asset value. Class B and C Shares
produced total returns of 3.85% and 3.72%, respectively, based on net asset
value.** The fund's returns over the reporting period were consistent with the
4.54% return of the Lipper U.S. Mortgage Funds Average.+ Reflecting plummeting
yields and soaring prices, the Merrill Lynch 2-Year and 3-Year Treasury Indexes
produced returns of 4.76% and 6.27%, respectively.++
In terms of income, the fund's Class A, B, and C Shares paid monthly dividends
totaling $0.24, $0.21, and $0.21 per share, respectively.
[Graphic]
WHAT IS YOUR OUTLOOK FOR THE REMAINDER OF THE FUND'S FISCAL YEAR, AND HOW MAY IT
IMPACT YOUR STRATEGY?
On September 29, 1998, the Federal Reserve Board (the "Fed") cut the Fed Funds
Target Rate by 25 basis points to 5.25%. Then on October 15, 1998, the Fed Funds
Target Rate was cut again by another 25 basis points to 5.00%. At the same time
the discount rate was also cut by 25 basis points to 4.75%. This was the first
time in four years that the Fed had changed the Fed Funds Target Rate between
normally scheduled meetings. The comments made by various Fed governors
highlighted their concern over the turbulence in the financial markets. The
reaction by the U.S. Treasury market was a significant steepening of the yield
curve among the 2-year and 30-year Treasuries. The Treasury market and investors
are reaching the consensus that there will be slower growth but not a recession
in the United States.
** Performance quoted is based on net asset value, reflects past performance,
and is not indicative of future results. Investment return and principal value
will fluctuate, so that an investor's shares, when redeemed, may be worth more
or less than their original cost. Total returns for the period, based on
offering price, for Class A, B, and C Shares were (0.42%), (1.72%), and 2.68%,
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 category indicated. These figures do not reflect sales charges.
++ Merrill Lynch 2-Year and 3-Year Treasury Indexes track 2-year and 3-year
U.S. government securities, respectively. These indexes are unmanaged,
and investments cannot be made in an index.
The outlook for the mortgage-backed securities market is twofold. For the
short-term, the remainder of 1998 portrays a difficult time due to increased
prepayment risk, record supply, and year-end pressures. While we have not seen a
significant rise in prepayments, mortgage rates have been at 30-year lows for
some time. This means that prepayment risk is a dominant issue for the
mortgage-backed securities market. If prepayment activity increases, the
resulting supply of mortgage-backed securities could be quite large. The
mortgage-backed securities market has reacted to heightened prepayment and
supply risks with a huge widening of the yield spread between mortgage-backed
securities and Treasury securities. The last time mortgage spreads reached these
levels was in the late 1980s.
For the long-term, we believe that the mortgage-backed securities market is a
compelling investment. We believe fund shareholders will benefit, moving into
1999, due to the tremendous yield advantage of mortgage-backed securities over
U.S. Treasuries. The other positive for the mortgage-backed securities market
is, as the economy slows, the enticement of U.S. government bonds at such
attractive levels should attract the non-traditional buyer.
TWO WAYS YOU MAY SEEK TO INVEST FOR SUCCESS IN
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES, INC.
INITIAL INVESTMENT:
IF YOU MADE AN INITIAL INVESTMENT OF $29,000 IN 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 DID NOT REDEEM ANY SHARES, YOUR ACCOUNT WOULD
HAVE BEEN WORTH $242,792 ON 9/30/98. YOU WOULD HAVE EARNED A 7.61%* AVERAGE
ANNUAL TOTAL RETURN FOR THE INVESTMENT LIFE SPAN.
One key to investing wisely is to reinvest all distributions in fund shares.
This increases the number of shares on which you can earn future dividends, and
you gain the benefit of compounding.
As of 9/30/98, the Class A Shares' average annual 1-year, 5-year, and 10-year
total returns were 3.08%, 5.07%, and 7.18%, respectively. Class B Shares'
average annual 1-year and since inception (7/25/94) total returns were 1.34% and
6.51%, respectively. Class C Shares' average annual 1-year, 5-year, and since
inception (4/26/93) total returns were 5.88%, 5.18%, and 5.03%, respectively.**
Please see Appendix A.1.
* 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 that an investor's
shares, when redeemed, may be worth more or less than their original cost.
** The total returns stated take into account the 4.50% sales charge for Class
A Shares, the 5.50% contingent deferred sales charge for Class B Shares, and the
1.00% contingent deferred sales charge for Class C Shares.
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES, INC.
ONE STEP AT A TIME:
$1,000 INITIAL INVESTMENT AND SUBSEQUENT INVESTMENTS OF $1,000 EACH
YEAR FOR 28 YEARS (REINVESTING ALL DIVIDENDS AND CAPITAL GAINS) GREW TO
$109,727.
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 did not redeem any shares, you would have invested only
$29,000, but your account would have reached a total value of $109,727* by
9/30/98. You would have earned an average annual total return of 6.61%.
A practical investment plan helps you pursue long-term performance from U.S.
government securities. Through systematic investing, you buy shares on a regular
basis and reinvest all earnings. An investment plan works for you when you
invest only $1,000 annually. You can take it one step at a time. Put time,
money, and compounding to work.
Please see Appendix A.2.
* This chart assumes that the subsequent annual investments are made on the
last day of the anniversary month. No method of investing can guarantee a profit
or protect against loss in down markets. However, by investing regularly over
time and buying shares at various prices, investors can purchase more shares at
lower prices. All accumulated shares have the ability to pay income to the
investor.
Because such a plan involves continuous investment, regardless of changing price
levels, the investor should consider whether or not to continue purchases
through periods of low price levels.
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES, INC.
HYPOTHETICAL INVESTOR PROFILE: INVESTING FOR CURRENT INCOME
Eleven years ago, on October 31, 1987, 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
traditionally are some of the safest, most credit-worthy securities issued in
America.+
They like the way they can use their account for an occasional extravagance-like
a $50,000 Jaguar they bought to celebrate their anniversary-without touching
their original principal.*
Please see Appendix A.3.
+ Fund shares are not guaranteed and their value will fluctuate.
* 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.
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
LONG-TERM U.S. GOVERNMENT OBLIGATIONS--99.3%
FEDERAL HOME LOAN MORTGAGE CORPORATION--2.0%
$ 24,170,220 6.500%, 4/1/2028 $ 24,608,185
6,464 11.000%, 12/1/2017 7,115
17,983 11.750%, 1/1/2011 20,520
6,900 12.000%, 6/1/2000 7,091
1,080 12.500%, 10/1/2012 1,242
8,751 12.750%, 1/1/2013 - 10/1/2013 9,966
51,458 13.000%, 11/1/1999 - 2/1/2015 58,767
61,758 13.250%, 3/1/2014 71,437
14,846 13.500%, 10/1/2013 17,105
41,053 13.750%, 1/1/2011 - 10/1/2011 47,534
259 14.000%, 12/1/2012 295
79,631 14.500%, 8/1/2012 - 10/1/2012 91,775
6,906 14.750%, 8/1/2011 8,018
4,062 15.500%, 8/1/2011 4,802
Total 24,953,852
FEDERAL HOME LOAN MORTGAGE CORPORATION AGENCY
DEBENTURE--3.1%
38,450,000 5.750%, 7/15/2003 - 4/15/2008 40,225,084
FEDERAL NATIONAL MORTGAGE ASSOCIATION--12.9%
49,003,985 6.000%, 3/1/2013 - 7/1/2013 49,525,643
51,596,725 6.500%, 6/1/2013 - 6/1/2028 52,521,454
60,000,000(a)7.000%, 9/1/2028 61,575,000
223,056 11.000%, 10/1/2010 247,731
6,065 11.750%, 10/1/2015 6,935
2,856 12.000%, 7/1/1999 - 1/1/2013 3,098
10,025 12.500%, 8/1/2013 11,585
59,993 12.750%, 10/1/2010 - 8/1/2014 69,357
36,028 13.000%, 6/1/2000 - 8/1/2015 41,256
104,424 13.500%, 12/1/2014 121,589
3,404 13.750%, 6/1/2014 3,898
6,104 14.000%, 11/1/2014 7,123
</TABLE>
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES, INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
LONG-TERM U.S. GOVERNMENT OBLIGATIONS--CONTINUED
FEDERAL NATIONAL MORTGAGE ASSOCIATION--CONTINUED
$ 46,825 14.500%, 11/1/2012 $ 54,639
7,555 15.000%, 10/1/2012 8,813
Total 164,198,121
FEDERAL HOME LOAN BANK--0.7%
8,300,000 5.500%, 7/14/2000 8,418,939
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--80.6%
51,826,970 6.000%, 5/15/2028 - 9/15/2028 51,958,103
18,000,000(a)6.000%, 10/15/2028 18,045,000
183,027,618 6.500%, 11/15/2023 - 9/15/2028 187,007,537
64,000,000(a)6.500%, 10/15/2028 65,340,160
325,580,359 7.000%, 7/15/2023 - 8/15/2028 335,308,939
218,619,298 7.500%, 1/15/2023 - 5/15/2028 226,358,242
117,602,913 8.000%, 5/15/2017 - 8/20/2026 122,588,977
20,636,867 8.500%, 11/15/2017 - 4/15/2023 21,932,941
15,483 10.500%, 10/15/1998 - 1/15/2001 15,881
563 11.250%, 9/20/2015 631
373 11.500%, 10/20/1999 378
73,991 11.750%, 7/15/2013 83,598
10,170 12.000%, 2/20/1999 - 5/15/2000 10,474
2,324 12.500%, 7/15/1999 - 5/20/2000 2,353
3,483 12.750%, 11/15/1999 3,560
43,674 13.000%, 9/15/1999 - 9/20/2014 48,365
4,713 13.500%, 9/20/1999 4,771
24,872 13.750%, 9/15/2014 28,874
Total 1,028,738,784
SMALL BUSINESS ADMINISTRATION--0.0%
1,191,306 Small Business Administration, 1.394%, 12/31/2003 22,337
16,374 Small Business Administration, 9.875%, 3/25/2000 16,559
Total 38,896
TOTAL LONG-TERM U.S. GOVERNMENT OBLIGATIONS
(IDENTIFIED COST $1,235,641,766) 1,266,573,676
</TABLE>
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES, INC.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(B)REPURCHASE AGREEMENTS--12.3%
$ 30,860,000 Credit Suisse First Boston, Inc., 5.500%, dated 9/30/1998,
due 10/1/1998 $ 30,860,000
18,000,000(c)J.P. Morgan & Co., Inc., 5.480%, dated 9/15/1998, due 10/21/
1998 18,000,000
49,000,000(c)Warburg Dillon Reed LLC, 5.510%, dated 9/11/1998, due
10/21/1998 49,000,000
60,000,000(c)Warburg Dillon Reed LLC, 5.530%, dated 9/9/1998, due
10/14/1998 60,000,000
TOTAL REPURCHASE AGREEMENTS (AT AMORTIZED COST) 157,860,000
TOTAL INVESTMENTS (IDENTIFIED COST $1,393,501,766)(D) $1,424,433,676
</TABLE>
(a) Indicates securities subject to dollar roll transactions.
(b) 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.
(c) Although final maturity falls beyond seven days, a liquidity feature is
included in each transaction to permit termination of the repurchase agreement
within seven days.
(d) The cost of investments for federal tax purposes amounts to $1,393,501,766.
The net unrealized appreciation of investments on a federal tax basis amounts to
$30,931,910 which is comprised of $30,969,138 appreciation and $37,228
depreciation at September 30, 1998.
Note: The categories of investments are shown as a percentage of net assets
($1,276,236,415) at September 30, 1998.
The following acronyms are used throughout this portfolio:
LLC--Limited Liability Corporation
(See Notes which are an integral part of the Financial Statements)
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES, INC.
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Investments in securities $1,266,573,676
Investments in repurchase agreements 157,860,000
Total investments in securities, at value (identified and tax cost
$1,393,501,766) $1,424,433,676
Income receivable 7,582,313
Receivable for shares sold 986,889
Total assets 1,433,002,878
LIABILITIES:
Payable for investments purchased 20,864,408
Payable for shares redeemed 160,358
Income distribution payable 6,277,233
Payable for dollar roll transactions 128,665,414
Accrued expenses 799,050
Total liabilities 156,766,463
NET ASSETS for 159,687,742 shares outstanding $1,276,236,415
NET ASSETS CONSIST OF:
Paid in capital $1,395,571,122
Net unrealized appreciation of investments 30,931,910
Accumulated net realized loss on investments (157,968,488)
Undistributed net investment income 7,701,871
Total Net Assets $1,276,236,415
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS PER SHARE:
CLASS A SHARES:
Net Asset Value Per Share ($1,099,974,497 / 137,632,342 shares outstanding) $7.99
Offering Price Per Share (100 / 95.50 of $7.99)* $8.37
Redemption Proceeds Per Share $7.99
CLASS B SHARES:
Net Asset Value Per Share ($128,719,864 / 16,106,405 shares outstanding) $7.99
Offering Price Per Share $7.99
Redemption Proceeds Per Share (94.50 / 100 of $7.99)** $7.55
CLASS C SHARES:
Net Asset Value Per Share ($47,542,054 / 5,948,995 shares outstanding) $7.99
Offering Price Per Share $7.99
Redemption Proceeds Per Share (99.00 / 100 of $7.99)** $7.91
</TABLE>
* See "What Shares Cost" in the Prospectus.
** See "Contingent Deferred Sales Charge" in the Prospectus.
(See Notes which are an integral part of the Financial Statements)
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES, INC.
STATEMENT OF OPERATIONS
SIX MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest (net of dollar roll expense of $2,353,273) $44,554,431
EXPENSES:
Investment advisory fee $3,598,478
Administrative personnel and services fee 480,453
Custodian fees 60,993
Transfer and dividend disbursing agent fees and expenses 501,993
Directors'/Trustees' fees 5,429 Auditing fees 10,807 Legal fees 4,893
Portfolio accounting fees 91,476 Distribution Services Fee--Class B Shares
420,247 Distribution Services Fee--Class C Shares 177,460 Shareholder Services
Fee--Class A Shares 1,393,778 Shareholder Services Fee--Class B Shares 140,082
Shareholder Services Fee--Class C Shares 59,153 Share registration costs 21,486
Printing and postage 73,864 Insurance premiums 5,735 Miscellaneous 10,628 Total
expenses 7,056,955 WAIVERS-- Waiver of Shareholder Services Fee--Class A Shares
(111,502) Net expenses 6,945,453 Net investment income 37,608,978 REALIZED AND
UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain on investments
10,798,766 Net change in unrealized appreciation of investments 3,658,724 Net
realized and unrealized gain on investments 14,457,490 Change in net assets
resulting from operations $52,066,468 </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>
SIX MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED
1998 MARCH 31,
(UNAUDITED) 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 37,608,978 $ 84,044,173
Net realized gain on investments ($10,798,766 and
$11,329,355 respectively, as computed for federal tax
purposes) 10,798,766 13,521,505
Net change in unrealized appreciation 3,658,724 31,409,180
Change in net assets resulting from operations 52,066,468 128,974,858
NET EQUALIZATION CREDITS (DEBITS)-- -- (794,932)
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Class A Shares (33,491,376) (76,464,715)
Class B Shares (2,988,610) (5,856,259)
Class C Shares (1,244,183) (2,931,158)
Change in net assets resulting from distributions to
shareholders (37,724,169) (85,252,132)
SHARE TRANSACTIONS--
Proceeds from sale of shares 106,870,916 168,006,126
Net asset value of shares issued to shareholders in payment
of distributions declared 20,035,209 53,229,763
Cost of shares redeemed (158,805,381) (303,722,752)
Change in net assets resulting from share transactions (31,899,256) (82,486,863)
Change in net assets (17,556,957) (39,559,069)
NET ASSETS:
Beginning of period 1,293,793,372 1,333,352,441
End of period (including undistributed net investment income
of $7,701,871 and $7,817,062, respectively) $1,276,236,415 $1,293,793,372
</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>
SIX MONTHS
ENDED
SEPTEMBER 30,
1998 YEAR ENDED MARCH 31,
(UNAUDITED) 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.90 $ 7.65 $ 7.78 $ 7.67 $ 7.89 $ 8.50
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.24 0.50 0.51 0.54 0.57 0.63
Net realized and unrealized
gain (loss) on investments 0.09 0.26 (0.14) 0.12 (0.23) (0.61)
Total from investment operations 0.33 0.76 0.37 0.66 0.34 0.02
LESS DISTRIBUTIONS
Distributions from net
investment income (0.24) (0.51) (0.50) (0.55) (0.56) (0.63)
NET ASSET VALUE, END OF PERIOD $ 7.99 $ 7.90 $ 7.65 $ 7.78 $ 7.67 $ 7.89
Total return(a) 4.24% 10.21% 4.88% 8.77% 4.59% 0.13%
Ratios to average net assets
Expenses 0.99%* 0.94% 0.95% 0.95% 0.95% 0.88%
Net investment income 6.02%* 6.40% 6.60% 6.80% 7.41% 7.50%
Expense waiver/ reimbursement(b) 0.02%* 0.08% 0.12% 0.11% 0.02% --
SUPPLEMENTAL DATA
Net assets,
end of period
(000 omitted) $1,099,974 $1,138,450 $1,177,071 $1,330,272 $1,367,710 $1,693,293
Portfolio turnover 90% 88% 120% 157% 154% 149%
</TABLE>
* Computed on an annualized basis.
(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>
SIX MONTHS
ENDED
SEPTEMBER 30,
1998 YEAR ENDED MARCH 31,
(UNAUDITED) 1998 1997 1996 1995(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.90 $ 7.66 $ 7.78 $ 7.67 $ 7.75
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.21 0.44 0.44 0.49 0.37
Net realized and unrealized gain
(loss) on investments 0.09 0.25 (0.13) 0.11 (0.06)
Total from investment operations 0.30 0.69 0.31 0.60 0.31
LESS DISTRIBUTIONS
Distributions from net
investment income (0.21) (0.45) (0.43) (0.49) (0.37)
Distributions in excess of net
investment income(b) -- -- -- -- (0.02)
Total distributions (0.21) (0.45) (0.43) (0.49) (0.39)
NET ASSET VALUE, END OF PERIOD $ 7.99 $ 7.90 $ 7.66 $ 7.78 $ 7.67
TOTAL RETURN(C) 3.85% 9.16% 4.13% 7.90% 4.13%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.78%* 1.77% 1.80% 1.78% 1.76%*
Net investment income 5.26%* 5.57% 5.75% 5.93% 7.02%*
Expense waiver/reimbursement(d) 0.00%* 0.00% 0.02% 0.04% 0.06%*
SUPPLEMENTAL DATA
Net assets, end of period
(000 omitted) $128,720 $107,225 $100,439 $93,169 $34,276
Portfolio turnover 90% 88% 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 return of
capital for federal income tax purposes.
(c) Based on net asset value, which does not reflect the sales 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>
SIX MONTHS
ENDED
SEPTEMBER 30,
1998 YEAR ENDED MARCH 31,
(UNAUDITED) 1998 1997 1996 1995 1994(A)(B)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.91 $ 7.66 $ 7.78 $ 7.67 $ 7.89 $8.54
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.21 0.44 0.45 0.47 0.51 0.54
Net realized and unrealized gain
(loss) on investments 0.08 0.26 (0.13) 0.12 (0.23) (0.63)
Total from investment operations 0.29 0.70 0.32 0.59 0.28 (0.09)
LESS DISTRIBUTIONS
Distributions from net investment income (0.21) (0.45) (0.44) (0.48) (0.50) (0.54)
Distributions in excess of net
investment income(c) -- -- -- -- -- (0.02)
Total distributions (0.21) (0.45) (0.44) (0.48) (0.50) (0.56)
NET ASSET VALUE, END OF PERIOD $ 7.99 $ 7.91 $ 7.66 $ 7.78 $ 7.67 $ 7.89
Total return(d) 3.72% 9.29% 4.14% 7.85% 3.72% (1.17%)
Ratios to average net assets
Expenses 1.77%* 1.77% 1.80% 1.79% 1.79% 1.81%*
Net investment income 5.25%* 5.57% 5.74% 5.96% 6.56% 6.45%*
Expense waiver/reimbursement(e) 0.00%* 0.00% 0.02% 0.02% 0.02% --
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $47,542 $48,118 $55,842 $79,949 $80,519 $103,433
Portfolio turnover 90% 88% 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 a result of certain
book and tax timing differences. These distributions do not represent 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
SEPTEMBER 30, 1998 (UNAUDITED)
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.
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, 1998, the Fund, for federal tax purposes, had a capital loss
carryforward of $168,862,760, 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
2001 $ 1,192,442
2002 19,245,203
2003 123,323,419
2004 4,621,860
2005 20,479,836
EQUALIZATION-Effective April 1, 1998, the Fund discontinued its use of
equalization. Equalization is an accounting practice whereby a portion of the
proceeds of sales and costs of redemptions of Fund shares is credited or charged
to undistributed net investment income on a per share basis, as determined on
the date of transaction. This change in accounting policy does not effect the
Fund's net assets, net asset value per share, or net investment income.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS-The Fund may engage in when-issued
or delayed delivery transactions. The Fund records when- issued securities on
the trade date and maintains security positions such that sufficient liquid
assets will be available to make payment for the securities purchased.
Securities purchased on a when-issued or delayed delivery basis are marked to
market daily and begin earning interest on the settlement date.
DOLLAR ROLL TRANSACTIONS-The Fund enters into dollar roll transactions, with
respect to mortgage securities issued by GNMA, FNMA, and FHLMC, in which the
Fund sells mortgage securities to financial institutions and simultaneously
agrees to accept substantially similar (same type, coupon and maturity)
securities at a later date at an agreed upon price. Dollar roll transactions
involve "to be announced" securities and are treated as short-term financing
arrangements which will not exceed twelve months. The Fund will use the proceeds
generated from the transactions to invest in short-term investments, which may
enhance the Fund's current yield and total return.
USE OF ESTIMATES-The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts of assets, liabilities, expenses and
revenues reported in the financial statements. Actual results could differ from
those estimated.
OTHER-Investment transactions are accounted for on the trade date.
3. CAPITAL STOCK
At September 30, 1998, par value shares ($0.001 per share) authorized were as
follows:
NUMBER OF
PAR VALUE
CAPITAL STOCK
CLASS NAME UTHORIZED
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>
PERIOD ENDED
SEPTEMBER 30, 1998 YEAR ENDED
(UNAUDITED) MARCH 31, 1998
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 5,611,117 $ 44,535,953 15,417,220 $120,074,973
Shares issued to shareholders
in payment of distributions declared 2,275,686 18,009,776 6,176,322 48,245,312
Shares redeemed (14,309,401) (113,514,681) (31,378,305) 244,988,746)
Net change resulting from
Class A Share transactions (6,422,598) $ (50,968,952) (9,784,763) $(76,668,461)
<CAPTION>
PERIOD ENDED
SEPTEMBER 30, 1998 YEAR ENDED
(UNAUDITED) MARCH 31, 1998
CLASS B SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 5,896,526 $ 46,822,955 4,539,299 $ 35,836,422
Shares issued to shareholders in
payment of distributions declared 185,697 1,469,749 435,630 3,427,033
Shares redeemed (3,545,044) (28,131,917) (4,522,214) (35,616,226)
Net change resulting from
Class B Share transactions 2,537,179 $ 20,160,787 452,715 $ 3,647,229
<CAPTION>
PERIOD ENDED
SEPTEMBER 30, 1998 YEAR ENDED
(UNAUDITED) MARCH 31, 1998
CLASS C SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 1,955,053 $ 15,512,008 1,528,796 $ 12,094,731
Shares issued to shareholders
in payment of distributions
declared 70,214 555,684 198,010 1,557,418
Shares redeemed (2,162,262) (17,158,783) (2,932,406) (23,117,780)
Net change resulting from
Class C Share transactions (136,995) $ (1,091,091) (1,205,600) $ (9,465,631)
Net change resulting from
share transactions (4,022,414) $(31,899,256) (10,537,648) $(82,486,863)
</TABLE>
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 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, Inc. for the period. The administrative fee received during the
period of the Administrative Services Agreement shall be at least $125,000 per
portfolio and $30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE-The Fund has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will
compensate Federated Securities Corp. ("FSC"), the principal distributor, from
the net assets of the Fund to finance activities intended to result in the sale
of the Fund's Class 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%
The distributor may voluntarily choose to waive any portion of its fee. The
distributor can modify or terminate this voluntary waiver at any time at its
sole discretion.
SHAREHOLDER SERVICES FEE-Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25%
of average daily net assets of the Fund for the period. The fee paid to FSS is
used to finance certain services for shareholders and to maintain shareholder
accounts. FSS may voluntarily choose to waive any portion of its fee. FSS can
modify or terminate this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES-FServ, through its
subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer
and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the
size, type, and number of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES-FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses.
GENERAL-Certain of the Officers and Directors of the Corporation are Officers
and Directors or Trustees of the above companies.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended September 30, 1998, were as follows:
PURCHASES $1,119,090,466
SALES $1,124,953,331
YEAR 2000
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and Administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
DIRECTORS
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
William J. Copeland
J. Christopher Donahue
James E. Dowd, Esq.
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr., Esq.
Peter E. Madden
John E. Murray, Jr., J.D., S.J.D.
Wesley W. Posvar
Marjorie P. Smuts
OFFICERS
John F. Donahue
Chairman
J. Christopher Donahue
President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President, Treasurer, and Secretary
Richard B. Fisher
Vice President
Matthew S. Hardin
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
[Graphic]
Federated Investors
Federated Securities Corp., Distributor
Federated Investors, Inc.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Cusip 314182106
Cusip 314182205
Cusip 314182304
8110105 (11/98)
[Graphic]
APPENDIX
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 10/06/69
to 9/30/98. The "y" axis is measured in increments of $50,000 ranging from $0 to
$300,000 and indicates that the ending value of hypothetical initial investment
of $29,000 (2,769 Shares) in the fund's Class A Shares, assuming the
reinvestment of capital gains and dividends, would have grown to $242,792
(30,387 Shares) on 9/30/98.
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 10/06/69
to 9/30/98. The "y" axis is measured in increments of $25,000 ranging from $0 to
$125,000 and indicates that the ending value of hypothetical yearly investments
of $1,000 over 28 years in the fund's Class A Shares, assuming the reinvestment
of capital gains and dividends, would have grown to $109,727 (13,733 Shares) on
9/30/98.
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 above it. The "x" axis reflects computation periods from 10/31/87
to 9/30/98. 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 (11,695 Shares) in the fund's Class A Shares, assuming
the reinvestment of capital gains and dividends, would have grown to $220,876
(27,644 Shares) on 9/30/98.
