[Graphic]
J. Christopher Donahue
President
Federated Fund for U.S. Government Securities, Inc.
President's Message
Dear Fellow Shareholder:
Federated Fund for U.S. Government Securities, Inc. was created in 1969, and
I am pleased to present its 30th Semi-Annual Report. For thirty years, this
fund has invested primarily in U.S. government agency securities and
U.S. Treasury bonds, which has provided generous monthly income. In the fund's
three decades, fund managers successfully managed U.S. government
securities during widely fluctuating interest rate environments. Currently,
the fund's $1.2 billion in net assets are invested primarily in
U.S. government mortgage-backed securities. In the past six months, a total
of approximately $36.9 million in dividends were paid to shareholders.
This report covers the first half of the fund's fiscal year, which is the
six-month period from April 1, 1999 through September 30, 1999. It begins with
an interview with the fund's portfolio manager, Kathy Foody-Malus, Vice
President of Federated Investment Management Company. Following her discussion
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.
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, 1999, 71.5% of the fund's $1.2 billion
portfolio was invested in GNMA securities, with the remainder invested in other
mortgage-backed securities, a U.S. Treasury note, and overnight repurchase
agreements.
As of September 30, 1999, the fund's average effective duration was 4.7 years,
and the weighted average coupon of its holdings was 6.82%.
The fund's focus on mortgage-backed securities, which offer a yield advantage
over comparable-duration U.S. Treasuries, continued to generate an attractive
income stream. The fund's managers have faced this situation a number of times
in the fund's 30-year history. However, we believe that long-term interest rates
are in a downward trend and have been since the early 1980s. The U.S. interest
rate cycles, whether rising or falling, do so over 20-, 25-, and 30-year
periods. The fund's management is optimistic about the mortgage-backed
securities held by the fund because of their attractive current yields and the
slowdown in mortgage prepayments.
In the current market environment, rates have risen, negatively affecting bond
prices. The experience is not new, and it is not enjoyable. Fears of inflation
in the strong U.S. economy seem to be well-addressed by Federal Reserve Board
(the "Fed") Chairman Alan Greenspan, as his words do impact interest rates and
bond prices. During the six-month reporting period, the fund's flat total return
was consistent with the returns of the overall Treasury market as well as the
average U.S. government bond fund. Individual share class total return
performance for the six-month reporting period, including income distributions,
follows. 1
<TABLE>
<CAPTION>
INCOME
TOTAL RETURN DISTRIBUTIONS NET ASSET VALUE CHANGE
<S> <C> <C> <C>
Class A Shares (0.23%) $0.24 $7.84 to $7.58 = (3.32%)
Class B Shares (0.61%) $0.21 $7.84 to $7.58 = (3.32%)
Class C Shares (0.62%) $0.21 $7.84 to $7.58 = (3.32%)
</TABLE>
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, 1999
1 Performance quoted is based on net asset value, reflects past performance and
is no guarantee 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 reporting period, based on
offering price (i.e., less any applicable sales charge), for Class A, B, and C
Shares were (4.73%), (5.93%), and (1.59%), respectively.
[Graphic]
Kathy Foody-Malus
Vice President
Federated Investment Management Company
Investment Review
WHAT ARE YOUR COMMENTS ON THE ECONOMY OVER THE FIRST HALF OF THE FUND'S FISCAL
YEAR, WHICH SAW CONTINUED GROWTH, BENIGN INFLATION, AND A SERIES OF INTEREST
RATE INCREASES BY THE FED?
The U.S. economy continued at a vigorous pace with the current expansion
cruising into its ninth year. This growth has occurred as inflation remains
subdued, and measures of core inflation and wage gains continue to show no signs
of picking up over the near term. What has become the second longest economic
expansion raised concerns in the U.S. Treasury market over the potential to
trigger wage and price inflation. Concerns over potential inflationary pressures
and the adoption of a tightening bias by the Fed in mid-May caused yields along
the U.S. Treasury curve to increase on average by 50 basis points. As the second
quarter of 1999 ended, the Fed raised the Fed Funds Target Rate by 25 basis
points to 5.00%. This move by the Fed was widely anticipated. In addition to
confirming the market's expectations, the Fed also announced a switch to a
neutral policy outlook, thereby dropping its bias toward further rate hikes over
the next few months. The neutral policy announcement caught bond investors by
surprise, and Treasuries rallied enormously at the end of the quarter.
Despite the absence of inflation, the Fed continued to be vigilant in the third
quarter of 1999 due to strong economic growth. The Treasury market traded in a
range during the quarter, despite robust household and business demand, rising
oil and commodity prices, and the decline of the U.S. dollar versus the Japanese
yen. The trading range was due to increasing investor confidence in a preemptive
Fed. The Fed did not disappoint the market's expectations, as the Fed Funds
Target Rate increased by 25 basis points to end the third quarter of 1999 at
5.25%. There have already been small signs of moderation in the economy due to
the vigilance of the Fed, i.e., the 150 basis point increase in mortgage rates
has resulted in recent sluggishness in home sales and housing permits.
WHAT DID THIS ENVIRONMENT MEAN FOR THE MORTGAGE-BACKED SECURITIES MARKET?
The mortgage-backed securities market struggled during the second quarter of
1999 as investors continued to evaluate the rewards/risks of owning
mortgage-backed securities. The concern over extension risk, which is the
lengthening of the securities' average life as interest rates rise, dominated
the mortgage-backed securities market throughout the second quarter of 1999.
The third quarter of 1999 took investors in the mortgage-backed securities
market on a roller coaster ride. In the first half of the quarter, mortgage
spreads widened as interest rates rose in the Treasury market. This widening in
mortgage spreads was due to concerns over Year 2000 ("Y2K") and liquidity at
year end. As liquidity concerns abated, mortgage-backed securities tightened
against U.S. Treasuries to levels last seen at the beginning of 1999. As the
final quarter of 1999 begins, the outlook for the mortgage-backed securities
market continues to be positive due to lower volatility and reduced prepayment
concerns.
CAN YOU ELABORATE ON HOW MUCH REFINANCING HAS DROPPED AND WHAT THIS MEANS TO THE
MORTGAGE-BACKED SECURITIES MARKET?
Refinancing activity, as measured by the various refinancing indexes, has
gradually subsided to its lowest levels since the first half of 1997 and has
stayed there since early summer. A continuation of current rate levels may push
refinancings even lower, as most mortgages originated over the last two years
are concentrated in 7.00% and lower coupons. Purchasing activity is also showing
signs of slowing due to the increase in interest rates. The housing season,
already on a wane from its peak this summer, will slow to a normal seasonal pace
instead of running right through Christmas like the previous two years. The
impact of these factors is a positive for investors in the mortgage-backed
securities market due to little or no supply.
WHAT HAS BEEN YOUR STRATEGY FOR THE FUND IN THESE MARKET CONDITIONS?
The portfolio continues to overweight the GNMA sector of the mortgage-backed
securities market for several reasons. First, the continued increase in interest
rates over the past year, coupled with extension fears and a lack of broad-based
investor sponsorship, caused GNMA securities to trade at cheap levels versus
Federal Home Loan Mortgage Corporation ("FHLMC") and Federal National Mortgage
Association ("FNMA") securities. The extension fears rose due to an overreaction
by investors on how slow prepayments would be on GNMA securities going forward.
To date, this fear has proved to be unfounded.
In addition, FHLMC and FNMA securities currently enjoy the advantage of having a
natural buyer in Freddie Mac and Fannie Mae as these agencies grow their
portfolios. Until recently, GNMA securities have not had that natural buyer.
Late in the third quarter of 1999 there was an announcement that GNMA was
considering building an investment portfolio. This news, coupled with investors'
desire to have some exposure to GNMA securities, has caused the sector to move
back to fair levels versus the conventional market. As opportunities arose, the
portfolio swapped out of GNMA securities and into FHLMC and FNMA securities.
HOW WAS THE FUND'S PORTFOLIO ALLOCATED ON SEPTEMBER 30, 1999?
<TABLE>
<CAPTION>
PERCENTAGE OF
NAME NET ASSETS
<S> <C>
Government National Mortgage Association 71.5%
Federal National Mortgage Association 16.4%
Federal Home Loan Mortgage Corporation 6.4%
Non-Agency Mortgage-Backed Securities 5.5%
U.S. Treasury 0.3%
</TABLE>
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, 1999?
For the first half of the fund's fiscal year, the Class A Shares of the fund
produced a total return of (0.23%), based on net asset value. Class B and C
Shares produced total returns of (0.61%) and (0.62%), respectively, based on net
asset value. 1
The fund's returns over the six-month reporting period were consistent with the
(0.03%) return of the Lipper U.S. Mortgage Funds Average. 2 Reflecting the
rising rate environment, the Merrill Lynch 5-Year and 10-Year Treasury Indexes
produced negative returns of (0.26%) and (2.87%), respectively.3
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.
RECENTLY, THE NEW YORK FEDERAL RESERVE (THE "NEW YORK FED") ANNOUNCED THAT IT
WILL ACCEPT MORTGAGE-BACKED SECURITIES AS COLLATERAL IN REPURCHASE
TRANSACTIONS. WILL THAT DEVELOPMENT HAVE LONG-TERM POSITIVE IMPLICATIONS FOR
THE MORTGAGE-BACKED SECURITIES MARKET?
The New York Fed announced on September 8, 1999 that it would expand the types
of securities used for repurchase agreements to include agency debentures and
agency mortgage-backed securities. Prior to this announcement, the only
securities permissible were U.S. Treasury securities. This move by the New York
Fed is to ensure that there will be enough money in the banking system to offset
any Y2K liquidity problems that may arise. By including agency mortgage-backed
securities, this is a signal to investors that the agency mortgage-backed
securities market has excellent depth and liquidity.
This announcement, combined with the strong technicals and fundamentals for
mortgage-backed securities, has been a positive for investors in mortgage-backed
securities.
1 Performance quoted is based on net asset value, reflects past performance and
is no guarantee of future results. Investment return and principal value will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost. Total returns based on offering price (i.e., less any
applicable sales charge), for Class A, B, and C Shares were (4.73%), (5.93%),
and (1.59%), respectively.
2 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.
3 Merrill Lynch 5-Year and 10-Year Treasury Note Indexes comprise the most
recently issued 5-year and 10-year U.S. Treasury notes. Index returns are
calculated as total returns for periods of 1, 3, 6, and 12 months as well as
year-to-date. These indexes are unmanaged, and investments cannot be made in an
index.
Two Ways You May Seek to Invest for Success:
INITIAL INVESTMENT
If you had made an initial investment of $30,000 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 did not redeem any shares, your account would
have been worth $252,927 on 9/30/99. You would have earned a 7.38% 1 average
annual total return for the investment lifespan.
One key to investing wisely is to reinvest all distributions in fund shares.
This increases the number of shares on which you can earn future dividends, and
you gain the benefit of compounding.
As of 9/30/99, the Class A Shares' average annual 1-year, 5-year, and 10-year
total returns were (3.67%), 5.68%, and 6.25%, respectively. The Class B Shares'
average annual 1-year, 5-year, and since inception (7/26/94) total returns were
(5.07%), 5.52% and 5.48%, respectively. The Class C Shares' average annual
1-year, 5-year, and since inception (4/27/93) total returns were (0.81%), 5.82%
and 4.25%, respectively. 2
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 9/30/99. The
"y" axis is measured in increments of $50,000 ranging from $0 to $300,000 and
indicates that the ending value of a hypothetical initial investment of $30,000
(2,865 Shares) in the fund's Class A Shares, assuming the reinvestment of
capital gains and dividends, would have grown to $252,927 (33,368 Shares) on
9/30/99.
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.
2 The total returns stated take into account all applicable sales charges. The
maximum sales charges and contingent deferred sales charges for the fund are as
follows: Class A Shares, 4.50% sales charge; Class B Shares, 5.50% contingent
deferred sales charge; Class C Shares, 1.00% contingent deferred sales charge.
ONE STEP AT A TIME
$1,000 initial investment and subsequent investments of $1,000 each year for 29
years (reinvesting all dividends and capital gains) grew to $111,654.
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
$30,000 but your account would have reached a total value of $111,654 1 by
9/30/99. You would have earned an average annual total return of 7.54%.
A practical investment plan helps you pursue long-term performance from U.S.
government securities. Through systematic investing, you buy shares on a regular
basis and reinvest all earnings. An investment plan can work for you when you
invest only $1,000 annually. You can take it one step at a time. Put time,
money, and compounding to work.
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 9/30/99. The
"y" axis is measured in increments of $20,000 ranging from $0 to $120,000 and
indicates that the ending value of hypothetical yearly investments of $1,000 (96
Shares) in the fund's Class A Shares of the fund for 29 years, assuming the
reinvestment of capital gains and dividends, would have grown to $111,654
(14,730 Shares) on 9/30/99.
1 This chart assumes that the subsequent annual investments are made on the last
day of each anniversary month. No method of investing can guarantee a profit or
protect against loss in down markets.
Hypothetical Investor Profile--
Investing for Current Income
Ten years ago, on September 30, 1989, 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 Class A Shares of
Federated Fund for U.S. Government Securities, Inc. because it invests in
government securities which traditionally are some of the safest, most
creditworthy securities issued in America. 1
They like the way they can use their account for an occasional extravagance--
like their $55,000 Jaguar--without touching their original principal.
The Laughlin's account totaled $184,901 as of September 30, 1999 for an
average annual total return of 7.54%. 2
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 9/30/89 to 9/30/99. The
"y" axis is measured in increments of $50,000 ranging from $0 to $200,000 and
indicates that the ending value of a hypothetical initial investment of $100,000
(11,574 Shares) in the Class A Shares of the fund, assuming the reinvestment of
capital gains and dividends, would have grown to $184,901 (24,393 Shares) on
9/30/99.
1 Fund shares are not guaranteed and their value will fluctuate.
2 This hypothetical scenario is provided for illustrative purposes only and does
not represent the result obtained by any particular shareholder. Past
performance does not guarantee future results. Fund shares are not guaranteed
and their value will fluctuate.
Portfolio of Investments
SEPTEMBER 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
ASSET BACKED SECURITIES--
5.5%
FINANCIAL INTERMEDIARIES--
1.2%
$ 10,000,000 Norwest Asset Securities
Corp. 99-18, Class A2,
6.000%, 7/25/2029 $ 9,500,650
HOME EQUITY LOAN--3.5%
2,500,000 Chase Funding Mortgage
Loan 99-1, Class IIB,
8.028%, 6/25/2028 2,504,850
60,000,000 Green Tree Home Equity Loan
Trust 99-C, Class A6 IO,
14.250% (Interest Only),
7/15/2030 11,062,800
6,550,000 Mellon Bank Home Equity
Installment Loan 98-1,
Class B, 6.950%, 3/25/2015 6,276,996
3,000,000 Saxon Asset Securities
Trust 99-2, Class BV1,
8.083%, 5/25/2029 3,027,060
207,070,839 Salomon Brothers Mortgage
Sec. VII 99-4, Class 4,
2.547% (Interest Only),
12/25/2027 10,353,542
8,000,000 Salomon Brothers Mortgage
Sec. VII 99-NC3, Class M3,
Floating Rate Note,
8.483%, 10/1/1999 7,910,000
TOTAL 41,135,248
MANUFACTURED HOUSING--0.8%
13,000,000 Green Tree Financial Corp.
93-4, Class B2, 8.550%,
1/15/2019 12,535,640
2,000,000 Green Tree Financial Corp.
97-4, Class B1, 7.230%,
2/15/2029 1,818,080
TOTAL 14,353,720
TOTAL ASSET BACKED
SECURITIES (IDENTIFIED
COST $67,400,221) 64,989,618
LONG-TERM U.S. GOVERNMENT
OBLIGATIONS--94.3%
FEDERAL HOME LOAN MORTGAGE
CORPORATION--5.7%
69,264,610 6.500%, 4/1/2029 66,472,554
5,197 11.000%, 12/1/2017 5,660
17,289 11.750%, 1/1/2011 19,552
3,368 12.000%, 6/1/2000 3,403
789 12.500%, 10/1/2012 885
8,299 12.750%, 1/1/2013 -
10/1/2013 9,808
42,607 13.000%, 11/1/1999 -
2/1/2015 48,822
15,280 13.250%, 3/1/2014 17,545
9,272 13.500%, 10/1/2013 10,112
38,030 13.750%, 1/1/2011 -
10/1/2011 43,747
258 14.000%, 12/1/2012 293
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
LONG-TERM U.S. GOVERNMENT
OBLIGATIONS--continued
FEDERAL HOME LOAN MORTGAGE
CORPORATION--CONTINUED
$ 76,385 14.500%, 8/1/2012 -
10/1/2012 $ 87,259
6,178 14.750%, 8/1/2011 6,994
3,634 15.500%, 8/1/2011 4,300
TOTAL 66,730,934
FEDERAL HOME LOAN MORTGAGE
CORPORATION REMIC--0.7%
35,017,400 Series 2172-PC, 7.500%,
(Interest Only), 7/15/2029 8,590,118
FEDERAL NATIONAL MORTGAGE
ASSOCIATION--14.8%
120,100,754 6.000%, 12/1/2013 -
5/1/2029 114,078,094
56,020,909 6.500%, 5/1/2013 -
10/1/2029 53,769,269
4,800,000 7.500%, 10/1/2029 4,814,974
148,352 11.000%, 10/1/2010 162,782
5,948 11.750%, 10/1/2015 6,757
1,040 12.000%, 1/1/2013 1,167
4,368 12.500%, 8/1/2013 5,013
56,642 12.750%, 10/1/2010 -
8/1/2014 65,048
30,292 13.000%, 5/1/2013 -
8/1/2015 34,807
60,777 13.500%, 12/1/2014 70,292
3,234 13.750%, 6/1/2014 3,664
5,994 14.000%, 11/1/2014 6,947
7,381 15.000%, 10/1/2012 8,553
TOTAL 173,027,367
FEDERAL NATIONAL MORTGAGE
ASSOCIATION REMIC--1.6%
4,162,585 FNGT 99-T2 A1, 7.500%,
1/19/2039 4,163,251
241,610,453 FNGT 99-T2 X, 6.884%,
(Interest Only), 1/19/2039 4,832,209
10,424,200 Series 99-39 PE, 6.500%,
10/25/2022 10,238,337
TOTAL 19,233,797
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION--71.5%
83,519,329 6.000%, 7/15/2028 -
6/15/2029 77,523,738
226,222,546 6.500%, 11/15/2023 -
3/15/2029 217,040,212
342,347,686 7.000%, 3/15/2024 -
7/15/2029 335,997,141
136,323,401 1 7.500%, 1/15/2023 -
10/15/2029 136,923,504
70,415,582 8.000%, 1/15/2022 -
8/20/2026 72,246,748
5,718 10.500%, 9/15/2000 -
1/15/2001 5,816
552 11.250%, 9/20/2015 614
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
LONG-TERM U.S. GOVERNMENT
OBLIGATIONS--continued
GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION--
CONTINUED
$ 72,098 11.750%, 7/15/2013 $ 82,462
2,679 12.000%, 1/15/2000 -
5/15/2000 2,711
26,901 13.000%, 11/20/1999 -
9/20/2014 31,415
24,434 13.750%, 9/15/2014 28,717
TOTAL 839,883,078
SMALL BUSINESS
ADMINISTRATION--0.0%
1,191,306 1.394%, 11/20/2003 20,925
5,418 10.125%, 3/25/2000 5,402
TOTAL 26,327
TOTAL LONG-TERM
U.S. GOVERNMENT
OBLIGATIONS (IDENTIFIED
COST $1,134,817,391) 1,107,491,621
U.S. TREASURY--0.3%
3,100,000 United States Treasury
Note, 6.000%, 8/15/2009
(identified cost
$3,106,418) 3,125,172
REPURCHASE AGREEMENTS--7.5%
2
24,410,000 ABN AMRO, Inc., 5.450%,
dated 9/30/1999, due
10/1/1999 24,410,000
64,000,000 3 Credit Suisse First
Boston, Inc., 5.250%,
dated 9/17/1999, due
10/21/1999 64,000,000
TOTAL REPURCHASE
AGREEMENTS (AT AMORTIZED
COST) 88,410,000
TOTAL INVESTMENTS
(IDENTIFIED COST
$1,293,734,030) 4 $ 1,264,016,411
</TABLE>
1 A portion of these securities are subject to dollar roll transactions.
2 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.
3 Although final maturity falls beyond seven days, a liquidity feature is
included in each transaction to permit termination of the repurchase agreement
within seven days if the creditworthiness of the issuer is downgraded.
4 The cost of investments for federal tax purposes amounts to $1,293,734,030.
The net unrealized depreciation of investments on a federal tax basis amounts to
$29,717,619 which is comprised of $2,383,945 appreciation and $32,101,564
depreciation at September 30, 1999.
Note: The categories of investments are shown as a percentage of net assets
($1,174,956,510) at September 30, 1999.
The following acronym is used throughout this portfolio:
TBA --To Be Announced
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
SEPTEMBER 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in
securities, at value
(identified and tax cost
$1,293,734,030) $ 1,264,016,411
Income receivable 6,347,358
Receivable for investments
sold 3,148,973
Receivable for shares sold 715,977
TOTAL ASSETS 1,274,228,719
LIABILITIES:
Payable for investments
purchased $ 7,968,885
Payable for shares
redeemed 339,902
Income distribution
payable 6,091,001
Payable for dollar roll
transactions 84,528,152
Accrued expenses 344,269
TOTAL LIABILITIES 99,272,209
Net assets for 155,086,574
shares outstanding $ 1,174,956,510
NET ASSETS CONSIST OF:
Paid in capital $ 1,363,477,930
Net unrealized
depreciation of
investments (29,717,619)
Accumulated net realized
loss on investments (158,803,801)
TOTAL NET ASSETS $ 1,174,956,510
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PROCEEDS PER SHARE
CLASS A SHARES:
Net Asset Value Per Share
($975,234,984 /
128,723,122 shares
outstanding) $7.58
Offering Price Per Share
(100/95.50 of $7.58) 1 $7.94
Redemption Proceeds Per
Share $7.58
CLASS B SHARES:
Net Asset Value Per Share
($146,626,079 / 19,355,258
shares outstanding) $7.58
Offering Price Per Share $7.58
Redemption Proceeds Per
Share (94.50/100 of $7.58)
1 $7.16
CLASS C SHARES:
Net Asset Value Per Share
($53,095,447 / 7,008,194
shares outstanding) $7.58
Offering Price Per Share $7.58
Redemption Proceeds Per
Share (99.00/100 of $7.58)
1 $7.50
</TABLE>
1 See "What Do Shares Cost?" in the Prospectus.
See Notes which are an integral part of the Financial Statements
Statement of Operations
SIX MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Interest (net of dollar
roll expense of
$1,237,680) $ 41,963,964
EXPENSES:
Investment advisory fee $ 3,149,704
Administrative personnel
and services fee 454,288
Custodian fees 53,410
Transfer and dividend
disbursing agent fees and
expenses 535,665
Directors'/Trustees' fees 5,711
Auditing fees 10,794
Legal fees 6,814
Portfolio accounting fees 84,869
Distribution services fee--
Class B Shares 532,063
Distribution services fee--
Class C Shares 200,884
Shareholder services fee--
Class A Shares 1,261,945
Shareholder services fee--
Class B Shares 177,354
Shareholder services fee--
Class C Shares 66,961
Share registration costs 22,276
Printing and postage 55,353
Insurance premiums 1,926
Miscellaneous 13,332
TOTAL EXPENSES 6,633,349
WAIVERS:
Waiver of shareholder
services fee--Class A
Shares (100,956)
Net expenses 6,532,393
Net investment income 35,431,571
REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS:
Net realized loss on
investments (2,775,206)
Net change in unrealized
appreciation
(depreciation) of
investments (37,454,465)
Net realized and
unrealized loss on
investments (40,229,671)
Change in net assets
resulting from operations $ (4,798,100)
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited) YEAR ENDED
SEPTEMBER 30, MARCH 31,
1999 1999
<S> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS:
Net investment income $ 35,431,571 $ 71,772,202
Net realized gain (loss) on
investments ($(2,775,206)
and $12,834,164,
respectively, as computed
for federal tax purposes) (2,775,206) 12,834,164
Net change in unrealized
depreciation (37,454,465) (19,536,340)
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS (4,798,100) 65,070,026
DISTRIBUTIONS TO
SHAREHOLDERS:
Distributions from net
investment income
Class A Shares (31,479,493) (65,930,652)
Class B Shares (3,934,170) (6,572,184)
Class C Shares (1,483,002) (2,557,564)
CHANGE IN NET ASSETS
RESULTING FROM
DISTRIBUTIONS
TO SHAREHOLDERS (36,896,665) (75,060,400)
SHARE TRANSACTIONS:
Proceeds from sale of
shares 146,649,154 279,342,485
Net asset value of shares
issued to shareholders in
payment of
distributions declared 19,664,253 47,926,054
Cost of shares redeemed (192,961,460) (367,772,209)
CHANGE IN NET ASSETS
RESULTING FROM SHARE
TRANSACTIONS (26,648,053) (40,503,670)
Change in net assets (68,342,818) (50,494,044)
NET ASSETS:
Beginning of period 1,243,299,328 1,293,793,372
End of period $ 1,174,956,510 $ 1,243,299,328
</TABLE>
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class A Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
SEPTEMBER 30, YEAR ENDED MARCH 31,
1999 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 7.84 $ 7.90 $ 7.65 $ 7.78 $ 7.67 $ 7.89
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income 0.23 0.46 0.50 0.51 0.54 0.57
Net realized and
unrealized gain (loss) on
investments (0.25) (0.04) 0.26 (0.14) 0.12 (0.23)
TOTAL FROM INVESTMENT
OPERATIONS (0.02) 0.42 0.76 0.37 0.66 0.34
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.24) (0.48) (0.51) (0.50) (0.55) (0.56)
NET ASSET VALUE, END OF
PERIOD $ 7.58 $ 7.84 $ 7.90 $ 7.65 $ 7.78 $ 7.67
TOTAL RETURN 1 (0.23%) 5.43% 10.21% 4.88% 8.77% 4.59%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 2 0.98% 3 0.98% 1.02% 1.07% 1.06% 0.97%
Net investment income 2 5.98% 3 5.76% 6.32% 6.48% 6.69% 7.39%
Expenses (after waivers) 0.96% 3 0.96% 0.94% 0.95% 0.95% 0.95%
Net investment income
(after waivers) 6.00% 3 5.78% 6.40% 6.60% 6.80% 7.41%
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $975,235 $1,052,081 $1,138,450 $1,177,071 $1,330,272 $1,367,710
Portfolio turnover 48% 187% 88% 120% 157% 154%
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 During the period, certain fees were voluntarily waived. If such waivers had
not occurred, the ratios would have been as indicated.
3 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class B Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
SEPTEMBER 30, YEAR ENDED MARCH 31,
1999 1999 1998 1997 1996 1995 1
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 7.84 $ 7.90 $ 7.66 $ 7.78 $ 7.67 $ 7.75
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income 0.20 0.40 0.44 0.44 0.49 0.37
Net realized and
unrealized gain (loss) on
investments (0.25) (0.04) 0.25 (0.13) 0.11 (0.06)
TOTAL FROM
INVESTMENT OPERATIONS (0.05) 0.36 0.69 0.31 0.60 0.31
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.21) (0.42) (0.45) (0.43) (0.49) (0.37)
Distributions in excess of
net realized gain on
investments 2 __ __ __ __ __ (0.02)
TOTAL DISTRIBUTIONS (0.21) (0.42) (0.45) (0.43) (0.49) (0.39)
NET ASSET VALUE, END OF
PERIOD $ 7.58 $ 7.84 $ 7.90 $ 7.66 $ 7.78 $ 7.67
TOTAL RETURN 3 (0.61%) 4.64% 9.16% 4.13% 7.90% 4.13%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 5 1.73% 4 1.73% 1.77% 1.82% 1.82% 1.82% 4
Net investment income 5 5.25% 4 5.01% 5.57% 5.73% 5.89% 6.96% 4
Expenses (after waivers) 1.73% 4 1.73% 1.77% 1.80% 1.78% 1.76% 4
Net investment income
(after waivers) 5.25% 4 5.01% 5.57% 5.75% 5.93% 7.02% 4
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $146,626 $141,148 $107,225 $100,439 $93,169 $34,276
Portfolio turnover 48% 187% 88% 120% 157% 154%
</TABLE>
1 Reflects operations for the period from July 26, 1994 (start of performance)
to March 31, 1995.
2 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.
3 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
4 Computed on an annualized basis.
5 During the period, certain fees were voluntarily waived. If such waivers had
not occurred, the ratios would have been as indicated.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Class C Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
SEPTEMBER 30, YEAR ENDED MARCH 31,
1999 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 7.84 $ 7.91 $ 7.66 $ 7.78 $ 7.67 $ 7.89
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income 0.20 0.40 0.44 0.45 0.47 0.51
Net realized and
unrealized gain (loss) on
investments (0.25) (0.05) 0.26 (0.13) 0.12 (0.23)
TOTAL FROM
INVESTMENT OPERATIONS (0.05) 0.35 0.70 0.32 0.59 0.28
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.21) (0.42) (0.45) (0.44) (0.48) (0.50)
NET ASSET VALUE, END OF
PERIOD $ 7.58 $ 7.84 $ 7.91 $ 7.66 $ 7.78 $ 7.67
TOTAL RETURN 1 (0.62%) 4.51% 9.29% 4.14% 7.85% 3.72%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 2 1.73% 3 1.73% 1.77% 1.82% 1.81% 1.81%
Net investment income 2 5.25% 3 5.01% 5.57% 5.72% 5.94% 6.54%
Expenses (after waivers) 1.73% 3 1.73% 1.77% 1.80% 1.79% 1.79%
Net investment income
(after waivers) 5.25% 3 5.01% 5.57% 5.74% 5.96% 6.56%
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $53,095 $50,071 $48,118 $55,842 $79,949 $80,519
Portfolio turnover 48% 187% 88% 120% 157% 154%
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 During the period, certain fees were voluntarily waived. If such waivers had
not occurred, the ratios would have been as indicated.
3 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
SEPTEMBER 30, 1999 (UNAUDITED)
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.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
U.S. government securities, are generally valued at the mean of the latest bid
and asked price as furnished by an independent pricing service. Short- term
securities are valued at the prices provided by an independent pricing service.
However, short-term securities with remaining maturities of 60 days or less at
the time of purchase may be valued at amortized cost, which approximates fair
market value.
REPURCHASE AGREEMENTS
It is the policy of the Fund to require 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 income.
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, 1999, the Fund, for federal tax purposes, had a capital loss
carryforward of $156,028,595, 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:
<TABLE>
<CAPTION>
EXPIRATION YEAR EXPIRATION AMOUNT
<S> <C>
2002 $ 7,519,074
2003 123,323,419
2004 4,621,860
2005 20,564,242
</TABLE>
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 12 months. The Fund will use the proceeds generated from the transactions
to invest in short-term investments, which may enhance the Fund's current yield
and total return.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
CAPITAL STOCK
At September 30, 1999, par value shares ($0.001 per share) authorized were as
follows:
<TABLE>
<CAPTION>
NUMBER OF PAR VALUE
CLASS NAME CAPITAL STOCK AUTHORIZED
<S> <C>
Class A Shares 750,000,000
Class B Shares 500,000,000
Class C Shares 750,000,000
TOTAL 2,000,000,000
</TABLE>
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1999 MARCH 31, 1999
CLASS A SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 11,091,687 $ 85,543,453 15,913,822 $ 126,126,386
Shares issued to
shareholders in payment of
distributions declared 2,221,834 16,959,999 5,371,053 42,485,267
Shares redeemed (18,794,993) (144,387,547) (31,135,221) (246,763,165)
NET CHANGE RESULTING FROM
CLASS A
SHARE TRANSACTIONS (5,481,472) $ (41,884,095) (9,850,346) $ (78,151,512)
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1999 MARCH 31, 1999
CLASS B SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 4,738,393 $ 36,300,387 12,064,667 $ 95,692,524
Shares issued to
shareholders in payment of
distributions declared 270,873 2,068,060 512,233 4,051,140
Shares redeemed (3,659,859) (28,056,138) (8,140,275) (64,532,552)
NET CHANGE RESULTING FROM
CLASS B
SHARE TRANSACTIONS 1,349,407 $ 10,312,309 4,436,625 $ 35,211,112
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1999 MARCH 31, 1999
CLASS C SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 3,195,632 $ 24,805,314 7,254,380 $ 57,523,575
Shares issued to
shareholders in payment of
distributions declared 83,376 636,194 175,696 1,389,647
Shares redeemed (2,658,591) (20,517,775) (7,128,289) (56,476,492)
NET CHANGE RESULTING FROM
CLASS C
SHARE TRANSACTIONS 620,417 $ 4,923,733 301,787 $ 2,436,730
NET CHANGE RESULTING FROM
SHARE TRANSACTIONS (3,511,648) $ (26,648,053) (5,111,934) $ (40,503,670)
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Investment Management Company, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
(a) a maximum of 0.25% of the average daily net assets of the Fund; and (b)
4.50% 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, 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
Share and Class C Shares. The Plan provides that the Fund may incur distribution
expenses according to the following schedule annually, to compensate FSC.
<TABLE>
<CAPTION>
PERCENTAGE OF AVERAGE
SHARE CLASS NAME DAILY NET ASSETS OF CLASS
<S> <C>
Class B Shares 0.75%
Class C Shares 0.75%
</TABLE>
The distributor may voluntarily choose to waive any portion of its fee. The
distributor can modify or terminate this voluntary waiver at any time at its
sole discretion.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services Company ("FSSC"), the Fund will pay FSSC up to 0.25% of average daily
net assets of the Fund for the period. The fee paid to FSSC is used to finance
certain services for shareholders and to maintain shareholder accounts. FSSC may
voluntarily choose to waive any portion of its fee. FSSC can modify or terminate
this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary, FSSC serves as transfer and dividend disbursing
agent for the Fund. The fee paid to FSSC is based on the size, type, and number
of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEE
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
GENERAL
Certain of the Officers and Directors of the Fund are Officers and Directors or
Trustees of the above companies.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended September 30, 1999, were as follows:
<TABLE>
<CAPTION>
<S> <C>
Purchases $ 578,231,110
Sales $ 577,426,915
</TABLE>
YEAR 2000
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
Directors
JOHN F. DONAHUE
THOMAS G. BIGLEY
JOHN T. CONROY, JR.
NICHOLAS P. CONSTANTAKIS
JOHN F. CUNNINGHAM
J. CHRISTOPHER DONAHUE
LAWRENCE D. ELLIS, M.D.
PETER E. MADDEN
CHARLES F. MANSFIELD, JR.
JOHN E. MURRAY, JR., J.D., S.J.D.
MARJORIE P. SMUTS
JOHN S. WALSH
Officers
JOHN F. DONAHUE
Chairman
J. CHRISTOPHER DONAHUE
President
EDWARD C. GONZALES
Executive Vice President
JOHN W. MCGONIGLE
Executive Vice President and Secretary
RICHARD B. FISHER
Vice President
KATHLEEN FOODY-MALUS
Vice President
RICHARD J. THOMAS
Treasurer
WILLIAM D. DAWSON III
Chief Investment Officer
C. GRANT ANDERSON
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
AS OF SEPTEMBER 30, 1999
[Graphic]
Federated
World-Class Investment Manager
SEMI-ANNUAL REPORT
Federated Fund for U.S. Government Securities, Inc.
Established 1969
30TH SEMI-ANNUAL REPORT
[Graphic]
Federated
Federated Fund for U.S. Government Securities, Inc.
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Cusip 314182106
Cusip 314182205
Cusip 314182304
8110105 (11/99)
[Graphic]
