ANNUAL REPORT
[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 Annual Report. On March 31, 1999, the fund's
net assets totaled $1.2 billion representing over 62,000 shareholders. This
U.S. government securities fund pursues generous monthly income from
U.S. government issues.
This report covers the 12-month reporting period from April 1, 1998 through
March 31, 1999. It begins with an interview with the fund's portfolio manager,
Kathy Foody-Malus, Vice President of Federated Investment Management Company.
She offers you her views on today's interest rate environment, fund performance,
and how your fund is invested. 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
holdings in U.S. government mortgage backed securities, and third is the
publication of the fund's financial statements.
Over the 12-month reporting period, which saw yields take somewhat of a roller
coaster ride, the fund's portfolio still produced a healthy income stream and a
total return competitive with the overall Treasury market, as well as
competitive with the average U.S. government mortgage fund. Individual share
class total return performance, including income distributions, follow. 1
<TABLE>
<CAPTION>
TOTAL INCOME
RETURN DISTRIBUTIONS NET ASSET VALUE CHANGE
<S> <C> <C> <C>
Class A Shares 5.43% $0.48 $7.90 to $7.84 = (0.8%)
Class B Shares 4.64% $0.42 $7.90 to $7.84 = (0.8%)
Class C Shares 4.51% $0.42 $7.91 to $7.84 = (0.9%)
</TABLE>
1 Performance quoted is based on net asset value, represents 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 reporting period, based
on offering price (i.e., less any applicable sales charge), for Class A, B, and
C Shares were 0.72%, (0.82%), and 3.52%, respectively.
The fund's management continues to emphasize mortgage backed securities for
their attractive yields and good long-term value. These securities are issued by
agencies like the Government National Mortgage Association ("GNMA"), the Federal
National Mortgage Corporation ("FNMA"), and the Federal Home Loan Mortgage
Corporation ("FHLMC"). More than 90% of the fund's assets were invested in these
mortgage backed securities at the end of the reporting period. These securities
are guaranteed as to principal and interest by the U.S. government, its agencies
or instrumentalities. 2
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, 1999
2 Unlike individual U.S. government and Treasury securities, fund shares are not
guaranteed.
[Graphic]
KATHY FOODY-MALUS
Vice President
Federated Investment Management Company
Investment Review
WHAT IS YOUR ANALYSIS OF THE U.S. BOND MARKET DURING THE FUND'S FISCAL YEAR?
The U.S. Treasury market during the reporting period experienced three distinct
time periods. Early in the reporting period, the U.S. Treasury market traded in
a narrowly defined trading range of 25 basis points. During this period, the
emphasis on mortgage backed securities benefited shareholders due to the
additional income advantage over U.S. Treasuries. However, this trend reversed
during August 1998, when the stock market started to crack due to disappointing
earnings expectations. Other factors driving the rally in the U.S. Treasury
market included the financial crises in Southeast Asia, Russia and Latin
America. Investors were concerned over the potential for these crises to 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 over a
generation. For example, the yield on the 30-year U.S. Treasury declined to
4.72% in early October 1998. As these events were unfolding, the Federal Reserve
Board (the "Fed") was in the process of providing liquidity to the market via
three 25 basis points cuts in the Fed Funds Target Rate. Overall, the Fed's
easing of interest rates three times from late September to mid-November
provided a calming influence and restored liquidity to the non-Treasury fixed
income markets by late 1998. For the first time in several years, the U.S.
Treasury market benefited from being a safe haven outperforming all other fixed
income assets.
As the new calendar year began, investors wondered whether emerging market woes
would be sufficient to slow the U.S. economy, and if the Fed would respond by
increasing interest rates. U.S. economic activity continued at a robust pace
with no visible signs of slowing. Driving the U.S. economy was rapid consumer
spending fueled by a surging stock market. Healthy wage gains from a strong job
market have given consumers the confidence to spend not only what they take
home, but also some of the continuing gains that the rising stock market has
given them. In addition to strong economic growth, nervousness about inflation
has crept back into the market through higher oil prices and a rising dollar.
This overall strength and concerns of possible increases in inflation have
reawakened fears of a tightening by the Fed.
As the fund's new fiscal year begins, the Fed is waiting for clearer signals
from leading indicators of growth and inflation. For now, the combination of
more moderate wage and price data, a stronger dollar, rising bond yields,
slowing money growth, and lingering global uncertainties is keeping Fed policy
on hold. These issues coupled with wide spreads in other fixed income securities
caused investors to sell U.S. Treasuries, thereby increasing yields to 5.50% as
of March 31, 1999. The main beneficiaries of this sell off in U.S. Treasuries
were assets such as mortgage backed securities because of their wide yield
advantage over Treasuries.
AS THE U.S. TREASURY MARKET EXPERIENCED THESE UNIQUE AND DISTINCT TIME
PERIODS, HOW DID THE MORTGAGE BACKED SECURITIES MARKET REACT?
The first third of the reporting period was a tranquil time for investors in the
mortgage backed securities market as they benefited from a trading range
environment in U.S. Treasuries. However, as the mid-point of the year began,
investors saw all non-U.S. Treasury products come under pressure. For example,
investors in mortgage backed securities saw current coupon mortgage spreads
reach levels not seen in over a decade. The rally in the U.S. Treasury market
reawakened refinancing activity that coincided with the 30-year low in mortgage
rates. This event created an enormous supply/demand imbalance. Global market
uncertainty and aggressive refinancing activity kept mortgage backed securities
investors on the sidelines as mortgage originators flooded the market with newly
issued mortgage backed securities.
However, it was the concern over liquidity, and not prepayment fears, that drove
the widening in mortgage spreads. These events drove the spreads on current
coupon mortgages to over 200 basis points, or 2%, above comparable duration U.S.
Treasuries. Fortunately, this proved to be a short-lived phenomenon as investors
realized the potential for investing in the mortgage asset class during this
time of turmoil. During the final phase of the reporting period, spreads between
U.S. Treasuries and mortgage backed securities tightened by over 40 basis
points. Increasing interest rates, declining volatility, and diminished
prepayment fears contributed to the market's strong performance. With increasing
interest rates, the 30-year mortgage rate to homeowners rose above 7% for the
first time since last summer.
Given the past year of near-record low mortgage rates and record high
refinancing activity, limited refinancing demand remains in the mortgage backed
securities market at these current rate levels. The effect of this increase in
mortgage rates should lead to a declining supply of mortgage backed securities
as refinancing activity subsides. This reduced supply should contribute to
further spread tightening in the mortgage backed securities market.
WHAT HAS BEEN YOUR STRATEGY OVER THE LAST YEAR?
Our strategy during the reporting period was to manage the duration of the fund
in a narrowly defined range versus the Lehman Brothers Mortgage Backed
Securities Index. 1
The portfolio continues to favor the GNMA sector of the agency mortgage backed
securities market. This overweighted position is due to the favorable prepayment
differences versus the conventional sector. The trend in GNMA prepayments over
the last several years has shown to be 25% slower than comparable FHLMC and FNMA
coupons on average. The typical GNMA borrower tends to be slower to take
advantage of refinancing due to income constraints and the inability to finance
the up-front costs associated with purchasing a home.
The portfolio has also, on a selected basis, added exposure in non-callable
agency debentures (6.4% of portfolio) due to attractive yield spreads over
Treasuries and to aid in the management of the portfolio's duration.
HOW MUCH OF THE FUND'S PORTFOLIO WAS FOCUSED ON THE MORTGAGE BACKED SECURITIES
MARKET AS OF MARCH 31, 1999?
<TABLE>
<CAPTION>
PERCENTAGE OF
NET ASSETS
<S> <C>
GNMA 74.2%
FNMA 11.7%
Agency Debentures 6.4%
FHLMC 5.7%
</TABLE>
1 Lehman Brothers Mortgage Backed Securities Index is an unmanaged index
composed of all fixed securities mortgage pools by GNMA, FNMA and the FHLMC,
including GNMA graduated Payment Mortgages. Investments cannot be made in an
index.
HOW DID FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES, INC. PERFORM FOR ITS
SHAREHOLDERS IN TERMS OF TOTAL RETURN AND INCOME FOR THE 12-MONTH REPORTING
PERIOD ENDED MARCH 31, 1999?
For the fiscal year ended March 31, 1999, the Class A Shares of the fund
produced a total return of 5.43%, based on net asset value. The fund's Class B
and C Shares produced total returns of 4.64% and 4.51%, respectively, based on
net asset value. 2 The fund's returns over the reporting period were consistent
with the 5.27% return of the Lipper U.S. Mortgage Funds Average.3 The Merrill
Lynch 2-Year and 3-Year Treasury Indexes produced returns of 5.37% and 6.73% for
the same period, reflecting the strong performance of the U.S. Treasury market
over the past year.4
In terms of income, the fund's Class A, B, and C Shares paid monthly dividends
totaling $0.48, $0.42 and $0.42, respectively.
WITH THE START OF THE NEW FISCAL YEAR, SHAREHOLDERS VOTED TO BROADEN THE FUND'S
INVESTMENT PARAMETERS TO INCLUDE NON-AGENCY MORTGAGE BACKED SECURITIES. WHAT ARE
THE ADVANTAGES OF THIS NEW FLEXIBILITY FOR SHAREHOLDERS?
We are excited about the expanded investment parameters. The ability to invest
in non-agency mortgage backed securities is similar to adding a new tool to the
toolbox of investments. Like the other tools in our toolbox, the use of these
securities will be when we think the risk and reward framework favors the use of
such a tool. The overall management of the portfolio will continue to focus on
providing investors with a competitive income stream and risk characteristics
similar to a short duration Treasury. Federated has a long history in agency and
non-agency mortgage backed securities investing, and the ability to use a
combination of these skills should benefit shareholders as we move into the next
millennium.
2 Performance quoted represents 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 reporting period, based on offering price (i.e.,
less any applicable sales charge), for Class A, B, and C Shares were 0.72%,
(0.82%), and 3.52%, respectively.
3 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 category indicated. These figures do not take sales charges into
account.
4 Merrill Lynch 2-Year and 3-Year Treasury Note Indexes comprise the most
recently issued 2-year and 3-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.
Last Meeting of Shareholders
The Annual Meeting of Shareholders of Federated Fund for U.S. Government
Securities, Inc. (the "Fund") was held on March 26, 1999. The following
items were submitted to shareholders for approval and the results of their
voting follows:
1. ELECTION OF DIRECTORS:
<TABLE>
<CAPTION>
SHARES
VOTED SHARES
AFFIRMATIVELY WITHHELD
<S> <C> <C>
Thomas G. Bigley 113,845,125 3,406,288
John T. Conroy, Jr. 113,854,901 3,396,512
Nicholas P. Constantakis 113,865,097 3,386,316
John F. Cunningham 113,875,348 3,376,065
J. Christopher Donahue 113,878,454 3,372,959
Peter E. Madden 113,885,350 3,366,063
Charles F. Mansfield, Jr. 113,885,947 3,365,466
John E. Murray, Jr.,
J.D., S.J.D. 113,885,947 3,365,466
John S. Walsh 113,885,947 3,365,466
</TABLE>
2. TO RATIFY THE SELECTION OF DELOITTE & TOUCHE, LLP AS THE FUND'S INDEPENDENT
AUDITORS:
<TABLE>
<CAPTION>
SHARES VOTED SHARES
SHARES VOTED AFFIRMATIVELY NEGATIVELY ABSTAINING
<S> <C> <C>
112,670,508 661,094 3,919,810
</TABLE>
3. TO MAKE CHANGES TO THE FUND'S FUNDAMENTAL INVESTMENT POLICIES:
a. To approve amending the Fund's fundamental investment policy regarding
borrowing to permit the use of reverse repurchase agreements:
<TABLE>
<CAPTION>
SHARES VOTED SHARES
SHARES VOTED AFFIRMATIVELY NEGATIVELY ABSTAINING
<S> <C> <C>
88,788,302 7,952,124 5,951,280
</TABLE>
b. To approve making non-fundamental, and amending, the Fund's fundamental
investment policy to permit the Fund to invest in the securities of other
investment companies:
<TABLE>
<CAPTION>
SHARES VOTED SHARES
SHARES VOTED AFFIRMATIVELY NEGATIVELY ABSTAINING
<S> <C> <C>
89,596,898 7,403,873 5,690,936
</TABLE>
c. To approve making non-fundamental, and amending, the Fund's fundamental
investment policy regarding investing in mortgage securities:
<TABLE>
<CAPTION>
SHARES VOTED SHARES
SHARES VOTED AFFIRMATIVELY NEGATIVELY ABSTAINING
<S> <C> <C>
89,012,282 8,018,841 5,660,584
</TABLE>
d. To approve amending the Fund's fundamental investment policy to permit the
Fund to invest in Real Estate Investment Trusts:
<TABLE>
<CAPTION>
SHARES VOTED SHARES
SHARES VOTED AFFIRMATIVELY NEGATIVELY ABSTAINING
<S> <C> <C>
87,226,604 9,994,849 5,470,253
</TABLE>
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 $253,516 ON 3/31/99. YOU WOULD HAVE EARNED A 7.51% 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 3/31/99, the Class A Shares' average annual
1-year, 5-year, and 10-year total returns were 0.72%, 5.78%, and 7.16%,
respectively. Class B Shares' average annual 1-year and since inception
(7/26/94) total returns were (0.82%) and 6.05%, respectively. Class C Shares'
average annual 1-year, 5-year, and since inception (4/27/93) total returns were
3.52%, 5.88%, and 4.73%, respectively. 2
[Graphic representation omitted. See Appendix A1.]
1 Total return represents the change in the value of an investment 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 return stated takes 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 $111,914.
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 $111,914 1 by
3/31/99. You would have earned an average annual total return of 7.76%.
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.
[Graphic representation omitted. See Appendix A2.]
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 in March 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 the 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 the $55,000 Jaguar they bought last August to celebrate their
anniversary-without touching their original principal.
The Laughlin's account totaled $201,380 as of March 31, 1999, for an average
annual total return of 7.25%.
[Graphic representation omitted. See Appendix A3.]
1 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. - Class A Shares
GROWTH OF $10,000 INVESTMENT
The graph below illustrates the hypothetical investment of $10,000 1 in
Federated Fund for U.S. Government Securities, Inc. (Class A Shares) (the
"Fund") from March 31, 1989 to March 31, 1999 compared to the Lehman Brothers
5-Year Treasury Bellwether Index (LB5YRTBI),2 the Lipper U.S. Mortgage Funds
Average (LUSMFA),3 and the Lehman Brothers Mortgage Backed Securities Index
(LBMBSI).2
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN 4 AS OF MARCH 31, 1999
<S> <C>
1 Year 0.72%
5 Years 5.78%
10 Years 7.16%
Start of Performance (10/6/69) 7.51%
</TABLE>
[Graphic representation omitted. See Appendix A4.]
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.
1 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, LUSMFA and the LBMBSI have been adjusted to reflect
reinvestment of dividends on securities in the indexes and average.
2 The LB5YRTBI and LBMBSI are not adjusted to reflect sales charges, expenses,
or other fees that the Securities and Exchange Commission requires to be
reflected in the fund's performance. The indexes are unmanaged.
3 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
category indicated, and is not adjusted to reflect any sales charges. However,
these total returns are reported net of expenses or other fees that the
Securities and Exchange Commission requires to be reflected in a fund's
performance.
4 Total return quoted reflects all applicable sales charges.
Federated Fund for U.S. Government Securities, Inc. - Class B Shares
GROWTH OF $10,000 INVESTMENT
The graph below illustrates the hypothetical investment of $10,000 1 in
Federated Fund for U.S. Government Securities, Inc. (Class B Shares) (the
"Fund") from July 26, 1994 (start of performance) to March 31, 1999 compared
to the Lehman Brothers 5-Year Treasury Bellwether Index (LB5YRTBI),2 the
Lipper U.S. Mortgage Funds Average (LUSMFA),3 and the Lehman Brothers
Mortgage Backed Securities Index (LBMBSI).2
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN 4 AS OF MARCH 31, 1999
<S> <C>
1 Year (0.82%)
Start of Performance (7/26/94) 6.05%
</TABLE>
[Graphic representation omitted. See Appendix A5.]
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.
1 Represents a hypothetical investment of $10,000 in the Fund. The ending value
of the Fund reflects a 2.00% contingent deferred sales charge on any redemption
less than five 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, LUSMFA and the LBMBSI have been adjusted to reflect
reinvestment of dividends on securities in the indexes and average.
2 The LB5YRTBI and LBMBSI are not adjusted to reflect sales charges, expenses,
or other fees that the Securities and Exchange Commission requires to be
reflected in the fund's performance. The indexes are unmanaged.
3 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
category indicated, and is not adjusted to reflect any sales charges. However,
these total returns are reported net of expenses or other fees that the
Securities and Exchange Commission requires to be reflected in a fund's
performance.
4 Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
Federated Fund for U.S. Government Securities, Inc. - Class C Shares
GROWTH OF $10,000 INVESTMENT
The graph below illustrates the hypothetical investment of $10,000 1 in
Federated Fund for U.S. Government Securities, Inc. (Class C Shares) (the
"Fund") from April 27, 1993 (start of performance) to March 31, 1999 compared
to the Lehman Brothers 5-Year Treasury Bellwether Index (LB5YRTBI),2 the
Lipper U.S. Mortgage Funds Average (LUSMFA),3 and the Lehman Brothers
Mortgage Backed Securities Index (LBMBSI).2
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN 4 AS OF MARCH 31, 1999
<S> <C>
1 Year 3.52%
5 Years 5.88%
Start of Performance (4/27/93) 4.73%
</TABLE>
[Graphic representation omitted. See Appendix A6.]
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.
1 Represents a hypothetical investment of $10,000 in the Fund. A 1.00%
contingent deferred sales charge would be applied 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, LUSMFA and the LBMBSI have
been adjusted to reflect reinvestment of dividends on securities in the indexes
and average.
2 The LB5YRTBI and LBMBSI are not adjusted to reflect sales charges, expenses,
or other fees that the Securities and Exchange Commission requires to be
reflected in the fund's performance. The indexes are unmanaged.
3 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
category indicated, and is not adjusted to reflect any sales charges. However,
these total returns are reported net of expenses or other fees that the
Securities and Exchange Commission requires to be reflected in a fund's
performance.
4 Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
Portfolio of Investments
MARCH 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
LONG-TERM U.S. GOVERNMENT
OBLIGATIONS-98.0%
FEDERAL HOME LOAN BANK SYSTEM-
1.6%
$ 20,000,000 4.875%, 1/22/2002 $ 19,757,000
FEDERAL HOME LOAN MORTGAGE
CORPORATION-5.7%
70,400,000 1 6.50%, 4/1/2029 70,113,472
101,459 6.50%, 11/1/2013 101,458
5,390 11.00%, 12/1/2017 5,912
17,646 11.75%, 1/1/2011 20,009
5,227 12.00%, 6/1/2000 5,328
935 12.50%, 10/1/2012 1,066
8,544 12.75%, 1/1/2013 - 10/1/2013 9,611
45,744 13.00%, 11/1/1999 - 2/1/2015 52,216
31,556 13.25%, 3/1/2014 36,334
12,269 13.50%, 10/1/2013 13,761
39,459 13.75%, 1/1/2011 - 10/1/2011 45,474
258 14.00%, 12/1/2012 293
78,249 14.50%, 8/1/2012 - 10/1/2012 89,771
6,878 14.75%, 8/1/2011 7,905
4,046 15.50%, 8/1/2011 4,772
TOTAL 70,507,382
FEDERAL NATIONAL MORTGAGE
ASSOCIATION-16.5%
62,000,000 4.75%, 11/14/2003 60,035,840
108,755,187 6.00%, 6/1/2013 - 2/1/2029 107,165,225
35,117,589 6.50%, 6/1/2013 - 1/1/2029 34,638,467
3,400,000 1 6.50%, 4/1/2029 3,384,054
171,267 11.00%, 10/1/2010 187,002
6,008 11.75%, 10/1/2015 6,843
1,770 12.00%, 7/1/1999 - 1/1/2013 1,961
4,422 12.50%, 8/1/2013 5,089
58,940 12.75%, 10/1/2010 - 8/1/2014 67,863
32,432 13.00%, 6/1/2000 - 8/1/2015 37,144
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
LONG-TERM U.S. GOVERNMENT
OBLIGATIONS-continued
FEDERAL NATIONAL MORTGAGE
ASSOCIATION-CONTINUED
$ 61,514 13.50%, 12/1/2014 $ 71,337
3,322 13.75%, 6/1/2014 3,789
6,051 14.00%, 11/1/2014 7,032
7,471 15.00%, 10/1/2012 8,681
TOTAL 205,620,327
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION-74.2%
36,303,991 6.00%, 11/15/2028 - 4/1/2029 35,271,506
237,711,407 6.50%, 11/15/2023 - 3/15/2029 236,862,470
368,392,195 7.00%, 7/15/2023 - 2/15/2029 374,314,333
88,856,261 7.50%, 1/15/2023 - 12/15/2028 91,560,243
62,476,000 1 7.50%, 4/1/2029 64,330,912
97,516,003 8.00%, 5/15/2017 - 8/20/2026 102,032,726
17,111,037 8.50%, 11/15/2017 - 4/15/2023 18,244,292
8,307 10.50%, 9/15/2000 - 1/15/2001 8,513
557 11.25%, 9/20/2015 622
207 11.50%, 10/20/1999 209
73,075 11.75%, 7/15/2013 83,819
6,461 12.00%, 1/15/2000 - 5/15/2000 6,596
206 12.50%, 5/20/2000 209
1,588 12.75%, 11/15/1999 1,608
35,059 13.00%, 9/15/1999 - 9/20/2014 39,794
1,263 13.50%, 9/20/1999 1,276
24,660 13.75%, 9/15/2014 29,068
TOTAL 922,788,196
SMALL BUSINESS ADMINISTRATION-
0.0%
1,191,306 1.561%, 11/20/2003 22,694
10,586 10.125%, 3/25/2000 10,642
TOTAL 33,336
TOTAL LONG-TERM
U.S. GOVERNMENT OBLIGATIONS
(IDENTIFIED COST $1,210,969,
395) 1,218,706,241
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
REPURCHASE AGREEMENTS-13.9% 2
$ 21,590,000 ABN AMRO, Inc., 5.05%, dated
3/31/1999, due 4/1/1999 $ 21,590,000
62,476,000 3 Goldman Sachs Group, LP,
4.80%, dated 3/19/1999, due
4/22/1999 62,476,000
14,536,000 3 J.P. Morgan & Co., Inc.,
4.81%, dated 3/10/1999, due
4/19/1999 14,536,000
73,800,000 3 Morgan Stanley Group, Inc.,
4.80%, dated 2/26/1999, due
4/14/1999 73,800,000
TOTAL REPURCHASE AGREEMENTS
(AT AMORTIZED COST) 172,402,000
TOTAL INVESTMENTS
(IDENTIFIED COST
$1,383,371,395) 4 $ 1,391,108,241
</TABLE>
1 Indicates securities 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.
4 The cost of investments for federal tax purposes amounts to $1,383,371,395.
The net unrealized appreciation of investments on a federal tax basis amounts to
$7,736,846 which is comprised of $14,558,119 appreciation and $6,821,273
depreciation at March 31, 1999.
Note: The categories of investments are shown as a percentage of net assets
($1,243,299,328) at March 31, 1999.
The following acronym is used throughout this portfolio:
LP -Limited Partnership
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
MARCH 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Investments in repurchase
agreements $ 172,402,000
Investments in securities 1,218,706,241
Total investments in
securities, at value
(identified and tax cost
$1,383,371,395) $ 1,391,108,241
Cash 6,666
Income receivable 7,682,158
Receivable for investments
sold 80,816,622
Receivable for shares sold 1,598,055
TOTAL ASSETS 1,481,211,742
LIABILITIES:
Payable for investments
purchased 136,824,051
Payable for shares redeemed 1,166,730
Income distribution payable 2,250,202
Payable for dollar roll
transactions 96,886,554
Accrued expenses 784,877
TOTAL LIABILITIES 237,912,414
Net assets for 158,598,222
shares outstanding $ 1,243,299,328
NET ASSETS CONSIST OF:
Paid in capital $ 1,391,591,077
Net unrealized appreciation of
investments 7,736,846
Accumulated net realized loss
on investments (156,028,595)
TOTAL NET ASSETS $ 1,243,299,328
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION PROCEEDS
PER SHARE
CLASS A SHARES:
Net Asset Value Per Share
($1,052,080,844 / 134,204,594
shares outstanding) $7.84
Offering Price Per Share
(100/95.50 of $7.84) 1 $8.21
Redemption Proceeds Per Share $7.84
CLASS B SHARES:
Net Asset Value Per Share
($141,147,916 / 18,005,851
shares outstanding) $7.84
Offering Price Per Share $7.84
Redemption Proceeds Per Share
(94.50/100 of $7.84) 1 $7.41
CLASS C SHARES:
Net Asset Value Per Share
($50,070,568 / 6,387,777
shares outstanding) $7.84
Offering Price Per Share $7.84
Redemption Proceeds Per Share
(99.00/100 of $7.84) 1 $7.76
</TABLE>
1 See "What Do Shares Cost?" in the Prospectus.
See Notes which are an integral part of the Financial Statements
Statement of Operations
YEAR ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Interest (net of dollar roll
expense of $3,505,018) $ 85,233,996
EXPENSES:
Investment advisory fee $ 6,697,258
Administrative personnel and
services fee 953,141
Custodian fees 125,222
Transfer and dividend
disbursing agent fees and
expenses 982,962
Directors'/Trustees' fees 13,899
Auditing fees 22,271
Legal fees 14,976
Portfolio accounting fees 188,164
Distribution services fee-
Class B Shares 921,760
Distribution services fee-
Class C Shares 361,666
Shareholder services fee-Class
A Shares 2,732,473
Shareholder services fee-Class
B Shares 307,253
Shareholder services fee-Class
C Shares 120,556
Share registration costs 44,055
Printing and postage 150,347
Insurance premiums 11,592
Miscellaneous 32,797
TOTAL EXPENSES 13,680,392
WAIVER:
Waiver of shareholder services
fee-Class A Shares (218,598)
NET EXPENSES 13,461,794
Net investment income 71,772,202
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain on
investments 12,834,164
Net change in unrealized
appreciation/(depreciation) of
investments (19,536,340)
Net realized and unrealized
gain/(loss) on investments (6,702,176)
Change in net assets resulting
from operations $ 65,070,026
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31 1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS:
Net investment income $ 71,772,202 $ 84,044,173
Net realized gain on
investments ($12,834,164 and
$11,329,355, respectively, as
computed for federal tax
purposes) 12,834,164 13,521,505
Net change in unrealized
appreciation/(depreciation) (19,536,340) 31,409,180
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS 65,070,026 128,974,858
NET EQUALIZATION CREDITS
(DEBITS) - (794,932)
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net
investment income
Class A Shares (65,930,652) (76,464,715)
Class B Shares (6,572,184) (5,856,259)
Class C Shares (2,557,564) (2,931,158)
CHANGE IN NET ASSETS
RESULTING FROM DISTRIBUTIONS
TO SHAREHOLDERS (75,060,400) (85,252,132)
SHARE TRANSACTIONS:
Proceeds from sale of shares 279,342,485 168,006,126
Net asset value of shares
issued to shareholders in
payment of
distributions declared 47,926,054 53,229,763
Cost of shares redeemed (367,772,209) (303,722,752)
CHANGE IN NET ASSETS
RESULTING FROM SHARE
TRANSACTIONS (40,503,670) (82,486,863)
Change in net assets (50,494,044) (39,559,069)
NET ASSETS:
Beginning of period 1,293,793,372 1,333,352,441
End of period $ 1,243,299,328 $ 1,293,793,372
</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>
YEAR ENDED MARCH 31 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 7.90 $ 7.65 $ 7.78 $ 7.67 $ 7.89
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.46 0.50 0.51 0.54 0.57
Net realized and unrealized
gain (loss) on investments (0.04) 0.26 (0.14) 0.12 (0.23)
TOTAL FROM
INVESTMENT OPERATIONS 0.42 0.76 0.37 0.66 0.34
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.48) (0.51) (0.50) (0.55) (0.56)
NET ASSET VALUE, END OF PERIOD $ 7.84 $ 7.90 $ 7.65 $ 7.78 $ 7.67
TOTAL RETURN 1 5.43% 10.21% 4.88% 8.77% 4.59%
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.96% 0.94% 0.95% 0.95% 0.95%
Net investment income 5.78% 6.40% 6.60% 6.80% 7.41%
Expense waiver 2 0.02% 0.08% 0.12% 0.11% 0.02%
SUPPLEMENTAL DATA:
Net assets, end of period (000
omitted) $1,052,081 $1,138,450 $1,177,071 $1,330,272 $1,367,710
Portfolio turnover 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 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
Financial Highlights - Class B Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31 1999 1998 1997 1996 1995 1
<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 0.40 0.44 0.44 0.49 0.37
Net realized and unrealized
gain (loss) on investments (0.04) 0.25 (0.13) 0.11 (0.06)
TOTAL FROM INVESTMENT
OPERATIONS 0.36 0.69 0.31 0.60 0.31
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.42) (0.45) (0.43) (0.49) (0.37)
Distributions in excess of net
realized gain on investments 2 - - - - (0.02)
TOTAL DISTRIBUTIONS (0.42) (0.45) (0.43) (0.49) (0.39 )
NET ASSET VALUE, END OF PERIOD $ 7.84 $ 7.90 $ 7.66 $ 7.78 $ 7.67
TOTAL RETURN 3 4.64% 9.16% 4.13% 7.90% 4.13%
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.73% 1.77% 1.80% 1.78% 1.76% 4
Net investment income 5.01% 5.57% 5.75% 5.93% 7.02% 4
Expense waiver 5 - - 0.02% 0.04% 0.06% 4
SUPPLEMENTAL DATA:
Net assets, end of period (000
omitted) $141,148 $107,225 $100,439 $93,169 $34,276
Portfolio turnover 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 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
Financial Highlights - Class C Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 7.91 $ 7.66 $ 7.78 $ 7.67 $ 7.89
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.40 0.44 0.45 0.47 0.51
Net realized and unrealized
gain (loss) on investments (0.05) 0.26 (0.13) 0.12 (0.23)
TOTAL FROM INVESTMENT
OPERATIONS 0.35 0.70 0.32 0.59 0.28
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.42) (0.45) (0.44) (0.48) (0.50)
NET ASSET VALUE, END OF PERIOD $ 7.84 $ 7.91 $ 7.66 $ 7.78 $ 7.67
TOTAL RETURN 1 4.51% 9.29% 4.14% 7.85% 3.72%
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.73% 1.77% 1.80% 1.79% 1.79%
Net investment income 5.01% 5.57% 5.74% 5.96% 6.56%
Expense waiver 2 - - 0.02% 0.02% 0.02%
SUPPLEMENTAL DATA:
Net assets, end of period (000
omitted) $50,071 $48,118 $55,842 $79,949 $80,519
Portfolio turnover 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 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
Notes to Financial Statements
MARCH 31, 1999
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 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 income. The
following reclassifications have been made to the financial statements.
<TABLE>
<CAPTION>
INCREASE (DECREASE)
UNDISTRIBUTED
NET INVESTMENT ACCUMULATED
PAID-IN CAPITAL INCOME GAIN/LOSS
<S> <C> <C>
$4,624,369 $(4,528,864) $(95,505)
</TABLE>
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, 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 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.
CAPITAL STOCK
At March 31, 1999, par value shares ($0.001 per share) authorized were as
follows:
<TABLE>
<CAPTION>
NUMBER OF
PAR VALUE CAPITAL
CLASS NAME 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>
PERIOD ENDED MARCH 31 1999 1998
CLASS A SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 15,913,822 $ 126,126,386 15,417,220 $ 120,074,973
Shares issued to shareholders
in payment of
distributions declared 5,371,053 42,485,267 6,176,322 48,245,312
Shares redeemed (31,135,221) (246,763,165) (31,378,305) (244,988,746)
NET CHANGE RESULTING FROM
CLASS A SHARE TRANSACTIONS (9,850,346) $ (78,151,512) (9,784,763) $ (76,668,461)
<CAPTION>
PERIOD ENDED MARCH 31 1999 1998
CLASS B SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 12,064,667 $ 95,692,524 4,539,299 $ 35,836,422
Shares issued to shareholders
in payment of
distributions declared 512,233 4,051,140 435,630 3,427,033
Shares redeemed (8,140,275) (64,532,552) (4,522,214) (35,616,226)
NET CHANGE RESULTING FROM
CLASS B SHARE TRANSACTIONS 4,436,625 $ 35,211,112 452,715 $ 3,647,229
<CAPTION>
PERIOD ENDED MARCH 31 1999 1998
CLASS C SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 7,254,380 $ 57,523,575 1,528,796 $ 12,094,731
Shares issued to shareholders
in payment of distributions
declared 175,696 1,389,647 198,010 1,557,418
Shares redeemed (7,128,289) (56,476,492) (2,932,406) (23,117,780)
NET CHANGE RESULTING FROM
CLASS C SHARE TRANSACTIONS 301,787 $ 2,436,730 (1,205,600) $ (9,465,631)
NET CHANGE RESULTING FROM
SHARE TRANSACTIONS (5,111,934) $ (40,503,670) (10,537,648) $ (82,486,863)
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Investment Management Company, formerly 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) 4.50% 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.
<TABLE>
<CAPTION>
PERCENTAGE OF
AVERAGE DAILY
SHARE CLASS NAME 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 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.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended March 31, 1999, were as follows:
<TABLE>
<CAPTION>
<S> <C>
Purchases $ 2,324,045,545
Sales $ 2,329,466,152
</TABLE>
YEAR 2000 (UNAUDITED)
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.
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, 1999, the related statement of operations for the year then
ended, the statements of changes in net assets for the years ended March 31,
1999 and 1998, 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 the securities owned at
March 31, 1999, by correspondence with the custodian and brokers; where replies
were not received, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Federated Fund for
U.S. Government Securities, Inc. as of March 31, 1999, 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
Boston, Massachusetts
May 14, 1999
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 and Secretary
RICHARD B. FISHER
Vice President
RICHARD J. THOMAS
Treasurer
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 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 MARCH 31, 1999
[Graphic]
Federated
World-Class Investment Manager
ANNUAL REPORT
Federated Fund for U.S. Government Securities, Inc.
Established 1969
30TH 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
8042505 (5/99)
[Graphic]
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES, INC.
APPENDIX
A1. The graphic presentation here displayed consists of a 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 3/31/99. The
"y" axis is measured in increments of $40,000 ranging from $0 to $280,000 and
indicates that the ending value of a hypothetical initial investment of $30,000
in the fund's Class A Shares, assuming all sales charges and the reinvestment of
capital gains and dividends, would have grown to $253,516 on 3/31/99.
A2. The graphic presentation here displayed consists of a 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 3/31/99. 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 in
the fund's Class A Shares, assuming the reinvestment of capital gains and
dividends, would have grown to $111,914 on 3/31/99.
A3. The graphic presentation here displayed consists of a 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 3/31/89 to 3/31/99. The
"y" axis is measured in increments of $45,000 ranging from $0 to $225,000 and
indicates that the ending value of hypothetical initial investment of $100,000
in the fund's Class A Shares, assuming the reinvestment of capital gains and
dividends, would have grown to $201,380 on 3/31/99.
A4. 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. (the "Fund") are
represented by a solid line. The Lehman Brothers 5-Year Treasury Bellwether
Index (LB5YRTBI) is represented by a dotted line, the Lipper U.S. Mortgage Funds
Average (LUSMFA) is represented by a broken line and the Lehman Brothers
Mortgage Backed Securities Index (LBMBSI) 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, and the
LB5YRTBI, the LUSMFA and the LBMBSI. The "x" axis reflects computation periods
from 3/31/89 to 3/31/99. 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 as compared to the LB5YRTBI, the LUSMFA and the LBMBSI.
The right margin reflects the ending value of the hypothetical investment in the
Fund's Class A Shares as compared to the LB5YRTBI, the LUSMFA and the LBMBSI.
The ending values were $19,975, $22,117, $21,430 and $23,883, respectively. The
legend in the top quadrant of the graphic presentation indicates the Fund's
Class A Shares Average Annual Total Returns for the one-year, five-year, ten
year and start of performance (10/6/69) to 3/31/99. The total returns were
0.72%, 5.78%, 7.16% and 7.51%, respectively.
A5. 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. (the "Fund") are
represented by a solid line. The Lehman Brothers 5-Year Treasury Bellwether
Index (LB5YRTBI) is represented by a dotted line, the Lipper U.S. Mortgage Funds
Average (LUSMFA) is represented by a broken line and the Lehman Brothers
Mortgage Backed Securities Index (LBMBSI) 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, and the
LB5YRTBI, the LUSMFA and the LBMBSI. The "x" axis reflects computation periods
from 7/26/94 to 3/31/99. 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 LUSMFA and the LBMBSI.
The right margin reflects the ending value of the hypothetical investment in the
Fund's Class B Shares as compared to the LB5YRTBI, the LUSMFA and the LBMBSI.
The ending values were $13,165, $13,860, $13,745 and $14,453, respectively. The
legend in the top quadrant of the graphic presentation indicates the Fund's
Class B Shares Average Annual Total Returns for the one-year, and start of
performance (7/26/94) to 3/31/99.
The total returns were (0.82%), and 6.05%, respectively.
A6. 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. (the "Fund") are
represented by a solid line. The Lehman Brothers 5-Year Treasury Bellwether
Index (LB5YRTBI) is represented by a dotted line, the Lipper U.S. Mortgage Funds
Average (LUSMFA) is represented by a broken line and the Lehman Brothers
Mortgage Backed Securities Index (LBMBSI) 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, and the
LB5YRTBI, the LUSMFA and the LBMBSI. The "x" axis reflects computation periods
from 4/27/93 to 3/31/99. 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 LUSMFA and the LBMBSI.
The right margin reflects the ending value of the hypothetical investment in the
Fund's Class C Shares as compared to the LB5YRTBI, the LUSMFA and the LBMBSI.
The ending values were $19,975, $22,117, $21,430 and $23,883, respectively. The
legend in the top quadrant of the graphic presentation indicates the Fund's
Class C Shares Average Annual Total Returns for the one-year, five-year, and
start of performance (4/27/93) to 3/31/99. The total returns were 3.52%, 5.88%,
and 4.73%, respectively.
