0000039439-00-000006 N-30D 1 20000930 20001129 FEDERATED FUND FOR US GOVERNMENT SECURITIES INC 0000039439 251213118 MD 0331 N-30D 40 811-01890 779568 FEDERATED INVESTORS TWR PITTSBURGH PA 15222-3779 8003417400 FEDERATED INVESTORS TOWER PITTSBURG PA 15222-3779 FUND FOR U S GOVERNMENT SECURITIES INC 19920703 MUTUAL FUND FOR INVESTING IN UNITED STAT 19711102 N-30D 1 0001.htm Federated Investors World-Class Investment Manager Federated Fund for U.S. Government Securities, Inc. 31ST SEMI-ANNUAL REPORT September 30, 2000 Established 1969 NOT FDIC INSURED * MAY LOSE VALUE * NO BANK GUARANTEE 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 31st Semi-Annual Report. For 31 years, this fund has invested primarily in U.S. government agency securities and U.S. Treasury bonds, which have provided generous monthly income. Currently, the fund's $1.1 billion in net assets are invested primarily in U.S. government agency mortgage-backed securities, which offer a yield advantage over comparable-duration Treasury securities.1 This report covers the first half of the fund's fiscal year, which is the six-month period from April 1, 2000 through September 30, 2000. 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 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, 2000, 46% of the fund's portfolio was invested in GNMA securities. At the end of the third quarter, the fund's average effective duration was 4.0 years, and the weighted average coupon of its holdings was 7.09%.2 1 Fund shares are not guaranteed. 2 Duration is a measure of a security's price sensitivity to changes in interest rates. Securities with longer durations are more sensitive to changes in interest rates than securities of shorter durations. The positive performance of the fund's shares reflected the desire of individuals and institutional investors to own U.S. government agency bonds, which have no credit risk and no default risk. Additionally, mortgage-backed securities currently have a higher yield over U.S. Treasury securities. These are three attractive reasons to own government mortgage-backed securities. Individual share class total return performance at net asset value for the six-month reporting period, including income distributions, follows.3 Income Total Return Distributions Net Asset Value Change Class A Shares 4.90% $0.240 $7.48 to $7.60 = 1.60% Class B Shares 4.48% $0.210 $7.48 to $7.60 = 1.60% Class C Shares 4.50% $0.211 $7.48 to $7.60 = 1.60% Thank you for entrusting 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.4 Sincerely, J. Christopher Donahue J. Christopher Donahue President November 15, 2000 3 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 0.21%, (1.02%) and 3.50%, respectively. 4 Systematic investing does not ensure a profit or protect against loss in declining markets. 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 and the recent inaction by the Federal Reserve Board (the Fed) on interest rates? Evidence continued to accumulate that the U.S. economic expansion was moderating from the breakneck pace that prevailed earlier this year. While the promise of strong productivity gains continued to spur rapid output gains in technology, construction activity faltered, and consumer spending leveled off at a sustainable pace. Against this backdrop, the Fed has maintained the Federal Funds overnight bank-lending rate at 6.5%, and this interest rate has been at this level since May 2000. Despite the recent inaction on interest rates, the Fed continues to be vigilant over perceived risks of increased inflation. What did this steady interest rate and low inflation environment mean for the mortgage-backed securities market? The mortgage-backed securities market during the reporting period had a phenomenal run outperforming Treasurys by 140 basis points. Concerns over other spread sectors drove the outperformance of the mortgage market. Concerns regarding pre-earnings announcements, which indicate that companies may miss earnings estimates, have already taken a toll in the stock market and are filtering through to widen corporate bond spreads over Treasurys. Also, earlier in the year, Federal National Mortgage Association (FNMA) and Federal Home Loan Mortgage Corporation's (FHLMC) Government Sponsored Entity (GSE) status came under close scrutiny as the U.S. Treasury put forth a proposal to make several changes to the relationship between the U.S. government and the housing GSEs. The changes proposed by the U.S. Treasury involved repealing the GSE's discretionary lines of credit with the U.S. government and requiring the agencies to be reviewed annually by the one of the major rating agencies. The initial reaction of the fixed-income markets to the Treasury's proposal drove spreads wider, as investors tried to ascertain what this meant for the agencies and their issuance of securities. After eight months of uncertainty, this issue was resolved late in October as both housing GSEs agreed to implement a set of voluntary measures aimed at increasing transparency, strengthening capital adequacy, and enhancing risk management. Investors responded positively to the GSEs' announcement, and we believe this news bodes well for a tightening of agency mortgage spreads versus Treasurys. How did the fund perform for its shareholders in terms of total return and income for the six-month reporting period ended September 30, 2000? For the first half of the fund's fiscal year, the Class A Shares of the fund produced a total return of 4.90%, based on net asset value. Class B and C Shares produced total returns of 4.48% and 4.50%, respectively, based on net asset value.1 The fund's returns over the six-month reporting period were consistent with the Lipper U.S. Mortgage Funds Average of 4.76%.2 In terms of income, the fund's Class A, B, and C Shares paid monthly dividends totaling $0.240, $0.210 and $0.211 per share, respectively, during the reporting period. 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 0.21%, (1.02%) and 3.50%, 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 respective categories. These figures do not reflect sales charges. What is your strategy for the fund? We continue to target the fund's duration near the benchmark in the four-year area, and we expect to retain our overweight in agency mortgage-backed securities to take advantage of the substantial yield premium versus Treasury securities. In addition, as opportunities arise within the non-agency mortgage market, we will selectively continue to increase our exposure to that arena. How was the fund's portfolio allocated on September 30, 2000? Percentage of Net Assets Government National Mortgage Association 45.7% Federal National Mortgage Association 33.1% Non-Agency Mortgage Backed Securities 15.1% Federal Home Loan Mortgage Corporation 7.9% Mutual Funds 4.7% What's your outlook for the mortgage-backed securities market moving into year-end? The outlook for the mortgage market moving into the fourth quarter of 2000 is very good. There is increased confidence by investors that the Fed will be able to successfully engineer a soft economic landing. Gross Domestic Product growth has slowed from an average of 6% for the previous four quarters to about 3% for the third quarter of this year, and the U.S. Treasury curve has steepened in the long end. The yield spread between 10- and 30-year Treasury securities is at levels seen earlier in 2000. This is true for both the swaps yield curve, as well as the spread curve. GNMA and FNMA price spreads have suffered a similar reversal of fortunes. The main catalysts which drove GNMA and FNMA spreads--dwindling Treasury supply and political noise around the GSEs--have become less of an issue. All these events point toward reduced concerns about shrinking Treasury supply and bode well for high-quality spread sectors. Two Ways You May Seek to Invest for Success: INITIAL INVESTMENT If you had made an initial investment of $31,000 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 $279,941 on 9/30/00. You would have earned a 7.36%1average 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. [Graphic Representation Omitted - See Appendix] As of 9/30/00, the Class A Shares' average annual 1-year, 5-year, and 10-year total returns were 2.04%, 4.89%, and 6.05%, respectively. The Class B Shares' average annual 1-year, 5-year, and since inception (7/26/94) total returns were 0.55%, 4.70% and 5.70%, respectively. The Class C Shares' average annual 1-year, 5-year, and since inception (4/27/93) total returns were 5.06%, 5.01% and 4.49%, respectively.2 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 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. 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; and 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 30 years (reinvesting all dividends and capital gains) grew to $120,303. 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 $31,000 but your account would have reached a total value of $120,3031 by 9/30/00. You would have earned an average annual total return of 7.52%. 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. [Graphic Representation Omitted - See Appendix] 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, 1990, 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 $179,863 as of September 30, 2000, for an average annual total return of 6.05%.2 [Graphic Representation Omitted - See Appendix] 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 is no guarantee of future results. Fund shares are not guaranteed and their value will fluctuate. Portfolio of Investments September 30, 2000 (unaudited) Principal Amount Value ASSET-BACKED SECURITIES--15.1% Financial Intermediaries--2.0% Norwest Asset Securities Corp. 98-10, Class A3, $ 22,300,000 6.750%, 5/25/2028 $ 20,392,012 -------------------------------------------------------------------------------------- Home Equity Loans--11.5% Chase Funding Mortgage Loan 99-1, 9.372%, 2,500,000 6/25/2028 2,565,475 Chase Mortgage Finance Corp. 1994-F, Class A-9, 6,446,000 6.750%, 3/25/2025 6,396,205 21,500,000 Conseco Finance 2000-D, 8.410%, 12/15/2025 21,923,271 GS Mortgage Securities Corp. 2000-1, (Interest 85,382,227 1 Only) 0.210%, 6/19/2029 707,050 Green Tree Home Equity Loan Trust 99-C, 14.250%, 60,000,000 7/15/2030 3,056,220 Mellon Bank Home Equity Installment Loan 98-1, 6,550,000 6.950%, 3/25/2015 6,171,869 Residential Asset Securitization Trust 1998-A8, 15,000,000 6.750%, 8/25/2028 14,103,000 Residential Funding Mortgage Securities I, Inc. 18,544,637 1998-S9, Class 1A1, 6.500%, 4/25/2013 17,745,549 Residential Funding Mortgage Securities I, Inc. 14,642,375 1998-S31, Class A1, 6.500%, 12/25/2028 13,936,320 Salomon Brothers Mortgage Securities VII 11,633,163 1997-HUD1, Class B1-B2, 7.750%, 12/25/2030 11,069,756 Salomon Brothers Mortgage Securities VII 99-4, 137,041,089 1 Class 4, 2.547%, (Interest Only), 12/25/2027 6,509,452 Salomon Brothers Mortgage Securities VII 99-NC3 5,000,000 Class M3, Floating Rate Note, 9.722%, 7/25/2029 5,000,000 Saxon Asset Securities Trust 99-2, Class BV1, 3,000,000 Floating Rate Note, 9.320%, 5/25/2029 3,037,560 Structured Asset Securities Corp. 1998-RF4, ALS2, Class B6, (Interest Only) 6.300%, 44,546,438 1 8/15/2028 8,742,238 -------------------------------------------------------------------------------------- TOTAL 120,963,965 -------------------------------------------------------------------------------------- Manufactured Housing--1.6% Green Tree Financial Corp. 93-4, 8.550%, 13,000,000 1/15/2019 11,274,380 Green Tree Financial Corp. 97-4, 7.230%, 2,000,000 2/15/2029 1,814,680 Green Tree Financial Corp. 98-6, 7.140%, 3,925,000 2/1/2021 3,517,467 -------------------------------------------------------------------------------------- TOTAL 16,606,527 -------------------------------------------------------------------------------------- TOTAL ASSET-BACKED SECURITIES (IDENTIFIED COST $152,050,556) 157,962,504 -------------------------------------------------------------------------------------- LONG-TERM U.S. GOVERNMENT OBLIGATIONS--86.7% Federal Home Loan Mortgage Corporation--5.9% 51,281,861 6.500%, 1/1/2029 - 7/1/2030 49,310,586 11,704,842 8.000%, 12/1/2029 11,880,415 4,040 11.000%, 12/1/2017 4,301 16,506 11.750%, 1/1/2011 17,850 612 12.500%, 10/1/2012 665 7,827 12.750%, 1/1/2013 - 10/1/2013 8,476 41,111 13.000%, 2/1/2015 45,171 14,819 13.250%, 3/1/2014 16,368 Principal Amount Value LONG-TERM U.S. GOVERNMENT OBLIGATIONS--continued Federal Home Loan Mortgage Corporation--continued $ 1,796 13.500%, 10/1/2013 $ 1,808 35,906 13.750%, 1/1/2011 - 10/1/2011 39,468 80 14.000%, 12/1/2012 87 29,140 14.500%, 10/1/2012 31,736 6,098 14.750%, 8/1/2011 6,688 3,587 15.500%, 8/1/2011 4,214 -------------------------------------------------------------------------------------- TOTAL 61,367,833 -------------------------------------------------------------------------------------- Federal Home Loan Mortgage Corporation-Agency Debenture--0.4% 5,000,000 5.750%, 3/15/2009 4,668,500 -------------------------------------------------------------------------------------- Federal Home Loan Mortgage Corporation REMIC--1.6% 16,531,280 Series 1880-K, 7.000%, 8/15/2009 16,514,775 -------------------------------------------------------------------------------------- Federal National Mortgage Association--29.6% 121,123,669 2 6.000%, 12/1/2013 - 11/1/2030 114,308,699 56,311,183 6.500%, 12/1/2028 - 11/1/2029 54,093,648 125,000,000 7.000%, 12/1/2029 122,461,250 10,320,000 7.500%, 12/1/2029 10,300,598 9,058,076 9.000%, 12/1/2029 9,355,272 105,386 11.000%, 10/1/2010 112,332 5,817 11.750%, 10/1/2015 6,375 808 12.000%, 1/1/2013 870 4,245 12.500%, 8/1/2013 4,679 26,482 12.750%, 10/1/2010 - 8/1/2014 29,272 3,853 13.000%, 8/1/2015 4,217 59,153 13.500%, 12/1/2014 65,710 3,039 13.750%, 6/1/2014 3,319 7,179 15.000%, 10/1/2012 7,964 -------------------------------------------------------------------------------------- TOTAL 310,754,205 -------------------------------------------------------------------------------------- Federal National Mortgage Association REMIC--3.5% 23,614,786 Series 302-1, 0.000%, (Principal Only), 6/1/2029 14,855,117 Series GT 99-T2-X, 0.670%, (Interest Only), 158,939,408 1/19/2039 3,104,246 23,614,786 Series 302-2, 6.000%, (Interest Only), 6/1/2029 7,298,622 11,731,031 Series 1993-130-UB, 6.750%, 1/25/2020 11,661,466 -------------------------------------------------------------------------------------- TOTAL 36,919,451 -------------------------------------------------------------------------------------- Government National Mortgage Association--45.7% 84,972,836 6.500%, 11/15/2023 - 3/15/2029 82,361,693 143,668,701 2 7.000%, 3/15/2024 - 5/15/2029 141,660,006 102,530,461 7.500%, 1/15/2023 - 2/15/2030 103,009,204 84,972,836 6.500%, 11/15/2023 - 3/15/2029 82,361,693 143,668,701 2 7.000%, 3/15/2024 - 5/15/2029 141,660,006 Principal Amount or Shares Value LONG-TERM U.S. GOVERNMENT OBLIGATIONS--continued Government National Mortgage Association--continued $ 102,530,461 7.500%, 1/15/2023 - 2/15/2030 $ 103,009,204 81,100,264 8.000%, 12/20/2016 - 11/20/2030 82,570,699 19,323,946 8.250%, 7/15/2030 - 8/15/2030 19,773,808 8,597,126 8.375%, 8/15/2030 8,797,267 17,673,628 8.500%, 11/15/2029 - 1/15/2030 18,176,266 17,320,450 9.000%, 4/15/2030 - 5/15/2030 17,959,228 4,563,969 9.500%, 5/15/2030 - 6/15/2030 4,749,358 771 10.500%, 11/15/2000 - 1/15/2001 773 539 11.250%, 9/20/2015 579 69,947 11.750%, 7/15/2013 76,800 26,160 13.000%, 9/20/2014 29,185 23,913 13.750%, 9/15/2014 27,040 -------------------------------------------------------------------------------------- TOTAL 479,191,906 -------------------------------------------------------------------------------------- Small Business Administration--0.0% 602,073 1.394%, (Interest Only) 11/20/2003 12,602 -------------------------------------------------------------------------------------- TOTAL LONG-TERM U.S. GOVERNMENT OBLIGATIONS (IDENTIFIED COST $921,284,250) 909,429,272 -------------------------------------------------------------------------------------- MUTUAL FUNDS--4.7% 48,881,168 3 Government Obligations Fund 48,881,168 78,000 Income Opportunities Fund 2000, Inc. 775,125 -------------------------------------------------------------------------------------- TOTAL MUTUAL FUNDS (IDENTIFIED COST $49,638,668) 49,656,293 -------------------------------------------------------------------------------------- TOTAL INVESTMENTS (IDENTIFIED COST $1,122,973,474)4 $ 1,117,048,069 -------------------------------------------------------------------------------------- 1 Denotes a restricted security which is subject to restrictions on resale under federal securities laws. These securities have been deemed liquid based upon criteria approved by the Fund's Board of Directors. At September 30, 2000, these securities amounted to $15,958,740 which represents 1.52% of net assets. 2 A portion of these securities are subject to dollar roll transactions. 3 Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the Fund may invest in Government Obligations Fund which is managed by Federated Investment Management Company, the Fund's adviser. The adviser has agreed to reimburse certain investment advisory fees as a result of these transactions. 4 The cost of investments for federal tax purposes amounts to $1,122,973,474. The net unrealized depreciation of investments on a federal tax basis amounts to $5,925,405 which is comprised of $9,999,095 appreciation and $15,924,500 depreciation at September 30, 2000. The following abbreviations are used in this portfolio: HUD --Housing and Urban Development REMIC --Real Estate Mortgage Investment Conduit Note: The categories of investments are shown as a percentage of net assets ($1,048,985,374) at September 30, 2000. See Notes which are an integral part of the Financial Statements Statement of Assets and Liabilities September 30, 2000 (unaudited) Assets: Total investments in securities, at value (identified and tax cost $1,122,973,474) $ 1,117,048,069 Cash 1,032 Income receivable 7,208,095 Receivable for investments sold 284,841,462 Receivable for shares sold 1,325,261 --------------------------------------------------------------------------------------- TOTAL ASSETS 1,410,423,919 --------------------------------------------------------------------------------------- Liabilities: Payable for investments purchased $ 328,020,077 Payable for shares redeemed 522,829 Income distribution payable 5,416,418 Payable for dollar roll transactions 25,925,538 Accrued expenses 1,553,683 --------------------------------------------------------------------------------------- TOTAL LIABILITIES 361,438,545 --------------------------------------------------------------------------------------- Net assets for 138,063,122 shares outstanding $ 1,048,985,374 --------------------------------------------------------------------------------------- Net Assets Consist of: Paid-in capital $ 1,238,607,866 Net unrealized depreciation of investments (5,925,405 ) Accumulated net realized loss on investments (183,697,087 ) --------------------------------------------------------------------------------------- TOTAL NET ASSETS $ 1,048,985,374 --------------------------------------------------------------------------------------- Net Asset Value, Offering Price and Redemption Proceeds Per Share Class A Shares: Net Asset Value Per Share ($887,743,038 ÷ 116,841,761 shares outstanding) $7.60 --------------------------------------------------------------------------------------- Offering Price Per Share (100/95.50 of $7.60)1 $7.96 --------------------------------------------------------------------------------------- Redemption Proceeds Per Share $7.60 --------------------------------------------------------------------------------------- Class B Shares: Net Asset Value Per Share ($118,332,721 ÷ 15,573,378 shares outstanding) $7.60 --------------------------------------------------------------------------------------- Offering Price Per Share $7.60 --------------------------------------------------------------------------------------- Redemption Proceeds Per Share (94.50/100 of $7.60)1 $7.18 --------------------------------------------------------------------------------------- Class C Shares: Net Asset Value Per Share ($42,909,615 ÷ 5,647,983 shares outstanding) $7.60 --------------------------------------------------------------------------------------- Offering Price Per Share $7.60 --------------------------------------------------------------------------------------- Redemption Proceeds Per Share (99.00/100 of $7.60)1 $7.52 --------------------------------------------------------------------------------------- 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, 2000 (unaudited) Investment Income: Dividends $ 18,249 Interest (net of dollar roll expense of $1,595,875) 39,168,234 ------------------------------------------------------------------------------------------- TOTAL INCOME 39,186,483 ------------------------------------------------------------------------------------------- Expenses: Investment adviser fee $ 3,083,508 Administrative personnel and services fee 400,931 Custodian fees 49,287 Transfer and dividend disbursing agent fees and expenses 474,286 Directors'/Trustees' fees 14,018 Auditing fees 11,092 Legal fees 2,680 Portfolio accounting fees 83,068 Distribution services fee--Class B Shares 457,364 Distribution services fee--Class C Shares 167,188 Shareholder services fee--Class A Shares 1,122,928 Shareholder services fee--Class B Shares 152,455 Shareholder services fee--Class C Shares 55,729 Share registration costs 30,229 Printing and postage 49,995 Insurance premiums 2,770 Taxes 67,203 ------------------------------------------------------------------------------------------- TOTAL EXPENSES 6,224,731 ------------------------------------------------------------------------------------------- Waivers and Reimbursements: Waiver of shareholder services fee--Class A Shares $ (89,834 ) Reimbursement of investment adviser fee (3,383 ) ------------------------------------------------------------------------------------------- TOTAL WAIVERS (93,217 ) ------------------------------------------------------------------------------------------- Net expenses 6,131,514 ------------------------------------------------------------------------------------------- Net investment income 33,054,969 ------------------------------------------------------------------------------------------- Realized and Unrealized Gain (Loss) on Investments: Net realized loss on investments (8,415,724 ) Net change in unrealized appreciation (depreciation) of investments 23,273,403 ------------------------------------------------------------------------------------------- Net realized and unrealized gain on investments 14,857,679 ------------------------------------------------------------------------------------------- Change in net assets resulting from operations $ 47,912,648 ------------------------------------------------------------------------------------------- See Notes which are an integral part of the Financial Statements Statement of Changes in Net Assets Six Months Ended (unaudited) Year Ended 9/30/2000 3/31/2000 Increase (Decrease) in Net Assets Operations: Net investment income $ 33,054,969 $ 72,233,334 Net realized loss on investments ($(8,415,724) and $(19,252,768), respectively, as computed for federal tax purposes) (8,415,724 ) (19,252,768 ) Net change in unrealized appreciation/depreciation on investments 23,273,403 (36,935,654 ) ---------------------------------------------------------------------------------------- CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 47,912,648 16,044,912 ---------------------------------------------------------------------------------------- Distributions to Shareholders: Distributions from net investment income Class A Shares (28,445,468 ) (61,550,480 ) Class B Shares (3,373,359 ) (7,779,482 ) Class C Shares (1,236,142 ) (2,903,372 ) ---------------------------------------------------------------------------------------- CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS (33,054,969 ) (72,233,334 ) ---------------------------------------------------------------------------------------- Share Transactions: Proceeds from sale of shares 123,208,649 281,336,468 Net asset value of shares issued to shareholders in payment of distributions declared 18,032,580 46,902,236 Cost of shares redeemed (194,936,094 ) (427,527,050 ) ---------------------------------------------------------------------------------------- CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS (53,694,865 ) (99,288,346 ) ---------------------------------------------------------------------------------------- Change in net assets (38,837,186 ) (155,476,768 ) ---------------------------------------------------------------------------------------- Net Assets: Beginning of period 1,087,822,560 1,243,299,328 ---------------------------------------------------------------------------------------- End of period $ 1,048,985,374 $ 1,087,822,560 ---------------------------------------------------------------------------------------- See Notes which are an integral part of the Financial Statements Financial Highlight -- Class A Shares (For a Share Outstanding Throughout Each Period) Six Months Ended (unaudited) Year Ended March 31, 9/30/2000 2000 1999 1998 1997 1996 Net Asset Value, Beginning of Period $7.48 $7.84 $7.90 $7.65 $7.78 $7.67 Income From Investment Operations: Net investment income 0.25 1 0.47 1 0.46 0.50 0.51 0.54 Net realized and unrealized gain (loss) on investments 0.11 (0.35 ) (0.04 ) 0.26 (0.14 ) 0.12 -------------------------------------------------------------------------------------------------------------------- TOTAL FROM INVESTMENT OPERATIONS 0.36 0.12 0.42 0.76 0.37 0.66 -------------------------------------------------------------------------------------------------------------------- Less Distributions: Distributions from net investment income (0.24 ) (0.48 ) (0.48 ) (0.51 ) (0.50 ) (0.55 ) -------------------------------------------------------------------------------------------------------------------- Net Asset Value, End of Period $7.60 $7.48 $7.84 $7.90 $7.65 $7.78 -------------------------------------------------------------------------------------------------------------------- Total Return2 4.90 % 1.66 % 5.43 % 10.21 % 4.88 % 8.77 % -------------------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets: -------------------------------------------------------------------------------------------------------------------- Expenses 1.03 %3 1.00 % 0.96 % 0.94 % 0.95 % 0.95 % -------------------------------------------------------------------------------------------------------------------- Net investment income 6.69 %3 6.30 % 5.78 % 6.40 % 6.60 % 6.80 % -------------------------------------------------------------------------------------------------------------------- Expense waiver/reimbursement4 0.02 %3 0.02 % 0.02 % 0.08 % 0.12 % 0.11 % -------------------------------------------------------------------------------------------------------------------- Supplemental Data: -------------------------------------------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $887,743 $915,850 $1,052,081 $1,138,450 $1,177,071 $1,330,272 -------------------------------------------------------------------------------------------------------------------- Portfolio turnover 52 % 103 % 187 % 88 % 120 % 157 % -------------------------------------------------------------------------------------------------------------------- 1 Per share information is based on average shares outstanding. 2 Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. 3 Computed on an annualized basis. 4 This voluntary expense decrease is reflected in both the expense and the 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) Six Months Ended (unaudited) Year Ended March 31, 9/30/2000 2000 1999 1998 1997 1996 Net Asset Value, Beginning of Period $7.48 $7.84 $7.90 $7.66 $7.78 $7.67 Income From Investment Operations: Net investment income 0.22 1 0.41 1 0.40 0.44 0.44 0.49 Net realized and unrealized gain (loss) on investments 0.11 (0.35 ) (0.04 ) 0.25 (0.13 ) 0.11 --------------------------------------------------------------------------------------------------------- TOTAL FROM INVESTMENT OPERATIONS 0.33 0.06 0.36 0.69 0.31 0.60 --------------------------------------------------------------------------------------------------------- Less Distributions: Distributions from net investment income (0.21 ) (0.42 ) (0.42 ) (0.45 ) (0.43 ) (0.49 ) --------------------------------------------------------------------------------------------------------- Net Asset Value, End of Period $7.60 $7.48 $7.84 $7.90 $7.66 $7.78 --------------------------------------------------------------------------------------------------------- Total Return2 4.48 % 0.88 % 4.64 % 9.16 % 4.13 % 7.90 % --------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets: --------------------------------------------------------------------------------------------------------- Expenses 1.80 %3 1.77 % 1.73 % 1.77 % 1.80 % 1.78 % --------------------------------------------------------------------------------------------------------- Net Investment Income 5.92 %3 5.54 % 5.01 % 5.57 % 5.75 % 5.93 % --------------------------------------------------------------------------------------------------------- Expense waiver/reimbursement4 0.00 %3,5 -- -- -- 0.02 % 0.04 % --------------------------------------------------------------------------------------------------------- Supplemental Data --------------------------------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $118,333 $126,336 $141,148 $107,225 $100,439 $93,169 --------------------------------------------------------------------------------------------------------- Portfolio turnover 52 % 103 % 187 % 88 % 120 % 157 % --------------------------------------------------------------------------------------------------------- 1 Per share information is based on average shares outstanding. 2 Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. 3 Computed on an annualized basis. 4 This voluntary expense decrease is reflected in both the expense and the net investment income ratios shown above. 5 Less than 0.01%. See Notes which are an integral part of the Financial Statements Financial Highlights -- Class C Shares (For a Share Outstanding Throughout Each Period) Six Months Ended (unaudited) Year Ended March 31, 9/30/2000 2000 1999 1998 1997 1996 Net Asset Value, Beginning of Period $7.48 $7.84 $7.91 $7.66 $7.78 $7.67 Income From Investment Operations: Net investment income 0.22 1 0.41 1 0.40 0.44 0.45 0.47 Net realized and unrealized gain (loss) on investments 0.11 (0.35 ) (0.05 ) 0.26 (0.13 ) 0.12 ----------------------------------------------------------------------------------------------------- TOTAL FROM INVESTMENT OPERATIONS 0.33 0.06 0.35 0.70 0.32 0.59 ----------------------------------------------------------------------------------------------------- Less Distributions: Distributions from net investment income (0.21 ) (0.42 ) (0.42 ) (0.45 ) (0.44 ) (0.48 ) ----------------------------------------------------------------------------------------------------- Net Asset Value, End of Period $7.60 $7.48 $7.84 $7.91 $7.66 $7.78 ----------------------------------------------------------------------------------------------------- Total Return2 4.50 % 0.87 % 4.51 % 9.29 % 4.14 % 7.85 % ----------------------------------------------------------------------------------------------------- Ratios to Average Net Assets: ----------------------------------------------------------------------------------------------------- Expenses 1.80 %3 1.77 % 1.73 % 1.77 % 1.80 % 1.79 % ----------------------------------------------------------------------------------------------------- Net Investment Income 5.92 %3 5.54 % 5.01 % 5.57 % 5.74 % 5.96 % ----------------------------------------------------------------------------------------------------- Expense waiver/reimbursement4 0.00 %3,5 -- -- -- 0.02 % 0.02 % ----------------------------------------------------------------------------------------------------- Supplemental Data: ----------------------------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $42,910 $45,637 $50,071 $48,118 $55,842 $79,949 ----------------------------------------------------------------------------------------------------- Portfolio turnover 52 % 103 % 187 % 88 % 120 % 157 % ----------------------------------------------------------------------------------------------------- 1 Per share information is based on average shares outstanding. 2 Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. 3 Computed on an annualized basis. 4 This voluntary expense decrease is reflected in both the expense and the net investment income ratios shown above. 5 Less than 0.01%. See Notes which are an integral part of the Financial Statements Notes to Financial Statements September 30, 2000 (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 Valuation U.S. government securities and other fixed income and asset-backed 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 mays be valued at amortized cost, which approximates fair market value. Investments in other open-end regulated investment companies are valued at net asset 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. The Fund, along with other affiliated investment companies, may utilize a joint trading account for the purpose of entering into one or more repurchase agreements. 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. Non-cash dividends included in dividend income, if any, are recorded at fair value. The Fund offers multiple classes of shares, which differ in their respective distribution and service fees. All shareholders bear the common expenses of the Fund based on average daily net assets of each class, without distinction between share classes. Dividends are declared separately for each class. No class has preferential dividend rights; differences in per share dividend rates are generally due to differences in separate class expenses. 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 provision for federal tax is necessary. At March 31, 2000, the Fund, for federal tax purposes, had a capital loss carryforward of $159,806,631, which will reduce the Fund's taxable income arising from future net realized gain on investments, if any, to the extent permitted by the Code, and thus will reduce the amount of the distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal tax. Pursuant to the Code, such capital loss carryforward will expire as follows: Expiration Year Expiration Amount 2002 $ 7,519,074 ----------------------------------- 2003 123,323,419 ----------------------------------- 2004 4,621,860 ----------------------------------- 2005 20,564,242 ----------------------------------- 2008 3,778,036 ----------------------------------- 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. Losses may occur on these transactions due to changes in market conditions or the failure of counterparties to perform under the contract. Restricted Securities Restricted securities are securities that may only be resold upon registration under federal securities laws or in transactions exempt from such registration. In some cases, the issuer of restricted securities has agreed to register such securities for resale, at the issuer's expense either upon demand by the Fund or in connection with another registered offering of the securities. Many restricted securities may be resold in the secondary market in transactions exempt from registration. Such restricted securities may be determined to be liquid under criteria established by the Directors. The Fund will not incur any registration costs upon such resales. The Fund's restricted securities are valued at the price provided by dealers in the secondary market or, if no market prices are available, at the fair value as determined by the Fund's pricing committee. 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 a trade date basis. CAPITAL STOCK At September 30, 2000, par value shares ($0.001 per share) authorized were as follows: Number of Par Value Share Class Name Capital Stock Authorized Class A Shares 750,000,000 Class B Shares 500,000,000 Class C Shares 750,000,000 TOTAL 2,000,000,000 Transactions in capital stock were as follows: Six Months Ended Year Ended 9/30/2000 3/31/2000 Class A Shares: Shares Amount Shares Amount Shares sold 11,213,698 $ 85,960,311 23,687,727 $ 179,056,245 Shares issued to shareholders in payment of distributions declared 2,092,324 15,652,874 5,361,850 40,463,170 Shares redeemed (18,944,010 ) (142,264,025 ) (40,774,422 ) (308,969,814 ) --------------------------------------------------------------------------------------------- NET CHANGE RESULTING FROM CLASS A SHARE TRANSACTIONS (5,637,988 ) $ (40,650,840 ) (11,724,845 ) $ (89,450,399 ) --------------------------------------------------------------------------------------------- Six Months Ended Year Ended 9/30/2000 3/31/2000 Class B Shares: Shares Amount Shares Amount Shares sold 2,548,228 $ 19,422,280 7,803,966 $ 59,264,072 Shares issued to shareholders in payment of distributions declared 238,910 1,787,003 653,846 4,936,316 Shares redeemed (4,110,256 ) (30,897,217 ) (9,567,167 ) (72,238,719 ) --------------------------------------------------------------------------------------------- NET CHANGE RESULTING FROM CLASS B SHARE TRANSACTIONS (1,323,118 ) $ (9,687,934 ) (1,109,355 ) $ (8,038,331 ) --------------------------------------------------------------------------------------------- Six Months Ended Year Ended 9/30/2000 3/31/2000 Class C Shares: Shares Amount Shares Amount Shares sold 2,353,659 $ 17,826,058 5,625,382 $ 43,016,151 Shares issued to shareholders in payment of distributions declared 79,211 592,703 199,117 1,502,750 Shares redeemed (2,888,255 ) (21,774,852 ) (6,108,908 ) (46,318,517 ) --------------------------------------------------------------------------------------------- NET CHANGE RESULTING FROM CLASS C SHARE TRANSACTIONS (455,385 ) $ (3,356,091 ) (284,409 ) $ (1,799,616 ) --------------------------------------------------------------------------------------------- NET CHANGE RESULTING FROM SHARE TRANSACTIONS (7,416,491 ) $ (53,694,865 ) (13,118,609 ) $ (99,288,346 ) --------------------------------------------------------------------------------------------- INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES Investment Adviser Fee Federated Investment Management Company, the Fund's investment adviser (the Adviser), receives for its services an annual investment Adviser 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 a scale that ranges from 0.15% to 0.075% of the average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors, Inc., subject to a $125,000 minimum per portfolio and $30,000 per each additional class. Distribution Services Fee The Fund has adopted a Distribution Plan (the Plan) pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp. (FSC), the principal distributor, from the net assets of the Fund to finance activities intended to result in the sale of the Fund's Class B Shares and Class C Shares. The Plan provides that the Fund may incur distribution expenses according to the following schedule annually, to compensate FSC. Percentage of Average Share Class Daily Net Assets of Class Class B 0.75% Class C 0.75% The distributor may voluntarily choose to waive any portion of its fee. The distributor can modify or terminate this voluntary waiver at any time at its sole discretion. Shareholder Services Fee Under the terms of a Shareholder Services Agreement with Federated Shareholder Services 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. Interfund Transactions During the period ended September 30, 2000, the Fund engaged in purchase and sale transactions with funds that have a common investment adviser (or affiliated investment advisers), common Directors/Trustees, and/or common Officers. These purchase and sale transactions complied with Rule 17a-7 under the Act and amounted to $228,889,193 and $180,193,930 respectively. Portfolio Accounting Fees FServ maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. General Certain of the Officers and Directors of the Corporation are Officers and Directors or Trustees of the above companies. INVESTMENT TRANSACTIONS Purchases and sales of investments, excluding short-term securities (and in-kind contributions), for the period ended September 30, 2000, were as follows: Purchases $ 785,615,118 -------------------------- Sales $ 547,447,028 -------------------------- 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 RICHARD J. THOMAS Treasurer 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. Federated World-Class Investment Manager 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 (11/00) Federated is a registered mark of Federated Investors, Inc. 2000 ©Federated Investors, Inc. FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES FUND, INC. GRAPHIC APPENDIX A1. The graphic presentation here displayed consists of a boxed legend in the upper left quadrant indicating the components of the corresponding mountain chart. The color-coded mountain chart is a visual representation of the narrative text above it. The "x" axis reflects computation periods from 10/6/69 to 9/30/00. The "y" axis is measured in increments of $50,000 ranging from $0 to $300,000 and indicates that the ending value of hypothetical initial investment of $31,000 (2,961 Shares) in the fund's Class A Shares, assuming the reinvestment of capital gains and dividends, would have grown to $279,941 (36,834 Shares) on 9/30/00. A2. The graphic presentation here displayed consists of a boxed legend in the upper left quadrant indicating the components of the corresponding mountain chart. The color-coded mountain chart is a visual representation of the narrative text above it. The "x" axis reflects computation periods from 10/6/69 to 9/30/00. The "y" axis is measured in increments of $25,000 ranging from $0 to $125,000 and indicates that the ending value of hypothetical yearly investments of $1,000 (96 Shares) in the fund's Class A Shares, assuming the reinvestment of capital gains and dividends, would have grown to $120,303 (15,829 Shares) on 9/30/00. A3. The graphic presentation here displayed consists of a boxed legend in the upper left quadrant indicating the components of the corresponding mountain chart. The color-coded mountain chart is a visual representation of the narrative text above it. The "x" axis reflects computation periods from 9/30/90 to 9/30/00. 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 investment of $100,000 (11,655 Shares) in the fund's Class A Shares, assuming the reinvestment of capital gains and dividends, would have grown to $179,863 (23,666 Shares) on 9/30/00.