Federated Fund for U.S. Government Securities, Inc. 485BPOS 5/29/01

485BPOS 1 form.htm Federated Fund for U.S. Government Securities, Inc. 485BPOS 5/29/01


                                          1933 Act File No. 2-33490
                                          1940 Act File No. 811-1890

                          SECURITIES AND EXCHANGE COMMISSION
                                 Washington, DC 20549

                                       Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933             X
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    Pre-Effective Amendment No.         ....................
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    Post-Effective Amendment No.   72  .....................        X
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                                        and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940     X
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    Amendment No.   44   ...................................        X
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                  FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES, INC.
                  (Exact Name of Registrant as Specified in Charter)

                               Federated Investors Funds
                                 5800 Corporate Drive
                          Pittsburgh, Pennsylvania 15237-7000
                       (Address of Principal Executive Offices)

                                    (412) 288-1900
                            (Registrant's Telephone Number)

                              John W. McGonigle, Esquire
                               Federated Investors Tower
                                  1001 Liberty Avenue
                          Pittsburgh, Pennsylvania 15222-3779
                        (Name and Address of Agent for Service)
                   (Notices should be sent to the Agent for Service)

It is proposed that this filing will become effective:

___ immediately upon filing pursuant to paragraph (b)
 X  on _May 29, 2001_____pursuant to paragraph (b)
    60 days after filing pursuant to paragraph (a) (i)
    on                   pursuant to paragraph (a) (i).
    75 days after filing pursuant to paragraph (a)(ii)
    on _________________ pursuant to paragraph (a)(ii) of Rule 485.

If appropriate, check the following box:

    This post-effective amendment designates a new effective date for a previously
filed post-effective amendment.

                                      Copies To:

Matthew G. Maloney, Esquire
Dickstein Shapiro Morin &amp; Oshinsky, LLP
2101 L Street, NW
Washington, DC 20037

Federated Investors
World-Class Investment Manager

Federated Fund for U.S. Government Securities, Inc.

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PROSPECTUS

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MAY 31, 2001

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CLASS A SHARES
CLASS B SHARES
CLASS C SHARES

A mutual fund seeking to provide current income by investing at least 65% of its assets in a diversified portfolio of U.S. government securities.

As with all mutual funds, the Securities and Exchange Commission (SEC) has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense.

NOT FDIC INSURED * MAY LOSE VALUE * NO BANK GUARANTEE

Risk/Return Summary 1

What are the Fund's Fees and Expenses? 3

What are the Fund's Investment Strategies? 4

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What are the Principal Securities in Which the Fund Invests? 6

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What are the Specific Risks of Investing in the Fund? 10

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What Do Shares Cost? 11

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How is the Fund Sold? 15

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How to Purchase Shares 15

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How to Redeem and Exchange Shares 18

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Account and Share Information 22

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Who Manages the Fund? 23

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Financial Information 24

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Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The Fund's investment objective is to provide current income. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by following the strategies and policies described in this prospectus.

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

The Fund pursues its investment objective by investing at least 65% of its assets in U.S. government securities, including mortgage backed securities issued by U.S. government agencies. In addition, the Fund may invest up to 35% of its assets in investment grade non-government mortgage backed securities.

WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?

All mutual funds take investment risks. Therefore, it is possible to lose money by investing in the Fund. The primary factors that may reduce the Fund's returns include:

Interest Rate Risk. Prices of the fixed income securities generally fall when interest rates rise.
Credit Risk. There is a possibility that issuers of securities in which the Fund may invest may default in the payment of interest or principal on the securities when due, which would cause the Fund to lose money.
Prepayment Risk. When homeowners prepay their mortgages in response to lower interest rates, the Fund will be required to reinvest the proceeds at the lowest interest rates available. Also, when interest rates fall, the price of mortgage backed securities may not rise to as great an extent as that of other fixed income securities.
Liquidity Risk. The non-governmental mortgage backed securities in which the Fund invests may be less readily marketable and may be subject to greater fluctuation in price than other securities.

The Shares offered by this prospectus are not deposits or obligations of any bank, are not endorsed or 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.

Risk/Return Bar Chart and Table

The bar chart shows the variability of the Fund's Class A Shares total returns on a calendar year-end basis.

The total returns displayed for the Fund's Class A Shares do not reflect the payment of any sales charges or recurring shareholder account fees. If these charges or fees had been included, the returns shown would have been lower.

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The Fund's Class A Shares total return for the three-month period from January 1, 2001 to March 31, 2001 was 2.46%.

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Within the period shown in the Chart, the Fund's Class A Shares highest quarterly return was 4.51% (quarter ended September 30, 1991). Its lowest quarterly return was (2.29%) (quarter ended March 31, 1994).

Average Annual Total Return Table

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The following table represents the Fund's Class A, B, and C Shares Average Annual Total Returns, reduced to reflect applicable sales charges, for the calendar periods ending December 31, 2000. The table shows the Fund's total returns averaged over a period of years relative to the Lehman Brothers 5-Year Treasury Bellwether Index (LB5YRTBI), the Lehman Brothers Mortgage Backed Securities Index (LBMBSI), broad-based market indexes, and the Lipper U.S. Mortgage Funds Average (LUSMFA), an average of funds with similar investment objectives. Total returns for the indexes shown do not reflect sales charges, expenses or other fees that the Securities and Exchange Commission requires to be reflected in the Fund's performance. Indexes are unmanaged, and it is not possible to invest directly in an index.

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Calendar Period

Class A

Class B

Class C

LB5YRTBI

LBMBSI

LUSMFA

1 Year

5 Years

10 Years

Start of Performance¹

1 The Fund's Class B Shares and Class C Shares start of performance dates were July 26, 1994 and April 27, 1993, respectively.

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Past performance is no guarantee of future results. This information provides you with historical performance information so that you can analyze whether the Fund's investment risks are balanced by its potential returns.

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What are the Fund's Fees and Expenses?

FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES, INC.

FEES AND EXPENSES

This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund's Class A, B, or C Shares.

Shareholder Fees	Class A	Class B	Class C
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price)	4.50%	None	None
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or redemption proceeds, as applicable)	0.00%	5.50%	1.00%
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other Distributions) (as a percentage of offering price)	None	None	None
Redemption Fee (as a percentage of amount redeemed, if applicable)	None	None	None
Exchange Fee	None	None	None

Annual Fund Operating Expenses (Before Waivers)¹
Expenses That are Deducted From Fund Assets (as percentage of average net assets)
Management Fee	0.58%	0.58%	0.58%
Distribution (12b-1) Fee	None	0.75%	0.75%
Shareholder Services Fee²	0.25%	0.25%	0.25%
Other Expenses	0.22%	0.22%	0.22%
Total Annual Fund Operating Expenses	1.05%	1.80%³	1.80%
1 Although not contractually obligated to do so, the shareholder services provider waived certain amounts. These are shown below along with the net expenses the Fund actually paid for the fiscal year ended March 31, 2001.
Total Waiver of Fund Expenses	0.02%	0.00%	0.00%
Total Annual Fund Operating Expenses (after waiver)	1.03%	1.80%	1.80%
2 The Shareholder Services Fee for Class A Shares has been voluntarily reduced. This voluntary reduction can be terminated at any time. The shareholder services fee paid by the Fund's Class A Shares (after the voluntary reduction) was 0.23% for the fiscal year ended March 31, 2001.
3 Class B Shares convert to Class A Shares (which pay lower ongoing expenses) approximately eight years after purchase.

EXAMPLE

The following Example is intended to help you compare the cost of investing in the Fund's Class A Shares, Class B Shares, and Class C Shares with the cost of investing in other mutual funds.

The Example assumes that you invest $10,000 in the Fund's Class A Shares, Class B Shares, and Class C Shares for the time periods indicated and then redeem all of your Shares at the end of those periods. Expenses assuming no redemption are also shown. The Example also assumes that your investment has a 5% return each year and that the Fund's Class A Shares, Class B Shares, and Class C Shares operating expenses are before waivers as shown in the Table and remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:

Share Class	1 Year	3 Years	5 Years	10 Years
Class A:
Expenses assuming redemption	<R>$552</R>	<R>$769</R>	<R>$1,003</R>	<R>$1,675</R>

Expenses assuming no redemption	<R>$552</R>	<R>$769</R>	<R>$1,003</R>	<R>$1,675</R>

Class B:
Expenses assuming redemption	<R>$733</R>	<R>$966</R>	<R>$1,175</R>	<R>$1,919</R>

Expenses assuming no redemption	<R>$183</R>	<R>$566</R>	<R>$975</R>	<R>$1,919</R>

Class C:
Expenses assuming redemption	<R>$283</R>	<R>$566</R>	<R>$975</R>	<R>$2,116</R>

Expenses assuming no redemption	<R>$183</R>	<R>$566</R>	<R>$975</R>	<R>$2,116</R>

What are the Fund's Investment Strategies?

The Fund invests at least 65% of its assets in a portfolio of U.S. government securities. The Fund may also invest in investment grade mortgage backed securities issued by non-governmental entities. A description of the various types of securities in which the Fund invests, and their risks, immediately follows this strategy section.

The Adviser allocates the Fund's portfolio holdings between mortgage backed securities and other U.S. government securities, such as U.S. Treasury securities. Mortgage backed securities generally offer higher relative yields versus comparable U.S. Treasury securities to compensate for prepayment risk. Prepayment risk is the unscheduled partial or complete payment of the principal outstanding on a mortgage loan by the homeowner. One important reason for prepayments is changes in market interest rates from the time of mortgage origination. The Adviser actively manages the Fund's portfolio, seeking the higher relative returns of mortgage backed securities while attempting to limit the prepayment risk.

The Adviser attempts to manage the Fund's prepayment risk by selecting mortgage backed securities with characteristics that make prepayments less likely. Characteristics that the Adviser may consider in selecting securities include the average interest rates of the underlying mortgages, the prior prepayment history of the mortgages and the federal agencies that securitize the mortgages. The Adviser attempts to assess the relative returns and risks of mortgage backed securities by analyzing how the timing, amount and division of cash flows from the pool of mortgages underlying the security might change in response to changing economic and market conditions.

The Adviser selects securities with longer or shorter duration based on its interest rate outlook. The Adviser generally shortens the portfolio's average duration when it expects interest rates to rise, and extends duration when it expects interest rates to fall. Duration measures the price sensitivity of a portfolio of fixed income securities to changes in interest rates. The Adviser formulates its interest rate outlook and otherwise attempts to anticipate changes in economic and market conditions by analyzing a variety of factors such as:

current and expected U.S. economic growth;
current and expected interest rates and inflation;
the Federal Reserve's monetary policy; and
changes in the supply of or demand for U.S. government securities.

There is no assurance that the Adviser's efforts to forecast market interest rates and assess the impact of market interest rates on particular securities will be successful.

The Adviser may attempt to take advantage of current and potential yield differentials existing from time to time between various mortgage backed securities in order to increase the Fund's return. The Fund may also engage in dollar roll transactions for their potential to enhance income.

TEMPORARY DEFENSIVE INVESTMENTS

The Fund may temporarily depart from its principal investment strategies by investing its assets in cash and shorter-term debt securities and similar obligations. It may do this to minimize potential losses and maintain liquidity to meet shareholder redemptions during adverse market conditions. This may cause the Fund to give up greater investment returns to maintain the safety of principal, that is, the original amount invested by shareholders.

PORTFOLIO TURNOVER

Prepayments of mortgage backed securities will cause the Fund to have an increased portfolio turnover rate. Portfolio turnover increases the Fund's trading costs and may have an adverse impact on the Fund's performance.

What are the Principal Securities in Which the Fund Invests?

FIXED INCOME SECURITIES

Fixed income securities pay interest, dividends or distributions at a specified fixed rate. The rate may be a fixed percentage of principal or adjusted periodically. In addition, the issuer of a fixed income security must repay the principal amount of the security normally within a specified time.

A security's yield measures the annual income earned on a security as a percentage of its price. A security's yield will increase or decrease depending upon whether it costs less (a discount) or more (a premium) than the principal amount. If the issuer may redeem the security before its scheduled maturity, the price and yield on a discount or premium security may change based upon the probability of an early redemption. Securities with higher risks generally have higher yields.

The following describes the principal types of fixed income securities in which the Fund invests:

Mortgage Backed Securities

Mortgage backed securities represent interests in pools of mortgages. The mortgages that comprise a pool normally have similar interest rates, maturities and other terms. Mortgages may have fixed or adjustable interest rates. Interests in pools of adjustable rate mortgages are known as ARMs.

Mortgage backed securities come in a variety of forms. Many have extremely complicated terms. The simplest form of mortgage backed securities are pass-through certificates. An issuer of pass-through certificates gathers monthly payments from an underlying pool of mortgages. Then, the issuer deducts its fees and expenses and passes the balance of the payments onto the certificate holders once a month. Holders of pass-through certificates receive a pro rata share of all payments and prepayments from the underlying mortgages. As a result, the holders assume all the prepayment risks of the underlying mortgages.

Collateralized Mortgage Obligations (CMOs)

CMOs, including interests in real estate mortgage investment conduits (REMICs), allocate payments and prepayments from an underlying pass-through certificate among holders of different classes of mortgage backed securities. This creates different prepayment and interest rate risks for each CMO class. The degree of increased or decreased prepayment risk depends upon the structure of the CMOs. However, the actual returns on any type of mortgage security depend upon the performance of the underlying pool of mortgages, which no one can predict and which will vary among pools.

Non-Governmental Mortgage Backed Securities

Non-governmental mortgage backed securities (including non-governmental CMOs) are issued by private entities, rather than by U.S. government agencies. These securities involve credit risks and liquidity risks. The Fund may invest in non-governmental mortgage backed securities that are rated BBB or higher by a nationally recognized statistical rating agency.

Treasury Securities

Treasury securities are direct obligations of the federal government of the United States.

Agency Securities

Agency securities are issued or guaranteed by a federal agency or other government sponsored entity acting under federal authority (a GSE). The United States supports some GSEs with its full faith and credit. Other GSEs receive support through federal subsidies, loans or other benefits. A few GSEs have no explicit financial support, but are regarded as having implied support because the federal government sponsors their activities. Agency securities are generally regarded as having low credit risks, but not as low as Treasury securities.

The Fund treats mortgage backed securities guaranteed by GSEs as agency securities. Although a GSE guarantee protects against credit risks, it does not reduce the interest rate and prepayment risks of these mortgage backed securities.

Credit Enhancement

Credit enhancement consists of an arrangement in which a company agrees to pay amounts due on a fixed income security if the issuer defaults. In some cases the company providing credit enhancement makes all payments directly to the security holders and receives reimbursement from the issuer. Normally, the credit enhancer has greater financial resources and liquidity than the issuer. For this reason, the Adviser usually evaluates the credit risk of a fixed income security based solely upon its credit enhancement.

SPECIAL TRANSACTIONS

Delayed Delivery Transactions

Delayed delivery transactions, including when-issued transactions, are arrangements in which the Fund buys securities for a set price, with payment and delivery of the securities scheduled for a future time. During the period between purchase and settlement, no payment is made by the Fund to the issuer and no interest accrues to the Fund. The Fund records the transaction when it agrees to buy the securities and reflects their value in determining the price of its shares. Settlement dates may be a month or more after entering into these transactions so that the market values of the securities bought may vary from the purchase prices. Therefore, delayed delivery transactions create interest rate risks for the Fund. Delayed delivery transactions also involve credit risks in the event of a counterparty default.

TO BE ANNOUNCED SECURITIES (TBAS)

As with other delayed delivery transactions, a seller agrees to issue a TBA security at a future date. However, the seller does not specify the particular securities to be delivered. Instead, the Fund agrees to accept any security that meets specified terms. For example, in a TBA mortgage backed transaction, the Fund and the seller would agree upon the issuer, interest rate and terms of the underlying mortgages. The seller would not identify the specific underlying mortgages until it issues the security. TBA mortgage backed securities increase interest rate risks because the underlying mortgages may be less favorable than anticipated by the Fund.

DOLLAR ROLLS

Dollar rolls are transactions where the Fund sells mortgage backed securities with a commitment to buy similar, but not identical, mortgage backed securities on a future date at a lower price. Normally, one or both securities involved are TBA mortgage backed securities. Dollar rolls are subject to interest rate and credit risks.

Repurchase Agreements

Repurchase agreements are transactions in which the Fund buys a security from a dealer or bank and agrees to sell the security back at a mutually agreed upon time and price. The repurchase price exceeds the sale price, reflecting the Fund's return on the transaction. This return is unrelated to the interest rate on the underlying security. The Fund will enter into repurchase agreements only with banks and other recognized financial institutions, such as securities dealers, deemed creditworthy by the Adviser.

Asset Coverage

In order to secure its obligations in connection with special transactions, the Fund will either own the underlying assets, enter into an offsetting transaction or set aside readily marketable securities with a value that equals or exceeds the Fund's obligations. Unless the Fund has other readily marketable assets to set aside, it cannot trade assets used to secure such obligations without entering into an offsetting derivative contract or terminating a special transaction. This may cause the Fund to miss favorable trading opportunities or to realize losses on special transactions.

Investment Ratings for Investment Grade Securities

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The Adviser will determine whether a security is investment grade based upon the credit ratings given by one or more nationally recognized rating organizations (NRSROs). For example, Standard and Poor's, a rating service, assigns ratings to investment grade securities (AAA, AA, A and BBB) based on their assessment of the likelihood of the issuer's inability to pay interest or principal (default) when due on each security. Lower credit ratings correspond to higher credit risk. If a security has not received a rating, the Fund must rely entirely upon the Adviser's credit assessment that the security is comparable to investment grade.

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What are the Specific Risks of Investing in the Fund?

INTEREST RATE RISKS

Prices of fixed income securities rise and fall in response to changes in the interest rate paid by similar securities. Generally, when interest rates rise, prices of fixed income securities fall. However, market factors, such as the demand for particular fixed income securities, may cause the price of certain fixed income securities to fall while the prices of other securities rise or remain unchanged.
Interest rate changes have a greater effect on the price of fixed income securities with longer durations. Duration measures the price sensitivity of a fixed income security to changes in interest rates.

CREDIT RISKS

Credit risk is the possibility that an issuer will default on a security by failing to pay interest or principal when due. If an issuer defaults, the Fund will lose money.
Many fixed income securities receive credit ratings from services such as Standard & Poor's and Moody's Investor Services, Inc. These services assign ratings to securities by assessing the likelihood of issuer default. Lower credit ratings correspond to higher credit risk. If a security has not received a rating, the Fund must rely entirely upon the Adviser's credit assessment.

PREPAYMENT RISKS

Unlike traditional fixed income securities, which pay a fixed rate of interest until maturity (when the entire principal amount is due) payments on mortgage backed securities include both interest and a partial payment of principal. Partial payment of principal may be comprised of scheduled principal payments as well as unscheduled payments from the voluntary prepayment, refinancing, or foreclosure of the underlying loans. These unscheduled prepayments of principal create risks that can adversely affect a Fund holding mortgage backed securities. For example, when interest rates decline, the values of mortgage backed securities generally rise. However, when interest rates decline, unscheduled prepayments can be expected to accelerate, and the Fund would be required to reinvest the proceeds of the prepayments at the lower interest rates then available. Unscheduled prepayments would also limit the potential for capital appreciation on mortgage backed securities.
Conversely, when interest rates rise, the values of mortgage backed securities generally fall. Since rising interest rates typically result in decreased prepayments, this could lengthen the average lives of mortgage backed securities, and cause their value to decline more than traditional fixed income securities.
Generally, mortgage backed securities compensate for the increased risk associated with prepayments by paying a higher yield. The additional interest paid for risk is measured by the difference between the yield of a mortgage backed security and the yield of a U.S. Treasury security with a comparable maturity (the spread). An increase in the spread will cause the price of the mortgage backed security to decline. Spreads generally increase in response to adverse economic or market conditions. Spreads may also increase if the security is perceived to have an increased prepayment risk or is perceived to have less market demand.

LIQUIDITY RISKS

Trading opportunities are more limited for CMOs that have complex terms or that are not widely held. These features may make it more difficult to sell or buy a security at a favorable price or time. Consequently, the Fund may have to accept a lower price to sell a security, sell other securities to raise cash or give up an investment opportunity, any of which could have a negative effect on the Fund's performance. Infrequent trading of securities may also lead to an increase in their price volatility.
Liquidity risk also refers to the possibility that the Fund may not be able to sell a security when it wants to. If this happens, the Fund will be required to continue to hold the security, and the Fund could incur losses.

What Do Shares Cost?

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You can purchase, redeem or exchange Shares any day the New York Stock Exchange (NYSE) is open. When the Fund receives your transaction request in proper form (as described in this prospectus) it is processed at the next calculated net asset value (NAV) plus any applicable front-end sales charge (public offering price).

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NAV is determined at the end of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE is open.

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The Fund's current NAV and public offering price may be found in the mutual funds section of certain local newspapers under "Federated."

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The following table summarizes the minimum required investment amount and the maximum sales charge, if any, that you will pay on an investment in the Fund. Keep in mind that investment professionals may charge you fees for their services in connection with your Share transactions.

	Minimum Initial/Subsequent Investment Amounts¹	Maximum Sales Charge
Shares Offered	Minimum Initial/Subsequent Investment Amounts¹	Front-End Sales Charge²	Contingent Deferred Sales Charge³
Class A Shares	$1,500/$100	4.50%	0.00%
Class B Shares	$1,500/$100	None	5.50%
Class C Shares	$1,500/$100	None	1.00%

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1 The minimum initial and subsequent investment amounts for retirement plans are $250 and $100, respectively. The minimum subsequent investment amounts for Systematic Investment Programs (SIP) is $50. Investment professionals may impose higher or lower minimum investment requirements on their customers than those imposed by the Fund. Orders for $250,000 or more will be invested in Class A Shares instead of Class B Shares to maximize your return and minimize the sales charges and marketing fees. Accounts held in the name of an investment professional may be treated differently. After Class B Shares have been held for eight years from the date of purchase, they will automatically convert to Class A Shares on the 15th of the following month. This conversion is a non-taxable event.

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2 Front-End Sales Charge is expressed as a percentage of public offering price. See "Sales Charge When You Purchase."

3 See "Sales Charge When You Redeem."

SALES CHARGE WHEN YOU PURCHASE

Class A Shares
Purchase Amount	Sales Charge as a Percentage of Public Offering Price	Sales Charge as a Percentage of NAV
Less than $100,000	4.50%	4.71%
$100,000 but less than $250,000	3.75%	3.90%
$250,000 but less than $500,000	2.50%	2.56%
$500,000 but less than $1 million	2.00%	2.04%
$1 million or greater¹	0.00%	0.00%

1 A contingent deferred sales charge of 0.75% of the redemption amount applies to Class A Shares redeemed up to 24 months after purchase under certain investment programs where an investment professional received an advance payment on the transaction.

If your investment qualifies for a reduction or elimination of the sales charge as described below, you or your investment professional should notify the Fund's Distributor at the time of purchase. If the Distributor is not notified, you will receive the reduced sales charge only on additional purchases, and not retroactively on previous purchases.

The sales charge at purchase may be reduced or eliminated by:

purchasing Shares in greater quantities to reduce the applicable sales charge;
combining concurrent purchases of Shares:
- by you, your spouse, and your children under age 21; or
- of the same share class of two or more Federated Funds (other than money market funds);
accumulating purchases (in calculating the sales charge on an additional purchase, include the current value of previous Share purchases still invested in the Fund); or
signing a letter of intent to purchase a specific dollar amount of Shares within 13 months (call your investment professional or the Fund for more information).

The sales charge will be eliminated when you purchase Shares:

within 120 days of redeeming Shares of an equal or lesser amount;
when the Fund's Distributor does not advance payment to the investment professional for your purchase;
by exchanging shares from the same share class of another Federated Fund;
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for trusts or pension or profit-sharing plans where the third-party administrator has an arrangement with the Fund's Distributor or its affiliates to purchase Shares without a sales charge; or
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through investment professionals that receive no portion of the sales charge.

SALES CHARGE WHEN YOU REDEEM

Your redemption proceeds may be reduced by a sales charge, commonly referred to as a contingent deferred sales charge (CDSC).

Class A Shares:
A CDSC of 0.75% of the redemption amount applies to Class A Shares redeemed up to 24 months after purchase under certain investment programs where an investment professional received an advance payment on the transaction.
Class B Shares:
Shares Held Up To:		CDSC
1 Year		5.50%
2 Years		4.75%
3 Years		4.00%
4 Years		3.00%
5 Years		2.00%
6 Years		1.00%
7 Years or More		0.00%
Class C Shares:
You will pay a 1% CDSC if you redeem Shares within one year of the purchase date.

You will not be charged a CDSC when redeeming Shares:

purchased with reinvested dividends or capital gains;
purchased within 120 days of redeeming Shares of an equal or lesser amount;
that you exchanged into the same share class of another Federated Fund if the shares were held for the applicable CDSC holding period (other than a money market fund);
purchased through investment professionals who did not receive advanced sales payments;
if, after you purchase Shares, you become disabled as defined by the IRS;
if the Fund redeems your Shares and closes your account for not meeting the minimum balance requirement;
if your redemption is a required retirement plan distribution; or
upon the death of the last surviving shareholder of the account.

To keep the sales charge as low as possible, the Fund redeems your Shares in this order:

Shares that are not subject to a CDSC; and
Shares held the longest (to determine the number of years your Shares have been held, include the time you held shares of other Federated Funds that have been exchanged for Shares of this Fund).

The CDSC is then calculated using the share price at the time of purchase or redemption, whichever is lower.

How is the Fund Sold?

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The Fund offers three share classes: Class A Shares, Class B Shares, and Class C Shares, each representing interests in a single portfolio of securities.

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The Fund's Distributor, Federated Securities Corp., markets the Shares described in this prospectus to institutions or to individuals, directly or through investment professionals.

When the Distributor receives marketing fees and sales charges, it may pay some or all of them to investment professionals. The Distributor and its affiliates may pay out of their assets other amounts (including items of material value) to investment professionals for marketing and servicing Shares. The Distributor is a subsidiary of Federated Investors, Inc. (Federated).

RULE 12B-1 PLAN

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The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to the Distributor and investment professionals for the sale, distribution and customer servicing of the Fund's Class B Shares and Class C Shares. Because these Shares pay marketing fees on an ongoing basis, your investment cost may be higher over time than other shares with different sales charges and marketing fees.

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How to Purchase Shares

You may purchase Shares through an investment professional, directly from the Fund, or through an exchange from another Federated Fund. The Fund reserves the right to reject any request to purchase or exchange Shares.

Where the Fund offers more than one share class and you do not specify the class choice on your New Account Form or form of payment (e.g., Federal Reserve wire or check) you automatically will receive Class A Shares.

THROUGH AN INVESTMENT PROFESSIONAL

Establish an account with the investment professional; and
Submit your purchase order to the investment professional before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). You will receive the next calculated NAV if the investment professional forwards the order to the Fund on the same day and the Fund receives payment within three business days. You will become the owner of Shares and receive dividends when the Fund receives your payment.

Investment professionals should send payments according to the instructions in the sections "By Wire" or "By Check."

DIRECTLY FROM THE FUND

Establish your account with the Fund by submitting a completed New Account Form; and
Send your payment to the Fund by Federal Reserve wire or check.

You will become the owner of Shares and your Shares will be priced at the next calculated NAV after the Fund receives your wire or your check. If your check does not clear, your purchase will be canceled and you could be liable for any losses or fees incurred by the Fund or Federated Shareholder Services Company, the Fund's transfer agent.

An institution may establish an account and place an order by calling the Fund and the Shares will be priced at the next calculated NAV after the Fund receives the order.

By Wire

Send your wire to:

State Street Bank and Trust Company

Boston, MA

Dollar Amount of Wire

ABA Number 011000028

Attention: EDGEWIRE

Wire Order Number, Dealer Number or Group Number

Nominee/Institution Name

Fund Name and Number and Account Number

You cannot purchase Shares by wire on holidays when wire transfers are restricted.

By Check

Make your check payable to The Federated Funds, note your account number on the check, and mail it to:

Federated Shareholder Services Company

P.O. Box 8600

Boston, MA 02266-8600

If you send your check by a private courier or overnight delivery service that requires a street address, mail it to:

Federated Shareholder Services Company

1099 Hingham Street

Rockland, MA 02370-3317

Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will not accept third-party checks (checks originally payable to someone other than you or The Federated Funds).

THROUGH AN EXCHANGE

You may purchase Shares through an exchange from the same Share class of another Federated Fund. You must meet the minimum initial investment requirement for purchasing Shares and both accounts must have identical registrations.

BY SYSTEMATIC INVESTMENT PROGRAM

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Once you have opened an account, you may automatically purchase additional Shares on a regular basis by completing the Systematic Investment Program (SIP) section of the New Account Form or by contacting the Fund or your investment professional.

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BY AUTOMATED CLEARING HOUSE (ACH)

Once you have opened an account, you may purchase additional Shares through a depository institution that is an ACH member. This purchase option can be established by completing the appropriate sections of the New Account Form.

RETIREMENT INVESTMENTS

You may purchase Shares as retirement investments (such as qualified plans and IRAs or transfer or rollover of assets). Call your investment professional or the Fund for information on retirement investments. We suggest that you discuss retirement investments with your tax adviser. You may be subject to an annual IRA account fee.

How to Redeem and Exchange Shares

You should redeem or exchange Shares:

through an investment professional if you purchased Shares through an investment professional; or
directly from the Fund if you purchased Shares directly from the Fund.

THROUGH AN INVESTMENT PROFESSIONAL

Submit your redemption or exchange request to your investment professional by the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). The redemption amount you will receive is based upon the next calculated NAV after the Fund receives the order from your investment professional.

DIRECTLY FROM THE FUND

By Telephone

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You may redeem or exchange Shares by simply calling the Fund at 1-800-341-7400.

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If you call before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time), you will receive a redemption amount based on that day's NAV.

By Mail

You may redeem or exchange Shares by mailing a written request to the Fund.

You will receive a redemption amount based on the next calculated NAV after the Fund receives your written request in proper form.

Send requests by mail to:

Federated Shareholder Services Company

P.O. Box 8600

Boston, MA 02266-8600

Send requests by private courier or overnight delivery service to:

Federated Shareholder Services Company

1099 Hingham Street

Rockland, MA 02370-3317

All requests must include:

Fund Name and Share Class, account number and account registration;
amount to be redeemed or exchanged;
signatures of all shareholders exactly as registered; and
if exchanging, the Fund Name and Share Class, account number and account registration into which you are exchanging.

Call your investment professional or the Fund if you need special instructions.

Signature Guarantees

Signatures must be guaranteed if:

your redemption will be sent to an address other than the address of record;
your redemption will be sent to an address of record that was changed within the last 30 days;
a redemption is payable to someone other than the shareholder(s) of record; or
if exchanging (transferring) into another fund with a different shareholder registration.

A signature guarantee is designed to protect your account from fraud. Obtain a signature guarantee from a bank or trust company, savings association, credit union or broker, dealer, or securities exchange member. A notary public cannot provide a signature guarantee.

PAYMENT METHODS FOR REDEMPTIONS

Your redemption proceeds will be mailed by check to your address of record. The following payment options are available if you complete the appropriate section of the New Account Form or an Account Service Options Form. These payment options require a signature guarantee if they were not established when the account was opened:

an electronic transfer to your account at a financial institution that is an ACH member; or
wire payment to your account at a domestic commercial bank that is a Federal Reserve System member.

Redemption in Kind

Although the Fund intends to pay Share redemptions in cash, it reserves the right to pay the redemption price in whole or in part by a distribution of the Fund's portfolio securities.

LIMITATIONS ON REDEMPTION PROCEEDS

Redemption proceeds normally are wired or mailed within one business day after receiving a request in proper form. Payment may be delayed up to seven days:

to allow your purchase to clear;
during periods of market volatility; or
when a shareholder's trade activity or amount adversely impacts the Fund's ability to manage its assets.

You will not accrue interest or dividends on uncashed checks from the Fund if those checks are undeliverable and returned to the Fund.

REDEMPTIONS FROM RETIREMENT ACCOUNTS

In the absence of your specific instructions, 10% of the value of your redemption from a retirement account in the Fund may be withheld for taxes. This withholding only applies to certain types of retirement accounts.

EXCHANGE PRIVILEGE

You may exchange Shares of the Fund into Shares of the same class of another Federated Fund. To do this, you must:

ensure that the account registrations are identical;
meet any minimum initial investment requirements; and
receive a prospectus for the fund into which you wish to exchange.

An exchange is treated as a redemption and a subsequent purchase, and is a taxable transaction.

The Fund may modify or terminate the exchange privilege at any time. The Fund's management or investment adviser may determine from the amount, frequency and pattern of exchanges that a shareholder is engaged in excessive trading that is detrimental to the Fund and other shareholders. If this occurs, the Fund may terminate the availability of exchanges to that shareholder and may bar that shareholder from purchasing other Federated Funds.

SYSTEMATIC WITHDRAWAL PROGRAM

You may automatically redeem or exchange Shares in a minimum amount of $100 on a regular basis. Complete the appropriate section of the New Account Form or an Account Service Options Form or contact your investment professional or the Fund. Your account value must meet the minimum initial investment amount at the time the program is established. This program may reduce, and eventually deplete, your account. Payments should not be considered yield or income.

Generally, it is not advisable to continue to purchase Shares subject to a sales charge while redeeming Shares using this program.

Systematic Withdrawal Program (SWP) On Class B Shares

You will not be charged a CDSC on SWP redemptions if:

you redeem 12% or less of your account value in a single year;
you reinvest all dividends and capital gains distributions; and
your account has at least a $10,000 balance when you establish the SWP. (You cannot aggregate multiple Class B Share accounts to meet this minimum balance.)

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You will be subject to a CDSC on redemption amounts that exceed the 12% annual limit. In measuring the redemption percentage, your account is valued when you establish the SWP and then annually at calendar year-end. You can redeem monthly, quarterly, or semi-annually.

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For SWP accounts established prior to April 1, 1999, your account must be at least one year old in order to be eligible for the waiver of the CDSC.

ADDITIONAL CONDITIONS

Telephone Transactions

The Fund will record your telephone instructions. If the Fund does not follow reasonable procedures, it may be liable for losses due to unauthorized or fraudulent telephone instructions.

Share Certificates

The Fund no longer issues share certificates. If you are redeeming or exchanging Shares represented by certificates previously issued by the Fund, you must return the certificates with your written redemption or exchange request. For your protection, send your certificates by registered or certified mail, but do not endorse them.

Account and Share Information

CONFIRMATIONS AND ACCOUNT STATEMENTS

You will receive confirmation of purchases, redemptions and exchanges (except for systematic transactions). In addition, you will receive periodic statements reporting all account activity, including systematic transactions, dividends and capital gains paid.

DIVIDENDS AND CAPITAL GAINS

The Fund declares and pays any dividends monthly to shareholders. Dividends are paid to all shareholders invested in the Fund on the record date. The record date is the date on which a shareholder must officially own Shares in order to earn a dividend.

In addition, the Fund pays any capital gains at least annually. Your dividends and capital gains distributions will be automatically reinvested in additional Shares without a sales charge, unless you elect cash payments.

If you purchase Shares just before a Fund declares a dividend or capital gain distribution, you will pay the full price for the Shares and then receive a portion of the price back in the form of a taxable distribution, whether or not you reinvest the distribution in Shares. Therefore, you should consider the tax implications of purchasing Shares shortly before the Fund declares a dividend or capital gain. Contact your investment professional or the Fund for information concerning when dividends and capital gains will be paid.

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, non-retirement accounts may be closed if redemptions or exchanges cause the account balance to fall below the minimum initial investment amount. Before an account is closed, you will be notified and allowed 30 days to purchase additional Shares to meet the minimum.

TAX INFORMATION

The Fund sends an annual statement of your account activity to assist you in completing your federal, state and local tax returns. Fund distributions of dividends and capital gains are taxable to you whether paid in cash or reinvested in the Fund. Dividends are taxable as ordinary income; capital gains are taxable at different rates depending upon the length of time the Fund holds its assets.

Fund distributions are expected to be primarily dividends. Redemptions and exchanges are taxable sales. Please consult your tax adviser regarding your federal, state and local tax liability.

Who Manages the Fund?

The Board of Directors governs the Fund. The Board selects and oversees the Adviser, Federated Investment Management Company. The Adviser manages the Fund's assets, including buying and selling portfolio securities. The Adviser's address is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.

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The Adviser and other subsidiaries of Federated advise approximately 190 mutual funds and separate accounts, which totaled approximately $140 billion in assets as of December 31, 2000. Federated was established in 1955 and is one of the largest mutual fund investment managers in the United States with approximately 1,800 employees. More than 4,000 investment professionals make Federated Funds available to their customers.

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THE FUND'S PORTFOLIO MANAGERS ARE:

Kathleen M. Foody-Malus

Kathleen M. Foody-Malus has been the Fund's Portfolio Manager since July 1993. She is Vice President of the Fund. Ms. Foody-Malus joined Federated in 1983 and has been a Senior Portfolio Manager since 1996 and a Vice President of the Fund's Adviser since 1993. She was a Portfolio Manager and a Vice President of the Fund's Adviser from 1993 to 1996. Ms. Foody-Malus received her M.B.A. in Accounting/Finance from the University of Pittsburgh.

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Donald T. Ellenberger

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Donald T. Ellenberger has been the Fund's Portfolio Manager since February 2001. Mr. Ellenberger joined Federated in 1996 as a Portfolio Manager and a Vice President of a Federated advisory subsidiary. He has been Vice President of the Fund's Adviser since 1997. From 1986 to 1996 he served as a Trader/Portfolio Manager for Mellon Bank, N.A. Mr. Ellenberger received his M.B.A. in Finance from Stanford University.

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ADVISORY FEES

The Adviser receives an annual investment advisory fee based on the Fund's average daily net assets as shown in the chart below plus 4.50% of the Fund's gross income. The Adviser may voluntarily waive a portion of its fee or reimburse the Fund for certain operating expenses.

Average Daily Net Assets		Percentage of Average Daily Net Assets
First $500 million		0.250%
Second $500 million		0.225%
Over $1 billion		0.200%

Financial Information

FINANCIAL HIGHLIGHTS

The Financial Highlights will help you understand the Fund's financial performance for its past five fiscal years. Some of the information is presented on a per share basis. Total returns represent the rate an investor would have earned (or lost) on an investment in the Fund, assuming reinvestment of any dividends and capital gains.

This information has been audited by Deloitte & Touche LLP, whose report, along with the Fund's audited financial statements, is included in the Annual Report.

Financial Highlights--Class A Shares

(For a Share Outstanding Throughout Each Period)

Year Ended March 31

2001

2000

1999

1998

1997

Net Asset Value, Beginning of Period

$7.48

$7.84

$7.90

$7.65

$7.78

Income From Investment Operations:

Net investment income

0.48

0.47

0.46

0.50

0.51

Net realized and unrealized gain (loss) on investments

0.34

(0.35

)

(0.04

)

0.26

(0.14

)

TOTAL FROM INVESTMENT OPERATIONS

0.82

0.12

0.42

0.76

0.37

Less Distributions:

Distributions from net investment income

(0.48

)

(0.48

)

(0.48

)

(0.51

)

(0.50

)

Net Asset Value, End of Period

$7.82

$7.48

$7.84

$7.90

$7.65

Total Return²

11.32

1.66

5.43

10.21

4.88

Ratios to Average Net Assets:

Expenses

1.03

1.00

0.96

0.94

0.95

Net investment income

6.27

6.30

5.78

6.40

6.60

Expense waiver³

0.02

0.08

0.12

Supplemental Data:

Net assets, end of period (000 omitted)

$898,897

$915,850

$1,052,081

$1,138,450

$1,177,071

Portfolio turnover

145

103

187

120

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 This voluntary expense decrease is reflected in both the expense and the net investment income ratios shown above.

Further information about the Fund's performance is contained in the Fund's Annual Report, dated March 31, 2001, which can be obtained free of charge.

Financial Highlights--Class B Shares

(For a Share Outstanding Throughout Each Period)

Year Ended March 31

2001

2000

1999

1998

1997

Net Asset Value, Beginning of Period

$7.48

$7.84

$7.90

$7.66

$7.78

Income From Investment Operations:

Net investment income

0.42

0.41

0.40

0.44

Net realized and unrealized gain (loss) on investments

0.34

(0.35

)

(0.04

)

0.25

(0.13

)

TOTAL FROM INVESTMENT OPERATIONS

0.76

0.06

0.36

0.69

0.31

Less Distributions:

Distributions from net investment income

(0.42

)

(0.42

)

(0.42

)

(0.45

)

(0.43

)

Net Asset Value, End of Period

$7.82

$7.48

$7.84

$7.90

$7.66

Total Return²

10.47

0.88

4.64

9.16

4.13

Ratios to Average Net Assets:

Expenses

1.80

1.77

1.73

1.77

1.80

Net investment income

5.54

5.01

5.57

5.75

Expense waiver/reimbursement³

0.00

%⁴

0.02

Supplemental Data:

Net assets, end of period (000 omitted)

$146,309

$126,336

$141,148

$107,225

$100,439

Portfolio turnover

145

103

187

120

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 This voluntary expense decrease is reflected in both the expense and the net investment income ratios shown above.

4 Less than 0.01%.

Further information about the Fund's performance is contained in the Fund's Annual Report, dated March 31, 2001, which can be obtained free of charge.

Financial Highlights--Class C Shares

(For a Share Outstanding Throughout Each Period)

Year Ended March 31

2001

2000

1999

1998

1997

Net Asset Value, Beginning of Period

$7.48

$7.84

$7.91

$7.66

$7.78

Income From Investment Operations:

Net investment income

0.42

0.41

0.40

0.44

0.45

Net realized and unrealized gain (loss) on investments

0.34

(0.35

)

(0.05

)

0.26

(0.13

)

TOTAL FROM INVESTMENT OPERATIONS

0.76

0.06

0.35

0.70

0.32

Less Distributions:

Distributions from net investment income

(0.42

)

(0.42

)

(0.42

)

(0.45

)

(0.44

)

Net Asset Value, End of Period

$7.82

$7.48

$7.84

$7.91

$7.66

Total Return²

10.48

0.87

4.51

9.29

4.14

Ratios to Average Net Assets:

Expenses

1.80

1.77

1.73

1.77

1.80

Net investment income

5.55

5.54

5.01

5.57

5.74

Expense waiver/reimbursement³

0.00

%⁴

0.02

Supplemental Data:

Net assets, end of period (000 omitted)

$52,687

$45,637

$50,071

$48,118

$55,842

Portfolio turnover

145

103

187

120

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 This voluntary expense decrease is reflected in both the expense and the net investment income ratios shown above.

4 Less than 0.01%.

Further information about the Fund's performance is contained in the Fund's Annual Report, dated March 31, 2001, which can be obtained free of charge.

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A Statement of Additional Information (SAI) dated May 31, 2001, is incorporated by reference into this prospectus. Additional information about the Fund and its investments is contained in the Fund's SAI and Annual and Semi-Annual Reports to shareholders as they become available. The Annual Report discusses market conditions and investment strategies that significantly affected the Fund's performance during its last fiscal year. To obtain the SAI, Annual Report, Semi-Annual Report and other information without charge, and to make inquiries, call your investment professional or the Fund at 1-800-341-7400.

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You can obtain information about the Fund (including the SAI) by writing to or visiting the SEC's Public Reference Room in Washington, DC. You may also access Fund information from the EDGAR Database on the SEC's Internet site at http://www.sec.gov. You can purchase copies of this information by contacting the SEC by email at publicinfo@sec.gov or by writing to the SEC's Public Reference Section, Washington, DC 20549-0102. Call 1-202-942-8090 for information on the Public Reference Room's operations and copying fees.

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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

Investment Company Act File No. 811-1890

Cusip 314182106
Cusip 314182205
Cusip 314182304

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G01095-01 (5/01)

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Federated is a registered mark of Federated Investors, Inc. 2001 ©Federated Investors, Inc.

FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES, INC.

STATEMENT OF ADDITIONAL INFORMATION

MAY 31, 2001

CLASS A SHARES

CLASS B SHARES

CLASS C SHARES

This Statement of Additional Information (SAI) is not a prospectus. Read this SAI in
conjunction with the prospectus for Federated Fund for U.S. Government Securities,
Inc. (Fund), dated May 31, 2001.

This SAI incorporates by reference the Fund's Annual Report. Obtain the prospectus or
the Annual Report without charge by calling 1-800-341-7400.

CONTENTS
How is the Fund Organized?
Securities in Which the Fund Invests
What do Shares Cost?
How is the Fund Sold?
Subaccounting Services
Redemption in Kind
Account and Share Information
Tax Information
Who Manages and Provides Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Financial Information
Investment Ratings
Addresses
8062807B (05/01)

HOW IS THE FUND ORGANIZED?

The Fund is a diversified open-end, management investment company that was
established under the laws of the State of Maryland on June 9, 1969. The Fund changed
its name from Fund for U.S. Government Securities to Federated Fund for U.S.
Government Securities, Inc. on February 26, 1996.

The Board of Directors (the Board) has established three classes of shares of the
Fund, known as Class A Shares, Class B Shares and Class C Shares (Shares). This SAI
relates to all classes of Shares. The Fund's investment adviser is Federated
Investment Management Company (Adviser).

SECURITIES IN WHICH THE FUND INVESTS

In pursuing its investment strategy, the Fund may invest in the following securities
for any purpose that is consistent with its investment objective.

SECURITIES DESCRIPTIONS AND TECHNIQUES

Fixed Income Securities
Fixed income securities pay interest, dividends or distributions at a specified rate.
The rate may be a fixed percentage of the principal or adjusted periodically. In
addition, the issuer of a fixed income security must repay the principal amount of
the security, normally within a specified time. Fixed income securities provide more
regular income than equity securities. However, the returns on fixed income
securities are limited and normally do not increase with the issuer's earnings. This
limits the potential appreciation of fixed income securities as compared to
equity securities.
A security's yield measures the annual income earned on a security as a percentage
of its price. A security's yield will increase or decrease depending upon whether it
costs less (a discount) or more (a premium) than the principal amount. If the issuer
may redeem the security before its scheduled maturity, the price and yield on a
discount or premium security may change based upon the probability of an early
redemption. Securities with higher risks generally have higher yields.
The following describes the types of fixed income securities in which the Fund
invests.
TREASURY SECURITIES
Treasury securities are direct obligations of the federal government of the United
States. Treasury securities are generally regarded as having the lowest credit risks.
AGENCY SECURITIES
Agency securities are issued or guaranteed by a federal agency or other government
sponsored entity acting under federal authority (a GSE). The United States supports
some GSEs with its full faith and credit. Other GSEs receive support through federal
subsidiaries, loans or other benefits. A few GSEs have no explicit financial support,
but are regarded as having implied support because the federal government sponsors
their activities. Agency securities are generally regarded as having low credit
risks, but not as low as treasury securities.
The Fund treats mortgage backed securities guaranteed by GSEs as agency securities.
Although a GSE guarantee protects against credit risks, it does not reduce the
interest rate and prepayment risks of these mortgage backed securities.
MORTGAGE BACKED SECURITIES
Mortgage backed securities represent interests in pools of mortgages. The mortgages
that comprise a pool normally have similar interest rates, maturities and other
terms. Mortgages may have fixed or adjustable interest rates. Interests in pools of
adjustable rate mortgages are known as ARMs.
Mortgage backed securities come in a variety of forms. Many have extremely
complicated terms. The simplest form of mortgage backed securities are pass-though
certificates. An issuer of pass-through certificates gathers monthly payments from an
underlying pool of mortgages. Then, the issuer deducts its fees and expenses and
passes the balance of the payments onto the certificate holders once a month. Holders
of pass-through certificates receive a pro rata share of all payments and
pre-payments from the underlying mortgages. As a result, the holders assume all the
prepayment risks of the underlying mortgages.

COLLATERALIZED MORTGAGE OBLIGATIONS (CMOS)
CMOs, including interests in real interests in real estate mortgage investment
conduits (REMICs), allocate payments and prepayments from an underlying pass-through
certificate among holders of different classes of mortgage backed securities. This
creates different prepayment and market risks for each CMO class. The degree of
increased or decreased prepayment risks depends upon the structure of the CMOs.
However, the actual returns on any type of mortgage backed security depend upon the
performance of the underlying pool of mortgages, which no one can predict and will
vary among pools.
SEQUENTIAL CMOS
In a sequential pay CMO, one class of CMOs receives all principal payments and
prepayments. The next class of CMOs receives all principal payments after the first
class is paid off. This process repeats for each sequential class of CMO. As a
result, each class of sequential pay CMOs reduces the prepayment risks of subsequent
classes.
PACS, TACS AND COMPANION CLASSES
More sophisticated CMOs include planned amortization classes (PACs) and targeted
amortization classes (TACs). PACs and TACs are issued with companion classes. PACs
and TACs receive principal payments and prepayments at a specified rate. The
companion classes receive principal payments and prepayments in excess of the
specified rate. In addition, PACs will receive the companion classes' share of
principal payments, if necessary, to cover a shortfall in the prepayment rate. This
helps PACs and TACs to control prepayment risks by increasing the risks to their
companion classes.
IOS AND POS
CMOs may allocate interest payments to one class (Interest Only or IOs) and principal
payments to another class (Principal Only or POs). POs increase in value when
prepayment rates increase. In contrast, IOs decrease in value when prepayments
increase, because the underlying mortgages generate less interest payments. However,
IOs tend to increase in value when interest rates rise (and prepayments decrease),
making IOs a useful hedge against market risks.
FLOATERS AND INVERSE FLOATERS
Another variant allocates interest payments between two classes of CMOs. One class
(Floaters) receives a share of interest payments based upon a market index such as
LIBOR. The other class (Inverse Floaters) receives any remaining interest payments
from the underlying mortgages. Floater classes receive more interest (and Inverse
Floater classes receive correspondingly less interest) as interest rates rise. This
shifts prepayment and interest rate risks from the Floater to the Inverse Floater
class, reducing the price volatility of the Floater class and increasing the price
volatility of the Inverse Floater class.
Z CLASSES
CMOs must allocate all payments received from the underlying mortgages to some class.
To capture any unallocated payments, CMOs generally have an accrual (Z) class. Z
classes do not receive any payments from the underlying mortgages until all other CMO
classes have been paid off. Once this happens, holders of Z class CMOs receive all
payments and prepayments.
NON-GOVERNMENTAL MORTGAGE BACKED SECURITIES
Non-governmental mortgage backed securities (including non- governmental CMOs) are
issued by private entities, rather than by U. S. government agencies. The Fund may
invest in non- governmental mortgage backed securities that are rated BBB or higher
by a nationally recognized statistical rating agency. These securities involve credit
risks and liquidity risks.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to pay
amounts due on a fixed income security if the issuer defaults. In some cases the
company providing credit enhancement makes all payments directly to the security
holders and receives reimbursement from the issuer. Normally, the credit enhancer has
greater financial resources and liquidity than the issuer. For this reason, the
Adviser usually evaluates the credit risk of a fixed income security based solely
upon its credit enhancement.

SPECIAL TRANSACTIONS

Repurchase Agreements
Repurchase agreements are transactions in which the Fund buys a security from a
dealer or bank and agrees to sell the security back at a mutually agreed upon time
and price. The repurchase price exceeds the sale price, reflecting the Fund's return
on the transaction. This return is unrelated to the interest rate on the underlying
security. The Fund will enter into repurchase agreements only with banks and other
recognized financial institutions, such as securities dealers, deemed creditworthy by
the Adviser.
The Fund's custodian or subcustodian will take possession of the securities subject
to repurchase agreements. The Adviser or subcustodian will monitor the value of the
underlying security each day to ensure that the value of the security always equals
or exceeds the repurchase price. Repurchase agreements are subject to credit risks.

Reverse Repurchase Agreements
Reverse repurchase agreements are repurchase agreements in which the Fund is the
seller (rather than the buyer) of the securities, and agrees to repurchase them at an
agreed upon time and price. A reverse repurchase agreement may be viewed as a type of
borrowing by the Fund. Reverse repurchase agreements are subject to credit risks. In
addition, reverse repurchase agreements create leverage risks because the Fund must
repurchase the underlying security at a higher price, regardless of the market value
of the security at the time of repurchase.

Delayed Delivery Transactions
Delayed delivery transactions, including when-issued transactions, are arrangements
in which the Fund buys securities for a set price, with payment and delivery of the
securities scheduled for a future time. During the period between purchase and
settlement, no payment is made by the Fund to the issuer and no interest accrues to
the Fund. The Fund records the transaction when it agrees to buy the securities and
reflects their value in determining the price of its shares. Settlement dates may be
a month or more after entering into these transactions so that the market values of
the securities bought may vary from the purchase prices. Therefore, delayed delivery
transactions create interest rate risks for the Fund. Delayed delivery transactions
also involve credit risks in the event of a counterparty default.

To Be Announced Securities (TBAs)
As with other delayed delivery transactions, a seller agrees to issue a TBA security
at a future date. However, the seller does not specify the particular securities to
be delivered. Instead, the Fund agrees to accept any security that meets specified
terms. For example, in a TBA mortgage backed transaction, the Fund and the seller
would agree upon the issuer, interest rate and terms of the underlying mortgages. The
seller would not identify the specific underlying mortgages until it issues the
security. TBA mortgage backed securities increase interest rate risks because the
underlying mortgages may be less favorable than anticipated by the Fund.

Dollar Rolls
Dollar rolls are transactions where the Fund sells mortgage backed securities with a
commitment to buy similar, but not identical, mortgage backed securities on a future
date at a lower price. Normally, one or both securities involved are TBA mortgage
backed securities. Dollar rolls are subject to interest rate and credit risks.

Securities Lending
The Fund may lend portfolio securities to borrowers that the Adviser deems
creditworthy. In return, the Fund receives cash or liquid securities from the
borrower as collateral. The borrower must furnish additional collateral if the market
value of the loaned securities increases. Also, the borrower must pay the Fund
the equivalent of any dividends or interest received on the loaned securities.
The Fund will reinvest cash collateral in securities that qualify as an acceptable
investment for the Fund. However, the Fund must pay interest to the borrower for the
use of cash collateral.
Loans are subject to termination at the option of the Fund or the borrower. The
Fund will not have the right to vote on securities while they are on loan, but it
will terminate a loan in anticipation of any important vote. The Fund may pay
administrative and custodial fees in connection with a loan and may pay a negotiated
portion of the interest earned on the cash collateral to a securities lending agent
or broker.
Securities lending activities are subject to interest rate and credit risks.

Asset Coverage
In order to secure its obligations in connection with special transactions, the Fund
will either own the underlying assets, enter into an offsetting transaction or set
aside readily marketable securities with a value that equals or exceeds the Fund's
obligations. Unless the Fund has other readily marketable assets to set aside, it
cannot trade assets used to secure such obligations entering into an offsetting
derivative contract or terminating a special transaction.

Investing in Securities of Other Investment Companies
The Fund may invest its assets in securities of other investment companies, including
the securities of affiliated money market funds, as an efficient means of carrying
out its investment policies and managing its uninvested cash.

INVESTMENT RATINGS

Investment Ratings for Investment Grade Securities
The Adviser will determine whether a security is investment grade based upon the
credit ratings given by one or more nationally recognized rating services. For
example, Standard and Poor's, a rating service, assigns ratings to investment grade
securities (AAA, AA, A, and BBB) based on their assessment of the likelihood of the
issuer's inability to pay interest or principal (default) when due on each security.
Lower credit ratings correspond to higher credit risk. If a security has not received
a rating, the Fund must rely entirely upon the Adviser's credit assessment that the
security is comparable to investment grade.

INVESTMENT RISKS
There are many factors which may affect an investment in the Fund. The Fund's
principal risks are described in its prospectus. Additional risk factors are outlined
below.

Interest Rate Risks
o Prices of fixed income securities rise and fall in response to changes in the
interest rate paid by similar securities. Generally, when interest rates rise,
prices of fixed income securities fall. However, market factors, such as the
demand for particular fixed income securities, may cause the price of certain
fixed income securities to fall while the prices of other securities rise or
remain unchanged.
o Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of a
fixed income security to changes in interest rates.

Credit Risks
o Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the Fund
will lose money.
o Many fixed income securities receive credit ratings from services such as
Standard &amp; Poor's and Moody's Investor Services, Inc. These services assign
ratings to securities by assessing the likelihood of issuer default. Lower credit
ratings correspond to higher credit risk. If a security has not received a rating,
the Fund must rely entirely upon the Adviser's credit assessment.
o Fixed income securities generally compensate for greater credit risk by paying
interest at a higher rate. The difference between the yield of a security and the
yield of a U.S. Treasury security with a comparable maturity (the spread) measures
the additional interest paid for risk. Spreads may increase generally in response
to adverse economic or market conditions. A security's spread may also increase if
the security's rating is lowered, or the security is perceived to have an
increased credit risk. An increase in the spread will cause the price of the
security to decline.
o Credit risk includes the possibility that a party to a transaction involving
the Fund will fail to meet its obligations. This could cause the Fund to lose the
benefit of the transaction or prevent the Fund from selling or buying other
securities to implement its investment strategy.

Prepayment Risks
o Unlike traditional fixed income securities, which may pay a fixed rate of
interest until maturity, when the entire principal amount is due, payments on
mortgage backed securities include both interest and partial payment of principal.
This partial payment of principal may be comprised of a scheduled principal
payment as well as an unscheduled payment from the voluntary prepayment,
refinancing, or foreclosure of the underlying loans. These unscheduled payments of
principal can adversely affect the price or yield of mortgage backed securities.
For example, during periods of declining interest rates, prepayments can be
expected to accelerate, and the Fund would be required to reinvest the proceeds at
the lower interest rates then available. In addition, like other interest-bearing
securities, the values of mortgage backed securities generally fall when interest
rates rise.
o Since rising interest rates generally result in decreased prepayments of
mortgage backed securities, this could cause mortgage backed securities, this
could cause mortgage securities to have greater average lives than expected and
their value may decline more than other fixed income securities. Conversely, when
interest rates fall, their potential for capital appreciation is limited due to
the existence of the prepayment feature.
o Generally, mortgage backed securities compensate for greater prepayment risk by
paying a higher yield. The additional interest paid for risk is measured by the
difference between the yield of a mortgage backed security and the yield of a
U.S. Treasury security with a comparable weighted average life (the spread). An
increase in the spread will cause the price of the security to decline. Spreads
may generally increase in response to adverse economic or market conditions.

Liquidity Risks
o Liquidity risk refers to the possibility that the Fund may not be able to sell
a security when it wants to. If this happens, the Fund will be required to
continue to hold the security, and the Fund could incur losses.
o Trading opportunities are more limited for CMOs that have complex terms or that
are not widely held. These features may make it more difficult to sell or buy a
security at a favorable price or time. Consequently, the Fund may have to accept a
lower price to sell a security, sell other securities to raise cash or give up an
investment opportunity, any of which could have a negative effect on the Fund's
performance. Infrequent trading of securities may also lead to an increase in
their price volatility.

Risks Associated with Complex CMOs
o CMOs with complex terms, such as companion classes, IOs, POs, and Inverse
Floaters, generally entail greater market, prepayment and liquidity risks than
other mortgage backed securities. For example, their prices are more volatile and
their trading market may be more limited.

Leverage Risks
o Leverage risk is created when an investment exposes the Fund to a level of risk
that exceeds the amount invested. Changes in the value of such an investment
magnify the Fund's risk of loss and potential for gain.

FUNDAMENTAL INVESTMENT POLICIES
The U.S. government securities in which the Fund invests are primary or direct
obligations of the U.S. government or its instrumentalities or securities
which are guaranteed as to payment of principal and interest by the U.S. government
or its instrumentalities (hereinafter referred to as "U.S. government securities").

INVESTMENT LIMITATIONS

Concentration of Investments

The fund will not make investments that will result in the concentration of its
investments in the securities of issuers primarily engaged in the same industry.
Government securities, municipal securities and bank instruments will not be deemed
to constitute an industry.

Diversification of Investments

With respect to securities comprising 75% of the value of its total assets, the fund
will not purchase securities of an one issuer (other than cash; cash items;
securities issued or guaranteed by the government of the United States or its
agencies collateralized by such U.S. government securities; and securities of other
investment companies) if, as a result, more than 5% of the value of the fund's total
assets would be invested in the securities of that issuer, or the fund would own more
than 10% of the outstanding voting securities of that issuer.

Selling Short and Buying on Margin
The Fund will not sell any securities short or purchase any securities on margin but
may obtain such short-term credits as may be necessary for clearance of purchases and
sales of securities. The Fund may purchase and dispose of U.S. government securities
and CMOs before they are issued and may also purchase and dispose of them on a
delayed delivery basis.

Investing in Commodities
The fund may not purchase of sell physical commodities, provided that the fund may
purchase securities of companies that deal in commodities.

Underwriting
The fund may not underwrite the securities of other issuers, except that the fund may
engage in transactions involving the acquisition, disposition or resale of its
portfolio securities, under circumstances where it may be considered to be an
underwriter under the Securities Act of 1933.

Buying or Selling Real Estate
The Fund will not buy or sell real estate, but the Fund may invest in real estate
investment trusts, marketable securities of companies that may represent indirect
interest in real estate, or any investment security that derives its value from real
estate.

Lending Cash or Securities
The Fund will not lend any assets except portfolio securities. (This shall not
prevent the purchase or holding of U.S. government securities, repurchase agreements
covering U.S. government securities, or other transactions which are permitted by the
Fund's investment objective and policies or Charter.)

Issuing Senior Securities and Borrowing Money
The Fund will not borrow money, issue senior securities, or pledge assets, except
that under certain circumstances the Fund may borrow money and engage in reverse
repurchase agreement transactions in amounts up to one-third of the value of its net
assets, including the amounts borrowed, and pledge up to 10% of the value of those
assets to secure such borrowings.
The Fund will not borrow money or engage in reverse repurchase agreements for
investment leverage, but rather as a temporary, extraordinary, or emergency measure
to facilitate management of the portfolio by enabling the Fund to meet redemption
requests when the liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. However, during the period any reverse repurchase agreements are
outstanding, but only to the extent necessary to assure completion of the reverse
repurchase agreements, the Fund will restrict the purchase of portfolio instruments
to money market instruments maturing on or before the expiration date of the reverse
repurchase agreements.
Pledging Securities
The Corporation will not mortgage, pledge or hypothecate securities.
The above limitations cannot be changed unless authorized by the Board and by the
"vote of a majority of its outstanding voting securities," as defined by the
Investment Company Act of 1940 (1940 Act). The following limitations, however, may be
changed by the Board without shareholder approval. Shareholders will be notified
before any material change in these limitations becomes effective.

Illiquid Securities
The Fund will not invest more than 15% of its total assets in securities which are
illiquid, including repurchase agreements providing for settlement in more than seven
days after notice. Except with respect to borrowing money, if a percentage limitation
is adhered to at the time of investment, a later increase or decrease in percentage
resulting from any change in value or net assets will not result in a violation of
such restriction. The Fund did not borrow money in excess of 5% of the value of its
net assets during the last fiscal year and has no present intent to do so in the
coming fiscal year. The Fund does not intend to invest more than 5% of the value of
its total assets in inverse floaters or interest-only mortgage-related securities in
the coming fiscal year.

Investing in Mortgage Securities
The Fund will invest at least 65% of its assets in U.S. government securities,
including mortgage backed securities issued by U.S. government agencies. In addition,
the Fund may invest up to 35% of its assets in investment grade non-governmental
mortgage backed securities.

PORTFOLIO TURNOVER
The Fund's policy of managing its portfolio of U.S. government securities, including
the sale of securities held for a short period of time, to achieve its investment
objective of current income may result in high portfolio turnover. The Fund will not
attempt to set or meet a portfolio turnover rate since any turnover would be
incidental to transactions undertaken in an attempt to achieve the Fund's investment
objective. During the fiscal years ended March 31, 2001, and 2000, the portfolio
turnover rates were 145% and 103%, respectively.

DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
o for fixed income securities, according to the mean between bid and asked prices
as furnished by an independent pricing service, except that fixed income securities
with remaining maturities of less than 60 days at the time of purchase may be
valued at amortized cost; and

o for all other securities at fair value as determined in good faith by the Board.

Prices provided by independent pricing services may be determined without relying
exclusively on quoted prices and may consider institutional trading in similar groups
of securities, yield, quality, stability, risk, coupon rate, maturity, type of issue,
trading characteristics, and other market data or factors. From time to time, when
prices cannot be obtained from an independent pricing service, securities may be
valued based on quotes from broker/dealers or other financial institutions that trade
the securities.

WHAT DO SHARES COST?

The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund.

The NAV for each class of Shares may differ due to the variance in daily net income
realized by each class. Such variance will reflect only accrued net income to which
the shareholders of a particular class are entitled.

REDUCING OR ELIMINATING THE FRONT-END SALES CHARGE
You can reduce or eliminate the applicable front-end sales charge, as follows:

Quantity Discounts
Larger purchases of the same Share class reduce or eliminate the sales charge you
pay. You can combine purchases of Shares made on the same day by you, your spouse and
your children under age 21. In addition, purchases made at one time by a trustee or
fiduciary for a single trust estate or a single fiduciary account can be combined.

Accumulated Purchases
If you make an additional purchase of Shares, you can count previous Share purchases
still invested in the Fund in calculating the applicable sales charge on the
additional purchase.

Concurrent Purchases
You can combine concurrent purchases of the same share class of two or more Federated
Funds in calculating the applicable sales charge.

Letter of Intent Class A Shares
You can sign a Letter of Intent committing to purchase a certain amount of the same
class of Shares within a 13-month period to combine such purchases in calculating the
sales charge. The Fund's custodian will hold Shares in escrow equal to the maximum
applicable sales charge. If you complete the Letter of Intent, the Custodian will
release the Shares in escrow to your account. If you do not fulfill the Letter of
Intent, the Custodian will redeem the appropriate amount from the Shares held in
escrow to pay the sales charges that were not applied to your purchases.

Reinvestment Privilege
You may reinvest, within 120 days, your Share redemption proceeds at the next
determined NAV without any sales charge.

Purchases by Affiliates of the Fund
The following individuals and their immediate family members may buy Shares at NAV
without any sales charge because there are nominal sales efforts associated with
their purchases:

o the Directors, employees and sales representatives of the Fund, the Adviser,
the Distributor and their affiliates;

o any associated person of an investment dealer who has a sales agreement with
the Distributor; and

o trusts, pension or profit-sharing plans for these individuals.

Federated Life Members
Shareholders of the Fund known as "Federated Life Members" are exempt from paying any
front-end sales charge. These shareholders joined the Fund originally:

o through the "Liberty Account," an account for Liberty Family of Funds
shareholders on February 28, 1987 (the Liberty Account and Liberty Family of Funds
are no longer marketed); or

o as Liberty Account shareholders by investing through an affinity group prior to
August 1, 1987.

REDUCING OR ELIMINATING THE CONTINGENT DEFERRED SALES CHARGE
These reductions or eliminations are offered because: no sales commissions have been
advanced to the investment professional selling Shares; the shareholder has already
paid a Contingent Deferred Sales Charge (CDSC); or nominal sales efforts are
associated with the original purchase of Shares.

Upon notification to the Distributor or the Fund's transfer agent, no CDSC will be
imposed on redemptions:

o following the death or post-purchase disability, as defined in Section 72(m)(7)
of the Internal Revenue Code of 1986, of the last surviving shareholder;

o representing minimum required distributions from an Individual Retirement
Account or other retirement plan to a shareholder who has attained the age of 70
1/2;

o of Shares that represent a reinvestment within 120 days of a previous
redemption;

o of Shares held by the Directors, employees, and sales representatives of the
Fund, the Adviser, the Distributor and their affiliates; employees of any
investment professional that sells Shares according to a sales agreement with the
Distributor; and the immediate family members of the above persons;

o of Shares originally purchased through a bank trust department, a registered
investment adviser or retirement plans where the third party administrator has
entered into certain arrangements with the Distributor or its affiliates, or any
other investment professional, to the extent that no payments were advanced for
purchases made through these entities;

o which are involuntary redemptions processed by the Fund because the accounts do
not meet the minimum balance requirements.

HOW IS THE FUND SOLD?

Under the Distributor's Contract with the Fund, the Distributor (Federated Securities
Corp.) offers Shares on a continuous, best-efforts basis.

FRONT-END SALES CHARGE REALLOWANCES
The Distributor receives a front-end sales charge on certain Share sales. The
Distributor generally pays up to 90% (and as much as 100%) of this charge to
investment professionals for sales and/or administrative services. Any payments to
investment professionals in excess of 90% of the front-end sales charge are
considered supplemental payments. The Distributor retains any portion not paid to an
investment professional.

RULE 12B-1 PLAN (CLASS B AND CLASS C SHARES)
As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the Distributor
(who may then pay investment professionals such as banks, broker/dealers, trust
departments of banks, and registered investment advisers) for marketing activities
(such as advertising, printing and distributing prospectuses, and providing
incentives to investment professionals) to promote sales of Shares so that overall
Fund assets are maintained or increased. This helps the Fund achieve economies of
scale, reduce per share expenses, and provide cash for orderly portfolio management
and Share redemptions. In addition, the Fund's service providers that receive
asset-based fees also benefit from stable or increasing Fund assets.

The Fund may compensate the Distributor more or less than its actual marketing
expenses. In no event will the Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.

For some classes of Shares, the maximum Rule 12b-1 Plan fee that can be paid in any
one year may not be sufficient to cover the marketing-related expenses the
Distributor has incurred. Therefore, it may take the Distributor a number of years to
recoup these expenses.

Federated and its subsidiaries may benefit from arrangements where the Rule 12b-1
Plan fees related to Class B Shares may be paid to third parties who have advanced
commissions to investment professionals.

SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services Company, a subsidiary of Federated
Investors, Inc. (Federated), for providing shareholder services and maintaining
shareholder accounts. Federated Shareholder Services Company may select others to
perform these services for their customers and may pay them fees.

SUPPLEMENTAL PAYMENTS
Investment professionals (such as broker-dealers or banks) may be paid fees, in
significant amounts, out of the assets of the Distributor and/or Federated
Shareholder Services Company (these fees do not come out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by the
Adviser or its affiliates.

Investment professionals receive such fees for providing distribution-related and/or
shareholder services, such as advertising, providing incentives to their sales
personnel, sponsoring other activities intended to promote sales, and maintaining
shareholder accounts These payments may be based upon such factors as the number or
value of Shares the investment professional sells or may sell; the value of client
assets invested; and/or the type and nature of sales or marketing support furnished
by the investment professional.

When an investment professional's customer purchases shares, the investment
professional may receive:

o an amount up to 5.50% and 1.00%, respectively, of the NAV of Class B and C
Shares.

In addition, the Distributor may pay investment professionals 0.25% of the purchase
price of $1 million or more of Class A Shares that its customer has not redeemed over
the first year.

Class A Shares
Investment professionals purchasing Class A Shares for their customers are eligible
to receive an advance payment from the Distributor based on the following breakpoints:

Advance
Payments
as a Percentage
of
Public Offering
Amount Price
First $1 - $5 0.75%
million
Next $5 - $20 0.50%
million
Over $20 million 0.25%
For accounts with assets over $1 million, the dealer advance payments reset annually
to the first breakpoint on the anniversary of the first purchase.
---------------------------------------------------------------------------------------

Class A Share purchases under this program may be made by Letter of Intent or by
combining concurrent purchases. The above advance payments will be paid only on those
purchases that were not previously subject to a front-end sales charge and dealer
advance payments. Certain retirement accounts may not be eligible for this program.

A contingent deferred sales charge of 0.75% of the redemption amount applies to Class
A Shares redeemed up to 24 months after purchase. The CDSC does not apply under
certain investment programs where the investment professional does not receive an
advance payment on the transaction including, but not limited to, trust accounts and
wrap programs where the investor pays an account level fee for investment management.

SUBACCOUNTING SERVICES

Certain investment professionals may wish to use the transfer agent's subaccounting
system to minimize their internal recordkeeping requirements. The transfer agent may
charge a fee based on the level of subaccounting services rendered. Investment
professionals holding Shares in a fiduciary, agency, custodial or similar capacity
may charge or pass through subaccounting fees as part of or in addition to normal
trust or agency account fees. They may also charge fees for other services that may
be related to the ownership of Shares. This information should, therefore, be read
together with any agreement between the customer and the investment professional
about the services provided, the fees charged for those services, and any
restrictions and limitations imposed.

REDEMPTION IN KIND

Although the Fund intends to pay Share redemptions in cash, it reserves the right, as
described below, to pay the redemption price in whole or in part by a distribution of
the Fund's portfolio securities.

Because the Fund has elected to be governed by Rule 18f-1 under the 1940 Act, the
Fund is obligated to pay Share redemptions to any one shareholder in cash only up to
the lesser of $250,000 or 1% of the net assets represented by such Share class during
any 90-day period.

Any Share redemption payment greater than this amount will also be in cash unless the
Fund's Board determines that payment should be in kind. In such a case, the Fund will
pay all or a portion of the remainder of the redemption in portfolio securities,
valued in the same way as the Fund determines its NAV. The portfolio securities will
be selected in a manner that the Fund's Board deems fair and equitable and, to the
extent available, such securities will be readily marketable.

Redemption in kind is not as liquid as a cash redemption. If redemption is made in
kind, shareholders receiving the portfolio securities and selling them before their
maturity could receive less than the redemption value of the securities and could
incur certain transaction costs.

ACCOUNT AND SHARE INFORMATION

VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Director elections and other
matters submitted to shareholders for vote.

All Shares of the Fund have equal voting rights, except that in matters affecting
only a particular class, only Shares of that class are entitled to vote.

Directors may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written request
of shareholders who own at least 10% of the Fund's outstanding shares.

As of May 7, 2001, the following shareholders owned of record, beneficially, or both,
5% or more of outstanding Shares: MLPF&S for the Sole Benefit of its Customers,
Jacksonville FL, owned approximately 1,058,040 Class B Shares (5.52%); Hubco,
Birmingham AL, owned approximately 1,155,304 Class C Shares (17.42%); MLPF&S for the
Sole Benefit of its Customers, Jacksonville FL, owned approximately 1,625,939 Class C
Shares (24.51%).

Shareholders owning 25% or more of outstanding Shares may be in control and be able
to affect the outcome of certain matters presented for a vote of shareholders.

TAX INFORMATION

FEDERAL INCOME TAX
The Fund intends to meet requirements of Subchapter M of the Internal Revenue Code
applicable to regulated investment companies. If these requirements are not met, it
will not receive special tax treatment and will pay federal income tax.

WHO MANAGES AND PROVIDES SERVICES TO THE FUND?

BOARD OF DIRECTORS
The Board is responsible for managing the Fund's business affairs and for exercising
all the Fund's powers except those reserved for the shareholders. Information about
each Board member is provided below and includes each person's: name, address, birth
date, present position(s) held with the Fund, principal occupations for the past five
years and positions held prior to the past five years, total compensation received as
a Director from the Fund for its most recent fiscal year, if applicable, and the
total compensation received from the Federated Fund Complex for the most recent
calendar year. The Federated Fund Complex comprises 44 investment companies, whose
investment advisers are affiliated with the Fund's Adviser.

As of May 7, 2001, the Fund's Board and Officers as a group owned less than 1% of the
Fund's outstanding Class A, B and C Shares.

----------------------------------------------------------------------------------------------
Name rincipal Occupations for Past Five ggregate Total
Birth Date ears Aompensation Compensation
Address P Crom Fund From Fund and
Position With Fund Y F Fund Complex

John F. Donahue*+# Chief Executive Officer and Director $0 $0 for the Fund
Birth Date: July or Trustee of the Federated Fund and 43 other
28, 1924 Complex; Chairman and Director, investment
Federated Investors Federated Investors, Inc.; Chairman, companies in
Tower Federated Investment Management the
1001 Liberty Avenue Company, Federated Global Investment Fund Complex
Pittsburgh, PA Management Corp. and Passport
CHAIRMAN AND Research, Ltd. ; formerly: Trustee,
DIRECTOR Federated Investment Management
Company and Chairman and Director,
Federated Investment Counseling.

-------------------- Director or Trustee of the Federated -------------$128,847.72 for
Thomas G. Bigley Fund Complex; Director, Member of $1881.59 the Fund and 43
Birth Date: Executive Committee, Children's other
February 3, 1934 Hospital of Pittsburgh; Director and investment
15 Old Timber Trail Chairman of Audit Committee, Robroy companies in
Pittsburgh, PA Industries, Inc. (coated steel the
DIRECTOR conduits/computer storage equipment); Fund Complex
formerly: Senior Partner, Ernst &
Young LLP; Director, MED 3000 Group,
Inc. (physician practice management);
Director, Member of Executive
Committee, University of Pittsburgh.

-------------------- Director or Trustee of the Federated -------------$128,847.66 for
John T. Conroy, Jr. Fund Complex; Chairman of the Board, $1881.59 the Fund and 43
Birth Date: June Investment Properties Corporation; other
23, 1937 Partner or Trustee in private real investment
Grubb & estate ventures in Southwest Florida; companies in
Ellis/Investment formerly: President, Investment the
Properties Properties Corporation; Senior Vice Fund Complex
Corporation President, John R. Wood and
3201 Tamiami Trail Associates, Inc., Realtors; President,
North Naples Property Management, Inc. and
Naples, FL Northgate Village Development
DIRECTOR Corporation.

-------------------- Director or Trustee of the Federated -------------$126,923.53 for
Nicholas P. Fund Complex; Director and Chairman of $1881.59 the Fund and 43
Constantakis the Audit Committee, Michael Baker other
Birth Date: Corporation (engineering, investment
September 3, 1939 construction, operations and technical companies in
175 Woodshire Drive services); formerly: Partner, Andersen the
Pittsburgh, PA Worldwide SC. Fund Complex
DIRECTOR

-------------------- Director or Trustee of some of the ----------- ----------------
John F. Cunningham Federated Fund Complex; Chairman, $1710.28 $115,368.16 for
Birth Date: March President and Chief Executive Officer, the Fund and 43
5, 1943 Cunningham & Co., Inc. (strategic other
353 El Brillo Way business consulting); Trustee investment
Palm Beach, FL Associate, Boston College; Director, companies in
DIRECTOR Iperia Corp. the
(communications/software); formerly: Fund Complex
Director, Redgate Communications and
EMC Corporation (computer storage
systems).

Previous Positions: Chairman of the
Board and Chief Executive Officer,
Computer Consoles, Inc.; President and
Chief Operating Officer, Wang
Laboratories; Director, First National
Bank of Boston; Director, Apollo
Computer, Inc.

-------------------- Director or Trustee of the Federated -------------$117,117.17 for
Lawrence D. Ellis, Fund Complex; Professor of Medicine, $1710.28 the Fund and 43
M.D.* University of Pittsburgh; Medical other
Birth Date: October Director, University of Pittsburgh investment
11, 1932 Medical Center - Downtown; companies in
3471 Fifth Avenue Hematologist, Oncologist and the
Suite 1111 Internist, University of Pittsburgh Fund Complex
Pittsburgh, PA Medical Center; Member, National Board
DIRECTOR of Trustees, Leukemia Society of
America.

-------------------- Director or Trustee of the Federated -------------$117,117.14 for
Peter E. Madden Fund Complex; formerly: $1710.28 the Fund and 43
Birth Date: March Representative, Commonwealth of other
16, 1942 Massachusetts General Court; investment
One Royal Palm Way President, State Street Bank and Trust companies in
100 Royal Palm Way Company and State Street Corporation. the
Palm Beach, FL Fund Complex
DIRECTOR Previous Positions: Director, VISA USA
and VISA International; Chairman and
Director, Massachusetts Bankers
Association; Director, Depository
Trust Corporation; Director, The
Boston Stock Exchange.

-------------------- Director or Trustee of some of the -------------$128,847.66 for
Charles F. Federated Fund Complex; Management $1881.59 the Fund and 43
Mansfield, Jr. Consultant. other
Birth Date: April investment
10, 1945 Previous Positions: Chief Executive companies in
80 South Road Officer, PBTC International Bank; the
Westhampton Beach, Partner, Arthur Young & Company (now Fund Complex
NY Ernst & Young LLP); Chief Financial
DIRECTOR Officer of Retail Banking Sector,
Chase Manhattan Bank; Executive Vice
President, DVC Group, Inc.; Senior
Vice President, HSBC Bank USA
(formerly, Marine Midland Bank); Vice
President, Citibank; Assistant
Professor of Banking and Finance,
Frank G. Zarb School of Business,
Hofstra University.

-------------------- Director or Trustee of the Federated -----------------------------
John E. Murray, Fund Complex; President, Law $1710.28 $117,117.14 for
Jr., J.D., S.J.D.# Professor, Duquesne University; the Fund and 43
Birth Date: Consulting Partner, Mollica & Murray; other
December 20, 1932 Director, Michael Baker Corp. investment
President, Duquesne (engineering, construction, operations companies in
University and technical services). the
Pittsburgh, PA Fund Complex
DIRECTOR Previous Positions: Dean and Professor
of Law, University of Pittsburgh
School of Law; Dean and Professor of
Law, Villanova University School of
Law.

-------------------- Director or Trustee of the Federated -------------$117,117.17 for
Marjorie P. Smuts Fund Complex; Public $1710.28 the Fund and 43
Birth Date: June Relations/Marketing/Conference other
21, 1935 Planning. investment
4905 Bayard Street companies in
Pittsburgh, PA Previous Positions: National the
DIRECTOR Spokesperson, Aluminum Company of Fund Complex
America; television producer; business
owner; conference coordinator.

-------------------- Director or Trustee of some of the -------------$117,117.17 for
John S. Walsh Federated Fund Complex; President and $1710.28 the Fund and 43
Birth Date: Director, Heat Wagon, Inc. other
November 28, 1957 (manufacturer of construction investment
2604 William Drive temporary heaters); President and companies in
Valparaiso, IN Director, Manufacturers Products, Inc. the
DIRECTOR (distributor of portable construction Fund Complex
heaters); President, Portable Heater
Parts, a division of Manufacturers
Products, Inc.; Director, Walsh &
Kelly, Inc. (heavy highway
contractor); formerly: Vice President,
Walsh & Kelly, Inc.

-------------------- President or Executive Vice President -------------$0 for the Fund
J. Christopher of the Federated Fund Complex; $0 and 43 other
Donahue*+ Director or Trustee of some of the investment
Birth Date: April Funds in the Federated Fund Complex; companies in
11, 1949 President, Chief Executive Officer and the
Federated Investors Director, Federated Investors, Inc.; Fund Complex
Tower President, Chief Executive Officer and
1001 Liberty Avenue Trustee, Federated Investment
Pittsburgh, PA Management Company; Trustee, Federated
PRESIDENT AND Investment Counseling; President,
DIRECTOR Chief Executive Officer and Director,
Federated Global Investment Management
Corp.; President and Chief Executive
Officer, Passport Research, Ltd.;
Trustee, Federated Shareholder
Services Company; Director, Federated
Services Company; formerly: President,
Federated Investment Counseling.

-------------------- President, Executive Vice President -------------$0 for the Fund
Edward C. Gonzales and Treasurer of some of the Funds in $0 and 37 other
Birth Date: October the Federated Fund Complex; Vice investment
22, 1930 Chairman, Federated Investors, Inc.; companies in
Federated Investors Trustee, Federated Administrative the
Tower Services; formerly: Trustee or Fund Complex
1001 Liberty Avenue Director of some of the Funds in the
Pittsburgh, PA Federated Fund Complex; CEO and
EXECUTIVE VICE Chairman, Federated Administrative
PRESIDENT Services; Vice President, Federated
Investment Management Company,
Federated Investment Counseling,
Federated Global Investment Management
Corp. and Passport Research, Ltd.;
Director and Executive Vice President,
Federated Securities Corp.; Director,
Federated Services Company; Trustee,
Federated Shareholder Services Company.

-------------------- Executive Vice President and Secretary -------------$0 for the Fund
John W. McGonigle of the Federated Fund Complex; $0 and 43 other
Birth Date: October Executive Vice President, Secretary investment
26, 1938 and Director, Federated Investors, companies in
Federated Investors Inc.; formerly: Trustee, Federated the
Tower Investment Management Company and Fund Complex
1001 Liberty Avenue Federated Investment Counseling;
Pittsburgh, PA Director, Federated Global Investment
EXECUTIVE VICE Management Corp., Federated Services
PRESIDENT AND Company and Federated Securities Corp.
SECRETARY

-------------------- Treasurer of the Federated Fund -------------$0 for the Fund
Richard J. Thomas Complex; Senior Vice President, $0 and 43 other
Birth Date: June Federated Administrative Services; investment
17, 1954 formerly: Vice President, Federated companies in
Federated Investors Administrative Services; held various the
Tower management positions within Funds Fund Complex
1001 Liberty Avenue Financial Services Division of
Pittsburgh, PA Federated Investors, Inc.
TREASURER

-------------------- President or Vice President of some of -------------$0 for the Fund
Richard B. Fisher the Funds in the Federated Fund $0 and 36 other
Birth Date: May 17, Complex; Vice Chairman, Federated investment
1923 Investors, Inc.; Chairman, Federated companies in
Federated Investors Securities Corp.; formerly: Director the
Tower or Trustee of some of the Funds in the Fund Complex
1001 Liberty Avenue Federated Fund Complex,; Executive
Pittsburgh, PA Vice President, Federated Investors,
VICE PRESIDENT Inc. and Director and Chief Executive
Officer, Federated Securities Corp.

-------------------- Chief Investment Officer of this Fund -------------$0 for the Fund
William D. Dawson, and various other Funds in the $0 and 25 other
III Federated Fund Complex; Executive Vice investment
Birth Date: March President, Federated Investment companies in
3, 1949 Counseling, Federated Global the
Federated Investors Investment Management Corp., Federated Fund Complex
Tower Investment Management Company and
1001 Liberty Avenue Passport Research, Ltd.; Director,
Pittsburgh, PA Federated Global Investment Management
CHIEF INVESTMENT Corp. and Federated Investment
OFFICER Management Company; Registered
Representative, Federated Securities
Corp.; Portfolio Manager, Federated
Administrative Services; Vice
President, Federated Investors, Inc.;
formerly: Executive Vice President and
Senior Vice President, Federated
Investment Counseling Institutional
Portfolio Management Services
Division; Senior Vice President,
Federated Investment Management
Company and Passport Research, Ltd.

-------------------- Kathleen M. Foody-Malus has been the ----------- ----------------
Kathleen M. Fund's Portfolio Manager since July $0 $0 for the Fund
Foody-Malus 1993. She is Vice President of the and 2 other
Birth Date: March Fund. Ms. Foody-Malus joined investment
26, 1960 Federated in 1983 and has been a companies in
Federated Investors Senior Portfolio Manager since 1996 the
Tower and a Vice President of the Fund's Fund Complex
1001 Liberty Avenue Adviser since 1993. She was a
Pittsburgh, PA Portfolio Manager and a Vice President
VICE PRESIDENT of the Fund's Adviser from 1993 to
1996. Ms. Foody-Malus received her
M.B.A. in Accounting/Finance from the
University of Pittsburgh.

---------------------------------------------------------------------------------------
* An asterisk denotes a Director who is deemed to be an interested person as defined
in the 1940 Act.
---------------------------------------------------------------------------------------
# A pound sign denotes a Member of the Board's Executive Committee, which handles the
Board's responsibilities between its meetings.
+ Mr. Donahue is the father of J. Christopher Donahue, President and Director of the
Fund.

INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the Fund.

The Adviser is a wholly owned subsidiary of Federated.

The Adviser shall not be liable to the Fund or any Fund shareholder for any losses
that may be sustained in the purchase, holding, or sale of any security or for
anything done or omitted by it, except acts or omissions involving willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties imposed
upon it by its contract with the Fund.

Other Related Services
Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the purchase
of Fund Shares offered by the Distributor.

CODE OF ETHICS RESTRICTIONS ON PERSONAL TRADING

As required by SEC rules, the Fund, its Adviser, and its Distributor have adopted
codes of ethics. These codes govern securities trading activities of investment
personnel, Fund Directors, and certain other employees. Although they do permit
these people to trade in securities, including those that the Fund could buy, they
also contain significant safeguards designed to protect the Fund and its shareholders
from abuses in this area, such as requirements to obtain prior approval for, and to
report, particular transactions.

Research Services
Research services may include advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry studies;
receipt of quotations for portfolio evaluations; and similar services. Research
services may be used by the Adviser or by affiliates of Federated in advising other
accounts. To the extent that receipt of these services may replace services for which
the Adviser or its affiliates might otherwise have paid, it would tend to reduce
their expenses. The Adviser and its affiliates exercise reasonable business judgment
in selecting those brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged by
such persons are reasonable in relationship to the value of the brokerage and
research services provided.

Investment decisions for the Fund are made independently from those of other accounts
managed by the Adviser. When the Fund and one or more of those accounts invests in,
or disposes of, the same security, available investments or opportunities for sales
will be allocated among the Fund and the account(s) in a manner believed by the
Adviser to be equitable. While the coordination and ability to participate in volume
transactions may benefit the Fund, it is possible that this procedure could adversely
impact the price paid or received and/or the position obtained or disposed of by the
Fund.

ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting services)
necessary to operate the Fund. Federated Services Company provides these at the
following annual rate of the average aggregate daily net assets of all Federated
Funds as specified below:

Average Aggregate Daily
Maximum Net Assets of the
Administrative Fee Federated Funds

0.150 of 1% on the first $250 million

0.125 of 1% on the next $250 million

0.100 of 1% on the next $250 million

on assets in excess of
0.075 of 1% $750 million
The administrative fee received during any fiscal year shall be at least $125,000 per
portfolio and $30,000 per each additional class of Shares. Federated Services Company
may voluntarily waive a portion of its fee and may reimburse the Fund for expenses.
---------------------------------------------------------------------------------------

Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on Fund
assets plus out-of-pocket expenses.

CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund.

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder records.
The Fund pays the transfer agent a fee based on the size, type and number of accounts
and transactions made by shareholders.

INDEPENDENT AUDITORS
The independent auditor for the Fund, Deloitte & Touche LLP, conducts its audits in
accordance with accounting principles generally accepted in the United States of
America, which require it to plan and perform its audits to provide reasonable
assurance about whether the Fund's financial statements and financial highlights are
free of material misstatement.

FEES PAID BY THE FUND FOR SERVICES
For the Year Ended March 001 000 999
31 2 2 1
Advisory Fee Earned $6,202,374 $6,468,804 $6,697,258
Reimbursement of 11,204
investment advisor fee $
Administrative Fee $805,864 $881,169 $953,141
12b-1 Fee
Class B Shares $945,483 -- --
Class C Shares $337,581 -- --
Shareholder Services Fee
Class A Shares $2,067,996 -- --
Class B Shares $315,161 -- --
Class C Shares $112,527 -- --
Fees are allocated among classes based on their pro rata share of Fund assets, except
for marketing (Rule 12b-1) fees and shareholder services fees, which are borne only
by the applicable class of Shares.
---------------------------------------------------------------------------------------

HOW DOES THE FUND MEASURE PERFORMANCE?

The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.

Share performance reflects the effect of non-recurring charges, such as maximum sales
charges, which, if excluded, would increase the total return and yield. The
performance of Shares depends upon such variables as: portfolio quality; average
portfolio maturity; type and value of portfolio securities; changes in interest
rates; changes or differences in the Fund's or any class of Shares' expenses; and
various other factors.

Share performance fluctuates on a daily basis largely because net earnings fluctuate
daily. Both net earnings and offering price per Share are factors in the computation
of yield and total return.

AVERAGE ANNUAL TOTAL RETURN AND YIELD
Total returns are given for the one-year, five-year and ten-year or Start of
Performance periods ended March 31 2001.

Yield is given for the 30-day period ended March 31, 2001.

Share Class 30-Day Period 1 Year 5 Years 10 Years
Class A Shares
Total Return NA 6.35% 5.66% 6.00%
Yield 5.95% NA NA NA
0-Day Period Year Years Start of
Performance on
3 1 5 July 26, 1994
Class B Shares
Total Return NA 4.97% 5.48% 6.14%
Yield 5.45% NA NA NA
0-Day Period Year Years Start of
Performance on
3 1 5 April 27, 1993
Class C Shares
Total Return NA 9.48% 5.80% 4.94%
Yield 5.45% NA NA NA

TOTAL RETURN
---------------------------------------------------------------------------------------
Total return represents the change (expressed as a percentage) in the value of Shares
over a specific period of time, and includes the investment of income and capital
gains distributions.

The average annual total return for Shares is the average compounded rate of return
for a given period that would equate a $1,000 initial investment to the ending
redeemable value of that investment. The ending redeemable value is computed by
multiplying the number of Shares owned at the end of the period by the NAV per Share
at the end of the period. The number of Shares owned at the end of the period is
based on the number of Shares purchased at the beginning of the period with $1,000,
less any applicable sales charge, adjusted over the period by any additional Shares,
assuming the annual reinvestment of all dividends and distributions.

YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a 30-day period; by (ii) the maximum offering price
per Share on the last day of the period. This number is then annualized using
semi-annual compounding. This means that the amount of income generated during the
30-day period is assumed to be generated each month over a 12-month period and is
reinvested every six months. The yield does not necessarily reflect income actually
earned by Shares because of certain adjustments required by the SEC and, therefore,
may not correlate to the dividends or other distributions paid to shareholders.

To the extent investment professionals and broker/dealers charge fees in connection
with services provided in conjunction with an investment in Shares, the Share
performance is lower for shareholders paying those fees.

PERFORMANCE COMPARISONS
Advertising and sales literature may include:

o references to ratings, rankings, and financial publications and/or performance
comparisons of Shares to certain indices;

o charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment;

o discussions of economic, financial and political developments and their impact
on the securities market, including the portfolio manager's views on how such
developments could impact the Fund; and

o information about the mutual fund industry from sources such as the Investment
Company Institute.

The Fund may compare its performance, or performance for the types of securities in
which it invests, to a variety of other investments, including federally insured bank
products such as bank savings accounts, certificates of deposit, and Treasury bills.

The Fund may quote information from reliable sources regarding individual countries
and regions, world stock exchanges, and economic and demographic statistics.

You may use financial publications and/or indices to obtain a more complete view of
Share performance. When comparing performance, you should consider all relevant
factors such as the composition of the index used, prevailing market conditions,
portfolio compositions of other funds, and methods used to value portfolio securities
and compute offering price. The financial publications and/or indices which the Fund
uses in advertising may include:

Morningstar, Inc.
Morningstar, Inc., an independent rating service, is the publisher of the bi-weekly
Mutual Fund Values. Mutual Fund Values rates more than 1,000 NASDAQ-listed mutual
funds of all types, according to their risk-adjusted returns. The maximum rating is
five stars, and ratings are effective for two weeks.

Lehman Brothers Five-Year Treasury Bellwether Index
Lehman Brothers Five-Year Treasury Bellwether Index is an unmanaged index comprised
of U.S. government Treasury Bonds with an average maturity of five years.

Lehman Brothers Mortgage Backed Securities Index
Lehman Brothers Mortgage Backed Securities Index is a universe of fixed rate
securities backed by mortgage pools of Government National Mortgage Association,
Federal Home Loan Mortgage Corporation and Federal National Mortgage Association. The
minimum principal amount required for inclusion is $50 million. Total return
comprises price appreciation/depreciation and income as a percentage of the original
investment.

Lipper Analytical Services, Inc.
Lipper Analytical Services, Inc. ranks funds in various categories by making
comparative calculations using total return. Total return assumes the reinvestment of
all capital gains distributions and income dividends and takes into account any
change in net asset value over a specific period of time. From time to time, the Fund
will quote its Lipper ranking in the "U.S. Mortgage Funds" category in advertising
and sales literature.

WHO IS FEDERATED INVESTORS, INC.?

Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment products
have a history of competitive performance and have gained the confidence of thousands
of financial institutions and individual investors.

Federated's disciplined investment selection process is rooted in sound methodologies
backed by fundamental and technical research. At Federated, success in investment
management does not depend solely on the skill of a single portfolio manager. It is a
fusion of individual talents and state-of-the-art industry tools and resources.
Federated's investment process involves teams of portfolio managers and analysts, and
investment decisions are executed by traders who are dedicated to specific market
sectors and who handle trillions of dollars in annual trading volume.

FEDERATED FUNDS OVERVIEW

Municipal Funds
In the municipal sector, as of December 31, 2000, Federated managed 11 bond funds
with approximately $4.0 billion in assets and 22 money market funds with
approximately $41.8 billion in total assets. In 1976, Federated introduced one of the
first municipal bond mutual funds in the industry and is now one of the largest
institutional buyers of municipal securities. The Funds may quote statistics from
organizations including The Tax Foundation and the National Taxpayers Union regarding
the tax obligations of Americans.

Equity Funds
In the equity sector, Federated has more than 31 years' experience. As of December
31, 2000, Federated managed 40 equity funds totaling approximately $20.6 billion in
assets across growth, value, equity income, international, index and sector (i.e.
utility) styles. Federated's value-oriented management style combines quantitative
and qualitative analysis and features a structured, computer-assisted composite
modeling system that was developed in the 1970s.

Corporate Bond Funds
In the corporate bond sector, as of December 31, 2000, Federated managed 11 money
market funds and 30 bond funds with assets approximating $20.9 billion and $9.7
billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 29 years of experience in the
corporate bond sector. In 1972, Federated introduced one of the first high-yield bond
funds in the industry. In 1983, Federated was one of the first fund managers to
participate in the asset backed securities market, a market totaling more than $209
billion.

Government Funds
In the government sector, as of December 31, 2000, Federated managed 6 mortgage
backed, 3 government/agency and 19 government money market mutual funds, with assets
approximating $3.3 billion, $1.2 billion and $36.2 billion, respectively. Federated
trades approximately $133.4 billion in U.S. government and mortgage backed securities
daily and places approximately $28.5 billion in repurchase agreements each day.
Federated introduced the first U.S. government fund to invest in U.S. government bond
securities in 1969. Federated has been a major force in the short- and
intermediate-term government markets since 1982 and currently manages approximately
$50 billion in government funds within these maturity ranges.

Money Market Funds
In the money market sector, Federated gained prominence in the mutual fund industry
in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by money
managers today to value money market fund shares. Other innovations include the first
institutional tax-free money market fund. As of December 31, 2000, Federated managed
$99.0 billion in assets across 52 money market funds, including 19 government, 11
prime, 22 municipal and 1 euro-denominated with assets approximating $36.2 billion,
$21.0 billion, $41.8 billion and $110 million, respectively.

The Chief Investment Officers responsible for oversight of the various investment
sectors within Federated are: U.S. equity and high yield - J. Thomas Madden; U.S.
fixed income -William D. Dawson, III; and global equities and fixed income - Henry A.
Frantzen. The Chief Investment Officers are Executive Vice Presidents of the
Federated advisory companies.

MUTUAL FUND MARKET
Forty-nine percent of American households are pursuing their financial goals through
mutual funds. These investors, as well as businesses and institutions, have entrusted
over $7 trillion to the more than 8,157 funds available, according to the Investment
Company Institute.

FEDERATED CLIENTS OVERVIEW
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:

Institutional Clients
Federated meets the needs of approximately 3,031 institutional clients nationwide by
managing and servicing separate accounts and mutual funds for a variety of purposes,
including defined benefit and defined contribution programs, cash management, and
asset/liability management. Institutional clients include corporations, pension
funds, tax exempt entities, foundations/endowments, insurance companies, and
investment and financial advisers. The marketing effort to these institutional
clients is headed by John B. Fisher, President, Institutional Sales Division,
Federated Securities Corp.

Bank Marketing
Other institutional clients include more than 1,600 banks and trust organizations.
Virtually all of the trust divisions of the top 100 bank holding companies use
Federated Funds in their clients' portfolios. The marketing effort to trust clients
is headed by Timothy C. Pillion, Senior Vice President, Bank Marketing & Sales.

Broker/Dealers and Bank Broker/Dealer Subsidiaries
Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,000 broker/dealer and bank broker/dealer relationships
across the country--supported by more wholesalers than any other mutual fund
distributor. Federated's service to financial professionals and institutions has
earned it high ratings in several surveys performed by DALBAR, Inc. DALBAR is
recognized as the industry benchmark for service quality measurement. The marketing
effort to these firms is headed by James F. Getz, President, Broker/Dealer Sales
Division, Federated Securities Corp.

FINANCIAL INFORMATION

The Financial Statements for the Fund for the fiscal year ended March 31, 2001 are
incorporated herein by reference to the Annual Report to Shareholders of Federated
Fund for U.S. Government Securities, Inc. dated March 31, 2001.

INVESTMENT RATINGS

Standard and Poor's Long-Term Debt Rating Definitions
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's. Capacity to
pay interest and repay principal is extremely strong.

AA--Debt rated AA has a very strong capacity to pay interest and repay principal and
differs from the higher-rated issues only in small degree.

A--Debt rated A has a strong capacity to pay interest and repay principal although it
is somewhat more susceptible to the adverse effects of changes in circumstances and
economic conditions than debt in higher-rated categories.

BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this category than in
higher-rated categories.

BB--Debt rated BB has less near-term vulnerability to default than other speculative
issues. However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to inadequate capacity
to meet timely interest and principal payments. The BB rating category is also used
for debt subordinated to senior debt that is assigned an actual or implied BBB rating.

B--Debt rated B has a greater vulnerability to default but currently has the capacity
to meet interest payments and principal repayments. Adverse business, financial, or
economic conditions will likely impair capacity or willingness to pay interest and
repay principal. The B rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied BB or BB- rating.

CCC--Debt rated CCC has a currently identifiable vulnerability to default, and is
dependent upon favorable business, financial, and economic conditions to meet timely
payment of interest and repayment of principal. In the event of adverse business,
financial, or economic conditions, it is not likely to have the capacity to pay
interest and repay principal. The CCC rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied B or B- rating.

CC--The rating CC typically is applied to debt subordinated to senior debt that is
assigned an actual or implied CCC debt rating.

C--The rating C typically is applied to debt subordinated to senior debt which is
assigned an actual or implied CCC debt rating. The C rating may be used to cover a
situation where a bankruptcy petition has been filed, but debt service payments are
continued.

Moody's Investors Service Long-Term Bond Rating Definitions
AAA--Bonds which are rated AAA are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as gilt edged.
Interest payments are protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the fundamentally strong
position of such issues.

AA--Bonds which are rated AA are judged to be of high quality by all standards.
Together with the AAA group, they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection may not
be as large as in AAA securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the long-term
risks appear somewhat larger than in AAA securities.

A--Bonds which are rated A possess many favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security to principal
and interest are considered adequate but elements may be present which suggest a
susceptibility to impairment sometime in the future.

BAA--Bonds which are rated BAA are considered as medium-grade obligations, (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective elements
may be lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have speculative
characteristics as well.

BA--Bonds which are BA are judged to have speculative elements; their future cannot
be considered as well assured. Often the protection of interest and principal
payments may be very moderate and thereby not well safeguarded during both good and
bad times over the future. Uncertainty of position characterizes bonds in this class.

B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of other
terms of the contract over any long period of time may be small.

CAA--Bonds which are rated CAA are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.

CA--Bonds which are rated CA represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.

C--Bonds which are rated C are the lowest-rated class of bonds, and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.

Fitch IBCA, Inc. Long-Term Debt Rating Definitions
AAA--Bonds considered to be investment grade and of the highest credit quality. The
obligor has an exceptionally strong ability to pay interest and repay principal,
which is unlikely to be affected by reasonably foreseeable events.

AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although not
quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA categories
are not significantly vulnerable to foreseeable future developments, short-term debt
of these issuers is generally rated F-1+.

A--Bonds considered to be investment grade and of high credit quality. The obligor's
ability to pay interest and repay principal is considered to be strong, but may be
more vulnerable to adverse changes in economic conditions and circumstances than
bonds with higher ratings.

BBB--Bonds considered to be investment grade and of satisfactory credit quality. The
obligor's ability to pay interest and repay principal is considered to be adequate.
Adverse changes in economic conditions and circumstances, however, are more likely to
have adverse impact on these bonds, and therefore impair timely payment. The
likelihood that the ratings of these bonds will fall below investment grade is higher
than for bonds with higher ratings.

BB--Bonds are considered speculative. The obligor's ability to pay interest and repay
principal may be affected over time by adverse economic changes. However, business
and financial alternatives can be identified which could assist the obligor in
satisfying its debt service requirements.

B--Bonds are considered highly speculative. While bonds in this class are currently
meeting debt service requirements, the probability of continued timely payment of
principal and interest reflects the obligor's limited margin of safety and the need
for reasonable business and economic activity throughout the life of the issue.

CCC--Bonds have certain identifiable characteristics which, if not remedied, may lead
to default. The ability to meet obligations requires an advantageous business and
economic environment.

CC--Bonds are minimally protected. Default in payment of interest and/or principal
seems probable over time.

C--Bonds are imminent default in payment of interest or principal.

Moody's Investors Service Commercial Paper Ratings
Prime-1--Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics:

o Leading market positions in well-established industries;

o High rates of return on funds employed;

o Conservative capitalization structure with moderate reliance on debt and ample
asset protection;

o Broad margins in earning coverage of fixed financial charges and high internal
cash generation; and

o Well-established access to a range of financial markets and assured sources of
alternate liquidity.

Prime-2--Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.

Standard and Poor's Commercial Paper Ratings
A-1--This designation indicates that the degree of safety regarding timely payment is
strong. Those issues determined to possess extremely strong safety characteristics
are denoted with a plus sign (+) designation.

A-2--Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated A-1.

Fitch IBCA, Inc. Commercial Paper Rating Definitions
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as having
the strongest degree of assurance for timely payment.

FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance of timely
payment only slightly less in degree than the strongest issues.

ADDRESSES

FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES, INC.

Class A Shares

Class B Shares

Class C Shares

Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000

Distributor
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Investment Adviser
Federated Investment Management Company
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Custodian
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600

Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600

Independent Auditors
Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116

PART C. OTHER INFORMATION

Item 23. Exhibits:
--------

(a) Conformed copy of Restated Articles of Incorporation of the
Registrant; (17)
(i) Conformed copy of Amendment #17 to the Articles of Incorporation of the
Registrant; (17)
(ii) Conformed copy of Amendment #18 to the Articles of Incorporation of the
Registrant; (+)
(iii) Conformed copy of Amendment #19 to the Articles of Incorporation of the
Registrant; (+)
(iv) Conformed copy of Amendment #20 to the Articles of Incorporation of the
Registrant; (+)
(b) Copy of Restated By-Laws of the Registrant; (17)
(i) Amendment #11 to the By-Laws; (17)
(ii) Amendment #12 to the By-Laws; (17)
(iii) Amendment #13 to the By-Laws; (17)
(c) (i) Copy of Specimen Certificate for Class A Shares of
Capital Stock of the Registrant; (12)
(ii) Copy of Specimen Certificate for Class B Shares of
Capital Stock of the Registrant; (12)
(iii) Copy of Specimen Certificate for Class C Shares of
Capital Stock of the Registrant; (12)
(d) Conformed copy of Investment Advisory Contract of the Registrant;
(8)
(e) (i) Conformed copy of Distributor's Contract of the
Registrant; (12)
(ii) Conformed copy of Class B Distributor's Contract; (16)
(iii) The Registrant hereby incorporates the conformed copy of
the specimen Mutual Funds Sales and Service Agreement; Mutual
Funds Service Agreement; and Plan Trustee/Mutual Funds
Service Agreement from Item 24(b)(6) of the Cash Trust Series II
Registration Statement on Form N-1A, filed with the Commission on
July 24, 1995. (File Numbers 33-38550 and 811-6269)
(f) Not applicable;
(g) (i) Conformed copy of Custodian Agreement of the
Registrant; (13)
(ii) Conformed copy of Custody Fee Schedule; (16)
--------------------------------------------------------------------------------
+ All exhibits have been filed electronically.
8. Response is incorporated by reference to Registrant's Post-Effective Amendment No. 49
filed on July 28, 1989. (File Nos. 2-33490 and 811-1890)
12. Response is incorporated by reference to Registrant's Post-Effective Amendment No. 60
filed on May 25, 1994. (File Nos. 2-33490 and 811-1890)
13. Response is incorporated by reference to Registrant's Post-Effective Amendment No. 63
filed on May 25, 1995. (File Nos. 2-33490 and 811-1890)
16. Response is incorporated by reference to Registrant's Post-Effective Amendment No. 68
filed on May 26, 1998. (File Nos. 2-33490 and 811-1890)
17. Response is incorporated by reference to Registrant's Post-Effective Amendment No.
69 filed on March 29, 1999. (File Nos. 2-33490 and 811-1890)

(h) (i) Conformed copy of Agreement for Fund Accounting Services,
Administrative Services, Shareholder Transfer Agency Services
and Custody Services Procurement; (14)
(ii) The responses described in Item 23(e)(iii) are hereby
incorporated by reference.
(iii) Conformed copy of Amended and Restated Shareholder Services Agreement; (16)
(iv) Conformed copy of Class B Shareholder Services Agreement; (16)
(v) Conformed copy of Class B Principal Shareholder Services
Agreement; (16)
(vi) The Registrant hereby incorporates the conformed
copy of the Shareholder Services Sub-Contract between
Fidelity and Federated Shareholder Services from Item
24(b)(9)(iii) of the Federated GNMA Trust Registration
Statement on Form N-1A, filed with the Commission on
March 26, 1996. (File Nos. 2-75670 and 811-3375).
(i) Conformed copy of Opinion as to Legality of Shares Being
Registered; (13)
(j) Conformed copy of Consent of Independent Auditors; +
(k) Not applicable;
(l) Not applicable;
(m) (i) Conformed copy of Distribution Plan of the Registrant;
(13)
(ii) Conformed copy of Exhibit 1, Amendment to the Distribution
Plan of the Registrant (Class B Shares); (16)
(iii) The responses described in Item 23(e)(iii) are hereby
incorporated by reference.
(n) The Registrant hereby incorporates the conformed copy of the
Multiple Class Plan from Item (n) of the Federated
American Leaders Fund, Inc. Registration Statement on
Form N-1A, filed with the Commission on May 25, 2001.
(File Nos. 2-29786 and 811-1704).
(o) Conformed copy of Power of Attorney; (19)
(i) Conformed copy of Power of Attorney of Chief
Investment Officer of the Registrant; (19)
---------------------------------------------------------------------------------------
+ All exhibits have been filed electronically.
13. Response is incorporated by reference to Registrant's Post-Effective Amendment No. 63
filed on May 25, 1995. (File Nos. 2-33490 and 811-1890)
14. Response is incorporated by reference to Registrant's Post-Effective Amendment No. 65
filed on May 24, 1996. (File Nos. 2-33490 and 811-1890)
16. Response is incorporated by reference to Registrant's Post-Effective Amendment No. 68
filed on May 26, 1998. (File Nos. 2-33490 and 811-1890)
19. Response is incorporated by reference to Registrant's Post-Effective Amendment No. 70
filed on May 15, 2000. (File Nos. 2-33490 and 811-1890)

(p) The Registrant hereby incorporates the conformed copy of the
Code of Ethics for Access Persons from Item 23(p) of the
Federated Managed Allocation Portfolios Registration
Statement on Form N-1A filed with the Commission on January
25, 2001. (File Nos. 33-51247 and 811-7129).

Item 24. Persons Controlled by or Under Common Control with Registrant:
--------------------------------------------------------------

None.

Item 25. Indemnification: (10)
---------------

Item 26. Business and Other Connections of Investment Adviser:
----------------------------------------------------

For a description of the other business of the investment adviser, see the
section entitled "Who Manages the Fund?" in Part A. The affiliations with
the Registrant of four of the Trustees and one of the Officers of the
investment adviser are included in Part B of this Registration Statement
under "Who Manages and Provides Services to the Fund?" The remaining
Trustees of the investment adviser and, in parentheses, their principal
occupations are: Thomas R. Donahue, (Chief Financial Officer, Federated
Investors, Inc.), 1001 Liberty Avenue, Pittsburgh, PA, 15222-3779 and Mark
D. Olson (a principal of the firm Mark D. Olson & Company, L.L.C. and
Partner, Wilson, Halbrook & Bayard, P.A.), Suite 301 Little Falls Center
Two, 2751 Centerville Road, Wilmington, DE 19808.

The remaining Officers of the investment adviser are:

Executive Vice Presidents: William D. Dawson, III
Henry A. Frantzen
J. Thomas Madden

Senior Vice Presidents: Stephen F. Auth
Joseph M. Balestrino
David A. Briggs
Jonathan C. Conley
Deborah A. Cunningham
Michael P. Donnelly
Linda A. Duessel
Mark E. Durbiano
James E. Grefenstette
Jeffrey A. Kozemchak
Sandra L. McInerney
Susan M. Nason
Mary Jo Ochson
Robert J. Ostrowski
Bernard A. Picchi
Peter Vutz

Vice Presidents: Todd A. Abraham
J. Scott Albrecht
Arthur J. Barry
Randall S. Bauer
Nancy J.Belz
G. Andrew Bonnewell
Micheal W. Casey
Robert E. Cauley
Fred B. Crutchfield
------------------------------------------------------------------------
10. Response is incorporated by reference to Registrant's Post-Effective Amendment No.
55 filed on July 23, 1992. (File Nos. 2-33490 and 811-1890)

Lee R. Cunningham, II
Alexandre de Bethmann
B. Anthony Delserone, Jr.
Donald T. Ellenberger
Eamonn G. Folan
Kathleen M. Foody-Malus
Thomas M. Franks
Marc Halperin
John W. Harris
Patricia L. Heagy
Susan R. Hill
William R. Jamison
Constantine J. Kartsonas
Nathan H. Kehm
John C. Kerber
Robert M. Kowit
Richard J. Lazarchic
Steven J. Lehman
Marian R. Marinack
Christopher Matyszewski
Natalie F. Metz
Joseph M. Natoli
Jeffrey A. Petro
John Quartarolo
Keith J. Sabol
Ihab Salib
Frank Semack
Aash M. Shah
Michael W. Sirianni, Jr.
Christopher Smith
Timothy G. Trebilcock
Leonardo A. Vila
Paige M. Wilhelm
Richard Winkowski
Lori A. Wolff
George B. Wright

Assistant Vice Presidents: Catherine A. Arendas
Angela Auchey
Nancy J. Belz
Regina Chi
Ross M. Cohen
James R. Crea, Jr.
Karol M. Crummie
Fred B. Crutchfield
James H. Davis, II
Joseph DelVecchio
Paul S. Drotch
Salvatore A. Esposito
John T. Gentry
David Gilmore
Nikola A. Ivanov
Carol Kayworth
Nathan H. Kehm
John C. Kerber
J. Andrew Kirschler
Ted T. Lietz, Sr.
Monica Lugani
Natalie F. Metz
Theresa Miller
Thomas Mitchell
Bob Nolte
Mary Kay Pavuk
Rae Ann Rice
Roberto Sanchez-Dahl, Sr.
Sarath Sathkumara
James W. Schaub
Jennifer G. Setzenfand
John Sidawi
Diane R. Startari
Diane Tolby
Peter Tropaitis
Michael R. Tucker
Steven J. Wagner

Secretary: G. Andrew Bonnewell

Treasurer: Thomas R. Donahue

Assistant Secretaries: C. Grant Anderson
Leslie K. Ross

Assistant Treasurer: Denis McAuley, III

The business address of each of the Officers of the investment adviser is
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, Pennsylvania
15222-3779. These individuals are also officers of a majority of the
investment advisers to the investment companies in the Federated Fund
Complex described in Part B of this Registration Statement.

Item 27. Principal Underwriters:
-----------------------

(a) Federated Securities Corp. the Distributor for shares of the
Registrant, acts as principal underwriter for the following
open-end investment companies, including the Registrant:

Cash Trust Series II; Cash Trust Series, Inc.; CCMI Funds; Edward D. Jones & Co.
Daily Passport Cash Trust; Federated Limited Duration Government Fund, Inc.;
Federated American Leaders Fund, Inc.; Federated ARMs Fund; Federated Core Trust;
Federated Equity Funds; Federated Equity Income Fund, Inc.; Federated Fixed Income
Securities, Inc.;
Federated Fund for U.S. Government Securities, Inc.; Federated GNMA Trust; Federated
Government Income Securities, Inc.; Federated High Income Bond Fund, Inc.; Federated
High Yield Trust; Federated Income Securities Trust; Federated Income Trust;
Federated Index Trust; Federated Institutional Trust; Federated Insurance Series;
Federated International Series, Inc.; Federated Investment Series Funds, Inc.;
Federated Managed Allocation Portfolios; Federated Municipal Opportunities Fund,
Inc.; Federated Municipal Securities Fund, Inc.; Federated Municipal Securities
Income Trust; Federated Short-Term Municipal Trust; Federated Stock and Bond Fund,
Inc.; Federated Stock Trust; Federated Total Return Series, Inc.; Federated U.S.
Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years; Federated
U.S. Government Securities Fund: 2-5 Years; Federated Total Return Government Bond
Fund; Federated Utility Fund, Inc.; Federated World Investment Series, Inc.;
FirstMerit Funds; Hibernia Funds; Independence One Mutual Funds; Intermediate
Municipal Trust; Marshall Funds, Inc.; Money Market Obligations Trust; Regions Funds;
RIGGS Funds; SouthTrust Funds; Wachovia Variable Insurance Funds; The Wachovia Funds;
The Wachovia Municipal Funds; and Vision Group of Funds, Inc.

(b)

(1) (2) (3)
Positions and Offices Positions and Offices
With Distributor Name With Registrant
--------------------- ------------------ ---------------------

Chairman: Richard B. Fisher Vice President

Director: Arthur L. Cherry

President-Institutional
Sales and Director: John B. Fisher

Director, Executive Vice
Vice President and Assistant
Secretary: Thomas R. Donahue

President-Broker/Dealer
And Director: James F. Getz

Executive Vice President: David M. Taylor

Senior Vice Presidents:
Mark W. Bloss
Richard W. Boyd
Laura M. Deger
Peter W. Eisenbrandt
Theodore Fadool, Jr.
Bryant R. Fisher
Christopher T. Fives
James S. Hamilton
James M. Heaton
Keith Nixon
Solon A. Person, IV
Ronald M. Petnuch
Timothy C. Pillion
Thomas E. Territ

Vice Presidents: Ernest G. Anderson
Teresa M. Antoszyk
John B. Bohnet
Jane E. Broeren-Lambesis
David J. Callahan
Mark Carroll
Steven R. Cohen
Mary J. Combs
R. Edmond Connell, Jr.
Kevin J. Crenny
Daniel T. Culbertson
G. Michael Cullen
Marc C. Danile
Robert J. Deuberry
William C. Doyle
Timothy Franklin
Joseph D. Gibbons
John K. Goettlicher
G. Tad Gullickson
Scott Gundersen
Dayna C. Haferkamp
Raymond J. Hanley
Anthony J. Harper
Victor L. Harper, Jr.
Bruce E. Hastings
Charlene H. Jennings
H. Joseph Kennedy
Michael W. Koenig
Ed Koontz
Dennis M. Laffey
Christopher A. Layton
Michael H. Liss
Michael R. Manning
Martin J. McCaffrey
Maurice W. McKinney
Amy Michalisyn
Mark J. Miehl
Richard C. Mihm
Vincent T. Morrow
Alec H. Neilly
Thomas A. Peter III
Raleigh Peters
Robert F. Phillips
Richard A. Recker
Eugene B. Reed
Paul V. Riordan
John Rogers
Brian S. Ronayne
Thomas S. Schinabeck
Edward J. Segura
Edward L. Smith
David W. Spears
John A. Staley
Colin B. Starks
Jeffrey A. Stewart
William C. Tustin
Paul A. Uhlman
Richard B. Watts
G. Walter Whalen
Terence Wiles
Edward J. Wojnarowski
Michael P. Wolff
Scott F. Wright

Assistant Vice Presidents: Robert W. Bauman
Edward R. Bozek
Charles L. Davis, Jr.
Beth C. Dell
Donald C. Edwards
Jennifer Fetteroff
John T. Glickson
Ernest L. Linane
Renee L. Martin
Lynn Sherwood-Long

Secretary: Kirk A. Montgomery

Treasurer: Denis McAuley, III

Assistant Secretaries: Timothy S. Johnson
Victor R. Siclari

The business address of each of the Officers of Federated Securities Corp. is
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, Pennsylvania 15222-3779.

(c)Not applicable

Item 28. Location of Accounts and Records:
--------------------------------

All accounts and records required to be maintained by Section 31(a) of the Investment
Company Act of 1940 and Rules 31a-1 through 31a-3 promulgated thereunder are maintained at
one of the following locations:

Registrant Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
(Notices should be sent to the Agent for Service
at above address)

Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000

Federated Shareholder P.O. Box 8600
Services Company Boston, MA 02266-8600
("Transfer Agent and Dividend
Disbursing Agent")

Federated Services Company Federated Investors Tower
("Administrator") 1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Federated Investment Management Federated Investors Tower
Company 1001 Liberty Avenue
("Adviser") Pittsburgh, PA 15222-3779

State Street Bank and Trust Company P.O. Box 8600
("Custodian") Boston, MA 02266-8604

Item 29. Management Services: Not applicable.
-------------------

Item 30. Undertakings:
------------

Registrant hereby undertakes to comply with the provisions of Section 16(c) of
the 1940 Act with respect to the removal of Directors and the calling of
special shareholder meetings by shareholders.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant, FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES,
INC., certifies that it meets all of the requirements for effectiveness of this
Amendment to its Registration Statement pursuant to Rule 485(b) under the Securities
Act of 1933 and has duly caused this Amendment to its Registration Statement to be
signed on its behalf by the undersigned, thereto duly authorized, in the City of
Pittsburgh and Commonwealth of Pennsylvania, on the 29th day of May, 2001.

FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES, INC.

BY: /s/ C. Grant Anderson
C. Grant Anderson, Assistant Secretary
Attorney in Fact for John F. Donahue
May 29, 2001

Pursuant to the requirements of the Securities Act of 1933, this Amendment to its
Registration Statement has been signed below by the following person in the capacity
and on the date indicated:

NAME TITLE DATE
---- ----- ----

By: /s/C. Grant Anderson Attorney In Fact May 29, 2001
C. Grant Anderson For the Persons
ASSISTANT SECRETARY Listed Below

NAME TITLE

John F. Donahue* Chairman and Director
(Chief Executive Officer)

J. Christopher Donahue* President and Director

William D. Dawson, III* Chief Investment Officer

Richard J. Thomas* Treasurer (Principal Financial
and Accounting Officer)

Thomas G. Bigley* Director

John T. Conroy, Jr.* Director

Nicholas P. Constantakis* Director

John F. Cunningham* Director

Lawrence D. Ellis, M.D.* Director

Peter E. Madden* Director

Charles F. Mansfield, Jr. * Director

John E. Murray, Jr., J.D., S.J.D.* Director

Marjorie P. Smuts* Director

John S. Walsh* Director

* By Power of Attorney