- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
(FORMERLY, FEDERATED INTERMEDIATE GOVERNMENT TRUST)
INSTITUTIONAL SHARES
PROSPECTUS
The Institutional Shares offered by this prospectus represent interests in a
diversified portfolio of securities of Federated U.S. Government Securities
Fund: 2-5 Years (formerly, Federated Intermediate Government Trust) (the
"Trust"). The Trust is an open-end management investment company (a mutual
fund).
The investment objective of the Trust is to provide current income. The Trust
pursues this investment objective by investing in U.S. government securities
with remaining maturities of five years or less. Institutional Shares are sold
at net asset value.
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 BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before you
invest in the Trust. Keep this prospectus for future reference.
The Trust has also filed a Statement of Additional Information for Institutional
Shares and Institutional Service Shares dated March 31, 1996, with the
Securities and Exchange Commission. The information contained in the Statement
of Additional Information is incorporated by reference into this prospectus. You
may request a copy of the Statement of Additional Information or a paper copy of
this prospectus, if you have received your prospectus electronically, free of
charge by calling 1-800-235-4669. To obtain other information or to make
inquiries about the Trust, contact the Trust at the address listed in the back
of this prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated March 31, 1996
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF TRUST EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
INSTITUTIONAL SHARES 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Investment Limitations 4
TRUST INFORMATION 5
- ------------------------------------------------------
Management of the Trust 5
Distribution of Institutional Shares 6
Administration of the Trust 6
NET ASSET VALUE 7
- ------------------------------------------------------
INVESTING IN INSTITUTIONAL SHARES 7
- ------------------------------------------------------
Share Purchases 7
Minimum Investment Required 8
What Shares Cost 8
Exchanging Securities for Trust Shares 8
Certificates and Confirmations 8
Dividends 8
Capital Gains 9
REDEEMING INSTITUTIONAL SHARES 9
- ------------------------------------------------------
Telephone Redemption 9
Written Requests 9
Accounts with Low Balances 10
SHAREHOLDER INFORMATION 10
- ------------------------------------------------------
Voting Rights 10
TAX INFORMATION 11
- ------------------------------------------------------
Federal Income Tax 11
State and Local Taxes 11
PERFORMANCE INFORMATION 11
- ------------------------------------------------------
OTHER CLASSES OF SHARES 12
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
INSTITUTIONAL SERVICE SHARES 13
- ------------------------------------------------------
FINANCIAL STATEMENTS 14
- ------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 23
- ------------------------------------------------------
ADDRESSES 24
- ------------------------------------------------------
SUMMARY OF TRUST EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)........ None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage
of offering price)................................................................. None
Contingent Deferred Sales Charge (as a percentage of original purchase price
or redemption proceeds, as applicable)............................................. None
Redemption Fee (as a percentage of amount redeemed, if applicable)................... None
Exchange Fee......................................................................... None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee....................................................................... 0.40%
12b-1 Fee............................................................................ None
Total Other Expenses................................................................. 0.14%
Shareholder Services Fee (after waiver)(1).............................. 0.00%
Total Operating Expenses(2)................................................ 0.54%
</TABLE>
(1) The maximum shareholder services fee is 0.25%.
(2) The total operating expenses would have been 0.79% absent the voluntary
waiver of a portion of the shareholder services fee.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Institutional Shares of the
Trust will bear, either directly or indirectly. For more complete descriptions
of the various costs and expenses, see "Trust Information" and "Investing in
Institutional Shares." Wire-transferred redemptions of less than $5,000 may be
subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------- ------- -------- -------- ---------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000
investment, assuming (1) 5% annual return and
(2) redemption at the end of each time
period....................................... $ 6 $ 17 $ 30 $68
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
(FORMERLY, FEDERATED INTERMEDIATE GOVERNMENT TRUST)
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-----------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
-------- -------- -------- -------- -------- -------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET
VALUE,
BEGINNING OF
PERIOD $10.11 $10.78 $10.61 $10.25 $ 9.87 $ 9.59 $ 9.42 $ 9.88 $10.25 $10.02
- ------------
INCOME FROM
INVESTMENT
OPERATIONS
- ------------
Net
investment
income 0.64 0.54 0.46 0.57 0.71 0.75 0.79* 0.81 0.80 0.86
- ------------
Net
realized
and
unrealized
gain (loss)
on
investments 0.63 (0.67) 0.17 0.36 0.38 0.28 0.17* (0.46) (0.28) 0.29
- ------------ ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total from
investment
operations 1.27 (0.13) 0.63 0.93 1.09 1.03 0.96 0.35 0.52 1.15
- ------------
LESS
DISTRIBUTIONS
- ------------
Dividends
from net
investment
income (0.64) (0.54) (0.46) (0.57) (0.71) (0.75) (0.79) (0.81) (0.80) (0.86)
- ------------
Distributions
from net
realized gain
on
investment
transactions -- -- -- -- -- -- -- -- (0.09) (0.06)
- ------------ ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total
distributions (0.64) (0.54) (0.46) (0.57) (0.71) (0.75) (0.79) (0.81) (0.89) (0.92)
- ------------ ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
NET ASSET
VALUE, END
OF PERIOD $10.74 $10.11 $10.78 $10.61 $10.25 $ 9.87 $ 9.59 $ 9.42 $ 9.88 $10.25
- ------------ ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
TOTAL RETURN
(A) 12.86% (1.18)% 6.07% 9.37% 11.44% 11.18% 10.52% 3.66% 5.53% 11.98%
- ------------
RATIOS TO
AVERAGE
NET ASSETS
- ------------
Expenses 0.54% 0.54% 0.52% 0.50% 0.50% 0.51% 0.51% 0.47% 0.45% 0.45%
- ------------
Net
investment
income 6.07% 5.16% 4.30% 5.52% 7.08% 7.75% 8.26% 8.37% 8.18% 8.37%
- ------------
Expense
waiver/reimbursement
(b) 0.25% 0.02% -- -- -- -- -- 0.03% 0.03% 0.04%
- ------------
SUPPLEMENTAL
DATA
- ------------
Net assets,
end of
period (000
omitted) $871,966 $731,280 $951,528 $845,620 $779,686 $791,131 $959,728 $1,246,393 $1,534,501 $1,859,687
- ------------
Portfolio
turnover 117% 163% 131% 85% 108% 60% 166% 82% 70% 49%
- ------------
</TABLE>
* The effect on the 1990 per share data as a result of the Trust's change in
recording interest income to include amortization of market discounts and
premiums was to increase investment income by $0.05 per share and decrease
net realized and unrealized gain on investments by a corresponding amount.
(a) Based on net asset value which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Further information about the Trust's performance is contained in the Trust's
annual report for the fiscal year ended January 31, 1996, which can be obtained
free of charge.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated December 10, 1981. On April 13, 1995, the Board of Trustees
changed the name of the Trust from Federated Intermediate Government Trust to
Federated U.S. Government Securities Fund: 2-5 Years. The Declaration of Trust
permits the Trust to offer separate series of shares of beneficial interest
representing interests in separate portfolios of securities. The shares in any
one portfolio may be offered in separate classes. As of the date of this
prospectus, the Board of Trustees (the "Trustees") has established two classes
of shares of the Trust, known as Institutional Shares and Institutional Service
Shares. This prospectus relates only to Institutional Shares of the Trust.
Institutional Shares ("Shares") of the Trust are sold primarily to accounts for
which financial institutions act in a fiduciary or agency capacity as a
convenient means of accumulating an interest in a professionally managed,
diversified portfolio of U.S. government securities. A minimum initial
investment of $25,000 over a 90-day period is required.
Shares are currently sold and redeemed at net asset value without a sales charge
imposed by the Trust.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Trust is current income. The Trust pursues this
investment objective by investing in U.S. government securities with remaining
maturities of five years or less. As a matter of operating policy, which may be
changed without shareholder approval, the dollar-weighted average maturity of
the portfolio will not be less than two years nor more than five years. While
there is no assurance that the Trust will achieve its investment objective, it
endeavors to do so by following the investment policies described in this
prospectus. The investment objective and the policies and limitations described
below cannot be changed without approval of shareholders.
INVESTMENT POLICIES
ACCEPTABLE INVESTMENTS. The U.S. government securities in which the Trust
invests are either issued or guaranteed by the U.S. government, its agencies, or
instrumentalities. The prices of fixed income securities fluctuate inversely to
the direction of interest rates. The securities in which the Trust may invest
are limited to:
- direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds; and
- notes, bonds, and discount notes of U.S. government agencies or
instrumentalities, such as the: Farm Credit System, including the
National Bank for Cooperatives, Farm Credit Banks, and Banks for
Cooperatives; Farmers Home Administration; Federal Home Loan Banks;
Federal Home Loan Mortgage Corporation; Federal National Mortgage
Association; Government National Mortgage Association; and Student Loan
Marketing Association.
Some obligations issued or guaranteed by agencies or instrumentalities of the
U.S. government, such as Government National Mortgage Association participation
certificates, are backed by the full faith and
credit of the U.S. Treasury. No assurances can be given that the U.S. government
will provide financial support to other agencies or instrumentalities, since it
is not obligated to do so. These instrumentalities are supported by:
- the issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;
- discretionary authority of the U.S. government to purchase certain
obligations of an agency or instrumentality; or
- the credit of the agency or instrumentality.
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell U.S. government
securities or other securities to the Trust and agree at the time of sale to
repurchase them at a mutually agreed upon time and price. To the extent that the
original seller does not repurchase the securities from the Trust, the Trust
could receive less than the repurchase price on any sale of such securities.
As a matter of investment practice, which can be changed without shareholder
approval, the Trust will not invest more than 10% of its total assets in
securities which are illiquid, including repurchase agreements providing for
settlement in more than seven days after notice.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Trust may purchase U.S.
government securities on a when-issued or delayed delivery basis. These
transactions are arrangements in which the Trust purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Trust to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchase may vary from the purchase prices. Accordingly, the Trust may pay more
or less than the market value of the securities on the settlement date.
The Trust may dispose of a commitment prior to settlement if the Trust's adviser
deems it appropriate to do so. In addition, the Trust may enter into
transactions to sell its purchase commitments to third parties at current market
values and simultaneously acquire other commitments to purchase similar
securities at later dates. The Trust may realize short-term profits or losses
upon the sale of such commitments.
PORTFOLIO TURNOVER. The Trust conducts portfolio transactions to accomplish its
investment objective as interest rates change, to invest new money obtained from
selling its shares, and to meet redemption requests. The Trust may dispose of
portfolio securities at any time if it appears that selling the securities will
help the Trust achieve its investment objective.
INVESTMENT LIMITATIONS
The Trust will not borrow money or pledge securities except, under certain
circumstances, the Trust may borrow up to one-third of the value of its total
assets and pledge up to 10% of the value of those assets to secure such
borrowings.
TRUST INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees
are responsible for managing the Trust's business affairs and for exercising all
the Trust's powers except those reserved for the shareholders. The Executive
Committee of the Board of Trustees handles the Board's responsibilities between
meetings of the Board.
INVESTMENT ADVISER. Investment decisions for the Trust are made by Federated
Management, the Trust's investment adviser, subject to direction by the
Trustees. The Adviser continually conducts investment research and supervision
for the Trust and is responsible for the purchase and sale of portfolio
instruments, for which it receives an annual fee from the Trust.
ADVISORY FEES. The Trust's Adviser receives an annual investment advisory
fee equal to .40 of 1% of the Trust's average daily net assets. The Adviser
has also undertaken to reimburse the Trust for operating expenses in excess
of limitations established by certain states. This does not include
reimbursement to the Trust of any expenses incurred by shareholders who use
the transfer agent's subaccounting facilities.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940.
It is a subsidiary of Federated Investors. All of the Class A (voting)
shares of Federated Investors are owned by a trust, the trustees of which
are John F. Donahue, Chairman and Trustee of Federated Investors, Mr.
Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is
President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. With over $80 billion invested across
more than 250 funds under management and/or administration by its
subsidiaries, as of December 31, 1995, Federated Investors is one of the
largest mutual fund investment managers in the United States. With more
than 1,800 employees, Federated continues to be led by the management who
founded the company in 1955. Federated funds are presently at work in and
through 4,000 financial institutions nationwide. More than 100,000
investment professionals have selected Federated funds for their clients.
The Trust and the adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Trust and its portfolio securities.
These codes recognize that such persons owe a fiduciary duty to the Trust's
shareholders and must place the interests of shareholders ahead of the
employees' own interest. Among other things, the codes: require
preclearance and periodic reporting of personal securities transactions;
prohibit personal transactions in securities being purchased or sold, or
being considered for purchase or sale, by the Trust; prohibit purchasing
securities in initial public offerings; and prohibit taking profits on
securities held for less than sixty days. Violations of the codes are
subject to review by the Board of Trustees and could result in severe
penalties.
Susan M. Nason has been the Trust's portfolio manager since 1991. Ms. Nason
joined Federated Investors in 1987 and has been a Vice President of the
Trust's investment adviser since 1993. Ms. Nason served as an Assistant
Vice President of the investment adviser from 1990 until 1992. Ms. Nason is
a Chartered Financial Analyst and received her M.S. in Industrial
Administration from Carnegie Mellon University.
Joseph M. Balestrino has been the Trust's co-portfolio manager since March
1995. Mr. Balestrino joined Federated Investors in 1986 and has been a Vice
President of the Trust's investment adviser since 1995. Mr. Balestrino
served as an Assistant Vice President of the investment adviser from 1991
to 1995. Mr. Balestrino is a Chartered Financial Analyst and received his
Master's Degree in Urban and Regional Planning from the University of
Pittsburgh.
DISTRIBUTION OF INSTITUTIONAL SHARES
Federated Securities Corp. is the principal distributor for Institutional
Shares. It is a Pennsylvania corporation organized on November 14, 1969, and is
the principal distributor for a number of investment companies. Federated
Securities Corp. is a subsidiary of Federated Investors.
State securities laws may require certain financial institutions such as
depository institutions to register as dealers.
ADMINISTRATION OF THE TRUST
ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of Federated
Investors, provides administrative personnel and services (including certain
legal and financial reporting services) necessary to operate the Trust.
Federated Services Company provides these at an annual rate, which relates to
the average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors ("Federated Funds"), as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE FEDERATED FUNDS
- --------------------- ----------------------------------
<S> <C>
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess of $750
million
</TABLE>
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 choose voluntarily to waive a portion of its fee.
SHAREHOLDER SERVICES. The Trust has entered into a Shareholder Services
Agreement with Federated Shareholder Services, a subsidiary of Federated
Investors, under which the Trust may make payments up to .25 of 1% of the
average daily net asset value of the Institutional Shares, computed at an annual
rate, to obtain certain personal services for shareholders and to maintain
shareholder accounts. From time to time and for such periods as deemed
appropriate, the amount stated above may be reduced voluntarily. Under the
Shareholder Services Agreement, Federated Shareholder Services will either
perform shareholder services directly or will select financial institutions to
perform shareholder services. Financial institutions will receive fees based
upon Shares owned by their clients or customers.
The schedules of such fees and the basis upon which such fees will be paid will
be determined from time to time by the Trust and Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made
pursuant to the Shareholder Services Agreement, Federated Securities Corp. and
Federated Shareholder Services, from their own assets, may pay financial
institutions supplemental fees for the performance of substantial sales
services, distribution-related support services, or shareholder services. The
support may include sponsoring sales, educational and training seminars for
their employees, providing sales literature, and engineering computer software
programs that emphasize the attributes of the Trust. Such assistance will be
predicated upon the amount of Shares the financial institution sells or may
sell, and/or upon the type and nature of sales or marketing support furnished by
the financial institution. Any payments made by the distributor may be
reimbursed by the Trust's investment adviser or its affiliates.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Trust's net asset value per Share fluctuates. The net asset value for Shares
is determined by adding the interest of Shares in the market value of all
securities and other assets of the Trust, subtracting the interest of Shares in
the liabilities of the Trust and those attributable to Shares, and dividing the
remainder by the total number of Shares outstanding. The net asset value for
Shares may exceed that of Institutional Service Shares 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.
INVESTING IN INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange is open for
business. Shares may be purchased either by wire or mail.
To purchase Shares, open an account by calling Federated Securities Corp.
Information needed to establish the account will be taken over the telephone.
The Trust reserves the right to reject any purchase request.
BY WIRE. To purchase Shares by Federal Reserve wire, call the Trust before 4:00
p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern
time) on the next business day following the order. Federal funds should be
wired as follows: Federated Shareholder Services Company, c/o State Street Bank
and Trust Company, Boston, Massachusetts; Attention: EDGEWIRE; For Credit to:
Federated U.S. Government Securities Fund: 2-5 Years-Institutional Shares; Trust
Number (this number can be found on the account statement or by contacting the
Trust); Group Number or Order Number; Nominee or Institution Name; and ABA
Number 011000028. Shares cannot be purchased by wire on holidays when wire
transfers are restricted. Questions on wire purchases should be directed to your
shareholder services representative at the telephone number listed on your
account statement.
BY MAIL. To purchase Shares by mail, send a check made payable to Federated
U.S. Government Securities Fund: 2-5 Years-Institutional Shares to Federated
Shareholder Services Company, P.O. Box 8600, Boston, Massachusetts 02266-8600.
Orders by mail are considered received when payment by check is converted by
State Street Bank and Trust Company into federal funds. This is normally the
next business day after State Street Bank and Trust Company receives the check.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Shares is $25,000 plus any bank or broker's
fee, if applicable. However, an account may be opened with a smaller amount as
long as the $25,000 minimum is reached within 90 days. An institutional
investor's minimum investment will be calculated by combining all accounts it
maintains with the Trust. Accounts established through a bank or broker may be
subject to a different minimum investment.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Trust. Investors who purchase
Shares through a financial intermediary may be charged a service fee by that
financial intermediary.
The net asset value is determined as of the close of trading (normally 4:00 p.m.
Eastern time) on the New York Stock Exchange,Monday through Friday, except on:
(i) days on which there are not sufficient changes in the value of the Trust's
portfolio securities that its net asset value might be materially affected; (ii)
days during which no Shares are tendered for redemption and no orders to
purchase Shares are received; and (iii) the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
EXCHANGING SECURITIES FOR TRUST SHARES
Investors may exchange certain U.S. government securities or a combination of
securities and cash for Shares. The securities and cash must have a market value
of at least $25,000. The Trust reserves the right to determine the acceptability
of securities to be exchanged. Securities accepted by the Trust are valued in
the same manner as the Trust values its assets. Investors wishing to exchange
securities should first contact Federated Securities Corp.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Trust, Federated Shareholder Services Company
maintains a share account for each shareholder. Share certificates are not
issued unless requested by contacting the Trust.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during the
month.
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are declared just prior
to determining net asset value. If an order for Shares is placed on the
preceding business day, Shares purchased by wire begin earning dividends on the
business day wire payment is received by State Street Bank. If the order for
Shares and payment by wire are received on the same day, Shares begin earning
dividends on the next business day. Shares purchased by check begin earning
dividends on the business day after the
check is converted, upon instruction of the transfer agent, into federal funds.
Dividends are automatically reinvested on payment dates in additional Shares
unless cash payments are requested by contacting the Trust.
CAPITAL GAINS
Capital gains realized by the Trust, if any, are distributed at least once every
12 months.
REDEEMING INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
The Trust redeems Shares at their net asset value next determined after
Federated Shareholder Services Company receives the redemption request.
Investors who redeem Shares through a financial intermediary may be charged a
service fee by that financial intermediary. Redemptions will be made on days on
which the Trust computes its net asset value. Redemption requests must be
received in proper form and can be made by telephone request or by written
request.
TELEPHONE REDEMPTION
Shareholders may redeem their Shares by telephoning the Trust before 4:00 p.m.
(Eastern time). All proceeds will normally be wiretransferred the following
business day, but in no event more than seven days, to the shareholder's account
at a domestic commercial bank that is a member of the Federal Reserve System.
Proceeds from redemption requests received on holidays when wire transfers are
restricted will be wired the following business day. Questions about telephone
redemptions on days when wire transfers are restricted should be directed to
your shareholder services representative at the telephone number listed on your
account statement. If at any time the Trust shall determine it necessary to
terminate or modify this method of redemption, shareholders would be promptly
notified.
An authorization form permitting the Trust to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from Federated Securities Corp. Telephone redemption instructions may
be recorded. If reasonable procedures are not followed by the Trust, it may be
liable for losses due to unauthorized or fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as "Written Requests," should be considered.
WRITTEN REQUESTS
Shares may be redeemed in any amount by mailing a written request to: Federated
Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share
certificates have been issued, they should be sent unendorsed with the written
request by registered or certified mail to the address noted above.
SIGNATURES. Shareholders requesting a redemption of any amount to be sent to an
address other than that on record with the Trust, or a redemption payable other
than to the shareholder of record must have signatures on written redemption
requests guaranteed by:
- a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
- a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
- a savings bank or savings association whose deposits are insured by the
Savings Association Insurance Fund ("SAIF"), which is administered by the
FDIC; or
- any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Trust does not accept signatures guaranteed by a notary public.
The Trust and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Trust may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Trust and its transfer agent reserve the right
to amend these standards at any time without notice.
RECEIVING PAYMENT. Normally, a check for the proceeds is mailed within one
business day, but in no event more than seven days, after receipt of a proper
written redemption request.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Trust may
redeem Shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $25,000. This
requirement does not apply, however, if the balance falls below $25,000 because
of changes in the Trust's net asset value. Before Shares are redeemed to close
an account, the shareholder is notified in writing and allowed 30 days to
purchase additional Shares to meet the minimum requirement.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Trust gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
each portfolio in the Trust have equal voting rights except that in matters
affecting only a particular portfolio or class, only shares of that portfolio or
class are entitled to vote. As a Massachusetts business trust, the Trust is not
required to hold annual shareholder meetings. Shareholder approval will be
sought only for certain changes in the Trust's operation and for the election of
Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders for this purpose shall be called by the
Trustees upon the written request of shareholders owning at least 10% of the
outstanding shares of the Trust entitled to vote.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Trust will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions, including capital gains distributions,
received. This applies whether dividends and distributions are received in cash
or as additional shares.
STATE AND LOCAL TAXES
In the opinion of Houston, Houston & Donnelly, counsel to the Trust, Shares may
be subject to personal property taxes imposed by counties, municipalities, and
school districts in Pennsylvania to the extent that the portfolio securities in
the Trust would be subject to such taxes if owned directly by residents of those
jurisdictions.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Trust advertises its total return and yield for Shares.
Total return represents the change, over a specified period of time, in the
value of an investment in Shares of the Trust after reinvesting all income and
capital gains distributions. It is calculated by dividing that change by the
initial investment and is expressed as a percentage.
The yield of Shares of the Trust is calculated by dividing the net investment
income per Share (as defined by the Securities and Exchange Commission) earned
by Shares over a thirty day period by the offering price per share of Shares on
the last day of the period. This number is then annualized using semiannual
compounding. The yield does not necessarily reflect income actually earned by
Shares and, therefore, may not correlate to the dividends or other distributions
paid to shareholders.
Shares are sold without any sales charge or other similar non-recurring charges.
Total return and yield will be calculated separately for Institutional Shares
and Institutional Service Shares.
From time to time, advertisements for the Trust's Institutional Shares may refer
to ratings, rankings, and other information in certain financial publications
and/or compare the Trust's Institutional Shares performance to certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
The Trust also offers another class of shares called Institutional Service
Shares which are sold at net asset value primarily to retail and private banking
customers of financial institutions and are subject to a minimum initial
investment of $25,000 over a 90-day period.
Institutional Service Shares are distributed under a 12b-1 Plan adopted by the
Trust.
Institutional Service Shares and Institutional Shares are subject to certain of
the same expenses. Expense differences, however, between Institutional Service
Shares and Institutional Shares may affect the performance of each class.
To obtain more information and a prospectus for Institutional Service Shares,
investors may call 1-800-235-4669.
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
(FORMERLY, FEDERATED INTERMEDIATE GOVERNMENT TRUST)
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-------------------------------------------
1996 1995 1994 1993(A)
------- ------- ------- -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.11 $10.78 $10.61 $10.35
- -----------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------
Net investment income 0.61 0.51 0.44 0.34
- -----------------------------------------------
Net realized and unrealized gain (loss) on
investments 0.63 (0.67) 0.17 0.26
- ----------------------------------------------- ------ ------ ------ ------
Total from investment operations 1.24 (0.16) 0.61 0.60
- -----------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------
Distributions from net investment income (0.61) (0.51) (0.44) (0.34)
- ----------------------------------------------- ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $10.74 $10.11 $10.78 $10.61
- ----------------------------------------------- ------ ------ ------ ------
TOTAL RETURN (B) 12.58% (1.42)% 5.81% 5.84%
- -----------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------
Expenses 0.79% 0.79% 0.77% 0.75%*
- -----------------------------------------------
Net investment income 5.85% 5.00% 4.01% 5.13%*
- -----------------------------------------------
Expense waiver/reimbursement (c) 0.25% 0.21% - -
- -----------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------
Net assets, end of period (000 omitted) $32,317 $33,117 $30,763 $12,987
- -----------------------------------------------
Portfolio turnover 117% 163% 131% 85%
- -----------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from June 18, 1992 (date of initial
public investment) to January 31, 1993.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Further information about the Trust's performance is contained in the Trust's
annual report for the fiscal year ended January 31, 1996, which can be obtained
free of charge.
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
(FORMERLY, FEDERATED INTERMEDIATE GOVERNMENT TRUST)
PORTFOLIO OF INVESTMENTS
JANUARY 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------------------------------------------------------------- ------------
<C> <S> <C>
U.S. TREASURY NOTES--97.9%
- ---------------------------------------------------------------------------------
$15,000,000 8.750%, 10/15/1997 $ 15,922,500
-------------------------------------------------------------------
30,000,000 7.375%, 11/15/1997 31,226,100
-------------------------------------------------------------------
40,000,000 5.625%, 1/31/1998 40,522,400
-------------------------------------------------------------------
25,000,000 5.125%, 2/28/1998 25,085,750
-------------------------------------------------------------------
32,000,000 7.875%, 4/15/1998 33,915,840
-------------------------------------------------------------------
40,000,000 5.250%, 7/31/1998 40,240,400
-------------------------------------------------------------------
60,000,000 9.250%, 8/15/1998 65,968,200
-------------------------------------------------------------------
78,500,000 8.875%, 11/15/1998 86,200,850
-------------------------------------------------------------------
85,000,000 6.750%, 5/31/1999 89,238,950
-------------------------------------------------------------------
80,000,000 6.750%, 6/30/1999 84,074,400
-------------------------------------------------------------------
25,000,000 6.875%, 7/31/1999 26,387,500
-------------------------------------------------------------------
50,000,000 8.000%, 8/15/1999 54,573,000
-------------------------------------------------------------------
30,000,000 7.125%, 9/30/1999 31,958,700
-------------------------------------------------------------------
95,000,000 7.750%, 12/31/1999 103,576,600
-------------------------------------------------------------------
45,000,000 7.750%, 1/31/2000 49,127,850
-------------------------------------------------------------------
33,300,000 6.875%, 3/31/2000 35,362,602
-------------------------------------------------------------------
25,000,000 6.125%, 7/31/2000 25,886,750
-------------------------------------------------------------------
20,000,000 6.125%, 9/30/2000 20,717,200
-------------------------------------------------------------------
25,000,000 5.625%, 11/30/2000 25,389,500
------------------------------------------------------------------- ------------
TOTAL U.S. TREASURY NOTES (IDENTIFIED COST $859,711,813) 885,375,092
------------------------------------------------------------------- ------------
</TABLE>
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
(FORMERLY, FEDERATED INTERMEDIATE GOVERNMENT TRUST)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------------------------------------------------------------- ------------
<C> <S> <C>
(A)REPURCHASE AGREEMENTS--1.1%
- ---------------------------------------------------------------------------------
$ 9,970,000 B.T. Securities Corp., 5.930%, dated 1/31/1996, due 2/1/1996 $ 9,970,000
------------------------------------------------------------------- ------------
TOTAL INVESTMENTS (IDENTIFIED COST $869,681,813)(B) $895,345,092
------------------------------------------------------------------- ------------
</TABLE>
(a) The repurchase agreement is fully collateralized by U.S. Treasury
obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
(b) The cost of investments for federal tax purposes amounts to $869,681,813.
The net unrealized appreciation of investments on a federal tax basis
amounts to $25,663,279 which is comprised of $25,663,279 appreciation and $0
depreciation at January 31, 1996.
Note: The categories of investments are shown as a percentage of net assets
($904,282,358) at January 31, 1996.
(See Notes which are an integral part of the Financial Statements)
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
(FORMERLY, FEDERATED INTERMEDIATE GOVERNMENT TRUST)
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Total Investments in securities, at value (identified and tax cost $869,681,813) $895,345,092
- --------------------------------------------------------------------------------
Income receivable 12,356,269
- --------------------------------------------------------------------------------
Receivable for shares sold 6,648,998
- -------------------------------------------------------------------------------- ------------
Total assets 914,350,359
- --------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------
Payable for shares redeemed $1,404,249
- -------------------------------------------------------------------
Income distribution payable 2,655,340
- -------------------------------------------------------------------
Payable to Bank 5,924,880
- -------------------------------------------------------------------
Accrued expenses 83,532
- ------------------------------------------------------------------- ----------
Total liabilities 10,068,001
- -------------------------------------------------------------------------------- ------------
NET ASSETS for 84,209,125 shares outstanding $904,282,358
- -------------------------------------------------------------------------------- ------------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Paid in capital $919,874,242
- --------------------------------------------------------------------------------
Net unrealized appreciation of investments 25,663,279
- --------------------------------------------------------------------------------
Accumulated net realized loss on investments (41,255,163)
- -------------------------------------------------------------------------------- ------------
Total Net Assets $904,282,358
- -------------------------------------------------------------------------------- ------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- --------------------------------------------------------------------------------
INSTITUTIONAL SHARES:
- --------------------------------------------------------------------------------
$871,965,708 / 81,199,050 shares outstanding $10.74
- -------------------------------------------------------------------------------- ------------
INSTITUTIONAL SERVICE SHARES:
- --------------------------------------------------------------------------------
$32,316,650 / 3,010,075 shares outstanding $10.74
- -------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
(FORMERLY, FEDERATED INTERMEDIATE GOVERNMENT TRUST)
STATEMENT OF OPERATIONS
YEAR ENDED JANUARY 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------------------------
Interest $54,955,668
- --------------------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------------------------------------
Investment advisory fee $3,325,210
- -------------------------------------------------------------------------------
Administrative personnel and services fee 629,145
- -------------------------------------------------------------------------------
Custodian fees 119,413
- -------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 203,501
- -------------------------------------------------------------------------------
Directors'/Trustees' fees 15,568
- -------------------------------------------------------------------------------
Auditing fees 16,429
- -------------------------------------------------------------------------------
Legal fees 2,720
- -------------------------------------------------------------------------------
Portfolio accounting fees 128,434
- -------------------------------------------------------------------------------
Distribution services fee--Institutional Service Shares 81,743
- -------------------------------------------------------------------------------
Shareholder services fee--Institutional Shares 1,996,514
- -------------------------------------------------------------------------------
Shareholder services fee--Institutional Service Shares 81,743
- -------------------------------------------------------------------------------
Share registration costs 33,366
- -------------------------------------------------------------------------------
Printing and postage 21,229
- -------------------------------------------------------------------------------
Insurance premiums 13,709
- -------------------------------------------------------------------------------
Taxes 181
- -------------------------------------------------------------------------------
Miscellaneous 4,970
- ------------------------------------------------------------------------------- ----------
Total expenses 6,673,875
- -------------------------------------------------------------------------------
WAIVERS--
- -------------------------------------------------------------------------------
Waiver of distribution services fee--Institutional Service
Shares (74,096)
- ------------------------------------------------------------------
Waiver of shareholder services fee--Institutional Shares (1,996,514)
- ------------------------------------------------------------------
Waiver of shareholder services fee--Institutional Service Shares (7,647)
- ------------------------------------------------------------------ -----------
Total waivers (2,078,257)
- ------------------------------------------------------------------------------- ----------
Net expenses 4,595,618
- -------------------------------------------------------------------------------------------- -----------
Net investment income 50,360,050
- -------------------------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- --------------------------------------------------------------------------------------------
Net realized gain on investments 18,811,797
- --------------------------------------------------------------------------------------------
Net change in unrealized appreciation on investments 30,753,121
- -------------------------------------------------------------------------------------------- -----------
Net realized and unrealized gain on investments 49,564,918
- -------------------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $99,924,968
- -------------------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
(FORMERLY, FEDERATED INTERMEDIATE GOVERNMENT TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-------------------------------
1996 1995
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ------------------------------------------------------------
OPERATIONS--
- ------------------------------------------------------------
Net investment income $ 50,360,050 $ 44,228,123
- ------------------------------------------------------------
Net realized gain (loss) on investments ($18,811,797 net
gain and $29,464,881 net loss, respectively, as computed
for federal tax purposes) 18,811,797 (45,578,263)
- ------------------------------------------------------------
Net change in unrealized appreciation (depreciation) 30,753,121 (12,312,883)
- ------------------------------------------------------------ ------------- -------------
Change in net assets resulting from operations 99,924,968 (13,663,023)
- ------------------------------------------------------------ ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ------------------------------------------------------------
Distributions from net investment income
- ------------------------------------------------------------
Institutional Shares (48,447,620) (42,798,247)
- ------------------------------------------------------------
Institutional Service Shares (1,912,430) (1,429,876)
- ------------------------------------------------------------ ------------- -------------
Change in net assets resulting from distributions to
shareholders (50,360,050) (44,228,123)
- ------------------------------------------------------------ ------------- -------------
SHARE TRANSACTIONS--
- ------------------------------------------------------------
Proceeds from sale of shares 394,300,069 296,717,727
- ------------------------------------------------------------
Net asset value of shares issued to shareholders in payment
of distributions declared 17,897,905 14,030,578
- ------------------------------------------------------------
Cost of shares redeemed (321,877,596) (470,751,036)
- ------------------------------------------------------------ ------------- -------------
Change in net assets resulting from share transactions 90,320,378 (160,002,731)
- ------------------------------------------------------------ ------------- -------------
Change in net assets 139,885,296 (217,893,877)
- ------------------------------------------------------------
NET ASSETS:
- ------------------------------------------------------------
Beginning of period 764,397,062 982,290,939
- ------------------------------------------------------------ ------------- -------------
End of period $ 904,282,358 $ 764,397,062
- ------------------------------------------------------------ ------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
(FORMERLY, FEDERATED INTERMEDIATE GOVERNMENT TRUST)
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1996
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Federated U.S. Government Securities Fund: 2-5 Years (the "Trust") is registered
under the Investment Company Act of 1940, as amended (the "Act"), as a
diversified, open-end management investment company. The Trust's investment
objective is to provide current income by investing the U.S. government
securities with remaining maturities of five years or less. The Trust offers two
classes of shares: Institutional Shares and Institutional Service Shares.
Effective April 13, 1995, the Board of Trustees ("Trustees") changed the name of
the Trust from Federated Intermediate Government Trust to Federated U.S.
Government Securities Fund: 2-5 Years.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--Short-term securities with remaining maturities of
sixty days or less at the time of purchase may be stated at amortized cost,
which approximates fair market value. All other securities are valued at
prices provided by an independent pricing service.
REPURCHASE AGREEMENTS--It is the policy of the Trust to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral under repurchase
agreement transactions. Additionally, procedures have been established by
the Trust to monitor, on a daily basis, the market value of each repurchase
agreement's collateral to ensure that the value of collateral at least
equals the repurchase price to be paid under the repurchase agreement
transaction.
The Trust will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Trust's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Trustees. Risks may arise from the
potential inability of counterparties to honor the terms of the repurchase
agreement. Accordingly, the Trust could receive less than the repurchase
price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
(FORMERLY, FEDERATED INTERMEDIATE GOVERNMENT TRUST)
- --------------------------------------------------------------------------------
FEDERAL TAXES--It is the Trust's policy to comply with the provisions of
the Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
At January 31, 1996, the Trust for federal tax purposes, had a capital loss
carryforward of $41,255,162, which will reduce the Trust's taxable income
arising from future net realized gain on investments, if any, to the extent
permitted by the Code, and thus will reduce the amount of the distributions
to shareholders which would otherwise be necessary to relieve the Trust of
any liability for federal tax. Pursuant to the Code, such capital loss
carryforward will expire as follows:
<TABLE>
<CAPTION>
EXPIRATION YEAR EXPIRATION AMOUNT
----------------- -------------------
<S> <C>
1998 $11,790,281
2003 $29,464,881
</TABLE>
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Trust may engage in
when-issued or delayed delivery transactions. The Trust records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. Transactions in shares were as follows:
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
(FORMERLY, FEDERATED INTERMEDIATE GOVERNMENT TRUST)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-------------------------------------------------------------
1996 1995
---------------------------- ----------------------------
INSTITUTIONAL SHARES SHARES AMOUNT SHARES AMOUNT
- ------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Shares sold 36,204,187 $ 379,207,092 26,144,012 $ 270,233,159
- -------------------------------------
Shares issued to shareholders in
payment of distributions declared 1,558,967 16,359,196 1,282,081 13,129,629
- -------------------------------------
Shares redeemed (28,865,263) (302,475,855) (43,394,809) (447,488,088)
- ------------------------------------- ----------- ------------- ----------- -------------
Net change resulting from
Institutional Share transactions 8,897,891 $ 93,090,433 (15,968,716) $(164,125,300)
- ------------------------------------- ----------- ------------- ----------- -------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-------------------------------------------------------------
1996 1995
---------------------------- ----------------------------
INSTITUTIONAL SERVICE SHARES SHARES AMOUNT SHARES AMOUNT
- ------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Shares sold 1,439,874 $ 15,092,977 2,584,111 $ 26,484,568
- -------------------------------------
Shares issued to shareholders in
payment of distributions declared 146,629 1,538,709 87,976 900,949
- -------------------------------------
Shares redeemed (1,850,636) (19,401,741) (2,251,658) (23,262,948)
- ------------------------------------- ----------- ------------- ----------- -------------
Net change resulting from
Institutional Service Share
transactions (264,133) $ (2,770,055) 420,429 $ 4,122,569
- ------------------------------------- ----------- ------------- ----------- -------------
Net change resulting from Trust
share transactions 8,633,758 $ 90,320,378 (15,548,287) $(160,002,731)
- ------------------------------------- ----------- ------------- ----------- -------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Management, the Trust's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to .40 of 1% of the Trust's average daily net assets.
ADMINISTRATIVE FEE--Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Trust with administrative
personnel and services. The fee paid to FServ is based on the level of average
aggregate daily net assets of all funds advised by subsidiaries of Federated
Investors for the period. The administrative fee received during the period of
the Administrative Services Agreement shall be at least $125,000 per portfolio
and $30,000 per each additional class of shares.
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
(FORMERLY, FEDERATED INTERMEDIATE GOVERNMENT TRUST)
- --------------------------------------------------------------------------------
DISTRIBUTION SERVICES FEE--The Trust has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the
Trust will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Trust to finance activities intended to
result in the sale of the Trust's Institutional Service Shares. The Plan
provides that the Trust may incur distribution expenses up to .25 of 1% of the
average daily net assets of the Institutional Service Shares, annually, to
compensate FSC. FSC may voluntarily choose to waive a portion of this fee. FSC
can modify or terminate this voluntary waiver at any time at its sole
discretion.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Trust will pay FSS up to .25 of
1% of average net assets of the Trust for the period. The fee paid to FSS is
used to finance certain services for shareholders and to maintain shareholder
accounts. FSS may voluntarily choose to waive a portion of its fee. FSS can
modify or terminate this voluntary waiver at any time at its sole discretion.
For the fiscal year ended January 31, 1996, Institutional Shares fully waived
its shareholder services fee.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--FServ, through its
registered transfer and dividend disbursing agent, Federated Shareholder
Services Company, maintains all necessary shareholder records and receives a fee
based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES--FServ maintains the Trust's accounting records for
which it receives a fee. The fee is based on the level of the Trust's average
daily net assets for the period, plus out-of-pocket expenses.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
fiscal year ended January 31, 1996, were as follows:
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------
PURCHASES-- $1,035,575,293
- ----------------------------------------------------------------------------- --------------
SALES-- $ 954,813,407
- ----------------------------------------------------------------------------- --------------
</TABLE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS:
(formerly, Federated Intermediate Government Trust)
We have audited the accompanying statement of assets and liabilities of
Federated U.S. Government Securities Fund: 2-5 Years (a Massachusetts business
trust), including the schedule of portfolio investments, as of January 31, 1996,
and the related statement of operations for the year then ended, the statement
of changes in net assets for each of the two years in the period then ended, and
the financial highlights (see pages 2 and 13 of the prospectus) for the periods
presented. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
January 31, 1996, by correspondence with the custodian. An audit also included
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Federated U.S. Government Securities Fund: 2-5 Years as of January 31, 1996, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended, and the financial highlights
for the periods presented, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
March 25, 1996
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Federated U.S. Government Securities Fund: 2-5 Years
Institutional Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Custodian
State Street Bank and P.O. Box 8600
Trust Company Boston, Massachusetts 02266-8600
- ------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company P.O. Box 8600
Boston, Massachusetts 02266-8600
- ------------------------------------------------------------------------------------------------
Independent Public Accountants
Arthur Andersen LLP 2100 One PPG Place
Pittsburgh, Pennsylvania 15222
- ------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FEDERATED U.S.
GOVERNMENT SECURITIES
FUND: 2-5 YEARS
(FORMERLY, FEDERATED INTERMEDIATE
GOVERNMENT TRUST)
INSTITUTIONAL SHARES
PROSPECTUS
An Open-End, Diversified
Management Investment Company
March 31, 1996
LOGO
FEDERATED SECURITIES CORP.
- --------------------------------------------------------------------------------
Distributor
A Subsidiary of Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
Cusip 314200106
8022502A-IS (3/96)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
(FORMERLY, FEDERATED INTERMEDIATE GOVERNMENT TRUST)
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
The Institutional Service Shares offered by this prospectus represent interests
in a diversified portfolio of securities of Federated U.S. Government Securities
Fund: 2-5 Years (formerly, Federated Intermediate Government Trust) (the
"Trust"). The Trust is an open-end management investment company (a mutual
fund).
The investment objective of the Trust is to provide current income. The Trust
pursues this investment objective by investing in U.S. government securities
with remaining maturities of five years or less. Institutional Service Shares
are sold at net asset value.
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 BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before you
invest in the Trust. Keep this prospectus for future reference.
The Trust has also filed a Statement of Additional Information for Institutional
Shares and Institutional Service Shares dated March 31, 1996, with the
Securities and Exchange Commission. The information contained in the Statement
of Additional Information is incorporated by reference into this prospectus. You
may request a copy of the Statement of Additional Information or a paper copy of
this prospectus, if you have received your prospectus electronically, free of
charge by calling 1-800-235-4669. To obtain other information or to make
inquiries about the Trust, contact the Trust at the address listed in the back
of this prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated March 31, 1996
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF TRUST EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
INSTITUTIONAL SERVICE SHARES 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Investment Limitations 4
TRUST INFORMATION 5
- ------------------------------------------------------
Management of the Trust 5
Distribution of Institutional
Service Shares 6
Administration of the Trust 7
NET ASSET VALUE 7
- ------------------------------------------------------
INVESTING IN INSTITUTIONAL SERVICE SHARES 7
- ------------------------------------------------------
Share Purchases 7
Exchange Privilege 8
Minimum Investment Required 8
What Shares Cost 8
Exchanging Securities for Trust Shares 9
Certificates and Confirmations 9
Dividends 9
Capital Gains 9
REDEEMING INSTITUTIONAL SERVICE SHARES 9
- ------------------------------------------------------
Telephone Redemption 9
Written Requests 10
Accounts with Low Balances 10
SHAREHOLDER INFORMATION 11
- ------------------------------------------------------
Voting Rights 11
TAX INFORMATION 11
- ------------------------------------------------------
Federal Income Tax 11
State and Local Taxes 11
PERFORMANCE INFORMATION 12
- ------------------------------------------------------
OTHER CLASSES OF SHARES 12
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
INSTITUTIONAL SHARES 13
- ------------------------------------------------------
FINANCIAL STATEMENTS 14
- ------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 23
- ------------------------------------------------------
ADDRESSES 24
- ------------------------------------------------------
SUMMARY OF TRUST EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INSTITUTIONAL SERVICE SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)........ None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of
offering price)...................................................................... None
Contingent Deferred Sales Charge (as a percentage of original purchase price
or redemption proceeds, as applicable)............................................... None
Redemption Fee (as a percentage of amount redeemed, if applicable)................... None
Exchange Fee......................................................................... None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee....................................................................... 0.40%
12b-1 Fee (after waiver)(1).......................................................... 0.02%
Total Other Expenses................................................................. 0.37%
Shareholder Services Fee (after waiver)(2).............................. 0.23%
Total Operating Expenses(3)................................................... 0.79%
</TABLE>
(1) The maximum 12b-1 fee is 0.25%.
(2) The maximum shareholder services fee is 0.25%.
(3) The total operating expenses would have been 1.04% absent the voluntary
waivers of a portion of the shareholder services fee and the 12b-1 fee.
Long-term shareholders may pay more than the economic equivalent of the maximum
front-end sales charges permitted under the rules of the National Association of
Securities Dealers, Inc.
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of Institutional Service Shares of the
Trust will bear, either directly or indirectly. For more complete descriptions
of the various costs and expenses, see "Trust Information" and "Investing in
Institutional Service Shares." Wire-transferred redemptions of less than $5,000
may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
- ----------------------------------------------- ------- -------- -------- ---------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming (1) 5% annual
return and (2) redemption at the end of each
time period.................................. $ 8 $ 25 $ 44 $98
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
(FORMERLY, FEDERATED INTERMEDIATE GOVERNMENT TRUST)
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-------------------------------------------
1996 1995 1994 1993(A)
------- ------- ------- -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.11 $10.78 $10.61 $10.35
- -----------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------
Net investment income 0.61 0.51 0.44 0.34
- -----------------------------------------------
Net realized and unrealized gain (loss) on
investments 0.63 (0.67) 0.17 0.26
- ----------------------------------------------- ------ ------ ------ ------
Total from investment operations 1.24 (0.16) 0.61 0.60
- -----------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------
Distributions from net investment income (0.61) (0.51) (0.44) (0.34)
- ----------------------------------------------- ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $10.74 $10.11 $10.78 $10.61
- ----------------------------------------------- ------ ------ ------ ------
TOTAL RETURN (B) 12.58% (1.42)% 5.81% 5.84%
- -----------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------
Expenses 0.79% 0.79% 0.77% 0.75%*
- -----------------------------------------------
Net investment income 5.85% 5.00% 4.01% 5.13%*
- -----------------------------------------------
Expense waiver/reimbursement (c) 0.25% 0.21% - -
- -----------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------
Net assets, end of period (000 omitted) $32,317 $33,117 $30,763 $12,987
- -----------------------------------------------
Portfolio turnover 117% 163% 131% 85%
- -----------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from June 18, 1992 (date of initial
public investment) to January 31, 1993.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Further information about the Trust's performance is contained in the Trust's
annual report for the fiscal year ended January 31, 1996, which can be obtained
free of charge.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated December 10, 1981. On April 13, 1995, the Board of Trustees
changed the name of the Trust from Federated Intermediate Government Trust to
Federated U.S. Government Securities Fund: 2-5 Years. The Declaration of Trust
permits the Trust to offer separate series of shares of beneficial interest
representing interests in separate portfolios of securities. The shares in any
one portfolio may be offered in separate classes. As of the date of this
prospectus, the Board of Trustees (the "Trustees") has established two classes
of shares of the Trust, known as Institutional Service Shares and Institutional
Shares. This prospectus relates only to Institutional Service Shares of the
Trust.
Institutional Service Shares ("Shares") of the Trust are designed primarily for
retail and private banking customers of financial institutions as a convenient
means of accumulating an interest in a professionally managed, diversified
portfolio of U.S. government securities. A minimum initial investment of $25,000
over a 90-day period is required.
Shares are currently sold and redeemed at net asset value without a sales charge
imposed by the Trust.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Trust is current income. The Trust pursues this
investment objective by investing in U.S. government securities with remaining
maturities of five years or less. As a matter of operating policy, which may be
changed without shareholder approval, the dollar-weighted average maturity of
the portfolio will not be less than two years nor more than five years. While
there is no assurance that the Trust will achieve its investment objective, it
endeavors to do so by following the investment policies described in this
prospectus. The investment objective and the policies and limitations described
below cannot be changed without approval of shareholders.
INVESTMENT POLICIES
ACCEPTABLE INVESTMENTS. The U.S. government securities in which the Trust
invests are either issued or guaranteed by the U.S. government, its agencies, or
instrumentalities. The prices of fixed income securities fluctuate inversely to
the direction of interest rates. The securities in which the Trust may invest
are limited to:
- direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds; and
- notes, bonds, and discount notes of U.S. government agencies or
instrumentalities, such as the: Farm Credit System, including the
National Bank for Cooperatives, Farm Credit Banks, and Banks for
Cooperatives; Farmers Home Administration; Federal Home Loan Banks;
Federal Home Loan Mortgage Corporation; Federal National Mortgage
Association; Government National Mortgage Association; and Student Loan
Marketing Association.
Some obligations issued or guaranteed by agencies or instrumentalities of the
U.S. government, such as Government National Mortgage Association participation
certificates, are backed by the full faith and
credit of the U.S. Treasury. No assurances can be given that the U.S. government
will provide financial support to other agencies or instrumentalities, since it
is not obligated to do so. These instrumentalities are supported by:
- the issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;
- discretionary authority of the U.S. government to purchase certain
obligations of an agency or instrumentality; or
- the credit of the agency or instrumentality.
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell U.S. government
securities or other securities to the Trust and agree at the time of sale to
repurchase them at a mutually agreed upon time and price. To the extent that the
original seller does not repurchase the securities from the Trust, the Trust
could receive less than the repurchase price on any sale of such securities.
As a matter of investment practice, which can be changed without shareholder
approval, the Trust will not invest more than 10% of its total assets in
securities which are illiquid, including repurchase agreements providing for
settlement in more than seven days after notice.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Trust may purchase U.S.
government securities on a when-issued or delayed delivery basis. These
transactions are arrangements in which the Trust purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Trust to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices. Accordingly, the Trust may pay more
or less than the market value of the securities on the settlement date.
The Trust may dispose of a commitment prior to settlement if the Trust's adviser
deems it appropriate to do so. In addition, the Trust may enter into
transactions to sell its purchase commitments to third parties at current market
values and simultaneously acquire other commitments to purchase similar
securities at later dates. The Trust may realize short-term profits or losses
upon the sale of such commitments.
PORTFOLIO TURNOVER. The Trust conducts portfolio transactions to accomplish its
investment objective as interest rates change, to invest new money obtained from
selling its shares, and to meet redemption requests. The Trust may dispose of
portfolio securities at any time if it appears that selling the securities will
help the Trust achieve its investment objective.
INVESTMENT LIMITATIONS
The Trust will not borrow money or pledge securities except, under certain
circumstances, the Trust may borrow up to one-third of the value of its total
assets and pledge up to 10% of the value of those assets to secure such
borrowings.
TRUST INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees
are responsible for managing the Trust's business affairs and for exercising all
the Trust's powers except those reserved for the shareholders. The Executive
Committee of the Board of Trustees handles the Board's responsibilities between
meetings of the Board.
INVESTMENT ADVISER. Investment decisions for the Trust are made by Federated
Management, the Trust's investment adviser, subject to direction by the
Trustees. The adviser continually conducts investment research and supervision
for the Trust and is responsible for the purchase and sale of portfolio
instruments, for which it receives an annual fee from the Trust.
ADVISORY FEES. The Trust's Adviser receives an annual investment advisory
fee equal to .40 of 1% of the Trust's average daily net assets. The Adviser
has also undertaken to reimburse the Trust for operating expenses in excess
of limitations established by certain states. This does not include
reimbursement to the Trust of any expenses incurred by shareholders who use
the transfer agent's subaccounting facilities.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940.
It is a subsidiary of Federated Investors. All of the Class A (voting)
shares of Federated Investors are owned by a trust, the trustees of which
are John F. Donahue, Chairman and Trustee of Federated Investors, Mr.
Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue, who is
President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. With over $80 billion invested across
more than 250 funds under management and/or administration by its
subsidiaries, as of December 31, 1995, Federated Investors is one of the
largest mutual fund investment managers in the United States. With more
than 1,800 employees, Federated continues to be led by the management who
founded the company in 1955. Federated funds are presently at work in and
through 4,000 financial institutions nationwide. More than 100,000
investment professionals have selected Federated funds for their clients.
The Trust and the adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Trust and its portfolio securities.
These codes recognize that such persons owe a fiduciary duty to the Trust's
shareholders and must place the interests of shareholders ahead of the
employees' own interest. Among other things, the codes: require
preclearance and periodic reporting of personal securities transactions;
prohibit personal transactions in securities being purchased or sold, or
being considered for purchase or sale, by the Trust; prohibit purchasing
securities in initial public offerings; and prohibit taking profits on
securities held for less than sixty days. Violations of the codes are
subject to review by the Board of Trustees and could result in severe
penalties.
Susan M. Nason has been the Trust's portfolio manager since 1991. Ms. Nason
joined Federated Investors in 1987 and has been a Vice President of the
Trust's investment adviser since 1993. Ms. Nason served as an Assistant
Vice President of the investment adviser from 1990 until 1992. Ms. Nason is
a Chartered Financial Analyst and received her M.S. in Industrial
Administration from Carnegie Mellon University.
Joseph M. Balestrino has been the Trust's co-portfolio manager since March
1995. Mr. Balestrino joined Federated Investors in 1986 and has been a Vice
President of the Trust's investment adviser since 1995. Mr. Balestrino
served as an Assistant Vice President of the investment adviser from 1991
to 1995. Mr. Balestrino is a Chartered Financial Analyst and received his
Master's Degree in Urban and Regional Planning from the University of
Pittsburgh.
DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES
Federated Securities Corp. is the principal distributor for Institutional
Service Shares. It is a Pennsylvania corporation organized on November 14, 1969,
and is the principal distributor for a number of investment companies. Federated
Securities Corp. is a subsidiary of Federated Investors.
State securities laws may require certain financial institutions such as
depository institutions to register as dealers.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES. Under a distribution plan adopted
in accordance with Rule 12b-1 under the Investment Company Act of 1940 (the
"Plan"), the distributor may be paid a fee by the Trust in an amount computed at
an annual rate of .25 of 1% of the average daily net asset value of Shares of
the Trust. The distributor may select financial institutions such as banks,
fiduciaries, custodians for public funds, investment advisers, and
broker/dealers to provide sales services or distribution-related support
services as agents for their clients or customers.
The Plan is a compensation-type plan. As such, the Trust makes no payments to
the distributor except as described above. Therefore, the Trust does not pay for
unreimbursed expenses of the distributor, including amounts expended by the
distributor in excess of amounts received by it from the Trust, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amounts or may earn a profit from future payments made by the Trust
under the Plan.
In addition, the Trust has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
the Trust may make payments up to .25 of 1% of the average daily net asset value
of the Institutional Service Shares to obtain certain personal services for
shareholders and to maintain shareholder accounts. From time to time and for
such periods as deemed appropriate, the amount stated above may be reduced
voluntarily. Under the Shareholder Services Agreement, Federated Shareholder
Services will either perform shareholder services directly or will select
financial institutions to perform shareholder services. Financial institutions
will receive fees based upon Shares owned by their clients or customers. The
schedules of such fees and the basis upon which such fees will be paid will be
determined from time to time by the Trust and Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to receiving the
payments under the Plan and Shareholder Services Agreement, Federated Securities
Corp. and Federated Shareholder
Services, from their own assets, may pay financial institutions supplemental
fees for the performance of substantial sales services, distribution-related
support services, or shareholder services. The support may include sponsoring
sales, educational and training seminars for their employees, providing sales
literature, and engineering computer software programs that emphasize the
attributes of the Trust. Such assistance will be predicated upon the amount of
Shares the financial institution sells or may sell, and/or upon the type and
nature of sales or marketing support furnished by the financial institution. Any
payments made by the distributor may be reimbursed by the Trust's investment
adviser or its affiliates.
ADMINISTRATION OF THE TRUST
ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of Federated
Investors, provides administrative personnel and services (including certain
legal and financial reporting services) necessary to operate the Trust.
Federated Services Company provides these at an annual rate which relates to the
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors ("Federated Funds"), as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE FEDERATED FUNDS
- --------------------- ----------------------------------
<S> <C>
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
on assets in excess of $750
.075 of 1% million
</TABLE>
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 choose voluntarily to waive a portion of its fee.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Trust's net asset value per Share fluctuates. The net asset value for Shares
is determined by adding the interest of Shares in the market value of all
securities and other assets of the Trust, subtracting the interest of Shares in
the liabilities of the Trust and those attributable to Shares, and dividing the
remainder by the total number of Shares outstanding. The net asset value for
Institutional Shares may exceed that of Shares 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.
INVESTING IN INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange is open for
business. Shares may be purchased either by wire or mail.
To purchase Shares, open an account by calling Federated Securities Corp.
Information needed to establish the account will be taken over the telephone.
The Trust reserves the right to reject any purchase request.
BY WIRE. To purchase Shares by Federal Reserve wire, call the Trust before 4:00
p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m. (Eastern
time) on the next business day following the order. Federal funds should be
wired as follows: Federated Shareholder Services Company, c/o State Street Bank
and Trust Company, Boston, Massachusetts; Attention: EDGEWIRE; For Credit to:
Federated U.S. Government Securities Fund: 2-5 Years-Institutional Service
Shares; Trust Number (this number can be found on the account statement or by
contacting the Trust); Group Number or Order Number; Nominee or Institution
Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays
when wire transfers are restricted. Questions on wire purchases should be
directed to your shareholder services representative at the telephone number
listed on your account statement.
BY MAIL. To purchase Shares by mail, send a check made payable to Federated
U.S. Government Securities Fund: 2-5 Years-Institutional Service Shares to
Federated Shareholder Services Company, P.O. Box 8600, Boston, Massachusetts
02266-8600. Orders by mail are considered received when payment by check is
converted by State Street Bank and Trust Company into federal funds. This is
normally the next business day after State Street Bank and Trust Company
receives the check.
EXCHANGE PRIVILEGE
Financial Institutions that maintain master accounts with an aggregate
investment of at least $400 million in certain funds which are advised or
distributed by affiliates of Federated Investors may exchange their
Institutional Service Shares for Institutional Shares of the Trust.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Shares is $25,000 plus any bank or broker's
fee, if applicable. However, an account may be opened with a smaller amount as
long as the $25,000 minimum is reached within 90 days. An institutional
investor's minimum investment will be calculated by combining all accounts it
maintains with the Trust. Accounts established through a bank or broker may be
subject to a different minimum investment.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Trust. Investors who purchase
Shares through a financial intermediary may be charged a service fee by that
financial intermediary.
The net asset value is determined as of the close of trading (normally 4:00 p.m.
Eastern time) on the New York Stock Exchange, Monday through Friday, except on:
(i) days on which there are not sufficient changes in the value of the Trust's
portfolio securities that its net asset value might be materially affected; (ii)
days during which no Shares are tendered for redemption and no orders to
purchase Shares are received; and (iii) the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
EXCHANGING SECURITIES FOR TRUST SHARES
Investors may exchange certain U.S. government securities or a combination of
securities and cash for Shares. The securities and cash must have a market value
of at least $25,000. The Trust reserves the right to determine the acceptability
of securities to be exchanged. Securities accepted by the Trust are valued in
the same manner as the Trust values its assets. Investors wishing to exchange
securities should first contact Federated Securities Corp.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Trust, Federated Shareholder Services Company
maintains a share account for each shareholder. Share certificates are not
issued unless requested by contacting the Trust.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during the
month.
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are declared just prior
to determining net asset value. If an order for Shares is placed on the
preceding business day, Shares purchased by wire begin earning dividends on the
business day wire payment is received by State Street Bank. If the order for
Shares and payment by wire are received on the same day, Shares begin earning
dividends on the next business day. Shares purchased by check begin earning
dividends on the business day after the check is converted, upon instruction of
the transfer agent, into federal funds. Dividends are automatically reinvested
on payment dates in additional Shares unless cash payments are requested by
contacting the Trust.
CAPITAL GAINS
Capital gains realized by the Trust, if any, are distributed at least once every
12 months.
REDEEMING INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
The Trust redeems Shares at their net asset value next determined after
Federated Shareholder Services Company receives the redemption request.
Investors who redeem Shares through a financial intermediary may be charged a
service fee by that financial intermediary. Redemptions will be made on days on
which the Trust computes its net asset value. Redemption requests must be
received in proper form and can be made by telephone request or by written
request.
TELEPHONE REDEMPTION
Shareholders may redeem their Shares by telephoning the Trust before 4:00 p.m.
(Eastern time). All proceeds will normally be wire-transferred the following
business day, but in no event more than seven days, to the shareholder's account
at a domestic commercial bank that is a member of the Federal Reserve System.
Proceeds from redemption requests received on holidays when wire transfers are
restricted will be wired the following business day. Questions about telephone
redemptions on days when wire transfers are restricted should be directed to
your shareholder services representative at the
telephone number listed on your account statement. If at any time the Trust
shall determine it necessary to terminate or modify this method of redemption,
shareholders would be promptly notified.
An authorization form permitting the Trust to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from Federated Securities Corp. Telephone redemption instructions may
be recorded. If reasonable procedures are not followed by the Trust, it may be
liable for losses due to unauthorized or fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as "Written Requests," should be considered.
WRITTEN REQUESTS
Shares may be redeemed in any amount by mailing a written request to: Federated
Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share
certificates have been issued, they should be sent unendorsed with the written
request by registered or certified mail to the address noted above.
SIGNATURES. Shareholders requesting a redemption of any amount to be sent to an
address other than that on record with the Trust, or a redemption payable other
than to the shareholder of record must have signatures on written redemption
requests guaranteed by:
- a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
- a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
- a savings bank or savings association whose deposits are insured by the
Savings Association Insurance Fund ("SAIF"), which is administered by the
FDIC; or
- any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Trust does not accept signatures guaranteed by a notary public.
The Trust and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Trust may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Trust and its transfer agent reserve the right
to amend these standards at any time without notice.
RECEIVING PAYMENT. Normally, a check for the proceeds is mailed within one
business day, but in no event more than seven days, after receipt of a proper
written redemption request.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Trust may
redeem Shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $25,000. This
requirement does not apply, however, if the balance falls below $25,000 because
of changes in the Trust's net asset value. Before Shares are redeemed to close
an account, the shareholder is notified in writing and allowed 30 days to
purchase additional Shares to meet the minimum requirement.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Trust gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
each portfolio in the Trust have equal voting rights except that in matters
affecting only a particular portfolio or class, only shares of that portfolio or
class are entitled to vote. As a Massachusetts business trust, the Trust is not
required to hold annual shareholder meetings. Shareholder approval will be
sought only for certain changes in the Trust's operation and for the election of
Trustees under certain circumstances. As of March 1, 1996, Alltel Corporation
Thrift Plan was the owner of record of 875,636 shares (28.83%) of Federated U.S.
Government Securities Fund: 2-5 Years-Institutional Service Shares, and,
therefore, may, for certain purposes, be deemed to control the Trust and be able
to affect the outcome of certain matters presented for a vote of shareholders.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders for this purpose shall be called by the
Trustees upon the written request of shareholders owning at least 10% of the
outstanding shares of the Trust entitled to vote.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Trust will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions, including capital gains distributions,
received. This applies whether dividends and distributions are received in cash
or as additional shares.
STATE AND LOCAL TAXES
In the opinion of Houston, Houston & Donnelly, counsel to the Trust, Shares may
be subject to personal property taxes imposed by counties, municipalities, and
school districts in Pennsylvania to the extent that the portfolio securities in
the Trust would be subject to such taxes if owned directly by residents of those
jurisdictions.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Trust advertises its total return and yield for Shares.
Total return represents the change, over a specified period of time, in the
value of an investment in Shares of the Trust after reinvesting all income and
capital gains distributions. It is calculated by dividing that change by the
initial investment and is expressed as a percentage.
The yield of Shares of the Trust is calculated by dividing the net investment
income per Share (as defined by the Securities and Exchange Commission) earned
by Shares over a thirty-day period by the offering price per share of Shares on
the last day of the period. This number is then annualized using semi-annual
compounding. The yield does not necessarily reflect income actually earned by
Shares and, therefore, may not correlate to the dividends or other distributions
paid to shareholders.
Shares are sold without any sales charge or other similar non-recurring charges.
Total return and yield will be calculated separately for Institutional Service
Shares and Institutional Shares.
From time to time, advertisements for the Trust's Institutional Service Shares
may refer to ratings, rankings, and other information in certain financial
publications and/or compare the Trust's Institutional Service Shares performance
to certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
The Trust also offers another class of shares called Institutional Shares which
are sold at net asset value to accounts for which financial institutions act in
a fiduciary or agency capacity and are subject to a minimum initial investment
of $25,000 over a 90-day period.
Institutional Shares are distributed with no 12b-1 Plan.
Institutional Shares and Institutional Service Shares are subject to certain of
the same expenses. Expense differences, however, between Institutional Shares
and Institutional Service Shares may affect the performance of each class.
To obtain more information and a prospectus for Institutional Shares, investors
may call 1-800-235-4669.
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
(FORMERLY, FEDERATED INTERMEDIATE GOVERNMENT TRUST)
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-----------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
-------- -------- -------- -------- -------- -------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET
VALUE,
BEGINNING OF
PERIOD $10.11 $10.78 $10.61 $10.25 $ 9.87 $ 9.59 $ 9.42 $ 9.88 $10.25 $10.02
- ------------
INCOME FROM
INVESTMENT
OPERATIONS
- ------------
Net
investment
income 0.64 0.54 0.46 0.57 0.71 0.75 0.79* 0.81 0.80 0.86
- ------------
Net
realized
and
unrealized
gain (loss)
on
investments 0.63 (0.67) 0.17 0.36 0.38 0.28 0.17* (0.46) (0.28) 0.29
- ------------ ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total from
investment
operations 1.27 (0.13) 0.63 0.93 1.09 1.03 0.96 0.35 0.52 1.15
- ------------
LESS
DISTRIBUTIONS
- ------------
Dividends
from net
investment
income (0.64) (0.54) (0.46) (0.57) (0.71) (0.75) (0.79) (0.81) (0.80) (0.86)
- ------------
Distributions
from net
realized gain
on
investment
transactions -- -- -- -- -- -- -- -- (0.09) (0.06)
- ------------ ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total
distributions (0.64) (0.54) (0.46) (0.57) (0.71) (0.75) (0.79) (0.81) (0.89) (0.92)
- ------------ ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
NET ASSET
VALUE, END
OF PERIOD $10.74 $10.11 $10.78 $10.61 $10.25 $ 9.87 $ 9.59 $ 9.42 $ 9.88 $10.25
- ------------ ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
TOTAL RETURN
(A) 12.86% (1.18)% 6.07% 9.37% 11.44% 11.18% 10.52% 3.66% 5.53% 11.98%
- ------------
RATIOS TO
AVERAGE
NET ASSETS
- ------------
Expenses 0.54% 0.54% 0.52% 0.50% 0.50% 0.51% 0.51% 0.47% 0.45% 0.45%
- ------------
Net
investment
income 6.07% 5.16% 4.30% 5.52% 7.08% 7.75% 8.26% 8.37% 8.18% 8.37%
- ------------
Expense
waiver/reimbursement
(b) 0.25% 0.02% -- -- -- -- -- 0.03% 0.03% 0.04%
- ------------
SUPPLEMENTAL
DATA
- ------------
Net assets,
end of
period (000
omitted) $871,966 $731,280 $951,528 $845,620 $779,686 $791,131 $959,728 $1,246,393 $1,534,501 $1,859,687
- ------------
Portfolio
turnover 117% 163% 131% 85% 108% 60% 166% 82% 70% 49%
- ------------
</TABLE>
* The effect on the 1990 per share data as a result of the Trust's change in
recording interest income to include amortization of market discounts and
premiums was to increase investment income by $0.05 per share and decrease
net realized and unrealized gain on investments by a corresponding amount.
(a) Based on net asset value which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Further information about the Trust's performance is contained in the Trust's
annual report for the fiscal year ended January 31, 1996, which can be obtained
free of charge.
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
(FORMERLY, FEDERATED INTERMEDIATE GOVERNMENT TRUST)
PORTFOLIO OF INVESTMENTS
JANUARY 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------------------------------------------------------------- ------------
<C> <S> <C>
U.S. TREASURY NOTES--97.9%
- ---------------------------------------------------------------------------------
$15,000,000 8.750%, 10/15/1997 $ 15,922,500
-------------------------------------------------------------------
30,000,000 7.375%, 11/15/1997 31,226,100
-------------------------------------------------------------------
40,000,000 5.625%, 1/31/1998 40,522,400
-------------------------------------------------------------------
25,000,000 5.125%, 2/28/1998 25,085,750
-------------------------------------------------------------------
32,000,000 7.875%, 4/15/1998 33,915,840
-------------------------------------------------------------------
40,000,000 5.250%, 7/31/1998 40,240,400
-------------------------------------------------------------------
60,000,000 9.250%, 8/15/1998 65,968,200
-------------------------------------------------------------------
78,500,000 8.875%, 11/15/1998 86,200,850
-------------------------------------------------------------------
85,000,000 6.750%, 5/31/1999 89,238,950
-------------------------------------------------------------------
80,000,000 6.750%, 6/30/1999 84,074,400
-------------------------------------------------------------------
25,000,000 6.875%, 7/31/1999 26,387,500
-------------------------------------------------------------------
50,000,000 8.000%, 8/15/1999 54,573,000
-------------------------------------------------------------------
30,000,000 7.125%, 9/30/1999 31,958,700
-------------------------------------------------------------------
95,000,000 7.750%, 12/31/1999 103,576,600
-------------------------------------------------------------------
45,000,000 7.750%, 1/31/2000 49,127,850
-------------------------------------------------------------------
33,300,000 6.875%, 3/31/2000 35,362,602
-------------------------------------------------------------------
25,000,000 6.125%, 7/31/2000 25,886,750
-------------------------------------------------------------------
20,000,000 6.125%, 9/30/2000 20,717,200
-------------------------------------------------------------------
25,000,000 5.625%, 11/30/2000 25,389,500
------------------------------------------------------------------- ------------
TOTAL U.S. TREASURY NOTES (IDENTIFIED COST $859,711,813) 885,375,092
------------------------------------------------------------------- ------------
</TABLE>
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
(FORMERLY, FEDERATED INTERMEDIATE GOVERNMENT TRUST)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------------------------------------------------------------- ------------
<C> <S> <C>
(A)REPURCHASE AGREEMENTS--1.1%
- ---------------------------------------------------------------------------------
$9,970,000 B.T. Securities Corp., 5.930%, dated 1/31/1996, due 2/1/1996 $ 9,970,000
------------------------------------------------------------------- ------------
TOTAL INVESTMENTS (IDENTIFIED COST $869,681,813)(B) $895,345,092
------------------------------------------------------------------- ------------
</TABLE>
(a) The repurchase agreement is fully collateralized by U.S. Treasury
obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
(b) The cost of investments for federal tax purposes amounts to $869,681,813.
The net unrealized appreciation of investments on a federal tax basis
amounts to $25,663,279 which is comprised of $25,663,279 appreciation and $0
depreciation at January 31, 1996.
Note: The categories of investments are shown as a percentage of net assets
($904,282,358) at January 31, 1996.
(See Notes which are an integral part of the Financial Statements)
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
(FORMERLY, FEDERATED INTERMEDIATE GOVERNMENT TRUST)
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Total Investments in securities, at value (identified and tax cost $869,681,813) $895,345,092
- --------------------------------------------------------------------------------
Income receivable 12,356,269
- --------------------------------------------------------------------------------
Receivable for shares sold 6,648,998
- -------------------------------------------------------------------------------- ------------
Total assets 914,350,359
- --------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------
Payable for shares redeemed $1,404,249
- -------------------------------------------------------------------
Income distribution payable 2,655,340
- -------------------------------------------------------------------
Payable to Bank 5,924,880
- -------------------------------------------------------------------
Accrued expenses 83,532
- ------------------------------------------------------------------- ----------
Total liabilities 10,068,001
- -------------------------------------------------------------------------------- ------------
NET ASSETS for 84,209,125 shares outstanding $904,282,358
- -------------------------------------------------------------------------------- ------------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Paid in capital $919,874,242
- --------------------------------------------------------------------------------
Net unrealized appreciation of investments 25,663,279
- --------------------------------------------------------------------------------
Accumulated net realized loss on investments (41,255,163)
- -------------------------------------------------------------------------------- ------------
Total Net Assets $904,282,358
- -------------------------------------------------------------------------------- ------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- --------------------------------------------------------------------------------
INSTITUTIONAL SHARES:
- --------------------------------------------------------------------------------
$871,965,708 / 81,199,050 shares outstanding $10.74
- -------------------------------------------------------------------------------- ------------
INSTITUTIONAL SERVICE SHARES:
- --------------------------------------------------------------------------------
$32,316,650 / 3,010,075 shares outstanding $10.74
- -------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
(FORMERLY, FEDERATED INTERMEDIATE GOVERNMENT TRUST)
STATEMENT OF OPERATIONS
YEAR ENDED JANUARY 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------------------------
Interest $54,955,668
- --------------------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------------------------------------
Investment advisory fee $3,325,210
- -------------------------------------------------------------------------------
Administrative personnel and services fee 629,145
- -------------------------------------------------------------------------------
Custodian fees 119,413
- -------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 203,501
- -------------------------------------------------------------------------------
Directors'/Trustees' fees 15,568
- -------------------------------------------------------------------------------
Auditing fees 16,429
- -------------------------------------------------------------------------------
Legal fees 2,720
- -------------------------------------------------------------------------------
Portfolio accounting fees 128,434
- -------------------------------------------------------------------------------
Distribution services fee--Institutional Service Shares 81,743
- -------------------------------------------------------------------------------
Shareholder services fee--Institutional Shares 1,996,514
- -------------------------------------------------------------------------------
Shareholder services fee--Institutional Service Shares 81,743
- -------------------------------------------------------------------------------
Share registration costs 33,366
- -------------------------------------------------------------------------------
Printing and postage 21,229
- -------------------------------------------------------------------------------
Insurance premiums 13,709
- -------------------------------------------------------------------------------
Taxes 181
- -------------------------------------------------------------------------------
Miscellaneous 4,970
- ------------------------------------------------------------------------------- ----------
Total expenses 6,673,875
- -------------------------------------------------------------------------------
WAIVERS--
- -------------------------------------------------------------------------------
Waiver of distribution services fee--Institutional Service
Shares (74,096)
- ------------------------------------------------------------------
Waiver of shareholder services fee--Institutional Shares (1,996,514)
- ------------------------------------------------------------------
Waiver of shareholder services fee--Institutional Service Shares (7,647)
- ------------------------------------------------------------------ -----------
Total waivers (2,078,257)
- ------------------------------------------------------------------------------- ----------
Net expenses 4,595,618
- -------------------------------------------------------------------------------------------- -----------
Net investment income 50,360,050
- -------------------------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- --------------------------------------------------------------------------------------------
Net realized gain on investments 18,811,797
- --------------------------------------------------------------------------------------------
Net change in unrealized appreciation on investments 30,753,121
- -------------------------------------------------------------------------------------------- -----------
Net realized and unrealized gain on investments 49,564,918
- -------------------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $99,924,968
- -------------------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
(FORMERLY, FEDERATED INTERMEDIATE GOVERNMENT TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-------------------------------
1996 1995
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ------------------------------------------------------------
OPERATIONS--
- ------------------------------------------------------------
Net investment income $ 50,360,050 $ 44,228,123
- ------------------------------------------------------------
Net realized gain (loss) on investments ($18,811,797 net
gain and $29,464,881 net loss, respectively, as computed
for federal tax purposes) 18,811,797 (45,578,263)
- ------------------------------------------------------------
Net change in unrealized appreciation (depreciation) 30,753,121 (12,312,883)
- ------------------------------------------------------------ ------------- -------------
Change in net assets resulting from operations 99,924,968 (13,663,023)
- ------------------------------------------------------------ ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ------------------------------------------------------------
Distributions from net investment income
- ------------------------------------------------------------
Institutional Shares (48,447,620) (42,798,247)
- ------------------------------------------------------------
Institutional Service Shares (1,912,430) (1,429,876)
- ------------------------------------------------------------ ------------- -------------
Change in net assets resulting from distributions to
shareholders (50,360,050) (44,228,123)
- ------------------------------------------------------------ ------------- -------------
SHARE TRANSACTIONS--
- ------------------------------------------------------------
Proceeds from sale of shares 394,300,069 296,717,727
- ------------------------------------------------------------
Net asset value of shares issued to shareholders in payment
of distributions declared 17,897,905 14,030,578
- ------------------------------------------------------------
Cost of shares redeemed (321,877,596) (470,751,036)
- ------------------------------------------------------------ ------------- -------------
Change in net assets resulting from share transactions 90,320,378 (160,002,731)
- ------------------------------------------------------------ ------------- -------------
Change in net assets 139,885,296 (217,893,877)
- ------------------------------------------------------------
NET ASSETS:
- ------------------------------------------------------------
Beginning of period 764,397,062 982,290,939
- ------------------------------------------------------------ ------------- -------------
End of period $ 904,282,358 $ 764,397,062
- ------------------------------------------------------------ ------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
(FORMERLY, FEDERATED INTERMEDIATE GOVERNMENT TRUST)
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1996
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Federated U.S. Government Securities Fund: 2-5 Years (the "Trust") is registered
under the Investment Company Act of 1940, as amended (the "Act"), as a
diversified, open-end management investment company. The Trust's investment
objective is to provide current income by investing the U.S. government
securities with remaining maturities of five years or less. The Trust offers two
classes of shares: Institutional Shares and Institutional Service Shares.
Effective April 13, 1995, the Board of Trustees ("Trustees") changed the name of
the Trust from Federated Intermediate Government Trust to Federated U.S.
Government Securities Fund: 2-5 Years.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--Short-term securities with remaining maturities of
sixty days or less at the time of purchase may be stated at amortized cost,
which approximates fair market value. All other securities are valued at
prices provided by an independent pricing service.
REPURCHASE AGREEMENTS--It is the policy of the Trust to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral under repurchase
agreement transactions. Additionally, procedures have been established by
the Trust to monitor, on a daily basis, the market value of each repurchase
agreement's collateral to ensure that the value of collateral at least
equals the repurchase price to be paid under the repurchase agreement
transaction.
The Trust will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Trust's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Trustees. Risks may arise from the
potential inability of counterparties to honor the terms of the repurchase
agreement. Accordingly, the Trust could receive less than the repurchase
price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
(FORMERLY, FEDERATED INTERMEDIATE GOVERNMENT TRUST)
- --------------------------------------------------------------------------------
FEDERAL TAXES--It is the Trust's policy to comply with the provisions of
the Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
At January 31, 1996, the Trust for federal tax purposes, had a capital loss
carryforward of $41,255,162, which will reduce the Trust's taxable income
arising from future net realized gain on investments, if any, to the extent
permitted by the Code, and thus will reduce the amount of the distributions
to shareholders which would otherwise be necessary to relieve the Trust of
any liability for federal tax. Pursuant to the Code, such capital loss
carryforward will expire as follows:
<TABLE>
<CAPTION>
EXPIRATION YEAR EXPIRATION AMOUNT
----------------- -------------------
<S> <C>
1998 $11,790,281
2003 $29,464,881
</TABLE>
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Trust may engage in
when-issued or delayed delivery transactions. The Trust records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. Transactions in shares were as follows:
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
(FORMERLY, FEDERATED INTERMEDIATE GOVERNMENT TRUST)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-------------------------------------------------------------
1996 1995
---------------------------- ----------------------------
INSTITUTIONAL SHARES SHARES AMOUNT SHARES AMOUNT
- ------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Shares sold 36,204,187 $ 379,207,092 26,144,012 $ 270,233,159
- -------------------------------------
Shares issued to shareholders in
payment of distributions declared 1,558,967 16,359,196 1,282,081 13,129,629
- -------------------------------------
Shares redeemed (28,865,263) (302,475,855) (43,394,809) (447,488,088)
- ------------------------------------- ----------- ------------- ----------- -------------
Net change resulting from
Institutional Share transactions 8,897,891 $ 93,090,433 (15,968,716) $(164,125,300)
- ------------------------------------- ----------- ------------- ----------- -------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-------------------------------------------------------------
1996 1995
---------------------------- ----------------------------
INSTITUTIONAL SERVICE SHARES SHARES AMOUNT SHARES AMOUNT
- ------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Shares sold 1,439,874 $ 15,092,977 2,584,111 $ 26,484,568
- -------------------------------------
Shares issued to shareholders in
payment of distributions declared 146,629 1,538,709 87,976 900,949
- -------------------------------------
Shares redeemed (1,850,636) (19,401,741) (2,251,658) (23,262,948)
- ------------------------------------- ----------- ------------- ----------- -------------
Net change resulting from
Institutional Service Share
transactions (264,133) $ (2,770,055) 420,429 $ 4,122,569
- ------------------------------------- ----------- ------------- ----------- -------------
Net change resulting from Trust
share transactions 8,633,758 $ 90,320,378 (15,548,287) $(160,002,731)
- ------------------------------------- ----------- ------------- ----------- -------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Management, the Trust's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to .40 of 1% of the Trust's average daily net assets.
ADMINISTRATIVE FEE--Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Trust with administrative
personnel and services. The fee paid to FServ is based on the level of average
aggregate daily net assets of all funds advised by subsidiaries of Federated
Investors for the period. The administrative fee received during the period of
the Administrative Services Agreement shall be at least $125,000 per portfolio
and $30,000 per each additional class of shares.
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
(FORMERLY, FEDERATED INTERMEDIATE GOVERNMENT TRUST)
- --------------------------------------------------------------------------------
DISTRIBUTION SERVICES FEE--The Trust has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the
Trust will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Trust to finance activities intended to
result in the sale of the Trust's Institutional Service Shares. The Plan
provides that the Trust may incur distribution expenses up to .25 of 1% of the
average daily net assets of the Institutional Service Shares, annually, to
compensate FSC. FSC may voluntarily choose to waive a portion of this fee. FSC
can modify or terminate this voluntary waiver at any time at its sole
discretion.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Trust will pay FSS up to .25 of
1% of average net assets of the Trust for the period. The fee paid to FSS is
used to finance certain services for shareholders and to maintain shareholder
accounts. FSS may voluntarily choose to waive a portion of its fee. FSS can
modify or terminate this voluntary waiver at any time at its sole discretion.
For the fiscal year ended January 31, 1996, Institutional Shares fully waived
its shareholder services fee.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--FServ, through its
registered transfer and dividend disbursing agent, Federated Shareholder
Services Company, maintains all necessary shareholder records and receives a fee
based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES--FServ maintains the Trust's accounting records for
which it receives a fee. The fee is based on the level of the Trust's average
daily net assets for the period, plus out-of-pocket expenses.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities for the
fiscal year ended January 31, 1996, were as follows:
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------
PURCHASES-- $1,035,575,293
- ----------------------------------------------------------------------------- --------------
SALES-- $ 954,813,407
- ----------------------------------------------------------------------------- --------------
</TABLE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS:
(formerly, Federated Intermediate Government Trust)
We have audited the accompanying statement of assets and liabilities of
Federated U.S. Government Securities Fund: 2-5 Years (a Massachusetts business
trust), including the schedule of portfolio investments, as of January 31, 1996,
and the related statement of operations for the year then ended, the statement
of changes in net assets for each of the two years in the period then ended, and
the financial highlights (see pages 2 and 13 of the prospectus) for the periods
presented. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
January 31, 1996, by correspondence with the custodian. An audit also included
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Federated U.S. Government Securities Fund: 2-5 Years as of January 31, 1996, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended, and the financial highlights
for the periods presented, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
March 25, 1996
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Federated U.S. Government Securities Fund: 2-5 Years
Institutional Service Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Custodian
State Street Bank and P.O. Box 8600
Trust Company Boston, Massachusetts 02266-8600
- ------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Shareholders Services Company P.O. Box 8600
Boston, Massachusetts 02266-8600
- ------------------------------------------------------------------------------------------------
Independent Public Accountants
Arthur Andersen LLP 2100 One PPG Place
Pittsburgh, Pennsylvania 15222
- ------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FEDERATED U.S.
GOVERNMENT SECURITIES
FUND: 2-5 YEARS
(FORMERLY, FEDERATED INTERMEDIATE
GOVERNMENT TRUST)
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
An Open-End, Diversified
Management Investment Company
March 31, 1996
LOGO
FEDERATED SECURITIES CORP.
- --------------------------------------------------------------------------------
Distributor
A Subsidiary of Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
Cusip 314200205
8022502A-SS (3/96)
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
(FORMERLY, FEDERATED INTERMEDIATE GOVERNMENT TRUST)
INSTITUTIONAL SHARES
INSTITUTIONAL SERVICE SHARES
STATEMENT OF ADDITIONAL INFORMATION
The Institutional Shares and Institutional Service Shares represent
interests in a diversified portfolio of securities of Federated U.S.
Government Securities Fund: 2-5 Years (formerly, Federated
Intermediate Government Trust) (the "Trust"). This Statement of
Additional Information should be read with the respective prospectuses
for Institutional Shares and Institutional Service Shares dated March
31, 1996. This Statement is not a prospectus itself. You may request a
copy of either prospectus or a paper copy of this Statement of
Additional Information, if you have received it electronically, free of
charge by calling 1-800-235-4669.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated March 31, 1996
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of Federated Investors
GENERAL INFORMATION ABOUT THE TRUST 1
INVESTMENT OBJECTIVE AND POLICIES 1
TYPES OF INVESTMENTS 1
WHEN-ISSUED AND DELAYED DELIVERY
TRANSACTIONS 1
REPURCHASE AGREEMENTS 1
PORTFOLIO TURNOVER 1
INVESTMENT LIMITATIONS 1
FEDERATED U.S. GOVERNMENT SECURITIES FUND:
2-5 YEARS MANAGEMENT 2
TRUST OWNERSHIP 6
TRUSTEES COMPENSATION 7
TRUSTEE LIABILITY 7
INVESTMENT ADVISORY SERVICES 7
ADVISER TO THE TRUST 7
ADVISORY FEES 8
OTHER ADVISORY SERVICES 8
BROKERAGE TRANSACTIONS 8
OTHER SERVICES 9
PURCHASING SHARES 9
DISTRIBUTION PLAN (INSTITUTIONAL SERVICE
SHARES ONLY) 9
CONVERSION TO FEDERAL FUNDS 10
DETERMINING NET ASSET VALUE 10
DETERMINING MARKET VALUE OF SECURITIES10
REDEEMING SHARES 10
EXCHANGING SECURITIES FOR TRUST SHARES 10
TAX CONSEQUENCES 10
MASSACHUSETTS PARTNERSHIP LAW 10
TAX STATUS 11
THE TRUST'S TAX STATUS 11
SHAREHOLDERS' TAX STATUS 11
TOTAL RETURN 11
YIELD 11
PERFORMANCE COMPARISONS 12
DURATION 13
ABOUT FEDERATED INVESTORS 13
GENERAL INFORMATION ABOUT THE TRUST
Federated U.S. Government Securities Fund: 2-5 Years was established as a
Massachusetts business trust under a Declaration of Trust dated December 10,
1981. On April 13, 1995, the Board of Trustees changed the name of the
Trust from Federated Intermediate Government Trust to Federated U.S.
Government Securities Fund: 2-5 Years.
Shares of the Trust are offered in two classes, known as Institutional
Shares and Institutional Service Shares (individually and collectively
referred to as "Shares," as the context may require). This Statement of
Additional Information relates to the above-mentioned Shares of the Trust.
INVESTMENT OBJECTIVE AND POLICIES
The Trust's investment objective is current income.
TYPES OF INVESTMENTS
The Trust invests only in U.S. government securities with remaining
maturities of five years or less. This investment policy and the objective
stated above cannot be changed without approval of shareholders.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price or yield for the Trust. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of the
Trust sufficient to make payment for the securities to be purchased are
segregated on the Trust's records at the trade date. These assets are
marked to market daily and are maintained until the transaction has been
settled. As a matter of operating policy, the Trust does not intend to
engage in when-issued and delayed delivery transactions to an extent that
would cause the segregation of more than 20% of the total value of its
assets.
REPURCHASE AGREEMENTS
The Trust requires its custodian to take possession of the securities
subject to repurchase agreements, and these securities are marked to market
daily. To the extent that the original seller does not repurchase the
securities from the Trust, the Trust could receive less than the repurchase
price on any sale of such securities. In the event that such a defaulting
seller filed for bankruptcy or became insolvent, disposition of such
securities by the Trust might be delayed pending court action. The Trust
believes that under the regular procedures normally in effect for custody of
the Trust's portfolio securities subject to repurchase agreements, a court
of competent jurisdiction would rule in favor of the Trust and allow
retention or disposition of such securities. The Trust will only enter into
repurchase agreements with banks and other recognized financial institutions
such as broker/dealers which are deemed by the Trust's adviser to be
creditworthy pursuant to guidelines established by the Board of Trustees
("Trustees").
PORTFOLIO TURNOVER
The Trust 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 Trust's investment objective. During the fiscal years ended
January 31, 1996 and 1995, the portfolio turnover rates were 117% and 163%,
respectively.
INVESTMENT LIMITATIONS
The Trust will not change any of the investment limitations described below
without approval of shareholders.
SELLING SHORT AND BUYING ON MARGIN
The Trust 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 portfolio securities.
BORROWING MONEY
The Trust will not borrow money except as a temporary measure for
extraordinary or emergency purposes and then only in amounts not in
excess of 5% of the value of its total assets or in an amount up to
one-third of the value of its total assets, including the amount
borrowed, in order to meet redemption requests without immediately
selling portfolio securities. This borrowing provision is not for
investment leverage but solely to facilitate management of the
portfolio by enabling the Trust to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. However, such use will not assure that portfolio
securities will not be liquidated at a disadvantageous time.
Interest paid by the Trust on borrowed funds will not be available for
investment. While borrowings are outstanding, no portfolio securities
may be purchased by the Trust.
PLEDGING ASSETS
The Trust will not mortgage, pledge, or hypothecate any assets except
to secure permitted borrowings. In those cases, it may mortgage,
pledge, or hypothecate assets having a market value not exceeding 10%
of the value of total assets at the time of the borrowing.
LENDING CASH OR SECURITIES
The Trust will not lend any of its assets, except that it may purchase
or hold U.S. government securities, including repurchase agreements,
permitted by its investment objective and policies.
ISSUING SENIOR SECURITIES
The Trust will not issue senior securities, except as permitted by its
investment objective and policies.
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 Trust did not borrow money or pledge securities in excess of 5% of the
value of its total assets during the last fiscal year and has no present
intent to do so in the coming fiscal year.
As a matter of operating policy, the Trust will not purchase any securities
while borrowings in excess of 5% of its total assets are outstanding.
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates, present
positions with Federated U.S. Government Securities Fund: 2-5 Years, and
principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds. Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President of the Trust .
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Director, Oberg Manufacturing Co.; Chairman of the Board, Children's
Hospital of Pittsburgh; Director or Trustee of the Funds; formerly, Senior
Partner, Ernst & Young LLP.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; President, Northgate Village
Development Corporation; Partner or Trustee in private real estate ventures
in Southwest Florida; Director or Trustee of the Funds; formerly, President,
Naples Property Management, Inc.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.;
Director or Trustee of the Funds; formerly, Vice Chairman and Director, PNC
Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes, Inc.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine and Member, Board of Trustees, University of
Pittsburgh; Medical Director, University of Pittsburgh Medical Center -
Downtown; Member, Board of Directors, University of Pittsburgh Medical
Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian and
Montefiore Hospitals; Director or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Director,
Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.;
Director or Trustee of the Funds; formerly, Counsel, Horizon Financial,
F.A., Western Region.
Peter E. Madden
Seacliff
562 Bellevue Avenue
New port, RI
Birthdate: March 16, 1942
Trustee
Consultant; State Representative, Commonwealth of Massachusetts; Director or
Trustee of the Funds; formerly, President, State Street Bank and Trust
Company and State Street Boston Corporation.
Gregor F. Meyer
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee
of the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics and Management Consultant; Trustee,
Carnegie Endowment for International Peace, RAND Corporation, Online
Computer Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho
Management Center; Director or Trustee of the Funds; President Emeritus,
University of Pittsburgh; founding Chairman, National Advisory Council for
Environmental Policy and Technology and Federal Emergency Management
Advisory Board.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/marketing consultant; Conference Coordinator, Non-profit
entities; Director or Trustee of the Funds.
Glen R. Johnson
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929
President
Trustee, Federated Investors; President and/or Trustee of some of the Funds;
staff member, Federated Securities Corp.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Trustee of the Trust.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp. and Passport Research, Ltd.;
Executive Vice President and Director, Federated Securities Corp.; Trustee,
Federated Shareholder Services Company; Trustee or Director of some of the
Funds; President, Executive Vice President and Treasurer of some of the
Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President and Secretary
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated Research;
Director, Federated Research Corp. and Federated Global Research Corp.;
Trustee, Federated Shareholder Services Company; Director, Federated
Services Company; President and Trustee, Federated Shareholder Services;
Director, Federated Securities Corp.; Executive Vice President and Secretary
of the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of
the Funds; Director or Trustee of some of the Funds.
David M. Taylor
Federated Investors Tower
Pittsburgh, PA
Birthdate: January 13, 1947
Treasurer
Senior Vice President and Trustee, Federated Investors; Vice President,
Federated Shareholder Services; Executive Vice President, Federated
Securities Corp.; Treasurer of some of the Funds.
* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.
@ Member of the Executive Committee. The Executive Committee of the Board
of Trustees handles the responsibilities of the Board between meetings of
the Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: American Leaders Fund, Inc.; Annuity Management
Series; Arrow Funds; Automated Government Money Trust; Blanchard Group of
Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust Series II; Cash
Trust Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport
Cash Trust; Federated ARMs Fund; Federated Equity Funds; Federated Exchange
Fund, Ltd.; Federated GNMA Trust; Federated Government Trust; Federated High
Yield Trust; Federated Income Securities Trust; Federated Income Trust;
Federated Index Trust; Federated Institutional Trust; Federated Master
Trust; Federated Municipal Trust; Federated Short-Term Municipal Trust;
Federated Short-Term U.S. Government Trust; Federated Stock Trust; Federated
Tax-Free 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: 5-10 Years; First Priority
Funds; Fixed Income Securities, Inc.; Fortress Adjustable Rate U.S.
Government Fund, Inc.; Fortress Municipal Income Fund, Inc.; Fortress
Utility Fund, Inc.; Fund for U.S. Government Securities, Inc.; Government
Income Securities, Inc,; High Yield Cash Trust; Insurance Management Series;
Intermediate Municipal Trust; International Series, Inc.; Investment Series
Funds, Inc.; Investment Series Trust; Liberty Equity Income Fund, Inc.;
Liberty High Income Bond Fund, Inc.; Liberty Municipal Securities Fund,
Inc.; Liberty U.S. Government Money Market Trust; Liberty Term Trust, Inc.-
1999; Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed Series Trust;
Money Market Management, Inc.; Money Market Obligations Trust; Money Market
Trust; Municipal Securities Income Trust; Newpoint Funds; 111 Corcoran
Funds; Peachtree Funds; The Planters Funds; RIMCO Monument Funds; Star
Funds; The Starburst Funds; The Starburst Funds II; Stock and Bond Fund,
Inc.; Targeted Duration Trust; Tax-Free Instruments Trust; Trust for
Financial Institutions; Trust For Government Cash Reserves; Trust for Short-
Term U.S. Government Securities; Trust for U.S. Treasury Obligation; The
Virtus Funds; and World Investment Series, Inc.
TRUST OWNERSHIP
Officers and Trustees own less than 1% of the Trust's outstanding shares.
As of March 1, 1996, the following shareholder of record owned 5% or more of
the outstanding Institutional Shares of the Trust: Edrayco, Gainesville,
Georgia, owned approximately 5,665,636 shares (6.95%).
As of March 1, 1996, the following shareholders of record owned 5% or more
of the outstanding Institutional Service Shares of the Trust: Alltel
Corporation Thrift Plan, San Francisco, California owned approximately
875,636 shares (28.83%) and Charles Schwab & Company, Inc., San Francisco,
California ,owned approximately 657,972 shares (21.66%).
TRUSTEES COMPENSATION
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST* FROM FUND COMPLEX +
John F. Donahue, $ 0 $0 for the Trust and
Chairman and Trustee 54 other investment companies in the Fund
Complex
Thomas G. Bigley,$1,579 $86,331 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
John T. Conroy, Jr., $1,696 $115,760 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
William J. Copeland, $1,696 $115,760 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
James E. Dowd, $1,696 $115,760 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
Lawrence D. Ellis, M.D., $1,579 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
Edward L. Flaherty, Jr., $1,696 $115,760 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
Peter E. Madden, $1,579 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
Gregor F. Meyer, $1,579 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
John E. Murray, Jr., $1,579 $104,898 for the Trust and
Trustee 54other investment companies in the Fund Complex
Wesley W. Posvar,$1,579 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
Marjorie P. Smuts, $1,579 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
*Information is furnished for the fiscal year ended January 31, 1996.
+The information is provided for the last calendar year.
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees are not liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
ADVISER TO THE TRUST
The Trust's investment adviser is Federated Management. It is a subsidiary
of Federated Investors. All the voting securities of Federated Investors
are owned by a trust, the trustees of which are John F. Donahue, his wife
and his son, J. Christopher Donahue.
The adviser shall not be liable to the Trust, or any shareholder of the
Trust 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
Trust.
ADVISORY FEES
For its advisory services, Federated Management receives an annual
investment advisory fee as described in the prospectuses. During the fiscal
years ended January 31, 1996, 1995 and 1994, the Trust's adviser earned
$3,325,210, $3,429,592 and $3,760,780, respectively, of which $0, $141,412
and $0, were voluntarily waived.
STATE EXPENSE LIMITATIONS
The adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Trust's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2-1/2% per year of the first $30 million of average net assets,
2% per year of the next $70 million of average net assets, and 1-1/2%
per year of the remaining average net assets, the adviser will
reimburse the Trust for its expenses over the limitation.
If the Trust's monthly projected operating expenses exceed this
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the adviser will
be limited, in any single fiscal year, by the amount of the investment
advisory fee.
This arrangement is not part of the advisory contract and may be
amended or rescinded in the future.
OTHER ADVISORY SERVICES
Federated Research Corp. receives fees from certain depository institutions
for providing consulting and portfolio advisory services relating to each
institution's program of asset management. Federated Research Corp. may
advise such clients to purchase or redeem shares of investment companies,
such as the Trust, which are managed, for a fee, by Federated Research Corp.
or other affiliates of Federated Investors, such as the adviser, and may
advise such clients to purchase and sell securities in the direct markets.
Further, Federated Research Corp. and other affiliates of the adviser may,
from time to time, provide certain consulting services and equipment to
depository institutions in order to facilitate the purchase of shares of
funds offered by Federated Securities Corp.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the adviser looks for prompt execution of the order
at a favorable price. In working with dealers, the adviser will generally
use those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained
elsewhere. The adviser makes decisions on portfolio transactions and selects
brokers and dealers subject to guidelines established by the Trustees.
The adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Trust or to the
adviser and 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 provided by brokers and dealers may be used by the adviser
or by affiliates in advising the Trust and other accounts. To the extent
that receipt of these services may supplant 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 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. For the fiscal
years ended January 31, 1996, 1995, and 1994, the Trust paid no brokerage
commissions.
Although investment decisions for the Trust are made independently from
those of the other accounts managed by the adviser, investments of the type
the Trust may make may also be made by those other accounts. When the Trust
and one or more other accounts managed by the adviser are prepared to invest
in, or desire to dispose of, the same security, available investments or
opportunities for sales will be allocated in a manner believed by the
adviser to be equitable to each. In some cases, this procedure may
adversely affect the price paid or received by the Trust or the size of the
position obtained or disposed of by the Trust. In other cases, however, it
is believed that coordination and the ability to participate in volume
transactions will be to the benefit of the Trust.
OTHER SERVICES
TRUST ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Trust for a fee as described in
the prospectus. From March 1, 1994, to March 1, 1996, Federated
Administrative Serves served as the Trust's Administrator. Prior to March
1, 1994, Federated Administrative Services, Inc. served as the Trust's
Administrator. Both former Administrators are subsidiaries of Federated
Investors. For purposes of this Statement of Additional Information,
Federated Administrative Services and Federated Administrative Services,
Inc., may hereinafter collectively be referred to as, the "Administrators".
For the fiscal year ended January 31, 1996, 1995, and 1994, the
Administrators earned $629,145, $710,380 and $647,491, respectively. Dr.
Henry J. Gailliot, an officer of Federated Management, the adviser to the
Trust, holds approximately 20% of the outstanding common stock and serves as
a director of Commercial Data Services, Inc., a company which provides
computer processing services to Federated Services Company.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for
the securities and cash of the Trust. Federated Services Company,
Pittsburgh, Pennsylvania, provides certain accounting and recordkeeping
services with respect to the Trust's portfolio investments. The fee paid for
this service is based upon the level of the Trust's average net assets for
the period plus out-of-pocket expenses.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent, Federated
Shareholder Services Company, maintains all necessary shareholder records.
For its services, the transfer agent receives a fee based upon the size,
type and number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Trust are Arthur Andersen LLP,
Pittsburgh, Pennsylvania.
PURCHASING SHARES
Shares are sold at their net asset value without a sales charge on days the
New York Stock Exchange is open for business. The procedure for purchasing
shares is explained in the respective prospectuses under "Investing in
Institutional Shares" or "Investing in Institutional Service Shares."
DISTRIBUTION PLAN (INSTITUTIONAL SERVICE SHARES ONLY) AND SHAREHOLDER
SERVICES
As explained in the respective prospectuses, with respect to Shares of the
Trust, the Trust has adopted a Shareholder Services Agreement, and, with
respect to Institutional Service Shares the Trust has adopted a Distribution
Plan.
These arrangements permit the payment of fees to financial institutions, the
distributor, and Federated Shareholder Services, to stimulate distribution
activities and to cause services to be provided to shareholders by a
representative who has knowledge of the shareholder's particular
circumstances and goals. These activities and services may include, but are
not limited to: marketing efforts; providing office space, equipment,
telephone facilities, and various clerical, supervisory, computer, and other
personnel as necessary or beneficial to establish and maintain shareholder
accounts and records; processing purchase and redemption transactions and
automatic investments of client account cash balances; answering routine
client inquiries; and assisting clients in changing dividend options,
account designations and addresses.
By adopting the Plan, the Trustees expect that the Trust will be able to
achieve a more predictable flow of cash for investment purposes and to meet
redemptions. This will facilitate more efficient portfolio management and
assist the Trust in pursuing its investment objectives. By identifying
potential investors whose needs are served by the Trust's objectives, and
properly servicing these accounts, it may be possible to curb sharp
fluctuations in rates of redemptions and sales.
Other benefits, which may be realized under either arrangement, may include:
(1) providing personal services to shareholders; (2) investing shareholder
assets with a minimum of delay and administrative detail; (3) enhancing
shareholder recordkeeping systems; and (4) responding promptly to
shareholders' requests and inquiries concerning their accounts.
For the fiscal year ended January 31, 1996, payments in the amount of
$81,743 were made by Institutional Service Shares pursuant to the Plan,
$74,096 of which was waived. In addition, for the fiscal year ended
January 31, 1996, the Trust paid shareholder service fees in the amount of
$2,078,257, of which $2,004,161 was waived.
CONVERSION TO FEDERAL FUNDS
It is the Trust's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be
in federal funds or be converted into federal funds. State Street Bank and
Trust Company ("State Street Bank") acts as the shareholder's agent in
depositing checks and converting them to federal funds.
DETERMINING NET ASSET VALUE
Net asset value generally changes each day. The days on which net asset
value is calculated by the Trust are described in the respective
prospectuses.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Trust's portfolio securities are determined as follows:
oaccording to the mean between the over-the-counter bid and asked prices
provided by an independent pricing service, if available, or at fair value
as determined in good faith by the Trustees; or
ofor short-term obligations with remaining maturities of 60 days or less at
the time of purchase, at amortized cost unless the Trustees determine that
particular circumstances of the security indicate otherwise.
REDEEMING SHARES
The Trust redeems Shares at the next computed net asset value after the
Trust receives the redemption request. Redemption procedures are explained
in the respective prospectuses under "Redeeming Institutional Shares" or
"Redeeming Institutional Service Shares." Although the transfer agent does
not charge for telephone redemptions, it reserves the right to charge a fee
for the cost of wire-transferred redemptions of less than $5,000.
EXCHANGING SECURITIES FOR TRUST SHARES
Investors may exchange U.S. government securities they already own for
Shares of either class, or they may exchange a combination of U.S.
government securities and cash for Shares of either class. An investor
should forward the securities in negotiable form with an authorized letter
of transmittal to Federated Securities Corp. The Trust will notify the
investor of its acceptance and valuation of the securities within five
business days of their receipt by State Street Bank.
The Trust values securities in the same manner as the Trust values its
assets. The basis of the exchange will depend upon the net asset value of
Shares on the day the securities are valued. One share will be issued for
each equivalent amount of securities accepted.
Any interest earned on the securities prior to the exchange will be
considered in valuing the securities. All interest, dividends, subscription,
or other rights attached to the securities become the property of the Trust,
along with the securities.
TAX CONSEQUENCES
Exercise of this exchange privilege is treated as a sale for federal income
tax purposes. Depending upon the cost basis of the securities exchanged for
Shares, a gain or loss may be realized by the investor.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for such acts or
obligations of the Trust. These documents require notice of this disclaimer
to be given in each agreement, obligation, or instrument that the Trust or
its Trustees enter into or sign on behalf of the Trust.
In the unlikely event a shareholder is held personally liable for the
Trust's obligations, the Trust is required to use its property to protect or
to compensate the shareholder. On request, the Trust will defend any claim
made and pay any judgment against a shareholder for any act or obligation of
the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations
to indemnify shareholders and to pay judgments against them from its assets.
TAX STATUS
THE TRUST'S TAX STATUS
The Trust will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment
afforded to such companies. To qualify for this treatment, the Trust must,
among other requirements:
oderive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
oderive less than 30% of its gross income from the sale of securities held
less than three months;
oinvest in securities within certain statutory limits; and
odistribute to its shareholders at least 90% of its net income earned
during the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and capital
gains received as cash or additional Shares. No portion of any income
dividend paid by the Trust is eligible for the dividends received deduction
available to corporations. These dividends, and any short-term capital
gains, are taxable as ordinary income.
CAPITAL GAINS
Long-term capital gains distributed to shareholders will be treated as
long-term capital gains regardless of how long shareholders have held
Shares.
TOTAL RETURN
The Trust's average annual total return for Institutional Shares for the
one-year and five-year periods ended January 31, 1996, and for the period
from February 18, 1983 (effective date of the Trust's registration
statement) to January 31, 1996, were 12.86%, 7.59% and 8.85%, respectively.
The Trust's average annual total return for Institutional Service Shares for
the one-year period ended January 31, 1996, and for the period from June 18,
1992 (date of initial public investment) to January 31, 1996, were 12.58%
and 6.38%, respectively.
The average annual total return for both classes of Shares of the Trust 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 offering price 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,
adjusted over the period by any additional shares, assuming the monthly
reinvestment of all dividends and distributions.
YIELD
The Trust's yield for Institutional Shares for the thirty-day period ended
January 31, 1996, was 4.82%.
The Trust's yield for Institutional Service Shares for the thirty-day period
ended January 31, 1996, was 4.57%.
The yield for both classes of Shares of the Trust is determined by dividing
the net investment income per share (as defined by the Securities and
Exchange Commission) earned by either class of Shares over a thirty-day
period by the offering price per share of either class on the last day of
the period. This value is then annualized using semi-annual compounding.
This means that the amount of income generated during the thirty-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 the Trust because of certain adjustments required by the
Securities and Exchange Commission and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in
either class of shares, the performance will be reduced for those
shareholders paying those fees.
PERFORMANCE COMPARISONS
The performance of both classes of Shares depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Trust's expenses or either class of Share's expenses; and
o various other factors.
Either class of Shares' performance fluctuates on a daily basis largely
because net earnings and net asset value per share fluctuate daily. Both net
earnings and net asset value per share are factors in the computation of
yield and total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Trust's performance. When comparing performance,
investors should consider all relevant factors such as the composition of
any 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 Trust
uses in advertising may include:
o LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund 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 Trust will quote its
Lipper ranking in the U.S. government funds category in advertising and
sales literature.
o MERRILL LYNCH COMPOSITE 1-5 YEAR TREASURY INDEX is comprised of
approximately 66 issues of U.S. Treasury securities maturing between 1
and 4.99 years, with coupon rates of 4.25% or more. These total return
figures are calculated for one, three, six, and twelve month periods and
year-to-date and include the value of the bond plus income and any price
appreciation or depreciation.
o MERRILL LYNCH 3-5 YEAR TREASURY INDEX is comprised of approximately 24
issues of intermediate-term U.S. government and U.S. Treasury securities
with maturities between 3 and 4.99 years and coupon rates above 4.25%.
Index returns are calculated as total returns for periods of one, three,
six and twelve months as well as year-to-date.
o MERRILL LYNCH 3-YEAR, 4-YEAR, AND 5-YEAR TREASURY YIELD CURVE INDICES
are unmanaged indices comprised of the most recently issued 3-year, 4-
year, and 5-year U.S. Treasury notes. Index returns are calculated as
total returns for periods of one, three, six, and twelve months as well
as year-to-date.
o SALOMON BROTHERS 3-5 YEAR GOVERNMENT INDEX quotes total returns for U.S.
Treasury issues (excluding flower bonds) which have maturities of three
to five years. These total returns are year-to-date figures which are
calculated each month following January 1.
o 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.
o LEHMAN BROTHERS INTERMEDIATE GOVERNMENT INDEX is an unmanaged index
comprised of all publicly issued, non-convertible domestic debt of the
U.S. government, or any agency thereof, or any quasi-federal corporation
and of corporate debt guaranteed by the U.S. government. Only notes and
bonds with minimum outstanding principal of $1 million and minimum
maturity of one year and maximum maturity of ten years are included.
o 3-YEAR TREASURY NOTES--Source: Wall Street Journal, Bloomberg Financial
Markets, and Telerate.
Advertisements and other sales literature for both classes of Shares may
quote total returns which are calculated on non-standardized base periods.
These total returns also represent the historic change in the value of an
investment in either class of Shares based on monthly reinvestment of
dividends over a specified period of time.
DURATION
Duration is a commonly used measure of the potential volatility in the price
of a bond, or other fixed income security, or in a portfolio of fixed income
securities, prior to maturity. Volatility is the magnitude of the change in
the price of a bond relative to a given change in the market rate of
interest. A bond's price volatility depends on three primary variables: the
bond's coupon rate; maturity date; and the level of market yields of similar
fixed-income securities. Generally, bonds with lower coupons or longer
maturities will be more volatile than bonds with higher coupons or shorter
maturities. Duration combines these variables into a single measure.
Duration is calculated by dividing the sum of the time-weighted values of
the cash flows of a bond or bonds, including interest and principal
payments, by the sum of the present values of the cash flows.
When the Trust invests in mortgage pass-through securities, its duration
will be calculated in a manner which requires assumptions to be made
regarding future principal prepayments. A more complete description of this
calculation is available upon request from the Trust.
ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is
reflected in its investment decision making-structured, straightforward, and
consistent. This has resulted in a history of competitive performance with a
range of competitive investment products that have gained the confidence of
thousands of clients and their customers.
The company's disciplined security selection process is firmly rooted in
sound methodologies backed by fundamental and technical research. Investment
decisions are made and executed by teams of portfolio managers, analysts,
and traders dedicated to specific market sectors.
J. Thomas Madden, Executive Vice President, oversees Federated Investors'
equity and high yield corporate bond management while William D. Dawson,
Executive Vice President, oversees Federated Investors' domestic fixed
income management. Henry A. Frantzen, Executive Vice President, oversees the
management of Federated Investors' international portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $2 trillion to the more than 5,500 funds
available.*
Federated Investors, through its subsidiaries, distributes mutual funds for
a variety of investment applications. Specific markets include:
*Source: Investment Company Institute Trust Organizations
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for
a variety of applications, 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 advisors. The marketing effort to these institutional clients is
headed by John B. Fisher, President, Institutional Sales Division.
Other institutional clients include close relationships with more than 1,500
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 Mark R.
Gensheimer, Executive Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage firms
nationwide--including 200 New York Stock Exchange firms--supported by more
wholesalers than any other mutual fund distributor. The marketing effort to
these firms is headed by James F. Getz, President, Broker/Dealer Division.
314200106
314200205
