FEDERATED U S GOVERNMENT SECURITIES FUND 2-5 YEARS, 485BPOS, 1996-03-26

FEDERATED U S GOVERNMENT SECURITIES FUND 2-5 YEARS
485BPOS, 1996-03-26

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1933 Act File No. 2-75769
1940 Act File No. 811-3387

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X

Pre-Effective Amendment No. ..........

Post-Effective Amendment No. 26 ........... X

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X

Amendment No. 21 ......................... X

FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
(formerly, FEDERATED INTERMEDIATE GOVERNMENT TRUST)

(Exact Name of Registrant as Specified in Charter)

Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)

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

John W. McGonigle, Esquire,
Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)

It is proposed that this filing will become effective:

immediately upon filing pursuant to paragraph (b)
X on March 31, 1995 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a) (i)
on pursuant to paragraph (a) (i).
75 days after filing pursuant to paragraph (a)(ii)
on pursuant to paragraph (a)(ii) of Rule 485.
-----------------

If appropriate, check the following box:

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

Registrant has filed with the Securities and Exchange Commission a
declaration pursuant to Rule 24f-2 under the Investment Company Act of 1940,
and:

filed the Notice required by that Rule on ; or
-----------------
intends to file the Notice required by that Rule on or about
; or
------------
X during the most recent fiscal year did not sell any securities pursuant
to Rule 24f-2 under the Investment Company Act of 1940, and, pursuant to
Rule 24f-2(b)(2), need not file the Notice.

Copy to: Matthew G. Maloney, Esquire
Dickstein, Shapiro & Morin
2101 L Street, N.W.
Washington, D.C. 20037

CROSS REFERENCE SHEET

This Amendment to the Registration Statement of FEDERATED U.S. GOVERNMENT
SECURITIES FUND: 2-5 YEARS (formerly, FEDERATED INTERMEDIATE GOVERNMENT
TRUST), which consists of two classes of shares, (1) Institutional Shares;
and (2) Institutional Service Shares, is comprised of the following:

PART A. INFORMATION REQUIRED IN A PROSPECTUS.

Prospectus Heading
(Rule 404(c) Cross Reference)

Item 1. Cover Page...............(1-2) Cover Page.
Item 2. Synopsis.................(1-2) Summary of Fund Expenses.
Item 3. Condensed Financial
Information..............(1-2) Financial Highlights; (1-2)
Performance Information; (1-2) Financial
Statements.
Item 4. General Description of
Registrant...............(1-2) General Information; (1-2)
Investment Information; (1-2) Investment
Objective; (1-2) Investment Policies; (1-
2) Investment Limitations.
Item 5. Management of the Trust..(1-2) Trust Information; (1-2) Management
of the Trust; (1) Distribution of
Institutional Shares; (2) Distribution of
Institutional Service Shares; (1-2)
Administration of the Trust;
Item 6. Capital Stock and Other
Securities...............(1-2) Dividends; (1-2) Capital Gains;
(1-2) Shareholder Information; (1-2)
Voting Rights; (1-2) Tax Information; (1-
2) Federal Income Tax; (1-2) State and
Local Taxes; (1-2) Other Classes of
Shares.
Item 7. Purchase of Securities Being
Offered..................(1-2) Net Asset Value; (1) Investing in
Institutional Shares; (2) Investing in
Institutional Service Shares; (1-2) Share
Purchases; (1-2) Minimum Investment
Required; (1-2) What Shares Cost; (1-2)
Exchanging Securities for Trust Shares;
(1-2) Certificates and Confirmations.
Item 8. Redemption or Repurchase.(1) Redeeming Institutional Shares; (2)
Redeeming Institutional Service Shares;
(1-2) Telephone Redemption; (1-2) Written
Requests; (1-2) Accounts With Low
Balances.
Item 9. Pending Legal Proceedings None.

PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.

Item 10. Cover Page...............(1-2) Cover Page.
Item 11. Table of Contents........(1-2) Table of Contents.
Item 12. General Information and
History..................(1-2) General Information About the Trust.
Item 13. Investment Objectives and
Policies.................(1-2) Investment Objective and Policies.
Item 14. Management of the Trust..(1-2)Federated Intermediate Government
Trust Management; (1-2) Trustees
Compensation; (1-2) Trustee Liability..
Item 15. Control Persons and Principal
Holders of Securities....(1-2) Trust Ownership.
Item 16. Investment Advisory and Other
Services.................(1-2) Investment Advisory Services; (1-2)
Administrative Services.
Item 17. Brokerage Allocation.....(1-2) Brokerage Transactions.
Item 18. Capital Stock and Other
Securities...............Massachusetts Partnership Law.
Item 19. Purchase, Redemption and
Pricing of Securities Being
Offered..................(1-2) Purchasing Shares; (1-2) Determining
Net Asset Value; (1-2) Redeeming Shares;
(1-2) Exchanging Securities for Trust
Shares.
Item 20. Tax Status...............(1-2) Tax Status.
Item 21. Underwriters.............(1-2) Distribution Plan-Institutional
Service Shares; (1-2) Shareholder
Services.
Item 22. Calculation of Performance
Data.....................(1-2) Total Return; (1-2) Yield; (1-2)
Performance Comparisons.
Item 23. Financial Statements.....Filed in Part A.

- --------------------------------------------------------------------------------

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

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

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.

(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).

This prospectus contains the information you should read and know before you
invest in the Trust. Keep this prospectus for future reference.

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)

* 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.

(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

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

- 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.

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.

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

TRUST INFORMATION
- --------------------------------------------------------------------------------

MANAGEMENT OF THE TRUST

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.

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.

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>

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.

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

WHAT SHARES COST

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

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
- --------------------------------------------------------------------------------

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.

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

- 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.

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

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.

FEDERAL INCOME TAX

STATE AND LOCAL TAXES

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.

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.