FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
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. 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, 1997,
with the Securities and Exchange Commission ("SEC"). 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
1-800-341-7400. To obtain other information or to make inquiries about the
Trust, contact the Trust at the address listed in the back of this
prospectus. The Statement of Additional Information, material incorporated
by reference into this document, and other information regarding the Trust
is maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated March 31, 1997
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 4
Management of the Trust 4
Distribution of Institutional Shares 5
Administration of the Trust 6
NET ASSET VALUE 6
INVESTING IN INSTITUTIONAL SHARES 6
Share Purchases 6
Minimum Investment Required 7
What Shares Cost 7
Exchanging Securities for Trust Shares 7
Certificates and Confirmations 7
Dividends 8
Capital Gains 8
REDEEMING INSTITUTIONAL SHARES 8
Telephone Redemption 8
Written Requests 8
Accounts with Low Balances 9
SHAREHOLDER INFORMATION 9
Voting Rights 9
TAX INFORMATION 9
Federal Income Tax 9
State and Local Taxes 10
PERFORMANCE INFORMATION 10
OTHER CLASSES OF SHARES 10
FINANCIAL HIGHLIGHTS --
INSTITUTIONAL SERVICE SHARES 11
FINANCIAL STATEMENTS 12
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 20
ADDRESSES Inside Back Cover
SUMMARY OF TRUST EXPENSES
<TABLE>
<CAPTION>
INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering None
price)
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
<CAPTION>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C> <C>
Management Fee (after waiver)(1) 0.39%
12b-1 Fee None
Total Other Expenses 0.15%
Shareholder Services Fee (after waiver)(2) 0.00%
Total Operating Expenses(3) 0.54%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary
waiver at any time at its sole discretion. The maximum management fee is
0.40%.
(2) The shareholder services fee has been reduced to reflect the voluntary
waiver of the shareholder services fee. The shareholder service provider
can terminate this voluntary waiver at any time at its sole discretion.
The maximum shareholder services fee is 0.25%.
(3) The total operating expenses would have been 0.80% absent the voluntary
waivers of a portion of the management fee and 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 the 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 $6 $17 $30 $68
period
</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
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 20.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, $10.74 $10.11 $10.78 $10.61 $10.25 $ 9.87 $ 9.59 $ 9.42 $ 9.88 $10.25
BEGINNING OF PERIOD
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.57 0.64 0.54 0.46 0.57 0.71 0.75 0.79* 0.81 0.80
Net realized and
unrealized gain
(loss) on investments (0.26) 0.63 (0.67) 0.17 0.36 0.38 0.28 0.17* (0.46) (0.28)
Total from investment
operations 0.31 1.27 (0.13) 0.63 0.93 1.09 1.03 0.96 0.35 0.52
LESS DISTRIBUTIONS
Distributions
from net investment (0.57) (0.64) (0.54) (0.46) (0.57) (0.71) (0.75) (0.79) (0.81) (0.80)
income Distributions
from net realized gain
on investments -- -- -- -- -- -- -- -- -- (0.09)
Total (0.57) (0.64) (0.54) (0.46) (0.57) (0.71) (0.75) (0.79) (0.81) (0.89)
distributions
NET ASSET VALUE,
END OF PERIOD $10.48 $10.74 $10.11 $10.78 $10.61 $10.25 $ 9.87 $ 9.59 $ 9.42 $ 9.88
TOTAL RETURN(A) 3.01% 12.86% (1.18)% 6.07% 9.37% 11.44% 11.18% 10.52% 3.66% 5.53%
RATIOS TO AVERAGE
NET ASSETS
Expenses 0.54% 0.54% 0.54% 0.52% 0.50% 0.50% 0.51% 0.51% 0.47% 0.45%
Net investment income 5.42% 6.07% 5.16% 4.30% 5.52% 7.08% 7.75% 8.26% 8.37% 8.18%
Expense waiver/
reimbursement(b) 0.26% 0.25% 0.02% -- -- -- -- -- 0.03% 0.03%
SUPPLEMENTAL DATA
Net assets, end $782,056 $871,966 $731,280 $951,528 $845,620 $779,686 $791,131 $959,728 $1,246,393 $1,534,501
of period (000 omitted)
Portfolio 99% 117% 163% 131% 85% 108% 60% 166% 82% 70%
turnover
</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, 1997, 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;
* notes, bonds, and discount notes issued or guaranteed by U.S. government
agencies or instrumentalities, supported by the full faith and credit of the
United States;
* notes, bonds, and discount notes of U.S. government agencies or
instrumentalities which receive or have access to federal funding; and
* notes, bonds, and discount notes of other U.S. government
instrumentalities supported only by the credit of the instrumentalities.
Some obligations issued or guaranteed by agencies or instrumentalities of
the U.S. government 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 15% 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.
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 0.40% of the Trust's average daily net assets. 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 $110 billion invested across
more than 300 funds under management and/or administration by its
subsidiaries, as of December 31, 1996, Federated Investors is one of the
largest mutual fund investment managers in the United States. With more than
2,000 employees, Federated continues to be led by the management who founded
the company in 1955. Federated funds are presently at work in and through
4,500 financial institutions nationwide.
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 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.
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 0.25% 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.
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 as specified below:
MAXIMUM FEE AVERAGE AGGREGATE DAILY NET ASSETS
.15% on the first $250 million
.125% on the next $250 million
.10% on the next $250 million
.075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its
fee.
NET ASSET VALUE
The Trust's net asset value per Share fluctuates. The net asset value for
Shares is determined by adding the interest of Shares in the market value of
all securities and other assets of the Trust, subtracting the interest of
Shares in the liabilities of the Trust and those attributable to Shares, and
dividing the remainder by the total number of Shares outstanding. The net
asset value for 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 financial
intermediary'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
financial intermediary may be subject to a different minimum investment.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Trust. Investors who
purchase Shares through a financial intermediary may be charged a service
fee by that financial intermediary.
The net asset value is determined as of the close of trading (normally 4:00
p.m. Eastern time) on the New York Stock Exchange, Monday through Friday,
except on: (i) days on which there are not sufficient changes in the value
of the Trust's portfolio securities that its net asset value might be
materially affected; (ii) days during which no Shares are tendered for
redemption and no orders to purchase Shares are received; and (iii) the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
EXCHANGING SECURITIES FOR TRUST SHARES
Investors may exchange certain U.S. government securities or a combination
of securities and cash for Shares. The securities and cash must have a
market value of at least $25,000. The Trust reserves the right to determine
the acceptability of securities to be exchanged. Securities accepted by the
Trust are valued in the same manner as the Trust values its assets.
Investors wishing to exchange securities should first contact Federated
Securities Corp.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Trust, Federated Shareholder Services Company
maintains a share account for each shareholder. Share certificates are not
issued unless requested by contacting the Trust.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during
the month.
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are declared just
prior to determining net asset value. If an order for Shares is placed on
the preceding business day, Shares purchased by wire begin earning dividends
on the business day wire payment is received by State Street Bank. If the
order for Shares and payment by wire are received on the same day, Shares
begin earning dividends on the next business day. Shares purchased by check
begin earning dividends on the business day after the check is converted,
upon instruction of the transfer agent, into federal funds. Dividends are
automatically reinvested on payment dates in additional shares unless cash
payments are requested by contacting the Trust.
CAPITAL GAINS
Capital gains realized by the Trust, if any, are distributed at least once
every 12 months.
REDEEMING INSTITUTIONAL SHARES
The Trust redeems Shares at their net asset value next determined after
Federated Shareholder Services Company receives the redemption request.
Investors who redeem Shares through a financial intermediary may be charged
a service fee by that financial intermediary. Redemptions will be made on
days on which the Trust computes its net asset value. Redemption requests
must be received in proper form and can be made by telephone request or by
written request.
TELEPHONE REDEMPTION
Shareholders may redeem their Shares by telephoning the Trust before 4:00
p.m. (Eastern time). All proceeds will normally be wire transferred the
following business day, but in no event more than seven days, to the
shareholder's account at a domestic commercial bank that is a member of the
Federal Reserve System. Proceeds from redemption requests received on
holidays when wire transfers are restricted will be wired the following
business day. Questions about telephone redemptions on days when wire
transfers are restricted should be directed to your shareholder services
representative at the telephone number listed on your account statement. If
at any time the Trust shall determine it necessary to terminate or modify
this method of redemption, shareholders would be promptly notified.
An authorization form permitting the Trust to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from Federated Securities Corp. Telephone redemption instructions
may be recorded. If reasonable procedures are not followed by the Trust, it
may be liable for losses due to unauthorized or fraudulent telephone
instructions.
In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming by telephone. If such a case should
occur, another method of redemption, such as "Written Requests," should be
considered.
WRITTEN REQUESTS
Shares may be redeemed in any amount by mailing a written request to:
Federated Shareholder Services Company, P.O. Box 8600, Boston, MA
02266-8600. If share certificates have been issued, they should be sent
unendorsed with the written request by registered or certified mail to the
address noted above.
SIGNATURES. Shareholders requesting a redemption of any amount to be sent to
an address other than that on record with the Trust, or a redemption payable
other than to the shareholder of record must have signatures on written
redemption requests guaranteed by:
* a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
* a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
* a savings bank or savings association whose deposits are insured by the
Savings Association Insurance Fund ("SAIF"), which is administered by the
FDIC; or
* any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Trust does not accept signatures guaranteed by a notary public.
The Trust and its transfer agent have adopted standards for accepting
signature guarantees from the above institutions. The Trust may elect in the
future to limit eligible signature guarantors to institutions that are
members of a signature guarantee program. The Trust and its transfer agent
reserve the right to amend these standards at any time without notice.
RECEIVING PAYMENT. Normally, a check for the proceeds is mailed within one
business day, but in no event more than seven days, after receipt of a
proper written redemption request.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Trust
may redeem Shares in any account and pay the proceeds to the shareholder if
the account balance falls below a required minimum value of $25,000. This
requirement does not apply, however, if the balance falls below $25,000
because of changes in the Trust's net asset value. Before Shares are
redeemed to close an account, the shareholder is notified in writing and
allowed 30 days to purchase additional Shares to meet the minimum
requirement.
SHAREHOLDER INFORMATION
VOTING RIGHTS
Each share of the Trust gives the shareholder one vote in Trustee elections
and other matters submitted to shareholders for vote. All shares of all
classes of each portfolio in the Trust have equal voting rights except that
in matters affecting only a particular portfolio or class, only shares of
that portfolio or class are entitled to vote. As a Massachusetts business
trust, the Trust is not required to hold annual shareholder meetings.
Shareholder approval will be sought only for certain changes in the Trust's
operation and for the election of Trustees under certain circumstances.
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, Donnelly & Meck, 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 1-800-341-7400.
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 20.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1997 1996 1995 1994 1993(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING $10.74 $10.11 $10.78 $10.61 $10.35
OF PERIOD
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.54 0.61 0.51 0.44 0.34
Net realized and
unrealized gain (loss)
on investments (0.26) 0.63 (0.67) 0.17 0.26
Total from investment 0.28 1.24 (0.16) 0.61 0.60
operations
LESS DISTRIBUTIONS
Distributions from net (0.54) (0.61) (0.51) (0.44) (0.34)
investment income
NET ASSET VALUE, END OF $10.48 $10.74 $10.11 $10.78 $10.61
PERIOD
TOTAL RETURN(B) 2.76% 12.58% (1.42)% 5.81% 5.84%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.79% 0.79% 0.79% 0.77% 0.75%*
Net investment income 5.16% 5.85% 5.00% 4.01% 5.13%*
Expense 0.26% 0.25% 0.21% -- --
waiver/reimbursement(c)
SUPPLEMENTAL DATA
Net assets, end of period $25,791 $32,317 $33,117 $30,763 $12,987
(000 omitted)
Portfolio turnover 99% 117% 163% 131% 85%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from June 18, 1992 (date of initial
public investment) to January 31, 1993.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Further information about the Trust's performance is contained in the
Trust's annual report for the fiscal year ended January 31, 1997, which can
be obtained free of charge.
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
PORTFOLIO OF INVESTMENTS
JANUARY 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
U.S. TREASURY NOTES -- 98.6%
$ 25,000,000 8.875%, 11/15/1998 $ 26,245,250
65,000,000 6.750%, 6/30/1999 66,094,600
30,000,000 7.125%, 9/30/1999 30,794,400
100,000,000 7.500%, 10/31/1999 103,584,000
10,000,000 5.875%, 11/15/1999 9,956,100
100,000,000 7.750%, 12/31/1999 104,415,000
40,000,000 7.750%, 1/31/2000 41,798,800
63,300,000 6.875%, 3/31/2000 64,670,445
19,000,000 6.250%, 5/31/2000 19,068,020
20,000,000 6.125%, 9/30/2000 19,973,200
30,000,000 5.625%, 11/30/2000 29,442,900
55,000,000 5.500%, 12/31/2000 53,696,500
50,000,000 6.375%, 3/31/2001 50,275,000
55,000,000 6.250%, 4/30/2001 55,036,850
50,000,000 6.625%, 6/30/2001 50,730,500
25,000,000 6.500%, 8/31/2001 25,240,750
25,000,000 6.250%, 10/31/2001 24,987,000
20,750,000 5.875%, 11/30/2001 20,421,112
TOTAL U.S. TREASURY NOTES (IDENTIFIED COST 796,430,427
$795,289,815)
(A)REPURCHASE AGREEMENTS -- 0.4%
3,650,000 B.T. Securities Corp., 5.580%, dated 3,650,000
1/31/1997, due 2/3/1997
TOTAL INVESTMENTS (IDENTIFIED COST $ 800,080,427
$798,939,815)(B)
</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
$799,225,185. The net unrealized appreciation of investments on a federal
tax basis amounts to $855,242 which is comprised of $3,560,036 appreciation
and $2,704,794 depreciation at January 31, 1997.
Note: The categories of investments are shown as a percentage of net assets
($807,847,798) at January 31, 1997.
(See Notes which are an integral part of the Financial Statements)
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 1997
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value
(identified cost $798,939,815 and
tax cost $799,225,185) $ 800,080,427
Income receivable 12,109,208
Receivable for shares sold 3,738,560
Total assets 815,928,195
LIABILITIES:
Payable for shares redeemed $ 786,422
Income distribution payable 2,366,624
Payable to Bank 4,807,142
Accrued expenses 120,209
Total liabilities 8,080,397
Net Assets for 77,092,484 shares $ 807,847,798
outstanding
NET ASSETS CONSIST OF:
Paid in capital $ 845,859,022
Net unrealized appreciation of investments 1,140,612
Accumulated net realized loss on (39,151,836)
investments
Total Net Assets $ 807,847,798
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$782,056,406 / 74,631,222 shares $10.48
outstanding
INSTITUTIONAL SERVICE SHARES:
$25,791,392 / 2,461,262 shares outstanding $10.48
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
STATEMENT OF OPERATIONS
YEAR ENDED JANUARY 31, 1997
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 50,467,617
EXPENSES:
Investment advisory fee $ 3,384,916
Administrative personnel 639,583
and services fee Custodian fees 125,368
Transfer and dividend 232,540
disbursing agent fees and expenses
Directors'/Trustees' fees 23,701
Auditing fees 14,748
Legal fees 9,076
Portfolio accounting fees 147,137
Distribution services fee 73,502
-- Institutional Service Shares
Shareholder services fee 2,042,037
-- Institutional Shares
Shareholder services fee 73,502
-- Institutional Service
Shares
Share registration costs 37,799
Printing and postage 21,870
Insurance premiums 9,519
Taxes 75
Miscellaneous 8,997
Total expenses 6,844,370
Waivers --
Waiver of investment advisory fee $ (69,622)
Waiver of distribution services fee -- (67,622)
Institutional Service Shares
Waiver of shareholder (2,042,037)
services fee -- Institutional Shares
Waiver of shareholder (5,880)
services fee -- Institutional Service Shares
Total waivers (2,185,161)
Net expenses 4,659,209
Net investment income 45,808,408
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 2,103,327
Net change in unrealized (24,522,667)
appreciation of investments
Net realized and (22,419,340)
unrealized loss on investments
Change in net $ 23,389,068
assets resulting from operations
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 45,808,408 $ 50,360,050
Net realized gain on investments
($2,863,569 and $18,811,797,
respectively, as computed for 2,103,327 18,811,797
federal tax purposes)
Net change in unrealized (24,522,667) 30,753,121
(depreciation) appreciation
Change in net assets resulting from 23,389,068 99,924,968
operations
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income
Institutional Shares (44,291,755) (48,447,620)
Institutional Service Shares (1,516,653) (1,912,430)
Change in net assets resulting
from distributions to
shareholders (45,808,408) (50,360,050)
SHARE TRANSACTIONS --
Proceeds from sale of shares 274,782,417 394,300,069
Net asset value of shares issued to
shareholders in payment
of distributions declared 17,030,963 17,897,905
Cost of shares redeemed (365,828,600) (321,877,596)
Change in net assets resulting from (74,015,220) 90,320,378
share transactions
Change in net assets (96,434,560) 139,885,296
NET ASSETS:
Beginning of period 904,282,358 764,397,062
End of period $ 807,847,798 $ 904,282,358
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1997
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 in 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.
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 -- U.S. government securities are generally valued at
the mean of the latest bid and asked price as furnished by an independent
pricing service. Short-term securities are valued at the prices provided by
an independent pricing service. However, short-term securities with
remaining maturities of sixty days or less at the time of purchase may be
valued at amortized cost, which approximates fair market value.
REPURCHASE AGREEMENTS -- It is the policy of the 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 Board of Trustees (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.
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, 1997, the Trust for federal tax purposes, had a capital loss
carryforward of $38,391,593, 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:
EXPIRATION YEAR EXPIRATION AMOUNT
1998 $ 8,926,712
2003 $29,464,881
Additionally, net capital losses of $474,873 attributable to security
transactions incurred after October 31, 1996, are treated as arising on the
first day of the Trust's next taxable year.
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:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1997 1996
INSTITUTIONAL SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 24,629,328 $ 257,778,045 36,204,187 $ 379,207,092
Shares issued to 1,505,096 15,719,216 1,558,967 16,359,196
shareholders in payment of
distributions declared
Shares redeemed (32,702,252) (341,913,040) (28,865,263) (302,475,855)
Net change resulting from (6,567,828) $ (68,415,779) 8,897,891 $ 93,090,433
Institutional Share transactions
<CAPTION>
YEAR ENDED JANUARY 31,
1997 1996
INSTITUTIONAL SERVICE SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 1,621,629 $ 17,004,372 1,439,874 $ 15,092,977
Shares issued to 125,629 1,311,747 146,629 1,538,709
shareholders in payment of
distributions declared
Shares redeemed (2,296,071) (23,915,560) (1,850,636) (19,401,741)
Net change resulting from (548,813) $ (5,599,441) (264,133) $ (2,770,055)
Institutional Service Share
transactions
Net change resulting (7,116,641) $ (74,015,220) 8,633,758 $ 90,320,378
from share transactions
</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 0.40% 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.
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 0.25% 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 0.25% 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.
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
period ended January 31, 1997, were as follows:
PURCHASES $821,214,172
SALES $880,990,101
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS:
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 of investments, as of
January 31, 1997, and the related statement of operations for the year then
ended, the statement of changes in net assets, and the financial highlights
(see pages 2 and 11 of the prospectus) for each of 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, 1997, by correspondence with the
custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, 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, 1997,
the results of its operations for the year then ended, and the changes in
its net assets, and its financial highlights for each of the periods
presented, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
March 5, 1997
ADDRESSES
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 P.O. Box 8600
Services Company Boston, Massachusetts 02266-8600
Independent Public Accountants
Arthur Andersen LLP 2100 PPG Place
Pittsburgh, Pennsylvania 15222
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
INSTITUTIONAL SHARES
PROSPECTUS
An Open-End, Diversified,
Management Investment Company
March 31, 1997
[Graphic]
Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
Cusip 31428P103
8022502A-IS (3/97)
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
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. The Trust is an open-end management
investment company (a mutual fund).
The investment objective of the Trust is to provide current income. The
Trust pursues this investment objective by investing in U.S. government
securities with remaining maturities of five years or less. Institutional
Service Shares are sold at net asset value.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT
RISKS INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before you
invest in the Trust. Keep this prospectus for future reference.
The Trust has also filed a Statement of Additional Information for
Institutional Shares and Institutional Service Shares dated March 31, 1997,
with the Securities and Exchange Commission ("SEC"). 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
1-800-341-7400. To obtain other information or to make inquiries about the
Trust, contact the Trust at the address listed in the back of this
prospectus. The Statement of Additional Information, material incorporated
by reference into this document, and other information regarding the Trust
is maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated March 31, 1997
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 8
Certificates and Confirmations 8
Dividends 8
Capital Gains 9
REDEEMING INSTITUTIONAL SERVICE SHARES 9
Telephone Redemption 9
Written Requests 9
Accounts with Low Balances 10
SHAREHOLDER INFORMATION 10
Voting Rights 10
TAX INFORMATION 10
Federal Income Tax 10
State and Local Taxes 11
PERFORMANCE INFORMATION 11
OTHER CLASSES OF SHARES 11
FINANCIAL HIGHLIGHTS --
INSTITUTIONAL SHARES 12
FINANCIAL STATEMENTS 13
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 21
ADDRESSES 22
SUMMARY OF TRUST EXPENSES
<TABLE>
<CAPTION>
INSTITUTIONAL SERVICE SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering None
price)
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
<CAPTION>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C> <C>
Management Fee (after waiver)(1) 0.39%
12b-1 Fee (after waiver)(2) 0.02%
Total Other Expenses 0.38%
Shareholder Services Fee (after waiver)(3) 0.23%
Total Operating Expenses(4) 0.79%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary
waiver at any time at its sole discretion. The maximum management fee is
0.40%.
(2) The 12b-1 fee has been reduced to reflect the voluntary waiver of a
portion of the 12b-1 fee. The distributor can terminate this voluntary
waiver at any time at is sole discretion. The maximum 12b-1 fee is 0.25%.
(3) The shareholder services fee has been reduced to reflect the voluntary
waiver of a portion of the shareholder services fee. The shareholder
service provider can terminate this voluntary waiver at any time at
its sole discretion. The maximum shareholder services fee is 0.25%.
(4) The total operating expenses would have been 1.05% absent the voluntary
waivers of a portion of the management fee, 12b-1 fee and 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 the 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.
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.
<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 $8 $25 $44 $98
period
</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
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 21.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1997 1996 1995 1994 1993(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING $10.74 $10.11 $10.78 $10.61 $10.35
OF PERIOD
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.54 0.61 0.51 0.44 0.34
Net realized and
unrealized gain (loss)
on investments (0.26) 0.63 (0.67) 0.17 0.26
Total from investment 0.28 1.24 (0.16) 0.61 0.60
operations
LESS DISTRIBUTIONS
Distributions from net (0.54) (0.61) (0.51) (0.44) (0.34)
investment income
NET ASSET VALUE, END OF $10.48 $10.74 $10.11 $10.78 $10.61
PERIOD
TOTAL RETURN(B) 2.76% 12.58% (1.42)% 5.81% 5.84%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.79% 0.79% 0.79% 0.77% 0.75%*
Net investment income 5.16% 5.85% 5.00% 4.01% 5.13%*
Expense 0.26% 0.25% 0.21% -- --
waiver/reimbursement(c)
SUPPLEMENTAL DATA
Net assets, end of period $25,791 $32,317 $33,117 $30,763 $12,987
(000 omitted)
Portfolio turnover 99% 117% 163% 131% 85%
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from June 18, 1992 (date of initial
public investment) to January 31, 1993.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Further information about the Trust's performance is contained in the
Trust's annual report for the fiscal year ended January 31, 1997, which can
be obtained free of charge.
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a
Declaration of Trust dated December 10, 1981. On April 13, 1995, the Board
of Trustees changed the name of the Trust from Federated Intermediate
Government Trust to Federated U.S. Government Securities Fund: 2-5 Years.
The Declaration of Trust permits the Trust to offer separate series of
shares of beneficial interest representing interests in separate portfolios
of securities. The shares in any one portfolio may be offered in separate
classes. As of the date of this prospectus, the Board of Trustees (the
"Trustees") has established two classes of shares of the Trust, known as
Institutional Service Shares and Institutional Shares. This prospectus
relates only to Institutional Service Shares of the Trust.
Institutional Service Shares ("Shares") of the Trust are designed primarily
for retail and private banking customers of financial institutions as a
convenient means of accumulating an interest in a professionally managed,
diversified portfolio of U.S. government securities. A minimum initial
investment of $25,000 over a 90-day period is required.
Shares are currently sold and redeemed at net asset value without a sales
charge imposed by the Trust.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Trust is current income. The Trust pursues
this investment objective by investing in U.S. government securities with
remaining maturities of five years or less. As a matter of operating policy,
which may be changed without shareholder approval, the dollar-weighted
average maturity of the portfolio will not be less than two years nor more
than five years. While there is no assurance that the Trust will achieve its
investment objective, it endeavors to do so by following the investment
policies described in this prospectus. The investment objective and the
policies and limitations described below cannot be changed without approval
of shareholders.
INVESTMENT POLICIES
ACCEPTABLE INVESTMENTS. The U.S. government securities in which the Trust
invests are either issued or guaranteed by the U.S. government, its
agencies, or instrumentalities. The prices of fixed income securities
fluctuate inversely to the direction of interest rates. The securities in
which the Trust may invest are limited to:
* direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds;
* notes, bonds, and discount notes issued or guaranteed by U.S. government
agencies or instrumentalities, supported by the full faith and credit of the
United States;
* notes, bonds, and discount notes of U.S. government agencies or
instrumentalities which receive or have access to federal funding; and
* notes, bonds, and discount notes of other U.S. government
instrumentalities supported only by the credit of the instrumentalities.
Some obligations issued or guaranteed by agencies or instrumentalities of
the U.S. government 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 15% of its total assets in
securities which are illiquid, including repurchase agreements providing for
settlement in more than seven days after notice.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Trust may purchase U.S.
government securities on a when-issued or delayed delivery basis. These
transactions are arrangements in which the Trust purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Trust to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
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 0.40% of the Trust's average daily net assets. 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 $110 billion invested across
more than 300 funds under management and/or administration by its
subsidiaries, as of December 31, 1996, Federated Investors is one of the
largest mutual fund investment managers in the United States. With more than
2,000 employees, Federated continues to be led by the management who founded
the company in 1955. Federated funds are presently at work in and through
4,500 financial institutions nationwide.
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 portfolio manager since March
1995. Mr. Balestrino joined Federated Investors in 1986 and has been a Vice
President of the Trust's investment adviser since 1995. Mr. Balestrino
served as an Assistant Vice President of the investment adviser from 1991 to
1995. Mr. Balestrino is a Chartered Financial Analyst and received his
Master's Degree in Urban and Regional Planning from the University of
Pittsburgh.
DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES
Federated Securities Corp. is the principal distributor for Institutional
Service Shares. It is a Pennsylvania corporation organized on November 14,
1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.
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 0.25% 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 0.25% 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 as specified below:
MAXIMUM FEE AVERAGE AGGREGATE DAILY NET ASSETS
.15% on the first $250 million
.125% on the next $250 million
.10% on the next $250 million
.075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its
fee.
NET ASSET VALUE
The Trust's net asset value per Share fluctuates. The net asset value for
Shares is determined by adding the interest of Shares in the market value of
all securities and other assets of the Trust, subtracting the interest of
Shares in the liabilities of the Trust and those attributable to Shares, and
dividing the remainder by the total number of Shares outstanding. The net
asset value for Institutional Shares may exceed that of Shares due to the
variance in daily net income realized by each class. Such variance will
reflect only accrued net income to which the shareholders of a particular
class are entitled.
INVESTING IN INSTITUTIONAL SERVICE SHARES
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange is open for
business. Shares may be purchased either by wire or mail.
To purchase Shares, open an account by calling Federated Securities Corp.
Information needed to establish the account will be taken over the
telephone. The Trust reserves the right to reject any purchase request.
BY WIRE. To purchase Shares by Federal Reserve wire, call the Trust before
4:00 p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal funds must be received before 3:00 p.m.
(Eastern time) on the next business day following the order. Federal funds
should be wired as follows: Federated Shareholder Services Company, c/o
State Street Bank and Trust Company, Boston, Massachusetts; Attention:
EDGEWIRE; For Credit to: Federated U.S. Government Securities Fund: 2-5
Years-Institutional Service Shares; Trust Number (this number can be found
on the account statement or by contacting the Trust); Group Number or Order
Number; Nominee or Institution Name; and ABA Number 011000028. Shares cannot
be purchased by wire on holidays when wire transfers are restricted.
Questions on wire purchases should be directed to your shareholder services
representative at the telephone number listed on your account statement.
BY MAIL. To purchase Shares by mail, send a check made payable to Federated
U.S. Government Securities Fund: 2-5 Years-Institutional Service Shares to
Federated Shareholder Services Company, P.O. Box 8600, Boston, Massachusetts
02266-8600. Orders by mail are considered received when payment by check is
converted by State Street Bank and Trust Company into federal funds. This is
normally the next business day after State Street Bank and Trust Company
receives the check.
EXCHANGE PRIVILEGE
Financial Institutions that maintain master accounts with an aggregate
investment of at least $400 million in certain funds which are advised or
distributed by affiliates of Federated Investors may exchange their Shares
for Institutional Shares of the Trust.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Shares is $25,000 plus any financial
intermediary'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
financial intermediary may be subject to a different minimum investment.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Trust. Investors who
purchase Shares through a financial intermediary may be charged a service
fee by that financial intermediary.
The net asset value is determined as of the close of trading (normally 4:00
p.m. Eastern time) on the New York Stock Exchange, Monday through Friday,
except on: (i) days on which there are not sufficient changes in the value
of the Trust's portfolio securities that its net asset value might be
materially affected; (ii) days during which no Shares are tendered for
redemption and no orders to purchase Shares are received; and (iii) the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
EXCHANGING SECURITIES FOR TRUST SHARES
Investors may exchange certain U.S. government securities or a combination
of securities and cash for Shares. The securities and cash must have a
market value of at least $25,000. The Trust reserves the right to determine
the acceptability of securities to be exchanged. Securities accepted by the
Trust are valued in the same manner as the Trust values its assets.
Investors wishing to exchange securities should first contact Federated
Securities Corp.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Trust, Federated Shareholder Services Company
maintains a share account for each shareholder. Share certificates are not
issued unless requested by contacting the Trust.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during
the month.
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are declared just
prior to determining net asset value. If an order for Shares is placed on
the preceding business day, Shares purchased by wire begin earning dividends
on the business day wire payment is received by State Street Bank. If the
order for Shares and payment by wire are received on the same day, Shares
begin earning dividends on the next business day. Shares purchased by check
begin earning dividends on the business day after the check is converted,
upon instruction of the transfer agent, into federal funds. Dividends are
automatically reinvested on payment dates in additional Shares unless cash
payments are requested by contacting the Trust.
CAPITAL GAINS
Capital gains realized by the Trust, if any, are distributed at least once
every 12 months.
REDEEMING INSTITUTIONAL SERVICE SHARES
The Trust redeems Shares at their net asset value next determined after
Federated Shareholder Services Company receives the redemption request.
Investors who redeem Shares through a financial intermediary may be charged
a service fee by that financial intermediary. Redemptions will be made on
days on which the Trust computes its net asset value. Redemption requests
must be received in proper form and can be made by telephone request or by
written request.
TELEPHONE REDEMPTION
Shareholders may redeem their Shares by telephoning the Trust before 4:00
p.m. (Eastern time). All proceeds will normally be wire-transferred the
following business day, but in no event more than seven days, to the
shareholder's account at a domestic commercial bank that is a member of the
Federal Reserve System. Proceeds from redemption requests received on
holidays when wire transfers are restricted will be wired the following
business day. Questions about telephone redemptions on days when wire
transfers are restricted should be directed to your shareholder services
representative at the telephone number listed on your account statement. If
at any time the Trust shall determine it necessary to terminate or modify
this method of redemption, shareholders would be promptly notified.
An authorization form permitting the Trust to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from Federated Securities Corp. Telephone redemption instructions
may be recorded. If reasonable procedures are not followed by the Trust, it
may be liable for losses due to unauthorized or fraudulent telephone
instructions.
In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming by telephone. If such a case should
occur, another method of redemption, such as "Written Requests," should be
considered.
WRITTEN REQUESTS
Shares may be redeemed in any amount by mailing a written request to:
Federated Shareholder Services Company, P.O. Box 8600, Boston, MA
02266-8600. If share certificates have been issued, they should be sent
unendorsed with the written request by registered or certified mail to the
address noted above.
SIGNATURES. Shareholders requesting a redemption of any amount to be sent to
an address other than that on record with the Trust, or a redemption payable
other than to the shareholder of record must have signatures on written
redemption requests guaranteed by:
* a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
* a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
* a savings bank or savings association whose deposits are insured by the
Savings Association Insurance Fund ("SAIF"), which is administered by the
FDIC; or
* any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Trust does not accept signatures guaranteed by a notary public.
The Trust and its transfer agent have adopted standards for accepting
signature guarantees from the above institutions. The Trust may elect in the
future to limit eligible signature guarantors to institutions that are
members of a signature guarantee program. The Trust and its transfer agent
reserve the right to amend these standards at any time without notice.
RECEIVING PAYMENT. Normally, a check for the proceeds is mailed within one
business day, but in no event more than seven days, after receipt of a
proper written redemption request.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Trust
may redeem Shares in any account and pay the proceeds to the shareholder if
the account balance falls below a required minimum value of $25,000. This
requirement does not apply, however, if the balance falls below $25,000
because of changes in the Trust's net asset value. Before Shares are
redeemed to close an account, the shareholder is notified in writing and
allowed 30 days to purchase additional Shares to meet the minimum
requirement.
SHAREHOLDER INFORMATION
VOTING RIGHTS
Each share of the Trust gives the shareholder one vote in Trustee elections
and other matters submitted to shareholders for vote. All shares of all
classes of each portfolio in the Trust have equal voting rights except that
in matters affecting only a particular portfolio or class, only shares of
that portfolio or class are entitled to vote. As a Massachusetts business
trust, the Trust is not required to hold annual shareholder meetings.
Shareholder approval will be sought only for certain changes in the Trust's
operation and for the election of Trustees under certain circumstances.
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, Donnelly & Meck, counsel to the Trust, Shares may
be subject to personal property taxes imposed by counties, municipalities,
and school districts in Pennsylvania to the extent that the portfolio
securities in the Trust would be subject to such taxes if owned directly by
residents of those jurisdictions.
Shareholders are urged to consult their own tax advisers regarding the
status of their accounts under state and local tax laws.
PERFORMANCE INFORMATION
From time to time the Trust advertises its total return and yield for
Shares.
Total return represents the change, over a specified period of time, in the
value of an investment in Shares of the Trust after reinvesting all income
and capital gains distributions. It is calculated by dividing that change by
the initial investment and is expressed as a percentage.
The yield of Shares of the Trust is calculated by dividing the net
investment income per Share (as defined by the Securities and Exchange
Commission) earned by Shares over a thirty-day period by the offering price
per share of Shares on the last day of the period. This number is then
annualized using semi-annual compounding. The yield does not necessarily
reflect income actually earned by Shares and, therefore, may not correlate
to the dividends or other distributions paid to shareholders.
Shares are sold without any sales charge or other similar non-recurring
charges.
Total return and yield will be calculated separately for Institutional
Service Shares and Institutional Shares.
From time to time, advertisements for the Trust's Institutional Service
Shares may refer to ratings, rankings, and other information in certain
financial publications and/or compare the Trust's Institutional Service
Shares performance to certain indices.
OTHER CLASSES OF SHARES
The Trust also offers another class of shares called Institutional Shares
which are sold at net asset value to accounts for which financial
institutions act in a fiduciary or agency capacity and are subject to a
minimum initial investment of $25,000 over a 90-day period.
Institutional Shares are distributed with no 12b-1 Plan.
Institutional Shares and Institutional Service Shares are subject to certain
of the same expenses. Expense differences, however, between Institutional
Shares and Institutional Service Shares may affect the performance of each
class.
To obtain more information and a prospectus for Institutional Shares,
investors may call 1-800-341-7400.
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 21.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, $10.74 $10.11 $10.78 $10.61 $10.25 $ 9.87 $ 9.59 $ 9.42 $ 9.88 $10.25
BEGINNING OF PERIOD
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.57 0.64 0.54 0.46 0.57 0.71 0.75 0.79* 0.81 0.80
Net realized and
unrealized gain
(loss) on investments (0.26) 0.63 (0.67) 0.17 0.36 0.38 0.28 0.17* (0.46) (0.28)
Total from investment
operations 0.31 1.27 (0.13) 0.63 0.93 1.09 1.03 0.96 0.35 0.52
LESS DISTRIBUTIONS
Distributions
from net investment (0.57) (0.64) (0.54) (0.46) (0.57) (0.71) (0.75) (0.79) (0.81) (0.80)
income Distributions
from net realized gain
on investments -- -- -- -- -- -- -- -- -- (0.09)
Total (0.57) (0.64) (0.54) (0.46) (0.57) (0.71) (0.75) (0.79) (0.81) (0.89)
distributions
NET ASSET VALUE,
END OF PERIOD $10.48 $10.74 $10.11 $10.78 $10.61 $10.25 $ 9.87 $ 9.59 $ 9.42 $ 9.88
TOTAL RETURN(A) 3.01% 12.86% (1.18)% 6.07% 9.37% 11.44% 11.18% 10.52% 3.66% 5.53%
RATIOS TO AVERAGE
NET ASSETS
Expenses 0.54% 0.54% 0.54% 0.52% 0.50% 0.50% 0.51% 0.51% 0.47% 0.45%
Net investment income 5.42% 6.07% 5.16% 4.30% 5.52% 7.08% 7.75% 8.26% 8.37% 8.18%
Expense waiver/
reimbursement(b) 0.26% 0.25% 0.02% -- -- -- -- -- 0.03% 0.03%
SUPPLEMENTAL DATA
Net assets, end $782,056 $871,966 $731,280 $951,528 $845,620 $779,686 $791,131 $959,728 $1,246,393 $1,534,501
of period (000 omitted)
Portfolio 99% 117% 163% 131% 85% 108% 60% 166% 82% 70%
turnover
</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, 1997, which can
be obtained free of charge.
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
PORTFOLIO OF INVESTMENTS
JANUARY 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
U.S. TREASURY NOTES -- 98.6%
$ 25,000,000 8.875%, 11/15/1998 $ 26,245,250
65,000,000 6.750%, 6/30/1999 66,094,600
30,000,000 7.125%, 9/30/1999 30,794,400
100,000,000 7.500%, 10/31/1999 103,584,000
10,000,000 5.875%, 11/15/1999 9,956,100
100,000,000 7.750%, 12/31/1999 104,415,000
40,000,000 7.750%, 1/31/2000 41,798,800
63,300,000 6.875%, 3/31/2000 64,670,445
19,000,000 6.250%, 5/31/2000 19,068,020
20,000,000 6.125%, 9/30/2000 19,973,200
30,000,000 5.625%, 11/30/2000 29,442,900
55,000,000 5.500%, 12/31/2000 53,696,500
50,000,000 6.375%, 3/31/2001 50,275,000
55,000,000 6.250%, 4/30/2001 55,036,850
50,000,000 6.625%, 6/30/2001 50,730,500
25,000,000 6.500%, 8/31/2001 25,240,750
25,000,000 6.250%, 10/31/2001 24,987,000
20,750,000 5.875%, 11/30/2001 20,421,112
TOTAL U.S. TREASURY NOTES (IDENTIFIED COST 796,430,427
$795,289,815)
(A)REPURCHASE AGREEMENTS -- 0.4%
3,650,000 B.T. Securities Corp., 5.580%, dated 3,650,000
1/31/1997, due 2/3/1997
TOTAL INVESTMENTS (IDENTIFIED COST $ 800,080,427
$798,939,815)(B)
</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
$799,225,185. The net unrealized appreciation of investments on a federal
tax basis amounts to $855,242 which is comprised of $3,560,036 appreciation
and $2,704,794 depreciation at January 31, 1997.
Note: The categories of investments are shown as a percentage of net assets
($807,847,798) at January 31, 1997.
(See Notes which are an integral part of the Financial Statements)
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 31, 1997
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value
(identified cost $798,939,815 and
tax cost $799,225,185) $ 800,080,427
Income receivable 12,109,208
Receivable for shares sold 3,738,560
Total assets 815,928,195
LIABILITIES:
Payable for shares redeemed $ 786,422
Income distribution payable 2,366,624
Payable to Bank 4,807,142
Accrued expenses 120,209
Total liabilities 8,080,397
Net Assets for 77,092,484 shares $ 807,847,798
outstanding
NET ASSETS CONSIST OF:
Paid in capital $ 845,859,022
Net unrealized appreciation of investments 1,140,612
Accumulated net realized loss on (39,151,836)
investments
Total Net Assets $ 807,847,798
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$782,056,406 / 74,631,222 shares $10.48
outstanding
INSTITUTIONAL SERVICE SHARES:
$25,791,392 / 2,461,262 shares outstanding $10.48
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
STATEMENT OF OPERATIONS
YEAR ENDED JANUARY 31, 1997
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 50,467,617
EXPENSES:
Investment advisory fee $ 3,384,916
Administrative personnel 639,583
and services fee Custodian fees 125,368
Transfer and dividend 232,540
disbursing agent fees and expenses
Directors'/Trustees' fees 23,701
Auditing fees 14,748
Legal fees 9,076
Portfolio accounting fees 147,137
Distribution services fee 73,502
-- Institutional Service Shares
Shareholder services fee 2,042,037
-- Institutional Shares
Shareholder services fee 73,502
-- Institutional Service
Shares
Share registration costs 37,799
Printing and postage 21,870
Insurance premiums 9,519
Taxes 75
Miscellaneous 8,997
Total expenses 6,844,370
Waivers --
Waiver of investment advisory fee $ (69,622)
Waiver of distribution services fee -- (67,622)
Institutional Service Shares
Waiver of shareholder (2,042,037)
services fee -- Institutional Shares
Waiver of shareholder (5,880)
services fee -- Institutional Service Shares
Total waivers (2,185,161)
Net expenses 4,659,209
Net investment income 45,808,408
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 2,103,327
Net change in unrealized (24,522,667)
appreciation of investments
Net realized and (22,419,340)
unrealized loss on investments
Change in net $ 23,389,068
assets resulting from operations
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 45,808,408 $ 50,360,050
Net realized gain on investments
($2,863,569 and $18,811,797,
respectively, as computed for 2,103,327 18,811,797
federal tax purposes)
Net change in unrealized (24,522,667) 30,753,121
(depreciation) appreciation
Change in net assets resulting from 23,389,068 99,924,968
operations
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income
Institutional Shares (44,291,755) (48,447,620)
Institutional Service Shares (1,516,653) (1,912,430)
Change in net assets resulting
from distributions to
shareholders (45,808,408) (50,360,050)
SHARE TRANSACTIONS --
Proceeds from sale of shares 274,782,417 394,300,069
Net asset value of shares issued to
shareholders in payment
of distributions declared 17,030,963 17,897,905
Cost of shares redeemed (365,828,600) (321,877,596)
Change in net assets resulting from (74,015,220) 90,320,378
share transactions
Change in net assets (96,434,560) 139,885,296
NET ASSETS:
Beginning of period 904,282,358 764,397,062
End of period $ 807,847,798 $ 904,282,358
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1997
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 in 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.
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 -- U.S. government securities are generally valued at
the mean of the latest bid and asked price as furnished by an independent
pricing service. Short-term securities are valued at the prices provided by
an independent pricing service. However, short-term securities with
remaining maturities of sixty days or less at the time of purchase may be
valued at amortized cost, which approximates fair market value.
REPURCHASE AGREEMENTS -- It is the policy of the 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 Board of Trustees (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.
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, 1997, the Trust for federal tax purposes, had a capital loss
carryforward of $38,391,593, 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:
EXPIRATION YEAR EXPIRATION AMOUNT
1998 $ 8,926,712
2003 $29,464,881
Additionally, net capital losses of $474,873 attributable to security
transactions incurred after October 31, 1996, are treated as arising on the
first day of the Trust's next taxable year.
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:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1997 1996
INSTITUTIONAL SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 24,629,328 $ 257,778,045 36,204,187 $ 379,207,092
Shares issued to 1,505,096 15,719,216 1,558,967 16,359,196
shareholders in payment of
distributions declared
Shares redeemed (32,702,252) (341,913,040) (28,865,263) (302,475,855)
Net change resulting from (6,567,828) $ (68,415,779) 8,897,891 $ 93,090,433
Institutional Share transactions
<CAPTION>
YEAR ENDED JANUARY 31,
1997 1996
INSTITUTIONAL SERVICE SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 1,621,629 $ 17,004,372 1,439,874 $ 15,092,977
Shares issued to 125,629 1,311,747 146,629 1,538,709
shareholders in payment of
distributions declared
Shares redeemed (2,296,071) (23,915,560) (1,850,636) (19,401,741)
Net change resulting from (548,813) $ (5,599,441) (264,133) $ (2,770,055)
Institutional Service Share
transactions
Net change resulting (7,116,641) $ (74,015,220) 8,633,758 $ 90,320,378
from share transactions
</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 0.40% 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.
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 0.25% 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 0.25% 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.
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
period ended January 31, 1997, were as follows:
PURCHASES $821,214,172
SALES $880,990,101
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees of
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS:
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 of investments, as of
January 31, 1997, and the related statement of operations for the year then
ended, the statement of changes in net assets, and the financial highlights
(see pages 2 and 12 of the prospectus) for each of 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, 1997, by correspondence with the
custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, 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, 1997,
the results of its operations for the year then ended, and the changes in
its net assets, and its financial highlights for each of the periods
presented, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
March 5, 1997
ADDRESSES
Federated U.S. Government Securities Fund: 2-5 Years
Institutional Service Shares Federated Investors Tower
Pittsburgh, Pennsylvania
15222-3779
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania
15222-3779
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania
15222-3779
Custodian
State Street Bank and P.O. Box 8600
Trust Company Boston, Massachusetts 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder P.O. Box 8600
Services Company Boston, Massachusetts 02266-8600
Independent Public Accountants
Arthur Andersen LLP 2100 PPG Place
Pittsburgh, Pennsylvania 15222
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
An Open-End, Diversified,
Management Investment Company
March 31, 1997
[Graphic]
Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
Cusip 31428P202
8022502A-SS (3/97)
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
INSTITUTIONAL SHARES
INSTITUTIONAL SERVICE SHARES
STATEMENT OF ADDITIONAL INFORMATION
The Institutional Shares and Institutional Service Shares represent
interests in a diversified portfolio of securities of Federated U.S.
Government Securities Fund: 2-5 Years. This Statement of Additional
Information should be read with the respective prospectuses for
Institutional Shares and Institutional Service Shares dated March 31, 1997.
This Statement is not a prospectus itself. You may request a copy of either
prospectus or a paper copy of this Statement of Additional Information, if
you have received it electronically, free of charge by calling
1-800-341-7400.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated March 31, 1997
[Graphic]
Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
Cusip 31428P103
Cusip 31428P202
8022502B (3/97)
TABLE OF CONTENTS
GENERAL INFORMATION ABOUT THE TRUST 1
INVESTMENT OBJECTIVE AND POLICIES 1
Types of Investments 1
When-Issued and Delayed Delivery Transactions 1
Repurchase Agreements 1
Portfolio Turnover 1
Investment Limitations 1
FEDERATED U.S. GOVERNMENT SECURITIES
FUND: 2-5 YEARS MANAGEMENT 2
Trust Ownership 6
Trustee Compensation 7
Trustee Liability 7
INVESTMENT ADVISORY SERVICES 7
Adviser to the Trust 7
Advisory Fees 8
BROKERAGE TRANSACTIONS 8
OTHER SERVICES 8
Trust Administration 8
Custodian and Portfolio Accountant 8
Transfer Agent 8
Independent Public Accountants 8
PURCHASING SHARES 9
Distribution Plan (Institutional Service Shares only) and Shareholder
Services
9
Conversion to Federal Funds 9
DETERMINING NET ASSET VALUE 9
Determining Market Value of Securities 9
REDEEMING SHARES 9
EXCHANGING SECURITIES FOR TRUST SHARES 10
Tax Consequences 10
MASSACHUSETTS PARTNERSHIP LAW 10
TAX STATUS 10
The Trust's Tax Status 10
Shareholders' Tax Status 10
TOTAL RETURN 11
YIELD 11
PERFORMANCE COMPARISONS 11
Duration 12
ABOUT FEDERATED INVESTORS 12
Mutual Fund Market 13
Institutional Clients 13
Bank Marketing 13
Broker/Dealers and Bank
Broker/Dealer Subsidiaries 13
GENERAL INFORMATION ABOUT THE TRUST
Federated U.S. Government Securities Fund: 2-5 Years was established as a
Massachusetts business trust under a Declaration of Trust dated December 10,
1981. On April 13, 1995, the Board of Trustees changed the name of the Trust
from Federated Intermediate Government Trust to Federated U.S. Government
Securities Fund: 2-5 Years.
Shares of the Trust are offered in two classes, known as Institutional
Shares and Institutional Service Shares (individually and collectively
referred to as "Shares," as the context may require). This Statement of
Additional Information relates to the above-mentioned Shares of the Trust.
INVESTMENT OBJECTIVE AND POLICIES
The Trust's investment objective is current income.
TYPES OF INVESTMENTS
The Trust invests only in U.S. government securities with remaining
maturities of five years or less. This investment policy and the objective
stated above cannot be changed without approval of shareholders.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price or yield for the Trust. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of the
Trust sufficient to make payment for the securities to be purchased are
segregated on the Trust's records at the trade date. These assets are marked
to market daily and are maintained until the transaction has been settled.
As a matter of operating policy, the Trust does not intend to engage in
when-issued and delayed delivery transactions to an extent that would cause
the segregation of more than 20% of the total value of its assets.
REPURCHASE AGREEMENTS
The Trust requires its custodian to take possession of the securities
subject to repurchase agreements, and these securities are marked to market
daily. To the extent that the original seller does not repurchase the
securities from the Trust, the Trust could receive less than the repurchase
price on any sale of such securities. In the event that such a defaulting
seller filed for bankruptcy or became insolvent, disposition of such
securities by the Trust might be delayed pending court action. The Trust
believes that under the regular procedures normally in effect for custody of
the Trust's portfolio securities subject to repurchase agreements, a court
of competent jurisdiction would rule in favor of the Trust and allow
retention or disposition of such securities. The Trust will only enter into
repurchase agreements with banks and other recognized financial institutions
such as broker/dealers which are deemed by the Trust's adviser to be
creditworthy pursuant to guidelines established by the Board of Trustees
("Trustees").
PORTFOLIO TURNOVER
The Trust will not attempt to set or meet a portfolio turnover rate since
any turnover would be incidental to transactions undertaken in an attempt to
achieve the Trust's investment objective. During the fiscal years ended
January 31, 1997 and 1996, the portfolio turnover rates were 99% and 117%,
respectively.
INVESTMENT LIMITATIONS
The Trust will not change any of the investment limitations described below
without approval of shareholders.
SELLING SHORT AND BUYING ON MARGIN
The Trust will not sell any securities short or purchase any securities on
margin but may obtain such short-term credits as may be necessary for
clearance of purchases and sales of portfolio securities.
BORROWING MONEY
The Trust will not borrow money except as a temporary measure for
extraordinary or emergency purposes and then only in amounts not in excess
of 5% of the value of its total assets or in an amount up to one-third of
the value of its total assets, including the amount borrowed, in order to
meet redemption requests without immediately selling portfolio securities.
This borrowing provision is not for investment leverage but solely to
facilitate management of the portfolio by enabling the Trust to meet
redemption requests when the liquidation of portfolio securities is deemed
to be inconvenient or disadvantageous. However, such use will not assure
that portfolio securities will not be liquidated at a disadvantageous time.
Interest paid by the Trust on borrowed funds will not be available for
investment. While borrowings are outstanding, no portfolio securities may
be purchased by the Trust.
PLEDGING ASSETS
The Trust will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it may mortgage, pledge, or
hypothecate assets having a market value not exceeding 10% of the value of
total assets at the time of the borrowing.
LENDING CASH OR SECURITIES
The Trust will not lend any of its assets, except that it may purchase or
hold U.S. government securities, including repurchase agreements, permitted
by its investment objective and policies.
ISSUING SENIOR SECURITIES
The Trust will not issue senior securities, except as permitted by its
investment objective and policies.
As a matter of investment practice, which can be changed without shareholder
approval, the Trust will not invest more than 15% of its total assets in
securities which are illiquid, including repurchase agreements providing for
settlement in more than seven days after notice.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in
percentage resulting from any change in value or net assets will not result
in a violation of such restriction.
The Trust did not borrow money or pledge securities in excess of 5% of the
value of its total assets during the last fiscal year and has no present
intent to do so in the coming fiscal year.
As a matter of operating policy, the Trust will not purchase any securities
while borrowings in excess of 5% of its total assets are outstanding.
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates, present
positions with Federated U.S. Government Securities Fund: 2-5 Years, and
principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds.
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Trustee,
University of Pittsburgh; Director or Trustee of the Funds.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.;
formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.;
Director, Ryan Homes, Inc.; Director or Trustee of the Funds.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director,
University of Pittsburgh Medical Center - Downtown; Member, Board of
Directors, University of Pittsburgh Medical Center; formerly, Hematologist,
Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director
or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee of the Funds.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street
Boston Corporation; Director or Trustee of the Funds.
Gregor F. Meyer
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney, Member of Miller, Ament, Henny & Kochuba; Chairman, Meritcare,
Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee of the
Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., National Defense University, U.S. Space Foundation and Czech
Management Center; President Emeritus, University of Pittsburgh; Founding
Chairman, National Advisory Council for Environmental Policy and Technology,
Federal Emergency Management Advisory Board and Czech Management Center;
Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public Relations/Marketing/Conference Planning, Manchester Craftsmen's
Guild; Restaurant Consultant, Frick Art & History Center; Conference
Coordinator, University of Pittsburgh Art History Department; Director or
Trustee of the Funds.
Glen R. Johnson
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929
President
Trustee, Federated Investors; President and/or Trustee of some of the Funds;
staff member, Federated Securities Corp.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman, and
Trustee of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp. and Passport Research, Ltd.;
Executive Vice President and Director, Federated Securities Corp.; Trustee,
Federated Shareholder Services Company; Trustee or Director of some of the
Funds; President, Executive Vice President and Treasurer of some of the
Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President, Secretary and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated Research;
Director, Federated Research Corp. and Federated Global Research Corp.;
Trustee, Federated Shareholder Services Company; Director, Federated
Services Company; President and Trustee, Federated Shareholder Services;
Director, Federated Securities Corp.; Executive Vice President and Secretary
of the Funds; Treasurer of some of the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of
the Funds; Director or Trustee of some of the Funds.
* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.
@ Member of the Executive Committee. The Executive Committee of the Board of
Trustees handles the responsibilities of the Board between meetings of the
Board.
As referred to in the list of Trustees and Officers, "Funds" includes the
following investment companies: 111 Corcoran Funds; Arrow Funds; Automated
Government Money Trust; Blanchard Funds; Blanchard Precious Metals Fund,
Inc.; Cash Trust Series II; Cash Trust Series, Inc. ; DG Investor Series;
Edward D. Jones & Co. Daily Passport Cash Trust; Federated Adjustable Rate
U.S. Government Fund, Inc.; Federated American Leaders Fund, Inc.; Federated
ARMs Fund; Federated Equity Funds; Federated Equity Income Fund, Inc.;
Federated Fund for U.S. Government Securities, Inc.; Federated GNMA Trust;
Federated Government Income Securities, Inc.; Federated Government Trust;
Federated High Income Bond Fund, Inc.; Federated High Yield Trust; Federated
Income Securities Trust; Federated Income Trust; Federated Index Trust;
Federated Institutional Trust; Federated Insurance Series; Federated
Investment Portfolios; Federated Investment Trust; Federated Master Trust;
Federated Municipal Opportunities Fund, Inc.; Federated Municipal Securities
Fund, Inc.; Federated Municipal Trust; Federated Short-Term Municipal Trust;
Federated Short-Term U.S. Government Trust; Federated Stock and Bond Fund,
Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated Total
Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government Securities
Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed Income Securities,
Inc.; High Yield Cash Trust; Intermediate Municipal Trust; International
Series, Inc.; Investment Series Funds, Inc.; Investment Series Trust;
Liberty Term Trust, Inc. -- 1999; Liberty U.S. Government Money Market
Trust; Liquid Cash Trust; Managed Series Trust; Money Market Management,
Inc.; Money Market Obligations Trust; Money Market Trust; Municipal
Securities Income Trust; Newpoint Funds; Peachtree Funds; RIMCO Monument
Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The Planters
Funds; The Starburst Funds; The Starburst Funds II; The Virtus Funds; Trust
for Financial Institutions; Trust for Government Cash Reserves; Trust for
Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations;
and World Investment Series, Inc.
TRUST OWNERSHIP
Officers and Trustees own less than 1% of the Trust's outstanding shares.
As of March 3, 1997, the following shareholder of record owned 5% or more of
the outstanding Institutional Shares of the Trust: Edrayco, Gainesville,
Georgia, owned approximately 5,142,482 shares (6.89%) and Charles Schwab &
Company, Inc., San Francisco, California, owned approximately 4,183,062
shares (5.61%).
As of March 3, 1997, the following shareholders of record owned 5% or more
of the outstanding Institutional Service Shares of the Trust: Investors
Fiduciary Trust Co., Kansas City, Missouri, owned approximately 229,256
shares (9.29%), National Financial Services (for the exclusive benefit of
customers), New York, New York, owned approximately 176,614 shares (7.15%),
and Charles Schwab & Company, Inc., San Francisco, California, owned
approximately 456,154 shares (18.48%).
TRUSTEE COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
NAME, COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST* FROM FUND COMPLEX +
<S> <C> <S>
John F. Donahue $0 $0 for the Trust and
Chairman and Trustee 56 other investment companies in the Fund Complex
Thomas G. Bigley $1,834.16 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
John T. Conroy, Jr. $2,017.86 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
William J. Copeland $2,017.86 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
James E. Dowd $2,017.86 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Lawrence D. Ellis, M.D. $1,834.16 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Edward L. Flaherty, Jr. $2,017.86 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Peter E. Madden $1,834.16 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Gregor F. Meyer $1,834.16 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
John E. Murray, Jr. $1,834.16 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Wesley W. Posvar $1,834.16 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Marjorie P. Smuts $1,834.16 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
</TABLE>
* Information is furnished for the fiscal year ended January 31, 1997.
+ The information is provided for the last calendar year.
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees are not liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
ADVISER TO THE TRUST
The Trust's investment adviser is Federated Management. It is a subsidiary
of Federated Investors. All the voting securities of Federated Investors are
owned by a trust, the trustees of which are John F. Donahue, his wife and
his son, J. Christopher Donahue.
The adviser shall not be liable to the Trust, or any shareholder of the
Trust for any losses that may be sustained in the purchase, holding, or sale
of any security, or for anything done or omitted by it, except acts or
omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by its contract with the
Trust.
ADVISORY FEES
For its advisory services, Federated Management receives an annual
investment advisory fee as described in the prospectuses. During the fiscal
years ended January 31, 1997, 1996 and 1995, the Trust's adviser earned
$3,384,916, $3,325,210, and $3,429,592, respectively, of which $69,622, $0,
and $141,412, were voluntarily waived.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the adviser looks for prompt execution of the order
at a favorable price. In working with dealers, the adviser will generally
use those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained
elsewhere. The adviser makes decisions on portfolio transactions and selects
brokers and dealers subject to guidelines established by the Trustees.
The adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Trust or to the
adviser and may include: advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry
studies; receipt of quotations for portfolio evaluations; and similar
services.
Research services provided by brokers and dealers may be used by the adviser
or by affiliates in advising the Trust and other accounts. To the extent
that receipt of these services may supplant services for which the adviser
or its affiliates might otherwise have paid, it would tend to reduce their
expenses. The adviser and its affiliates exercise reasonable business
judgment in selecting brokers who offer brokerage and research services to
execute securities transactions. They determine in good faith that
commissions charged by such persons are reasonable in relationship to the
value of the brokerage and research services provided. For the fiscal years
ended January 31, 1997, 1996, and 1995, the Trust paid no brokerage
commissions.
Although investment decisions for the Trust are made independently from
those of the other accounts managed by the adviser, investments of the type
the Trust may make may also be made by those other accounts. When the Trust
and one or more other accounts managed by the adviser are prepared to invest
in, or desire to dispose of, the same security, available investments or
opportunities for sales will be allocated in a manner believed by the
adviser to be equitable to each. In some cases, this procedure may adversely
affect the price paid or received by the Trust or the size of the position
obtained or disposed of by the Trust. In other cases, however, it is
believed that coordination and the ability to participate in volume
transactions will be to the benefit of the Trust.
OTHER SERVICES
TRUST ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Trust for a fee as described in
the prospectus. From March 1, 1994, to March 1, 1996, Federated
Administrative Serves served as the Trust's Administrator. Prior to March 1,
1994, Federated Administrative Services, Inc. served as the Trust's
Administrator. Both former Administrators are subsidiaries of Federated
Investors. For purposes of this Statement of Additional Information,
Federated Services Company, Federated Administrative Services and Federated
Administrative Services, Inc., may hereinafter collectively be referred to
as, the "Administrators." For the fiscal year ended January 31, 1997, 1996,
and 1995, the Administrators earned $639,583, $629,145, and $710,380,
respectively.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for
the securities and cash of the Trust. Federated Services Company,
Pittsburgh, Pennsylvania, provides certain accounting and recordkeeping
services with respect to the Trust's portfolio investments. The fee paid for
this service is based upon the level of the Trust's average net assets for
the period plus out-of-pocket expenses.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent, Federated
Shareholder Services Company, maintains all necessary shareholder records.
For its services, the transfer agent receives a fee based upon the size,
type and number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Trust are Arthur Andersen LLP,
Pittsburgh, Pennsylvania.
PURCHASING SHARES
Shares are sold at their net asset value without a sales charge on days the
New York Stock Exchange is open for business. The procedure for purchasing
shares is explained in the respective prospectuses under "Investing in
Institutional Shares" or "Investing in Institutional Service Shares."
DISTRIBUTION PLAN (INSTITUTIONAL SERVICE SHARES ONLY) AND SHAREHOLDER
SERVICES
As explained in the respective prospectuses, with respect to Shares of the
Trust, the Trust has adopted a Shareholder Services Agreement, and, with
respect to Institutional Service Shares the Trust has adopted a Distribution
Plan.
These arrangements permit the payment of fees to financial institutions, the
distributor, and Federated Shareholder Services, to stimulate distribution
activities and to cause services to be provided to shareholders by a
representative who has knowledge of the shareholder's particular
circumstances and goals. These activities and services may include, but are
not limited to: marketing efforts; providing office space, equipment,
telephone facilities, and various clerical, supervisory, computer, and other
personnel as necessary or beneficial to establish and maintain shareholder
accounts and records; processing purchase and redemption transactions and
automatic investments of client account cash balances; answering routine
client inquiries; and assisting clients in changing dividend options,
account designations and addresses.
By adopting the Plan, the Trustees expect that the Trust will be able to
achieve a more predictable flow of cash for investment purposes and to meet
redemptions. This will facilitate more efficient portfolio management and
assist the Trust in pursuing its investment objectives. By identifying
potential investors whose needs are served by the Trust's objectives, and
properly servicing these accounts, it may be possible to curb sharp
fluctuations in rates of redemptions and sales.
Other benefits, which may be realized under either arrangement, may include:
(1) providing personal services to shareholders; (2) investing shareholder
assets with a minimum of delay and administrative detail; (3) enhancing
shareholder recordkeeping systems; and (4) responding promptly to
shareholders' requests and inquiries concerning their accounts.
For the fiscal year ended January 31, 1997, payments in the amount of
$73,502 were made by Institutional Service Shares pursuant to the Plan,
$67,622 of which was waived. In addition, for the fiscal year ended January
31, 1997, the Trust paid shareholder service fees in the amount of $73,502,
(Institutional Service Shares) and $2,042,037, (Institutional Shares), of
which $5,880, (Institutional Service Shares) and $2,042,037, (Institutional
Shares) was waived.
CONVERSION TO FEDERAL FUNDS
It is the Trust's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be
in federal funds or be converted into federal funds. State Street Bank and
Trust Company ("State Street Bank") acts as the shareholder's agent in
depositing checks and converting them to federal funds.
DETERMINING NET ASSET VALUE
Net asset value generally changes each day. The days on which net asset
value is calculated by the Trust are described in the respective
prospectuses.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Trust's portfolio securities are determined as follows:
* according to the mean between the over-the-counter bid and asked prices
provided by an independent pricing service, if available, or at fair value
as determined in good faith by the Trustees; or
* for short-term obligations with remaining maturities of 60 days or less at
the time of purchase, at amortized cost unless the Trustees determine that
particular circumstances of the security indicate otherwise.
REDEEMING SHARES
The Trust redeems Shares at the next computed net asset value after the
Trust receives the redemption request. Redemption procedures are explained
in the respective prospectuses under "Redeeming Institutional Shares" or
"Redeeming Institutional Service Shares." Although the transfer agent does
not charge for telephone redemptions, it reserves the right to charge a fee
for the cost of wire-transferred redemptions of less than $5,000.
EXCHANGING SECURITIES FOR TRUST SHARES
Investors may exchange U.S. government securities they already own for
Shares of either class, or they may exchange a combination of U.S.
government securities and cash for Shares of either class. An investor
should forward the securities in negotiable form with an authorized letter
of transmittal to Federated Securities Corp. The Trust will notify the
investor of its acceptance and valuation of the securities within five
business days of their receipt by State Street Bank.
The Trust values securities in the same manner as the Trust values its
assets. The basis of the exchange will depend upon the net asset value of
Shares on the day the securities are valued. One share will be issued for
each equivalent amount of securities accepted.
Any interest earned on the securities prior to the exchange will be
considered in valuing the securities. All interest, dividends, subscription,
or other rights attached to the securities become the property of the Trust,
along with the securities.
TAX CONSEQUENCES
Exercise of this exchange privilege is treated as a sale for federal income
tax purposes. Depending upon the cost basis of the securities exchanged for
Shares, a gain or loss may be realized by the investor.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for such acts or
obligations of the Trust. These documents require notice of this disclaimer
to be given in each agreement, obligation, or instrument that the Trust or
its Trustees enter into or sign on behalf of the Trust.
In the unlikely event a shareholder is held personally liable for the
Trust's obligations, the Trust is required to use its property to protect or
to compensate the shareholder. On request, the Trust will defend any claim
made and pay any judgment against a shareholder for any act or obligation of
the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations
to indemnify shareholders and to pay judgments against them from its assets.
TAX STATUS
THE TRUST'S TAX STATUS
The Trust will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment
afforded to such companies. To qualify for this treatment, the Trust must,
among other requirements:
* derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
* derive less than 30% of its gross income from the sale of securities held
less than three months;
* invest in securities within certain statutory limits; and
* distribute to its shareholders at least 90% of its net income earned
during the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and capital
gains received as cash or additional Shares. No portion of any income
dividend paid by the Trust is eligible for the dividends received deduction
available to corporations. These dividends, and any short-term capital
gains, are taxable as ordinary income.
CAPITAL GAINS
Long-term capital gains distributed to shareholders will be treated as
long-term capital gains regardless of how long shareholders have held
Shares.
TOTAL RETURN
The Trust's average annual total return for Institutional Shares for the
one-year and five-year periods ended January 31, 1997, and for the period
from February 18, 1983 (effective date of the Trust's registration
statement) to January 31, 1997, were 3.01%, 5.92% and 8.42%, respectively.
The Trust's average annual total return for Institutional Service Shares for
the one-year period ended January 31, 1997, and for the period from June 18,
1992 (date of initial public investment) to January 31, 1997, were 2.76% and
5.59%, respectively.
The average annual total return for both classes of Shares of the Trust is
the average compounded rate of return for a given period that would equate a
$1,000 initial investment to the ending redeemable value of that investment.
The ending redeemable value is computed by multiplying the number of Shares
owned at the end of the period by the offering price per share at the end of
the period. The number of shares owned at the end of the period is based on
the number of shares purchased at the beginning of the period with $1,000,
adjusted over the period by any additional shares, assuming the monthly
reinvestment of all dividends and distributions.
YIELD
The Trust's yield for Institutional Shares for the thirty-day period ended
January 31, 1997, was 5.60%.
The Trust's yield for Institutional Service Shares for the thirty-day period
ended January 31, 1997, was 5.35%.
The yield for both classes of Shares of the Trust is determined by dividing
the net investment income per share (as defined by the Securities and
Exchange Commission) earned by either class of Shares over a thirty-day
period by the offering price per share of either class on the last day of
the period. This value is then annualized using semi-annual compounding.
This means that the amount of income generated during the thirty-day period
is assumed to be generated each month over a 12-month period and is
reinvested every six months. The yield does not necessarily reflect income
actually earned by the Trust because of certain adjustments required by the
Securities and Exchange Commission and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in
either class of shares, the performance will be reduced for those
shareholders paying those fees.
PERFORMANCE COMPARISONS
The performance of both classes of Shares depends upon such variables as:
* portfolio quality;
* average portfolio maturity;
* type of instruments in which the portfolio is invested;
* changes in interest rates and market value of portfolio securities;
* changes in the Trust's expenses or either class of Share's expenses; and
* various other factors.
Either class of Shares' performance fluctuates on a daily basis largely
because net earnings and net asset value per share fluctuate daily. Both net
earnings and net asset value per share are factors in the computation of
yield and total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Trust's performance. When comparing performance,
investors should consider all relevant factors such as the composition of
any index used, prevailing market conditions, portfolio compositions of
other funds, and methods used to value portfolio securities and compute
offering price. The financial publications and/or indices which the Trust
uses in advertising may include:
* LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and
takes into account any change in net asset value over a specific period of
time. From time to time, the Trust will quote its Lipper ranking in the U.S.
government funds category in advertising and sales literature.
* MERRILL LYNCH 1-5 YEAR TREASURY INDEX is an unmanaged index comprised of
U.S. Treasury securities maturing between 1 and 4.99 years.
* MERRILL LYNCH 3-YEAR TREASURY INDEX is an unmanaged index comprised of the
most recently issued 3-year U.S. Treasury notes.
* MORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for two
weeks.
Advertisements and other sales literature for both classes of Shares may
quote total returns which are calculated on non-standardized base periods.
These total returns also represent the historic change in the value of an
investment in either class of Shares based on monthly reinvestment of
dividends over a specified period of time.
DURATION
Duration is a commonly used measure of the potential volatility in the price
of a bond, or in a portfolio of fixed income securities. Duration describes
the magnitude of the change in the price of a bond relative to a given
change in the market rate of interest, and depends on three primary
variables: the bond's coupon rate; maturity date; and the level of market
yields of similar fixed-income securities. Generally, bonds with lower
coupons or longer maturities will be more volatile than bonds with higher
coupons or shorter maturities. Duration combines these variables into a
single measure.
Duration is calculated by dividing the sum of the time-weighted present
values of the cash flows of a bond or bonds, including interest and
principal payments, by the sum of the present values of the cash flows.
ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is
reflected in its investment decision making -- structured, straightforward,
and consistent. This has resulted in a history of competitive performance
with a range of competitive investment products that have gained the
confidence of thousands of clients and their customers.
The company's disciplined security selection process is firmly rooted in
sound methodologies backed by fundamental and technical research. Investment
decisions are made and executed by teams of portfolio managers, analysts,
and traders dedicated to specific market sectors.
In the government sector, as of December 31, 1996, Federated Investors
managed 9 mortgaged-backed, 5 government/agency and 17 government money
market mutual funds, with assets approximating $6.3 billion, $1.7 billion
and $23.6 billion, respectively. Federated trades approximately $309 million
in U.S. government and mortgage-backed securities daily and places $17
billion in repurchase agreements each day. Federated introduced the first
U.S. government fund to invest in U.S. government bond securities in 1969.
Federated has been a major force in the short- and intermediate-term
government markets since 1982 and currently manages nearly $30 billion in
government funds within these maturity ranges.
J. Thomas Madden, Executive Vice President, oversees Federated Investors'
equity and high yield corporate bond management while William D. Dawson,
Executive Vice President, oversees Federated Investors' domestic fixed
income management. Henry A. Frantzen, Executive Vice President, oversees the
management of Federated Investors' international and global portfolios.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $3.5 trillion to the more than 6,000 funds
available.*
Federated Investors, through its subsidiaries, distributes mutual funds for
a variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for
a variety of applications, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax-exempt
entities, foundations/endowments, insurance companies, and investment and
financial advisors. The marketing effort to these institutional clients is
headed by John B. Fisher, President, Institutional Sales Division.
BANK MARKETING
Other institutional clients include close relationships with more than 1,600
banks and trust organizations. Virtually all of the trust divisions of the
top 100 bank holding companies use Federated funds in their clients'
portfolios. The marketing effort to trust clients is headed by Mark R.
Gensheimer, Executive Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage firms
nationwide -- we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country -- supported by more wholesalers than any
other mutual fund distributor. Federated's service to financial
professionals and institutions has earned it high ratings in several surveys
performed by DALBAR, Inc. DALBAR is recognized as the industry benchmark for
service quality measurement. The marketing effort to these firms is headed
by James F. Getz, President, Federated Securities Corp.
* Source: Investment Company Institute Trust Organizations
Federated U.S. Government Securities Fund: 2-5 Years
ANNUAL REPORT FOR FISCAL YEAR ENDED JANUARY 31, 1997
MANAGEMENT DISCUSSION AND ANALYSIS
Federated U.S. Government Securities Fund: 2-5 Years represents a
fully-invested participation in those obligations of the U.S. Treasury and
certain government agencies which have a maximum maturity of five years and
an average maturity of three to four years. During the fund's fiscal year
ended January 31, 1997, the fund remained fully invested in U.S. Treasury
securities. The fund has maintained its "AAAf" credit rating from Standard &
Poor's.*
Fixed income performance during 1996 reflected a pickup in economic growth
combined with subdued inflation and a stronger dollar. At the start of the
fund's fiscal year, the Federal Reserve had just lowered the Fed Funds
target rate for the third time to 5.25% in response to a moderating economy
and reduced inflationary pressures. But by mid-February, market sentiment
soured and interest rates increased steadily all along the yield curve in
response to stronger economic growth and heightened inflation fears. For the
remainder of the fund's fiscal year, oscillating market expectations
regarding the direction of Federal Reserve monetary policy was reflected in
range-bound trading. Although the Federal Reserve's monetary policy has
remained on hold since January 31, 1996, the short to intermediate portion
of the yield curve increased the most in yield during the fund's fiscal year
as the market dramatically transitioned from pricing in aggressive Fed
easing to the possibility of Fed tightening. The 3-year Treasury note yield
fell from 5.03% at the end of January 1996 to 4.88% in mid-February before
rising to 6.04% at the end of January 1997. The Institutional Shares total
return for the year ended January 31, 1997, was 3.01%+ compared to 3.41% for
the Merrill Lynch 3-Year Treasury Index and 2.94% for the Merrill Lynch 3-5
Year Treasury Index.** The Institutional Service Shares total return for the
year ended January 31, 1997, was 2.76%.+
Although tight labor markets and higher wage pressures remain a concern of
the Federal Reserve, economic growth is expected to be moderate and broad
measures of inflation should remain low. Therefore, the fund's average
maturity is currently within its neutral range at 3.4 years.
* An AAAf rating means that the fund's portfolio holdings and counterparties
provide extremely strong protection against losses from credit defaults.
Ratings do not remove market risks and are subject to change.
** These indices are unmanaged.
+ Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when redeemed,
may be worth more or less than their original cost.
Federated U.S. Government Securities Fund: 2-5 Years
(Institutional Shares)
GROWTH OF $25,000 INVESTED IN
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS (INSTITUTIONAL SHARES)
The graph below illustrates the hypothetical investment of $25,000 in the
Federated U.S. Government Securities Fund: 2-5 Years (Institutional Shares)
(the "Fund") from January 31, 1987, to January 31, 1997, compared to the
Lipper Short-Term U.S. Treasury Funds Average (LSTUSTFA),++ and the Merrill
Lynch Three-Year Treasury Index (MLTYT).+
[Graphic] (seeattached Appendix)
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, SO WHEN SHARES ARE REDEEMED, THEY
MAY BE WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT
OBLIGATIONS OF OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
THIS REPORT MUST BE PRECEDED OR ACCOMPANIED BY THE FUND'S PROSPECTUS DATED
MARCH 31, 1997, AND, TOGETHER WITH FINANCIAL STATEMENTS CONTAINED THEREIN,
CONSTITUTES THE FUND'S ANNUAL REPORT.
* The Fund's performance assumes the reinvestment of all dividends and
distributions. The LSTUSTFA, and the MLTYT have been adjusted to reflect
reinvestment of dividends on securities in the indices and average.
+ The MLTYT is not adjusted to reflect sales charges, expenses, or other
fees that the SEC requires to be reflected in the Fund's performance. The
index is unmanaged.
++ The LSTUSTFA represents the average of the total returns reported by all
of the mutual funds designated by Lipper Analytical Services, Inc. as
following in the respective category, and is not adjusted to reflect any
sales charges. However, these total returns are reported net of expenses or
other fees that the SEC requires to be reflected in a fund's performance.
Federated U.S. Government Securities Fund: 2-5 Years
(Institutional Service Shares)
GROWTH OF $25,000 INVESTED IN
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS (INSTITUTIONAL SERVICE
SHARES)
The graph below illustrates the hypothetical investment of $25,000 in the
Federated U.S. Government Securities Fund: 2-5 Years (Institutional Service
Shares) (the "Fund") from May 30, 1992 (start of performance) to January 31,
1997, compared to the Lipper Short-Term U.S. Treasury Funds Average
(LSTUSTFA),++ and the Merrill Lynch Three-Year Treasury Index (MLTYT).+
[Graphic] (see attached Appendix)
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT
RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, SO WHEN SHARES ARE REDEEMED, THEY
MAY BE WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT
OBLIGATIONS OF OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
THIS REPORT MUST BE PRECEDED OR ACCOMPANIED BY THE FUND'S PROSPECTUS DATED
MARCH 31, 1997, AND, TOGETHER WITH FINANCIAL STATEMENTS CONTAINED THEREIN,
CONSTITUTES THE FUND'S ANNUAL REPORT.
* The Fund's performance assumes the reinvestment of all dividends and
distributions. The LSTUSTFA, and the MLTYT have been adjusted to reflect
reinvestment of dividends on securities in the indices and average.
+ The MLTYT is not adjusted to reflect sales charges, expenses, or other
fees that the SEC requires to be reflected in the Fund's performance. The
index is unmanaged.
++ The LSTUSTFA represents the average of the total returns reported by all
of the mutual funds designated by Lipper Analytical Services, Inc. as
following in the respective category, and is not adjusted to reflect any
sales charges. However, these total returns are reported net of expenses or
other fees that the SEC requires to be reflected in a fund's performance.
[Graphic]
Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
Cusip 31428P103
Cusip 31428P202
8022502ARS (3/97)
[Graphic]
APPENDIX
A-1. The graphic presentation here displayed consists of a line graph
titled `Growth of $25,000 Invested in Federated U.S. Government Securities
Fund: 2-5 Years (Institutional Service Shares)'. The corresponding
components of the line graph are listed underneath. The Federated U.S.
Government Securities Fund: 2-5 Years (Institutional Service Shares) (the
`Fund'') is represented by a solid line. The Lipper Short-Term U.S.
Treasury Funds Average (the `LSTUSTFA'') is represented by a dotted line.
The Merrill Lynch Three-Year Treasury Index (the `MLTYT'' is represented
by a broken line. The line graph is a visual representation of a comparison
of change in value of a hypothetical $25,000 investment in the Fund, the
LSTUSTFA, and the MLTYT. The "x" axis reflects computation periods from
the start of performance (May 30, 1992) to January 31, 1997. The "y" axis
reflects the cost of the investment, ranging from $25,000 to $33,000. The
right margin reflects the ending value of the hypothetical investment in
the Fund as compared to the LSTUSTFA, and the MLTYT. The ending values are
$32,240, $32,109, and $32,956, respectively.
A-2. The graphic presentation here displayed consists of a line graph
titled `Growth of $25,000 Invested in Federated U.S. Government Securities
Fund: 2-5 Years (Institutional Shares)'. The corresponding components of
the line graph are listed underneath. The Federated U.S. Government
Securities Fund: 2-5 Years (Institutional Shares) (the `Fund'') is
represented by a solid line. The Lipper Short-Term U.S. Treasury Funds
Average (the `LSTUSTFA'') is represented by a dotted line. The Merrill
Lynch Three-Year Treasury Index (the `MLTYT'' is represented by a broken
line. The line graph is a visual representation of a comparison of change
in value of a hypothetical $25,000 investment in the Fund, the LSTUSTFA,
and the MLTYT. The "x" axis reflects computation periods from January 31,
1987 to January 31, 1997. The "y" axis reflects the cost of the
investment, ranging from $25,000 to $50,000. The right margin reflects the
ending value of the hypothetical investment in the Fund as compared to the
LSTUSTFA, and the MLTYT. The ending values are $49,910, $46,760, and
$48,819, respectively.
