PRESIDENT'S MESSAGE
Dear Investor:
I am pleased to present the Semi-Annual Report to Shareholders for Federated
U.S. Government Securities Fund: 2-5 Years. The report covers the six-month
period from February 1, 1998, through July 31, 1998, and includes the fund's
investment review, portfolio of investments, and financial statements.
During the reporting period, the fund's portfolio of shorter-term U.S.
government securities paid dividends totaling $0.29 per share for Institutional
Shares and $0.28 per share for Institutional Service Shares. Total returns for
Institutional Shares and Institutional Service Shares were 2.03%* and 1.91%,*
respectively. The fund's net assets totaled $748 million on the last day of the
reporting period.
During the reporting period, the fund maintained its AAAf rating by Standard &
Poor's, the highest available from this independent rating service.**
Thank you for pursuing investment income through Federated U.S. Government
Securities Fund: 2-5 Years. As always, we welcome your questions and
comments.
Sincerely,
(graphic)
Glen R. Johnson
President
September 15, 1998
* Performance quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
** An AAAf rating from Standard & Poor's 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.
INVESTMENT REVIEW
Federated U.S. Government Securities Fund: 2-5 Years represents a fully-
invested participation in 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. Standard & Poor's has maintained
the fund's "AAAf" credit rating.*
During the first half of the fund's semi-annual reporting period, fixed income
performance reflected above trend economic growth combined with subdued
inflation. The 3-year Treasury note yield increased from 5.32% at the end of
January 1998 to 5.74% near the end of April as the short to intermediate portion
of the yield curve transitioned from pricing in a lower to an unchanged or
possibly higher federal funds target rate. The Federal Reserve Board ("Fed")
maintained its "wait and see" approach due to the counteracting forces of the
underlying strength in the U.S. economy and the potential deflationary impact of
the Asian financial crisis. The federal funds rate remained at 5.5%, where it
has been since the Fed last tightened near the end of March 1997.
U.S. Treasury yields declined during the second half of the fund's reporting
period as the Asian financial crisis once again provided a flight-to-quality bid
in U.S. Treasury securities. The much-anticipated Asian drag on the U.S. economy
was finally evident in slowing manufacturing and export sectors. The U.S. dollar
rose to an 8-year high versus the yen as Japan's first quarter Gross Domestic
Product data confirmed that their economy was officially in a recession. The 2-
to 30-year coupon curve continued to flatten and the 3-year Treasury note yield
declined to 5.46%. While short to intermediate Treasury yields ended July below
the federal funds target rate of 5.5%, they were still 25 to 30 basis points
higher than the lows set in mid-January.
Although the fund's average maturity/duration has been managed within its
neutral range, its average maturity/duration was extended past its midpoint when
yields rose in late April and ended July at its midpoint of 3.5/3.2 years. The
fund's net total return for the six months ended July 31, 1998, was 2.03%** for
Institutional Shares and 1.91%** for Institutional Sevice Shares compared to
2.23% for the Merrill Lynch 3-Year Treasury Index+ and 2.27% for the Merrill
Lynch 3-5 Year Treasury Index.+
* "AAAf" rated fund portfolio holdings and counterparties provide extremely
strong protection against losses from credit defaults. Ratings do not remove
market risks and are subject to change.
** Performance quoted represents past performance and is not indicative of
future results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less then their original
cost.
+ Merrill Lynch 3-Year Treasury Index is comprised of the most recently issued
3-year U.S. Treasury notes. Merrill Lynch 3-5 Year Treasury Index is comprised
of U.S. Treasury securities with maturities between 3 and 4.99 years. Indexes
are unmanaged and investments cannot be made in an index.
PORTFOLIO OF INVESTMENTS
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
JULY 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
GOVERNMENT AGENCIES--2.1%
$ 10,000,000 Federal Farm Credit System, 5.680%, 3/12/2001 $ 9,999,700
6,000,000 Federal Home Loan Bank System, 5.625%, 3/19/2001 5,990,400
TOTAL GOVERNMENT AGENCIES (IDENTIFIED COST $15,988,884) 15,990,100
U.S. TREASURY NOTES--96.2%
25,000 7.125%, 2/29/2000 25,605
20,000,000 6.375%, 3/31/2001 20,426,400
21,000,000 6.250%, 4/30/2001 21,396,900
50,000,000 6.625%, 6/30/2001 51,456,500
47,800,000 6.625%, 7/31/2001 49,255,510
50,000,000 6.500%, 8/31/2001 51,364,000
58,500,000 6.250%, 10/31/2001 59,727,330
85,000,000 6.125%, 12/31/2001 86,506,200
31,000,000 6.250%, 1/31/2002 31,684,170
28,000,000 6.250%, 2/28/2002 28,633,080
75,000,000 6.625%, 3/31/2002 77,601,000
47,000,000 6.625%, 4/30/2002 48,647,350
20,000,000 6.500%, 5/31/2002 20,644,600
25,000,000 6.250%, 6/30/2002 25,600,500
29,500,000 6.000%, 7/31/2002 29,961,675
31,000,000 6.375%, 8/15/2002 31,912,950
38,500,000 5.875%, 9/30/2002 38,938,515
38,600,000 5.625%, 12/31/2002 38,713,484
4,500,000 5.500%, 3/31/2003 4,491,720
2,500,000 5.375%, 6/30/2003 2,486,325
TOTAL U.S. TREASURY NOTES (IDENTIFIED COST $710,368,022) 719,473,814
</TABLE>
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
$ 6,475,000 BT Securities Corp., 5.640%, dated 7/31/1998,
due 8/3/1998 (at amortized cost) $ 6,475,000
TOTAL INVESTMENTS (IDENTIFIED COST $732,831,906)(B) $ 741,938,914
</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 $732,831,906.
The net unrealized appreciation of investments on a federal tax basis amounts to
$9,107,008 which is comprised of $9,272,675 appreciation and $165,667
depreciation at July 31, 1998.
Note: The categories of investments are shown as a percentage of net assets
($748,177,086) at July 31, 1998.
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF ASSETS AND LIABILITIES
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
JULY 31, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Investments in securities, at value (identified and tax cost $732,831,906) $ 741,938,914
Income receivable 9,649,138
Receivable for shares sold 775,305
Total assets 752,363,357
LIABILITIES:
Payable for shares redeemed $ 21,287
Income distribution payable 3,339,712
Payable to Bank 756,678
Accrued expenses 68,594
Total liabilities 4,186,271
NET ASSETS for 70,187,985 shares outstanding $ 748,177,086
NET ASSETS CONSIST OF:
Paid in capital $ 765,462,571
Net unrealized appreciation of investments 9,107,008
Accumulated net realized loss on investments (26,392,384)
Distributions in excess of net investment income (109)
Total Net Assets $ 748,177,086
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$704,431,827 / 66,084,160 shares outstanding $10.66
INSTITUTIONAL SERVICE SHARES:
$43,745,259 / 4,103,825 shares outstanding $10.66
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
SIX MONTHS ENDED JULY 31, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 21,667,675
EXPENSES:
Investment advisory fee $ 1,460,479
Administrative personnel and services fee 275,300
Custodian fees 21,196
Transfer and dividend disbursing agent fees and expenses 103,026
Directors'/Trustees' fees 4,435
Auditing fees 6,937
Legal fees 3,651
Portfolio accounting fees 66,960
Distribution services fee--Institutional Service Shares 50,434
Shareholder services fee--Institutional Shares 862,368
Shareholder services fee--Institutional Service Shares 50,434
Share registration costs 18,222
Printing and postage 14,088
Insurance premiums 3,651
Miscellaneous 9,218
Total expenses 2,950,399
Waivers
Waiver of distribution services fee--Institutional Service
Shares $ (46,399)
Waiver of shareholder services fee--Institutional Shares (827,874)
Waiver of shareholder services fee--Institutional Service
Shares (2,017)
Total waivers (876,290)
Net expenses 2,074,109
Net investment income 19,593,566
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 3,551,785
Net change in unrealized depreciation of investments (8,038,724)
Net realized and unrealized loss on investments (4,486,939)
Change in net assets resulting from operations $ 15,106,627
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
JULY 31, 1998 JANUARY 31, 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS
Net investment income $ 19,593,566 $ 41,828,798
Net realized gain (loss) on investments ($3,551,785 net gain and
$477,074 net loss, respectively, as computed for federal tax
purposes) 3,551,785 229,718
Net change in unrealized appreciation/depreciation (8,038,724) 16,005,120
Change in net assets resulting from operations 15,106,627 58,063,636
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income
Institutional Shares (18,604,545) (40,228,730)
Institutional Service Shares (983,518) (1,605,680)
Change in net assets resulting from distributions to
shareholders (19,588,063) (41,834,410)
SHARE TRANSACTIONS
Proceeds from sale of shares 157,757,662 267,414,601
Net asset value of shares issued to shareholders in payment of
distributions declared 7,157,901 17,158,644
Cost of shares redeemed (145,594,844) (375,312,466)
Change in net assets resulting from share transactions 19,320,719 (90,739,221)
Change in net assets 14,839,283 (74,509,995)
NET ASSETS:
Beginning of period 733,337,803 807,847,798
End of period $ 748,177,086 $ 733,337,803
</TABLE>
(See Notes which are an integral part of the Financial Statements)
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS - INSTITUTIONAL SHARES
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
JULY 31, JANUARY 31,
1998 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.73 $10.48 $10.74 $10.11 $10.78 $10.61
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.29 0.59 0.57 0.64 0.54 0.46
Net realized and unrealized gain
(loss) on investments (0.07) 0.25 (0.26) 0.63 (0.67) 0.17
Total from investment operations 0.22 0.84 0.31 1.27 (0.13) 0.63
LESS DISTRIBUTIONS
Distributions from net investment
income (0.29) (0.59) (0.57) (0.64) (0.54) (0.46)
NET ASSET VALUE, END OF PERIOD $10.66 $10.73 $10.48 $10.74 $10.11 $10.78
TOTAL RETURN(A) 2.03 % 8.24 % 3.01 % 12.86 % (1.18 %) 6.07 %
RATIOS TO AVERAGE NET ASSETS
Expenses 0.55 %* 0.54 % 0.54 % 0.54 % 0.54 % 0.52 %
Net investment income 5.38 %* 5.58 % 5.42 % 6.07 % 5.16 % 4.30 %
Expense waiver/reimbursement(b) 0.24 %* 0.25 % 0.26 % 0.25 % 0.02 %
SUPPLEMENTAL DATA
Net assets, end of period (000
omitted) $704,432 $696,613 $782,056 $871,966 $731,280 $951,528
Portfolio turnover 55 % 71 % 99 % 117 % 163 % 131 %
</TABLE>
* Computed on an annualized basis.
(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)
FINANCIAL HIGHLIGHTS - INSTITUTIONAL SERVICE SHARES
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
JULY 31, JANUARY 31,
1998 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $10.73 $10.48 $10.74 $10.11 $10.78 $10.61
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.28 0.56 0.54 0.61 0.51 0.44
Net realized and unrealized
gain (loss) on investments (0.07) 0.25 (0.26) 0.63 (0.67) 0.17
Total from investment
operations 0.21 0.81 0.28 1.24 (0.16) 0.61
LESS DISTRIBUTIONS
Distributions from net
investment income (0.28) (0.56) (0.54) (0.61) (0.51) (0.44)
NET ASSET VALUE, END OF PERIOD $10.66 $10.73 $10.48 $10.74 $10.11 $10.78
TOTAL RETURN(A) 1.91 % 7.97 % 2.76 % 12.58 % (1.42 %) 5.81 %
RATIOS TO AVERAGE NET ASSETS
Expenses 0.80 %* 0.79 % 0.79 % 0.79 % 0.79 % 0.77 %
Net investment income 5.14 %* 5.33 % 5.16 % 5.85 % 5.00 % 4.01 %
Expense
waiver/reimbursement(b) 0.24 %* 0.25 % 0.26 % 0.25 % 0.21 %
SUPPLEMENTAL DATA
Net assets, end of period
(000 omitted) $43,745 $36,725 $25,791 $32,317 $33,117 $30,763
Portfolio turnover 55 % 71 % 99 % 117 % 163 % 131 %
</TABLE>
* Computed on an annualized basis.
(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)
NOTES TO FINANCIAL STATEMENTS
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
JULY 31, 1998 (UNAUDITED)
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.
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, 1998, the Trust, for federal tax purposes, had a capital loss
carryforward of $29,941,955, 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
2003 $29,464,881
2006 477,074
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.
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>
SIX MONTHS ENDED YEAR ENDED
JULY 31, 1998 JANUARY 31, 1998
INSTITUTIONAL SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 13,405,987 $ 142,850,290 23,359,912 $ 246,238,107
Shares issued to shareholders in payment of
distributions declared 609,102 6,483,443 1,500,543 15,786,018
Shares redeemed (12,882,549) (137,267,519) (34,540,057) (362,903,965)
Net change resulting from Institutional
Share transactions 1,132,540 $ 12,066,214 (9,679,602) $ (100,879,840)
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JULY 31, 1998 JANUARY 31, 1998
INSTITUTIONAL SERVICE SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 1,398,365 $ 14,907,372 2,011,745 $ 21,176,494
Shares issued to shareholders in payment of
distributions declared 63,366 674,458 130,348 1,372,626
Shares redeemed (782,123) (8,327,325) (1,179,138) (12,408,501)
Net change resulting from Institutional
Service Share transactions 679,608 $ 7,254,505 962,955 $ 10,140,619
Net change resulting from share transactions 1,812,148 $ 19,320,719 (8,716,647) $ (90,739,221)
</TABLE>
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, Inc. 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.
YEAR 2000
Similar to other financial organizations, the Trust could be adversely affected
if the computer systems used by the Trust's service provid ers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Trust's Adviser and Administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Trust's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Trust.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended July 31, 1998, were as follows:
PURCHASES $421,505,545
SALES $402,061,995
TRUSTEES
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
William J. Copeland
James E. Dowd, Esq.
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr., Esq.
Peter E. Madden
John E. Murray, Jr., J.D., S.J.D.
Wesley W. Posvar
Marjorie P. Smuts
OFFICERS
John F. Donahue
Chairman
Glen R. Johnson
President
J. Christopher Donahue
Executive Vice President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President, Treasurer, and Secretary
Richard B. Fisher
Vice President
Karen M. Brownlee
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the Fund's prospectuses which contain facts
concerning its objective and policies, management fees, expenses, and other
information.
(graphic)
Federated U.S. Government Securities Fund: 2-5 Years
Federated Securities Corp., Distributor
Federated Investors, Inc.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
SEMI-ANNUAL REPORT TO SHAREHOLDERS JULY 31, 1998 (graphic) Cusip 31428P103 Cusip
31428P202 8082202 (9/98) (graphic)
