FEDERATED U S GOVERNMENT SECURITIES FUND 2-5 YEARS, N-30D, 1998-04-01

FEDERATED U S GOVERNMENT SECURITIES FUND 2-5 YEARS
N-30D, 1998-04-01

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Federated U.S. Government Securities Fund: 2-5 Years

Annual Report for Fiscal Year Ended January 31, 1998

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,
1998, the fund remained fully invested in U.S. Treasury securities. Standard &
Poor's has maintained the fund's "AAAf" credit rating.*

During the fund's annual reporting period, fixed income performance reflected
above trend economic growth combined with subdued inflation. After remaining on
hold for over a year and citing persisting strength in demand as increasing the
risk of inflationary imbalances, the Federal Reserve Board (the "Fed") increased
the federal funds target rate from 5.25% to 5.50% near the end of March 1997.
This was the first tightening of monetary policy in over two years. The 3-year
Treasury note yield increased from 6.04% at the end of January 1997 to 6.69% in
mid-April as the short to intermediate portion of the yield curve transitioned
from pricing in a status quo to a more restrictive Fed monetary policy.

U.S. Treasury yields steadily declined during the remainder of the fund's
reporting period, more than offsetting the preceding interest rate rise.
Consumer prices increased at only a 1.6% annual rate through January 1998, and
the federal funds rate remained on hold as the Asian financial crisis eliminated
the possibility of a tightening of Fed monetary policy. The 3-year Treasury note
yield declined to 5.32% at the end of January 1998. The fund's average
maturity/duration has been managed within its neutral range, and ended the
reporting period at 3.4/3.1 years. Due to the counteracting forces of the
underlying strength in the U.S. economy and the potential deflationary impact of
the Asian crisis, Fed monetary policy should remain unchanged in the near term.

The Institutional Shares total return for the year ended January 31, 1998, was
8.24%** compared to 8.07% for the Merrill Lynch 3-Year Treasury Index.+ The
Institutional Service Shares total return for the year ended January 31, 1998,
was 7.97%.**

* "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 than their original
cost.

+ This index is unmanaged.

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, 1988 to January 31, 1998, compared to the Lipper
Short-Term U.S. Government Funds Average (LSTUSGFA),++ and the Merrill Lynch
Three Year Treasury Index (MLTYT).+

SEE APPENDIX A.1

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, 1998, 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 LSTUSGFA and the MLTYT have been adjusted to reflect
reinvestment of dividends on securities in the index 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 LSTUSGFA 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.

<PAGE>

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,
1998, compared to the Lipper Short-Term U.S. Government Funds Average
(LSTUSGFA),++ and the Merrill Lynch Three Year Treasury Index (MLTYT).+

SEE APPENDIX A.2

This report must be preceded or accompanied by the Fund's prospectus dated March
31, 1998, and, together with financial statements contained therein, constitutes
the Fund's annual report.

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

1-800-341-7400

www.federatedinvestors.com

Cusip 31428P103
Cusip 31428P202
8022502ARS (3/98)

[Graphic]

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, 1998, 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, 1998

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 5 Net Asset Value 5 Investing in Institutional Shares 6 Share Purchases 6
Minimum Investment Required 6 What Shares Cost 6 Exchanging Securities for
Trust Shares 6 Confirmations and Account Statements 6 Dividends 7 Capital Gains
7 Redeeming Institutional Shares 7 Telephone Redemption 7 Written Requests 7
Accounts with Low Balances 8 Shareholder Information 8 Voting Rights 8 Tax
Information 8 Federal Income Tax 8 State and Local Taxes 8 Performance
Information 8 Other Classes of Shares 8 Financial Highlights -- Institutional
Service Shares 9 Financial Statements 10 Report of Independent Public
Accountants Inside Back Cover

SUMMARY OF TRUST EXPENSES

<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
INSTITUTIONAL SHARES
<S> <C> Maximum Sales Charge Imposed on Purchases (as a percentage of offering
price) None Maximum Sales Charge Imposed on Reinvested Dividends (as a
percentage of offering price) None Contingent Deferred Sales Charge (as a
percentage of original purchase price or redemption
proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
<CAPTION>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C> <C>
Management Fee 0.40%
12b-1 Fee None
Total Other Expenses 0.14%
Shareholder Services Fee (after waiver)(1) 0.00%
Total Operating Expenses(2) 0.54%
</TABLE>
(1) The 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%.

(2) The total operating expenses would have been 0.79% absent the voluntary
waiver of the shareholder services fee.

The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of Institutional Shares of the Trust will
bear, either directly or indirectly. For more complete descriptions of the
various costs and expenses, see "Trust Information" and "Investing in
Institutional Shares." Wire-transferred redemptions of less than $5,000 may be
subject to additional fees.

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.

EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period.
1 Year $ 6
3 Years $17
5 Years $30
10 Years $68

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

Reference is made to the Report of Independent Public Accountants on the inside
back cover.

<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, $10.48 $10.74 $10.11 $10.78 $10.61 $10.25 $ 9.87 $ 9.59 $ 9.42 $ 9.88
BEGINNING OF PERIOD
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.59 0.57 0.64 0.54 0.46 0.57 0.71 0.75 0.79* 0.81
Net realized and 0.25 (0.26) 0.63 (0.67) 0.17 0.36 0.38 0.28 0.17* (0.46)
unrealized gain (loss)
on investments
Total from investment 0.84 0.31 1.27 (0.13) 0.63 0.93 1.09 1.03 0.96 0.35
operations
LESS DISTRIBUTIONS
Distributions from net (0.59) (0.57) (0.64) (0.54) (0.46) (0.57) (0.71) (0.75) (0.79) (0.81)
investment income
NET ASSET VALUE, END OF $10.73 $10.48 $10.74 $10.11 $10.78 $10.61 $10.25 $ 9.87 $ 9.59 $ 9.42
PERIOD
TOTAL RETURN(A) 8.24% 3.01% 12.86% (1.18)% 6.07% 9.37% 11.44% 11.18% 10.52% 3.66%
RATIOS TO AVERAGE NET
ASSETS
Expenses 0.54% 0.54% 0.54% 0.54% 0.52% 0.50% 0.50% 0.51% 0.51% 0.47%
Net investment income 5.58% 5.42% 6.07% 5.16% 4.30% 5.52% 7.08% 7.75% 8.26% 8.37%
Expense 0.25% 0.26% 0.25% 0.02% -- -- -- -- -- 0.03%
waiver/reimbursement(b)
SUPPLEMENTAL DATA
Net assets, end of $696,613 $782,056 $871,966 $731,280 $951,528 $845,620 $779,686 $791,131 $959,728 $1,246,393
period (000 omitted)
Portfolio turnover 71% 99% 117% 163% 131% 85% 108% 60% 166% 82%
</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, 1998, 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.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

The Fund may invest its assets in securities of other investment companies as an
efficient means of carrying out its investment policies. It should be noted that
investment companies incur certain expenses, such as management fees, and,
therefore, any investment by the Fund in shares of other investment companies
may be subject to such duplicate expenses.

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 $120 billion invested across more than 300
funds under management and/or administration by its subsidiaries, as of
December 31, 1997, 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 4,000 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 September 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.

Robert J. Ostrowski has been the Trust's portfolio manager since September
1997. Mr. Ostrowski joined Federated in 1987 as an Investment Analyst and
has been a Senior Vice President of the Trust's adviser since September
1997. Mr. Ostrowski served as Vice President of the Trust's adviser from
1993 to 1997, and as an Assistant Vice President from 1992 to 1993. Mr.
Ostrowski is a Chartered Financial Analyst. He received his M.S. in
Industrial Administration from Carnegie Mellon University.

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 AVERAGE AGGREGATE
FEE DAILY NET ASSETS
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% 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,
Martin Luther King, Jr. 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.

CONFIRMATIONS AND ACCOUNT STATEMENTS

Shareholders will receive detailed confirmations of transactions. In addition,
shareholders will receive periodic statements reporting all account activity,
including dividends paid. The Trust will not issue share certificates.

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

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.

FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

Reference is made to the Report of Independent Public Accountants on the inside
back cover.

<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1998 1997 1996 1995 1994 1993(A)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.48 $10.74 $10.11 $10.78 $10.61 $10.35
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.56 0.54 0.61 0.51 0.44 0.34
Net realized and unrealized gain (loss) on 0.25 (0.26) 0.63 (0.67) 0.17 0.26
investments
Total from investment operations 0.81 0.28 1.24 (0.16) 0.61 0.60
LESS DISTRIBUTIONS
Distributions from net investment income (0.56) (0.54) (0.61) (0.51) (0.44) (0.34)
NET ASSET VALUE, END OF PERIOD $10.73 $10.48 $10.74 $10.11 $10.78 $10.61
TOTAL RETURN(B) 7.97% 2.76% 12.58% (1.42)% 5.81% 5.84%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.79% 0.79% 0.79% 0.79% 0.77% 0.75%*
Net investment income 5.33% 5.16% 5.85% 5.00% 4.01% 5.13%*
Expense waiver/reimbursement(c) 0.25% 0.26% 0.25% 0.21% -- --
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $36,725 $25,791 $32,317 $33,117 $30,763 $12,987
Portfolio turnover 71% 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 FISCAL YEAR ENDED JANAURY 31, 1998, WHICH CAN BE
OBTAINED FREE OF CHARGE.

PORTFOLIO OF INVESTMENTS

FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS

JANUARY 31, 1998

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE

<C> <S> <C>
U.S. TREASURY NOTES--98.3%
$ 55,000,000 7.750%, 12/31/1999 $ 57,390,850
39,340,000 7.750%, 1/31/2000 41,116,988
25,000 7.125%, 2/29/2000 25,864
35,000,000 6.875%, 3/31/2000 36,079,750
25,000,000 5.750%, 11/15/2000 25,273,750
55,000,000 5.500%, 12/31/2000 55,215,050
69,000,000 6.375%, 3/31/2001 70,985,130
25,000,000 6.500%, 5/31/2001 25,846,250
50,000,000 6.625%, 6/30/2001 51,904,000
50,000,000 6.500%, 8/31/2001 51,778,500
35,500,000 6.250%, 10/31/2001 36,510,330
60,000,000 6.125%, 12/31/2001 61,503,600
13,000,000 6.250%, 1/31/2002 13,388,960
75,000,000 6.625%, 3/31/2002 78,340,500
20,000,000 6.500%, 5/31/2002 20,830,200
25,000,000 6.250%, 6/30/2002 25,814,000
38,000,000 5.875%, 9/30/2002 38,710,980
30,000,000 5.625%, 12/31/2002 30,294,000
TOTAL U.S. TREASURY NOTES (IDENTIFIED COST $703,862,970) 721,008,702
(A)REPURCHASE AGREEMENTS--0.4%
2,825,000 BT Securities Corp., 5.610%, dated 1/30/1998, due 2/2/1998 2,825,000
(AT AMORTIZED COST)
TOTAL INVESTMENTS (IDENTIFIED COST $706,687,970)(b) $ 723,833,702
</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 $706,690,184.
The net unrealized appreciation of investments on a federal tax basis
amounts to $17,143,518 at January 31, 1998, which consist of all
appreciation.

Note: The categories of investments are shown as a percentage of net assets
($733,337,803) at January 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

JANUARY 31, 1998

<TABLE>
<S> <C> <C>
ASSETS:
Investments in securities, at value (identified cost $706,687,970 $ 723,833,702
and tax cost $706,690,184)
Income receivable 11,032,092
Receivable for shares sold 10,800,834
Total assets 745,666,628
LIABILITIES:
Payable for shares redeemed $ 889,071
Income distribution payable 1,951,509
Payable to Bank 9,416,473
Accrued expenses 71,772
Total liabilities 12,328,825
Net Assets for 68,375,837 shares outstanding $ 733,337,803
NET ASSETS CONSIST OF:
Paid in capital $ 746,141,852
Net unrealized appreciation of investments 17,145,732
Accumulated net realized loss on investments (29,944,169)
Distributions in excess of net investment income (5,612)
Total Net Assets $ 733,337,803
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$696,612,680 / 64,951,620 shares outstanding $10.73
INSTITUTIONAL SERVICE SHARES:
$36,725,123 / 3,424,217 shares outstanding $10.73
</TABLE>

(See Notes which are an integral part of the Financial Statements)

STATEMENT OF OPERATIONS

FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS

YEAR ENDED JANUARY 31, 1998

<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 45,991,436
EXPENSES:
Investment advisory fee $ 3,003,737
Administrative personnel and services fee 566,831
Custodian fees 40,755
Transfer and dividend disbursing agent fees and 222,200
expenses
Directors'/Trustees' fees 8,019
Auditing fees 13,794
Legal fees 7,014
Portfolio accounting fees 117,118
Distribution services fee--Institutional Service Shares 75,271
Shareholder services fee--Institutional Shares 1,802,065
Shareholder services fee--Institutional Service Shares 75,271
Share registration costs 35,813
Printing and postage 27,713
Insurance premiums 6,964
Miscellaneous 19,444
Total expenses 6,022,009
Waivers and reimbursements--
Waiver of distribution services fee--Institutional $ (69,249)
Service Shares
Waiver of shareholder services fee--Institutional (1,784,955)
Shares
Waiver of shareholder services fee--Institutional (5,167)
Service Shares
Total waivers (1,859,371)
Net expenses 4,162,638
Net investment income 41,828,798
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 229,718
Net change in unrealized appreciation of investments 16,005,120
Net realized and unrealized gain on investments 16,234,838
Change in net assets resulting from operations $ 58,063,636
</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>
YEAR ENDED JANUARY 31,
1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 41,828,798 $ 45,808,408
Net realized loss/gain on investments ($477,074 net loss and 229,718 2,103,327
$2,863,569 net gain, respectively, as computed for federal tax
purposes)
Net change in unrealized appreciation/depreciation 16,005,120 (24,522,667)
Change in net assets resulting from operations 58,063,636 23,389,068
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Institutional Shares (40,228,730) (44,291,755)
Institutional Service Shares (1,605,680) (1,516,653)
Change in net assets resulting from distributions to (41,834,410) (45,808,408)
shareholders
SHARE TRANSACTIONS--
Proceeds from sale of shares 267,414,601 274,782,417
Net asset value of shares issued to shareholders in payment of 17,158,644 17,030,963
distributions declared
Cost of shares redeemed (375,312,466) (365,828,600)
Change in net assets resulting from share transactions (90,739,221) (74,015,220)
Change in net assets (74,509,995) (96,434,560)
NET ASSETS:
Beginning of period 807,847,798 904,282,358
End of period $ 733,337,803 $ 807,847,798
</TABLE>

(See Notes which are an integral part of the Financial Statements)

NOTES TO FINANCIAL STATEMENTS

FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS

JANUARY 31, 1998

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.

Income and capital gain distributions are determined in accordance with income
tax regulations which may differ from generally accepted accounting principles.
This difference is due to differing treatments for expiring capital loss
carryforwards. The following reclassifications have been made to the financial
statements.

INCREASE (DECREASE)
ACCUMULATED
NET REALIZED
PAID IN CAPITAL GAIN/LOSS
$(8,977,949) $8,977,949

Net investment income, net realized gains/losses, and net assets were not
affected by this reclassification.

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).
Transactions in shares were as follows:

<TABLE>
YEAR ENDED JANUARY 31,
1998 1997
INSTITUTIONAL SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 23,359,912 $ 246,238,107 24,629,328 $ 257,778,045
Shares issued to shareholders in payment 1,500,543 15,786,018 1,505,096 15,719,216
of distributions declared
Shares redeemed (34,540,057) (362,903,965) (32,702,252) (341,913,040)
Net change resulting from Institutional (9,679,602) $(100,879,840) (6,567,828) $ (68,415,779)
Share transactions
YEAR ENDED JANUARY 31,
1998 1997
INSTITUTIONAL SERVICE SHARES SHARES AMOUNT SHARES AMOUNT
Shares sold 2,011,745 $ 21,176,494 1,621,629 $ 17,004,372
Shares issued to shareholders in payment 130,348 1,372,626 125,629 1,311,747
of distributions declared
Shares redeemed (1,179,138) (12,408,501) (2,296,071) (23,915,560)
Net change resulting from Institutional 962,955 $ 10,140,619 (548,813) $ (5,599,441)
Service Share transactions
Net change resulting from share (8,716,647) $ (90,739,221) (7,116,641) $ (74,015,220)
transactions
</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 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.

INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding short-term securities, for the
period ended January 31, 1998, were as follows:

Purchases $527,652,609
Sales $616,800,891

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,
1998, 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 9 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, 1998, 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, 1998, 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 6, 1998

[Graphic]Federated Investors

Federated U.S. Government Securities Fund: 2-5 Years

Institutional Shares

PROSPECTUS

MARCH 31, 1998

An Open-End, Diversified, Management Investment Company

FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
INSTITUTIONAL SHARES

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

DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower

1001 Liberty Avenue

Pittsburgh, PA 15222-3779

INVESTMENT ADVISER
Federated Management
Federated Investors Tower

1001 Liberty Avenue

Pittsburgh, PA 15222-3779

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

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600

INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
2100 PPG Place
Pittsburgh, PA 15222

Federated Securities Corp., Distributor
1-800-341-7400
www.federatedinvestors.com

Cusip 31428P103

8022502A-IS (3/98)

[Graphic]

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).

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

Prospectus dated March 31, 1998

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 4 Management
of the Trust 4 Distribution of Institutional Service Shares 5 Administration of
the Trust 6 Net Asset Value 6 Investing in Institutional Service Shares 6 Share
Purchases 6 Exchange Privilege 6 Minimum Investment Required 6 What Shares Cost
7 Exchanging Securities for Trust Shares 7 Confirmations and Account Statements
7 Dividends 7 Capital Gains 7 Redeeming Institutional Service Shares 7
Telephone Redemption 7 Written Requests 8 Accounts with Low Balances 8
Shareholder Information 8 Voting Rights 8 Tax Information 8 Federal Income Tax
8 State and Local Taxes 9 Performance Information 9 Other Classes of Shares 9
Financial Highlights -- Institutional Shares 10 Financial Statements 11 Report
of Independent Public Accountants 18

SUMMARY OF TRUST EXPENSES

<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
NSTITUTIONAL SERVICE SHARES
<S> <S> Maximum Sales Charge Imposed on Purchases (as a percentage of offering
price) None Maximum Sales Charge Imposed on Reinvested Dividends (as a
percentage of offering price) None Contingent Deferred Sales Charge (as a
percentage of original purchase price or redemption
proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
<CAPTION>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C> <C>
Management Fee 0.40%
12b-1 Fee (after waiver)(1) 0.02%
Total Other Expenses 0.37%
Shareholder Services Fee (after waiver)(2) 0.23%
Total Operating Expenses(3) 0.79%
</TABLE>
(1) The 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 its sole discretion. The maximum 12b-1 fee is 0.25%.

(2) 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%.

(3) The total operating expenses would have been 1.04% absent the voluntary
waivers of a portions of the 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 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.

EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period.

1 Year $ 8
3 Years $25
5 Years $44
10 Years $98

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

Reference is made to the Report of Independent Public Accountants on page 18.

(a) Reflects operations for the period from June 18, 1992 (date of initial
public investment) to January 31, 1993.

(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

(See Notes which are an integral part of the Financial Statements)

FURTHER INFORMATION ABOUT THE TRUST'S PERFORMANCE IS CONTAINED IN THE
TRUST'S ANNUAL REPORT FOR THE FISCAL YEAR ENDED JANUARY 31, 1998, WHICH CAN
BE OBTAINED FREE OF CHARGE.

GENERAL INFORMATION

The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated December 10, 1981. On April 13, 1995, the Board of Trustees
changed the name of the Trust from Federated Intermediate Government Trust to
Federated U.S. Government Securities Fund: 2-5 Years. The Declaration of Trust
permits the Trust to offer separate series of shares of beneficial interest
representing interests in separate portfolios of securities. The shares in any
one portfolio may be offered in separate classes. As of the date of this
prospectus, the Board of Trustees (the "Trustees") has established two classes
of shares of the Trust, known as Institutional Service Shares and Institutional
Shares. This prospectus relates only to Institutional Service Shares of the
Trust.

Institutional Service Shares ("Shares") of the Trust are designed primarily for
retail and private banking customers of financial institutions as a convenient
means of accumulating an interest in a professionally managed, diversified
portfolio of U.S. government securities. A minimum initial investment of $25,000
over a 90-day period is required.

Shares are currently sold and redeemed at net asset value without a sales charge
imposed by the Trust.

INVESTMENT INFORMATION

INVESTMENT OBJECTIVE

INVESTMENT POLICIES

ACCEPTABLE INVESTMENTS

REPURCHASE AGREEMENTS

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

PORTFOLIO TURNOVER

INVESTMENT LIMITATIONS

TRUST INFORMATION

MANAGEMENT OF THE TRUST

BOARD OF TRUSTEES

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

ADVISER'S BACKGROUND

Federated Management, a Delaware business trust organized on April 11, 1989,
is a registered investment adviser under the Investment Advisers Act of 1940.

DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES

Federated Securities Corp. is the principal distributor for Institutional
Service Shares. It is a Pennsylvania corporation organized on November 14,
1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.

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 AVERAGE AGGREGATE
FEE DAILY NET ASSETS
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million

NET ASSET VALUE

The Trust's net asset value per Share fluctuates. The net asset value for Shares
is determined by adding the interest of Shares in the market value of all
securities and other assets of the Trust, subtracting the interest of Shares in
the liabilities of the Trust and those attributable to Shares, and dividing the
remainder by the total number of Shares outstanding. The net asset value for
Institutional Shares may exceed that of Shares due to the variance in daily net
income realized by each class. Such variance will reflect only accrued net
income to which the shareholders of a particular class are entitled.

INVESTING IN INSTITUTIONAL SERVICE SHARES

SHARE PURCHASES

Shares are sold on days on which the New York Stock Exchange is open for
business. Shares may be purchased either by wire or mail.

BY WIRE

To purchase Shares by Federal Reserve wire, call the Trust before 4:00 p.m.
(Eastern time) to place an order. The order is considered received immediately.
Payment by federal funds must be received before 3:00 p.m. (Eastern time) on the
next business day following the order. Federal funds should be wired as follows:
Federated Shareholder Services Company, c/o State Street Bank and Trust Company,
Boston, Massachusetts; Attention: EDGEWIRE; For Credit to: Federated U.S.
Government Securities Fund: 2-5 Years--Institutional Service Shares; Trust
Number (this number can be found on the account statement or by contacting the
Trust); Group Number or Order Number; Nominee or Institution Name; and ABA
Number 011000028. Shares cannot be purchased by wire on holidays when wire
transfers are restricted. Questions on wire purchases should be directed to your
shareholder services representative at the telephone number listed on your
account statement.

BY MAIL

To purchase Shares by mail, send a check made payable to Federated U.S.
Government Securities Fund: 2-5 Years--Institutional Service Shares to Federated
Shareholder Services Company, P.O. Box 8600, Boston, Massachusetts 02266-8600.
Orders by mail are considered received when payment by check is converted by
State Street Bank and Trust Company into federal funds. This is normally the
next business day after State Street Bank and Trust Company receives the check.

EXCHANGE PRIVILEGE

Financial Institutions that maintain master accounts with an aggregate
investment of at least $400 million in certain funds which are advised or
distributed by affiliates of Federated Investors may exchange their 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

EXCHANGING SECURITIES FOR TRUST SHARES

CONFIRMATIONS AND ACCOUNT STATEMENTS

DIVIDENDS

Dividends are declared daily and paid monthly. Dividends are declared just prior
to determining net asset value. If an order for Shares is placed on the
preceding business day, Shares purchased by wire begin earning dividends on the
business day wire payment is received by State Street Bank. If the order for
Shares and payment by wire are received on the same day, Shares begin earning
dividends on the next business day. Shares purchased by check begin earning
dividends on the business day after the check is converted, upon instruction of
the transfer agent, into federal funds. Dividends are automatically reinvested
on payment dates in additional Shares unless cash payments are requested by
contacting the Trust.

CAPITAL GAINS

Capital gains realized by the Trust, if any, are distributed at least once every
12 months.

REDEEMING INSTITUTIONAL SERVICE SHARES

TELEPHONE REDEMPTION

Shareholders may redeem their Shares by telephoning the Trust before 4:00 p.m.
(Eastern time). All proceeds will normally be wire-transferred the following
business day, but in no event more than seven days, to the shareholder's account
at a domestic commercial bank that is a member of the Federal Reserve System.
Proceeds from redemption requests received on holidays when wire transfers are
restricted will be wired the following business day. Questions about telephone
redemptions on days when wire transfers are restricted should be directed to
your shareholder services representative at the telephone number listed on your
account statement. If at any time the Trust shall determine it necessary to
terminate or modify this method of redemption, shareholders would be promptly
notified.

WRITTEN REQUESTS

SIGNATURES

The Trust does not accept signatures guaranteed by a notary public.

RECEIVING PAYMENT

Normally, a check for the proceeds is mailed within one business day, but in no
event more than seven days, after receipt of a proper written redemption
request.

ACCOUNTS WITH LOW BALANCES

SHAREHOLDER INFORMATION

VOTING RIGHTS

TAX INFORMATION

FEDERAL INCOME TAX

STATE AND LOCAL TAXES

Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.

PERFORMANCE INFORMATION

From time to time the Trust advertises its total return and yield for Shares.

The yield of Shares of the Trust is calculated by dividing the net investment
income per Share (as defined by the Securities and Exchange Commission) earned
by Shares over a thirty-day period by the offering price per share of Shares on
the last day of the period. This number is then annualized using semi-annual
compounding. The yield does not necessarily reflect income actually earned by
Shares and, therefore, may not correlate to the dividends or other distributions
paid to shareholders.

Shares are sold without any sales charge or other similar non-recurring charges.

Total return and yield will be calculated separately for Institutional Service
Shares and Institutional Shares.

From time to time, advertisements for the Trust's Institutional Service Shares
may refer to ratings, rankings, and other information in certain financial
publications and/or compare the Trust's Institutional Service Shares performance
to certain indices.

OTHER CLASSES OF SHARES

The Trust also offers another class of shares called Institutional Shares which
are sold at net asset value to accounts for which financial institutions act in
a fiduciary or agency capacity and are subject to a minimum initial investment
of $25,000 over a 90-day period.

Institutional Shares are distributed with no 12b-1 Plan.

Institutional Shares and Institutional Service Shares are subject to certain of
the same expenses. Expense differences, however, between Institutional Shares
and Institutional Service Shares may affect the performance of each class.

To obtain more information and a prospectus for Institutional Shares, investors
may call 1-800-341-7400.

FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

Reference is made to the Report of Independent Public Accountants on page 18.

(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, 1998, WHICH CAN
BE OBTAINED FREE OF CHARGE.

PORTFOLIO OF INVESTMENTS

FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS

JANUARY 31, 1998

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
U.S. TREASURY NOTES--98.3%
$ 55,000,000 7.750%, 12/31/1999 $ 57,390,850
39,340,000 7.750%, 1/31/2000 41,116,988
25,000 7.125%, 2/29/2000 25,864
35,000,000 6.875%, 3/31/2000 36,079,750
25,000,000 5.750%, 11/15/2000 25,273,750
55,000,000 5.500%, 12/31/2000 55,215,050
69,000,000 6.375%, 3/31/2001 70,985,130
25,000,000 6.500%, 5/31/2001 25,846,250
50,000,000 6.625%, 6/30/2001 51,904,000
50,000,000 6.500%, 8/31/2001 51,778,500
35,500,000 6.250%, 10/31/2001 36,510,330
60,000,000 6.125%, 12/31/2001 61,503,600
13,000,000 6.250%, 1/31/2002 13,388,960
75,000,000 6.625%, 3/31/2002 78,340,500
20,000,000 6.500%, 5/31/2002 20,830,200
25,000,000 6.250%, 6/30/2002 25,814,000
38,000,000 5.875%, 9/30/2002 38,710,980
30,000,000 5.625%, 12/31/2002 30,294,000
TOTAL U.S. TREASURY NOTES (IDENTIFIED COST $703,862,970) 721,008,702
(A)REPURCHASE AGREEMENTS--0.4%
2,825,000 BT Securities Corp., 5.610%, dated 1/30/1998, due 2/2/1998 2,825,000
(AT AMORTIZED COST)
TOTAL INVESTMENTS (IDENTIFIED COST $706,687,970)(b) $ 723,833,702
</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.

Note: The categories of investments are shown as a percentage of net assets
($733,337,803) at January 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

JANUARY 31, 1998

(See Notes which are an integral part of the Financial Statements)

STATEMENT OF OPERATIONS

FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS

YEAR ENDED JANUARY 31, 1998

<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 45,991,436
EXPENSES:
Investment advisory fee $ 3,003,737
Administrative personnel and services fee 566,831
Custodian fees 40,755
Transfer and dividend disbursing agent fees and 222,200
expenses
Directors'/Trustees' fees 8,019
Auditing fees 13,794
Legal fees 7,014
Portfolio accounting fees 117,118
Distribution services fee--Institutional Service 75,271
Shares
Shareholder services fee--Institutional Shares 1,802,065
Shareholder services fee--Institutional Service 75,271
Shares
Share registration costs 35,813
Printing and postage 27,713
Insurance premiums 6,964
Miscellaneous 19,444
Total expenses 6,022,009
Waivers and reimbursements--
Waiver of distribution services fee--Institutional $ (69,249)
Service Shares
Waiver of shareholder services fee--Institutional (1,784,955)
Shares
Waiver of shareholder services fee--Institutional (5,167)
Service Shares
Total waivers (1,859,371)
Net expenses 4,162,638
Net investment income 41,828,798
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 229,718
Net change in unrealized appreciation of investments 16,005,120
Net realized and unrealized gain on investments 16,234,838
Change in net assets resulting from operations $ 58,063,636
</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

(See Notes which are an integral part of the Financial Statements)

NOTES TO FINANCIAL STATEMENTS

FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS

JANUARY 31, 1998

ORGANIZATION

SIGNIFICANT ACCOUNTING POLICIES

INVESTMENT VALUATIONS

REPURCHASE AGREEMENTS

INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS

INCREASE (DECREASE)
ACCUMULATED
NET REALIZED
PAID IN CAPITAL GAIN/LOSS
$(8,977,949) $8,977,949

Net investment income, net realized gains/losses, and net assets were not
affected by this reclassification.

FEDERAL TAXES

EXPIRATION YEAR EXPIRATION AMOUNT
2003 $29,464,881
2006 477,074

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

USE OF ESTIMATES

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).
Transactions in shares were as follows:

<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
1998 1997
INSTITUTIONAL SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 23,359,912 $ 246,238,107 24,629,328 $ 257,778,045
Shares issued to shareholders in payment 1,500,543 15,786,018 1,505,096 15,719,216
of distributions declared
Shares redeemed (34,540,057) (362,903,965) (32,702,252) (341,913,040)
Net change resulting from Institutional (9,679,602) $ (100,879,840) (6,567,828) $ (68,415,779)
Share transactions
<CAPTION>
YEAR ENDED JANUARY 31,
1998 1997
INSTITUTIONAL SERVICE SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 2,011,745 $ 21,176,494 1,621,629 $ 17,004,372
Shares issued to shareholders in payment 130,348 1,372,626 125,629 1,311,747
of distributions declared
Shares redeemed (1,179,138) (12,408,501) (2,296,071) (23,915,560)
Net change resulting from Institutional 962,955 $ 10,140,619 (548,813) $ (5,599,441)
Service Share transactions
Net change resulting from share (8,716,647) $ (90,739,221) (7,116,641) $ (74,015,220)
transactions
</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

DISTRIBUTION SERVICES FEE

SHAREHOLDER SERVICES FEE

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.

INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding short-term securities, for the
period ended January 31, 1998, were as follows:

Purchases $527,652,609
Sales $616,800,891

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,
1998, 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 10 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.

ARTHUR ANDERSEN LLP

Pittsburgh, Pennsylvania
March 6, 1998

NOTES

[Graphic]Federated Investors

Federated U.S. Government Securities Fund: 2-5 Years

Institutional Service Shares

PROSPECTUS

MARCH 31, 1998

An Open-End, Diversified, Management Investment Company

FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
INSTITUTIONAL SERVICE SHARES

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

DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower

1001 Liberty Avenue

Pittsburgh, PA 15222-3779

INVESTMENT ADVISER
Federated Management
Federated Investors Tower

1001 Liberty Avenue

Pittsburgh, PA 15222-3779

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

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600

INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
2100 PPG Place
Pittsburgh, PA 15222

Federated Securities Corp., Distributor
1-800-341-7400
www.federatedinvestors.com

Cusip 31428P202

8022502A-SS (3/98)

[Graphic]

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, 1998. 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 U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS

FEDERATED INVESTORS FUNDS

5800 CORPORATE DRIVE

PITTSBURGH, PENNSYLVANIA 15237-7000

Statement dated March 31, 1998

[Graphic]

Cusip 31428P103
Cusip 31428P202
8022502B (3/98)

[Graphic]

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
Investing in Securities of Other Investment Companies 1
Portfolio Turnover 1
INVESTMENT LIMITATIONS 1
Selling Short and Buying on Margin 1
Borrowing Money 2
Pleding Assets 2
Lending Cash or Securities 2
Issuing Senior Securities 2
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 7
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 10
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").

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

The Trust may invest in the securities of affiliated money market funds as an
efficient means of managing the Trust's uninvested cash.

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,
1998, and 1997, the portfolio turnover rates were 71% and 99%, respectively.

INVESTMENT LIMITATIONS

The Trust will not change any of the investment limitations described below
without approval of shareholders.

SELLING SHORT AND BUYING ON MARGIN

The Trust will not sell any securities short or purchase any securities on
margin but may obtain such short-term credits as may be necessary for clearance
of purchases and sales of portfolio securities.

BORROWING MONEY

The Trust will not borrow money except as a temporary measure for extraordinary
or emergency purposes and then only in amounts not in excess of 5% of the value
of its total assets or in an amount up to one-third of the value of its total
assets, including the amount borrowed, in order to meet redemption requests
without immediately selling portfolio securities. This borrowing provision is
not for investment leverage but solely to facilitate management of the portfolio
by enabling the Trust to meet redemption requests when the liquidation of
portfolio securities is deemed to be inconvenient or disadvantageous. However,
such use will not assure that portfolio securities will not be liquidated at a
disadvantageous time.

Interest paid by the Trust on borrowed funds will not be available for
investment. While borrowings are outstanding, no portfolio securities may be
purchased by the Trust.

PLEDGING ASSETS

The Trust will not mortgage, pledge, or hypothecate any assets except to secure
permitted borrowings. In those cases, it may mortgage, pledge, or hypothecate
assets having a market value not exceeding 10% of the value of total assets at
the time of the borrowing.

LENDING CASH OR SECURITIES

The Trust will not lend any of its assets, except that it may purchase or hold
U.S. government securities, including repurchase agreements, permitted by its
investment objective and policies.

ISSUING SENIOR SECURITIES

The Trust will not issue senior securities, except as permitted by its
investment objective and policies.

Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.

The Trust did not borrow money or pledge securities in excess of 5% of the value
of its total assets during the last fiscal year and has no present intent to do
so in the coming fiscal year.

As a matter of operating policy, the Trust will not purchase any securities
while borrowings in excess of 5% of its total assets are outstanding.

FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS MANAGEMENT

Officers and Trustees are listed with their addresses, birthdates, present
positions with Federated U.S. Government Securities Fund: 2-5 Years, and
principal occupations.

John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA

Birthdate: July 28, 1924

Chairman and Trustee

Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds. Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President of the Company.

Thomas G. Bigley

15 Old Timber Trail

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.; Director, Member of
Executive Committee, 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.

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; 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 and U.S. Space Foundation; President
Emeritus, University of Pittsburgh; Founding Chairman, National Advisory Council
for Environmental Policy and Technology, Federal Emergency Management Advisory
Board and Czech Management Center, Prague; Director or Trustee of the Funds.

Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA

Birthdate: June 21, 1935

Trustee

Public relations/Marketing/Conference Planning; 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; 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 Core
Trust; 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 Obligations Trust II; Money Market
Trust; Municipal Securities Income Trust; Newpoint Funds; RIMCO Monument Funds;
Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds; 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; Wesmark Funds; WCT Funds; and World Investment Series,
Inc.

TRUST OWNERSHIP

Officers and Trustees own less than 1% of the Trust's outstanding shares.

As of March 2, 1998, the following shareholder of record owned 5% or more of the
outstanding Institutional Shares of the Trust: Charles Schwab & Company, Inc.,
San Francisco, California, owned approximately 5,872,457 shares (8.9%).

As of March 2, 1998, the following shareholders of record owned 5% or more of
the outstanding Institutional Service Shares of the Trust: Charles Schwab &
Company, Inc., San Francisco, California, owned approximately 331,701 shares
(8.92%); Chittenden Bank, Burlington, Vermont, owned approximately 327,637
shares (8.81%); Investors Fiduciary Trust Company, Kansas City, Missouri, owned
approximately 278,463 shares (7.49%); and City National Bank & Trust Company,
Guymon Oklahoma, owned approximately 223,266 shares (6.01%).

TRUSTEE COMPENSATION

AGGREGATE

NAME, COMPENSATION

POSITION WITH FROM TOTAL COMPENSATION PAID

TRUST TRUST* FROM FUND COMPLEX+

John F. Donahue $0 $0 for the Trust and

Chairman and Trustee 56 other investment companies in
the Fund Complex

Thomas G. Bigley $1,632.57 $111,222 for the Trust and

Trustee 56 other investment companies in
the Fund Complex

John T. Conroy, Jr. $1,796.09 $122,362 for the Trust and

Trustee 56 other investment companies in
the Fund Complex

William J. Copeland $1,796.09 $122,362 for the Trust and

Trustee 56 other investment companies in
the Fund Complex

James E. Dowd $1,796.09 $122,362 for the Trust and

Trustee 56 other investment companies in
the Fund Complex

Lawrence D. Ellis, M.D. $1,632.57 $111,222 for the Trust and

Trustee 56 other investment companies in
the Fund Complex

Edward L. Flaherty, Jr. $1,796.09 $122,362 for the Trust and

Trustee 56 other investment companies in
the Fund Complex

Peter E. Madden $1,632.57 $111,222 for the Trust and

Trustee 56 other investment companies in
the Fund Complex

John E. Murray, Jr. $1,632.57 $111,222 for the Trust and

Trustee 56 other investment companies in
the Fund Complex

Wesley W. Posvar $1,632.57 $111,222 for the Trust and

Trustee 56 other investment companies in
the Fund Complex

Marjorie P. Smuts $1,632.57 $111,222 for the Trust and

Trustee 56 other investment companies in
the Fund Complex

* Information is furnished for the fiscal year ended January 31, 1998.

+ 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, 1998, 1997, and 1996, the Trust's adviser earned $3,003,737,
$3,384,916, and $3,325,210, respectively, of which $0, $69,622, and $0,
respectively, 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, 1998, 1997,
and 1996, 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, a subsidiary of Federated Investors, served as the Trust's
Administrator. For purposes of this Statement of Additional Information,
Federated Services Company and Federated Administrative Services may hereinafter
collectively be referred to as the "Administrators." For the fiscal years ended
January 31, 1998, 1997, and 1996, the Administrators earned $566,831, $639,583,
and $629,145, 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 (the
"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, 1998, payments in the amount of $75,271
were made by Institutional Service Shares pursuant to the Plan, $69,249 of which
was waived. In addition, for the fiscal year ended January 31, 1998, the Trust's
Institutional Service Shares and Institutional Shares paid shareholder service
fees in the amount of $75,271 and $1,802,065, respectively, of which $5,167 and
$1,784,955, respectively, were 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;

* 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 returns for Institutional Shares for the
one-year, five-year, and since inception periods ended January 31, 1998, were
8.24%, 5.69%, and 8.41%, respectively.

The Trust's average annual total returns for Institutional Service Shares for
the one-year, five-year, and since inception periods ended January 31, 1998,
were 7.97%, 5.43%, and 6.01%, 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, 1998, was 5.16%.

The Trust's yield for Institutional Service Shares for the thirty-day period
ended January 31, 1998, was 4.91%.

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. These traders handle trillions of dollars
in annual trading volume.

In the government sector, as of December 31, 1997, Federated Investors managed 9
mortgaged-backed, 6 government/agency, and 17 government money market mutual
funds, with assets approximating $5.9 billion, $1.5 billion, and $35 billion,
respectively. Federated trades approximately $400 million in U.S. government and
mortgage-backed securities daily and places approximately $23 billion in
repurchase agreements each day. Federated introduced the first U.S. government
fund to invest in U.S. government bond securities in 1969. Federated has been a
major force in the short- and intermediate-term government markets since 1982
and currently manages approximately $36 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 $4.4 trillion to the more than 6,700 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 approximately 900 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 Timothy C. Pillion, Senior Vice
President, Bank Marketing & Sales.

BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES

Federated funds are available to consumers through major brokerage firms
nationwidewe have over 2,200 broker/dealer and bank broker/dealer relationships
across the countrysupported 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

A.1. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed in the upper left
quadrant. The Institutional Shares of Federated U.S. Government Securities Fund:
2-5 Years are represented by a solid line. The Merrill Lynch Three Year Treasury
Index ( the "MLTYT") is represented by a dotted line and the Lipper Short-Term
U.S. Government Funds Average (the "LSTUSGFA") is represented by a broken line.
The line graph is a visual representation of a comparison of change in the value
of a $25,000 hypothetical investment in the Institutional Shares of the fund,
the MLTYT, and the LSTUSGFA. The "x" axis reflects computation periods from
1/31/88 to 1/31/98. The "y" axis reflects the cost of the investment. The right
margin reflects the ending value of the hypothetical investment in the fund's
Institutional Shares as compared to the MLTYT and the LSTUSGFA. The ending
values were $51,192, $51,683, and $47,330, respectively. The legend in the
bottom quadrant of the graphic presentation indicates the fund's Institutional
Shares Average Annual Total Returns for the one-year, five-year, and ten-year
periods ended 1/31/98, and from the Institutional Share's start of performance
(2/18/83) to 1/31/98. The total returns were 8.24%, 5.69%, 7.43%, and 8.41%,
respectively.

A.2. The graphic presentation here displayed consists of a line graph. The
corresponding components of the line graph are listed in the upper left
quadrant. The Institutional Service Shares of Federated U.S. Government
Securities Fund: 2-5 Years are represented by a solid line. The Merrill Lynch
Three Year Treasury Index ( the "MLTYT") is represented by a dotted line and the
Lipper Short-Term U.S. Government Funds Average (the "LSTUSGFA") is represented
by a broken line. The line graph is a visual representation of a comparison of
change in the value of a $25,000 hypothetical investment in the Institutional
Service Shares of the fund, the MLTYT, and the LSTUSGFA. The "x" axis reflects
computation periods from 5/30/92 to 1/31/98. The "y" axis reflects the cost of
the investment. The right margin reflects the ending value of the hypothetical
investment in the fund's Institutional Service Shares as compared to the MLTYT
and the LSTUSGFA. The ending values were $34,810, $35,615, and $34,155,
respectively. The legend in the bottom quadrant of the graphic presentation
indicates the fund's Institutional Service Shares Average Annual Total Returns
for the one-year and five-year periods ended 1/31/98, and from the Institutional
Service Share's start of performance (5/30/92) to 1/31/98. The total returns
were 7.97%, 5.43%, and 6.01%, respectively.