SEMI-ANNUAL REPORT
President's Message
Dear Investor:
I am pleased to present the Semi-Annual Report to Shareholders for Federated
U.S. Government Securities Fund: 2-5 Years. The report covers the six-month
period from February 1, 1999 through July 31, 1999 and includes the fund's
investment review, financial statements, and portfolio of investments.
During the period covered in this report, the fund's portfolio of shorter-term
U.S. government securities paid dividends totaling $0.24 per share for
Institutional Shares and $0.23 per share for Institutional Service Shares. Total
returns for Institutional Shares and Institutional Service Shares were (1.57%) 1
and (1.70%),1 respectively. The fund's net assets totaled $716 million on the
last day of the period.
During the period, the fund maintained its AAAf rating by Standard &
Poor's, the highest available from this independent rating service. 2
Thank you for pursuing investment income through Federated U.S. Government
Securities Fund: 2-5 Years. As always, we welcome your questions and
comments.
Sincerely,
[Graphic]
Glen R. Johnson
President
September 15, 1999
1 Performance quoted represents past performance. Investment return and
principal value will fluctuate so that when shares are redeemed, they may be
worth more or less than their original cost.
2 An AAAf rating means that the fund's portfolio holdings and counterparties
provide extremely strong protection against losses from credit defaults. Ratings
do not remove market risks and are subject to change.
Investment Review
Federated U.S. Government Securities Fund:
2-5 Years invests in U.S. government securities which include U.S. Treasury and
U.S. government agency obligations. The fund's average duration is managed
within 20% of the duration of the Merrill Lynch 3-5 Year Treasury Index.
Standard & Poor's has maintained the fund's "AAAf" credit rating. 1
U.S. Treasury yields increased significantly during the fund's semi-annual
reporting period, continuing the trend which began in the fourth quarter of
1998. Yields of 2-year and 5-year Treasury notes ended July 1999 at 5.62% and
5.79%, respectively, compared to 4.57% and 4.54% at the end of January 1999 and
the early October 1998 lows of 3.85% and 3.97%. While inflation remained
subdued, stronger than expected U.S. economic growth, combined with global
economies showing signs of recovery, fueled market fears of higher inflation.
Market expectations shifted dramatically from pricing in further Federal Reserve
Board ("Fed") easing during the fourth quarter of 1998 to pricing in a tighter
Fed monetary policy. These expectations were realized on the last day of June
when the federal funds target rate was increased for the first time since March
1997 from 4.75% to 5.00%. Although the Fed shifted from a tightening to a
neutral policy bias, another tightening may be warranted if U.S. economic growth
does not slow to a sustainable pace.
Almost 10% of the fund's Treasury position was shifted into agencies to take
advantage of dramatically wider agency yield spreads versus Treasurys during the
"flight to quality" environment of late summer and early fall of 1998. Agencies
outperformed Treasurys during the first half of the fund's reporting period, but
the fund added agencies at attractive spread levels versus Treasurys during the
second half as they underperformed. Similar to 1998, agency issuance has
continued to exceed Treasury note and bond issuance.
While a further rise in interest rates should be limited, a significant decline
in rates is not expected until U.S. economic growth slows, absent an unforeseen
financial crisis. The average duration of the fund has remained within its
neutral range and ended the reporting period at 3.3 years. The fund's
Institutional Shares net total return for the six months ended July 31, 1999 was
(1.57)% versus (1.38)% for the Merrill Lynch 3-5 Year Treasury Index. The fund's
net total return for Institutional Service Shares was (1.70%).
1 "AAAf" rated fund portfolio holdings and counterparties provide extremely
strong protection against losses from credit defaults.
Shareholder Meeting Results
A Special Meeting of Shareholders of Federated U.S. Government Securities Fund:
2-5 Years was held on June 21, 1999. On April 23, 1999, the record date for
shareholders voting at the meeting, there were 70,361,386 total outstanding
shares. The following items were considered by shareholders and the results of
their voting were as follows:
AGENDA ITEM 1
Election of Directors: 1
<TABLE>
<CAPTION>
WITHHELD
AUTHORITY
NAMES FOR TO VOTE
<S> <C> <C>
Thomas G. Bigley 55,903,073 187,997
John F. Cunningham 55,904,319 186,751
Charles F. Mansfield, Jr. 55,902,829 188,241
John E. Murray, Jr., J.D., S.J.D. 55,902,537 188,533
John S. Walsh 55,905,431 185,639
</TABLE>
1 The following Trustees of the Trust continued their terms as Trustees of
the Trust: John F. Donahue, John T. Conroy, Jr., William J. Copeland,
Lawrence D. Ellis, M.D., Peter E. Madden and Marjorie P. Smuts.
AGENDA ITEM 2
To ratify the selection of Arthur Andersen LLP as the Trust's independent
auditors.
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
54,968,998 182,005 940,066
</TABLE>
AGENDA ITEM 3
To make changes to the Trust's fundamental investment policies:
(a) To amend the Trust's fundamental investment policy regarding borrowing money
and issuing senior securities:
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
44,070,480 2,413,788 1,091,562
</TABLE>
(b) To amend the Trust's fundamental investment policy regarding lending by the
Trust:
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
44,383,149 2,104,901 1,087,781
</TABLE>
(c) To amend, and to make non-fundamental, the Trust's fundamental investment
policy on buying securities on margin:
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
44,088,184 2,370,710 1,116,937
</TABLE>
(d) To amend, and to make non-fundamental, the Trust's fundamental investment
policy on pledging assets:
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
43,546,006 2,914,733 1,115,092
</TABLE>
(e) To amend, and to make non-fundamental, the Trust's fundamental investment
policy regarding investing in U.S. government securities:
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
44,298,876 2,185,405 1,091,549
</TABLE>
(f) To amend, and to make non-fundamental, the Trust's investment policy
regarding investing in repurchase agreements:
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
44,697,978 1,802,396 1,093,456
</TABLE>
(g) To make non-fundamental, the Trust's investment policy regarding engaging in
when-issued and delayed delivery transactions:
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
45,090,696 1,390,858 1,094,276
</TABLE>
AGENDA ITEM 4
To eliminate certain of the Trust's fundamental investment policies:
(a) To eliminate the Trust's fundamental investment policy regarding selling
securities short:
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
43,354,903 3,139,688 1,081,238
</TABLE>
(b) To eliminate the Trust's fundamental investment policy regarding portfolio
trading:
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
44,649,969 1,847,311 1,078,550
</TABLE>
AGENDA ITEM 5
To approve an amendment and a restatement to the Trust's Declaration of Trust to
permit the Board of Trustees to liquidate assets of the Trust without seeking
shareholder approval:
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
40,870,750 5,620,739 1,084,342
</TABLE>
Portfolio of Investments
JULY 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
GOVERNMENT AGENCIES-21.2%
$ 7,000,000 Federal Farm Credit
System, 5.750%, 2/20/2003 $ 6,837,600
21,100,000 Federal Farm Credit
System, 5.700%, 6/18/2003 20,561,739
5,000,000 Federal Home Loan Bank
System, 5.500%, 1/21/2003 4,858,700
35,000,000 Federal Home Loan Bank
System, 5.755%, 6/24/2003 34,192,900
25,000,000 Federal Home Loan Bank
System, 6.125%, 8/15/2003 24,710,000
5,625,000 Federal Home Loan Bank
System, 5.600%, 9/2/2003 5,455,013
10,000,000 Federal Home Loan Bank
System, 5.627%, 9/2/2003 9,707,300
48,200,000 Federal Home Loan Bank
System, 5.125%, 9/15/2003 46,015,094
TOTAL GOVERNMENT AGENCIES
(IDENTIFIED COST
$156,258,562) 152,338,346
U.S. TREASURY OBLIGATIONS-
74.7%
U.S. TREASURY BONDS-11.7%
17,000,000 11.875%, 11/15/2003 20,719,940
60,000,000 7.250%, 5/15/2004 63,303,000
TOTAL 84,022,940
U.S. TREASURY NOTES-63.0%
30,000,000 5.875%, 9/30/2002 30,067,200
22,800,000 5.625%, 12/31/2002 22,668,216
38,500,000 5.500%, 1/31/2003 38,108,840
51,000,000 5.500%, 2/28/2003 50,450,220
33,000,000 5.500%, 3/31/2003 32,632,050
50,000,000 5.750%, 4/30/2003 49,827,500
40,000,000 5.500%, 5/31/2003 39,509,600
30,000,000 5.375%, 6/30/2003 29,512,500
54,000,000 5.250%, 8/15/2003 52,823,880
40,000,000 5.750%, 8/15/2003 39,821,200
22,000,000 4.250%, 11/15/2003 20,674,720
21,000,000 4.750%, 2/15/2004 20,083,350
25,000,000 5.875%, 2/15/2004 25,017,000
TOTAL 451,196,276
TOTAL U.S. TREASURY
OBLIGATIONS (IDENTIFIED
COST $546,732,273) 535,219,216
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
REPURCHASE AGREEMENT-2.8%
1
$ 19,910,000 Societe Generale, New
York, 5.060%, dated
7/30/1999, due 8/2/1999
(at amortized cost) $ 19,910,000
TOTAL INVESTMENTS
(IDENTIFIED COST
$722,900,835) 2 $ 707,467,562
</TABLE>
1 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.
2 The cost of investments for federal tax purposes amounts to $722,900,835. The
net unrealized depreciation of investments on a federal tax basis amounts to
$15,433,273 which is comprised of $47,351 appreciation and $15,480,624
depreciation at July 31, 1999.
Note: The categories of investments are shown as a percentage of net assets
($716,478,207) at July 31, 1999.
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
JULY 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in
securities, at value
(identified and tax cost
$722,900,835) $ 707,467,562
Cash 3,093
Income receivable 11,763,278
Receivable for shares sold 72,331
Prepaid Expenses 18,094
TOTAL ASSETS 719,324,358
LIABILITIES:
Payable for shares
redeemed $ 10,265
Income distribution
payable 2,835,886
TOTAL LIABILITIES 2,846,151
Net assets for 68,264,693
shares outstanding $ 716,478,207
NET ASSETS CONSIST OF:
Paid in capital $ 745,576,629
Net unrealized
depreciation of
investments (15,433,273)
Accumulated net realized
loss on investments (13,676,932)
Undistributed net
investment income 11,783
TOTAL NET ASSETS $ 716,478,207
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PROCEEDS PER SHARE
INSTITUTIONAL SHARES:
$660,854,254 / 62,965,247
shares outstanding $10.50
INSTITUTIONAL SERVICE
SHARES:
$55,623,953 / 5,299,446
shares outstanding $10.50
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
SIX MONTHS ENDED JULY 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 18,847,259
EXPENSES:
Investment advisory fee $ 1,486,707
Administrative personnel
and services fee 280,244
Custodian fees 21,306
Transfer and dividend
disbursing agent fees and
expenses 103,556
Directors'/Trustees' fees 3,345
Auditing fees 6,318
Legal fees 2,230
Portfolio accounting fees 63,019
Distribution services fee-
Institutional Service
Shares 67,271
Shareholder services fee-
Institutional Shares 861,921
Shareholder services fee-
Institutional Service
Shares 67,270
Share registration costs 19,139
Printing and postage 13,254
Insurance premiums 2,019
Miscellaneous 9,292
TOTAL EXPENSES 3,006,891
WAIVERS:
Waiver of distribution
services fee-Institutional
Service Shares $ (61,889)
Waiver of shareholder
services fee-Institutional
Shares (827,444)
Waiver of shareholder
services fee-Institutional
Service Shares (2,691)
TOTAL WAIVERS (892,024)
Net expenses 2,114,867
Net investment income 16,732,392
REALIZED AND UNREALIZED
LOSS ON INVESTMENTS:
Net realized loss on
investments (2,195,708)
Net change in unrealized
depreciation of
investments (27,531,151)
Net realized and
unrealized loss on
investments (29,726,859)
Change in net assets
resulting from operations $ (12,994,467)
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
(unaudited) ENDED
JULY 31, JANUARY 31,
1999 1999
<S> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS:
Net investment income $ 16,732,392 $ 38,762,428
Net realized gain (loss) on
investments ($(2,195,708)
and $18,462,945,
respectively, as computed
for federal tax purposes) (2,195,708) 18,462,945
Net change in unrealized
depreciation (27,531,151) (5,047,854)
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS (12,994,467) 52,177,519
DISTRIBUTIONS TO
SHAREHOLDERS:
Distributions from net
investment income
Institutional Shares (15,570,988) (36,624,367)
Institutional Service
Shares (1,151,278) (2,130,792)
CHANGE IN NET ASSETS
RESULTING FROM
DISTRIBUTIONS
TO SHAREHOLDERS (16,722,266) (38,755,159)
SHARE TRANSACTIONS:
Proceeds from sale of
shares 183,352,318 395,513,622
Net asset value of shares
issued to shareholders in
payment of
distributions declared 6,574,962 17,839,525
Cost of shares redeemed (234,013,971) (369,831,679)
CHANGE IN NET ASSETS
RESULTING FROM SHARE
TRANSACTIONS (44,086,691) 43,521,468
Change in net assets (73,803,424) 56,943,828
NET ASSETS:
Beginning of period 790,281,631 733,337,803
End of period $ 716,478,207 $ 790,281,631
</TABLE>
See Notes which are an integral part of the Financial Statements
Financial Highlights-Institutional Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
JULY 31, YEAR ENDED JANUARY 31,
1999 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $10.91 $10.73 $10.48 $10.74 $10.11 $10.78
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income 0.24 0.55 0.59 0.57 0.64 0.54
Net realized and
unrealized gain (loss)
on investments (0.41) 0.18 0.25 (0.26) 0.63 (0.67)
TOTAL FROM
INVESTMENT OPERATIONS (0.17) 0.73 0.84 0.31 1.27 (0.13)
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.24) (0.55) (0.59) (0.57) (0.64) (0.54)
NET ASSET VALUE, END
OF PERIOD $10.50 $10.91 $10.73 $10.48 $10.74 $10.11
TOTAL RETURN 1 (1.57%) 7.01% 8.24% 3.01% 12.86% (1.18%)
RATIOS TO AVERAGE
NET ASSETS:
Expenses 2 0.79% 3 0.79% 0.79% 0.80% 0.79% 0.56%
Net investment income 2 4.28% 3 4.89% 5.33% 5.16% 5.82% 5.14%
Expenses (after waivers) 0.55% 3 0.55% 0.54% 0.54% 0.54% 0.54%
Net investment income
(after waivers) 4.52% 3 5.13% 5.58% 5.42% 6.07% 5.16%
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $660,854 $739,058 $696,613 $782,056 $871,966 $731,280
Portfolio turnover 96% 126% 71% 99% 117% 163%
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 During the period certain fees were voluntarily waived. If such voluntary
waivers had not occurred, the ratios would have been as indicated.
3 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Institutional Service Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
JULY 31, YEAR ENDED JANUARY 31,
1999 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $10.91 $10.73 $10.48 $10.74 $10.11 $10.78
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income 0.23 0.54 0.56 0.54 0.61 0.51
Net realized and
unrealized gain (loss) on
investments (0.41) 0.18 0.25 (0.26) 0.63 (0.67)
TOTAL FROM
INVESTMENT OPERATIONS (0.18) 0.72 0.81 0.28 1.24 (0.16)
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.23) (0.54) (0.56) (0.54) (0.61) (0.51)
NET ASSET VALUE, END
OF PERIOD $10.50 $10.91 $10.73 $10.48 $10.74 $10.11
TOTAL RETURN 1 (1.70%) 6.75% 7.97% 2.76% 12.58% (1.42%)
RATIOS TO AVERAGE NET
ASSETS:
Expenses 2 1.04% 3 1.04% 1.04% 1.05% 1.04% 1.00%
Net investment income 2 4.04% 3 4.64% 5.08% 4.90% 5.60% 4.79%
Expenses (after waivers) 0.80% 3 0.80% 0.79% 0.79% 0.79% 0.79%
Net investment income
(after waivers) 4.28% 3 4.88% 5.33% 5.16% 5.85% 5.00%
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $55,624 $51,224 $36,725 $25,791 $32,317 $33,117
Portfolio turnover 96% 126% 71% 99% 117% 163%
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 During the period certain fees were voluntarily waived. If such voluntary
waivers had not occurred, the ratios would have been as indicated.
3 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
JULY 31, 1999 (UNAUDITED)
ORGANIZATION
Federated U.S. Government Securities Fund: 2-5 Years is registered under
the Investment Company Act of 1940, as amended (the "Act"), as a
diversified, open-end management investment company. The Fund's investment
objective is to provide current income. The Fund 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 Fund 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 60 days or less are
valued at amortized cost, which approximates fair market value.
REPURCHASE AGREEMENTS
It is the policy of the Fund 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 Fund 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 Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Fund'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 Fund could receive less than
the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex- dividend
date.
FEDERAL TAXES
It is the Fund'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, 1999, the Fund, for federal tax purposes, had a capital loss
carryforward of $11,481,224, which will reduce the Fund'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 Fund of any liability for
federal tax. Pursuant to the Code, such capital loss carryforward will expire as
follows:
EXPIRATION YEAR EXPIRATION AMOUNT
2003 $11,004,150
2006 477,074
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when- issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. Transactions in shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JULY 31, 1999 JANUARY 31, 1999
INSTITUTIONAL SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 15,118,487 $ 161,588,406 33,291,694 $ 359,916,788
Shares issued to
shareholders in payment of
distributions declared 548,360 5,841,408 1,494,967 16,132,483
Shares redeemed (20,431,468) (217,959,342) (32,008,413) (346,233,579)
NET CHANGE RESULTING FROM
INSTITUTIONAL SHARE
TRANSACTIONS (4,764,621) $ (50,529,528) 2,778,248 $ 29,815,692
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JULY 31, 1999 JANUARY 31, 1999
INSTITUTIONAL SERVICE
SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 2,043,730 $ 21,763,912 3,294,054 $ 35,596,834
Shares issued to
shareholders in payment of
distributions declared 68,890 733,554 158,154 1,707,042
Shares redeemed (1,507,563) (16,054,629) (2,182,036) (23,598,100)
NET CHANGE RESULTING FROM
INSTITUTIONAL SERVICE
SHARE TRANSACTIONS 605,057 $ 6,442,837 1,270,172 $ 13,705,776
NET CHANGE RESULTING FROM
SHARE TRANSACTIONS (4,159,564) $ (44,086,691) 4,048,420 $ 43,521,468
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Investment Management Company, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
0.40% of the Fund's average daily net assets.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors, Inc. for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
DISTRIBUTION SERVICES FEE
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b- 1
under the Act. Under the terms of the Plan, the Fund will compensate Federated
Securities Corp. ("FSC"), the principal distributor, from the net assets of the
Fund to finance activities intended to result in the sale of the Fund's
Institutional Service Shares. The Plan provides that the Fund 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 any portion of its 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 Company ("FSSC"), the Fund will pay FSSC up to 0.25% of average daily
net assets of the Fund shares for the period. The fee paid to FSSC is used to
finance certain services for shareholders and to maintain shareholder accounts.
FSSC may voluntarily choose to waive any portion of its fee. FSSC can modify or
terminate this voluntary waiver at any time at its sole discretion.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
GENERAL
Certain of the Officers and Trustees of the Fund 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 July 31, 1999, were as follows:
Purchases $701,678,559
Sales $741,230,703
CHANGE OF INDEPENDENT AUDITORS
On May 19, 1999, the Trust's Board of Trustees, upon the recommendation of the
Audit Committee of the Board of Trustees, requesting and subsequently accepted
the resignation of Arthur Anderson LLP ("AA") as the Trust's independent
auditors. AA's reports on the Trust's financial statements for the fiscal years
ended January 31, 1998 and January 31, 1999, contained no adverse opinion or
disclaimer of opinion nor were they qualified or modified as to uncertainty,
audit scope or accounting principles. During the Trust's fiscal years ended
January 31, 1998 and January 31, 1999, (i) there were no disagreements with AA
on any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure, which disagreements, if not resolved
to the satisfaction of AA, would have caused it to make reference to the subject
matter of the disagreements in connection with its reports on the financial
statements for such years; and (ii) there were no reportable events of the kind
described in Item 304(a)(1)(v) of Regulation S-K under the Securities Act of
1934, as amended.
The Trust, by action of its Board of Trustees, upon the recommendation of the
Audit Committee of the Board, has engaged Deliotte & Touche LLP ("D&T") as the
independent auditors to audit the Trust's financial statements for the fiscal
year ended January 31, 2000. During the Trust's fiscal years ended January 31,
1998 and January 31, 1999, neither the Trust nor anyone on its behalf has
consulted D&T on items which (i) concerned the application of accounting
principles to a specified transaction, either completed or proposed, or the type
of audit opinion that might be rendered on the Trust's financial statements of
(ii) concerned the subject of a disagreement (as defined in paragraph (a)(1)(iv)
of Item 304 of Regulation S-K) of reportable events (as described in paragraph
(a)(1)(v) of said Item 304).
YEAR 2000
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
Trustees
JOHN F. DONAHUE
THOMAS G. BIGLEY
JOHN T. CONROY, JR.
WILLIAM J. COPELAND
LAWRENCE D. ELLIS, M.D.
PETER E. MADDEN
CHARLES F. MANSFIELD, JR.
JOHN E. MURRAY, JR., J.D., S.J.D.
MARJORIE P. SMUTS
JOHN S. WALSH
Officers
JOHN F. DONAHUE
Chairman
GLEN R. JOHNSON
President
J. CHRISTOPHER DONAHUE
Executive Vice President
EDWARD C. GONZALES
Executive Vice President
JOHN W. MCGONIGLE
Executive Vice President and Secretary
RICHARD B. FISHER
Vice President
RICHARD J. THOMAS
Treasurer
C. GRANT ANDERSON
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
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Federated
World-Class Investment Manager
Federated U.S. Government Securities Fund: 2-5 Years
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
JULY 31, 1999
SEMI-ANNUAL REPORT
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Federated
Federated U.S. Government Securities Fund: 2-5 Years
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Cusip 31428P103
Cusip 31428P202
8082202 (9/99)
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