MANAGEMENT DISCUSSION AND ANALYSIS
Federated U.S. Government Securities Fund: 2-5 Years
Annual Report for Fiscal Year Ended January 31, 2000
INSTITUTIONAL SHARES
INSTITUTIONAL SERVICE SHARES
Federated U.S. Government Securities Fund: 2-5 Years (GOV2-5) invests in
U.S. government securities, which include U.S. Treasury and agency
obligations. The fund's average duration is managed within 20% of the
duration of the Merrill Lynch 3-5 Year Treasury Index. 1 Standard & Poor's
has maintained the fund's "AAAf" credit rating.2
U.S. Treasury yields increased significantly during the fund's annual reporting
period, continuing the trend which began in the fourth quarter of 1998. The year
1999 was the worst year for the Treasury market since 1994. Yields of 2-year and
5-year Treasury notes ended January 2000 at 6.59% and 6.68%, 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%. Stronger than expected U.S. economic growth
combined with rebounding global economies fueled market fears of higher
inflation. Market expectations shifted dramatically from pricing in further
Federal Reserve Board (the "Fed") easing during the fourth quarter of 1998, to
pricing in a tighter Fed monetary policy. These expectations were realized when
the federal funds target rate was increased for the first time since March 1997
from 4.75% to 5.00% in June 1999. The federal funds target rate was increased
two more times to 5.5% by mid- November 1999, reversing all three Fed easings
implemented during the fall of 1998.
1 This index is unmanaged.
2 "AAAf" rated fund portfolio holdings and counterparties provide extremely
strong protection against losses from credit defaults. This rating, however is
subject to change and does not remove market risk.
Almost 10% of the Fund's Treasury position was shifted into Agency Securities to
take advantage of dramatically wider agency yield spreads versus Treasurys,
during the "flight to quality" environment of late summer/early fall 1998.
Agency Securities outperformed Treasurys during the first half of the fund's
reporting period, but the fund increased its agency position when agency yield
spreads widened versus Treasurys during the summer of 1999. Similar to 1998,
agency issuance exceeded Treasury note and bond issuance in 1999.
The federal funds target rate was increased to 5.75% in early February 2000.
Further monetary policy tightening at the March Federal Open Market Committee
("FOMC") meeting is highly likely and is currently reflected in the front end of
the yield curve. However, in the absence of concrete evidence of rising
inflation, Fed tightenings will be more moderate than aggressive. The fund's
average duration remained at or below its neutral target and ended the reporting
period at 3.4 years. The fund's net total return for the year ended January 31,
2000 was (1.41)% for the fund's Institutional Shares and (1.66)% for the
Institutional Service Shares, 1 versus (1.07)% for the Merrill Lynch 3-5 Year
Treasury Index.
1 Past performance is no guarantee 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.
INSTITUTIONAL SHARES
GROWTH OF $25,000 INVESTED IN FEDERATED U.S. GOVERNMENT SECURITIES
FUND: 2-5 YEARS
APPENDEX A1
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD ENDED JANUARY 31, 2000
<S> <C>
1 Year (1.41%)
5 Years 5.83%
10 Years 6.55%
</TABLE>
The graph above illustrates the hypothetical investment of $25,000 1 in
the Federated U.S. Government Securities Fund: 2-5 Years (Institutional
Shares) (the "Fund") from January 31, 1991 to January 31, 2000, compared
to the Merrill Lynch 3 Year Treasury Index (MLTYT), Merrill Lynch 3-
5 Year Treasury Index (MLTFYT),2 the Lipper Short U.S. Treasury Funds
Average (LSUSTFA),3 and the Lipper Short-Intermediate U.S. Government Funds
Average (LSIUSGFA).3
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 THEIR 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, 2000, and, together with financial statements contained therein, constitutes
the Fund's annual report.
1 The Fund's performance assumes the reinvestment of all dividends and
distributions. The MLTYT, MLTFYT, the LSUSTFA, and the LSIUSGFA have been
adjusted to reflect reinvestment of dividends on securities in the indices and
average.
2 The MLTYT and MLTFYT are not adjusted to reflect sales charges, expenses, or
other fees that the Securities and Exchange Commission (SEC) requires to be
reflected in the Fund's performance. The indices are unmanaged, and investments
cannot be made in an index.
3 The LSUSTFA and the LSIUSGFA represent the average of the total returns
reported by all the mutual funds designated by the Lipper Analytical Services,
Inc. as following in the respective categories, and are 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.
INSTITUTIONAL SERVICE SHARES
GROWTH OF $25,000 INVESTED IN FEDERATED U.S. GOVERNMENT SECURITIES
FUND: 2-5 YEARS
APPENDEX A2
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD ENDED JANUARY 31, 2000
<S> <C>
1 Year (1.66%)
5 Years 5.57%
Start of Performance (5/30/92) 5.07%
</TABLE>
The graph above illustrates the hypothetical investment of $25,000 1 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, 2000, compared to the Merrill Lynch 3 Year Treasury
Index (MLTYT), Merrill Lynch 3-5 Year Treasury Index (MLTFYT),2 the Lipper
Short U.S. Treasury Funds Average (LSUSTFA),3 and the Lipper
Short-Intermediate U.S. Government Funds Average ( LSIUSGFA).3
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 THEIR 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, 2000, and, together with financial statements contained therein, constitutes
the Fund's annual report.
1 The Fund's performance assumes the reinvestment of all dividends and
distributions. The MLTFYT, the LSUSTFA, and the LSIUSGFA have been adjusted to
reflect reinvestment of dividends on securities in the indices and average.
2 The MLTYT and MLTFYT are not adjusted to reflect sales charges, expenses, or
other fees that the Securities and Exchange Commission (SEC) requires to be
reflected in the Fund's performance. The indices are unmanaged and investments
cannot be made in an index.
3 The LSUSTFA and the LSIUSGFA represent the average of the total returns
reported by all of the mutual funds designated by Lipper Analytical Services,
Inc. as following in the respective categories, and are 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
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
8022502ARS (3/99)
[Graphic]
PROSPECTUS
Federated U.S. Government Securities Fund: 2-5 Years
INSTITUTIONAL SHARES
A mutual fund seeking to provide current income by investing in a portfolio
of short-to-intermediate U.S. government securities.
As with all mutual funds, the Securities and Exchange Commission (SEC) has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
MARCH 31, 2000
CONTENTS
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 3
What are the Fund's Investment Strategies? 4
What are the Principal Securities in Which the Fund Invests? 5
What are the Specific Risks of Investing in the Fund? 5
What Do Shares Cost? 6
How is the Fund Sold? 6
How to Purchase Shares 7
How to Redeem Shares 8
Account and Share Information 9
Who Manages the Fund? 10
Financial Information 11
Report of Ernst & Young LLP, Independent Auditors 21
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is to provide current income. While there is no
assurance that the Fund will achieve its investment objective, it endeavors to
do so by following the strategies and policies described in this prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in a diversified, short-to-intermediate term portfolio of
direct obligations of the U.S. government, its agencies and instrumentalities.
The Fund maintains a weighted average portfolio duration that is within 20
percent of the weighted average portfolio duration of the Merrill Lynch 3-5 Year
Treasury Index. This index is a market capitalization weighted index including
all U.S. Treasury Notes and Bonds with maturities greater than or equal to three
years and less than five years.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund. The primary factor that may reduce the Fund's returns
is changes in prevailing interest rates. An increase in interest rates may
result in a decrease in the value of Fund Shares.
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 or
guaranteed by the U.S. government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board, or any other government agency.
RISK/RETURN BAR CHART AND TABLE
The graphic presentation displayed here consist s of a bar chart representing
the annual total returns of Institutional Shares as of the calendar year-end for
each of the 10 years.
The `y' axis reflects the "% Total Return" beginning with "-0.5" and increasing
in increments of 5% up to 15%.
The `x' axis represents calculation periods for the last ten calendar years of
the Fund's start of business, beginning with the earliest year. The light gray
shaded chart features 10 distinct vertical bars, each shaded in charcoal, and
each visually representing by height the total return percentages for the
calendar year stated directly at its base. The calculated total return
percentage for the Fund for each calendar year is stated directly at the top of
each respective bar, for the calendar years 1990 through 1999. The percentages
noted are:
9.40%,13.45%,6.66%,7.10%,-1.91%,13.57%,3.58%.7.14%,8.11%-.0.52%.
The bar chart shows the variability of the Fund's Institutional Shares total
returns on a calendar year-end basis.
The Fund's Institutional Shares are not sold subject to a sales charge (load).
Hence, the total returns displayed above are based upon the net asset value.
Within the period shown in the Chart, the Fund's Institutional Shares highest
quarterly return was 4.73% (quarter ended September 30, 1998). Its lowest
quarterly return was (1.51%) (quarter ended March 31, 1994).
AVERAGE ANNUAL TOTAL RETURN
The following table represents the Fund's Institutional Shares Average Annual
Total Returns for the calendar period December 31, 1999. The table shows the
Fund's total returns averaged over a period of years relative to the Merrill
Lynch 3 Year Treasury Index (MLTYT) and Merrill Lynch 3-5 Year Treasury Index
(MLTFYT), broad-based market indexes, the Lipper Short U.S. Treasury Funds
Average (LSUSTFA) and the Lipper Short Intermediate U.S. Government Funds
Average (LSIUSGFA), an average of funds with similar investment objectives.
Total returns for the indexes shown do not reflect sales charges, expense, or
other fees that the SEC requires to be reflected in the Fund's performance.
Indexes are unmanaged and it is not possible to invest directly in an index.
CALENDAR PERIOD FUND MLTYT MLTFYT LSUSTFA LSIUSGFA
1 Year (0.52%) 1.43% 0.04% 1.68% 0.65%
5 Years 6.27% 6.83% 7.23% 5.96% 6.00%
10 Years 6.54% 6.89% 7.40% 6.16% 6.47%
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
returns.
What are the Fund's Fees and Expenses?
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
the Fund's Institutional Shares.
<TABLE>
<CAPTION>
SHAREHOLDER FEES
<S> <C>
Fees Paid Directly From
Your Investment
Maximum Sales Charge
(Load) Imposed on
Purchases (as a percentage
of offering price) None
Maximum Deferred Sales
Charge (Load) (as a
percentage of original
purchase price or
redemption proceeds,
as applicable) None
Maximum Sales Charge
(Load) Imposed on
Reinvested Dividends (and
other Distributions)
(as a percentage of
offering price) None
Redemption Fee (as a
percentage of amount
redeemed, if applicable) None
Exchange Fee None
ANNUAL FUND OPERATING
EXPENSES (Before Waiver) 1
Expenses That are Deducted
From Fund Assets (as
percentage of average net
assets)
Management Fee 0.40%
Distribution (12b-1) Fee None
Shareholder Services Fee 2 0.25%
Other Expenses 0.15%
Total Annual Fund
Operating Expenses 0.80%
1 Although not contractually obligated to do so, the shareholder services
provider waived certain amounts. These are shown below along with the net
expenses the Fund actually paid for the fiscal year ended January 31, 2000.
Total Waiver of Fund
Expenses 0.24%
Total Actual Annual Fund
Operating Expenses (after
waiver) 0.56%
2 The shareholder services provider voluntarily waived a portion of the
Institutional Shares shareholder service fee. The shareholder services provider
can terminate this voluntary waiver at any time. The shareholder services fee
paid by the Fund's Institutional Shares (after the voluntary waiver) was 0.01%
for the year ended January 31, 2000.
</TABLE>
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund's
Institutional Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Institutional Shares
for the time periods indicated and then redeem all of your Shares at the end of
those periods. The Example also assumes that your investment has a 5% return
each year and that the Fund's Institutional Shares operating expenses are BEFORE
WAIVERS as shown in the table and remain the same. Although your actual costs
and returns may be higher or lower, based on these assumptions your costs would
be:
1 Year $ 82
3 Years $ 255
5 Years $ 444
10 Years $ 990
What are the Fund's Investment Strategies?
The Fund invests in a portfolio of direct obligations of the U.S. government,
its agencies and instrumentalities. The Fund's adviser actively manages its
portfolio, seeking to limit the interest rate risk taken by the Fund while
selecting investments that should offer enhanced returns based upon the
adviser's interest rate outlook.
The adviser manages the Fund's interest rate risk by limiting the dollar-
weighted average duration of its portfolio securities to be not less than two
years nor more than five years. "Duration" measures the sensitivity of a
security's price to changes in interest rates. The greater a portfolio's average
duration, the greater the change in the portfolio's value in response to a
change in market interest rates. As a matter of investment policy, under normal
market conditions, the adviser limits the average duration of the portfolio to
within 20% of the duration of the Merrill Lynch 3-5 Year Treasury Index (the
"Index"). This Index includes all U.S. Treasury notes and bonds with maturities
of three years or greater and less than five years. This policy should prevent
the volatility of the Fund's Share price from significantly exceeding the
average volatility of short-to-intermediate term U.S. Treasury securities.
The adviser uses three principal methods to enhance the portfolio's returns as
compared to the Index. First, the adviser tries to extend the portfolio's
average duration when it expects interest rates to fall and shorten the duration
when it expects interest rates to rise. This method seeks to enhance the returns
from favorable interest rate changes and reduce the effect of unfavorable
changes.
Second, in constructing a portfolio with a targeted average duration, the
adviser tries to combine individual portfolio securities with different
durations to take advantage of relative changes in interest rates. Relative
changes in interest rates may occur whenever longer-term interest rates move
more, less, or in a different direction than shorter-term interest rates. As a
general matter, the adviser typically structures the portfolio in one of three
ways:
* A "bulleted" portfolio structure consists primarily of securities with
durations close to the portfolio's average duration. The adviser may use this
structure, for example, when it expects the difference between longer-term and
shorter-term interest rates to increase.
* A "barbelled" portfolio structure consists primarily of securities with
durations above and below the average duration. The adviser may use this
structure, for example, when it expects the difference between longer- term and
shorter-term interest rates to decrease.
* A "laddered" portfolio structure consists of securities with durations above,
below, and at the average duration. The adviser may use this structure, for
example, when it expects longer-term and shorter-term interest rates to change
by approximately the same amount.
Third, the adviser tries to obtain securities issued by agencies and
instrumentalities of the U.S. that it expects to provide better returns than
U.S. Treasury securities of comparable duration. The adviser generally uses
ongoing relative value analysis to compare the current yield differences of
securities to their historical and expected yield differences.
The adviser's interest rate outlook is the most important factor in selecting
the methods used to manage the Fund's portfolio. The adviser formulates its
interest rate outlook by analyzing a variety of factors such as:
* current and expected U.S. economic growth;
* current and expected interest rates and inflation;
* the Federal Reserve Board's monetary policy; and
* changes in the supply of or demand for U.S. government securities.
In selecting individual securities, the adviser analyzes how the security should
perform in response to expected interest rate changes as compared to other
securities of comparable risk.
As a consequence of this strategy, most of the Fund's portfolio consists of
securities paying interest exempt from state taxation. The Fund also invests in
repurchase agreements for U.S. government securities. Although repurchase
agreements are collateralized by the same types of securities in which the Fund
invests, income from repurchase agreements is not exempt from state taxation.
The Fund uses repurchase agreements to invest cash balances and shorten
duration, so the amount of state taxable income may vary with market conditions.
See "Tax Information" for an explanation of how your investment in the Fund may
be taxed.
TEMPORARY DEFENSIVE INVESTMENTS
The Fund may temporarily depart from its principal investment strategies by
investing its assets in cash and shorter-term debt securities and similar
obligations. It may do this to minimize potential losses and maintain liquidity
to meet shareholder redemptions during adverse market conditions. This may cause
the Fund to give up greater investment returns to maintain the safety of
principal, that is, the original amount invested by shareholders.
What are the Principal Securities in Which the Fund Invests?
The Fund invests primarily in the following types of U.S. government
securities:
U.S. TREASURY SECURITIES
Treasury securities are direct obligations of the federal government of the
United States.
U.S. GOVERNMENT AGENCY SECURITIES
Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority.
What are the Specific Risks of Investing in the Fund?
INTEREST RATE RISKS
Prices of fixed income securities rise and fall in response to changes in the
interest rate paid by similar securities. Generally, when interest rates rise,
prices of fixed income securities fall. However, market factors, such as the
demand for particular fixed income securities, may cause the price of certain
fixed income securities to fall while the prices of other securities rise or
remain unchanged.
Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of a
fixed income security to changes in interest rates.
Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices of
fixed income securities fall. This is also referred to as "interest rate risk."
Due to the Fund's average duration policy, it is expected to have less interest
rate risk than Federated U.S. Government Securities Fund: 5-10 Years or
Federated U.S. Government Bond Fund, both of which have longer average durations
than the Fund, and more interest rate risk than Federated U.S. Government
Securities Fund: 1-3 Years, which has a shorter average duration than the Fund.
What Do Shares Cost?
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. When the Fund receives your transaction request in proper form (as
described in the prospectus) it is processed at the next calculated net asset
value (NAV). NAV is determined at the end of regular trading (normally 4:00 p.m.
Eastern time) each day the NYSE is open.
The Fund generally values fixed income securities at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent pricing service.
The Fund values short-term obligations according to the mean between bid and
asked prices as furnished by an independent pricing service, except that
short-term obligations with remaining maturities of less than 60 days at the
time of purchase may be valued at amortized cost or at fair market value as
determined by the Board.
The required minimum initial investment for Fund Shares is $25,000. There is no
required minimum subsequent investment amount.
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 is
calculated by combining all accounts it maintains with the Fund. Accounts
established through investment professionals may be subject to a smaller minimum
investment amount. Keep in mind that investment professionals may charge you
fees for their services in connection with your Share transactions.
How is the Fund Sold?
The Fund offers two share classes: Institutional Shares and Institutional
Service Shares, each representing interests in a single portfolio of securities.
This prospectus relates only to Institutional Shares. Each share class has
different expenses, which affect their performance. Contact your investment
professional or call 1-800-341-7400 for more information concerning the other
class.
The Fund's Distributor, Federated Securities Corp., markets the Shares
described in this prospectus to institutions acting in an agency or
fiduciary capacity or to individuals, directly or through investment
professionals.
The Distributor and its affiliates may pay out of their assets other
amounts (including items of material value) to investment professionals
for marketing and servicing Shares. The Distributor is a subsidiary of
Federated Investors, Inc. (Federated).
How to Purchase Shares
You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase Shares.
THROUGH AN INVESTMENT PROFESSIONAL
* Establish an account with the investment professional; and
* Submit your purchase order to the investment professional before the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). You will receive
the next calculated NAV if the investment professional forwards the order to the
Fund on the same day and the Fund receives payment within one business day. You
will become the owner of Shares and receive dividends when the Fund receives
your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
* Establish your account with the Fund by submitting a completed New
Account Form; and
* Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares and your Shares will be priced at the next
calculated NAV after the Fund receives your wire or your check. If your check
does not clear, your purchase will be canceled and you could be liable for any
losses or fees incurred by the Fund or Federated Shareholder Services Company,
the Fund's transfer agent.
An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the next calculated NAV after the Fund receives
the order.
BY WIRE
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone
other than you or The Federated Funds).
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
How to Redeem Shares
You should redeem Shares:
* through an investment professional if you purchased Shares through an
investment professional; or
* directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). The redemption
amount you will receive is based upon the next calculated NAV after the Fund
receives the order from your investment professional.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund at 1-800-341-7400 once you have
completed the appropriate authorization form for telephone transactions. If you
call before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern
time) you will receive a redemption amount based on that day's NAV.
BY MAIL
You may redeem Shares by mailing a written request to the Fund.
You will receive a redemption amount based on the next calculated NAV after the
Fund receives your written request in proper form.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
* Fund Name and Share Class, account number and account registration;
* amount to be redeemed; and
* signatures of all shareholders exactly as registered.
Call your investment professional or the Fund if you need special instructions.
SIGNATURE GUARANTEES
Signatures must be guaranteed if:
* your redemption will be sent to an address other than the address of
record;
* your redemption will be sent to an address of record that was changed
within the last 30 days; or
* a redemption is payable to someone other than the shareholder(s) of
record.
A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A NOTARY PUBLIC CANNOT
PROVIDE A SIGNATURE GUARANTEE.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:
* an electronic transfer to your account at a financial institution that is
an ACH member; or
* wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
* to allow your purchase to clear;
* during periods of market volatility; or
* when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return the
certificates with your written redemption request. For your protection, send
your certificates by registered or certified mail, but do not endorse them.
Account and Share Information
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases and redemptions. In addition, you
will receive periodic statements reporting all account activity, including
dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to shareholders. If
you purchase Shares by wire, you begin earning dividends on the day your wire is
received. If you purchase Shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through the day your redemption request is received.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.
If you purchase Shares just before a Fund declares a capital gain distribution,
you will pay the full price for the Shares and then receive a portion of the
price back in the form of a taxable distribution, whether or not you reinvest
the distribution in Shares. Therefore, you should consider the tax implications
of purchasing Shares shortly before the Fund declares a capital gain. Contact
your investment professional or the Fund for information concerning when
dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts may be
closed if redemptions cause the account balance to fall below the minimum
initial investment amount. Before an account is closed, you will be notified and
allowed 30 days to purchase additional Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Dividends are taxable as ordinary income; capital gains
are taxable at different rates depending upon the length of time the Fund holds
its assets.
Fund distributions are expected to be primarily dividends. Redemptions are
taxable sales. Please consult your tax adviser regarding your federal, state and
local tax liability.
Who Manages the Fund?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Investment Management Company. The Adviser manages the Fund's
assets, including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise approximately 176 mutual
funds and separate accounts, which totaled approximately $125 billion in assets
as of December 31, 1999. Federated was established in 1955 and is one of the
largest mutual fund investment managers in the United States with approximately
1,900 employees. More than 4,000 investment professionals make Federated Funds
available to their customers.
THE FUND'S PORTFOLIO MANAGERS ARE:
SUSAN M. NASON
Susan M. Nason has been the Fund's Portfolio Manager since September 1991.
She is a Vice President of the Fund. Ms. Nason joined Federated in 1987 and
has been a Senior Portfolio Manager and Senior Vice President of the Fund's
Adviser since 1997. Ms. Nason served as a Portfolio Manager and Vice
President of the Adviser from 1993 to 1997. Ms. Nason is a Chartered
Financial Analyst and received her M.S.I.A. concentrating in Finance from
Carnegie Mellon University.
ROBERT J. OSTROWSKI
Robert J. Ostrowski has been the Fund's Portfolio Manager since September
1997. Mr. Ostrowski joined Federated in 1987 as an Investment Analyst and
became a Portfolio Manager in 1990. He currently serves as a Senior
Portfolio Manager. He has been a Senior Vice President of the Fund's
Adviser since 1997 and served as a Vice President of the Fund's Adviser
from 1996 to 1997. Prior to that, Mr. Ostrowski served as a Vice President
of a Federated advisory subsidiary from 1993 to 1996. Mr. Ostrowski is a
Chartered Financial Analyst. He received his M.S. in Industrial
Administration from Carnegie Mellon University.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.40% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
Financial Information
FINANCIAL HIGHLIGHTS
The following Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years. Some of the information is presented
on a per share basis. Total returns represent the rate an investor would have
earned (or lost) on an investment in the Fund, assuming reinvestment of any
dividends and capital gains.
Information for the fiscal year ended January 31, 2000 has been audited by Ernst
& Young LLP, whose report, along with the Fund's audited financial statements,
is included in this prospectus. Previous fiscal years were audited by other
auditors.
Financial Highlights
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31 2000 1999 1998
1997 1996
<S> <C> <C> <C>
<C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $10.91 $10.73 $10.48
$10.74 $10.11
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.51 0.55 0.59
0.57 0.64
Net realized and
unrealized gain (loss)
on investments (0.66) 0.18 0.25
(0.26) 0.63
TOTAL FROM INVESTMENT
OPERATIONS (0.15) 0.73 0.84
0.31 1.27
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.51) (0.55) (0.59)
(0.57) (0.64)
NET ASSET VALUE, END OF
PERIOD $10.25 $10.91 $10.73
$10.48 $10.74
TOTAL RETURN 1 (1.41%) 7.01% 8.24%
3.01% 12.86%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 0.56% 0.55% 0.54%
0.54% 0.54%
Net investment income 4.80% 5.13% 5.58%
5.42% 6.07%
Expense
waiver/reimbursement 2 0.24% 0.24% 0.25%
0.26% 0.25%
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $613,346 $739,058 $696,613
$782,056 $871,966
Portfolio turnover 172% 126%
71% 99% 117%
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 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
Portfolio of Investments
JANUARY 31, 2000
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
GOVERNMENT AGENCIES-19.9%
$ 21,100,000 Federal Farm Credit
System, 5.700%, 6/18/2003 $ 20,188,902
25,000,000 Federal Home Loan Bank
System, 6.125%, 8/15/2003 24,203,750
25,685,000 Federal Home Loan Bank
System, 5.575%, 9/2/2003 24,416,932
20,000,000 Federal Home Loan Bank
System, 5.125%, 9/15/2003 18,729,200
47,200,000 Federal Home Loan Bank
System, 6.250%, 11/15/2004 45,311,528
TOTAL GOVERNMENT AGENCIES
(IDENTIFIED COST
$136,484,680) 132,850,312
U.S. TREASURY OBLIGATIONS-
77.5%
38,500,000 5.500%, 1/31/2003 37,307,270
32,500,000 6.250%, 2/15/2003 32,130,475
25,500,000 5.750%, 4/30/2003 24,825,780
54,000,000 5.250%, 8/15/2003 51,616,980
48,000,000 5.750%, 8/15/2003 46,610,880
36,000,000 11.875%, 11/15/2003 42,029,280
44,300,000 5.250%, 5/15/2004 41,938,810
60,000,000 7.250%, 5/15/2004 61,156,200
58,200,000 6.000%, 8/15/2004 56,577,384
46,000,000 7.250%, 8/15/2004 46,908,960
42,700,000 5.875%, 11/15/2004 41,288,765
35,000,000 7.875%, 11/15/2004 36,570,450
TOTAL U.S. TREASURY
(IDENTIFIED COST
$533,058,358) 518,961,234
REPURCHASE AGREEMENTS-1.1%
1
7,310,000 Societe Generale, New
York, 5.690%, dated
1/31/2000, due 2/1/2000
(amortized cost) 7,310,000
TOTAL INVESTMENTS
(IDENTIFIED COST
$676,853,038) 2 $ 659,121,546
</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 though participation in a joint account with other
Federated funds.
2 The cost of investments for federal tax purpose amounts to $677,669,610.
Unrealized depreciation of investments on a federal tax basis amounts to
$18,548,064 at January 31, 2000.
Note: The categories of investments are shown as a percentage of net assets
($668,895,310) at January 31, 2000.
Statement of Assets and Liabilities
JANUARY 31, 2000
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in
securities, at value
(identified cost
$676,853,038 and tax
cost $677,669,610) $ 659,121,546
Income receivable 13,121,648
Receivable for shares sold 665,609
Other assets 12,821
TOTAL ASSETS 672,921,624
LIABILITIES:
Payable for shares
redeemed $ 2,384,976
Income distribution
payable 1,515,765
Payable to bank 125,573
TOTAL LIABILITIES 4,026,314
Net assets for 65,286,219
shares outstanding $ 668,895,310
NET ASSETS CONSIST OF:
Paid in capital $ 714,725,844
Net unrealized
depreciation of
investments (17,731,492)
Accumulated net realized
loss on investments (28,098,806)
Distributions in excess of
net investment income (236)
TOTAL NET ASSETS $ 668,895,310
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PROCEEDS PER SHARE
INSTITUTIONAL SHARES:
$613,346,249 / 59,864,393
shares outstanding $10.25
INSTITUTIONAL SERVICE
SHARES:
$55,549,061 / 5,421,826
shares outstanding $10.25
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
YEAR ENDED JANUARY 31, 2000
<TABLE>
<CAPTION>
<S> <C> <C>
<C>
INVESTMENT INCOME:
Interest $
38,920,086
EXPENSES:
Investment adviser fee $
2,903,615
Administrative personnel
and services fee
547,224
Custodian fees
40,280
Transfer and dividend
disbursing agent fees and
expenses
198,471
Directors'/Trustees' fees
18,397
Auditing fees
13,859
Legal fees
9,565
Portfolio accounting fees
132,177
Distribution services fee-
Institutional Service
Shares
138,889
Shareholder services fee-
Institutional Shares
1,675,870
Shareholder services fee-
Institutional Service
Shares
138,889
Share registration costs
35,208
Printing and postage
53,397
Insurance premiums
1,805
Miscellaneous
5,020
TOTAL EXPENSES
5,912,666
WAIVERS:
Waiver of distribution
services fee-Institutional
Service Shares $ (127,778)
Waiver of shareholder
services fee-Institutional
Shares (1,608,836)
Waiver of shareholder
services fee-Institutional
Service Shares (5,555)
TOTAL WAIVERS (1,742,169)
Net expenses
4,170,497
Net investment income
34,749,589
REALIZED AND UNREALIZED
LOSS ON INVESTMENTS:
Net realized loss on
investments
(16,617,582)
Net change in unrealized
depreciation of
investments
(29,829,370)
Net realized and
unrealized loss on
investments
(46,446,952)
Change in net assets
resulting from operations $
(11,697,363)
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31 2000 1999
<S> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS:
Net investment income $ 34,749,589 $ 38,762,428
Net realized gain (loss) on
investments ($(8,794,378)
and $18,462,945,
respectively, as computed
for federal tax purposes) (16,617,582) 18,462,945
Net change in unrealized
depreciation (29,829,370) (5,047,854)
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS (11,697,363) 52,177,519
DISTRIBUTIONS TO
SHAREHOLDERS:
Distributions from net
investment income
Institutional Shares (32,202,985) (36,624,367)
Institutional Service
Shares (2,548,497) (2,130,792)
CHANGE IN NET ASSETS
RESULTING FROM
DISTRIBUTIONS
TO SHAREHOLDERS (34,751,482) (38,755,159)
SHARE TRANSACTIONS:
Proceeds from sale of
shares 316,352,033 395,513,622
Net asset value of shares
issued to shareholders in
payment of
distributions declared 16,880,482 17,839,525
Cost of shares redeemed (408,169,991) (369,831,679)
CHANGE IN NET ASSETS
RESULTING FROM SHARE
TRANSACTIONS (74,937,476) 43,521,468
Change in net assets (121,386,321) 56,943,828
NET ASSETS:
Beginning of period 790,281,631 733,337,803
End of period $ 668,895,310 $ 790,281,631
</TABLE>
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
JANUARY 31, 2000
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 Services 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 at
the time of purchase may be 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.
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 Trust could receive less
than the repurchase price on the sale of collateral securities. The Fund, along
with other affiliated investment companies, may utilize a joint trading account
for the purpose of entering into one or more repurchase agreements.
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. Non-cash dividends included in dividend income, if any, are recorded at
fair value. The fund offers multiple classes of shares, which differ in their
respective distribution and service fees. All shareholders bear the common
expenses of the Fund based on average daily net assets of each class, without
distinction between share classes. Dividends are declared separately for each
class. No class has preferential dividend rights; differences in per share
dividend rates are generally due to differences in separate class expenses.
Income and capital gain distributions are determined in accordance with income
tax regulations which may differ from generally accepted accounting principles.
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 provision for federal tax is
necessary.
Additionally, net capital losses of $7,006,632 attributable to security
transactions incurred after October 31, 1999, are treated as arising on February
1, 2000, the first day of the fund's next fiscal year.
At January 31, 2000, the Fund, for federal tax purposes, had a capital loss
carryforward of $20,275,602 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
2008 8,794,378
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. Losses may occur on these transactions due to changes in market
conditions or the failure of counterparts to perform under the contract.
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 a trade date basis.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
2000 1999
INSTITUTIONAL SHARES: SHARES AMOUNT
SHARES AMOUNT
<S> <C> <C>
<C> <C>
Shares sold 26,018,905 $ 275,393,620
33,291,694 $ 359,916,788
Shares issued to
shareholders in payment of
distributions declared 1,413,172 14,861,522
1,494,967 16,132,483
Shares redeemed (35,297,552) (372,933,185)
(32,008,413) (346,233,579)
NET CHANGE RESULTING FROM
INSTITUTIONAL SHARE
TRANSACTIONS (7,865,475) $ (82,678,043)
2,778,248 $ 29,815,692
<CAPTION>
YEAR ENDED JANUARY 31
2000 1999
INSTITUTIONAL SERVICES
SHARES: SHARES AMOUNT
SHARES AMOUNT
<S> <C> <C>
<C> <C>
Shares sold 3,881,281 $ 40,958,413
3,294,054 $ 35,596,834
Shares issued to
shareholders in payment of
distributions declared 192,185 2,018,960
158,154 1,707,042
Shares redeemed (3,346,029) (35,236,806)
(2,182,036) (23,598,100)
NET CHANGE RESULTING FROM
INSTITUTIONAL SERVICES
SHARE TRANSACTIONS 727,437 $ 7,740,567
1,270,172 $ 13,705,776
NET CHANGE RESULTING FROM
SHARE TRANSACTIONS (7,138,038) $ (74,937,476)
4,048,420 $ 43,521,468
</TABLE>
INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER FEE
Federated Investment Management Company, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment adviser 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 a scale that ranges from 0.15% to 0.075% of the level
of average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors, Inc. subject to a $125,000 minimum per portfolio and
$30,000 per each additional class.
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 Trust'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 (and in-kind
contributions), for the period ended January 31, 2000, were as follows:
Purchases $ 1,203,754,813
Sales $ 1,261,083,593
CHANGE OF INDEPENDENT AUDITORS (UNAUDITED)
On May 19, 1999, the Trustees, upon the recommendation of its Audit Committee,
requested and subsequently accepted the resignation of Arthur Andersen LLP
("AA") as the Fund's independent auditors. AA reports on the Fund's financial
statements for the fiscal years ended December 31, 1997 and December 31, 1998
contained no adverse opinion or disclaimer of opinion nor were they qualified or
modified as to uncertainty, audit scope or accounting principles. During the
Fund's fiscal years ended December 31, 1997 and December 31, 1998: (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 Fund, by action of its Trustees, upon the recommendation of the Audit
Committee, has engaged Ernst & Young LLP ("E&Y") as the independent auditors to
audit the Fund's financial statements for the fiscal year ended December 31,
1999. During the Fund's fiscal years ended December 31, 1997 and December 31,
1998, neither the Fund nor anyone on its behalf has consulted E&Y on items which
(1) 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 Fund's financial statements, or (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).
Report of Ernst & Young LLP, Independent Auditors
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Federated U.S. Government Securities Fund: 2-5
Years (the "Fund"), as of January 31, 2000, and the related statement of
operations, statement of changes in net assets and financial highlights for the
year then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit. The statement of changes in net assets for the year ended January 31,
1999, and the financial highlights for each of the four years then ended were
audited by other auditors whose report dated March 26, 1999 expressed an
unqualified opinion on that statement and those financial highlights.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. 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, 2000, 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 audit provides 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 the
Federated U.S. Government Securities Fund: 2-5 Years at January 31, 2000, and
the results of its operations, the changes in its net assets, and the financial
highlights for the year then ended, in conformity with accounting principles
generally accepted in the United States.
[Graphic]
Boston, Massachusetts
March 13, 2000
[Graphic]
Federated U.S. Government Securities Fund: 2-5 Years
INSTITUTIONAL SHARES
MARCH 31, 2000
A Statement of Additional Information (SAI) dated March 31, 2000, is
incorporated by reference into this prospectus. Additional information about the
Fund and its investments is contained in the Fund's SAI and Annual and
Semi-Annual Reports to shareholders as they become available. The Annual
Report's Management Discussion and Analysis discusses market conditions and
investment strategies that significantly affected the Fund's performance during
its last fiscal year. To obtain the SAI, Annual Report, Semi-Annual Report and
other information without charge, and make inquiries, call your investment
professional or the Fund at 1-800-341- 7400.
You can obtain information about the Fund (including the SAI) by writing to or
visiting the Public Reference Room in Washington, DC. You may also access fund
information from the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. You can purchase copies of this information by contacting
the SEC by email at [email protected] or by writing to the SEC's Public
Reference Section, Washington, DC 20549-0102. Call 1-202-942- 8090 for
information on the Public Reference Room's operations and copying fees.
[Graphic]
Federated
Federated U.S. Government Securities Fund:
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Investment Company Act File No. 811-3387
Cusip 31428P103
8022502A-IS (3/00)
[Graphic]
PROSPECTUS
Federated U.S. Government Securities Fund: 2-5 Years
INSTITUTIONAL SERVICE SHARES
A mutual fund seeking to provide current income by investing in a portfolio
of short-to-intermediate U.S. government securities.
As with all mutual funds, the Securities and Exchange Commission (SEC) has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
MARCH 31, 2000
CONTENTS
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 3
What are the Fund's Investment Strategies? 4
What are the Principal Securities in Which the Fund Invests? 5
What are the Specific Risks of Investing in the Fund? 6
What Do Shares Cost? 6
How is the Fund Sold? 7
How to Purchase Shares 7
How to Redeem Shares 8
Account and Share Information 10
Who Manages the Fund? 11
Financial Information 12
Report of Ernst & Young LLP, Independent Auditors 22
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is to provide current income. While there is no
assurance that the Fund will achieve its investment objective, it endeavors to
do so by following the strategies and policies described in this prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in a diversified, short-to- intermediate term portfolio of
direct obligations of the U.S. government, its agencies and instrumentalities.
The Fund maintains a weighted average portfolio duration that is within 20
percent of the weighted average portfolio duration of the Merrill Lynch 3-5 Year
Treasury Index. This index is a market capitalization weighted index including
all U.S. Treasury Notes and Bonds with maturities greater than or equal to three
years and less than five years.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund. The primary factor that may reduce the Fund's returns
is changes in prevailing interest rates. An increase in interest rates may
result in a decrease in the value of Fund Shares.
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 or
guaranteed by the U.S. government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board, or any other government agency.
RISK/RETURN BAR CHART AND TABLE
The graphic presentation displayed here consist s of a bar chart representing
the annual total returns of Institutional Service Shares as of the calendar
year-end for each of the 7 years.
The `y' axis reflects the "% Total Return" beginning with "-0.5" and increasing
in increments of 5% up to 15%.
The `x' axis represents calculation periods for the last 7 calendar years of the
Fund's start of business, beginning with the earliest year. The light gray
shaded chart features 7 distinct vertical bars, each shaded in charcoal, and
each visually representing by height the total return percentages for the
calendar year stated directly at its base. The calculated total return
percentage for the Fund for each calendar year is stated directly at the top of
each respective bar, for the calendar years 1993 through 1999. The percentages
noted are: 6.83% -2.16%,13.29%,3.32%,6.87%,7.84%,-0.77%.
The bar chart shows the variability of the Fund's Institutional Service Shares
total returns on a calendar year-end basis.
The Fund's Institutional Service Shares are not sold subject to a sales charge
(load). Hence, the total returns displayed above are based upon the net asset
value.
Within the period shown in the Chart, the Fund's Institutional Service Shares
highest quarterly return was 4.66% (quarter ended September 30, 1998). Its
lowest quarterly return was (1.57%) (quarter ended March 31, 1994).
AVERAGE ANNUAL TOTAL RETURN
The following table represents the Fund's Institutional Service Shares Average
Annual Total Returns for the calendar period December 31, 1999. The table shows
the Fund's total returns averaged over a period of years relative to the Merrill
Lynch 3 Year Treasury Index (MLTYT) and Merrill Lynch 3-5 Year Treasury Index
(MLTFYT), broad-based market indexes, the Lipper Short U.S. Treasury Funds
Average (LSUSTFA) and the Lipper Short Intermediate U.S. Government Funds
Average (LSIUSGFA), an average of funds with similar investment objectives.
Total returns for the indexes shown do not reflect sales charges, expense, or
other fees that the SEC requires to be reflected in the Fund's performance.
Indexes are unmanaged and it is not possible to invest directly in an index.
CALENDAR PERIOD FUND MLTYT MLTFYT LSUSTFA LSIUSGFA
1 Year (0.77%) 1.43% 0.04% 1.68% 0.65%
5 Years 6.01% 6.83% 7.23% 5.96% 6.00%
Start of Performance 1 5.20% 5.92% 6.34% 5.21% 6.47%
1 The fund's Institutional Service Shares start of performance date was May 30,
1992.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
returns.
What are the Fund's Fees and Expenses?
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
the Fund's Institutional Service Shares.
<TABLE>
<CAPTION>
SHAREHOLDER
FEES
<S>
<C>
Fees Paid Directly
From
Your
Investment
Maximum Sales
Charge
(Load) Imposed
on
Purchases (as a
percentage
of offering
price) None
Maximum Deferred
Sales
Charge (Load) (as
a
percentage of
original
purchase price
or
redemption
proceeds,
as
applicable)
None
Maximum Sales
Charge
(Load) Imposed
on
Reinvested Dividends
(and
other
Distributions)
(as a percentage
of
offering
price)
None
Redemption Fee (as
a
percentage of
amount
redeemed, if
applicable) None
Exchange
Fee
None
ANNUAL FUND
OPERATING
EXPENSES (Before Waiver)
1
Expenses That are
Deducted
From Fund Assets
(as
percentage of average
net
assets)
Management
Fee
0.40%
Distribution (12b-1) Fee
2 0.25%
Shareholder Services Fee
3 0.25%
Other
Expenses
0.15%
Total Annual
Fund
Operating
Expenses
1.05%
1 Although not contractually obligated to do so, the distributor and the
shareholder services provider waived certain amounts. These are shown below
along with the net expenses the Fund actually paid for the fiscal year ended
January 31, 2000.
Total Waivers of
Fund
Expenses
0.24%
Total Actual Annual
Fund
Operating Expenses
(after
waiver)
0.81%
2 The distributor voluntarily waived a portion of the Institutional Service
Shares distribution (12b-1) fee. The distributor can terminate this voluntary
waiver at any time. The distribution (12b-1) fee paid by the Fund's
Institutional Service Shares (after voluntary waiver) was 0.02% for the year
ended January 31, 2000.
3 The shareholder services provider voluntarily waived a portion of the
Institutional Service Shares shareholder service fee. The shareholder services
provider can terminate this voluntary waiver at any time. The shareholder
services fee paid by the Fund's Institutional Service Shares (after voluntary
waiver) was 0.24% for the year ended January 31, 2000.
</TABLE>
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund's
Institutional Service Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Institutional Service
Shares for the time periods indicated and then redeem all of your Shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that the Fund's Institutional Service Shares operating
expenses are BEFORE WAIVERS as shown in the table and remain the same. Although
your actual costs and returns may be higher or lower, based on these assumptions
your costs would be:
1 Year $ 107
3 Years $ 334
5 Years $ 579
10 Years $ 1,283
What are the Fund's Investment Strategies?
The Fund invests in a portfolio of direct obligations of the U.S. government,
its agencies and instrumentalities. The Fund's adviser actively manages its
portfolio, seeking to limit the interest rate risk taken by the Fund while
selecting investments that should offer enhanced returns based upon the
adviser's interest rate outlook.
The adviser manages the Fund's interest rate risk by limiting the dollar-
weighted average duration of its portfolio securities to be not less than two
years or more than five years. "Duration" measures the sensitivity of a
security's price to changes in interest rates. The greater a portfolio's average
duration, the greater the change in the portfolio's value in response to a
change in market interest rates. As a matter of investment policy, under normal
market conditions, the adviser limits the average duration of the portfolio to
within 20% of the duration of the Merrill Lynch 3-5 Year Treasury Index (the
"Index"). This Index includes all U.S. Treasury notes and bonds with maturities
of three years or greater and less than five years. This policy should prevent
the volatility of the Fund's Share price from significantly exceeding the
average volatility of short-to-intermediate term U.S. Treasury securities.
The adviser uses three principal methods to enhance the portfolio's returns as
compared to the Index. First, the adviser tries to extend the portfolio's
average duration when it expects interest rates to fall and shorten the duration
when it expects interest rates to rise. This method seeks to enhance the returns
from favorable interest rate changes and reduce the effect of unfavorable
changes.
Second, in constructing a portfolio with a targeted average duration, the
adviser tries to combine individual portfolio securities with different
durations to take advantage of relative changes in interest rates. Relative
changes in interest rates may occur whenever longer-term interest rates move
more, less, or in a different direction than shorter-term interest rates. As a
general matter, the adviser typically structures the portfolio in one of three
ways:
* A "bulleted" portfolio structure consists primarily of securities with
durations close to the portfolio's average duration. The adviser may use this
structure, for example, when it expects the difference between longer-term and
shorter-term interest rates to increase.
* A "barbelled" portfolio structure consists primarily of securities with
durations above and below the average duration. The adviser may use this
structure, for example, when it expects the difference between longer- term and
shorter-term interest rates to decrease.
* A "laddered" portfolio structure consists of securities with durations above,
below, and at the average duration. The adviser may use this structure, for
example, when it expects longer-term and shorter-term interest rates to change
by approximately the same amount.
Third, the adviser tries to obtain securities issued by agencies and
instrumentalities of the U.S. that it expects to provide better returns than
U.S. Treasury securities of comparable duration. The adviser generally uses
ongoing relative value analysis to compare the current yield differences of
securities to their historical and expected yield differences.
The adviser's interest rate outlook is the most important factor in selecting
the methods used to manage the Fund's portfolio. The adviser formulates its
interest rate outlook by analyzing a variety of factors such as:
* current and expected U.S. economic growth;
* current and expected interest rates and inflation;
* the Federal Reserve Board's monetary policy; and
* changes in the supply of or demand for U.S. government securities.
In selecting individual securities, the adviser analyzes how the security should
perform in response to expected interest rate changes as compared to other
securities of comparable risk.
As a consequence of this strategy, most of the Fund's portfolio consists of
securities paying interest exempt from state taxation. The Fund also invests in
repurchase agreements for U.S. government securities. Although repurchase
agreements are collateralized by the same types of securities in which the Fund
invests, income from repurchase agreements is not exempt from state taxation.
The Fund uses repurchase agreements to invest cash balances and shorten
duration, so the amount of state taxable income may vary with market conditions.
See "Tax Information" for an explanation of how your investment in the Fund may
be taxed.
TEMPORARY DEFENSIVE INVESTMENTS
The Fund may temporarily depart from its principal investment strategies by
investing its assets in cash and shorter-term debt securities and similar
obligations. It may do this to minimize potential losses and maintain liquidity
to meet shareholder redemptions during adverse market conditions. This may cause
the Fund to give up greater investment returns to maintain the safety of
principal, that is, the original amount invested by shareholders.
What are the Principal Securities in Which the Fund Invests?
The Fund invests primarily in the following types of U.S. government
securities:
U.S. TREASURY SECURITIES
Treasury securities are direct obligations of the federal government of the
United States.
U.S. GOVERNMENT AGENCY SECURITIES
Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority.
What are the Specific Risks of Investing in the Fund?
INTEREST RATE RISKS
Prices of fixed income securities rise and fall in response to changes in the
interest rate paid by similar securities. Generally, when interest rates rise,
prices of fixed income securities fall. However, market factors, such as the
demand for particular fixed income securities, may cause the price of certain
fixed income securities to fall while the prices of other securities rise or
remain unchanged.
Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of a
fixed income security to changes in interest rates.
Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices of
fixed income securities fall. This is also referred to as "interest rate risk."
Due to the Fund's average duration policy, it is expected to have less interest
rate risk than Federated U.S. Government Securities Fund: 5-10 Years or
Federated U.S. Government Bond Fund, both of which have longer average durations
than the Fund, and more interest rate risk than Federated U.S. Government
Securities Fund: 1-3 Years, which has a shorter average duration than the Fund.
What Do Shares Cost?
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. When the Fund receives your transaction request in proper form (as
described in the prospectus) it is processed at the next calculated net asset
value (NAV). NAV is determined at the end of regular trading (normally 4:00 p.m.
Eastern time) each day the NYSE is open. The Fund does not charge a front-end
sales charge.
The Fund generally values fixed income securities at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent pricing service.
The Fund values short-term obligations according to the mean between bid and
asked prices as furnished by an independent pricing service, except that
short-term obligations with remaining maturities of less than 60 days at the
time of purchase may be valued at amortized cost or at fair market value as
determined by the Board.
The required minimum initial investment for Fund Shares is $25,000. There is no
required minimum subsequent investment amount.
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 is
calculated by combining all accounts it maintains with the Fund. Accounts
established through investment professionals may be subject to a smaller minimum
investment amount. Keep in mind that investment professionals may charge you
fees for their services in connection with your Share transactions.
How is the Fund Sold?
The Fund offers two share classes: Institutional Shares and Institutional
Service Shares, each representing interests in a single portfolio of securities.
This prospectus relates only to Institutional Service Shares. Each share class
has different expenses, which affect their performance. Contact your investment
professional or call 1-800-341-7400 for more information concerning the other
class.
The Fund's Distributor, Federated Securities Corp., markets the Shares
described in this prospectus to institutions acting in an agency or
fiduciary capacity or to individuals, directly or through investment
professionals.
When the Distributor receives marketing fees, it may pay some or all of them to
investment professionals. The Distributor and its affiliates may pay out of
their assets other amounts (including items of material value) to investment
professionals for marketing and servicing Shares. The Distributor is a
subsidiary of Federated Investors, Inc. (Federated).
RULE 12B-1 PLAN
The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to
the Distributor and investment professionals for the sale, distribution and
customer servicing of the Fund's Institutional Service Shares. Because these
Shares pay marketing fees on an ongoing basis, your investment cost may be
higher over time than other shares with different sales charges and marketing
fees.
How to Purchase Shares
You may purchase Shares through an investment professional directly from the
Fund. The Fund reserves the right to reject any request to purchase or exchange
Shares.
THROUGH AN INVESTMENT PROFESSIONAL
* Establish an account with the investment professional; and
* Submit your purchase order to the investment professional before the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). You will receive
the next calculated NAV if the investment professional forwards the order to the
Fund on the same day and the Fund receives payment within one business day. You
will become the owner of Shares and receive dividends when the Fund receives
your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
* Establish your account with the Fund by submitting a completed New
Account Form; and
* Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares and your Shares will be priced at the next
calculated NAV after the Fund receives your wire or your check. If your check
does not clear, your purchase will be canceled and you could be liable for any
losses or fees incurred by the Fund or Federated Shareholder Services Company,
the Fund's transfer agent.
An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the next calculated NAV after the Fund receives
the order.
BY WIRE
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone
other than you or The Federated Funds).
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
How to Redeem Shares
You should redeem Shares:
* through an investment professional if you purchased Shares through an
investment professional; or
* directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). The redemption
amount you will receive is based upon the next calculated NAV after the Fund
receives the order from your investment professional.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund at 1-800-341-7400 once you have
completed the appropriate authorization form for telephone transactions. If you
call before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern
time), you will receive a redemption amount based on that day's NAV.
BY MAIL
You may redeem Shares by mailing a written request to the Fund.
You will receive a redemption amount based on the next calculated NAV after the
Fund receives your written request in proper form.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
* Fund Name and Share Class, account number and account registration;
* amount to be redeemed; and
* signatures of all shareholders exactly as registered.
Call your investment professional or the Fund if you need special instructions.
SIGNATURE GUARANTEES
Signatures must be guaranteed if:
* your redemption will be sent to an address other than the address of
record;
* your redemption will be sent to an address of record that was changed
within the last 30 days; or
* a redemption is payable to someone other than the shareholder(s) of
record.
A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A NOTARY PUBLIC CANNOT
PROVIDE A SIGNATURE GUARANTEE.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:
* an electronic transfer to your account at a financial institution that is
an ACH member; or
* wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
* to allow your purchase to clear;
* during periods of market volatility; or
* when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return the
certificates with your written redemption request. For your protection, send
your certificates by registered or certified mail, but do not endorse them.
Account and Share Information
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases and redemptions. In addition, you
will receive periodic statements reporting all account activity, including
dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to shareholders. If
you purchase Shares by wire, you begin earning dividends on the day your wire is
received. If you purchase Shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through the day your redemption request is received.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.
If you purchase Shares just before a Fund declares a capital gain distribution,
you will pay the full price for the Shares and then receive a portion of the
price back in the form of a taxable distribution, whether or not you reinvest
the distribution in Shares. Therefore, you should consider the tax implications
of purchasing Shares shortly before the Fund declares a capital gain. Contact
your investment professional or the Fund for information concerning when
dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts may be
closed if redemptions cause the account balance to fall below the minimum
initial investment amount. Before an account is closed, you will be notified and
allowed 30 days to purchase additional Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Dividends are taxable as ordinary income; capital gains
are taxable at different rates depending upon the length of time the Fund holds
its assets.
Fund distributions are expected to be primarily dividends. Redemptions are
taxable sales. Please consult your tax adviser regarding your federal, state and
local tax liability.
Who Manages the Fund?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Investment Management Company. The Adviser manages the Fund's
assets, including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise approximately 176 mutual
funds and separate accounts, which totaled approximately $125 billion in assets
as of December 31, 1999. Federated was established in 1955 and is one of the
largest mutual fund investment managers in the United States with approximately
1,900 employees. More than 4,000 investment professionals make Federated Funds
available to their customers.
THE FUND'S PORTFOLIO MANAGERS ARE:
SUSAN M. NASON
Susan M. Nason has been the Fund's Portfolio Manager since September 1991.
She is a Vice President of the Fund. Ms. Nason joined Federated in 1987 and
has been a Senior Portfolio Manager and Senior Vice President of the Fund's
Adviser since 1997. Ms. Nason served as a Portfolio Manager and Vice
President of the Adviser from 1993 to 1997. Ms. Nason is a Chartered
Financial Analyst and received her M.S.I.A. concentrating in Finance from
Carnegie Mellon University.
ROBERT J. OSTROWSKI
Robert J. Ostrowski has been the Fund's Portfolio Manager since September
1997. Mr. Ostrowski joined Federated in 1987 as an Investment Analyst and
became a Portfolio Manager in 1990. He currently serves as a Senior
Portfolio Manager. He has been a Senior Vice President of the Fund's
Adviser since 1997 and served as a Vice President of the Fund's Adviser
from 1996 to 1997. Prior to that, Mr. Ostrowski served as a Vice President
of a Federated advisory subsidiary from 1993 to 1996. Mr. Ostrowski is a
Chartered Financial Analyst. He received his M.S. in Industrial
Administration from Carnegie Mellon University.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.40% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
Financial Information
FINANCIAL HIGHLIGHTS
The following Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years. Some of the information is presented
on a per share basis. Total returns represent the rate an investor would have
earned (or lost) on an investment in the Fund, assuming reinvestment of any
dividends and capital gains.
Information for the fiscal year ended January 31, 2000 has been audited by Ernst
& Young LLP, whose report, along with the Fund's audited financial statements,
is included in this prospectus. Previous fiscal years were audited by other
auditors.
Financial Highlights
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31 2000 1999 1998
1997 1996
<S> <C> <C> <C>
<C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $10.91 $10.73 $10.48
$10.74 $10.11
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.48 0.54 0.56
0.54 0.61
Net realized and
unrealized gain (loss)
on investments (0.66) 0.18 0.25
(0.26) 0.63
TOTAL FROM INVESTMENT
OPERATIONS (0.18) 0.72 0.81
0.28 1.24
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.48) (0.54) (0.56)
(0.54) (0.61)
NET ASSET VALUE, END OF
PERIOD $10.25 $10.91 $10.73
$10.48 $10.74
TOTAL RETURN 1 (1.66%) 6.75% 7.97%
2.76% 12.58%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 0.81 % 0.80% 0.79%
0.79% 0.79%
Net investment income 4.58 % 4.88% 5.33%
5.16% 5.85%
Expenses
waiver/reimbursement 2 0.24 % 0.24% 0.25%
0.26% 0.25%
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $55,549 $51,224 $36,725
$25,791 $32,317
Portfolio turnover 172% 126% 71%
99% 117%
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 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
Portfolio of Investments
JANUARY 31, 2000
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
GOVERNMENT AGENCIES-19.9%
$ 21,100,000 Federal Farm Credit
System, 5.700%, 6/18/2003 $ 20,188,902
25,000,000 Federal Home Loan Bank
System, 6.125%, 8/15/2003 24,203,750
25,685,000 Federal Home Loan Bank
System, 5.575%, 9/2/2003 24,416,932
20,000,000 Federal Home Loan Bank
System, 5.125%, 9/15/2003 18,729,200
47,200,000 Federal Home Loan Bank
System, 6.250%, 11/15/2004 45,311,528
TOTAL GOVERNMENT AGENCIES
(IDENTIFIED COST
$136,484,680) 132,850,312
U.S. TREASURY OBLIGATIONS-
77.5%
38,500,000 5.500%, 1/31/2003 37,307,270
32,500,000 6.250%, 2/15/2003 32,130,475
25,500,000 5.750%, 4/30/2003 24,825,780
54,000,000 5.250%, 8/15/2003 51,616,980
48,000,000 5.750%, 8/15/2003 46,610,880
36,000,000 11.875%, 11/15/2003 42,029,280
44,300,000 5.250%, 5/15/2004 41,938,810
60,000,000 7.250%, 5/15/2004 61,156,200
58,200,000 6.000%, 8/15/2004 56,577,384
46,000,000 7.250%, 8/15/2004 46,908,960
42,700,000 5.875%, 11/15/2004 41,288,765
35,000,000 7.875%, 11/15/2004 36,570,450
TOTAL U.S. TREASURY
(IDENTIFIED COST
$533,058,358) 518,961,234
REPURCHASE AGREEMENTS-1.1%
1
7,310,000 Societe Generale, New
York, 5.690%, dated
1/31/2000, due 2/1/2000
(amortized cost) 7,310,000
TOTAL INVESTMENTS
(IDENTIFIED COST
$676,853,038) 2 $ 659,121,546
</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 though participation in a joint account with other
Federated funds.
2 The cost of investments for federal tax purpose amounts to $677,669,610.
Unrealized depreciation of investments on a federal tax basis amounts to
$18,548,064 at January 31, 2000.
Note: The categories of investments are shown as a percentage of net assets
($668,895,310) at January 31, 2000.
Statement of Assets and Liabilities
JANUARY 31, 2000
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in
securities, at value
(identified cost
$676,853,038 and tax
cost $677,669,610) $ 659,121,546
Income receivable 13,121,648
Receivable for shares sold 665,609
Other assets 12,821
TOTAL ASSETS 672,921,624
LIABILITIES:
Payable for shares
redeemed $ 2,384,976
Income distribution
payable 1,515,765
Payable to bank 125,573
TOTAL LIABILITIES 4,026,314
Net assets for 65,286,219
shares outstanding $ 668,895,310
NET ASSETS CONSIST OF:
Paid in capital $ 714,725,844
Net unrealized
depreciation of
investments (17,731,492)
Accumulated net realized
loss on investments (28,098,806)
Distributions in excess of
net investment income (236)
TOTAL NET ASSETS $ 668,895,310
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PROCEEDS PER SHARE
INSTITUTIONAL SHARES:
$613,346,249 / 59,864,393
shares outstanding $10.25
INSTITUTIONAL SERVICE
SHARES:
$55,549,061 / 5,421,826
shares outstanding $10.25
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
YEAR ENDED JANUARY 31, 2000
<TABLE>
<CAPTION>
<S> <C> <C>
<C>
INVESTMENT INCOME:
Interest $
38,920,086
EXPENSES:
Investment adviser fee $
2,903,615
Administrative personnel
and services fee
547,224
Custodian fees
40,280
Transfer and dividend
disbursing agent fees and
expenses
198,471
Directors'/Trustees' fees
18,397
Auditing fees
13,859
Legal fees
9,565
Portfolio accounting fees
132,177
Distribution services fee-
Institutional Service
Shares
138,889
Shareholder services fee-
Institutional Shares
1,675,870
Shareholder services fee-
Institutional Service
Shares
138,889
Share registration costs
35,208
Printing and postage
53,397
Insurance premiums
1,805
Miscellaneous
5,020
TOTAL EXPENSES
5,912,666
WAIVERS:
Waiver of distribution
services fee-Institutional
Service Shares $ (127,778)
Waiver of shareholder
services fee-Institutional
Shares (1,608,836)
Waiver of shareholder
services fee-Institutional
Service Shares (5,555)
TOTAL WAIVERS (1,742,169)
Net expenses
4,170,497
Net investment income
34,749,589
REALIZED AND UNREALIZED
LOSS ON INVESTMENTS:
Net realized loss on
investments
(16,617,582)
Net change in unrealized
depreciation of
investments
(29,829,370)
Net realized and
unrealized loss on
investments
(46,446,952)
Change in net assets
resulting from operations $
(11,697,363)
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31 2000 1999
<S> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS:
Net investment income $ 34,749,589 $ 38,762,428
Net realized gain (loss) on
investments ($(8,794,378)
and $18,462,945,
respectively, as computed
for federal tax purposes) (16,617,582) 18,462,945
Net change in unrealized
depreciation (29,829,370) (5,047,854)
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS (11,697,363) 52,177,519
DISTRIBUTIONS TO
SHAREHOLDERS:
Distributions from net
investment income
Institutional Shares (32,202,985) (36,624,367)
Institutional Service
Shares (2,548,497) (2,130,792)
CHANGE IN NET ASSETS
RESULTING FROM
DISTRIBUTIONS
TO SHAREHOLDERS (34,751,482) (38,755,159)
SHARE TRANSACTIONS:
Proceeds from sale of
shares 316,352,033 395,513,622
Net asset value of shares
issued to shareholders in
payment of
distributions declared 16,880,482 17,839,525
Cost of shares redeemed (408,169,991) (369,831,679)
CHANGE IN NET ASSETS
RESULTING FROM SHARE
TRANSACTIONS (74,937,476) 43,521,468
Change in net assets (121,386,321) 56,943,828
NET ASSETS:
Beginning of period 790,281,631 733,337,803
End of period $ 668,895,310 $ 790,281,631
</TABLE>
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
JANUARY 31, 2000
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 Services 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 at
the time of purchase may be 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.
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 Trust could receive less
than the repurchase price on the sale of collateral securities. The Fund, along
with other affiliated investment companies, may utilize a joint trading account
for the purpose of entering into one or more repurchase agreements.
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. Non-cash dividends included in dividend income, if any, are recorded at
fair value. The fund offers multiple classes of shares, which differ in their
respective distribution and service fees. All shareholders bear the common
expenses of the Fund based on average daily net assets of each class, without
distinction between share classes. Dividends are declared separately for each
class. No class has preferential dividend rights; differences in per share
dividend rates are generally due to differences in separate class expenses.
Income and capital gain distributions are determined in accordance with income
tax regulations which may differ from generally accepted accounting principles.
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 provision for federal tax is
necessary.
Additionally, net capital losses of $7,006,632 attributable to security
transactions incurred after October 31, 1999, are treated as arising on February
1, 2000, the first day of the fund's next fiscal year.
At January 31, 2000, the Fund, for federal tax purposes, had a capital loss
carryforward of $20,275,602 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
2008 8,794,378
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. Losses may occur on these transactions due to changes in market
conditions or the failure of counterparts to perform under the contract.
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 a trade date basis.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
2000 1999
INSTITUTIONAL SHARES: SHARES AMOUNT
SHARES AMOUNT
<S> <C> <C>
<C> <C>
Shares sold 26,018,905 $ 275,393,620
33,291,694 $ 359,916,788
Shares issued to
shareholders in payment of
distributions declared 1,413,172 14,861,522
1,494,967 16,132,483
Shares redeemed (35,297,552) (372,933,185)
(32,008,413) (346,233,579)
NET CHANGE RESULTING FROM
INSTITUTIONAL SHARE
TRANSACTIONS (7,865,475) $ (82,678,043)
2,778,248 $ 29,815,692
<CAPTION>
YEAR ENDED JANUARY 31
2000 1999
INSTITUTIONAL SERVICES
SHARES: SHARES AMOUNT
SHARES AMOUNT
<S> <C> <C>
<C> <C>
Shares sold 3,881,281 $ 40,958,413
3,294,054 $ 35,596,834
Shares issued to
shareholders in payment of
distributions declared 192,185 2,018,960
158,154 1,707,042
Shares redeemed (3,346,029) (35,236,806)
(2,182,036) (23,598,100)
NET CHANGE RESULTING FROM
INSTITUTIONAL SERVICES
SHARE TRANSACTIONS 727,437 $ 7,740,567
1,270,172 $ 13,705,776
NET CHANGE RESULTING FROM
SHARE TRANSACTIONS (7,138,038) $ (74,937,476)
4,048,420 $ 43,521,468
</TABLE>
INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER FEE
Federated Investment Management Company, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment adviser 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 a scale that ranges from 0.15% to 0.075% of the level
of average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors, Inc. subject to a $125,000 minimum per portfolio and
$30,000 per each additional class.
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 Trust'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 (and in-kind
contributions), for the period ended January 31, 2000, were as follows:
Purchases $ 1,203,754,813
Sales $ 1,261,083,593
CHANGE OF INDEPENDENT AUDITORS (UNAUDITED)
On May 19, 1999, the Trustees, upon the recommendation of its Audit Committee,
requested and subsequently accepted the resignation of Arthur Andersen LLP
("AA") as the Fund's independent auditors. AA reports on the Fund's financial
statements for the fiscal years ended December 31, 1997 and December 31, 1998
contained no adverse opinion or disclaimer of opinion nor were they qualified or
modified as to uncertainty, audit scope or accounting principles. During the
Fund's fiscal years ended December 31, 1997 and December 31, 1998: (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 Fund, by action of its Trustees, upon the recommendation of the Audit
Committee, has engaged Ernst & Young LLP ("E&Y") as the independent auditors to
audit the Fund's financial statements for the fiscal year ended December 31,
1999. During the Fund's fiscal years ended December 31, 1997 and December 31,
1998, neither the Fund nor anyone on its behalf has consulted E&Y on items which
(1) 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 Fund's financial statements, or (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).
Report of Ernst & Young LLP, Independent Auditors
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 2-5 YEARS:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Federated U.S. Government Securities Fund: 2-5
Years (the "Fund"), as of January 31, 2000, and the related statement of
operations, statement of changes in net assets and financial highlights for the
year then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit. The statement of changes in net assets for the year ended January 31,
1999, and the financial highlights for each of the four years then ended were
audited by other auditors whose report dated March 26, 1999 expressed an
unqualified opinion on that statement and those financial highlights.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. 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, 2000, 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 audit provides 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 the
Federated U.S. Government Securities Fund: 2-5 Years at January 31, 2000, and
the results of its operations, the changes in its net assets, and the financial
highlights for the year then ended, in conformity with accounting principles
generally accepted in the United States.
[Graphic]
Boston, Massachusetts
March 13, 2000
[Graphic]
Federated U.S. Government Securities Fund: 2-5 Years
INSTITUTIONAL SERVICE SHARES
MARCH 31, 2000
A Statement of Additional Information (SAI) dated March 31, 2000, is
incorporated by reference into this prospectus. Additional information about the
Fund and its investments is contained in the Fund's SAI and Annual and
Semi-Annual Reports to shareholders as they become available. The Annual
Report's Management Discussion and Analysis discusses market conditions and
investment strategies that significantly affected the Fund's performance during
its last fiscal year. To obtain the SAI, Annual Report, Semi-Annual Report and
other information without charge, and make inquiries, call your investment
professional or the Fund at 1-800-341- 7400.
You can obtain information about the Fund (including the SAI) by writing to or
visiting the Public Reference Room in Washington, DC. You may also access fund
information from the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. You can purchase copies of this information by contacting
the SEC by email at [email protected] or by writing to the SEC's Public
Reference Section, Washington, DC 20549-0102. Call 1-202-942- 8090 for
information on the Public Reference Room's operations and copying fees.
[Graphic]
Federated
Federated U.S. Government Securities Fund:
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Investment Company Act File No. 811-3387
Cusip 31428P202
8022502A-SS (3/00)
[Graphic]
STATEMENT OF ADDITIONAL INFORMATION
Federated U.S. Government Securities Fund: 2-5 Years
INSTITUTIONAL SHARES
INSTITUTIONAL SERVICE SHARES
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectuses for Institutional Shares and
Institutional Service Shares of Federated U.S. Government Securities Fund: 2-5
Years, dated March 31, 2000. Obtain the prospectuses without charge by calling
1-800-341-7400.
MARCH 31, 2000
[Graphic]
Federated
World-Class Investment Manager
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
8022502B (3/00)
[Graphic]
CONTENTS
How is the Fund Organized? 1
Securities in Which the Fund Invests 1
What Do Shares Cost? 3
How is the Fund Sold? 3
Exchanging Securities for Shares 4
Subaccounting Services 4
Redemption in Kind 4
Massachusetts Partnership Law 5
Account And Share Information 5
Tax Information 5
Who Manages and Provides Services to the Fund? 6
How Does the Fund Measure Performance? 9
Who is Federated Investors, Inc.? 10
Addresses 12
How is the Fund Organized?
The Fund is a diversified open-end, management investment company that was
established under the laws of the Commonwealth of Massachusetts on December 10,
1981. The Fund changed its name from Federated Intermediate Government Trust to
Federated U.S. Government Securities Fund: 2-5 Years on April 13, 1995. The
Fund's investment adviser is Federated Investment Management Company (Adviser).
Effective March 31, 1999, Federated Management, former Adviser to the Fund,
became Federated Investment Management Company (formerly, Federated Advisers).
Securities in Which the Fund Invests
In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.
FIXED INCOME SECURITIES
U.S. government securities pay interest at a specified rate. The rate may
be a fixed percentage of the principal or adjusted periodically. In
addition, the issuer of the security must repay the principal amount of the
security, normally within a specified time.
A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields.
The following describes the types of securities in which the Fund invests:
U.S. TREASURY SECURITIES
Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded as having the lowest
credit risks.
U.S. GOVERNMENT AGENCY SECURITIES
Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a GSE). The United
States government supports some GSEs with its full faith and credit. Other GSEs
receive support through federal subsidies, loans or other benefits. A few GSEs
have no explicit financial support, but are regarded as having implied support
because the federal government sponsors their activities. Agency securities are
generally regarded as having low credit risks, but not as low as treasury
securities.
ZERO COUPON SECURITIES
Zero coupon securities do not pay interest or principal until final maturity
unlike debt securities that provide periodic payments of interest (referred to
as a coupon payment). Investors buy zero coupon securities at a price below the
amount payable at maturity. The difference between the purchase price and the
amount paid at maturity represents interest on the zero coupon security.
Investors must wait until maturity to receive interest and principal, which
increases the market and credit risks of a zero coupon security.
There are many forms of zero coupon securities. Some are issued at a discount
and are referred to as zero coupon or capital appreciation bonds. Others are
created from interest bearing bonds by separating the right to receive the
bond's coupon payments from the right to receive the bond's principal due at
maturity, a process known as coupon stripping. Treasury STRIPs are the most
common forms of stripped zero coupon securities.
SPECIAL TRANSACTIONS
REPURCHASE AGREEMENTS
Repurchase agreements are transactions in which the Fund buys a U.S. government
security from a dealer or bank and agrees to sell the security back at a
mutually agreed upon time and price. The repurchase price exceeds the sale
price, reflecting the Fund's return on the transaction. This return is unrelated
to the interest rate on the underlying security. The Fund will enter into
repurchase agreements only with banks and other recognized financial
institutions, such as securities dealers, deemed creditworthy by the Adviser.
The Fund's custodian or subcustodian will take possession of the securities
subject to repurchase agreements. The Adviser or subcustodian will monitor the
value of the underlying security each day to ensure that the value of the
security always equals or exceeds the repurchase price.
Repurchase agreements are subject to credit risks.
INTER-FUND BORROWING AND LENDING ARRANGEMENTS
The Securities and Exchange Commission (SEC) has granted an exemption that
permits the Fund and all other funds advised by subsidiaries of Federated
Investors, Inc. (Federated funds) to lend and borrow money for certain temporary
purposes directly to and from other Federated funds. Participation in this
inter-fund lending program is voluntary for both borrowing and lending funds,
and an inter-fund loan is only made if it benefits each participating fund.
Federated administers the program according to procedures approved by the Fund's
Board, and the Board monitors the operation of the program. Any inter-fund loan
must comply with certain conditions set out in the exemption, which are designed
to assure fairness and protect all participating funds.
For example, inter-fund lending is permitted only (a) to meet shareholder
redemption requests, and (b) to meet commitments arising from "failed" trades.
All inter-fund loans must be repaid in seven days or less. The Fund's
participation in this program must be consistent with its investment policies
and limitations, and must meet certain percentage tests. Inter- fund loans may
be made only when the rate of interest to be charged is more attractive to the
lending fund than market-competitive rates on overnight repurchase agreements
(the Repo Rate) and more attractive to the borrowing fund than the rate of
interest that would be charged by an unaffiliated bank for short-term borrowings
(the Bank Loan Rate), as determined by the Board. The interest rate imposed on
inter-fund loans is the average of the Repo Rate and the Bank Loan Rate.
DELAYED DELIVERY TRANSACTIONS
Delayed delivery transactions, including when issued transactions, are
arrangements in which the Fund buys securities for a set price, with payment and
delivery of the securities scheduled for a future time. During the period
between purchase and settlement, no payment is made by the Fund to the issuer
and no interest accrues to the Fund. The Fund records the transaction when it
agrees to buy the securities and reflects their value in determining the price
of its Shares. Settlement dates may be a month or more after entering into these
transactions so that the market values of the securities bought may vary from
the purchase prices. Therefore, delayed delivery transactions create market
risks for the Fund. Delayed delivery transactions also involve credit risks in
the event of a counterparty default.
ASSET COVERAGE
In order to secure its obligations in connection with special transactions, the
Fund will either own the underlying assets, enter into an offsetting transaction
or set aside readily marketable securities with a value that equals or exceeds
the Fund's obligations. Unless the Fund has other readily marketable assets to
set aside, it cannot trade assets used to secure such obligations. This may
cause the Fund to miss favorable trading opportunities or to realize losses on
special transactions.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of affiliated money market funds,
as an efficient means of carrying out its investment policies and managing its
uninvested cash.
INVESTMENT RISKS
There are many factors which may affect an investment in the Fund. The Fund's
principal risks are described in its prospectus. Additional risk factors are
outlined below.
INTEREST RATE RISKS
Prices of fixed income securities rise and fall in response to changes in the
interest rate paid by similar securities. Generally, when interest rates rise,
prices of fixed income securities fall. However, market factors, such as the
demand for particular fixed income securities, may cause the price of certain
fixed income securities to fall while the prices of other securities rise or
remain unchanged.
Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of a
fixed income security to changes in interest rates.
CREDIT RISKS
* Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the Fund
will lose money.
* Credit risk includes the possibility that a party to a transaction involving
the Fund will fail to meet its obligations. This could cause the Fund to lose
the benefit of the transaction or prevent the Fund from selling or buying other
securities to implement its investment strategy.
CALL RISKS
* Call risk is the possibility that an issuer may redeem a fixed income security
before maturity (a call) at a price below its current market price. An increase
in the likelihood of a call may reduce the security's price.
* If a fixed income security is called, the Fund may have to reinvest the
proceeds in other fixed income securities with lower interest rates, higher
credit risks, or other less favorable characteristics.
INVESTMENT LIMITATIONS
LENDING CASH OR SECURITIES
The Fund may not make loans, provided that this restriction does not prevent the
Fund from purchasing debt obligations, entering into repurchase agreements,
lending its assets to broker/dealers or institutional investors and investing in
loans, including assignments and participation interests.
BORROWING MONEY AND ISSUING SENIOR SECURITIES
The Fund may borrow money, directly or indirectly, and issue senior securities
to the maximum extent permitted under the 1940 Act.
THE ABOVE LIMITATIONS CANNOT BE CHANGED UNLESS AUTHORIZED BY THE BOARD AND BY
THE "VOTE OF A MAJORITY OF ITS OUTSTANDING VOTING SECURITIES," AS DEFINED BY THE
1940 ACT. THE FOLLOWING LIMITATIONS, HOWEVER, MAY BE CHANGED BY THE BOARD
WITHOUT SHAREHOLDER APPROVAL. SHAREHOLDERS WILL BE NOTIFIED BEFORE ANY MATERIAL
CHANGE IN THESE LIMITATIONS BECOMES EFFECTIVE.
BUYING ON MARGIN
The Fund will not purchase securities on margin, provided that the Fund may
obtain short-term credits necessary for clearance of purchases and sales of
securities.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any of its assets provided
that this shall apply to the transfer of securities in connection with any
permissible borrowing or to collateral arrangements in connection with
permissible activities.
ILLIQUID SECURITIES
The Fund will not purchase securities for which there is no readily available
market, or enter into repurchase agreements or purchase time deposits maturing
in more than seven days, if immediately after and as a result, the value of such
securities would exceed, in the aggregate, 15% of the Fund's net assets.
As a matter of operating policy, which may be changed without shareholder
approval, the average dollar-weighted duration of the portfolio will not be less
that two years nor more than five years.
The Fund may enter into repurchase agreements.
The Fund may purchase U.S. government securities on a when-issued or
delayed delivery basis.
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 or
restriction.
As a matter of operating policy, the Fund will not purchase any securities while
borrowings in excess of 5% or its total assets are outstanding.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
* for bonds and other fixed income securities, at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent pricing service;
* for short-term obligations, according to the mean between bid and asked prices
as furnished by an independent pricing service, except that short- term
obligations with remaining maturities of less than 60 days at the time of
purchase may be valued at amortized cost or at fair market value as determined
in good faith by the Board; and
* for all other securities at fair value as determined in good faith by the
Board.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker/dealers or
other financial institutions that trade the securities.
What Do Shares Cost?
The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund.
The NAV for each class of Shares may differ 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.
How is the Fund Sold?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.) offers Shares on a continuous, best-efforts basis.
RULE 12B-1 PLAN (INSTITUTIONAL SERVICE SHARES)
As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of banks, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per share expenses, and
provide cash for orderly portfolio management and Share redemptions. In
addition, the Fund's service providers that receive asset-based fees also
benefit from stable or increasing Fund assets.
The Fund may compensate the Distributor more or less than its actual marketing
expenses. In no event will the Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.
For some classes of Shares, the maximum Rule 12b-1 Plan fee that can be paid in
any one year may not be sufficient to cover the marketing-related expenses the
Distributor has incurred. Therefore, it may take the Distributor a number of
years to recoup these expenses.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated Investors, Inc. (Federated) for providing shareholder services and
maintaining shareholder accounts. Federated Shareholder Services Company may
select others to perform these services for their customers and may pay them
fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services, such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the investment professional.
Exchanging Securities for Shares
You may contact the Distributor to request a purchase of Shares in exchange for
securities you own. The Fund reserves the right to determine whether to accept
your securities and the minimum market value to accept. The Fund will value your
securities in the same manner as it values its assets. This exchange is treated
as a sale of your securities for federal tax purposes.
Subaccounting Services
Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the 1940 Act,
the Fund is obligated to pay Share redemptions to any one shareholder in cash
only up to the lesser of $250,000 or 1% of the net assets represented by such
Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
Massachusetts Partnership Law
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Fund. To protect its
shareholders, the Fund has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Fund.
In the unlikely event a shareholder is held personally liable for the Fund's
obligations, the Fund is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Fund will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Fund. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Fund itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
Account And Share Information
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of the Fund have
equal voting rights, except that in matters affecting only a particular Fund or
class, only Shares of that Fund or class are entitled to vote. Trustees may be
removed by the Board or by shareholders at a special meeting. A special meeting
of shareholders will be called by the Board upon the written request of
shareholders who own at least 10% of the Fund's outstanding shares of all series
entitled to vote.
As of March 2, 2000, the following shareholders owned of record, beneficially,
or both, 5% or more of outstanding Institutional Shares: Charles Schwab & Co.,
San Francisco, California owned approximately 6,546,738 Shares (11.38%).
As of March 2, 2000, the following shareholders owned of record, beneficially,
or both, 5% or more of outstanding Institutional Service Shares: Chittenden
Bank, Burlington, Vermont owned approximately 565,359 Shares (11.28%),
Planmember Services Corp., (City National Bank) Beverly Hills, California owned
approximately 493,171 Shares (9.84%).
Tax Information
FEDERAL INCOME TAX
The Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, it will not receive special tax treatment and will pay federal income tax.
Who Manages and Provides Services to the Fund?
BOARD OF TRUSTEES
The Board is responsible for managing the Fund's business affairs and for
exercising all the Fund's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes each
person's: name, address, birth date, present position(s) held with the Fund,
principal occupations for the past five years and positions held prior to the
past five years, total compensation received as a Trustee from the Fund for its
most recent fiscal year, and the total compensation received from the Federated
Fund Complex for the most recent calendar year. The Trust is comprised of one
fund, and the Federated Fund Complex is comprised of 43 investment companies,
whose investment advisers are affiliated with the Fund's Adviser.
As of March 2, 2000 the Fund's Board and Officers as a group owned approximately
less than 1% of the Fund's outstanding Institutional or Institutional Service
Shares.
<TABLE>
<CAPTION>
NAME
TOTAL
BIRTH DATE
AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS
COMPENSATION FROM FUND
POSITION WITH FUND FOR PAST FIVE YEARS FROM
FUND AND FUND COMPLEX
<S> <C>
<C> <C>
JOHN F. DONAHUE*+# Chief Executive Officer
$0 $0 for the Fund and
Birth Date: July 28, 1924 and Director or Trustee
of 43 other investment
Federated Investors Tower the Federated
Fund companies in the
1001 Liberty Avenue Complex; Chairman
and Fund Complex
Pittsburgh, PA Director,
Federated
CHAIRMAN AND TRUSTEE Investors, Inc.; Chairman,
Federated
Investment
Management Company,
Federated
Global
Investment
Management
Corp. and
Passport
Research, Ltd.; formerly:
Trustee,
Federated
Investment
Management
Company and Chairman
and
Director,
Federated
Investment Counseling.
THOMAS G. BIGLEY Director or Trustee of
$1,470.11 $116,760.63 for the
Birth Date: February 3, 1934 the Federated
Fund Fund and 43 other
15 Old Timber Trail Complex; Director,
Member investment companies
Pittsburgh, PA of Executive
Committee, in the Fund Complex
TRUSTEE Children's Hospital
of
Pittsburgh; Director,
Robroy Industries, Inc.
(coated steel
conduits/
computer
storage
equipment); formerly:
Senior Partner, Ernst
&
Young LLP; Director,
MED
3000 Group, Inc.
(physician
practice
management); Director,
Member of
Executive
Committee, University
of
Pittsburgh.
JOHN T. CONROY, JR. Director or Trustee of the
$1,617.36 $128,455.37 for the
Birth Date: June 23, 1937 Federated Fund
Complex; Fund and 43 other
Grubb & Ellis/Investment President,
Investment investment companies
Properties Corporation Properties
Corporation; in the Fund Complex
3201 Tamiami Trail North Senior Vice President,
Naples, FL John R. Wood
and
TRUSTEE 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.
NICHOLAS P. CONSTANTAKIS Director or Trustee of the
$367.03 $73,191.21 for the
Birth Date: September 3, 1939 Federated Fund
Complex; Fund and 37 other
175 Woodshire Drive Director, Michael
Baker investment companies
Pittsburgh, PA Corporation
(engineering, in the Fund Complex
TRUSTEE construction,
operations
and technical services);
formerly: Partner,
Andersen Worldwide SC.
JOHN F. CUNNINGHAM++ Director or Trustee of some
$734.00 $93,190.48 for the
Birth Date: March 5, 1943 of the Federated
Fund Fund and 37 other
353 El Brillo Way Complex;
Chairman, investment companies
Palm Beach, FL President and
Chief in the Fund Complex
TRUSTEE Executive Officer,
Cunningham & Co., Inc.
(strategic
business
consulting);
Trustee
Associate, Boston College;
Director, Iperia Corp.
(communications/software);
formerly: Director,
Redgate Communications
and
EMC Corporation
(computer
storage systems).
Previous Positions:
Chairman of the Board
and
Chief Executive Officer,
Computer Consoles, Inc.;
President and
Chief
Operating Officer,
Wang
Laboratories; Director,
First National Bank
of
Boston; Director,
Apollo
Computer, Inc.
LAWRENCE D. ELLIS, M.D.* Director or Trustee of the
$1,470.11 $116,760.63 for the
Birth Date: October 11, 1932 Federated Fund
Complex; Fund and 43 other
3471 Fifth Avenue Professor of
Medicine, investment companies
Suite 1111 University of
Pittsburgh; in the Fund Complex
Pittsburgh, PA Medical Director,
TRUSTEE University of
Pittsburgh
Medical Center - Downtown;
Hematologist,
Oncologist
and Internist,
University
of Pittsburgh
Medical
Center; Member,
National
Board of Trustees,
Leukemia Society
of
America.
PETER E. MADDEN Director or Trustee of the
$1,378.48 $109,153.60 for the
Birth Date: March 16, 1942 Federated Fund
Complex; Fund and 43 other
One Royal Palm Way formerly:
Representative, investment companies
100 Royal Palm Way Commonwealth
of in the Fund Complex
Palm Beach, FL Massachusetts
General
TRUSTEE Court; President,
State
Street Bank and
Trust
Company and
State
Street Corporation.
Previous Positions:
Director, VISA USA and
VISA
International;
Chairman
and Director,
Massachusetts
Bankers
Association; Director,
Depository
Trust
Corporation; Director,
The
Boston Stock Exchange.
<CAPTION>
NAME
TOTAL
BIRTH DATE
AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS
COMPENSATION FROM FUND
POSITION WITH FUND FOR PAST FIVE YEARS FROM
FUND AND FUND COMPLEX
<S> <C>
<C> <C>
CHARLES F. MANSFIELD, JR.++ Director or Trustee of some
$1,543.64 $102,573.91 for the
Birth Date: April 10, 1945 of the Federated
Fund Fund and 40 other
80 South Road Complex; Executive
Vice investment companies
Westhampton Beach, NY President, Legal
and in the Fund Complex
TRUSTEE External Affairs,
Dugan
Valva Contess, Inc.
(marketing,
communications,
technology
and consulting); formerly:
Management Consultant.
Previous Positions:
Chief
Executive Officer,
PBTC
International Bank;
Partner, Arthur Young
&
Company (now Ernst &
Young
LLP); Chief
Financial
Officer of Retail
Banking
Sector, Chase
Manhattan
Bank; Senior
Vice
President, Marine
Midland
Bank; Vice President,
Citibank;
Assistant
Professor of Banking
and
Finance, Frank G.
Zarb
School of Business,
Hofstra University.
JOHN E. MURRAY, JR., J.D., S.J.D.# Director or Trustee of
$1,617.36 $128,455.37 for the
Birth Date: December 20, 1932 the Federated
Fund Fund and 43 other
President, Duquesne University Complex; President,
Law investment companies
Pittsburgh, PA Professor,
Duquesne in the Fund Complex
TRUSTEE University;
Consulting
Partner, Mollica & Murray;
Director, Michael
Baker
Corp. (engineering,
construction,
operations
and technical services).
Previous Positions:
Dean
and Professor of Law,
University of
Pittsburgh
School of Law; Dean
and
Professor of Law,
Villanova
University
School of Law.
MARJORIE P. SMUTS Director or Trustee of the
$1,470.11 $116,760.63 for the
Birth Date: June 21, 1935 Federated Fund
Complex; Fund and 43 other
4905 Bayard Street Public
Relations/ Investment companies
Pittsburgh, PA
Marketing/Conference in the Fund Complex
TRUSTEE Planning.
Previous Positions:
National Spokesperson,
Aluminum Company
of
America;
television
producer; business owner.
JOHN S. WALSH++ Director or Trustee of some
$1,470.11 $94,536.85 for the
Birth Date: November 28, 1957 of the Federated
Fund Fund and 39 other
2007 Sherwood Drive Complex; President
and investment companies
Valparaiso, IN Director, Heat Wagon,
Inc. in the Fund Complex
TRUSTEE (manufacturer
of
construction
temporary
heaters); President
and
Director,
Manufacturers
Products, Inc.
(distributor of
portable
construction heaters);
President, Portable
Heater
Parts, a division
of
Manufacturers Products,
Inc.; Director, Walsh
&
Kelly, Inc. (heavy
highway
contractor); formerly:
Vice President, Walsh
&
Kelly, Inc.
GLEN R. JOHNSON President of some of the
$0 $0 for the Fund and
Birth Date: May 2, 1929 Funds in the Federated
Fund 21 other investment
Federated Investors Tower Complex; Staff
member, companies in the
1001 Liberty Avenue Federated
Securities Fund Complex
Pittsburgh, PA Corp.; formerly:
Trustee
PRESIDENT or Director of some of
the
Funds in the Federated
Fund
Complex.
J. CHRISTOPHER DONAHUE+ President or Executive
$0 $0 for the Fund and
Birth Date: April 11, 1949 Vice President of
the 30 other investment
Federated Investors Tower Federated Fund
Complex; companies in the
1001 Liberty Avenue Director or Trustee of
some Fund Complex
Pittsburgh, PA of the Funds in
the
EXECUTIVE VICE PRESIDENT Federated Fund Complex;
AND TRUSTEE President, Chief
Executive
Officer and Director,
Federated Investors, Inc.;
President, Chief
Executive
Officer and Trustee,
Federated
Investment
Management Company;
Trustee,
Federated
Investment Counseling;
President, Chief
Executive
Officer and Director,
Federated
Global
Investment
Management
Corp.; President and
Chief
Executive Officer,
Passport Research, Ltd.;
Trustee,
Federated
Shareholder
Services
Company; Director,
Federated
Services
Company; formerly:
President,
Federated
Investment Counseling.
EDWARD C. GONZALES President, Executive Vice
$0 $0 for the Fund and
Birth Date: October 22, 1930 President and Treasurer
of 42 other investment
Federated Investors Tower some of the Funds in
the companies in the
1001 Liberty Avenue Federated Fund
Complex; Fund Complex
Pittsburgh, PA Vice Chairman,
Federated
EXECUTIVE VICE PRESIDENT Investors, Inc.; Trustee,
Federated
Administrative
Services; formerly:
Trustee or Director of
some
of the Funds in
the
Federated Fund Complex;
CEO and Chairman,
Federated
Administrative
Services; Vice President,
Federated
Investment
Management Company,
Federated
Investment
Counseling,
Federated
Global
Investment
Management Corp.
and
Passport Research, Ltd.;
Director and
Executive
Vice President,
Federated
Securities Corp.;
Director,
Federated
Services Company; Trustee,
Federated
Shareholder
Services Company.
JOHN W. MCGONIGLE Executive Vice President
$0 $0 for the Fund and
Birth Date: October 26, 1938 and Secretary of
the 43 other investment
Federated Investors Tower Federated Fund
Complex; companies in the
1001 Liberty Avenue Executive Vice
President, Fund Complex
Pittsburgh, PA Secretary and Director,
EXECUTIVE VICE PRESIDENT Federated Investors, Inc.;
formerly: Trustee,
Federated
Investment
Management Company
and
Federated
Investment
Counseling; Director,
Federated
Global
Investment
Management
Corp, Federated
Services
Company and
Federated
Securities Corp.
<CAPTION>
NAME
TOTAL
BIRTH DATE
AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS
COMPENSATION FROM FUND
POSITION WITH FUND FOR PAST FIVE YEARS FROM
FUND AND FUND COMPLEX
<S> <C>
<C> <C>
RICHARD J. THOMAS Treasurer of the Federated
$0 $0 for the Fund and
Birth Date: June 17, 1954 Fund Complex; Senior
Vice 43 other investment
Federated Investors Tower President,
Federated companies in the
1001 Liberty Avenue Administrative
Services; Fund Complex
Pittsburgh, PA formerly: Vice President,
TREASURER Federated
Administrative
Services; held
various
management
positions
within Funds
Financial
Services Division
of
Federated Investors, Inc.
RICHARD B. FISHER President or Vice
$0 $0 for the Fund and
Birth Date: May 17, 1923 President of some of
the 41 other investment
Federated Investors Tower Funds in the Federated
Fund companies in the
1001 Liberty Avenue Complex; Vice
Chairman, Fund Complex
Pittsburgh, PA Federated Investors, Inc.;
VICE PRESIDENT Chairman,
Federated
Securities Corp.;
formerly: Director
or
Trustee of some of
the
Funds in the Federated
Fund
Complex; Executive
Vice
President,
Federated
Investors, Inc.
and
Director and
Chief
Executive Officer,
Federated Securities Corp.
WILLIAM D. DAWSON III Chief Investment Officer
$0 $0 for the Fund and
Birth Date: March 3, 1949 of this Fund and
various 27 other investment
Federated Investors Tower other Funds in
the companies in the
1001 Liberty Avenue Federated Fund
Complex; Fund Complex
Pittsburgh, PA Executive Vice President,
CHIEF INVESTMENT OFFICER Federated
Investment
Counseling,
Federated
Global
Investment
Management Corp.,
Federated
Investment
Management Company
and
Passport Research, Ltd.;
Director, Federated
Global
Investment
Management
Corp. and
Federated
Investment
Management Company;
Registered Representative,
Federated
Securities
Corp.; Portfolio Manager,
Federated
Administrative
Services; Vice President,
Federated Investors, Inc.;
formerly: Executive
Vice
President and Senior
Vice
President,
Federated
Investment
Counseling
Institutional
Portfolio
Management
Services
Division; Senior
Vice
President,
Federated
Investment
Management
Company and
Passport
Research, Ltd.
SUSAN M. NASON Susan M. Nason has been the
$0 $0 for the Fund and
Birth Date: August 29, 1961 Fund's Portfolio
Manager 3 other investment
Federated Investors Tower since September 1991.
She companies in the
1001 Liberty Avenue is Vice President of
the Fund Complex
Pittsburgh, PA Fund Ms. Nason
joined
VICE PRESIDENT Federated in 1987 and
has
been a Senior
Portfolio
Manager and Senior
Vice
President of the
Fund's
Adviser since 1997.
Ms. Nason served as
a
Portfolio Manager and
Vice
President of the
Adviser
from 1993 to 1997.
Ms. Nason is a
Chartered
Financial Analyst
and
received her M.S.I.A.
concentrating in
Finance
from Carnegie
Mellon
University.
</TABLE>
* An asterisk denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940.
# A pound sign denotes a Member of the Board's Executive Committee, which
handles the Board's responsibilities between its meetings.
+ Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President of the Fund.
++ Messrs. Cunningham, and Mansfield and Walsh became members of the Board
of Trustees on July 1, 1999.
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund.
The Adviser is a wholly owned subsidiary of Federated.
The Adviser shall not be liable to the Fund or any Fund shareholder 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 Fund.
OTHER RELATED SERVICES
Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.
CODE OF ETHICS RESTRICTIONS ON PERSONAL TRADING
As required by SEC rules, the Fund, its Adviser, and its Distributor have
adopted codes of ethics. These codes govern securities trading activities of
investment personnel, Fund Trustees, and certain other employees. Although they
do permit these people to trade in securities, including those that the Fund
could buy, they also contain significant safeguards designed to protect the Fund
and its shareholders from abuses in this area, such as requirements to obtain
prior approval for, and to report, particular transactions.
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. 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 may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY NET ASSETS
ADMINISTRATIVE FEE OF THE FEDERATED FUNDS
<S> <C>
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type and
number of accounts and transactions made by shareholders.
INDEPENDENT AUDITORS
The independent auditor for the Fund, Ernst and Young LLP, plans and performs
its audit so that it may provide an opinion as to whether the Fund's financial
statements and financial highlights are free of material misstatement.
FEES PAID BY THE FUND FOR SERVICES
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JANUARY 31 2000 1999
1998
<S> <C> <C> <C>
Advisory Fee Earned $2,903,615 $3,034,022 $3,003,737
Advisory Fee Reduction - - -
Brokerage Commissions - - -
Administrative Fee 547,224 571,913 566,831
12B-1 FEE
Institutional Service Shares 11,111 8,996 -
SHAREHOLDER SERVICES FEE
Institutional Shares 67,034 71,352 -
Institutional Service Shares 133,334 107,953 -
</TABLE>
Fees are allocated among classes based on their pro rata share of Fund assets,
except for marketing (Rule 12b-1) fees and shareholder services fees, which are
borne only by the applicable class of Shares.
How Does the Fund Measure Performance?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information. The performance of Shares
depends upon such variables as: portfolio quality; average portfolio maturity;
type and value of portfolio securities; changes in interest rates; changes or
differences in the Fund's or any class of Shares' expenses; and various other
factors.
Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return.
AVERAGE ANNUAL TOTAL RETURNS AND YIELD
Total returns are given for the one-year, five-year, ten-year or start of
performance period ended January 31, 2000.
Yield is given for the 30-day period ended January 31, 2000.
<TABLE>
<CAPTION>
30-DAY
SHARE CLASS PERIOD 1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
INSTITUTIONAL
SHARES:
Total Return NA (1.41%) 5.83% 7.72%
Yield 6.20% NA NA NA
<CAPTION>
30-DAY SINCE INCEPTION
SHARE CLASS PERIOD 1 YEAR 5 YEARS ON MAY 30, 1992
<S> <C> <C> <C> <C>
INSTITUTIONAL
SERVICE
SHARES:
Total Return NA (1.66%) 5.57% 5.07%
Yield 5.94% NA NA NA
</TABLE>
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares 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 NAV 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, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a 30-day period; by (ii) the maximum offering
price per Share on the last day of the period. This number is then annualized
using semi-annual compounding. This means that the amount of income generated
during the 30-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 Shares because of certain adjustments required
by the SEC and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
* references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
* charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment;
* discussions of economic, financial and political developments and their impact
on the securities market, including the portfolio manager's views on how such
developments could impact the Fund; and
* information about the mutual fund industry from sources such as the Investment
Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the 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 Fund uses in advertising may include:
LIPPER ANALYTICAL SERVICES, INC.
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 3-5 YEAR TREASURY INDEX
Merrill Lynch 3-5 Year Treasury Index is an unmanaged index comprised of U.S.
Treasury securities maturing between 3 and 4.99 years.
MERRILL LYNCH 3-YEAR TREASURY INDEX
Merrill Lynch 3-5 Year Treasury Index is an unmanaged index comprised of the
most recently issued 3-year U.S. Treasury notes.
MORNINGSTAR, INC.
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.
Who is Federated Investors, Inc.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state- of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.
FEDERATED FUNDS OVERVIEW
MUNICIPAL FUNDS
In the municipal sector, as of December 31, 1999, Federated managed 12 bond
funds with approximately $2.0 billion in assets and 24 money market funds with
approximately $13.1 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of municipal securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
EQUITY FUNDS
In the equity sector, Federated has more than 29 years' experience. As of
December 31, 1999, Federated managed 53 equity funds totaling approximately
$18.3 billion in assets across growth, value, equity income, international,
index and sector (i.e., utility) styles. Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
CORPORATE BOND FUNDS
In the corporate bond sector, as of December 31, 1999, Federated managed 13
money market funds and 29 bond funds with assets approximating $35.7 billion and
$7.7 billion, respectively. Federated's corporate bond decision making-based on
intensive, diligent credit analysis-is backed by over 27 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset backed securities market, a market
totaling more than $209 billion.
GOVERNMENT FUNDS
In the government sector, as of December 31, 1999, Federated managed 9 mortgage
backed, 11 government/agency and 16 government money market mutual funds, with
assets approximating $4.7 billion, $1.6 billion and $34.1 billion, respectively.
Federated trades approximately $450 million in U.S. government and mortgage
backed securities daily and places approximately $25 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 $43.8 billion in government funds within these
maturity ranges.
MONEY MARKET FUNDS
In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1999, Federated managed more than $83.0 billion in assets across 54 money market
funds, including 16 government, 13 prime, 24 municipal and 1 euro-denominated
with assets approximating $34.1 billion, $35.7 billion, $13.1 billion and $115
million, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield-
J. Thomas Madden; U.S. fixed income-William D. Dawson III; and global
equities and fixed income-Henry A. Frantzen. The Chief Investment Officers
are Executive Vice Presidents of the Federated advisory companies.
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 $5 trillion to the more than 7,300 funds available,
according to the Investment Company Institute.
FEDERATED CLIENTS OVERVIEW
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
INSTITUTIONAL CLIENTS
Federated meets the needs of approximately 1,160 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for a
variety of purposes, 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
advisers. The marketing effort to these institutional clients is headed by John
B. Fisher, President, Institutional Sales Division, Federated Securities Corp.
BANK MARKETING
Other institutional clients include 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
nationwide-we have over 2,200 broker/dealer and bank broker/dealer relationships
across the country-supported by more wholesalers than any other mutual fund
distributor. Federated's service to financial professionals and institutions has
earned it high ratings in several surveys performed by DALBAR, Inc. DALBAR is
recognized as the industry benchmark for service quality measurement. The
marketing effort to these firms is headed by James F. Getz, President,
Broker/Dealer Sales Division, Federated Securities Corp.
Addresses
FEDERATED U.S.GOVERNMENT SECURITIES FUND: 2-5 YEARS
Institutional Shares
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 Investment Management Company
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 AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116
APPENDIX
A1. The graphic presentation here displayed consists of a boxed legend in the
top left hand corner indicating the components of the corresponding graph.
Federated U.S. Government Securities Fund: 2-5 Years the ("Fund") is represented
in the description by a solid line, Merrill Lynch 3- Year Treasury Index (MLTYT)
is represented by a dotted line, Merrill Lynch 3-5 year Treasury Index (MLTFYT)
is represented by a broken line, Lipper Short U.S. Treasury Fund Average
(LSUSFFA) is represented by dash line, Lipper Short-Intermediate U.S. Government
Funds Average (LSIUSGFA) is represented by a shaded line. The line graph is a
visual representation of a comparison of change in value of a hypothetical
$25,000 purchase in the Fund's Institutional Shares, MLTYT, MLTFYT, LSUSTFA, and
LSIUSGFA. The "y" axis reflects computation periods from the Fund's start of
business, January 31, 1990 through January 31, 2000. The right margin reflects
the ending values of the hypothetical investment in the Fund as compared to
MLTYT, MLTFYT, LSUSFFA, and LSIUSGFA the ending values are $45,741, $45,866,
$47,142, $48,913, $51,014, respectively.
APPENDIX
A2. The graphic presentation displayed here consists of a boxed legend in the
top left hand corner indicating the components of the corresponding graph.
Federated U.S. Government Securities Fund: 2-5 Years the ("Fund") is represented
in the description by a solid line, Merrill Lynch 3 Year Treasury Index (MLTYT)
is represented by a dotted line, Merrill Lynch 3-5 Year Treasury Index (MLTFYT)
is represented by a dash line, Lipper Short U.S. Treasury Fund (LSUSTFA) is
represented by a broken line and Lipper Short-Intermediate U.S. Government Funds
Average (LSIUSGFA) is represented by a shaded line. The line graph is a visual
representation of a comparison of change in value of a hypothetical $25,000
purchase in the Fund's Institutional Service Shares, MLTYT, MLTFYT, LSUSTFA,
LSUSTFA, and LSIUSGFA. The "y" axis reflects computation periods from the Fund's
start of business, May 30, 1992 through January 31, 2000. The right margin
reflects the ending values of the hypothetical investment in the Fund as
compared to MLTYT, MLTFYT, LSUSTFA, LSIUSGFA; the ending values are $36,544,
$36,921, $37,273, $38,724, $39,658, respectively.
