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FEDERATED U.S. GOVERNMENT SECURITIES FUND: 5-10 YEARS
INSTITUTIONAL SHARES
PROSPECTUS
The Institutional Shares offered by this prospectus represent interests in a
diversified portfolio of securities of Federated U.S. Government Securities
Fund: 5-10 Years (the "Trust"). The Trust is an open-end management investment
company (a mutual fund).
The investment objective of the Trust is to pursue total return consistent with
current income. The Trust invests in U.S. government securities. Institutional
Shares are sold at net asset value.
THE INSTITUTIONAL SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR
OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD,
OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before you
invest in Institutional Shares of the Trust. Keep this prospectus for future
reference.
The Trust has also filed a Statement of Additional Information for Institutional
Shares and Institutional Service Shares dated April 30, 1996, with the
Securities and Exchange Commission. The information contained in the Statement
of Additional Information is incorporated by reference into this prospectus. You
may request a copy of the Statement of Additional Information or a paper copy of
this prospectus, if you have received your prospectus electronically, free of
charge by calling 1-800-235-4669. To obtain other information or make inquiries
about the Trust, contact the Trust at the address listed in the back of this
prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated April 30, 1996
TABLE OF CONTENTS
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SUMMARY OF TRUST EXPENSES 1
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FINANCIAL HIGHLIGHTS--
INSTITUTIONAL SHARES 2
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GENERAL INFORMATION 3
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INVESTMENT INFORMATION 3
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Investment Objective 3
Investment Policies 3
Investment Limitations 5
TRUST INFORMATION 5
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Management of the Trust 5
Expenses of the Trust and
Institutional Shares 6
Distribution of Institutional Shares 6
Administration of the Trust 7
NET ASSET VALUE 8
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INVESTING IN INSTITUTIONAL SHARES 8
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Share Purchases 8
Minimum Investment Required 8
What Shares Cost 9
Certificates and Confirmations 9
Dividends 9
Capital Gains 9
REDEEMING INSTITUTIONAL SHARES 9
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Telephone Redemption 9
Written Requests 10
Accounts with Low Balances 10
SHAREHOLDER INFORMATION 11
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Voting Rights 11
TAX INFORMATION 11
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Federal Income Tax 11
State and Local Taxes 11
PERFORMANCE INFORMATION 12
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OTHER CLASSES OF SHARES 12
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FINANCIAL HIGHLIGHTS--
INSTITUTIONAL SERVICE SHARES 13
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FINANCIAL STATEMENTS 14
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REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS 22
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ADDRESSES 23
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SUMMARY OF TRUST EXPENSES
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<TABLE>
<S> <C> <C>
INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering
price)..................................................................... None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price)........................................ None
Contingent Deferred Sales Charge (as a percentage of original purchase price
or redemption proceeds, as applicable)..................................... None
Redemption Fee (as a percentage of amount redeemed, if applicable)........... None
Exchange Fee................................................................. None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1)............................................. 0.00%
12b-1 Fee.................................................................... None
Total Other Expenses (after expense reimbursement)........................... 0.54%
Shareholder Services Fee (after waiver)(2)......................... 0.00%
Total Operating Expenses(3)............................................. 0.54%
</TABLE>
>
(1) The management fee has been reduced to reflect the voluntary waiver of the
management fee. The adviser can terminate this voluntary waiver at any time at
its sole discretion. The maximum management fee is 0.50%
(2) The maximum shareholder services fee is 0.25%.
(3) The total operating expenses in the table above are based on expenses
expected during the fiscal year ending February 28, 1997. The total operating
expenses were 0.11% for the fiscal year ended February 29, 1996 and would have
been 12.37% absent the voluntary waivers of the management fee and the
shareholder services fee and the voluntary reimbursement of certain other
operating expenses.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF INSTITUTIONAL SHARES OF THE
TRUST WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS
OF THE VARIOUS COSTS AND EXPENSES, SEE "TRUST INFORMATION" AND "INVESTING IN
INSTITUTIONAL SHARES." WIRE-TRANSFERRED REDEMPTIONS OF LESS THAN $5,000 MAY BE
SUBJECT TO ADDITIONAL FEES.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years
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<S> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of
each time period.................................................... $ 6 $ 17
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 5-10 YEARS
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
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(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors on
page 22.
<TABLE>
<CAPTION>
PERIOD ENDED
FEBRUARY 29, 1996(A)
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<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
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INCOME FROM INVESTMENT OPERATIONS
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Net investment income 0.21
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Net realized and unrealized gain (loss) on investments (0.02)
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Total from investment operations 0.19
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LESS DISTRIBUTIONS
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Distributions from net investment income (0.21)
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NET ASSET VALUE, END OF PERIOD $9.98
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TOTAL RETURN (B) 1.85%
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RATIOS TO AVERAGE NET ASSETS
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Expenses 0.11%*
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Net investment income 5.75%*
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Expense waiver/reimbursement (c) 12.26%*
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SUPPLEMENTAL DATA
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Net assets, end of period (000 omitted) $ 4,181
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Portfolio turnover 29%
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</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from October 19, 1995 (date of initial
public investment) to February 29, 1996. For the period from September 5,
1995 (start of business) to October 18, 1995, the investment income was
distributed to the Trust's Administrator.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Further information about the Trust's performance is contained in the Trust's
annual report for the fiscal year ended February 29, 1996, which can be obtained
free of charge.
GENERAL INFORMATION
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The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated June 14, 1995. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. As of the date of this prospectus, the Board of
Trustees (the "Trustees") has established two classes of shares of the Trust,
known as Institutional Shares and Institutional Service Shares. This prospectus
relates only to Institutional Shares.
Institutional Shares ("Shares") are sold primarily to accounts for which
financial institutions act in a fiduciary or agency capacity, or other accounts
where the financial institution maintains master accounts with an aggregate
investment of at least $400 million in certain funds which are advised or
distributed by affiliates of Federated Investors. Shares are also made available
to financial intermediaries, as well as public and private organizations. An
investment in the Trust serves as a convenient means of accumulating an interest
in a professionally managed, diversified portfolio of U.S. government
securities. A minimum initial investment of $25,000 over a 90-day period is
required.
Shares are currently sold and redeemed at net asset value without a sales charge
imposed by the Trust.
INVESTMENT INFORMATION
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INVESTMENT OBJECTIVE
The investment objective of the Trust is to pursue total return consistent with
current income. The investment objective cannot be changed without approval of
shareholders. While there is no assurance that the Trust will achieve its
investment objective, it endeavors to do so by following the investment policies
described in this prospectus.
INVESTMENT POLICIES
The Trust pursues its investment objective by investing only in securities which
are guaranteed as to payment of principal and interest by the U.S. government or
U.S. government agencies or instrumentalities. The Trust will maintain a dollar
weighted average portfolio maturity between five and ten years, although the
Trust may purchase individual securities with longer maturities. Unless
otherwise noted, the investment policies of the Trust may be changed by the
Trustees without shareholder approval. Shareholders will be notified before any
material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS. The U.S. government securities in which the Trust
invests are either issued or guaranteed by the U.S. government, its agencies, or
instrumentalities. These securities are limited to:
- direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds; and
- notes, bonds, and discount notes of U.S. government agencies or
instrumentalities, such as the: Farm Credit System, including the
National Bank for Cooperatives, Farm Credit Banks, and Banks for
Cooperatives; Farmers Home Administration; Federal Home Loan Banks;
Federal Home Loan Mortgage Corporation; Federal National Mortgage
Association; Government National Mortgage Association; and Student Loan
Marketing Association.
Some obligations issued or guaranteed by agencies or instrumentalities of the
U.S. government, such as Government National Mortgage Association participation
certificates, are backed by the full faith and credit of the U.S. Treasury. No
assurances can be given that the U.S. government will provide financial support
to other agencies or instrumentalities, since it is not obligated to do so.
These agencies and instrumentalities are supported by:
- the issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;
- discretionary authority of the U.S. government to purchase certain
obligations of an agency or instrumentality; or
- the credit of the agency or instrumentality.
The prices of fixed income securities fluctuate inversely to the direction of
interest rates.
The interest rates paid on some of the floating rate securities in which the
Trust may invest will be readjusted at certain intervals to an increment over
some predetermined interest rate index. Commonly used indices include the
one-year and five-year constant maturity Treasury rates, the three-month
Treasury Bill rate, the 180-day Treasury Bill rate, rates on longer-term
Treasury Note securities, the National Median Cost of Funds, the one-month or
three-month London Interbank Offered Rate, or commercial paper rates. Some
indices closely mirror changes in market interest rate levels. Others tend to
lag changes in market rate levels, and tend to have somewhat less volatile
interest rates. To the extent that a floating rate security reflects current
market rates, the market value of a floating rate security will tend to be less
sensitive to interest rate changes than a fixed rate security of the same stated
maturity. Hence, adjustable rate floating rate securities which use indices that
lag changes in market rates should experience greater price volatility than
floating rate securities that closely mirror the market.
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell U.S. government
securities to the Trust and agree at the time of sale to repurchase them at a
mutually agreed upon time and price. To the extent that the original seller does
not repurchase the securities from the Trust, the Trust could receive less than
the repurchase price on any sale of such securities.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Trust may purchase
securities on a when-issued or delayed delivery basis. These transactions are
arrangements in which the Trust purchases securities with payment and delivery
scheduled for a future time. The seller's failure to complete these transactions
may cause the Trust to miss a price or yield considered to be advantageous.
Settlement dates may be a month or more after entering into these transactions,
and the market values of the securities purchased may vary from the purchase
prices. Accordingly, the Trust may pay more/less than the market value of the
securities on the settlement date.
The Trust may dispose of a commitment prior to settlement if the adviser deems
it appropriate to do so. In addition, the Trust may enter into transactions to
sell its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Trust may realize short-term profits or losses upon the sale of such
commitments.
INVESTMENT LIMITATIONS
The Trust will not borrow money directly or through reverse repurchase
agreements (arrangements in which the Trust sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set date) or
pledge securities except, under certain circumstances, the Trust may borrow up
to one-third of the value of its total assets and pledge securities to secure
such borrowings.
The above investment limitation cannot be changed without shareholder approval.
TRUST INFORMATION
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MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees
are responsible for managing the Trust's business affairs and for exercising all
the Trust's powers except those reserved for the shareholders. The Executive
Committee of the Board of Trustees handles the Board's responsibilities between
meetings of the Board.
INVESTMENT ADVISER. Investment decisions for the Trust are made by Federated
Management, the Trust's investment adviser, subject to direction by the
Trustees. The adviser continually conducts investment research and supervision
for the Trust and is responsible for the purchase or sale of portfolio
instruments, for which it receives an annual fee from the Trust.
ADVISORY FEES. The Trust's adviser receives an annual investment advisory
fee equal to .50 of 1% of the Trust's average daily net assets. The adviser
has also undertaken to reimburse the Trust for operating expenses in excess
of limitations established by certain states. This does not include
reimbursement to the Trust of any expenses incurred by shareholders who use
the transfer agent's subaccounting facilities.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. With over $80 billion invested across
more than 250 funds under management and/or administration by its
subsidiaries, as of December 31, 1995, Federated Investors is one of the
largest mutual fund investment managers in the United States. With more
than 1,800 employees, Federated continues to be led by the management who
founded the company in 1955. Federated funds are presently at work in and
through 4,000 financial institutions nationwide. More than 100,000
investment professionals have selected Federated funds for their clients.
Susan M. Nason has been the Trust's portfolio manager since its inception.
Ms. Nason joined Federated Investors in 1987 and has been a Vice President
of the Trust's investment adviser since 1993. Ms. Nason served as an
Assistant Vice President of the investment adviser from 1990 until 1992.
Ms. Nason is a Chartered Financial Analyst and received her M.S. in
Industrial Administration from Carnegie Mellon University.
Joseph M. Balestrino has been the Trust's portfolio manager since its
inception. Mr. Balestrino joined Federated Investors in 1986 and has been a
Vice President of the Trust's investment adviser since 1995. Mr. Balestrino
served as an Assistant Vice President of the investment adviser from 1991
to 1995. Mr. Balestrino is a Chartered Financial Analyst and received his
Master's Degree in Urban and Regional Planning from the University of
Pittsburgh.
Both the Trust and the adviser have adopted strict codes of ethics
governing the conduct of all employees who manage the Trust and its
portfolio securities. These codes recognize that such persons owe a
fiduciary duty to the Trust's shareholders and must place the interests of
shareholders ahead of the employees' own interest. Among other things, the
codes: require preclearance and periodic reporting of personal securities
transactions; prohibit personal transactions in securities being purchased
or sold, or being considered for purchase or sale, by the Trust; prohibit
purchasing securities in initial public offerings; and prohibit taking
profits on securities held for less than sixty days. Violations of the
codes are subject to review by the Trustees, and could result in severe
penalties.
EXPENSES OF THE TRUST AND INSTITUTIONAL SHARES
Holders of Shares pay their allocable portion of Trust expenses. The Trust
expenses for which holders of Shares pay their allocable portion include, but
are not limited to: the cost of organizing the Trust and continuing its
existence; registering the Trust with federal and state securities authorities;
Trustees' fees; auditors' fees; the cost of meetings of Trustees; legal fees of
the Trust; association membership dues; and such non-recurring and extraordinary
items as may arise from time to time.
At present, the only expenses allocated to the Shares as a class are expenses
under the Trust's Shareholder Services Agreement which relate to the Shares.
However, the Trustees reserve the right to allocate certain other expenses to
holders of Shares as they deem appropriate ("Class Expenses"). In any case,
Class Expenses would be limited to: transfer agent fees as identified by the
transfer agent as attributable to holders of Shares; printing and postage
expenses related to preparing and distributing materials such as shareholder
reports, prospectuses and proxies to current shareholders; registration fees
paid to the Securities and Exchange Commission and registration fees paid to
state securities commissions; expenses related to administrative personnel and
services as required to support holders of Shares; legal fees relating solely to
Shares; and Trustees' fees incurred as a result of issues relating solely to
Shares.
DISTRIBUTION OF INSTITUTIONAL SHARES
Federated Securities Corp. is the principal distributor for the Shares. It is a
Pennsylvania corporation organized on November 14, 1969, and is the principal
distributor for a number of investment companies. Federated Securities Corp. is
a subsidiary of Federated Investors.
State securities laws may require certain financial institutions such as
depository institutions to register as dealers.
SHAREHOLDER SERVICES. The Trust has entered into a Shareholder Services
Agreement with Federated Shareholder Services, a subsidiary of Federated
Investors, under which the Trust may make payments up to 0.25 of 1.00% of the
average daily net asset value of Shares to obtain certain personal services for
shareholders and to maintain shareholder accounts. Under the Shareholder
Services Agreement, Federated Shareholder Services will either perform
shareholder services directly or will select financial institutions to perform
shareholder services. Financial institutions will receive fees based upon shares
owned by their clients or customers. The schedules of such fees and the basis
upon which fees will be paid will be determined from time to time by the Trust
and Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made
pursuant to the Shareholder Services Agreement, Federated Securities Corp. and
Federated Shareholder Services, from their own assets, may pay financial
institutions supplemental fees for the performance of substantial sales
services, distribution-related support services, or shareholder services. The
support may include sponsoring sales, educational and training seminars for
their employees, providing sales literature, and engineering computer software
programs that emphasize the attributes of the Trust. Such assistance will be
predicated upon the amount of shares the financial institution sells or may
sell, and/or upon the type and nature of sales or marketing support furnished by
the financial institution. Any payments made by the distributor may be
reimbursed by the Trust's investment adviser or its affiliates.
ADMINISTRATION OF THE TRUST
ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of Federated
Investors, provides administrative personnel and services (including certain
legal and financial reporting services) necessary to operate the Trust.
Federated Services Company provides these at an annual rate which relates to the
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors ("Federated Funds") as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE FEDERATED FUNDS
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<S> <C>
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.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 choose voluntarily to waive a portion of its fee.
NET ASSET VALUE
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The Trust's net asset value per share fluctuates. The net asset value for Shares
is determined by adding the interest of the Shares in the market value of all
securities and other assets of the Trust, subtracting the interest of the Shares
in the liabilities of the Trust and those attributable to Shares, and dividing
the remainder by the total number of Shares outstanding. The net asset value of
Institutional Shares may exceed that of Institutional Service Shares due to the
variance in daily net income realized by each class. Such variance will reflect
only accrued net income to which the shareholders of a particular class are
entitled.
INVESTING IN INSTITUTIONAL SHARES
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SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange is open for
business. Shares may be purchased either by wire or mail.
To purchase Shares, open an account by calling Federated Securities Corp.
Information needed to establish an account will be taken over the telephone. The
Trust reserves the right to reject any purchase request.
BY WIRE. To purchase Shares by Federal Reserve Wire, call the Trust before 4:00
p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal wire funds must be received before 3:00 p.m.
(Eastern time) on the next business day following the order. Federal funds
should be wired as follows: Federated Shareholder Services Company c/o State
Street Bank and Trust Company, Boston, Massachusetts; Attention: EDGEWIRE; For
Credit to: Federated U.S. Government Securities Fund: 5-10 Years--Institutional
Shares; Trust Number (this number can be found on the account statement or by
contacting the Trust); Group Number or Wire Order Number; Nominee or Institution
Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays
when wire transfers are restricted. Questions on wire purchases should be
directed to your shareholder services representative at the telephone number
listed on your account statement.
BY MAIL. To purchase Shares by mail, send a check made payable to Federated
U.S. Government Securities Fund: 5-10 Years--Institutional Shares to: Federated
Shareholder Services Company, P.O. Box 8600, Boston, Massachusetts 02266-8600.
Orders by mail are considered received after payment by check is converted by
the transfer agent's bank, State Street Bank, into federal funds. This is
generally the next business day after State Street Bank receives the check.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Shares is $25,000. However, an account may be
opened with a smaller amount as long as the $25,000 minimum is reached within 90
days. An institutional investor's minimum investment will be calculated by
combining all accounts it maintains with the Trust. Accounts established through
a non-affiliated bank or broker may be subject to a smaller minimum investment.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Trust. Investors who purchase
Shares through a financial intermediary may be charged a service fee by that
financial intermediary.
The net asset value is determined as of the close of trading (normally 4:00
p.m., Eastern time) on the New York Stock Exchange, Monday through Friday,
except on (i) days on which there are not sufficient changes in the value of the
Trust's portfolio securities such that its net asset value might be materially
affected; (ii) days during which no Shares are tendered for redemption and no
orders to purchase Shares are received; and (iii) the following holidays: New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Trust, Federated Shareholder Services Company
maintains a share account for each shareholder. Share certificates are not
issued unless requested by contacting the Trust.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during the
month.
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are declared just prior
to determining net asset value. If an order for Shares is placed on the
preceding business day, Shares purchased by wire begin earning dividends on the
business day wire payment is received by State Street Bank. If the order for
Shares and payment by wire are received on the same day, Shares begin earning
dividends on the next business day. Shares purchased by check begin earning
dividends on the business day after the check is converted by the transfer agent
into federal funds. Dividends are automatically reinvested on payment dates in
additional Shares unless cash payments are requested by contacting the Trust.
CAPITAL GAINS
Capital gains realized by the Trust, if any, will be distributed at least once
every 12 months.
REDEEMING INSTITUTIONAL SHARES
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The Trust redeems Shares at their net asset value next determined after
Federated Shareholder Services Company receives the redemption request.
Investors who redeem shares through a financial intermediary may be charged a
service fee by that financial intermediary. Redemptions will be made on days on
which the Trust computes its net asset value. Redemption requests must be
received in proper form and can be made by telephone request or by written
request.
TELEPHONE REDEMPTION
Shareholders may redeem their Shares by telephoning the Trust before 4:00 p.m.
(Eastern time). Telephone redemption instructions may be recorded. All proceeds
will normally be wire transferred the following business day, but in no event
more than seven days, to the shareholder's account at a domestic commercial bank
that is a member of the Federal Reserve System. Proceeds from redemption
requests received on holidays when wire transfers are restricted will be wired
the following business day. Questions about telephone redemptions on days when
wire transfers are restricted should be directed to your shareholder services
representative at the telephone number listed on your account statement. If at
any time the Trust shall determine it necessary to terminate or modify this
method of redemption, shareholders would be promptly notified.
An authorization form permitting the Trust to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from Federated Securities Corp.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as "Written Requests," should be considered. If
reasonable procedures are not followed by the Trust, it may be liable for losses
due to unauthorized or fraudulent telephone instructions.
WRITTEN REQUESTS
Shares may be redeemed in any amount by mailing a written request to: Federated
Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share
certificates have been issued, they should be sent unendorsed with the written
request by registered or certified mail to the address noted above.
SIGNATURES. Shareholders requesting a redemption of any amount to be sent to an
address other than that on record with the Trust, or a redemption payable other
than to the shareholder of record must have their signatures guaranteed by:
- a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund, which is administered by the Federal Deposit Insurance
Corporation ("FDIC");
- a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
- a savings bank or savings association whose deposits are insured by the
Savings Association Insurance Fund, which is administered by the FDIC; or
- any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Trust does not accept signatures guaranteed by a notary public.
The Trust and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Trust may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Trust and its transfer agent reserve the right
to amend these standards at any time without notice.
RECEIVING PAYMENT. Normally, a check for the proceeds is mailed within one
business day, but in no event more than seven days, after receipt of a proper
written redemption request.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Trust may
redeem Shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $25,000. This
requirement does not apply, however, if the balance falls below $25,000 because
of changes in the Trust's net asset value.
Before Shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional Shares to meet the minimum
requirement.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Trust gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
each portfolio in the Trust have equal voting rights except that in matters
affecting only a particular portfolio or class, only shares of that portfolio or
class are entitled to vote. As a Massachusetts business trust, the Trust is not
required to hold annual shareholder meetings. Shareholder approval will be
sought only for certain changes in the Trust's operation and for the election of
Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders for this purpose shall be called by the
Trustees upon the written request of shareholders owning at least 10% of the
outstanding shares of the Trust entitled to vote.
As of March 29, 1996, Charles Schwab & Company (as record owner holding shares
for its clients) was the owner of record of in excess of 25% of the outstanding
Institutional Shares of the Trust, and therefore may, for certain purposes, be
deemed to control the Trust and be able to affect the outcome of certain matters
presented for a vote of shareholders.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Trust will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions received. This applies whether dividends
and distributions are received in cash or as additional shares.
STATE AND LOCAL TAXES
In the opinion of Houston, Houston & Donnelly, counsel to the Trust, Trust
shares may be subject to personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania to the extent that the
portfolio securities in the Trust would be subject to such taxes if owned
directly by residents of those jurisdictions.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Trust advertises its total return and yield for Shares.
Total return represents the change, over a specified period of time, in the
value of an investment in Shares of the Trust after reinvesting all income and
capital gain distributions. It is calculated by dividing that change by the
initial investment and is expressed as a percentage.
The yield of Shares of the Trust is calculated by dividing the net investment
income per share (as defined by the Securities and Exchange Commission) earned
by Shares over a thirty-day period by the maximum offering price per share of
Shares on the last day of the period. This number is then annualized using
semi-annual compounding. The yield does not necessarily reflect income actually
earned by Shares and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
Shares are sold without any sales charge or other similar non-recurring charges.
Total return and yield will be calculated separately for Institutional Shares
and Institutional Service Shares.
From time to time, advertisements for the Trust may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Trust's performance to certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
The Trust also offers another class of shares called Institutional Service
Shares. Institutional Service Shares are sold at net asset value primarily to
retail and private banking customers of financial institutions and are subject
to a minimum initial investment of $25,000.
Institutional Shares and Institutional Service Shares are subject to certain of
the same expenses; however, Institutional Service Shares are distributed under a
12b-1 Plan adopted by the Trust. This, plus other expense differences between
Institutional Shares and Institutional Service Shares, may affect the
performance of each class.
To obtain more information and a prospectus for Institutional Service Shares,
investors may call 1-800-235-4669.
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 5-10 YEARS
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors on
page 22.
<TABLE>
<CAPTION>
PERIOD ENDED
FEBRUARY 29, 1996(A)
---------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
- ------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------
Net investment income 0.20
- ------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.02)
- ------------------------------------------------------------------ -------------
Total from investment operations 0.18
- ------------------------------------------------------------------ -------------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------
Distributions from net investment income (0.20)
- ------------------------------------------------------------------ -------------
NET ASSET VALUE, END OF PERIOD $9.98
- ------------------------------------------------------------------ -------------
TOTAL RETURN (B) 1.75%
- ------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------
Expenses 0.45%*
- ------------------------------------------------------------------
Net investment income 5.25%*
- ------------------------------------------------------------------
Expense waiver/reimbursement (c) 12.17%*
- ------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------
Net assets, end of period (000 omitted) $ 1,046
- ------------------------------------------------------------------
Portfolio turnover 29%
- ------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from October 19, 1995 (date of initial
public offering) to February 29, 1996.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Further information about the Trust's performance is contained in the Trust's
annual report for the fiscal year ended February 29, 1996, which can be obtained
free of charge.
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 5-10 YEARS
PORTFOLIO OF INVESTMENTS
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------- ----------------------------------------------------------------------- ----------
<C> <S> <C>
U.S. TREASURY NOTES--92.8%
- -----------------------------------------------------------------------------------
$500,000 5.500%, 12/31/2000 $ 494,560
-----------------------------------------------------------------------
700,000 6.375%, 8/15/2002 716,779
-----------------------------------------------------------------------
500,000 6.250%, 2/15/2003 507,735
-----------------------------------------------------------------------
200,000 10.750%, 2/15/2003 253,740
-----------------------------------------------------------------------
275,000 5.750%, 8/15/2003 270,495
-----------------------------------------------------------------------
750,000 7.250%, 8/15/2004 805,343
-----------------------------------------------------------------------
425,000 7.500%, 2/15/2005 463,926
-----------------------------------------------------------------------
500,000 6.500%, 8/15/2005 511,640
-----------------------------------------------------------------------
625,000 10.750%, 8/15/2005 827,100
----------------------------------------------------------------------- ----------
TOTAL U.S. TREASURY NOTES (IDENTIFIED COST $4,944,713) 4,851,318
----------------------------------------------------------------------- ----------
(A)REPURCHASE AGREEMENTS--5.5%
- -----------------------------------------------------------------------------------
290,000 B.T. Securities Ltd., 5.450%, dated 2/29/1996, due 3/1/1996
(AT AMORTIZED COST) 290,000
----------------------------------------------------------------------- ----------
TOTAL INVESTMENTS (IDENTIFIED COST $5,234,713)(B) $5,141,318
----------------------------------------------------------------------- ----------
</TABLE>
(a) The repurchase agreement is fully collateralized by U.S. Treasury
obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
(b) The cost of investments for federal tax purposes amounts to $5,234,713. The
net unrealized depreciation of investments on a federal tax basis amounts to
$93,395 which is comprised of $3,244 appreciation and $96,639 depreciation
at February 29, 1996.
Note: The categories of investments are shown as a percentage of net assets
($5,227,251) at February 29, 1996.
(See Notes which are an integral part of the Financial Statements)
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 5-10 YEARS
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ---------------------------------------------------------------------------------
Total investments in securities, at value (identified and tax cost $5,234,713) $5,141,318
- ---------------------------------------------------------------------------------
Income receivable 16,828
- ---------------------------------------------------------------------------------
Receivable for shares sold 109,490
- --------------------------------------------------------------------------------- ----------
Total assets 5,267,636
- ---------------------------------------------------------------------------------
LIABILITIES:
- ---------------------------------------------------------------------------------
Payable to Bank $19,300
- -----------------------------------------------------------------------
Income distribution payable 8,592
- -----------------------------------------------------------------------
Accrued expenses 12,493
- ----------------------------------------------------------------------- -------
Total liabilities 40,385
- --------------------------------------------------------------------------------- ----------
NET ASSETS for 523,635 shares outstanding $5,227,251
- --------------------------------------------------------------------------------- ----------
NET ASSETS CONSIST OF:
- ---------------------------------------------------------------------------------
Paid in capital $5,320,108
- ---------------------------------------------------------------------------------
Net unrealized depreciation of investments (93,395)
- ---------------------------------------------------------------------------------
Accumulated net realized gain on investments 538
- --------------------------------------------------------------------------------- ----------
Total Net Assets $5,227,251
- --------------------------------------------------------------------------------- ----------
NET ASSET VALUE, Offering Price and Redemption Proceeds Per Share:
- ---------------------------------------------------------------------------------
INSTITUTIONAL SHARES:
$4,181,399 / 418,872 shares outstanding $9.98
- --------------------------------------------------------------------------------- ----------
INSTITUTIONAL SERVICE SHARES:
$1,045,852 / 104,763 shares outstanding $9.98
- --------------------------------------------------------------------------------- ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 5-10 YEARS
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM SEPTEMBER 5, 1995 (START OF BUSINESS) TO FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------------------
Interest $ 52,868
- ----------------------------------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------------------------------------
Investment advisory fee $ 4,537
- ----------------------------------------------------------------------------------
Administrative personnel and services fee 56,749
- ----------------------------------------------------------------------------------
Custodian fees 6,455
- ----------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 7,482
- ----------------------------------------------------------------------------------
Auditing fees 20
- ----------------------------------------------------------------------------------
Legal fees 251
- ----------------------------------------------------------------------------------
Portfolio accounting fees 21,744
- ----------------------------------------------------------------------------------
Distribution services fee--Institutional Service Shares 561
- ----------------------------------------------------------------------------------
Shareholder services fee--Institutional Shares 1,707
- ----------------------------------------------------------------------------------
Shareholder services fee--Institutional Service Shares 560
- ----------------------------------------------------------------------------------
Share registration costs 2,218
- ----------------------------------------------------------------------------------
Printing and postage 5,749
- ----------------------------------------------------------------------------------
Insurance premiums 3,126
- ----------------------------------------------------------------------------------
Miscellaneous 1,705
- ---------------------------------------------------------------------------------- ---------
Total expenses 112,864
- ----------------------------------------------------------------------------------
WAIVERS AND REIMBURSEMENTS--
- ----------------------------------------------------------------------------------
Waiver of investment advisory fee $ (4,537)
- -----------------------------------------------------------------------
Waiver of shareholder services fee--Institutional Shares (1,707)
- -----------------------------------------------------------------------
Waiver of shareholder services fee--Institutional Service Shares (358)
- -----------------------------------------------------------------------
Reimbursement of other operating expenses (104,500)
- ----------------------------------------------------------------------- ---------
Total waivers and reimbursements (111,102)
- ---------------------------------------------------------------------------------- ---------
Net expenses 1,762
- ---------------------------------------------------------------------------------------------- --------
Net investment income 51,106
- ---------------------------------------------------------------------------------------------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ----------------------------------------------------------------------------------------------
Net realized gain on investments 538
- ----------------------------------------------------------------------------------------------
Net change in unrealized depreciation of investments (93,395)
- ---------------------------------------------------------------------------------------------- --------
Net realized and unrealized loss on investments (92,857)
- ---------------------------------------------------------------------------------------------- --------
Change in net assets resulting from operations $(41,751)
- ---------------------------------------------------------------------------------------------- --------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 5-10 YEARS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
FEBRUARY 29, 1996(A)
---------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
- --------------------------------------------------------------------
OPERATIONS--
- --------------------------------------------------------------------
Net investment income $ 51,106
- --------------------------------------------------------------------
Net realized gain (loss) on investments ($538 gain as computed for
federal tax purposes) 538
- --------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) (93,395)
- -------------------------------------------------------------------- ----------------
Change in net assets resulting from operations (41,751)
- -------------------------------------------------------------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS--
- --------------------------------------------------------------------
Distributions from net investment income
- --------------------------------------------------------------------
Institutional Shares (39,322)
- --------------------------------------------------------------------
Institutional Service Shares (11,784)
- -------------------------------------------------------------------- ----------------
Change in net assets resulting from distributions to
shareholders (51,106)
- -------------------------------------------------------------------- ----------------
SHARE TRANSACTIONS--
- --------------------------------------------------------------------
Proceeds from sale of shares 5,281,115
- --------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment
of distributions declared 23,501
- --------------------------------------------------------------------
Cost of shares redeemed (84,508)
- -------------------------------------------------------------------- ----------------
Change in net assets resulting from share transactions 5,220,108
- -------------------------------------------------------------------- ----------------
Change in net assets 5,127,251
- --------------------------------------------------------------------
NET ASSETS:
- --------------------------------------------------------------------
Beginning of period 100,000
- -------------------------------------------------------------------- ----------------
End of period $ 5,227,251
- -------------------------------------------------------------------- ----------------
</TABLE>
(a) For the period from September 5, 1995 (start of business) to February 29,
1996.
(See Notes which are an integral part of the Financial Statements)
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 5-10 YEARS
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Federated U.S. Government Securities Fund: 5-10 Years (the "Trust") is
registered under the Investment Company Act of 1940, as amended (the "Act"), as
a diversified, open-end management investment company. The Trust's objective is
to pursue total return consistent with current income. The Trust offers two
classes of shares: Institutional Shares and Institutional Service Shares.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--U.S. government securities are generally valued at
the mean of the latest bid and asked price as furnished by an independent
pricing service. Short-term securities are valued at prices provided by an
independent pricing service. However, short-term securities with remaining
maturities of sixty days or less at the time of purchase may be valued at
amortized cost, which approximates fair market value.
REPURCHASE AGREEMENTS--It is the policy of the Trust to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral under repurchase
agreement transactions. Additionally, procedures have been established by
the Trust to monitor, on a daily basis, the market value of each repurchase
agreement's collateral to ensure that the value of collateral at least
equals the repurchase price to be paid under the repurchase agreement
transaction.
The Trust will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Trust's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Trustees (the "Trustees"). Risks
may arise from the potential inability of counterparties to honor the terms
of the repurchase agreement. Accordingly, the Trust could receive less than
the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 5-10 YEARS
- --------------------------------------------------------------------------------
FEDERAL TAXES--It is the Trust's policy to comply with the provisions of
the Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Trust may engage in
when-issued or delayed delivery transactions. The Trust records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. Transactions in shares were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
FEBRUARY 29, 1996(A)
------------------------
INSTITUTIONAL SHARES SHARES AMOUNT
- ------------------------------------------------------------------- ------- -----------
<S> <C> <C>
Shares sold 415,936 $ 4,226,665
- -------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 1,169 11,782
- -------------------------------------------------------------------
Shares redeemed (8,233) (83,503)
- ------------------------------------------------------------------- ------- -----------
Net change resulting from Institutional Share transactions 408,872 $ 4,154,944
- ------------------------------------------------------------------- ------- -----------
</TABLE>
(a) Reflects operations from October 19, 1995 (date of initial public
investment) to February 29, 1996.
<TABLE>
<CAPTION>
PERIOD ENDED
FEBRUARY 29, 1996(B)
-----------------------
INSTITUTIONAL SERVICE SHARES SHARES AMOUNT
- -------------------------------------------------------------------- ------- ----------
<S> <C> <C>
Shares sold 103,710 $1,054,450
- --------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 1,153 11,719
- --------------------------------------------------------------------
Shares redeemed (100) (1,005)
- -------------------------------------------------------------------- ------- ----------
Net change resulting from Institutional Service Share transactions 104,763 $1,065,164
- -------------------------------------------------------------------- ------- ----------
Net change resulting from Trust share transactions 513,635 $5,220,108
- -------------------------------------------------------------------- ------- ----------
</TABLE>
(b) Reflects operations from October 19, 1995 (date of initial public offering)
to February 29, 1996.
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 5-10 YEARS
- --------------------------------------------------------------------------------
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Management, the Trust's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to 0.50% of the Trust's average daily net assets.
The Adviser may voluntarily choose to waive any portion of its fee and reimburse
certain operating expenses of the Trust. The Adviser can modify or terminate
this voluntary waiver and reimbursement at any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Trust with administrative
personnel and services. The fee paid to FServ is based on the level of average
aggregate daily net assets of all funds advised by subsidiaries of Federated
Investors for the period. The administrative fee received during the period of
the Administrative Services Agreement shall be at least $125,000 per portfolio
and $30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE--The Trust has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the
Trust will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Trust to finance activities intended to
result in the sale of the Trust's Institutional Service Shares. The Plan
provides that Institutional Service Shares may incur distribution expenses up to
0.25% of the average daily net assets of the Institutional Service Shares
annually, to compensate FSC.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Trust will pay FSS up to 0.25%
of daily average net assets of the Trust shares for the period. The fee paid to
FSS is used to finance certain services for shareholders and to maintain
shareholder accounts. FSS may voluntarily choose to waive a portion of its fee.
FSS can modify or terminate this voluntary waiver at any time at its sole
discretion.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES--FServ, through its registered
transfer and dividend disbursing agent, Federated Shareholder Services Company,
maintains all necessary shareholder records and receives a fee based on the
size, type, and number of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES--FServ maintains the Trust's accounting records for
which it receives a fee. The fee is based on the level of the Trust's average
daily net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses of $35,000 were borne initially
by FServ. The Trust has agreed to reimburse FServ for the organizational
expenses during the five year period following effective date. For the period
ended February 29, 1996, the Trust paid $1,648 pursuant to this agreement.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 5-10 YEARS
- --------------------------------------------------------------------------------
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended February 29, 1996, were as follows:
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
Purchases $5,654,640
- -------------------------------------------------------------------------------- ----------
Sales $ 704,359
- -------------------------------------------------------------------------------- ----------
</TABLE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Trustees and Shareholders of
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 5-10 YEARS:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Federated U.S. Government Securities Fund: 5-10
Years as of February 29, 1996, and the related statement of operations, and the
statement of changes in net assets for the period from September 5, 1995 (start
of business) to February 29, 1996, and financial highlights for the period
presented therein. 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.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of February 29, 1996, by
correspondence with the custodian and broker. 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
Federated U.S. Government Securities Fund: 5-10 Years at February 29, 1996, and
the results of its operations, the changes in its net assets and financial
highlights for the period from September 5, 1995 (start of business) to February
29, 1996, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
April 12, 1996
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Federated U.S. Government Securities Fund: 5-10 Years
Institutional Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Custodian
State Street Bank and Trust Company P.O. Box 8600
Boston, Massachusetts 02266-8600
- ------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder P.O. Box 8600
Services Company Boston, Massachusetts 02266-8600
- ------------------------------------------------------------------------------------------------
Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, Pennsylvania 15219
- ------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FEDERATED U.S.
GOVERNMENT SECURITIES
FUND: 5-10 YEARS
INSTITUTIONAL SHARES
PROSPECTUS
An Open-End, Diversified
Management Investment Company
Prospectus dated April 30, 1996
LOGO
Cusip 31428S107
G01209-01-IS (4/96)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 5-10 YEARS
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
The Institutional Service Shares offered by this prospectus represent interests
in a diversified portfolio of securities of Federated U.S. Government Securities
Fund: 5-10 Years (the "Trust"). The Trust is an open-end management investment
company (a mutual fund).
The investment objective of the Trust is to pursue total return consistent with
current income. The Trust invests in U.S. government securities. Institutional
Service Shares are sold at net asset value.
THE INSTITUTIONAL SERVICE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR
OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD,
OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before you
invest in Institutional Service Shares of the Trust. Keep this prospectus for
future reference.
The Trust has also filed a Statement of Additional Information for Institutional
Shares and Institutional Service Shares dated April 30, 1996, with the
Securities and Exchange Commission. The information contained in the Statement
of Additional Information is incorporated by reference into this prospectus. You
may request a copy of the Statement of Additional Information or a paper copy of
this prospectus, if you have received your prospectus electronically, free of
charge by calling 1-800-235-4669. To obtain other information or make inquiries
about the Trust, contact the Trust at the address listed in the back of this
prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated April 30, 1996
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF TRUST EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
INSTITUTIONAL SERVICE SHARES 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Investment Limitations 4
TRUST INFORMATION 5
- ------------------------------------------------------
Management of the Trust 5
Expenses of the Trust and
Institutional Service Shares 6
Distribution of Institutional
Service Shares 6
Administration of the Trust 7
NET ASSET VALUE 8
- ------------------------------------------------------
INVESTING IN INSTITUTIONAL
SERVICE SHARES 8
- ------------------------------------------------------
Share Purchases 8
Minimum Investment Required 8
What Shares Cost 9
Certificates and Confirmations 9
Dividends 9
Capital Gains 9
REDEEMING INSTITUTIONAL
SERVICE SHARES 9
- ------------------------------------------------------
Telephone Redemption 10
Written Requests 10
Accounts with Low Balances 11
SHAREHOLDER INFORMATION 11
- ------------------------------------------------------
Voting Rights 11
TAX INFORMATION 11
- ------------------------------------------------------
Federal Income Tax 11
State and Local Taxes 11
PERFORMANCE INFORMATION 12
- ------------------------------------------------------
OTHER CLASSES OF SHARES 12
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
INSTITUTIONAL SHARES 13
- ------------------------------------------------------
FINANCIAL STATEMENTS 14
- ------------------------------------------------------
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS 22
- ------------------------------------------------------
ADDRESSES 23
- ------------------------------------------------------
SUMMARY OF TRUST EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INSTITUTIONAL SERVICE SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering
price)..................................................................... None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of
offering price)............................................................ None
Contingent Deferred Sales Charge (as a percentage of original purchase price
or redemption proceeds, as applicable)..................................... None
Redemption Fee (as a percentage of amount redeemed, if applicable)........... None
Exchange Fee................................................................. None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (1)............................................ 0.00%
12b-1 Fee.................................................................... 0.25%
Total Other Expenses (after expense reimbursement)........................... 0.54%
Shareholder Services Fee (after waiver)(2)......................... 0.09%
Total Operating Expenses(3)............................................. 0.79%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of the
management fee. The adviser can terminate this voluntary waiver at any time at
its sole discretion. The maximum management fee is 0.50%.
(2) The maximum Shareholder Services Fee is 0.25%.
(3) The total operating expenses in the table above are based on expenses
expected during the fiscal year ending February 28, 1997. The total operating
expenses were 0.45% for the fiscal year ended February 29, 1996 and would have
been 12.62% absent the voluntary waivers of the management fee and a portion of
the shareholder services fee and the voluntary reimbursement of certain other
operating expenses.
Long-term shareholders may pay more than the economic equivalent of the maximum
front-end sales charges permitted under the rules of the National Association of
Securities Dealers, Inc.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF INSTITUTIONAL SERVICE SHARES OF
THE TRUST WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE
DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE "TRUST INFORMATION" AND
"INVESTING IN INSTITUTIONAL SERVICE SHARES." WIRE-TRANSFERRED REDEMPTIONS OF
LESS THAN $5,000 MAY BE SUBJECT TO ADDITIONAL FEES.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years
- -------------------------------------------------------------------------- ------- --------
<S> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming (1)
5% annual return and (2) redemption at the end of each time period...... $ 8 $ 25
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 5-10 YEARS
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors on
page 22.
<TABLE>
<CAPTION>
PERIOD ENDED
FEBRUARY 29, 1996(A)
---------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
- ------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------
Net investment income 0.20
- ------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.02)
- ------------------------------------------------------------------ -------------
Total from investment operations 0.18
- ------------------------------------------------------------------ -------------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------
Distributions from net investment income (0.20)
- ------------------------------------------------------------------ -------------
NET ASSET VALUE, END OF PERIOD $9.98
- ------------------------------------------------------------------ -------------
TOTAL RETURN (B) 1.75%
- ------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------
Expenses 0.45%*
- ------------------------------------------------------------------
Net investment income 5.25%*
- ------------------------------------------------------------------
Expense waiver/reimbursement (c) 12.17%*
- ------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------
Net assets, end of period (000 omitted) $ 1,046
- ------------------------------------------------------------------
Portfolio turnover 29%
- ------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from October 19, 1995 (date of initial
public offering) to February 29, 1996.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Further information about the Trust's performance is contained in the Trust's
annual report for the fiscal year ended February 29, 1996, which can be obtained
free of charge.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated June 14, 1995. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. As of the date of this prospectus, the Board of
Trustees (the "Trustees") has established two classes of shares of the Trust,
known as Institutional Shares and Institutional Service Shares. This prospectus
relates only to Institutional Service Shares.
Institutional Service Shares ("Shares") are designed primarily for retail and
private banking customers of financial institutions as a convenient means of
accumulating an interest in a professionally managed, diversified portfolio of
U.S. government securities. A minimum initial investment of $25,000 over a 90-
day period is required.
Shares are currently sold and redeemed at net asset value without a sales charge
imposed by the Trust.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Trust is to pursue total return consistent with
current income. The investment objective cannot be changed without approval of
shareholders. While there is no assurance that the Trust will achieve its
investment objective, it endeavors to do so by following the investment policies
described in this prospectus.
INVESTMENT POLICIES
The Trust pursues its investment objective by investing only in securities which
are guaranteed as to payment of principal and interest by the U.S. government or
U.S. government agencies or instrumentalities. The Trust will maintain a dollar
weighted average portfolio maturity between five and ten years, although the
Trust may purchase individual securities with longer maturities. Unless
otherwise noted, the investment policies of the Trust may be changed by the
Trustees without shareholder approval. Shareholders will be notified before any
material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS. The U.S. government securities in which the Trust
invests are either issued or guaranteed by the U.S. government, its agencies, or
instrumentalities. These securities are limited to:
- direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds; and
- notes, bonds, and discount notes of U.S. government agencies or
instrumentalities, such as the: Farm Credit System, including the
National Bank for Cooperatives, Farm Credit Banks, and Banks for
Cooperatives; Farmers Home Administration; Federal Home Loan Banks;
Federal Home Loan Mortgage Corporation; Federal National Mortgage
Association; Government National Mortgage Association; and Student Loan
Marketing Association.
Some obligations issued or guaranteed by agencies or instrumentalities of the
U.S. government, such as Government National Mortgage Association participation
certificates, are backed by the full faith and credit of the U.S. Treasury. No
assurances can be given that the U.S. government will provide financial
support to other agencies or instrumentalities, since it is not obligated to do
so. These agencies and instrumentalities are supported by:
- the issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;
- discretionary authority of the U.S. government to purchase certain
obligations of an agency or instrumentality; or
- the credit of the agency or instrumentality.
The prices of fixed income securities fluctuate inversely to the direction of
interest rates.
The interest rates paid on some of the floating rate securities in which the
Trust may invest will be readjusted at certain intervals to an increment over
some predetermined interest rate index. Commonly used indices include the
one-year and five-year constant maturity Treasury rates, the three-month
Treasury Bill rate, the 180-day Treasury Bill rate, rates on longer-term
Treasury Note securities, the National Median Cost of Funds, the one-month or
three-month London Interbank Offered Rate, or commercial paper rates. Some
indices closely mirror changes in market interest rate levels. Others tend to
lag changes in market rate levels, and tend to have somewhat less volatile
interest rates. To the extent that a floating rate security reflects current
market rates, the market value of a floating rate security will tend to be less
sensitive to interest rate changes than a fixed rate security of the same stated
maturity. Hence, adjustable rate floating rate securities which use indices that
lag changes in market rates should experience greater price volatility than
floating rate securities that closely mirror the market.
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell U.S. government
securities to the Trust and agree at the time of sale to repurchase them at a
mutually agreed upon time and price. To the extent that the original seller does
not repurchase the securities from the Trust, the Trust could receive less than
the repurchase price on any sale of such securities.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Trust may purchase
securities on a when-issued or delayed delivery basis. These transactions are
arrangements in which the Trust purchases securities with payment and delivery
scheduled for a future time. The seller's failure to complete these transactions
may cause the Trust to miss a price or yield considered to be advantageous.
Settlement dates may be a month or more after entering into these transactions,
and the market values of the securities purchased may vary from the purchase
prices. Accordingly, the Trust may pay more/less than the market value of the
securities on the settlement date.
The Trust may dispose of a commitment prior to settlement if the adviser deems
it appropriate to do so. In addition, the Trust may enter into transactions to
sell its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Trust may realize short-term profits or losses upon the sale of such
commitments.
INVESTMENT LIMITATIONS
The Trust will not borrow money directly or through reverse repurchase
agreements (arrangements in which the Trust sells a portfolio instrument for a
percentage of its cash value with an agreement to buy
it back on a set date) or pledge securities except, under certain circumstances,
the Trust may borrow up to one-third of the value of its total assets and pledge
securities to secure such borrowings.
The above investment limitation cannot be changed without shareholder approval.
TRUST INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees
are responsible for managing the Trust's business affairs and for exercising all
the Trust's powers except those reserved for the shareholders. The Executive
Committee of the Board of Trustees handles the Board's responsibilities between
meetings of the Board.
INVESTMENT ADVISER. Investment decisions for the Trust are made by Federated
Management, the Trust's investment adviser, subject to direction by the
Trustees. The adviser continually conducts investment research and supervision
for the Trust and is responsible for the purchase or sale of portfolio
instruments, for which it receives an annual fee from the Trust.
ADVISORY FEES. The Trust's adviser receives an annual investment advisory
fee equal to .50 of 1% of the Trust's average daily net assets. The adviser
has also undertaken to reimburse the Trust for operating expenses in excess
of limitations established by certain states. This does not include
reimbursement to the Trust of any expenses incurred by shareholders who use
the transfer agent's subaccounting facilities.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private accounts.
Certain other subsidiaries also provide administrative services to a number of
investment companies. With over $80 billion invested across more than 250 funds
under management and/or administration by its subsidiaries, as of December 31,
1995, Federated Investors is one of the largest mutual fund investment managers
in the United States. With more than 1,800 employees, Federated continues to be
led by the management who founded the company in 1955. Federated funds are
presently at work in and through 4,000 financial institutions nationwide. More
than 100,000 investment professionals have selected Federated funds for their
clients.
Susan M. Nason has been the Trust's portfolio manager since its inception. Ms.
Nason joined Federated Investors in 1987 and has been a Vice President of the
Trust's investment adviser since 1993. Ms. Nason served as an Assistant Vice
President of the investment adviser from 1990 until 1992. Ms. Nason is a
Chartered Financial Analyst and received her M.S. in Industrial Administration
from Carnegie Mellon University.
Joseph M. Balestrino has been the Trust's portfolio manager since its inception.
Mr. Balestrino joined Federated Investors in 1986 and has been a Vice President
of the Trust's investment adviser since 1995. Mr. Balestrino served as an
Assistant Vice President of the investment adviser from 1991 to 1995. Mr.
Balestrino is a Chartered Financial Analyst and received his Master's Degree in
Urban and Regional Planning from the University of Pittsburgh.
Both the Trust and the adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Trust and its portfolio securities.
These codes recognize that such persons owe a fiduciary duty to the Trust's
shareholders and must place the interests of shareholders ahead of the
employees' own interest. Among other things, the codes: require preclearance and
periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Trust; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Trustees, and could
result in severe penalties.
EXPENSES OF THE TRUST AND INSTITUTIONAL SERVICE SHARES
Holders of Shares pay their allocable portion of Trust expenses. The Trust
expenses for which holders of Shares pay their allocable portion include, but
are not limited to: the cost of organizing the Trust and continuing its
existence; registering the Trust with federal and state securities authorities;
Trustees' fees; auditors' fees; the cost of meetings of Trustees; legal fees of
the Trust; association membership dues; and such non-recurring and extraordinary
items as may arise from time to time.
At present, the only expenses allocated to the Shares as a class are expenses
under the Trust's Shareholder Services Agreement and the Trust's Distribution
Plan which relate to the Shares. However, the Trustees reserve the right to
allocate certain other expenses to holders of shares as they deem appropriate
("Class Expenses"). In any case, Class Expenses would be limited to: transfer
agent fees as identified by the transfer agent as attributable to holders of
Shares; printing and postage expenses related to preparing and distributing
materials such as shareholder reports, prospectuses and proxies to current
shareholders; registration fees paid to the Securities and Exchange Commission
and registration fees paid to state securities commissions; expenses related to
administrative personnel and services as required to support holders of Shares;
legal fees relating solely to Shares; and Trustees' fees incurred as a result of
issues relating solely to Shares.
DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES
Federated Securities Corp. is the principal distributor for the Shares. It is a
Pennsylvania corporation organized on November 14, 1969, and is the principal
distributor for a number of investment companies. Federated Securities Corp. is
a subsidiary of Federated Investors.
State securities laws may require certain financial institutions such as
depository institutions to register as dealers.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES. Under a distribution plan adopted
in accordance with Rule 12b-1 under the Investment Company Act of 1940 (the
"Plan"), the Trust may pay to the distributor an amount, computed at an annual
rate of 0.25 of 1.00% of the average daily net asset value of Shares. The
distributor may select financial institutions such as banks, fiduciaries,
custodians for
public funds, investment advisers, and broker/dealers to provide sales services
or distribution-related support services as agents for their clients or
customers.
The Plan is a compensation-type plan. As such, the Trust makes no payments to
the distributor except as described above. Therefore, the Trust does not pay for
unreimbursed expenses of the distributor, including amounts expended by the
distributor in excess of amounts received by it from the Trust, interest,
carrying, or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amounts or may earn a profit from future payments made by the Trust
under the Plan.
In addition, the Trust has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
the Trust may make payments up to 0.25 of 1.00% of the average daily net asset
value of Shares to obtain certain personal services for shareholders and to
maintain shareholder accounts. Under the Shareholder Services Agreement,
Federated Shareholder Services will either perform shareholder services directly
or will select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon shares owned by their clients or
customers. The schedules of such fees and the basis upon which fees will be paid
will be determined from time to time by the Trust and Federated Shareholder
Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made
pursuant to the Plan and Shareholder Services Agreement, Federated Securities
Corp. and Federated Shareholder Services, from their own assets, may pay
financial institutions supplemental fees for the performance of substantial
sales services, distribution-related support services, or shareholder services.
The support may include sponsoring sales, educational and training seminars for
their employees, providing sales literature, and engineering computer software
programs that emphasize the attributes of the Trust. Such assistance will be
predicated upon the amount of shares the financial institution sells or may
sell, and/or upon the type and nature of sales or marketing support furnished by
the financial institution. Any payments made by the distributor may be
reimbursed by the Trust's investment adviser or its affiliates.
ADMINISTRATION OF THE TRUST
ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of Federated
Investors, provides administrative personnel and services (including certain
legal and financial reporting services) necessary to operate the Trust.
Federated Services Company provides these at an annual rate which relates to the
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors ("Federated Funds") as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE FEDERATED FUNDS
- --------------------- -----------------------------------
<S> <C>
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.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 choose voluntarily to waive a portion of its fee.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Trust's net asset value per share fluctuates. The net asset value for Shares
is determined by adding the interest of the Shares in the market value of all
securities and other assets of the Trust, subtracting the interest of the Shares
in the liabilities of the Trust and those attributable to Shares, and dividing
the remainder by the total number of Shares outstanding. The net asset value of
Institutional Shares may exceed that of Institutional Service Shares due to the
variance in daily net income realized by each class. Such variance will reflect
only accrued net income to which the shareholders of a particular class are
entitled.
INVESTING IN INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange is open for
business. Shares may be purchased either by wire or mail.
To purchase Shares, open an account by calling Federated Securities Corp.
Information needed to establish an account will be taken over the telephone. The
Trust reserves the right to reject any purchase request.
BY WIRE. To purchase Shares by Federal Reserve Wire, call the Trust before 4:00
p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal wire funds must be received before 3:00 p.m.
(Eastern time) on the next business day following the order. Federal funds
should be wired as follows: Federated Shareholder Services Company c/o State
Street Bank and Trust Company, Boston, Massachusetts; Attention: EDGEWIRE; For
Credit to: Federated U.S. Government Securities Fund: 5-10 Years--Institutional
Service Shares; Trust Number (this number can be found on the account statement
or by contacting the Trust); Group Number or Wire Order Number; Nominee or
Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire
on holidays when wire transfers are restricted. Questions on wire purchases
should be directed to your shareholder services representative at the telephone
number listed on your account statement.
BY MAIL. To purchase Shares by mail, send a check made payable to Federated
U.S. Government Securities Fund: 5-10 Years--Institutional Service Shares to
Federated Shareholder Services Company, P.O. Box 8600, Boston, Massachusetts
02266-8600. Orders by mail are considered received after payment by check is
converted by the transfer agent's bank, State Street Bank, into federal funds.
This is generally the next business day after State Street Bank receives the
check.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Shares is $25,000. However, an account may be
opened with a smaller amount as long as the $25,000 minimum is reached within 90
days. An institutional investor's
minimum investment will be calculated by combining all accounts it maintains
with the Trust. Accounts established through a non-affiliated bank or broker may
be subject to a smaller minimum investment.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Trust. Investors who purchase
Shares through a financial intermediary may be charged a service fee by that
financial intermediary.
The net asset value is determined as of the close of trading (normally 4:00
p.m., Eastern time) on the New York Stock Exchange, Monday through Friday,
except on (i) days on which there are not sufficient changes in the value of the
Trust's portfolio securities such that its net asset value might be materially
affected; (ii) days during which no Shares are tendered for redemption and no
orders to purchase Shares are received; and (iii) the following holidays: New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Trust, Federated Shareholder Services Company
maintains a share account for each shareholder. Share certificates are not
issued unless requested by contacting the Trust.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during the
month.
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are declared just prior
to determining net asset value. If an order for Shares is placed on the
preceding business day, Shares purchased by wire begin earning dividends on the
business day wire payment is received by State Street Bank. If the order for
Shares and payment by wire are received on the same day, Shares begin earning
dividends on the next business day. Shares purchased by check begin earning
dividends on the business day after the check is converted by the transfer agent
into federal funds. Dividends are automatically reinvested on payment dates in
additional Shares unless cash payments are requested by contacting the Trust.
CAPITAL GAINS
Capital gains realized by the Trust, if any, will be distributed at least once
every 12 months.
REDEEMING INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
The Trust redeems Shares at their net asset value next determined after the
Federated Shareholder Services Company receives the redemption request.
Investors who redeem shares through a financial intermediary may be charged a
service fee by that financial intermediary. Redemptions will be made on days on
which the Trust computes its net asset value. Redemption requests must be
received in proper form and can be made by telephone request or by written
request.
TELEPHONE REDEMPTION
Shareholders may redeem their Shares by telephoning the Trust before 4:00 p.m.
(Eastern time). Telephone redemption instructions may be recorded. All proceeds
will normally be wire transferred the following business day, but in no event
more than seven days, to the shareholder's account at a domestic commercial bank
that is a member of the Federal Reserve System. Proceeds from redemption
requests received on holidays when wire transfers are restricted will be wired
the following business day. Questions about telephone redemptions on days when
wire transfers are restricted should be directed to your shareholder services
representative at the telephone number listed on your account statement. If at
any time the Trust shall determine it necessary to terminate or modify this
method of redemption, shareholders would be promptly notified.
An authorization form permitting the Trust to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from Federated Securities Corp.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as "Written Requests," should be considered. If
reasonable procedures are not followed by the Trust, it may be liable for losses
due to unauthorized or fraudulent telephone instructions.
WRITTEN REQUESTS
Shares may be redeemed in any amount by mailing a written request to: Federated
Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share
certificates have been issued, they should be sent unendorsed with the written
request by registered or certified mail to the address noted above.
SIGNATURES. Shareholders requesting a redemption of any amount to be sent to an
address other than that on record with the Trust, or a redemption payable other
than to the shareholder of record must have their signatures guaranteed by:
- a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund, which is administered by the Federal Deposit Insurance
Corporation ("FDIC");
- a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
- a savings bank or savings association whose deposits are insured by the
Savings Association Insurance Fund, which is administered by the FDIC; or
- any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Trust does not accept signatures guaranteed by a notary public.
The Trust and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Trust may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Trust and its transfer agent reserve the right
to amend these standards at any time without notice.
RECEIVING PAYMENT. Normally, a check for the proceeds is mailed within one
business day, but in no event more than seven days, after receipt of a proper
written redemption request.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Trust may
redeem Shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $25,000. This
requirement does not apply, however, if the balance falls below $25,000 because
of changes in the Trust's net asset value.
Before Shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional Shares to meet the minimum
requirement.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Trust gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
each portfolio in the Trust have equal voting rights except that in matters
affecting only a particular portfolio or class, only shares of that portfolio or
class are entitled to vote. As a Massachusetts business trust, the Trust is not
required to hold annual shareholder meetings. Shareholder approval will be
sought only for certain changes in the Trust's operation and for the election of
Trustees under certain circumstances.
As of March 29, 1996, Holdon, The Ohio Bank, and their various affiliates and
subsidiaries, acting in various capacities for numerous accounts, were the
owners of record of in excess of 25% of the outstanding Institutional Service
Shares of the Trust, and therefore may, for certain purposes, be deemed to
control the Trust and be able to affect the outcome of certain matters presented
for a vote of shareholders.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders for this purpose shall be called by the
Trustees upon the written request of shareholders owning at least 10% of the
outstanding shares of the Trust entitled to vote.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Trust will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions received. This applies whether dividends
and distributions are received in cash or as additional shares.
STATE AND LOCAL TAXES
In the opinion of Houston Houston, & Donnelly, counsel to the Trust, Trust
shares may be subject to personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania to the
extent that the portfolio securities in the Trust would be subject to such taxes
if owned directly by residents of those jurisdictions.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Trust advertises its total return and yield for Shares.
Total return represents the change, over a specified period of time, in the
value of an investment in Shares of the Trust after reinvesting all income and
capital gain distributions. It is calculated by dividing that change by the
initial investment and is expressed as a percentage.
The yield of Shares of the Trust is calculated by dividing the net investment
income per share (as defined by the Securities and Exchange Commission) earned
by Shares over a thirty-day period by the maximum offering price per share of
Shares on the last day of the period. This number is then annualized using
semi-annual compounding. The yield does not necessarily reflect income actually
earned by Shares and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
Shares are sold without any sales charge or other similar non-recurring charges.
Total return and yield will be calculated separately for Institutional Shares
and Institutional Service Shares.
From time to time, advertisements for the Trust may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Trust's performance to certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
The Trust also offers another class of shares called Institutional Shares.
Institutional Shares are sold at net asset value primarily to accounts for which
financial institutions act in a fiduciary or agency capacity, or other accounts
where the financial institution maintains master accounts with an aggregate
investment of at least $400 million in certain funds which are advised or
distributed by affiliates of Federated Investors. Institutional Shares are also
made available to financial intermediaries, as well as private and public
organizations and are subject to a minimum initial investment of $25,000.
Institutional Shares and Institutional Service Shares are subject to certain of
the same expenses; however, Institutional Service Shares are distributed under a
12b-1 Plan adopted by the Trust. This, plus other expense differences between
Institutional Shares and Institutional Service Shares, may affect the
performance of each class.
To obtain more information and a prospectus for Institutional Shares, investors
may call 1-800-235-4669.
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 5-10 YEARS
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors on
page 22.
<TABLE>
<CAPTION>
PERIOD ENDED
FEBRUARY 29, 1996(A)
---------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
- ------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------------
Net investment income 0.21
- ------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.02)
- ------------------------------------------------------------------ -------------
Total from investment operations 0.19
- ------------------------------------------------------------------ -------------
LESS DISTRIBUTIONS
- ------------------------------------------------------------------
Distributions from net investment income (0.21)
- ------------------------------------------------------------------ -------------
NET ASSET VALUE, END OF PERIOD $9.98
- ------------------------------------------------------------------ -------------
TOTAL RETURN (B) 1.85%
- ------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------------
Expenses 0.11%*
- ------------------------------------------------------------------
Net investment income 5.75%*
- ------------------------------------------------------------------
Expense waiver/reimbursement (c) 12.26%*
- ------------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------------
Net assets, end of period (000 omitted) $ 4,181
- ------------------------------------------------------------------
Portfolio turnover 29%
- ------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from October 19, 1995 (date of initial
public investment) to February 29, 1996. For the period from September 5,
1995 (start of business) to October 18, 1995, the investment income was
distributed to the Trust's Administrator.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
Further information about the Trust's performance is contained in the Trust's
annual report for the fiscal year ended February 29, 1996, which can be obtained
free of charge.
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 5-10 YEARS
PORTFOLIO OF INVESTMENTS
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------- ----------------------------------------------------------------------- ----------
<C> <S> <C>
U.S. TREASURY NOTES--92.8%
- -----------------------------------------------------------------------------------
$500,000 5.500%, 12/31/2000 $ 494,560
-----------------------------------------------------------------------
700,000 6.375%, 8/15/2002 716,779
-----------------------------------------------------------------------
500,000 6.250%, 2/15/2003 507,735
-----------------------------------------------------------------------
200,000 10.750%, 2/15/2003 253,740
-----------------------------------------------------------------------
275,000 5.750%, 8/15/2003 270,495
-----------------------------------------------------------------------
750,000 7.250%, 8/15/2004 805,343
-----------------------------------------------------------------------
425,000 7.500%, 2/15/2005 463,926
-----------------------------------------------------------------------
500,000 6.500%, 8/15/2005 511,640
-----------------------------------------------------------------------
625,000 10.750%, 8/15/2005 827,100
----------------------------------------------------------------------- ----------
TOTAL U.S. TREASURY NOTES (IDENTIFIED COST $4,944,713) 4,851,318
----------------------------------------------------------------------- ----------
(A)REPURCHASE AGREEMENTS--5.5%
- -----------------------------------------------------------------------------------
290,000 B.T. Securities Ltd., 5.450%, dated 2/29/1996, due 3/1/1996
(AT AMORTIZED COST) 290,000
----------------------------------------------------------------------- ----------
TOTAL INVESTMENTS (IDENTIFIED COST $5,234,713)(B) $5,141,318
----------------------------------------------------------------------- ----------
</TABLE>
(a) The repurchase agreement is fully collateralized by U.S. Treasury
obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
(b) The cost of investments for federal tax purposes amounts to $5,234,713. The
net unrealized depreciation of investments on a federal tax basis amounts to
$93,395 which is comprised of $3,244 appreciation and $96,639 depreciation
at February 29, 1996.
Note: The categories of investments are shown as a percentage of net assets
($5,227,251) at February 29, 1996.
(See Notes which are an integral part of the Financial Statements)
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 5-10 YEARS
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ---------------------------------------------------------------------------------
Total investments in securities, at value (identified and tax cost $5,234,713) $5,141,318
- ---------------------------------------------------------------------------------
Income receivable 16,828
- ---------------------------------------------------------------------------------
Receivable for shares sold 109,490
- --------------------------------------------------------------------------------- ----------
Total assets 5,267,636
- ---------------------------------------------------------------------------------
LIABILITIES:
- ---------------------------------------------------------------------------------
Payable to Bank $19,300
- -----------------------------------------------------------------------
Income distribution payable 8,592
- -----------------------------------------------------------------------
Accrued expenses 12,493
- ----------------------------------------------------------------------- -------
Total liabilities 40,385
- --------------------------------------------------------------------------------- ----------
NET ASSETS for 523,635 shares outstanding $5,227,251
- --------------------------------------------------------------------------------- ----------
NET ASSETS CONSIST OF:
- ---------------------------------------------------------------------------------
Paid in capital $5,320,108
- ---------------------------------------------------------------------------------
Net unrealized depreciation of investments (93,395)
- ---------------------------------------------------------------------------------
Accumulated net realized gain on investments 538
- --------------------------------------------------------------------------------- ----------
Total Net Assets $5,227,251
- --------------------------------------------------------------------------------- ----------
NET ASSET VALUE, Offering Price and Redemption Proceeds Per Share:
- ---------------------------------------------------------------------------------
INSTITUTIONAL SHARES:
$4,181,399 / 418,872 shares outstanding $9.98
- --------------------------------------------------------------------------------- ----------
INSTITUTIONAL SERVICE SHARES:
$1,045,852 / 104,763 shares outstanding $9.98
- --------------------------------------------------------------------------------- ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 5-10 YEARS
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM SEPTEMBER 5, 1995 (START OF BUSINESS) TO FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------------------
Interest $ 52,868
- ----------------------------------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------------------------------------
Investment advisory fee $ 4,537
- ----------------------------------------------------------------------------------
Administrative personnel and services fee 56,749
- ----------------------------------------------------------------------------------
Custodian fees 6,455
- ----------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 7,482
- ----------------------------------------------------------------------------------
Auditing fees 20
- ----------------------------------------------------------------------------------
Legal fees 251
- ----------------------------------------------------------------------------------
Portfolio accounting fees 21,744
- ----------------------------------------------------------------------------------
Distribution services fee--Institutional Service Shares 561
- ----------------------------------------------------------------------------------
Shareholder services fee--Institutional Shares 1,707
- ----------------------------------------------------------------------------------
Shareholder services fee--Institutional Service Shares 560
- ----------------------------------------------------------------------------------
Share registration costs 2,218
- ----------------------------------------------------------------------------------
Printing and postage 5,749
- ----------------------------------------------------------------------------------
Insurance premiums 3,126
- ----------------------------------------------------------------------------------
Miscellaneous 1,705
- ---------------------------------------------------------------------------------- ---------
Total expenses 112,864
- ----------------------------------------------------------------------------------
WAIVERS AND REIMBURSEMENTS--
- ----------------------------------------------------------------------------------
Waiver of investment advisory fee $ (4,537)
- -----------------------------------------------------------------------
Waiver of shareholder services fee--Institutional Shares (1,707)
- -----------------------------------------------------------------------
Waiver of shareholder services fee--Institutional Service Shares (358)
- -----------------------------------------------------------------------
Reimbursement of other operating expenses (104,500)
- ----------------------------------------------------------------------- ---------
Total waivers and reimbursements (111,102)
- ---------------------------------------------------------------------------------- ---------
Net expenses 1,762
- ---------------------------------------------------------------------------------------------- --------
Net investment income 51,106
- ---------------------------------------------------------------------------------------------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ----------------------------------------------------------------------------------------------
Net realized gain on investments 538
- ----------------------------------------------------------------------------------------------
Net change in unrealized depreciation of investments (93,395)
- ---------------------------------------------------------------------------------------------- --------
Net realized and unrealized loss on investments (92,857)
- ---------------------------------------------------------------------------------------------- --------
Change in net assets resulting from operations $(41,751)
- ---------------------------------------------------------------------------------------------- --------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 5-10 YEARS
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
FEBRUARY 29, 1996(A)
---------------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
- --------------------------------------------------------------------
OPERATIONS--
- --------------------------------------------------------------------
Net investment income $ 51,106
- --------------------------------------------------------------------
Net realized gain (loss) on investments ($538 gain as computed for
federal tax purposes) 538
- --------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) (93,395)
- -------------------------------------------------------------------- ----------------
Change in net assets resulting from operations (41,751)
- -------------------------------------------------------------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS--
- --------------------------------------------------------------------
Distributions from net investment income
- --------------------------------------------------------------------
Institutional Shares (39,322)
- --------------------------------------------------------------------
Institutional Service Shares (11,784)
- -------------------------------------------------------------------- ----------------
Change in net assets resulting from distributions to
shareholders (51,106)
- -------------------------------------------------------------------- ----------------
SHARE TRANSACTIONS--
- --------------------------------------------------------------------
Proceeds from sale of shares 5,281,115
- --------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment
of distributions declared 23,501
- --------------------------------------------------------------------
Cost of shares redeemed (84,508)
- -------------------------------------------------------------------- ----------------
Change in net assets resulting from share transactions 5,220,108
- -------------------------------------------------------------------- ----------------
Change in net assets 5,127,251
- --------------------------------------------------------------------
NET ASSETS:
- --------------------------------------------------------------------
Beginning of period 100,000
- -------------------------------------------------------------------- ----------------
End of period $ 5,227,251
- -------------------------------------------------------------------- ----------------
</TABLE>
(a) For the period from September 5, 1995 (start of business) to February 29,
1996.
(See Notes which are an integral part of the Financial Statements)
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 5-10 YEARS
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Federated U.S. Government Securities Fund: 5-10 Years (the "Trust") is
registered under the Investment Company Act of 1940, as amended (the "Act"), as
a diversified, open-end management investment company. The Trust's objective is
to pursue total return consistent with current income. The Trust offers two
classes of shares: Institutional Shares and Institutional Service Shares.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--U.S. government securities are generally valued at
the mean of the latest bid and asked price as furnished by an independent
pricing service. Short-term securities are valued at prices provided by an
independent pricing service. However, short-term securities with remaining
maturities of sixty days or less at the time of purchase may be valued at
amortized cost, which approximates fair market value.
REPURCHASE AGREEMENTS--It is the policy of the Trust to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral under repurchase
agreement transactions. Additionally, procedures have been established by
the Trust to monitor, on a daily basis, the market value of each repurchase
agreement's collateral to ensure that the value of collateral at least
equals the repurchase price to be paid under the repurchase agreement
transaction.
The Trust will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Trust's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Trustees (the "Trustees"). Risks
may arise from the potential inability of counterparties to honor the terms
of the repurchase agreement. Accordingly, the Trust could receive less than
the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 5-10 YEARS
- --------------------------------------------------------------------------------
FEDERAL TAXES--It is the Trust's policy to comply with the provisions of
the Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Trust may engage in
when-issued or delayed delivery transactions. The Trust records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. Transactions in shares were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
FEBRUARY 29, 1996(A)
------------------------
INSTITUTIONAL SHARES SHARES AMOUNT
- ------------------------------------------------------------------- ------- -----------
<S> <C> <C>
Shares sold 415,936 $ 4,226,665
- -------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 1,169 11,782
- -------------------------------------------------------------------
Shares redeemed (8,233) (83,503)
- ------------------------------------------------------------------- ------- -----------
Net change resulting from Institutional Share transactions 408,872 $ 4,154,944
- ------------------------------------------------------------------- ------- -----------
</TABLE>
(a) Reflects operations from October 19, 1995 (date of initial public
investment) to February 29, 1996.
<TABLE>
<CAPTION>
PERIOD ENDED
FEBRUARY 29, 1996(B)
-----------------------
INSTITUTIONAL SERVICE SHARES SHARES AMOUNT
- -------------------------------------------------------------------- ------- ----------
<S> <C> <C>
Shares sold 103,710 $1,054,450
- --------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 1,153 11,719
- --------------------------------------------------------------------
Shares redeemed (100) (1,005)
- -------------------------------------------------------------------- ------- ----------
Net change resulting from Institutional Service Share transactions 104,763 $1,065,164
- -------------------------------------------------------------------- ------- ----------
Net change resulting from Trust share transactions 513,635 $5,220,108
- -------------------------------------------------------------------- ------- ----------
</TABLE>
(b) Reflects operations from October 19, 1995 (date of initial public offering)
to February 29, 1996.
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 5-10 YEARS
- --------------------------------------------------------------------------------
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Management, the Trust's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to 0.50% of the Trust's average daily net assets.
The Adviser may voluntarily choose to waive any portion of its fee and reimburse
certain operating expenses of the Trust. The Adviser can modify or terminate
this voluntary waiver and reimbursement at any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Trust with administrative
personnel and services. The fee paid to FServ is based on the level of average
aggregate daily net assets of all funds advised by subsidiaries of Federated
Investors for the period. The administrative fee received during the period of
the Administrative Services Agreement shall be at least $125,000 per portfolio
and $30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE--The Trust has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the
Trust will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Trust to finance activities intended to
result in the sale of the Trust's Institutional Service Shares. The Plan
provides that Institutional Service Shares may incur distribution expenses up to
0.25% of the average daily net assets of the Institutional Service Shares
annually, to compensate FSC.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Trust will pay FSS up to 0.25%
of daily average net assets of the Trust shares for the period. The fee paid to
FSS is used to finance certain services for shareholders and to maintain
shareholder accounts. FSS may voluntarily choose to waive a portion of its fee.
FSS can modify or terminate this voluntary waiver at any time at its sole
discretion.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES--FServ, through its registered
transfer and dividend disbursing agent, Federated Shareholder Services Company,
maintains all necessary shareholder records and receives a fee based on the
size, type, and number of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES--FServ maintains the Trust's accounting records for
which it receives a fee. The fee is based on the level of the Trust's average
daily net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses of $35,000 were borne initially
by FServ. The Trust has agreed to reimburse FServ for the organizational
expenses during the five year period following effective date. For the period
ended February 29, 1996, the Trust paid $1,648 pursuant to this agreement.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 5-10 YEARS
- --------------------------------------------------------------------------------
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended
February 29, 1996, were as follows:
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
Purchases $5,654,640
- -------------------------------------------------------------------------------- ----------
Sales $ 704,359
- -------------------------------------------------------------------------------- ----------
</TABLE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Trustees and Shareholders of
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 5-10 YEARS:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Federated U.S. Government Securities Fund: 5-10
Years as of February 29, 1996, and the related statement of operations, and the
statement of changes in net assets for the period from September 5, 1995 (start
of business) to February 29, 1996, and financial highlights for the period
presented therein. 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.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of February 29, 1996, by
correspondence with the custodian and broker. 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
Federated U.S. Government Securities Fund: 5-10 Years at February 29, 1996, and
the results of its operations, the changes in its net assets and financial
highlights for the period from September 5, 1995 (start of business) to February
29, 1996, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
April 12, 1996
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Federated U.S. Government Securities Fund: 5-10 Years
Institutional Service Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Custodian
State Street Bank and Trust Company P.O. Box 8600
Boston, Massachusetts 02266-8600
- ------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder
Services Company P.O. Box 8600
Boston, Massachusetts 02266-8600
- ------------------------------------------------------------------------------------------------
Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, Pennsylvania 15219
- ------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FEDERATED U.S.
GOVERNMENT SECURITIES
FUND: 5-10 YEARS
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
An Open-End, Diversified Management
Investment Company
Prospectus dated April 30, 1996
LOGO
Cusip 31428S206
G01209-04-SS (4/96)
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 5-10 YEARS
- --------------------------------------------------------------------------------
ANNUAL REPORT FOR FISCAL YEAR ENDED FEBRUARY 29, 1996
MANAGEMENT DISCUSSION AND ANALYSIS:
--------------------------------------------------------------------------
Federated U.S. Government Securities Fund: 5-10 Years represents a
fully-invested participation in U.S. Treasury and government agency
obligations which have an average maturity of 5 to 10 years. Since its
inception, the fund has remained fully invested in U.S. Treasury
securities.
During most of the fund's annual reporting period, interest rates declined
steadily in response to benign inflation and slower economic growth, as
well as anticipation of Federal deficit reduction legislation. Minimal
inflation pressures had allowed the Federal Reserve Board (the "Fed") to
lower the Fed Funds target rate from 6% to 5.75% in early July, for the
first time since September 1992. As economic growth continued to slow,
reducing potential inflation pressures, the Fed Funds target rate was
lowered two more times in December and January, to the current 5.25%. The
short to intermediate sector outperformed as the 2 to 30-year yield curve
steepened in this more accommodative monetary policy environment. By
mid-February 1996, market technicals soured with the Treasury refunding
supply and the unwinding of the yen/dollar carry trade by hedge funds. The
market also reacted negatively to the Humphrey-Hawkins testimony of Alan
Greenspan (the Chairman of the Federal Reserve Board), which described a
non-recessionary economy. This economic environment would not warrant
aggressive easing of monetary policy. The 5-year Treasury note yield fell
from 6.07% at the end of August 1995 to 5.13% in the mid-February 1996,
before rising to 5.73% at the end of February 1996.
Although economic data during the first quarter of 1996 was distorted by
severe winter weather and the government shutdown, recent data has shown
some pickup in economic activity, resulting in a Fed policy on hold in the
near term. However, economic growth is expected to remain moderate with
inflation under control. Given the increase in rates and the likelihood
that the economy will not accelerate significantly, the fund's average
maturity has been gradually lengthening from a more defensive toward a
neutral posture.
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 5-10 YEARS
(INSTITUTIONAL SHARES)
- --------------------------------------------------------------------------------
GROWTH OF $25,000 INVESTED IN FEDERATED U.S. GOVERNMENT SECURITIES FUND: 5-10
YEARS
(INSTITUTIONAL SHARES)
The graph below illustrates the hypothetical investment of $25,000 in the
Federated U.S. Government Securities Fund: 5-10 Years (Institutional Shares)
(the "Trust")* from October 19, 1995 (start of performance) to February 29, 1996
compared to the Merrill Lynch Five to Ten Year Treasury Index (MLFTYT).+
See Appendix "A.1" for explaination of graphics.
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD
ENDED FEBRUARY 29, 1996
Start of Performance (10/19/95)..........................1.85%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE, SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
THIS REPORT MUST BE PRECEDED OR ACCOMPANIED BY THE TRUST'S PROSPECTUS DATED
APRIL 30, 1996, AND, TOGETHER WITH FINANCIAL STATEMENTS CONTAINED THEREIN,
CONSTITUTES THE TRUST'S ANNUAL REPORT.
* The Trust's performance assumes the reinvestment of all dividends and
distributions. The MLFTYT has been adjusted to reflect reinvestment of
dividends on securities in the index.
+ The MLFTYT is not adjusted to reflect sales charges, expenses, or other fees
that the Securities and Exchange Commission requires to be reflected in the
Trust's performance. The index is unmanaged.
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 5-10 YEARS
(INSTITUTIONAL SERVICE SHARES)
- --------------------------------------------------------------------------------
GROWTH OF $25,000 INVESTED IN FEDERATED U.S. GOVERNMENT SECURITIES FUND: 5-10
YEARS
(INSTITUTIONAL SERVICE SHARES)
The graph below illustrates the hypothetical investment of $25,000 in the
Federated U.S. Government Securities Fund: 5-10 Years (Institutional Service
Shares) (the "Trust")* from October 19, 1995 (start of performance) to February
29, 1996 compared to the Merrill Lynch Five to Ten Year Treasury Index
(MLFTYT).+
See Appendix "A.2" for explaination of graphics
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD
ENDED FEBRUARY 29, 1996
Start of Performance (10/19/95)....................... 1.75%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE, SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
THIS REPORT MUST BE PRECEDED OR ACCOMPANIED BY THE TRUST'S PROSPECTUS DATED
APRIL 30, 1996, AND, TOGETHER WITH FINANCIAL STATEMENTS CONTAINED THEREIN,
CONSTITUTES THE TRUST'S ANNUAL REPORT.
* The Trust's performance assumes the reinvestment of all dividends and
distributions. The MLFTYT has been adjusted to reflect reinvestment of
dividends on securities in the index.
+ The MLFTYT is not adjusted to reflect sales charges, expenses, or other fees
that the Securities and Exchange Commission requires to be reflected in the
Trust's performance. The index is unmanaged.
LOGO
Cusip 31428S107
Cusip 31428S206
G01618-02 (4/96)
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 5-10 YEARS
INSTITUTIONAL SHARES
INSTITUTIONAL SERVICE SHARES
STATEMENT OF ADDITIONAL INFORMATION
The Institutional Shares and Institutional Service Shares represent
interests in a diversified portfolio of securities of Federated U.S.
Government Securities Fund: 5-10 Years (the "Trust"). This Statement of
Additional Information should be read with the respective prospectuses for
Institutional Shares and Institutional Service Shares dated April 30, 1996.
This Statement is not a prospectus itself. You may request a copy of either
prospectus or a paper copy of this Statement of Additional Information, if
you have received it electronically, free of charge by calling 1-800-235-
4669.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated April 30, 1996
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
GENERAL INFORMATION ABOUT THE TRUST 1
INVESTMENT OBJECTIVE AND POLICIES 1
Types Of Investments 1
When-Issued And Delayed Delivery
Transactions 1
Repurchase Agreements 1
Reverse Repurchase Agreements1
Lending of Portfolio Securities 1
Portfolio Turnover 2
Investment Limitations 2
FEDERATED U. S. GOVERNMENT SECURITIES
FUND:
5-10 YEARS MANAGEMENT 4
The Funds 7
Trust Ownership 8
Trustee Liability 8
Trustees' Compensation 9
INVESTMENT ADVISORY SERVICES 9
Adviser To The Trust 9
Advisory Fees 9
BROKERAGE TRANSACTIONS 10
OTHER SERVICES 10
Trust Administration 10
Custodian and Portfolio
Recordkeeper 10
Transfer Agent 10
Independent Auditors 11
PURCHASING SHARES 11
Distribution PlanAnd Shareholder
Services Agreement 11
Conversion To Federal Funds 11
DETERMINING NET ASSET VALUE 11
Determining Market Value Of
Securities 11
REDEEMING SHARES 12
Redemption In Kind 12
MASSACHUSETTS PARTNERSHIP LAW 12
TAX STATUS 12
The Trust's Tax Status 12
Shareholders' Tax Status 13
TOTAL RETURN 13
YIELD 13
PERFORMANCE COMPARISONS 13
Duration 14
ABOUT FEDERATED INVESTORS 14
Mutual Fund Market 14
GENERAL INFORMATION ABOUT THE TRUST
Federated U.S. Government Securities Fund: 5-10 Years was established as a
Massachusetts business trust under a Declaration of Trust dated June 14, 1995.
<RShares of the Trust are offered in two classes, known as Institutional
Shares and Institutional Service Shares (individually and collectively
referred to as "Shares," as the context may require). This Statement of
Additional Information relates to the above mentioned Shares of the Trust.
INVESTMENT OBJECTIVE AND POLICIES
The Trust's investment objective is to pursue total return consistent with
current income. The investment objective may not be changed by the Board of
Trustees ("Trustees") without shareholder approval.
TYPES OF INVESTMENTS
The Trust invests only in U.S. government securities. Unless indicated
otherwise, the investment policies of the Trust may be changed without
shareholder approval. Shareholders will not be notified before any material
change in the policies becomes effective.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for the Trust. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Trust
sufficient to make payment for the securities to be purchased are segregated
on the Trust's records at the trade date. These assets are marked to market
daily and are maintained until the transaction has been settled. The Trust
does not intend to engage in when-issued and delayed delivery transactions to
an extent that would cause the segregation of more than 20% of the total value
of its assets.
REPURCHASE AGREEMENTS
The Trust requires its custodian to take possession of the securities subject
to repurchase agreements, and these securities are marked to market daily. To
the extent that the original seller does not repurchase the securities from
the Trust, the Trust could receive less than the repurchase price on any sale
of such securities. In the event that such a defaulting seller filed for
bankruptcy or became insolvent, disposition of such securities by the Trust
might be delayed pending court action. The Trust believes that under the
regular procedures normally in effect for custody of the Trust's portfolio
securities subject to repurchase agreements, a court of competent jurisdiction
would rule in favor of the Trust and allow retention or disposition of such
securities. The Trust will only enter into repurchase agreements with banks
and other recognized financial institutions such as broker/dealers which are
deemed by the Trust's adviser to be creditworthy pursuant to guidelines
established by the Trustees.
REVERSE REPURCHASE AGREEMENTS
The Trust may also enter into reverse repurchase agreements. These
transactions are similar to borrowing cash. In a reverse repurchase
agreement, the Trust transfers possession of a portfolio instrument to another
person, such as a financial institution, broker, or dealer, in return for a
percentage of the instrument's market value in cash, and agrees that on a
stipulated date in the future the Trust will repurchase the portfolio
instrument by remitting the original consideration plus interest at an agreed
upon rate. The use of reverse repurchase agreements may enable the Trust to
avoid selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but the ability to enter into reverse repurchase agreements
does not ensure that the Trust will be able to avoid selling portfolio
instruments at a disadvantageous time.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, the Trust may lend portfolio
securities on a short-term basis to broker/dealers, banks, or other
institutional borrowers of securities. The Trust will only enter into loan
arrangements with broker/dealers, banks, or other institutions which the
Trust's investment adviser has determined are creditworthy and will receive
collateral in the form of cash or U.S. government securities equal to at least
102% of the value of the securities loaned.
There is the risk that when lending portfolio securities, the securities may
not be available to the Trust on a timely basis and the Trust may, therefore,
lose the opportunity to sell the securities at a desirable price. In
addition, in the event that a borrower of securities would file for bankruptcy
or become insolvent, disposition of the securities may be delayed pending
court action.
The collateral received when the Trust lends portfolio securities must be
valued daily and, should the market value of the loaned securities increase,
the borrower must furnish additional collateral to the Trust. During the time
portfolio securities are on loan, the borrower pays the Trust any dividends or
interest paid on such securities. Loans are subject to termination at the
option of the Trust or the borrower. The Trust may pay reasonable
administrative and custodial fees in connection with a loan and may pay a
negotiated portion of the interest earned on the cash or equivalent collateral
to the borrower or placing broker. The Trust does not have the right to vote
securities on loan. In circumstances where the Trust does not, the Trust would
terminate the loan and regain the right to vote if that were considered
important with respect to the investment.
PORTFOLIO TURNOVER
The Trust may trade or dispose of portfolio securities as considered necessary
to meet its investment objective. It is not anticipated that the portfolio
trading engaged in by the Trust will result in its annual rate of portfolio
turnover exceeding 100%. For the period from October 19, 1995 (start of
performance) to February 29, 1996 the portfolio turnover rate was 29%.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Trust will not sell any securities short or purchase any securities
on margin but may obtain such short-term credits as may be necessary for
clearance of transactions.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Trust will not issue senior securities, except that the Trust may
borrow money directly or through reverse repurchase agreements in amounts
up to one-third of the value of its total assets, including the amounts
borrowed.
The Trust will not borrow money or engage in reverse repurchase
agreements for investment leverage, but rather as a temporary,
extraordinary, or emergency measure or to facilitate management of the
portfolio by enabling the Trust to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Trust will not purchase any securities while
borrowings in excess of 5% of its total assets are outstanding.
PLEDGING ASSETS
The Trust will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings.
INVESTING IN REAL ESTATE
The Trust will not purchase or sell real estate, including limited
partnership interests, although it may invest in the securities of
companies whose business involves the purchase or sale of real estate or
in securities which are secured by real estate or interests in real
estate.
INVESTING IN COMMODITIES
The Trust will not purchase or sell commoditites, commodity contracts, or
commodity futures contracts.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of its total
assets, the Trust will not purchase securities issued by any one issuer
(other than cash, cash items, or securities issued or guaranteed by the
government of the United States or its agencies or instrumentalities and
repurchase agreements collateralized by such securities) if, as a result,
more than 5% of the value of its total assets would be invested in the
securities of that issuer or if it would own more than 10% of the
outstanding voting securities of any one issuer.
LENDING CASH OR SECURITIES
The Trust will not lend any of its assets, except portfolio securities.
This shall not prevent the Trust from purchasing or holding money market
instruments, repurchase agreements, obligations of the U.S. government,
its agencies or instrumentalities, or certain debt instruments as
permitted by its investment objective, policies, and limitations or the
Trust's Declaration of Trust.
CONCENTRATION
The Trust will not invest 25% or more of the value of its total assets in
any one industry, except that the Trust may invest 25% or more of the
value of its total assets in securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities, and repurchase agreements
collateralized by such securities.
The above investment limitations cannot be changed without shareholder
approval. The following limitations, however, may be changed by the Trustees
without shareholder approval. Shareholders will be notified before any
material change in these limitations becomes effective.
INVESTING IN ILLIQUID SECURITIES
The Trust will not invest more than 15% of the value of its net assets in
illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice, and certain securities
not determined by the Trustees to be liquid.
INVESTING IN MINERALS
The Trust will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, except it may invest in
the securities of issuers which invest in or sponsor such programs.
INVESTING IN NEW ISSUERS
The Trust will not invest more than 5% of the value of its total assets
in securities of issuers which have records of less than three years of
continuous operations, including the operation of any predecessor.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF
THE TRUST
The Trust will not purchase or retain the securities of any issuer if the
Officers and Trustees of the Trust or the Trust's investment adviser,
owning individually more than 1/2 of 1% of the issuer's securities,
together own more than 5% of the issuer's securities.
PURCHASING SECURITIES TO EXERCISE CONTROL
The Trust will not purchase securities of a company for purpose of
exercising control or management.
DEALING IN PUTS AND CALLS
The Trust will not buy or sell puts, calls, straddles, spreads, or any
combination of these.
Except with respect to borrowing money, if a percentage limitation is adhered
to at the time of investment, a later increase or decrease in percentage
resulting from any change in value or net assets will not result in a
violation of such restriction.
The Trust does not intend to borrow money, pledge securities, invest in
illiquid securities or lend portfolio securities in excess of 5% of the value
of its net assets during the coming fiscal year. For purposes of its policies
and limitations, the Trust considers certificates of deposit and demand and
time deposits issued by a U.S. branch of a domestic bank or savings
association having capital, surplus, and undivided profits in excess of
$100,000,000 at the time of investment to be "cash items."
FEDERATED U. S. GOVERNMENT SECURITIES FUND: 5-10 YEARS MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates, present
positions with Federated U. S. Government Securities Fund: 5-10 Years, and
principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated Research
Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.;
Chief Executive Officer and Director or Trustee of the Funds. Mr. Donahue is
the father of J. Christopher Donahue, Executive Vice President of the Trust .
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; Director or Trustee
of the Funds; formerly, Senior Partner, Ernst & Young LLP.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; President, Northgate Village Development
Corporation; Partner or Trustee in private real estate ventures in Southwest
Florida; Director or Trustee of the Funds; formerly, President, Naples
Property Management, Inc.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.; Director
or Trustee of the Funds; formerly, Vice Chairman and Director, PNC Bank, N.A.,
and PNC Bank Corp. and Director, Ryan Homes, Inc.
J. Christopher Donahue *
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated Research
Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.;
Trustee, Federated Shareholder Services Company, and Federated Shareholder
Services; Director, Federated Services Company; President or Executive Vice
President of the Funds; Director or Trustee of some of the Funds. Mr. Donahue
is the son of John F. Donahue, Chairman of the Trust.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine and Member, Board of Trustees, University of Pittsburgh;
Medical Director, University of Pittsburgh Medical Center - Downtown; Member,
Board of Directors, University of Pittsburgh Medical Center; formerly,
Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
Hospitals; Director or Trustee of the Funds.
Richard B. Fisher *
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of
the Funds; Director or Trustee of some of the Funds.
Edward L. Flaherty, Jr.@
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Director,
Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director
or Trustee of the Funds; formerly, Counsel, Horizon Financial, F.A., Western
Region.
Edward C. Gonzales *
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp. and Passport Research, Ltd.;
Executive Vice President and Director, Federated Securities Corp.; Trustee,
Federated Shareholder Services Company; Trustee or Director of some of the
Funds; President, Executive Vice President and Treasurer of some of the Funds.
Glen R. Johnson *
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929
President
Trustee, Federated Investors; President and/or Trustee of some of the Funds;
staff member, Federated Securities Corp.
Peter E. Madden
Seacliff
562 Bellevue Avenue
Newport, RI
Birthdate: March 16, 1942
Trustee
Consultant; State Representative, Commonwealth of Massachusetts; Director or
Trustee of the Funds; formerly, President, State Street Bank and Trust Company
and State Street Boston Corporation.
Gregor F. Meyer
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee
of the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics and Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., and U.S. Space Foundation; Chairman, Czecho Management Center;
Director or Trustee of the Funds; President Emeritus, University of
Pittsburgh; founding Chairman, National Advisory Council for Environmental
Policy and Technology and Federal Emergency Management Advisory Board.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/marketing consultant; Conference Coordinator, Non-profit
entities; Director or Trustee of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President and Secretary
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated Research;
Director, Federated Research Corp. and Federated Global Research Corp.;
Trustee, Federated Shareholder Services Company; Director, Federated Services
Company; President and Trustee, Federated Shareholder Services; Director,
Federated Securities Corp.; Executive Vice President and Secretary of the
Funds.
David M. Taylor
Federated Investors Tower
Pittsburgh, PA
Birthdate: January 13, 1947
Treasurer
Senior Vice President and Trustee, Federated Investors; Vice President,
Federated Shareholder Services; Executive Vice President, Federated Securities
Corp.; Treasurer of some of the Funds.
* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940. Dr. Ellis is an interested person by reason of
the employment of his son-in-law by Federated Securities Corp.
@ Member of the Executive Committee. The Executive Committee of the Board of
Trustees handles the responsibilities of the Board between meetings of the
Board.
Federated Shareholder Services CoMpany Federated Shareholder Services CoMpany
Federated Shareholder Services Company
The Funds
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: 111 Corcoran Funds; Annuity Management Series; Arrow
Funds; Automated Government Money Trust; Blanchard Funds; Blanchard Precious
Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc. ; DG Investor
Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated Adjustable
Rate U.S. Government Fund, Inc.; Federated American Leaders Fund, Inc.;
Federated ARMs Fund; Federated Equity Funds; Federated Equity Income Fund,
Inc.; Federated Fund for U.S. Government Securities, Inc.; Federated GNMA
Trust; Federated Government Income Securities, Inc.; Federated Government
Trust; Federated High Income Securities Fund, Inc.; Federated High Yield
Trust; Federated Income Securities Trust; Federated Income Trust; Federated
Index Trust; Federated Institutional Trust; Federated Master Trust; Federated
Municipal Opportunities Fund, Inc.; Federated Municipal Securities Fund, Inc.;
Federated Municipal Trust; Federated Short-Term Municipal Trust; Federated
Short-Term U.S. Government Trust; Federated Stock and Bond Fund, Inc.;
Federated Stock Trust; Federated Tax-Free Trust; Federated Total Return
Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S. Government
Securities Fund: 1-3 Years; Federated U.S. Government Securities Fund; 3-5
Years; Federated U.S. Government Securities Fund; 5-10 Years; Federated
Utility Fund, Inc.; First Priority Funds; Fixed Income Securities, Inc.;
Fortress Utility Fund, Inc.; High Yield Cash Trust; Insurance Management
Series; Intermediate Municipal Trust; International Series, Inc.; Investment
Series Funds, Inc.; Investment Series Trust; Liberty Term Trust, Inc. - 1999;
Liberty U.S. Government Money Market Trust; Liquid Cash Trust; Managed Series
Trust; Money Market Management, Inc.; Money Market Obligations Trust; Money
Market Trust; Municipal Securities Income Trust; Newpoint Funds; Peachtree
Funds; RIMCO Monument Funds; Targeted Duration Trust; Tax-Free Instruments
Trust; The Planters Funds; The Starburst Funds; The Starburst Funds II; The
Virtus Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; and World Investment Series, Inc.
TRUST OWNERSHIP
Officers and Trustees own less than 1% of the Trust's outstanding shares.
As of March 29, 1996, the following shareholders of record owned 5% or more of
the outstanding Institutional Shares of the Trust: The Washington Trust
Company, Westerly, RI, owned approximately 45,708 (8.81%) shares; J. Marco,
Marquette National Bank, Chicago, IL, owned approximately 37,118 (7.15%)
shares; and Doit & Company, First International Bank & Trust, Fargo, ND, owned
approximately 90,006 (17.35%) shares.
As of March 29, 1996, Charles Schwab & Company (as record owner holding
Institutional Shares for its clients), San Fransisco CA, owned approximately
136,939 Institutional Shares (26.39%) and therefore may, for certain purposes,
be deemed to control the Trust and be able to affect the outcome of certain
matters presented for a vote of shareholders.
As of March 29, 1996, Holdon, The Ohio Bank (as record owner holding
Institutional Service Shares for its clients), Findley, OH, owned
approximately 99,410 Institutional Service Shares (93.53%) and therefore may,
for certain purposes, be deemed to control the Trust and be able to affect the
outcome of certain matters presented for a vote of shareholders.
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
TRUSTEES' COMPENSATION
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST* FROM FUND COMPLEX +
John F. Donahue, $ 0 $0 for the Trust and
Chairman and Trustee 54 other investment companies in the Fund
Complex
Thomas G. Bigley, ++ $ 0 $86,331 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
John T. Conroy, Jr., $ 0 $115,760 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
William J. Copeland, $ 0 $115,760 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
James E. Dowd, $ 0 $115,760 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
Lawrence D. Ellis, M.D., $ 0 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
Edward L. Flaherty, Jr., $ 0 $115,760 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
Peter E. Madden, $ 0 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
Gregor F. Meyer, $ 0 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
John E. Murray, Jr., $ 0 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
Wesley W. Posvar, $ 0 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
Marjorie P. Smuts, $ 0 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
* As of the date of this Statement of Additional Information, the Trust has
not paid any fees to the Trustees of the Trust.
+ The information is provided for the last calendar year.
++ Mr. Bigley served on 39 investment companies in the Federated Funds Complex
from January 1 through September 30, 1995. On October 1, 1995, he was
appointed a Trustee of 15 additional Federated Funds.
INVESTMENT ADVISORY SERVICES
ADVISER TO THE TRUST
The Trust's investment adviser is Federated Management. It is a subsidiary of
Federated Investors. All of the voting securities of Federated Investors are
owned by a trust, the trustees of which are John F. Donahue, his wife, and
his son, J. Christopher Donahue. The adviser shall not be liable to the Trust
or any shareholder of the Trust for any losses that may be sustained in the
purchase, holding, or sale of any security, or for anything done or omitted by
it, except acts or omissions involving willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties imposed upon it by its
contract with the Trust.
ADVISORY FEES
For its advisory services, Federated Management receives an annual investment
advisory fee as described in the prospectus.
For the period from September 5, 1995 (start of business) to February 29,
1996, the adviser earned $4,537 all of which was waived.
STATE EXPENSE LIMITATIONS
The adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Trust's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2 1/2% per year of the first $30 million of average net assets, 2%
per year of the next $70 million of average net assets, and 1 1/2% per
year of the remaining average net assets, the adviser will reimburse the
Trust for its expenses over the limitation.
If the Trust's monthly projected operating expenses exceed this
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the adviser will
be limited, in any single fiscal year, by the amount of the investment
advisory fee.
This arrangement is not part of the advisory contract and may be amended or
rescinded in the future.
BROKERAGE TRANSACTIONS
The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Trust or to the
Adviser and may include: advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry
studies; receipt of quotations for portfolio evaluations; and similar
services. Research services provided by brokers and dealers may be used by the
Adviser or its affiliates in advising the Trust and other accounts. To the
extent that receipt of these services may supplant services for which the
Adviser or its affiliates might otherwise have paid, it would tend to reduce
their expenses. The Adviser and its affiliates exercise reasonable business
judgment in selecting brokers who offer brokerage and research services to
execute securities transactions. They determine in good faith that commissions
charged by such persons are reasonable in relationship to the value of the
brokerage and research services provided.
Although investment decisions for the Trust are made independently from those
of any other accounts managed by the Adviser, investments of the type the
Trust may make may also be made by those other accounts. When the Trust and
one or more other accounts managed by the Adviser are prepared to invest in,
or desire to dispose of, the same security, available investments or
opportunities for sales will be allocated in a manner believed by the Adviser
to be equitable to each. In some cases, this procedure may adversely affect
the price paid or received by the Trust or the size of the position obtained
or disposed of by the Trust. In other cases, however, it is believed that
coordination and the ability to participate in volume transactions will be to
the benefit of the Trust.
OTHER SERVICES
TRUST ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Trust for a fee as described in
the prospectus. For the period from September 5, 1995, (start of business) to
February 29, 1996, Federated Services Company earned $56,749. Dr. Henry J.
Gailliot, an officer of Federated Management, the Adviser to the Trust, holds
approximately 20% of the outstanding common stock and serves as a director of
Commercial Data Services, Inc., a company which provides computer processing
services to Federated Services Company.
CUSTODIAN AND PORTFOLIO RECORDKEEPER
State Street Bank and Trust Company, Boston, MA, is custodian for the
securities and cash of the Trust. Federated Services Company , Pittsburgh, PA,
also provides certain accounting and recordkeeping services with respect to
the Trust's portfolio investments.
TRANSFER AGENT
As transfer agent, Federated Shareholder Services Company maintains all
necessary shareholder records. For its services, the transfer agent receives a
fee based on size, type, and number of accounts and transactions made by
shareholders.
INDEPENDENT AUDITORS
The independent auditors for the Trust are Ernst & Young LLP, Pittsburgh, PA.
PURCHASING SHARES
Shares are sold at their net asset value without a sales charge on days the
New York Stock Exchange is open for business. The procedure for purchasing
Shares is explained in the respective prospectus under "Investing in
Institutional Shares" or "Investing in Institutional Service Shares."
DISTRIBUTION PLANAND SHAREHOLDER SERVICES AGREEMENT
These arrangements permit the payment of fees to financial institutions, the
distributor, and Federated Shareholder Services to stimulate distribution
activities and to cause services to be provided to shareholders by a
representative who has knowledge of the shareholder's particular circumstances
and goals. These activities and services may include, but are not limited to,
marketing efforts; providing office space, equipment, telephone facilities,
and various clerical, supervisory, computer, and other personnel as necessary
or beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries; and
assisting clients in changing dividend options, account designations, and
addresses.
With respect to the Institutional Service Shares class of the Trust, by
adopting the Distribution Plan, the Board of Trustees expects that the Trust
will be able to achieve a more predictable flow of cash for investment
purposes and to meet redemptions. This will facilitate more efficient
portfolio management and assist the Trust in pursuing its investment
objectives. By identifying potential investors whose needs are served by the
Trust's objectives, and properly servicing these accounts, it may be possible
to curb sharp fluctuations in rates of redemptions and sales.
Other benefits, which may be realized under either arrangement, may include:
(1) providing personal services to shareholders; (2) investing shareholder
assets with a minimum of delay and administrative detail; (3) enhancing
shareholder recordkeeping systems; and (4) responding promptly to
shareholders' requests and inquiries concerning their accounts.
For the period from September 5, 1995, (start of business) to February 29,
1996, payments in the amount of $561 were made pursuant to the Distribution
Plan for Institutional Service Shares. In addition, for the period from
September 5, 1995, (start of business) to February 29, 1996, the Trust paid
shareholder service fees in the amount of $2,267, of which $2,065 was
voluntarily waived.
CONVERSION TO FEDERAL FUNDS
It is the Trust's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds. Federated Shareholder
Services Company acts as the shareholder's agent in depositing checks and
converting them to federal funds.
DETERMINING NET ASSET VALUE
Net asset value generally changes each day. The days on which net asset value
is calculated by the Trust are described in the respective prospectuses.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Trust's portfolio securities are determined as follows:
o according to the mean between the over-the-counter bid and asked prices
provided by an independent pricing service, if available, or at fair
value as determined in good faith by the Trust's Board of Trustees; or
o for short-term obligations with remaining maturities of less than 60 days
at the time of purchase, at amortized cost unless the Trustees determine
that particular circumstances of the security indicate otherwise.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices. Pricing services may consider:
o yield;
o quality;
o coupon rate;
o maturity;
o type of issue;
o trading characteristics; and
o other market data.
REDEEMING SHARES
The Trust redeems Shares at the next computed net asset value after the Trust
receives the redemption request. Redemption procedures are explained in the
respective prospectuses under "Redeeming Institutional Shares" and "Redeeming
Institutional Service Shares." Although State Street Bank does not charge for
telephone redemptions, it reserves the right to charge a fee for the cost of
wire-transferred redemptions of less than $5,000.
REDEMPTION IN KIND
The Trust is obligated to redeem Shares solely in cash up to $250,000 or 1% of
the respective class net asset value, whichever is less, for any one
shareholder within a 90-day period.
Any redemption beyond this amount will also be in cash unless the Trustees
determine that further cash payments will have a material adverse effect on
remaining shareholders. In such a case, the Trust will pay all or a portion of
the remainder of the redemption in portfolio instruments, valued in the same
way as the Trust determines net asset value. The portfolio instruments will be
selected in a manner that the Trustees deem fair and equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is
made in kind, shareholders receiving their securities and selling them before
their maturity could receive less than the redemption value of their
securities and could incur certain transaction costs.
Although the Trust intends to redeem shares in cash, it reserves the right
under certain circumstances to pay the redemption price in whole or in part by
a distribution of securities from the Trust's portfolio. To the extent
available, such securities will be readily marketable.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect the
shareholders of the Trust, the Trust has filed legal documents with
Massachusetts that expressly disclaim the liability of its shareholders for
such acts or obligations of the Trust. These documents require notice of this
disclaimer to be given in each agreement, obligation, or instrument that the
Trust or its Trustees enter into or sign on behalf of the Trust.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required to use its property to protect or
compensate the shareholder. On request, the Trust will defend any claim made
and pay any judgment against a shareholder for any act or obligation of the
Trust. Therefore, financial loss resulting from liability as a shareholder
will occur only if the Trust itself cannot meet its obligations to indemnify
shareholders and pay judgments against them from its assets.
TAX STATUS
THE TRUST'S TAX STATUS
The Trust will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment
afforded to such companies. To qualify for this treatment, the Trust must,
among other requirements:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
o derive less than 30% of its gross income from the sale of securities held
less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and capital gains
received as cash or additional Shares. No portion of any income dividend paid
by the Trust is eligible for the dividends received deduction available to
corporations. These dividends, and any short-term capital gains, are taxable
as ordinary income.
CAPITAL GAINS
Long-term capital gains distributed to shareholders will be treated as
long-term capital gains regardless of how long shareholders have held
Shares.
TOTAL RETURN
The average annual total returns for the Institutional Shares and the
Institutional Service Shares for the period from October 19, 1995, (start of
performance) to February 29, 1996, were 1.85% and 1.75%, respectively.
The average annual total return for the Trust is the average compounded rate
of return for a given period that would equate a $1,000 initial investment to
the ending redeemable value of that investment. The ending redeemable value
is computed by multiplying the number of shares owned at the end of the period
by the net asset value 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
reinvestment of all dividends and distributions.
YIELD
The yield for both classes of shares of the Trust is determined by dividing
the net investment income per share (as defined by the Securities and Exchange
Commission) earned by either class of shares over a thirty-day period by the
maximum offering price per share of either class on the last day of the
period. This value is annualized using semi-annual compounding. This means
that the amount of income generated during the thirty-day period is assumed to
be generated each month over a twelve month period and is reinvested every six
months. The yield does not necessarily reflect income actually earned by the
Trust because of certain adjustments required by the Securities and Exchange
Commission and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in either
class of shares, performance will be reduced for those shareholders paying
those fees.
The thirty-day SEC yields for the Institutional Shares and the Institutional
Service Shares, for the period ended February 29, 1996, were 5.63% and 5.29%,
respectively.
PERFORMANCE COMPARISONS
The performance of both classes of shares depends upon such variables
as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Trust's expenses or either class of Share's expenses; and
o various other factors.
Either class of Shares' performance fluctuates on a daily basis largely
because net earnings and offering price per share fluctuate daily. Both net
earnings and net asset value per share are factors in the computation of yield
and total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Trust's performance. When comparing performance,
investors should consider all relevant factors such as the composition of any
index used, prevailing market conditions, portfolio compositions of other
funds and methods used to value portfolio securities and compute offering
price. The financial publications and/or indices which the Trust uses in
advertising may include:
o LIPPER ANALYTICAL SERVICES, INC. ranks funds in various 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.
o MERRILL LYNCH 5-10 YEAR TREASURY INDEX is an unmanaged index tracking
U.S. government securities with maturities between 5 and 9.99 years.
Advertisements and other sales literature for both classes of shares may quote
total returns which are calculated on nonstandardized base periods. These
total returns also represent the historic change in the value of an investment
in either class of shares based on monthly reinvestment of dividends over a
specified period of time.
DURATION
Duration is a commonly used measure of the potential volatility in the price
of a bond, or other fixed income security, or in a portfolio of fixed income
securities, prior to maturity. Volatility is the magnitude of the change in
the price of a bond relative to a given change in the market rate of interest.
A bond's price volatility depends on three primary variables: the bond's
coupon rate; maturity date; and the level of market yields of similar fixed
income securities. Generally, bonds with lower coupons or longer maturities
will be more volatile than bonds with higher coupons or shorter maturities.
Duration combines these variables into a single measure.
Duration is calculated by dividing the sum of the time-weighted present values
of the cash flows of a bond or bonds, including interest and principal
payments, by the sum of the present values of the cash flows. A more complete
description of this calculation is available upon request from the Trust.
ABOUT FEDERATED INVESTORS
Federated in dedicated to meeting investor needs which is reflected in its
investment decision making - structured, straightforward, and consistent. This
has resulted in a history of competitive performance with a range of
competitive investment products that have gained the confidence of thousands
of clients and their customers.
The company's disciplined security selection process is firmly rooted in sound
methodologies backed by fundamental and technical research. Investment
decisions are made and executed by teams of portfolio managers, analysts, and
traders dedicated to specific market sectors. J. Thomas Madden, Executive
Vice President, oversees Federated's equity and high yield corporate bond
management while William D. Dawson, Executive Vice President, oversees
Federated's domestic fixed income management. Henry A. Frantzen, Executive
Vice President, oversees the management of Federated's international
portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $2 trillion to the more than 5,500 funds available.*
Federated Investors, through its subsidiaries, distributes mutual funds for a
variety of investment applications. Specific markets include:
INSTITUTIONAL
Federated meets the needs of more than 4,000 institutional clients
nationwide by managing and servicing separate accounts and mutual funds
for a variety of applications, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax-exempt
entities, foundations/endowments, insurance companies, and investment and
financial advisors. The marketing effort to these institutional clients
is headed by John B. Fisher, President, Institutional Sales Division.
TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than
1,500 banks and trust organizations. Virtually all of the trust divisions
of the top 100 bank holding companies use Federated Funds in their
clients' portfolios. The marketing effort to trust clients is headed by
Mark R. Gensheimer, Executive Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated mutual funds are available to consumers through major brokerage
firms nationwide including 200 New York Stock Exchange firms supported
by more wholesalers than any other mutual fund distributor. The marketing
effort to these firms is headed by James F. Getz, President,
Broker/Dealer Division.
* Source: Investment Company Institute
Cusip 31428S107-IS
Cusip 31428S206-ISS
G01209-02 (4/96)
APPENDIX
A. The graphic presentation here displayed consists of a boxed legend in the
center indicating the components of the corresponding line graph. Federated
U.S. Government Securities Fund: 5-10 Years, Institutional Shares (the
"Trust") is represented by a solid line. The Merrill Lynch Five to Ten Year
Treasury Index ("MLFTYT") is represented by a broken line. The line graph is a
visual representation of a comparison of change in value of a hypothetical
$25,000 investment in the Trust and MLFTYT. The "x" axis reflects the cost of
the investment. The "y" axis reflects computation periods from the Trust's
start of business, 10/19/95, through 2/29/96. The right margin reflects the
ending value of the hypothetical investment in the Trust as compared to the
MLFTYT; the ending values are $25,463 and $25,383, respectively. There is
also a legend appearing below the graphic presentation which indicates the
Average Annual Total Return for the period endedFebruary 29, 1996 beginning
with the start of performance of the Trust (10/19/95), the Average Annual
Total Return is 1.85%.
B. The graphic presentation here displayed consists of a boxed legend in the
center indicating the components of the corresponding line graph. Federated
U.S. Government Securities Fund: 5-10 Years, Institutional Service Shares (the
"Trust") is represented by a solid line. The Merrill Lynch Five to Ten Year
Treasury Index ("MLFTYT") is represented by a broken line. The line graph is a
visual representation of a comparison of change in value of a hypothetical
$25,000 investment in the Trust and MLFTYT. The "x" axis reflects the cost of
the investment. The "y" axis reflects computation periods from the Trust's
start of business, 10/19/95, through 2/29/96. The right margin reflects the
ending value of the hypothetical investment in the Trust as compared to the
MLFTYT; the ending values are $25,438 and $25,383, respectively. There is also
a legend appearing below the graphic presentation which indicates the Average
Annual Total Return for the period ended February 29, 1996 beginning with the
start of performance of the Trust (10/19/95), the Average Annual Total Return
