PRESIDENT'S MESSAGE
Dear Investor:
I'm pleased to present the Semi-Annual Report to Shareholders for Federated
U.S. Government Securities Fund: 5-10 Years. The Report covers the six-month
period ended August 31, 1996 and includes an investment review by the fund's
portfolio manager, a complete list of portfolio holdings, and the financial
statements.
This mutual fund, which began operation in September 1995, pursues total
return and income through the relative safety of a U.S. government
portfolio.*
During the six-month reporting period, the fund's Institutional Shares and
Institutional Service Shares each paid income totaling $0.29 and $0.28 per
share, respectively. Rising interest rates had a negative impact on the
fund's share price, which in turn influenced the fund's total return of
(1.15%) for Institutional Shares and (1.32%) for Institutional Service
Shares.** Total net assets reached $10 million on August 31, 1996.
Thank you for participating in Federated U.S. Government Securities Fund:
5-10 Years. We welcome your comments and questions.
Sincerely,
[Graphic]
Glen R. Johnson
President
October 15, 1996
* Fund shares are not guaranteed by the U.S. government and their value will
fluctuate with market conditions.
** Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when redeemed,
may be worth more or less than their original cost.
INVESTMENT REVIEW
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 the
fund's February 29, 1996 fiscal year end, the fund has remained fully
invested in U.S. Treasury securities.
Fixed income performance year to date 1996 has been quite the opposite of
that in 1995. At the end of January, the Federal Reserve (the "Fed") had
just lowered the federal funds target rate for the third time to 5.25% in
response to a moderating economy and reduced inflationary pressures. But by
mid-February, market sentiment soured and interest rates increased steadily
all along the yield curve in response to stronger economic growth and
heightened inflation fears. Although the Fed's monetary policy has remained
on hold since January 31, 1996, short to intermediate-term rates have
increased more than long-term rates as the market dramatically transitioned
from pricing in aggressive Fed easing to the possibility of Fed tightening.
During the fund's semi-annual reporting period, the coupon curve flattened
as yields on Treasury securities maturing in 2 to 5 years increased more
than 10 to 30-year Treasury yields; specifically, the 5-year Treasury note
yield increased from 5.73% at the end of February 1996 to 6.73% at the end
of August 1996 while the 10-year Treasury note yield increased from 6.10% to
6.94%. The fund's Institutional Shares' and Institutional Service Shares'
net total returns for the six months ending August 31, 1996, were (1.15%)
and (1.32%),* respectively, compared to (1.42%) for the Merrill Lynch 5-10
Year Treasury Index.**
Although the economy is expected to grow, it is not expected to accelerate
enough to warrant aggressive tightening of monetary policy. Therefore, given
the increase in rates and the likelihood that the recent strength in the
economy will not be sustained, the fund's average maturity/duration was
lengthened from a more defensive toward a more neutral posture of 7.5/5.5
years currently. Also, given that further flattening of the yield curve was
expected to be limited, the fund's portfolio was shifted from a barbelled
toward a more laddered structure.
* Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when redeemed,
may be worth more or less than their original cost.
** Merrill Lynch 5-10 Year Treasury Index is an unmanaged index tracking
U.S. Treasury securities with maturities between 5 and 9.99 years.
Investments cannot be made in an index.
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 5-10 YEARS
PORTFOLIO OF INVESTMENTS
AUGUST 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
U.S. TREASURY OBLIGATIONS--90.3%
U.S. TREASURY BONDS -- 10.2%
$ 200,000 10.75%, 2/15/2003 $ 240,176
625,000 10.75%, 8/15/2005 780,638
Total 1,020,814
U.S. TREASURY NOTES -- 80.1%
400,000 6.375%, 3/31/2001 394,736
700,000 6.375%, 8/15/2002 686,378
50,000 6.25%, 2/15/2003 48,525
925,000 5.75%, 8/15/2003 869,250
800,000 5.875%, 2/15/2004 753,880
750,000 7.25%, 8/15/2004 765,600
725,000 7.50%, 2/15/2005 750,933
1,400,000 6.50%, 8/15/2005 1,359,176
1,500,000 6.875%, 5/15/2006 1,491,825
900,000 7.00%, 7/15/2006 903,672
Total 8,023,975
TOTAL U.S. TREASURY OBLIGATIONS (IDENTIFIED COST $9,364,163) 9,044,789
(A)REPURCHASE AGREEMENT--9.2%
920,000 BT Securities Corp., 5.27%, dated 8/30/1996, due 9/3/1996
(AT AMORTIZED COST) 920,000
TOTAL INVESTMENTS (IDENTIFIED COST $10,284,163)(B) $ 9,964,789
</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 $10,284,163.
The unrealized depreciation of investments on a federal tax basis amounts
to $319,374 at August 31, 1996.
Note: The categories of investments are shown as a percentage of net assets
($10,012,564) at August 31, 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
AUGUST 31, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $10,284,163) $ 9,964,789
Cash 4,270
Income receivable 69,223
Receivable for shares sold 8,258
Prepaid expenses 17,370
Total assets 10,063,910
LIABILITIES:
Income distribution payable $ 51,346
Total liabilities 51,346
NET ASSETS for 1,046,757 shares outstanding $ 10,012,564
NET ASSETS CONSIST OF:
Paid in capital $ 10,396,564
Net unrealized depreciation of investments (319,374)
Accumulated net realized loss on investments (64,626)
Total Net Assets $ 10,012,564
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$8,939,755 \ 934,601 shares outstanding $9.57
INSTITUTIONAL SERVICE SHARES:
$1,072,809 \ 112,156 shares outstanding $9.57
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 5-10 YEARS
STATEMENT OF OPERATIONS
SIX MONTHS ENDED AUGUST 31, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 253,429
EXPENSES:
Investment advisory fee $ 20,490
Administrative personnel and services fee 78,137
Custodian fees 10,680
Transfer and dividend disbursing agent fees and expenses 16,392
Directors'/Trustees' fees 1,350
Auditing fees 6,492
Legal fees 2,638
Portfolio accounting fees 29,387
Distribution services fee -- Institutional Service Shares 1,326
Shareholder services fee -- Institutional Shares 8,919
Shareholder services fee -- Institutional Service Shares 1,326
Share registration costs 17,180
Printing and postage 6,000
Insurance premiums 2,700
Miscellaneous 4,970
Total expenses 207,987
Waivers and reimbursements --
Waiver of investment advisory fee $ (20,490)
Waiver of shareholder services fee -- Institutional Shares (8,919)
Waiver of shareholder services fee -- Institutional Service Shares (849)
Reimbursement of other operating expenses (171,238)
Total waivers and reimbursements (201,496)
Net expenses 6,491
Net investment income 246,938
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments (65,164)
Net change in unrealized depreciation of investments (225,979)
Net realized and unrealized loss on investments (291,143)
Change in net assets resulting from operations $ (44,205)
</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>
SIX MONTHS PERIOD
ENDED ENDED
(UNAUDITED) FEBRUARY 29,
AUGUST 31, 1996 1996(A)
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 246,938 $ 51,106
Net realized gain (loss) on investments ($65,164 net loss and
$538 net gain, respectively, as computed for federal tax purposes) (65,164) 538
Net change in unrealized appreciation (depreciation) (225,979) (93,395)
Change in net assets resulting from operations (44,205) (41,751)
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Institutional Shares (216,799) (39,322)
Institutional Service Shares (30,139) (11,784)
Change in net assets resulting from distributions to shareholders (246,938) (51,106)
SHARE TRANSACTIONS--
Proceeds from sale of shares 5,962,614 5,281,115
Net asset value of shares issued to shareholders in payment of
distributions declared 116,487 23,501
Cost of shares redeemed (1,002,645) (84,508)
Change in net assets resulting from share transactions 5,076,456 5,220,108
Change in net assets 4,785,313 5,127,251
NET ASSETS:
Beginning of period 5,227,251 100,000
End of period $ 10,012,564 $ 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
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED PERIOD
(UNAUDITED) ENDED
AUGUST 31, FEBRUARY 29,
1996 1996(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.98 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.29 0.21
Net realized and unrealized gain (loss) on investments (0.41) (0.02)
Total from investment operations (0.12) 0.19
LESS DISTRIBUTIONS
Distributions from net investment income (0.29) (0.21)
NET ASSET VALUE, END OF PERIOD $ 9.57 $ 9.98
TOTAL RETURN(B) (1.15%) 1.85%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.11%* 0.11%*
Net investment income 6.08%* 5.75%*
Expense waiver/reimbursement(c) 4.93%* 12.26%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $8,940 $4,181
Portfolio turnover 96% 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)
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 5-10 YEARS
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED PERIOD
(UNAUDITED) ENDED
AUGUST 31, FEBRUARY 29,
1996 1996(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.98 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.28 0.20
Net realized and unrealized gain (loss) on investments (0.41) (0.02)
Total from investment operations (0.13) 0.18
LESS DISTRIBUTIONS
Distributions from net investment income (0.28) (0.20)
NET ASSET VALUE, END OF PERIOD $ 9.57 $ 9.98
TOTAL RETURN(B) (1.32%) 1.75%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.45%* 0.45%*
Net investment income 5.68%* 5.25%*
Expense waiver/reimbursement(c) 4.84%* 12.17%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $1,073 $1,046
Portfolio turnover 96% 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)
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 5-10 YEARS
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1996 (UNAUDITED)
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 offers
two classes of shares: Institutional Shares and Institutional Service
Shares. The investment objective of the Trust is to pursue total return
consistent with current income.
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 the prices provided by
an independent pricing service. However, short-term securities with
remaining maturities of sixty days or less at the time of purchase may be
valued at amortized cost, which approximates fair market value.
REPURCHASE AGREEMENTS -- It is the policy of the Trust to require the
custodian bank to take possession, to have legally segregated in the Federal
Reserve Book Entry System, or to have segregated within the custodian bank's
vault, all securities held as collateral under repurchase agreement
transactions. Additionally, procedures have been established by the Trust to
monitor, on a daily basis, the market value of each repurchase agreement's
collateral to ensure that the value of collateral at least equals the
repurchase price to be paid under the repurchase agreement transaction.
The Trust will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Trust's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the "Trustees").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Trust could receive less
than the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and
expenses are accrued daily. Bond premium and discount, if applicable, are
amortized as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES -- It is the Trust's policy to comply with the provisions of
the Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 5-10 YEARS
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>
SIX MONTHS PERIOD ENDED
ENDED FEBRUARY 29,
AUGUST 31, 1996 1996(A)
INSTITUTIONAL SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 609,164 $ 5,910,934 415,936 $ 4,226,665
Shares issued to shareholders in payment of
distributions declared 9,469 91,651 1,169 11,782
Shares redeemed (102,904) (998,097) (8,233) (83,503)
Net change resulting from Institutional Shares
transactions 515,729 $ 5,004,488 408,872 $ 4,154,944
</TABLE>
(a) Reflects operations from October 19, 1995 (date of initial
public investment) to February 29, 1996.
<TABLE>
<CAPTION>
SIX MONTHS PERIOD ENDED
ENDED FEBRUARY 29,
AUGUST 31, 1996 1996(B)
INSTITUTIONAL SERVICE SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 5,303 $ 51,680 103,710 $ 1,054,450
Shares issued to shareholders in payment of
distributions declared 2,562 24,836 1,153 11,719
Shares redeemed (472) (4,548) (100) (1,005)
Net change resulting from Institutional Service
Shares transactions 7,393 71,968 104,763 $ 1,065,164
Net change resulting from share transactions 523,122 $ 5,076,456 513,635 $ 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/or
reimburse certain operating expenses of the Trust. The Adviser can modify or
terminate this voluntary waiver and/or 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 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 average daily 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 any portion of its fee. FSS can modify or terminate this
voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ, through
its subsidiary, Federated Shareholder Services Company ("FSSC") serves as
transfer and dividend disbursing agent for the Trust. The fee paid to FSSC
is 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 August 31, 1996, the Trust paid $4,472 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 August 31, 1996, were as follows:
<TABLE>
<S> <C>
PURCHASES $ 7,073,977
SALES $ 9,448,955
</TABLE>
TRUSTEES
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
William J. Copeland
James E. Dowd
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr.
Peter E. Madden
Gregor F. Meyer
John E. Murray, Jr.
Wesley W. Posvar
Marjorie P. Smuts
OFFICERS
John F. Donahue
Chairman
Glen R. Johnson
President
J. Christopher Donahue
Executive Vice President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President, Treasurer, and Secretary
Richard B. Fisher
Vice President
Douglas L. Hein
Assistant Treasurer
S. Elliott Cohan
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including possible loss of principal.
This report is authorized for distribution to prospective investors only
when preceded or accompanied by the fund's prospectus which contains facts
concerning its objective and policies, management fees, expenses and other
information.
FEDERATED
U.S. GOVERNMENT
SECURITIES FUND:
5-10 YEARS
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
AUGUST 31, 1996
Federated Investors
[Graphic]
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
[Graphic]
Cusip 31428S107
Cusip 31428S206
G01393-01 (10/96)
