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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, 1997, with the
Securities and Exchange Commission ("SEC"). The information contained in the
Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Statement of Additional Information or
a paper copy of this prospectus, if you have received your prospectus
electronically, free of charge by calling 1-800-341-7400. To obtain other
information or make inquiries about the Trust, contact the Trust at the address
listed in the back of this prospectus. The Statement of Additional Information,
material incorporated by reference into this document, and other information
regarding the Trust is maintained electronically with the SEC at Internet Web
site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated April 30, 1997
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
Distribution of Institutional Shares 6
Administration of the Trust 7
NET ASSET VALUE 7
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INVESTING IN INSTITUTIONAL SHARES 7
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Share Purchases 7
Minimum Investment Required 8
What Shares Cost 8
Certificates and Confirmations 8
Dividends 8
Capital Gains 9
REDEEMING INSTITUTIONAL SHARES 9
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Telephone Redemption 9
Written Requests 9
Accounts with Low Balances 10
SHAREHOLDER INFORMATION 10
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Voting Rights 10
TAX INFORMATION 11
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Federal Income Tax 11
State and Local Taxes 11
PERFORMANCE INFORMATION 11
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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)........................................ 0.30%
Shareholder Services Fee (after waiver)(2)............................... 0.04%
Total Operating Expenses(3)........................................................... 0.30%
</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 shareholder service fee has been reduced to reflect the voluntary waiver
of a portion of the shareholders service fee. The shareholder service provider
can terminate this voluntary waiver at any time at its sole discretion. The
maximum shareholder services fee is 0.25%.
(3) The total operating expenses in the table above are based on expenses
expected during the fiscal year ending February 28, 1998. The total operating
expenses were 0.13% for the fiscal year ended February 28, 1997 and would have
been 4.08% absent the voluntary waivers of the management fee and 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 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 5 years 10 years
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<S> <C> <C> <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......... $ 3 $ 10 $ 17 $38
</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 EACH PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors on
page 22.
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
FEBRUARY 28, 1997 FEBRUARY 29, 1996(A)
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<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.98 $10.00
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INCOME FROM INVESTMENT OPERATIONS
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Net investment income 0.59 0.21
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Net realized and unrealized gain (loss) on
investments (0.21) (0.02)
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Total from investment operations 0.38 0.19
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LESS DISTRIBUTIONS
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Distributions from net investment income (0.59) (0.21)
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NET ASSET VALUE, END OF PERIOD $ 9.77 $ 9.98
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TOTAL RETURN (B) 3.98% 1.85%
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RATIOS TO AVERAGE NET ASSETS
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Expenses 0.13% 0.11%*
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Net investment income 6.06% 5.75%*
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Expense waiver/reimbursement (c) 3.95% 12.26%*
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SUPPLEMENTAL DATA
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Net assets, end of period (000 omitted) $ 15,225 $ 4,181
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Portfolio turnover 57% 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;
- notes, bonds, and discount notes issued or guaranteed by U.S. government
agencies or instrumentalities, supported by the full faith and credit of
the United States;
- notes, bonds, and discount notes of U.S. government agencies or
instrumentalities which receive or have access to federal funding; and
- notes, bonds, and discount notes of other U.S. government
instrumentalities supported only by the credit of the instrumentalities.
Some obligations issued or guaranteed by agencies or instrumentalities of the
U.S. government are backed by the full faith and credit of the U.S. Treasury. No
assurances can be given that the U.S. government will provide financial support
to other agencies or instrumentalities, since it is not obligated to do so.
These 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 0.50% of the Trust's average daily net assets. This does not
include reimbursement to the Trust of any expenses incurred by shareholders
who use the transfer agent's subaccounting facilities.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. With over $110 billion invested across
more than 300 funds under management and/or administration by its
subsidiaries, as of December 31, 1996, Federated Investors is one of the
largest mutual fund investment managers in the United States. With more
than 2,000 employees, Federated continues to be led by the management who
founded the company in 1955. Federated funds are presently at work in and
through 4,500 financial institutions nationwide.
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.
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.
SHAREHOLDER SERVICES. The Trust has entered into a Shareholder Services
Agreement with Federated Shareholder Services, a subsidiary of Federated
Investors, under which the Trust may make payments up to 0.25% of the average
daily net asset value of Institutional Shares, computed at an annual rate, to
obtain certain personal services for shareholders and to maintain shareholder
accounts. From time to time and for such periods as deemed appropriate, the
amount stated above may be reduced voluntarily. Under the Shareholder Services
Agreement, Federated Shareholder Services will either perform shareholder
services directly or will select financial institutions to perform shareholder
services. Financial institutions will receive fees based upon Shares owned by
their clients or customers. The schedules of such fees and the basis upon which
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>
AVERAGE AGGREGATE
MAXIMUM FEE DAILY NET ASSETS
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<S> <C>
.15% on the first $250 million
.125% on the next $250 million
.10% on the next $250 million
.075% 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 and Trust Company, into federal
funds. This is generally the next business day after State Street Bank and Trust
Company receives the check.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Shares is $25,000 plus any financial
intermediary's fee, if applicable. However, an account may be opened with a
smaller amount as long as the $25,000 minimum is reached within 90 days. An
institutional investor's minimum investment will be calculated by combining all
accounts it maintains with the Trust. Accounts established through a financial
intermediary may be subject to a 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 and Trust Company. 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 also be redeemed by sending a written request to Federated
Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. Call the
Trust for specific instructions before redeeming by letter. The shareholder will
be asked to provide in the request his name, the Trust name and class of shares
name, his account number, and the share or dollar amount requested. 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.
9
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 ("SAIF"), which is administered by the
FDIC; or
- any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Trust does not accept signatures guaranteed by a notary public.
The Trust and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Trust may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Trust and its transfer agent reserve the right
to amend these standards at any time without notice.
RECEIVING PAYMENT. Normally, a check for the proceeds is mailed within one
business day, but in no event more than seven days, after receipt of a proper
written redemption request.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Trust may
redeem Shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $25,000. This
requirement does not apply, however, if the balance falls below $25,000 because
of changes in the Trust's net asset value.
Before Shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional Shares to meet the minimum
requirement.
SHAREHOLDER INFORMATION
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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 April 3, 1997, Charles Schwab & Company (as record owners 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, Donnelly & Meck, counsel to the 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.
Institutional Shares are sold without any sales charge or other similar
non-recurring charges.
Total return and yield will be calculated separately for Institutional Shares
and Institutional Service Shares.
From time to time, advertisements for the Trust's Institutional Shares may refer
to ratings, rankings, and other information in certain financial publications
and/or compare the Trust's Institutional Shares performance to certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
The Trust also offers another class of shares called Institutional Service
Shares. 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 over a 90-day period.
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 1-800-341-7400.
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 5-10 YEARS
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors on
page 22.
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
FEBRUARY 28, FEBRUARY 29,
1997 1996(A)
------------- -------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.98 $10.00
- ------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------
Net investment income 0.56 0.20
- ------------------------------------------------------
Net realized and unrealized gain (loss) on
investments (0.21) (0.02)
- ------------------------------------------------------ ----------- -----------
Total from investment operations 0.35 0.18
- ------------------------------------------------------ ----------- -----------
LESS DISTRIBUTIONS
- ------------------------------------------------------
Distributions from net investment income (0.56) (0.20)
- ------------------------------------------------------ ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 9.77 $ 9.98
- ------------------------------------------------------ ----------- -----------
TOTAL RETURN (B) 3.62% 1.75%
- ------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------
Expenses 0.47% 0.45%*
- ------------------------------------------------------
Net investment income 5.70% 5.25%*
- ------------------------------------------------------
Expense waiver/reimbursement (c) 3.86% 12.17%*
- ------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------
Net assets, end of period (000 omitted) $ 1,782 $ 1,046
- ------------------------------------------------------
Portfolio turnover 57% 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 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- --------------------------------------------------------------------- -----------
<C> <S> <C>
U.S. TREASURY OBLIGATIONS--98.5%
- ----------------------------------------------------------------------------------
U.S. TREASURY BONDS--20.2%
---------------------------------------------------------------------
$ 300,000 7.50%, 5/15/2002 $ 314,568
---------------------------------------------------------------------
700,000 10.75%, 2/15/2003 847,406
---------------------------------------------------------------------
1,040,000 7.25%, 5/15/2004 1,084,502
---------------------------------------------------------------------
300,000 12.00%, 5/15/2005 402,270
---------------------------------------------------------------------
625,000 10.75%, 8/15/2005 792,425
--------------------------------------------------------------------- -----------
Total 3,441,171
--------------------------------------------------------------------- -----------
U.S. TREASURY NOTES-78.3%
---------------------------------------------------------------------
250,000 5.875%, 11/30/2001 244,857
---------------------------------------------------------------------
800,000 6.125%, 12/31/2001 791,504
---------------------------------------------------------------------
1,500,000 6.25%, 1/31/2002 1,491,630
---------------------------------------------------------------------
1,000,000 6.375%, 8/15/2002 999,250
---------------------------------------------------------------------
250,000 6.25%, 2/15/2003 247,915
---------------------------------------------------------------------
1,665,000 5.75%, 8/15/2003 1,604,444
---------------------------------------------------------------------
800,000 5.875%, 2/15/2004 773,376
---------------------------------------------------------------------
750,000 7.25%, 8/15/2004 782,527
---------------------------------------------------------------------
300,000 7.875%, 11/15/2004 324,237
---------------------------------------------------------------------
725,000 7.50%, 2/15/2005 767,797
---------------------------------------------------------------------
750,000 5.875%, 11/15/2005 716,415
---------------------------------------------------------------------
1,500,000 6.875%, 5/15/2006 1,530,090
---------------------------------------------------------------------
2,250,000 7.00%, 7/15/2006 2,314,080
---------------------------------------------------------------------
725,000 6.50%, 10/15/2006 720,738
--------------------------------------------------------------------- -----------
Total 13,308,860
--------------------------------------------------------------------- -----------
TOTAL INVESTMENTS (IDENTIFIED COST $16,957,124)(A) $16,750,031
--------------------------------------------------------------------- -----------
</TABLE>
(a) The cost of investments for federal tax purposes amounts to $16,957,124. The
net unrealized depreciation of investments on a federal tax basis amounts to
$207,093 which is comprised of $34,778 of appreciation and $241,871
depreciation at February 28, 1997.
Note: The categories of investments are shown as a percentage of net assets
($17,007,263) at February 28, 1997.
(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 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Total investments in securities, at value (identified and tax cost $16,957,124) $16,750,031
- --------------------------------------------------------------------------------
Income receivable 164,068
- --------------------------------------------------------------------------------
Receivable for shares sold 298,867
- -------------------------------------------------------------------------------- -----------
Total assets 17,212,966
- --------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------
Payable for shares redeemed $ 1,505
- ---------------------------------------------------------------------
Income distribution payable 35,369
- ---------------------------------------------------------------------
Payable to bank 152,792
- ---------------------------------------------------------------------
Accrued expenses 16,037
- --------------------------------------------------------------------- --------
Total liabilities 205,703
- -------------------------------------------------------------------------------- -----------
NET ASSETS for 1,740,424 shares outstanding $17,007,263
- -------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Paid in capital $17,222,136
- --------------------------------------------------------------------------------
Net unrealized depreciation of investments (207,093)
- --------------------------------------------------------------------------------
Accumulated net realized loss on investments (7,780)
- -------------------------------------------------------------------------------- -----------
Total Net Assets $17,007,263
- -------------------------------------------------------------------------------- -----------
NET ASSET VALUE, Offering Price and Redemption Proceeds Per Share:
- --------------------------------------------------------------------------------
INSTITUTIONAL SHARES:
- --------------------------------------------------------------------------------
$15,225,439 / 1,558,079 shares outstanding $9.77
- -------------------------------------------------------------------------------- -----------
INSTITUTIONAL SERVICE SHARES:
- --------------------------------------------------------------------------------
$1,781,824 / 182,345 shares outstanding $9.77
- -------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 5-10 YEARS
STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------------------
Interest $ 653,378
- --------------------------------------------------------------------------------------------- ---------
EXPENSES:
- ---------------------------------------------------------------------------------------------
Investment advisory fee $ 52,801
- ---------------------------------------------------------------------------------
Administrative personnel and services fee 155,001
- ---------------------------------------------------------------------------------
Custodian fees 20,567
- ---------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 32,766
- ---------------------------------------------------------------------------------
Directors'/Trustees' fees 6,892
- ---------------------------------------------------------------------------------
Auditing fees 10,168
- ---------------------------------------------------------------------------------
Legal fees 2,282
- ---------------------------------------------------------------------------------
Portfolio accounting fees 64,480
- ---------------------------------------------------------------------------------
Distribution services fee--Institutional Service Shares 3,039
- ---------------------------------------------------------------------------------
Shareholder services fee--Institutional Shares 23,361
- ---------------------------------------------------------------------------------
Shareholder services fee--Institutional Service Shares 3,039
- ---------------------------------------------------------------------------------
Share registration costs 30,114
- ---------------------------------------------------------------------------------
Printing and postage 19,484
- ---------------------------------------------------------------------------------
Insurance premiums 3,131
- ---------------------------------------------------------------------------------
Miscellaneous 5,255
- --------------------------------------------------------------------------------- ---------
Total expenses 432,380
- ---------------------------------------------------------------------------------
WAIVERS AND REIMBURSEMENTS--
- ---------------------------------------------------------------------------------
Waiver of investment advisory fee $ (52,801)
- ----------------------------------------------------------------------
Waiver of shareholder services fee--Institutional Shares (23,304)
- ----------------------------------------------------------------------
Waiver of shareholder services fee--Institutional Service Shares (1,945)
- ----------------------------------------------------------------------
Reimbursement of other operating expenses (336,839)
- ---------------------------------------------------------------------- ---------
Total waivers and reimbursements (414,889)
- --------------------------------------------------------------------------------- ---------
Net expenses 17,491
- --------------------------------------------------------------------------------------------- ---------
Net investment income 635,887
- --------------------------------------------------------------------------------------------- ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ---------------------------------------------------------------------------------------------
Net realized loss on investments (7,780)
- ---------------------------------------------------------------------------------------------
Net change in unrealized depreciation of investments (113,698)
- --------------------------------------------------------------------------------------------- ---------
Net realized and unrealized loss on investments (121,478)
- --------------------------------------------------------------------------------------------- ---------
Change in net assets resulting from operations $ 514,409
- --------------------------------------------------------------------------------------------- ---------
</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>
YEAR ENDED PERIOD ENDED
FEBRUARY 28, 1997 FEBRUARY 29, 1996(A)
----------------- --------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------------------------
OPERATIONS--
- -------------------------------------------------------
Net investment income $ 635,887 $ 51,106
- -------------------------------------------------------
Net realized gain (loss) on investments ($7,780 net
loss and $538 net gain respectively, as computed for
federal tax purposes) (7,780) 538
- -------------------------------------------------------
Net change in unrealized appreciation (depreciation) (113,698) (93,395)
- ------------------------------------------------------- --------------- ----------------
Change in net assets resulting from operations 514,409 (41,751)
- ------------------------------------------------------- --------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -------------------------------------------------------
Distributions from net investment income
- -------------------------------------------------------
Institutional Shares (566,566) (39,322)
- -------------------------------------------------------
Institutional Service Shares (69,321) (11,784)
- ------------------------------------------------------- --------------- ----------------
Change in net assets resulting from distributions
to shareholders (635,887) (51,106)
- ------------------------------------------------------- --------------- ----------------
SHARE TRANSACTIONS--
- -------------------------------------------------------
Proceeds from sale of shares 14,011,685 5,281,115
- -------------------------------------------------------
Net asset value of shares issued to shareholders in
payment of distributions declared 364,163 23,501
- -------------------------------------------------------
Cost of shares redeemed (2,474,358) (84,508)
- ------------------------------------------------------- --------------- ----------------
Change in net assets resulting from share
transactions 11,901,490 5,220,108
- ------------------------------------------------------- --------------- ----------------
Change in net assets 11,780,012 5,127,251
- -------------------------------------------------------
NET ASSETS:
- -------------------------------------------------------
Beginning of period 5,227,251 100,000
- ------------------------------------------------------- --------------- ----------------
End of period $17,007,263 $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 28,1997
- --------------------------------------------------------------------------------
(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.
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 5-10 YEARS
- --------------------------------------------------------------------------------
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
capital gains. The following reclassifications have been made to the
financial statements.
<TABLE>
<CAPTION>
INCREASE (DECREASE)
-------------------------------------
ACCUMULATED NET
PAID IN CAPITAL REALIZED LOSS
---------------- ---------------
<S> <C>
538 (538)
</TABLE>
FEDERAL TAXES--It is the Trust's policy to comply with the provisions of
the Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary. At February 28, 1997, the Trust,
for federal tax purposes, had a capital loss carryforward of $7,780, which
will reduce the Trust's taxable income arising from future net realized
gain on investments, if any, to the extent permitted by the Code, and thus
will reduce the amount of the distributions to shareholders which would
otherwise be necessary to relieve the Trust of any liability for federal
tax. Pursuant to the Code, such capital loss carryforward will expire in
2005.
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:
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 5-10 YEARS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
YEAR ENDED FEBRUARY 29, 1996(B)
FEBRUARY 28, 1997
------------------------- -----------------------
INSTITUTIONAL SHARES SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------- --------- ----------- ------- -----------
<S> <C> <C> <C> <C>
Shares sold 1,356,949 $13,273,741 415,936 $ 4,226,665
- -------------------------------------------
Shares issued to shareholders in
payment of distributions declared 30,780 300,793 1,169 11,782
- -------------------------------------------
Shares redeemed (248,522) (2,434,999) (8,233) (83,503)
- ------------------------------------------- --------- ----------- ------- -----------
Net change resulting from Institutional
shares transactions 1,139,207 $11,139,535 408,872 $ 4,154,944
- ------------------------------------------- --------- ----------- ------- -----------
</TABLE>
(a) Reflects operations from October 19, 1995 (date of initial public
investment) to February 29, 1996.
<TABLE>
<CAPTION>
PERIOD ENDED
YEAR ENDED FEBRUARY 29, 1996(B)
FEBRUARY 28, 1997
------------------------- -----------------------
INSTITUTIONAL SERVICE SHARES SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------- --------- ----------- ------- -----------
<S> <C> <C> <C> <C>
Shares sold 75,118 $ 737,944 103,710 $ 1,054,450
- -------------------------------------------
Shares issued to shareholders in
payment of distributions declared 6,492 63,370 1,153 11,719
- -------------------------------------------
Shares redeemed (4,028) (39,359) (100) (1,005)
- ------------------------------------------- --------- ----------- ------- -----------
Net change resulting from Institutional
Service Shares transactions 77,582 $ 761,955 104,763 $ 1,065,164
- ------------------------------------------- --------- ----------- ------- -----------
Net change resulting from share
transactions 1,216,789 $11,901,490 513,635 $ 5,220,108
- ------------------------------------------- --------- ----------- ------- -----------
</TABLE>
(b) Reflects operations from October 19, 1995 (date of initial public offering)
to February 29, 1996.
(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
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 5-10 YEARS
- --------------------------------------------------------------------------------
Administrative Services Agreement shall be at least $125,000 per portfolio
and $30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE--The Trust has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan,
the Trust will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Trust to finance activities
intended to result in the sale of the Trust's Institutional Service Shares.
The Plan provides that the Institutional Service Shares may incur
distribution expenses up to 0.25% of the average daily net assets of the
Institutional Services 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 $42,365 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 28, 1997, 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.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended February 28, 1997, were as follows:
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------
Purchases $17,897,550
- ------------------------------------------------------------------------------- -----------
Sales $ 5,828,914
- ------------------------------------------------------------------------------- -----------
</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 28, 1997, and the related statement of operations for the
year then ended, the statement of changes in net assets for each of the two
years in the period then ended and the financial highlights (see pages 2 and 13
of this prospectus) for the periods presented therein. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 28, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Federated U.S. Government Securities Fund: 5-10 Years at February 28, 1997, and
the results of its operations for the year then ended, changes in its net assets
for each of the two years in the period then ended, and financial highlights for
the periods presented therein, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
April 14, 1997
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 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 SHARES
PROSPECTUS
An Open-End, Diversified
Management Investment Company
Prospectus dated April 30, 1997
LOGO
Cusip 31428S107
G01209-01-IS (4/97)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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, 1997, with the
Securities and Exchange Commission ("SEC"). The information contained in the
Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Statement of Additional Information or
a paper copy of this prospectus, if you have received your prospectus
electronically, free of charge by calling 1-800-341-7400. To obtain other
information or make inquiries about the Trust, contact the Trust at the address
listed in the back of this prospectus. The Statement of Additional Information,
material incorporated by reference into this document, and other information
regarding the Trust is maintained electronically with the SEC at Internet Web
site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated April 30, 1997
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 5
TRUST INFORMATION 5
- ------------------------------------------------------
Management of the Trust 5
Distribution of Institutional
Service Shares 6
Administration of the Trust 7
NET ASSET VALUE 7
- ------------------------------------------------------
INVESTING IN INSTITUTIONAL
SERVICE SHARES 8
- ------------------------------------------------------
Share Purchases 8
Minimum Investment Required 8
What Shares Cost 8
Certificates and Confirmations 9
Dividends 9
Capital Gains 9
REDEEMING INSTITUTIONAL
SERVICE SHARES 9
- ------------------------------------------------------
Telephone Redemption 9
Written Requests 10
Accounts with Low Balances 10
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)........................................ 0.35%
Shareholder Services Fee (after waiver)(2)............................... 0.09%
Total Operating Expenses(3)........................................................... 0.60%
</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 shareholder service fee has been reduced to reflect the voluntary waiver
of a portion of the shareholders service fee. The shareholder service provider
can terminate this voluntary waiver at any time at its sole discretion. The
maximum shareholder services fee is 0.25%.
(3) The total operating expenses in the table above are based on expenses
expected during the fiscal year ending February 28, 1998. The total operating
expenses were 0.47% for the fiscal year ended February 28, 1997 and would have
been 4.33% 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 5 years 10 years
- ---------------------------------------------------- ------- -------- -------- ---------
<S> <C> <C> <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 $ 19 $ 33 $75
</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 EACH PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors on
page 22.
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
FEBRUARY 28, FEBRUARY 29,
1997 1996(A)
------------- -------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.98 $ 10.00
- ------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------
Net investment income 0.56 0.20
- ------------------------------------------------------
Net realized and unrealized gain (loss) on
investments (0.21) (0.02)
- ------------------------------------------------------ --------- ---------
Total from investment operations 0.35 0.18
- ------------------------------------------------------ --------- ---------
LESS DISTRIBUTIONS
- ------------------------------------------------------
Distributions from net investment income (0.56) (0.20)
- ------------------------------------------------------ --------- ---------
NET ASSET VALUE, END OF PERIOD $ 9.77 $ 9.98
- ------------------------------------------------------ --------- ---------
TOTAL RETURN (B) 3.62% 1.75%
- ------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------
Expenses 0.47% 0.45%*
- ------------------------------------------------------
Net investment income 5.70% 5.25%*
- ------------------------------------------------------
Expense waiver/reimbursement (c) 3.86% 12.17%*
- ------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------
Net assets, end of period (000 omitted) $ 1,782 $ 1,046
- ------------------------------------------------------
Portfolio turnover 57% 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;
- notes, bonds, and discount notes issued or guaranteed by U.S. government
agencies or instrumentalities, supported by the full faith and credit of
the United States;
- notes, bonds, and discount notes of U.S. government agencies or
instrumentalities which receive or have access to federal funding; and
- notes, bonds, and discount notes of other U.S. government
instrumentalities supported only by the credit of the instrumentalities.
Some obligations issued or guaranteed by agencies or instrumentalities of the
U.S. government are backed by the full faith and credit of the U.S. Treasury. No
assurances can be given that the U.S. government will provide financial support
to other agencies or instrumentalities, since it is not obligated to do so.
These 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 0.50% of the Trust's average daily net assets. This does not
include reimbursement to the Trust of any expenses incurred by shareholders
who use the transfer agent's subaccounting facilities.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. With over $110 billion invested across
more than 300 funds under management and/or administration by its
subsidiaries, as of December 31, 1996, Federated Investors is one of the
largest mutual fund investment managers in the United States. With more
than 2,000 employees, Federated continues to be led by the management who
founded the company in 1955. Federated funds are presently at work in and
through 4,500 financial institutions nationwide.
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.
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.
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 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 the average daily net asset value of
Institutional Service 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
FEE DAILY NET ASSETS
- -------- ------------------------------------
<S> <C>
.15% on the first $250 million
.125% on the next $250 million
.10% on the next $250 million
.075% 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 Administrative Services 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 and Trust Company,
into federal funds. This is generally the next business day after State Street
Bank and Trust Company receives the check.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Shares is $25,000 plus any financial
intermediary's fee, if applicable. However, an account may be opened with a
smaller amount as long as the $25,000 minimum is reached within 90 days. An
institutional investor's minimum investment will be calculated by combining all
accounts it maintains with the Trust. Accounts established through a financial
intermediary may be subject to a 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 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 and Trust Company. 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
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 also be redeemed by sending a written request to Federated
Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. Call the
Trust for specific instructions before redeeming by letter. The shareholder will
be asked to provide in the request his name, the Trust name and class of shares
name, his account number, and the share or dollar amount requested. 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 ("SAIF"), which is administered by the
FDIC; or
- any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Trust does not accept signatures guaranteed by a notary public.
The Trust and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Trust may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Trust and its transfer agent reserve the right
to amend these standards at any time without notice.
RECEIVING PAYMENT. Normally, a check for the proceeds is mailed within one
business day, but in no event more than seven days, after receipt of a proper
written redemption request.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Trust may
redeem Shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $25,000. This
requirement does not apply, however, if the balance falls below $25,000 because
of changes in the Trust's net asset value.
Before Shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional Shares to meet the minimum
requirement.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Trust gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
each portfolio in the Trust have equal voting rights except that in matters
affecting only a particular portfolio or class, only shares of that portfolio or
class are entitled to vote. As a Massachusetts business trust, the Trust is not
required to hold annual shareholder meetings. Shareholder approval will be
sought only for certain changes in the Trust's operation and for the election of
Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders for this purpose shall be called by the
Trustees upon the written request of shareholders owning at least 10% of the
outstanding shares of the Trust entitled to vote.
As of April 3, 1997, Holdon, The Ohio Bank and Danvers Savings 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.
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, Donnelly & Meck, counsel to the 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.
Institutional Service Shares are sold without any sales charge or other similar
non-recurring charges.
Total return and yield will be calculated separately for Institutional Shares
and Institutional Service Shares.
From time to time, advertisements for the Trust's Institutional Service Shares
may refer to ratings, rankings, and other information in certain financial
publications and/or compare the Trust's Institutional Service Shares performance
to certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
The Trust also offers another class of shares called Institutional Shares.
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 over a
90-day period.
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 1-800-341-7400.
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 5-10 YEARS
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors on
page 22.
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
FEBRUARY 28, 1997 FEBRUARY 29, 1996(A)
------------------ ---------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.98 $10.00
- ---------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------
Net investment income 0.59 0.21
- ---------------------------------------------
Net realized and unrealized gain (loss) on
investments (0.21) (0.02)
- --------------------------------------------- ----------- -------------
Total from investment operations 0.38 0.19
- --------------------------------------------- ----------- -------------
LESS DISTRIBUTIONS
- ---------------------------------------------
Distributions from net investment income (0.59) (0.21)
- --------------------------------------------- ----------- -------------
NET ASSET VALUE, END OF PERIOD $ 9.77 $ 9.98
- --------------------------------------------- ----------- -------------
TOTAL RETURN (B) 3.98% 1.85%
- ---------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------
Expenses 0.13% 0.11%*
- ---------------------------------------------
Net investment income 6.06% 5.75%*
- ---------------------------------------------
Expense waiver/reimbursement (c) 3.95% 12.26%*
- ---------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------
Net assets, end of period (000 omitted) $ 15,225 $ 4,181
- ---------------------------------------------
Portfolio turnover 57% 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 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ---------- --------------------------------------------------------------------- -----------
<C> <S> <C>
U.S. TREASURY OBLIGATIONS--98.5%
- ----------------------------------------------------------------------------------
U.S. TREASURY BONDS--20.2%
---------------------------------------------------------------------
$ 300,000 7.50%, 5/15/2002 $ 314,568
---------------------------------------------------------------------
700,000 10.75%, 2/15/2003 847,406
---------------------------------------------------------------------
1,040,000 7.25%, 5/15/2004 1,084,502
---------------------------------------------------------------------
300,000 12.00%, 5/15/2005 402,270
---------------------------------------------------------------------
625,000 10.75%, 8/15/2005 792,425
--------------------------------------------------------------------- -----------
Total 3,441,171
--------------------------------------------------------------------- -----------
U.S. TREASURY NOTES--78.3%
---------------------------------------------------------------------
250,000 5.875%, 11/30/2001 244,857
---------------------------------------------------------------------
800,000 6.125%, 12/31/2001 791,504
---------------------------------------------------------------------
1,500,000 6.25%, 1/31/2002 1,491,630
---------------------------------------------------------------------
1,000,000 6.375%, 8/15/2002 999,250
---------------------------------------------------------------------
250,000 6.25%, 2/15/2003 247,915
---------------------------------------------------------------------
1,665,000 5.75%, 8/15/2003 1,604,444
---------------------------------------------------------------------
800,000 5.875%, 2/15/2004 773,376
---------------------------------------------------------------------
750,000 7.25%, 8/15/2004 782,527
---------------------------------------------------------------------
300,000 7.875%, 11/15/2004 324,237
---------------------------------------------------------------------
725,000 7.50%, 2/15/2005 767,797
---------------------------------------------------------------------
750,000 5.875%, 11/15/2005 716,415
---------------------------------------------------------------------
1,500,000 6.875%, 5/15/2006 1,530,090
---------------------------------------------------------------------
2,250,000 7.00%, 7/15/2006 2,314,080
---------------------------------------------------------------------
725,000 6.50%, 10/15/2006 720,738
--------------------------------------------------------------------- -----------
Total 13,308,860
--------------------------------------------------------------------- -----------
TOTAL INVESTMENTS (IDENTIFIED COST $16,957,124)(A) $16,750,031
--------------------------------------------------------------------- -----------
</TABLE>
(a) The cost of investments for federal tax purposes amounts to $16,957,124. The
net unrealized depreciation of investments on a federal tax basis amounts to
$207,093 which is comprised of $34,778 of appreciation and $241,871
depreciation at February 28, 1997.
Note: The categories of investments are shown as a percentage of net assets
($17,007,263) at February 28, 1997.
(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 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Total investments in securities, at value (identified and tax cost $16,957,124) $16,750,031
- --------------------------------------------------------------------------------
Income receivable 164,068
- --------------------------------------------------------------------------------
Receivable for shares sold 298,867
- -------------------------------------------------------------------------------- -----------
Total assets 17,212,966
- --------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------
Payable for shares redeemed $ 1,505
- ---------------------------------------------------------------------
Income distribution payable 35,369
- ---------------------------------------------------------------------
Payable to bank 152,792
- ---------------------------------------------------------------------
Accrued expenses 16,037
- --------------------------------------------------------------------- --------
Total liabilities 205,703
- -------------------------------------------------------------------------------- -----------
NET ASSETS for 1,740,424 shares outstanding $17,007,263
- -------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Paid in capital $17,222,136
- --------------------------------------------------------------------------------
Net unrealized depreciation of investments (207,093)
- --------------------------------------------------------------------------------
Accumulated net realized loss on investments (7,780)
- -------------------------------------------------------------------------------- -----------
Total Net Assets $17,007,263
- -------------------------------------------------------------------------------- -----------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- --------------------------------------------------------------------------------
INSTITUTIONAL SHARES:
- --------------------------------------------------------------------------------
$15,225,439 / 1,558,079 shares outstanding $9.77
- -------------------------------------------------------------------------------- -----------
INSTITUTIONAL SERVICE SHARES:
- --------------------------------------------------------------------------------
$1,781,824 / 182,345 shares outstanding $9.77
- -------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 5-10 YEARS
STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------------------
Interest $ 653,378
- --------------------------------------------------------------------------------------------- ---------
EXPENSES:
- ---------------------------------------------------------------------------------------------
Investment advisory fee $ 52,801
- ---------------------------------------------------------------------------------
Administrative personnel and services fee 155,001
- ---------------------------------------------------------------------------------
Custodian fees 20,567
- ---------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 32,766
- ---------------------------------------------------------------------------------
Directors'/Trustees' fees 6,892
- ---------------------------------------------------------------------------------
Auditing fees 10,168
- ---------------------------------------------------------------------------------
Legal fees 2,282
- ---------------------------------------------------------------------------------
Portfolio accounting fees 64,480
- ---------------------------------------------------------------------------------
Distribution services fee--Institutional Service Shares 3,039
- ---------------------------------------------------------------------------------
Shareholder services fee--Institutional Shares 23,361
- ---------------------------------------------------------------------------------
Shareholder services fee--Institutional Service Shares 3,039
- ---------------------------------------------------------------------------------
Share registration costs 30,114
- ---------------------------------------------------------------------------------
Printing and postage 19,484
- ---------------------------------------------------------------------------------
Insurance premiums 3,131
- ---------------------------------------------------------------------------------
Miscellaneous 5,255
- --------------------------------------------------------------------------------- ---------
Total expenses 432,380
- ---------------------------------------------------------------------------------
WAIVERS AND REIMBURSEMENTS--
- ---------------------------------------------------------------------------------
Waiver of investment advisory fee $ (52,801)
- ----------------------------------------------------------------------
Waiver of shareholder services fee--Institutional Shares (23,304)
- ----------------------------------------------------------------------
Waiver of shareholder services fee--Institutional Service Shares (1,945)
- ----------------------------------------------------------------------
Reimbursement of other operating expenses (336,839)
- ---------------------------------------------------------------------- ---------
Total waivers and reimbursements (414,889)
- --------------------------------------------------------------------------------- ---------
Net expenses 17,491
- --------------------------------------------------------------------------------------------- ---------
Net investment income 635,887
- --------------------------------------------------------------------------------------------- ---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ---------------------------------------------------------------------------------------------
Net realized loss on investments (7,780)
- ---------------------------------------------------------------------------------------------
Net change in unrealized depreciation of investments (113,698)
- --------------------------------------------------------------------------------------------- ---------
Net realized and unrealized loss on investments (121,478)
- --------------------------------------------------------------------------------------------- ---------
Change in net assets resulting from operations $ 514,409
- --------------------------------------------------------------------------------------------- ---------
</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>
YEAR ENDED PERIOD ENDED
FEBRUARY 28, 1997 FEBRUARY 29, 1996(A)
----------------- --------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------------------------
OPERATIONS--
- -------------------------------------------------------
Net investment income $ 635,887 $ 51,106
- -------------------------------------------------------
Net realized gain (loss) on investments ($7,780 net
loss and $538 net gain respectively, as computed for
federal tax purposes) (7,780) 538
- -------------------------------------------------------
Net change in unrealized appreciation (depreciation) (113,698) (93,395)
- ------------------------------------------------------- --------------- ----------------
Change in net assets resulting from operations 514,409 (41,751)
- ------------------------------------------------------- --------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -------------------------------------------------------
Distributions from net investment income
- -------------------------------------------------------
Institutional Shares (566,566) (39,322)
- -------------------------------------------------------
Institutional Service Shares (69,321) (11,784)
- ------------------------------------------------------- --------------- ----------------
Change in net assets resulting from distributions
to shareholders (635,887) (51,106)
- ------------------------------------------------------- --------------- ----------------
SHARE TRANSACTIONS--
- -------------------------------------------------------
Proceeds from sale of shares 14,011,685 5,281,115
- -------------------------------------------------------
Net asset value of shares issued to shareholders in
payment of distributions declared 364,163 23,501
- -------------------------------------------------------
Cost of shares redeemed (2,474,358) (84,508)
- ------------------------------------------------------- --------------- ----------------
Change in net assets resulting from share
transactions 11,901,490 5,220,108
- ------------------------------------------------------- --------------- ----------------
Change in net assets 11,780,012 5,127,251
- -------------------------------------------------------
NET ASSETS:
- -------------------------------------------------------
Beginning of period 5,227,251 100,000
- ------------------------------------------------------- --------------- ----------------
End of period $17,007,263 $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)
17
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 5-10 YEARS
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28,1997
- --------------------------------------------------------------------------------
(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.
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 5-10 YEARS
- --------------------------------------------------------------------------------
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
capital gains. The following reclassifications have been made to the
financial statements.
<TABLE>
<CAPTION>
INCREASE (DECREASE)
-------------------------------------
ACCUMULATED NET
PAID IN CAPITAL REALIZED LOSS
---------------- ---------------
<S> <C>
538 (538)
</TABLE>
FEDERAL TAXES--It is the Trust's policy to comply with the provisions of
the Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary. At February 28, 1997, the Trust,
for federal tax purposes, had a capital loss carryforward of $7,780, which
will reduce the Trust's taxable income arising from future net realized
gain on investments, if any, to the extent permitted by the Code, and thus
will reduce the amount of the distributions to shareholders which would
otherwise be necessary to relieve the Trust of any liability for federal
tax. Pursuant to the Code, such capital loss carryforward will expire in
2005.
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.
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 5-10 YEARS
- --------------------------------------------------------------------------------
(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
YEAR ENDED FEBRUARY 29, 1996(A)
FEBRUARY 28, 1997
------------------------- -----------------------
INSTITUTIONAL SHARES SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------- --------- ----------- ------- -----------
<S> <C> <C> <C> <C>
Shares sold 1,356,949 $13,273,741 415,936 $ 4,226,665
- -------------------------------------------
Shares issued to shareholders in
payment of distributions declared 30,780 300,793 1,169 11,782
- -------------------------------------------
Shares redeemed (248,522) (2,434,999) (8,233) (83,503)
- ------------------------------------------- --------- ----------- ------- -----------
Net change resulting from Institutional
Shares transactions 1,139,207 $11,139,535 408,872 $ 4,154,944
- ------------------------------------------- --------- ----------- ------- -----------
</TABLE>
(a) Reflects operations from October 19, 1995 (date of initial public
investment) to February 29, 1996.
<TABLE>
<CAPTION>
PERIOD ENDED
YEAR ENDED FEBRUARY 29, 1996(B)
FEBRUARY 28, 1997
------------------------- -----------------------
INSTITUTIONAL SERVICE SHARES SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------- --------- ----------- ------- -----------
<S> <C> <C> <C> <C>
Shares sold 75,118 $ 737,944 103,710 $ 1,054,450
- -------------------------------------------
Shares issued to shareholders in
payment of distributions declared 6,492 63,370 1,153 11,719
- -------------------------------------------
Shares redeemed (4,028) (39,359) (100) (1,005)
- ------------------------------------------- --------- ----------- ------- -----------
Net change resulting from Institutional
Service Shares transactions 77,582 $ 761,955 104,763 $ 1,065,164
- ------------------------------------------- --------- ----------- ------- -----------
Net change resulting from Share
transactions 1,216,789 $11,901,490 513,635 $ 5,220,108
- ------------------------------------------- --------- ----------- ------- -----------
</TABLE>
(b) Reflects operations from October 19, 1995 (date of initial public offering)
to February 29, 1996.
(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.
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 5-10 YEARS
- --------------------------------------------------------------------------------
ADMINISTRATIVE FEE--Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Trust with administrative
personnel and services. The fee paid to FServ is based on the level of average
aggregate daily net assets of all funds advised by subsidiaries of Federated
Investors for the period. The administrative fee received during the period of
the Administrative Services Agreement shall be at least $125,000 per portfolio
and $30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE--The Trust has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the
Trust will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Trust to finance activities intended to
result in the sale of the Trust's Institutional Service Shares. The Plan
provides that the Institutional Service Shares may incur distribution expenses
up to 0.25% of the average daily net assets of the Institutional Services 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 $42,365 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 28, 1997, 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.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended February 28, 1997, were as follows:
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------
Purchases $17,897,550
- ------------------------------------------------------------------------------- -----------
Sales $ 5,828,914
- ------------------------------------------------------------------------------- -----------
</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 28, 1997, and the related statement of operations for the
year then ended, the statement of changes in net assets for each of the two
years in the period then ended and the financial highlights (see pages 2 and 13
of this prospectus) for the periods presented therein. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 28, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Federated U.S. Government Securities Fund: 5-10 Years at February 28, 1997, and
the results of its operations for the year then ended, changes in its net assets
for each of the two years in the period then ended, and financial highlights for
the periods presented therein, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
April 14, 1997
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, 1997
LOGO
Cusip 31428S206
G01209-04-SS (4/97)
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, 1997. This Statement is not a prospectus itself. You
may request a copy of either prospectus or a paper copy of this
Statement of Additional Information, if you have received it
electronically, free of charge by calling 1-800-341-7400.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated April 30, 1997
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
Cusip 31428S107-IS
Cusip 31428S206-ISS
G01209-02 (4/97)
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 Agreements 1
Lending of Portfolio Securities 1
Portfolio Turnover 2
Investment Limitations 2
FEDERATED U. S. GOVERNMENT SECURITIES FUND: 5-10 YEARS
MANAGEMENT 3
Trust Ownership 7
Trustee Compensation 7
Trustee Liability 8
INVESTMENT ADVISORY SERVICES 8
Adviser To The Trust 8
Advisory Fees 8
BROKERAGE TRANSACTIONS 8
OTHER SERVICES 9
Trust Administration 9
Custodian and Portfolio Accountant 9
Independent Auditors 9
PURCHASING SHARES 9
Distribution Plan And Shareholder Services Agreement 10
Conversion To Federal Funds 10
DETERMINING NET ASSET VALUE 10
Determining Market Value of Securities 10
REDEEMING SHARES 11
Redemption In Kind 11
MASSACHUSETTS PARTNERSHIP LAW 11
TAX STATUS 11
The Trust's Tax Status 11
Shareholders' Tax Status 11
TOTAL RETURN 12
YIELD 12
PERFORMANCE COMPARISONS 12
Duration 13
ABOUT FEDERATED INVESTORS 13
Mutual Fund Market 13
Institutional Clients 14
Broker/Dealers and Bank Broker/Dealer Subsidiaries 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.
Shares of the Trust are offered in two classes, known as Institutional
Shares and Institutional Service Shares (individually and collectively
referred to as "Shares," as the context may require). This Statement of
Additional Information relates to the above mentioned Shares of the Trust.
INVESTMENT OBJECTIVE AND POLICIES
The Trust's investment objective is 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 not be changed without
shareholder approval. Shareholders will 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
(date of initial public investment) to February 29, 1996 and during the
fiscal year ended February 28, 1997, the portfolio turnover rates were 29%
and 57%, respectively.
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 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.
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 and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds.
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Trustee,
University of Pittsburgh; Director or Trustee of the Funds.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President, John
R. Wood and Associates, Inc., Realtors; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.;
formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.;
Director, Ryan Homes, Inc.; Director or Trustee of the Funds.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director,
University of Pittsburgh Medical Center - Downtown; Member, Board of
Directors, University of Pittsburgh Medical Center; formerly, Hematologist,
Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director
or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee of the Funds.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street
Boston Corporation; Director or Trustee of the Funds.
Gregor F. Meyer
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney, Member of Miller, Ament, Henny & Kochuba; 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; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., National Defense University, U.S. Space Foundation
and Czech Management Center; President Emeritus, University of Pittsburgh;
Founding Chairman, National Advisory Council for Environmental Policy and
Technology, Federal Emergency Management Advisory Board and Czech
Management Center; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/Marketing/Conference Planning, Manchester Craftsmen's
Guild; Restaurant Consultant, Frick Art & History Center; Conference
Coordinator, University of Pittsburgh Art History Department; Director or
Trustee of the Funds.
Glen R. Johnson
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929
President
Trustee, Federated Investors; President and/or Trustee of some of the
Funds; staff member, Federated Securities Corp.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Trustee of the Trust.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp. and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company; Trustee or Director of
some of the Funds; President, Executive Vice President and Treasurer of
some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President , Secretary and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated Research;
Director, Federated Research Corp. and Federated Global Research Corp.;
Trustee, Federated Shareholder Services Company; Director, Federated
Services Company; President and Trustee, Federated Shareholder Services;
Director, Federated Securities Corp.; Executive Vice President and
Secretary of the Funds; Treasurer of some of the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some
of the Funds; Director or Trustee of some of the Funds.
*This Trustee is deemed to be an ``interested person'' as defined in
the Investment Company Act of 1940.
@Member of the Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board between
meetings of the Board.
As referred to in the list of Trustees and Officers, `Funds'' includes the
following investment companies: 111 Corcoran Funds; 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 Bond Fund, Inc.; Federated High Yield Trust;
Federated Income Securities Trust; Federated Income Trust; Federated Index
Trust; Federated Institutional Trust; Federated Insurance Series; Federated
Investment Portfolios; Federated Investment Trust; Federated Master Trust;
Federated Municipal Opportunities Fund, Inc.; Federated Municipal
Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term
Municipal Trust; Federated Short-Term U.S. Government Trust; Federated
Stock and Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust;
Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund;
Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S.
Government Securities Fund: 2-5 Years; Federated U.S. Government Securities
Fund: 5-10 Years; Federated Utility Fund, Inc.; First Priority Funds; Fixed
Income Securities, Inc.; High Yield Cash Trust; Intermediate Municipal
Trust; International Series, Inc.; Investment Series Funds, Inc.;
Investment Series Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S.
Government Money Market Trust; Liquid Cash Trust; Managed Series Trust;
Money Market Management, Inc.; Money Market Obligations Trust; Money Market
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 April 3, 1997, the following shareholders of record owned 5% or more
of the outstanding Institutional Shares of the Trust: Harmony Co., Farmers
Trust Co., Carlisle, PA, owned approximately 161,623 (10.08%) shares; Cando
& Co, First Citizens Bank & Trust of South Carolina, Columbia, SC, owned
approximately 125,567 (7.83%) shares; and Doit & Company, First
International Bank & Trust, Fargo, ND, owned approximately 83,158 (5.19%)
shares.
As of April 3, 1997, Charles Schwab & Company (as record owner holding
Institutional Shares for its clients), San Fransisco CA, owned
approximately 555,685 Institutional Shares (34.66%) 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 April 3, 1997, the following shareholders of record owned 5% or more
of the outstanding Institutional Service Shares of the Trust: Jesco &
Co., Citizens First National Bank, Princeton, IL, owned approximately
20,994 (11.31%) shares.
As of April 3, 1997, Holdon, The Ohio Bank (as record owner holding
Institutional Service Shares for its clients), Findley, OH, owned
approximately 105,752 Institutional Service Shares (57%) and Danvers
Savings Bank (as record owner holding Institutional Service Shares for its
clients), Danvers, MA, owned approximately 46,995 Institutional Service
Shares (25.33%) 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 COMPENSATION
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST* FROM FUND COMPLEX +
John F. Donahue $0 $0 for the Trust and
Chairman and Trustee 56 other investment companies in
the Fund Complex
Thomas G. Bigley $755.98 $108,725 for the Trust and
Trustee 56 other investment companies in
the Fund Complex
John T. Conroy, Jr. $831.69 $119,615 for the Trust and
Trustee 56 other investment companies in
the Fund Complex
William J. Copeland $831.69 $119,615 for the Trust and
Trustee 56 other investment companies in
the Fund Complex
James E. Dowd $831.69 $119,615 for the Trust and
Trustee 56 other investment companies in
the Fund Complex
Lawrence D. Ellis, M.D. $755.98 $108,725 for the Trust
and
Trustee 56 other investment companies in
the Fund Complex
Edward L. Flaherty, Jr. $831.69 $119,615 for the Trust
Trustee and 56 other investment companies
in the Fund Complex
Peter E. Madden $755.98 $108,725 for the Trust and
Trustee 56 other investment companies in
the Fund Complex
Gregor F. Meyer $755.98 $108,725 for the Trust and
Trustee 56 other investment companies in
the Fund Complex
John E. Murray, Jr. $755.98 $108,725 for the Trust and
Trustee 56 other investment companies in
the Fund Complex
Wesley W. Posvar $755.98 $108,725 for the Trust and
Trustee 56 other investment companies in
the Fund Complex
Marjorie P. Smuts $755.98 $108,725 for the Trust and
Trustee 56 other investment companies in
the Fund Complex
*Information is furnished for the fiscal year ended February 28, 1997.
+The information is provided for the last calendar year.
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.
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, and during the fiscal year ended February 28, 1997, the adviser
earned $4,537 and $52,801, respectively, of which $4,537 and $52,801 were
waived.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the adviser looks for prompt execution of the order
at a favorable price. In working with dealers, the adviser will generally
use those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained
elsewhere. The adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to guidelines established by the
Trustees.
The adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Trust or to the
adviser and may include: advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry
studies; receipt of quotations for portfolio evaluations; and similar
services.
Research services provided by brokers and dealers may be used by the
adviser or by affiliates in advising the Trust and other accounts. To the
extent that receipt of these services may supplant services for which the
adviser or its affiliates might otherwise have paid, it would tend to
reduce their expenses. The adviser and its affiliates exercise reasonable
business judgment in selecting brokers who offer brokerage and research
services to execute securities transactions. They determine in good faith
that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided. For the period
from September 5, 1995 (start of business) to February 29, 1996, and
during the fiscal year ended February 28, 1997, the Trust paid no brokerage
commissions.
Although investment decisions for the Trust are made independently from
those of the other accounts managed by the adviser, investments of the type
the Trust may make may also be made by those other accounts. When the
Trust and one or more other accounts managed by the adviser are prepared to
invest in, or desire to dispose of, the same security, available
investments or opportunities for sales will be allocated in a manner
believed by the adviser to be equitable to each. In some cases, this
procedure may adversely affect the price paid or received by the Trust or
the size of the position obtained or disposed of by the Trust. In other
cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Trust.
OTHER SERVICES
TRUST ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Trust for a fee as described
in the prospectus. From March 1, 1994, to March 1, 1996, Federated
Administrative Serves served as the Trust's Administrator. Prior to March
1, 1994, Federated Administrative Services, Inc. served as the Trust's
Administrator. Both former Administrators are subsidiaries of Federated
Investors. For purposes of this Statement of Additional Information,
Federated Services Company, Federated Administrative Services and Federated
Administrative Services, Inc., may hereinafter collectively be referred to
as, the "Administrators". For the period from September 5, 1995, (start of
business) to February 29, 1996, and for the fiscal year ended February 28,
1997, the Administrators earned $56,749 and $155,001, respectively.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, Massachusetts, is custodian
for the securities and cash of the Trust. Federated Services Company,
Pittsburgh, Pennsylvania, provides certain accounting and recordkeeping
services with respect to the Trust's portfolio investments. The fee paid
for this service is based upon the level of the Trust's average net assets
for the period plus out-of-pocket expenses.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent,
Federated Shareholder Services Company, maintains all necessary shareholder
records. For its services, the transfer agent receives a fee based upon the
size, type and number of accounts and transactions made by shareholders.
INDEPENDENT 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 prospectuses under "Investing in
Institutional Shares" or "Investing in Institutional Service Shares."
DISTRIBUTION PLAN AND 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 fiscal year ended February 28, 1997, payments in the amount of
$3,039 were made by Institutional Service Shares pursuant to the Plan, $0
of which was waived. In addition, for the fiscal year ended February 28,
1997, the Trust paid shareholder service fees in the amount of $3,039,
(Institutional Service Shares) and $23,361, (Institutional Shares), of
which $1,945, (Institutional Service Shares) and $23,304, (Institutional
Shares) was 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:
oaccording 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
ofor 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:
oyield;
oquality;
ocoupon rate;
omaturity;
otype of issue;
otrading characteristics; and
oother 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 the transfer agent does
not charge for telephone redemptions, it reserves the right to charge a fee
for the cost of wire-transferred redemptions of less than $5,000.
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:
oderive at least 90% of its gross income from dividends, interest,
and gains from the sale of securities;
oderive less than 30% of its gross income from the sale of securities
held less than three months;
oinvest in securities within certain statutory limits; and
odistribute to its shareholders at least 90% of its net income earned
during the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and capital
gains received as cash or additional Shares. No portion of any income
dividend paid by the Trust is eligible for the dividends received deduction
available to corporations. These dividends, and any short-term capital
gains, are taxable as ordinary income.
CAPITAL GAINS
Long-term capital gains distributed to shareholders will be treated as
long-term capital gains regardless of how long shareholders have held
Shares.
TOTAL RETURN
The Trust's average annual total return for Institutional Shares for the
one-year period ended February 28, 1997 and for the period from October 19,
1995, (date of initial public investment) to February 29, 1996, were 3.98%
and 1.85%, respectively.
The Trust's average annual total return for Institutional Service Shares
for the one-year period ended February 28, 1997 and for the period from
October 19, 1995, (date of initial public offering) to February 29, 1996,
were 3.62% and 1.75%, respectively.
The average annual total return for both classes of Shares of the Trust is
the average compounded rate of return for a given period that would equate
a $1,000 initial investment to the ending redeemable value of that
investment. The ending redeemable value is computed by multiplying the
number of shares owned at the end of the period by the 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 28, 1997, were
6.28% and 5.93%, respectively.
PERFORMANCE COMPARISONS
The performance of both classes of Shares depends upon such variables
as:
oportfolio quality;
oaverage portfolio maturity;
otype of instruments in which the portfolio is invested;
ochanges in interest rates and market value of portfolio securities;
ochanges in the Trust's expenses or either class of Share's expenses;
and
ovarious 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 offering price 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:
oLIPPER 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.
oMERRILL 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 Investors is dedicated to meeting investor needs which is
reflected in its investment decision making-structured, straightforward,
and consistent. This has resulted in a history of competitive performance
with a range of competitive investment products that have gained the
confidence of thousands of clients and their customers.
The company's disciplined security selection process is firmly rooted in
sound methodologies backed by fundamental and technical research.
Investment decisions are made and executed by teams of portfolio managers,
analysts, and traders dedicated to specific market sectors.
In the government sector, as of December 31, 1996, Federated Investors
managed 9 mortgaged-backed, 5 government/agency and 17 government money
market mutual funds, with assets approximating $6.3 billion, $1.7 billion
and $23.6 billion, respectively. Federated trades approximately $309
million in U.S. government and mortgage-backed securities daily and places
$17 billion in repurchase agreements each day. Federated introduced the
first U.S. government fund to invest in U.S. government bond securities in
1969. Federated has been a major force in the short-and intermediate-term
government markets since 1982 and currently manages nearly $30 billion in
government funds within these maturity ranges.
J. Thomas Madden, Executive Vice President, oversees Federated Investors'
equity and high yield corporate bond management while William D. Dawson,
Executive Vice President, oversees Federated Investors' domestic fixed
income management. Henry A. Frantzen, Executive Vice President, oversees
the management of Federated Investors' international and global portfolios.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $3.5 trillion to the more than 6,000
funds available.*
Federated Investors, through its subsidiaries, distributes mutual funds for
a variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of 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.
BANK MARKETING
Other institutional clients include close relationships with more than
1,600 banks and trust organizations. Virtually all of the trust divisions
of the top 100 bank holding companies use Federated funds in their clients'
portfolios. The marketing effort to trust clients is headed by Mark R.
Gensheimer, Executive Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage firms
nationwide -- we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country -- supported by more wholesalers than any
other mutual fund distributor. Federated's service to financial
professionals and institutions has earned it high ratings in several
surveys performed by DALBAR, Inc. DALBAR is recognized as the industry
benchmark for service quality measurement. The marketing effort to these
firms is headed by James F. Getz, President, Federated Securities Corp.
*Source: Investment Company Institute Trust Organizations
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 5-10 YEARS
- --------------------------------------------------------------------------------
ANNUAL REPORT FOR FISCAL YEAR ENDED FEBRUARY 28, 1997
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. During the
fund's fiscal year ending February 28, 1997, the fund remained fully
invested in U.S. Treasury securities.
Fixed income performance during the fund's annual reporting period
reflected a pickup in economic growth combined with benign inflation, a
stronger dollar, and unprecedented foreign demand. At the start of the
fund's fiscal year, market sentiment soured and interest rates increased
steadily all along the yield curve in response to stronger economic growth
and heightened inflation fears. The employment report released in early
March 1996 had one of the largest monthly payroll gains on record of
705,000. Yields on the 5- and 10-year Treasury notes increased from 5.73%
and 6.10%, respectively, at the end of February 1996 to 6.85% and 7.06%,
respectively, in mid-June 1996 as the market dramatically transitioned
from pricing in aggressive Fed easing to the possibility of Fed
tightening. For the remainder of the fund's fiscal year, oscillating
market expectations regarding the direction of Federal Reserve monetary
policy was reflected in range-bound trading. Although the Fed's monetary
policy remained on hold during the entire reporting period, the Treasury
market followed the trend of selling off in response to stronger economic
growth and rallying in response to subdued inflation. However, since Fed
Chairman Greenspan's semi-annual Humphrey Hawkins testimony near the end
of February 1997 warned of the possibility of a preemptive tightening, the
market has focused on stronger economic growth rather than benign
inflation. Yields on the 5- and 10-year Treasury notes ended February 1997
at 6.39% and 6.55%, respectively. The Institutional Shares average annual
total return for the year ending February 28, 1997 was 3.98%+ compared to
3.75% for the Merrill Lynch 5-10 Year Treasury Index.** The Institutional
Service Shares average annual total return for the year ending February
28, 1997 was 3.62%.+
Given the attractive level of real interest rates and the likelihood that
the economy will not accelerate enough to warrant aggressive tightening of
monetary policy, the fund's average maturity/duration has been within its
neutral range.
+ 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.
** This index is unmanaged.
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 "Fund") from October 19, 1995 (start of performance) to February 28, 1997
compared to the Merrill Lynch Five to Ten Year Treasury Index (MLFTYT).+
Graphic (see attached appendix)
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE, SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
THIS REPORT MUST BE PRECEDED OR ACCOMPANIED BY THE FUND'S PROSPECTUS DATED APRIL
30, 1997, AND, TOGETHER WITH FINANCIAL STATEMENTS CONTAINED THEREIN, CONSTITUTES
THE FUND'S ANNUAL REPORT.
* The Fund's performance assumes the reinvestment of all dividends and
distributions. The 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 SEC requires to be reflected in the Fund'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 "Fund") from October 19, 1995 (start of performance) to February
28, 1997 compared to the Merrill Lynch Five to Ten Year Treasury Index
(MLFTYT).+
Graphic (see attached Appendix)
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE, SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
THIS REPORT MUST BE PRECEDED OR ACCOMPANIED BY THE FUND'S PROSPECTUS DATED APRIL
30, 1997, AND, TOGETHER WITH FINANCIAL STATEMENTS CONTAINED THEREIN, CONSTITUTES
THE FUND'S ANNUAL REPORT.
* The Fund's performance assumes the reinvestment of all dividends and
distributions. The 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 SEC requires to be reflected in the Fund's performance. The index is
unmanaged.
LOGO
Cusip 31428S107
Cusip 31428S206
G01618-02 (4/97)
APPENDIX
A-1. The
graphic presentation here displayed consists of a line graph titled
`Growth of $25,000 Invested in Federated U.S. Government Securities Fund:
5-10 Years (Institutional Service Shares)'. The corresponding components
of the line graph are listed underneath. The Federated U.S. Government
Securities Fund: 5-10 Years (Institutional Service Shares) (the `Fund'')
is represented by a solid line. The Merrill Lynch Five to Ten Year Treasury
Index (the `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 Fund, and the MLFTYT. The "x" axis reflects
computation periods from the start of performance (October 19, 1995) to
February 28, 1997. The "y" axis reflects the cost of the investment,
ranging from $22,500 to $32,500. The right margin reflects the ending
value of the hypothetical investment in the Fund as compared to the MLFTYT.
The ending values are $26,358, and $26,334, respectively.
A-2. The graphic presentation here displayed consists of a line graph
titled `Growth of $25,000 Invested in Federated U.S. Government Securities
Fund: 5-10 Years (Institutional Shares)'. The corresponding components of
the line graph are listed underneath. The Federated U.S. Government
Securities Fund: 5-10 Years (Institutional Shares) (the `Fund'') is
represented by a solid line. The Merrill Lynch Five to Ten Year Treasury
Index (the `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 Fund, and the MLFTYT. The "x" axis reflects
computation periods from the start of performance (October 19, 1995) to
February 28, 1997. The "y" axis reflects the cost of the investment,
ranging from $22,500 to $32,500. The right margin reflects the ending
value of the hypothetical investment in the Fund as compared to the MLFTYT.
The ending values are $26,476, and $26,334, respectively.
