PRESIDENT'S MESSAGE
Dear Investor:
I am pleased to present the Semi-Annual Report to Shareholders of Federated U.S.
Government Securities Fund: 5-10 Years. The report covers the six-month
reporting period ended August 31, 1997, and includes an investment review by the
fund's portfolio manager, a complete list of portfolio investments, and the
financial statements.
This mutual fund pursues total return consistent with current income through the
relative safety of a U.S. government portfolio.
During the reporting period, the fund's Institutional Shares and Institutional
Service Shares paid income totaling $0.29 per share and $0.28 per share,
respectively. The share price of both classes of shares rose $0.11. As a result,
the total returns for Institutional Shares and Institutional Service Shares were
4.24% and 4.08%, respectively.* Total net assets reached $28.3 million on August
31, 1997.
Thank you for participating in the income opportunities of intermediate-term
government securities through Federated U.S. Government Securities Fund:
5-10 Years. We welcome your comments and questions.
Sincerely,
[Graphic]
Glen R. Johnson
President
October 15, 1997
* Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their
original cost.
INVESTMENT REVIEW
Federated U.S. Government Securities Fund: 5-10 Years represents a fully
invested participation in U.S. Treasury and government agency obligations which
have an average maturity of 5 to 10 years. Since the fund's February 28, 1997,
fiscal year end, the fund has been primarily invested in U.S.
Treasury securities.
During the first half of the fund's semi-annual reporting period, fixed-income
performance reflected stronger economic growth combined with subdued inflation.
After remaining on hold for over a year and citing persisting strength in demand
as increasing the risk of inflationary imbalances, the Federal Reserve Board
(the "Fed") increased the federal funds target rate from 5.25% to 5.50% near the
end of March 1997. This was the first tightening of monetary policy in over two
years. The 5- to 10-year portion of the yield curve flattened as yields of 5-
and 10-year Treasury notes increased from 6.39% and 6.55%, respectively, at the
end of February 1997, to 6.86% and 6.97%, respectively, in mid-April as the
short to intermediate portion of the yield curve transitioned from pricing in a
status quo to a more restrictive Fed monetary policy.
U.S. Treasury yields declined during the second half of the fund's reporting
period, more than offsetting the preceding interest rate rise. Although the
economy continued to grow at an above-trend rate, economic growth slowed from
the 4.9% rate during the first quarter of 1997 to 3.3% in the second quarter of
1997 due to a decline in consumer demand. Consumer prices increased at only a
1.6% annual rate through August 1997 year to date. Slower economic growth
combined with continued benign inflation allowed the Fed's monetary policy to
remain status quo, and as market expectations shifted from a tighter monetary
policy back to one on hold, yields of 5- and 10-year Treasury notes declined to
6.22% and 6.34%, respectively, at the end of August 1997. The yield spread
between 5- and 10-year Treasury notes has been very narrow as the 10-year
Treasury note has benefited from the Treasury's decision to eliminate the
10-year auctions in July 1997 and October 1997 which had been added just over a
year ago. The fund's average maturity/duration has been managed within its
neutral range through a laddered portfolio structure and was 7.1/5.4 years at
the end of August 1997.
The fund's net total return for the six months ended August 31, 1997, was 4.24%
and 4.08%* for Institutional Shares and Institutional Service Shares,
respectively, compared to 4.39% for the Merrill Lynch 5-10 Year Treasury Index.+
* Performance quoted represents past performance and is not indicative of future
results. Invesment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their
original cost.
+ Merrill Lynch 5-10 Year Treasury Index is an unmanaged
index tracking U.S. government securities with maturities between 5 and 9.99
years. Investments cannot be made in an index.
PORTFOLIO OF INVESTMENTS
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 5-10 YEARS
AUGUST 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
U.S. TREASURY OBLIGATIONS--93.1%
U.S. TREASURY NOTES--93.1%
$ 1,500,000 6.250%, 1/31/2002 $ 1,502,205
200,000 6.625%, 3/31/2002 203,156
300,000 7.50%, 5/15/2002 315,534
1,000,000 6.250%, 6/30/2002 1,000,980
1,000,000 6.375%, 8/15/2002 1,006,960
920,000 10.75%, 2/15/2003 1,108,471
1,665,000 5.750%, 8/15/2003 1,622,442
1,300,000 11.125%, 8/15/2003 1,608,048
1,040,000 7.25%, 5/15/2004 1,092,978
250,000 12.375%, 5/15/2004 331,540
1,000,000 7.250%, 8/15/2004 1,051,420
1,025,000 7.875%, 11/15/2004 1,114,626
2,000,000 7.500%, 2/15/2005 2,134,160
900,000 12.00%, 5/15/2005 1,203,786
800,000 6.500%, 8/15/2005 806,280
1,025,000 10.75%, 8/15/2005 1,300,059
2,050,000 5.875%, 11/15/2005 1,984,810
1,900,000 6.875%, 5/15/2006 1,958,881
2,100,000 7.000%, 7/15/2006 2,182,950
2,825,000 6.500%, 10/15/2006 2,843,306
TOTAL U.S. TREASURY OBLIGATIONS (IDENTIFIED COST $26,326,889) 26,372,592
GOVERNMENT AGENCY OBLIGATIONS--3.6%
FEDERAL HOME LOAN BANK--3.6%
1,000,000 6.90%, 2/7/2007 (IDENTIFIED COST $1,027,442) 1,022,820
(A)REPURCHASE AGREEMENT--2.5%
695,000 BT Securities Corp., 5.58%, dated 8/29/1997,
due 9/2/1997 (AT AMORTIZED COST) 695,000
TOTAL INVESTMENTS (IDENTIFIED COST $28,049,331)(B) $ 28,090,412
</TABLE>
(a) The repurchase agreement is fully collateralized by U.S. Treasury
obligations based on market prices at the date of the portfolio. The
investments in the repurchase agreement is through participation in a joint
account with other Federated funds.
(b) The cost of investments for federal tax purposes amounts to $28,049,331. The
net unrealized appreciation of investments on a federal tax basis amounts to
$41,081 which is comprised of $137,999 appreciation and $96,918 depreciation
at August 31, 1997.
Note: The categories of investments are shown as a percentage of net assets
($28,309,389) at August 31, 1997.
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF ASSETS AND LIABILITIES
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 5-10 YEARS
AUGUST 31, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified and tax cost $ 28,090,412
$28,049,331)
Income receivable 323,072
Receivable for shares sold 60,420
Total assets 28,473,904
LIABILITIES:
Income distribution payable $ 140,289
Payable to Bank 24,226
Total liabilities 164,515
NET ASSETS for 2,866,696 shares outstanding $ 28,309,389
NET ASSETS CONSIST OF:
Paid in capital $ 28,260,063
Net unrealized appreciation of investments 41,081
Accumulated net realized gain on investments 8,245
Total Net Assets $ 28,309,389
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$26,413,627 / 2,674,725 shares outstanding $9.88
INSTITUTIONAL SERVICE SHARES:
$1,895,762 / 191,971 shares outstanding $9.88
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 5-10 YEARS
SIX MONTHS ENDED AUGUST 31, 1997 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 692,280
EXPENSES:
Investment advisory fee $ 54,572
Administrative personnel and services fee 78,137
Custodian fees 3,667
Transfer and dividend disbursing agent fees and expenses 23,644
Directors'/Trustees' fees 3,036
Auditing fees 5,244
Legal fees 1,196
Portfolio accounting fees 28,537
Distribution services fee--Institutional Service Shares 2,345
Shareholder services fee--Institutional Shares 24,942
Shareholder services fee--Institutional Service Shares 2,345
Share registration costs 14,260
Printing and postage 7,728
Insurance premiums 1,656
Miscellaneous 5,864
Total expenses 257,173
WAIVERS AND REIMBURSEMENTS--
Waiver of investment advisory fee $ (54,572)
Waiver of shareholder services fee--Institutional Shares (20,951)
Waiver of shareholder services fee--Institutional Service (1,501)
Shares
Reimbursement of other operating expenses (144,113)
Total waivers and reimbursements (221,137)
Net expenses 36,036
Net investment income 656,244
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 16,025
Net change in unrealized appreciation of investments 248,174
Net realized and unrealized gain on investments 264,199
Change in net assets resulting from operations $ 920,443
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 5-10 YEARS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
AUGUST 31, FEBRUARY 28,
1997 1997
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 656,244 $ 635,887
Net realized gain (loss) on investments ($16,025 net gain and 16,025 (7,780)
$7,780 net loss, respectively, as computed for federal tax
purposes)
Net change in unrealized appreciation/depreciation 248,174 (113,698)
Change in net assets resulting from operations 920,443 514,409
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Institutional Shares (602,506) (566,566)
Institutional Service Shares (53,738) (69,321)
Change in net assets resulting from distributions to shareholders (656,244) (635,887)
SHARE TRANSACTIONS--
Proceeds from sale of shares 15,203,790 14,011,685
Net asset value of shares issued to shareholders in payment of 263,119 364,163
distributions declared
Cost of shares redeemed (4,428,982) (2,474,358)
Change in net assets resulting from share transactions 11,037,927 11,901,490
Change in net assets 11,302,126 11,780,012
NET ASSETS:
Beginning of period 17,007,263 5,227,251
End of period $ 28,309,389 $ 17,007,263
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
AUGUST 31, FEBRUARY 28,
1997 1997 1996(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.77 $ 9.98 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.29 0.59 0.21
Net realized and unrealized gain (loss) on investments 0.11 (0.21) (0.02)
Total from investment operations 0.40 0.38 0.19
LESS DISTRIBUTIONS
Distributions from net investment income (0.29) (0.59) (0.21)
NET ASSET VALUE, END OF PERIOD $ 9.88 $ 9.77 $ 9.98
TOTAL RETURN(B) 4.24% 3.98% 1.85%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.30%* 0.13% 0.11%*
Net investment income 6.04%* 6.06% 5.75%*
Expense waiver/reimbursement(c) 2.03%* 3.95% 12.26%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $26,413 $15,225 $4,181
Portfolio turnover 27% 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)
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED) YEAR ENDED
AUGUST 31, FEBRUARY 28,
1997 1997 1996(A)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.77 $ 9.98 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.28 0.56 0.20
Net realized and unrealized gain (loss) on investments 0.11 (0.21) (0.02)
Total from investment operations 0.39 0.35 0.18
LESS DISTRIBUTIONS
Distributions from net investment income (0.28) (0.56) (0.20)
NET ASSET VALUE, END OF PERIOD $ 9.88 $ 9.77 $ 9.98
TOTAL RETURN(B) 4.08% 3.62% 1.75%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.60%* 0.47% 0.45%*
Net investment income 5.73%* 5.70% 5.25%*
Expense waiver/reimbursement(c) 1.98%* 3.86% 12.17%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $1,896 $1,782 $1,046
Portfolio turnover 27% 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)
NOTES TO FINANCIAL STATEMENTS
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 5-10 YEARS
AUGUST 31, 1997 (UNAUDITED)
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.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
U.S. government securities are generally valued at the mean of the latest bid
and asked price as furnished by an independent pricing service. Short-term
securities are valued at the prices provided by an independent pricing service.
However, short-term securities with remaining maturities of sixty days or less
at the time of purchase may be valued at amortized cost, which approximates fair
market value.
REPURCHASE AGREEMENTS
It is the policy of the Trust to require the custodian bank to take possession,
to have legally segregated in the Federal Reserve Book Entry System, or to have
segregated within the custodian bank's vault, all securities held as collateral
under repurchase agreement transactions. Additionally, procedures have been
established by the Trust to monitor, on a daily basis, the market value of each
repurchase agreement's collateral to ensure that the value of collateral at
least equals the repurchase price to be paid under the repurchase agreement
transaction.
The Trust will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/ dealers, which are deemed by
the Trust's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the "Trustees").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Trust could receive less
than the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex-dividend
date.
FEDERAL TAXES
It is the Trust's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary. 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.
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
AUGUST 31, 1997 FEBRUARY 28, 1997
INSTITUTIONAL SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 1,509,975 $14,809,724 1,356,949 $ 13,273,741
Shares issued to shareholders in payment of distributions declared 23,490 229,646 30,780 300,793
Shares redeemed (416,819) (4,095,400) (248,522) (2,434,999)
Net change resulting from Institutional Share transactions 1,116,646 $10,943,970 1,139,207 $ 11,139,535
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED
AUGUST 31, 1997 FEBRUARY 28, 1997
INSTITUTIONAL SERVICE SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 40,166 $ 394,066 75,118 $ 737,944
Shares issued to shareholders in payment of distributions declared 3,427 33,473 6,492 63,370
Shares redeemed (33,967) (333,582) (4,028) (39,359)
Net change resulting from Institutional Service Share transactions 9,626 $ 93,957 77,582 $ 761,955
Net change resulting from share transactions 1,126,272 $ 11,037,927 1,216,789 $ 11,901,490
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Management, the Trust's investment adviser (the "Adviser"), receives
for its services an annual investment advisory fee equal to 0.50% of the Trust's
average daily net assets. The Adviser may voluntarily choose to waive any
portion of its fee and reimburse certain operating expenses of the Trust. The
Adviser can modify or terminate this voluntary waiver and reimbursement at any
time at its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Trust with administrative personnel and services. The
fee paid to FServ is based on the level of average aggregate daily net assets of
all funds advised by subsidiaries of Federated Investors for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
DISTRIBUTION SERVICES FEE
The Trust has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Act. Under the terms of the Plan, the Trust will compensate Federated
Securities Corp. ("FSC"), the principal distributor, from the net assets of the
Trust to finance activities intended to result in the sale of the Trust's
Institutional Service Shares. The Plan provides that the Institutional Service
Shares may incur distribution expenses up to 0.25% of the average daily net
assets of the Institutional Service Shares annually, to compensate FSC.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services ("FSS"), the Trust will pay FSS up to 0.25% of 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 August 31, 1997, the Trust
paid $7,296 pursuant to this agreement.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended August 31, 1997, were as follows:
PURCHASES $ 16,080,309
SALES $ 5,646,437
TRUSTEES
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
William J. Copeland
James E. Dowd
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr.
Peter E. Madden
Gregor F. Meyer
John E. Murray, Jr.
Wesley W. Posvar
Marjorie P. Smuts
OFFICERS
John F. Donahue
Chairman
Glen R. Johnson
President
J. Christopher Donahue
Executive Vice President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President, Treasurer, and Secretary
Richard B. Fisher
Vice President
Karen M. Brownlee
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves risk, including possible
loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the trust's prospectus which contains facts
concerning its objective and policies, management fees, expenses and other
information.
NOTES
NOTES
[Graphic]
Federated U.S. Government Securities Fund: 5-10 Years
SEMI-ANNUAL REPORT TO SHAREHOLDERS AUGUST 31, 1997
Federated Securities Corp., Distributor
Federated Investors Tower
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Cusip 31428S107
Cusip 31428S206
G01393-01 (10/97)
[Graphic]
