FEDERATED US GOVERNMENT SECURITIES FUND 5 10 YEARS, 497, 1999-05-04

FEDERATED US GOVERNMENT SECURITIES FUND 5 10 YEARS
497, 1999-05-04

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PROSPECTUS

Federated U.S. Government Securities Fund: 5-10 Years

INSTITUTIONAL SHARES

A mutual fund seeking total return consistent with current income by investing
in a portfolio of intermediate- term U.S. government securities.

As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.

APRIL 30, 1999

CONTENTS

Risk/Return Summary 1

What are the Fund's Fees and Expenses? 2

What are the Fund's Investment Strategies? 3

What are the Principal Securities in Which the Fund Invests? 5

What are the Specific Risks of Investing in the Fund? 5

What Do Shares Cost? 5

How is the Fund Sold? 6

How to Purchase Shares 6

How to Redeem Shares 8

Account and Share Information 10

Who Manages the Fund? 11

Financial Information 12

Report of Ernst & Young LLP, Independent Auditors 22

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The Fund's total return will consist of two components: (1) changes in the
market value of its portfolio securities (both realized and unrealized
appreciation); and (2) income received from its portfolio securities. the Fund
expects that income will comprise the largest component of its total return.

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

The Fund invests in a diversified, intermediate-term portfolio of direct
obligations of the U.S. government, its agencies and instrumentalities. The Fund
maintains a dollar-weighted average portfolio duration that is within 20 percent
of the dollar-weighted average duration of the Merrill Lynch 5-10 Year Treasury
Index. This index includes all U.S. Treasury securities with maturities greater
than or equal to five years and less than ten years.

WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?

All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund. The primary factor that may reduce the Fund's returns
is changes in prevailing interest rates. An increase in interest rates may
result in a decrease in the value of Fund Shares. Interest rate changes have a
greater effect on the price of fixed income securities with longer durations.
Duration measures the price sensitivity of a fixed income security to changes in
interest rates.

The Shares offered by this prospectus are not deposits or obligations of any
bank, are not endorsed or guaranteed by any bank and are not insured or
guaranteed by the U.S. government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board, or any other government agency.

RISK/RETURN BAR CHART AND TABLE

[Graphic]

The graphic presentation displayed here consists of a bar chart representing the
annual total returns of the Fund's Institutional Shares as of the calendar
year-end for each of three years.

The `y' axis reflects the "% Total Return" beginning with "0" and increasing in
increments of 2% up to 12%.

The `x' axis represents calculation periods from the earliest calendar year end
of the Fund's start of business through the calendar year ended December 31,
1998. The light gray shaded chart features three distinct vertical bars, each
shaded in charcoal, and each visually representing by height the total return
percentages for the calendar year stated directly at its base. The calculated
total return percentage for the Fund for each calendar year is stated directly
at the top of each respective bar, for the calendar years 1995 through 1998. The
percentages noted are: 1.89%, 9.62%, and 11.07%, respectively.

The bar chart shows the variability of the Fund's Institutional Shares total
returns on a calendar year-end basis.

The Fund's Institutional Shares are not sold subject to a sales charge (load).
The total returns displayed above are based upon net asset value.

The Fund's Institutional Shares total return from January 1, 1999 to March 31,
1999 was (2.08%).

Within the period shown in the Chart, the Fund's Institutional Shares highest
quarterly return was 7.45% (quarter ended September 30, 1998). Its lowest
quarterly return was (2.85%) (quarter ended March 31, 1996).

AVERAGE ANNUAL TOTAL RETURN TABLE

The following table represents the Fund's Institutional Shares Average Annual
Total Returns for the calendar periods ended December 31, 1998.

CALENDAR PERIOD FUND MLFTYT
1 Year 11.07% 11.59%
Start of Performance 1 8.20% 8.40%

1 The Fund's Institutional Shares start of performance date was October 19,1995.

The table shows the Fund's Institutional Shares total returns averaged over a
period of years relative to the Merrill Lynch 5-10 Year Treasury Index (MLFTYT),
a broad-based market index. Indexes are unmanaged, and it is not possible to
invest directly in an index.

Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
rewards.

What are the Fund's Fees and Expenses?

FEDERATED U.S. GOVERNMENT SECURITIES FUND: 5-10 YEARS

FEES AND EXPENSES

This table describes the fees and expenses that you may pay if you buy and hold
Shares of the Fund's Institutional Shares.

SHAREHOLDER FEES

<S> <C>
Fees Paid Directly From Your Investment Maximum Sales Charge (Load)
Imposed on Purchases (as a percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage of original
purchase price or redemption proceeds, as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and
other Distributions) (as a percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None

ANNUAL FUND OPERATING EXPENSES (Before Reimbursement and Waivers) 1
<S> <C>
Expenses That are Deducted From Fund Assets (as a percentage of average
net assets)
Management Fee 2 0.50%
Distribution (12b-1) Fee None
Shareholder Services Fee 3 0.25%
Other Expenses 4 0.49%
Total Annual Fund Operating Expenses 1.24%

1 Although not contractually obligated to do so, the adviser and shareholder
services provider waived and reimbursed certain amounts. These are shown below
along with the net expenses the Fund actually paid for the fiscal year ended
February 28, 1999.

Total Reimbursement and Waivers of Fund Expenses 0.94%
Total Actual Annual Fund Operating Expenses (after reimbursement and waivers) 0.30%

2 The adviser voluntary waived a portion of the management fee. The adviser can
terminate this voluntary waiver at any time. The management fee paid by the Fund
(after the voluntary waiver) was 0.00% for the fiscal year ended February 28,
1999.

3 The shareholder services fee for the Fund's Institutional Shares has been
voluntarily reduced. This voluntary reduction can be terminated at any time. The
shareholder services fee paid by the Fund (after the voluntary reduction) was
0.04% for the fiscal year ended February 28, 1999.

4 The adviser voluntarily reimbursed certain operating expenses of the Fund. The
adviser can terminate this voluntary reimbursement at any time. Total other
expenses paid by the Fund (after the voluntary reimbursement) was 0.26% for the
fiscal year ended February 28, 1999. </TABLE>

EXAMPLE

This Example is intended to help you compare the cost of investing in the Fund's
Institutional Shares with the cost of investing in other mutual funds.

The Example assumes that you invest $10,000 in the Fund's Institutional Shares
for the time periods indicated and then redeem all of your Shares at the end of
those periods. The Example also assumes that your investment has a 5% return
each year and that the Fund's Institutional Shares operating expenses are BEFORE
REIMBURSEMENTS AND WAIVERS as shown in the table and remain the same. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be:

1 Year $ 126
3 Years $ 393
5 Years $ 681
10 Years $ 1,500

What are the Fund's Investment Strategies?

The Fund invests in a portfolio of direct obligations of the U.S. government,
its agencies and instrumentalities. The Fund's adviser actively manages its
portfolio, seeking to limit the interest rate risk taken by the Fund while
selecting investments that should offer enhanced returns based upon the
adviser's interest rate outlook.

The adviser manages the Fund's interest rate risk by limiting the
dollar-weighted average duration of its portfolio securities. "Duration"
measures the sensitivity of a security's price to changes in interest rates. The
greater a portfolio's average duration, the greater the change in the
portfolio's value in response to a change in market interest rates. As a matter
of investment policy, under normal market conditions, the adviser limits the
average duration of the portfolio to within 20% of the duration of the Merrill
Lynch 5-10 Year Treasury Index (the "Index"). This Index includes all U.S.
Treasury notes and bonds with maturities of five years or greater and less than
ten years. This policy should prevent the volatility of the Fund's share price
from significantly exceeding the average volatility of intermediate-term U.S.
Treasury securities.

The adviser uses three principal methods to enhance the portfolio's returns as
compared to the Index. First, the adviser tries to extend the portfolio's
average duration when it expects interest rates to fall and shorten the duration
when it expects interest rates to rise. This method seeks to enhance the returns
from favorable interest rate changes and reduce the effect of unfavorable
changes.

Second, in constructing a portfolio with a targeted average duration, the
adviser tries to combine individual portfolio securities with different
durations to take advantage of relative changes in interest rates. Relative
changes in interest rates may occur whenever long-term interest rates move more,
less or in a different direction them shorter-term interst rates. As a general
matter, the adviser typically structures the portfolio in one of three ways:

* a "bulleted" portfolio structure consists primarily of securities with
durations close to the portfolio's average duration. The adviser may use this
structure, for example, when it expects the difference between longer term and
shorter term interest rates to increase.

* a "barbelled" portfolio structure consists primarily of securities with
durations above and below the average duration. The adviser may use this
structure, for example, when it expects the difference between longer term and
shorter term interest rates to decrease.

* a "laddered" portfolio structure consists of securities with durations above,
below, and at the average duration. the adviser may use this structure, for
example, when it expects longer term and shorter term interest rates to change
by approximately the same amount.

Third, the adviser tries to obtain securities issued by agencies and
instrumentalities of the U.S. that it expects to provide better returns than
U.S. Treasury securities of comparable duration. The adviser generally uses
ongoing relative value analysis to compare current yield differences of
securities to their historical and expected yield differences.

The adviser's interest rate outlook is the most important factor in selecting
the methods used to manage the Fund's portfolio. The adviser formulates its
interest rate outlook by analyzing a variety of factors such as:

* current and expected U.S. economic growth;

* current and expected interest rates and inflation;

* the Federal Reserve's monetary policy; and

* changes in the supply of or demand for U.S. government securities.

In selecting individual securities, the adviser analyzes how the security should
perform in response to expected interest rate changes as compared to other
securities of comparable risk.

As a consequence of this strategy, most of the Fund's portfolio consists of
securities paying interest exempt from state taxation. The Fund also invests in
repurchase agreements for U.S. government securities. Although repurchase
agreements are collaterized by the same types of securities in which the Fund
invests, income from repurchase agreements is not exempt from state taxation.
The Fund uses repurchase agreements to invest cash balances and shorten
duration, so the amount of state taxable income may vary with market conditions.
See "Tax Information" for an explanation of how your investment in the Fund may
be taxed.

What are the Principal Securities in Which the Fund Invests?

The Fund invests in the following types of U.S. government securities:

TREASURY SECURITIES

Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded as having the lowest
credit risks.

AGENCY SECURITIES

Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (GSE).

What are the Specific Risks of Investing in the Fund?

INTEREST RATE RISKS

Prices of fixed income securities rise and fall in response to changes in the
interest rate paid by similar securities. Generally, when interest rates rise,
prices of fixed income securities fall. However, market factors, such as the
demand for particular fixed income securities, may cause the price of certain
fixed income securities to fall while the prices of other securities rise or
remain unchanged. Interest rate changes have a greater effect on the price of
fixed income securities with longer durations. Duration measures the price
sensitivity of a fixed income security to changes in interest rates. Due to the
Fund's average duration policy, it is expected to have more interest rate risk
than Federated U.S. Government Securities Fund: 1-3 Years or Federated U.S.
Government Securities Fund: 2-5 Years, both of which have shorter average
durations than the Fund, and less interest rate risk than Federated U.S.
Government Bond Fund, which has a longer average duration than the Fund.

What Do Shares Cost?

You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. When the Fund receives your transaction request in proper form, it is
processed at the next calculated net asset value (NAV). The Fund does not charge
a front-end sales charge. NAV is determined at the end of regular trading
(normally 4:00 p.m. Eastern time) each day the NYSE is open.

The required minimum initial investment for Fund Shares is $25,000. There is no
required minimum subsequent investment amount.

An account may be opened with a smaller amount as long as the $25,000 minimum is
reached within 90 days. An institutional investor's minimum investment is
calculated by combining all accounts it maintains with the Fund. Accounts
established through investment professionals may be subject to a smaller minimum
investment amount. Keep in mind that investment professionals may charge you
fees for their services in connection with your Share transactions.

How is the Fund Sold?

The Fund offers two share classes: Institutional Shares and Institutional
Service Shares, each representing interests in a single portfolio of securities.
This prospectus relates only to Institutional Shares. Each share class has
different expenses, which affect their performance. Contact your investment
professional or call 1-800-341-7400 for more information concerning the other
class.

The Fund's Distributor markets the Shares described in this prospectus 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, Inc. (Federated).
Shares are also made available to financial intermediaries, as well as public
and private organizations or individuals, directly or through investment
professionals.

The Distributor and its affiliates may pay out of their assets other amounts
(including items of material value) to investment professionals for marketing
and servicing Shares. The Distributor is a subsidiary of Federated.

How to Purchase Shares

You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase Shares.

THROUGH AN INVESTMENT PROFESSIONAL

* Establish an account with the investment professional; and

* Submit your purchase order to the investment professional before the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). You will receive
the next calculated NAV if the investment professional forwards the order to the
Fund on the same day and the Fund receives payment within one business day. You
will become the owner of Shares and receive dividends when the Fund receives
your payment.

Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."

DIRECTLY FROM THE FUND

* Establish your account with the Fund by submitting a completed New
Account Form; and

* Send your payment to the Fund by Federal Reserve wire or check.

You will become the owner of Shares and your Shares will be priced at the next
calculated NAV after the Fund receives your wire or your check. If your check
does not clear, your purchase will be canceled and you could be liable for any
losses or fees the Fund or its transfer agent incurs.

An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the next calculated NAV after the Fund receives
the order.

BY WIRE

Send your wire to:

State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire

ABA Number 011000028
Attention: EDGEWIRE

Wire Order Number, Dealer Number, or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number

You cannot purchase Shares by wire on holidays when wire transfers are
restricted.

BY CHECK

Make your check payable to THE FEDERATED FUNDS, note your account number on the
check, and mail it to:

Federated Shareholder Services Company
P.O. Box 8600

Boston, MA 02266-8600

If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:

Federated Shareholder Services Company
1099 Hingham Street

Rockland, MA 02370-3317

Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone
other than you or The Federated Funds).

BY AUTOMATED CLEARING HOUSE (ACH)

Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.

How to Redeem Shares

You should redeem Shares:

* through an investment professional if you purchased Shares through an
investment professional; or

* directly from the Fund if you purchased Shares directly from the Fund.

THROUGH AN INVESTMENT PROFESSIONAL

Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). The redemption
amount you will receive is based upon the next calculated NAV after the Fund
receives the order from your investment professional.

DIRECTLY FROM THE FUND

BY TELEPHONE

You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions. If you call before
the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time) you
will receive a redemption amount based on that day's NAV.

BY MAIL

You may redeem Shares by mailing a written request to the Fund.

You will receive a redemption amount based on the next calculated NAV after the
Fund receives your written request in proper form. Send requests by mail to:

Federated Shareholder Services Company
P.O. Box 8600

Boston, MA 02266-8600

Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:

Federated Shareholder Services Company
1099 Hingham Street

Rockland, MA 02370-3317

All requests must include:

* Fund Name and Share Class, account number and account registration;

* amount to be redeemed;

* signatures of all shareholders exactly as registered.

Call your investment professional or the Fund if you need special instructions.

SIGNATURE GUARANTEES

Signatures must be guaranteed if:

* your redemption will be sent to an address other than the address of
record;

* your redemption will be sent to an address of record that was changed
within the last 30 days; or

* a redemption is payable to someone other than the shareholder(s) of
record.

A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A NOTARY PUBLIC CANNOT
PROVIDE A SIGNATURE GUARANTEE.

PAYMENT METHODS FOR REDEMPTIONS

Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:

* an electronic transfer to your account at a financial institution that is
an ACH member; or

* wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.

REDEMPTION IN KIND

Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.

LIMITATIONS ON REDEMPTION PROCEEDS

Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:

* to allow your purchase to clear;

* during periods of market volatility; or

* when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.

You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.

ADDITIONAL CONDITIONS

TELEPHONE TRANSACTIONS

The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.

SHARE CERTIFICATES

The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return the
certificates with your written redemption request. For your protection, send
your certificates by registered or certified mail, but do not endorse them.

Account and Share Information

CONFIRMATIONS AND ACCOUNT STATEMENTS

You will receive confirmation of purchases and redemptions. In addition, you
will receive periodic statements reporting all account activity, including
dividends and capital gains paid.

DIVIDENDS AND CAPITAL GAINS

The Fund declares any dividends daily and pays them monthly to shareholders. If
you purchase Shares by wire, you begin earning dividends on the day your wire is
received. If you purchase Shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through the day your redemption request is received.

In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.

If you purchase Shares just before a Fund declares a capital gain distribution,
you will pay the full price for the Shares and then receive a portion of the
price back in the form of a taxable distribution, whether or not you reinvest
the distribution in Shares. Therefore, you should consider the tax implications
of purchasing Shares shortly before the Fund declares a capital gain. Contact
your investment professional or the Fund for information concerning when
dividends and capital gains will be paid.

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, accounts may be
closed if redemptions cause the account balance to fall below the minimum
initial investment amount. Before an account is closed, you will be notified and
allowed 30 days to purchase additional Shares to meet the minimum.

TAX INFORMATION

The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Dividends are taxable as ordinary income; capital gains
are taxable at different rates depending upon the length of time the Fund holds
its assets.

Fund distributions are expected to be both dividends and capital gains.
Redemptions are taxable sales. Please consult your tax adviser regarding your
federal, state, and local tax liability.

Who Manages the Fund?

The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Investment Management Company. The Adviser manages the Fund's
assets, including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.

The Adviser and other subsidiaries of Federated advise approximately 175 mutual
funds and separate accounts, which total approximately $111 billion in assets as
of December 31, 1998. Federated was established in 1955 and is one of the
largest mutual fund investment managers in the United States with approximately
1,900 employees. More than 4,000 investment professionals make Federated Funds
available to their customers.

THE FUND'S PORTFOLIO MANAGERS ARE:

SUSAN M. NASON

Susan M. Nason has been the Fund's portfolio manager since its inception.
Ms. Nason joined Federated in 1987 and has been a Senior Vice President of
the Fund's Adviser since April 1997. Ms. Nason served as a Vice President
of the Adviser from 1993 to 1997, and as an Assistant Vice President from
1990 until 1992. Ms. Nason is a Chartered Financial Analyst and received
her M.S.I.A. concentrating in Finance from Carnegie Mellon University.

DONALD T. ELLENBERGER

Donald T. Ellenberger has been the Fund's portfolio manager since
October 1997. Mr. Ellenberger joined Federated in 1996 as a Vice President
of a Federated advisory subsidiary. He has been a Vice President of the
Fund's Adviser since March 1997. From 1986 to 1996, he served as a
Trader/Portfolio Manager for Mellon Bank, N.A. Mr. Ellenberger received his
M.B.A. in Finance from Stanford University.

ADVISORY FEES

The Adviser receives an annual investment advisory fee of 0.50% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.

YEAR 2000 READINESS

The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999 or may experience other date-related problems. The Year 2000 problem may
cause systems to process information incorrectly and could disrupt businesses,
such as the Fund, that rely on computers.

While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.

The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.

Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase.

The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.

Financial Information

FINANCIAL HIGHLIGHTS

The following Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of any dividends and capital
gains.

This information has been audited by Ernst & Young LLP, whose report, along with
the Fund's audited financial statements, is included in this prospectus.

Financial Highlights

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

Reference is made to the Report of Ernst & Young LLP, Independent Auditors, on
page 22.

PERIOD ENDED

YEAR ENDED FEBRUARY 28, FEBRUARY 29,
1999 1998 1997 1996 1

<S> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $10.22 $ 9.77 $ 9.98 $10.00
INCOME FROM INVESTMENT

OPERATIONS:

Net investment income 0.55 0.59 0.59 0.21
Net realized and
unrealized gain (loss)
on investments 0.12 0.47 (0.21) (0.02)
TOTAL FROM INVESTMENT

OPERATIONS 0.67 1.06 0.38 0.19
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.55) (0.59) (0.59) (0.21)
Distributions from net
realized gain
on investments (0.10) (0.02) - -
TOTAL DISTRIBUTIONS (0.65) (0.61) (0.59) (0.21)
NET ASSET VALUE, END OF

PERIOD $10.24 $10.22 $ 9.77 $ 9.98
TOTAL RETURN 2 6.58% 11.09% 3.98% 1.85%

RATIOS TO AVERAGE NET

ASSETS:

Expenses 0.30% 0.30% 0.13% 0.11% 3
Net investment income 5.27% 5.84% 6.06% 5.75% 3
Expense
waiver/reimbursement 4 0.94% 1.69% 3.95% 12.26% 3
SUPPLEMENTAL DATA:
Net assets, end of period

(000 omitted) $85,534 $39,712 $15,225 $4,181
Portfolio turnover 85% 49% 57% 29%
</TABLE>

1 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 Fund's administrator.

2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

3 Computed on an annualized basis.

4 This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.

See Notes which are an integral part of the Financial Statements

Portfolio of Investments

FEBRUARY 28, 1999

<TABLE>
<CAPTION>
PRINCIPAL

AMOUNT VALUE
<C> <S> <C>

U.S. TREASURY

OBLIGATIONS-84.9%
U.S. TREASURY BONDS-13.3%

$ 920,000 10.750%, 2/15/2003 $ 1,095,002
1,300,000 11.125%, 8/15/2003 1,593,930
750,000 12.375%, 5/15/2004 984,442
900,000 12.000%, 5/15/2005 1,208,124
2,025,000 10.750%, 8/15/2005 2,604,636
2,400,000 12.000%, 8/15/2013 3,503,760
2,533,000 11.250%, 2/15/2015 3,965,741
TOTAL 14,955,635
U.S. TREASURY NOTES-71.6%

1,165,000 5.750%, 8/15/2003 1,185,108
9,000,000 4.750%, 2/15/2004 8,824,230
5,500,000 7.250%, 8/15/2004 5,989,390
7,050,000 7.875%, 11/15/2004 7,908,972
7,375,000 7.500%, 2/15/2005 8,162,797
6,300,000 6.500%, 8/15/2005 6,671,637
9,550,000 5.875%, 11/15/2005 9,796,772
5,250,000 7.000%, 7/15/2006 5,745,968
10,500,000 6.500%, 10/15/2006 11,193,420
4,149,000 6.625%, 5/15/2007 4,474,033
4,500,000 6.125%, 8/15/2007 4,710,060
6,000,000 5.625%, 5/15/2008 6,119,700
TOTAL 80,782,087
TOTAL U.S. TREASURY

OBLIGATIONS (IDENTIFIED

COST $95,913,656) 95,737,722
<CAPTION>
PRINCIPAL

AMOUNT VALUE
<C> <S> <C>

U.S. GOVERNMENT AGENCY

OBLIGATIONS-14.2%
FEDERAL HOME LOAN BANK- 14.2%

$ 1,000,000 6.160%, 10/17/2002 $ 1,022,710
1,000,000 6.150%, 10/14/2004 1,023,270
2,750,000 6.900%, 2/7/2007 2,919,400
1,600,000 5.905%, 3/27/2008 1,596,544
2,500,000 5.925%, 4/9/2008 2,498,000
3,100,000 6.185%, 5/6/2008 3,153,816
3,800,000 5.800%, 9/2/2008 3,779,290
TOTAL U.S. GOVERNMENT
AGENCY OBLIGATIONS
(IDENTIFIED COST

$16,098,739) 15,993,030
REPURCHASE AGREEMENT-0.2% 1

250,000 Societe Generale, New
York, 4.750%, dated
2/26/1999, due 3/1/1999

(AT AMORTIZED COST) 250,000
TOTAL INVESTMENTS

(IDENTIFIED COST

$112,262,395) 2 $ 111,980,752
</TABLE>

1 The repurchase agreement is fully collateralized by U.S. Treasury obligations
based on market prices at the date of the portfolio. The investment in the
repurchase agreement is through participation in a joint account with other
Federated funds.

2 The cost of investments for federal tax purposes amounts to $112,262,395. The
net unrealized depreciation of investments on a federal tax basis amounts to
$281,643 which is comprised of $576,858 appreciation and $858,501 depreciation
at February 28, 1999.

Note: The categories of investments are shown as a percentage of net assets
($112,706,850) at February 28, 1999.

See Notes which are an integral part of the Financial Statements

Statement of Assets and Liabilities

FEBRUARY 28, 1999

<S> <C> <C>
ASSETS:
Total investments in
securities, at value
(identified and tax cost
$112,262,395) $ 111,980,752
Cash 4,126
Income receivable 1,318,723
Receivable for shares sold 570,169
Deferred organizational costs 17,539
TOTAL ASSETS 113,891,309
LIABILITIES:

Payable for shares redeemed $ 977,152
Income distribution payable 170,790
Accrued expenses 36,517

TOTAL LIABILITIES 1,184,459
Net assets for 11,009,615
shares outstanding $ 112,706,850
NET ASSETS CONSIST OF:

Paid in capital $ 112,875,988
Net unrealized
depreciation of investments (281,643)
Accumulated net realized
gain on investments 115,813
Distributions in excess
of net investment income (3,308)
TOTAL NET ASSETS $ 112,706,850
NET ASSET VALUE, OFFERING
PRICE, AND REDEMPTION
PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$85,534,281 / 8,355,157
shares outstanding $10.24
INSTITUTIONAL SERVICE
SHARES:
$27,172,569 / 2,654,458
shares outstanding $10.24
</TABLE>

See Notes which are an integral part of the Financial Statements

Statement of Operations

YEAR ENDED FEBRUARY 28, 1999

<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 4,290,133
EXPENSES:

Investment advisory fee $ 386,212
Administrative personnel
and services fee 155,001
Custodian fees 7,035
Transfer and dividend
disbursing agent fees and
expenses 39,978
Directors'/Trustees' fees 12,262
Auditing fees 14,000
Legal fees 2,567
Portfolio accounting fees 59,555
Distribution services
fee-Institutional Service
Shares 32,811
Shareholder services fee-
Institutional Shares 160,295
Shareholder services fee-
Institutional Service
Shares 32,811
Share registration costs 47,925
Printing and postage 16,480
Insurance premiums 1,642
Miscellaneous 18,434
TOTAL EXPENSES 987,008
WAIVERS AND
REIMBURSEMENTS:
Waiver of investment
advisory fee $ (386,212)
Waiver of shareholder
services fee-
Institutional Shares (134,648)
Waiver of shareholder
services fee-
Institutional Service
Shares (20,999)
Reimbursement of other
operating expenses (170,649)
TOTAL WAIVERS AND
REIMBURSEMENTS (712,508)
Net expenses 274,500
Net investment income 4,015,633
REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS:
Net realized gain on
investments 975,874
Net change in unrealized
appreciation
(depreciation) of
investments (1,346,997)
Net realized and
unrealized gain (loss) on
investments (371,123)
Change in net assets
resulting from operations $ 3,644,510
</TABLE>

See Notes which are an integral part of the Financial Statements

Statement of Changes in Net Assets

YEAR ENDED FEBRUARY 28 1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS

OPERATIONS:

Net investment income $ 4,015,633 $ 1,667,034
Net realized gain on
investments ($975,874 and
$157,972, respectively,
as computed for federal

tax purposes) 975,874 155,982
Net change in unrealized
appreciation/(depreciation) (1,346,997) 1,272,447
CHANGE IN NET ASSETS

RESULTING FROM OPERATIONS 3,644,510 3,095,463
DISTRIBUTIONS TO
SHAREHOLDERS:

Distributions from net
investment income

Institutional Shares (3,382,017) (1,554,559)
Institutional Service
Shares (636,924) (112,475)
Distributions from net
realized gains
Institutional Shares (733,012) (60,168)
Institutional Service
Shares (211,273) (3,810)
CHANGE IN NET ASSETS
RESULTING FROM

DISTRIBUTIONS

TO SHAREHOLDERS (4,963,226) (1,731,012)
SHARE TRANSACTIONS:
Proceeds from sale of
shares 143,996,625 32,759,811
Net asset value of shares
issued to shareholders in
payment of
distributions declared 2,661,315 702,923
Cost of shares redeemed (74,522,164) (9,944,658)
CHANGE IN NET ASSETS
RESULTING FROM SHARE

TRANSACTIONS 72,135,776 23,518,076
Change in net assets 70,817,060 24,882,527
NET ASSETS:

Beginning of period 41,889,790 17,007,263
End of period $ 112,706,850 $ 41,889,790
</TABLE>

See Notes which are an integral part of the Financial Statements

Notes to Financial Statements

FEBRUARY 28, 1999

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
Services 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.

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:

YEAR ENDED FEBRUARY 28 1999 1998
INSTITUTIONAL SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 10,372,039 $ 108,637,843 3,178,581 $ 31,719,467
Shares issued to
shareholders in payment
of distributions declared 198,272 2,089,406 61,313 612,595
Shares redeemed (6,101,477) (64,110,294) (911,650) (9,117,344)
NET CHANGE RESULTING FROM
INSTITUTIONAL SHARE

TRANSACTIONS 4,468,834 $ 46,616,955 2,328,244 $ 23,214,718

YEAR ENDED FEBRUARY 28 1999 1998
INSTITUTIONAL SERVICE
SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 3,365,052 $ 35,358,782 104,104 $ 1,040,344
Shares issued to
shareholders in payment
of distributions declared 53,863 571,909 9,043 90,328
Shares redeemed (977,573) (10,411,870) (82,376) (827,314)
NET CHANGE RESULTING FROM
INSTITUTIONAL SERVICE

SHARE TRANSACTIONS 2,441,342 $ 25,518,821 30,771 $ 303,358
NET CHANGE RESULTING FROM
SHARE TRANSACTIONS 6,910,176 $ 72,135,776 2,359,015 $ 23,518,076
</TABLE>

At February 28, 1999, capital paid-in aggregated $112,875,988.

INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

INVESTMENT ADVISORY FEE

Federated Investment Management Company, 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, Inc. 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 Company ("FSSC"), the Trust will pay FSSC up to 0.25% of average daily
net assets of the Trust shares for the period. The fee paid to FSSC is used to
finance certain services for shareholders and to maintain shareholder accounts.
FSSC may voluntarily choose to waive any portion of its fee. FSSC can modify or
terminate this voluntary waiver at any time at its sole discretion.

TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES

FServ, through its subsidiary, 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 each 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, 1999, the
Trust paid $11,411 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 February 28, 1999, were as follows:

Purchases $ 135,330,970
Sales $ 63,721,992

YEAR 2000 (UNAUDITED)

Similar to other financial organizations, the Trust could be adversely affected
if the computer systems used by the Trust's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Trust's Adviser and administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Trust's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Trust.

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, 1999, 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 financial highlights for each of the three
years in the period then ended and for the period from October 19, 1995 to
February 29, 1996. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
February 28, 1999, 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, 1999, and
the results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended, and the financial
highlights for each of the three years in the period then ended and for the
period from October 19, 1995 to February 29, 1996, in conformity with generally
accepted accounting principles.

[Graphic]

Boston, Massachusetts
April 19, 1999

Federated U.S. Government Securities Fund: 5-10 Years

INSTITUTIONAL SHARES

APRIL 30, 1999

A Statement of Additional Information (SAI) dated April 30, 1999, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is contained in the Fund's annual and semi-annual reports to
shareholders as they become available. The annual report discusses market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year. To obtain the SAI, the annual report,
semi-annual report and other information without charge, and make inquiries,
call your investment professional or the Fund at 1-800-341-7400.

You can obtain information about the Fund (including the SAI) by visiting or
writing the Public Reference Room of the Securities and Exchange Commission in
Washington, DC 20549-6009 or from the Commission's Internet site at
http://www.sec.gov. You can call 1-800-SEC-0330 for information on the Public
Reference Room's operations and copying charges.

[Graphic]
Federated

Federated U.S. Government Securities Fund:5-10 Years
Federated Investors Funds
5800 Corporate Drive

Pittsburgh, PA 15237-7000

1-800-341-7400

WWW.FEDERATEDINVESTORS.COM

Federated Securities Corp., Distributor

Investment Company Act File No. 811-07309

Cusip 31428S107

G01209-01-IS (4/99)

[Graphic]

PROSPECTUS

Federated U.S. Government Securities Fund: 5-10 Years

INSTITUTIONAL SERVICE SHARES

A mutual fund seeking total return consistent with current income by investing
in a portfolio of intermediate-term U.S. government securities.

APRIL 30, 1999

CONTENTS

Risk/Return Summary 1

What are the Fund's Fees and Expenses? 2

What are the Fund's Investment Strategies? 3

What are the Principal Securities in Which the Fund Invests? 4

What are the Specific Risks of Investing in the Fund? 5

What Do Shares Cost? 5

How is the Fund Sold? 5

How to Purchase Shares 6

How to Redeem Shares 7

Account and Share Information 8

Who Manages the Fund? 9

Financial Information 10

Report of Ernst & Young LLP, Independent Auditors 20

Risk/Return Summary

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?

The Fund's investment objective is to pursue total return consistent with
current income. While there is no assurance that the Fund will achieve its
investment objective, it endeavors to do so by following the strategies and
policies described in this prospectus. The Fund's total return will consist of
two components: (1) changes in the market value of its portfolio securities
(both realized and unrealized appreciaption), and (2) income received from its
portfolio securities. The Fund expects that income will comprise the largest
component of its total return.

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?

The Fund invests in a diversified, intermediate-term portfolio of direct
obligations of the U.S. government, its agencies and instrumentalities. The Fund
maintains a dollar-weighted average portfolio duration that is within 20 percent
of the dollar-weighted average duration of the Merrill Lynch 5-10 Year Treasury
Index. This index includes U.S. Treasury securities with maturities greater than
or equal to five years and less than ten years.

WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?

RISK/RETURN BAR CHART AND TABLE

[Graphic]

The graphic presentation displayed here consists of a bar chart representing the
annual total returns of the Fund's Institutional Service Shares as of the
calendar year-end for each of three years.

The `y' axis reflects the "% Total Return" beginning with "0" and increasing in
increments of 5% up to 15%.

The bar chart shows the variability of the Fund's Institutional Service Shares
total returns on a calendar year-end basis. The Fund's Institutional Service
Shares are not sold subject to a sales charge (load). The total returns
displayed above are based upon net asset value.

The Fund's Institutional Service Shares total return from January 1, 1999 to
March 31, 1999 was (2.15%).

Within the period shown in the Chart, the Fund's Institutional Service Shares
highest quarterly return was 7.37% (quarter ended September 30, 1998). Its
lowest quarterly return was (2.93%) (quarter ended March 31, 1996).

AVERAGE ANNUAL TOTAL RETURN TABLE

The following table represents the Fund's Institutional Service Shares Average
Annual Total Returns for the calendar periods ended December 31, 1998.

CALENDAR PERIOD FUND MLFTYT
1 Year 10.74% 11.59%
Start of Performance 1 7.87% 8.40%

1 The Fund's Institutional Service Shares start of performance date was October
19, 1995.

The table shows the Fund's total returns averaged over a period of years
relative to the Merrill Lynch 5-10 Year Treasury Index (MLFTYT), a broad-based
market index. Indexes are unmanaged, and it is not possible to invest directly
in an index.

What are the Fund's Fees and Expenses?

FEDERATED U.S. GOVERNMENT SECURITIES FUND: 5-10 YEARS

FEES AND EXPENSES

This table describes the fees and expenses that you may pay if you buy and hold
Shares of the Fund's Institutional Service Shares.

SHAREHOLDER FEES

<S> <C>

Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases

(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load)
(as a percentage of original purchase price or redemption proceeds,
as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and
other Distributions)
(as a percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None

ANNUAL FUND OPERATING EXPENSES (Before Reimbursement and Waivers) 1
Expenses That are Deducted From Fund Assets
(as a percentage of average net assets)
Management Fee 2 0.50%
Distribution (12b-1) Fee 0.25%
Shareholder Services Fee 3 0.25%
Other Expenses 4 0.43%
Total Annual Fund
Operating Expenses 1.43%

Total Reimbursement and Waivers of Fund Expenses 0.83%
Total Actual Annual Fund Operating Expenses (after reimbursement and waivers) 0.60%

3 The shareholder services fee for the Fund's Institutional Service Shares has
been voluntarily reduced. This voluntary reduction can be terminated at any
time. The shareholder services fee paid by the Fund (after the voluntary
reduction) was 0.09% for the fiscal year ended February 28, 1999.

EXAMPLE

This Example is intended to help you compare the cost of investing in the Fund's
Institutional Service Shares with the cost of investing in other mutual funds.

The Example assumes that you invest $10,000 in the Fund's Institutional Service
Shares for the time periods indicated and then redeem all of your Shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that the Fund's Institutional Service Shares operating
expenses are BEFORE REIMBURSEMENTS AND WAIVERS as shown in the table and remain
the same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:

1 Year $ 146
3 Years $ 452
5 Years $ 782
10 Years $ 1,713

What are the Fund's Investment Strategies?

Second, in constructing a portfolio with a targeted average duration, the
adviser tries to combine individual portfolio securities with different
durations to take advantage of relative changes in interest rates. Relative
changes in interest rates may occur whenever longer-term interest rates move
more, less or in a different direction than shorter-term interest rates. As a
general matter, the adviser typically structures the portfolio in one of three
ways:

* A "bulleted" portfolio structure consists primarily of securities with
durations close to the portfolio's average duration. The adviser may use this
structure, for example, when it expects the difference between longer term and
shorter term interset rates to increase.

* A "barbelled" portfolio structure consists primarily of securities with
durations above and below the average duration. The adviser may use this
structure, for example, when it expects the difference between longer term and
shorter term interest rates to decrease.

* A "laddered" portfolio structure consists of securities with durations above,
below and at the average duration. The adviser may use this structure, for
example, when it expects longer term and shorter term interest rates to change
by approximately the same amount.

* current and expected U.S. economic growth;

* current and expected interest rates and inflation;

* the Federal Reserve's monetary policy; and

* changes in the supply of or demand for U.S. government securities.

In selecting individual securities, the adviser analyzes how the security should
perform in response to expected interest rate changes as compared to other
securities of comparable risk.

As a consequence of this strategy, most of the Fund's portfolio consists of
securities paying interest exempt from state taxation. The Fund also invests in
repurchase agreements for U.S. government securities. Although repurchse
agreements are collateralized by the same types of securities in which the Fund
invests, income from repurchase agreements is not exempt from state taxation.
The Fund uses repurchase agreements to invest cash balances and shorten
duration, so the amount of state taxable income may vary with market conditions.
See "Tax Information" for an explanation of how your investment in the Fund may
be taxed.

What are the Principal Securities in Which the Fund Invests?

The Fund invests in the following types of U.S. government securities:

TREASURY SECURITIES

Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded as having the lowest
credit risk.

AGENCY SECURITIES

Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (GSE).

What are the Specific Risks of Investing in the Fund?

INTEREST RATE RISKS

What Do Shares Cost?

The required minimum initial investment for Fund Shares is $25,000. There is no
required minimum subsequent investment amount.

How is the Fund Sold?

The Fund offers two share classes: Institutional Shares and Institutional
Service Shares, each representing interests in a single portfolio of securities.
This prospectus relates only to Institutional Service Shares. Each share class
has different expenses, which affect their performance. Contact your investment
professional or call 1-800-341-7400 for more information concerning the other
class.

The Fund's Distributor markets the Shares described in this prospectus to retail
and private banking customers of financial institutions or individuals, directly
or through investment professionals.When the Distributor receives marketing
fees, it may pay some or all of them to investment professionals. The
Distributor and its affiliates may pay out of their assets other amounts
(including items of material value) to investment professionals for marketing
and servicing Shares. The Distributor is a subsidiary of Federated Investors,
Inc. (Federated).

RULE 12B-1 PLAN

The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to
the Distributor and investment professionals for the sale, distribution and
customer servicing of the Fund's Institutional Service Shares. Because these
Shares pay marketing fees on an ongoing basis, your investment cost may be
higher over time than other shares with different sales charges and marketing
fees.

How to Purchase Shares

You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase Shares.

THROUGH AN INVESTMENT PROFESSIONAL

* Establish an account with the investment professional; and

Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."

DIRECTLY FROM THE FUND

* Establish your account with the Fund by submitting a completed New
Account Form; and

* Send your payment to the Fund by Federal Reserve wire or check.

An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the next calculated NAV after the Fund receives
the order.

BY WIRE

Send your wire to:

State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire

ABA Number 011000028
Attention: EDGEWIRE

Wire Order Number, Dealer Number,
or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number

You cannot purchase Shares by wire on holidays when wire transfers are
restricted.

BY CHECK

Make your check payable to THE FEDERATED FUNDS, note your account number on the
check, and mail it to:

Federated Shareholder Services Company
P.O. Box 8600

Boston, MA 02266-8600

If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:

Federated Shareholder Services Company
1099 Hingham Street

Rockland, MA 02370-3317

Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone
other than you or The Federated Funds).

BY AUTOMATED CLEARING HOUSE (ACH)

How to Redeem Shares

You should redeem Shares:

* through an investment professional if you purchased Shares through an
investment professional; or

* directly from the Fund if you purchased Shares directly from the Fund.

THROUGH AN INVESTMENT PROFESSIONAL

DIRECTLY FROM THE FUND

BY TELEPHONE

BY MAIL

You may redeem Shares by mailing a written request to the Fund.

You will receive a redemption amount based on the next calculated NAV after the
Fund receives your written request in proper form.

Send requests by mail to:

Federated Shareholder Services Company
P.O. Box 8600

Boston, MA 02266-8600

Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:

Federated Shareholder Services Company
1099 Hingham Street

Rockland, MA 02370-3317

All requests must include:

* Fund Name and Share Class, account number and account registration;

* amount to be redeemed; and

* signatures of all shareholders exactly as registered.

Call your investment professional or the Fund if you need special instructions.

SIGNATURE GUARANTEES

Signatures must be guaranteed if:

* your redemption will be sent to an address other than the address of
record;

* your redemption will be sent to an address of record that was changed
within the last 30 days; or

* a redemption is payable to someone other than the shareholder(s) of
record.

PAYMENT METHODS FOR REDEMPTIONS

* an electronic transfer to your account at a financial institution that is
an ACH member; or

* wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.

REDEMPTION IN KIND

Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.

LIMITATIONS ON REDEMPTION PROCEEDS

Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:

* to allow your purchase to clear;

* during periods of market volatility; or

* when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.

You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.

ADDITIONAL CONDITIONS

TELEPHONE TRANSACTIONS

The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.

SHARE CERTIFICATES

Account and Share Information

CONFIRMATIONS AND ACCOUNT STATEMENTS

You will receive confirmation of purchases and redemptions. In addition, you
will receive periodic statements reporting all account activity, including
dividends and capital gains paid.

DIVIDENDS AND CAPITAL GAINS

ACCOUNTS WITH LOW BALANCES

TAX INFORMATION

The Fund sends an annual statement of your account activity to assist you in
completing your federal, state, and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Dividends are taxable as ordinary income; capital gains
are taxable at different rates depending upon the length of time the Fund holds
its assets.

Fund distributions are expected to both dividends and capital gains. Redemptions
are taxable sales. Please consult your tax adviser regarding your federal,
state, and local tax liability.

Who Manages the Fund?

THE FUND'S PORTFOLIO MANAGERS ARE:

SUSAN M. NASON

Susan M. Nason has been the Fund's portfolio manager since its inception.
Ms. Nason joined Federated in 1987 and has been a Senior Vice President of
the Fund's Adviser since April 1997. Ms. Nason served as a Vice President of
the Adviser from 1993 to 1997, and as an Assistant Vice President from 1990
until 1992. Ms. Nason is a Chartered Financial Analyst and received her
M.S.I.A. concentrating in Finance from Carnegie Mellon University.

DONALD T. ELLENBERGER

Donald T. Ellenberger has been the Fund's portfolio manager since
October 1997. Mr. Ellenberger joined Federated Investors, Inc. in 1996 as
a Vice President of a Federated advisory subsidiary. He has been a Vice
President of the Fund's Adviser since March 1997. From 1986 to 1996, he
served as a Trader/Portfolio Manager for Mellon Bank, N.A. Mr. Ellenberger
received his M.B.A. in Finance from Stanford University.

ADVISORY FEES

YEAR 2000 READINESS

The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.

Financial Information

FINANCIAL HIGHLIGHTS

This information has been audited by Ernst & Young LLP, whose report, along with
the Fund's audited financial statements, is included in this prospectus.

Financial Highlights

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

Reference is made to the Report of Ernst & Young LLP, Independent Auditors, on
page 20.

PERIOD
ENDED

YEAR ENDED FEBRUARY 28, FEBRUARY 29,
1999 1998 1997 1996 1

<S> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $10.22 $ 9.77 $ 9.98 $10.00
INCOME FROM INVESTMENT

OPERATIONS:

Net investment income 0.52 0.55 0.56 0.20
Net realized and
unrealized gain (loss)
on investments 0.12 0.48 (0.21) (0.02)
TOTAL FROM INVESTMENT

OPERATIONS 0.64 1.03 0.35 0.18
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.52) (0.56) (0.56) (0.20)
Distributions from net
realized gain on
investments (0.10) (0.02) - -
Total distributions (0.62) (0.58) (0.56) (0.20)
NET ASSET VALUE, END OF

PERIOD $10.24 $10.22 $ 9.77 $ 9.98
TOTAL RETURN 2 6.26% 10.76% 3.62% 1.75%

RATIOS TO AVERAGE NET

ASSETS:

Expenses 0.60% 0.60% 0.47% 0.45% 3
Net investment income 4.87% 5.56% 5.70% 5.25% 3
Expense
waiver/reimbursement 4 0.83% 1.64% 3.86% 12.17% 3
SUPPLEMENTAL DATA:
Net assets, end of period

(000 omitted) $27,173 $2,178 $1,782 $1,046
Portfolio turnover 85% 49% 57% 29%
</TABLE>

1 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 Fund's administrator.

2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.

3 Computed on an annualized basis.

4 This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.

See Notes which are an integral part of the Financial Statements

Portfolio of Investments

FEBRUARY 28, 1999

<TABLE>
<CAPTION>
PRINCIPAL

AMOUNT VALUE
<C> <S> <C>

U.S. TREASURY

OBLIGATIONS-84.9%
U.S. TREASURY BONDS-13.3%

OBLIGATIONS (IDENTIFIED

COST $95,913,656) 95,737,722
<CAPTION>
PRINCIPAL

AMOUNT VALUE
<C> <S> <C>

U.S. GOVERNMENT AGENCY

OBLIGATIONS-14.2%
FEDERAL HOME LOAN BANK-

14.2%

$16,098,739) 15,993,030
REPURCHASE AGREEMENT-0.2% 1

250,000 Societe Generale, New
York, 4.750%, dated
2/26/1999, due 3/1/1999

(AT AMORTIZED COST) 250,000
TOTAL INVESTMENTS

(IDENTIFIED COST

$112,262,395) 2 $ 111,980,752
</TABLE>

Note: The categories of investments are shown as a percentage of net assets
($112,706,850) at February 28, 1999.

See Notes which are an integral part of the Financial Statements

Statement of Assets and Liabilities

FEBRUARY 28, 1999

<S> <C> <C>
ASSETS:
Total investments in
securities, at value
(identified and tax cost
$112,262,395) $ 111,980,752
Cash 4,126
Income receivable 1,318,723
Receivable for shares sold 570,169
Deferred organizational
costs 17,539
TOTAL ASSETS 113,891,309
LIABILITIES:

Payable for shares redeemed $ 977,152
Income distribution payable 170,790
Accrued expenses 36,517

TOTAL LIABILITIES 1,184,459
Net assets for 11,009,615
shares outstanding $ 112,706,850
NET ASSETS CONSIST OF:

Paid in capital $ 112,875,988
Net unrealized
depreciation of
investments (281,643)
Accumulated net realized
gain on investments 115,813
Distributions in excess
of net investment income (3,308)
TOTAL NET ASSETS $ 112,706,850
NET ASSET VALUE, OFFERING
PRICE, AND REDEMPTION
PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$85,534,281 / 8,355,157
shares outstanding $10.24
INSTITUTIONAL SERVICE
SHARES:
$27,172,569 / 2,654,458
shares outstanding $10.24
</TABLE>

See Notes which are an integral part of the Financial Statements

Statement of Operations

YEAR ENDED FEBRUARY 28, 1999

<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 4,290,133
EXPENSES:

See Notes which are an integral part of the Financial Statements

Statement of Changes in Net Assets

YEAR ENDED FEBRUARY 28 1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS

OPERATIONS:

Net investment income $ 4,015,633 $ 1,667,034
Net realized gain on
investments ($975,874 and
$157,972, respectively,
as computed for federal

tax purposes) 975,874 155,982
Net change in unrealized
appreciation/(depreciation) (1,346,997) 1,272,447
CHANGE IN NET ASSETS

RESULTING FROM OPERATIONS 3,644,510 3,095,463
DISTRIBUTIONS TO
SHAREHOLDERS:

Distributions from net
investment income

DISTRIBUTIONS

TRANSACTIONS 72,135,776 23,518,076
Change in net assets 70,817,060 24,882,527
NET ASSETS:

Beginning of period 41,889,790 17,007,263
End of period $ 112,706,850 $ 41,889,790
</TABLE>

See Notes which are an integral part of the Financial Statements

Notes to Financial Statements

FEBRUARY 28, 1999

ORGANIZATION

SIGNIFICANT ACCOUNTING POLICIES

INVESTMENT VALUATIONS

REPURCHASE AGREEMENTS

INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS

FEDERAL TAXES

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

USE OF ESTIMATES

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:

TRANSACTIONS 4,468,834 $ 46,616,955 2,328,244 $ 23,214,718

SHARE TRANSACTIONS 2,441,342 $ 25,518,821 30,771 $ 303,358
NET CHANGE RESULTING FROM
SHARE TRANSACTIONS 6,910,176 $ 72,135,776 2,359,015 $ 23,518,076
</TABLE>

At February 28, 1999, capital paid-in aggregated $112,875,988.

INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

INVESTMENT ADVISORY FEE

ADMINISTRATIVE FEE

DISTRIBUTION SERVICES FEE

SHAREHOLDER SERVICES FEE

TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES

PORTFOLIO ACCOUNTING FEES

FServ maintains the Trust's accounting records for which it receives a fee. The
fee is based on the level of each Trust's average daily net assets for the
period, plus out-of-pocket expenses.

ORGANIZATIONAL EXPENSES

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 February 28, 1999, were as follows:

Purchases $ 135,330,970
Sales $ 63,721,992

YEAR 2000 (UNAUDITED)

Report of Ernst & Young LLP, Independent Auditors

TO THE TRUSTEES AND SHAREHOLDERS OF
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 5-10 YEARS:

[Graphic]
Ernst & Young LLP

Boston, Massachusetts
April 19, 1999

Federated U.S. Government Securities Fund: 5-10 Years

INSTITUTIONAL SERVICE SHARES

APRIL 30, 1999

[Graphic]
Federated

Federated U.S. Government Securities Fund: 5-10 Years
Federated Investors Funds
5800 Corporate Drive

Pittsburgh, PA 15237-7000

1-800-341-7400

WWW.FEDERATEDINVESTORS.COM

Federated Securities Corp., Distributor

Investment Company Act File No. 811-07309

Cusip 31428S206

G01209-04-SS (4/99)

[Graphic]

STATEMENT OF ADDITIONAL INFORMATION

Federated U.S. Government Securities Fund: 5-10 Years

INSTITUTIONAL SHARES

INSTITUTIONAL SERVICE SHARES

This Statement of Additional Information (SAI) is not a prospectus. Read
this SAI in conjunction with the prospectuses for Institutional Shares and
Institutional Service Shares of Federated U.S. Government Securities Fund:
5-10 Years (Fund), dated April 30, 1999. Obtain the prospectuses without
charge by calling 1-800-341-7400.

APRIL 30, 1999

[Graphic]
Federated

World-Class Investment Manager

Federated U.S. Government Securities Fund: 5-10 Years
Federated Investors Funds
5800 Corporate Drive

Pittsburgh, PA 15237-7000

1-800-341-7400

WWW.FEDERATEDINVESTORS.COM

Federated Securities Corp., Distributor

G01209-02 (4/99)

[Graphic]

CONTENTS

How is the Fund Organized? 1

Investment Strategies 1

Securities in Which the Fund Invests 1

What Do Shares Cost? 4

How is the Fund Sold? 4

Subaccounting Services 5

Redemption in Kind 5

Massachusetts Partnership Law 5

Account and Share Information 5

Tax Information 5

Who Manages and Provides Services to the Fund? 6

How Does the Fund Measure Performance? 9

Who is Federated Investors, Inc.? 10

Addresses 12

How is the Fund Organized?

The Fund is a diversified open-end, management investment company that was
established under the laws of the Commonwealth of Massachusetts on June 14,
1995.

The Board of Trustees (the Board) has established two classes of shares of the
Fund, known as Institutional Shares and Institutional Service Shares (Shares).
This SAI relates to all classes of the above-mentioned Shares. The Fund's
investment adviser is Federated Investment Management Company (Adviser).
Effective March 31, 1999, Federated Management, Adviser to the Fund, merged into
Federated Investment Management Company (formerly, Federated Advisers).

Investment Strategies

Although the Fund may purchase individual securities of any maturity, the Fund's
dollar-weighted average portfolio maturity may not exceed a maximum of ten
years. Further, the Fund is required to maintain a minimum weighted average
portfolio maturity of five years. The Adviser manages the portfolio by targeting
a dollar-weighted average duration that is consistent with the Fund's maturity
constraints because duration is a more accurate and useful measure of interest
rate risk.

Duration is a measure of the average time to receipt of cash from a bond. The
only instance in which duration is equal to time-to-maturity is a zero- coupon
bond; where all cash is received at maturity. In the case of a coupon bond, cash
is received at least annually or semi-annually. In the case of a coupon bond
with a five-year maturity, the average time to receipt of cash should be between
1 and 5. The formula for duration places more weight on the dates when cash
flows are relatively large. Since in the case of the five-year coupon bond, most
of the cash is received at the end of year 5, the average time to receipt of
cash will be closer to 5 than to 1.

The Adviser selects securities used to lengthen or shorten the portfolio's
average duration by comparing the returns currently offered by different
investments to their historical and expected returns.

Securities in Which the Fund Invests

In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.

FIXED INCOME SECURITIES

Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.

A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields.

The following describes the types of fixed income securities in which the Fund
invests.

TREASURY SECURITIES

Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded as having the lowest
credit risks.

AGENCY SECURITIES

Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a GSE). The United
States supports some GSEs with its full faith and credit. Other GSEs receive
support through federal subsidies, loans or other benefits. A few GSEs have no
explicit financial support, but are regarded as having implied support because
the federal government sponsors their activities. Agency securities are
generally regarded as having low credit risks, but not as low as treasury
securities.

ZERO COUPON SECURITIES

Zero coupon securities do not pay interest or principal until final maturity
unlike debt securities that provide periodic payments of interest (referred to
as a coupon payment). Investors buy zero coupon securities at a price below the
amount payable at maturity. The difference between the purchase price and the
amount paid at maturity represents interest on the zero coupon security.
Investors must wait until maturity to receive interest and principal, which
increases the market and credit risks of a zero coupon security.

There are many forms of zero coupon securities. Some are issued at a discount
and are referred to as zero coupon or capital appreciation bonds. Others are
created from interest bearing bonds by separating the right to receive the
bond's coupon payments from the right to receive the bond's principal due at
maturity, a process known as coupon stripping. Treasury STRIPs are the most
common forms of stripped zero coupon securities. In addition, some securities
give the issuer the option to deliver additional securities in place of cash
interest payments, thereby increasing the amount payable at maturity. These are
referred to as pay-in-kind or PIK securities.

SPECIAL TRANSACTIONS

REPURCHASE AGREEMENTS

Repurchase agreements are transactions in which the Fund buys a U.S. government
security from a dealer or bank and agrees to sell the security back at a
mutually agreed upon time and price. The repurchase price exceeds the sale
price, reflecting the Fund's return on the transaction. This return is unrelated
to the interest rate on the underlying security. The Fund will enter into
repurchase agreements only with banks and other recognized financial
institutions, such as securities dealers, deemed creditworthy by the Adviser.

The Fund's custodian or subcustodian will take possession of the securities
subject to repurchase agreements. The Adviser or subcustodian will monitor the
value of the underlying security each day to ensure that the value of the
security always equals or exceeds the repurchase price.

Repurchase agreements are subject to credit risks.

REVERSE REPURCHASE AGREEMENTS

Reverse repurchase agreements are repurchase agreements in which the Fund is the
seller (rather than the buyer) of the securities, and agrees to repurchase them
at an agreed upon time and price. A reverse repurchase agreement may be viewed
as a type of borrowing by the Fund. Reverse repurchase agreements are subject to
credit risks. In addition, reverse repurchase agreements create leverage risks
because the Fund must repurchase the underlying security at a higher price,
regardless of the market value of the security at the time of repurchase.

SECURITIES LENDING

The Fund may lend portfolio securities to borrowers that the Adviser deems
creditworthy. In return, the Fund receives cash or liquid securities from the
borrower as collateral. The borrower must furnish additional collateral if the
market value of the loaned securities increases. Also, the borrower must pay the
Fund the equivalent of any dividends or interest received on the loaned
securities.

The Fund will reinvest cash collateral in securities that qualify as an
acceptable investment for the Fund. However, the Fund must pay interest to the
borrower for the use of cash collateral.

Loans are subject to termination at the option of the Fund or the borrower. The
Fund will not have the right to vote on securities while they are on loan, but
it will terminate a loan in anticipation of any important vote. The Fund may pay
administrative and custodial fees in connection with a loan and may pay a
negotiated portion of the interest earned on the cash collateral to a securities
lending agent or broker.

Securities lending activities are subject to credit risks.

INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES

The Fund may invest its assets in securities of other investment companies,
including the securities of affiliated money market funds, as an efficient means
of carrying out its investment policies and managing its uninvested cash.

DELAYED DELIVERY TRANSACTIONS

Delayed delivery transactions, including when issued transactions, are
arrangements in which the Fund buys securities for a set price, with payment and
delivery of the securities scheduled for a future time. During the period
between purchase and settlement, no payment is made by the Fund to the issuer
and no interest accrues to the Fund. The Fund records the transaction when it
agrees to buy the securities and reflects their value in determining the price
of its shares. Settlement dates may be a month or more after entering into these
transactions so that the market values of the securities bought may vary from
the purchase prices. Delayed delivery transactions also involve credit risks in
the event of a counterparty default.

ASSET COVERAGE

In order to secure its obligations in connection with derivative contracts or
special transactions, the Fund will either own the underlying assets, enter into
an offsetting transaction or set aside readily marketable securities with a
value that equals or exceeds the Fund's obligations. Unless the Fund has other
readily marketable assets to set aside, it cannot trade assets used to secure
such obligations without entering into an offsetting derivative contract or
terminating a special transaction. This may cause the Fund to miss favorable
trading opportunities or to realize losses on derivative contracts or special
transactions.

INVESTMENT RISKS

There are many factors which may affect an investment in the Fund. The Fund's
principal risks are described in its prospectus. Additional risk factors are
outlined below.

INTEREST RATE RISKS

Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of a
fixed income security to changes in interest rates.

CREDIT RISKS

Credit risk includes the possibility that a party to a transaction involving the
Fund will fail to meet its obligations. This could cause the Fund to lose the
benefit of the transaction or prevent the Fund from selling or buying other
securities to implement its investment strategy.

CALL RISKS

Call risk is the possibility that an issuer may redeem a fixed income security
before maturity (a call) at a price below its current market price. An increase
in the likelihood of a call may reduce the security's price.

If a fixed income security is called, the Fund may have to reinvest the proceeds
in other fixed income securities with lower interest rates, higher credit risks,
or other less favorable characteristics.

INVESTMENT LIMITATIONS

SELLING SHORT AND BUYING ON MARGIN

The Fund 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 Fund will not issue senior securities, except that the Fund 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 Fund 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 Fund to
meet redemption requests when the liquidation of portfolio securities is deemed
to be inconvenient or disadvantageous. The Fund will not purchase any securities
while borrowings in excess of 5% of its total assets are outstanding.

PLEDGING ASSETS

The Fund will not mortgage, pledge, or hypothecate any assets except to secure
permitted borrowings.

INVESTING IN REAL ESTATE

The Fund 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 Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts.

DIVERSIFICATION OF INVESTMENTS

With respect to securities comprising 75% of the value of its total assets, the
Fund 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 Fund will not lend any of its assets, except portfolio securities. This
shall not prevent the Fund 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 Fund's Declaration of Trust.

CONCENTRATION

The Fund will not invest 25% or more of the value of its total assets in any one
industry, except that the Fund 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 limitations cannot be changed unless authorized by the "vote of a
majority of its outstanding voting securities," as defined by the Investment
Company Act. The following limitations, however, may be changed by the Board
without shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective.

INVESTING IN ILLIQUID SECURITIES

The Fund 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 Fund will not purchase securities of a company for purpose of exercising
control or management.

DEALING IN PUTS AND CALLS

The Fund 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 Fund 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 Fund 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."

PORTFOLIO TURNOVER

The Fund will not attempt to set or meet a portfolio turnover rate since any
turnover would be incidental to transactions undertaken in an attempt to achieve
the Fund's investment objective. During the fiscal years ended February 28, 1999
and 1998, the portfolio turnover rates were 85% and 49%, respectively.

DETERMINING MARKET VALUE OF SECURITIES

Market values of the Fund's portfolio securities are determined as follows:

* for bonds and other fixed income securities, at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent pricing service;

* for short-term obligations, according to the mean between bid and asked prices
as furnished by an independent pricing service, except that short-term
obligations with remaining maturities of less than 60 days at the time of
purchase may be valued at amortized cost or at fair market value as determined
in good faith by the Board; and

* for all other securities at fair value as determined in good faith by the
Board.

Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.

What Do Shares Cost?

The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund. The NAV for each class of
Shares may differ due to the variance in daily net income realized by each
class. Such variance will reflect only accrued net income to which the
shareholders of a particular class are entitled.

How is the Fund Sold?

Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.) offers Shares on a continuous, best-efforts basis.

RULE 12B-1 PLAN

As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of banks, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per share expenses, and
provide cash for orderly portfolio management and Share redemptions. In
addition, the Fund's service providers that receive asset-based fees also
benefit from stable or increasing Fund assets.

The Fund may compensate the Distributor more or less than its actual marketing
expenses. In no event will the Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.

For some classes of Shares, the maximum Rule 12b-1 Plan fee that can be paid in
any one year may not be sufficient to cover the marketing-related expenses the
Distributor has incurred. Therefore, it may take the Distributor a number of
years to recoup these expenses.

SHAREHOLDER SERVICES

The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated Investors, Inc. (Federated), for providing shareholder services and
maintaining shareholder accounts. Federated Shareholder Services Company may
select others to perform these services for their customers and may pay them
fees.

SUPPLEMENTAL PAYMENTS

Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.

Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the investment professional.

Subaccounting Services

Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.

Redemption in Kind

Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.

Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.

Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.

Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.

Massachusetts Partnership Law

Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Fund. To protect its
shareholders, the Fund has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Fund.

In the unlikely event a shareholder is held personally liable for the Fund's
obligations, the Fund is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Fund will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Fund. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Fund itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.

Account and Share Information

VOTING RIGHTS

Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of the Fund have
equal voting rights, except that in matters affecting only a particular class,
only Shares of that class are entitled to vote.

Trustees may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Fund's outstanding shares.

As of April 6, 1999, the following shareholders owned of record, beneficially,
or both, 5% or more of outstanding Shares: Charles Schwab & Co., Inc., San
Francisco, California, 47.91% of Institutional Shares, Amalgamated Bank of New
York, New York, 5.11% of Institutional Shares, Planmember Services Corp.,
Beverly Hills, California, 23.77% of Institutional Service Shares, Milards &
Co., Oaks, Pennsylvania, 23.70% of Institutional Service Shares, FNB Nominee
Co., Indiana, Pennsylvania, 17.10% of Institutional Service Shares, Planmember
Services Corp., Los Angeles, California, 6.47% of Institutional Service Shares
and The Washington Trust Co., Westerly, Rhode Island, 5.39% of Institutional
Service Shares.

Shareholders owning 25% or more of outstanding Shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.

Tax Information

FEDERAL INCOME TAX

The Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, it will not receive special tax treatment and will pay federal income tax.

Who Manages and Provides Services to the Fund?

BOARD OF TRUSTEES

The Board is responsible for managing the Fund's business affairs and for
exercising all the Fund's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes each person's
name, address, birth date, present position(s) held with the Fund, principal
occupations for the past five years and positions held prior to the past five
years, total compensation received as a Trustee from the Fund for its most
recent fiscal year, and the total compensation received from the Federated Fund
Complex for the most recent calendar year. The Federated Fund Complex is
comprised of 54 investment companies, whose investment advisers are affiliated
with the Fund's Adviser.

As of April 6, 1999, the Fund's Board and Officers as a group owned less than 1%
of the Fund's outstanding Shares.

An asterisk (*) denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.

<TABLE>

NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM FUND AND
POSITION WITH FUND FOR PAST 5 YEARS FROM FUND FUND COMPLEX
<S> <C> <C> <C>
JOHN F. DONAHUE*+ Chief Executive Officer $0 $0 for the Fund and
Birth date: July 28, 1924 and Director or Trustee 54 other investment
Federated Investors Tower of the Federated Fund companies in the
1001 Liberty Avenue Complex; Chairman and Fund Complex
Pittsburgh, PA Director, Federated
CHAIRMAN AND TRUSTEE Investors, Inc.;
Chairman and Trustee,
Federated Investment
Management Company;
Chairman and Director,
Federated Investment
Counseling, and
Federated Global
Investment Management
Corp.; Chairman,
Passport Research, Ltd.
THOMAS G. BIGLEY Director or Trustee of the Federated Fund $1,038.28 $113,860.22 for the Fund
Birth date: February 3, 1934 Complex; Director, Member of Executive and 54 other investment
15 Old Timber Trail Committee, Children's Hospital of companies in the
Pittsburgh, PA Pittsburgh; formerly: Senior Partner, Ernst & Fund Complex
TRUSTEE Young LLP; Director, MED 3000 Group,
Inc.; Director, Member of Executive
Committee, University of Pittsburgh.

JOHN T. CONROY, JR. Director or Trustee of the Federated Fund $1,142.25 $125,264.48 for the Fund
Birth date: June 23, 1937 Complex; President, Investment Properties and 54 other investment
Wood/IPC Commercial Dept. Corporation; Senior Vice President, companies in the
John R. Wood Associates, Inc. Realtors John R. Wood and Associates, Inc., Realtors; Fund Complex
3255 Tamiami Trial North Partner or Trustee in private real estate
Naples, FL ventures in Southwest Florida; formerly:
TRUSTEE President, Naples Property Management,

Inc. and Northgate Village Development
Corporation.

NICHOLAS CONSTANTAKIS Director or Trustee of the Federated Fund $1,038.28 $47,958.02 for the Fund
Birth date: September 3, 1939 Complex; formerly: Partner, Andersen and 39 other investment
175 Woodshire Drive Worldwide SC. companies in the
Pittsburgh, PA Fund Complex
TRUSTEE
JOHN F. CUNNINGHAM++ Director or Trustee of some of the Federated $263.86 $0 for the Fund and
Birth date: March 5, 1943 Fund Complex; Chairman, President and 43 other investment
353 El Brillo Way Chief Executive Officer, Cunningham & Co., companies in the
Palm Beach, FL Inc. ; Trustee Associate, Boston College; Fund Complex
TRUSTEE Director, EMC Corporation; formerly:
Director, Redgate Communications.
Previous Positions: Chairman of the Board
and Chief Executive Officer, Computer
Consoles, Inc.; President and Chief
Operating Officer, Wang Laboratories;
Director, First National Bank of Boston;
Director, Apollo Computer, Inc.

LAWRENCE D. ELLIS, M.D.* Director or Trustee of the Federated Fund $1,038.28 $113,860.22 for the Fund
Birth date: October 11, 1932 Complex; Professor of Medicine, University and 54 other investment
3471 Fifth Avenue of Pittsburgh; Medical Director, University of companies in the
Suite 1111 Pittsburgh Medical Center-Downtown; Fund Complex
Pittsburgh, PA Hematologist, Oncologist, and Internist,

TRUSTEE University of Pittsburgh Medical Center;
Member, National Board of Trustees,
Leukemia Society of America.

PETER E. MADDEN Director or Trustee of the Federated Fund $1,064.70 $113,860.22 for the Fund
Birth date: March 16, 1942 Complex; formerly: Representative, and 54 other investment
One Royal Palm Way Commonwealth of Massachusetts General companies in the
100 Royal Palm Way Court; President, State Street Bank and Trust Fund Complex
Palm Beach, FL Company and State Street Corporation.
TRUSTEE Previous Positions: Director, VISA USA and

VISA International; Chairman and Director,
Massachusetts Bankers Association;
Director, Depository Trust Corporation.

NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM FUND AND
POSITION WITH FUND FOR PAST 5 YEARS FROM FUND FUND COMPLEX
<S> <C> <C> <C>
CHARLES F. MANSFIELD, JR.++ Director or Trustee of $263.86 $0 for the Fund and
Birth date: April 10, 1945 some of the Federated 43 other investment
80 South Road Fund Complex; Management companies in the
Westhampton Beach, NY Consultant. Fund Complex
TRUSTEE Previous Positions:
Chief Executive Officer,
PBTC International Bank;
Chief Financial Officer
of Retail Banking
Sector, Chase Manhattan
Bank; Senior Vice
President, Marine
Midland Bank; Vice
President, Citibank;
Assistant Professor of
Banking and Finance,
Frank G. Zarb School of
Business, Hofstra
University.
JOHN E. MURRAY, JR., J.D., S.J.D. Director or Trustee of the Federated Fund $1,064.70 $113,860.22 for the Fund
Birth date: December 20, 1932 Complex; President, Law Professor, and 54 other investment
President, Duquesne University Duquesne University; Consulting Partner, companies in the
Pittsburgh, PA Mollica & Murray. Fund Complex
TRUSTEE Previous Positions: Dean and Professor of
Law, University of Pittsburgh School of
Law; Dean and Professor of Law,
Villanova University School of Law.

MARJORIE P. SMUTS Director or Trustee of the Federated Fund $1,038.28 $113,860.22 for the Fund
Birth date: June 21, 1935 Complex; Public Relations/Marketing/ and 54 other investment
4905 Bayard Street Conference Planning. companies in the
Pittsburgh, PA Previous Positions: National Spokesperson, Fund Complex
TRUSTEE Aluminum Company of America; business
owner.

JOHN S. WALSH++ Director or Trustee of some of the Federated $263.86 $0 for the Fund and
Birth date: November 28, 1957 Fund Complex; President and Director, Heat 40 other investment
2007 Sherwood Drive Wagon, Inc.; President and Director, companies in the
Valparaiso, IN Manufacturers Products, Inc.; President, Fund Complex
TRUSTEE Portable Heater Parts, a division of
Manufacturers Products, Inc.; Director,
Walsh & Kelly, Inc.; formerly: Vice President,

Walsh & Kelly, Inc.

GLEN R. JOHNSON Trustee, Federated Investors, Inc.; staff $0 $0 for the Fund and
Birth date: May 2, 1929 member, Federated Securities Corp. 8 other investment
Federated Investors Tower companies in the
1001 Liberty Avenue Fund Complex
Pittsburgh, PA

PRESIDENT

J. CHRISTOPHER DONAHUE+ President or Executive Vice President of the $0 $0 for the Fund and
Birth date: April 11, 1949 Federated Fund Complex; Director or 22 other investment
Federated Investors Tower Trustee of some of the Funds in the companies in the
1001 Liberty Avenue Federated Fund Complex; President and Fund Complex
Pittsburgh, PA Director, Federated Investors, Inc.; President
EXECUTIVE VICE PRESIDENT and Trustee, Federated Investment
Management Company; President and
Director, Federated Investment
Counseling and Federated Global
Investment Management Corp.; President,
Passport Research, Ltd.; Trustee,
Federated Shareholder Services Company;
Director, Federated Services Company.

EDWARD C. GONZALES Trustee or Director of some of the Funds in $0 $0 for the Fund and
Birth date: October 22, 1930 the Federated Fund Complex; President, 1 other investment
Federated Investors Tower Executive Vice President and Treasurer of company in the
1001 Liberty Avenue some of the Funds in the Federated Fund Fund Complex
Pittsburgh, PA Complex; Vice Chairman, Federated
EXECUTIVE VICE PRESIDENT Investors, Inc.; Vice President, Federated
Investment Management Company,
Federated Investment Counseling,
Federated Global Investment Management
Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated
Securities Corp.; Trustee, Federated
Shareholder Services Company.

JOHN W. MCGONIGLE Executive Vice President and Secretary of $0 $0 for the Fund and
Birth date: October 26, 1938 the Federated Fund Complex; Executive Vice 54 other investment
Federated Investors Tower President, Secretary, and Director, Federated companies in the
1001 Liberty Avenue Investors, Inc.; Trustee, Federated Fund Complex
Pittsburgh, PA Investment Management Company;
EXECUTIVE VICE PRESIDENT Director, Federated Investment Counseling
AND SECRETARY and Federated Global Investment

Management Corp.; Director, Federated
Services Company; Director, Federated
Securities Corp.

RICHARD J. THOMAS Treasurer of the Federated Fund Complex; $0 $0 for the Fund and
Birth date: June 17, 1954 Vice President-Funds Financial Services 54 other investment
Federated Investors Tower Division, Federated Investors, Inc.; Formerly: companies in the
1001 Liberty Avenue various management positions within Funds Fund Complex
Pittsburgh, PA Financial Services Division of Federated
TREASURER Investors, Inc.

NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM FUND AND
POSITION WITH FUND FOR PAST 5 YEARS FROM FUND FUND COMPLEX
<S> <C> <C> <C>
RICHARD B. FISHER President or Vice $0 $0 for the Fund and
Birth date: May 17, 1923 President of some of the 6 other investment
Federated Investors Tower Funds in the Federated companies in the
1001 Liberty Avenue Fund Complex; Director Fund Complex
Pittsburgh, PA or Trustee of some of the
VICE PRESIDENT Funds in the Federated
Fund Complex; Executive
Vice President,
Federated Investors,
Inc.; Chairman and
Director, Federated
Securities Corp.

WILLIAM D. DAWSON, III Chief Investment Officer of this Fund and $0 $0 for the Fund and
Birth date: March 3, 1949 various other Funds in the Federated Fund 41 other investment
Federated Investors Tower Complex; Executive Vice President, companies in the
1001 Liberty Avenue Federated Investment Counseling, Fund Complex
Pittsburgh, PA Federated Global Investment Management
CHIEF INVESTMENT OFFICER Corp., Federated Investment Management
Company, and Passport Research, Ltd.;
Registered Representative, Federated
Securities Corp.; Portfolio Manager,
Federated Administrative Services; Vice
President, Federated Investors, Inc.;
formerly: Executive Vice President and
Senior Vice President, Federated
Investment Counseling Institutional
Portfolio Management Services Division;
Senior Vice President, Federated
Investment Management Company, and
Passport Research, Ltd.

SUSAN M. NASON Susan M. Nason has been the Fund's $0 $0 for the Fund and
Birth date: August 29, 1961 portfolio manager since its inception. She is 3 other investment
Federated Investors Tower Vice President of the Fund. Ms. Nason companies in the
1001 Liberty Avenue joined Federated Investors, Inc. in 1987 and Fund Complex
Pittsburgh, PA has been a Senior Portfolio Manager and
VICE PRESIDENT Senior Vice President of the Fund's
investment adviser since 1997. Ms. Nason
served as a Portfolio Manager and Vice
President of the investment adviser from
1993 to 1997. Ms. Nason is a Chartered
Financial Analyst and received her M.S.I.A.
concentrating in Finance from Carnegie
Mellon University.

</TABLE>

+ Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President of the Fund.

++ Messrs. Cunningham, Mansfield and Walsh became members of the Board on
January 1, 1999.

INVESTMENT ADVISER

The Adviser conducts investment research and makes investment decisions for the
Fund.

The Adviser is a wholly owned subsidiary of Federated.

The Adviser shall not be liable to the Fund or any Fund shareholder for any
losses that may be sustained in the purchase, holding, or sale of any security
or for anything done or omitted by it, except acts or omissions involving
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties imposed upon it by its contract with the Fund.

OTHER RELATED SERVICES

Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.

BROKERAGE TRANSACTIONS

When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. In selecting among firms believed to meet these
criteria, the Adviser may give consideration to those firms which have sold or
are selling Shares of the Fund and other funds distributed by the Distributor
and its affiliates. The Adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to review by the Fund's Board.

For the fiscal year ended, February 28, 1999, the Fund paid no brokerage
commissions.

Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.

ADMINISTRATOR

Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:

<TABLE>

MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE FEDERATED FUNDS

<S> <C>

0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million

</TABLE>

The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.

Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.

CUSTODIAN

State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by

shareholders.

INDEPENDENT AUDITORS

Ernst & Young is the independent auditor for the Fund.

FEES PAID BY THE FUND FOR SERVICES

<TABLE>

FOR THE YEAR ENDED FEBRUARY 28 1999 1998 1997
<S> <C> <C> <C>
Advisory Fee Earned $386,212 $143,246 $52,801
Advisory Fee Reduction $386,212 $143,246 $52,801
Brokerage Commissions - - -
Administrative Fee $155,001 $155,001 $155,001
12B-1 FEE

Institutional Service Shares $32,811 - -
SHAREHOLDER SERVICES FEE

Institutional Shares $25,647 - -
Institutional Service Shares $11,812 - -

</TABLE>

Fees are allocated among classes based on their pro rata share of Fund assets,
except for marketing (Rule 12b-1) fees and shareholder services fees, which are
borne only by the applicable class of Shares.

How Does the Fund Measure Performance?

The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.

The performance of Shares depends upon such variables as: portfolio quality;
average portfolio maturity; type and value of portfolio securities; changes in
interest rates; changes or differences in the Fund's or any class of Shares'
expenses; and various other factors.

Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return.

AVERAGE ANNUAL TOTAL RETURNS AND YIELD

Total returns given for the one-year and since inception periods ended February
28, 1999.

Yield given for the 30-day period ended February 28, 1999.

<TABLE>

SINCE INCEPTION

30-DAY PERIOD 1 YEAR ON OCTOBER 19, 1995
<S> <C> <C> <C>
INSTITUTIONAL SHARES:
Total Return N/A 6.58% 6.96%
Yield 5.06% N/A N/A

SINCE INCEPTION

30-DAY PERIOD 1 YEAR ON OCTOBER 19, 1995
<S> <C> <C> <C>
INSTITUTIONAL SERVICE SHARES:
Total Return N/A 6.26% 6.63%
Yield 4.75% N/A N/A

</TABLE>

TOTAL RETURN

Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.

The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.

YIELD

The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a 30-day period; by (ii) the maximum offering
price per Share on the last day of the period. This number is then annualized
using semi-annual compounding. This means that the amount of income generated
during the 30-day period is assumed to be generated each month over a 12-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by Shares because of certain adjustments required
by the SEC and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.

To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.

PERFORMANCE COMPARISONS

Advertising and sales literature may include:

* references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;

* charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment;

* discussions of economic, financial and political developments and their impact
on the securities market, including the portfolio manager's views on how such
developments could impact the Funds; and

* information about the mutual fund industry from sources such as the Investment
Company Institute.

The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.

The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.

You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:

LIPPER ANALYTICAL SERVICES, INC.

Lipper Analytical Services, Inc. ranks funds in various categories by making
comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in net asset value over a specific period of time. From
time to time, the Trust will quote its Lipper ranking in the "U.S. government
funds" category in advertising and sales literature.

MERRILL LYNCH 5-10 YEAR TREASURY INDEX

Merrill Lynch 5-10 Year Treasury Index is an unmanaged index tracking U.S.
government securities with maturities between 5 and 9.99 years.

Who is Federated Investors, Inc.?

Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.

Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state- of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.

FEDERATED FUNDS OVERVIEW

MUNICIPAL FUNDS

In the municipal sector, as of December 31, 1998, Federated managed 10 bond
funds with approximately $2.2 billion in assets and 23 money market funds with
approximately $12.5 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of municipal securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.

EQUITY FUNDS

In the equity sector, Federated has more than 28 years' experience. As of
December 31, 1998, Federated managed 27 equity funds totaling approximately
$14.9 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value- oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.

CORPORATE BOND FUNDS

In the corporate bond sector, as of December 31, 1998, Federated managed 9 money
market funds and 15 bond funds with assets approximating $22.8 billion and $7.1
billion, respectively. Federated's corporate bond decision making-based on
intensive, diligent credit analysis-is backed by over 26 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset-backed securities market, a market
totaling more than $209 billion.

GOVERNMENT FUNDS

In the government sector, as of December 31, 1998, Federated manages 9
mortgage-backed, 5 government/agency and 19 government money market mutual
funds, with assets approximating $5.3 billion, $1.8 billion and $41.6 billion,
respectively. Federated trades approximately $425 million in U.S. government and
mortgage-backed securities daily and places approximately $25 billion in
repurchase agreements each day. Federated introduced the first U.S. government
fund to invest in U.S. government bond securities in 1969. Federated has been a
major force in the short- and intermediate-term government markets since 1982
and currently manages approximately $43.2 billion in government funds within
these maturity ranges.

MONEY MARKET FUNDS

In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1998, Federated managed more than $76.7 billion in assets across 52 money market
funds, including 19 government, 9 prime and 23 municipal with assets
approximating $41.6 billion, $22.8 billion and $12.5 billion, respectively.

The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield-
J. Thomas Madden; U.S. fixed income-William D. Dawson, III; and global
equities and fixed income-Henry A. Frantzen. The Chief Investment Officers
are Executive Vice Presidents of the Federated advisory companies.

MUTUAL FUND MARKET

Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $5 trillion to the more than 7,300 funds available,
according to the Investment Company Institute.

FEDERATED CLIENTS OVERVIEW

Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:

INSTITUTIONAL CLIENTS

Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax-exempt entities, foundations/endowments,
insurance companies, and investment and financial advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.

BANK MARKETING

Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing effort
to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.

BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES

Federated Funds are available to consumers through major brokerage firms
nationwide-we have over 2,200 broker/dealer and bank broker/dealer relationships
across the country-supported by more wholesalers than any other mutual fund
distributor. Federated's service to financial professionals and institutions has
earned it high ratings in several surveys performed by DALBAR, Inc. DALBAR is
recognized as the industry benchmark for service quality measurement. The
marketing effort to these firms is headed by James F. Getz, President,
Broker/Dealer Sales Division, Federated Securities Corp.

Addresses

FEDERATED U.S. GOVERNMENT SECURITIES FUND: 5-10 YEARS

Institutional Shares

Institutional Service Shares

Federated Investors Funds

5800 Corporate Drive

Pittsburgh, PA 15237-7000

DISTRIBUTOR

Federated Securities Corp.

Federated Investors Tower

1001 Liberty Avenue

Pittsburgh, PA 15222-3779

INVESTMENT ADVISER

Federated Investment Management Company

Federated Investors Tower

1001 Liberty Avenue

Pittsburgh, PA 15222-3779

CUSTODIAN

State Street Bank and Trust Company

P.O. Box 8600

Boston, MA 02266-8600

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

Federated Shareholder Services Company

P.O. Box 8600

Boston, MA 02266-8600

INDEPENDENT AUDITORS

Ernst & Young LLP

200 Clarendon Street

Boston, MA 02116-5072