United States
Securities and Exchange Commission
Washington, D.C. 20549
Form N-CSR
Certified Shareholder Report of Registered Management Investment Companies
811-3387
(Investment Company Act File Number)
Federated U.S. Government Securities Fund: 2-5 Years ______________________________________________________________
(Exact Name of Registrant as Specified in Charter)
Federated Investors Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
(Notices should be sent to the Agent for Service)
Date of Fiscal Year End: 01/31/2012
Date of Reporting Period: Six months ended 07/31/11
Item 1. Reports to Stockholders
![]() | Semi-Annual Shareholder Report | |
July 31, 2011 | ||
Share Class | Ticker |
R* | FIGKX |
IS | FIGTX |
SS** | FIGIX |
*formerly, Class K Shares
**Effective September 30, 2011, the Fund's Institutional Service Shares will be redesignated as Service Shares.
Federated U.S. Government Securities Fund: 2-5 Years
Financial Highlights
Shareholder Expense Example
Portfolio of Investments Summary Tables
Portfolio of Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Notes to Financial Statements
Evaluation and Approval of Advisory Contract
Voting Proxies on Fund Portfolio Securities
Quarterly Portfolio Schedule
![](https://capedge.com/proxy/N-CSRS/0001318148-11-001723/notmay_nobox.jpg)
Financial Highlights – Class R Shares
(For a Share Outstanding Throughout Each Period)
Six Months Ended (unaudited) 7/31/2011 | Year Ended January 31, | ||||
2011 | 2010 | 2009 | 2008 | 2007 | |
Net Asset Value, Beginning of Period | $11.75 | $11.86 | $11.96 | $11.60 | $10.82 | $10.94 |
Income From Investment Operations: | |||||
Net investment income | 0.07 | 0.15 | 0.22 | 0.34 | 0.40 | 0.39 |
Net realized and unrealized gain (loss) on investments and futures contracts | 0.18 | 0.14 | 0.001 | 0.36 | 0.78 | (0.12) |
TOTAL FROM INVESTMENT OPERATIONS | 0.25 | 0.29 | 0.22 | 0.70 | 1.18 | 0.27 |
Less Distributions: | |||||
Distributions from net investment income | (0.08) | (0.15) | (0.22) | (0.34) | (0.40) | (0.39) |
Distributions from net realized gain on investments and futures contracts | (0.05) | (0.25) | (0.10) | — | — | — |
TOTAL DISTRIBUTIONS | (0.13) | (0.40) | (0.32) | (0.34) | (0.40) | (0.39) |
Net Asset Value, End of Period | $11.87 | $11.75 | $11.86 | $11.96 | $11.60 | $10.82 |
Total Return2 | 2.12% | 2.47% | 1.79% | 6.16% | 11.21% | 2.55% |
Ratios to Average Net Assets: | |||||
Net expenses | 1.27%3 | 1.27% | 1.25% | 1.24% | 1.30% | 1.30% |
Net investment income | 1.27%3 | 1.24% | 1.81% | 2.85% | 3.66% | 3.63% |
Expense waiver/reimbursement4 | 0.03%3 | 0.03% | 0.03% | 0.05% | 0.01% | 0.00%5 |
Supplemental Data: | |||||
Net assets, end of period (000 omitted) | $22,520 | $23,400 | $23,928 | $33,489 | $11,804 | $7,616 |
Portfolio turnover | 92% | 159% | 235% | 57% | 104% | 128% |
1 | Represents less than $0.01. |
2 | Based on net asset value. Total returns for periods of less than one year are not annualized. |
3 | Computed on an annualized basis. |
4 | This expense decrease is reflected in both the net expense and the net investment income ratios shown above. |
5 | Represents less than 0.01%. |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder ReportFinancial Highlights – Institutional Shares
(For a Share Outstanding Throughout Each Period)
Six Months Ended (unaudited) 7/31/2011 | Year Ended January 31, | ||||
2011 | 2010 | 2009 | 2008 | 2007 | |
Net Asset Value, Beginning of Period | $11.75 | $11.86 | $11.96 | $11.60 | $10.82 | $10.94 |
Income From Investment Operations: | |||||
Net investment income | 0.11 | 0.23 | 0.29 | 0.43 | 0.48 | 0.47 |
Net realized and unrealized gain (loss) on investments and futures contracts | 0.18 | 0.14 | 0.001 | 0.35 | 0.78 | (0.12) |
TOTAL FROM INVESTMENT OPERATIONS | 0.29 | 0.37 | 0.29 | 0.78 | 1.26 | 0.35 |
Less Distributions: | |||||
Distributions from net investment income | (0.12) | (0.23) | (0.29) | (0.42) | (0.48) | (0.47) |
Distributions from net realized gain on investments and futures contracts | (0.05) | (0.25) | (0.10) | — | — | — |
TOTAL DISTRIBUTIONS | (0.17) | (0.48) | (0.39) | (0.42) | (0.48) | (0.47) |
Net Asset Value, End of Period | $11.87 | $11.75 | $11.86 | $11.96 | $11.60 | $10.82 |
Total Return2 | 2.47% | 3.18% | 2.47% | 6.92% | 12.00% | 3.28% |
Ratios to Average Net Assets: | |||||
Net expenses | 0.58%3 | 0.58% | 0.58% | 0.53% | 0.58% | 0.58% |
Net investment income | 1.96%3 | 1.93% | 2.45% | 3.64% | 4.39% | 4.35% |
Expense waiver/reimbursement4 | 0.08%3 | 0.07% | 0.05% | 0.10% | 0.07% | 0.08% |
Supplemental Data: | |||||
Net assets, end of period (000 omitted) | $596,510 | $635,883 | $679,536 | $788,800 | $638,728 | $530,530 |
Portfolio turnover | 92% | 159% | 235% | 57% | 104% | 128% |
1 | Represents less than $0.01. |
2 | Based on net asset value. Total returns for periods of less than one year are not annualized. |
3 | Computed on an annualized basis. |
4 | This expense decrease is reflected in both the net expense and the net investment income ratios shown above. |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder ReportFinancial Highlights – Institutional Service Shares
(For a Share Outstanding Throughout Each Period)
Six Months Ended (unaudited) 7/31/2011 | Year Ended January 31, | ||||
2011 | 2010 | 2009 | 2008 | 2007 | |
Net Asset Value, Beginning of Period | $11.75 | $11.86 | $11.96 | $11.60 | $10.82 | $10.94 |
Income From Investment Operations: | |||||
Net investment income | 0.10 | 0.20 | 0.27 | 0.39 | 0.46 | 0.45 |
Net realized and unrealized gain (loss) on investments and futures contracts | 0.17 | 0.14 | 0.001 | 0.36 | 0.78 | (0.12) |
TOTAL FROM INVESTMENT OPERATIONS | 0.27 | 0.34 | 0.27 | 0.75 | 1.24 | 0.33 |
Less Distributions: | |||||
Distributions from net investment income | (0.10) | (0.20) | (0.27) | (0.39) | (0.46) | (0.45) |
Distributions from net realized gain on investments and futures contracts | (0.05) | (0.25) | (0.10) | — | — | — |
TOTAL DISTRIBUTIONS | (0.15) | (0.45) | (0.37) | (0.39) | (0.46) | (0.45) |
Net Asset Value, End of Period | $11.87 | $11.75 | $11.86 | $11.96 | $11.60 | $10.82 |
Total Return2 | 2.35% | 2.94% | 2.25% | 6.64% | 11.73% | 3.05%3 |
Ratios to Average Net Assets: | |||||
Net expenses | 0.81%4 | 0.81% | 0.81% | 0.78% | 0.83% | 0.81% |
Net investment income | 1.73%4 | 1.71% | 2.20% | 3.38% | 4.15% | 4.12% |
Expense waiver/reimbursement5 | 0.04%4 | 0.04% | 0.08% | 0.13% | 0.26% | 0.26% |
Supplemental Data: | |||||
Net assets, end of period (000 omitted) | $110,006 | $119,034 | $133,165 | $114,239 | $78,965 | $81,887 |
Portfolio turnover | 92% | 159% | 235% | 57% | 104% | 128% |
1 | Represents less than $0.01. |
2 | Based on net asset value. Total returns for periods of less than one year are not annualized. |
3 | During the period, the Fund was reimbursed by an affiliated shareholder services provider, which had an impact of 0.01% on total return. |
4 | Computed on an annualized basis. |
5 | This expense decrease is reflected in both the net expense and the net investment income ratios shown above. |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder ReportShareholder Expense Example (unaudited)
As a shareholder of the Fund, you incur ongoing costs, including management fees and to the extent applicable, distribution (12b-1) fees and/or shareholder services fees and other Fund expenses. This Example is intended to help you to understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. It is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from February 1, 2011 to July 31, 2011.
ACTUAL EXPENSES
The first section of the table below provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you incurred over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled “Expenses Paid During Period” to estimate the expenses attributable to your investment during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. Thus, you should not use the hypothetical account values and expenses to estimate the actual ending account balance or your expenses for the period. Rather, these figures are required to be provided to enable you to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Semi-Annual Shareholder Report
Beginning Account Value 2/1/2011 | Ending Account Value 7/31/2011 | Expenses Paid During Period1 |
Actual: |
Class R Shares | $1,000 | $1,021.20 | $6.36 |
Institutional Shares | $1,000 | $1,024.70 | $2.91 |
Institutional Service Shares | $1,000 | $1,023.50 | $4.06 |
Hypothetical (assuming a 5% return before expenses): |
Class R Shares | $1,000 | $1,018.50 | $6.36 |
Institutional Shares | $1,000 | $1,021.92 | $2.91 |
Institutional Service Shares | $1,000 | $1,020.78 | $4.06 |
1 | Expenses are equal to the Fund's annualized net expense ratios, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half-year period). The annualized net expense ratios are as follows: |
Class R Shares | 1.27% |
Institutional Shares | 0.58% |
Institutional Service Shares | 0.81% |
Portfolio of Investments Summary Tables (unaudited)
At July 31, 2011, the Fund's portfolio composition1 was as follows:
Portfolio Composition | Percentage of Total Net Assets |
U.S. Treasury Securities | 67.5% |
U.S. Government Agency Securities | 26.8% |
FDIC-Guaranteed Debt | 4.9% |
Derivative Contracts2 | (0.5)% |
Repurchase Agreement — Collateral3 | 15.9% |
Cash Equivalents4 | 0.4% |
Other Assets and Liabilities — Net5 | (15.0)% |
TOTAL | 100.0% |
At July 31, 2011, the Fund's effective maturity6 schedule was as follows:
Securities with an Effective Maturity of: | Percentage of Total Net Assets |
Less than 2 Years7 | 11.1% |
2-5 Years | 72.6% |
Greater than 5 Years | 15.5% |
Derivative Contracts2 | (0.5)% |
Repurchase Agreement — Collateral3 | 15.9% |
Cash Equivalents4 | 0.4% |
Other Assets and Liabilities — Net5 | (15.0)% |
TOTAL | 100.0% |
1 | See the Fund's Prospectus and Statement of Additional Information for a description of the principal types of securities and derivative contracts in which the Fund invests. |
2 | Based upon net unrealized appreciation (depreciation) or value of the derivative contracts as applicable. Derivative Contracts may consist of futures, forwards, options and swaps. The impact of a derivative contract on the Fund's performance may be larger than its unrealized appreciation (depreciation) or value may indicate. In many cases, the notional value or amount of a derivative contract may provide a better indication of the contract's significance to the portfolio. More complete information regarding the Fund's direct investments in derivative contracts, including unrealized appreciation (depreciation), value and notional values or amounts of such contracts, can be found in the table at the end of the Portfolio of Investments included in this Report. |
3 | Repurchase Agreement purchased with cash collateral received in securities lending transactions, as well as cash held to cover payments on derivative contracts, when-issued and delayed delivery transactions. |
4 | Cash Equivalents include any instruments in money market mutual funds and/or overnight repurchase agreements (other than those representing Repurchase Agreement — Collateral). |
5 | Assets, other than investments in securities and derivative contracts, less liabilities. See Statement of Assets and Liabilities. |
6 | For callable investments, “effective maturity” is the unexpired period until the earliest date the investment is subject to prepayment or repurchase by the issuer (and market conditions indicate that the issuer will prepay or repurchase the investment). For all other investments “effective maturity” is the unexpired period until final maturity. |
7 | Does not include repurchase agreements purchased with collateral received in securities lending transactions or cash held to cover payments on derivative contracts and when-issued and delayed delivery transactions. |
July 31, 2011 (unaudited)
Principal Amount | Value |
U.S. Treasury – 67.5% |
U.S. Treasury Bond – 6.8% |
$35,000,000 | 1 | 8.875%, 8/15/2017 | 49,537,659 |
U.S. Treasury Notes – 60.7% |
4,800,000 | 0.500%, 5/31/2013 | 4,813,406 |
25,000,000 | 0.750%, 6/15/2014 | 25,166,015 |
25,000,000 | 1.000%, 7/15/2013 | 25,309,570 |
26,130,093 | U.S. Treasury Inflation-Protected Note, 1.125%, 1/15/2021 | 28,169,466 |
7,000,000 | 1.250%, 3/15/2014 | 7,147,930 |
30,000,000 | 1.250%, 9/30/2015 | 30,312,090 |
31,000,000 | 1.875%, 6/30/2015 | 32,189,712 |
29,500,000 | 2.000%, 1/31/2016 | 30,626,275 |
33,800,000 | 1 | 2.125%, 12/31/2015 | 35,307,040 |
50,000,000 | 2.125%, 2/29/2016 | 52,140,440 |
10,000,000 | 2.375%, 8/31/2014 | 10,546,377 |
39,900,000 | 2.625%, 12/31/2014 | 42,512,752 |
45,000,000 | 2 | 2.750%, 10/31/2013 | 47,390,625 |
24,200,000 | 3.250%, 7/31/2016 | 26,458,523 |
40,000,000 | 4.250%, 11/15/2014 | 44,700,364 |
TOTAL | 442,790,585 |
TOTAL U.S. TREASURY (IDENTIFIED COST $464,913,068) | 492,328,244 |
FDIC-Guaranteed Debt – 4.9% |
35,000,000 | GMAC LLC, 2.200%, 12/19/2012 (IDENTIFIED COST $34,892,989) | 35,876,101 |
GOVERNMENT AGENCIES – 26.8% |
15,000,000 | Federal Farm Credit System, 3.875%, 10/7/2013 | 16,076,549 |
10,000,000 | Federal Home Loan Bank System Floating Rate Note, 0.205%, 2/21/2012 | 9,999,150 |
30,200,000 | 1 | Federal Home Loan Bank System, 0.500%, 8/28/2013 | 30,215,254 |
20,000,000 | 1 | Federal Home Loan Bank System, 1.375%, 5/28/2014 | 20,377,784 |
30,125,000 | Federal Home Loan Bank System, 4.875%, 12/13/2013 | 33,167,703 |
20,000,000 | Federal Home Loan Mortgage Corp., 1.000%, 7/30/2014 | 20,113,976 |
35,000,000 | Federal Home Loan Mortgage Corp., 2.000%, 8/25/2016 | 35,492,366 |
Principal Amount | Value |
$5,000,000 | Federal National Mortgage Association Floating Rate Note, 0.096%, 8/11/2011 | 4,999,993 |
25,000,000 | 1 | Federal National Mortgage Association, 0.875%, 8/28/2014 | 25,030,267 |
TOTAL GOVERNMENT AGENCIES (IDENTIFIED COST $190,534,615) | 195,473,042 |
Repurchase Agreements – 16.3% |
2,820,000 | Interest in $2,000,000,000 joint repurchase agreement 0.21%, dated 7/29/2011 under which Societe Generale, New York will repurchase securities provided as collateral for $2,000,035,000 on 8/1/2011. The securities provided as collateral at the end of the period were U.S. Government Agency securities with various maturities to 7/15/2051 and the market value of those underlying securities was $2,054,130,975. | 2,820,000 |
115,608,000 | Interest in $2,000,000,000 joint repurchase agreement 0.21%, dated 7/29/2011 under which Societe Generale, New York will repurchase securities provided as collateral for $2,000,035,000 on 8/1/2011. The securities provided as collateral at the end of the period were U.S. Government Agency securities with various maturities to 7/15/2051 and the market value of those underlying securities was $2,054,130,975 (purchased with proceeds from securities lending collateral). | 115,608,000 |
TOTAL REPURCHASE AGREEMENTS (AT COST) | 118,428,000 |
TOTAL INVESTMENTS — 115.5% (IDENTIFIED COST $808,768,672)3 | 842,105,387 |
OTHER ASSETS AND LIABILITIES - NET — (15.5)%4 | (113,070,087) |
TOTAL NET ASSETS — 100% | $729,035,300 |
At July 31, 2011, the Fund had the following outstanding futures contracts:
Description | Number of Contracts | Notional Value | Expiration Date | Unrealized Appreciation/ (Depreciation) |
5 United States Treasury Note 2-Year Long Futures | 645 | $141,849,610 | September 2011 | $290,018 |
5 United States Treasury Bond 30-Year Long Futures | 790 | $101,218,750 | September 2011 | $2,964,661 |
5 United States Treasury Note 5-Year Short Futures | 2,670 | $324,258,986 | September 2011 | $(6,988,167) |
NET UNREALIZED DEPRECIATION ON FUTURES CONTRACTS | $(3,733,488) |
Net Unrealized Depreciation on Futures Contracts is included in “Other Assets and Liabilities — Net.”
Semi-Annual Shareholder Report
1 | Certain principal amounts or shares are temporarily on loan to unaffiliated broker/dealers. |
2 | Pledged as collateral to ensure the Fund is able to satisfy the obligations of its outstanding futures contracts. |
3 | Also represents cost for federal tax purposes. |
4 | Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities. A significant portion of this balance represents loans to unaffiliated qualified brokers for securities lending. The Fund receives cash from the broker as collateral for the loaned securities and reinvests the collateral in certain short-term securities such as repurchase agreements or money market mutual funds. |
5 | Non-income producing security. |
Note: The categories of investments are shown as a percentage of total net assets at July 31, 2011.
Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in the three broad levels listed below:
Level 1 — quoted prices in active markets for identical securities, including investment companies with daily net asset values, if applicable.
Level 2 — other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). Also includes securities valued at amortized cost.
Level 3 — significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments).
The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used, as of July 31, 2011, in valuing the Fund's assets carried at fair value:
Valuation Inputs | ||||
Level 1 — Quoted Prices and Investments in Mutual Funds | Level 2 — Other Significant Observable Inputs | Level 3 — Significant Unobservable Inputs | Total | |
Debt Securities: | ||||
U.S. Treasury | $ — | $492,328,244 | $ — | $492,328,244 |
FDIC-Guaranteed Debt | — | 35,876,101 | — | 35,876,101 |
Government Agencies | — | 195,473,042 | — | 195,473,042 |
Repurchase Agreements | — | 118,428,000 | — | 118,428,000 |
TOTAL SECURITIES | $ — | $842,105,387 | $ — | $842,105,387 |
OTHER FINANCIAL INSTRUMENTS* | $(3,733,488) | $ — | $ — | $(3,733,488) |
* | Other financial instruments include futures contracts. |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder ReportStatement of Assets and Liabilities
Assets: |
Short-term investments in securities, at value | $118,428,000 |
Long-term investments in securities, at value | 723,677,387 |
Total investments in securities, at value including $112,876,916 of securities loaned (identified cost $808,768,672) | $842,105,387 |
Cash | 826 |
Income receivable | 4,370,401 |
Receivable for shares sold | 2,461,415 |
TOTAL ASSETS | 848,938,029 |
Liabilities: |
Payable for shares redeemed | 3,606,475 |
Payable for daily variation margin | 242,813 |
Payable for collateral due to broker for securities lending | 115,608,000 |
Income distribution payable | 211,067 |
Payable for Directors'/Trustees' fees | 1,176 |
Payable for distribution services fee (Note 5) | 9,127 |
Payable for shareholder services fee (Note 5) | 56,664 |
Accrued expenses | 167,407 |
TOTAL LIABILITIES | 119,902,729 |
Net assets for 61,418,940 shares outstanding | $729,035,300 |
Net Assets Consist of: |
Paid-in capital | $694,644,534 |
Net unrealized appreciation of investments and futures contracts | 29,603,227 |
Accumulated net realized gain on investments and futures contracts | 4,766,632 |
Undistributed net investment income | 20,907 |
TOTAL NET ASSETS | $729,035,300 |
Net Asset Value, Offering Price and Redemption Proceeds Per Share |
Class R Shares: |
$22,519,832 ÷ 1,897,194 shares outstanding, no par value, unlimited shares authorized | $11.87 |
Institutional Shares: |
$596,509,657 ÷ 50,254,119 shares outstanding, no par value, unlimited shares authorized | $11.87 |
Institutional Service Shares: |
$110,005,811 ÷ 9,267,627 shares outstanding, no par value, unlimited shares authorized | $11.87 |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder ReportSix Months Ended July 31, 2011 (unaudited)
Investment Income: |
Interest (including income on securities loaned of $67,039) | $9,412,996 |
Dividends received from an affiliated holding (Note 5) | 80 |
TOTAL INCOME | 9,413,076 |
Expenses: |
Investment adviser fee (Note 5) | $1,479,226 |
Administrative fee (Note 5) | 288,819 |
Custodian fees | 17,591 |
Transfer and dividend disbursing agent fees and expenses (Note 2) | 276,253 |
Directors'/Trustees' fees | 4,336 |
Auditing fees | 11,665 |
Legal fees | 3,391 |
Portfolio accounting fees | 65,602 |
Distribution services fee (Note 5) | 56,466 |
Shareholder services fee (Note 5) | 349,283 |
Account administration fee (Note 2) | 25,217 |
Share registration costs | 30,666 |
Printing and postage | 23,318 |
Insurance premiums | 2,849 |
Miscellaneous | 9,534 |
TOTAL EXPENSES | 2,644,216 |
Reimbursements and Waivers: |
Reimbursement of investment adviser fee (Note 5) | $(708) |
Waiver of administrative fee (Note 5) | (7,396) |
Waiver of distribution services fee (Note 5) | (2,786) |
Reimbursement of shareholder services fee (Note 5) | (237,910) |
Reimbursement of account administration fee (Note 2) | (12,774) |
Reimbursement of transfer and dividend disbursing agent fees and expenses (Note 2 and Note 5) | (11,727) |
TOTAL REIMBURSEMENTS AND WAIVERS | $(273,301) |
Net expenses | $2,370,915 |
Net investment income | 7,042,161 |
Realized and Unrealized Gain (Loss) on Investments and Futures Contracts: |
Net realized gain on investments | 7,094,797 |
Net realized loss on futures contracts | (801,480) |
Net change in unrealized appreciation of investments | 7,469,009 |
Net change in unrealized depreciation of futures contracts | (3,188,384) |
Net realized and unrealized gain on investments and futures contracts | 10,573,942 |
Change in net assets resulting from operations | $17,616,103 |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder ReportStatement of Changes in Net Assets
Six Months Ended (unaudited) 7/31/2011 | Year Ended 1/31/2011 |
Increase (Decrease) in Net Assets |
Operations: |
Net investment income | $7,042,161 | $15,632,459 |
Net realized gain on investments and futures transactions | 6,293,317 | 12,592,686 |
Net change in unrealized appreciation/depreciation of investments and futures contracts | 4,280,625 | (3,243,276) |
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS | 17,616,103 | 24,981,869 |
Distributions to Shareholders: |
Distributions from net investment income |
Class R Shares | (146,092) | (292,103) |
Institutional Shares | (5,989,754) | (13,043,755) |
Institutional Service Shares | (992,844) | (2,230,801) |
Distributions from net realized gain on investments and futures transactions |
Class R Shares | (99,711) | (498,081) |
Institutional Shares | (2,650,159) | (14,365,782) |
Institutional Service Shares | (504,331) | (2,665,613) |
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS | (10,382,891) | (33,096,135) |
Share Transactions: |
Proceeds from sale of shares | 103,426,343 | 323,077,785 |
Net asset value of shares issued to shareholders in payment of distributions declared | 8,282,730 | 26,737,925 |
Cost of shares redeemed | (168,223,618) | (400,014,642) |
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS | (56,514,545) | (50,198,932) |
Change in net assets | (49,281,333) | (58,313,198) |
Net Assets: |
Beginning of period | 778,316,633 | 836,629,831 |
End of period (including undistributed net investment income of $20,907 and $107,436, respectively) | $729,035,300 | $778,316,633 |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report1. ORGANIZATION
Federated U.S. Government Securities Fund: 2-5 Years (the “Fund”) is registered under the Investment Company Act of 1940, as amended (the “Act”), as a diversified, open-end management investment company. The Fund offers three classes of shares: Class R Shares, Institutional Shares and Institutional Service Shares. All shares of the Fund have equal rights with respect to voting, except on class-specific matters. The Fund's investment objective is to provide current income.
Effective December 31, 2010, the Fund's Class K Shares were redesignated as Class R Shares.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with U.S. generally accepted accounting principles (GAAP).
Investment Valuation
In calculating its net asset value (NAV), the Fund generally values investments as follows:
- Fixed-income securities acquired with remaining maturities greater than 60 days are fair valued using price evaluations provided by a pricing service approved by the Board of Trustees (the “Trustees”).
- Fixed-income securities acquired with remaining maturities of 60 days or less are valued at their cost (adjusted for the accretion of any discount or amortization of any premium), which approximates market value.
- Derivative contracts listed on exchanges are valued at their reported settlement or closing price.
- Over-the-counter (OTC) derivative contracts are fair valued using price evaluations provided by a pricing service approved by the Trustees.
- Shares of other mutual funds are valued based upon their reported NAVs.
- For securities that are fair valued in accordance with procedures established by and under the general supervision of the Trustees, certain factors may be considered such as: the purchase price of the security, information obtained by contacting the issuer, analysis of the issuer's financial statements or other available documents, fundamental analytical data, the nature and duration of restrictions on disposition, the movement of the market in which the security is normally traded and public trading in similar securities of the issuer or comparable issuers.
If the Fund cannot obtain a price or price evaluation from a pricing service for an investment, the Fund may attempt to value the investment based upon the mean of bid and asked quotations or fair value the investment based on price evaluations, from one or more dealers. If any price, quotation, price evaluation or other pricing source is not readily available when the NAV is calculated, the Fund uses the fair value of the investment determined in accordance with the procedures described below. There can be no assurance that the Fund could purchase or sell an investment at the price used to calculate the Fund's NAV.
Semi-Annual Shareholder Report
The Trustees have authorized the use of pricing services to provide evaluations of the current fair value of certain investments for purposes of calculating the NAV. Factors considered by pricing services in evaluating an investment include the yields or prices of investments of comparable quality, coupon, maturity, call rights and other potential prepayments, terms and type, reported transactions, indications as to values from dealers and general market conditions. Some pricing services provide a single price evaluation reflecting the bid-side of the market for an investment (a “bid” evaluation). Other pricing services offer both bid evaluations and price evaluations indicative of a price between the prices bid and asked for the investment (a “mid” evaluation). The Fund normally uses bid evaluations for U.S. Treasury and Agency securities, mortgage-backed securities and municipal securities. The Fund normally uses mid evaluations for other types of fixed-income securities and OTC derivative contracts. In the event that market quotations and price evaluations are not available for an investment, the fair value of the investment is determined in accordance with procedures adopted by the Trustees.
The Trustees also have adopted procedures requiring an investment to be priced at its fair value whenever the Adviser determines that a significant event affecting the value of the investment has occurred between the time as of which the price of the investment would otherwise be determined and the time as of which the NAV is computed. An event is considered significant if there is both an affirmative expectation that the investment's value will change in response to the event and a reasonable basis for quantifying the resulting change in value. Examples of significant events that may occur after the close of the principal market on which a security is traded, or after the time of a price evaluation provided by a pricing service or a dealer, include:
- With respect to price evaluations of fixed-income securities determined before the close of regular trading on the NYSE, actions by the Federal Reserve Open Market Committee and other significant trends in U.S. fixed-income markets;
- Political or other developments affecting the economy or markets in which an issuer conducts its operations or its securities are traded; and
- Announcements concerning matters such as acquisitions, recapitalizations, litigation developments, a natural disaster affecting the issuer's operations or regulatory changes or market developments affecting the issuer's industry.
The Fund may seek to obtain more current quotations or price evaluations from alternative pricing sources. If a reliable alternative pricing source is not available, the Fund will determine the fair value of the investment using another method approved by the Trustees.
Repurchase Agreements
The Fund may invest in repurchase agreements for short-term liquidity purposes. It is the policy of the Fund to require the other party to a repurchase agreement to transfer to the Fund's custodian or sub-custodian eligible securities or cash with a market value (after transaction costs) at least equal to the repurchase price to be paid under the repurchase agreement. The eligible securities are transferred to accounts with the custodian or sub-custodian in which the Fund holds a “securities entitlement” and exercises “control” as those terms are defined in the Uniform Commercial Code. The Fund has established procedures for monitoring the market value of the transferred securities and requiring the transfer of additional eligible securities if necessary to equal at least the repurchase price. These procedures also allow the other party to require securities to be transferred from the account to the extent that their market value exceeds the repurchase price or in exchange for other eligible securities of equivalent market value.
Semi-Annual Shareholder Report
The Fund may enter into repurchase agreements in which eligible securities are transferred into joint trading accounts maintained by the custodian or sub-custodian for investment companies and other clients advised by the Fund's Adviser and its affiliates. The Fund will participate on a pro rata basis with the other investment companies and clients in its share of the securities transferred under such repurchase agreements and in its share of proceeds from any repurchase or other disposition of such securities.
Investment Income, Gains and Losses, Expenses and Distributions
Investment transactions are accounted for on a trade-date basis. Realized gains and losses from investment transactions are recorded on an identified-cost basis. Interest income and expenses are accrued daily. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Positive or negative inflation adjustments on Treasury Inflation-Protected Securities are included in interest income. Distributions of net investment income are declared daily and paid monthly. Non-cash dividends included in dividend income, if any, are recorded at fair value. Investment income, realized and unrealized gains and losses, and certain fund-level expenses are allocated to each class based on relative average daily net assets, except that Class R Shares, Institutional Shares and Institutional Service Shares may bear distribution services fees, shareholder services fees, account administration fees and certain transfer and dividend disbursing agent fees unique to those classes. For the six months ended July 31, 2011, transfer and dividend disbursing agent fees and account administration fees for the Fund were as follows:
Transfer and Dividend Disbursing Agent Fees Incurred | Transfer and Dividend Disbursing Agent Fees Reimbursed | Account Administration Fees Incurred | Account Administration Fees Reimbursed |
Class R Shares | $31,385 | $ — | $ — | $ — |
Institutional Shares | 195,467 | (11,727) | 20,233 | (12,774) |
Institutional Service Shares | 49,401 | — | 4,984 | — |
TOTAL | $276,253 | $(11,727) | $25,217 | $(12,774) |
Dividends are declared separately for each class. No class has preferential dividend rights; differences in per share dividend rates are generally due to differences in separate class expenses.
Premium and Discount Amortization
All premiums and discounts are amortized/accreted using the effective interest rate method.
Federal Taxes
It is the Fund's policy to comply with the Subchapter M provision of the Internal Revenue Code and to distribute to shareholders each year substantially all of its income. Accordingly, no provision for federal income tax is necessary. As of and during the six months ended July 31, 2011, the Fund did not have a liability for any uncertain tax positions. The Fund Semi-Annual Shareholder Report
When-Issued and Delayed Delivery Transactions
The Fund may engage in when-issued or delayed delivery transactions. The Fund 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. Losses may occur on these transactions due to changes in market conditions or the failure of counterparties to perform under the contract.
Futures Contracts
The Fund purchases and sells financial futures contracts to manage cash flows, enhance yield and to potentially reduce transaction costs. Upon entering into a financial futures contract with a broker, the Fund is required to deposit in a segregated account a specified amount of cash or U.S. government securities. Futures contracts are valued daily and unrealized gains or losses are recorded in a “variation margin” account. Daily, the Fund receives from or pays to the broker a specified amount of cash based upon changes in the variation margin account. When a contract is closed, the Fund recognizes a realized gain or loss. Futures contracts have market risks, including the risk that the change in the value of the contract may not correlate with the changes in the value of the underlying securities. There is minimal counterparty risk to the Fund since futures are exchange traded and the exchange's clearinghouse, as counterparty to all exchange traded futures, guarantees the futures against default.
Futures contracts outstanding at period end are listed after the Fund's Portfolio of Investments.
Securities Lending
The Fund participates in a securities lending program providing for the lending of government securities to qualified brokers. The Fund normally receives cash collateral for securities loaned that is invested in an affiliated money market fund or in short-term securities including repurchase agreements. Collateral is maintained at a minimum level of 100% of the market value of investments loaned, plus interest, if applicable. Earnings on collateral are allocated between the securities lending agent, as a fee for its services under the program, and the Fund, according to agreed-upon rates.
As of July 31, 2011, securities subject to this type of arrangement and related collateral were as follows:
Market Value of Securities Loaned | Market Value of Collateral |
$112,876,916 | $115,608,000 |
Additional Disclosure Related to Derivative Instruments
Fair Value of Derivative Instruments | |
Liabilities | |
Statement of Assets and Liabilities Location | Fair Value |
Derivatives not accounted for as hedging instruments under ASC Topic 815 | |
Interest rate contracts | Payable for daily variation margin | $3,733,488* |
* | Includes cumulative appreciation/depreciation of futures contracts as reported in the footnotes to the Portfolio of Investments. Only the current day's variation margin is reported within the Statement of Assets and Liabilities. |
The Effect of Derivative Instruments on the Statement of Operations for the Six Months Ended July 31, 2011
Amount of Realized Gain or (Loss) on Derivatives Recognized in Income | |
Futures | |
Interest rate contracts | $(801,480) |
Change in Unrealized Appreciation or (Depreciation) on Derivatives Recognized in Income | |
Futures | |
Interest rate contracts | $(3,188,384) |
Other
The preparation of financial statements in conformity with GAAP 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.
3. SHARES OF BENEFICIAL INTEREST
The following tables summarize share activity:
Six Months Ended 7/31/2011 | Year Ended 1/31/2011 | ||
Class R Shares: | Shares | Amount | Shares | Amount |
Shares sold | 365,251 | $4,288,323 | 1,084,106 | $12,947,552 |
Shares issued to shareholders in payment of distributions declared | 19,123 | 225,389 | 61,342 | 724,986 |
Shares redeemed | (478,857) | (5,618,380) | (1,170,910) | (13,929,442) |
NET CHANGE RESULTING FROM CLASS R SHARE TRANSACTIONS | (94,483) | $(1,104,668) | (25,462) | $(256,904) |
Six Months Ended 7/31/2011 | Year Ended 1/31/2011 | ||
Institutional Shares: | Shares | Amount | Shares | Amount |
Shares sold | 6,713,555 | $78,958,409 | 21,118,920 | $252,441,838 |
Shares issued to shareholders in payment of distributions declared | 576,690 | 6,794,775 | 1,843,348 | 21,826,766 |
Shares redeemed | (11,159,548) | (131,033,385) | (26,120,612) | (310,941,105) |
NET CHANGE RESULTING FROM INSTITUTIONAL SHARE TRANSACTIONS | (3,869,303) | $(45,280,201) | (3,158,344) | $(36,672,501) |
Six Months Ended 7/31/2011 | Year Ended 1/31/2011 | ||
Institutional Service Shares: | Shares | Amount | Shares | Amount |
Shares sold | 1,717,917 | $20,179,611 | 4,829,491 | $57,688,395 |
Shares issued to shareholders in payment of distributions declared | 107,142 | 1,262,566 | 353,625 | 4,186,173 |
Shares redeemed | (2,689,211) | (31,571,853) | (6,277,209) | (75,144,095) |
NET CHANGE RESULTING FROM INSTITUTIONAL SERVICE SHARE TRANSACTIONS | (864,152) | $(10,129,676) | (1,094,093) | $(13,269,527) |
NET CHANGE RESULTING FROM TOTAL FUND SHARE TRANSACTIONS | (4,827,938) | $(56,514,545) | (4,277,899) | $(50,198,932) |
4. FEDERAL TAX INFORMATION
At July 31, 2011, the cost of investments for federal tax purposes was $808,768,672. The net unrealized appreciation of investments for federal tax purposes excluding any unrealized depreciation resulting from futures contracts was $33,336,715. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $33,337,778 and net unrealized depreciation from investments for those securities having an excess of cost over value of $1,063.
5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Adviser Fee
Federated Investment Management Company is the Fund's investment adviser (the “Adviser”). The advisory agreement between the Fund and the Adviser provides for an annual fee equal to 0.40% of the Fund's average daily net assets. Subject to the terms described in the Expense Limitation note, the Adviser may voluntarily choose to waive any portion of its fee. For the six months ended July 31, 2011, an affiliate of the Adviser reimbursed $11,727 of transfer and dividend disbursing agent fees and expenses.
Semi-Annual Shareholder Report
Federated Administrative Services (FAS), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FAS is based on the average aggregate daily net assets of certain Federated funds as specified below:
Administrative Fee | Average Aggregate Daily Net Assets of the Federated Funds |
0.150% | on the first $5 billion |
0.125% | on the next $5 billion |
0.100% | on the next $10 billion |
0.075% | on assets in excess of $20 billion |
The administrative fee received during any fiscal year shall be at least $150,000 per portfolio and $40,000 per each additional class of Shares. Subject to the terms described in the Expense Limitation note, FAS may voluntarily choose to waive any portion of its fee. For the six months ended July 31, 2011, the net fee paid to FAS was 0.076% of average daily net assets of the Fund. FAS waived $7,396 of its fee.
Distribution Services Fee
The Fund has adopted a Distribution Plan (the “Plan”) pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp. (FSC), the principal distributor, from the daily net assets of the Fund's Class R Shares and Institutional Service Shares to finance activities intended to result in the sale of these shares. The Plan provides that the Fund may incur distribution expenses at the following percentages of average daily net assets annually, to compensate FSC:
Share Class Name | Percentage of Average Daily Net Assets of Class |
Class R Shares | 0.50% |
Institutional Service Shares | 0.05% |
Subject to the terms described in the Expense Limitation note, FSC may voluntarily choose to waive any portion of its fee. For the six months ended July 31, 2011, distribution services fees for the Fund were as follows:
Distribution Services Fees Incurred | Distribution Services Fees Waived |
Class R Shares | $56,466 | $(2,786) |
When FSC receives fees, it may pay some or all of them to financial intermediaries whose customers purchase shares. For the six months ended July 31, 2011, FSC did not retain any fees paid by the Fund. For the six months ended July 31, 2011, the Fund's Institutional Service Shares did not incur a distribution services fee; however it may begin to incur this fee upon approval of the Trustees.
Semi-Annual Shareholder Report
The Fund may pay fees (“Service Fees”) up to 0.25% of the average daily net assets of the Fund's Institutional Shares and Institutional Service Shares to financial intermediaries or to Federated Shareholder Services Company (FSSC) for providing services to shareholders and maintaining shareholder accounts. Subject to the terms described in the Expense Limitation note, FSSC may voluntarily reimburse the Fund for Service Fees. For the six months ended July 31, 2011, Service Fees for the Fund were as follows:
Service Fees Incurred | Service Fees Reimbursed |
Institutional Shares | $215,681 | $(215,681) |
Institutional Service Shares | 133,602 | (22,229) |
TOTAL | $349,283 | $(237,910) |
For the six months ended July 31, 2011, FSSC did not receive any fees paid by the Fund.
Expense Limitation
The Adviser and its affiliates (which may include FSC, FAS and FSSC) have voluntarily agreed to waive their fees and/or reimburse expenses so that the total annual fund operating expenses (as shown in the financial highlights) paid by the Fund's Class R Shares, Institutional Shares and Institutional Service Shares (after the voluntary waivers and/or reimbursements) will not exceed 1.27%, 0.58% and 0.81% (the “Fee Limit”), respectively, up to but not including the later of (the “Termination Date”): (a) April 1, 2012; or (b) the date of the Fund's next effective Prospectus. While the Adviser and its affiliates currently do not anticipate terminating or increasing these arrangements prior to the Termination Date, these arrangements may only be terminated or the Fee Limit increased prior to the Termination Date with the agreement of the Trustees.
General
Certain Officers and Trustees of the Fund are Officers and Directors or Trustees of the above companies.
Semi-Annual Shareholder Report
Affiliated holdings are mutual funds which are managed by the Adviser or an affiliate of the Adviser. The Adviser has agreed to reimburse the Fund for certain investment adviser fees as a result of transactions in other affiliated mutual funds. For the six months ended July 31, 2011, the Adviser reimbursed $708. Transactions involving the affiliated holdings during the six months ended July 31, 2011, were as follows:
Federated Government Obligations Fund, Institutional Shares |
Balance of Shares Held 1/31/2011 | 26,931,107 |
Purchases/Additions | 42,334,165 |
Sales/Reductions | 69,265,272 |
Balance of Shares Held 7/31/2011 | $0 |
Value | $0 |
Dividend Income | $80 |
6. LINE OF CREDIT
The Fund participates in a $100,000,000 unsecured, uncommitted revolving line of credit (LOC) agreement with PNC Bank. The LOC was made available for extraordinary or emergency purposes, primarily for financing redemption payments. Borrowings are charged interest at a rate offered to the Fund by PNC Bank at the time of the borrowing. As of July 31, 2011, there were no outstanding loans. During the six months ended July 31, 2011, the Fund did not utilize the LOC.
7. INTERFUND LENDING
Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the Fund, along with other funds advised by subsidiaries of Federated Investors, Inc., may participate in an interfund lending program. This program provides an alternative credit facility allowing the Fund to borrow from other participating affiliated funds. As of July 31, 2011, there were no outstanding loans. During the six months ended July 31, 2011, the program was not utilized.
8. RECENT ACCOUNTING PRONOUNCEMENTS
In April 2011, the Financial Accounting Standards Board (FASB) released Accounting Standards Update (ASU) No. 2011-03, “Reconsideration of Effective Control for Repurchase Agreements.” This ASU amends FASB Accounting Standards Codification (ASC) Topic 860, “Transfers and Servicing”; specifically the criteria required to determine whether a repurchase agreement and similar agreements should be accounted for as sales of financial assets or secured borrowings with commitments. This ASU is effective for fiscal years and interim periods beginning after December 15, 2011. At this time, management is evaluating the implications of adopting ASU No. 2011-03 and its impact on the Fund's financial statements and the accompanying notes.
Semi-Annual Shareholder Report
9. Subsequent events
On June 1, 2011, a supplement to the Fund's Prospectus and Statement of Additional Information was filed to indicate that the word “Institutional” will be removed from the Fund's Institutional Service Shares effective September 30, 2011.
Management has evaluated subsequent events through the date the financial statements were issued, and determined that no additional events have occurred that require disclosure.
Semi-Annual Shareholder ReportEvaluation and Approval of Advisory Contract – May 2011
federated u.s. government SECURITIES fund: 2-5 years (the “Fund”)
The Fund's Board reviewed the Fund's investment advisory contract at meetings held in May 2011. The Board's decision regarding the contract reflects the exercise of its business judgment on whether to continue the existing arrangements.
In this connection, the Federated Funds' Board had previously appointed a Senior Officer, whose duties include specified responsibilities relating to the process by which advisory fees are to be charged to a Federated fund. The Senior Officer has the authority to retain consultants, experts, or staff as may be reasonably necessary to assist in the performance of his duties, reports directly to the Board, and may be terminated only with the approval of a majority of the independent members of the Board. The Senior Officer prepared and furnished to the Board an independent, written evaluation that covered topics discussed below (the “Evaluation”). The Board considered that Evaluation, along with other information, in deciding to approve the advisory contract.
During its review of the contract, the Board considered compensation and benefits received by the Adviser. This included the fees received for services provided to the Fund by other entities in the Federated organization and research services (if any) received by the Adviser from brokers that execute Federated fund trades, as well as advisory fees. The Board is also familiar with and considered judicial decisions concerning allegedly excessive investment advisory fees, which have indicated that the following factors may be relevant to an Adviser's fiduciary duty with respect to its receipt of compensation from a fund: the nature and quality of the services provided by the Adviser, including the performance of the fund; the Adviser's cost of providing the services; the extent to which the Adviser may realize “economies of scale” as a fund grows larger; any indirect benefits that may accrue to the Adviser and its affiliates as a result of the Adviser's relationship with a fund; performance and expenses of comparable funds; and the extent to which the independent Board members are fully informed about all facts the Board deems relevant bearing on the Adviser's services and fees. The Board further considered management fees (including any components thereof) charged to institutional and other clients of the Adviser for what might be viewed as like services, and the cost to the Adviser and its affiliates of supplying services pursuant to the management fee agreements, excluding any intra-corporate profit and profit margins of the Adviser and its affiliates for supplying such services. The Board was aware of these factors and was guided by them in its review of the Fund's advisory contract to the extent it considered them to be appropriate and relevant, as discussed further below.
Semi-Annual Shareholder Report
With respect to the Fund's performance and expenses in particular, the Board has found the use of comparisons to other mutual funds with comparable investment programs to be relevant, given the high degree of competition in the mutual fund business. The Board focused on comparisons with other similar Semi-Annual Shareholder Report
The Senior Officer reviewed information compiled by Federated, using data supplied by independent fund ranking organizations, regarding the performance of, and fees charged by, other mutual funds, noting his view that comparisons to fund peer groups are relevant in judging the reasonableness of proposed fees.
For the one-year, three-year and five-year periods covered by the Evaluation, the Fund's performance was above the median of the relevant peer group.
The Board also received financial information about Federated, including information regarding the compensation and benefits Federated derived from its relationships with the Federated funds. This information covered not only the fees under the advisory contracts, but also fees received by Federated's subsidiaries for providing other services to the Federated funds under separate contracts (e.g., for serving as the Federated funds' administrator). The information also detailed any indirect benefit Federated may derive from its receipt of research services from brokers who execute Federated fund trades. In addition, the Board considered the fact that, in order for a fund to be competitive in the marketplace, Federated and its affiliates frequently waived fees and/or reimbursed expenses and have disclosed to fund investors and/or indicated to the Board their intention to do so in the future, where appropriate. Moreover, the Board receives regular reporting as to the institution or elimination of these voluntary waivers. Federated furnished information, requested by the Senior Officer, that reported revenues on a fund-by-fund basis Semi-Annual Shareholder Report
The Board and the Senior Officer also reviewed information compiled by Federated comparing profitability information for Federated to other publicly held fund management companies. In this regard, the Senior Officer noted the limited availability of such information, but nonetheless concluded that Federated's profit margins did not appear to be excessive and the Board agreed.
The Senior Officer's Evaluation also discussed the notion of possible realization of “economies of scale” as a fund grows larger. The Board considered in this regard that the Adviser has made significant and long-term investments in areas that support all of the Federated funds, such as personnel and processes for the portfolio management, compliance, internal audit, and risk management functions; and systems technology; and that the benefits of these efforts (as well as any economies, should they exist) were likely to be enjoyed by the fund complex as a whole. Finally, the Board also noted the absence of any applicable regulatory or industry guidelines on this subject, which (as discussed in the Senior Officer's Evaluation) is compounded by the lack of any common industry practice or general pattern with respect to structuring fund advisory fees with “breakpoints” that serve to reduce the fee as the fund attains a certain size. The Senior Officer did not recommend institution of breakpoints in pricing Federated's fund advisory services at this time.
It was noted in the materials for the Board meeting that for the period covered by the Evaluation, the Fund's investment advisory fee, after waivers and expense reimbursements, if any, was above the median of the relevant peer group. The Board reviewed the fees and other expenses of the Fund with the Adviser and was satisfied that the overall expense structure of the Fund remained competitive. The Board will continue to monitor advisory fees and other expenses borne by the Fund.
The Senior Officer noted that, considering the totality of the circumstances, and all of the factors referenced within his Evaluation, he had concluded that, subject to comments and recommendations made within his Evaluation, his observations and the information accompanying the Evaluation supported a finding by the Board that the management fees for each of the funds are reasonable and that Federated appeared to provide appropriate administrative services to the Fund for the fees paid. Under these circumstances, no changes were recommended to, and no objection was raised to, the continuation of the Fund's advisory contract. The Board concluded that the nature, quality and scope of services provided the Fund by the Adviser and its affiliates were satisfactory.
Semi-Annual Shareholder Report
The Board based its decision to approve the advisory contract on the totality of the circumstances and relevant factors and with a view to past and future long-term considerations. Not all of the factors and considerations identified above were necessarily relevant to the Fund, nor did the Board consider any one of them to be determinative. With respect to the factors that were relevant, the Board's decision to approve the contract reflects its determination that Federated's performance and actions provided a satisfactory basis to support the decision to continue the existing arrangements.
Semi-Annual Shareholder ReportVoting Proxies on Fund Portfolio Securities
A description of the policies and procedures that the Fund uses to determine how to vote proxies, if any, relating to securities held in the Fund's portfolio is available, without charge and upon request, by calling 1-800-341-7400. A report on “Form N-PX” of how the Fund voted any such proxies during the most recent 12-month period ended June 30 is available from Federated's website at FederatedInvestors.com. To access this information from the home page, select “View All” next to “Find Products.” Select a fund name and share class, if applicable, to go to the Fund Overview page. On the Fund Overview page, select the “Documents” tab. At the bottom of that page, select “Proxy Voting Record Report (Form N-PX).” Form N-PX filings are also available at the SEC's website at www.sec.gov.
The Fund files with the SEC a complete schedule of its portfolio holdings, as of the close of the first and third quarters of its fiscal year, on “Form N-Q.” These filings are available on the SEC's website at www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. (Call 1-800-SEC-0330 for information on the operation of the Public Reference Room.) You may also access this information from the “Products” section of Federated's website at FederatedInvestors.com. From the home page, select “View All” next to “Find Products.” Select a fund name and share class, if applicable, to go to the Fund Overview page. On the Fund Overview page, select the “Documents” tab. At the bottom of that page, select “Form N-Q.”
Semi-Annual Shareholder ReportMutual funds are not bank deposits or obligations, are not guaranteed by any bank and are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency. Investment in mutual funds involves investment risk, including the possible loss of principal.
This Report is authorized for distribution to prospective investors only when preceded or accompanied by the Fund's Prospectus, which contains facts concerning its objective and policies, management fees, expenses and other information.
IMPORTANT NOTICE ABOUT FUND DOCUMENT DELIVERY
In an effort to reduce costs and avoid duplicate mailings, the Fund(s) intend to deliver a single copy of certain documents to each household in which more than one shareholder of the Fund(s) resides (so-called “householding”), as permitted by applicable rules. The Fund's “householding” program covers its/their Prospectus and Statement of Additional Information, and supplements to each, as well as Semi-Annual and Annual Shareholder Reports and any Proxies or information statements. Shareholders must give their written consent to participate in the “householding” program. The Fund is also permitted to treat a shareholder as having given consent (“implied consent”) if (i) shareholders with the same last name, or believed to be members of the same family, reside at the same street address or receive mail at the same post office box, (ii) the Fund gives notice of its intent to “household” at least sixty (60) days before it begins “householding” and (iii) none of the shareholders in the household have notified the Fund(s) or their agent of the desire to “opt out” of “householding.” Shareholders who have granted written consent, or have been deemed to have granted implied consent, can revoke that consent and opt out of “householding” at any time: shareholders who purchased shares through an intermediary should contact their representative; other shareholders may call the Fund at 1-800-341-7400.
![](https://capedge.com/proxy/N-CSRS/0001318148-11-001723/federated_logo.jpg)
Federated U.S. Government Securities Fund: 2-5 Years
Federated Investors Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561
Contact us at FederatedInvestors.com
or call 1-800-341-7400.
Federated Securities Corp., Distributor
Cusip 31428P301
Cusip 31428P103
Cusip 31428P202
8082202 (9/11)
Federated is a registered trademark of Federated Investors, Inc.
2011 © Federated Investors, Inc.
Item 2. Code of Ethics
Not Applicable
Item 3. Audit Committee Financial Expert
Not Applicable
Item 4. Principal Accountant Fees and Services
Not Applicable
Item 5. Audit Committee of Listed Registrants
Not Applicable
Item 6. Schedule of Investments
Not Applicable
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies
Not Applicable
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Not Applicable
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers
Not Applicable
Item 10. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 11. Controls and Procedures
(a) The registrant’s President and Treasurer have concluded that the
registrant’s disclosure controls and procedures (as defined in rule 30a-3(c) under the Act) are effective in design and operation and are sufficient to form the basis of the certifications required by Rule 30a-(2) under the Act, based on their evaluation of these disclosure controls and procedures within 90 days of the filing date of this report on Form N-CSR.
(b) There were no changes in the registrant’s internal control over financial reporting (as defined in rule 30a-3(d) under the Act) during the second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.
Item 12. Exhibits
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Registrant Federated U.S Government Securities Fund: 2-5 Years
By /S/ Richard A. Novak
Richard A. Novak, Principal Financial Officer
Date September 21, 2011
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By /S/ J. Christopher Donahue
J. Christopher Donahue, Principal Executive Officer
Date September 21, 2011
By /S/ Richard A. Novak
Richard A. Novak, Principal Financial Officer
Date September 21, 2011