Where do the runners go?

[umpire99]

FED rules. R1 & R2 with two outs. Batter hits a deep fly ball to right center field. The two fielders converge and the center fielder dives for the ball. BU signals out as the ball is hitting the ground and the right fielder is picking it up and throwing it in. Batter ends up on second and both runners score. We confer and I (PU) tell him that I the ball was not caught. Where do we place the runners? Do we give them the last base they occupied or do we use our judgement to place them where they would have ended up? The batter was around first and R1 was nearing third when the error was made by BU.