PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Investor:
I'm pleased to present the Semi-Annual Report to Shareholders for Federated U.S.
Government Securities Fund: 1-3 Years. The Report covers the six-month period
ended August 31, 1995 and includes the Investment Review, Financial Statements,
and Portfolio of Investments.
This mutual fund continues its pursuit of attractive yields with limited
principal risk through a diversified portfolio consisting of U.S. Treasury
securities.
During the period, the fund's Institutional Shares paid dividends of $0.33 per
share. Institutional Service Shares paid dividends of $0.32 per share. The
fund's net asset value rose slightly, from $10.25 on the first day of the period
to $10.35 on August 31, 1995. Total net assets stood at $707.4 million at the
end of the period.
Thank you for participating in Federated U.S. Government Securities Fund: 1-3
Years. As always, we welcome your questions and comments.
Sincerely,
[GLEN R. JOHNSON SIGNATURE]
Glen R. Johnson
President
October 15, 1995
1
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
Federated U.S. Government Securities Fund: 1-3 Years represents a fully-invested
participation in those obligations of the U.S. Treasury and certain government
agencies which have a maximum maturity of 3 1/2 years and an average maturity of
1 to 2 years. Since the fund's February 28, 1995 fiscal year end, the fund has
remained fully invested in U.S. Treasury securities. Standard & Poor's has
assigned the fund an "AAAf" credit rating.*
Fixed income performance during 1995 has been quite the opposite of that in
1994. During the semi-annual reporting period, the intermediate sector
outperformed as the 2 to 30-year yield curve steepened in response to weak
economic data. The market dramatically priced in the reduced likelihood of
further tightening of monetary policy by the Federal Reserve following the rate
increase on February 1, 1995. Minimal inflation pressures allowed the Fed to
actually lower the Fed Funds target rate from 6% to 5.75% in early July for the
first time since September 1992. The 2-year Treasury note yield fell from 6.8%
at the end of February 1995 to 5.9% at the end of August 1995 and the fund's net
asset value increased from $10.25 to $10.35 during this same period. The fund
maintained a laddered portfolio structure with an average maturity between 1.5
to 1.7 years. The total return for the fund's Institutional Shares and
Institutional Service Shares for the six months ended August 31, 1995 was 4.20%
and 4.07%**, respectively, compared to 3.65% for the Merrill Lynch 1-Year
Treasury Index and 4.81% for the Merrill Lynch 2-Year Treasury Index.***
Recent economic data has been more mixed even though economic growth has slowed
dramatically from its fourth quarter of 1994 rate. Although the Federal Reserve
may shift from a restrictive to a more neutral monetary policy over time,
economic growth is not expected to slow enough to warrant aggressive easing of
monetary policy.
*STANDARD & POOR'S RATINGS GROUP PROVIDES ITS "AAAF" RATING TO MUTUAL FUNDS, IN
ITS OPINION, WITH FUND PORTFOLIO HOLDINGS AND COUNTERPARTIES THAT PROVIDE
EXTREMELY STRONG PROTECTION AGAINST LOSSES FROM CREDIT DEFAULTS. THIS RATING
IS OBTAINED AFTER STANDARD & POOR'S RATINGS GROUP EVALUATES A NUMBER OF
FACTORS, INCLUDING CREDIT QUALITY, MARKET PRICE EXPOSURE AND MANAGEMENT. THEY
MONITOR THE PORTFOLIO WEEKLY FOR DEVELOPMENTS THAT COULD CAUSE CHANGES IN THE
RATINGS.
**PERFORMANCE QUOTED REPRESENTS PAST PERFORMANCE. INVESTMENT RETURN AND
PRINCIPAL VALUE WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED,
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST.
*** THESE INDICES ARE UNMANAGED.
2
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS
(FORMERLY FEDERATED SHORT-INTERMEDIATE GOVERNMENT TRUST)
PORTFOLIO OF INVESTMENTS
AUGUST 31, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
- ---------------- ------------------------------------------------------------ --------------
<C> <S> <C>
SHORT-INTERMEDIATE TERM OBLIGATIONS--98.1%
- -----------------------------------------------------------------------------------
U.S. TREASURY NOTES--98.1%
------------------------------------------------------------
$ 35,000,000 7.75%, 3/31/1996 $ 35,409,150
------------------------------------------------------------
50,000,000 4.25%, 5/15/1996 49,516,000
------------------------------------------------------------
50,000,000 7.875%, 7/15/1996 50,915,000
------------------------------------------------------------
90,000,000 6.875%, 10/31/1996 91,145,700
------------------------------------------------------------
25,000,000 7.50%, 1/31/1997 25,581,250
------------------------------------------------------------
40,000,000 4.75%, 2/15/1997 39,427,200
------------------------------------------------------------
30,000,000 6.875%, 2/28/1997 30,469,200
------------------------------------------------------------
45,000,000 6.625%, 3/31/1997 45,566,550
------------------------------------------------------------
50,000,000 8.50%, 4/15/1997 52,052,500
------------------------------------------------------------
50,000,000 6.50%, 4/30/1997 50,543,500
------------------------------------------------------------
25,000,000 6.125%, 5/31/1997 25,116,500
------------------------------------------------------------
15,000,000 5.625%, 6/30/1997 14,952,000
------------------------------------------------------------
1,200,000 5.50%, 9/30/1997 1,192,272
------------------------------------------------------------
2,000,000 5.75%, 10/31/1997 1,995,620
------------------------------------------------------------
45,000,000 7.375%, 11/15/1997 46,359,450
------------------------------------------------------------
25,000,000 5.625%, 1/31/1998 24,849,750
------------------------------------------------------------
25,000,000 7.25%, 2/15/1998 25,756,000
------------------------------------------------------------
30,000,000 5.125%, 2/28/1998 29,460,300
------------------------------------------------------------
35,000,000 5.375%, 5/31/1998 34,510,000
------------------------------------------------------------
20,000,000 4.75%, 10/31/1998 19,298,400
------------------------------------------------------------ --------------
TOTAL SHORT-INTERMEDIATE TERM OBLIGATIONS (IDENTIFIED
COST, $687,461,964) 694,116,342
------------------------------------------------------------ --------------
</TABLE>
3
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS
(FORMERLY FEDERATED SHORT-INTERMEDIATE GOVERNMENT TRUST)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT VALUE
- ---------------- ------------------------------------------------------------ --------------
<C> <S> <C>
(a) Repurchase Agreement--0.6%
- -----------------------------------------------------------------------------------
$ 4,100,000 J.P. Morgan Securities, Inc., 5.83%, dated 8/31/1995, due
9/1/1995
(AT AMORTIZED COST) $ 4,100,000
------------------------------------------------------------ --------------
TOTAL INVESTMENTS (IDENTIFIED COST, $691,561,964)(b) $ 698,216,342
------------------------------------------------------------ --------------
--------------
(a) 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.
(b) The cost of investments for federal tax purposes amounts to $691,561,964.
The net unrealized appreciation on a federal tax cost basis amounts to
$6,654,378, and is comprised of $7,106,961 appreciation and
$452,583 depreciation at August 31, 1995.
Note: The categories of investments are shown as a percentage of net assets
($707,407,995) at August 31, 1995.
</TABLE>
(See Notes which are an integral part of the Financial Statements)
4
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS
(FORMERLY FEDERATED SHORT-INTERMEDIATE GOVERNMENT TRUST)
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------------------------
Total investments in securities, at value (identified and tax cost $691,561,964) $ 698,216,342
- -------------------------------------------------------------------------------------------------
Income receivable 11,172,567
- -------------------------------------------------------------------------------------------------
Receivable for shares sold 1,569,618
- ------------------------------------------------------------------------------------------------- --------------
Total assets 710,958,527
- -------------------------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------------------------
Payable for shares redeemed 1,266,574
- --------------------------------------------------------------------------------
Payable to Bank 232,909
- --------------------------------------------------------------------------------
Income distribution payable 2,002,134
- --------------------------------------------------------------------------------
Accrued expenses 48,915
- -------------------------------------------------------------------------------- --------------
Total liabilities 3,550,532
- ------------------------------------------------------------------------------------------------- --------------
NET ASSETS for 68,338,134 shares outstanding $ 707,407,995
- ------------------------------------------------------------------------------------------------- --------------
--------------
NET ASSETS CONSIST OF:
- -------------------------------------------------------------------------------------------------
Paid in capital $ 825,157,257
- -------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 6,654,378
- -------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (124,403,640)
- ------------------------------------------------------------------------------------------------- --------------
Total Net Assets $ 707,407,995
- ------------------------------------------------------------------------------------------------- --------------
--------------
NET ASSET VALUE, Offering Price and Redemption Proceeds Per Share:
- -------------------------------------------------------------------------------------------------
INSTITUTIONAL SHARES:
- -------------------------------------------------------------------------------------------------
$674,490,992 DIVIDED BY 65,158,248 shares outstanding $ 10.35
- ------------------------------------------------------------------------------------------------- --------------
--------------
INSTITUTIONAL SERVICE SHARES:
- -------------------------------------------------------------------------------------------------
$32,917,003 DIVIDED BY 3,179,886 shares outstanding $ 10.35
- ------------------------------------------------------------------------------------------------- --------------
--------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
5
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS
(FORMERLY FEDERATED SHORT-INTERMEDIATE GOVERNMENT TRUST)
STATEMENT OF OPERATIONS
SIX MONTHS ENDED AUGUST 31, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------------
Interest $ 24,658,356
EXPENSES:
- --------------------------------------------------------------------------
Investment advisory fee $ 1,446,880
- --------------------------------------------------------------------------
Administrative personnel and services fee 273,822
- --------------------------------------------------------------------------
Custodian fees 38,727
- --------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 108,946
- --------------------------------------------------------------------------
Directors'/Trustees' fees 4,968
- --------------------------------------------------------------------------
Auditing fees 6,624
- --------------------------------------------------------------------------
Legal fees 4,808
- --------------------------------------------------------------------------
Portfolio accounting fees 65,109
- --------------------------------------------------------------------------
Distribution services fee--Institutional Service Shares 41,928
- --------------------------------------------------------------------------
Shareholder services fee--Institutional Shares 862,372
- --------------------------------------------------------------------------
Shareholder services fee--Institutional Service Shares 41,928
- --------------------------------------------------------------------------
Share registration costs 21,560
- --------------------------------------------------------------------------
Printing and postage 6,568
- --------------------------------------------------------------------------
Insurance premiums 8,464
- --------------------------------------------------------------------------
Miscellaneous 4,600
- -------------------------------------------------------------------------- -----------
Total expenses 2,937,304
- --------------------------------------------------------------------------
Waivers and reimbursements--
- --------------------------------------------------------------------------
Waiver of investment advisory fee $ (29,876)
- ------------------------------------------------------------
Waiver of distribution services fee--Institutional Service
Shares (40,252)
- ------------------------------------------------------------
Waiver of shareholder services fee--Institutional Shares (862,372)
- ------------------------------------------------------------
Waiver of shareholder services fee--Institutional Service
Shares (1,677)
- ------------------------------------------------------------ -----------
Total waivers (934,177)
- -------------------------------------------------------------------------- -----------
Net expenses 2,003,127
- ---------------------------------------------------------------------------------------- ------------
Net investment income 22,655,229
- ---------------------------------------------------------------------------------------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ----------------------------------------------------------------------------------------
Net realized gain on investments 6,796,030
- ----------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments 307,154
- ---------------------------------------------------------------------------------------- ------------
Net realized and unrealized gain on investments 7,103,184
- ---------------------------------------------------------------------------------------- ------------
Change in net assets resulting from operations $ 29,758,413
- ---------------------------------------------------------------------------------------- ------------
------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
6
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS
(FORMERLY FEDERATED SHORT-INTERMEDIATE GOVERNMENT TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
AUGUST 31, 1995 YEAR ENDED
(UNAUDITED) FEBRUARY 28, 1995
------------------ ------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------
OPERATIONS--
- -----------------------------------------------------
Net investment income $ 22,655,229 $ 38,636,472
- -----------------------------------------------------
Net realized gain (loss) on investments ($6,796,030
net gain and $16,372,726 net loss, respectively, as
computed for federal tax purposes) 6,796,030 (26,211,391)
- -----------------------------------------------------
Net change in unrealized appreciation (depreciation) 307,154 9,714,843
- ----------------------------------------------------- ------------------ ------------------
Change in net assets resulting from operations 29,758,413 22,139,924
- ----------------------------------------------------- ------------------ ------------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -----------------------------------------------------
Distributions from net investment income
- -----------------------------------------------------
Institutional Shares (21,646,282) (37,103,608)
- -----------------------------------------------------
Institutional Service Shares (1,008,947) (1,532,864)
- ----------------------------------------------------- ------------------ ------------------
Change in net assets resulting from distributions
to shareholders (22,655,229) (38,636,472)
- ----------------------------------------------------- ------------------ ------------------
SHARE TRANSACTIONS--
- -----------------------------------------------------
Proceeds from sale of shares 171,332,535 269,660,686
- -----------------------------------------------------
Net asset value of shares issued to shareholders in
payment of distributions declared 10,000,122 16,766,815
- -----------------------------------------------------
Cost of shares redeemed (197,272,671) (452,147,512)
- ----------------------------------------------------- ------------------ ------------------
Change in net assets resulting from share
transactions (15,940,014) (165,720,011)
- ----------------------------------------------------- ------------------ ------------------
Change in net assets (8,836,830) (182,216,559)
- -----------------------------------------------------
NET ASSETS:
- -----------------------------------------------------
Beginning of period 716,244,825 898,461,384
- ----------------------------------------------------- ------------------ ------------------
End of period $ 707,407,995 $ 716,244,825
- ----------------------------------------------------- ------------------ ------------------
------------------ ------------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
7
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS
(FORMERLY FEDERATED SHORT-INTERMEDIATE GOVERNMENT TRUST)
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED AUGUST YEAR ENDED FEBRUARY 28, OR 29,
31, 1995 -----------------------------------------------------------------------
(UNAUDITED) 1995 1994 1993 1992 1991 1990
--------------- -------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.25 $10.46 $10.53 $10.34 $10.12 $ 9.93 $ 9.81
- ----------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------
Net investment income 0.33 0.52 0.37 0.48 0.67 0.72 0.84
- ----------------------------------------
Net realized and unrealized gain
(loss) on investments 0.10 (0.21) (0.07) 0.19 0.22 0.19 0.12
- ---------------------------------------- ------ -------- -------- ---------- ---------- ---------- ----------
Total from investment operations 0.43 0.31 0.30 0.67 0.89 0.91 0.96
- ---------------------------------------- ------ -------- -------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS
- ----------------------------------------
Distributions from net investment
income (0.33) (0.52) (0.37) (0.48) (0.67) (0.72) (0.84)
- ----------------------------------------
Total distributions from net realized
gain on investment transactions 0.00 0.00 0.00 0.00 0.00 0.00 0.00
- ---------------------------------------- ------ -------- -------- ---------- ---------- ---------- ----------
Total distributions (0.33) (0.52) (0.37) (0.48) (0.67) (0.72) (0.84)
- ---------------------------------------- ------ -------- -------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $10.35 $10.25 $10.46 $10.53 $10.34 $10.12 $ 9.93
- ---------------------------------------- ------ -------- -------- ---------- ---------- ---------- ----------
------ -------- -------- ---------- ---------- ---------- ----------
TOTAL RETURN (a) 4.20% 3.14% 2.93% 6.64% 9.07% 10.11% 10.08%
- ----------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------
Expenses 0.54%* 0.54% 0.51% 0.49% 0.48% 0.48% 0.48%
- ----------------------------------------
Net investment income 6.26%* 5.06% 3.56% 4.63% 6.57% 7.79% 8.42%
- ----------------------------------------
Expense waiver/ reimbursement (b) 0.26%* 0.02% 0.00% 0.00% 0.00% 0.00% 0.00%
- ----------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------
Net assets, end of period (000
omitted) $674,491 $687,037 $858,556 $1,034,374 $1,171,633 $1,296,579 $1,725,112
- ----------------------------------------
Portfolio turnover 79% 265% 150% 132% 114% 96% 172%
- ----------------------------------------
<CAPTION>
1989 1988 1987
---------- ---------- ----------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.21 $10.42 $10.39
- ----------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------
Net investment income 0.82 0.81 0.84
- ----------------------------------------
Net realized and unrealized gain
(loss) on investments (0.40) (0.16) 0.03
- ---------------------------------------- ---------- ---------- ----------
Total from investment operations 0.42 0.65 0.87
- ---------------------------------------- ---------- ---------- ----------
LESS DISTRIBUTIONS
- ----------------------------------------
Distributions from net investment
income (0.82) (0.81) (0.84)
- ----------------------------------------
Total distributions from net realized
gain on investment transactions 0.00 (0.05) 0.00
- ---------------------------------------- ---------- ---------- ----------
Total distributions (0.82) (0.86) (0.84)
- ---------------------------------------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 9.81 $10.21 $10.42
- ---------------------------------------- ---------- ---------- ----------
---------- ---------- ----------
TOTAL RETURN (a) 4.23% 6.58% 8.73%
- ----------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------
Expenses 0.47% 0.46% 0.45%
- ----------------------------------------
Net investment income 8.14% 7.89% 7.97%
- ----------------------------------------
Expense waiver/ reimbursement (b) 0.00% 0.01% 0.02%
- ----------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------
Net assets, end of period (000
omitted) $2,236,208 $3,016,355 $4,348,532
- ----------------------------------------
Portfolio turnover 112% 85% 99%
- ----------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(b) 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)
8
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS
(FORMERLY FEDERATED SHORT-INTERMEDIATE GOVERNMENT TRUST)
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED AUGUST YEAR ENDED FEBRUARY 28,
31, 1995 -------------------------------
(UNAUDITED) 1995 1994 1993(a)
--------------- -------- -------- ---------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.25 $10.46 $10.53 $10.37
- ----------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------
Net investment income 0.32 0.50 0.35 0.34
- ----------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.10 (0.21) (0.07) 0.16
- ---------------------------------------------------------------------- ------ -------- -------- ---------
Total from investment operations 0.42 0.29 0.28 0.50
- ---------------------------------------------------------------------- ------ -------- -------- ---------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------
Distributions from net investment income (0.32) (0.50) (0.35) (0.34)
- ---------------------------------------------------------------------- ------ -------- -------- ---------
NET ASSET VALUE, END OF PERIOD $10.35 $10.25 $10.46 $10.53
- ---------------------------------------------------------------------- ------ -------- -------- ---------
------ -------- -------- ---------
TOTAL RETURN (b) 4.07% 2.88% 2.68% 4.28%
- ----------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------
Expenses 0.79%* 0.79% 0.76% 0.74%*
- ----------------------------------------------------------------------
Net investment income 6.00%* 4.76% 3.33% 4.14%*
- ----------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.26%* 0.25% 0.00% 0.00%*
- ----------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------
Net assets, end of period (000 omitted) $32,917 $29,208 $39,905 $72,722
- ----------------------------------------------------------------------
Portfolio turnover 79% 265% 150% 132%
- ----------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from May 29, 1992 (date of initial public
investment) to February 28, 1993.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
9
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS
(FORMERLY FEDERATED SHORT-INTERMEDIATE GOVERNMENT TRUST)
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Federated U.S. Government Securities Fund: 1-3 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 2 classes
of shares: Institutional Shares and Institutional Service Shares.
Shareholders approved a change in the name of the Trust as follows:
<TABLE>
<CAPTION>
EFFECTIVE DATE NEW NAME
--------------- -------------------------------------------------------
<C> <S>
April 13, 1995. Federated U.S. Government Securities Fund: 1-3 Years
</TABLE>
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--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. All other securities are valued at
prices provided by an independent pricing service.
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--Distributions to shareholders
are recorded on the ex-dividend date. Interest income and expenses are
accrued daily. Bond premium and
10
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS
(FORMERLY FEDERATED SHORT-INTERMEDIATE GOVERNMENT TRUST)
- --------------------------------------------------------------------------------
discount, if applicable, are amortized as required by the Internal Revenue
Code, as amended (the "Code").
FEDERAL TAXES--It is the Trust's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
At last fiscal year-end date, the Trust, for federal tax purposes, had a
capital loss carryforward of $121,361,005, which will reduce the Trust's
taxable income arising from future net realized gain on investments, if any,
to the extent permitted by the Code, and thus will reduce the amount of the
distributions to shareholders which would otherwise be necessary to relieve
the Trust of any liability for federal tax. Additionally, net capital losses
of $9,639,860, attributable to security transactions incurred after October
31, 1994 are treated as arising on March 1, 1995, the first day of the
Trust's next taxable year. Pursuant to the Code, such capital loss
carryforward will expire as follows:
<TABLE>
<CAPTION>
EXPIRATION
YEAR EXPIRATION AMOUNT
- -------------- ------------------
<S> <C>
1997 $39,788,098
1998 $65,200,181
2003 $16,372,726
</TABLE>
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.
OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares.
11
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS
(FORMERLY FEDERATED SHORT-INTERMEDIATE GOVERNMENT TRUST)
- --------------------------------------------------------------------------------
Transactions in shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED AUGUST YEAR ENDED
31, 1995 FEBRUARY 28, 1995
-------------------------- --------------------------
INSTITUTIONAL SHARES SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Shares sold 15,010,018 $ 154,916,469 23,657,172 $ 242,387,271
- ----------------------------------------
Shares issued to shareholders in payment
of distributions declared 881,289 9,095,764 1,514,470 15,527,541
- ----------------------------------------
Shares redeemed (17,747,376) (183,327,236) (40,237,187) (413,639,011)
- ---------------------------------------- ----------- ------------- ----------- -------------
Net change resulting from
Institutional share transactions (1,856,069) $ (19,315,003) (15,065,545) $(155,724,199)
- ---------------------------------------- ----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED AUGUST YEAR ENDED
31, 1995 FEBRUARY 28, 1995
-------------------------- --------------------------
INSTITUTIONAL SERVICE SHARES SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Shares sold 1,593,665 $ 16,416,066 2,652,469 $ 27,273,415
- ----------------------------------------
Shares issued to shareholders in payment
of distributions declared 87,600 904,358 120,824 1,239,274
- ----------------------------------------
Shares redeemed (1,350,414) (13,945,435) (3,739,382) (38,508,501)
- ---------------------------------------- ----------- ------------- ----------- -------------
Net change resulting from
Institutional Service share
transactions 330,851 $ 3,374,989 (966,089) $ (9,995,812)
- ---------------------------------------- ----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
Net change resulting from share
transactions (1,525,218) $ (15,940,014) (16,031,634) $(165,720,011)
- ---------------------------------------- ----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Management, the Trust's investment adviser,
(the "Adviser"), receives for its services an annual investment advisory fee
equal to .40 of 1% of the Trust's average daily net assets.
The Adviser may voluntarily choose to waive any portion of its fee. The Adviser
can modify or terminate this voluntary waiver at any time at its sole
discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS"), under the
Administrative Services Agreement, provides the Trust with administrative
personnel and services. This fee is based on the level of average aggregate
daily net assets of all funds advised by subsidiaries of Federated Investors
12
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS
(FORMERLY FEDERATED SHORT-INTERMEDIATE GOVERNMENT TRUST)
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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., 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
Trust may incur distribution expenses up to .25 of 1% of the average daily net
assets of the Institutional Service Shares, annually, to compensate Federated
Securities Corp.
The distributor may voluntarily choose to waive any portion of its fee. The
distributor can modify or terminate this voluntary waiver at any time at its
sole discretion.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Trust will pay FSS up to .25 of
1% of daily average net assets of the Trust for the period. This fee is to
obtain certain services for shareholders and to maintain shareholder accounts.
FSS may voluntarily choose to waive a portion of this fee. FSS can modify or
terminate this voluntary waiver at any time at its sole discretion.
TRANSFER AGENT FEES--Federated Services Company serves as transfer and dividend
disbursing agent for the Trust. This fee is based on the size, type, and number
of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES--Federated Services Company maintains the Trust's
accounting records for which it receives a fee. The fee is based on the level of
the Trust's average daily net assets for the period, plus out-of-pocket
expenses.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended August 31, 1995, were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
<S> <C>
PURCHASES $ 553,689,230
- -------------------------------------------------------------------------------------------------- --------------
SALES $ 575,088,281
- -------------------------------------------------------------------------------------------------- --------------
</TABLE>
13
<TABLE>
<CAPTION>
TRUSTEES OFFICERS
- ---------------------------------------------------------
<S> <C>
John F. Donahue John F. Donahue
Thomas G. Bigley CHAIRMAN
John T. Conroy, Jr. Glen R. Johnson
William J. Copeland PRESIDENT
James E. Dowd J. Christopher Donahue
Lawrence D. Ellis, M.D. EXECUTIVE VICE PRESIDENT
Edward L. Flaherty, Jr. Edward C. Gonzales
Peter E. Madden EXECUTIVE VICE PRESIDENT
Gregor F. Meyer John W. McGonigle
John E. Murray, Jr. EXECUTIVE VICE PRESIDENT AND
Wesley W. Posvar SECRETARY
Marjorie P. Smuts Richard B. Fisher
VICE PRESIDENT
David M. Taylor
TREASURER
Robert C. Rosselot
ASSISTANT SECRETARY
</TABLE>
Mutual funds are not bank deposits or obligations, are not
guaranteed by any bank, and are not insured or guaranteed by the
U.S. government, the Federal Deposit Insurance Corporation, the
Federal Reserve Board, or any other government agency. Investment
in mutual funds involves 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.
14
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FEDERATED
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U.S. GOVERNMENT
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SECURITIES FUND:
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1-3 YEARS
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SEMI-ANNUAL REPORT
TO SHAREHOLDERS
AUGUST 31, 1995
[FEDERATED LOGO] -------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
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FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
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PAPER
CUSIP 31428M100
CUSIP 31428M209
