FEDERATED U S GOVERNMENT SECURITIES FUND 1-3 YEARS, 485BPOS, 1996-04-23

FEDERATED U S GOVERNMENT SECURITIES FUND 1-3 YEARS
485BPOS, 1996-04-23

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1933 Act File No. 2-89028
1940 Act File No. 811-3947

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 x

Pre-Effective Amendment No. ..........

Post-Effective Amendment No. 27 ......... x

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 x

Amendment No. 19 ........................ x

FEDERATED U.S. GOVERNMENT SECURITES FUND: 1-3 YEARS

(Exact Name of Registrant as Specified in Charter)

Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)

(412) 288-1900
(Registrant's Telephone Number)

John W. McGonigle, Esquire,
Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)

It is proposed that this filing will become effective:

immediately upon filing pursuant to paragraph (b)
x on April 30, 1996 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a) (i)
on pursuant to paragraph (a) (i).
75 days after filing pursuant to paragraph (a)(ii)
on pursuant to paragraph (a)(ii) of Rule 485.
-----------------

If appropriate, check the following box:

This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

Registrant has filed with the Securities and Exchange Commission a declaration
pursuant to Rule 24f-2 under the Investment Company Act of 1940, and:

x filed the Notice required by that Rule on April 15, 1996; or
intends to file the Notice required by that Rule on or about ;
------------
or
during the most recent fiscal year did not sell any securities pursuant to
Rule 24f-2 under the Investment Company Act of 1940, and, pursuant to
Rule 24f-2(b)(2), need not file the Notice.

Copies to:

Matthew G. Maloney, Esquire
Dickstein, Shapiro & Morin, L.L.P.
2101 L Street, N.W.
Washington, D.C. 20037

CROSS REFERENCE SHEET

This Amendment to the Registration Statement of FEDERATED U.S. GOVERNMENT
SECURITIES FUND: 1-3 YEARS consists of one portfolio which is offered in two
separate classes of shares known as (a) Institutional Shares and (b)
Institutional Serivce Shares. A separate prospectus is being filed herewith
for each class of shares, and one Statement of Additional Information is being
filed herewith for both classes of shares.

PART A. INFORMATION REQUIRED IN A PROSPECTUS.

Prospectus Heading
(Rule 404(c) Cross Reference)

Item 1. Cover Page...............Cover Page (a) (b).
Item 2. Synopsis.................Summary of Trust Expenses (a) (b).
Item 3. Condensed Financial
Information..............Financial Highlights (a) (b); Performance
Information (a) (b).
Item 4. General Description of
Registrant...............General Information (a) (b); Investment
Information (a) (b); Investment Objective
(a) (b); Investment Policies (a) (b);
Investment Limitations (a) (b).

Item 5. Management of the Fund...Trust Information (a) (b); Management of
the Trust (a) (b); Distribution of
Institutional Shares (a); Distribution of
Institutional Service Shares (b);
Administration of the Trust (a) (b).
Item 6. Capital Stock and Other
Securities...............Dividends (a) (b); Capital Gains (a) (b);
Shareholder Information (a) (b); Voting
Rights (a) (b); Tax Information (a) (b);
Federal Income Tax (a) (b); State and Local
Taxes (a) (b).

Item 7. Purchase of Securities Being
Offered..................Net Asset Value (a) (b); Investing in
Institutional Shares (a); Investing in
Institutional Service Shares (b); Share
Purchases (a) (b); Minimum Investment
Required (a) (b); What Shares Cost (a) (b);
Certificates and Confirmations (a) (b).

Item 8. Redemption or Repurchase.Redeeming Institutional Shares (a);
Redeeming Institutional Service Shares (b);
Telephone Redemption (a) (b); Written
Requests (a) (b); Accounts With Low
Balances (a) (b).

Item 9. Pending Legal Proceedings None.

PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.

Item 10. Cover Page...............Cover Page.

Item 11. Table of Contents........Table of Contents.

Item 12. General Information and
History..................General Information About the Trust;
About Federated Investors.

Item 13. Investment Objectives and
Policies.................Investment Objective and Policies.

Item 14. Management of the Trust..Trust Management; Federated U.S. Government
Securities Fund:1-3 Years Management;
Trustees' Compensation; Massachusetts
Partnership Law; Trustee Liability.

Item 15. Control Persons and Principal
Holders of Securities....Trust Ownership.

Item 16. Investment Advisory and Other
Services.................Investment Advisory Services; Other
Services.

Item 17. Brokerage Allocation.....Brokerage Transactions.

Item 18. Capital Stock and Other
Securities...............Not applicable.

Item 19. Purchase, Redemption and
Pricing of Securities Being
Offered..................Purchasing Shares; Determining Net Asset
Value; Redeeming Shares. Redemption in
Kind.

Item 20. Tax Status...............Tax Status.
Item 21. Underwriters.............Not applicable.

Item 22. Calculations of Performance
Data.....................Total Return; Yield; Performance
Comparisons.

Item 23. Financial Statements.....(Filed in Part A).

- --------------------------------------------------------------------------------

FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS
INSTITUTIONAL SHARES
PROSPECTUS

The Institutional Shares offered by this prospectus represent interests in a
diversified portfolio of securities of Federated U.S. Government Securities
Fund: 1-3 Years (the "Trust"). The Trust is an open-end management investment
company (a mutual fund).

The investment objective of the Trust is to provide current income. The Trust
invests primarily in U.S. government securities. Institutional Shares are sold
at net asset value.

THE INSTITUTIONAL SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR
OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD,
OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT
RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.

This prospectus contains the information you should read and know before you
invest in Institutional Shares of the Trust. Keep this prospectus for future
reference.

The Trust has also filed a Statement of Additional Information for Institutional
Shares and Institutional Service Shares dated April 30, 1996, with the
Securities and Exchange Commission. The information contained in the Statement
of Additional Information is incorporated by reference into this prospectus. You
may request a copy of the Statement of Additional Information or a paper copy of
this prospectus, if you have received your prospectus electronically, free of
charge by calling 1-800-235-4669. To obtain other information or make inquiries
about the Trust, contact the Trust at the address listed in the back of this
prospectus.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

Prospectus dated April 30, 1996

TABLE OF CONTENTS
- --------------------------------------------------------------------------------

SUMMARY OF TRUST EXPENSES 1
- ------------------------------------------------------

FINANCIAL HIGHLIGHTS--
INSTITUTIONAL SHARES 2
- ------------------------------------------------------

GENERAL INFORMATION 3
- ------------------------------------------------------

INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Investment Limitations 4

TRUST INFORMATION 5
- ------------------------------------------------------
Management of the Trust 5
Distribution of Institutional Shares 6
Administration of the Trust 6

NET ASSET VALUE 7
- ------------------------------------------------------

INVESTING IN INSTITUTIONAL SHARES 7
- ------------------------------------------------------
Share Purchases 7
Minimum Investment Required 8
What Shares Cost 8
Certificates and Confirmations 8
Dividends 8
Capital Gains 8
REDEEMING INSTITUTIONAL SHARES 9
- ------------------------------------------------------
Telephone Redemption 9
Written Requests 9
Accounts with Low Balances 10

SHAREHOLDER INFORMATION 10
- ------------------------------------------------------
Voting Rights 10

TAX INFORMATION 10
- ------------------------------------------------------
Federal Income Tax 10
State and Local Taxes 11

PERFORMANCE INFORMATION 11
- ------------------------------------------------------

OTHER CLASSES OF SHARES 11
- ------------------------------------------------------

FINANCIAL HIGHLIGHTS--
INSTITUTIONAL SERVICE SHARES 12
- ------------------------------------------------------

FINANCIAL STATEMENTS 13
- ------------------------------------------------------

REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS 22
- ------------------------------------------------------
ADDRESSES 23

- ------------------------------------------------------

SUMMARY OF TRUST EXPENSES

- --------------------------------------------------------------------------------

<TABLE>
<S> <C> <C>
INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering
price)..................................................................... None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price)........................................ None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)...................... None
Redemption Fee (as a percentage of amount redeemed, if applicable)........... None
Exchange Fee................................................................. None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1)............................................. 0.39%
12b-1 Fee.................................................................... None
Total Other Expenses......................................................... 0.15%
Shareholder Services Fee (after waiver)(2)......................... 0.00%
Total Operating Expenses(3)............................................. 0.54%
</TABLE>

(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary waiver
at any time at its sole discretion. The maximum management fee is 0.40%.

(2) The maximum shareholder services fee is 0.25%.

(3) The total operating expenses would have been 0.80% absent the voluntary
waivers of portions of the management fee and the shareholder services fee.

THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF INSTITUTIONAL SHARES OF THE
TRUST WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS
OF THE VARIOUS COSTS AND EXPENSES, SEE "TRUST INFORMATION" AND "INVESTING IN
INSTITUTIONAL SHARES." WIRE-TRANSFERRED REDEMPTIONS OF LESS THAN $5,000 MAY BE
SUBJECT TO ADDITIONAL FEES.

<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
- -------------------------------------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2)
redemption at the end of each time period............. $6 $17 $30 $ 68
</TABLE>

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS

FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

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

<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28, OR 29,
-------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <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 $10.21 $10.42 $10.39
- ----
INCOME
FROM
INVESTMENT
OPERATIONS
- ----
Net
investment
income 0.61 0.52 0.37 0.48 0.67 0.72 0.84 0.82 0.81 0.84
- ----
Net
realized
and
unrealized
gain
(loss)
on
investments 0.13 (0.21) (0.07) 0.19 0.22 0.19 0.12 (0.40) (0.16) 0.03
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total
from
investment
operations 0.74 0.31 0.30 0.67 0.89 0.91 0.96 0.42 0.65 0.87
- ----
LESS
DISTRIBUTIONS
- ----
Distributions
from net
investment
income (0.61) (0.52) (0.37) (0.48) (0.67) (0.72) (0.84) (0.82) (0.81) (0.84)
- ----
Distributions
from net
realized
gain on
investment
transactions -- -- -- -- -- -- -- -- (0.05) --
- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total
distributions (0.61) (0.52) (0.37) (0.48) (0.67) (0.72) (0.84) (0.82) (0.86) (0.84)
- ---- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----
NET
ASSET
VALUE,
END OF
PERIOD $10.38 $10.25 $10.46 $10.53 $10.34 $10.12 $ 9.93 $ 9.81 $10.21 $10.42
- ---- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL
RETURN(A) 7.41% 3.14% 2.93% 6.64% 9.07% 10.11% 10.08% 4.23% 6.58% 8.73%
- ----
RATIOS
TO
AVERAGE
NET
ASSETS
- ----
Expenses 0.54% 0.54% 0.51% 0.49% 0.48% 0.48% 0.48% 0.47% 0.46% 0.45%
- ----
Net
investment
income 5.91% 5.06% 3.56% 4.63% 6.57% 7.79% 8.42% 8.14% 7.89% 7.97%
- ----
Expense
waiver/
reimbursement(b) 0.26% 0.02% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.01% 0.02%
- ----
SUPPLEMENTAL
DATA
- ----
Net
assets,
end of
period
(000
omitted) $697,692 $687,037 $858,556 $1,034,374 $1,171,633 $1,296,579 $1,725,112 $2,236,208 $3,016,355 $4,348,532
- ----
Portfolio
turnover 142% 265% 150% 132% 114% 96% 172% 112% 85% 99%
- ----
</TABLE>

(a) Based on net asset value, which does not reflect the sales charge 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)

GENERAL INFORMATION
- --------------------------------------------------------------------------------

The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated January 3, 1984. On April 13, 1995, the Board of Trustees (the
"Trustees") changed the name of the Trust from Federated Short-Intermediate
Government Trust to Federated U.S. Government Securities Fund: 1-3 Years. The
Declaration of Trust permits the Trust to offer separate series of shares of
beneficial interests representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
As of the date of this prospectus, the Trustees have established two classes of
shares of the Trust, known as Institutional Shares and Institutional Service
Shares. This prospectus relates only to Institutional Shares of the Trust.

Institutional Shares ("Shares") of the Trust are sold primarily to accounts for
which financial institutions act in a fiduciary or agency capacity, or other
accounts where the financial institution maintains master accounts with an
aggregate investment of at least $400 million in certain funds which are advised
or distributed by affiliates of Federated Investors. Shares are also made
available to financial intermediaries, public, and private organizations. An
investment in the Trust serves as a convenient means of accumulating an interest
in a professionally managed, diversified portfolio of U.S. government
securities. A minimum initial investment of $25,000 over a 90-day period is
required.

Shares are currently sold and redeemed at net asset value without a sales charge
imposed by the Trust.

INVESTMENT INFORMATION
- --------------------------------------------------------------------------------

INVESTMENT OBJECTIVE

The investment objective of the Trust is to provide current income. While there
is no assurance that the Trust will achieve its investment objective, it
endeavors to do so by following the investment policies described in this
prospectus. Unless otherwise noted, the investment objective and the policies
and limitations described below cannot be changed without approval of
shareholders.

INVESTMENT POLICIES

The Trust pursues its investment objective by investing in U.S. government
securities with remaining maturities of 3 1/2 years or less. As a matter of
investment practice which can be changed without shareholder approval, the Trust
will maintain a dollar-weighted average portfolio maturity of 1 to 3 years.

ACCEPTABLE INVESTMENTS. The U.S. government securities in which the Trust
invests are either issued or guaranteed by the U.S. government, its agencies, or
instrumentalities. These securities are limited to:

- direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds; and

- notes, bonds, and discount notes of U.S. government agencies or
instrumentalities, such as the: Farm Credit System, including the
National Bank for Cooperatives, Farm Credit Banks, and Banks for
Cooperatives; Farmers Home Administration; Federal Home Loan Banks;
Federal Home Loan Mortgage Corporation; Federal National Mortgage
Association; Government National Mortgage Association; and Student
Loan Marketing Association.

Some obligations issued or guaranteed by agencies or instrumentalities of the
U.S. government, such as Government National Mortgage Association participation
certificates, are backed by the full faith and credit of the U.S. Treasury. No
assurances can be given that the U.S. government will provide financial support
to other agencies or instrumentalities, since it is not obligated to do so. The
instrumentalities are supported by:

- the issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;

- discretionary authority of the U.S. government to purchase certain
obligations of an agency or instrumentality; or

- the credit of the agency or instrumentality.

The prices of fixed income securities fluctuate inversely to the direction of
interest rates.
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell U.S. government
securities or other securities to the Trust and agree at the time of sale to
repurchase them at a mutually agreed upon time and price. To the extent that the
original seller does not repurchase the securities from the Trust, the Trust
could receive less than the repurchase price on any sale of such securities.

As a matter of investment practice which can be changed without shareholder
approval, the Trust will not invest more than 15% of the value of its net assets
in securities which are illiquid, including repurchase agreements providing for
settlement in more than seven days after notice.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. As a matter of investment
practice, which can be changed without shareholder approval, the Trust may
purchase U.S. government securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Trust purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Trust to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices. Accordingly, the Trust may pay
more/less than the market value of the securities on the settlement date.

The Trust may dispose of a commitment prior to settlement if the adviser deems
it appropriate to do so. In addition, the Trust may enter into transactions to
sell its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Trust may realize short-term profits or losses upon the sale of such
commitments.

PORTFOLIO TRANSACTIONS. The Trust conducts portfolio transactions to accomplish
its investment objective as interest rates change, to invest new money obtained
from selling its shares, and to meet redemption requests. The Trust may dispose
of portfolio securities at any time if it appears that selling the securities
will help the Trust achieve its investment objective.

INVESTMENT LIMITATIONS

The Trust will not borrow money or pledge assets except, under certain
circumstances, the Trust may borrow up to one-third of the value of its total
assets and pledge up to 10% of the value of those assets to secure such
borrowings.

TRUST INFORMATION
- --------------------------------------------------------------------------------

MANAGEMENT OF THE TRUST

BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees
are responsible for managing the Trust's business affairs and for exercising all
the Trust's powers except those reserved for the shareholders. The Executive
Committee of the Board of Trustees handles the Board's responsibilities between
meetings of the Board.

INVESTMENT ADVISER. Investment decisions for the Trust are made by Federated
Management, the Trust's investment adviser, subject to direction by the
Trustees. The adviser continually conducts investment research and supervision
for the Trust and is responsible for the purchase or sale of portfolio
instruments, for which it receives an annual fee from the Trust.

ADVISORY FEES. The Trust's adviser receives an annual investment advisory
fee equal to .40 of 1% of the Trust's average daily net assets. The adviser
has also undertaken to reimburse the Trust for operating expenses in excess
of limitations established by certain states. This does not include
reimbursement to the Trust of any expenses incurred by shareholders who use
the transfer agent's subaccounting facilities.

ADVISER'S BACKGROUND. Federated Management, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.

Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. With over $80 billion invested across
more than 250 funds under management and/or administration by its
subsidiaries, as of December 31, 1995, Federated Investors is one of the
largest mutual fund investment managers in the United States. With more
than 1,800 employees, Federated continues to be led by the management who
founded the company in 1955. Federated funds are presently at work in and
through 4,000 financial institutions nationwide. More than 100,000
investment professionals have selected Federated funds for their clients.

The Trust and the adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Trust and its portfolio securities.
These codes recognize that such persons owe a fiduciary duty to the Trust's
shareholders and must place the interests of shareholders ahead of the
employees' own interest. Among other things, the codes: require
preclearance and periodic reporting of personal securities transactions;
prohibit personal transactions in securities being purchased or sold, or
being considered for purchase or sale, by the Trust; prohibit purchasing
securities in initial public offerings; and prohibit taking profits on
securities held for less than sixty days. Violations of the codes are
subject to review by the Board of Trustees and could result in severe
penalties.

Susan M. Nason has been the Trust's portfolio manager since 1991. Ms. Nason
joined Federated Investors in 1987 and has been a Vice President of the
Trust's investment adviser since 1993. Ms. Nason served as an Assistant
Vice President of the investment adviser from 1990 until 1992. Ms. Nason is
a Chartered Financial Analyst and received her M.S. in Industrial
Administration from Carnegie Mellon University.

Joseph M. Balestrino has been the Trust's portfolio manager since March
1995. Mr. Balestrino joined Federated Investors in 1986 and has been a Vice
President of the Trust's investment adviser since 1995. Mr. Balestrino
served as an Assistant Vice President of the investment adviser from 1991
to 1995. Mr. Balestrino is a Chartered Financial Analyst and received his
Master's Degree in Urban and Regional Planning from the University of
Pittsburgh.

DISTRIBUTION OF INSTITUTIONAL SHARES

Federated Securities Corp. is the principal distributor for the Shares. It is a
Pennsylvania corporation organized on November 14, 1969, and is the principal
distributor for a number of investment companies. Federated Securities Corp. is
a subsidiary of Federated Investors.

State securities laws may require certain financial institutions such as
depository institutions to register as dealers.

SHAREHOLDER SERVICES. The Trust has entered into a Shareholder Services
Agreement with Federated Shareholder Services, a subsidiary of Federated
Investors, under which the Trust may make payments up to .25 of 1% of the
average daily net asset value of the Institutional Shares, computed at an annual
rate, to obtain certain personal services for shareholders and to maintain
shareholder accounts. From time to time and for such periods as deemed
appropriate, the amount stated above may be reduced voluntarily. Under the
Shareholder Services Agreement, Federated Shareholder Services will either
perform shareholder services directly or will select financial institutions to
perform shareholder services. Financial institutions will receive fees based
upon Shares owned by their clients or customers. The schedules of such fees and
the basis upon which such fees will be paid will be determined from time to time
by the Trust and Federated Shareholder Services.

SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made
pursuant to the Shareholder Services Agreement, Federated Securities Corp. and
Federated Shareholder Services, from their own assets, may pay financial
institutions supplemental fees for the performance of substantial sales
services, distribution-related support services, or shareholder services. The
support may include sponsoring sales, educational and training seminars for
their employees, providing sales literature, and engineering computer software
programs that emphasize the attributes of the Trust. Such assistance will be
predicated upon the amount of Shares the financial institution sells or may
sell, and/or upon the type and nature of sales or marketing support furnished by
the financial institution. Any payments made by the distributor may be
reimbursed by the Trust's investment adviser or its affiliates.

ADMINISTRATION OF THE TRUST

relates to the average aggregate daily net assets of all funds advised by
subsidiaries of Federated Investors ("Federated Funds") as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE FEDERATED FUNDS
- --------------------- -----------------------------------
<S> <C>
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
</TABLE>

The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.

NET ASSET VALUE

- --------------------------------------------------------------------------------

The Trust's net asset value per share fluctuates. The net asset value for Shares
is determined by adding the interest of the Shares in the market value of all
securities and other assets of the Trust, subtracting the interest of the Shares
in the liabilities of the Trust and those attributable to Shares, and dividing
the remainder by the total number of Shares outstanding. The net asset value for
Institutional Shares may exceed that of Institutional Service Shares due to the
variance in daily net income realized by each class. Such variance will reflect
only accrued net income to which the shareholders of a particular class are
entitled.

INVESTING IN INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------

SHARE PURCHASES

Shares are sold on days on which the New York Stock Exchange is open for
business. Shares may be purchased either by wire or mail.

To purchase Shares, open an account by calling Federated Securities Corp.
Information needed to establish an account will be taken over the telephone. The
Trust reserves the right to reject any purchase request.

BY WIRE. To purchase Shares by Federal Reserve wire, call the Trust before 4:00
p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal wire funds must be received before 3:00 p.m.
(Eastern time) on the next business day following the order. Federal funds
should be wired as follows: Federated Shareholder Services Company c/o State
Street Bank and Trust Company, Boston, Massachusetts; Attention: EDGEWIRE; For
Credit to: Federated U.S. Government Securities Fund: 1-3 Years--Institutional
Shares; Trust Number (this number can be found on the account statement or by
contacting the Trust); Group Number or Wire Order Number; Nominee or Institution
Name; and ABA Number 011000028. Shares cannot be purchased by wire on holidays
when wire transfers are restricted. Questions on wire purchases should be
directed to your shareholder services representative at the telephone number
listed on your account statement.

BY MAIL. To purchase Shares by mail, send a check made payable to Federated
U.S. Government Securities Fund: 1-3 Years--Institutional Shares to Federated
Shareholder Services Company, P.O. Box 8600,Boston, Massachusetts 02266-8600.
Orders by mail are considered received after payment by check is converted by
the transfer agent's bank, State Street Bank and Trust Company, into federal
funds. This is generally the next business day after State Street Bank and Trust
Company receives the check.

MINIMUM INVESTMENT REQUIRED

The minimum initial investment in Shares is $25,000, plus any bank or broker's
fee, if applicable. However, an account may be opened with a smaller amount as
long as the $25,000 minimum is reached within 90 days. An institutional
investor's minimum investment will be calculated by combining all accounts it
maintains with the Trust. Accounts established through a bank or broker may be
subject to a smaller minimum investment.

WHAT SHARES COST

Shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Trust. Investors who purchase
Shares through a financial intermediary may be charged a fee by that financial
intermediary.

The net asset value is determined as of the close of trading (normally 4:00 p.m.
Eastern time) on the New York Stock Exchange, Monday through Friday, except on
(i) days on which there are not sufficient changes in the value of the Trust's
portfolio securities such that its net asset value might be materially affected;
(ii) days during which no Shares are tendered for redemption and no orders to
purchase Shares are received; and (iii) the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.

CERTIFICATES AND CONFIRMATIONS

As transfer agent for the Trust, Federated Shareholder Services Company
maintains a share account for each shareholder. Share certificates are not
issued unless requested by contacting the Trust.

Detailed confirmations of each purchase or redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during the
month.

DIVIDENDS

Dividends are declared daily and paid monthly. Dividends are declared just prior
to determining net asset value. If an order for Shares is placed on the
preceding business day, Shares purchased by wire begin earning dividends on the
business day wire payment is received by State Street Bank and Trust Company. If
the order for Shares and payment by wire are received on the same day, Shares
begin earning dividends on the next business day. Shares purchased by check
begin earning dividends on the business day after the check is converted by the
transfer agent into federal funds. Dividends are automatically reinvested on
payment dates in additional Shares unless cash payments are requested by
contacting the Trust.

CAPITAL GAINS

Capital gains realized by the Trust, if any, will be distributed at least once
every 12 months.

REDEEMING INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------

The Trust redeems Shares at their net asset value next determined after
Federated Shareholder Services Company receives the redemption request.
Investors who redeem Shares through a financial intermediary may be charged a
service fee by that financial intermediary. Redemptions will be made on days on
which the Trust computes its net asset value. Redemption requests must be
received in proper form and can be made by telephone request or by written
request.

TELEPHONE REDEMPTION

Shareholders may redeem their Shares by telephoning the Trust before 4:00 p.m.
(Eastern time). Telephone redemption instructions may be recorded. All proceeds
will normally be wire transferred the following business day, but in no event
more than seven days, to the shareholder's account at a domestic commercial bank
that is a member of the Federal Reserve System. Proceeds from redemption
requests received on holidays when wire transfers are restricted will be wired
the following business day. Questions about telephone redemptions on days when
wire transfers are restricted should be directed to your shareholder services
representative at the telephone number listed on your account statement. If at
any time the Trust shall determine it necessary to terminate or modify this
method of redemption, shareholders would be promptly notified.

An authorization form permitting the Trust to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from Federated Securities Corp.

In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as "Written Requests", should be considered. If
reasonable procedures are not followed by the Trust, it may be liable for losses
due to unauthorized or fraudulent telephone instructions.

WRITTEN REQUESTS

Shares may be redeemed in any amount by mailing a written request to: Federated
Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share
certificates have been issued, they should be sent unendorsed with the written
request by registered or certified mail to the address noted above.

SIGNATURES. Shareholders requesting a redemption of any amount to be sent to an
address other than that on record with the Trust, or a redemption payable other
than to the shareholder of record must have signatures on written redemption
requests guaranteed by:

- a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");

- a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;

- a savings bank or savings association whose deposits are insured by the
Savings Association Insurance Fund ("SAIF"), which is administered by the
FDIC; or

- any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.

The Trust does not accept signatures guaranteed by a notary public.

The Trust and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Trust may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Trust and its transfer agent reserve the right
to amend these standards at any time without notice.

RECEIVING PAYMENT. Normally, a check for the proceeds is mailed within one
business day, but in no event more than seven days, after receipt of a proper
written redemption request.

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, the Trust may
redeem Shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $25,000. This
requirement does not apply, however, if the balance falls below $25,000 because
of changes in the Trust's net asset value.

Before Shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional Shares to meet the minimum
requirement.

SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS

Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders for this purpose shall be called by the
Trustees upon the written request of shareholders owning at least 10% of the
outstanding shares of the Trust entitled to vote.

TAX INFORMATION

- --------------------------------------------------------------------------------

FEDERAL INCOME TAX

The Trust will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.

Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions received. This applies whether dividends
and distributions are received in cash or as additional shares.

STATE AND LOCAL TAXES

In the opinion of Houston, Houston & Donnelly, counsel to the Trust, Shares may
be subject to personal property taxes imposed by counties, municipalities, and
school districts in Pennsylvania to the extent that the portfolio securities in
the Trust would be subject to such taxes if owned directly by residents of those
jurisdictions.

Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.

PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------

From time to time, the Trust advertises its total return and yield for Shares.

Total return represents the change, over a specified period of time, in the
value of an investment in Shares of the Trust after reinvesting all income and
capital gain distributions. It is calculated by dividing that change by the
initial investment and is expressed as a percentage.

The yield of Shares of the Trust is calculated by dividing the net investment
income per share (as defined by the Securities and Exchange Commission) earned
by Shares over a thirty-day period by the maximum offering price per share of
Shares on the last day of the period. This number is then annualized using
semi-annual compounding. The yield does not necessarily reflect income actually
earned by Shares and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.

Shares are sold without any sales charge or other similar non-recurring charges.

Total return and yield will be calculated separately for Institutional Shares
and Institutional Service Shares.

From time to time, advertisements for the Trust's Institutional Shares may refer
to ratings, rankings, and other information in certain financial publications
and/or compare the Trust's Institutional Shares performance to certain indices.

OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------

The Trust also offers another class of shares called Institutional Service
Shares. Institutional Service Shares are sold at net asset value primarily to
retail and private banking customers of financial institutions and are subject
to a minimum initial investment of $25,000 over a 90-day period.

Institutional Shares and Institutional Service Shares are subject to certain of
the same expenses; however, Institutional Service Shares are distributed under a
12b-1 Plan adopted by the Trust. Expense differences between Institutional
Shares and Institutional Service Shares may affect the performance of each
class.

To obtain more information and a prospectus for Institutional Service Shares,
investors may call 1-800-235-4669.

FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS

FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

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

<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28, OR 29,
-------------------------------------------
1996 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 0.59 0.50 0.35 0.34
- -------------------------------------------------
Net realized and unrealized gain (loss) on
investments 0.13 (0.21) (0.07) 0.16
- ------------------------------------------------- ------ ------ ------ -------
Total from investment operations 0.72 0.29 0.28 0.50
- ------------------------------------------------- ------ ------ ------ -------
LESS DISTRIBUTIONS
- -------------------------------------------------
Distributions from net investment income (0.59) (0.50) (0.35) (0.34 )
- ------------------------------------------------- ------ ------ ------ -------
NET ASSET VALUE, END OF PERIOD $10.38 $10.25 $10.46 $10.53
- ------------------------------------------------- ------ ------ ------ -------
TOTAL RETURN(B) 7.14% 2.88% 2.68% 4.28%
- -------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------------
Expenses 0.79% 0.79% 0.76% 0.74%*
- -------------------------------------------------
Net investment income 5.68% 4.76% 3.33% 4.14%*
- -------------------------------------------------
Expense waiver/reimbursement (c) 0.26% 0.25% -- --
- -------------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------------
Net assets, end of period (000 omitted) $26,432 $29,208 $39,905 $72,722
- -------------------------------------------------
Portfolio turnover 142% 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 charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and the net
investment income ratios shown above.

(See Notes which are an integral part of the Financial Statements)

FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS

PORTFOLIO OF INVESTMENTS
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- -------------------------------------------------------------- ------------
<C> <C> <S> <C>
SHORT-INTERMEDIATE TERM OBLIGATIONS--98.8%
- ----------------------------------------------------------------------------------
U.S. TREASURY NOTES--98.8%
--------------------------------------------------------------
$40,000,000 4.75%, 2/15/1997 $ 39,809,200
--------------------------------------------------------------
15,000,000 6.875%, 2/28/1997 15,233,100
--------------------------------------------------------------
50,000,000 6.625%, 3/31/1997 50,708,000
--------------------------------------------------------------
50,000,000 8.50%, 4/15/1997 51,724,500
--------------------------------------------------------------
50,000,000 6.50%, 4/30/1997 50,675,500
--------------------------------------------------------------
25,000,000 6.125%, 5/31/1997 25,238,750
--------------------------------------------------------------
50,000,000 6.50%, 8/15/1997 50,797,500
--------------------------------------------------------------
1,200,000 5.50%, 9/30/1997 1,202,388
--------------------------------------------------------------
40,000,000 5.75%, 9/30/1997 40,223,200
--------------------------------------------------------------
32,000,000 5.75%, 10/31/1997 32,173,760
--------------------------------------------------------------
45,000,000 7.375%, 11/15/1997 46,403,550
--------------------------------------------------------------
25,000,000 5.375%, 11/30/1997 24,980,000
--------------------------------------------------------------
25,000,000 5.25%, 12/31/1997 24,927,000
--------------------------------------------------------------
25,000,000 5.625%, 1/31/1998 25,085,750
--------------------------------------------------------------
25,000,000 7.25%, 2/15/1998 25,826,250
--------------------------------------------------------------
30,000,000 5.125%, 2/28/1998 29,826,000
--------------------------------------------------------------
20,000,000 7.875%, 4/15/1998 20,958,800
--------------------------------------------------------------
35,000,000 5.375%, 5/31/1998 34,924,750
--------------------------------------------------------------
20,000,000 4.75%, 10/31/1998 19,613,800
--------------------------------------------------------------
50,000,000 5.50%, 11/15/1998 49,943,000
--------------------------------------------------------------
40,000,000 5.00%, 2/15/1999 39,402,800
--------------------------------------------------------------
15,000,000 6.75%, 6/30/1999 15,510,900
-------------------------------------------------------------- ------------
TOTAL SHORT-INTERMEDIATE TERM OBLIGATIONS
(IDENTIFIED COST $709,882,312) 715,188,498
-------------------------------------------------------------- ------------
</TABLE>

FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- -------------------------------------------------------------- ------------
<C> <C> <S> <C>
(A) REPURCHASE AGREEMENTS--0.1%
- ----------------------------------------------------------------------------------
$ 810,000 BT Securities Corp., 5.45%, dated 2/29/1996, due 3/1/1996
(AT AMORTIZED COST) $ 810,000
-------------------------------------------------------------- ------------
TOTAL INVESTMENTS (IDENTIFIED COST $710,692,312)(B) $715,998,498
-------------------------------------------------------------- ------------
</TABLE>

(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 $710,692,312.
The net unrealized appreciation of investments on a federal tax basis
amounts to $5,306,186 which is comprised of $6,290,967 appreciation and
$984,781 depreciation at February 29, 1996.

Note: The categories of investments are shown as a percentage of net assets
($724,123,884) at February 29, 1996.

(See Notes which are an integral part of the Financial Statements)

FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS

STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------

<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------
Total investments in securities, at value (identified and tax cost
$710,692,312) $ 715,998,498
- -------------------------------------------------------------------------------
Income receivable 11,654,942
- -------------------------------------------------------------------------------
Receivable for shares sold 1,580,648
- ------------------------------------------------------------------------------- -------------
Total assets 729,234,088
- -------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------
Payable for shares redeemed $1,305,109
- ------------------------------------------------------------------
Income distribution payable 1,731,639
- ------------------------------------------------------------------
Payable to bank 2,031,948
- ------------------------------------------------------------------
Accrued expenses 41,508
- ------------------------------------------------------------------ ----------
Total liabilities 5,110,204
- ------------------------------------------------------------------------------- -------------
NET ASSETS for 69,775,656 shares outstanding $ 724,123,884
- ------------------------------------------------------------------------------- -------------
NET ASSETS CONSISTS OF:
- -------------------------------------------------------------------------------
Paid in capital $ 840,179,675
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments 5,306,186
- -------------------------------------------------------------------------------
Accumulated net realized loss on investments (121,361,977)
- ------------------------------------------------------------------------------- -------------
Total Net Assets $ 724,123,884
- ------------------------------------------------------------------------------- -------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- -------------------------------------------------------------------------------
INSTITUTIONAL SHARES:
($697,691,973 / 67,228,699 shares outstanding) $10.38
- ------------------------------------------------------------------------------- -------------
INSTITUTIONAL SERVICE SHARES:
($26,431,911 / 2,546,957 shares outstanding) $10.38
- ------------------------------------------------------------------------------- -------------
</TABLE>

(See Notes which are an integral part of the Financial Statements)

FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS

STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------------------
Interest $46,807,176
- ---------------------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------------------------------
Investment advisory fee $ 2,902,888
- ------------------------------------------------------------------------------
Administrative personnel and services fee 549,195
- ------------------------------------------------------------------------------
Custodian fees 54,529
- ------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 269,993
- ------------------------------------------------------------------------------
Directors'/Trustees' fees 11,761
- ------------------------------------------------------------------------------
Auditing fees 17,927
- ------------------------------------------------------------------------------
Legal fees 5,120
- ------------------------------------------------------------------------------
Portfolio accounting fees 122,563
- ------------------------------------------------------------------------------
Distribution services fee--Institutional Service Shares 78,957
- ------------------------------------------------------------------------------
Shareholder services fee--Institutional Shares 1,735,351
- ------------------------------------------------------------------------------
Shareholder services fee--Institutional Service Shares 78,957
- ------------------------------------------------------------------------------
Share registration costs 52,926
- ------------------------------------------------------------------------------
Printing and postage 31,717
- ------------------------------------------------------------------------------
Insurance premiums 12,486
- ------------------------------------------------------------------------------
Taxes 687
- ------------------------------------------------------------------------------
Miscellaneous 7,401
- ------------------------------------------------------------------------------ -----------
Total expenses 5,932,458
- ------------------------------------------------------------------------------
Waivers--
- ------------------------------------------------------------------------------
Waiver of investment advisory fee $ (96,365)
- ----------------------------------------------------------------
Waiver of distribution services fee--Institutional Service
Shares (75,789)
- ----------------------------------------------------------------
Waiver of shareholder services fee--Institutional Shares (1,735,351)
- ----------------------------------------------------------------
Waiver of shareholder services fee--Institutional Service
Shares (3,158)
- ---------------------------------------------------------------- -----------
Total waivers (1,910,663)
- ------------------------------------------------------------------------------ -----------
Net expenses 4,021,795
- --------------------------------------------------------------------------------------------- -----------
Net investment income 42,785,381
- --------------------------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ---------------------------------------------------------------------------------------------
Net realized gain on investments 10,131,471
- ---------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments (1,041,038)
- --------------------------------------------------------------------------------------------- -----------
Net realized and unrealized gain on investments 9,090,433
- --------------------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $51,875,814
- --------------------------------------------------------------------------------------------- -----------
</TABLE>

(See Notes which are an integral part of the Financial Statements)

FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS

STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28 OR 29,
--------------------------------
1996 1995
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------
OPERATIONS--
- -----------------------------------------------------------
Net investment income $ 42,785,381 $ 38,636,472
- -----------------------------------------------------------
Net realized gain (loss) on investments ($292,806 net gain
and $16,372,726 net loss, respectively, as computed for
federal tax purposes) 10,131,471 (26,211,391)
- -----------------------------------------------------------
Net change in unrealized appreciation (depreciation) (1,041,038) 9,714,843
- ----------------------------------------------------------- ------------ ------------
Change in net assets resulting from operations 51,875,814 22,139,924
- ----------------------------------------------------------- ------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -----------------------------------------------------------
Distributions from net investment income
- -----------------------------------------------------------
Institutional Shares (40,992,648) (37,103,608)
- -----------------------------------------------------------
Institutional Service Shares (1,792,733) (1,532,864)
- ----------------------------------------------------------- ------------ ------------
Change in net assets resulting from distributions
to shareholders (42,785,381) (38,636,472)
- ----------------------------------------------------------- ------------ ------------
SHARE TRANSACTIONS--
- -----------------------------------------------------------
Proceeds from sale of shares 320,860,683 269,660,686
- -----------------------------------------------------------
Net asset value of shares issued to shareholders in payment
of distributions declared 18,801,398 16,766,815
- -----------------------------------------------------------
Cost of shares redeemed (340,873,455) (452,147,512)
- ----------------------------------------------------------- ------------ ------------
Change in net assets resulting from share transactions (1,211,374) (165,720,011)
- ----------------------------------------------------------- ------------ ------------
Change in net assets 7,879,059 (182,216,559)
- -----------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------
Beginning of period 716,244,825 898,461,384
- ----------------------------------------------------------- ------------ ------------
End of period $724,123,884 $716,244,825
- ----------------------------------------------------------- ------------ ------------
</TABLE>

(See Notes which are an integral part of the Financial Statements)

FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS

NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------

(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 investment objective
of the Trust is to provide current income. The Trust provides two classes of
shares: Institutional Shares and Institutional Service Shares.

(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--U.S. government securities are generally valued at
the mean of the latest bid and asked price as provided by an independent
pricing service. Short-term securities are valued at the prices provided by
an independent pricing service. However, short-term securities with
remaining maturities of sixty days or less at the time of purchase may be
valued at amortized cost, which approximates fair market value.

REPURCHASE AGREEMENTS--It is the policy of the Trust to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral under repurchase
agreement transactions. Additionally, procedures have been established by
the Trust to monitor, on a daily basis, the market value of each repurchase
agreement's collateral to ensure that the value of collateral at least
equals the repurchase price to be paid under the repurchase agreement
transaction.

The Trust will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Trust's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the
"Trustees"). Risks may arise from the potential inability of counterparties
to honor the terms of the repurchase agreement. Accordingly, the Trust
could receive less than the repurchase price on the sale of collateral
securities.

INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.

FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS
- --------------------------------------------------------------------------------

FEDERAL TAXES--It is the Trust's policy to comply with the provisions of
the Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.

At February 29, 1996, the Trust, for federal tax purposes, had a capital
loss carryforward of $121,361,977, which will reduce the Trust's taxable
income arising from future net realized gain on investments, if any, to the
extent permitted by the Code, and thus will reduce the amount of the
distributions to shareholders which would otherwise be necessary to relieve
the Trust of any liability for federal tax. Pursuant to the Code, such
capital loss carryforward will expire as follows:

<TABLE>
<CAPTION>
EXPIRATION YEAR EXPIRATION AMOUNT
- ------------------ --------------------
<S> <C>
1997 $39,495,292
1998 $65,200,181
2003 $16,666,504
</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.

USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.

OTHER--Investment transactions are accounted for on the trade date.

FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS
- --------------------------------------------------------------------------------

(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).

Transactions in shares were as follows:

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 1996 FEBRUARY 28, 1995
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
INSTITUTIONAL SHARES
- -----------------------------------
Shares sold 28,772,490 $ 297,888,019 23,657,172 $ 242,387,271
- -----------------------------------
Shares issued to shareholders in
payment of distributions declared 1,662,938 17,222,812 1,514,470 15,527,541
- -----------------------------------
Shares redeemed (30,221,046) (313,113,463) (40,237,187) (413,639,011)
- ----------------------------------- ----------- ------------- ----------- -------------
Net change resulting from
Institutional share transactions 214,382 1,997,368 (15,065,545) $(155,724,199)
- ----------------------------------- ----------- ------------- ----------- -------------
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 1996 FEBRUARY 28, 1995
--------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
INSTITUTIONAL SERVICE SHARES
- -------------------------------------
Shares sold 2,223,967 $ 22,972,664 2,652,469 $ 27,273,415
- -------------------------------------
Shares issued to shareholders in
payment of distributions declared 152,468 1,578,586 120,824 1,239,274
- -------------------------------------
Shares redeemed (2,678,513) (27,759,992) (3,739,382) (38,508,501)
- ------------------------------------- ---------- ------------ ----------- -------------
Net change resulting from
Institutional Service share
transactions (302,078) (3,208,742) (966,089) $ (9,995,812)
- ------------------------------------- ---------- ------------ ----------- -------------
Net change resulting from Trust
share transactions (87,696) (1,211,374) (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 0.40% 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.

FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS
- --------------------------------------------------------------------------------

ADMINISTRATIVE FEE--Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Trust with administrative
personnel and services. The fee paid to FServ is based on the level of average
aggregate daily net assets of all funds advised by subsidiaries of Federated
Investors for the period. The administrative fee received during the period of
the Administrative Services Agreement shall be at least $125,000 per portfolio
and $30,000 per each additional class of shares.

DISTRIBUTION SERVICES FEE--The Trust has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the
Trust will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Trust to finance activities intended to
result in the sale of the Trust 's Institutional Service Shares. The Plan
provides that the Trust may incur distribution expenses up to 0.25% of the
average daily net assets of the Trust shares, annually, to compensate FSC. FSC
may voluntarily choose to waive any portion of its fee. FSC 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 Fund will pay FSS up to 0.25%
of daily average net assets of the Trust for the period. The fee paid to FSS is
used to finance certain services for shareholders and to maintain shareholder
accounts. FSS may voluntarily choose to waive any portion of its fee. FSS can
modify or terminate this voluntary waiver at any time at its sole discretion.
For the fiscal year ended February 29, 1996, Institutional Shares fully waived
its shareholder services fee.

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--FServ, through
its registered transfer and dividend disbursing agent, Federated Shareholder
Services Company, maintains all necessary shareholder records and receives a fee
based on the size, type, and number of accounts and transactions made by
shareholders.

PORTFOLIO ACCOUNTING FEES--FServ also 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 or Trustees of the above companies.

(5) INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding short-term securities, for the
period ended
February 29, 1996, were as follows:
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------
Purchases $1,002,227,902
- ----------------------------------------------------------------------------- --------------
Sales $1,003,849,805
- ----------------------------------------------------------------------------- --------------
</TABLE>

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

- --------------------------------------------------------------------------------

To the Trustees and Shareholders of

FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS:

We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Federated U.S. Government Securities Fund: 1-3
Years as of February 29, 1996, and the related statement of operations for the
year then ended, the statement of changes in net assets for each of the two
years in the period then ended, and financial highlights (see pages 2 and 12 of
this prospectus) for the periods presented therein. These financial statements
and financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
February 29, 1996, by correspondence with the custodian and broker. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Federated U.S. Government Securities Fund: 1-3 Years at February 29, 1996, and
the results of its operations for the year then ended, changes in its net assets
for each of the two years in the period then ended, and financial highlights for
the periods presented therein, in conformity with generally accepted accounting
principles.

ERNST & YOUNG LLP

Pittsburgh, Pennsylvania

April 12, 1996

ADDRESSES
- --------------------------------------------------------------------------------

<TABLE>
<S> <C> <C>
Federated U.S. Government Securities Fund: 1-3 Years
Institutional Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Custodian
State Street Bank and P.O. Box 8600
Trust Company Boston, Massachusetts 02266-8600
- ------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company P.O. Box 8600
Boston, Massachusetts 02266-8600
- ------------------------------------------------------------------------------------------------
Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, Pennsylvania 15219
- ------------------------------------------------------------------------------------------------
</TABLE>

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
FEDERATED U.S.
GOVERNMENT SECURITIES
FUND: 1-3 YEARS
INSTITUTIONAL SHARES
PROSPECTUS

An Open-End, Diversified Management
Investment Company

Prospectus dated April 30, 1996

LOGO

CUSIP 31428M100

8032806A-IS (4/96)

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS
INSTITUTIONAL SERVICE SHARES
PROSPECTUS

The Institutional Service Shares offered by this prospectus represent interests
in a diversified portfolio of securities of Federated U.S. Government Securities
Fund: 1-3 Years (the "Trust"). The Trust is an open-end management investment
company (a mutual fund).

The investment objective of the Trust is to provide current income. The Trust
invests primarily in U.S. government securities. Institutional Service Shares
are sold at net asset value.

THE INSTITUTIONAL SERVICE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR
OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD,
OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.

This prospectus contains the information you should read and know before you
invest in Institutional Service Shares of the Trust. Keep this prospectus for
future reference.

The Trust has also filed a Statement of Additional Information for Institutional
Service Shares and Institutional Shares dated April 30, 1996, with the
Securities and Exchange Commission. The information contained in the Statement
of Additional Information is incorporated by reference into this prospectus. You
may request a copy of the Statement of Additional Information or a paper copy of
this prospectus, if you have received your prospectus electronically, free of
charge by calling 1-800-235-4669. To obtain other information or make inquiries
about the Trust, contact the Trust at the address listed in the back of this
prospectus.

Prospectus dated April 30, 1996

TABLE OF CONTENTS
- --------------------------------------------------------------------------------

SUMMARY OF TRUST EXPENSES 1
- ------------------------------------------------------

FINANCIAL HIGHLIGHTS--
INSTITUTIONAL SERVICE SHARES 2
- ------------------------------------------------------

GENERAL INFORMATION 3
- ------------------------------------------------------

INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Investment Limitations 4

TRUST INFORMATION 5
- ------------------------------------------------------
Management of the Trust 5
Distribution of Institutional Service Shares 6
Administration of the Trust 7

NET ASSET VALUE 7
- ------------------------------------------------------

INVESTING IN INSTITUTIONAL SERVICE SHARES 7

- ------------------------------------------------------
Share Purchases 7

Minimum Investment Required 8

What Shares Cost 8

Certificates and Confirmations 8
Dividends 9
Capital Gains 9

REDEEMING INSTITUTIONAL SERVICE SHARES 9

- ------------------------------------------------------
Telephone Redemption 9

Written Requests 9

Accounts with Low Balances 10

SHAREHOLDER INFORMATION 10

- ------------------------------------------------------

Voting Rights 10

TAX INFORMATION 11
- ------------------------------------------------------
Federal Income Tax 11
State and Local Taxes 11

PERFORMANCE INFORMATION 11

- ------------------------------------------------------

OTHER CLASSES OF SHARES 12
- ------------------------------------------------------

FINANCIAL HIGHLIGHTS--
INSTITUTIONAL SHARES 13
- ------------------------------------------------------

FINANCIAL STATEMENTS 14
- ------------------------------------------------------

REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS 23
- ------------------------------------------------------

ADDRESSES 24
- ------------------------------------------------------

SUMMARY OF TRUST EXPENSES

- --------------------------------------------------------------------------------

<TABLE>
<S> <C> <C>
INSTITUTIONAL SERVICE SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering
price)..................................................................... None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of
offering price)............................................................ None
Contingent Deferred Sales Charge (as a percentage of original purchase price
or redemption proceeds, as applicable)..................................... None
Redemption Fee (as a percentage of amount redeemed, if applicable)........... None
Exchange Fee................................................................. None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1)............................................. 0.39%
12b-1 Fee (after waiver)(2).................................................. 0.01%
Total Other Expenses......................................................... 0.39%
Shareholder Services Fee (after waiver)(3)......................... 0.24%
Total Operating Expenses(4)............................................. 0.79%
</TABLE>

(2) The maximum 12b-1 fee is 0.25%.

(3) The maximum shareholder services fee is 0.25%.

(4) The total operating expenses would have been 1.05% absent the voluntary
waivers of portions of the management fee, the shareholder services fee and the
12b-1 fee.

THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF INSTITUTIONAL SERVICE SHARES OF
THE TRUST WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE
DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE "TRUST INFORMATION" AND
"INVESTING IN INSTITUTIONAL SERVICE SHARES". WIRE-TRANSFERRED REDEMPTIONS OF
LESS THAN $5,000 MAY BE SUBJECT TO ADDITIONAL FEES.

Long-term shareholders may pay more than the economic equivalent of the maximum
front-end sales charges permitted under the rules of the National Association of
Securities Dealers, Inc.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
- ----------------------------------------------- ------- -------- -------- ---------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming (1) 5% annual
return and (2) redemption at the end of each
time period.................................. $ 8 $ 25 $ 44 $98
</TABLE>

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS

FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

Reference is made to the Report of Ernst & Young LLP, Independent Auditors on
page 23.

<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28, OR 29,
-------------------------------------------
1996 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 0.59 0.50 0.35 0.34
- -----------------------------------------------
Net realized and unrealized gain (loss) on
investments 0.13 (0.21) (0.07) 0.16
- ----------------------------------------------- ------ ------ ------ ------
Total from investment operations 0.72 0.29 0.28 0.50
- -----------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------
Distributions from net investment income (0.59) (0.50) (0.35) (0.34)
- ----------------------------------------------- ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $10.38 $10.25 $10.46 $10.53
- ----------------------------------------------- ------ ------ ------ ------
TOTAL RETURN (B) 7.14% 2.88% 2.68% 4.28%
- -----------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------
Expenses 0.79% 0.79% 0.76% 0.74%*
- -----------------------------------------------
Net investment income 5.68% 4.76% 3.33% 4.14%*
- -----------------------------------------------
Expense waiver/reimbursement (c) 0.26% 0.25% - -
- -----------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------
Net assets, end of period (000 omitted) $26,432 $29,208 $39,905 $72,722
- -----------------------------------------------
Portfolio turnover 142% 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 charge or
contingent deferred sales charge, if applicable.

(See Notes which are an integral part of the Financial Statements)

GENERAL INFORMATION
- --------------------------------------------------------------------------------

The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated January 3, 1984. On April 13, 1995, the Board of Trustees (the
"Trustees") changed the name of the Trust from Federated Short-Intermediate
Government Trust to Federated U.S. Government Securities Fund: 1-3 Years. The
Declaration of Trust permits the Trust to offer separate series of shares of
beneficial interest representing interests in separate portfolios of securities.
The shares in any one portfolio may be offered in separate classes. As of the
date of this prospectus, the Trustees have established two classes of shares of
the Trust, known as Institutional Service Shares and Institutional Shares. This
prospectus relates only to Institutional Service Shares of the Trust.

Institutional Service Shares ("Shares") are designed primarily for retail and
private banking customers of financial institutions as a convenient means of
accumulating an interest in a professionally managed, diversified portfolio of
U.S. government securities. A minimum initial investment of $25,000 over a 90-
day period is required.

Shares are currently sold and redeemed at net asset value without a sales charge
imposed by the Trust.

INVESTMENT INFORMATION
- --------------------------------------------------------------------------------

INVESTMENT OBJECTIVE

INVESTMENT POLICIES

- direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds; and

support to other agencies or instrumentalities, since it is not obligated to do
so. The instrumentalities are supported by:

- the issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;

- discretionary authority of the U.S. government to purchase certain
obligations of an agency or instrumentality; or

- the credit of the agency or instrumentality.

The prices of fixed income securities fluctuate inversely to the direction of
interest rates.

REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell U.S. government
securities or other securities to the Trust and agree at the time of sale to
repurchase them at a mutually agreed upon time and price. To the extent that the
original seller does not repurchase the securities from the Trust, the Trust
could receive less than the repurchase price on any sale of such securities.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. As a matter of investment
practice which can be changed without shareholder approval, the Trust may
purchase U.S. government securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Trust purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Trust to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices. Accordingly, the Trust may pay
more/less than the market value of the securities on the settlement date.

INVESTMENT LIMITATIONS

TRUST INFORMATION
- --------------------------------------------------------------------------------

MANAGEMENT OF THE TRUST

DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES

State securities laws may require certain financial institutions such as
depository institutions to register as dealers.

DISTRIBUTION PLAN AND SHAREHOLDER SERVICES. Under a distribution plan adopted
in accordance with Rule 12b-1 under the Investment Company Act of 1940 (the
"Plan"), the distributor may be paid a fee by the Trust in an amount computed at
an annual rate of .25 of 1% of the average daily net asset value of Shares of
the Trust. The distributor may select financial institutions such as banks,
fiduciaries, custodians for public funds, investment advisers, and
broker/dealers to provide sales services or distribution-related support
services as agents for their clients or customers.

The Plan is a compensation-type plan. As such, the Trust makes no payments to
the distributor except as described above. Therefore, the Trust does not pay for
unreimbursed expenses of the distributor, including amounts expended by the
distributor in excess of amounts received by it from the Trust, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amounts or may earn a profit from future payments made by the Trust
under the Plan.

In addition, the Trust has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
the Trust may make payments up to .25 of 1% of the average daily net asset value
of the Institutional Service Shares to obtain certain personal services for
shareholders and to maintain shareholder accounts. From time to time and for
such periods as deemed appropriate, the amount stated above may be reduced
voluntarily. Under the Shareholder Services Agreement, Federated Shareholder
Services will either perform shareholder services directly or will select
financial institutions to perform shareholder services. Financial institutions
will receive fees based upon Shares owned by their clients or customers. The
schedules of such fees and the basis upon which such fees will be paid will be
determined from time to time by the Trust and Federated Shareholder Services.

SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to receiving the
payments under the Plan and Shareholder Services Agreement, Federated Securities
Corp. and Federated Shareholder

Services, from their own assets, may pay financial institutions supplemental
fees for the performance of substantial sales services, distribution-related
support services, or shareholder services. The support may include sponsoring
sales, educational and training seminars for their employees, providing sales
literature, and engineering computer software programs that emphasize the
attributes of the Trust. Such assistance will be predicated upon the amount of
Shares the financial institution sells or may sell, and/or upon the type and
nature of sales or marketing support furnished by the financial institution. Any
payments made by the distributor may be reimbursed by the Trust's investment
adviser or its affiliates.

ADMINISTRATION OF THE TRUST

ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of Federated
Investors, provides administrative personnel and services (including certain
legal and financial reporting services) necessary to operate the Trust.
Federated Services Company provides these at an annual rate which relates to the
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors ("Federated Funds") as specified below.

<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE FEDERATED FUNDS
- --------------------- -----------------------------------
<S> <C>
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
</TABLE>

NET ASSET VALUE
- --------------------------------------------------------------------------------

INVESTING IN INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------

SHARE PURCHASES

Shares are sold on days on which the New York Stock Exchange is open for
business. Shares may be purchased either by wire or mail.

BY WIRE. To purchase Shares by Federal Reserve wire, call the Trust before 4:00
p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal wire funds must be received before 3:00 p.m.
(Eastern time) on the next business day following the order. Federal funds
should be wired as follows: Federated Shareholder Services Company, c/o State
Street Bank and Trust Company, Boston, Massachusetts; Attention: EDGEWIRE; For
Credit to: Federated U.S. Government Securities Fund: 1-3 Years--Institutional
Service Shares; Trust Number (this number can be found on the account statement
or by contacting the Trust); Group Number or Wire Order Number; Nominee or
Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire
on holidays when wire transfers are restricted. Questions on wire purchases
should be directed to your shareholder services representative at the telephone
number listed on your account statement.

BY MAIL. To purchase Shares by mail, send a check made payable to Federated
U.S. Government Securities Fund: 1-3 Years--Institutional Service Shares to
Federated Shareholder Services Company, P.O. Box 8600, Boston, Massachusetts
02266-8600. Orders by mail are considered received after payment by check is
converted by the transfer agent's bank, State Street Bank and Trust Company,
into federal funds. This is generally the next business day after State Street
Bank receives the check.

MINIMUM INVESTMENT REQUIRED

WHAT SHARES COST

CERTIFICATES AND CONFIRMATIONS

As transfer agent for the Trust, Federated Shareholder Services Company
maintains a share account for each shareholder. Share certificates are not
issued unless requested by contacting the Trust.

Detailed confirmations of each purchase or redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during the
month.

DIVIDENDS

CAPITAL GAINS

Capital gains realized by the Trust, if any, will be distributed at least once
every 12 months.

REDEEMING INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------

TELEPHONE REDEMPTION

An authorization form permitting the Trust to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from Federated Securities Corp.

WRITTEN REQUESTS

Shares may be redeemed in any amount by mailing a written request to: Federated
Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share
certificates have been issued, they

should be sent unendorsed with the written request by registered or certified
mail to the address noted above.

- a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");

- a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;

- a savings bank or savings association whose deposits are insured by the
Savings Association Insurance Fund ("SAIF"), which is administered by the
FDIC; or

- any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.

The Trust does not accept signatures guaranteed by a notary public.

RECEIVING PAYMENT. Normally, a check for the proceeds is mailed within one
business day, but in no event more than seven days, after receipt of a proper
written redemption request.

ACCOUNTS WITH LOW BALANCES

Before Shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional Shares to meet the minimum
requirement.

SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------

VOTING RIGHTS

Each share of the Trust gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
each portfolio in the Trust have equal voting rights except that in matters
affecting only a particular portfolio or class, only shares of that portfolio or
class are entitled to vote. As a Massachusetts business trust, the Trust is not
required to hold annual shareholder meetings. Shareholder approval will be
sought only for certain changes in the Trust's operation and for the election of
Trustees under certain circumstances. As of April 1, 1996, Charles Schwab & Co.
Inc., owned 805,562 shares (30%) of voting securities of the Institutional
Service Shares of the Trust, and, therefore, may, for certain purposes, be
deemed to control the Trust and be able to affect the outcome of certain matters
presented for a vote of shareholders.

TAX INFORMATION
- --------------------------------------------------------------------------------

FEDERAL INCOME TAX

STATE AND LOCAL TAXES

Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.

PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------

From time to time, the Trust advertises its total return and yield for Shares.

Shares are sold without any sales charge.

Total return and yield will be calculated separately for Institutional Service
Shares and Institutional Shares.

From time to time, advertisements for the Trust's Institutional Service Shares
may refer to ratings, rankings, and other information in certain financial
publications and/or compare the Trust's Institutional Service Shares performance
to certain indices.

OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------

The Trust also offers another class of shares called Institutional Shares.
Institutional Shares are sold at net asset value primarily to accounts for which
financial institutions act in a fiduciary or agency capacity and are subject to
a minimum initial investment of $25,000 over a 90-day period.

Institutional Shares are distributed with no 12b-1 Plan.

Institutional Shares and Institutional Service Shares are subject to certain of
the same expenses. Expense differences, however, between Institutional Shares
and Institutional Service Shares may affect the performance of each class.

To obtain more information and a prospectus for Institutional Shares, investors
may call 1-800-235-4669.

FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS

FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

Reference is made to the Report of Ernst & Young LLP, Independent Auditors on
page 23.

<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28, OR 29,
-------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <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 $10.21 $10.42 $10.39
- ----
INCOME
FROM
INVESTMENT
OPERATIONS
- ----
Net
investment
income 0.61 0.52 0.37 0.48 0.67 0.72 0.84 0.82 0.81 0.84
- ----
Net
realized
and
unrealized
gain
(loss)
on
investments 0.13 (0.21) (0.07) 0.19 0.22 0.19 0.12 (0.40) (0.16) 0.03
- ---- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total
from
investment
operations 0.74 0.31 0.30 0.67 0.89 0.91 0.96 0.42 0.65 0.87
LESS
DISTRIBUTIONS
- ----
Distributions
from net
investment
income (0.61) (0.52) (0.37) (0.48) (0.67) (0.72) (0.84) (0.82) (0.81) (0.84)
- ----
Distributions
from net
realized
gain on
investment
transactions -- -- -- -- -- -- -- -- (0.05) --
- ---- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total
distributions (0.61) (0.52) (0.37) (0.48) (0.67) (0.72) (0.84) (0.82) (0.86) (0.84)
- ---- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET
ASSET
VALUE,
END OF
PERIOD $10.38 $10.25 $10.46 $10.53 $10.34 $10.12 $ 9.93 $ 9.81 $10.21 $10.42
- ---- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
TOTAL
RETURN(A) 7.41% 3.14% 2.93% 6.64% 9.07% 10.11% 10.08% 4.23% 6.58% 8.73%
- ----
RATIOS
TO
AVERAGE
NET
ASSETS
- ----
Expenses 0.54% 0.54% 0.51% 0.49% 0.48% 0.48% 0.48% 0.47% 0.46% 0.45%
- ----
Net
investment
income 5.91% 5.06% 3.56% 4.63% 6.57% 7.79% 8.42% 8.14% 7.89% 7.97%
- ----
Expense
waiver/
reimbursement(b) 0.26% 0.02% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.01% 0.02%
- ----
SUPPLEMENTAL
DATA
- ----
Net
assets,
end of
period
(000
omitted) $697,692 $687,037 $858,556 $1,034,374 $1,171,633 $1,296,579 $1,725,112 $2,236,208 $3,016,355 $4,348,532
- ----
Portfolio
turnover 142% 265% 150% 132% 114% 96% 172% 112% 85% 99%
- ----
</TABLE>

(a) Based on net asset value, which does not reflect the sales charge 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)

FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS

FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS
- --------------------------------------------------------------------------------

Note: The categories of investments are shown as a percentage of net assets
($724,123,884) at February 29, 1996.

(See Notes which are an integral part of the Financial Statements)

FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS

STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------

(See Notes which are an integral part of the Financial Statements)

FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS

(See Notes which are an integral part of the Financial Statements)

FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS

STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28 OR 29,
--------------------------------
1996 1995
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------
OPERATIONS--
- -----------------------------------------------------------
Net investment income $ 42,785,381 $ 38,636,472
- -----------------------------------------------------------
Net realized gain (loss) on investments ($292,806 net gain
and $16,372,726 net loss, respectively, as computed for
federal tax purposes) 10,131,471 (26,211,391)
- -----------------------------------------------------------
Net change in unrealized appreciation (depreciation) (1,041,038) 9,714,843
- ----------------------------------------------------------- ------------- -------------
Change in net assets resulting from operations 51,875,814 22,139,924
- ----------------------------------------------------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -----------------------------------------------------------
Distributions from net investment income
- -----------------------------------------------------------
Institutional Shares (40,992,648) (37,103,608)
- -----------------------------------------------------------
Institutional Service Shares (1,792,733) (1,532,864)
- ----------------------------------------------------------- ------------- -------------
Change in net assets resulting from distributions
to shareholders (42,785,381) (38,636,472)
- ----------------------------------------------------------- ------------- -------------
SHARE TRANSACTIONS--
- -----------------------------------------------------------
Proceeds from sale of shares 320,860,683 269,660,686
- -----------------------------------------------------------
Net asset value of shares issued to shareholders in payment
of distributions declared 18,801,398 16,766,815
- -----------------------------------------------------------
Cost of shares redeemed (340,873,455) (452,147,512)
- ----------------------------------------------------------- ------------- -------------
Change in net assets resulting from share transactions (1,211,374) (165,720,011)
- ----------------------------------------------------------- ------------- -------------
Change in net assets 7,879,059 (182,216,559)
- -----------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------
Beginning of period 716,244,825 898,461,384
- ----------------------------------------------------------- ------------- -------------
End of period $ 724,123,884 $ 716,244,825
- ----------------------------------------------------------- ------------- -------------
</TABLE>

(See Notes which are an integral part of the Financial Statements)

FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS

NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------

(1) ORGANIZATION

(2) SIGNIFICANT ACCOUNTING POLICIES

FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
EXPIRATION YEAR EXPIRATION AMOUNT
- ------------------ --------------------
<S> <C>
1997 $39,495,292
1998 $65,200,181
2003 $16,666,504
</TABLE>

OTHER--Investment transactions are accounted for on the trade date.

FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS
- --------------------------------------------------------------------------------

(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).

Transactions in shares were as follows:

(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES

FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS
- --------------------------------------------------------------------------------

GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.

(5) INVESTMENT TRANSACTIONS

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

- --------------------------------------------------------------------------------

To the Trustees and Shareholders of

FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS:

We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Federated U.S. Government Securities Fund: 1-3
Years as of February 29, 1996, and the related statement of operations for the
year then ended, the statement of changes in net assets for each of the two
years in the period then ended, and financial highlights (see pages 2 and 13 of
this prospectus) for the periods presented therein. These financial statements
and financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.

ERNST & YOUNG LLP

Pittsburgh, Pennsylvania

April 12, 1996

ADDRESSES
- --------------------------------------------------------------------------------

<TABLE>
<S> <C> <C>
Federated U.S. Government Securities Fund: 1-3 Years
Institutional Service Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Custodian
State Street Bank and P.O. Box 8600
Trust Company Boston, Massachusetts 02266-8600
- ------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company P.O. Box 8600
Boston, Massachusetts 02266-8600
- ------------------------------------------------------------------------------------------------
Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, Pennsylvania 15219
- ------------------------------------------------------------------------------------------------
</TABLE>

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
FEDERATED U.S.
GOVERNMENT SECURITIES
FUND: 1-3 YEARS
INSTITUTIONAL SERVICE SHARES
PROSPECTUS

An Open-End, Diversified Management
Investment Company

Prospectus dated April 30, 1996

LOGO

CUSIP 31428M209

8032806A-SS (4/96)

FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1 - 3 YEARS
INSTITUTIONAL SHARES
INSTITUTIONAL SERVICE SHARES
STATEMENT OF ADDITIONAL INFORMATION
The Institutional Shares and Institutional Service Shares represent
interests in a diversified portfolio of securities of Federated U.S.
Government Securities Fund: 1 - 3 Years (the "Trust"). This Statement of
Additional Information should be read with the respective prospectuses for
Institutional Shares and Institutional Service Shares dated April 30, 1996.
This Statement is not a prospectus itself. You may request a copy of a
prospectus or a paper copy of this Statement, if you have received it
electronically, free of charge by calling 1-800-235-4669.

FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated April 30, 1996
FEDERATED SECURITIES CORP.

Distributor
A subsidiary of FEDERATED INVESTORS

GENERAL INFORMATION ABOUT THE TRUST 2

INVESTMENT OBJECTIVE AND POLICIES 2

TYPES OF INVESTMENTS 2
WHEN-ISSUED AND DELAYED DELIVERY
TRANSACTIONS 2
REPURCHASE AGREEMENTS 3
PORTFOLIO TURNOVER 3
INVESTMENT LIMITATIONS 4
SELLING SHORT AND BUYING ON MARGIN 4
BORROWING MONEY 4
PLEDGING ASSETS 4
LENDING CASH OR SECURITIES 4
FEDERATED U.S. GOVERNMENT SECURITIES
FUND: 1-3 YEARS MANAGEMENT 5

TRUST OWNERSHIP 13
TRUSTEE COMPENSATION 14
TRUSTEE LIABILITY 16
INVESTMENT ADVISORY SERVICES 16

ADVISER TO THE TRUST 16
ADVISORY FEES 16
STATE EXPENSE LIMITATIONS 17
OTHER ADVISORY SERVICES 17
BROKERAGE TRANSACTIONS 18

OTHER SERVICES 19

TRUST ADMINISTRATION 19
CUSTODIAN AND PORTFOLIO ACCOUNTANT 20
TRANSFER AGENT 20
INDEPENDENT AUDITORS 20
PURCHASING SHARES 20

DISTRIBUTION PLAN (INSTITUTIONAL
SERVICE SHARES ONLY) AND SHAREHOLDER
SERVICES 21
CONVERSION TO FEDERAL FUNDS 22
DETERMINING NET ASSET VALUE 22

DETERMINING MARKET VALUE OF SECURITIES
22
REDEEMING SHARES 23

REDEMPTION IN KIND 23
MASSACHUSETTS PARTNERSHIP LAW 24

TAX STATUS 24

THE TRUST'S TAX STATUS 24
SHAREHOLDERS' TAX STATUS 25
CAPITAL GAINS 25
TOTAL RETURN 25

YIELD 26

PERFORMANCE COMPARISONS 26

DURATION 28
ABOUT FEDERATED INVESTORS 29

MUTUAL FUND MARKET 30
INSTITUTIONAL CLIENTS 30
TRUST ORGANIZATIONS 30
BROKER/DEALERS AND 30
BANK BROKER/DEALER SUBSIDIARIES

GENERAL INFORMATION ABOUT THE TRUST

Federated U.S. Government Securities Fund: 1 - 3 Years was established as a
Massachusetts business trust under a Declaration of Trust dated January 3,
1984. On April 13, 1995 the name of the Trust was changed from Federated
Short-Intermediate Government Trust to Federated U.S. Government Securities
Fund: 1 - 3 Years.

Shares of the Trust are offered in two classes, known as Institutional Shares
and Institutional Service Shares (individually and collectively referred to as
"Shares," as the context may require). This Statement of Additional
Information relates to the above mentioned Shares of the Trust.

INVESTMENT OBJECTIVE AND POLICIES

The Trust's investment objective is to provide current income.

TYPES OF INVESTMENTS
The Trust invests only in U.S. government securities with remaining maturities
of three and one-half (3 1/2) years or less. This investment policy and the
objective stated above cannot be changed without approval of shareholders. As
a matter of investment practice, which can be changed without shareholder
approval, the Trust will invest in U.S. government securities with remaining
maturities of 3 years or less.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for the Trust. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Trust
sufficient to make payment for the securities to be purchased are segregated

on the Trust`s records at the trade date. These assets are marked to market
daily and are maintained until the transaction has been settled. The Trust
does not intend to engage in when-issued and delayed delivery transactions to
an extent that would cause the segregation of more than 20% of the total value
of its assets.
REPURCHASE AGREEMENTS
The Trust requires its custodian to take possession of the securities subject
to repurchase agreements, and these securities are marked to market daily. To
the extent that the original seller does not repurchase the securities from
the Trust, the Trust could receive less than the repurchase price on any sale
of such securities. In the event that such a defaulting seller filed for
bankruptcy or became insolvent, disposition of such securities by the Trust
might be delayed pending court action. The Trust believes that under the
regular procedures normally in effect for custody of the Trust's portfolio
securities subject to repurchase agreements, a court of competent jurisdiction
would rule in favor of the Trust and allow retention or disposition of such
securities. 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 guidelines
established by the Trustees.
PORTFOLIO TURNOVER

The Trust will not attempt to set or meet a portfolio turnover rate since any
turnover would be incidental to transactions undertaken in an attempt to
achieve the Trust's investment objective. During the fiscal years ended
February 29, 1996, and February 28, 1995, the portfolio turnover rates were
142% and 265%, respectively.

INVESTMENT LIMITATIONS
The Trust will not change any of the investment limitations described below
without approval of shareholders.
SELLING SHORT AND BUYING ON MARGIN
The Trust will not sell any securities short or purchase any securities
on margin but may obtain such short-term credits as may be necessary for
clearance of purchases and sales of securities.
BORROWING MONEY
The Trust will not borrow money except as a temporary measure for
extraordinary or emergency purposes and then only in amounts not in
excess of 5% of the value of its total assets or in an amount up to one-
third of the value of its total assets, including the amount borrowed, in
order to meet redemption requests without immediately selling portfolio
securities. This borrowing provision is not for investment leverage but
solely to facilitate management of the portfolio by enabling the Trust to
meet redemption requests when the liquidation of portfolio securities
would be inconvenient or disadvantageous.
Interest paid on borrowed funds will not be available for investment. The
Trust will liquidate any such borrowings as soon as possible and may not
purchase any portfolio securities while the borrowings are outstanding.
PLEDGING ASSETS
The Trust will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it may mortgage, pledge, or
hypothecate assets having a market value not exceeding 10% of the value
of total assets at the time of the borrowing.
LENDING CASH OR SECURITIES
The Trust will not lend any of its assets, except that it may purchase or
hold U.S. government securities, including repurchase agreements,
permitted by its investment objective and policies.

Except with respect to borrowing money, if a percentage limitation is adhered
to at the time of investment, a later increase or decrease in percentage
resulting from any change in value or net assets will not result in a
violation of such restriction.
The Trust did not borrow money or pledge securities in excess of 5% of the
value of its net assets during the last fiscal year and has no present intent
to do so in the coming fiscal year.
As a matter of operating policy, the Trust will not purchase any securities
while borrowings in excess of 5% of its total assets are outstanding.

FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS MANAGEMENT

Officers and Trustees are listed with their addresses, birthdates, present
positions with Federated U.S. Government Securities Fund: 1-3 Years, and
principal occupations.

John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated Research
Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.;
Chief Executive Officer and Director or Trustee of the Funds. Mr. Donahue is
the father of J. Christopher Donahue, Executive Vice President of the Trust .

Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; Director or Trustee
of the Funds; formerly, Senior Partner, Ernst & Young LLP.

John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; President, Northgate Village Development
Corporation; Partner or Trustee in private real estate ventures in Southwest
Florida; Director or Trustee of the Funds; formerly, President, Naples
Property Management, Inc.

William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee

Director and Member of the Executive Committee, Michael Baker, Inc.; Director
or Trustee of the Funds; formerly, Vice Chairman and Director, PNC Bank, N.A.,
and PNC Bank Corp. and Director, Ryan Homes, Inc.

James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.

Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine and Member, Board of Trustees, University of Pittsburgh;
Medical Director, University of Pittsburgh Medical Center - Downtown; Member,
Board of Directors, University of Pittsburgh Medical Center; formerly,
Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
Hospitals; Director or Trustee of the Funds.

Edward L. Flaherty, Jr.@
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA

Birthdate: June 18, 1924
Trustee
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Director,
Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director
or Trustee of the Funds; formerly, Counsel, Horizon Financial, F.A., Western
Region.

Peter E. Madden
Seacliff
562 Bellevue Avenue
Newport, RI
Birthdate: March 16, 1942
Trustee
Consultant; State Representative, Commonwealth of Massachusetts; Director or
Trustee of the Funds; formerly, President, State Street Bank and Trust Company
and State Street Boston Corporation.

Gregor F. Meyer
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee
of the Funds.

John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director or Trustee of the Funds.

Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics and Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., and U.S. Space Foundation; Chairman, Czecho Management Center;
Director or Trustee of the Funds; President Emeritus, University of
Pittsburgh; founding Chairman, National Advisory Council for Environmental
Policy and Technology and Federal Emergency Management Advisory Board.

Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/marketing consultant; Conference Coordinator, Non-profit
entities; Director or Trustee of the Funds.

Glen R. Johnson
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929
President
Trustee, Federated Investors; President and/or Trustee of some of the Funds;
staff member, Federated Securities Corp.

J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated Research
Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.;
Trustee, Federated Shareholder Services Company, and Federated Shareholder
Services; Director, Federated Services Company; President or Executive Vice
President of the Funds; Director or Trustee of some of the Funds. Mr. Donahue
is the son of John F. Donahue, Chairman and Trustee of the Company.

Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA

Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp. and Passport Research, Ltd.;
Executive Vice President and Director, Federated Securities Corp.; Trustee,
Federated Shareholder Services Company; Trustee or Director of some of the
Funds; President, Executive Vice President and Treasurer of some of the Funds.

John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President and Secretary
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated Research;
Director, Federated Research Corp. and Federated Global Research Corp.;
Trustee, Federated Shareholder Services Company; Director, Federated Services
Company; President and Trustee, Federated Shareholder Services; Director,
Federated Securities Corp.; Executive Vice President and Secretary of the
Funds.

Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President

Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of
the Funds; Director or Trustee of some of the Funds.

David M. Taylor
Federated Investors Tower
Pittsburgh, PA
Birthdate: January 13, 1947
Treasurer
Senior Vice President and Trustee, Federated Investors; Vice President,
Federated Shareholder Services; Executive Vice President, Federated Securities
Corp.; Treasurer of some of the Funds.

* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.
@ Member of the Executive Committee. The Executive Committee of the Board of
Trustees handles the responsibilities of the Board between meetings of the
Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: 111 Corcoran Funds; Annuity Management Series; Arrow
Funds; Automated Government Money Trust; Blanchard Funds; Blanchard Precious
Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc. ; DG Investor
Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated Adjustable
Rate U.S. Government Fund, Inc.; Federated American Leaders Fund, Inc.;
Federated ARMs Fund; Federated Equity Funds; Federated Equity Income Fund,
Inc.; Federated Fund for U.S. Government Securities, Inc.; Federated GNMA
Trust; Federated Government Income Securities, Inc.; Federated Government
Trust; Federated High Income Bond Fund, Inc.; Federated High Yield Trust;

Federated Income Securities Trust; Federated Income Trust; Federated Index
Trust; Federated Institutional Trust; Federated Insurance Series; Federated
Master Trust; Federated Municipal Opportunities Fund, Inc.; Federated
Municipal Securities Fund, Inc.; Federated Municipal Trust; Federated Short-
Term Municipal Trust; Federated Short-Term U.S. Government Trust; Federated
Stock and Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust;
Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund;
Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S.
Government Securities Fund: 3-5 Years; Federated U.S. Government Securities
Fund: 5-10 Years; Federated Utility Fund, Inc.; First Priority Funds; Fixed
Income Securities, Inc.; Fortress Utility Fund, Inc.; High Yield Cash Trust;
Intermediate Municipal Trust; International Series, Inc.; Investment Series
Funds, Inc.; Investment Series Trust; Liberty Term Trust, Inc. - 1999;
Liberty U.S. Government Money Market Trust; Liquid Cash Trust; Managed Series
Trust; Money Market Management, Inc.; Money Market Obligations Trust; Money
Market Trust; Municipal Securities Income Trust; Newpoint Funds; Peachtree
Funds; RIMCO Monument Funds; Targeted Duration Trust; Tax-Free Instruments
Trust; The Planters Funds; The Starburst Funds; The Starburst Funds II; The
Virtus Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; and World Investment Series, Inc.

TRUST OWNERSHIP
Officers and Trustees own less than 1% of the Trust's outstanding shares.
As of April 1, 1996, the following shareholders of record owned 5% or more of
the outstanding Institutional Service Shares of the Trust: Charles Schwab and
Company, Inc., San Francisco, California acting in various capacities for
numerous accounts, owned approximately 805,562 shares (30.41%); Hauser
Chemical Research, Inc., Boulder, Colorado, owned approximately 199,242 shares

(7.52%); FM Co, Holland Michigan, owned approximately 136,559 shares (5.15%);
Industricorp and Co Inc., Minneapolis, Minnesota owned approximately 260,342
shares (9.83%) .
As of April 1, 1996, the following shareholders of record owned 5% or more of
the outstanding Institutional Shares of the Trust: Charles Schwab and
Company, Inc., San Francisco, California acting in various capacities for
numerous accounts owned approximately 3,689,626 shares (5.55%);The Northern
Trust Company as Trustee for the Libbey Owens Ford Savings Trust, Chicago,
Illinois, owned approximately 6,935,746 shares (10.44%); ACO, Integra Trust
Services, Pittsburgh , Pennsylvania, owned approximately 4,827,711 shares
(7.27%).

TRUSTEE COMPENSATION

AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX +

John F. Donahue, $-0- $-0- for the Trust and
Chairman and Trustee 54 other investment companies in the Fund Complex

Thomas G. Bigley,++ $ 835.00 $86,331 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
John T. Conroy, $ 1,821.29 $115,760 for the Trust and

Trustee 54 other investment companies in the Fund
Complex
William J. Copeland, $ 1,821.29 $115,760 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
James E. Dowd, $ 1,821.29 $115,760 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
Lawrence D. Ellis, M.D., $ 1,690.90 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
Edward L. Flaherty, Jr., $ 1,821.29 $115,760 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
Peter E. Madden, $ 1,690.90 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
Gregor F. Meyer, $ 1,690.90 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
John E. Murray, Jr., $ 1,690.90 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
Wesley W. Posvar, $ 1,690.90 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
Marjorie P. Smuts, $ 1,690.90 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex

*Information is furnished for the fiscal year ended February 29, 1996.
#The aggregate compensation is provided for the Trust which is comprised of
one portfolio.
+The information is provided for the last calendar year.
++ Mr. Bigley served on 39 investment companies in the Federated Funds Complex
from January 1 through September 30, 1995. On October 1, 1995, he was
appointed a Trustee on 15 additional Federated Funds.

TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES

ADVISER TO THE TRUST
The Trust's investment adviser is Federated Management. It is a subsidiary of
Federated Investors. All of the voting securities of Federated Investors are
owned by a trust, the trustees of which are John F. Donahue, his wife, and his
son, J. Christopher Donahue.
The adviser shall not be liable to the Trust or any shareholder of the Trust
for any losses that may be sustained in the purchase, holding, or sale of any
security, or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
ADVISORY FEES

For its advisory services, Federated Management receives an annual investment
advisory fee as described in the prospectus. During the fiscal year ended
February 29, 1996, and for the fiscal years ended February 28, 1995, and
1994, the Trust's adviser earned $2,902,888, $3,060,247, and $3,924,302,
respectively, which were reduced by $96,365, $152,733, and $0, respectively,
because of undertakings to limit the Trust's expenses.

STATE EXPENSE LIMITATIONS
The adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Trust's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2 1/2% per year of the first $30 million of average net assets, 2%
per year of the next $70 million of average net assets, and 1 1/2% per
year of the remaining average net assets, the adviser will reimburse the
Trust for its expenses over the limitation.
If the Trust's monthly projected operating expenses exceed this limitation,
the investment advisory fee paid will be reduced by the amount of the excess,
subject to an annual adjustment. If the expense limitation is exceeded, the
amount to be reimbursed by the adviser will be limited, in any single fiscal
year, by the amount of the investment advisory fee.
This arrangement is not part of the advisory contract and may be amended or
rescinded in the future.
OTHER ADVISORY SERVICES
Federated Research Corp. receives fees from certain depository institutions
for providing consulting and portfolio advisory services relating to each
institution's program of asset management. Federated Research Corp. may advise
such clients to purchase or redeem shares of investment companies, such as the

Trust, which are managed, for a fee, by Federated Research Corp. or other
affiliates of Federated Investors, such as the adviser, and may advise such
clients to purchase and sell securities in the direct markets. Further,
Federated Research Corp., and other affiliates of adviser, may, from time to
time, provide certain consulting services and equipment to depository
institutions in order to facilitate the purchase of shares of funds offered by
Federated Securities Corp.

BROKERAGE TRANSACTIONS

When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the adviser looks for prompt execution of the order at
a favorable price. In working with dealers, the adviser will generally use
those who are recognized dealers in specific portfolio instruments, except
when a better price and execution of the order can be obtained elsewhere. The
adviser makes decisions on portfolio transactions and selects brokers and
dealers subject to guidelines established by the Trustees.

The adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Trust or to the
adviser and may include: advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry studies;
receipt of quotations for portfolio evaluations; and similar services.

Research services provided by brokers and dealers may be used by the adviser
or its affiliates in advising the Trust and other accounts. To the extent that
receipt of these services may supplant services for which the adviser or its
affiliates might otherwise have paid, it would tend to reduce their expenses.
The adviser and its affiliates exercise reasonable business judgment in

selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage
and research services provided. For the fiscal years ended February 29, 1996,
and February 28, 1995, and 1994, the Trust paid no brokerage commissions.
Although investment decisions for the Trust are made independently from those
of the other accounts managed by the adviser, investments of the type the
Trust may make may also be made by those other accounts. When the Trust and
one or more other accounts managed by the adviser are prepared to invest in,
or desire to dispose of, the same security, available investments or
opportunities for sales will be allocated in a manner believed by the adviser
to be equitable to each. In some cases, this procedure may adversely affect
the price paid or received by the Trust or the size of the position obtained
or disposed of by the Trust. In other cases, however, it is believed that
coordination and the ability to participate in volume transactions will be to
the benefit of the Trust.
OTHER SERVICES

Affiliates of the adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of shares of funds by Federated Securities Corp.
TRUST ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Trust for a fee as described in
the prospectus. From March 1, 1994, to March 1, 1996, Federated Administrative
Services served as the Trust's Administrator. Prior to March 1, 1994,
Federated Administrative Services, Inc. served as the Trust's Administrator.
Both former Administrators are subsidiaries of Federated Investors. For
purposes of this Statement of Additional Information, Federated Services

Company, Federated Administrative Services and Federated Administrative
Services, Inc. may hereinafter collectively be referred to as the
"Administrators." For the fiscal years ended February 29, 1996, and February
28, 1995, and 1994, the Administrators earned $549,195, $654,725, and
$629,337, respectively.
Dr. Henry J. Gailliot, an officer of Federated Management, the adviser to the
Trust, holds approximately 20% of the outstanding common stock and serves as a
director of Commercial Data Services, Inc., a company which provides computer
processing services to Federated Services Company.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the
securities and cash of the Trust. Federated Services Company, Pittsburgh, PA,
provides certain accounting and recordkeeping services with respect to the
Trust's portfolio investments. The fee paid for this service is based upon the
level of the Trust's average net assets for the period plus out-of-pocket
expenses.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent, Federated
Shareholder Services Company, maintains all necessary shareholder records. For
its services, the transfer agent receives a fee based on the number of
shareholder accounts.
INDEPENDENT AUDITORS
The independent auditors for the Trust are Ernst & Young LLP, Pittsburgh, PA.

PURCHASING SHARES

Shares are sold at their net asset value without a sales charge on days the
New York Stock Exchange is open for business. The procedure for purchasing

Shares is explained in the respective prospectus under "Investing in
Institutional Shares" or "Investing in Institutional Service Shares."
DISTRIBUTION PLAN (INSTITUTIONAL SERVICE SHARES ONLY) AND SHAREHOLDER SERVICES
As explained in the respective prospectuses, with respect to Shares of the
Trust, the Trust has adopted a Shareholder Services Agreement, and, with
respect to Instituitional Service Shares the Trust has adopted a Distribution
Plan.
These arrangements permit the payment of fees to financial institutions, the
distributor, and Federated Shareholder Services to stimulate distribution
activities and to cause services to be provided to shareholders by a
representative who has knowledge of the shareholder's particular circumstances
and goals. These activities and services may include, but are not limited to,
marketing efforts; providing office space, equipment, telephone facilities,
and various clerical, supervisory, computer, and other personnel as necessary
or beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries; and
assisting clients in changing dividend options, account designations, and
addresses.
By adopting the Distribution Plan, the Trustees expect that the Trust will be
able to achieve a more predictable flow of cash for investment purposes and to
meet redemptions. This will facilitate more efficient portfolio management and
assist the Trust in pursuing its investment objectives. By identifying
potential investors whose needs are served by the Trust's objectives, and
properly servicing these accounts, it may be possible to curb sharp
fluctuations in rates of redemptions and sales.
Other benefits, which may be realized under either arrangement, may include:
(1) providing personal services to shareholders; (2) investing shareholder
assets with a minimum of delay and administrative detail; (3) enhancing

shareholder recordkeeping systems; and (4) responding promptly to
shareholders' requests and inquiries concerning their accounts.
For the fiscal year ending February 29, 1996, payments in the amount of
$78,957 were made pursuant to the Distribution Plan (Institutional Service
Shares only), all of which was paid to financial institutions, of which
$75,789, was waived. In addition, for the period ending February 29, 1996,
payments in the amount of $1,735,351 and $78,957 for the Institutional and
Institutional Service Shares, respectively, were made pursuant to the
Shareholder Services Agreement of which $1,735,351 and $3,158, respectively,
were waived.

CONVERSION TO FEDERAL FUNDS
It is the Trust's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds. State Street Bank acts as
the shareholder's agent in depositing checks and converting them to federal
funds.
DETERMINING NET ASSET VALUE

Net asset value generally changes each day. The days on which net asset value
is calculated by the Trust are described in the respective prospectuses. Net
asset value will not be calculated on the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Trust's portfolio securities are determined as follows:
o according to the mean between the over-the-counter bid and asked prices
provided by an independent pricing service, if available, or at fair
value as determined in good faith by the Trust's Board of Trustees; or

o for short-term obligations with remaining maturities of less than 60 days
at the time of purchase, at amortized cost unless the Board of Trustees
determines that particular circumstances of the security indicate
otherwise.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices. Pricing services may consider:
o yield;
o quality;
o coupon rate;
o maturity;
o type of issue;
o trading characteristics; and
o other market data.
REDEEMING SHARES

The Trust redeems Shares at the next computed net asset value after the Trust
receives the redemption request. Redemption procedures are explained in the
respective prospectuses under "Redeeming Institutional Shares" and "Redeeming
Institutional Service Shares." Although State Street Bank does not charge for
telephone redemptions, it reserves the right to charge a fee for the cost of
wire-transferred redemptions of less than $5,000.
REDEMPTION IN KIND
The Trust is obligated to redeem Shares solely in cash up to $250,000 or 1% of
the respective class net asset value, whichever is less, for any one
shareholder within a 90-day period.
Any redemption beyond this amount will also be in cash unless the Trustees
determine that further cash payments will have a material adverse effect on
remaining shareholders. In such a case, the Trust will pay all or a portion of
the remainder of the redemption in portfolio instruments, valued in the same

way as the Trust determines net asset value. The portfolio instruments will be
selected in a manner that the Trustees deem fair and equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is
made in kind, shareholders receiving their securities and selling them before
their maturity could receive less than the redemption value of their
securities and could incur certain transaction costs.

MASSACHUSETTS PARTNERSHIP LAW

Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations
of the Trust. These documents require notice of this disclaimer to be given in
each agreement, obligation, or instrument the Trust or its Trustees enter into
or sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act
or obligation of the Trust. Therefore, financial loss resulting from liability
as a shareholder will occur only if the Trust itself cannot meet its
obligations to indemnify shareholders and pay judgments against them.

TAX STATUS

THE TRUST'S TAX STATUS
The Trust will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment

afforded to such companies. To qualify for this treatment, the Trust must,
among other requirements:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
o derive less than 30% of its gross income from the sale of securities held
less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and capital gains
received as cash or additional Shares. No portion of any income dividend paid
by the Trust is eligible for the dividends received deduction available to
corporations. These dividends, and any short-term capital gains, are taxable
as ordinary income.
CAPITAL GAINS
Long-term capital gains distributed to shareholders will be treated as
long-term capital gains regardless of how long shareholders have held
Shares.
TOTAL RETURN

The Trust's average annual total return for Institutional Shares for the one-
year and five-year periods ended February 29, 1996, and for the period from
March 15, 1984 (effective date of the Trust's registration statement) to
February 29, 1996 were 7.41%, 5.81%, and 7.94%, respectively. The Trust's
cumulative total return for Institutional Service Shares for the period from
June 18, 1992 (start of performance of Institutional Service Shares), through

February 29, 1996, and for the year ended February 29, 1996, was 4.66% and
7.14%, respectively.
YIELD

The Trust's yield for the thirty day period ended February 29, 1996, was 4.51%
and 4.26% for Institutional Shares and Institutional Service Shares,
respectively.

The yield for both classes of shares of the Trust is determined by dividing
the net investment income per share (as defined by the Securities and Exchange
Commission) earned by either class of shares over a thirty-day period by the
maximum offering price per share of either class on the last day of the
period. This value is annualized using semi-annual compounding. This means
that the amount of income generated during the thirty-day period is assumed to
be generated each month over a twelve month period and is reinvested every six
months. The yield does not necessarily reflect income actually earned by the
Trust because of certain adjustments required by the Securities and Exchange
Commission and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in either
class of shares, performance will be reduced for those shareholders paying
those fees.
PERFORMANCE COMPARISONS

The performance of both classes of shares depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;

o changes in the Trust's expenses or either class of Share's expenses; and
o various other factors.
Either class of Shares' performance fluctuates on a daily basis largely
because net earnings and offering price per share fluctuate daily. Both net
earnings and net asset value per share are factors in the computation of yield
and total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Trust's performance. When comparing performance,
investors should consider all relevant factors such as the composition of any
index used, prevailing market conditions, portfolio compositions of other
funds and methods used to value portfolio securities and compute offering
price. The financial publications and/or indices which the Trust uses in
advertising may include:
o LIPPER ANALYTICAL SERVICES, INC. ranks funds in various categories by
making comparative calculations using total return. Total return assumes
the reinvestment of all capital gains distributions and income dividends
and takes into account any change in net asset value over a specific
period of time. From time to time, the Trust will quote its Lipper
ranking in the "U.S. government funds" category in advertising and sales
literature.
o MERRILL LYNCH 1-3 YEAR TREASURY INDEX is an unmanaged index tracking
short-term U.S. government securities with maturities between 1 and 2.99
years. The index is produced by Merrill Lynch, Pierce, Fenner & Smith,
Inc.
o LEHMAN BROTHERS INTERMEDIATE GOVERNMENT INDEX is an unmanaged index
comprised of all publicly issued, non-convertible domestic debt of the
U.S. government or any agency thereof, or any quasi-federal corporation
and of corporate debt guaranteed by the U.S. government. Only notes and

bonds with minimum outstanding principal of $1 million and minimum
maturity of one year and maximum maturity of ten years are included.
o MERRILL LYNCH 2-YEAR TREASURY CURVE INDEX is comprised of the most
recently issued 2-year U.S. Treasury notes. Index returns are calculated
as total returns for periods of one, three, six, and twelve months as
well as year-to-date.
o MERRILL LYNCH U.S. TREASURY SHORT TERM INDEX (1-2.99 YEARS) is an
unmanaged index tracking short-term U.S. government securities with
maturities between 1 and 2.99 years. The index is produced by Merrill
Lynch, Pierce, Fenner & Smith, Inc.
o 2-YEAR TREASURY NOTE--Source: Wall Street Journal, Bloomberg Financial
Markets, and Telerate.
o MORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for
two weeks.
Advertisements and other sales literature for both classes of shares may quote
total returns which are calculated on non-standardized base periods. These
total returns also represent the historic change in the value of an investment
in either class of shares based on monthly reinvestment of dividends over a
specified period of time.
DURATION
Duration is a commonly used measure of the potential volatility in the price
of a bond, or other fixed income security, or in a portfolio of fixed income
securities, prior to maturity. Volatility is the magnitude of the change in
the price of a bond relative to a given change in the market rate of interest.
A bond's price volatility depends on three primary variables: the bond's
coupon rate; maturity date; and the level of market yields of similar fixed

income securities. Generally, bonds with lower coupons or longer maturities
will be more volatile than bonds with higher coupons or shorter maturities.
Duration combines these variables into a single measure.
Duration is calculated by dividing the sum of the time-weighted values of the
cash flows of a bond or bonds, including interest and principal payments, by
the sum of the present values of the cash flows.
When the Trust invests in mortgage pass-through securities, its duration will
be calculated in a manner which requires assumptions to be made regarding
future principal prepayments. A more complete description of this calculation
is available upon request from the Trust.

ABOUT FEDERATED INVESTORS

Federated Investors is dedicated to meeting investor needs which is reflected
in its investment decision making-structured, straightforward, and consistent.
This has resulted in a history of competitive performance with a range of
competitive investment products that have gained the confidence of thousands
of clients and their customers.
The company's disciplined security selection process is firmly rooted in sound
methodologies backed by fundamental and technical research. Investment
decisions are made and executed by teams of portfolio managers, analysts, and
traders dedicated to specific market sectors.
J. Thomas Madden, Executive Vice President, oversees Federated Investors'
equity and high yield corporate bond management while William D. Dawson,
Executive Vice President, oversees Federated Investors' domestic fixed income
management. Henry A. Frantzen, Executive Vice President, oversees the
management of Federated Investors' international portfolios.

MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $2 trillion to the more than 5,500 funds available.*
Federated Investors, through its subsidiaries, distributes mutual funds for a
variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for a
variety of applications, including defined benefit and defined contribution
programs, cash management, and asset/liability management. Institutional
clients include corporations, pension funds, tax-exempt entities,
foundations/endowments, insurance companies, and investment and financial
advisors. The marketing effort to these institutional clients is headed by
John B. Fisher, President, Institutional Sales Division.

*Source: Investment Company Institute
TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than 1,500
banks and trust organizations. Virtually all of the trust divisions of the top
100 bank holding companies use Federated funds in their clients' portfolios.
The marketing effort to trust clients is headed by Mark R. Gensheimer,
Executive Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage firms
nationwide--including 200 New York Stock Exchange firms--supported by more
wholesalers than any other mutual fund distributor. The marketing effort to
these firms is headed by James F. Getz, President, Broker/Dealer Division.

CUSIP 31428M100
CUSIP 31428M209
8032806B (4/96)

PART C. OTHER INFORMATION.

Item 24. Financial Statements and Exhibits:

(a) Financial Statements (Filed in Part A)
(b) Exhibits:
(1) Copy of the Amended and Restated Declaration of Trust of
the Registrant(9.);
(i) Conformed copy of Amendment No. 3 to
Declaration of Trust(11);
(2) Copy of the By-laws of the Registrant(11);
(i) Copy of Amendment No. 1 to the By-Laws of the
Registrant (3.);
(3) Not applicable;
(4) Copy of Specimen Certificate of Shares of Beneficial
Interest of the Registrant(11);
(5) Conformed copy of the Investment Advisory Contract(10);
(6) (i)Conformed copy of the Distributor's Contract(11);
(ii) The Registrant hereby incorporates the conformed copy
of the specimen Mutual Funds Sales and Service Agreement;

Mutual Funds Service Agreement; and Plan Trustee/ Mutual
Funds Service Agreement from
Item 4 (b)(6) of the Cash Trust Series II Registration
Statement on Form N-1A, filed with the Commission on July
24, 1995. (File Numbers 33-38550 and 811-6269).
(7) Not applicable;
(8) (i) Conformed copy of the Custodian Agreement of the
Registrant(11);
(9)...............(i) The responses described in Item
24(b)(6)(ii) are hereby incorporated by reference.
(ii) Conformed Copy of Agreement for Fund Accounting
Services, Administrative Services, Shareholder
Recordkeeping Services, and Custody Services Procurement;+

+ All exhibits have been filed electronically

3. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 7 to its Registration Statement on Form N-1A filed
April 23, 1987. (File Nos. 2-89028 and 811-3947)
9. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 19 to its Registration Statement on Form N-1A filed
February 26, 1993. (File Nos. 2-89028 and 811-3947)

10. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 23 to its Registration Statement on Form N-1A filed April
27, 1994, (File Nos. 2-89028 and 811-3947)
11. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 25 to its Registration Statement on Form N-1A filed April
17, 1995, (File Nos. 2-89028 and 811-3947)

(iii) The Registrant hereby incorporates the conformed
copy of the Shareholder Services Sub-Contract between
National Pensions Alliance, Ltd. and Federated Shareholder
Services from Item 24(b)(9)(ii) of the Federated GNMA
Trust Registration Statement on Form N-1A, filed with the
Commission on March 25, 1996. (File Nos. 2-75670 and 811-
3375)
(iv) The Registrant hereby incorporates the conformed copy
of Shareholder Services Sub-Contract between Fidelity and
Federated Shareholder Services from Item 24(b)(9)(iii) of
the Federated GNMA Trust Registration Statement on Form N-
1A, filed with the Commission on March 25, 1996. (File
Nos. 2-75670 and 811-3375)
(v) The responses described in Item 24(b)(6) are hereby
incorporated by reference.
(10) Not applicable;
(11) Conformed copy of Consent of Independent Auditors;+
(12) Not applicable;
(13) Not applicable;
(14) Not applicable;
(15) Conformed copy of Distribution Plan(11);

(16) Schedule for Computation of Trust Performance Data;+
(17) Financial Data Schedule;+
(18) The Registrant hereby incorporates the conformed copy of
the specimen Multiple Class Plan from Item 24(b)(18) of
the World Investment Series, Inc. Registration Statement
on Form N-1A, filed with the Commission on January 26,
1996. (File Nos. 33-52149 and 811-07141);
(19) Conformed copy of Power of Attorney;+

Item 25. Persons Controlled by or Under Common Control with Registrant:

None

Item 26. Number of Holders of Securities:

Number of Record Holders
Title of Class as of April 1, 1996

Shares of Beneficial Interest
(No par value)
Institutional Shares 6,099
Institutional Service Shares 367

+ All exhibits have been filed electronically

11. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 25 to its Registration Statement on Form N-1A filed April
17, 1995, (File Nos. 2-89028 and 811-3947)

Item 27. Indemnification: (1)

Item 28. Business and Other Connections of Investment Adviser:

(a)For a description of the other business of the investment
adviser, see the section entitled "Trust Information - Management
of the Trust" in Part A. The affiliations with the Registrant of
four of the Trustees and one of the Officers of the investment
adviser are included in Part B of this Registration Statement
under "Federated U.S. Government Securities Fund: 1-3 Years
Management". The remaining Trustee of the investment adviser, his
position with the investment adviser, and, in parentheses, his
principal occupation is: Mark D. Olson, (Partner, Wilson,
Halbrook & Bayard, 107 W. Market Street, Georgetown, Delaware
19947).

The remaining Officers of the investment adviser are: William D.
Dawson, III, Henry A. Frantzen, J. Thomas Madden, and Mark L.
Mallon, Executive Vice Presidents; Henry J. Gailliot, Senior Vice
President-Economist; Peter R. Anderson, Drew J. Collins, Jonathan
C. Conley, Mark E. Durbiano, J. Alan Minteer and Mary Jo Ochson,
Senior Vice Presidents; J. Scott Albrecht, Joseph M. Balestrino,
Randall A. Bauer, David F. Belton, David A. Briggs, Kenneth J.

Cody, Deborah A. Cunningham, Michael P. Donnelly, Linda A.
Duessel, Kathleen M. Foody-Malus, Thomas M. Franks, Edward C.
Gonzales, Timothy E. Keefe, Stephen A. Keen, Mark S. Kopinski,
Jeff A. Kozemchak, Marian R. Marinack, Susan M. Nason, Robert J.
Ostrowski, Frederick L. Plautz, Jr., Charles A. Ritter, James D.
Roberge, Frank Semack, William F. Stotz, Edward J. Tiedge, Sandra
L. Weber, and Christopher H. Wiles, Vice Presidents, Thomas R.
Donahue, Treasurer, and Stephen A. Keen, Secretary. The business
address of each of the Officers of the investment adviser is
Federated Investors Tower, Pittsburgh, PA 15222-3779. These
individuals are also officers of a majority of the investment
advisers to the Funds listed in Part B of this Registration
Statement.

+ All exhibits have been filed electronically

1. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 17 to its Registration Statement on Form N-1A filed March
31, 1992 (File No. 2-89028).

Item 29. Principal Underwriters:

(a)Federated Securities Corp., the Distributor for shares of the
Registrant, also acts as principal underwriter for the following
open-end investment companies:

111 Corcoran Funds; Annuity Management Series; Arrow Funds; Automated
Government Money Trust; BayFunds; Blanchard Funds; Blanchard Precious Metals
Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc.; DG Investor Series;
Edward D. Jones & Co. Daily Passport Cash Trust; Federated Adjustable Rate
U.S. Government Fund, Inc.; Federated American Leaders Fund, Inc.; Federated
ARMs Fund; Federated Equity Funds; Federated Equity Income Fund, Inc.;
Federated Fund for U.S. Government Securities, Inc.; Federated GNMA Trust;
Federated Government Income Securities, Inc.; Federated Government Trust;
Federated High Income Bond Fund, Inc.; Federated High Yield Trust; Federated
Income Securities Trust; Federated Income Trust; Federated Index Trust;
Federated Institutional Trust; Federated Insurance Series;
Federated Master Trust; Federated Municipal Opportunities Fund, Inc.;
Federated Municipal Securities Fund, Inc.; Federated Municipal Trust;
Federated Short-Term Municipal Trust; Federated Short-Term U.S. Government
Trust; Federated Stock and Bond Fund, Inc.; Federated Stock Trust; Federated
Tax-Free Trust; Federated Total Return Series, Inc.; Federated U.S. Government

Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years; Federated
U.S. Government Securities Fund: 2-5 Years; Federated U.S. Government
Securities Fund: 5-10 Years; Federated Utility Fund, Inc.; First Priority
Funds; Fixed Income Securities, Inc.; Fortress Utility Fund, Inc.; High Yield
Cash Trust; Independence One Mutual Funds; Intermediate Municipal Trust;
International Series, Inc.; Investment Series Funds, Inc.; Investment Series
Trust; Liberty U.S. Government Money Market Trust; Liquid Cash Trust; Managed
Series Trust; Marshall Funds, Inc.; Money Market Management, Inc.; Money
Market Obligations Trust; Money Market Trust; Municipal Securities Income
Trust; Newpoint Funds; Peachtree Funds; RIMCO Monument Funds; SouthTrust
Vulcan Funds; Star Funds; Targeted Duration Trust; Tax-Free Instruments Trust;
The Biltmore Funds; The Biltmore Municipal Funds; The Monitor Funds; The
Planters Funds; The Starburst Funds; The Starburst Funds II; The Virtus Funds;
Tower Mutual Funds; Trust for Financial Institutions; Trust for Government
Cash Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; Vision Group of Funds, Inc.; andWorld Investment Series,
Inc.

Federated Securities Corp. also acts as principal underwriter for the
following closed-end investment company: Liberty Term Trust, Inc.- 1999.

(b)

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices

Business Address With Underwriter With Registrant

Richard B. Fisher Director, Chairman, Chief Vice President
Federated Investors Tower Executive Officer, Chief
Pittsburgh, PA 15222-3779 Operating Officer, Asst.
Secretary, and Asst.
Treasurer, Federated
Securities Corp.

Edward C. Gonzales Director, Executive ViceExecutive Vice
Federated Investors Tower President, Federated, President
Pittsburgh, PA 15222-3779 Securities Corp.

John W. McGonigle Director, Federated Executive Vice
Federated Investors Tower Securities Corp. President and
Pittsburgh, PA 15222-3779 Secretary

John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Mark R. Gensheimer Executive Vice President of --
Federated Investors Tower Bank/Trust, Federated
Pittsburgh, PA 15222-3779 Securities Corp.

Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices

Business Address With Underwriter With Registrant

James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp
Pittsburgh, PA 15222-3779

John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Byron F. Bowman Vice President, Secretary, --
Federated Investors Tower Federated Securities Corp.

Pittsburgh, PA 15222-3779

Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securites Corp.
Pittsburgh, PA 15222-3779

(1) (2) (3)

Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant

Laura M. Deger Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Michael D. Fitzgerald Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Craig S. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard C. Gonzales Vice President, --

Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Scott A. Hutton Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

H. Joeseph Kenedy Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

William E. Kugler Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Steven A. La Versa Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant

J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Michael P. O'Brien Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Robert D. Oehlschlager Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

John C. Shelar, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Jamie M. Teschner Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant

Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Charlene H. Jennings Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

J. Timothy Radcliff Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Thomas R. Donahue Asstistant Secretary, --
Federated Investors Tower Assistant Treasurer,
Pittsburgh, PA 15222-3779 Federated Securities Corp.

Joseph M. Huber Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

David M. Taylor Assistant Secretary, Treasurer
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779

Item 30. Item 30..................Location of Accounts and Records:

FEDERATED U.S. GOVERNMENT Federated Investors Tower
SECURITIES FUND: 1-3 YEARS Pittsburgh, Pennsylvania
15222-3779

Federated Shareholder Services
Company P.O. Box 8600
("Transfer Agent, Dividend Boston, Massachusetts 02266-Disbursing
Agent and Portfolio 8600
Recordkeeper")

Federated Administrative Services Federated Investors Tower
("Administrator") Pittsburgh, Pennsylvania
15222-3779

Federated Management Federated Investors Tower
("Adviser") Pittsburgh, Pennsylvania
15222-3779

State Street Bank and Trust P.O. Box 8600
Company Boston, Massachusetts 02266-
("Custodian") 8600

Item 31. Management Services: Not applicable.

Item 32. Undertakings:

Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to the removal of
Trustees and the calling of special shareholder meetings by
shareholders.

Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders, upon request and without charge.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, FEDERATED U.S. GOVERNMENT
SECURITIES FUND: 1-3 YEARS, certifies that it meets all of the requirements
for effectiveness of this Amendment to its Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this

Amendment to its Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Pittsburgh and
Commonwealth of Pennsylvania, on the 23rd day of April, 1996.

FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS

BY: /s/ S. Elliott Cohan
S. Elliott Cohan, Assistant Secretary
Attorney in Fact for John F. Donahue
April 23, 1996

Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following person in
the capacity and on the date indicated:

NAME TITLE DATE

By:/s/ S. Elliott Cohan
S. Elliott Cohan Attorney In Fact April 23, 1996
ASSISTANT SECRETARY For the Persons
Listed Below

NAME TITLE

John F. Donahue* Chairman and Trustee
(Chief Executive Officer)

Glen R. Johnson* President

David M. Taylor* Treasurer
(Principal Financial and
Accounting Officer)

Thomas G. Bigley* Trustee

John T. Conroy, Jr.* Trustee

William J. Copeland* Trustee

James E. Dowd* Trustee

Lawrence D. Ellis, M.D.* Trustee

Edward L. Flaherty, Jr.* Trustee

Peter E. Madden* Trustee

Gregor F. Meyer* Trustee

John E. Murray, Jr.* Trustee

Wesley W. Posvar* Trustee

Marjorie P. Smuts* Trustee

* By Power of Attorney

Exhibit (11) under N-1A
Exhibit 23 under Item 601/Reg SK

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the references to our firm under the captions "Financial
Highlights" and "Independent Auditors" and to the use of our report dated
April 12, 1996 in Post-Effective Amendment Number 27 to the Registration
Statement (Form N-1A No. 2-89028) and the related Prospectuses (Institutional
and Institutional Service Shares) with respect to the financial statements of
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS dated April 30, 1996.

By:ERNST & YOUNG
Ernst & Young
Pittsburgh, Pennsylvania

Exhibit 16 under Form N-1A
Exhibit 99 under Item 601/Reg. S-K

FUND NAME: FEDERATED SHORT INTERMEDIATE GOVERNMENT TRUST
(now FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS)
COMPUTATION OF YIELD
AS OF: FEBRUARY 28, 1989

Dividend and/or Interest Income for the 30 Days
Ended FEBRUARY 28, 1989 $17,794,321.00

Net Expenses for the Period $959,318.00

Average Daily Shares Outstanding and Entitled to Receive
Dividends 233,980,015.000

Maximum Offering Price per Share as of FEBRUARY 28, 1989 $9.81

Undistribtued Net Income $0.0000

YIELD = 2[( $17,794,321.00- $959,318.00) + 1) ^6 - 1] =

Exhibit 16 under Form N-1A
Exhibit 99 under Item 601/Reg. S-K

FUND: FEDERATED SHORT INTERMEDIATE GOVERNMENT TRUST
(now FEDERATED U.S. GOVERNMENT SECURITIES

DECLARED: DAILY Schedule for Computation
of Fund Performance Data FUND: 1-3 YEARS)
PAID: MONTHLY Average Total Return Performance ONE YEAR ending 2-28-89
FYE: FEBRUARY 28
ONE YEAR ending 2-28-89
Initial Investment of: $1,000.00 on 2-29-88
Offering Price/Share = $0.00
NAV= $10.21

<S> <C> <C> <C> <C> <C> <C> <C>
BEGINNING REINVESTMENT ENDING TOTAL
REINVESTMENT PERIOD DIVIDEND CAPITAL GAIN PRICE PERIOD PERIOD END INVESMENT
DATES SHARE BASE PER SHARE PER SHARE PER SHARE SHARE BASE PRICE VALUE

2/29/88 97.943 0.000000000 0.00000 $10.21 97.943 $10.21 $1,000.00
3/31/88 97.943 0.069848243 0.00000 $10.16 98.617 $10.16 $1,001.94
4/30/88 98.617 0.066021109 0.00000 $10.11 99.261 $10.11 $1,003.52
5/31/88 99.261 0.067370700 0.00000 $10.03 99.927 $10.03 $1,002.27
6/30/88 99.927 0.064995902 0.00000 $10.05 100.574 $10.05 $1,010.76
7/31/88 100.574 0.068899055 0.00000 $10.00 101.266 $10.00 $1,012.66
8/31/88 101.266 0.069046219 0.00000 $9.95 101.969 $9.95 $1,014.59
9/30/88 101.969 0.067781555 0.00000 $9.98 102.662 $9.98 $1,024.56
10/31/88 102.662 0.070810771 0.00000 $10.00 103.389 $10.00 $1,033.89
11/30/88 103.389 0.068301820 0.00000 $9.91 104.101 $9.91 $1,031.64
12/31/88 104.101 0.070480628 0.00000 $9.86 104.845 $9.86 $1,033.78
1/31/89 104.845 0.070450467 0.00000 $9.87 105.594 $9.87 $1,042.21
2/28/89 105.594 0.061273643 0.00000 $9.81 106.253 $9.81 $1,042.34

</TABLE>

$1,000 (1+T) = Ending Redeemable Value
T = 4.24%

[(1+T)1/12 ] 12 = Average Annual Total Return (A)

Exhibit 19 under Form N-1A
Exhibit 24 under Item 601/Reg. S-K
POWER OF ATTORNEY

Each person whose signature appears below hereby constitutes and appoints
the Secretary and Assistant Secretary of FEDERATED U.S. GOVERNMENT SECURITIES
FUND: 1-3 YEARS and the Deputy General Counsel of Federated Investors, and
each of them, their true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution for them and in their names, place
and stead, in any and all capacities, to sign any and all documents to be
filed with the Securities and Exchange Commission pursuant to the Securities
Act of 1933, the Securities Exchange Act of 1934 and the Investment Company
Act of 1940, by means of the Securities and Exchange Commission's electronic
disclosure system known as EDGAR; and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to sign and perform each and every act and
thing requisite and necessary to be done in connection therewith, as fully to
all intents and purposes as each of them might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their or his substitute or substitutes, may lawfully do or cause to
be done by virtue thereof.

SIGNATURES TITLE DATE

/s/ John F. Donahue Chairman April 2, 1996
John F. Donahue and Trustee
(Chief Executive Officer)

/s/Glen R. Johnson President April 2, 1996
--------------

Glen R. Johnson
/s/David M. Taylor Treasurer April 2, 1996
David M. Taylor (Principal Financial and
Accounting Officer)

/s/ Thomas G. Bigley Trustee April 2, 1996
Thomas G. Bigley

/s/ John T. Conroy, Jr. Trustee April 2, 1996
John T. Conroy, Jr.

/s/ William J. Copeland Trustee April 2, 1996
William J. Copeland

/s/ James E. Dowd Trustee April 2, 1996
James E. Dowd

/s/ Lawrence D. Ellis, M.D. Trustee April 2, 1996
Lawrence D. Ellis, M.D.

/s/ Edward L. Flaherty, Jr. Trustee April 2, 1996
Edward L. Flaherty, Jr.

/s/ Peter E. Madden Trustee April 2, 1996
Peter E. Madden

/s/ Gregor F. Meyer Trustee April 2, 1996
Gregor F. Meyer

/s/ John E. Murray Trustee April 2, 1996
John E. Murray

/s/ Wesley W. Posvar Trustee April 2, 1996
Wesley W. Posvar

/s/ Marjorie P. Smuts Trustee April 2, 1996
Marjorie P. Smuts

Sworn to and subscribed before me this 2nd day of April, 1996.

/s/ Marie M. Hamm

Exhibit 9(II) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K

AGREEMENT
FOR
FUND ACCOUNTING SERVICES,
ADMINISTRATIVE SERVICES,
TRANSFER AGENCY SERVICES
AND
CUSTODY SERVICES PROCUREMENT

AGREEMENT made as of March 1, 1996, by and between those investment
companies listed on Exhibit 1 as may be amended from time to time, having
their principal office and place of business at Federated Investors Tower,
Pittsburgh, PA 15222-3779 (the "Investment Company"), on behalf of the
portfolios (individually referred to herein as a "Fund" and collectively as
"Funds") of the Investment Company, and FEDERATED SERVICES COMPANY, a
Pennsylvania corporation, having its principal office and place of business at
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779 on behalf of
itself and its subsidiaries (the "Company").
WHEREAS, the Investment Company is registered as an open-end management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"), with authorized and issued shares of capital stock or beneficial
interest ("Shares");
WHEREAS, the Investment Company may desire to retain the Company as fund
accountant to provide fund accounting services (as herein defined) including
certain pricing, accounting and recordkeeping services for each of the Funds,
including any classes of shares issued by any Fund ("Classes") if so indicated
on Exhibit 1, and the Company desires to accept such appointment;
WHEREAS, the Investment Company may desire to appoint the Company as its
administrator to provide it with administrative services (as herein defined),
if so indicated on Exhibit, and the Company desires to accept such
appointment;
WHEREAS, the Investment Company may desire to appoint the Company as its
transfer agent and dividend disbursing agent to provide it with transfer
agency services (as herein defined) if so indicated on Exhibit 1, and agent in
connection with certain other activities, and the Company desires to accept
such appointment; and
WHEREAS, the Investment Company may desire to appoint the Company as its
agent to select, negotiate and subcontract for custodian services from an
approved list of qualified banks if so indicated on Exhibit 1, and the Company
desires to accept such appointment; and
NOW THEREFORE, in consideration of the premises and mutual covenants herein
contained, and intending to be legally bound hereby, the parties hereto agree
as follows:
SECTION ONE: FUND ACCOUNTING.
ARTICLE 1. APPOINTMENT.
The Investment Company hereby appoints the Company to provide certain
pricing and accounting services to the Funds, and/or the Classes, for the
period and on the terms set forth in this Agreement. The Company accepts such
appointment and agrees to furnish the services herein set forth in return for
the compensation as provided in Article 3 of this Section.
ARTICLE 2. THE COMPANY'S DUTIES.
Subject to the supervision and control of the Investment Company's Board of
Trustees or Directors ("Board"), the Company will assist the Investment
Company with regard to fund accounting for the Investment Company, and/or the
Funds, and/or the Classes, and in connection therewith undertakes to perform
the following specific services;
A. Value the assets of the Funds using: primarily, market quotations,
including the use of matrix pricing, supplied by the independent pricing
services selected by the Company in consultation with the adviser, or
sources selected by the adviser, and reviewed by the board; secondarily,
if a designated pricing service does not provide a price for a security
which the Company believes should be available by market quotation, the
Company may obtain a price by calling brokers designated by the
investment adviser of the fund holding the security, or if the adviser
does not supply the names of such brokers, the Company will attempt on
its own to find brokers to price those securities; thirdly, for
securities for which no market price is available, the Pricing Committee
of the Board will determine a fair value in good faith. Consistent with
Rule 2a-4 of the 40 Act, estimates may be used where necessary or
appropriate. The Company's obligations with regard to the prices
received from outside pricing services and designated brokers or other
outside sources, is to exercise reasonable care in the supervision of
the pricing agent. The Company is not the guarantor of the securities
prices received from such agents and the Company is not liable to the
Fund for potential errors in valuing a Fund's assets or calculating the
net asset value per share of such Fund or Class when the calculations
are based upon such prices. All of the above sources of prices used as
described are deemed by the Company to be authorized sources of security
prices. The Company provides daily to the adviser the securities prices
used in calculating the net asset value of the fund, for its use in
preparing exception reports for those prices on which the adviser has
comment. Further, upon receipt of the exception reports generated by the
adviser, the Company diligently pursues communication regarding
exception reports with the designated pricing agents;
B. Determine the net asset value per share of each Fund and/or Class, at
the time and in the manner from time to time determined by the Board and
as set forth in the Prospectus and Statement of Additional Information
("Prospectus") of each Fund;
C. Calculate the net income of each of the Funds, if any;
D. Calculate realized capital gains or losses of each of the Funds
resulting from sale or disposition of assets, if any;
E. Maintain the general ledger and other accounts, books and financial
records of the Investment Company, including for each Fund, and/or
Class, as required under Section 31(a) of the 1940 Act and the Rules
thereunder in connection with the services provided by the Company;
F. Preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the
records to be maintained by Rule 31a-1 under the 1940 Act in connection
with the services provided by the Company. The Company further agrees
that all such records it maintains for the Investment Company are the
property of the Investment Company and further agrees to surrender
promptly to the Investment Company such records upon the Investment
Company's request;
G. At the request of the Investment Company, prepare various reports or
other financial documents in accordance with generally accepted
accounting principles as required by federal, state and other applicable
laws and regulations; and
H. Such other similar services as may be reasonably requested by the
Investment Company.
The foregoing, along with any additional services that the Company shall
agree in writing to perform for the Investment Company under this Section One,
shall hereafter be referred to as "Fund Accounting Services."
ARTICLE 3. COMPENSATION AND ALLOCATION OF EXPENSES.
A. The Funds will compensate the Company for Fund Accounting Services in
accordance with the fees agreed upon from time to time between the
parties hereto. Such fees do not include out-of-pocket disbursements of
the Company for which the Funds shall reimburse the Company. Out-of-
pocket disbursements shall include, but shall not be limited to, the
items agreed upon between the parties from time to time.
B. The Fund and/or the Class, and not the Company, shall bear the cost of:
custodial expenses; membership dues in the Investment Company Institute
or any similar organization; transfer agency expenses; investment
advisory expenses; costs of printing and mailing stock certificates,
Prospectuses, reports and notices; administrative expenses; interest on
borrowed money; brokerage commissions; taxes and fees payable to
federal, state and other governmental agencies; fees of Trustees or
Directors of the Investment Company; independent auditors expenses;
legal and audit department expenses billed to the Company for work
performed related to the Investment Company, the Funds, or the Classes;
law firm expenses; organizational expenses; or other expenses not
specified in this Article 3 which may be properly payable by the Funds
and/or Classes.
C. The compensation and out-of-pocket expenses attributable to the Fund
shall be accrued by the Fund and shall be paid to the Company no less
frequently than monthly, and shall be paid daily upon request of the
Company. The Company will maintain detailed information about the
compensation and out-of-pocket expenses by Fund and Class.
D. Any schedule of compensation agreed to hereunder, as may be adjusted
from time to time, shall be dated and signed by a duly authorized
officer of the Investment Company and/or the Funds and a duly authorized
officer of the Company.
E. The fee for the period from the effective date of this Agreement with
respect to a Fund or a Class to the end of the initial month shall be
prorated according to the proportion that such period bears to the full
month period. Upon any termination of this Agreement before the end of
any month, the fee for such period shall be prorated according to the
proportion which such period bears to the full month period. For
purposes of determining fees payable to the Company, the value of the
Fund's net assets shall be computed at the time and in the manner
specified in the Fund's Prospectus.
F. The Company, in its sole discretion, may from time to time subcontract
to, employ or associate with itself such person or persons as the
Company may believe to be particularly suited to assist it in performing
Fund Accounting Services. Such person or persons may be affiliates of
the Company, third-party service providers, or they may be officers and
employees who are employed by both the Company and the Investment
Company; provided, however, that the Company shall be as fully
responsible to each Fund for the acts and omissions of any such
subcontractor as it is for its own acts and omissions. The compensation
of such person or persons shall be paid by the Company and no obligation
shall be incurred on behalf of the Investment Company, the Funds, or the
Classes in such respect.
SECTION TWO: ADMINISTRATIVE SERVICES.
ARTICLE 4. APPOINTMENT.
The Investment Company hereby appoints the Company as Administrator for the
period on the terms and conditions set forth in this Agreement. The Company
hereby accepts such appointment and agrees to furnish the services set forth
in Article 5 of this Agreement in return for the compensation set forth in
Article 9 of this Agreement.
ARTICLE 5. THE COMPANY'S DUTIES.
As Administrator, and subject to the supervision and control of the Board
and in accordance with Proper Instructions (as defined hereafter) from the
Investment Company the Company will provide facilities, equipment, and
personnel to carry out the following administrative services for operation of
the business and affairs of the Investment Company and each of its portfolios:
A. prepare, file, and maintain the Investment Company's governing documents
and any amendments thereto, including the Charter (which has already
been prepared and filed), the By-laws and minutes of meetings of the
Board and Shareholders;
B. prepare and file with the Securities and Exchange Commission and the
appropriate state securities authorities the registration statements for
the Investment Company and the Investment Company's shares and all
amendments thereto, reports to regulatory authorities and shareholders,
prospectuses, proxy statements, and such other documents all as may be
necessary to enable the Investment Company to make a continuous offering
of its shares;
C. prepare, negotiate, and administer contracts (if any) on behalf of the
Investment Company with, among others, the Investment Company's
investment advisers and distributors, subject to any applicable
restrictions of the Board or the 1940 Act;
D. calculate performance data of the Investment Company for dissemination
to information services covering the investment company industry;
E. prepare and file the Investment Company's tax returns;
F. coordinate the layout and printing of publicly disseminated prospectuses
and reports;
G. perform internal audit examinations in accordance with a charter to be
adopted by the Company and the Investment Company;
H. assist with the design, development, and operation of the Investment
Company and the Funds;
I. provide individuals reasonably acceptable to the Board for nomination,
appointment, or election as officers of the Investment Company, who will
be responsible for the management of certain of the Investment Company's
affairs as determined by the Investment Company's Board; and
J. consult with the Investment Company and its Board on matters concerning
the Investment Company and its affairs.
The foregoing, along with any additional services that the Company shall
agree in writing to perform for the Investment Company under this Section 4,
shall hereafter be referred to as "Administrative Services."
ARTICLE 6. RECORDS.
The Company shall create and maintain all necessary books and records in
accordance with all applicable laws, rules and regulations, including but not
limited to records required by Section 31(a) of the Investment Company act of
1940 and the rules thereunder, as the same may be amended from time to time,
pertaining to the Administrative Services performed by it and not otherwise
created and maintained by another party pursuant to contract with the
Investment Company. Where applicable, such records shall be maintained by the
Company for the periods and in the places required by Rule 31a-2 under the
1940 Act. The books and records pertaining to the Investment Company which
are in the possession of the Company shall be the property of the Investment
Company. The Investment Company, or the Investment Company's authorized
representatives, shall have access to such books and records at all times
during the Company's normal business hours. Upon the reasonable request of
the Investment Company, copies of any such books and records shall be provided
promptly by the Company to the Investment Company or the Investment Company's
authorized representatives.
ARTICLE 7. DUTIES OF THE FUND.
The Fund assumes full responsibility for the preparation, contents and
distribution of its own offering document and for complying with all
applicable requirements the 1940 Act, the Internal Revenue Code, and any other
laws, rules and regulations of government authorities having jurisdiction.
ARTICLE 8. EXPENSES.
The Company shall be responsible for expenses incurred in providing office
space, equipment, and personnel as may be necessary or convenient to provide
the Administrative Services to the Investment Company, including the
compensation of the Company employees who serve as trustees or directors or
officers of the Investment Company. The Investment Company shall be
responsible for all other expenses incurred by the Company on behalf of the
Investment Company, including without limitation postage and courier expenses,
printing expenses, travel expenses, registration fees, filing fees, fees of
outside counsel and independent auditors, or other professional services,
organizational expenses, insurance premiums, fees payable to persons who are
not the Company's employees, trade association dues, and other expenses
properly payable by the Funds and/or the Classes.
ARTICLE 9. COMPENSATION.
For the Administrative Services provided, the Investment Company hereby
agrees to pay and the Company hereby agrees to accept as full compensation for
its services rendered hereunder an administrative fee at an annual rate per
Fund, as specified below.
The compensation and out of pocket expenses attributable to the Fund shall
be accrued by the Fund and paid to the Company no less frequently than
monthly, and shall be paid daily upon request of the Company. The Company
will maintain detailed information about the compensation and out of pocket
expenses by the Fund.
MAX. ADMIN. AVERAGE DAILY NET ASSETS
FEE OF THE FUNDS
.150% on the first $250 million
.125% on the next $250 million
.100% on the next $250 million
.075% on assets in excess of $750 million
(Average Daily Net Asset break-points are on a complex-wide basis)

However, in no event shall the administrative fee received during any year
of the Agreement be less than, or be paid at a rate less than would aggregate
$125,000 per Fund and $30,000 per Class. The minimum fee set forth above in
this Article 9 may increase annually upon each March 1 anniversary of this
Agreement over the minimum fee during the prior 12 months, as calculated under
this agreement, in an amount equal to the increase in Pennsylvania Consumer
Price Index (not to exceed 6% annually) as last reported by the U.S. Bureau of
Labor Statistics for the twelve months immediately preceding such anniversary.
ARTICLE 10. RESPONSIBILITY OF ADMINISTRATOR.
A. The Company shall not be liable for any error of judgment or mistake of
law or for any loss suffered by the Investment Company in connection
with the matters to which this Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on its
part in the performance of its duties or from reckless disregard by it
of its obligations and duties under this Agreement. The Company shall
be entitled to rely on and may act upon advice of counsel (who may be
counsel for the Investment Company) on all matters, and shall be without
liability for any action reasonably taken or omitted pursuant to such
advice. Any person, even though also an officer, director, trustee,
partner, employee or agent of the Company, who may be or become an
officer, director, trustee, partner, employee or agent of the Investment
Company, shall be deemed, when rendering services to the Investment
Company or acting on any business of the Investment Company (other than
services or business in connection with the duties of the Company
hereunder) to be rendering such services to or acting solely for the
Investment Company and not as an officer, director, trustee, partner,
employee or agent or one under the control or direction of the Company
even though paid by the Company.
B. The Company shall be kept indemnified by the Investment Company and be
without liability for any action taken or thing done by it in performing
the Administrative Services in accordance with the above standards. In
order that the indemnification provisions contained in this Article 10
shall apply, however, it is understood that if in any case the
Investment Company may be asked to indemnify or hold the Company
harmless, the Investment Company shall be fully and promptly advised of
all pertinent facts concerning the situation in question, and it is
further understood that the Company will use all reasonable care to
identify and notify the Investment Company promptly concerning any
situation which presents or appears likely to present the probability of
such a claim for indemnification against the Investment Company. The
Investment Company shall have the option to defend the Company against
any claim which may be the subject of this indemnification. In the
event that the Investment Company so elects, it will so notify the
Company and thereupon the Investment Company shall take over complete
defense of the claim, and the Company shall in such situation initiate
no further legal or other expenses for which it shall seek
indemnification under this Article. the Company shall in no case
confess any claim or make any compromise in any case in which the
Investment Company will be asked to indemnify the Company except with
the Investment Company's written consent.
SECTION THREE: TRANSFER AGENCY SERVICES.
ARTICLE 11. TERMS OF APPOINTMENT.
Subject to the terms and conditions set forth in this Agreement, the
Investment Company hereby appoints the Company to act as, and the Company
agrees to act as, transfer agent and dividend disbursing agent for each Fund's
Shares, and agent in connection with any accumulation, open-account or similar
plans provided to the shareholders of any Fund ("Shareholder(s)"), including
without limitation any periodic investment plan or periodic withdrawal
program.
ARTICLE 12. DUTIES OF THE COMPANY.
The Company shall perform the following services in accordance with Proper
Instructions as may be provided from time to time by the Investment Company as
to any Fund:
A. Purchases
(1) The Company shall receive orders and payment for the purchase of
shares and promptly deliver payment and appropriate documentation
therefore to the custodian of the relevant Fund, (the "Custodian").
The Company shall notify the Fund and the Custodian on a daily
basis of the total amount of orders and payments so delivered.
(2) Pursuant to purchase orders and in accordance with the Fund's
current Prospectus, the Company shall compute and issue the
appropriate number of Shares of each Fund and/or Class and hold
such Shares in the appropriate Shareholder accounts.
(3) For certificated Funds and/or Classes, if a Shareholder or its
agent requests a certificate, the Company, as Transfer Agent, shall
countersign and mail by first class mail, a certificate to the
Shareholder at its address as set forth on the transfer books of
the Funds, and/or Classes, subject to any Proper Instructions
regarding the delivery of certificates.
(4) In the event that any check or other order for the purchase of
Shares of the Fund and/or Class is returned unpaid for any reason,
the Company shall debit the Share account of the Shareholder by the
number of Shares that had been credited to its account upon receipt
of the check or other order, promptly mail a debit advice to the
Shareholder, and notify the Fund and/or Class of its action. In the
event that the amount paid for such Shares exceeds proceeds of the
redemption of such Shares plus the amount of any dividends paid
with respect to such Shares, the Fund and/the Class or its
distributor will reimburse the Company on the amount of such
excess.
B. Distribution
(1) Upon notification by the Funds of the declaration of any
distribution to Shareholders, the Company shall act as Dividend
Disbursing Agent for the Funds in accordance with the provisions of
its governing document and the then-current Prospectus of the Fund.
The Company shall prepare and mail or credit income, capital gain,
or any other payments to Shareholders. As the Dividend Disbursing
Agent, the Company shall, on or before the payment date of any such
distribution, notify the Custodian of the estimated amount required
to pay any portion of said distribution which is payable in cash
and request the Custodian to make available sufficient funds for
the cash amount to be paid out. The Company shall reconcile the
amounts so requested and the amounts actually received with the
Custodian on a daily basis. If a Shareholder is entitled to receive
additional Shares by virtue of any such distribution or dividend,
appropriate credits shall be made to the Shareholder's account, for
certificated Funds and/or Classes, delivered where requested; and
(2) The Company shall maintain records of account for each Fund and
Class and advise the Investment Company, each Fund and Class and
its Shareholders as to the foregoing.
C. Redemptions and Transfers
(1) The Company shall receive redemption requests and redemption
directions and, if such redemption requests comply with the
procedures as may be described in the Fund Prospectus or set forth
in Proper Instructions, deliver the appropriate instructions
therefor to the Custodian. The Company shall notify the Funds on a
daily basis of the total amount of redemption requests processed
and monies paid to the Company by the Custodian for redemptions.
(2) At the appropriate time upon receiving redemption proceeds from the
Custodian with respect to any redemption, the Company shall pay or
cause to be paid the redemption proceeds in the manner instructed
by the redeeming Shareholders, pursuant to procedures described in
the then-current Prospectus of the Fund.
(3) If any certificate returned for redemption or other request for
redemption does not comply with the procedures for redemption
approved by the Fund, the Company shall promptly notify the
Shareholder of such fact, together with the reason therefor, and
shall effect such redemption at the price applicable to the date
and time of receipt of documents complying with said procedures.
(4) The Company shall effect transfers of Shares by the registered
owners thereof.
(5) The Company shall identify and process abandoned accounts and
uncashed checks for state escheat requirements on an annual basis
and report such actions to the Fund.
D. Recordkeeping
(1) The Company shall record the issuance of Shares of each Fund,
and/or Class, and maintain pursuant to applicable rules of the
Securities and Exchange Commission ("SEC") a record of the total
number of Shares of the Fund and/or Class which are authorized,
based upon data provided to it by the Fund, and issued and
outstanding. The Company shall also provide the Fund on a regular
basis or upon reasonable request with the total number of Shares
which are authorized and issued and outstanding, but shall have no
obligation when recording the issuance of Shares, except as
otherwise set forth herein, to monitor the issuance of such Shares
or to take cognizance of any laws relating to the issue or sale of
such Shares, which functions shall be the sole responsibility of
the Funds.
(2) The Company shall establish and maintain records pursuant to
applicable rules of the SEC relating to the services to be
performed hereunder in the form and manner as agreed to by the
Investment Company or the Fund to include a record for each
Shareholder's account of the following:
(a) Name, address and tax identification number (and whether such
number has been certified);
(b) Number of Shares held;
(c) Historical information regarding the account, including
dividends paid and date and price for all transactions;
(d) Any stop or restraining order placed against the account;
(e) Information with respect to withholding in the case of a
foreign account or an account for which withholding is
required by the Internal Revenue Code;
(f) Any dividend reinvestment order, plan application, dividend
address and correspondence relating to the current maintenance
of the account;
(g) Certificate numbers and denominations for any Shareholder
holding certificates;
(h) Any information required in order for the Company to perform
the calculations contemplated or required by this Agreement.
(3) The Company shall preserve any such records required to be
maintained pursuant to the rules of the SEC for the periods
prescribed in said rules as specifically noted below. Such record
retention shall be at the expense of the Company, and such records
may be inspected by the Fund at reasonable times. The Company may,
at its option at any time, and shall forthwith upon the Fund's
demand, turn over to the Fund and cease to retain in the Company's
files, records and documents created and maintained by the Company
pursuant to this Agreement, which are no longer needed by the
Company in performance of its services or for its protection. If
not so turned over to the Fund, such records and documents will be
retained by the Company for six years from the year of creation,
during the first two of which such documents will be in readily
accessible form. At the end of the six year period, such records
and documents will either be turned over to the Fund or destroyed
in accordance with Proper Instructions.
E. Confirmations/Reports
(1) The Company shall furnish to the Fund periodically the following
information:
(a) A copy of the transaction register;
(b) Dividend and reinvestment blotters;
(c) The total number of Shares issued and outstanding in each
state for "blue sky" purposes as determined according to
Proper Instructions delivered from time to time by the Fund to
the Company;
(d) Shareholder lists and statistical information;
(e) Payments to third parties relating to distribution agreements,
allocations of sales loads, redemption fees, or other
transaction- or sales-related payments;
(f) Such other information as may be agreed upon from time to
time.
(2) The Company shall prepare in the appropriate form, file with the
Internal Revenue Service and appropriate state agencies, and, if
required, mail to Shareholders, such notices for reporting
dividends and distributions paid as are required to be so filed and
mailed and shall withhold such sums as are required to be withheld
under applicable federal and state income tax laws, rules and
regulations.
(3) In addition to and not in lieu of the services set forth above, the
Company shall:
(a) Perform all of the customary services of a transfer agent,
dividend disbursing agent and, as relevant, agent in
connection with accumulation, open-account or similar plans
(including without limitation any periodic investment plan or
periodic withdrawal program), including but not limited to:
maintaining all Shareholder accounts, mailing Shareholder
reports and Prospectuses to current Shareholders, withholding
taxes on accounts subject to back-up or other withholding
(including non-resident alien accounts), preparing and filing
reports on U.S. Treasury Department Form 1099 and other
appropriate forms required with respect to dividends and
distributions by federal authorities for all Shareholders,
preparing and mailing confirmation forms and statements of
account to Shareholders for all purchases and redemptions of
Shares and other conformable transactions in Shareholder
accounts, preparing and mailing activity statements for
Shareholders, and providing Shareholder account information;
and
(b) provide a system which will enable the Fund to monitor the
total number of Shares of each Fund (and/or Class) sold in
each state ("blue sky reporting"). The Fund shall by Proper
Instructions (i) identify to the Company those transactions
and assets to be treated as exempt from the blue sky reporting
for each state and (ii) verify the classification of
transactions for each state on the system prior to activation
and thereafter monitor the daily activity for each state. The
responsibility of the Company for each Fund's (and/or Class's)
state blue sky registration status is limited solely to the
recording of the initial classification of transactions or
accounts with regard to blue sky compliance and the reporting
of such transactions and accounts to the Fund as provided
above.
F. Other Duties
(1) The Company shall answer correspondence from Shareholders relating
to their Share accounts and such other correspondence as may from
time to time be addressed to the Company;
(2) The Company shall prepare Shareholder meeting lists, mail proxy
cards and other material supplied to it by the Fund in connection
with Shareholder meetings of each Fund; receive, examine and
tabulate returned proxies, and certify the vote of the
Shareholders;
(3) The Company shall establish and maintain facilities and procedures
for safekeeping of stock certificates, check forms and facsimile
signature imprinting devices, if any; and for the preparation or
use, and for keeping account of, such certificates, forms and
devices.
ARTICLE 13. DUTIES OF THE INVESTMENT COMPANY.
A. Compliance
The Investment Company or Fund assume full responsibility for the
preparation, contents and distribution of their own and/or their
classes' Prospectus and for complying with all applicable requirements
of the Securities Act of 1933, as amended (the "1933 Act"), the 1940 Act
and any laws, rules and regulations of government authorities having
jurisdiction.
B. Share Certificates
The Investment Company shall supply the Company with a sufficient supply
of blank Share certificates and from time to time shall renew such
supply upon request of the Company. Such blank Share certificates shall
be properly signed, manually or by facsimile, if authorized by the
Investment Company and shall bear the seal of the Investment Company or
facsimile thereof; and notwithstanding the death, resignation or removal
of any officer of the Investment Company authorized to sign
certificates, the Company may continue to countersign certificates which
bear the manual or facsimile signature of such officer until otherwise
directed by the Investment Company.
C. Distributions
The Fund shall promptly inform the Company of the declaration of any
dividend or distribution on account of any Fund's shares.
ARTICLE 14. COMPENSATION AND EXPENSES.
A. Annual Fee
For performance by the Company pursuant to Section Three of this
Agreement, the Investment Company and/or the Fund agree to pay the
Company an annual maintenance fee for each Shareholder account as agreed
upon between the parties and as may be added to or amended from time to
time. Such fees may be changed from time to time subject to written
agreement between the Investment Company and the Company. Pursuant to
information in the Fund Prospectus or other information or instructions
from the Fund, the Company may sub-divide any Fund into Classes or other
sub-components for recordkeeping purposes. The Company will charge the
Fund the same fees for each such Class or sub-component the same as if
each were a Fund.
B. Reimbursements
In addition to the fee paid under Article 7A above, the Investment
Company and/or Fund agree to reimburse the Company for out-of-pocket
expenses or advances incurred by the Company for the items agreed upon
between the parties, as may be added to or amended from time to time. In
addition, any other expenses incurred by the Company at the request or
with the consent of the Investment Company and/or the Fund, will be
reimbursed by the appropriate Fund.
C. Payment
The compensation and out-of-pocket expenses shall be accrued by the Fund
and shall be paid to the Company no less frequently than monthly, and
shall be paid daily upon request of the Company. The Company will
maintain detailed information about the compensation and out-of-pocket
expenses by Fund and Class.
D. Any schedule of compensation agreed to hereunder, as may be adjusted
from time to time, shall be dated and signed by a duly authorized
officer of the Investment Company and/or the Funds and a duly authorized
officer of the Company.
SECTION FOUR: CUSTODY SERVICES PROCUREMENT.
ARTICLE 15. APPOINTMENT.
The Investment Company hereby appoints Company as its agent to evaluate and
obtain custody services from a financial institution that (i) meets the
criteria established in Section 17(f) of the 1940 Act and (ii) has been
approved by the Board as eligible for selection by the Company as a custodian
(the "Eligible Custodian"). The Company accepts such appointment.
ARTICLE 16. THE COMPANY AND ITS DUTIES.
Subject to the review, supervision and control of the Board, the Company
shall:
A. evaluate and obtain custody services from a financial institution that
meets the criteria established in Section 17(f) of the 1940 Act and has
been approved by the Board as being eligible for selection by the Company
as an Eligible Custodian;
B. negotiate and enter into agreements with Eligible Custodians for the
benefit of the Investment Company, with the Investment Company as a
party to each such agreement. The Company may, as paying agent, be a
party to any agreement with any such Eligible Custodian;
C. establish procedures to monitor the nature and the quality of the
services provided by Eligible Custodians;
D. monitor and evaluate the nature and the quality of services provided by
Eligible Custodians;
E. periodically provide to the Investment Company (i) written reports on
the activities and services of Eligible Custodians; (ii) the nature and
amount of disbursements made on account of the each Fund with respect to
each custodial agreement; and (iii) such other information as the Board
shall reasonably request to enable it to fulfill its duties and
obligations under Sections 17(f) and 36(b) of the 1940 Act and other
duties and obligations thereof;
F. periodically provide recommendations to the Board to enhance Eligible
Custodian's customer services capabilities and improve upon fees being
charged to the Fund by Eligible Custodian; and
The foregoing, along with any additional services that Company shall agree
in writing to perform for the Fund under this Section Four, shall hereafter be
referred to as "Custody Services Procurement."
ARTICLE 17. FEES AND EXPENSES.
A. Annual Fee
For the performance of Custody Services Procurement by the Company
pursuant to Section Four of this Agreement, the Investment Company
and/or the Fund agree to compensate the Company in accordance with the
fees agreed upon from time to time.
B. Reimbursements
In addition to the fee paid under Section 11A above, the Investment
Company and/or Fund agree to reimburse the Company for out-of-pocket
expenses or advances incurred by the Company for the items agreed upon
between the parties, as may be added to or amended from time to time. In
addition, any other expenses incurred by the Company at the request or
with the consent of the Investment Company and/or the Fund, will be
reimbursed by the appropriate Fund.
C. Payment
The compensation and out-of-pocket expenses shall be accrued by the Fund
and shall be paid to the Company no less frequently than monthly, and
shall be paid daily upon request of the Company. The Company will
maintain detailed information about the compensation and out-of-pocket
expenses by Fund.
D. Any schedule of compensation agreed to hereunder, as may be adjusted
from time to time, shall be dated and signed by a duly authorized
officer of the Investment Company and/or the Funds and a duly authorized
officer of the Company.
ARTICLE 18. REPRESENTATIONS.
The Company represents and warrants that it has obtained all required
approvals from all government or regulatory authorities necessary to enter
into this arrangement and to provide the services contemplated in Section Four
of this Agreement.
SECTION FIVE: GENERAL PROVISIONS.
ARTICLE 19. PROPER INSTRUCTIONS.
As used throughout this Agreement, a "Proper Instruction" means a writing
signed or initialed by one or more person or persons as the Board shall have
from time to time authorized. Each such writing shall set forth the specific
transaction or type of transaction involved. Oral instructions will be deemed
to be Proper Instructions if (a) the Company reasonably believes them to have
been given by a person previously authorized in Proper Instructions to give
such instructions with respect to the transaction involved, and (b) the
Investment Company, or the Fund, and the Company promptly cause such oral
instructions to be confirmed in writing. Proper Instructions may include
communications effected directly between electro-mechanical or electronic
devices provided that the Investment Company, or the Fund, and the Company are
satisfied that such procedures afford adequate safeguards for the Fund's
assets. Proper Instructions may only be amended in writing.
ARTICLE 20. ASSIGNMENT.
Except as provided below, neither this Agreement nor any of the rights or
obligations under this Agreement may be assigned by either party without the
written consent of the other party.
A. This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
B. With regard to Transfer Agency Services, the Company may without further
consent on the part of the Investment Company subcontract for the
performance of Transfer Agency Services with
(1) its subsidiary, Federated Shareholder Service Company, a Delaware
business trust, which is duly registered as a transfer agent
pursuant to Section 17A(c)(1) of the Securities Exchange Act of
1934, as amended, or any succeeding statute ("Section 17A(c)(1)");
or
(2) such other provider of services duly registered as a transfer agent
under Section 17A(c)(1) as Company shall select.
The Company shall be as fully responsible to the Investment Company for
the acts and omissions of any subcontractor as it is for its own acts
and omissions.
C. With regard to Fund Accounting Services, Administrative Services and
Custody Procurement Services, the Company may without further consent on
the part of the Investment Company subcontract for the performance of
such services with Federated Administrative Services, a wholly-owned
subsidiary of the Company.
D. The Company shall upon instruction from the Investment Company
subcontract for the performance of services under this Agreement with an
Agent selected by the Investment Company, other than as described in B.
and C. above; provided, however, that the Company shall in no way be
responsible to the Investment Company for the acts and omissions of the
Agent.
ARTICLE 21. DOCUMENTS.
A. In connection with the appointment of the Company under this Agreement,
the Investment Company shall file with the Company the following
documents:
(1) A copy of the Charter and By-Laws of the Investment Company and all
amendments thereto;
(2) A copy of the resolution of the Board of the Investment Company
authorizing this Agreement;
(3) Specimens of all forms of outstanding Share certificates of the
Investment Company or the Funds in the forms approved by the Board
of the Investment Company with a certificate of the Secretary of
the Investment Company as to such approval;
(4) All account application forms and other documents relating to
Shareholders accounts; and
(5) A copy of the current Prospectus for each Fund.
B. The Fund will also furnish from time to time the following documents:
(1) Each resolution of the Board of the Investment Company authorizing
the original issuance of each Fund's, and/or Class's Shares;
(2) Each Registration Statement filed with the SEC and amendments
thereof and orders relating thereto in effect with respect to the
sale of Shares of any Fund, and/or Class;
(3) A certified copy of each amendment to the governing document and
the By-Laws of the Investment Company;
(4) Certified copies of each vote of the Board authorizing officers to
give Proper Instructions to the Custodian and agents for fund
accountant, custody services procurement, and shareholder
recordkeeping or transfer agency services;
(5) Specimens of all new Share certificates representing Shares of any
Fund, accompanied by Board resolutions approving such forms;
(6) Such other certificates, documents or opinions which the Company
may, in its discretion, deem necessary or appropriate in the proper
performance of its duties; and
(7) Revisions to the Prospectus of each Fund.
ARTICLE 22. REPRESENTATIONS AND WARRANTIES.
A. Representations and Warranties of the Company
The Company represents and warrants to the Fund that:
(1) it is a corporation duly organized and existing and in good
standing under the laws of the Commonwealth of Pennsylvania;
(2) It is duly qualified to carry on its business in each jurisdiction
where the nature of its business requires such qualification, and
in the Commonwealth of Pennsylvania;
(3) it is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this Agreement;
(4) all requisite corporate proceedings have been taken to authorize it
to enter into and perform its obligations under this Agreement;
(5) it has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement;
(6) it is in compliance with federal securities law requirements and in
good standing as an administrator and fund accountant; and
B. Representations and Warranties of the Investment Company
The Investment Company represents and warrants to the Company that:
(1) It is an investment company duly organized and existing and in good
standing under the laws of its state of organization;
(2) It is empowered under applicable laws and by its Charter and By-
Laws to enter into and perform its obligations under this
Agreement;
(3) All corporate proceedings required by said Charter and By-Laws have
been taken to authorize it to enter into and perform its
obligations under this Agreement;
(4) The Investment Company is an open-end investment company registered
under the 1940 Act; and
(5) A registration statement under the 1933 Act will be effective, and
appropriate state securities law filings have been made and will
continue to be made, with respect to all Shares of each Fund being
offered for sale.
ARTICLE 23. STANDARD OF CARE AND INDEMNIFICATION.
A. Standard of Care
With regard to Sections One, Three and Four, the Company shall be held
to a standard of reasonable care in carrying out the provisions of this
Contract. The Company shall be entitled to rely on and may act upon
advice of counsel (who may be counsel for the Investment Company) on all
matters, and shall be without liability for any action reasonably taken
or omitted pursuant to such advice, provided that such action is not in
violation of applicable federal or state laws or regulations, and is in
good faith and without negligence.
B. Indemnification by Investment Company
The Company shall not be responsible for and the Investment Company or
Fund shall indemnify and hold the Company, including its officers,
directors, shareholders and their agents, employees and affiliates,
harmless against any and all losses, damages, costs, charges, counsel
fees, payments, expenses and liabilities arising out of or attributable
to:
(1) The acts or omissions of any Custodian, Adviser, Sub-adviser or
other party contracted by or approved by the Investment Company or
Fund,
(2) The reliance on or use by the Company or its agents or
subcontractors of information, records and documents in proper form
which
(a) are received by the Company or its agents or subcontractors
and furnished to it by or on behalf of the Fund, its
Shareholders or investors regarding the purchase, redemption
or transfer of Shares and Shareholder account information;
(b) are received by the Company from independent pricing services
or sources for use in valuing the assets of the Funds; or
(c) are received by the Company or its agents or subcontractors
from Advisers, Sub-advisers or other third parties contracted
by or approved by the Investment Company of Fund for use in
the performance of services under this Agreement;
(d) have been prepared and/or maintained by the Fund or its
affiliates or any other person or firm on behalf of the
Investment Company.
(3) The reliance on, or the carrying out by the Company or its agents
or subcontractors of Proper Instructions of the Investment Company
or the Fund.
(4) The offer or sale of Shares in violation of any requirement under
the federal securities laws or regulations or the securities laws
or regulations of any state that such Shares be registered in such
state or in violation of any stop order or other determination or
ruling by any federal agency or any state with respect to the offer
or sale of such Shares in such state.
Provided, however, that the Company shall not be protected by this
Article 23.B. from liability for any act or omission resulting from
the Company's willful misfeasance, bad faith, negligence or
reckless disregard of its duties or failure to meet the standard of
care set forth in 23.A. above.
C. Reliance
At any time the Company may apply to any officer of the Investment
Company or Fund for instructions, and may consult with legal counsel
with respect to any matter arising in connection with the services to be
performed by the Company under this Agreement, and the Company and its
agents or subcontractors shall not be liable and shall be indemnified by
the Investment Company or the appropriate Fund for any action reasonably
taken or omitted by it in reliance upon such instructions or upon the
opinion of such counsel provided such action is not in violation of
applicable federal or state laws or regulations. The Company, its agents
and subcontractors shall be protected and indemnified in recognizing
stock certificates which are reasonably believed to bear the proper
manual or facsimile signatures of the officers of the Investment Company
or the Fund, and the proper countersignature of any former transfer
agent or registrar, or of a co-transfer agent or co-registrar.
D. Notification
In order that the indemnification provisions contained in this
Article 23 shall apply, upon the assertion of a claim for which either
party may be required to indemnify the other, the party seeking
indemnification shall promptly notify the other party of such assertion,
and shall keep the other party advised with respect to all developments
concerning such claim. The party who may be required to indemnify shall
have the option to participate with the party seeking indemnification in
the defense of such claim. The party seeking indemnification shall in no
case confess any claim or make any compromise in any case in which the
other party may be required to indemnify it except with the other
party's prior written consent.
ARTICLE 24. TERM AND TERMINATION OF AGREEMENT.
This Agreement shall be effective from March 1, 1996 and shall continue
until February 28, 2003 (`Term"). Thereafter, the Agreement will continue for
18 month terms. The Agreement can be terminated by either party upon 18
months notice to be effective as of the end of such 18 month period. In the
event, however, of willful misfeasance, bad faith, negligence or reckless
disregard of its duties by the Company, the Investment Company has the right
to terminate the Agreement upon 60 days written notice, if Company has not
cured such willful misfeasance, bad faith, negligence or reckless disregard of
its duties within 60 days. The termination date for all original or after-
added Investment companies which are, or become, a party to this Agreement.
shall be coterminous. Investment Companies that merge or dissolve during the
Term, shall cease to be a party on the effective date of such merger or
dissolution.
Should the Investment Company exercise its rights to terminate, all out-of-
pocket expenses associated with the movement of records and materials will be
borne by the Investment Company or the appropriate Fund. Additionally, the
Company reserves the right to charge for any other reasonable expenses
associated with such termination. The provisions of Articles 10 and 23 shall
survive the termination of this Agreement.
ARTICLE 25. AMENDMENT.
This Agreement may be amended or modified by a written agreement executed by
both parties.
ARTICLE 26. INTERPRETIVE AND ADDITIONAL PROVISIONS.
In connection with the operation of this Agreement, the Company and the
Investment Company may from time to time agree on such provisions interpretive
of or in addition to the provisions of this Agreement as may in their joint
opinion be consistent with the general tenor of this Agreement. Any such
interpretive or additional provisions shall be in a writing signed by both
parties and shall be annexed hereto, provided that no such interpretive or
additional provisions shall contravene any applicable federal or state
regulations or any provision of the Charter. No interpretive or additional
provisions made as provided in the preceding sentence shall be deemed to be an
amendment of this Agreement.
ARTICLE 27. GOVERNING LAW.
This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the Commonwealth of Massachusetts
ARTICLE 28. NOTICES.
Except as otherwise specifically provided herein, Notices and other writings
delivered or mailed postage prepaid to the Investment Company at Federated
Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, or to the Company at
Federated Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, or to such
other address as the Investment Company or the Company may hereafter specify,
shall be deemed to have been properly delivered or given hereunder to the
respective address.
ARTICLE 29. COUNTERPARTS.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original.
ARTICLE 30. LIMITATIONS OF LIABILITY OF TRUSTEES AND SHAREHOLDERS OF THE
COMPANY.
The execution and delivery of this Agreement have been authorized by the
Trustees of the Company and signed by an authorized officer of the Company,
acting as such, and neither such authorization by such Trustees nor such
execution and delivery by such officer shall be deemed to have been made by
any of them individually or to impose any liability on any of them personally,
and the obligations of this Agreement are not binding upon any of the Trustees
or Shareholders of the Company, but bind only the appropriate property of the
Fund, or Class, as provided in the Declaration of Trust.
ARTICLE 31. MERGER OF AGREEMENT.
This Agreement constitutes the entire agreement between the parties hereto
and supersedes any prior agreement with respect to the subject hereof whether
oral or written.
ARTICLE 32. SUCCESSOR AGENT.
If a successor agent for the Investment Company shall be appointed by the
Investment Company, the Company shall upon termination of this Agreement
deliver to such successor agent at the office of the Company all properties of
the Investment Company held by it hereunder. If no such successor agent shall
be appointed, the Company shall at its office upon receipt of Proper
Instructions deliver such properties in accordance with such instructions.
In the event that no written order designating a successor agent or Proper
Instructions shall have been delivered to the Company on or before the date
when such termination shall become effective, then the Company shall have the
right to deliver to a bank or trust company, which is a "bank" as defined in
the 1940 Act, of its own selection, having an aggregate capital, surplus, and
undivided profits, as shown by its last published report, of not less than
$2,000,000, all properties held by the Company under this Agreement.
Thereafter, such bank or trust company shall be the successor of the Company
under this Agreement.
ARTICLE 33. FORCE MAJEURE.
The Company shall have no liability for cessation of services hereunder or
any damages resulting therefrom to the Fund as a result of work stoppage,
power or other mechanical failure, natural disaster, governmental action,
communication disruption or other impossibility of performance.
ARTICLE 34. ASSIGNMENT; SUCCESSORS.
This Agreement shall not be assigned by either party without the prior
written consent of the other party, except that either party may assign all of
or a substantial portion of its business to a successor, or to a party
controlling, controlled by, or under common control with such party. Nothing
in this Article 34 shall prevent the Company from delegating its
responsibilities to another entity to the extent provided herein.
ARTICLE 35. SEVERABILITY.
In the event any provision of this Agreement is held illegal, void or
unenforceable, the balance shall remain in effect.
ARTICLE 36. LIMITATIONS OF LIABILITY OF TRUSTEES AND SHAREHOLDERS OF
THE INVESTMENT COMPANY.
The execution and delivery of this Agreement have been authorized by the
Trustees of the Investment Company and signed by an authorized officer of the
Investment Company, acting as such, and neither such authorization by such
Trustees nor such execution and delivery by such officer shall be deemed to
have been made by any of them individually or to impose any liability on any
of them personally, and the obligations of this Agreement are not binding upon
any of the Trustees or Shareholders of the Investment Company, but bind only
the property of the Fund, or Class, as provided in the Declaration of Trust.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf under their seals by and through
their duly authorized officers, as of the day and year first above written.

INVESTMENT COMPANIES
(LISTED ON EXHIBIT 1)

By: /s/ S. Elliott Cohan
S. Elliott Cohan
Assistant Secretary

FEDERATED SERVICES COMPANY

By: /s/ Thomas J. Ward
Thomas J. Ward
Secretary

EXHIBIT 1
CONTRACT
DATE INVESTMENT COMPANY
Portfolios
Classes

March 1, 1996 FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS
INSTITUTIONAL SHARES
INSTITUTIONAL SERVICE SHARES

FEDERATED SERVICES COMPANY provides the following services:

Administrative Services
Fund Accounting Services
Shareholder Recordkeeping Services

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 001
<NAME> Federated U.S. Government Securities Fund: 1-
Institutional Shares

<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Feb-29-1996
<PERIOD-END> Feb-29-1996
<INVESTMENTS-AT-COST> 710,692,312
<INVESTMENTS-AT-VALUE> 715,998,498
<RECEIVABLES> 13,235,590
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 729,234,088
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,110,204
<TOTAL-LIABILITIES> 5,110,204
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 840,179,675
<SHARES-COMMON-STOCK> 67,228,699
<SHARES-COMMON-PRIOR> 67,014,317
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (121,361,977)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,306,186
<NET-ASSETS> 697,691,973
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 46,807,176
<OTHER-INCOME> 0
<EXPENSES-NET> 4,021,795
<NET-INVESTMENT-INCOME> 42,785,381
<REALIZED-GAINS-CURRENT> 10,131,471
<APPREC-INCREASE-CURRENT> (1,041,038)
<NET-CHANGE-FROM-OPS> 51,875,814
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 40,992,648
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 28,772,490
<NUMBER-OF-SHARES-REDEEMED> 30,221,046
<SHARES-REINVESTED> 1,662,938
<NET-CHANGE-IN-ASSETS> 7,879,059
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (131,199,670)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,902,888
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,932,458
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 10.250
<PER-SHARE-NII> 0.610
<PER-SHARE-GAIN-APPREC> 0.130
<PER-SHARE-DIVIDEND> 0.610
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.380
<EXPENSE-RATIO> 0.54
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>

<S> <C>

<ARTICLE> 6
<SERIES>
<NUMBER> 002
<NAME> Federated U.S. Government Securities Fund: 1-
Institutional Service Shares

<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Feb-29-1996
<PERIOD-END> Feb-29-1996
<INVESTMENTS-AT-COST> 710,692,312
<INVESTMENTS-AT-VALUE> 715,998,498
<RECEIVABLES> 13,235,590
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 729,234,088
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,110,204
<TOTAL-LIABILITIES> 5,110,204
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 840,179,675
<SHARES-COMMON-STOCK> 2,546,957
<SHARES-COMMON-PRIOR> 2,849,035
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (121,361,977)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,306,186
<NET-ASSETS> 26,431,911
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 46,807,176
<OTHER-INCOME> 0
<EXPENSES-NET> 4,021,795
<NET-INVESTMENT-INCOME> 42,785,381
<REALIZED-GAINS-CURRENT> 10,131,471
<APPREC-INCREASE-CURRENT> (1,041,038)
<NET-CHANGE-FROM-OPS> 51,875,814
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,792,733
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,223,967
<NUMBER-OF-SHARES-REDEEMED> 2,678,513
<SHARES-REINVESTED> 152,468
<NET-CHANGE-IN-ASSETS> 7,879,059
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (131,199,670)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,902,888
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,932,458
<AVERAGE-NET-ASSETS> 722,582,805
<PER-SHARE-NAV-BEGIN> 10.250
<PER-SHARE-NII> 0.590
<PER-SHARE-GAIN-APPREC> 0.130
<PER-SHARE-DIVIDEND> 0.590
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.380
<EXPENSE-RATIO> 0.79
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000

</TABLE>