PRESIDENT'S MESSAGE
Dear Investor:
I am pleased to present the Semi-Annual Report to Shareholders for Federated
U.S. Government Securities Fund: 1-3 Years. The Report covers the six-month
period ended August 31, 1996 and includes an investment review by the fund's
portfolio manager, a complete list of holdings, and the financial
statements.
This mutual fund is designed to pursue attractive yields with limited
principal risk through a portfolio of shorter-maturity government
securities.*
During the six-month reporting period, the fund's Institutional Shares paid
income totaling $0.27 per share and Institutional Service Shares paid income
totaling $0.25 per share. The fund's shorter-maturity holdings helped
minimize the impact of rising interest rates on share price, which allowed
the fund to produce a positive total return in a difficult bond market.
Total net assets reached $738 million on August 31, 1996.
Thank you for participating in Federated U.S. Government Securities Fund:
1-3 Years. We welcome your comments and questions.
Sincerely,
[Graphic]
Glen R. Johnson
President
October 15, 1996
*Fund shares are not guaranteed by the U.S. Government.
INVESTMENT REVIEW
Federated U.S. Government Securities Fund: 1-3 Years represents a
fully-invested participation in those obligations of the U.S. Treasury and
certain government agencies which have a maximum maturity of 31o2 years and
an average maturity of 11o2 to 2 years. Since the fund's February 29, 1996
fiscal year end, the fund has remained fully invested in U.S. Treasury
securities. Standard & Poor's has assigned the fund a "AAAf" credit rating.*
Fixed income performance year to date 1996 has been quite the opposite of
that in 1995. At the end of January, the Federal Reserve (the "Fed") had
just lowered the Funds target rate for the third time to 5.25% in response
to a moderating economy and reduced inflationary pressures. But by
mid-February, market sentiment soured and interest rates increased steadily
all along the yield curve in response to stronger economic growth and
heightened inflation fears. Although the Fed's monetary policy has remained
on hold since January 31, 1996, short to intermediate-term rates have
increased more than long-term rates as the market dramatically transitioned
from pricing in aggressive Fed easing to the possibility of Fed tightening.
During the fund's semi-annual reporting period, yields on Treasury
securities maturing in 2 to 5 years increased by almost 1%; specifically,
the 2-year Treasury note yield increased from 5.42% at the end of February
1996 to 6.34% at the end of August 1996. The net total return for the fund's
Institutional Shares and Institutional Service Shares for the six months
ended August 31, 1996 was 1.47% and 1.34%**, respectively, compared to 2.39%
for the Merrill Lynch 1-Year Treasury Index and 1.48% for the Merrill Lynch
2-Year Treasury Index.<
Although the economy is expected to grow, it is not expected to accelerate
enough to warrant aggressive tightening of monetary policy. Therefore, given
the increase in rates and the likelihood that the recent strength in the
economy will not be sustained, the fund's average maturity was lengthened
from a more defensive toward a more neutral posture of 1.7 years currently.
* "AAAf" rated fund portfolio holdings and counterparties provide extremely
strong protection against losses from credit defaults. Ratings do not remove
market risks and are subject to change.
** Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when redeemed,
may be worth more or less than their original cost.
< The Merrill Lynch 1-Year Treasury Index is an unmanaged index tracking
1-year U.S. Government securities. The Merrill Lynch 2-Year Treasury Index
is an unmanaged index tracking 2-year U.S. Government securities. Both
indices are produced by Merrill Lynch, Pierce, Fenner & Smith, Inc.
Investments cannot be made in an index.
<TABLE>
<CAPTION>
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS
PORTFOLIO OF INVESTMENTS
AUGUST 31, 1996 (UNAUDITED)
<C> <C> <C> <C>
PRINCIPAL
AMOUNT VALUE
SHORT-INTERMEDIATE TERM OBLIGATIONS -- 98.6%
U.S. TREASURY NOTES -- 98.6%
$50,000,000 6.375%, 6/30/1997 $ 50,208,000
1,200,000 5.50%, 9/30/1997 1,193,976
15,000,000 5.75%, 9/30/1997 14,961,750
50,000,000 5.625%, 10/31/1997 49,759,500
45,000,000 7.375%, 11/15/1997 45,643,500
25,000,000 5.375%, 11/30/1997 24,779,750
73,000,000 5.25%, 12/31/1997 72,186,050
25,000,000 7.25%, 2/15/1998 25,347,750
62,000,000 6.125%, 3/31/1998 61,903,280
85,000,000 5.875%, 4/30/1998 84,488,300
10,000,000 6.00%, 5/31/1998 9,952,000
15,000,000 6.25%, 6/30/1998 14,987,400
50,000,000 6.125%, 8/31/1998 49,816,000
20,000,000 4.75%, 10/31/1998 19,356,200
50,000,000 5.50%, 11/15/1998 49,090,500
45,000,000 5.00%, 2/15/1999 43,546,500
30,000,000 6.375%, 5/15/1999 29,903,400
20,000,000 6.75%, 5/31/1999 20,123,200
15,000,000 6.75%, 6/30/1999 15,093,600
20,000,000 6.875%, 7/31/1999 20,174,400
10,000,000 6.00%, 8/15/1999 9,864,200
15,000,000 7.125%, 9/30/1999 15,235,350
TOTAL SHORT-INTERMEDIATE TERM OBLIGATIONS
(IDENTIFIED COST $732,158,776) 727,614,606
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS
PRINCIPAL
AMOUNT VALUE
(A)REPURCHASE AGREEMENT -- 7.2%
$53,155,000 BT Securities Corp., 5.27%, dated 8/30/1996, due 9/3/1996
(AT AMORTIZED COST) $ 53,155,000
TOTAL INVESTMENTS (IDENTIFIED COST $785,313,776)(B) $780,769,606
</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
$785,313,776. The net unrealized depreciation of investments on a federal
tax basis amounts to $4,544,170 which is comprised of $35,293 appreciation
and $4,579,463 depreciation at August 31, 1996.
Note: The categories of investments are shown as a percentage of net assets
($738,003,929) at August 31, 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
AUGUST 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Total investments in securities, at value
(identified and tax cost $785,313,776) $ 780,769,606
Income receivable 10,369,487
Receivable for shares sold 369,016
Total assets 791,508,109
LIABILITIES:
Payable for investments purchased $50,189,410
Payable for shares redeemed 23,336
Income distribution payable 3,239,441
Accrued expenses 51,993
Total liabilities 53,504,180
NET ASSETS for 71,911,898 shares outstanding $ 738,003,929
NET ASSETS CONSIST OF:
Paid in capital $ 862,226,806
Net unrealized depreciation of investments (4,544,170)
Accumulated net realized loss on investments (119,680,073)
Undistributed net investment income 1,366
Total Net Assets $ 738,003,929
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$712,822,697 o 69,458,128 shares outstanding $10.26
INSTITUTIONAL SERVICE SHARES:
$25,181,232 o 2,453,770 shares outstanding $10.26
(See Notes which are an integral part of the Financial Statements)
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS
STATEMENT OF OPERATIONS
SIX MONTHS ENDED AUGUST 31, 1996 (UNAUDITED)
INVESTMENT INCOME:
Interest $20,640,268
EXPENSES:
Investment advisory fee $1,435,414
Administrative personnel and services fee 271,293
Custodian fees 50,156
Transfer and dividend disbursing agent fees and expenses 157,221
Directors'/Trustees' fees 7,968
Auditing fees 8,900
Legal fees 3,352
Portfolio accounting fees 65,943
Distribution services fee -- Institutional Service Shares 32,473
Shareholder services fee -- Institutional Shares 864,662
Shareholder services fee -- Institutional Service Shares 32,473
Share registration costs 16,948
Printing and postage 7,052
Insurance premiums 6,838
Taxes 368
Miscellaneous 4,824
Total expenses 2,965,885
Waivers--
Waiver of investment advisory fee $ (84,437)
Waiver of distribution services fee --
Institutional Service Shares (31,174)
Waiver of shareholder services fee -- Institutional Shares (864,662)
Waiver of shareholder services fee --
Institutional Service Shares (1,299)
Total waivers (981,572)
Net expenses 1,984,313
Net investment income 18,655,955
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 1,681,904
Net change in unrealized (depreciation) of investments (9,850,356)
Net realized and unrealized gain (loss) on investments (8,168,452)
Change in net assets resulting from operations $10,487,503
</TABLE>
(See Notes which are an integral part of the Financial Statements)
<TABLE>
<CAPTION>
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS
ENDED YEAR ENDED
(UNAUDITED) FEBRUARY 29,
AUGUST 31, 1996 1996
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
<S> <C> <C>
Net investment income $ 18,655,955 $ 42,785,381
Net realized gain (loss) on investments ($1,681,904 and $292,806,
respectively, as computed for federal tax purposes) 1,681,904 10,131,471
Net change in unrealized appreciation (depreciation) (9,850,356) (1,041,038)
Change in net assets resulting from operations 10,487,503 51,875,814
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Institutional Shares (18,011,670) (40,992,648)
Institutional Service Shares (642,919) (1,792,733)
Change in net assets resulting from distributions to shareholders (18,654,589) (42,785,381)
SHARE TRANSACTIONS--
Proceeds from sale of shares 173,539,605 320,860,683
Net asset value of shares issued to shareholders in payment of
distributions declared 7,010,393 18,801,398
Cost of shares redeemed (158,502,867) (340,873,455)
Change in net assets resulting from share transactions 22,047,131 (1,211,374)
Change in net assets 13,880,045 7,879,059
NET ASSETS:
Beginning of period 724,123,884 716,244,825
End of period (including undistributed net investment income of
$1,366 and $0, respectively) $ 738,003,929 $ 724,123,884
(See Notes which are an integral part of the Financial Statements)
</TABLE>
<TABLE>
<CAPTION>
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
SIX
MONTHS
ENDED
(UNAUDITED)
AUGUST 31, YEAR ENDED FEBRUARY 28, OR 29,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 1996 1995 1994 1993 1992 1991 1990 1989 1988
NET ASSET
VALUE,
BEGINNING
OF PERIOD $10.38 $10.25 $10.46 $10.53 $10.34 $10.12 $ 9.93 $9.81 $10.21 $10.42
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income 0.27 0.61 0.52 0.37 0.48 0.67 0.72 0.84 0.82 0.81
Net realized and
unrealized gain
(loss)
on investments (0.12) 0.13 (0.21) (0.07) 0.19 0.22 0.19 0.12 (0.40) (0.16)
Total from
investment
operations 0.15 0.74 0.31 0.30 0.67 0.89 0.91 0.96 0.42 0.65
LESS DISTRIBUTIONS
Distributions
from net
investment (0.27) (0.61) (0.52) (0.37) (0.48) (0.67) (0.72) (0.84) (0.82) (0.81)
income
Distributions
from net realized
gain on
investments -- -- -- -- -- -- -- -- -- (0.05)
Total
distributions (0.27) (0.61) (0.52) (0.37) (0.48) (0.67) (0.72) (0.84) (0.82) (0.86)
NET ASSET
VALUE, END
OF PERIOD $10.26 $10.38 $10.25 $10.46 $10.53 $10.34 $10.12 $ 9.93 $ 9.81 $10.21
TOTAL
RETURN(A) 1.47% 7.41% 3.14% 2.93% 6.64% 9.07% 10.11% 10.08% 4.23% 6.58%
RATIOS TO AVERAGE
NET ASSETS
Expenses 0.55%* 0.54% 0.54% 0.51% 0.49% 0.48% 0.48% 0.48% 0.47% 0.46%
Net income
investment 5.25%* 5.91% 5.06% 3.56% 4.63% 6.57% 7.79% 8.42% 8.14% 7.89%
Expense waiver/
reimbursement(b) 0.28%* 0.26% 0.02% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.01%
SUPPLEMENTAL DATA
Net assets, end
of period (000 $712,823 $697,692 $687,037 $858,556 $1,034,374 $1,171,633 $1,296,579 $1,725,112 $2,236,208 $3,016,355
omitted)
Portfolio
turnover 77% 142% 265% 150% 132% 114% 96% 172% 112% 85%
* Computed on an annualized basis.
(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)
</TABLE>
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(UNAUDITED)
AUGUST 31, YEAR ENDED FEBRUARY 28, OR 29
1996 1996 1995 1994 1993(A)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.38 $10.25 $10.46 $10.53 $10.37
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.25 0.59 0.50 0.35 0.34
Net realized and unrealized gain (loss) on
investments (0.12) 0.13 (0.21) (0.07) 0.16
Total from investment operations 0.13 0.72 0.29 0.28 0.50
LESS DISTRIBUTIONS
Distributions from net investment income (0.25) (0.59) (0.50) (0.35) (0.34)
NET ASSET VALUE, END OF PERIOD $10.26 $10.38 $10.25 $10.46 $10.53
TOTAL RETURN(B) 1.34% 7.14% 2.88% 2.68% 4.28%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.80%* 0.79% 0.79% 0.76% 0.74%*
Net investment income 5.00%* 5.68% 4.76% 3.33% 4.14%*
Expense waiver/reimbursement(c) 0.28%* 0.26% 0.25% -- --
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $25,181 $26,432 $29,208 $39,905 $72,722
Portfolio turnover 77% 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 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
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1996 (UNAUDITED)
1. ORGANIZATION
Federated U.S. Government Securities Fund: 1-3 Years (the "Trust") is
registered under the Investment Company Act of 1940, as amended (the "Act"),
as a diversified, open-end management investment company. The Trust offers
two classes of shares: Institutional Shares and Institutional Service
Shares. The investment objective of the Trust is to provide current income.
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.
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.
As of 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:
EXPIRATION YEAR EXPIRATION AMOUNT
1997 $39,495,292
1998 $65,200,181
2003 $16,666,504
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.
3. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value) for
each class of shares.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
AUGUST 31, 1996 FEBRUARY 29, 1996
<S> <C> <C> <C> <C>
INSTITUTIONAL SHARES SHARES AMOUNT SHARES AMOUNT
Shares sold 16,057,715 $ 165,532,674 28,772,490 $297,888,019
Shares issued to shareholders in payment of
distributions declared 635,861 6,542,936 1,662,938 17,222,812
Shares redeemed (14,464,147) (149,079,265) (30,221,046) (313,113,463)
Net change resulting from Institutional
Shares transactions 2,229,429 $ 22,996,345 214,382 $ 1,997,368
SIX MONTHS ENDED YEAR ENDED
AUGUST 31, 1996 FEBRUARY 29, 1996
INSTITUTIONAL SERVICE SHARES SHARES AMOUNT SHARES AMOUNT
Shares sold 777,092 $ 8,006,931 2,223,967 $ 22,972,664
Shares issued to shareholders in payment of
distributions declared 45,426 467,457 152,468 1,578,586
Shares redeemed (915,705) (9,423,602) (2,678,513) (27,759,992)
Net change resulting from Institutional
Service Shares transactions (93,187) $ (949,214) (302,078) $ (3,208,742)
Net change resulting from Institutional
Service Shares transactions 2,136,242 $ 22,047,131 (87,696) $ (1,211,374)
</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 and/or
reimburse certain operating expenses of the Trust. The Adviser can modify or
terminate this voluntary waiver and/or reimbursement at any time at its sole
discretion.
ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Trust with administrative
personnel and services. The fee paid to FServ is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors 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 Trust may incur distribution expenses up to 0.25% of the
average daily net assets of the Institutional Service 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. Federated Shareholder Services can modify or terminate
this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ, through
its subsidiary, Federated Shareholder Services Company ("FSSC") serves as
transfer and dividend disbursing agent for the Trust. The fee paid to FSSC
is based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES -- FServ maintains the Trust's accounting records
for which it receives a fee. The fee is based on the level of 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 August 31, 1996, were as follows:
PURCHASES $559,881,733
SALES $538,677,578
TRUSTEES OFFICERS
John F. Donahue John F. Donahue
Thomas G. Bigley Chairman
John T. Conroy, Jr. Glen R. Johnson
William J. Copeland President
James E. Dowd J. Christopher Donahue
Lawrence D. Ellis, M.D. Executive Vice President
Edward L. Flaherty, Jr. Edward C. Gonzales
Peter E. Madden Executive Vice President
Gregor F. Meyer John W. McGonigle
John E. Murray, Jr. Executive Vice President, Treasurer,
Wesley W. Posvar and Secretary
Marjorie P. Smuts Richard B. Fisher
Vice President
J. Crilley Kelly
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including possible loss of principal.
This report is authorized for distribution to prospective investors only
when preceded or accompanied by the fund's prospectus which contains facts
concerning its objective and policies, management fees, expenses, and other
information.
FEDERATED
U.S. GOVERNMENT
SECURITIES FUND:
1-3 YEARS
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
AUGUST 31, 1996
[Graphic]
Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
[Graphic]
Cusip 31428M100
Cusip 31428M209
G01436-01 (10/96)
