FEDERATED U S GOVERNMENT SECURITIES FUND 1-3 YEARS, 485APOS, 1999-02-26

FEDERATED U S GOVERNMENT SECURITIES FUND 1-3 YEARS
485APOS, 1999-02-26

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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.___31 _ ............................... x
--- - ------

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 x
------

Amendment No. __22 __ ........................................... x
--- - ------

FEDERATED U.S. GOVERNMENT SECURITES FUND: 1-3 YEARS
(Exact Name of Registrant as Specified in Charter)

Federated Investors Funds
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7000
(Address of Principal Executive Offices)

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

John W. McGonigle, Esquire
1001 Liberty Avenue
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
(Notices should be sent to the Agent for Service)

It is proposed that this filing will become effective:

immediately upon filing pursuant to paragraph (b)
__ on _______________ pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a) (i) on April 30, 1999
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.

Copies to:

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

Prospectus

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

institutional shares

A mutual fund seeking current income by investing primarily in U.S. government
securities with remaining maturities of three and one-half years or less.

As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.

Contents Risk/Return
Summary What are the Fund's
Fees and Expenses?
What are the Fund's
Investment Strategies? What
are the Principal
Securities in Which the
Fund Invests? What are the
Specific Risks of Investing
in the Fund?
What do Shares Cost?
How is the Fund Sold?
How to Purchase Shares
How to Redeem Shares
Account and Share Information
Who Manages the Fund?
Financial Information

April 30, 1999

<PAGE>

RISK/RETURN SUMMARY

WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective is to provide current income. While there is no
assurance that the Fund will achieve its investment objective, it endeavors to
do so by following the strategies and policies described in this prospectus.

WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in a diversified, short-term portfolio of those direct
obligations of the U.S. government, its agencies and instrumentalities. The Fund
maintains a weighted average portfolio duration that is within 20 percent of the
weighted average portfolio duration of the Merrill Lynch 1-3 Year Treasury
Index. This index is a market capitalization weighted index including all U.S.
Treasury Notes and Bonds with maturities greater than or equal to one year and
less than three years.

WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund. The primary factor that may reduce the Fund's returns
is changes in prevailing interest rates. An increase in interest rates may
result in a decrease in the value of Fund Shares.

The 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 or
guaranteed by the U.S. government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board, or any other government agency.

<PAGE>

Risk/Return Bar Chart and Table
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Federated U.S. Government Securities Fund: 1-3 Years
(Institutional Shares) as of the calendar year-end for each of ten years. The
`y' axis reflects the "% Total Return" beginning with "0%" and increasing in
increments of 2% up to 12%. The `x' axis represents calculation periods for the
last ten calendar years of the Fund, beginning with the earliest year. The light
gray shaded chart features ten distinct vertical bars, each shaded in charcoal,
and each visually representing by height the total return percentages for the
calendar year stated directly at its base. The calculated total return
percentage for the Institutional Shares for each calendar year is stated
directly at the top of each respective bar, for the calendar years 1989 through
1998. The percentages noted are: 10.31%, 9.27%, 10.37%, 5.23%, 4.52%, 0.67%,
9.61%, 4.61%, 6.01%, and 6.40%. The total returns displayed for the Fund do not
reflect the payment of any sales charges or recurring shareholder account fees.
If these charges or fees had been included, the returns shown would have been
lower. The Fund's Institutional Shares total return from January 1,1999 to March
31, 1999 was ____%. Within the period shown in the Chart, the Fund's
Institutional Shares highest quarterly return was 4.56% (quarter ended March 31,
1989). Its lowest quarterly return was -0.35% (quarter ended March 31, 1994).

Average Annual Total Return

1 Year 5 Years 10 Years
Institutional Shares % % %
Merrill Lynch U.S. Treasury Short-Term Index (1-2.99 years) % % %
Lipper Short U.S. Government Funds Average % % %
The Fund Compared to Merrill Lynch U.S. Treasury Short-Term Index (1-2.99 years)
and the Lipper Short U.S. Government Funds Average for the calendar periods
ended December 31, 1998. The bar chart shows the variability of the Fund's
Institutional Shares actual total return on a yearly basis. The table shows how
the Fund's performance compares to an index of funds with similar investment
objectives. The table shows the Fund's Institutional Shares total return
averaged over a period of years relative to the Merrill Lynch U.S. Treasury
Short-Term Index (1-2.99 years), a broad-based market index and the Lipper Short
U.S. Government Funds Average, an average of funds with similar investment
objectives. Past performance does not necessarily predict future performance.
This information provides you with historical performance information so that
you can analyze whether the Fund's investment risks are balanced by its
potential rewards.

<PAGE>

WHAT ARE THE FUND'S FEES AND EXPENSES?

federated u.s. government securities fund: 1-3 years

Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
Shares of the Fund's Institutional Shares.

<S> <C>

Shareholder Fees
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering None
price)
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase None
price or redemption proceeds, as applicable)
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other None
Distributions) (as a percentage of offering price)
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None

Annual Fund Operating Expenses (Before Waivers )(1)
Expenses That are Deducted From Fund Assets (as a percentage of average net
assets)
Management Fee(2) 0.40%
Distribution (12b-1) Fee None
Shareholder Services Fee(3) 0.25%
Other Expenses 0.16%
Total Annual Fund Operating Expenses 0.81%
1 Although not contractually obligated to do so, the adviser, distributor,
and shareholder services provider waived certain amounts. These are shown
below along with the net expenses the Fund would actually paid for the
fiscal year ended February 28, 1999.
Waiver of Fund Expenses 0.27%
Total Actual Annual Fund Operating Expenses (after waivers) 0.54%
</TABLE>

2 The adviser voluntarily waived a portion of the management fee. The adviser
can terminate this voluntary waiver at any time. The management fee paid by
the Fund (after the volunary waiver) was 0.38% for the year ended February
28, 1999.
3 The shareholder services fee for the Fund's Institutional Shares has been
voluntarily reduced. This voluntary reduction can be terminated at any time.
The shareholder services fee paid by the Fund (after the voluntary reduction)
was 0.25% for the fiscal year ended February 28, 1999.

Example
This Example is intended to help you compare the cost of investing in the Fund's
Institutional Shares with the cost of investing in other mutual funds.

The Example assumes that you invest $10,000 in the Fund's Institutional Shares
for the time periods indicated and then redeem all of your Shares at the end of
those periods. The Example also assumes that your investment has a 5% return
each year and that the Fund's Institutional Shares operating expenses are before
waivers as shown in the table and remain the same. Although your actual costs
may be higher or lower, based on these assumptions your costs would be:

1 Year 3 Years 5 Years 10 Years
$83 $259 $450 $1,002

<PAGE>

WHAT ARE THE FUND'S INVESTMENT STRATEGIES?

The Fund invests in a portfolio of direct obligations of the U.S. government,
its agencies and instrumentalities. The Fund's adviser actively manages its
portfolio, seeking to limit the interest rate risk taken by the Fund while
selecting investments that should offer enhanced returns based upon the
adviser's interest rate outlook.

The adviser manages the Fund's interest rate risk by limiting the
dollar-weighted average duration of its portfolio securities. "Duration"
measures the sensitivity of a security's price to changes in interest rates. The
greater a portfolio's average duration, the greater the change in the
portfolio's value in response to a change in market interest rates. As a matter
of investment policy, under normal market conditions, the adviser limits the
average duration of the portfolio to within 20% of the duration of the Merrill
Lynch 1-3 Year Treasury Index (the "Index"). This Index includes all U.S.
Treasury notes and bonds with maturities of one year or greater and less than
three years. This policy should prevent the volatility of the Fund's share price
from significantly exceeding the average volatility of short-term U.S. Treasury
securities.

The adviser uses three principal methods to enhance the portfolio's returns as
compared to the Index. First, the adviser tries to extend the portfolio's
average duration when it expects interest rates to fall and shorten the duration
when it expects interest rates to rise. This method seeks to enhance the returns
from favorable interest rate changes and reduce the effect of unfavorable
changes.

Second, the adviser tries to structure the portfolio to take advantage of
relative changes in interest rates. A portfolio's "structure" refers to whether
it consists primarily of securities with durations close to the portfolio's
average duration (a "bulleted" portfolio), securities with durations above and
below the average duration (a "barbelled" portfolio), or securities with
durations above, below and at the average duration (a "laddered" portfolio). For
example, the adviser may use a bulleted portfolio when the adviser expects the
difference between long term and short term interest rates to increase. This
concentrates the portfolio in securities benefiting most or suffering least from
the relative change in interest rates. The adviser may use a barbelled portfolio
when it expects the difference between long term and short term interest rates
to decrease, and a laddered portfolio when it expects long term and short term
interest rates to change together.

Third, the adviser tries to obtain securities issued by agencies and
instrumentalities of the U.S. that it expects to provide better returns than
U.S. Treasury securities of comparable duration. The adviser's ability to use
this method depends primarily on the availability of, and market demand for,
such securities.

The adviser's interest rate outlook is the most important factor in selecting
the methods used to manage the Fund's portfolio. The adviser formulates its
interest rate outlook by analyzing a variety of factors such as:
o........current and expected U.S. economic growth,
o current and expected interest rates and inflation,
o the Federal Reserve's monetary policy, and
o changes in the supply of or demand for U.S. government securities.

In selecting individual securities, the adviser analyzes how the security should
perform in response to expected interest rate changes as compared to other
securities of comparable risk.

As a consequence of this strategy, most of the Fund's portfolio consists of
securities paying interest exempt from state taxation. However, the Fund also
invests in repurchase agreements for U.S. government securities. Income from
repurchase agreements is not exempt from state taxation. The Fund uses
repurchase agreements to invest cash balances and shorten duration, so the
amount of state taxable income may vary with market conditions. See "Tax
Information" for an explanation of how your investment in the Fund may be taxed.

<PAGE>

WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?

The Fund invests primarily in the following types of U.S. government securities:

U.S. Treasury Securities

Treasury securities are direct obligations of the federal government of the
United States.

U.S. Government Agency Securities
Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (GSE). Normally,
the Fund invests only in GSE securities that are supported by the full
faith and credit of the United States.

WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?

Prices of fixed income securities rise and fall in response to interest
rate changes for similar securities. Generally, when interest rates rise, prices
of fixed income securities fall. This is also referred to as "interest rate
risk". Due to the Fund's average duration policy, it is expected to have less
interest rate risk than Federated U.S. Government Securities Fund: 2-5 Years,
Federated U.S. Government Securities Fund: 5-10 Years, or Federated U.S.
Government Bond Fund, all of which have longer average durations than the Fund.

WHAT DO SHARES COST?

You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. When the Fund receives your transaction request in proper form, it is
processed at the next calculated net asset value (NAV). The Fund does not charge
a front-end sales charge. NAV is determined at the end of regular trading
(normally 4:00 p.m. Eastern time) each day the NYSE is open.

The required minimum initial investment for Fund Shares is $25,000. There is no
required minimum subsequent investment amount.

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 is
calculated by combining all accounts it maintains with the Fund. Accounts
established through investment professionals may be subject to a smaller minimum
investment amount. Keep in mind that investment professionals may charge you
fees for their services in connection with your Share transactions.

HOW IS THE FUND SOLD?

The Fund offers two share classes: Institutional Shares and Institutional
Service Shares, each representing interests in a single portfolio of securities.
This prospectus relates only to Institutional Shares. Each share class has
different expenses, which affect their performance. Contact your investment
professional or call 1-800-341-7400 for more information concerning the other
class.

The Fund's Distributor markets the Shares described in this prospectus to
institutions acting in an agency or fiduciary capacity or to individuals
directly or through investment professionals.

The Distributor and its affiliates may pay out of their assets other
amounts (including items of material value) to investment professionals for
marketing and servicing Shares. The Distributor is a subsidiary of Federated
Investors, Inc. (Federated).

HOW TO PURCHASE SHARES

You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase Shares.

THROUGH AN INVESTMENT PROFESSIONAL

o Establish an account with the investment professional; and

o Submit your purchase order to the investment professional before the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). You will
receive the next calculated NAV if the investment professional forwards the
order to the Fund on the same day and the Fund receives payment within one
business day. You will become the owner of Shares and receive dividends when
the Fund receives your payment.

Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."

DIRECTLY FROM THE FUND

o Establish your account with the Fund by submitting a completed New Account
Form; and

o Send your payment to the Fund by Federal Reserve wire or check.

You will become the owner of Shares and your Shares will be priced at the next
calculated NAV after the Fund receives your wire or your check. If your check
does not clear, your purchase will be canceled and you could be liable for any
losses or fees the Fund or its transfer agent incurs.

An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the next calculated NAV after the Fund receives
the order.

By Wire Send your wire to:

State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.

By Check
Make your check payable to The Federated Funds, note your account number on the
check, and mail it to:

Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a private courier or overnight delivery service that
requires a street address, mail it to:

Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317

Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone other
than you or The Federated Funds).

BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.

HOW TO REDEEM SHARES
You should redeem Shares:

o through an investment professional if you purchased Shares through an
investment professional; or

o directly from the Fund if you purchased Shares directly from the Fund.

THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). The redemption
amount you will receive is based upon the next calculated NAV after the Fund
receives the order from your investment professional.

DIRECTLY FROM THE FUND

By Telephone
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions.

If you call before the end of regular trading on the NYSE (normally 4:00 p.m.
Eastern time) you will receive a redemption amount based on that day's NAV.

By Mail
You may redeem Shares by mailing a written request to the Fund.

You will receive a redemption amount based on the next calculated NAV after the
Fund receives your written request in proper form.

Send requests by mail to:

Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by private courier or overnight delivery service to:

Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317 All requests must include:

o Fund Name and Share Class, account number and account registration;

o amount to be redeemed; and

o signatures of all Shareholders exactly as registered.

Call your investment professional or the Fund if you need special instructions.

Signature Guarantees Signatures must be guaranteed if:

o your redemption will be sent to an address other than the address of
record;

o your redemption will be sent to an address of record that was changed
within the last 30 days; or

o a redemption is payable to someone other than the shareholder(s) of
record.

A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A notary public cannot
provide a signature guarantee.

PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:

o an electronic transfer to your account at a financial institution that is
an ACH member; or

o wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.

Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.

LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:

o to allow your purchase to clear;

o during periods of market volatility; or

o when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.

You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.

ADDITIONAL CONDITIONS

Telephone Transactions
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.

Share Certificates
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return the
certificates with your written redemption request. For your protection, send
your certificates by registered or certified mail, but do not endorse them.

ACCOUNT AND SHARE INFORMATION

CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases and redemptions. In addition, you
will receive periodic statements reporting all account activity, including
dividends and capital gains paid.

DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to shareholders. If
you purchase Shares by wire, you begin earning dividends on the day your wire is
received. If you purchase Shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through the day your redemption request is received.

In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.

If you purchase Shares just before a Fund declares a dividend or capital gain
distribution, you will pay the full price for the Shares and then receive a
portion of the price back in the form of a taxable distribution, whether or not
you reinvest the distribution in Shares. Therefore, you should consider the tax
implications of purchasing Shares shortly before the Fund declares a dividend or
capital gain. Contact your investment professional or the Fund for information
concerning when dividends and capital gains will be paid.

ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, non-retirement
accounts may be closed if redemptions cause the account balance to fall below
the minimum initial investment amount. Before an account is closed, you will be
notified and allowed 30 days to purchase additional Shares to meet the minimum.

TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Dividends are taxable as ordinary income; capital gains
are taxable at different rates depending upon the length of time the Fund holds
its assets.

Fund distributions are expected to be primarily dividends. Redemptions are
taxable sales. Please consult your tax adviser regarding your federal, state,
and local tax liability.

WHO MANAGES THE FUND?

The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Management. The Adviser manages the Fund's assets, including
buying and selling portfolio securities. The Adviser's address is Federated
Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779. The Fund's
portfolio managers are:

Susan M. Nason has been the Fund's portfolio manager since September 1991. She
is Vice President of the Fund. Ms. Nason joined Federated in 1987 and has been a
Senior Portfolio Manager and Senior Vice President of the Fund's Adviser since
1997. Ms. Nason served as a Portfolio Manager and Vice President of the Adviser
from 1993 to 1997. Ms. Nason is a Chartered Financial Analyst and received her
M.S.I.A. concentrating in Finance from Carnegie Mellon University.

Robert J. Ostrowski has been the Fund's portfolio manager since September 1997.
Mr. Ostrowski joined Federated in 1987 as an Investment Analyst and has been a
Senior Vice President of the Fund's Adviser since September 1997. Mr. Ostrowski
served as Vice President of the Fund's Adviser from 1993 to 1997, and as an
Assistant Vice President from 1992 to 1993. Mr. Ostrowski is a Chartered
Financial Analyst. He received his M.S. in Industrial Administration from
Carnegie Mellon University.

The Adviser and other subsidiaries of Federated advise approximately 175 mutual
funds and separate accounts, which total approximately $111 billion in assets as
of December 31, 1998. Federated was established in 1955 and is one of the
largest mutual fund investment managers in the United States with approximately
1,900 employees. More than 4,000 investment professionals make Federated Funds
available to their customers.

Advisory Fees
The Adviser receives an annual investment advisory fee of 0.40% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.

Year 2000 Readiness
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999. The Year 2000 problem may cause systems to process information incorrectly
and could disrupt businesses that rely on computers, like the Fund.

While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.

The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.

Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase.

The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.

FINANCIAL INFORMATION

FINANCIAL HIGHLIGHTS

The following Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of any dividends and capital
gains.

This information has been audited by Ernst & Young LLP, whose report, along with
the Fund's audited financial statements, is included in this prospectus.

Financial Statements to be filed by Amendment.

<PAGE>

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

institutional shares

A Statement of Additional Information (SAI) dated April 30, 1999 is incorporated
by reference into this prospectus. Additional information about the Fund's
investments is contained in the Fund's annual and semi-annual reports to
shareholders as they become available. The annual report discusses market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year. To obtain the SAI, the annual report,
semi-annual report and other information without charge, call your investment
professional or the Fund at 1-800-341-7400.

You can obtain information about the Fund (including the SAI) by visiting or
writing the Public Reference Room of the Securities and Exchange Commission in
Washington, DC 20549-6009 or from the Commission's Internet site at
http://www.sec.gov. You can call 1-800-SEC-0330 for information on the Public
Reference Room's operations and copying charges.

Investment Company Act File No. 811-3947
Cusip 31428M100

8032806A-IS (4/99)

Prospectus

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

institutional service shares

A mutual fund seeking current income by investing primarily in U.S. government
securities with remaining maturities of three and one-half years or less.

Contents Risk/Return
Summary What are the Fund's
Fees and Expenses?
What are the Fund's
Investment Strategies? What
are the Principal
Securities in Which the
Fund Invests? What are the
Specific Risks of Investing
in the Fund?
What do Shares Cost?
How is the Fund Sold?
How to Purchase Shares
How to Redeem and Exchange Shares
Account and Share Information
Who Manages the Fund?
Financial Information

april 30, 1999

<PAGE>

RISK/RETURN SUMMARY

<PAGE>

Risk/Return Bar Chart and Table
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Federated U.S. Government Securities Fund: 1-3 Years
(Institutional Service Shares) as of the calendar year-end for each of six
years. The `y' axis reflects the "% Total Return" beginning with "0%" and
increasing in increments of 1% up to 10% . The `x' axis represents calculation
periods from the earliest calendar year end of the Institutional Service Shares
start of business through the calendar year ended December 31, 1998. The light
gray shaded chart features six distinct vertical bars, each shaded in charcoal,
and each visually representing by height the total return percentages for the
calendar year stated directly at its base. The calculated total return
percentage for the Institutional Service Shares for each calendar year is stated
directly at the top of each respective bar, for the calendar years 1993 through
1998. The percentages noted are: 4.26%, 0.42%, 9.33%, 4.35%, 5.74%, and 6.14%.
The total returns displayed for the Fund do not reflect the payment of any sales
charges or recurring shareholder account fees. If these charges or fees had been
included, the returns shown would have been lower. The Fund's Institutional
Service Shares total return from January 1,1999 to March 31, 1999 was ____%.
Within the period shown in the Chart, the Fund's Institutional Service Shares
highest quarterly return was 2.97% (quarter ended March 31, 1995). Its lowest
quarterly return was -0.41% (quarter ended March 31, 1994).

Average Annual Total Return

Life of the Fund 1 Year 5 Years
Institutional Service Shares % % %
Merrill Lynch U.S. Treasury Short-Term Index (1-2.99 years) % % %
Lipper Short U.S. Government Funds Average % % %
</TABLE>

1 Since inception date of May 30, 1992.
The Fund Compared to Merrill Lynch U.S. Treasury Short-Term Index (1-2.99 years)
for the calendar periods ending December 31, 1998. The table shows how the
Fund's performance compares to an index of funds with similar investment
objectives. The bar chart shows the variability of the Fund's Institutional
Service Shares actual total return on a yearly basis. The table shows the Fund's
Institutional Service Shares average annual total returns compared to the
_______, a broad-based index. Past performance does not necessarily predict
future performance. This information provides you with historical performance so
that you can analyze whether the Fund's investment risks are balanced by its
potential rewards.

<PAGE>

WHAT ARE THE FUND'S FEES AND EXPENSES?

Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
Shares of the Fund's Institutional Service Shares.

<S> <C>

Annual Fund Operating Expenses (Before Waivers )(1)
Expenses That are Deducted From Fund Assets (as a percentage of average net
assets)
Management Fee(2) 0.40%
Distribution (12b-1) Fee(3) 0.25%
Shareholder Services Fee(4) 0.25%
Other Expenses 0.16%
Total Annual Fund Operating Expenses 1.06%
1 Although not contractually obligated to do so, the adviser, distributor,
and shareholder services provider waived certain amounts. These are shown
below along with the net expenses the Fund actually paid for the fiscal
year ended February 28, 1999.
Waivers of Fund Expenses 0.27%
Total Actual Annual Fund Operating Expenses (after waivers) 0.79%
</TABLE>

2 The adviser voluntarily waived a portion of the management fee. The adviser
can terminate this voluntary waiver at any time. The management fee paid by
the Fund (after the voluntary waiver) was 0.38% for the year ended February
28, 1999.
3 The distribution (12b-1) fee for the Fund's Institutional Service Shares has
been voluntarily reduced. This voluntary reduction can be terminated at any
time. The shareholder services fee paid by the Fund (after the voluntary
reduction) was 0.01% for the year ended February 28, 1999.
4 The shareholder services fee for the Fund's Institutional Service Shares has
been voluntarily reduced. This voluntary reduction can be terminated at any
time. The shareholder services fee paid by the Fund (after voluntary
reduction) was 0.24% for the fiscal year ended February 28, 1999.

Example
This Example is intended to help you compare the cost of investing in the Fund's
Institutional Service Shares with the cost of investing in other mutual funds.

The Example assumes that you invest $10,000 in the Fund's Institutional Service
Shares for the time periods indicated and then redeem all of your Shares at the
end of those periods. The Example also assumes that your investment has a 5%
return each year and that the Fund's Institutional Service Shares operating
expenses are before waivers as shown in the table and remain the same. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be:

1 Year 3 Years 5 Years 10 Years
$108 $337 $585 $1,294

<PAGE>

WHAT ARE THE FUND'S INVESTMENT STRATEGIES?

In selecting individual securities, the adviser analyzes how the security should
perform in response to expected interest rate changes as compared to other
securities of comparable risk.

<PAGE>

WHAT ARE THE PRINCIPAL SECURITIES IN WHICH THE FUND INVESTS?

The Fund invests primarily in the following types of U.S. government securities:

U.S. Treasury Securities

Treasury securities are direct obligations of the federal government of the
United States.

WHAT ARE THE SPECIFIC RISKS OF INVESTING IN THE FUND?

Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices of
fixed income securities fall. This is also referred to as "interest rate risk".
Due to the Fund's average duration policy, it is expected to have less interest
rate risk than Federated U.S. Government Securities Fund: 2-5 Years, Federated
U.S. Government Securities Fund: 5-10 Years, or Federated U.S. Government Bond
Fund, all of which have longer average durations than the Fund.

WHAT DO SHARES COST?
You can purchase, redeem, or exchange Shares any day the New York Stock Exchange
(NYSE) is open. When the Fund receives your transaction request in proper form,
it is processed at the next calculated net asset value (NAV).

The Fund does not charge a front-end sales charge. NAV is determined at the end
of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE is open.

The required minimum initial investment for Fund Shares is $25,000. There is no
required minimum subsequent investment amount.

HOW IS THE FUND SOLD?

The Fund offers two share classes: Institutional Shares and Institutional
Service Shares, each representing interests in a single portfolio of securities.
This prospectus relates only to Institutional Service Shares. Each share class
has different expenses, which affect their performance. Contact your investment
professional or call 1-800-341-7400 for more information concerning the other
class.

The Fund's Distributor markets the Shares described in this prospectus to retail
and private banking customers of financial institutions or individuals, directly
or through investment professionals.

When the Distributor receives marketing fees, it may pay some or all of them to
investment professionals. The Distributor and its affiliates may pay out of
their assets other amounts (including items of material value) to investment
professionals for marketing and servicing Shares. The Distributor is a
subsidiary of Federated Investors, Inc. (Federated).

RULE 12B-1 PLAN
The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to
the Distributor and investment professionals for the sale, distribution and
customer servicing of the Fund's Institutional Service Shares. Because these
Shares pay marketing fees on an ongoing basis, your investment cost may be
higher over time than other shares with different sales charges and marketing
fees.

HOW TO PURCHASE SHARES

You may purchase Shares through an investment professional, directly from the
Fund, or through an exchange from another Federated Fund. The Fund reserves the
right to reject any request to purchase or exchange Shares.

THROUGH AN INVESTMENT PROFESSIONAL
o Establish an account with the investment professional; and

Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."

DIRECTLY FROM THE FUND

o Establish your account with the Fund by submitting a completed New Account
Form; and

o Send your payment to the Fund by Federal Reserve wire or check.

An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the next calculated NAV after the Fund receives
the order.

By Wire Send your wire to:

By Check
Make your check payable to The Federated Funds, note your account number on the
check, and mail it to:

Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a private courier or overnight delivery service that
requires a street address, mail it to:

Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317

Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone other
than you or The Federated Funds).

THROUGH AN EXCHANGE
You may purchase Shares through an exchange from the same Share class of another
Federated Fund. You must meet the minimum initial investment requirement for
purchasing Shares and both accounts must have identical registrations.

HOW TO REDEEM AND EXCHANGE SHARES You should redeem or exchange Shares:

o through an investment professional if you purchased Shares through an
investment professional; or

o directly from the Fund if you purchased Shares directly from the Fund.

THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption or exchange request to your investment professional by
the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). The
redemption amount you will receive is based upon the next calculated NAV after
the Fund receives the order from your investment professional.

DIRECTLY FROM THE FUND

By Telephone
You may redeem or exchange Shares by calling the Fund once you have completed
the appropriate authorization form for telephone transactions.

If you call before the end of regular trading on the NYSE (normally 4:00 p.m.
Eastern time) you will receive a redemption amount based on that day's NAV.

By Mail
You may redeem or exchange Shares by mailing a written request to the Fund.

You will receive a redemption amount based on the next calculated NAV after the
Fund receives your written request in proper form.

Send requests by mail to:

Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by private courier or overnight delivery service to:

Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317 All requests must include:

o Fund Name and Share Class, account number and account registration;

o amount to be redeemed or exchanged;

o signatures of all Shareholders exactly as registered; and

o if exchanging, the Fund Name and Share Class, account number and account
registration into which you are exchanging.

Call your investment professional or the Fund if you need special instructions.

Signature Guarantees Signatures must be guaranteed if:

o your redemption will be sent to an address other than the address of
record;

o your redemption will be sent to an address of record that was changed
within the last 30 days;

o a redemption is payable to someone other than the shareholder(s) of
record; or

o if exchanging (transferring) into another fund with a different shareholder
registration.

o an electronic transfer to your account at a financial institution that is
an ACH member; or

o wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.

LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:

o to allow your purchase to clear;

o during periods of market volatility; or

o when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.

You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.

EXCHANGE PRIVILEGES
You may exchange Shares of the Fund into Shares of the same class of another
Federated Fund. To do this, you must:

o ensure that the account registrations are identical;

o meet any minimum initial investment requirements; and

o receive a prospectus for the fund into which you wish to exchange.

An exchange is treated as a redemption and a subsequent purchase, and is a
taxable transaction.

The Fund may modify or terminate the exchange privilege at any time. The Fund's
management or investment adviser may determine from the amount, frequency and
pattern of exchanges that a shareholder is engaged in excessive trading that is
detrimental to the Fund and other shareholders. If this occurs, the Fund may
terminate the availability of exchanges to that shareholder and may bar that
shareholder from purchasing other Federated Funds.

ADDITIONAL CONDITIONS

Share Certificates
The Fund no longer issues share certificates. If you are redeeming or exchanging
Shares represented by certificates previously issued by the Fund, you must
return the certificates with your written redemption or exchange request. For
your protection, send your certificates by registered or certified mail, but do
not endorse them.

ACCOUNT AND SHARE INFORMATION

CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases, redemptions and exchanges. In
addition, you will receive periodic statements reporting all account activity,
including dividends and capital gains paid.

ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, non-retirement
accounts may be closed if redemptions or exchanges cause the account balance to
fall below the minimum initial investment amount. Before an account is closed,
you will be notified and allowed 30 days to purchase additional Shares to meet
the minimum.

Fund distributions are expected to be primarily dividends. Redemptions and
exchanges are taxable sales. Please consult your tax adviser regarding your
federal, state, and local tax liability.

WHO MANAGES THE FUND?

The Fund's portfolio managers are:

Susan M. Nason has been the Fund's portfolio manager since September 1991.
She is Vice President of the Fund. Ms. Nason joined Federated in 1987 and has
been a Senior Portfolio Manager and Senior Vice President of the Fund's Adviser
since 1997. Ms. Nason served as a Portfolio Manager and Vice President of the
Adviser from 1993 to 1997. Ms. Nason is a Chartered Financial Analyst and
received her M.S.I.A. concentrating in Finance from Carnegie Mellon University.

Robert J. Ostrowski has been the Fund's portfolio manager since September
1997. Mr. Ostrowski joined Federated in 1987 as an Investment Analyst and has
been a Senior Vice President of the Fund's Adviser since September 1997. Mr.
Ostrowski served as Vice President of the Fund's Adviser from 1993 to 1997, and
as an Assistant Vice President from 1992 to 1993. Mr. Ostrowski is a Chartered
Financial Analyst. He received his M.S. in Industrial Administration from
Carnegie Mellon University.

The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.

<PAGE>

FINANCIAL INFORMATION

FINANCIAL HIGHLIGHTS
The following Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of any dividends and capital
gains.

This information has been audited by Ernst & Young LLP, whose report, along with
the Fund's audited financial statements, is included in this prospectus.

Financial Statements to be filed by Amendment.

<PAGE>

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

institutional service shares

A Statement of Additional Information (SAI) dated April 30, 1999, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is contained in the Fund's annual and semi-annual reports to
shareholders as they become available. The annual report discusses market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year. To obtain the SAI, the annual report,
semi-annual report and other information without charge, call your investment
professional or the Fund at 1-800-341-7400.

Investment Company Act File No. 811-3947
Cusip 31428M209

8032806A (4/99))

Statement of Additional Information

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

institutional shares

institutional service shares

This Statement of Additional Information (SAI) is not a prospectus. Read
this SAI in conjunction with the prospectuses for Institutional Shares and
Institutional Service Shares of Federated U.S. Government Securities Fund: 1-3
Years, dated April 30, 1999. Obtain the prospectuses without charge by calling
1-800-341-7400.

April 30, 1999

Contents
How is the Fund Organized?
Securities in Which the Fund Invests
What do Shares Cost?
How is the Fund Sold?
Subaccounting Services
Redemption in Kind
Massachusetts Partnership Law
Account and Share Information
Tax Information
Who Manages and Provides Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Addresses
Cusip 31428M100
Cusip 31428M209

8032806B (4/99)

<PAGE>

HOW IS THE FUND ORGANIZED?

The Fund is a diversified open-end, management investment company that was
established under the laws of the Commonwealth of Massachusetts on January 3,
1984. The Fund changed its name from Federated Short-Intermediate Government
Trust to Federated U.S. Government Securities Fund: 1-3 Years on April 13, 1995.
The Fund's investment adviser is Federated Management (Adviser).

INVESTMENT STRATEGY

The Fund's dollar-weighted average portfolio maturity may not exceed three
years. Further, the Fund is required to maintain a minimum weighted average
portfolio maturity of one year. This one to three year portfolio maturity range
is a fundamental investment policy that may not be changed without shareholder
approval. The Adviser manages the portfolio by targeting a dollar-weighted
average duration that is consistent with the Fund's fundamental maturity
constraints because duration is a more accurate and useful measure of interest
rate risk.

Duration is a measure of the average time to receipt of cash from a bond. The
only instance in which duration is equal to time-to-maturity is a zero-coupon
bond; where all cash is received at maturity. In the case of a coupon bond, cash
is received at least annually or semi-annually. In the case of a coupon bond
with a three-year maturity, the average time to receipt of cash should be
between 1 and 3. The formula for duration places more weight on the dates when
cash flows are relatively large. Since in the case of the three-year coupon
bond, most of the cash is received at the end of year 3, the average time to
receipt of cash will be closer to 3 than to 1.

The Adviser selects securities used to lengthen or shorten the portfolio's
average duration by comparing the returns currently offered by different
investments to their historical and expected returns.

SECURITIES IN WHICH THE FUND INVESTS

In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.

Fixed Income Securities

U.S. government securities pay interest at a specified rate. The rate may
be a fixed percentage of the principal or adjusted periodically. In addition,
the issuer of the security must repay the principal amount of the security,
normally within a specified time.

A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields.

The following describes the types of securities in which the Fund invests.

U.S. Treasury Securities

Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded as having the
lowest credit risks.

U.S. Government Agency Securities

Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a GSE). The
United States government supports some GSEs with its full, faith and
credit. Other GSEs receive support through federal subsidies, loans or
other benefits. A few GSEs have no explicit financial support, but are
regarded as having implied support because the federal government sponsors
their activities. Agency securities are generally regarded as having low
credit risks, but not as low as treasury securities.

<PAGE>

Zero Coupon Securities

Zero coupon securities do not pay interest or principal until final
maturity unlike debt securities that provide periodic payments of interest
(referred to as a coupon payment). Investors buy zero coupon securities at
a price below the amount payable at maturity. The difference between the
purchase price and the amount paid at maturity represents interest on the
zero coupon security. Investors must wait until maturity to receive
interest and principal, which increases the market and credit risks of a
zero coupon security.

There are many forms of zero coupon securities. Some are issued at a
discount and are referred to as zero coupon or capital appreciation bonds.
Others are created from interest bearing bonds by separating the right to
receive the bond's coupon payments from the right to receive the bond's
principal due at maturity, a process known as coupon stripping. Treasury
STRIPs are the most common forms of stripped zero coupon securities.

Special Transactions

Repurchase Agreements

Repurchase agreements are transactions in which the Fund buys a U.S.
government security from a dealer or bank and agrees to sell the security
back at a mutually agreed upon time and price. The repurchase price exceeds
the sale price, reflecting the Fund's return on the transaction. This
return is unrelated to the interest rate on the underlying security. The
Fund will enter into repurchase agreements only with banks and other
recognized financial institutions, such as securities dealers, deemed
creditworthy by the Adviser.

The Fund's custodian or subcustodian will take possession of the securities
subject to repurchase agreements. The Adviser or subcustodian will monitor
the value of the underlying security each day to ensure that the value of
the security always equals or exceeds the repurchase price.

Repurchase agreements are subject to credit risks.

Delayed Delivery Transactions

Delayed delivery transactions, including when issued transactions, are
arrangements in which the Fund buys securities for a set price, with
payment and delivery of the securities scheduled for a future time. During
the period between purchase and settlement, no payment is made by the Fund
to the issuer and no interest accrues to the Fund. The Fund records the
transaction when it agrees to buy the securities and reflects their value
in determining the price of its Shares. Settlement dates may be a month or
more after entering into these transactions so that the market values of
the securities bought may vary from the purchase prices. Therefore, delayed
delivery transactions create market risks for the Fund. Delayed delivery
transactions also involve credit risks in the event of a counterparty
default.

Asset Coverage

In order to secure its obligations in connection with special transactions,
the Fund will either own the underlying assets, enter into an offsetting
transaction or set aside readily marketable securities with a value that
equals or exceeds the Fund's obligations. Unless the Fund has other readily
marketable assets to set aside, it cannot trade assets used to secure such
obligations. This may cause the Fund to miss favorable trading
opportunities or to realize losses on special transactions.

Investing in Securities of Other Investment Companies

The Fund may invest its assets in securities of affiliated money market
funds, as an efficient means of carrying out its investment policies and
managing its uninvested cash.

INVESTMENT RISKS

There are many factors which may effect an investment in the Fund. The Fund's
principal risks are described in its prospectus. Additional risk factors are
outlined below.

Bond Market Risks
o Prices of fixed income securities rise and fall in response to interest
rate changes for similar securities. Generally, when interest rates rise,
prices of fixed income securities fall.

Credit Risks
o Credit risk includes the possibility that a party to a transaction
involving the Fund will fail to meet its obligations. This could cause the
Fund to lose the benefit of the transaction or prevent the Fund from
selling or buying other securities to implement its investment strategy.

Call Risks
o Call risk is the possibility that an issuer may redeem a fixed income
security before maturity (a call) at a price below its current market
price. An increase in the likelihood of a call may reduce the security's
price.
o If a fixed income security is called, the Fund may have to reinvest the
proceeds in other fixed income securities with lower interest rates, higher
credit risks, or other less favorable characteristics.

FUNDAMENTAL INVESTMENT POLICIES

The Fund will invest only in U.S. government securities with remaining
maturities of three and one half years or less.

U.S. government securities include: (1) A variety of U.S. Treasury
obligations, which differ only in their interest rates, maturities and times of
issuance: (a) U.S. Treasury bills which have a maturity of one year or less and
(b) U.S. Treasury notes which have remaining maturities of one to three and
one-half years; (2) obligations issued or guaranteed by U.S. government agencies
and instrumentalities which are supported by any of the following: (a) the full
faith and credit of the U.S. Treasury (such as Government National Mortgage
Association pass through and modified participation certificates), (b) the right
of the issuer to borrow an amount limited to a specific line of credit from the
U.S. Treasury, (c) discretionary authority of the U.S. government to purchase
obligations of the U.S. government agency or instrumentality or (d) the credit
of the instrumentality.

The Fund may enter into repurchase agreements, under which the Fund may
acquire U.S government securities subject to an obligation of the seller to
repurchase and the Fund to resell the instrument at a fixed price, time,
and interest payment.

Portfolio transactions are undertaken principally to accomplish the Fund's
objective in relation to movement in the general level of interest rates
and to invest new money obtained from the sale of Fund Shares and to meet
redemptions of Fund Shares. The Fund is free to dispose of portfolio
securities at any time when changes in circumstances or conditions make
such a move desirable in light of the investment objective and policies
heretofore stated.

INVESTMENT LIMITATIONS

Selling Short and Buying on Margin

The Fund 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 Fund 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 Fund 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
Fund will liquidate any such borrowings as soon as possible and may not
purchase any portfolio securities while the borrowings are outstanding.

Pledging Assets

The Fund 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 Fund 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.

The above limitations cannot be changed unless authorized by the "vote of a
majority of its outstanding voting securities," as defined by the Investment
Company Act.

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 Fund 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 Fund will not purchase any securities while
borrowings in excess of 5% of its total assets are outstanding.

DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:

for bonds and other fixed income securities, at the last sale price on
a national securities exchange, if available, otherwise, as determined by an
independent pricing service;

for short-term obligations, according to the mean between bid and asked
prices as furnished by an independent pricing service, except that short-term
obligations with remaining maturities of less than 60 days at the time of
purchase may be valued at amortized cost or at fair market value as
determined in good faith by the Board; and

for all other securities, at fair value as determined in good faith by the
Board.

Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider: institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.

WHAT DO SHARES COST?

The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund. The NAV for each class of
Shares may differ 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.

HOW IS THE FUND SOLD?

Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.), located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, offers Shares on a continuous, best-efforts basis.

RULE 12B-1 PLAN (institutional Service Shares)
As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of banks, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per Share expenses, and
provide cash for orderly portfolio management and Share redemptions. Also, the
Fund's service providers that receive asset-based fees also benefit from stable
or increasing Fund assets.

The Fund may compensate the Distributor more or less than its actual marketing
expenses. In no event will the Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.

For some classes of Shares, the maximum Rule 12b-1 Plan fee that can be paid in
any one year may not be sufficient to cover the marketing related expenses the
Distributor has incurred. Therefore, it may take the Distributor a number of
years to recoup these expenses.

SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated Investors, Inc. (Federated), for providing shareholder services and
maintaining shareholder accounts. Federated Shareholder Services Company may
select others to perform these services for their customers and may pay them
fees.

SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates. Investment professionals receive such fees for
providing distribution-related or shareholder services such as sponsoring sales,
providing sales literature, conducting training seminars for employees, and
engineering sales-related computer software programs and systems. Also,
investment professionals may be paid cash or promotional incentives, such as
reimbursement of certain expenses relating to attendance at informational
meetings about the Fund or other special events at recreational-type facilities,
or items of material value. These payments will be based upon the amount of
Shares the investment professional sells or may sell and/or upon the type and
nature of sales or marketing support furnished by the investment professional.

SUBACCOUNTING SERVICES

Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.

REDEMPTION IN KIND

Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.

Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.

Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.

Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.

<PAGE>

MASSACHUSETTS PARTNERSHIP LAW

Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Fund. To protect its
shareholders, the Fund has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Fund.

In the unlikely event a shareholder is held personally liable for the Fund's
obligations, the Fund is required by the Declaration of Fund to use its property
to protect or compensate the shareholder. On request, the Fund will defend any
claim made and pay any judgment against a shareholder for any act or obligation
of the Fund. Therefore, financial loss resulting from liability as a shareholder
will occur only if the Fund itself cannot meet its obligations to indemnify
shareholders and pay judgments against them.

ACCOUNT AND SHARE INFORMATION

VOTING RIGHTS
Each Share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of the Fund have
equal voting rights, except that in matters affecting only a particular class,
only Shares of that class are entitled to vote. All Shares of the Fund have
equal voting rights, except that in matters affecting only a particular class,
only Shares of that class are entitled to vote.

Trustees may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Fund's outstanding shares of
all series entitled to vote.

As of February 8, 1999, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Shares: Charles Schwab & Co.
Inc., San Francisco, CA owned approximately 4,943,109 Shares (8.76%) of the
outstanding Institutional Shares; Sheldon & Co. National City Bank, Cleveland,
OH owned approximately 5,137,602 Shares (9.11%) of the outstanding Institutional
Shares; Thrift Plan for Employees of the Federal Reserve System, New York, NY
owned approximately 2,908,327 Shares (5.16%) of the outstanding Institutional
Shares; The Northern Trust Company, Chicago, IL owned approximately 9,444,260
Shares (16.74%) of the outstanding Institutional Shares; and Charles Schwab &
Co. Inc. owned approximately 239,370 Shares (5.07%) of the outstanding
Institutional Service Shares.

TAX INFORMATION

FEDERAL INCOME TAX
The Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, it will not receive special tax treatment and will pay federal income tax.

WHO MANAGES AND PROVIDES SERVICES TO THE FUND?

BOARD OF TRUSTEES
The Board is responsible for managing the Fund's business affairs and for
exercising all the Fund's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes each
person's: name, address, birthdate, present position(s) held with the Fund,
principal occupations for the past five years and positions held prior to the
past five years, total compensation received as a Trustee from the Fund for its
most recent fiscal year, and the total compensation received from the Federated
Fund Complex for the most recent calendar year. The Federated Fund Complex is
comprised of 54 investment companies, whose investment advisers are affiliated
with the Fund's Adviser.

As of February 8, 1999, the Fund's Board and Officers as a group owned less than
1% of the Fund's outstanding Shares.

An asterisk (*) denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.

<PAGE>

Name
Birthdate Aggregate Total Compensation
Address Principal Occupations Compensation From Fund and Fund
Position With Fund for Past 5 Years From Fund Complex

John F. Donahue*+ Chief Executive Officer and Director or Trustee of $0 $0 for the
Birthdate: July 28, 1924 the Federated Fund Complex; Chairman and Director, Fund and 54 other
Federated Investors Tower Federated Investors, Inc.; Chairman and Trustee, investment
1001 Liberty Avenue Federated Advisers, Federated Management, and companies
Pittsburgh, PA Federated Research; Chairman and Director, Federated in the Fund Complex
CHAIRMAN AND TRUSTEE Research Corp., and Federated Global Research Corp.;
Chairman, Passport Research, Ltd.

Thomas G. Bigley Director or Trustee of the Federated Fund Complex; $ $113,860.22 for the
Birthdate: February 3, 1934 Director, Member of Executive Committee, Children's Fund and 54 other
15 Old Timber Trail Hospital of Pittsburgh; formerly: Senior Partner, investment
Pittsburgh, PA Ernst & Young LLP; Director, MED 3000 Group, Inc.; companies
TRUSTEE Director, Member of Executive Committee, University in the Fund Complex
of Pittsburgh.

John T. Conroy, Jr. Director or Trustee of the Federated Fund Complex; $ $125,264.48 for the
Birthdate: June 23, 1937 President, Investment Properties Corporation; Senior Fund and 54 other
Wood/IPC Commercial Dept. Vice President, John R. Wood and Associates, Inc., investment
John R. Wood Associates, Inc. Realtors; Partner or Trustee in private real estate companies
Realtors ventures in Southwest Florida; formerly: President, in the Fund Complex
3255 Tamiami Trial North Naples Property Management, Inc. and Northgate
Naples, FL Village Development Corporation.
TRUSTEE

Nicholas Constantakis Director or Trustee of the Federated Fund Complex; $ $47,958.02 for the
Birthdate: September 3, 1939 formerly: Partner, Andersen Worldwide SC. Fund and 29 other
175 Woodshire Drive investment
Pittsburgh, PA companies
TRUSTEE in the Fund Complex

William J. Copeland Director or Trustee of the Federated Fund Complex; $ $125,264.48 for the
Birthdate: July 4, 1918 Director and Member of the Executive Committee, Fund and 54 other
One PNC Plaza-23rd Floor Michael Baker, Inc.; formerly: Vice Chairman and investment
Pittsburgh, PA Director, PNC Bank, N.A., and PNC Bank Corp.; companies
TRUSTEE Director, Ryan Homes, Inc. in the Fund Complex

Previous Positions: Director, United Refinery;
Director, Forbes Fund; Chairman, Pittsburgh
Foundation; Chairman, Pittsburgh Civic Light Opera.

John F. Cunningham++ Director or Trustee of some of the Federated Funds; $ $0 for the Fund and
Birthdate: March 5, 1943 Chairman, President and Chief Executive Officer, 26 other investment
353 El Brillo Way Cunningham & Co., Inc. ; Trustee Associate, Boston companies in the
Palm Beach, FL College; Director, EMC Corporation; formerly: Fund Complex
TRUSTEE Director, Redgate Communications.

Previous Positions: Chairman of the Board and Chief
Executive Officer, Computer Consoles, Inc.; President
and Chief Operating Officer, Wang Laboratories;
Director, First National Bank of Boston; Director,
Apollo Computer, Inc.

James E. Dowd, Esq. Director or Trustee of the Federated Fund Complex; $ $125,264.48 for the
Birthdate: May 18, 1922 Attorney-at-law; Director, The Emerging Germany Fund, Fund and 54 other
571 Hayward Mill Road Inc. investment
Concord, MA companies
TRUSTEE Previous Positions: President, Boston Stock Exchange, in the Fund Complex
Inc.; Regional Administrator, United States
Securities and Exchange Commission.

Lawrence D. Ellis, M.D.* Director or Trustee of the Federated Fund Complex; $ $113,860.22 for the
Birthdate: October 11, 1932 Professor of Medicine, University of Pittsburgh; Fund and 54 other
3471 Fifth Avenue Medical Director, University of Pittsburgh Medical investment
Suite 1111 Center - Downtown; Hematologist, Oncologist, and companies
Pittsburgh, PA Internist, University of Pittsburgh Medical Center; in the Fund Complex
TRUSTEE Member, National Board of Trustees, Leukemia Society
of America.

Edward L. Flaherty, Jr., Esq. Director or Trustee of the Federated Fund Complex; $ $125,264.48 for the
# Attorney, of Counsel, Miller, Ament, Henny & Kochuba; Fund and 54 other
Birthdate: June 18, 1924 Director Emeritus, Eat'N Park Restaurants, Inc.; investment
Miller, Ament, Henny & Kochuba formerly: Counsel, Horizon Financial, F.A., Western companies
205 Ross Street Region; Partner, Meyer and Flaherty. in the Fund Complex
Pittsburgh, PA
TRUSTEE

Peter E. Madden Director or Trustee of the Federated Fund Complex; $ $113,860.22 for the
Birthdate: March 16, 1942 formerly: Representative, Commonwealth of Fund and 54 other
One Royal Palm Way Massachusetts General Court; President, State Street investment
100 Royal Palm Way Bank and Trust Company and State Street Corporation. companies
Palm Beach, FL in the Fund Complex
TRUSTEE Previous Positions: Director, VISA USA and VISA
International; Chairman and Director, Massachusetts
Bankers Association; Director, Depository Trust
Corporation.

John E. Murray, Jr., J.D., Director or Trustee of the Federated Fund Complex; $ $113,860.22 for the
S.J.D. President, Law Professor, Duquesne University; Fund and 54 other
Birthdate: December 20, 1932 Consulting Partner, Mollica & Murray. investment
President, Duquesne University companies
Pittsburgh, PA Previous Positions: Dean and Professor of Law, in the Fund Complex
TRUSTEE University of Pittsburgh School of Law; Dean and
Professor of Law, Villanova University School of Law.

Wesley W. Posvar Director or Trustee of the Federated Fund Complex; $ $113,860.22 for the
Birthdate: September 14, 1925 President, World Society of Ekistics (metropolitan Fund and 54 other
1202 Cathedral of Learning planning), Athens; Professor, International Politics; investment
University of Pittsburgh Management Consultant; Trustee, Carnegie Endowment companies
Pittsburgh, PA for International Peace, RAND Corporation, Online in the Fund Complex
TRUSTEE Computer Library Center, Inc., National Defense
University and U.S. Space Foundation;
President Emeritus, University of Pittsburgh;
Founding Chairman, National Advisory Council
for Environmental Policy and Technology,
Federal Emergency Management Advisory Board;
Trustee, Czech Management Center, Prague.

Previous Positions: Professor, United States Military
Academy; Professor, United States Air Force Academy.

Marjorie P. Smuts Director or Trustee of the Federated Fund Complex; $ $113,860.22 for the
Birthdate: June 21, 1935 Public Relations/Marketing/Conference Planning. Fund and 54 other
4905 Bayard Street investment
Pittsburgh, PA Previous Positions: National Spokesperson, Aluminum companies
TRUSTEE Company of America; business owner. in the Fund Complex

Glen R. Johnson Trustee, Federated Investors, Inc.; staff member, $ $0 for the Fund and
Birthdate: May 2, 1929 Federated Securities Corp. 8 other investment
Federated Investors Tower companies in the
1001 Liberty Avenue Fund Complex
Pittsburgh, PA
PRESIDENT

J. Christopher Donahue+ President or Executive Vice President of the $0 $0 for the Fund and
Birthdate: April 11, 1949 Federated Fund Complex; Director or Trustee of some 16 other investment
Federated Investors Tower of the Funds in the Federated Fund Complex; President companies in the
1001 Liberty Avenue and Director, Federated Investors, Inc.; President Fund Complex
Pittsburgh, PA and Trustee, Federated Advisers, Federated
EXECUTIVE VICE PRESIDENT Management, and Federated Research; President and
Director, Federated Research Corp. and Federated
Global Research Corp.; President, Passport Research,
Ltd.; Trustee, Federated Shareholder Services
Company; Director, Federated Services Company.

<PAGE>

Edward C. Gonzales Trustee or Director of some of the Funds in the $0 $0 for the Fund and
Birthdate: October 22, 1930 Federated Fund Complex; President, Executive Vice 1 other investment
Federated Investors Tower President and Treasurer of some of the Funds in the company in the Fund
1001 Liberty Avenue Federated Fund Complex; Vice Chairman, Federated Complex
Pittsburgh, PA Investors, Inc.; Vice President, Federated Advisers,
EXECUTIVE VICE PRESIDENT 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.

John W. McGonigle Executive Vice President and Secretary of the $0 $0 for the Fund and
Birthdate: October 26, 1938 Federated Fund Complex; Executive Vice President, 54 other investment
Federated Investors Tower Secretary, and Director, Federated Investors, Inc.; companies in the
1001 Liberty Avenue Trustee, Federated Advisers, Federated Management, Fund Complex
Pittsburgh, PA and Federated Research; Director, Federated Research
EXECUTIVE VICE PRESIDENT Corp. and Federated Global Research Corp.; Director,
AND SECRETARY Federated Services Company; Director, Federated
Securities Corp.

Richard J. Thomas Treasurer of the Federated Fund Complex; Vice $0 $0 for the Fund and
Birthdate: June 17, 1954 President - Funds Financial Services Division, 54 other investment
Federated Investors Tower Federated Investors, Inc.; Formerly: various companies in the
1001 Liberty Avenue management positions within Funds Financial Services Fund Complex
Pittsburgh, PA Division of Federated Investors, Inc.
TREASURER

Richard B. Fisher President or Vice President of some of the Funds in $0 $0 for the Fund and
Birthdate: May 17, 1923 the Federated Fund Complex; Director or Trustee of 6 other investment
Federated Investors Tower some of the Funds in the Federated Fund Complex; companies in the
1001 Liberty Avenue Executive Vice President, Federated Investors, Inc.; Fund Complex
Pittsburgh, PA Chairman and Director, Federated Securities Corp.
VICE PRESIDENT

Susan M. Nason Susan M. Nason has been the Fund's portfolio manager $0 $0 for the Fund and
Birthdate: August 29, 1961 since September 1991. She is Vice President of the 3 other investment
Federated Investors Tower Fund. Ms. Nason joined Federated in 1987 and has been companies in the
1001 Liberty Avenue a Senior Portfolio Manager and Senior Vice President Fund Complex
Pittsburgh, PA of the Fund's Adviser since 1997. Ms. Nason served as
VICE PRESIDENT a Portfolio Manager and Vice President of the Adviser
from 1993 to 1997. Ms. Nason is a Chartered Financial
Analyst and received her M.S.I.A. concentrating in
Finance from Carnegie Mellon University.

William D. Dawson, III Chief Investment Officer of this Fund and various $0 $0 for the Fund and
Birthdate: March 3, 1949 other Funds in the Federated Fund Complex; Executive 41 other investment
Federated Investors Tower Vice President, Federated Investment Counseling, companies in the
1001 Liberty Avenue Federated Global Research Corp., Federated Advisers, Fund Complex
Pittsburgh, PA Federated Management, Federated Research, and
CHIEF INVESTMENT OFFICER Passport Research, Ltd.; Registered Representative,
Federated Securities Corp.; Portfolio
Manager, Federated Administrative Services;
Vice President, Federated Investors, Inc.;
Formerly: Executive Vice President and Senior
Vice President, Federated Investment
Counseling Institutional Portfolio Management
Services Division; Senior Vice President,
Federated Research Corp., Federated Advisers,
Federated Management, Federated Research, and
Passport Research, Ltd.

</TABLE>

+ Mr. Donahue is the father of J. Christopher Donahue, Executive Vice President
of the Fund.

++ Mr. Cunningham became a member of the Board of Trustees on January 1, 1999.
He did not earn any fees for serving the Fund Complex since these fees are
reported as of the end of the last calendar year. He did not receive any fees as
of the fiscal year end of the Fund.

INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund.

The Adviser is a wholly-owned subsidiary of Federated.

The Adviser shall not be liable to the Fund or any Fund shareholder 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 Fund.

Other Related 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 Fund Shares offered by the Distributor.

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. 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 may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.

Research Services
Research services 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 may be used by the Adviser or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
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 those 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 year ended, February 28, 1999, the Fund's Adviser directed
brokerage transactions to certain brokers due to research services they
provided. The total amount of these transactions was $______ for which the Fund
paid $_______ in brokerage commissions.

Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.

ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:

Maximum Administrative Fee Average Aggregate Daily Net Assets of the
Federated Funds
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
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 voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.

Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.

CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.

INDEPENDENT PUBLIC ACCOUNTANTs
Ernst & Young LLP is the independent public accountant for the Fund.

FEES PAID BY THE FUND FOR SERVICES
For the Year ended February 28, 1999 1998 1997
Advisory Fee Earned $ $2,742,606 $2,917,433
Advisory Fee Reduction $ $46,875 $160,105
Brokerage Commissions $ --- ---
Administrative Fee $ $517,508 $551,185
12b-1 Fee
Institutional Service Shares $ --- ---
Shareholder Services Fee
Institutional Shares $ ---- ----
Institutional Service Shares $ ---- ----
Fees are allocated among Classes based on their pro rata share of Fund assets,
except for marketing (Rule 12b-1) fees and shareholder services fees, which are
borne only by the applicable Class of Shares.

HOW DOES THE FUND MEASURE PERFORMANCE?

The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.

Unless otherwise stated, any quoted Share performance reflects the effect of
non-recurring charges, such as maximum sales charges, which, if excluded, would
increase the total return and yield. The performance of Shares depends upon such
variables as: portfolio quality; average portfolio maturity; type and value of
portfolio securities; changes in interest rates; changes or differences in the
Fund's or any class of Shares' expenses; and various other factors.

Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return.

Average Annual Total Returns and Yield
Total returns given for the one-, five- and ten-year periods ended February 28,
1999.

Yield given for the 30-day period ended February 28, 1999.
<TABLE>
<CAPTION>

30 -Day Period 1 Year 5 Years 10 Years
INSTITUTIONAL SHARES
Total Return N/A
Yield

Total returns given for the one-, five- and since inception periods ended
February 28, 1999.

Yield given for the 30-day period ended February 28, 1999.

30 -Day Period 1 Year 5 Years Since Inception
on May 29, 1992
INSTITUTIONAL SERVICE SHARES
Total Return N/A
Yield
</TABLE>

TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.

The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.

YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a thirty-day period; by (ii) the maximum
offering price per Share on the last day of the period. This number is then
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 12-month period and is reinvested every six months. The yield does not
necessarily reflect income actually earned by Shares because of certain
adjustments required by the SEC and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.

To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.

PERFORMANCE COMPARISONS
Advertising and sales literature may include:

o references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;

o charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment;

o discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views on
how such developments could impact the Funds; and

o information about the mutual fund industry from sources such as the Investment
Company Institute.

The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.

The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.

You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the 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 Fund uses in advertising may include:

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. 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.

WHO IS FEDERATED INVESTORS, INC.?

Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.

Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state-of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.

Federated Funds overview

Municipal Funds
In the municipal sector, as of December 31, 1998, Federated managed 10 bond
funds with approximately $2.2 billion in assets and 23 money market funds with
approximately $12.5 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of municipal securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.

Equity Funds
In the equity sector, Federated has more than 28 years' experience. As of
December 31, 1998, Federated managed 27 equity funds totaling approximately
$14.9 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles Federated's value-oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.

Corporate Bond Funds
In the corporate bond sector, as of December 31, 1998, Federated managed 9 money
market funds and 15 bond funds with assets approximating $22.8 billion and $7.1
billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 26 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset-backed securities market, a market
totaling more than $209 billion.

Government Funds
In the government sector, as of December 31, 1998, Federated manages 9
mortgage-backed, 5 government/ agency and 19 government money market mutual
funds, with assets approximating $5.3 billion, $1.8 billion and $41.6 billion,
respectively. Federated trades approximately $425 million in U.S. government and
mortgage-backed securities daily and places approximately $25 billion in
repurchase agreements each day. Federated introduced the first U.S. government
fund to invest in U.S. government bond securities in 1969. Federated has been a
major force in the short- and intermediate-term government markets since 1982
and currently manages approximately $43.2 billion in government funds within
these maturity ranges.

Money Market Funds
In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1998, Federated managed more than $76.7 billion in assets across 52 money market
funds, including 19 government, 9 prime and 23 municipal with assets
approximating $41.6 billion, $22.8 billion and $12.5 billion, respectively.

The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield - J. Thomas
Madden; U.S. fixed income -William D. Dawson, III; and global equities and fixed
income - Henry A. Frantzen. The Chief Investment Officers are Executive Vice
Presidents of the Federated advisory companies.

Mutual Fund Market
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $5 trillion to the more than 7,300 funds available,
according to the Investment Company Institute.

Federated Clients Overview

Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:

Institutional Clients
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, 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 advisers. The marketing effort
to these institutional clients is headed by John B.
Fisher, President, Institutional Sales Division, Federated Securities Corp.

Bank Marketing
Other institutional clients include more than 1,600 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 Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.

Broker/Dealers and Bank Broker/Dealer Subsidiaries
Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F.
Getz, President, Broker/Dealer Sales Division, Federated Securities Corp.

<PAGE>

ADDRESSES

federated u.s. government securities fund: 1-3 years

Institutional Shares
Institutional Service Shares

Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000

Distributor
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue,
Pittsburgh, PA 15222-3779

Investment Adviser
Federated Management
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Custodian
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600

Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600

Independent Public Accountants

Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116-5072

PART C. OTHER INFORMATION.

Item 23. Exhibits:

(a) (i) Conformed copy of the Amended and Restated Declaration of
Trust of the Registrant; (9)
(ii) Conformed copy of Amendment No. 3 to Declaration of Trust; (11)
(b) (i) Copy of the Amended By-laws of the Registrant; (11)
(ii) Copy of Amendment No. 1 to the By-Laws of the Registrant; (14)
(iii) Copy of Amendment No. 4 to the By-Laws of the Registrant; +
(iv) Copy of Amendment No. 5 to the By-Laws of the Registrant; +
(v) Copy of Amendment No. 6 to the By-Laws of the Registrant; +
(c) (i) Copy of Specimen Certificate of Shares of Beneficial
Interest of the Registrant; (11)
(d) (i) Conformed copy of the Investment Advisory Contract of the
Registrant; (10)
(e) (i) Conformed copy of the Distributor's Contract of the
Registrant; (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 24 (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).
(f) Not applicable;
(g) (i) Conformed copy of the Custodian Agreement of the
Registrant; (11)
(ii) Conformed copy of Custodian Fee Schedule; (14)

_________

+ All exhibits have been filed electronically

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).

14. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 30 to its Registration Statement on Form N-1A filed April 24,
1998. (File Nos. 2-89028 and 811-3947).

<PAGE>

(h) (i) The responses described in Item 23(e)(ii) are hereby
incorporated by reference.
(ii) Conformed copy of Amended and Restated Shareholder Services
Agreement; (14)
(iii) Conformed copy of Amended and Restated Agreement for Fund
Accounting Services, Administrative Services,
Transfer Agency Services, and Custody Services Procurement; +
(iv) The Registrant hereby incorporates by
reference 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).
(i) Copy of the Opinion of Counsel as to the Legality of the
Securities Being Registered; (13) (j) Conformed copy of
Consent of Independent Auditors;(14) (k) Not applicable; (l)
Copy of Initial Capital Understanding; (14)
(m) (i) Conformed copy of Distribution Plan; (11)
(ii) The responses described in Item 23(e)(ii) are
hereby incorporated by reference. (n) Copy of Financial Data
Schedules; (14) (o) 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);
(p) (i) Conformed copy of Power of Attorney of the
Registrant;
(ii) Conformed copy of Power of Attorney of Chief
Investment Officer of the Registrant; +
(iii) Conformed copy of Power of Attorney of Treasurer of the Registrant; + (iv)
Conformed copy of Power of Attorney of Trustee of the .....Registrant; +

Item 24. Persons Controlled by or Under Common Control with the Fund:

None

- ---------------------
+ 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).

13. Response is incorporated by reference to Registrant's Pre-......Effective
Amendment No. 1 to its Registration Statement on Form N-1A filed March 6,
1984. (File Nos. 2-89028 and 811-3947).

14. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 30 to its Registration Statement on Form N-1A filed April 24,
1998. (File Nos. 2-89028 and 811-3947).

<PAGE>

Item 25. Indemnification: (1)

Item 26. Business and Other Connections of the Investment Adviser:

For a description of the other business of the investment adviser,
see the section entitled "Who Manages the Fund" 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 "Who Manages and Provides
Service to the Fund." 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:

Executive Vice Presidents: William D. Dawson, III
Henry A. Frantzen
J. Thomas Madden

Senior Vice Presidents: Joseph M. Balestrino
Drew J. Collins
Jonathan C. Conley
Deborah A. Cunningham
Mark E. Durbiano
Sandra L. McInerney
Susan M. Nason
Mary Jo Ochson
Robert J. Ostrowski

Vice Presidents: Todd A. Abraham
J. Scott Albrecht
Arthur J. Barry
Randall S. Bauer
David A. Briggs
Micheal W. Casey
Kenneth J. Cody
Alexandre de Bethmann
Michael P. Donnelly
Linda A. Duessel
Donald T. Ellenberger
Kathleen M. Foody-Malus
Thomas M. Franks
Edward C. Gonzales
James E. Grefenstette
Susan R. Hill
Stephen A. Keen
Robert K. Kinsey
Robert M. Kowit
Jeff A. Kozemchak

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).

<PAGE>

Richard J. Lazarchic
Steven Lehman
Marian R. Marinack
Keith J. Sabol
Frank Semack
Aash M. Shah
Christopher Smith
Tracy P. Stouffer
Edward J. Tiedge
Paige M. Wilhelm
Jolanta M. Wysocka
Marc Halperin

Assistant Vice Presidents: Nancy J. Belz
Robert E. Cauley
Lee R. Cunningham, II
B. Anthony Delserone, Jr.
Paul S. Drotch
Salvatore A. Esposito
Donna M. Fabiano
John T. Gentry
William R. Jamison
Constantine Kartsonsas
John C. Kerber
Grant K. McKay
Natalie F. Metz
Joseph M. Natoli
John Sheehy
Michael W. Sirianni
Leonardo A. Vila
Lori A. Wolff
Gary Farwell

Secretary: Stephen A. Keen

Treasurer: Thomas R. Donahue

Assistant Secretaries: Thomas R. Donahue
Richard B. Fisher
Christine I. Newcamp

Assistant Treasurer: Richard B. Fisher

The business address of each of the Officers of the investment
adviser is Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, Pennsylvania 15222-3779. These individuals are also
officers of a majority of the investment advisers to the
investment companies in the Federated Fund Complex described in
Part B of this Registration Statement.

<PAGE>

Item 27. Principal Underwriters:

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

Automated Government Money Trust; Cash Trust Series II; Cash Trust Series, Inc.;
CCB Funds; 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 Core Trust; 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.; Fixed Income Securities, Inc.; ; Hibernia Funds;
Independence One Mutual Funds; Intermediate Municipal Trust; International
Series, Inc.; Investment Series Funds, Inc.; 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
Obligations Trust II; Money Market Trust; Municipal Securities Income Trust;
Newpoint Funds; Regions Funds; RIGGS Funds; SouthTrust Funds; Tax-Free
Instruments Trust; The Planters Funds; The Wachovia Funds; The Wachovia
Municipal FundsTrust for Government Cash Reserves; Trust for Short-Term U.S.
Government Securities; Trust for U.S. Treasury Obligations; Vision Group of
Funds, Inc.; World Investment Series, Inc.; Blanchard Funds; Blanchard Precious
Metals Fund, Inc.; DG Investor Series; High Yield Cash Trust; Investment Series
Trust; Star Funds; Targeted Duration Trust; The Virtus Funds; Trust for
Financial Institutions;

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

(b)

<S> <C> ..................... <C>
(1) (2) (3)
Name and Principal Positions and Offices Positions and
Business Address With Distributor Officers With Fund

Richard B. Fisher Director, Chairman, Chief Vice President
Federated Investors Tower Executive Officer, Chief
1001 Liberty Avenue Operating Officer, Asst.
Pittsburgh, PA 15222-3779 Secretary and Asst.
Treasurer, Federated
Securities Corp.

<PAGE>

(1) (2) (3)
Name and Principal Positions and Offices Positions and
Business Address With Distributor Officers With Fund

Edward C. Gonzales Director, Executive Vice Executive Vice
Federated Investors Tower President, President
1001 Liberty Avenue Federated Securities Corp.
Pittsburgh, PA 15222-3779

Thomas R. Donahue Director, Assistant Secretary
Federated Investors Tower and Assistant Treasurer
1001 Liberty Avenue Federated Securities Corp.
Pittsburgh, PA 15222-3779

James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

David M. Taylor Executive Vice President --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Laura M. Deger Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

(1) (2) (3)
Name and Principal Positions and Offices Positions and
Business Address With Distributor Officers With Fund

James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Ernest G. Anderson Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Teresa M. Antoszyk Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

David J. Callahan Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

(1) (2) (3)
Name and Principal Positions and Offices Positions and
Business Address With Distributor Officers With Fund

R. Leonard Corton, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Marc C. Danile Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

William C. Doyle Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

John K. Goettlicher Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Craig S. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Raymond Hanley Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

(1) (2) (3)
Name and Principal Positions and Offices Positions and
Business Address With Distributor Officers With Fund

Bruce E. Hastings Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Beth A. Hetzel Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

James E. Hickey Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Charlene H. Jennings Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

H. Joseph Kennedy Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Michael W. Koenig Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Michael R. Manning Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Alec H. Neilly Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Thomas A. Peters III Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

(1) (2) (3)
Name and Principal Positions and Offices Positions and
Business Address With Distributor Officers With Fund

Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Richard A. Recker Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

John Rogers Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Brian S. Ronayne Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Thomas S. Schinabeck Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Edward L. Smith Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

John A. Staley Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Colin B. Starks Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

(1) (2) (3)
Name and Principal Positions and Offices Positions and
Business Address With Distributor Officers With Fund

William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Miles J. Wallace Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

John F. Wallin Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Edward J. Wojnarowski Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Edward R. Bozek Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Terri E. Bush Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Beth C. Dell Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

David L. Immonen Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Renee L. Martin Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

<PAGE>

(1) (2) (3)
Name and Principal Positions and Offices Positions and
Business Address With Distributor Officers With Fund

Robert M. Rossi Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Matthew S. Hardin Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Leslie K. Ross Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779

</TABLE>

Item 28. Location of Accounts and Records:

All accounts and records required to be maintained by Section
31(a) of the Investment Company Act of 1940 and Rules 31a-1
through 31a-3 promulgated thereunder are maintained at one of
the following locations:

<S> <C>

Registrant Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
(Notices should be sent to the Agent at the above address)

Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000

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

Federated Services Company Federated Investors Tower
("Administrator") 1001 Liberty Avenue
Pittsburgh, PA 15222-3779

Federated Advisers Federated Investors Tower
("Adviser") 1001 Liberty Avenue
Pittsburgh, PA 15222-3779

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

</TABLE>

Item 29. Management Services: Not applicable.

Item 30. 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.

<PAGE>

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, 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
26th day of February, 1999.

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

BY: /s/ Karen M. Brownlee
Karen M. Brownlee, Assistant Secretary
Attorney in Fact for John F. Donahue
February 26, 1999

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/ Karen M. Brownlee Attorney In Fact February 26, 1999
Karen M. Brownlee For the Persons
ASSISTANT SECRETARY Listed Below

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

William D. Dawson, III* Chief Investment Officer

Glen R. Johnson* President

Richard J. Thomas* Treasurer (Principal Financial
and Accounting Officer)

Thomas G. Bigley* Trustee

John T. Conroy, Jr.* Trustee

Nicholas P. Constantakis* Trustee

William J. Copeland* Trustee

John F. Cunningham* Trustee

Lawrence D. Ellis, M.D.* Trustee

Peter E. Madden* Trustee

John E. Murray, Jr. J.D., S.J.D.* Trustee

Marjorie P. Smuts* Trustee

* By Power of Attorney

Exhibit (b)(iii) under Form N-1A
Exhibit 3(ii) under Item 601/Reg.S-K

Federated U.S. Government Securities Fund: 1-3 Years

Amendment #4
to the By-Laws

(effective February 23, 1998)

Delete Sections 1, 2 and 3 of Article I, OFFICERS AND THEIR ELECTION, and
replace with:

Section 1. Officers. The Officers of the Trust shall be a President,
one or more Vice Presidents, a Treasurer, and a Secretary. The Board of
Trustees, in its discretion, may also elect or appoint a Chairman of
the Board of Trustees (who must be a Trustee) and other Officers or
agents, including one or more Assistant Vice Presidents, one or more
Assistant Secretaries, and one or more Assistant Treasurers. A Vice
President, the Secretary or the Treasurer may appoint an Assistant Vice
President, an Assistant Secretary or an Assistant Treasurer,
respectively, to serve until the next election of Officers. Two or more
offices may be held by a single person except the offices of President
and Vice President may not be held by the same person concurrently. It
shall not be necessary for any Trustee or any Officer to be a holder of
shares in any Series or Class of the Trust.

Section 2. Election of Officers. The Officers shall be elected annually
by the Trustees. Each Officer shall hold office for one year and until
the election and qualification of his successor, or until earlier
resignation or removal. The Chairman of the Board of Trustees, if there
is one, shall be elected annually by and from the Trustees, and serve
until a successor is so elected and qualified, or until earlier
resignation or removal.

Section 3. Resignations and Removals and Vacancies. Any Officer of the
Trust may resign at any time by filing a written resignation with the
Board of Trustees (or Chairman of the Trustees, if there is one), with
the President, or with the Secretary. Any such resignation shall take
effect at the time specified therein or, if no time is specified, at
the time of receipt. Unless otherwise specified therein, the acceptance
of such resignation shall not be necessary to make it effective. Any
Officer elected by the Board of Trustees or whose appointment has been
ratified by the Board of Trustees may be removed with or without cause
at any time by a majority vote of all of the Trustees. Any other
employee of the Trust may be removed or dismissed at any time by the
President. Any vacancy in any of the offices, whether by resignation,
removal or otherwise, may be filled for the unexpired portion of the
term by the President. A vacancy in the office of Assistant Vice
President may be filled by a Vice President; in the office of Assistant
Secretary by the Secretary; or in the office of Assistant Treasurer by
the Treasurer. Any appointment to fill any vacancy shall serve subject
to ratification by the Board of Trustees at its next regular meeting.

Exhibit (b)(iv) Under Form N-1A
Exhibit 3(ii) under Item 601/Reg.S-K

Federated U.S. Government Securities Fund: 1-3 Years

Amendment #5
to the By-Laws

(effective February 27, 1998)

Delete Section 5 Proxies of Article IV Shareholders' Meetings, and replace with
the following:

Section 5. Proxies. Any shareholder entitled to vote at any meeting of
shareholders may vote either in person, by telephone, by electronic
means including facsimile, or by proxy, but no proxy which is dated
more than six months before the meeting named therein shall be accepted
unless otherwise provided in the proxy. Every proxy shall be in
writing, subscribed by the shareholder or his duly authorized agent or
be in such other form as may be permitted by law, including documents
conveyed by electronic transmission. Every proxy shall be dated, but
need not be sealed, witnessed or acknowledged. The placing of a
shareholder's name on a proxy or authorizing another to act as the
shareholder's agent, pursuant to telephone or electronically
transmitted instructions obtained in accordance with procedures
reasonably designed to verify that such instructions have been
authorized by such shareholder, shall constitute execution of a proxy
by or on behalf of such shareholder. Where Shares are held of record by
more than one person, any co-owner or co-fiduciary may execute the
proxy or give authority to an agent, unless the Secretary of the Trust
is notified in writing by any co-owner or co-fiduciary that the joinder
of more than one is to be required. All proxies shall be filed with and
verified by the Secretary or an Assistant Secretary of the Trust, or
the person acting as Secretary of the Meeting. Unless otherwise
specifically limited by their term, all proxies shall entitle the
holders thereof to vote at any adjournment of such meeting but shall
not be valid after the final adjournment of such meeting.

Exhibit (b)(v) Under Form N-1A
Exhibit 3(ii) under Item 601/Reg.S-K

Federated U.S. Government Securities Fund: 1-3 Years

Amendment #6
to the By-Laws

(effective May 12, 1998)

Strike Section 3 - Place of Meeting of Article IV - Shareholders' Meetings and
replace it with the following:

Section 3. Place of Meeting. Meetings of the shareholders of the Trust
or a particular Series or Class shall be held at such place within or
without The Commonwealth of Massachusetts as may be fixed from time to
time by resolution of the Trustees.

Strike Section 6 - Place of Meeting of Article V - Trustees' Meetings and
replace it with the following:

Section 6. Place of Meeting. Meetings of the Trustees shall be held at
such place within or without The Commonwealth of Massachusetts as fixed
from time to time by resolution of the Trustees, or as the person or
persons requesting said meeting to be called may designate, but any
meeting may adjourn to any other place.

Exhibit 23(h)(iii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K

AMENDED & RESTATED
AGREEMENT
for
FUND ACCOUNTING SERVICES,
ADMINISTRATIVE SERVICES,
TRANSFER AGENCY SERVICES
and
CUSTODY SERVICES PROCUREMENT

AGREEMENT made as of March 1, 1996, and amended and restated as of
September 1, 1997, 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 U.S. Government Securities Fund: 1-3 Years (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; 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 Two,
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) 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; 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;

(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 faclities and
procedures for safekeeping of check forms and facsimile
signature imprinting devices, if any; and for the
preparation or use, and for keeping account of, such forms
and devices.

The foregoing, along with any additional services that the Company shall
agree in writing to perform for the Investment Company under this Section Three,
shall hereafter be referred to as "Transfer Agency Services."

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. 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.

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

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) Printed documentation from the recordkeeping system
representing outstanding Share certificates of the
Investment Company or the Funds;

(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) Such other certifications, documents or opinions which the
Company may, in its discretion, deem necessary or
appropriate in the proper performance of its duties; and

(6) 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 September 1, 1997, 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 Funds, 5800 Corporate Drive, Pittsburgh, Pennsylvania
15237-7000 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
Name: S. Elliott Cohan
Title: Assistant Secretary

FEDERATED SERVICES COMPANY

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

Exhibit p(ii) 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 Secretaries of Federated U.S. Government
Securities Fund: 1-3 Years 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/ William D. Dawson, III Chief Investment February 4, 1999
- -------------------------------------------------
William D. Dawson, III Officer

Sworn to and subscribed before me this 4th day of February, 1999

/s/ Cheri S. Good
Cheri S. Good

Notary Seal
Cheri S. Good, Notary Public
Pittsburgh, Allegheny County
My Commission Expires Nov. 19, 2001
Member, Pennsylvania Association of Notaries

Exhibit p(iii) under Form N-1A
Exhibit 24 under Item 601/Reg.S-K

POWER OF ATTORNEY

SIGNATURES TITLE DATE

/s/ Richard J. Thomas Chief Investment December 11, 1998
Richard J. Thomas Officer

Sworn to and subscribed before me this 4th day of February, 1999

/s/ Cheri S. Good
Cheri S. Good

Notary Seal
Cheri S. Good, Notary Public
Pittsburgh, Allegheny County
My Commission Expires Nov. 19, 2001
Member, Pennsylvania Association of Notaries

Exhibit p(iv) under Form N-1A
Exhibit 24 under Item 601/Reg.S-K

POWER OF ATTORNEY

SIGNATURES TITLE DATE

/s/ John F. Cunningham Trustee February 4, 1999
- ----------------------
John F. Cunningham

Sworn to and subscribed before me this 4th day of February, 1999

/s/ Cheri S. Good
Cheri S. Good

Notary Seal
Cheri S. Good, Notary Public
Pittsburgh, Allegheny County
My Commission Expires Nov. 19, 2001
Member, Pennsylvania Association of Notaries