SEMI-ANNUAL REPORT
President's Message
Dear Investor:
I am pleased to present the Semi-Annual Report to Shareholders for Federated
U.S. Government Securities Fund: 1-3 Years. The report covers the six-month
reporting period ended August 31, 1999 and includes an investment review by the
fund's portfolio manager, a complete listing of holdings, and the financial
statements.
This mutual fund is designed to pursue current income with limited principal
risk through a portfolio of short-term government securities. At the end of the
reporting period, the portfolio was invested in U.S. Treasury notes and
government agency securities.
During the reporting period, the fund's Institutional Shares produced a total
return of 1.55% through paid income totaling $0.23 per share and a $0.07
decrease in net asset value. 1 Institutional Service Shares produced a total
return of 1.42% through paid income totaling $0.22 per share and a net asset
value decrease of $0.07 per share.1 Net assets totaled $518.4 million on August
31, 1999.
Thank you for participating in the income opportunities of short-term
government securities through Federated U.S. Government Securities
Fund: 1-3 Years. We welcome your comments and questions.
Sincerely,
[Graphic]
Glen R. Johnson
President
October 15, 1999
1 Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
Investment Review
Federated U.S. Government Securities Fund: 1-3 Years invests in
U.S. government securities which include U.S. Treasury and agency
obligations. The fund's dollar weighted average portfolio duration
is managed within 20% of the dollar weighted average portfolio
duration of the Merrill Lynch 1-3 Year Treasury Index. 1 Standard
& Poor's has maintained the fund's "AAAf" credit rating.2
U.S. Treasury yields increased significantly during the fund's semi-annual
reporting period, continuing the trend which began in the fourth quarter of
1998. The 2-year Treasury note yield ended August 1999 at 5.72% compared to
5.14% at the end of February 1999 and the early October 1998 low of 3.85%. While
inflation remained subdued, stronger than expected U.S. economic growth combined
with global economies showing signs of recovery, fueled market fears of higher
inflation. Market expectations shifted dramatically from pricing in further
Federal Reserve Board (the "Fed") easing during the fourth quarter of 1998 to
pricing in a tighter Fed monetary policy. These expectations were realized on
the last day of June when the Federal Funds target rate was increased for the
first time since March 1997 from 4.75% to 5.00%. The Federal Funds target rate
was increased again to 5.25% in late August. Although the Fed is currently in a
"wait and see" mode, another tightening may be warranted if U.S. economic growth
does not slow to a sustainable pace.
Over 10% of the fund's Treasury position was shifted into agency obligations to
take advantage of dramatically wider agency yield spreads versus Treasuries
during the "flight to quality" environment of late summer/early fall 1998.
Agencies outperformed Treasuries during the first half of the fund's reporting
period, but the fund added agencies at attractive spread levels versus
Treasuries during the second half as they underperformed. Similar to 1998,
agency issuance has continued to exceed Treasury note and bond issuance.
While a further rise in interest rates should be limited, a significant decline
in interest rates is not expected until U.S. economic growth slows, absent an
unforeseen financial crisis. The average duration of the fund has remained
within its neutral range and ended the reporting period at 1.6 years. The fund's
Institutional Shares total return for the six months ended August 31, 1999 was
1.55% 3 versus 1.88% for the Merrill Lynch 1-3 Year Treasury Index.
1 The 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.
Investments cannot be made in an index.
2 "AAAf" rated fund portfolio holdings and counterparties provide extremely
strong protection against losses from credit defaults.
3 Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. The fund's Institutional Service Shares total return for the six months
ended August 31, 1999 was 1.42%.
Last Meeting of Shareholders
I. A Special Meeting of shareholders of Federated U.S. Government
Securities Fund: 1-3 Years (the "Fund") was held on June 21, 1999. The
following items were approved by shareholders at this meeting:
AGENDA ITEM 1
Election of Trustees: 1
SHARES VOTED SHARES
AFFIRMATIVELY WITHHELD
Thomas G. Bigley 24,125,289 104,877
Nicholas P. Constantakis 24,147,044 83,122
John F. Cunningham 24,157,713 72,453
J. Christopher Donahue 24,152,876 77,290
Charles F. Mansfield, Jr. 24,164,822 65,344
John E. Murray, Jr., J.D., S.J.D. 24,164,822 65,344
John S. Walsh 24,164,822 65,344
AGENDA ITEM 2
To ratify the selection of Ernst & Young LLP as the Fund's Independent Auditors:
SHARES VOTED SHARES VOTED SHARES
AFFIRMATIVELY NEGATIVELY ABSTAINING
24,124,115 16,698 89,352
II. The June 21, 1999 meeting was adjourned to August 5, 1999, at which time
shareholders approved the following:
AGENDA ITEM 3
To make changes to the Fund's fundamental investment policies:
(a) To approve amending the Fund's fundamental investment policy regarding
borrowing money and issuing senior securities.
SHARES VOTED SHARES VOTED SHARES
AFFIRMATIVELY NEGATIVELY ABSTAINING
26,685,033 5,163,450 229,215
(b) To approve amending the Fund's fundamental investment policy regarding
lending by the Fund.
SHARES VOTED SHARES VOTED SHARES
AFFIRMATIVELY NEGATIVELY ABSTAINING
30,561,102 1,267,191 249,404
(c) To approve amending and making non-
fundamental, the Fund's fundamental investment policy regarding buying
securities on margin.
SHARES VOTED SHARES VOTED SHARES
AFFIRMATIVELY NEGATIVELY ABSTAINING
26,536,688 5,282,640 238,370
(d) To approve amending and making non-
fundamental, the Fund's fundamental investment policy regarding pledging
assets.
SHARES VOTED SHARES VOTED SHARES
AFFIRMATIVELY NEGATIVELY ABSTAINING
30,263,008 1,535,400 279,289
(e) To approve amending and making non-
fundamental, the Fund's fundamental investment policy regarding investing
in U.S. government securities.
SHARES VOTED SHARES VOTED SHARES
AFFIRMATIVELY NEGATIVELY ABSTAINING
26,724,891 4,923,036 429,770
(f) To approve amending and making non-
fundamental, the Fund's fundamental investment policy regarding investing
in repurchase agreements.
SHARES VOTED SHARES VOTED SHARES
AFFIRMATIVELY NEGATIVELY ABSTAINING
26,652,103 5,170,341 255,253
1 The following Trustees of the Fund continued their terms as Trustees of
the Fund: John F. Donahue, John T. Conroy, Peter E. Madden and Marjorie
Smuts.
AGENDA ITEM 4
To approve eliminating certain of the Fund's fundamental investment limitations:
(a) To approve eliminating the Fund's fundamental investment policy regarding
selling securities short.
SHARES VOTED SHARES VOTED SHARES
AFFIRMATIVELY NEGATIVELY ABSTAINING
26,409,259 5,402,972 265,467
(b) To approve eliminating the Fund's fundamental investment policy regarding
portfolio trading.
SHARES VOTED SHARES VOTED SHARES
AFFIRMATIVELY NEGATIVELY ABSTAINING
26,652,092 5,002,036 423,569
5. To approve an amendment and restatement to the Fund's Declaration of Trust to
permit the Board of Trustees to liquidate assets of the Fund without seeking
shareholder approval.
SHARES VOTED SHARES VOTED SHARES
AFFIRMATIVELY NEGATIVELY ABSTAINING
29,475,349 2,194,132 408,216
Portfolio of Investments
AUGUST 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
U.S. TREASURY NOTES-66.6%
$ 36,500,000 4.625%, 11/30/2000 $ 36,065,650
30,000,000 5.625%, 11/30/2000 29,998,500
30,000,000 4.500%, 1/31/2001 29,535,300
30,000,000 5.375%, 2/15/2001 29,879,700
36,000,000 5.250%, 5/31/2001 35,723,160
20,000,000 6.500%, 5/31/2001 20,254,600
16,000,000 6.625%, 7/31/2001 16,253,760
20,000,000 6.500%, 8/31/2001 20,283,600
34,500,000 5.875%, 11/30/2001 34,574,520
30,000,000 6.125%, 12/31/2001 30,213,900
16,000,000 6.250%, 1/31/2002 16,163,200
36,000,000 6.250%, 2/28/2002 36,376,200
10,000,000 6.500%, 5/31/2002 10,169,200
TOTAL U.S. TREASURY NOTES
(IDENTIFIED COST
$348,437,658) 345,491,290
U.S. GOVERNMENT AGENCIES-
24.7%
FEDERAL HOME LOAN BANKS-
24.7%
15,000,000 4.565%, 10/16/2000 14,796,750
19,000,000 5.625%, 2/15/2001 18,858,260
14,000,000 5.125%, 4/17/2001 13,781,740
35,750,000 5.875%, 8/15/2001 35,497,605
4,000,000 4.660%, 10/15/2001 3,878,560
42,500,000 5.125%, 2/26/2002 41,378,425
TOTAL GOVERNMENT AGENCIES
(IDENTIFIED COST
$128,995,631) 128,191,340
REPURCHASE AGREEMENT-8.4% 1
43,295,000 Societe Generale, New
York, 5.430%, dated
8/31/1999, due 9/1/1999
(AT AMORTIZED COST) 43,295,000
TOTAL INVESTMENTS
(IDENTIFIED COST
$520,728,289) 2 $ 516,977,630
</TABLE>
1 The repurchase agreement is fully collateralized by U.S. Treasury and/or
agency obligations based on market prices at the date of the portfolio. The
investment in the repurchase agreement is through participation in a joint
account with other Federated funds.
2 The cost of investments for federal tax purposes amounts to $520,728,289. The
net unrealized depreciation of investments on a federal tax basis amounts to
$3,750,659 which is comprised of $28,654 appreciation and $3,779,313
depreciation at August 31, 1999.
Note: The categories of investments are shown as a percentage of net assets
($518,372,323) at August 31, 1999.
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
AUGUST 31, 1999 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in
securities, at value
(identified and tax cost
$520,728,289) $ 516,977,630
Cash 1,089
Income receivable 4,064,144
Receivable for investments
sold 35,645,313
Receivable for shares sold 34,978
TOTAL ASSETS 556,723,154
LIABILITIES:
Payable for investments
purchased $ 36,193,371
Payable for shares
redeemed 570
Income distribution
payable 2,114,644
Accrued expenses 42,246
TOTAL LIABILITIES 38,350,831
Net assets for 49,971,473
shares outstanding $ 518,372,323
NET ASSETS CONSIST OF:
Paid in capital $ 532,999,131
Net unrealized
depreciation of
investments (3,750,659)
Accumulated net realized
loss on investments (11,082,114)
Undistributed net
investment income 205,965
TOTAL NET ASSETS $ 518,372,323
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PROCEEDS PER SHARE
INSTITUTIONAL SHARES:
$488,347,196 / 47,076,975
shares outstanding $10.37
INSTITUTIONAL SERVICE
SHARES:
$30,025,127 / 2,894,498
shares outstanding $10.37
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
SIX MONTHS ENDED AUGUST 31, 1999 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 13,759,184
EXPENSES:
Investment advisory fee $ 1,102,346
Administrative personnel
and services fee 207,792
Custodian fees 16,384
Transfer and dividend
disbursing agent fees and
expenses 106,594
Directors'/Trustees' fees 8,241
Auditing fees 8,396
Legal fees 2,351
Portfolio accounting fees 59,400
Distribution services fee-
Institutional Service
Shares 62,146
Shareholder services fee-
Institutional Shares 626,820
Shareholder services fee-
Institutional Service
Shares 62,145
Share registration costs 17,540
Printing and postage 14,751
Insurance premiums 1,347
Miscellaneous 7,449
TOTAL EXPENSES 2,303,702
WAIVERS:
Waiver of investment
advisory fee $ (52,859)
Waiver of distribution
services fee-Institutional
Service Shares (59,660)
Waiver of shareholder
services fee-Institutional
Shares (626,820)
Waiver of shareholder
services fee-Institutional
Service Shares (2,486)
TOTAL WAIVERS (741,825)
Net expenses 1,561,877
Net investment income 12,197,307
REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS:
Net realized loss on
investments (4,328,709)
Net change in unrealized
appreciation of
investments 814,681
Net realized and
unrealized gain (loss)
on investments (3,514,028)
Change in net assets
resulting from operations $ 8,683,279
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
(unaudited) ENDED
AUGUST 31, FEBRUARY 28,
1999 1999
<S> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS:
Net investment income $ 12,197,307 $ 30,391,857
Net realized gain (loss) on
investments ($(4,328,709)
and $9,929,322,
respectively, as computed
for federal tax purposes) (4,328,709) 9,929,322
Net change in unrealized
appreciation/(depreciation) 814,681 (7,348,852)
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS 8,683,279 32,972,327
DISTRIBUTIONS TO
SHAREHOLDERS:
Distributions from net
investment income
Institutional Shares (10,967,472) (28,386,588)
Institutional Service
Shares (1,025,056) (2,004,083)
CHANGE IN NET ASSETS
RESULTING FROM
DISTRIBUTIONS
TO SHAREHOLDERS (11,992,528) (30,390,671)
SHARE TRANSACTIONS:
Proceeds from sale of
shares 129,956,752 359,154,546
Net asset value of shares
issued to shareholders in
payment of
distributions declared 4,972,610 17,500,177
Cost of shares redeemed (255,092,221) (368,571,763)
CHANGE IN NET ASSETS
RESULTING FROM SHARE
TRANSACTIONS (120,162,859) 8,082,960
Change in net assets (123,472,108) 10,664,616
NET ASSETS:
Beginning of period 641,844,431 631,179,815
End of period (including
undistributed net
investment income of
$205,965 and $1,186,
respectively) $ 518,372,323 $ 641,844,431
</TABLE>
See Notes which are an integral part of the Financial Statements
Financial Highlights-Institutional Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
AUGUST 31, YEAR ENDED FEBRUARY 28 OR 29,
1999 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $10.44 $10.41 $10.32 $10.38 $10.25 $10.46
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income 0.23 0.50 0.56 0.54 0.61 0.52
Net realized and
unrealized gain (loss) on
investment (0.07) 0.03 0.09 (0.06) 0.13 (0.21)
TOTAL FROM
INVESTMENT OPERATIONS 0.16 0.53 0.65 0.48 0.74 0.31
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.23) (0.50) (0.56) (0.54) (0.61) (0.52)
NET ASSET VALUE,
END OF PERIOD $10.37 $10.44 $10.41 $10.32 $10.38 $10.25
TOTAL RETURN 1 1.55% 5.19% 6.41% 4.78% 7.41% 3.14%
RATIOS TO AVERAGE
NET ASSETS:
Expenses 2 0.81% 3 0.81% 0.80% 0.81% 0.80% 0.56%
Net investment income 2 4.17% 3 4.51% 5.10% 4.99% 5.65% 5.04%
Expenses (after waivers
and reimbursements) 0.54% 3 0.54% 0.54% 0.54% 0.54% 0.54%
Net investment income
(after waivers and
reimbursements) 4.44% 3 4.78% 5.36% 5.26% 5.91% 5.06%
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $488,347 $591,317 $597,549 $701,498 $697,692 $687,037
Portfolio turnover 81% 207% 118% 145% 142% 265%
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 During the period certain fees were voluntarily waived or reimbursed. If such
voluntary waivers and reimbursements had not occurred, the ratios would have
been as indicated.
3 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Financial Highlights-Institutional Service Shares
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
(unaudited)
AUGUST 31, YEAR ENDED FEBRUARY 28 OR 29,
1999 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $10.44 $10.41 $10.32 $10.38 $10.25 $10.46
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income 0.22 0.47 0.53 0.52 0.59 0.50
Net realized and
unrealized gain (loss) on
investments (0.07) 0.03 0.09 (0.06) 0.13 (0.21)
TOTAL FROM
INVESTMENT OPERATIONS 0.15 0.50 0.62 0.46 0.72 0.29
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.22) (0.47) (0.53) (0.52) (0.59) (0.50)
NET ASSET VALUE, END OF
PERIOD $10.37 $10.44 $10.41 $10.32 $10.38 $10.25
TOTAL RETURN 1 1.42% 4.93% 6.15% 4.52% 7.14% 2.88%
RATIOS TO AVERAGE NET
ASSETS:
Expenses 2 1.06% 3 1.06% 1.05% 1.06% 1.05% 1.04%
Net investment income 2 3.93% 3 4.23% 4.85% 4.74% 5.42% 4.51%
Expenses (after waivers
and reimbursements) 0.79% 3 0.79% 0.79% 0.79% 0.79% 0.79%
Net investment income
(after waivers and
reimbursements) 4.20% 3 4.50% 5.11% 5.01% 5.68% 4.76%
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $30,025 $50,527 $33,631 $29,181 $26,432 $29,208
Portfolio turnover 81% 207% 118% 145% 142% 265%
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 During the period certain fees were voluntarily waived or reimbursed. If such
voluntary waivers and reimbursements had not occurred, the ratios would have
been as indicated.
3 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
AUGUST 31, 1999 (UNAUDITED)
ORGANIZATION
Federated U.S. Government Securities Fund: 1-3 Years (the "Trust") is
registered under the Investment Company Act of 1940, as amended (the
"Act"), as a diversified, open-end management investment company. The
Trust offers two classes of shares: Institutional Shares and Institutional
Service Shares. The investment objective of the Trust is to provide current
income.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
U.S. government securities are generally valued at the mean of the latest bid
and asked price as furnished by an independent pricing service. Short- term
securities are valued at the prices provided by an independent pricing service.
However, short-term securities with remaining maturities of 60 days or less at
the time of purchase may be valued at amortized cost, which approximates fair
market value.
REPURCHASE AGREEMENTS
It is the policy of the Trust to require the custodian bank to take possession,
to have legally segregated in the Federal Reserve Book Entry System, or to have
segregated within the custodian bank's vault, all securities held as collateral
under repurchase agreement transactions. Additionally, procedures have been
established by the Trust to monitor, on a daily basis, the market value of each
repurchase agreement's collateral to ensure that the value of collateral at
least equals the repurchase price to be paid under the repurchase agreement
transaction.
The Trust will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Trust's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the "Trustees").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Trust could receive less
than the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex- dividend
date.
FEDERAL TAXES
It is the Trust's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary.
At February 28, 1999, the Trust, for federal tax purposes, had a capital loss
carryforward of $6,731,871, which will reduce the Trust's taxable income arising
from future net realized gain on investments, if any, to the extent permitted by
the Code, and thus will reduce the amount of the distributions to shareholders
which would otherwise be necessary to relieve the Trust of any liability for
federal tax. Pursuant to the Code, such capital loss carryforward will expire in
2003.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Trust may engage in when-issued or delayed delivery transactions. The Trust
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when- issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
AUGUST 31, 1999 FEBRUARY 28, 1999
INSTITUTIONAL SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 11,665,650 $ 121,584,548 31,049,321 $ 325,475,379
Shares issued to
shareholders in payment of
distributions declared 405,097 4,222,810 1,503,698 15,751,832
Shares redeemed (21,608,258) (225,797,220) (33,364,976) (349,913,867)
NET CHANGE RESULTING FROM
INSTITUTIONAL SHARE
TRANSACTIONS (9,537,511) $ (99,989,862) (811,957) $ (8,686,656)
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
AUGUST 31, 1999 FEBRUARY 28, 1999
INSTITUTIONAL SERVICE
SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 803,930 $ 8,372,204 3,218,485 $ 33,679,167
Shares issued to
shareholders in payment of
distributions declared 71,924 749,800 166,786 1,748,345
Shares redeemed (2,819,043) (29,295,001) (1,779,649) (18,657,896)
NET CHANGE RESULTING FROM
INSTITUTIONAL SERVICE
SHARE TRANSACTIONS (1,943,189) $ (20,172,997) 1,605,622 $ 16,769,616
NET CHANGE RESULTING FROM
SHARE TRANSACTIONS (11,480,700) $ (120,162,859) 793,665 $ 8,082,960
</TABLE>
At August 31, 1999, capital paid-in aggregated $532,999,131.
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Investment Management Company, the Trust's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
0.40% of the Trust's average daily net assets. The Adviser may voluntarily
choose to waive any portion of its fee. The Adviser can modify or terminate this
voluntary waiver at any time at its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Trust with administrative personnel and services. The
fee paid to FServ is based on the level of average aggregate daily net assets of
all funds advised by subsidiaries of Federated Investors, Inc. for the period.
The administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
DISTRIBUTION SERVICES FEE
The Trust has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Act. Under the terms of the Plan, the Trust will compensate Federated
Securities Corp. ("FSC"), the principal distributor, from the net assets of the
Trust to finance activities intended to result in the sale of the Trust's
Institutional Service Shares. The Plan provides that the Trust may incur
distribution expenses up to 0.25% of the average daily net assets of the
Institutional Service Shares, annually, to compensate FSC. FSC may voluntarily
choose to waive any portion of its fee. FSC can modify or terminate this
voluntary waiver at any time at its sole discretion.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services Company ("FSSC"), the Trust will pay FSSC up to 0.25% of average daily
net assets of the Trust shares for the period. The fee paid to FSSC is used to
finance certain services for shareholders and to maintain shareholder accounts.
FSSC may voluntarily choose to waive any portion of its fee. FSSC can modify or
terminate this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary FSSC, serves as transfer and dividend disbursing
agent for the Trust. The fee paid to FSSC is based on the size, type, and number
of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Trust's accounting records for which it receives a fee. The
fee is based on the level of the Trust's average daily net assets for the
period, plus out-of-pocket expenses.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended August 31, 1999, were as follows:
Purchases $425,927,923
Sales $579,544,392
YEAR 2000
Similar to other financial organizations, the Trust could be adversely affected
if the computer systems used by the Trust's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Trust's Adviser and administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Trust's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Trust.
Trustees
JOHN F. DONAHUE
THOMAS G. BIGLEY
JOHN T. CONROY, JR.
NICHOLAS P. CONSTANTAKIS
JOHN F. CUNNINGHAM
J. CHRISTOPHER DONAHUE
PETER E. MADDEN
CHARLES F. MANSFIELD, JR.
JOHN E. MURRAY, JR., J.D., S.J.D.
MARJORIE P. SMUTS
JOHN S. WALSH
Officers
JOHN F. DONAHUE
Chairman
GLEN R. JOHNSON
President
J. CHRISTOPHER DONAHUE
Executive Vice President
EDWARD C. GONZALES
Executive Vice President
JOHN W. MCGONIGLE
Executive Vice President and Secretary
RICHARD J. THOMAS
Treasurer
RICHARD B. FISHER
Vice President
C. GRANT ANDERSON
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectuses which contain facts
concerning its objective and policies, management fees, expenses, and other
information.
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Federated
World-Class Investment Manager
SEMI-ANNUAL REPORT
Federated U.S. Government Securities Fund: 1-3 Years
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
AUGUST 31, 1999
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Federated
Federated U.S. Government Securities Fund: 1-3 Years
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Cusip 31428M100
Cusip 31428M209
G01436-01 (10/99)
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